AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 2000
REGISTRATION NO. 333-43606
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
AMTRAN, INC. AMERICAN TRANS AIR, INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
-------------------
INDIANA INDIANA
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
4522 4522
(PRIMARY STANDARD INDUSTRIAL (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) CLASSIFICATION CODE NUMBER)
35-1617970 35-1305077
(I.R.S. EMPLOYER (I.R.S. EMPLOYER
IDENTIFICATION NUMBER) IDENTIFICATION NUMBER)
7337 WEST WASHINGTON STREET 7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231 INDIANAPOLIS, INDIANA 46231
(317) 247-4000 (317) 247-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES) EXECUTIVE OFFICES)
-------------------
MR. KENNETH K. WOLFF
CHIEF FINANCIAL OFFICER
AMERICAN TRANS AIR, INC.
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------
COPY TO:
WILLIAM P. ROGERS, JR., ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1270
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
________________________________________________________________________________
PROSPECTUS
$238,641,000
AMERICAN TRANS AIR, INC.
-------------------
2000-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 2000-1
APPLICABLE UNDERLYING PAYMENTS FULLY AND UNCONDITIONALLY GUARANTEED BY
AMTRAN, INC.
OFFER TO EXCHANGE
$201,901,000 CLASS G PASS THROUGH CERTIFICATES AND
$36,740,000 CLASS C PASS THROUGH CERTIFICATES
FOR
A LIKE AMOUNT OF REGISTERED CLASS G
AND CLASS C PASS THROUGH CERTIFICATES
-------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON OCTOBER 13, 2000, UNLESS EXTENDED
-------------------
This is a registered offer to exchange each class of outstanding
certificates issued by two separate pass through trusts ('Outstanding
Certificates') for new certificates issued by the same pass through trusts (the
'Exchange Certificates') having terms substantially identical in all material
respects to the Outstanding Certificates they are replacing (except that the
Exchange Certificates will not contain terms with respect to transfer
restrictions or certain interest rate increases and the Exchange Certificates
will be available only in book-entry form).
-------------------
PLEASE SEE 'RISK FACTORS' BEGINNING ON PAGE 20 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE
2000-1G.................................. $201,901,000 8.039% January 15, 2016
2000-1C.................................. $ 36,740,000 9.644% January 15, 2006
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 12, 2000.
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information......................... 3
Incorporation of Certain Documents by Reference............. 3
Forward-looking Statements.................................. 4
Summary..................................................... 5
Summary of Terms of the Exchange Offer...................... 6
Summary Description of the Exchange Certificates............ 7
Use of Proceeds............................................. 16
Summary Consolidated Financial and Operating Data........... 17
Risk Factors................................................ 20
Description of the Policy Provider.......................... 32
The Exchange Offer.......................................... 34
Capitalization.............................................. 42
Selected Consolidated Financial Data........................ 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 46
Business.................................................... 78
Description of Principal Indebtedness....................... 86
Description of the Certificates............................. 88
Description of the Deposit Agreements....................... 104
Description of the Escrow Agreements........................ 107
Description of the Liquidity Facilities..................... 107
Description of the Policy and the Policy Provider
Agreement................................................. 111
Description of the Intercreditor Agreement.................. 114
Description of the Aircraft and the Appraisals.............. 120
Description of the Secured Promissory Notes................. 121
Exchange Offer; Registration Rights......................... 138
Book-Entry; Delivery and Form............................... 140
U.S. Federal Income Tax Consequences........................ 141
Delaware Taxes.............................................. 145
ERISA Considerations........................................ 145
Plan of Distribution........................................ 148
Legal Matters............................................... 149
Experts..................................................... 149
Index to Consolidated Financial Statements.................. F-1
APPENDIX AI -- Glossary
APPENDIX AII -- Appraisals
APPENDIX AIII -- Secured Promissory Notes Principal Payment
Schedule
2
WHERE YOU CAN FIND MORE INFORMATION
American Trans Air, Inc., or ATA, is a wholly owned subsidiary of Amtran,
Inc. ('Amtran'). Amtran is subject to the informational requirements of the
Securities Exchange Act of 1934 and, therefore, must file periodic reports,
proxy statements and other information with the Commission. In addition, Amtran
has agreed to file with the Commission the annual reports and the information,
documents and other reports otherwise required by Section 13 of the Exchange
Act. All such information is available to the public over the Internet at the
SEC's web site at http://www.sec.gov and may be inspected and copied at the
public reference facilities:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
Copies of these documents can also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549.
This prospectus constitutes a part of a registration statement on Form S-4
filed by ATA with the Commission under the Securities Act. As permitted by the
rules and regulations of the Commission, this prospectus does not contain all of
the information contained in the registration statement and the exhibits and
schedules thereto. Reference is hereby made to the registration statement and
its exhibits and schedules for further information with respect to ATA and the
securities offered through this exchange offer. Statements contained in this
prospectus concerning the provisions of any documents filed as an exhibit to the
registration statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
AMBAC ASSURANCE CORPORATION DOCUMENTS
Ambac Assurance Corporation ('Ambac' or the 'Policy Provider') has issued a
certificate guarantee insurance policy to support the payment of interest on the
class G certificates. See 'Description of the Policy Provider.' We incorporate
by reference into this prospectus the consolidated financial statements of Ambac
Assurance Corporation and its subsidiaries as of December 31, 1999 and
December 31, 1998 and for each of the years in the three-year period ended
December 31, 1999 included in the Annual Report on Form 10-K of Ambac Financial
Group, Inc. (which was filed with the SEC on March 30, 2000; SEC File Number
1-10777), and the unaudited consolidated financial statements of Ambac and its
subsidiaries as of June 30, 2000 and June 30, 1999, included in the Quarterly
Report on Form 10-Q of Ambac Financial Group, Inc. for the period ended
June 30, 2000 (which was filed with the SEC on August 11, 2000). Any statement
contained in a document incorporated herein by reference shall be modified or
superseded for the purposes of the prospectus to the extent that a statement
contained herein by reference herein also modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
All financial statements of Ambac and its subsidiaries included in documents
filed by Ambac Financial Group, Inc. with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this prospectus and prior to the date on which the
exchange offer made hereby is consummated shall be deemed to be incorporated by
reference into this prospectus and to be a part hereof from the respective dates
of filing such financial statements. Copies of the Ambac Financial Group, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and
Form 10-Q for the period ended June 30, 2000 are available, without charge, from
Ambac. The address of Ambac's administrative offices and its telephone number
are One State Street Plaza, New York, New York 10004 and (212) 668-0340.
3
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identifiable by their use of terms and
phrases such as 'anticipate,' 'believe,' 'could,' 'estimate,' 'expect,'
'intend,' 'may,' 'plan,' 'predict,' 'project,' 'will' and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled 'Summary,' 'Risk Factors' and other sections of this
prospectus and in the documents incorporated by reference in this prospectus.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following:
economic conditions;
labor costs;
aviation fuel costs;
competitive pressures on pricing;
weather conditions;
governmental legislation;
consumer perceptions of our products;
demand for air transportation in the markets in which we operate;
other operational matters discussed in this prospectus; and
other risks and uncertainties listed from time to time in reports we
periodically file with the SEC.
We do not undertake to update our forward-looking statements to reflect
future events or circumstances.
- -------------------
Amtran and ATA are Indiana corporations. Their executive offices are located
at 7337 West Washington Street, Indianapolis, Indiana 46231, and the telephone
number is (317) 247-4000. Amtran's common stock is traded through the facilities
of the Nasdaq Stock Market under the symbol 'AMTR.'
4
SUMMARY
This summary highlights selected information from this prospectus, but does
not contain all the information that may be important to you. We encourage you
to read this entire prospectus, including the 'Risk Factors' section, and the
documents we incorporate by reference, in their entirety before making an
investment decision.
'Amtran' refers to Amtran, Inc.; 'ATA' refers to American Trans Air, Inc.;
and 'we' or the 'company' refers to Amtran, Inc. and its subsidiaries, including
ATA.
AMTRAN
Amtran owns ATA, the eleventh largest passenger airline in the United States
(based on 1999 revenues) and a leading provider of airline services in selected
market segments. We are also the largest commercial passenger charter airline in
the United States and the largest charter provider of passenger airline services
to the U.S. military, in each case based on revenues. For the year ended
December 31, 1999, our revenues consisted of 55.7% scheduled service, 23.5%
commercial charter service and 11.2% military charter service, with the balance
derived from related travel services.
We actively consider and enter into discussions regarding possible business
combinations with air carriers and others, and plan to continue to do so. See
'Risk Factors.'
SCHEDULED SERVICE
We provide scheduled service through ATA to selected destinations primarily
from its gateways at Chicago-Midway and Indianapolis and also provide
transpacific services between the western United States and Hawaii. In 1999, we
added scheduled service between Chicago-Midway and Philadelphia. We focus on
routes where we believe we can be a leading provider of nonstop service and
target leisure and value-oriented business travelers.
COMMERCIAL CHARTER SERVICE
We are the largest commercial passenger charter airline in the United States
and provide services throughout the world, primarily to U.S. and European tour
operators. We seek to maximize the profitability of these operations by
leveraging our leading market position, diverse aircraft fleet and worldwide
operating capability. We believe our commercial charter services are a
predictable source of revenues and operating profits in part because our
commercial charter contracts require tour operators to assume capacity, yield
and fuel price risk, and also because of our ability to re-deploy assets into
favorable markets. Our commercial charter services are marketed through a
network of domestic sales offices along with a London office.
MILITARY/GOVERNMENT CHARTER SERVICE
We have provided passenger airline services to the U.S. military since 1983
and are currently the largest commercial airline provider of these services. We
believe that because these operations are generally less seasonal than leisure
travel, they have tended to have a stabilizing impact on our 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. We believe that our fleet of aircraft is well suited to the
needs of the military.
RECENT DEVELOPMENTS
In May 2000, we entered into preliminary agreements to obtain 37 Boeing
737-800 aircraft and 10 Boeing 757-300 aircraft, along with the engines to power
these aircraft. In June 2000, we formalized an agreement to acquire the 10
Boeing 757-300s and 20 of the Boeing 737-800s. We expect to finalize the
agreement with respect to the remaining aircraft and engines in the third
quarter 2000.
5
Also in the second quarter of 2000, we added scheduled service between
Chicago-Midway and Ronald Reagan Washington National Airport, Boston and
Seattle. We added scheduled service to Minneapolis/St. Paul early in the third
quarter of 2000.
SUMMARY OF TERMS OF THE EXCHANGE OFFER
In the exchange offer we will accept for exchange up to $201,901,000
class G Outstanding Certificates and up to $36,740,000 class C Outstanding
Certificates for an equal aggregate principal amount of Exchange Certificates.
The form and terms of the Exchange Certificates are substantially the same as
the form of the Outstanding Certificates except that the Exchange Certificates
have been registered under the Securities Act.
Background................................... On February 15, 2000, we completed an offering of two
classes of pass through certificates issued by two
separate pass through trusts. In connection with that
offering, we entered into a registration rights
agreement in which we agreed, among other things, to
deliver this prospectus to you and to complete an
exchange offer.
Securities Offered........................... Up to $201,901,000 class G certificates and up to
$36,740,000 class C certificates, which have been
registered under the Securities Act. The terms of the
Exchange Certificates are substantially the same as the
terms of the Outstanding Certificates except for certain
transfer restrictions and registration rights relating
to the Outstanding Certificates. See 'Description of the
Certificates -- Exchange Offer; Registration Rights.'
The Exchange Offer........................... We are offering to accept for exchange your unregistered
Outstanding Certificates for our new Exchange
Certificates that have been registered under the
Securities Act of 1933. As of the date hereof,
$238,641,000 in aggregate principal amount of
Outstanding Certificates are outstanding. On or promptly
after the expiration date we will issue the Exchange
Certificates to those of you who hold Outstanding
Certificates and wish to tender them. The issuance of
the Exchange Certificates is intended to satisfy our
obligation contained in the registration rights
agreement. For procedures on tendering, see 'The
Exchange Offer' and 'Description of the
Certificates -- Exchange Offer; Registration Rights.'
Expiration of the Exchange Offer............. 5:00 p.m., New York City time, on October 13, 2000,
unless we extend it. See 'The Exchange Offer -- Terms of
the Exchange Offer, Period for Tendering Outstanding
Certificates.'
Tenders; Withdrawal.......................... You may withdraw your tender of Outstanding Certificates
at any time before the offer expires. If for any reason
any Outstanding Certificates are not accepted for
exchange, they will be returned as soon as practicable
after the expiration or termination of the exchange
offer.
Conditions to the Exchange Offer............. The exchange offer is subject to the condition that it
does not violate applicable law or any applicable
interpretation of the staff of the Commission. There is
no guarantee that any such condition will not occur. You
will have certain rights against us under the
registration rights agreement if we fail to consummate
the exchange offer.
Federal Income Tax Considerations............ Pursuant to the exchange offer, the exchange of an
Outstanding Certificate for an Exchange Certificate will
not constitute a taxable exchange. See 'U.S. Federal
Income Tax Consequences.'
6
Exchange Agent............................... Wilmington Trust Company is serving as the Exchange Agent
in connection with the exchange offer.
Consequences If You Do Not Exchange Your
Outstanding Certificates................... Outstanding Certificates that are not tendered in the
exchange offer or are not accepted for exchange will
continue to accrue interest, but will not retain any
rights under the registration rights agreement and will
bear legends restricting their transfer. You will not be
able to offer or sell the Outstanding Certificates
unless:
pursuant to an exemption from the requirements of the
Securities Act of 1933;
the Outstanding Certificates are registered under the
Securities Act of 1933; or
the transaction requires neither such an exemption nor
registration.
We do not currently anticipate that we will register
Outstanding Certificates under the Securities Act. See
'Risk Factors -- Consequences of Failure to Exchange and
Requirements for Transfer of Exchange Certificates.'
SUMMARY DESCRIPTION OF THE EXCHANGE CERTIFICATES
Certificates Offered......................... Up to $201,901,000 class G Exchange Certificates that have
been registered under the Securities Act.
Up to $36,740,000 class C Exchange Certificates that
have been registered under the Securities Act.
Amtran Guarantee............................. The payments by ATA under each lease and owned aircraft
indenture will be unconditionally guaranteed by Amtran.
See 'Description of the Secured Promissory Notes -- The
Amtran Guarantee.'
Use of Proceeds.............................. There will be no proceeds from the Exchange Certificates.
The proceeds from the sale of the original certificates
will ultimately be used to purchase secured promissory
notes issued to finance seven Boeing aircraft to be
operated by ATA.
Subordination Agent, Pass Through Trustee,
Paying Agent and Loan Trustee.............. Wilmington Trust Company.
Escrow Agent................................. First Security Bank, National Association.
Depositary................................... Citibank, N.A.
Initial Liquidity Provider................... Citibank, N.A.
Policy Provider.............................. Ambac Assurance Corporation.
Trust Property............................... The property of each pass through trust will include:
secured promissory notes;
rights of the pass through trust to acquire secured
promissory notes under a note purchase agreement;
rights of the pass through trust under the related
escrow and paying agent agreement;
rights of the pass through trust under the intercreditor
agreement described below under ' -- Intercreditor
Agreement',
all rights under the liquidity facility for the pass
through trust;
funds from time to time deposited with the pass through
trustee in accounts relating to that pass through trust;
and
7
in the case of the pass through trust for the class G
certificates, all rights under the insurance policy.
Certificates; Denominations.................. The Exchange Certificates of each trust will be issued in
a minimum denomination of $1,000 and in integral multiples
of $1,000 in excess thereof, except that one Exchange
Certificate of each trust may be issued in a
denomination of less than $1,000.
Regular Distribution Dates................... January 15, April 15, July 15 and October 15, commencing
on April 15, 2000.
Record Dates................................. The fifteenth day preceding the related distribution date.
Distributions by Pass Through
Trustees................................... Each pass through trustee will distribute all payments of
principal, premium, if any, and interest received on the
secured promissory notes held in that pass through trust
to the holders of Exchange Certificates issued by that
pass through trust.
Each pass through trustee will distribute all scheduled
payments of principal and interest made on the secured
promissory notes on regular distribution dates.
Each pass through trustee will distribute all payments of
principal, premium, if any, and interest made on the
secured promissory notes resulting from any early
redemption or purchase of those secured promissory notes
on a special distribution date. Each pass through
trustee will also distribute any premium that we pay in
connection with the return of any unused deposit. Such
distribution of premium will be on a special
distribution date. Each pass through trustee will
provide Exchange Certificateholders with at least
20 days' notice prior to any special distribution.
Distributions by a pass through trustee to Exchange
Certificateholders generally are subject to the
intercreditor and subordination provisions described
below.
Distribution by the Paying Agent............. The paying agent will distribute all payments of interest
on the deposits, and any unused deposits relating to each
pass through trust, to the holders of Exchange
Certificates issued by that pass through trust.
Possible Issuance of Class D Certificates.... Subject to certain conditions, ATA may elect to issue
series D secured promissory notes in connection with the
financing of owned aircraft, but series D secured
promissory notes will not be purchased by the class G or
class C pass through trusts and will be funded from
sources other than the initial offering. ATA may elect
to fund the sale of the series D secured promissory
notes through the sale of pass through certificates
issued by a class D American Trans Air, Inc. 2000-1 Pass
Through Trust.
Intercreditor Agreement...................... The pass through trustees, the subordination agent, the
liquidity provider and the policy provider will enter
into an intercreditor agreement that states how payments
made on the secured promissory notes and payments made
under the liquidity facilities and under the insurance
policy will be shared and distributed among pass through
trustees, the liquidity provider and the policy
provider. The intercreditor agreement also sets forth
agreements among the pass through trustees, the
liquidity provider and the policy provider relating to
who will control the exercise of remedies under the
secured promissory notes and the indentures.
8
There are no cross-default provisions in the indentures or
in the leases unless otherwise agreed to between an
owner participant and ATA. This means that if the
secured promissory notes relating to an aircraft are in
default, and the secured promissory notes issued with
respect to the remaining aircraft are not in default, no
remedies will be exercisable with respect to the
remaining aircraft.
Subordination................................ By virtue of the intercreditor agreement, the secured
promissory notes are cross-subordinated. This means that
payments received on a junior class of secured
promissory notes relating to one aircraft may be applied
according to the priority of payment provisions in the
intercreditor agreement to make payments relating to a
more senior class of certificates. Under the
intercreditor agreement, distributions on the Exchange
Certificates will be made in the following order:
first, to the holders of the class G Exchange
Certificates;
second, to the holders of the class C Exchange
Certificates; and
third, if class D certificates have been issued, to the
holders of the class D certificates.
Certain payments to the liquidity provider and to the
policy provider will be made prior to payments on all or
some of the Exchange Certificates, as discussed under
'Description of the Intercreditor Agreement -- Priority
of Distributions.'
The subordination provisions may permit distributions to
junior Exchange Certificateholders after a default on
the secured promissory notes even if more senior
Exchange Certificateholders have not been repaid in
full. The subordination provisions do not apply to
payments relating to the deposits, proceeds of advances
under the liquidity facilities or proceeds of drawings
under the insurance policy for the class G Exchange
Certificates.
Control of Loan Trustee...................... The controlling party with respect to an indenture will,
subject to certain limited exceptions discussed below, be
entitled to direct the loan trustee in taking remedial
action under that indenture, which may include
accelerating the secured promissory notes under that
indenture or foreclosing the lien on the aircraft
securing those secured promissory notes. In exercising
remedies during the nine months after the earlier of
(a) the acceleration of the secured promissory notes
issued under any indenture and (b) our bankruptcy, the
controlling party may not sell the secured promissory
notes or the aircraft subject to the lien of that
indenture for less than certain specified minimums or
modify lease rental payments for that aircraft below a
specified threshold.
The controlling party will be:
the policy provider, until final distributions of the
outstanding balance of the class G Exchange
Certificates, together with accrued and unpaid interest,
are made to the holders of the class G Exchange
Certificates and thereafter, if, and while, no
obligations owing to the policy provider remain
outstanding or, if a policy provider default has
occurred and is continuing, the class G pass through
trustee, until payment of final distributions together
with accrued interest to the holders of the class G
Exchange Certificates; then the class C pass through
trustee; and
if any class D certificates have been issued, upon final
distribution of the aggregate outstanding balance of the
9
class C Exchange Certificates, together with accrued and
unpaid interest, to the holders of class C Exchange
Certificates, the class D pass through trustee.
Under certain circumstances, the liquidity provider with
the greater amount owed to it may elect to act as the
controlling party, unless the policy provider amends its
insurance policy to cover all outstanding drawings and
accrued interest on such drawings under the liquidity
facility and certain other conditions are met or the
policy provider pays to the liquidity provider all
outstanding drawings and accrued interest on such
drawings under the liquidity facility, in which case the
policy provider will be the controlling party (so long
as no policy provider default has occurred and is
continuing). See 'Description of the Intercreditor
Agreement -- Intercreditor Rights' and 'Description of
the Intercreditor Agreement -- Voting of Secured
Promissory Notes.'
Right to Buy Other Classes of Certificates... If ATA is in bankruptcy or another triggering event has
occurred, the Exchange Certificateholders may have the
right to buy the more senior classes of Exchange
Certificates. See 'Description of the Exchange
Certificates -- Purchase Rights of Exchange
Certificateholders.' This right to buy is based on the
following:
the class C Exchange Certificateholders will have the
right to purchase all the class G Exchange Certificates;
if any class D certificates are issued, the class D
certificateholders will have the right to purchase all
the class G and class C Exchange Certificates;
whether or not such rights are exercised by the class C
(or class D) Exchange Certificateholders, the policy
provider will have the right to purchase all, but not
less than all, of the class G Exchange Certificates.
The purchase price will be the outstanding balance of the
applicable classes of Exchange Certificates plus accrued
and unpaid interest, plus any other amounts then due to
the Exchange Certificateholders of those classes.
Liquidity Facilities......................... Under the liquidity facility for each pass through trust
(other than the class D trust, if any), the liquidity
provider will, if necessary, make advances in an
aggregate amount sufficient to pay interest on up to six
successive quarterly regular distribution dates at the
applicable interest rate for the Exchange Certificates
of that pass through trust. The liquidity facilities may
not be used to pay any other amount relating to the
Exchange Certificates and will not cover interest on
deposits held with the depositary. The holders of the
Exchange Certificates to be issued by each pass through
trust will be entitled to receive and keep the proceeds
of advances under the liquidity facility for that pass
through trust. This is because the subordination
provisions will not apply to the proceeds of advances
under the liquidity facilities.
Upon receipt of each advance under any liquidity facility,
the subordination agent will, to the extent of available
funds, reimburse the liquidity provider for the amount
of that advance. That reimbursement obligation and all
interest, fees and other amounts owing to the liquidity
provider will rank senior to all classes of Exchange
Certificates in right of payment.
10
Insurance Policy Coverage.................... Under the insurance policy, the policy provider agrees to
honor drawings to cover:
any shortfall on any regular distribution date (other
than the final maturity date -- see below) in interest
on the class G Exchange Certificates at the stated
interest rate for the class G Exchange Certificates;
any shortfall on any special distribution date between
the disposition proceeds with respect to any series G
secured promissory note to be distributed on that
special distribution date, if any, and the outstanding
principal amount of such secured promissory note plus
accrued interest on that outstanding principal amount at
the stated interest rate for the class G Exchange
Certificates from the prior regular distribution date to
such special distribution date;
if no disposition proceeds with respect to a series G
secured promissory note are received within 24 months
from the last date on which any scheduled or special
payment was made on such series G secured promissory
note as to which there has subsequently been a failure
to pay principal or that has subsequently been
accelerated, an amount equal to the then outstanding
principal amount of such note plus accrued interest on
that amount at the stated interest rate for the class G
Exchange Certificates from the prior regular
distribution date to the special distribution date
established to make such payment; and
any shortfall on the final maturity date in the final
distribution (other than any unpaid premium) on the
class G Exchange Certificates.
The policy provider has the right at the end of the
24-month period referred to above, so long as no policy
provider default has occurred and is continuing, to
elect instead:
to pay on the special distribution date an amount equal
to any shortfall in the scheduled principal (without
regard to the acceleration of the secured promissory
note) and interest at the stated interest rate that came
due on that secured promissory note during the 24-month
period (after giving effect to the application of funds
received from the class G liquidity facility and the
class G cash collateral account and any separate policy
drawings attributable to that interest);
after the 24-month period, on each regular distribution
date to permit drawings under the insurance policy for
an amount equal to the scheduled principal (without
regard to any acceleration of the secured promissory
note) and interest at the stated interest rate that were
to become due on that secured promissory note on the
related payment date until paid in full, and
on any business day that is a special distribution date
elected by the policy provider upon 20 days' notice, to
request, or following either the occurrence and
continuation of a policy provider default or the sale or
other disposition of that secured promissory note or its
underlying collateral, on any business day that is a
special distribution date specified by the subordination
agent upon 20 days' notice, to permit, in each case, the
subordination agent to make a policy drawing for an
amount equal to the then outstanding principal balance
of that secured promissory note and accrued interest on
that secured promissory note at the stated interest rate
to that
11
special distribution date, after giving effect to any
policy drawings previously paid by the policy provider
in respect of principal on the secured promissory note,
and any drawings paid on the special distribution date
under the class G liquidity facility or withdrawals made
on the special distribution date from the class G cash
collateral account attributable to that secured
promissory note.
In addition, regardless of whether the policy provider
makes the election, the policy provider will honor
drawings by the liquidity provider to cover the payment
to the liquidity provider of interest accruing on the
liquidity obligations for the class G and class C
liquidity facilities from and after the end of the
24-month period as and when the interest becomes due in
accordance with the liquidity facilities.
Any shortfall to the holders of the class G Exchange
Certificates will be calculated after the application of
available funds through the payment priorities of the
intercreditor agreement and of funds received from the
escrow agent, the class G liquidity facility and the
class G cash collateral account. The insurance policy
will cover only the class G Exchange Certificates, and
the proceeds of any policy drawing, except as noted
above, will be applied only to the outstanding balance
of, and interest on, the class G Exchange Certificates.
The subordination agent will reimburse the policy
provider for any policy drawings. That reimbursement
obligation ranks junior to further distributions on the
class G Exchange Certificates but (except in certain
limited circumstances) senior to distributions on the
class C Exchange Certificates.
Escrowed Funds............................... Funds paid to the escrow agent by a class of Exchange
Certificateholders will be deposited with the depositary
and held as deposits under a separate deposit agreement
for the pass through trust that issued that class of
certificates. Funds may be withdrawn by the escrow agent
at the direction of the pass through trustee for that
class of Exchange Certificates to purchase secured
promissory notes prior to the delivery period
termination date. On each regular distribution date, the
depositary will pay to the paying agent interest accrued
on the deposits relating to that pass through trust at a
rate equal to the interest rate applicable to the
Exchange Certificates issued by that pass through trust.
The paying agent, on behalf of the escrow agent, will
pay that interest to that class of Exchange
Certificateholders. The deposits relating to a pass
through trust and interest paid on the deposits will not
be subject to the subordination provisions. Except as
noted in the next paragraph, the deposits cannot be used
to pay any other amount relating to the Exchange
Certificates.
Unused Escrowed Funds........................ We may not use all the deposits held in escrow prior to
the delivery period termination date. This may happen
because of delays in the delivery of aircraft or other
reasons. If any funds remain as deposits with respect to
any pass through trust after the delivery period
termination date, they will be withdrawn by the escrow
agent for that pass through trust and distributed, with
accrued and unpaid interest, to the holders of escrow
receipts relating to the respective pass through trust.
The holders of escrow receipts will receive at least
15 days' prior written notice of this distribution. This
distribution will also include a premium payable by ATA,
provided that no premium will be paid on unused deposits
attributable to the failure of an aircraft to be
delivered prior to the delivery period termination date
for any reason
12
that was not ATA's fault or was not caused by ATA's
negligence or where unused deposits are less than $5.0
million. Any premium paid on unused deposits will not be
subject to the subordination provisions. See
'Description of the Deposit Agreements -- Unused
Deposits.'
Obligation to Purchase Secured Promissory
Notes...................................... Under the note purchase agreement, the class G and
class C pass through trustees will be obligated to
purchase the series G and series C secured promissory
notes, respectively, issued for each aircraft.
In the case of a leased aircraft, the terms of the
financing agreements entered into may differ from the
forms of those agreements described in this prospectus
because ATA, Amtran or the owner participant may request
changes. However, under the note purchase agreement, the
terms of those financing agreements must (a) contain
mandatory document terms that are included in the note
purchase agreement with only those modifications as are
permitted by the note purchase agreement and (b) not
vary mandatory economic terms that are included in the
note purchase agreement. In addition, ATA must
(a) certify to the pass through trustees that any
modifications to the forms of the financing agreements
do not materially and adversely affect the Exchange
Certificateholders, or adversely affect the policy
provider and (b) obtain written confirmation from each
rating agency that the use of versions of agreements
modified in any material respect will not result in a
withdrawal, suspension or downgrading of the rating of
any class of Exchange Certificates, without regard to
the insurance policy. The pass through trustees will not
be obligated to purchase secured promissory notes if, at
the time of issuance, ATA is in bankruptcy or certain
other specified events have occurred. The pass through
trustees will also have no right or obligation to
purchase the secured promissory notes after the delivery
period termination date.
Secured Promissory Notes
(a) Issuer................................. Leased Aircraft. Promissory notes secured by aircraft
leased by ATA will be issued by an owner trustee. These
secured promissory notes will not be recourse to the
owner trustee in its individual capacity. ATA has an
obligation to provide funds under the related lease and
related documents in amounts sufficient to pay scheduled
payments on those secured promissory notes.
Owned Aircraft. ATA will be the issuer of promissory notes
secured by aircraft that ATA owns.
(b) Interest............................... The secured promissory notes held in each pass through
trust will accrue interest at the annual rate for the
Exchange Certificates issued by that pass through trust
shown on the cover page of this offering prospectus.
Interest on all secured promissory notes will be payable
on January 15, April 15, July 15 and October 15 of each
year, commencing on April 15, 2000. Interest is
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
(c) Principal.............................. Principal payments on the series G and series C secured
promissory notes held in each related trust are
scheduled to begin on January 15, 2001.
(d) Redemption and Purchase................ Aircraft Event of Loss. If an aircraft under the related
financing agreements is lost, destroyed or damaged
beyond repair or other events of loss occur with respect
to an aircraft, all the secured promissory notes issued
for that
13
aircraft will be redeemed, unless ATA replaces the
aircraft under the related financing agreements. This
redemption price will be the unpaid principal amount of
those secured promissory notes, together with accrued
interest, but without any premium.
Optional Redemption. The issuer of the secured promissory
notes for an aircraft may elect to redeem the notes
prior to maturity. This redemption price will be the
unpaid principal amount of those secured promissory
notes, together with accrued interest plus a premium.
See 'Description of the Secured Promissory
Notes -- Redemption.'
Purchase by Owner. If an event of default under a lease
between ATA and an owner trustee occurs and is
continuing, the applicable owner trustee or owner
participant of an aircraft may elect to purchase all the
secured promissory notes with respect to that aircraft,
subject to the terms of the relevant leased aircraft
indenture. The purchase price will be the unpaid
principal amount of those secured promissory notes,
together with accrued interest, but without any premium
except under certain circumstances specified in the
relevant leased aircraft indenture. In the case of an
owned aircraft, ATA will have no comparable right to
purchase the secured promissory notes.
(e) Security............................... The secured promissory notes issued for each aircraft will
be secured by a security interest in that aircraft and, in
the case of each leased aircraft, in the related owner
trustee's rights under the lease for that aircraft,
subject to limited exceptions. The secured promissory
notes are not cross-collateralized. This means that the
secured promissory notes issued for an aircraft will not
be secured by any other aircraft or lease. Any proceeds
from the sale of an aircraft or from the exercise of
other default remedies for an aircraft will not be
available to cover shortfalls with respect to any other
aircraft. The secured promissory notes are
cross-subordinated under the intercreditor agreement.
This means that payments received on a junior class of
secured promissory notes issued for one aircraft may be
applied to make payments relating to a more senior class
of Exchange Certificates. There are no cross-default
provisions in the indentures or in the leases unless
otherwise agreed to between an owner participant and
ATA. This means that if the secured promissory notes
issued for one aircraft are in default and the secured
promissory notes issued for the remaining aircraft are
not in default, no remedies will be exercisable with
respect to the remaining aircraft. Although the secured
promissory notes issued in respect of the leased
aircraft are not obligations of, or guaranteed by, ATA
or Amtran, the amounts payable by ATA (and guaranteed by
Amtran) under the lease will be sufficient to pay when
due all amounts payable on the secured promissory notes.
The secured promissory notes issued in respect of the
owned aircraft will be direct obligations of ATA, and
will be unconditionally guaranteed by Amtran.
(f) Section 1110 Protection................ Our outside counsel will provide its opinion to the pass
through trustees and the policy provider that the loan
trustee will be entitled to the benefits of Section 1110
of the U.S. Bankruptcy Code with respect to the relevant
aircraft. See 'Description of the Secured Promissory
Notes -- Remedies.'
14
U.S. Income Tax Matters...................... The arrangement represented by the pass through trusts
will be classified as one or more grantor trusts (or as a
partnership) for U.S. federal income tax purposes. The
pass through trusts will take the position that they
will be treated as one or more grantor trusts. Under
this approach, each U.S. person acquiring an interest in
the Exchange Certificates will be treated as the owner
of a pro rata undivided interest in the assets of the
pass through trust allocable to such Exchange
Certificates and will be required to report on its
federal income tax return its pro rata share of the
entire income from the relevant deposits and its pro
rata share of the entire income from the secured
promissory notes and other property held by the relevant
pass through trust. See 'U.S. Federal Income Tax
Consequences.'
ERISA Considerations......................... In general, employee benefit plans subject to Title I of
ERISA or Section 4975 of the U.S. tax code, or entities
that may be deemed to hold the assets of those plans,
will be eligible to purchase the Exchange Certificates,
subject to the conditions and circumstances that apply
to those plans. Each person who acquires an Exchange
Certificate will be deemed to have represented and
warranted that either: (a) no employee benefit plan
assets have been used to purchase that certificate or
(b) the purchase and holding of that Exchange
Certificate are exempt from the prohibited transaction
restrictions of ERISA and Section 4975 of the U.S. tax
code pursuant to one or more prohibited transaction
statutory or administrative exemptions. See 'ERISA
Considerations.'
Exchange Offer; Registration Rights.......... Pursuant to a registration rights agreement between ATA
and each pass through trustee and the initial purchasers
of the Outstanding Certificates, we are obligated to:
file with the SEC a registration statement with respect
to an offer to exchange the Outstanding Certificates for
Exchange Certificates of the pass through trusts having
substantially identical terms as the Outstanding
Certificates (except that the Exchange Certificates will
not have transfer restrictions) within 90 days after the
date of the original issuance of the Outstanding
Certificates; and
use our reasonable best efforts to cause such
registration statement to become effective under the
Securities Act of 1933 within 180 days after the date of
the issuance of the Outstanding Certificates.
Under certain circumstances, we have also agreed to file a
shelf registration statement with respect to the resale
of the Outstanding Certificates and use our reasonable
best efforts to keep such shelf registration statement
effective until two years after the date of issuance of
the Outstanding Certificates.
The interest rate on the secured promissory notes is
subject to increase under certain circumstances if we do
not comply with our obligations under the registration
rights agreement. Upon the completion of the exchange
offer, we will have no further obligations to register
the Outstanding Certificates or the Exchange
Certificates. See 'Exchange Offer; Registration Rights.'
15
USE OF PROCEEDS
There will be no proceeds from the Exchange Certificates. The proceeds from
the sale of the original certificates were deposited with the depositary on
behalf of the applicable escrow agent for the benefit of the certificateholders
of the pass through trusts. Upon the request of the pass through trustees, the
escrow agent has and will withdraw the deposits and deliver the proceeds to the
pass through trustees to purchase one or more secured promissory notes.
If an owner trustee issues the secured promissory notes, the owner trustee
will use the proceeds of the sale of the secured promissory notes to finance or
refinance a portion of the purchase price of an aircraft. Upon the purchase of
an aircraft by an owner trustee, the aircraft will be leased by the owner
trustee to ATA. ATA presently intends to operate the aircraft, however, it is
permitted to sublease the aircraft to other carriers.
If ATA issues the secured promissory notes, ATA will use the proceeds from
the sale of the secured promissory notes to finance or refinance the purchase of
aircraft that ATA will own.
RISK FACTORS
For a description of certain factors that should be considered by holders
who tender their Outstanding Certificates in the exchange offer, see 'Risk
Factors.'
16
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
In the table below, we provide you with the summary historical financial
data and other operating information of Amtran, Inc. We have prepared the
selected financial data included in this information using the consolidated
financial statements of Amtran, Inc. for the five years ended December 31, 1999.
The financial statements for the five fiscal years ended December 31, 1999 have
been audited by Ernst & Young LLP, independent auditors. The summary
consolidated financial data for the six months ended June 30, 2000 and 1999 is
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, that we consider necessary for the fair presentation of our
financial position and results of operations for these periods.
When you read this summary historical financial data, it is important that
you read along with it the historical financial statements and related notes in
our annual reports filed with the SEC, as well as the section of our annual
reports titled 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................... $715,009 $750,851 $ 783,193 $ 919,369 $1,122,366 $ 562,623 $ 654,900
Depreciation and amortization............... 55,827 61,661 62,468 78,665 96,038 45,858 62,353
Operating income (loss)(1).................. 17,936 (36,056) 13,484 75,373 90,027 59,389 21,186
Interest expense............................ 4,163 4,465 9,454 12,808 20,966 10,118 15,642
Income (loss) before income taxes........... 14,653 (39,581) 6,027 67,210 77,797 54,270 9,478
Net income (loss)........................... 8,524 (26,674) 1,572 40,081 47,342 33,245 3,915
Net income (loss) per share -- basic(2)..... 0.74 (2.31) 0.14 3.41 3.86 2.73 0.32
Net income (loss) per share -- diluted(2)... 0.74 (2.31) 0.13 3.07 3.51 2.46 0.30
BALANCE SHEET DATA (AT END OF PERIOD):
Cash........................................ $ 92,741 $ 73,382 $ 104,196 $ 172,936 $ 120,164 $ 117,831 $ 119,090
Non-cash working capital (deficiency)(3).... (80,639) (65,472) (100,731) (112,276) (128,191) (122,418) (128,488)
Property and equipment, net................. 240,768 224,540 267,681 329,332 511,832 429,731 521,481
Total assets................................ 413,137 370,287 450,857 594,549 815,281 691,598 863,133
Short-term debt (including current
maturities)................................ 3,606 30,271 8,975 1,476 2,079 1,476 13,801
Long-term debt.............................. 134,641 119,786 182,829 245,195 345,792 253,006 344,461
Total debt.................................. 138,247 150,057 191,804 246,671 347,871 254,482 358,262
Shareholders' equity(4)..................... 81,185 54,744 56,990 102,751 151,376 137,161 152,880
OTHER FINANCIAL DATA:
EBITDAR(5).................................. $130,381 $ 91,972 $ 132,390 $ 211,811 $ 253,454 $ 139,628 $ 120,335
EBITDA(5)................................... 74,643 26,545 77,949 158,683 194,801 110,246 87,473
Net cash provided by operating activities... 87,078 32,171 99,936 151,812 159,563 85,484 77,336
Net cash used in investing activities....... (44,032) (63,161) (76,055) (142,352) (305,718) (147,143) (85,528)
Net cash provided by (used in) financing
activities................................. (12,057) 11,631 6,933 59,280 93,383 6,554 7,118
Ratio of earnings to fixed charges(6)....... 1.601 -- 1.19 3.03 2.65 3.37 1.28
Deficiency of earnings available to cover
fixed charges(6)........................... -- $ 40,931 -- -- -- -- --
SELECTED OPERATING DATA FOR PASSENGER
SERVICE(7)
Available seat miles (millions)(8).......... 12,521.4 13,295.5 12,647.7 13,851.7 15,082.6 7,364.7 8,059.9
Revenue passenger miles (millions)(9)....... 8,907.7 9,172.4 8,986.0 9,758.1 10,949.0 5,387.5 5,884.1
Passenger load factor(10)................... 71.1% 69.0% 71.0% 70.5% 72.6% 73.2% 73.0%
Revenue per available seat mile............. 5.71[c] 5.65[c] 6.19[c] 6.64[c] 7.44[c] 7.64[c] 8.13[c]
Operating expense per ASM(11)............... 5.56[c] 5.92[c] 6.09[c] 6.09[c] 6.84[c] 6.83[c] 7.86[c]
Block hours flown(12)....................... 126,295 138,114 139,426 160,403 175,460 86,565 93,825
Average daily aircraft utilization (block
hours per day)(13):
Lockheed L-1011-50/100................... 8.88 6.55 6.48 6.72 6.51 6.52 6.63
Lockheed L-1011-500...................... -- -- -- -- 6.47 7.13 6.77
Boeing 727-200 ADV....................... 9.28 7.62 7.94 9.02 8.95 9.19 8.78
Boeing 757-200........................... 11.71 11.06 10.86 11.88 11.86 12.24 11.90
Total aircraft.............................. 46 45 45 48 53 49 56
(footnotes on following page)
17
(footnotes from previous page)
(1) Amtran has reclassified gain (loss) on the sale of operating assets for
1995 from nonoperating gain (loss) to operating income (loss) to be
consistent with the 1996-2000 presentations. Also, in the third quarter of
1996, Amtran recorded a $4.7 million loss on the disposal of leased assets
associated with the reconfiguration of its fleet.
(2) In 1997, Amtran adopted Financial Accounting Standards Board Statement 128,
'Earnings per Share,' which established new standards for the calculation
and disclosure of earnings per share. All prior period amounts disclosed in
this five-year summary have been restated to conform to the new standards
under Statement 128.
(3) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long-term
debt).
(4) No dividends were paid in any of the periods presented.
(5) EBITDAR represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation, amortization and aircraft
rentals. EBITDA represents net income plus interest expense (net of
capitalized interest), income tax expense, depreciation and amortization.
EBITDAR and EBITDA are presented because each is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDAR and EBITDA should not be considered in isolation, as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(6) The 'ratio of earnings to fixed charges' represents earnings divided by
fixed charges, as defined in the following paragraph. The 'deficiency'
represents the amount of fixed charges in excess of earnings.
For purposes of these computations, earnings consist of income (loss)
before income taxes, plus fixed charges, adjusted to exclude the amount
of any interest capitalized during the period. Fixed charges include the
total of: (i) interest, whether expensed or capitalized;
(ii) amortization of debt expense relating to any indebtedness, whether
expensed or capitalized; and (iii) such portion of rental expense as can
be demonstrated to be representative of the interest factor.
(7) The operating data (other than revenue per ASM and operating expense per
ASM) pertain only to ATA (including operations under the Chicago Express
code share agreement) and do not include information for other operating
subsidiaries of Amtran.
(8) 'Available seat miles' or 'ASMs' represent the number of seats available
for sale to passengers multiplied by the number of miles those seats are
flown.
(9) 'Revenue passenger miles' or 'RPMs' represent the number of miles flown by
revenue passengers.
(10) 'Passenger load factor' represents revenue passenger miles divided by
available seat miles.
(11) 'Operating expense per ASM' for any period represents the amount determined
by dividing total operating expense for such period by the total ASMs for
such period.
(12) 'Block hours flown' for any aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power from the
boarding ramp at one airport to the time it comes to rest at the boarding
ramp of the next point of landing.
(13) 'Average daily aircraft utilization' is determined with respect to each
aircraft type for any period by dividing the block hours flown by all
aircraft of such type during such period by the number of days during such
period that aircraft of such type were owned or leased by ATA.
(14) The following summarized financial data (unaudited) in this table has been
derived from the financial statements of ATA for each of the respective
periods presented. ATA is the principal subsidiary of Amtran. The following
financial data excludes the other subsidiaries of Amtran (Ambassadair
Travel Club, Inc., ATA Leisure Corp., Amber Travel, Inc., American Trans
Air
(footnotes continued on next page)
18
(footnotes continued from previous page)
Execujet, Inc., Chicago Express, Amber Air Freight Corporation and
American Trans Air Training Academy, Inc.) as ATA is the principal
operating subsidiary of Amtran. Amtran allocates certain expenses, such
as income taxes, to the various subsidiaries as if they were operating
on a stand-alone basis.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:(14)
Operating revenues............................ $682,106 $712,915 $744,153 $877,187 $1,008,855 $500,666 $592,986
Depreciation and amortization................. 55,056 61,267 62,281 78,595 93,820 45,206 59,668
Operating income (loss)(a).................... 14,819 (40,674) 10,325 80,920 97,558 59,729 27,412
Interest expense, net......................... 3,773 4,466 9,454 12,808 20,969 10,116 15,651
Income (loss) before income taxes............. 11,389 (44,416) 2,627 72,528 84,989 54,381 15,519
Net income (loss)............................. 6,006 (31,509) 69 43,329 51,951 33,356 9,956
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency)(b)............... $(49,710) $(86,207) $(51,939) $ 10,768 $ (32,049) $(36,531) $(32,088)
Property and equipment, net................... 239,864 224,232 267,556 328,661 508,210 425,887 511,767
Total assets.................................. 409,354 369,086 466,923 593,489 823,090 680,735 935,071
Short-term debt (including current
maturities).................................. 3,606 30,271 8,975 1,476 2,079 1,476 13,801
Long-term debt................................ 134,641 119,786 182,829 245,195 345,792 253,006 344,461
Total debt.................................... 138,247 150,057 191,804 246,671 347,871 254,482 358,262
Shareholders' equity(c)....................... 30,372 (9,934) 6,762 50,091 102,039 83,447 111,996
- ---------
(a) ATA has reclassified gain (loss) on the sale of operating assets for 1995
from nonoperating gain (loss) to operating income (loss) to be consistent
with the 1996-2000 presentations. Also, in the third quarter of 1996, ATA
recorded a $4.7 million loss on the disposal of leased assets associated
with the reconfiguration of its fleet.
(b) Working capital consists of total current assets less current liabilities.
(c) No dividends were paid in any of the periods presented.
19
RISK FACTORS
You should carefully read this entire prospectus and the documents
incorporated by reference in this prospectus before investing in the
certificates. Among the factors that may adversely affect an investment in the
certificates are the following:
RISK FACTORS RELATING TO OUR BUSINESS
OUR HIGH PROPORTION OF DEBT COMPARED TO OUR EQUITY CAPITAL MAY IMPAIR OUR
FLEXIBILITY.
We have a higher proportion of debt compared to our equity capital than some
of our principal competitors. We need substantial cash resources to meet
scheduled debt and lease payments and to finance day-to-day operations. As a
result, we may be less able than some of our competitors to withstand a
prolonged recession in the airline industry or respond to changing economic and
competitive conditions. We may be restricted in our ability to exploit new
business opportunities. In addition, our ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions or other
purposes may be impaired.
As of June 30, 2000, we had:
$119.1 million of cash, cash equivalents and short-term investments; and
$358.3 million of indebtedness outstanding (approximately $51.6 million of
which was secured).
As a result, at that date, total consolidated debt was 70.1% of total
capitalization, which represents significant financial leverage, even in the
highly leveraged airline industry. In addition, ATA has substantial obligations
under operating leases for 28 aircraft (exclusive of the aircraft relating to
the certificates), which are not recorded as indebtedness.
We had interest expense of approximately $15.6 million for the six months
ended June 30, 2000 and $10.1 million for the six months ended June 30, 1999.
This resulted in an EBITDA to interest expense ratio of approximately 10.9 times
for the six months ended June 30, 1999 and 5.6 times for the six months ended
June 30, 2000. The ratio of EBITDAR to the sum of interest (net of capitalized
interest) plus aircraft rentals was 3.5 for the six months ended June 30, 1999
and 2.5 for the six months ended June 30, 2000.
Our ability to satisfy our obligations will be dependent upon our future
performance, which is subject to general economic conditions and to financial,
business and other factors, including factors beyond our control. Our operating
results and cash flow could be adversely affected by many factors, including
price competition, increases in fuel costs, a downturn in general economic
conditions and adverse regulatory changes.
WE GENERALLY OPERATE WITH A WORKING CAPITAL DEFICIT, AND WE WILL REQUIRE
ADDITIONAL FINANCING TO MEET OUR OBLIGATIONS.
Although we, like most other airlines, generally operate with a working
capital deficit, we have met our obligations as they have become due. In order
to meet short-term cash needs, ATA maintains bank credit facilities. At
June 30, 2000, our current assets were $246.4 million, and our current
liabilities were $269.6 million.
In addition, we require significant levels of capital investment for
aircraft, engine and airframe maintenance and acquisition to maintain our
competitive position and to expand our operations. For the year ended
December 31, 2000, we expect that:
capital expenditures for scheduled maintenance will total approximately
$95.2 million;
capital expenditures for acquisitions of additional aircraft, deposits on
aircraft scheduled for future delivery and construction of certain
facilities at the Chicago-Midway Airport will total approximately $105.4
million; and
additional capital expenditures will total approximately $40.2 million.
We also may decide to refinance our long-term debt at or prior to its
maturity.
20
We may seek to supplement our current sources of financing with other
sources of long-term financing, including obtaining vendor financing, entering
into sale-leaseback transactions and making public and private debt offerings.
We may also seek additional equity financing. We cannot assure you that any such
financing would be available on satisfactory terms. If we are unable to obtain
sufficient financing for capital expenditures and to refinance maturing debt,
our operations and ability to pay debt service may be adversely affected.
OUR EARNINGS HAVE BEEN VOLATILE.
For the year ended December 31, 1996, we had a net loss of $26.7 million.
For the year ended December 31, 1997, we had net income of $1.6 million, for the
year ended December 31, 1998, we had net income of $40.1 million and for the
year ended December 31, 1999, we had net income of $47.3 million. Although we
recorded net income in 1997, 1998 and 1999, we cannot assure you that this
profitability will continue. Moreover, because of the cyclicality of the airline
industry, our results of operations may continue to be volatile.
WE MAY PURSUE STRATEGIC ALTERNATIVES THAT RESULT IN A CHANGE OF CONTROL AND
INCREASED LEVERAGE, AND WE MAY NOT BE ABLE TO SATISFY ALL OF OUR OBLIGATIONS
UPON THE OCCURRENCE OF A CHANGE OF CONTROL.
We actively consider and enter into discussions regarding possible business
combinations with air carriers and others, and plan to continue to do so. It is
possible that we will enter into a transaction that will result in a change of
control of Amtran. If we enter into such a transaction, it could result in an
increase in our indebtedness. In addition, upon a change of control of Amtran,
all borrowings outstanding under the bank credit facilities maintained by ATA,
which are guaranteed by Amtran, will become due, and in the event a change of
control is accompanied by a ratings downgrade, we will be required to offer to
purchase all amounts due under the 10 1/2% senior notes due 2004 and the 9 5/8%
senior notes due 2005 issued by Amtran at 101% of par plus accrued interest. We
cannot assure you that we would be able to satisfy all of our obligations under
the bank credit facilities and the notes in these circumstances. The failure to
satisfy our obligations would materially adversely affect our business,
operations and financial results as well as the market price of the
certificates.
OUR EXISTING FINANCING AGREEMENTS AND OPERATING LEASES CONTAIN RESTRICTIVE
COVENANTS THAT MAY LIMIT OUR FLEXIBILITY AND IF WE FAIL TO COMPLY WITH THESE
RESTRICTIONS, OUR DEBT OBLIGATIONS COULD BE ACCELERATED AND OUR OPERATING LEASES
COULD BE CANCELED.
Our existing debt financing agreements and our operating leases relating to
some of our aircraft contain restrictive covenants that impose significant
operating and financial restrictions on us. For example, the bank credit
facilities maintained by ATA and the indenture relating to our 10 1/2% senior
notes due 2004 prohibit or restrict our ability to:
incur additional indebtedness;
create material liens on our assets;
sell assets or engage in mergers or consolidations;
redeem or repurchase outstanding debt;
make specified investments;
pay cash dividends; and
engage in other significant transactions.
The indenture relating to our 9 5/8% senior notes due 2005 contains similar
restrictions. In addition, our financing agreements and our operating leases
require us to maintain compliance with specified financial ratios and other
financial and operating tests.
These restrictions and requirements may limit our financial and operating
flexibility. In addition, if we fail to comply with these restrictions or to
satisfy these requirements, our obligations under our debt and operating leases
may be accelerated. We cannot assure you that we
21
would be able to satisfy all of these obligations upon acceleration. The failure
to satisfy these obligations would materially adversely affect our business,
operations and financial results as well as the market price of the
certificates.
COMPLIANCE WITH DEPARTMENT OF TRANSPORTATION REGULATIONS COULD REDUCE OUR
LIQUIDITY.
Under current Department of Transportation regulations regarding charter
transportation originating in the United States, all charter airline tickets
must generally be paid for in cash and all funds received from the sale of
charter seats and, in some cases, the costs of land arrangements, must be placed
in escrow by the tour operator or protected by a surety bond satisfying certain
prescribed standards. Currently, we provide a third-party bond that is unlimited
in amount to satisfy our obligations under these regulations. Under the terms of
our bonding arrangements, the issuer of the bond has the right to terminate the
bond at any time on 30 days' notice. We provide a $1.5 million letter of credit
to secure our potential obligations to the issuer of the bond. If the bond were
to be materially limited or canceled, we, like all other U.S. charter airlines,
would be required to escrow funds to comply with the Department of
Transportation regulations. Compliance with these regulations would reduce our
liquidity and require us to fund higher levels of working capital ranging up to
$16.9 million based on 1998' s peak pre-paid bookings and up to $32.4 million
based on peak pre-paid bookings for 1999.
WE MAY INCUR SUBSTANTIAL LOSSES IN THE EVENT OF AN AIRCRAFT ACCIDENT.
We may incur substantial losses in the event of an aircraft accident. These
losses may include the repair or replacement of a damaged aircraft, and the
consequent temporary or permanent loss of the aircraft from service, as well as
claims of injured passengers and other persons.
We are required by the Department of Transportation to carry liability
insurance on each of our aircraft. We currently maintain public liability
insurance in the amount of $1.5 billion. Although we believe our insurance
coverage is adequate, we cannot assure you that the amount of our insurance
coverage will not be changed or that we will not be forced to bear substantial
losses from accidents. Substantial claims resulting from an accident could have
a material adverse effect on our business, operations and financial results and
could seriously inhibit passenger acceptance of our services.
OUR CUSTOMERS MAY CANCEL OR DEFAULT ON THEIR CONTRACTS WITH US.
Customers who have contracted with us may cancel or default on their
contracts, and we may not be able to obtain other business to cover the
resulting loss in revenues. If customers with large contracts cancel or default
and we are not able to obtain other business, our financial position could be
materially adversely impacted.
Our largest customer during each of the last three years was the U.S.
military, which accounted for 11.2% of our total operating revenues in 1996,
16.8% of our total operating revenues in 1997, 13.3% of our total operating
revenues in 1998 and 11.2% of operating revenues in 1999.
In 1999, our five largest non-military customers accounted for approximately
12.5% of total operating revenues, and our ten largest non-military customers
accounted for approximately 14.7% of total operating revenues. No single
non-military customer accounted for more than 10% of total operating revenues
during this period.
OUR AIRLINE BUSINESS IS SIGNIFICANTLY AFFECTED BY SEASONAL FACTORS, AND OUR
RESULTS OF OPERATIONS FOR ANY ONE QUARTER ARE NOT NECESSARILY INDICATIVE OF OUR
ANNUAL RESULTS OF OPERATIONS.
Our airline businesses are significantly affected by seasonal factors.
Historically, we have experienced reduced demand during the fourth quarter as
demand for leisure airline services during this period is lower relative to
other times of the year. Our results of operations for any one quarter are not
necessarily indicative of our annual results of operations.
22
In 1998 and 1999, our results for the first three quarters were
significantly stronger than we have experienced in any comparable first three
quarters of any prior year. Also in 1998 and 1999, we experienced our only
profitable fourth quarters since becoming a public company in 1993. We cannot
assure you that the level of profitability achieved in 1998 and 1999 will be
maintained in subsequent years.
MANY OF OUR EMPLOYEES ARE REPRESENTED BY UNIONS, AND A PROLONGED DISPUTE WITH
OUR EMPLOYEES COULD HAVE AN ADVERSE IMPACT ON OUR OPERATIONS.
Our flight attendants are represented by the Association of Flight
Attendants, our cockpit crews are represented by the Air Line Pilots Association
and our dispatchers, pursuant to an agreement signed in October 1999, are
represented by the Transport Workers Union. A prolonged dispute with our
employees who are represented by any of these unions, or any sizable number of
our employees, could have an adverse impact on our operations.
Our current collective bargaining agreement with the Association of Flight
Attendants became subject to amendment, but did not expire, in December 1998.
During the first quarter of 2000, we completed renegotiation of this contract,
and the new contract was ratified. Our current collective bargaining agreement
with the Air Line Pilots Association will be subject to amendment, but will not
expire, in September 2000.
OUR REVENUES COULD BE ADVERSELY IMPACTED BY OUR RELATIONSHIP WITH TRAVEL AGENTS
AND TOUR OPERATORS.
Our revenues could be adversely impacted if travel agents and tour operators
elect to favor other airlines or to disfavor us. Our relationship with travel
agents and tour operators may be affected by:
the size of override commissions offered by other airlines;
changes in our arrangements with other distributors of airline tickets; and
the introduction of new methods of selling tickets.
In 1999, approximately 65% of our revenues was derived from tickets sold by
travel agents or tour operators, and, in 1998, approximately 68% of our revenues
was derived from tickets sold by travel agents or tour operators. Although we
will continue to strive to offer competitive products to travel agencies and
tour operators, we cannot assure you that we will be able to maintain favorable
relationships with these ticket sellers.
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
BECAUSE THE AIRLINE INDUSTRY IS CHARACTERIZED BY LOW GROSS PROFIT MARGINS AND
HIGH FIXED COSTS, A MINOR SHORTFALL FROM EXPECTED REVENUE COULD HAVE A
SIGNIFICANT IMPACT ON EARNINGS.
The airline industry as a whole and scheduled service in particular are
characterized by low gross profit margins and high fixed costs. The costs of
operating each flight do not vary significantly with the number of passengers
carried and, therefore, a relatively small change in the number of passengers or
in fare pricing or traffic mix could, in the aggregate, have a significant
effect on operating and financial results. Accordingly, a minor shortfall from
expected revenue levels could have a significant impact on earnings.
OUR PRODUCTS AND SERVICES FACE VARYING DEGREES OF COMPETITION.
Competition for Scheduled Services. In scheduled service, we compete against
both the large U.S. scheduled-service airlines and, from time to time, against
smaller regional or start-up airlines. Competition is generally based on price,
schedule, quality of service and convenience. All of the major U.S. scheduled
airlines are larger than we are, and most of them have greater financial
resources than we do. Where we seek to expand our service by adding routes or
frequency, competing airlines may respond with intense price competition. In
addition, when other airlines
23
seek to establish a presence over new routes, they may engage in significant
price discounting. Because of our size and financial resources relative to the
major airlines, we are less able to absorb losses from these activities than
many of our competitors.
Competition for Commercial Charter Services. In commercial charter service,
we compete against both the major U.S. scheduled airlines and smaller U.S.
charter airlines, including Sun Country and Miami Air. We also compete against
several European and Mexican charter and scheduled airlines, some of which are
larger than we are and have substantially greater financial resources than we
do.
The scheduled carriers compete for leisure travel customers with our
commercial charter operations in a variety of ways, including by:
wholesaling discounted seats on scheduled flights to tour operators;
promoting packaged tours to travel agents for sale to retail customers; and
selling discounted, excursion-airfare-only products to the public.
As a result, all charter airlines, including ATA, generally compete for
customers against the lowest-revenue-generating seats of the scheduled airlines.
During periods of dramatic fare cuts by other scheduled airlines, we are forced
to respond competitively to these deeply discounted prices.
We also compete directly against other charter airlines. In the United
States, these charter airlines are smaller in size than we are. In Europe,
several charter airlines are as large as or larger than we are. Some of these
European charter airlines are affiliates of major scheduled airlines or tour
operators. As a result, in addition to their greater access to financial
resources, these charter airlines may have greater distribution capabilities,
including, in some cases, exclusive or preferential relationships with
affiliated tour operators.
Competition for Military and Other Government Charter Services. We generally
compete for military and other government charters with primarily smaller U.S.
passenger 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. The formation of
competing teaming arrangements that have larger partners than those in which we
participate, an increase by other air carriers in their commitment of aircraft
to the military or the withdrawal of our current partners could adversely affect
our U.S. military charter business.
SIGNIFICANT INCREASES IN THE COST OF AIRCRAFT FUEL COULD ADVERSELY IMPACT OUR
OPERATING RESULTS.
Fuel costs are a significant portion of our operating costs, comprising
approximately 16.3% of our operating costs in 1998 and approximately 16.6% of
our operating costs in 1999. In 1999 our monthly average fuel cost rose
approximately 12.0% as compared with 1998, resulting in an increase of $18.0
million between years. In the first half of 2000, fuel costs continued to
adversely impact our operating results. For the six months ended June 30, 2000,
our monthly average fuel cost rose approximately 60.4% as compared with the same
period in 1999, resulting in an increase in fuel and oil expense of
approximately $47.2 million between periods. Increased fuel costs may also
adversely impact our operating results in future periods. Fuel costs may
significantly affect our scheduled service and our charter contracts that do not
contain fuel cost escalation provisions. In addition, substantial increases in
fuel costs and any resulting increase in air fares could cause a reduction in
leisure travel or the cancellation or renegotiation of previously booked
commitments from tour operators.
Fuel prices are affected by, among other factors, political and economic
influences that we cannot control. In the event of a fuel supply shortage
resulting from a disruption of oil imports or other events, higher fuel prices
or the curtailment of scheduled service could result.
We have worked to reduce some of the risks associated with a rise in fuel
costs. In 1998, approximately 45.0% of our total operating revenues was derived
from contracts that enable us to pass through increases in fuel costs, including
contracts with the U.S. military. In 1999, approximately 41.1% of our total
operating revenues was derived from these types of contracts, and in the first
six months of 2000, approximately 40.6% of our total operating revenues was
24
derived from these types of contracts. We are, however, exposed to increases in
fuel costs that occur within 14 days of flight time, to all increases associated
with our scheduled service (other than bulk seat sales) and to increases
affecting contracts that do not include fuel cost escalation provisions.
THE PROFITABILITY OF OUR OPERATIONS IS INFLUENCED BY ECONOMIC CONDITIONS AS
DEMAND FOR LEISURE TRAVEL DIMINISHES DURING ECONOMIC DOWNTURNS.
The profitability of our operations is influenced by the condition of the
U.S. and European economies, including fluctuations in currency exchange rates,
that may impact the demand for leisure travel and our competitive pricing
position. The majority of our charter and scheduled airline business, other than
military, is leisure travel. Because leisure travel is discretionary, we have
historically tended to experience somewhat weaker financial results during
economic downturns and other events affecting international leisure travel, such
as the Persian Gulf War. Nevertheless, our performance during these periods has
been significantly better than that of the U.S. passenger airline industry as a
whole.
THE AIRLINE INDUSTRY IS HEAVILY REGULATED, AND CHANGES IN OUR GOVERNMENTAL
AUTHORIZATIONS OR CERTIFICATES, OR CHANGES IN GOVERNMENTAL REGULATIONS, COULD
ADVERSELY IMPACT OUR BUSINESS.
We are subject to a wide range of governmental regulation, including
regulation by the Department of Transportation and the Federal Aviation
Administration. A modification, suspension or revocation of any of our
Department of Transportation or Federal Aviation Administration authorizations
or certificates could adversely impact our business.
The Department of Transportation 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 departure slots;
consumer protection; and
competitive practices.
The Federal Aviation Administration primarily regulates flight operations,
especially matters affecting air safety, including airworthiness requirements
for each type of aircraft and pilot and crew certification.
Under the Airport Noise and Capacity Act of 1990 and related Federal
Aviation Administration regulations, our aircraft must comply with specified
Stage 3 noise restrictions. These regulations prohibit us from operating any
Stage 2 aircraft after December 31, 1999. We met the December 31, 1999 Stage 3
fleet requirements through Boeing 727-200 hushkit modifications. We believe we
are in compliance with all requirements necessary to maintain in good standing
our operating authority granted by the Department of Transportation and our air
carrier operating certificate issued by the Federal Aviation Administration.
The Federal Aviation Administration has issued a series of airworthiness
directives under its aging-aircraft program. These directives are applicable to
our Lockheed L-1011 and Boeing 727-200 aircraft. We do not currently expect that
the cost of compliance with these directives will be material.
Changes in governmental regulation could also adversely impact our business.
In recent years, for example, the Federal Aviation Administration has issued or
proposed mandates relating to, among other things:
collision avoidance systems;
airborne windshear avoidance systems;
25
noise abatement; and
increased inspections and maintenance procedures.
We expect to incur expenses as we seek to comply with changes in Federal
Aviation Administration regulations, particularly those relating to noise and
aging aircraft. The Federal Aviation Administration 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 Department of Transportation and the Federal Aviation
Administration. For example, the United States Postal Service has jurisdiction
over certain aspects of the transportation of mail and related services that we
provide through our cargo affiliate. Labor relations in the air transportation
industry are generally regulated under the Railway Labor Act, which vests in the
National Mediation Board regulatory powers with respect to disputes between
airlines and labor unions arising under collective bargaining agreements.
We are also subject to the jurisdiction of the Federal Communications
Commission regarding the use of radio facilities. In addition, we are subject to
regulation on international flights by the Commerce Department, the Customs
Service, the Immigration and Naturalization Service and the Animal and Plant
Health Inspection Service of the Department of Agriculture. Also, while our
aircraft are in foreign countries, we must comply with the requirements of
similar authorities in those countries. We are also subject to compliance with
standards for aircraft exhaust emissions promulgated by the Environmental
Protection Agency and with regulations adopted by various local authorities that
operate the airports we serve throughout our route network, including aircraft
noise regulations and curfews. The Commerce Department also regulates the export
and re-export of our U.S.-manufactured aircraft and equipment. While we intend
to maintain all appropriate government licenses and to comply with all
appropriate standards, we cannot assure you that we will be successful.
In addition to various federal regulations, local governments and
authorities in certain markets have adopted regulations governing various
aspects of aircraft operations, including noise abatement, curfews and use of
airport facilities. Many U.S. airports have adopted or are considering adopting
a passenger facility charge of up to $3.00 generally payable by each passenger
departing from the airport. This charge must be collected from passengers by
transporting air carriers and must be remitted to the applicable airport
authority. Airport operators must obtain approval of the Federal Aviation
Administration before they may implement a passenger facility charge. The $3.00
maximum on passenger facility charges must be raised if Congress enacts an
amendment to the legislation authorizing these charges.
We are subject to biennial inspections by the Department of Defense as a
condition of retaining our eligibility to perform military charter flights. The
last such inspection was completed in September 1999. As a result of our
military business, we have been required from time to time to meet operational
standards beyond those normally required by the Department of Transportation,
the Federal Aviation Administration and other government agencies.
At our aircraft line maintenance facilities, we use materials that are
regulated as hazardous under federal, state and local laws. We are required to
maintain programs to protect the safety of our 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, we are also subject at these
facilities to federal, state and local regulations relating to protection of the
environment and to discharge of materials into the environment. We do not expect
that the costs associated with ongoing compliance with any of these regulations
will have a material impact upon our 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. In addition, laws and regulations have been considered from time to
time that would prohibit or restrict the ownership and/or transfer of airline
routes or takeoff and landing slots.
26
Based upon bilateral aviation agreements between the United States and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, we, as a charter carrier, are generally not restricted as to the
frequency of our flights to and from most foreign destinations. However, these
agreements generally restrict us to the carriage of passengers and cargo on
flights which either originate in the United States and terminate in a single
foreign nation or which originate in a single foreign nation and terminate in
the United States. Proposals for any additional charter service must generally
be specifically approved by the civil aeronautics authorities in the relevant
countries. Approval of these requests is typically based on considerations of
comity and reciprocity and cannot be guaranteed.
RISK FACTORS RELATING TO THE CERTIFICATES
THE APPRAISALS OF THE AIRCRAFT ARE ONLY ESTIMATES OF VALUE, AND THEY MAY DIFFER
SIGNIFICANTLY FROM THE ACTUAL SALES VALUE OF THE AIRCRAFT.
Three independent appraisal and consulting firms have prepared base value
appraisals of the aircraft. Letters summarizing these appraisals are attached to
this prospectus as Appendix II. These appraisals, which are based on the base
value of the aircraft, rely on assumptions and methodologies and may not reflect
current market conditions that could affect the fair market value of the
aircraft. Base value is the theoretical value for an aircraft that assumes a
balanced market, while current market value is the value for an aircraft in the
actual market. The appraisals were prepared without physical inspection of the
aircraft. Appraisals based on other assumptions and methodologies may result in
valuations that are materially different from those contained in the appraisals.
See 'Description of the Aircraft and the Appraisals.' An appraisal is only an
estimate of value. It does not indicate the price at which an aircraft may be
purchased from the aircraft manufacturer or the price at which an aircraft may
be sold in connection with the exercise of remedies under any indenture.
Therefore, the appraisal should not be relied upon as a measure of the actual
sales value of the aircraft. The proceeds realized upon a sale of any aircraft
may be less than its appraised value. In particular, the appraisals of the
aircraft to be delivered after the date of this prospectus are estimates of
values as of future delivery dates. The value of an aircraft, if remedies are
exercised under the applicable indenture, will depend on market and economic
conditions, the supply of similar aircraft, the availability of buyers, the
condition of the aircraft and other factors. As a result, aircraft sale proceeds
on any exercise of remedies may not be enough to pay the total amount due on the
certificates.
The secured promissory notes are not cross-collateralized. This means that
liquidation proceeds from the sale of an aircraft in excess of the principal
amount of the secured promissory notes related to that aircraft will not be
available to cover losses, if any, on any other secured promissory notes.
IF THE AIRCRAFT PURCHASED WITH THE PROCEEDS OF THE CERTIFICATES ARE NOT PROPERLY
MAINTAINED, THE VALUE OF THE AIRCRAFT MAY BE ADVERSELY AFFECTED.
ATA is responsible for the maintenance, service, repair and overhaul of the
aircraft purchased with the proceeds of the certificates, but only to the extent
required by the relevant leases. The failure of ATA to maintain, service, repair
or overhaul an aircraft adequately may adversely affect the value of the
aircraft. In addition, even if ATA complies with its obligations under the
leases regarding the maintenance, service, repair and overhaul of the aircraft,
the value of the aircraft may deteriorate. Any decrease in the value of an
aircraft may adversely affect the holders of the promissory notes upon a default
by ATA (and Amtran).
IF ATA DOES NOT MAINTAIN ADEQUATE INSURANCE ON THE AIRCRAFT, THE PROCEEDS
OBTAINED IN THE EVENT OF A LOSS MAY NOT BE SUFFICIENT TO COVER THE ENTIRE LOSS.
ATA is responsible for the maintenance of public liability, property damage
and all-risk aircraft hull insurance on the aircraft to the extent required by
the relevant leases or owned aircraft indentures. ATA's failure to maintain
adequate levels of insurance for the aircraft, or the
27
inclusion of deductible amounts, will affect the proceeds which could be
obtained upon an event of loss and, thus, may affect the proceeds available to
repay the holders of the secured promissory notes.
THE AIRCRAFT MAY BE OPERATED, REGISTERED OR LEASED OUTSIDE OF THE UNITED STATES,
WHICH MAY HINDER THE EFFORTS OF A LOAN TRUSTEE TO REPOSSESS AN AIRCRAFT AFTER A
DEFAULT UNDER THE RELEVANT LEASE OR OWNED AIRCRAFT INDENTURE.
The leases and owned aircraft indentures do not contain any general
geographic restriction on ATA's ability to operate the aircraft. Although ATA
has no current intention to do so, ATA is permitted, upon compliance with the
leases and owned aircraft indentures, to register the aircraft in foreign
jurisdictions and to lease or sublease the aircraft to other entities. While the
loan trustees' rights and remedies in the event of a default under the leases
and owned aircraft indentures include the right to terminate the leases and
repossess the aircraft, it may be difficult, expensive and time-consuming to
obtain possession of the aircraft, particularly when an aircraft located outside
the United States has been registered in a foreign jurisdiction or is subleased
to a foreign operator. Any exercise of the right to repossess the aircraft may
be subject to the limitation and requirements of applicable law, including the
need to obtain consents or approvals for deregistration or re-export of the
aircraft, which may be subject to delays and to political risk. When a
defaulting sublessee or other permitted transferee is the subject of a
bankruptcy, insolvency or similar event, such as protective administration,
additional limitations may apply.
Furthermore, certain jurisdictions may accord higher priority to certain
other liens or third-party rights over the aircraft. These factors could limit
the benefits of the security interest in the aircraft. As permitted under the
leases and owned aircraft indentures, at any time an airframe subject to a lease
or owned aircraft indenture might not be equipped with engines subject to the
same lease or indenture and engines subject to a lease or indenture might not be
on an airframe subject to that lease or indenture. As a result, although ATA
contractually agrees to transfer title to the lessor of engines not owned by the
applicable owner trustee that are attached to repossessed aircraft (or, for
owned aircraft, to obtain for the related loan trustee a perfected
first-priority security interest in engines attached to repossessed aircraft and
not so owned), at the time of obtaining repossession it could be difficult,
expensive and time-consuming to assemble an aircraft consisting of an airframe
and the engines subject to the same lease or owned aircraft indenture.
IF THE CONTROLLING PARTY SELLS THE PROMISSORY NOTES FOR LESS THAN THEIR
OUTSTANDING PRINCIPAL AMOUNT UPON A DEFAULT UNDER THE RELEVANT INDENTURE,
CERTIFICATEHOLDERS WILL RECEIVE A SMALLER AMOUNT OF PRINCIPAL DISTRIBUTIONS THAN
EXPECTED.
If a default under an indenture is continuing, whichever of the pass through
trustee, the liquidity provider or the policy provider that is the controlling
party may direct the loan trustee under that indenture to exercise remedies
under that indenture. Remedies exercisable under an indenture may include
accelerating the applicable secured promissory notes under the indenture or
foreclosing the lien on the aircraft securing those secured promissory notes.
See 'Description of the Certificates -- Indenture Defaults and Certain Rights
Upon an Indenture Default.'
The controlling party will be:
the policy provider, until final distributions of the outstanding balance
of the class G certificates, together with accrued and unpaid interest, are
made to the holders of the class G certificates and thereafter, if, and
while, no obligations owing to the policy provider remain outstanding or,
if a default has occurred with respect to the policy provider and is
continuing, the class G pass through trustee, until payment of final
distributions together with accrued interest to the holders of the class G
certificates, then
the class C pass through trustee and after that,
if class D certificates have been issued, the class D pass through trustee.
28
Under certain circumstances, the liquidity provider with the greater amount owed
to it may elect to act as the controlling party, unless the policy provider
amends its insurance policy to cover all outstanding liquidity facility
obligations and certain other conditions are met or the policy provider pays to
the liquidity provider all outstanding liquidity facility obligations, in which
case, the policy provider will be the controlling party (so long as no policy
provider default has occurred and is continuing). See 'Description of the
Intercreditor Agreement -- Intercreditor Rights.'
During the continuation of any indenture default, the controlling party may
accelerate and sell the secured promissory notes issued under that indenture,
subject to certain limitations. See 'Description of the Intercreditor
Agreement -- Intercreditor Rights -- Sale of Secured Promissory Notes or
Aircraft.' The market for secured promissory notes during any indenture default
may be very limited, and we cannot assure you as to the price at which they
could be sold. If the controlling party sells any secured promissory notes for
less than their outstanding principal amount, some certificateholders will
receive a smaller amount of principal distributions than expected and will not
have any claim for the shortfall against us, any owner trustee, any owner
participant, any liquidity provider, the policy provider (except with respect to
the holders of the class G certificates, as provided in the insurance policy) or
any pass through trustee.
THE RATINGS OF THE CERTIFICATES FROM MOODY'S AND STANDARD & POOR'S DO NOT
CONSTITUTE A RECOMMENDATION TO PURCHASE THE CERTIFICATES, AND THE RATINGS ARE
SUBJECT TO CHANGE.
It is a condition to the issuance of each class of certificates that they
receive at least the following ratings from Moody's and Standard & Poor's:
STANDARD &
MOODY'S POOR'S
------- ------
Class G Certificates............................... Aaa AAA
Class C Certificates............................... Ba1 BBB
A rating is not a recommendation to purchase, hold or sell certificates,
because that rating does not address market price or suitability for a
particular investor. A rating may not remain for any given period of time and
may be lowered or withdrawn entirely by a rating agency if at any time, in its
judgment, circumstances in the future, including the downgrading of us, the
depositary, the policy provider or the liquidity provider, so warrant.
The rating of each class of certificates is based primarily on the default
risk of the secured promissory notes purchased by that class, the policy
provider (in the case of the Class G certificates), the depositary for that
class, the availability of the liquidity facility for the benefit of holders of
that class of certificates, the collateral value provided by the aircraft
relating to the secured promissory notes and the subordination provisions that
apply to the certificates. Standard & Poor's has indicated that its rating
applies to a unit consisting of certificates representing beneficial interests
in certain rights to $238,641,000 of deposits under escrow agreements (less any
amount of the proceeds used to finance aircraft on the date the certificates are
issued). Amounts deposited under the escrow agreements are not our property and
are not entitled to the benefits of Section 1110 of the U.S. Bankruptcy Code.
Neither the certificates nor the escrow receipts may be separately assigned or
transferred.
ATA's ability to pay any premium due upon distribution of deposits not used
to purchase secured promissory notes during the delivery period has not been
rated by either rating agency.
IF THE PROCEEDS FROM THE OFFERING OF THE ORIGINAL CERTIFICATES ARE NOT USED TO
PURCHASE AIRCRAFT WITHIN A SPECIFIED PERIOD, THEY WILL BE RETURNED TO THE
CERTIFICATEHOLDERS.
We may not use all of the deposits held in escrow prior to the delivery
period termination date. See 'Description of the Deposit Agreements -- Unused
Deposits.' If any funds remain as deposits with respect to any pass through
trust after the delivery period termination date, those remaining funds will be
withdrawn by the escrow agent for that pass through trust and distributed, with
accrued and unpaid interest, to the certificateholders of that pass through
trust. In addition, ATA will pay a premium with respect to those remaining
deposits, but ATA will not pay a
29
premium for any deposits that are returned because an aircraft is not delivered
prior to the delivery period termination date for any reason that is not ATA's
fault or caused by ATA's negligence. See 'Description of the Deposit
Agreements -- Unused Deposits.'
The delivery of the newly manufactured aircraft as scheduled is subject to
delays in the manufacturing process and to Boeing's right to postpone deliveries
under its agreement with ATA. See 'Description of the Aircraft and the
Appraisals -- Deliveries of Aircraft.'
Since the maximum principal amount of secured promissory notes may not be
issued with respect to an aircraft and, in any such case, the series C secured
promissory notes are more likely not to be issued in the maximum principal
amount as compared to the other secured promissory notes, it is more likely that
a distribution of unused deposits will be made with respect to the class C
certificates as compared to the other certificates.
THE TERMS OF THE AGREEMENTS RELATING TO THE SECURED PROMISSORY NOTES MAY DIFFER
FROM THE TERMS DESCRIBED IN THIS PROSPECTUS.
The actual participation agreements, leases and leased aircraft indentures
that we enter into may differ from the descriptions of these agreements in this
prospectus because ATA, Amtran or the owner participant may request changes. The
degree to which these agreements may change is limited because:
the agreements are required to contain certain mandatory document terms and
mandatory economic terms, which are described in this prospectus under the
heading 'Description of the Certificates -- Obligation to Purchase Secured
Promissory Notes';
ATA must certify that changes to the form agreements do not materially and
adversely affect the certificateholders or the policy provider; and
if ATA uses forms of financing agreements that are modified in any material
respect from forms attached to the note purchase agreement or otherwise
approved by the rating agencies, ATA is obligated to obtain written
confirmation from the rating agencies that the use of those versions of
agreements will not result in a withdrawal, downgrade or suspension of the
rating of any class of certificates.
MANUFACTURERS OF AIRFRAMES AND JET ENGINES USED BY ATA MAY ACT AS OWNER
PARTICIPANTS WITH RESPECT TO THE AIRCRAFT, AND THE BUSINESS RELATIONSHIP MAY
INFLUENCE THEIR ACTIONS AS OWNER PARTICIPANTS.
Manufacturers of airframes and jet engines used by ATA may act as owner
participants with respect to aircraft, directly or through affiliates. These
manufacturers and their affiliates have various business relationships with ATA,
including as suppliers of equipment to ATA, and these business relationships
could influence the actions of these manufacturers or their affiliates as owner
participants.
Each owner participant will have the right to sell, assign or otherwise
transfer its interests as owner participant in any of such leveraged leases,
subject to the terms and conditions of the relevant participation agreement and
related documents.
THE CERTIFICATES ARE NEW SECURITIES FOR WHICH THERE IS NO ESTABLISHED PUBLIC
MARKET.
The certificates are new securities for which there is no established public
market. ATA does not intend to apply for listing of the certificates on any
securities exchange or otherwise. We have been advised by the initial purchasers
that they intend to make a market in the certificates, as permitted by
applicable laws and regulations, after consummation of the offering of the
certificates. The initial purchasers are not obligated, however, to make a
market in the certificates and any market-making activity may be discontinued at
any time without notice at the sole discretion of the initial purchasers. There
can be no assurance that an active public market for the certificates will
develop or that an investment in these certificates will be liquid. Each
purchaser of certificates in making its purchase will be deemed to have made
certain acknowledgments, representations and agreements. Transfers of
certificates are subject to certain restrictions. See 'Notice to Investors.'
30
RISK FACTORS RELATING TO THE POLICY PROVIDER
THE IMPACT OF ANY DECLINE IN THE FINANCIAL CONDITION OF THE POLICY PROVIDER
The credit ratings assigned by Standard & Poor's Corporation and Moody's
Investor Services Inc. to the class G certificates are based, primarily, on the
existence of the insurance policy insuring the complete and timely payment of
interest accrued and payable on those certificates on each scheduled date for
the payment of interest accrued and the payment of principal on or (under
certain circumstances described in this prospectus) before the final maturity
date for those certificates. Any decline in the financial condition of the
policy provider or the insolvency of the policy provider may result in the
downgrade of the foregoing ratings of the class G certificates and may impair
the ability of the policy provider to make payments to the holders of the
class G certificates pursuant to the insurance policy. In addition, in the event
of the insolvency of the policy provider under insurance insolvency proceedings
it is possible that the subordination agent would be unable to recover the full
amount due under the class G certificates on its unsecured claim against the
policy provider. For details of the financial information generally available
with respect to the policy provider, see 'Description of the Policy Provider'
and 'Description of the Policy and the Policy Provider Agreement -- The Policy.'
THE LIMITED NATURE OF THE POLICY
The insurance policy's support of interest payments and principal payments
will be limited to the class G certificates and, as a result, the insurance
policy will only run to the benefit of the holders of the class G certificates.
Although drawings under the insurance policy for interest payments may be made
when interest is due, drawings for principal payments may not, except in certain
circumstances, be made until the final maturity date for the class G
certificates. The insurance policy provides no coverage for the class C
certificates or, if issued, the class D certificates.
THE POLICY PROVIDER AS A CONTROLLING PARTY
Unless certain events constituting a policy provider default have occurred,
the policy provider will operate as the controlling party unless a liquidity
provider has the right, and elects, to become the controlling party as described
in 'Description of the Intercreditor Agreement -- Intercreditor
Rights -- Controlling Party.' As the controlling party, the policy provider will
have the ability, subject to certain limitations, to direct the subordination
agent in the exercise of all remedies, including the ability to direct the
subordination agent to sell any or all of the secured promissory notes or to
instruct the loan trustee under the applicable indenture to accelerate the
secured promissory notes issued under such indenture and to foreclose upon the
lien created under the indenture. As the controlling party, the policy provider
will be in a position to take actions that are beneficial to the policy provider
and the holders of the class G certificates but detrimental to the holders of
the class C certificates or, if issued, the class D certificates.
31
DESCRIPTION OF THE POLICY PROVIDER
The information set forth in this section, including any financial
statements incorporated by reference in this section, has been provided by Ambac
Assurance Corporation ('Ambac' or the 'Policy Provider') for inclusion in this
prospectus, and such information has not been independently verified by ATA,
Amtran, the Initial Purchasers, the Trusts, the Depositary or the Liquidity
Provider. Accordingly, notwithstanding anything to the contrary herein, none of
ATA, Amtran, the Initial Purchasers, the Trusts, the Depositary or the Liquidity
Provider assumes any responsibility for the accuracy, completeness or
applicability of such information.
Ambac is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Commonwealth of
Puerto Rico and the Territory of Guam. Ambac primarily insures newly issued
municipal and structured finance obligations. Ambac is a wholly owned subsidiary
of Ambac Financial Group, Inc. (formerly AMBAC Inc.), a 100% publicly held
company. Moody's, Standard & Poor's and Fitch IBCA, Inc. have each assigned a
triple-A financial strength rating to Ambac.
We incorporate by reference into this prospectus the consolidated financial
statements of Ambac Assurance Corporation and its subsidiaries as of
December 31, 1999 and December 31, 1998 and for each of the years in the
three-year period ended December 31, 1999 included in the Annual Report on Form
10-K of Ambac Financial Group, Inc. (which was filed with the SEC on March 30,
2000; SEC File Number 1-10777), and the unaudited consolidated financial
statements of Ambac and its subsidiaries as of June 30, 2000 and June 30, 1999,
included in the Quarterly Report on Form 10-Q of Ambac Financial Group, Inc. for
the period ended June 30, 2000 (which was filed with the SEC on August 11,
2000). Any statement contained in a document incorporated herein by reference
shall be modified or superseded for the purposes of this prospectus to the
extent that a statement contained herein by reference also modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
All financial statements of Ambac and its subsidiaries included in documents
filed by Ambac Financial Group, Inc. with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this prospectus and prior to the date on which the
exchange offer made hereby is consummated shall be deemed to be incorporated by
reference into this prospectus and to be a part hereof from the respective dates
of filing such financial statements.
The following table sets forth the capitalization of Ambac as of
December 31, 1998, December 31, 1999 and June 30, 2000, respectively, in
conformity with generally accepted accounting principles.
32
AMBAC ASSURANCE CORPORATION
CONSOLIDATED CAPITALIZATION TABLE
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------------- JUNE 30,
1998 1999 2000
---- ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS)
Unearned premiums....................................... $1,303 $1,442 $1,452
Other liabilities....................................... 548 524 504
------ ------ ------
Total liabilities....................................... 1,851 1,966 1,956
------ ------ ------
Stockholders' equity:
Common stock.......................................... 82 82 82
Additional paid-in capital............................ 541 752 753
Accumulated other comprehensive income (loss)......... 138 (92) (46)
Retained earnings..................................... 1,405 1,674 1,834
------ ------ ------
Total stockholder's equity.......................... 2,166 2,416 2,623
------ ------ ------
Total liabilities and stockholders' equity.......... $4,017 $4,382 $4,579
------ ------ ------
------ ------ ------
For additional financial information concerning Ambac, see the audited
financial statements of Ambac incorporated by reference herein. Copies of the
financial statements of Ambac incorporated herein by reference and copies of
Ambac's annual statement for the year ended December 31, 1999 and Ambac's
quarterly report for the period ended June 30, 2000 prepared in accordance with
statutory accounting standards are available, without charge, from Ambac. The
address of Ambac's administrative offices and its telephone number are One State
Street Plaza, New York, New York 10004 and (212) 668-0340.
Ambac makes no representation regarding the class G certificates or the
advisability of investing in the class G certificates and makes no
representation regarding, nor has it participated in the preparation of, this
prospectus other than the information supplied by Ambac and presented under the
heading 'Description of the Policy Provider' and the financial statements of
Ambac Financial Group, Inc. incorporated herein by reference.
33
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OUTSTANDING CERTIFICATES
Subject to the terms and conditions in this prospectus and in the
accompanying Letter of Transmittal, we will exchange unregistered Outstanding
Certificates properly tendered on or before the expiration date and not
withdrawn for registered Exchange Certificates. The expiration date is
5:00 p.m., New York City time, on October 13, 2000 unless we extend it.
As of the date of this prospectus, $201,901,000 aggregate principal amount
of class G certificates is outstanding and $36,740,000 aggregate principal
amount of class C certificates is outstanding. This prospectus, together with
the Letter of Transmittal, is first being sent on or about September 13, 2000,
to all holders of Outstanding Certificates known to us. Our obligation to accept
Outstanding Certificates for exchange is subject to certain conditions as set
forth below under ' -- Certain Conditions to the Exchange Offer.'
We may, at any time or from time to time, extend the expiration date, by
giving oral or written notice of such extension in the manner described below.
During any such extension, all Outstanding Certificates previously tendered will
remain subject to the exchange offer and we may accept them for exchange. Any
Outstanding Certificates that we do not accept for exchange for any reason will
be returned to you without cost as promptly as practicable after the expiration
or termination of the exchange offer.
Outstanding Certificates tendered in the exchange offer must be in
denominations of principal amounts of $1,000 and any integral multiples thereof.
We expressly reserve the right to amend or terminate the exchange offer. We
also reserve the right to refuse for exchange any Outstanding Certificates not
theretofore accepted for exchange, if any of the events specified below under
' -- Certain Conditions to the Exchange Offer' occur. We will give oral or
written notice of any extension, amendment, nonacceptance or termination to you
as promptly as practicable any notice with respect to any extension will be
issued by means of press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
PROCEDURES FOR TENDERING OUTSTANDING CERTIFICATES
Only a holder of record of Outstanding Certificates may tender Outstanding
Certificates in the exchange offer. To tender in the exchange offer, a holder
must:
(i) complete, sign and date a Letter of Transmittal, or a facsimile of a
Letter of Transmittal;
(ii) have the signature on the Letter of Transmittal guaranteed if the
Letter of Transmittal so requires; and
(iii) mail or deliver the Letter of Transmittal or facsimile to the
exchange agent prior to the expiration date.
In addition, either:
(i) the Exchange Agent must receive Outstanding Certificates along with
the Letter of Transmittal;
(ii) the Exchange Agent must receive, before the expiration of the
exchange offer, a timely confirmation of a book-entry transfer of the
Outstanding Certificates, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedure
for book-entry transfer described below or a properly transmitted Agent's
Message; or
(iii) the holder must comply with the guaranteed delivery procedures
described below.
The term 'Agent's Message' means a message, transmitted by the Book-Entry
Transfer Facility to and received by the Exchange Agent. It forms a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from
34
the tendering participant, which states that the participant has received and
agrees to be bound by the Letter of Transmittal and that we may enforce the
Letter of Transmittal against such participant. THE METHOD OF DELIVERY OF THE
OUTSTANDING CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NO LETTER OF
TRANSMITTAL OR OUTSTANDING CERTIFICATES SHOULD BE SENT TO US.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by:
a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
a commercial bank; or
a trust company having an office or correspondent in the United States
(collectively, Eligible Institutions);
unless the Outstanding Certificates tendered are tendered:
(i) by a registered holder of the Outstanding Certificates who has not
completed the box entitled 'Special Issuance Instructions' or 'Special
Delivery Instructions' on the Letter of Transmittal; or
(ii) for the account of an Eligible Institution.
If Outstanding Certificates are registered to a person who did not sign the
Letter of Transmittal, the Outstanding Certificates surrendered for exchange
must be endorsed by, or be accompanied by a written transfer or exchange, duly
executed by the registered holder with the signature guaranteed by an Eligible
Institution. All questions of satisfaction of the form of the writing will be
determined by us in our sole discretion.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Outstanding Certificates listed therein, such Outstanding
Certificates must be endorsed or accompanied by appropriate powers of attorney,
signed exactly as the name of the registered holder appears on the Outstanding
Certificates.
If the Letter of Transmittal or any Outstanding Certificates or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by us, must submit with the Letter of Transmittal evidence
satisfactory to us of their authority to so act.
We will determine all questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of the tendered
Outstanding Certificates. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any particular
Outstanding Certificates not properly tendered or to not accept any particular
Outstanding Certificates our acceptance of which would, in our opinion or in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any defects or irregularities or conditions of the exchange offer as to any
particular Outstanding Certificates either before or after the expiration date.
Our interpretation of the terms and conditions of the exchange offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Certificates must be cured within a time
period we determine. Neither we, the Exchange Agent nor any other person is
under any duty to give notification of defects or irregularities with respect to
tenders of Outstanding Certificates nor shall any of them incur any liability
for failure to give such
35
notification. Any Outstanding Certificates will not be considered to have been
properly tendered until such defects or irregularities have been cured or
waived. Any Outstanding Certificates received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holders unless otherwise provided in the Letter of Transmittal as soon
as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to:
(i) purchase or make offers for any Outstanding Certificates that remain
outstanding subsequent to the expiration date, or, as set forth below under
' -- Certain Conditions to the Exchange Offer,' to terminate the exchange
offer; and
(ii) to the extent permitted by applicable law, purchase Outstanding
Certificates in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the
terms of the exchange offer.
By tendering, each holder of Outstanding Certificates will represent to us,
among other things that:
the Exchange Certificates acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving the
Exchange Certificates, whether or not that person is the holder;
neither the holder nor any other person has any arrangement or
understanding with any person to participate in the distribution of the
Exchange Certificates; and
such holder is not engaged in, or intends to engage in, a distribution of
the Exchange Certificates.
If any holder or any such other person is an 'affiliate,' as defined under
Rule 405 of the Securities Act, of us, or is engaged in or intends to engage in
or has an arrangement or understanding with any person to participate in a
distribution of such Exchange Certificates to be acquired in the exchange offer,
such holder or any such other person:
(i) could not rely on the applicable interpretations of the staff of the
Commission; and
(ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives Exchange Certificates for its
own account in exchange for Outstanding Certificates, where such Outstanding
Certificates were acquired by the broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange
Certificates. See 'Plan of Distribution.'
ACCEPTANCE OF OUTSTANDING CERTIFICATES FOR EXCHANGE; DELIVERY OF EXCHANGE
CERTIFICATES
Upon satisfaction or waiver of the conditions to the exchange offer, we will
accept, promptly, all Outstanding Certificates properly tendered and will issue
the Exchange Certificates. See ' -- Certain Conditions to the Exchange Offer.'
We are deemed to have accepted properly tendered Outstanding Certificates
for exchange if or when we give oral or written notice of acceptance to the
Exchange Agent, with written confirmation of any oral notice to follow promptly.
For each Outstanding Certificate accepted for exchange, holders of that
Outstanding Certificate will receive an Exchange Certificate having a principal
amount equal to that of the surrendered Outstanding Certificate. Interest on the
Outstanding Certificates will accrue from the most recent interest payment date
or if no interest has been paid, from February 15, 2000. Interest on the
Outstanding Certificates and the Exchange Certificates is payable on each
January 15, April 15, July 15 and October 15, beginning April 15, 2000. Holders
of Outstanding Certificates whose Outstanding Certificates are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of accrued and unpaid interest on the Outstanding Certificates accrued
from the most recent interest payment date or if no interest has been paid, from
36
February 15, 2000 to the date of the issuance of the Exchange Certificates. The
Exchange Certificates will entitle holders to receive any interest payment that
would have otherwise been payable with respect to the Outstanding Certificates.
Consequently, holders who exchange their Outstanding Certificates for Exchange
Certificates will receive the same interest payment on April 15, 2000 (the first
interest payment date with respect to the Outstanding Certificates and the
Exchange Certificates occurring after the closing of the exchange offer) that
they would have received had they not accepted the exchange offer.
In all cases, issuance of Exchange Certificates for Outstanding Certificates
that are accepted for exchange will be made only after timely receipt by the
Exchange Agent of:
(i) certificates for such Outstanding Certificates or a timely
Book-Entry Confirmation of such Outstanding Certificates into the Exchange
Agent's account at the Book-Entry Transfer Facility;
(ii) a properly completed and duly executed Letter of Transmittal or an
Agent's Message in lieu thereof; and
(iii) all other required documents.
If any tendered Outstanding Certificates are not accepted for any reason set
forth in the terms and conditions of the exchange offer or if Outstanding
Certificates are submitted for a greater principal amount than the holder
desired to exchange, the unaccepted or nonexchanged Outstanding Certificates
will be returned without expense to the tendering holder (or, in the case of
Outstanding Certificates tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, the nonexchanged Outstanding Certificates will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Certificates at the Book-Entry Transfer Facility for purposes
of the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of Outstanding
Certificates by causing the Book-Entry Transfer Facility to transfer the
Outstanding Certificates into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Outstanding Certificates
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof or an Agent's Message in lieu
thereof), with any required signature guarantees and any other required
documents, must still be transmitted to and received by the Exchange Agent at
one of the addresses set forth below, under ' -- Exchange Agent' on or prior to
the expiration date or the guaranteed delivery procedures described below must
be complied with.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its Outstanding Certificates; and
(i) whose Outstanding Certificates are not immediately available; or
(ii) who cannot deliver their Outstanding Certificates, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to
the expiration date; or
(iii) who cannot complete the procedure for book-entry transfer on a
timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution; and
37
(b) before the expiration date, the Exchange Agent receives from the
Eligible Institution:
a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the
Outstanding Certificates;
the certificate number or numbers of such Outstanding
Certificates and the principal amount of Outstanding
Certificates tendered, stating that the tender is being made
thereby, and guaranteeing that the certificates for all
physically tendered Outstanding Certificates, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof or an Agent's Message in
lieu thereof) with any required signature guarantees, and all
other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed
Delivery; and
the certificates for all physically tendered Outstanding
Certificates, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, together with a properly
completed and duly executed Letter of Transmittal (or a
facsimile thereof or an Agent's Message in lieu thereof), with
any required signature guarantees and any other documents
required by the Letter of Transmittal, that will be deposited by
the Eligible Institution with the Exchange Agent within three
New York Stock Exchange trading days after the date of execution
of the Notice of Guaranteed Delivery.
WITHDRAWAL OF RIGHTS
Except as otherwise provided herein, tenders of Outstanding Certificates may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of Outstanding Certificates, a written notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the expiration date. Any such
notice of withdrawal must:
(i) specify the name of the person having tendered the Outstanding
Certificates to be withdrawn (the Depositor);
(ii) include a statement that the Depositor is withdrawing its election
to have Outstanding Certificates exchanged, and identify the Outstanding
Certificates to be withdrawn (including the certificate number or numbers
and principal amount of such Outstanding Certificates); and
(iii) where certificates for Outstanding Certificates have been
transmitted, specify the name in which such Outstanding Certificates are
registered, if different from that of the withdrawing holder.
If certificates for Outstanding Certificates have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit:
(i) the serial numbers of the particular certificates to be withdrawn;
and
(ii) signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution.
If Outstanding Certificates have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Outstanding Certificates and otherwise comply with
the procedures of the facility.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) for such withdrawal notices. Our determination shall
be final and binding on all parties.
38
Any Outstanding Certificates so withdrawn will be considered not to have
been validly tendered for purposes of the exchange offer and no Exchange
Certificates will be issued with respect thereto unless the Outstanding
Certificates so withdrawn are validly retendered.
Any Outstanding Certificates which have been tendered but which are not
accepted for exchange for any reason will be returned to the holder without cost
(or, in the case of Outstanding Certificates tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Outstanding
Certificates will be credited to an account maintained with such Book-Entry
Transfer Facility for the Outstanding Certificates) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Outstanding Certificates may be retendered by following one of the
procedures described above under ' -- Procedures for Tendering Outstanding
Certificates' at any time prior to 5:00 p.m., New York City time, on the
expiration date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that the
exchange offer does not violate applicable law or any applicable interpretation
of the staff of the Commission. We cannot assure you that any such condition
will not occur. Holders of Outstanding Certificates will have certain rights
against us under the registration rights agreement should we fail to consummate
the exchange offer.
If we determine that we may terminate the exchange offer, as set forth
above, we may:
(i) refuse to accept any Outstanding Certificates and return any
Outstanding Certificates that have been tendered;
(ii) extend the exchange offer and retain all Outstanding Certificates
tendered prior to the expiration date, subject to the rights of such holders
of tendered Outstanding Certificates to withdraw their tendered Outstanding
Certificates; or
(iii) waive a termination event with respect to the exchange offer and
accept all properly tendered Outstanding Certificates that have not been
withdrawn. If such waiver constitutes a material change in the exchange
offer, we will disclose that change through a supplement to this prospectus
that will be distributed to each registered holder of Outstanding
Certificates. In addition, we will extend the exchange offer for a period of
five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders of the Outstanding
Certificates, if the exchange offer would otherwise expire during such
period.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
exchange offer. All executed Letters of Transmittal and written notices of
withdrawal should be directed to the Exchange Agent at one of the addresses set
forth below. Questions and requests for assistance and
39
requests for additional copies of this prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
By Hand, Mail or Overnight Courier Facsimile Transmission Number
Wilmington Trust Company (302) 651-8882
Rodney Square North (FOR ELIGIBLE
100 North Market Street INSTITUTIONS ONLY)
Wilmington, DE 19890 Confirm by Telephone
Attention: David Vanaskey, Corporate Trust (302) 651-8726 or
Administration (302) 651-1000
Personal and Confidential
(IF BY MAIL, REGISTERED OR
CERTIFIED MAIL RECOMMENDED)
DELIVERY OF THE LETTER OF TRANSMITTAL OR OF WRITTEN NOTICES OF WITHDRAWAL TO
AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF
SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated to be $130,000.
TRANSFER TAXES
Holders who tender their Outstanding Certificates for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. However,
holders who instruct us to register Exchange Certificates in the name of, or
request that Outstanding Certificates not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax
thereon.
CONSEQUENCES OF EXCHANGING OUTSTANDING CERTIFICATES
Holders of Outstanding Certificates who do not exchange them for Exchange
Certificates in the exchange offer will continue to be subject to the provisions
in the Indenture regarding their transfer and exchange. Any Outstanding
Certificates not exchanged will continue to accrue interest, but will not retain
any rights under the registration rights agreement and will bear the legend
which sets forth the restrictions on transfer to which they are subject as a
consequence of the issuance of the Outstanding Certificates pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
In general, the Outstanding Certificates may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register Outstanding
Certificates under the Securities Act. See 'Exchange Offer; Registration
Rights.'
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, we believe that Exchange Certificates
issued in the exchange offer in exchange for Outstanding Certificates may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is our 'affiliate' within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Certificates are acquired in
40
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Certificates.
However, we do not intend to request the Commission to consider, and the
Commission has not considered, the exchange offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the exchange offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that:
(i) the Exchange Certificates received by such holder will be acquired
in the ordinary course of its business;
(ii) at the time of the consummation of the exchange offer such holder
will have not engaged in, and does not intend to engage in, a distribution
of Exchange Certificates and has no arrangement or understanding to
participate in a distribution of Exchange Certificates; and
(iii) such holder is not our affiliate within the meaning of Rule 405 of
the Securities Act or if it is such an affiliate, that it will comply with
the registration and prospectus delivery requirements of the Securities Act,
to the extent applicable.
If any holder is our affiliate, is engaged in or intends to engage in or has
any arrangement or understanding with respect to the distribution of the
Exchange Certificates to be acquired pursuant to the exchange offer, such
holder:
(i) could not rely on the applicable interpretations of the staff of the
Commission; and
(ii) must comply with the registration and prospectus delivery
requirement of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Certificates for its own account
in exchange for Outstanding Certificates must acknowledge that such Outstanding
Certificates were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such Exchange Certificates.
The Letter of Transmittal states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Certificates
received in exchange for Outstanding Certificates, where such Outstanding
Certificates were acquired by such broker-dealer as a result of market-making
activities or other trading activities.
We have agreed that for a period of 180 days after the expiration date, we
will make this prospectus available to any broker-dealer for use in connection
with any such resale. See 'Plan of Distribution.'
In addition, to comply with state securities laws, the Exchange Certificates
may not be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
The offer and sale of the Exchange Certificates to 'Qualified Institutional
Buyers' (as such term is defined under Rule 144A of the Securities Act) is
generally exempt from registration or qualification under state securities laws.
We currently do not intend to register or qualify the sale of the Exchange
Certificates in any state where an exemption from registration or qualification
is required and not available.
41
CAPITALIZATION
The following table sets forth our actual consolidated capitalization
derived from our unaudited consolidated financial statements at June 30, 2000.
AT JUNE 30, 2000
----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash........................................................ $119,090
--------
Short-term debt (consisting of current maturities of
long-term debt)........................................... $ 13,801
--------
Long-term debt
Tax-exempt mortgage bonds, due 2020..................... 6,000
10 1/2% Senior Notes due 2004........................... 175,000
9 5/8% Senior Notes due 2005............................ 125,000
Special Facility Revenue Bonds due 2029................. 16,960
8.3% Mortgage due 2014.................................. 7,442
Note payable to bank due 2005........................... 9,233
Unsecured debt.......................................... 4,826
--------
Total long-term debt................................ 344,461
--------
Total debt.......................................... 358,262
--------
Total shareholders' equity.......................... 152,880
--------
Total capitalization................................ $511,142
--------
--------
The completion of the offering will have no effect on the capitalization of
Amtran or ATA as of June 30, 2000.
42
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with the selected historical financial
data of Amtran, Inc. We have prepared the selected financial data included in
this information using the consolidated financial statements of Amtran, Inc. for
the five years ended December 31, 1999. The financial statements for the five
fiscal years ended December 31, 1999 have been audited by Ernst & Young LLP,
independent auditors. The selected consolidated financial data for the six
months ended June 30, 2000 and 1999 is derived from our unaudited consolidated
financial statements. The unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, that we consider
necessary for the fair presentation of our financial position and results of
operations for these periods.
When you read this selected historical financial data, it is important that
you read along with it the historical financial statements and related notes in
our annual reports filed with the SEC, as well as the section of our annual
reports titled 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Scheduled service................... $361,967 $386,488 $371,762 $511,254 $ 624,647 $308,279 $364,873
Charter............................. 307,091 310,569 359,177 344,482 389,979 199,700 230,780
Ground package...................... 20,421 22,302 22,317 23,186 58,173 31,689 37,311
Other............................... 25,530 31,492 29,937 40,447 49,567 22,955 21,936
-------- -------- -------- -------- ---------- -------- --------
Total operating revenues......... 715,009 750,851 783,193 919,369 1,122,366 562,623 654,900
-------- -------- -------- -------- ---------- -------- --------
Operating expenses:
Salaries, wages and benefits........ 141,072 163,990 172,499 211,304 252,595 122,577 140,632
Fuel and oil........................ 129,636 161,226 153,701 137,401 170,916 73,662 126,682
Handling, landing and navigation
fees............................... 74,400 70,122 69,383 74,640 89,302 45,311 49,066
Passenger service................... 34,831 32,745 32,812 34,031 39,231 18,461 23,422
Aircraft rentals.................... 55,738 65,427 54,441 53,128 58,653 29,382 32,862
Aircraft maintenance, materials and
repairs............................ 55,423 55,175 51,465 53,655 55,645 28,131 36,975
Depreciation and amortization....... 55,827 61,661 62,468 78,665 96,038 45,858 62,353
Other............................... 150,146 176,561 172,940 201,172 269,959 139,852 161,722
-------- -------- -------- -------- ---------- -------- --------
Total operating expenses......... 697,073 786,907 769,709 843,996 1,032,339 503,234 633,714
-------- -------- -------- -------- ---------- -------- --------
Operating income (loss)(1).......... 17,936 (36,056) 13,484 75,373 90,027 59,389 21,186
-------- -------- -------- -------- ---------- -------- --------
Other income (expense):
Interest income..................... 410 617 1,584 4,433 5,375 3,163 3,885
Interest (expense).................. (4,163) (4,465) (9,454) (12,808) (20,966) (10,118) (15,642)
Other............................... 470 323 413 212 3,361 1,836 49
-------- -------- -------- -------- ---------- -------- --------
Other income (expense)........... (3,283) (3,525) (7,457) (8,163) (12,230) (5,119) (11,708)
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before income taxes..... 14,653 (39,581) 6,027 67,210 77,797 54,270 9,478
Income taxes (credits)................ 6,129 (12,907) 4,455 27,129 30,455 21,025 5,563
-------- -------- -------- -------- ---------- -------- --------
Net income (loss)..................... $ 8,524 $(26,674) $ 1,572 $ 40,081 $ 47,342 $ 33,245 $ 3,915
-------- -------- -------- -------- ---------- -------- --------
-------- -------- -------- -------- ---------- -------- --------
Net income (loss) per
share -- basic(2)................... $ 0.74 $ (2.31) $ 0.14 $ 3.41 $ 3.86 $ 2.73 $ 0.32
-------- -------- -------- -------- ---------- -------- --------
-------- -------- -------- -------- ---------- -------- --------
Net income (loss) per
share -- diluted(2)................. $ 0.74 $ (2.31) $ 0.13 $ 3.07 $ 3.51 $ 2.46 $ 0.30
-------- -------- -------- -------- ---------- -------- --------
-------- -------- -------- -------- ---------- -------- --------
(table continued on next page)
43
(table continued from previous page)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.................................. $ 92,741 $ 73,382 $104,196 $172,936 $120,164 $117,831 $119,090
Non-cash working capital
(deficiency)(3)...................... (80,639) (65,472) (100,731) (112,276) (128,191) (122,418) (128,488)
Property and equipment, net........... 240,768 224,540 267,681 329,332 511,832 429,731 521,481
Total assets.......................... 413,137 370,287 450,857 594,549 815,281 691,598 863,133
Short-term debt (including current
maturities).......................... 3,606 30,271 8,975 1,476 2,079 1,476 13,801
Long-term debt........................ 134,641 119,786 182,829 245,195 345,792 253,006 344,461
Total debt............................ 138,247 150,057 191,804 246,671 347,871 254,482 358,262
Shareholders' equity(4)............... 81,185 54,744 56,990 102,751 151,376 137,161 152,880
OTHER FINANCIAL DATA:
EBITDAR(5)............................ $130,381 $ 91,972 $132,390 $211,811 $253,454 $139,628 $120,335
EBITDA(5)............................. 74,643 26,545 77,949 158,683 194,801 110,246 87,473
Net cash provided by operating
activities........................... 87,078 32,171 99,936 151,812 159,563 85,484 77,336
Net cash used in investing
activities........................... (44,032) (63,161) (76,055) (142,352) (305,718) (147,143) (85,528)
Net cash provided by (used in)
financing activities................. (12,057) 11,631 6,933 59,280 93,383 6,554 7,118
Ratio of earnings to fixed
charges(6)........................... 1.60 -- 1.19 3.03 2.65 3.37 1.28
Deficiency of earnings available to
cover fixed charges(6)............... -- $ 40,931 -- -- -- -- --
- ---------
(1) Amtran has reclassified gain (loss) on the sale of operating assets for 1995
from nonoperating gain (loss) to operating income (loss) to be consistent
with the 1996-2000 presentations. Also, in the third quarter of 1996, Amtran
recorded a $4.7 million loss on the disposal of leased assets associated
with the reconfiguration of its fleet.
(2) In 1997, Amtran adopted Financial Accounting Standards Board Statement 128,
'Earnings per Share,' which established new standards for the calculation
and disclosure of earnings per share. All prior period amounts disclosed in
this five-year summary have been restated to conform to the new standards
under Statement 128.
(3) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long-term
debt).
(4) No dividends were paid in any of the periods presented.
(5) EBITDAR represents net income plus interest expense (net of capitalized
interest), income tax expense, depreciation, amortization and aircraft
rentals. EBITDA represents net income plus interest expense (net of
capitalized interest), income tax expense, depreciation and amortization.
EBITDAR and EBITDA are presented because each is a widely accepted financial
indicator of a company's ability to incur and service debt. However, EBITDAR
and EBITDA should not be considered in isolation, as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(6) The 'ratio of earnings to fixed charges' represents earnings divided by
fixed charges, as defined in the following paragraph. The 'deficiency'
represents the amount of fixed charges in excess of earnings.
For purposes of these computations, earnings consist of income (loss) before
income taxes, plus fixed charges, adjusted to exclude the amount of any
interest capitalized during the period. Fixed charges include the total of:
(i) interest, whether expensed or capitalized; (ii) amortization of debt
expense relating to any indebtedness, whether expensed or capitalized;
(footnotes continued on next page)
44
(footnotes continued from previous page)
and (iii) such portion of rental expense as can be demonstrated to be
representative of the interest factor.
(7) The following summarized financial data (unaudited) in this table has been
derived from the financial statements of ATA for each of the respective
periods presented. ATA is the principal subsidiary of Amtran. The following
financial data excludes the other subsidiaries of Amtran (Ambassadair Travel
Club, Inc., ATA Leisure Corp., Amber Travel Inc., American Trans Air
Execujet, Inc., Amber Air Freight Corporation and ATA Training Academy Inc.)
as ATA is the principal operating subsidiary of Amtran. Amtran allocates
certain expenses, such as income taxes, to the various subsidiaries as if
they were operating on a stand alone basis.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:(7)
Operating revenues:................. $682,106 $712,915 $744,153 $877,187 $1,008,855 $500,666 $592,986
Depreciation and amortization....... 55,056 61,267 62,281 78,595 93,820 45,206 59,668
Operating income (loss)(1).......... 14,819 (40,674) 10,325 80,920 97,558 59,729 27,412
Interest expense, net............... 3,773 4,466 9,454 12,808 20,969 10,116 15,651
Income (loss) before income taxes... 11,389 (44,416) 2,627 72,528 84,989 54,381 15,519
Net income (loss)................... 6,006 (31,509) 69 43,329 51,951 33,356 9,956
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency)(2)..... $(49,710) $(86,207) $(51,939) $ 10,768 $ (32,049) $(36,531) $(32,088)
Property and equipment, net......... 239,864 224,232 267,556 328,661 508,210 425,887 511,767
Total assets........................ 409,354 369,086 466,923 593,489 823,090 680,735 935,071
Short-term debt (including current
maturities)........................ 3,606 30,271 8,975 1,476 2,079 1,476 13,801
Long-term debt...................... 134,641 119,786 182,829 245,195 345,792 253,006 344,461
Total debt.......................... 138,247 150,057 191,804 246,671 347,871 254,482 358,262
Shareholders' equity(3)............. 30,372 (9,934) 6,762 50,091 102,039 83,447 111,996
- ---------
(1) ATA has reclassified gain (loss) on the sale of operating assets for 1995
from non-operating gain (loss) to operating income (loss) to be consistent
with the 1996-2000 presentations. Also, in the third quarter of 1996, ATA
recorded a $4.7 million loss on the disposal of leased assets associated
with the reconfiguration of its fleet.
(2) Working capital consists of total current assets less current liabilities.
(3) No dividends were paid in any of the periods presented.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of targeted scheduled airline services and charter
airline services to leisure and other value-oriented travelers. Amtran, through
its principal subsidiary, American Trans Air, Inc., ('or ATA'), has been
operating for 27 years and is the eleventh largest U.S. airline in terms of 1999
revenues. ATA provides scheduled service through nonstop and connecting flights
from the gateways of Chicago-Midway and Indianapolis to popular vacation
destinations such as Hawaii, Las Vegas, Florida, California, Mexico and the
Caribbean, as well as to Philadelphia, Boston, Seattle, Ronald Reagan Washington
National, Denver, Dallas-Ft. Worth and New York City's LaGuardia and John F.
Kennedy Airports. ATA also provides charter service throughout the world to
independent tour operators, specialty charter customers and the U.S. military.
RESULTS OF OPERATIONS
For the year ended December 31, 1999, we generated record operating income
and net income. Although all business units performed well during this period,
scheduled service continued to generate the strongest overall growth in pricing
and traffic of the major business units.
Scheduled service revenue per available seat mile, ('or RASM'), increased
7.5% in 1999, as compared to 1998.
Scheduled service available seat miles increased 13.6% between 1999 and
1998.
Load factor increased to 77.4% in 1999 as compared to 74.4% in 1998.
For the six months ended June 30, 2000, we earned $21.2 million in operating
income, a decrease of 64.3% as compared to operating income of $59.4 million in
the comparable period of 1999; and we earned $3.9 million in net income in the
six months ended June 30, 2000, a decrease of 88.3% as compared to net income of
$33.2 million in the same period of 1999.
Operating revenues increased 16.4% to $654.9 million in the six months ended
June 30, 2000, as compared to $562.6 million in the same period of 1999.
Consolidated ('RASM') increased 6.4% to 8.13 cents in the six months ended
June 30, 2000, as compared to 7.64 cents in the same period of 1999.
Operating expenses increased 25.9% to $633.7 million in the six months ended
June 30, 2000, as compared to $503.2 million in the comparable period of 1999.
Consolidated operating cost per available seat mile, ('or CASM'), increased
15.1% to 7.86 cents in the six months ended June 30, 2000, as compared to 6.83
cents in the same period of 1999.
RESULTS OF OPERATIONS IN CENTS PER AVAILABLE SEAT MILE
The following table sets forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per available seat mile, ('or
ASM'):
CENTS PER ASM
CENTS PER ASM SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
Consolidated operating revenues:........ 6.19 6.64 7.44 7.64 8.13
Consolidated operating expenses:
Salaries, wages and benefits........ 1.36 1.52 1.67 1.66 1.74
Fuel and oil........................ 1.22 0.99 1.13 1.00 1.57
Depreciation and amortization....... 0.49 0.57 0.64 0.62 0.77
Handling, landing and navigation
fees.............................. 0.55 0.54 0.59 0.62 0.61
Aircraft maintenance, materials and
repairs........................... 0.41 0.39 0.37 0.38 0.46
(table continued on next page)
46
(table continued from previous page)
CENTS PER ASM
CENTS PER ASM SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
Ground package cost................. 0.15 0.14 0.33 0.35 0.40
Aircraft rentals.................... 0.43 0.38 0.39 0.40 0.41
Crew and Other employee travel...... 0.29 0.30 0.33 0.33 0.41
Passenger service................... 0.26 0.24 0.26 0.25 0.29
Commissions......................... 0.21 0.21 0.26 0.27 0.27
Other selling expenses.............. 0.12 0.16 0.19 0.18 0.22
Advertising......................... 0.10 0.13 0.12 0.14 0.14
Facilities and other rentals........ 0.07 0.07 0.09 0.09 0.09
Other............................... 0.43 0.45 0.47 0.54 0.48
---------- ---------- ---------- ---------- ---------
Total consolidated operating
expenses...................... 6.09 6.09 6.84 6.83 7.86
---------- ---------- ---------- ---------- ---------
Consolidated operating income........... 0.10 0.55 0.60 0.81 0.27
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
ASMs (in thousands)..................... 12,647,683 13,851,731 15,082,630 7,364,717 8,059,857
Beginning in 1999, our consolidated measures of RASM and CASM were impacted
by our acquisition of tour operators Travel Charter and Key Tours, because these
companies contributed significant operating revenue and expense to consolidated
results, without increasing ASMs. The operations of these tour operators, along
with our existing vacation package brand, ATA Vacations, have been combined and
reported as a separate operating segment, ATA Leisure Corp., or ATALC. See
Note 13 to Consolidated Financial Statements.
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.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
Airline and Other
Operating revenue (000s)............. $758,971 $897,884 $1,027,526 $512,008 $589,611
RASM (cents)......................... 6.00 6.48 6.81 6.95 7.32
Operating expense (000s)............. $755,492 $830,977 $ 961,935 $454,125 $563,700
CASM (cents)......................... 5.97 6.00 6.38 6.17 6.99
ATALC
Operating revenue (000s)............. $ 24,222 $ 21,485 $ 94,840 $ 50,615 $ 65,289
RASM (cents)......................... 0.19 0.16 0.63 0.69 0.81
Operating expense (000s)............. $ 14,217 $ 13,019 $ 70,404 $ 49,109 $ 70,014
CASM (cents)......................... 0.12 0.09 0.46 0.66 0.87
ATALC operating revenue and expense presented above include those from
external sources, and those generated or incurred through another segment.
Airline and other operating revenue and expense presented above include
intercompany eliminations.
CONSOLIDATED FLIGHT OPERATING AND FINANCIAL DATA
The following table sets forth, for the periods indicated, certain key
operating and financial data for our consolidated flight operations. Data shown
for 'Jet' operations include the consolidated operations of Lockheed L-1011,
Boeing 727-200 and Boeing 757-200 aircraft in all of our business units. Data
shown for 'J31/SAAB' operations include the consolidated operations of Jetstream
31 and SAAB 340B propeller aircraft by Chicago Express Airlines, Inc. as the ATA
Connection.
47
TWELVE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------------------
INC % INC INC % INC
1998 1999 (DEC) (DEC) 1999 2000 (DEC) (DEC)
---- ---- ----- ----- ---- ---- ----- -----
Departures Jet..................... 45,881 50,207 4,326 9.43 24,892 26,977 2,085 8.38
Departures J31/SAAB(a)............. 16,388 17,716 1,328 8.10 8,493 8,850 357 4.20
---------- ---------- --------- ----- --------- --------- ------- -----
Total Departures(b)............. 62,269 67,923 5,654 9.08 33,385 35,827 2,442 7.31
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
Block Hours Jet.................... 144,237 157,481 13,244 9.18 77,915 84,843 6,928 8.89
Block Hours J31/SAAB............... 16,166 17,979 1,813 11.21 8,650 8,982 332 3.84
---------- ---------- --------- ----- --------- --------- ------- -----
Total Block Hours(c)............ 160,403 175,460 15,057 9.39 86,565 93,825 7,260 8.39
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
RPMs Jet (000s).................... 9,727,097 10,913,081 1,185,984 12.19 5,370,250 5,860,505 490,255 9.13
RPMs J31/SAAB (000s)............... 30,991 35,922 4,931 15.91 17,277 23,624 6,347 36.74
---------- ---------- --------- ----- --------- --------- ------- -----
Total RPMs (000s)(d)............ 9,758,088 10,949,003 1,190,915 12.20 5,387,527 5,884,129 496,602 9.22
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
ASMs Jet (000s).................... 13,799,507 15,025,000 1,225,493 8.88 7,337,338 8,022,815 685,477 9.34
ASMs J31/SAAB (000s)............... 52,224 57,630 5,406 10.35 27,379 37,042 9,663 35.29
---------- ---------- --------- ----- --------- --------- ------- -----
Total ASMs (000s)(e)............ 13,851,731 15,082,630 1,230,899 8.89 7,364,717 8,059,857 695,140 9.44
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
Load Factor Jet.................... 70.49 72.63 2.14 3.04 73.19 73.05 (0.14) (0.19)
Load Factor J31/SAAB............... 59.34 62.33 2.99 5.04 63.10 63.78 0.68 1.08
---------- ---------- --------- ----- --------- --------- ------- -----
Total Load Factor(f)............ 70.45 72.59 2.14 3.04 73.15 73.01 (0.14) (0.19)
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
Passengers Enplaned Jet............ 5,991,662 6,838,339 846,677 14.13 3,527,288 3,868,461 341,173 9.67
Passengers Enplaned J31/SAAB....... 176,604 206,304 29,700 16.82 98,920 132,696 33,776 34.14
---------- ---------- --------- ----- --------- --------- ------- -----
Total Passengers Enplaned(g).... 6,168,266 7,044,643 876,377 14.21 3,626,208 4,001,157 374,949 10.34
---------- ---------- --------- ----- --------- --------- ------- -----
---------- ---------- --------- ----- --------- --------- ------- -----
Revenues for consolidating
(000s)............................ 919,369 1,122,366 202,997 22.08 562,623 654,900 92,277 16.40
RASM in cents(h)................... 6.64 7.44 0.80 12.05 7.64 8.13 0.49 6.41
CASM in cents(i)................... 6.09 6.84 0.75 12.32 6.83 7.86 1.03 15.08
Yield in cents(j).................. 9.42 10.25 0.83 8.81 10.44 11.13 0.69 6.61
- ---------
See footnotes (g) through (j) on page 49.
(a) Chicago Express Airlines provides service between Chicago-Midway and the
cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids,
Lansing and Madison as the ATA Connection, using Jetstream 31 and SAAB 340B
propeller aircraft.
(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, or 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
us.
(e) Available seat miles, or 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 us, 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 an entire aircraft is sold by us 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. Our consolidated load factors and scheduled service load
factors are shown in the appropriate tables for industry comparability, but
load factors for individual charter businesses are omitted from applicable
tables.
(footnotes continued on next page)
48
(footnotes continued from previous page)
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on our 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. RASM measures our 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. CASM measures our 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.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
OPERATING REVENUES
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for our scheduled service
operations. 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' operations include the operations of
Jetstream 31 and SAAB 340B propeller aircraft operated by Chicago Express as the
ATA Connection.
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
1999 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet.................................. 17,338 18,967 1,629 9.40
Departures J31/SAAB(a).......................... 8,493 8,850 357 4.20
---------- ---------- --------- -----
Total Departures(b)......................... 25,831 27,817 1,986 7.69
---------- ---------- --------- -----
---------- ---------- --------- -----
Block Hours Jet................................. 50,677 56,054 5,377 10.61
Block Hours J31/SAAB............................ 8,650 8,982 332 3.84
---------- ---------- --------- -----
Total Block Hours(c)........................ 59,327 65,036 5,709 9.62
---------- ---------- --------- -----
---------- ---------- --------- -----
RPMs Jet (000s)................................. 3,274,120 3,772,065 497,945 15.21
RPMs J31/SAAB (000s)............................ 17,277 23,624 6,347 36.74
---------- ---------- --------- -----
Total RPMs (000s)(d)........................ 3,291,397 3,795,689 504,292 15.32
---------- ---------- --------- -----
---------- ---------- --------- -----
ASMs Jet (000s)................................. 4,175,510 4,767,406 591,896 14.18
ASMs J31/SAAB (000s)............................ 27,379 37,042 9,663 35.29
---------- ---------- --------- -----
Total ASMs (000s)(e)........................ 4,202,889 4,804,448 601,559 14.31
---------- ---------- --------- -----
---------- ---------- --------- -----
Load Factor Jet................................. 78.41 79.12 0.71 0.91
Load Factor J31/SAAB............................ 63.10 63.78 0.68 1.08
---------- ---------- --------- -----
Total Load Factor(f)........................ 78.31 79.00 0.69 0.88
---------- ---------- --------- -----
---------- ---------- --------- -----
Passengers Enplaned Jet......................... 2,407,385 2,840,326 432,941 17.98
Passengers Enplaned J31/SAAB.................... 98,920 132,696 33,776 34.14
---------- ---------- --------- -----
Total Passengers Enplaned(g)................ 2,506,305 2,973,022 466,717 18.62
---------- ---------- --------- -----
(table continued on next page)
49
(table continued from previous page)
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
1999 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Revenues (000s)................................. $308,279 $364,873 $56,594 18.36
RASM in cents(h)................................ 7.33 7.59 0.26 3.55
Yield in cents(j)............................... 9.37 9.61 0.24 2.56
Rev per segment $(k)............................ $123.00 $122.73 (0.27) (0.22)
- ---------
See footnotes (a) through (j) on pages 48 and 49.
(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 our scheduled service route network.
-------------------
Scheduled service revenues in the six months ended June 30, 2000, increased
18.4% to $364.9 million from $308.3 million in the same period of 1999.
Scheduled service revenues comprised 55.7% of consolidated revenues in the six
months ended June 30, 2000, as compared to 54.8% of consolidated revenues in the
same period of 1999.
During the second quarter of 2000, we began operating nonstop flights to
Ronald Reagan Washington National Airport, Boston and Seattle. In addition to
this new service, we have served the following existing jet markets in the six
months ended June 30, 2000: Dallas-Ft. Worth, Denver, Ft. Lauderdale,
Ft. Myers, Las Vegas, Los Angeles, New York's John F. Kennedy International
Airport (seasonal), New York's LaGuardia Airport, Orlando, Phoenix,
St. Petersburg, San Francisco, San Juan, and Sarasota. In April 1999, we
acquired all of the issued and outstanding stock of Chicago Express Airlines,
Inc., which operated 19-seat Jetstream 31 propeller aircraft between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison. During 2000, Chicago Express is replacing the
19-seat Jetstream 31 propeller aircraft with 34-seat SAAB 340B aircraft.
We anticipate that our Chicago-Midway operation will represent a focus of
growing significance for our scheduled service business in 2000 and beyond. We
also presently expect to occupy 12 jet gates and one commuter aircraft gate at
the new Chicago-Midway terminal which is presently scheduled for completion in
2004, as compared to the six jet gates currently occupied in the existing
terminal. In addition, we have begun construction of a Federal Inspection
Service facility at Chicago-Midway, with which we plan to operate international
services.
Our growing commitment to Chicago-Midway is consistent with our strategy for
enhancing revenues and profitability in scheduled service by focusing primarily
on low-cost, nonstop flights from airports where we have market or aircraft
advantages in addition to our low cost. We expect our growing concentration of
connecting flights at Chicago-Midway to provide both revenue premiums and
operating cost efficiencies, as compared to our other gateway cities.
We have provided nonstop services in the six months ended June 30, 2000 from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. We provide these services through
a marketing alliance with the largest independent tour operator serving leisure
travelers to Hawaii from the United States. We distribute the remaining seats on
these flights through normal scheduled service distribution channels. We believe
we have superior operating efficiencies in west coast-Hawaii markets due to the
relatively low ownership cost of the Lockheed L-1011 fleet and because of the
high daily hours of utilization obtained for both aircraft and crews.
In the six months ended June 30, 2000, we operated nonstop flights to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando,
St. Petersburg, San Francisco and Sarasota. We have served Indianapolis for
27 years through the Ambassadair Travel Club and in scheduled service since
1986.
50
We continuously evaluate the profitability of our scheduled service markets
and expect to adjust our service from time to time. We have announced new
service between Chicago-Midway and Minneapolis-St. Paul beginning July 10, 2000
and to Hawaii from Chicago O'Hare International Airport and New York's John F.
Kennedy Airport in the third and fourth quarters of 2000, respectively. Chicago
Express will begin service from Chicago-Midway to South Bend on September 15,
2000.
Commercial Charter Revenues. Our commercial charter revenues are derived
principally from independent tour operators and specialty charter customers. Our
commercial charter product provides full-service air transportation to hundreds
of customer-designated destinations throughout the world. Commercial charter
revenues accounted for 20.3% of consolidated revenues in the six months ended
June 30, 2000, as compared to 24.6% in the comparable period of 1999.
During the last several years, we have deployed more Boeing 727-200 and
Boeing 757-200 aircraft into our rapidly-growing scheduled service markets,
reducing the availability of aircraft capacity for commercial and
military/government charter flying. We have addressed this capacity limitation
in the commercial and military/government charter business units through the
acquisition of five long-range Lockheed L-1011 series 500 aircraft. Although
Lockheed L-1011 series 500 maintenance procedures and cockpit design are similar
to our existing fleet of 14 Lockheed L-1011 series 50 and series 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 our commercial charter customers. The deployment of these aircraft into our
fleet has increased the available seat capacity for our charter business units,
in addition to opening new long-range market opportunities. These new aircraft
also supply much of the additional seat capacity which we need to operate our
expanded military/government business for the contract year ending
September 30, 2000.
The following table sets forth, for the periods indicated, certain key
operating and financial data for our commercial charter operations.
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------
1999 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures(b)..................................... 5,431 5,179 (252) (4.64)
Block Hours(c).................................... 19,104 18,005 (1,099) (5.75)
RPMs (000s)(d).................................... 1,657,021 1,374,128 (282,893) (17.07)
ASMs (000s)(e).................................... 2,085,750 1,857,549 (228,201) (10.94)
Passengers Enplaned(g)............................ 1,006,966 845,571 (161,395) (16.03)
Revenue (000s).................................... 138,191 132,633 (5,558) (4.02)
RASM in cents(h).................................. 6.63 7.14 0.51 7.69
RASM excluding ATALC(l)........................... 5.77 5.64 (0.13) (2.25)
- ---------
See footnotes (b) through (h) on pages 48 and 49.
(l) The air portion of air/ground package sales made by ATALC are included in
commercial charter revenues, although no ASMs are associated with these
revenues. RASM excluding ATALC revenues is provided to separately measure
unit revenue changes of the remaining commercial charter business unit.
-------------------
We operate 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 us to achieve
reasonable levels of crew and aircraft utilization (although less than for
scheduled service), and provides us with meaningful protection from some fuel
price
51
increases through the use of fuel escalation reimbursement clauses in tour
operator contracts. Track charter accounted for approximately $104.9 million in
revenues in the six months ended June 30, 2000, as compared to $101.1 million in
the comparable period of 1999.
Specialty charter (including incentive travel programs) is a product which
is designed to meet the unique requirements of the 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. We also operate an increasing number of trips
in 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, we
have determined that the revenue premium earned by meeting special customer
requirements more than compensates for these increased costs. The diversity of
our three fleet types also permits us to meet a customer's particular needs by
choosing the aircraft type which provides the most economical solution for those
requirements. Specialty charter accounted for approximately $15.3 million in
revenues in the six months ended June 30, 2000, as compared to $18.9 million in
the comparable period of 1999.
Military/Government Charter Revenues. The following table sets forth, for
the periods indicated, certain key operating and financial data for our
military/government flight operations.
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
% INC
1999 2000 INC (DEC) (DEC)
---- ---- --------- -----
Departures(b).......................................... 2,063 2,815 752 36.45
Block Hours(c)......................................... 7,961 10,713 2,752 34.57
RPMs (000s)(d)......................................... 426,442 709,411 282,969 66.36
ASMs (000s)(e)......................................... 1,056,809 1,390,637 333,828 31.59
Passengers Enplaned(g)................................. 105,935 181,108 75,173 70.96
Revenues (000s)........................................ 61,509 98,147 36,638 59.57
RASM in cents(h)....................................... 5.82 7.06 1.24 21.31
RASM excluding fuel(m)................................. 5.89 6.77 0.88 14.94
- ---------
See footnotes (b) through (h) on pages 48 and 49.
(m) Military unit revenue rates 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 us. A separate RASM calculation,
excluding the impact of the fuel price adjustments, is provided on this
line.
-------------------
We participate 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,
we have 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 us to operate this flying is enhanced
since we represent a majority of the passenger transport capacity of the team.
As part of our participation in this teaming arrangement, we pay a commission to
the team, which passes that revenue on to all team members based upon their
mobilization points.
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. Expansion flying is
generally offered to airlines on very short notice.
52
The overall amount of military flying that we perform in any one year is
dependent upon several factors, including (i) the percentage of mobilization
value points represented by our team as compared to total mobilization value
points of all providers of military service; (ii) the percentage of our
passenger capacity with respect to our 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 our aircraft to accept and fly expansion awards.
Under our current teaming arrangement, we expect our military/government
charter revenues to increase to approximately $180.0 million for the contract
year beginning October 1999. This represents more than a 40.0% increase over our
fiscal year 1999 military/government charter revenues of $126.2 million.
Ground Package Revenues. We earn ground package revenues through the sale of
hotel, car rental, cruise, train and other ground accommodations in conjunction
with our air transportation product. We have traditionally marketed these ground
packages to our Ambassadair club members and through our ATA Leisure Corp.
subsidiaries to our charter and scheduled service passengers. In the six months
ended June 30, 2000, ground package revenues increased 17.7% to $37.3 million,
as compared to $31.7 million in the same period of 1999.
As is more fully described in footnote 3 to the Consolidated Financial
Statements, we acquired several Detroit-based tour operators in January and
April 1999, which were included in our consolidated results of operations for
the entire first six months of 2000. The majority of the increase in ground
package revenues in the first six months of 2000, as compared to the first six
months of 1999, was attributable to the full-period impact of these acquisitions
in 2000. Although ground revenue increased in the first six months of 2000, the
margin on ground packages decreased by approximately 10% between the six months
ended June 30, 1999 and 2000. This decrease is partially attributable to a
substantial decline in the number of train packages sold by ATALC, which
typically generate a high margin.
The number of ground packages sold and our average revenue earned 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 our 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 our scheduled, charter and ground package operations. Other
revenues decreased 4.8% to $21.9 million in the six months ended June 30, 2000,
as compared to $23.0 million in the same period of 1999. In the six months ended
June 30, 2000, our other revenues decreased primarily due to a decline in
substitute service revenue. This decline is due to less aircraft available to
fly substitute service and fewer sublease agreements when compared to 1999. Also
contributing to the other revenues variance is a decrease in ATALC trip
protection revenue.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost
of salaries and wages paid to our employees, together with our cost of employee
benefits and payroll-related local, state and federal taxes. Salaries, wages and
benefits expense in the six months ended June 30, 2000 increased 14.7% to $140.6
million, as compared to $122.6 million in the same period of 1999.
We increased our average equivalent employees by approximately 19.4% between
the six months ended June 30, 2000 and 1999, partially to appropriately staff
the growth in ASMs flown between periods. Some increase in headcount is also
attributable to the acquisition of Chicago Express and ATALC (see Note 3 to
consolidated financial statements) and the opening of new base stations in
Boston, Seattle and Ronald Reagan Washington National Airport. Also, prior to
2000, contract employees performed the ramp handling function at Chicago-Midway;
effective in May of 2000, we hired our own employees to perform this function.
Offsetting these increases is a reduction in the amount of variable compensation
between periods. In the first six months of 1999, we recorded a charge of
approximately $5.7 million in variable compensation expected to be paid.
53
Estimates of variable compensation are based on our anticipated profitability,
so no corresponding charge was recorded in the first six months of 2000.
Fuel and Oil. Fuel and oil expense increased 71.9% to $126.7 million in the
six months ended June 30, 2000, as compared to $73.7 million in the same period
of 1999. We consumed 10.0% more gallons of jet fuel for flying operations
between the six-month periods ended June 30, 2000 and 1999, which resulted in an
increase in fuel expense of approximately $7.1 million between periods. Jet fuel
consumption increased primarily due to the increased number of block hours of
jet flying operations between periods. We flew 84,843 jet block hours in the six
months ended June 30, 2000, as compared to 77,915 jet block hours in the same
period of 1999.
During the six months ended June 30, 2000, the average cost per gallon of
jet fuel increased by 60.4% as compared to the first six months of 1999,
resulting in an increase in fuel and oil expense of approximately $47.2 million
between periods. We record fuel escalation revenue from certain commercial
charter customers and the U.S. military, which partially offset the impact of
higher fuel prices. In the first six months of 2000, we recognized $11.9 million
in fuel escalation revenue, as compared to ($0.9) million recognized in the
first six months of 1999.
During the first six months of 1999, we entered into fuel hedge agreements
to reduce the risk of fuel price volatility. We recorded $2.1 million more in
fuel and oil expense in the first six months of 1999, as compared to the same
period of 2000, when there were no such agreements in place.
Depreciation and Amortization. Depreciation and amortization expense
increased 35.9% to $62.4 million in the six months ended June 30, 2000, as
compared to $45.9 million in the same period of 1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $7.0 million in the six months ended June 30, 2000, as
compared to the same period of 1999. Five L-1011-500s, and nine 727-200s
previously financed by operating leases, were added to our fleet throughout
1999, contributing to the increase in depreciation expense for airframes,
engines and leasehold improvements. We also increased our investment in rotable
parts and computer hardware and software and increased our provision for
amortization of inventory obsolescence and debt issue costs between years. The
obsolescence provision changed significantly year over year due to the increase
of L-1011-500 inventory levels to service the new fleet. These changes resulted
in an increase in depreciation expense of $3.5 million in the six months ended
June 30, 2000, as compared to the same period of 1999.
Amortization of capitalized engine and airframe overhauls increased $3.7
million in the six months ended June 30, 2000, as compared to the same period of
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 between periods for this fleet type.
Engine overhaul amortization on Boeing 727-200s declined in the first six months
of 2000, as compared to 1999, primarily due to more favorable pricing obtained
from a new vendor. Rolls-Royce-powered Boeing 757-200 aircraft, eleven of which
were delivered new from the manufacturer between late-1995 and mid-2000, are not
presently generating any engine overhaul expense, since the initial
post-delivery overhauls for these engines are not yet due under our 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 increased $1.5 million in
the six months ended June 30, 2000, as compared to the same period of 1999. When
these early engine failures can be economically repaired, the related repairs
are charged to aircraft maintenance, materials and repairs expense.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by us at airports to land and service our aircraft and to handle
passenger check-in, security, cargo and baggage where we elect to use
third-party contract services in lieu of our own employees.
54
Where we use our own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when our aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased 8.4% to $49.1 million in the
six months ended June 30, 2000, as compared to $45.3 million in the same period
of 1999. The total number of system-wide jet departures between the six-month
periods ended June 30, 2000 and 1999 increased by 8.4% to 26,977 from 24,892.
Crew and Other Employee Travel. Crew and other employee travel is primarily
the cost of air transportation, hotels and per diem reimbursements to cockpit
and cabin crew members incurred to position crews away from their bases to
operate our flights throughout the world. The cost of crew and other employee
travel increased 34.6% to $32.7 million in the six months ended June 30, 2000,
as compared to $24.3 million in the same period of 1999.
The average cost of crew positioning per full-time equivalent crewmember
increased 36.6% in the six months ended June 30, 2000, as compared to the same
period in 1999. The average hotel cost per full-time-equivalent crew member
increased 34.1% in the six months ended June 30, 2000, as compared to the same
period 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 remote points from
our crew bases, thus requiring significant positioning expenditures for cockpit
and cabin crews on other airlines. Also, due to heavy airline industry load
factors in the first six months of 2000, we were obligated to pay higher average
fares to position crews. Average hotel costs are higher for military operations,
because hotel rates at international locations generally exceed domestic U.S.
hotel rates.
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 noncapitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. Aircraft maintenance,
materials and repairs expense increased 31.7% to $37.0 million in the six months
ended June 30, 2000, as compared to $28.1 million in the same period of 1999.
We performed a total of 40 maintenance checks on our fleet during the first
six months of 2000 as compared to 31 in the same period of 1999. The cost of
materials consumed and components repaired in association with such checks and
other maintenance activity increased by $5.9 million between the six months
ended June 30, 2000, and same period of 1999.
Aircraft Rentals. Aircraft rentals expense for the six months ended June 30,
2000, increased 11.9% to $32.9 million, as compared to $29.4 million in the same
period of 1999. We leased four additional Boeing 757-200 aircraft in the first
six months of 2000, as compared to the same period of 1999, adding $3.8 million
to aircraft rentals expense in the six months ended June 30, 2000, as compared
to the same period of the prior year. Aircraft rent also increased nearly $0.7
million in the first six months as our commuter operation replaced 19-seat
Jetstream 31 aircraft with 34-seat SAAB 340B aircraft. These increases were
partially offset by $1.1 million in canceled leases for eight Boeing 727-200
aircraft, which were purchased early in the first quarter of 1999.
Ground Package Cost. We incur ground package cost with hotels, car rental
companies, cruise lines and similar vendors who provide ground and cruise
accommodations to Ambassadair and ATALC customers. Ground package cost increased
24.6% to $31.9 million in the six months ended June 30, 2000, as compared to
$25.6 million in the same period of 1999. The six-month increase is consistent
with the growth in ground package revenues resulting from the acquisition of
ATALC (see Note 3 to consolidated financial statements).
Passenger Service. Passenger service expense includes the onboard costs of
meal and nonalcoholic 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 the six months ended
June 30, 2000 and 1999, catering represented 78.2% and 83.0%, respectively, of
total passenger service expense.
55
The total cost of passenger service increased 26.5% to $23.4 million in the
six months ended June 30, 2000, as compared to $18.5 million in the same period
of 1999. We experienced increases of approximately 8.8% in the average unit cost
of catering each passenger between the six months ended June 30, 2000, and the
comparable period of 1999, primarily because in the first half of 2000 there
were relatively more military passengers boarded in our business mix, who are
provided a more expensive catering product due to the longer stage-length of
these flights. This resulted in a price-and-business-mix increase of $1.4
million in catering expense in the six months ended June 30, 2000, as compared
to the same period of 1999. Total jet passengers boarded increased 9.7% between
the same time periods, resulting in approximately $1.4 million in higher
volume-related catering expenses between the same periods.
In the six months ended June 30, 2000, as compared to the same period of
1999, we experienced increased departure delays over 15 minutes of 25.7%. These
irregular operations resulted in higher costs to handle inconvenienced
passengers and misconnected baggage. In the six months ended June 30, 2000, as
compared to the same period of 1999, such costs were $2.0 million higher.
Commissions. We incur commissions expense in association with the sale by
travel agents of single seats on scheduled service. In addition, we incur
commissions to secure some commercial and military/government charter business.
Commissions expense increased 8.5% to $21.7 million in the six months ended June
30, 2000, as compared to $20.0 million in the same period of 1999.
Approximately $1.8 million of the increase in commissions in the six months
ended June 30, 2000, as compared to the same period of 1999, was attributable to
commissions paid to travel agents by ATALC. We also increased military
commissions paid in the six months ended June 30, 2000 by $3.2 million which is
consistent with the growth in military revenues. These increases were largely
offset by decreases in scheduled service commissions paid of $3.2 million,
respectively, in the six months ended June 30, 2000, as compared to the same
period of 1999, due to an industry reduction in travel agency commission from
8.0% to 5.0% in the fourth quarter of 1999.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems, or CRS, 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 us directly to book
reservations. Other selling expenses increased 31.6% to $17.5 million in the six
months ended June 30, 2000, as compared to $13.3 million in the same period of
1999. Approximately $3.2 million of this increase in the first six months of
2000, resulted from an increase in CRS fees. This increase was partially driven
by booking volumes, but more significantly by an increase in applicable rates
pertaining to improved booking functionality.
Credit card discount expense increased $1.3 million in the six months ended
June 30, 2000, as compared to the same period of 1999, primarily due to higher
volumes of scheduled service tickets sold using credit cards.
Advertising. Advertising expense increased 13.7% to $11.6 million in the six
months ended June 30, 2000, as compared to $10.2 million in the same period of
1999. We incur advertising costs primarily to support single-seat scheduled
service sales and the sale of air-and-ground packages. We increased advertising
costs to promote new scheduled service to Ronald Reagan Washington National
Airport, Boston and Seattle beginning in the second quarter of 2000, and also
incurred increased advertising expense in association with ATALC.
Facility and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that we lease such as airport space, regional sales
offices and general offices. The cost of facilities and other rentals increased
13.4% to $7.6 million in the six months ended June 30, 2000, as compared to $6.7
million in the same period of 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 decreased 2.5% to $38.7
million in the six months ended June 30, 2000, as compared to $39.7 million in
the same period of 1999.
56
A decrease of $7.8 million for the six months ended June 30, 2000, as
compared to the same periods of 1999, was primarily attributable to the higher
cost of passenger air transportation purchased by ATALC from air carriers other
than us during the first half of 1999, whereas ATALC primarily used our own air
transportation in the first half of 2000. Additionally, in the first half of
1999, prior to the full impact of the Chicago Express acquisition, other
operating expenses included our cost for the code-share agreement with Chicago
Express, which were approximately $3.1 million in the first six months of 1999,
with no corresponding expenses incurred in 2000. These decreases in operating
expenses were partially offset by individually less significant increases in
other operating expense categories.
Interest Income and Expense. Interest expense in the six months ended June
30, 2000, increased to $15.6 million as compared to $10.1 million in the same
period of 1999. The increase in interest expense between periods was primarily
due to changes in our 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 $3.9 million was recorded in the six months ended June 30, 2000 for
these notes, which was not incurred in the first six months of 1999.
We invested excess cash balances in short-term government securities and
commercial paper and thereby earned $3.9 million in interest income in the six
months ended June 30, 2000, as compared to $3.2 million in the same periods of
1999.
Other Income. Other income decreased 94.4% to $0.1 million in the first six
months of 2000 from $1.8 in the same period of 1999. We hold a membership
interest in the SITA Foundation, an organization which provides data
communication services to the airline industry. SITA's primary asset is our
ownership in Equant N.V. In February 1999, SITA sold a portion of our interest
in Equant in a secondary public offering and distributed the pro rata proceeds
to certain of our members (including Amtran, Inc.) that elected to participate
in the offering. We recorded a gain of $1.7 million, or $1.0 million after tax,
in the first quarter of 1999.
Income Tax Expense. In the six months ended June 30, 2000, we recorded $5.6
million in income tax expense applicable to $9.5 million of pre-tax income while
in the six months ended June 30, 1999, income tax expense of $21.0 million was
recorded on pre-tax income of $54.3 million. The effective tax rate applicable
to the six months ended June 30, 2000 was 58.7% as compared to 38.7% for the
same period of 1999.
Income tax expense in both periods was affected by the permanent
nondeductibility 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.
YEAR ENDED DECEMBER 31, 1999, VERSUS YEAR ENDED DECEMBER 31, 1998
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 our scheduled service
operations. 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.
57
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet.................................. 31,237 35,402 4,165 13.33
Departures J31(a)............................... 16,388 17,716 1,328 8.10
--------- --------- --------- -----
Total Departures(b)......................... 47,625 53,118 5,493 11.53
--------- --------- --------- -----
--------- --------- --------- -----
Block Hours Jet................................. 92,263 104,555 12,292 13.32
Block Hours J31................................. 16,166 17,979 1,813 11.21
--------- --------- --------- -----
Total Block Hours(c)........................ 108,429 122,534 14,105 13.01
--------- --------- --------- -----
--------- --------- --------- -----
RPMs Jet (000s)................................. 5,777,555 6,828,181 1,050,626 18.18
RPMs J31 (000s)................................. 30,991 35,922 4,931 15.91
--------- --------- --------- -----
Total RPMs (000s)(d)........................ 5,808,546 6,864,103 1,055,557 18.17
--------- --------- --------- -----
--------- --------- --------- -----
ASMs Jet (000s)................................. 7,756,330 8,809,564 1,053,234 13.58
ASMs J31 (000s)................................. 52,224 57,630 5,406 10.35
--------- --------- --------- -----
Total ASMs (000s)(e)........................ 7,808,554 8,867,194 1,058,640 13.56
--------- --------- --------- -----
--------- --------- --------- -----
Load Factor Jet................................. 74.49 77.51 3.02 4.05
Load Factor J31................................. 59.34 62.33 2.99 5.04
--------- --------- --------- -----
Total Load Factor(f)........................ 74.39 77.41 3.02 4.06
--------- --------- --------- -----
--------- --------- --------- -----
Passengers Enplaned Jet......................... 4,094,454 4,878,643 784,189 19.15
Passengers Enplaned J31......................... 176,604 206,304 29,700 16.82
--------- --------- --------- -----
Total Passengers Enplaned(g)................ 4,271,058 5,084,947 813,889 19.06
--------- --------- --------- -----
--------- --------- --------- -----
Revenue (000s).................................. $511,254 $624,647 $113,393 22.18
RASM in cents(h)................................ 6.55 7.04 0.49 7.48
Yield in cents(j)............................... 8.80 9.10 0.30 3.41
Revenue per segment $(k)........................ 119.70 122.84 3.14 2.62
- ---------
See footnotes (a) through (j) on pages 48 and 49 and footnote (k) on page 50.
-------------------
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.
Our 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, we began
nonstop service to New York's LaGuardia Airport, Dallas-Ft. Worth and Denver,
which continued throughout 1999. During 1999, we began nonstop service to
Philadelphia, which was not served during 1998. In addition to these new
services, we 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. Petersburg, San Francisco and
Sarasota. We have announced that effective April 3, 2000 it will begin nonstop
service to Washington D.C., and effective May 7, 2000, it will begin nonstop
service from Chicago-Midway to both Boston and Seattle.
Beginning in 1997, we also had a code-share agreement with Chicago Express
under which, as later amended, Chicago Express operated 19-seat Jetstream 31
propeller aircraft between Chicago-Midway and the cities of Indianapolis,
Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison. On April 30,
1999, we acquired all of the issued and outstanding stock of Chicago Express
Airlines, Inc., which continues to operate these services as our wholly owned
subsidiary.
Our operations at Chicago-Midway continued to be the fastest growing portion
of our scheduled service business in 1999. We 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
58
1999, as compared to 57 peak daily departures and 21 nonstop destinations served
in the summer of 1998. In 1998, we completed a $1.7 million renovation of the
existing terminal facilities at Chicago-Midway to enhance their attractiveness
and convenience for our customers. We also presently expect to occupy 12 jet
gates and one commuter aircraft gate at the new Chicago-Midway terminal which is
presently scheduled for completion in 2004, as compared to the six jet gates
currently occupied in the existing terminal.
Our growing commitment to Chicago-Midway is consistent with our strategy for
enhancing revenues and profitability in scheduled service by focusing primarily
on low cost, nonstop flights from airports where it has market or aircraft
advantages in addition to our low cost. We expect our growing concentration of
connecting flights at Chicago-Midway to provide both revenue premiums and
operating cost efficiencies, as compared to our other gateway cities. In
addition, we plan to build an FIS facility at Chicago-Midway to facilitate
direct international flights.
Our 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. We 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. We provide these services through a marketing
alliance with the largest independent tour operator serving leisure travelers to
Hawaii from the United States. We distribute the remaining seats on these
flights through normal scheduled service distribution channels. We believe we
have superior operating efficiencies in west coast-Hawaii markets due to the
higher daily hours of utilization obtained for both aircraft and crews in this
market than for other commercial charter and military applications.
Our 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, we operated nonstop flights to Cancun,
Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, St. Petersburg, San
Francisco and Sarasota. We have served Indianapolis for 27 years through the
Ambassadair Travel Club and in scheduled service since 1986.
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, we operated seasonal service between New York's John F. Kennedy
International Airport and Dublin and Shannon, Ireland.
We continuously evaluate the profitability of our scheduled service markets
and expect to adjust our service from time to time. We believe that scheduled
service yields and load factors in 1999 and 1998 have benefitted from strong
customer demand for air transportation in the United States during a period of
constrained industry growth in seat capacity relative to this demand.
Commercial Charter Revenues. Our commercial charter revenues are derived
principally from independent tour operators and specialty charter customers. Our
commercial charter product provides full-service air transportation to hundreds
of customer-designated destinations throughout the world. We believe that tour
operator and specialty charter are businesses where our experience and size
provide meaningful competitive advantage and are businesses to which we remain
committed. Commercial charter revenues accounted for 23.5% of consolidated
revenues in 1999, as compared to 24.2% in 1998.
We have expanded our seat capacity in the commercial and military/government
charter business units through the acquisition of long-range Lockheed L-1011
series 500 aircraft. In July 1998, we committed to the purchase of five such
aircraft for delivery between the third quarter of 1998 and the end of 1999.
Although Lockheed L-1011 series 500 maintenance procedures and cockpit design
are similar to our existing fleet of Lockheed L-1011 series 50 and series 100
aircraft, they differ operationally in that their ten-to-eleven-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 our commercial charter customers. We placed four of these
aircraft into service in commercial and military/government charter operations
during 1999, which has increased the available seat capacity for these charter
business units, in
59
addition to opening new long-range market opportunities to us which it cannot
serve with our existing fleet. We placed the fifth L-1011 series 500 aircraft
into service in the first quarter of 2000.
The following table sets forth, for the periods indicated, certain key
operating and financial data for our commercial charter operations.
TWELVE MONTHS ENDED DECEMBER 31,
-------------------------------------------------
1998 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures(b).................................. 9,602 10,212 610 6.35
Block Hours(c)................................. 33,516 37,119 3,603 10.75
RPMs (000s)(d)................................. 3,009,638 3,253,165 243,527 8.09
ASMs (000s)(e)................................. 3,882,202 4,129,966 247,764 6.38
Passengers Enplaned(g)......................... 1,617,901 1,753,237 135,336 8.36
Revenue (000s)................................. $222,571 $263,766 $41,195 18.51
RASM in cents(h)............................... 5.73 6.39 0.66 11.52
- ---------
See footnotes (b) through (h) on pages 48 and 49.
-------------------
We operate 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 us to achieve
reasonable levels of crew and aircraft utilization (although less than for
scheduled service), and provides us 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 $193.8 million in
revenues in 1999, as compared to $176.4 million in 1998.
Specialty charter (including incentive travel programs) is a product which
is designed to meet the unique requirements of the 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. We also operate an increasing number of trips
in 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, we
have determined that the revenue premium earned by meeting special customer
requirements more than compensates for these increased costs. The diversity of
our three fleet types also permits us to meet a customer's particular needs by
choosing the aircraft type which provides the most economical solution for those
requirements. 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 our
military/government flight operations.
TWELVE MONTHS ENDED DECEMBER 31,
-------------------------------------------------
1998 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures(b)................................... 4,447 4,444 (3) (0.07)
Block Hours(c).................................. 16,389 15,354 (1,035) (6.32)
RPMs (000s)(d).................................. 821,813 818,627 (3,186) (0.39)
ASMs (000s)(e).................................. 1,963,069 2,027,471 64,402 3.28
Passengers Enplaned(g).......................... 205,641 199,013 (6,628) (3.22)
Revenue (000s).................................. $121,911 $126,213 $4,302 3.53
RASM in cents(h)................................ 6.21 6.23 0.02 0.32
- ---------
See footnotes (b) through (h) on pages 48 and 49.
60
We participate 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,
we have 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 us to operate this flying is enhanced
since we represent a majority of the passenger transport capacity of the team.
As part of our participation in teaming arrangements, we pay a commission to the
team, which passes that revenue on to all team members based upon their
mobilization 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 are generally 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. Expansion flying is
generally offered to airlines on very short notice.
The overall amount of military flying that we perform in any one year is
dependent upon several factors, including: (i) the percentage of mobilization
value points represented by our team as compared to total mobilization value
points of all providers of military service; (ii) the percentage of our
passenger capacity with respect to our 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 our aircraft to accept and fly expansion awards.
In April 1999, we announced that it had joined a new teaming arrangement
with several major passenger and cargo airlines. Under this new teaming
arrangement, we expect our military/government charter revenues to increase to
approximately $180.0 million for the contract year beginning October 1999. This
represents more than a 40% increase over our fiscal year 1999
military/government charter revenues of $126.2 million.
Ground Package Revenues. We earn ground package revenues through the sale of
hotel, car rental and cruise accommodations in conjunction with our air
transportation product. We market these ground packages to our Ambassadair club
members and through our ATA Leisure Corp. subsidiary to our scheduled service
and tour operator customers. In 1999, ground package revenues increased 150.9%
to $58.2 million, as compared to $23.2 million in 1998.
Effective January 31, 1999, we completed the acquisition of Travel Charter
International, or TCI, in Detroit, Michigan (see Note 12 to Consolidated
Financial Statements). 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,
we 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 our results of operations in 1998.
Effective April 30, 1999, we completed the purchase of Key Tours, Inc. and
affiliated companies, also a tour operator serving the Detroit metropolitan area
(see Note 12 to Consolidated Financial Statements). Key Tours provides tour
packages, including ground arrangements, to such leisure destinations as Las
Vegas and Florida. We have 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 our results
of operations in 1998.
The number of ground packages sold and the average revenue earned by us for
a ground package sale are a function of the mix of vacation destinations served,
the quality and types of
61
ground accommodations offered and general competitive conditions with other air
carriers offering similar products in our markets, all of which are factors that
can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with our scheduled and charter operations. Other revenues increased
22.8% to $49.6 million during 1999, as compared to $40.4 million in 1998. Our
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 Note 12 to
Consolidated Financial Statements.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost
of salaries and wages paid to our employees, together with the cost of employee
benefits and payroll-related local, state and federal taxes. Salaries, wages and
benefits expense in 1999 increased 19.5% to $252.6 million, as compared to
$211.3 million in 1998.
We increased our average equivalent employees by approximately 14.8% in 1999
as compared to 1998, in order to appropriately staff our 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 our customers. We also recorded $6.7 million in additional salaries,
wages and benefits in 1999 attributable to new companies acquired. See Note 12
to Consolidated Financial Statements. The average rate of pay earned by our
employees, including all categories of salaries, wages and benefits, increased
by approximately 4.1% in 1999 as compared to 1998.
In 1999, we recorded $6.4 million in variable compensation and related
payroll taxes as compared to 1998, when $8.9 million in such compensation was
recorded. Our variable compensation plans in both 1999 and 1998 paid significant
cash awards to employees as a result of the achievement of specific
profitability targets.
Salaries, wages and benefits cost per ASM increased 9.9% in 1999 to 1.67
cents, as compared to 1.52 cents in 1998. This unit-cost increase was
attributable both to the faster rate of growth in average equivalent employees
between years than seat capacity, and to the increase in average salaries paid
between years.
Fuel and Oil. Fuel and oil expense increased 24.4% to $170.9 million in
1999, as compared to $137.4 million in 1998. We 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. We 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.
Fuel consumption growth between 1999 and 1998 was more than total block hour
growth since the Lockheed L-1011 fleet flew proportionately more block hours and
consumes approximately twice the gallons per block hour of the Boeing 727-200
and Boeing 757-200.
During 1999, our 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.
We entered into fuel price hedge contracts during 1998 and the first six
months of 1999 under which we 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.
62
Fuel and oil expense increased 14.1% to 1.13 cents per ASM in 1999, as
compared to 0.99 cents per ASM in 1998, primarily due to the period-to-period
increase in the average price of fuel consumed.
Depreciation and Amortization. Depreciation and amortization expense
increased 22.0% to $96.0 million in 1999, as compared to $78.7 million in 1998.
We recorded goodwill amortization expense of $0.9 million in 1999 due to the
acquisition of new businesses, which was not incurred in 1998. See Note 12 to
Consolidated Financial Statements.
Depreciation expense attributable to owned engines, airframes and leasehold
improvements increased $9.0 million in 1999, as compared to 1998. We 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. We 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.' We also placed four
Lockheed L-1011-500 owned aircraft into service in 1999, none of which were
owned in 1998. We also increased our 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 our 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 11 to Consolidated Financial Statements,
we have made certain changes in accounting estimates for depreciation. Effective
July 1, 1998, we extended the estimated useful life of the 13 owned Lockheed
L-1011 series 50 and series 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, we 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.
Depreciation and amortization expense per ASM increased 12.3% to 0.64 cents
in 1999, as compared to 0.57 cents in 1998.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by us at airports to land and service our aircraft and to handle
passenger check-in, security and baggage where we elect to use third-party
contract services in lieu of our own employees. Where we use our own employees
to perform ground handling functions, the resulting cost appears within
salaries, wages and benefits. Air navigation fees are incurred when our aircraft
fly over certain foreign airspace.
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
63
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. We 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, we 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. See Note 12 to Consolidated Financial
Statements.
The cost per ASM for handling, landing and navigation fees increased 9.3% to
0.59 cents in 1999, from 0.54 cents in 1998.
Aircraft Rentals. Aircraft rentals expense for 1999 increased 10.5% to $58.7
million from $53.1 million in 1998. We 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.
We 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 rentals cost per ASM for 1999 was 0.39 cents, an increase of 2.6%
from 0.38 cents per ASM in 1998.
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 airframe check and line 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 and repairs expense increased 3.5% to $55.6
million in 1999, as compared to $53.7 million in 1998.
We expensed a total of 53 maintenance checks on our 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.
The cost per ASM of aircraft maintenance materials decreased 5.1% to 0.37
cents in 1999, as compared to 0.39 cents in 1998.
Crew and Other Employee Travel. Crew and other employee travel is primarily
the cost of air transportation, hotels and per diem reimbursements to cockpit
and cabin crew members incurred to position crews away from their bases to
operate our flights throughout the world. The cost of air transportation is
generally more significant for the commercial and military/government charter
business units since these flights often operate between cities in which our
crews are not normally based and may involve extensive international positioning
of crews. Hotel and per diem expenses are incurred for scheduled, commercial and
military/government charter services, although higher per diem and hotel rates
generally apply to international assignments.
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, our 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. We
also experienced lower utilization of crew members due to the increase in
military business.
The average cost of hotel rooms per full-time-equivalent crew member
increased 17.6% in 1999, as compared to 1998. Such hotel costs increased
primarily due to higher room rates paid in 1999.
The cost per ASM for crew and other employee travel increased 10.0% to 0.33
cents in 1999, from 0.30 cents in 1998.
64
Ground Package Cost. We incur ground package cost with hotels, car rental
companies, cruise lines and similar vendors who provide ground and cruise
accommodations to Ambassadair and ATA Vacations customers as well as to
customers of Travel Charter and Key Tours, which we acquired in 1999. See Note
12 to Consolidated Financial Statements. 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.
The cost per ASM of ground packages increased 135.7% to 0.33 cents in 1999,
as compared to 0.14 cents in 1998. This increase is a result of the acquisition
of the tour operators, Travel Charter and Key Tours.
Passenger Service. Passenger service expense includes the onboard costs of
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 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. We 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 our business mix, who are provided a less expensive catering
product than our 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.
The cost per ASM of passenger service increased 8.3% to 0.26 cents in 1999,
as compared to 0.24 cents in 1998.
Commissions. We incur commissions expense in association with the sale by
travel agents of single seats on scheduled service and ground packages for our
tour operator customers. In addition, we incur commissions to secure some
commercial and military/government charter business. 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.
See Note 12 to Consolidated Financial Statements. We did not include those
commissions in our 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. We 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%. Commission expense cost per ASM increased 23.8% to 0.26 cents in 1999,
as compared to 0.21 cents in 1998.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems, or CRS, credit card fees
incurred when selling single seats and ground packages to customers using credit
cards for payment, and toll-free telephone service for customers who contact us
directly to book reservations. 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. Other selling cost per ASM increased 18.8% to
0.19 cents in 1999, as compared to 0.16 cents in 1998.
Advertising. Advertising expense increased 4.5% to $18.6 million in 1999, as
compared to $17.8 million in 1998. We incur 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 our overall strategy to enhance scheduled service RASM
through
65
increases in load factor and yield. The cost per ASM of advertising decreased
7.7% to 0.12 cents in 1999, as compared to 0.13 cents in 1998.
Facilities and Other Rentals. Facilities and other rentals include the cost
of all ground facilities that we lease such as airport space, regional sales
offices and general offices. 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 business. See Note 12 to Consolidated Financial Statements.
The cost per ASM for facilities and other rentals increased 28.6% to 0.09 cents
in 1999, as compared to 0.07 cents in 1998.
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 us during 1999, none
of which was included in our 1998 results of operation. Other operating cost per
ASM increased 4.4% to 0.47 cents in 1999, as compared to 0.45 cents in 1998.
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 our 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, we 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.
We 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. We hold a membership interest in the SITA
Foundation, an organization which provides data communication services to the
airline industry. SITA's primary asset is our ownership in Equant N.V. In
February and December 1999, SITA sold a portion of our interest in Equant in a
secondary public offering and distributed the pro rata proceeds to certain of
our members (including Amtran, Inc.) that elected to participate in the
offering. We 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, we 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.
YEAR ENDED DECEMBER 31, 1998, VERSUS YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUES
Total operating revenues in 1998 increased 17.4% to $919.4 million from
$783.2 million in 1997. This increase was due to a $139.5 million increase in
scheduled service revenues, a $10.5 million increase in other revenues and a
$0.9 million increase in ground package revenues, partially offset by a $5.5
million decrease in commercial charter revenues, and a $9.2 million decrease in
military/government charter revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for our scheduled service
operations. Data shown for 'Jet' operations include the combined operations of
Lockheed L-1011, Boeing 727-200 and Boeing 757-
66
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,
-----------------------------------------
% INC
1997 1998 INC (DEC) (DEC)
---- ---- --------- -----
Departures Jet........................................ 23,800 31,237 7,437 31.25
Departures J31(a)..................................... 10,091 16,388 6,297 62.40
--------- --------- --------- -----
Total Departures(b)............................... 33,891 47,625 13,734 40.52
--------- --------- --------- -----
--------- --------- --------- -----
Block Hours Jet....................................... 72,883 92,263 19,380 26.59
Block Hours J31....................................... 10,210 16,166 5,956 58.33
--------- --------- --------- -----
Total Block Hours(c).............................. 83,093 108,429 25,336 30.49
--------- --------- --------- -----
--------- --------- --------- -----
RPMs Jet (000s)....................................... 4,523,245 5,777,555 1,254,310 27.73
RPMs J31 (000s)....................................... 18,055 30,991 12,936 71.65
--------- --------- --------- -----
Total RPMs (000s)(d).............................. 4,541,300 5,808,546 1,267,246 27.90
--------- --------- --------- -----
--------- --------- --------- -----
ASMs Jet (000s)....................................... 6,209,825 7,756,330 1,546,505 24.90
ASMs J31 (000s)....................................... 32,453 52,224 19,771 60.92
--------- --------- --------- -----
Total ASMs (000s)(e).............................. 6,242,278 7,808,554 1,566,276 25.09
--------- --------- --------- -----
--------- --------- --------- -----
Load Factor Jet....................................... 72.84 74.49 1.65 2.27
Load Factor J31....................................... 55.63 59.34 3.71 6.67
--------- --------- --------- -----
Total Load Factor(f).............................. 72.75 74.39 1.64 2.25
--------- --------- --------- -----
--------- --------- --------- -----
Passengers Enplaned Jet............................... 3,087,706 4,094,454 1,006,748 32.61
Passengers Enplaned J31............................... 96,812 176,604 79,792 82.42
--------- --------- --------- -----
Total Passengers Enplaned(g)...................... 3,184,518 4,271,058 1,086,540 34.12
--------- --------- --------- -----
--------- --------- --------- -----
Revenue (000s)........................................ $ 371,762 $ 511,254 $ 139,492 37.52
RASM in cents(h)...................................... 5.96 6.55 0.59 9.90
Yield in cents(j)..................................... 8.19 8.80 0.61 7.45
Revenue per segment $(k).............................. 116.74 119.70 2.96 2.54
- ---------
See footnotes (a) through (j) on pages 48 and 49 and footnote (k) on page 50.
-------------------
Scheduled service revenues in 1998 increased 37.5% to $511.3 million from
$371.8 million in 1997. Scheduled service revenues comprised 55.6% of
consolidated revenues in 1998, as compared to 47.5% of consolidated revenues in
1997.
Between April 1997 and April 1999, we operated under a code share agreement
with Chicago Express under which Chicago Express flew 19-seat Jetstream 31
propeller aircraft as the ATA Connection between Chicago-Midway and the cities
of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and
Madison. The period-to-period percentage changes in departures, block hours and
passengers boarded were significantly impacted by the operation of ATA
Connection Jetstream 31 commuter flights in the twelve months ended December 31,
1998, which operated only during the nine months ended December 31, 1997. Such
operations in all periods generate comparatively less impact to ASMs and RPMs
due to the small seat capacity and short stage length of ATA Connection
propeller aircraft as compared to our jet aircraft. In April 1999, we acquired
all of the issued and outstanding stock of Chicago Express Airlines, Inc., which
we continue to operate these services as a wholly owned subsidiary.
Our 1998 scheduled service at Chicago-Midway accounted for approximately
53.4% of scheduled service ASMs and 73.5% of scheduled service departures, as
compared to 42.9% and 63.2%, respectively, in 1997. On May 1, 1998, we began
three daily nonstop flights to Dallas-Ft. Worth and two daily nonstop flights to
Denver, none of which services were provided during 1997. In addition to these
new services, we added frequencies in 1998 to most existing jet markets,
67
including Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, Phoenix,
St. Petersburg and San Francisco. Flight frequencies to Sarasota declined
between periods. ATA Connection Jetstream 31 flights in 1998 and the nine months
ended December 31, 1997, served Chicago-Midway from the cities of Dayton, Des
Moines, Grand Rapids, Indianapolis and Milwaukee. In addition, we operated ATA
Connection Jetstream 31 service between Chicago-Midway and the cities of Lansing
and Madison throughout 1998, while such service was operated only during the
fourth quarter of 1997. We operated 57 peak daily jet and commuter departures
from Chicago-Midway and served 21 destinations on a nonstop basis in the summer
of 1998, as compared to 15 nonstop destinations served in the summer of 1997.
Our Hawaii service accounted for 21.3% of scheduled service ASMs and 5.4% of
scheduled service departures in 1998, as compared to 24.6% and 6.8%,
respectively, in 1997. We 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. In addition, in 1998, seasonal nonstop
service was operated from San Diego to Honolulu, which was not operated in 1997.
Our Indianapolis service accounted for 16.1% of scheduled service ASMs and
12.7% of scheduled service departures in 1998, as compared to 20.5% and 18.1%,
respectively, in 1997. In 1998, we operated nonstop to Cancun, Ft. Lauderdale,
Ft. Myers, Las Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and
Sarasota.
Commercial Charter Revenues. Commercial charter revenues accounted for 24.2%
of consolidated revenues in 1998, as compared to 29.1% in 1997. Track charter
accounted for approximately $176.4 million in revenues in 1998, as compared to
$184.3 million in 1997. Specialty charter accounted for approximately $35.1
million in revenues in 1998, as compared to $34.6 million in 1997.
The following table sets forth, for the periods indicated, certain key
operating and financial data for our commercial charter operations.
TWELVE MONTHS ENDED DECEMBER 31,
------------------------------------------
% INC
1997 1998 INC (DEC) (DEC)
---- ---- --------- -----
Departures(b)......................................... 10,589 9,602 (987) (9.32)
Block Hours(c)........................................ 36,836 33,516 (3,320) (9.01)
RPMs (000s)(d)........................................ 3,373,840 3,009,638 (364,202) (10.79)
ASMs (000s)(e)........................................ 4,169,102 3,882,202 (286,900) (6.88)
Passengers Enplaned(g)................................ 1,840,056 1,617,901 (222,155) (12.07)
Revenue (000s)........................................ $228,062 $222,571 $(5,491) (2.41)
RASM in cents(h)...................................... 5.47 5.73 0.26 4.75
- ---------
See footnotes (b) through (h) on pages 48 and 49.
Military/Government Charter Revenues. The following table sets forth, for
the periods indicated, certain key operating and financial data for our
military/government flight operations.
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures(b)..................................... 4,860 4,447 (413) (8.50)
Block Hours(c).................................... 18,704 16,389 (2,315) (12.38)
RPMs (000s)(d).................................... 1,044,317 821,813 (222,504) (21.31)
ASMs (000s)(e).................................... 2,165,169 1,963,069 (202,100) (9.33)
Passengers Enplaned(g)............................ 265,862 205,641 (60,221) (22.65)
Revenue (000s).................................... $131,115 $121,911 $(9,204) (7.02)
RASM in cents(h).................................. 6.06 6.21 0.15 2.48
- ---------
See footnotes (b) through (h) on pages 48 and 49.
68
Ground Package Revenues. In 1998, ground package revenues increased 4.0% to
$23.2 million, as compared to $22.3 million in 1997.
Our Ambassadair Travel Club offers hundreds of tour-guide-accompanied
vacation packages to its approximately 38,000 individual and family members
annually. In 1998, total packages sold decreased 5.0% as compared to 1997, but
the average revenue earned for each ground package sold increased 20.4% between
periods.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with our scheduled and charter operations. Other revenues increased
35.1% to $40.4 million in 1998, as compared to $29.9 million in 1997.
In 1998, as compared to 1997, we earned $4.3 million more in substitute
service revenues, $3.2 million more in cancellation and administrative fees, and
$2.4 million more in cargo and other affiliate company revenues, partially
offset by $0.6 million less revenue earned from the sale of surplus and obsolete
aircraft parts.
A substitute service agreement typically provides for us to operate aircraft
with our crews on routes designated by the customer airline to carry the
passengers of that airline for a limited period of time. We experienced
increased demand for this type of service in 1998 due to delays in new aircraft
deliveries being encountered by various airlines. We also increased our
administrative fee for change-of-reservation on non-refundable scheduled service
tickets from $50 to $60 per change effective August 1998, and the volume of such
fees earned also increased between years in proportion to the increase in
scheduled service passengers boarded.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits expense in 1998
increased 22.5% to $211.3 million from $172.5 million in 1997.
We increased our average equivalent employees by 18.4% between 1998 and 1997
in order to appropriately staff the growth in available seats offered between
periods. Categories of employees where this growth was most significant included
cockpit and cabin crews, reservations agents, airport passenger and ramp service
agents, and aircraft maintenance personnel, all of which are influenced directly
by flight activity. Some employment growth in 1998 was also needed to correct
for certain employee shortages in 1997, particularly in the areas of cockpit
crews, reservations agents, and airframe and power plant mechanics.
The average rate of pay earned by our employees (including all categories of
salaries, wages and benefits, except for variable compensation) was unchanged
between 1998 and 1997. While most employees received wage-rate increases between
years, new employees are generally hired at lower average starting rates of pay
than those rates in effect for more senior employees. The wage-rate reductions
attributable to new employees between 1998 and 1997 approximately offset the
wage rate increases paid to more senior employees.
In 1998, we recorded $8.9 million in variable compensation and related
payroll taxes as a result of the significant improvement in earnings as compared
to 1997, when no such compensation was incurred. In the second quarter of 1997,
a one-time charge of $2.0 million was recorded for variable compensation expense
associated with the resignation of our former President and Chief Executive
Officer.
Salaries, wages and benefits cost per ASM increased 11.8% in 1998 to 1.52
cents, as compared to 1.36 cents in 1997. This unit-cost increase was
attributable to the faster rate of growth in average equivalent employees
between years than seat capacity, and to the variable compensation earned in
1998, which was not earned in 1997.
Fuel and Oil. Fuel and oil expense decreased 10.6% to $137.4 million in
1998, as compared to $153.7 million in 1997. This decrease occurred despite our
consuming 9.8% 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
69
of jet flying operations between periods. We flew 144,237 jet block hours in
1998, as compared to 129,216 jet block hours in 1997, an increase of 11.6%
between years.
Fuel consumption growth between 1998 and 1997 was less than total block hour
growth, however, since most of the block hour growth in 1998 was in the
narrow-body Boeing 727-200 and Boeing 757-200 fleets, which consume
approximately 50% of the gallons per block hour consumed by the Lockheed L-1011
fleet.
During 1998, our average cost per gallon of jet fuel consumed decreased by
20.0% as compared to 1997, resulting in a decrease in fuel and oil expense of
approximately $34.4 million between years. This reduction in fuel price was
experienced generally in the airline industry throughout 1998 as a result of
significant reductions in average crude oil and distillate market prices as
compared to 1997.
During the first, second and fourth quarters of 1998, we entered into
several fuel price hedge contracts under which we sought to reduce the risk of
fuel price increases during the year. We hedged some 1998 fuel consumption under
swap agreements which established specific swap prices for designated periods
and hedged other 1998 fuel consumption under fuel cap agreements which
guaranteed a maximum price per gallon for designated periods. Since the price of
fuel declined during most of 1998, we recorded approximately $2.5 million in
additional fuel and oil expense under our hedge contracts, which added
approximately one cent to our average cost per gallon in 1998.
Fuel and oil expense decreased 18.9% to 0.99 cents per ASM in 1998, as
compared to 1.22 cents per ASM in 1997, primarily due to the period-to-period
decrease in the average price of fuel consumed.
Depreciation and Amortization. Depreciation and amortization expense
increased 25.9% to $78.7 million in 1998, as compared to $62.5 million in 1997.
Depreciation expense attributable to owned airframes and leasehold
improvements increased $3.0 million in 1998, as compared to 1997. We purchased
one Boeing 757-200 and one Boeing 727-200 aircraft in late 1997 which had been
previously financed through operating leases, thereby increasing depreciation
expense on airframes between years. We recorded a reduction in aircraft rental
expense between periods for the termination of operating leases for these
aircraft. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Operating Expenses -- Aircraft Rentals.'
We also recorded additional inventory obsolescence expense for certain
aircraft parts held for sale which were sold during the first quarter of 1998,
and increased our investment in rotable parts and computer hardware and
software, among other items of property and equipment. These changes resulted in
an increase in depreciation expense of $2.4 million in 1998, as compared to
1997.
Amortization of capitalized engine and airframe overhauls increased
$11.1 million in 1998, as compared to 1997, 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, seven of which were
delivered new from the manufacturer between late 1995 and late 1998, are not
presently generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under our 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 increased $1.3 million in
1998 as compared to 1997. When these early engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.
70
Effective July 1, 1998, we extended the estimated useful life of the 13
owned Lockheed L-1011 series 50 and series 100 aircraft to a common retirement
date of December 2004, and also reduced the estimated salvage value of the
related airframes, engines and rotables. The effect of this change in estimate
was to reduce depreciation expense in 1998 by $2.1 million, as compared to 1997.
Depreciation and amortization expense per ASM increased 16.3% to 0.57 cents
in 1998, as compared to 0.49 cents in 1997.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 7.5% to $74.6 million in 1998, as compared to $69.4 million in
1997. The total number of system-wide jet departures between 1998 and 1997
increased by 16.1% to 45,881 from 39,517, resulting in approximately
$8.8 million in volume-related handling and landing expense increases between
periods.
This volume-related increase was partially offset, however, by a decrease of
approximately $3.3 million in price-and-mix-related handling and landing
expenses for 1998, as compared to 1997, attributable primarily to a change in
jet departure mix.
The cost per ASM for handling, landing and navigation fees decreased 1.8% to
0.54 cents in 1998, from 0.55 cents in 1997.
Aircraft Rentals. Aircraft rentals expense for 1998 decreased 2.4% to
$53.1 million from $54.4 million in 1997. We purchased one leased Boeing 757-200
in September 1997; returned one leased Boeing 757-200 to the lessor in November
of 1997; and added one new leased Boeing 757-200 each in December 1997 and
August 1998. These fleet changes resulted in a reduction in Boeing 757-200
rentals expense of $0.9 million in 1998, as compared to 1997. Aircraft rentals
expense for the Boeing 727-200 and Lockheed L-1011 fleets did not change
significantly between years.
Aircraft rentals cost per ASM for 1998 was 0.38 cents, a decrease of 11.6%
from 0.43 cents per ASM in 1997.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials
and repairs expense increased 4.3% to $53.7 million in 1998, as compared to
$51.5 million in 1997. We performed a total of 51 light airframe checks on our
fleet during 1998, as compared to 44 such checks performed in 1997, an increase
of 15.9% between years. The cost of materials consumed and components repaired
in association with such light checks and other maintenance activity increased
by $1.6 million between 1998 and 1997.
The cost per ASM of aircraft maintenance, materials and repairs decreased
4.9% to 0.39 cents in 1998, as compared to 0.41 cents in 1997.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 13.7% to $41.6 million in 1998, as compared to $36.6 million in 1997.
During 1998, our average full-time-equivalent cockpit and cabin crew employment
was 13.5% higher than in 1997, while jet block hours flown increased by 11.6%
between the same periods.
The average cost of hotel rooms per full-time-equivalent crew member
increased 4.4% in 1998, as compared to 1997. Such hotel costs increased due to
both higher room rates paid in 1998, and due to aircraft flow changes associated
with our 1998 summer schedule which resulted in more crews terminating their
daily flying away from their home bases than in the prior year.
The average cost of crew positioning per full-time-equivalent crew member
decreased 5.4% in 1998, as compared to 1997. Crew positioning costs declined
primarily due to the shift of revenue production from commercial charter and
military/government charter to scheduled service. Crews positioning out of base
for scheduled service can often position at no cost on our flights, whereas
positioning to remote international locations for charter service is usually
done on other carriers at an incremental cost.
The cost per ASM for crew and other employee travel increased 3.4% to 0.30
cents in 1998, as compared to 0.29 cents in 1997.
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Ground Package Cost. Ground package cost increased 1.0% to $19.4 million in
1998, as compared to $19.2 million in 1997. The number of Ambassadair ground
packages sold in 1998 decreased 5.0%, as compared to 1997, while the average
cost of Ambassadair ground packages sold increased by 29.8% between years. The
number of ATA Vacations ground packages sold in 1998 decreased 10.2% as compared
to 1997, while the average cost of ATA Vacations ground packages sold decreased
by 7.6% between the same periods. The cost per ASM of ground packages decreased
6.7% to 0.14 cents in 1998, as compared to 0.15 cents in 1997.
Passenger Service. For 1998 and 1997, catering represented 84.1% and 83.0%,
respectively, of total passenger service expense.
The total cost of passenger service increased 3.7% to $34.0 million in 1998,
as compared to $32.8 million in 1997. We experienced a decrease of approximately
10.2% in the average unit cost of catering each passenger between years,
primarily because in 1998 there were relatively more scheduled service
passengers in our business mix who are provided a less-expensive catering
product than our longer-stage-length commercial and military/government charter
passengers. This resulted in a price-and-business-mix reduction of $3.3 million
in catering expense in 1998, as compared to 1997. Total jet passengers boarded,
however, increased 15.0% between years, resulting in approximately $4.0 million
in higher volume-related catering expenses between the same sets of comparative
periods.
The cost per ASM of passenger service declined 7.7% to 0.24 cents in 1998
from 0.26 cents in 1997.
Commissions. Commissions expense increased 9.2% to $28.5 million in 1998, as
compared to $26.1 million in 1997.
Scheduled service commissions expense increased by $2.3 million between 1998
and 1997. This increase was lower than the related increase of 37.5% in
scheduled service revenues between the same periods, partially because of an
industry-wide reduction in the standard travel agency commission rate from 10%
to 8% which became effective in October 1997, and partially due to relatively
more non-commissionable bulk seat scheduled service sales being made in 1998, as
compared to 1997. Neither commercial charter nor military/government charter
commissions expense changed significantly between 1998 and 1997.
The cost per ASM of commissions expense was unchanged at 0.21 cents for both
1998 and 1997.
Other Selling Expenses. Other selling expenses increased 42.6% to
$22.1 million in 1998, as compared to $15.5 million in 1997. Scheduled service
passengers boarded increased 34.1% between the same periods.
CRS fees increased $3.1 million in 1998, as compared to 1997, due to a 40.2%
increase in total CRS bookings made for the expanded scheduled service business
unit between periods and due to a 7.5% increase in the average cost of each CRS
booking. Toll-free telephone costs increased $0.5 million between 1998 and 1997,
primarily due to higher toll-free usage related to higher scheduled service
reservations activity. Credit card fees increased $3.0 million in 1998, as
compared to 1997, due to higher 1998 earned revenues in scheduled service which
were sold using credit cards as payment. Other selling costs per ASM increased
33.3% to 0.16 cents in 1998, as compared to 0.12 cents in 1997.
Advertising. Advertising expense increased 40.2% to $17.8 million in 1998,
as compared to $12.7 million in 1997. The 40.2% increase in total advertising
expense between years was slightly greater than the 37.5% increase in scheduled
service revenues between the same periods. The majority of our growth in 1998
was from increased frequencies at existing gateway cities such as
Chicago-Midway, which provided some advertising efficiencies in 1998 as compared
to the prior year. Such market-related efficiency was partially offset, however,
due to temporarily higher advertising support required in the second and third
quarters of 1998 for the introduction of our new services to Dallas-Ft. Worth,
Denver, San Juan and New York's LaGuardia Airport, as well as to launch our fall
promotions in the third and fourth quarters of 1998. The cost per ASM of
advertising increased 30.0% to 0.13 cents in 1998, as compared to 0.10 cents in
1997.
72
Facilities and Other Rentals. Facilities and other rentals include the cost
of all ground facilities that we lease such as airport space, regional sales
offices and general offices. The cost of facilities and other rentals increased
10.5% to $9.5 million in 1998, as compared to $8.6 million in 1997. The rate of
growth in facilities costs between periods was comparable to the 9.5% rate of
ASM growth between 1998 and 1997 due to the addition of new facilities for
services to Denver, Dallas-Ft. Worth and New York's LaGuardia Airport between
periods. The cost per ASM for facility and other rentals was unchanged at 0.07
cents in both 1998 and 1997.
Other Operating Expenses. Other operating expenses increased 14.5% to
$62.2 million in 1998, as compared to $54.3 million in 1997. Other operating
expenses which experienced significant changes between periods included:
(i) $3.1 million of additional costs for the Chicago Express Jetstream 31 code
share agreement, which agreement was not in effect in the 1997 first quarter,
and because such code share was expanded to include Lansing and Madison in 1998,
which were served in only the fourth quarter of 1997; (ii) $2.3 million in
higher expenses associated with the operation of our affiliate businesses; and
(iii) $1.7 million in higher costs associated with the short-term leasing of
substitute aircraft and the reprotection of some of our passengers on other
airlines due to higher-than-normal delayed and irregular flight operations,
primarily in the second quarter of 1998. Other operating cost per ASM increased
4.7% to 0.45 cents in 1998, as compared to 0.43 cents in 1997.
Interest Income and Expense. Interest expense in 1998 increased to
$12.8 million as compared to $9.5 million in 1997. The increase in interest
expense between periods was primarily due to changes in our capital structure
resulting from the two financings completed on July 24, 1997, at which time we
(i) sold $100.0 million principal amount of 10.5% unsecured seven-year notes,
and (ii) entered into a new $50.0 million secured revolving credit facility,
thereby replacing the former secured revolving credit facility of
$122.0 million as of June 30, 1997. Additionally, in December 1998, we sold
$125.0 million principal amount of 9.625% unsecured senior notes.
Prior to completing these new financings, we utilized secured bank credit
facilities to finance our cash flow requirements as they arose, thereby
minimizing the level of borrowings on which interest would be paid. During 1998,
our weighted average debt outstanding was approximately $159.1 million, as
compared to $117.2 million in 1997.
The weighted average effective interest rate applicable to our outstanding
debt in 1998 was 8.56%, as compared to 8.06% in 1997. The increase in the
weighted average effective interest rates between years was primarily due to the
10.5% interest rate applicable to the $100.0 million in unsecured notes issued
on July 24, 1997, which was higher than the average interest rate which was
applicable to borrowings under the former credit facility.
We invested excess cash balances in short-term government securities and
commercial paper and thereby earned $4.4 million in interest income in 1998, as
compared to $1.6 million in 1997.
Income Tax Expense. In 1998 we recorded $27.1 million in income tax expense
applicable to $67.2 million of pre-tax income for that period, while in 1997,
income tax expense was $4.5 million on pre-tax income of $6.0 million. The
effective tax rate applicable to 1998 was 40.4%, as compared to 73.9% in 1997.
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
amounts paid for crew per diem (45% in 1998 and 50% in 1997). The effect of this
and other permanent differences on the effective income tax rate for financial
accounting purposes becomes more pronounced in cases where before-tax income
approaches zero, which was a significant reason for the higher effective tax
rate in 1997.
Income tax expense for 1997 was also significantly affected by the one-time
$2.0 million charge to salaries, wages and benefits for the executive
compensation package provided to our former President and Chief Executive
Officer. Of the total compensation paid to our former executive in 1997,
approximately $1.7 million was non-deductible against our federal taxable
income.
73
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. In the six months ended June 30, 2000 and 1999, net cash
provided by operating activities was $77.3 million and $85.5 million,
respectively. The decrease in cash provided by operating activities between
periods was attributable to lower earnings and less growth in accounts payable,
partially offset by higher depreciation and amortization charges and growth in
advance ticket sales as reflected in air traffic liability.
Net cash used in investing activities was $85.5 million and $147.1 million,
respectively, in the six months ended June 30, 2000 and 1999. Those amounts
primarily included capital expenditures totaling $68.5 million and
$144.1 million, respectively, for engine and airframe overhauls, airframe
improvements, the purchase of rotable parts, and for purchase deposits made for
Boeing 757-200, Boeing 757-300, and Boeing 737-800 aircraft scheduled for future
delivery. Capital expenditures in the first six months of 1999 were higher
primarily due to the acquisition of certain L-1011-500 aircraft and parts, and
due to the purchase of nine previously-leased Boeing 727-200 aircraft.
Net cash provided by financing activities was $7.1 million and
$6.6 million, respectively, in the six months ended June 30, 2000 and 1999.
During the first six months of 2000, we issued a note for $11.5 million,
collateralized by one L-1011-500. During the first six months of 1999, we issued
a note for $8.0 million, receiving proceeds after issuance costs of
$7.9 million, collateralized by the newly-constructed Maintenance and Operations
Center at the Indianapolis Airport and issued $2.2 million in stock to complete
the acquisition of Chicago Express.
In 1999, 1998 and 1997, net cash provided by operating activities was
$159.6 million, $151.8 million and $99.9 million, respectively. The increase in
cash provided by operating activities between periods was attributable to such
factors as increased earnings, higher depreciation and amortization, higher
accrued expenses and other factors. These increases were offset by higher
investments in inventories and receivables, and a lower amount of income tax
deferred in 1999, as we utilized all remaining net operating loss carryforwards
from earlier tax years.
Net cash used in investing activities was $305.7 million, $142.4 million and
$76.1 million, respectively, in the years ended December 31, 1999, 1998 and
1997. Those amounts primarily included capital expenditures totaling
$274.3 million, $175.4 million and $84.2 million, respectively, for engine and
airframe overhauls, airframe improvements, hushkit installations, the purchase
of rotable parts, and for purchase deposits made on Boeing 757-200 and Lockheed
L-1011-500 aircraft scheduled for future delivery. Included in capital
expenditures for 1999 were approximately $41.5 million for the purchase of nine
Boeing 727-200 aircraft that were previously leased and approximately
$74.2 million for the purchase and modification of five Lockheed L-1011-500
aircraft.
Net cash provided by financing activities for the year ended December 31,
1999, 1998 and 1997 was $93.4 million, $59.3 million and $6.9 million,
respectively. This cash provided by financing activities was primarily
attributable to proceeds from long-term debt of $99.9 million in 1999 consisting
of a $75.0 million principal amount of unsecured senior notes, a $17.0 million
special facility revenue bond and a $7.9 million note payable, as compared to
$131.0 million for 1998 consisting of a $125.0 million principal amount of
unsecured senior notes and a $6.0 million special facility revenue bond. (See
Note 4 to Consolidated Financial Statements.) These proceeds were offset by
payments on long-term debt of $1.6 million in 1999 for certain monthly
installment payments, as compared to $71.5 million in 1998, for items such as
$34.0 million repayment on the revolving bank credit facility, $30.0 million
repayment of a note payable and $7.5 million for other repayments. These cash
inflows were also offset by cash outflows for the purchase of treasury stock of
$8.6 million and $0.1 million, respectively, in 1999 and 1998. Cash provided by
financing activities in 1997 of $134.0 million were primarily from the
$100.0 million principal amount of unsecured notes, which were offset by the
full repayment of the former credit facility.
Aircraft and Fleet Transactions. In November 1994, we signed a purchase
agreement for six new Boeing 757-200s which, as subsequently amended, now
provides for 13 total aircraft to be delivered between 1995 and 2000. As of
June 30, 2000, we had accepted delivery of the first 11 aircraft under these
agreements, all of which were financed under leases accounted for as operating
leases. The aggregate purchase price for the remaining two aircraft is
approximately $52.0 million
74
per aircraft, subject to escalation. The final two deliveries are scheduled for
October 2000 and November 2000. Advance payments totaling approximately
$13.8 million, ($6.9 million per aircraft), are required prior to delivery of
the two remaining aircraft, with the remaining purchase price payable at
delivery. As of June 30, 2000 and 1999, we have recorded fixed asset additions
for $13.8 million and $16.3 million, respectively, in advanced payments
applicable to aircraft scheduled for future delivery. We intend to finance the
remaining two deliveries under this agreement through sale/leaseback
transactions accounted for as operating leases.
As further described in Note 5 to the Consolidated Financial Statements, on
June 30, 2000, we concluded a purchase agreement with the manufacturer to
acquire 10 new Boeing 757-300s and 20 new Boeing 737-800s. The manufacturer's
list price under this agreement is $73.1 million for each 757-300 and
$52.4 million for each 737-800, subject to escalation. Our purchase price of
each aircraft is subject to various discounts. The deliveries of these aircraft
are scheduled between June 2001 and April 2003. Advance payments are required
for these purchases and we have preliminary agreements in place to fund these
advance deposits through long-term debt collateralized by the deposits and
certain issuances of preferred stock. As of June 30, 2000, we have made
$2.5 million in advanced payments for these aircraft.
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 are being placed
into service throughout 2000 in conjunction with the retirement of the current
fleet of Jetstream J31s, all of which are currently leased. As of June 30, 2000,
Chicago Express had taken delivery of seven of these aircraft, all of which had
been placed into revenue service, and financed them through sale/leaseback
transactions accounted for as operating leases. We expect to place the remaining
two aircraft into revenue service during the third quarter of 2000.
Between the third quarter of 1998 and the fourth quarter of 1999, we
accepted delivery of five L-1011-500 aircraft, which are powered by Rolls-Royce
RB211-524B4-02 engines. Upon delivery of each aircraft, we 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 the last aircraft, and it was placed into
service in the first quarter of 2000. The total costs of the five aircraft,
together with spare engines and spare parts, was approximately $100.0 million.
We financed these aircraft primarily through the issuance of unsecured notes in
December 1998.
Significant Financings. In July 1997, we sold $100.0 million principal
amount of 10.5% unsecured senior notes. In December 1999, we sold an additional
$75.0 million principal amount of 10.5% senior notes. The $75.0 million notes
sold in 1999 were issued as a private placement under Rule 144A. We are
obligated to complete an exchange offer in which the new notes will be exchanged
for registered notes having the same terms. On January 25, 2000, we filed a
registration statement with the SEC in connection with this pending exchange
offer, and this exchange offer is expected to be complete in the third quarter
of 2000.
In December 1998, we sold $125.0 million principal amount of 9.625%
unsecured senior notes in a public offering.
In the second quarter of 1999, we completed the construction of a 120,000
square foot Maintenance and Operations Center immediately adjacent to our
maintenance hangar at Indianapolis International Airport. In June 1999, we
financed this facility with an $8.0 million 15-year mortgage loan.
In December 1999, ATA issued $17.0 million principal amount of special
facility revenue bonds to finance the construction of certain facilities at
Chicago-Midway Airport. The bonds are payable from and secured by a pledge and
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 us. We guaranteed payment of the bonds.
In December 1999, we revised our revolving credit facility to provide a
maximum of $100.0 million, including up to $50.0 million for stand-by letters of
credit. The facility matures January 2,
75
2003, and borrowings under the facility bear interest, at the option of ATA, at
either LIBOR plus 1.25% to 2.50% or the agent bank's prime rate. This facility
is subject to certain restrictive covenants, and is collateralized by certain
L-1011-50 and Boeing 727-200 aircraft. As of June 30, 2000 and 1999, we had no
borrowings against this credit facility, but did have outstanding letters of
credit secured by this facility aggregating $32.7 million as of June 30, 2000
and $21.1 million as of June 30, 1999.
In February 2000, we borrowed $11.5 million for operating cash purposes.
This five-year note is collateralized by one Lockheed L-1011-500 aircraft.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, (or SFAS), No. 133, 'Accounting for Derivative
Instruments and Hedging Activities.' This accounting standard, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
requires that all derivatives be recognized as either assets or liabilities at
fair value. We are evaluating the new statement's provisions and currently
expect to adopt SFAS No. 133 in the first quarter of 2001. Although we currently
do not have any significant derivatives subject to the accounting provisions of
SFAS No. 133, we have engaged in certain fuel price hedging contracts in recent
years to which accounting or disclosure provisions of this statement might have
applied. We cannot predict what impact, if any, adoption of the statement will
have.
In December 1999, the Securities and Exchange Commission published Staff
Accounting Bulletin No. 101, 'Revenue Recognition in Financial Statements', or
SAB 101. This guidance clarifies the SEC's position on certain policies of
revenue recognition. Most of our revenue recognition policies are already
consistent with SAB 101. We expect to adopt SAB 101 in the fourth quarter of
2000, at which time we will implement some accounting changes as a result of SAB
101, none of which is expected to have a material effect on the financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are 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 our exposure to such changes. See the
notes to consolidated financial statements for a description of our accounting
policies and other information related to these financial instruments.
Aircraft Fuel. Our results of operations are significantly impacted by
changes in the price of aircraft fuel. During 1999, aircraft fuel accounted for
approximately 16.6% of our operating expenses. Based on our 2000 projected fuel
consumption, a one cent change in the average annual price per gallon of
aircraft fuel would impact our annual aircraft fuel expense by approximately
$2.8 million.
Our short-term risk is mitigated by contractual fuel price escalators
contained in military charter and commercial charter contracts, which enable us
to pass through some increases in fuel cost. We have previously entered into
certain fuel swap contracts and fuel cap agreements. No such agreements are in
place as of December 31, 1999.
Interest Rates. Our results of operations are affected by fluctuations in
market interest rates. As of December 31, 1999, we had approximately
$100.0 million of variable rate debt available through a revolving credit
facility. In 2000, the Company does not project to incur significant borrowings
under the facility, so the risk of exposure to market interest rate fluctuations
is not significant.
As of December 31, 1999, we had fixed-rate debt with a carrying value of
$300.0 million. Based upon discounted future cash flows using current
incremental borrowing rates for similar
76
types of instruments, the fair value of the fixed-rate debt is estimated at
approximately $295.2 million. Market risk, estimated as the potential increase
in fair value resulting from a hypothetical 1.0% decrease in interest rates, was
approximately $7.5 million as of December 31, 1999.
If 2000 average short-term interest rates decreased by 1.0% over 1999
average rates, our projected interest income from short-term investments would
decrease by approximately $1.5 million during 2000.
77
BUSINESS
We own American Trans Air, Inc., or ATA, the eleventh largest passenger
airline in the United States (based on 1999 revenues) and a leading provider of
airline services in selected markets. We are 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 1999 revenues. For the year
ended December 31, 1999, our revenues consisted of 55.7% scheduled service,
23.5% commercial charter service and 11.2% military charter service, with the
balance derived from related services.
We actively consider and enter into discussions regarding possible business
combinations with air carriers and others, and plans to continue to do so. See
'Risk Factors.'
SCHEDULED SERVICE
We provide scheduled service through ATA to selected destinations primarily
from our gateways at Chicago-Midway and Indianapolis and also provide
trans-pacific services between the west ern United States and Hawaii. In 1999,
we added scheduled service between Chicago-Midway and Philadelphia. We focus on
routes where we believe we can be a leading provider of nonstop service and
target leisure and value-oriented business travelers.
We believe that we have significant competitive advantages in each of our
primary markets.
Chicago-Midway, our largest and fastest growing gateway, represented
approximately 56.7% of our total scheduled service capacity in 1999. We are
the number one carrier in terms of market share in 20 out of our 22 nonstop
routes from Chicago-Midway. We believe our service at this gateway would be
difficult to replicate because of limited available 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. We began service at Chicago-Midway in December 1992.
Hawaii represented approximately 18.5% of our total scheduled service
capacity in 1999. We believe we are 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 our capacity in the Hawaiian market is contracted to the nation's
largest independent Hawaiian tour operator, which assumes capacity, yield
and fuel risk. We have served the Hawaiian market since 1974 through our
commercial charter operations and since 1987 through our scheduled service
operations.
Indianapolis represented approximately 14.0% of our total scheduled service
capacity in 1999. We began scheduled service from Indianapolis in 1986 and
believes that we benefit from being perceived as the hometown airline. We
are the number one provider in terms of market share in seven of our eight
nonstop jet routes from Indianapolis. In Indianapolis, we operate
Ambassadair, the nation's largest travel club with approximately 41,000
individual or family memberships, providing us with a local marketing
advantage similar to a frequent flier program.
COMMERCIAL CHARTER SERVICE
We are the largest commercial passenger charter airline in the United States
and provide services throughout the world, primarily to U.S. and European tour
operators. We seek to maximize the profitability of these operations by
leveraging our leading market position, diverse aircraft fleet and worldwide
operating capability. We believe our commercial charter services are a
predictable source of revenues and operating profits in part because our
commercial charter contracts require tour operators to assume capacity, yield
and fuel price risk, and also because of our ability to re-deploy assets into
favorable markets. Our commercial charter services are marketed through a net
work of domestic sales offices along with a London office.
78
MILITARY/GOVERNMENT CHARTER SERVICE
We have provided passenger airline services to the U.S. military since 1983
and are currently the largest commercial airline provider of these services. We
believe that because these operations are generally less seasonal than leisure
travel, they have tended to have a stabilizing impact on our 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. We believe that our fleet of aircraft is well suited to the
needs of the military.
STRATEGY
We intend to enhance our position as a leading provider of passenger airline
services to selected markets where we can capitalize on its competitive
strengths. The key components of this strategy are:
PARTICIPATE IN MARKETS WHERE WE CAN BE A LEADER
We focus on markets where we can be a leading provider of airline services.
In scheduled service, we concentrate on routes where we can be the number one or
number two carrier. We achieve this result principally through superior nonstop
schedules, value-oriented service, focused marketing efforts and certain airport
and aircraft advantages. We are the leading provider of commercial and military
charter services in large part because of our variety of aircraft types,
superior operational performance and our worldwide service capability.
MAINTAIN LOW-COST POSITION
For 1997, 1998 and 1999, our operating cost per available seat mile, or
CASM, of 6.09[c], 6.09[c] and 6.84[c], respectively, was the lowest among large
U.S. passenger airlines. The airline segment CASM was 5.97[c], 6.00[c] and
6.38[c], respectively, for the years ended 1997, 1998 and 1999. See
' -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations in Cents per ASM.' We believe that our
low-cost structure provides a significant competitive advantage, allowing us to
operate profitably while pricing competitively in the scheduled service and
commercial and military charter markets. We believe our low-cost position is
primarily derived from our simplified product, route structure, low aircraft
ownership costs and low overhead costs.
TARGET GROWTH OPPORTUNITIES
We intend to expand our operations selectively in areas where we believe we
can achieve attractive financial returns.
Charter Expansion. We have acquired five long-range Lockheed L-1011-500
aircraft primarily for commercial and military charter service, whose
low-cost and high-seating capacity will enable us to compete for business
that we could not previously accommodate, such as nonstop service to
certain South American, European and Asian destinations.
Scheduled Service Expansion at Chicago-Midway. We plan to increase
frequencies and add up to four destinations from our Chicago-Midway gateway
by the end of 2000 and to support this expansion by adding four Boeing
757-200 aircraft to our fleet in 2000. Included in these new destinations
is new scheduled service between Chicago-Midway and Ronald Reagan
Washington National Airport, which began April 3, 2000, as well as new
scheduled service to Boston and Seattle, which began May 7, 2000. On July
10, 2000, we also began to offer scheduled service from Chicago-Midway to
Minneapolis St. Paul. We will also occupy additional gates upon completion
of the new terminal at Chicago-Midway to facilitate these expanding
operations. In addition, we will use 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, or FIS,
at the Chicago-Midway Airport. This will allow international flights to
operate directly to and from Chicago-Midway.
79
Selected Acquisitions. We continually evaluate possible acquisitions of
related businesses or interests therein to enhance our competitive position
in its market segments. We also continue to evaluate possible business
combinations with air carriers and others that could result in a change of
control of Amtran.
INDUSTRY OVERVIEW
SCHEDULED AIRLINE SERVICE
In the United States, the scheduled airline business is dominated by large
scheduled airlines, most of which have developed hub-and-spoke route systems. As
a result of this structure, many smaller cities or airports are not served by
direct or nonstop flights to leisure destinations, and many secondary leisure
destinations do not receive direct or nonstop service from more than a few major
U.S. cities. In developing its business, we have focused on low-frequency,
nonstop or direct service from its principal gateways to leisure or business
destinations where there is little or no competing direct or nonstop service.
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
Department of Transportation, or DOT, statistics, total charter flights by all
U.S. airlines represented approximately 2.5% of all available seat miles, or
ASMs, flown within the United States during the twelve months ended March 31,
2000.
OUR AIRLINE OPERATIONS
SERVICES OFFERED
The following table provides a summary of our major revenue sources for the
periods indicated:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
Scheduled service.......................... $362.0 $386.5 $371.8 $511.3 $ 624.6
Commercial charter......................... 229.5 226.4 228.1 222.6 263.8
Military charter........................... 77.5 84.2 131.1 121.9 126.2
------ ------ ------ ------ --------
Total charter service.................. 307.0 310.6 359.2 344.5 390.0
Other...................................... 46.0 53.8 52.2 63.6 107.8
------ ------ ------ ------ --------
Total.................................. $715.0 $750.9 $783.2 $919.4 $1,122.4
------ ------ ------ ------ --------
------ ------ ------ ------ --------
SCHEDULED SERVICE
We provide scheduled airline services on selected routes where we believe
that we can be one of the leading carriers in the market, focusing primarily on
low-cost, nonstop or direct flights. We currently provide scheduled service
primarily from our gateway cities of Chicago-Midway and Indianapolis to popular
vacation destinations such as Hawaii, Las Vegas, Florida, California, Mexico and
the Caribbean, as well as to New York's John F. Kennedy (seasonal) and LaGuardia
Airports, Philadelphia, Denver and Dallas-Ft. Worth.
In 1997, we began a code-share agreement with Chicago Express to operate
passenger airline services between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison
using Jetstream 31 propeller aircraft. In April 1999, we
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acquired all of the issued and outstanding stock of Chicago Express. Beginning
May 1999, we consoldated Chicago Express' results of operations, replacing the
fixed fee per flight we previously recorded. This generated no material change
to operating expenses and the operating revenues associated with these
operations were already reflected in our results of operations.
In January 2000, Chicago Express entered into an agreement to purchase nine
SAAB 340B aircraft, engines and related parts. As of June 30, 2000, we had taken
delivery of seven of these aircraft. The remaining aircraft will be placed into
service throughout 2000. The current fleet of Jetstream 31s will be returned to
the lessor.
Included in our 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 which we retain are sold through our own scheduled service distribution
network. Under bulk sales arrangements, we are obligated to provide
transportation to the tour operators' customers even in the event of non-payment
to us by tour operators. To minimize our credit exposure under these
arrangements, we require bonding or a security deposit for a portion of the
contract price. Bulk seat sales amounted to $59.0 million, $68.6 million and
$71.2 million in 1997, 1998 and 1999, respectively, which represented 7.5%, 7.5%
and 6.3%, respectively, of our consolidated revenues for such periods.
COMMERCIAL CHARTER
Commercial charter represented 29.1%, 24.2% and 23.5%, respectively of our
consolidated revenues for 1997, 1998 and 1999. Our 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,
we pass through increases in fuel costs from a contracted price. Under these
contracts, if the fuel increase causes the tour operator's fuel cost to rise in
excess of 10%, the tour operator has the option of canceling the contract. We
are exposed to increases in fuel costs that occur within 14 days of flight time.
Although we serve tour operators on a worldwide basis, our primary customers
are U.S.-based. Our five largest tour operator customers represented
approximately 16.2%, 14.4% and 12.5%, respectively, of our consolidated revenues
for 1997, 1998 and 1999, and the ten largest tour operator customers represented
approximately 20.8%, 17.5% and 14.7%, respectively, of our 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. We have
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. We operate 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 us to increase aircraft
utilization during off-peak periods.
MILITARY/GOVERNMENT CHARTER
In 1997, 1998 and 1999, sales to the U.S. military and other governmental
agencies were approximately 16.8%, 13.3% and 11.2%, respectively, of our
consolidated revenues. Traditionally, we 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
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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. Our current contractor teaming arrangement significantly
increases the likelihood that the team will receive both fixed-award and
contract expansion business. See ' -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Military/Government Charter
Revenues.'
We are subject to biennial inspections by the 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 core charter and scheduled service businesses, we operate
several other smaller businesses that complement our core businesses. We sell
ground arrangements (hotels, car rentals and attractions) through our
Ambassadair and ATA Leisure Corp. subsidiary brands such as ATA Vacations,
Travel Charter and Key Tours; provide airframe and powerplant mechanic training
through American Trans Air Training Corporation; and provide helicopter charter
services through its ExecuJet subsidiary. Additionally, we, through our
subsidiary Amber Air Freight, market cargo services in our scheduled and charter
operations. In aggregate, these businesses, together with incidental revenues
associated with core charter and scheduled service operations, accounted for
6.6%, 6.9% and 9.6%, respectively, of consolidated revenues in 1997, 1998 and
1999.
AIRCRAFT FLEET
As of June 30, 2000, we were certified to operate a fleet of 19 Lockheed
L-1011s, 24 Boeing 727-200s and 13 Boeing 757-200s. We also acquired Chicago
Express in April 1999, which is separately certified to operate nine Jetstream
31 propeller aircraft. These Jetstream 31 propeller aircraft will be replaced
with 34-seat SAAB 340B propeller aircraft by the end of 2000.
LOCKHEED L-1011 AIRCRAFT
Our 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 June 30,
2000, we owned 18 of these aircraft and one was under an operating lease that
expires in March 2003. Certain of the Lockheed L-1011 aircraft that we own are
subject to mortgages and other security interests granted in favor of our
lenders under our revolving credit facility. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
BOEING 727-200 ADV AIRCRAFT
Our 24 Boeing 727-200 ADV 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 as of June 30, 2000 and
have an average age of approximately 20 years. We lease 14 of these aircraft,
with initial lease terms that expire between October 2000 and September 2003,
subject to our right to extend each lease for varying terms or purchase the
aircraft.
BOEING 757-200 AIRCRAFT
Our 13 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 three years and meet Stage 3 noise
requirements. Our Boeing 757-200s have higher ownership costs than our Lockheed
L-1011 and Boeing 727-200 ADV aircraft, but lower
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operational costs. In addition, our Boeing 757-200s have the capacity to operate
on extended flights over water. The leases for our Boeing 757-200 aircraft have
initial terms that expire on various dates between December 2001 and June 2021,
subject to our right to extend each lease for varying terms.
In order to enhance the reliability of our service, we seek to maintain at
least two spare Lockheed L-1011 and three spare Boeing 727-200 aircraft at all
times. Spare aircraft can be dispatched on short notice to most locations where
a substitute aircraft is needed for mechanical or other reasons.
Although Lockheed L-1011 and Boeing 727-200 ADV aircraft are subject to the
FAA's Aging Aircraft program, we do 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 our 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 our fixed bases is coordinated through our global communications
network. We have the ability to dispatch maintenance and operational personnel
and equipment as necessary to support temporary operations around the world.
MAINTENANCE AND SUPPORT
Our Maintenance and Operations Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the maintenance needs of our fleet and to provide supervision and control of
purchased maintenance services. We have approximately 1,200 employees supporting
its maintenance and technical efforts.
We currently maintain 16 permanent maintenance facilities, including our
Indianapolis facility. In addition, we utilize 'road teams,' which are
dispatched primarily as charter flight operations require to arrange and
supervise maintenance services at temporary locations. We also use road teams to
supervise all maintenance not performed in-house.
FUEL PRICE RISK MANAGEMENT
We have fuel reimbursement clauses and guarantees which applied to
approximately 53.4%, 45.0% and 34.8%, respectively, of consolidated revenues in
1997, 1998 and 1999. We did not engage in any material fuel hedging activities
in 1997, but engaged in a fuel hedging program from 1998 to mid-1999, which
hedged a significant portion of our scheduled service fuel exposure during that
time period. We do not expect to be engaged in any fuel hedging program in 2000.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Operating Expenses -- Fuel and Oil.'
COMPETITION
Our products and services face varying degrees of competition in diverse
markets.
COMPETITION FOR SCHEDULED SERVICES
In scheduled service, we compete 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, we compete against both the major U.S.
scheduled airlines and against small U.S. charter airlines. We also compete
against several European and Mexican charter and scheduled airlines. The
scheduled carriers compete for leisure travel customers with
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our 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 us, generally are required to compete for customers against the lowest
revenue-generating seats of the scheduled airlines.
We also compete directly against other charter airlines. In the United
States, these charter airlines are smaller in size than us. In Europe, several
charter airlines are as large or larger than us. Certain European charter
airlines are affiliates of large scheduled airlines or tour operators.
COMPETITION FOR MILITARY/GOVERNMENT CHARTER SERVICES
We compete 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.
INSURANCE
We carry 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 our current insurance policies, we would not be covered by such insurance
were we to fly, without the consent of our insurance provider, to certain
high-risk countries. We will support certain U.S. government operations in areas
where our insurance policy does not provide coverage when the U.S. government
provides replacement insurance coverage.
EMPLOYEES
As of June 30, 2000, we had approximately 7,000 full and part-time
employees, approximately 2,500 of whom were represented under collective
bargaining agreements. Our flight attendants are represented by the Association
of Flight Attendants, or AFA, our cockpit crews are represented by the Air Line
Pilots Association, or ALPA, and our dispatchers are represented by the
Transport Workers Union. The current collective bargaining agreement with the
AFA became subject to amendment, but did not expire, in December 1998. During
the first quarter of 2000, we completed renegotiation of this contract and the
new contract was notified. The current collective bargaining agreement with ALPA
will be subject to amendment, but will not expire, in September 2000.
We believe that relations with our employees are good. A prolonged dispute
with employees who are represented by a union, or any sizable number of
employees, could have an adverse impact on tour operations.
REGULATION
We are subject to a wide range of governmental regulation, including that of
the DOT and the Federal Aviation Administration.
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 us through our cargo affiliate. Labor relations in the air
transportation industry are generally regulated under the
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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. We are 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
our aircraft, passengers and cargo to ensure our compliance with U.S.
immigration, customs and import laws. Also, while our aircraft are in foreign
countries, we must comply with the requirements of similar authorities in those
countries. The Commerce Department also regulates the export and re-export of
our 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 us to the applicable airport
authority.
At our aircraft maintenance facilities, materials are used that are
regulated as hazardous under federal, state and local laws. We are 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, we are 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. We do not expect
that the costs associated with ongoing compliance with any of these regulations
will have a material impact on our 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, we,
as a charter carrier, are generally not restricted as to the frequency of our
flights to and from most foreign destinations. However, these agreements
generally restrict us 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. Proposals for any
additional charter service must generally be specifically approved by the civil
aeronautics authorities in the relevant countries. Approval of such requests is
typically based on considerations of comity and reciprocity and cannot be
guaranteed.
We believe we are 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 our DOT or FAA authorizations or certificates could have a
material adverse effect upon us.
ENVIRONMENTAL MATTERS
Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, our aircraft must comply with certain Stage 3 noise restrictions by
certain specified deadlines. In general, we are prohibited from operating any
Stage 2 aircraft after December 31, 1999. As of December 31, 1999, our 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. We believe we
have made all necessary modifications to our operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
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DESCRIPTION OF PRINCIPAL INDEBTEDNESS
REVOLVING CREDIT FACILITY
We maintain a revolving credit facility to assist us in managing our working
capital and in meeting our short-term cash needs.
In December 1999, we revised our credit facility to provide for maximum
borrowings of $100.0 million, including stand-by letters of credit in a maximum
amount of $50.0 million. All borrowings under the credit facility are guaranteed
by Amtran and all of its other operating subsidiaries and secured by some of
Amtran's L-1011 and B727 aircraft and engines, as well as specified additional
assets as may be required to provide a loan-to-value ratio not in excess of 75%.
The credit facility will mature, and all borrowings under the credit facility
will become due and payable, on January 2, 2003. As of June 30, 2000, we had no
borrowings under the facility, but we secured $32.7 million in outstanding
letters of credit.
So long as no event of default is continuing, borrowings under the credit
facility bear interest, at the option of ATA, at either:
LIBOR plus 1.25% to 2.50%, depending upon specified financial ratios; or
the agent bank's prime rate.
In addition, ATA incurs a quarterly commitment fee ranging from 0.25% to 0.50%
per annum on the average unused portion of the commitment, depending upon
specified ratios.
The credit facility contains covenants that, absent the prior written
consent of the lenders, limit the ability of ATA, Amtran and the other
guarantors to, among other things:
incur debt;
grant liens;
make capital expenditures;
pay dividends, distributions and other payments to stockholders;
engage in mergers and similar business combinations;
dispose of assets; and
prepay debt.
In addition, for a specified period, ATA must maintain a number of specified
ratios, including minimum net worth, cash flow to interest expense after rentals
and total adjusted liabilities to tangible net worth.
An event of default will occur if, among other things, a reduction below 20%
occurs in:
Mr. Mikelsons' or his heirs' beneficial ownership of Amtran's outstanding
capital stock; or
Amtran's beneficial ownership of ATA's outstanding capital stock.
10 1/2% NOTES
In 1997, Amtran issued $100.0 million principal amount of 10 1/2% senior
notes due 2004. All of Amtran's obligations under the 10 1/2% notes are
guaranteed by all of its operating subsidiaries, including ATA. In December
1999, Amtran sold an additional $75.0 million principal amount of 10 1/2% senior
notes due 2004. The terms of the additional notes are identical to those of the
original notes. The $75 million principal amount of 10 1/2% senior notes were
issued as a private placement under Rule 144A. We are obligated to complete an
exchange offer in which the new notes will be exchanged for registered notes
having the same terms. In January 2000, we filed a registration statement with
the SEC in connection with this pending exchange offer.
Principal, Maturity and Interest. The 10 1/2% notes are limited in aggregate
principal amount to $175.0 million and will mature on August 1, 2004. Interest
on the 10 1/2% notes accrues at 10 1/2% per annum and is payable semiannually in
cash on February 1 and August 1 of each year. Interest is computed on the basis
of a 360-day year comprised of twelve 30-day months.
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Ranking and Guarantee. The 10 1/2% notes are unsecured obligations of
Amtran, rank pari passu in right of payment with all existing and future
unsecured unsubordinated obligations of Amtran and rank senior in right of
payment to all existing and future subordinated obligations of Amtran. The
10 1/2% notes are also effectively subordinated to all existing and future
secured indebtedness of Amtran and the guarantors to the extent of the security.
Redemption. The 10 1/2% notes are redeemable, at Amtran's option, in whole
or in part, at any time on or after August 1, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the 12-month period beginning on August 1 of the year indicated below:
YEAR PERCENTAGE
- ---- ----------
2002............................................. 105.250%
2003............................................. 102.625%
In addition, at any time prior to August 1, 2000, Amtran may redeem up to
35% of the original aggregate principal amount of the 10 1/2% notes with the
proceeds of one or more sales of common stock, at a redemption price equal to
110.500% of their principal amount plus accrued and unpaid interest, so long as
at least $113.8 million of aggregate principal amount of 10 1/2% notes remains
outstanding immediately after the redemption.
Covenants. The indenture governing the 10 1/2% notes limits the ability of
Amtran and its subsidiaries to, among other things:
incur debt;
make specified restricted payments;
create restrictions on the ability of some of its subsidiaries to pay
dividends and make distributions;
allow some of its subsidiaries to issue or sell capital stock;
all some of its subsidiaries to provide guarantees;
engage in transactions with affiliates;
create liens;
engage in sale/leaseback transactions; and
dispose of assets.
Events of Default. The indenture governing the 10 1/2% notes contains
various events of default, including:
default in the payment of principal, premium or interest;
default in compliance with some of the covenants contained in indenture;
failure to pay at maturity or upon acceleration of more than $10 million in
aggregate of other debt;
failure to pay more than $10 million of judgments that have not been stayed
by appeal or otherwise; and
occurrence of specified events, including the bankruptcy of Amtran or some
of its subsidiaries.
9 5/8% NOTES
In 1998, Amtran issued $125.0 million principal amount of 9 5/8% senior
notes due 2005. All of Amtran's obligations under the 9 5/8% notes are
guaranteed by all of its operating subsidiaries, including ATA.
Principal, Maturity and Interest. The 9 5/8% notes are limited in aggregate
principal amount to $125.0 million and will mature on December 15, 2005.
Interest on the 9 5/8% notes accrues at 9 5/8%
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per annum and is payable semiannually in cash on June 15 and December 15 of each
year. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.
Ranking and Guarantee. The 9 5/8% notes are unsecured obligations of Amtran,
rank pari passu in right of payment with all existing and future unsecured
unsubordinated obligations of Amtran and rank senior in right of payment to all
existing and future subordinated obligations of Amtran. The 9 5/8% notes are
also effectively subordinated to all existing and future secured indebtedness of
Amtran and the guarantors to the extent of the security.
Redemption. The 9 5/8% notes redeemable, at Amtran's option, in whole or in
part, at any time on or after June 15, 2003, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
12-month period beginning on June 15 of the year indicated below:
YEAR PERCENTAGE
- ---- ----------
2003............................................. 104.81%
2004............................................. 102.41%
In addition, at any time prior to June 15, 2001, Amtran may redeem up to 35%
of the original aggregate principal amount of the 9 5/8% notes with the proceeds
of one or more sales of common stock, at a redemption price equal to 109.625% of
their principal amount plus accrued and unpaid interest, so long as at least
$81.25 million of aggregate principal amount of 9 5/8% notes remains outstanding
immediately after the redemption.
Covenants. The indenture governing the 9 5/8% notes contains covenants
substantially identical to the covenants contained in the indenture governing
the 10 1/2% notes.
Events of Default. The indenture governing the 9 5/8% notes contains events
of default substantially similar to those contained in the indenture governing
the 10 1/2% notes.
SPECIAL FACILITY REVENUE BONDS
In December 1999, ATA issued $17.0 million principal amount of variable rate
special facility revenue bonds due 2029 to finance the construction of certain
facilities at Chicago Midway Airport. The bonds were issued under and are
secured by a trust indenture from the city of Chicago to LaSalle Bank National
Association, as trustee. The bonds are payable solely from and secured by a
pledge and 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 ATA. Payment of the bonds is guaranteed by Amtran
pursuant to a Guaranty Agreement between Amtran and the trustee.
Upon the issuance of the bonds, ATA caused a letter of credit to be issued
for the benefit of the owners of the bonds. The trustee is required under the
indenture to draw upon the letter of credit to pay (i) principal of and interest
on the bonds when due whether on scheduled principal or interest payment dates,
upon redemption of all or part of such bonds or upon acceleration of the
maturity of such bonds and (ii) the principal portion of the tender price of the
bonds upon optional or mandatory tender for purchase that have not been
remarketed and that portion of the tender price of such bonds equal to interest
accrued to the purchase date on such bonds.
MORTGAGE
In the second quarter of 1999, we obtained an $8.0 million 15-year mortgage
to finance our newly-completed 120,000 square foot Maintenance and Operations
Center in Indianapolis.
DESCRIPTION OF THE CERTIFICATES
The following is a summary of the general terms and provisions of the
Outstanding Certificates and the Exchange Certificates. The statements under
this caption are summaries and do not purport to be complete and are qualified
in their entirety by reference to all the provisions of the Pass Through Trust
Agreements, copies of which will be available upon request to the pass
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through trustee, and to all the provisions of the certificates, the Deposit
Agreements, the Escrow Agreements, the Liquidity Facilities, the Policy, the
Policy Provider Agreement and the Intercreditor Agreement.
Except as otherwise indicated, the following summary relates to each of the
pass through trusts and the certificates issued by each pass through trust. The
terms and conditions governing each of the pass through trusts will be
substantially the same, except as described under 'Description of the
Intercreditor Agreement -- Priority of Distributions' below and except that the
principal amount and scheduled principal repayments of the secured promissory
notes held by each pass through trust and the interest rate and maturity date of
the secured promissory notes held by each pass through trust will differ. The
references to sections in parentheses in the following summary are to the
relevant sections of the Pass Through Trust Agreements unless otherwise
indicated.
GENERAL
Each certificate will represent a fractional undivided interest in one of
the two American Trans Air, Inc. 2000-1 pass through trusts: the class G pass
through trust and the class C pass through trust, collectively referred to as
the 'pass through trusts.' The pass through trusts will be formed pursuant to
the Pass Through Trust Agreements. We will refer to the certificates to be
issued by the class G pass through trust and the class C pass through trust as
the class G certificates and the class C certificates, respectively.
The property of each pass through trust will consist of:
Subject to the Intercreditor Agreement, secured promissory notes acquired
under the Note Purchase Agreement and issued, at ATA's election, either (a)
on a nonrecourse basis by the Owner Trustees of a separate owner trust for
each leveraged lease transaction to finance or refinance a portion of the
purchase price of each leased aircraft by the Owner Trustee, in which case
the applicable leased aircraft will be leased to ATA, or (b) on a recourse
basis by ATA in connection with each secured loan transaction to finance a
portion of the purchase price of each aircraft owned by ATA.
The rights of such pass through trust to acquire secured promissory notes
under the Note Purchase Agreement.
The rights of such pass through trust under the applicable Escrow Agreement
to request the Escrow Agent to withdraw from the Depositary funds
sufficient to enable each such pass through trust to purchase secured
promissory notes on the delivery of each aircraft during the Delivery
Period.
The rights of such pass through trust under the Intercreditor Agreement
(including all monies receivable in respect of such rights).
Monies receivable under the Liquidity Facility for such pass through trust.
Funds from time to time deposited with the pass through trustee in accounts
relating to such pass through trust.
With respect to the class G pass through trust, all monies receivable under
the Policy.
The certificates of each pass through trust will be issued in fully
registered form only and will be subject to the provisions described below under
' -- Book-Entry; Delivery and Form.' Certificates will be issued only in minimum
denominations of $1,000 or integral multiples of $1,000 in excess thereof,
except that one certificate of each pass through trust may be issued in a
denomination of less than $1,000. (Section 3.01)
On the Transfer Date, each of the original pass through trusts will transfer
and assign all of its assets and rights to a substantially identical successor
pass through trust, and Wilmington Trust Company, as the trustee of the new
trust, will assume the obligations of the related original pass through trusts
under each transaction document to which such original trustee was a party. Upon
the effectiveness of such transfer, assignment and assumption, each of the
original pass through
89
trusts will be liquidated and each of the certificates will represent the same
percentage interest in the successor pass through trust as it represented in the
original pass through trust immediately prior to such transfer, assignment and
assumption. Unless the context otherwise requires, all references in this
prospectus to the pass through trusts, the trustees, the Pass Through Trust
Agreements and similar terms shall be applicable to the original pass through
trusts until the effectiveness of such transfer, assignment and assumption and
thereafter shall be applicable to the successor pass through trusts. See
' -- Liquidation of Original Trusts.'
The certificates will represent interests in the respective pass through
trusts, and all payments and distributions on the certificates will be made only
from the property of the related pass through trust. (Section 3.10) The
certificates will not represent an interest in or obligation of ATA, Amtran, the
pass through trustees, any of the Loan Trustees or Owner Trustees in their
individual capacities, any Owner Participant or any affiliate of any of them.
The existence of the pass through trusts will not limit the liability that
holders of the certificates would otherwise incur if they owned the secured
promissory notes directly or otherwise directly incurred the obligations of the
pass through trusts.
Under the Escrow Agreement for each pass through trust, the holder of a
certificate of any such pass through trust will also be the holder of an Escrow
Receipt affixed to the certificate. The holder of an Escrow Receipt will be
entitled to certain rights with respect to amounts held in certain accounts
established under the Escrow Agreement. Those accounts will be funded by
payments made to the Depositary under the applicable Deposit Agreement.
Any transfer of a certificate will have the effect of transferring the
corresponding rights with respect to such accounts. Escrow Receipts may not be
separately transferred by the holder of a certificate. Rights with respect to
the Deposits, payments and withdrawals to be made under the applicable Deposit
Agreement and the Escrow Agreement for a pass through trust, except for the
right to request withdrawals for the purchase of secured promissory notes, will
not constitute property of such pass through trust.
Although the Outstanding Certificates have not been registered under the
Securities Act of 1933, ATA and Amtran have agreed to exchange the certificates
for substantially identical Exchange Certificates which have been registered.
This exchange offer is pursuant to that agreement. See 'Exchange Offer;
Registration Rights.'
SUBORDINATION
The subordination terms of the certificates vary depending upon whether a
Triggering Event has occurred. See 'Description of the Intercreditor
Agreement -- Priority of Distributions.'
PAYMENTS AND DISTRIBUTIONS
The following description of distributions on the certificates should be
read together with the description of the Intercreditor Agreement because the
Intercreditor Agreement may change the effect of the following provisions in a
default situation. See 'Description of the Intercreditor Agreement -- Priority
of Distributions.' Each payment of interest on the Deposits with respect to each
pass through trust will be made by the Depositary to the Paying Agent and will
be distributed by the Paying Agent to the Receiptholders on the date receipt of
such payment is confirmed by the Paying Agent. Each payment of principal,
premium, if any, and interest on the secured promissory notes or payments on or
with respect to other trust property held in each pass through trust will be
distributed by the pass through trustee to certificateholders of such pass
through trust on the date receipt of such payment is confirmed by the pass
through trustee, except in the case of certain types of Special Payments.
The Deposits held with respect to each of the class G and class C pass
through trusts and the secured promissory notes held in each such pass through
trust, in the aggregate, will accrue interest at the applicable annual rate for
certificates to be issued by such pass through trust shown on the cover page of
this prospectus. Such interest will be payable on January 15, April 15, July 15
and October 15 of each year, commencing on April 15, 2000 (or, in the case of
secured
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promissory notes issued after such date, commencing with the first such date to
occur after initial issuance of such secured promissory notes). The interest
rate applicable to each class of certificates is referred to as the Stated
Interest Rate for such pass through trust. All such interest payments will be
distributed to certificateholders of such pass through trust on each such date
until the final Distribution Date for such pass through trust, subject to the
Intercreditor Agreement in the case of payments on the secured promissory notes.
Interest is calculated on the basis of a 360-day year consisting of twelve
30-day months.
Payments of interest applicable to the certificates to be issued by each of
the pass through trusts will be supported by a separate Liquidity Facility to be
provided by the Liquidity Provider for the benefit of the holders of such
certificates in an aggregate amount sufficient to pay interest on the
certificates at the Stated Interest Rate for such pass through trust on the next
six successive Regular Distribution Dates (without regard to any future payments
of principal on such certificates).
The Liquidity Facility with respect to each pass through trust does not
cover interest payable by the Depositary on the Deposits relating to such pass
through trust. The Liquidity Facility for any class of certificates will not
provide for drawings thereunder to pay for principal of or premium on the
certificates of such class or any interest on the certificates of such class in
excess of the Stated Interest Rate for such class or more than six installments
of interest thereon or principal of or interest or premium on the certificates
of any other class.
After use of any available funds under the Liquidity Facility or the Cash
Collateral Account for the class G certificates, the payment of interest at the
Stated Interest Rate on the class G certificates will be covered by the Policy
provided by the Policy Provider. See 'Description of the Policy and the Policy
Provider Agreement.'
Payments of principal of the secured promissory notes are scheduled to be
received by the pass through trustee on one or more of January 15, April 15,
July 15 and October 15 in certain years, depending upon the terms of the secured
promissory notes held in the respective pass through trust.
Payment of principal of the class G certificates on the Final Maturity Date,
and in certain limited circumstances, earlier, will be covered by the Policy.
See 'Description of the Policy and the Policy Provider Agreement.'
The Paying Agent under each Escrow Agreement will distribute on each Regular
Distribution Date to the certificateholders of the pass through trust to which
such Escrow Agreement relates all Scheduled Payments received in respect of the
related Deposits, the receipt of which is confirmed by the Paying Agent on such
Regular Distribution Date. The pass through trustee of each pass through trust
will distribute, subject to the Intercreditor Agreement, on each Regular
Distribution Date to the certificateholders of such pass through trust all
Scheduled Payments received in respect of secured promissory notes held on
behalf of such pass through trust, the receipt of which is confirmed by the pass
through trustee on such Regular Distribution Date. Each certificateholder of
each pass through trust will be entitled to receive its proportionate share,
based upon its fractional interest in such pass through trust, of any
distribution in respect of Scheduled Payments of interest on the Deposits
relating to such pass through trust and, subject to the Intercreditor Agreement,
of principal or interest on secured promissory notes held by the Subordination
Agent on behalf of such pass through trust. Each such distribution of Scheduled
Payments will be made by the applicable Paying Agent or pass through trustee to
the certificateholders of record of the relevant pass through trust on the
record date applicable to such Scheduled Payment subject to certain exceptions.
(Sections 4.01 and 4.02; Escrow Agreement, Section 2.03) If a Scheduled Payment
is not received by the applicable Paying Agent or pass through trustee on a
Regular Distribution Date but is received within five days after such Regular
Distribution Date, it will be distributed on the date received to such holders
of record. If it is received after such five-day period, it will be treated as a
Special Payment and distributed as described below.
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Any payment in respect of, or any proceeds of, any secured promissory note
or any Collateral under an Indenture, other than a Scheduled Payment, will be
distributed on, in the case of an early redemption or a purchase of any secured
promissory note, the date of such early redemption or purchase (which is a
Business Day), and otherwise on the Business Day specified for distribution of
such Special Payment pursuant to a notice delivered by each pass through trustee
as soon as practicable after the pass through trustee has received funds for
such Special Payment. Any such distribution will be subject to the Intercreditor
Agreement.
Any unused Deposits to be distributed after the Delivery Period Termination
Date or the occurrence of a Triggering Event, together with accrued and unpaid
interest on the Deposits and any premium payable by ATA, will be distributed on
a date 35 days after the Paying Agent has received notice of the event requiring
such distribution (also a 'Special Distribution Date'). However, if such date is
within ten days before or after a Regular Distribution Date, such Special
Payment will be made on such Regular Distribution Date. Payments made on or with
respect to the Deposits are not subject to the Intercreditor Agreement.
Each Paying Agent, in the case of the Deposits, and each pass through
trustee, in the case of trust property or any premium payable by ATA in
connection with certain distributions of unused Deposits, will mail a notice to
the certificateholders of the applicable pass through trust stating the
scheduled Special Distribution Date, the related record date, the amount of the
Special Payment and the reason for the Special Payment. In the case of a
redemption or purchase of the secured promissory notes held in the related pass
through trust or any distribution of unused Deposits after the Delivery Period
Termination Date or the occurrence of a Triggering Event, such notice will be
mailed not less than 15 days prior to the date such Special Payment is scheduled
to be distributed, and in the case of any other Special Payment, such notice
will be mailed as soon as practicable after the pass through trustee has
confirmed that it has received funds for such Special Payment. (Section 4.02(c);
Escrow Agreement, Section 2.03) Each distribution of a Special Payment, other
than a final distribution, on a Special Distribution Date for any pass through
trust will be made by the Paying Agent or the pass through trustee, as
applicable, to the certificateholders of record of such pass through trust on
the record date applicable to such Special Payment. (Section 4.02(b); Escrow
Agreement, Section 2.03) See ' -- Indenture Defaults and Certain Rights upon an
Indenture Default' and 'Description of the Secured Promissory Notes --
Redemption.'
If any distribution of proceeds from any 'No Proceeds Drawing' or 'Avoidance
Drawing' as described in 'Description of the Policy and the Policy Provider
Agreement -- The Policy' is to be made, the class G pass through trustee will
mail a notice to the certificateholders of the class G pass through trust
stating the scheduled Special Distribution Date, the related record date, the
amount of such distribution and the reason for such distribution. The notice
will be mailed not less than 20 days prior to the date such proceeds are
scheduled to be distributed. Each such distribution will be made by the class G
pass through trustee, as applicable, to the certificateholders of record of the
class G pass through trust, as applicable, on the record date applicable to such
distribution.
Each pass through trust agreement will require that the pass through trustee
establish and maintain a Certificate Account for the deposit of payments
representing Scheduled Payments received by such pass through trustee. Each pass
through trust agreement will require that the pass through trustee establish and
maintain a Special Payments Account for the deposit of payments representing
Special Payments received by such pass through trustee. A Special Payments
Account will be non-interest bearing except in certain circumstances where the
pass through trustee may invest amounts in such account in certain permitted
investments. The terms of each pass through trust agreement will require the
pass through trustee to deposit any Scheduled Payments relating to the
applicable pass through trust received by it in the Certificate Account of such
pass through trust and to deposit any Special Payments so received by it in the
Special Payments Account of such pass through trust. (Section 4.01) All amounts
so deposited will be distributed by the pass through trustee on a Regular
Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02)
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Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more Paying Agent Accounts, which
are to be non-interest bearing. The terms of the Escrow Agreement will require
the Paying Agent to deposit interest on Deposits relating to such pass through
trust and any unused Deposits withdrawn by the Escrow Agent in the Paying Agent
Account. All amounts so deposited will be distributed by the Paying Agent on a
Regular Distribution Date or Special Distribution Date, as appropriate.
The final distribution for each pass through trust will be made only upon
presentation and surrender of the certificates for such pass through trust at
the office or agency of the pass through trustee specified in the notice given
by the pass through trustee of such final distribution. The pass through trustee
will mail such notice of the final distribution to the certificateholders of
such pass through trust, specifying the date set for such final distribution and
the amount of such distribution. (Section 11.01) See ' -- Termination of the
Pass Through Trusts' below. Distributions in respect of certificates issued in
global form will be made as described in ' -- Book-Entry; Delivery and Form'
below.
If any Distribution Date is on a day that is not a Business Day,
distributions scheduled to be made on such Regular Distribution Date or Special
Distribution Date will be made on the next succeeding Business Day with the same
force and effect as if made on such scheduled date and without additional
interest.
POOL FACTORS
The following table sets forth the Assumed Amortization Schedule for the
secured promissory notes held in each pass through trust and resulting Pool
Factors with respect to such pass through trust. The actual aggregate principal
amortization schedule applicable to a pass through trust and the resulting Pool
Factors with respect to such pass through trust may differ from those set forth
below, because the amortization schedule for the secured promissory notes issued
with respect to an aircraft may vary from such illustrative amortization
schedule so long as it complies with the Mandatory Economic Terms. In addition,
the table set forth below assumes that each aircraft is delivered (or in the
case of aircraft N515AT, N523AT, N524AT, N525AT and N526AT financed) in the
month scheduled for its delivery (or financing) (see 'Description of the
Aircraft and the Appraisals -- The Appraisals' for the delivery schedule), that
secured promissory notes in the maximum principal amount in respect of all of
the Aircraft are purchased by the pass through trust. The scheduled distribution
of principal payments for any pass through trust will be affected if any secured
promissory notes held in such pass through trust are redeemed or purchased or if
a default in payment on such secured promissory notes occurred. As a result, the
aggregate principal amortization schedule applicable to a pass through trust and
the resulting Pool Factors may differ from those set forth in the following
table.
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CLASS G CLASS C
SECURED SECURED
PROMISSORY PROMISSORY
NOTES CLASS G NOTES CLASS C
SCHEDULED TRUST SCHEDULED TRUST
PAYMENTS EXPECTED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
- ----- ------------ ----------- ------------ -----------
January 15, 2001.............................. $ 6,852,273 0.9660612 $4,861,438 0.8676800
January 15, 2002.............................. 6,925,289 0.9317608 4,975,156 0.7322647
January 15, 2003.............................. 7,022,222 0.8969803 5,893,654 0.5718495
January 15, 2004.............................. 6,978,023 0.8624187 7,048,257 0.3800080
January 15, 2005.............................. 8,849,164 0.8185895 6,381,430 0.2063164
January 15, 2006.............................. 8,809,537 0.7749565 7,580,064 0.0000000
January 15, 2007.............................. 12,707,657 0.7120165 0 0.0000000
January 15, 2008.............................. 12,720,121 0.6490147 0 0.0000000
January 15, 2009.............................. 11,048,195 0.5942938 0 0.0000000
January 15, 2010.............................. 12,977,341 0.5300181 0 0.0000000
January 15, 2011.............................. 16,073,222 0.4504086 0 0.0000000
January 15, 2012.............................. 17,703,430 0.3627249 0 0.0000000
January 15, 2013.............................. 17,670,856 0.2752025 0 0.0000000
January 15, 2014.............................. 17,291,004 0.1895615 0 0.0000000
January 15, 2015.............................. 18,719,733 0.0968442 0 0.0000000
January 15, 2016.............................. 19,552,933 0.0000000 0 0.0000000
The Pool Factor and Pool Balance of each pass through trust will be
recomputed if there has been an early redemption, purchase, or default in the
payment of principal or interest in respect of one or more of the secured
promissory notes held in a pass through trust, as described in ' -- Indenture
Defaults and Certain Rights upon an Indenture Default' and 'Description of the
Secured Promissory Notes -- Redemption,' a special distribution attributable to
unused Deposits after the Delivery Period Termination Date or the occurrence of
a Triggering Event, as described in 'Description of the Deposit Agreements' or
any drawing under the Policy (other than a drawing in respect of interest on the
class G certificates only).
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the applicable Paying Agent and pass through
trustee will include with each distribution by it of a Scheduled Payment or
Special Payment to certificateholders of the related pass through trust a
statement setting forth the following information (per $1,000 aggregate
principal amount of certificate for such pass through trust, except as to the
amounts described in items (1) and (6) below):
(1) The aggregate amount of funds distributed on such Distribution Date
under the Pass Through Trust Agreement and under the Escrow Agreement,
indicating the amount allocable to each source, including the amount which
is paid by the Liquidity Provider and/or the Policy Provider.
(2) The amount of such distribution under the Pass Through Trust
Agreement allocable to principal and the amount allocable to premium
(including any premium paid by ATA with respect to unused Deposits), if any.
(3) The amount of such distribution under the Pass Through Trust
Agreement allocable to interest.
(4) The amount of such distribution under the Escrow Agreement allocable
to interest.
(5) The amount of such distribution under the Escrow Agreement allocable
to unused Deposits, if any.
(6) The Pool Balance and the Pool Factor for such pass through trust.
(Section 4.03)
So long as the certificates are registered in the name of DTC, or its
nominee, on the record date prior to each Distribution Date, the applicable pass
through trustee will request from DTC a
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securities position listing setting forth the names of all DTC Participants
reflected on DTC's books as holding interests in the certificates on such record
date. On each Distribution Date, the applicable Paying Agent and pass through
trustee will mail to each such DTC Participant the statement described above and
will make available additional copies as requested by such DTC Participant for
forwarding to certificate owners.
In addition, after the end of each calendar year, the applicable pass
through trustee and Paying Agent will furnish to each certificateholder of each
pass through trust at any time during the preceding calendar year a report
containing the sum of the amounts determined pursuant to clauses (1), (2), (3),
(4) and (5) above with respect to the pass through trust for such calendar year
or, in the event such person was a certificateholder during only a portion of
such calendar year, for the applicable portion of such calendar year, and such
other items as are readily available to such pass through trustee and which a
certificateholder reasonably requests as necessary for the purpose of such
certificateholder's preparation of its U.S. federal income tax returns. (Section
4.03) Such report and such other items will be prepared on the basis of
information supplied to the applicable pass through trustee by the DTC
Participants and will be delivered by such pass through trustee to such DTC
Participants to be available for forwarding by such DTC Participants to
certificate owners in the manner described above.
At such time, if any, as the certificates are issued in the form of
definitive certificates, the applicable Paying Agent and pass through trustee
will prepare and deliver the information described above to each
certificateholder of record of each pass through trust as the name and period of
ownership of such certificateholder appears on the records of the registrar of
the certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under a Leased Aircraft Indenture will include an event
of default under the related lease. We will refer to an event of default under a
lease as a Lease Event of Default. See 'Description of the Secured Promissory
Notes -- Indenture Defaults, Notice and Waiver.' Since the secured promissory
notes issued under an Indenture will be held in more than one pass through
trust, a continuing Indenture Default under such Indenture would affect the
secured promissory notes held by each such pass through trust. There are no
cross-default provisions in the Indentures or in the leases unless otherwise
agreed to between an Owner Participant and ATA in respect of the leases relevant
to that Owner Participant. This means that events resulting in an Indenture
Default under any particular Indenture may or may not result in an Indenture
Default under any other Indenture, and a Lease Event of Default under any
particular lease may or may not constitute a Lease Event of Default under any
other lease. If an Indenture Default occurs in fewer than all of the Indentures,
notwithstanding the treatment of secured promissory notes issued under any
Indenture under which an Indenture Default has occurred, payments of principal
and interest on all of the secured promissory notes will continue to be
distributed to the holders of the certificates as originally scheduled, subject
to the Intercreditor Agreement. See 'Description of the Intercreditor
Agreement -- Priority of Distributions.'
Under a Leased Aircraft Indenture, the applicable Owner Trustee and Owner
Participant will have the right under certain circumstances to cure Indenture
Defaults that result from the occurrence of a Lease Event of Default under the
related lease. If the Owner Trustee or the Owner Participant exercises any such
cure right, the Indenture Default will be deemed to have been cured.
If the same institution acts as pass through trustee of multiple pass
through trusts, in the absence of instructions from the certificateholders of
any such pass through trust, such pass through trustee could be faced with a
potential conflict of interest upon an Indenture Default. In such event, the
pass through trustee will resign as pass through trustee of one or all such pass
through trusts, and a successor trustee will be appointed in accordance with the
terms of the applicable pass through trust agreement. Wilmington Trust Company
will be the initial pass through trustee under each pass through trust.
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After the occurrence and during the continuation of an Indenture Default,
the Controlling Party will direct the Loan Trustee under such Indenture in the
exercise of remedies under such Indenture and may accelerate and sell all (but
not less than all) of the secured promissory notes issued under such Indenture
to any person, subject to certain limitations. See 'Description of the
Intercreditor Agreement -- Intercreditor Rights -- Sale of Secured Promissory
Notes or Aircraft.' The proceeds of such sale will be distributed pursuant to
the provisions of the Intercreditor Agreement. Any such proceeds so distributed
to any pass through trustee upon any such sale will be deposited in the
applicable Special Payments Account and will be distributed to the
certificateholders of the applicable pass through trust on a Special
Distribution Date. (Sections 4.01 and 4.02)
The market for the secured promissory notes at the time of the existence of
an Indenture Default may be very limited and there can be no assurance as to the
price at which they can be sold. If any such secured promissory notes are sold
for less than their outstanding principal amount, class C certificateholders
will receive a smaller amount of principal distributions than anticipated and
will not have any claim for the shortfall against ATA, Amtran, any Liquidity
Provider, the Policy Provider, any Owner Trustee, any Owner Participant or any
pass through trustee. A shortfall in principal distributions to class G
certificateholders will be supported by the Policy in the manner described in
'Description of the Policy and the Policy Provider Agreement.'
Any Special Payment made to the pass through trustee of any pass through
trust by the Subordination Agent following an Indenture Default will be
deposited in the Special Payments Account for such pass through trust and will
be distributed to the certificateholders of such pass through trust on a Special
Distribution Date. (Section 4.02) In addition, if, following an Indenture
Default under any Leased Aircraft Indenture, the applicable Owner Participant or
Owner Trustee exercises its option to redeem or purchase the outstanding secured
promissory notes issued under such Leased Aircraft Indenture, the price paid by
such Owner Participant or Owner Trustee for the secured promissory notes issued
under such Leased Aircraft Indenture and distributed to such pass through trust
by the Subordination Agent will be deposited in the Special Payments Account for
such pass through trust and will be distributed to the certificateholders of
such pass through trust on a Special Distribution Date. (Sections 4.01 and 4.02)
Any funds representing payments received with respect to any defaulted
secured promissory notes, or the proceeds from the sale of any secured
promissory notes, held by the pass through trustee in the Special Payments
Account for such pass through trust will, to the extent practicable, be invested
and reinvested by such pass through trustee in Permitted Investments at our
direction pending the distribution of such funds on a Special Distribution Date.
(Section 4.04)
Each pass through trust agreement will provide that the pass through trustee
of the related pass through trust will, within 90 days after the occurrence of
any default known to the pass through trustee, give to the certificateholders of
such pass through trust notice, transmitted by mail, of such uncured or unwaived
default with respect to such pass through trust known to it. However, except in
the case of default in a payment of principal, premium, if any, or interest on
any of the secured promissory notes held in such pass through trust, the
applicable pass through trustee will be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interests of such certificateholders. (Section 7.01) The term 'default' as used
in this paragraph only with respect to any pass through trust means the
occurrence of an Indenture Default under any Indenture pursuant to which secured
promissory notes held by such pass through trust were issued, as described
above, except that in determining whether any such Indenture Default has
occurred, any grace period or notice in connection with such Indenture Default
will be disregarded.
Each pass through trust agreement will contain a provision entitling the
pass through trustee of the related pass through trust, subject to the duty of
such pass through trustee during a default to act with the required standard of
care, to be offered reasonable security or indemnity by the holders of the
certificates of such pass through trust before proceeding to exercise any right
or power under such pass through trust agreement at the request of such
certificateholders. (Section 7.02(e))
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Subject to certain qualifications set forth in each Pass Through Trust
Agreement and to the Intercreditor Agreement, the certificateholders of each
pass through trust holding certificates evidencing fractional undivided
interests aggregating not less than a majority in interest in such pass through
trust will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the pass through trustee with respect to
such pass through trust or pursuant to the terms of the Intercreditor Agreement,
or exercising any trust or power conferred on such pass through trustee under
such Pass Through Trust Agreement or the Intercreditor Agreement, including any
right of such pass through trustee as Controlling Party under the Intercreditor
Agreement or as holder of the secured promissory notes. (Section 6.04) In
certain cases, the certificateholders of a pass through trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such pass through trust may on behalf of the holders of all the certificates
of such pass through trust waive any past 'event of default' under such pass
through trust (i.e., any Indenture Default under any Indenture pursuant to which
secured promissory notes held by such pass through trust were issued) and its
consequences or, if the pass through trustee of such pass through trust is the
Controlling Party, may direct the pass through trustee to instruct the
applicable Loan Trustee to waive any past Indenture Default and its
consequences, except (a) a default in the deposit of any Scheduled Payment or
Special Payment or in the distribution of any Scheduled Payment or Special
Payment, (b) a default in payment of the principal, premium, if any, or interest
with respect to any of the secured promissory notes and (c) a default in respect
of any covenant or provision of the pass through trust agreement that cannot be
modified or amended without the consent of each certificateholder of such pass
through trust affected by such default. (Section 6.05) Each Indenture will
provide that, with certain exceptions, the holders of the majority in aggregate
unpaid principal amount of the secured promissory notes issued under such
Indenture may on behalf of all such holders waive any past default or Indenture
Default under such Indenture. Notwithstanding such provisions of the Indentures,
under the Intercreditor Agreement only the Controlling Party will be entitled to
waive any such past default or Indenture Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the pass through trustee and to each
certificateholder of the same class:
the class C certificateholders will have the right to purchase all, but not
less than all, of the class G certificates;
if the class D certificates are issued, the class D certificateholders will
have the right to purchase all of the class G and class C certificates.
whether or not such rights are exercised by the class C (or class D)
certificateholders, the Policy Provider will have the right to purchase
all, but not less than all, of the class G certificates.
In each case, the purchase price will be equal to the Pool Balance of the
relevant class or classes of certificates plus accrued and unpaid interest on
such Pool Balance to the date of purchase, without premium, but including any
other amounts due to the certificateholders of such class or classes. Such
purchase right may be exercised by any certificateholder of the class or classes
entitled to such right. In each case, if prior to the end of the ten-day period,
any other certificateholder of the same class notifies the purchasing
certificateholder that the other certificateholder wants to participate in such
purchase, then such other certificateholder may join with the purchasing
certificateholder to purchase the certificates pro rata based on the interest in
the pass through trust held by each certificateholder. The purchase rights of
the certificateholders arising by reason of the occurrence of a Triggering Event
will expire 180 days after the Triggering Event, after which the Policy
Provider's purchase rights in respect of the certificates will become effective.
(Trust Supplements, Section 4.01)
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PTC EVENT OF DEFAULT
A PTC Event of Default under each pass through trust agreement means the
failure to pay:
The outstanding Pool Balance of the applicable class of certificates within
ten Business Days of the Final Maturity Date for such class.
Interest due on such class of certificates within ten Business Days of any
Distribution Date (unless the Subordination Agent has made Interest
Drawings, or withdrawals from the Cash Collateral Account for such class of
certificates or, in the case of the class G certificates, a drawing under
the Policy, in an aggregate amount sufficient to pay such interest and has
distributed such amount to the relevant pass through trustee).
Any failure to make expected principal distributions for any class of
certificates on any Regular Distribution Date (other than the Final Maturity
Date) will not constitute a PTC Event of Default for such certificates. A PTC
Event of Default for the most senior outstanding class of certificates resulting
from an Indenture Default under all Indentures will constitute a 'Triggering
Event.' See 'Description of the Intercreditor Agreement -- Priority of
Distributions -- After a Triggering Event' for a discussion of the consequences
of a Triggering Event.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
ATA will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of its assets as an entirety to
any other entity unless:
The surviving successor corporation or transferee (a) is a 'citizen of the
United States' as defined in Section 40102(a)(15) of Title 49 of the United
States Code, as amended, relating to aviation and (b) is a United States
certificated air carrier.
The surviving successor corporation or transferee expressly assumes all of
ATA's obligations contained in the Pass Through Trust Agreements, the Note
Purchase Agreement, the Indentures, the Participation Agreements, the
leases, the Policy Provider Agreement and any other operative documents.
ATA delivers a certificate and an opinion or opinions of counsel indicating
that such transaction, in effect, complies with such conditions.
In addition, after giving effect to such transaction, no Lease Event of
Default, in the case of a leased aircraft, or Indenture Default, in the case of
an owned aircraft, will have occurred and be continuing. (Section 5.02; Leases,
Section 13.2, Owned Aircraft Indenture, Section 4.07)
The Pass Through Trust Agreements, the Note Purchase Agreement, the
Indentures, the Participation Agreements and the leases will not contain any
covenants or provisions that would give any pass through trustee or
certificateholders protection in the event of a highly leveraged transaction,
including transactions effected by management or affiliates, which may or may
not result in a change in control of ATA or Amtran.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement will contain provisions permitting, at
ATA's request, the execution of amendments or supplements to such Pass Through
Trust Agreement or, if applicable, to the Indentures, the leases, the
participation agreements, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement, any Liquidity Facility,
or, with respect to the pass through trust agreement for the class G pass
through trust, the Policy and the Policy Provider Agreement, without the consent
of the holders of any of the certificates of such pass through trust:
to evidence the succession of another corporation to ATA or Amtran and the
assumption by such corporation of ATA's or Amtran's obligations under such
Pass Through Trust Agreement, the Note Purchase Agreement or the Policy
Provider Agreement;
to add to ATA's or Amtran's covenants for the benefit of holders of such
certificates or to surrender any right or power conferred upon ATA or
Amtran in such Pass Through Trust
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Agreement, the Intercreditor Agreement, the Note Purchase Agreement, any
Liquidity Facility, the Policy or the Policy Provider Agreement;
to correct or supplement any provision of such Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement, any Liquidity Facility, the Policy
or the Policy Provider Agreement which may be defective or inconsistent
with any other provision in such Pass Through Trust Agreement, the Deposit
Agreements, the Escrow Agreements, the Intercreditor Agreement, the Note
Purchase Agreement, any Liquidity Facility, the Policy or the Policy
Provider Agreement, as applicable, or to cure any ambiguity or to modify
any other provision with respect to matters or questions arising under such
Pass Through Trust Agreement, the Deposit Agreements, the Escrow
Agreements, the Intercreditor Agreement, the Note Purchase Agreement, any
Liquidity Facility, the Policy or the Policy Provider Agreement, provided
that such action will not materially adversely affect the interests of the
holders of such certificates;
to correct any mistake in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement, any Liquidity
Facility, the Policy or the Policy Provider Agreement;
to give effect to or provide for a Replacement Facility, as provided in the
Intercreditor Agreement;
to comply with any requirement of the SEC, any applicable law, rules or
regulations of any exchange or quotation system on which the certificates
are listed, any regulatory body or the Regulation Rights Agreement to
effectuate the Exchange Offer (as defined in the Registration Rights
Agreement);
to add to such Pass Through Trust Agreement such other provisions as may be
expressly permitted by the Trust Indenture Act of 1939;
to provide for a successor pass through trustee or to add to or change any
provision of such Pass Through Trust Agreement as shall be necessary to
facilitate the administration of the relevant pass through trust by more
than one trustee;
to modify, eliminate or add to the provisions such Pass Through Trust
Agreement to the extent necessary to provide for the subordination of any
class D certificates issued by ATA; provided that no such action shall
materially adversely affect the interests of the certificateholders.
(Section 9.01); and
to modify or eliminate provisions relating to the transfer or exchange of
the certificates or Exchange Certificates or upon consummation of the
exchange offer (as those terms are defined in the Registration Rights
Agreement) or effectiveness of the Shelf Registration Statement or the
Exchange Offer Registration Statement (each as defined in the Registration
Rights Agreement).
A majority of the certificateholders of a pass through trust may, with the
consent of the applicable Owner Trustee (such consent not to be unreasonably
withheld), amend or supplement the provisions of the Pass Through Trust
Agreement, the Deposit Agreements, the Escrow Agreements, the Intercreditor
Agreement, the Note Purchase Agreement, the Registration Rights Agreement or any
Liquidity Facility to the extent applicable to such certificateholders or of
modifying the rights and obligations of such certificateholders under such Pass
Through Trust Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Note Purchase Agreement or any Liquidity Facility.
No such amendment or supplement may, without the consent of the holder of each
certificate so affected by such amendment or supplement:
reduce in any manner the amount of, or delay the timing of, any receipt by
the pass through trustee (or, with respect to the Deposits, the
Receiptholders) of payments with respect to the secured promissory notes
held in such pass through trust or distributions in respect of any
certificate related to such pass through trust (or, with respect to the
Deposits,
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payments to be made to Receiptholders), or change the date or place of any
payment in respect of any certificate, or make distributions payable in
coin or currency other than that provided for in such certificates, or
impair the right of any certificateholder of such pass through trust to
institute suit for the enforcement of any such payment when due;
permit the disposition of any secured promissory note held in such pass
through trust, except as provided in such Pass Through Trust Agreement, or
otherwise deprive such certificateholder of the benefit of the ownership of
the applicable secured promissory notes;
alter the priority of distributions specified in the Intercreditor
Agreement in a manner materially adverse to such certificateholders;
reduce the percentage of the aggregate fractional undivided interests of
the pass through trust provided for in such Pass Through Trust Agreement,
the consent of the holders of which is required for any such supplemental
trust agreement or for any waiver provided for in such Pass Through Trust
Agreement;
modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or receipt
of payment;
adversely affect the status of the pass through trust as a grantor trust
under Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A of the
Code for U.S. federal income tax purposes; (Section 9.01); or
terminate or modify the Policy, other than amendments already contemplated
or required by Section 5.01 of the Policy Provider Agreement or Section
2.6(c) of the Intercreditor Agreement.
OBLIGATION TO PURCHASE SECURED PROMISSORY NOTES
Each pass through trustee will be obligated to purchase the secured
promissory notes issued with respect to the aircraft during the Delivery Period,
subject to the terms and conditions of the Note Purchase Agreement and the
applicable Participation Agreement. Under the Note Purchase Agreement, ATA
agrees to finance each aircraft in the manner provided in the Note Purchase
Agreement. ATA will have the option of entering into a leveraged lease financing
or a secured debt financing with respect to each aircraft.
If ATA chooses to enter into a leveraged lease financing with respect to an
aircraft, the Note Purchase Agreement provides for the relevant parties to
enter into a Participation Agreement, a lease and a Leased Aircraft
Indenture relating to the financing of such leased aircraft.
If ATA chooses to enter into a secured debt financing with respect to an
aircraft that ATA owns, the Note Purchase Agreement provides for the
relevant parties to enter into a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of such owned aircraft.
Until October 15, 2001, ATA may convert a secured debt financing of an owned
aircraft to a leveraged lease financing of a leased aircraft by entering into a
sale-leaseback transaction. To do such a transaction, ATA must (a) obtain
written confirmation from each Rating Agency that such transaction will not
result in a withdrawal, suspension or downgrading of the ratings of any class of
certificates (without regard to the Policy), and (b) cause to be delivered to
the Loan Trustee an opinion of counsel that the pass through trusts will not be
subject to U.S. federal income tax as a result of such transaction and (c)
either (i) cause to be delivered to the Loan Trustee an opinion of counsel that
the certificateholders will not recognize income, gain or loss for federal
income tax purposes as a result of such transaction and will be subject to
federal income tax in the same amounts, in the same manner and at the same time
as would have been the case if such transaction had not occurred, or (ii) cause
to be delivered to the Loan Trustee an opinion of counsel that such
certificateholders should not recognize income, gain or loss, and should be
subject to federal income tax, in each case, as referred to in clause (i) and
also provide an indemnification in favor of the certificateholders in form and
substance reasonably satisfactory to
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the pass through trustees. See 'U.S. Federal Income Tax Consequences -- Taxation
of Certificateholders Generally.'
MANDATORY TERMS
The description of the Participation Agreements, the lease, the Leased
Aircraft Indenture and the Owned Aircraft Indenture in this prospectus is based
on the forms of such agreements to be utilized pursuant to the Note Purchase
Agreement. In the case of a leased aircraft, the terms of the agreements
actually entered into may differ from the forms of such agreements and, as a
result, may differ from the description of such agreements contained in this
prospectus. See 'Description of the Secured Promissory Notes.' However, under
the Note Purchase Agreement, the terms of such agreements are required to
(a) contain the Mandatory Document Terms (as such Mandatory Document Terms are
permitted to vary in accordance with the terms of the Note Purchase Agreement)
and (b) not vary the Mandatory Economic Terms. In addition, we must certify to
the pass through trustees that any such modifications do not materially and
adversely affect the certificateholders, or adversely affect the Policy
Provider, and we must obtain written confirmation from each Rating Agency that
the use of versions of such agreements modified in any material respect will not
result in a withdrawal, suspension or downgrading of the rating of any class of
certificates.
Under the Note Purchase Agreement, it is a condition precedent to the
obligation of each pass through trustee to purchase the secured promissory notes
related to the financing of an aircraft that no Triggering Event has occurred.
The pass through trustees have no right or obligation to purchase secured
promissory notes after the Delivery Period Termination Date.
The 'Mandatory Economic Terms,' as defined in the Note Purchase Agreement,
will require, among other things, that:
The maximum principal amount of all the secured promissory notes issued
with respect to an aircraft not exceed the maximum principal amount of
secured promissory notes indicated for each such aircraft as set forth in
'Prospectus Summary -- Secured Promissory Notes and the Aircraft' under the
column 'Maximum Principal Amount.'
The initial loan to aircraft value with respect to an aircraft (with the
value of any aircraft for these purposes to equal the Assumed Appraised
Value) not exceed 50.1% in the case of series G secured promissory notes
and 60.7% in the case of series C secured promissory notes.
The loan to aircraft value ratio for each series of secured promissory
notes for each aircraft (computed (a) after aggregating the principal
amount of all series of secured promissory notes that ranks senior to the
series of secured promissory notes for which loan to aircraft value is
being calculated and (b) as of the date of the issuance of the secured
promissory notes on the basis of the Assumed Appraised Value of such
aircraft and the Depreciation Assumption) must not exceed as of any Regular
Distribution Date after secured promissory notes are issued for that
aircraft (assuming no default in the payment of the secured promissory
notes) 50.1% in the case of the series G secured promissory notes and 60.7%
in the case of the series C promissory notes.
With respect to each aircraft, the initial average life of the series G
secured promissory notes not extend beyond 10.8 years and of the series C
secured promissory notes not extend beyond 5.0 years, in each case from the
Issuance Date.
As of the Delivery Period Termination Date (or if earlier, the date of the
occurrence of a Triggering Event), the average life of the class G
certificates and the class C certificates shall not extend beyond,
respectively, 10.2 years and 3.9 years from the Issuance Date (computed
without regard to the acceleration of any secured promissory notes and
after giving effect to any special distribution on the certificates
thereafter required in respect of unused Deposits).
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The final maturity date of each class of certificates is as set forth in
'Summary -- Summary of the Exchange Certificates.'
The original aggregate principal amount of all of the secured promissory
notes of each series shall not exceed the original aggregate face amount of
the certificates issued by the corresponding Trust.
The interest rate applicable to each series of secured promissory notes
must be equal to the rate applicable to the certificates issued by the
corresponding pass through trust.
The payment dates for the secured promissory notes and basic rent under the
leases must be January 15, April 15, July 15 and October 15.
The base lease term for each lease must expire by its terms on or after the
latest maturity date of the related secured promissory notes.
Basic rent, stipulated loss values and termination values under the leases
must be sufficient to pay amounts due with respect to the related secured
promissory notes.
The amounts payable under the all-risk aircraft hull insurance maintained
with respect to each aircraft must be sufficient to pay the applicable
stipulated loss value.
The past-due rate in the Indentures and the leases, the Make-Whole Amount
payable under the Indentures, the provisions relating to the redemption and
purchase of secured promissory notes in the Indentures, and the minimum
liability insurance amount on Aircraft in the leases, in each case must be no
less favorable to the Loan Trustees, the Subordination Agent, the Liquidity
Provider, the Policy Provider, the pass through trustees and the Note Holders
than as set forth in the forms of Aircraft Operative Agreements attached as
exhibits to the Note Purchase Agreement.
The indemnification of the Loan Trustees, Subordination Agent, Liquidity
Provider, pass through trustees, Escrow Agent, Paying Agent and Note Holders
with respect to certain taxes and expenses shall be provided as set forth in the
forms of Participation Agreements attached as exhibits to the Note Purchase
Agreement.
The 'Mandatory Document Terms' prohibit modifications in any materially
adverse respect as regards the interests of the Loan Trustees, Subordination
Agent, Liquidity Provider or the Note Holders, or in any adverse respect as
regards the interests of the Policy Provider, to certain specified provisions of
the Aircraft Operative Agreements annexed to the Note Purchase Agreement, as
follows:
In the case of the Indentures, the following modifications are prohibited:
(1) modifications to the granting clause of the Indentures so as (A) to
deprive the Note Holders of a first priority security interest in (i) the
aircraft, (ii) certain of ATA's rights under its aircraft purchase agreement
with the aircraft manufacturer and, (iii) in the case of a leased aircraft,
the lease or (B) to eliminate the obligations intended to be secured by the
Indenture;
(2) modifications to certain provisions relating to the issuance,
redemption, purchase, payments, and ranking of the secured promissory notes
(including the obligation to pay the Make-Whole Amount in certain
circumstances);
(3) modifications to certain provisions regarding Indenture Defaults,
remedies relating to Indenture Defaults and rights of the Owner Trustee and
Owner Participant in such circumstances;
(4) modifications to certain provisions relating to any replaced
airframe or engines with respect to an aircraft; and
(5) modifications to the provision that New York law will govern the
Indentures.
In the case of the leases, the following modifications are prohibited:
(1) modifications to certain provisions regarding ATA's unconditional
obligation to pay basic rent, stipulated loss value and termination value to
the Loan Trustee;
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(2) modification of ATA's obligations to record the Leased Aircraft
Indenture with the FAA and to maintain such Indenture as a first-priority
perfected mortgage on the related aircraft;
(3) modification of ATA's obligations to furnish certain opinions with
respect to a replacement airframe; and
(4) modification of ATA's obligations to consent to the assignment of
the lease by the Owner Trustee as collateral under the Leased Aircraft
Indenture, as well as modifications which would either alter the provision
that New York law will govern the lease or would deprive the Loan Trustee of
rights expressly granted to it under the leases.
In the case of the Participation Agreements, the following modifications are
prohibited:
(1) modifications to certain conditions to the obligations of the pass
through trustees to purchase the secured promissory notes issued with
respect to an aircraft involving (a) good title to such aircraft,
(b) obtaining a certificate of airworthiness with respect to such aircraft,
(c) entitlement to the benefits of Section 1110 with respect to such
aircraft, (d) the execution and delivery by Amtran of a guarantee of ATA's
obligations under the Aircraft Operative Agreements and (e) filings of
certain documents with the FAA;
(2) modifications to the provisions restricting the Note Holder's
ability to transfer such secured promissory notes;
(3) modifications to certain provisions requiring the delivery of legal
opinions; and
(4) modifications to the provision that New York law will govern the
Participation Agreement.
In the case of all of the Aircraft Operative Agreements, modifications are
prohibited that materially and adversely affect the interests of the Note
Holders, the Subordination Agent, Liquidity Provider, the Policy Provider or the
Loan Trustee in the definition of 'Make-Whole Amount.'
Notwithstanding the foregoing, any such Mandatory Document Term may be
modified to correct or supplement any such provision which may be defective or
to cure any ambiguity or correct any mistake, provided that any such action does
not materially and adversely affect the interests of the Note Holders, the
Subordination Agent, the Liquidity Provider, the Policy Provider, Loan Trustees
or the certificateholders. In addition, Amtran will guarantee ATA's
indemnification obligation under the Note Purchase Agreement.
POSSIBLE ISSUANCE OF CLASS D CERTIFICATES
ATA may elect to issue series D secured promissory notes in connection with
the financing of owned aircraft, which will be funded from sources other than
this offering. ATA may elect to fund the sale of the series D secured promissory
notes through the sale of class D certificates. ATA did not issue any series D
secured promissory notes at any time prior to the consummation of the initial
offering. The Note Purchase Agreement provides that ATA's ability to issue any
series D secured promissory notes is contingent upon its obtaining written
confirmation from each Rating Agency that the issuance of such series D secured
promissory note will not result in a withdrawal or downgrading of the rating of
any class of certificates (without giving effect to the Policy). If the class D
certificates are issued, the trustee with respect to such certificates will
become a party to the Intercreditor Agreement. See 'Description of the
Intercreditor Agreements.'
LIQUIDATION OF ORIGINAL TRUSTS
At the Transfer Date, each of the original pass through trusts will transfer
and assign all of its assets and rights to a successor pass through trust with
substantially identical terms, except that (i) the successor pass through trusts
will not have the right to purchase new secured promissory notes and (ii) New
York law will govern both the original pass through trusts and the successor
pass through trusts. The trustee of each of the original pass through trusts
will also act as trustee
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of the corresponding successor pass through trust, and each new trustee will
assume the obligations of the original trustee under each transaction document
to which such original trustee was a party. Upon the effectiveness of such
transfer, assignment and assumption, each of the original pass through trusts
will be liquidated and each of the certificates will represent the same
percentage interest in the successor pass through trust as it represented in the
original pass through trust immediately prior to such transfer, assignment and
assumption. Unless the context otherwise requires, all references in this
prospectus to the pass through trusts, the trustees, the Pass Through Trust
Agreements and similar terms shall be applicable with respect to the original
pass through trusts until the effectiveness of such transfer, assignment and
assumption and thereafter shall be applicable with respect to the successor pass
through trusts. If for any reason such transfer, assignment and assumption
cannot be effected to any successor pass through trust, the related original
pass through trust will continue in existence until it is effected.
TERMINATION OF THE PASS THROUGH TRUSTS
ATA's and Amtran's obligations and those of the applicable pass through
trustee with respect to a pass through trust will terminate upon the
distribution to certificateholders of such pass through trust of all amounts
required to be distributed to them pursuant to the applicable pass through trust
agreement and the disposition of all property held in such pass through trust.
The applicable pass through trustee will send to each certificateholder of such
pass through trust notice of the termination of such pass through trust, the
amount of the proposed final payment and the proposed date for the distribution
of such final payment for such pass through trust. The final payment to any
certificateholder of such pass through trust will be made only upon surrender of
such certificateholder's certificates at the office or agency of the applicable
pass through trustee specified in such notice of termination. (Section 11.01)
THE PASS THROUGH TRUSTEES
The pass through trustee for each pass through trust will be Wilmington
Trust Company. With certain exceptions, the trustee makes no representations as
to the validity or sufficiency of the Pass Through Trust Agreements, the
certificates, the secured promissory notes, the Note Purchase Agreement, the
Indentures, the leases, the Participation Agreements, the Intercreditor
Agreement, the Deposit Agreements, the Escrow Agreements or other related
documents. (Sections 7.03 and 7.14) The trustee of any pass through trust shall
not be liable, with respect to the certificates of such pass through trust, for
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of a majority in principal amount of Outstanding
Certificates of such pass through trust. Subject to certain provisions, the
trustee shall be under no obligation to exercise any of its rights or powers
under any Pass Through Trust Agreement at the request of any holders of
certificates issued thereunder unless there shall have been offered to the
trustee reasonable indemnity. (Section 7.02(e)) Each Pass Through Trust
Agreement provides that the trustee in its individual or any other capacity may
acquire and hold certificates issued thereunder and, subject to certain
conditions, may otherwise deal with ATA, Amtran, any Owner Trustee or any Loan
Trustee with the same rights it would have if it were not the trustee.
(Section 7.04)
DESCRIPTION OF THE DEPOSIT AGREEMENTS
The following is a description of the particular terms of the Deposit
Agreements. The statements under this caption are summaries and do not purport
to be complete and are qualified in their entirety by reference to all the
provisions of the Deposit Agreements, copies of which are available upon request
to the pass through trustee. The provisions of the Deposit Agreements are
substantially identical except as otherwise indicated.
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GENERAL
Under the Escrow Agreements, the Escrow Agent with respect to each pass
through trust will enter into a separate Deposit Agreement with the applicable
Depositary. Under the Deposit Agreements, the Depositary will establish separate
deposit accounts in the name of the Escrow Agent. On the Issuance Date, the
proceeds relating to the offering of each series of certificates (excluding
amounts used to purchase the secured promissory notes related to the aircraft
financed on the Issuance Date, if any) will be deposited into the applicable
Deposit Account by the initial purchaser, in each case, on behalf of such Escrow
Agent.
On each Regular Distribution Date, the Depositary will pay to the Paying
Agent on behalf of the applicable Escrow Agent, for distribution to the holders
of Escrow Receipts relating to the applicable pass through trust, an amount
equal to interest accrued on the Deposits relating to such pass through trust
during the relevant interest period at a rate per annum equal to the interest
rate applicable to the certificates issued by such pass through trust.
In connection with the financing of each delivered aircraft during the
Delivery Period, the pass through trustee for each of the pass through trusts
will request that the Escrow Agent relating to the applicable pass through trust
withdraw from the Deposits relating to the applicable pass through trust funds
sufficient to enable the pass through trustee of such pass through trust to
purchase the secured promissory note of the series applicable to such pass
through trust issued with respect to such aircraft. Accrued but unpaid interest
on all such Deposits withdrawn will be paid on the next Regular Distribution
Date. Any portion of any Deposit withdrawn which is not used to purchase such
secured promissory note will be redeposited by each pass through trustee into an
account relating to the applicable pass through trust.
The Deposits relating to the pass through trusts and interest paid on such
Deposits will not be subject to the subordination provisions of the
Intercreditor Agreement and will not be available to pay any other amount in
respect of the certificates.
UNUSED DEPOSITS
The pass through trustees' obligations to purchase the secured promissory
notes issued with respect to each aircraft are subject to satisfaction of
conditions at the time of delivery, as set forth in the Note Purchase Agreement
and the Participation Agreements. See 'Description of the
Certificates -- Obligation to Purchase Secured Promissory Notes.' Because four
of the seven aircraft which are to be delivered are scheduled for manufacturer's
delivery from time to time during the Delivery Period, no assurance can be given
that all such conditions will be satisfied at the time of delivery for each
aircraft. Moreover, the scheduled delivery date of any new aircraft is subject
to delays in the manufacturing process and to the aircraft manufacturer's right
to postpone deliveries under the purchase agreement with ATA, the actual
delivery date of any one of these four aircraft may be delayed beyond its
currently scheduled delivery date. See 'Description of the Aircraft and
Appraisals -- Deliveries of Aircraft.' Depending on the circumstances of the
financing of each aircraft, the maximum aggregate principal amount of secured
promissory notes may not be issued.
If any funds remain as Deposits with respect to any pass through trust after
the Delivery Period Termination Date, such funds will be withdrawn by the Escrow
Agent and distributed, with accrued and unpaid interest to the holders of Escrow
Receipts relating to the respective pass through trust. Any return of unused
Deposits will be made after at least 15 days' prior written notice. In addition,
if such remaining Deposits exceed the Par Redemption Amount with respect to all
of the pass through trusts, such distribution will include a premium payable by
ATA equal to the Deposit Make-Whole Premium with respect to the remaining
Deposits applicable to such pass through trust in excess of such pass through
trust's proportionate share of the Par Redemption Amount. Since the maximum
principal amount of secured promissory notes may not be issued with respect to
an aircraft and, in any such case, the series C secured promissory notes are
more likely not to be issued in the maximum principal amount as compared to the
other secured promissory notes, it is more likely that a distribution of unused
Deposits will be made with respect to the class C certificates as compared to
the other certificates. In addition, notwithstanding the Par
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Redemption Amount limitation, if any aircraft is not delivered by the
manufacturer on or prior to the Delivery Period Termination Date for any reason
that is not ATA's fault or caused by ATA's negligence and no substitute aircraft
is provided in lieu of such aircraft, no Deposit Make-Whole Premium will be paid
with respect to the unused Deposits to be distributed as a result of such
failure to deliver in an amount equal to the maximum principal amount of secured
promissory notes that could have been issued and acquired by such pass through
trust with respect to such aircraft in accordance with the Mandatory Economic
Terms and such unused Deposits shall not be included in the calculation of the
Par Redemption Amount. The Policy does not cover the Deposit Make-Whole Premium.
DISTRIBUTION UPON OCCURRENCE OF A TRIGGERING EVENT
If a Triggering Event occurs prior to the Delivery Period Termination Date,
the Escrow Agent for the pass through trusts will withdraw any funds then held
as Deposits with respect to such pass through trusts and cause such funds, with
accrued and unpaid interest, but without any premium, to be distributed to the
holders of Escrow Receipts relating to such pass through trusts by the Paying
Agent on behalf of the Escrow Agent. Any return of unused deposits will be made
after at least 15 days' prior written notice. Accordingly, if a Triggering Event
occurs prior to the Delivery Period Termination Date, the pass through trusts
will not acquire secured promissory notes issued with respect to aircraft
delivered after the occurrence of such Triggering Event.
DEPOSITARY
Citibank, N.A. will act as Depositary.
Citibank has short-term unsecured debt ratings of P-1 from Moody's and A-1+
from Standard & Poor's.
Citibank, N.A. is a wholly owned subsidiary of Citicorp (a Delaware
corporation) and is Citicorp's principal subsidiary. (Citicorp has been a wholly
owned subsidiary of Citigroup Inc., a Delaware holding company formerly known as
Travelers Group Inc. ('Travelers'), since October 8, 1998, when Citicorp merged
with a wholly owned subsidiary of Travelers.) As of September 30, 1999, the
total assets of Citibank and its consolidated subsidiaries represented more than
80% of the total assets of Citicorp and its consolidated subsidiaries.
The Consolidated Balance Sheets of Citibank as of December 31, 1998 and as
of December 31, 1997 are set forth in the Annual Report and Form 10-K of
Citicorp and its subsidiaries for the year ended December 31, 1998 and as of
September 30, 1999 and December 31, 1998 are set forth in the Financial Review
and Form 10-Q for the quarter ended September 30, 1999. Copies of such reports
are available upon request, without charge, by writing or calling Citicorp
Corporate Affairs Distribution, 850 Third Avenue, 13th Floor, New York, New
York, 10043, (212) 559-0233.
This information concerning Citibank was provided by Citibank. Neither we
nor ATA takes any responsibility for the accuracy of the Citibank information.
REPLACEMENT OF DEPOSITARY
If the Depositary's short-term unsecured debt rating falls below A-1+ from
Standard & Poor's or P-1 from Moody's then we must, within 45 days of such event
occurring, replace the Depositary with a new depositary bank that has short-term
unsecured debt ratings of at least A-1+ from Standard & Poor's and P-1 from
Moody's, or such new depositary bank that will not result in a withdrawal or
downgrading of the rating of any class of certificates (without giving effect to
the Policy), as confirmed by the rating agencies in writing.
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DESCRIPTION OF THE ESCROW AGREEMENTS
The following is a description of the particular terms of the Escrow
Agreements. The statements under this caption are summaries only and do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Escrow Agreements, copies of which are available upon
request to the pass through trustee. The provisions of the Escrow Agreements are
substantially identical except as otherwise indicated.
First Security Bank, National Association, as escrow agent in respect of the
pass through trusts, Wilmington Trust Company, as paying agent on behalf of the
Escrow Agent in respect of each such pass through trust, the pass through
trustee of each of the pass through trusts and the initial purchaser of the
certificates will enter into a separate Escrow Agreement for the benefit of the
certificateholders of each such pass through trust as holders of the Escrow
Receipts affixed to such certificates. The cash proceeds of the initial offering
of certificates (excluding amounts used to purchase the secured promissory notes
related to the aircraft financed on the Issuance Date, if any) will be deposited
by the initial purchasers on behalf of the Escrow Agent (for the benefit of
Receiptholders) with the Depositary as Deposits relating to such pass through
trusts.
Each Escrow Agent will permit the pass through trustee of the related pass
through trust to cause funds to be withdrawn from such Deposits on or prior to
the Delivery Period Termination Date so that such pass through trustee may
purchase the related secured promissory notes under the Note Purchase Agreement.
In addition, the Escrow Agent will direct the Depositary to pay interest on the
Deposits accrued in accordance with the Deposit Agreement to the Paying Agent
for distribution to the Receiptholders.
Each Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the related Receiptholders, one or more Paying Agent
Account(s), which shall be non-interest bearing. The Paying Agent will deposit
interest on Deposits and any unused Deposits withdrawn by the Escrow Agent in
the related Paying Agent Account. The Paying Agent will distribute these amounts
on a Regular Distribution Date or Special Distribution Date, as appropriate.
Each Receiptholder, by its acceptance of an Escrow Receipt, is deemed to agree
that it will look solely to funds deposited in the Paying Agent Account for any
payment or distribution due to such Receiptholder under the Escrow Agreement and
the Escrow Receipt and that it will have no recourse against ATA, Amtran, the
pass through trustee that issued the certificate to which the Escrow Receipt is
attached, the Paying Agent or the Escrow Agent, except as provided in the Escrow
Agreement and the pass through trust agreement pursuant to which the certificate
to which the Escrow Receipt is attached was issued.
Upon receipt by the Depositary of a portion of the cash proceeds from the
initial offering of certificates, the Escrow Agent will issue one or more Escrow
Receipts. An Escrow Receipt will be affixed by the relevant pass through trustee
to each certificate. Each Escrow Receipt evidences a fractional undivided
interest in amounts from time to time deposited into the Paying Agent Account
and is limited in recourse to amounts deposited into such account. An Escrow
Receipt may not be assigned or transferred except in connection with the
assignment or transfer of the certificate to which it is affixed. Each Escrow
Receipt will be registered by the Escrow Agent in the same name and manner as
the certificate to which it is affixed.
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following is a description of the particular terms of the Liquidity
Facilities and certain provisions of the Intercreditor Agreement. The statements
under this caption are summaries and do not purport to be complete and are
qualified in their entirety by reference to all of the provisions of the
Liquidity Facilities and the Intercreditor Agreement, copies of which are
available upon request to the pass through trustee. The provisions of the
Liquidity Facilities are substantially identical except as otherwise indicated.
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GENERAL
The Liquidity Provider will enter into a separate revolving credit agreement
with the Subordination Agent (each, a 'Liquidity Facility') with respect to the
certificates of each pass through trust pursuant to which the Liquidity Provider
will, if necessary, make one or more advances to the Subordination Agent that
will be used solely to pay interest on such certificates when due, subject to
certain limitations. The Liquidity Facility for each pass through trust is
intended to enhance the likelihood of timely receipt by the certificateholders
of such pass through trust of the interest passed through to them at the Stated
Interest Rate for such certificates on up to six consecutive quarterly Regular
Distribution Dates. If interest payment defaults occur that exceed the amount
covered by or available under the Liquidity Facility for a pass through trust,
the certificateholders of such pass through trust will bear their allocable
share of the deficiencies to the extent that there are no other sources of funds
(including, in the case of the class G certificates, funds from the Policy).
Although Citibank, N.A. is the initial Liquidity Provider for each pass through
trust, Citibank may be replaced by one or more other entities with respect to
the pass through trusts under certain circumstances. Therefore, the Liquidity
Provider for the pass through trusts may differ.
DRAWINGS
The aggregate amount available under the Liquidity Facility for each pass
through trust at January 15, 2001, the first Regular Distribution Date after the
scheduled Delivery Period Termination Date, assuming that secured promissory
notes in the maximum principal amount with respect to all aircraft are acquired
by the pass through trusts and that all interest and principal due on or prior
to January 15, 2001, is paid, will be as follows:
AVAILABLE
PASS THROUGH TRUST AMOUNT
- ------------------ ------
Class G..................................................... $24,982,816
Class C..................................................... $ 4,850,642
Except as otherwise provided below, the Liquidity Facility for each pass
through trust will enable the Subordination Agent to make Interest Drawings
under the Liquidity Facility on any Distribution Date to pay interest then due
and payable on the certificates of such pass through trust at the Stated
Interest Rate for such pass through trust to the extent that the amount, if any,
available to the Subordination Agent on such Distribution Date is not sufficient
to pay such interest. The maximum amount available to be drawn under a Liquidity
Facility with respect to any pass through trust on any Distribution Date to fund
any shortfall of interest on certificates of such pass through trust will not
exceed the Required Amount for such certificates.
The Liquidity Facility for any class of certificates will not provide for
drawings:
to pay for principal of or premium on the certificates of such class;
to pay for any interest on the certificates of such class in excess of the
Stated Interest Rate for such class;
to pay for principal of or interest or premium on the certificates of any
other class; or
to pay for amounts payable with respect to the Deposits relating to such
pass through trust. (Liquidity Facilities, Section 2.2; Intercreditor
Agreement, Section 3.6)
Each payment by the Liquidity Provider will reduce by the same amount the
Maximum Available Commitment under such Liquidity Facility, subject to
reinstatement as described below. With respect to any Interest Drawings under a
Liquidity Facility, upon reimbursement of the Liquidity Provider of all or any
part of the amount of such Interest Drawings plus interest thereon, the Maximum
Available Commitment under such Liquidity Facility will be reinstated by the
amount of such repaid Interest Drawing to an amount not to exceed the then
Required Amount of such Liquidity Facility; provided, however, that such
Liquidity Facility will not be so reinstated at any time if (a) a Liquidity
Event of Default has occurred and is continuing and (b) less than 65% of the
then aggregate outstanding principal amount of all secured promissory notes
108
are Performing Secured Promissory Notes. With respect to any other drawings
under such Liquidity Facility, amounts available to be drawn thereunder are not
subject to reinstatement.
The stated amount of the Liquidity Facility for any pass through trust will
be automatically reduced from time to time to an amount equal to the next three
successive interest payments due on the certificates of that pass through trust
(without regard to expected future payment of principal of such certificates) at
the Stated Interest Rate for that pass through trust. The Liquidity Provider
will be paid a fee on the average amount available to be drawn under the initial
Liquidity Facility until the earlier of the date when the commitment under the
Liquidity Facility terminates and the date when a Downgrade Drawing, if any, is
made, in an amount and on the dates specified in the Liquidity Facilities.
(Liquidity Facilities, Sections 2.3 and 2.4(a); Intercreditor Agreement, Section
3.6(j)).
If at any time the short-term unsecured debt rating of the Liquidity
Provider for any pass through trust then issued by either rating agency is lower
than the Threshold Rating or, in the event the Liquidity Provider's short-term
unsecured debt is not rated by Moody's or Standard & Poor's, then the Liquidity
Provider for such pass through trust or the Subordination Agent (in consultation
with ATA) may arrange for a Replacement Facility.
The provider of any Replacement Facility will have the same rights
(including, without limitation, priority distribution rights and rights as
Controlling Party) under the Intercreditor Agreement as the replaced Liquidity
Provider.
If such Liquidity Facility is not replaced with a Replacement Facility
within 30 days (or 10 days if the Liquidity Provider is rated lower than P-3 or
A-3 by Moody's or Standard & Poor's, respectively) after notice of the
downgrading and as otherwise provided in the Intercreditor Agreement, the
Subordination Agent will make a Downgrade Drawing in an amount equal to the then
Maximum Available Commitment under such Liquidity Facility. The Subordination
Agent will deposit the proceeds of any Downgrade Drawing in a Cash Collateral
Account for such class of certificates and will use these proceeds for the same
purposes and under the same circumstances and subject to the same conditions as
cash payments of Interest Drawings under such Liquidity Facility would be used.
(Liquidity Facilities, Section 2.6(a); Intercreditor Agreement, Section 3.6(c))
The Liquidity Facility for each pass through trust will provide that the
relevant Liquidity Provider's obligations under such Liquidity Facility will
expire on the earliest of:
364 days after the Issuance Date;
the date on which the Subordination Agent delivers to such Liquidity
Provider a certification that all of the certificates of such pass through
trust have been paid in full;
the date on which the Subordination Agent delivers to such Liquidity
Provider a certification that a Replacement Facility has been substituted
for such Liquidity Facility;
the fifth Business Day following receipt by the Subordination Agent of a
Termination Notice from such Liquidity Provider (see ' -- Liquidity Events
of Default');
the date on which the Liquidity Provider honors a Final Drawing; and
the date on which no amount is or may (by reason of reinstatement) become
available for drawing under such Liquidity Facility. (Liquidity Facilities,
Sections 1.1(a) and 2.4(b)).
Each Liquidity Facility will provide that the scheduled expiration date of
such Liquidity Facility may be extended for additional 364-day periods by mutual
agreement. The Intercreditor Agreement will provide for the replacement of any
Liquidity Facility, if any, for any pass through trust if it is scheduled to
expire earlier than 15 days after the Final Maturity Date for the certificates
of such pass through trust if such Liquidity Facility is not extended at least
25 days prior to its then scheduled expiration date. If such Liquidity Facility
is not so extended or replaced by the 25th day prior to its then scheduled
expiration date, the Subordination Agent will make a Non-Extension Drawing in an
amount equal to the then Maximum Available Commitment. The Subordination Agent
will deposit the proceeds of the Non-Extension Drawing in the Cash Collateral
Account for the related class of certificates as cash collateral to be used for
the same purposes and under the same circumstances, and subject to the same
conditions, as cash payments
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of Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.2(b)(i))
The Subordination Agent, in consultation with ATA (whose recommendations the
Subordination Agent will accept in the absence of a good faith reason not to),
may, under certain circumstances, arrange for a Replacement Facility to replace
the Liquidity Facility for any pass through trust. If a Replacement Facility is
provided at any time after the Downgrade Drawing or Non-Extension Drawing under
such Liquidity Facility, all funds on deposit in the relevant Cash Collateral
Account will be returned to the Liquidity Provider being replaced.
(Intercreditor Agreement, Section 3.6(e))
The Intercreditor Agreement provides that the Subordination Agent will hold
the proceeds of a Final Drawing made in accordance with the provisions set forth
under ' -- Liquidity Events of Default' below in the Cash Collateral Account for
the related pass through trust as cash collateral to be used for the same
purposes and under the same circumstances, and subject to the same conditions,
as cash payments of Interest Drawings under such Liquidity Facility would be
used. The Intercreditor Agreement further provides that the Subordination Agent
must make a Final Drawing under a Liquidity Facility in accordance with and to
the extent permitted by the terms of such Liquidity Facility. (Intercreditor
Agreement, Section 3.6(i))
Drawings (other than a Final Drawing) under any Liquidity Facility will be
made by delivery by the Subordination Agent of a certificate in the form
required by that Liquidity Facility. Upon receipt of a certificate, the
Liquidity Provider is obligated to make payment of the drawing requested in
immediately available funds. Upon payment by the Liquidity Provider of the
amount specified in any drawing under any Liquidity Facility, the Liquidity
Provider will be fully discharged of its obligations under that Liquidity
Facility with respect to such drawing and from then on will not be obligated to
make any further payments under that Liquidity Facility in respect of such
drawing to the Subordination Agent or any other person or entity who makes a
demand for payment in respect of interest on the related certificates.
REIMBURSEMENT OF DRAWINGS
The Subordination Agent must reimburse amounts drawn under any Liquidity
Facility by reason of an Interest Drawing, Final Drawing, Downgrade Drawing or
Non-Extension Drawing and interest on such drawings, but only to the extent that
the Subordination Agent has funds available to make such payments.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn by reason of an Interest Drawing or Final Drawing will be
immediately due and payable, together with interest on the amount of such
drawing at a rate equal to the applicable LIBOR plus 2.25% per annum or the
applicable base rate plus 2.25% per annum.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
Such amount will be released on any Distribution Date to the applicable
Liquidity Provider to the extent that such amount exceeds the Required
Amount.
Any portion of such amount withdrawn from the Cash Collateral Account for
such certificates to pay interest on such certificates will be treated in
the same way as Interest Drawings.
The balance of such amount will be invested in certain specified eligible
investments.
The Downgrade Drawing or Non-Extension Drawing under any Liquidity Facility
will bear interest at a rate equal to the applicable LIBOR plus 0.55% per annum
or the applicable base rate plus 0.55% per annum, as the case may be. (Liquidity
Facilities, Sections 2.3 (b) and 2.6)
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LIQUIDITY EVENTS OF DEFAULT
Events of default under each Liquidity Facility (known as a Liquidity Event
of Default) will consist of:
(i) the acceleration of all the secured promissory notes; or
(ii) certain bankruptcy of similar events involving ATA. (Liquidity
Facilities, Section 1.1)
If (i) a Liquidity Event of Default shall have occurred and be continuing
and (ii) less than 65% of the then aggregate outstanding principal amount of all
secured promissory notes are Performing Secured Promissory Notes, the Liquidity
Provider may, in its discretion, give a notice of termination of the related
Liquidity Facility, the effect of which will be to cause:
(i) such Liquidity Facility to expire on the fifth Business Day after
the date on which such termination notice is received by the Subordination
Agent;
(ii) the Subordination Agent to promptly request, and the Liquidity
Provider to make, a Final Drawing thereunder;
(iii) any Drawing remaining unreimbursed as of the date of termination
to be automatically converted into a Final Drawing under such Liquidity
Facility; and
(iv) all amounts owing to the Liquidity Provider shall automatically
become accelerated.
Notwithstanding the foregoing, the Subordination Agent will be obligated to
pay amounts owing to the Liquidity Provider only to the extent of funds
available therefor after giving effect to the payments in accordance with the
provisions described under 'Description of the Intercreditor
Agreement -- Priority of Distributions.' (Liquidity Facilities, Section 6.1)
Upon the circumstances described below under 'Description of the
Intercreditor Agreement -- Intercreditor Rights -- Controlling Party,' a
Liquidity Provider may become the Controlling Party with respect to the exercise
of remedies under the Indentures. (Intercreditor Agreement, Section 2.6(c))
LIQUIDITY PROVIDER
The Liquidity Provider will be Citibank, N.A. See description under
'Description of the Deposit Agreements -- Depositary.'
DESCRIPTION OF THE POLICY AND THE POLICY PROVIDER AGREEMENT
The following summary describes certain terms of the Policy and certain
provisions of the Policy Provider Agreement. The summary does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Policy which will be filed by Amtran, Inc. with the Commission as an exhibit to
an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, or a Current
Report on Form 8-K.
THE POLICY
The Policy Provider will issue its certificate guaranty insurance policy in
favor of the Subordination Agent for the benefit of the class G trustee and
holders of the class G certificates. The Intercreditor Agreement directs the
Subordination Agent to make a drawing under the Policy under the following five
circumstances:
INTEREST DRAWINGS
If on any Regular Distribution Date (other than the Final Maturity Date),
after giving effect to the application of funds in accordance with the
priorities set forth under 'Description of the Intercreditor
Agreement -- Priority of Distributions' and the application of any Prior Funds,
the Subordination Agent does not then have sufficient funds available for the
payment of all amounts due and owing in respect of accrued interest on the
class G certificates at the Stated Interest Rate
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for the class G certificates, the Subordination Agent is to request a policy
drawing under the Policy in an amount sufficient to enable the Subordination
Agent to pay such interest.
PROCEEDS DEFICIENCY DRAWING
If, except as provided under ' -- No Proceeds Drawing' below, on any Special
Distribution Date established by the Subordination Agent by reason of its
receipt of a Special Payment consisting of the proceeds from a Disposition with
respect to any series G secured promissory note after giving effect to the
subordination provisions of the Intercreditor Agreement and to the application
of any Prior Funds, the Subordination Agent does not then have sufficient funds
available for a reduction in the outstanding Pool Balance of the class G
certificates by an amount equal to the outstanding principal amount of such
secured promissory note (determined immediately prior to such Disposition) plus
interest on the amount of such reduction accrued at the Stated Interest Rate for
the period from the immediately preceding Regular Distribution Date to such
Special Distribution Date, the Subordination Agent is to request a policy
drawing under the Policy in an amount sufficient to enable the Subordination
Agent to pay the amount of such reduction plus such accrued interest.
NO PROCEEDS DRAWING
On the first Business Day (which shall be a Special Distribution Date) that
is 24 months after the last date on which any payment was made on a series G
secured promissory note as to which there has subsequently been a failure to pay
principal or that has subsequently been accelerated, if the Subordination Agent
has not received a Special Payment constituting proceeds from the Disposition
with respect to that secured promissory note, the Subordination Agent will
request a drawing under the Policy in an amount equal to the then outstanding
principal amount of such secured promissory note (without regard to the
acceleration thereof) plus accrued interest thereon at the Stated Interest Rate
from the immediately preceding Regular Distribution Date to that Special
Distribution Date. The Subordination Agent is to give prompt notice to each pass
through trustee, the Liquidity Provider and the Policy Provider setting forth
the non-receipt of any such Special Payment and establishing such Business Day
as such Special Distribution Date, which notice is to be given not less than 25
days prior to such Special Distribution Date. After the payment by the Policy
Provider in full of such amount of principal and accrued interest for such
policy drawing, the Subordination Agent will have no right to make any further
policy drawing in respect of any subsequent sale or other disposition of such
secured promissory note except for an 'Avoidance Drawing' as described below.
Notwithstanding the foregoing, the Policy Provider has the right at the end
of any such 24-month period, so long as no Policy Provider Default has occurred
and is continuing, to elect instead (a) to pay on such Special Distribution Date
an amount equal to the shortfall in amounts available to the Subordination Agent
for the payment of scheduled principal (without regard to the acceleration
thereof) and interest at the Stated Interest Rate for the class G certificates
that came due on such secured promissory note (after giving effect to the
application of any Prior Funds) during such 24-month period, (b) thereafter, on
each Regular Distribution Date to permit drawings under the Policy for an amount
equal to the scheduled principal and interest that were to become due on such
secured promissory note on the related payment date (without regard to any
acceleration thereof) until the establishment of an Election Distribution Date,
and (c)(i) on any Business Day (which will be a Special Distribution Date)
elected by the Policy Provider upon 20 days' notice to request the Subordination
Agent, or (ii) following either the occurrence and continuation of a Policy
Provider Default or a Disposition of or in respect of such secured promissory
note, on any Business Day (which will be a Special Distribution Date) specified
by the Subordination Agent upon 20 days' notice, the Subordination Agent will be
required, in each case, to make a policy drawing for an amount equal to the then
outstanding principal balance of such secured promissory note and accrued
interest thereon at the Stated Interest Rate to such Election Distribution Date
less any policy drawings previously paid by the Policy Provider in respect of
principal on such secured promissory note and, any drawings paid on the Special
Distribution Date
112
under the class G Liquidity Facility or withdrawals made on the Special
Distribution Date from the class G Cash Collateral Account attributable to such
interest. The Intercreditor Agreement instructs the Subordination Agent to make
each such drawing under the Policy. Any such drawing shall not relieve the
Policy Provider from any and all obligations with respect to previous Policy
Drawings that remain unpaid.
In addition, regardless of whether or not the Policy Provider makes a Policy
Provider Election, the Policy Provider will honor drawings under the Policy by a
Liquidity Provider to cover the payment to the Liquidity Provider of interest
accruing on the Liquidity Obligations in respect of the class G and class C
Liquidity Facilities from and after the end of such 24-month period as and when
such interest becomes due in accordance with such Liquidity Facilities.
FINAL POLICY DRAWING
If on the Final Maturity Date of the class G certificates after giving
effect to the subordination provisions of the Intercreditor Agreement and to the
application of any Prior Funds, the Subordination Agent does not then have
sufficient funds available for the payment in full of the Final Distribution
(calculated as at such date but excluding any accrued and unpaid premium) on
such class of certificates, the Subordination Agent is to request a policy
drawing under the Policy in an amount sufficient to enable the Subordination
Agent to pay the Final Distribution (calculated as at such date but excluding
any accrued and unpaid premium) on such class of certificates.
AVOIDANCE DRAWING
If at any time prior to the expiration of the Policy the Subordination Agent
has actual knowledge of the issuance of any Order, the Subordination Agent is to
give prompt notice to each pass through trustee, each Liquidity Provider and the
Policy Provider of such Order and prior to the expiration of the Policy, request
a policy drawing for the relevant Preference Amount and to deliver to the Policy
Provider a copy of the documentation required by the Policy with respect to such
Order. To the extent that any portion of such Preference Amount is to be paid to
the Subordination Agent (and not to any receiver, conservator,
debtor-in-possession or trustee in bankruptcy as provided in the Policy), the
Subordination Agent shall establish as a Special Distribution Date the date that
is the earlier of the date of the expiration of the Policy and the Business Day
that immediately follows the 25th day after that notice.
GENERAL
All requests by the Subordination Agent for a policy drawing are to be made
by it no later than 1:00 p.m. (New York City time) on (or, in the case of any
Preference Amount, at least three days prior to) the applicable Distribution
Date and in the form required by the Policy and delivered to the Policy Provider
in accordance with the Policy. All proceeds of any policy drawing by the
Subordination Agent are to be deposited by the Subordination Agent in the Policy
Account and from there paid to the class G pass through trustee for distribution
to the holders of the class G certificates without regard to the subordination
provisions of the Intercreditor Agreement. In the case of any Preference
Amounts, however, all or part of the policy drawing will be paid directly to the
bankruptcy receiver, debtor-in-possession or trustee to the extent such amounts
have not been so paid by the certificateholders. If any request for a policy
drawing is rejected because it does not satisfy the requirements of the Policy,
the Subordination Agent will resubmit the request so as to satisfy those
requirements.
The Policy provides that if such a request for a policy drawing is properly
submitted or resubmitted it will pay to the Subordination Agent for deposit in
the Policy Account the applicable payment under the Policy no later than 4:00
p.m. on the later of the relevant Distribution Date and the date the request is
received by the Policy Provider (if the request is received by 1:00 p.m. on such
date) or on the next Policy Business Day (if the request is received after that
time).
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The Policy Provider will be subrogated to all of the rights of the holders
of the series G secured promissory notes to the extent provided in the
Intercreditor Agreement and will not be subrogated to the class G certificates.
Once any payment made under the Policy is paid to the Subordination Agent, the
Policy Provider will have no further obligation in respect of those payments.
THE POLICY PROVIDER SHALL NOT BE REQUIRED TO MAKE ANY PAYMENT EXCEPT AT THE
TIMES AND IN THE AMOUNTS EXPRESSLY SET FORTH IN THE POLICY.
The Policy does not cover (i) shortfalls, if any, attributable to the
liability of the class G pass through trust, the class G pass through trustee or
the Subordination Agent for withholding taxes, if any (including interest and
penalties in respect of that liability), (ii) any premium, prepayment penalty or
other accelerated payment, which at any time may become due on or with respect
to any class G certificate, nor (iii) any failure of the Escrow Agent,
Subordination Agent or the class G pass through trustee to make any payment due
to the holders of the class G certificates.
The Policy Provider's obligation under the Policy will be discharged to the
extent that funds are received by the Subordination Agent for distribution to
the class G pass through trustee and the holders of class G certificates,
whether or not the funds are properly distributed by the Subordination Agent or
the class G pass through trustee.
The Policy is noncancellable. The Policy expires and terminates without any
action on the part of the Policy Provider or any other person on the earlier of
(i) July 16, 2018 and (ii) the date that is one year and one day following the
date on which the class G certificates have been paid in full. Notwithstanding
the foregoing, the Policy Provider will continue, after termination of the
Policy, to be obligated to pay amounts with respect to which a request for a
policy drawing has been made prior to termination of the policy. No portion of
the premium under the Policy is refundable for any reason including payment, or
provision being made for payment.
The Policy is issued under and pursuant to, and shall be construed under,
the law of the State of New York.
THE POLICY PROVIDER AGREEMENT
ATA, the Subordination Agent and the Policy Provider will enter into an
insurance and indemnity agreement to be dated as of the date of issuance of the
class G certificates. Under the Policy Provider Agreement, we and the
Subordination Agent will agree to reimburse the Policy Provider for drawings
paid under the Policy. Pursuant to a policy fee letter, we will agree to pay the
Policy Provider a premium for the Policy based on the Pool Balance of the
class G certificates and a fee in connection with any prepayment of the
certificates (including by reason of an acceleration of the underlying Secured
promissory notes, but excluding a prepayment associated with an event of loss of
an Aircraft) and to reimburse the Policy Provider for certain expenses.
DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following is a description of the particular terms of the Intercreditor
Agreement. The statements made under this caption are summaries and do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Intercreditor Agreement, a copy of which is available
upon request to the pass through trustee.
INTERCREDITOR RIGHTS
GENERAL
The Intercreditor Agreement will be among each pass through trustee, the
Liquidity Provider, the Policy Provider and the Subordination Agent. The secured
promissory notes will be registered in the name of the Subordination Agent or
its nominee as agent and trustee for the applicable pass through trustee solely
for the purpose of facilitating the enforcement of the other provisions of the
Intercreditor Agreement.
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CONTROLLING PARTY
With respect to any Indenture at any given time, the Loan Trustee under such
Indenture will be directed in taking, or refraining from taking, any remedial
action under such Indenture or with respect to the secured promissory notes
issued under such Indenture, subject to certain limitations, by the Controlling
Party including acceleration of such secured promissory notes or foreclosing the
lien on the related aircraft. See 'Description of the Certificates -- Indenture
Defaults and Certain Rights Upon an Indenture Default' for a description of the
rights of the certificateholders of each pass through trust to direct the
respective pass through trustees.
The Controlling Party will be:
the policy provider, until final distributions of the aggregate outstanding
balance of the class G certificates, together with accrued and unpaid
interest, are made to the holders of the class G certificates and
thereafter, if, and while, no obligations owing to the policy provider
remain outstanding or, if a policy provider default has occurred and is
continuing, the class G pass through trustee, until payment of final
distributions together with accrued interest to the holders of the class G
certificates, until payment of final distributions together with accrued
interest to the holders of the class G certificates, then;
the class C pass through trustee.
The Liquidity Provider with the greater outstanding amount of unreimbursed
Liquidity Obligations and not then in default in its obligations to make any
advance under any Liquidity Facility will have the right to become the
Controlling Party with respect to any Indenture at any time after 18 months from
the earliest to occur of (x) the date on which the entire available amount under
any Liquidity Facility has been drawn (for any reason other than a Downgrade
Drawing or a Non-Extension Drawing) and remains unreimbursed, (y) the date on
which the entire amount of any Downgrade Drawing or Non-Extension Drawing has
been withdrawn from the relevant Cash Collateral Account to pay interest on the
relevant class of certificates and remains unreimbursed and (z) the date on
which all secured promissory notes have been accelerated provided that if (a)
the Policy Provider amends the Policy to cover payments of principal of and
interest on Drawings in respect of the class G and class C Liquidity Facilities
and certain other conditions are met, including the Rating Agencies confirming
that they will not withdraw, suspend or downgrade their ratings on any class of
certificates, or (b) the Policy Provider pays to the Liquidity Provider all
outstanding Drawings in respect of the class G and class C Liquidity Facilities
including all interest accrued thereon to such date, the Policy Provider will
remain the Controlling Party so long as no Policy Provider Default has occurred
and is continuing (in which case such Liquidity Provider, if it so elects and if
Liquidity Obligations owing to it remain outstanding (or, if it does not so
elect or if no such Liquidity Obligations remain outstanding, the class G pass
through trustee), will become the Controlling Party). (Intercreditor Agreement,
Section 2.6(c)) For purposes of giving effect to the rights of the Controlling
Party, the pass through trustees (other than the Controlling Party) will
irrevocably agree, and the certificateholders (other than the certificateholders
represented by the Controlling Party) will be deemed to agree by virtue of their
purchase of certificates, that the Subordination Agent, as record holder of the
secured promissory notes, will exercise its voting rights in respect of the
secured promissory notes as directed by the Controlling Party. (Intercreditor
Agreement, Section 2.6) For a description of certain limitations on the
Controlling Party's rights to exercise remedies, see 'Description of the Secured
Promissory Notes -- Remedies.'
SALE OF SECURED PROMISSORY NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party will be entitled to accelerate and,
subject to the provisions of the immediately following sentence, direct the
Subordination Agent to sell all (but not less than all) of the secured
promissory notes issued under such Indenture to any person. So long as any
certificates are outstanding, during nine months after the earlier of (x) the
acceleration of the secured promissory notes under any Indenture or (y) the
bankruptcy or insolvency of ATA,
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without the consent of each pass through trustee, no aircraft subject to the
lien of such Indenture or such secured promissory notes may be sold, if the net
proceeds from such sale would be less than the Minimum Sale Price for such
aircraft or such secured promissory notes. In addition, with respect to any
leased aircraft, the amount and payment dates of rentals payable by ATA under
the lease for such leased aircraft may not be adjusted, if, as a result of such
adjustment, the discounted present value of all such rentals would be less than
75% of the discounted present value of the rentals payable by ATA under such
lease before giving effect to such adjustment, in each case, using the weighted
average interest rate of the secured promissory notes outstanding under such
Indenture as the discount rate. (Intercreditor Agreement, Section 4.1)
After a Triggering Event occurs and any secured promissory note becomes a
Non-Performing Secured Promissory Note, the Subordination Agent will be required
to obtain the LTV Appraisals for the aircraft as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of such
initial LTV Appraisals; provided that, if the Controlling Party reasonably
objects to the appraised value of any aircraft shown in any LTV Appraisal, the
Controlling Party will have the right to obtain or cause to be obtained
substitute LTV Appraisals (including any LTV Appraisals based upon physical
inspection of the aircraft).
PRIORITY OF DISTRIBUTIONS
BEFORE A TRIGGERING EVENT
So long as no Triggering Event has occurred, payments in respect of the
secured promissory notes and certain other payments received on any Distribution
Date will be promptly distributed by the Subordination Agent on such
Distribution Date in the following order of priority:
to the Liquidity Provider to the extent required to pay the Liquidity
Expenses and to the Policy Provider to the extent required to pay the
Policy Expenses, pro rata;
to the Liquidity Provider and to the Policy Provider, pro rata, to the
extent required to pay interest accrued on the Liquidity Obligations (as
determined after giving effect to payments made by the Policy Provider to
the Liquidity Provider in respect of drawings under the Liquidity
Facilities) and on certain Policy Provider Obligations (as provided in the
definition of Policy Provider Obligations), respectively and, if the Policy
Provider has elected to pay to the Liquidity Provider all outstanding
drawings and interest thereon owing to the Liquidity Provider under the
Liquidity Facilities, to reimburse the Policy Provider for the amount of
such payment made to the Liquidity Provider attributable to interest
accrued on such drawings;
to the Liquidity Provider to the extent required to pay or reimburse the
Liquidity Provider for the Liquidity Obligations (other than amounts
payable pursuant to the two preceding clauses) and/or, if applicable, to
replenish each Cash Collateral Account up to the Required Amount and, if
the Policy Provider has elected to pay to the Liquidity Provider all
outstanding drawings and interest thereon owing to the Liquidity Provider
under the Liquidity Facilities, to reimburse the Policy Provider for the
amount of such payment made to the Liquidity Provider in respect of
principal of drawings under the Liquidity Facilities, pro rata;
to the class G pass through trustee to the extent required to pay Expected
Distributions on the class G certificates;
to the Policy Provider to the extent required to pay or reimburse any
Policy Provider Obligations (other than amounts payable pursuant to the
first three clauses above and any Excess Reimbursement Obligations);
to the class C pass through trustee to the extent required to pay Expected
Distributions on the class C certificates;
to the Policy Provider to the extent required to pay any Excess
Reimbursement Obligations;
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if class D certificates or series D secured promissory notes have been
issued, to the class D pass through trustee or noteholder, as the case may
be, to the extent required to pay 'Expected Distributions' (to be defined
in a manner equivalent to the definition for the other classes of
certificates) on the class D certificates or principal and accrued interest
on the series D notes, as the case may be; and
to the Subordination Agent and each pass through trustee for the payment of
certain fees and expenses.
AFTER A TRIGGERING EVENT
Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times after such Triggering Event, all funds
received by the Subordination Agent in respect of the secured promissory notes
and certain other payments will be promptly distributed by the Subordination
Agent in the following order of priority:
to the Subordination Agent, any pass through trustee, any
certificateholder, the Liquidity Provider or the Policy Provider to the
extent required to pay certain out-of-pocket costs and expenses actually
incurred by the Subordination Agent, any pass through trustee, the
Liquidity Provider or the Policy Provider or to reimburse any
certificateholder, the Policy Provider or the Liquidity Provider in respect
of payments made to the Subordination Agent or any pass through trustee in
connection with the protection or realization of the value of the secured
promissory notes or any property held in any Trust Indenture Estate or any
Collateral;
to the Liquidity Provider to the extent required to pay the Liquidity
Expenses and to the Policy Provider to the extent required to pay the
Policy Expenses, pro rata;
to the Liquidity Provider and the Policy Provider, pro rata, to the extent
required to pay interest accrued on the Liquidity Obligations (as
determined after giving effect to certain payments by the Policy Provider
to the Liquidity Provider) and interest on certain Policy Provider
Obligations (as provided in the definition of Policy Provider Obligations),
respectively and, if the Policy Provider has elected to pay to the
Liquidity Provider all outstanding drawings and interest thereon owing to
the Liquidity Provider under the Liquidity Facilities, to reimburse the
Policy Provider for the amount of such payment made to the Liquidity
Provider attributable to interest accrued on such drawings;
to the Liquidity Provider to the extent required to pay the outstanding
amount of all Liquidity Obligations (as determined after giving effect to
certain payments by the Policy Provider to the Liquidity Provider) and/or,
if applicable, with respect to any particular Liquidity Facility, unless
(x) less than 65% of the aggregate outstanding principal amount of all
secured promissory notes are Performing Secured Promissory Notes and a
Liquidity Event of Default has occurred and is continuing under such
Liquidity Facility or (y) a Final Drawing has occurred under such Liquidity
Facility, to replenish the Cash Collateral Account with respect to such
Liquidity Facility up to the Required Amount for the related class of
certificates (less the amount of any repayments of Interest Drawings under
such Liquidity Facility while sub-clause (x) of this clause is applicable)
and, if the Policy Provider has elected to pay to the Liquidity Provider
all outstanding drawings and interest thereon owing to the Liquidity
Provider under the Liquidity Facilities, to reimburse the Policy Provider
for the amount of such payment made to the Liquidity Provider in respect of
principal of drawings under the Liquidity Facilities, pro rata;
to the Subordination Agent, any pass through trustee or any
certificateholder to the extent required to pay certain fees, taxes,
charges and other amounts payable;
to the class G pass through trustee to the extent required to pay Adjusted
Expected Distributions on the class G certificates;
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to the Policy Provider to the extent required to pay the Policy Provider
Obligations (other than amounts payable pursuant to the first four clauses
above and any Excess Reimbursement Obligations);
to the class C pass through trustee to the extent required to pay Adjusted
Expected Distributions on the class C certificates;
to the Policy Provider to pay any Excess Reimbursement Obligations;
if class D certificates have been issued, to the class D pass through
trustee to the extent required to pay 'Adjusted Expected Distributions' (to
be defined in a manner equivalent to the definition for the other classes
of certificates) on the class D certificates;
the balance shall be held in the Collection Account until the next
Distribution Date; and
if all classes of certificates have been paid in full, the balance, if any,
shall be distributed to the certificateholders of the related pass through
trust.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the certificates of any pass through trust, any
premium paid on the secured promissory notes held in that pass through trust
that has not been distributed to the certificateholders of that pass through
trust (other than such premium or a portion thereof applied to the payment of
interest on the certificates of that pass through trust or the reduction of the
Pool Balance of that pass through trust) will be added to the amount of Expected
Distributions or Adjusted Expected Distributions. After a Triggering Event
occurs and any secured promissory note becomes a Non-Performing Secured
Promissory Note, the Subordination Agent will obtain LTV Appraisals of the
aircraft securing such secured promissory note as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of such
initial LTV Appraisals; provided that if the Controlling Party reasonably
objects to the appraised value of the aircraft shown in such LTV Appraisals, the
Controlling Party has the right to obtain or cause to be obtained substitute LTV
Appraisals (including LTV Appraisals based upon physical inspection of such
aircraft). (Intercreditor Agreement, Section 4.1(a))
Interest Drawings under the Liquidity Facility and withdrawals from the Cash
Collateral Account, in each case in respect of interest on the certificates of
any pass through trust, will be distributed to the pass through trustee for such
pass through trust, and drawings under the Policy will be distributed by the
class G pass through trustee, notwithstanding the priority of distributions set
forth in the Intercreditor Agreement and otherwise described in this prospectus.
All amounts on deposit in the Cash Collateral Account for any pass through
trust which are in excess of the Required Amount for such pass through trust and
all investment earnings on such amounts on deposit in the Cash Collateral
Account will be paid to the Liquidity Provider to the extent of Liquidity
Obligations owed to the Liquidity Provider.
VOTING OF SECURED PROMISSORY NOTES
In the event that the Subordination Agent, as the registered holder of any
secured promissory note, receives a request for its consent to any amendment,
modification or waiver under that secured promissory note, the related
Indenture, lease (if applicable), Participation Agreement or other related
document, if no Indenture Default with respect thereto shall have occurred and
be continuing, the Subordination Agent shall request instructions for each
series of secured promissory note from the trustee of the pass through trust
which holds such series of secured promissory notes. The trustee in turn will
request directions from certificateholders of such pass through trust, provided
that so long as the Final Distribution on the class G certificates has not been
made or any Policy Provider Obligations remain outstanding and no Policy
Provider default exists, the Subordination Agent shall request directions from
the Policy Provider rather than the class G pass through trustee with respect to
the series G secured promissory notes. If any Indenture Default shall have
occurred and be continuing with respect to any such Indenture, the Subordination
Agent will exercise its voting rights as directed by the Controlling Party,
subject to certain limitations. No such amendment, modification or waiver shall,
without the consent of the Liquidity
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Provider and the Policy Provider, reduce the amount of rent, Supplemental Rent
or stipulated loss values payable by ATA under any Lease or reduce the amount of
principal or interest payable by ATA under any secured promissory note issued
under any Owned Aircraft Indenture. (Intercreditor Agreement, Section 2.6 and
9.1(b))
ADDITION OF PASS THROUGH TRUSTEE FOR CLASS D CERTIFICATES
If the class D certificates are issued, the class D pass through trustee
will become a party to the Intercreditor Agreement.
THE SUBORDINATION AGENT
Wilmington Trust Company will be the Subordination Agent under the
Intercreditor Agreement. ATA and its affiliates may from time to time enter into
banking and trustee relationships with the Subordination Agent and its
affiliates. The Subordination Agent's address is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the Intercreditor
Agreement. Either the Controlling Party or the Liquidity Provider may remove the
Subordination Agent for cause as provided in the Intercreditor Agreement. In
such circumstances, a successor Subordination Agent will be appointed as
provided in the Intercreditor Agreement. Any resignation or removal of the
Subordination Agent and appointment of a successor Subordination Agent does not
become effective until acceptance of the appointment by the successor
Subordination Agent.
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DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The aircraft comprise seven Boeing 757-200ER aircraft. The Boeing 757-200ER
aircraft is a long-range aircraft with a seating capacity of approximately 216
passengers. The engine type utilized on ATA's 757-200ERs is the Rolls Royce
RB211-535E4. The aircraft comply with Stage 3 noise level standards, which
constitute the most restrictive regulatory standards currently in effect in the
United States for aircraft noise abatement. The table below sets forth certain
additional information for the aircraft.
EXPECTED APPRAISED BASE VALUE
AIRCRAFT TAIL AIRCRAFT ENGINE MANUFACTURER'S DELIVERY ---------------------------------------
NUMBER TYPE TYPE SERIAL NO. MONTH AISI MBA SH&E
------ ---- ---- ---------- ----- ---- --- ----
N515AT Boeing RB211-535E4 27598 October 1995 $48,690,000 $50,200,000 $52,600,000
757-200ER
N523AT Boeing RB211-535E4 30232 Sept. 1999 57,110,000 59,900,000 65,500,000
757-200ER
N524AT Boeing RB211-535E4 30233 October 1999 57,180,000 60,000,000 65,500,000
757-200ER
N525AT Boeing RB211-535E4 30548 June 2000 58,100,000 61,100,000 65,500,000
757-200ER
N526AT Boeing RB211-535E4 30549 June 2000 60,260,000 61,100,000 66,800,000
757-200ER
N527AT Boeing RB211-535E4 TBD November 2000 60,950,000 61,580,000 66,800,000
757-200ER
N528AT Boeing RB211-535E4 TBD November 2000 60,950,000 61,580,000 66,800,000
757-200ER
APPRAISED VALUE
The appraised values in the chart above were determined by the following
three independent aircraft appraisal and consulting firms as of the dates
indicated: AISI as of December 31, 1999, MBA as of January 18, 2000, and SH&E as
of January 28, 2000. Each Appraiser was asked to provide its opinion as to the
fair market value of each aircraft. As part of this process, all three
Appraisers performed 'desk-top' appraisals without any physical inspection of
the aircraft. The appraisals are based on various assumptions and methodologies,
which vary among the appraisals. The Appraisers have delivered letters
summarizing their respective appraisals, copies of which are annexed to this
prospectus as Appendix AII. For a discussion of the assumptions and
methodologies used in each of the appraisals, reference is hereby made to such
summaries.
An appraisal is only an estimate of value, is not indicative of the price at
which an aircraft may be purchased from the manufacturer, and should not be
relied upon as a measure of realizable value. In addition, the proceeds realized
upon a sale of any aircraft may be less than the appraised value thereof. The
value of the aircraft in the event of the exercise of remedies under the
applicable Indenture will depend on market and economic conditions, the
availability of buyers, the condition of the aircraft, whether the aircraft are
sold separately or together and other similar factors. Accordingly, there can be
no assurance that the proceeds realized upon any such exercise with respect to
the secured promissory notes and the aircraft pursuant to the applicable
Indenture would be as appraised or sufficient to satisfy in full payments due on
the secured promissory notes issued thereunder or the certificates.
DELIVERIES OF AIRCRAFT
Under ATA's purchase agreements with Boeing, one Aircraft was delivered to
ATA in October 1995, one in September 1999, one in October 1999, two in June
2000 and the two remaining Aircraft are scheduled for delivery in November 2000.
Under such purchase agreements, delivery of an Aircraft may be delayed due to
'Excusable Delay,' which is defined to include, among other things, acts of God,
governmental acts or failures to act, strikes or other labor troubles, inability
to procure materials, or any other cause beyond Boeing's control or not
occasioned by Boeing's fault or negligence.
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The Note Purchase Agreement provides that the Delivery Period will expire on
December 31, 2000, subject to extension, if the secured promissory notes
relating to all of the aircraft (or Substitute Aircraft in lieu thereof) have
not been purchased by the pass through trustees on or prior to such date due to
any reason beyond the control of ATA and not occasioned by ATA's fault or
negligence, to the earlier of (i) the date on which the pass through trustees
purchase secured promissory notes relating to the last aircraft (or a Substitute
Aircraft in lieu thereof) and (ii) May 31, 2001.
If delivery of any aircraft is delayed by more than 30 days after the month
scheduled for delivery or beyond December 31, 2000, ATA has the right to replace
such aircraft with a Substitute Aircraft, subject to certain conditions. See
' -- Substitute Aircraft.' If delivery of any aircraft is delayed beyond the
Delivery Period Termination Date and ATA does not exercise its right to replace
that aircraft with a Substitute Aircraft, there will be unused Deposits that
will be distributed to certificateholders together with accrued and unpaid
interest thereon and, if applicable, a premium. See 'Description of the Deposit
Agreements -- Unused Deposits.'
SUBSTITUTE AIRCRAFT
If the delivery date for any aircraft is delayed (i) more than 30 days after
the month scheduled for delivery or (ii) beyond December 31, 2000, ATA may
identify for delivery a substitute aircraft meeting the following conditions:
a Substitute Aircraft must be a Boeing 757-200 aircraft manufactured after
the Issuance Date, and
ATA will be obligated to obtain written confirmation from each Rating
Agency that substituting such Substitute Aircraft for the replaced aircraft
will not result in a withdrawal, suspension or downgrading of the ratings
of any class of certificates.
DESCRIPTION OF THE SECURED PROMISSORY NOTES
The following is a description of the terms of the secured promissory notes.
The summaries make use of terms defined in and are qualified in their entirety
by reference to all of the provisions of the secured promissory notes, the
Indentures, the leases, the Participation Agreements, the Leased Aircraft Trust
Agreements, the Guarantees and the Note Purchase Agreement, forms of which are
available upon request to either pass through trustee. Except as otherwise
indicated, the following summaries relate to the secured promissory notes, the
Indenture, the lease, the Participation Agreement, the Guarantee and the Leased
Aircraft Trust Agreement that may be applicable to each aircraft.
Under the Note Purchase Agreement, ATA will have the option of entering into
a leveraged lease financing or a debt financing with respect to each aircraft.
The Note Purchase Agreement provides for the relevant parties to enter into
either (i) with respect to each leased aircraft, a Participation Agreement, a
lease, the Guarantee and a Leased Aircraft Indenture (among other documents) and
(ii) with respect to each owned aircraft, a Participation Agreement, the
Guarantee and an Owned Aircraft Indenture. The description of such agreements in
this prospectus is based on the forms of such agreements annexed to the Note
Purchase Agreement.
ATA has obtained the commitments of three companies to act as the Owner
Participant in leveraged leases for five of the aircraft (ICX Corporation for
aircraft N515AT and N525AT, Banc of America Commercial Finance Corporation for
aircraft N523AT and N524AT and The Provident Bank for aircraft N526AT), and
closed leveraged lease financings for those aircraft during 1999 and 2000 using
debt that ATA expects to re-fund with proceeds of secured promissory notes. ATA
plans to seek such commitments from the same company or others for the remaining
aircraft. We cannot predict whether ATA will obtain such commitments. The
commitments would be subject to satisfaction of certain conditions and the
execution of definitive agreements, and ATA could elect to terminate such
commitments. Accordingly, ATA may select one or more other Owner Participants
for some or all of the aircraft or finance such aircraft as owned aircraft
rather than leased aircraft. A different Owner Participant may request revisions
to the forms of the
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Participation Agreement, the lease and the Leased Aircraft Indenture that are
contemplated by the Note Purchase Agreement, so that the terms of such
agreements for any particular leased aircraft may differ from the description of
such agreements in this prospectus. See 'Description of the
Certificates -- Obligation to Purchase Secured Promissory Notes.' Each Owner
Participant will be required to satisfy certain requirements, including having a
minimum combined capital and surplus or net worth.
GENERAL
The secured promissory notes will be issued for each aircraft in two series:
the series G secured promissory notes and the series C secured promissory notes,
collectively referred to as the secured promissory notes. However, ATA may elect
to issue a third series with respect to owned aircraft, which will be funded
from sources other than this offering. See 'Description of the
Certificates -- Possible Issuance of Class D Certificates.'
The secured promissory notes with respect to each leased aircraft will be
issued under a separate Leased Aircraft Indenture between First Security Bank,
National Association, as Owner Trustee of a trust for the benefit of the Owner
Participant who will be the beneficial owner of that aircraft, and Wilmington
Trust Company, as Loan Trustee.
The secured promissory notes with respect to each owned aircraft will be
issued under a separate Owned Aircraft Indenture between ATA and Wilmington
Trust Company, as Loan Trustee. The secured promissory notes are secured
obligations of ATA.
The Indentures will not provide for defeasance, or discharge upon deposit of
cash or certain obligations of the United States. ATA will lease each leased
aircraft from the related Owner Trustee under a separate lease. Under each lease
and the related Aircraft Operative Agreements, ATA will, in general, be
obligated to make rental and other payments or advances to the related Loan
Trustee on behalf of the related Owner Trustee. Such rental and other payments
or advances will be at least sufficient to pay in full when due all payments
required to be made on the related secured promissory notes. The secured
promissory notes issued with respect to the leased aircraft are not ATA's or
Amtran's direct obligations, and neither ATA nor Amtran guarantees payment or
performance of the leased aircraft notes. ATA's obligations under each lease and
the related Aircraft Operative Agreements are general unsecured obligations.
Amounts payable by ATA under each lease and each Owned Aircraft Indenture will
be unconditionally guaranteed by Amtran.
Each Owner Participant has the right to sell, assign or otherwise transfer
its interests as Owner Participant in any of such leveraged leases, subject to
the terms and conditions of the relevant Participation Agreement and related
documents.
SUBORDINATION
Series C secured promissory notes issued in respect of an aircraft will be
subordinated in right of payment to series G secured promissory notes issued in
respect of such aircraft; and, if ATA elects to issue series D secured
promissory notes with respect to an owned aircraft, such series D secured
promissory notes will be subordinated in right of payment to the series C
secured promissory notes. On each scheduled payment date, (a) payments of
interest and principal due on series G secured promissory notes issued in
respect to an aircraft will be made prior to payments of interest and principal
due on series C secured promissory notes issued in respect of such aircraft; and
(b) if ATA elects to issue series D secured promissory notes with respect to an
owned aircraft, payments of interest and principal due on series C secured
promissory notes will be made prior to payments of interest and principal due on
such series D secured promissory notes issued in respect of such aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of the Intercreditor Agreement, interest paid on
the secured promissory notes held in each pass through trust will be passed
through to the certificateholders of
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each such pass through trust on the dates and at the rate per annum set forth on
the cover page of this prospectus until the final expected Regular Distribution
Date (subject to change as provided in the Registration Rights Agreement) for
such pass through trust. Subject to the provisions of the Intercreditor
Agreement, principal paid on the secured promissory notes held in each pass
through trust will be passed through to the certificateholders of such pass
through trust in scheduled amounts on the dates set forth in this prospectus
until the final expected Regular Distribution Date for such pass through trust.
Interest will be payable on the unpaid principal amount of each secured
promissory note at the rate applicable to such secured promissory note on
January 15, April 15, July 15 and October 15 of each year, commencing on April
15, 2000. Such interest will be computed on the basis of a 360-day year of
twelve 30-day months. Overdue amounts of principal, Make-Whole Amount and
interest on such series of secured promissory notes will bear interest at a rate
equal to 1.00% per annum over the applicable rate on such series of secured
promissory notes. Under certain circumstances described in 'Exchange Offer;
Registration Rights', the interest rates for the Equipment Notes will be
increased (or following any such increase, decreased) to the extent described in
the Registration Rights Agreement.
Scheduled principal payments on the secured promissory notes will be made on
one or more of January 15, April 15, July 15 and October 15 in certain years,
commencing on January 15, 2001. See 'Description of the Certificates -- Pool
Factors' for a discussion of the scheduled payments of principal of the secured
promissory notes and possible revisions to such scheduled payments.
The final payment made under each secured promissory note will be an amount
sufficient to discharge in full the unpaid principal amount, Make-Whole Amount
(if any) and to the extent permitted by law, interest and any other amounts
payable but unpaid with respect to such secured promissory note.
If any date scheduled for a payment of principal, premium or interest with
respect to the secured promissory notes is not a Business Day, such payment will
be made on the following Business Day with the same effect as if made on such
scheduled payment date and without any additional interest.
REDEMPTION
If an Event of Loss occurs with respect to an aircraft and we do not replace
such aircraft under the related lease or under the related Owned Aircraft
Indenture, the secured promissory notes issued with respect to such aircraft
will be redeemed, in whole, in each case at a price equal to the aggregate
unpaid principal amount thereof, together with accrued interest thereon, to the
date of redemption and other amounts payable to the holders of the secured
promissory notes under the applicable Indenture and Participation Agreement, but
without Make-Whole Amount. Such redemption will be on a Special Distribution
Date. (Indentures, Section 2.10).
If ATA terminates a lease under its voluntary termination, early buyout or
burdensome buyout options under such lease, the secured promissory notes
relating to the applicable leased aircraft will be redeemed (unless ATA elects
to assume the secured promissory notes on a full recourse basis), in whole, on a
Special Distribution Date at a price equal to the aggregate unpaid principal
amount thereof, together with accrued interest thereon to but excluding the
redemption date, plus a Make-Whole Amount. If ATA assumes the Owner Trustee's
obligations in respect of the secured promissory notes, ATA will enter into a
supplemental indenture satisfactory to the relevant Loan Trustee which contains
provisions regarding permitted liens, registration, maintenance, subleases,
replacement of parts, alteration and modification to the aircraft, events of
loss and insurance which are substantially similar to the provisions contained
in the related lease. In addition, in connection with any such assumption,
Amtran shall deliver a guaranty of the secured promissory notes substantially in
the form of the Guarantee and ATA shall deliver an opinion of counsel that such
assumption has been duly and validly effected. Upon the effectiveness of such
assumption, the Owner Trustee and the Owner Participant will be released from
further
123
obligations under the related Indenture and the related Participation Agreement.
(Leased Aircraft Indentures, Sections 2.10(b) and 2.11) See ' -- The
Leases -- Lease Termination.'
All of the secured promissory notes issued with respect to a leased aircraft
may be redeemed prior to maturity as part of a refunding or refinancing thereof
under the applicable Participation Agreement, and all of the secured promissory
notes issued with respect to the owned aircraft may be redeemed prior to
maturity at any time at the option of ATA, upon at least 30 days' revocable
prior written notice to the related Loan Trustee and the holders of the secured
promissory notes, at a price equal to the aggregate unpaid principal amount
thereof, together with accrued interest to, but not including, the date of
redemption, plus a Make-Whole Amount, if any. (Leased Aircraft Indentures,
Section 2.12 and Owned Aircraft Indentures, Section 2.11)
If notice of such redemption is given in connection with a termination of
the lease, such notice is revocable and is deemed revoked in the event that the
lease does not in fact terminate on the specified termination date. If notice of
such redemption is given in connection with a refinancing, it is revocable not
later than three days prior to the redemption date. (Indentures, Section
2.13(b))
With respect to a leased aircraft, either the Owner Trustee or the Owner
Participant may purchase all of the outstanding secured promissory notes issued
under the related Leased Aircraft Indentures for the aggregate unpaid principal
amount, plus accrued and unpaid interest to the date of purchase. This option
may be exercised upon:
(i) the declaration by the Loan Trustee that the secured promissory
notes have become due and payable following an Indenture Default or
notification by the Loan Trustee to the Owner Trustee that it intends to
take action to foreclose the lien or otherwise commence the exercise of any
significant remedy under the Indenture or Lease; or
(ii) a continuing Lease Event of Default.
If the option is exercised in connection with a Lease Event of Default
continuing for less than 120 days, then the Make-Whole Amount will be added to
the purchase price. (Leased Aircraft Indentures, Section 2.14)
If (a) one or more Lease Events of Default exist and are continuing or (b)
the secured promissory notes with respect to a leased aircraft have been
accelerated or the Loan Trustee with respect to such secured promissory notes
takes action or notifies the applicable Owner Trustee that it intends to take
action to foreclose the lien of the related Leased Aircraft Indenture or
otherwise commence the exercise of any significant remedy under such Indenture
or the related lease or if certain events occur in a bankruptcy proceeding
involving us, then in each case the related Owner Trustee or Owner Participant
may buy all, but not less than all, of the secured promissory notes issued with
respect to such leased aircraft at a price equal to the aggregate unpaid
principal thereof, together with accrued and unpaid interest thereon to but
excluding, the purchase date but without any premium (provided that a Make-Whole
Amount is payable if such secured promissory notes are to be purchased pursuant
to clause (a) when a Lease Event of Default has been continuing for less than
120 days). (Leased Aircraft Indentures, Section 2.14) We as owner of the owned
aircraft have no comparable right under the Owned Aircraft Indentures to
purchase the secured promissory notes under such circumstances.
SECURITY
The secured promissory notes issued with respect to each leased aircraft are
secured by a first priority security interest in that aircraft, the related
lease and all rent thereunder, the related Guarantee, the aircraft purchase
agreement (to the extent related to the leased aircraft), all rents, profits and
other income of such leased aircraft, all insurance and similar proceeds
covering loss of or damage to such leased aircraft, all rights of the related
Owner Trustee to amounts paid or payable by ATA under the related Participation
Agreement, all monies and securities deposited with the related Loan Trustee,
and all proceeds of the foregoing. Unless an Indenture Default with respect to a
leased aircraft has occurred and is continuing, the related Loan Trustee may not
exercise the Owner Trustee's rights under the related lease except such Owner
Trustee's right to
124
receive rent. The Owner Trustee's assignment to the Loan Trustee of the Owner
Trustee's rights under the related lease excludes the rights of the Owner
Trustee and the Owner Participant to indemnification for certain matters,
liability insurance proceeds payable to the Owner Trustee in its individual
capacity and to the Owner Participant, insurance proceeds payable to the Owner
Trustee in its individual capacity or to such Owner Participant, under certain
casualty insurance maintained by the Owner Trustee or the Owner Participant, and
certain reimbursement payments made by ATA to the Owner Trustee. (Leased
Aircraft Indenture, Granting Clause) The secured promissory notes are not
cross-collateralized. This means that the secured promissory notes issued in
respect of any one aircraft are not secured by any of the other aircraft or
replacement aircraft (as described in ' -- The Leases -- Events of Loss') or the
leases related thereto.
The secured promissory notes issued with respect to each owned aircraft will
be secured by:
a mortgage to the Loan Trustee of such aircraft; and
an assignment to the Loan Trustee of certain of ATA's rights under its
purchase agreement with the aircraft manufacturer.
Funds, if any, held from time to time by the Loan Trustee with respect to
any aircraft, including funds held as the result of an Event of Loss to such
aircraft or, in the case of a leased aircraft, termination of the related lease,
will be invested and reinvested by such Loan Trustee, at the direction of the
related Owner Trustee in the case of the leased aircraft or ATA in the case of
the owned aircraft (except in the case of certain Indenture Defaults), in
investments described in the related Indenture.
LOAN TO VALUE RATIOS OF SECURED PROMISSORY NOTES
The following table sets forth illustrative loan to aircraft value ratios
for the secured promissory notes issued in respect of each aircraft as of the
dates specified assuming that the secured promissory notes in the maximum
principal amount are issued in respect of each such aircraft. ATA used these
examples in preparing the Assumed Amortization Schedule, although the
amortization schedule for the secured promissory notes issued with respect to an
aircraft may vary from such assumed schedule so long as it complies with the
Mandatory Economic Terms. Accordingly, the schedule below may not apply to any
particular aircraft. See 'Description of the Certificates -- Pool Factors.' The
loan to aircraft value ratios were obtained by dividing (a) the expected
outstanding balance (assuming no payment default) of such secured promissory
notes, determined immediately after giving effect to the payments scheduled to
be made on each such date, by (b) the assumed value (the 'Assumed Aircraft
Value') of the aircraft securing such secured promissory notes.
The following tables are based on the Depreciation Assumptions. Other rates
or methods of depreciation would result in different loan-to-value ratios, and
no assurance can be given (a) that the depreciation rates and method assumed for
the purposes of the table are the ones most likely to occur or (b) as to the
actual value of any aircraft. Thus the table should be considered not as a
forecast or prediction of expected or likely loan to aircraft value ratios, but
simply as a mathematical calculation based on one set of assumptions.
125
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATIAIRC
NUMBER: N515AT NUMBER: N523AT NUMBER: N524AT
----------------------------------- ----------------------------------- ------------------------
NOTE ASSUMED NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN-TO- OUTSTANDING AIRCRAFT LOAN-TO- OUTSTANDING AIRCRAFT
VALUE VALUE VALUE VALUE VALUE VALUE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS)
---- ---------- ---------- ----- ---------- ---------- ----- ---------- ----------
January 15, 2001......... $26.83 $48.69 55.1% $31.38 $58.10 54.0% $31.39 $58.20
January 15, 2002......... 24.85 47.19 52.7% 29.68 56.31 52.7% 29.69 56.40
January 15, 2003......... 22.71 45.68 49.7% 27.86 54.51 51.1% 27.86 54.60
January 15, 2004......... 20.41 44.18 46.2% 25.90 52.71 49.1% 25.89 52.80
January 15, 2005......... 17.94 42.67 42.0% 23.78 50.92 45.7% 23.78 51.00
January 15, 2006......... 15.46 41.16 37.6% 21.50 49.12 43.8% 21.50 49.20
January 15, 2007......... 13.34 39.66 33.6% 19.05 47.32 40.3% 19.95 47.40
January 15, 2008......... 12.30 38.15 32.2% 17.54 45.52 38.5% 17.48 45.60
January 15, 2009......... 9.93 36.65 27.1% 16.51 43.73 37.7% 16.45 43.80
January 15, 2010......... 7.39 35.14 21.0% 15.21 41.93 36.3% 15.33 42.00
January 15, 2011......... 4.65 33.63 13.8% 13.02 40.13 32.5% 13.47 40.20
January 15, 2012......... 1.70 31.63 5.4% 10.67 38.34 27.8% 11.15 38.40
January 15, 2013......... 0.00 NA NA 8.13 36.54 22.2% 8.66 36.60
January 15, 2014......... 0.00 NA NA 5.40 34.74 15.5% 5.98 34.80
January 15, 2015......... 0.00 NA NA 2.45 32.94 7.5% 3.10 33.00
January 15, 2016......... 0.00 NA NA 0.00 NA NA 0.00 NA
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER: N524AT NUMBER: N525AT NUMBER: N526AT
--------------- ----------------------------------- -----------------------------------
NOTE ASSUMED NOTE ASSUMED
LOAN-TO- OUTSTANDING AIRCRAFT LOAN-TO- OUTSTANDING AIRCRAFT LOAN-TO-
VALUE VALUE VALUE VALUE VALUE VALUE VALUE
DATE RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ----- ---------- ---------- ----- ---------- ---------- -----
January 15, 2001......... 53.9% $34.18 $61.10 55.9% $34.18 $61.10 55.9%
January 15, 2002......... 52.6% 32.53 59.27 54.9% 32.53 59.27 54.9%
January 15, 2003......... 51.0% 30.72 57.43 53.5% 30.72 57.43 53.5%
January 15, 2004......... 49.0% 28.75 55.60 51.7% 28.75 55.60 51.7%
January 15, 2005......... 46.6% 26.59 53.77 49.4% 26.49 53.77 49.4%
January 15, 2006......... 43.7% 24.21 51.94 46.6% 24.21 51.94 46.6%
January 15, 2007......... 40.2% 22.94 50.10 45.8% 22.94 50.10 45.8%
January 15, 2008......... 38.3% 20.55 48.27 42.6% 20.55 48.27 42.6%
January 15, 2009......... 37.6% 19.19 46.44 41.3% 19.19 46.44 41.3%
January 15, 2010......... 36.5% 17.31 44.60 38.8% 17.31 44.60 38.8%
January 15, 2011......... 33.5% 14.99 42.77 35.0% 14.99 42.77 35.0%
January 15, 2012......... 29.0% 12.46 40.94 30.4% 12.46 40.94 30.4%
January 15, 2013......... 23.7% 9.72 39.10 24.9% 9.72 39.10 24.9%
January 15, 2014......... 17.2% 6.74 37.27 18.1% 6.74 37.27 18.1%
January 15, 2015......... 9.4% 3.51 35.44 9.9% 3.51 35.44 9.9%
January 15, 2016......... NA 0.00 NA NA 0.00 NA NA
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION
NUMBER: N527AT NUMBER: N528AT
----------------------------------- -----------------------------------
NOTE ASSUMED NOTE ASSUMED
OUTSTANDING AIRCRAFT LOAN-TO- OUTSTANDING AIRCRAFT LOAN-TO-
VALUE VALUE VALUE VALUE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO
---- ---------- ---------- ----- ---------- ---------- -----
January 15, 2001......... $34.49 $61.58 56.0% $34.49 $61.58 56.0%
January 15, 2002......... 32.88 59.73 55.0% 32.88 59.73 55.0%
January 15, 2003......... 31.12 57.89 53.8% 31.12 57.89 53.8%
January 15, 2004......... 29.19 56.04 52.1% 29.19 56.04 52.1%
January 15, 2005......... 27.09 54.19 50.0% 27.09 54.19 50.0%
January 15, 2006......... 24.79 52.34 47.4% 24.79 52.34 47.4%
January 15, 2007......... 23.21 50.50 46.0% 23.21 50.50 46.0%
January 15, 2008......... 21.31 48.65 43.8% 21.31 48.65 43.8%
January 15, 2009......... 19.36 46.80 41.4% 19.36 46.80 41.4%
January 15, 2010......... 17.23 44.95 38.3% 17.23 44.95 38.3%
January 15, 2011......... 14.91 43.11 34.6% 14.91 43.11 34.6%
January 15, 2012......... 12.40 41.26 30.0% 12.40 41.26 30.0%
January 15, 2013......... 9.67 39.41 24.5% 9.67 39.41 24.5%
January 15, 2014......... 6.71 37.56 17.9% 6.71 37.56 17.9%
January 15, 2015......... 3.49 35.72 9.8% 3.49 35.72 9.8%
January 15, 2016......... 0.00 NA NA 0.00 NA NA
126
LIMITATION OF LIABILITY
The secured promissory notes with respect to the leased aircraft will not be
obligations of, or guaranteed by, ATA, Amtran, the Loan Trustees, the Owner
Participants or the Owner Trustees in their individual capacities. None of the
Owner Trustees, the Owner Participants or the Loan Trustees, or any affiliates
thereof, will be personally liable to any holder of a secured promissory note
or, in the case of the Owner Trustees and the Owner Participants, to the Loan
Trustees for any amounts payable under the secured promissory notes or, except
as provided in each Leased Aircraft Indenture, for any other liability under
such Leased Aircraft Indenture. All payments of principal of, Make-Whole Amount,
if any, and interest on the secured promissory notes issued with respect to any
leased aircraft (other than payments made in connection with an optional
redemption or purchase of secured promissory notes by the related Owner Trustee
or the related Owner Participant) will be made only from the assets subject to
the lien of the Indenture with respect to such leased aircraft or the income and
proceeds received by the related Loan Trustee therefrom (including rent payable
by ATA under the lease with respect to such leased aircraft or the related
Guarantee).
The secured promissory notes issued with respect to the owned aircraft will
be direct obligations of ATA and will be fully and unconditionally guaranteed by
Amtran.
Except as otherwise provided in the Indentures, each Owner Trustee in its
individual capacity is not answerable or accountable under the Indentures or
under the secured promissory notes under any circumstances except for its own
willful misconduct, gross negligence, negligence with respect to the
distribution of funds, or the falsity when made of a representation or warranty
made in its individual capacity. None of the Owner Participants have any duty or
responsibility under any of the Leased Aircraft Indentures or the secured
promissory notes to the Loan Trustees or to any holder of any secured promissory
note, nor does any Owner Participant have any duty or responsibility to the Loan
Trustees respecting the return or repossession of the leased aircraft under any
circumstances or respecting the condition of the leased aircraft upon any return
or repossession.
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Indenture include:
in the case of a Leased Aircraft Indenture, the existence of any Lease
Event of Default under the related lease (other than the failure to make
certain indemnity payments and other payments to the related Owner Trustee
or Owner Participant unless such Owner Trustee or Owner Participant gives
notice that such failure will constitute an Indenture Default);
the failure by the related Owner Trustee (other than as a result of a Lease
Default or Lease Event of Default) in the case of a Leased Aircraft
Indenture, or ATA in the case of an Owned Aircraft Indenture, to pay any
interest, or principal, or Make-Whole Amount, when due, under such
Indenture or under any secured promissory note issued thereunder, continued
for more than 10 business days after notice;
the failure by the Owner Participant or the Owner Trustee in the case of a
Leased Aircraft Indenture, or ATA in the case of an Owned Aircraft
Indenture, to discharge certain liens, continued after notice and specified
cure periods;
any representation or warranty made by the related Owner Trustee or Owner
Participant in such Indenture, the related Participation Agreement or
certain related documents furnished to the Loan Trustee pursuant thereto
being false or incorrect when made and continuing to be material and
remaining unremedied after notice and specified cure periods;
failure by ATA, the related Owner Trustee or Owner Participant to perform
or observe any covenant or obligation for the benefit of the Loan Trustee
or holders of secured promissory notes under such Indenture or certain
related documents, continued after notice and specified cure periods;
127
the registration of the related aircraft ceasing to be effective as a
result of the Owner Participant (in the case of a leased aircraft) or ATA
(in the case of an owned aircraft) not being a citizen of the United States
and such circumstances continue for 60 days;
with respect to the owned aircraft, the lapse or cancellation of insurance
required under the Owned Aircraft Indenture; or
the occurrence of certain events of bankruptcy, reorganization or
insolvency of the related Owner Trustee or Owner Participant (in the case
of a leased aircraft) or ATA (in the case of the owned aircraft). (Leased
Aircraft Indentures, Section 4.02; Owned Aircraft Indentures,
Section 5.01)
There are no cross-default provisions in the Indentures or the Leases
(unless otherwise agreed between an Owner Participant and ATA). This means that
events resulting in an Indenture Default under any particular Indenture may or
may not result in an Indenture Default occurring under any other Indenture, and
a Lease Event of Default under any particular lease may or may not constitute a
Lease Event of Default under any other lease. (Leased Aircraft Indenture,
Section 4.02; Owned Aircraft Indentures, Section 5.01)
With respect to a leased aircraft, the Loan Trustee will give the holders of
the secured promissory notes, the Owner Trustee and the Owner Participant prompt
written notice of any Indenture Default of which the Loan Trustee has actual
knowledge and, if the Indenture Default results from a Lease Event of Default,
it will give the holders of the secured promissory notes, the Owner Trustee and
the Owner Participant not less than ten business days' prior written notice of
the date on or after which the Loan Trustee may commence the exercise of any
remedy described in ' -- Remedies' below.
If ATA fails to make any quarterly basic rental payment due under any lease,
within a specified period after notice from the Loan Trustee of such failure,
the applicable Owner Trustee or Owner Participant may furnish to the Loan
Trustee the amount due on the secured promissory notes, together with any
interest thereon on account of the delayed payment. In that case, the Loan
Trustee and the holders of outstanding secured promissory notes issued under
such Indenture may not exercise any remedies otherwise available under such
Indenture or such lease as the result of such failure to make such rental
payment, unless the relevant Owner Trustee or Owner Participant has previously
cured the preceding six consecutive payment defaults or twelve total payment
defaults with respect to Basic Rent. (Leased Aircraft Indentures, Section 4.03)
The Owner Trustee and/or the Owner Participant also have certain rights, but
not obligations, to cure Leased Aircraft Indenture Defaults not resulting from
the nonpayment of Basic Rent. If an Owner Trustee or Owner Participant pays the
amount due on the related secured promissory notes to the Loan Trustee or cures
the Indenture Default, the Owner Trustee or Owner Participant will be subrogated
to the rights of the Loan Trustee and the holders of the secured promissory
notes to the related Rent which was overdue at the time of such payment, as well
as interest payable by ATA on account of its being overdue, and thereafter will
be entitled to receive such overdue Rent and interest thereon upon receipt by
the Loan Trustee. However, if the principal amount and interest on the secured
promissory notes is due and payable following an Indenture Default, such
subrogation will, until the principal amount of, interest on, Make-Whole Amount,
if any, and all other amounts due with respect to all secured promissory notes
has been paid in full:
such subrogation will be subordinate to the rights of the Loan Trustee and
the holders of the secured promissory notes in respect of such payment of
overdue Rent and interest; and
the Owner Trustee will not be entitled to recover any such payment except
pursuant to the foregoing right of subrogation, by demand or suit for
damages.
The holders of a majority in principal amount of the outstanding secured
promissory notes issued with respect to any aircraft may, on behalf of all the
holders, waive any existing default and its consequences under the related
Indenture, except a default in the payment of the principal of, interest on, or
Make-Whole Amount, if any, on any such secured promissory notes or a default in
respect of any covenant or provision of such Indenture that cannot be modified
or amended
128
without the consent of each holder of secured promissory notes. (Leased Aircraft
Indentures, Section 4.08; Owned Aircraft Indentures, Section 5.06)
REMEDIES
If an Indenture Default exists under an Indenture, the related Loan Trustee
may, and upon receipt of written demand from the holders of a majority in
principal amount of the secured promissory notes outstanding under such
Indenture shall, subject to the applicable Owner Participant's or Owner
Trustee's right to cure, declare the principal of all such secured promissory
notes issued under such Indenture immediately due and payable, together with all
accrued but unpaid interest thereon (without the Make-Whole Amount). The holders
of a majority in principal amount of secured promissory notes outstanding under
such Indenture may rescind any such declaration at any time before the judgment
or decree for the payment of the money so due shall be entered if (a) there has
been paid to the related Loan Trustee an amount sufficient to pay all principal
and interest on any such secured promissory notes, to the extent such amounts
have become due otherwise than by such declaration of acceleration and (b) all
other Indenture Defaults and potential Indenture Defaults under such Indenture
have been cured or waived. (Leased Aircraft Indentures, Section 4.04(b); Owned
Aircraft Indentures, Section 5.03(b))
If an Indenture Default exists under an Indenture, the related Loan Trustee
may exercise certain rights or remedies available to it under such Indenture or
under applicable law, including (if, in the case of a leased aircraft, the
corresponding lease has been declared in default) one or more of the remedies
under such Indenture or, in the case of a leased aircraft, such lease with
respect to the aircraft subject to such lease. If an Indenture Default arises
solely by reason of one or more events or circumstances which constitute a Lease
Event of Default, the related Loan Trustee's right to exercise remedies under
such Leased Aircraft Indenture is subject, with certain exceptions, to its
having proceeded to exercise one or more of the remedies under the Lease to
terminate the lease or take possession of and/or sell the aircraft. However, the
requirement to exercise such remedies under such lease shall not apply if such
exercise has been involuntarily stayed or prohibited by applicable law or court
order for a continuous period in excess of 60 days or such other period as may
be specified in Section 1110(a)(1)(A) of the Bankruptcy Code (plus an additional
period, if any, resulting from (a) ATA or its trustee in such proceeding
assuming, or agreeing to perform its obligations under, such Lease with the
approval of the applicable court, (b) such Loan Trustee's consent to an
extension of such 60-day period or (c) such Loan Trustee's failure to give any
requisite notice). See ' -- The Leases -- Lease Events of Default.' Such
remedies may be exercised by the related Loan Trustee to the exclusion of the
related Owner Trustee, subject to certain conditions specified in such
Indenture, and ATA, subject to the terms of such lease. Any aircraft sold in the
exercise of such remedies will be free and clear of any rights of those parties,
including the rights of ATA under the lease with respect to such aircraft;
provided that no exercise of any remedies by the related Loan Trustee may affect
the rights of ATA under any lease unless a Lease Event of Default exists or the
lease has been canceled because of a Lease Event of Default. (Leased Aircraft
Indentures, Section 4.04; Leases, Section 15) The Owned Aircraft Indentures will
not contain such limitations on the Loan Trustee's ability to exercise remedies
upon an Indenture Default under an Owned Aircraft Indenture.
If the secured promissory notes issued in respect of one aircraft are in
default, the secured promissory notes issued in respect of the other aircraft
may not be in default, and, if not, no remedies will be exercisable under the
applicable Indentures with respect to such other aircraft.
Section 1110 of the Bankruptcy Code provides in relevant part that the right
of a lessor, conditional vendor, or holder of a security interest with respect
to 'equipment' (as defined in Section 1110) to take possession of such equipment
in compliance with the provisions of a lease, conditional sale contract or
security agreement, and to enforce any of its other rights under such lease,
conditional sale contract, or security agreement, is not affected by any other
provision of the Bankruptcy Code or by any power of the bankruptcy court. For
example, such right is not affected by:
129
the automatic stay provision of the Bankruptcy Code, which provision
enjoins repossessions by creditors for the duration of the reorganization
period;
the provision of the Bankruptcy Code allowing the trustee in reorganization
to use property of the debtor during the reorganization period; and
Section 1129 of the Bankruptcy Code (which governs the confirmation of
plans of reorganization in Chapter 11 cases).
Section 1110 of the Bankruptcy Code provides that the lessor's, conditional
vendor's, or secured party's right to take possession and to enforce its other
rights and remedies may not be exercised if, within 60 days following the date
of commencement of the reorganization proceedings (or such longer period
consented to by the lessor, conditional vendor or secured party), the debtor-
airline agrees to perform the debtor's obligations under the lease, conditional
sale contract, or security agreement that cures all existing defaults (other
than defaults resulting solely from the financial condition, bankruptcy,
insolvency or reorganization of the debtor). 'Equipment' is defined in
Section 1110, in part, as 'an aircraft, aircraft engine, propeller, appliance,
or spare part (as defined in section 40102 of title 49) that is subject to a
security interest granted by, leased to, or conditionally sold to a debtor that,
at the time such transaction is entered into, holds an air carrier operating
certificate pursuant to chapter 447 of title 49 for aircraft capable of carrying
10 or more individuals or 6,000 pounds or more of cargo,' and includes all
records and related documents that the lease, conditional sale contract, or
security agreement requires be returned or surrendered with the equipment.
It is a condition to the pass through trustees' obligation to purchase
secured promissory notes with respect to each aircraft that Troutman Sanders
LLP, special leveraged lease counsel to ATA, provide its opinion to the pass
through trustees that, if ATA were to become a debtor under Chapter 11 of the
Bankruptcy Code, that (a) if such aircraft is a leased aircraft, the Owner
Trustee, as lessor under the lease for such aircraft, and the related Loan
Trustee, as assignee of such Owner Trustee's rights under such lease pursuant to
the related Indenture, or (b) if such aircraft is an owned aircraft, the related
Loan Trustee, in either case, would be entitled to the benefits of Section 1110
with respect to the airframe and engines comprising the related aircraft. Each
such opinion may be subject to certain qualifications and assumptions, including
the assumptions that ATA is and will continue to be a citizen of the United
States holding an air carrier operating certificate issued by the Secretary of
Transportation pursuant to chapter 447 of Title 49 of the United States Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo. See ' -- The Leases -- Events of Loss.' Such opinions do not address the
possible replacement of an aircraft after an Event of Loss in the future
however, the consummation of such replacement is conditioned upon the
contemporaneous delivery of an opinion of counsel to the effect that the related
Loan Trustee will be entitled to Section 1110 benefits with respect to such
replacement unless there is a change in law or court interpretation that results
in Section 1110 not being available. See ' -- The Leases and Certain Provisions
of the Owned Aircraft Indentures -- Events of Loss.' Such counsel's opinions
also do not address the availability of Section 1110 of the Bankruptcy Code with
respect to the bankruptcy proceedings of any possible sublessee of a leased
aircraft it is subleased by ATA, or to any possible lessee of an owned aircraft
if it is leased by ATA. For a description of certain limitations on the Loan
Trustee's exercise of rights contained in the Indenture, see ' -- Indenture
Defaults, Notice and Waiver.'
During 1998, the U.S. District Court for the District of Colorado issued two
opinions, arising from the bankruptcy proceedings of Western Pacific Airlines,
Inc., relating to Section 1110. The decisions held that, after an airline debtor
reaffirms its obligations and cures its defaults under an aircraft lease within
the prescribed period in accordance with Section 1110, the lessor under that
lease is not entitled to repossess the aircraft under Section 1110 if the
airline subsequently defaults under that lease. However, Section 1110 has since
been amended to supersede those decisions and those holdings no longer apply.
In a bankruptcy, insolvency, receivership or like proceedings involving an
Owner Participant, it is possible that, even though that the applicable leased
aircraft is owned by the related Owner
130
Trustee in trust, such leased aircraft and the related lease and secured
promissory notes might become part of such proceeding. In such event, payments
under such lease or on such secured promissory notes may be interrupted and the
ability of the related Loan Trustee to exercise its remedies under the related
Indenture might be restricted though such Loan Trustee would retain its status
as a secured creditor in respect of the related lease and the related leased
aircraft.
MODIFICATION OF INDENTURES AND LEASES
Without the consent of holders of a majority in principal amount of the
secured promissory notes outstanding under any Indenture, the provisions of such
Indenture and any related lease, Participation Agreement, or the Leased Aircraft
Trust Agreement may not be amended or modified, except to the extent indicated
below.
Certain provisions of any Leased Aircraft Indenture, and of the lease, the
Participation Agreement, and the Leased Aircraft Trust Agreement, may be amended
or modified by the parties to those agreements without the consent of the
relevant Loan Trustee or any holders of the secured promissory notes outstanding
under such Indenture, subject to certain conditions. In the case of each lease,
such provisions include, among others, provisions relating to (a) the return to
the related Owner Trustee of the related aircraft at the end of the term of such
lease and (b) the renewal of such lease and the option of ATA at the end of the
term of such lease to purchase the related aircraft. (Leased Aircraft
Indentures, Section 9.01; Owned Aircraft Indentures, Section 10.01)
Without the consent of the holder of each secured promissory note
outstanding under any Indenture affected thereby, no amendment of or supplement
to such Indenture may among other things (a) reduce the principal amount of, or
Make-Whole Amount if any, or interest payable on, any secured promissory notes
issued under such Indenture or change the date on which any principal or
Make-Whole Amount, if any, or interest is due and payable, (b) create any
security interest with respect to the property subject to the lien of such
Indenture, except as provided in such Indenture, or deprive any holder of a
secured promissory note issued under such Indenture of the benefit of the lien
of such Indenture upon the property subject to such Indenture or (c) reduce the
percentage in principal amount of outstanding secured promissory notes issued
under such Indenture necessary to modify or amend any provision of such
Indenture or to waive compliance with such Indenture. (Leased Aircraft
Indentures, Section 9.01(b); Owned Aircraft Indentures, Section 10.01(a))
INDEMNIFICATION
ATA will be required to indemnify each Loan Trustee, each Owner Participant,
each Owner Trustee, the Liquidity Provider, the Subordination Agent, the Escrow
Agent and each pass through trustee, but not the certificateholders, for certain
losses, claims and other matters. ATA is required under certain circumstances to
indemnify each Owner Participant against the loss of depreciation deductions and
certain other benefits allowable for certain income tax purposes with respect to
the related leased aircraft. Prior to seeking indemnification from the Indenture
Estate, the Loan Trustee will demand and take necessary action to pursue
indemnification under the Participation Agreement. Each Owner Trustee
indemnifies the Loan Trustee to the extent not reimbursed by ATA. If necessary,
the Loan Trustee is entitled to indemnification from the Indenture Estate for
any liability, obligation, loss, damage, penalty, claim or action to the extent
not reimbursed by ATA. The Loan Trustee is not indemnified, however, for actions
arising from its gross negligence, willful misconduct or, in the case of
handling funds, negligence, or for the inaccuracy of any representation or
warranty made in its individual capacity under the Indenture.
Each Owner Participant is required to indemnify the related Loan Trustee and
the holders of the secured promissory notes issued with respect to the leased
aircraft in which such Owner Participant has an interest for certain losses that
may be suffered as a result of the failure of such Owner Participant to
discharge certain liens or claims on or against the assets subject to the lien
of the related Indenture. The Loan Trustee is not under any obligation to take
any action, risk
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liability or expend its own funds under the Indenture if it has reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk is not reasonably assured to it.
THE AMTRAN GUARANTEE
Amtran irrevocably, fully and unconditionally guarantees the payment and
performance of all obligations of ATA as lessee under each lease and as obligor
under the secured promissory notes relating to the owned aircraft and as
mortgagor under the Owned Aircraft Indenture. If ATA fails to make a payment or
perform a nonfinancial obligation when due for any reason, including
liquidation, bankruptcy or reorganization, Amtran will make the payment and
perform any nonfinancial obligations. The Guarantee is an absolute, present and
continuing guarantee of performance and payment rather than mere collectibility,
and it is not contingent upon any attempt to collect payment from or file suit
against ATA.
THE LEASES AND CERTAIN PROVISIONS OF THE OWNED AIRCRAFT INDENTURES
Each leased aircraft is or will be leased by an Owner Trustee to ATA under
the relevant lease. Each owned aircraft will be owned by ATA.
LEASE TERMS AND RENTALS
ATA will lease each leased aircraft from an Owner Trustee for a term
commencing on the date that the related Owner Trustee acquires it and expiring
not earlier than the latest maturity date of the secured promissory notes issued
pursuant to the related Indenture. Basic Rent payments for each aircraft are
payable quarterly on each Lease Payment Date. Such payments, together with
certain other payments that ATA is obligated to make or cause to be made under
the related lease, have been assigned by the Owner Trustee under the related
Indenture to provide the funds necessary to make payments of principal and
interest due or expected to be due from the Owner Trustee on the secured
promissory notes issued under such Indenture and Liquidity Obligations under the
related Liquidity Facility. In certain cases, the Basic Rent payments under the
leases may be adjusted, but each lease provides that under no circumstances will
rent payments by ATA be less than the scheduled payments on the related secured
promissory notes. (Leases, Section 3.2.1) The balance of any such quarterly
Basic Rent payment and such other payments, after payment of amounts due or
expected to be due on the related secured promissory notes and certain other
amounts, including certain amounts owing to the Liquidity Provider, will be paid
over to the related Owner Trustee. (Leased Aircraft Indentures, Section 3.01)
ATA's obligations to pay rent and to make other payments under each lease
will be general unsecured obligations.
NET LEASE; MAINTENANCE
ATA's obligations in respect of each of the leased aircraft are those of a
lessee under a 'net lease.' Accordingly, ATA is obligated to cause the leased
aircraft under each lease to be duly registered in the name of the Owner
Trustee, to pay all costs of operating the leased aircraft and, at the expense
of ATA and to the extent set forth in such lease, to maintain, service, repair
and overhaul the leased aircraft in accordance with maintenance standards
required by, or substantially equivalent to those required by, the FAA or the
central civil aviation authority of Canada or Japan or the Joint Aviation
Authority (whose rules govern the central civil aviation authorities of France,
Germany, Japan, the Netherlands, and the United Kingdom, among others) for the
aircraft, so as to keep the leased aircraft in as good operating condition as
delivered to ATA, ordinary wear and tear excepted, and, in such condition as may
be necessary to enable the airworthiness certification of such leased aircraft
to be maintained at all times, except during temporary periods of storage in
accordance with applicable regulations during the conduct of maintenance and
modification procedures, or during periods when the airworthiness certificates
for other similar aircraft have been revoked or suspended. Except when a
sublease is in effect ATA agrees to use
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the same standards of maintenance, service, repair or overhaul used by ATA with
respect to similar aircraft operated by ATA in similar circumstances, and,
during any period that a sublease is in effect, cause the Sublessee thereunder
to agree to utilize the same standards of maintenance, service, repair or
overhaul as used by the Sublessee with respect to similar aircraft operated by
the Sublessee in similar circumstances. (Lease, Annex C, Section A) The Owned
Aircraft Indenture imposes comparable maintenance, service and repair
obligations on ATA with respect to the Owned Aircraft. (Owned Aircraft
Indentures, Sections 4.02 and 4.04)
ATA will also maintain, use, service, repair, overhaul and inspect any
leased aircraft in compliance with applicable laws with respect to the
maintenance of the aircraft and in compliance with each applicable airworthiness
certificate, license, and registration relating to the aircraft issued by a
relevant aviation authority, other than minor or nonrecurring violations with
respect to which corrective measures are taken upon discovery of the violation
and, except to the extent ATA (or any Sublessee) is in good faith contesting the
validity or application of any requirements, in any reasonable manner which,
among other things specified in each Lease, does not materially adversely affect
the Owner Trustee or the interests of the relevant Owner Participant, the
relevant Loan Trustee, or any Trustee or certificateholder. (Leases, Annex C,
Section A)
ATA must make (or cause to be made) all alterations and modifications in and
additions to each airframe and engine necessary to meet the applicable
requirements of the FAA or any other applicable aviation authority having
jurisdiction over the operation of the aircraft, except that ATA (or any
Sublessee) may contest the validity or application of any such requirements in
any reasonable manner which does not adversely affect the Owner Trustee or the
relevant Loan Trustee. ATA (or any Sublessee) may add further parts and make
other alterations, modifications and additions to any airframe or any engine as
ATA (or any Sublessee) may deem desirable, including removal of parts determined
by ATA (or any Sublessee) to be obsolete or no longer suitable or appropriate
for use, so long as such alterations, modifications or additions, do not
materially diminish the fair market value, utility or useful life of such
airframe or engine below its fair market value, utility or remaining useful life
immediately prior to such alteration, modification, addition or removal
(assuming such airframe or engine was in the condition required by the lease).
Title to parts incorporated or installed in or added to such airframe or engine
as a result of such alterations, modifications or additions vest in the Owner
Trustee subject to certain exceptions. In certain circumstances, ATA (or any
Sublessee) is permitted to remove parts which were added by ATA (or any
Sublessee) (without replacement) from an airframe or engine so long as certain
conditions are met and any such removal does not materially diminish the fair
market value, utility, or remaining useful life which such airframe or engine
would have had at such time had such addition, alteration or modification not
occurred. (Leases, Annex C, Section D)
Except as set forth above, ATA is obligated to replace or cause to be
replaced all parts (other than severable parts added at the option of ATA or
unsuitable parts that ATA is permitted to remove) that are incorporated or
installed in or attached to any airframe or any engine and become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use. Any such replacement parts become subject to
the related Lease and the lien of the related Leased Aircraft Indenture in lieu
of the part replaced. (Leases, Annex C, Section B)
REGISTRATION, SUBLEASING AND POSSESSION
Although ATA has no current intention to do so, ATA may, under certain
circumstances, register an aircraft in certain jurisdictions outside the United
States, subject to, among other conditions and limitations specified in each
Lease or Owned Aircraft Indenture, the lien of the related Indenture continuing
as a first priority security interest in the related aircraft and lease. ATA is
also permitted, subject to certain limitations, to sublease (or, in the case of
owned aircraft, lease) any aircraft to any United States certificated air
carrier or to certain foreign entities, and to certain airframe and engine
manufacturers or their affiliates, so long as the term of any such sublease does
not extend beyond the term of any lease applicable to such aircraft, subject to
certain exceptions. In addition, subject to certain limitations, ATA is
permitted to transfer
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possession of any airframe or any engine other than by lease or sublease,
including transfers of possession by ATA or any lessee or Sublessee in
connection with certain interchange and pooling arrangements, transfers to the
United States government and any instrumentality or agency thereof, and
transfers in connection with maintenance or modifications. (Lease, Section 7)
There are no general geographical restrictions on ATA's (or any lessee's or
Sublessee's) ability to operate the aircraft. The extent to which the relevant
Loan Trustee's lien would be recognized in an aircraft if such aircraft were
located in certain countries is uncertain. See 'Risk Factors -- Risk Factors
Relating to the Certificates.' The aircraft may be operated, registered or
leased outside of the United States, which may hinder the efforts of a loan
trustee to repossess an aircraft upon default under the relevant lease or Owned
Aircraft Indenture.
In addition, any exercise of the right to repossess an aircraft may be
difficult, expensive and time-consuming, particularly when such aircraft is
located outside the United States and has been registered in a foreign
jurisdiction or subleased to a foreign operator, and may be subject to the
limitations and requirements of applicable law, including the need to obtain
consents or approvals for deregistration or re-export of the aircraft, which may
be subject to delays and political risk. When a defaulting lessee or Sublessee
or other permitted transferee is the subject of a bankruptcy, insolvency or
similar event such as protective administration, additional limitations may
apply.
At the time of obtaining repossession of the aircraft under the related
lease or foreclosing on the lien on the aircraft under the related Indenture, an
airframe subject to such lease or Indenture may not be equipped with engines
subject to the same lease or Indenture and, in such case, ATA is required to
deliver engines attached to such airframe which have not less than equivalent
value, utility and remaining useful life (without regard to overhaul status) as
the engines subject to such lease or Indenture. Notwithstanding ATA's agreement
in each lease or Owned Aircraft Indenture, in the event ATA fails to transfer
title to engines not owned by the Owner Trustee, or fails to subject engines to
the Owned Aircraft Indenture, that are attached on repossessed aircraft, it
could be difficult, expensive and time-consuming to assemble an aircraft
consisting of an airframe and engines subject to the lease or Owned Aircraft
Indenture. See 'Risk Factors -- Risk Factors Relating to the Certificates.' The
aircraft may be operated, registered or leased outside of the United States,
which may hinder the efforts of a loan trustee to repossess an aircraft upon
default under the relevant lease or Owned Aircraft Indenture.
LIENS
ATA is required to maintain each aircraft free of any liens, other than the
respective rights of any Owner Trustee, as owner of the aircraft, and ATA, as
provided in the lease, the lien of the Indenture, and any other rights existing
pursuant to the Operative Documents related thereto, the rights of others in
possession of the aircraft in accordance with the terms of the lease (including
Sublessees) or Owned Aircraft Indenture (including lessees), and other than
certain other customary liens permitted under such documents, including liens
for taxes either not yet due or being contested in good faith, materialmen's,
mechanics', and other similar liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 60 days, or
are being contested in good faith by appropriate proceedings; judgment liens
discharged, vacated, stayed pending appeal or reversed within a period of
60 days as specified in each lease or Owned Aircraft Indenture, and any other
lien with respect to which ATA (or any Sublessee or lessee) has provided a bond,
cash collateral or other security adequate in the reasonable opinion of the
relevant Owner Trustee or Loan Trustee under an Owned Aircraft Indenture.
(Leases, Section 6; Owned Aircraft Indentures, Section 4.01)
INSURANCE
Subject to certain exceptions, ATA is obligated, at its expense (or at the
expense of a permitted lessee, in the case of the owned aircraft, or a permitted
Sublessee, in the case of a leased aircraft), to maintain or cause to be
maintained on each aircraft, with insurers of recognized responsibility,
passenger liability, property damage and contractual liability insurance and
all-risk aircraft hull insurance, in such amounts, covering such risks and in
such form as ATA customarily
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maintains with respect to other aircraft owned or operated by ATA, in each case
similar to such aircraft; provided, however, that, except to the extent of any
self-insurance, the all-risk hull insurance shall be at least in an amount equal
to the Stipulated Loss Value (as defined in each lease) of such aircraft.
(Leases, Annex D)
Subject to certain exceptions, the policies covering loss of or damage to an
aircraft shall be made payable, up to the Stipulated Loss Value for such
aircraft, to the related Loan Trustee for any loss involving proceeds in excess
of $5,000,000 and the entire amount of any loss involving proceeds of $5,000,000
(or such lower amount as may be specified under the relevant lease) or less
shall be paid to ATA, except that in the event an Owned Aircraft Indenture Event
of Default or a Lease Event of Default exists, all insurance proceeds will be
paid to the relevant Loan Trustee. (Leases, Annex D, Section B; Owned Aircraft
Indentures, Section 4.06)
With respect to required insurance, ATA (and any lessee or Sublessee) may
self-insure (a) to the extent that its self-insurance does not exceed, during
any policy year, with respect to all of the aircraft in ATA's fleet, the lesser
of (1) 50% of the largest replacement value of any single aircraft in ATA's
fleet, and (2) 1 1/2% of the average aggregate insurable value of all aircraft
on which ATA then carries insurance, or (b) if higher, to the extent of any
applicable deductible per aircraft that does not exceed industry standards for
major U.S. airlines. (Lease, Annex D, Section G)
In respect of each Aircraft, ATA is required to cause the relevant Owner
Trustee and Loan Trustee and certain other persons to be included as additional
insureds as their respective interests may appear under all insurance policies
required by the terms of each lease with respect to such aircraft. (Leases,
Annex D, Section D)
Subject to certain customary exceptions, ATA may not operate (or permit any
lessee or Sublessee to operate) any aircraft in any area that is excluded from
coverage by any insurance policy in effect with respect to such aircraft and
required by the lease. (Leases, Section 7.1.5)
ATA's obligation to provide any insurance required by each lease or Owned
Aircraft Indenture shall be satisfied if indemnification from, or insurance
provided by, the United States government or one of certain other permitted
foreign governments or any agency or instrumentality thereof, against the risks
requiring such insurance under such lease is at least equal, when added to the
amount of insurance against such risks otherwise maintained by ATA (or any
lessee or Sublessee), to the amount of insurance against such risks otherwise
required by such lease. (Leases, Section 11.3)
LEASE TERMINATION
ATA may terminate any lease on any Lease Payment Date occurring on or after
the fifth anniversary of the delivery date, if it determines that such leased
aircraft is obsolete or surplus to its needs and subject to certain other
limitations specified in such leases. Upon payment of the termination value for
such leased aircraft, which will be an amount at least equal to the outstanding
principal amount of the related secured promissory notes and an amount equal to
the Make-Whole Amount, if any, payable on such date of payment, together with
certain additional amounts and together with all accrued and unpaid interest
thereon, the lien of the relevant Indenture shall be released, the relevant
lease shall terminate, and the obligation of ATA thereafter to make scheduled
rent payments under such lease shall cease. (Leases, Section 9; Leased Aircraft
Indentures, Sections 2.10(b), 2.12 and 2.13)
RENEWAL AND PURCHASE OPTIONS
At the end of the term of each lease after final maturity of the related
secured promissory notes and subject to certain conditions, ATA may have certain
options to renew such lease for additional limited periods. In addition, ATA may
have the right at the end of the term of each lease to purchase the leased
aircraft subject thereto for an amount to be calculated in accordance with the
terms of such lease. (Leases, Section 17)
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ATA may also have the option to purchase the leased aircraft subject to each
lease on certain Rent Payment Dates for a purchase price calculated in
accordance with the provisions of the related lease, but which must be
sufficient to pay all principal of, Make-Whole Amount, if any, on and interest
on the related secured promissory notes in full and, upon payment thereof, ATA
shall acquire such aircraft free of the lien of the related Indenture. If ATA
buys the aircraft during the term pursuant to such a purchase option, ATA may
have the right to elect to assume the related secured promissory notes on a
fully-recourse basis, and thereby convert the leased aircraft to an owned
aircraft and the leveraged lease financing to a secured loan financing. To do
such an assumption transaction, ATA must (a) cause to be delivered to the Loan
Trustee an opinion of counsel that the pass through trusts will not be subject
to U.S. federal income tax as a result of such transaction, and (b) either
(i) cause to be delivered to the Loan Trustee an opinion of counsel that the
certificateholders will not recognize income, gain or loss for federal income
tax purposes as a result of such transaction and will be subject to federal
income tax in the same amounts, in the same manner and at the same time as would
have been the case if such transaction had not occurred, or (ii) cause to be
delivered to the Loan Trustee an opinion of counsel that such certificateholders
should not recognize income, gain or loss, and should be subject to federal
income tax, in each case, as referred to in clause (i) and also provide an
indemnification in favor of the certificateholders in form and substance
reasonably satisfactory to the pass through trustees. See 'Certain U.S. Federal
Income Tax Consequences -- Taxation of Certificateholders Generally' for a
discussion of certain tax consequences of such purchase and assumption under
current regulations. (Leases, Section 19; Indentures, Sections 2.10(b) and 2.11;
Participation Agreements, Section 8(x).) See ' -- Description of the Secured
Promissory Notes -- Redemption.'
EVENTS OF LOSS
If an Event of Loss occurs with respect to any aircraft, ATA is obligated
either (i) to replace such aircraft or (ii) to pay the applicable Stipulated
Loss Value to the related Owner Trustee (in the case of a leased aircraft) or
the outstanding principal and accrued interest on the secured promissory notes
to the Loan Trustee (in the case of the owned aircraft), together with certain
additional amounts. If ATA elects to replace such aircraft, it must do so no
later than 180 days after the related Event of Loss, with an airframe or
airframe and engines of the same or improved make and model free and clear of
all liens (other than certain permitted liens) and having a value, utility and
remaining useful life at least equal to such aircraft immediately prior to the
Event of Loss, assuming maintenance thereof in accordance with the relevant
lease or Owned Aircraft Indenture. If ATA elects to pay the Stipulated Loss
Value for such aircraft or (except if otherwise provided in the relevant lease)
elects to replace such aircraft but fails to do so within the time periods
specified therefor, ATA must make such payment not later than the 180th day
after the related Event of Loss. In the case of a leased aircraft, upon making
such payment, together with all other amounts then due under the related lease
with respect to such aircraft, which in all circumstances will be at least
sufficient to pay in full as of the date of payment the principal amount of the
related secured promissory notes and all accrued and unpaid interest due thereon
(but without any Make-Whole Amount), the lease for such aircraft shall terminate
and the obligation of ATA to make the scheduled Basic Rent payments with respect
thereto shall cease. (Leases, Sections 10; Indentures, Section 5.06) If an Event
of Loss occurs with respect to an engine alone, ATA is required to replace such
engine within 60 days from the date of such Event of Loss with another engine,
free and clear of all liens (other than permitted liens), of the same or
improved make and model (subject to certain exceptions) and having a value,
utility and remaining useful life at least equal to the engine being replaced
(assuming that such engine had been maintained in accordance with the lease).
(Leases, Section 10.2; Indentures, Section 5.06)
LEASE EVENTS OF DEFAULT
Although there may be differences among the leases, Lease Events of Default
generally include:
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failure by ATA or Amtran to pay any payment of Basic Rent or Stipulated
Loss Value under such lease within ten business days after it becomes due;
failure by ATA or Amtran to pay Supplemental Rent (other than Stipulated
Loss Value) within ten business days after ATA's receipt of written demand
therefor;
failure by ATA to perform any other covenant or agreement to be performed
by it under the leases for 30 days after ATA or Amtran receives written
notice of such failure; provided, that no such failure with respect to
covenants in such lease that are curable shall constitute a Lease Event of
Default so long as ATA is diligently proceeding to remedy such failure, and
such failure is remedied within 270 days of receipt of such notice;
any representation or warranty (other than tax representations and
warranties) made by ATA or Amtran under the Operative Documents or the
Guarantee is incorrect in any material respect when made and remains
unremedied for 30 days after notice to ATA or Amtran;
the occurrence of certain events of bankruptcy, reorganization or
insolvency of ATA or Amtran;
failure by ATA to carry and maintain (or cause to be carried and
maintained) insurance on or in respect of any aircraft in accordance with
the provisions of such lease; and
the Guarantee shall cease to be in full force and effect.
If a Lease Event of Default exists and the lease has been declared to be in
default, the Owner Trustee may, subject to certain limitations relating to
aircraft subject to the Civil Reserve Air Fleet Program, exercise one or more of
the remedies provided in the related lease, to the extent permitted by
applicable law. The listed remedies include the right to repossess and use or
operate such leased aircraft, to sell or release such leased aircraft free and
clear of ATA's rights and retain the proceeds and to require ATA to pay as
liquidated damages any accrued and unpaid Basic Rent plus an amount equal to the
excess of the Stipulated Loss Value of such leased aircraft over either (a) the
fair market sales value or fair market rental value of such Leased Aircraft (as
determined by independent appraisal) or (b) if such leased aircraft has been
sold, the net sale proceeds thereof. (Leases, Section 15)
THE PARTICIPATION AGREEMENT
INDEMNIFICATION
Subject to certain exceptions, ATA has agreed to indemnify each Owner
Participant, each Owner Trustee, each Liquidity Provider, the Subordination
Agent, the Escrow Agent, each of the pass through trustees and each of the Loan
Trustees, but not the holders of the certificates, for certain liabilities,
losses, fees and expenses and for certain other matters arising out of the
transactions described herein or relating to the aircraft. In addition, under
certain circumstances ATA is required to indemnify certain persons, but not the
holders of the certificates, against certain taxes, levies, duties, withholdings
and for certain other matters (but excluding, among other things, income and
capital gains taxes) relating to such transactions or the aircraft.
TRANSFER OF OWNER PARTICIPANT INTERESTS
Subject to certain restrictions, each Owner Participant may transfer its
interest in the related leased aircraft.
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EXCHANGE OFFER; REGISTRATION RIGHTS
ATA and each pass through trustee have agreed pursuant to a registration
rights agreement (the 'Registration Rights Agreement') with the Initial
Purchasers, for the benefit of the holders of the certificates, that ATA will,
at its cost, (a) not later than 90 days after the date of original issuance of
the certificates, file a registration statement (the 'Exchange Offer
Registration Statement') with the SEC with respect to a registered offer to
exchange each class of Outstanding Certificates for new certificates issued by
the same pass through trust (the 'Exchange Certificates') having terms
substantially identical in all material respects to the certificates (except
that the Exchange Certificates will not contain terms with respect to transfer
restrictions or interest rate increases as described below and the Exchange
Certificates will be available only in book-entry form) including having the
benefit of the Policy and (b) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act not later than 180 days after the date of original issuance of
the certificates. Upon the effectiveness of the Exchange Offer Registration
Statement, ATA will offer the Exchange Certificates in exchange for surrender of
the Outstanding Certificates (the 'Registered Exchange Offer').
ATA will keep the Registered Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date notice of
the Registered Exchange Offer is mailed to the holders of the Outstanding
Certificates. For each Outstanding Certificate surrendered to ATA pursuant to
the Registered Exchange Offer, the holder of such Outstanding Certificate will
receive an Exchange Certificate representing an ownership interest in the
property held by the trust equal to that of the surrendered certificate. The
pass through trustee issuing each Exchange Certificate will pass through
interest on the secured promissory notes held by that trustee, such interest
will have accrued from the last Regular Distribution Date on which interest was
paid on the secured promissory notes or, if no interest has been paid on such
secured promissory notes, from the date of its original issue.
We believe, based on existing SEC interpretations, that the Exchange
Certificates would be freely transferable by holders of the Outstanding
Certificates other than affiliates of ATA after the Registered Exchange Offer
without further registration under the Securities Act if the holder of the
Exchange Certificates represents:
that it is acquiring the Exchange Certificates in the ordinary course of
business;
that it has no arrangement or understanding with any person to participate
in the distribution of the Exchange Certificates; and
that it is not an affiliate of ATA, as such terms are interpreted by the
SEC,
provided that broker-dealers ('Participating Broker-Dealers') receiving Exchange
Certificates in the Registered Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Certificates. The SEC has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Certificates (other
than a resale of an unsold allotment from the original sale of the certificates)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, ATA is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Certificates.
A holder of certificates (other than certain specified holders) who wishes
to exchange such certificates for Exchange Certificates in the Registered
Exchange Offer will be required to represent:
that any Exchange Certificates to be received by it will be acquired in the
ordinary course of its business;
that at the time of the commencement of the Registered Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange
Certificates; and
138
that it is not an 'affiliate,' as defined in Rule 405 of the Securities
Act, of ATA or the pass through trustee or a broker-dealer tendering
certificates acquired directly from ATA or Amtran for its own account, or
if it is an affiliate, that is will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable.
In the event that (a) applicable interpretations of the staff of the SEC do
not permit ATA to effect such a Registered Exchange Offer, (b) for any other
reason the Exchange Offer Registration Statement is not declared effective
within 180 days after the date of the original issuance of the Outstanding
Certificates or the Registered Exchange Offer is not consummated within 210 days
after the original issuance of the Outstanding Certificates, (c) the Initial
Purchasers so request with respect to Outstanding Certificates not eligible to
be exchanged for Exchange Certificates in the Registered Exchange Offer or
(d) any holder of Outstanding Certificates (other than the Initial Purchasers)
is not eligible to participate in the Registered Exchange Offer, ATA will, at
its cost:
as promptly as practicable, file a shelf registration statement (the 'Shelf
Registration Statement') covering resales of the certificates or the
Exchange Certificates, as the case may be;
use its reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act; and
use its reasonable best efforts to keep the Shelf Registration Statement
continuously effective until two years after the original issuance of the
Outstanding Certificates or such shorter period ending when all of the
Outstanding Certificates have been sold or cease to be outstanding.
ATA will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Outstanding Certificates or the Exchange
Certificates, as the case may be. A holder selling such Outstanding Certificates
or Exchange Certificates pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations). In addition, each holder of such certificates or Exchange
Certificates will be required to deliver information to be used in connection
with the Shelf Registration Statement in order to have their certificates or
Exchange Certificates included in the Self Registration Statement.
In the event that neither an Exchange Offer Registration Statement nor a
Shelf Registration Statement has been declared effective by the Commission
(each, a 'Registration Event') on or prior to the 210th day after the date of
original issuance of the Outstanding Certificates, the interest rate per annum
borne by the secured promissory notes and the Deposits shall be increased by
0.50% from and including such 210th day to but excluding the earlier of (i) the
date on which the Registration Event occurs and (ii) the date on which there
cease to be any registrable certificates. In the event that the Shelf
Registration Statement ceases to be effective at any time during the period
specified by the Registration Rights Agreement for more than 60 days, whether or
not consecutive, during any 12-month period, the interest rate per annum borne
by the Equipment Notes and the Deposits shall be increased by 0.50% from the
61st day of the applicable 12-month period such Shelf Registration Statement
ceases to be effective until such time as the Shelf Registration Statement again
becomes effective (or, if earlier, the end of such period specified by the
Registration Rights Agreement).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the pass through
trustee.
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BOOK-ENTRY; DELIVERY AND FORM
Exchange Notes will be represented by one or more permanent global Notes in
definitive, fully registered form without interest coupons (each a 'Global
Note') and will be deposited with the Trustee as custodian for, and registered
in the name of a nominee of, DTC.
Ownership of beneficial interests in a Global Exchange Note will be limited
to persons who have accounts with DTC ('participants') or persons who hold
interests through participants. Ownership of beneficial interest in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Beneficial owners may hold their interests in
a Restricted Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. Neither
we, the Trustee nor any Paying Agent will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in such Global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
We expect that DTC will take any action permitted to be taken by a Holder of
Notes (including the presentation of Notes for exchange as described below) only
at the direction of one or more participants to whose account the DTC interests
in a Global Note is credited and only in respect of such portion of the
aggregate principal amount of Notes as to which such participant or participants
has or have given such direction. However, if there is an Event of Default under
the Notes, DTC will exchange the applicable Global Notes for Certificated Notes,
which it will distribute to its participants.
We understand that: DTC is a limited purpose trust company organized under
the laws of the State of New York, a 'banking organization' within the meaning
of New York Banking Law, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the Uniform Commercial Code and a 'Clearing
Agency' registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts or its participants, thereby
eliminating the need for physical movement of certificates and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
('indirect participants').
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Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither we nor the Trustee will
have any responsibility for the performance by DTC or its respective
participants or indirect participants of its obligations under the rules and
procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary of the
Global Notes and a successor depositary is not appointed by us within 90 days,
we will issue Certificated Notes.
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes the principal U.S. federal income tax
consequences to certificateholders of the purchase, ownership and disposition of
the certificates. Except as otherwise specified, the summary is addressed to
beneficial owners of certificates ('U.S. Certificateholders') that are citizens
or residents of the United States, corporations, partnerships or other entities
created or organized in or under the laws of the United States or any State, or
estates or trusts the income of which is subject to U.S. federal income taxation
regardless of its source ('U.S. Persons') that will hold the certificates as
capital assets. This summary does not address the tax treatment of U.S.
Certificateholders that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or commodities, tax-exempt entities,
holders that will hold certificates as part of a straddle or holders that have a
'functional currency' other than the U.S. Dollar, nor (except as expressly
provided herein) does it address the tax treatment of U.S. Certificateholders
that did not acquire Outstanding Certificates as part of the initial offering.
The summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to U.S. Certificateholders. This summary
does not describe any tax consequences arising under the laws of any State,
locality or taxing jurisdiction other than the United States.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. All of the foregoing are subject to change, which change could apply
retroactively. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE EXCHANGE OFFER
The exchange of an Outstanding Certificate by a U.S. Certificateholder for
an Exchange Certificate (as described above under 'Exchange Offer; Registration
Rights') will not constitute a taxable exchange. As a result, a U.S.
Certificateholder will not recognize taxable gain or loss upon receipt of an
Exchange Certificate. A U.S. Certificateholder's tax basis and holding period
for the related Deposits, secured promissory notes and any other assets held by
the corresponding trust will be the same as the tax basis and holding period for
such assets immediately prior to the exchange.
TAX STATUS OF THE TRUSTS
In the opinion of Cravath, Swaine & Moore, special tax counsel ('Tax
Counsel') to ATA, for U.S. federal income tax purposes, the arrangement
represented by the original and successor pass through trusts will be classified
as one or more grantor trusts (or as a partnership) and will not be classified
as an association or publicly traded partnership taxable as a corporation. The
original and successor pass through trusts will take the position for all tax
purposes that the pass through trusts will be classified as one or more grantor
trusts and that the Deposits are not assets of the respective pass through
trusts. Except as expressly provided otherwise, the following discussion assumes
this approach is correct.
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TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. Certificateholder will be treated as owning its pro rata undivided
interest in the relevant Deposits and each of the secured promissory notes, the
pass through trust's contractual rights and obligations under the Note Purchase
Agreement, and any other property held by the pass through trust. Accordingly,
each U.S. Certificateholder's share of interest paid on secured promissory notes
will be taxable as ordinary income, as it is paid or accrued, in accordance with
such U.S. Certificateholder's method of accounting for U.S. federal income tax
purposes, and a U.S. Certificateholder's share of premium, if any, paid on
redemption of a secured promissory note will be treated as capital gain. Any
amounts received by a Trust under a Liquidity Facility or the Insurance Policy
in order to make interest or principal payments will be treated for U.S. federal
income tax purposes as having the same characteristics as the payments they
replace.
It is possible that any Special Interest that becomes payable on the secured
promissory notes (as described above under 'Exchange Offer; Registration
Rights') is 'contingent' for U.S. federal income tax purposes. If so treated,
certain adverse U.S. federal income tax consequences could result. However, ATA
believes that these payments are not 'contingent' for this purpose (because they
are 'remote or incidental' under Treasury Regulations) and intends to treat the
payments accordingly.
It is not clear whether any Deposit Make-Whole Premium will be ordinary
income or capital gain. The Deposits will likely be subject to the original
issue discount and contingent payment rules. As a result, U.S. Certificateholder
will be required to include interest income from a Deposit using the accrual
method of accounting regardless of its normal method, and there may be a slight
deferral in the timing of income recognition as compared to holding a single
debt instrument with terms comparable to a certificate.
An Owner Participant's conveyance of its interest in an owner trust should
not constitute a taxable event to U.S. Certificateholders. However, if ATA were
to assume an Owner Trusts's obligations under the related secured promissory
notes upon a purchase of a Leased Aircraft by ATA, such assumption may be
treated for federal income tax purposes as a taxable exchange by U.S.
Certificateholders of the secured promissory notes for 'new' secured promissory
notes. A taxable exchange would result in the recognition of taxable gain (but
possibly not loss) equal to the difference between the U.S. Certificateholder's
adjusted basis in its interest in the secured promissory note and the amount
realized on such exchange (except to the extent attributable to accrued
interest, which would be taxable as interest income if not previously included
in income). For this purpose the amount realized (and the issue price of the
'new' secured promissory note) would be equal to the U.S. Certificateholder's
pro rata share of either (i) the fair market value of the respective secured
promissory note at such time (if certain conditions are at that time satisfied
concerning the availability of price quotes or sales data in respect of the
secured promissory notes) or (ii) the principal amount of the respective secured
promissory note (if such conditions are not satisfied). If, in a sale-leaseback
transaction, an Owner Trustee assumes ATA's obligations under secured promissory
notes issued for an owned aircraft, such assumption could also be treated for
federal income tax purposes as a taxable exchange by U.S. Certificateholders of
those notes for 'new' secured promissory notes as described above.
In the case of a subsequent purchaser of a certificate, the purchase price
for the certificate should be allocated among the relevant Deposits and the
assets held by the relevant pass through trust (including the secured promissory
notes and the rights and obligations under the Note Purchase Agreement with
respect to secured promissory notes not theretofore issued) in accordance with
their relative fair market values at the time of purchase. Any portion of the
purchase price allocable to the right and obligation under the Note Purchase
Agreement to acquire a secured promissory note should be included in the
purchaser's basis in its share of the secured promissory note when issued.
Although the matter is not entirely clear, in the case of a purchase after
initial issuance of the certificates but prior to the Delivery Period
Termination Date, if the purchase price reflects a 'negative value' associated
with the obligation to acquire a secured promissory note pursuant to the Note
Purchase Agreement being burdensome under conditions existing at the time of
purchase (e.g., as a result of the interest rate on the unissued secured
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promissory notes being below market at the time of purchase of a certificate),
such negative value probably would be added to such purchaser's basis in its
interest in the Deposits and the remaining assets of the pass through trust and
reduce such purchaser's basis in its share of the secured promissory notes when
issued. The preceding two sentences do not apply to purchases of certificates
following the Delivery Period Termination Date.
A U.S. Certificateholder who is treated as purchasing an interest in a
Deposit or a secured promissory note at a market discount (generally, at a cost
less than its remaining principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the 'market discount' rules of the Code. These
rules provide, in part, that gain on the sale or other disposition (including
principal payments and partial redemption) of a debt instrument with a term of
more than one year is treated as ordinary income to the extent of accrued but
unrecognized market discount. The market discount rules also provide for
deferral of interest deductions with respect to debt incurred to purchase or
carry a debt instrument that has market discount. A U.S. Certificateholder who
purchases an interest in a Deposit or a secured promissory note at a premium may
elect to amortize the premium as an offset to interest income on the Deposit or
secured promissory note under rules prescribed by the Code and Treasury
regulations promulgated under the Code.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of the
Code. Certain fees and expenses, including fees paid to the Trustee, the
Liquidity Provider and the Policy Provider, will be borne by parties other than
the Certificateholders. It is possible that such fees and expenses will be
treated as constructively received by the pass through trust, in which event a
U.S. Certificateholder will be required to include in income and will be
entitled to deduct its pro rata share of such fees and expenses. If a U.S.
Certificateholder is an individual, estate or trust, the deduction for such
holder's share of such fees or expenses will be allowed only to the extent that
all of such holder's miscellaneous itemized deductions, including such holder's
share of such fees and expenses, exceed 2% of such holder's adjusted gross
income. In addition, in the case of U.S. Certificateholders who are individuals,
certain otherwise allowable itemized deductions will be subject generally to
additional limitations on itemized deductions under the applicable provisions of
the Code.
If an original or successor pass through trust is classified as a
partnership (and not as a publicly traded partnership taxable as a corporation)
for U.S. federal income tax purposes, income or loss with respect to the assets
held by the pass through trust will be calculated at the pass through trust
level but the pass through trust itself will not be subject to U.S. federal
income tax. A U.S. Certificateholder would be required to report its share of
the pass through trust's items of income and deduction on its tax return for its
taxable year within which the pass through trust's taxable year (which should be
a calendar year) ends as well as income from its interest in the relevant
Deposits. A U.S. Certificateholder's basis in its interest in the pass through
trust would be equal to its purchase price therefor (including its share of any
funds withdrawn from the Depositary and used to purchase secured promissory
notes), plus its share of the pass through trust's net income, minus its share
of any net losses of the pass through trust, and minus the amount of any
distributions from the pass through trust. In the case of an original purchaser
of a certificate that is a calendar year taxpayer, income or loss generally
should be the same as it would be if the pass through trust were classified as a
grantor trust, except that income or loss would be reported on an accrual basis
even if the U.S. Certificateholder otherwise uses the cash method of accounting.
A subsequent purchaser generally would be subject to tax on the same basis as an
original holder with respect to its interest in the original or successor pass
through trust, but would not be subject to the market discount rules or the bond
premium rules during the duration of the original or successor pass through
trust.
EFFECT OF SUBORDINATION OF CLASS C CERTIFICATEHOLDERS
If the class C pass through trust (such pass through trust being the
'Subordinated Trust' and the related certificates being the 'Subordinated
Certificates') receives less than the full amount of the receipts of principal
or interest paid with respect to the secured promissory notes held by it
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(any shortfall in such receipts being the 'Shortfall Amount') because of the
subordination of the secured promissory notes held by such pass through trust
under the Intercreditor Agreement, the corresponding owners of beneficial
interests in the Subordinated Certificates (the 'Subordinated
Certificateholders') would probably be treated for federal income tax purposes
as if they had (1) received as distributions their full share of such receipts,
(2) paid over to the relevant preferred class of certificateholders an amount
equal to their share of such Shortfall Amount, and (3) retained the right to
reimbursement of such amounts to the extent of future amounts payable to such
Subordinated Certificateholders with respect to such Shortfall Amount.
Under this analysis, (1) Subordinated Certificateholders incurring a
Shortfall Amount would be required to include as current income any interest or
other income of the corresponding Subordinated Trust that was a component of the
Shortfall Amount, even though such amount was in fact paid to the relevant
preferred class of certificateholders, (2) a loss would only be allowed to such
Subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it became clear that funds
will not be available from any source to reimburse such loss), and
(3) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinated Certificateholders
because such amount was previously included in income. These results should not
significantly affect the inclusion of income for Subordinated Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinated Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method.
DISSOLUTION OF ORIGINAL PASS THROUGH TRUSTS AND FORMATION OF NEW PASS THROUGH
TRUSTS
The dissolution of an original pass through trust and distribution of
interests in the related successor pass through trust will not be a taxable
event to U.S. Certificateholders, who will continue to be treated as owing their
shares of the property transferred from the original pass through trust to the
successor pass through trust. The same result would apply if the original pass
through trust, the successor pass through trust, or both, were treated as
partnerships for U.S. federal income tax purposes.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a certificate or of a
certificate and an Escrow Receipt, a U.S. Certificateholder generally will
recognize capital gain or loss equal to the difference between the amount
realized on the disposition (other than any amount attributable to accrued
interest or market discount which will be taxable as ordinary income) and the
U.S. Certificateholder's adjusted tax basis in the related Deposits, secured
promissory notes and any other assets held by the corresponding Trust. A U.S.
Certificateholder's adjusted tax basis will equal the holder's cost for its
certificate and Escrow Receipt. Any gain or loss will be capital gain or loss if
the certificate (or the certificate and Escrow Receipt) was held as a capital
asset.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of principal
and interest on the Deposits and secured promissory notes to, or on behalf of,
any beneficial owner of a certificate that is not a U.S. Person (a 'Non-U.S.
Certificateholder') will not be subject to U.S. federal withholding tax;
provided, in the case of interest on the secured promissory notes, that
(i) such Non-U.S. certificateholder does not actually or constructively own 10%
or more of the total combined voting power of all classes of the stock of
Amtran, any Owner Participant or any transferee of any Owner Participant's
interest, (ii) such Non-U.S. certificateholder is not a controlled foreign
corporation for U.S. tax purposes that is related to Amtran, an Owner
Participant or any transferee of any Owner Participant's interest and
(iii) either (A) the Non-U.S. Certificateholder certifies, under penalties of
perjury, that it is not a U.S. Person and provides its name and address or
(B) a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
'financial institution')
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and holds the certificate certifies, under penalties of perjury, that such
statement has been received from the Non-U.S. Certificateholder by it or by
another financial institution and furnishes the payor with a copy thereof. While
Tax Counsel believes that the Deposit Make-Whole Premium should not be subject
to U.S. withholding tax, it is possible that such withholding tax would apply at
a rate of 30% or such lower rate as provided by an applicable tax treaty.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of an Escrow Receipt or a certificate or upon receipt of premium
paid on a secured promissory note by a Non-U.S. Certificateholder will not be
subject to U.S. federal income or withholding taxes if (i) such gain is not
effectively connected with a U.S. trade or business of the holder and (ii) in
the case of an individual, such holder is not present in the United States for
183 days or more in the taxable year of the sale, exchange, retirement or other
disposition or receipt.
If the Certificateholders were treated as members of a partnership, Tax
Counsel believes that the partnership would not be engaged in a U.S. trade or
business for U.S. federal income tax purposes. As a result, interest payable to
Non-U.S. Certificateholders would be eligible for the exemption from U.S.
federal withholding tax discussed above. However, if the partnership were
considered engaged in a U.S. trade or business, interest and premium payable to
Non-U.S. Certificateholders would be subject to U.S. federal withholding tax.
BACKUP WITHHOLDING
Payments made on the certificates and proceeds from the sale of certificates
will not be subject to a backup withholding tax of 31% unless, in general, the
Certificateholder fails to comply with certain reporting procedures or otherwise
fails to establish an exemption from such tax under applicable provisions of the
Code.
DELAWARE TAXES
The pass through trustee is a Delaware banking corporation with its
corporate trust office in Delaware. In the opinion of Richards, Layton & Finger,
counsel to the pass through trustee, under currently applicable law, assuming
that the pass through trusts will not be taxable as corporations, but, rather,
will be classified as grantor trusts under subpart E, Part I of Subchapter J,
Chapter 1, Subtitle A of, or as partnerships under, the Code, (i) the pass
through trusts will not be subject to any tax (including, without limitation,
net or gross income, tangible or intangible property, net worth, capital,
franchise or doing business tax), fee or other governmental charge under the
laws of the State of Delaware or any political subdivision thereof and
(ii) certificateholders that are not residents of or otherwise subject to tax in
Delaware will not be subject to any tax (including, without limitation, net or
gross income, tangible or intangible property, net worth, capital, franchise or
doing business tax), fee or other governmental charge under the laws of the
State of Delaware or any political subdivision thereof as a result of
purchasing, holding (including receiving payments with respect to) or selling a
certificate.
ERISA CONSIDERATIONS
IN GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), imposes certain requirements on employee benefit plans subject to
ERISA ('ERISA Plans') and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investment be made in
accordance with the documents governing the ERISA Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, 'Plans')) and
certain persons (referred to as 'parties in interest' or 'disqualified persons')
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having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a nonexempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR
Section 2510.3-101 (the 'Plan Asset Regulation') describing what constitutes the
assets of a Plan as a result of the Plan's investment in an entity for purposes
of ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a
Plan invests in a certificate, the Plan's assets would include both the
certificate and an undivided interest in each of the underlying assets of the
corresponding pass through trust, including the secured promissory notes held by
such pass through trust, unless it is established that equity participation in
the pass through trust by employee benefit plans (including Plans, certain plans
not subject to ERISA or the Code and entities whose underlying assets include
plan assets by reason of an employee benefit plan's investment in the entity) is
not 'significant' within the meaning of the Plan Asset Regulation. In that
regard, the extent to which there is equity participation in a particular pass
through trust on the part of employee benefit plans will not be monitored. If
the assets of a pass through trust were deemed to constitute the assets of a
Plan, transactions involving the assets of such pass through trust could be
subject to the prohibited transaction provisions of ERISA and Section 4975 of
the Code unless a statutory or administrative exemption were applicable to the
transaction. In addition, the pass through trustee could become a fiduciary of a
Plan that has invested in the certificates and there may be an improper
delegation by such Plan to the pass through trustee of the responsibility to
manage Plan assets. However, the duties of the pass through trustee under the
pass through trust are essentially custodial and ministerial in nature and it is
not expected that the pass through trustee will be required to exercise
discretion in the discharge of its responsibilities under the pass through trust
other than in limited circumstances such as upon a default on the secured
promissory notes.
The fiduciary of a Plan that proposes to purchase and hold any certificates
should consider whether, among other things, such purchase and holding may
involve the indirect extension of credit to a party in interest or a
disqualified person. Such a result could arise, for example, if an equity holder
in an Owner Trust (including an equity holder acquiring its interest after the
initial offering of Outstanding Certificates) were a party in interest or
disqualified person with respect to a Plan holding any certificates. In
addition, whether or not the assets of a pass through trust are deemed to be
Plan Assets under the Plan Asset Regulation, if certificates are purchased by a
Plan and certificates of a subordinate class are held by a party in interest or
a disqualified person with respect to such Plan, the exercise by the holder of
the subordinate class of certificates of its right to purchase the senior
classes of certificates upon the occurrence and during the continuation of a
Triggering Event could be considered to constitute a prohibited transaction
unless a statutory or administrative exemption were applicable.
Depending on the identity of the Plan fiduciary making the decision to
acquire or hold certificates on behalf of a Plan, Prohibited Transaction Class
Exemption ('PTCE') 91-38 (relating to investments by a bank collective
investment fund), PTCE 84-14 (relating to transactions effected by a 'qualified
professional asset manager' (a 'QPAM')), PTCE 95-60 (relating to investments by
an insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house professional asset manager (an 'INHAM')) or PTCE 90-1
(relating to investments by an insurance company pooled separate account)
(collectively, the 'Class Exemptions') could provide an exemption from the
prohibited transaction provisions of ERISA and Section 4975 of the Code. There
can be no assurance that any of these Class Exemptions or any other exemption
will be available with respect to any particular transaction involving the
certificates, and the conditions of each potentially applicable Class Exemption
must be reviewed by the fiduciary of a Plan in the context of a proposed
investment in a certificate. For example, fiduciaries of Plans intending to rely
upon PTCE 84-14 or PTCE 96-23 should note that these exemptions may not be
available if the person having discretion to appoint the QPAM or INHAM (for
example, the Plan Sponsor or one of its 'affiliates', as defined in PTCE 84-14
or PTCE 96-23, as applicable) is also (a) an owner of equity in an Owner Trust
(including an equity holder acquiring such equity after the initial offering of
certificates) or (b) a provider of services described in this prospectus.
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Governmental plans (as defined in section 3(32) of ERISA) and certain church
plans (as defined in section 3(33) of ERISA), while not subject to the fiduciary
responsibility provisions of ERISA or the provisions of Section 4975 of the
Code, may nevertheless be subject to state or other federal laws that are
substantially similar to the foregoing provisions of ERISA and the Code.
Fiduciaries of any such plans should consult with their counsel before
purchasing any certificates.
Any Plan fiduciary that proposes to cause a Plan to purchase any
certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
prohibited transaction provisions of Section 4975 of the Code to such an
investment and to confirm that such purchase and holding will not constitute or
result in a nonexempt prohibited transaction or any other violation of an
applicable requirement of ERISA.
CLASS G CERTIFICATES
In addition to the Class Exemptions the Department of Labor has issued an
individual administrative exemption to Salomon Smith Barney Inc. (the
'Underwriter Exemption'), which generally exempts from the application of
certain, but not all, of the prohibited transaction provisions of Section 406 of
ERISA and Section 4975 of the Code certain transactions relating to the initial
purchase, holding and subsequent secondary market sale of pass-through
certificates which represent an interest in a trust, the assets of which include
qualifying assets, such as promissory notes secured by leases, provided that
certain conditions set forth in the Underwriter Exemption are satisfied. The
Underwriter Exemption might apply to the class G certificates but will not apply
to the class C certificates.
The Underwriter Exemption sets forth a number of general and specific
conditions which must be satisfied for a transaction involving the initial
purchase, holding or secondary market sale of class G certificates to be
eligible for exemptive relief thereunder. In particular, the acquisition of
class G certificates by a Plan must be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party; the rights and interests evidenced by the certificates must not be
subordinated to the rights and interests evidenced by other certificates of the
same trust estate; the certificates at the time of acquisition by the Plan must
be rated in one of the three highest generic rating categories by Moody's,
Standard & Poor's, Duff & Phelps Inc. or Fitch Investors Service, Inc.; and the
investing Plan must be an 'accredited investor' as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
In addition, the trust corpus generally must be invested in qualifying
receivables, such as the secured promissory notes but may not, in general,
include a pre-funding account (except for a limited amount of pre-funding which
is invested in qualifying receivables within a limited period of time not to
exceed three months following the closing).
It is not clear whether the investment restrictions set forth in the
Underwriter Exemption will be satisfied with respect to the original and
successor pass through trusts, and thus no assurance can be given that the
Underwriter Exemption will apply to the class G certificates. The Underwriter
Exemption might apply because an investment in a certificate will evidence both
an interest in the respective Original Trust and an interest in the Deposits
held in escrow by an Escrow Agent for the benefit of the certificateholder.
Under the terms of the Escrow Agreement, the proceeds from the offering of the
certificates of each class will be paid over by the Underwriters to the
Depositary on behalf of the Escrow Agent (for the benefit of such
certificateholders as the holders of the Escrow Receipts) and will not
constitute property of the Original Trusts. Under the terms of each Escrow
Agreement, the Escrow Agent will be irrevocably instructed to enter into the
Deposit Agreements with the Depositary and to effect withdrawals upon the
receipt of appropriate notice from the relevant pass through trustee so as to
enable such pass through trustee to purchase the identified secured promissory
notes on the terms and conditions set forth in the Note Purchase Agreement.
Interest on the Deposits relating to each pass through trust will be paid to the
certificateholders of such pass through trust as Receiptholders through a Paying
Agent appointed by the Escrow Agent. Pending satisfaction of
147
such conditions and withdrawal of such Deposits, the Escrow Agent's rights with
respect to the Deposits will remain plan assets subject to the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Code.
On the other hand, the Department of Labor might assert that the Underwriter
Exemption is inapplicable because the escrow arrangement is tantamount to an
impermissible pre-funding account.
Even if all of the conditions of the Underwriter Exemption are satisfied
with respect to the class G certificates, no assurance can be given that the
Underwriter Exemption would apply with respect to all transactions involving the
class G certificates or the assets of the class G pass through trust. In
particular, it appears that the Underwriter Exemption would not apply to the
purchase by class C certificateholders of class G certificates in connection
with the exercise of their rights upon the occurrence and during the continuance
of a Triggering Event. Therefore, the fiduciary of a Plan considering the
purchase of a class G certificate should consider the availability of the
exemptive relief provided by the Underwriter Exemption, as well as the
availability of any other exemptions, such as the Class Exemptions, with respect
to transactions to which the Underwriter Exemption may not apply.
REQUIRED REPRESENTATION
Each person who acquires or accepts a certificate or an interest therein
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to purchase such
certificate or an interest therein or (ii) the purchase and holding of such
certificate or interest therein by the particular Plan will not result in a
nonexempt prohibited transaction because of the applicability of one or more
statutory or administrative prohibited transaction exemptions under ERISA and
the Code (such as a Class Exemption). In addition, each fiduciary of a Plan
purchasing or holding a certificate, or an interest therein, will be deemed, by
virtue of such purchase or holding, to have appointed each person providing
services described herein to their respective positions and to have authorized
and approved each of the transactions described herein.
EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH PLAN
SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON PLANS UNDER ERISA) SHOULD CONSULT
WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY OF THE CERTIFICATES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those Exchange Notes. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for the Outstanding Notes
where such Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the date of this Prospectus
and ending on the close of business on the earlier to occur of (i) the date on
which all Exchange Notes held by broker-dealers eligible to use the Prospectus
to satisfy their prospectus delivery obligations under the Securities Act have
been sold and (ii) the date 180 days after the completion of the Exchange Offer,
we will make this Prospectus, as amended or supplemented, available to any
broker-dealer that requests such documents in the Letter of Transmittal for use
in connection with any such resale.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
in the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the Exchange Notes or a combination of those methods of resale, at
market prices prevailing at the time of resale, at prices related to prevailing
market prices or at negotiated prices. Any resale of this kind may be made
directly to purchasers
148
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from the broker-dealer or the purchasers of the
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account in the exchange offer and any broker or dealer that
participates in a distribution of these Exchange Notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit on the
resale of Exchange Notes, and any commission or concessions received by any
persons, may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a Prospectus, a broker-dealer will not be deemed to admit that it
is an 'underwriter' within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the certificates offered hereby and the related Guarantee
will be passed upon for ATA and Amtran by Troutman Sanders LLP, Atlanta,
Georgia. The validity of the certificates will also be passed upon by Brian T.
Hunt, General Counsel of Amtran. Certain federal income tax matters with respect
to the pass through trusts and certificateholders will be passed upon by
Cravath, Swaine & Moore, special tax counsel to ATA and Amtran. William P.
Rogers, Jr., a partner at Cravath, Swaine & Moore, is a director of Amtran and
beneficially owns 4,500 shares of common stock of Amtran and options to purchase
4,000 shares of such common stock. From time to time, Milbank, Tweed, Hadley &
McCloy LLP renders legal services to Citibank, N.A., and its affiliates and is
acting as Citibank, N.A.'s counsel in connection with the Liquidity Facilities
to be executed and delivered by Citibank, N.A.
EXPERTS
The consolidated financial statements of Amtran, Inc., at December 31, 1999
and 1998, and for each of the three years in the period ended December 31, 1999,
appearing in and also incorporated by reference in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere and
incorporated by reference herein, and are included in reliance upon such report
given on the authority of such firm experts in accounting and auditing.
The consolidated financial statements of Ambac Assurance Corporation, Inc.,
and its subsidiaries as of December 31, 1999 and December 31, 1998, and for each
of the years in the three-year period ended December 31, 1999, are incorporated
by reference in this prospectus, in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference in this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.
The references to AISI, MBA and SH&E, and to their respective appraisal
reports, dated as of December 31, 1999 in the case of AISI, January 18, 2000 in
the case of MBA and January 28, 2000 in the case of SH&E, are included herein in
reliance upon the authority of each such firm as an expert with respect to the
matters contained in its appraisal report.
149
AMTRAN, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Audited Financial Statements:
Report of Independent Auditors.......................... F-2
Consolidated Balance Sheets at December 31, 1999 and
1998................................................... F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997................. F-4
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1999, 1998 and
1997................................................... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997................. F-6
Notes to Consolidated Financial Statements.............. F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1999 and 2000... F-20
Consolidated Statements of Operations for the Six-month
Periods ended June 30, 1999 and 2000................... F-21
Consolidated Statements of Cash Flows for the six-month
Periods ended June 30, 1999 and 2000................... F-22
Notes to Consolidated Financial Statements.............. F-23
F-1
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, 1999 and 1998, 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, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 27, 2000
F-2
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1998 1999
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 172,936 $ 120,164
Receivables, net of allowance for doubtful accounts
(1999 -- $1,511; 1998 -- $1,163)...................... 24,921 52,099
Inventories, net........................................ 19,567 36,686
Prepaid expenses and other current assets............... 25,604 22,945
--------- ---------
Total current assets................................ 243,028 231,894
Property and equipment:
Flight equipment........................................ 557,302 781,171
Facilities and ground equipment......................... 68,848 92,060
--------- ---------
626,150 873,231
Accumulated depreciation................................ (296,818) (361,399)
--------- ---------
329,332 511,832
Assets held for sale........................................ 7,176 --
Goodwill.................................................... -- 23,453
Deposits and other assets................................... 15,013 48,102
--------- ---------
Total assets........................................ $ 594,549 $ 815,281
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................... $ 1,476 $ 2,079
Accounts payable........................................ 7,158 20,234
Air traffic liabilities................................. 76,662 93,507
Accrued expenses........................................ 98,548 126,180
--------- ---------
Total current liabilities........................... 183,844 242,000
Long-term debt, less current maturities..................... 245,195 345,792
Deferred income taxes....................................... 52,620 58,493
Other deferred items........................................ 10,139 17,620
Commitments and contingencies
Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none
issued................................................ -- --
Common stock, without par value; authorized 30,000,000
shares; issued 12,884,306 -- 1999;
12,374,577 -- 1998.................................... 47,632 55,826
Treasury stock; 612,052 shares -- 1999; 193,506
shares -- 1998........................................ (1,881) (10,500)
Additional paid-in-capital.............................. 11,735 12,910
Retained earnings....................................... 46,331 93,673
Deferred compensation -- ESOP........................... (1,066) (533)
--------- ---------
102,751 151,376
--------- ---------
Total liabilities and shareholders' equity.......... $ 594,549 $ 815,281
--------- ---------
--------- ---------
See accompanying notes.
F-3
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Scheduled service................................. $ 371,762 $ 511,254 $ 624,647
Charter........................................... 359,177 344,482 389,979
Ground package.................................... 22,317 23,186 58,173
Other............................................. 29,937 40,447 49,567
----------- ----------- -----------
Total operating revenues...................... $ 783,193 $ 919,369 $ 1,122,366
----------- ----------- -----------
----------- ----------- -----------
Operating expenses:
Salaries, wages and benefits...................... 172,499 211,304 252,595
Fuel and oil...................................... 153,701 137,401 170,916
Depreciation and amortization..................... 62,468 78,665 96,038
Handling, landing and navigation fees............. 69,383 74,640 89,302
Aircraft rentals.................................. 54,441 53,128 58,653
Aircraft maintenance, materials and repairs....... 51,465 53,655 55,645
Crew and other employee travel.................... 36,596 41,565 49,707
Ground package cost............................... 19,230 19,466 49,032
Passenger service................................. 32,812 34,031 39,231
Commissions....................................... 26,102 28,483 39,050
Other selling expenses............................ 15,462 22,147 28,099
Advertising....................................... 12,658 17,772 18,597
Facilities and other rentals...................... 8,557 9,536 13,318
Other............................................. 54,335 62,203 72,156
----------- ----------- -----------
Total operating expenses...................... $ 769,709 $ 843,996 $ 1,032,339
----------- ----------- -----------
----------- ----------- -----------
Operating income...................................... 13,484 75,373 90,027
Other income (expense):
Interest income................................... 1,584 4,433 5,375
Interest expense.................................. (9,454) (12,808) (20,966)
Other............................................. 413 212 3,361
----------- ----------- -----------
Other expenses........................................ (7,457) (8,163) (12,230)
----------- ----------- -----------
Income before income taxes............................ 6,027 67,210 77,797
Income taxes.......................................... 4,455 27,129 30,455
----------- ----------- -----------
Net income............................................ $ 1,572 $ 40,081 $ 47,342
----------- ----------- -----------
----------- ----------- -----------
Basic earnings per common share:
Average shares outstanding........................ 11,577,727 11,739,106 12,269,474
Net income per share.............................. $0.14 $3.41 $3.86
----- ----- -----
----- ----- -----
Diluted earnings per common share:
Average shares outstanding........................ 11,673,330 13,066,222 13,469,537
Net income per share.............................. $0.13 $3.07 $3.51
----- ----- -----
----- ----- -----
See accompanying notes.
F-4
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ADDITIONAL DEFERRED
COMMON TREASURY PAID-IN RETAINED COMPENSATION
STOCK STOCK CAPITAL EARNINGS ESOP
----- ----- ------- -------- ----
(DOLLARS IN THOUSANDS)
Balance, December 31, 1996................ $38,341 $ (1,760) $15,618 $ 4,678 $(2,133)
Net income............................ -- -- -- 1,572 --
Issuance of common stock for ESOP..... -- -- (214) -- 533
Restricted stock grants............... 419 -- (185) -- --
Executive stock options expired....... -- -- 121 -- --
------- -------- ------- ------- -------
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................ 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................ $55,826 $(10,500) $12,910 $93,673 $ (533)
------- -------- ------- ------- -------
------- -------- ------- ------- -------
See accompanying notes.
F-5
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Operating activities:
Net income.............................................. $ 1,572 $ 40,081 $ 47,342
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 62,468 78,665 96,038
Deferred income taxes............................... 11,244 21,160 5,873
Other non-cash items................................ (666) 1,708 14,463
Changes in operating assets and liabilities:
Receivables......................................... (3,027) (1,655) (21,197)
Inventories......................................... (1,637) (4,356) (18,746)
Assets held for sale................................ 5,356 -- --
Prepaid expenses.................................... (6,321) (4,712) 7,484
Accounts payable.................................... (3,160) (3,353) 10,684
Air traffic liabilities............................. 18,655 8,108 (2,465)
Accrued expenses.................................... 15,452 16,166 20,087
--------- --------- ---------
Net cash provided by operating activities....... 99,936 151,812 159,563
--------- --------- ---------
Investing activities:
Proceeds from sales of property and equipment........... 8,005 37,061 264
Capital expenditures.................................... (84,233) (175,417) (274,300)
Acquisition of businesses, net of cash acquired......... -- -- 16,673
Reductions of (additions to) other assets............... 173 (3,996) (48,355)
--------- --------- ---------
Net cash used in investing activities........... (76,055) (142,352) (305,718)
Financing activities:
Payments on short-term debt............................. -- (4,750) --
Proceeds from long-term debt............................ 134,000 131,000 99,902
Payments on long-term debt.............................. (127,067) (71,485) (1,590)
Proceeds from stock option exercises.................... -- 4,636 3,690
Purchase of treasury stock.............................. -- (121) (8,619)
--------- --------- ---------
Net cash provided by financing activities....... 6,933 59,280 93,383
--------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 30,814 68,740 (52,772)
Cash and cash equivalents, beginning of period.............. 73,382 104,196 172,936
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 104,196 $ 172,936 $ 120,164
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures:
Cash payments for:
Interest............................................ $ 6,197 $ 14,685 $ 24,411
Income taxes (refunds).............................. (311) 7,897 11,910
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital
expenditures...................................... $ 30,650 $ -- $ 2,416
Issuance of short-term debt directly for capital
expenditures...................................... 4,750 -- 313
See accompanying notes.
F-6
AMTRAN, INC. AND SUBSIDIARIES
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).
ASSETS HELD FOR SALE
Assets held for sale are carried at the lower of net book value or estimated
net realizable value.
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, 1999 and 1998, was $10.3 million and $8.4 million,
respectively. Inventories are charged to expense when consumed.
REVENUE RECOGNITION
Revenues are recognized when the transportation is 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.
F-7
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999 and 1998, the Company had made advanced payments for future
aircraft deliveries totaling $20.4 million and $13.0 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 Note 11)
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 Note 11)
Boeing 757-200 20 years
Major rotable parts, avionics and assemblies Life of equipment to which applicable
(Generally from 6-16 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.
During 1998, the Company began entering into fuel hedge contracts to reduce
the risk of fuel price increases. The Company hedged fuel consumption under both
swap agreements, which establish specific swap prices for designated periods,
and fuel cap agreements, which guarantee a maximum price per gallon for
designated periods. When the market fuel price remains below that established in
hedge contracts, the Company records the cost of the fuel hedge contract as a
component of fuel expense in the period the fuel is consumed. There were no
significant fuel hedges during 1999.
F-8
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
DECEMBER 31,
-------------------
1998 1999
---- ----
(IN THOUSANDS)
Cash........................................................ $ 7,389 $ 19,831
Commercial paper............................................ 161,285 99,948
U.S. Treasury repurchase agreements......................... 4,262 385
-------- --------
$172,936 $120,164
-------- --------
-------- --------
3. PROPERTY AND EQUIPMENT
The Company's property and equipment consist of the following:
DECEMBER 31,
-------------------
1998 1999
---- ----
(IN THOUSANDS)
Flight equipment, including airframes, engines and other.... $557,302 $781,171
Less accumulated depreciation............................... 258,025 313,090
-------- --------
299,277 468,081
-------- --------
Facilities and ground equipment............................. 68,848 92,060
Less accumulated depreciation............................... 38,793 48,309
-------- --------
30,055 43,751
-------- --------
$329,332 $511,832
-------- --------
-------- --------
4. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------
1998 1999
---- ----
(IN THOUSANDS)
Unsecured Senior Notes, fixed-rate of 10.5%, payable in
August 2004.......................................... $100,000 $175,000
Unsecured Senior Notes, fixed-rate of 9.625%, payable in
December 2005........................................ 125,000 125,000
City of Chicago variable-rate special facility revenue
bonds, payable in January 2029....................... -- 16,960
City of Indianapolis advance, payable in June 2001...... 10,000 10,000
Note payable to institutional lender; fixed-rate of 8.30%
payable in varying installments through June 2014.... -- 7,886
City of Chicago variable-rate special facility revenue
bonds, payable in December 2020...................... 6,000 6,000
Other....................................................... 5,671 7,025
-------- --------
246,671 347,871
Less current maturities..................................... 1,476 2,079
-------- --------
$245,195 $345,792
-------- --------
-------- --------
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 will be used to finance
F-9
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs related to designing, constructing, equipping and installing a Federal
Inspection Service facility at Chicago-Midway Airport.
In June 1999, the Company obtained an $8.0 million, 15-year mortgage loan 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 1998, the Company sold $125.0 million principal amount of
unsecured senior notes. Interest is payable on June 15 and December 15 of each
year. The Company may redeem the notes, in whole or in part, at anytime 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 has 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 727-200ADV aircraft, engines,
engine hushkits and spare parts.
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 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. At any time prior to August 1, 2000, the Company
may redeem 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 remains 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. The Company plans to use the net proceeds for general business
purposes.
In 1998, the Company maintained a $5.0 million revolving credit facility
available for its short-term borrowing needs and for issuance of letters of
credit. The credit facility was available until January 1999 and was
collateralized by certain aircraft engines. At December 31, 1998, the Company
had outstanding letters of credit aggregating $3.8 million under such facility.
This facility was terminated in January 1999.
In January 1999, the Company revised its 1998 revolving bank credit facility
to provide a maximum of $75.0 million, including up to $25.0 million for
stand-by letters of credit, as compared to a maximum of $50.0 million, including
up to $25.0 million for stand-by letters of credit in 1998. 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. As of December 31,1999, the borrowing base was 75% of the total
Boeing 727-200 aircraft value and 63% of the total Lockheed L-1011-50
F-10
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and L-1011-100 aircraft and engine values. Borrowings under the facility bear
interest, at the option of ATA, at either LIBOR plus 1.25% to 2.5% or the agent
bank's prime rate.
In December 1999, the Company revised the revolving bank credit facility to
provide a maximum of $100.0 million, including up to $50.0 million for stand-by
letters of credit. The terms and conditions remained substantially the same, and
the new facility is subject to similar restrictive covenants as were effective
under the prior facility.
The unsecured notes and credit facilities 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 certain
financial ratios to be maintained.
Future maturities of long-term debt are as follows:
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
2000............................................... $ 2,079
2001............................................... 12,025
2002............................................... 1,894
2003............................................... 1,371
2004............................................... 176,191
Thereafter......................................... 154,311
--------
$347,871
--------
--------
Interest capitalized in connection with long-term asset purchase agreements
and construction projects was $3.9 million and $2.0 million, respectively, in
1999 and 1998.
5. LEASE COMMITMENTS
At December 31, 1999, the Company had aircraft leases on one Lockheed
L-1011-100, 14 Boeing 727-200s and 11 Boeing 757-200s. The Lockheed L-1011-100
has an initial term of 60 months which expires in 2003. The Boeing 757-200s have
initial lease terms which expire from 2001 through 2019. The Boeing 727-200s
have initial lease terms of three to seven years and expire between 2000 and
2003. The Company also leases three engines for use on the Lockheed L-1011-500s
and four engines for use on the Boeing 757-200s. The L-1011-500 engine leases
expire in 2006 and the 757-200 leases expire from 2008 through 2011. All
aircraft leases are accounted for as operating leases.
The Company is responsible for all maintenance costs on these aircraft and
engines and must meet specified airframe and engine return conditions.
As of December 31, 1999, 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 32 years and expire at various dates
through 2028. 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 City of Indianapolis
under a capital lease agreement which expires in December 2002. The agreement
has an option to extend for two years. The Company is responsible for
maintenance, taxes, insurance and other expenses incidental to the operation of
the facilities.
F-11
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments at December 31, 1999, for noncancellable
operating leases with initial terms of more than one year are as follows:
FACILITIES
FLIGHT AND GROUND
EQUIPMENT EQUIPMENT TOTAL
--------- --------- -----
(IN THOUSANDS)
2000............................................... $ 63,621 $ 7,915 $ 71,536
2001............................................... 59,423 5,966 65,389
2002............................................... 51,187 6,056 57,243
2003............................................... 45,457 4,848 50,305
2004............................................... 44,594 6,629 51,223
Thereafter......................................... 429,847 32,610 462,457
-------- ------- --------
$694,129 $64,024 $758,153
-------- ------- --------
-------- ------- --------
Rental expense for all operating leases in 1999, 1998 and 1997 was $72.0
million, $62.7 million and $63.0 million, respectively.
6. INCOME TAXES
The provision for income tax expense consisted of the following:
DECEMBER 31,
--------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
Federal:
Current............................................... $ 173 $ 6,403 $15,339
Deferred.............................................. 3,706 18,102 10,889
------ ------- -------
3,879 24,505 26,228
State:
Current............................................... 163 686 1,284
Deferred.............................................. 413 1,938 2,943
------ ------- -------
576 2,624 4,227
------ ------- -------
Income tax expense........................................ $4,455 $27,129 $30,455
------ ------- -------
------ ------- -------
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,
--------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
Federal income taxes at statutory rate.................... $2,049 $23,523 $27,175
State income taxes, net of federal benefit................ 367 1,711 1,997
Non-deductible expenses................................... 1,947 1,234 1,578
Other, net................................................ 92 661 (295)
------ ------- -------
Income tax expense........................................ $4,455 $27,129 $30,455
------ ------- -------
------ ------- -------
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
F-12
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-----------------
1998 1999
---- ----
(IN THOUSANDS)
Deferred tax liabilities:
Tax depreciation in excess of book depreciation......... $76,560 $84,505
Other taxable temporary differences..................... 502 474
------- -------
Deferred tax liabilities............................ 77,062 84,979
------- -------
Deferred tax assets:
Tax benefit of net operating loss carryforwards......... 18,102 270
Alternative minimum tax and other tax credit
carryforwards......................................... 8,726 18,611
Vacation pay accrual.................................... 3,225 3,839
Amortization of lease credits........................... 1,964 1,897
Deferred gain on sale of fixed assets................... 966 3,411
Other deductible temporary differences.................. 2,336 2,565
------- -------
Deferred tax assets................................. 35,319 30,593
------- -------
Deferred taxes classified as:
Current asset........................................... $10,877 $ 4,107
------- -------
------- -------
Non-current liability................................... $52,620 $58,493
------- -------
------- -------
At December 31, 1999, for federal tax reporting purposes, the Company had
approximately $0.7 million of net operating loss carry forward available to
offset future federal taxable income and $18.6 million of alternative minimum
tax and other tax credit carryforwards available to offset future federal tax
liabilities. The net operating loss carry forward of $0.7 million expires in
2009. The alternative minimum tax and other tax credit carryforwards of $18.6
million 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 45.0% in 1999, 40.0% in 1998, and 35.0% in 1997, of the amount
contributed by each participant up to the first six percent of eligible
compensation. Company matching contributions expensed in 1999, 1998 and 1997
were $3.1 million, $2.3 million and $1.8 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. The
Company recognized $0.7 million, $0.7 million and $0.3 million in 1999, 1998 and
1997, respectively, as compensation expense related to the ESOP. Shares of
common stock held by the ESOP are allocated to participating employees annually
as part of the Company's 401(k) savings plan contribution. The fair value of the
shares allocated during the year is recognized as compensation expense.
8. SHAREHOLDERS' EQUITY
In the first quarter of 1994, the Board of Directors approved the repurchase
of up to 250,000 shares of the Company's common stock. In the second quarter of
1999, the Board of Directors
F-13
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approved the repurchase of up to 600,000 additional shares of the Company's
common stock. A total of 612,052 shares had been repurchased at a cost of $10.5
million as of December 31, 1999.
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. 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:
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at December 31, 1996..................... 1,629,900 $ 8.74
--------- ------
Granted.......................................... 1,588,500 8.49
Canceled......................................... (706,000) 7.14
--------- ------
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
--------- ------
--------- ------
Options exercisable at December 31, 1998............. 755,075 $10.13
--------- ------
--------- ------
Options exercisable at December 31, 1999............. 1,077,554 $10.04
--------- ------
--------- ------
During 1996, the Company adopted the disclosure provisions of FASB Statement
No. 123 'Accounting for Stock-Based Compensation' (SFAS No. 123) with respect to
its stock options. As permitted by SFAS No. 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 1999 and 1998 is
estimated at $9.67 and $5.12 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 1999 and 1998: risk-free interest
rate of 6.29% and 5.0%; expected market price volatility of 0.46 and 0.44;
weighted-average expected option life equal to the contractual term; estimated
forfeitures of 5.6% and 5.0%; 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
F-14
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income as reported.................................... $1,572 $40,081 $47,342
Net income pro forma...................................... 89 37,209 41,740
Diluted income per share as reported...................... 0.13 3.07 3.51
Diluted income per share pro forma........................ 0.01 2.85 3.10
Options outstanding at December 31, 1999, expire from August 2003 to August
2009. A total of 407,453 shares are reserved for future grants as of December
31, 1999, under the 1993 and 1996 Plans. The following table summarizes
information concerning outstanding and exercisable options at December 31, 1999:
RANGE OF EXERCISE PRICES $7 - 14 $15 - 27
- ------------------------ ------- --------
Options outstanding:
Weighted-Average Remaining Contractual Life............. 7.3 years 8.0 years
Weighted-Average Exercise Price......................... $8.96 $24.25
Number.................................................. 1,766,650 726,510
Options exercisable:
Weighted-Average Exercise Price......................... $9.10 $16.26
Number.................................................. 936,954 140,600
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
1997 1998 1999
---- ---- ----
Numerator:
Net income................................ $ 1,572,000 $40,081,000 $47,342,000
Denominator:
Denominator for basic earnings per
share -- weighted average shares........ 11,577,727 11,739,106 12,269,474
Effect of dilutive securities:
Employee stock options................ 64,725 1,327,116 1,200,063
Restricted shares..................... 30,878 -- --
----------- ----------- -----------
Dilutive potential common shares.......... 95,603 1,327,116 1,200,063
----------- ----------- -----------
Denominator for diluted earnings per
share -- adjusted weighted average
shares.................................. 11,673,330 13,066,222 13,469,537
----------- ----------- -----------
----------- ----------- -----------
Basic earnings per share.................. $0.14 $3.41 $3.86
----- ----- -----
----- ----- -----
Diluted earnings per share................ $0.13 $3.07 $3.51
----- ----- -----
----- ----- -----
10. COMMITMENTS AND CONTINGENCIES
In November 1994, the Company signed a purchase agreement for six new Boeing
757-200s, which, as subsequently amended, now provides for the delivery of 13
total aircraft. The amended agreement provides for deliveries of aircraft
between 1995 and 2000. As of December 31, 1999, the Company had taken delivery
of nine Boeing 757-200s under this purchase agreement and financed those
aircraft using leases accounted for as operating leases. Two deliveries under
this agreement are scheduled for June 2000, and two deliveries are scheduled for
November 2000. The remaining aircraft have an aggregate purchase price of
approximately $50.0 million per aircraft, subject to
F-15
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
escalation. Advanced payments totaling approximately $27.2 million ($6.8 million
per aircraft) are required to be made for the remaining undelivered aircraft,
with the balance of the purchase price due upon delivery. As of December 31,
1999 and 1998, the Company had made $20.4 million and $13.0 million in advanced
payments, respectively, pertaining to future aircraft deliveries.
The Company has signed a purchase agreement to acquire six of the Boeing
727-200 ADV aircraft that are currently leased. These aircraft will be purchased
in 2000.
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.
11. CHANGE IN ACCOUNTING ESTIMATE
In July 1998, the Company committed to the purchase of five Lockheed L-1011
series 500 aircraft for delivery between August 1998 and November 1999. The
Company already operates 14 Lockheed L-1011 series 50 and series 100 aircraft,
13 of which are owned and one of which is leased. The purchase agreement has
expanded the size of the Lockheed L-1011 fleet from 14 to 19 aircraft.
As a result of this fleet expansion, the Company expects to operate its
existing fleet of Lockheed L-1011 series 50 and series 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 of $4.1 million
and $2.1 million, respectively, in depreciation and amortization expense for the
years ended December 31, 1999 and 1998, and resulted in an increase in net
income of $2.5 and $1.2 million in the same periods. Basic and diluted earnings
per share for the year ended December 31, 1999, were increased by $0.20 and
$0.19, respectively, while 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 renegotiation 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 the year ended December 31, 1999, which resulted in an increase in
net income of $2.8 million in 1999. Basic and diluted earnings per share for the
year ended December 31, 1999, were increased by $0.23 and $0.21, respectively.
F-16
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACQUISITION OF BUSINESSES
On January 26, 1999, the Company acquired all of the issued and outstanding
stock of T.G. Shown Associates, Inc., which owns 50% of the Amber Air Freight
partnership. The other 50% of the partnership was already owned by the Company.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ('TCI'), a Detroit-based independent tour
operator. ATA has 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 has been providing passenger airline services
to Key Tours for over 15 years. The results of operations, beginning May 1999,
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.
13. 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 12) These companies comprise the newly
formed 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,
includes 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 Company's only external customer that
accounted for more than 10.0% of consolidated revenues. U.S. government revenues
accounted for 11.2%, 13.3% and 16.8% of consolidated revenues for 1999, 1998 and
1997, respectively.
F-17
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment financial data as of and for the years ended December 31, 1999, 1998
and 1997 follows:
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------
AIRLINE ATALC OTHER/ELIMINATIONS CONSOLIDATED
------- ----- ------------------ ------------
(IN THOUSANDS)
Operating revenue from external customers.... $972,081 $94,840 $ 55,445 $1,122,366
Inter-segment revenue........................ 42,970 4,985 2,455 50,410
Operating expenses........................... 918,725 70,404 43,210 1,032,339
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
------------------------------------------------------
AIRLINE ATALC OTHER/ELIMINATIONS CONSOLIDATED
------- ----- ------------------ ------------
(IN THOUSANDS)
Operating revenue from external customers.... $858,702 $21,485 $ 39,182 $919,369
Inter-segment revenue........................ 24,620 0 2,152 26,772
Operating expenses........................... 806,411 13,019 24,566 843,996
Operating income (loss)...................... 68,894 (43) 6,522 75,373
Segment assets (at year-end)................. 637,101 274 (42,826) 594,549
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
AIRLINE ATALC OTHER/ELIMINATIONS CONSOLIDATED
------- ----- ------------------ ------------
(IN THOUSANDS)
Operating revenue from external customers.... $726,708 $24,222 $ 32,263 $783,193
Inter-segment revenue........................ 25,953 367 2,028 28,348
Operating expenses........................... 735,169 14,217 20,323 769,709
Operating income............................. 6,657 760 6,067 13,484
Segment assets (at year-end)................. 517,264 4,651 (71,058) 450,857
14. SUBSEQUENT EVENTS
In January 2000, Chicago Express entered into an agreement to purchase nine
SAAB 340B aircraft, engines and spare parts for approximately $30.0 million.
These aircraft are nine years old. The SAAB 340B aircraft will be placed into
service throughout 2000 in conjunction with the return of the current fleet of
Jetstream J31s to the lessor. The Company intends to finance these aircraft
through sale/leaseback transactions.
The Company completed a $238.6 million Enhanced Equipment Trust Certificate
('EETC') financing in February 2000. These funds will be used as leveraged lease
financing for seven of the Company's Boeing 757-200 aircraft, 3 of which had
been financed with interim leveraged leases in the third and fourth quarters of
1999 and the second quarter of 2000. The remaining EETC financing is expected to
be applied to two 757-200 deliveries from the manufacturer in November 2000. The
Company expects its EETC leveraged leases to be accounted for as operating
leases.
F-18
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMTRAN, INC. AND SUBSIDIARIES
1999 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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)
Net income..................................... $ 16,540 $ 16,705 $ 13,700 $ 397
Net income per share -- basic.................. $ 1.36 $ 1.37 $ 1.10 $ 0.03
Net income per share -- diluted................ $ 1.22 $ 1.24 $ 1.01 $ 0.03
AMTRAN, INC. AND SUBSIDIARIES
1998 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues............................. $229,305 $238,464 $242,414 $209,186
Operating expenses............................. 205,896 213,820 219,517 204,763
Operating income............................... 23,409 24,644 22,897 4,423
Other expenses................................. (2,138) (1,995) (2,049) (1,981)
Income before income taxes..................... 21,271 22,649 20,848 2,442
Income taxes................................... 8,872 8,854 8,415 988
Net income..................................... $ 12,399 $ 13,795 $ 12,433 $ 1,454
Net income per share -- basic.................. $ 1.07 $ 1.19 $ 1.06 $ 0.12
Net income per share -- diluted................ $ 1.02 $ 1.05 $ 0.92 $ 0.11
F-19
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 2000
---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................... $120,164 $119,090
Receivables, net of allowance for doubtful accounts
(2000 -- $1,372; 1999 -- $1,511)...................... 52,099 58,521
Inventories, net........................................ 36,686 45,688
Prepaid expenses and other current assets............... 22,945 23,123
-------- --------
Total current assets................................ 231,894 246,422
Property and equipment:
Flight equipment........................................ 781,171 823,759
Facilities and ground equipment......................... 92,060 102,032
-------- --------
873,231 925,791
Accumulated depreciation.................................... (361,399) (404,310)
-------- --------
511,832 521,481
Goodwill.................................................... 23,453 22,703
Deposits and other assets................................... 48,102 72,527
-------- --------
Total assets........................................ $815,281 $863,133
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................... $ 2,079 $ 13,801
Accounts payable........................................ 20,234 12,260
Air traffic liabilities................................. 93,507 106,043
Accrued expenses........................................ 126,180 137,517
-------- --------
Total current liabilities........................... 242,000 269,621
Long-term debt, less current maturities..................... 345,792 344,461
Deferred income taxes....................................... 58,493 60,231
Other deferred items........................................ 17,620 35,940
Commitments and contingencies
Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none
issued................................................ -- --
Common stock, without par value; authorized 30,000,000
shares; issued: 2000 -- 12,956,857;
1999 -- 12,884,306.................................... 55,826 56,994
Additional paid-in-capital.............................. 12,910 12,695
Deferred compensation -- ESOP........................... (533) --
Treasury stock: 2000 -- 835,355 shares; 1999 -- 612,052
shares................................................ (10,500) (14,397)
Retained earnings....................................... 93,673 97,588
-------- --------
151,376 152,880
-------- --------
Total liabilities and shareholders' equity.......... $815,281 $863,133
-------- --------
-------- --------
See accompanying notes.
F-20
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 2000
---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Operating revenues:
Scheduled service....................................... $ 308,279 $ 364,873
Charter................................................. 199,700 230,780
Ground package.......................................... 31,689 37,311
Other................................................... 22,955 21,936
----------- -----------
Total operating revenues............................ 562,623 654,900
----------- -----------
Operating expenses:
Salaries, wages and benefits............................ 122,577 140,632
Fuel and oil............................................ 73,662 126,682
Depreciation and amortization........................... 45,858 62,353
Handling, landing and navigation fees................... 45,311 49,066
Crew and other employee travel.......................... 24,268 32,690
Aircraft maintenance, materials and repairs............. 28,131 36,975
Aircraft rentals........................................ 29,382 32,862
Ground package cost..................................... 25,635 31,931
Passenger service....................................... 18,461 23,422
Commissions............................................. 19,950 21,694
Other selling expenses.................................. 13,348 17,484
Advertising............................................. 10,247 11,575
Facility and other rentals.............................. 6,662 7,622
Other................................................... 39,742 38,726
----------- -----------
Total operating expenses............................ 503,234 633,714
----------- -----------
Operating income............................................ 59,389 21,186
Other income (expense):
Interest income......................................... 3,163 3,885
Interest (expense)...................................... (10,118) (15,642)
Other................................................... 1,836 49
----------- -----------
Other expense............................................... (5,119) (11,708)
----------- -----------
Income before income taxes.................................. 54,270 9,478
Income taxes................................................ 21,025 5,563
----------- -----------
Net income.................................................. $ 33,245 $ 3,915
----------- -----------
----------- -----------
BASIC EARNINGS PER COMMON SHARE:
Average shares outstanding.................................. 12,184,113 12,097,765
Net income per share........................................ $2.73 $0.32
----- -----
----- -----
DILUTED EARNINGS PER COMMON SHARE:
Average shares outstanding.................................. 13,521,459 12,878,678
Net income per share........................................ $2.46 $0.30
----- -----
----- -----
See accompanying notes.
F-21
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 2000
---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Operating activities:
Net income.............................................. $ 33,245 $ 3,915
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 45,858 62,353
Deferred income taxes............................... 11,468 1,738
Other non-cash items................................ 1,563 9,344
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Receivables......................................... (7,832) (6,422)
Inventories......................................... (10,195) (10,508)
Prepaid expenses.................................... (1,932) (178)
Accounts payable.................................... 2,725 (7,974)
Air traffic liabilities............................. 1,979 12,536
Accrued expenses.................................... 8,605 12,532
--------- --------
Net cash provided by operating activities....... 85,484 77,336
--------- --------
Investing activities:
Proceeds from sales of property and equipment........... 223 54
Capital expenditures.................................... (144,084) (68,540)
Acquisition of businesses, net of cash acquired......... 16,673 --
Additions to other assets............................... (19,955) (17,042)
--------- --------
Net cash used in investing activities........... (147,143) (85,528)
--------- --------
Financing activities:
Purchase of treasury stock.............................. (3,364) (3,897)
Issuance of common stock................................ 2,216 679
Proceeds from long-term debt............................ 7,942 11,500
Payments on long-term debt.............................. (240) (1,164)
--------- --------
Net cash provided by financing activities....... 6,554 7,118
--------- --------
Decrease in cash and cash equivalents....................... (55,105) (1,074)
Cash and cash equivalents, beginning of period.............. 172,936 120,164
--------- --------
Cash and cash equivalents, end of period.................... $ 117,831 $119,090
--------- --------
--------- --------
Supplemental disclosures:
Cash payments for:
Interest............................................ $ 11,996 $ 14,228
Income taxes (refunds).............................. 7,270 (131)
Financing and investing activities not affecting cash:
Issuance of common stock associated with business
acquisitions...................................... $ 1,735 $ --
See accompanying notes.
F-22
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the rules and regulations of the Commission and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The consolidated financial statements for the six months ended June 30, 2000
and 1999 reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for such periods. Results for the
six months ended June 30, 2000, are not necessarily indicative of results to be
expected for the full fiscal year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
attached hereto for the year ended December 31, 1999.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 2000
---- ----
Numerator:
Net income.............................................. $33,245,000 $ 3,915,000
Denominator:
Denominator for basic earnings per share --
weighted average shares............................... 12,184,113 12,097,765
Effect of dilutive securities:
Employee stock options.............................. 1,337,346 780,913
----------- -----------
Denominator for diluted earnings per share --
adjusted weighted average shares...................... 13,521,459 12,878,678
----------- -----------
Basic earnings per share................................ $2.73 $0.32
----- -----
----- -----
Diluted earnings per share.............................. $2.46 $0.30
----- -----
----- -----
3. ACQUISITION OF BUSINESSES
On January 26, 1999, the Company acquired all of the issued and outstanding
stock of T. G. Shown Associates, Inc., which had owned 50% of the Amber Air
Freight partnership. The Company had already owned the other 50% of this air
cargo operation.
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. The results of operations, beginning May 1999,
of Key Tours were consolidated into the Company. The Company combined the
operations of TCI, AATC, KTLV and KTI with its existing vacation package brand,
ATA Vacations, to form the ATA Leisure Corp. ('ATALC').
F-23
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.
4. SEGMENT DISCLOSURES
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,
includes hotels and other ground arrangements. ATALC purchases air
transportation for its vacation packages from ATA and other airlines.
Segment financial data for the periods indicated follows:
FOR THE SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------
OTHER/
AIRLINE ATALC ELIMINATIONS CONSOLIDATED
------- ----- ------------ ------------
(IN THOUSANDS)
Operating revenue (external)..................... $561,130 $ 63,783 $ 29,987 $654,900
Inter-segment revenue............................ 37,305 1,506 (38,811) --
Operating expenses (external).................... 564,345 40,988 28,381 633,714
Inter-segment expenses........................... 4,755 29,026 (33,781) --
Operating income (loss).......................... 29,335 (4,725) (3,424) 21,186
Segment assets................................... 924,780 129,435 (191,082) 863,133
FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
OTHER/
AIRLINE ATALC ELIMINATIONS CONSOLIDATED
------- ----- ------------ ------------
(IN THOUSANDS)
Operating revenue (external)...................... $487,747 $50,615 $ 24,261 $562,623
Inter-segment revenue............................. 19,232 -- (19,232) --
Operating expenses (external)..................... 449,348 37,903 15,983 503,234
Inter-segment expenses............................ 5,012 11,206 (16,218) --
Operating income.................................. 52,619 1,506 5,264 59,389
Segment assets.................................... 667,922 34,478 (10,802) 691,598
5. COMMITMENTS AND CONTINGENCIES
On May 4, 2000, the Company entered into a preliminary agreement to obtain
37 Boeing 737-800 aircraft and 10 Boeing 757-300 aircraft. As part of this
agreement, the Company also received purchase rights for an additional 50
aircraft. The Company also entered into preliminary agreements with General
Electric and Rolls Royce to supply engines to power the Boeing 737-800 and
757-300 aircraft, respectively. The Company has secured various financing
commitments for all of the aircraft to be obtained. These financing commitments
are comprised of various operating leases, leveraged leases, single investor
leases and certain preferred stock purchase commitments. Closing of the entire
transaction is subject to the completion of definitive documentation and
customary closing conditions.
On June 30, 2000, the Company signed a purchase agreement for the 10 new
Boeing 757-300s and 20 of the new Boeing 737-800s. These represent the aircraft
to be obtained directly from Boeing. The remaining 737-800s are expected to be
obtained from several potential lessors through operating leases. Definitive
agreements have not yet been formalized with respect to these remaining aircraft
and engines. The Company expects to finalize these agreements in the third
quarter of 2000.
F-24
APPENDIX AI
GLOSSARY
'Adjusted Expected Distributions' means, with respect to the certificates of
any pass through trust on any Distribution Date (for purposes of this
definition, the 'Current Distribution Date'), the sum of (1) accrued and unpaid
interest on such certificates (excluding interest, if any, payable with respect
to the Deposits relating to such pass through trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such certificates as
of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the original aggregate
face amount of the certificates of such pass through trust less the amount
of the deposits for such class of certificates as of such preceding
Distribution Date for, if the Current Distribution Date is the first
Distribution Date, the original aggregate amount of the Deposits of such
class of certificates), other than any portion of such Deposits thereafter
used to acquire secured promissory notes pursuant to the Note Purchase
Agreement and (y) the Pool Balance of such certificates as of the Current
Distribution Date calculated on the basis that (i) the principal of the
Non-Performing Secured Promissory Notes held in such pass through trust has
been paid in full and such payments have been distributed to the holders of
such certificates and (ii) the principal of the Performing Secured
Promissory Notes held in such pass through trust has been paid when due (but
without giving effect to any acceleration of Performing Secured Promissory
Notes) and such payments have been distributed to the holders of such
certificates, but without giving effect to any reduction in the Pool Balance
as a result of any distribution attributable to Deposits occurring after the
immediately preceding Distribution Date; or
(B) the amount of the excess, if any, of (i) the Pool Balance of such
class of certificates as of the immediately preceding Distribution Date,
less the amount of the Deposits for such class of certificates as of such
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate amount of the Deposits for
such class of certificates) other than any portion of such Deposits
thereafter used to acquire secured promissory notes pursuant to the Note
Purchase Agreement (the amount described in this clause (i), the 'Current
Pool Balance'), over (ii) the Aggregate LTV Collateral Amount for such class
of certificates for the Current Distribution Date;
provided that, until the date of the initial LTV Appraisals, clause (B) will not
apply.
For purposes of calculating Adjusted Expected Distributions with respect to
the certificates of any pass through trust, any premium paid on the secured
promissory notes held in such pass through trust that has not been distributed
to the certificateholders of such pass through trust (other than such premium or
a portion thereof applied to the payment of interest on the certificates of such
pass through trust or the reduction of the Pool Balance of such pass through
trust) will be added to the amount of Adjusted Expected Distributions.
(Intercreditor Agreement, Section 1.1)
'Aggregate LTV Collateral Amount' for any class of certificates for any
Distribution Date means the sum of the applicable LTV Collateral Amounts for
each aircraft, minus the Pool Balance for each class of certificates, if any,
senior to such class, after giving effect to any distribution of principal on
such Distribution Date with respect to such senior class or classes.
(Intercreditor Agreement Section 1.1)
'Aircraft Operative Agreements' means, collectively, the Participation
Agreements, leases and Indentures.
'Appraised Current Market Value' means, for any aircraft, the lower of the
average and the median of the three most recent LTV Appraisals of such aircraft.
'Appraisers' means the independent aircraft appraisal and consulting firms
of Aircraft Information Services, Inc. ('AISI'), Morten Beyer and Agnew, Inc.
('MBA') and Simat, Helliesen & Eichner, Inc. ('SH&E'). (Intercreditor Agreement,
Section 1.1)
AI-1
'Assumed Amortization Schedule' means the assumed amortization schedule for
the secured promissory notes set forth in the table on page 126 of the
prospectus.
'Assumed Appraised Value' means, with respect to any aircraft, the value for
such aircraft set forth in the 'Prospectus Summary -- Secured Promissory Notes
and the Aircraft' under the column 'Appraised Value.'
'Average Life Date' for any secured promissory note means the date which
follows the redemption date by a period equal to the then Remaining Weighted
Average Life at the redemption date of such secured promissory note.
'Bankruptcy Code' means Title 11 of the United States Code.
'Base Rate' when used with respect to a Liquidity Facility, means a
fluctuating interest rate per annum in effect from time to time, which rate per
annum is at all times to be equal to (a) the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day (or, if such day is
not a business day, for the next preceding business day) by the Federal Reserve
Bank of New York, or if such rate is not so published for any day that is a
business day, the average of the quotations for such day for such transactions
received by the applicable Liquidity Provider from three federal funds brokers
of recognized standing selected by it, plus (b) one quarter of one percent (1/4
of 1%) per annum. (Liquidity Facility, Section 1.01)
'Basic Rent,' with respect to each lease, means, for any aircraft, the
scheduled rent payable quarterly for the term for such aircraft pursuant to the
related lease.
'Boeing' means The Boeing Company.
'Business Day' means any day other than a Saturday, Sunday or other day on
which commercial banks are authorized or required to close in Indianapolis,
Indiana, New York, New York, Wilmington, Delaware or Salt Lake City, Utah.
'Cash Collateral Account' means, for each class of certificates, the account
in the name of the Subordination Agent into which the proceeds of any Downgrade
Drawing, Non-Extension Drawing and Final Drawing will be deposited.
(Intercreditor Agreement, Section 1.1)
'Certificate Account' means one or more non-interest bearing accounts
established and maintained by the pass through trustee, for the deposit of
payments representing Scheduled Payments received by such pass through trustee.
'Civil Reserve Air Fleet Program,' with respect to each lease, means the
Civil Reserve Air Fleet Program currently administered by the United States Air
Force Air Mobility Command pursuant to Chapter 931, Section 9511, et seq. of
Title 10 of the United States Code, as amended, or any substantially similar
program of the United States government.
'Code' means the Internal Revenue Code of 1986, as amended.
'Collateral' means all of the Loan Trustee's right, title and interest in
the property described in the granting clause of an Owned Aircraft Indenture.
'Controlling Party' means:
the policy provider, until final distributions of the aggregate outstanding
balance of the class G certificates, together with accrued and unpaid
interest, are made to the holders of the class G certificates and
thereafter, if, and while, no obligations owing to the policy provider
remain outstanding or, if a policy provider default has occurred and is
continuing, the class G pass through trustee, until payment of final
distributions together with accrued interest to the holders of the class G
certificates, then;
the class C pass through trustee;
upon payment of Final Distributions to holders of class C certificates, the
class D pass through trustee, if class D certificates have been issued.
Under certain circumstances, the Liquidity Provider may elect to act as the
Controlling Party. (Intercreditor Agreement, Section 2.6)
AI-2
'Delivery Period' means the period commencing on the Issuance Date and
ending on the Delivery Period Termination Date.
'Delivery Period Termination Date' means the earlier of (a) December 31,
2000, or, if the secured promissory notes relating to all of the aircraft (or
substitute aircraft in lieu thereof) have not been purchased by the pass through
trustees on or prior to such date due to any reason beyond the control of ATA
and not occasioned by ATA's fault or negligence, May 31, 2001, and (b) the date
on which all secured promissory notes issued with respect to all of the aircraft
(or substitute aircraft in lieu thereof) have been purchased by the pass through
trustees in accordance with the Note Purchase Agreement.
'Deposit' means the proceeds of this offering that are deposited with the
Depositary and under the applicable Deposit Agreement.
'Deposit Account' means the accounts established in the name of the Escrow
Agent with respect to each pass through trust under the applicable Deposit
Agreement.
'Deposit Agreements' means all of the deposit agreements with respect to all
classes of certificates to be dated as of the Issuance Date between the Escrow
Agent and the Depositary.
'Deposit Make-Whole Premium' means, with respect to the distribution of
unused Deposits to holders of any class of certificates, as of any date of
determination, an amount equal to the excess, if any, of (a) the present value
of the excess of (i) the scheduled payment of principal and interest to maturity
of the related series of secured promissory notes, assuming the maximum
principal amount thereof (the 'Maximum Amount') minus the Non-Premium Amount
attributable to such class of certificates and such class of certificates'
proportionate share (in the same proportion that the amount of unused Deposits
with respect to such class of certificates bears to the unused Deposits with
respect to all classes of certificates) of the Par Redemption Amount were
issued, on each remaining Regular Distribution Date for such class under the
Assumed Amortization Schedule over (ii) the scheduled payment of principal and
interest to maturity of the secured promissory notes actually acquired by the
pass through trustee for such class on each such Regular Distribution Date, such
present value computed by discounting such excess on a quarterly basis on each
Regular Distribution Date (assuming a 360-day year of twelve 30-day months)
using a discount rate equal to the Treasury Yield over (b) the amount of such
unused Deposits to be distributed to the holders of such certificates, minus the
Non-Premium Amount attributable to such class of certificates and such class of
certificates' proportionate share of the Par Redemption Amount, plus accrued and
unpaid interest on such net amount to but excluding the date of determination
from and including the preceding Regular Distribution Date (or if such date of
determination precedes the first Regular Distribution Date, the date of issuance
of the certificates). (Note Purchase Agreement, Annex A)
'Depositary' means Citibank, N.A., for all classes of certificates.
'Depreciation Assumption' means the assumption that the initial appraised
value of each aircraft declines by approximately 3% per year for the first 15
years after the delivery of that aircraft to ATA from the manufacturer and by
approximately 4% per year after the first 15 years.
'Disposition' means the disposition of any series G secured promissory note
(or any underlying collateral).
'Distribution Date' means each Special Distribution Date and Regular
Distribution Date.
'Downgrade Drawing' means a drawing by the Subordination Agent of the
Maximum Available Commitment under a Liquidity Facility at the time of such
drawing as a result of the downgrading of the unsecured debt rating of the
Liquidity Provider below the applicable Threshold Rating. (Liquidity Facility,
Section 2.2; Intercreditor Agreement, Section 3.6(c))
'Drawing' means any Interest Drawing, Downgrade Drawing, Non-Extension
Drawing or Final Drawing.
'DTC' means The Depository Trust Company.
AI-3
'DTC Participants' means those securities brokers and dealers, banks, trust
companies and clearing corporations for whom DTC effects, directly or
indirectly, book-entry transfers and pledges of security deposited with DTC.
'Election Distribution Date' means (i) any Business Day (which will be a
Special Distribution Date) elected by the Policy Provider upon 20 days' notice
to request the Subordination Agent, or (ii) following either the occurrence and
continuation of a Policy Provider Default or a Disposition of or in respect of
any secured promissory note, any Business Day (which will be a Special
Distribution Date) specified by the Subordination Agent upon 20 days' notice,
selected by the Policy Provider pursuant to a Policy Provider Election.
'Escrow Agent' means First Security Bank, National Association and any
successor appointed pursuant to the terms of an Escrow Agreement.
'Escrow Agreements' means all of the escrow and paying agent agreements with
respect to all classes of certificates to be dated as of the Issuance Date,
among the Escrow Agent, the Paying Agent, a pass through trustee and the Initial
Purchasers.
'Escrow Receipt' means one or more receipts issued by the Escrow Agent under
the applicable Escrow Agreement that will be affixed by the relevant pass
through trustee to each certificate and will evidence a fractional undivided
interest in amounts deposited in the applicable Paying Agent Account.
'Event of Loss' with respect to an aircraft, airframe or any engine means
any of the following events with respect to such property:
Loss of such property or its use due to destruction or damage rendering
repair uneconomic or such property permanently unfit for normal use by ATA.
Any damage to such property which results in an insurance settlement with
respect to such property on the basis of a total loss or constructive or
compromised total loss.
The theft, disappearance, confiscation, condemnation, seizure, or
requisition (including loss of title) of such property (other than a
requisition for use by the United States government or any agency or
instrumentality thereof), involving, in the case of any event referred to
in this clause, loss of possession of such property for a period of more
than 180 consecutive days (or, if earlier, 30 days after the end of the
term of the Lease) or, in the case of a requisition of title, such
requisition has not been reversed within 90 days (or, if earlier, 30 days
after the end of the term of the Lease).
Except as otherwise provided in each lease, as a result of any law, rule,
regulation, order or other action by the FAA, or any other governmental
authority of the country of registry of such property, the use of such
property in the normal course of business of air transportation shall have
been prohibited for six consecutive months, unless ATA, prior to the
expiration of such six-month period, has undertaken and is diligently
carrying forward all steps necessary or desirable to permit normal use of
such property until the date normal use of the Aircraft is resumed, or the
expiration of the term of the leases.
The requisition for use of the aircraft by the United States government or
any instrumentality or agency thereof that continues for 30 days beyond the
end of the term of the lease.
With respect to any engine, any divestiture of title to an engine treated
as an Event of Loss pursuant to the lease.
An Event of Loss with respect to an aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the airframe which is a part of such
aircraft. (Leases, Section 10; Owned Aircraft Indentures, Section 4.05)
'Excess Reimbursement Obligations' means, (a) in the event of any Policy
Provider Election, the portion of the Policy Provider Obligations that
represents interest on the series G secured promissory note in respect of which
the Policy Provider Election has been made in excess of 24 months of interest at
the interest rate applicable to such secured promissory note and (b) any
AI-4
interest on the Liquidity Obligations in respect of the class G and class C
Liquidity Facilities paid by the Policy Provider to the Liquidity Provider from
and after the end of the 24-month period referred to under the caption
'Description of the Policy and the Policy Provider Agreement -- The Policy -- No
Proceeds Drawing.'
'Exchange Agent' means Wilmington Trust Company.
'Expected Distributions' means, with respect to the certificates of any pass
through trust on any Distribution Date (for purposes of this distribution, the
'Current Distribution Date'), the sum of (1) accrued and unpaid interest on such
certificates (excluding interest, if any, payable with respect to the Deposits
relating to such pass through trust) and (2) the difference between:
(A) the Pool Balance of such certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date, the original aggregate face amount of the
certificates of such pass through trust); and
(B) the Pool Balance of such certificates as of the Current Distribution
Date calculated on the basis that the principal of the secured promissory
notes held in such pass through trust has been paid when due (whether at
stated maturity or upon redemption, prepayment, purchase, acceleration or
otherwise) and such payments have been distributed to the holders of such
certificates, but without giving effect to any reduction in the Pool Balance
as a result of any distribution attributable to Deposits occurring after the
immediately preceding Distribution Date (or, if the Current Distribution
Date is the first Distribution Date, occurring after the initial issuance of
the certificates of such pass through trust). In certain circumstances, the
Make-Whole Amount will be included as part of Expected Distributions.
For purposes of calculating Expected Distributions with respect to the
certificates of any pass through trust, any premium paid on the secured
promissory notes held in such pass through trust that has not been distributed
to the certificateholders of such pass through trust (other than such premium or
a portion thereof applied to the payment of interest on the certificates of such
pass through trust or the reduction of the Pool Balance of such pass through
trust) shall be added to the amount of such Expected Distributions.
(Intercreditor Agreement, Section 1.1)
'Final Distributions' means, with respect to the certificates of any pass
through trust on any Distribution Date, the sum of (x) the aggregate amount of
all accrued and unpaid interest on such certificates (excluding interest
payable, if any, on the Deposits relating to such pass through trust) and (y)
the Pool Balance of such certificates as of the immediately preceding
Distribution Date (less the amount of the Deposits for such class of
certificates as of such preceding Distribution Date other than any portion of
such Deposits thereafter used to acquire secured promissory notes pursuant to
the Note Purchase Agreement). For purposes of calculating Final Distributions
with respect to the certificates of any pass through trust, any premium paid on
the secured promissory notes held in such pass through trust that has not been
distributed to the certificateholders of such pass through trust (other than
such premium or a portion thereof applied to the payment of interest on the
certificates of such pass through trust or the reduction of the Pool Balance of
such pass through trust) will be added to the amount of such Final
Distributions. (Intercreditor Agreement, Section 1.1)
'Final Drawing' means a drawing by the Subordination Agent under a Liquidity
Facility in an amount equal to the Maximum Available Commitment under such
Liquidity Facility at the time of such drawing as a result of the termination of
such Liquidity Facility by the applicable Liquidity Provider. (Intercreditor
Agreement 3.6(i))
'Final Maturity Date' means, for the class G certificates July 15, 2017 and
for the class C certificates July 15, 2007.
'Guarantee' means the guarantee by Amtran of all obligations of ATA as
lessee under a lease or as obligor under an Owned Aircraft Indenture.
'Indenture' means each of the Leased Aircraft Indentures and the Owned
Aircraft Indentures.
'Indenture Default' means an event of default under any Indenture as the
term 'Event of Default' is defined under that Indenture.
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'Initial Purchasers' means Salomon Smith Barney Inc., Banc One Capital
Markets, Inc., Chase Securities Inc. and Morgan Stanley & Co. Incorporated.
'Intercreditor Agreement' means the intercreditor agreement to be dated as
of the Issuance Date among the pass through trustees, the Liquidity Provider,
the Policy Provider and the Subordination Agent.
'Interest Drawing' means a drawing made by the Subordination Agent under the
Liquidity Facility on any Distribution Date to pay interest then due and payable
on the certificates of the applicable pass through trust at the Stated Interest
Rate for such pass through trust. (Liquidity Facility, Section 2.2(a);
Intercreditor Agreement, Section 3.6(a))
'Issuance Date' means the date of the initial issuance of the certificates.
'Lease Default' means any event that with the giving of notice, or lapse of
time, or both would become a Lease Event of Default.
'Lease Event of Default' means an Event of Default under any lease as the
term 'Event of Default' is defined under that lease.
'Lease Payment Default,' with respect to each lease, means a default under a
lease relating to either payments of rent or involuntary bankruptcy or similar
events.
'Leased Aircraft Indenture' means each trust indenture and security
agreement entered into in connection with the financing of an aircraft that we
will lease.
'Leased Aircraft Trust Agreement' means, with respect to each aircraft, the
trust agreement between the related Owner Trustee and the related Owner
Participant.
'LIBOR' means, with respect to any interest period (a) the rate per annum
appearing on display page 3750 (British Bankers Association -- LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 a.m. (London time) two business days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (b) if the rate calculated pursuant to clause (a) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 a.m. (London time) two business days before the first day of such interest
period in an amount approximately equal to the principal amount of the LIBOR
advance to which such interest period is to apply and for a period comparable to
such interest period.
'Liquidity Expenses' means the Liquidity Obligations other than (a) the
principal amount of any Drawings under the Liquidity Facility and (b) any
interest accrued on any Liquidity Obligations. (Intercreditor Agreement, Section
1.1)
'Liquidity Facility' means each of the revolving credit agreements dated as
of the Issuance Date between the Liquidity Provider and Subordination Agent with
respect to each pass through trust entered into by the Liquidity Provider with
the Subordination Agent with respect to the certificates of each pass through
trust pursuant to which the Liquidity Provider will, if necessary, make one or
more advances to the Subordination Agent that will be used solely to pay up to
six consecutive quarterly installments of interest on such certificates when
due, subject to certain limitations.
'Liquidity Obligations' means all principal, interest, fees and other
amounts owing to the Liquidity Provider under the Liquidity Facilities or
certain other agreements. (Intercreditor Agreement, Section 1.1)
'Liquidity Provider' means Citibank, N.A., and any successor liquidity
provider.
'Loan Trustee' means the indenture trustee under any Indenture.
'LTV Appraisal' means a current fair market value appraisal (which may be a
'desk-top' appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to
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buy and an informed and willing seller under no compulsion to sell and both
having knowledge of all relevant facts. (Intercreditor Agreement, Sections 1.1)
'LTV Collateral Amount' of any aircraft for any class of certificates means,
as of any Distribution Date, the lesser of (a) the LTV Ratio for such class of
certificates multiplied by the Appraised Current Market Value of such aircraft
(or with respect to any such aircraft which has suffered an Event of Loss under
and as defined in the relevant lease (in the case of a leased aircraft) or
Indenture (in the case of an owned aircraft), the amount of the insurance
proceeds paid to the related Loan Trustee in respect of such aircraft to the
extent then held by such Loan Trustee (and/or on deposit in the Special Payments
Account) or payable to such Loan Trustee in respect of such aircraft) and (b)
the outstanding principal amount of the secured promissory notes secured by such
aircraft after giving effect to any principal payments of such secured
promissory notes on or before such Distribution Date. (Intercreditor Agreement,
Section 1.1)
'LTV Ratio' means for the class G certificates 50.1% and for the class C
certificates 60.7%. (Intercreditor Agreement, Section 1.1)
'Make-Whole Amount' means, with respect to any secured promissory note, the
amount (as determined by an independent investment banker of national standing)
by which (a) the present value of the remaining scheduled payments of principal
and interest to maturity of such secured promissory note, computed by
discounting such payments on a semiannual basis from each payment date under the
applicable Indenture (assuming a 360-day year of twelve 30-day months) using a
discount rate equal to the Treasury Yield exceeds (b) the outstanding principal
amount of such secured promissory note plus accrued interest to the date of
determination.
'Mandatory Document Terms' means the Mandatory Document Terms described
under 'Description of Certificates -- Obligation to Purchase Secured Promissory
Notes.'
'Mandatory Economic Terms' means the Mandatory Economic Terms described
under 'Description of Certificates -- Obligation to Purchase Secured Promissory
Notes.'
'Maximum Available Commitment' means the amount, at the time of
determination under each Liquidity Facility, equal to the then Required Amount
of such Liquidity Facility less the aggregate amount of each Interest Drawing
outstanding under such Liquidity Facility at such time, provided that following
a Downgrade Drawing, a Final Drawing or a Non-Extension Drawing under a
Liquidity Facility, the Maximum Available Commitment under such Liquidity
Facility will be zero.
'Minimum Sale Price' means, with respect to any aircraft or the secured
promissory notes issued in respect of such aircraft, at any time, the lesser of
(x) 75% of the Appraised Current Market Value of such aircraft and (y) the
aggregate outstanding principal amount of such secured promissory notes, plus
accrued and unpaid interest on such secured promissory notes. (Intercreditor
Agreement, Section 1.1)
'Non-Extension Drawing' means a drawing by the Subordination Agent of the
Maximum Available Commitment under a Liquidity Facility at the time of such
drawing, as a result of such Liquidity Facility not being extended or replaced
by the 25th day prior to its then scheduled expiration date. (Liquidity
Facility, Section 2.2(b); Intercreditor Agreement, Section 3.6(d))
'Non-Performing Secured Promissory Note' means a secured promissory note
that is not a Performing Secured Promissory Note.
'Non-Premium Amount' means the amount equal to unused Deposits to be
distributed due to the failure of any aircraft to be delivered prior to the
Delivery Period Termination Date due to any reason not occasioned by ATA's fault
or negligence.
'Note Holders' means registered holders of the secured promissory notes.
'Note Purchase Agreement' means the note purchase agreement dated as of the
Issuance Date among ATA, the pass through trustees, the Subordination Agent, the
Escrow Agent and the Paying Agent.
'Order' means the order referred to in the definition of the term
'Preference Amount.'
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'Owned Aircraft Indenture' means each indenture and security agreement
entered into in connection with the financing of an aircraft that ATA owns.
'Owner Participant' means the owner of the beneficial interest of an owner
trust in a leveraged lease transaction.
'Owner Trustee' means the trustee of an owner trust in a leveraged lease
transaction.
'Participation Agreement' means (a) in the case of a leased aircraft, an
agreement among ATA, the pass through trustees, the applicable Owner Trustee,
the applicable Owner Participant, the Loan Trustee and the Subordination Agent
stating the terms and conditions under which the parties will participate in a
leveraged lease financing relating to an aircraft and (b) in the case of an
owned aircraft, an agreement among ATA, the pass through trustees, the Loan
Trustee and the Subordination Agent stating the terms and conditions under which
the parties will participate in a mortgage financing relating to an aircraft.
'Par Redemption Amount' means $5,000,000.
'Pass Through Trust Agreements' means the two pass through trust agreements
between ATA, Amtran and Wilmington Trust Company, as trustee, to be dated as of
the Issuance Date.
'Paying Agent' means Wilmington Trust Company and any successor appointed in
accordance with the terms of the Escrow Agreement.
'Paying Agent Account' means a non-interest bearing deposit account
established by the Paying Agent in the name of the Escrow Agent.
'Performing Secured Promissory Note' means a secured promissory note with
respect to which no payment default has occurred and is continuing (without
giving effect to any acceleration); provided that if a bankruptcy proceeding is
commenced involving ATA under the U.S. Bankruptcy Code, (a) any payment default
existing during the 60-day period under Section 1110(a)(1)(A) of the U.S.
Bankruptcy Code (or such longer period as may apply under Section 1110(b) of the
U.S. Bankruptcy Code) (the 'Section 1110 Period') will not be taken into
consideration, unless during the Section 1110 Period the trustee in such
proceeding or ATA refuses to assume or agree to perform our obligations under
the lease related to such secured promissory note (in the case of a leased
aircraft) or under the Owned Aircraft Indenture related to such secured
promissory note (in the case of an owned aircraft), and (b) any payment default
occurring after the date of the order of relief in such proceeding will not be
taken into consideration if such payment default is cured under Section
1110(a)(1)(B) of the U.S. Bankruptcy Code before the later of 30 days after the
date of such default or the expiration of the Section 1110 Period.
(Intercreditor Agreement, Section 1.1)
'Permitted Investments' means obligations of the United States of America or
agencies or instrumentalities thereof for the payment of which the full faith
and credit of the United States of America is pledged, maturing in not more than
60 days or such lesser time as is necessary for payment of any Special Payment
on a Special Distribution Date.
'Policy' means the certificate guaranty insurance policy issued by the
Policy Provider in favor of the Subordination Agent for the benefit of the class
G pass through trustee and the class G certificateholders.
'Policy Business Day', for the purposes of the 'Description of the Policy
and the Policy Provider Agreement,' means any day that is not a Saturday, a
Sunday or other day on which commercial banking institutions in the cities in
which the Corporate Trust Office of the Subordination Agent or the Policy
Provider are located are authorized or obligated by law or executive or
executive order to close.
'Policy Drawing' means any payment of a claim under the Policy.
'Policy Expenses' means all amounts (including amounts in respect of
expenses or indemnities) owing to the Policy Provider under the Policy Provider
Agreement or certain other agreements other than the amount of any Policy
Drawing and any interest accrued thereon, Excess Reimbursement Obligations,
reimbursement of and interest on the Liquidity Obligations in respect
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of the Liquidity Facilities paid by the Policy Provider to the Liquidity
Provider, provided that if, at the time of determination, a Policy Provider
Default exists, the Policy Expenses shall also not include any indemnity
payments owed to the Policy Provider.
'Policy Provider' means Ambac Assurance Corporation.
'Policy Provider Agreement' means the insurance and indemnity agreement, to
be dated as of the Issuance Date, between ATA, the Subordination Agent and the
Policy Provider.
'Policy Provider Default' will mean the occurrence of any of the following
events: (a) the Policy Provider fails to make a payment required under the
Policy in accordance with its terms and such failure remains unremedied for 2
business days following the delivery of written notice of such failure to the
Policy Provider or (b) the Policy Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii)
makes a general assignment for the benefit of its creditors or (iii) has an
order for relief entered against it under any federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization that is
final and nonappealable, or (c) a court of competent jurisdiction, the Wisconsin
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material portion of
its property or (ii) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Policy Provider (or taking of possession of
all or any material portion of the Policy Provider's property).
'Policy Provider Election' means the right of the Policy Provider to make
the election as described in the second paragraph of 'Description of the Policy
and The Policy Provider Agreement -- The Policy -- No Proceeds Drawing.'
'Policy Provider Obligations' means all reimbursement and other amounts,
including fees and indemnities, due to the Policy Provider under the Policy
Provider Agreement but will not include any interest on Policy Drawings except,
if the class G Liquidity Provider has failed to honor its obligation to make any
Interest Drawing, interest on the portion of any Policy Drawing made to cover
the shortfall attributable to such failure by the class G Liquidity Provider in
an amount equal to the amount of interest that would have accrued on such
Interest Drawing if such Interest Drawing had been made at the interest rate
applicable to such Interest Drawing until such Policy Drawing has been repaid in
full, up to a maximum of six such Policy Drawings. For the avoidance of doubt,
Policy Provider Obligations include reimbursement of and interest on the
Liquidity Obligations in respect of the class G and class C Liquidity Facilities
paid by the Policy Provider to the Liquidity Provider.
'Pool Balance' means for each pass through trust, the original aggregate
face amount of the certificates of such pass through trust less the aggregate
amount of all payments made in respect of the certificates of such pass through
trust or in respect of Deposits relating to such pass through trust other than
payments made in respect of interest or premium on the certificates or the
Deposits or reimbursement of any costs or expenses incurred in connection with
the certificates or the Deposits. The Pool Balance for each pass through trust
or for the certificates issued by any pass through trust as of any Distribution
Date will be computed after giving effect to any special distribution with
respect to unused Deposits, payment of principal of the secured promissory notes
or payment with respect to other trust property held in such pass through trust
and the distribution to be made on that date.
'Pool Factor' means as of any Distribution Date the quotient (rounded to the
seventh decimal place) computed by dividing (a) the Pool Balance of such pass
through trust by (b) the original aggregate face amount of the certificates of
such pass through trust. The Pool Factor for each pass through trust or for the
certificates issued by any pass through trust as of any Distribution Date will
be computed after giving effect to any special distribution with respect to
unused Deposits, payment of principal of the secured promissory notes or
payments with respect to other trust property held in such pass through trust
and the distribution of the trust property to be made on that date. Each pass
through trust will have a separate Pool Factor. The Pool Factor
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for each pass through trust will be 1.0000000 on the Issuance Date of the
certificates. After the Issuance Date, the Pool Factor for each pass through
trust will decline to reflect reductions in the Pool Balance of such pass
through trust. In the event of an early redemption, purchase or default of the
secured promissory notes held in a pass through trust, the Pool Factor and the
Pool Balance of such pass through trust will be recomputed after giving effect
thereto. The amount of a certificateholder's pro rata share of the Pool Balance
of a pass through trust can be determined by multiplying the par value of the
holder's certificate of such pass through trust by the Pool Factor for such pass
through trust as of the applicable Regular distribution Date or Special
Distribution Date. Notice of the Pool Factor and the Pool Balance for each pass
through trust will be mailed to certificateholders of such pass through trust on
each Regular Distribution Date and special Distribution Date.
'Preference Amount' means any payment of principal or interest at the Stated
Interest Rate on the series G secured promissory notes made to the pass through
trustee or the Subordination Agent or (without duplication) any payment of the
Pool Balance of or interest at the Stated Interest Rate on the class G
certificates or any payment of the proceeds of any drawing under the class G
Liquidity Facility made to a holder which has become recoverable or been
recovered from the pass through trustee, the Subordination Agent or the holders
of the class G certificates (as the case may be) as a result of such payment
being determined or deemed a preferential transfer pursuant to the United States
Bankruptcy Code or otherwise rescinded or requested to be returned in the
accordance with a final, nonappealable order of a court of competent
jurisdiction.
'Prior Funds' means, collectively, any amounts available to the Escrow Agent
in the class G Paying Agent Account in respect of accrued interest on the class
G Deposits, any drawings under the class G Liquidity Facility in respect of
accrued interest on the class G certificates and any withdrawal of funds from
the class G Cash Collateral Account in respect of such interest.
'PTC Event of Default' means, with respect to the pass through trust
agreement for each class of certificates, the failure to pay within 10 Business
Days of the applicable due date: (a) the outstanding Pool Balance of the
applicable class of certificates on the Final Maturity Date for such class of
certificates (unless the Subordination Agent has made a drawing under the Policy
in an amount sufficient to pay such Pool Balance); or (b) interest due on such
class of certificates on any Distribution Date (unless the Subordination Agent
has made a drawing under the applicable Liquidity Facility (including under the
Cash Collateral Account) or a drawing under the Policy in an amount sufficient
to pay such interest and has distributed such amount to the applicable pass
through trustee). (Intercreditor Agreement, Section 1.1)
'Purchase Agreement' means the purchase agreement to be entered into between
ATA and the Initial Purchasers relating to the purchase of the certificates.
'Rating Agency' means collectively at any time, each nationally recognized
rating agency that we have requested to rate the certificates and that is then
rating the certificates. The initial Rating Agencies will be Moody's Investors
Service and Standard & Poor's Ratings Services.
'Receiptholder' means a holder of an Escrow Receipt.
'Registration Rights Agreement' means the Exchange and Registration Rights
Agreement to be dated as of the Issuance Date among the Initial Purchasers, the
pass through trustees and ATA.
'Regular Distribution Dates' means January 15, April 15, July 15 and October
15 of each year.
'Remaining Weighted Average Life' on a given date with respect to any
secured promissory note means the number of days equal to the quotient obtained
by dividing (a) the sum of the products obtained by multiplying (1) the amount
of each then remaining scheduled installment of principal of such secured
promissory note, including the payment due on the maturity date of such secured
promissory note, by (2) the number of days from and including the redemption
date to but excluding the scheduled payment date of such principal installment,
by (b) the then unpaid principal amount of such secured promissory note.
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'Rent Payment Dates' means, with respect to each lease, January 15, April
15, July 15 and October 15 during the term of such lease.
A 'Replacement Facility' for any pass through trust will mean an irrevocable
liquidity facility in substantially the form of the initial Liquidity Facility
for such pass through trust, including reinstatement provisions, or, subject to
certain conditions, in such other form (which may include a letter of credit) as
shall permit the Rating Agencies to confirm in writing their respective ratings
then in effect for the certificates (before downgrading of such ratings, if any,
as a result of the downgrading of the applicable Liquidity Provider, such
ratings as determined without regard to the Policy), and in the case of the
class G Liquidity Facility only, to be consented to by the Policy Provider,
which consent will not be unreasonably withheld or delayed, in a face amount
equal to the Required Amount for such Liquidity Facility and issued by a person
having unsecured debt ratings issued by the applicable Rating Agencies which are
equal to or higher than the Threshold Rating. (Intercreditor Agreement, Section
1.1) The provider of any Replacement Facility will have the same rights
(including, without limitation, priority distribution rights and rights as
'Controlling Party') under the Intercreditor Agreement as the replaced initial
liquidity provider.
'Required Amount' means, for any day and with respect to any pass through
trust, the sum of the aggregate amount of interest, calculated at the Stated
Interest Rate applicable to the certificates issued by such pass through trust,
that would be payable on such certificates on each of the six consecutive
Regular Distribution Dates immediately following such day or, if such day is a
Regular Distribution Date, on such day and the succeeding five quarterly Regular
Distribution Dates, in each case calculated based on the Pool Balance for such
class on such day and without regard to expected future payments of principal on
such certificates. The Pool Balance for purposes of the definition of Required
Amount with respect to the class G Liquidity Facility will, in the event of any
Policy Provider Election, be deemed to be reduced by the amount by which (a) the
outstanding principal balance of the series G secured promissory note in respect
of which such Policy Provider Election has been made at the time such Policy
Provider Election was made, exceeds (b) the amount of any policy drawings
previously paid by the Policy Provider in respect of principal on such series G
secured promissory note.
'Scheduled Payment' means the scheduled payment of interest on the Deposits
and the scheduled payment of interest or principal on the secured promissory
notes or any payment of interest on the corresponding class of certificates as
specified on the cover page of the prospectus at the Stated Interest Rate for
such class of certificates, with funds drawn under the applicable Liquidity
Facility; provided, however, that any payment of principal, premium, if any, or
interest resulting from the redemption of purchase of any secured promissory
note will not constitute a Scheduled Payment.
'Section 1110' means Section 1110 of the Bankruptcy Code.
'Special Distribution Date' means each date on which a Special Payment will
be distributed to certificateholders.
'Special Payment' means any payment received by a pass through trustee other
than a Scheduled Payment.
'Special Payments Account' means one or more accounts established and
maintained by the pass through trustee for the deposit of payments representing
Special Payments received by such pass through trustee.
'Stated Interest Rate' means, for any class of certificates, the interest
rate applicable to such class of certificates as specified on the cover page of
the prospectus.
'Sublessee' with respect to each lease, means any sublessee under a lease
from time to time.
'Supplemental Rent,' with respect to each lease, means all amounts,
liabilities and obligations (other than Basic Rent) which are owned by ATA under
each lease and the agreements related thereto.
'Subordination Agent' means Wilmington Trust Company or any successor
Subordination Agent appointed in accordance with the Intercreditor Agreement.
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'Threshold Rating' means the short-term unsecured debt rating of P-1 by
Moody's and A-1+ by Standard & Poor's or, in the event a person's short-term
unsecured debt is not rated by either Moody's or Standard & Poor's, the
long-term unsecured debt rating by Moody's and Standard & Poor's at least equal
to the initial rating by each of Moody's and Standard & Poor's on the class A
certificates. (Intercreditor Agreement, Section 1.1)
'Transfer Date' means the earlier of (i) the first Business Day after
December 31, 2000 or, if later, the fifth Business Day after the Delivery Period
Termination Date and (ii) the fifth Business Day after the occurrence of a
Triggering Event.
'Treasury Yield' means, at the time of determination and for purposes of
determining the Make-Whole Amount and the Deposit Make-Whole Premium, the
interest rate (expressed as a quarterly equivalent and as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semiannual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
secured promissory note and trading in the public securities markets either as
determined by interpolation between the most recent weekly average yield to
maturity for two series of United States Treasury securities trading in the
public securities markets, (a) one maturing as close as possible to, but earlier
than, the Average Life Date of such secured promissory note and (b) the other
maturing as close as possible to, but later than, the Average Life Date of such
secured promissory note, in each case as published in the most recent H.15(519)
or, if a weekly average yield to maturity for United States Treasury securities
maturing on the Average Life Date of such secured promissory note is reported in
the most recent H.15(519), such weekly average yield to maturity as published in
such H.15(519). 'H.15(519)' means the weekly statistical release designated as
such, or any successor publication, published by the Board of Governors of the
Federal Reserve System. The date of determination of a Make-Whole Amount will be
the third Business Day prior to the applicable payment or redemption date and
the 'most recent H.15(519)' means the H.15(519) published prior to the close of
business on the third Business Day prior to the applicable payment or redemption
date.
'Triggering Event' means (x) the occurrence of an Indenture Default under
all of the Indentures resulting in a PTC Event of Default with respect to the
most senior class of certificates then outstanding, (y) the acceleration of, or
failure to pay at final maturity, all of the outstanding secured promissory
notes or (z) certain bankruptcy or similar events involving ATA. (Intercreditor
Agreement, Section 1.1)
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[LOGO] APPENDIX AII
31 December 1999
Mr. Charles Cleaver
American Trans Air
7337 West Washington Street
Indianapolis, IN 46251
Subject: AISI Report No. A9D164B57 Revision A
AISI Short Form Base Market Appraisal -- Seven B757-200Etop Aircraft
Dear Mr. Cleaver:
As requested, Aircraft Information Services, Inc. (AISI) is pleased to offer
American Trans Air (ATA) our opinion of the sight unseen base market value of
seven B757-200 ETOP aircraft all equipped with RB211-535E4 engines, four
aircraft with 255,500 lb and three aircraft with 220,000 lb maximum take-off
weight MTOW. Revision A to this report adds two new aircraft, tail numbers
N527AT and N528AT to the original report.
1. METHODOLOGY AND DEFINITIONS
The standard terms of reference for commercial aircraft value are `half-life
base market value' and `half-life current market value' of an `average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of 01 January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
AISI defines a `base value' as that of a transaction between equally willing
and informed buyer and seller, neither under compulsion to buy or sell, for a
single unit cash transaction with no hidden value or liability, and with supply
and demand of the sale item roughly in balance. Base values are typically given
for aircraft in `new' condition, `average half-life' condition, or in a
specifically described condition unique to a single aircraft at a specific time.
An `average' aircraft is an operable airworthy aircraft in average physical
condition and with average accumulated flight hours and cycles, with clear title
and standard unrestricted certificate of airworthiness, and registered in an
authority which does not represent a penalty to aircraft value or liquidity,
with no damage history and with inventory configuration and level of
modification which is normal for its intended use and age. AISI assumes average
condition unless otherwise specified in this report. `Half-life' condition
assumes that every component or maintenance service which has a prescribed
interval that determines its service life, overhaul interval or interval between
maintenance services, is at a condition which is one-half of the total interval.
It should be noted that AISI and ISTAT value definitions apply to a transaction
involving a single aircraft, and that transactions involving more than one
aircraft are often executed at considerable and highly variable discounts to a
single aircraft price, for a variety of reasons relating to an individual buyer
or seller.
AISI defines a `current market value', which is synonymous with the older
term `fair market value' as that value which reflects the real market
conditions, whether at, above or below the base value conditions. Assumption of
a single unit sale and definitions of aircraft condition, buyer/seller
qualifications and type of transaction remain unchanged from that of base value.
Current market value takes into consideration the status of the economy in which
the aircraft is used, the status of supply and demand for the particular
aircraft type, the value of recent transactions and the opinions of informed
buyers and sellers. Current market value assumes that there is no short term
time constraint to buy or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
AII-1
2. MARKET ANALYSIS - B757
The B757-200 is a twin engine, narrowbody, stage 3, two man crew aircraft
typically seating 186 passengers in mixed class configuration. Typical range
with full passengers at low MTOW is approximately 2,900 nautical miles, while at
high MTOW the range increases to approximately 4,000 nautical miles. A variant
of the aircraft is qualified for Extended Twin Engine Overwater Operation (ETOP)
giving the aircraft significant flexibility for use in both domestic and limited
international markets. The aircraft was first produced in 1982, and we do not
anticipate termination of production in the foreseeable future.
The B757-200 passenger aircraft has a large fleet of 711 active aircraft,
with 93 on order, and a very strong customer base of 59 airlines with
representation in every major geographic area, however heavily concentrated in
North America and Europe. A significant number of the B757-200 fleet, 376
aircraft, are operated via either a finance lease or operating lease.
The B757-200 occupies a unique place in the family of commercial aircraft in
that it does not have a direct competitor. Its closest narrowbody competitors,
the MD-83 and A321 neither have the range to compete with the B757, and the
MD-83 has considerably smaller passenger capacity. Airbus is considering
increasing the weights of the A321 to produce a 3,000mm range A321-300, but a
new larger wing would be required for the A321 to be truly competitive with the
B757. The closest widebody competitors, the B767-200 and A310-200/300, are
considerably larger aircraft and cost considerably more per plane mile to
operate. For the foreseeable future, it appears Airbus is content to permit the
B757 to remain unchallenged at the top of the larger, long range, narrowbody
market. Boeing, realizing it has a significant market in which it is
uncontested, has now committed to increase the size and weights of the B757-200
creating the B757-300. This will further distance the B757 family from its
narrowbody competitors and place it closer to the smallest widebody competitors,
over whom it enjoys considerable plane mile operating cost advantages.
AISI analysis of the market for the B757-200 indicates that demand had
stabilized in late 1995 and through 1996, increased from 1997 through 1998 but
has again stabilized and will continue so at least until the current uncertain
economic conditions become widespread. Orders and backlog for new aircraft have
declined but availability of newer B757 aircraft is tight; a production rate
decrease to 3 per month in 3rd quarter 1996 had been reversed to 4 per month in
1997. Current market purchase prices and lease rates for both older and newer
used B757-200 aircraft are now declining, probably in response to general
unsettled economic conditions, the southeast Asian crises and lower domestic
traffic growth in the United States. But as southeast Asia is not a large market
for the B757, US domestic traffic is still positive and European domestic
traffic growth is strong, the effect on the B757's value is as yet moderate.
3. VALUATION
The base market valuations are presented below in current US Dollars subject
to the assumptions, definitions and disclaimers herein.
BASE
MARKET VALUE
TAIL DELIVERY MTOW AIRCRAFT CURRENT
AIRCRAFT TYPE NUMBER DATE (LBS.) ENGINES CONDITION U.S. DOLLARS
------------- ------ ---- ------ ------- --------- ------------
B757-200Etop N515AT Oct 1995 255,500 RB211-535E4 Half Life $48,690,000
N523AT Sep 1999 220,000 RB211-535E4 3 mos old $57,110,000
N524AT Oct 1999 220,000 RB211-535E4 2 mos old $57,180,000
N525AT Jun 2000 220,000 RB211-535E4 New $58,100,000
N526AT Jun 2000 255,500 RB211-535E4 New $60,260,000
N527AT Nov 2000 255,500 RB211-535E4 New $60,950,000
N528AT Nov 2000 255,500 RB211-535E4 New $60,950,000
Note: Future deliveries are in then current US Dollars assuming 2.8% annual
inflation.
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft or
equipment. AISI has no past, present, or anticipated future
AII-2
interest in the subject aircraft or equipment. The conclusions and opinions
expressed in this report are based on published information, information
provided by others, reasonable interpretations and calculations thereof and are
given in good faith. Such conclusions and opinions are judgments that reflect
conditions and values which are current at the time of this report. The values
and conditions reported upon are subject to any subsequent change. AISI shall
not be liable to any party for damages arising out of reliance or alleged
reliance on this report, or for any parties action or failure to act as a result
of reliance or alleged reliance on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
/s/ JOHN D. MCNICOL
JOHN D. MCNICOL
Vice President
Appraisals & Forecasts
AII-3
MORTEN BEYER & AGNEW
AVIATION CONSULTING FIRM
APPRAISAL OF SEVEN (7)
BOEING B757-200 AIRCRAFT
PREPARED FOR:
AMERICAN TRANS AIR
&
SALOMON SMITH BARNEY
JANUARY 18, 2000
Washington, D.C. London
8180 Greensboro Drive Lahinch 62, Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone +703 847 6598 Phone +44 1342 716248
Fax +703 847 1911 Fax +44 1342 718967
AII-4
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER & AGNEW, INC. (MBA), has been retained by American Trans Air
('ATA') to determine the Current Base Value of (7) Boeing 757-200 aircraft
(27598, 30232, 30233, 30548, 30549, and TBD) in passenger configuration, as of
December 31, 1999. The aircraft are further identified in Section II of this
report.
In performing this valuation, MBA did not inspect the aircraft or their
historical maintenance documentation, and we relied solely on information
provided to us by American Trans Air. Based on the information set forth further
in this report, it is our opinion that the Current Base Value of this portfolio
is $415,460,000 as noted in Section IV.
MBA uses the definition of certain terms, such as Current Market Value and
Base Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and who
have established a technical and ethical certification program for expert
appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the
most likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements
of Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
II. AIRCRAFT
BOEING 757-23N (ETOPS)
------------------------------------------------------------------------------
Serial Number.................... 27598 30232 30233 30548 30549 TBD TBD
Registration Marking............. N515AT N523AT N524AT N525AT N526AT N527AT N528AT
Date of Manufacture.............. 10/95 9/99 10/99 6/00 6/00 11/00 11/00
MTOW............................. 255,500 255,500 255,500 255,500 255,500 255,500 255,500
Configuration.................... 216Y 216Y 216Y 216Y 216Y 216Y 216Y
Engine Type...................... RB211-535E4
Noise Compliance................. State III
AII-5
III. CURRENT MARKET CONDITIONS
BOEING 757-200
Almost 1,000 B-757s have been built since it entered service in 1982, and
production rates continue firm despite competition from Airbus and from Boeing's
own increasingly larger B-737-800/900s. Seventy-nine have been built as
freighters, almost all for UPS. The aircraft is a reasonably good cargo
aircraft, comparable to the B-727-200, but will not be converted until used
prices decline. As of now a used B-757 sells for approximately what it cost new.
There are 13 B-757-200s on the market for sale or for lease including one
freighter. MBA estimates the current market value of older B-757-200s at
90 percent of Base Value. The high gross ER model is increasingly being used on
skinny Trans Atlantic and charter flights.
Boeing has also stretched the B-757 by 20 feet as the B-757-300, encroaching
on the territory of the all-but defunct B-767-200 of similar capacity. The
aircraft is off to a slow start, with only 17 orders to date. We value the -300
at 100 percent of Base Value.
It is important to note in the case of these particular aircraft, American
Trans Air has opted to incur an additional fee from Boeing to have the option to
increase the Maximum Gross Take-off Weight (MTOW). MBA has valued these aircraft
at the highest possible rating of 255,500 pounds.
IV. VALUATION
American Trans Air-Boeing 757-23N *Current Base Value ($000,000)
- --------------------------------- ------------------------------
N515AT (s/n 27598) 50.20
N523AT (s/n 30232) 59.90
N524AT (s/n 30233) 60.00
N525AT (s/n 30548) 61.10
N526AT (s/n 30549) 61.10
N527AT (s/n TBD) 61.58
N528AT (s/n TBD) 61.58
* Current Base Value - includes a positive adjustment for ETOPS (1.00) and for
increased MTOW (.914); Each aircraft value is also adjusted for month and year
of manufacture.
In developing the Current Base Value of these aircraft, MBA did not inspect
the aircraft nor their historical maintenance documentation, but relied on
partial information supplied by the Client. Therefore, we used certain
assumptions that are generally accepted industry practice to calculate the value
of aircraft when more detailed information is not available. The principal
assumptions are as follows:
1. The aircraft is in good overall condition.
2. The overhaul status of the airframe, engines, landing gear and other
major components are the equivalent of mid-time/mid-life unless otherwise
specified.
3. The historical maintenance documentation has been maintained to
acceptable international standards.
4. The specifications of the aircraft are those most common for an
aircraft of its type and vintage.
5. The aircraft is in a standard airline configuration.
6. The aircraft is current as to all Airworthiness Directives and
Service Bulletins.
7. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
8. Its utilization is comparable to industry averages.
9. There is no history of accident or incident damage.
10. No accounting is made for lease obligations or terms of ownership.
AII-6
V. COVENANTS
This report has been prepared for the exclusive use of American Trans Air
and shall not be provided to other parties by MBA without the express consent of
American Trans Air.
MBA certifies that this report has been independently prepared and that it
fully and accurately reflects MBA's opinion as to the Current Base Value. MBA
further certifies that it does not have, and does not expect to have, any
financial or other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base Value of
the subject aircraft and is intended to be advisory only in nature. Therefore,
MBA assumes no responsibility or legal liability for any actions taken or not
taken by American Trans Air or any other party with regard to the subject
aircraft. By accepting this report, all parties agree that MBA shall bear no
such responsibility or legal liability.
Prepared by:
/s/ Bryson P. Monteleone
.....................................
Bryson P. Monteleone
Director of Operations
Reviewed by:
/s/ Morten S. Beyer
.....................................
Morten S. Beyer, Appraiser Fellow
Chairman and CEO
ISTAT Certified Senior Appraiser
AII-7
[SH&E LETTERHEAD]
January 28, 2000
Mr. Charles Cleaver
American Trans Air, Inc.
P.O. Box 51609
Indianapolis, IN 46251
Re: Value Opinion of Five Boeing 757-200 ETOPS Aircraft
Dear Mr. Cleaver:
Simat, Helliesen & Eichner, Inc. ('SH&E'), was asked by American Trans Air
(the 'Client') to determine the Base Value ('BV') for seven Boeing 757-200 ETOPS
aircraft (the 'Subject Aircraft') to be operated by American Trans Air, Inc. The
specifications for the Subject Aircraft are shown on Attachment A.
SH&E has determined the following values for the Subject Aircraft:
SUBJECT AIRCRAFT VALUES ($MIL)
AIRCRAFT SERIAL BASE
AIRCRAFT TYPE REGISTRATION NUMBER DELIVERY DATE VALUE
------------- ------------ ------ ------------- -----
757-200 ETOPS.................................. N515AT 27598 October 1995 $52.6
757-200 ETOPS.................................. N523AT 30232 September 1999 $65.5
757-200 ETOPS.................................. N524AT 30233 October 1999 $65.5
757-200 ETOPS.................................. N525AT 30548 June 2000 $65.5
757-200 ETOPS.................................. N526AT 30549 June 2000 $66.8
757-200 ETOPS.................................. N527AT TBD November 2000 $66.8
757-200 ETOPS.................................. N528AT TBD November 2000 $66.8
The definitions and assumptions used in the SH&E valuation process are as
follows:
SH&E VALUATION METHODOLOGY
Since SH&E was formed in 1963, the firm has appraised virtually every major
commercial jet and turboprop aircraft model and has also appraised many general
aviation and corporate aircraft models. SH&E's appraisal's are performed
according to the International Society of Transport Aircraft Trading (ISTAT)
principles of appraisal practice and code of ethics. SH&E's staff includes two
appraisers certified by ISTAT.
The SH&E valuation approach starts by determining a half-life value. The
term 'half-life' represents an aircraft whose major components (e.g. airframe,
engines, landing gear and APU) have used 50 percent of the time between
scheduled or expected overhauls. This initial appraisal can then be adjusted
(positive or negative) for each individual unit to reflect the aircraft's
maintenance status relative to the next overhaul. In most cases, the Base Value
of an aircraft assumes its physical condition is average for an aircraft of its
type and age, and its maintenance time status is at half-life (or benefitting
from an above-average maintenance status if it is new or nearly new, as the case
may be). SH&E half-life values are determined on a semi-annual basis by
reviewing recent past sales, aircraft availability trends, technological
aspects, environmental constraints and maintenance requirements.
In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.
AII-8
BASE VALUE DEFINITION
The Base Value (BV) is the appraiser's opinion of the price at which an
aircraft would change hands between a willing buyer and a willing seller,
neither being under compulsion to buy or sell, and both having knowledge of all
relevant facts. An aircraft's BV is founded in the historical trend of values
and in the projection of value trends, and presumes an arm's-length, cash
transaction.
Since BV pertains to a somewhat idealized aircraft and market combination,
it may not necessarily reflect the actual value of the aircraft in question, but
is a nominal starting value to which adjustments may be applied to determine an
actual value.
The BV of each aircraft is derived from SH&E's aircraft valuation models.
The SH&E BV models provide trend lines derived from known transactions,
econometric factors affecting aircraft values and aircraft economic life
estimates. Because it is related to long-term market trends, the BV definition
is normally applied to analyses of historical values and projections of residual
values.
ECONOMIC USEFUL LIFE
The Economic useful life is an economic and technological issue driven by
two sacrifices. The first sacrifice is the loss of interest on the funds
invested in the asset and the second is the economic depreciation of the asset.
The asset is deemed to have economic life remaining as long as it provides
positive inflow of funds (by generating revenues greater than its operating
costs) sufficient to exceed the sum of the two sacrifices described above. In
general terms, economic life can be reflected as that age in which an asset's
expected decline in real value is no longer material.
In the case of an aircraft, the economic life is influenced by many external
factors, including: fuel costs, environmental restraints, unexpected fatigue and
corrosion requirements, the capacity to generate adequate traffic yields and the
development of competing transportation technology.
ASSUMPTIONS
SH&E used information supplied by the Client together with in-house data
accumulated through other recent studies of aircraft transactions. Data sources
included FAA and manufacturer forecasts and DOT Form 41, Schedule P5 Accounts.
Specific assumptions included the following:
SH&E assumed that the Subject Aircraft meet all of the specifications and
performance standards for typical 757-200 ETOPS aircraft.
SH&E did not perform a physical inspection of the Subject Aircraft and has
assumed the Subject Aircraft to be in a condition similar to equipment of
comparable age and type.
SH&E assumed that all normally required maintenance has been and will
continue to be performed including all Airworthiness Directives.
SH&E assumed that the Subject Aircraft will remain in their current
configuration and continue to be certified for operations under the U.S.
Federal Aviation Administration (or a comparable authority) and have
maintenance performed that is in accordance with industry recognized
standards.
SH&E's opinions are based upon historical relationships and expectations
that it believes are reasonable. Some of the underlying assumptions, including
those described above are detailed explicitly or implicitly elsewhere in this
report, and may not materialize because of unanticipated events and
circumstances. SH&E's opinions could, and would, vary materially, should any of
the above assumptions prove to be inaccurate.
LIMITATIONS
The opinions expressed herein are not given as an inducement or endorsement
for any financial transaction. They are prepared for the exclusive use of the
addressee and the addressee
AII-9
may not provide this report to other parties, including third parties, without
SH&E's written consent.
SH&E accepts no responsibility for damages, if any, that may result from
decisions made or actions taken by third parties that may be based upon this
report. In accepting this report the Client agrees to indemnify and hold SH&E
harmless against all losses, claims and costs arising as a result of this report
except when attributable to SH&E's gross negligence or willful misconduct.
This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.
Yours sincerely,
/s/ Clive G. Medland
........................................
Clive G. Medland, FRAeS
Vice President
Senior Appraiser
International Society of Transport
Aircraft Trading
AII-10
ATTACHMENT A
AMERICAN TRANS AIR
BOEING 757-200 AIRCRAFT SPECIFICATIONS
--------------------------------------------------------------
Aircraft Type................. 757-200 757-200 757-200 757-200
Serial Number................. 27598 30232 30233 30548
Delivery Date................. Oct-95 Sep-99 Oct-99 Jun-00
ETOPS......................... Yes Yes Yes Yes
Engine Type................... R-B211-535E4 RB211-535E4 RB211-535E4 RB211-535E4
Configuration................. 216Y 216Y 216Y 216Y
Max. Take-Off Weight.......... 255,500 220,000* 220,000* 220,000*
Max. Landing Weight........... 198,000 lb 198,000 lb 198,000 lb 198,000 lb
Max. Zero Fuel Weight......... 184,000 lb 184,000 lb 184,000 lb 184,000 lb
Fuel Capacity................. 11,276 gallons 11,276 gallons 11,276 gallons 11,276 gallons
BOEING 757-200 AIRCRAFT SPECIFICATIONS
----------------------------------------------
Aircraft Type................. 757-200 757-200 757-200
Serial Number................. 30549 TBD TBD
Delivery Date................. Jun-00 Nov-00 Nov-00
ETOPS......................... Yes Yes Yes
Engine Type................... RB211-535E4 RB211-535E4 RB211-535E4
Configuration................. 216Y 216Y 216Y
Max. Take-Off Weight.......... 255,500 255,500 255,500
Max. Landing Weight........... 198,000 lb 198,000 lb 198,000 lb
Max. Zero Fuel Weight......... 184,000 lb 184,000 lb 184,000 lb
Fuel Capacity................. 11,276 gallons 11,276 gallons 11,276 gallons
- ---------
* Boeing Flexible Gross Weight Program allows ATA to operate aircraft at
255,500 MTOW when required but program is not transferable to next operator.
AII-11
APPENDIX AIII
SECURED PROMISSORY NOTES PRINCIPAL PAYMENT SCHEDULE
AIRCRAFT REGISTRATION NUMBER
REGULAR ----------------------------------------------------------------------------------------
DISTRIBUTION DATE N515AT N523AT N524AT N525AT N526AT N527AT N528AT
----------------- ------ ------ ------ ------ ------ ------ ------
January 15, 2001..... $1,841,095 $1,572,995 $1,579,853 $1,545,912 $1,545,912 $1,813,971 $1,813,971
January 15, 2002..... 1,982,456 1,693,771 1,700,681 1,652,000 1,652,000 1,609,768 1,609,768
January 15, 2003..... 2,134,670 1,823,820 1,829,337 1,805,337 1,805,337 1,758,688 1,758,688
January 15, 2004..... 2,298,572 1,963,854 1,967,724 1,974,621 1,974,621 1,923,444 1,923,444
January 15, 2005..... 2,475,058 2,114,640 2,116,581 2,161,452 2,161,452 2,100,705 2,100,705
January 15, 2006..... 2,477,269 2,277,004 2,276,698 2,373,243 2,373,243 2,306,073 2,306,073
January 15, 2007..... 2,120,331 2,451,834 2,448,929 1,269,193 1,269,193 1,574,089 1,574,089
January 15, 2008..... 1,042,335 1,514,182 1,568,058 2,391,252 2,391,252 1,906,521 1,906,521
January 15, 2009..... 2,363,163 1,031,435 1,029,910 1,366,776 1,366,776 1,945,068 1,945,068
January 15, 2010..... 2,544,608 1,292,878 1,128,295 1,870,813 1,870,813 2,134,967 2,134,967
January 15, 2011..... 2,739,985 2,188,828 1,858,298 2,327,422 2,327,422 2,315,634 2,315,634
January 15, 2012..... 2,950,363 2,356,887 2,315,660 2,526,528 2,526,528 2,513,732 2,513,732
January 15, 2013..... 1,699,281 2,537,851 2,490,838 2,742,667 2,742,667 2,728,776 2,728,776
January 15, 2014..... 0 2,732,709 2,679,268 2,977,297 2,977,297 2,962,217 2,962,217
January 15, 2015..... 0 2,942,528 2,881,952 3,231,998 3,231,998 3,215,629 3,215,629
January 15, 2016..... 0 2,454,548 3,099,969 3,508,489 3,508,489 3,490,719 3,490,719
AIII-1
_______________________________ _______________________________
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS OR ACCOMPANYING LETTER
OF TRANSMITTAL. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL ARE
AN OFFER TO SELL OR AN OFFER TO BUY ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY
UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE
INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE ACCOMPANYING LETTER OF
TRANSMITTAL ARE CURRENT ONLY AS OF THEIR RESPECTIVE DATES.
-------------------
$201,901,000
CLASS G PASS THROUGH CERTIFICATES, SERIES
2000-1
$36,740,000
CLASS C PASS THROUGH CERTIFICATES, SERIES
2000-1
AMERICAN TRANS AIR, INC.
APPLICABLE UNDERLYING PAYMENTS FULLY
AND UNCONDITIONALLY GUARANTEED BY
AMTRAN, INC.
OFFER TO EXCHANGE
$201,901,000 CLASS G PASS THROUGH CERTIFICATES AND
$36,740,000 CLASS C PASS THROUGH CERTIFICATES
FOR
A LIKE AMOUNT OF REGISTERED CLASS G AND CLASS C
PASS THROUGH CERTIFICATES
--------------------
PROSPECTUS
--------------------
SEPTEMBER 12, 2000
_______________________________ _______________________________
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Information relating to indemnification of directors and officers is
incorporated by reference herein from Item 14 of the Company's Registration
Statement on Form S-1 (No. 33-59630).
ITEM 21. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
*3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- By-laws of the Company
**4.1 -- Form of Indenture (Leased Aircraft) Trust Indenture and
Mortgage, dated as of , 2000, between First
Security Bank, National Association, not in its individual
capacity, except as expressly stated herein, but solely as
Owner Trustee, and Wilmington Trust Company, not in its
individual capacity, except as expressly stated herein,
but solely as Loan Trustee
**4.2 -- Form of Indenture (Owned Aircraft) Trust Indenture and
Mortgage, dated as of , 2000, between American
Trans Air, Inc., owner, and Wilmington Trust Company, not
in its individual capacity, except as expressly stated
herein, but solely as Mortgagee
**4.3 -- Form of Class G American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.5)
**4.4 -- Form of Class C American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.7)
**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
**4.6 -- Pass Through Trust Agreement, dated 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
**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
**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
**4.9 -- Revolving Credit Agreement (2000-1G), dated as of
February 15, 2000, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as agent and trustee for the American Trans Air
2000-1G Pass Through Trust, as Borrower, and Citibank,
N.A., as Liquidity Provider, relating to American Trans
Air 2000-1G Pass Through Trust, Series 2000-1G, and 8.039%
American Trans Air Pass Through Certificates, Series
2000-1G-O
II-1
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
**4.10 -- Revolving Credit Agreement (2000-1C), dated as of
February 15, 2000, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as agent and trustee for the American Trans Air
2000-1C Pass Through Trust, as Borrower, and Citibank,
N.A., as Liquidity Provider, relating to American Trans
Air 2000-1C Pass Through Trust, Series 2000-1C 9.644%
American Trans Air Pass Through Certificates, Series
2000-1C-O
**4.11 -- Intercreditor Agreement, dated as of February 15, 2000,
among Wilmington Trust Company, not in its individual
capacity but solely as Trustee under the American Trans
Air 2000-1G Pass Through Trust and American Trans Air
2000-1C Pass Through Trust, Citibank, N.A., as Class G
Liquidity Provider and Class C Liquidity Provider, Ambac
Assurance Corporation, as Policy Provider, and Wilmington
Trust Company, not in its individual capacity except as
expressly set forth herein but solely as Subordination
Agent and Trustee
**4.12 -- Exchange and Registration Rights Agreement, dated as of
February 15, 2000, among American Trans Air, Inc.,
Wilmington Trust Company, not in its individual capacity
but solely as Trustee under American Trans Air Pass
Through Trust, Series 2000-1G-O, American Trans Air Pass
Through Trust, Series 2000-1C-O, and Salomon Smith Barney
Inc., Bank One Capital Markets, Inc., Chase Securities
Inc. and Morgan Stanley & Co. Incorporated
**4.13 -- Deposit Agreement (Class G), dated as of February 15,
2000, between First Security Bank, National Association,
as Escrow Agent, and Citibank, N.A., as Depositary
**4.14 -- Deposit Agreement (Class C), dated as of February 15,
2000, between First Security Bank, National Association,
as Escrow Agent, and Citibank, N.A., as Depositary
**4.15 -- Escrow and Paying Agent Agreement (Class G), dated as of
February 15, 2000, among First Security Bank, National
Association, as Escrow Agent, Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and Banc One Capital Markets, Inc., as Initial Purchasers,
Wilmington Trust Company, not in its individual capacity
but solely as Pass Through Trustee for and on behalf of
American Trans Air 2000-1G-O Pass Through Trust, as Pass
Through Trustee, and Wilmington Trust Company, as Paying
Agent
**4.16 -- Escrow and Paying Agent Agreement (Class C), dated as of
February 15, 2000, among First Security Bank, National
Association as Escrow Agent, Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and Banc One Capital Markets, Inc., as Initial Purchasers,
Wilmington Trust Company, not in its individual capacity
but solely as Pass Through Trustee for and on behalf of
American Trans Air 2000-1C-O Pass Through Trust, as Pass
Through Trustee, and Wilmington Trust Company, as Paying
Agent
**4.17 -- Note Purchase Agreement, dated as of February 15, 2000,
among American Trans Air, Inc., Amtran, Inc., as
Guarantor, Wilmington Trust Company, as Pass Through
Trustee under each of the Pass Through Trust Agreements,
Wilmington Trust Company, as Subordination Agent, First
Security Bank, National Association, as Escrow Agent, and
Wilmington Trust Company, as Paying Agent
**4.18 -- Certificate Guaranty Insurance Policy Endorsement, dated
February 15, 2000, issued to Wilmington Trust Company not
in its individual capacity but solely as Subordination
Agent under the Agreement, Citibank, N.A., as Class G
Liquidity Provider and Class C Liquidity Provider, solely
with respect to Deficiency Amounts descried in item (g) of
the definition of 'Deficiency Amount'
**4.19 -- Indemnification Agreement with respect to Amtran Trans
Air, Inc. Pass Through Certificates, Series 2000-1G, dated
as of February 15, 2000, on behalf of Ambac Assurance
Corporation, Salomon Smith Barney Inc., Morgan Stanley &
Co., Incorporated, Chase Securities Inc., and Banc One
Capital Markets, Inc.
II-2
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
**4.20 -- Insurance and Indemnity Agreement with respect to
American Trans Air, Inc. Pass Through Certificates,
Series 2000-1G, dated as of February 15, 2000, between
Ambac Assurance Corporation, as Policy Provider, American
Trans Air, Inc. and Wilmington Trust Company, not in its
individual capacity but solely as Subordination Agreement
**5.1 -- Opinion of Troutman Sanders LLP as to the legality of the
Exchange Certificates and the Guarantee being registered
hereby
5.2 -- Opinion of Brian T. Hunt, General Counsel of Amtran
12.1 -- Computation of ratio of earnings to fixed charges
**23.1 -- Consent of Troutman Sanders LLP (included in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
**23.3 -- Consent of Ambac's Accountants
**23.4 -- Consent of AISI
**23.5 -- Consent of MBA
**23.6 -- Consent of SH&E
23.7 -- Consent of Brian T. Hunt, General Counsel of Amtran
(included in Exhibit 5.2)
**24.1 -- Power of Attorney (included on the signature page of this
Form S-4 and incorporated herein by reference)
**25.1 -- Statement of Eligibility of Wilmington Trust Company for
the 2000-1G Pass Through Certificates, on Form T-1
**25.2 -- Statement of Eligibility of Wilmington Trust Company for
the 2000-1C Pass Through Certificates, on Form T-1
**99.1 -- Form of Letter of Transmittal
**99.2 -- Form of Notice of Guaranteed Delivery
**99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
**99.4 -- Form of Letter to Clients
- ---------
* Previously filed as an exhibit to Amtran's Registration Statement on Form S-1
(File No. 33-59630).
** Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the
II-3
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated document by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) and section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, State of Indiana, on the 11th day of September, 2000.
AMTRAN, INC.
By /s/ JOHN P. TAGUE
...................................
NAME: JOHN P. TAGUE
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLES DATES
---------- ------ -----
* Chairman of the Board of Directors September 11, 2000
.........................................
(J. GEORGE MIKELSONS)
/s/ JOHN P. TAGUE President and Chief Executive September 11, 2000
......................................... Officer and Director (Principal
(JOHN P. TAGUE) Executive Officer)
* Executive Vice President and Chief September 11, 2000
......................................... Operating Officer and Director
(JAMES W. HLAVACEK)
* Executive Vice President and Chief September 11, 2000
......................................... Financial Officer and Director
(KENNETH K. WOLFF) (Principal Financial and
Accounting Officer)
* Director September 11, 2000
.........................................
(ROBERT A. ABEL)
* Director September 11, 2000
.........................................
(WILLIAM P. ROGERS, JR.)
* Director September 11, 2000
.........................................
(ANDREJS P. STIPNIEKS)
*By /s/ JOHN P. TAGUE
.................................
JOHN P. TAGUE
ATTORNEY-IN-FACT
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, State of Indiana, on the 11th day of September, 2000.
AMERICAN TRANS AIR, INC.
By /s/ JOHN P. TAGUE
..................................
NAME: JOHN P. TAGUE
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
II-6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
*3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- By-laws of the Company
**4.1 -- Form of Indenture (Leased Aircraft) Trust Indenture and
Mortgage, dated as of , 2000, between First Security
Bank, National Association, not in its individual
capacity, except as expressly stated herein, but solely as
Owner Trustee, and Wilmington Trust Company, not in its
individual capacity, except as expressly stated herein,
but solely as Loan Trustee
**4.2 -- Form of Indenture (Owned Aircraft) Trust Indenture and
Mortgage, dated as of , 2000, between American Trans
Air, Inc., owner, and Wilmington Trust Company, not in its
individual capacity, except as expressly stated herein,
but solely as Mortgagee
**4.3 -- Form of Class G American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.5)
**4.4 -- Form of Class C American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.7)
**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
**4.6 -- Pass Through Trust Agreement, dated 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
**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
**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
**4.9 -- Revolving Credit Agreement (2000-1G), dated as of
February 15, 2000, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as agent and trustee for the American Trans Air
2000-1G Pass Through Trust, as Borrower, and Citibank,
N.A., as Liquidity Provider, relating to American Trans
Air 2000-1G Pass Through Trust, Series 2000-1G, and 8.039%
American Trans Air Pass Through Certificates, Series
2000-1G-O
**4.10 -- Revolving Credit Agreement (2000-1C), dated as of
February 15, 2000, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as agent and trustee for the American Trans Air
2000-1C Pass Through Trust, as Borrower, and Citibank,
N.A., as Liquidity Provider, relating to American Trans
Air 2000-1C Pass Through Trust, Series 2000-1C 9.644%
American Trans Air Pass Through Certificates, Series
2000-1C-O
**4.11 -- Intercreditor Agreement, dated as of February 15, 2000,
among Wilmington Trust Company, not in its individual
capacity but solely as Trustee under the American Trans
Air 2000-1G Pass Through Trust and American Trans Air
2000-1C Pass Through Trust, Citibank, N.A., as Class G
Liquidity Provider and Class C Liquidity Provider, Ambac
Assurance Corporation, as Policy Provider, and Wilmington
Trust Company, not in its individual capacity except as
expressly set forth herein but solely as Subordination
Agent and Trustee
**4.12 -- Exchange and Registration Rights Agreement, dated as of
February 15, 2000, among American Trans Air, Inc.,
Wilmington Trust Company, not in its individual capacity
but solely as Trustee under American Trans Air Pass
Through Trust, Series 2000-1G-O, American Trans Air Pass
Through Trust, Series 2000-1C-O, and Salomon Smith Barney
Inc., Bank One Capital Markets, Inc., Chase Securities
Inc. and Morgan Stanley & Co. Incorporated
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
**4.13 -- Deposit Agreement (Class G), dated as of February 15,
2000, between First Security Bank, National Association,
as Escrow Agent, and Citibank, N.A., as Depositary
**4.14 -- Deposit Agreement (Class C), dated as of February 15,
2000, between First Security Bank, National Association,
as Escrow Agent, and Citibank, N.A., as Depositary
**4.15 -- Escrow and Paying Agent Agreement (Class G), dated as of
February 15, 2000, among First Security Bank, National
Association, as Escrow Agent, Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and Banc One Capital Markets, Inc., as Initial Purchasers,
Wilmington Trust Company, not in its individual capacity
but solely as Pass Through Trustee for and on behalf of
American Trans Air 2000-1G-O Pass Through Trust, as Pass
Through Trustee, and Wilmington Trust Company, as Paying
Agent
**4.16 -- Escrow and Paying Agent Agreement (Class C), dated as of
February 15, 2000, among First Security Bank, National
Association as Escrow Agent, Salomon Smith Barney Inc.,
Morgan Stanley & Co. Incorporated, Chase Securities Inc.
and Banc One Capital Markets, Inc., as Initial Purchasers,
Wilmington Trust Company, not in its individual capacity
but solely as Pass Through Trustee for and on behalf of
American Trans Air 2000-1C-O Pass Through Trust, as Pass
Through Trustee, and Wilmington Trust Company, as Paying
Agent
**4.17 -- Note Purchase Agreement, dated as of February 15, 2000,
among American Trans Air, Inc., Amtran, Inc., as
Guarantor, Wilmington Trust Company, as Pass Through
Trustee under each of the Pass Through Trust Agreements,
Wilmington Trust Company, as Subordination Agent, First
Security Bank, National Association, as Escrow Agent, and
Wilmington Trust Company, as Paying Agent
**4.18 -- Certificate Guaranty Insurance Policy Endorsement, dated
February 15, 2000, issued to Wilmington Trust Company not
in its individual capacity but solely as Subordination
Agent under the Agreement, Citibank, N.A., as Class G
Liquidity Provider and Class C Liquidity Provider, solely
with respect to Deficiency Amounts descried in item (g) of
the definition of 'Deficiency Amount'
**4.19 -- Indemnification Agreement with respect to Amtran Trans
Air, Inc. Pass Through Certificates, Series 2000-1G, dated
as of February 15, 2000, on behalf of Ambac Assurance
Corporation, Salomon Smith Barney Inc., Morgan Stanley &
Co., Incorporated, Chase Securities Inc., and Banc One
Capital Markets, Inc.
**4.20 -- Insurance and Indemnity Agreement with respect to
American Trans Air, Inc. Pass Through Certificates, Series
2000-1G, dated as of February 15, 2000, between Ambac
Assurance Corporation, as Policy Provider, American Trans
Air, Inc. and Wilmington Trust Company, not in its
individual capacity but solely as Subordination Agreement
**5.1 -- Opinion of Troutman Sanders LLP as to the legality of the
Exchange Certificates and the Guarantee being registered
hereby
5.2 -- Opinion of Brian T. Hunt, General Counsel of Amtran
12.1 -- Computation of ratio of earnings to fixed charges
**23.1 -- Consent of Troutman Sanders LLP (included in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
**23.3 -- Consent of Ambac's Accountants
**23.4 -- Consent of AISI
**23.5 -- Consent of MBA
**23.6 -- Consent of SH&E
23.7 -- Consent of Brian T. Hunt, General Counsel of Amtran
(included in Exhibit 5.2)
**24.1 -- Power of Attorney (included on the signature page of this
Form S-4 and incorporated herein by reference)
**25.1 -- Statement of Eligibility of Wilmington Trust Company for
the 2000-1G Pass Through Certificates, on Form T-1
**25.2 -- Statement of Eligibility of Wilmington Trust Company for
the 2000-1C Pass Through Certificates, on Form T-1
**99.1 -- Form of Letter of Transmittal
**99.2 -- Form of Notice of Guaranteed Delivery
**99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
**99.4 -- Form of Letter to Clients
- ---------
* Previously filed as an exhibit to Amtran's Registration Statement on Form S-1
(File No. 33-59630).
** Previously filed.
STATEMENT OF DIFFERENCES
------------------------
The cent sign shall be expressed as........................................ [c]