Republic Airlines Annual Report 1979

Contents
Highlights . .. ........... . ....... .. ................ . . .
About Republ ic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Report to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Traffic growth and performance . . . . . . . . . . . . . . . . . . . . . . . 6
Fleet development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
New facilities and services . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Social and environmental programs ........... . .... . .. 1 O
Jet fuel outlook . . ................... . .............. 11
Communications .. . ................. . ....... . ... . .. 12
Route development .... . .......... . ................. 14
The future .............. . .............. . .. . .. . ... . . 15
Route map ............. . ......... . ........ . ......... 16
Financial statements ........... . .. . ..... . ............. 18
Auditors' report ............ . . .. ...................... 21
Supplemental stockholder information . ........... . ...... 27
Five-year summary .. . ......................... . ...... 30
Board of Directors and Officers ........... . ....... . .... . 32
Highlights
OPERATING REVENUES
O PERATING PROF IT
NET EARNINGS .. . ....... .
NET EARNINGS PER SHARE - P rimary
WORKING CAPITAL FROM OPERATIONS .
RETAINED EARNINGS .....
STOCKHOLDERS' EQUITY
PASSENGERS ................... .
PASSENGER MILES ............. .
CARGO TON MILES
About Republic
Re public Airlines, the nation's newest
major carrier, was formed by the merger
of North Central Air lines and Southern
Airways on July 1, 1979. The company 's
principal function is to provide safe ,
dependable air transportation .
Each of the merged carriers had more
than 30 years of airline experience .
North Centra l, originally called
Wisconsin Central , inaugurated service
on February 24, 1948. Southern began
scheduled flights on June 10, 1949. The
two companies grew steadily and
assumed positions of leadership among
the regional carriers . Together, they
have earned $77 million in the last
five years .
Republic serves more cities- 158
- than any other airline in the country.
It flies to most of the nation's major
metropolitan areas and many intermediate -
sized cities in the Upper Midwest and
Southeast. The airline's 38,400-mil e route
system extends from New Eng land
1979
$ 609 ,230 ,000
$ 28 ,053 ,000
$
...................... $
...................... $
13,061 ,000
$.70
41 ,717 ,000
93 ,634,000
$ 145,514 ,000
12,156,000
3 ,846 ,805 ,000
32 ,324 ,000
to California, and from Canada to the
Cayman Islands in the Caribbean .
(See center pages.)
The airline ranks among the top ten U.S.
carriers in passenger traffic and operates
one of the largest commercial jet fleets
in the world . Republic carried 12.2 million
passenge rs and flew 3.8 billion passenger
miles in 1979 . The company's 107 jet-
powered aircraft- Boeing 727s , Doug las
DC -9s and Convair 580s- make over
1,100 departures daily.
Republic's 9,000 dedicated employees
offer the traveling public the finest type of
scheduled airline service .
1978 Ch ange
$ 487 ,565 ,000 25%
$ 42 ,809 ,000 (34)
$ 24 ,571 ,000 (47)
$1 .42 (51)
$ 57 ,806 ,000 (28)
$ 83 ,050 ,000 13
$ 113 ,288 ,000 28
11 ,143 ,000 9
3,364 ,094 ,000 14
28 ,062 ,000 15
ANNUAL MEETING
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2
To our stockholders, employees and friends:
We are pleased to report many
achievements for Republic Airlines
in 1979. Most notable is the formation
of the company by the merger of
North Central Airlines and Southern
Airways. Here are other highlights:
Revenues reached a record
$609,230,000, a 25 percent increase.
Earnings totaled $13,061 ,000 ,
in a year of escalating fuel costs
and substantial one-time
merger charges.
Passenger miles were up 14
percent to 3.8 billion . Passengers
carried were 12.2 million, a gain
of nine percent.
The system has grown to 38,400
route miles, with service to 158 cities.
13 DC-9 jets were added to the fleet.
$370 million was committed to
acquire 32 jet aircraft in a 30-month
period through 1981 .
Republic became the nation's newest
major carrier on July 1, 1979, when the
merger took place. It serves more
cities- 158-than any other airline in
the country and flies to 28 states,
the District of Columbia, Canada, and
the Cayman Islands in the Caribbean.
The complex program for the inte-
gration of the operations of the two
carriers is progressing well ahead
of schedule and will be completed by
the third quarter of this year.
In recognition of its accomplishments
in 1979, Republic was named
"Airline of the Year" by Air Transport
World magazine, a leading industry
publication. The company's
management and personnel were
cited "for their ability to construct this
new carrier to meet the challenges
of the '80s, while continuing to
fulfill their service obligation" to the
many communities on the system .
Previous recipients of the award
are Swissair, Delta Air Lines, Air France,
British Airways, Pan American World
Airways, and United Air Lines.
In 1979, Republic carried 12,155,644
passengers. Some 3.8 billion
passenger miles and 32.3 million cargo
ton miles were flown. The company
set a monthly record in August by serving
1,183,202 passengers, and a daily
mark on July 9 with 44,149 passengers.
To handle this traffic growth, 13
additional DC-9 jets were acquired
during 1979.
The $13.1-million profit was realized
although expenses included
substantial nonrecurring charges
related to the merger and an extensive
DC-9 inspection required by the
Federal government. Earnings
per share were $.70 primary, or $.68
fully diluted. The 1979 profit pushed
earnings for the last five years to $77
million.
Based on the company's strong
financial condition, the Board of
Directors declared a cash dividend
of $.20 per share payable March
17, 1980 to stockholders of record
March 3. Annual cash dividends have
been paid for the past eight years.
The airline added nonstop flights in
several important markets during 1979:
Chicago-Houston, Detroit-Memphis,
Atlanta-Washington , D.C. ,
Minneapolis/ St. Paul-Washington,
D. C., and Twin Cities-Atlanta.
Already in 1980, Republic has
inaugurated Twin Cities-Las Vegas,
Chicago-Nashville, Birmingham-
Tampa/ St. Petersburg / Clearwater,
and Omaha-Kansas City-Memphis
service. On April 1, Milwaukee-
St. Louis flights begin. Minneapolis/
St. Paul-San Diego and Detroit-
New York routes are being introduced
April 27.
To undertake this expansion, Republic
embarked on a $370-million fleet
development program that calls for
120 jet-powered aircraft-one of
the ten largest fleets in the world-by
the end of 1981 . This will include 90
DC-9s, seven Boeing 727-200s,
and 23 Convair 580s.
The first of the new Boeing 164-
passenger jets was received on
February 28, 1980. Two 727s enter
scheduled service on April 1,
bringing the company's fleet to 107
jet-powered aircraft.
Plans for future growth emphasize
additional "bridge routes" between
cities presently served by Republic.
Passengers from major hubs, and cities
beyond, can then reach their
destinations on direct flights or with
same-carrier connections. This
approach greatly improves passenger
convenience while increasing the
airline's share of the travel market.
Many opportunities lie ahead . The
company has the financial strength,
efficient aircraft, and skilled
personnel so vital to its progress.
Republic is confident that 1980- its
first ful l year of operation- will be a
solid beginning to a profitable decade.
Sincerely,
Hal N. Carr
Chairman of the Board
~~
Bernard Sweet
President and
Chief Executive Officer
March 7, 1980
Republic was named "Akline of the Year"
by Air Transport World magazine, a leading
industry publication.
3
4
Financial review
Republic Airlines earned $13,061,000
in 1979, and revenues reached a record
$609,230,000. The company, formed
by the merger of North Central Airlines
and Southern Airways on July 1, has
had earnings of $77 million over the last
five years.
Excellent results were achieved through
the third quarter of 1979. Heavy demand
for special fares , a strike against another
carrier, and strong business activity
had stimulated travel . In September, traffic
began to drop as escalating fuel prices
forced up fares and some segments
of the economy experienced a slowdown .
Republic's $609 million in revenues
showed a 25 percent increase, compared
to the $487,565,000 for the combined
companies in 1978. Operating expenses,
including depreciation and amortization,
rose 31 percent to $581 ,177,000 from
$444,756,000.
At the time of the merger, Republic
recognized the extended life expectancy
of the DC-9 jet aircraft and revised the
estimated depreciation, which reduced
expenses. However, substantial non-
recurring charges related to the merger
and an extensive DC-9 inspection
required by the Federal government added
to expenses. The operating profit was
$28,053,000, down 34 percent from the
$42,809,000 the previous year.
The acquisition of jet aircraft in 1979
generated considerable investment tax
credits. These offset current Federal
and State income taxes and some
previously deferred taxes, resulting in
MAJOR FACTORS OF CHANGE IN REVENUES AND EXPENSES
The table below summarizes major
changes in revenues and expenses
which have occurred in Republic's
operation over the past two years.
Under operating revenues , traffic
gains combined with higher fares
generated a $119 .6-million increase
in passenger revenues . The
introduction of new nonstop routes ,
promotional fares , and additional
DC-9 jets contributed to the 21 percent
increase in scheduled passenger
miles. The average yield per
scheduled revenue passenger mile
increased 7 percent as a result of
fare increases .
Public service revenues rose $9 .8
million under a revised formula
which compensates the company for
providing service to small communities .
MAJOR FACTORS OF CHANGE
Operating revenues
Of this amount , $3 .1 million was
retroactive to 1978. (See note I of
Notes to Financial Statements.)
Charter activities were greatly
curtailed in 1979 because these aircraft
were needed for the expansion of
scheduled service . While charter
revenue declined $9 .7 million , freight
and mail revenue increased
$7.4 million due to increases in rates
and aircraft capacity. Other revenues
declined $5 .4 million .
Operating expenses were up $136.4
million . Labor and employee benefits
which rose $53 .9 million accounted
for 40 percent of the increase. Besides
salary and benefit increases in 1979,
some 1,300 employees were added.
The $52 .4 million of additional jet fuel
costs represented 38 percent of the
Net Changes
1979-1978 1978-1977
Passenger miles .......... . $ 86,600,000 $98,700,000
Passenger fares .. ..... . ........ . 33,000,000 (7,900,000)
Public service revenues ..... . 9,800,000 (1,800,000)
Cargo and other revenues (7,700,000) 9,900,000
Net revenue changes 121 ,700,000 98,900,000
Operating expenses
Labor and employee benefits .. ... . 53,900,000 34,800,000
Cost of jet fue l .............. . . ... . 52,400,000 13,900,000
Other operating expenses . . .. . 30,100,000 35,200,000
Net expense changes ...... .. . 136,400,000 83,900,000
Changes in operating profit .. . (14,700,000) 15,000,000
Other expenses (income) ......... . 4,000,000 10,900,000
Income taxes ................... . (7,200,000) 2,600,000
Changes in net earnings ..... . $(11 ,500,000) $ 1,500,000
increase . Route expansion and
higher aircraft utilization increased
jet fuel consumption by 22 .6 million
gallons , and the price of jet fuel
nearly doubled to $. 76 per gallon
by the end of 1979.
Maintenance parts , supplies and
service expense rose $8.2 million due
to increased aircraft maintenance ,
including an extensive DC-9 inspection
required by the Federal government.
Rent and landing fees rose $4.1 million
and outside service expense, $4.9
million . Passenger commission
expense was up $6 .1 million, reflecting
the industry trend of increased
travel agency sales. Many other
operating costs reflected the expanding
operating levels and inflationary
pressures .
Included in other expenses (income)
is the increase in interest expense
of $7.8 million from 1978 to 1979. This
relates to the additional borrowing to
finance aircraft and the increase in
prime interest rates . This was partially
offset by a $4 .4-million increase in
capitalized interest on predelivery
deposits for new aircraft. (See notes
B and E of Notes to Financial
Statements.)
Substantial investment tax credits
generated in 1979 from the
acquisition of jet aircraft offset both
current and previously deferred income
taxes , resulting in a tax credit of
$1 . 75 million in 1979 and a reduction
of income tax expense of $7.2 million .
The combined effect of these changes
was a reduction in net earnings of
$11 .5 million for 1979.
an income tax credit of $1 ,750,000
for 1979. The net earnings of $13,061 ,000
were equal to $.70 per share primary
or $.68 on a fully-diluted basis. A year
earlier, the company had income
tax expense of $5,464,000 and earned
$24,571 ,000 or $1.42 per share primary,
and $1 .31 fu lly diluted.
Stockholders' equity was up 28 percent
to a record $145,514,000. Based on
20,620,000 shares of common stock
outstanding, book value was S7.06 per
share and $6.93 per share in 1978.
Republic now has retained earnings
of $93,634,000-more than any other
regional airline. The availabi lity of these
funds to the company has contributed
greatly to the airline's rapid growth.
Expanded operations and inflation
pushed up operating expenses 31 percent.
Wages, fringe benefits and payroll
taxes rose 28 percent to $249,535 000.
Interest expense was $26,497,000, as
the prime rate reached a record high
and the company increased borrowing
to finance new aircraft. Jet fuel , which
nearly doubled in price accounted for
$132 385,000 of expenses.
The company's five-year traffic and
financial data is summarized on Page 31 .
Supplemental stockholder information,
including Quarterly Statements, begins
on Page 27.
After concluding an extremely significant
year with reasonable earnings, RepufJlic
looks ahead to the challenges of the
future . With anticipated revenue growth
and stringent cost control, the company
expects continued profitability in 1980.
5
Traffic growth and performance
In 1979, Republic Airl ines carried
12,155,644 passengers over 3.8 bi llion
passenger miles , and flew 32 .3 million
cargo ton mi les in 1979. Passenger
boardings were up nine percent ;
passenger miles, 14 percent ; and cargo
ton mi les, 15 percent.
These increases are attributable to
the benefits derived from merg ing the
northern and southern route systems ,
introduction of new service , increased
capacity from new DC-9-50 jets ,
and the high demand for special fares .
The 1,183,202 passengers carried
in August 1979 set a monthly record .
On July 9, a daily high was ach ieved
when the airli ne boarded 44 ,149
passengers .
In addition to scheduled service ,
Republic flew 124,924 passengers on
charter trips during 1979. These
operated to 31 states , plus such
diverse points as Montego Bay and
Nassau in the Caribbean, and Ottawa
and Yellowknife in Canada . During
peak travel periods , 312 extra sections
of scheduled flights carried 79 ,479
travelers .
Passenger gains were substantial for
the first eight months of 1979. By
September, constantly rising fuel costs
brought on fare increases which
adversely affected leisure travel .
Business traffic also slipped as some
industries felt the effects of inflation
and the slugg ish national economy.
Cargo sustained its upward trend
in 1979. The 32 ,324 ,000 cargo ton
mi les flown - including freight , express
and mai l-were 15 percent ahead
of 1978. Freight and express ton miles
rose 10 percent , while mail ton miles
were up 28 percent.
Popularity of the airline's VIP small
package service grew as volume
climbed 27 percent over 1978. The
expedited handling afforded by VIP,
which can include pickup and delivery,
has proven valuable for shippers of
medical supplies, documents, news
films , electronic data processing
equipment , and machine parts. More
than 170,000 VIP parcels were
shipped in 1979.
Republic has established high goals
for flight completion and on-time
performance . During 1979, the airline
flew 79 ,305 ,000 of its 82 ,656 ,000
scheduled miles for a completion
factor of 96 percent. This is somewhat
below the operating records
established in previous years due
primarily to a special government-
directed inspection affecting DC-9
aircraft , together with unusually
severe weather in the early part
of the year.
The performance record reflects the
work of everyone involved with
day-to-day operations , and Republic
is determined to maintain its position
as an industry leader in providing
dependable scheduled air service.
The company has new facilities at the Sarasota I Bradenton terminal which opened in December 1979.
Passenger Service Agents Mary Jansen and Ron Bishop check in passengers at the counter.
REPUBLIC
The first Boeing 727-200 jets in
Republic colors enter scheduled
service on April 1. The 164-passenger
727s are part of the company's
fleet development program involving
the acquisition of 32 jet aircraft
in a 30-month period.
Fleet development
At the time of the merger on July 1,
1979, Republic's fleet consisted of 68
DC-9s 23 Convair 580s and eight
Swearingen Metro I ls-a total of 99
aircraft . The company then embarked
on an extensive fleet development
program which involved the acquisition
of 32 additional jets within a 30-
month period .
The airli ne is purchasing the Boeing
727 for the first time, and seven have
been ordered . The other 25 aircraft
are Douglas DC-9 jets . Republic
has comm itted $370 million to this
aircraft program.
Fifteen of the DC-9 jets are already
delivered , and two wi ll arrive later in
1980. The first 727 was delivered
in February 1980, and another is
coming in March . Both of the new 164-
passenger tri-jets enter scheduled
service on April 1, 1980. Two more 727s
are due by September.
In 1981 , Republic wi ll be introducing
the DC-9-80, the quietest and most
fuel-efficient jet on the market today.
Eight are on order, and all are to be
delivered next year. Also , three
Boeing 727s arrive in March 1981 .
Republ ic's fleet wh ich already ranks
as one of the ten largest in the world ,
is projected to include 120 aircraft
by the end of 1981-seven 727s.
90 DC-9s and 23 Convair 580s .
The new aircraft have greatly improved
existing service and also enabled
the company to add new routes .
Because the 727s use the same basic
Pratt & Whitney jet engine as the
DC-9s , no major changes have been
required for maintenance purposes .
The progressive modular maintenance
system developed by the company
has been studied and adopted by
many airlines around the world.
Republic does virtually all of its own
maintenance work , thereby reducing
dependence on vendors to meet quality
standards . To assure operating
reliability and performance , the
company employs over 1 200 licensed
and highly trained mechanics and
technicians .
The program to install wide-body
interiors on earlier DC-9 jets is we ll
underway. ::nclosed overhead luggage
compartments and improved lighting
provide passenger benefits . Bright
side panels and a new decor give the
aircraft a more spacious look. The
changeover is to be completed in 1980.
Supplemental fuel tanks have been
installed in some DC-9-30s , giving
them longer-range capabi lity, wh ich is
also useful for charters . Several new
DC-9-50s are equipped with auxiliary
fuel tanks . Because the 727s have
three engines , they can travel farther
and perform well at high-altitude airports.
Th is comprehensive fleet development
program assures that Republic will have
dependable , versati le, and efficient
equ ipment to serve the public, while
earn ing a reasonable profit for
the company.
7
8
New facilities and services
Republic Airlines takes pride in
ca~rying on a tradition of high service
st8ndards. Working in cooperation
with civic leaders, the airline made
numerous improvements In facilities
throughout its system in 1979.
New terminal buildings were completed
at International Falls, Rh inelander/
Land O'Lakes , Hibbi ng /Chisholm ,
Sarasota Bradenton , and Huron .
Construction was begun on an addition
to the terminal at Minneapolis/St. Paul .
Republic wi ll transfer its operation
to the new Green Concourse and
occupy ten gates . The Concourse ,
which was extended 800 feet , is
scheduled for occupancy April 1. At
Hartsfield Atlanta International
Airpor , a completely new terminal is
being built , a third main runway
added , and a modern people-moving
system installed . Republic will move
into A1rside D on September 1.
Terminals were remodeled at Bismarck/
Mandan , Devils Lake , Kalamazoo/
Battle Creek , and Memph is .
ew enlarged space was secured for
passenger service at airport facilities
In Chattanooga, Meridian and
New York La Guardia . At Madison,
Republic Is the first airline to provide
a gate area passenger lounge . The
company has new information centers
at Chicago O'Hare and Memphis,
and has added a new passenger service
counter and station facilities in the
Tucson terminal. Baggage facilities
were improved at Iron Mountain/
Kingsford , Memphis , Eglin AFB ,
Jackson (MS) and Chicago.
Cargo operations , a substantial
revenue-producer for Republic , also
required expanded quarters. Construction
has begun on a new cargo building
In Birmingham . At Huntsville/Decatur,
Republic has acquired a larger
cargo area . New cargo facilities are
planned for St. LOUIS, Memphis
and Tallahassee .
Several changes were made to
accommodate new or additional jet
service All gates at Detroit now
have Jet bridges. and new jetways were
installed at Eglin AFB , Fargo
Moorhead . International Falls and
H1bb1ng Chisholm .
Improved passenger security and
convenient screening resulted from
he ins al la I0n of x-ray uni s for
carry-on luggage inspection at
l<alamazoo/ Battle Creek, Traverse City
and Wausau/ Stevens Point . New
walk-t hro ugh metal detectors were
added in Greenville (SC) / Spartanburg ,
Minneapolis/ St. Paul, Milwaukee ,
Green Bay/ Cl intonville, and
New Orleans .
The company 's three Re servations
Centers - Minneapolis , Atlanta and
Detroit - were substantially expanded .
The airline hired over 100 reservatio ns
agents, bringing total personnel in thi s
department to nearly 900 . By year-end,
the reservations staff was answering
more than 275,000 calls a week .
ESCORT, the company's com puterized
reservations system , automatically
prints and prices a greater variety of
tickets and iti neraries . Improved
computer processing of booking s from
other airlines resulted in 180,000 fewer
messages to be entered manually -
freeing agents to answe r more
telephone ca ll s.
Two new IBM Central Processing Units
were acquired in 1979 to handle the
company's volume of passenger
reservations. One is the prime ESCORT
The Green Concourse at
the Minneapolis-St. Paul
International Airport has been
substantially expanded.
Republic will occupy 10 gates,
with new areas for passenger
service and ground operations.
computer, and the other is the "backup"
computer usable for ESCORT and
SCEPTRE, Republic's maintenance and
corporate data system . This represents
$6 million of equipment. The
SCE PTRE program includes on-line
tracking of all major aircraft parts
for maintenance and repair. Several
other airlines have pu rchased this
program . Revenues received from the
sal e of computer time and software
programs totaled $750,000 in 1979.
Customer Service Representatives are
now ass igned to Republic's Flight
Control Center. When weather and
other factors cause irregular operations ,
these representatives provide flight
superintendents with inform ation relating
to passenger service . They determine
the number of connecting passengers ,
the passenger inconvenience involved
wi th special stops or overflights , and the
need for extra sections . They also
arrange for alternate forms of transpor-
tation and estimate loss of passengers
due to flight delays . Flight control
decisions are first based on safety.
Then passenger convenience is
considered , and finally economic impact.
The increased needs of the expanded
airline required many changes in
administration facilities . At the company's
Minneapolis/ St. Paul headquarters , the
lower level was transformed from storage
space into offices and classrooms . The
Flight Crew Training Department was
moved to Atlanta to make full use of the
excellent facilities there and the area's
more moderate climate . Various
functions , such as baggage claim service
and cargo accounting , have been
consolidated at one location .
The company is continually evaluating
its facilities so improvements and
add itions can be made on a timely basis
to meet the airline's changing needs .
The Flight Crew Training Center is located in Atlanta where the climate is moderate
and the company has excellent facilities. Instructor William McCarty exp/ams
OC-9 hydraulic systems to First Officer Elwyn Gaissert and other pilots.
9
10
The company's employment practices
follow Affirmative Action guidelines
approved by the Federal Aviation
Administration. Republic hired
over 1,300 new employees in 1979.
Many are among the nearly 900
people who handle 275,000 calls a
week at Reservations Centers in
Detroit (right), Atlanta and Minneapolis /
St. Paul. (Shown are Elizabeth
Hockney and William Plumb.)
Social and environmental programs
Republic Airlines is firmly committed
to fulfilling its obligations as a
responsible corporate citizen . Through
fuel conservation , noise abatement,
safety, educational assistance
and extensive employee programs ,
the company is directly involved with
the diversified needs of a complex
society.
Employees are the airline 's greatest
resource . Republic has 9,000 people ,
most of them with proven technical
skil ls and many years of experience
in the airline industry. About 1,300
new employees were selected in 1979
from over 100,000 applicants .
Affirmative action guidelines , reviewed
and approved by the Federal Aviation
Adm inistration (FAA) , are followed in
the hi ring process .
Republic provides many outstanding
benefit programs for its employees ,
including group life insurance , medical
coverage , and pensions. Specialized
programs are offered , such as the
Idea Dollars suggestion system ,
management training , care for
chemical dependency, and educational
assistance .
Safety, always a prime concern
to the company, was emphasized by
each division . Corporate safety
committees coordinate programs and
respond to Federal regulations by
developing new plans . For example ,
the airline s hazardous materials
training was expanded , after approval
by the FAA . Fl ight crews , flight
superintendents , stock clerks .
passenger service agents and station
agents received this specialized
trai ning .
Environmental matters are also of
great importance to the airline's
operation . Republic 's extensive route
system covers 28 states , the District
of Columbia , two Canadian provinces
and the Cayman Islands in the
Caribbean .
The company has been very active
in programs to reduce aircraft noise
and its effect on comm unities the
airline serves . Substantial effort
is being devoted to noise studies and
environmental impact statements.
Frequent meetings are held with local
airport noise and environmental
groups to advise them of Republic's
operational policies and to keep
informed on the communities ' views.
The Flight Operations Division , which
coordinates this activity, also works
with FAA air traffic controllers to divert
aircraft noise to less-populated
areas-by designating certain runways
for takeoff and special flight paths for
landing aircraft. Repub lic was a leader
in the development of the new noise-
abatement takeoff and landing
procedures adopted by the FAA as
the standard for all airlines .
Over the next several years , the
company will be replacing many of
the smaller DC-9 jets with the much
quieter DC-9-80s .
The airline 's weather reporting system
was enlarged in 1979 to provide
weather data for 1,500 cities. Flight
crews , flight superintendents , station
agents , and passenger service agents
now have access to this additional
information and other improvements
which upgrade the flexibility and
reliability of weather data processing .
Fuel conservation measures also
apply to ground facilities . In the
company 's headquarters , for
example , equipment which reclaims
heat generated by computer
equipment was installed during a
recent remodeling program . The entire
cost of the system will be realized in
about three years with energy savings
at 1979 prices .
Republic believes that prudent use of
resources and concern for the
environment are vital to the
company 's progress .
Jet fuel outlook
Of critical concern to Republic is the
jet fuel supply situation and escalating
costs . During 1979, the company had
to intensify fuel conservation
measures and locate new sources
of supply. Although prices rose
significantly throughout the year,
related fare increases lagged several
months beh ind .
As the supply of crude oil and imported
products decreased , less jet fuel
was available, and contract suppliers cut
their allocations to the airlines. Republic
then had to buy some of its jet fue l in
the retail " spot market" where a
minimum purchase is usually a million
gallons , and the price is considerably
higher than contract fuel . About 13
percent is now acquired in this manner.
The average price per gallon in
December 1979 was 76 cents, nearly
double the 40 cents in December 1978.
To fly the present 20.5 million seat miles
a day, Republic jets requ ire 650,800
gallons of fuel , or 31 .5 seat miles per
gal lon . To meet that need , Republic
purchases contract jet fuel at 79
locations throughout the system under
95 individual allocations from many
different vendors . At one city, fuel
is supplied by five companies.
Republic and other carrie rs in the
industry have continued to make
significant progress in fue l
conservation . These concerted efforts
began in 1973 du ring the initial fuel
crisis . According to the Air Transport
Association, airline traffic has increased
nearly 50 percent in th is period ,
but fue l use is up only five percent.
Flight Attendants June Haugen
(right) and Kathy Co!!ias serve
passengers in flight. Since 1973,
U.S. airline passenger traffic has
increased nearly 50 percent, but
fuel consumption is up only
five percent. Republic and other
airlines are continuing to make
more efficient use of jet fuel.
To reduce its fu el cons umptio n and
increase operating efficiency, Republic
made furth er re fin ements in aircraft
ope rating proced ures and routings .
In add ition , lighter-weight seats are
being used, and passenger capacity
has bee n increased on some DC-9s .
The airli ne is also benefiting from the
latest tec hnological developments
as new DC-9-50 and Boeing 727 jet
aircraft are delivered .
Republic keeps accurate detailed
information on fu el in its com puterized
Fuel Inventory Management System
(FIMS). Th is provides data for long-
range planning and the day-to-day
operation. Recent im provements
pe rmit even greater flexibility in
re porting .
The company also has com puterized
information allowing Flight Control
to calculate fuel requ irements
by flight segments . This is 'tailored "
to the aircraft 's ty pe of engine, fuel
capacity and seating configuration .
Knowing th e fuel needed an d the
inventory at refueling stations ,
planners can better utilize the supply.
To insure jet fuel availability in the
future, the com pany is pursuing
several courses . Direct purchases are
being made from a greater number
of indepe ndent refineries , which
usually limit delivery to nearby locations.
Th e com pany is considering purchase
of prod ucing oil wells, financing of
indepe nde nt oil exploration, or
acquiring an interest in a refinery-
thro ugh partial ownership or by
underwriting conversion costs to
produce jet fuel .
Communications
A highly effective communications
program was carried out in 1979. Public
a areness of Republic Airlin es was
assured through well-researched
mar eting and advertising activiti es ,
and emplo ees ere kept informed of
compan y developments .
The advertising campaign introducing
Republic was launched on June 28 ,
1979. Ads ran in 172 newspapers and
25 magazines , and on 124 radio
stations and 109 television stations
across the nation .
The approach-emphasizing the merger
of two establ ished carriers-was
chosen. Research had indicated that
the publi c placed confidence in a large
airline with experience. For authenticity,
visual ads featured Repub li c
emp loyees . One of the coun try's top
commercial musicians wrote original
music for radio and TV spots .
The "Americana" style was selected
to represent the transcon ti nental scope
of Repub lic.
A nationally-known testing service
reported that Republic's TV commercials
demonstrated "outstanding performance
in attracting viewer attention." Another
research firm learned that 93 percent
of the people surveyed knew of
Repub lic Airlin es . They concluded that
"Awareness of advertising , on an
unaided basis , placed Republic and
one other airline at the top of
the industry."
Public relat ions activities were
coord in ated with the advertising effort.
About 2,000 press kits containing news
items, feature material and photographs
we re distributed to national and
reg ional pub li ca ti ons. Te levi sion and
radio stations also received taped
presentations on th e new company.
The visual aspects of the change to
Repub lic started on Ju ly 1 and were
completed in a few days. Temporary
signs were put on equipment and
fac ili ties until overall design standards
cou ld be implem ented . To reduce
expenses , major changes at some
places were delayed to coincide with
planned remodeling or re location .
Corporate design standards apply to
aircraft, ground support equ ipment,
bu ildings , billboards, printed materials,
uniforms and all other items viewed
by the publi c.
To support the advertising and publicity
activiti es , the sal es staff made over
48,000 calls on travel agencies and key
industrial accounts . Unique mai lings
also kept them informed of merger
developments and ottered special
information and ass istance . Officers ,
station managers and other emp loyees
participated in 1,450 civic events.
More than 7,000 visitors received
guided tours of Republic's headquarters
in Minneapolis/ St. Paul . Anothe r
10,700 guests attended public functions
held in the emp loyee cafeteria.
The airlin e's in/li ght magazine was
expanded and renamed Republic
Scene . Each issu e of th e monthly
publicati on carries one story about
th e co mpany, along with numerous
other articles of general interest.
Presentati ons for employees were made
at major cities, prior to the July 1 merger,
with corpo rate officers available to
answer questions . Telety pe messages,
letters, special mailin gs and a toll-free
telephone line kept communications open.
A mon hly newspape r for emp loyees ,
Republic People, was introduced after
th e merg er, and also a weekly
newsletter ent itled Extra Section . A
feedback program , " Direct Approach ,"
perm its employees to phone or write
directly to the general office with
any comments or questions .
Through the successfu l communications
efforts of the company, emp loyees
and the public are we ll aware of th e
identity and progress of Republic Airlines.
Employees were featured in advertising announcing he formation of Republic
Ajrfines. A comprehensive program emphasized that the name was new,
but the company was a combination of two experienced airlines.
3
14
Route development
Primary factors affecting the
company's route development in 1979
were the merger which formed
Republic and the Airli ne Deregulation
Act of 1978.
With the merger on July 1, 1979, a
unique aviation network resulted .
Virtually every major city in the Upper
Midwest was linked with simi lar
metropolitan commun ities in the
Southeast, so travelers could move
between the two areas without
chang ing ai rli nes . Therefore, the
company's route development program
in 1979 focused on securing nonstop
" bridge routes " connecting the two
geog raph ic reg ions .
On October 28, Republic began to
integrate flight schedules between the
northern and southern route systems.
This provided more single-plane
service , better connections , and
additional capacity. Also , nonstop
service was inaugurated between
Minneapolis/ St. Paul and Atlanta.
These changes benefited southern
passengers traveling to hubs such as
Minneapolis/ St. Paul , Detroit and
Toronto, while people in the northern
states had improved service to Atlanta,
Memphis and New Orleans.
In subsequent months, more refinements
were made to schedules . On March 1,
Las Vegas is the most recent addition to Republic's system. Convenient nonstop
flights connect the famous vacation area with Minneapolis and St. Paul.
1980, new service was introduced :
Chicago-Nashville , Omaha-Kansas
City-Memphis, and Birmingham-
Tampa/ St. Petersburg/ Clearwater.
On April 1, Milwaukee-St. Louis service
begins. As demand grows and
markets develop, more bridge routes
will be added.
By improving connections from
intermediate-sized cities to major hub
areas, Republic makes travel more
convenient for passengers and carries
them farther. This approach increases
revenues, while reducing passenger-
handling costs .
As a result of the Airline Deregulation
Act, significant expansion occurred .
Early in 1979, service was inaugurated
on the Chicago-Houston, Detroit-
Memphis, and Atlanta-Washington,
D.C. routes. Later in the year, the Civil
Aeronautics Board began granting
route authority to any "willing and able"
applicant. Republic used this expedited
procedure to connect Minneapolis/
St. Paul with Washington, D.C.
Two long-standing route applications
were favorably concluded in recent
months. The first authorized Twin Cities-
Las Vegas nonstops, and flights
began January 15, 1980. The other
application involves Minneapolis/
St. Pau l-San Diego service, and this is
scheduled to start April 27. Local
environmental studies delayed entry
into San Diego.
Additional changes on April 27 primarily
affect the Michigan area. Republic
is scheduling Detroit-New York City
nonstops and increased service
connecting Grand Rapids , Lansing and
Saginaw/ Bay City/ Midland with Detroit
and Chicago . The airline has served
these cities for nearly 20 years .
By actively participating in CAB route
cases , Republic has been awarded a
great number of routes in the United
States and also authority to overseas
points. With this potential and
Republic's strong financial resources ,
new markets will be carefu lly selected
to assure improved passenger service
and productive, stable growth .
New Chicago-Nashville nonstop
flights began March 1, 1980.
Republic Skycap Stanley Seals
offers "curbside" baggage check- in
at Nashville.
The future
The full impact of deregulation in the
airline industry is still unclear, and fuel
continues to be a major concern .
However, Republic is expecting
continued growth in the months ahead .
The company will concentrate on
developing markets within its system .
This approach is the most economical
way to accomplish expansion because
facilities and staffing are established .
Nonstop service between cities
Republlc is already serving will be
vigorously promoted . When new
destinations are added , they will be
lucrative , long-haul routes.
As the nation 's economy regains
momentum , business and leisure travel
should stabilize and gradually
increase . Demand for seats and cargo
space will push 1980 revenues close
to a bi llion dollars , while cost control
programs hold down expenses .
The airline has virtually unlimited
potential in the decade of the '80s ,
and " the people " of Republic are
confident the company will be a strong ,
profitable carrier.
15
WINNIPEG
LAS VEGAS
SAN DIEGO
TUCSON
GRAND CAYMAN
Balance sheets
18
ASSETS
CURRENT ASSETS
Cash and short-term investments (note C) ... . ... . .............. .
Accounts receivable , less allowances .. . .... . . . .......... . . ... .. .
Flight equipment parts and supplies (notes A and C) . .. ....... ... .
Prepaid expenses and other (note A) . . . . .. . ... .. .. .. . . . ... ..... .
PROPERTY AND EQUIPMENT-at cost (notes A, C, D, E and I)
Flight equipment . . ... .. ... .... . .. . . . .. . . ...... . . . ............. .
Ground property and equipment ....... . .. . .. .. .. . .. . ... . . ... . .. .
Less accumulated depreciation and amortization .. .... . .. . ...... .
Advance payments on equipment ... . .. . .. . ... . .. . .. . ... . . . . .. . . .
DEFERRED CHARGES AND OTHER ASSETS . .. .. . . . ..... . . . .. . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (note C) . . ... ......... ... ... .
Accounts and notes payable (note C) . . .. . ...... ... .... . .. . .. . . . .
Interline payables and tickets outstanding (note A) .. . . ... . . .. .... .
Accrued compensation and other expenses . . ... . .. . .... .. . .. . .. .
Income taxes (notes A and F) . . .... . . . .. . ............ .... . ..... .
LONG-TERM OBLIGATIONS
Long-term debt - less current maturities (note C)
Deferred income taxes and other (notes A and F)
COMMITMENTS (notes D and E)
STOCKHOLDERS' EQUITY (notes C, G and H)
Common stock - authorized 30,000,000 shares of $.20 par value ..
Add ition al paid-in capital . ..... . . ..... . . ...... . .... .. . .... .. . ... .
Retained earnings ............ . ........ . .... ,. .................. .
Treasury stock- at cost .... . . .. ... .. ....... . ....... .. ... .. . ... . .
The accomp anying notes are an integral part of these statements.
REPUBLIC
December 31
1979
$ 13,178,000
84,820,000
30,771 ,000
15,922,000
144,691 ,000
436,734,000
74,177,000
510,911 ,000
146,554,000
364,357,000
35,275,000
399,632,000
5,058,000
$549,381 ,000
$ 18,219,000
40,183,000
37,918,000
39,390,000
520,000
136,230,000
263,035,000
4,602,000
267,637,000
4,151 ,000
48,109,000
93,634,000
(380,000)
145,514,000
$549,381 ,000
1978
$ 33,399,000
46,232,000
16,223,000
11 ,910,000
107,764,000
344,184,000
63,296,000
407,480,000
125,450,000
282,030,000
32,024,000
314,054,000
6,606,000
$428,424,000
$ 24,157,000
25,731 ,000
27,797,000
29,925,000
3,061 ,000
110,671 ,000
196,637,000
7,828,000
204,465,000
3,297,000
27,321 ,000
83,050,000
(380,000)
113,288,000
$428,424,000
r,1
AIRLINES, INC.
Statements of earnings
Year ended December 31
1979 1978
OPERATING REVENUES
Passenger (note A) . .. . ... . ... . . . ... ............ .... . . . . ..... . . . $527,792,000 $408,243,000
Freight and mail ... . . . . . . . . .. .. . . . ... . . .. .. . . . . ... . ... . . . .. . .. . . 41 ,510,000 34,062,000
Public service revenues (note I) .. . . . ........... . ..... . . . .... .. . . 26,362,000 16,523,000
Non-scheduled service and other . . ... .... . . . . .. ...... . .. .. . . ... . 13,566,000 28,737,000
609,230,000 487,565,000
OPERATING EXPENSES
Flying operations ... . . . . . . ... . . . .... . ....... . .... ... . . ... . .. . .. . 211 ,260,000 144,106,000
Maintenance .. . . .. . . . ....... . . . . . . . ... . ... . . .. . .. ............ . . 70,436,000 54,774,000
Aircraft and traffic servicing ..... . .......... . .. . . ... . ... . . . . . .. . . 128,059,000 103,789,000
Passenger service . . . . ......... . . .......... . .. . . . ......... . ... . . 43,782,000 30,467,000
Reservations , advertising and sales . ......... .. .............. . . . 66,300,000 46,093,000
General and administrative . ...... . ........ . ....... . .... . ... . .. . . 28,054,000 24,468,000
Other transport-related expenses . .. . ..... . .. ... .. .. . . . . . . .. . ... . 3,846,000 11 ,806,000
Depreciation and amortization (notes A and I) 29,440,000 29,253,000
581 ,177,000 444,756,000
Operating profit .. . ............ . .... . .......... . . . . . . .. .. . 28,053,000 42,809,000
OTHER EXPENSES (INCOME)
Interest expense .................................... . .... .. ... . 26,497,000 18,688,000
Less interest capitalized (notes A and B) ... . ....... . . .. .. . . . .... . 6,375,000 2,015,000
20,122,000 16,673,000
Interest income and other - net ....... . ... . . . . . ................. . (1,378,000) (2,593,000)
Gain on disposition of equipment . .. .. .. ... ... ...... . ... . . . ..... . (2,002,000) (1,306,000)
16,742,000 12,774,000
Earnings before income taxes . ... ... ... . ... . . .. .. . . . . .... . 11 ,311 ,000 30,035,000
INCOME TAXES (notes A and F)
Current ... . ............ .. ......... . ..... . . . . . ...... . ..... . .... . 706,000 2,724,000
Deferred ........ . .. .. .. . . . ... .. .. . .. . ..... . . .. .. . . . .. . .. .. .... . (2,456,000) 2,740,000
1,750,000) 5,464,000
NET EARNINGS . . . . .. .. . . . . ......... . .................. . $ 13,061 ,000 $ 24,571 ,000
NET EARNINGS PER SHARE (note K)
Primary ......... . ... ...... .. ...... . . . .. .... . .. . .... . .. . $ .70 $1.42
Fully diluted .......... .. . . .. . ........ . ................. . $ .68 $1 .31
The accompanying notes are an integral part of these statements.
19
20
Statements of changes in financial position
SOURCES AND APPLICATIONS OF WORKING CAPITAL
SOURCES
From operations
Net earnings ... . .. . ........ . . . .......... . ...... . .. . .. .. . . ..... .
Charges (credits) to earnings not using (providing) working capital
Depreciation and amortization .... ... ... .. ... . . .. ..... . .... .
Deferred income taxes . . ... . .. .. . . ... .. .. .. . . .... . .. .. .... .
Other .... . . ........ . .. .. ... . .. . .. . ..... . .. ... . .. ...... . . . .
Working capital provided from operations .. . ............ .
Net book value of equipment dispositions ...... .. .. . ............. . .
Increase in long-term debt . . . .... .. . . .. .. . . .. . ... . ... .. .... . . .. . . .
Conversion of debentures to common stock ..... .. . . . . .. .. .. . ..... .
Options and warrants exercised ... . . .. ......... . .. . .. . .......... . .
Other ... . . .. . . . . .. . . .... . . .... ........... . .. . .. . .............. . .
APPLICATIONS
Additions to property and equipment .. . .............. .. . .. ........ .
Reduction of long-term debt .. .. .... . .... . .. .. . .. ..... . . . .. . .. . .. . .
Conversion of debentures to common stock .. . . .. . .. .... . . .... .. .. .
Payment of cash dividend ......... . . . ..... . .. .... .. . ...... . .. . ... .
Additions to deferred charges and other assets . . .... . ... . . . . . ..... .
INCREASE IN WORKING CAPITAL ... . .......... . . . ... .
Working capital (deficit) at beginning of year ..................... .. . . .
Working capital (deficit) at end of year ... . .. . ..... .. . ... . ....... ... . .
NET CHANGE IN WORKING CAPITAL ELEMENTS
Increase (decrease) in current assets
Cash and short-term investments ...... . . . .. .... . ....... .... .... .
Accounts receivable ...... . ...... . ........ . . .. . . .... . .. . .. . .... .
Flight equipment parts and supplies .......... . . .... ......... ... .
Prepaid expenses and other . ... ... . .... . . . . . . . .. .. . . . . . ...... . .
Net change in current assets .. .. . . .. .. ...... ... ....... . . . . . .
Increase (decrease) in current liabilities
Current maturities of long-term debt . ...... . .. . .... . . .. ...... . . . .
Accounts and notes payable ......... . .. . .......... . ....... . . .. .
Interline payables and tickets outstanding .......... . ..... .. . . ... .
Accrued compensation and other expenses ...... .. ....... . .... . .
Income taxes ... . .. . . .. . ...... .. . ....... . .. ... .. . ... .. ....... . .
Net change in current liabilities ..... . ... . ..... . . . . .. ...... .. .
INCREASE IN WORKING CAPITAL ...... . .. . ...... ... . .
The accompanying notes are an integral part of these statements.
Year ended December 31
1979 1978
$ 13,061 ,000 $ 24,571,000
29,440,000 29,253,000
(2,220,000) 2,714,000
1,436,000 1,268,000
41 ,717,000 57,806,000
2,159,000 7,018,000
187,797,000 105,998,000
7,864,000 1,031,000
13,490,000 462,000
328,000 429,000
253,355,000 172,744,000
116,857,000 114,207,000
113,449,000 50,958,000
7,864,000 1,031 ,000
2,477,000 2,014,000
1,340,000 2,896,000
241 ,987,000 171 ,106,000
11 ,368,000 1,638,000
(2,907,000) (4,545,000)
$ 8,461 ,000 $ (2,907,000)
=====
$ (20,221 ,000) $ 10,151 ,000
38,588,000 3,875,000
14,548,000 3,231 ,000
4,012,000 1,419,000
36,927,000 18,676,000
(5,938,000) (5,868,000)
14,452,000 9,073,000
10,121 ,000 6,128,000
9,465,000 7,039,000
(2,541 ,000) 666,000
25,559,000 17,038,000
$ 11,368,000 $ 1,638,000
Statements of changes in stockholders' equity
Years ended December 31, 1979 and 1978
Common Stock Treasury Stock
Additional
Shares Paid-In Retained Shares
Issued Amount Capital Earnings Held
Balance at January 1, 1978 . . . .. . . 16,117,191 $3,223,000 $25,902,000 $60,493,000 134,594
Cash dividend (note G) ... . . .. (2,014,000)
Exercise of stock options
(note G) .. . .. .. .. . .. .. .... . 38,798 8,000 104,000
Exercise of warrants (note G) . 113,748 23,000 327,000
Conversion of debentures
(note C) .. .. . .. . .. . . . . .. ... 213,093 43,000 988,000
Net earnings for 1978 . . . . . ... 24,571 ,000
Balance at December 31 , 1978 . . . . 16,482,830 3,297,000 27,321 ,000 83,050,000 134,594
Cash dividend (note G) . . . . ... (2,477,000)
Exercise of stock options
(note G) . .... .. ..... .. . ... . 89,150 18,000 218,000
Exercise of warrants (note G) . 2,561 ,323 512,000 13,030,000
Conversion of debentures
(note C) ... . .. . ... . . . . . . .. . 1,621 ,013 324,000 7,540,000
Net earn ings for 1979 . . . ..... 13,061 ,000
Balance at December 31 , 1979 . . . . 20,754,316 $4,151 ,000 $48,109,000 $93,634,000 134,594
The accompanying notes are an integral part of these statements.
Auditors' report
Alexander Grant
& COMPANY
CERTI FIED PU BLI C ACCOUNTANTS
Stockholders and Board of Di rectors
Republ ic Airlines, Inc.
INTERNATIONAL FIRM
ALE XAND ER GRANT TANSLEY WITT
We have examined the balance sheets of Republic Airlines, Inc. (a Wisconsin cor-
poration) as of December 31 , 1979 and 1978, and the related statements of earnings
changes in si ockholders' equity and changes in financial position for the years then
ended. Our examinations were made in accordance with generally accepted auditing
standards and accordingly included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
In ou r opinion, the financial statements referred to above present fairly the finan-
cial position of Republic Airlines , Inc., at December 31 , 1979 and 1978, and the results
of its operations and changes in its financial position for the years then ended , in con-
form ity with generally accepted accounting pri nciples applied on a consistent basis
except for the change, with which we concu r, in the method of capitalizing interest as
discussed in note B to the financial statements.
Minneapolis, Minnesota
February 25, 1980
Amount
$380,000
380,000
$380,000
2 1
22
Notes to financial statements
December 31 , 1979 and 1978
Note A-Summary of Significant Accounting Policies-
The company, as a regional airline providing scheduled serv-
ice for passengers , mail and property, is regulated by the Civil
Aeronautics Board (CAB) and uses the Uniform System of
Accounts and Reports for Certificated Air Carriers as re-
quired by the CAB . The significant policies followed by the
company are :
Flight Equipment Parts and Supplies: These are priced at
average cost . An allowance for obsolescence ($2 ,970,000 in
1979 and $2 ,464,000 in 1978) is provided for repairable parts
by allocating their cost over the life of the related aircraft.
Prepaid Expenses-Engine Overhaul: The company re-
classifies to a current prepaid expense the estimated portion
of the purchase price of flight equipment attributable to its
overhaul expected to be consumed within the next twelve
months ($10 ,303 ,000 in 1979 and $8 ,515,000 in 1978) . Actual
overhaul costs are charged to expense as incurred.
Capitalized Interest: To properly reflect their total cost,
major additions to flight equipment and ground facilities in-
clude capitalized interest based on the interest rate of the
related debt outstanding . The capitalized interest is amor-
tized over the useful lives of the related assets for financial
reporting purposes. For income tax reporting purposes,
interest is expensed as incurred (note B) .
Property, Equipment and Depreciation: Owned property
and equipment are stated at cost . Property and equipment
acquired under capital leases are stated at the lower of the
present value of minimum lease payments or fair market
value at the inception of the lease . Depreciation and amorti-
zation of property and equipment are provided on a straight-
line basis over estimated useful lives of 7-18 years for flight
equipment and 7-10 years for other property and equipment.
Deferred Charges: Significant costs , such as major com-
puter software development, traffic promotion related to the
inauguration of service over major new routes , and personnel
training relating to the introduction of new types of aircraft are
deferred and amortized over periods of up to five years .
Passenger Revenues: Passenger revenue is recognized
when the transportation service is provided . Unused ticket
sales are included as a current liability.
Pension Costs: The company has pension plans for sub-
stantial ly all of its employees , and funds its current expense
of normal costs . Prior service costs are amortized over 40
years . Pension funding is determined under the unit credit
and aggregate frozen liability methods (note J) .
Income Taxes: The company uses the flow-through method
of accounting for investment tax credit which reduces income
tax expense when the related liability is reduced. Investment
credits not applied currently are offset against deferred in-
come taxes to the extent they are applicable to previously
deferred taxes becoming payable in the carry-over periods .
The company recognizes deferred income taxes resulting from
differences in financial and income tax reporting (note F).
Note B-Change in Accounting Method-In the fourth quar-
ter of 1979, the company changed its method of computing
capitalized interest to conform with the requirements of Fi-
nancial Accounting Standards Board Statement Ne. 34 . The
company previously capitalized interest based on the
weighted average interest rate of debt outstanding . The ef-
fect of the change was to increase capitalized interest recog-
nized in 1979 by $895,000 and increase net income by
$806,000 ($ .04 per share primary and fully diluted). The
impact on the unaudited quarterly results of operations for
the three prior quarters in 1979 was immaterial and therefore
the quarterly financial information has not been restated.
Note C-Long-term Debt-Long-term debt at December 31
consists of the following:
1979
Revolving credit agreement (a) . .. .. $103,382,000
Quarterly installment notes
due in 1984 (a) ..... . ... . .... . . .
Notes payable to banks under
a Credit agreement (a) ... . .. ... .
Quarterly installment notes
due in 1987 (b) . . . . . . . . . . . . . . . . . 35,279,000
Equipment Trust Certificates (c) . . . . 43,500,000
Capital lease obligations (d) . . . . . . . 84,291,000
Convertible subordinated
debentures (e) . ... . .. . ... . . . .. .
5% due December 1, 1981 ... . .
6% due November 1, 1983 . .. . .
Sundry (f) . . . . . . . . . . . . . . . . . . . . . . . . 14,802,000
Total long-term debt (g) . . . . . . . . 281,254,000
Less current maturities (h) . . . 18,219,000
$263,035,000
$
1978
73,335,000
16,807,000
46,284,000
45,000,000
18,117,000
3,016,000
5,047,000
13,188,000
220,794,000
24,157,000
$196,637,000
(a) On October 1, 1979, the company refinanced quarterly
installment notes due in 1984 and notes payable to banks
under a credit agreement into a Revolving credit agreement.
Under this agreement, the company may borrow up to a
maximum of $150 ,000,000 until December 1980, when it will
be converted into a term loan. Proceeds from this agreement
were used to refinance a portion of existing debt and will be
used to finance a portion of the purchase price of four new
B-727-200 aircraft scheduled for delivery in 1980. The loan
will be payable in twenty-eight quarterly installments of ap-
proximately $5,357,000 beginning November 1981 through
August 1988. Interest is to be paid at each of the participating
banks' prime rate plus percentages ranging from %to %
over prime . Effective rates at December 31 , 1979 were 15% to
15%.
(b) Consists of various installment notes with due dates from
1986 through 1987 at interest rates ranging from 8% (for
notes 90% guaranteed by the Federal Aviation Administra-
tion) to% over the lending bank's prime rate. Effective rate
at December 31 , 1979 was 15%. The aggregate quarterly
installment payments are approximately $1 ,734,000 includ-
ing interest.
(c) The Equipment Trust Certificates require semi-annual
sinking fund payments of $750,000 in 1980, $2,250,000 in
1981 and 1982, $1,575,000 from 1983 through 1992 and
$1,500 ,000 at maturity in May 1993, plus interest at 9% . The
company may make semi-annual optional sinking fund pay-
ments beginning in May 1983 up to $1 ,575,000 and may pay
off the remaining balance in full on or after May 1, 1988 at a
premium .
(d) In the first half of 1979, the company took delivery of three
DC-9-50 aircraft under a capital lease agreement. The debt
obligation relating to the capitalization of this lease was
$25 ,000 ,000 at Decembe.r31, 1979. The obligation is payable
in semi-annual installments of $1 ,354,000 through January
1997, including interest at 8 Va% . During the fourth quarter of
1979, the company took delivery of four additional DC-9-50
aircraft under a capital lease agreement. The debt obligation
relating to the capitalization of this lease was $39 ,446,000 at
December 31 , 1979. The obligation is payable in quarterly
installments of $1 ,030 ,000 through April 1998, including
interest at 83
/a% (note D).
In December 1979, the company took delivery of two used
DC-9-10 aircraft under a capital lease agreement. The debt
obligation relating to the capitalization of this lease was
$4 ,298,000 at December 31 , 1979. The obligation is payable
in quarterly installments of approximately $233,000 through
December 1986, including interest at 12%.
(e) All 5% and 6% debentures were converted or re-
deemed during 1979.
(f) Includes $5,717 ,000 of promissory notes with interest at
1.25 times prime . Effective rate at Decer:nber 31_, 1979 was
approximately 19%. These notes were issued in place ?f
deposits and are due at delivery of four DC-9-50 aircraft in
1980 (note E) .
(g) Substantially al l the flight equ ipment and spare parts
owned and leased by the company are pledged as col lateral
against the above debt. Among the loan covenants are re-
quirements for the maintenance of tangible net worth and
coverage of fixed charges . At December 31 , 1979 the com-
pany was in compliance with those restrictive covenants .
The company is requ ired to maintain average compensating
balances ranging from 5% to 15% of the quarterly average
loan outstanding or commitment and is requ ired to pay inter-
est rang ing from % to % over prime on any average
compensating balance shortfall. During 1979 the company
was required to maintain average compensating balances of
$8,916 ,000. At December 31 , 1979, the required compensat-
ing balances (adjusted for float) were approx imate ly
$6,764 ,000 .
(h) Current maturities of all long-term debt obligations due in
each of the next five years fol lowing December 31 , 1979 are
as follows :
1980 .. ... . .. .
1981
1982 ..... . . . . .
1983
1984
. $18,219 ,000
30,135,000
. . . . . . . . . . 29 ,029 ,000
. . . 28,704 ,000
29,261 ,000
At December 31 , 1979 and 1978, $500,000 and $4,000 ,000,
respectively was outstanding under short-term lines of cred it
with several banks at principally their prime lending rate .
Effective rate at December 31 , 1979 was 15%. At December
31 , 1979 an additional $11 ,500 ,000 was available at the
banks' prime rate . In 1979 the maximum borrowing at the end
of any calendar month was $5 ,000 ,000 and the approximate
average loan balance and weighted average interest rate
computed using the days outstanding method was
$3 ,208 ,000 and 12%, respectively.
Note D-Leases-The company has lease comm itments for
various airport facilities based upon usage and landings ,
subject to adjustment depending upon the needs of the air-
port operating authority. The annual lease comm itments are
not determinable due to the usage and adjustment factors.
The company also leases fl ight equipment, its main operating
facilities , its maintenance and training faci lities , and other
property and equipment.
The following is a summary of property under capita l leases
included in ,property and equipment at December 31 :
1979 1978
Flight equipment . . . .. . . . . . . . . . . . . S84 , 185,000 $21 ,11 6,000
Ground property and equipment 8.786 ,000 8,936,000
92 ,971 ,000 30,052 ,000
Less accumulated amortization 12,760,000 13,943,000
$80,21 1,000 $1 6,109,000
23
Notes to financial statements
December 31 , 1979 and 1978 (continued)
At December 31 , 1979, future minimum rental payments
under capital leases and non-cancellable operating leases
with initial or remaining terms of more than one year are as
follows:
Period
1980 . . ........... . ............. .
1981 .................. . .
1982 ................... .
1983 . . . ... ............ . .. .
1984 ................... .
1985-2007 ..... . ........... .
Total minimum lease payments . ...
Less amounts representing
interest ........ . . . ...... .
Present value of future minimum
lease payments ... . . .
Operating
Leases
$ 10,237,000
8,724,000
7,692 ,000
7,137,000
7,104,000
98 ,045,000
$138 ,939 ,000
Capital
Leases
$ 11 ,446 ,000
11,084,000
10,955,000
10,573 ,000
9,382 ,000
97 ,674 ,000
151 ,114,000
66 ,823 ,000
$ 84,291 ,000
Total rent expense , including landing fees , was $29,890 ,000
in 1979 and $25 ,800,000 in 1978.
Note E-Commitments-The company has purchase com-
mitments on six new DC-9-50 aircraft to be delivered in 1980
on wh ich it has advanced $18 ,466 ,000 and capitalized inter-
est of $3 ,003 ,000. The company has arranged capital lease
financing of approximately $43 ,000 ,000 for four of these air-
craft and will be refunded approximately $13 ,591,000 by the
lessor for advanced deposits. The company will expend an
additional $14 ,614 ,000 on the remaining two aircraft.
The company has advanced $18,470 ,000 and capitalized
interest of $1 ,255 ,000 on purchase commitments for seven
Boeing 727-200 aircraft, four to be delivered in 1980 and
three in 1981 . The total purchase price will be approximately
$104,075 ,000 .
The company has advanced $5,911 ,000 and capitalized inter-
est of $304,000 on a purchase commitment for four DC-9-80
aircraft for delivery in 1981 . In addition , the company has
advanced $400 ,000 and capitalized interest of $57,000 on
options for four additional DC-9-80 aircraft to be delivered
in 1981 . If all eight aircraft are purchased , an additional
$99 ,389 ,000 will be expended prior to delivery.
The company has a commitment under a capital lease for a
used DC-9-1 O aircraft to be delivered in January 1980. The
capitalized present value of the aircraft will be approximately
$2,142,000 with the lease term running through January 1987.
In October 1979, the company signed a letter of intent to
purchase four new DC-9-80 aircraft. The letter includes pro-
visions for cancellation of the order. The company has ad-
vanced $400 ,000 and capitalized interest of $15 ,000 and , if
the order is not canceled , will expend an additional estimated
$56 ,800 ,000 through delivery in 1982.
24
Note F-lncome Taxes-Income tax expense for the years
ended December 31 is as follows :
1979 1978
Current income taxes
Federal ............ . ... ...... . $ 2,471 ,000 $13,521 ,000
Investment tax credit . ..... .. . . . (2,090,000) (12,322 ,000)
381,000 1 I
199,000
State and local ............... . 325,000 1,525,000
706,000 2,724,000
Deferred income taxes
Federal .... . .......... . . . 3,153,000 884,000
Investment tax credit .. (6,005,000) 1,795,000
(2,852,000) 2,679,000
State and local ........ ... .... . 396,000 61 ,000
(2,456,000) 2,740,000
$ (1 ,750 ,000) $ 5,464,000
Differences between income tax expense and amounts de-
rived by applying the statutory federal income tax rates of
46% in 1979 and 48% in 1978 to income before income taxes
are as follows:
Income tax expense computed
at statutory federal income
tax rates . . . . . . . . . ... .... .
Investment tax credit utilized .... .
Employee Stock Ownership Plan .
State and local taxes net of
federal income tax benefit ... . . . .
Other ... . ....... . ... . ........ .
1979 1978
$ 5,203 ,000 $14,417 ,000
(8,095 ,000) (10,527,000)
715,000 552,000
389,000 766 ,000
38,000 256,000
$ (1,750,000) $ 5,464,000
Deferred income taxes arise from timing differences between
financial and tax reporting. The tax effects of these differ-
ences are as follows :
Capitalized interest ....... .
Investment tax credit .............. .
Group insurance .... . . . .......... . .
Capitalized leases . ... . .. .. .
Training and development ..
Depreciation .. . . .
Other ..................... .
1979 1978
$ 2,953 ,000
(6 ,005,000)
(290,000)
(472,000)
498,000
754,000
106,000
$ (2,456 ,000)
$ 821 ,000
1,795,000
(460 ,000)
186,000
365,000
186,000
(153,000)
$ 2,740,000
For federal income tax reporting purposes , investment tax
credits of $10 ,400 ,000 are available to offset future income
taxes payable through 1986. Of this amount, $6 ,937,000 has
been recognized for financial reporting purposes as an offset
to deferred income taxes payable through December 31 ,
1979.
During the fourth quarter of 1979, the company adjusted the
estimated effective income tax rate for the year to take into
effect the reduction of earn in gs due to the industry-
wide softening of traffic. As a result, income tax expense was
reduced by $4,910 ,000 during the fourth quarter.
Under the Revenue Act of 1978 and existing law, a special
provision allows the company to offset its federal tax liability
by the following approximate percentages (subject to the
availability of sufficient investment tax credits) : 1978- 100%;
1979-90%; 1980 and 1981 - 80%; 1982 (and later years)
- 90%.
The Internal Revenue Service has examined and cleared the
company's federal tax returns through December 31 , 1976.
Note G-Common Stock, Options and Warrants - At De-
cember 31 , 1979, 109,500 shares of unissued common stock
are reserved for officers and key employees under a plan
adopted in 1975 of wh ich 73 ,400 shares (at $2 .50 per share)
expire in 1980 and 36,100 shares (at $3 .87 per share) expire
in 1981 .
When options are exercised, the excess of the option price
over par value of the shares is credited to additional paid-in
cap ital . Options are exercisable at not less than 100% of the
fair market value of the stock on the date of the grant . The
company makes no charges to income in connection with
shares issued under the stock option plan .
Option transactions during the two years ended December
'31 , 1979 are summarized as follows :
Outstanding
January 1, 1978 .
Exercised .. .
Expired or cancelled
Outstanding
December 31 , 1978 ... .
Exercised .... .
Expired .... .
Outstanding
December 31 , 1979 .. . .
Number of
Shares
241 ,650
(38,798)
(2,802)
200 ,050
(89,150)
( 1,400)
109,500
Option Price
Per Share Total
$1.40-$4.25
1 .40- 4.25
1.40- 2. 77
1 .40- 4.25
1 .40- 3.38
1.40
2.50 - 3.87
$680,000
(112,000)
(7 ,000)
561 ,000
(236,000)
( 2,000)
$323 ,000
All outstanding options at December 31 , 1979 were exercis-
able .
At December 31 , 1979 and 1978, there were outstanding
warrants to purchase 541 ,057 and 3,495 ,494 shares of com-
mon stock, respectively. The warrants outstanding at De-
cember 31 , 1979 enable the holder to purchase common
stock at $2 .86 per share and expire in 1981 .
In February 1980, the Board of Directors declared a $.20 per
share dividend payable March 17, 1980 to shareholders of
record on March 3, 1980. The company paid cash dividends
of $.20 and $.16 per share to its stockholders during the first
quarter of 1979 and 1978, respectively.
Note H- Merger- On July 1, 1979, Southern Airways , Inc.
was merged into North Central Airlines , Inc., which changed
its name to Republic Airlines , Inc. As a result of the merger,
Southern stockholders received 2.1 shares of Repub lic
common stock for each share of Southern common stock
held by them . The terms of the merger were arrived at as a
result of arms-length negotiations between management of
Southern and North Central . The combination was ac-
counted for as a pooling of interests and accordingly, all prior
financial statements have been restated to include both
companies , and reclassified to conform to the 1979 presenta-
tion .
The results of operations of the separate companies for the
periods prior to the combination are summarized as fol lows :
Six months ended June 30, 1979
(unaudited)
Operating
Revenues
Net
Earnings
North Central ... .
Southern ......... .
.... $182 ,957 ,000
105,602,000
$ 8,231 ,000
2,025,000
$288,559,000 $10,256 ,000
Year ended December 31 , 1978
North Central . $299 ,053,000 $22, 164,000
Southern . . 188,512,000 2,407 ,000
$487 ,565,000 $24 ,571 ,000
Note I-Significant Transactions Affecting Operating
Results - As a regional carrier, the company receives public
service revenues for serving small and intermediate-size
communities which do not generate sufficient traffic to fully
support profitable air service . The amount of such payments
is determined by the CAB on the basis of its evaluation of the
amount of revenue needed to meet operating expenses and
provide a reasonable return on investment with respect to
eligible routes . On October 9, 1979, Class Rate IX became
effective for the period beginning July 1, 1978. As a result,
during 1979, revenue of $3 ,096 ,000 ($2 ,786 ,000 after in-
come taxes - $.15 per share primary and $.14 per share fully
diluted) relating to public service revenues was recognized
applicable to the period July-December 1978.
During the fourth quarter of 1979, the company revised the
estimate of the remaining service lives of certain of its flight
equipment effective January 1 and July 1, 1979. As a result,
depreciation expense decreased by $4,154,000 ($3 ,739 ,000
after income taxes - $.20 primary and $.19 fully diluted fo r the
year and $.19 per share primary and fully diluted for the fourth
quarter) .
25
Notes to financial statements
December 31 , 1979 and 1978 (continued)
Note J-Pension Costs-Pension expense was $14,978,000
in 1979 and $11 ,872 ,000 in 1978. At January 1, 1979, the latest
actuarial valuation date, the actuarially computed value of
vested benefits exceeded the total value of fund assets by
$7,513,000 for all plans.
Note K-Net Earnings Per Share-Primary earnings per
share for 1979 and 1978 are based on the weighted average
number of common and common equivalent shares outstand-
ing (18,561 ,082 in 1979 and 17,332,195 in 1978). Common
equivalent shares result from the assumed exercise of stock
options and warrants using the " treasury stock" method .
If the debentures converted into common stock during 1979
were assumed converted at the beginning of the period,
primary earnings per common and common equivalent share
would have been $.67 or a decrease of $.03 per share.
Fully diluted earnings per share for 1979 and 1978 are based
on the assumed issuance of additional common shares
(932 ,131 in 1979 and 1,829,244 in 1978) relating to the con-
version of the 5% and 6% debentures, and related inter-
est (net of income tax effect) was added to income for pur-
poses of the calculation .
Note L-Selected Financial Data (unaudited)-The unau-
dited quarterly results of operations for each of the four quar-
ters ended in 1979 and 1978 and the unaudited effects of
changing prices information are presented on pages 27 to 29
of this annual report and are incorporated by reference into
this note.
Letters 10 feet high identify Republic's maintenance base in Atlanta. The company also has major
maintenance facilities at Minneapolis I St. Paul, Chicago and Detroit.
26
Supplemental stockholder information
STOCKHOLDER 'S DISCLOSURE OF OWNERSHIP
The Civil Aeronautics Board requires that any person who
owns as of December 31 of any year or who subsequently
acquires ownersh ip, either beneficially or as trustee , of more
than 5% , in th e aggregate , of the Company's common stock
shall file with the Board , with in the time limits prescribed , a
re port containing the information requ ired by Section 245 .13
of Economic Regu lations of the Civi l Ae ronautics Board ,
unless such person has previously filed such a report. Any
shareholder who bel ieves that he may be required to fil e such
a report may obtain further information by writi ng to the Direc-
tor, Bureau of Pricing and Domestic Aviation , Civil Aeronau-
tics Board , Wash ington , D.C. 20428 .
LABOR AGREEMENTS
Among the agreements the airline has with six labor un ions,
three are am endable in 1980, one in 1981 , one in 1982, and
one is currently being negotiated . The company expects to
reach E;)qu itable agreements with these unions .
QUARTERLY STATEMENTS OF EARNINGS
(unaudite d-in thousands of dollars except per share amounts)
1979
Three Months Ended
OPERATI G REVENUES
Passenger ..... .
Public service revenues
Other ...
OPERATING EXPENSES
Flying operations and maintenance
Other operating expenses ........ .
Depreciation and amortization .... .
OPERATING PROFIT (LOSS) ........ .
OTHER EXPENSES (INCOME)- NET .. .
EARNINGS (LOSS) BEFORE
INCOME TAXES.
Income taxes
NET EARNINGS (LOSS) .....
NET EAR INGS (LOSS) PER SHARE'
Primary ................ .
Fully diluted .............. .
DIVIDE DS PER SHARE ...... .
December 31
$137,781
5,668
12,520
155,969
80 ,666
74 ,007
5,420
160,093
(4,124)
3,532
(7,656)
~ )
S (2,746)
'Quarterly earnings per share do not total
annual earnings per share because the
computation for certain quarters did not
include common stock equivalents which
were included on an annual basis.
September30
$142 ,689
9,309
12,704
164,702
75 ,177
71 ,882
7,381
154 ,440
10,262
4,104
6,158
607
S 5,551
S.29
S.29
June 30
$137 ,014
7,896
~
159,000
66 ,335
66 ,362
8,404
~
17,899
4,611
13,288
2,880
S 10,408
S.60
S.55
FORM 10-K REPORT
For the Form 10-K report to the Securities and Exchange
Comm issi on , write to Mr. John P. Dow, Vice President and
Secretary, Repub lic Airlin es, Inc., 7500 Airli ne Drive , Minn e-
apolis , MN 55450 .
STOCK MARKET QUOTATIONS
The following tabu lation sets forth the price range for the
company's common stock wh ich is traded on the New York
Stock Exchange and the Midwest Stock Exchange .
1979 1978
High Low High
1st Quarter ................ . 8 57/a 57/a
2nd Quarter ............... . 73
/a 6 77/a
3rd Quarter . . . . . . . . . . . 95/a 6 11 7
/a
4th Quarter ................ 85/a 53
/s 10
1978
Three Months Ended
March 31
$110 ,308
3,489
~
129,559
59 ,518
57,790
8,235
125,543
4,016
4,495
(479)
~ )
~ )
S(. 01 )
S(.01 )
S .20
December 31
$105 ,476
3,305
~
124,818
51 ,100
53 ,573
~
112,682
12,136
3,108
9,028
2,612
S 6,416
S.36
S.34
September30 June 30
$115 ,098
3,769
~
133,860
50 ,911
58 ,316
~
116,634
17 ,226
3,518
13,708
2,726
S 10,982
S.62
S.56
$105 ,298
4,750
15,263
125 ,311
48,731
57 ,303
~
113,035
12,276
2,896
9,380
1,375
S 8,005
S.48
S.43
Low
45/a
53/a
6
6
March 31
$ 82 ,371
4,699
~
103 ,576
48 ,138
47 ,431
~
102,405
1,171
~
(2,081 )
~ )
~ )
S.(05)
S.(05)
$ . 16
27
Supplemental stockholder information
(continued)
EFFECTS OF CHANGING PRICES (unaudited)
Basis of preparation of 1979 supplemental data
As required by Financial Accounting Standards Board (FASB)
Statement No. 33 , " Financial Reporting and Changing Prices,"
the company has prov ided supplemental information
concern ing the effects of changing prices on its financial
statements . The disclosures are intended to address two
different aspects of an inflationary environment: (1) the effect
of a rise in the general price level on the exchange value or
purchasing power of the dollar (called " general inflation" )
and (2) the specific price changes in the individual resources
used by the company.
28
The supplemental information on changing prices does not
reflect a comprehensive application of either type of inflation
account ing. During the experimental period , the FASB
decided to focus on those items most affected by changing
prices , that is: (1) the effect of both general inflation and
specific price changes on inventories and property and
equipment and the related impact on earnings , and (2) the
effect of general inflation on monetary assets and liabilities.
Earnings from continuing operations
Net earnings as reported in the primary statements repre-
sent amounts reported on the historical cost basis of
accounting . Net earnings adjusted for general inflation repre-
sent the historical amounts of revenues and expenses
stated in dollars of the same (constant) general purchasing
power, as measured by the average level of the Consumer
Price Index (CPI) for 1979. Under this measurement method ,
historical amounts of depreciation expense , gain on equip-
ment dispositions, and spare parts inventory are adjusted to
reflect the change in the level of the CPI since the date the
properties were acquired .
Current cost accounting attempts to deal with a different
issue than earnings adjusted for general inflation. The spe-
cific prices of the company's goods and services have risen
at a different rate than the general inflation rate as mea-
sured by the CPI . Net earnings adjusted for changes in
specific prices (current cost) measure spare parts inven-
tory, property and equipment , and gain from disposition of
equipment at current cost (rather than historical cost) at
the balance sheet date .
Income taxes
The provision for income taxes included in the supplemental
statement of income from continuing operations is the same
as reported in the primary financial statements . Present tax
laws do not allow deductions for higher depreciation adjust-
ments for the effects of inflation . Thus , taxes are levied on the
company at rates wh ich , in real terms , exceed established
statutory rates . During periods of persistent inflation and
rapidly increasing prices , such a tax policy effectively results
in a tax on shareho lders' investment in the company.
Purchasing power gain from holding net monetary
liabi)ities during the year
When prices are increasing , the holding of monetary assets
(e.g., cash and receivables) results in a loss of general pur-
chasing power. Similarly, liabilities are associated with a gain
of general purchasing power because the amount of money
required to settle the liabilities represents dollars of
diminished purchasing power. The net gain in purchasing
power is shown separately in the accompanying supplemen-
tal data. The amount has been calculated based on the com-
pany's average net monetary liabilities for the year multiplied
by the change in the CPI for the year. Such amount does not
represent funds avai lable for distribution to shareholders .
Increases in current cost of spare parts inventory and
property and equipment
Under current cost accounting , increases in specific prices
(current cost) of spare parts inventory and property and
equ ipment held during the year are not included in earnings
from continuing operations but are presented separately. The
current cost increase is reduced by the effect of general
inflation measured by applying the annual rate of change in
the CPI to the average current cost balance of spare parts
inventory and property and equ ipment .
Current cost measurements
Current cost calculations involve a substantial number of
judgments as well as use of various estimating techniques
that have been employed to limit the cost of accumulating the
data. The data reported should not be thought of as precise
measurements of the assets and expenses involved , but
instead represent reasonable approximations of the price
changes that have occurred in the business environment in
which the company operates .
Current cost asset amounts were derived principally through
a reference guide to current selling prices supplied by an air-
line industry organization . Current cost depreciation is based
on the average current cost of property and equipment during
the year. Depreciation expense was computed by applying
the ratio of historical depreciation expense to average histor-
ical asset cost to the average current cost of these assets.
The result should be approximately the same as would be
calculated using the depreciation methods used in preparing
the primary financial statements .
Current cost does not purport to represent the amount at
which the assets could be sold .
Five-year comparison of selected financial data
As described above , the determination of net assets reflects
a partial application of the two inflation accounting methods .
Other assets , consisting primarily of deferred charges , have
not been adjusted for general inflation , nor specific price
changes . In addition , noncurrent payables have not been
converted to reflect specific price changes (i.e. , changes in
interest rates) .
STATEMENT OF EARNINGS FROM CONTINUING OPERATIONS
-ADJUSTED FOR CHANGING PR ICES
Year ended December 31 , 1979 (unaudited)
Tota l operating revenues
Depreciation and amortization expense . . . . .. ............. .
Other operating expenses .................... .. ........... .
Other expenses-net . . . . . . . . . . . . . . . . . . . .......... . . .
Gain on disposition of equipment . . . . . . . . . . . . . . ............... .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . ....... . ..... . . .
Earnings (loss) from continuing operations ... ... ........... .
Gain from decline in purchasing power of net amounts owed
Increase in specific prices (current cost) of inventory and
property and equipment held during the yearn .... . . .
Ettect of increase of general price level . . . . . . . . . . .... . .. . . .
Excess of increase in specific prices over increase in the
general price level . . . . ............................... .
As Reported
in the
Pr ima ry State ments
$609,230,000
29,440,000
551 ,737,000
18,744,000
(2,002,000)
(1,750,000)
596,169,000
S 13,061 ,000
(*) At December 31 , 1979, current cost of inventory was $34 ,040,000 , and the
current cost of property and equipmen t, net of accumulated depreciation ,
was $548,258 ,000 .
FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA
- ADJUSTED FOR EFFECTS OF CHANGING PRICES
(In average 1979 constant dollars-unaudited)
Ad justed for
Genera l
Inflat ion
$609,230,000
39,960,000
553,555,000
18,744,000
(1,107,000)
(1,750,000)
609,402,000
S (172,000)
$ 33,461 ,Q00
Year ended December 31
Ad jus ted fo r Changes
In Spec ific Pri ces
(Cu rrent Cos t)
$609,230,000
46,167,000
553,555,000
18,744,000
(1,345,000)
(1,750,000)
615,371 ,000
$ (6,141 ,000)
$ 33,461 ,000
$ 43,565,000
25,345,000
$ 18,220,000
1979 1978 1977 1976 1975
Total operating revenues-at historical costs ... .
Total operating revenues-in average 1979 dollars
Historical cost information- adjusted for general in flation
Loss from continuing operations
Loss from continuing operations per common share ..... .
Equity in net assets at year-end ........... .
Current cost information
Loss from continuing operations . . . . . ................ .
Loss from continuing operations per common share ..... .
Excess of increase in specific prices over increase
in the general price level ........... .
Equ ity in net assets at year-end . ..................... .
Gain from decline in purchasing power of
net amounts owed . . . . . . ................. .
Cash dividends declared per common share-historica l .. .
Cash dividends declared per common share-in average
1979 dol lars ................................... .
Market price per common share a year-end-h istorical .....
Market price per common share at year-end- in average
1979 dollars . . . . . . . . . . . . . . . . . . . . . . . . . ............ .
Average consumer price index .............. .
$609,230,000 $487,565,000 $388,634,000 $331 ,315,000 S281 ,574,000
$609,230,000 $542,460,000 S465,504,000 $422,451 ,000 $379,741 ,000
$ (172,000)
S(.01 )
$210,226,000
S (6,141 ,000)
S(.30)
S 18,220,000
S314,040,000
S 33,461 ,000
S.20
S.20
S6.00
S6.00
217.4
S 16
S.18
S7.12
S7.93
195.4
S.12 S.10 S.10
S.14 S.13 S.13
S5.00 S3.88 S2.38
S5.99 S4.94 S3.20
181 .5 170. 5 161.2
NOTE: Certain data for years prior to 1979 ha,1e been omi ted as permitted by FASB 0 . 33.
29
Five-year summary
PASSENGERS
(MILLIONS)
12.0 - - - - - - - -
11.0 - - - - - -
10.0------
9.0 - - - -
8.0 - -
7.0 -
SEAT MILES
(BILLIONS)
6.0 - - - - - - -
1975 76 '77 '78 '79
7 . 4 - - - - - - - -
6.8 - - - - - - - -
6.2 - - - - - - - -
5.6 - - - - - -
5.0 - - - -
4.4--
38 -19_7_5 - .
-76--7-7 _7_8_ '79
30
PASSENGER MILES
(BILLIONS)
3.8 -----------'
3 . 4 - - - - - - -
3.0 - - - - - -
2.6 - - - - - -
2.2 - -
1.8-
1 . 4 - - - - - - -
1975 '76 '17 '78 '79
CARGO TON MILES
(MILLIONS)
32.5 - - - - - - - -
30.0 - - - - - - - -
27.5 - - - - - -
25.0 - - - - - -
22.5 - - - -
20.0 - -
17.5 ----------,--
1975 76 77 78 79
EARNINGS
OPERATING REVENUES 1979 1978 1977 1976 1975
Passenge r ................. ... . ....... . .... $527,792,000 $408,243,000 $317,469,000 $272,365,000 $231 ,330,000
Public service . . .......... . .. ... ............ 26,362,000 16,523,000 18,299,000 19,019,000 18,186,000
Other ... ......... ........... . '
........ . 55,076,000 62,799,000 52,866,000 39,931 ,000 32,058,000
609,230,000 487,565,000 388,634,000 331 ,315,000 281 ,574,000
OPERATING EXPENSES
Flying operations and mainten ance ... '
..... 281 ,696,000 198,880,000 169,187,000 146,529,000 126,892,000
Other operating expenses ....... . . . . . . . . . . . 270,041 ,000 216,623,000 166,392,000 144,051 ,000 120,773,000
Depreciation and amortization . . . . . . . . . . . . . . 29,440,000 29,253,000 25,260,000 21,444,000 18,418,000
581 ,177,000 444,756,000 360,839,000 31 2,024,000 266,083,000
OPERATING PROFIT .... . ................... 28,053,000 42,809,000 27,795,000 19,291 ,000 15,491,000
OTHER EXPENSES (INCOME)
Interest expense ....... . . . . . . . . .
. . . . 26,497,000 18,688,000 12,424,000 10,190,000 8,839,000
Less interest capitalized ............... 6,375,000 2,015,000 948,000 843,000 757,000
20,122,000 16,673,000 11 ,476,000 9,347,000 8,082,000
Interest income and other- net . . ..... . .. (1,378,000) (2,593,000) (700,000) (924,000) (1,296,000)
Gain on disposition of equipment . . (2,002,000) (1,306,000) (8,904,000) (280,000) (17,000)
16,742,000 12,774,000 1,872,000 8,143,000 6,769,000
EAR NINGS BEFORE INCOME TAXES .. .. ... 11 ,311 ,000 30,035,000 25,923,000 11 ,148,000 8,722,000
Income taxes ....... . '.
. .. . ........... (1,750,000) 5,464,000 2,885,000 3,144,000 657,000
NET EARNIN GS .... .. .. .. '
......... . . . . $ 13,061 ,000 $ 24,571,000 $ 23,038,000 $ 8,004,000 $ 8,065,000
NET EARNIN GS PER SHAR E
Primary .................. '
........ . ...... $ .70 $1.42 $1 .38 $.48 $.48
Fully di luted ...... . .... . ......... . . . . . . . . . . $ .68 $1 .31 $1 .23 $.43 $.43
BALANCE SHEET ITEMS
Cu rrent assets ............. . . . . . . . . . . . . . . . . . . $144,691 ,000 $107,764,000 $ 89,088,000 $ 71,362,000 $ 66,329,000
Working capital provided from operations . . ... . $ 41 ,717,000 $ 57,806,000 $ 48,639,000 $ 31 , 1 77,000 $ 26,188,000
Property and equipment- net ...... .
. . . . . . . . . . $399,632,000 $314,054,000 $235,671 ,000 $195,807,000 $158,277,000
Total long-term debt ..... . . . . . . . . . . . . . . . . . . . . $263,035,000 $196,637,000 $142,648,000 $129,51 2,000 $102,173,000
Retained earnings ..... . ... . . . . '' ..... '
..... $ 93,634,000 $ 83,050,000 $ 60,493,000 $ 39,052,000 $ 32,305,000
Stockholders' equity ....... ... ... . ...... . ... '
$145,514,000 $11 3,288,000 $ 89,266,000 $ 67,247,000 $ 60,281 ,000
Shares outstandi ng . . . . . . . ..... '
.. . . . ........ 20,620,000 16,348,000 15,982,000 15,832,000 15,752,000
Book valu e per share ... .. .. . . . . . . . . . . . . . . . . . . $7.06 $6.93 $5.59 $4.25 $3.83
STATISTICS
Passengers ... '
................. . ... ' . '
. . .... 12,156,000 11 ,143,000 9,180,000 8,397,000 7,685,000
Passenger miles (000) . ................ .. ..... 3,847,000 3,364,000 2,584,000 2,304,000 2,054,000
Available seat miles (000) ....... . ... .. ...... . . 7,479,000 6,010,000 5,152,000 4,617,000 4,141 ,000
Passenger load factor .. '
... . .. . . . . ........... 51.4% 56.0% 50.2% 50.0% 49.6%
Cargo ton miles .. '
. . ... .. .. . . ...... ....... '
.. 32,324,000 28,062,000 23,346,000 21,537,000 19,047,000
Revenue plane miles . . ... '
.... '
... . . . . 80,915,000 70,850,000 61 ,981 ,000 58,456,000 55,282,000
Nu mber of employees .. . .......... '
....... . .. 8,982 7,676 6,772 6,366 5,929
31
Board of Directors
Hal N. Carr*
Chairman of the Board
Republic Airlines
Frank W. Hulse*
Vice Chairman of the Board
Republic Airlines
Cecil A. Beasley, Jr.
Partner- Ballard, Beasley and
Ne lson (attorneys)
Eric Bramley
Retired Edi tor
Aviation Daily
(aviation industry news service)
G. F. DeCoursin
Chairman of the Board
Media Graphics
(commercial graphic arts)
Chan Gurney
Retired Member
Civil Aeronautics Board
F. Barton Harvey, Jr.
Partner-Alex. Brown & Sons
(investment bankers)
David H. Hughes
President
Hughes Supply
(electrical and plumbing supplies)
Officers
Hal N. Carr
Chairman of the Board
Frank W. Hulse
Vice Chairman of the Board
Bernard Sweet
President and Chief Executive
Officer
Robert L. Gren
Senior Vice President-
Maintenance and Engineering
Graydon Hall
Senior Vice President-Marketing
Kenneth L. Hubertus
Senior Vice President-Ground
Operations
George J. Karnas
Senior Vice President-lnflight
Service
Dan iel F. May
Senior Vice Preside nt-Fin ance
G. F. Wallis
Senior Vice President-Flight
Operations
J C Constantz
Vice President-Federa l Affairs
J. Kenneth Courtenay
32
Vice President- Route
Development
Alton F. Irby, Jr.
Chairman of the Board
Fred S. James & Company of Georgia
(insurance agents , counselors)
G. Gunby Jordan
Chairman of the Board
The Jordan Company
(construction)
John M. Lawrence Ill
Partner-Lawrence , Thornton ,
Payne & Watson (attorneys)
Samuel H. Maslon *
Partner- Mas/on , Kaplan , Edelman ,
Borman , Brand & McNulty (attorneys)
Theodore R. Miles
President
Stange Co.
(foo d products)
Jay Ph illips
Director
Ed. Phillips & Sons Co .
(wholesale beverages)
Morton B. Phillips
Chairman of the Board
Westland Capital Corporation
(busin ess investments)
John P. Dow
Vice President and Secretary
A. L. Maxson
Vice President and Treasurer
Michael D. Meyer
Vice President and Controller
Gowan J. Miller
Vice President-Industrial Relations
David E. Moran
Vice President-Sales and
Customer Service
J. F. Nixon
Vice President- Financial Planning
V. C. Pruitt
Vice President-Atlanta Base
Maintenance
T. M. Shanahan
Vice President-Flying
A. E. Warner
Vice President-Maintenance
Charlotte G. Westberg
Staff Vice President
Dorman W. Atwood
Assistant Vice President-
Regulatory Compliance
G. Frank Purvis , Jr.
Chairma n of the Board
Pan American Life Insurance Co.
Joseph E. Rapkin
Partner- Foley & Lardner
(attorneys)
Henry M. Ross
President
Ross Industries
(machinery manufacturer)
Bernard Sweet*
President
Rep ublic Airlines
Richard A. Trippeer, Jr.
President
Union Planters National Bank
Wm . Bew White , Jr.*
Partner-Bradley, Arant,
Rose & White (attorneys)
Kenneth B. Willett*
Chairman of the Board
First Financial Savings and
Loan Association
Frank M. Young Ill
Partner- North Haskell Slaughte r
Young & Lewis (attorneys)
Executive Committee
Joseph W. Ettel
Assis tant Vice President-Labor
Relations and Assistant Secreta ry
Robert P. Johnson
Assistant Vice President-Flight
Operations
Katherine M. Leddick
Assistant Vice President-lnflight
Service
William E. Oakes
Assistant Vice President-
Economic Research
Charles B. Vesper
Assistant Vice President-
Schedules and Tariffs
Ray W. Burden
Assistant Treasurer
W. H. Mackinnon
Assistant Treasurer
Walter E. Nielsen
Assistant Treasurer
Mary C. Hayes
Assistant Secretary
Raymond J. Rasenberger
Assistant Secretary
Ralph Strangis
Assistant Secretary
~
REPUBLIC
a AIRLINES
serving more cities
than any other U.S. airline
REPUBL I C AIRL I NES , I NC .
MIN E APO L IS . MINNESOTA S54S0