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United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From____________ to __________
Commission file number 000-21642
ATA HOLDINGS CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46251
(Address of principal executive offices) (Zip Code)
(317) 282-4000
- --------------------------------------------------------------------------------
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,824,287 shares outstanding as of April 30,
2005
1
Part I - Financial Information
Item 1 - Financial Statements
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
----------------- ----------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 101,513 $ 139,652
Receivables, net of allowance for doubtful accounts
(2005 - $3,195; 2004 - $2,608) 118,108 118,807
Inventories, net 34,990 43,802
Assets held for sale 3,250 -
Prepaid expenses and other current assets 41,342 39,160
---------------- ----------------
Total current assets 299,203 341,421
Property and equipment:
Flight equipment 174,018 198,888
Facilities and ground equipment 141,635 147,420
---------------- ----------------
315,653 346,308
Accumulated depreciation (163,503) (163,549)
---------------- ----------------
152,150 182,759
Restricted cash 31,300 32,355
Goodwill 6,987 8,488
Prepaid aircraft rent 220 52,031
Investment in BATA 6,379 6,930
Deposits and other assets 25,102 27,081
---------------- ----------------
Total assets $ 521,341 $ 651,065
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short term debt $ 41,000 $ 41,000
Accounts payable 5,089 7,563
Air traffic liabilities 80,747 89,887
Accrued expenses 128,453 122,031
---------------- ----------------
Total current liabilities 255,289 260,481
Deferred items 34,563 31,464
Liabilities subject to compromise 1,484,726 1,249,676
Commitments and contingencies
Convertible redeemable preferred stock,
subject to compromise; authorized and issued 300 shares 30,000 30,000
Shareholders' deficit:
Preferred stock; authorized 9,999,200 shares; none issued - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,535,727 - 2005 and 2004 66,013 66,013
Treasury stock; 1,711,440 shares - 2005 and 2004 (24,778) (24,778)
Additional paid-in capital 18,166 18,166
Accumulated deficit (1,342,638) (979,957)
---------------- ----------------
Total shareholders' deficit (1,283,237) (920,556)
---------------- ----------------
Total liabilities and shareholders' deficit $ 521,341 $ 651,065
================ ================
See accompanying notes.
2
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended March 31,
2005 2004
-------------------------------------------
(Unaudited) (Unaudited)
Operating revenues:
Scheduled service $ 174,222 $ 277,167
Charter 118,171 91,690
Ground package 5,236 4,895
Other 10,647 13,581
--------------------- ------------------
Total operating revenues 308,276 387,333
--------------------- ------------------
Operating expenses:
Salaries, wages and benefits 91,173 107,668
Fuel and oil 83,178 82,290
Aircraft rentals 46,269 59,545
Handling, landing and navigation fees 27,905 33,355
Aircraft maintenance, materials and repairs 15,149 19,902
Depreciation and amortization 12,200 13,631
Crew and other employee travel 12,062 17,017
Passenger service 10,247 11,336
Other selling expenses 8,143 12,544
Commissions 8,063 6,820
Facilities and other rentals 7,002 6,384
Insurance 5,581 5,498
Ground package cost 4,328 4,063
Advertising 2,958 9,827
Aircraft impairments and retirements 403 -
Other 16,363 19,804
--------------------- ------------------
Total operating expenses 351,024 409,684
--------------------- ------------------
Operating loss (42,748) (22,351)
Other income (expense):
Reorganization expenses (318,483) -
Interest income 457 543
Interest expense (1,671) (14,989)
Loss on extinguishment of debt - (27,314)
Other (236) (233)
---------------------- ------------------
Other expense (319,933) (41,993)
---------------------- ------------------
Loss before income taxes (362,681) (64,344)
Income taxes - -
---------------------- ------------------
Net loss (362,681) (64,344)
Preferred stock dividends - (375)
---------------------- ------------------
Loss available to common shareholders $ (362,681) $ (64,719)
====================== ==================
Basic and diluted earnings per common share:
Average shares outstanding 11,824,287 11,822,770
Net loss per share $ (30.67) $ (5.47)
====================== ==================
See accompanying notes.
3
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK (SUBJECT TO COMPROMISE)
AND SHAREHOLDERS' DEFICIT
(Dollars in thousands)
Redeemable Additional Total
Preferred Common Treasury Paid-in Accumulated Shareholders'
Stock Stock Stock Capital Deficit Deficit
(Subject to
Compromise)
------------ --------- ---------- --------- ------------- --------------
Balance as of December 31, 2004 $ 30,000 $ 66,013 $ (24,778) $ 18,166 $ (979,957) $ (920,556)
Loss available to common shareholders - - - - (362,681) (362,681)
---------- --------- ---------- --------- ------------- --------------
Balance as of March 31, 2005 $ 30,000 $ 66,013 $ (24,778) $ 18,166 $ (1,342,638) $ (1,283,237)
========== ========= ========== ========= ============= ==============
See accompanying notes.
4
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
2005 2004
------------------ -----------------
(Unaudited) (Unaudited)
Operating activities:
Net loss before reorganization expenses $ (44,198) $ (64,344)
Adjustments to reconcile loss before reorganization expenses to net
cash provided by (used in) operating activities:
Depreciation and amortization 12,200 13,631
Loss on extinguishment of debt - 27,314
Aircraft impairments and retirements 403 -
Other non-cash items (1,155) (2,377)
Changes in operating assets and liabilities:
Other receivables 699 (5,614)
Inventories 6,101 955
Prepaid expenses and other current assets (5,998) (17,304)
Accounts payable (2,474) 6,290
Air traffic liabilities (9,140) 21,202
Liabilities subject to compromise (3,532) -
Accrued expenses 7,720 16,690
Other deferred items - 20,000
----------------- -----------------
Net cash provided by (used in) operating activities (39,374) 16,443
----------------- -----------------
Reorganization activities:
Reorganization expenses, net (318,483) -
Impairment of assets held for sale 11,280 -
Prepaid expenses and other current assets 15,607 -
Liabilities subject to compromise 208,835 -
Accrued expenses (1,298) -
Other non-cash items 15,277 -
Proceeds from sales of property and equipment 6,000 -
Assets held for sale (3,250) -
Noncurrent prepaid aircraft rent 66,120 -
----------------- -----------------
Net cash provided by reorganization activities
88 -
----------------- -----------------
Investing activities:
Capital expenditures (2,907) (4,428)
Noncurrent prepaid aircraft rent 1,521 (13,925)
Additions to other assets (975) (7,437)
Proceeds from sales of property and equipment 327 -
----------------- -----------------
Net cash (used in) investing activities (2,034) (25,790)
----------------- -----------------
Financing activities:
Preferred stock dividends - (9,612)
Payments on long-term debt and exchange offers - (21,434)
Decrease in other restricted cash 3,181 11,680
Proceeds from stock option exercises - 300
----------------- -----------------
Net cash provided by (used in) financing activities 3,181 (19,066)
----------------- -----------------
Decrease in cash and cash equivalents (38,139) (28,413)
Cash and cash equivalents, beginning of period 139,652 160,644
----------------- -----------------
Cash and cash equivalents, end of period $ 101,513 $ 132,231
================= =================
See accompanying notes.
5
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
2005 2004
------------------ -----------------
(Unaudited) (Unaudited)
Cash payments (receipts) for:
Interest $ 1,121 $ 15,401
Income tax 67 (4,264)
Financing and investing activities not affecting cash:
Accrued capitalized interest - 415
Additional new notes - 12,991
See accompanying notes.
6
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and the Chapter 11 Filing
Chapter 11 Reorganization. On October 26, 2004 (the "Petition Date"), ATA
Holdings Corp. (the "Company") and seven of its subsidiaries including ATA
Airlines, Inc. ("ATA") and Chicago Express Airlines, Inc. ("Chicago
Express") (collectively, the "Debtors"), filed voluntary petitions for
relief (the "Filing") under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the Southern District of Indiana (the "Bankruptcy
Court"). In connection with the Filing, the Debtors are developing plans of
reorganization to address their respective debts and other obligations,
lower operating costs and restructure operations.
The Debtors continue to operate their respective businesses as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and
pursuant to the applicable provisions of the Bankruptcy Code, the Federal
Rules of Bankruptcy Procedure and applicable court orders, except for
Chicago Express which ceased operations in March, 2005. As a
debtor-in-possession, each of the Debtors is authorized under the
provisions of Chapter 11 to continue to operate as an ongoing business, but
may not engage in transactions outside the ordinary course of business
without prior approval from the Bankruptcy Court. On October 29, 2004, the
Bankruptcy Court granted the Debtors certain first day motions for various
reliefs designed to stabilize operations and maintain relationships with
customers, vendors, employees and others. The first day motions granted
authority to the Debtors, among other things, to (a) pay pre-petition and
post-petition employee wages, salaries and benefits and other employee
obligations; (b) honor customer programs, including the frequent flyer
program and ticketing program; and (c) honor pre-petition obligations
related to interline, clearinghouse, and other similar agreements.
As required by the Bankruptcy Code, the United States Trustee has appointed
an official committee of unsecured creditors (the "Official Committee").
The Official Committee and its legal representatives have a right to be
heard on all matters that come before the Bankruptcy Court in each of the
Debtor's cases. There can be no assurance that the Official Committee will
support the Debtors' positions in the reorganization cases or any plan of
reorganization, once proposed, and disagreements between the Debtors and
the Official Committee could protract the reorganization cases, could
negatively impact the Debtors' ability to operate during the Chapter 11
cases, and could delay or prevent the Debtors' emergence from Chapter 11.
On October 29, 2004 the Bankruptcy Court entered an interim order which
permitted ATA to use the unrestricted cash, eligible accounts receivable
and other collateral pledged to secure ATA's secured term loans (the "ATSB
Loan"), a significant portion of which is guaranteed by the Air
Transportation Stabilization Board (the "ATSB"). On December 10, 2004, the
Bankruptcy Court entered a final order authorizing ATA's continued use of
the cash collateral through December 17, 2004. This final order has been
extended for successive short periods. The final order has the effect of
giving the ATSB Loan lenders and ATSB (collectively, the "ATSB Loan
Lenders") a replacement lien on unrestricted cash and all other assets of
the Debtors to secure diminution of pre-petition cash collateral and
requires compliance by the Debtors with certain terms, such as the
maintenance of minimum cash collateral balances and periodic reporting
requirements. On April 19, 2005, the Bankruptcy Court approved a settlement
agreement among the Debtors, the Official Committee and the ATSB Loan
Lenders (the "Settlement Agreement") under which the parties agreed that
the ATSB Loan Lenders have an allowed, secured claim in respect of the ATSB
Loan in the amount of $110 million and an allowed, general unsecured claim
in respect of the remaining outstanding portion of the ATSB Loan of
approximately $30.6 million. The Settlement Agreement also requires ATA to
pay the ATSB Loan Lenders adequate protection payments of $2.3 million per
quarter, beginning in the second quarter of 2005, and $4.5 million on the
earlier of December 31, 2005 or the effective date of a plan of
reorganization. The adequate protection payments will reduce the amount of
the ATSB Loan Lenders' secured claim.
7
The Settlement Agreement requires that the ATSB's secured claim be
satisfied in ATA's plan of reorganization, in a manner to be agreed upon by
the parties not less than 30 days prior to the filing of any plan of
reorganization. On April 19, 2005, the Bankruptcy Court approved another
extension of the final order authorizing ATA's continued use of the cash
collateral through the earlier of June 15, 2005 or the occurrence of a
material breach of the Settlement Agreement. Further extensions cannot be
assured, and a failure to maintain the right to use cash collateral would
be material and adverse to the ability of the Debtors to reorganize under
Chapter 11.
The Filing triggered defaults on substantially all debt and lease
obligations of the Debtors. Subject to certain exceptions under the
Bankruptcy Code, the Filing automatically enjoined, or stayed, the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a
claim arising prior to the Petition Date. For example, creditor actions to
obtain possession of property from the Debtors, or to create, perfect or
enforce any lien against the property of the Debtors, or to collect on or
otherwise exercise rights or remedies with respect to a pre-petition claim,
are enjoined unless the Bankruptcy Court lifts the automatic stay or the
Bankruptcy Code otherwise provides.
Notwithstanding the above general discussion of the automatic stay, the
Debtors' right to retain and operate certain aircraft, aircraft engines and
other equipment defined in section 1110 of the Bankruptcy Code that are
leased or subject to a security interest or conditional sale contract are
specifically governed by section 1110 of the Bankruptcy Code. That section
provides, in relevant part, that unless the Debtors, prior to 60 days after
the Petition Date, agree to perform all obligations under the lease,
security agreement, or conditional sale contract and cure all defaults
thereunder (other than defaults constituting a breach of provisions
relating to the filing of the Chapter 11 cases, the Debtors' insolvency or
other financial condition of the Debtors) within the time specified in
section 1110, the right of the lessor, secured party or conditional vendor
to take possession of such equipment in compliance with the provisions of
the lease, security agreement, or conditional sale contract and to enforce
any of its other rights or remedies under such lease, security agreement,
or conditional sale contract is not limited or otherwise affected by the
automatic stay, by any other provision of the Bankruptcy Code, or by any
power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. After the
expiration of the original 1110 deadline, the Debtors must either perform
under the leases, reject the leases, or reach negotiated agreements with
the lessors. As of December 31, 2004, the Company operated 82 aircraft,
including 76 aircraft that were financed with operating leases. As of April
30, 2005, the Company had returned 35 of the 76 leased aircraft and related
engines to the lessors. The Company expects to return an additional 15
aircraft and related engines to the lessors between May 1, 2005 and January
25, 2006. The Company has renegotiated long-term rates on 10 of the leased
aircraft and related engines. Finally, the Company has cured existing
defaults and is currently paying the contract rates required under the
Bankruptcy Code with respect to the remaining 16 leased aircraft and
related engines.
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume
and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property, aircraft and
aircraft engines, subject to the approval of the Bankruptcy Court and
certain other conditions. Generally, the rejection of an executory lease or
unexpired lease is treated as a pre-petition breach of the lease or
contract in question and, subject to certain exceptions, relieves the
Debtors of performing future obligations under such lease or contract but
entitles the lessor or contract counterparty to pre-petition general
unsecured claim for damages caused by such deemed breach. The lessor or
contract counterparty may file a claim against the relevant Debtor's estate
for such damages. The assumption of an executory contract or unexpired
lease generally requires a cure of most existing defaults under such
executory contract or unexpired lease. The Company expects that additional
liabilities subject to compromise will arise in the future as a result of
damage claims resulting from the rejection of certain executory contracts
and unexpired leases by the Debtors. However, the Company expects that the
assumption of certain executory contracts and unexpired leases may convert
certain liabilities subject to compromise to liabilities not subject to
compromise.
8
The Debtors have undertaken to notify all known or potential creditors of
the Chapter 11 cases for purposes of identifying and quantifying all
pre-petition claims. Subject to certain exceptions under the Bankruptcy
Code, the Chapter 11 filings automatically stayed the continuation of any
judicial or administrative proceedings or other actions against the Debtors
or their property to recover on, collect or secure a claim arising prior to
October 26, 2004. The deadline for filing by creditors of proofs of claim
with the Bankruptcy Court was January 24, 2005, with a limited exception
for governmental entities, which had until April 24, 2005. A proof of claim
arising from the rejection of executory contracts and expired leases must
be filed no later than thirty days from the effective date of the
authorized rejection. The Company is currently engaged in a preliminary
analysis of pre-petition claims.
The Bankruptcy Court extended the periods during which the Debtors' have an
exclusive right to file a plan of reorganization until May 24, 2005. There
is no assurance that these exclusivity periods will be further extended by
the Bankruptcy Court. If a Debtor's exclusivity period lapses, any party in
interest may file a plan of reorganization for that Debtor. In addition to
being voted on by holders of impaired claims and equity interests, a plan
of reorganization must satisfy certain requirements of the Bankruptcy Code
and must be approved, or confirmed, by the Bankruptcy Court in order to
become effective. A plan has been accepted by holders of claims against and
equity interests in a Debtor if (1) at least one-half in number and
two-thirds in dollar amount of claims actually voting in each impaired
class of claims have voted to accept the plan and (2) at least two-thirds
in amount of equity interests actually voting in each impaired class of
equity interests have voted to accept the plan. Under certain circumstances
set forth in the provisions of section 1129(b) of the Bankruptcy Code, the
Bankruptcy Court may confirm a plan even if such plan has not been accepted
by all impaired classes of claims and equity interests. A class of claims
or equity interests that does not receive or retain any property under the
plan on account of such claims or interests is deemed to have voted to
reject the plan. The requirements for confirming a plan, notwithstanding
its rejection by one or more impaired classes of claims or equity
interests, depends upon a number of factors, including the status and
seniority of the claims or equity interests in the rejecting class, i.e.,
secured claims or unsecured claims, subordinated or senior claims,
preferred or common stock.
Although the Debtors expect to finalize reorganization plans for emergence
from Chapter 11 in 2005, there can be no assurance that any reorganization
plan will be proposed by the Debtors or confirmed by the Bankruptcy Court,
or that any such plan will be consummated. The Debtors have incurred and
will continue to incur significant costs associated with their respective
reorganizations. The amount of these costs, which are being expensed as
incurred, are expected to significantly affect their financial results.
The ultimate recovery, if any, to holders of common stock of the Company
will not be determined until confirmation of a plan of reorganization for
the Company. The plan of reorganization could result in holders of common
stock receiving no distribution on account of their interest in the Company
and cancellation of the outstanding shares. The commitments for
post-reorganization financing, equity investment in the Company and
codesharing that the Company has with Southwest Airlines Co. ("Southwest")
require that all outstanding equity of the Company be cancelled without any
distributions to the holders of such equity.
Financial Statement Presentation. The accompanying consolidated financial
statements, for the quarter ended March 31, 2005, of the Company have been
prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code ("SOP 90-7") and on a
going-concern basis, which contemplates continuity of operations,
realization of assets and satisfaction of liabilities in the ordinary
course of business.
SOP 90-7, which is applicable to companies in Chapter 11, generally does
not require filers to change the manner in which their financial statements
are prepared. However, it does require that the financial statements for
periods subsequent to the filing of Chapter 11 petition distinguish
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. Generally, the
Company's revenues, expenses (including professional fees), realized gains
and losses, and provision for losses that can be directly associated with
the reorganization and restructuring of the business must be reported
separately as reorganization items in the consolidated statement of
operations. The consolidated balance sheet must distinguish pre-petition
liabilities subject to compromise from those pre-petition liabilities that
are not subject to compromise and from post-petition liabilities.
Liabilities that may be affected by the reorganization plan must be
reported at the amounts expected to be allowed, even if they may be settled
for different amounts. In addition, cash provided by reorganization items
must be disclosed separately in the consolidated statement of cash flows.
9
For the quarter ended March 31, 2005, the Company had recognized the
following reorganization expenses in the consolidated statement of
operations (in thousands):
March 31,
2005
-----------------
Aircraft and engine lease rejection charges $ 302,993
Impairment of assets held for sale 11,280
Professional fees 5,347
Amortization of deferred gain (1,057)
Interest income (631)
Other 551
-----------------
$ 318,483
=================
The aircraft and engine lease rejection charges are non-cash charges which
are comprised of the Company's estimate of claims resulting from the
rejection or return of the aircraft and engines as part of the bankruptcy
process. They also include the write-off of assets and liabilities related
to aircraft and engine leases that the Company has rejected, committed to
return dates with the lessor or intended to reject as part of the Company's
business plan as of March 31, 2005. The estimate the Company recorded is
subject to material adjustments as the Debtors proceed through the
bankruptcy process.
The impairment of assets held for sale is a non-cash charge related to
Chicago Express, a wholly owned subsidiary of the Company. On February 7,
2005, the Company announced that it intended to sell or discontinue Chicago
Express' operations, including its DOT and FAA certificates, as part of the
Company's continuing reorganization efforts. Chicago Express discontinued
flights on March 28, 2005. Chicago Express was a regional feeder carrier
operating as ATA Connection and connecting small and medium-sized cities
with either Chicago-Midway or Indianapolis. A bid process, held in
accordance with the Bankruptcy Code, was conducted for the assets related
to Chicago Express. The Company is in the process of negotiating a sale
with a suitable buyer. However, the Company can provide no assurance that
it will be able to consummate a sale. In accordance with Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("FAS 144"), the Company recorded an impairment charge of $11.3
million related to the Chicago Express assets for sale. In addition, the
Company has classified the estimated value of these assets as short-term
assets held for sale on the consolidated balance sheet as of March 31,
2005.
The disposition of assets and liquidation or settlement of liabilities in
the Chapter 11 cases are subject to significant uncertainty. While
operating as debtors-in-possession under the protection of Chapter 11, and
subject to the Bankruptcy Court approval or otherwise as permitted in the
normal course of business, the Debtors may sell or otherwise dispose of
assets and liquidate or settle liabilities for amounts other than those
reflected in the consolidated financial statements. Further, a plan of
reorganization could materially change the amounts and classifications
reported in these consolidated financial statements, which do not give
effect to any adjustments to the carrying value or amounts of liabilities
that might result as a consequence of confirmation of a plan of
reorganization.
10
Pursuant to the Bankruptcy Code, the Debtors have filed schedules with the
Bankruptcy Court setting forth the assets and liabilities of the Debtors as
of the Petition Date. Differences between amounts recorded by the Debtors
and claims filed by creditors will be investigated and resolved as part of
the Chapter 11 cases. The deadline for filing proofs of claim with the
Bankruptcy Court was January 24, 2005, with a limited exception for
governmental entities, which had until April 24, 2005 to file proofs of
claim. Although the Company has begun analyzing the claims, the ultimate
numbers and allowed amounts of such claims are not presently known.
DIP Financing Arrangement. On December 23, 2004, ATA and Southwest entered
into a Secured Debtor-in-Possession Credit and Security Agreement (the "DIP
Facility") that provides up to $40.0 million in cash to the Company, plus a
letter of credit in the approximate amount of $7 million to secure two
pre-petition loans obtained by ATA from the City of Chicago for the
construction of a jet bridge extension (the "Chicago LOC"). The Company
received $40.0 million under the DIP Facility on December 23, 2004. A
closing fee of 2.5%, or $1.0 million, was treated as a principal advance
under the DIP Facility.
The base interest rate, paid monthly, on amounts borrowed under the DIP
Facility is the greater of (a) 8.0% per annum, or (b) the three-month LIBOR
rate, plus 5.0% per annum, paid monthly. Southwest will also receive a
guaranty fee of 3.0%, per annum, paid monthly, for any amounts guaranteed
but not drawn under the Chicago LOC. During the term of the DIP Facility,
the Company is subject to certain financial covenants. ATA has obtained
amendments to these financial covenants for the months of January, February
and March 2005. Without the amendments, ATA would have been in violation of
the covenants, which could have resulted in ATA being in default on the DIP
Facility. There is no assurance ATA will be able to comply with these
financial covenants in the future, or that Southwest will agree to further
amendments to these covenants or otherwise waive non-compliance. The DIP
Facility is guaranteed by the Company and its other subsidiaries. The DIP
Facility will terminate on the earlier of (1) the effective date of a plan
of reorganization or (2) September 30, 2005, unless otherwise extended.
Asset Sale. On December 23, 2004, the Company and Southwest executed a
substantial portion of the transactions contemplated by an Asset
Acquisition Agreement (the "Asset Acquisition Agreement") by which ATA
agreed to assign to Southwest a leasehold interest in six specified gates
and a hangar facility at Chicago-Midway airport and related assets for
$40.0 million, subject to certain adjustments. The Asset Acquisition
Agreement was entered into after the completion of an auction process
supervised by the Bankruptcy Court. ATA received $34.0 million of proceeds
from the assignment of its leasehold interest in six specified gates and
related assets on December 23, 2004. ATA received $6.0 million of proceeds
from the assignment of its leasehold interest in the hangar facility and
related assets on March 28, 2005. Almost all of the $40 million in total
funds was recorded as deferred gain on the Company's balance sheet and is
being amortized over the remaining eight year lease term at Chicago-Midway.
Exit Facility and Equity Purchase. On December 23, 2004, Southwest
committed to provide an exit loan facility (the "Exit Facility") to the
reorganized airline ("New ATA") of $47 million upon the effective date of a
plan of reorganization approved by Southwest. The Exit Facility, under
which New ATA would be the borrower, will provide for (a) a long-term
financing, at a based interest rate of 9.5% per annum, paid semi-annually,
consisting of one or more five-year notes to refinance up to $40.0 million
under the DIP Facility, and (b) a replacement letter of credit (the
"Replacement Chicago LOC") for up to $7.0 million to secure loan
obligations to the City of Chicago now secured by the Chicago LOC. The Exit
Facility is to be guaranteed by the Debtors and all other subsidiaries of
New ATA. As of March 31, 2005, no amounts had been received under the Exit
Facility.
11
A closing fee of 2.5% of the Exit Facility is payable to Southwest.
Southwest will also receive a guaranty fee of 3.0%, per annum, paid
monthly, for any amounts secured but not drawn under the Replacement
Chicago LOC.
In addition, upon the effective date of a plan of reorganization, Southwest
has committed to purchase, through an additional cash investment of $30
million, non-voting senior convertible preferred equity of New ATA (the
"Preferred Equity"). The Preferred Equity will be convertible into 27.5% of
the fully diluted economic ownership interest of New ATA, subject to pro
rata dilution for management interests. The Preferred Equity will (a) have
voting rights only upon certain events of default, (b) be senior to the
common equity of New ATA, and (c) be convertible into common equity of New
ATA, at Southwest's option, upon Southwest's sale or transfer of the
Preferred Equity to a third party or certain other specified major
liquidity events. In addition, the Preferred Equity will earn dividends at
the rate of 4.0% per annum and have certain rights to require registration
for resale under the securities laws. If not converted within 10 years
after the effective date of the plan of reorganization, the Preferred
Equity shall, at Southwest's option, either convert into common equity of
New ATA or be redeemed.
Codeshare Agreement. On December 23, 2004, Southwest and ATA entered into
the Southwest-ATA Codeshare Agreement (the "Codeshare Agreement"), related
to air transportation service to and from Chicago-Midway and additional
airports. Under a codeshare arrangement between two air carriers, the
codesharing air carriers have permission to book and sell tickets on each
other's flights. ATA is the only domestic air carrier with which Southwest
has a codesharing agreement. Under this arrangement both carriers have
expanded their flight offerings to customers without the significant
investment required for new flights. Each airline receives a share of the
ticket price for affected flights. The initial term of the Codeshare
Agreement is one year, which will be automatically extended seven
additional years once a plan of reorganization in ATA's Chapter 11 case,
which is acceptable to Southwest, is confirmed and becomes effective. ATA
and Southwest began servicing the codeshare flights on February 4, 2005. As
of March 31, 2005, 160 codeshare routes were operating.
2. Basis of Presentation
The accompanying consolidated financial statements of ATA Holdings Corp.
and subsidiaries have been prepared in accordance with instructions for
reporting interim financial information on Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States ("GAAP"). For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004. Refer to "Note 1 - the Company and the
Chapter 11 Filing" for financial statement presentation related to the
Filing.
12
3. Earnings per Share
The following tables set forth the computation of basic and diluted
earnings per share:
Three Months Ended March 31,
2005 2004
--------------------- -------------------
Numerator:
Loss before preferred stock dividends $ (362,681,000) $ (64,344,000)
Preferred stock dividends - (375,000)
--------------------- -------------------
Loss available to common
shareholders - numerator for basic and
diluted earnings per share $ (362,681,000) $ (64,719,000)
===================== ===================
Denominator:
Denominator for basic and diluted earnings per share
- weighted average shares 11,824,287 11,822,770
===================== ===================
Basic and diluted loss per share $ (30.67) $ (5.47)
===================== ===================
In accordance with FASB Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"), the impact of 1,914,486 shares of
convertible redeemable preferred stock in the three months ended March 31,
2005 and 2004 has been excluded from the computation of diluted earnings
per share because their effect would be antidilutive.
4. Commitments and Contingencies
The following commitments and contingencies are as of March 31, 2005. The
full effect of the Chapter 11 filing and any plans of reorganization on
these commitments and contingencies is not yet known.
ATA has a purchase agreement with the Boeing Company ("Boeing") to purchase
seven new Boeing 737-800s, which are currently scheduled for delivery
between July 2007 and December 2007. These aircraft are powered by General
Electric CFM56-7B27 engines. The manufacturer's list price is $52.4 million
for each 737-800, subject to escalation. ATA's purchase price for each
aircraft is subject to various discounts. According to a 2004 amendment to
the purchase agreement with Boeing, if ATA does not have permanent
financing for these aircraft suitable to ATA and does not have suitable
pre-delivery deposit financing, and if Boeing does not elect to provide
such financing suitable to the ATA, these deliveries can be delayed for one
year periods annually through December 31, 2010. Aircraft pre-delivery
deposits are required for these aircraft, and ATA has historically funded
these deposits for past aircraft deliveries using operating cash and
pre-delivery deposit financing facilities. ATA can provide no assurance
that it will be able to secure pre-delivery deposit financing facilities or
permanent financing for any future aircraft purchases. As of March 31,
2005, ATA had $4.9 million in long-term pre-delivery deposits outstanding
for future aircraft deliveries which were funded with operating cash. Upon
delivery of the aircraft, pre-delivery deposits funded with operating cash
would be returned to ATA.
ATA also has an agreement to purchase four spare CFM56-7B27 engines, which
are currently scheduled for delivery between 2005 and 2008.
As allowed under section 365 on the Bankruptcy Code, the Company may
assume, assume and assign, or reject certain executory contracts subject to
the approval of the Bankruptcy Court and certain other conditions. The
Company's ability to obtain financing at rates and terms similar to
historical agreements, if at all, is not known. Therefore, the future
obligations for these deliveries cannot be reasonably estimated.
13
In the Company's aircraft financing agreements, the Company typically
indemnifies the financing parties, trustees acting on their behalf and
other related parties against liabilities that arise from the manufacture,
design, ownership, financing, use, operation and maintenance of the
aircraft and for tort liability, whether or not these liabilities arise out
of or relate to the negligence of these indemnified parties, except for
their gross negligence or willful misconduct. The Company expects that it
would be covered by insurance (subject to deductibles) for most tort
liabilities and related indemnities under these aircraft leases.
In January 2002, a limited liability company subsidiary of the Company (the
"Chicago LLC") entered into an agreement (the "Lease") to lease land from
the City of Chicago (the "City"), which had been purchased by the City with
Chicago Midway Airport Revenue Bonds ("MARB's"). The Chicago LLC also
entered into a redevelopment agreement (the "Agreement") with the City in
January 2002 to develop real estate on the property. As part of the
Agreement, the City agreed to pay for the debt service on the MARB's from
the incremental tax revenue expected to be generated from the real estate
developments. Under the Agreement, if the incremental tax revenue is
insufficient to fund the MARB's debt service, the City has the right to
require the Chicago LLC to provide those funds as additional rent under the
lease. ATA is a guarantor of the lease obligations of the Chicago LLC to
the City of Chicago. The total amount of the debt service, including
interest, from 2006 through 2021 is approximately $27.2 million. The
Company is continuing to work with the City to find alternate uses for the
property.
5. Liabilities Subject to Compromise
Liabilities subject to compromise refers to liabilities that will be
accounted for under a plan of reorganization, including claims incurred
prior to the Petition Date. These amounts result from known or potential
claims to be resolved through the Chapter 11 process and such claims remain
subject to future adjustments. Adjustments may result from negotiations,
actions of the Bankruptcy Court, rejection of executory contracts and
unexpired leases, the determination as to the value of any collateral
securing claims, proofs of claims or other events. To date, such
adjustments, as reflected in reorganization expense, have been material and
the Company anticipates that future adjustments will be material as well.
Settlement of these amounts will be established through the plan of
reorganization.
At March 31, 2005 and December 31, 2004, the Company has liabilities
subject to compromise consisting of the following:
March 31, December 31,
2005 2004
---------------------------------------
(Unaudited)
(in thousands)
Aicraft-related accruals and deferred gains $ 884,949 $ 640,788
Long-term debt, including accrued interest,
net of unamoritized issuance costs 459,603 456,334
Mandatorily redeemable preferred stock 50,000 50,000
Accounts payable 32,631 32,136
Other accrued expenses and liabilities 57,543 70,418
---------------- ----------------
$ 1,484,726 $ 1,249,676
================ ================
6. Lease Commitments
The Company leases aircraft and aircraft engines, ground facilities,
including terminal space and maintenance facilities, and ground equipment.
As allowed under section 365 of the Bankruptcy Code, the Company may
assume, assume and assign, or reject certain executory contracts and
unexpired leases, including leases of real property, aircraft and aircraft
engines, subject to the approval of the Bankruptcy Court and certain other
conditions. Consequently, the Company anticipates that its obligations
pertaining to these leases, and the amounts related thereto as discussed
below, will change significantly as the Company progresses through its
reorganization.
14
At March 31, 2005, scheduled future minimum lease payments under operating
leases having initial non-cancelable lease terms of more than one year, as
currently scheduled, were as follows:
Facilities
Flight and Ground
Equipment Equipment Total
----------------------------------------------------
(in thousands)
2 Qtr - 4 Qtr 2005 $ 90,365 $ 8,735 $ 99,100
2006 91,525 10,937 102,462
2007 92,040 10,886 102,926
2008 91,081 9,057 100,138
2009 89,587 8,288 97,875
Thereafter 889,817 17,789 907,606
-------------- -------------- --------------
$ 1,344,415 $ 65,692 $ 1,410,107
============== ============== ==============
The Company's aircraft operating leases require periodic cash payments that
vary in amount and frequency. The Company accounts for aircraft rentals
expense in equal monthly amounts over the life of each operating lease
because straight-line expense recognition is most representative of the
time pattern from which benefit from use of the aircraft is derived.
Certain of the Company's aircraft operating leases were originally
structured to require very significant cash in the early years of the lease
in order to obtain more overall favorable lease rates. The amount of the
cash payments in excess of the aircraft rent expense in these early years
created a prepaid aircraft rent amount on the Company's balance sheet. The
portion of the prepaid aircraft rent schedule to be realized in the next
twelve months is recorded as short-term prepaid expense while the remainder
is recorded as long-term prepaid aircraft rent. Certain of the Company's
aircraft operating leases require more significant cash payments later in
the lease term resulting in an accrued liability for aircraft rents on the
Company's balance sheet. As of March 31, 2005 and December 31, 2004, this
entire liability that relates to leases that have not yet been accepted nor
rejected has been recorded as a liability subject to compromise.
15
The table below summarizes the prepaid and accrued aircraft rents as of
March 31, 2005 and December 31, 2004 that result from straight-line expense
recognition as reported under the following captions on the Company's
balance sheet. Although much of the prepaid rent has been written-off,
because the Company has either rejected those leases and returned the
aircraft, or renegotiated the leases to reflect even monthly amounts, the
amounts could still change significantly in the future due to the continued
impact of the Filing and the plan of reorganization, including additional
possible rejection or restructuring of the related leases. These events
could have a material impact on the amounts and classifications listed
below.
March 31, December 31,
2005 2004
---------------------------------
(Unaudited)
(in thousands)
Assets:
Prepaid expenses and other current assets (short-term) $ 3,136 $ 7,350
Prepaid aircraft rent (long-term) 220 52,031
--------------- --------------
Total prepaid aicraft rent $ 3,356 $ 59,381
=============== ==============
Liabilities:
Liabilities subject to compromise $ 25,159 $ 21,931
=============== ==============
7. Management Appointments
On February 22, 2005, the Company announced John Denison was named Chief
Executive Officer of ATA. Denison, who served as the Company's Co-Chief
Restructuring Officer since January 20, 2005, reports to J. George
Mikelsons, Chairman and Chief Executive Officer of the Company.
8. Subsequent Events
In April and May 2005, the Company executed three letters of intent with
leasing companies to lease three used Boeing 737-500 aircraft and four used
Boeing 737-300 aircraft. The Company expects to put these aircraft into
service in the second half of 2005. One of the letters of intent provides
the Company the option of leasing up to seven additional Boeing 737-500 and
Boeing 737-300 aircraft.
16
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Quarter Ended March 31, 2005, Versus Quarter Ended March 31, 2004
Overview
On October 26, 2004, the Company and seven of its subsidiaries, including ATA
and Chicago Express, filed voluntary petitions for relief under Chapter 11 of
the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District
of Indiana. In connection with the Filing, the Debtors are developing plans of
reorganization to address their respective debts and other obligations, lower
operating costs and restructure operations. See "Notes to Consolidated Financial
Statements - Note 1 - The Company and the Chapter 11 Filing."
The Company, through its principal subsidiary, ATA, provides scheduled airline
services to leisure, business, and other value-oriented travelers, and is a
leading provider of charter services to the U.S. military. ATA has been
operating for 33 years.
Since the Filing, the Company has been revising its business plans to provide
the basis for a plan of reorganization to be proposed in the Chapter 11 cases of
the Debtors. Key objectives incorporated in the revised business plans, which
are continuing to be refined and changed in response to market conditions,
include:
o focusing on scheduled service from the Chicago-Midway Airport to
maximize the benefit of the recently established codesharing agreement
with Southwest Airlines Co. ("Southwest");
o maintaining and possibly expanding scheduled service to Hawaii, which
also benefits from the codesharing agreement;
o maintaining ATA's position as a leading provider of military passenger
charter services;
o "regauging" and reducing ATA's fleet of aircraft by at least one-third
to improve efficiencies;
o obtaining a significant capital infusion to continue as a going
concern through December 31, 2005;
o reducing operating costs, including management and other employee
expenses; and
o rejecting burdensome contracts to reduce associated costs.
The Company and ATA have taken a number of actions necessary to achieve these
objectives, develop a viable plan of reorganization and emerge from the Chapter
11 cases. These actions include:
o assigning ATA's leasehold interest in six gates and a hangar facility
at Chicago-Midway to Southwest for $40.0 million;
o establishing a codesharing agreement with Southwest for air
transportation service to and from Chicago-Midway and other airports;
o obtaining from Southwest $47.0 million in debtor-in-possession
financing, as well as a term financing commitment in the same amount
to refinance this debtor-in-possession financing upon confirmation of
a plan of reorganization acceptable to Southwest;
o significantly reducing scheduled service from Indianapolis, Indiana, a
market which has experienced severe and on-going price and route
competition;
o ceasing operations of ATA's feeder carrier, Chicago Express;
17
o reaching agreements with ATA's aircraft and aircraft engine lessors
for the rejection of leases and return of non-economic aircraft and
engines;
o changing executive management, including appointing a new Chief
Executive Officer for ATA;
o temporarily amending collective bargaining agreements with the unions
representing the flight attendants and cockpit crews to achieve
significant cost savings, and continuing negotiations to obtain
extension and enhancement of these savings;
o obtaining an extension of the exclusive period in which the Debtors
may file a plan of reorganization until May 24, 2005; and
o signing a settlement agreement with the ATSB Loan Lenders on April 19,
2005.
In the three months ended March 31, 2005, the Company recorded an operating loss
of $42.7 million, as compared to operating loss of $22.4 million in the same
period of 2004. The Company had a loss available to common shareholders of
$362.7 million in the three months ended March 31, 2005, as compared to a loss
available to common shareholders of $64.7 million in the same period of 2004.
The first quarter 2005 loss available to common shareholders includes $318.5
million of expenses related to the Company's reorganization under Chapter 11.
See "Notes to Consolidated Financial Statements - Note 1 - The Company and the
Chapter 11 Filing" for further information on these expenses. The first quarter
2004 loss available to common shareholders includes a non-operating charge of
$27.3 million related to a loss on extinguishment of debt from the exchange
offers completed on January 30, 2004.
Critical Accounting Policies
Please refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 2004.
Results of Operations
Operating revenues decreased 20.4% to $308.3 million in the first quarter of
2005, as compared to $387.3 million in the same period of 2004. Scheduled
service revenues decreased $102.9 million between periods, or 37.1%, while
charter revenues increased $26.5 million between periods, or 28.9%. Operating
expenses decreased 14.3% to $351.0 million in the first quarter of 2005, as
compared to $409.7 million in the comparable period of 2004.
18
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per available seat mile ("ASM").
Cents per ASM
Three Months Ended March 31,
2005 2004
-------------------------------------------
Consolidated operating revenues: 7.42 6.94
Consolidated operating expenses:
Salaries, wages and benefits 2.19 1.93
Fuel and oil 2.00 1.47
Aircraft rentals 1.11 1.07
Handling, landing and navigation fees 0.67 0.60
Aircraft maintenance, materials and repairs 0.36 0.36
Depreciation and amortization 0.29 0.30
Crew and other employee travel 0.29 0.24
Passenger service 0.25 0.20
Other selling expenses 0.20 0.22
Commissions 0.20 0.12
Facilities and other rentals 0.17 0.11
Insurance 0.13 0.10
Ground package cost 0.10 0.07
Advertising 0.07 0.18
Aircraft impairments and retirements 0.01 -
Other 0.40 0.37
-------------------------------------------
Total consolidated operating expenses 8.44 7.34
-------------------------------------------
Consolidated operating income (loss) (1.02) (0.40)
===========================================
ASMs (in thousands) 4,157,410 5,582,822
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 737-800, Boeing 757-200, and Boeing 757-300 aircraft in all of
the Company's business units. Data shown for "SAAB" operations include the
operations of SAAB 340B propeller aircraft by Chicago Express as the ATA
Connection.
19
Three Months Ended March 31,
--------------------------------------------------------------------------
2005 2004 Inc (Dec) % Inc (Dec)
--------------------------------------------------------------------------
Departures Jet 16,196 21,893 (5,697) (26.02)
Departures SAAB 6,381 13,157 (6,776) (51.50)
--------------------------------------------------------------------------
Total Departures 22,577 35,050 (12,473) (35.59)
--------------------------------------------------------------------------
Block Hours Jet 50,445 68,009 (17,564) (25.83)
Block Hours SAAB 6,305 12,958 (6,653) (51.34)
--------------------------------------------------------------------------
Total Block Hours 56,750 80,967 (24,217) (29.91)
--------------------------------------------------------------------------
RPMs Jet (000s) 2,452,901 3,524,437 (1,071,536) (30.40)
RPMs SAAB (000s) 19,215 46,505 (27,290) (58.68)
--------------------------------------------------------------------------
Total RPMs (000s) (a) 2,472,116 3,570,942 (1,098,826) (30.77)
--------------------------------------------------------------------------
ASMs Jet (000s) 4,121,233 5,504,807 (1,383,574) (25.13)
ASMs SAAB (000s) 36,177 78,015 (41,838) (53.63)
--------------------------------------------------------------------------
Total ASMs (000s) (b) 4,157,410 5,582,822 (1,425,412) (25.53)
--------------------------------------------------------------------------
Load Factor Jet (%) 59.52 64.02 (4.50) (7.03)
Load Factor SAAB (%) 53.11 59.61 (6.50) (10.90)
--------------------------------------------------------------------------
Total Load Factor (%) (c) 59.46 63.96 (4.50) (7.04)
--------------------------------------------------------------------------
Passengers Enplaned Jet 1,644,742 2,563,101 (918,359) (35.83)
Passengers Enplaned SAAB 111,698 261,862 (150,164) (57.34)
--------------------------------------------------------------------------
Total Passengers Enplaned (d) 1,756,440 2,824,963 (1,068,523) (37.82)
--------------------------------------------------------------------------
Revenue $ (000s) 308,276 387,333 (79,057) (20.41)
RASM in cents (e) 7.42 6.94 0.48 6.92
CASM in cents (f) 8.44 7.34 1.10 14.99
Yield in cents (g) 12.47 10.85 1.62 14.93
Average Aircraft in Service
Lockheed L-1011 5.00 6.59 (1.59) (24.13)
Boeing 737-800 24.55 29.37 (4.82) (16.41)
Boeing 757-200 13.96 14.17 (0.21) (1.48)
Boeing 757-300 12.00 10.44 1.56 14.94
SAAB 340B 11.60 16.00 (4.40) (27.50)
Average Block Hours Flown per day
Lockheed L-1011 10.18 10.64 (0.46) (4.32)
Boeing 737-800 10.03 11.81 (1.78) (15.07)
Boeing 757-200 8.79 13.20 (4.41) (33.41)
Boeing 757-300 11.71 10.85 0.86 7.93
SAAB 340B 6.04 8.90 (2.86) (32.13)
See footnotes (b) through (g) on page 21.
(a) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown.
RPMs are an industry measure of the total seat capacity actually sold by
the Company.
20
(b) Available seat miles (ASMs) represent the number of seats available for
sale to revenue passengers multiplied by the number of miles those seats
are flown. ASMs are an industry measure of the total seat capacity offered
for sale by the Company, whether sold or not.
(c) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service
because incremental passengers normally provide incremental revenue and
profitability when seats are sold individually. In the case of commercial
charter and military/government charter, load factor is less relevant
because the right to use an entire aircraft is sold by the Company instead
of individual seats. Since both costs and revenues are largely fixed for
these types of charter flights, changes in load factor have less impact on
business unit profitability. Consolidated load factors and scheduled
service load factors for the Company are shown in the appropriate tables
for industry comparability, but load factors for individual charter
businesses are omitted from applicable tables.
(d) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(e) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor
and yield (see (g) below for the definition of yield).
(f) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(g) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant
to the evaluation of scheduled service because yield is a measure of the
average price paid by customers purchasing individual seats. Yield is less
relevant to the commercial charter and military/government charter
businesses because the right to use an entire aircraft is sold at one time
for one price. Consolidated yields and scheduled service yields are shown
in the appropriate tables for industry comparability, but yields for
individual charter businesses are omitted from applicable tables.
21
Operating Revenues
Total operating revenues in the first quarter of 2005 decreased 20.4% to $308.3
million, as compared to $387.3 million in the first quarter of 2004. This
decrease was due to a $102.9 million decrease in scheduled service revenue, and
a $6.2 million decrease in commercial charter revenues, partially offset by a
$32.7 million increase in military/government charter revenue.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the scheduled service, commercial charter and
military/government charter operations of the Company.
Three Months Ended March 31,
----------------------------------------------------------------
2005 2004 Inc (Dec) % Inc (Dec)
----------------------------------------------------------------
Scheduled Service
Departures 20,337 33,124 (12,787) (38.60)
Block Hours 46,366 72,219 (25,853) (35.80)
RPMs (000s) (a) 1,924,196 3,079,937 (1,155,741) (37.52)
ASMs (000s) (b) 3,024,687 4,597,009 (1,572,322) (34.20)
Load Factor (c) 63.62 67.00 (3.38) (5.04)
Passengers Enplaned (d) 1,644,499 2,704,249 (1,059,750) (39.19)
Revenue $ (000s) 174,222 277,167 (102,945) (37.14)
RASM in cents (e) 5.76 6.03 (0.27) (4.48)
Yield in cents (g) 9.05 9.00 0.05 0.56
Revenue per segment $ (h) 105.94 102.49 3.45 3.37
Military Charter
Departures 1,970 1,438 532 37.00
Block Hours 9,512 7,084 2,428 34.27
ASMs (000s) (b) 1,058,403 855,949 202,454 23.65
Revenue $ (000s) 113,431 80,722 32,709 40.52
RASM in cents (e) 10.72 9.43 1.29 13.68
RASM excluding fuel escalation (j) 10.69 9.14 1.55 16.96
Commercial Charter
Departures 251 440 (189) (42.95)
Block Hours 821 1,536 (715) (46.55)
ASMs (000s) (b) 59,781 120,738 (60,957) (50.49)
Revenue $ (000s) 4,741 10,968 (6,227) (56.77)
RASM in cents (e) 7.93 9.08 (1.15) (12.67)
RASM excluding fuel escalation (i) 7.87 8.92 (1.05) (11.77)
Percentage of Consolidated Revenues:
Scheduled Service 56.5% 71.6% -15.1% (21.09)
Military Charter 36.8% 20.8% 16.0% 76.92
Commercial Charter 1.5% 2.8% -1.3% (46.43)
See footnotes (a) through (g) on pages 20-21 and (i) through (j) on page 23.
(h) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a
broad measure of the average price obtained for all flight segments flown
by passengers in the Company's scheduled service route network.
22
(i) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned,
are accounted for as additional revenue. A separate RASM calculation,
excluding the impact of fuel reimbursements, is provided as a separate
measure of unit revenue changes.
(j) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each
contract year. If actual fuel prices differ from the contract rate,
revenues are adjusted up or down to neutralize the impact of the change on
the Company. A separate RASM calculation is provided, excluding the impact
of the fuel price adjustments.
Scheduled Service Revenues. Scheduled service revenues in the first quarter of
2005 decreased 37.2% to $174.2 million from $277.2 million in the first quarter
of 2004 mainly due to decreased capacity between years. In the first quarter of
2005, the Company operated an average of 12 fewer jet aircraft than in the first
quarter of 2004 due to aircraft being returned to lessors as part of its
reorganization under Chapter 11.
Approximately 53.7% of ATA's scheduled service capacity was generated by flights
either originating or terminating at Chicago-Midway in the first quarter of
2005, as compared to 65.7% in the first quarter of 2004. The Hawaiian market
generated approximately 20.5% of scheduled service capacity in the first quarter
of 2005, as compared to 13.0% in the first quarter of 2004. Another 23.4% of
scheduled service capacity was generated in the Indianapolis market in the first
quarter of 2005, as compared to 14.3% in the first quarter of 2004. ATA
announced significant route reductions from Indianapolis in early 2005, most of
which reductions of service were effective as of April 11, 2005, in response to
the competitive pricing environment at that airport.
Military/Government Charter Revenues. Military/government charter revenue
increased 40.5% to 113.4 million in the first quarter of 2005 from $80.7 million
in the first quarter of 2004. The increase in revenue in 2005, as compared to
2004, is due to a change in the mix of aircraft flying, as narrow body aircraft,
which result in a higher yield, continued to replace retired wide body aircraft,
and an increase in flight activity between years.
Commercial Charter Revenues. Commercial charter revenues decreased 57.3% to $4.7
million in the first quarter of 2005 from $11.0 million in the first quarter of
2004. The majority of the decline in commercial charter revenues was due to the
retirement of certain Lockheed L-1011 aircraft that the Company has
traditionally used in commercial charter flying. Because aircraft utilization is
typically much lower for commercial charter, as compared to scheduled service
flying, the Company's replacement fleets of Boeing 737-800 and Boeing 757-300
aircraft are economically disadvantaged when used in the charter business,
because of their higher fixed-ownership cost.
Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with scheduled services operations of the Company, such as
cancellation and administration service fees and cargo revenue. Other revenues
decreased 22.1% to $10.6 million in the first quarter of 2005, as compared to
$13.6 million in the same period of 2004, primarily related to the decrease in
scheduled service activity between periods.
23
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in the first quarter of 2005 decreased
15.3% to $91.2 million, as compared to $107.7 million in the same period of
2004.
The decrease in salaries, wages and benefits in the first quarter of 2005, as
compared to the same period of 2004, is partially due to the Company's average
full-time equivalent headcount declining approximately 22.9% between periods. In
addition, in February 2005, ATA signed a letter of agreement for the time period
from January 31, 2005 through May 31, 2005 with its cockpit crewmembers who are
represented by Air Line Pilots Association. Under the agreement the cockpit
crewmembers agreed to an approximate 20% pay reduction and 50% reduction in
contributions to the Cockpit Crewmember Money Purchase Plan, which resulted in
less salaries, wages and benefits expense in the first quarter of 2005, as
compared to the same period of 2004.
Fuel and Oil. Fuel and oil expense increased 1.1% to $83.2 million in the first
quarter of 2005, as compared to $82.3 million in the same period of 2004. During
the first quarter of 2005, the average cost per gallon of jet fuel consumed
increased by 34.5%, as compared to the first quarter of 2004, resulting in an
increase in fuel and oil expense of approximately $21.6 million between those
periods. This increase was partially offset by a 25.8% decrease in jet block
hours flown in the first quarter of 2005, as compared to the first quarter of
2004, resulting in a decrease in fuel and oil expense of approximately $19.9
million between periods.
The Company also benefits from fuel reimbursement clauses and guarantees in its
military/government and commercial charter contracts, as well as bulk scheduled
service, but the benefit of these price guarantees is accounted for as revenue
when realized.
Aircraft Rentals. Aircraft rentals expense in the first quarter of 2005
decreased 22.2% to $46.3 million from $59.5 million in 2004. This decrease was
mainly attributable to the renegotiation of aircraft lease rates related to 12
Boeing 757-300 aircraft and operating 11 fewer leased jet aircraft in the first
quarter of 2005 as compared to the first quarter of 2004 due to aircraft being
returned to the lessors as part of the reorganization under Chapter 11.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly through certain foreign airspace.
Handling, landing and navigation fees decreased by 16.5% to $27.9 million in the
first quarter of 2005, as compared to $33.4 million in the same period of 2004.
The decrease in handling, landing and navigation fees between periods was
primarily due to a 26.0% decrease in system-wide jet departures in the first
quarter of 2005, as compared to the same quarter of 2004. This decrease was
partially offset by an increase in navigation fees between periods, due to an
increase in military/government flying in the first quarter of 2005, as compared
to the first quarter of 2004.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities, and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800, Boeing 757-200/300 and SAAB 340B power plants. These
agreements provide for the Company to pay monthly fees based on a specified rate
per engine flight hour, in exchange for major engine overhauls and maintenance.
Aircraft maintenance, materials and repairs expense decreased 24.1% to $15.1
million in the first quarter of 2005, as compared to $19.9 million in the first
quarter of 2004. The Company experienced a decline in the costs related to the
Boeing 757-200 engine maintenance agreement due to the decline a flight hours
between periods. In addition, the decline in aircraft maintenance, materials and
repairs is due to ATA's smaller fleet in the first quarter of 2005, as compared
to 2004. As of March 31, 2005, the Company is negotiating with the parties under
the engine maintenance agreements and has accrued $12.9 million of post-petition
fees under these agreements which has not yet been paid.
24
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Depreciation and amortization expense decreased 10.3% to
$12.2 million in the first quarter of 2005, as compared to $13.6 million in the
first quarter of 2004.
The decrease in depreciation and amortization expense is mainly attributable to
the retirement of one L-1011-50 aircraft in late 2004. Due to this retirement,
the Company recorded $0.9 million less in depreciation in the first quarter of
2005, as compared to the same period of 2004. In the fourth quarter of 2004, the
Company recorded a significant impairment charge against the L1011-500 fleet. As
a result, the fleet's depreciable value in the first quarter of 2005 is
considerably less than its depreciable value in the first quarter of 2004. At
that same time, the depreciable life of the fleet was shortened to reflect the
most current planned fleet retirement schedule. The fleet's lower depreciable
value offset by the shorter depreciable life resulted in $0.5 million less
depreciation expense in the first quarter of 2005, as compared to the same
period of 2004.
Crew and Other Employee Travel. Crew and other employee travel is primarily the
cost of air transportation, hotels and per diem reimbursements to cockpit and
cabin crewmembers incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
decreased 28.8% to $12.1 million in the first quarter of 2005, as compared to
$17.0 million in the first quarter of 2004. This decrease in the first quarter
of 2005 is primarily due to the decrease in system-wide block hours of 29.9%
between periods. In addition, in the first quarter of 2005, the Company was able
to gain efficiencies from flying a significant amount of military flights on
similar routings.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and the
cost of onboard entertainment programs, together with certain costs incurred for
mishandled baggage and passengers inconvenienced due to flight delays or
cancellations. For the first quarters of 2005 and 2004, catering represented
84.5% and 80.3%, respectively, of total passenger service expense.
The total cost of passenger service decreased 9.7% to $10.2 million in the first
quarter of 2005, as compared to $11.3 million in the first quarter of 2004. This
decrease is mainly attributable to the decrease in scheduled service passengers
enplaned between periods, partially offset by the increase in
military/government flying between periods, as that flying requires a more
expensive catering product.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling to customers using credit cards for payment, and
toll-free telephone services provided to customers who contact the Company
directly to book reservations. Other selling expenses decreased 35.2% to $8.1
million in the first quarter of 2005, as compared to $12.5 million in the same
period of 2004, primarily due to decreased credit card and CRS fees directly
related to the decrease in scheduled service passengers between periods.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs commissions to secure some commercial and military/government charter
business. Commissions expense increased 19.1% to $8.1 million in the first
quarter of 2005, as compared to $6.8 million in the first quarter of 2004. The
Company experienced an increase in commissions expense related to
military/government charter business of $2.1 million in the first quarter of
2005,as compared to the same period of 2004, consistent with the increase in
military/government flying between periods. This increase was partially offset
by a $0.9 million decrease in commissions related to scheduled service flying in
the first quarter of 2005, as compared to the same period of 2004, consistent
with the decrease in schedule service flying between periods.
25
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 9.4% to $7.0 million in the first quarter of 2005, as compared
to $6.4 million in the first quarter of 2004. Growth in facilities costs between
periods was primarily attributable to terminal relocations and normal rate
increases at certain airport locations.
Insurance. Insurance expense represents the Company's cost of hull and liability
insurance and the costs of general insurance policies held by the Company,
including workers' compensation insurance premiums and claims handling fees. The
total cost of insurance increased 1.8% to $5.6 million in the first quarter of
2005, as compared to $5.5 million in the first quarter of 2004.
Advertising. Advertising expense decreased 69.4% to $3.0 million in the first
quarter of 2005, as compared to $9.8 million in the same period of 2004. The
decrease in costs between periods is primarily due to a reduction in marketing
efforts after the Chapter 11 filing.
Aircraft Impairments and Retirements. In the first quarter of 2005, the Company
recorded an impairment charge of $0.4 million against the net book value of
Boeing 727-200 aircraft (recorded as an investment in BATA Leasing, LLC
("BATA")) in accordance with FAS 144. The Company used quoted market prices to
determine fair value of the assets.
Other Operating Expenses. Other operating expenses decreased 17.2% to $16.4
million in the first quarter of 2005, as compared to $19.8 million in the first
quarter of 2004. This decrease was attributable to various changes in other
expenses comprising this line item, none of which was individually significant.
Interest Expense. Interest expense in the quarter ended March 31, 2005 decreased
to $1.7 million, as compared to $15.0 million in the same periods of 2004. In
accordance with SOP 90-7, following its Chapter 11 filing, the Company did not
record interest expense with respect to unsecured debt or secured debt in which
the collateral value is less than the principal amount of the debt.
Loss on Extinguishment of Debt. On January 30, 2004, the Company completed
exchange offers and issued Senior Notes due 2009 ("2009 Notes") and cash
consideration for certain of its $175 million 10 1/2% Senior Notes due August in
2004 ("2004 Notes") and issued Senior Notes due 2010 ("2010 Notes" and, together
with the 2009 Notes, "New Notes") and cash consideration for certain of its $125
million 9 5/8% Senior Notes due in December 2005 ("2005 Notes" and, together
with the 2004 Notes, "Existing Notes"). The Company accepted $260.3 million of
Existing Notes tendered for exchange, issuing $163.1 million in aggregate
principal amount of 2009 Notes and delivering $7.8 million in cash in exchange
for $155.3 million in aggregate principal amount of 2004 Notes tendered, and
issuing $110.2 million in aggregate principal amount of 2010 Notes and
delivering $5.2 million in cash in exchange for $105.0 million in aggregate
principal of 2005 Notes. As a result of this transaction, the Company recorded a
non-operating loss on extinguishment of debt of $27.3 million in the first
quarter of 2004 in accordance with FASB Emerging Issues Task Force Issue No.
96-19, Debtor's Accounting for Modification of Exchange of Debt Terms ("EITF
96-19"). The loss mainly relates to the accounting for the $13 million cash
consideration paid at closing of the exchange offers and the $13 million of
incremental notes issued during the exchange offers.
Reorganization Expense. In accordance with SOP 90-7, the Company's revenues,
expenses (including professional fees), realized gains and losses, and provision
for losses that can be directly associated with the reorganization and
restructuring of the business are reported separately as reorganization items in
the consolidated statement of operations.
26
For the quarter ended March 31, 2005, the Company had recognized the following
reorganization expenses in the consolidated statement of operations (in
thousands):
March 31,
2005
----------
Aircraft and engine lease rejection charges $ 302,993
Impairment of assets held for sale 11,280
Professional fees 5,347
Amortization of deferred gain (1,057)
Interest income (631)
Other 551
------------
$ 318,483
============
The aircraft and engine lease rejection charges are non-cash charges which are
comprised of the Company's estimate of claims resulting from the rejection or
return of the aircraft and engines as part of the bankruptcy process. They also
include the write-off of assets and liabilities related to aircraft and engine
leases that the Company has rejected, committed to return dates with the lessor
or intended to reject as part of the Company's current business plan as of March
31, 2005. The estimate that the Company recorded is subject to material
adjustments as the Debtors proceed through the bankruptcy process.
The impairment of assets held for sale is a non-cash charge related to Chicago
Express, Inc. ("Chicago Express"), a wholly owned subsidiary of the Company. On
February 7, 2005, the Company announced that it intended to sell or discontinue
Chicago Express' operations, including its DOT and FAA certificates, as part of
the Company's continuing reorganization efforts. Chicago Express discontinued
flights on March 28, 2005. Chicago Express was a regional feeder carrier
operating as ATA Connection and connecting small and medium-sized cities with
either Chicago-Midway or Indianapolis. A bid process, held in accordance with
the Bankruptcy Code, was conducted for the assets related to Chicago Express.
The Company is in the process of negotiating a sale with a suitable buyer.
However, the Company can make no guarantee that it will be able to consummate a
sale. In accordance FAS 144, the Company recorded an impairment charge of $11.3
million related to the Chicago Express assets for sale. In addition, the Company
has classified the estimated value of these assets as short-term assets held for
sale on the consolidated balance sheet as of March 31, 2005.
Income Taxes. The Company did not record any income tax expense or benefit in
the first quarter of 2005 applicable to its $362.7 million in pre-tax loss for
that period, nor did it record any income tax expense or benefit in the first
quarter of 2004 applicable to its $64.3 million in pre-tax loss for that period.
As of March 31, 2005, the Company had incurred a three-year cumulative loss.
Because of this cumulative loss and the presumption under GAAP that net deferred
tax assets should be fully reserved if it is more likely than not that they will
not be realized through carrybacks or other strategies, the Company had recorded
a full valuation allowance against its net deferred tax asset.
27
Liquidity and Capital Resources
As of March 31, 2005, the Company had unrestricted cash of $101.5 million and a
restricted cash balance of $35.4 million of which $4.1 million is classified as
prepaid expenses and other current assets, primarily securing letters of credit.
In addition, $58.9 million of cash on advance ticket sales had been withheld by
the Company's bank card processors and was recorded as a receivable on the
Company's balance sheet as of March 31, 2005. The airline industry continues to
be adversely affected by historically high fuel prices and intense price
competition.
Based on its current financial projections, the Company believes that it will
require a capital infusion in the range of $50 million to $100 million to
provide the additional liquidity necessary to continue as a going concern
through December 31, 2005. The financial projections assume the Company
accomplishes certain objectives, such as, but not limited to, reaching
agreements with unions to achieve necessary cost savings, cost effectively
regauging the fleet, and continuing successful codeshare operations at projected
levels. Additional capital will be required to the extent that these objectives
are not successfully accomplished in whole or in part. No assurance can be made
that the Company will succeed in securing the additional capital. In addition,
if the Company is not able to develop, obtain confirmation of and implement a
plan of reorganization, it is not likely to be able to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern. A plan of reorganization could materially change the amounts
currently disclosed in the consolidated financial statements.
The potential for continuing adverse publicity associated with the Filing and
the resulting uncertainty regarding the Company's future prospects may hinder
the Company's ongoing business operations and its ability to operate, fund and
execute its business plan by impairing relations with existing and potential
customers; negatively impacting the ability of the Company to attract and
maintain key employees; limiting the Company's ability to obtain trade credit;
and impairing present and future relationships with vendors and service
providers. See "Liquidity Outlook" section below for further details regarding
the Filing.
Statement of Cash Flow Overview
In the three months ended March 31, 2005, net cash used in operating activities
was $39.4 million, as compared to cash provided by operating activities of $16.4
million for the same period of 2004. The change in cash used in or provided by
operating activities between periods primarily resulted from a more significant
operating loss in 2005 and unfavorable changes in operating assets and
liabilities.
Net cash provided by reorganization activities was $0.1 million in the first
quarter of 2005, which consisted of the proceeds from the assignment of the
Company's leasehold interest in the hangar at the Chicago-Midway Airport, offset
by the payment of professional fees related to the reorganization.
Net cash used in investing activities was $2.0 million in the first quarter of
2005, as compared to $25.8 million in the same period of 2004. Such amounts
included capital expenditures totaling $2.9 million in the first quarter of
2005, as compared to $4.4 million in the first quarter of 2004. In the first
quarter of 2004, the Company made non-current prepaid aircraft rent payments of
$43.7 million, and received a refund of $29.8 million on January 30, 2004
related to payments made in 2003 under the original terms of certain
retroactively amended leases. In addition, in the first quarter of 2004, the
Company capitalized costs associated with the completion of the exchange offers
on January 30, 2004 which is reflected as an addition to other assets.
Net cash provided by financing activities was $3.2 million in the first quarter
of 2005, as compared to net cash used by financing activities of $19.1 million
in the same period of 2004. Upon completion of the exchange offers on January
30, 2004, the Company paid all accrued preferred dividends in arrears totaling
$9.2 million. In addition, in the first quarter of 2004, the Company also paid
$13.0 million as cash consideration for the completion of the exchange offers
and made other scheduled debt payments of $8.4 million. In the first quarter of
2004, the Company made scheduled debt payments of $2.5 million. Also in the
first quarter of 2004, the Company reduced restricted cash $11.7 million
primarily due to the cancellation of a surety bond relating to the Department of
Transportation ("DOT") charter obligations.
28
Liquidity Outlook
Chapter 11 Reorganization. On the Petition Date, the Debtors, filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. In connection with the Filing, the Debtors are developing plans of
reorganization to address their respective debts and other obligations, lower
operating costs and restructure operations.
The Debtors continue to operate their respective businesses as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and
pursuant to the applicable provisions of the Bankruptcy Code, the Federal Rules
of Bankruptcy Procedure and applicable court orders, except for Chicago Express
which ceased operations in March, 2005. As a debtor-in-possession, each of the
Debtors is authorized under the provisions of Chapter 11 to continue to operate
as an ongoing business, but may not engage in transactions outside the ordinary
course of business without prior approval from the Bankruptcy Court. On October
29, 2004, the Bankruptcy Court granted the Debtors certain first day motions for
various reliefs designed to stabilize operations and maintain relationships with
customers, vendors, employees and others. The first day motions granted
authority to the Debtors, among other things, to (a) pay pre-petition and
post-petition employee wages, salaries and benefits and other employee
obligations; (b) honor customer programs, including the frequent flyer program
and ticketing program; and (c) honor pre-petition obligations related to
interline, clearinghouse, and other similar agreements.
As required by the Bankruptcy Code, the United States Trustee has appointed the
Official Committee. The Official Committee and its legal representatives have a
right to be heard on all matters that come before the Bankruptcy Court in each
of the Debtor's cases. There can be no assurance that the Official Committee
will support the Debtors' positions in the reorganization cases or any plan of
reorganization, once proposed, and disagreements between the Debtors and the
Official Committee could protract the reorganization cases, could negatively
impact the Debtors' ability to operate during the Chapter 11 cases, and could
delay or prevent the Debtors' emergence from Chapter 11.
On October 29, 2004 the Bankruptcy Court entered an interim order which
permitted ATA to use the unrestricted cash, eligible accounts receivable and
other collateral pledged to secure ATA's secured term loans (the "ATSB Loan"), a
significant portion of which is guaranteed by the Air Transportation
Stabilization Board (the "ATSB"). On December 10, 2004, the Bankruptcy Court
entered a final order authorizing ATA's continued use of the cash collateral
through December 17, 2004. This final order has been extended for successive
short periods. The final order has the effect of giving the ATSB Loan lenders
and the ATSB (collectively the "ATSB Loan Lenders" a replacement lien on
unrestricted cash and all other assets of the Debtors to secure diminution of
pre-petition cash collateral and requires compliance by the Debtors with certain
terms, such as the maintenance of minimum cash collateral balances and periodic
reporting requirements. On April 19, 2005, the Bankruptcy Court approved a
settlement agreement among the Debtors, the Official Committee and the ATSB Loan
Lenders, (the "Settlement Agreement") under which the parties agreed that the
ATSB Loan Lenders have an allowed, secured claim in respect of the ATSB Loan in
the amount of $110 million and an allowed, general unsecured claim in respect of
the remaining outstanding portion of the ATSB Loan of approximately $30.6
million. The Settlement Agreement also requires ATA to pay the ATSB adequate
protection payments of $2.3 million per quarter, beginning in the second quarter
of 2005, and $4.5 million on the earlier of December 31, 2005 or the effective
date of a plan of reorganization. The adequate protection payments will reduce
the amount of the ATSB Loan Lenders' secured claim. The Settlement Agreement
requires that the ATSB Loan Lenders' secured claim be satisfied in ATA's plan of
reorganization, in a manner to be agreed upon by the parties not less than 30
days prior to the filing of any plan of reorganization. On April 19, 2005, the
Bankruptcy Court approved another extension of the final order authorizing ATA's
continued use of the cash collateral through the earlier of June 15, 2005 or the
occurrence of a material breach of the Settlement Agreement. Further extensions
cannot be assured, and a failure to maintain the right to use cash collateral
would be material and adverse to the ability of the Debtors to reorganize under
Chapter 11.
29
The Filing triggered defaults on substantially all debt and lease obligations of
the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. For example, creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim, are enjoined unless the Bankruptcy Court lifts the
automatic stay or the Bankruptcy Code otherwise provides.
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment defined in section 1110 of the Bankruptcy Code that are leased or
subject to a security interest or conditional sale contract are specifically
governed by section 1110 of the Bankruptcy Code. That section provides, in
relevant part, that unless the Debtors, prior to 60 days after the Petition
Date, agree to perform all obligations under the lease, security agreement, or
conditional sale contract and cure all defaults thereunder (other than defaults
constituting a breach of provisions relating to the filing of the Chapter 11
cases, the Debtors' insolvency or other financial condition of the Debtors)
within the time specified in section 1110, the right of the lessor, secured
party or conditional vendor to take possession of such equipment in compliance
with the provisions of the lease, security agreement, or conditional sale
contract and to enforce any of its other rights or remedies under such lease,
security agreement, or conditional sale contract is not limited or otherwise
affected by the automatic stay, by any other provision of the Bankruptcy Code,
or by any power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. After the
expiration of the original 1110 deadline, the Debtors must either perform under
the leases, reject the leases or reach negotiated agreements with the lessors.
As of December 31, 2004, the Company operated 82 aircraft, including 76 aircraft
that were financed with operating leases. As of April 30, 2005, the Company had
returned 35 of the 76 leased aircraft and related engines to the lessors. The
Company expects to return an additional 15 leased aircraft and related engines
to the lessors between May 1, 2005 and January 25, 2006. The Company has
renegotiated long-term rates on 10 of the leased aircraft and related engines.
Finally, the Company has cured existing defaults and is currently paying the
contract rates required under the Bankruptcy Code with respect to the remaining
16 leased aircraft and related engines.
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume and
assign, or reject certain executory contracts and unexpired leases, including,
without limitation, leases of real property, aircraft and aircraft engines,
subject to the approval of the Bankruptcy Court and certain other conditions.
Generally, the rejection of an executory lease or unexpired lease is treated as
a pre-petition breach of the lease or contract in question and, subject to
certain exceptions, relieves the Debtors of performing future obligations under
such lease or contract but entitles the lessor or contract counterparty to
pre-petition general unsecured claim for damages caused by such deemed breach.
The lessor or contract counterparty may file a claim against the relevant
Debtor's estate for such damages. The assumption of an executory contract or
unexpired lease generally requires a cure of most existing defaults under such
executory contract or unexpired lease. The Company expects that additional
liabilities subject to compromise will arise in the future as a result of damage
claims resulting from the rejection of certain executory contracts and unexpired
leases by the Debtors. However, the Company expects that the assumption of
certain executory contracts and unexpired leases may convert certain liabilities
subject to compromise to liabilities not subject to compromise.
The Debtors have undertaken to notify all known or potential creditors of the
Chapter 11 cases for purposes of identifying and quantifying all pre-petition
claims. Subject to certain exceptions under the Bankruptcy Code, the Chapter 11
filings automatically stayed the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to October 26, 2004. The deadline
for filing by creditors of proofs of claim with the Bankruptcy Court was January
24, 2005, with a limited exception for governmental entities, which had until
April 24, 2005. A proof of claim arising from the rejection of executory
contracts and expired leases must be filed no later than thirty days from the
effective date of the authorized rejection. The Company is currently engaged in
preliminary analysis of pre-petition claims.
30
The Bankruptcy Court extended the period during which the Debtors' have an
exclusive right to file a plan of reorganization until May 24, 2005. There is no
assurance that these exclusivity periods will be further extended by the
Bankruptcy Court. If a Debtor's exclusivity period lapses, any party in interest
may file a plan of reorganization for that Debtor. In addition to being voted on
by holders of impaired claims and equity interests, a plan of reorganization
must satisfy certain requirements of the Bankruptcy Code and must be approved,
or confirmed, by the Bankruptcy Court in order to become effective. A plan has
been accepted by holders of claims against and equity interests in a Debtor if
(1) at least one-half in number and two-thirds in dollar amount of claims
actually voting in each impaired class of claims have voted to accept the plan
and (2) at least two-thirds in amount of equity interests actually voting in
each impaired class of equity interests have voted to accept the plan. Under
certain circumstances set forth in the provisions of section 1129(b) of the
Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has
not been accepted by all impaired classes of claims and equity interests. A
class of claims or equity interests that does not receive or retain any property
under the plan on account of such claims or interests is deemed to have voted to
reject the plan. The requirements for confirming a plan, notwithstanding its
rejection by one or more impaired classes of claims or equity interests, depends
upon a number of factors, including the status and seniority of the claims or
equity interests in the rejecting class, i.e., secured claims or unsecured
claims, subordinated or senior claims, preferred or common stock.
Although the Debtors expect to finalize reorganization plans for emergence from
Chapter 11 in 2005, there can be no assurance that any reorganization plan will
be proposed by the Debtors or confirmed by the Bankruptcy Court, or that any
such plan will be consummated. The Debtors have incurred and will continue to
incur significant costs associated with their respective reorganizations. The
amount of these costs, which are being expensed as incurred, are expected to
significantly affect their financial results.
The ultimate recovery, if any, to holders of common stock of the Company will
not be determined until confirmation of a plan of reorganization for the
Company. The plan of reorganization could result in holders of common stock
receiving no distribution on account of their interest in the Company and
cancellation of the outstanding shares. The commitments for post-reorganization
financing, equity investment in the Company and codesharing that the Company has
with Southwest require that all outstanding equity of the Company be cancelled
without any distributions to the holders of such equity.
DIP Financing Arrangement. On December 23, 2004, ATA and Southwest entered into
the DIP Facility that provides up to $40.0 million in cash to the Company, the
Chicago LOC. The Company received $40.0 million under the DIP Facility on
December 23, 2004. A closing fee of 2.5%, or $1.0 million, was treated as a
principal advance under the DIP Facility.
The base interest rate, paid monthly, on amounts borrowed under the DIP Facility
is the greater of (a) 8.0% per annum, or (b) the three-month LIBOR rate, plus
5.0% per annum, paid monthly. Southwest will also receive a guaranty fee of
3.0%, per annum, paid monthly, for any amounts guaranteed but not drawn under
the Chicago LOC. During the term of the DIP Facility, the Company is subject to
certain financial covenants. ATA has obtained amendments to these financial
covenants for the months of January, February and March 2005. Without the
amendments, ATA would have been in violation of the covenants, which could have
resulted in ATA being in default on the DIP Facility. There is no assurance ATA
will be able to comply with these financial covenants in the future, or that
Southwest will agree to further amendments to these covenants or otherwise waive
ATA's non-compliance. The DIP facility is guaranteed by the Company and its
other subsidiaries. The DIP Facility will terminate on the earlier of (1) the
effective date of a plan of reorganization or (2) September 30, 2005, unless
otherwise extended.
Asset Sale. On December 23, 2004, the Company and Southwest executed the Asset
Acquisition Agreement by which ATA agreed to assign to Southwest a leasehold
interest in six specified gates and a hangar facility at Chicago-Midway airport
and related assets for $40.0 million, subject to certain adjustments. The Asset
Acquisition Agreement was entered into after the completion of an auction
process supervised by the Bankruptcy Court. ATA received $34.0 million of
proceeds from the assignment of its leasehold interest in six specified gates
and related assets on December 23, 2004. ATA received $6.0 million of proceeds
from the assignment of its leasehold interest in the hangar facility and related
assets on March 28, 2005. Almost all of the $40 million in total funds was
recorded as deferred gain on the Company's balance sheet and is being amortized
over the remaining eight year lease term at Chicago-Midway.
31
Exit Facility and Equity Purchase. On December 23, 2004, Southwest committed to
provide the Exit Facility to New ATA of $47 million upon the effective date of a
plan of reorganization approved by Southwest. The Exit Facility, under which New
ATA would be the borrower, will provide for (a) a long-term financing, at a
based interest rate of 9.5% per annum, paid semi-annually, consisting of one or
more five-year notes to refinance up to $40.0 million under the DIP Facility,
and (b) the Replacement Chicago LOC for up to $7.0 million to secure loan
obligations to the City of Chicago now secured by the Chicago LOC. The Exit
Facility is to be guaranteed by the Debtors and all other subsidiaries of New
ATA. As of March 31, 2005, no amounts had been received under the Exit Facility.
A closing fee of 2.5% of the Exit Facility is payable to Southwest. Southwest
will also receive a guaranty fee of 3.0%, per annum, paid monthly, for any
amounts secured but not drawn under the Replacement Chicago LOC.
In addition, upon the effective date of a plan of reorganization, Southwest has
committed to purchase, through an additional cash investment of $30 million,
non-voting senior convertible preferred equity of the Preferred Equity. The
Preferred Equity will be convertible into 27.5% of the fully diluted economic
ownership interest of New ATA, subject to pro rata dilution for management
interests. The Preferred Equity will (a) have voting rights only upon certain
events of default, (b) be senior to the common equity of New ATA, and (c) be
convertible into common equity of New ATA, at Southwest's option, upon
Southwest's sale or transfer of the Preferred Equity to a third party or certain
other specified major liquidity events. In addition, the Preferred Equity will
earn dividends at the rate of 4.0% per annum and have certain rights to require
registration for resale under the securities laws. If not converted within 10
years after the effective date of the plan of reorganization, the Preferred
Equity shall, at Southwest's option, either convert into common equity of New
ATA or be redeemed.
Codeshare Agreement. On December 23, 2004, Southwest and ATA entered into the
Codeshare Agreement, related to air transportation service to and from
Chicago-Midway and additional airports. ATA is the only domestic air carrier
with which Southwest has a codesharing agreement. Under this arrangement both
carriers have expanded their flight offerings to customers without the
significant investment required for new flights. Each airline receives a share
of the ticket price for affected flights. The initial term of the Codeshare
Agreement is one year, which will be automatically extended seven additional
years once a plan of reorganization in ATA's Chapter 11 case, which is
acceptable to Southwest, is confirmed and becomes effective. ATA and Southwest
began servicing the codeshare flights on February 4, 2005. As of March 31, 2005,
160 codeshare routes were operating.
32
Debt and Operating Lease Cash Payment Obligations. The Company is required to
make cash payments in the future on debt obligations and operating leases. The
Company is obligated on a number of long-term operating leases, which are
considered financing and not recorded on the balance sheet under GAAP. The
Company does not guarantee the debt of any other party which is not a
subsidiary. The following table summarizes the Company's contractual debt
principal payments and operating lease obligations and their currently expected
impact on liquidity and cash flows. This information does not include cash
payments for amounts classified as liabilities subject to compromise.
Cash Payments Currently Scheduled (2)
----------------------------------------------------------------------------
2 Qtr - 4 Qtr 2008- After
Total 2005 2006 2007 2009 2009
--------------- -------------- --------------- -------------- ------------- ------------
(in thousands)
Current and long-term debt (1) $ 41,000 $ 41,000 $ - $ - $ - $ -
Lease obligations (2) 1,410,107 99,100 102,462 102,926 198,013 907,606
--------------- -------------- --------------- -------------- ------------- ------------
Total contractual cash obligations $ 1,451,107 $ 140,100 $ 102,462 $ 102,926 $ 198,013 $ 907,606
=============== ============== =============== ============== ============= ============
(1) Represents payments under DIP Facility to Southwest.
(2) The Company leases aircraft and aircraft engines, ground facilities,
including terminal space and maintenance facilities, and ground equipment.
As allowed under section 365 of the Bankruptcy Code, the Company may
assume, assume and assign, or reject certain executory contracts and
unexpired leases, including leases of real property, aircraft and aircraft
engines, subject to the approval of the Bankruptcy Court and certain other
conditions. Consequently, the Company anticipates that its liabilities
pertaining to these leases, and the amounts related thereto as discussed
below, will change significantly as the Company progresses through
reorganization.
Aircraft and Fleet Transactions. ATA has a purchase agreement with the Boeing
Company ("Boeing") to purchase seven new Boeing 737-800s, which are currently
scheduled for delivery between July 2007 and December 2007. These aircraft are
powered by General Electric CFM56-7B27 engines. The manufacturer's list price is
$52.4 million for each 737-800, subject to escalation. ATA's purchase price for
each aircraft is subject to various discounts. According to a 2004 amendment to
the purchase agreement with Boeing, if ATA does not have permanent financing for
these aircraft suitable to ATA and does not have suitable pre-delivery deposit
financing, and if Boeing does not elect to provide such financing suitable to
the ATA, these deliveries can be delayed for one year periods annually through
December 31, 2010. Aircraft pre-delivery deposits are required for these
aircraft, and ATA has historically funded these deposits for past aircraft
deliveries using operating cash and pre-delivery deposit financing facilities.
ATA can provide no assurance that it will be able to secure pre-delivery deposit
financing facilities or permanent financing for any future aircraft purchases.
As of March 31, 2005, ATA had $4.9 million in long-term pre-delivery deposits
outstanding for future aircraft deliveries which were funded with operating
cash. Upon delivery of the aircraft, pre-delivery deposits funded with operating
cash would be returned to ATA.
ATA also has an agreement to purchase four spare CFM56-7B27 engines, which are
currently scheduled for delivery between 2005 and 2008.
In April and May 2005, the Company executed three letters of intent with leasing
companies to lease three used Boeing 737-500 aircraft and four used Boeing
737-300 aircraft. The Company expects to put these aircraft into service in the
second half of 2005. One of the letters of intent provides the Company the
option of leasing up to seven additional Boeing 737-500 and Boeing 737-300
aircraft.
33
As allowed under section 365 on the Bankruptcy Code, the Company may assume,
assume and assign, or reject certain executory contracts subject to the approval
of the Bankruptcy Court and certain other conditions. The Company's ability to
obtain financing at rates and terms similar to historical agreements, if at all,
is not known. Therefore, the future obligations for these deliveries cannot be
reasonably estimated.
In the Company's aircraft financing agreements, the Company typically
indemnifies the financing parties, trustees acting on their behalf and other
related parties against liabilities that arise from the manufacture, design,
ownership, financing, use, operation and maintenance of the aircraft and for
tort liability, whether or not these liabilities arise out of or relate to the
negligence of these indemnified parties, except for their gross negligence or
willful misconduct. The Company expects that it would be covered by insurance
(subject to deductibles) for most tort liabilities and related indemnities under
these aircraft leases.
In January 2002, the Chicago LLC entered into the Lease to lease land from the
City, which had been purchased by the City with MARB's. The Chicago LLC also
entered into the Agreement with the City in January 2002 to develop real estate
on the property. As part of the Agreement, the City agreed to pay for the debt
service on the MARB's from the incremental tax revenue expected to be generated
from the real estate developments. Under the Agreement, if the incremental tax
revenue is insufficient to fund the MARB's debt service, the City has the right
to require the Chicago LLC to provide those funds as additional rent under the
lease. ATA is a guarantor of the lease obligations of the Chicago LLC to the
City of Chicago. The total amount of the debt service, including interest, from
2006 through 2021 is approximately $27.2 million. The Company is continuing to
work with the City to find alternate uses for the property.
ATSB Financing. In November 2002, ATA obtained the $168.0 million ATSB Loan.
Interest is payable monthly at LIBOR plus a margin. Guarantee fees of 5.6% of
the outstanding guaranteed principal balance in 2004, escalating to 9.5% of the
outstanding guaranteed principal balance in 2005 through 2008, are payable
quarterly.
The ATSB Loan is subject to certain restrictive covenants and is collateralized
primarily by a substantial portion of ATA's unrestricted cash, certain
receivables, certain aircraft, spare engines, and rotable parts. The aircraft,
spare engines and parts consist of two Lockheed L-1011-500 aircraft, two SAAB
340B aircraft, 21 Rolls Royce RB211 spare engines and Boeing 757-200, Boeing
757-300 and Boeing 737-800 rotables.
On April 19, 2005, the Bankruptcy Court approved the Settlement Agreement, under
which the parties agreed that the ATSB Loan Lenders have an allowed, secured
claim in respect of the ATSB Loan in the amount of $110 million and an allowed,
general unsecured claim in respect of the remaining outstanding portion of the
ATSB Loan of approximately $30.6 million. The Settlement Agreement also requires
ATA to pay the ATSB Loan Lenders adequate protection payments of $2.3 million
per quarter, beginning in the second quarter of 2005, and $4.5 million on the
earlier of December 31, 2005 or the effective date of a plan of reorganization.
The adequate protection payments shall reduce the amount of the ATSB Loan
Lenders' secured claim. The Settlement Agreement requires that the ATSB Loan
Lenders' secured claim be satisfied in ATA's plan of reorganization, in a manner
to be agreed upon by the parties not less than 30 days prior to the filing of
any plan of reorganization.
As a result of the Filing, ATA is in default and subject to immediate
acceleration of all balances under the ATSB Loan, as well as its unsecured
senior notes and certain other debt instruments. Subject to certain exceptions
under the Bankruptcy Code, the Filing provides an automatic stay against the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a claim
arising prior to the Petition Date until the Bankruptcy Court lifts the stay.
34
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment and spare parts defined in section 1110 of the Bankruptcy Code that
are leased or subject to a security interest or conditional sale contract are
specifically governed by section 1110 of the Bankruptcy Code. Further, creditors
holding security interests or liens in property of the Debtors may be entitled
to adequate protection for the continued use or consumption of their collateral.
The Debtors have entered into stipulations which have been approved by the
Bankruptcy Court providing such adequate protection to the ATSB Loan Lenders.
These stipulations are for a stated period of time, and include performance
requirements which the Company is to achieve as a condition of the continued use
of the ATSB Loan collateral. Expiration of the stipulations by the passage of
time or a termination thereof by reason of a breach of these performance
requirements, without the Debtors obtaining an extension or a new authorization
from the Bankruptcy Court for use of the collateral, could very materially
impair the ability of the Company to continue operations. Please refer to the
discussion of the Chapter 11 filing and the requirements of section 1110 of the
Bankruptcy Code in "Liquidity Outlook - Chapter 11 Reorganization" for a more
detailed discussion of the rights of the creditors.
Card Agreement. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers. As of March 31, 2005, approximately 90%
of scheduled service and vacation package sales are purchased using these cards.
The Company maintains an agreement with a bank for the processing and collection
of charges for Visa and Mastercard as well as agreements with American Express
Travel Related Services Company, Inc for the American Express Card and Discover
Card Services, Inc. for the Discover Card (collectively referred to as the
"Credit Card Providers"). Under these agreements, a sale is normally charged to
the purchaser's card account and is paid to the Company in cash within a few
days or weeks of the date of purchase, although the Company may provide the
purchased transportation days, weeks or months later.
According to the agreements, the Credit Card Providers can retain cash collected
by them on processed card charges as a deposit. If the Company fails to perform
pre-paid services which are purchased by a charge to a card, the purchaser may
be entitled to obtain a refund which, if not paid by the Company, is the
obligation of the Credit Card Providers. The deposit secures this potential
obligation of the Credit Card Providers to make such refunds. The Credit Card
Providers have exercised their rights to withhold distributions and as of March
31, 2005 had retained $58.9 million of the Company's unflown sales as compared
to $61.2 million at March 31, 2004.
Surety Bonds. The Company has historically provided surety bonds to airport
authorities and selected other parties, to secure the Company's obligation to
these parties. As of March 31, 2005, the Company's non-current restricted cash
balance on the Company's balance sheet was $31.3 million and primarily included
cash pledged to secure its letter of credit for surety bonds.
The DOT requires the Company to provide a surety bond or an escrow to secure
potential refund claims of charter customers who have made prepayments to the
Company for future transportation. On December 15, 2003, upon cancellation of
the DOT charter obligation surety bond by the issuer, the Company entered into
an escrow arrangement which requires the Company to place advance receipts for
certain charter flights into escrow until the flight operates. Once the flight
occurs the Company is paid from the escrow account those advance deposits
specific to that completed flight. As of March 31, 2005, the Company has $4.1
million in advance charter receipts deposited in escrow, which was included in
prepaid expenses and other current assets on the Company's balance sheet as of
that date. The surety bond of $12.9 million relating to the DOT charter
obligations was released in the first quarter of 2004, and the restricted cash
securing the letter of credit was returned to the Company.
Forward-Looking Information and Risk Factors
Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking information which
can be identified by forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "anticipates," or the negative thereof, or other
variations in comparable terminology. Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences between expected outcomes and actual results can be material,
depending upon the circumstances. Where the Company expresses an expectation or
belief as to future results in any forward-looking information, such expectation
or belief is expressed in good faith and is believed to have a reasonable basis.
The Company can provide no assurance that the statement of expectation or belief
will result or will be achieved or accomplished.
35
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different. Such
factors include, but are not limited to, the following:
o the ability to develop and execute a revised business plan for profitable
operations, including restructuring flight schedules, maintaining the
support of employees and regauging the fleet of aircraft;
o the ability to obtain a significant capital infusion to continue as a going
concern through December 31, 2005;
o the ability to obtain new capital as part of a plan of reorganization for
New ATA;
o risks associated with third parties seeking and obtaining Bankruptcy Court
approval to terminate or shorten the exclusivity period, to propose and
confirm one or more plans of reorganization, for the appointment of a
Chapter 11 trustee or to convert one or more of the cases to a Chapter 7
case;
o the failure to achieve agreements with unions concerning assistance
measures including work rule modifications and wage and benefit cost
reductions could contribute to inadequate cash to meet future obligations;
o the ability to attract and retain employees in specialized functions;
o the ability to obtain and maintain normal terms with vendors and service
providers;
o the ability to maintain contracts that are critical to its operations;
o the potential adverse effects of the Chapter 11 reorganization on liquidity
or results of operations;
o the ability to attract and retain customers;
o demand for transportation in markets in which the Company operates;
o economic conditions;
o the effects of any hostilities or act of war;
o salary costs;
o aviation fuel costs;
o competitive pressures on pricing (particularly from low-cost competitors);
o weather conditions;
o government legislation and regulation; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the Securities and Exchange Commission.
The Company is under no obligation to update, and will not undertake to update,
its forward-looking statements to reflect future events or changes in
circumstances.
36
Part I - Financial Information
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided
in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of ATA
Holdings Corp.'s Annual Report on Form 10-K for the year 2004.
37
PART I - Financial Information
Item 4 - Controls and Procedures
The Company conducted an evaluation (under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and Chief Financial Officer), pursuant to Rule 13a-15 promulgated under the
Securities Exchange Act of 1934 ("Exchange Act"), as amended, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of March 31, 2005. Based on this evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that, as of March
31, 2005, the controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by the Company in reports it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls, subsequent to the
date of the evaluation.
38
Part II - Other Information
Item 1 - Legal Proceedings
On the Petition Date, the Company and seven of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in
Bankruptcy Court. As debtors-in-possession, the Debtors are authorized under
Chapter 11 to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without the approval of the
Bankruptcy Court. As of the Petition Date, virtually all pending litigations are
stayed, and absent further order of the Bankruptcy Court, no party, subject to
certain exceptions, may take any action, again subject to certain exceptions, to
recover on pre-petition claims against the Debtors. In addition, the Debtors may
reject pre-petition executory contracts and unexpired lease obligations and
parties affected by these rejections may file claims with the Bankruptcy Court.
At this time, it is not possible to predict the outcome of the Chapter 11
process or its effect on the Company's business. No new material legal
proceedings have commenced during the time period covered by this interim
report. In addition, there have been no significant developments in the pending
legal proceedings as previously reported in the Company's Annual Report on Form
10-K for the year ended December 31, 2004.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
As a result of the Filing, the Company is in default and subject to immediate
acceleration of all balances under the terms of the agreements of certain of its
debt instruments, including its unsecured senior notes and ATSB loan. The Filing
also triggered defaults on substantially all lease obligations of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits
Exhibits are filed as a separate section of this report as set forth in the
Index to Exhibits attached to this report.
39
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATA Holdings Corp.
(Registrant)
Date May 12, 2005 by /s/ Gilbert F.Viets
----------------------
Gilbert F. Viets
Executive Vice President and
Chief Financial Officer
On behalf of the Registrant
Index to Exhibits
Exhibit No.
10.1 ATSB Lenders Settlement Agreement dated as of March 15, 2005 (incorporated
by reference to Exhibit 10 to Current Report on Form 8-K dated April 19, 2005)
10.2 First Amendment to Credit Agreement dated as of January 30, 2005 between
ATA Airlines Inc., a Debtor and Debtor-in-Possession under Chapter 11 of the
Bankruptcy Code, as the Borrower, ATA Holdings Corp., as guarantor, Ambassadair
Travel Club Inc., as guarantor, ATA Leisure Corp., as guarantor, Amber Travel
Inc., as guarantor, American Trans Air ExecuJet, Inc., as guarantor, ATA Cargo
Inc., as guarantor, Chicago Express Airlines, Inc, as guarantor, any other
subsidiary of ATA Holdings Corp., as guarantor and Southwest Airlines Co. as
Lender. (incorporated by reference to Exhibit 10.23 to Annual Report on Form
10-K dated March 31, 2005)
10.3 Second Amendment to Credit Agreement dated as of February 25, 2005 between
ATA Airlines Inc., a Debtor and Debtor-in-Possession under Chapter 11 of the
Bankruptcy Code, as the Borrower, ATA Holdings Corp., as guarantor, Ambassadair
Travel Club Inc., as guarantor, ATA Leisure Corp., as guarantor, Amber Travel
Inc., as guarantor, American Trans Air ExecuJet, Inc., as guarantor, ATA Cargo
Inc., as guarantor, Chicago Express Airlines, Inc, as guarantor, any other
subsidiary of ATA Holdings Corp., as guarantor and Southwest Airlines Co. as
Lender. (incorporated by reference to Exhibit 10.24 to Annual Report on Form
10-K dated March 31, 2005)
10.4 Third Amendment to Credit Agreement dated as of April 15, 2005 between ATA
Airlines Inc., as Debtor and Debtor-in-Possession under Chapter 11 of the
Bankruptcy Code, as the Borrower, ATA Holdings Corp., as guarantor, Ambassadair
Travel Club Inc., as guarantor, ATA Leisure Corp., as guarantor, Amber Travel
Inc., as guarantor, American Trans Air Execujet Inc., as guarantor, ATA Cargo
Inc., as guarantor, Chicago Express Airlines, Inc., as guarantor, any other
subsidiary of ATA Holdings Corp., as guarantor and Southwest Airlines Co. as
Lender.
10.5 Employment Agreement between ATA Airlines, Inc. and John G. Denison dated
March 4, 2005 (incorporated by reference to Exhibit 10.1 to Current Report on
Form 8-K dated March 7, 2005)
31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002