AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 2003
REGISTRATION NO. 333-101423
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATA HOLDINGS CORP. 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 (Address, including zip code, and
telephone number,including area code, telephone number, including area code,
of registrant's principal 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:
RONALD CAMI, ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NY 10019
(212) 474-1000
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 said Section 8(a),
may determine.
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PROSPECTUS
$259,892,000
AMERICAN TRANS AIR, INC.
2002-1 PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES, SERIES 2002-1
APPLICABLE UNDERLYING PAYMENTS FULLY AND UNCONDITIONALLY GUARANTEED BY
ATA HOLDINGS CORP.
OFFER TO EXCHANGE
$203,612,000 CLASS A PASS THROUGH CERTIFICATES AND
$56,280,000 CLASS B PASS THROUGH CERTIFICATES
FOR
A LIKE AMOUNT OF REGISTERED CLASS A
AND CLASS B PASS THROUGH CERTIFICATES
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME ON [ ], 2003, 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 22 FOR A DESCRIPTION OF
CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
FINAL EXPECTED
PASS THROUGH CERTIFICATES PRINCIPAL AMOUNT INTEREST RATE DISTRIBUTION DATE
---- ------- ------------ --------- ------ -------- ---- ------------ ----
2002-1A................................. $203,612,000 8.328% February 20, 2013
2002-1B................................. $ 56,280,000 10.699% February 20, 2008
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 , 2003
Address of Principal Executive Offices of American Trans Air, Inc.:
7337 West Washington Street
Indianapolis, Indiana 46231
(317) 247-4000
TABLE OF CONTENTS
Page
----
Where You Can Find More Information......................................................................... 2
Forward-looking Statements.................................................................................. 3
Summary..................................................................................................... 5
Summary of Terms of the Exchange Offer...................................................................... 6
Summary Description of the Exchange Certificates............................................................ 8
Use of Proceeds............................................................................................. 19
Risk Factors................................................................................................ 22
The Exchange Offer.......................................................................................... 35
Ratio of Earnings to Fixed Charges.......................................................................... 44
Capitalization.............................................................................................. 45
Selected Consolidated Financial Data........................................................................ 46
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 49
Business.................................................................................................... 103
Description of Principal Indebtedness....................................................................... 114
Description of the Certificates............................................................................. 117
Description of the Delayed Funding Implementation........................................................... 135
Description of the Deposit Agreements....................................................................... 135
Description of the Escrow Agreements........................................................................ 137
Description of the Liquidity Facilities..................................................................... 139
Description of the Intercreditor Agreement.................................................................. 145
Description of the Aircraft and the Appraisals.............................................................. 150
Description of the Secured Promissory Notes................................................................. 152
Exchange Offer; Registration Rights......................................................................... 170
Book-Entry; Delivery and Form............................................................................... 172
U.S. Federal Income Tax Consequences........................................................................ 177
Delaware Taxes.............................................................................................. 183
ERISA Considerations........................................................................................ 184
Legal Matters............................................................................................... 187
Experts..................................................................................................... 188
Subsidiaries of ATA Holdings Corp........................................................................... 189
Directors and Executive Officers............................................................................ 190
Executive Compensation...................................................................................... 192
Certain Relationships and Related-Party Transactions........................................................ 193
Index to Consolidated Financial Statements.................................................................. F-1
APPENDIX AI -- Glossary
APPENDIX AII -- Appraisals
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WHERE YOU CAN FIND MORE INFORMATION
American Trans Air, Inc. ("ATA") is a wholly owned subsidiary of ATA
Holdings Corp. ("ATA Holdings" or the "Company"), formerly Amtran, Inc. ATA
Holdings 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, ATA Holdings 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 Chicago Regional Office
450 Fifth Street, N.W. Citicorp Center
Judiciary Plaza 500 West Madison Street
Washington, D.C. 20549 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.
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FORWARD-LOOKING STATEMENTS
This prospectus 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:
o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation and regulation;
o consumer perceptions of our services;
o demand for air transportation in the markets in which we operate;
o other operational matters discussed in this prospectus;
o other risks and uncertainties listed from time to time in reports we
periodically file with the Commission.
In addition, there are factors that relate specifically to the September
11, 2001 terrorist attacks that may cause actual results to be materially
different. These factors include, but are not limited to, the following:
o the adverse impact of the terrorist attacks on the economy in general;
o the likelihood of a further decline in air travel because of the
attacks and as a result of a reduction in the airline industry's
operations;
o higher costs associated with new security directives and potentially
new regulatory initiatives;
o higher costs for insurance and the continued availability of such
insurance;
o the number of crew members who may be called for duty in the armed
services; and
o the impact on our ability to operate as planned.
3
Except to the extent required by the federal securities laws, we do not
undertake to update our forward-looking statements to reflect future events or
circumstances.
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, before
making an investment decision.
"ATA Holdings" refers to ATA Holdings Corp.; "ATA" refers to American Trans
Air, Inc. and "we" or "the Company" refers to ATA Holdings and its subsidiaries,
including ATA.
THE COMPANY
ATA Holdings owns ATA, the tenth largest passenger airline in the United
States (based on 2001 capacity and traffic) 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 one of the largest charter
providers of passenger airline services to the U.S. military, in each case based
on revenues. For the year ended December 31, 2001, our revenues consisted of
64.3% scheduled service, 15.1% commercial charter service and 13.1% 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 primarily from our gateways at Chicago-Midway
and Indianapolis to popular vacation destinations such as Hawaii, Phoenix, Las
Vegas, Florida, California, Mexico and the Caribbean, as well as more
traditionally business destinations such as New York's LaGuardia Airport,
Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston, Seattle,
Minneapolis-St. Paul, Newark and Charlotte. Our Chicago-Midway operations also
include service to a number of Midwestern cities, provided by our commuter
airline subsidiary, Chicago Express Airlines, Inc. ("Chicago Express"). We focus
on routes where we believe we can be a leading provider of nonstop service, and
we 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 through U.S. 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.
Military/Government Charter Service
We have provided passenger airline services to the U.S. military since 1983
and are currently one of the largest commercial airline providers 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
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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
Beginning in 2000, we entered into a series of agreements to acquire what
is now 40 new Boeing 737-800 aircraft and 12 new Boeing 757-300 aircraft to
replace our older fleets of Lockheed L-1011-50/100, and Boeing 727-200 aircraft.
As of September 30, 2002, we had accepted delivery of 25 new Boeing 737-800
aircraft and 10 Boeing 757-300 aircraft under these agreements. We expect to
take delivery of the remaining 17 aircraft by the end of 2004.
On November 20, 2002, we obtained a $168.0 million secured term loan, of
which $148.5 million is guaranteed by the U.S. Government. The proceeds of the
loan will repay any borrowings on our existing revolving bank credit facility,
which matures January 2, 2003, and will support approximately $50.0 million in
letters of credit required by certain of our creditors. The remaining proceeds
will be used for general corporate purposes.
SUMMARY OF TERMS OF THE EXCHANGE OFFER
In the exchange offer we will accept for exchange up to $203,612,000 class
A Outstanding Certificates and up to $56,280,000 class B Outstanding
Certificates for an equal aggregate principal amount of Exchange Certificates.
The total amount of Outstanding Certificates reflects the amount issued in an
initial private offering and also the amount purchased later in the year in
accordance with a delayed funding component of the initial offering. See
"Description of the Delayed Funding Implementation." 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 October 15, 2002, 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 $203,612,000 class A certificates and up to $56,280,000
class B 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, $259,892,000 in aggregate principal amount of
6
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 [ ], 2003, 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 may 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."
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:
o pursuant to an exemption from the requirements of the
Securities Act of 1933;
7
o the Outstanding Certificates are registered under the
Securities Act of 1933; or
o 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....................... o Up to $203,612,000 Class A Exchange Certificates which
have been registered under the Securities Act.
o Up to $56,280,000 Class B Exchange Certificates
which have been registered under the Securities Act.
Use of Proceeds............................ There will be no proceeds from the Exchange Certificates. The
proceeds from the sale of the Outstanding Certificates were
used to purchase secured promissory notes issued to finance
nine Boeing 737-800 aircraft to be owned by or leased to ATA.
Subordination Agent, Pass Through Trustee,
Paying Agent and Loan Trustee........... Wilmington Trust Company
Escrow Agent............................... Wells Fargo Bank Northwest, National Association
Depositary................................. IntesaBci S.p.A., New York Branch
Initial Liquidity Provider................. AIG Matched Funding Corp.
Trust Property............................. The property of each pass through trust will include:
o secured promissory notes;
o rights of the pass through trust to acquire secured
promissory notes under a note purchase agreement;
o rights of the pass through trust under the related
escrow and paying agent agreement;
o rights of the pass through trust under the
intercreditor agreement described below under
8
"--Intercreditor Agreement";
o all rights under the liquidity facility for that pass
through trust; and
o funds from time to time deposited with the pass through
trustee in accounts relating to that pass through trust.
ATA Holdings Guarantee..................... The payments by ATA under each lease and owned aircraft
indenture will be unconditionally guaranteed by ATA Holdings.
See "Description of the Secured Promissory Notes--The ATA
Holdings Guarantee."
Certificates; Denominations................ The Exchange Certificates of each trust will be issued in a
minimum denomination of $100,000 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 $100,000.
Regular Distribution Dates................. February 20, May 20, August 20 and November 20, commencing May
20, 2002.
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 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
certificateholders with at least 15 days' notice prior to
any special distribution.
9
Distributions by a pass through trustee to
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 certificates issued by that
pass through trust.
Possible Issuance of Class C Certificates.. Subject to certain conditions, ATA may elect to issue Series
C secured promissory notes in connection with the financing
of owned aircraft, but Series C secured promissory notes
will not be purchased by the Class A or Class B pass
through trust. ATA may elect to fund the sale of the Series
C secured promissory notes through the sale of pass
through certificates issued by a Class C American Trans Air,
Inc. 2002-1C Pass Through Trust.
Intercreditor Agreement.................... The pass through trustees, the subordination agent and the
liquidity provider have entered into an intercreditor agreement
that states how payments made on the secured promissory notes
and payments made under the liquidity facilities will be shared
and distributed among the pass through trustees and the
liquidity provider. The intercreditor agreement also sets forth
agreements among the pass through trustees and the liquidity
provider relating to who will control the exercise of remedies
under the secured promissory notes and the indentures.
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
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intercreditor agreement, distributions on the certificates
will be made in the following order:
o first, to the holders of the Class A certificates;
o second, to the holders of the Class B certificates; and
o third, if Class C certificates have been issued, to the
holders of the Class C certificates.
Certain payments to the liquidity provider will be
made prior to payments on all or some of the certificates,
as discussed under "Description of the
Intercreditor Agreement--Priority of Distributions."
The subordination provisions may permit distributions to junior
certificateholders after a default on the secured promissory
notes even if more senior certificateholders have not been repaid
in full. The subordination provisions do not apply to payments
relating to the deposits or proceeds of advances under the
liquidity facilities.
Control of Loan Trustee.................... The holders of at least a majority of the outstanding
principal amount of secured promissory notes issued under each
indenture will be entitled to direct the Loan Trustee under
such indenture in taking action as long as no Indenture Default
is continuing thereunder. If an Indenture Default is continuing
under such indenture, the controlling party with respect to the
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:
11
o the Class A pass through trustee if final distributions
on the Class A certificates have not been made; and
o the Class B trustee, upon payment of final distributions
of the aggregate outstanding balance of the Class A
certificates, together with accrued interest to the
holders of the Class A certificates.
Under certain circumstances, the liquidity provider with
the greater amount owed to it may elect to act as the
controlling party. 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 certificateholders may have the right to buy the more
senior classes of certificates. See "Description of the Certificates--
Purchase Rights of Certificateholders." This right to buy is based on
the following:
o the Class B certificateholders will have the right to
purchase all the Class A certificates;
o if any Class C certificates are issued, the Class C
certificateholders will have the right to purchase all the
Class A and Class B certificates.
The purchase price will be the outstanding balance of the
applicable classes of certificates plus accrued and
unpaid interest, plus any other amounts then due to the
certificateholders of those classes.
Liquidity Facilities....................... Under the liquidity facility for each of the Class A and Class
B pass through trusts, 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
certificates of that pass through trust. The liquidity
facilities may not be used to pay any other amount relating to
the certificates and will not cover interest on deposits held
with the Depositary.
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The holders of the 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 certificates in right of payment.
Escrowed Funds............................. Funds paid to the escrow agent by a class of certificateholders
will be deposited with a 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 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 certificates issued by that pass through
trust. The paying agent, on behalf of the escrow agent, will
pay that interest to that class of 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
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 for 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
13
delivered prior to the delivery period termination date for any
reason that was not ATA's fault or was not caused by ATA's
negligence or where unused deposits (other than unused deposits
resulting from any such failure of delivery) 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."
In addition, if any aircraft expected to be delivered under
an aircraft purchase agreement between GECC and the
manufacturer is not leased to or owned by ATA and a substitute
aircraft is not substituted therefore, the deposits relating to such
aircraft may be withdrawn and distributed.
Obligation to Purchase Secured
Promissory Notes ........................ Under a note purchase agreement, the Class A and Class B pass through
trustees will be obligated to purchase the Series A and Series B
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, ATA Holdings 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 certificateholders and (b)
obtain written confirmation from Moody's 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
certificates. 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.
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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 be non-recourse to the owner trustee in
its individual capacity. ATA's obligations under the related
lease and related documents will be 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 certificates
issued by that pass through trust as shown on the cover page of
this prospectus. Interest on all secured promissory notes will
be payable on February 20, May 20, August 20 and November 20 of
each year, commencing on May 20, 2002. Interest is calculated
on the basis of a 360-day year consisting of twelve 30-day
months.
(c) Principal........................... Principal payments on the Series A and Series B secured
promissory notes held in each related trust are scheduled to
begin on February 20, 2003.
(d) Redemption and Purchase............. Aircraft Event of Loss. If an aircraft, with respect to which
secured promissory notes have been issued, 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 aircraft will be redeemed, unless ATA replaces the
aircraft under the related lease or financing agreements. The
redemption price in this case 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. The redemption price in this case 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,
15
subject to the terms of the relevant leased aircraft indenture.
The purchase price in this case 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. For an event of default with
respect to 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 series of secured
promissory notes issued for one aircraft may be applied to make payments
relating to a more senior class of 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 ATA Holdings,
the amounts payable by ATA (and fully and unconditionally guaranteed by
ATA Holdings) 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 fully and unconditionally guaranteed by ATA Holdings.
16
(f) Section 1110 Protection............. Our outside counsel will provide its opinion to the pass
through trustees 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."
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 certificates will be treated as
the owner of a pro rata undivided interest in the assets of the
pass through trust allocable to such 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, entities that may be
deemed to hold the assets of those plans, and other plans will
be eligible to purchase the certificates, subject to the
conditions and circumstances that apply to those plans. Each
person who acquires a certificate will be deemed to have
represented and warranted that either: (a) no plan assets have
been used to purchase that certificate or (b) the purchase and
holding of that 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
exemptions and are permissible under all applicable laws. See
"ERISA Considerations."
Rating of the Certificates................. It was a condition to the issuance of the certificates that the
certificates have at least the following ratings from Moody's
Investors Service:
CERTIFICATES MOODY'S
------------ -------
Class A.........................................Baa3
Class B..........................................Ba3
17
A rating is not a recommendation to purchase, hold or sell
certificates. Ratings do not address market price or suitability
for a particular investor. There can be no assurance that these
ratings will not be lowered or withdrawn by Moody's.
STANDARD &
MOODY'S POOR
------- ----
Rating of the Depositary................... Short Term.............. P-1 A-1
SHORT TERM
----------
Threshold Rating for the
Liquidity Provider..................... Class A................. P-1 A-1
Class B................. P-1 A-1
Rating of the Liquidity Provider........... The liquidity provider meets the threshold ratings requirement
for each class of certificates.
Exchange Offer; Registration
Rights.................................. Pursuant to a registration rights agreement among ATA, the pass
through trustee and the purchasers of the certificates, we have
agreed to:
o use our reasonable best efforts to file with the
Commission this registration statement with respect to
an offer to exchange the certificates for certificates
of the pass through trusts having substantially
identical terms as the certificates (except that the
exchange certificates will not have transfer
restrictions or interest rate step-up provisions)
within 240 days after the date of the first issuance
of the Outstanding Certificates; and
o use our reasonable best efforts to cause this registration
statement to become effective under the Securities Act
within 300 days of the date of the first 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 certificates and use our reasonable best efforts to
keep such shelf registration statement effective until two
years after the date of issuance of the
18
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. See "Exchange Offer; Registration Rights."
USE OF PROCEEDS
There will be no proceeds from the Exchange Certificates. The proceeds from
the sale of the Outstanding 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" beginning on page 22.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
In the table below, we provide you with summary historical financial data
and other operating information of ATA Holdings. We have prepared the selected
financial data included in this information using the consolidated financial
statements of ATA Holdings for the five years ended December 31, 2001 and the
nine-month periods ended September 30, 2002 and 2001. The financial statements
for the five fiscal years ended December 31, 2001 have been audited by Ernst &
Young LLP, independent auditors. The summary consolidated financial data for the
nine months ended September 30, 2002 and 2001 has not been audited. 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 and quarterly reports filed with the SEC, as well as the section of
our annual and quarterly reports titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
19
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues................ $783,193 $ 919,369 $1,122,366 $1,291,553 $1,275,484 $1,027,849 $966,400
Depreciation and amortization..... 62,468 78,665 96,038 125,041 121,327 101,400 60,258
Operating income (loss)........... 13,484 75,373 90,027 2,570 (91,870) 18,777 (108,879)
Interest expense.................. 9,454 12,808 20,966 31,452 30,082 21,345 25,979
Income (loss) before income
taxes........................... 6,027 67,210 77,797 (19,931) (116,067) 3,442 (133,708)
Income (loss) available to
common shareholders(13)......... 1,572 40,081 47,342 (15,699) (81,885) (548) (117,374)
Net income (loss) per
share-basic..................... 0.14 3.41 3.86 (1.31) (7.14) (0.05) (10.04)
Net income (loss) per
share-diluted................... 0.13 3.07 3.51 (1.31) (7.14) (0.05) (10.04)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash.............................. $104,196 $172,936 $120,164 $129,137 $184,439 $159,948 $113,058
Non-cash working capital
(deficiency)(1)................... (100,731) (112,276) (128,191) (6,833) 22,331 83,462 (61,016)
Property and equipment, net....... 267,681 329,332 511,832 522,119 314,943 732,999 293,931
Total assets...................... 450,857 594,549 815,281 1,032,430 1,002,962 1,262,520 814,478
Short-term debt (including
current maturities)............. 8,975 1,476 2,079 96,740 124,059 148,484 80,768
Long-term debt.................... 182,829 245,195 345,792 361,209 373,533 507,989 334,727
Total debt........................ 191,804 246,671 347,871 457,949 497,592 656,473 415,495
Shareholders' equity
(deficit)(2).................... 56,990 102,751 151,376 124,654 44,132 124,373 (69,949)
OTHER FINANCIAL DATA:
EBITDAR(3)........................ $132,390 $211,811 $253,454 $208,707 $134,330 $194,466 $88,260
EBITDA(3)......................... 77,949 158,683 194,801 136,562 35,342 126,187 (47,471)
Net cash provided by (used in)
operating activities............ 99,936 151,812 152,673 111,692 144,424 141,974 (4,884)
Net cash provided by (used in)
investing activities............ (76,055) (142,352) (305,718) (290,837) (129,791) (308,128) 15,678
Net cash provided by (used in)
financing activities........... 6,933 59,280 100,273 188,118 40,669 196,965 (82,175)
Ratio of earnings to fixed
charges(4)...................... 1.19 3.03 2.65 -- -- -- --
Deficiency of earnings
available to cover fixed
charges(4)...................... -- -- -- 23,138 130,353 7,950 139,381
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
SELECTED OPERATING DATA FOR
PASSENGER SERVICE:(5)
Available seat miles
(millions)(6)................. 12,647.7 13,851.7 15,082.6 16,390.1 16,187.7 12,583.4 13,050.6
Revenue passenger miles
(millions)(7))................ 8,986.0 9,758.1 10,949.0 11,816.8 11,675.7 9,289.8 9,396.2
Passenger load factor(8)........ 71.0% 70.5% 72.6% 72.1% 72.1% 73.8% 72.0%
Revenue per available seat mile. 6.19(cent) 6.64(cent) 7.44(cent) 7.88 7.88 8.17 7.41
Operating expense per ASM(9).... 6.09(cent) 6.09(cent) 6.84(cent) 7.86 8.45 8.02 8.24
Block hours flown(10)........... 139,426 160,403 175,460 191,532 197,043 151,743 173,267
Average daily aircraft
utilization (block hours per
day)(11):
Lockheed L-1011-50/100........ 6.48 6.72 6.51 6.63 6.02 6.42 4.45
Lockheed L-1011-500........... - - 6.47 6.77 6.69 7.45 5.93
Boeing 727-200 ADV............ 7.94 9.02 8.95 8.78 7.48 8.29 5.04
Boeing 757-200................ 10.86 11.88 11.86 11.90 11.30 11.55 10.84
Boeing 737-800................ - - - - 9.14 9.85 9.94
Boeing 757-300................ - - - - 9.78 8.60 9.72
Total aircraft.................. 45 48 53 58 60 59 63
- --------------------
(1) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long term
debt and short term debt).
(2) No common stock dividends were paid in any of the periods presented.
(3) EBITDAR represents net income (loss) 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
20
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.
(4) 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.
(5) The operating data (other than revenue per ASM and operating expense per
ASM) pertain to ATA and Chicago Express and do not include information for
other operating subsidiaries of ATA Holdings.
(6) "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.
(7) "Revenue passenger miles" or "RPMs" represent the number of miles flown by
revenue passengers.
(8) "Passenger load factor" represents revenue passenger miles divided by
available seat miles.
(9) "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.
(10) "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.
(11) "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.
(12) 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 ATA Holdings. The
following financial data excludes the other subsidiaries of ATA Holdings
(Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber Travel, Inc.,
American Trans Air Execujet, Inc., Amber Air Freight Corporation, American
Trans Air Training Academy, Inc. and Chicago Express) as ATA is the
principal operating subsidiary of ATA Holdings. ATA Holdings allocates
certain expenses, such as income taxes, to the various subsidiaries as if
they were operating on a stand alone basis.
(13) During 2001, several nonrecurring events resulted in significant changes
and credits to operating loss, see "Financial Statements and Supplementary
Data--Notes to Consolidated Financial Statements--Note 2--Impact of
Terrorist Attacks on September 11, 2001" and "Financial Statements and
Supplementary Data--Notes to Consolidated Financial
Statements--Note16--Asset Impairment".
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:(12)
Operating revenues................ $744,153 $877,187 $1,008,855 $1,180,962 $1,153,672 $929,906 $874,362
Depreciation and amortization..... 62,281 78,595 93,820 120,262 117,813 98,748 58,595
Operating income (loss)........... 10,325 80,920 97,558 18,680 (91,454) 19,864 (111,616)
Interest expense, net............. 9,454 12,808 20,969 31,474 30,094 21,355 25,979
Income (loss) before income taxes. 2,627 72,528 84,989 (4,359) (115,875) 4,332 (136,621)
Net income (loss)................. 69 43,329 51,951 (5,579) (76,198) 3,427 (117,052)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency)(a)... $(51,939) $10,768 $(32,049) $(54,102) $11,703 $24,244 $(108,930)
Property and equipment, net....... 267,556 328,661 508,210 650,185 299,255 716,140 283,471
Total assets...................... 466,923 593,489 823,090 1,050,579 1,140,988 1,382,651 773,869
Short-term debt (including current
maturities)..................... 8,975 1,476 2,079 96,740 124,059 148,484 80,768
Long-term debt.................... 182,829 245,195 345,792 361,209 373,533 507,989 334,727
Total debt........................ 191,804 246,671 347,871 457,949 497,592 656,473 415,495
Shareholders' equity
(deficit)(b).................... 6,762 50,091 102,039 96,461 20,263 99,888 (98,020)
(a) Working capital consists of total current assets less current liabilities.
(b) No dividends were paid in any of the periods presented.
21
RISK FACTORS
You should carefully read this entire prospectus and the documents
incorporated by reference in this prospectus before investing in the Exchange
Certificates. Among the factors that may adversely affect an investment in the
Exchange Certificates are the following:
RISK FACTORS RELATING TO THE COMPANY
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 pursue 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 September 30, 2002, we had:
o $113.1 million of cash and cash equivalents; and
o $415.5 million of indebtedness outstanding (approximately $115.0
million of which was secured).
As a result, at that date, total consolidated debt was 97.6% 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 62 aircraft (exclusive of the aircraft relating to
the certificates), including 15 Saab 340B propeller aircraft operated by our
commuter airline, Chicago Express Airlines, Inc., which are not recorded as
indebtedness. In addition to these existing leases, we are committed to taking
future delivery of 13 additional new aircraft (exclusive of the aircraft
relating to the certificates), which we expect to finance with operating leases.
We had interest expense of approximately $26.0 million for the nine months
ended September 30, 2002 and $21.3 million for the nine months ended September
30, 2001. This resulted in an EBITDA to interest expense ratio of approximately
1.8 times for the nine months ended September 30, 2002 and 5.9 times for the
nine months ended September 30, 2001. The ratio of EBITDAR to the sum of
interest (net of capitalized interest) plus aircraft rentals was 0.5 for the
nine months ended September 30, 2002 and 2.2 for the nine months ended September
30, 2001.
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.
22
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 a bank credit facility. This
facility would have matured January 2, 2003, however the Company has funded a
government guaranteed secured term loan to replace the facility. The Company
issued stock warrants to the Federal Government equalling 12 percent of the
outstanding stock in conjunction with the guaranteed loan. At September 30,
2002, our current assets were $351.6 million, and our current liabilities were
$380.3 million.
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, 2002 we expect that:
o capital expenditures for scheduled maintenance and rotable parts will
total approximately $52.1 million; and
o additional capital expenditures will total approximately $15.0
million.
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 also may decide to refinance
our long-term debt at or prior to its maturity. 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, 1997, we had net income of $1.6 million,
for the year ended December 31, 1998, we had net income of $40.1 million, for
the year ended December 31, 1999, we had net income of $47.3 million, for the
year ended December 31, 2000, we had a loss available to common shareholders of
$15.7 million and for the year ended December 31, 2001, we had a loss available
to common shareholders of $81.9 million. In 2001, our earnings were
significantly impacted by the terrorist attacks on September 11, 2001. During
2002, our earnings continue to be affected by the industry changes brought about
by the events of September 11, 2001, and we expect to incur another net loss for
the year ended December 31, 2002. We cannot predict when the Company will return
to profitability and our results of operations may continue to be volatile in
future periods.
Changes in our financial condition could reduce our liquidity from credit card
sales.
A significant portion of our sales are paid for by customers using credit
cards. Cash from these sales is normally paid to us by our credit card
processing bank several days after the sale, although we may provide the
purchased services days, weeks or months later. If we fail to perform pre-paid
services, the purchaser may be entitled to a refund which, if not paid by us, is
the obligation of the bank. To mitigate this risk, our credit card processing
bank currently retains 60% of the balance of pre-paid sales. Certain adverse
changes in our financial condition could trigger our
23
processing bank to retain a higher percentage of our pre-paid sales, up to 100%,
which would significantly reduce our liquidity. We have the right to terminate
this credit card processing agreement upon providing appropriate notice, but if
we do so, the bank may retain a deposit equaling the amount of purchased
services not yet performed for up to 16 months from the date of termination.
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 ATA Holdings. If we enter into such a transaction, it could result in
an increase in our indebtedness. In addition, a change of control of ATA
Holdings must be approved by the Air Transportation Stabilization Board. 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 ATA Holdings 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:
o incur additional indebtedness;
o create material liens on our assets;
24
o sell assets or engage in mergers or consolidations;
o redeem or repurchase outstanding debt;
o make specified investments;
o pay cash dividends; and
o 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 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.
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, loss of
business due to negative publicity, 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 liability insurance for
passengers and third party damages, excluding those caused by an event of
terrorism, in the amount of $1.5 billion. In addition, we currently maintain
liability insurance for third party damages caused by an event of terrorism in
the amount of $100.0 million, of which $50.0 million is provided by the
commercial insurance market and $50.0 million is provided by the U.S.
Government. The U.S. Government provides indemnification of up to $1.5 billion
for third party damages in excess of $100.0 million in the event of terrorism.
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.
25
Our largest customer during each of the last three years was the U.S.
military, which accounted for 13.1% of our total operating revenues in 2001,
14.6% of our total operating revenues in 2000, and 11.2% of our total operating
revenues in 1999.
In 2001, our five largest non-military customers accounted for
approximately 18.0% 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.
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 (AFA). Our current collective bargaining agreement with the AFA will
become subject to amendment, but will not expire, in October 2004. Our cockpit
crews are represented by the Air Line Pilots Association (ALPA). Our current
collective bargaining agreement with ALPA will be subject to amendment, but will
not expire, in June 2006. Our dispatchers are represented by the Transport
Workers Union (TWU). Our current collective bargaining agreement with the TWU
will become subject to amendment, but will not expire, in August 2004. Our ramp
service agents elected to be represented by the International Association of
Machinists (IAM) in February 2001. Negotiations began with IAM in May 2001, but
no collective bargaining agreement has been finalized. In February 2002, our
aircraft mechanics elected to be represented by the Aircraft Mechanics Fraternal
Association (AMFA), and negotiations with them began in October 2002. 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 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:
o the size of override commissions offered by other airlines;
o changes in our arrangements with other distributors of airline
tickets; and
o the introduction and growth of new methods of selling tickets.
In 2001, approximately 67.0% of our revenues were derived from tickets sold
by travel agents or tour operators, and, in 2000, approximately 64.0% of our
revenues were derived from tickets sold by travel agents or tour operators.
Although we will continue to strive to offer
26
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
Tbe terrorist attacks of September 11, 2001 continue to impact the airline
industry in general.
The terrorist attacks of September 11, 2001 were highly publicized. The
impacts that these events will continue to have on the airline industry in
general are not known at this time, but are expected to include a substantial
negative impact on our ability to return to profitable operations due in part
to:
o A reduction in the demand for travel in the near and mid-term until
public confidence in the air transportation system is restored;
o An increase in costs due to enhanced security measures and government
directives in response to the terrorist attacks;
o An increase in the cost of aviation insurance in general, and the cost
and availability of coverage for acts of war, terrorism, hijacking,
sabotage and similar acts of peril in particular; and
o The potential increase in fuel costs and decrease in availability of
fuel if oil-producing countries are affected by the aftermath.
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 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 as well as other sizable
low-fare carriers, and, from time to time, against smaller regional or start-up
airlines. Competition is generally based on price, schedule, quality of service
and convenience. Much of our competition has 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 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. We also compete
27
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.
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 18.4% of our operating costs in 2001 and approximately 21.3% of
our operating costs in 2000. In the nine months of 2002, fuel costs decreased
26.5% to $151.4 million as compared to $205.9 million in the same period of
2001. This decline in fuel expense is primarily driven by the replacement of
certain older, less-fuel-efficient aircraft with new Boeing 757-300 and Boeing
737-800 aircraft over the last couple years. Although in recent years our fuel
expense is declining, an increase in fuel price could adversely affect this
declining trend.
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 fluctuations in
fuel costs. In 2001, approximately 32.0% of our total operating revenues were
derived from contracts that enable us to pass through increases in fuel costs,
including contracts with the U.S. military. In 2000, approximately 33.5% of our
total operating revenues were 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
28
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.
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:
o air carrier certification and fitness;
o security;
o insurance;
o leasing arrangements; allocation of route rights and authorization of
proposed scheduled and charter operations;
o allocation of landing slots and departure slots;
o consumer protection; and
o 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.
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:
o collision avoidance systems;
o airborne windshear avoidance systems;
29
o noise abatement; and
o increased inspections and maintenance procedures.
We expect to incur expenses as we seek to comply with changes in Federal
Aviation Administration regulations. 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.
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 October 2001. 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.
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
30
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, as applicable,
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 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, 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.
In addition, the value of the aircraft will likely be negatively affected,
at least initially, as a consequence of the events of September 11, 2001.
Accordingly, we cannot assure you that the proceeds realized upon any such
exercise of remedies would be sufficient to satisfy in full payments due on the
equipment notes relating to such aircraft or the full amount of distributions
expected on the certificates.
If the aircraft purchased with the proceeds of the certificates are not properly
maintained, their value 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.
31
The failure of ATA to maintain, service, repair or overhaul an aircraft
adequately may adversely affect its value. 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
secured promissory notes and the certificates upon a default by ATA (and ATA
Holdings).
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 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.
32
If the controlling party sells the secured 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 or the liquidity 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 Class A pass through trustee if final distributions on the Class A
certificates have not been made, and
o the Class B trustee, upon payment of final distributions of the
aggregate outstanding balance of the Class A certificates, together
with accrued interest, to the holders of the Class A certificates.
Under certain circumstances, the liquidity provider with the greater amount owed
to it may elect to act as the controlling party. 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 or any pass through trustee.
The ratings of the Exchange Certificates from Moody's 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.
MOODY'S
-------
Class A Certificates..................................... Baa3
Class B Certificates..................................... Ba3
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 or the liquidity provider, so warrant.
33
The rating of each class of certificates is based primarily on the default
risk of the secured promissory notes purchased by that class, 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. 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 Moody's.
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.
ATA 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 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 or if
such returned funds (other than unsecured deposits resulting from any such
failure of delivery) are less than $5 million. 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 contractual right to
postpone deliveries. We expect that all aircraft which may be purchased with the
proceeds of the certificates will be newly manufactured. 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 B 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 B
certificates as compared to the Class A certificates.
In addition, if any aircraft expected to be delivered under an aircraft
purchase agreement between GECC and the manufacturer is not leased to or owned
by ATA and a substitute aircraft is not substituted therefor, the deposits
relating to such aircraft may be withdrawn and distributed.
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, ATA Holdings or the owner participant may request
changes. The degree to which these agreements may change is limited because:
o the agreements are required to contain certain mandatory document
terms and mandatory economic terms, which are described in this
prospectus under the heading
34
"Description of the Certificates -- Obligation to Purchase Secured
Promissory Notes";
o ATA must certify that changes to the form agreements do not materially
and adversely affect the certificateholders; and
o if ATA uses forms of financing agreements that are modified in any
material respect from forms attached to the placement agreement or
otherwise approved by Moody's, ATA is obligated to obtain written
confirmation from Moody's 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 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 jet engines used by ATA may act as owner participants with
respect to aircraft, directly or through affiliates. For example, GECC, a
subsidiary of General Electric Company, is expected to act as an owner
participant. General Electric Company manufactures aircraft engines used by ATA.
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 EXCHANGE OFFER
The following section includes a description of the procedure for tendering
Outstanding Certificates and receiving Exchange Certificates in return. The
issuer, together with all existing holders of the Outstanding Certificates, may
decide to use different exchange procedures.
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 before the expiration date and not withdrawn
for registered Exchange Certificates. The expiration date is 5:00 p.m., New York
City time, on [ ], 2003 unless we extend it.
As of the date of this prospectus, $203,612,000 aggregate principal amount
of class A certificates is outstanding and $56,280,000 an aggregate principal
amount of class B certificates is outstanding. 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
35
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, non-acceptance 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
Certificates for such Outstanding Certificates must be received by:
(i) the Exchange Agent along with the Letter of Transmittal; or
(ii) 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, must be received by the Exchange Agent prior to the
expiration date with the Letter of Transmittal or Agent's Message in lieu of
such Letter of Transmittal; 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 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:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
36
o a commercial bank; or
o 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, evidence satisfactory to us of their authority to so act
must be submitted with the Letter of Transmittal.
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 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.
37
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:
o 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;
o 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
o 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 the Company, 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
38
most recent interest payment date or if no interest has been paid, from [ ].
Interest on the Outstanding Certificates and the Exchange Certificates is
payable on each February 20, May 20, August 20 and November 20, beginning May
20, 2002. 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 [ ] 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
[ ] (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 non-exchanged 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 non-exchanged 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.
39
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
(b) before the expiration date, the Exchange Agent receives from the
Eligible Institution:
o 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;
o 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
o 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:
40
(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.
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.
41
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
[ ] 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 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
[ ] [ ]
(FOR ELIGIBLE
(IF BY MAIL, REGISTERED OR INSTITUTIONS ONLY)]
CERTIFIED MAIL RECOMMENDED)
Confirm by Telephone
[ ]
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.
42
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 an "affiliate" of the Company 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 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 an affiliate of the Company 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.
43
If any holder is an affiliate of the Company, 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.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges or
deficiency of earnings available to cover fixed charges for the periods
indicated:
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges............ 1.19 3.03 2.65 ---- ---- ----
Deficiency of Earnings Available to Cover Fixed
Charges................................... ---- ---- ---- 23,138 130,353 139,381
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.
44
CAPITALIZATION
The following table sets forth our actual consolidated capitalization
derived from our unaudited consolidated financial statements at September 30,
2002.
AT SEPTEMBER 30, 2002
(UNAUDITED)
-----------------------
(Dollars in thousands)
Cash $ 113,058
===========
Short-term Debt
BCI PDP Funding................................... 42,627
Rolls-Royce PDP Funding........................... 8,384
GE PDP Funding.................................... 14,580
Borrowings on Revolving Credit Facility........... 10,000
Other short-term debt (current maturities of
long-term debt)................................. 5,177
-----------
80,768
Long-term Debt
10.5% Unsecured Notes due 2004.................... 175,000
9.625% Unsecured Notes due 2005................... 125,000
Special Facility Revenue Bonds-Terminal, due 2029. -
Special Facility Revenue Bonds-Hangar, due 2020... 6,000
Secured bank debt, due 2014....................... 8,750
Secured bank debt, due 2005....................... 18,469
Capital lease, due 2008........................... 1,610
Unsecured debt.................................... (102)
-----------
Total Long-term debt............................ 334,727
-----------
Total Debt...................................... 415,495
Total Preferred Stock ($30M ILFC, $50M BCC)..... 80,000
Total shareholder's equity...................... (69,949)
-----------
Total capitalization.......................... $ 425,546
===========
45
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with selected historical financial data
of ATA Holdings. We have prepared the selected financial data included in this
information using the consolidated financial statements of ATA Holdings for the
five years ended December 31, 2001 and the nine-month periods ended September
30, 2002 and 2001. The financial statements for the five fiscal years ended
December 31, 2001 have been audited by Ernst & Young LLP, independent auditors.
The selected consolidated financial data for the nine months ended September 30,
2002 and 2001 has not been audited. 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 and quarterly reports filed with the SEC, as well as the section of
our annual and quarterly reports titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Scheduled service...... $371,762 $511,254 $624,647 $753,301 $820,666 $656,044 $664,431
Charter................ 359,177 344,482 389,979 435,262 359,770 292,603 238,698
Ground package......... 22,317 23,186 58,173 59,848 52,182 45,214 30,582
Other.................. 29,937 40,447 49,567 43,142 42,866 33,988 32,689
------- ------- --------- --------- --------- --------- -------
Total operating revenues 783,193 919,369 1,122,366 1,291,553 1,275,484 1,027,849 966,400
------- ------- --------- --------- --------- --------- -------
Operating expenses:
Salaries, wages and
benefits............... 172,499 211,304 252,595 297,012 325,153 249,444 264,782
Fuel and oil........... 153,701 137,401 170,916 274,820 251,333 205,918 151,350
Handling, landing and
navigation fees...... 69,383 74,640 89,302 97,414 88,653 70,299 85,473
Passenger service...... 32,812 34,031 39,231 45,571 43,856 35,725 29,677
Aircraft rentals....... 54,441 53,128 58,653 72,145 98,988 68,279 135,731
Aircraft maintenance,
materials and repairs 51,465 53,655 55,645 70,432 61,394 50,064 37,388
Depreciation and
amortization........... 62,468 78,665 96,038 125,041 121,327 101,400 60,258
Aircraft impairments and
retirements............ 118,868 41,749 51,559
Special charges.......... 21,525 9,367
U.S. Government.......... (66,318) (62,597) 15,210
Other.................... 172,940 201,172 269,959 306,548 302,575 239,424 243,851
------- ------- --------- --------- --------- --------- -------
Total operating expenses 769,709 843,996 1,032,339 1,288,983 1,367,354 1,009,072 1,075,279
------- ------- --------- --------- --------- --------- -------
Operating income (loss).. 13,484 75,373 90,027 2,570 (91,870) 18,777 (108,879)
------- ------- --------- --------- --------- --------- -------
Other income (expense):
Interest income.......... 1,584 4,433 5,375 8,389 5,331 4,247 2,138
Interest (expense)....... (9,454) (12,808) (20,966) (31,452) (30,082) (21,345) (25,979)
Other.................... 413 212 3,361 562 554 1,763 (988)
------- ------- --------- --------- --------- --------- -------
Other income
(expense)............ (7,457) (8,163) (12,230) (22,501) (24,197) (15,335) (24,829)
------- ------- --------- --------- --------- --------- -------
Income (loss) before income
taxes.................... 6,027 67,210 77,797 (19,931) (116,067) 3,442 (133,708)
Income taxes (credits)..... 4,455 27,129 30,455 (4,607) (39,750) 907 (19,569)
------- ------- ---------
Net income (loss)........ $ 1,572 $ 40,081 $ 47,342 (15,324) (76,317) 2,535 (114,139)
======= ======= ========= --------- --------- --------- -------
Preferred stock dividends.. (375) (5,568) (3,083) (3,235)
--------- --------- --------- -------
Income (loss) available to
common shareholders.... $(15,699) $ (81,885) $(548) $(117,374)
======== ========= ========= =========
Net income (loss) per share--
basic.................... $0.14 $3.41 $ 3.86 (1.31) (7.14) (0.05) (10.04)
===== ===== ======= ======== ========= ========= =========
46
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
Net income (loss) per share--
diluted.................. $0.13 $3.07 $ 3.51 (1.31) (7.14) (0.05) (10.04)
===== ===== ======= ======== ========= ========= =========
BALANCE SHEET DATA (AT END OF
PERIOD):
$ $ $
Cash..................... $104,196 $172,936 $120,164 $ 129,137 184,439 159,948 113,058
Non-cash working capital
(deficiency)(1)........ (100,731) (112,276) (128,191) (6,833) 22,331 83,462 (61,016)
Property and equipment, net 267,681 329,332 511,832 522,119 314,943 732,999 293,931
Total assets............. 450,857 594,549 815,281 1,032,430 1,002,962 1,262,520 814,478
Short-term debt (including
current maturities).... 8,975 1,476 2,079 96,740 124,059 148,484 80,768
Long-term debt........... 182,829 245,195 345,792 361,209 373,533 507,989 334,727
Total debt............... 191,804 246,671 347,871 457,949 497,592 656,473 415,495
Shareholders' equity )
(deficit)(2)........... 56,990 102,751 151,376 124,654 44,132 124,373 (69,949
OTHER FINANCIAL DATA:
$ $ $
EBITDAR(3)............... $132,390 $211,811 $253,454 208,707 134,330 194,466 $ 88,260
EBITDA(3)................ 77,949 158,683 194,801 136,562 35,342 126,187 (47,471)
Net cash provided by (used )
in) operating activities 99,936 151,812 152,673 111,692 144,424 141,974 (4,884
Net cash provided by (used
in) investing activities (76,055) (142,352) (305,718) (290,837) (129,791) (308,128) 15,678
Net cash provided by (used
in) financing activities 6,933 59,280 100,273 188,118 40,669 196,965 (82,175)
Ratio of earnings to fixed
charges(4)............. 1.19 3.03 2.65 - - - -
Deficiency of earnings
available to cover fixed
charges(4)............. -- -- -- 23,138 130,353 7,950 139,381
- ----------------------
(1) Non-cash working capital consists of total current assets (excluding cash)
less total current liabilities (excluding current maturities of long-term
debt and short-term debt).
(2) No common stock dividends were paid in any of the periods presented.
(3) 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.
(4) 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.
(5) 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 ATA Holdings. The
following financial data excludes the other subsidiaries of ATA Holdings
(Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber Travel Inc.,
American Trans Air Execujet, Inc., Amber Air Freight Corporation, ATA
Training Academy Inc. and Chicago Express) as ATA is the principal
operating subsidiary of
47
ATA Holdings. ATA Holdings allocates certain expenses, such as income
taxes, to the various subsidiaries as if they were operating on a
stand-alone basis.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA: (5)
Operating revenues:....... $744,153 $877,187 $1,008,855 $1,180,962 $1,153,672 $ 929,906 $ 874,362
Depreciation and amortization 62,281 78,595 93,820 120,262 117,813 98,748 58,595
Operating income (loss)... 10,325 80,920 97,558 18,680 (91,454) 19,864 (111,616)
Interest expense, net..... 9,454 12,808 20,969 31,474 30,094 21,355 25,979
Income (loss) before income
taxes................... 2,627 72,528 84,989 (4,359) (115,875) 4,332 (136,621)
Net income (loss)......... 69 43,329 51,951 (5,579) (76,198) 3,427 (117,052)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital
(deficiency)(a)......... $(51,939) $ 10,768 $(32,049) $ (54,102) $ 11,703 $ 24,244 $(108,930)
Property and equipment, net 267,556 328,661 508,210 650,185 299,255 716,140 283,471
Total assets.............. 466,923 593,489 823,090 1,050,579 1,140,988 1,382,651 773,869
Short-term debt (including
current maturities)..... 8,975 1,476 2,079 96,740 124,059 148,484 80,768
Long-term debt............ 182,829 245,195 345,792 361,209 373,533 507,989 334,727
Total debt................ 191,804 246,671 347,871 457,949 497,592 656,473 415,495
Shareholder's equity(b)... 6,762 50,091 102,039 96,461 20,263 99,888 (98,020)
- --------------------
(a) Working capital consists of total current assets less current liabilities.
(b) No dividends were paid in any of the periods presented.
48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of targeted scheduled airline services
and charter airline services to leisure and other value-oriented travelers, and
to the U.S. military. The Company, through its principal subsidiary, ATA, has
been operating for 30 years and is the tenth largest U.S. airline in terms of
2001 capacity and traffic. ATA provides jet scheduled service through nonstop
and connecting flights from the gateways of Chicago-Midway and Indianapolis to
popular vacation destinations such as Hawaii, Phoenix, Las Vegas, Florida,
California, Mexico and the Caribbean, as well as to New York's LaGuardia
Airport, Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston,
Seattle, Minneapolis-St. Paul, Newark and Charlotte. The Company's commuter
subsidiary Chicago Express Airlines, Inc. ("Chicago Express") provides commuter
scheduled service between Chicago-Midway and the cities of Indianapolis, Cedar
Rapids, Des Moines, Dayton, Flint, Grand Rapids, Lexington, Madison, Milwaukee,
Moline, South Bend, Springfield and Toledo. ATA also provides charter service to
independent tour operators, specialty charter customers and the U.S. military.
CRITICAL ACCOUNTING POLICIES
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent
assets and liabilities. Certain significant accounting policies applied in the
preparation of the financial statements require management to make difficult,
subjective or complex judgments, and are considered critical accounting policies
by the Company. The Company has identified the following areas as critical
accounting policies.
GOODWILL ACCOUNTING. In June 2001, the FASB issued new accounting standards
pertaining to goodwill in FAS 142, effective for fiscal years beginning after
December 15, 2001. Under FAS 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will be subject to annual
impairment reviews. The Company's goodwill is related to its ATALC, ATA Cargo,
Inc. ("ATA Cargo") and Chicago Express subsidiaries acquired in 1999.
FAS 142 requires companies to perform transitional impairment reviews of
goodwill as of the date of adoption of the statement, which was January 1, 2002.
The transitional goodwill impairment test was required to be completed by June
30, 2002, based upon the carrying values and estimated fair values as of January
1, 2002. This test is a two-step process. Step one compares the fair value of a
reporting unit (determined through market quotes or the present value of
estimated future cash flows) with its carrying amount (assets less liabilities,
including goodwill.) If the estimated fair value exceeds the carrying amount,
goodwill of the reporting unit is considered not impaired, and step two of the
impairment test is not necessary. If the carrying amount of a reporting unit
exceeds its estimated fair value, the second step of the goodwill impairment
test is then performed, which compares the implied fair value of the reporting
unit's goodwill (determined in accordance with purchase accounting), with the
carrying amount of the reporting unit's goodwill. If the carrying amount of the
reporting unit's goodwill exceeds the implied fair value of the goodwill,
49
an impairment loss is recognized in an amount equal to that excess. If an
impairment loss is recognized, the adjusted carrying amount of the goodwill
becomes the new accounting basis for future impairment tests.
The fair market values of all of the Company's reporting units were
estimated using discounted future cash flows, since market quotes were not
readily available. For Chicago Express and ATA Cargo, future cash flows were
estimated based on historical performance. In both cases, the estimated fair
market value was higher than the carrying amount of the reporting unit, and thus
no impairment was indicated.
The fair market value of ATALC was estimated based on projected future cash
flows from the Key Tours and Key Tours Las Vegas brands, estimated cash flows
from royalties under the new management services contract with MTC, and
incremental cash flows from the increased sale of scheduled service seats to ATA
Vacations customers under the management services agreement. Based on this
analysis, the estimated fair market value of ATALC was higher than its carrying
amount, and thus no impairment was indicated.
All of the estimates of fair market value for the Company's three reporting
units involved highly subjective judgments on the part of management, including
the amounts of cash flows to be received, their estimated duration, and
perceived risk as reflected in selected discount rates. In some cases, cash
flows were estimated without the benefit of historical data, although historical
data was used where available. Although the Company believes its estimates and
judgments to be reasonable, different assumptions and judgments might have
resulted in the impairment of some or all of the Company's recorded goodwill of
$21.8 million under the transitional testing rules of FAS 142.
U. S. GOVERNMENT GRANT REIMBURSEMENT ACCOUNTING. The Air Transportation Safety
and System Stabilization Act passed in response to the September 11, 2001
terrorist attacks provided for, among other things, up to $5.0 billion in
compensation for the direct and incremental losses resulting from the terrorist
attacks incurred by U. S. domestic passenger and cargo airlines from September
11, 2001 through December 31, 2001.
Due to the limited guidance provided by the legislation and the evolving
guidance provided by the interpretive rules of the Department of Transportation
("DOT"), the Company has made subjective and judgmental estimates in calculating
and recording the amount of grant revenue to recognize. In the third and fourth
quarters of 2001, the Company recognized $66.3 million in total grant revenues.
As of December 31, 2001, $44.5 million had been received, and $21.8 million was
recorded as a receivable.
In the second quarter of 2002, the DOT issued new guidelines for measuring
reimbursable losses and the Company submitted a final application, accompanied
by the required accountant's report on agreed upon procedures. Based on review
of its application with the DOT, the Company determined that it is probable that
a portion of the receivable recorded in 2001 may not be collected, and therefore
recorded a valuation allowance of $15.2 million against the $21.8 million
receivable as of June 30, 2002. As of September 30, 2002, the remaining
receivable had not yet been collected, but the Company does not currently
believe that a further change to the valuation allowance is necessary. The
Company is continuing to discuss its compensation claim with the DOT, and
currently expects that claim to be settled during the fourth quarter of 2002.
FLEET IMPAIRMENT ACCOUNTING. Effective January 1, 2002, the Company adopted FAS
144, which superseded FASB Statement of Financial Accounting Standards No. 121,
Accounting for the
50
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
("FAS 121"), but the Company continues to account for the fleet and related
assets that were impaired prior to January 1, 2002 under FAS 121, as required by
FAS 144. The Company has been performing impairment reviews in accordance with
FAS 121 on the Lockheed L-1011-50 and 100 and the Boeing 727-200 fleets since
the end of 2000, and both fleets became impaired under FAS 121 subsequent to the
events of September 11, 2001.
In the third quarter of 2002, the Company retired one of its five Lockheed
L-1011-500 aircraft earlier than originally planned. This event caused the
Company to consider whether the net book value of the remaining four aircraft
and related assets in this fleet could be recovered through future cash flows.
In the third quarter of 2002, the Company performed an impairment analysis on
the Lockheed L-1011-500 fleet and related assets, in accordance with FAS 144,
and determined that the Lockheed L-1011-500 fleet and related assets were not
impaired.
Both FAS 144 and FAS 121 require that whenever events or circumstances
indicate that the Company may not be able to recover the net book value of its
productive assets through future cash flows, an assessment must be performed of
expected future cash flows, and undiscounted estimated future cash flows must be
compared to the net book value of these productive assets to determine if
impairment is indicated. They specify that impaired assets be written down to
their estimated fair market value by recording an impairment charge to earnings.
FAS 144 and FAS 121 state that fair market values may be estimated using
discounted cash flow analysis or quoted market prices, together with other
available information, to estimate fair market values. The Company primarily
used discounted cash flow analysis to estimate fair market value of the Lockheed
L-1011-50 and 100 fleet, and quoted market prices to estimate the value of the
Boeing 727-200 fleet.
The application of FAS 144 and FAS 121 requires the use of significant
judgment and the preparation of numerous significant estimates. The Company
estimated future cash flows from the productive use of these fleets by
estimating the expected net cash contribution from revenues less operating
expenses, and adjusting for estimated cash outflows for heavy maintenance and
estimated cash inflows from final disposal of the assets. Such estimates were
required for up to ten years into the future. Although the Company believes that
its estimates of cash flows in the application of FAS 144 and FAS 121 were
reasonable, and were based upon all available information, including extensive
historical cash flow data about the prior use of these fleets, such estimates
nevertheless required substantial judgments and were based upon material
assumptions about future events. Such estimates were significant in determining
the amount of the impairment charge to be recorded, which could have been
materially different under different sets of assumptions and estimates.
As FAS 144 and FAS 121 require the Company to continuously evaluate fair
market values of previously impaired assets, it is possible that future
estimates of fair market value may result in additional material charges to
earnings, if those estimates indicate a material reduction in fair market value
as compared to the estimates made at the end of the third quarter of 2002.
RESULTS OF OPERATIONS
The Company had an operating loss of $91.9 million, and a net loss after
taxes of $76.3 million, for the year ended December 31, 2001. Profitability in
2001 was severely impacted by the terrorist attacks on September 11, 2001, and
by non-cash impairment charges associated with the Boeing 727-200 and Lockheed
L-1011-50 and 100 fleets totaling $73.8 million, net of tax.
51
For the nine months ended September 30, 2002, the Company had an operating
loss of $108.9 million, as compared to operating income of $18.8 million in the
comparable period of 2001; and the Company had a $117.4 million net loss
available to common shareholders in the nine months ended September 30, 2002, as
compared to a net loss available to common shareholders of $0.5 million in the
same period of 2001.
Operating revenues decreased 6.0% to $966.4 million in the nine months
ended September 30, 2002, as compared to $1.028 billion in the same period of
2001. Consolidated RASM decreased 9.3% to 7.41 cents in the nine months ended
September 30, 2002, as compared to 8.17 cents in the same period of 2001.
Scheduled service revenues increased $8.4 million between periods, while charter
revenues decreased $53.9 million, and ground package revenues decreased $14.6
million.
Operating expenses increased 6.5% to $1.075 billion in the nine months
ended September 30, 2002, as compared to $1.009 billion in the comparable period
of 2001. Consolidated CASM increased 2.7% to 8.24 cents in the nine months ended
September 30, 2002, as compared to 8.02 cents in the same period of 2001. After
excluding special items, consolidated CASM decreased 4.7% to 7.73 cents in the
nine months ended September 30, 2002, as compared to 8.11 cents in the
comparable period of 2001.
52
RESULTS OF OPERATIONS IN CENTS PER AVAILABLE SEAT MILE
The following tables set forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per available seat mile
("ASM").
CENTS PER ASM
YEAR ENDED DECEMBER 31,
2001 2000 1999
----------------- ----------------- ----------------
Consolidated operating revenues 7.88 7.88 7.44
Consolidated operating expenses:
Salaries, wages and benefits 2.01 1.81 1.67
Fuel and oil 1.55 1.68 1.13
Depreciation and amortization 0.75 0.76 0.64
Aircraft rentals 0.61 0.44 0.39
Handling, landing and navigation fees 0.55 0.59 0.59
Aircraft maintenance, materials and repairs 0.38 0.43 0.37
Crew and other employee travel 0.37 0.40 0.33
Passenger service 0.27 0.28 0.26
Ground package cost 0.26 0.31 0.33
Other selling expenses 0.26 0.22 0.19
Commissions 0.21 0.24 0.26
Advertising 0.16 0.13 0.12
Facilities and other rentals 0.13 0.10 0.09
Special charges 0.14 0.00 0.00
Impairment loss 0.69 0.00 0.00
U.S. Government grant (0.41) 0.00 0.00
Other 0.52 0.47 0.47
----------------- ----------------- ----------------
Total consolidated operating expenses 8.45 7.86 6.84
----------------- ----------------- ----------------
Consolidated operating income (loss) (0.57) 0.02 0.60
================= ================= ================
ASMs (in thousands) 16,187,687 16,390,101 15,082,630
53
CENTS PER ASM CENTS PER ASM
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
---- ---- ---- ----
Consolidated operating revenues: 7.06 7.52 7.41 8.17
Consolidated operating expenses:
Salaries, wages and benefits 2.12 1.99 2.03 1.98
Fuel and oil 1.18 1.59 1.16 1.64
Aircraft rentals 1.14 0.63 1.04 0.54
Handling, landing and navigation fees 0.65 0.51 0.65 0.56
Depreciation and amortization 0.42 0.75 0.46 0.81
Crew and other employee travel 0.32 0.35 0.32 0.37
Aircraft maintenance, materials and repairs 0.25 0.34 0.29 0.40
Other selling expenses 0.25 0.24 0.26 0.26
Passenger service 0.23 0.30 0.23 0.28
Advertising 0.22 0.17 0.23 0.16
Insurance 0.18 0.06 0.18 0.06
Facilities and other rentals 0.14 0.13 0.13 0.12
Commissions 0.09 0.18 0.14 0.23
Ground package cost 0.08 0.15 0.18 0.29
Special charges - 0.22 - 0.07
Aircraft impairment and retirements 0.76 0.88 0.40 0.33
U.S. Government grant - (1.47) 0.12 (0.50)
Other 0.36 0.40 0.42 0.42
---------- ---------- ----------- ----------
Total consolidated operating income (loss) 8.39 7.42 8.24 8.02
---------- ---------- ----------- ----------
Consolidated operating income (loss) (1.33) 0.10 (0.83) 0.15
========== ========== =========== ==========
ASMs (in thousands) 4,494,336 4,272,432 13,050,595 12,583,425
Excluding special charges, aircraft
impairment and retirement, and U.S.
Government grant 7.62 7.79 7.73 8.11
========== ========== =========== ==========
54
CONSOLIDATED FLIGHT OPERATING AND FINANCIAL DATA
The following tables set forth, for the periods indicated, certain key
operating and financial data for the consolidated flight operations of the
Company. Data shown for "Jet" operations include the consolidated operations of
Lockheed L-1011, Boeing 727-200, Boeing 737-800, Boeing 757-200, and Boeing
757-300 aircraft in all of the Company's business units. Data shown for
"J31/Saab" operations include the operations of Jetsteam31 and Saab 340B
propeller aircraft by Chicago Express as the ATA Connection.
TWELVE MONTHS ENDED DECEMBER 31,
2001 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet 56,962 55,714 1,248 2.24
Departures J31/Saab (a) 26,836 18,985 7,851 41.35
-------------------------------------------------------------------
Total Departures (b) 83,798 74,699 9,099 12.18
-------------------------------------------------------------------
Block Hours Jet 172,207 172,824 (617) (0.36)
Block Hours J31/Saab 24,836 18,708 6,128 32.76
-------------------------------------------------------------------
Total Block Hours (c) 197,043 191,532 5,511 2.88
-------------------------------------------------------------------
RPMs Jet (000s) 11,581,733 11,760,135 (178,402) (1.52)
RPMs J31/Saab (000s) 94,009 56,669 37,340 65.89
-------------------------------------------------------------------
Total RPMs (000s) (d) 11,675,742 11,816,804 (141,062) (1.19)
-------------------------------------------------------------------
ASMs Jet (000s) 16,041,928 16,295,730 (253,802) (1.56)
ASMs J31/Saab (000s) 145,759 94,371 51,388 54.45
-------------------------------------------------------------------
Total ASMs (000s) (e) 16,187,687 16,390,101 (202,414) (1.23)
-------------------------------------------------------------------
Load Factor Jet 72.20 72.17 0.03 0.04
Load Factor J31/Saab 64.50 60.05 4.45 7.41
-------------------------------------------------------------------
Total Load Factor (f) 72.13 72.10 0.03 0.04
-------------------------------------------------------------------
Passengers Enplaned Jet 8,058,886 7,686,077 372,809 4.85
Passengers Enplaned J31/Saab 576,339 320,062 256,277 80.07
-------------------------------------------------------------------
Total Passengers Enplaned (g) 8,635,225 8,006,139 629,086 7.86
-------------------------------------------------------------------
Revenue $ (000s) 1,275,484 1,291,553 (16,069) (1.24)
RASM in cents (h) 7.88 7.88 - -
CASM in cents (i) 8.45 7.86 0.59 7.51
Yield in cents (j) 10.92 10.93 (0.01) (0.09)
- --------------------------
See footnotes (a) through (j) on pages 58-59.
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet 55,714 50,207 5,507 10.97
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
-----------------------------------------------------------------------
Total Departures (b) 74,699 67,923 6,776 9.98
-----------------------------------------------------------------------
Block Hours Jet 172,824 157,481 15,343 9.74
Block Hours J31/Saab 18,708 17,979 729 4.05
-----------------------------------------------------------------------
Total Block Hours (c) 191,532 175,460 16,072 9.16
-----------------------------------------------------------------------
RPMs Jet (000s) 11,760,135 10,913,081 847,054 7.76
55
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
-----------------------------------------------------------------------
Total RPMs (000s) (d) 11,816,804 10,949,003 867,801 7.93
-----------------------------------------------------------------------
ASMs Jet (000s) 16,295,730 15,025,000 1,270,730 8.46
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
-----------------------------------------------------------------------
Total ASMs (000s) (e) 16,390,101 15,082,630 1,307,471 8.67
-----------------------------------------------------------------------
Load Factor Jet 72.17 72.63 (0.46) (0.63)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
-----------------------------------------------------------------------
Total Load Factor (f) 72.10 72.59 (0.49) (0.68)
-----------------------------------------------------------------------
Passengers Enplaned Jet 7,686,077 6,838,339 847,738 12.40
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
-----------------------------------------------------------------------
Total Passengers Enplaned (g) 8,006,139 7,044,643 961,496 13.65
-----------------------------------------------------------------------
Revenue $ (000s) 1,291,553 1,122,366 169,187 15.07
RASM in cents (h) 7.88 7.44 0.44 5.91
CASM in cents (i) 7.86 6.84 1.02 14.91
Yield in cents (j) 10.93 10.25 0.68 6.63
- ---------------------
See footnotes (a) through (j) on pages 58-59.
56
THREE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) % INC(DEC)
----------------- ---------------- ---------------- ------------------
Departures Jet 17,147 14,471 2,676 18.49
Departures Saab 11,669 6,732 4,937 73.34
----------------- ---------------- ---------------- ------------------
Total Departures (b) 28,816 21,203 7,613 35.91
----------------- ---------------- ---------------- ------------------
Block Hours Jet 50,833 44,453 6,380 14.35
Block Hours Saab 10,982 6,224 4,758 76.45
----------------- ---------------- ---------------- ------------------
Total Block Hours (c) 61,815 50,677 11,138 21.98
----------------- ---------------- ---------------- ------------------
RPMs Jet (000s) 3,195,420 3,238,209 (42,789) (1.32)
RPMs Saab (000s) 43,664 22,244 21,420 96.30
----------------- ---------------- ---------------- ------------------
Total RPMs (000s) (d) 3,239,084 3,260,453 (21,369) (0.66)
----------------- ---------------- ---------------- ------------------
ASMs Jet (000s) 4,428,021 4,235,610 192,411 4.54
ASMs Saab (000s) 66,315 36,822 29,493 80.10
----------------- ---------------- ---------------- ------------------
Total ASMs (000s) (e) 4,494,336 4,272,432 221,904 5.19
----------------- ---------------- ---------------- ------------------
Load Factor Jet (%) 72.16 76.45 (4.29) (5.56)
Load Factor Saab (%) 65.84 60.41 5.43 8.99
----------------- ---------------- ---------------- ------------------
Total Load Factor (%) (f) 72.07 76.31 (4.24) (5.56)
----------------- ---------------- ---------------- ------------------
Passengers Enplaned Jet 2,375,954 2,070,172 305,782 14.77
Passengers Enplaned Saab 254,403 135,174 119,229 88.20
----------------- ---------------- ---------------- ------------------
Total Passengers Enplaned (g) 2,630,357 2,205,346 425,011 19.27
----------------- ---------------- ---------------- ------------------
Revenue $ (000s) 317,289 321,469 (4,180) (1.30)
RASM in cents (h) 7.06 7.52 (0.46) (6.12)
CASM in cents (i) 8.39 7.42 0.97 13.07
Yield in cents (j) 9.80 9.86 (0.06) (0.61)
- ---------------------
See footnotes (b) through (j) on pages 58-59.
57
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) %INC(DEC)
----------------- ---------------- ----------------- ----------------
Departures Jet 49,305 44,167 5,138 11.63
Departures Saab 28,982 18,665 10,317 55.27
----------------- ---------------- ----------------- ----------------
Total Departures (b) 78,287 62,832 15,455 24.60
----------------- ---------------- ----------------- ----------------
Block Hours Jet 146,085 134,549 11,536 8.57
Block Hours Saab 27,182 17,194 9,988 58.09
----------------- ---------------- ----------------- ----------------
Total Block Hours (c) 173,267 151,743 21,524 14.18
----------------- ---------------- ----------------- ----------------
RPMs Jet (000s) 9,290,163 9,221,576 68,587 0.74
RPMs Saab (000s) 106,071 68,210 37,861 55.51
----------------- ---------------- ----------------- ----------------
Total RPMs (000s) (d) 9,396,234 9,289,786 106,448 1.15
----------------- ---------------- ----------------- ----------------
ASMs Jet (000s) 12,891,505 12,481,432 410,073 3.29
ASMs Saab (000s) 159,090 101,993 57,097 55.98
----------------- ---------------- ----------------- ----------------
Total ASMs (000s) (e) 13,050,595 12,583,425 467,170 3.71
----------------- ---------------- ----------------- ----------------
Load Factor Jet (%) 72.06 73.88 (1.82) (2.46)
Load Factor Saab (%) 66.67 66.88 (0.21) (0.31)
----------------- ---------------- ----------------- ----------------
Total Load Factor (%) (f) 72.00 73.83 (1.83) (2.48)
----------------- ---------------- ----------------- ----------------
Passengers Enplaned Jet 6,939,844 6,395,596 544,248 8.51
Passengers Enplaned Saab 646,904 413,323 233,581 56.51
----------------- ---------------- ----------------- ----------------
Total Passengers Enplaned (g) 7,586,748 6,808,919 777,829 11.42
----------------- ---------------- ----------------- ----------------
Revenue $ (000s) 966,400 1,027,849 (61,449) (5.98)
RASM in cents (h) 7.41 8.17 (0.76) (9.30)
CASM in cents (i) 8.24 8.02 0.22 2.74
Yield in cents (j) 10.28 11.06 (0.78) (7.05)
- ---------------------
See footnotes (b) through (j) on pages 58-59.
(a) Chicago Express provides service between Chicago-Midway and the cities
of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Madison, South
Bend and Springfield as the ATA Connection, currently using 34-seat Saab 340B
propeller aircraft. During 1999 and the first three quarters of 2000, Chicago
Express operated up to nine 19-seat Jetstream 31 ("J31") aircraft as it phased
in the Saab fleet. As of September 30, 2000, all J31 aircraft had been removed
from revenue service.
(b) A departure is a single takeoff and landing operated by a single
aircraft between an origin city and a destination city.
(c) Block hours for any aircraft represent the elapsed time computed from
the moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied
by revenue passengers multiplied by the number of miles those seats are flown.
RPMs are an industry measure of the total seat capacity actually sold by the
Company.
(e) Available seat miles (ASMs) represent the number of seats available for
sale to revenue passengers multiplied by the number of miles those seats are
flown. ASMs are an industry measure of the total seat capacity offered for sale
by the Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by
ASMs. Passenger load factor is relevant to the evaluation of scheduled service
because incremental passengers normally provide incremental revenue and
profitability when seats are sold individually. In the case of commercial
charter and military/government charter, load factor is less relevant because
the Company sells an entire aircraft instead of individual seats. Since both
costs and revenues are largely fixed for these types of charter flights, changes
in load factor have less impact on business unit profitability. Consolidated
load factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied
seats on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided
by total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
58
(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.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
OPERATING REVENUES
SCHEDULED SERVICE REVENUES. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200, Boeing 737-800, Boeing 757-200,
and Boeing 757-300 aircraft in scheduled service. Data shown for "Saab"
operations include the operations of Saab 340B propeller aircraft by Chicago
Express as the ATA Connection.
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) % INC (DEC)
------------------ ------------------ ------------------ -------------------
Departures Jet 41,347 35,056 6,291 17.95
Departures Saab 28,982 18,665 10,317 55.27
------------------ ------------------ ------------------ -------------------
Total Departures (b) 70,329 53,721 16,608 30.92
------------------ ------------------ ------------------ -------------------
Block Hours Jet 116,317 101,349 14,968 14.77
Block Hours Saab 27,182 17,194 9,988 58.09
------------------ ------------------ ------------------ -------------------
Total Block Hours (c) 143,499 118,543 24,956 21.05
------------------ ------------------ ------------------ -------------------
RPMSs Jet (000s) 7,336,282 6,722,193 614,089 9.14
RPMs Saab (000s) 106,071 68,210 37,861 55.51
------------------ ------------------ ------------------ -------------------
Total RPMs (000s) (d) 7,442,353 6,790,403 651,950 9.60
------------------ ------------------ ------------------ -------------------
ASMs Jet (000s) 9,785,177 8,653,441 1,131,736 13.08
ASMs Saab (000s) 159,090 101,993 57,097 55.98
------------------ ------------------ ------------------ -------------------
Total ASMs (000s) (e) 9,944,267 8,755,434 1,188,833 13.58
------------------ ------------------ ------------------ -------------------
Load Factor Jet (%) 74.97 77.68 (2.71) (3.49)
Load Factor Saab (%) 66.67 66.88 (0.21) (0.31)
------------------ ------------------ ------------------ -------------------
Total Load Factor (%) (f) 74.84 77.56 (2.72) (3.51)
------------------ ------------------ ------------------ -------------------
Passengers Enplaned Jet 5,970,143 5,199,950 770,193 14.81
Passengers Enplaned Saab 646,904 413,323 233,581 56.51
------------------ ------------------ ------------------ -------------------
Total Passengers Enplaned (g) 6,617,047 5,613,273 1,003,774 17.88
------------------ ------------------ ------------------ -------------------
Revenue $ (000s) 664,431 656,044 8,387 1.28
RASM in cents (h) 6.68 7.49 (0.81) (10.81)
CASM in cents (i) 8.93 9.66 (0.73) (7.56)
Yield in cents (j) 100.41 116.87 (16.46) (14.08)
- ---------------------
See footnotes (b) through (j) on pages 58-59.
Scheduled service revenues in the nine months ended September 30, 2002
increased 1.3% to $664.4 million from $656.0 million in the same period of 2001.
Scheduled service revenues comprised 73.0% and 68.8%, respectively, of
consolidated revenues in the quarter and nine months ended September 30, 2002,
as compared to 64.9% and 63.8%, respectively, of consolidated revenues in the
same periods of 2001. While the Company's capacity in 2002 has increased from
2001, both load factor and yield have declined from the prior year.
The Company's third quarter 2002 scheduled service at Chicago-Midway
accounted for approximately 67.8% of scheduled service ASMs and 87.4% of
scheduled service departures, as
59
compared to 63.6% and 85.8%, respectively, in the third quarter of 2001. In the
third quarter of 2002, the Company began nonstop service from Chicago-Midway to
Charlotte. In the first quarter of 2002, the Company began nonstop international
service to Aruba, Cancun, Grand Cayman and Guadalajara. In the third and fourth
quarters of 2001, the Company began operating nonstop between Chicago-Midway and
the cities of Newark and Miami. The Company began nonstop service from
Chicago-Midway to San Jose, California on October 1, 2002 and has announced
nonstop service to Montego Bay, Jamaica and Puerto Vallarta, Mexico beginning in
the fourth quarter of 2002.
Chicago Express operates, as of September 30, 2002, 17 34-seat Saab 340B
aircraft between Chicago-Midway and the cities of Indianapolis, Cedar Rapids,
Des Moines, Dayton, Flint, Grand Rapids, Lexington, Madison, Milwaukee, Moline,
Springfield, South Bend and Toledo.
The Company anticipates that its Chicago-Midway operation will continue to
represent a substantial proportion of its scheduled service business throughout
2002 and beyond. Chicago Express has been performing well as a feeder of
passengers to the jet system. The Company operated 140 peak daily jet and
commuter departures from Chicago-Midway and served 34 destinations on a nonstop
basis in the third quarter of 2002, as compared to 111 peak daily jet and
commuter departures and 27 nonstop destinations in the third quarter of 2001.
The Company's anticipated growth at Chicago-Midway will be accomplished in
conjunction with the completion of new terminal and gate facilities at the
Chicago-Midway Airport. In March 2001, the Company occupied 24 newly constructed
ticketing and passenger check-in spaces in the new terminal, an increase from 16
ticketing and passenger check-in spaces previously occupied. Once all
construction is complete in 2004, the Company expects to occupy at least 12 jet
gates and one commuter aircraft gate at the new airport concourses. One new gate
was occupied in October 2001, and the Company moved to seven additional new
gates in the first quarter of 2002. The five remaining gates are expected to be
available for use by the Company in 2004. The construction of a Federal
Inspection Service ("FIS") facility at Chicago-Midway was completed in the first
quarter of 2002, and the opening of this facility allowed the Company to begin
nonstop international services from Chicago-Midway in the first quarter of 2002,
as noted above. The Company plans to continue to add new nonstop jet service to
international destinations using this customs facility at Chicago-Midway
Airport.
The Company's Hawaii service accounted for 16.9% of scheduled service ASMs
and 3.8% of scheduled service departures in the third quarter of 2002, as
compared to 23.1% and 5.1%, respectively, in the third quarter of 2001. The
Company provided nonstop services in both periods from Los Angeles, Phoenix and
San Francisco to both Honolulu and Maui, with connecting service between
Honolulu and Maui. From June to September 2002, the Company operated seasonal
service to Lihue from Los Angeles and San Francisco. The Company provides these
services through a marketing alliance with the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels.
The Company's Indianapolis service accounted for 10.0% of scheduled service
ASMs and 6.0% of scheduled service departures in the third quarter of 2002, as
compared to 7.7% and 5.9%, respectively, in the third quarter of 2001. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and Sarasota. The
Company also began limited jet service, in the second quarter of 2002, between
60
Indianapolis and Chicago-Midway, with continuing service to Seattle, and began
nonstop service to New York LaGuardia and Phoenix from Indianapolis beginning in
the third quarter of 2002. The Company has served Indianapolis for 30 years
through the Ambassadair Travel Club, and in scheduled service since 1986.
COMMERCIAL CHARTER REVENUES. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Commercial charter revenues accounted for 6.5% and 11.2%, respectively of
consolidated revenues in the quarter and nine months ended September 30, 2002,
as compared to 16.6% in each of the comparable periods of 2001.
61
The following table sets forth, for the periods indicated, certain key
operating and financial data for the commercial charter operations of the
Company.
THREE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) % INC (DEC)
---------------- ---------------- ---------------- -----------------
Departures (b) 1,157 1,972 (815) (41.33)
Block Hours (c) 3,888 6,792 (2,904) (42.76)
RPMs (000s) (d) 246,956 675,275 (428,319) (63.43)
ASMs (000s) (e) 304,538 798,277 (493,739) (61.85)
Passengers Enplaned (g) 166,148 315,603 (149,455) (47.36)
Revenue $ (000s) 20,626 53,329 (32,703) (61.32)
RASM in cents (h) 6.77 6.68 0.09 1.35
RASM excluding fuel escalation in cents (k) 6.56 6.52 0.04 0.61
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) % INC (DEC)
----------------- --------------- ---------------- ------------------
Departures (b) 5,257 6,386 (1,129) (17.68)
Block Hours (c) 17,949 21,387 (3,438) (16.08)
RPMs (000s) (d) 1,228,998 1,755,865 (526,867) (30.01)
ASMs (000s) (e) 1,535,375 2,239,239 (703,864) (31.43)
Passengers Enplaned (g) 792,176 1,017,639 (225,463) (22.16)
Revenue $ (000s) 108,120 170,124 (62,004) (36.45)
RASM in cents (h) 7.04 7.60 (0.56) (7.37)
RASM excluding fuel escalation in cents (k) 6.96 7.26 (0.30) (4.13)
- ---------------------
See footnotes (b) through (h) on page 58.
(k) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned,
are accounted for as additional revenue. A separate RASM calculation,
excluding the impact of fuel reimbursements, is provided as a separate
measure of unit revenue changes.
The majority of the decline in commercial charter revenues in the third
quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, was due to the retirement of certain Lockheed L-1011 and Boeing
727-200 aircraft that the Company has traditionally used in commercial charter
flying. Since aircraft utilization (number of productive hours of flying per
aircraft each month) is typically much lower for commercial charter, as compared
to scheduled service flying, the Company's replacement fleets of new Boeing
737-800 and Boeing 757-300 aircraft are economically disadvantaged when used in
the charter business, because of their higher fixed-ownership cost.
Consequently, the Company expects its commercial charter revenues to continue to
decline throughout the remainder of 2002 as the fleet supporting this business
continues to shrink through aircraft retirements.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$16.1 million and $84.2 million, respectively, in revenues in the quarter and
nine months ended September 30, 2002, as compared to $44.9 million and $135.6
million, respectively, in the comparable periods of 2001.
62
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. Specialty charter accounted for approximately
$2.5 million and $9.8 million, respectively, in revenues in the quarter and nine
months ended September 30, 2002, as compared to $4.5 million and $14.0 million,
respectively, in the comparable periods of 2001.
MILITARY/GOVERNMENT CHARTER REVENUES. The following table sets forth, for the
periods indicated, certain key operating and financial data for the military/
government flight operations of the Company.
THREE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) (DEC) % INC
------------------------------------------------------------------------
Departures (b) 959 854 101 11.83
Block Hours (c) 4,175 3,831 344 8.98
RPMs (000s) (d) 252,215 255,560 (3,345) (1.31)
ASMs (000s) (e) 554,979 491,359 63,620 12.95
Passengers Enplaned (g) 60,140 53,714 6,426 11.96
Revenue $ (000s) 47,559 40,300 7,259 18.01
RASM in cents (h) 8.57 8.20 0.37 4.51
RASM excluding fuel escalation in cents (1) 8.52 7.89 0.63 7.98
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 INC (DEC) (DEC) % INC
------------------------------------------------------------------------
Departures (b) 2,679 2,709 (30) (1.11)
Block Hours (c) 11,732 11,756 (24) (0.20)
RPMs (000s) (d) 719,779 738,316 (18,537) (2.51))
ASMs (000s) (e) 1,559,070 1,580,397 (21,327) (1.35)
Passengers Enplaned (g) 175,380 176,572 (1,192) (0.68)
Revenue $ (000s) 130,578 122,479 8,099 6.61
RASM in cents (h) 8.38 7.75 0.63 8.13
RASM excluding fuel escalation in cents (l) 8.40 7.43 0.97 13.06
- ---------------------
See footnotes (b) through (h) on page 58.
(l) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each
contract year. If actual fuel prices differ from the contract rate,
revenues are adjusted up or down to neutralize the impact of the change on
the Company. A separate RASM calculation is provided, excluding the impact
of the fuel price adjustments.
The Company participates in two related military/government charter
programs known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of the team. As part of its participation in this
teaming arrangement, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization 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 all aircraft types and mission
categories based upon operating cost data
63
submitted by the participating airlines. These contracts generally are not
subject to renegotiation once they become effective.
Short-term expansion business is awarded by the U.S. military first on a
pro rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one
year is dependent upon several factors, including (i) the percentage of
mobilization value points represented by the Company's team as compared to total
mobilization value points of all providers of military service; (ii) the
percentage of passenger capacity of the Company with respect to its own team;
(iii) the amount of fixed-award and expansion flying required by the U.S.
military in each contract year; and (iv) the availability of the Company's
aircraft to accept and fly expansion awards. The Company earned $175.6 million
in military/government charter revenues in the contract year ended September 30,
2002.
The increase in RASM for military/government charter revenues in the
quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, was due primarily to rate increases awarded for the current
contract year ending September 30, 2002, based upon cost data submitted to the
U.S. military by the Company and other air carriers providing these services,
and partially due to the mix of aircraft hours flown. The Company has renewed
its U.S. military contract for the fiscal year beginning October 1, 2002, and
has obtained an average rate nearly unchanged as compared to the prior contract
year. The Company expects the volume of military flying to be higher than in the
contract year ended September 30, 2002, but due to the small rate changes
expects military/government charter RASM in the contract year beginning October
1, 2002 to be only slightly higher than the current contract year.
GROUND PACKAGE REVENUES. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its ATALC and Ambassadair subsidiaries. Ambassadair Travel Club offers
tour-guide-accompanied vacation packages to its approximately 32,000 individual
and family members. ATALC offers numerous ground accommodations to the general
public, which are marketed through travel agents, as well as directly by the
Company.
In the third quarter of 2002, ground package revenues decreased 35.6% to
$5.6 million, as compared to $8.7 million in the third quarter of 2001, and in
the nine months ended September 30, 2002, ground package revenues decreased
32.3% to $30.6 million, as compared to $45.2 million in the same period of 2001.
The decline in ground package sales (and related ground package costs) in
the first nine months of 2002, as compared to the first nine months of 2001, is
partially due to the reduced demand for leisure travel subsequent to the
terrorist attacks of September 11, 2001. Also, effective July 1, 2002, the
Company outsourced the management and marketing of its ATA Vacations and Travel
Charter, International brands to MTC. Under that outsourcing agreement, MTC will
directly sell ground arrangements to customers who also purchase charter or
scheduled service air transportation from the Company. Therefore, the Company
anticipates that ground package sales (and related ground package costs) will
continue to experience significant year-over-year declines in the remainder of
2002, as these sales will no longer be recorded by the Company for ATA Vacations
and Travel Charter, International.
64
OTHER REVENUES. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company, such as cancellation and miscellaneous service fees, Ambassadair Travel
Club membership dues and cargo revenue. Other revenues increased 12.3% to $11.9
million in the third quarter of 2002, as compared to $10.6 million in the third
quarter of 2001, and decreased 3.8% to $32.7 million in the nine months ended
September 30, 2002, as compared to $34.0 million in the same period of 2001.
Although certain administrative fee revenues increased between periods, most
other revenues declined in association with the ongoing diminished travel demand
subsequent to the terrorist attacks of September 11, 2001.
OPERATING EXPENSES
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in the third quarter of 2002 increased
11.9% to $95.1 million, as compared to $85.0 million in the third quarter of
2001, and in the nine months ended September 30, 2002, increased 6.2% to $264.8
million, as compared to $249.4 million in the same period of 2001.
On July 16, 2002, the Company's cockpit crewmembers, who are represented by
the Air Line Pilots Association ("ALPA"), ratified an amended collective
bargaining agreement, which became effective July 1, 2002. The Company expects
future salaries, wages and benefits costs to be significantly increased by the
ratified amended cockpit crewmember contract. The amended contract is expected
to increase cockpit crewmembers' average salaries by approximately 80% over the
four year contract period. Additionally, the amended contract provides for
expanded retirement benefits for cockpit crewmembers. Although their existing
401(k) employer match will be capped in future years, a defined contribution
plan has been established for cockpit crewmembers effective January 1, 2003.
Certain insurance benefits for cockpit crewmembers have also been enhanced as a
result of the amended contract. The increase in salaries, wages and benefits in
the quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, is primarily due to the Company recording $9.9 million for a
signing bonus as provided by the amended cockpit crewmember contract. Also,
impacting the quarter and nine months ended September 30, 2002, were cockpit
crewmember contract rate increases effective July 1, 2002, and generally
increasing costs for all employee's medical and workers' compensation benefits.
FUEL AND OIL. Fuel and oil expense decreased 21.9% to $53.0 million in the third
quarter of 2002, as compared to $67.9 million in the same period of 2001, and
decreased 26.5% to $151.4 million in the nine months ended September 30, 2002,
as compared to $205.9 million in the same period of 2001.
Total jet block hours increased 14.4% and 8.6%, respectively, in the
quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001. Despite this increase, the Company consumed 14.9% and 14.7%
fewer gallons of jet fuel for flying operations, respectively, between the
quarter and nine-month periods ended September 30, 2002 and 2001, which resulted
in a decrease in fuel expense of approximately $10.4 million and $30.9 million,
respectively. This decrease was primarily due to the addition of Boeing 737-800
and Boeing 757-300 aircraft to the Company's fleet beginning in May 2001. These
aircraft replaced certain less-fuel-efficient Boeing 727-200 and Lockheed L-1011
aircraft, which were retired from revenue service.
65
During the quarter and nine months ended September 30, 2002, the Company's
average cost per gallon of jet fuel consumed decreased by 2.6% and 13.2%,
respectively, as compared to the same periods of 2001, resulting in a decrease
in fuel and oil expense of approximately $3.4 million and $23.9 million,
respectively, between those periods.
Periodically, the Company has entered into fuel price hedge contracts to
reduce the risk of fuel price fluctuations. No material gains or losses were
recorded in any period presented. As of September 30, 2002, the Company had no
outstanding fuel hedge agreements.
AIRCRAFT RENTALS. The Company's operating leases require periodic cash payments
that vary in amount and frequency. The Company accounts for aircraft rentals
expense in equal monthly amounts over the life of each operating lease. As of
September 30, 2002 and December 31, 2001, the Company had recorded $75.8 million
and $49.2 million, respectively, of prepaid aircraft rent under its operating
leases. Aircraft rentals expense for the third quarter of 2002 increased 90.3%
to $51.2 million from $26.9 million in the third quarter of 2001, and increased
98.7% to $135.7 million in the nine months ended September 30, 2002, as compared
to $68.3 million in the same period of 2001. The increase was mainly
attributable to the delivery of 25 leased Boeing 737-800 and 10 leased Boeing
757-300 aircraft between May 2001 and September 2002, which resulted in an
increase in rental expense of $26.9 million and $71.5 million, respectively, in
the quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001. This increase was partially offset by a decline in rental
expense recognized in the third quarter and nine months ended September 30,
2001, of $5.0 million and $6.2 million, respectively, associated with the
accrual of rents under operating leases for certain Boeing 727-200s which were
removed from revenue service shortly after the events of September 11, 2001. No
such expense was incurred in 2002.
HANDLING, LANDING AND NAVIGATION FEES. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 35.6% to $29.3 million
in the third quarter of 2002, as compared to $21.6 million in the third quarter
of 2001, and increased by 21.6% to $85.5 million in the nine months ended
September 30, 2002, as compared to $70.3 million in the same period of 2001. The
increase in handling, landing and navigation fees between the third quarters of
2002 and 2001 and the nine months ended September 30, 2002 and 2001, was partly
due to an increase in system-wide jet departures, which increased by 18.5%
between the third quarters of 2002 and 2001 and which increased 11.6% between
the nine months ended September 30, 2002 and 2001. The Company's average cost to
handle its aircraft also increased in 2002, as compared to 2001, primarily due
to higher costs incurred for airport security as a result of the terrorist
attacks on September 11, 2001.
DEPRECIATION AND AMORTIZATION. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls on a units-of-production basis using
aircraft flight hours and cycles (landings) as the units of measure.
Depreciation and amortization expense decreased 41.3% to $18.9 million in the
third quarter of 2002, as compared to $32.2 million in the
66
third quarter of 2001, and decreased 40.5% to $60.3 million in the nine months
ended September 30, 2002, as compared to $101.4 million in the same period of
2001.
In 2001, the Company retired three Lockheed L-1011-50 aircraft from revenue
service early, immediately preceding their next heavy maintenance check. In the
first nine months of 2002, the Company retired another five L-1011-50/100
aircraft earlier than planned. During the fourth quarter of 2001, the Company
also determined that the remaining ten Lockheed L-1011-50/100 aircraft, rotable
parts and inventory were impaired. These assets were subsequently classified as
held for use in accordance with FAS 121, requiring them to be recorded on the
balance sheet at their estimated fair market value at the time of impairment,
which is the new asset basis to be depreciated over their estimated remaining
useful lives. Due primarily to the reduced cost basis of the remaining ten
aircraft, and the early retirement of eight aircraft, the Company recorded $5.0
million and $14.6 million, respectively, less depreciation and amortization
expense for this fleet in the quarter and nine months ended September 30, 2002,
as compared to the same periods of 2001.
Following the events of September 11, 2001, the Company decided to retire
its Boeing 727-200 fleet earlier than originally planned. Most of the aircraft
were retired from revenue service in the fourth quarter of 2001, although some
were used for charter service through the first five months of 2002. As a
result, these aircraft were determined to be impaired under FAS 121. Boeing
727-200 aircraft not already transferred to BATA Leasing LLC ("BATA") have been
classified in the balance sheets as assets held for sale. In accordance with FAS
121, depreciation expense was not recorded after the fleet was deemed impaired
and held for disposal, and will not be recorded in future accounting periods. As
a result, the Company did not record any depreciation expense on the Boeing
727-200 fleet in the quarter and nine months ended September 30, 2002, which
resulted in a decrease of $7.8 million and $28.7 million, respectively, in
depreciation and amortization expense in the quarter and nine months ended
September 30, 2002, as compared to the same periods of 2001.
Partially offsetting these decreases were increased amortization of
capitalized engine and airframe overhauls on the Lockheed L-1011-500 fleet, and
increases in depreciation and amortization expense associated with other fleet
rotable parts, owned engines and the provision for inventory obsolescence, along
with fluctuations in expenses related to furniture and fixtures, computer
hardware and software, and debt issue costs between periods, none of which were
individually significant.
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
Company flights throughout the world. The cost of crew and other employee travel
decreased 4.0% to $14.5 million in the third quarter of 2002, as compared to
$15.1 million in the third quarter of 2001, and decreased 10.3% to $41.9 million
in the nine months ended September 30, 2002, as compared to $46.7 million in the
same period of 2001. These decreases were mainly due to the Company's benefiting
from lower hotel rates which became available after the September 11, 2001
terrorist attacks. The average hotel cost per full-time-equivalent crew
decreased 6.4% in the third quarter of 2002 and 15.8% in the first nine months
of 2002, as compared to the same periods of 2001. The decreases also reflect a
decline in non-crew employee travel in the first nine months of 2002, as
compared to the first nine months of 2001, due to the Company's cost-cutting
initiatives. These decreases in the third quarter of 2002 were offset by an
increase in crew per diem of nearly $1.0 million as compared to the third
quarter of 2001. The amended cockpit crewmember contract substantially increased
per diem rates paid to cockpit
67
crewmembers. As stipulated in the flight attendants' collective bargaining
agreement, the Company must also pay these amended per diem rates to the flight
attendant group.
AIRCRAFT MAINTENANCE, MATERIALS AND REPAIRS. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities, and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800 and Saab 340B power plants. These agreements provide for
the Company to pay monthly fees based on a specified rate per engine flight
hour, in exchange for major engine overhauls and maintenance. Aircraft
maintenance, materials and repairs expense decreased 23.1% to $11.3 million in
the third quarter of 2002, as compared to $14.7 million in the third quarter of
2001, and decreased 25.3% to $37.4 million in the nine months ended September
30, 2002, as compared to $50.1 million in the same period of 2001.
The decline in maintenance, material and repairs expense in the third
quarter and nine months ended September 30, 2002, as compared to the same
periods of 2001, was primarily attributable to a decrease in materials consumed
and components repaired related to maintenance on the Company's aging fleets of
Lockheed L-1011-50/100 and Boeing 727-200 aircraft. During 2001 and the first
nine months of 2002, the Company placed 20 Boeing 727-200 aircraft into BATA,
and retired eight Lockheed L-1011-50/100 aircraft prior to the due dates of
heavy maintenance visits. Maintenance, materials and repairs expense associated
with these two fleets decreased $4.4 million and $16.6 million, respectively, in
the third quarter and nine months ended September 30, 2002, as compared to the
same periods of 2001.
This decline in maintenance, materials and repairs was partially offset by
an increase in the cost of the hourly engine maintenance agreement for the
Company's growing fleet of Saab 340B propeller aircraft operated by Chicago
Express.
OTHER SELLING EXPENSES. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling to customers using credit cards for payment, and
toll-free telephone services provided to single-seat and vacation package
customers who contact the Company directly to book reservations. Other selling
expenses increased 7.8% to $11.1 million in the third quarter of 2002, as
compared to $10.3 million in the third quarter of 2001, and increased 3.7% to
$33.5 million in the nine months ended September 30, 2002, as compared to $32.3
million in the same period of 2001. These increases are primarily the result of
a greater portion of the Company's sales being made on credit cards, and
slightly higher CRS fees.
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 the third quarter of
2002 and 2001, catering represented 79.9% and 72.5%, respectively, of total
passenger service expense, while catering represented 79.6% and 72.6%,
respectively, of total passenger service expense for the nine month periods
ended September 30, 2002 and 2001.
The total cost of passenger service decreased 17.5% to $10.4 million in the
third quarter of 2002, as compared to $12.6 million in the third quarter of 2001
and decreased 16.8% to $29.7 million in the nine months ended September 30,
2002, as compared to $35.7 million in the same period of
68
2001. The Company experienced a decrease of approximately 32.0% and 21.9%,
respectively, in the average unit cost of catering each passenger between the
quarter and nine months ended September 30, 2002, and comparable periods of
2001, primarily because in the first three quarters of 2002 the Company boarded
a higher ratio of scheduled service passengers to charter passengers than in the
same periods of 2001. Scheduled service passengers are provided a significantly
less expensive catering service than is provided to commercial charter and
military passengers. In addition, the Company introduced round-trip catering for
flights originating in Chicago-Midway to reduce catering service charges in the
quarter and nine months ended September 30, 2002. These differences resulted in
a price-and-business-mix decrease of $3.3 million and $5.7 million,
respectively, in catering expense between the quarter and nine months ended
September 30, 2002, and the comparable periods of 2001. Total jet passengers
boarded increased 14.8% and 8.5%, respectively, between the same time periods,
resulting in approximately $2.5 million and $3.6 million, respectively, in
higher volume-related catering expenses between the same sets of comparative
periods. In the quarter and nine months ended September 30, 2002, as compared to
the same periods of 2001, the Company also incurred approximately $1.9 million
and $4.2 million, respectively, less expense for mishandled baggage and
passenger inconvenience, due to significantly fewer flight delays and
cancellations in 2002.
ADVERTISING. Advertising expense increased 33.3% to $9.6 million in the third
quarter of 2002, as compared to $7.2 million in the third quarter of 2001, and
increased 45.9% to $30.2 million in the nine months ended September 30, 2002, as
compared to $20.7 million in the same period of 2001. The Company incurs
advertising costs primarily to support single-seat scheduled service sales. The
increase in advertising was primarily attributable to the promotion of the new
scheduled service destinations added in the first nine months of 2002 and the
promotion of low fares in a market that had less demand for service. The Company
also increased advertising in an effort to increase consumer preference for the
Company's enhanced product, especially in its important Chicago-Midway hub.
INSURANCE. Insurance expense represents the Company's cost of hull and liability
insurance and the costs of general insurance policies held by the Company,
including workers' compensation insurance premiums and claims handling fees. The
total cost of insurance increased 220.0% to $8.0 million in the third quarter of
2002, as compared to $2.5 million in the third quarter of 2001, and increased
238.6% to $23.7 million in the nine months ended September 30, 2002, as compared
to $7.0 million in the same period of 2001.
Liability insurance increased $4.1 million and $12.5 million in the quarter
and nine months ended September 30, 2002, as compared to the same periods of
2001. Immediately following the September 11, 2001 terrorist attacks, the
Company's insurer reduced the maximum amount of insurance coverage they would
underwrite for liability to persons other than employees or passengers resulting
from acts of terrorism, war, hijacking, or other similar perils (war-risk
coverage) and significantly increased their premiums for this reduced coverage.
Pursuant to the Air Transportation Safety and System Stabilization Act and other
enabling legislation, the U.S. Government has issued supplemental war-risk
coverage to U.S. air carriers, including the Company, which is expected to
continue through late 2003. It is anticipated that after this date a commercial
product for war-risk coverage will become available, but the Company may
continue to incur significant additional costs for this coverage.
Hull insurance increased $1.0 million and $3.0 million in the quarter and
nine months ended September 30, 2002, as compared to the same periods of 2001.
The increase is mainly attributable to
69
the increase in the Company's hull value between periods due to the addition of
the new Boeing 737-800 and Boeing 757-300 aircraft. The increase is also
attributable to an increase in premium rates following the September 11, 2001
terrorist attacks. Expenses related to the Company's general insurance policies
increased $0.4 million and $1.2 million in the quarter and nine months ended
September 30, 2002, as compared to the same periods of 2001, due primarily to an
increase in workers' compensation premiums and claims handling fees between
periods.
FACILITIES AND OTHER RENTALS. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 18.9% to $6.3 million in the third quarter of 2002, as
compared to $5.3 million in the third quarter of 2001, and increased 19.0% to
$17.5 million in the nine months ended September 30, 2002, as compared to $14.7
million in the same period of 2001. Growth in facilities costs between periods
was primarily attributable to facilities at airport locations required to
support new scheduled service destinations added in the last three months of
2001 and the first nine months of 2002, and expanded services at existing
destinations.
COMMISSIONS. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs commissions to secure some commercial and military/government charter
business. Commissions expense decreased 48.1% to $4.0 million in the third
quarter of 2002, as compared to $7.7 million in the third quarter of 2001, and
decreased 36.5% to $18.1 million in the nine months ended September 30, 2002, as
compared to $28.5 million in the same period of 2001.
The Company experienced a decrease in commissions of $0.6 million and $3.2
million, respectively, in the quarter and nine months ended September 30, 2002,
attributable to commissions paid to travel agents by ATALC, which is consistent
with the decrease in related revenue. In addition, scheduled service commissions
decreased $3.1 million and $6.9 million, respectively, in the quarter and nine
months ended September 30, 2002, primarily due to the elimination of standard
travel agency commissions for sales made after March 21, 2002. The Company
continues to pay special travel agency commissions targeted to specific markets
and periods of the year.
GROUND PACKAGE COST. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATALC customers. Ground package cost
decreased 40.6% to $3.8 million in the third quarter of 2002, as compared to
$6.4 million in the third quarter of 2001, and decreased 35.1% to $23.8 million
in the nine months ended September 30, 2002, as compared to $36.7 million in the
same period of 2001. Ground package costs between years decreased in approximate
proportion to the decrease in ground package revenues. See the "Ground Package
Revenues" section above for an explanation of the decline in ground package
sales and related costs.
SPECIAL CHARGES. Special charges represent direct expenses which, due to the
events of September 11, 2001, were considered unusual in nature under the
provisions of APB Opinion 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and the Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" ("APB 30"). Special
charges for both the three and nine months ended September 30, 2001 were $9.4
million, while no expenses were classified as special charges in 2002. The 2001
special charges were comprised primarily of costs associated with the early
retirement of the Company's Boeing 727 fleet, a decision made immediately after
September 11, 2001, costs associated with the Company's proposed transaction in
which ATA Holdings would have been taken private, which was substantially
70
complete by September 11, 2001, when the Company lost financing as a results of
the attacks, and expenses directly associated with the FAA's temporary mandated
suspension of commercial flights on September 11, 2001 and for several days
thereafter.
AIRCRAFT IMPAIRMENTS AND RETIREMENTS. Aircraft impairment and retirement costs
decreased 8.8% to $34.3 million in the third quarter of 2002, as compared to
$37.6 million in the third quarter of 2001, and increased 23.7% to $51.6 million
in the nine months ended September 30, 2002, as compared to $41.7 million in the
same period of 2001.
Following the events of September 11, 2001, the Company decided to retire
its Boeing 727-200 fleet earlier than originally planned. Most of the aircraft
were retired from revenue service in the fourth quarter of 2001, although some
were used for charter service through the first five months of 2002. In
accordance with FAS 121, the Company determined in 2001 that the estimated
future undiscounted cash flows expected to be generated by the Boeing 727-200s
were less than the net book value of these aircraft and the related rotable
parts and inventory. Therefore, an impairment charge was recorded in 2001. In
accordance with FAS 121, the Company continues to re-evaluate current fair
market values of previously impaired assets. In the three and nine months ended
September 30, 2002, the Company recorded asset impairment charges of $18.8
million and $33.6 million, respectively, and $35.2 million for the same periods
of 2001, related to its remaining net book value of Boeing 727-200 aircraft,
including those recorded as an investment in BATA.
Significant assumptions were required concerning the estimated fair market
value of the fleet, since FAS 121 specifies that impaired assets be written down
to their estimated fair market value by recording an impairment charge to
earnings. As FAS 121 requires the Company to continuously evaluate fair market
values of previously impaired assets, it is possible that future estimates of
fair market value may result in additional material charges to earnings, if
those estimates indicate a material reduction in fair market value as compared
to the estimates made on September 30, 2002.
In the third quarter of 2002, the Company retired two Lockheed
L-1011-50/100 aircraft, resulting in a charge of $6.6 million. In the third
quarter of 2002, the Company also decided to retire one Lockheed L-1011-500
aircraft in the fourth quarter of 2002. The Company will write off the remaining
value of that aircraft ratably over its remaining estimated life. In the third
quarter of 2002, the Company recorded a charge of $8.9 million related to the
retirement of this aircraft, which is reported as part of aircraft impairments
and retirements.
U.S. GOVERNMENT GRANT. As a result of the terrorist attacks of September 11,
2001 President Bush signed into law the Air Transportation Safety and System
Stabilization Act ("Act"). The Act, among other things, provided $5.0 billion in
compensation for the direct losses incurred by all U.S. airlines and air cargo
carriers as a result of the closure by the FAA of U.S. airspace following the
September 11, 2001 terrorist attacks and for incremental losses incurred by air
carriers through December 31, 2001. Each qualified air carrier is entitled to
receive the lesser of: (1) its actual direct and incremental losses incurred
between September 11, 2001 and December 31, 2001 or (2) its proportion of the
$5.0 billion of total compensation available to all qualified air carriers under
the Act allocated based on August 2001 available seat miles or ton miles.
The Company believes it is eligible to receive up to approximately $74.0
million in connection with the Act, based on the Company's allocation calculated
from August 2001 available seat miles. In 2001, the Company calculated its
direct and incremental losses to be $66.3 million, and recorded that amount as
U.S. Government grant compensation. The $66.3 million was comprised of lost
profit contribution and certain special charges deemed directly attributable to
the
71
terrorist attacks, partially offset by expense reductions as a direct result of
lower costs incurred by the Company after the attacks. The Company received
$44.5 million in cash compensation under the Act in 2001, and recorded a
receivable for the remaining amount of $21.8 million.
The DOT issued revised guidelines for compensation in April 2002, and the
Company completed and submitted its third and final application, in the second
quarter of 2002. The Company continues to review its application with the DOT.
Based on these discussions with the DOT, the Company has determined that a
portion of the receivable recorded in 2001 may not be collected when the DOT
provides its final ruling of what qualifies as reimbursable. The Company
recorded a valuation allowance of $15.2 million against the receivable in the
second quarter of 2002 and made no adjustment to that allowance in the third
quarter of 2002. The Company currently expects to receive a final decision on
its pending application with the DOT during the fourth quarter of 2002.
OTHER OPERATING EXPENSES. Other operating expenses decreased 5.2% to $16.3
million in the third quarter of 2002, as compared to $17.2 million in the third
quarter of 2001, and increased 4.2% to $55.2 million in the nine months ended
September 30, 2002, as compared to $53.0 million in the same period of 2001. No
line item changes were individually significant between these periods.
INTEREST INCOME AND EXPENSE. Interest expense in the quarter and nine months
ended September 30, 2002 increased to $7.7 million and $26.0 million,
respectively, as compared to $7.0 million and $21.3 million, respectively, in
the same periods of 2001. The Company incurred $2.3 million in the nine months
ended September 30, 2002, in interest expense relating to certain Boeing 757-300
and Boeing 737-800 aircraft which were temporarily financed with bridge debt. No
such financing was in place in the first nine months of 2001. These aircraft
were refinanced with operating leases by the end of the third quarter of 2002.
The Company also capitalized interest of $2.2 million less, between the nine
months ended September 30, 2002 and 2001, associated with its funding of the
aircraft pre-delivery deposit requirements.
The Company invested excess cash balances in short-term government
securities and commercial paper and thereby earned $0.6 million and $2.1
million, respectively, in interest income in the quarter and nine months ended
September 30, 2002, as compared to $1.2 million and $4.2 million, respectively,
in the same periods of 2001. The decrease in interest income between periods is
primarily due to a decline in the average interest rate earned.
INCOME TAX EXPENSE. In the quarter and nine months ended September 30, 2002 the
Company recorded an income tax credit of $6.7 million and $19.6 million,
respectively, applicable to $67.4 million and $133.7 million, respectively, in
pre-tax loss for those periods, while in the quarter and nine months ended
September 30, 2001 the Company recorded income tax expense of $16,000 and $0.9
million, respectively, applicable to $0.4 million and $3.4 million,
respectively, in pre-tax income for those periods. The effective tax rate
applicable to the quarter and nine months ended September 30, 2002 were 14.6%
and 10.0%, respectively, as compared to 4.0% and 26.4%, respectively, in the
same periods of 2001.
The Company expects to incur a loss for the full year of 2002. When
combined with annual losses reported in 2000 and 2001, this three-year
cumulative loss creates a presumption under accounting principles generally
accepted in the United States that net deferred tax assets should be fully
reserved, if their recovery cannot be reasonably assured through carry-backs or
other tax strategies. As of September 30, 2002 the Company projects that it will
have a net deferred tax asset of $57.7 million as of the end of 2002, and that
it can be reasonably assured of recovering $18.4 million of that deferred tax
asset in cash refunds in 2003, using a five-year carry-back of expected
72
2002 alternative minimum tax net operating losses to the years 1997 through
2001. Therefore, the Company has determined that a full valuation allowance
against the remaining net deferred tax asset of $39.3 million is required, by
adjusting the Company's effective tax rate for 2002 prospectively from the third
quarter. This allowance adjustment, included in income tax expense, resulted in
an effective tax rate of 14.6% for tax credits applicable to losses incurred
through the third quarter of 2002.
73
YEAR ENDED DECEMBER 31, 2001, VERSUS YEAR ENDED DECEMBER 31, 2000
OPERATING REVENUES
Total operating revenues in 2001 decreased 1.3% to $1.275 billion, as
compared to $1.292 billion in 2000. This decrease was due to a $54.5 million
decrease in commercial charter revenues, a $21.1 million decrease in
military/government charter revenues, a $7.6 million decrease in ground package
revenues, and a $0.3 million decrease in other revenues, partially offset by a
$67.4 million increase in scheduled service revenues.
SCHEDULED SERVICE REVENUES. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200, Boeing 757-200, Boeing 757-300
and Boeing 737-800 aircraft in scheduled service. Data shown for "J31/Saab"
operations include the operations of Jetstream 31 and Saab 340B propeller
aircraft by Chicago Express as the ATA Connection.
TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------
2001 2000 INC (DEC) % INC (DEC)
-----------------------------------------------------------------------
Departures Jet 45,951 40,892 5,059 12.37
Departures J31/Saab (a) 26,836 18,985 7,851 41.35
-----------------------------------------------------------------------
Total Departures (b) 72,787 59,877 12,910 21.56
-----------------------------------------------------------------------
Block Hours Jet 131,495 118,473 13,022 10.99
Block Hours J31/Saab 24,836 18,708 6,128 32.76
-----------------------------------------------------------------------
Total Block Hours (c) 156,331 137,181 19,150 13.96
-----------------------------------------------------------------------
RPMs Jet (000s) 8,600,314 7,700,639 899,675 11.68
RPMs J31/Saab (000s) 94,009 56,669 37,340 65.89
-----------------------------------------------------------------------
Total RPMs (000s) (d) 8,694,323 7,757,308 937,015 12.08
-----------------------------------------------------------------------
ASMs Jet (000s) 11,297,545 10,025,603 1,271,942 12.69
ASMs J31/Saab (000s) 145,759 94,371 51,388 54.45
-----------------------------------------------------------------------
Total ASMs (000s) (e) 11,443,304 10,119,974 1,323,330 13.08
-----------------------------------------------------------------------
Load Factor Jet 76.13 76.81 (0.68) (0.89)
Load Factor J31/Saab 64.50 60.05 4.45 7.41
-----------------------------------------------------------------------
Total Load Factor (f) 75.98 76.65 (0.67) (0.87)
-----------------------------------------------------------------------
Passengers Enplaned Jet 6,703,150 5,873,598 829,552 14.12
Passengers Enplaned J31/Saab 576,339 320,062 256,277 80.07
-----------------------------------------------------------------------
Total Passengers Enplaned (g) 7,279,489 6,193,660 1,085,829 17.53
-----------------------------------------------------------------------
Revenue $ (000s) 820,666 753,301 67,365 8.94
RASM in cents (h) 7.17 7.44 (0.27) (3.63)
Yield in cents (j) 9.44 9.71 (0.27) (2.78)
Revenue per segment $ (m) 112.74 121.62 (8.88) (7.30)
- --------------------
74
See footnotes (a) through (j) on pages 58-59.
(m) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a
broad measure of the average price obtained for all flight segments flown
by passengers in the Company's scheduled service route network.
Scheduled service revenues in 2001 increased 8.9% to $820.7 million from
$753.3 million in 2000. Scheduled service revenues were 64.3% of consolidated
revenues in 2001, as compared to 58.3% of consolidated revenues in 2000.
As described in "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 2 - Impact of Terrorist Attacks on
September 11, 2001," the Company's scheduled service operations were adversely
affected by the terrorist attacks of September 11. The Company estimates that it
lost approximately $80.0 million in scheduled service revenues between September
11 and December 31, 2001, as a result of flights which were canceled, and as a
result of flights operated with lower load factors and yields. In the eight
months ended August 31, 2001, the Company's scheduled service RASM was virtually
unchanged at 7.72 cents, as compared to 7.71 cents in the comparable period of
2000. However, due to the decrease in scheduled service demand after the
terrorist attacks, resulting in lower load factors and yields, the Company's
scheduled service RASM in the last four months of 2001 was 5.92 cents, a
decrease of 14.3%, as compared to 6.91 cents in the last four months of 2000.
The Company's scheduled service at Chicago-Midway accounted for
approximately 66.8% of scheduled service ASMs and 86.6% of scheduled service
departures in 2001, as compared to 63.5% and 83.5%, respectively, during 2000.
During the third and fourth quarters of 2001, the Company began operating
nonstop flights to Newark and Miami. During the second and third quarters of
2000, the Company began operating nonstop flights to Ronald Reagan Washington
National Airport, Boston, Seattle and Minneapolis-St. Paul. In addition to this
new service, the Company served the following existing jet markets in both
years: Dallas-Ft. Worth, Denver, Ft. Lauderdale, Ft. Myers, Las Vegas, Los
Angeles, New York's LaGuardia Airport, Orlando, Philadelphia, Phoenix, St.
Petersburg, San Francisco, San Juan and Sarasota.
In April 1999, the Company acquired all of the issued and outstanding stock
of Chicago Express which then operated 19-seat Jetstream 31 propeller aircraft
between Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines,
Dayton, Grand Rapids, Lansing and Madison. Chicago Express began service to
South Bend, Indiana and Springfield, Illinois, respectively, in October 2000 and
August 2001, and ceased flying to Lansing, Michigan, in November 2000. In the
first three quarters of 2000, Chicago Express completed the replacement of nine
19-seat Jetstream 31 aircraft with nine 34-seat Saab 340B aircraft. Chicago
Express purchased two additional Saab 340B aircraft in the third quarter of
2001.
The Company anticipates that its Chicago-Midway operation will represent an
increasing proportion of its scheduled service business in 2002 and beyond. The
Company operated 109 peak daily jet and commuter departures from Chicago-Midway
in 2001, as compared to 94 in 2000, and served 28 destinations on a nonstop
basis in 2001, as compared to 25 nonstop destinations served in 2000. In order
to accommodate the growth in jet departures in the existing terminal, in October
2000 Chicago Express established a remote boarding operation at Chicago-Midway
Airport with shuttle bus service between the remote location and the main
terminal. This change has allowed the Company to convert the former Chicago
Express gate to a jet departure gate.
75
The Company's anticipated growth at Chicago-Midway will be accomplished in
conjunction with the construction of new terminal and gate facilities at the
Chicago-Midway Airport. In March 2001, the Company occupied 24 newly constructed
ticketing and passenger check-in spaces in the new terminal, an increase from 16
ticketing and passenger check-in spaces previously occupied. Once all
construction is complete in 2004, the Company expects to occupy 12 jet gates and
one commuter aircraft gate at the new airport concourses. One of the gates which
the Company will occupy opened on October 30, 2001. The Company moved to seven
additional new gates in the first quarter of 2002, and five additional gates are
expected to be available for use by the Company in 2004. In addition,
construction of a Federal Inspection Service ("FIS") facility at Chicago-Midway
was completed in the first quarter of 2002. The Company began nonstop
international services from this facility in early 2002 to Aruba, Cancun, Grand
Cayman and Guadalajara.
The Company's Hawaii service accounted for 18.6% of scheduled service ASMs
and 3.9% of scheduled service departures in 2001, as compared to 17.0% and 4.3%,
respectively, in 2000. The Company provided nonstop service in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. The Company provides these
services through a marketing alliance with the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels. The Company believes it has superior operating
efficiencies in west coast-Hawaii markets due to the high daily hours of
utilization obtained for both aircraft and crews.
The Company's Indianapolis service accounted for 9.2% of scheduled service
ASMs and 6.5% of scheduled service departures in 2001, as compared to 12.2% and
8.8%, respectively, in 2000. In both years, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Orlando, St. Petersburg and
Sarasota. The Company has served Indianapolis for 29 years through the
Ambassadair Travel Club and through scheduled service since 1986.
The Company continuously evaluates the profitability of its scheduled
service markets and expects to adjust its schedule and flight frequencies from
time to time, particularly with reference to the ongoing impacts of the
terrorist attacks. Although unit revenues did partially recover toward the end
of 2001, unit revenues in the first quarter of 2002 are expected to be below
first quarter 2001 levels. Weak revenues are related to both the ongoing impact
of the September 11, 2001 terrorist attacks on the demand for air travel, and
continued weakness in the U.S. domestic economy. The Company is adding a small
amount of capacity to its scheduled service network in the first quarter of 2002
as it continues to accept new aircraft deliveries. The Company cannot predict
when year-over-year unit revenue growth will resume in its scheduled service
business.
COMMERCIAL CHARTER REVENUES. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to customer-designated destinations throughout the world.
Commercial charter revenues accounted for 15.1% of consolidated revenues in 2001
as compared to 19.1% in 2000.
The impact of the September 11, 2001 terrorist attacks was less significant
on the commercial charter business than on scheduled service. The Company
estimates that it lost approximately $1.4 million in commercial charter revenues
as a result of flight cancellations during the FAA-mandated air system shutdown
from September 11 until September 13, and decreased demand for commercial
charter flights following September 11. The majority of the decline in
commercial charter revenues
76
in 2001, as compared to 2000, was principally due to the retirement of certain
Lockheed L-1011 and Boeing 727-200 aircraft that the Company has traditionally
used in commercial charter flying. Since aircraft utilization (number of
productive hours of flying per aircraft each month) is typically much lower for
commercial charter, as compared to scheduled service flying, the Company's
replacement fleets of new Boeing 737-800 and Boeing 757-300 aircraft are
economically disadvantaged when used in the charter business, because of their
higher fixed-ownership cost. Consequently, the Company expects its commercial
charter revenues to continue to decline in future periods as the fleet
supporting this business continues to shrink through aircraft retirements.
Although total commercial charter revenues have declined in 2001, as
compared to 2000, commercial charter RASM has increased over the same time
periods. The Company has eliminated lower-RASM flying as this business has been
reduced in size, thus increasing average RASM on the flying that it has
retained.
The following table sets forth, for the periods indicated, certain key
operating and financial data for the commercial charter operations of the
Company.
TWELVE MONTHS ENDED DECEMBER 31,
2001 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures (b) 7,293 9,722 (2,429) (24.98)
Block Hours (c) 24,495 34,356 (9,861) (28.70)
RPMs (000s) (d) 2,010,477 2,687,051 (676,574) (25.18)
ASMs (000s) (e) 2,588,780 3,610,413 (1,021,633) (28.30)
Passengers Enplaned (g) 1,128,660 1,472,340 (343,680) (23.34)
Revenue $ (000s) 192,246 246,705 (54,459) (22.07)
RASM in cents (h) 7.43 6.83 0.60 8.78
RASM excluding fuel escalation
in cents (k) 7.13 6.47 0.66 10.20
- -----------------------
See footnotes (b) through (h) on page 58.
See footnote (k) on page 62.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low-frequency but
repetitive domestic and international flights between city pairs, which support
high-passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed-city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$149.7 million in revenues in 2001, as compared to $192.8 million in 2000.
Specialty charter is a product that is designed to meet the unique
requirements of a customer and is a business characterized by lower frequency of
operation and by greater variation in city pairs served than the track charter
business. Specialty charter includes such diverse contracts as flying university
alumni to football games, transporting political candidates on campaign trips
and moving NASA space shuttle ground crews to alternate landing sites. The
Company also has operated trips in
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an all-first-class configuration for certain corporate and high-end leisure
clients. Although lower utilization of crews and aircraft and infrequent service
to specialty destinations often result in higher average operating costs, the
Company has determined that the revenue premium earned by meeting special
customer requirements more than compensates for these increased costs. The
diversity of the Company's fleet types also permits the Company to meet a
customer's particular needs by choosing the aircraft type that provides the most
economical solution for those requirements. Specialty charter accounted for
approximately $18.8 million in revenues in 2001, as compared to $31.5 million in
2000.
The remainder of commercial charter revenues are attributable primarily to
the air revenues of ATALC and Ambassadair, which did not change significantly
between years.
MILITARY/GOVERNMENT CHARTER REVENUES. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government charter operations of the Company.
TWELVE MONTHS ENDED DECEMBER 31,
2001 2000 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures (b) 3,702 4,961 (1,259) (25.38)
Block Hours (c) 16,159 19,443 (3,284) (16.89)
RPMs (000s) (d) 965,740 1,339,545 (373,805) (27.91)
ASMs (000s) (e) 2,147,248 2,605,791 (458,543) (17.60)
Passengers Enplaned (g) 225,641 329,200 (103,559) (31.46)
Revenue $ (000s) 167,524 188,557 (21,033) (11.15)
RASM in cents (h) 7.80 7.24 0.56 7.73
RASM excluding fuel escalation
in cents (l) 7.58 6.88 0.70 10.17
See footnotes (b) through (h) on page 58.
See footnote (l) on page 63.
The Company estimates that it lost approximately $1.0 million in military
revenues, net of cancellation fees, due to the FAA-mandated shut down of the air
traffic system from September 11 until September 13. After having resumed flight
operations late in the day on September 13, 2001, the Company's military flight
schedule quickly returned to normal. Although current military flight operations
of the Company have not been significantly affected by the terrorist attacks of
September 11, future operations may be significantly affected by changes in the
transportation needs of the U.S. military, possibly in association with military
operations in the United States and abroad. Heightened military activities
related to international conflict usually bring reduced demand to the Company's
scheduled service business. The Company cannot predict the magnitude and
possible future impact on its results of operations and financial condition, if
any, of these possible future events.
The decline in military revenues in 2001, as compared to 2000, was
primarily due to changes in teaming arrangements used both by the Company and
some of the Company's competitors in the military/government charter business.
Such changes reduced the fixed-award flying allocated to the Company for the
contract year ending September 30, 2001. The Company earned $159.3 million in
military/government charter revenues in the contract year ended September 30,
2001, a 6.0% reduction as compared to $169.5 million earned in the preceding
contract year ended September 30,
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2000. Under its current teaming arrangement, the Company expects its
military/government charter revenues to increase slightly in the contract year
ending September 2002.
The increase in RASM for military/charter revenues in 2001, as compared to
2000, was due to rate increases awarded for the current contract year, based
upon cost data submitted to the U.S. military by the Company and other air
carriers providing these services.
The Company participates in two related military/government charter
programs known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company typically represents a
majority of the passenger transport capacity of its team. As part of its
participation in this teaming arrangement, the Company pays a commission to the
team, which passes that revenue on to all team members based upon their
mobilization value points. All airlines participating in the fixed-award
business contract annually with the U.S. military from October 1 to the
following September 30. For each contract year, reimbursement rates are
determined for aircraft types and mission categories based upon operating cost
data submitted by the participating airlines. These contracts generally are not
subject to renegotiation once they become effective.
Short-term expansion business is awarded by the U.S. military first on a
pro rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Short-term expansion
flying is generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one
year is dependent upon several factors, including (1) the percentage of
mobilization value points represented by the Company's team as compared to total
mobilization value points of all providers of military service; (2) the
percentage of passenger capacity of the Company with respect to its own team;
(3) the amount of fixed-award and expansion flying required by the U.S. military
in each contract year; and (4) the availability of the Company's aircraft to
accept and fly expansion awards.
GROUND PACKAGE REVENUES. The Company earns ground package revenues through the
sale of hotel, car rental, cruise and other accommodations in conjunction with
the Company's air transportation product. The Company markets these ground
packages through its ATALC subsidiary and to its Ambassadair Travel Club
members.
Ambassadair Travel Club offers tour-guide-accompanied vacation packages to
its approximately 34,000 individual and family members annually. ATALC offers
numerous ground accommodations to the general public in many areas of the United
States, Mexico and the Caribbean. These packages are marketed through travel
agents, as well as directly by the Company.
In 2001, ground package revenues decreased 12.7% to $52.2 million, as
compared to $59.8 million in 2000. The number of ground packages sold and the
average revenue earned by the Company for a ground package sale are a function
of the seasonal mix of vacation destinations served, the quality and types of
ground accommodations offered and general competitive conditions in the
Company's markets, all of which factors can change from period to period.
79
OTHER REVENUES. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company, such as cancellation and service fees, Ambassadair Travel Club
membership dues and cargo revenue. Other revenues decreased 0.5% to $42.9
million in 2001, as compared to $43.1 million in 2000.
OPERATING EXPENSES
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in 2001 increased 9.5% to $325.2 million
from $297.0 million in 2000.
The Company increased its average equivalent employees by approximately
4.7% between 2001 and 2000. This annual growth rate combines employment growth
in conjunction with a growing flight schedule prior to the terrorist attacks on
September 11, offset by the employee furloughs under the Company's cost-cutting
initiatives implemented shortly after the attacks. Through the first nine months
of the year, the average equivalent headcount increased approximately 11.0%,
which primarily reflected growth in categories of employees that were required
for the increased flight activity the Company was experiencing prior to
September 11. In the fourth quarter of 2001, employment declined by
approximately 12.5%, as compared to the fourth quarter of 2000. By the middle of
October 2001, the Company had furloughed approximately 1,100 employees as a
result of a 20% flight capacity reduction implemented after the September 11
attacks. As of December 31, 2001, the Company had recalled approximately half of
those employees furloughed during the fourth quarter of 2001.
Additionally, in May 2000, the Company replaced its contracted ground
handler at its busiest airport, Chicago-Midway, with its own ramp employees.
Although this contributed to a year-over-year increase in salaries, wages and
benefits, the Company experienced a corresponding reduction in handling, landing
and navigation fees, where third-party handling expenses are classified. Chicago
Express salaries, wages and benefits also increased in 2001, as compared to
2000, due to the replacement of nine 19-seat Jetstream 31 aircraft with 11
34-seat Saab 340B aircraft, thus more than doubling total commuter seat capacity
between years.
Also contributing to the increase in salaries, wages and benefits, is an
increase of approximately $7.8 million in benefits expenses to $34.3 million in
2001 as compared to $26.5 million in 2000. This increase is primarily due to
increases in medical insurance claims and workers' compensation costs between
years.
FUEL AND OIL. Fuel and oil expense decreased 8.6% to $251.3 million in 2001, as
compared to $274.8 million in 2000. The Company consumed 5.8% fewer gallons of
jet fuel for flying operations in 2001, as compared to 2000, which resulted in a
decrease in fuel expense of approximately $13.7 million between periods. Fuel
consumption varies with changes in jet block hours flown, and with changes in
the fleet mix. The Company flew 172,207 jet block hours in 2001, as compared to
172,824 jet block hours in 2000, a decrease of 0.4% between years. Fuel
consumption in 2001 was more significantly affected by the delivery of 14 Boeing
737-800 aircraft and five Boeing 757-300 aircraft, replacing certain
less-fuel-efficient Boeing 727-200 and Lockheed L-1011 aircraft subsequently
retired from service. The Company estimates that approximately $9.4 million of
the variance attributable to lower fuel consumption resulted from flying
approximately 18,000 of these
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block hours using the 19 new aircraft, as compared to flying those block hours
with the less-fuel-efficient fleets. During 2001, the Company's average cost per
gallon of jet fuel consumed decreased by 6.0% as compared to 2000, resulting in
a decrease in fuel and oil expense of approximately $12.6 million between
periods.
During 2001 and 2000, the Company entered into several fuel price hedge
contracts under which the Company sought to reduce the risk of fuel price
fluctuations. The Company recorded losses of $2.6 million on these hedge
contracts in 2001 as compared to gains of $0.1 million in 2000. As of December
31, 2001, the Company had entered into swap agreements for approximately 6.3
million gallons of heating oil for future delivery between January 2002 and June
2002, which represented approximately 2.6% of total expected fuel consumption in
2002. See "Quantitative and Qualitative Disclosures about Market Risk," and
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note 15 - Fuel Price Risk Management" for more information on the
Company's fuel price risk management program.
DEPRECIATION AND AMORTIZATION. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls for all fleet types on a
units-of-production basis using aircraft flight hours and cycles (landings) as
the units of measure. Depreciation and amortization expense decreased 3.0% to
$121.3 million in 2001, as compared to $125.0 million in 2000.
During the first nine months of 2001, the Company was depreciating the
L-1011-50 and 100 fleet assuming a common retirement date of 2004. However,
during 2001, the Company decided to retire several of these aircraft as of their
next scheduled heavy maintenance check. During the first nine months of 2001,
the Company retired three L-1011-50 aircraft from revenue service in this
manner, recording a loss on disposal of $6.6 million for these aircraft in other
operating expense. During the fourth quarter of 2001, the Company determined
that the remaining 10 L-1011-50 and 100 aircraft, together with related rotable
parts and inventory, were impaired in accordance with FAS 121 (See "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 16 - Asset Impairment.") Because the Company continues to utilize these
assets, they are classified as held for use under FAS 121, and are recorded on
the balance sheet at their estimated fair market value at the time of
impairment, which is the new asset basis to be depreciated over the assets'
estimated remaining useful lives. The useful life of each aircraft is now
assumed to end immediately prior to its next scheduled heavy maintenance check.
Due primarily to the reduced cost basis of the remaining 10 aircraft, and the
retirement of three aircraft, the Company recorded $5.0 million less engine and
airframe overhaul amortization expense for the L-1011-50 and 100 fleet in 2001
than in 2000.
In March 2001, the Company entered into an agreement to transfer its entire
fleet of 24 Boeing 727-200 aircraft to BATA by May 2002. (See "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 12 - Commitments and Contingencies.") As a result, in the first quarter of
2001, the Company implemented a change in accounting estimate to adjust the
estimated useful lives and salvage value of these aircraft to the terms of the
BATA agreement. This change in accounting estimate resulted in an increase of
depreciation expense of $2.5 million in 2001, as compared to 2000.
81
Immediately following the terrorist attacks of September 11, 2001, the
Company decided to retire its Boeing 727-200 fleet from revenue service,
although some aircraft will be used for charter service through the first half
of 2002. These aircraft were determined to be impaired under FAS 121. Boeing
727-200 aircraft not already transferred to BATA have been classified in the
accompanying balance sheet as assets held for sale. In accordance with FAS 121,
depreciation expense was not recorded after the fleet was deemed impaired and
will not be recorded in future accounting periods. As a result, the Company did
not record any depreciation expense on the Boeing 727-200 fleet in the last four
months of 2001, which resulted in a $13.3 million decrease in depreciation
expense in 2001, as compared to 2000.
Amortization of capitalized engine and airframe overhauls on the Boeing
757-200 and Lockheed L-1011-500 fleets increased $9.0 million in 2001, as
compared to 2000, after including amortization of related manufacturers'
credits. This increase is primarily due to amortization of engine overhauls on
the Lockheed L-1011-500 and Boeing 757-200 aircraft. Both fleets are relatively
new to the Company and neither required overhauls until late 2000.
The remaining $3.1 million increase in depreciation and amortization
expense in 2001 as compared to 2000 represents primarily fluctuations associated
with rotable parts, owned engines and the provision for inventory obsolescence,
along with fluctuations in expenses related to furniture and fixtures, computer
hardware and software, and debt issue costs between periods, none of which are
individually significant.
AIRCRAFT RENTALS. Aircraft rentals expense for 2001 increased 37.3% to $99.0
million, as compared to $72.1 million in 2000. The Company took delivery of two
Boeing 757-200 aircraft in June 2000 and two Boeing 757-200 aircraft in November
2000, all of which were financed under operating leases. These four aircraft
added $10.3 million to aircraft rentals expense in 2001, as compared to 2000.
Aircraft rent also increased $17.6 million for 2001, as compared to 2000, as a
result of the delivery of 14 leased Boeing 737-800 and five leased Boeing
757-300 aircraft between May and December of 2001.
Also during 2001, the Company terminated leases on five Boeing 727-200s
which were transferred to BATA. The Company also transferred seven owned Boeing
727-200 aircraft to BATA. Subsequently, the Company leased certain of those
aircraft from BATA under short-term operating leases. These transactions
resulted in a net decrease in aircraft rent of approximately $2.9 million in
2001. Additional Chicago Express aircraft and spare engine leases generated an
increase in aircraft rent expense of approximately $1.9 million in 2001, as
compared to 2000.
HANDLING, LANDING AND NAVIGATION FEES. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees decreased by 8.9% to $88.7 million in
2001 as compared to $97.4 million in 2000, although the total number of
system-wide jet departures between 2001 and 2000 increased by 2.2% to 56,962
from 55,714. The decrease in handling, landing and navigation fees is primarily
due to the reduction in commercial and military/government charter flying
between years (much of which is operated to and from international airports),
since international handling and landing fees are generally more expensive than
at domestic U.S. airports,
82
and air navigation fees apply only to international flying. In 2001,
international departures were 6,469, a reduction of 16.7% as compared to
international departures of 7,763 in 2000.
The Company also recorded $2.9 million less in de-icing expense in 2001 due
to relatively milder weather than as compared to 2000.
AIRCRAFT MAINTENANCE, MATERIALS AND REPAIRS. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800 and Saab 340B power plants. These agreements provide for
the Company to pay monthly fees based on a specified rate per engine flight
hour, in exchange for major engine overhauls and maintenance. Aircraft
maintenance, materials and repair expense decreased 12.8% to $61.4 million in
2001, as compared to $70.4 million in 2000.
The 2001 decline in maintenance, materials and repairs expense was
primarily attributable to a decrease in materials consumed and components
repaired related to maintenance on the Company's aging fleets of Lockheed L-1011
and Boeing 727-200 aircraft. During 2001, the Company placed 12 Boeing 727-200
aircraft into BATA and retired three Lockheed L-1011 aircraft from service
before related heavy airframe maintenance checks were due to be performed. The
Company expects maintenance, materials and repair expense to continue to decline
in future quarters as its older fleets of aircraft continue to be replaced by
newer and more technologically advanced twin-engine aircraft with lower
maintenance needs.
The Company also recorded a decrease of $3.0 million in maintenance,
materials and repairs in 2001, as compared to 2000, due to a negotiated
elimination of return condition requirements on one leased Lockheed L-1011
aircraft and the recognition of a return condition receivable on one leased
Boeing 757-200 aircraft. The Company accrues estimated costs and credits
associated with maintenance return conditions for aircraft on leases as a
component of maintenance, materials and repairs expense.
The Company recognized an increase in aircraft maintenance, materials and
repairs of $3.0 million in 2001, as compared to 2000, relating to the 11 Saab
340B aircraft operated by Chicago Express.
CREW AND OTHER EMPLOYEE TRAVEL. Crew and other employee travel consists
primarily of the cost of air transportation, hotels and per diem reimbursements
to cockpit and cabin crewmembers incurred to position crews away from their
bases to operate Company flights throughout the world. The cost of crew and
other employee travel decreased 9.9% to $59.3 million in 2001 as compared to
$65.8 million in 2000.
The decrease in crew and employee travel in 2001, as compared in 2000, was
mainly due to a significant decrease in crew positioning expense. The average
cost of crew positioning per full-time-equivalent crew member deceased 20.9% in
2001, as compared to 2000. The decrease was primarily due to the decrease in
military and charter flights, which often operate to and from points remote from
the Company's crew bases, thus requiring significant positioning expenditures
for cockpit and cabin crews on other airlines. For those positioning events
which did occur, the Company was also able to obtain lower prices from other air
carriers through specifically negotiated agreements, as well as benefiting from
lower airfares which became generally available in the second half of 2001. Crew
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and other employee travel also declined due to a decrease in hotel expenses,
also resulting primarily from the decline in international flying.
PASSENGER SERVICE. Passenger service expense includes the costs of onboard meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For 2001 and 2000,
catering represented 74.4% and 78.8%, respectively, of total passenger service
expense.
The total cost of passenger service decreased 3.7% to $43.9 million in
2001, as compared to $45.6 million in 2000. The Company experienced a decrease
of approximately 14.2% in the average unit cost of catering each passenger
between 2001 and 2000, primarily because in 2001 there were fewer military and
commercial charter passengers in the Company's business mix, which are provided
a more expensive catering product due to the longer stage length of these
flights. This resulted in a price-and-business-mix decrease of $5.4 million in
catering expense in 2001, as compared to 2000. Total jet passengers boarded
increased 4.9% between years, resulting in approximately $2.1 million in higher
volume-related catering expenses between the same sets of comparative periods.
In 2001, as compared to 2000, the Company incurred approximately $1.8
million in higher expenses for mishandled baggage and passenger inconvenience
due to flight delays and cancellations.
GROUND PACKAGE COST. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATALC customers. Ground package cost
decreased 17.1% to $42.2 million in 2001, as compared to $50.9 million in 2000.
Ground package costs vary based on the mix of vacation destinations served, the
quality and types of ground accommodations offered, and general competitive
conditions in the Company's markets, all of which factors can change from period
to period. This decline was more significant than the decline in ground package
revenue in 2001 as compared to 2000, because the Company received discounted
hotel pricing in the last half of the year due to the weakening economy and the
reduction in travel demand after the September 11 attacks.
OTHER SELLING EXPENSES. Other selling expenses are comprised primarily of fees
paid to computer reservation systems ("CRS") for scheduled service bookings,
credit card discount expenses incurred when selling single seats and ground
packages to customers using credit cards for payment, and toll-free telephone
services provided to single-seat and vacation package customers who contact the
Company directly to book reservations. Other selling expenses increased 13.4% to
$41.6 million in 2001, as compared to $36.7 million in 2000.
Approximately $3.7 million of this increase in 2001 resulted from an
increase in CRS fees. This increase resulted partially from the growth in
single-seat sales volumes between periods and partially because of increases in
rates charged by CRS systems for improved booking functionality. Credit card
discount expense increased $1.5 million as compared to 2000, primarily due to
higher volumes of scheduled service tickets sold using credit cards as form of
payment.
COMMISSIONS. The Company incurs commissions expense in association with the sale
by travel agents of vacation packages and single seats on scheduled service. In
addition, the Company incurs commissions to secure some commercial and
military/government charter business. Commissions expense decreased 11.0% to
$34.8 million in 2001, as compared to $39.1 million in 2000.
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Approximately $3.8 million of the decrease in commissions in 2001, as
compared to 2000, was attributable to lower military commissions, which is
consistent with the decrease in military revenue between the same time periods.
The Company also experienced a decrease of $2.5 million between 2001 and 2000 in
commissions paid to travel agents by ATALC, which is consistent with the
decrease in related revenues for that affiliate. These decreases were partially
offset by increases in scheduled service commissions of $2.2 million between
2001 and 2000 due to an increase in scheduled service sales made by travel
agents.
ADVERTISING. Advertising expense increased 20.0% to $26.4 million in 2001, as
compared to $22.0 million in 2000. The Company routinely incurs advertising
costs primarily to support single-seat scheduled service sales and the sale of
air and ground packages. In 2001, the Company increased its advertising
(introducing a new marketing campaign) primarily in Chicago in connection with
the arrival of the new Boeing 737-800 and 757-300 aircraft, the opening of new
ticketing and baggage claim facilities at Chicago-Midway Airport, the
announcement of new scheduled service destinations, and the promotion of low
fares as compared to the competition. The Company expects to continue to
increase advertising expenditures as it seeks to increase consumer preference
for the Company's enhanced product, especially in its important Chicago-Midway
hub.
The Company also incurred $6.3 million of incremental advertising costs in
2001 associated with rebuilding customer demand after the September 11 terrorist
attacks, but due to their unusual nature, these expenses were included as
special charges on the income statement. See "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Impact of Terrorist Attacks on September 11, 2001."
FACILITIES AND OTHER RENTALS. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as at airports,
regional sales offices and general offices. The cost of facilities and other
rentals increased 27.8% to $20.2 million in 2001, as compared to $15.8 million
in 2000. Growth in facilities costs between periods was primarily attributable
to the need to provide maintenance, flight crew and passenger service facilities
at airport locations to support new scheduled service destinations and higher
frequencies to existing destinations. The Company also began occupancy of
significantly expanded and improved passenger check-in and baggage claim
facilities at Chicago-Midway Airport beginning in March 2001.
SPECIAL CHARGES. Special charges represent expenses arising from September 11,
2001 terrorist attacks which have been classified as unusual in nature under
Accounting Principles Board Opinion No. 30, Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB
30"). Special charges incurred in 2001 amounted to $21.5 million. For additional
details with respect to the special charges, see "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2- Impact
of Terrorist Attacks on September 11, 2001."
IMPAIRMENT LOSS. Following the events of September 11, 2001, the Company decided
to retire its Boeing 727-200 fleet earlier than originally planned. Most of the
aircraft were retired from revenue service in the fourth quarter of 2001,
although some are being used for charter service through the first half of 2002.
In accordance with FAS 121, the Company determined that the estimated future
undiscounted cash flows expected to be generated by the Boeing 727-200s was less
than the net book value of these aircraft and the related rotable parts and
inventory. Therefore, these assets were impaired under FAS 121. In 2001, the
Company recorded an asset impairment charge on these assets of $44.5 million.
85
Also, in the fourth quarter of 2001, the Company determined that, in
accordance with FAS 121, the estimated future undiscounted cash flows expected
to be generated by the Lockheed L-1011-50 and 100 fleet was less than the
current net book value of these aircraft and the related rotable parts and
inventory. Therefore, the assets were impaired under FAS 121. The Company
recorded an asset impairment charge on these assets of $67.8 million in 2001.
FAS 121 requires that whenever events or circumstances indicate that the
Company may not be able to recover the net book value of its productive assets
through future cash flows, an assessment must be performed of expected future
cash flows, and undiscounted estimated future cash flows must be compared to the
net book value of these productive assets to determine if impairment is
indicated. The Company had been routinely performing FAS 121 impairment
evaluations for its Lockheed L-1011-50 and 100, and Boeing 727-200 fleets for
several quarters, due to their expected replacement by newer aircraft which were
ordered in May 2000. Prior to the events of September 11, 2001 no impairment was
indicated under FAS 121 for either fleet. However, the terrorist attacks of
September 11 significantly reduced demand for air travel in the United States,
causing the Company, and most major airlines, to reduce available seat capacity
by 20%. This reduction in future flying caused the Company to reduce its
estimates of future cash flows for these fleets over their remaining useful
lives, causing both fleets to meet the impairment criteria of FAS 121.
The application of FAS 121 requires the use of significant judgment and the
preparation of numerous significant estimates. The Company estimated future cash
flows from the productive use of these fleets by estimating the expected net
cash contribution from revenues less operating expenses, and adjusting for
estimated cash outflows for heavy maintenance and estimated cash inflows from
final disposal of the assets. Such estimates were required for up to seven years
into the future. Although the Company believes that its estimates of cash flows
in the application of FAS 121 were reasonable, and were based upon all available
information, including extensive historical cash flow data about the prior use
of these fleets, such estimates nevertheless required substantial judgments and
were based upon material assumptions about future events.
Further significant assumptions were required concerning the estimated fair
market value of both fleets, since FAS 121 specifies that impaired assets be
written down to their estimated fair market value by recording an impairment
charge to earnings. As provided under FAS 121, the Company primarily used
discounted cash flow analysis, together with other available information, to
estimate fair market values. Such estimates were significant in determining the
amount of the impairment charge to be recorded in 2001, which could have been
materially different under different sets of assumptions and estimates. As FAS
121 requires the Company to continuously evaluate fair market values of
previously impaired assets, it is possible that future estimates of fair market
value may result in additional material charges to earnings, if those estimates
indicate a material reduction in fair market value as compared to the estimates
made at the end of 2001.
For additional details with respect to these asset impairments, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note 16 - Asset Impairment."
U.S. GOVERNMENT GRANT. On September 22, 2001 President Bush signed into law the
Air Transportation Safety and System Stabilization Act ("Act"). Among other
things, this legislation was enacted to provide direct payments of cash to
domestic U.S. airlines to compensate them for certain economic losses
attributable to the terrorist attacks of September 11, 2001. Under the
provisions of the Act, U.S. domestic passenger and cargo airlines may receive up
to $5.0 billion in total cash grants, with $4.5 billion being specifically
reserved for passenger airlines such as the
86
Company. Each passenger airline may receive no more cash than its pro rata share
of the $4.5 billion, based upon the ratio of that airline's ASMs to total
passenger airline ASMs for the month of August 2001. However, cash compensation
paid to any airline must be based upon actual direct and incremental losses
incurred by that airline, between September 11, 2001 and December 31, 2001, as a
direct result of the terrorist attacks. Therefore, the amount of cash received
by any airline is limited by actual direct and incremental losses incurred,
which could result in payments to an airline which are less that the maximum
amount permitted under the upper limit provided for by the August 2001 ASM
calculations.
The DOT was directed by the Act to administer the distribution of grant
money to eligible air carriers. The DOT subsequently published regulations under
which eligible air carriers were required to submit applications for
disbursements of grant monies. Such applications required financial information,
documenting to the satisfaction of the DOT that the air carrier had incurred
direct and incremental losses attributable to the terrorist attacks. Two such
applications were filed by many passenger airlines, including the Company,
during the third and fourth quarters of 2001. As a result of the approval of its
applications by the DOT, the Company received payments of $32.6 million in the
third quarter and $11.9 million in the fourth quarter. The Company accrued total
U.S. Government grant revenues of $66.3 million in the second half of 2001
relating to its estimates of direct and incremental losses it incurred during
that time period, recording a current receivable of $21.8 million for the
balance of cash expected to be paid in 2002.
Based upon the Company's current estimate of its ratio of ASMs to total
passenger airline ASMs in August 2001 (which calculations have not yet been
finalized or approved by the DOT), the Company estimates that the maximum amount
of cash compensation available to it under the Act for direct and incremental
losses incurred is approximately $74.0 million. The DOT is expected to publish
soon final rules concerning certain agreed upon procedures ("AUPs") to be
performed by certified public accountants on financial and other information to
be included in air carriers' third and final applications for grant assistance.
The DOT has not specified when final applications, including reports on AUPs,
will be accepted for processing, but the Company currently estimates that this
is likely to occur in the second quarter of 2002.
Generally accepted accounting principles in the United States ("GAAP")
pertaining to revenue recognition provide that revenue should be recognized
when: (1) substantially all requirements or conditions to earn that revenue are
completed or satisfied; (2) the dollar amount of such revenues can be reasonably
estimated; and (3) such revenues have been realized in cash, or future
realization in cash is reasonably assured.
The application of GAAP to the specific circumstances of the Act required
significant judgments and estimates to be made by the Company. The term "direct
and incremental losses attributable to the terrorist attacks of September 11,
2001" was not defined in detail by either the Act or the interpreting DOT
regulations, nor were specific measurement guidelines provided for any
particular loss item. Such terms as "direct," "incremental," and "loss" can have
different meanings in common usage and in economic, accounting or other business
literature. In its two grant applications to the DOT in 2001, the Company chose
to use GAAP in selecting and measuring direct and incremental losses to be
reimbursed under the Act.
The Company applied significant judgment in determining which GAAP loss
items met the conditions for reimbursement under the Act and associated
regulations, and applied further significant judgments in estimating the amounts
of such losses. For example, the Company
87
estimated revenues lost as a direct result of reduced air travel demand
immediately after the attacks and claimed the loss of these revenues as
reimbursable under the Act. Estimates of such losses required substantial
judgment, as they needed to be made with reference to expectations of what
revenues would likely have been if the attacks had never taken place. The
Company used all objective evidence available to it in making such estimates. In
the case of estimating lost revenues, the Company analyzed and made comparisons
of post-attack revenues to actual revenues earned immediately prior to the
attacks, as well as to actual revenues earned by the Company in the same months
of prior years, and with reference to revenue forecasts prepared prior to the
attacks. The amounts of U.S. Government grant compensation recorded in 2001
could have been materially different using different assumptions and judgments.
The DOT, upon processing the Company's second application, disallowed
reimbursement to the Company under the Act of certain losses included in the
Company's results of operations under GAAP in 2001. These disallowed
reimbursements included impairment losses on the Company's Boeing 727-200
aircraft and future rent payments due under Boeing 727-200 leases for aircraft
idled immediately after the attacks. Although the DOT did not provide any
official reasons for this decision to the Company, nor has it published any
related guidance in its regulations concerning the treatment of these loss items
under the Act, the Company has not accrued any U.S. Government grant revenue
pertaining to these disallowed items. The Company is protesting the specific
disallowances made by the DOT on its applications. If the Company prevails in
this protest, it could record additional U.S. Government grant compensation of
up to $7.7 million.
Under the provisions of the Act, all airlines receiving cash compensation
are subject to audit by agencies of the U.S. Government for up to five years. It
is possible that upon audit by such agencies loss items for which the Company
has recorded U.S. Government grant revenues in 2001 may be disallowed under new
regulations, or according to audit interpretations by those agencies of the
Company's accounting estimates and judgments. It is therefore possible that
material adjustments to U.S. Government grant revenues recorded in 2001 may be
required in future years.
OTHER OPERATING EXPENSES. Other operating expenses increased 10.9% to $84.6
million in 2001, as compared to $76.3 million in 2000. The purchase by ATALC of
charter air services from airlines other than the Company was $4.0 million
higher in 2001 than in 2000. Flight simulator rentals increased $3.3 million
between years due to the crew training required to introduce the new aircraft.
The Company also recorded a loss on disposal of three Lockheed L-1011-50
aircraft in 2001, as compared to one Lockheed L-1011-50 aircraft in 2000,
resulting in an increase of loss on disposal of $4.4 million in 2001 as compared
to 2000. These increases were partially offset by net decreases in other
expenses included in this category, none of which were individually significant.
INTEREST INCOME AND EXPENSE. Interest expense in 2001 decreased 4.4% to $30.1
million, as compared to $31.5 million in 2000. The Company capitalized
additional interest totaling $10.8 million in 2001, as compared to 2000, on
aircraft pre-delivery deposits. Additional interest expense of $7.4 million, all
of which was capitalized, was incurred in 2001, as compared to 2000, for
incremental borrowings made to fund a portion of aircraft pre-delivery deposits.
The Company also incurred approximately $2.0 million in interest expense in
2001, relating to three Boeing 757-300 aircraft which were temporarily financed
with bridge debt immediately after the September 11, 2001 terrorist attacks.
These aircraft were refinanced with operating leases at the end of 2001.
88
The Company invested excess cash balances primarily in commercial paper and
money market funds and thereby earned $5.3 million in interest income in 2001,
as compared to $8.4 million in 2000. The decrease in interest income between
periods is mainly due to a decline in the average interest rate earned between
periods on these investments.
INCOME TAX EXPENSE. In 2001, the Company recorded $39.8 million in income tax
credits applicable to $116.1 million of pre-tax loss for that period, while in
2000 the Company recorded $4.6 million in income tax credits applicable to $19.9
million of pre-tax loss. The effective tax rate applicable to credits in 2001
was 34.2%, as compared to an effective tax rate of 23.1% in 2000.
Income tax credits in both periods were affected by the permanent
non-deductibility for federal income tax purposes of 40% of certain amounts paid
for crew per diem. The value of these permanent differences was not
significantly different in 2001 as compared to 2000, so they impacted 2000
taxable loss more significantly.
YEAR ENDED DECEMBER 31, 2000, VERSUS YEAR ENDED DECEMBER 31, 1999
OPERATING REVENUES
Total operating revenues in 2000 increased 15.2% to $1.292 billion from
$1.122 billion in 1999. This increase was due to a $128.7 million increase in
scheduled service revenues, a $62.3 million increase in military/government
charter revenues and a $1.7 million increase in ground package revenues, offset
by a $6.4 million decrease in other revenues and a $17.1 million decrease in
commercial charter revenues.
SCHEDULED SERVICE REVENUES. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31/Saab" include the operations of Jetstream
31 and Saab 340B propeller aircraft by Chicago Express as the ATA Connection.
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet 40,892 35,402 5,490 15.51
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
-----------------------------------------------------------------------
Total Departures (b) 59,877 53,118 6,759 12.72
-----------------------------------------------------------------------
Block Hours Jet 118,473 104,555 13,918 13.31
Block Hours J31/Saab 18,708 17,979 729 4.05
-----------------------------------------------------------------------
Total Block Hours (c) 137,181 122,534 14,647 11.95
-----------------------------------------------------------------------
RPMs Jet (000s) 7,700,639 6,828,181 872,458 12.78
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
-----------------------------------------------------------------------
Total RPMs (000s) (d) 7,757,308 6,864,103 893,205 13.01
-----------------------------------------------------------------------
ASMs Jet (000s) 10,025,603 8,809,564 1,216,039 13.80
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
-----------------------------------------------------------------------
Total ASMs (000s) (e) 10,119,974 8,867,194 1,252,780 14.13
-----------------------------------------------------------------------
89
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Load Factor Jet 76.81 77.51 (0.70) (0.90)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
-----------------------------------------------------------------------
Total Load Factor (f) 76.65 77.41 (0.76) (0.98)
-----------------------------------------------------------------------
Passengers Enplaned Jet 5,873,598 4,878,643 994,955 20.39
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
-----------------------------------------------------------------------
Total Passengers Enplaned (g) 6,193,660 5,084,947 1,108,713 21.80
-----------------------------------------------------------------------
Revenue $ (000s) 753,301 624,647 128,654 20.60
RASM in cents (h) 7.44 7.04 0.40 5.68
Yield in cents (j) 9.71 9.10 0.61 6.70
Revenue per segment $ (m) 121.62 122.84 (1.22) (0.99)
- --------------------
See footnotes (a) through (j) on pages 58-59.
See footnote (m) on page 75.
Scheduled service revenues in 2000 increased 20.6% to $753.3 million from
$624.6 million in 1999. Scheduled service revenues were 58.3% of consolidated
revenues in 2000, as compared to 55.7% of consolidated revenues in 1999.
The Company's scheduled service at Chicago-Midway accounted for
approximately 63.5% of scheduled service ASMs and 83.5% of scheduled service
departures in 2000, as compared to 56.7% and 77.2%, respectively, during 1999.
During the second and third quarters of 2000, the Company began operating
nonstop flights to Ronald Reagan Washington National Airport, Boston, Seattle
and Minneapolis-St. Paul, none of which were served in the comparable periods of
1999. In addition to this new service, the Company served the following existing
jet markets in both years: Dallas-Ft. Worth, Denver, Ft. Lauderdale, Ft. Myers,
Las Vegas, Los Angeles, New York's John F. Kennedy Airport (seasonal), New
York's LaGuardia Airport, Orlando, Phoenix, St. Petersburg, San Francisco, San
Juan and Sarasota. The Company, in cooperation with a tour operator partner,
began nonstop service to Hawaii from Chicago-O'Hare International Airport and
New York's John F. Kennedy International Airport in December of 2000, but
discontinued this service during 2001.
The Company operated 94 peak daily jet and commuter departures from
Chicago-Midway in 2000, as compared to 67 in 1999, and served 25 destinations on
a nonstop basis in 2000, as compared to 22 nonstop destinations served in 1999.
The Company's Hawaii service accounted for 17.0% of scheduled service ASMs
and 4.3% of scheduled service departures in 2000, as compared to 18.5% and 4.7%,
respectively, in 1999. The Company provided nonstop service in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui.
The Company's Indianapolis service accounted for 12.2% of scheduled service
ASMs and 8.8% of scheduled service departures in 2000, as compared to 14.0% and
10.8%, respectively, in 1999. In both years, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles (service was
discontinued as of August 2000), Orlando, St. Petersburg and Sarasota.
90
COMMERCIAL CHARTER REVENUES. Commercial charter revenues accounted for 19.1% of
consolidated revenues in 2000 as compared to 23.5% in 1999. The following table
sets forth, for the periods indicated, certain key operating and financial data
for the commercial charter operations of the Company.
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures (b) 9,722 10,212 (490) (4.80)
Block Hours (c) 34,356 37,119 (2,763) (7.44)
RPMs (000s) (d) 2,687,051 3,253,165 (566,114) (17.40)
ASMs (000s) (e) 3,610,413 4,129,966 (519,553) (12.58)
Passengers Enplaned (g) 1,472,340 1,753,237 (280,897) (16.02)
Revenue $ (000s) 246,705 263,766 (17,061) (6.47)
RASM in cents (h) 6.83 6.39 0.44 6.89
RASM excluding fuel escalation
in cents (k) 6.47 6.35 0.12 1.89
- ----------------------
See footnotes (b) through (h) on page 58.
See footnote (k) on page 62.
Track charter accounted for approximately $192.8 million in revenues in
2000, as compared to $193.8 million in 1999. Specialty charter accounted for
approximately $31.5 million in revenues in 2000, as compared to $40.0 million in
1999.
MILITARY/GOVERNMENT CHARTER REVENUES. Military/government charter revenues
accounted for 14.6% of consolidated revenues in 2000, as compared to 11.2% in
1999. The following table sets forth, for the periods indicated, certain key
operating and financial data for the military/government charter operations of
the Company.
TWELVE MONTHS ENDED DECEMBER 31,
2000 1999 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures (b) 4,961 4,444 517 11.63
Block Hours (c) 19,443 15,354 4,089 26.63
RPMs (000s) (d) 1,339,545 818,627 520,918 63.63
ASMs (000s) (e) 2,605,791 2,027,471 578,320 28.52
Passengers Enplaned (g) 329,200 199,013 130,187 65.42
Revenue $ (000s) 188,556 126,213 62,343 49.40
RASM in cents (h) 7.24 6.23 1.01 16.21
RASM excluding fuel escalation
in cents (l) 6.88 6.21 0.67 10.79
See footnotes (b) through (h) on page 58.
See footnote (l) on page 63.
GROUND PACKAGE REVENUES. In 2000, ground package revenues increased 2.7% to
$59.8 million, as compared to $58.2 million in 1999. The number of ground
packages sold and the average revenue earned by the Company for a ground package
sale are a function of the seasonal mix of vacation destinations served, the
quality and types of ground accommodations offered and general competitive
conditions in the Company's markets, all of which factors can change from period
to period.
91
OTHER REVENUES. Other revenues decreased 13.1% to $43.1 million in 2000, as
compared to $49.6 million in 1999.
OPERATING EXPENSES
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits expense in 2000
increased 17.6% to $297.0 million from $252.6 million in 1999. The Company
increased its average equivalent employees by approximately 20.4% between 2000
and 1999. This growth was most significant in categories of employees that are
influenced directly by flight activity, such as flight crews and maintenance
staff. Beginning in May 2000, the Company replaced its contracted ground handler
at its busiest airport, Chicago-Midway, with its own ramp employees. Although
this contributed to the increase in salaries, wages and benefits, the Company
experienced a corresponding reduction in handling, landing and navigation fees.
Some further employment growth in 2000 was also provided to improve customer
service in targeted areas by increasing customer service staff, such as at
airport ticket counters, in reservations facilities and in other staff groups
primarily involved in delivering services to the Company's customers. Staff
increases also occurred for Chicago Express as a result of increased passengers
boarded due to the conversion from 19-seat to 34-seat aircraft in the first nine
months of 2000. The Company also experienced a significant increase in employee
benefit costs in 2000, as compared to 1999.
These increases in salaries, wages and benefits costs were partially offset
by the elimination of employee incentive awards in 2000. In 1999, the Company
recognized $6.4 million in incentive awards while no incentive awards were
earned in 2000.
FUEL AND OIL. Fuel and oil expense increased 60.8% to $274.8 million in 2000, as
compared to $170.9 million in 1999. The Company consumed 8.1% more gallons of
jet fuel for flying operations between 2000 and 1999, which resulted in an
increase in fuel expense of approximately $14.1 million between periods. Jet
fuel consumption increased primarily due to the increased number of block hours
of jet flying operations between periods. The Company flew 172,824 jet block
hours in 2000, as compared to 157,481 jet block hours in 1999, an increase of
9.7% between years.
During 2000, the Company's average cost per gallon of jet fuel consumed
increased by 49.7% as compared to 1999, resulting in an increase in fuel and oil
expense of approximately $91.6 million between periods. The Company contracts
with most commercial charter customers, the U.S. military, and with certain
bulk-seat purchasers to provide for fuel escalation revenue, which partially
offset the impact of higher fuel prices. In 2000, the Company recognized $26.4
million in fuel escalation revenue, as compared to $1.8 million recognized in
1999.
The Company implemented a fuel hedge program beginning in the third quarter
of 2000, consisting of swap agreements for heating oil. As of December 31, 2000,
the Company had entered into swap agreements for approximately 13.6 million
gallons of heating oil for future delivery between January 2001 and September
2001, which represented approximately 6.3% of total expected fuel consumption
for that period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
30.2% to $125.0 million in 2000, as compared to $96.0 million in 1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $9.3 million in 2000, as compared to 1999. The Company
added four owned Lockheed L-1011-500s, to the Company's fleet from late 1999
through 2000. The Company also purchased
92
seven hushkits for Boeing 727-200 aircraft and two spare engines for the
Lockheed L-1011-500s late in 1999 through 2000. The Company also increased its
investment in rotable parts, furniture and fixtures, and computer hardware and
software, and increased its provision for inventory obsolescence and
amortization of debt issue costs between years. These changes resulted in an
increase in depreciation and amortization expense of $8.4 million in 2000, as
compared to 1999.
Amortization of capitalized engine and airframe overhauls increased $8.5
million in 2000, as compared to 1999, after including amortization of related
manufacturers' credits. Changes to the cost of overhaul amortization were partly
due to the increase in total block hours and cycles flown between comparable
periods for the Lockheed L-1011 fleet, since such expense varies with that
activity, and partly due to the completion of more engine and airframe overhauls
in 2000 for the Boeing 727-200 and Lockheed L-1011 fleets. Rolls-Royce-powered
Boeing 757-200 aircraft, 13 of which were delivered new from the manufacturer
since late 1995, are starting to generate engine and airframe overhaul expense.
This resulted in a $1.2 million increase in amortization costs between periods.
The cost of engine overhauls that become worthless due to early engine
failures and which cannot be economically repaired is charged to depreciation
and amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these early engine failures increased $2.5
million in 2000, as compared to 1999. When these early engine failures can be
economically repaired, the related repairs are charged to aircraft maintenance,
materials and repairs expense.
AIRCRAFT RENTALS. Aircraft rentals expense for 2000 increased 22.8% to $72.1
million from $58.7 million in 1999. The Company accepted delivery of six Boeing
757-200 aircraft from the manufacturer (two in the fourth quarter of 1999, two
in June 2000 and two in November 2000), adding $10.8 million to aircraft rentals
expense in 2000, as compared to 1999. Chicago Express aircraft rentals increased
by $2.4 million in 2000 as compared to 1999, due to the replacement of 19-seat
Jetstream aircraft with 34-seat Saab 340B aircraft. The Company also incurred
$2.8 million in higher rentals in 2000, as compared to 1999, due to the lease of
spare engines to support the Boeing 757-200 and Lockheed L-1011-500 fleets. The
Company purchased 12 Boeing 727-200 aircraft between the first quarter of 1999
and fourth quarter of 2000, which had previously been financed through operating
leases, resulting in a decrease in aircraft rentals of $1.5 million between
periods.
HANDLING, LANDING AND NAVIGATION FEES. Handling, landing and navigation fees
increased by 9.1% to $97.4 million in 2000 as compared to $89.3 million in 1999.
The total number of system-wide jet departures between 2000 and 1999 increased
by 11.0% to 55,714 from 50,207. The lower rate of growth in handling costs in
2000, as compared to the growth in departures, was partly due to the
implementation of self-handling on the ramp at Chicago-Midway Airport beginning
in May 2000, which was done with third-party contractors during all of 1999. A
corresponding increase in salaries, wages and benefits attributable to
self-handling was experienced during the remainder of 2000.
AIRCRAFT MAINTENANCE, MATERIALS AND REPAIRS. Aircraft maintenance, materials and
repair expense increased 26.6% to $70.4 million in 2000, as compared to $55.6
million in 1999. The Company performed a total of 62 maintenance checks on its
fleet during 2000 as compared to 53 such checks in 1999. The cost of materials
consumed and components repaired in association with such checks and other
maintenance activity increased by $9.0 million between 2000 and 1999.
The Company recognized an increase in aircraft maintenance, materials and
repairs of $2.5 million in 2000, as compared to 1999, due to the consolidation
of the results of its wholly owned
93
subsidiary, Chicago Express. The results of operation for Chicago Express were
consolidated with the Company beginning in May 1999.
CREW AND OTHER EMPLOYEE TRAVEL. The cost of crew and other employee travel
increased 32.4% to $65.8 million in 2000 as compared to $49.7 million in 1999.
Positioning and hotel costs increased significantly in 2000 due primarily to the
substantial increase in military departures in 2000, as compared to 1999.
Military flights often operate to and from points remote from the Company's crew
bases, thus requiring significant positioning expenditures for cockpit and cabin
crews on other airlines. Also, due to heavy airline industry load factors in
2000, the Company paid higher average fares to position crews. Average hotel
costs are also higher for military operations since hotel rates at international
locations generally exceed domestic U.S. hotel rates.
PASSENGER SERVICE. For 2000 and 1999, catering represented 78.8% and 82.0%,
respectively, of total passenger service expense. The total cost of passenger
service increased 16.3% to $45.6 million in 2000, as compared to $39.2 million
in 1999. The Company experienced an increase of approximately 2.1% in the
average unit cost of catering each passenger between 2000 and 1999, primarily
because in 2000 there were relatively more military passengers in the Company's
business mix, who are provided a more expensive catering product due to military
catering specifications and the longer average duration of these flights. This
resulted in a price-and-business-mix increase of $0.8 million in catering
expense in 2000, as compared to 1999.
Total jet passengers boarded, however, increased 12.4% between years,
resulting in approximately $3.7 million in higher volume-related catering
expenses between the same sets of comparative periods.
In 2000, as compared to 1999, the Company experienced increased departure
delays over 15 minutes of 34.3%. These irregular operations resulted in higher
costs to handle inconvenienced passengers and misconnected baggage. In 2000, as
compared to 1999, such costs were $2.6 million higher.
GROUND PACKAGE COST. Ground package cost increased 3.9% to $50.9 million in
2000, as compared to $49.0 million in 1999. Ground package costs increased in
proportion to the increase in ground package revenues.
OTHER SELLING EXPENSES. Other selling expenses increased 30.6% to $36.7 million
in 2000, as compared to $28.1 million in 1999. Approximately $6.3 million of
this increase in 2000 resulted from an increase in CRS fees. This increase
resulted partially from the growth in single-seat sales volumes between periods
and partially from increases in rates charged by CRS systems. Credit card
discount expense increased $3.0 million in 2000, as compared to 1999, primarily
due to higher volumes of scheduled service tickets sold using credit cards as
form of payment. Toll-free telephone services decreased by $0.8 million in 2000,
as compared to 1999, due to billing rate reductions secured from related
vendors.
COMMISSIONS. Commissions expense remained unchanged at $39.1 million between
2000 and 1999. The Company incurred higher military commissions expense of $4.4
million in 2000, as compared to 1999, which is consistent with growth in
military revenues between years. These increases were largely offset by
decreases in scheduled service commissions of $4.9 million due to an industry
reduction in travel agency commission from 8.0% to 5.0% effective in the fourth
quarter of 1999.
94
ADVERTISING. Advertising expense increased 18.3% to $22.0 million in 2000, as
compared to $18.6 million in 1999. Such expenses were higher in the spring and
summer months of 2000, as advertising support was provided for the introduction
of scheduled service to the new destinations of Boston, Seattle, Washington,
D.C. and Minneapolis-St. Paul. Advertising also increased due to increased
marketing emphasis on commuter and Florida markets in 2000.
FACILITIES AND OTHER RENTALS. The cost of facilities and other rentals increased
18.8% to $15.8 million in 2000, as compared to $13.3 million in 1999. Growth in
facilities costs between periods was primarily attributable to the need to
provide facilities at airport locations to support new scheduled service
destinations and expanded services at existing destinations.
OTHER OPERATING EXPENSES. Other operating expenses increased 5.7% to $76.3
million in 2000, as compared to $72.2 million in 1999. The purchase by ATALC of
charter air services from airlines other than the Company was $7.5 million less
in 2000 than in 1999, due to the increased utilization of the Company's own
aircraft for ATALC charter programs. In 1999, the Company incurred $3.1 million
in Chicago Express code-share expenses, which were not incurred during any
period in 2000. Other expenses included in this category increased in 2000 as
the Company's flight activity increased. Expenses increasing year over year
included flight simulator rentals, professional fees, insurance and supplies.
The Company also incurred higher costs associated with irregular flight
operations in 2000, as compared to 1999.
INTEREST INCOME AND EXPENSE. Interest expense in 2000 increased 50.0% to $31.5
million, as compared to $21.0 million in 1999. The increase in interest expense
between periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1999 of $75.0 million in principal amount of
10.5% unsecured senior notes. Additional interest expense of $7.7 million was
recorded in 2000 applicable to these notes, as compared to 1999.
The Company invested excess cash balances in short-term government
securities and commercial paper and thereby earned $8.4 million in interest
income in 2000, as compared to $5.4 million in 1999, when less cash was
available for such investment.
OTHER NON-OPERATING INCOME. Other non-operating income decreased 82.4% to $0.6
million in 2000, as compared to $3.4 million in 1999. The Company holds a
membership interest in the SITA Foundation ("SITA"), an organization that
provides data communication services to the airline industry. SITA's primary
asset is its ownership in Equant N.V. ("Equant"). In February and December 1999,
SITA sold a portion of its interest in Equant in a secondary public offering and
distributed the pro rata proceeds to certain of its members (including the
Company) that elected to participate in the offering. The Company recorded a
gain of $1.7 million in the first quarter of 1999 and a similar gain of $1.3
million in the fourth quarter of 1999.
INCOME TAX EXPENSE. In 2000, the Company recorded $4.6 million in income tax
credits applicable to $19.9 million of pre-tax loss for that period, while in
1999 income tax expense was $30.5 million on pre-tax income of $77.8 million.
The effective tax rate applicable to credits in 2000 was 23.1%, as compared to
an effective tax rate of 39.1% in 1999.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
certain amounts paid for crew per diem (40% in 2000 and 45% in 1999). The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes is to increase the effective rate as amounts of
pre-tax income decrease and to decrease tax credits otherwise applicable to
pre-tax losses.
95
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. In the nine months ended September 30, 2002, net cash used in
operating activities was $4.9 million, as compared to net cash provided by
operating activities of $142.0 million for the same period in 2001. The change
in cash provided by or used in operating activities between periods was
primarily due to a decrease in earnings, and lower depreciation and amortization
expense due to the retirement and impairment of certain Boeing 727-200 and
Lockheed L-1011-50 and 100 aircraft in the second half of 2001 and the first
nine months of 2002. These decreases were partially offset by changes in
operating assets and liabilities, most significantly in accounts receivable,
which resulted primarily from a decrease in the U.S. Government grant
receivable.
Net cash provided by investing activities was $15.7 million in the first
nine months of 2002, while net cash used in investing activities was $308.1
million in the nine-month period ended September 30, 2001. Such amounts included
capital expenditures totaling $57.6 million and $251.0 million, respectively in
the first nine months of 2002, as compared to the same period in 2001. In the
first nine months of 2001, the Company's capital expenditures consisted of
approximately $137.0 million for the purchase of certain Boeing 737-800 and
Boeing 757-300 aircraft and engines and the purchase of certain Boeing 727-200
aircraft off of operating leases, which did not occur in the same periods of
2002. Also, in the first nine months of 2002, the Company incurred $39.7 million
for engine and airframe overhauls, airframe improvements and the purchase of
rotable parts, as compared to $92.8 million in the same period of 2001. This
decline is primarily due to fewer engine overhauls in the first nine months of
2002 as compared to the same period of 2001 on the Lockheed L1011-500 and the
Boeing 727-200 fleets, and declining capitalized interest as more aircraft
deliveries were completed. Also contributing to the difference in net cash
provided by (used in) investing activities is the progress in new aircraft
deliveries. In the first nine months of 2002 as new aircraft were delivered, the
Company was refunded through operating leases $77.4 million of aircraft
pre-delivery deposits, net of new deposits made for future deliveries. In
contrast, the Company paid $61.7 million of pre-delivery deposit payments in the
first nine months of 2001.
Net cash used in financing activities was $82.2 million in the nine months
ended September 30, 2002, while net cash provided by financing activities was
$197.0 million in the nine months ended September 30, 2001. In the first nine
months of 2002, the Company borrowed and repaid $192.5 million in temporary
financing related to the purchase of certain Boeing 737-800 and Boeing 757-300
aircraft, which were subsequently financed through operating leases, while in
the first nine months of 2001, the Company borrowed $102.2 million to
temporarily finance certain new aircraft. In the first nine months of 2002, the
Company repaid $52.6 million in short term debt which had financed pre-delivery
deposits on certain aircraft delivered during that period, while in the same
period of 2001, the Company financed $43.9 million in pre-delivery deposits. In
addition, in the nine months ended September 30, 2002, the Company made net
payments of $25.0 million on its revolving credit facility, while in the same
period of 2001, the Company borrowed $49.0 million under its bank credit
facility.
In 2001, 2000 and 1999, net cash provided by operating activities was
$144.4 million, $111.7 million and $152.7 million, respectively. The increase in
cash provided by operating activities between 2000 and 2001 primarily resulted
from changes in operating assets and liabilities, the non-cash impact of
impairment losses recognized on the Boeing 727-200 and Lockheed L-1011-50 and
100 fleets, partially offset by lower earnings. Significant changes in operating
assets and liabilities in 2001 included: (1) an increase in receivables,
primarily comprised of a receivable
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for $21.8 million for U.S. Government grant compensation due under the Air
Transportation Safety and System Stabilization Act; (2) an increase in trade
payables of $16.9 million, representing extended payment terms negotiated with
trade vendors subsequent to the events of September 11; and (3) an increase in
accrued expenses of $32.8 million, approximately $16.0 million of which
represents deferred payment of certain federal and state taxes authorized by
several taxing jurisdictions until the first quarter of 2002. The decrease in
operating cash flows between 1999 and 2000 was primarily attributable to lower
earnings, partially offset by higher depreciation and amortization charges.
Net cash used in investing activities was $129.8 million, $290.8 million
and $305.7 million, respectively, in the years ended December 31, 2001, 2000 and
1999. In 2001, $30.8 million of expenditures were made for pre-delivery deposits
on future deliveries of new aircraft, net of returned deposits on delivered
aircraft, as compared to $117.0 million and $7.4 million made for these deposits
in 2000 and 1999, respectively. Capital expenditures totaling $119.8 million,
$146.5 million and $266.9 million, respectively, were made in 2001, 2000 and
1999 primarily for aircraft purchases, engine and airframe overhauls, airframe
improvements, hushkit installations, and the purchase of rotable parts. In 1999,
the Company's capital expenditures also included $115.7 million for the purchase
and modification of five L-1011-500 aircraft and the purchase of nine Boeing
727-200 aircraft that were previously leased. In 2001, net cash used in
investing activities was reduced by $27.3 million in cash provided from BATA
upon transfer of 12 Boeing 727-200 aircraft to this joint venture. In 2001, 2000
and 1999, noncurrent prepaid aircraft rent increased $17.2 million, $16.8
million and $15.2 million, respectively, reflecting primarily the cash rent
pre-payments due at inception of many new Boeing 737-800, Boeing 757-200 and
Boeing 757-300 operating leases. The increase in other assets in 1999 included
$24.4 million in goodwill associated with the acquisitions of units of ATALC,
Chicago Express and 50% of ATA Cargo.
Net cash provided by financing activities for the years ended December 31,
2001, 2000 and 1999 was $40.7 million, $188.1 million and $100.3 million,
respectively. In all years, cash provided by financing activities was primarily
attributable to proceeds from short-term and long-term debt, net of repayments,
which in 2001 primarily consisted of $28.4 million in proceeds related to the
financing of pre-delivery deposits on aircraft, the borrowing of $35.0 million
under the Company's bank credit facility, and the repayment of $17.0 million in
special facility revenue bonds. Also in 2001, the Company borrowed and repaid
$153.4 million in temporary bridge debt related to the purchase of three Boeing
757-300 aircraft, which were subsequently financed with operating leases in late
2001. In 2000, net proceeds from short-term and long-term debt primarily
consisted of $89.9 million from the financing of pre-delivery deposits on
aircraft and proceeds of $23.0 million in notes collateralized by two L-1011-500
aircraft. In 1999, the Company received $75.0 million in proceeds from unsecured
senior notes. Net cash provided from financing activities in 2000 also included
$80.0 million in proceeds from the issuance of preferred stock.
The Company presently expects that cash generated by operations, together
with available borrowings under collateralized credit facilities, the return of
pre-delivery deposits held by the manufacturers on future aircraft and engine
deliveries, the receipt of additional U.S. Government grant compensation and the
receipt of funds from the pending U.S. Government-guaranteed secured term loan,
will be sufficient to fund operations during the next 12 months. If the Company
does not obtain the U.S. Government-guaranteed loan, or the existing credit
facility is not extended past its current expiration date of January 2, 2003,
the Company will pursue other sources to fund operations during the next 12
months.
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DEBT AND OPERATING LEASE CASH PAYMENT OBLIGATIONS. The Company is required to
make cash payments in the future on debt obligations and operating leases. The
Company's operating leases require periodic cash payments that vary in amount
and frequency. The Company accounts for aircraft rentals expense in equal
monthly amounts over the life of each operating lease. Although the Company is
obligated on a number of long-term operating leases which are not recorded on
the balance sheet under accounting principles generally accepted in the United
States, the Company has no off-balance sheet debt and, with the exception of
insignificant amounts not requiring disclosure, does not guarantee the debt of
any other party. The following table summarizes the Company's contractual debt
and operating lease obligations at September 30, 2002, and the effect such
obligations are expected to have on its liquidity and cash flows in future
periods.
CASH PAYMENTS CURRENTLY SCHEDULED
-----------------------------------------------------------------------------------------
TOTAL 4QTR 2003 2005 AFTER
AS OF 9/30/02 2002 -2004 -2006 2006
-------------- -------------- --------------- --------------- ---------------
(in thousands)
Current and long-term
debt $ 415,495 $ 58,476 $ 203,113 $ 135,640 $ 18,266
Lease obligations 3,381,484 45,391 523,487 481,677 2,330,929
-------------- -------------- --------------- --------------- ---------------
Total contractual cash
obligations $3,796,979 $ 103,867 $ 726,600 $ 617,317 $ 2,349,195
============== ============== =============== =============== ===============
In addition, the Company is committed to taking future delivery of 16 new Boeing
757-300 and Boeing 737-800 aircraft, as well as four spare engines. The
estimated amounts of future cash payments relating to financing of these
aircraft and engines are not included in the table. The Company intends to
finance these aircraft and engines with operating leases.
AIRCRAFT AND FLEET TRANSACTIONS. In 2000, the Company entered into a purchase
agreement with the Boeing Company to purchase directly from Boeing 10 new Boeing
757-300s and 20 new Boeing 737-800s. The Boeing 737-800 aircraft are powered by
General Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered
by Rolls-Royce RB211-535 E4C engines. The Company also received purchase rights
for an additional 50 aircraft. The manufacturer's list price is $73.6 million
for each 757-300 and $52.4 million for each 737-800, subject to escalation. The
Company's purchase price for each aircraft is subject to various discounts. To
fulfill its purchase obligations, the Company has arranged for each of these
aircraft, including the engines, to be purchased by third parties that will, in
turn, enter into long-term operating leases with the Company. As of September
30, 2002, the Company had taken delivery of eight Boeing 737-800s and 10 Boeing
757-300s obtained directly from Boeing. All remaining aircraft to be purchased
directly from Boeing are scheduled for delivery between October 2002 and August
2004. Aircraft pre-delivery deposits are required for these purchases, and the
Company has funded these deposits using operating cash and primarily short-term
deposit finance facilities. As of September 30, 2002, the Company had $93.3
million in pre-delivery deposits outstanding for these aircraft, of which $65.6
million was provided by deposit finance facilities with various lenders. Upon
delivery of the aircraft, pre-delivery deposits funded with operating cash will
be returned to the Company, and those funded with deposit facilities will be
used to repay those facilities.
In December 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and June
2003. The Company has purchase rights remaining for eight Boeing 757-300
aircraft and 40 Boeing 737-800 aircraft.
The Company has operating lease agreements in place to lease 14 new Boeing
737-800s from ILFC. As of September 30, 2002, the Company had taken delivery of
12 Boeing 737-800s that are
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being leased from ILFC. The remaining aircraft under these operating lease
agreements are scheduled for delivery in June 2003 and May 2004.
The Company has an agreement to acquire five additional new Boeing 737-800s
to be financed by operating leases with GECAS. The Company took delivery of the
fifth Boeing 737-800 aircraft being leased from GECAS in the third quarter of
2002.
Although the Company typically finances aircraft with long-term operating
leases, it has a bridge financing facility which provides for maximum borrowings
of $400.0 million to finance new Boeing 737-800 aircraft and new Boeing 757-300
aircraft. Borrowings under the facility bear interest, at the option of ATA, at
LIBOR plus a margin, which depends on the percentage of the purchase price
borrowed and whether the borrowing matures 18 or 24 months after the aircraft
delivery date. During the first four months of 2002, the Company borrowed $192.5
million, under this bridge facility, for the purchase of certain Boeing 737-800
and Boeing 757-300 aircraft. As of June 30, 2002, these borrowings were repaid
in full, while the related aircraft were financed under long-term operating
leases.
The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006. The Company has
acquired two spare Rolls Royce engines, one of which was delivered in 2001, and
the other in June 2002.
In May 2002, the Company entered into an agreement with AMR Leasing
Corporation to lease six Saab 340B aircraft, with options to lease up to 10
additional aircraft. As of September 30, 2002, the Company had taken delivery of
all six Saab 340B aircraft under this agreement.
In March 2001, the Company entered into a limited liability company
agreement with BCC to form BATA, a 50/50 joint venture. Because the Company does
not control BATA, the Company's investment is being accounted for under the
equity method. BATA is expected to remarket the Company's fleet of Boeing
727-200 aircraft in either passenger or cargo configurations. In exchange for
supplying the aircraft and certain operating services to BATA, the Company has
and will continue to receive both cash and equity in the income or loss of BATA.
The Company transferred 12 Boeing 727-200 aircraft to BATA in 2001, and
transferred eight of the remaining 12 Boeing 727-200 aircraft to BATA in June
2002.
SIGNIFICANT FINANCINGS. As of December 31, 2001, the Company's revolving bank
credit facility provided for maximum borrowings of $100.0 million, including up
to $50.0 million for stand-by letters of credit. In March 2002, the Company
amended the credit facility to reduce the maximum borrowings to $75.0 million,
declining to $60.0 million as of September 30, 2002, and to modify certain
financial covenants. The amended facility matures January 2, 2003, and
borrowings under the facility bear interest, at the option of ATA, at either
LIBOR plus a margin or the agent bank's prime rate. This facility is currently
collateralized by six Lockheed L-1011-50 and L-1011-100 aircraft and engines,
three Lockheed L-1011-500 aircraft and engines, two Saab 340B aircraft, Boeing
727-200 spare engines, certain rotable parts and eligible receivables. The
facility agreement provides that in the event of a material adverse occurrence,
the lenders can elect not to fund any additional borrowings, and can require
repayment of any outstanding balance immediately. No such determination was made
relative to the terrorist attacks on September 11, 2001. As of September 30,
2002, the Company had borrowings of $10.0 million against the facility, and had
outstanding letters of credit of $48.4 million secured by the facility. As of
September 30, 2002, the bank has assigned a collateral borrowing base of $65.4
million to the various aircraft and parts securing the bank credit facility,
which is less than their book value.
99
The Company is seeking a $168.0 million secured term loan that would
replace the existing credit facility. The Company filed an application with the
Air Transportation Stabilization Board, ("ATSB") for a $148.5 million Federal
guarantee of that loan, and on September 26, 2002, received conditional approval
of the loan guarantee. The approval is subject to several conditions, including
increased fees and warrants, resolution of certain issues regarding dividend
restrictions, change of control terms of existing indebtedness, the results of
on-going due diligence by the ATSB and the absence of any material adverse
change in the condition, business, property, operations, prospects, assets or
liabilities of the Company. The Company believes the conditions can be met, and
expects the guaranteed loan to close in the fourth quarter of 2002.
The proceeds of the loan will be used to repay any borrowings on the
existing bank credit facility and to support the nearly $50.0 million in letters
of credit required by certain of the Company's creditors. The remaining proceeds
will be used for general corporate purposes. The loan will be secured with
collateral similar to that securing the current credit facility, plus some
additional equipment and receivables. The loan interest rate is expected to be
variable, based on LIBOR, and the loan is expected to have a term of six years.
In addition to interest on the loan, the Company expects to be required to pay
to the Federal Government certain guarantee fees, based on the outstanding loan
balance. Interest and guarantee fees will be payable quarterly in advance,
beginning at closing, and principal repayments will begin 18 months after
funding of the loan. As part of the guaranteed loan transaction, the Company
also expects to issue stock warrants to the Federal Government. The amount of
warrants required has not yet been determined. The Company expects the loan to
be subject to certain restrictive covenants.
In September 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value. In December 2000, the
Company issued and sold 500 shares of Series A redeemable preferred stock,
without par value. The proceeds from the issuance and sale of the Series B and
the Series A preferred stock were used for aircraft pre-delivery deposits and
general corporate purposes.
In December 2000, the Company entered into three finance facilities with
Banca Commerciale Italiana, GE Capital Aviation Services, Inc., and Rolls-Royce
plc., to fund pre-delivery deposits on new Boeing 757-300 and Boeing 737-800
aircraft. These facilities provide for up to $173.2 million in pre-delivery
deposit funding, and as of September 30, 2002, the Company had borrowed $65.6
million against these three facilities. All of this debt has been classified as
short-term in the accompanying balance sheets because it will be repaid through
the return of related pre-delivery deposits through lease financing of aircraft
scheduled for delivery within the next 12 months. Interest on these facilities
is payable monthly.
CARD AGREEMENT. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers. Approximately 90% of scheduled service
and vacation package sales are purchased using these cards.
More than half of these card sales are made using MasterCard or Visa cards.
The Company maintains an agreement with a bank for the processing and collection
of charges to these cards. Under this agreement, a sale is normally charged to
the purchaser's card account and is paid to the Company in cash within a few
days of the date of purchase, although the Company may provide the purchased
services days, weeks or months later. In 2001, the Company processed
approximately $535.0 million in MasterCard and Visa charges under its merchant
processing agreement.
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On September 21, 2001, the bank notified the Company that it had determined
that the terrorist attacks of September 11, 2001, the ensuing grounding of
commercial flights by the FAA, and the significant uncertainty about the level
of future air travel entitled the bank to retain cash collected by it on
processed card charges as a deposit, up to 100% of the full dollar amount of
purchased services to be provided at a future date. If the Company fails to
perform pre-paid services which are purchased by a charge to a card, the
purchaser may be entitled to obtain a refund which, if not paid by the Company,
is the obligation of the bank. The deposit secures this potential obligation of
the bank to make such refunds.
The bank exercised its right to withhold distributions beginning shortly
after its notice to the Company. It subsequently agreed to accept a letter of
credit as security for this potential liability. As of December 31, 2001, the
bank had withheld $3.1 million in cash with an additional $20.0 million secured
by a letter of credit provided on behalf of the Company by the Company's senior
lenders under its revolving bank facility. As of September 30, 2002, the bank
had withheld $11.8 million in cash, and $20.0 million was secured by the letter
of credit. The deposits and letter of credit as of September 30, 2002, and
December 31, 2001, constituted approximately 60% of the Company's total future
obligations to provide services purchased by charges to card accounts as of
those dates. The bank has agreed to a 60% deposit, with that percentage being
subject to increase up to 100% at any time at the sole discretion of the bank. A
deposit of 100% of this obligation would have resulted in the additional
retention of $15.4 million by the bank at December 31, 2001, and $21.2 million
at September 30, 2002. The bank's right to maintain a deposit does not terminate
unless, in its reasonable judgment and at its sole discretion, it determines
that a deposit is no longer required.
The Company has the right to terminate its agreement with the bank upon
providing appropriate notice. In the event of such termination, the bank may
retain a deposit equal to the amount of purchased services not yet performed,
for up to 16 months from the date of termination.
SURETY BONDS. The Company has historically provided surety bonds to airport
authorities and selected other parties, to secure the Company's obligation to
these parties. The DOT also requires the Company to provide a surety bond or an
escrow to secure potential refund claims of charter customers who have made
prepayments to the Company for future transportation. One issuer currently
provides all surety bonds issued on behalf of the Company.
Prior to the terrorist attacks of September 11, 2001 the Company had provided a
letter of credit of $1.5 million as security to the issuer for its total
estimated surety bond obligations, which were $20.9 million at August 31, 2001.
Effective October 5, 2001, the issuer required the Company to increase its
letter of credit to 50% of its estimated surety bond liability. Effective
January 16, 2002, the issuer implemented a requirement for the Company's letter
of credit to secure 100% of estimated surety bond obligations, which totaled
$19.8 million. The Company's letter of credit was adjusted accordingly, and the
Company is subject to future adjustments of its letter of credit based upon
further revisions to the estimated liability for total surety bonds outstanding.
As of September 30, 2002, the letter of credit requirement decreased to $15.2
million. The Company has the right to replace the issuer with one or more
alternative issuers of surety bonds, although the Company can provide no
assurance that it will be able to secure more favorable terms from other
issuers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks, including commodity price
risk resulting from aircraft fuel price fluctuations and interest rate risk. The
adverse effects of potential changes in
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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 might take to
mitigate the adverse impact of such changes on the Company. See the notes to
consolidated financial statements for a description of the Company's accounting
policies and other information related to these financial instruments.
AIRCRAFT FUEL PRICES. The Company's results of operations are significantly
impacted by changes in the price of aircraft fuel. During 2001, aircraft fuel
accounted for approximately 18.4% of the Company's operating expenses, compared
to 21.3% in 2000. In addition to purchasing fuel-hedging contracts, the Company
obtains fuel price fluctuation protection from escalation clauses in certain
commercial charter, military charter, bulk scheduled service and mail contracts.
During 2001 and 2000, the Company entered into fuel hedge contracts to
reduce the volatility of fuel prices, using heating oil swaps. As of December
31, 2001, the Company had outstanding fuel hedge agreements totaling 6.3 million
gallons of heating oil, corresponding to 2.6% of the Company's projected
aircraft fuel requirements for 2002, as compared to 4.8% of the Company's
projected aircraft fuel requirements for 2001 hedged at December 31, 2000.
During the first nine months of 2002, the Company entered into additional
heating oil swap agreements to further minimize the risk of jet fuel price
fluctuations, all of which have expired. As of September 30, 2002, the Company
had no outstanding fuel hedge agreements.
INTEREST RATES. The Company's results of operations are affected by fluctuations
in market interest rates. As of December 31, 2001 and 2000, the majority of the
Company's variable-rate debt was comprised of approximately $35.0 million and
$0.0 of variable-rate debt through a revolving credit facility and approximately
$118.2 million and $89.9 million of variable-rate debt funding aircraft
pre-delivery deposits, respectively. If interest rates average 100 basis points
more on variable-rate debt in 2002, as compared to 2001 average rates, the
Company's interest expense on these debt instruments would increase by
approximately $1.5 million.
As of December 31, 2001 and 2000, the majority of the Company's fixed-rate
debt was comprised of unsecured debt with a carrying value of $300.0 million.
Based upon discounted future cash flows using current incremental borrowing
rates as of the end of the year for similar types of instruments, the fair value
as of December 31, 2001 of this fixed-rate debt is estimated to be approximately
$308.2 million. Market risk, estimated as the potential increase in fair value
resulting from a hypothetical 100 basis point decrease in market interest rates,
was approximately $17.2 million as of December 31, 2001. As of December 31,
2000, that risk was approximately $14.5 million.
If 2002 average short-term interest rates decreased by 100 basis points as
compared to 2001 average rates, the Company's projected interest income from
short-term investments would decrease by approximately $1.8 million. In
comparison, the Company estimated that if 2001 average short-term interest rates
decreased by 100 basis points as compared to 2000 average rates, the Company's
interest income from short-term investments would have decreased by
approximately $1.5 million as of December 31, 2000.
All estimated changes in interest income and expense are determined by
considering the impact of hypothetical changes in interest rates on the
Company's debt and cash balances at December 31, 2001 and 2000.
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BUSINESS
ATA Holdings (the "Company") owns American Trans Air, Inc. ("ATA"), the
tenth largest passenger airline in the United States (based upon 2001 capacity
and traffic) and a provider of airline-related services in selected markets. The
Company is the largest commercial charter airline in the United States based
upon revenues for the twelve months ended June 30, 2002, and is one of the
largest providers of passenger airline services to the U.S. military, based upon
2001 revenue. For the year ended December 31, 2001, the revenues of the Company
consisted of 64.3% scheduled service, 15.1% commercial charter service and 13.1%
military charter service, with the balance derived from related services. The
Company was incorporated in Indiana in 1984.
SCHEDULED SERVICE
The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway and Indianapolis and also provides
transpacific services between the western United States and Hawaii. The Company
focuses on routes where it believes it can be a leading provider of nonstop
service and targets leisure and value-oriented business travelers.
The Company believes that it has significant competitive advantages in each
of its primary markets.
o Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 66.8% of the Company's total scheduled
service capacity in 2001. The Company believes its service at this
gateway would be difficult to replicate because of limited airport
capacity. This competitive position is enhanced by Chicago-Midway's
proximity to downtown Chicago and the fact that, for a substantial
portion of the population within the metropolitan region,
Chicago-Midway is the most convenient airport. The Company's
Chicago-Midway operations include service to a number of midwestern
cities provided by its commuter airline subsidiary, Chicago Express
Airlines, Inc. ("Chicago Express"). This service provides an
increasingly important source of feeder traffic for longer-haul jet
flights from Chicago-Midway. The Company began jet service at
Chicago-Midway in December 1992, and initiated its commuter operation
in 1997.
o Hawaii represented approximately 18.6% of the Company's total
scheduled service capacity in 2001. The Company believes it is the
lowest-cost provider of scheduled service between the western United
States and Hawaii, which is critical in this price-sensitive,
predominantly leisure market. Furthermore, a majority of the Company's
capacity in the Hawaiian market is contracted to the nation's largest
independent Hawaiian tour operator, which assumes capacity, yield and
most fuel-price risk. The Company has served the Hawaiian market since
1974 through its commercial charter operations and since 1987 through
its scheduled service operations.
o Indianapolis represented approximately 9.2% of the Company's total
scheduled service capacity in 2001. The Company began scheduled
service from Indianapolis in 1986 and believes that it benefits from
being perceived as the hometown airline. In Indianapolis, the Company
operates Ambassadair Travel Club, Inc. ("Ambassadair"), the nation's
largest travel club, with approximately 34,000 individual or family
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memberships, providing the Company with a local marketing advantage
similar to a frequent flier program.
COMMERCIAL CHARTER SERVICE
The Company provides commercial passenger charter airline services
throughout the world, primarily through U.S. tour operators. The Company seeks
to maximize the profitability of these operations by leveraging its leading
market position, diverse aircraft fleet and worldwide operating capability. The
Company believes its commercial charter services are a predictable source of
revenues and operating profits in part because its commercial charter contracts
require tour operators to assume capacity, yield and fuel price risk, and also
because of the Company's ability to re-deploy assets into alternate markets.
MILITARY/GOVERNMENT CHARTER SERVICE
The Company has provided passenger airline services to the U.S. military
since 1983 and is currently one of the largest commercial airline providers of
these services. The Company believes that because these operations are generally
less seasonal than leisure travel, they have tended to have a stabilizing impact
on the Company's operating margins. The U.S. Government awards one year
contracts for its military charter business and pre-negotiates contract prices
for each type of aircraft that a carrier makes available. The Company believes
that its fleet of aircraft is well suited to the needs of the military.
STRATEGY
The Company intends to enhance its position as a leading provider of
passenger airline services to selected markets where it can capitalize on its
competitive strengths. The key components of this strategy are:
Participate in Markets Where It Can be a Leader
The Company focuses on markets where it can be a leading provider of
airline services. In scheduled service, the Company concentrates on routes where
it can be the number one or number two carrier. The Company achieves this result
principally through nonstop schedules, value-oriented pricing, focused marketing
efforts and certain airport and aircraft advantages. The Company is a leading
provider of commercial and military charter services in large part because of
its variety of aircraft types, superior operational performance and its
worldwide service capability.
Maintain Low-Cost Position
For 2001, 2000 and 1999, the Company's consolidated operating cost per
available seat mile ("CASM") of 8.45(cent), 7.86(cent) and 6.84(cent),
respectively, was one of the lowest among large U.S. passenger airlines. The
Company believes that its lower costs provide a significant competitive
advantage, allowing it to operate profitably while pricing competitively in the
scheduled service and commercial and military charter markets. The Company
believes its low-cost position is primarily derived from its simplified product,
route structure and low overhead costs.
In May 2000, the Company entered into a series of agreements to acquire new
Boeing 737-800 aircraft and new Boeing 757-300 aircraft to replace the Company's
older fleets of Lockheed L-1011-50 and 100, and Boeing 727-200 aircraft. The
Company expects to achieve significant
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operating cost savings with the introduction of new aircraft, including (1)
reduced fuel consumption; (2) transition from three-person to two-person cockpit
crews; (3) lowered maintenance costs; and (4) improved utilization and dispatch
reliability.
Target Growth Opportunities
The Company intends to expand its operations selectively in areas where it
believes it can achieve attractive financial returns.
Scheduled Service Expansion at Chicago-Midway. The Company plans to
increase frequencies and potentially add new destinations from Chicago-Midway
over the next 12 months. The Company will also occupy additional gates upon
completion of the new terminal at Chicago-Midway to facilitate these expanding
operations. In the first nine months of 2002, the Company began operating
nonstop service from Chicago-Midway to Charlotte, Aruba, Cancun, Grand Cayman
and Guadalajara.
Selected Strategic Transactions. The Company continually evaluates possible
acquisitions of related businesses or interests therein to enhance its
competitive position in its market segments. In addition, the Company has and
will continue to evaluate other possible business combinations or other
strategic transactions, some of which could result in an increase in
indebtedness, a change of control in the Company, or both.
INDUSTRY OVERVIEW
Scheduled Airline Service
The Company is a leading provider of targeted scheduled airline services
and charter airline services to leisure and other value-oriented travelers, and
to the U.S. military. The Company, through its principal subsidiary, ATA, has
been operating for 30 years and is the tenth largest U.S. airline in terms of
2001 capacity and traffic. ATA provides scheduled service through nonstop and
connecting flights from the gateways of Chicago-Midway and Indianapolis to
popular vacation destinations such as Hawaii, Phoenix, Las Vegas, Florida,
California, Mexico and the Caribbean, as well as to New York's LaGuardia
Airport, Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston,
Seattle, Minneapolis-St. Paul, Newark and Charlotte. Chicago Express also
provides commuter passenger service between Chicago-Midway and the cities of
Indianapolis, Cedar Rapids, Des Moines, Dayton, Flint, Grand Rapids, Lexington,
Madison, Milwaukee, Moline, South Bend, Springfield and Toledo. ATA also
provides charter service to independent tour operators, specialty charter
customers and the U.S. military.
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 and
on a longer-term basis to supplement the U.S. military's own passenger fleet.
Based upon the most recently available U.S. Department of Transportation ("DOT")
statistics, total charter flights by all U.S. airlines represented approximately
2.2% of all available seat miles ("ASMs") flown within the United States during
the 12 months ended June 30, 2002.
105
Commercial charter revenues decreased $54.5 million in 2001, as compared to
2000. The majority of this revenue decline is attributable to the retirement of
Lockheed L-1011-50 aircraft, and Boeing 727-200 aircraft, both of which have
been traditionally used by the Company in commercial charter applications due to
their low ownership costs relative to newer aircraft. Since aircraft utilization
(or the number of hours of revenue flying per aircraft per month) is much lower
for commercial charter flying than for scheduled service flying, the Company's
replacement fleets of Boeing 737-800 and Boeing 757-300 aircraft are
economically disadvantaged when used in the charter business, as high monthly
utilization is needed to recover their much higher fixed-ownership costs. For
this reason, and also due to higher maintenance and fuel costs on the Lockheed
and Boeing aging aircraft remaining in service, the Company is becoming less
cost competitive in the charter business segment than in past years. For this
reason, the Company expects that commercial charter flying will continue to
decline as a percentage of consolidated revenues in 2002 and beyond.
Military/government charter revenues decreased $21.1 million in 2001, as
compared to 2000. The majority of this revenue decline was attributable to
changes in teaming arrangements used by both the Company and some of the
Company's competitors, which resulted in a decline in fixed-award flying
allocated to the Company for the contract year ended September 30, 2001. The
Company currently expects its military/government charter revenues to increase
slightly in the contract year ending September 30, 2003, as compared to the
prior contract year. The Company will continue to use primarily its fleet of
five Lockheed L-1011-500 aircraft to support this military business, since this
aircraft has competitive operating costs relative to other suppliers of military
flying, and has a range and seating configuration preferred by the military.
THE COMPANY'S AIRLINE OPERATIONS
Services Offered
The following table provides a summary of the Company's major revenue
sources for the periods indicated:
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(Dollars in millions)
Scheduled Service $ 371.8 $ 511.3 $ 624.6 $ 753.3 $ 820.7 $ 656.0 $ 664.4
--------- ---------- ---------- ---------- ---------- ---------- ----------
Commercial Charter 228.1 222.6 263.8 246.7 192.2 170.1 108.1
Military Charter 131.1 121.9 126.2 188.6 167.5 122.5 130.6
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Charter Service 359.2 344.5 390.0 435.3 359.7 292.6 238.7
Other 52.2 63.6 107.8 103.0 95.1 79.2 63.3
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 783.2 $ 919.4 $ 1,122.4 $ 1,291.6 $ 1,275.5 $ 1,027.8 $ 966.4
========= ========== ========== ========== ========== ========== ==========
Scheduled Service
The Company provides scheduled airline services on selected routes where it
believes that it can be one of the leading carriers in those markets, focusing
primarily on low-cost, nonstop or direct flights. The Company currently provides
scheduled service primarily from its gateway cities of Chicago-Midway and
Indianapolis to popular vacation and business destinations. Virtually all of the
Company's scheduled service revenue growth has resulted from expanded flying to
and from Chicago-Midway. The Company's Chicago-Midway operations include service
to a number of mid-western cities, provided by Chicago Express.
106
Included in the Company's jet scheduled service are bulk-seat sales
agreements with tour operators. Under these arrangements, which are very similar
to charter sales, the tour operator takes up to 87% of an aircraft as a
bulk-seat purchase. The seats that the Company retains are sold through its own
scheduled service distribution network. Under bulk-seat sales arrangements, the
Company is obligated to provide transportation to the tour operators' customers
even in the event of non-payment to the Company by tour operators. To reduce its
credit exposure under these arrangements, the Company requires bonding or a
security deposit for a portion of the contract price.
Commercial Charter
Commercial charter represented 15.1%, 19.1% and 23.5%, respectively, of the
Company's consolidated revenues for 2001, 2000 and 1999. The Company's principal
customers for commercial charter are tour operators, sponsors of incentive
travel packages and specialty charter customers.
Tour Operator Programs. These leisure-market programs are generally
contracted for repetitive, round-trip patterns, operating over varying periods
of time. In such an arrangement, the tour operator pays a fixed price for use of
the aircraft, including the crew and all necessary passenger and aircraft
handling services, and assumes responsibility and risk for the actual sale of
the available aircraft seats. Under most of its contracts with tour operators,
the Company passes through increases in fuel costs from a contracted price. If
the fuel price increase causes the tour operator's fuel cost to rise in excess
of 10%, the tour operator has the option of canceling the contract. The Company
experienced no significant contract cancellations in 2001, 2000 or 1999 as a
result of fuel price increases. The Company is required to absorb increases in
fuel costs that occur within 14 days of flight time.
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for their employees. The
Company has historically provided air travel for many corporate incentive
programs. Incentive travel customers range from national incentive marketing
companies who arrange such programs for corporate clients, to large corporations
that handle their incentive travel programs on an in-house basis.
Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature. These flights allow the Company to
increase aircraft utilization during off-peak periods.
Largest Tour Operator Customers
Although the Company serves tour operators on a worldwide basis, its
primary customers are U.S.-based. The Company's five largest tour operator
customers represented approximately 18.0%, 17.5% and 17.2%, respectively, of the
Company's consolidated revenues for 2001, 2000 and 1999. Such tour operator
revenues are derived from both scheduled service bulk-seat sales and commercial
charter contracts. None of these customers accounts for more than 10% of
consolidated revenues.
Military/Government Charter
In 2001, 2000 and 1999, sales to the U.S. military and other governmental
agencies were approximately 13.1%, 14.6% and 11.2%, respectively, of the
Company's consolidated revenues. Traditionally, the Company's focus has been on
short-term military "contract expansion" business which is routinely awarded by
the U.S. Government based on availability of appropriate aircraft. The U.S.
Government awards one-year contracts for its military charter business and
pre-negotiates
107
contract prices for each type of aircraft a carrier makes available. Such
contracts are awarded based upon the participating airlines' average costs. The
short-term expansion business is awarded pro rata to those carriers with
aircraft availability who have been awarded the most fixed-award business, and
then to any additional carrier that has aircraft available.
The overall amount of military flying that the Company performs in any one
year is dependent upon several factors, including (1) the percentage of
mobilization value points represented by the Company's team as compared to total
mobilization value points of all providers of military service; (2) the
percentage of passenger capacity of the Company with respect to its own team;
(3) the amount of fixed-award and expansion flying required by the U.S. military
in each contract year; and (4) the availability of the Company's aircraft to
accept and fly expansion awards. Under its current teaming arrangement, the
Company expects its military/government charter revenues to increase slightly
for the contract year ending September 2002, as compared to the contract year
ending September 2001.
The Company is subject to biennial inspections by the U.S. Department of
Defense as a condition of retaining its eligibility to perform military charter
flights. The last such inspection was successfully completed in October 2001.
AIRCRAFT FLEET
As of September 30, 2002, ATA was certified to operate a fleet of 80
aircraft, comprised of 12 Lockheed L-1011s, 25 Boeing 737-800s, 16 Boeing
757-200s and 10 Boeing 757-300s. The Company's commuter affiliate, Chicago
Express, was separately certified to operate 17 Saab 340B propeller aircraft.
All of these aircraft conform to the FAA's Stage 3 noise regulations. See
"Environmental Matters."
Lockheed L-1011 Aircraft
The Company's 12 Lockheed L-1011 aircraft are wide-body aircraft, four 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 have a low ownership cost relative to other wide-body aircraft types.
They have an average age of approximately 25 years. As of September 30, 2002,
the Company owned 11 of these aircraft and one was under an operating lease that
expires in December 2005. All of the Lockheed L-1011 aircraft owned by the
Company are subject to mortgages and other security interests granted in favor
of the Company's lenders."
Boeing 737-800 Aircraft
The Company's 25 Boeing 737-800 aircraft are narrow-body aircraft and have
a range of 2,500 nautical miles. These aircraft, all of which are leased, are
new aircraft delivered in 2001 and 2002. The Company's Boeing 737-800s have
higher ownership costs than the Company's Lockheed L-1011 aircraft, but lower
operational costs resulting from reduced fuel consumption, lower maintenance and
cockpit crew costs, and improved operating reliability. The leases for the
Company's Boeing 737-800 aircraft have initial terms that expire on various
dates between June 2016 and July 2022.
108
Boeing 757-200 Aircraft
The Company's 16 Boeing 757-200 aircraft are 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 five years. The Company's Boeing
757-200s have higher ownership costs than the Company's Lockheed L-1011
aircraft, but lower operational costs. In addition, the Company's Boeing
757-200s have the capacity to operate on extended flights over water. The leases
for the Company's Boeing 757-200 aircraft have initial terms that expire on
various dates between January 2003 and May 2022, subject to the Company's right
to extend each lease for varying terms.
Boeing 757-300 Aircraft
The Company's 10 Boeing 757-300 aircraft are narrow-body aircraft and have
a range of 2,700 nautical miles. These aircraft, all of which are leased, are
new aircraft delivered in 2001 and 2002. The Company's Boeing 757-300s have
higher ownership costs than the Company's Lockheed L-1011 aircraft, but lower
operational costs. The leases for the Company's Boeing 757-300 aircraft have
initial terms that expire on various dates between August 2021 and September
2022.
Saab 340B Aircraft
The Company's 17 Saab 340B aircraft are commuter aircraft with twin
turboprop engines. These 34-seat aircraft have an average age of approximately
11.2 years. As of September 30, 2002, the Company owned two of these aircraft,
while leasing the remaining 15 aircraft with initial lease terms that expire
between September 2009 and March 2012.
FLIGHT OPERATIONS
Worldwide flight operations are planned and controlled by the Company's
Flight Operations Group based in Indianapolis, Indiana, which is staffed on a
24-hour basis, seven days a week. Logistical support necessary for extended
operations away from the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
AIRCRAFT MAINTENANCE AND SUPPORT
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 150,000 square-foot facility was designed to meet
the maintenance needs of the Company's fleet and to provide supervision and
control of purchased maintenance services.
FUEL PRICE RISK MANAGEMENT
The Company has fuel reimbursement clauses and guarantees which applied to
approximately 32.0%, 33.5% and 34.8%, respectively, of consolidated revenues in
2001, 2000 and 1999. The Company engaged in a fuel-hedging program from 1998 to
mid-1999, which hedged a portion of its scheduled service fuel price risk during
that time period. The Company reestablished its fuel-hedging program in the
third quarter of 2000 and continued this program in 2001. As of September 30,
2002, the Company has no fuel hedge agreements remaining outstanding.
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COMPETITION
The Company's products and services encounter varying degrees of
competition in the markets it serves.
Competition for Scheduled Services
In scheduled service, the Company competes both against the large U.S.
scheduled service airlines and, from time to time, against smaller regional or
start-up airlines. Competition is generally on the basis of price, schedule and
frequency, quality of service and convenience.
Competition for Commercial Charter Services
In the commercial charter market, the Company competes both against the
major U.S. scheduled airlines and against small U.S. charter airlines. The
scheduled carriers compete for leisure travel customers with the Company's
commercial charter operations in a variety of ways, including wholesaling
discounted seats on scheduled flights to tour operators, promoting packaged
tours to travel agents for sale to retail customers and selling discounted,
airfare-only products to the public. As a result, all charter airlines,
including the Company, generally are required to compete for customers against
the lowest revenue-generating seats of the scheduled airlines.
The Company also competes against several U.S. and foreign charter
airlines. In the United States, these charter airlines are smaller in size than
the Company. In Europe, several charter airlines are as large or larger than the
Company. Certain European charter airlines are affiliates of large scheduled
airlines or tour operators.
Competition for Military/Government Charter Services
The Company competes for military and other government charters with
primarily smaller U.S. airlines. The allocation of U.S. military air
transportation contracts is based upon the number and type of aircraft a
carrier, alone or through a teaming arrangement, makes available for use to the
military, among other factors.
INSURANCE
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high-risk countries. The Company will support certain U.S.
Government operations in areas where its insurance policy does not provide
coverage when the U.S. Government provides replacement insurance coverage.
We currently maintain liability insurance for passengers and third party
damages, excluding those caused by an event of terrorism, in the amount of $1.5
billion. In addition, we currently maintain liability insurance for third party
damages caused by an event of terrorism in the amount of $100.0 million, of
which $50.0 million is provided by the commercial insurance market and $50.0
million is provided by the U.S. Government. The U.S. Government provides
indemnification of up to $1.5 billion for third party damages in excess of
$100.0 million in the event of terrorism.
110
EMPLOYEES
As of December 31, 2001, we had approximately 7,000 full and part-time
employees, approximately 2,600 of whom were represented under collective
bargaining agreements. Our flight attendants are represented by the Association
of Flight Attendants (AFA). Our current collective bargaining agreement with the
AFA will become subject to amendment, but will not expire, in October 2004. Our
cockpit crews are represented by the Air Line Pilots Association (ALPA). Our
current collective bargaining agreement with ALPA will be subject to amendment,
but will not expire, in June 2006. Our dispatchers are represented by the
Transport Workers Union (TWU). Our current collective bargaining agreement with
the TWU will become subject to amendment, but will not expire, in August 2004.
Our ramp service agents elected to be represented by the International
Association of Machinists (IAM) in February 2001. Negotiations began with IAM in
May 2001, but no collective bargaining agreement has been finalized. In February
2002, our aircraft mechanics elected to be represented by the Aircraft Mechanics
Fraternal Association (AMFA), and negotiations with them began in October 2002.
While we believe our relations with our employees are good, any 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.
REGULATION
The Company is subject to a wide range of governmental regulation,
including that of the DOT and the FAA.
The DOT principally regulates economic matters affecting air service,
including: air carrier certification and fitness; insurance; leasing
arrangements; allocation of route rights and authorization of proposed scheduled
and charter operations; allocation of landing slots and departing slots;
consumer protection; and competitive practices. The FAA primarily regulates
flight operations, especially matters affecting air safety, including
airworthiness requirements for each type of aircraft and crew certification. The
FAA requires each carrier to obtain an operating certificate and operations
specifications authorizing the carrier to fly to specific airports using
specified equipment.
Several aspects of airline operations are subject to regulation or
oversight by federal agencies other than the DOT and FAA. The United States
Postal Service has jurisdiction over certain aspects of the transportation of
mail and related services provided by the Company through ATA Cargo. Labor
relations in the air transportation industry are generally regulated under the
Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and labor unions
arising under collective bargaining agreements. The Company is subject to the
jurisdiction of the Federal Communications Commission regarding the utilization
of its radio facilities. In addition, the Immigration and Naturalization
Service, the U.S. Customs Service, and the Animal and Plant Health Inspection
Service of the Department of Agriculture have jurisdiction over inspection of
the Company's aircraft, passengers and cargo to ensure the Company's compliance
with U.S. immigration, customs and import laws. Also, while the Company's
aircraft are in foreign countries, they must comply with the requirements of
similar authorities in those countries. The Commerce Department also regulates
the export and re-export of the Company's U.S.-manufactured aircraft and
equipment.
On November 19, 2001, President Bush signed into law the Aviation and
Transportation Security Act ("Aviation Security Act"). This law provides for
placing substantially all aspects of civil aviation passenger security and
screening under federal control, to be phased in during 2002 and
111
2003, and creates a new Transportation Security Administration under the DOT.
The cost of the provisions set forth in the Aviation Security Act will be funded
by a new security fee of $2.50 per passenger enplanement, limited to $5 per
one-way trip and $10 per round trip. Air carriers, including the Company, began
collecting the new fee on ticket sales beginning February 1, 2002. The Aviation
Security Act is also funded by financial assessments to each air carrier that
began in the second quarter of 2002. The amount of the air carrier assessment is
limited to the amount each air carrier spent on aviation security in 2000.
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 $4.50 generally payable by each passenger
departing from the airport and remitted by the Company to the applicable airport
authority.
Based upon bilateral aviation agreements between the U.S. and other
nations, and, in the absence of such agreements, comity and reciprocity
principles, the Company, as a charter carrier, is generally not restricted as to
the frequency of its flights to and from most foreign destinations. However,
these agreements generally restrict the Company to the carriage of passengers
and cargo on flights which either originate in the U.S. and terminate in a
single foreign nation, or which originate in a single foreign nation and
terminate in the U.S. The civil aeronautics authorities in the relevant
countries must generally specifically approve proposals for any additional
charter service. Approval of such requests is typically based on considerations
of comity and reciprocity and cannot be guaranteed.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier-operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
ENVIRONMENTAL MATTERS
Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft must comply with certain Stage 3 noise
restrictions by certain specified deadlines. In general, the Company is
prohibited from operating any Stage 2 aircraft after December 31, 1999. As of
December 31, 2001, the Company's entire fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by the FAA, the
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. The Company
believes it has made all necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
At the Company's aircraft maintenance facilities, materials are used that
are regulated as hazardous under federal, state or local laws. The Company is
required to maintain programs to protect the safety of the employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with these laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of material into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any of these regulations will have a material impact on the
Company's capital expenditures, earnings or competitive position.
112
PROPERTIES
The Company leases three adjacent office buildings in Indianapolis
consisting of approximately 136,000 square feet. These buildings are located
approximately one mile from the Indianapolis International Airport terminal and
are used as principal business offices and for the Indianapolis reservations
center.
The Company's Maintenance and Engineering Center is also located at
Indianapolis International Airport. This 150,000-square-foot facility was
designed to meet the base maintenance needs of the Company's operations, as well
as to provide support services for other maintenance locations. The Indianapolis
Maintenance and Engineering Center is an FAA-certificated repair station and has
the capability to perform routine and non-routine maintenance on the Company's
aircraft. In addition, the Company utilizes a 120,000 square-foot office
building immediately adjacent to the Company's Indianapolis Maintenance and
Engineering Center which is occupied by its Maintenance and Engineering office
staff along with the Company's operations center.
In 1995, the Company leased Hangar No. 2 at Chicago's Midway Airport for an
initial lease term of ten years, subject to two five-year renewal options. The
Company has completed significant improvements to this leased property, which is
used to provide line maintenance for the Boeing 757-200, Boeing 757-300 and
Boeing 737-800 narrow-body fleets. The Company also leases an 18,700-square-foot
reservation facility located near Chicago's O'Hare Airport.
The Company routinely leases various properties at airports for use by
passenger service, flight operations and maintenance staffs.
At September 30, 2002, ATA and Chicago Express were certified to operate a
fleet of 80 aircraft. The following table summarizes the ownership
characteristics of each aircraft type operated by units of the Company as of
September 30, 2002.
OWNED
(ENCUMBERED-PLEDGED
ON BANK OPERATING-LEASE
OWNED FACILITY OR OTHER (FIXED OPERATING-LEASE
(UNENCUMBERED) DEBT) BUY-OUT) (NO BUY-OUT) TOTAL
--------------- ---------------------- --------------- ---------------- -------------
LOCKHEED L-1011-50/100 - 6 - 1 7
LOCKHEED L-1011-500 - 5 - - 5
BOEING 737-800 - - 13 12 25
BOEING 757-200 - - 14 2 16
BOEING 757-300 - - 10 - 10
SAAB 340B - 2 15 - 17
--------------- ---------------------- --------------- ---------------- -------------
TOTAL - 13 52 15 80
=============== ====================== =============== ================ ===============
LEGAL PROCEEDINGS
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are routine and incidental to the
Company's business. The majority of these lawsuits are covered by insurance. To
the knowledge of management, none of these claims involve damages in excess of
10 percent of the assets of the Company, nor are any a material proceeding under
federal or state environmental laws, nor are any an environmental proceeding
brought by a governmental authority involving potential monetary sanctions in
excess of $100,000.
113
DESCRIPTION OF PRINCIPAL INDEBTEDNESS
FEDERALLY GUARANTEED TERM LOAN
On November 20, 2002, ATA borrowed $168.0 million pursuant to a loan
agreement among ATA, ATA Holdings, various lenders, and the Air Transportation
Stabilization Board ("ATSB"). $148.5 million of the loan is guaranteed by the
federal government. The entire loan is also guaranteed by ATA Holdings and
certain of its subsidiaries other than ATA. The loan proceeds were used to pay
off all outstanding borrowings under an existing credit facility, which was
terminated following this repayment, and to support the $47.3 million in letters
of credit ATA had outstanding as of the funding of the loan. Net of fees, the
remaining proceeds are $104.7 million and are expected to be used for working
capital and general corporate purposes. In connection with the loan, ATA issued
warrants representing about 12 percent of its common shares to various lenders
and to the ATSB. The exercise price for the warrant is $3.53 per share.
In the absence of an event of default, the portion of the loan
guaranteed by the federal government bears interest equal to:
o the lender's average cost of issuing commercial paper plus 0.35%;
or,
o in the event that this portion of the loan is funded by or
assigned to another entity, LIBOR plus 0.40%.
The remainder of the loan bears interest at the greater of:
o LIBOR plus 5.75%; or
o the interest rate for the federally guaranteed portion plus an
applicable percentage, ranging from 5.50% to 9.50%.
The loan agreement contains covenants that limit the ability of ATA,
ATA Holdings and certain of their subsidiaries to, among other things:
o grant liens on their property;
o make significant investments;
o pay dividends or redeem capital stock;
o liquidate, wind up or dissolve themselves;
o engage in certain sale-leaseback transactions;
o engage in mergers and similar business combinations;
o dispose of assets by merger or otherwise;
o enter new joint ventures or speculative transactions; and
o prepay debt.
In addition, for a specified period, ATA Holdings must maintain a number of
specified ratios between (i) earnings and indebtedness and (ii) earnings and
fixed charges.
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. In 2000, the Company completed an
exchange offer in which the new notes were exchanged for registered notes having
the same terms.
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.
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 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%
Covenants. The indenture governing the 10 1/2% notes limits the ability of
Amtran and its subsidiaries to, among other things:
o incur debt;
o make specified restricted payments;
o create restrictions on the ability of some of its subsidiaries to pay
dividends and make distributions;
o allow some of its subsidiaries to issue or sell capital stock;
114
o all some of its subsidiaries to provide guarantees;
o engage in transactions with affiliates;
o create liens;
o engage in sale/leaseback transactions; and
o dispose of assets.
Events of Default. The indenture governing the 10 1/2% notes contains
various events of default, including:
o default in the payment of principal, premium or interest;
o default in compliance with some of the covenants contained in
indenture;
o failure to pay at maturity or upon acceleration of more than $10
million in aggregate of other debt;
o failure to pay more than $10 million of judgments that have not been
stayed by appeal or otherwise; and
o 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% 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:
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YEAR PERCENTAGE
---- ----------
2003.................................................. 104.81%
2004.................................................. 102.41%
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.
AIRCRAFT PRE-DELIVERY DEPOSIT FINANCE FACILITIES
In 2000, we entered into three finance facilities to fund pre-delivery
deposits on new Boeing 757-300 and Boeing 737-800 aircraft. These facilities
provide for up to $173.2 million in pre-delivery deposit funding. As of
September 30, 2002, we had borrowings under these facilities of $65.6 million.
SECURED NOTES PAYABLE
In 2000, we issued two $11.5 million variable rate five-year notes, each
collateralized by one Lockheed L-1011-500 aircraft. As of September 30, 2002,
these notes have a combined remaining balance of $15.2 million.
MORTGAGES
In 1999, we obtained an $8.0 million loan secured by a 15-year mortgage on
our Maintenance and Operations Center. In 2000, we obtained a $10.0 million loan
secured by a 14-year mortgage on our Indianapolis Maintenance Hangar. As of
September 30, 2002, these two mortgages have a combined remaining balance of
$16.2 million.
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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 heading 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 are included as exhibits to this registration
statement and are available upon request to the pass through trustee, and to all
the provisions of the certificates, the Deposit Agreements, the Escrow
Agreements, the Liquidity Facilities 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 are 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 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. 2002-1 pass through trusts: the Class A pass
through trust and the Class B pass through trust, collectively referred to as
the "pass through trusts." The pass through trusts were formed pursuant to the
Pass Through Trust Agreements.
The property of each pass through trust consists of:
o 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.
o The rights of such pass through trust to acquire secured promissory
notes under the Note Purchase Agreement.
o 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.
o The rights of such pass through trust under the Intercreditor
Agreement (including all monies receivable in respect of such rights).
o Monies receivable under the Liquidity Facility for such pass through
trust.
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o Funds from time to time deposited with the pass through trustee in
accounts relating to such pass through trust.
o Subject to the Intercreditor Agreement, the proceeds of sales by the
pass through trustee of secured promissory notes in accordance with
the terms of the Pass Through Trust Agreements upon an event of
default.
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 $100,000 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 $100,000 (Section 3.01(b)).
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, ATA
Holdings, the pass through trustees, any of the Loan Trustees or Owner Trustees
in their individual capacities, any Owner Participant or any of their
affiliates. 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 is also the holder of an Escrow
Receipt affixed to the certificate. The holder of an Escrow Receipt is entitled
to certain rights with respect to amounts held in certain accounts established
under the Escrow Agreement. Those accounts are 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, do
not constitute property of such pass through trust.
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
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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 A and Class B 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 February 20, May 20, August 20
and November 20 of each year, commencing on May 20, 2002 (or, in the case of
secured 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 issued by each of the
Class A and Class B pass through trusts will be supported by a separate
Liquidity Facility 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 does 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.
Payments of principal of the secured promissory notes are scheduled to be
received by the pass through trustee on one or more of February 20, May 20,
August 20 and November 20 in certain years, depending upon the terms of the
secured promissory notes held in the respective pass through trust.
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 is 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
119
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.
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 is 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 15 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 a 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 related to an unfinanced
aircraft under GECC's purchase agreement or 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."
Each Pass Through Trust Agreement requires 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 requires 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 is 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
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Agreement 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).
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 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 issued by 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."
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 in the month
scheduled for its delivery or financing (see "Description of the Aircraft and
the Appraisals -- The Appraisals" for the delivery schedule) and 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 A CLASS A CLASS B CLASS B
SECURED PROMISSORY NOTES TRUST SECURED PROMISSORY NOTES TRUST
SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
- ----------------- ------------------------------- ---------------- ----------------------------- -------------------
20-Feb-03 797,262.60 0.9928635 249,290.61 0.9919922
20-May-03 813,861.61 0.9855784 255,958.51 0.9837702
20-Aug-03 144,563.13 0.9842844 336,071.96 0.9729748
20-Nov-03 0.00 0.9842844 492,633.99 0.9571503
20-Feb-04 3,419,206.66 0.9536781 6,125,149.72 0.7603962
20-Feb-05 3,419,397.00 0.9230702 7,237,877.00 0.5278988
20-Feb-06 3,419,397.00 0.8924622 8,389,428.19 0.2584109
20-Feb-07 5,735,134.56 0.8411255 7,305,552.92 0.0237396
20-Feb-08 13,528,939.00 0.7200243 739,037.10 0.0000000
20-Feb-09 15,540,047.35 0.5809212 0.00 0.0000000
20-Feb-10 16,742,757.16 0.4310523 0.00 0.0000000
20-May-10 55,528.86 0.4305552 0.00 0.0000000
20-Aug-10 56,684.98 0.4300478 0.00 0.0000000
20-Nov-10 57,865.16 0.4295298 0.00 0.0000000
20-Feb-11 17,094,882.41 0.2765089 0.00 0.0000000
20-May-11 414,985.36 0.2727943 0.00 0.0000000
20-Aug-11 423,625.36 0.2690023 0.00 0.0000000
20-Nov-11 432,445.23 0.2651314 0.00 0.0000000
20-Feb-12 17,477,261.25 0.1086877 0.00 0.0000000
20-May-12 805,325.33 0.1014790 0.00 0.0000000
20-Aug-12 822,092.20 0.0941202 0.00 0.0000000
20-Nov-12 839,208.17 0.0866083 0.00 0.0000000
20-Feb-13 9,675,529.62 0.0000000 0.00 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."
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 applicable 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.
(2) The amount of such distribution under the applicable 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 applicable Pass Through
Trust Agreement allocable to interest.
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(4) The amount of such distribution under the Escrow Agreement
allocable to interest on the Deposits.
(5) The amount of such distribution under the Escrow Agreement
allocable to the principal of 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 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 are 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
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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 has 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
is the initial pass through trustee under each pass through trust.
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 A and Class B
certificateholders will receive a smaller amount of principal distributions than
anticipated and will not have any claim for the shortfall against ATA, ATA
Holdings, any Liquidity Provider, any Owner Trustee, any Owner Participant or
any pass through trustee.
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 ATA's
direction pending the distribution of such funds on a Special Distribution Date
(Section 4.04).
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Each Pass Through Trust Agreement provides that the pass through trustee of
the related pass through trust will, as promptly as practicable and in any event
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 contains 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 (Section7.02(e)).
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 have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable 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 or (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 provides
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 is entitled to waive any such
past default or Indenture Default.
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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:
o the Class B certificateholders will have the right to purchase all,
but not less than all, of the Class A certificates;
o if the Class C certificates are issued, the Class C certificateholders
will have the right to purchase all of the Class A and Class B
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 (Section 6.01(b)).
PTC EVENT OF DEFAULT
A PTC Event of Default under each pass through trust agreement means the
failure to pay:
o The outstanding Pool Balance of the applicable class of certificates
within ten Business Days of the Final Maturity Date for such class.
o 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 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) does 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 constitutes 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 is 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:
o 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.
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o 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 and any other operative
documents.
o 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 do 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 ATA Holdings.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS
Each Pass Through Trust Agreement contains 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, the Registration Rights Agreement, the
Delayed Funding Implementation Agreement or any Liquidity Facility, without the
consent of the holders of any of the certificates of such pass through trust:
o To evidence the succession of another corporation to ATA or ATA
Holdings and the assumption by such corporation of ATA's or ATA
Holdings's obligations thereunder.
o To add to ATA's or ATA Holdings's covenants for the benefit of holders
of such certificates or to surrender any right or power conferred upon
ATA or ATA Holdings in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement, the Registration
Rights Agreement, the Delayed Funding Implementation Agreement or any
Liquidity Facility.
o 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, the Registration
Rights Agreement, the Delayed Funding Implementation Agreement or any
Liquidity Facility 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, the Registration Rights Agreement, the
Delayed Funding Implementation Agreement or any Liquidity Facility, 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, the Registration
Rights Agreement, the Delayed Funding Implementation Agreement or
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any Liquidity Facility, provided that such action will not adversely
affect the interests of the holders of such certificates.
o To correct any mistake in such Pass Through Trust Agreement, the
Intercreditor Agreement, the Note Purchase Agreement, the Registration
Rights Agreement, the Delayed Funding Implementation Agreement or any
Liquidity Facility.
o To give effect to or provide for a Replacement Facility, as provided
in the Intercreditor Agreement.
o To comply with any requirement of the Commission, any applicable law,
rules or regulations of any exchange or quotation system on which the
certificates are listed, any regulatory body or the Registration
Rights Agreement to effectuate the exchange offer contemplated by the
Registration Rights Agreement, or the "Exchange Offer."
o To modify, eliminate or add to the provisions of such Pass Through
Trust Agreement as may be necessary to qualify, or continue the
qualification of, such Pass Through Trust Agreement under the Trust
Indenture Act of 1939, as amended, or to add to such Pass Through
Trust Agreement such other provisions as may be expressly permitted by
the Trust Indenture Act of 1939, as amended.
o 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.
o 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 C certificates issued by ATA.
o To modify or eliminate provisions relating to the transfer or exchange
of the certificates upon consummation of the Exchange Offer or
effectiveness of the shelf registration statement or the Exchange
Offer registration statement contemplated by the Registration Rights
Agreement.
However, none of these amendments or supplements may be so adopted if they
would materially adversely affect the interests of the certificateholders under
that Pass Through Trust Agreement (Section 9.01).
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, the
Delayed Funding Implementation 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, the Registration Rights Agreement, the Delayed Funding
Implementation 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:
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o 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, 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.
o 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.
o Alter the priority of distributions specified in the Intercreditor
Agreement.
o 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.
o 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).
OBLIGATION TO PURCHASE SECURED PROMISSORY NOTES
Each pass through trustee is 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
has the option of entering into a leveraged lease financing or a secured debt
financing with respect to each aircraft.
o 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.
o 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 July 1, 2004, 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 enter into such a transaction, ATA must (a)
obtain written confirmation from Moody's that such transaction will not result
in a withdrawal, suspension or downgrading of the ratings of any class of
certificates, and (b) cause to be delivered to the Loan Trustee an opinion of
counsel that the pass
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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 the pass through trustees. See "U.S.
Federal Income Tax Consequences -- Taxation of Certificateholders Generally."
MANDATORY TERMS
The descriptions of the Participation Agreements, the lease, the leased
aircraft indentures and the owned aircraft indentures in this prospectus are
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, and we must obtain written confirmation
from Moody's 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,
require, among other things, that:
o 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."
o 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 51% in the case of Series A secured
promissory notes and 66% in the case of Series B secured promissory
notes.
o 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
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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) 51% in the
case of the Series A secured promissory notes and 66% in the case of
the Series B promissory notes.
o With respect to each aircraft, the initial average life of the Series
A secured promissory notes not extend beyond 8 years and of the Series
B secured promissory notes not extend beyond 5 years, in each case
from the Issuance Date.
o 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 A
certificates shall be not less than 7.14 years and not greater than
7.34 years, subject to final reoptimization, and the Class B
certificates shall not extend beyond 4.0 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).
o The final maturity date of each class of certificates is as set forth
in "Summary -- Summary of Terms of Certificates."
o 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.
o 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.
o The payment dates for the secured promissory notes and basic rent
under the leases must be February 20, May 20, August 20 and November
20. There may be additional lease payment dates (i) January 20, March
20, April 20 and June 20 of 2003 and (ii) the twentieth anniversary of
the delivery date under the applicable lease.
o 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.
o 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.
o 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.
o 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 pass through trustees
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and the Note Holders than as set forth in the forms of Aircraft
Operative Agreements attached as exhibits to the Note Purchase
Agreement.
o 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, to certain specified provisions
of the Aircraft Operative Agreements annexed to the Note Purchase Agreement, as
follows:
o 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; 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);
(2) modifications to certain provisions regarding Indenture Defaults,
remedies relating to Indenture Defaults and rights of the Owner
Trustee and Owner Participant in such circumstances;
(3) modifications to certain provisions relating to any replaced
airframe or engines with respect to an aircraft; and
(4) modifications to the provision that New York law will govern the
indentures.
o In the case of the leases, the following modifications are prohibited:
(5) modifications to certain provisions regarding ATA's unconditional
obligation to pay basic rent, stipulated loss value and
termination value to the Loan Trustee;
(6) 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;
(7) modification of ATA's obligations to furnish certain opinions
with respect to a replacement airframe; and
(8) 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.
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o In the case of the Participation Agreements, the following
modifications are prohibited:
(9) 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 ATA Holdings of a guarantee of ATA's obligations
under the Aircraft Operative Agreements and (e) filings of
certain documents with the FAA;
(10) to the provisions restricting the Note Holder's ability to
transfer such secured promissory notes;
(11) modifications to certain provisions requiring the delivery of
legal opinions; and
(12) modifications to the provision that New York law will govern the
Participation Agreement.
o 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, the Liquidity 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, Loan Trustees or the
certificateholders. In addition, ATA Holdings guarantees ATA's indemnification
obligation under the Note Purchase Agreement.
POSSIBLE ISSUANCE OF CLASS C CERTIFICATES
ATA may elect to issue Series C secured promissory notes in connection with
the financing of owned aircraft. ATA may elect to fund the sale of the Series C
secured promissory notes through the sale of Class C certificates. The Note
Purchase Agreement provides that ATA's ability to issue any Series C secured
promissory notes is contingent upon its obtaining written confirmation from
Moody's that the issuance of such Series C secured promissory note will not
result in a withdrawal or downgrading of the rating of any class of
certificates. If the Class C certificates are issued, the trustee with respect
to such certificates will become a party to the Intercreditor Agreement. See
"Description of the Intercreditor Agreement."
TERMINATION OF THE PASS THROUGH TRUSTS
ATA's and ATA Holdings'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
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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 is 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 (Section7.02(h)). 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, ATA Holdings, any Owner Trustee or any Loan Trustee with the same
rights it would have if it were not the trustee (Section 7.04).
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DESCRIPTION OF THE DELAYED FUNDING IMPLEMENTATION
The initial purchasers of the Class A and Class B Outstanding Certificates
or their Affiliates committed to purchase an additional $91,896,000 principal
amount of Class A certificates and an additional $26,904,000 principal amount of
Class B certificates, respectively, bringing the total aggregate face amount of
Class A Outstanding Certificates to $203,612,000 and the total of Class B
Outstanding Certificates to $58,035,000. The additional certificates were issued
and purchased on October 15, 2002. The proceeds of the purchase of the
additional Outstanding Certificates were used to finance the acquisition of four
Boeing 737-800 aircraft, bringing the total number of aircraft to be financed
with the issuance of the Outstanding Certificates to nine. The additional
Outstanding Certificates were of the same series and on the same terms, and
subject to the same restrictions, as those initially issued.
To effectuate the purchase and sale of the additional certificates, certain
terms of the operative documents described in this prospectus were amended
simultaneously with the issuance of such additional certificates. Such
amendments are set forth in detail in the Delayed Funding Implementation
Agreement, dated as of March 28, 2002 and attached as an exhibit to this
registration statement.
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 included as exhibits
to this registration statement and are available upon request to the pass
through trustee. The provisions of the Deposit Agreements are substantially
identical except as otherwise indicated.
GENERAL
Under the Escrow Agreements, the Escrow Agent with respect to each pass
through trust has entered into a separate Deposit Agreement with the applicable
Depositary. Under the Deposit Agreements, the Depositary has established
separate deposit accounts in the name of the Escrow Agent. On the Issuance Date,
the proceeds relating to the offering of each class of certificates (excluding
amounts used to purchase the secured promissory notes related to the aircraft
financed on the Issuance Date, if any) were deposited into the applicable
Deposit Account by the Purchaser of each class of certificates, 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
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Distribution Date. Any portion of any Deposit withdrawn which is not used to
purchase such secured promissory note will be re-deposited 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 are not subject to the subordination provisions of the Intercreditor
Agreement and are not 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." 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 manufacturer's right to postpone
deliveries under the purchase agreement with ATA or GE, the actual delivery date
of any 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 B 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 B
certificates as compared to the other certificates. In addition, notwithstanding
the Par 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.
In addition, if any aircraft expected to be delivered under an aircraft
purchase agreement between GECC and the manufacturer is not leased to or owned
by ATA and a substitute aircraft is not substituted therefor, the deposits
relating to such aircraft may be withdrawn and distributed. Such withdrawal may
occur on or before the date of withdrawal specified in the preceding paragraph.
Even if a withdrawal contemplated in this paragraph occurs on the same date as
the withdrawal
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specified in the preceding paragraph, the Deposit Make-Whole Premium for a
withdrawal contemplated in this paragraph shall be computed in accordance with
clause (ii) of the definition of 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
IntesaBci, acting through its New York branch, acts as Depositary.
IntesaBci, acting through its New York branch, has short-term unsecured
debt ratings of P-1 from Moody's and A-1 from Standard & Poor's.
This information concerning IntesaBci is publicly available. Neither ATA
Holdings nor ATA takes any responsibility for the accuracy of the IntesaBci
information. The Depositary has not been involved in the preparation of, and
does not accept responsibility for, this prospectus.
REPLACEMENT OF THE 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 15 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 or P-1
from Moody's, and we must obtain a written confirmation from Moody's that such
replacement will not result in a withdrawal or downgrading of Moody's rating of
any class of certificates.
DELAYED DEPOSIT AGREEMENTS
On the Issuance Date, in addition to the Deposit Agreements described
above, the Escrow Agent entered into a Delayed Deposit Agreement with the
Depositary for each class of certificates. The Delayed Deposit Agreements will
apply to the proceeds from the issuance of additional certificates as described
in "Description of the Delayed Funding Implementation," above, hereto and their
terms and conditions will be substantially the same as those of the Deposit
Agreements described above, except that deposits under the Delayed Deposit
Agreements will be made on the date of the issuance of additional certificates
as described in "Description of the Delayed Funding Implementation," above.
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
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in their entirety by reference to all of the provisions of the Escrow
Agreements, copies of which are included as exhibits to this registration
statement and are available upon request to the pass through trustee. The
provisions of the Escrow Agreements are substantially identical except as
otherwise indicated.
Wells Fargo Bank Northwest, 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 Class A certificates and the Class B certificates, respectively, entered
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 offering of certificates (excluding
amounts used to purchase the secured promissory notes related to the aircraft
financed on the Issuance Date, if any) were deposited by each respective
purchaser 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 are 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, ATA Holdings,
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 the cash proceeds from the offering of
certificates (excluding amounts used to purchase the secured promissory notes
related to the aircraft financed on the Issuance Date, if any), the Escrow Agent
issued Escrow Receipts. An Escrow Receipt was 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 was registered by the Escrow Agent in the same name and manner as the
certificate to which it is affixed.
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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
included as exhibits to this registration statement and are available upon
request to the pass through trustee. The provisions of the Liquidity Facilities
are substantially identical except as otherwise indicated.
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. Although AIG Matched Funding Corp. is
the initial Liquidity Provider for each pass through trust, AIG Matched Funding
Corp. 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 August 20, 2002 was as follows:
AVAILABLE
PASS THROUGH TRUST AMOUNT
------------------ ------
Class A $ 14,793,433
Class B $ 5,229,541
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 does not provide for
drawings:
o to pay for principal of or premium on the certificates of such class;
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o to pay for any interest on the certificates of such class in excess of
the Stated Interest Rate for such class;
o to pay for principal of or interest or premium on the certificates of
any other class; or
o 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 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 six
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 or a
Non-Extension 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(h)).
If at any time (i) the short-term unsecured debt rating of the Liquidity
Provider for any pass through trust or, if applicable, of any guarantor of the
obligations of a Liquidity Provider, then issued by the Rating Agency or
Standard & Poor's, as applicable, is lower than the Threshold Rating or (ii) any
guarantee of a Liquidity Provider's obligations under its Liquidity Facility
becomes invalid or unenforceable or (iii) the guarantor denies its liability
thereunder (any such occurrence referred to in clause (i) or (ii) above, a
"Guarantee Event"), then the Liquidity Provider for such pass through trust or
the Subordination Agent (in consultation with ATA) may arrange for a Replacement
Facility (Intercreditor Agreement, Section 3.6(c)). If such Liquidity Facility
is not replaced with a Replacement Facility within 10 days after such
downgrading or such Guarantee Event (but no later than the expiration date of
such Liquidity Facility) 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 the related 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)).
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The provider of any Replacement Facility has the same rights (including,
without limitation, priority distribution rights and rights as Controlling
Party) under the Intercreditor Agreement as the replaced Liquidity Provider
(Intercreditor Agreement, Section 3.6(c)).
The Liquidity Facility for each pass through trust provides that the
relevant Liquidity Provider's obligations under such Liquidity Facility will
expire on the earliest of:
o 15 days after the final legal distribution date for the certificates
issued by such pass through trust.
o 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.
o 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.
o The fifth Business Day following receipt by the Subordination Agent of
a termination notice from such Liquidity Provider (see " -- Liquidity
Events of Default").
o The date on which the Liquidity Provider honors a Final Drawing.
o 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), 2.4(b) and 6.1).
Each Liquidity Facility provides that at any time after the second
anniversary of the Issuance Date, such Liquidity Facility may be terminated upon
notice by the Liquidity Provider given not less than 40 days prior to the
proposed date of termination (Liquidity Facilities, Section 2.10).
The Intercreditor Agreement provides for the replacement of any Liquidity
Facility, if any, for any pass through trust if the Liquidity Provider has
notified its intention to terminate such Liquidity Facility. If such Liquidity
Facility is not so replaced by the 15th day prior to the proposed termination
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 of Interest Drawings under such Liquidity Facility would be
used (Intercreditor Agreement, Section 3.6(d)).
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)).
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In addition, the initial Liquidity Provider may, at its option, arrange for
a Replacement Facility to replace its Liquidity Facility provided that such
replacement will not result in any increased costs payable by the related
pass-through trust and as otherwise provided in the Intercreditor Agreement
(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. From the date of each such drawing to (but excluding) the third
business day thereafter, interest will accrue at the Base Rate plus 2.25% per
annum. Thereafter, interest will accrue at LIBOR for the applicable interest
period 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:
o Such amount will be released on any Distribution Date to the
applicable Liquidity Provider to the extent that such amount exceeds
the Required Amount.
o 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.
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o The balance of such amount will be invested in certain specified
eligible investments.
(Liquidity Facilities, Section 2.6)
The Downgrade Drawing or Non-Extension Drawing under any Liquidity Facility
will bear interest at Base Rate plus 2.25% per annum with respect to the period
from the date of such drawing to (but excluding) the third business day after
the applicable Liquidity Provider's receipt of the notice of such drawing and
thereafter, at a rate equal to LIBOR for the applicable interest period plus
0.65% per annum. (Liquidity Facilities, Sections 2.6 and 3.7)
LIQUIDITY EVENTS OF DEFAULT
Events of default under each Liquidity Facility (known as a Liquidity Event
of Default) consist of:
(i) the acceleration of all the secured promissory notes; or
(ii) certain bankruptcy or 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, deliver 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. (Liquidity Facilities, Section 6.1).
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 2.9).
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 initial Liquidity Provider is AIG Matched Funding Corp. ("AIG-MF"); a
corporation organized under the laws of Delaware.
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American International Group, Inc. ("AIG") is the guarantor of the payment
obligations of its subsidiary, AIG-MF, with respect to the Liquidity Facilities.
AIG, a Delaware corporation, is a holding company which through its subsidiaries
is primarily engaged in a broad range of insurance and insurance-related
activities and financial services in the United States and abroad. Reports,
proxy statements and other information filed by AIG with the Commission pursuant
to the informational requirements of the Exchange Act can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Pacific Regional Office, 5670 Wilshire Boulevard,
11th Floor, Los Angeles, California 90036-3648; and Midwest Regional Office,
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. The Commission also maintains a web site at http://www.sec.gov
which contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. AIG's common
stock is listed on the New York Stock Exchange and reports, proxy statements and
other information can be also inspected at the Information Center of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Except for the information contained in the preceding two paragraphs, AIG
and AIG-MF have not been involved in the preparation of, and do not accept
responsibility for, this prospectus as a whole.
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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 included as
an exhibit to this registration statement and is available upon request to the
pass through trustee.
INTERCREDITOR RIGHTS
General
The Intercreditor Agreement is among each pass through trustee, the
Liquidity Provider and the Subordination Agent. The secured promissory notes are
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.
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 action
thereunder or with respect to the secured promissory notes issued under such
indenture by the holders of at least a majority of the outstanding principal
amount of the secured promissory notes issued under such indenture, so long as
no Indenture Default shall have occurred and be continuing thereunder. For so
long as the Subordination Agent is the registered holder of the secured
promissory notes, the Subordination Agent will act with respect to the preceding
sentence in accordance with the directions of the trustees of the pass through
trusts in the trust property of which are secured promissory notes constituting,
in the aggregate, the required principal amount of secured promissory notes
(Intercreditor Agreement, Section 2.6).
At any time after an Indenture Default has occurred and is continuing under
an indenture, 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 is:
o the Class A pass through trustee, until final distributions on the
Class A certificates are made, and
o the Class B trustee, upon payment of final distributions of the
aggregate outstanding balance of the Class A certificates, together
with accrued interest to the holders of the Class A certificates.
(Intercreditor Agreement, Section 2.6(b)).
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
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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 under any Liquidity Facility 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 (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) irrevocably agree, and
the certificateholders (other than the certificateholders represented by the
Controlling Party) are 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 and any vote so exercised
will be binding upon the pass through trustees and all certificateholders
(Intercreditor Agreement, Section 2.6(b)). 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, 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) (Intercreditor Agreement, Section 4.1).
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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:
o to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
o to the Liquidity Provider to the extent required to pay interest
accrued on the Liquidity Obligations;
o 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;
o to the Class A pass through trustee to the extent required to pay
Expected Distributions on the Class A certificates;
o to the Class B pass through trustee to the extent required to pay
Expected Distributions on the Class B certificates;
o if Class C certificates or Series C secured promissory notes have been
issued, to the Class C pass through trustee or note holder, 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 C certificates or principal and
accrued interest on the Series C notes, as the case may be; and
o 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:
o to the Subordination Agent, each pass through trustee, any
certificateholder or the Liquidity Provider to the extent required to
pay certain out-of-pocket costs and expenses actually incurred by the
Subordination Agent, each pass through trustee or the Liquidity
Provider or to reimburse any certificateholder or the Liquidity
Provider in respect of payments made to the Subordination Agent or
each 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, pro
rata;
o to the Liquidity Provider to the extent required to pay the Liquidity
Expenses;
147
o to the Liquidity Provider to the extent required to pay interest
accrued on the Liquidity Obligations;
o to the Liquidity Provider to the extent required to pay the
outstanding amount of all Liquidity Obligations 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);
o to the Subordination Agent, each pass through trustee and each
certificateholder to the extent required to pay certain fees, taxes,
charges and other amounts payable;
o to the Class A pass through trustee to the extent required to pay in
full Adjusted Expected Distributions on the Class A certificates;
o to the Class B pass through trustee to the extent required to pay in
full Adjusted Expected Distributions on the Class B certificates;
o if Class C certificates have been issued, to the Class C pass through
trustee to the extent required to pay in full "Adjusted Expected
Distributions" (to be defined in a manner equivalent to the definition
for the other classes of certificates) on the Class C certificates;
o the balance shall be held in the Collection Account until the next
Distribution Date; and
o 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.
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, 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
will be paid to the Liquidity Provider to the extent of Liquidity Obligations
owed to the Liquidity Provider.
148
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, or the related lease, Participation Agreement or other related
document, if no Indenture Default with respect thereto shall have occurred and
be continuing, the Subordination Agent shall request directions from the trustee
of the pass through trust which holds each series of secured promissory notes
and shall vote or consent in accordance with the directions from such trustee.
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, provided
that, no such amendment, modification or waiver shall, without the consent of
the Liquidity 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(c)).
ADDITION OF PASS THROUGH TRUSTEE FOR CLASS C CERTIFICATES
If the Class C certificates are issued, the Class C pass through trustee
will become a party to the Intercreditor Agreement.
THE SUBORDINATION AGENT
Wilmington Trust Company is 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. The Controlling Party 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 the
appointment by the successor Subordination Agent. No appointment of a successor
Subordination Agent shall be effective unless the Rating Agency shall have
delivered a rating confirmation.
149
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
THE AIRCRAFT
The aircraft consist of nine Boeing 737-800 aircraft. 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 tables below sets forth certain additional information for the
aircraft.
AIRCRAFT EXPECTED APPRAISED BASE VALUE
REGISTRATION MANUFACTURER'S DELIVERY --------------------
AIRCRAFT TYPE NUMBER ENGINE TYPE SERIAL NO. MONTH AISI MBA SH&E
- -------------------------------------------------------------------------------------------------------------------------
Boeing 737-800 N316TZ CFM56-7B27 32609 Jan-02 $49,540,000 $44,370,000 $42,900,000
Boeing 737-800 N320TZ CFM56-7B27 32610 Apr-02 49,720,000 44,640,000 43,550,000
Boeing 737-800 N322TZ CFM56-7B27 32611 May-02 49,870,000 44,730,000 43,770,000
Boeing 737-800 N324TZ CFM56-7B27 32882 Jun-02 50,010,000 44,830,000 43,980,000
Boeing 737-800 N325TZ CFM56-7B27 32884 Jul-02 50,150,000 44,920,000 44,200,000
Boeing 737-800 N326TZ CFM56-7B27 32612 Oct-02 50,590,000 45,190,000 44,850,000
Boeing 737-800 N327TZ CFM56-7B27 32613 Nov-02 50,740,000 45,280,000 45,070,000
Boeing 737-800 N328TZ CFM56-7B27 32614 Nov-02 50,740,000 45,280,000 45,070,000
Boeing 737-800 N329TZ CFM56-7B27 32615 Dec-02 50,880,000 45,380,000 45,280,000
Total $452,240,000 $404,620,000 $398,670,000
===== ============ ============ ============
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 January 15, 2002, MBA as of January 15, 2002, and SH&E as
of February 12, 2002. 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.
150
DELIVERIES OF AIRCRAFT
Under the purchase agreements with Boeing, the aircraft are scheduled to be
delivered between January 2002 and December 2002. 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.
If delivery of any aircraft is delayed by more than 30 days after the month
scheduled for delivery or beyond September 29, 2002, 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." In addition, if any aircraft expected to be
delivered under an aircraft purchase agreement between GECC and the manufacturer
is not leased to or owned by ATA and a substitute aircraft is not substituted
therefor, the deposits relating to such aircraft may be withdrawn and
distributed, together with accrued and unpaid interest thereon and a deposit
make-whole premium payable by ATA. 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 September 29, 2002 or if
an aircraft expected to be delivered under GECC's purchase agreement is not
leased to or owned by ATA, ATA may identify for delivery a substitute aircraft
meeting the following conditions:
o a substitute aircraft must be an aircraft of the same model as the
delayed aircraft, which shall have the same specification and same or
higher appraised value as the delayed aircraft, and manufactured after
the Issuance Date, and
o ATA will be obligated to obtain written confirmation from Moody's 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.
151
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 has 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 GECC to act as the Owner Participant in
leveraged leases for all of the aircraft. The commitments are 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 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 were issued for each aircraft in two series:
the Series A secured promissory notes and the Series B 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. See "Description
of the Certificates -- Possible Issuance of Class C Certificates."
The secured promissory notes with respect to each leased aircraft were
issued under a separate leased aircraft indenture between Wells Fargo Bank
Northwest, 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 were
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 do not provide for defeasance or discharge upon deposit of
cash or certain obligations of the United States.
152
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 ATA Holdings's direct obligations, and neither ATA nor ATA Holdings
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 ATA Holdings.
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 B secured promissory notes issued in respect of an aircraft are
subordinated in right of payment to Series A secured promissory notes issued in
respect of such aircraft; and, if ATA elects to issue Series C secured
promissory notes with respect to an owned aircraft, such Series C secured
promissory notes will be subordinated in right of payment to the Series B
secured promissory notes. On each scheduled payment date, (a) payments of
interest and principal due on Series A secured promissory notes issued in
respect to an aircraft will be made prior to payments of interest and principal
due on Series B secured promissory notes issued in respect of such aircraft; and
(b) if ATA elects to issue Series C secured promissory notes with respect to an
owned aircraft, payments of interest and principal due on Series B secured
promissory notes will be made prior to payments of interest and principal due on
such Series C 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 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
February 20, May 20, August 20 and November 20 of each year, commencing on May
20, 2002. 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
153
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 February 20, May 20, August 20 and November 20 in certain
years, commencing on February 20, 2003. 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, ATA
Holdings 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 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
154
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
155
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 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 are
secured by:
o a mortgage to the Loan Trustee of such aircraft and
o 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,
are 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.
For owned aircraft, the applicable Participation Agreement provides that
ATA may convert such owned aircraft to leased aircraft at any time prior to July
1, 2004.
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, or 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.
156
PPM - p60
N316TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $28.32 $43.04 65.8%
20-Feb-04 26.15 41.71 62.7
20-Feb-05 23.95 40.38 59.3
20-Feb-06 21.50 39.05 55.1
20-Feb-07 18.80 37.71 49.9
20-Feb-08 15.85 36.38 43.6
20-Feb-09 12.63 35.05 36.0
20-Feb-10 9.19 33.72 27.2
20-Feb-11 5.61 32.39 17.3
20-Feb-12 1.73 31.06 5.6
20-Feb-13 0.00 0.00 NA
PPM - p60 (2)
N320TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $28.34 $44.64 63.5%
20-Feb-04 26.12 43.30 60.3
20-Feb-05 24.02 41.96 57.3
20-Feb-06 21.70 40.62 53.4
20-Feb-07 19.12 39.28 48.7
20-Feb-08 16.31 37.94 43.0
20-Feb-09 13.24 36.60 36.2
20-Feb-10 9.92 35.27 28.1
20-Feb-11 6.51 33.93 19.2
20-Feb-12 2.81 32.59 8.6
20-Feb-13 0.00 0.00 NA
PPM - p60 (3)
N322TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $28.37 $44.73 63.4%
20-Feb-04 26.06 43.39 60.1
20-Feb-05 23.95 42.05 57.0
20-Feb-06 21.62 40.70 53.1
20-Feb-07 19.04 39.36 48.4
20-Feb-08 16.21 38.02 42.6
20-Feb-09 13.14 36.68 35.8
20-Feb-10 9.82 35.34 27.8
20-Feb-11 6.40 33.99 18.8
20-Feb-12 2.69 32.65 8.2
20-Feb-13 0.00 0.00 NA
PPM - p60 (4)
N324TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $28.37 $44.83 63.3%
20-Feb-04 26.22 43.49 60.3
20-Feb-05 24.06 42.14 57.1
20-Feb-06 21.68 40.80 53.1
20-Feb-07 19.03 39.45 48.2
20-Feb-08 16.14 38.11 42.4
20-Feb-09 13.00 36.76 35.4
20-Feb-10 9.57 35.42 27.0
20-Feb-11 5.85 34.07 17.2
20-Feb-12 1.98 32.73 6.1
20-Feb-13 0.00 0.00 NA
PPM - p60 (5)
N325TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $27.67 $44.92 61.6%
20-Feb-04 25.61 43.57 58.8
20-Feb-05 23.59 42.22 55.9
20-Feb-06 21.37 40.88 52.3
20-Feb-07 18.93 39.53 47.9
20-Feb-08 16.25 38.18 42.6
20-Feb-09 13.32 36.83 36.2
20-Feb-10 10.13 35.49 28.5
20-Feb-11 6.85 34.14 20.1
20-Feb-12 3.31 32.79 10.1
20-Feb-13 0.00 0.00 NA
PPM - p60 (6)
N326TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $29.08 $45.19 64.4%
20-Feb-04 26.20 43.83 59.8
20-Feb-05 23.62 42.48 55.6
20-Feb-06 20.75 41.12 50.5
20-Feb-07 17.60 39.77 44.3
20-Feb-08 14.17 38.41 36.9
20-Feb-09 10.44 37.06 28.2
20-Feb-10 6.62 35.70 18.6
20-Feb-11 2.48 34.34 7.2
20-Feb-12 0.00 0.00 NA
20-Feb-13 0.00 0.00 NA
PPM - p60 (7)
N327TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $29.26 $45.28 64.6%
20-Feb-04 25.80 43.92 58.7
20-Feb-05 23.44 42.56 55.1
20-Feb-06 20.85 41.20 50.6
20-Feb-07 18.04 39.85 45.3
20-Feb-08 14.92 38.49 38.8
20-Feb-09 11.50 37.13 31.0
20-Feb-10 7.95 35.77 22.2
20-Feb-11 4.16 34.41 12.1
20-Feb-12 0.05 33.05 0.1
20-Feb-13 0.00 0.00 NA
PPM - p60 (8)
N328TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $29.26 $45.28 64.6%
20-Feb-04 25.79 43.92 58.7
20-Feb-05 23.42 42.56 55.0
20-Feb-06 20.83 41.20 50.6
20-Feb-07 18.01 39.85 45.2
20-Feb-08 14.89 38.49 38.7
20-Feb-09 11.47 37.13 30.9
20-Feb-10 7.92 35.77 22.1
20-Feb-11 4.13 34.41 12.0
20-Feb-12 0.01 33.05 0.0
20-Feb-13 0.00 0.00 NA
PPM - p60 (9)
N329TZ
-------------------------------------
NOTE ASSUMED LOAN
OUTSTANDING AIRCRAFT TO
BALANCE VALUE VALUE
DATE (MILLIONS) (MILLIONS) RATIO
- ----------------------- ----------- ---------- ---------
20-Feb-03 $29.26 $45.38 64.5%
20-Feb-04 25.71 44.02 58.4
20-Feb-05 23.44 42.66 55.0
20-Feb-06 20.97 41.30 50.8
20-Feb-07 18.27 39.93 45.8
20-Feb-08 15.29 38.57 39.6
20-Feb-09 12.02 37.21 32.3
20-Feb-10 8.59 35.85 24.0
20-Feb-11 4.96 34.49 14.4
20-Feb-12 1.03 33.13 3.1
20-Feb-13 0.00 0.00 NA
LIMITATION OF LIABILITY
The secured promissory notes with respect to the leased aircraft are not
obligations of, or guaranteed by, ATA, ATA Holdings, 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, is 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 are
direct obligations of ATA, and are fully and unconditionally guaranteed by ATA
Holdings.
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 has 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:
o 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
157
Trustee or Owner Participant gives notice that such failure will
constitute an Indenture Default);
o 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 ten business days after notice;
o 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;
o 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;
o 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;
o 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;
o with respect to the owned aircraft, the lapse or cancellation of
insurance required under the owned aircraft indenture; or
o 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.
158
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:
o 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
o 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 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 outstanding 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
159
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 the 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)(2) 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 to the exclusion of 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 are 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 or holder of a security interest with respect to "equipment"
(as defined in Section 1110 of the Bankruptcy Code) to take possession of such
equipment in compliance with the underlying lease or security agreement, and to
enforce its other rights and remedies thereunder, is not affected by any other
provision of the Bankruptcy Code, including:
o the automatic stay provision of the Bankruptcy Code, which provision
enjoins repossessions by creditors for the duration of the
reorganization period;
o the provision of the Bankruptcy Code allowing the "debtor in
possession" (such as a reorganizing airline) to use property of the
debtor during the reorganization period;
o Section 1129 of the Bankruptcy Code (which governs the confirmation of
plans of reorganization in Chapter 11 cases); and
160
o any power of the bankruptcy court to enjoin a repossession.
However, the lessor's or secured party's rights described in the previous
paragraph are limited as follows. Section 1110 of the Bankruptcy Code provides
that the right to take possession of an aircraft or other "equipment" may not be
exercised for 60 days following the date that the Chapter 11 reorganization
proceedings began, and may not be exercised at all after such 60-day period if,
within such 60-day period (or such longer period consented to by the lessor or
the secured party), the debtor in possession agrees to perform the debtor's
obligations under the lease or security agreement and 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 of the Bankruptcy Code, 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 issued pursuant to chapter 447
of title 49 for aircraft capable of carrying 10 or more individuals or 6,000
pounds or more of cargo."
It is a condition to the pass through trustee's 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 (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 of
the Bankruptcy Code with respect to the airframe and engines comprising the
related aircraft. This opinion is subject to certain qualifications and
assumptions including the assumptions that ATA holds (and will continue to hold)
an air carrier operating certificate issued 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 opinion will not address any possible change in law that results in
Section 1110 not being available. Such counsel's opinion also will 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 if 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."
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 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.
161
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 is 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 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 ATA HOLDINGS GUARANTEE
ATA Holdings 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
162
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, ATA Holdings 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 collectability, 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 leases 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
are 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 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,
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 the same standards of maintenance, service, repair or
163
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
164
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 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.
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.
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
subleases) 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
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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 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
injured 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 for 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).
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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).
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
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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:
o failure by ATA or ATA Holdings to pay any payment of Basic Rent or
Stipulated Loss Value under such lease within ten business days after
it becomes due;
o failure by ATA or ATA Holdings to pay Supplemental Rent (other than
Stipulated Loss Value) within ten business days after ATA's receipt of
written demand therefor,
o failure by ATA to perform any other covenant or agreement to be
performed by it under the leases for 30 days after ATA or ATA Holdings
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;
o any representation or warranty (other than tax representations and
warranties) made by ATA or ATA Holdings 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 ATA Holdings;
o the occurrence of certain events of bankruptcy, reorganization or
insolvency of ATA or ATA Holdings;
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o 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;
o the Guarantee shall cease to be in full force and effect; and
o the registration of the aircraft is cancelled for more than 30
consecutive days, subject to certain exceptions.
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 re-lease 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 Holdings, ATA and each pass through trustee agreed pursuant to a
registration rights agreement (the "Registration Rights Agreement"), with the
purchasers of the Outstanding Certificates, that ATA Holdings and ATA would, at
their cost, (a) not later than 240 days after the date of the original issuance
of the Outstanding Certificates, use their reasonable best efforts to file this
registration statement (the "Exchange Offer Registration Statement") with the
Commission 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 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) and (b) use their reasonable best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
not later than 300 days after the date of the original issuance of the
Outstanding Certificates. Upon the effectiveness of the Exchange Offer
Registration Statement, ATA Holdings and ATA will offer the Exchange
Certificates in exchange for surrender of the certificates (the "Registered
Exchange Offer").
ATA Holdings and 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 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 Commission interpretations, that the Exchange
Certificates would be freely transferable by holders of the certificates other
than affiliates of ATA Holdings or ATA after the Registered Exchange Offer
without further registration under the Securities Act if the holder of the
Exchange Certificates represents:
o that it is acquiring the Exchange Certificates in the ordinary course
of business,
o that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Certificates, and
o that it is not an affiliate of ATA Holdings or ATA, as such terms are
interpreted by the Commission,
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
Commission 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
Outstanding Certificates) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, ATA Holdings
and ATA are required to allow Participating Broker-Dealers and
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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 Outstanding 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:
o that any Exchange Certificates to be received by it will be acquired
in the ordinary course of its business;
o 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
o that it is not an "affiliate", as defined in Rule 405 of the
Securities Act, of ATA Holdings, ATA or the pass through trustee or a
broker-dealer tendering certificates acquired directly from ATA or ATA
Holdings 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
Commission do not permit ATA Holdings or ATA to effect such a Registered
Exchange Offer, (b) for any other reason the Exchange Offer Registration
Statement is not declared effective within 300 days after the date of the
original issuance of the Outstanding Certificates or the Registered Exchange
Offer is not consummated within 330 days after the original issuance of the
Outstanding Certificates or (c) any holder of Outstanding Certificates is not
eligible to participate in the Registered Exchange Offer, ATA Holdings and ATA
will, at their cost:
o use their reasonable best efforts to file, as promptly as practicable,
a shelf registration statement ("Shelf Registration Statement")
covering resales of the Outstanding Certificates or the Exchange
Certificates, as the case may be;
o use their reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act;
o use their reasonable best efforts to keep the Shelf Registration
Statement continuously effective until the expiration of the period
referred to in Rule 144(k) with respect to the certificates, such
period to commence on the date of issuance of the last Outstanding
Certificate to be issued or such shorter period ending when all of the
Outstanding Certificates have been sold or cease to be outstanding.
ATA Holdings and ATA will, in the event the 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
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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 Outstanding 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 Outstanding Certificates or
Exchange Certificates included in the Self Registration Statement.
In the event that neither a Registered Exchange Offer has been consummated
nor a Shelf Registration Statement has been declared effective by the Commission
(each, a "Registration Event") on or prior to the 330th day after the date of
the original issuance of the certificates, the interest rate per annum borne by
the secured Equipment Notes and the Deposits shall be increased by 0.50% from
and including such 330th 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 or the filing of an Exchange Offer Registration
Statement or Shelf Registration Statement is postponed or, at the request of ATA
Holdings or ATA, the effectiveness of a filed Exchange Offer Registration
Statement or Shelf Registration Statement is postponed for more than 60 days in
the aggregate, 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 filed as an exhibit to this registration statement
and is available upon request to the pass through trustee.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
Except as provided below, each class of certificates is represented by one
or more fully registered global certificates. This means that one or more
certificates representing all of the certificates is registered with the DTC.
Each global certificate is deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., or "Cede," the nominee of DTC. Unless and until
physical certificates in definitive, fully registered form, or the "Definitive
Certificates" are issued under the limited circumstances described below, all
references in this prospectus to actions by certificateholders will refer to
actions taken by DTC upon instructions from DTC participants, and all references
to distributions, notices, reports and statements to certificateholders will
refer, as the case may be, to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the certificates, or to DTC
participants for distribution to certificateholders in accordance with DTC
procedures.
The certificates of each pass through trust sold in offshore transactions
in reliance on Regulation S (if any) will be represented by a single, permanent
global certificate of such class, in definitive, fully registered form without
interest coupons, which we will refer to as the "Regulation S
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Global Certificate," and will be deposited with the trustee of such pass through
trust as custodian for DTC and registered in the name of a nominee of DTC for
the accounts of Euroclear and Cede.
The certificates of each pass through trust (other than the certificates
sold in reliance on Regulation S) will be represented by a single, permanent
global certificate in definitive, fully registered form without interest
coupons, which we will refer to as the "Global Certificate," and will be
deposited with the trustee as custodian for DTC and registered in the name of a
nominee of DTC.
Beneficial interests in the Global Certificate or in the Definitive
Certificates may be transferred to a person who takes delivery in the form of an
interest in the Regulation S Global Certificate only upon receipt by the trustee
of a written certification (in the form provided in the applicable Pass Through
Trust Agreement) to the effect that such transfer is being made in accordance
with Regulation S under the Securities Act. Any beneficial interest in one of
the global certificates that is transferred to a person who takes delivery in
the form of an interest in the other global certificate will, upon transfer,
cease to be an interest in such global certificate and become an interest in the
other global certificate and, accordingly, will from then on be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other global certificate for so long as it remains such an
interest. Except in the limited circumstances described below, owners of
beneficial interests in Global Certificates will not be entitled to receive
physical delivery of Definitive Certificates. The certificates will not be
issuable in bearer form.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code and "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
Under the New York Uniform Commercial Code, a "clearing corporation" is
defined as:
o a person that is registered as a "clearing agency" under the federal
securities laws;
o a federal reserve bank; or
o any other person that provides clearance or settlement services with
respect to financial assets that would require it to register as a
clearing agency under the federal securities laws but for an exclusion
or exemption from the registration requirement, if its activities as a
clearing corporation, including promulgation of rules, are subject to
regulation by a federal or state governmental authority.
A "clearing agency" is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in the accounts of DTC participants. The
ability to execute transactions through book-entry changes in accounts
eliminates the need for transfer of physical certificates. DTC participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of DTC
participants and by the New York Stock Exchange, the American Stock Exchange,
and the National Association of Securities Dealers. Banks, brokers, dealers,
trust companies and other entities that clear through or maintain a custodial
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relationship with a DTC participant either directly or indirectly have indirect
access to the DTC system.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the certificates
among DTC participants on whose behalf it acts with respect to the certificates
and to receive and transmit distributions of principal, premium, if any, and
interest with respect to the certificates. DTC participants and indirect DTC
participants with which certificateholders have accounts similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective customers. Certificateholders that are not DTC participants or
indirect DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the certificates may do so only through DTC
participants and indirect DTC participants. In addition, certificateholders will
receive all distributions of principal, premium, if any, and interest from the
pass through trustee through DTC participants or indirect DTC participants, as
the case may be. Under a book-entry format, certificateholders may experience
some delay in their receipt of payments because payments with respect to the
certificates will be forwarded by the pass through trustee to Cede, as nominee
for DTC. We expect DTC to forward payments in same-day funds to each DTC
participant who is credited with ownership of the certificates in an amount
proportionate to the principal amount of that DTC participant's holdings of
beneficial interests in the certificates, as shown on the records of DTC or its
nominee. We also expect that DTC participants will forward payments to indirect
DTC participants or certificateholders, as the case may be, in accordance with
standing instructions and customary industry practices. DTC participants will be
responsible for forwarding distributions to certificateholders. Accordingly,
although certificateholders will not possess physical certificates, DTC's rules
provide a mechanism by which certificateholders will receive payments on the
certificates and will be able to transfer their interests.
Unless and until Definitive Certificates are issued under the limited
circumstances described below, the only physical certificateholder will be Cede,
as nominee of DTC. Certificateholders will not be recognized by the pass through
trustee as registered owners of certificates under the pass through trust
agreement. Certificateholders will be permitted to exercise the rights under the
pass through trust agreement only indirectly through DTC and DTC participants.
DTC has advised us that it will take any action permitted to be taken by a
certificateholder under the pass through trust agreement only at the direction
of one or more DTC participants to whose accounts with DTC the certificates are
credited. Additionally, DTC has advised us that in the event any action requires
approval by certificateholders of a certain percentage of the beneficial
interests in a pass through trust, DTC will take such action only at the
direction of and on behalf of DTC participants whose holdings include undivided
interests that satisfy any such percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that such actions are
taken on behalf of DTC participants whose holdings include those undivided
interests. DTC will convey notices and other communications to DTC participants,
and DTC participants will convey notices and other communications to indirect
DTC participants and to certificateholders in accordance with arrangements among
them. Arrangements among DTC and its direct and indirect participants are
subject to any statutory or regulatory requirements as may be in effect from
time to time. DTC's rules applicable to itself and DTC participants are on file
with the Commission.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities. Such limits and such laws may limit the
market for beneficial interests in the Global Certificates. Qualified
institutional buyers may hold their interests in the Global Certificates
directly
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through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
A certificateholder's ability to pledge the certificates to persons or
entities that do not participate in the DTC system, or otherwise to act with
respect to such certificates may be limited due to the lack of a physical
certificate to evidence ownership of the certificates and because DTC can only
act on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants.
None of us, our parent or the pass through trustees will have any liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the certificates held by Cede, as nominee for
DTC, for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for the performance by DTC, any DTC
participant or any indirect DTC participant of their respective obligations
under the rules and procedures governing their obligations.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued in paper form to certificateholders
or their nominees, rather than to DTC or its nominee, only if:
o we advise a pass through trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to the certificates and we or the pass through
trustee is unable to locate a qualified successor within 90 days of
receipt of such notice; or
o after the occurrence of certain events of default or other events
specified in the Pass Through Trust Agreement, certificateholders
owning at least a majority in interest in a pass through trust advise
the applicable pass through trustee, us and DTC (or a successor to
DTC) through DTC (or a successor to DTC) participants that the
continuation of a book-entry system through DTC (or a successor to
DTC) participants is no longer in the certificateholders' best
interest.
If Definitive Certificates are to be issued by a pass through trust under
either of the two paragraphs immediately above, the applicable pass through
trustee will notify all certificateholders through DTC of the availability of
Definitive Certificates. Upon surrender by DTC of the Global Certificates and
receipt of instructions for re-registration, the pass through trustee will
reissue the certificates as Definitive Certificates to certificateholders.
After Definitive Certificates are issued, the pass through trustee or a
paying agent will make distributions of principal, premium, if any, and interest
with respect to certificates directly to holders in whose names the Definitive
Certificates were registered at the close of business on the applicable record
date. Except for the final payment to be made with respect to a certificate, the
pass through trustee or a paying agent will make distributions by check mailed
to the addresses of the registered holders as they appear on the register
maintained by the pass through trustee. The pass through trustee or a paying
agent will make the final payment with respect to any pass through certificate
only upon presentation and surrender of the applicable pass through certificate
at the office or agency specified in the notice of final distribution to
certificateholders.
Definitive Certificates issued in exchange will bear the legend referred to
under the heading "Transfer Restrictions" and will be transferable and
exchangeable at the office of the pass through
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trustee upon compliance with the requirements set forth in the Pass Through
Trust Agreement. No service charge will be imposed for any registration of
transfer or exchange, but payment of a sum sufficient to cover any tax or other
governmental charge will be required.
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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 offered hereby. Except as otherwise specified, the summary is
addressed to beneficial owners of certificates ("U.S. Certificateholders") that
are individual citizens or residents of the United States or political
subdivison thereof, corporations, or other entities taxable as corporations
created or organized in or under the laws of the United States or any State,
estates the income of which is subject to U.S. federal income taxation
regardless of its source or trusts if U.S. courts are able to exercise primary
supervision over the Administration of such trusts ("U.S. Persons") that will
hold the certificates as capital assets. If a partnership holds certificates,
the U.S. federal income tax treatment of a partner generally will depend upon
the status of the partner and upon the activities of the partnership. A partner
of a partnership holding certificates should consult its tax advisor.
This summary does not address the U.S. federal income tax treatment of U.S.
Certificateholders that may be subject to special U.S. federal income 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 do not acquire 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 a decision to purchase
certificates. 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 Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations, administrative rulings and practice of the
Internal Revenue Service (the "IRS") as in effect on the date of this
prospectus, as well as judicial decisions in effect as of the date of this
prospectus. 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 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 pass through trusts
will take the position for all tax purposes that the pass through trusts will be
classified as one or more grantor
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trusts and that the Deposits are not assets of the respective pass through
trusts. Except as expressly provided otherwise, the following discussion assumes
this position is correct.
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 pass through trust under a Liquidity Facility 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.
Any Deposit Make-Whole Premium should be ordinary income. The Deposits may
be subject to the original issue discount rules. As a result, a U.S.
Certificateholder may be required to include interest income from a Deposit
using the accrual method of accounting regardless of its normal method.
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 pass through
trust. A U.S. Certificateholder's adjusted tax basis will generally equal the
holder's cost for its certificate or 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.
Any Special Interest that becomes payable on the secured promissory notes
(as described above under "Exchange Offer; Registration Rights") should be
treated in the same manner as regular interest payments on the secured
promissory notes.
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 Trust's obligations under the related secured promissory
notes upon a purchase of a leased aircraft by ATA, such assumption may be
treated for U.S. 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,
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in a sale-leaseback transaction, an Owner Trust assumes ATA's obligations under
secured promissory notes issued for an owned aircraft, such assumption could
also be treated for U.S. 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 or a certificate and
Escrow Receipt, the purchase price 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 purchaser
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
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 an 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
is treated as purchasing 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 and the
Liquidity 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 certificateholder'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 certificateholder's adjusted gross income.
U.S. Certificateholders may recognize taxable gain or loss as a result of
the delayed funding arrangement (as described above in "Description of the
Delayed Funding Implementation". In
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particular, if at the time of the delayed funding, not all the certificates are
held by U.S. Certificateholders who purchased their certificates in the original
offering, then some or all of the U.S. Certificateholders may be deemed to have
sold a pro rata portion of the pass through trust's assets to the U.S.
Certificateholders buying their certificates pursuant to the delayed funding
arrangement.
If a 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 such U.S. Certificateholder's 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 pass
through trust, but would not be subject to the market discount rules or the bond
premium rules during the duration of the pass through trust.
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.
EFFECT OF SUBORDINATION OF CLASS B CERTIFICATEHOLDERS
If the Class B 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
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receipts of principal or interest paid with respect to the secured promissory
notes held by it (any shortfall in such receipts being the "Shortfall Amounts")
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 U.S. 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.
NON-U.S. CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest on the Deposits and secured promissory notes that are not
effectively connected to a U.S. trade or business made 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 ATA Holdings,
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 ATA Holdings, 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, (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") 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
or (C) the Non-U.S. Certificateholder holds its notes through a "qualified
intermediary", and the qualified intermediary has sufficient information in its
files indicating that such Non-U.S. Certificateholder is not a U.S. Person. A
qualified intermediary is a bank, broker or other intermediary that (1) is
either a U.S. or non-U.S. entity, (2) is acting out of a non-U.S. branch or
office and (3) has signed an agreement with the IRS providing that it will
administer all or part of the United Sates tax withholding rules under specified
procedures. 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.
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Except to the extent that an applicable treaty otherwise provides, a
Non-U.S. Certificateholder generally will be taxed with respect to interest in
the same manner as a U.S. Certificateholder that is a United States person if
the interest is effectively connected with a United States trade or business of
such Non-U.S. Certificateholder. Effectively connected interest income received
or accrued by a corporate Non-U.S. Certificateholder may also, under certain
circumstances, be subject to an additional "branch profits" tax at a 30% rate
(or, if applicable, at a lower tax rate specified by a treaty). Even though such
effectively connected income is subject to U.S. federal income tax, and may be
subject to the branch profits tax, it is not subject to withholding tax if the
Non-U.S. Certificateholder provides a properly executed IRS Form W-8ECI (or
successor form).
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a certificate or a certificate and an Escrow Receipt or upon
receipt of premium paid on an 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 income tax on a net
income basis, which would be collected through withholding.
BACKUP WITHHOLDING
Payments made on the certificates and proceeds from the sale of
certificates will not be subject to a backup withholding tax at a maximum rate
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.
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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. Neither the trusts nor the certificateholders will be indemnified
for any state or local taxes imposed on them. The imposition of any such taxes
on a trust could result in a reduction in the amounts available for distribution
to the certificateholders of such trust.
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ERISA CONSIDERATIONS
IN GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as amended,
which we will refer to as "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 and
other arrangements 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, the "Plans") and certain persons, referred to as "parties in
interest" or "disqualified persons", having certain relationships to such Plans,
unless a statutory, class or individual prohibited transaction exemption is
applicable to the transaction. A party in interest or disqualified person who
engages in a non-exempt 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, which we will refer to as 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 benefit plan investors (including
Plans, certain plans not subject to ERISA or the Code ("Non-ERISA Plans") 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 benefit
plan investors 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, class or
individual prohibited transaction 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 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
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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, class or
individual prohibited transaction 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, or the "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", or 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 asset manager, or 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.
Non-ERISA Plans, including governmental plans (as defined in section 3(32)
of ERISA), certain church plans (as defined in section 3(33) of ERISA), and
foreign plans, 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, federal, foreign or other laws, rules or regulations that contain
provisions which are substantially similar to the foregoing provisions of ERISA
and the Code ("Similar Laws"). 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 non-exempt prohibited transaction or any other violation of an
applicable requirement of ERISA.
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 and no Non-ERISA 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 (or directly or
indirectly on behalf of) the particular Plan or Non-ERISA Plan will not result
in a non-exempt prohibited transaction under ERISA or the Code and will be
permissible under all applicable Similar Laws. 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
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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 NON-ERISA PLAN SUBJECT TO SIMILAR
LAWS) SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY OF
THE CERTIFICATES.
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LEGAL MATTERS
The validity of the certificates offered hereby will be passed upon for ATA
and ATA Holdings by Troutman Sanders LLP, Atlanta, Georgia. Certain federal
income tax matters with respect to the pass through trusts and
certificateholders were passed upon by Cravath, Swaine & Moore, special tax
counsel to ATA and ATA Holdings. William P. Rogers, Jr., a partner at Cravath,
Swaine & Moore, beneficially owns 5,000 shares of common stock of ATA Holdings.
The respective counsel for ATA Holdings and the Purchasers may rely upon
Richards, Layton & Finger, counsel to Wilmington Trust Company, as to certain
matters relating to the authorization, execution and delivery of the Pass
Through Trust Agreements and the issuance of the certificates.
187
EXPERTS
The consolidated financial statements of Amtran, Inc. (now known as ATA
Holdings Corp.) at December 31, 2001 and 2000, and for each of the three years
in the period ended December 31, 2001, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The references to AISI, MBA and SH&E, and to their respective appraisal
reports, dated as of January 15, 2002 in the case of AISI, January 15, 2002 in
the case of MBA and February 12, 2002 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.
188
SUBSIDIARIES OF ATA HOLDINGS CORP.
ATA Holdings owns all of the outstanding stock of the following corporations:
American Trans Air, Inc.
Ambassadair Travel Club, Inc.
ATA Leisure Corp. (formerly ATA Vacations, Inc.;
formerly Amber Tours, Inc.)
Amber Travel, Inc.
American Trans Air Training Corporation
American Trans Air ExecuJet, Inc
ATA Cargo, Inc.
Amber Holdings, Inc.
Chicago Express Airlines, Inc.
Kodiak Call Centre, Ltd.
AATC Holding, Inc.
KeyTours, Inc.
Travel Charter International, LLC
Key Tours of Las Vegas, Inc.
Consultrav, Inc.
189
DIRECTORS AND EXECUTIVE OFFICERS
J. GEORGE MIKELSONS Director since 1993
J. George Mikelsons, age 65, is the founder, Chairman of the Board and Chief
Executive Officer and, prior to the Company's initial public offering in May
1993, was the sole shareholder of the Company. Mr. Mikelsons founded American
Trans Air, Inc. and Ambassadair Travel Club, Inc. in 1973. Mr. Mikelsons
currently serves on several boards of directors, including The Indianapolis Zoo;
the Indianapolis Convention and Visitors Association, where he is a member of
the Executive Committee; and the Indianapolis Symphony Orchestra. Mr. Mikelsons
has been an airline Captain since 1966 and remains current on several jet
aircraft. Mr. Mikelsons is a citizen of the United States.
JAMES W. HLAVACEK Director since 1993
James W. Hlavacek, age 66, was appointed Chief Operating Officer of the Company
in 1995. He continues to serve as Executive Vice President of the Company and
President of ATA Training Corporation. From 1986 to 1989, he was the Company's
Vice President of Operations. Mr. Hlavacek has been a commercial airline pilot
for 35 years and has held the rank of Captain for over 30 years. He was ATA's
Chief Pilot from 1985 to 1986. Mr. Hlavacek serves on the Board of Directors of
the National Air Carrier Association. Mr. Hlavacek is a graduate of the
University of Illinois. Mr. Hlavacek's principal business address is ATA
Holdings' executive offices. Mr. Hlavacek is a citizen of the United States of
America.
KENNETH K. WOLFF Director since 1993
Kenneth K. Wolff, age 56, was appointed Executive Vice President and Chief
Financial Officer of the Company in 1991. From 1990 to 1991, he was the
Company's Senior Vice President and Chief Financial Officer. From 1989 to 1990,
he was President and Chief Executive Officer of First of America Bank -
Indianapolis. From 1988 to 1989, he was President and Chief Operating Officer of
this bank. Prior to his appointment as President of that bank, he held various
positions at the bank since 1968. Mr. Wolff is a graduate of Purdue University
and also holds a Masters in Business Administration from Indiana University and
was a member of the faculty there for five years. Mr. Wolff's principal business
address is ATA Holdings' executive offices. Mr. Wolff is a citizen of the United
States of America.
ROBERT A. ABEL Director since 1993
Robert A. Abel, age 49, is a director in the public accounting firm of Blue &
Co., LLC. Mr. Abel is a magna cum laude graduate of Indiana State University
with a B.S. Degree in Accounting. He is a certified public accountant with over
20 years of public accounting experience in the areas of auditing and corporate
tax. He has been involved with aviation accounting and finance since 1976. Blue
& Co., LLC provides tax and accounting services to the Company in connection
with selected matters. Mr. Abel's principal business address is 11460 N.
Meridian Street, Carmel, Indiana 46032. Mr. Abel is a citizen of the United
States of America.
ANDREJS P. STIPNIEKS Director since 1993
Andrejs P. Stipnieks, age 60, is an international aviation consultant. He
graduated from the University of Adelaide, South Australia, and is a Barrister
and Solicitor of the Supreme Courts of South Australia, the Australian Capital
Territory and of the High Court of Australia. Until 1998, Mr. Stipnieks was a
Senior Government Solicitor in the Australian Attorney General's Department,
specializing in aviation and surface transport law and practice. He has
represented Australia on the Legal Committee of the International Civil Aviation
Organization at Montreal. Mr. Stipnieks' principal business address is 6933
Andre Drive, Indianapolis, Indiana 46278. Mr. Stipnieks is a citizen of
Australia.
190
CLAUDE E. WILLIS, D.D.S. Director since 2001
Claude E. Willis, age 56, has been in private dental practice in Indianapolis
for 29 years. He is a member of the American Dental Association, the
Indianapolis District Dental Society and was named on a list of "Top Dentists in
America" by the Consumers Research Council of America. A 1968 graduate of Purdue
University's School of Science, Dr. Willis completed his graduate studies
earning a Doctor of Dental Surgery Degree from Indiana University School of
Dentistry in 1972. Dr. Willis' principal business address is 5938 W. State Road
135, Trafalgar, Indiana 46181. Dr. Willis is a citizen of the United States of
America.
191
EXECUTIVE COMPENSATION
This table shows the compensation paid or accrued to the Chairman of the
Board, President and three executive officers for services rendered during the
last three fiscal years.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
SECURITIES
NAME AND YEAR UNDERLYING
PRINCIPAL POSITION COMPENSATION($) SALARY($) BONUS($) OPTIONS (#) ALL OTHER
------------------ --------------- --------- -------- ----------- ---------
J. George Mikelsons, 2001 680,403(i) None None 5,775(ii)
Chairman of the Board 2000 688,194 None None 3,5353(iii)
and Chief Executive Officer 1999 688,194 None None 4,320(iv)
James W. Hlavacek 2001 341,923(i) 16,000(v) None 5,775(ii)
Executive Vice President 2000 350,000 None 50,000 3,506(iii)
and Chief Operating Officer 1999 337,500 224,250 50,000 4,320(iv)
Kenneth K. Wolff 2001 341,923(i) 16,000(v) None 5,775ii
Executive Vice President and 2000 350,000 None 50,000 3,393(iii)
Chief Financial Officer 1999 337,500 224,250 50,000 4,320(iv)
Willie G. McKnight 2001 456,923(i) 8,000(v) None None
Executive Vice President, 2000 323,077 210,000 100,000 None
Marketing and Sales
- --------------------------------------------
(i) Reflects a salary reduction program due to September 11, 2001, terrorist
attacks. Mr. McKnight's 2001 salary includes debt forgiveness of $115,000.
(ii) Represents the amount of the Company's matching contribution to its 401(k)
Plan in 2001.
(iii)Represents the amount of the Company's matching contribution to its 401(k)
Plan in 2000.
(iv) Represents the amount of the Company's matching contribution to its 401(k)
Plan in 1999.
(v) Bonus amounts relate to a first quarter 2001 performance plan and were paid
in the first half of 2001. Such amounts do not relate to year-end 2001
performance.
192
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Mr. Mikelsons is the sole owner of Betaco, Inc., a Delaware corporation
("Betaco") and Betaco Ltd., a Grand Cayman exempted company ("Betaco Ltd.").
Betaco currently owns two airplanes (a Cessna Citation II and a Lear Jet) and
three helicopters (a Bell 206B Jet Ranger III, an Aerospatiale 355F2 Twin Star
and a Bell 206L-3 LongRanger). The two airplanes and the Twin Star helicopter
are leased or subleased to ATA. The Jet Ranger III and LongRanger helicopters
are leased to American Trans Air ExecuJet, Inc. ("ExecuJet"). The Company
believes that the current terms of the leases and subleases with Betaco for this
equipment are no less favorable to the Company than those that could be obtained
from third parties.
The lease for the Cessna Citation currently requires a monthly payment of
$37,500 for a term beginning July 25, 1999, and ending on July 24, 2004. The
lease for the Lear Jet requires a monthly payment of $33,600 for a term
beginning December 24, 2001, and ending December 23, 2003. The lease for the
JetRanger III currently requires a monthly payment of $7,000 for a term
beginning June 15, 1993, and ending June 14, 2004. The lease for the
Aerospatiale 355F2 Twin Star requires a monthly payment of $13,500 for a term
beginning January 1, 2002, and ending December 31, 2003, and the lease for the
LongRanger requires a monthly payment of $10,875 for a term beginning December
11, 2001, and ending December 10, 2003. The recent lease renewals lowered the
payments to Betaco for the Lear Jet, Aerospatiale 355F2 Twin Star and LongRanger
an aggregate of $7,225 per month because of the decline in values for these
aircraft.
Betaco is the owner of a 52 foot Express Buddy Davis boat, and Betaco Ltd.
is the owner of a 125 foot Feadship motor yacht. The Company has used the
vessels for business purposes in the past, but has not compensated Mr. Mikelsons
for that usage. On July 1, 2002, the Company entered into an agreement with Mr.
Mikelsons to compensate the crew necessary to maintain and operate the vessels
in exchange for the Company's future business use of the vessels. If the fair
market value of the Company's business use is less than the cost of the crew
compensation, Mr. Mikelsons will reimburse the Company for the shortfall.
Mr. Abel, Chairman of the Audit Committee, is a partner in the accounting
firm of Blue & Co., LLC, which provided tax and accounting services to the
Company in 2001.
As part of the Company's compensation package to Willie McKnight, the
Company's Executive Vice President, Marketing and Sales, on January 24, 2000,
the Company provided Mr. McKnight with an interest-free loan of $230,000. The
loan was evidenced by a Demand Promissory Note signed by Mr. McKnight. However,
50% of the loan was forgiven on January 24, 2001, and the remainder of the
principal balance was forgiven on January 24, 2002. As of September 30, 2002,
Mr. Mikelsons had outstanding indebtedness to ATA Holdings with an aggregate
principal balance of $693,580. ATA Holdings does not charge Mr. Mikelsons
interest on this indebtedness.
193
ATA HOLDINGS CORP. (FORMERLY AMTRAN, INC.) AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Annual Consolidated Financial Statements:
Report of Independent Auditors.............................................................. F-2
Consolidated Balance Sheets at December 31, 2001 and 2000................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.......................................................... F-4
Consolidated Statements of Changes in Redeemable Preferred Stock, Common
Stock and Other Shareholders' Equity for the Years Ended December 31, 2001,
2000 and 1999............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001,
2000 and 1999............................................................................. F-6
Notes to Consolidated Financial Statements.................................................. F-7
Financial Statements and Supplemental Data - Quarterly Financial Summary -
Unaudited................................................................................ F-29
Interim Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2002 and December 31, 2001.......................... F-30
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2002 and 2001.............................................................. F-31
Consolidated Statements of Changes in Redeemable Preferred Stock, Common Stock
and Other Shareholders' Equity for the Quarters Ended March 31, June 30 and
September 30, 2002............................................................................. F-32
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001.................................................................... F-33
Notes to Consolidated Financial Statements....................................................... F-34
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, 2001 and 2000, and the related consolidated
statements of operations, changes in redeemable preferred stock, common stock
and other shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amtran, Inc. and
subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth herein.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Indianapolis, Indiana
January 22, 2002
F-2
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, DECEMBER 31,
ASSETS 2001 2000
Current assets:
Cash and cash equivalents .................................. $ 184,439 $ 129,137
Aircraft pre-delivery deposits ............................. 166,574 126,307
Receivables, net of allowance for doubtful accounts
(2001 - $1,526; 2000 - $1,191) ........................... 75,046 56,605
Inventories, net ........................................... 47,648 49,055
Assets held for sale ....................................... 18,600 -
Prepaid expenses and other current assets .................. 19,471 25,411
--------------- -----------------
Total current assets ............................................ 511,778 386,515
Property and equipment:
Flight equipment ........................................... 327,541 822,979
Facilities and ground equipment ............................ 119,975 111,825
--------------- -----------------
447,516 934,804
Accumulated depreciation ................................... (132,573) (412,685)
--------------- ------------------
314,943 522,119
Goodwill ........................................................ 21,780 22,858
Assets held for sale ............................................ 33,159 -
Prepaid aircraft rent ........................................... 49,159 31,979
Investment in BATA .............................................. 30,284 -
Deposits and other assets ....................................... 41,859 68,959
--------------- -----------------
Total assets .................................................... $ 1,002,962 $ 1,032,430
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....................... $ 5,820 $ 6,865
Short-term debt ............................................ 118,239 89,875
Accounts payable ........................................... 26,948 10,066
Air traffic liabilities .................................... 100,958 107,050
Accrued expenses ........................................... 177,102 147,095
------------- ----------------
Total current liabilities ....................................... 429,067 360,951
Long-term debt, less current maturities ......................... 373,533 361,209
Deferred income taxes ........................................... 13,655 54,503
Other deferred items ............................................ 62,575 51,113
--------------- -----------------
Total liabilities ................................................ 878,830 827,776
Redeemable preferred stock; authorized and issued 800 shares...... 80,000 80,000
Shareholders' equity.............................................:
Preferred stock; authorized 9,999,200 shares; none issued.... - -
Common stock, without par value; authorized 30,000,000 shares,
issued 13,266,642 -2001; 13,082,118 - 2000................... 61,964 59,012
Treasury stock; 1,710,658 shares - 2001; 1,696,355
shares - 2000 ............................................. (24,768) (24,564)
Additional paid-in-capital .................................. 11,534 12,232
Other comprehensive loss .................................... (687) -
Retained earnings (deficit) ................................. (3,911) 77,974
-----------------------------------
Total shareholders' equity ....................................... 44,132 124,654
-----------------------------------
Total liabilities and shareholders' equity........................ $ 1,002,962 $ 1,032,430
================ =================
See accompanying notes
F-3
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
2001 2000 1999
---------------- --------------- ---------------
Operating revenues:
Scheduled service ......................................... $ 820,666 $ 753,301 $ 624,647
Charter .................................................... 359,770 435,262 389,979
Ground package ............................................. 52,182 59,848 58,173
Other ...................................................... 42,866 43,142 49,567
---------------- --------------- ---------------
Total operating revenues ...................................... 1,275,484 1,291,553 1,122,366
---------------- --------------- ---------------
Operating expenses:
Salaries, wages and benefits ............................... 325,153 297,012 252,595
Fuel and oil ............................................... 251,333 274,820 170,916
Depreciation and amortization .............................. 121,327 125,041 96,038
Aircraft rentals ........................................... 98,988 72,145 58,653
Handling, landing and navigation fees ...................... 88,653 97,414 89,302
Aircraft maintenance, materials and repairs ................ 61,394 70,432 55,645
Crew and other employee travel ............................. 59,278 65,758 49,707
Passenger service .......................................... 43,856 45,571 39,231
Ground package cost ........................................ 42,160 50,903 49,032
Other selling expenses ..................................... 41,601 36,650 28,099
Commissions ................................................ 34,789 39,065 39,050
Advertising ................................................ 26,421 22,016 18,597
Facilities and other rentals ............................... 20,241 15,817 13,318
Special charges ............................................ 21,525 - -
Impairment loss ............................................ 112,304 - -
US Government grant ........................................ (66,318) - -
Other ...................................................... 84,649 76,339 72,156
---------------- --------------- ---------------
Total operating expenses ...................................... 1,367,354 1,288,983 1,032,339
---------------- --------------- ---------------
Operating income (loss) ....................................... (91,870) 2,570 90,027
Other income (expense):
Interest income ............................................ 5,331 8,389 5,375
Interest expense ........................................... (30,082) (31,452) (20,966)
Other ...................................................... 554 562 3,361
---------------- --------------- ---------------
Other expenses ................................................ (24,197) (22,501) (12,230)
---------------- --------------- ---------------
Income (loss) before income taxes (116,067) (19,931) 77,797
Income taxes (credit) ......................................... (39,750) (4,607) 30,455
---------------- --------------- ---------------
Net income (loss) ............................................. (76,317) (15,324) 47,342
Preferred stock dividends ..................................... (5,568) (375) -
---------------- --------------- ---------------
Income (loss) available to common shareholders ................ $ (81,885) $ (15,699) $ 47,342
================ =============== ===============
Basic earnings per common share:
Average shares outstanding .................................... 11,464,125 11,956,532 12,269,474
Net income (loss) per common share ............................ $ (7.14) $ (1.31) $ 3.86
================ =============== ===============
Diluted earnings per common share:
Average shares outstanding .................................... 11,464,125 11,956,532 13,469,537
Net income (loss) per common share ............................ $ (7.14) $ (1.31) $ 3.51
================ =============== ===============
See accompanying notes.
F-4
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(Dollars in thousands)
REDEEM-
ABLE ADDITIONAL DEFERRED OTHER RETAINED
PREFERRED COMMON TREASURY PAID-IN COMP COMPR EARNINGS
STOCK STOCK STOCK CAPITAL ESOP LOSS (DEFICIT) TOTAL
----- ----- ----- ------- ---- ---- --------- -----
Balance, December 31, 1998....... $ - $47,632 $(1,881) $11,735 $(1,066) $ - $46,331 $ 102,751
------- ------- ------- ------- ------- ------- ------- ---------
Net income.................... - - - - - - 47,342 47,342
Issuance of common stock for
ESOP........................ - - - 37 533 - - 570
Restricted stock grants....... - 32 - (10) - - - 22
Stock options exercised....... - 6,897 - (3,207) - - - 3,690
Purchase of treasury stock.... - - (8,619) - - - - (8,619)
Disqualifying disposition of
stock....................... - - - 3,887 - - - 3,887
Acquisition of businesses..... - 1,265 - 468 - - - 1,733
------- ------- ------- ------- ------- ------- ------- ---------
Balance, December 31, 1999....... - 55,826 (10,500) 12,910 (533) - 93,673 151,376
------- ------- ------- ------- ------- ------- ------- ---------
Net loss...................... - - - - - - (15,324) (15,324)
Issuance of redeemable
preferred stock............. 80,000 - - - - - - 80,000
Issuance of common stock for
ESOP........................ - - - 276 533 - - 809
Preferred dividends........... - - - - - - (375) (375)
Restricted stock grants....... - 67 (14) 17 - - - 70
Stock options exercised....... - 2,937 - (1,356) - - - 1,581
Purchase of treasury stock.... - - (14,050) - - - - (14,050)
Disqualifying disposition of
stock....................... - - - 411 - - - 411
Acquisition of businesses..... - 182 - (26) - - - 156
------- ------- ------- ------- ------- ------- ------- ---------
Balance, December 31, 2000....... 80,000 59,012 (24,564) 12,232 - - 77,974 204,654
======= ======= ======== ======= ======= ======= ======= =========
Net loss...................... - - - - - - (76,317) (76,317)
Net loss on derivative
instruments................. - - - - - (687) - (687)
----- ------ -----
Total comprehensive loss... (687) (76,317) (77,004)
Preferred dividends........... - - - - - - (5,568) (5,568)
Restricted stock grants....... - 40 (8) 10 - - - 42
Stock options exercised....... - 2,912 - (1,242) - - - 1,670
Purchase of treasury stock.... - - (196) - - - - (196)
Disqualifying disposition of
stock....................... - - - 534 - - - 534
------- ------- ------- ------- ------- ------- ------- ---------
Balance, December 31, 2001....... $80,000 $61,964 $(24,768) $11,534 $ - $ (687) $(3,911) $ 124,132
======= ======= ======== ======= ======= ======= ======= =========
See accompanying notes.
F-5
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
2001 2000 1999
---------------------------------------------------
Operating activities:
Net income (loss).............................................. $ (76,317) $ (15,324) $ 47,342
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization............................... 121,327 125,041 96,038
Impairment loss............................................. 112,304 - -
Deferred income taxes (credit).............................. (40,848) (3,990) 5,873
Other non-cash items........................................ 8,407 4,324 7,573
Changes in operating assets and liabilities:
Receivables................................................. (18,441) (4,506) (21,197)
Inventories................................................. (11,586) (15,191) (18,746)
Prepaid expenses............................................ 5,940 (2,466) 7,484
Accounts payable............................................ 16,882 (10,168) 10,684
Air traffic liabilities..................................... (6,092) 13,543 (2,465)
Accrued expenses............................................ 32,848 20,429 20,087
---------------- ----------------- ----------------
Net cash provided by operating activities 144,424 111,692 152,673
---------------- ----------------- ----------------
Investing activities:
Aircraft pre-delivery deposits................................. (30,781) (116,978) (7,363)
Capital expenditures........................................... (119,798) (146,523) (266,937)
Acquisition of businesses, net of cash acquired................ - - 16,673
Investment in BATA............................................. 27,343 - -
Noncurrent prepaid aircraft rent............................... (17,180) (16,811) (15,212)
Additions to other assets...................................... 10,474 (10,593) (33,143)
Proceeds from sales of property and equipment.................. 151 68 264
---------------- ----------------- ----------------
Net cash used in investing activities (129,791) (290,837) (305,718)
---------------- ----------------- ----------------
Financing activities:
Preferred stock dividends...................................... (5,568) (375) -
Proceeds from sale/leaseback transactions...................... 5,229 10,791 6,890
Proceeds from short-term debt.................................. 71,537 90,825 -
Payments on short-term debt.................................... (44,123) - -
Proceeds from long-term debt................................... 219,422 33,117 99,902
Payments on long-term debt..................................... (207,294) (13,998) (1,590)
Proceeds from stock option exercises........................... 1,670 1,822 3,690
Proceeds from redeemable preferred stock....................... - 80,000 -
Purchase of treasury stock..................................... (204) (14,064) (8,619)
---------------- ----------------- ----------------
Net cash provided by financing activities................... 40,669 188,118 100,273
---------------- ----------------- ----------------
Increase (decrease) in cash and cash equivalents............... 55,302 8,973 (52,772)
Cash and cash equivalents, beginning of period................. 129,137 120,164 172,936
---------------- ----------------- ----------------
Cash and cash equivalents, end of period....................... $ 184,439 $ 129,137 $ 120,164
================ ================= ==============
Supplemental disclosures:
Cash payments for:
Interest.................................................... $ 44,839 $ 31,628 $ 24,411
Income taxes (refunds)...................................... $ (9,721) $ 579 $ 11,910
Financing and investing activities not affecting cash:
Capital lease............................................... $ - $ 117 $ 2,729
Accrued capital interest.................................... $ 7,465 $ 7,890 $ -
See accompanying notes.
F-6
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 accounting
principles generally accepted in the United States 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, which approximates market, and are
primarily comprised of money market funds, commercial paper and investments
in U.S. Treasury bills, which are purchased with original maturities of
three months or less (See "Note 3 - Cash and Cash Equivalents.")
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 the related fleet's estimated useful service
life. The obsolescence allowance at December 31, 2001 and 2000 was $10.9
million and $13.1 million, respectively. Inventories are charged to expense
when consumed.
REVENUE RECOGNITION
Revenues are recognized when air transportation or other services are
provided. Customer flight deposits and unused passenger tickets sold are
included in air traffic liability. As is customary within the industry, the
Company performs periodic evaluations of this estimated liability, and any
resulting adjustments, which can be significant, are included in the
results of operations for the periods in which the evaluations are
completed.
In 2001, the Company recognized reimbursement for estimated direct and
incremental losses incurred as a result of the September 11 terrorist
attacks according to guidelines established
F-7
in the Air Transportation Safety and System Stabilization Act. The Company
used accounting principles generally accepted in the United States to
identify and measure such direct and incremental losses. Certain of those
direct and incremental losses identified by the Company have been
disallowed by the DOT, and are therefore excluded from the reimbursement
recognized by the Company.
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.
RECLASSIFICATIONS
Certain 2000 balance sheet amounts have been reclassified to conform to the
2001 presentation.
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. 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 individual aircraft retirement date
(2002-2004) (See "Note 16 - Asset Impairment.")
Lockheed L-1011 (Series 500) Depreciating to common retirement date of December 2010
Boeing 737-800 All aircraft are subject to operating leases
Boeing 757-200 All aircraft are subject to operating leases
Boeing 757-300 All aircraft are subject to operating leases
Saab 340B 15 years
Major rotable parts, avionics and assemblies Life of equipment to which applicable (generally ranging from
5-18 years)
Improvements to leased flight equipment Period of benefit or term of lease
Other property and equipment 3-7 years
AIRCRAFT LEASE RETURN CONDITIONS
The Company finances a significant number of aircraft through operating
leases. Many of these leases require that the airframes and engines be in a
specified maintenance condition upon their return to the lessor at the end
of the lease. If these return conditions are not met by the Company, the
leases generally require financial compensation to the lessor. When an
F-8
operating lease is within five years of its initial termination date, the
Company accrues ratably over that five years the estimated return condition
obligations at the end of the leases.
AIRFRAME AND ENGINE OVERHAULS
The Company has entered into engine manufacturers' agreements for engines
which power the Boeing 737-800 and Saab 340B fleets, which provide for the
Company to pay a monthly fee per engine flight hour in exchange for major
overhaul and maintenance of those engines. The Company expenses the cost
per flight hour under these agreements as incurred. The cost of engine
overhauls for remaining fleets types, and the cost of airframe overhauls
for all fleet types other than the Saab 340B, are capitalized when
performed and amortized over estimated useful lives based upon usage, or to
earlier fleet or aircraft retirement dates, for both owned and leased
aircraft. Airframe overhauls for Saab 340B aircraft are expensed as
incurred.
AIRCRAFT PRE-DELIVERY DEPOSITS
Advanced payments for future aircraft deliveries scheduled within the next
12 months are classified as current aircraft pre-delivery deposits in the
accompanying consolidated balance sheets, as the aircraft will be acquired
and paid for by third parties who will lease them to the Company. Advanced
payments for future aircraft deliveries not scheduled within the next 12
months are classified as deposits and other assets. As of December 31, 2001
and 2000, deposits and other assets included advanced payments for future
aircraft and engine deliveries totaling $4.1 million and $13.6 million,
respectively.
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 amortization periods and the carrying amounts of
goodwill to assess its continued recoverability in accordance with
Accounting Principles Board Opinion No. 17, Intangible Assets ("APB 17").
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 debt approximate
fair value. (See "Note 5 - Long-Term Debt.") The fair value of fixed-rate
debt, including current maturities, is estimated using discounted cash flow
analysis based on the Company's current incremental rates for similar types
of borrowing arrangements.
2. IMPACT OF TERRORIST ATTACKS ON SEPTEMBER 11, 2001
On September 11, 2001, four commercial aircraft operated by two other U.S.
airlines were hijacked and destroyed in terrorist attacks on the United
States. These attacks resulted in significant loss of life and property
damage in New York City, Washington, D.C. and western Pennsylvania. In
response to these attacks, on September 11 the FAA temporarily suspended
all commercial flights to, from and within the United States until
September 13. The Company resumed limited flight operations on September
13, with the exception of flights to and from Chicago-Midway Airport, which
commenced partial operations on
F-9
September 14. From September 11 to September 14, the Company canceled over
800 scheduled flights. Upon resuming its pre-attack flight schedule the
week of September 17, the Company experienced significantly lower passenger
traffic and unit revenues than prior to the attacks. In response to this,
the Company reduced its flight schedule by approximately 20%, as compared
to the schedule operated immediately prior to September 11, and furloughed
approximately 1,100 employees by the middle of October. By December 31,
2001, the Company had recalled approximately half of the furloughed
employees and had added some capacity back to its flight schedule.
In order to adjust its fleet to its reduced flight schedule, the Company
accelerated the planned retirement of its fleet of 24 Boeing 727-200
aircraft. Most of these aircraft were retired from revenue service in the
fourth quarter of 2001, although the Company will continue to use as many
as five to ten aircraft in charter service through the middle of 2002. (See
"Note 16 - Asset Impairment.") The Company also negotiated delayed delivery
dates for certain Boeing 737-800 and Boeing 757-300 aircraft under its new
aircraft order from Boeing. Delivery dates of seven Boeing 737-800 aircraft
were delayed more than 12 months. The final Boeing 737-800 delivery is now
planned for August 2004 rather than May 2004, and the final 757-300
delivery is planned for August 2002 rather than June 2002. (See "Note 12 -
Commitments and Contingencies.")
On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act ("Act"). The Act
provides for, among other things: (1) $5.0 billion in compensation for
direct losses incurred by all U.S. airlines and air cargo carriers
(collectively, "air carriers") as a result of the closure by the FAA of
U.S. airspace following the September 11, 2001 terrorist attacks and for
incremental losses incurred by air carriers through December 31, 2001 as a
direct result of such attacks; (2) subject to certain conditions, the
availability of up to $10.0 billion in U.S. Government guarantees of
certain loans made to air carriers for which credit is not reasonably
available as determined by a newly established Air Transportation
Stabilization Board; (3) the authority of the Secretary of Transportation
to reimburse air carriers (which authority expires 180 days after the
enactment of the Act) for the increase in the cost of insurance, with
respect to a premium for coverage ending before October 1, 2002, against
loss or damage arising out of any risk from the operation of an aircraft
over the premium in effect for a comparable operation during the period
September 4, 2001 to September 10, 2001; (4) at the discretion of the
Secretary of Transportation, a $100 million limit on the liability of any
air carrier to third parties with respect to acts of terrorism committed on
or to such air carrier during the 180-day period following the enactment of
the Act; (5) the extension of the due date for the payment by eligible air
carriers of certain excise taxes; (6) compensation to individual claimants
who were physically injured or killed as a result of the terrorist attacks
of September 11, 2001; and (7) the Secretary of Transportation to ensure
that all communities that had scheduled air service before September 11,
2001 continue to receive adequate air service. In addition, the Act
provides that, notwithstanding any other provision of law, liability for
all claims, whether for compensatory or punitive damages, arising from the
terrorist-related events of September 11, 2001 against any air carrier
shall not be in an amount greater than the limits of the liability coverage
maintained by the air carrier. With respect to the cash grants of up to
$5.0 billion, each qualified air carrier is entitled to receive the lesser
of: (1) its actual direct and incremental losses incurred between September
11, 2001 and December 31, 2001; or (2) its proportion of the $5.0 billion
of total compensation available to all qualified air carriers under the Act
allocated by August 2001 available seat miles or ton miles.
F-10
The Company believes it is eligible to receive up to $74.0 million in
connection with the Act in compensation for direct and incremental losses
arising from the terrorist attacks of September 11 and the subsequent
decline in demand for air travel. However, the Company has recorded $66.3
million in 2001 in U.S. Government grant compensation, as the DOT has
disallowed certain losses recorded under generally accepted accounting
principles ("GAAP"). Included in these potentially nonreimbursable losses
are the Company's non-cash write-down of the Boeing 727-200 aircraft fleet
($35.2 million) and exit costs related to rent payments scheduled to
continue on certain Boeing 727-200 aircraft after they are removed from
service ($3.8 million.) The Company, along with the Air Transport
Association, has requested that the DOT use GAAP as the standard for
determining reimbursable losses under the Act. If the DOT reverses their
position to disallow these losses, the Company may record additional U.S.
Government grant revenue of up to $7.7 million in 2002, based upon the
Company's estimated maximum allocation calculated from August 2001
available seat miles. As of December 31, 2001, the Company had received
$44.5 million in cash compensation under the Act and expects to receive
$21.8 million in additional cash in the second quarter of 2002. The
Company's calculation of direct and incremental losses is subject to audit
by the United States Government at a future date, yet to be determined.
Components of direct and incremental losses incurred by the Company, for
which U.S. Government compensation of $66.3 million was recorded, include:
(1) $57.1 million in lost profit contribution (direct revenues lost, less
variable operating expenses avoided) from planned flights not operated
between September 11 and December 31, and from flights operated during this
time period with lower load factors and unit revenues; (2) certain special
charges of $17.8 million, that were deemed directly attributable to the
attacks, as described in the following paragraphs; less (3) $8.6 million in
expense reductions realized as a direct result of lower costs incurred by
the Company after the September 11 attacks.
Special charges are those direct expenses which, due to the events of
September 11, are unusual under the provisions of APB Opinion 30, Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions ("APB 30"). These costs include travel expenses to
reposition crew members and aircraft once flights resumed; expenses paid
for passengers whose travel was interrupted by flight diversions and
cancellations; and employee salaries for crew members and airport staff
affected by the temporary FAA-mandated grounding of the Company's fleet.
Also classified as special charges are increased hull and liability
insurance costs; additional advertising expense incurred as a direct result
of September 11; interest expense related to debt incurred under the
Company's credit facility to provide operating cash after September 11;
incremental security costs; toll-free telephone service costs related to
the implementation of a reduced flight schedule on and after September 23;
losses on abandoned capital projects; and additional letter of credit fees
incurred. The Company also recorded special charges of $3.8 million related
to exit costs for rent payments scheduled to continue on certain Boeing
727-200 aircraft after they are removed from service; however, Government
grant revenue was not recorded in relation to these charges based on the
Department of Transportation's current position that they are
nonreimbursable.
Special charges also include $3.3 million of expenses related to a proposed
transaction in which Amtran would have been taken private, which had been
substantially completed just prior to September 11. On June 18, 2001, the
Company entered into a merger agreement
F-11
with INDUS Acquisition Company ("INDUS"), a newly formed company wholly
owned by J. George Mikelsons, the Company's Chairman, founder and majority
shareholder, providing for approximately 28% of the outstanding shares of
the Company's common stock not presently owned by Mr. Mikelsons to be
converted into the right to receive $23 in cash per share. Also on June 18,
2001, the Company received from Citicorp USA, Inc. and Salomon Smith
Barney, Inc. a commitment letter with respect to a $175.0 million secured
credit facility to be used to finance that transaction. On September 21,
2001, following the events of September 11, Citicorp USA, Inc. and Salomon
Smith Barney, Inc. terminated their obligations under the commitment letter
on the basis that a material adverse change had occurred in the business
condition (financial or otherwise), operations or properties of the
Company, taken as a whole, since December 31, 2000. Completion of the
proposed transaction was conditioned on, among other things, receipt of a
financing commitment to be used to fund the proposed transaction. The
Company attempted to find alternate financing to replace the lost
commitment, but was unable to do so. On October 4, 2001, as a result of the
termination of the financing commitment and the inability to find
alternative financing, the Company entered into a mutual termination
agreement with INDUS that terminated the merger agreement.
The Company has not yet submitted an application for loan guarantees
provided under the Act. The Company believes it meets the qualifications to
receive such loan guarantees; however, the Company is not able to provide
any estimate at this time as to the amount of loan guarantees, if any, that
it may request or receive, or for what period of time those guarantees
might remain in effect.
As a result of the September 11, 2001 attacks, the Company's aviation
insurers, and other air carriers' aviation insurers, have significantly
reduced the maximum amount of insurance coverage they will underwrite for
liability to persons other than employees or passengers resulting from acts
of terrorism, war, hijacking or other similar perils (war-risk coverage).
In addition, the Company and other air carriers, are being charged
significantly higher premiums for this reduced coverage, as well as other
aviation insurance. The Act provided for reimbursement to air carriers of
incremental costs of the war-risk coverage for a 30-day period ended
October 31, 2001. The Company received $0.9 million as a result of this
provision. In addition, and pursuant to the Act, the Government has issued
supplemental war-risk coverage to U.S. air carriers, including the Company,
through May 20, 2002. It is anticipated that after this date a commercial
product for war risk coverage will become available, but the Company may
incur significant additional costs for this coverage.
On November 19, 2001, President Bush signed into law the Aviation and
Transportation Security Act ("Aviation Security Act"). This law provides
for placing substantially all aspects of civil aviation passenger security
and screening under federal control, to be phased in during 2002 and 2003,
and creates a new Transportation Security Administration under the DOT. The
cost of the provisions set forth in the Aviation Security Act will be
funded by a new security fee of $2.50 per passenger enplanement, limited to
$5 per one-way trip and $10 per round trip. Air carriers, including the
Company, began collecting the new fee on February 1, 2002. The Aviation
Security Act will also be funded by financial assessments to each air
carrier beginning in the second quarter of 2002. The amount of the air
carrier assessment is limited to the amount each air carrier spent on
aviation security in 2000.
F-12
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
DECEMBER 31,
2001 2000
---------------------------- ----------------------------
(in thousands)
Cash and money market funds $ 180,388 $ 19,264
Commercial paper - 108,938
U.S. Treasury repurchase agreements 4,051 935
--------------- ---------------
$ 184,439 $ 129,137
--------------- ---------------
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consist of the following:
DECEMBER 31,
2001 2000
--------------------------- --------------------------
(in thousands)
Flight equipment, including airframes, engines and other $ 327,541 $ 822,979
Less accumulated depreciation 58,396 351,329
--------------- ---------------
269,145 471,650
--------------- ---------------
Facilities and ground equipment 119,975 111,825
Less accumulated depreciation 74,177 61,356
--------------- ---------------
45,798 50,469
--------------- ---------------
$ 314,943 $ 522,119
--------------- ---------------
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
2001 2000
---------------------- ----------------------
(in thousands)
Unsecured Senior Notes, fixed rate of 10.50%, payable in August 2004 $ 175,000 $ 175,000
Unsecured Senior Notes, fixed rate of 9.625% payable in December 2005 125,000 125,000
Aircraft pre-delivery deposit finance facilities, variable rates, 118,239 89,875
payable upon delivery of aircraft
Borrowings against secured revolving bank credit facility, variable 35,000 -
rate, payable in January 2003
Secured note payable to institutional lender, variable rate, payable 9,375 11,075
in varying installments through October 2005
Secured note payable to institutional lender, variable rate, payable 8,383 10,083
in varying installments through March 2005
F-13
Mortgage note payable to institutional lender, fixed rate of 8.75%, 9,538 9,937
payable in varying installments through June 2014
Mortgage note payable to institutional lender, fixed rate of 8.30%, 7,280 7,595
payable in varying installments through June 2014
City of Chicago variable-rate special facility revenue bonds, payable 6,000 6,000
in December 2020
City of Chicago variable-rate special facility revenue bonds, repaid - 16,960
in November 2001
Other 3,777 6,424
------------- -------------
497,592 457,949
Less current maturities and short-term debt 124,059 96,740
------------- -------------
$ 373,533 $ 361,209
============= =============
In July 1997, the Company sold $100.0 million principal amount of 10.50%
unsecured senior notes. The Company sold an additional $75.0 million
principal amount of these notes in December 1999. Interest on these notes
is payable on February 1 and August 1 of each year. The Company may redeem
the notes, in whole or in part, at any time on or after August 1, 2002,
initially at 105.25% of their principal amount plus accrued interest,
declining ratably to 100.0% of their principal amount plus accrued interest
at maturity. The net proceeds of the $100.0 million unsecured notes issued
in 1997 were approximately $96.9 million, after deducting costs and fees of
issuance. The Company used a portion of the net proceeds to repay in full
the Company's prior bank facility and used the balance of the proceeds for
general corporate purposes. The net proceeds of the $75.0 million unsecured
notes issued in 1999 were approximately $73.0 million after deducting costs
and fees of issuance, and were used for general corporate purposes.
In December 1998, the Company sold $125.0 million principal amount of
9.625% unsecured senior notes. Interest on these notes is payable on June
15 and December 15 of each year. The Company may redeem the notes, in whole
or in part, at any time on or after June 15, 2003, initially at 104.81% of
their principal amount plus accrued interest, declining to 102.41% of their
principal amount plus accrued interest on June 15, 2004, then to 100.0% of
their principal amount plus accrued interest at maturity. The net proceeds
of the $125.0 million unsecured notes were approximately $121.0 million
after deducting costs and fees of issuance. The Company used the net
proceeds for the purchase of Lockheed L-1011-500 aircraft, engines and
spare parts, and, together with operating cash and bank facility
borrowings, for the purchase of Boeing 727-200 aircraft, engines, engine
hushkits and spare parts.
In June 1999, the Company obtained an $8.0 million loan at 8.30% secured by
a 15-year mortgage on the new Maintenance and Operations Center. This
building had a carrying amount of $8.0 million as of December 31, 2001.
In December 1999, the Company issued $17.0 million in variable-rate special
facility revenue bonds through the City of Chicago to finance the
construction of a Federal Inspection Service facility at Chicago-Midway
Airport. In November 2001, these bonds were paid in full by the City of
Chicago, in exchange for ownership of the facility.
F-14
In March and October 2000, the Company issued two $11.5 million variable
rate five-year notes, each collateralized by one Lockheed L-1011-500
aircraft. The related aircraft have a combined carrying amount of $25.4
million as of December 31, 2001.
In September 2000, the Company obtained a $10.0 million, 14-year loan at
8.75%, secured by a mortgage on its maintenance facility at the
Indianapolis International Airport. The proceeds of the loan were used to
repay an advance received from the City of Indianapolis in December 1995
that resulted from the sale/leaseback of the facility.
In December 2000, the Company entered into three finance facilities to fund
pre-delivery deposits on the new Boeing 757-300 and Boeing 737-800
aircraft. The Company obtained the first facility from Banca Commerciale
Italiana. It provides up to $75.0 million in deposit funding, against which
the Company had borrowed $75.0 million at December 31, 2001 and $55.7
million at December 31, 2000. The Company obtained a second facility from
GE Capital Aviation Services, Inc. This facility provides for up to
approximately $58.2 million in pre-delivery deposit funding, against which
the Company had borrowed $23.2 million at December 31, 2001 and $14.3
million at December 31, 2000. The third facility, obtained from Rolls-Royce
plc., will fund up to $40.0 million in deposits, against which the Company
had borrowed $20.0 million at December 31, 2001 and $19.9 million at
December 31, 2000. All of this debt has been classified as current in the
accompanying balance sheets, because it will be repaid through the return
of related pre-delivery deposits on aircraft scheduled for delivery within
12 months of each balance sheet date, as the aircraft will be acquired and
paid for by third parties who will lease them to the Company. Interest on
these facilities is payable monthly.
The Company has a secured revolving bank credit facility which provides for
maximum borrowings of $100.0 million, including up to $50.0 million for
stand-by letters of credit. The facility matures January 2, 2003, and
borrowings under the facility bear interest, at the option of ATA, at
either LIBOR plus a margin or the agent bank's prime rate. The facility is
subject to certain restrictive covenants and is collateralized by all six
owned Boeing 727-200 aircraft, nine Lockheed L-1011-50 and 100 aircraft and
engines and three Lockheed L-1011-500 aircraft and engines, which have a
combined carrying amount of approximately $133.5 million as of December 31,
2001. As of December 31, 2001, the Company had borrowings of $35.0 million
against the facility, and had outstanding letters of credit of $39.3
million secured by the facility.
The unsecured senior notes, bank credit facility and other loans secured by
certain collateral are subject to restrictive covenants, including, among
other things, limitations on the incurrence of additional indebtedness; the
payment of dividends; certain transactions with shareholders and
affiliates; and the creation of liens on or other transactions involving
certain assets. In addition, certain covenants require specified financial
ratios to be maintained.
F-15
Future maturities of long-term debt are as follows:
DECEMBER 31, 2001
-----------------
(in thousands)
2002 $ 124,059
2003 39,878
2004 179,749
2005 134,038
2006 1,602
Thereafter 18,266
----------------
$ 497,592
Interest capitalized in connection with long-term asset purchase agreements
and construction projects was $29.0 million, $15.3 million and $6.1 million
in 2001, 2000, and 1999, respectively. The capitalized interest includes
$14.7 million, $7.9 million and $0.0 million in 2001, 2000 and 1999,
respectively, of interest to be paid to Boeing upon delivery of certain
Boeing 737-800 and Boeing 757-300 aircraft in lieu of the Company making
additional pre-delivery deposits, as allowed by the purchase agreement.
6. LEASE COMMITMENTS
At December 31, 2001, the Company had the following operating aircraft
leases:
-------------------------------------- --------------- ---------------------------- ----------------------------
TOTAL LEASED INITIAL LEASE EXPIRATIONS INITIAL LEASE TERMS
-------------------------------------- --------------- ---------------------------- ----------------------------
Lockheed L-1011-100 1 2003 60 months
-------------------------------------- --------------- ---------------------------- ----------------------------
Boeing 727-200 (1) 7 Between 2001 and 2003 6 to 84 months
-------------------------------------- --------------- ---------------------------- ----------------------------
Boeing 757-200 16 Between 2002 and 2022 1 to 22 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Boeing 757-300 5 2021 20 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Boeing 737-800 14 Between 2016 and 2021 15 to 20 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Saab 340b 9 2009 and 2010 9.5 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Engines - Lockheed L-1011-500 6 2006 and 2007 7 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Engines - Boeing 757-200 5 Between 2008 and 2011 9 to 15 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Engines - Boeing 757-300 1 2024 22.5 years
-------------------------------------- --------------- ---------------------------- ----------------------------
Engines - Boeing 737-800 2 2021 20 years
-------------------------------------- --------------- ---------------------------- ----------------------------
(1) As of December 31, 2001, three of the aircraft had been retired
from revenue service, but the Company remained obligated on the leases.
The Company is responsible for all maintenance costs on these aircraft and
engines, and it must meet specified airframe and engine return conditions
upon lease expiration.
As of December 31, 2001, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance
facilities, with lease terms that vary from
F-16
two to 45 years and expire at various dates through 2040. The lease
agreements relating to the ground facilities, which are primarily owned by
governmental units or authorities, generally do not provide for transfer of
ownership, nor do they contain options to purchase. The Company also had
two long-term leases related to certain ground equipment, which both expire
in 2008.
The Company leases its headquarters facility from the Indianapolis Airport
Authority under an operating lease agreement, which expires in December
2002. The agreement has an option to extend for five years. The Company is
responsible for maintenance, taxes, insurance and other expenses incidental
to the operation of the facilities.
Future minimum lease payments at December 31, 2001, for noncancelable
operating leases with initial terms of more than one year are as follows:
FACILITIES AND GROUND
FLIGHT EQUIPMENT EQUIPMENT TOTAL
---------------------------- ---------------------------- ----------------------------
(in thousands)
2002 $ 150,825 $ 11,821 $ 162,646
2003 147,110 11,889 158,999
2004 146,357 11,338 157,695
2005 145,191 9,946 155,137
2006 145,191 8,983 154,174
Thereafter 1,631,398 36,494 1,667,892
----------------- ----------------- -----------------
$ 2,366,072 $ 90,471 $ 2,456,543
----------------- ----------------- -----------------
Rental expense for all operating leases in 2001, 2000 and 1999 was $119.2
million, $88.0 million and $72.0 million, respectively.
7. INCOME TAXES
The provision for income tax expense (credit) consisted of the following:
DECEMBER 31,
2001 2000 1999
------------------------ ----------------------- -----------------------
(in thousands)
Federal:
Current $ 4,070 $ - $ 15,339
Deferred (40,546) (4,278) 10,889
--------------- --------------- --------------
(36,476) (4,278) 26,228
State:
Current 510 328 1,284
Deferred (3,784) (657) 2,943
--------------- --------------- --------------
(3,274) (329) 4,227
--------------- --------------- --------------
Income tax expense (credit) $ (39,750) $ (4,607) $ 30,455
--------------- --------------- --------------
F-17
The provision for income tax expense (credit) differed from the amount
obtained by applying the statutory federal income tax rate to income (loss)
before income taxes as follows:
DECEMBER 31,
2001 2000 1999
--------------------- -------------------- --------------------
(in thousands)
Federal income tax (credit) at statutory rate $ (40,626) $ (6,841) $ 27,175
State income tax (credit) net of federal benefit (2,328) (143) 1,997
Non-deductible expenses 2,041 1,872 1,578
Other, net 1,163 505 (295)
-------------- -------------- ---------------
Income tax expense (credit) $ (39,750) $ (4,607) $ 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 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,
2001 2000
------------------------ ------------------------
(in thousands)
Deferred tax liabilities:
Property and equipment $ 35,031 $ 85,398
Other taxable temporary differences 342 714
--------------- ---------------
Deferred tax liabilities 35,373 86,112
--------------- ---------------
Deferred tax assets:
Tax benefit of net operating loss carryforwards 383 12,739
Alternative minimum tax and other tax credit carryforwards 19,528 15,813
Vacation pay accrual 4,723 4,552
Other deductible temporary differences 2,042 2,978
--------------- ---------------
Deferred tax assets 26,676 36,082
--------------- ---------------
Net deferred tax liability $ 8,697 $ 50,030
=============== ===============
Deferred taxes classified as:
Current asset $ 4,958 $ 4,473
Non-current liability $ 13,655 $ 54,503
At December 31, 2001, for federal tax reporting purposes, the Company had
approximately $0.4 million of net operating loss carryforward available to
offset future federal taxable income and $19.5 million of alternative
minimum tax and other tax credit carryforwards available to offset future
federal tax liabilities. The net operating loss carryforward expires in
2015. The alternative minimum tax and other tax credit carryforwards have
no expiration dates.
8. 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 55.0% in 2001, 50.0% in 2000 and 45.0% in 1999, of the
amount contributed by each participant up to the first six
F-18
percent of eligible compensation. Company matching contributions expensed
in 2001, 2000 and 1999 were $4.7 million, $3.9 million and $3.1 million,
respectively.
In 1993, the Company added an Employee Stock Ownership Plan ("ESOP")
feature to its existing 401(k) savings plan. The ESOP used the proceeds of
a $3.2 million loan from the Company to purchase 200,000 shares of the
Company's common stock. The selling shareholder was the Company's principal
shareholder. Shares of common stock held by the ESOP were allocated to
participating employees annually for seven years, ending in 1999, as part
of the Company's 401(k) savings plan contribution. The fair value of the
shares allocated during the year was recognized as compensation expense. As
the program ended in 1999, the Company recognized no related compensation
expense in 2001 and 2000, but recognized $0.7 million in 1999.
9. SHAREHOLDERS' EQUITY
Since 1994, the Company's Board of Directors has approved the repurchase of
up to 1,900,000 shares of the Company's common stock. As of December 31,
2001, the Company had repurchased 1,710,658 common shares at a cost of
$24.8 million.
The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorizes the grant of options for up to 900,000 shares of the Company's
common stock. The Company's 1996 Incentive Stock Plan for Key Employees
(1996 Plan) authorizes the grant of options for up to 3,000,000 shares of
the Company's common stock. The Company's 2000 Incentive Stock Plan for Key
Employees (2000 Plan) authorizes the grant of options for up to 3,000,000
shares of the Company's common stock. Options granted have five 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-AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
Outstanding at December 31, 1998 2,370,253 $ 9.38
---------------- --------------
Granted 582,510 26.33
Exercised (431,075) 8.56
Canceled (28,528) 15.02
---------------- --------------
Outstanding at December 31, 1999 2,493,160 13.41
---------------- --------------
Granted 638,550 15.69
Exercised (183,906) 8.61
Canceled (37,331) 17.88
---------------- --------------
Outstanding at December 31, 2000 2,910,473 14.19
---------------- --------------
Granted 106,600 12.21
Exercised (181,949) 9.18
Canceled (121,075) 21.60
---------------- --------------
F-19
Outstanding at December 31, 2001 2,714,049 $ 14.14
================ ==============
Options exercisable at December 31, 1999 1,077,554 $ 10.04
================ ==============
Options exercisable at December 31, 2000 1,741,092 $ 11.51
================ ==============
Options exercisable at December 31, 2001 2,528,633 $ 13.80
================ ==============
During 1996, the Company adopted the disclosure provisions of FASB
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123") with respect to its stock options. As
permitted by FAS 123, the Company has elected to continue to account for
employee stock options following Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
The weighted-average fair value of options granted during 2001, 2000 and
1999 is estimated at $5.44, $6.02 and $9.67 per share, respectively, on the
grant date. These estimates were made using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2001,
2000 and 1999: risk-free interest rate of 3.59%, 5.06% and 6.29%; expected
market price volatility of 0.62, 0.51 and 0.46; weighted-average expected
option life of 1.04 years, 0.94 years and 0.92 years; estimated forfeitures
of 10.8%, 6.0% and 5.6%; and no dividends.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models use highly subjective assumptions, including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees' stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3
years). The Company's pro forma information follows:
2001 2000 1999
---------------------- ---------------------- ------------------------------
(in thousands, except per share data)
Net income (loss) available to common
shareholders as reported $ (81,885) $ (15,699) $ 47,342
Net income (loss) available to common
shareholders pro forma (83,696) (19,837) 42,340
Diluted income (loss) per share as reported (7.14) (1.31) 3.51
Dilute income (loss) per share pro forma (7.30) (1.66) 3.14
Options outstanding at December 31, 2001, expire from July 2003 to November
2011. A total of 2,840,658 shares are reserved for future grants as of
December 31, 2001, under the 1993, 1996 and 2000 Plans. The following table
summarizes information concerning outstanding and exercisable options at
December 31, 2001:
F-20
RANGE OF EXERCISE PRICES $6-8 $9-14 $15-19 $20-27
- --------------------------------------------------------- --------------- ---------------- --------------- ----------------
Options outstanding:
Weighted-Average Remaining Contractual Life 5.6 years 5.7 years 6.8 years 7.0 years
Weighted-Average Exercise Price $ 8.17 $ 10.70 $ 15.87 $ 26.20
Number 840,327 681,872 679,750 512,100
Options exercisable:
Weighted-Average Exercise Price $ 8.18 $ 10.61 $ 15.87 $ 26.20
Number 836,827 645,872 600,534 445,400
10. REDEEMABLE PREFERRED STOCK
In the last half of 2000, the Company issued and sold 300 shares of Series
B convertible redeemable preferred stock, without par value ("Series B
Preferred"), at a price of $100,000 per share. The purchaser of the Series
B Preferred is entitled to cumulative quarterly dividends at an annual rate
of 5.0% on the liquidation amount ($100,000 per share) of the Series B
Preferred. The Series B Preferred is convertible into shares of the
Company's common stock at a conversion rate of 6,381.62 shares of common
stock per share of Series B Preferred, at a conversion price of $15.67 per
share of common stock, subject to antidilution adjustments. The Series B
Preferred is optionally redeemable by the Company under certain conditions,
but the Company must redeem the Series B Preferred no later than September
20, 2015. Optional redemption by the Company may occur at 103.6% of the
liquidation amount beginning September 20, 2003, decreasing 0.3% of the
liquidation amount per year to 100.0% of the liquidation amount at the
mandatory redemption date of September 20, 2015. Shares of Series B
Preferred have the right to vote on or consent to only the following
matters (in addition to any voting rights otherwise required by law): (1)
amendments to the Company's Articles of Incorporation which are adverse to
the holders of Series B Preferred; (2) if six quarterly dividends go
unpaid, the owner of Series B Preferred, together with the owner of Series
A Preferred (as defined below) and the owners of any other preferred stock
ranking equal to Series B Preferred, will be entitled to elect at the next
annual shareholders meeting 25% of the Company's Board of Directors, but no
less than two directors; and (3) increases in the number of authorized
shares of Series B Preferred and authorizations of preferred stock ranking
senior to Series B Preferred. Votes will be allocated among holders of
preferred stock based on the percentage owned by each holder of the total
liquidation amount of all series of preferred stock.
Also, in the last half of 2000, the Company issued and sold 500 shares of
Series A redeemable preferred stock, without par value ("Series A
Preferred"), at a price of $100,000 per share. The purchaser of the Series
A Preferred is entitled to cumulative semiannual dividends at an annual
rate of 8.44% on the liquidation amount ($100,000 per share) of the Series
A Preferred. The Series A Preferred is optionally redeemable by the Company
under certain conditions, but the Company must redeem the Series A
Preferred in equal semiannual payments beginning December 28, 2010, and
ending December 28, 2015. Optional redemption by the Company may occur at a
redemption premium of 50.0% of the dividend rate beginning December 28,
2003, decreasing 10.0% per year to 20.0% of the dividend rate commencing
December 28, 2006, and to 0.0% after the seventh year after issuance. Prior
to the third anniversary of issuance, the Company may redeem the Series A
Preferred with net proceeds of a public offering of the Company's common
stock. Shares of Series A Preferred have the right to vote on or consent to
only the following matters (in addition to any voting rights otherwise
required by law): (1) amendments to the Company's Articles of Incorporation
which are adverse to the holders of Series A Preferred; (2) if three
semiannual
F-21
dividends go unpaid, the owner of Series A Preferred, together with the
owner of Series B Preferred and the owners of any other preferred stock
ranking equal to Series A Preferred, will be entitled to elect at the next
annual shareholders' meeting, 25% of the Company's Board of Directors, but
no less than three directors; (3) approval of (a) an acquisition by the
Company or one of its subsidiaries of assets and liabilities from a third
party the net asset value of which equals 10% of the Company's net
consolidated assets in its most recent publicly available balance sheet, or
(b) a merger by the Company or one of its subsidiaries with a third party
involving an acquisition or disposition of more than 10% of the Company's
consolidated net assets in its most recent publicly available balance sheet
(other than a disposition of all the Company's L-1011 or Boeing 727
aircraft) that, in either case, results in a downgrade of the Company's
credit rating by Moody's to "C1" or by Standard & Poor's to "C+," unless
the Company offers to redeem the Series A Preferred prior to that
transaction at a price equal to the liquidation amount plus accrued and
unpaid dividends to the redemption date; and (4) increases in the number of
authorized shares of Series A Preferred and authorizations of preferred
stock ranking senior to Series A Preferred. Votes will be allocated among
holders of preferred stock based on the percentage owned by each holder of
the total liquidation amount of all series of preferred stock. The Company
has the right on any date on which dividends are payable to exchange in
whole but not in part subordinated notes for shares of Series A Preferred;
the principal amount of any exchanged subordinated notes will equal the
liquidation amount of the shares of Series A Preferred, plus any accrued
and unpaid dividends.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
2001 2000 1999
---- ---- ----
Numerator
Net income (loss) $ (76,317,000) $ (15,324,000) $ 47,342,000
Preferred stock dividends (5,568,000) (375,000) -
-------------- -------------- --------------
Income (loss) available to common
shareholders $ (81,885,000) $ (15,699,000) $ 47,342,000
============== ============== ==============
Denominator:
Denominator for basic earnings per
share-weighted average shares 11,464,125 11,956,532 12,269,474
Effect of dilutive securities: - - 1,200,063
-------------- -------------- --------------
Employee stock options - - 1,200,063
-------------- -------------- --------------
Dilutive potential securities
Denominator for diluted earnings per share 11,464,125 11,956,532 13,469,537
============== ============== ==============
Basic earnings (loss) per share $ (7.14) $ (1.31) $ 3.86
============== ============== ==============
Diluted earnings (loss) per share $ (7.14) $ (1.31) $ 3.51
============== ============== ==============
F-22
Potentially dilutive securities of 2,467,511 and 1,160,066 in 2001 and
2000, respectively, were not included in the computation of diluted
earnings per share because these years resulted in a net loss, and
therefore, their effect would be antidilutive.
12. COMMITMENTS AND CONTINGENCIES
In 2000, the Company entered into a series of agreements to purchase or
lease 39 new Boeing 737-800 aircraft and ten new Boeing 757-300 aircraft,
as well as the engines to power these new aircraft. The Boeing 737-800
aircraft are powered by General Electric CFM56-7B27 engines, and the Boeing
757-300 aircraft are powered by Rolls-Royce RB211-535 E4C engines. The
Company also received purchase rights for an additional 50 aircraft.
On December 27, 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and
June 2003. The Company has purchase rights remaining for eight Boeing
757-300 aircraft and 40 Boeing 737-800 aircraft.
The Company has a purchase agreement with the Boeing Company to purchase
directly from Boeing the 10 new Boeing 757-300s and 20 of the new Boeing
737-800s. The manufacturer's list price is $73.6 million for each 757-300
and $52.4 million for each 737-800, subject to escalation. The Company's
purchase price for each aircraft is subject to various discounts. To
fulfill its purchase obligations, the Company has arranged for each of
these aircraft, including the engines, to be purchased by third parties
that will, in turn, enter into long-term operating leases with the Company.
As of December 31, 2001, the Company had taken delivery of five Boeing
737-800s and five Boeing 757-300s obtained directly from Boeing. As a
result of the decreased demand for air travel due to the events of
September 11, 2001 (See "Note 2 - Impact of Terrorist Attacks on September
11, 2001"), the Company delayed planned delivery dates of certain Boeing
737-800 and Boeing 757-300 aircraft. The delivery dates of seven aircraft
were delayed by more than 12 months. All remaining aircraft to be purchased
directly from Boeing are now scheduled for delivery between January 2002
and August 2004, rather than May 2004 as previously agreed. Aircraft
pre-delivery deposits are required for these purchases, and the Company has
funded these deposits using operating cash and deposit finance facilities
(See "Note 5 - Long-Term Debt."). As of December 31, 2001, the Company had
$170.7 million in pre-delivery deposits outstanding for these aircraft, of
which $118.2 million was provided by deposit finance facilities with
various lenders. Upon delivery of the aircraft, pre-delivery deposits
funded with operating cash will be returned to the Company, and those
funded with deposit facilities will be used to repay those facilities.
The Company has entered into operating lease agreements with respect to 14
of the new Boeing 737-800s from International Lease Finance Corporation
("ILFC"). In conjunction with these lease agreements, the Company also
committed to purchase two spare General Electric aircraft engines from
ILFC. As of December 31, 2001, the Company has taken delivery of six Boeing
737-800s that are being leased from ILFC. The remaining aircraft under
these operating lease agreements are scheduled for delivery between January
2002 and May 2004. Both spare engines were received in 2001 and were
financed with an operating lease.
The Company has an agreement to lease five of the new Boeing 737-800s from
GE Capital Aviation Services ("GECAS"). As of December 31, 2001, the
Company has taken delivery
F-23
of three Boeing 737-800 aircraft that are being leased from GECAS. The two
remaining aircraft, to be financed through GECAS operating leases, are
scheduled for delivery in 2002.
The Company has committed to purchase an additional four spare General
Electric aircraft engines from the engine manufacturer. The spare engines
under this agreement are scheduled for delivery between 2003 and 2006. The
Company has committed to purchase an additional two spare Rolls Royce
engines from the engine manufacturer. The first spare engine was received
in the third quarter of 2001 and was financed with an operating lease. The
second engine is scheduled for delivery in 2002.
In March 2001, the Company entered into a limited liability company
agreement with Boeing Capital Corporation ("BCC") to form BATA Leasing LLC
("BATA") a 50/50 joint venture. Because the Company does not control BATA,
the Company's investment is being accounted for under the equity method.
BATA will remarket the Company's fleet of 24 Boeing 727-200 aircraft in
either passenger or cargo configurations. In exchange for supplying the
aircraft and certain operating services to BATA, the Company has and will
continue to receive both cash and equity in the income or loss of BATA. The
Company transferred 12 Boeing 727-200 aircraft to BATA in 2001. The Company
expects to transfer most of the remaining 12 Boeing 727-200 aircraft to
BATA in the first half of 2002. Also in 2001, the Company entered into
short-term operating leases with BATA on nine of the 12 transferred
aircraft. As of December 31, 2001, eight of the nine leases had terminated,
and the Company continued to operate one of these aircraft. The Company is
subject to lease return conditions on these nine operating leases upon
delivery of any related aircraft to a third party by BATA. As of December
31, 2001, a third-party lessee or buyer has not been identified for any of
these aircraft. Management believes it is reasonably possible that a lessee
or buyer will be identified. The Company estimates that it could incur
approximately $7.0 million of expense to meet the return conditions, if all
nine of the aircraft were leased by BATA to third parties. No liability has
been recorded for these return conditions.
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.
13. ACQUISITION OF BUSINESSES
On January 26, 1999, the Company acquired all of the issued and outstanding
stock of T. G. Shown Associates, Inc., which then owned 50% of the Amber
Air Freight partnership. The Company already owned the other 50% of the
partnership.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent tour
operator. ATA had been providing passenger airline services to TCI for over
14 years. TCI's results of operations, beginning February 1999, were
consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
F-24
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area using the brand name of Key
Tours. ATA had been providing passenger airline services to Key Tours for
over 15 years. Beginning May 1999, the results of operations of Key Tours'
brand were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had maintained 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 $1.9
million in stock for the purchase of all acquisitions discussed above,
which were accounted for using the purchase method of accounting.
14. SEGMENT DISCLOSURES
During 1999, the Company acquired several independent tour operator
businesses and combined their operations with the Company's existing
vacation package brand, ATA Vacations. (See "Note 13 - Acquisition of
Businesses.") These companies comprise the ATA Leisure Corp. ("ATALC").
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the sale
of scheduled service or charter air transportation. ATALC derives its
revenues from the sale of vacation packages, which, in addition to air
transportation, include hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from ATA and other
airlines.
The Company's revenues are derived principally from customers domiciled in
the United States.
The most significant component of the Company's property and equipment is
aircraft and related improvements and parts. All aircraft are registered in
the United States. The Company therefore considers all property and
equipment to be domestic.
The United States Government is the only customer that accounted for more
than 10.0% of consolidated revenues. U.S. Government revenues accounted for
13.1%, 14.6% and 11.2% of consolidated revenues for 2001, 2000 and 1999,
respectively.
F-25
Segment financial data as of and for the years ended December 31, 2001,
2000 and 1999 follows:
For the Year Ended December 31, 2001
----------------------------------------------------------------------------
OTHER/
AIRLINE ATALC ELIMINATIONS CONSOLIDATED
------- ----- ------------ ------------
(in thousands)
Operating revenue (external) $ 1,127,400 $ 71,893 $ 76,191 $ 1,275,484
Inter-segment revenue 34,626 2,031 (36,657) -
Operating expenses (external) 1,245,802 56,941 64,611 1,367,354
Inter-segment expenses 7,514 19,071 (26,585) -
Operating income (loss) (91,290) (2,088) 1,508 (91,870)
Segment assets (at year end) 1,156,428 162,349 (315,815) 1,002,962
For the Year Ended December 31, 2000
----------------------------------------------------------------------------
OTHER/
AIRLINE ATALC ELIMINATIONS CONSOLIDATED
------- ----- ------------ ------------
(in thousands)
Operating revenue (external) $ 1,132,031 $ 95,357 $ 64,165 $ 1,291,553
Inter-segment revenue 58,140 3,212 (61,352) -
Operating expenses (external) 1,162,084 66,995 59,904 1,288,983
Inter-segment expenses 7,260 43,251 (50,511) -
Operating income (loss) 20,827 (11,677) (6,580) 2,570
Segment assets (at year end) 1,109,042 120,496 (197,108) 1,032,430
For the Year Ended December 31, 1999
----------------------------------------------------------------------------
OTHER/
AIRLINE ATALC ELIMINATIONS CONSOLIDATED
------- ----- ------------ ------------
(in thousands)
Operating revenue (external) $ 972,081 $ 94,840 $ 55,445 $ 1,122,366
Inter-segment revenue 42,970 4,985 (47,955) -
Operating expenses (external) 919,833 69,925 42,581 1,032,339
Inter-segment expenses 7,045 32,516 (39,561) -
Operating income (loss) 88,173 (2,616) 4,470 90,027
Segment assets (at year end) 821,373 47,945 (54,037) 815,281
15. FUEL PRICE RISK MANAGEMENT
During 2001, 2000 and 1999, the Company entered into fuel hedge contracts
to minimize the risk of fuel price fluctuation. The extent to which fuel
has been hedged and the type of hedge instruments used has varied. In early
1999, the Company hedged fuel using swap agreements, which establish
specific swap prices for designated periods, and fuel cap agreements, which
guarantee a maximum price per gallon for designated periods. Beginning in
the fourth quarter of 2000, the Company again entered into fuel hedge
contracts, this time exclusively hedging fuel price using heating oil
swaps.
During 2000 and 1999, the Company accounted for fuel hedge contracts in
accordance with FASB Statement of Financial Accounting Standards No. 80,
Accounting for Futures
F-26
Contracts ("FAS 80"). According to FAS 80, changes in the market value of
the hedge contracts are recognized in income when the effects of related
changes in the price of the hedged item are recognized. Therefore, the
Company recorded gains or losses on fuel hedge contracts as a component of
fuel expense in the month of settlement.
Effective January 1, 2001, the Company adopted FASB Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended ("FAS 133"). FAS 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's change
in fair value must be immediately recognized in earnings.
The Company's heating oil swap agreements have initial maturities of up to
12 months. As of December 31, 2001, the Company's existing instruments had
remaining maturities of up to six months. In accordance with FAS 133, the
Company accounts for its heating oil swap agreements as cash flow hedges.
Upon the adoption of FAS 133, the fair value of the Company's fuel hedging
contracts representing the amount the Company would pay if the agreements
were terminated was $0.6 million. The Company recorded this amount, net of
income taxes of $0.2 million, in other assets and other current
liabilities, with a corresponding entry of the net fair value in
accumulated other comprehensive income on the consolidated balance sheet.
All changes in fair value of the heating oil swap agreements during 2001
were effective for purposes of FAS 133, so these valuation changes were
recognized throughout the year in other comprehensive loss and were
included in earnings as a component of fuel expense only upon settlement of
each agreement.
During 2001, the Company recognized hedging losses on settled contracts in
fuel expense of approximately $2.6 million. The fair value of the Company's
fuel hedging agreements at December 31, 2001, representing the amount the
Company would pay if the agreements were terminated, totaled $1.1 million,
which, net of income taxes of approximately $0.4 million, represents the
balance of other comprehensive loss of $0.7 million in the consolidated
balance sheet at December 31, 2001.
16. ASSET IMPAIRMENT
Following the events of September 11, 2001, the Company decided to retire
the Boeing 727-200 fleet earlier than originally planned, in order to
adjust its fleet size to a reduced flight schedule. Most of these aircraft
were retired from revenue service in the fourth quarter of 2001, although
some are being used for charter service through the first half of 2002. In
accordance with FASB Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of ("FAS 121"), the Company determined that the
estimated future undiscounted cash flows expected to be generated by the
Boeing 727-200s were less than the current net book value of these aircraft
and the related rotable parts and inventory. Therefore, these assets were
impaired under FAS 121. During the third quarter of 2001, the Company
recorded an asset impairment charge of $35.2 million to reduce the carrying
amount of the Boeing 727-200 aircraft and related assets to their estimated
fair market value, including those aircraft which
F-27
had been previously transferred to the joint venture BATA. During the
fourth quarter of 2001, the Company recorded an additional asset impairment
charge of $9.3 million to reflect a further decline in estimated fair
market value of the assets. The carrying amount of those assets not yet
transferred to BATA has been classified as assets held for sale in the
accompanying balance sheet in accordance with FAS 121.
Also in the fourth quarter of 2001, the Company determined that the
estimated future undiscounted cash flows expected to be generated by the
Lockheed L-1011-50 and 100 fleet was less than the current net book value
of these aircraft and the related rotable parts and inventory. Therefore,
these assets were impaired under FAS 121. During the fourth quarter of
2001, the Company recorded an asset impairment charge of $67.8 million to
reduce the carrying amount of the Lockheed L-1011-50 and 100 aircraft and
related assets to their estimated fair market value. The carrying amount of
those assets has been classified as assets held for use and appears in the
property and equipment section of the accompanying consolidated balance
sheet in accordance with FAS 121. These assets will be depreciated in
conjunction with the planned fleet retirement schedule.
17. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of net assets
acquired (See Note 13, "Acquisition of Businesses.") The Company amortizes
goodwill on a straight-line basis over 20 years in accordance with APB 17.
The Company recorded goodwill amortization expense of $1.3 million in both
2001 and 2000, and $0.9 million in 1999.
The Company periodically reviews the carrying value of goodwill and other
intangible assets to assess their recoverability in accordance with APB 17
and FAS 121. The Company has no material intangible assets other than
goodwill on its accompanying balance sheets. The Company's policy is to
record an impairment loss when it is determined that the carrying amount of
the asset may not be recoverable. No impairment losses related to goodwill
or intangible assets were recognized in 2001, 2000 or 1999.
In June 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, ("FAS 142"), effective for fiscal years beginning after December
15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized, but will be subject to
annual impairment reviews.
The Company will adopt FAS 142 in the first quarter of 2002. The Company
has not yet determined what the effect of these impairment tests will be,
if any, on the results of operations and financial position of the Company.
F-28
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMTRAN, INC. AND SUBSIDIARIES
2001 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 3/31 6/30 9/30(1) 12/31(1)
- ------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Operating revenues $ 347,485 $ 358,895 $ 321,469 $ 247,635
Operating expenses 349,719 342,336 317,017 385,282
Operating income (loss) (2,234) 16,559 4,452 (110,647)
Other expenses (5,459) (5,828) (4,048) (8,862)
Income (loss) before income taxes (7,693) 10,731 404 (119,509)
Income taxes (credits) (3,309) 4,200 16 (40,657)
Preferred stock dividends 375 2,333 375 2,485
Income (loss) available to common shareholders $ (4,759) $ 4,198 $ 13 $ (81,337)
Net income (loss) per common share - basic $ (0.42) $ 0.37 $ 0.00 $ (7.05)
Net income (loss) per common share - diluted $ (0.42) $ 0.33 $ 0.00 $ (7.05)
(1) During 2001, several nonrecurring events resulted in significant
charges and credits to operating loss. See "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Impact of Terrorist Attacks on September 11, 2001" and "Financial
Statements - Notes to Consolidated Financial Statements and Supplementary
Data- Note 16 - Asset Impairment."
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMTRAN, INC. AND SUBSIDIARIES
2000 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
(IN THOUSAND, EXCEPT PER SHARE DATA) 3/31 6/30 9/30 12/31
- ----------------------------------------------------- ---------------- --------------- --------------- ---------------
Operating revenues $ 321,366 $ 333,534 $ 347,301 $ 289,352
Operating expenses 318,802 314,912 332,610 322,659
Operating income (loss) 2,564 18,622 14,691 (33,307)
Other expenses (5,635) (6,073) (5,597) (5,196)
Income (loss) before income taxes (3,071) 12,549 9,094 (38,503)
Income taxes (credits) (1,117) 6,680 6,112 (16,282)
Preferred stock dividends - - - 375
Income (loss) available to common shareholders $ (1,954) $ 5,869 $ 2,982 $ (22,596)
Net income (loss) per common share- basic $ (0.16) $ 0.48 $ 0.25 $ (1.96)
Net income (loss) per common share - diluted $ (0.16) $ 0.46 $ 0.23 $ (1.96)
F-29
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------------------------------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents................................. $ 113,058 $ 184,439
Aircraft pre-delivery deposits............................ 88,882 166,574
Receivables, net of allowance for doubtful accounts
(2002 - $17,222; 2001 - $1,526)........................... 69,686 75,046
Inventories, net ......................................... 50,733 47,648
Assets held for sale...................................... - 18,600
Prepaid expenses and other current assets................. 29,242 19,471
-----------------------------------------------
Total current assets........................................... 351,601 511,778
Property and equipment:
Flight equipment.......................................... 338,241 327,541
Facilities and ground equipment........................... 131,895 119,975
-----------------------------------------------
470,136 447,516
Accumulated depreciation.................................. (176,205) (132,573)
-----------------------------------------------
293,931 314,943
Goodwill....................................................... 21,780 21,780
Assets held for sale........................................... 8,595 33,159
Prepaid aircraft rent.......................................... 75,798 49,159
Investment in BATA, LLC........................................ 19,138 30,284
Deposits and other assets ..................................... 43,635 41,859
-----------------------------------------------
Total assets................................................... $ 814,478 $ 1,002,962
===============================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt....................... $ 15,177 $ 5,820
Short-term debt............................................ 65,591 118,239
Accounts payable........................................... 29,634 26,948
Air traffic liabilities.................................... 92,417 100,958
Accrued expenses........................................... 177,508 177,102
-----------------------------------------------
Total current liabilities...................................... 380,327 429,067
Long-term debt, less current maturities........................ 334,727 373,533
Deferred income taxes.......................................... - 13,655
Deferred gains from sale and leaseback of aircraft............. 52,877 45,815
Other deferred items .......................................... 36,496 16,760
-----------------------------------------------
Total liabilities ............................................. 804,427 878,830
Redeemable preferred stock; authorized and issued 800 shares... 80,000 80,000
Shareholders' equity (deficit):
Preferred stock; authorized 9,999,200 shares; none issued.. - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,476,193 - 2002; 13,266,642 - 2001............. 65,290 61,964
Treasury stock; 1,711,440 shares - 2002; 1,710,658 shares -
2001.................................................... (24,778) (24,768)
Additional paid-in capital ................................ 10,824 11,534
Other comprehensive loss................................... - (687)
Retained deficit........................................... (121,285) (3,911)
-----------------------------------------------
Total shareholders' equity (deficit)........................... (69,949) 44,132
-----------------------------------------------
Total liabilities and shareholders' equity (deficit)........... $ 814,478 $ 1,002,962
===============================================
See accompanying notes.
F-30
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2001 2002 2001
----------------- --------------- ------------------ -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Operating revenues:
Scheduled service........................ $ 231,633 $ 208,490 $ 664,431 $ 656,044
Charter.................................. 68,185 93,629 238,698 292,603
Ground package........................... 5,605 8,738 30,582 45,214
Other.................................... 11,866 10,612 32,689 33,988
----------------- --------------- ------------------ -----------------
Total operating revenues.................. 317,289 321,469 966,400 1,027,849
----------------- --------------- ------------------ -----------------
Operating expenses:
Salaries, wages and benefits............. 95,094 84,956 264,782 249,444
Fuel and oil............................. 52,956 67,908 151,350 205,918
Aircraft rentals......................... 51,244 26,884 135,731 68,279
Handling, landing and navigation fees.... 29,343 21,640 85,473 70,299
Depreciation and amortization............ 18,850 32,156 60,258 101,400
Crew and other employee travel........... 14,485 15,089 41,933 46,695
Aircraft maintenance, materials and repairs 11,308 14,704 37,388 50,064
Other selling expenses................... 11,103 10,311 33,462 32,258
Passenger service........................ 10,379 12,614 29,677 35,725
Advertising.............................. 9,553 7,190 30,181 20,695
Insurance................................ 8,021 2,520 23,693 6,960
Facilities and other rentals............. 6,294 5,347 17,492 14,670
Commissions.............................. 3,964 7,707 18,089 28,520
Ground package cost...................... 3,757 6,381 23,832 36,665
Special charges.......................... - 9,367 - 9,367
Aircraft impairments and retirements..... 34,318 37,633 51,559 41,749
U.S. Government grant.................... - (62,597) 15,210 (62,597)
Other.................................... 16,264 17,207 55,169 52,961
----------------- --------------- ------------------ -----------------
Total operating expenses.................... 376,933 317,017 1,075,279 1,009,072
----------------- --------------- ------------------ -----------------
Operating income (loss)..................... (59,644) 4,452 (108,879) 18,777
Other income (expense):
Interest income.......................... 626 1,157 2,138 4,247
Interest expense......................... (7,729) (7,036) (25,979) (21,345)
Other...................................... (620) 1,831 (988) 1,763
----------------- --------------- ------------------ -----------------
Other expense............................... (7,723) (4,048) (24,829) (15,335)
----------------- --------------- ------------------ -----------------
Income (loss) before income taxes........... (67,367) 404 (133,708) 3,442
Income taxes (credits)...................... (6,746) 16 (19,569) 907
----------------- --------------- ------------------ -----------------
Net income (loss)........................... (60,621) 388 (114,139) 2,535
Preferred stock dividends................... (375) (375) (3,235) (3,083)
----------------- --------------- ------------------ -----------------
Income (loss) available to common shareholders $ (60,996) $ 13 $ (117,374) $ (548)
================= =============== ================== =================
Basic earnings per common share:
Average shares outstanding.................. 11,764,753 11,509,333 11,694,097 11,439,167
Net income (loss) per share................. $ (5.18) $ 0.00 $ (10.04) $ (0.05)
================= =============== ================== =================
Diluted earnings per common share:
Average shares outstanding.................. 11,764,753 12,515,904 11,694,097 11,439,167
Net income (loss) per share................. $ (5.18) $ 0.00 $ (10.04) $ (0.05)
================= =============== ================== =================
See accompanying notes.
F-31
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDER EQUITY
OTHER
REDEEMABLE ADDITIONAL COMPREHENSIVE
PREFERRED COMMON TREASURY PAID-IN INCOME RETAINED
STOCK STOCK STOCK CAPITAL (LOSS) DEFICIT TOTAL
--------- --------- --------- --------- -------- --------- ---------
Balance, December 31, 2001..... $ 80,000 $ 61,964 $ (24,768) $ 11,534 $ (687) $ (3,911) $ 124,132
--------- --------- --------- --------- -------- --------- ---------
Net income.................... - - - - - 1,880 1,880
Net gain on derivative
instruments.................. - - - - 629 - 629
-------- --------- ---------
Total comprehensive
income...................... - - - - 629 1,880 2,509
-------- --------- ---------
Preferred stock dividends..... - - - - - (375) (375)
Restricted stock grants....... - 10 - 3 - - 13
Stock options exercised....... - 291 - (138) - - 153
--------- --------- --------- --------- -------- --------- ---------
Balance, March 31, 2002........ $ 80,000 $ 62,265 $ (24,768) $ 11,399 $ (58) $ (2,406) $ 126,432
========= ========= ========= ========= ======== ========= =========
Net loss...................... - - - - - (55,398) (55,398)
Net gain on derivative
instruments.................. - - - - 391 - 391
-------- --------- ---------
Total comprehensive
income (loss)............... - - - - 391 (55,398) (55,007)
-------- --------- ---------
Preferred stock dividends..... - - - - - (2,485) (2,485)
Payment of liability
with stock................... - 2,445 - (295) - - 2,150
Restricted stock grants....... 3 (10) 1 - - (6)
Stock options exercised....... 577 - (281) - - 296
--------- --------- --------- --------- -------- --------- ---------
Balance, June 30, 2002........ $ 80,000 $ 65,290 $ (24,778) $ 10,824 $ 333 $(60,289) $ 71,380
========= ========= ========= ========= ======== ========= =========
Net loss..................... - - - - - (60,621) (60,621)
Net loss on derivative
instruments................. - - - - (333) - (333)
-------- --------- ---------
Total comprehensive
loss....................... - - - - (333) (60,621) (60,954)
-------- --------- ---------
Preferred stock dividends.... - - - - - (375) (375)
--------- --------- --------- --------- -------- --------- ---------
Balance, September 30, 2002 .. $ 80,000 $ 65,290 $ (24,778) $ 10,824 $ - $ (121,285) $ 10,051
========= ========= ========= ========= ======== ========= =========
See accompanying notes.
F-32
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMEMTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
------------------- -----------------
(UNAUDITED) (UNAUDITED)
Operating activities:
Net income (loss)........................................ $ (114,139) $ 2,535
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization........................... 60,258 101,400
Aircraft impairments and retirements.................... 51,559 41,749
Deferred income taxes (credits)......................... (13,655) 2,842
Other non-cash items.................................... 30,913 (4,650)
Changes in operating assets and liabilities:
U.S. Government grant receivable........................ 15,210 (29,996)
Other receivables....................................... (9,850) 2,805
Inventories............................................. (5,570) (10,554)
Prepaid expenses........................................ (9,771) 6,850
Accounts payable........................................ 2,686 29,949
Air traffic liabilities................................. (8,541) (17,331)
Accrued expenses (3,984) 16,375
------------------- ----------------
Net cash provided by (used in) operating activities..... (4,884) 141,974
------------------- ----------------
Investing activities:
Aircraft pre-delivery deposits........................... 77,396 (61,666)
Capital expenditures..................................... (57,618) (251,031)
Noncurrent prepaid aircraft rent......................... (19,273) (18,778)
Investment in BATA, LLC.................................. 18,632 18,043
Reductions (additions) to other assets................... (3,867) 5,272
Proceeds from sales of property and equipment............ 408 32
------------------- ----------------
Net cash provided by (used in) investing activities 15,678 (308,128)
------------------- ----------------
Financing activities:
Preferred stock dividends................................ (3,235) (3,083)
Proceeds from sale/leaseback transactions................ 2,794 369
Proceeds from short-term debt............................ 56,859 71,537
Payments on short-term debt.............................. (109,507) (18,726)
Proceeds from long-term debt............................. 194,491 151,238
Payments on long-term debt............................... (224,016) (5,600)
Proceeds from stock options exercises.................... 449 1,434
Purchase of treasury stock............................... (10) (204)
------------------- ----------------
Net cash provided by (used in) financing activities (82,175) 196,965
------------------- ----------------
Increase (decrease) in cash and cash equivalents......... (71,381) 30,811
Cash and cash equivalents, beginning of period........... 184,439 129,137
------------------- ----------------
Cash and cash equivalents, end of period................. $ 113,058 $159,948
=================== ================
Supplemental disclosures:
Cash payments for:
Interest................................................ $ 33,102 $ 33,794
Income taxes (refunds).................................. $ 3,063 $ (7,931)
Financing and investing activities not affecting cash:
Accrued capitalized interest............................ $ (6,406) $ 11,293
See accompanying notes.
F-33
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of ATA Holdings Corp.,
formerly Amtran, Inc., and subsidiaries (the "Company") have been prepared
in accordance with instructions for reporting interim financial information
on Form 10-Q 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 accounting principles
generally accepted in the United States.
The consolidated financial statements for the quarters ended September 30,
2002 and 2001 reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows for such periods. Results for the nine months ended
September 30, 2002 are not necessarily indicative of results to be expected
for the full fiscal year ending December 31, 2002. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
2. Earnings per Share
The following tables set forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED SEPTEMBER 30
2002 2001
------------------------------------------------
Numerator:
Net income (loss) $ (60,621,000) $ 388,000
Preferred stock dividends (375,000) (375,000)
------------------------------------------------
Income (loss) available to common
shareholders-numerator for basic and
diluted earnings per share $ (60,996,000) $ 13,000
================================================
Denominator:
Denominator for basic earnings per share
- weighted average shares 11,764,753 11,509,333
Effect of potential dilutive securities:
Employee stock options - 1,006,571
------------------------------------------------
Denominator for diluted earnings per share
-adjusted weighted average shares 11,764,753 12,515,904
================================================
Basic income (loss) per share $ (5.18) $ 0.00
================================================
Diluted income (loss) per share $ (5.18) $ 0.00
================================================
F-34
NINE MONTHS ENDED SEPTEMBER 30
2002 2001
--------------------------------------------------
Numerator:
Net income (loss) $(114,139,000) $ 2,535,000
Preferred stock dividends (3,235,000) (3,083,000)
--------------------------------------------------
Loss available to common
shareholders-numerator
for basic and diluted
earnings per share $(117,374,000) $ (548,000)
==================================================
Denominator:
Denominator for basic
and diluted earnings
per share - weighted
average shares 11,694,097 11,439,167
==================================================
Basic loss per share $ (10.04) $
==================================================
(0.05)
Diluted loss per share $ (10.04) $
==================================================
(0.05)
In accordance with Financial Accounting Standards Board ("FASB") Statement
No. 128, "Earnings per Share," the impact of 1,914,486 shares of
convertible redeemable preferred stock in the three months and nine months
ended September 30, 2002 and 2001, has been excluded from the computation
of diluted earnings per share because their effect would be antidilutive.
In addition, the impact of 180,886 and 668,841 employee stock options,
respectively, has been excluded from the computation of diluted earnings
per share for the nine months ended September 30, 2002 and 2001,
respectively, because their effect would be antidilutive.
3. 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. ATA Leisure Corp.
("ATALC") derives its revenues from the sale of vacation packages, which,
in addition to air transportation, include hotels and other ground
arrangements. ATALC purchases air transportation for its vacation packages
from ATA and other airlines.
On July 1, 2002, the Company outsourced the management operations of two of
its ATALC brands, ATA Vacations and Travel Charter International ("TCI"),
to Milwaukee-based The Mark Travel Corporation ("MTC"). MTC will create,
advertise, take reservations and deliver these ATALC brands. MTC will
receive revenue from the package sales, and the Company will receive a
royalty fee from MTC. Other ATALC products, including Key Tours' Canadian
Rail programs and Key Tours' Las Vegas ground operations, will not be
outsourced. The Company expects this segment to have a less material effect
on the consolidated financial statements as a result of the outsourcing
arrangements, and does not consider it a reportable segment due to its
immateriality.
F-35
4. Commitments and Contingencies
In 2000, the Company entered into a purchase agreement with the Boeing
Company to purchase directly from Boeing 10 new Boeing 757-300s and 20 new
Boeing 737-800s. The Boeing 737-800 aircraft are powered by General
Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered by
Rolls-Royce RB211-535 E4C engines. The Company also received purchase
rights for an additional 50 aircraft. The manufacturer's list price is
$73.6 million for each 757-300 and $52.4 million for each 737-800, subject
to escalation. The Company's purchase price for each aircraft is subject to
various discounts. To fulfill its purchase obligations, the Company has
arranged for each of these aircraft, including the engines, to be purchased
by third parties that will, in turn, enter into long-term operating leases
with the Company. As of September 30, 2002, the Company had taken delivery
of eight Boeing 737-800s and 10 Boeing 757-300s obtained directly from
Boeing. All remaining aircraft to be purchased directly from Boeing are
currently scheduled for delivery between October 2002 and August 2004.
Aircraft pre-delivery deposits are required for these purchases, and the
Company has funded these deposits using operating cash and deposit finance
facilities. As of September 30, 2002, the Company had $93.3 million in
pre-delivery deposits outstanding for these aircraft, of which $65.6
million was provided by deposit finance facilities with various lenders.
Upon delivery of the aircraft, pre-delivery deposits funded with operating
cash will be returned to the Company, and those funded with deposit
facilities will be used to repay those facilities.
In December 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and
June 2003. The Company currently has purchase rights remaining for eight
Boeing 757-300 aircraft and 40 Boeing 737-800 aircraft.
The Company has operating lease agreements in place to lease 14 new Boeing
737-800s from International Lease Finance Corporation ("ILFC"). As of
September 30, 2002, the Company had taken delivery of 12 Boeing 737-800s
that are being leased from ILFC. The remaining two aircraft under these
operating lease agreements are scheduled for delivery in June 2003 and May
2004.
The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006.
In March 2001, the Company entered into a limited liability company
agreement with Boeing Capital Corporation ("BCC") to form BATA Leasing LLC
("BATA") a 50/50 joint venture. Because the Company does not control BATA,
the Company's investment is being accounted for under the equity method of
accounting. BATA is expected to remarket the Company's fleet of Boeing
727-200 aircraft in either passenger or cargo configurations. In exchange
for supplying the aircraft and certain operating services to BATA, the
Company has and will continue to receive both cash and equity in the income
or loss of BATA. The Company transferred 12 Boeing 727-200 aircraft to BATA
in 2001, and subsequently leased nine of those aircraft back through
short-term operating leases with BATA. As of June 30, 2002, all nine leases
had terminated, but the Company is subject to lease return conditions
contained in these nine operating leases upon delivery of any of these
aircraft to a third party by BATA. As of September 30, 2002, a third-party
lessee or buyer has not been identified for any of these aircraft.
Management believes it is reasonably possible that a lessee or buyer will
be identified. The Company estimates that it could incur up to $7.0 million
of expense to meet the return
F-36
conditions, if all nine of the aircraft were sold or leased by BATA to
third parties. No liability has been recorded for these return conditions.
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.
5. New Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets ("FAS 142"), effective for fiscal years beginning after December 15,
2001. As required upon adoption of FAS 142, as of June 30, 2002 the Company
had completed transitional impairment reviews on its goodwill. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies" for a description of the
Company's application of FAS 142.
The Company adopted FASB Statement of Financial Accounting Standard No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS
144") effective January 1, 2002. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Critical Accounting
Policies" for a description of the Company's application of FAS 144.
6. The Air Transportation Safety and System Stabilization Act passed in
response to the September 11, 2001 terrorist attacks provided for, among
other things, up to $5.0 billion in compensation for the direct and
incremental losses resulting from the terrorist attacks incurred by U. S.
domestic passenger and cargo airlines from September 11, 2001 through
December 31, 2001.
Due to the limited guidance provided by the legislation and the evolving
guidance provided by the interpretive rules of the Department of
Transportation ("DOT"), the Company has made subjective and judgmental
estimates in calculating and recording the amount of grant revenue to
recognize. In the third and fourth quarters of 2001, the Company recognized
$66.3 million in total grant revenues. As of December 31, 2001, $44.5
million had been received, and $21.8 million was recorded as a receivable.
In the second quarter of 2002, the DOT issued new guidelines for measuring
reimbursable losses and the Company submitted a final application,
accompanied by the required accountant's report on agreed upon procedures.
Based on review of its application with the DOT, the Company determined
that it is probable that a portion of the receivable recorded in 2001 may
not be collected, and therefore recorded a valuation allowance of $15.2
million against the $21.8 million receivable as of June 30, 2002. As of
September 30, 2002, the remaining receivable had not yet been collected,
but the Company does not currently believe that a further change to the
valuation allowance is necessary. The Company is continuing to discuss its
compensation claim with the DOT, and currently expects that claim to be
settled during the fourth quarter of 2002.
7. In the quarter and nine months ended September 30, 2002 the Company
recorded an income tax credit of $6.7 million and $19.6 million,
respectively, applicable to $67.4 million and $133.7 million, respectively,
in pre-tax loss for those periods, while in the quarter and nine months
ended September 30, 2001 the Company recorded income tax expense of $16,000
and $0.9 million, respectively, applicable to $0.4 million and $3.4
million, respectively, in pre-tax income for those periods. The effective
tax rate applicable to the quarter and nine months ended September 30, 2002
were 14.6% and 10.0%, respectively, as compared to 4.0% and 26.4%,
respectively, in the same periods of 2001.
The Company expects to incur a loss for the full year of 2002. When
combined with annual losses reported in 2000 and 2001, this three-year
cumulative loss creates a presumption under accounting principles generally
accepted in the United States that net deferred tax assets should be fully
reserved, if their recovery cannot be reasonably assured through
carry-backs or other tax strategies. As of September 30, 2002 the Company
projects that it will have a net deferred tax asset of $57.7 million as of
the end of 2002, and that it can be reasonably assured of recovering $18.4
million of that deferred tax asset in cash refunds in 2003, using a
five-year carry-back of expected 2002 alternative minimum tax net operating
losses to the years 1997 through 2001. Therefore, the Company has
determined that a full valuation allowance against the remaining net
deferred tax asset of $39.3 million is required, by adjusting the Company's
effective tax rate for 2002 prospectively from the third quarter. This
allowance adjustment, included in income tax expense, resulted in an
effective tax rate of 14.6% for tax credits applicable to losses incurred
through the third quarter of 2002.
F-37
APPENDIX AI
GLOSSARY
"Adjusted Expected Distributions" means with respect to the Certificates of
any Trust on any Current Distribution Date the sum of (x) the amount of accrued
and unpaid interest on such Certificates (excluding interest, if any, payable
with respect to the Deposits related to such Trust) and (y) the greater of:
(A) 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 Trust) and (b) the Pool Balance of such Certificates as of
the Current Distribution Date calculated on the basis that (i) the principal of
the Non-Performing Equipment Notes held in such Trust has been paid in full and
such payments have been distributed to the holders of such Certificates, (ii)
the principal of the Performing Equipment Notes held in such Trust has been paid
when due (but without giving effect to any Acceleration of Performing Equipment
Notes) and such payments have been distributed to the holders of such
Certificates and (iii) the principal of any Equipment Notes formerly held in
such Trust that have been sold pursuant to the terms hereof has been paid in
full 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 Trust); and
(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 (or, if the
Current Distribution Date is the first Distribution Date, the original aggregate
face amount of the Certificates of such Trust), 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 Equipment Notes pursuant to
the Note Purchase Agreement, 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 for all of the
Aircraft, clause (B) above shall not apply.
For purposes of calculating Adjusted Expected Distributions with respect to
the Certificates of any Trust, any premium paid on the Equipment Notes held in
such Trust which has not been distributed to the Certificateholders of such
Trust (other than such premium or a portion thereof applied to the payment of
interest on the Certificates of such Trust or the reduction of the Pool Balance
of such Trust) shall be added to the amount of Adjusted Expected Distributions.
"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.
AI-1
"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.
"Assumed Amortization Schedule" means the assumed amortization schedule for
the secured promissory notes set forth in the table on page 122 of this
prospectus.
"Assumed Appraised Value" means, with respect to any aircraft, the median
value for such aircraft set forth in "Description of the Aircraft and the
Appraisals."
"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.
"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 al.
"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:
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o the Class A pass through trustee if final distributions on the Class A
certificates have not been made, and
o the Class B trustee, upon payment of final distributions of the
aggregate outstanding balance of the Class A certificates, together
with accrued interest to the holders of the Class A certificates
(Intercreditor Agreement, Section 2.6(b))
Under certain circumstances, the Liquidity Provider may elect to act as the
Controlling Party. (Intercreditor Agreement, Section 2.6(a))
"Delayed Deposit Agreements" means all deposit agreements to be dated as of
the Issuance Date with respect to all classes of additional certificates to be
issued as set forth in Appendix IV hereto between the Escrow Agent and the
Depositary.
"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) September 29,
2002 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, in the case of a withdrawal specified in the second paragraph of
"Description of The Deposit Agreements--Unused Deposits" an amount equal to the
excess, if any, of (a) the present value of the excess of (A) 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, on each remaining Regular Distribution Date for such class
under the Assumed Amortization Schedule over (B) 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 plus, in
the case of Class A, 310.5 basis points and, in the case of Class B, 640.2 basis
points 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
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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) and (ii) in the case of a withdrawal specified in the third
paragraph of "Description of The Deposit Agreements--Unused Deposits", an amount
equal to the excess, if any, of (a) the present value of the scheduled payment
of principal and interest to maturity of the related series of secured
promissory notes in the principal amount equal to the amount of such unused
Deposits on each remaining Regular Distribution Date for such class under the
Assumed Amortization Schedule (such present value being computed by discounting
such principal and interest payments 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 plus accrued and
unpaid interest on such Deposits to but excluding such 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 IntesaBci, acting through its New York branch, for all
classes of certificates.
"Depreciation Assumption" means the assumption that the initial appraised
value of each aircraft declines by approximately 3% per year.
"Disposition" means the disposition of any Series A 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 (i) the downgrading of the debt rating of the Liquidity
Provider or if applicable, any guarantor of the obligations of the Liquidity
Provider, below the applicable Threshold Rating or (ii) any guarantee of the
Liquidity Provider's obligations under the Liquidity Facility becoming invalid
or unenforceable or the guarantor denying its liability thereunder. (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.
"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.
"Escrow Agent" means Wells Fargo Bank Northwest, 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
purchaser of the relevant class of pass through certificate.
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"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.
o 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.
o 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).
o 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.
o 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.
o 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).
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Current Distribution Date, the sum of (x) accrued and unpaid
interest on such Certificates (excluding interest, if any, payable with respect
to the Deposits related to such Trust) and (y) 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 Trust) and
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(B) the Pool Balance of such Certificates as of the Current Distribution
Date, calculated on the basis that (i) the principal of the Equipment Notes held
in such 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 and (ii) the principal
of any Equipment Notes formerly held in such Trust that have been sold pursuant
to the terms hereof has been paid in full 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 the 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 Trust). For purposes of
calculating Expected Distributions with respect to the Certificates of any
Trust, any premium paid on the Equipment Notes held in such Trust which has not
been distributed to the Certificateholders of such Trust (other than such
premium or a portion thereof applied to the payment of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
shall be added to the amount of such 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 A certificates August 20, 2014
and for the Class B certificates August 20, 2009.
"Guarantee" means the guarantee by ATA Holdings Corp.of all obligations of
ATA as lessee under a lease or as obligor under an owned aircraft indenture.
"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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"Intercreditor Agreement" means the intercreditor agreement to be dated as
of the Issuance Date among the pass through trustees, the Liquidity 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.
"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 AIG Matched Funding Corp. and any other
successor liquidity provider.
"Loan Trustee" means the indenture trustee under any indenture.
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"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any of Aircraft Information Services, Inc.,
Morten, Beyer & Agnew, Inc. and Simat, Hellisan & Eichner, Inc. 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 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 A certificates 51% and for the Class B
certificates 66%. (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 the Liquidity Provider notifying the Subordination Agent
of its intent to terminate such Liquidity Facility
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and such Liquidity Facility not being replaced by the 25th day prior to the
proposed termination 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."
"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, ATA Holdings Corp. and Wilmington Trust Company, as trustee, dated
as of March 28, 2002.
"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 in the event of a bankruptcy
proceeding involving ATA under the U.S. Bankruptcy Code, (a) any payment default
occurring before the date of the order for relief for such proceeding shall not
be taken into consideration during the 60-day period under Section 1110(a)(2)(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"), (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)(2)(B) of the U.S. Bankruptcy Code before the later of 30
days after the
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date of such default or the expiration of the Section 1110 Period and (c) any
payment default occurring after the Section 1110 Period will not be taken into
consideration if such payment default is cured before the end of the grace
period, if any, set forth in the related indenture. (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.
"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 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.
"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; 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) in
an amount sufficient to pay such interest and has distributed such amount to the
applicable pass through trustee). (Intercreditor Agreement, Section 1.1)
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"Rating Agency" means at any time, the nationally recognized Rating Agency
that we have requested to rate the certificates and that is then rating the
certificates. The initial Rating Agency will be Moody's Investors Service.
"Receiptholder" means a holder of an Escrow Receipt.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement dated as of March 28, 2002 among the pass through trustees, the
initial purchasers of the certificates and ATA.
"Regular Distribution Dates" means February 20, May 20, August 20 and
November 20.
"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.
"Rent Payment Dates" means, with respect to each lease, February 20, May
20, August 20 and November 20 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 Agency to confirm in
writing its 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, in a face amount equal to the Required Amount for such Liquidity
Facility and issued by a person having unsecured debt rating issued by the
Rating Agency or Standard & Poor's which are equal to or higher than the
Threshold Rating. (Intercreditor Agreement, Section 1.1)
"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.
"Scheduled Payment" means , with respect to any Equipment Note, (i) any
payment of principal or interest on such Equipment Note (other than an Overdue
Scheduled Payment) due from the obligor thereon or (ii) any payment of interest
on the corresponding Class of Certificates with funds drawn under any Liquidity
Facility, which payment represents the installment of principal at the stated
maturity of such installment of principal on such Equipment Note, the payment of
regularly scheduled interest accrued on the unpaid principal amount of such
Equipment Note, or both; provided that any payment of principal of, premium, if
any, or interest resulting from the redemption or purchase of any Equipment Note
shall not constitute a Scheduled Payment.
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"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, plus in each case, an additional margin of 0.50% for any period
required by the Registration Rights Agreement for the corresponding secured
promissory notes.
"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.
"Threshold Rating" means the short-term unsecured debt rating of P-1 by
Moody's or the short-term corporate credit rating of A-1 by Standard & Poor's,
as the case may be. (Intercreditor Agreement, Section 1.1)
"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)
AI-12
APPENDIX AII
[AISI LOGO] AIRCRAFT INFORMATION SERVICES. INC.
15 January 2002
Mr. Charles Cleaver
American Trans Air
PO Box 51609
7337 West Washington Street
Indianapolis, IN 46251-0609
Subject: AISI Report No.: A2S003BV0
AISI Sight Unseen New Aircraft Base Value Appraisal -
Nine B737-800 Aircraft
Reference: (a) Morgan Stanley Email messages 10 January 2002
Dear Mr. Cleaver:
Aircraft Information Services, Inc. (AISI) is pleased to offer American Trans
Air (ATA) our opinion of the sight unseen base value of nine B737-800 new
aircraft scheduled to be delivered from the manufacturer to ATA between January
2002 and December 2002 as listed and defined in Table I and referenced (a) data
above.
1. METHODOLOGY AND DEFINITIONS
The standard terms of reference for commercial aircraft value are 'base value'
and 'current market value' of an 'average' aircraft. Base value is a theoretical
value that assumes a hypothetical balanced market while current market value is
the value in the real market; both assume a hypothetical average aircraft
condition. All other values are derived from these values. 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 Appraiser.
AISI defines a 'base value' as that of a transaction between an 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, with supply and
demand of the sale item roughly in balance and with no event which would cause a
short term change in the market. Base values are typically given for aircraft in
'new' condition, 'average half-life' condition, or 'adjusted' for an aircraft in
a specifically described condition at a specific time.
Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills CA 9263
TEL 949-582-8888 FAX 949-582-8887 E-MAIL AISINews@aol.com
AII-1
[AISI LOGO]
15 January 2002
AISI File No. A2S003BVO
Page - 2 -
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. AISI also assumes that
airframe, engine and component maintenance and essential records are sufficient
to permit normal commercial operation under a strict airworthiness authority.
'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. An 'adjusted' appraisal reflects an adjustment from half
life condition for the actual condition, utilization, life remaining or time
remaining of an airframe, engine or component.
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
including short term events, 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.
If more than one aircraft is contained in this report than it should be noted
that the values given are not directly additive, that is, the total of the given
values is not the value of the fleet but rather the sum of the values of the
individual aircraft if sold individually over time so as not to exceed demand.
AII-2
[AISI LOGO]
15 January 2002
AISI File No. A2S003BVO
Page - 3 -
2. VALUATION
The aircraft are valued predicated upon the reference (a) data which describes
the aircraft MTOW and any engine upgrades.
Following is AISI's opinion of the base value for the subject aircraft on their
respective scheduled delivery dates in current US Dollars. Valuations are
presented in Table I subject to the assumptions, definitions and disclaimers
herein.
The terrorist actions that occurred in the United States on 11 September 2001
have had a significant negative effect on current market values of all
commercial aircraft as demand for air travel has declined sharply. The amount of
decline varies considerably with new aircraft affected the least and older
aircraft affected the most. The present used aircraft market is considered to be
a distressed market and is very tenuous, with very few transactions upon which
to base value opinions. The best value indicators available at present are lease
rates and numbers of stored aircraft. Base value opinions have also declined but
only where irreversible market changes have occurred with regard to specific
aircraft types in the judgment of AISI. Typically an irreversible market change
occurs when it is believed that the decline in current market value is
permanent, thus causing a corresponding but usually smaller decline in base
value.
AII-3
[AISI LOGO]
15 January 2002
AISI File No. A2S003BV0
Page - 4 -
Table I
Scheduled Aircraft Expected
Manufacturer's Serial Registration New Delivery Base Value-
Delivery Date Number Number Current USDollars
B737-800 (with winglets), CFM56-7B27 Engines, 174,2001b MTOW
Jan-02 32609 N316TZ $49,540,000
Apr-02 32610 N320TZ $49,720,000
May-02 32611 N322TZ $49,870,000
Jun-03 32882 N324TZ $50,010,000
July-02 32884 N325TZ $50,150,000
Oct-02 32612 N326TZ $50,590,000
Nov-02 32613 N32TFZ $50,740,000
Nov-02 32614 N328TZ $50,740,000
Dec-02 32615 N329TZ $50,880,000
AII-4
[AISI LOGO]
15 January 2002
AISI File No. A2S003BV0
Page - 5 -
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 equipment.
AISI has no past, present, or anticipated future interest in the subject
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
party's 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-5
- --------------------------------------------------------------------------------
MORTEN BEYER & AGNEW (MBA) has been retained by American Trans Air (the
"Client") to determine the Current Base Value of (9) Boeing 737-800 aircraft
delivered new as passenger aircraft. The aircraft are further identified in
Section III of this report.
In performing this valuation, MBA did not independently inspect these aircraft
or the associated records and documentation associated with these aircraft. MBA
utilized the technical data of the aircraft provided by the Client, but at
Client's request did not independently verify the accuracy of the technical and
specification data so provided.
Section II of this report presents definitions of various terms, such as Current
Base Value, Current Market Value, Future Base Value, and Lease-Encumbered Value
as promulgated by the Appraisal Program of the International Society of
Transport Aircraft Trading (ISTAT). ISTAT is 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.
Based on the information set forth in this report, it is our opinion as of
January 15, 2002, that the aggregate Current Base Values of these aircraft is
$404,620,000 with the respective values noted in Section V of this report.
AII-6
- --------------------------------------------------------------------------------
CURRENT MARKET VALUE
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an asset under market
circumstances that are perceived to exist at the time in question. Current
Market Value assumes that the asset is valued for its highest, best use,
and the parties to the hypothetical sale transaction are willing, able, prudent
and knowledgeable and under no unusual pressure for a prompt transaction. It
also assumes 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.
Market Value of a specific asset will tend to be consistent with its Base Value
in a stable market environment. In situations where a reasonable equilibrium
between supply and demand does not exist, trading prices, and therefore Market
Values, are likely to be at variance with the Base Value of the asset. Market
Value may be based upon either the actual (or specified) physical condition or
maintenance time or condition status of the asset, or alternatively upon an
assumed average physical condition and mid-life, mid-time maintenance status.
BASE VALUE
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, BV pertains to an idealized aircraft and
market combination, but will not necessarily reflect the actual CMV of the
aircraft in question at any point in time. BV is founded in the historical
trend of values and value in use, and is generally used to analyze historical
values or to project future values.
ISTAT defines Base Value as the Appraiser's opinion of the underlying economic
value of an aircraft, engine, or inventory of aircraft parts/equipment
(hereinafter referred to as "the asset"), in an open, unrestricted, stable
market environment with a reasonable balance of supply and demand. Full
consideration is assumed of its "highest and best use". An asset's Base Value is
founded in the historical trend of values and in the
American Trans Air
Job File #02105
Page 2 of 10
AII-7
projection of value trends and presumes an arm's-length, cash transaction
between willing, able, and knowledgeable parties, acting prudently, with an
absence of duress and with a reasonable period of time available for marketing.
In most cases, the Base Value of an asset assumes the physical condition is
average for an asset of its type and age. It further assumes the maintenance
time/life status is at mid-time, mid-life (or benefiting from an above-average
maintenance status if its is new or nearly new, as the case may be). Since Base
Value pertains to a somewhat idealized asset and market combination it may not
necessarily reflect the actual current value of the asset in question, but is a
nominal starting value to which adjustments may be applied to determine an
actual value. Because it is related to long-term market trends, the Base Value
definition is commonly applied to analyses of historical values and projections
of residual values.
FUTURE BASE VALUE
Future Base Values are established by using the Base Value at the beginning of
the current year (present value), from which point the Future Base Values are
projected. The Base Value used for the purpose of projecting the Future Base
Values consider the aircraft to be at mid-life and mid-time conditions
pertaining to the various aspects of the maintenance status.
The Future Base Values are based on aircraft having an approximate life of 35
years from the date of manufacture. The Future Base Values commence from the
present time to the 35th year from the date of manufacture of this aircraft.
DISTRESS VALUE
Distress Value is the Appraiser's opinion of the price at which an asset could
be sold under abnormal conditions, such as an artificially limited marketing
time period, the perception of the seller being under duress to sell, an
auction, bankruptcy liquidation, commercial restrictions, legal complications,
or other such factors that significantly reduce the bargaining leverage of the
seller and give the buyer a significant advantage that can translate into
heavily discounted actual trading prices. Apart from the fact that the seller is
uncommonly motivated, the parties to the transaction are otherwise assumed to be
willing, able, prudent and knowledgeable, negotiating at arm's-length,
American Trans Air
Job File #02105
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AII-8
normally under the market conditions that are perceived to exist at the time,
not an idealized balanced market. While the Distress Value normally implies that
the seller is under some duress, there are occasions when buyers, not sellers
are under duress or time pressure and, therefore, willing to pay a premium
value.
SECURITIZED VALUE OR LEASE ENCUMBERED VALUE
Securitized Value or Lease Encumbered Value is the Appraiser's opinion of the
value of an asset, under lease, given a specified lease payment stream (rents
and term), and estimated future residual value at lease termination, and an
appropriate discount rate.
The lease encumbered residual value may include consideration of lease
termination conditions and remaining maintenance reserves, if any. The
Securitized Value or Lease-Encumbered Value may be more or less than the
Appraiser's opinion of Current Market Value, taking into account various
factors, such as, the credit risks associated with the parties involved, the
time-value of money to those parties, provisions of the lease that may pertain
to items such as security deposits, purchase options at various dates, term
extensions, sub-lease rights, repossession rights, reserve payments and return
conditions.
American Trans Air
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AII-9
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Boeing 737-800
Seating: 189Y
Engines: CFM56-7B27
MGTOW (lbs): 174,200
American Trans Air
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AII-10
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Boeing 737NG-Next Generation
737-800
HISTORY & DEVELOPMENT
Boeing has taken the "classic" 737 Family and developed the 737-800 as part of
its Next Generation family of aircraft. With upgraded avionics and cockpit and a
redesigned wing, the 737-800 is making its mark in North America and Europe. No
longer a short haul aircraft, it is not uncommon to see this aircraft placed in
transcontinental and on international South American routes, once reserved for
the 757-200. Boeing continues to compete against itself in this market and
judging by the 757-200 order book, the 737 appears to be winning. The 737-800 is
powered exclusively by the CFM56-7 engine, and is also ETOPS capable. The -800
is currently the best seller in the B737 NG family. The newest addition to the
737-800 is the blended winglet technology, which is now in operation with 3
operators worldwide. With 187 seats in an all economy configuration, the 737-800
offers excellent seat mile costs and payload/range capabilities.
MARKET DEVELOPMENT
Like the 737-700, the 737-800 has a very strong presence around the world,
primarily in North America and Europe, and will for sometime to come. The values
of this aircraft have been slightly discounted due to Boeing's aggressive price
cutting in order to keep up with Airbus, and this value deterioration started to
take place even before the events of September 2001. While many of the airlines
are deferring their orders for aircraft, the 737-800 will retain market share as
illustrated by which Qantas assumed a 15 aircraft delivery from American. The
737-800 is expected to be in operation with the Australian carrier in January
2002. The biggest competitor to the 737-800, and the 737-NG series, continues to
be the Airbus A320 family. To date, Airbus is winning with 2789 cumulative
orders to Boeing's 1926.
American Trans Air
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AII-11
MARKET OUTLOOK
A larger number of deferred aircraft is expected as a reaction to September 11,
along with an outright cancellation of some orders as airlines seek to deal with
the falling traffic. Three 737-800s have currently been on the market for sale
since the first quarter of 2001. The outlook for the 737-800 continues to look
strong, as it is still a preferred aircraft with superior operating economics.
STAGE 3 -
The subject aircraft complies with the currently effective Stage III / Chapter
III aircraft noise limitations. However, the FAA and the ICAO are currently
adopting more stringent Stage IV noise regulations. The schedule of their
implementation has not been determined, but when enacted and effective may limit
the continued utilization of the subject aircraft in most areas of the world.
GEOGRAPHIC DISTRIBUTION: BOEING 737-800
[GRAPHIC OMITTED]
North America,
Mexico, Caribbean Europe & CIS
639 Aircraft 209 Aircraft
28 Operators 31 Operators
Asia & Pacific
63 Aircraft
10 Operators
South & Central Africa & Middle East
America 18 Aircraft
24 Aircraft 8 Operators
5 Operators
American Trans Air
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AII-12
- --------------------------------------------------------------------------------
In developing the Current Base Value of these aircraft, MBA did not inspect the
aircraft or their historical maintenance documentation, but relied on partial
information supplied by the Client and not independently verged by MBA.
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 for the aircraft are as follows, for
each aircraft:
1. The aircraft is to be delivered new.
2. The overhaul status of the airframe, engines, landing gear and other
major components are the equivalent of new delivery unless otherwise
specified.
3. The specifications of the aircraft are those most common for an
aircraft of this type new delivery.
4. The aircraft is in a standard airline configuration.
5. Its modification status is comparable to that most common for an
aircraft of its type and vintage.
6. No accounting is made for lease obligations or terms of ownership.
American Trans Air
Job File #02905
Page 8 of 10
AII-13
AMERICAN TRANS AIR (ATA) 2002-1
- --------------------------------------------------------------------------------
Values in ($000,000)
AIRCRAFT DELIVERY SERIAL ENGINE MTOW CURRENT
DATE NUMBER TYPE BASE VALUE
- -------------------------------------------------------------------------------
Boeing 737-800 Jan-02 32609 CFM56-7B27 174,200 44.37
Boeing 737-800 Apr-02 32610 CFM56-7B27 174,200 44.64
Boeing 737-800 May-02 32611 CFM56-7B27 174,200 44.73
Boeing 737-800 Jun-02 32882 CFM56-7B27 174,200 44.83
Boeing 737-800 Jul-02 32884 CFM56-7B27 174,200 44.92
Boeing 737-800 Oct-02 32612 CFM56-7B27 174,200 45.19
Boeing 737-800 Nov-02 32613 CFM56-7B27 174,200 45.28
Boeing 737-800 Nov-02 32614 CFM56-7B27 174,200 45.28
Boeing 737-800 Dec-02 32615 CFM56-7B27 174,200 45.38
-------
TOTAL VALUE 404.62
-------
American Trans Air
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Page 9 of 10
AII-14
- --------------------------------------------------------------------------------
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.
This report has been prepared by:
/s/ BRYSON P. MONTELEONE
BRYSON P. MONTELEONE
VICE-PRESIDENT
Reviewed by:
/s/ MORTEN S. BEYER
JANUARY 15, 2002 MORTEN S. BEYER, APPRAISER FELLOW
CHAIRMAN & CEO
ISTAT CERTIFIED SENIOR APPRAISER
American Trans Air
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Page 10 of 10
AII-15
Simat, Helliesen & Eichner, Inc. Tel: +1-212-682-8455
90 Park Avenue Fax: +1-212-986-1825
New York, New York 10016 Email: cmedland@sh-e.com
SH&E
February 12, 2001
American Trans Air, Inc.
P.O. Box 51609
Indianapolis, IN 46251
Attention:
Mr. Charles Cleaver
Vice President & Treasurer
VALUE OPINION OF NINE BOEING 737-800 AIRCRAFT
INTRODUCTION
Simat, Helliesen & Eichner, Inc. ("SH&E") was asked by American Trans Air, Inc.
(the "Client") to determine the Base Value ("BV") of nine (9) new Boeing 737-800
jet transport aircraft that will be delivered during 2002 (the "Subject
Aircraft").
DETERMINATION
SH&E has determined the aggregate Base Value of the Subject Aircraft to be USD
$398.67 million. The individual aircraft values are shown in Attachment A.
ASSET DESCRIPTION
The Subject Aircraft are newly manufactured Boeing 737-800 aircraft. The type,
maximum takeoff weight, serial number and date of delivery for each of the
Subject Aircraft are shown in Attachment A.
SH&E VALUATION METHODOLOGY
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.
AII-16
American Trans Air, In.
February 12, 2002
Page 2
SH&E's valuation methodology starts by determining a half-life value for the
appraised asset. The term "half-life" represents an asset that is mid-way
between scheduled or routine major repairs and overhauls, with all life-limited
components at half-life. This initial appraisal can then be adjusted (positive
or negative) for each individual unit to reflect the asset's maintenance status
relative to the next overhaul. In most cases, the half-life value of an asset
assumes its physical condition is average and its maintenance time is at
mid-life (or benefiting 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 an
annual basis by reviewing recent past sales, aircraft and engine availability
trends, technological aspects, environmental constraints and maintenance
requirements.
DEFINITION OF BASE VALUE
The Base Value ("BV") is the appraiser's opinion of the underlying economic
value of an asset in an open, unrestricted and stable market environment with a
reasonable balance of supply and demand, and also assumes full considerations of
its "highest and best use". An asset'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 between willing, able and knowledgeable parties, acting prudently,
with an absence of duress and with a reasonable period of time available for
marketing.
Since BV pertains to a somewhat idealized asset and market combination it may
not necessarily reflect the actual value of the asset in question, but is a
nominal starting value to which adjustments may be applied to determine an
actual value. Since BV is related to long-term market trends, the BV definition
is normally applied to analyses of historical values and projections of residual
values and lease rates.
ASSUMPTIONS
SH&E used information supplied by the Client together with in-house data
accumulated through other recent studies of aircraft transactions. Specific
assumptions include the following:
o SH&E did not perform a physical inspection of the Subject Aircraft and
has assumed that they will be in a condition similar to equipment of
comparable age and type.
o All normally required maintenance will be performed including
compliance with all Airworthiness Directives.
o All of the data and information provided by the Client is an accurate
representation of the actual conditions or circumstances of the
Subject Aircraft.
AII-17
American Trans Air, In.
February 12, 2002
Page 3
o All maintenance records are complete and accurate, in compliance with
all regulatory requirements and in accordance with accepted industry
standards.
o The Subject Aircraft will not have been involved in any major incident
or accident that resulted in significant damage.
o The Subject Aircraft will remain in their delivery configuration and
continue to be certified for operations under the U.S. Federal
Aviation Administration (or a comparable authority).
o The Maximum Take-off Weights (MTOW) of the Subject Aircraft are as
shown on Attachment A.
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.
QUALIFICATIONS
Founded in 1963 and with offices in New York, Boston, Washington, London and
Amsterdam, SH&E is the world's largest consulting firm specializing in
commercial aviation. Its staff of over 90 personnel encompasses expertise in all
disciplines of the industry and the firm has provided appraisal, consulting,
strategic planning and technical services to airlines, leasing companies,
government agencies, airframe and engine manufacturers, and financial
institutions.
A related service that SH&E offers its clients is Asset Management. Over the
last few years, SH&E has been the principal Asset Manager responsible for the
recovery and subsequent remarketing of a number of individual aircraft and some
significant portfolios. In addition, we have been the advisors and re-marketing
agents to Bank of New York, NationsCredit, NationsBank, Greyrock Capital,
Potomac, Concorde, Integrated Resources and the First Fidelity Trust. In the
course of those and other similar assignments we have sold, leased or parted-out
over 150 aircraft, a like number of engines and approximately $30 million worth
of spare parts.
In addition to the above aircraft valuations, SH&E annually values in excess of
$1 billion worth of aircraft spare parts and spare engines. We have developed a
statistically based methodology for the appraisal of spare parts that provides
accurate valuations with known confidence levels. SH&E has also valued a number
of portfolios of ground equipment, the valuations of which have
AII-18
American Trans Air, In.
February 12, 2002
Page 4
been assisted by our recent acquisition, on behalf of a client, of sufficient
ground equipment for the start-up of an eight aircraft airline.
This active participation in the market place provides SH&E with practical and
first hand knowledge of aircraft values and lease rates. SH&E annually appraises
aviation equipment worth over $20 billion. The major U.S. bond rating agencies
have used SH&E's Residual Value model to validate their own depreciation
schedules.
LIMITATIONS
The opinions expressed herein are not given as an inducement or endorsement for
any financial transaction. Although they are prepared for the exclusive use of
the addressee, the addressee may provide this report to 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 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
Senior Vice President
Senior Appraiser
International Society of Transport Aircraft Trading
Att.
AII-19
BASE VALUES
(USD $ Millions)
- --------------------------------------------------------------------------------
Delivery Serial MTOW Base
# Aircraft Type Date Number (lbs) Engine Type Value
- --------------------------------------------------------------------------------
1 Boeing 737-800 Jan-02 32609 174,200 CFM 56-7B27 $42.90
- --------------------------------------------------------------------------------
2 Boeing 737-800 Apr-02 32610 174,200 CFM 56-7B27 $43.55
- --------------------------------------------------------------------------------
3 Boeing 737-800 May-02 32611 174,200 CFM 56-7B27 $43.77
- --------------------------------------------------------------------------------
4 Boeing 737-800 Jun-02 32882 174,200 CFM 56-7B27 $43.98
- --------------------------------------------------------------------------------
5 Boeing 737-800 Jul-02 32884 174,200 CFM 56-7B27 $44.20
- --------------------------------------------------------------------------------
6 Boeing 737-800 Oct-02 32612 174,200 CFM 56-7B27 $44.85
- --------------------------------------------------------------------------------
7 Boeing 737-800 Nov-02 32613 174,200 CFM 56-7B27 $45.07
- --------------------------------------------------------------------------------
8 Boeing 737-800 Nov-02 32614 174,200 CFM 56-7B27 $45.07
- --------------------------------------------------------------------------------
9 Boeing 737-800 Dec-02 32615 174,200 CFM 56-7B27 $45.28
- --------------------------------------------------------------------------------
TOTAL $398.67
- --------------------------------------------------------------------------------
AII-20
================================================================================
No dealer, sales person or other person has been authorized to give any
information or to make any representations in connection with the offer
contained herein other than those contained in this prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company. This prospectus does not constitute an offer to sell
or the solicitation of an offer to buy to any person in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall under any circumstances create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
================================================================================
$203,612,000
CLASS A PASS THROUGH CERTIFICATES,
SERIES 2002-1
$56,280,000
CLASS B PASS THROUGH CERTIFICATES,
SERIES 2002-1
AMERICAN TRANS AIR, INC.
Applicable Underlying Payments Fully and
Unconditionally Guaranteed by
ATA Holdings Corp.
OFFER TO EXCHANGE
$203,612,000 Class A Pass Through Certificates and
$56,280,000 Class B Pass Through Certificates
FOR
A Like Amount of Registered Class A and Class B
Pass Through Certificates
------------------------
PROSPECTUS
------------------------
================================================================================
(This page has been left blank intentionally.)
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 OF DOCUMENTS
- ------------- ---------------------------------------------------------------
*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 [ ],
between Wells Fargo Bank Northwest, N.A., not in its individual capacity, except as expressly
provided herein, but solely as Owner Trustee, Owner Trustee, and Wilmington Trust Company, not in
its individual capacity, except as expressly provided herein, but solely as Loan Trustee, Loan
Trustee
**4.2 -- Form of Indenture (Owned Aircraft) Trust Indenture and Mortgage, dated as of [ ],
between American Trans Air, Inc., Owner, and Wilmington Trust Company, not in its individual
capacity, except as expressly stated herein, but solely as Mortgagee, Mortgagee
**4.3 -- Form of Class A American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.5)
**4.4 -- Form of Class B American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.6)
**4.5 -- Pass Through Trust Agreement, dated as of March 28, 2002, between Amtran, Inc., American Trans
Air, Inc. and Wilmington Trust Company, as Trustee, made with respect to the formation of
American Trans Air 2002-1A Pass Through Trust and the issuance of 8.328% Initial American Trans
Air 2002-1A Pass Through Trust Certificates and 8.328% Exchange American Trans Air 2002-1A Pass
Through Certificates
**4.6 -- Pass Through Trust Agreement, dated as of March 28, 2002, between Amtran, Inc., American Trans
Air, Inc. and Wilmington Trust Company, as Trustee, made with respect to the formation of American
Trans Air 2002-1B Pass Through Trust and the issuance of 10.699% Initial American Trans Air 2002-1B
Pass Through Certificates and 10.699% Exchange American Trans Air 2002-1B Pass Through Certificates
**4.7 -- Revolving Credit Agreement (2002-1A), dated as of March 28, 2002, between Wilmington Trust
Company, not in its individual capacity but solely as Subordination Agent, as agent and trustee
for the American Trans Air 2002-1A Pass Through Trust, as Borrower, and AIG Matched Funding Corp.,
as Liquidity Provider, relating to American Trans Air 2002-1A Pass Through Trust, Series 2002-1A,
and 8.328% American Trans Air Pass Through Certificates, Series 2002-1A
**4.8 -- Revolving Credit Agreement (2002-1B), dated as of March 28, 2002, between Wilmington Trust Company,
not in its individual capacity but solely as Subordination Agent, as agent and trustee for the
American Trans Air 2002-1B Pass Through Trust, as Borrower, and AIG Matched Funding Corp., as
Liquidity Provider, relating to American Trans Air 2002-1B Pass Through Trust, Series 2002-1B
10.699% American Trans Air Pass Through Certificates, Series 2002-1B
**4.9 -- Intercreditor Agreement, dated as of March 28, 2002, among Wilmington Trust Company, not in its
individual capacity but solely as Trustee under the American Trans Air 2002-1A
II-1
Pass Through Trust and American Trans Air 2002-1B Pass Through Trust, AIG Matched Funding Corp.,
as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company,
not in its individual capacity except as expressly set forth herein but solely as
Subordination Agent and Trustee
**4.10 -- Registration Rights Agreement, dated as of March 28, 2002, among American Trans Air, Inc., Amtran,
Inc., Wilmington Trust Company, not in its individual capacity but solely as Trustee under American
Trans Air 2002-1A Pass Through Trust and American Trans Air-Pass Through Trust and Nyala Funding
LLC and PK Airfinance US, Inc.
**4.11 -- Deposit Agreement (Class A), dated as of March 28, 2002, between Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Intesa BCI S.P.A., acting through its New York Branch,
as Depositary
**4.12 -- Deposit Agreement (Class B), dated as of March 28, 2002, between Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Intesa BCI S.P.A., acting through its New York Branch,
as Depositary
**4.13 -- Escrow and Paying Agent Agreement (Class A), dated as of March 28, 2002, among Wells Fargo Bank
Northwest, National Association, as Escrow Agent, Nyala Funding LLC, as Purchaser, Wilmington Trust
Company, not in its individual capacity but solely as Pass Through Trustee for and on behalf of
American Trans air 2002-1A Pass Through Trust, as Pass Through Trustee, and Wilmington Trust
Company, as Paying Agent
**4.14 -- Escrow and Paying Agent Agreement (Class B), dated as of March 28, 2002, among Wells Fargo Bank
Northwest, National Association as Escrow Agent, Nyala Funding LLC, as Purchaser, Wilmington Trust
Company, not in its individual capacity but solely as Pass Through Trustee for and on behalf of
American Trans Air 2002-1B Pass Through Trust, as Pass Through Trustee, and Wilmington Trust
Company, as Paying Agent
**4.15 -- Note Purchase Agreement, dated as of March 28, 2002, 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, Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent
**4.15a-- Note Purchase Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002, among
American Trans Air, Inc., ATA Holdings Corp. (f/k/a 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, Wells Fargo Bank Northwest, National Association, as Escrow Agent
and Wilmington Trust Company, as Paying Agent
**4.16 -- Indemnity Agreement, dated as of March 28, 2002, between IntesaBci S.P.A., New York Branch, as
Depositary, American Trans Air, Inc. and Amtran, Inc.
**4.17 -- Delayed Funding Implementation Agreement, dated as of March 28, 2002, among American Trans Air,
Inc., Company, Amtran, Inc., Guarantor, Wilmington Trust Company, as Pass Through Trustee under
each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wells
Fargo Bank Northwest, National Association, as Escrow Agent, Wilmington Trust Company, as Paying
Agent, AIG Matched Funding Corp., as Class A Liquidity Provider and Class B Liquidity Provider,
Nyala Funding LLC, as Initial Purchaser of Class A Certificates and PK Airfinance US, Inc. as
Initial Purchaser of Class B Certificates
**4.17a-- Delayed Funding Implementation Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15,
2002, among American Trans Air, Inc., ATA Holdings Corp. (f/k/a 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, Wells Fargo Bank Northwest, National Association,
as Escrow Agent, Wilmington Trust Company, as Paying Agent, AIG Matched Funding Corp., as Class A
Liquidity
II-2
Provider and Class B Liquidity Provider, Nyala Funding LLC, as Initial Purchaser of Class A
Certificates, and PK Airfinance US, Inc. as Initial Purchaser of Class B Certificates
**4.18 -- Delayed Deposit Agreement (Class A), dated as of March 28, 2002, between Wells Fargo Bank
Northwest, National Association, as Escrow Agent and IntesaBci S.P.A., acting through its New York
Branch, as Depositary
**4.19 -- Delayed Deposit Agreement (Class B), dated as of March 28, 2002, between Wells Fargo Bank
Northwest, National Association, as Escrow Agent, and IntesaBci S.P.A., acting through its New York
Branch, as Depositary
**4.19a-- Delayed Deposit Agreement (Class B) Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002,
between Wells Fargo Bank Northwest, National Association, as Escrow Agent and IntesaBci S.P.A.,
acting through its New York Branch, as Depositary
**4.20 -- Delayed Indemnity Agreement, dated as of March 28, 2002, between IntesaBci S.P.A., New York Branch,
as Depositary, American Trans Air, Inc. and Amtran, Inc.
**4.20a-- Delayed Indemnity Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002,
between IntesaBci S.P.A., acting through its New York Branch, as Depositary, American Trans Air,
Inc., and ATA Holdings Corp. (f/k/a Amtran, Inc.)
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 ATA Holdings Corp.
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 AISI
**23.4 -- Consent of MBA
**23.5 -- Consent of SH&E
**23.6 -- Consent of Brian T. Hunt, General Counsel of ATA Holdings Corp. (included in Exhibit 5.2)
**24.1 -- Power of Attorney (see signature page in Part II of Registration Statement)
25.1 -- Statement of Eligibility of Wilmington Trust Company for the 2002-1A Pass Through Certificates, on
Form T-1
25.2 -- Statement of Eligibility of Wilmington Trust Company for the 2002-1B Pass Through Certificates, on
Form T-1
* Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement on
Form S-1 (File No. 33-59630), and incorporated herein by reference.
** 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
II-3
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 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 on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Indianapolis, State of Indiana, on the 17th day of January, 2003.
ATA Holdings Corp.
By /s/ J. George Mikelsons
-----------------------------------------
J. George Mikelsons
Chairman of the Board of Directors
POWER OF ATTORNEY
The undersigned directors and officers of ATA Holdings Corp. do hereby
constitute and appoint Kenneth K. Wolff, with full power of substitution, our
true and lawful attorney-in-fact and agent to do any and all acts and things in
our name and behalf in our capacities as directors and officers, and to execute
any and all instruments for us and in our names in the capacities indicated
below which such person may deem necessary or advisable to enable ATA Holdings
Corp. to comply with the Securities Act of 1933, as amended (the "Securities
Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us, or any of
us, in the capacities indicated below and any and all amendments (including
pre-effective and post-effective amendments or any other registration statement
filed pursuant to the provisions of Rule 462(b) under the Securities Act)
hereto; and we do hereby ratify and confirm all that such person or persons
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLES DATES
---------- ------ -----
/S/ J. GEORGE MIKELSONS Chairman of the Board of Directors and January 17, 2003
- ---------------------------------------- Chief Executive Officer
(J. GEORGE MIKELSONS)
/S/ JAMES W. HLAVACEK Executive Vice President and Chief January 17, 2003
- --------------------------------------- Operating Officer and Director
(JAMES W. HLAVACEK)
/S/ KENNETH K. WOLFF Executive Vice President and Chief January 17, 2003
- --------------------------------------- Financial Officer and Director
(KENNETH K. WOLFF) (Principal Financial and
Accounting Officer)
II-5
/S/ ROBERT A. ABEL Director January 17, 2003
- ----------------------------------------
(ROBERT A. ABEL)
/S/ CLAUDE E. WILLIS Director January 17, 2003
- -----------------------------------
(CLAUDE E. WILLIS)
/S/ ANDREJS P. STIPNIEKS Director January 17, 2003
- -----------------------------------------
(ANDREJS P. STIPNIEKS)
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Indianapolis, State of Indiana, on the 17th day of January, 2003.
American Trans Air, Inc.
By /s/ J. George Mikelsons
------------------------------------------
J. George Mikelsons
Sole Director
II-6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
- ------------- ---------------------------------------------------------------
*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 [ ],
between Wells Fargo Bank Northwest, N.A., not in its individual capacity, except as expressly
provided herein, but solely as Owner Trustee, Owner Trustee, and Wilmington Trust Company, not in
its individual capacity, except as expressly provided herein, but solely as Loan Trustee, Loan
Trustee
**4.2 -- Form of Indenture (Owned Aircraft) Trust Indenture and Mortgage, dated as of [ ],
between American Trans Air, Inc., Owner, and Wilmington Trust Company, not in its individual
capacity, except as expressly stated herein, but solely as Mortgagee, Mortgagee
**4.3 -- Form of Class A American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.5)
**4.4 -- Form of Class B American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.6)
**4.5 -- Pass Through Trust Agreement, dated as of March 28, 2002, between Amtran, Inc., American Trans
Air, Inc. and Wilmington Trust Company, as Trustee, made with respect to the formation of
American Trans Air 2002-1A Pass Through Trust and the issuance of 8.328% Initial American Trans
Air 2002-1A Pass Through Trust Certificates and 8.328% Exchange American Trans Air 2002-1A Pass
Through Certificates
**4.6 -- Pass Through Trust Agreement, dated as of March 28, 2002, between Amtran, Inc., American Trans
Air, Inc. and Wilmington Trust Company, as Trustee, made with respect to the formation of American
Trans Air 2002-1B Pass Through Trust and the issuance of 10.699% Initial American Trans Air 2002-1B
Pass Through Certificates and 10.699% Exchange American Trans Air 2002-1B Pass Through Certificates
**4.7 -- Revolving Credit Agreement (2002-1A), dated as of March 28, 2002, between Wilmington Trust
Company, not in its individual capacity but solely as Subordination Agent, as agent and trustee
for the American Trans Air 2002-1A Pass Through Trust, as Borrower, and AIG Matched Funding Corp.,
as Liquidity Provider, relating to American Trans Air 2002-1A Pass Through Trust, Series 2002-1A,
and 8.328% American Trans Air Pass Through Certificates, Series 2002-1A
**4.8 -- Revolving Credit Agreement (2002-1B), dated as of March 28, 2002, between Wilmington Trust Company,
not in its individual capacity but solely as Subordination Agent, as agent and trustee for the
American Trans Air 2002-1B Pass Through Trust, as Borrower, and AIG Matched Funding Corp., as
Liquidity Provider, relating to American Trans Air 2002-1B Pass Through Trust, Series 2002-1B
10.699% American Trans Air Pass Through Certificates, Series 2002-1B
**4.9 -- Intercreditor Agreement, dated as of March 28, 2002, among Wilmington Trust Company, not in its
individual capacity but solely as Trustee under the American Trans Air 2002-1A
Pass Through Trust and American Trans Air 2002-1B Pass Through Trust, AIG Matched Funding Corp.,
as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company,
not in its individual capacity except as expressly set forth herein but solely as
Subordination Agent and Trustee
**4.10 -- Registration Rights Agreement, dated as of March 28, 2002, among American Trans Air, Inc., Amtran,
Inc., Wilmington Trust Company, not in its individual capacity but solely as Trustee under American
Trans Air 2002-1A Pass Through Trust and American Trans Air-Pass Through Trust and Nyala Funding
LLC and PK Airfinance US, Inc.
**4.11 -- Deposit Agreement (Class A), dated as of March 28, 2002, between Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Intesa BCI S.P.A., acting through its New York Branch,
as Depositary
**4.12 -- Deposit Agreement (Class B), dated as of March 28, 2002, between Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Intesa BCI S.P.A., acting through its New York Branch,
as Depositary
**4.13 -- Escrow and Paying Agent Agreement (Class A), dated as of March 28, 2002, among Wells Fargo Bank
Northwest, National Association, as Escrow Agent, Nyala Funding LLC, as Purchaser, Wilmington Trust
Company, not in its individual capacity but solely as Pass Through Trustee for and on behalf of
American Trans air 2002-1A Pass Through Trust, as Pass Through Trustee, and Wilmington Trust
Company, as Paying Agent
**4.14 -- Escrow and Paying Agent Agreement (Class B), dated as of March 28, 2002, among Wells Fargo Bank
Northwest, National Association as Escrow Agent, Nyala Funding LLC, as Purchaser, Wilmington Trust
Company, not in its individual capacity but solely as Pass Through Trustee for and on behalf of
American Trans Air 2002-1B Pass Through Trust, as Pass Through Trustee, and Wilmington Trust
Company, as Paying Agent
**4.15 -- Note Purchase Agreement, dated as of March 28, 2002, 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, Wells Fargo Bank Northwest,
National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent
**4.15a-- Note Purchase Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002, among
American Trans Air, Inc., ATA Holdings Corp. (f/k/a 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, Wells Fargo Bank Northwest, National Association, as Escrow Agent
and Wilmington Trust Company, as Paying Agent
**4.16 -- Indemnity Agreement, dated as of March 28, 2002, between IntesaBci S.P.A., New York Branch, as
Depositary, American Trans Air, Inc. and Amtran, Inc.
**4.17 -- Delayed Funding Implementation Agreement, dated as of March 28, 2002, among American Trans Air,
Inc., Company, Amtran, Inc., Guarantor, Wilmington Trust Company, as Pass Through Trustee under
each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wells
Fargo Bank Northwest, National Association, as Escrow Agent, Wilmington Trust Company, as Paying
Agent, AIG Matched Funding Corp., as Class A Liquidity Provider and Class B Liquidity Provider,
Nyala Funding LLC, as Initial Purchaser of Class A Certificates and PK Airfinance US, Inc. as
Initial Purchaser of Class B Certificates
**4.17a-- Delayed Funding Implementation Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15,
2002, among American Trans Air, Inc., ATA Holdings Corp. (f/k/a 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, Wells Fargo Bank Northwest, National Association,
as Escrow Agent, Wilmington Trust Company, as Paying Agent, AIG Matched Funding Corp., as Class A
Liquidity Provider and Class B Liquidity Provider, Nyala Funding LLC, as Initial Purchaser of Class A
Certificates, and PK Airfinance US, Inc. as Initial Purchaser of Class B Certificates
**4.18 -- Delayed Deposit Agreement (Class A), dated as of March 28, 2002, between Wells Fargo Bank
Northwest, National Association, as Escrow Agent and IntesaBci S.P.A., acting through its New York
Branch, as Depositary
**4.19 -- Delayed Deposit Agreement (Class B), dated as of March 28, 2002, between Wells Fargo Bank
Northwest, National Association, as Escrow Agent, and IntesaBci S.P.A., acting through its New York
Branch, as Depositary
2
**4.19a-- Delayed Deposit Agreement (Class B) Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002,
between Wells Fargo Bank Northwest, National Association, as Escrow Agent and IntesaBci S.P.A.,
acting through its New York Branch, as Depositary
**4.20 -- Delayed Indemnity Agreement, dated as of March 28, 2002, between IntesaBci S.P.A., New York Branch,
as Depositary, American Trans Air, Inc. and Amtran, Inc.
**4.20a-- Delayed Indemnity Agreement Amendment No. 1 [ATA EETC 2002-1], dated as of October 15, 2002,
between IntesaBci S.P.A., acting through its New York Branch, as Depositary, American Trans Air,
Inc., and ATA Holdings Corp. (f/k/a Amtran, Inc.)
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 ATA Holdings Corp.
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 AISI
**23.4 -- Consent of MBA
**23.5 -- Consent of SH&E
**23.6 -- Consent of Brian T. Hunt, General Counsel of ATA Holdings Corp. (included in Exhibit 5.2)
**24.1 -- Power of Attorney (see signature page in Part II of Registration Statement)
25.1 -- Statement of Eligibility of Wilmington Trust Company for the 2002-1A Pass Through Certificates, on
Form T-1
25.2 -- Statement of Eligibility of Wilmington Trust Company for the 2002-1B Pass Through Certificates, on
Form T-1
* Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement on
Form S-1 (File No. 33-59630), and incorporated herein by reference.
** Previously filed.
- ------------------------
3