Republic Airlines Annual Report 1980

ANNUAL REPORT 19SO
REPUBLIC AIRLINES
Contents
Highlights 1
About Republic 1
Letter to stockholders 2
Financial review 4
Traffic growth and performance 6
New facilities and services 7
Environmental and social programs 8
Communications 9
Jet fuel outlook 10
Fleet development 11
Route development 12
The future 13
Route map 14
Financial statements 16
Auditors' report 19
Five-year summary 24
Supplemental stockholder information 26
Board of Directors and Officers 29
REPUBLIC AIRLINES, INC.
7500 Airline Drive Minneapolis, Minnesota 55450 612-726-7411
Highlights
1980 1979 1978
OPERATING REVENUES $ 916,715,000 $ 609,230,000 $ 487,565,000
OPERATING PROFIT $ 13,224,000 $ 28,053,000 $ 42,809,000
NET EARNINGS (LOSS) $ (24,662,000) $ 13,061,000 $ 24,571,000
NET EARNINGS (LOSS) PER SHARE-Primary ....
$ (1.19) $ .70 $ 1.42
CASH FLOW FROM OPERATIONS $ 14,840,000 $ 41,717,000 $ 57,806,000
RETAINED EARNINGS $ 64,830,000 $ 93,634,000 $ 83,050,000
STOCKHOLDERS' EOUITY $ 117,627,000 $ 145,514,000 $ 113,288,000
PASSENGERS 13,220,000 12,156,000 11,143,000
PASSENGER MILES 41,760,341,000 3, 846,805,000 3, 364,094,000
CARGO TON MILES 37,113,000 32,324,000 28,062,000
About Republic
Republic Airlines, one of the nation's
largest scheduled carriers, provides safe,
dependable air transportation to the
traveling and shipping public.
The company, originally called Wisconsin
Central Airlines, inaugurated service on
February 24, 1948. The name was
changed to North Central in 1952.
Southern Airways, which began scheduled
flights in 1949, was merged into the
company in 1979, and the airline then
became "Republic." Hughes Airwest,
another carrier with over 30 years of
experience, was acquired October 1, 1980.
Republic serves nearly 200 cities--more
than any other airline in the country. It flies
to most of the nation's metropolitan areas
and many intermediate-sized cities. The
route system extends from coast to coast,
and from Canada to Mexico and the
Cayman Islands in the Caribbean.
(See map on center pages.)
In 1980, Republic ranked seventh among
U. S. airlines in passenger traffic, with 13.2
million passengers carried and 4.8 billion
passenger miles flown. The company
operates one of the largest commercial jet
fleets in the world. Its 158 jet-powered
aircraft--Boeing 727s, Douglas DC-9s and
Convair 580s--make over 1,400
departures daily.
Republic's 15,000 dedicated employees
offer the finest type of airline service.
ANNUAL MEETING
Wednesday, April 22, 1981
AUDITORS
Alexander Grant & Company
REGISTRARS &
STOCK TRANSFER AGENTS
Citibank, N.A,
New York, New York 10043
Northwestern National Bank
Minneapolis, Minnesota 55480
STOCK TRADING
Common stock (RAI)
New York Stock Exchange
Midwest Stock Exchange
Warrants (RPALW)
Over the Counter market
1
To our stockholders, employees and friends:
Republic Airlines firmly established
its position as a major U.S. carrier
by acquiring Hughes Airwest and
taking other significant actions in
1980. Although most financial
results were disappointing, the
following progress is noteworthy:
Revenues jumped 50 percent to
a record $917 million.
Republic now serves nearly 200
cities--more than any other
airline in the country--on a route
system extending across the
nation, and from Canada to
Mexico and the Caribbean.
New nonstop service was
introduced in 33 markets,
providing significantly better
connections and through-flights
for thousands of travelers.
Passenger miles reached 4.8
billion, up 24 percent; cargo ton
miles rose 15 percent to 37.1
million; and 13.2 million
passengers were carried, a gain
of nine percent.
Nine new jets--four Boeing
727-200S and five Douglas
DC-9-50S--joined the fleet in
1980. The acquisition of Hughes
Airwest added another 47 jet
aircraft. By the end of March,
one DC-9 and three more 727s
will have been delivered, bringing
the company's fleet to 158 jet-
powered aircraft.
2
The acquisition was an aggressive
move which gave Republic
established operations at hubs such
as Phoenix, Las Vegas, Los
Angeles, San Francisco, Seattle/
Tacoma, Spokane, Boise and Salt
Lake City. The airline also acquired
the important California satellite
markets of Orange County/
Santa Ana/Anaheim, Ontario/
Riverside, Burbank, San Jose and
Oakland.
Despite these major steps forward,
the company was adversely
affected by steadily rising jet fuel
prices, a troubled national
economy, and interest charges on
loans tied to the high prime rate.
While revenues reached $916.7
million, expenses totaled $941.4
million, and a net loss of $24.7
million, or $1.19 per share, was
sustained. However, the company
has only had one other loss in the
past 27 years, and still has $65
million in retained earnings.
During 1980, Republic generated
positive cash flow from operations
of $15 million.
The Board of Directors, confirming
the company's basic financial
strength, declared a cash dividend
of $.10 per share payable March 23
to stockholders of record March 9.
Republic has paid an annual cash
dividend for the past nine years.
Preparations for future growth
affected many areas. Schedule
times and service patterns were
adjusted to accommodate more
traffic and increase utilization of
aircraft and personnel. Several less
efficient aircraft were sold. Facilities
for passengers and operations were
constructed or improved at many
locations. In addition, the quiet,
highly-efficient DC-9 Super 80s are
to be introduced this summer.
Because fuel is a critical commodity
for the company, a wholly-owned
subsidiary. Republic Energy, Inc.,
was formed in September. This firm
will primarily seek leasehold
interests and drill for oil and gas,
concentrating its efforts in known oil
regions within the continental
United States.
Republic Airlines has undergone
dramatic change during the last two
years. In fact, the company grew
over 300 percent in 15 months. It
has accepted the challenges of
deregulation, merger, inflation,
recession, acquisition, route
expansion and intense competition.
Republic's goals, however, remain
the same: to provide safe,
dependable airline transportation
and earn a reasonable profit. By
blending growth with commitment to
service, a large and capable airline
has emerged.
Opportunity lies ahead. Revenues
will surpass $1.5 billion this year,
and strong cost controls are
continuing. The combined effects of
recession and inflation are
expected to linger through the
middle of 1981. When the national
economy begins to recover. Republic
should return to profitability.
Sincerely,
Hal N. Carr
Chairman of the Board
March 11, 1981
3
Financial review
Results of Operations
Annual revenues reached $916.7
million in 1980. This significant
achievement makes Republic one of
the nation's major airlines.
Republic's revenues increased 50
percent to the record $916,715,000,
compared with $609,230,000 in 1979.
This substantial gain results from the
purchase of Hughes Airwest in October
1980, the introduction of new long-haul
service, and fare increases. Republic's
revenues were running 28 percent
ahead of the previous year prior to the
acquisition.
Operating expenses--including
depreciation and amortization--rose to
$903,491,000, up 55 percent from
$581,177,000. Higher fuel prices and
labor costs were mainly responsible for
the increase. An operating profit of
$13,224,000 was attained, although it
declined 53 percent from 1979. Other
expenses, primarily interest, were
$39,826,000, which had been reduced
by gains from disposition of equipment.
The resulting net loss was $24,662,000,
or $1.19 per share. Earnings in 1979
were $13,061,000, or $.70 per share
primary.
However, Republic still has $64.8
million in retained earnings. In this
important measure of financial position,
the company has consistently been one
of the leaders in the airline industry.
The retained earnings available during
1980 helped the company finance its
dynamic pattern of growth and take
advantage of the opportunities for
expansion now available under airlir>e
deregulation.
In addition, the company had a positive
cash flow from operations of $14.8
million. This working capital was used
for such purposes as deposits for new
aircraft, payments on new property and
equipment, and expenses associated
with the Hughes Airwest acquisition.
In view of the retained earnings on
December 31, 1980 and the company's
basic financial stability, the Board of
Directors declared a cash dividend for
the ninth consecutive year.
Shareholders of record March 9 will be
paid $.10 per share on March 23.
When summarizing the changes since
1978, it is important to emphasize that
Republic's operations tripled in the 15-
month period between July 1979 and
October 1980. Three regional networks
were combined to form one national
system with traffic feeding from
intermediate-sized cities into major
hubs. To develop this expansion into an
effective system. Republic had to add
service connecting major markets, even
though economic recession and higher
fares were reducing air travel.
Overall results to date are encouraging.
Route maturity will produce increased
traffic, and the elimination of marginal
service will reduce costs. With an
improving economy, the company
should return to profitability in the
second half of the year.
In the accompanying table, the
differences in the major factors of
change are listed for the year 1980
compared to 1979, and for 1979
compared to 1978.
Under Operating Revenues, the item
Passenger Miles reflects new income
generated as more passengers flew
greater distances on Republic. The
differences in Passenger Fares
represent inflationary forces on ticket
prices. These higher fares were partially
offset by discounts to generate
additional traffic on certain routes and
to meet competition. Public Service
Revenues vary because of changes in
the factors included in the prescribed
formula which compensates airlines for
service to smaller cities. Cargo and
Other Revenues were affected by rate
adjustments.
Operating Expenses during the past
two years were greatly influenced by
the substantial increase in available
seat miles resulting from extensive
route expansion and new, large-
capacity jets. The 1979 to 1980 change
was largely due to the additional aircraft
and personnel from Airwest. Labor and
Employee Benefits, which comprise 34
percent of operating costs, rose as pay
rates and employment increased.
The total cost of Aircraft Fuel soared
because prices increased $.15 per
gallon in 1980 and $.36 in 1979. As
operations expanded, jet fuel usage
rose 61.1 million gallons in 1980, and
27.6 million gallons in 1979.
A decline in Operating Profit occurred
mainly because of the adverse impact
of the worsening economy. Normal
traffic increases failed to materialize.
Also, the additional capacity from new
aircraft did not produce the expected
passenger loads.
Other Expenses (Income) consist
largely of interest charges on loans tied
to the high prime rate, which were
incurred to purchase new aircraft. Gains
on disposition of equipment and
capitalization of interest on advance
deposits for aircraft are included in this
item.
MAJOR FACTORS OF CHANGE
(Thousands of dollars)
Differences
1980 to 1979 1979 to 1978
Operating revenues Percent Percent
Passenger miles $125,100 24 $ 86,600 14
Passenger fares 174,800 27 33,000 13
Public service revenues (4,000) (15) 9,800 60
Cargo and other revenues 11,600 21 (7,700) (12)
Net revenue changes 307,500 50 121,700 25
Operating expenses
Labor and employee benefits 61,000 24 53,900 28
Aircraft fuel 133,700 101 52,400 66
Other operating expenses 127,600 64 30,100 18
Net expense changes 322,300 55 136,400 31
Changes in operating profit .
(14,800) (53) (14,700) (34)
Other expenses (income) 23,100 138 4,000 31
Income taxes
Changes in net results
(200)
$ (37,700)
(11) (7,200)
$ (11,500)
(32)
4
Liquidity and Capital Resources
Republic has made major commitments
to purchase new, more fuel-efficient jets
to replace older planes and expand
routes. In 1980, the company's
acquisition costs for new aircraft were
$119 million, and in 1979 were $88
million. Another $307 million will be
expended in 1981 and 1982 (see Fleet
Development).
Advance orders require pre-delivery
deposits of about one-third of the
purchase price. During 1980, internally-
generated cash flow from operations
and funds from the company's revolving
credit agreement were used to make
most of these deposits.
The company has historically met
capital requirements for aircraft
purchases through long-term financing.
In 1980, this was accomplished through
leveraged leases having 18-year terms
with fixed-price purchase agreements,
and by long-term bank debt.
Republic is exploring a number of
alternative sources of financing for the
seven DC-9-80 aircraft due in 1981,
valued at approximately $142 million.
Discussions are underway, but firm
financing commitments have not yet
been completed.
In October 1980, the company
purchased Hughes Airwest for $38.5
million. Funds for this transaction were
provided by long-term bank debt of $24
million and the issuance of $14.5 million
in convertible subordinated debentures.
Also, Airwest's loans and financing
commitments were consolidated into
Republic's long-term debt.
At year-end, total long-term debt was
$652.3 million, which includes $397.5
million drawn against a $450-million
revolving credit agreement negotiated
October 1, 1980. The balance of this
credit will be used to pay for certain
aircraft being delivered in 1981.
To improve its current financial posture
and increase available cash, the
company sold $28 million of preferred
stock in its wholly-owned subsidiary.
Republic Airlines West, Inc. This stock
is not convertible to common stock of
Republic Airlines, Inc., and was
privately placed in March 1981.
As DC-9-80S are introduced and
service to several cities is eliminated,
some of the less efficient aircraft will be
sold. The proceeds should generate
additional cash and reduce debt.
Further discussion of the company's
operations begins on page 6. Five-year
financial and traffic data is summarized
on page 25; and supplemental
stockholder information, including
quarterly statements and the effects of
changing prices, can be found on
pages 26-28.
While the past year has been a
challenging one for Republic--with its
transition to a major carrier having to be
accomplished in a weak economic
climate--the company has developed a
strong route system with excellent
potential for future earnings.
Expanded service to New York
City increased revenues.
1980
1979
1978
1977
1976
Revenues
(in millions)
n;- ^ ^
5
The new Atlanta Midfield Terminal
has led to significantly improved
service at this major hub.
Have a
sweet ole
time.
ATLANTA
REPUBLIC
Traffic growth and performance
Republic flew 4.8 billion passenger
miles and carried 13,220,195
passengers in 1980. Passenger miles
were up 24 percent, while passenger
boardings rose nine percent compared
with 1979. The airline flew 37.1 million
cargo ton miles, a 15 percent gain.
These increases resulted from new
long-haul routes, special discounted
fares, and Republic's acquisition of
Hughes Airwest on October 1, 1980.
However, the impact of the depressed
national economy and standard fare
increases--brought on by rising fuel
and labor costs--restricted normal
traffic growth during 1980. Business
and leisure travel were both adversely
affected.
In addition to scheduled service.
Republic transported 35,488
passengers on 258 charter trips. These
charters went to 42 states and such
diverse points as Jamaica and Nassau
in the Caribbean, and Zihuatanejo,
Mazatlan and Puerto Vallarta in Mexico.
During peak travel periods, 211 extra
sections of scheduled flights were
operated.
A new monthly record was set when
1,468,963 passengers were carried in
October 1980. The 66,227 people who
flew Republic on November 30
established a new single-day high.
The 37,113,000 cargo ton miles were
up because of a 47 percent increase
in mail ton miles. This was due to
Republic's increased long-haul routes,
convenient departure times and
excellent handling. Freight and express
ton miles remained nearly constant.
To reflect a more comparable year-to-
year analysis of traffic results, the
statistics of Hughes Airwest can be
added to those of Republic from
January 1, 1979 through September 30,
1980. Such combined statistics show
that revenue passenger miles in 1980
increased eight percent to 7.1 billion
from 6.5 billion. Passenger boardings
were 17.4 million, up from 17.3 million
in 1979. Cargo ton miles rose to 46.2
million from 42.7 million, a gain of eight
percent.
The VIP small parcel service remains
popular, as 175,000 "Very Important
Packages" were entrusted to Republic.
The expedited handling offered by VIP
has proven valuable for moving
important, time-sensitive materials such
as medical supplies, legal documents,
news film and tape, data processing
material, and small parts. VIP service
has been extended to Montreal and
Toronto.
Republic continued to provide safe,
dependable scheduled service in 1980.
The airline completed 98.8 percent of
its 102,217,000 scheduled miles. Less
than four-tenths of one percent of
scheduled departures were cancelled
for maintenance reasons, and only 1.4
percent were delayed by mechanicals.
The company has always maintained
high standards for operating
performance, and is consistently a
leader in the airline industry. Republic's
outstanding record reflects the
dedicated work of the personnel
involved in the day-to-day operation.
6
New facilities and services
The Atlanta Midfield Terminal and the
Minneapolis/St. Paul Green Concourse
highlight the many improvements
provided for Republic passengers in
1980.
Hartsfield Atlanta International, the
second-busiest airport in the country,
opened a $500-million complex
designed for rapid transfers between
four concourses. Republic occupies 15
gates on Concourse D. The Midfield
Terminal offers improved parking,
ticketing and baggage claim service,
more accessible concessions,
comfortable passenger lounges, and jet
bridges at all gates to protect
passengers from the elements. An
innovative automatic train system
connects the concourses with the main
terminal building.
At Minneapolis/St. Paul, the Green
Concourse was extended 800 feet to
accommodate Republic's 10 gates and
boarding areas. The ground level has
offices for Republic flight operations,
inflight and customer service personnel.
New ticket counter and baggage claim
areas will be operational when the
terminal expansion is finished this
summer.
New or improved Republic facilities
were completed in terminals at Eureka/
Areata, Idaho Falls, Salt Lake City,
Reno, Oakland, Phoenix, Denver,
Houston, Montreal, Lansing, Saginaw/
Bay City/Midland, Milwaukee, St. Louis,
Huntsville/Decatur and Memphis.
Changes are underway in terminals at
Brainerd, Eau Claire, Chicago,
Columbus (Ohio), Tupelo, Meridian,
Baton Rouge, Gulfport/Biloxi and
Orlando.
Air freight terminals were constructed or
remodeled at Atlanta, Memphis,
Tallahassee, Saginaw/Bay City/Midland
and Seattle/Tacoma. Cargo facilities are
planned for St. Louis and Birmingham.
A major addition to the company's
maintenance base at Phoenix was
completed in January 1981. Over
268,000 square feet of space is now
available for maintenance functions, as
well as reservations, sales and other
administrative needs.
A $16.5 million expansion of Republic's
Main Operations Base in Minneapolis/
St. Paul is underway. The project will
provide an additional 206,000 square
feet of space for maintenance of
aircraft, components, ground equipment
and facilities, as well as stores and
inventory control. Also, a 190,000-
square-foot ramp extension has been
completed.
SCEPTRE, Republic's computer
program for maintenance and corporate
data, was upgraded in 1980 to improve
its capabilities to schedule aircraft
maintenance and track parts inventory.
The logic for SCEPTRE was sold to
four major airlines and five non-airline
corporations for a total of $1,250,000.
Integration of computer operations for
the western region is expected by
October 1981. To gain the necessary
capacity, the company has ordered a
third IBM 3033. In addition, a new
Systems Network Architecture is being
developed to connect hundreds of
locations with SCEPTRE and with
ESCORT, the airline's reservations
system. Airwest formerly contracted for
these services with another carrier.
The Seattle central reservations office,
which serves Washington, Oregon,
Idaho, Montana, Alberta and British
Columbia, moved to larger quarters in
May 1980. For two consecutive years.
Republic has received industry
recognition for having the highest
number of enplaned passengers per
reservations agent. This honor, an
important measure of productivity,
means that Republic responds to
calls effectively and efficiently.
Over 40,000 letters and calls from
passengers were answered by the
Consumer Affairs Department. After a
comprehensive study of Republic's
system-wide baggage operation, a new
training program is being implemented
to improve baggage delivery and
reduce damage and loss compensation.
As a result of the Airwest acquisition.
Republic now has several contracts to
provide technical assistance to foreign
airlines which are administered by the
Overseas Operations Department. The
company has long-term programs in
Mauritania (Africa), the Philippines and
Argentina to lease aircraft and supply
advisory personnel. Also, Republic
provides flight training for TOA
Domestic Airlines of Japan and
purchasing, maintenance and pilot
training for the Bank of Mexico.
In 1980, the company completed its
contract to provide purchasing services
in the Philippines and a major project
for Saudia Arabia--supplying aircraft,
pilots, mechanics and ground
operations support.
Improving facilities and service is an
unending process as Republic grows
and takes advantage of technological
developments. Such changes are
essential to sustain a superior air
transportation system.
Republic boards over one million
passengers annually at Chicago.
7
Environmental and social programs
As a responsible corporate citizen,
Republic Airlines is actively concerned
about the environment and the prudent
use of natural resources and personnel.
To fulfill these obligations, the company
becomes directly involved with the
diverse needs of a complex society.
Republic's environmental programs
encompass many areas. Fuel
conservation, noise abatement, and
safety all relate to operational matters,
yet have wide-spread consequences for
the 200 communities served by the
company. Employees worked vigorously
last year to save fuel, reduce the
impact of noise on neighborhoods near
airports, and maintain safe, dependable
equipment.
The DC-9 Super 80, which Republic
introduces in the summer of 1981, will
play an Important role in meeting
environmental requirements. Because
of its advanced technological design,
the DC-9-80 reduces the high-noise
area around airports to one-fifth of the
territory affected by comparable aircraft
now in use. In addition, it has the
lowest fuel consumption per passenger
of any commercial jet airliner, up to its
maximum range.
The stringent environmental
requirements of communities with
special situations can be met by this
new aircraft and noise-abatement
operational techniques. In turn, this will
allow Republic to continue operations at
highly-desirable, but environmentally-
sensitive airports and to consider
possible expansion.
Other programs implemented during
1980 not only conserve energy and
increase safety, but also result in
substantial savings. For example, a
central pneumatic system at the new
Atlanta Midfield Terminal provides air
conditioning, heat, and compressed air
for starting jet engines. This system,
one of the first of its kind, will save
Republic over $800,000 annually.
Conservation also resulted from
installation of centrally-located aircraft
de-icing systems at Minneapolis/
St. Paul, Green Bay/Clintonville, and
Milwaukee. A system-wide winter
servicing schedule for aircraft has
reduced the use of glycol.
Republic's employee programs provide
outstanding benefits. Life insurance,
medical protection with care for the
chemically dependent, and retirement
plans offer comprehensive coverage. A
stock purchase plan allows employees
to buy shares of Republic by payroll
deduction, and a suggestion system
called "Idea Dollars'' pays cash
bonuses to those who develop new or
better job techniques.
Many employees participate in the
company's new Educational Assistance
Program which pays half the cost of
tuition, books and fees for job-related
courses. The company introduced a
scholarship program for dependents of
Republic employees. The recipients are
selected by an independent panel of
educators on the basis of academic
achievement and need. Each year, ten
$1,000 scholarships are awarded for
college or technical school.
Some 1,200 new employees were
selected in 1980 from 125,000
applicants. Affirmative action plans and
equal employment opportunity
programs, reviewed and approveo by
the Federal government, are
followed in the hiring process.
Good employees are essential for the
company to provide outstanding
service. Republic's 15,000 people are
highly skilled, and many have extensive
experience in the airline industry. They
are employed at 200 locations in 34
states, and in Canada, Mexico, and the
Caribbean. Five thousand of these
professionals were added to the ranks
with the acquisition of Flughes Airwest.
In word and action. Republic continues
to demonstrate concern for its
employees and the cities it serves.
Visit your father.WASHINGTON DC
Republic serves National, Dulles and
Baltimore- Washington airports.
8
The Port of New Orleans, home
of Dixieland music, is within
easy flying distance of many
Republic cities.
a blast NEWORLEANS
REPUBLIC
AIPUHES
Communications
The acquisition of Hughes Airwest by
Republic Airlines was the primary
communications topic during 1980.
From the announcement of the
purchase agreement in March until the
transaction was completed on October
1, the general public and employees of
both companies were kept up-to-date
through a wide range of media.
Information was distributed during the
spring and summer as the acquisition
proceeded. Hundreds of questions from
employees were handled by "Direct
Approach," a toll-free telephone system
which provides answers from top
management on a confidential basis.
Officers of Republic visited every
Airwest location to meet with
employees.
In the fall, public relations and
advertising campaigns were launched,
particularly in the west, to emphasize
that Airwest would become part of
Republic. Over 2,000 members of the
news media received press kits with
stories, fact sheets and photos.
Advertising was placed with nearly 30
magazines and 70 newspapers.
Commercials were carried on 55
television channels and over 180 radio
stations. All used the theme "Joining
more of America than any other airline."
With the completion of the acquisition
on October 1, visual aspects of the
change became noticeable almost
immediately. Republic identification was
on aircraft and passenger ground
facilities in just a few weeks. All planes
in the fleet are being repainted in the
aqua, blue and white corporate design
as maintenance schedules permit.
Sales promotion and advertising
supported the overall corporate
marketing effort for 1980. Individual
campaigns highlighted the introduction
of new destinations, improved service,
and special fares.
An award-winning series of eye
catching posters was created to
spotlight Republic's major destinations.
The posters depicted throughout this
report are among those featured in
Republic gate areas and distributed to
travel agencies. Larger versions are
being used for outdoor advertising.
A new audio-visual presentation about
Republic was developed to promote the
airline at community and industry
functions. Special tour folders describe
vacation packages available through
Republic for Canadian fishing, and trips
to Toronto, Montreal, New York, San
Diego, Las Vegas, Colorado, Nashville,
New Orleans, Florida and the Cayman
Islands.
Nearly 75,000 sales calls were made
on travel agencies and key commercial
accounts. Mailings, meetings and tours
also kept these important audiences
informed about Republic's rapidly-
expanding system.
In 1980, new uniforms were selected
for flight attendants, passenger service
agents, skycaps and station agents.
The new attire is designed to reflect a
classic, professional image. The
uniforms are already in use and are
receiving favorable comments from the
traveling public and employees. The
entire program will be completed during
1981.
The July issue of Money magazine
cited Republic for its excellent food and
beverage service. Based on a survey of
frequent airline travelers, the magazine
included two of the company's meals
among a dozen superior inflight
offerings.
Over 7,000 visitors received guided
tours of the airline's facilities across the
country. Another 12,000 guests
attended public functions in the
company's headquarters, located at
Minneapolis-St. Paul International
Airport.
Through extensive communications
efforts, the traveling public and
company employees are being kept
aware of the identity and progress of
Republic Airlines.
9
Pier into
SEATTLE.
r^REPUBLIC
AIRLINES
Seattle is one of many West
Coast cities with Republic
service to the east.
Jet fuel outlook
In 1980, concern over jet fuel shifted
from availability to cost. Conservation
and greater production held supplies
steady, but the average price per gallon
still escalated from 76 cents to 91
cents, an increase of 20 percent.
Republic spends over $1 million a day
for fuel, and that amount is nearly 60
percent of the direct operating costs for
the company's 158 aircraft.
Since 1973, Republic's fuel prices have
risen a precipitous 900 percent. Despite
this unavoidable and drastic pressure
on expenses, the Civil Aeronautics
Board waited until May 15, 1980, to
permit prompt compensating fare
adjustments. Since then, the airlines
have been able to recover fuel costs
more rapidly.
To assist the company in meeting
future fuel needs. Republic Energy,
Inc., a wholly-owned subsidiary, was
formed in September 1980. Primary
emphasis of the new company is to
seek leasehold interests and to drill for
oil and gas--concentrating its efforts in
known oil regions within the continental
United States. The Texas-based
subsidiary has attracted a number of
highly qualified geologists and
engineers, and is conducting
exploration in Texas and Louisiana.
The advanced technology built into the
new DC-9 Super 80 will help greatly to
conserve fuel. The engine and wing
designs of the plane contribute to a fuel
savings of 20-40 percent over aircraft of
comparable size. Republic expects to
put the Super 80s in scheduled service
this summer.
Flight operating techniques are
continually being monitored in an effort
to reduce waste and conserve fuel. The
airline implemented computer-assisted
flight planning, higher average flying
altitudes, and on-board performance
data computer systems. On the ground,
careful selection of runways can save
aircraft taxi time. Even a small
adjustment has a significant impact.
Reducing one minute of taxi time (either
in or out) on all of Republic's flight
segments could save $2.7 million
a year.
Improved ground techniques also
contribute to fuel savings. Ground
power generators at gates are being
added at major airports. More extensive
training is being provided for station
personnel who handle aircraft and
graund support equipment.
Although the jet fuel outlook is
uncertain, conservation and
technological advances will help protect
supplies of this vital commodity.
10
Fleet development
The Douglas DC-9 Super 80--
quietest and most fuel-efficient jet on
the market today--joins the Republic
fleet in 1981. This 147-passenger
aircraft is powered by two new high-
technology engines which burn 20-40
percent less fuel than jets of
comparable size and operate at noise
levels well within Federal standards.
Republic has 14 Super 80s on order.
The first is scheduled to arrive in July
and will go directly into scheduled
service. Six more Super 80s are being
added this year; three by November 1.
Seven will be delivered in 1982.
The company is continuing its extensive
acquisition program which calls for the
purchase of 38 jet aircraft in 39
months--from September 1979 to
November 1982. Among that group are
the 14 new DC-9-80s, ten new DC-9-
50s, and seven new Boeing 727-200 tri
jets. During 1980, the company took
delivery of five of the DC-9-50s and
four of the 727s. The DC-9-50s carry
130 passengers and are ideally
designed for medium-length flights. The
727s provide range and capacity for
long- haul routes and perform well at
high-altitude airports.
With the acquisition of Hughes Airwest
on October 1, another 47 jet aircraft--
41 DC-9s and six 727s--were added to
scheduled operations. Some of the
company's less efficient aircraft will be
sold as new planes are delivered. In
recent months, three Convair 580s,
three Fairchild F-27s and seven
Swearingen Metro Ms were sold.
Republic operates the seventh-largest
commercial jet fleet in the world. It now
consists of 158 aircraft--13 Boeing
727s, 125 DC-9s and 20 Convair 580s.
In 1980, wide-body interiors were
installed on many of the DC-9-1 Os, and
the aircraft were painted in the new
Republic aqua, blue and white color
scheme as maintenance schedules
permitted. The standard Republic
design will be on all former Airwest
aircraft by the spring of 1982.
As part of the commitment to the DC-9
Super 80s, the company has ordered
the newest state-of-the-art DC-9-80
flight simulator. Republic, the second
airline to order this, will add the
sophisticated six-axis simulator to those
already in use at the company's training
center in Atlanta. These devices
provide pilots with highly effective.
Federally-approved training without
using aircraft and costly jet fuel.
Other new equipment has enhanced
the operating capabilities of the
Republic fleet. A "dial-up" system for
ground-based weather radar gives
Republic pilots instant access to color
TV pictures showing inclement weather
in any area of the country. This
provides pilots with advanced
information on en route weather for
flight planning purposes.
Omega Navigation Systems are being
installed on Republic 727s, giving the
crew one of the most sophisticated
systems available. In addition to the
fuel savings potential, this system
permits Republic to operate off shore,
beyond the range of conventional
navigation aids.
Republic's comprehensive fleet
development program will help hold
operating expenses down and allow the
company to earn a reasonable rate of
return on this major investment. At the
same time, the traveling public will have
versatile, dependable aircraft for years
to come.
The quiet, fuel-efficient DC-9 Super 80 joins the
Republic fleet this year.
11
Route development
Tremendous expansion of Republic's
route system was accomplished in 1980
by the acquisition of Hughes Airwest
and the inauguration of new nonstop
service between many major cities.
From Airwest, the company gained
established routes with hubs at
Phoenix, Las Vegas, Los Angeles, San
Francisco, Seattle/Tacoma, Spokane,
Boise and Sait Lake City. Among the
46 new cities joining the system were
the important California satellite
markets of Burbank, Orange County/
Santa Ana/Anaheim and Ontario/
Riverside in the south; San Jose and
Oakland in the north. The acquisition
added two Canadian cities--Edmonton
and Calgary--and extended Republic's
system into Mexico for the first time.
The airline now serves Mazatlan and
Puerto Vallarta through the Phoenix
gateway.
Detroit-Montreal nonstop flights were
inaugurated under terms of the
amended 1966 Bilateral Air Transport
Agreement between the United States
and Canada. Republic is the only
carrier with authority to provide nonstop
service in this market.
Taking advantage of provisions in the
Airline Deregulation Act of 1978,
Republic introduced new nonstops
between 33 city pairs, including
Chicago-Nashville, Detroit-New York,
Atlanta-New York, Milwaukee-Denver
and Burbank-Houston.
As required by the Act, the Civil
Aeronautics Board removed most
operating restrictions from domestic
carriers' routes. With few exceptions.
Republic is now able to fly between any
two domestic cities on its system. The
company also has authority to serve
many other U.S. and Mexican cities,and
destinations in the Virgin Islands,
Puerto Rico, the Bahamas, Bermuda,
Barbados, Jamaica, and cities in
Central and South America.
All route authority is periodically
reviewed to determine where new
service will assure orderly growth and
the most productive use of the
company's resources. Special emphasis
is being placed on long-haul "bridge
routes'' connecting large and medium
sized metropolitan areas throughout the
country.
Deregulation and the high cost of fuel
has intensified the analysis of current
service by all carriers. For example,
one major airline curtailed flights at a
number of Michigan cities and totally
withdrew from others. Republic was
able to step in, augment schedules, and
actually improve air transportation in
these communities.
On the other hand. Republic has had to
leave some cities which board only a
few passengers on each trip. With such
light traffic, even service with 48-
passenger Convair 580s is no longer
economically feasible. Consequently,
Republic has filed applications with the
CAB to terminate service at several
cities, and additional ones will need to
be filed in 1981.
To minimize adverse effects from these
withdrawals. Republic actively seeks
replacement commuter carriers and
provides support for them, such as
ground service, facilities, training, joint
fares and advertising. This often allows
travelers from these cities to
conveniently connect with Republic
flights. The program is designed to
strengthen the company's working
relationship with the smaller carriers to
assure that the communities Republic
has served in the past will continue to
receive essential air transportation.
During the last two years, the airline
has undergone tremendous change. Its
size has tripled, and regulatory
conditions have created an entirely
different operating environment.
Through judicious use of new
opportunities. Republic is developing a
progressive and profitable route system.
Florida service is designed to attract
business and leisure travelers.
Stake a claim; FLORIDA
12
Montreal, a new city on the
Republic system, is important
to future development.
The future
Economic conditions, jet fuel prices,
company productivity, and development
of Republic markets are the principal
factors affecting the future.
The airline's decision to concentrate on
routes of 400-1,500 miles has resulted
in tremendous traffic opportunities.
Long-haul flights between major cities
lengthen the average miles per flight
and average distance per passenger.
This lowers operating costs per revenue
dollar, which significantly improves
profit potential.
Proceeding with this approach.
Republic has scheduled April 1981
inaugurals for nonstop flights such as
Seattle/Tacoma-Minneapolis/St. Paul,
Phoenix-Seattle/Tacoma, Denver-
Memphis and Denver-Eugene. All
flights have direct or on-line connecting
service to other Republic cities. During
the year, similar long-haul service will
be added in other important markets.
As the nation's recovery process
gathers momentum, passenger and
cargo traffic will increase, resulting in
revenues of over $1.5 billion in 1981.
The past two years have been a time of
dynamic transition. Now, with strategic
planning and the dedicated efforts of
Republic's 15,000 employees, the
company will achieve maximum benefit
from this unique era of growth and
development.
13
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Consolidated balance sheets
ASSETS
CURRENT ASSETS
Cash and short-term investments
Accounts receivable, less allowances
Flight equipment parts and supplies
Prepaid expenses and other
PROPERTY AND EQUIPMENT-at cost
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
Accounts payable
Interline payables and tickets outstanding ...
Accrued compensation and other expenses .
LONG-TERM OBLIGATIONS
Long-term debt-less current maturities
Deferred income taxes and other
COMMITMENTS (notes E and F)
STOCKHOLDERS' EQUITY
Common stock-authorized 30,000,000 shares of $.20 par value ..
Additional paid-in capital
Retained earnings
Treasury stock-at cost
The accompanying notes are an integral part of these statements.
REPUBLIC AIRLINES, INC.
and Consolidated Subsidiary
December 31
1980 1979
$ 50,145,000
119,873,000
43,262,000
35,730,000
249,010,000
801,171,000
97,995,000
899,166,000
180,926,000
718,240,000
60,135,000
778,375,000
8,841,000
$1,036,226,000
$ 21,359,000
58,435,000
70,198,000
113,215,000
263,207,000
652,257,000
3,135,000
655,392,000
4,190,000
48,607,000
64,830,000
117,627,000
$1,036,226,000
$ 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
39,910,000
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
Consolidated statements of operations
Year ended December 31
1980 1979 1978
OPERATING REVENUES
Passenger
Freight and mail
Public service revenues
Non-scheduled service and other
$827,678,000
50,585,000
22,354,000
16,098,000
$527,792,000
41,510,000
26,362,000
13,566,000
$408,243,000
34,062,000
16,523,000
28,737,000
916,715,000 609,230,000 487,565,000
OPERATING EXPENSES
Flying operations
Maintenance
Aircraft and traffic servicing
Passenger service
Reservations, advertising and sales
General and administrative
Other transport-related expenses
Depreciation and amortization
374,079,000
103,713,000
171,632,000
69,087,000
99,315,000
40,107,000
5,248,000
40,310,000
211,260,000
70,436,000
128,059,000
43,782,000
66,300,000
28,054,000
3,846,000
29,440,000
144,106,000
54,774,000
103,789,000
30,467,000
46,093,000
24,468,000
11,806,000
29,253,000
903,491,000 581,177,000 444,756,000
Operating profit 13,224,000 28,053,000 42,809,000
OTHER EXPENSES (INCOME)
Interest expense
Less interest capitalized
57,767,000
9,426,000
26,497,000
6,375,000
18,688,000
2,015,000
Interest income and other -
net
Gain on disposition of equipment
48,341,000
(4,403,000)
(4,112,000)
20,122,000
(1,378,000)
(2,002,000)
16,673,000
(2,593,000)
(1,306,000)
39,826,000 16,742,000 12,774,000
Earnings (loss) before income taxes (26,602,000) 11,311,000 30,035,000
INCOME TAXES
Current
Deferred
140,000
(2,080,000)
706,000
(2,456,000)
2,724,000
2,740,000
(1,940,000) (1,750,000) 5,464,000
NET EARNINGS (LOSS) $(24,662,000) $ 13,061,000 $ 24,571,000
NET EARNINGS (LOSS) PER SHARE
Primary $(1.19) $.70 $1.42
Fully diluted $(1.19) $.68 $1.31
The accompanying notes are an integral part of these statements.
16
17
Consolidated statements of changes in financial position
SOURCES AND APPLICATIONS OF Year ended December 31
WORKING CAPITAL 1980 1979 1978
SOURCES
From operations
Net earnings (loss) $(24,662,000) $ 13,061,000 $ 24,571,000
Charges (credits) to operations not using (providing)
working capital
Depreciation and amortization 40,310,000 29,440,000 29,253,000
Deferred income taxes and other (808,000) (784,000) 3,982,000
Working capital provided from operations ...
14,840,000 41,717,000 57,806,000
Net book value of equipment dispositions 23,656,000 2,159,000 7,018,000
Increase in long-term debt 421,475,000 187,797,000 105,998,000
Conversion of debentures to common stock -
7,864,000 1,031,000
Options and warrants exercised 602,000 13,490,000 462,000
Disposition of treasury stock 7,207,000 - -
Other 1,878,000 328,000 429,000
469,658,000 253,355,000 172,744,000
APPLICATIONS
Acquisition of Hughes Airwest
Increase in long-term debt (purchase price) ...
(38,500,000) - -
Property and equipment acquired . . .
240,542,000 - -
Long-term liabilities assumed . ..
(141,223,000) - -
60,819,000 - -
Additions to property and equipment , . .
202,696,000 116,857,000 114,207,000
Reduction of long-term debt ,
211,929,000 113,449,000 50,958,000
Conversion of debentures to common stock
. . .
7,864,000 1,031,000
Payment of cash dividend 4,142,000 2,477,000 2,014,000
Acquisition of treasury stock 6,892,000 - -
Additions to deferred charges and other assets ....
5,838,000 1,340,000 2,896,000
INCREASE (DECREASE)
492,316,000 241,987,000 171,106,000
IN WORKING CAPITAL
. . .
(22,658,000) 11,368,000 1,638,000
Working capital (deficit) at beginning of year 8,461,000 (2,907,000) (4,545,000)
Working capital (deficit) at end of year . ..
$(14,197,000) $ 8,461,000 $ (2,907,000)
NET CHANGE IN WORKING CAPITAL ELEMENTS
Cash and short-term investments
....
$ 36,967,000 $(20,221,000) $ 10,151,000
Accounts receivable 35,053,000 38,588,000 3,875,000
Flight equipment parts and supplies 12,491,000 14,548,000 3,231,000
Prepaid expenses and other 19,808,000 4,012,000 1,419,000
Current maturities of long-term debt (3,140,000) 5,938,000 5,868,000
Accounts payable ....
(18,252,000) (14,452,000) (9,073,000)
Interline payables and tickets outstanding ....
(32,280,000) (10,121,000) (6,128,000)
Accrued compensation and other expenses ....
(73,305,000) (6,924,000) (7,705,000)
INCREASE (DECREASE)
IN WORKING CAPITAL
....
$(22,658,000) $ 11,368,000 $ 1,638,000
The accompanying notes are an integral part of these statements.
18
Consolidated statements of changes in stockholders' equity
Years ended December 31, 1980, 1979 and 1978
Common Stock Additional Treasury Stock
Shares Paid-In Retained Shares
Issued Amount Capital Earnings Held Amount
Balance at January 1, 1978 ....
16,117,191 $3,223,000 $25,902,000 $60,493,000 134,594 $ 380,000
Cash dividend - - -
(2,014,000) -
-
Exercise of stock options
and warrants 152,546 31,000 431,000 _
Conversion of debentures
..
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 83,050,000 134,594 380,000
Cash dividend
Exercise of stock options
and warrants 2,650,473 530,000 13,248,000
(2,477,000)
Conversion of debentures
..
1,621,013 324,000 7,540,000 - -
-
Net earnings for 1979 - - -
13,061,000 - -
Balance at December 31, 1979
.
20,754,316 4,151,000 48,109,000 93,634,000 134,594 380,000
Cash dividend - - -
(4,142,000) - -
Exercise of stock options
and warrants 196,575 39,000 563,000
Acquisition of treasury stock - - - -
1,060,240 6,892,000
Disposition of treasury stock - -
(65,000) -
(1,194,834) (7,272,000)
Net loss for 1980 - -- --
(24,662,000) -- -
Balance at December 31, 1980
.
20,950,891 $4,190,000 $48,607,000 $64,830,000 -
$
The accompanying notes are an integral part of these statements.
Auditors' report
Alexander Grant
& COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
MEMBER FIRM
GRANT THORNTON INTERNATIONAL
Stockholders and Board of Directors
Republic Airlines, Inc.
We have examined the consolidated balance sheets of Republic Airlines, Inc. (a Wisconsin
corporation) and its subsidiary as of December 31, 1980 and 1979, and the consolidated
statements of operations, changes in stockholders' equity and changes in financial position
for the years ended December 31, 1980, 1979 and 1978. 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 our opinion, the consolidated financial statements referred to above present fairly the
financial position of Republic Airlines, Inc., and its subsidiary at December 31, 1980 and
1979 and the results of their operations and changes in their financial position for the years
ended December 31,1980,1979 and 1978 in conformity with generally accepted accounting
principles applied on a consistent basis, except for the change in 1979, with which we
concur, in the method of capitalizing interest as discussed in note B to the financial
statements.
Minneapolis, Minnesota
February 27, 1981
19
Notes to financial statements
December 31,1980,1979 and 1978
Note A-Summary of Significant Accounting Policies-The
company, as an airline providing scheduled service for passen
gers, 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 required by the CAB. The
significant policies followed by the company are:
1.Principles
of Consolidation-. The consolidated financial state
ments include the accounts of Republic Airlines West. Inc., a
wholly-owned subsidiary. (See note C for information concerning
the acquisition of Hughes Air Corp. d/b/a Hughes Airwest).
2.Flight
Equipment Parts and Supplies'. These are priced at
average cost. An allowance for obsolescence ($6,038,000 in
1980 and $5,099,000 in 1979) is provided for repairable parts
by allocating their cost over the life of the related aircraft.
3.Prepaid
Expenses-Engine Overhaul'. The company reclas
sifies 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
($19,045,000 in 1980 and $10,303,000 in 1979). Actual overhaul
costs are charged to expense as incurred.
4.Capitalized
Interest'. To properly reflect their total cost, major
additions to flight equipment and ground facilities include capi
talized interest based on the interest rate of the related debt
outstanding. The capitalized interest is amortized over the useful
lives of the related assets for financial reporting purposes. For
income tax reporting purposes, interest is expensed as incurred.
5.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 amortization 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.
6.Deferred
Charges'. Significant costs, such as major computer
software development, traffic promotion related to the inaugu
ration 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.
7.Passenger
Revenues'. Passenger revenue is recognized
when the transportation service is provided. Unused ticket sales
are included as a current liability.
8.Pension
Costs'. The company has pension plans for sub
stantially all of its employees, and funds its current expense of
normal costs. Prior service costs are amortized over varying
periods up to 40 years. Pension funding is determined under the
unit credit, aggregate frozen liability, and individual entry age
normal methods.
9.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 income
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 B-Change in Accounting Method-In the fourth quarter
of 1979, the company changed its method of computing capi
talized interest to conform with the requirements of Financial
Accounting Standards Board Statement No. 34. The company
previously capitalized interest based on the weighted average
interest rate of debt outstanding. The effect of the change was
to increase capitalized interest recognized in 1979 by $895,000
and increase net earnings by $806,000 ($.04 per share primary
and fully diluted).
Note C-Acquisition of Hughes Airwest-On October 1, 1980,
the company acquired from Summa Corporation and the Estate
of Howard R. Hughes, Jr. all of the outstanding stock of Hughes
Airwest. The total purchase price for all the stock was
$38,500,000 consisting of $24,000,000 cash and $14,500,000
of the company's 13% convertible subordinated debentures.
Hughes Airwest was a regional airline operating primarily in the
western portions of the United States. The name of the acquired
company was changed to Republic Airlines West, Inc. and will
continue its operation using the name 'Republic Airlines."
The fair value of the net assets acquired exceeded the
$38,500,000 purchase price by $44,028,000. This amount has
been allocated primarily to flight equipment as a reduction in fair
value.
Results of Republic Airlines West, Inc. operations since the ac
quisition date are included in the Consolidated Statements of
Operations. The following data presents on a pro forma basis
the combined results of operations as if the acquisition of Hughes
Airwest had been effected on January 1, 1979. Pro forma ad
justments have been made to record interest on the funds bor
rowed and assumed to acquire Hughes Airwest, depreciation
on the increased values of operating property and equipment,
maintenance expense on the direct expense method rather than
20
the accrual method for Hughes Airwest, and income tax ad
justments based on pro forma operations (in thousands).
Year ended
December 31
(unaudited)
1980 1979
Operating revenues $1,238,955 $920,946
Net loss
Net loss per share
$(46,051) $(14,262)
$(2.22) $(.81)
Note D-Long-term Debt-Long-term debt at December 31 con
sists of the following (in thousands):
1980 1979
Revolving credit agreement (a) . . .
$397,500 $103,382
Quarterly installment notes (b) 71,925 35,279
Equipment Trust Certificates (c) ....
42,000 43,500
Capital lease obligations (d)
Subordinated debentures (e):
...
138,912 84,291
13% due November 15, 1992
....
14,500 -
6%% due December 15, 1982
...
1,646 -
Sundry 7,133 14,802
Total long-term debt (f) ...
673,616 281,254
Less current maturities (g) ...
21,359 18,219
$652,257 $263,035
(c)The
Equipment Trust Certificates require semi-annual sinking
fund payments of $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 op
tional sinking fund payments 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
1980, the company took delivery of five DC-9-50 aircraft
under capital lease agreements. The debt obligations relating
to the capitalization of these leases were $56,988,000 at De
cember 31, 1980. The obligations are payable in semi-annual
installments of approximately $3,062,000 through January 1,
1987 and $3,607,000 thereafter through January 1, 1999 in
cluding interest at 9y2%.
(e)On
October 1, 1980, the company issued $14,500,000 of
13% Convertible subordinated debentures due November 15,
1992 as partial payment for the acquisition of the stock of Hughes
Airwest. Interest payments are due semi-annually. Debenture
holders may convert the principal to common stock of the com
pany at $15.00 per share. Prior to November 15, 1992, deben
tures are redeemable beginning on November 16, 1985 at a
premium. Sinking fund payments of $1,450,000 are due annually
beginning November 15, 1983.
(a) On October 1, 1980, the company refinanced its existing
bank Revolving credit agreement. Under the new agreement,
the company may borrow up to a maximum of $450,000,000.
Commencing January 1, 1982, and for each calendar quarter
thereafter, the total commitment will be decreased by 33 equal
quarterly reductions until the termination date of December
1989. A 1/2% commitment fee is charged on the average daily
unused portion of the commitment. Proceeds from this agree
ment were used to refinance the company's existing Revolving
credit agreement, to purchase the stock of Hughes Ainwest, to
refinance substantially all of Hughes Airwest's existing debt with
the balance being used to finance the purchase price of three
new B727-200 aircraft scheduled for delivery in early 1981. In
terest is to be paid quarterly to each participating bank at y4%
to y2% over the Citibank, N.A. alternative rate. Effective rate at
December 31, 1980 was 22%
(b) Consists of various installment notes with final maturity dates
from 1986 through 1991 at interest rates ranging from 8y8% (for
notes guaranteed by the Federal Aviation Administration) to
1 y4% over the lending banks' prime rate. The effective rate at
December 31, 1980 was 22%%. The aggregate quarterly in
stallment payments will be approximately $3,935,000 including
interest in 1981.
As a result of the acquisition of Hughes Airwest, the company
assumed $1,927,000 of 6%% subordinated debentures due
December 15, 1982. Interest is payable semi-annually with a
sinking fund payment of $350,000 due December 15, 1981 and
the balance due December 15, 1982. Early redemption may be
made at a premium of 100.49% of face value during 1981.
(f)Substantially
all the flight equipment and spare parts owned
and leased by the company are pledged as collateral against
the above debt. Among the loan covenants are requirements for
the maintenance of debt equity ratios, restrictions on dividend
payments and coverage of fixed charges. At December 31,1980,
the company was in compliance with these restrictive covenants.
The company is required to maintain average compensating
balances ranging from 5% to 15% of the monthly average loan
outstanding or commitment and is required to pay interest rang
ing from y4% to y2% over prime on any average compensating
balance short fall. During 1980 the company was required to
maintain average compensating balances of $32,571,000. At
December 31, 1980, the required compensating balances (ad
justed for float) were approximately $45,515,000.
Included in Accrued compensation and other expenses at De
cember 31, 1980 was $22,785,000 of accrued interest relating
to the above debt.
21
Notes to financial statements
December 31,1980,1979 and 1978 (continued)
(g) Current maturities of all long-term debt obligations due in
each of the next five years following December 31, 1980 are as
follows:
1981 $21,359,000
1982 76,650,000
1983 75,791,000
1984 75,694,000
1985 76,890,000
Note E-Leases-The company has lease commitments for var
ious airport facilities based upon usage and landings, subject
to adjustment depending upon the needs of the airport operating
authority. The annual lease commitments are not determinable
due to the usage and adjustment factors. The company also
leases flight equipment, its main operating facilities, its main
tenance and training facilities, and other property and equipment.
The following is a summary of property under capital leases
included in property and equipment at December 31 (in
thousands):
1980 1979
Flight equipment $149,928 $84,185
Ground property and equipment 9,961 8,786
159,889 92,971
Less accumulated amortization 34,291 12,760
$125,598 $80,211
options for four additional DC-9-80 aircraft to be delivered in
1982. If all fourteen aircraft are purchased, an additional
$266,198,000 will be expended prior to and at delivery.
The company has advanced $13,953,000 and capitalized inter
est of $1,508,000 on purchase commitments for three Boeing
727-200 aircraft to be delivered in the first quarter of 1981. An
additional $32,557,000 will be expended prior to delivery.
The company has a purchase commitment on one new DC-9-
50 aircraft to be delivered in the first quarter of 1981. The com
pany has advanced $3,445,000 in cash and capitalized interest
of $818,000. An additional $8,492,000 will be expended prior
to delivery.
The company has advanced $1,377,000 on eight jet engines to
be delivered in 1981. An additional $8,510,000 will be expended
prior to delivery.
At December 31, 1980, 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 (in
thousands):
Operating Capital
Period Leases Leases
1981 $ 21,217 $ 18,083
1982 19,819 17,567
1983 18,818 17,186
1984 17.845 16,074
1885 17,424 15,834
1986-2007 265,043 191,376
Total minimum lease payments $360,166 276,120
Less amounts representing interest 137,208
Present value of future minimum
lease payments $138.912
Total rent expense, including landing fees, was $41,380,000 in
1980, $29,890,000 in 1979 and $25,800,000 in 1978.
Note F-Commitments-The company has advanced cash
and notes of $32,974,000 and capitalized interest of $3,861,000
on purchase commitments for ten DC-9-80 aircraft for delivery
in 1981 and the first quarter of 1982. In addition, the company
has advanced $400,000 and capitalized interest of $60,000 on
The company has advanced $1,739,000 on the purchase of a
DC-9-80 digital flight simulator to be delivered in 1981. An ad
ditional $3,190,000 will be expended prior to delivery.
Note G-Income Taxes-Income tax expense for the years
ended December 31, is as follows (in thousands):
1980 1979 1978
Current income taxes
Federal $ $ 2.471 $13,521
Investment tax credit 200 (2,090) (12.322)
200 381 1,199
State and local (60) 325 1,525
140 706 2,724
Deferred income taxes
Federal (6,384) 3,153 884
Investment tax credit 4,929 (6,005) 1,795
(1,455) (2.852) 2.679
State and local (625) 396 61
(2,080) (2.456) 2,740
$(1,940) $(1,750) $ 5,464
Differences between income tax expense and amounts derived
by applying the statutory federal income tax rates of 46% in
22
1980 and 1979 and 48% in 1978 to income before income taxes
are as follows (in thousands):
Income tax expense at statutory
1980 1979 1978
federal income tax rates $(12,237) $ 5,203 $14,417
Investment tax credit 5,129 (8,095) (10,527)
Employee Stock Ownership Plan .
State and local taxes net of federal
1,027 715 552
income tax benefit
Tax effect of net operating loss
(685) 389 766
carryforward not recognized ....
5,021 - -
Other (195)
$ (1,940)
38
$(1,750)
256
$ 5,464
Deferred income taxes arise from timing differences between
financial and tax reporting. The tax effects of these differences
are as follows (in thousands):
1980 1979 1978
Capitalized interest ,
$(2,899) $ 2,953 $ 821
Investment tax credit 4,929 (6,005) 1,795
Group insurance -
(290) (460)
Capitalized leases .
(472) 186
Training and development (685) 498 365
Depreciation (3,794) 754 186
Other 369 106 (153)
$(2,080) $(2,456) $2,740
For Federal income tax reporting purposes, the company and
its subsidiary file separate tax returns. Republic Airlines, Inc.
has, as of December 31, 1980, a net operating loss carryover
available to offset future taxable income of approximately
$37,000,000 expiring in 1989. Investment tax credits of $28,-
000,000 are available to offset future income taxes payable
through 1986 and 1987.
Republic Airlines West, Inc. has, as of December 31, 1980, a
net operating loss carryover of approximately $44,000,000 ex
piring in 1988 and 1989. Investment tax credits of $6,800,000
are available to offset future income taxes payable through 1985,
1986 and 1987.
For financial reporting purposes, the company and its subsidiary
calculate income taxes on a consolidated basis. On this basis,
there are approximately $10,900,000 of net operating loss car
ryovers available to offset future consolidated taxable income
and consolidated investment tax credit carryovers of approxi
mately $26,000,000 are available to offset future consolidated
tax provisions. Any utilization of the pre-acquisition net operating
losses or investment credits of Republic Airlines West, Inc. will
be recorded as adjustments of the purchase transaction.
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 and
is currently examining the federal tax returns through 1979.
Note H-Common Stock, Options and Warrants-At Decem
ber 31, 1980, 33,175 shares of unissued common stock are
reserved for officers and key employees under a plan adopted
in 1975. The options (at $3.87 per share) expire in 1981.
Option transactions during the two years ended December 31,
1980 are summarized as follows:
Number of Option Price
Shares Per Share Total
Outstanding
January 1, 1979 . .
200,050 $1.40-$4.25 $561,000
Exercised
..
(89,150) 1.40- 3.38 (236,000)
Expired or cancelled .,.
(1,400) 1,40 (2,000)
Outstanding
December 31, 1979
... ..
109,500 2.50- 3.87 323,000
Exercised
. .
(76,325) 2.50- 3.87 (195,000)
Outstanding
December 31, 1980
... ..
33,175 3.87 $128,000
At December 31, 1980 and 1979 there were outstanding war
rants to purchase 422,930 and 541,057 shares of common stock,
respectively. The warrants outstanding at December 31, 1980
enable the holder to purchase common stock at $2.86 per share
and expire in 1981.
In February 1981, the Board of Directors declared a $.10 per
share dividend payable on March 23, 1981. The company paid
cash dividends of $.20 per share to its stockholders during the
first quarters of 1980 and 1979.
Note l-Pension Costs-Pension expense for 1980, 1979 and
1978 was $20,424,000, $14,978,000 and $11,872,000, respec
tively. The company makes annual contributions to the plans
equal to the amounts accrued for pension expense. Changes
during 1980 in the actuarial assumptions used in computing
pension costs had the effect of reducing the net loss by ap
proximately $3,864,000 or $. 19 per share. The accumulated plan
23
Notes Five-year summary
December 31,1980,1979 and 1978 (continued)
benefits and plan net assets for the company's defined benefit
plans are as follows (in thousands):
Jan. 1, 1980
Actuarial present value of
accumulated plan benefits
Vested $183,062
Nonvested 32,076
$215,138
Net assets available for benefits $205,635
The weighted average assumed rate of return used in deter
mining the above actuarial present value of accumulated plan
benefits was 7y2%
Note J-Net Earnings (Loss) Per Share-Primary and fully di
luted loss per share for 1980 was based on 20,722,638 weighted
average number of common shares outstanding.
Primary earnings per share for 1979 and 1978 are based on the
weighted average number of common and common equivalent
shares outstanding (18,561,082 in 1979 and 17,332,195 in
1978). Common equivalent shares result from the assumed ex
ercise 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 conversion of the
5%% and 6y2% debentures, and related interest (net of income
tax effect) was added to income for purposes of the calculation.
PASSENGERS
(MILLIONS)
1976 77 78 79 '80
PASSENGER MILES
(BILLIONS)
SEAT MILES
(BILLIONS)
CARGO TON MILES
(MILLIONS)
24
OPERATIONS
OPERATING REVENUES 1980 1979 1978 1977 1976
Passenger
Public service
Other
$ 827,678,000
22,354,000
66,683,000
916,715,000
$527,792,000
26,362,000
55,076,000
609,230,000
$408,243,000
16,523,000
62,799,000
487,565,000
$317,469,000
18,299,000
52,866,000
388,634,000
$272,365,000
19,019,000
39,931,000
331,315,000
OPERATING EXPENSES
Flying operations and maintenance
Other operating expenses
Depreciation and amortization
477,792,000
385,389,000
40,310,000
903,491,000
281,696,000
270,041,000
29,440,000
581,177,000
198,880,000
216,623,000
29,253,000
444,756,000
169,187,000
166,392,000
25,260,000
360,839,000
146,529,000
144,051,000
21,444,000
312,024,000
OPERATING PROFIT 13,224,000 28,053,000 42,809,000 27,795,000 19,291,000
OTHER EXPENSES (INCOME)
Interest expense-net
Other income-net
48,341,000
(8,515,000)
39,826,000
20,122,000
(3,380,000)
16,742,000
16,673,000
(3,899,000)
12,774,000
11,476,000
(9,604,000)
1,872,000
9,347,000
(1,204,000)
8,143,000
EARNINGS (LOSS) BEFORE INCOME TAXES (26,602,000) 11,311,000 30,035,000 25,923,000 11,148,000
Income taxes (1,940,000) (1,750,000) 5,464,000 2,885,000 3,144,000
NET EARNINGS (LOSS) $ (24,662,000) $ 13,061,000 $ 24,571,000 $ 23,038,000 $ 8,004,000
NET EARNINGS (LOSS) PER SHARE
Primary $(1.19) $ .70 $1.42 $1.38 $ .48
Fully diluted $(1.19) $ .68 $1.31 $1.23 $ .43
BALANCE SHEET ITEMS
Current assets $ 249,010,000 $144,691,000 $107,764,000 $ 89,088,000 $ 71,362,000
Property and equipment-net $ 778,375,000 $399,632,000 $314,054,000 $235,671,000 $195,807,000
Total assets $1,036,226,000 $549,381,000 $428,424,000 $330,336,000 $271,536,000
Total long-term debt $ 652,257,000 $263,035,000 $196,637,000 $142,648,000 $129,512,000
Retained earnings $ 64,830,000 $ 93,634,000 $ 83,050,000 $ 60,493,000 $ 39,052,000
Stockholders' equity $ 117,627,000 $145,514,000 $113,288,000 $ 89,266,000 $ 67,247,000
Shares outstanding 20,951,000 20,620,000 16,348,000 15,982,000 15,832,000
Book value per share $5.61 $7.06 $6.93 $5.59 $4.25
Cash dividends per share $.20 $.20 $.16 $.12 $.10
STATISTICS
Passengers 13,220,000 12,156,000 11,143,000 9,180,000 8,397,000
Passenger miles (000) 4,760,000 3,847,000 3,364,000 2,584,000 2,304,000
Available seat miles (000) 10,185,000 7,479,000 6,010,000 5,152,000 4,617,000
Passenger load factor 46.7% 51.4% 56.0% 50.2% 50.0%
Cargo ton miles 37,113,000 32,324,000 28,062,000 23,346,000 21,537,000
Revenue plane miles 101,531,000 80,915,000 70,850,000 61,981,000 58,456,000
Number of employees 14,709 8,982 7,676 6,772 6,366
25
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
ownership, either beneficially or as trustee, of more than 5%,
in the aggregate, of the company's common stock shall file with
the Board, within the time limits prescribed, a report containing
the information required by Section 245.13 of Economic Reg
ulations of the Civil Aeronautics Board, unless such person has
previously filed such a report. Any shareholder who believes
that he may be required to file such a report may obtain further
information by writing to the Director, Bureau of Pricing and
Domestic Aviation, Civil Aeronautics Board, Washington, D.C.
20428.
LABOR AGREEMENTS
Among the agreements the airline has with six labor unions, one
is amendable in 1981, three in 1982, and two in 1983. The
company expects to reach equitable agreements with these
unions.
FORM 10-K REPORT
For the Form 10-K report to the Securities and Exchange Com
mission, write to Mr. A. L. Maxson, Senior Vice President-
Finance, Republic Airlines, Inc., 7500 Airline Drive, Minneapolis,
MN. 55450.
COMMON STOCK INFORMATION
The following tabulation sets forth the price range for the com
pany's common stock which is traded on the New York Stock
Exchange and the Midwest Stock Exchange.
1980 1979
High Low High Low
1st Quarter 8 5'/2 8 5%
2nd Quarter 63/8 53/4 73/8 6
3rd Quarter 9 53/4 95/8 672
4th Quarter 878 5/4 8Vb 53/8
In February 1981, the Board of Directors declared a $.10 per
share dividend payable March 23, 1981 to shareholders of rec
ord on March 9, 1981. The company paid cash dividends of
$.20 per share to its stockholders during the first quarter of 1980
and 1979. Under the restrictive convenants contained in the
Revolving credit agreement dated October 1,1980, the company
cannot declare cash dividends or acquire its own capital stock
if the aggregate amount exceeds $5,000,000 plus one-half of
net earnings arising after January 1, 1981. At February 25, 1981,
the company had 31,123 holders of common stock.
QUARTERLY STATEMENTS OF OPERATIONS
(unaudited-in thousands of dollars except per share amounts)
1980
Three Months Ended
December 31* September 30 June 30 March 31
OPERATING REVENUES
Passenger $307,732
Public service revenues 5,113
Other 23,928
336,773
OPERATING EXPENSES
Flying operations and maintenance ..
166,163
Other operating expenses 140.447
Depreciation and amortization 14,558
321,168
OPERATING PROFIT (LOSS) 15,605
OTHER EXPENSES (INCOME)-NET ....
15,244
EARNINGS (LOSS) BEFORE
INCOME TAXES 361
Income taxes 250
NET EARNINGS (LOSS) $ 111
NET EARNINGS (LOSS) PER SHARE
Primary $.01
Fully diluted $.01
DIVIDENDS PER SHARE
$192,584 $177,455 $149,907
5,912 5,715 5,614
14,139 14,337 14,279
212,635 197,507 169,800
107,903 106,893 96,833
87.206 82,834 74,902
9,263 8,702 7,787
204,372 198,429 179,522
8,263 (922) (9,722)
8,830 9,284 6,468
(567) (10,206) (16,190)
1,769 (1,530) (2,429)
$ (2,336) $ (8,676) $ (13,761)
_$i_11) $(.43) $(.67)
$(.11) $(.43) $(.67)
$ .20
1979
Three Months Ended
December 31 September 30 June 30 March 31
$137,781 $142,689 $137,014 $110,308
5,668 9,309 7,896 3,489
12,520 12,704 14,090 15,762
155,969 164,702 159,000 129,559
80,666 75,177 66,335 59,518
74,007 71,882 66,362 57,790
5,420 7,381 8,404 8,235
160,093 154,440 141.101 125,543
(4.124) 10.262 17,899 4,016
3,532 4,104 4,611 4,495
(7,656) 6,158 13,288 (479)
(4,910) 607 2,880 (327)
$ (2,746) $ 5,551 $ 10,408 $ (152)
$(.14) $.29 $.60 $(.01)
$( 14) $.29 $.55 $(.01)
$.20
'Operations for the quarter ended December 31. 1980
include the operations of Republic Airlines West. Inc.,
a wholly-owned subsidiary acquired on October 1, 1980.
26
CONSOLIDATED STATEMENT OF OPERATIONS
--ADJUSTED FOR CHANGING PRICES
Year ended December 31, 1980 (in thousands--unaudited)
As Reported Adjusted for Adjusted for Changes
in the General In Specific Prices
Primary Statements Inflation (Current Cost)
Total operating revenues $916,715 $916,715 $916,715
Depreciation and amortization expense 40,310 53,551 67,241
Other operating expenses 863,181 864,630 864,630
Other expenses--net 43,938 43,938 43,938
Gain on disposition of equipment (4,112) (2,946) (4,406)
Provision for income taxes (1,940) (1,940) (1,940)
941,377 957,233 969,463
Loss from operations $ (24,662) $ (40,518) $ (52,748)
Gain from decline in purchasing power of net amounts owed $ 56,090 $ 56,090
Increase in specific prices (current cost) of inventory and
property and equipment held during the year* $402,743
Effect of increase of general price level 320,371
Excess of increase in specific prices over increase in the
general price level $ 82,372
*At December 31, 1980, current cost of inventory was $47,370,000,
and the current cost of property and equipment, net of accumulated
depreciation and amortization, was $1,271,691,000.
FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA
--ADJUSTED FOR EFFECTS OF CHANGING PRICES
(In average 1980 constant dollars, in thousands except per share and price index amounts--unaudited)
Year ended December 31
1980 1979 1978 1977 1976
Total operating revenues--at historical costs $916,715 $609,230 $487,565 $388,634 $331,315
Total operating revenues--in average 1980 dollars $916,715 $691,619 $615,819 $528,457 $479,581
Historical cost information--adjusted for general inflation
Net loss from operations $(40,518) $ (195) - - -
Net loss from operations per common share $ (1.96) $ (.01) - - -
Equity in net assets at year-end $255,531 $238,656 - - -
Current cost information
Net loss from operations $ (52,748) $ (6,971) - - -
Net loss from operations per common share
Excess of increase in specific prices over increase
$ (2.55) $ (.34) -- -- --
in the general price level $ 82,372 $ 20,684 - - -
Equity in net assets at year-end $648,656 $356,509 - - -
Gain from decline in purchasing power of
net amounts owed $ 56,090 $ 37,986 - - -
Cash dividends declared per common share--historical
Cash dividends declared per common share--in average
$ .20 $ .20 $ .16 $ .12 $ .10
1980 dollars $ .20 $ .23 $ .20 $ .16 $ .14
Market price per common share at year-end--historical
Market price per common share at year-end--in average
$ 6.00 $ 6.00 $ 7.12 $ 5.00 $ 3.88
1980 dollars $ 6.00 $ 6.81 $ 8.99 $ 6.80 $ 5.62
Average consumer price index 246.8 217.4 195.4 181.5 170.5
NOTE: Certain data for years prior to 1979 have been omitted as permitted by FASB No. 33.
27
Supplemental stockholder information
(continued)
EFFECTS OF CHANGING PRICES (unaudited)
Basis of preparation of 1980 supplemental data
As required by Financial Accounting Standards Board (FASB)
Statement No. 33, "Financial Reporting and Changing Prices,"
the company has provided supplemental information concerning
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.
The supplemental information on changing prices does not re
flect a comprehensive application of either type of inflation ac
counting. 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 im
pact on earnings or loss, and (2) the effect of general inflation
on monetary assets and liabilities.
Loss from operations
The net loss as reported in the primary statements represents
the amount reported on the historical cost basis of accounting.
Net loss adjusted for general inflation represents the historical
amounts of revenues and expenses stated in dollars of the same
(constant) general purchasing power, as measured by the av
erage level of the Consumer Price Index (CPI) for 1980. Under
this measurement method, historical amounts of depreciation
expense, gain on equipment dispositions, and spare parts in
ventory 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 or loss adjusted for general inflation. The specific
prices of the company's goods and services have risen at a
different rate than the general inflation rate as measured by the
CPI. The net loss adjusted for changes in specific prices (current
cost) measures spare parts inventory, 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 operations is the same as reported in the primary
financial statements. Present tax laws do not allow deductions
for higher depreciation adjustments for the effects of inflation.
Thus, taxes are levied on the company at rates which, in real
terms, exceed established statutory rates. During periods of
persistent inflation and rapidly increasing prices, such a tax pol
icy effectively results in a tax on shareholders' investment in the
company.
Purchasing power gain from holding net monetary liabilities
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 supplemental data. The amount
has been calculated based on the company's average net mon
etary liabilities for the year multiplied by the change in the CPI
for the year. Such amount does not represent funds available
for distribution to shareholders.
Current cost measurements
Current cost calculations involve a substantial number of judg
ments 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 rea
sonable 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 the Air
Transport Association. 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 historical 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.
Increases in current cost adjusted for general inflation
Under current cost accounting, increases in specific prices (cur
rent cost) of spare parts inventory and property and equipment
held during the year are not included in the loss from operations
but are presented separately. The current cost increase is re
duced 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 equipment.
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 ad
dition, noncurrent payables have not been converted to reflect
specific price changes (i.e., changes in interest rates).
28
Board of Directors
Hal N. Carr*
Chairman of the Board
Republic Airlines
Cecil A. Beasley, Jr.
Partner--Ballard & Beasley
(attorneys)
Eric Bramley
Retired Editor
Aviation Dally
(aviation industry nev/s service)
G. F. DeCoursin*
Chairman of the Board
Media Graphics
(commercial graphic arts)
Frank W. Hulse*
Vice Chairman of the Board
Republic Airlines
Alton F. Irby, Jr.
(Insurance Consultant and
Investments)
G. Gunby Jordan
Chairman of the Board
The Jordan Company
(real estate and insurance)
John M. Lawrence III
Partner--Lawrence. Thornton,
Payne & Watson (attorneys)
Officers
Hal N. Carr
Chairman of the Board
Frank W. Hulse
Vice Chairman of the Board
Bernard Sweet
Vice Chairman of the Board
Daniel F. May
President
Robert L. Gren
Senior Vice President-
Maintenance and Engineering
Kenneth L. Hubertus
Senior Vice President-Customer
Service
George J. Karnas
Senior Vice President-Inflight
Service
A. L. Maxson
Senior Vice President-Finance
David E. Moran
Senior Vice President-Marketing
J. F. Nixon
Senior Vice President-Corporate
Planning
G. F. Wallis
Senior Vice President-Flight
Operations
William R. Lummis
Chairman of the Board
Summa Corporation
(real estate investments, aviation,
hotels and recreation)
Daniel F. May*
President
Republic Airlines
Theodore R. Miles
President
Stange Co.
(food products)
Morton B. Phillips
Chairman of the Board
Westland Capital Corporation
(business investments)
G. Frank Purvis, Jr.
Chairman of the Board
Pan American Life Insurance Co.
William E. Rankin
President
Summa Corporation
(real estate investments, aviation,
hotels and recreation)
Joseph E. Rapkin
Partner--Foley & Lardner
(attorneys)
J. Kenneth Courtenay
Vice President-Route
Development
Edward A. Dingivan
Vice President-Federal
Affairs
John P. Dow
Vice President and Secretary
Michael D. Meyer
Vice President and Controller
Gowan J. Miller
Vice President-Industrial Relations
A. E. Warner
Vice President-Maintenance
Charlotte G. Westberg
Staff Vice President
W. H. Mackinnon
Treasurer
Dorman W. Atwood
Assistant Vice President-
Regulatory Compliance
Nicholas Bredimus
Assistant Vice President-
Information Systems
Joseph W. Ettel
Assistant Vice President-Labor
Relations and Assistant Secretary
Henry M. Ross
President
Ross Industries
(machinery manufacturer)
Bernard Sweet*
Vice Chairman of the Board
Republic 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 III
Partner--North Haskell Slaughter
Young & Lewis (attorneys)
'Executive Committee
Gramer D. Foster
Assistant Vice President-Flying
Earl D. Jackson
Assistant Vice President-Technical
Service
Robert P. Johnson
Assistant Vice President-Flight
Operations
Katherine M. Leddick
Assistant Vice President-Inflight
Service
John E. Manger
Assistant Vice President-
Long-range Planning
William E. Oakes
Assistant Vice President-Economic
Research
Charles B. Vesper
Assistant Vice President-Schedules
and Tariffs
Walter E. Nielsen
Assistant Treasurer
Raymond J. Rasenberger
Assistant Secretary
Ralph Strangis
Assistant Secretary
REPUBLIC AIRLINES, INC.
MSNNEAPOLJS. MINNESOTA 55A50