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<SEC-DOCUMENT>0000931763-01-000754.txt : 20010409
<SEC-HEADER>0000931763-01-000754.hdr.sgml : 20010409
ACCESSION NUMBER: 0000931763-01-000754
CONFORMED SUBMISSION TYPE: 10-K405/A
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010402
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AIRTRAN HOLDINGS INC
CENTRAL INDEX KEY: 0000948846
STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512]
IRS NUMBER: 582189551
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405/A
SEC ACT:
SEC FILE NUMBER: 001-15991
FILM NUMBER: 1592116
BUSINESS ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
BUSINESS PHONE: 4072515600
MAIL ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405/A
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<DESCRIPTION>FORM 10-K405\A
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---------------- -----------------
Commission File No.: 0-26914
AIRTRAN HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 58-2189551
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9955 AirTran Boulevard, Orlando, Florida 32827
-----------------------------------------------
(Address of principal executive offices) (Zip code)
(407) 251-5600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based on the closing sales price of such stock in the American Stock
Exchange on March 1, 2001, was approximately $551.3 million. As of March 1,
2001, the registrant had approximately 66,583,000 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement, to be used in connection with the solicitation
of proxies to be voted at the registrant's annual meeting of stockholders to be
held on May 16, 2001 and to be filed with the Commission, are incorporated by
reference into Part III of this Report on Form 10-K.
Exhibit Index is located on pages 38-40
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
All of the operations of AirTran Holdings, Inc. (AirTran) are conducted by our
wholly owned subsidiary, AirTran Airways, Inc., which is the second-largest
affordable-fare scheduled airline in the United States in terms of departures.
We offer scheduled airline service serving short-haul markets, primarily from
our hub in Atlanta, Georgia. To date, we operate 55 aircraft making
approximately 314 flights per day serving 34 cities throughout the eastern
United States.
We have created a successful niche for AirTran in selected markets by targeting
two primary segments: price-sensitive business and leisure travelers. In
addition to offering an affordable-fare alternative to higher-priced airlines,
we contribute towards the overall growth of the markets we serve by stimulating
demand among travelers who may otherwise utilize ground transportation or not
travel at all. Our service is intended not only to satisfy the transportation
needs of our target customers, but to provide customers with a travel experience
worth repeating. The success of this strategy is evidenced by the 7.6 million
revenue passengers we carried in the year ended December 31, 2000. With this
traffic and revenue base, our operating margins rank among the highest in the
domestic airline industry. We achieved this result through a cost structure that
ranks among the lowest in the industry (in terms of cost per available seat
mile).
We have undertaken a number of key initiatives in recent years to strengthen our
competitive position, the most noteworthy of which is our fleet renewal plan. We
are in the process of replacing and upgrading our fleet of aircraft through the
acquisition of 50 new Boeing 717 (B717) aircraft by October 2003, 16 of which we
operated as of December 31, 2000. We were Boeing's launch customer for the B717,
which was designed specifically for efficient short-haul service and is
considered among the most modern, innovative, comfortable and environmentally
friendly commercial aircraft available today. As a result, we believe the
addition of the B717s will enhance our overall image and operating performance.
In addition to our fleet renewal plan, other key initiatives implemented in the
last two years include:
. the hiring of a management team with substantial industry experience;
. innovative pricing and customer retention programs, such as our unique
$25 business class upgrade and special advance and walk-up fares;
. entry into selected new markets that offer attractive growth
opportunities;
. development of alternate sales distribution channels, including our
low-cost internet website; and
. continuous safety and quality improvements, including maintenance
training improvements that have resulted in the receipt of maintenance
awards from the Federal Aviation Administration (FAA).
These efforts have resulted in a number of improvements in our operating and
financial performance. For the year ended December 31, 2000, our traffic,
measured in revenue passenger
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miles, grew 18.5% relative to the year ended December 31, 1999, resulting in a
6.7 percentage point increase in load factor. Over the same time period, we were
able to improve our yield by 4.9%, resulting in a 16.0% increase in revenue per
available seat mile. Revenues and EBITDAR for the year ended December 31, 2000,
grew to $624.1 million and $116.9 million, respectively. We have also generated
significant cash flow as evidenced by the increase in our cash balances from
$76.2 million at December 31, 1999, to $103.8 million at December 31, 2000.
We expect our improved operating and financial performance to continue,
supported by a strong market in our Atlanta hub, solid overall industry revenue
fundamentals and an improving competitive environment. To build on these
underlying fundamentals and the renewal of our fleet, we have developed a
conservative growth plan which leverages our business model by adding flights to
existing destinations, adding routes to other cities from Atlanta and
selectively entering new markets.
COMPETITIVE STRENGTHS
Strong Customer Acceptance. We believe that the consistent increases in customer
demand for our service demonstrates the success of our affordable-fare, low-cost
business model. For the year ended December 31, 2000, as compared to the year
ended December 31, 1999, our passenger load factor grew 6.7 percentage points to
70.2% from 63.5%, while our average yield climbed 4.9% to 14.7 cents per revenue
passenger mile.
Low Cost Structure. Our cost structure ranks among the lowest in the domestic
airline industry, in terms of cost per available seat mile, allowing us to be
profitable with our affordable-fare pricing strategy, and offering us a measure
of protection against potential price competition or declines in demand. Our
relatively low operating costs are made possible through our company-wide
emphasis on cost controls including what we believe to be our lower labor costs,
lower distribution costs and the higher productivity of our workgroups. We
expect further cost reductions to result from our ability to leverage our
existing infrastructure for future growth and the acquisition of our new B717
aircraft, which have significantly lower maintenance and fuel requirements than
our current fleet of McDonnell Douglas DC-9 (DC-9) and Boeing 737 (B737)
aircraft.
Attractive Atlanta Hub and Route Network. We control 22 gates from a single
concourse under long-term leases at Hartsfield Atlanta International Airport,
where local traffic growth is projected to grow 8% per year versus a 4% growth
rate for other airports nationwide. Atlanta's location favorably positions the
airport to provide connecting traffic to major population centers. We are the
second-largest airline in Atlanta in terms of the number of departures offered.
Diversified Traffic Base. In serving both the leisure and business traveler, we
believe we had a revenue mix of 44% leisure and 56% business in 2000. In
addition, we now have a hub traffic mix that consists of 54% local passengers
and 46% connecting passengers. In addition to providing a number of marketing
and cost synergies, this diversification adds stability to our revenues by
protecting against factors that may impact individual segments of our business.
Management Team. We have in place an experienced management "Leadership Team,"
all but two of whom joined us in 1999 and 2000. The members of our Leadership
Team average 22 years of experience in the airline industry. This Leadership
Team is lead by Joe Leonard, our Chairman and
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Chief Executive Officer and Bob Fornaro, our President. Messrs. Leonard and
Fornaro have held senior management positions with AlliedSignal, Northwest
Airlines, Eastern Air Lines, US Airways, and American Airlines.
BUSINESS STRATEGY
Continue Affordable Pricing and Other Programs to Generate Additional Customer
Traffic. We have consistently maintained our competitive position by providing
affordable fares to appeal to price sensitive travelers. We intend to continue
this successful strategy, which is made possible by our comparatively low cost
structure, to stimulate new demand for air travel. We also believe our fare
strategy will continue to attract customers from other higher-priced airlines.
We will continue to enhance our affordable approach with innovative marketing,
pricing and customer loyalty programs such as including a business class
product, advanced seat assignment and a frequent flyer program.
Leverage Growing Atlanta Hub to Selectively Expand Route Structure. We have a
strong presence in Atlanta, a market that has grown rapidly in recent years.
Atlanta's large traffic base and geographic position provides a strong hub from
which we plan to selectively expand our routes. We believe that there are
numerous markets in the United States that are underserved by major airlines or
present opportunities for an affordable-fare airline. As a result, we intend to
selectively add to our route structure from Atlanta by increasing the number of
flights to markets we currently serve from Atlanta and by adding new cities and
markets. Expansion of our Atlanta hub allows us to leverage our existing
infrastructure, which will reduce unit costs and contribute to improvement of
our operating margins. In addition, we may selectively add new "point-to-point"
routes between cities other than Atlanta that we currently serve and create
additional focus cities.
Increase Bookings Through the Internet and Other Distribution Channels. We
believe we are the leader in the U.S. airline industry with respect to bookings
via the internet, offering lower costs and improved product availability as
compared to more traditional direct and agency channels. We employ the internet
as an integral portion of our marketing strategy utilizing our website,
AIRTRAN.COM, which was launched in May 1998. In addition to being user-friendly
and simple, our website is designed to sell tickets efficiently. As a result, we
have experienced rapid growth in our internet bookings, which generated over
one-third of our total bookings for the quarter ended December 31, 2000.
Fleet Renewal Program. In September 1999, we took delivery of our first B717 as
part of a comprehensive plan to replace and upgrade our fleet of aircraft. We
have contracted with Boeing for the acquisition of 50 B717 aircraft for delivery
through October 2003, 16 of which were delivered through December 31, 2000, and
two of which were delivered in January and February 2001. We also have options
and purchase rights to acquire up to 50 additional B717 aircraft. The B717 is
ideally suited for the short-haul, high-frequency service that we operate. The
B717 offers additional operating efficiencies to our already low cost structure.
Despite having greater thrust, the new aircraft burns approximately 24% less
fuel per hour than our DC-9 and B737 aircraft. With up to 60% fewer parts in its
environmental, avionics and electrical systems than the DC-9s, we expect the
B717 to significantly reduce our fleet maintenance costs.
Improve Revenue Management Through New Software System. Although we have been
able to
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generate significant increases in our yield and load factors over the past
several years, we believe that further improvement can be achieved with the
implementation an automated revenue management system. We have contracted with
PROS Management Systems, an internationally recognized revenue management
specialist, to develop, install and implement their revenue management product
in order to further achieve improvements in yield and load factor. We anticipate
the system will be fully operational during the second quarter of 2001.
FARES, ROUTE SYSTEM AND SCHEDULING
Our markets served from Atlanta are located predominantly in the eastern United
States. These markets are attractive to us due to the concentration of major
population centers within relatively short distances from Atlanta, historically
high air fares and the potential for attracting a significant number of leisure
and business customers.
We presently serve 33 cities from Atlanta with up to fourteen daily frequencies
in certain markets. Our schedules are designed to provide convenient service and
connections for our business and leisure travelers and to facilitate connections
for our passengers traveling through Atlanta.
We offer a range of fares based on advance purchases of 14 days, 7 days, 3 days
and "walk-up" fares. We manage the availability of seats, at each fare level, by
day of week and by flight to maximize revenue on peak-travel days. All of our
fares are one-way and most are nonrefundable, but can be changed prior to
departure with a service charge. Our fares generally do not require a round trip
purchase or a minimum stay (e.g., Saturday night stay). Our fare offerings are
in direct contrast to prevalent pricing policies in the industry where there are
typically many different price offerings and restrictions for seats on any one
flight. We have established interline ticketing and baggage agreements with
Delta, United, US Airways, TWA and American Trans Air, which we believe can
increase revenue opportunities for us and assist with accommodating passengers
during irregular operations.
In the future, we may add additional service between cities already served by us
or may add service to new markets. Alternatively, we may terminate unprofitable
routes. Our selection of markets depends on a number of factors existing at the
time service to such market is being considered. In our city selection process,
we consider the market demographics, the support offered by the airport
communities to be served, the ability to stimulate air travel and competitive
factors. Consequently, there can be no assurance that we will continue to
provide service to all of the markets we currently serve or that we will not
provide service to any other particular market.
COMPETITION
The airline industry is highly competitive and is served by numerous companies.
Airlines compete on the basis of markets served, price, schedule (frequency and
flight times), quality of service, amenities, frequent flyer programs and other
services. We compete with other airlines primarily on the basis of price, which
is made possible by our low cost structure relative to other airlines, and by
focusing on selected short-haul markets in the eastern United States. We may
face greater competition from existing or new carriers in the future which could
result in a negative impact to our business and operating results.
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Competitors with greater financial resources than ours may price their fares at
or below our fares or increase their service. This competition could prevent us
from attaining a share of the passenger traffic necessary to sustain profitable
operations. Our ability to meet price competition depends on our ability to
operate at costs equal to or lower than our competitors or potential
competitors.
Despite the intense competition in the airline industry, we believe that one of
our competitive strengths is our control of 22 gates on a single concourse at
Hartsfield Atlanta International Airport. Atlanta's central location in the
southeastern United States favorably positions the airport to provide connecting
traffic to major population centers. We are the second largest airline in
Atlanta in terms of the number of departures offered and we consider our
position in this major hub to be a significant competitive advantage.
MAINTENANCE, REPAIRS AND TRAINING
Since all of our DC-9 and B737 aircraft are more than 20 years old, they will
generally require higher maintenance expense than newer aircraft. We believe
that our aircraft are mechanically reliable and that in the long-term the
estimated cost of maintenance to fly such aircraft will be within industry norms
for these fleet types. Amendments to FAA regulations are under consideration,
which would require certain heavy maintenance checks and other maintenance
requirements for aircraft operating beyond certain operational limits. We would
be required to comply with these proposals, if adopted, and with any other aging
aircraft issues, regulations or Airworthiness Directives that may be promulgated
in the future. There can be no assurance that our maintenance expenses
(including costs to comply with aging aircraft requirements) will fall within
industry norms.
Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by our employees and by contractors at the other cities served by us.
Heavy maintenance and other work which require hangar facilities are currently
performed at outside maintenance contractors. Other routine daily maintenance
contractors are provided by other airlines, which operate DC-9 aircraft or other
maintenance companies approved by the FAA, both of which have employees
qualified in DC-9 aircraft maintenance. We expect that our maintenance expenses
will decline with the addition of the B717 aircraft as a result of the reduced
maintenance requirements associated with operating new equipment. However, the
B717 aircraft will initially require greater capital expenditures for
inventories of spare parts and other costs.
Our maintenance technicians undergo extensive initial and ongoing training to
ensure the safety of our aircraft. In March 2000, the FAA awarded AirTran the
Diamond Award certificate, the FAA's highest maintenance award. This marks the
fifth year in a row we have been bestowed with the FAA's Special Recognition
Award for exceeding the required levels of safety training for our maintenance
technicians.
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FUEL
The cost of aircraft fuel is a significant expenditure for us. Aircraft fuel
expense accounted for approximately 26% of our 2000 operating expenses.
Increases in fuel prices or a shortage of supply could have a material adverse
effect on our operations and operating results. The impact on our operations is
disproportionately higher on average than on our competitors, primarily due to
the fact that many of our competitors are currently using a larger percentage of
more fuel-efficient aircraft, have favorable hedging positions and, accordingly,
have fuel costs that represent a smaller portion of their total costs. Subject
to market conditions, we may implement fare increases to offset increases in the
price of fuel. There can be no assurance that any such fare increase will
completely offset higher fuel costs or not adversely impact our competitive
position.
Our fuel prices are currently at historically high levels, having increased from
approximately $0.53 per gallon in the fourth quarter of 1999, to approximately
$1.23 per gallon in the fourth quarter of 2000, net of hedges. Despite this
increase, we have been able to achieve improvements in our operating margins
through the addition of new, fuel-efficient B717 aircraft which consume 24% less
fuel than our existing fleet.
Aircraft fuel costs are highly correlated to oil prices and thus fluctuate with
changes in supply and demand for oil. Due to the effect of world and economic
events on the price and availability of oil, the future availability and cost of
aircraft fuel cannot be predicted with any degree of certainty. Based on our
2001 projected fuel consumption, we estimate that a 10% increase in the average
price per gallon of aircraft fuel for the year ended December 31, 2000, would
increase our fuel expenses by approximately $9.7 million, net of fuel hedge
instruments currently outstanding for the year ending December 31, 2001. As of
December 31, 2000, we had hedged nearly 50% of our projected fuel needs for the
first quarter of 2001 at an average price no higher than $29 per barrel of crude
oil, and 30% of our projected fuel needs for the remainder of 2001 at a price no
higher than $24 per barrel of crude oil. We continually monitor market
conditions to determine the appropriateness of adding additional fuel hedges.
DISTRIBUTION, MARKETING AND E-COMMERCE
Our marketing efforts are vital to our success as we seek to position our
product to stimulate new customer demand. We focus on two primary market
segments: the price sensitive business and leisure travelers. These are the
market segments in which the consumers seek value and in which we believe we
offer the greatest opportunity for stimulating new demand.
The primary objectives of our marketing activities are to develop an innovative
brand identity that is visibly unique and easily contrasted with our
competitors. We communicate directly with our existing customer base and attempt
to reach potential customers through advertising as well as active public
relations efforts. We communicate regularly and frequently with existing and
potential customers through the use of advertisements in newspapers, radio,
television, billboards, direct mail, e-mail, movie theatres and the internet.
These communications feature our destinations, everyday affordable fares and
special sales promotions.
We distribute our product through various channels including direct to the
consumer via the internet and through travel agents and global distribution
systems (GDS). During the fourth quarter 2000,
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24.3% of passenger bookings were made through our reservation centers, 37.6%
were booked from the consumer and travel agents via the internet and 38.1% were
booked through travel agents' GDS. Information on our customers' needs, travel
patterns and demographics is collected, organized and stored by our automated
reservation system and may be used at a future time for direct marketing
efforts. Travel agents presently receive industry standard commissions for all
travel agency bookings.
Our website is a leader in the field of airline electronic commerce. Travel
Agent magazine ranked our website an "A" for the user friendliness of our online
booking engine. In 2001, our website is being enhanced with additional
functionality. We will introduce a new hosting environment with larger, more
stable servers designed to handle the rapid growth of internet bookings. In
addition, we expect to add new features such as automated seat selection for
select classes of service, corporate account log-ins and automated A-Plus
Rewards.
To attract more business fliers, we launched a business class product in late
1997. Our premium cabin is configured with 2 by 2 oversized seats with more leg
and seat room than the typical coach cabin. Targeted to the price-sensitive
business flier, our business class is currently available for $25 over the full
coach fare on a confirmed basis or $25 over certain of our other fares on a
walk-up standby basis.
In contrast to most other low-cost airlines, we offer advanced seat selection.
Full fare passengers, our most profitable business customers who tend to book at
the last minute, are allowed to reserve seats at the time of booking. All other
customers may reserve seats one hour prior to departure.
We also offer a self-administered frequent flier program known as "A-Plus
Rewards". Our customers may earn either free roundtrip travel or business class
upgrades on AirTran, or under certain circumstances free travel on other
airlines.
We perform marketing, promotional and media relations in-house. An outside firm
assists us in handling advertising and public relations.
We have a marketing agreement with The Hertz Corporation to operate a
reservation call and internet booking solicitation agreement under which our
customers are able to reserve a Hertz rental car at discounted rates when making
a reservation for our flights. In addition, we have marketing programs with
American Express to send direct mail to American Express cardholders who
regularly fly over our route system. American Express customers who charge their
airfare on their American Express card earn free tickets in our A-Plus Rewards
program at an accelerated rate.
Air travel in our markets tends to be seasonal, with the highest levels
occurring during the winter months to Florida and the summer months to the
northeastern United States. Advertising and promotional expenses may be greater
in lower traffic periods, as well as when entering a new market, in an attempt
to stimulate air travel.
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COMPUTER RESERVATIONS
We are a participant in the major travel agency GDSs, including Amadeus,
Galileo, SABRE, SystemOne, and WorldSpan. These systems provide flight
schedules, pricing information and allow travel agents to electronically process
a flight reservation without contacting our reservations facility.
At the time of a booking, we provide our customers with a confirmation number,
similar to the systems used by hotels and car rental agencies. At the airport
this information is available for customer check-in, which helps to alleviate
long lines and achieve a quicker turnaround of aircraft. After the flight has
departed our internal information system calculates and records passenger
revenue.
EMPLOYEES
As of February 2001, AirTran employed approximately 4,100 employees comprising
approximately 3,600 full-time equivalents.
Training, both initial and recurrent, is provided for most employees. The
average training period for all new employees is approximately one to three
weeks, depending on classification. Both pilot training and mechanic training
are provided by in-house training instructors and at times, may be performed by
professional training organizations.
FAA regulations require pilots to be licensed commercial pilots, with specific
ratings for aircraft to be flown, and to be medically certified as physically
fit. FAA and medical certifications are subject to periodic renewal requirements
including recurrent training and recent flying experience. Mechanics,
quality-control inspectors and flight dispatchers must be certificated and
qualified for specific aircraft. Flight attendants must have initial and
periodic competency fitness training and qualification. Training programs are
subject to approval and monitoring by the FAA. Management personnel directly
involved in the supervision of flight operations, training, maintenance and
aircraft inspection must meet experience standards prescribed by FAA
regulations. All of these employees are subject to pre-employment, random and
post-accident drug testing.
We have a collective bargaining agreement with our pilots represented by the
National Pilots Association. The current contract becomes amendable on April 1,
2001.
Our stores clerks, ground service employees, technical training instructors, and
maintenance technicians and inspectors are represented by the International
Brotherhood of Teamsters under separate collective bargaining agreements. The
stores clerks, ground service employees and technical training instructors'
contracts become amendable June 1, 2003, August 19, 2003, and March 6, 2006,
respectively. The maintenance technicians and inspectors' contract was recently
renewed with an amendable date of October 1, 2005, and includes simplified work
rules, industry competitive pay rates and improved retirement for retention.
We have a collective bargaining agreement with our flight attendants represented
by the Association of Flight Attendants. The contract becomes amendable on
October 21, 2002.
Our dispatchers are represented by the Transport Workers Union and we signed a
contract with them in March 2000 which becomes amendable on October 1, 2004.
In February 2000, our customer service, ramp and reservation agents rejected a
unionization proposal by the International Association of Machinists and
Aerospace Workers in a vote that
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received less than 30% support. We are unable to predict whether any of our
other employees will elect to be represented by a labor union or other
collective bargaining unit. The election by our employees for representation in
such an organization could result in employee compensation and working condition
demands that may affect operating performance and expenses.
AIRPORT OPERATIONS
Ground handling services typically can be placed in three categories - public
contact, under-wing and complete ground handling. Public contact services
involve meeting, greeting and serving our customers at the check-in counter,
gate and baggage claim area. Under-wing ground handling services include, but
are not limited to, marshaling the aircraft into and out of the gate, baggage
and mail loading and unloading, as well as lavatory and water servicing,
de-icing and certain other services. Complete ground handling consists of public
contact and under-wing services combined.
We conduct complete handling services in 24 airports, including Atlanta. At
other airports, the operations not conducted by our employees are contracted to
other air carriers, ground handling companies or fixed base operators. We have
employees at each of these cities to oversee our operations.
INSURANCE
We carry customary levels of passenger liability insurance, aircraft insurance
for aircraft loss or damage and other business insurance. We are exposed to
potential catastrophic losses that may be incurred in the event of an aircraft
accident. Any such accident could involve not only repair or replacement of a
damaged aircraft and its consequent temporary or permanent loss from service,
but also significant potential claims of injured passengers and others. We
currently maintain liability insurance in amounts and of the type consistent
with industry practice. Although we currently believe our insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not be
changed or that we will not be forced to bear substantial losses from accidents.
Substantial claims resulting from an accident in excess of related insurance
coverage or not covered by our insurance could have a material adverse effect on
us. Moreover, any aircraft accident, even if fully insured, could cause and has
caused a public perception that some of our aircraft are less safe or reliable
than other aircraft, which could have and has had a material adverse effect on
our business.
SEASONALITY AND CYCLICALITY
Our operations are primarily dependent upon passenger travel demand and, as
such, may be subject to seasonal variations. The airline industry is highly
volatile. General economic conditions directly affect the level of passenger
travel. Discretionary travel varies significantly depending on economic
conditions. While business travel is not as discretionary, business travel
generally decreases during unfavorable economic times, as businesses tend to
tighten cost controls.
GOVERNMENT REGULATIONS
The airline industry is highly competitive, primarily due to the effects of the
Airline Deregulation Act of 1978, which has substantially eliminated government
authority to regulate domestic routes and fares. Deregulation has increased the
ability of airlines to compete with respect to destination,
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flight frequencies and fares. Nevertheless, the airline industry remains highly
regulated in other aspects, as more fully described below.
DOT Oversight
Although regulation of domestic routes and fares was abolished by the Airline
Deregulation Act of 1978, the United States Department of Transportation (DOT)
retains the authority to alter or amend any airline's certificate or to revoke
such certificate for intentional failure to comply with the terms and conditions
of the certificate. In addition, the DOT has jurisdiction over international
tariffs and pricing, international routes, computer reservation systems, and
economic and consumer protection matters such as advertising, denied boarding
compensation, smoking and codeshare arrangements and has the authority to impose
civil penalties for violation of the United States Transportation Code or DOT
regulations.
Aircraft Maintenance and Operations
We are subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires all
airlines to obtain operating, airworthiness and other certificates, which are
subject to suspension or revocation for cause.
The FAA has issued several Airworthiness Directives (ADs) mandating
modifications to the older aircraft maintenance programs. These ADs were issued
to ensure that the oldest portion of the nation's aircraft fleet remains
airworthy and require structural modifications to or inspections of those
aircraft. We believe that all of our aircraft are in compliance with the aging
aircraft mandates.
We cannot predict the cost of compliance with all present and future rules and
regulations and the effect of such compliance on our business, particularly our
expansion plans and aircraft acquisition program.
FAA Funding
In 1997, a law was enacted imposing new aviation ticket taxes as part of larger
tax legislation designed to balance the nation's budget, provide targeted tax
relief and fund air traffic control, other FAA programs and airport development.
As enacted, these new taxes will be imposed through September 30, 2007. Included
in the new law is a phase-in of a modified federal air transportation excise tax
structure with a system that includes: a domestic excise tax starting at 9%
which decreased to 7.5% in 1999; a domestic segment tax starting at $1.00 and
increasing to $3.00 by 2002; and an increase in taxes imposed on international
travel. Both the domestic segment tax and the international tax are indexed for
inflation. The legislation also includes a 7.5% excise tax on certain amounts
paid to an air carrier for the right to provide mileage and similar awards
(e.g., purchase of frequent flyer miles by a credit card company). As a result
of competitive pressures, we and other airlines have been limited in the ability
to pass on the cost of these taxes to passengers through fare increases.
11
<PAGE>
Fuel Tax
In August 1993, the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. We paid approximately $14.0 million in
fuel taxes in 2000.
Passenger Facility Charges
During 1990, Congress enacted legislation to permit airport authorities, with
prior approval from the DOT, to impose passenger facility charges (PFCs) as a
means of funding local airport projects. These charges, which are intended to be
collected by the airlines from their passengers, are limited to $3.00 per
enplanement and to no more than $12.00 per round trip. To date, we have passed
on the cost of the PFCs to our passengers.
Slot Restrictions
At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Washington's Ronald Reagan National Airport,
which have been designated "High Density Airports" by the FAA, there are
restrictions on the number of aircraft that may land and take off during peak
hours. In the future, these take off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in curtailment of services by, and increased operating costs for,
individual airlines, including us, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for nonuse and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers. We
currently utilize 22 slots at LaGuardia Airport.
Additional Security and Safety Measures
In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for selected airport employees,
significantly expanded use of bomb sniffing dogs, certification of screening
companies, aggressive testing of existing security systems, expansion of aging
aircraft inspections to include non structural components, development of a new
systems approach for air carriers and the FAA to monitor and improve safety
oversight and installation of new ground proximity warning systems on all
commercial aircraft. We cannot forecast what additional security and safety
requirements may be imposed in the future or the costs or revenue impact that
would be associated with complying with such requirements.
Miscellaneous
All air carriers are subject to certain provisions of the Communications Act of
1934, as amended, because of their extensive use of radio and other
communication facilities, and are required to obtain
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an aeronautical radio license from the Federal Communications Commission (FCC).
To the extent We are subject to FCC requirements, we have taken and will
continue to take all necessary steps to comply with those requirements.
Our operations may become subject to additional federal regulatory requirements
in the future. Our labor relations are covered under Title II of the Railway
Labor Act of 1926, as amended, and are subject to the jurisdiction of the
National Mediation Board. During a period of past fuel scarcity, air carrier
access to jet fuel was subject to allocation regulations promulgated by the
Department of Energy. We are also subject to state and local laws and
regulations at locations where we operate and the regulations of various local
authorities that operate the airports we serve.
All international service is subject to the regulatory requirements of the
appropriate authorities of the other country involved. Grand Bahama Island is
our only international destination. To the extent we seek to provide additional
international air transportation in the future, we will be required to obtain
necessary authority from the DOT.
ENVIRONMENTAL REGULATIONS
The Airport Noise and Capacity Act of 1990 (ANCA) generally recognizes the
rights of airport operators with noise problems to implement local noise
abatement programs so long as they do not interfere unreasonably with interstate
or foreign commerce or the national air transportation system. The ANCA
generally requires FAA approval of local noise restrictions on Stage 3 aircraft
first effective after October 1990. While we have had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, our
operations could be adversely affected if locally-imposed regulations become
more restrictive or widespread.
The Environmental Protection Agency (EPA) regulates operations, including air
carrier operations, which affect the quality of air in the United States. We
believe we have made all necessary modifications to our fleet to meet emission
standards issued by the EPA.
HISTORY
We commenced operations in 1993 as ValuJet Airlines, Inc. (ValuJet) with two
DC-9 aircraft serving three cities from Atlanta with eight flights per day. In
1995, ValuJet became a wholly owned subsidiary of ValuJet, Inc. ValuJet's
operations were interrupted by the suspension of service on June 17, 1996,
resuming on September 30, 1996 with limited operations.
ValuJet changed its name to "AirTran Airlines, Inc." (Airlines), and ValuJet,
Inc. changed its name to "AirTran Holdings, Inc." in connection with our
acquisition of Airways Corporation and its subsidiary, AirTran Airways, Inc.
(Airways), in November 1997. As part of that transaction, Airways became a
wholly owned subsidiary of AirTran Holdings. From November 1997 until April
1998, we operated under the FAA operating certificates of both Airlines and
Airways. Since April 1998, all of our airline operations have been conducted
under the Airways operating certificate. The Airlines operating certificate was
extinguished in August 1998. In August 1999, Airlines merged with and into
Airways.
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Our principal executive offices are located at 9955 AirTran Boulevard, Orlando,
Florida 32827, and our telephone number is (407) 251-5600. We maintain an
internet site at AIRTRAN.COM. The reference to our internet site does not
constitute incorporation by reference of the information contained at the site.
RISK FACTORS
Investors should carefully consider the following risk factors before making
investment decisions regarding our stock.
If we are unable to sustain profitability we may not be able to repay our
financing obligations.
We recorded significant net losses in each year from 1996 to 1999. Our earnings
before fixed charges for each of these years were inadequate to cover fixed
charges. Although we recorded net income of $47.4 million in 2000, our
incurrence of losses or failure to cover fixed charges in the future may have a
material adverse effect on our financial condition and our ability to repay our
financing obligations.
We have a significant amount of debt which could impair our ability to make
principal and interest payments on our debt obligations and lease payments on
our lease obligations.
The entire $150.0 million of our 10.25% senior notes and $80.0 million of our
10.5% senior secured notes will become due in April 2001. Without the completion
of the refinancing transactions with Boeing Capital Services Corporation (see
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources") and the use of
internally generated funds, we will not have sufficient cash to repay the $230.0
million of this debt by its due date.
We are highly leveraged and will continue to have significant debt obligations.
In 2000, we acquired three B717 aircraft by issuing $63.1 million in promissory
notes. In 1999 we issued $178.9 million of enhanced equipment trust certificates
(EETCs), the proceeds of which were used to acquire ten B717 aircraft; eight of
those ten EETC financed B717s were delivered in 1999 and the remaining two were
delivered in 2000 (those two aircraft were subsequently sold to a third party
lessor and leased back from such lessor). Additionally, we may incur substantial
additional debt related to aircraft deliveries. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Our ability to make scheduled payments of principal or interest for our
financing obligations depends on our future performance and financial results.
These results are subject to general economic, financial, competitive,
legislative, regulatory, and other factors that are, to some extent, beyond our
control.
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<PAGE>
The amount of our debt could have important consequences to investors, including
the following:
o a substantial portion of our cash flow from operations must be
dedicated to debt service and will not be available for operations;
o our ability to obtain additional financing for aircraft purchases,
capital expenditures, working capital, or general corporate purposes
could be limited;
o our vulnerability to adverse economic and industry conditions may be
greater than our larger and more financially secure competitors;
o 23 of our DC-9 aircraft are pledged as collateral to secure our $80.0
million of 10.5% senior secured notes due 2001;
o eleven B717 aircraft are pledged as collateral to secure aircraft
acquisition debt with a principal balance of $195.0 million as of
December 31, 2000;
o upon consummation of the Boeing refinancing transactions (See "Item 7
- Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources")
substantially all of our existing assets (including flight and other
equipment, inventory, receivables and our maintenance hangar) and
certain assets to be acquired by us in the future will be pledged as
collateral to secure the obligations under the Boeing refinancing
transactions; and
o future B717 aircraft to be acquired by us will be pledged as
collateral to secure aircraft acquisition debt we incur.
Covenants in our debt instruments could limit how we conduct our business, which
could affect our long-term growth potential.
Our debt instruments contain covenants that, among other things, restrict
our ability to:
o incur additional indebtedness;
o pay dividends and make other distributions;
o prepay subordinated indebtedness;
o make investments and other restricted payments;
o create liens;
o sell assets;
o enter into certain mergers; and
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<PAGE>
o engage in certain transactions with affiliates.
Our current and future financing arrangements contain and are expected to
continue to contain similar or more restrictive covenants. As a result of these
restrictions, we may be limited in how we conduct business, and we may be unable
to raise additional debt or equity financing to operate during general economic
or business downturns, to compete effectively, or to take advantage of new
business opportunities. This may affect our ability to generate revenues and
make profits. Without sufficient revenues and cash, we may not be able to pay
interest and principal on our indebtedness.
Our failure to comply with the covenants and restrictions contained in our
indentures and other financing agreements could lead to a default under the
terms of those agreements. If such a default occurs, the other parties to these
agreements could declare all amounts borrowed and all amounts due under other
instruments that contain provisions for cross-acceleration or cross-default due
and payable. If that occurs, we may not be able to make payments on our debt,
meet our working capital and capital expenditure requirements, or be able to
find additional alternative financing. Even if we obtain additional alternative
financing, we cannot guarantee investors that this financing would be on
favorable or acceptable terms.
Further increases in fuel costs will negatively affect our operating expenses
and financial results.
The cost of aircraft fuel is a significant expenditure for us. Aircraft fuel
expense accounted for approximately 26% of our 2000 operating expenses.
Increases in fuel prices or a shortage of supply could have a material adverse
effect on our operations and operating results. The impact to our operations is
disproportionately higher on average than to our competitors, primarily due to
the fact that many of our competitors are currently using a larger percentage of
more fuel-efficient aircraft, have favorable hedging positions and, accordingly,
have fuel costs that represent a smaller portion of their total costs. Subject
to market conditions, we may implement fare increases to offset increases in the
price of fuel. There can be no assurance that any such fare increase will
completely offset higher fuel costs or not adversely impact our competitive
position.
Our fuel prices are currently at historically high levels, having increased from
approximately $0.53 per gallon in the fourth quarter of 1999, to approximately
$1.23 per gallon in the fourth quarter of 2000, net of hedges. Despite this
increase, we have been able to achieve improvements in our operating margins
through the addition of new, fuel-efficient B717 aircraft which consume 24% less
fuel than our existing fleet.
Aircraft fuel costs are highly correlated to oil prices and thus fluctuate with
changes in supply and demand for oil. Due to the effect of world and economic
events on the price and availability of oil, the future availability and cost of
aircraft fuel cannot be predicted with any degree of certainty. Based on our
2001 projected fuel consumption, we estimate that a 10% increase in the average
price per gallon of aircraft fuel for the year ended December 31, 2000, would
increase our fuel expenses by approximately $9.7 million, net of fuel hedge
instruments currently outstanding, for the year ending December 31, 2001.
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Our operating results may suffer because of competition in the low-fare airline
markets we serve.
The airline industry, in general, and the low-fare sector in particular, is
highly competitive and is served by numerous companies. We may face greater
competition in the future. Any increased competition could have a negative
impact on our business and operating results.
The profitability of our operations is influenced by economic conditions as
demand for discretionary travel diminishes during economic downturns.
The profitability of our operations is influenced by the condition of the U.S.
economy, that may impact the demand for discretionary travel and our competitive
pricing position. A substantial portion of our business is discretionary travel,
which declines during economic downturns.
We depend heavily on the Atlanta market to be successful.
Our business strategy has focused and is expected to continue to focus on adding
flights to and from our Atlanta base of operations. A reduction in our share of
the Atlanta market or reduced passenger traffic to or from Atlanta could have a
material adverse effect on our financial condition and results of operations. In
addition, our dependence on a primary hub and on a route network operating
largely on the East Coast makes us more susceptible to adverse weather
conditions and other traffic delays along the East Coast than some of our
competitors that may be better able to spread these traffic risks over larger
route systems.
Airline strategic combinations could have an impact on our operations in ways
yet to be determined.
The strategic environment in the airline industry changes from time to time as
carriers implement varying strategies in pursuit of profitability, including
consolidation to expand operations and increase market strength, and entering
into global alliance arrangements. The recent announcement of the proposed
mergers of United Airlines and US Airways and of American Airlines and Trans
World Airlines, and the acquisition by American Airlines of certain assets of US
Airways would materially affect the airline industry. However, because the
mergers have not yet been approved or completed, we are unable to predict what
effect, if any, the foregoing transactions or other changes in the strategic
landscape might have on our business, financial condition and results of
operations.
Much of our fleet consists of older airplanes which could increase our costs of
maintenance and negatively impact our business and financial results.
As of December 31, 2000, the average age of our operating aircraft fleet was
approximately 22 years. As a result, we have incurred increased overall
operating costs due to the higher maintenance and other operating costs
associated with older aircraft.
We are required to comply with all applicable regulations and airworthiness
directives issued by the FAA with respect to aging aircraft. As a result, our
costs of maintenance, including costs to comply with aging aircraft requirements
for our DC-9 and B737 aircraft, may increase in the future.
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<PAGE>
We believe that our aircraft are mechanically reliable based on the percentage
of scheduled flights completed. However, we cannot guarantee that our aircraft
will continue to be sufficiently reliable over longer periods of time.
Furthermore, given the age of our fleet, any public perception that our aircraft
are less than completely reliable could have a material adverse effect on our
business.
If we are not able to fulfill our purchase commitments for new aircraft, our
growth could be slowed.
We have an agreement to purchase 50 B717 aircraft from an affiliate of Boeing.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." As of December 31,
2000, we had taken delivery of 16 of these aircraft (two additional aircraft
were delivered in January and February 2001). We have financing commitments from
the airframe manufacturer and/or its affiliates with respect to the 34 firm B717
aircraft scheduled for delivery between January 2001 and October 2003, including
lease financing facilities in excess of 100% of the purchase price for the
delivery of 14 B717 aircraft delivered or scheduled to be delivered between
January 2001 and February 2002. We cannot guarantee that we will be able to
obtain satisfactory financing for the portion of the purchase price not included
in the airframe manufacturer and/or its affiliates' financing support. Should we
default on our obligations, Boeing would have the right to exercise remedies
including the right to terminate the purchase agreement and its financing
commitments. If we are unable to purchase these aircraft, our ability to
increase our number of flights could be negatively impacted. On the other hand,
if our growth slows or air travel in general decreases, we may not be able to
utilize all the aircraft we have committed to purchase. If we cannot use such
aircraft, we may be required to sell or lease such aircraft on terms which will
depend upon market conditions at the time. We could suffer a financial loss from
any such sales or leases. The retirement of other aircraft in our fleet may also
be accelerated in the event our growth slows, air travel decreases generally in
our markets, or if significant regulatory requirements are imposed on older
aircraft.
Our reputation and financial results could be negatively affected in the event
of a major aircraft accident.
A major accident involving our aircraft could involve not only repair or
replacement of a damaged aircraft and its consequent temporary or permanent loss
from service, but also significant potential claims of injured passengers and
others. Moreover, any aircraft accident, even if fully insured, could cause a
public perception that our aircraft are less safe or reliable than other
airlines, and that could have a negative effect on our business. The occurrence
of one or more incidents or accidents involving our aircraft could have a
material adverse effect on the public's perception of us and our future
operations.
We are required by the DOT to carry liability insurance on each of our aircraft.
We currently maintain liability insurance in amounts and of the type consistent
with industry practice. Although we currently believe our insurance coverage is
adequate, the amount of such coverage may be changed in the future or we may be
forced to bear substantial losses from accidents. Substantial claims resulting
from an accident in excess of related insurance coverage could have a material
adverse impact on our business and financial results.
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<PAGE>
We are subject to extensive regulation by the FAA, the DOT, and other
governmental agencies, compliance with which could cause us to incur increased
costs and negatively affect our business and financial results.
We are subject to a wide range of governmental regulation, including regulation
by the FAA. For example, in the last several years, the FAA has issued a number
of maintenance directives and other regulations relating to, among other things,
retirement of older aircraft, security measures, collision avoidance systems,
airborne windshear avoidance systems, noise abatement, and increased inspections
and maintenance procedures to be conducted on older aircraft. A modification,
suspension or revocation of any of our FAA authorizations or certificates could
adversely impact our business. We expect to continue to incur expenses for the
purpose of complying with the FAA's aging aircraft regulations. In addition,
several airports have recently sought to increase substantially the rates
charged to airlines, and the ability of airlines to contest such increases has
been restricted by federal legislation, DOT regulations, and judicial decisions.
Additional laws and regulations have been proposed that could significantly
increase the cost of airline operations by imposing additional requirements or
restrictions on operations. Laws and regulations have also been considered that
would prohibit or restrict the ownership and/or transfer of airline routes or
takeoff and landing slots. Also, the availability of international routes to
United States carriers is regulated by treaties and related agreements between
the United States and foreign governments that are amendable. We cannot predict
what laws and regulations may be adopted or their impact and we cannot guarantee
that laws or regulations currently proposed or enacted in the future will not
adversely affect us.
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ITEM 2. PROPERTY
OPERATING AIRCRAFT FLEET
We operated the following owned and leased aircraft as of December 31, 2000:
Average
No. of Average
Aircraft Type Seats Owned Leased Total Age (Years)
- ------------------------ ---------- ------- -------- ------- ------------
B717 117 11 5 16 0.9
DC-9 106 27 6 33 31.1
B737 119 3 1 4 23.5
------- -------- -------
Total 41 12 53 21.7
For information concerning the estimated useful lives, residual values, lease
terms, operating rent expense and firm orders on additional aircraft, see Note 1
to the consolidated financial statements.
As of December 31, 2000, 36 of our owned operating aircraft were encumbered
under debt agreements.
We took delivery of eight B717s in 2000. We purchased and took delivery of two
additional B717s in January and February 2001. These aircraft will be used to
replace the B737s and DC-9s currently in operation and for growth. We plan to
take delivery of ten additional B717 aircraft during the remainder of 2001.
The delivery schedule for our remaining B717s under firm contract as of December
31, 2000, is as follows:
AIRCRAFT TYPE 2001 2002 2003
- --------------------------- ---- ---- ----
B717 12 12 10
A preliminary retirement schedule of our aircraft as of December 31, 2000, is as
follows:
AIRCRAFT TYPE 2001 2002 2003 2004
- --------------------------- ---- ---- ---- ----
DC-9 -- 6 6 6
B737 4 -- -- --
The retirement schedule was revised in 2000 due to changes to our B717 purchase
contract, as discussed in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
The delivery and retirement schedules shown above represent our best estimates
as of March 1, 2001. These estimates are regularly reviewed and subject to
change based upon certain conditions
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including, but not limited to, our future operating and financial results.
GROUND FACILITIES
Our principal executive offices are located at the Orlando International Airport
in a leased facility consisting of approximately 34,000 square feet of office
space. The facility houses our executive offices as well as our operations staff
(including in-flight operations and station operations), general administrative
staff, computer systems and personnel training facility. The lease agreement for
this facility expires in 2007 and may be extended an additional ten years
through the exercise of options in five-year increments.
We own an aircraft hangar of approximately 70,000 square feet at the Orlando
International Airport, subject to a ground lease with the Greater Orlando
Aviation Authority. The ground lease agreement for this facility expires in 2011
and may be extended an additional ten years through the exercise of options in
five-year increments. The hangar houses a portion of our maintenance staff,
maintenance records and parts inventory.
We also lease the following facilities:
o approximately 20,000 square feet of office space in Atlanta for use as
a reservations center under a lease which expires September 30, 2004
o approximately 25,000 square feet of space in Atlanta for use as a
training center under a lease which expires October 31, 2005
o approximately 13,000 square feet of space in Savannah, Georgia for a
reservations center under a lease which expires in February 2003
o approximately 91,000 square feet of space in Atlanta for a warehouse
and engine repair facility under a lease which expires in May 2002
We have signatory status on the lease of facilities at Hartsfield Atlanta
International Airport, which expires in 2010. The check-in-counters, gates and
airport office facilities at each of the other airports we serve are leased from
the appropriate airport authority or subleased from other airlines. These
arrangements may include baggage handling, station operations, cleaning and
other services. If these facilities at any additional cities to be served by us
are not available at acceptable rates, or if such facilities become no longer
available to us at acceptable rates, then we may choose not to service those
markets.
ITEM 3. LEGAL PROCEEDINGS
All of the lawsuits filed against us seeking damages attributable to those on
Flight 592 have been settled, including a settlement in the fourth quarter of
2000 for an amount immaterial to our results of operations or financial
condition.
On October 1, 1999, we filed suit in the Superior Court of Gwinnett County,
Georgia, against United States Aviation Underwriters, Inc. and United States
Aviation Insurance Group for declaratory relief and damages based on claims of
breach of contract and tortuous breach of
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covenant of good faith and fair dealing for matters involving litigation related
to Flight 592.
From time to time, we are engaged in other litigation arising in the ordinary
course of our business. We do not believe that any such pending litigation will
have a material adverse effect on our results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock, $.001 par value, is traded on the American Stock Exchange
under the symbol "AAI." Prior to July 14, 2000, our common stock was traded on
the NASDAQ National Market under the symbol "AAIR." As of March 1, 2001, there
were approximately 4,989 holders of our common stock. The following table sets
forth the reported high and low sale prices for our common stock for each fiscal
quarter since January 1, 1999.
FISCAL YEAR ENDED DECEMBER 31, 1999 HIGH LOW
- ----------------------------------- ------ -------
Quarter Ending March 31, 1999 $5.13 $2.75
Quarter Ending June 30, 1999 $6.00 $4.13
Quarter Ending September 30, 1999 $7.25 $4.94
Quarter Ending December 31, 1999 $6.06 $3.50
FISCAL YEAR ENDED DECEMBER 31, 2000 HIGH LOW
- ----------------------------------- ------ ------
Quarter Ending March 31, 2000 $5.09 $3.72
Quarter Ending June 30, 2000 $5.00 $3.88
Quarter Ending September 30, 2000 $4.94 $3.94
Quarter Ending December 31, 2000 $7.38 $3.88
As of March 1, 2001, the closing price of our common stock was $8.70.
DIVIDENDS
We have never declared cash dividends on our common stock. In addition, our debt
indentures restrict our ability to pay cash dividends. We intend to retain
earnings to finance the development and growth of our business. Accordingly, we
do not anticipate that any dividends will be declared on our common stock for
the foreseeable future. Future payments of cash dividends, if any, will depend
on our financial condition, results of operations, business conditions, capital
requirements, restrictions contained in agreements, future prospects and other
factors deemed relevant by our Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2000,
has been derived from our consolidated financial statements:
<TABLE>
<CAPTION>
(In thousands, except per share data)
2000 1999 1998 (a) 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 624,094 $ 523,468 $ 439,307 $ 211,456 $ 219,636
Net income (loss) 47,436 (99,394) (b) (40,738) (c) (96,663) (d) (41,469) (e)
Basic earnings (loss)
per common share 0.72 (1.53) (0.63) (1.72) (0.76)
Diluted earnings (loss)
per common share 0.69 (1.53) (0.63) (1.72) (0.76)
Total assets at year-end 546,255 467,014 376,406 433,864 417,187
Long-term debt including current
maturities at year-end 427,903 415,688 245,994 250,712 244,706
</TABLE>
Note: All special items listed below are pre-tax.
(a) See Note 1 to the consolidated financial statements.
(b) Includes a $147.7 million impairment loss related to the accelerated
retirement of the DC-9 fleet as a result of the introduction of the
B717 fleet and a gain of $19.6 million for a litigation settlement.
(c) Includes a $27.5 million impairment loss related to the acceleration
of the retirement of four owned B737 aircraft as a result of the
elimination of their original route system and continued operating
losses upon their redeployment to other routes.
(d) Includes a $24.8 million charge related to the shutdown of the airline
in 1996 and a $5.2 million charge for the renaming of the airline in
connection with the merger with Airways Corporation in November 1997.
(e) Includes a $68.0 million charge related to the shutdown of the airline
in 1996, a $3.9 million gain on the sale of property, a $13.0 million
arrangement fee for aircraft transfer and a $2.8 million gain on
insurance recovery.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
We achieved record annual revenues, record passenger revenue per available seat
mile (RASM), and served a record number of passengers during 2000. This strong
financial performance produced an operating profit of $81.2 million and an
operating margin of 13% for the year, even though fuel expense increased by more
than 105% over 1999. Air travelers, particularly business travelers, continue to
respond to our unique brand of low fares and quality service as we expand into
areas of the eastern United States that have traditionally been characterized by
high fares.
The tables below set forth selected financial and operating data for the years
ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
-----------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenue passengers 7,566,986 6,460,533 5,462,827
Revenue passenger miles (RPMs) (000s) (1) 4,115,745 3,473,490 3,244,539
Available seat miles (ASMs) (000s) (2) 5,859,395 5,467,556 5,442,234
Passenger load factor (3) 70.2% 63.5% 59.6%
Break-even load factor (4) 64.7% 59.4% 61.5%
Average yield per RPM (cents) (5) 14.70 14.01 12.97
Passenger revenue per ASM (cents) (6) 10.32 8.90 7.73
Operating cost per ASM (cents) (7) 9.27 8.19 7.91
Operating cost per ASM,
excluding aircraft fuel (cents) (8) 6.87 6.94 6.59
Average stage length (miles) 537 528 546
Average cost of aircraft fuel per gallon (cents) 100.89 49.95 54.87
Average daily utilization (hours:minutes) (9) 10:18 9:54 9:42
Number of operating aircraft in fleet
at end of period 53 47 50
</TABLE>
(1) The number of scheduled revenue miles flown by passengers
(2) The number of seats available for passengers multiplied by the number
of scheduled miles each seat is flown
(3) The percentage of aircraft seating capacity that is actually utilized
(RPMs divided by ASMs)
(4) The percentage of seats that must be occupied by revenue passengers in
order for us to break even on a pre-tax income basis, excluding
nonrecurring items and impairment charges
(5) The average amount one passenger pays to fly one mile
(6) Passenger revenue divided by ASMs
(7) Operating expenses, excluding impairment charges, divided by ASMs
(8) Operating expenses, excluding aircraft fuel expense and impairment
charges, divided by ASMs
(9) The average number of hours per day that an aircraft flown is operated
in revenue service
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Operating Expenses per Available Seat Mile:
Twelve Months Ended
December 31,
-------------------------------------
2000 1999(1) 1998(1)
--------- --------- ---------
Operating expenses
Salaries, wages and benefits 2.34(cents) 2.21(cents) 1.99(cents)
Aircraft fuel 2.40 1.25 1.32
Maintenance, materials and repairs 1.25 1.58 1.37
Distribution 0.68 0.68 0.64
Landing fees and other rents 0.49 0.49 0.43
Marketing and advertising 0.28 0.29 0.28
Aircraft rent 0.22 0.09 0.13
Depreciation 0.39 0.52 0.53
Other operating 1.22 1.08 1.22
---- ---- ----
Total operating expenses 9.27(cents) 8.19(cents) 7.91(cents)
==== ==== ====
(1) Excludes impairment charges of $147.7 million and $27.5 million in 1999 and
1998, respectively.
2000 COMPARED TO 1999
SUMMARY
For 2000, we recorded operating income of $81.2 million, pre-tax income and net
income of $47.4 million and earnings per common share of $0.69 on a diluted
basis. For 1999, including a pre-tax impairment charge of $147.7 million and a
litigation settlement gain of $19.6 million, we recorded an operating loss of
$72.0 million, a pre-tax loss of $96.7 million, a net loss of $99.4 million and
a loss per common share of $1.53 on a basic and diluted basis. The impairment
loss and litigation settlement gain increased our loss per common share by
$1.98.
OPERATING REVENUES
Operating revenues increased by $100.6 million or 19.2%, primarily due to an
increase in passenger revenues. The increase in passenger revenues was
principally driven by a 6.7 percentage point increase in load factor and a 4.9%
increase in average yield per revenue passenger mile. As a result, our unit
revenue or RASM increased 16.0% to 10.3 cents.
During 2000, we increased our capacity, or ASMs, by 7.2% with the addition of
eight new Boeing 717 (B717) aircraft. In addition, RPMs increased by 18.5%,
resulting in a record load factor of 70.2%. The increase in yield resulted
primarily from additional business travelers purchasing higher fares during the
year. Notwithstanding the improved yield and passenger load factor, we continue
to experience aggressive competition that could negatively impact future yields
and loads.
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Other revenues decreased $18.0 million or 54.4%. Excluding a litigation
settlement gain of $19.6 million in 1999, other revenues increased $1.6 million
or 12.1% on a year-over-year basis.
OPERATING EXPENSES
Operating expenses decreased by $52.5 million or 8.8%. Excluding the 1999
pre-tax impairment charge of $147.7 million to reduce the book value of our DC-9
aircraft, operating expenses increased by $95.2 million or 21.3%. Operating cost
per ASM (CASM) increased by 13.2%, primarily due to a 105.5% increase in
aircraft fuel expense. Cost per available seat mile excluding fuel decreased
approximately 1.0% to 6.9 cents per ASM.
Salaries, wages and benefits increased 13.8%, or $16.7 million year-over-year,
and 6.2% on a CASM basis, primarily due to contractual wage rate increases and
additional personnel required for the higher level of operations in 2000.
Aircraft fuel expense increased 105.5%, or $72.1 million year-over-year, and
92.0% on a CASM basis, primarily due to increases in the cost of fuel. During
2000, the average cost of aircraft fuel per gallon was approximately $1.01,
compared to an average cost per gallon in 1999 of approximately $0.50. The cost
of aircraft fuel was net of approximately $5.3 million and $14.2 million in
gains from hedging activities in 2000 and 1999, respectively.
Maintenance, materials and repairs decreased 15.2%, or $13.1 million
year-over-year, and 20.9% on a CASM basis, primarily due to a lesser number of
Boeing 737 and DC-9 airframe and engine repairs performed during 2000 in
accordance with our maintenance schedule. The timing of maintenance to be
performed is determined by the number of hours the aircraft and engines are
operated.
Distribution expenses increased 7.2%, or $2.7 million year-over-year, primarily
due to an increase in commissionable sales generated by travel agents, offset by
a rate reduction from 8.0% to 5.0% during the fourth quarter of 1999.
Landing fees and other rents increased $1.7 million compared to the year ended
1999 primarily due to increased departures. On a CASM basis, these expenses
remained flat on a year-over-year basis. We operated 101,644 departures in 2000
and 96,858 departures in 1999, an increase of 4.9%.
Aircraft rent increased 159.1%, or $7.7 million year-over-year, and 141.8% on a
CASM basis, primarily due to the lease financing associated with five of the
eight new B717s delivered during 2000, as well as the sale and leaseback of
seven DC-9 aircraft in the fourth quarter 1999.
Depreciation expense decreased 19.1%, or $5.4 million year-over-year, and 24.5%
on a CASM basis, primarily due to the reduction in book value of our DC-9 fleet
as a result of the 1999 impairment charge and the sale and leaseback of seven
DC-9 aircraft in 1999.
Other operating expenses increased 20.6%, or $12.1 million year-over-year, and
12.5% on a CASM basis, primarily due to increased passenger related expenses
associated with the greater number of
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passengers served, and to costs related to supporting and maintaining our
existing automation systems.
NON-OPERATING EXPENSES
Interest expense, net, increased 36.7%, primarily due to the debt financing of
eight B717 aircraft delivered in the third and fourth quarters of 1999, as well
as three B717s delivered in the fourth quarter 2000. The 1999 deliveries were
financed utilizing the proceeds from the issuance of enhanced equipment trust
certificates (EETCs). Three of the 2000 deliveries were financed utilizing debt
issued by an affiliate of the airframe manufacturer. Offsetting a portion of the
increased interest expense, interest income increased 76.0% as a result of
higher invested cash balances.
We have not recognized any benefit from the future use of operating loss
carryforwards, because our evaluation of all the available evidence in assessing
the realizability of tax benefits of such loss carryforwards indicates that the
underlying assumptions of future profitable operations contain risks that do not
provide sufficient assurance to recognize such tax benefits currently. Although
we produced operating profits in each quarter in 2000 and 1999, excluding the
impairment charge, we do not believe this and other positive evidence, including
our projection of future profitable operations, offsets the effect of our recent
cumulative losses. As a result, income tax expense was $0 and $2.7 million in
2000 and 1999, respectively. The 1999 tax expense resulted from the utilization
of a portion of our $141.0 million of net operating loss (NOL) carryforwards,
existing at December 31, 1998, offset in part by alternative minimum tax and the
application to goodwill of the tax benefit related to the realization of a
portion of the Airways Corporation NOL carryforwards.
1999 COMPARED TO 1998
SUMMARY
For 1999, including a pre-tax impairment charge of $147.7 million and a
litigation settlement gain of $19.6 million, we recorded an operating loss of
$72.0 million, a pre-tax loss of $96.7 million, a net loss after taxes of $99.4
million and a loss per common share of $1.53 on a basic and diluted basis. The
impairment loss and litigation settlement gain increased our loss per common
share by $1.98. For 1998, including a pre-tax impairment charge of $27.5
million, we recorded an operating loss of $18.6 million, a pre-tax loss and a
net loss after taxes of $40.7 million and a loss per common share of $0.63 on a
basic and diluted basis. The impairment loss increased our loss per common share
by $0.43.
OPERATING REVENUES
Passenger revenues increased by 15.6%, or $65.6 million in 1999 compared to
1998. The growth in our passenger revenue stems from increasing traffic demand
in both the business and leisure market segments. Business class loads were up
significantly in 1999 compared to 1998. Adjustments in pricing and inventory
strategies also led to gains in leisure traffic. Yield increased by 8.0%, from
13.0 cents to 14.0 cents. Unit revenue increased 15.1%, from 7.7 cents to 8.9
cents - better improvements than any major airline in the industry.
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Traffic, or RPMs, increased 7.1% or 229.0 million RPMs on a 0.5% increase in
capacity, or ASMs. For the year ended December 31, 1999, load factor increased
3.9 points to 63.5% versus 59.6% for the year ended December 31, 1998.
Other revenue increased 121.8%, or $18.2 million, in 1999 compared to 1998, due
to the $19.6 million gain from a litigation settlement.
OPERATING EXPENSES
Excluding the impairment charges in 1999 and 1998, operating expenses increased
$17.4 million or 4.0% year-over-year. Our operating cost per ASM, excluding
impairment charges, increased 3.5% to 8.19 cents in 1999 from 7.91 cents in
1998.
Salaries, wages and benefits increased 11.3%, or $12.3 million, due to a 6.1%
increase in overall headcount and contractual wage increases for our
union-represented labor groups.
Aircraft fuel expense decreased year-over-year by $3.6 million, or 5.0%, due to
a 9.0% decrease in the average fuel cost per gallon offset by a 4.4% increase in
fuel consumption.
Maintenance increased 15.8% or $11.8 million, due to a volume increase of five
check lines as a result of completing our structural life improvement program
and six additional engine overhauls. The timing of maintenance to be performed
is determined by the number of hours an aircraft and engine are flown.
Commissions paid to travel agents increased $2.4 million or 6.9%, due to an
increase in commissionable sales, offset by a rate reduction from 10.0% to 8.0%
during the second quarter of 1998 and a further reduction to 5.0% during the
fourth quarter of 1999.
Landing fees and other rents increased $3.6 million compared to the year ended
1998, due to increased departures. We operated 5.1% more departures in 1999 than
1998, at 96,858 and 92,141, respectively.
Aircraft rent decreased $2.4 million in 1999 from 1998 due to the return to the
lessor of five leased B737 aircraft throughout the year.
Other operating expenses decreased by $7.3 million, or 11.0%, primarily due to
the decline of credit card chargebacks and communications costs.
In the fourth quarter of 1999, we decided to accelerate the retirement of our
owned DC-9 fleet to accommodate the introduction of the B717 fleet. It was
originally our intent to use the B717s to increase overall capacity while
continuing to use the DC-9s into 2005. However, during 1999, the new management
team (including our Chief Executive Officer and President, who joined us in
1999) reevaluated our near- and long-term fleet strategy and the components
underlying such strategy. By October 1999, we determined that it would be
cost-beneficial to begin to retire the DC-9s. As a result, we developed a fleet
plan which provided for the retirement of the DC-9s between December 31, 1999
and October 2003, generally coinciding with the delivery of the B717s. Our Board
of Directors approved the plan in October 1999. In connection with our decision
to accelerate the retirement of
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these aircraft, we performed an evaluation to determine, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, whether future cash
flows (undiscounted and without interest charges) expected to result from the
use and eventual disposition of these aircraft would be less than the aggregate
carrying amount of these aircraft and related assets. As a result of the
evaluation, we determined that the estimated future cash flows expected to be
generated by these aircraft would be less than their carrying amount, and
therefore these aircraft are impaired as defined by SFAS No. 121. Consequently,
the original cost bases of these assets were reduced to reflect the fair market
value at the date the decision was made, resulting in a $147.7 million
impairment charge. We considered recent transactions and market trends involving
similar aircraft in determining the fair market value. See Note 10 to the
consolidated financial statements.
NON-OPERATING EXPENSES
Interest expense, net of interest income, increased 11.2% due to the November 3,
1999, issuance of $178.9 million of EETCs for financing ten B717 aircraft. See
Note 5 to the consolidated financial statements.
Income tax expense was $2.7 million and $0 in 1999 and 1998, respectively. The
1999 tax expense resulted from the utilization of a portion of our $141 million
of net NOL carryforwards, existing at December 31, 1998, offset in part by
alternative minimum tax and the application to goodwill of the tax benefit
related to the realization of a portion of the Airways Corporation NOL
carryforwards. As of December 31, 1999, we had not recognized any benefit from
the use beyond 1999 of NOL carryforwards, because our evaluation of all the
available evidence in assessing the realizability of tax benefits of such loss
carryforwards indicates that the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
such tax benefits currently. Although we produced operating profits in each
quarter in 1999, excluding the impairment charge, we do not believe this and
other positive evidence, including our projection of future profitable
operations, offsets the effect of our recent cumulative losses.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily on operating cash flows to provide working capital. We
presently have no lines of credit or short-term borrowing facilities. As of
December 31, 2000, our cash and cash equivalents including restricted cash were
$103.8 million compared to $76.2 million at December 31, 1999, and our working
capital deficit was $35.1 million compared to $7.3 million at December 31, 1999.
We generally must satisfy all of our working capital expenditure requirements
from cash provided by operating activities, from external capital sources or
from the sale of assets. Substantial portions of our assets have been pledged to
secure various issues of our outstanding indebtedness. To the extent that the
pledged assets are sold, the applicable financing agreements generally require
the sales proceeds to be applied to repay the corresponding indebtedness. To the
extent that our access to capital is constrained, we may not be able to make
certain capital expenditures or to continue to implement certain other aspects
of our strategic plan, and would potentially be unable to achieve the full
benefits expected therefrom. We expect to continue generating positive working
capital through our operations; however, we cannot predict whether current
trends and conditions will continue, or the effects of
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competition or other factors, such as increased fuel prices, that are beyond our
control.
As of December 31, 2000, our cash and cash equivalents including restricted cash
increased by $27.7 million from December 31, 1999. Net cash provided by
operating activities was $69.4 million in 2000 compared to $75.7 million in
1999, which included a 1999 litigation settlement gain of $19.6 million.
Excluding the gain, our net cash from operating activities increased by $13.3
million. The increase in operating cash flows was primarily the result of an
increase in operating income. Cash provided by operating activities in 2000 was
primarily used for debt service. Net cash provided by investing activities was
$3.7 million, which primarily related to the sale of two B717s and the use of
unexpended debt proceeds from 1999 offset by the acquisition of two B717s and
the scheduled progress payments for future B717 aircraft deliveries. Cash used
for financing activities was $53.1 million, which primarily related to the
payment of long-term debt.
Initially, we contracted with an affiliate of Boeing to purchase 50 B717
aircraft for delivery between 1999 and 2002, with options to purchase an
additional 50 B717s. During the second quarter of 2000, we revised our contracts
with Boeing relating to the purchase and financing of our future B717 aircraft
deliveries. The revised contract provides for a delivery schedule as follows:
1999 (eight aircraft - all delivered), 2000 (eight aircraft - all delivered),
2001 (12 aircraft), 2002 (12 aircraft), and 2003 (10 aircraft). In connection
with our agreement with Boeing, we also recharacterized the 50 option aircraft
to provide for 25 options, 20 purchase rights, and five rolling options. The
options and purchase rights, to the extent exercised, would provide for delivery
to us of all of our B717s on or before September 30, 2005. Prior to this
revision, we had committed to purchase 50 B717 aircraft during the following
years: 1999 (eight aircraft), 2000 (eight aircraft), 2001 (16 aircraft), and
2002 (18 aircraft). Also prior to the revision, the 50 option aircraft, if
exercised, would have been available for delivery between January 2003 and
January 2005.
During the third quarter of 1998, we reached an agreement with Boeing to defer
the progress payments due and payable prior to the first delivery until the
first delivery, which occurred in September 1999. Accordingly, progress payments
resumed in September 1999, and we paid $6.8 million and $6.6 million in progress
payments in 2000 and 1999, respectively. In 2000, we again deferred certain
progress payments. There can be no assurance that cash provided by operations
will be sufficient to meet the progress payments for future B717 deliveries. If
we exercise our options and purchase rights to acquire up to an additional 50
B717 aircraft, additional payments could be required for these aircraft
beginning in 2001.
As of December 31, 2000, our debt related to asset financing totaled $277.9
million, with respect to which aircraft and certain other equipment are pledged
as security. Included in such amount is $131.8 million of 10.63% EETCs, of which
a portion of interest and principal is payable semiannually through April 2017
and $80.0 million of 10.50% senior secured notes due April 2001. In addition, we
have $150.0 million of 10.25% senior notes due April 2001.
The EETC proceeds were used to replace loans for the purchase of the first ten
B717 aircraft delivered, and all ten aircraft were pledged as collateral for the
EETCs. Eight EETC-financed B717s were delivered in 1999, and the remaining two
deliveries occurred in 2000. During 2000, we sold and leased back two of the
EETC-financed B717s in a leveraged lease transaction reducing the outstanding
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principal amount of the EETCs by $35.9 million. Unexpended proceeds from the
EETCs issue were $0 and $39.2 million at December 31, 2000, and December 31,
1999, respectively.
During 2000, we took delivery of eight new B717 aircraft that were financed as
follows: two were delivered and subsequently sold and leased back from the
lessors (as discussed in the immediately preceding paragraph); three were leased
from an affiliate of the airframe manufacturer; and three were purchased with
promissory notes provided by an affiliate of the airframe manufacturer (the
promissory notes were fully repaid in February 2001).
We entered into an amended and restated financing commitment with Boeing Capital
Services Corporation (Boeing Capital) on March 22, 2001, in order to refinance
the senior notes and senior secured notes due April 2001 and to provide
additional liquidity. The cash flow generated from the Boeing Capital
transactions, together with internally generated funds, will be sufficient to
retire the $150.0 million senior notes and the $80.0 million senior secured
notes at maturity. Funding of the refinancing is subject to various matters
including: our being current on all payment obligations to Boeing; maintaining
our corporate existence; continuing to be a certificated air carrier; not
voluntarily or involuntarily terminating or suspending our operations; and,
there being no total loss of an aircraft, the result of which would have a
material and adverse effect on us or our business. The components of the
refinancing are as follows (in thousands):
Senior secured notes due 2008 $ 169,500
Subordinated notes due 2009 17,500
Convertible notes due 2009 17,500
-----------
$ 204,500
===========
The new senior secured notes to be issued by our subsidiary, AirTran Airways,
will bear a fixed rate of interest to be determined at closing equal to the sum
or difference of 12.25% and changes in Boeing Capital's cost of borrowing from
and after November 9, 2000, to closing. Principal payments of approximately $3.3
million plus interest will be payable semiannually. In addition, there are
certain mandatory prepayment events, including a $3.1 million prepayment upon
the consummation of each of 12 sale-leaseback transactions for B717 aircraft
expected to occur between April 2001 and February 2002. The new senior secured
notes will be secured by substantially all of the assets of AirTran Airways not
otherwise encumbered, and are noncallable for four years. In the fifth year,
they can be prepaid at a premium of 4% and in the sixth year at a premium of 2%.
In connection with the issuance of the new senior secured notes, we will issue
detachable warrants to Boeing Capital for the purchase of 4% of our common stock
(approximately 3.0 million shares) for $4.51 per share. The warrants have an
estimated value of $12.6 million and expire in five years. This amount will be
amortized to interest expense over the life of the new senior secured notes.
The subordinated notes will bear interest at the higher of: (a) 13%, or (b) the
rate on the new senior secured notes plus 1%. Interest is payable quarterly in
arrears, and no principal payments are due prior to maturity in 2009 except for
mandatory quarterly prepayments equal to 25% of AirTran Airways' net income.
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The stated interest rate on the convertible notes will be 7.75%, except that
they will bear a higher rate of interest if our average common stock price
during a calendar month is below $6.42, or if we have not registered under the
Securities Act of 1933 the common stock to be issued upon conversion of the
notes. Interest will be payable semiannually in arrears. The notes are
convertible at any time into approximately 3.2 million shares of our common
stock. This conversion rate represents a beneficial conversion feature valued at
approximately $5.6 million. This amount will be amortized to interest expense
over the life of the convertible notes. We will be able to require Boeing
Capital's conversion of the notes under certain circumstances.
The subordinated notes and convertible notes will be secured by: (1) a pledge of
all of our rights under the B717 aircraft purchase agreement with the McDonnell
Douglas Corporation (an affiliate of Boeing Capital), and (2) a subordinated
lien on the collateral securing the new senior secured notes.
During 2000, we obtained a lease financing commitment from Boeing Capital which
provided for the purchase and sale-leaseback of up to 20 B717 aircraft (three of
the 20 leases were completed in 2000). In connection with the Boeing Capital
transactions, the lease financing commitment was amended to: (a) increase the
term of the leases for the remaining 17 aircraft from 18 years to 18.5 years,
and (b) increase Boeing Capital's purchase price by $3.1 million per aircraft or
$52.7 million in the aggregate. To date, five of the sale-leaseback transactions
have closed in 2001. Upon closing of each sale-leaseback transaction occurring
on or after funding of the new senior secured notes, we must make a principal
payment of $3.1 million on the new senior secured notes.
To the extent we do not utilize the lease financing commitment (or such
commitment is unavailable because of expiry or otherwise), we will be required
to obtain a portion of the B717 financing from sources other than Boeing
Capital. We believe that, with the support to be provided by Boeing and its
affiliates (from the lease financing commitment and other provisions of the B717
purchase agreement), aircraft-related debt and/or lease financing should be
available when needed. However, we cannot assure investors that we will be able
to secure financing on terms attractive to us, if at all. To the extent we
cannot secure acceptable financing, we may be required to modify our aircraft
acquisition plans or to incur financing costs higher than anticipated.
In addition, in partial consideration of the refinancing transactions, we have
granted Boeing an option to cause us to purchase or lease up to four additional
B717 aircraft per year during 2001, 2002, and 2003. If we elect to lease, Boeing
Capital will provide financing substantially equivalent to the lease financing
commitment. These aircraft, and Boeing Capital's commitment to provide financing
thereof, are supplemental to the 50 firm aircraft which are the subject of our
existing purchase agreement with Boeing.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended in June 2000 by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which requires companies to recognize all derivatives as either assets or
liabilities in the balance sheet and measure such instruments at fair value. As
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, we will
adopt SFAS 133 effective January 1, 2001. Adoption of these new accounting
standards will result in a cumulative after-tax reduction to net income of
approximately $0.7 million, and an increase to other comprehensive income of
approximately $1.3 million, in the first quarter of 2001. The adoption will also
impact assets and liabilities recorded on the balance sheet. The ongoing effects
will depend upon future market conditions and our hedging activities.
FORWARD-LOOKING STATEMENTS
The statements that are contained in this Report that are not historical facts
are "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "expects," "intends," "believes," "will," or
the negative thereof, or other variations thereon or comparable terminology.
We wish to caution the reader that the forward-looking statements contained in
this Report are only estimates or predictions, and are not historical facts.
Such statements include, but are not limited to:
o our performance in future periods;
o our ability to maintain profitability and to generate working capital
from operations;
o our ability to take delivery of and to finance aircraft;
o our ability to restructure and/or refinance our indebtedness;
o the adequacy of our insurance coverage; and
o the results of litigation or investigations.
No assurance can be given that future results will be achieved and actual events
or results may differ materially as a result of risks facing us or actual events
differing from the assumptions underlying such statements. Such risks and
assumptions include, but are not limited to:
o consumer demand and acceptance of services offered by us;
o our ability to achieve and maintain acceptable cost levels;
o fare levels and actions by competitors;
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o regulatory matters, general economic conditions, commodity prices; and
o changing business strategy and results of litigation.
Additional information concerning factors that could cause actual results to
vary materially from the future results indicated, expressed or implied in such
forward-looking statements is contained elsewhere in this Form 10-K for the year
ended December 31, 2000.
All forward-looking statements made in connection with this Report are expressly
qualified in their entirety by these cautionary statements. We disclaim any
obligation to update or correct any of our forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK-SENSITIVE INSTRUMENTS AND POSITIONS
We are subject to certain market risks, including interest rates and commodity
prices (i.e., aircraft fuel). The adverse effects of changes in these markets
pose a potential loss as discussed below. The sensitivity analyses do not
consider the effects that such adverse changes may have on overall economic
activity, nor do they consider additional actions we may take to mitigate our
exposure to such changes. Actual results may differ. See the Notes to the
consolidated financial statements for a description of our financial policies
and additional information.
Interest Rates
As of December 31, 2000 and 1999, the fair value of our long-term debt was
estimated to be $439.0 million and $392.3 million, respectively, based upon
discounted future cash flows using current incremental borrowing rates for
similar types of instruments or market prices. Market risk, estimated as the
potential increase in fair value resulting from a hypothetical one percent
decrease in interest rates, was approximately $11.1 million as of December 31,
2000, and approximately $11.0 million as of December 31, 1999.
Aircraft Fuel
Our results of operations are impacted by changes in the price of aircraft fuel.
Excluding the impairment charges, aircraft fuel accounted for 25.9% and 15.3% of
our operating expenses in 2000 and 1999, respectively. Based on our 2001
projected fuel consumption, a 10% increase in the average price per gallon of
aircraft fuel for the year ending December 31, 2000, would increase fuel expense
for the next twelve months by approximately $9.7 million, net of hedging
instruments outstanding at December 31, 2000. Comparatively, based on 2000 fuel
usage, a 10% increase in fuel prices would have resulted in an increase in fuel
expense of approximately $10.0 million, net of hedging instruments utilized
during 2000. In 2000, we entered into fuel-hedging contracts consisting of
fixed-price swap agreements and collar structures to protect against increases
in aircraft fuel prices. At December 31, 2000, we had hedged approximately 50%
of our projected fuel requirements for the first quarter of 2001 and
approximately 30% of our projected requirements for the remainder of 2001.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this report. See
pp. 46-66.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to be used
in connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 16, 2001, which Proxy Statement is to be filed with
the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
data under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement to be
used in connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 16, 2001, which Proxy Statement is to be filed with
the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
data under the heading "STOCK OWNERSHIP" in the Proxy Statement to be used in
connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 16, 2001, which Proxy Statement is to be filed with
the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
data under the heading "CERTAIN TRANSACTIONS" in the Proxy Statement to be used
in connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 16, 2001, which Proxy Statement is to be filed with
the Commission.
37
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. The response to this portion of Item 14 is submitted as a separate
section of this report.
2. The response to this portion of Item 14 is submitted as a separate
section of this report.
3. Filing of Exhibits:
Exhibit 3.2 - Bylaws (As amended on March 27, 2000).
Exhibit 10.19 - Letter Agreement dated March 22, 2001, among the
Company, AirTran Airways, Inc. and Boeing
Capital Services Corporation. *.
Exhibit 13 - Portions of the Company's Annual Report to
Stockholders for the year ended December 31, 2000
(to be deemed filed only to the extent required
by the Instructions to Exhibits for Reports on
Form 10-K).
Exhibit 23 - Consent of Independent Auditors.
(b) AirTran Holdings, Inc. (the Company) has filed the following Current
Reports on Form 8-K:
Date of Report Subject of Report
October 16, 2000 Press release announcing financial results for
the quarter and nine months ended September 30,
2000, and selected operating and financial
statistics for the same periods.
(c) The following exhibits are filed herewith or incorporated by reference
as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
EXHIBIT NO. AND DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (As amended on March 27, 2000)
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed
as Exhibit 3.2
4.1 Indenture dated as of April 17, 1996, among the
Company, its subsidiaries and Bank of Montreal Trust Company, as
Trustee (3)
4.2 First Supplemental Indenture dated August 26, 1996, among the Company,
its subsidiaries, Bank of Montreal Trust Company and Fleet National
Bank (11)
4.3 Second Supplemental Indenture dated August 5, 1997, among the Company,
its subsidiaries and State Street Bank and Trust (10)
4.4 Third Supplemental Indenture dated November 17, 1997, among the
Company, its subsidiaries and State Street Bank and Trust (11)
4.5 Indenture dated August 13, 1997, among the Company, its subsidiaries
and The Bank of New York, as Trustee (4)
4.6 First Supplemental Indenture dated November 17, 1997, among the
Company, its subsidiaries and The Bank of New York (11)
38
<PAGE>
4.7 Second Supplemental Indenture dated April 23, 1999, among the Company,
its subsidiaries and The Bank of New York (16)
4.8 Third Supplemental Indenture dated December 30, 1999, among the
Company, its subsidiaries and The Bank of New York (16)
10.1 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan (5)(6)
10.2 1993 Incentive Stock Option Plan (5)(6)
10.3 1994 Stock Option Plan (5)(6)
10.4 1995 Employee Stock Purchase Plan (7)
10.5 Purchase Agreement between McDonnell Douglas Corporation and ValuJet
Airlines, Inc. dated December 6, 1995. The Commission has granted
confidential treatment with respect to certain portions of this
Agreement (8)
10.6 Agreement and Lease of Premises Central Passenger Terminal Complex
Hartsfield Atlanta International Airport (8)
10.7 1996 Stock Option Plan (6)(9)
10.8 Consulting Agreement dated November 17, 1997, between the Company and
Robert L. Priddy (6) (10)
10.9 Consulting Agreement dated November 17, 1997, between the Company and
Lewis H. Jordan (6) (10)
10.10 Airways Corporation 1995 Stock Option Plan (6)(12)
10.11 Airways Corporation 1995 Directors Stock Option Plan (6)(12)
10.12 Lease of headquarters in Orlando, Florida, dated November 14, 1995 (13)
10.13 Orlando International Lease and Use Agreement (14)
10.14 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989 (15)
10.15 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement
by and between Greater Orlando Aviation Authority and Page AvJet
Corporation dated June 22, 1990 (15)
10.16 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and
the Company dated January 25, 1996 (15)
10.17 Employment Agreement dated as of January 4, 1999, between the Company
and Joseph B. Leonard (11)
10.18 Note Purchase Agreement dated as of November 3, 1999, among the
Company, AirTran Airways, Inc., State Street Bank and Trust Company of
Connecticut National Association and First Security Bank, National
Association (16)
10.19 Letter Agreement dated March 22, 2001, among the Company, AirTran
Airways, Inc. and Boeing Capital Services Corporation *
13 Portions of the Company's Annual Report to Stockholders for the year
ended December 31, 2000 (to be deemed filed only to the extent required
by the Instructions to Exhibits for Reports on Form 10-K)
21 Subsidiaries of the Registrant (16)
23 Consent of Independent Auditors
----------------------------
39
<PAGE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4, registration number 33-95232, filed with the Commission on
August 1, 1995 and amendments thereto.
(2) Incorporated by reference to the Company's Registration Statement Form
S-4, registration number 333-33837, filed with the Commission on August
18, 1997 and amendments thereto.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 Commission File No. 0-26914,
filed with the Commission on May 3, 1996.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-4, registration number 333-37487, filed with the Commission on
October 9, 1997 and amendments thereto.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1, registration number 33-78856, filed with the Commission on
May 12, 1994 and amendments thereto.
(6) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c)
of Form 10-K.
(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, Commission File No. 0-24164,
filed with the Commission on August 11, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, Commission File No. 0-24164,
filed with the Commission on March 29, 1996 and amendment thereto.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 0-24164,
filed with the Commission on March 31, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, Commission File No. 0-26914,
filed with the Commission on March 27, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, Commission File No. 0-26914,
filed with the Commission on March 31, 1999.
(12) Incorporated by reference to Airways Corporation's Registration
Statement on Form S-4, registration number 33-93104, filed with the
Commission.
(13) Incorporated by reference to the Quarterly Report on Form 10-Q of
Airways Corporation (Commission File No. 0-26432) for the quarter ended
December 31, 1995.
(14) Incorporated by reference to the Quarterly Report on Form 10-Q of
Airways Corporation (Commission File No. 0-26432) for the quarter ended
December 31, 1996.
(15) Incorporated by reference to the Annual Report on Form 10-K of Airways
Corporation (Commission File No. 0-26432) for the year ended March 31,
1997.
(16) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, Commission File No. 0-26914,
filed with the Commission on March 30, 2000.
* Confidential treatment has been requested for certain confidential portions of
this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. In accordance with this rule, these confidential portions have been
omitted from this exhibit and filed separately with the Securities and Exchange
Commission.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AIRTRAN HOLDINGS, INC.
By: /s/ JOSEPH B. LEONARD
-----------------------------------
Joseph B. Leonard
Chairman and Chief Executive Officer
Date: April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ JOSEPH B. LEONARD April 2, 2001
- --------------------------------------------------
Joseph B. Leonard
Chairman of the Board and
Chief Executive Officer
/s/ STANLEY J. GADEK April 2, 2001
- --------------------------------------------------
Stanley J. Gadek
Senior Vice President, Finance
and Chief Financial Officer (Principal Accounting
and Financial Officer)
/s/ DON L. CHAPMAN April 2, 2001
- --------------------------------------------------
Don L. Chapman
Director
/s/ JOHN K. ELLINGBOE April 2, 2001
- --------------------------------------------------
John K. Ellingboe
Director
April 2, 2001
- --------------------------------------------------
Lewis H. Jordan
Director
/s/ ROBERT L. PRIDDY April 2, 2001
- --------------------------------------------------
Robert L. Priddy
Director
41
<PAGE>
April 2, 2001
- --------------------------------------------------
Robert D. Swenson
Director
April 2, 2001
- ---------------------------------------------------
William J. Usery
Director
42
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2000
AirTran Holdings, Inc.
Orlando, Florida
43
<PAGE>
The following consolidated financial statements of AirTran Holdings, Inc. are
incorporated by reference in Item 8:
CONTENTS
Consolidated statements of operations - Years ended
December 31, 2000, 1999, and 1998.......................................... 46
Consolidated balance sheets - December 31, 2000, and 1999.................. 47
Consolidated statements of stockholders' equity (deficit) - Years ended
December 31, 2000, 1999, and 1998.......................................... 49
Consolidated statements of cash flows - Years ended
December 31, 2000, 1999, and 1998.......................................... 50
Notes to consolidated financial statements - December 31, 2000............. 51
The following consolidated financial statements schedule of AirTran Holdings,
Inc. is included in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made, in the applicable accounting
regulations of the Securities and Exchange Commission, are not required under
the related instructions or are inapplicable and therefore have been omitted.
44
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
AirTran Holdings, Inc.
We have audited the accompanying consolidated balance sheets of AirTran
Holdings, Inc., as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the index at item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AirTran
Holdings, Inc., at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
- ---------------------------
Atlanta, Georgia
January 21, 2001
except for Note 5 as to which the date is March 22, 2001
45
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
OPERATING REVENUES:
Passenger $ 604,826 $ 486,487 $ 420,901
Cargo 4,183 3,888 3,488
Other 15,085 33,093 14,918
--------- --------- ---------
Total operating revenues 624,094 523,468 439,307
OPERATING EXPENSES:
Salaries, wages and benefits 137,391 120,737 108,461
Aircraft fuel 140,404 68,331 71,922
Maintenance, materials and repairs 73,238 86,374 74,577
Distribution 39,972 37,278 34,886
Landing fees and other rents 28,752 27,004 23,366
Marketing and advertising 16,412 15,643 15,112
Aircraft rent 12,616 4,869 7,241
Depreciation 23,087 28,533 28,591
Other operating 71,071 58,952 66,216
Impairment loss -- 147,735 27,492
--------- --------- ---------
Total operating expenses 542,943 595,456 457,864
--------- --------- ---------
OPERATING INCOME (LOSS) 81,151 (71,988) (18,557)
INTEREST (INCOME) EXPENSE:
Interest income (5,602) (3,183) (3,181)
Interest expense 39,317 27,850 25,362
--------- --------- ---------
Interest (income) expense, net 33,715 24,667 22,181
--------- --------- ---------
Income (Loss) Before Income Taxes 47,436 (96,655) (40,738)
Provision For Income Taxes -- 2,739 --
--------- --------- ---------
NET INCOME (LOSS) $ 47,436 $ (99,394) $ (40,738)
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.72 $ (1.53) $ (0.63)
========= ========= =========
Diluted $ 0.69 $ (1.53) $ (0.63)
========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 65,759 65,097 64,641
========= ========= =========
Diluted 69,175 65,097 64,641
========= ========= =========
See accompanying notes to consolidated financial statements.
46
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 78,127 $ 58,102
Restricted cash 25,710 18,069
Accounts receivable, less allowance of $1,231 and
$927 at December 31, 2000 and 1999, respectively 9,388 7,599
Spare parts, materials and supplies, less allowance
for obsolescence of $6,171 and $2,260 at
December 31, 2000 and 1999, respectively 10,536 5,816
Prepaid expenses 14,136 14,058
--------- ---------
Total current assets 137,897 103,644
PROPERTY AND EQUIPMENT:
Flight equipment 340,952 244,662
Less: Accumulated depreciation (23,300) (4,973)
--------- ---------
317,652 239,689
Purchase deposits for flight equipment 26,194 22,562
Other property and equipment 27,461 24,914
Less: Accumulated depreciation (16,018) (13,436)
--------- ---------
11,443 11,478
--------- ---------
Total property and equipment 355,289 273,729
OTHER ASSETS:
Intangibles resulting from business acquisition 15,080 15,628
Trade names 22,401 23,234
Unexpended debt proceeds - restricted -- 39,232
Debt issuance costs 5,608 5,733
Other assets 9,980 5,814
--------- ---------
TOTAL ASSETS $ 546,255 $ 467,014
========= =========
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
47
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 8,678 $ 10,410
Accrued liabilities 68,049 57,456
Air traffic liability 33,765 23,491
Current portion of long-term debt 62,491 19,569
--------- ---------
Total current liabilities 172,983 110,926
Long-term debt, less current portion 365,412 396,119
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value per share, 5,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.001 par value per share, 1,000,000
shares authorized, and 65,823 and 65,698 shares
issued and outstanding at December 31, 2000 and
1999, respectively 66 66
Additional paid-in capital 151,044 150,589
Accumulated deficit (143,250) (190,686)
--------- ---------
Total stockholders' equity (deficit) 7,860 (40,031)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 546,255 $ 467,014
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
TOTAL
ADDITIONAL STOCKHOLDERS'
PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 64,312 $ 64 $ 144,937 $ (50,554) $ 94,447
Issuance of common stock for exercise of options 563 1 1,790 -- 1,791
Issuance of common stock under stock purchase plan 23 -- 130 -- 130
Net loss and comprehensive loss -- -- -- (40,738) (40,738)
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 64,898 65 146,857 (91,292) 55,630
Issuance of common stock for exercise of options 226 -- 1,031 -- 1,031
Issuance of common stock under stock purchase plan 51 -- 202 -- 202
Issuance of common stock in litigation settlement 523 1 2,499 -- 2,500
Net loss and comprehensive loss -- -- -- (99,394) (99,394)
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1999 65,698 66 150,589 (190,686) (40,031)
Issuance of common stock for exercise of options 63 -- 190 -- 190
Issuance of common stock under stock purchase plan 62 -- 265 -- 265
Net income and comprehensive income -- -- -- 47,436 47,436
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2000 65,823 $ 66 $ 151,044 $(143,250) $ 7,860
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
49
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 47,436 $ (99,394) $ (40,738)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation and amortization 26,078 30,432 31,525
Impairment loss -- 147,735 27,492
Provisions for uncollectible accounts 4,626 4,022 8,003
Deferred income taxes -- 2,387 --
Changes in current operating assets and liabilities:
Restricted cash (7,641) (4,610) (7,494)
Accounts receivable (6,415) (3,837) (11,425)
Spare parts, material and supplies (5,312) (1,657) (1,878)
Other assets (3,943) (5,169) 5,911
Accounts payable and accrued liabilities 4,289 (636) (19,476)
Air traffic liability 10,274 6,469 2,106
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 69,392 75,742 (5,974)
INVESTING ACTIVITIES:
Purchases of property and equipment (77,709) (187,667) (66,716)
(Payment) refund of aircraft purchase deposits (6,770) 4,374 --
Restricted funds for aircraft purchases 39,232 (39,232) --
Proceeds from disposal of equipment 48,980 24,815 370
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 3,733 (197,710) (66,346)
FINANCING ACTIVITIES:
Issuance of long-term debt -- 244,756 6,100
Payments of long-term debt (53,555) (76,801) (10,844)
Proceeds from sale of common stock 455 1,233 1,921
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (53,100) 169,188 (2,823)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 20,025 47,220 (75,143)
Cash and cash equivalents at beginning of period 58,102 10,882 86,025
--------- --------- ---------
Cash and cash equivalents at end of period $ 78,127 $ 58,102 $ 10,882
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest, net of amounts capitalized $ 35,607 $ 23,911 $ 21,557
Cash paid (refunded) for income taxes 1,141 420 (9,686)
Noncash financing and investing activities:
Acquisition of equipment for debt 63,144 -- --
Acquisition of equipment for capital leases 2,627 -- --
Purchase and sale-leaseback of equipment 62,608 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
50
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Our consolidated financial statements include the accounts of AirTran Holdings,
Inc. and our wholly owned subsidiaries, including our principal subsidiary,
AirTran Airways, Inc. Significant intercompany accounts and transactions have
been eliminated in consolidation.
AirTran Holdings, Inc. (AirTran) offers affordable scheduled air transportation
and mail service, serving short-haul markets primarily in the eastern United
States.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates, and such differences may be material to the consolidated
financial statements.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
We consider all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents. Restricted cash primarily represents
amounts escrowed relating to air traffic liability.
ACCOUNTS RECEIVABLE
Accounts receivable are due primarily from major credit card processors and
travel agents. These receivables are unsecured. We provide an allowance for
doubtful accounts equal to the estimated losses expected to be incurred in the
collection of accounts receivable.
SPARE PARTS, MATERIALS AND SUPPLIES
Spare parts, materials and supplies are stated at cost using the first-in,
first-out method (FIFO). These items are charged to expense when used.
Allowances for obsolescence are provided over the estimated useful life of the
related aircraft and engines for spare parts expected to be on hand at the date
aircraft are retired from service.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Flight equipment is
depreciated to its salvage values using the straight-line method.
The B717 fleet has a salvage value of 10% and useful life of 25 years. In
conjunction with the 1999 impairment charge, the DC-9 fleet was written down to
its fair market value. Accordingly, the salvage values were revised to 38% -
52%, and the useful lives were revised to one to three years. In
51
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
conjunction with the 1998 impairment charge, the B737 fleet was written down to
its fair market value, and we believe that the fair market value is indicative
of its salvage value. The useful lives of the B737 aircraft were revised to two
years. Aircraft parts are depreciated over the respective fleet life to a
salvage value of 5%.
Other property and equipment is depreciated over three to ten years.
The estimated salvage values and depreciable lives are periodically reviewed for
reasonableness, and revised if necessary. At January 1, 1998, we revised the
salvage values and useful lives on our DC-9 fleet and related equipment as
outlined below:
1997 1998 1997 1998
SALVAGE VALUE SALVAGE VALUE USEFUL LIFE USEFUL LIFE
Airframes 10% 40% 10-20 years 10-12 years
Engines 10% 10% 3 years 10-12 years
Aircraft parts 5-50% 5% 3 years fleet life
The revised salvage value of our DC-9 fleet ranged from approximately $0.4
million to $2.6 million per aircraft. The effect of this change for the year
ended December 31, 1998, was to increase income by approximately $12 million or
$0.19 per share. At the time, these estimates more accurately reflected our
expectations of estimated fair values at the anticipated dates of disposal.
MEASUREMENT OF IMPAIRMENT
In accordance with Statement of Financial Accounting Standard (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, we record impairment losses on long-lived assets used in
operations when events or circumstances indicate that the assets may be impaired
and the undiscounted cash flows estimated to be generated by those assets are
less than the net book value of those assets. See Note 10.
INTANGIBLES
The trade name and intangibles resulting from business acquisitions consist of
cost in excess of net assets acquired, and are being amortized using the
straight-line method over 30 years. Accumulated amortization at December 31,
2000 and 1999, was approximately $5.1 million and $3.7 million, respectively.
The carrying value of cost in excess of net assets acquired is reviewed for
impairment whenever events or changes in circumstances indicate that it may not
be recoverable. If such an event occurred, we would prepare projections of
future results of operations for the remaining amortization period. If such
projections indicated that the expected future net cash flows (undiscounted and
without interest) are less than the carrying amount of cost in excess of net
assets acquired, we would record an impairment loss in the period such
determination is made, based on the fair value of the related business.
52
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
CAPITALIZED INTEREST
Interest attributable to funds used to finance the acquisition of new aircraft
is capitalized as an additional cost of the related asset. Interest is
capitalized at our weighted average interest rate on long-term debt or, where
applicable, the interest rate related to specific borrowings. Capitalization of
interest ceases when the asset is placed in service. In 2000, 1999, and 1998,
approximately $8.8 million, $6.7 million and $3.3 million of interest cost was
capitalized, respectively.
AIRCRAFT AND ENGINE MAINTENANCE
We account for airframe and engine overhaul costs using the direct-expensing
method. Overhauls are performed on a continuous basis, and the cost of overhauls
and routine maintenance costs for airframe and engine maintenance are charged to
maintenance expense as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense in the period the costs are incurred.
Advertising expense was approximately $15.7 million, $14.8 million and $14.8
million for the years ended December 31, 2000, 1999, and 1998, respectively.
REVENUE RECOGNITION
Passenger and cargo revenue is recognized when transportation is provided.
Transportation purchased but not yet used is included in air traffic liability.
STOCK-BASED COMPENSATION
We grant stock options for a fixed number of shares to our officers, directors,
key employees and consultants, with an exercise price equal to or below the fair
value of the shares at the date of grant. We account for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly recognize compensation expense only if the market price of the
underlying stock exceeds the exercise price of the stock option on the date of
grant.
SFAS No. 123, Accounting for Stock-Based Compensation, provides an alternative
to APB Opinion No. 25 in accounting for stock-based compensation issued to
employees. However, we will continue to account for stock-based compensation in
accordance with APB Opinion No. 25. See Note 8.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended in June 2000 by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which requires companies to recognize all derivatives as either assets or
liabilities in the balance sheet and measure such instruments at fair value. As
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective
53
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Date of FASB Statement No. 133, we will adopt SFAS 133 effective January 1,
2001. Adoption of these new accounting standards will result in a cumulative
after-tax reduction to net income of approximately $0.7 million, and an increase
to other comprehensive income of approximately $1.3 million, in the first
quarter of 2001. The adoption will also impact assets and liabilities recorded
on the balance sheet. The ongoing effects will depend upon future market
conditions and our hedging activities. See Note 3.
RECLASSIFICATION
Certain 1999 and 1998 amounts have been reclassified to conform with 2000
classifications.
2. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, our contractual commitments consisted primarily of
scheduled aircraft acquisitions. Initially, we contracted with an affiliate of
Boeing to purchase 50 B717 aircraft for delivery between 1999 and 2002, with
options to purchase an additional 50 B717s. During the second quarter of 2000,
we revised our contracts with Boeing relating to the purchase and financing of
our future B717 aircraft deliveries. The revised contract provides for a
delivery schedule as follows: 1999 (eight aircraft - all delivered), 2000 (eight
aircraft - all delivered), 2001 (12 aircraft), 2002 (12 aircraft), and 2003 (10
aircraft). In connection with our agreement with Boeing, we also recharacterized
the 50 option aircraft to provide for 25 options, 20 purchase rights, and five
rolling options. The options and purchase rights, to the extent exercised, would
provide for delivery to us of all of our B717s on or before September 30, 2005.
Prior to this revision, we had committed to purchase 50 B717 aircraft during the
following years: 1999 (eight aircraft), 2000 (eight aircraft), 2001 (16
aircraft), and 2002 (18 aircraft). Also prior to the revision, the 50 option
aircraft, if exercised, would have been available for delivery between January
2003 and January 2005.
Aggregate funding needed for these and all other aircraft commitments was
approximately $669 million at December 31, 2000. Of this amount, approximately
$6.9 million and $12.5 million are required to be paid in progress payments in
2001 and 2002, respectively. After progress payments, the balance of the total
purchase price must be paid or financed upon delivery of each aircraft. While
the major airframe manufacturer is required to provide credit support for a
limited portion of third-party financing, we will be required to obtain
financing from other sources relating to these deliveries. If we exercise our
options and purchase rights to acquire up to an additional 50 aircraft,
additional payments could be required beginning in 2001. In conjunction with
these contractual commitments, we have made nonrefundable deposits of
approximately $26.2 million at December 31, 2000.
In November 1997, we filed a suit against SabreTech and its parent corporation
seeking to hold them responsible for the accident involving Flight 592. On
September 23, 1999, we settled the lawsuit against SabreTech and its parent. The
net proceeds of $19.6 million from the settlement are included in other revenue
in the 1999 statement of operations.
Several stockholder class action suits were filed against us and certain of our
current and former executive officers and directors. The suits were subsequently
consolidated into a single action. On
54
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
December 31, 1998, we entered into a Memorandum of Understanding to settle the
consolidated lawsuit. Although we denied that we violated any of our obligations
under the federal securities laws, we paid $2.5 million in cash and $2.5 million
in common stock in the settlement which was approved on October 28, 1999.
From time to time, we are engaged in other litigation arising in the ordinary
course of our business. We do not believe that any such pending litigation will
have a material adverse effect on our results of operations or financial
condition.
3. FUEL PRICE RISK MANAGEMENT
We entered into fuel-hedging contracts consisting of fixed price swap agreements
and collar structures to protect against increases in aircraft fuel prices. The
change in market value of such agreements has a high correlation to the price
changes of the fuel being hedged. Periodic settlements under the agreements are
recognized as a component of fuel expense when the underlying fuel being hedged
is used. Gains and losses on the agreements would be recognized immediately
should the changes in the market value of the agreements cease to have a high
correlation to the price changes of the fuel being hedged. As of December 31,
2000, we hedged approximately 50 percent of our projected first quarter 2001
fuel needs at a price no higher than $29 per barrel of crude oil, and
approximately 30 percent of our projected needs for the remainder of 2001 at a
price no higher than $24 per barrel of crude oil. The fair value of our
fuel-hedging agreements at December 31, 2000, representing the amount we would
receive upon termination of the agreement, totaled $0.8 million. If in the
future a fuel-hedging contract were terminated, any resulting gain or loss would
be deferred and amortized to fuel expense over the remaining life of the
contract. A default by the broker-dealer to an agreement would expose us to
potential fuel price risk on the remaining fuel purchases, in that we would be
required to purchase fuel at the current fuel price, rather than according to
the hedging agreement. We do not enter into fuel-hedging contracts for trading
purposes.
4. ACCRUED LIABILITIES
December 31,
---------------------------------
2000 1999
----------- -----------
(In thousands)
Accrued maintenance $ 19,307 $ 24,278
Accrued interest 13,105 9,447
Accrued salaries, wages and benefits 10,617 8,961
Deferred gain 10,122 6,300
Accrued federal excise taxes 4,348 2,176
Other 10,550 6,294
----------- -----------
$ 68,049 $ 57,456
=========== ===========
55
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. LONG-TERM DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
December 31,
----------------------
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Aircraft notes payable through 2017, 10.63% weighted
average interest rate $ 131,826 $ 178,850
Senior notes due April 2001, 10.25% interest rate 150,000 150,000
Senior secured notes due April 2001, 10.50% interest rate 80,000 80,000
Promissory notes for aircraft and other equipment payable
through 2018, 8.27 % to 11.76% interest rates 64,043 6,838
Capital lease obligations 2,034 --
--------- ---------
427,903 415,688
Less current maturities (62,491) (19,569)
--------- ---------
$ 365,412 $ 396,119
========= =========
</TABLE>
We completed a private placement of $178.9 million enhanced equipment trust
certificates (EETCs) on November 3, 1999. The EETC proceeds were used to replace
loans for the purchase of the first ten B717 aircraft delivered, and all ten
aircraft were pledged as collateral for the EETCs. In March 2000, we sold and
leased back two of the B717s in a leveraged lease transaction reducing the
outstanding principal amount of the EETCs by $35.9 million. Principal and
interest payments on the EETCs are due semiannually through April 2017.
Unexpended proceeds from the EETCs issue at December 31, 2000 and December 31,
1999 were $0 and $39.2 million, respectively.
We entered into an amended and restated financing commitment with Boeing Capital
Services Corporation (Boeing Capital) on March 22, 2001, in order to refinance
the senior notes and senior secured notes due April 2001 and to provide
additional liquidity. The cash flow generated from the Boeing Capital
transactions, together with internally generated funds, will be sufficient to
retire the $150.0 million senior notes and the $80.0 million senior secured
notes at maturity. Funding of the refinancing is subject to various matters
including: our being current on all payment obligations to Boeing; maintaining
our corporate existence; continuing to be a certificated air carrier; not
voluntarily or involuntarily terminating or suspending our operations; and there
being no total loss of an aircraft, the result of which would have a material
and adverse effect on us or our business. The components of the refinancing are
as follows (in thousands):
Senior secured notes due 2008 $ 169,500
Subordinated notes due 2009 17,500
Convertible notes due 2009 17,500
-----------
$ 204,500
===========
The new senior secured notes to be issued by our subsidiary, AirTran Airways,
will bear a fixed rate of interest to be determined at closing equal to the sum
or difference of 12.25% and changes in Boeing Capital's cost of borrowing from
and after November 9, 2000, to closing. Principal payments of approximately $3.3
million plus interest will be payable semiannually. In addition, there are
certain mandatory prepayment events, including a $3.1 million prepayment upon
the consummation of each of 12 sale-leaseback transactions for B717 aircraft
expected to occur between April 2001 and February
56
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
2002. The new senior secured notes will be secured by substantially all of the
assets of AirTran Airways not otherwise encumbered, and are noncallable for four
years. In the fifth year, they can be prepaid at a premium of 4% and in the
sixth year at a premium of 2%. In connection with the issuance of the new senior
secured notes, we will issue detachable warrants to Boeing Capital for the
purchase of 4% of our common stock (approximately 3.0 million shares) for $4.51
per share. The warrants have an estimated value of $12.6 million and expire in
five years. This amount will be amortized to interest expense over the life of
the new senior secured notes.
The subordinated notes will bear interest at the higher of: (a) 13%, or (b) the
rate on the new senior secured notes plus 1%. Interest is payable quarterly in
arrears, and no principal payments are due prior to maturity in 2009 except for
mandatory quarterly prepayments equal to 25% of AirTran Airways' net income.
The stated interest rate on the convertible notes will be 7.75%, except that
they will bear a higher rate of interest if our average common stock price
during a calendar month is below $6.42, or if we have not registered under the
Securities Act of 1933 the common stock to be issued upon conversion of the
notes. Interest will be payable semiannually in arrears. The notes are
convertible at any time into approximately 3.2 million shares of our common
stock. This conversion rate represents a beneficial conversion feature valued at
approximately $5.6 million. This amount will be amortized to interest expense
over the life of the convertible notes. We will be able to require Boeing
Capital's conversion of the notes under certain circumstances.
The subordinated notes and convertible notes will be secured by: (1) a pledge of
all of our rights under the B717 aircraft purchase agreement with the McDonnell
Douglas Corporation (an affiliate of Boeing Capital), and (2) a subordinated
lien on the collateral securing the new senior secured notes.
During 2000, we obtained a lease financing commitment from Boeing Capital which
provided for the purchase and sale-leaseback of up to 20 B717 aircraft (three of
the 20 leases were completed in 2000). In connection with the Boeing Capital
transactions, the lease financing commitment was amended to: (a) increase the
term of the leases for the remaining 17 aircraft from 18 years to 18.5 years,
and (b) increase Boeing Capital's purchase price by $3.1 million per aircraft or
$52.7 million in the aggregate. To date, five of the sale-leaseback transactions
have closed in 2001. Upon closing of each sale-leaseback transaction occurring
on or after funding of the new senior secured notes, we must make a principal
payment of $3.1 million on the new senior secured notes.
In addition, in partial consideration of the refinancing transactions, we have
granted Boeing an option to cause us to purchase or lease up to four additional
B717 aircraft per year during 2001, 2002, and 2003. If we elect to lease, Boeing
Capital will provide financing substantially equivalent to the lease financing
commitment. These aircraft, and Boeing Capital's commitment to provide financing
thereof, are supplemental to the 50 firm aircraft which are the subject of our
existing purchase agreement with Boeing.
During the last quarter of 2000, we financed the acquisition of three B717
aircraft with promissory notes from Boeing. Subsequent to December 31, 2000,
these notes were repaid through the sale and lease back of the three B717s.
Accordingly, these notes are classified as long term debt.
57
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
During 2000, we entered into capital lease agreements for various capital assets
(see Note 6).
Certain aircraft and engines with a book value totaling approximately $260.3
million serve as collateral on the senior secured notes, EETCs and promissory
notes.
The following table shows our maturities of long-term debt and capital lease
obligations for the next five years, based on the maturities of the refinanced
debt discussed above (in thousands):
2001 $ 62,491
2002 19,881
2003 10,270
2004 11,479
2005 15,115
Thereafter 245,523
Promissory notes repaid in 2001 through
the sale of equipment 63,144
----------
$ 427,903
==========
6. LEASES
Total rental expense charged to operations for aircraft, facilities and office
space for the years ended December 31, 2000, 1999, and 1998 was approximately
$30.9 million, $21.7 million and $23.9 million, respectively.
We lease six DC-9s, one B737, and five B717s under operating leases with terms
that expire through 2018. We have the option to renew the DC-9 leases for one or
more periods of not less than six months. We have the option to renew the B717
leases for periods ranging from one to four years. The B717 leases have purchase
options at or near the end of the lease term at fair market value, and two have
purchase options based on a stated percentage of the lessor's defined cost of
the aircraft at the end of the thirteenth year of the lease term. We also lease
facilities from local airport authorities or other carriers, as well as office
space under operating leases with terms ranging from one month to thirteen
years. In addition, we lease ground equipment and certain rotables under capital
leases.
The amounts applicable to capital leases included in property and equipment were
(in thousands):
DECEMBER 31,
--------------------------
2000 1999
--------- --------
Flight equipment $ 2,627 $ --
Less: Accumulated depreciation (111) --
--------- --------
$ 2,516 $ --
========= ========
58
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The following schedule outlines the future minimum lease payments at December
31, 2000, under noncancelable operating leases and capital leases with initial
terms in excess of one year (in thousands):
Capital Operating
Leases Leases
------------ ------------
2001 $ 546 $ 33,015
2002 568 33,571
2003 564 34,233
2004 535 27,274
2005 95 25,969
Thereafter -- 189,467
------------ ------------
Total minimum lease payments 2,308 $ 343,529
============
Less: amount representing interest (274)
------------
Present value of future payments 2,034
Less: current obligations (437)
------------
Long-term obligations $ 1,597
============
Capital lease obligations are included in long-term debt in the balance sheet.
7. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per common share (in thousands, except per share data):
2000 1999 1998
-------- -------- --------
NUMERATOR:
Net income (loss) $ 47,436 $(99,394) $(40,738)
======== ======== ========
DENOMINATOR:
Weighted average shares outstanding, basic 65,759 65,097 64,641
Effect of dilutive stock options 3,416 -- --
-------- -------- --------
Adjusted weighted average shares
outstanding, diluted 69,175 65,097 64,641
======== ======== ========
Basic earnings (loss) per common share $ 0.72 $ (1.53) $ (0.63)
======== ======== ========
Diluted earnings (loss) per common share $ 0.69 $ (1.53) $ (0.63)
======== ======== ========
The assumed conversions of 2.3 million stock options in 2000, and all stock
options in 1999 and 1998, were antidilutive and excluded from the computation of
weighted average shares outstanding used in computing diluted earnings (loss)
per common share.
59
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
8. STOCK OPTION PLANS
The 1993 Incentive Stock Option Plan provides up to 4.8 million options to be
granted to officers, directors and key employees to purchase shares of common
stock at prices not less than the fair value of the shares on the dates of
grant. With respect to individuals owning more than 10% of the voting power of
all classes of our common stock, the exercise price per share shall not be less
than 110% of the fair value of the shares on the date of grant.
The 1994 Stock Option Plan provides up to 4 million incentive stock options or
nonqualified options to be granted to our officers, directors, key employees and
consultants.
The 1996 Stock Option Plan provides up to 5 million incentive stock options or
nonqualified options to be granted to our officers, directors, key employees and
consultants.
In connection with the acquisition of Airways Corporation (Airways) in 1997, we
assumed the Airways Corporation 1995 Stock Option Plan (Airways Plan) and the
Airways Corporation 1995 Director Stock Option Plan (Airways DSOP). Under the
Airways Plan, up to 1.2 million incentive stock options or nonqualified options
may be granted to our officers, directors, key employees or consultants. Under
the Airways DSOP, up to 150,000 nonqualified options may be granted to
directors.
Vesting and term of all options is determined by the Board of Directors and may
vary by optionee; however, the term may be no longer than ten years from the
date of grant.
Pro forma information regarding net income (loss) and earnings (loss) per common
share is required by SFAS No. 123, which also requires that the information be
determined as if we had accounted for our employee stock options granted
subsequent to December 31, 1994, under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999, and 1998, respectively: risk-free interest rates of
6.2%, 5.0% and 5.4%; no dividend yields; volatility factors of the expected
market price of our common stock of 0.596, 0.648 and 0.710; and a weighted
average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our 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 employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
60
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Our pro forma information is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income (loss) $ 45,059 $ (102,173) $ (42,279)
Pro forma earnings (loss) per common share:
Basic 0.69 (1.57) (0.65)
Diluted 0.65 (1.57) (0.65)
</TABLE>
The pro forma net income (loss) and earnings (loss) per common share information
presented above reflect stock options granted during 1995 and in later years, in
accordance with SFAS No. 123. Accordingly, the full effect of calculating
compensation expense for stock options under SFAS No. 123 is not reflected in
the pro forma net income (loss) and earnings (loss) per common share amounts
above, because compensation expense is recognized over the stock option's
vesting period and compensation expense for stock options granted prior to
January 1, 1995, is not considered.
A summary of stock option activity under the aforementioned plans is as follows:
Weighted
Average
Options Price Range Price
--------- ----------------- --------
Balance at December 31, 1997 8,116,430 $0.17 - 23.19 $ 4.84
Granted 235,000 5.50 - 8.13 7.67
Exercised (562,580) 0.17 - 5.69 2.81
Canceled (997,870) 0.17 - 21.38 7.16
---------
Balance at December 31, 1998 6,790,980 0.17 - 23.19 4.71
Granted 2,571,000 3.03 - 6.41 3.52
Exercised (226,420) 0.17 - 5.50 4.56
Canceled (495,040) 3.13 - 21.50 7.04
---------
Balance at December 31, 1999 8,640,520 0.17 - 23.19 4.16
Granted 1,097,500 4.00 - 4.75 4.28
Exercised (63,000) 0.17 - 3.88 3.02
Canceled (570,760) 3.31 - 21.50 5.46
---------
Balance at December 31, 2000 9,104,260 $0.17 - 23.19 $ 4.17
=========
Exercisable at December 31, 2000 6,464,245 $0.17 - 23.19 $ 4.00
=========
61
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------------- --------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$0.17 2,400,000 2.5 $ 0.17 2,400,000 $ 0.17
1.00 - 3.31 2,716,800 6.0 3.02 1,716,800 3.00
3.75 - 4.50 1,658,000 8.1 4.06 420,500 3.81
4.53 - 6.88 1,135,060 6.4 5.27 866,397 5.29
7.13 - 13.25 541,000 6.0 7.78 535,668 7.77
18.38 - 23.19 653,400 5.1 19.00 524,880 19.01
----------------- -----------------
0.17 - 23.19 9,104,260 5.4 4.17 6,464,245 4.00
================= =================
</TABLE>
The weighted average fair value of options granted during 2000, 1999, and 1998,
with option prices equal to the market price on the date of grant, was $2.45,
$2.07 and $7.98, respectively. There were no options granted during 2000, 1999,
and 1998 with option prices less than the market price of the stock on the date
of grant.
At December 31, 2000, we had reserved a total of 11,982,990 shares of common
stock for future issuance, upon exercise of stock options.
9. INCOME TAXES
Our provision for income taxes for the years ended December 31, 2000, 1999, and
1998 was $0, $2.7 million and $0, respectively. The components of our provision
for income taxes is as follows (in thousands):
2000 1999 1998
---------- ---------- ----------
Current provision:
Federal $ -- $ 352 $ --
State -- -- --
---------- ---------- ----------
Total current provision -- 352 --
Deferred provision:
Federal -- 2,010 --
State -- 377 --
---------- ---------- ----------
Total deferred provision -- 2,387 --
---------- ---------- ----------
Provision for income taxes $ -- $ 2,739 $ --
========== ========== ==========
62
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
A reconciliation of taxes computed at the statutory federal tax rate on income
(loss) before income taxes to the provision for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Tax computed at federal statutory rate $ 16,603 $(33,829) $(14,258)
State income tax (benefit),
net of federal tax benefit 1,469 (3,089) (606)
Goodwill 483 517 7,705
Alternative minimum tax -- 909 --
Benefit of preacquisition net operating
loss carryforwards -- 2,387 --
Other 54 (434) (110)
Valuation reserve, including the effect of
changes to prior year deferred tax assets (18,609) 36,278 7,269
-------- -------- --------
$ -- $ 2,739 $ --
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
our deferred tax liabilities and assets are as follows (in thousands):
December 31,
---------------------
2000 1999
-------- --------
Deferred tax liabilities:
Depreciation $ 590 $ --
Rent expense 988 --
-------- --------
Gross deferred tax liabilities 1,578 --
Deferred tax assets:
Depreciation -- 21,740
Accrued liabilities 1,181 1,011
Nonqualified stock options 931 930
Federal operating loss carryforwards 47,959 37,938
State operating loss carryforwards 4,606 6,741
AMT credit carryforwards 3,770 3,526
Other 3,358 4,024
-------- --------
Gross deferred tax assets 61,805 75,910
Valuation allowance (60,227) (75,910)
-------- --------
Net deferred tax assets 1,578 --
-------- --------
Total net deferred tax liabilities $ -- $ --
======== ========
For financial reporting purposes, a valuation allowance has been recognized at
December 31, 2000 and 1999, to reduce the net deferred income tax assets to
zero. We have not recognized any benefit from the future use of operating loss
carryforwards because management's evaluation of all the available
63
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
evidence in assessing the realizability of the tax benefits of such loss
carryforwards, indicates that the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
such tax benefits currently. Although we produced operating profits in each
quarter in 2000 and 1999, excluding the impairment charge, we do not believe
this and other positive evidence, including projections of future profitable
operations, offset the effect of our recent cumulative losses.
At December 31, 2000, we had net operating loss carryforwards for income tax
purposes of approximately $137 million that begin to expire in 2012. In
addition, our Alternative Minimum Tax credit carryforwards for income tax
purposes were $3.8 million.
Prior to the Airways merger, Airways generated net operating loss carryforwards
of $23.1 million. The use of preacquisition operating loss carryforwards is
subject to limitations imposed by the Internal Revenue Code. We do not
anticipate that these limitations will affect utilization of the carryforwards
prior to expiration. For financial reporting purposes, a valuation allowance of
$8.1 million was recognized to offset the deferred tax assets related to those
carryforwards. When realized, the tax benefit for those items will be applied to
reduce goodwill related to the acquisition of Airways. During 1999, we utilized
$6.3 million of Airways' net operating loss carryforwards, and reduced goodwill
by the $2.4 million tax benefit of such utilization.
10. IMPAIRMENT LOSS
In the fourth quarter of 1998, we decided to accelerate the retirement of our
four owned B737 aircraft as a result of the elimination of their original route
system and continued operating losses upon their redeployment to other routes.
The B737s, which were acquired in the Airways merger, will be replaced with B717
aircraft. In the fourth quarter of 1999, we decided to accelerate the retirement
of our 42 DC-9 aircraft to accommodate the introduction of our B717 fleet. It
was our original intent to use the B717s to increase overall capacity while
continuing to use the DC-9s into 2005. However, during 1999, the new management
team (including our Chief Executive Officer and President, who joined AirTran in
1999) reevaluated our near- and long-term fleet strategy and the components
underlying such strategy. By October 1999, we determined that it would be
cost-beneficial to begin to retire the DC-9s. As a result, we developed a fleet
plan which provided for the retirement of the DC-9s between December 31, 1999,
and October 2003, generally coinciding with the delivery of the B717s. The Board
approved the plan in October 1999.
In connection with each of the decisions to accelerate the retirement of these
aircraft, we performed evaluations to determine, in accordance with SFAS No.
121, whether future cash flows (undiscounted and without interest charges)
expected to result from the use and eventual disposition of these aircraft would
be less than the aggregate carrying amount of these aircraft and related assets
and, for the B737s, an allocation of cost in excess of net assets acquired
resulting from the Airways merger. SFAS No. 121 requires that, when a group of
assets being tested for impairment was acquired as part of a business
combination that was accounted for using the purchase method of accounting, any
cost in excess of net assets acquired that arose as part of the transaction must
be included as part of the asset grouping. As a result of the evaluations,
management determined that the estimated future cash flows
64
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
expected to be generated by these aircraft would be less than their carrying
amounts and, for the B737s, allocated cost in excess of net assets acquired, and
therefore these aircraft are impaired as defined by SFAS No. 121. Consequently,
the original cost bases of these assets were reduced to reflect the fair market
value at the date the decisions were made, resulting in a $27.5 million
impairment loss on the B737s in 1998 and a $147.7 million impairment loss on the
DC-9s in 1999. We considered recent transactions and market trends involving
similar aircraft in determining the fair market value.
11. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject us to significant concentrations
of credit risk consist principally of cash and cash equivalents and accounts
receivable. We maintain cash and cash equivalents with various high
credit-quality financial institutions or in short-duration high-quality debt
securities. We periodically evaluate the relative credit standing of those
financial institutions that are considered in our investment strategy.
Concentration of credit risk with respect to accounts receivable is limited, due
to the large number of customers comprising our customer base.
The fair values of our long-term debt are based on quoted market prices, if
available, or are estimated using discounted cash flow analyses, based on our
current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of our long-term debt were $427.9
million and $439.0 million, respectively, at December 31, 2000, and $415.7
million and $392.3 million, respectively, at December 31, 1999.
12. EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, we consolidated our 401(k) plans (the Plan). All
employees are eligible to participate in the consolidated Plan, a defined
contribution benefit plan which qualifies under Section 401(k) of the Internal
Revenue Code. Participants may contribute up to 15% of their base salary to the
Plan. Contributions to the Plan by AirTran are discretionary. The amount of our
contributions to the Plan expensed in 2000, 1999, and 1998 were approximately
$0.5 million, $0.3 million and $0.3 million, respectively.
Under the 1995 Employee Stock Purchase Plan, employees who complete twelve
months of service are eligible to make quarterly purchases of our common stock
at up to a 15% discount from the market value on the offering date. The Board of
Directors determines the discount rate before each offering date. We are
authorized to issue up to 4 million shares of common stock under this plan.
During 2000, 1999, and 1998 the employees purchased a total of 61,626, 51,318
and 23,023 shares, respectively, at an average price of $4.30, $3.94 and $5.65
per share, respectively, which represented a 5% discount from the market price
on the offering dates.
65
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000 and 1999 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter
---------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal 2000
Operating revenues $ 132,408 $ 160,769 $ 161,459 $ 169,458
Operating income 11,838 31,622 17,103 20,588
Net income 2,902 22,588 8,891 13,055
Basic earnings per share 0.04 0.34 0.14 0.20
Diluted earnings per share 0.04 0.33 0.13 0.19
Quarter
---------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal 1999
Operating revenues $ 119,873 $ 140,015 $ 143,483 $ 120,097
Operating income (loss) 9,001 21,455 29,570 (132,014)
Net income (loss) 3,054 14,959 23,167 (140,574)
Basic earnings (loss) per share 0.05 0.23 0.36 (2.15)
Diluted earnings (loss) per share 0.05 0.22 0.34 (2.15)
</TABLE>
The results of the fourth quarter of 1999 include an impairment charge of $147.7
million related to the DC-9 fleet. The results of the third quarter of 1999
include net proceeds of $19.6 million from the settlement of a lawsuit against a
third-party maintenance provider.
Year-end adjustments resulted in decreasing income before income taxes during
the fourth quarter of 2000 by approximately $1.6 million, the majority of which
relates to revisions of expenses recorded in earlier quarters during 2000.
Year-end adjustments resulted in increasing the loss before income taxes during
the fourth quarter of 1999 by approximately $5.3 million. Of this amount,
approximately $3.2 million relates to revised revenue amounts recorded in
earlier quarters during 1999, and approximately $2.1 million relates to changes
in management's estimates and assumptions primarily related to accruals for
vacation and group health insurance.
During the year, we provide for income taxes using anticipated effective annual
tax rates. The rates are based on expected operating results and permanent
differences between book and tax income. Adjustments are made each quarter for
changes in the anticipated rates used in previous quarters. If the actual annual
effective rates had been used in each of the quarters of 2000 and 1999, net
income for the first through fourth quarters of 2000 would have been $3.0
million, $23.6 million, $9.2 million, and $11.6 million, respectively, and net
income (loss) for the first through the fourth quarters of 1999 would have been
$3.3 million, $15.2 million, $22.8 million, and ($140.7 million), respectively.
66
<PAGE>
AIRTRAN HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- AT END
OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 2000
Allowance for Doubtful Accounts $ 927 $ 4,626 $ -- $ 4,322 (1) $ 1,231
Allowance for Obsolescence 2,260 3,962 -- 51 (2) 6,171
Valuation Allowance for Deferred
Taxes 75,910 (15,683) -- -- 60,227
----------- ----------- ----------- ---------- ----------
Total 79,097 (7,095) -- 4,373 67,629
=========== =========== =========== ========== ==========
Year ended December 31, 1999
Allowance for Doubtful Accounts 1,325 4,022 -- 4,420 (1) 927
Allowance for Obsolescence 4,259 1,406 -- 3,405 (2) 2,260
Valuation Allowance for Deferred
Taxes 39,632 36,278 -- -- 75,910
----------- ----------- ----------- ---------- ----------
Total 45,216 41,706 -- 7,825 79,097
=========== =========== =========== ========== ==========
Year ended December 31, 1998
Allowance for Doubtful Accounts 1,354 8,003 -- 8,032 (1) 1,325
Allowance for Obsolescence 2,217 2,042 -- -- 4,259
Valuation Allowance for Deferred
Taxes 29,000 7,269 3,363 (3) -- 39,632
----------- ----------- ----------- ---------- ----------
Total $ 32,571 $ 17,314 $ 3,363 $ 8,032 $ 45,216
=========== =========== =========== ========== ==========
</TABLE>
- -----------------------------
(1) Uncollectible amounts charged to allowance for doubtful accounts.
(2) Obsolete items charged to allowance for obsolescence.
(3) Valuation allowance resulting from the acquisition of Airways Corporation.
67
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>BY-LAWS OF AIRTRAN HOLDINGS, INC.
<TEXT>
<PAGE>
Exhibit 3.2
BY-LAWS
OF
AIRTRAN HOLDINGS, INC.
ARTICLE ONE
OFFICES
Section 1.1 REGISTERED OFFICE AND AGENT. The corporation shall maintain
a registered office and shall have a registered agent whose business office is
identical with such registered office.
Section 1.2 OTHER OFFICES. The corporation may have offices at such
place or places, within or without the State of Nevada, as the Board of
Directors may, from time to time, appoint or as the business of the corporation
may require or make desirable.
ARTICLE TWO
CAPITAL STOCK
Section 2.1 ISSUANCE AND NOTICE. Certificates of each class of stock
shall be numbered consecutively in the order in which they are issued. They
shall be signed by the President and Secretary and the seal of the corporation
shall be affixed thereto. In an appropriate place in the corporate records there
shall be entered the name of the person owning the shares, the number of shares
and the date of issue. Certificates of stock exchanged or returned shall be
canceled and placed in the corporate records. Facsimile signatures may be
utilized in accordance with Section 2.2 of this Article.
Section 2.2 TRANSFER AGENTS AND REGISTRARS. The Board of Directors of
the corporation may appoint a transfer agent or agents and a registrar or
registrars of transfer (other than the corporation itself or an employee
thereof) for the issuance of shares of stock of the corporation and may require
that all stock certificates bear the signature of such transfer agent and
registrar. In the event a share certificate is authenticated by both the
transfer agent and registrar, any share certificate may be signed by the
facsimile of the signature of either or both of the President and Secretary
printed thereon. If the same is countersigned by the transfer agent and
registrar of the corporation, the certificates bearing the facsimile of the
signatures of the President and Secretary shall be valid in all respects as if
such person or persons were still in office even though such person or persons
shall have died or otherwise ceased to be officers.
Section 2.3 TRANSFER. Upon the surrender to the corporation or to the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of assignment of authority to transfer, it shall
be the duty of the corporation to issue a certificate to the person entitled
thereto, to cancel the surrendered certificate and to record the transaction
upon its books.
Section 2.4 LOST CERTIFICATES. Any person claiming a certificate of
stock to be lost or destroyed shall make an affidavit or affirmation of that
fact and shall, if the Board of Directors so requires, comply with such other
conditions applicable to the circumstances as the Board of Directors may
require, including the delivery of a bond of indemnity, in form and with one or
more sureties satisfactory to the Board of Directors, in at least double the
value of the stock represented by said certificates; whereupon a new certificate
may be issued of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed.
<PAGE>
Section 2.5 SHAREHOLDERS OF RECORD. The corporation shall be entitled
to recognize the exclusive right of a person registered on the books as the
owner of shares entitled to receive dividends or to vote as such owner and shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
Section 2.6 DETERMINING SHAREHOLDERS OF RECORD. The Board of Directors
shall have the power to close the stock transfer books of the corporation for a
period not exceeding sixty (60) days preceding the date of any meeting of
Shareholders or the date for payment of any dividend. Such date shall serve as
the record date for the determination of the Shareholders entitled to notice of
and to vote at such meeting or to receive payment of such dividend. When a
record date is so fixed, only Shareholders of record on that date shall be
entitled to notice of and to vote at the meeting or to receive payment of any
dividend, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
Section 2.7 VOTING. The holders of the common stock shall be entitled
to one vote for each share of stock standing in their name. The holders of any
class or series of preferred stock shall have the rights to vote specified in
the corporation's certificate of rights, preferences and privileges filed in
accordance with the laws of the State of Nevada.
Section 2.8 STATEMENT OF RIGHTS OF HOLDERS OF STOCK. So long as the
corporation is authorized to issue more than one class of stock or more than one
series of any class, there shall be set forth on the face or back of each
certificate of stock, or the certificate shall have a statement that the
corporation will furnish to any Shareholder upon request and without charge, a
full or summary statement of the voting powers, designations, preferences,
limitations, restrictions and relative rights of the various classes of stock or
series thereof.
ARTICLE THREE
SHAREHOLDERS' MEETINGS
Section 3.1 PLACE OF MEETINGS. All meetings of the Shareholders shall
be held at the registered office of the corporation or at such other place,
either within or without the State of Nevada, as the Board of Directors may,
from time to time, designate.
Section 3.2 ANNUAL MEETING. An annual meeting of the Shareholders shall
be held each year at such time and date between January 1 and June 30 as shall
be designated by the Board of Directors and stated in the notice of the meeting.
If an annual meeting has not been called and held by June 30 of any year, such
meeting may be called by the holders of ten percent (10%) or more of the voting
power of the corporation outstanding and entitled to vote. At such annual
meeting, the Shareholders shall elect a Board of Directors by a plurality vote
and transact such other business as may properly be brought before the meeting.
Section 3.3 SPECIAL MEETINGS.
A. CALLING OF SPECIAL MEETINGS. Upon request in writing to the
President or Secretary, sent by registered mail or delivered to such Officer in
person, by any of the persons entitled to call a meeting of Shareholders, as
provided in Section 3.3B below, such Officer shall forthwith cause notice to be
given to the Shareholders entitled to vote at such meeting. If the notice is not
given within thirty (30) days after the date of delivery of the request, the
persons calling the meeting may fix the time of meeting and give the notice in
the manner provided in these By-laws.
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<PAGE>
B. PERSONS ENTITLED TO CALL SPECIAL MEETINGS. Special meetings
of the Shareholders, for any purpose whatsoever, may be called at any time by
any of the following: (1) a majority of the Board of Directors in office; and
(2) Shareholders holding not less than twenty-five percent (25%) of the voting
power of the corporation.
C. PERMISSIBLE MATTERS. Business transacted at all special
meetings shall be confined to the objects stated in the call.
Section 3.4 NOTICE.
A. NOTICE OF MEETINGS. Notice of all meetings of Shareholders
shall be given in writing to Shareholders entitled to vote signed by the
Secretary or an Assistant Secretary or other person charged with that duty, or,
in case of his neglect or refusal, or if there is no person charged with the
duty of giving notice, by any Director or Shareholder.
B. METHOD OF NOTICE. A notice may be given by the corporation
to any Shareholder, either personally or by mail or other means of written
communication, charges prepaid, addressed to the Shareholder at his address
appearing on the books of the corporation. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail with first-class
postage thereon, prepaid and addressed to the Shareholder at his address as it
appears on the stock transfer books of the corporation.
C. TIME OF NOTICE. Notice of meeting of Shareholders shall be
sent to each Shareholder entitled thereto not less than ten (10) days nor more
than sixty (60) days before the meeting, except in the case of a meeting for the
purpose of approving a merger or consolidation agreement in which case the
notice must be given not less than twenty (20) days prior to the date of the
meeting.
D. CONTENTS OF NOTICE. Notice of any meeting of Shareholders
shall specify the place, the day and the hour of the meeting and the purpose for
calling the meeting.
Section 3.5 WAIVER OF NOTICE. Notice of a meeting need not be given to
any Shareholder who signs a waiver of notice, in person or by proxy, either
before or after the meeting; and a Shareholder's waiver shall be deemed the
equivalent of giving proper notice. Attendance of a Shareholder at a meeting,
either in person or by proxy, shall by itself constitute a waiver of notice and
a waiver of any and all objections to the time or place of the meeting or the
manner in which it has been called or convened, unless a Shareholder attends a
meeting solely for the purpose of stating, at the beginning of the meeting, any
such objection or objections to the transaction of business. Unless otherwise
specified herein, neither the business transacted nor the purpose of the meeting
need be specified in the waiver.
Section 3.6 PRESENCE BY TELEPHONE. Shareholders may participate in a
meeting of the Shareholders by means of a conference telephone or similar
communications equipment by which all participants in the meeting can hear each
other, and participation in a meeting pursuant to this Section 3.6 shall
constitute presence in person at such meeting.
Section 3.7 QUORUM. The majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
Shareholders. If a quorum is present, action on a matter (other than the
election of Directors) by the Shareholders is approved if the votes cast by the
Shareholders favoring the action exceed the votes cast opposing the action
unless provided otherwise (i) under the corporation's articles of incorporation,
(ii) under the rights and preferences of any class or series of stock
authorized, or (iii) under Nevada law. When a quorum is once present to organize
a meeting, the Shareholders present may
-3-
<PAGE>
continue to do business at the meeting until adjournment even though enough
Shareholders withdraw to leave less than a quorum.
Section 3.8 ADJOURNMENT. Any meeting of the Shareholders may be
adjourned by the holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present. Notice of the adjourned meeting or
of the business to be transacted at such meeting shall not be necessary,
provided the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. Notwithstanding the preceding
sentence, if the Board of Directors fixes a new record date for the adjourned
meeting with respect to who can vote at such meeting, then notice of the
adjourned meeting shall be given to each Shareholder of record on the new record
date who is entitled to vote at such meeting, which notice shall be given in
accordance with the provisions of Section 3.4 hereof. At an adjourned meeting at
which a quorum is present or represented, any business may be transacted which
could have been transacted at the meeting originally called.
Section 3.9 VOTING RIGHTS. Each Shareholder shall be entitled at each
Shareholders' meeting to one vote for each share of the capital stock having
voting power held by such Shareholder except as otherwise provided (i) under the
corporation's articles of incorporation, or (ii) the corporation's certificate
of rights, preferences and privileges filed in accordance with the laws of the
State of Nevada. Neither treasury shares nor shares held by a subsidiary of the
corporation shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Section 3.10 PROXIES. A Shareholder entitled to vote may vote in person
or by proxy executed in writing by the Shareholder or by his attorney-in-fact.
If any Shareholder designates two or more persons to act as proxies, a majority
of those present at the meeting, or if only one shall be present, then that one,
shall have and may exercise all of the powers conferred by such Shareholder upon
all of the persons so designated unless the Shareholder shall otherwise provide.
A proxy shall not be valid after six (6) months from the date of its execution
unless it is coupled with an interest, or unless a longer period is expressly
stated in such proxy, which may not exceed seven (7) years from the date of its
creation. Every proxy shall be revocable at the pleasure of the Shareholder
executing it except as may be otherwise provided in the Nevada Revised Statutes.
Section 3.11 ELECTION JUDGES. The Board of Directors, or if the Board
shall not have made the appointment, the chairman presiding at any meeting of
Shareholders, shall appoint two or more persons to act as election judges to
receive, canvass, certify and report the votes cast by the Shareholders at such
meeting; but no candidate for the office of Director shall be appointed as an
election judge at any meeting for the election of Directors.
Section 3.12 CHAIRMAN OF MEETING. The Chairman of the Board shall
preside at all meetings of the Shareholders; and, in the absence of the Chairman
of the Board, the President shall serve as chairman of the meeting.
Section 3.13 SECRETARY OF MEETING. The Secretary of the corporation
shall act as secretary of all meetings of the Shareholders; and, in his absence,
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 3.14 ACTION BY CONSENT OF SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the Shareholders may be taken without a
meeting if a written consent setting forth the action shall be signed by
Shareholders holding at least a majority of the voting power, unless a greater
vote is required (i) under the corporation's articles of incorporation, (ii)
under the corporation's certificate of rights, preferences
-4-
<PAGE>
and privileges filed in accordance with the laws of the State of Nevada, or
(iii) under Nevada law, in which event, such greater proportion of written
consent shall be required. Any such consent shall be filed with the Secretary of
the corporation and shall have the same force and effect as a unanimous vote of
the Shareholders.
ARTICLE FOUR
DIRECTORS
Section 4.1 MANAGEMENT OF BUSINESS. Subject to these by-laws, the full
and entire management of the affairs and business of the corporation shall be
vested in the Board of Directors which shall have and which may exercise all of
the powers that may be exercised or performed by the corporation.
Section 4.2 NUMBER, QUALIFICATION AND TERM OF OFFICE. The business and
affairs of the corporation shall be managed by a Board of Directors which shall
consist of such number of members, not less than three nor more than nine, as
shall be determined from time to time by resolution of the Board of Directors at
any meeting of the Board or by the unanimous written consent of the Board. Each
member of the Board of Directors of the corporation shall be elected by a
plurality of the votes cast by the shares entitled to vote for the election of
Directors. None of the Directors need be a resident of the State of Nevada or
hold shares of stock in the corporation. The Directors shall be elected at an
annual or special meeting of the Shareholders. The Board of Directors shall
consist of three classes, designated as Class I, Class II, and Class III,
respectively, with the size of each class determined from time to time by
resolution of the Board of Directors; each of which classes shall, however,
consist of a number of directors as equal as possible, with no class having more
than one director more than any other class. Notwithstanding the foregoing, at
least twenty-five percent (25%) of the members of the Board of Directors shall
be subject to election each year. Except for the initial directors in each class
who shall be elected at the 2000 annual meeting of shareholders and who shall
have terms of office of three, two and one years, respectively, each class of
directors shall thereafter have a term of office of three years and until their
respective successors shall have been elected and qualified, or until a
director's earlier resignation or removal.
Section 4.3 VACANCIES.
A. WHEN VACANCIES OCCUR. Vacancies in the Board of Directors
shall exist in the case of happening of any of the following events: (1) the
death, resignation or removal of any Directors; (2) a declaration of vacancy by
the Board of Directors as provided in Paragraph B below; (3) the authorized
number of Directors is increased by resolution of the Board of Directors; or (4)
at any meeting of Shareholders at which the Directors are elected, the
Shareholders fail to elect the full authorized number of Directors to be voted
for at that meeting. A reduction of the authorized number of Directors does not
remove any Director prior to the expiration of his term in office.
B. DECLARATION OF VACANCY. The Board of Directors may declare
vacant the office of any Director in either of the following cases: (1) if he is
declared of unsound mind by an appropriate court order or convicted of a felony;
or (2) if within sixty (60) days after notice of his election he does not accept
the office either in writing or by attending a meeting of the Board of
Directors.
C. FILLING VACANCIES. Unless the Articles of Incorporation or
a provision of these By-laws approved by the Shareholders provides otherwise, if
a vacancy occurs on the Board of Directors, including a vacancy resulting from
an increase in the number of Directors, the Board of Directors may fill the
vacancy. If the Directors remaining in office do not constitute a quorum of the
Board, the Directors may
-5-
<PAGE>
fill the vacancy by affirmative vote of a majority of all the Directors
remaining in office. Such appointment by the Shareholders or Directors shall
continue until the expiration of the term of the Director whose place has become
vacant.
Section 4.4 COMPENSATION. For their services as Directors, the
Directors may receive a fixed sum salary and reimbursement of expenses of
attendance at each meeting of the Board as approved by the Shareholders or Board
of Directors from time to time. A Director may serve the corporation in a
capacity other than that of Director and receive compensation for the services
rendered in such other capacity.
ARTICLE FIVE
DIRECTORS' MEETINGS
Section 5.1 PLACE OF MEETINGS. The meetings of the Board of Directors
may be held at the registered office of the corporation or at any place, within
or without the State of Nevada, which a majority of the Board of Directors may,
from time to time, designate.
Section 5.2 ANNUAL MEETING. The Board of Directors shall meet each year
immediately following the annual meeting of the Shareholders at the place such
Shareholders' meeting was held or at such other time, date and place as a
majority of the Board of Directors may designate. At such annual meeting,
Officers shall be elected and such other business may be transacted which is
within the powers of the Directors. Notice of the annual meeting of the Board of
Directors need not be given.
Section 5.3 REGULAR MEETINGS.
A. WHEN REGULAR MEETINGS HELD. Regular meetings of the Board
of Directors (which includes the annual meeting) shall be held not less than
every three (3) months.
B. CALL OF REGULAR MEETINGS. All regular meetings of the Board
of Directors of the Corporation shall be called by the Chairman of the Board or
by the President.
C. NOTICE OF REGULAR MEETINGS. Written notice of the time and
place of the regular meetings of the Board of Directors shall be delivered
personally to each Director or sent to each Director by mail or by other form of
written communication (including facsimile transmission) at least two (2)
business days before the meeting.
Section 5.4 SPECIAL MEETINGS.
A. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by any two Directors.
B. NOTICE OF SPECIAL MEETING. Written notice of the time and
place of special meetings of the Board of Directors shall be delivered
personally to each Director or sent to each Director by mail or by other form of
written communication (including facsimile transmission) at least two (2)
business days before the meeting.
Section 5.5 WAIVER OF NOTICE. A Director may waive in writing notice of
a special meeting of the Board, either before or after the meeting, and his
waiver shall be deemed the equivalent of giving notice. Attendance of a Director
at a meeting shall constitute a waiver of notice of that meeting unless he
attends for
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<PAGE>
the express purpose of objecting to the transaction of business on the grounds
that the meeting has not been lawfully called or convened.
Section 5.6 PURPOSE OF MEETING. Neither the business to be transacted
at a regular or special meeting, nor the purpose of such meeting, need be
specified in the notice or waiver of notice of such meeting.
Section 5.7 PRESENCE BY TELEPHONE. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment by which all Directors
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 5.7 shall constitute presence in person at such
meeting.
Section 5.8 QUORUM. At meetings of the Board of Directors, a majority
of the Directors shall constitute a quorum for the transaction of business. Only
when a quorum is present may the Board of Directors continue to do business at
any such meeting. If a quorum is present, the acts of a majority of Directors in
attendance shall be the acts of the Board.
Section 5.9 ADJOURNMENT. A meeting of the Board of Directors may be
adjourned. Notice of the time and the place of the adjourned meeting and of the
business to be transacted thereat, other than by announcement at the meeting at
which the adjournment is taken, shall not be necessary. At an adjourned meeting
at which a quorum is present, any business may be transacted which could have
been transacted at the meeting originally called.
Section 5.10 MANIFESTATION OF DISSENT. A Director of the corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 5.11 ACTION BY CONSENT. If all of the Directors, severally or
collectively, consent in writing to any action taken or to be taken by the
corporation and the writing or writings evidencing their consent are filed with
the Secretary of the corporation, the action shall be as valid as though it had
been authorized at a meeting of the Board of Directors.
Section 5.12 COMMITTEES. The Board of Directors may from time to time,
by majority resolution of the full Board of Directors, appoint from among its
members such Committees as the Board may determine. The members of the Executive
Committee, if there is one, shall include the Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer and such other persons designated by
the Board of Directors. If an Executive Committee is formed, such Committee
shall, during the interval between meetings of the Board, advise and aid the
Officers of the corporation in all matters in the corporation's interest and the
management of its business and generally perform such duties and exercise such
powers as may be directed or delegated by the Board of Directors from time to
time. The Board may delegate to the Executive Committee authority to exercise
all powers of the Board, excepting powers which may not be delegated to such
Committee under Nevada law, while the Board is not in session. Vacancies in the
membership of any Committee which shall be so appointed by the Board of
Directors shall be filled by the Board of Directors at a regular meeting or at a
special meeting called for that purpose. All committees shall keep regular
minutes of their proceedings and report the same to the full Board when
requested or required.
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<PAGE>
ARTICLE SIX
OFFICERS
Section 6.1 OFFICERS. The Officers of the corporation shall consist of
those Officers, if any, as the Board of Directors shall designate from time to
time. Upon such action by the Board of Directors, the officers of the
corporation may include a Chairman of the Board, a Vice Chairman of the Board, a
President, a Vice President or Vice Presidents, Secretary, Treasurer and
Assistants to the Vice President, Secretary or Treasurer. The Officers shall be
elected by and shall serve at the pleasure of the Board of Directors. The same
individual may simultaneously hold more than one office in the corporation. The
Board of Directors may designate one or more of the officers with the additional
titles of Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer. The officers so designated shall have those duties incident to the
respective designations, in addition to the duties set forth herein.
Section 6.2 DUTIES OF OFFICERS. All Officers of the corporation, as
between themselves and the corporation, shall have such authority and perform
such duties in the management of the corporation as hereinafter provided in
these By-laws or as may be determined by action of the Board of Directors to the
extent not inconsistent with these By-laws.
Section 6.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a
member of the Board of Directors. He shall, when present, preside at all
meetings of the Board of Directors. He may execute any deeds, mortgages, bonds
or other contracts pursuant to authority (which may be general authority) from
the Board of Directors, except in cases where the execution thereof shall be
expressly delegated by the Board of Directors or by these by-laws to some other
officer or agent of the corporation or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of Chairman of the Board and such other duties as may be prescribed by
the Board of Directors from time to time.
Section 6.4 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if there is one, shall serve in the place of the Chairman of the Board in the
absence of the Chairman. The Vice Chairman of the Board shall perform such other
duties as may be prescribed by the Board of Directors from time to time.
Section 6.5 PRESIDENT. The President shall have the responsibility for
the general supervision of the day-to-day business affairs of the corporation.
He shall be responsible for the day-to-day administration of the corporation,
including general supervision of the implementation of the policies of the
corporation, general and active management of the financial affairs of the
corporation and may execute certificates for shares of the corporation, deeds,
mortgages, bonds or other contracts under the seal of the corporation pursuant
to authority (which may be general authority) from the Board of Directors except
in cases where the execution thereof shall be expressly delegated by the Board
of Directors or by these by-laws to some other officer or agent of the
corporation or shall be required by law to be otherwise signed or executed. He
shall preside at all meetings of the Directors and Shareholders (except when
there is a separately elected Chairman of the Board) and shall discharge the
duties of a presiding officer. He shall present at each annual meeting of the
Shareholders a report of the business of the corporation for the preceding
fiscal year. The President shall also perform whatever other duties the Board of
Directors may from time to time prescribe.
Section 6.6 VICE PRESIDENTS. The Vice President or Vice Presidents
shall perform such duties and have such powers as the Chairman of the Board or
the Board of Directors may from time to time prescribe. The Board of Directors
or the Chairman of the Board may designate the order of seniority of Vice
Presidents, in the event there is more than one, and may designate one or more
Vice Presidents as Senior Vice Presidents. The duties and powers of the
President shall disburse first to the Senior Vice President or to the Vice
Presidents in the order of seniority specified by the Board of Directors or the
Chairman of the Board.
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<PAGE>
Section 6.7 SECRETARY. The Secretary shall (i) keep minutes of all
meetings of the Shareholders and Directors, (ii) have charge of the minute
books, stock books and seal of the corporation, and (iii) perform such other
duties and have such other powers as may, from time to time, be delegated to him
by the Board of Directors or Chairman of the Board.
Section 6.8 TREASURER. The Treasurer shall:
(1) FUNDS - CUSTODY AND DEPOSIT. Have charge and custody of,
and be responsible for, all funds and securities of the corporation and shall
deposit all such funds and other valuable effects in the name and to the credit
of the corporation in such depositories as shall be authorized by the Board of
Directors.
(2) FUNDS - RECEIPT. Give receipts for all moneys due and
payable to the corporation.
(3) FUNDS - DISBURSEMENT. Disburse the funds of the
corporation, keeping proper vouchers for such disbursements.
(4) MAINTAIN ACCOUNTS. Keep and maintain adequate and correct
accounts of the corporation's properties and business transactions, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, surplus and shares.
(5) OTHER DUTIES. Perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors or Chairman of the Board.
Section 6.9 ASSISTANT VICE PRESIDENTS, ASSISTANT SECRETARY AND
ASSISTANT TREASURER. Assistants to the Vice Presidents, Secretary and Treasurer
may be appointed and shall have such duties as shall be delegated to them by the
Board of Directors or Chairman of the Board.
Section 6.10 DELEGATION OF DUTIES. In case of the absence of any
Officer of the corporation, or for any other reason and for any duration that
the Board of Directors may deem advisable, the Board of Directors may delegate
the powers or duties, or any of them, of such Officer to any other Officer, or
to any Director, provided a majority of the entire Board concurs therein.
Section 6.11 REMOVAL OF OFFICERS. Any Officer elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever, in the
judgment of a majority of the members of the Board of Directors, the best
interest of the corporation will be served thereby. The removal of any such
Officer shall be without prejudice to the contract rights, if any, of the person
so removed; however, the election or appointment of an Officer shall not in and
of itself create any contract rights.
Section 6.12 VACANCIES. When a vacancy occurs in one of the executive
offices by death, resignation or otherwise, it shall be filled by the Board of
Directors. The Officer so elected shall hold office until his successor is
chosen and qualified.
Section 6.13 COMPENSATION. The Board of Directors shall prescribe or
fix the salaries, bonuses, pensions, benefits under pension plans and profit
sharing plans, stock option plans and all other plans, benefits and compensation
to be paid or allowed to or in respect of (i) all Officers and any or all
employees of the corporation, including Officers and employees who may also be
Directors of the corporation and (ii) the Directors of the corporation, as such.
Directors of the corporation shall not be disqualified from voting on their own
or any other person's plan, benefit or compensation to be paid by the
corporation merely because they or such other person is a Director or an Officer
or an employee of the corporation. The Board
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<PAGE>
of Directors may delegate these functions to any Officer not a Director except
those determinations involving an Officer or Director.
ARTICLE SEVEN
SEAL
Section 7.1 SEAL. The seal of the corporation shall be in such form as
the Board of Directors may, from time to time, determine. In the event it is
inconvenient to use such a seal at any time, the signature of the corporation
followed by the words "Corporate Seal" enclosed in parentheses or scroll shall
be deemed the seal of the corporation. The seal shall be in the custody of the
Secretary and affixed by him or any Assistant Secretary on the certificates of
stock and such other papers as may be directed by law, by these by-laws or by
the Chairman of the Board, President or Board of Directors.
ARTICLE EIGHT
AMENDMENTS
Section 8.1 AMENDMENTS. These by-laws may be amended at any meeting of
the Board of Directors by the affirmative vote of a majority of the Directors
except as otherwise provided herein or except as prohibited by law.
ARTICLE NINE
INDEMNIFICATION
Section 9.1 DEFINITIONS. As used in this Article, the term:
A. "Corporation" means this corporation and includes any
domestic or foreign predecessor entity of this corporation in a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction.
B. "Director" means an individual who is or was a Director of
the Corporation or an individual who, while a Director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise. A
Director is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on, or
otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a Director.
C. "Expenses" includes attorneys' fees.
D. "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect to a
proceeding.
E. "Officer" means an individual who is or was an officer of
the Corporation or an individual who, while an officer of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
An officer is considered to be serving an
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<PAGE>
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. "Officer" includes,
unless the context requires otherwise, the estate or personal representative of
an officer.
F. "Party" includes an individual who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
G. "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal but shall include an action or suit
by or in the right of the Corporation only if such action or suit is to procure
a judgment in the Corporation's favor.
Section 9.2 BASIC INDEMNIFICATION ARRANGEMENT.
A. Except as provided in subsections 9.2D and 9.2E below, the
Corporation shall indemnify any Officer or Director in the event he is made a
party to a proceeding because he is or was a director or officer against
liability incurred by him in the proceeding if he acted in good faith and in a
manner he believed to be in or not opposed to the best interests of the
Corporation and, in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
B. An Officer's or Director's conduct with respect to an
employee benefit plan for a purpose he believed in good faith to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection 9.2A.
C. The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, be determinative that any Officer or Director did not meet
the standard of conduct set forth in subsection 9.2A.
D. The Corporation shall not indemnify any Officer or Director
under this Article in connection with a proceeding by or in the right of the
Corporation in which such Officer or Director was adjudged liable to the
Corporation, unless and only to the extent the court in which the proceeding was
brought or other court of competent jurisdiction determines upon application
that in view of all circumstances of the case, the Officer or Director is fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper.
E. Indemnification permitted under this Article in connection
with a proceeding is limited to liability and expenses actually and reasonably
incurred in connection with the proceeding.
Section 9.3 ADVANCES FOR EXPENSES.
A. The Corporation shall pay for or reimburse the reasonable
expenses incurred by an Officer or Director as a party to a proceeding in
advance of final disposition of the proceeding if he furnishes the Corporation a
written undertaking (meeting the qualifications set forth below in subsection
9.3B), executed personally or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to any indemnification under this
Article or otherwise.
B. The undertaking required by subsection 9.3A above must be
an unlimited general obligation of such Officer or Director but need not be
secured and may be accepted without reference to financial ability to make
repayment.
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<PAGE>
Section 9.4 AUTHORIZATION OF AND DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
A. The Corporation shall not indemnify any Officer or Director
under Section 9.2 unless a separate determination has been made in the specific
case that indemnification of such Officer or Director is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
9.2A or unless ordered by a court or advanced pursuant to Subsection 9.3;
provided, however, that regardless of the result or absence of any such
determination, to the extent that such Officer or Director has been successful,
on the merits or otherwise, in the defense of any proceeding to which he was a
party, or in defense of any claim, issue or matter therein, because he is or was
a Director or Officer, the Corporation shall indemnify such Officer or Director
against liability incurred by him in connection therewith.
B. The determination referred to in subsection 9.4A above
shall be made, at the election of the Board of Directors:
1. By the Board of Directors of the Corporation by
majority vote of a quorum consisting of Directors not at the
time parties to the proceeding;
2. By special independent legal counsel:
(a) selected by the Board of Directors in
the manner prescribed in subparagraph 1 immediately
above; or
(b) if a quorum of the Board of Directors
cannot be obtained under subparagraph 1 immediately
above, selected by a majority vote of the full Board
of Directors (in which selection Directors who are
parties may participate); or
3. By the Shareholders provided that shares owned by
or voted under the control of Directors or Officers who are at
the time parties to the proceeding may not be voted on the
determination.
C. Evaluation as to reasonableness of expenses of an Officer
or Director in the specific case shall be made in the same manner as the
determination that indemnification is permissible, as described in subsection
9.4B above, except that if the determination is made by special legal counsel,
evaluation as to reasonableness of expenses shall be made by those entitled
under subsection 9.4B2 to select counsel.
Section 9.5 LIMITATIONS ON INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Nothing in this Article shall require or permit indemnification of an Officer or
Director for any liability if a final adjudication establishes that his acts or
omissions involved intentional misconduct, fraud or a knowing violation of law
and was material to the cause of action.
Section 9.6 WITNESS FEES. Nothing in this Article shall limit the
Corporation's power to pay or reimburse expenses incurred by an Officer or
Director in connection with his appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent in the
proceeding.
Section 9.7 NON-EXCLUSIVITY, ETC. The rights of an Officer or Director
hereunder shall be in addition to any other rights with respect to
indemnification, advancement of expenses or otherwise that such Officer or
Director may have under the Corporation's By-laws or the Nevada Revised Statutes
or otherwise.
Section 9.8 INTENT. It is the intention of this corporation that this
Article of the By-laws of this Corporation and the indemnification hereunder
shall extend to the maximum indemnification possible under
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<PAGE>
the laws of the State of Nevada and if one or more words, phrases, clauses,
sentences or sections of this Article should be held unenforceable for any
reason, all of the remaining portions of this Article shall remain in full force
and effect.
ARTICLE TEN
DEALINGS
Section 10.1 RELATED TRANSACTIONS. No contract or other transaction
between this corporation and any other firm, association or corporation shall be
affected or invalidated by the fact that any of the members of the Board of
Directors of this corporation are interested in or are members, shareholders,
governors or directors of such firm, association or corporation; and no
contract, act or transaction of this corporation with any individual firm,
association or corporation shall be affected or invalidated by the fact that any
of the members of the Board of Directors of this corporation are parties to or
interested in such contract, act or transaction or are in any way connected with
such individual, firm, association or corporation. Each and every individual who
may become a member of the Board of Directors of this corporation is hereby
relieved from any liability that might otherwise exist from contracting with
this corporation for the benefit of himself or herself or any firm, association
or corporation in which he or she may in any way be interested. Notwithstanding
the above, the provisions of this Section 10.1 shall be applicable only in the
absence of fraud and only where the interest in such transaction of an
interested party has been disclosed and the interested party, if a Director, has
abstained from a vote thereon.
ARTICLE ELEVEN
DIVIDENDS AND RESERVES
Section 11.1 DIVIDENDS. The Board of Directors of the corporation may
from time to time declare, and in such event the corporation shall pay,
dividends on the corporation's outstanding shares in cash, property or the
corporation's own shares, except when the corporation is insolvent or when the
declaration or payment thereof would be contrary to any restrictions contained
in the Articles of Incorporation or any applicable law, subject to the
following:
A. Dividends may be declared and paid in the corporation's own shares
out of any treasury shares that have been reacquired by the corporation.
B. Dividends may be declared and paid in the corporation's own
authorized but unissued shares, provided that such shares shall be issued at not
less than the par value thereof and there shall be transferred to stated capital
at the time such dividend is paid an amount at least equal to the aggregate par
value of the shares to be issued as a dividend.
C. The corporation shall have the use of any cash or property declared
as a dividend that is unclaimed until the time it escheats to the applicable
jurisdiction. Any stock declared as a dividend or unclaimed shall be voted by
the Board of Directors.
Section 11.2 RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Directors, from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies or for equalizing dividends or
for repairing or maintaining any property of the corporation or for such other
purpose as the Directors shall think
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<PAGE>
conducive to the interest of the corporation, and the Directors may modify or
abolish any such reserve in the manner by which it was created.
ARTICLE TWELVE
CORPORATE BOOKS AND RECORDS
Section 12.1 MINUTES OF CORPORATE MEETINGS. The corporation shall keep
at its principal office, or such other place as the Board of Directors may
order, a book of minutes of all meetings of its Directors and of its
Shareholders, with the time and place of holding, whether annual, regular or
special, and, if special, how authorized, the notice thereof given, the names of
those present at Directors' meetings, the number of shares present or
represented at Shareholders' meetings and the proceedings thereof.
Section 12.2 SHARE REGISTER. The corporation shall keep at the
principal office, or at the office of the transfer agent, a share register
showing the names of the Shareholders and their addresses, the number of shares
held by each and the number and date of cancellation of every certificate
surrendered for cancellation. The above specified information may be kept by the
corporation on punch cards, magnetic tape or other information storage device
related to electronic data processing equipment provided that such card, tape or
other equipment is capable of reproducing the information in clearly legible
form.
ARTICLE THIRTEEN
GENERAL PROVISIONS
Section 13.1 FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 13.2 AUTHORITY FOR EXECUTION OF CONTRACTS AND INSTRUMENTS. The
Board of Directors, except as otherwise provided in these By-laws, may authorize
any Officer or Officers, agent or agents to enter into any contract or execute
and delivery any instrument in the name and on behalf of the corporation, and
such authority may be general or confined to specified instances; and, unless so
authorized, no Officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or in any amount.
Section 13.3 SIGNING OF CHECKS, DRAFTS, ETC. All checks, drafts or
other order for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as shall be determined from time to
time by resolution of the Board of Directors.
AS ADOPTED BY THE DIRECTORS OF THE CORPORATION ON JULY 20, 1995. AS AMENDED BY
THE DIRECTORS OF THE CORPORATION ON DECEMBER 12, 1996. AS AMENDED BY THE
DIRECTORS AND SHAREHOLDERS OF THE CORPORATION AS OF NOVEMBER 17, 1997. AS
AMENDED BY THE BOARD OF DIRECTORS OF THE CORPORATION ON MARCH 27, 2000.
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>LETTER OF AGREEMENT DATED MARCH 22, 2001
<TEXT>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.19
March 22, 2001
Boeing Capital Services Corporation
P.O. Box 3707 MC 6Y-12
Seattle, Washington 98124
Re: Financing commitment among AirTran Airways, Inc. ("Airways") and AirTran
Holdings, Inc. ("Holdings") on the one hand (collectively, the "AirTran
Parties"), and Boeing Capital Services Corporation ("BCC" or "Boeing") on the
other, in connection with Airways' and Holdings' refinancing of $230 million of
debt instruments due April 2001
Ladies and Gentlemen:
The following are the amended and restated terms and conditions upon which BCC
commits to participate in the refinancing of the referenced debt instruments.
This document supercedes the documents dated January 23, 2001 and March 9, 2001.
A. OVERVIEW: This document relates to:
(1) Airways' issuance to BCC of $185 million principal amount of Senior Secured
Notes;
(2) Holdings' issuance to BCC of $35 million principal amount of debt
instruments: (i) a $17.5 million subordinated loan (the "Subordinated Notes")
and (ii) a $17.5 million subordinated convertible loan by BCC to Holdings (the
"Convertible Notes"); and
(3) certain amendments to future sale-leaseback financing transactions between
Airways and BCC.
B. DESCRIPTION OF THE SENIOR NOTES
o ISSUER: Airways.
o SECURITIES OFFERED: $185 million principal amount of senior secured notes
(the "Senior Notes").
o MATURITY DATE: 7 years from date of closing.
<PAGE>
o INTEREST RATE: The base rate of interest payable with respect to the Senior
Notes is 12 1/4%, payable semiannually in arrears. The base rate shall be
increased or decreased, as the case may be, based upon changes in BCC's cost
of borrowing for the period between November 9, 2000 and the date of funding
of the Senior Notes.
o AMORTIZATION: Principal equal to $***($*** over ***) will be paid on each
interest payment date. In addition, principal equal to $3.1 million plus
accrued interest on such $3.1 million portion of the Senior Notes will be
paid on the delivery date of each Transaction Aircraft (as herein defined).
To the extent Transaction Aircraft are delivered prior to funding of the
Senior Notes, the initial principal amount of the Senior Notes will be
reduced by $3.1 million per Transaction Aircraft delivered on or before such
date. If all 17 Transaction Aircraft shall not have been delivered by April
15, 2002 (or such later date provided in the Purchase Agreement occasioned by
delivery delays caused by Boeing), an amount of principal equal to $3.1
million times the number of Transaction Aircraft less than 17 delivered, plus
accrued interest on such principal amount will be due on such date. On the
scheduled maturity date, all then outstanding principal will be due and
payable together with all outstanding principal and interest. Boeing may at
its election by notice delivered to issuer decrease the amortization of all
or a portion of the Senior Notes to facilitate Boeing's sale of some or all
of the Senior Notes to a third party.
o RANKING: The Senior Notes will rank senior in right of payment to any of
Airways' subordinated indebtedness, and will rank equally with any senior
indebtedness, including indebtedness outstanding under the proposed senior
credit facility subject to the intercreditor provision set forth below.
o COLLATERAL: Subject to a lien to be provided to support a proposed $***
senior credit facility, the Senior Notes will be secured by a lien on certain
of Airways' assets including:
27 owned DC9s; 3 owned 737s; the stock of a special purpose corporation that
will own 8 B717s; all present aircraft engines; all spare parts whether now
existing or hereafter acquired; Airways' maintenance hangar in Orlando,
Florida; non-flight fixed assets; Airways' accounts receivable whether now
existing or hereafter acquired; and solely with respect to Senior Notes held
by Boeing (and not subject to any prior lien to the senior credit facility),
the MDC/Airways 717 purchase agreement and advance payments held by Boeing
pursuant to the 717 purchase agreement.
o PREPAYMENT: Except as set forth below, no optional prepayment may be made
with respect to the Senior Notes prior to the fourth (4th) anniversary of the
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
2
<PAGE>
issue date of the Senior Notes (subject to certain mandatory prepayments with
respect to change of control, sale of assets, excess cash flow, etc if
required by BCC). Thereafter issuer may prepay in whole or in part the Senior
Notes at a premium of 4% in year 5, 2% in year 6 and 0% in year 7. If prior
to April 16, 2004, Airways sells equity securities (not including any
securities referred to in this term sheet), the net sales proceeds of such
sale of equity may be applied to redeem up to ***% of the principal amount of
the Senior Notes at ***% (subject to adjustment as contemplated by the second
sentence of "Description of Senior Notes- Interest Rate" (e.g. if the final
rate after interest rate adjustment is ***%, the redemption price would be
***%)) of their principal amount plus accrued and unpaid interest.
Prepayments permitted in accordance with the terms hereof may be partial
prepayments.
o FUNDING DATE: A date designated by Airways to BCC on 10 days' notice but in
all cases on or before April 16, 2001. Except with respect to any proceeds
arising from the sale/leaseback of a Transaction Aircraft prior to the
funding date of the Senior Notes, the net proceeds of the issuance of the
Senior Notes, the Convertible Note and the Subordinated Notes (less the fees
payable to BCC and described below) shall not flow directly to Airways or
Holdings, as the case may be, but instead shall be paid to Bank of New York
and State Street Bank, trustees of the outstanding indebtedness, for the
exclusive purpose of retiring those certain 10 1/2% Senior Secured Notes of
Airways (the "10 1/2% Notes") and those certain 10 1/4% Senior Notes of
Holdings (the "10 1/4% Notes"). BCC shall have no obligation to fund unless
Airways and Holdings shall have (in concert with the funding to be provided
by BCC) paid to such trustees funds sufficient to retire all existing
obligations under the 10 1/2% Notes and the 10 1/4% Notes and to cause Bank
of New York, the trustee for the 10 1/2% Notes, to release all of the
collateral covered by the indenture governing such notes.
o OTHER TERMS: Except as otherwise set forth in this document, the Indenture to
govern the Senior Notes will provide for terms and conditions substantially
in accord with those set forth in the "Description of the Notes" provisions
set forth in the October 27, 2000 "red herring" Rule 144A Offering Circular
(the "Offering Circular") of Airways, mutatis mutandis, including those
relating to change of control, subsidiary guarantees, asset sale proceeds,
debt incurrence, excess cash flow, dividends, stock redemption and issuance,
liens, affiliate transactions, mergers, registration rights. Except as
provided in said Offering Circular or otherwise set forth herein, there will
be no financial covenants, collateral maintenance tests, or ratios. The
Subordinated Notes and the Convertible Notes will also have the benefits of
these covenants.
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*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
3
<PAGE>
o SENIOR CREDIT FACILITY: $***carve-out.
o WARRANTS: Holdings shall issue to BCC warrants to purchase 4% of Holdings'
common stock (on a fully diluted basis). Such warrants shall be detachable
with a 5-year term. The warrants shall be registered contemporaneously with
the Senior Notes and shall be priced at $4.51 per share.
C. DESCRIPTION OF THE SUBORDINATED NOTES AND THE CONVERTIBLE NOTES
o OVERVIEW: BCC shall make two separate loans to Holdings: (a) a $17.5 million
subordinated loan by BCC to Holdings to be evidenced by the Subordinated
Notes; and (b) a $17.5 million convertible loan by BCC to Holdings to be
evidenced by the Convertible Notes.
o MATURITIES: Eight years each. Except as specifically set forth herein, the
Convertible Notes will have no optional prepayments and the Subordinated
Notes will have no optional prepayments without the written consent of BCC.
o INTEREST PAYMENTS: Semi-annual in arrears. Interest coupon for the
Subordinated Notes is 13.25%, subject to a parallel adjustment for interest
rate fluctuation as described in "Description of the Senior Notes- Interest
Rate", provided that in no event shall the interest rate be less than 13%.
For the Convertible Notes, the stated interest rate will be 7.75% (subject to
the provisions of the paragraph entitled "Convertibility" below). If any
payments of interest on either the Subordinated Notes or the Convertible
Notes are not paid when due, in addition to any other rights of BCC, the loan
principal will be increased by the amount of such missed payment and interest
will be due going forward on the entire increased amount (and the amount of
common stock into which the convertible loan is convertible will
correspondingly increase based on the increased principal amount of the
Convertible Notes) at an interest rate 200 basis points higher than the prior
interest rate until the loans are brought current. Other customary remedies
will apply.
o *** FOR THE SUBORDINATED NOTES AND CONVERTIBLE NOTES: $***in the aggregate,
***.
o CONVERTIBILITY: BCC may convert some or all of the Convertible Notes into
Holdings common stock in one or more tranches of not less than $1 million (or
the remainder if less than $1 million remains outstanding). Upon any
conversion, Holdings shall pay to BCC accrued and unpaid interest to the date
of conversion on the notes so converted. The conversion price per share shall
be $5.42. The underlying common shares shall be registered concurrently with
the Senior Notes. So long as any of the Convertible Notes is
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
4
<PAGE>
outstanding and until such time as BCC shall be eligible to convert the
convertible subordinated loan ("eligible" to be defined as having the actual
ability to sell all the stock obtainable from conversion of the loan for a
net amount sufficient to pay the outstanding principal plus all accrued and
unpaid interest to the date of sale; with "actual ability" to be defined as
BCC having obtained a written offer for cash from a creditworthy buyer to
purchase the stock for the amount described above in the definition of
"eligible"), Airways shall make increased interest payments under the
Convertible Notes such that the rate of interest payable to BCC on the
Convertible Notes will be the interest rate on the Senior Notes plus 1.00%.
Commencing the first calendar month after the common stock underlying the
Convertible Notes has been registered and is freely marketable by BCC without
restriction, if Holdings common stock has closed on a national exchange at an
average price of $6.42 for such calendar month, Holdings may at its option by
giving written notice within 5 business days from the end of such month
(after which the option for such month shall lapse and no longer be
available) require BCC to convert $2.5 million of the Convertible Notes.
o DISTRIBUTIONS TO HOLDINGS BY AIRWAYS AND PREPAYMENT OF LOANS BY HOLDINGS:
Airways will covenant to make cash distributions to Holdings equal to the
maximum amount permitted to be distributed to Holdings under the Indenture
governing the Senior Notes, which if Airways shall have net income, will be
50% of Airways' net income on a quarterly basis. 50% of the amounts
distributed to Holdings shall be used by Holdings to prepay the outstanding
principal of the Subordinated Notes at par.
o COLLATERAL: The Subordinated Notes and the Convertible Notes shall be secured
by an enforceable lien on the collateral pledged to the Senior Noteholders
and the bank lender subordinated in right of payment to the Senior
Noteholders and the bank lender.
D. CERTAIN AMENDMENTS TO EXISTING SALE-LEASEBACK TRANSACTION
o DESCRIPTION OF LEASE TRANSACTION: Sale-leaseback financing for the fourth
through twentieth B-717-200 aircraft to be delivered under the Purchase
Agreement (the "Transaction Aircraft") to be financed under the May 8, 2000
letter agreements (the "Existing Terms Sheet", which shall be amended to
provide that the Rolls-Royce financing referred to in the Existing Terms
Sheet shall be provided or arranged by BCC and, unless consented to by BCC
(which may be withheld at the sole discretion of BCC), that each of such 17
aircraft to be lease financed by AirTran shall be Transaction Aircraft).
o SALES PRICE/ LESSOR'S COST: An amount equal to or greater than the purchase
price (as calculated in accordance with the Purchase Agreement) for a
Transaction Aircraft at the time of delivery; provided that any such greater
amount shall not exceed the lesser of: (a) the amount which is $3.1MM in
5
<PAGE>
excess of the purchase agreement price and (b) the current appraised market
value (the"CMV") of such Transaction Aircraft as determined by a mutually
acceptable appraiser to be engaged by Airways (at Airways' expense) (such
greater amount as determined in accordance with (a) or (b) less the purchase
price, the "FMV Premium").
o RENT: As set forth in the Existing Term Sheet (the "Pre-Adjusted Rent") for
the portion of lessor's cost equal to the ***. *** (the "FMV Supplement"; the
sum of *** and the *** shall comprise the "Transaction Aircraft Rent"). The
Transaction Aircraft Rent will be adjusted at each delivery based on changes
in interest rates as provided in the Existing Terms Sheet.
o TERM: Increased to 18.5 years for the Transaction Aircraft, plus any renewals
as provided in the applicable lease.
o ***: ***
E. MISCELLANEOUS
o EXPENSES: Airways and Holdings shall pay the reasonable out-of-pocket fees
and expenses of Boeing and BCC in connection with the negotiation and
documentation of the Senior Notes, the Convertible Notes, and the
Subordinated Notes (including, the expenses of outside counsel). The Existing
Terms Sheet shall govern counsel expense reimbursement for the leases for the
Transaction Aircraft.
o EETC: Boeing shall consent to the proposed amendment to the 1999 EETC to
permit Airways to grant a second lien on the EETC 717s utilizing a
sale/leaseback structure, contingent upon the holders of the A and B tranches
agreeing. Airways shall use its best reasonable efforts to obtain such
agreement on or before funding of the Senior Notes. If, however, despite such
efforts the consents shall not be procured, BCC shall nevertheless purchase
the Senior Notes from Airways and Airways and BCC shall, until such time as
such consents shall have been procured, pursue alternative structuring
arrangements in order to provide substantially equivalent benefits and
protections to BCC.
o CONTINGENT AIRCRAFT: Boeing shall have the option to cause Airways to, at
Airways' option, purchase or lease up to 12 717 aircraft (the "Contingent
Aircraft") during 2001, 2002, and 2003. Airways shall have no obligation to
accept more than four Contingent Aircraft during any 12-month period and no
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
6
<PAGE>
more than two in any calendar quarter. The purchase price shall be ***.
Airways shall have the option to lease or own any or all of the Contingent
Aircraft. In the event Airways shall elect to lease one or more of the
Contingent Aircraft, BCC shall provide lease financing as described in the
Existing Terms Sheet (not taking into account the modifications set forth in
this document re ***) and such financing shall be supplemental to the 20
aircraft commitment provided for in the Existing Terms Sheet. Boeing or BCC,
as the case may be, shall advise Airways at the earliest practicable date of
its intent to cause Airways to accept a Contingent Aircraft but in all cases
notice shall be delivered to Airways not less than 125 days in advance. In
addition, the following terms shall apply with respect to the Contingent
Aircraft: (a) the Contingent Aircraft shall be factory new aircraft or deemed
to be new aircraft for all purposes of the purchase agreement, including
Boeing and other vendor warranties. Boeing shall ensure that Airways may
bridge- without incremental risk, burden, or expense- to Airways' fleet hour
agreement with Rolls-Royce and other power-by-the hour agreements, (b)
Airways shall have no obligation to accept a Contingent Aircraft unless
Boeing shall have ensured that training slots and simulator time are
reasonably available sufficiently in advance of scheduled delivery, (c) the
Contingent Aircraft shall be delivered to Airways in Airways' standard
configuration and livery and if a Contingent Aircraft is not new, the
interiors shall be refurbished with Airways interiors (including matching
seats).
o CONSENTS; BINDING INTENT: Except as otherwise set forth herein, a consent
required of any party may not be unreasonably withheld or delayed. This
financing commitment sets forth each of the essential terms with regard to
the purchase and sale of the Senior Note, the Convertible Notes and the
Subordinated Notes and the other transactions contemplated hereby and is
intended by the parties to constitute a legally binding obligation of each
such party to sell or purchase or otherwise consummate each of the
transactions contemplated hereby subject only to the terms, provisions and
conditions set forth in this document. Each of BCC and the AirTran Parties
represents that: (a) it has the requisite corporate and other approvals to
consummate the transactions described in or contemplated by this financing
commitment, (b) it is validly existing as a corporation under the laws of its
state of incorporation and has the legal capacity to enter into, execute,
deliver, and perform its obligations under, this document, and (c) this
document has been duly authorized, executed and delivered by such party.
o CONDITIONS PRECEDENT: The parties agree to execute and deliver prior to
funding of the transactions contemplated hereby, mutually acceptable
definitive documentation consistent with the terms of this document
(including conforming revisions to the Airways/MDC purchase agreement and the
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
7
<PAGE>
Existing Terms Sheet). The funding of the transaction contemplated hereby
shall be subject to the following:
o The AirTran Parties shall be current on all payment obligations to The Boeing
Company and its subsidiaries provided that, for purposes of this sentence,
the AirTran Parties shall be deemed to be current on all payment obligations
if not more than $*** in the aggregate are in arrears and any such amount in
arrears shall be the subject of a current dispute between Boeing and such
AirTran.
o The AirTran Parties shall have maintained in full force and effect their
corporate existence, rights (charter and statutory), licenses, permits,
approvals and governmental franchises necessary to the conduct of its
respective business unless the Board of Directors of Airways has determined
that the preservation thereof is no longer in the interest of the AirTran
Parties and that termination of the corporate existence is not material to
the AirTran Parties.
o Airways shall continue to be an air carrier certificated under applicable law
and shall not have received notice from the United States Department of
Transportation ("DOT") or the Federal Aviation Administration ("FAA") of any
loss of such certification or that any investigation by the DOT or FAA has
been commenced in relation to the potential revocation thereof.
o Revenue passenger miles of Airways for the fiscal quarter ending March 31,
2001 shall be no less than ***% of the revenue passenger miles for the same
period in the prior year.
o Revenues of Airways for the fiscal quarter ending March 31, 2001 shall be no
less than ***% of the revenues for the same period in the prior year.
o AirTran shall be a "citizen of the United States" as contemplated by
applicable U.S. aviation law.
o None of the following events shall have occurred or be continuing:
(a) the acceleration of obligations or the termination of a lease upon the
occurrence of an "Event of Default" under a BCC financing arrangement
with Airways;
(b) Airways' hull and liability insurance for flight equipment shall have
been canceled or declared ineffective;
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
8
<PAGE>
(c) Airways and Holdings shall fail to maintain at all times their corporate
existence, or they shall otherwise wind-up, liquidate, or dissolve;
(d) Airways shall voluntarily or involuntarily terminate or suspend all or a
substantial portion of its commercial airline operations, or Airways
shall cease to be a certificated air carrier or its certificate shall be
suspended in any manner;
(e) Airways or Holdings consents to the appointment of or the taking of
possession by a receiver, trustee, or liquidator of itself or of
substantially all of its property, or Airways or Holdings admits in
writing its inability to pay its debts generally as they come due, or
does not pay its debts generally as they become due or makes a general
assignment for the benefit of creditors, or Airways or Holdings files a
voluntary petition in bankruptcy or a voluntary petition or an answer
seeking reorganization, liquidation or other relief in a case under any
bankruptcy laws or other insolvency laws (as in effect at such time) or
an answer admitting the material allegations of a petition filed against
Airways in any such case, or Airways or Holdings seeks relief by
voluntary petition, answer, or consent under the provisions of any other
bankruptcy or other similar law providing for the reorganization or
winding-up of corporations
(f) an order, judgment, or decree is entered by any court of competent
jurisdiction appointing, without Airways' or Holdings's consent, a
receiver, trustee, or liquidator of Airways or Holdings or of
substantially all of its property, or substantially all of Airways's or
Holdings's property is sequestered, or granting any other relief in
respect of Airways or Holdings as a debtor under any bankruptcy laws or
other insolvency Laws (as in effect at such time), and any such order,
judgment, or decree of appointment or sequestration remains in force
undismissed, unstayed, and unvacated; or
(g) a petition against Airways or Holdings in a case under any bankruptcy
laws or other insolvency laws (as in effect at such time) is filed and
not withdrawn or dismissed, or if, under the provisions of any law
providing for reorganization or winding-up of corporations that applies
to Airways or Holdings, any court of competent jurisdiction assumes
jurisdiction, custody, or control of Airways or Holdings or of
substantially all of the property of Airways or Holdings, and such
jurisdiction, custody or control remains in force unrelinquished,
unstayed, and unterminated; or
(h) Boeing terminates the Purchase Agreement, because of Airways's payment
default thereunder, at a time when firmly committed 717-200 aircraft
otherwise would have been deliverable to Airways thereunder.
9
<PAGE>
(i) a final non-appealable uninsured judgment or judgments for the payment
of money is or are entered by a court or courts of competent
jurisdiction against AirTran or Holdings and such judgment or judgments
remain unsatisfied, undischarged, unbonded or unstayed which
individually or in the aggregate exceed $***.
(j) Since the date of this letter agreement, Airways shall have experienced
a total loss of any aircraft in passenger service the result of which
has or is reasonably likely to have a material and adverse effect upon
the condition (financial or other), business, earnings, properties, net
worth or results of operations of the AirTran Parties taken as a whole.
(k) (i) trading in Holdings' Common Stock shall have been suspended by the
U.S. Securities and Exchange Commission or the American Stock Exchange,
(ii) trading in securities on the American Stock Exchange or the Nasdaq
National Market shall have been suspended or limited or minimum prices
shall have been established on either of such Exchange or National
Market, in each case by action of the governing body thereof or by order
of the Securities and Exchange Commission, (iii) a banking moratorium
shall have been declared either by federal or New York State
authorities, (iv) there shall have occurred any declaration by the
United States of a national emergency or war or the trading of corporate
bonds on the American Stock Exchange or Nasdaq National Market shall
have been halted or suspended or (v) any action shall have been taken by
any federal, state or local government or agency in respect of its
monetary or fiscal affairs which shall have resulted in the trading of
corporate bonds on the American Stock Exchange or Nasdaq National Market
being halted or suspended.
(l) since the date of this letter agreement, Liens shall have been imposed
upon the properties of Airways or Holdings by any Governmental Authority
securing, in any individual case or in the aggregate, obligations in
excess of $***.
(m) without the prior written consent of Boeing, a change shall have been
made after the date of this letter agreement in the Articles or
Certificate of Incorporation or Bylaws of any AirTran Party.
(n) without the prior written consent of Boeing, there shall have been a
disposition after the date of this letter agreement by any AirTran Party
out of the ordinary course of business of assets having, individually or
in the aggregate, a fair market value (as determined in good faith by
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
10
<PAGE>
the Board of Directors of Holdings) in excess of $*** (exclusive of the
sale and leaseback of up to eight Boeing 717 Aircraft in the first and
second quarters of 2001).
(o) without the prior written consent of Boeing, Holdings shall have created
after the date of this letter agreement any Lien on the common stock of
Airways or its subsidiaries securing indebtedness for money borrowed
(other than in connection with any senior revolving credit facility
permitted hereunder).
(p) without the prior written consent of Boeing, any AirTran Party shall
have created after the date of this letter agreement any Lien or
encumbrance on any of the Collateral securing any obligations
individually or in the aggregate in excess of $***.
(q) without the prior written consent of Boeing, Airways shall have incurred
after the date of this letter agreement any additional indebtedness for
money borrowed in excess of $*** (exclusive of loans to finance progress
payments payable to McDonnell Douglas Corporation and/or the acquisition
of Boeing 717 Aircraft and other loans which would be permitted under
paragraph (c) of the "Limitations on Indebtedness" as set forth on pages
51-52 of the Offering Circular).
(r) Without the prior written consent of Boeing, any AirTran Party shall
have made one or more capital expenditures or entered into one or more
contracts for capital expenditures after the date of this letter which
individually or in the aggregate exceeds $*** (excluding for purposes of
this sub-clause (r), any capitalized portions of airframe, engine, or
component maintenance, aircraft progress payments payable to Boeing and
its affiliates, and spare parts removed and purchased from the consigned
inventory of B-717 spare parts).
[remainder of page intentionally omitted]
- -----------------------
*** Denotes information that has been omitted from this Exhibit pursuant to a
confidential treatment request filed with the Commission.
11
<PAGE>
Subject to agreed thresholds, Boeing will have cross defaults among its
transactions with the AirTran Parties (which are not transferable to non-Boeing
affiliates other than Rolls-Royce and its affiliates). If the foregoing
accurately represents your understanding, please sign below and return a copy to
AirTran Airways.
Very truly yours,
/s/ STEVEN A. ROSSUM
- ----------------------------
Steven A. Rossum
Vice President and Treasurer
AirTran Holdings, Inc. and
AirTran Airways, Inc.
Acknowledged and agreed:
Boeing Capital Services Corporation
By: /s/ JORDAN S. WELTMAN
-----------------------------
JORDAN S. WELTMAN
Title: Managing Director- Customer Financing
12
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>PORTIONS OF COMPANY'S ANNUAL REPORT TO STOCKHOLDER
<TEXT>
<PAGE>
Exhibit 13
OFFICERS AND DIRECTORS CORPORATE INFORMATION
JOSEPH B. LEONARD Corporate Office
Chairman and Director 9955 AirTran Boulevard
Orlando, Florida 33827
ROBERT L. FORNARO 407-251-5600
President
Registrar and Transfer Agent
STANLEY J. GADEK First Union National Bank of North Carolina
Senior Vice President of Finance 1525 West W.T. Harris Blvd.
and Chief Financial Officer Charlotte, NC 28288
RICHARD B. MAGURNO Independent Auditors
Senior Vice President, General Ernst & Young LLP
Counsel and Secretary Atlanta, Georgia
STEPHEN J. KOLSKI General Counsel
Senior Vice President - Smith, Gambrell & Russell, LLP
Operations Suite 3100, Promenade II
1230 Peachtree Street, N.E.
THOMAS KALIL Atlanta, Georgia 30309-3592
Senior Vice President -
Customer Service
DON L. CHAPMAN Annual Shareholders' Meeting
Director The annual meeting of shareholders will be
held on May 16, 2001 at 11:00 a.m. local
JOHN K. ELLINGBOE time at the Georgia International
Director Convention Center.
LEWIS H. JORDAN
Director
ROBERT L. PRIDDY
Director
ROBERT D. SWENSON
Director
WILLIAM J. USERY
Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the: (i) Registration Statement
(Form S-8 No. 33-87658) pertaining to the ValuJet Airlines, Inc. 1993 Incentive
Stock Option Plan and the ValuJet Airlines, Inc. 1994 Stock Option Plan, (ii)
Registration Statement (Form S-8 No. 33-91624) pertaining to the ValuJet
Airlines, Inc. 1995 Employee Stock Purchase Plan, (iii) Registration Statement
(Form S-8 No. 33-98568) pertaining to the Airways Corporation 1995 Stock Option
Plan and 1995 Director Stock Option Plan, (iv) Registration Statement (Form S-3
No. 333-62863) of AirTran Holdings, Inc., (v) Registration Statement (Form S-3
No. 33-83048) of ValuJet Airlines, Inc., (vi) Registration Statement (Form S-8
No. 333-82727) pertaining to the AirTran 1996 Stock Option Plan, and (vii)
Registration Statement (Form S-3 No. 333-41480) of AirTran Holdings, Inc., of
our report dated January 21, 2001, except for Note 5 as to which the date is
March 22, 2001, with respect to the consolidated financial statements and
schedule of AirTran Holdings, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 2000.
/s/ ERNST & YOUNG LLP
------------------------------
Atlanta, Georgia
March 26, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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