Republic Airlines Annual Report 1981

ANNUAL REPORT 1981
REPUB.LIC AIRLI ES
Contents
Letter to stockholders ....................................... .
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Highlights .................................................. 3
Five-year summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Building the system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Building the fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Building the image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 O
The future ................................................. 11
Route map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Financial statements ....................................... 14
Auditors' report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Supplemental stockholder information ........................ 22
Board of Directors and Officers .............................. 25
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 170 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.)
Republic ranked sixth among U. S.
airlines in passenger traffic, with
16.8 million passengers carried and
7.6 billion passenger miles flown in
1981. The company operates the
seventh-largest commercial jet fleet in
the world. Its 161 jet-powered aircraft-
Boeing 727s, Douglas DC-9s and
Convair 580s-make over 1,300
departures daily.
Republic's 14,000 dedicated
employees offer the finest type of
airline service.
ANNUAL MEETING
Wednesday, April 28, 1982
AUDITORS
Alexander Grant & Company
REGISTRARS &
STOCK TRANSFER AGENTS
Citibank, NA
New York, New York 10043
Northwestern National Bank
Minneapolis, Minnesota 55480
STOCK TRADING
Common stock (RAI)
New York Stock Exchange
Midwest Stock Exchange
To our stockholders, employees and friends:
In 1981, the airline industry was
plagued by the lingering national
recession, high interest rates,
intense price competition, and the
air traffic controllers strike. Although
Republic experienced substantial
growth, with total revenues
increasing 58 percent to a record
$1.45 billion, a net loss of
$46 million was incurred.
Faced with the most difficult period
in its history, the company is
carrying out a comprehensive
financial recovery program. The
plan emphasizes four goals:
Increase productivity by major
changes in employee contract
work rules.
Lower costs through pay cuts,
reduction in work force, and
ongoing austerity programs.
Increase aircraft utilization by
improved flight scheduling
and additional marketing of
charters.
Boost traffic with a national
advertising campaign, aggressive
sales activities, and competitive
schedules and fares.
Substantial cost-cutting was
undertaken by Republic when
projected summer traffic did not
materialize. Most employees
accepted common stock in lieu of
15 percent of one month's pay, a
postpone_
ment of scheduled wage
increases, and a 10 percent cut in
compensation for six months. Other
expenses have been slashed
through "Operation Self-Help," a
program which implements
employee suggestions.
The company reduced its work
force by over 1 ,000 with
terminations and furloughs,
including 300 who took early
retirement. Many people
volunteered for unpaid leaves of
absence, or worked overtime as
needed for compensating time off.
In February 1982, additional
furloughs were announced. Also,
the majority of employees agreed
to a deferred compensation plan
which postpones one month's pay
until August 1983.
During 1981 , the airline continued
moderate expansion by adding
Dallas/Fort Worth and Guadalajara,
Mexico, to the system. Dallas/Fort
Worth is on a new route linking
Houston, Kansas City and
Minneapolis/St.Paul. Guadalajara is
served nonstop from Chicago. New
nonstops were introduced out of
major cities, such as Minneapolis/
St. Paul, Detroit, Memphis, Kansas
City, Phoenix, Las Vegas, and
Seattle/Tacoma. Special events to
promote these flights attracted
tremendous public attention and
considerable media coverage.
Service was suspended at many
unprofitable points. However,
Republic is working with the
replacement carriers to provide
convenient, long-haul connections
so the communities will continue to
receive good service.
Republic achieved an eight percent
traffic increase last year-flying
7 .6 billion passenger miles-while
the 12 major airlines as a whole
reported a decline of more than six
percent. Cargo ton miles, showing
even better progress, were up 11
percent. Over 16.8 million
passengers were carried, down
three percent. (Comparisons relate
to 1980 combined statistics for
Republic and Hughes Airwest,
acquired in October 1980.)
This growth was possible because
the airline added three new high-
technology DC-9 Super 80 jets,
seven Boeing 727s and three other
DC-9s to its operation. Six excess
planes were removed from service
and sold. The airline now has a
fleet of 161 aircraft.
Republic ranked among industry
leaders by completing more than
99 percent of its scheduled miles. In
addition, 81 percent of its 484,000
scheduled arrivals were on time.
Even with exceptional performance,
traffic gains and cost cuts, the
company could not overcome
adverse market conditions and high
interest rates. Revenues jumped 58
percent to the record $1 .45 billion,
partly due to results of a full year's
integration of the former Hughes
Airwest operation. Expenses
reached $1.49 billion, and the net1
loss of $46.3 million, or $2.30 a
share, was sustained. The annual
cash dividend, which has been paid
for nine consecutive years, was not
declared in 1982.
Republic is in good position to
make a steady financial recovery.
The new advertising campaign is
telling the nation "Nobody Serves
Our Republic Like Republic."
Special promotions-such as "The
World's Biggest Airline Giveaway"
and Chex cereal box advertising-
are increasing the company's
national exposure and identity. The
airline's multi-hub route structure
and convenient scheduling will
produce continued growth, despite
predatory pricing by other carriers.
Republic has the essential
ingredients for success-a strong
route system, an efficient fleet, and
experienced people. The company
is lean and well-prepared to take
advantage of the increased demand
for airline service which will
accompany the national economic
recovery.
Sincerely,
Hal N. Carr
Chairman of the Board
~/
~
Daniel F. May
~
President and .
Chief Executive Officer
March 10, 1982
2
Financial Review
The year 1981 was one of substantial
revenue gains and traffic growth, but
resulted in a disappointing loss. The
airline has, however, developed a
fundamentally sound route system
which will produce earnings when the
goals of the company's financial
recovery program are achieved.
Revenues increased 58 percent to
$1,448,416,000 in 1981, up from
$916,715,000 a year earlier. The
increase is partly due to the impact of
the Hughes Airwest acquisition in
October 1980. Reported 1980 revenues
include only three months of Airwest
operations.
For 1981 , revenues from the expanded
system were augmented by an increase
in available seat miles, slightly higher
coach fares, and greater income per
ticket as passengers flew farther on
Republic. These factors were offset by
uneconomic fare discounting Republic
was forced to match, and business lost
by the air traffic controllers strike. With
the lingering recession, projected traffic
did not materialize.
Operating expenses, including
depreciation and amortization, also rose
58 percent to $1,431 ,960,000. This, too,
reflects the Airwest acquisition.
Schedules were changed to add
economical long-haul flights and
improve aircraft utilization. "Operation
Self-Help", an austerity program begun
in the fall, is implementing employees'
cost-saving suggestions.
Operating profit increased to
$16,456,000 in 1981 from $13,224,000
a year ago.
Other expenses, primarily interest of
$108,362,000, were reduced by other
income of $45,695,000, mainly from
disposition of aircraft and sale of tax
benefits. Total expenses were
$1,494,685,000, and the company
sustained a net loss of $46,269,000, or
$2.30 per common share.
For 1980, revenues were $916,715,000,
operating and other expenses totaled
$941 ,377,000, and the net loss was
$24,662,000, or $1.19 per share.
Including Airwest operations for the first
nine months of 1980, the pro forma
combined results show revenues of
$1,238,955,000, expenses of
$1 ,285,006,000, and a net loss of
$46,051 ,000, or $2.22 per share.
Largely responsible for the net losses
and pressure on cash resources are
industry fare-discounting and weak
traffic- causing lower revenues than
forecast- and the company's high debt
position from aircraft acquisitions, with
the resultant interest expense.
To help improve profitability and
preserve cash in 1981 , most employees
accepted common stock in lieu of 15
percent of August pay, worth $4 million;
a postponement of scheduled wage
increases; and a 1 O percent cut in
compensation for six months which
saves another $4 million monthly. The
company reduced its work force by over
1,000, with terminations and furloughs,
including 300 who accepted a special
early retirement program. Many people
volunteered unpaid leaves of absence,
or worked overtime as needed for
compensating time off. In February
1982, additional furloughs were
announced. Also, a majority of
employees agreed to a one-month pay
deferral that will conserve $20 million
until it is repaid in August 1983.
Productivity gains, through changes in
contract work rules, will permit the
airline to make greater use of its
equipment and personnel. Pilots and
flight attendants, for example, are being
asked to fly more hours a month. Other
groups are considering working
additional hours and permitting more
flexibility on scheduling of work hours.
Cooperation of this kind, coupled with
temporary relief provided by pay
concessions, is most important to
recovery. When fully implemented,
these programs should produce an
Revenues
(in millions)
$1,448
1981
Highlights
1981
OPERATING REVENUES ............................. $ 1,448,416,000
OPERATING PROFIT . .................. ... .. ... . ..... $ 16,456,000
NET EARNINGS (LOSS) ............... .. . . ... ........ $ (46,269,000)
NET EARNINGS (LOSS)PER COMMON SHARE-Primary .. $ (2.30)
CASH FLOW FROM OPERATIONS ..................... $ 16,807,000
RETAINED EARNINGS .................. .. ............ $ 14,125,000
STOCKHOLDERS' EQUITY ... .. ..... ............. ... .. $ 721348,000
PASSENGERS ......................... .. ............ 16,841,000
PASSENGER MILES .................................. 7 I
641 I
1701000
CARGO TON MILES ....... . ..... . ..... ...... . ........ 51,159,000
estimated $75 million annual reduction
in projected operating costs.
Furthermore, the company would be in
a position to retain its unique multi-hub
route system and withstand the
pressures of competition until the
national economy improves and the
demand for airline service increases.
Major Factors of Change
Under Operating Revenues, Passenger
Revenues reflect the Airwest purchase.
Revenues from passenger miles also
rose because the average trip on
Republic increased to 454 miles in
1981 from 360 in 1980. However, price
competition and longer trip length
reduced yield per passenger mile.
Public Service Revenues, paid for
service to unprofitable smaller cities,
increased with the Airwest acquisition
and higher rates-partially offset by
suspension of service to some
communities. Public Service Revenues
will decline in 1982.
Concerning Operating Expenses, these
items were similarly influenced by the
addition of Airwest, plus purchases of
new jets. Salaries and Employee
Benefits-totaling 37 percent of
operating costs- rose , but some relief
came in late 1981 from pay reductions,
early retirements and terminations.
Aircraft Fuel was affected by greater
consumption, plus average price
increases of 14 cents per gallon in
1981 and 31 cents in 1980.
Operating Profit was up because
revenues early in the year outpaced
costs. By late summer, the weakening
economy and fare discounting reversed
the favorable trend, and an operating
loss resulted for the fourth quarter.
Expected pay reductions, furloughs,
and productivity improvements could
significantly temper the rise in operating
costs for 1982.
Other Expenses-net for both periods
include interest expense, tied to the
prime rate-offset by other income
from disposition of equipment. For
1981 , other income also includes sale
of tax benefits on new aircraft, made
possible by new Federal legislation.
Liquidity and Capital Resources
The company's acquisition costs for
new aircraft were $140 million in 1981
and $119 million in 1980. Financing for
those jets was accomplished through
leases, long-term bank debt, and
equipment trust certificates.
Republic currently has contractual
commitments for 11 DC-9-80 aircraft on
order. Cash deposits of $26,643,000
have been advanced against the $237
million purchase price of these aircraft.
As a result of its financial condition and
the amended covenants of the
Revolving Credit Agreement, the
MAJOR FACTORS OF CHANGE
(Thousands of dollars)
Operating revenues
Passenger:
Passenger miles . ..... ........... .
Passenger fares ................. .
Public service ..................... .
Cargo and other ................... .
Net revenue changes ...... .. ..... .
Operating expenses
Salaries and employee benefits ...... .
Aircraft fuel ........................ .
Other ................. ... ........ .
Net expense changes ............ .
Changes In operating profit . ... .
Other expenses- net ... .. . . ....... .
Income taxes ................ ..... .
Changes In net results ........ .
1980 1979
$ 916,715,000 $ 609,230,000
$ 13,224,000 $ 28,053,000
$ (24,662,000) $ 13,061,000
$ (1.19) $ .70
$ 14,840,000 $ 41,717,000
$ 64,830,000 $ 93,634,000
$ 117,627,000 $ 145,514,000
13,220,000 12,156,000
4,760,341 ,000 3,846,805,000
37,113,000 32,324,000
company is unable to take delivery of
these aircraft as originally scheduled.
Republic is presently negotiating with
McDonnell Douglas Corporation to
defer delivery of the 11 DC-9-80 aircraft
to 1983 and 1984.
Although the Super 80s in service are
very efficient and performing well on
Republic's system, McDonnell Douglas
has been asked to find other buyers for
the remaining 11 aircraft scheduled for
delivery in 1981 and 1982. The ultimate
gain or loss on disposal of the DC-9-
80s is subject to several factors,
including final terms of the continuing
negotiations with McDonnell Douglas.
While the company cannot estimate
ultimate gain or loss resulting from this
situation and no provision is made in
1981 financial statements, management
does not expect a loss to result from
resolution of the purchase agreement.
Increases (Decreases)
1981 to 1980 1980 to 1979
Percent Percent
$495,600 60 $146,900 28
(11,300) _j_!) 153,000 29
484,300 59 299,900 57
17,700 79 (4,000) (15)
29,700 45 11,600 21
531,700 58 307,500 50
187,000 55 100,100 42
145,600 56 131 ,600 102
195,900 65 90,600 43
528,500 58 322,300 55
3,200 24 (14,800) (53)
22,800 57 23,100 138
2,000 103 (200) (11)
$(21 ,600) $(37,700)
3
4
Financial review
(continued)
Employee terminations and furloughs,
pay cuts and deferrals, and contract
work rule changes now under
negotiation should enable the company
to operate on a positive cash basis-
despite the depressed traffic level and
rampant fare discounting. Depreciation
and amortization are sufficient to cover
1982 bank debt retirement, capital
expenditures, and other fund
requirements. Additional outside
funding, however, may be required if
adverse economic conditions persist.
The company is actively seeking
commitments from lenders to refinance
certain aircraft and ground equipment
or to provide standby financing.
Some aircraft in scheduled operation
are available for sale, if reasonable
prices can be obtained. Present market
conditions are poor, but when sales can
be arranged, proceeds will be used to
increase working capital or reduce debt.
At year end, total long-term debt and
obligations under capital leases were
$756,058,000. This includes
$404,500,000 outstanding against a
Revolving Credit Agreement with a
group of 12 banks. All available funds
are currently outstanding under this
agreement.
Five years of growth
As a result of the company's present
financial situation, the banks have
imposed restrictive covenants limiting
additional debt, capital expenditures,
payment of dividends, investments in
subsidiaries, and interest on
subordinated debt.
Under an agreement, the company
deferred the dividend due in January
1982 on the preferred stock in its
subsidiary, Republic Airlines West. This
stock is held by McDonnell Douglas.
Management believes that satisfactory
agreements with the banks and
McDonnell Douglas can be negotiated.
This-together with improved flight
scheduling, aggressive advertising,
innovative promotions, and increased
employee productivity-will enable the
company to continue in the normal
course of business.
Further reporting of the company's
operation begins on page 6. Five-year
financial and traffic data is summarized
on page 5, while supplemental
stockholder information, including
quarterly statements and the effects of
changing prices, can be found on
pages 22-24.
PASSENGERS PASSENGER MILES SEAT MILES
(MILLIONS) (BILLIONS) (BILLIONS)
The year 1981 has been extremely
difficult for the airline industry, because
of the national recession, weak traffic,
intense price competition, and high
interest rates. To meet these
challenges, the company is carrying out
a comprehensive financial recovery
program which emphasizes four goals:
1 . Increase productivity by
changes in contract work rules.
2. Lower costs through reductions
in force, temporary pay cuts, and
austerity programs.
3. Increase aircraft utilization by
improved flight scheduling and
charter marketing.
4. Boost traffic with national
advertising, aggressive sales
activities, and competitive fares
and schedules.
Republic employees are contributing to
the recovery with realistic attitudes
toward the lower wages and higher
productivity of new carriers. This
effort-combined with aggressive
marketing strategy, an efficient fleet of
aircraft, and a strong route system-
will improve Republic's potential for
future profitability.
CARGO TON MILES
(MILLIONS)
16.5 - - - - - - - - - , 7 . 5 - - - - - - 1 5 - - - - - - 50------
15 6.5----------, 1 3 - - - - - - 4 5 - - - - - -
13.5 - - - - - - 5.5 - - - - - - 1 1 - - - - - - 40-- - - - -
4.5 - - - ---t 3 5 - - - - -
3.5 - - ---'l
2.5 ---,
1977 78 79 50 51
1.5 __.__._...__.__._____._ __
1977 78 79 50 51 1977 '78 '79 '80 '81
Five-year summary
OPERATIONS
(in thousands except per share amounts)
OPERATING REVENUES
Passenger .. ... . .. . .. . .. . ... .. ... .. .... .. ........ . .
Public service ..... . ... .. .. . . .. ...... . . . ... . . . ... . . .
Other . . ... . ... .. . . . . ... . .. . .... .... ... . .. ... . . ....
OPERATING EXPENSES .... . . . . .. . . .. ... .. .. ... .....
OPERATING PROFIT . . ... . ... .. . ... . .... . ..... . ..... .
OTHER EXPENSES (INCOME)
Interest expense - net .. . . . .......... . ..... .. .. . .. . ..
Other income - net ..... . . .. ............... . . . .. . . .. .
EARNINGS (LOSS) BEFORE INCOME TAXES . .........
Income taxes (credit) . .. .... . . . . ... ... .. ........ .... .
NET EARNINGS (LOSS) . . . .. . . . .. .. ..... .. ...... . .. . .
NET EARNINGS (LOSS) PER COMMON SHARE
Primary . . . ... .. . . . . . . . ...... . ... ... . . .. . ......... .
Fully diluted ... . .. . ..... ... . . ... . . .. . .. . . . .. ...... . .
OTHER FINANCIAL DATA
(in thousands except per share amounts)
Current assets ..... . ...... . ..... . ................. .
Property and equipment- net ....................... .
Total assets . .. . .. .. ............................. . . .
Total long-term debt and capital lease obligations .... . . .
Redeemable preferred stock of subsidiary .......... . . .
Retained earnings ..... . ..... . . . ................... .
Stockholders' equity ................ . .......... . ... .
Common shares outstanding ......... . .. : ...... . .... .
Book value per share of common stock .............. .
Cash dividends per share of common stock .. .. ...... .
STATISTICS
Passengers .... . .................... . ............. .
Passenger miles (000) ............................. .
Available seat miles (000) .......................... .
Passenger load factor .. . ............ . .............. .
Cargo ton miles ................................... .
Revenue plane miles ............................... .
Number of employees .............................. .
1981
$1 ,311 ,951
40,058
96,407
1,448,416
1,431 ,960
16,456
108,362
(45,695)
62,667
(46,211)
58
$ (46,269)
$(2.30)
$(2.30)
$ 263,296
$ 882,196
$1 ,154,567
$ 722,434
$ 28,000
$ 14,125
$ 72,348
22,061
$3.28
$ .10
16,841 ,000
7,641 ,000
15,119,000
50.5%
51 ,159,000
144,539,000
14,378
1980
$827,678
22,354
66,683
916,715
903,491
13,224
48,341
(8,515)
39,826
(26,602)
(1,940)
$(24,662)
$(1 .19)
$(1 .19)
$ 249,010
$ 778,375
$1 ,036,226
$ 652,257
$
$
$
64,830
117,627
20,951
$5.61
$ .20
13,220,000
4,760,000
10,185,000
46.7%
37,113,000
101 ,531 ,000
14,709
1979
$527,792
26,362
55,076
609,230
581 ,177
28,053
20,122
(3,380)
16,742
11 ,311
(1 ,750)
$ 13,061
$ .70
$ .68
$144,691
$399,632
$549,381
$263,035
$
$ 93,634
$145,514
20,620
$7.06
$ .20
12,156,000
3,847,000
7,479,000
51.4%
32,324,000
80,915,000
8,982
1978
$408,243
16,523
62,799
487,565
444,756
42,809
16,673
(3,899)
12,774
30,035
5,464
$ 24,571
$1.42
$1.31
$107,764
$314,054
$428,424
$196,637
$
$ 83,050
$113,288
16,348
$6.93
$ .16
11 ,143,000
3,364,000
6,010,000
56.0%
28,062,000
70,850,000
7,676
1977
$317,469
18,299
52,866
388,634
360,839
27,795
11,476
(9,604)
1,872
25,923
2,885
$ 23,038
$1 .38
$1.23
$ 89,088
$235,671
$330,336
$142,648
$
$ 60,493
$ 89,266
15,982
$5.59
$ .12
9,180,000
2,584,000
5,152,000
50.2%
23,346,000
61 ,981 ,000
6,772
5
6
Many flights were added at Memphis
and other major hubs in 1981.
Building the system
Republic's route system underwent a
dynamic transition during 1981 . The
airline responded to market
opportunities, increased competition,
intense price-cutting, complications
from the air traffic controllers strike, and
a weakening economy.
The company's basic strategy centers
on developing "hubs" at carefully
selected major cities. This allows
passengers from medium-sized cities to
travel easily to central locations, then
remain on board-or connect with a
convenient Republic flight-to their final
destinations. Republic's system is
unique-presently it has six hubs, while
other major carriers have two or three.
During 1981, Guadalajara, Mexico, and
Dallas/Fort Worth joined the system. A
new international route, which starts in
Minneapolis/St.Paul, operates nonstop
from Chicago to Guadalajara, then on
to Puerto Vallarta. Dallas/Fort Worth
has nonstops to Houston (Hobby) and
to Kansas City, with through-plane
service to the Twin Cities.
Major routes were also inaugurated
linking Minneapolis/St. Paul with other
important markets: Seattle/Tacoma and
Portland; Salt Lake City, Reno and
Oakland; plus Phoenix and Orange
County/Santa Ana/ Anaheim.
In Detroit, nonstop flj~hts were added to
Memphis. New Detroit-Phoenix service
was introduced, via Kansas City. At the
Memphis hub, nonstops serve
Nashville, Houston Hobby and Denver.
Atlanta-Miami nonstops were also
inaugurated in 1981.
The Orlando hub gained nonstops to
New Orleans, which continue to
Houston Hobby. Phoenix received
nonstop service to Kansas City and the
Twin Cities.
In 1982, nonstops connected Cleveland
with Milwaukee and with Baltimore; Des
Moines to Las Vegas; and Bismarck/
Mandan to the Twin Cities.
Inadequate traffic levels and flight
schedule restrictions resulting from the
air traffic controllers strike caused
service to be suspended at 27 stations
serving 34 cities. Republic worked
closely with civic leaders to secure
replacement by regional (commuter)
carriers and is assisting them during the
transition. The company also contracts
with some of these airlines to provide
ramp, counter and gate space; ticketing
and ground service; as well as
reservations capabilities.
The success of Republic's route system
can be seen in the year's traffic results.
While total traffic on the 12 major
airlines as a group declined ~y over six
percent in 1981, only Rep~bllc and one
other airline recorded a gain.
Republic flew 7.6 billion revenue
passenger miles and carried
16.8 million passengers in 1981.
Passenger miles jumped 61 percent,
and passenger boardings were ahead
27 percent. A new monthly record was
set in March when 1,520,052
passengers chose Republic. The airline
logged 51.2 million cargo ton miles, a
38 percent gain.
Using more comparable 1980 pro forma
combined statistics of Republic and
Hughes Airwest (which was acquired in
October 1980), passenger miles
increased 8 per cent from the combined
7.1 billion in 1980, while boardings
declined 3 percent from 17.4 million.
Cargo ton miles were up 11 percent
from 46.2 million in 1980.
Supplementing scheduled service,
Republic transported over 72,000
passengers on 371 charter trips. The
VIP small parcel express grew in
popularity as 187,000 "Very Important
Packages" were handled.
Republic's operating performance
record for 1981 was one of the highest
in the airline industry-with
99.2 percent of the company's
144.7 million scheduled miles being
flown. In addition, an on-time
perf.ormance of 80. 7 percent was
achieved. Of the airline's 483,944
scheduled arrivals, 390,640 were
routine.
Contributing to this outstanding
operation was the airline's exacting and
progressive maintenance program. In
1981, only two-tenths of one percent of
Republic's departures were cancelled
for maintenance reasons, and
1 . 7 percent were delayed by
mechanicals.
The air traffic controllers strike which
began in August 1981 adversely
affected all airlines. The Federal
Aviation Administration immediately
imposed severe reductions at 22 major
airports across the country, of which
Republic serves 20. Operations have
been particularly restricted at Detroit,
Chicago and Atlanta. The airline is still
not being permitted to offer its
pre-strike level of peak-hour service at
these hubs.
While FAA-imposed restrictions
continue, Republic has been able to fly
about 90 percent of its pre-strike
schedule because its operations are
spread over a multi-hub route network.
The air traffic control system is
gradually being restored to previous
levels, and service to these important
cities is being returned as soon as
possible.
After 18 months of preparation,
ESCORT-Republic's computerized
reservations and telecommunications
system-was switched over to a new,
highly-efficient IBM 3081 computer. The
change was scheduled to coincide with
the expiration of a contract for these
services in the western area. This
simplifies training, operating
procedures, equipment maintenance,
and personn~I assignments. The single
computer system is now being used for
all reservations, ticketing, message
switching, and flight operations
functions.
Over 2.5 mlllion messages are
processed daily by ESCORT, a
40 percent increase from 1980. More
than 4,000 computer sets, 800
message printers, and 250 ticket
printers connect all Republic locations
into one of the country's most
Personal attention is an important part
of the outstanding service Republic
provides.
sophisticated airline reservations
networks.
New devices were installed in a central
reservations office so persons with
speech or hearing difficulties can
"converse" with the airline. At special
centers, these people use compatible
machines to relay typed messages by
dialing a toll-free 800 number into
Republic's reservations office.
ESCORT was expanded to ~llow
others-principally the regional carriers
replacing Republic at smaller
locations-to utilize the reservations
system. This "co-hosting" technique
permits these airlines to conveniently
handle their own reservations and book
passengers on long-haul Republic
flights at connecting points. To make its
schedule information more accessible
to 4,000 travel agents, Republic itself
became a co-host in Apollo, another
carrier's system.
Since the airline industry was
deregulated in 1978, any carrier can
enter any market at any time. This
condition has resulted in a proliferation
of new airlines and a highly-competitive
battle for passengers, which requires
flexible, sophisticated market planning.
Republic has retained an aviation
consulting firm to assist in evaluating
marketing plans. A customized
computer program assesses potential
costs, revenues, traffic and yields on
proposed new routes. This data will
help determine the most efficient flight
schedules for the company's aircraft.
During 1981, new and expanded
facilities were completed around the
system. Additional jet bridges expedited
passenger boarding. Ticket counters,
gate lobbies, operations, and baggage
claim areas were improved at such
cities as Minneapolis/St. Paul, Detroit,
Chicago, Memphis, St. Louis and
Spokane. New air freight facilities were
opened at Detroit, Birmingham, San
Diego, Saginaw/Bay City/Midland,
Sarasota/Bradenton, and Wausau/
Stevens Point.
Maintenance areas were enlarged in
Detroit, Chicago and Milwaukee. Major
maintenance projects are scheduled for
completion in 1982 at Minneapolis/St.
Paul and Atlanta.
New airport terminal buildings-mostly
financed by local bond issues-were
opened in Orlando, Gulfport/Biloxi,
Brainerd, Eau Claire, Redding/Red Bluff
and Kalispell. Extensive improvements
are underway at Houston Hobby,
Milwaukee, Boise and Tucson. In 1982,
Republic will have its own gate and
operations facilities at New York
LaGuardia.
Many of these terminals are especially
important to the development of the
airline's multi-hub system. Republic is
unique because it brings passengers to
major hub cities from over 100 medium-
sized communities.
The airline is well prepared to
aggressively pursue new opportunities
and handle increased traffic as the
nation's economy recovers.
7
8
Building the fleet
A significant addition to Republic's fleet
of 161 jet-powered aircraft came in July
with the introduction of the highly
sophisticated McDonnell Douglas DC-9
Super 80. Three of these aircraft-the
quietest, most fuel-efficient jet available
today-were delivered in 1981.
The Super 80s have surpassed
expectations. The advanced technology
built into this aircraft, particularly the
engine and wing designs, contributes to
its fuel savings of 20-40 percent over
aircraft of comparable size. Seat-mile
costs are lower than projected,
performance has been superior, and
utilization is high.
The DC-9-80 is also a "good neighbor,"
reducing the high-decibel area around
noise-sensitive airports to one-fifth the
size affected by similar aircraft. Quiet
equipment and operational noise
abatement techniques are becoming
essential to remain competitive in
markets such as Boston, Washington
(D.C.) National Airport, Sarasota/
Bradenton , Orange County/ Santa
Ana/Anaheim and Burbank.
Recognizing Republic's efforts to limit
noise, the National Organization to
Insure a Sound-Controlled Environment
(N.O.1.S.E.) presented its 1981 "Award
of Merit" to the company. The citation is
given each year to acknowledge
"distinguished achievement" in the
reduction of aircraft noise in
communities throughout the country.
Thirteen aircraft were added to
Republic's operation in 1981 : the three
Super 80s, a new DC-9-50, five new
Boeing 727s, and the three 727s which
had been leased to foreign airlines.
One of the returned 727s was traded
for two DC-9-30s and cash. Another
727, a DC-9-10, and four Convair 580s
were removed from service and sold.
With 161 aircraft-16 727s, 129 DC-9s
and 16 Convair 580s-Republic has
the seventh-largest commercial jet fleet
in the world.
Jet fuel remained plentiful during 1981 ,
and prices rose a relatively modest
16 percent to an average of $1 .04 per
gallon. Forecasts for 1982 indicate
those trends should continue, principally
because Federal decontrol of domestic
crude oil and relaxed export restrictions
have led to an oversupply of crude oil
in the world market. Since Republic
uses over one million gallons of fuel
every day, conservation plans still
command top priority.
A new computerized program was
introduced in 1981 to help monitor and
interpret fuel supply and consumption
data. The system discloses total fuel
inventory at any given moment, amount
allocated to each Republic fuel station,
the portion used of the daily allotment,
Republic's 161 aircraft form the seventh-largest
commercial jet fleet in the world.
and how much money has been spent
for fuel during the current month.
In the day-to-day operation, the
shortest route to a destination is
selected from pre-determined flight
plans. Pilots choose the optimum
altitude and most economical speeds
for the best Specific Fuel Consumption
(SFC)-the fuel required to fly an
aircraft one nautical mile. Engines on
the DC-9-50s and -30s are being
modified to produce better SFC,
increased thrust, and improved aircraft
payload.
Several other new techniques are
holding down costs. At a number of
airports, for example, pilots use engine
reverse thrust to "power back" the
aircraft from the loading gate.
Otherwise, personnel and expensive
ground equipment are required to push
back the plane.
A more comprehensive fleet
maintenance program has been
implemented to schedule aircraft
inspections and overhauls at the most
efficient intervals. This speeds up
maintenance processes, helps increase
aircraft utilization, and aids inventory
control.
Nearly all of the DC-9s now have the
wide-body look with enclosed overhead
luggage racks. The aqua, blue and
white corporate design is being applied
to aircraft as maintenance schedules
permit. Most planes will have the new
color scheme by early summer.
This October, Republic begins
operating a new state-of-the-art
DC-9-80 flight simulator at the
company's flight crew training center in
Atlanta. The device provides advanced
simulation with effective, Federally-
approved procedures and virtually
eliminates the use of aircraft and costly
jet fuel. Because only one other
simulator of this type is operational,
several airlines which fly DC-9-80s are
expected to purchase training time.
Excellent support equipment and
facilities are also available at the
center.
Airfone, a new telephone service which
enables passengers in the sky to call
people on the ground, is being
introduced in the fall of 1982. The
cordless telephone instrument accepts
major credit cards and can be used at
the passenger's seat.
Republic's comprehensive fleet
development program matches
appropriate aircraft with the changing
route structure-while permitting the
most economical, competitive operation.
This approach provides for passenger
comfort and convenience, holds down
operating expenses, and allows the
company to earn a reasonable return
on this major investment.
Exacting and progressive maintenance
programs keep Republic's fleet
operating efficiently.
Skilled pilots, using noise abatement techniques, helped
Republic achieve recognition as a "good neighbor" .
9
10
Building the imag~
An aggressive new advertising
campaign, using the theme "Nobody
Serves Our Republic Like Republic," is
creating a national identity for the
airline. It emphasizes Republic's name,
informs customers about the magnitude
of the route system, and builds
awareness.
The program was launched in January
1982, with the airline's first national
television commercials. The theme is
being supported by local radio,
newspaper, magazine, and billboard
advertising which stresses Republic's
quality service, competitive fares, and
trans-continental route system-with
convenient flights to both major and
medium-sized cities.
The campaign was conceived and
implemented by Campbell-Mithun, the
company's new advertising agency,
appointed in December 1981.
Sales promotion and advertising
programs for 1981 highlighted new
service, improved schedules and
special fares, while furthering the
corporate marketing effort. Over 4,500
localized newspaper ads, 50 different
TV commercials, 300 radio spots, 500
billboard messages, and 60 magazine
ads were run.
During the first weeks of the air traffic
controllers strike, special radio and
newspaper advertising told the traveling
public that the airline was still flying
most of its schedule. Republic pilots
and other spokesmen-interviewed
extensively by news media across the
country-reassured the public about
the safety and efficiency of the air
traffic control system.
To attract repeat business, the
"Frequent Flyer" program received
special attention. Regular customers
are given travel incentives and other
bonuses for taking at least nine
Republic flights during 1982. Frequent
Flyers may also use the six new
"Republic Executive Suites." These are
attractive and comfortable rooms where
passengers can work, relax, or meet
with business associates at the airport.
Suites are located in Minneapolis/St.
Paul, Chicago, Milwaukee, Detroit,
Atlanta and Orlando terminals.
"Business Coach" service was
expanded to all Boeing 727s and DC-9
Super 80s. A separate compartment in
the front of the aircraft offers wide,
two-abreast seating and extra leg room.
The quiet, relaxed atmosphere is
comparable to First Class service
offered by other carriers, but at a
greatly reduced price.
A spectacular, fun-filled promotional
effort, "The World's Biggest Airline
Giveaway," added a festive mood to
the inaugural of Twin Cities-Seattle/
Tacoma nonstop service. Thousands of
people responded, and unprecedented
newspaper and television coverage
resulted. Nearly 4,000 contestants were
packed and ready to travel when they
came to the Minneapolis/St. Paul airport
last April hoping to win one of 200 free
tickets. Some 2,000 gathered at the
Seattle/Tacoma airport the same day
for a similar contest.
"Giveaway" promotions were also
staged in Memphis, Salt Lake City,
Reno, Oakland, New Orleans, Dallas/
Fort Worth, Houston, Kansas City, and
Phoenix, drawing crowds of up to 6,000
people. Many winners purchased tickets
for traveling companions. The popular
program is continuing in selected cities.
The newest promotion is a nationwide
cooperative effort with the Ralston-
Purina Company. A free flight is being
offered to each child who sends in five
box tops and is accompanied by a fare-
paying adult. Ads appeared in early
1982 on 20 million cereal boxes and in
34 million Sunday newspapers. The
program is achieving high visibility and
generating immediate results.
Nearly 120,000 sales calls were made
on travel agencies and key commercial
accounts during 1981. Pilots and flight
attendants, in uniform, and customer
service personnel brought a new
feature to this program. They
volunteered to make sales calls on their
NoaoDr
5arvEs0uR
REPUBLIC
LIKE REPUBLIC
From sea to shining sea, R~ublic flies to
more cities than any other airline.
\Ive set"Ve more ,non 170 c1
hes. Coast 10 coost. Conodo to
N.e,uco Republic serves almost twice os many c111es os the
ne.:t klrgest oirl,ne
Nobody serves yov bener 1hon Republic. W 1
1
h convenrenl
,chedvles, specool d,,counl fores. ond the kind of pe,sonol
onenllon rho1 we're fomovs for Thor's lhe Republic sp1r11
So wherever yovr business Jokes you ,n 1h1s big republic
of ours, come oboord Republic the otrl,ne with o small
1own 1m1
'e and o b,g city style
for reservo11ons. coll o travel ogent,
your corporate rrovel pk,nner, 0t Republic
REPUBllC SEINES 19 Of Tl- TOP 20 MARKETS
NewYtlf1<
LosAngeles
~
San Francisco
Boston
Detroit
Wastington,O.C.
Cleveland
Dalas/Ft W"1h
Houston
Miami
Atlanta
Seattle/Tacoma
Minneapois/St PiQ
Tampa/St Petersburg
St.Ullis
Denver
Baltimore
REPUBLIC
L - - - - - - - - - - - - - - ~ -A
- 1
-
RL
-IN
_E
_
s _________ __.
The company's aggressive new advertising campaign emphasizes
Republic's name and the magnitude of its route system.
own time, answering questions about
Republic's service and its route system.
Over 3,400 visitors received guided
tours of the airline's facilities throughout
the system. Another 11,300 guests
attended public functions held in the
company's headquarters.
Good employees build Republic's
image by providing outstanding service.
The company's 14,000 people are
highly skilled, and virtually all have
extensive experience in the airline
industry. Affirmative action plans and
equal employment opportunity
programs, reviewed and approved by
the Federal government, are followed in
the hiring process.
An award-winning training program,
called "Courtesy is the Key," was
developed to enhance the skills of
customer service employees. New and
distinctive uniforms were designed for
passenger agents, station agents, and
customer service managers to project a
professional image for these public
contact personnel.
Employee communication is important
to Republic. Each year, company
officers visit every location and meet
with employees. "Direct Approach," a
toll-free telephone system, provided
over 1 ,200 confidential answers to
questions and comments from
employees. The airline disseminates
information through its company
newspaper, "Republic People," and a
weekly bulletin, "Extra Section." Timely
messages are sent via ESCORT.
Republic's image is built on the service
provided by individual employees, as
well as an integrated corporate
communications program. Republic
must be- visible in today's highly-
competitive, deregulated environment.
The ambitious marketing program now
underway will increase the airline's
national identity and lead Republic to
an established position of leadership in
the marketplace.
Thousands of contestants entered " The World's Biggest Airline Giveaway" promotions
at cities across the nation. Fare-paying passengers traveled with nearly all winners.
The future
The essential ingredients for success-
a strong route structure, an efficient
fleet and experienced personnel-are
all present at Republic.
The airline's comprehensive financial
recovery program will increase
productivity, lower operating costs,
expand aircraft utilization and boost
traffic. The plan is already producing
results. In early 1982, the average
length of a flight was up 17 percent to
340 miles, and the average passenger
trip had risen 1 O percent to 489 miles.
These improvements, which come from
additional long-haul flights, lower costs
per seat mile and significantly enhance
earnings potential. By increasing
service on routes of 500-1 ,500 miles,
Republic is linking major metropolitan
centers and offering convenient
connections for air travelers from
intermediate-sized cities.
In 1982, more flights will be offered in
major markets as Federal ~overnment
restrictions are relaxed. This strategy
will enable Republic to achieve
maximum benefit from its fleet and
aggressively challenge its competitors.
The airline is lean and well-prepared to
meet the increased demand for air
transportation as the national economy
recovers. Republic's 14,000 employees
are determined to provide high-quality
service and to help the company
emerge from this difficult period as a
solid and profitable carrier.
SACRA
OAK
SAN FRANCIS
SAN
PORTLAND
EUGENE
iJ
NEW MAJOR NONSTOP SERVICE
Chicago-Guadalajara
Detroit-Kansas City
Oetrolt-Tampa'St P
Det
etersburg 'CI
rolt-Memphl earwater
M s
M emphls-Nashville
M emphls-Houston (Hobby)
emphls-Denver
Atlanta-Miami
Orlando-New O I
N reans
ew Orleans-Haus
Dallas/Fort Worth-~on (Hobby)
Oallas'Fort Wo th ouston (Hobby)
Phoenlx-K r -Kanaas City
ansas City
MlnneapollalSt p I
M
au -Kan
lnneapolletSt P sas City
M
. aul-Ph I
inneapolla1
St P oen x
Mlnneapoll ,st /ul-Seatuerracoma
. aul-Salt Lake City
INTERNATIONAL FALLS
THIEF AIV!R FALLS
MAZATLAN.
PUERTO VALLARTA.
TAMPA
~rE~~~:ie~UR
SARASOTA
BRADENTON
GRAND CAYMAN.
T PALM BEACH
. LAUDERDALE
IAMI
14
REPUBLIC AIRLINES, INC.
Consolidated balance sheets
(in thousands)
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 ............. ......... .. . ...... .
Advance deposits on equipment .............................. .
PROPERTY AND EQUIPMENT UNDER CAPITAL LEASES
Flight equipment .. .. . ............. ..... ..... . . .. ............ .
Ground property and equipment .............................. .
Less accumulated amortization ............................... .
DEFERRED CHARGES AND OTHER ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........................... .
Current obligations under capital leases ....................... .
Notes payable ........................................ ...... .
Accounts payable ........................................... .
Interline payables and tickets outstanding ...................... .
Accrued compensation and employee benefits ................. .
Accrued interest ............................................ .
December 31
1981 1980
$ 43,542 $ 50,145
143,718 119,873
47,764 43,262
28,272 35,730
263,296 249,010
765,152 666,672
96,811 88,540
861,963 755,212
198,967 159,742
662,996 595,470
67,490 60,135
730,486 655,605
159,671 134,499
12,960 9,455
172,631 143,954
20,921 21,184
151,710 122,770
9,075 8,841
$1 ,154,567 $1,036,226
$ 28,181 $ 15,121
5,443 6,238
28,100 2,748
56,301 55,687
84,387 70,198
48,156 45,678
31,662 24,662
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,859 42,875
LONG-TERM OBLIGATIONS
Long-term debt - less current maturities ....................... .
Noncurrent obligations under capital leases .................... .
Deferred income taxes and other ...... .......... ............. .
COMMITMENTS AND CONTINGENCIES (Notes B, F and G) ...... .
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY ........... .
STOCKHOLDERS' EQUITY
Common stock - authorized 30,000,000 shares of $.20 par value ..
Additional paid-in capital ..................................... .
Retained earnings .......................................... .
The accompanying notes are an integral part of these statements.
330,089
565,469
156,965
1,696
724,130
28,000
4,412
53,811
14,125
72,348
$1,154,567
263,207
519,583
132,674
3,135
655,392
4,190
48,607
64,830
117,627
$1,036,226
Consolidated statements of operations
(in thousands except per share amounts) Year ended December 31
'1981
OPERATING REVENUES.
Passenger .. .. .. .. .................... ... .. .... .... . $1,311,951
Freight and mail .................................... . 64,604
Public service ...................................... . 40,058
Non-scheduled service and other .................... . 31,803
1,448,416
OPERATING EXPENSES
Salaries and benefits ............................... . 528,004
Aircraft fuel ........................................ . 406,495
Maintenance materials and repairs ................... . 57,705
Food service ....................................... . 31,252
Rentals and landing fees ............................ . 68,725
Agency commissions ............................... . 78,280
Depreciation and amortization ....................... . 63,728
Other ............................................. . 197,771
1,431,960
Operating profit .............................. . 16,456
OTHER EXPENSES (INCOME)
Interest expense ................................... . 122,181
Less interest capitalized ............................. . 13,819
108,362
Sale of tax benefits ............... ... ............... . (28,930)
Gain on disposition of equipment ..................... . (13,369)
Interest income and other- net ....................... . (3,396)
62,667
Earnings (loss) before income taxes (46,211)
INCOME TAXES
Income taxes (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . . . . . $ (46,269)
NET EARNINGS (LOSS) PER COMMON SHARE
Primary ... . ..... ........... ............... .
Fully diluted ............................... .
$ (2.30)
$ (2.30)
The accompanying notes are an integral part of these statements.
1980 1979
$827,678 $527,792
50,585 41,510
22,354 26,362
16,098 13,566
916,715 609,230
340,981 240,906
260,946 129,312
39,637 25,790
18,077 11,195
41,380 29,813
38,435 21,494
40,310 29,440
123,725 93,227
903,491 581,177
13,224 28,053
57,767 26,497
9,426 6,375
48,341 20,122
(4,112) (2,002)
(4,403) (1,378)
39,826 16,742
(26,602) 11,311
(1,940) (1,750)
$ (24,662) $ 13,061
$(1.19)
$(1.19)
15
Consolidated statements of changes in financial position
(in thousands)
SOURCES AND APPLICATIONS OF WORKING CAPITAL
SOURCES
Year ended December 31
From operations
Net earnings (loss) ....................................... .
Charges (credits) to operations not using
(providing) working capital
Depreciation and amortization . ......................... .
Deferred income taxes and other ....................... .
Working capital provided from operations .............. .
Net book value of equipment dispositions ..................... .
Increase in long-term obligations ............................. .
Issuance of redeemable preferred stock of subsidiary ........... .
Issuance of common stock ................................. .
Conversion of debentures to common stock ................... .
Options and warrants exercised .............................. .
Disposition of treasury stock ................................. .
Other ..................................................... .
APPLICATIONS
Acquisition of Hughes Airwest
Increase in long-term obligations ............................ .
Property and equipment acquired ........................... .
Long-term liabilities assumed .............................. .
Additions to property and equipment .......................... .
Reduction of long-term obligations ............................ .
Conversion of debentures to common stock ................... .
Payment of cash dividends ...... ..... ....................... .
Acquisition of treasury stock ................................. .
Additions to deferred charges and other assets ................ .
INCREASE (DECREASE) IN WORKING CAPITAL ....... .
Working capital (deficit) at beginning of year ..................... .
Working capital ( deficit) at end of year .......................... .
NET CHANGE IN WORKING CAPITAL ELEMENTS
Cash and short-term investments ............................. .
Accounts receivable ........................................ .
Flight equipment parts and supplies .......................... .
Prepaid expenses and other ................................. .
Current maturities of long-term debt and capital lease obligations ..
Notes and accounts payable ................................. .
Interline payables and tickets outstanding ..................... .
Accrued compensation and other expenses .................... .
INCREASE (DECREASE) IN WORKING CAPITAL ....... .
The accompanying notes are an integral part of these statements.
16
1981
$(46,269)
63,728
(652)
16,807
30,423
144,775
28,000
4,267
1,159
1,670
227,101
195,318
74,598
4,436
5,345
279,697
(52,596)
(14,197)
$(66,793)
$ (6,603)
23,845
4,502
(7,458)
(12,265)
(25,966)
(14,189)
(14,462)
$(52,596)
1980
$(24,662)
40,310
(808)
14,840
23,656
421,475
602
7,207
1,878
469,658
(38,500)
240,542
(141,223)
60,819
202,696
211,929
4,142
6,892
5,838
492,316
(22,658)
8,461
$(14, 197)
$ 36,967
35,053
12,491
19,808
(3,140)
(18,252)
(32,280)
(73,305)
$(22,658)
1979
$ 13,061
29,440
(784)
41,717
2,159
187,797
7,864
13,490
328
253,355
116,857
113,449
7,864
2,477
1,340
241,987
11,368
(2,907)
$ 8,461
$(20,221)
38,588
14,548
4,012
5,938
(14,452)
(10,121)
(6,924)
$ 11,368
Consolidated statements of changes in stockholders' equity
Years ended December 31, 1979, 1980 and 1981
(in thousands)
Common Stock Treasury Stock
Additional
Shares
Issued Amount
- - -
Balance at January 1 , 1979

16,483 $3,297
Cash dividend

Exercise of stock options and warrants ....... 2,650 530
Conversion of debentures ................... 1,621 324
Net earnings for 1979 ......................
- - -
Balance at December 31 , 1979 .................. 20,754 4,151
Cash dividend .............................
Exercise of stock options and warrants ....... 197 39
Acquisition of treasury stock .................
Disposition of treasury stock .................
Net loss for 1980 ...........................
- - -
Balance at December 31 , 1980 .................. 20,951 4,190
Cash dividends:
Redeemable preferred stock ...............
Common stock ...........................
Issuance of common stock .................. 709 142
Exercise of stock options and warrants ....... 401 80
Net loss for 1981

Balance at December 31 , 1981 .................. 22,061 $4,412
- - - - - -
The accompanying notes are an integral part of these statements.
Auditors' Report
Alexander Grant
& COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Republic Airlines, Inc.
Paid-In Retained Shares
Capital Earnings Held
$27,321 $83,050 135
(2,477)
13,248
7,540
13,061
48,109 93,634 135
(4,142)
563
1,060
(65) (1,195)
(24,662)
48,607 64,830
(2,336)
(2,100)
4,125
1,079
(46,269)
$53,811 $14,125
MEMBER FIRM
GRANT THORNTON INTERNATIONAL
We have examined the consolidated balance sheets of Republic Airlines, Inc. (a Wisconsin corporation),
and its subsidiary as of December 31 , 1981 and 1980, and the consolidated statements of operations,
changes in stockholders' equity and changes in financial position for the years ended December 31 , 1981 ,
1980 and 1979. 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.
The accompanying consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business but, as discussed in Note B, certain eventualities could cause the company to be unable to
continue in business. Also, as discussed in Note G, an additional uncertainty has arisen because the
company has been unable to meet the delivery terms of its aircraft purchase commitments and is negotiating
a revision of such commitments. The consolidated financial statements do not include any adjustments
relating to losses which may be incurred as a result of these purchase commitments or to the realization
of the carrying value of assets or the amount and classification of liabilities that might be necessary should
the company be unable to continue in the normal course of business.
In our opinion, subject to the effects on the 1981 consolidated financial statements of such adjustments,
if any, as might have been required had the outcome of the uncertainties referred to in the preceding
para~raph been known, the consolidated financial statements referred to above present fairly the financial
position of Republic Airlines, lnc. ,and its subsidiary at December 31 , 1981 and 1980, and the results of
their operations and changes in their financial position for the years ended December 31 , 1981 , 1980 and
1979, in conformity with generally accepted accounting principles applied on a consistent basis.
Minneapolis, Minnesota
February 26, 1982
Amount
$ 380
380
6,892
(7,272)
$
17
Notes to financial statements
December 31, 1981, 1980 and 1979
Note A - Summary of Significant Accounting Policies
1. Principles of Consolidation: The consolidated financial state-
ments include the accounts of Republic Airlines West, Inc., a
subsidiary. (See note D for information concerning the acqui-
sition of Hughes Air Corp. d/b/a Hughes Airwest). All significant
intercompany transactions have been eliminated. Certain ac-
counts in the 1979 and 1980 consolidated financial statements
have been reclassified to conform with the 1981 presentation.
2. Flight Equipment Parts and Supplies: Spare parts and sup-
plies are priced at average cost. An allowance for obsolescence
($7,155,000 at December 31, 1981 and $6,038,000 at December
31, 1980) 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
($21 ,099,000 at December 31 , 1981 and $19,045,000 at De-
cember 31 , 1980). 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 7-20 years for flight equipment and 3-10 years
for other property and equipment.
6. Deferred Charges: Significant costs, such as traffic promotior_,
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.
7. Passenger Revenues: Passenger revenue is recognized when
the transportation service is provided. Tickets sold but unused
are included as a current liability.
8. Pension Costs: The company has pension plans covering
all employee groups , 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 meth-
ods.
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.
18
Note B - Eventualities Affecting Going Concern - The con-
solidated financial statements of the company have been pre-
pared on a going concern basis, which contemplates the real-
ization of assets and the satisfaction of liabilities and commitments
in the normal course of business. The company's financial con-
dition, operating results, inability to meet its existing debt cov-
enants without amendments to its loan agreements, inability to
meet the delivery terms of its aircraft purchase commitments,
along with other factors may eventually result in the company
being unable to continue in the normal course of business; how-
ever, the consolidated financial statements do not include any
adjustments relating to the realization of the carrying value of
assets, the amount and classification of liabilities or losses on
aircraft purchase commitments that might be necessary should
the company be unable to continue in the normal course of
business.
The company's continuation as a going concern is principally
dependent upon its ability to:
(a) continue to reach agreement with the parties to the Revolving
Credit Agreement which will satisfactorily modify certain restric-
tive covenants [Note E(e)],
(b) successfully conclude negotiations of the terms of Purchase
Agreements for DC-9-80 aircraft (Note G),
(c) generate sufficient cash flow to meet obligations on a timely
basis, and
(d) ultimately attain successful operations.
The company's management believes that satisfactory agree-
ments with the banks and McDonnell Douglas Corporation can
be negotiated, and along with improved scheduling, higher levels
of advertising and promotion and additional contract conces-
sions from its organized employees, this will enable the company
to continue in the normal course of business.
Note C - Significant Transactions - During the fourth quarter
of 1981 , as allowed by the leasing provisions of the Economic
Tax Recovery Act of 1981 , the company entered into sale-lease-
back transactions for income tax purposes involving certain 1981
equipment additions. As a result of these transactions, the com-
pany has recognized income of $28,930,000. Provisions of these
transactions include, among other things, indemnification of the
tax benefit amount to the buyer, under certain circumstances.
Note D - 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 com-
pany's 13% convertible subordinated debentures. Hughes Air-
west 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 continues 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
the accrual method for Hughes Airwest, and income tax ad-
justments based on pro forma operations (in thousands except
per share amounts).
Operating revenues . ... ... . . . ....... .. . .
Net loss ..... . .... . ...... . ........... . .
Net loss per share .... . .. . . . .... . . . .. . .
Year ended
December 31
(unaudited)
1980 1979
$1,238,955
$ (46,051)
$(2.22)
$920,946
$(14,262)
$ (.81)
Note E - Long-term Debt - Long-term debt at December 31
consists of the following (in thousands):
Revolving credit agreement (a) . . .. . . .
Installment notes (b) .. . ............ . .
Equipment Trust Certificates (c):
due May 1, 1993 ..... .. . .. . . . . . .. .
due July 1, 1998 ..... . .. . .. . . .. . . . .
Subordinated debentures (d):
13% due November 15, 1992 ... .. .
6% due December 15, 1982 ... .. .
Sundry . .. . ..... . ............. . ... .
Total long-term debt (e) ........ .
Less current maturities (f) ... . . .
1981
$404,500
121,235
37,500
8,821
14,500
1,303
5,791
593,650
28,181
$565,469
1980
$397,500
71,925
42,000
14,500
1,646
7,133
534,704
15,121
$519,583
(a) During 1981 the company borrowed an additional $51 ,000,000,
principally to finance the purchase price of three new B727-200
aircraft. In September, 1981 , the Revolving Credit Agreement
was amended to provide that maximum borrowings would not
exceed $436,500,000. In the fourth quarter of 1981 , $18,900,000
of the proceeds from the sale of tax benefits (Note C) were
applied to reduce this indebtedness. These payments, along with
additional payments throughout the year required as a result of
the sale of aircraft, reduced the balance to $404,500,000 at
December 31 , 1981 . This amount will be retired in quarterly
installments through 1989 and no further borrowings are per-
mitted under the agreement. Principal payments of approxi-
mately $9,044,000 in 1982 and $54,545,000 each year through
1988, with final payments totaling $68,186,000 in 1989, are re-
quired. Interest is to be paid quarterly to each participating bank
at Y2% over the Citibank, N.A. alternative rate. Effective rate at
December 31 , 1981 was 16%.
(b) Consists of various installment notes with final maturity dates
from 1986 through 1996 at interest rates ranging from 8% (for
notes guaranteed by the Federal Aviation Administration) to 19Y4%.
The aggregate installment payments in 1982 will be approxi-
mately $27,566,000 including interest.
(c) The Equipment Trust Certificates due in May 1993 require
semi-annual sinking fund payments of $2,250,000 in 1982,
$1 ,575,000 from 1983 through 1992 and $1 ,500,000 at maturity
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.
In 1981, the company issued $9,081,000 of Equipment Trust
Certificates due July 1, 1998. Semi-annual sinking fund pay-
ments of approximately $259,000 are required plus interest at
rates ranging from Y2 to 1 Y2% over the Citibank, N.A. alternative
rate. Effective rate at December 31, 1981 was 16Y4%. The com-
pany may pay off the remaining balance in full at any time.
(d) 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.
As a result of the acquisition of Hughes Airwest, the company
assumed $1,927,000 of 6%% subordinated debentures due De-
cember 15, 1982. Interest is payable semi-annually.
(e) Substantially all the flight equipment and spare parts owned
by the company are pledged as collateral against the above
debt. Among the original loan covenants in the Revolving Credit
Agreement are requirements for the maintenance of debt to
equity ratios, restrictions on dividend payments and capital ex-
penditures, and coverage of fixed charges. As a result of con-
tinuing losses in .
1981, these covenants were amended to permit
the company to remain in compliance. Effective December 31 ,
1981, the company and the banks have further agreed to modify
the convenants to provide, for the period December 31 , 1981
through June 30, 1982, minimum stockholders' equity and min-
imum cash and short-term investment provisions based on an
operating plan which was prepared by the company. The mod-
ified restrictive provisions do not allow payment of dividends or
any payments on the 13% Subordinated Debentures until after
June 30, 1982. It will be necessary for the company to reach
further satisfactory agreement with the lenders for modifications
to the original restrictive convenants which otherwise will be
reinstated effective July 1 , 1982.
The company is required to maintain average compensating
balances ranging from 5% to 10% of the monthly average loan
outstanding or commitme~t and is required to pay interest on
any compensating balance short-fall at Y2% over the Citibank,
N.A. alternative rate. During 1981 the company was required to
maintain average compensating bglances (adjusted for float) of
$37,100,000. At December 31 , 1981 , the required compensating
balances (adjusted for float) were approximately $40,191 ,000.
(f) Current maturities of all long-term debt due in each of the
next five years following December 31 , 1981 are as follows (in
thousands) :
1982 ............................... $28,181
1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,91 2
1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,869
1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,964
1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,482
19
Notes to financial statements
December 31, 1981, 1980 and 1979 (continued)
Note F - Leases - The company has lease commitments for
flight equipment, various airport facilities, its main operating fa-
cilities, its maintenance and training facilities, and other property
and equipment. The lease commitments for various airport fa-
cilities are based upon usage and landings and are 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.
During 1981, the company took delivery of one DC-9-80 and
two DC-9-30 aircraft under capital lease agreements. The debt
obligations relating to the capitalization of these leases were
$28,084,000 at December 31, 1981 . The aggregate payments
in 1982 will be approximately $4,601,000 including interest at
rates ranging from 12%% to 14 %.
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 $55,748,000 at December
31, 1981. The obligations are payable in semi-annual install-
ments of approximately $3,062,000 through January 1, 1987
and $3,607,000 thereafter through January 1, 1999 including
interest at 9%.
The company has other capital lease agreements for aircraft
acquired before 1980. The debt obligations relating to the cap-
italization of these leases were $67,180,000 at December 31,
1981 . The aggregate payments in 1982 will be approximately
$8,784,000 including interest at rates ranging from 8% to 12%.
In addition, the company has various types of ground property
equipment under capital lease agreements. The debt obligations
relating to the capitalization of these leases were $11,396,000
at December 31 , 1981. The aggregate payments in 1982 will be
approximately $2,093,000 including interest at a weighted av-
erage rate of 13%.
At December 31, 1981 , future minimum rental payments under
capital leases and noncancellable operating leases with initial
or remaining terms of more than one year are as follows (in
thousands) :
Period
1982 ............. . ..... . ... . .. . ..... .
1983 . .. . . . . . . . . .. . . .
1984 ........ . ..... . ....... . ......... .
1985 .......... . .................. . .. .
1986 ...................... . ........ . .
Thereafter . .................... . .... . . .
Total minimum capital lease payments
Less amounts representing interest ..... .
Present value of future minimum capital
lease payments ................... . . .
Operating
Leases
$ 22,373
20,750
19,032
18,869
18,002
267,072
$366,098
Capital
Leases
$ 21 ,602
22,450
21 ,816
21 ,493
20,879
211 ,600
319,840
157,432
$162,408
Note G - Commitments - At January 1, 1981 , the company had
purchase commitments on fourteen DC-9-80 aircraft with
McDonnell Douglas Corporation ("MDC"), scheduled for deliv-
ery during 1981 and 1982. During 1981 , three of these aircraft
were delivered to the company and four additional aircraft were
completed and were available for delivery. In early 1982, three
additional aircraft were completed and are available for delivery.
The remaining four aircraft are scheduled for delivery during the
20
balance of 1982. As a result of its financial condition and the
amended covenants of the Revolving Credit Agreement, the
company is unable to take delivery of these aircraft as originally
scheduled.
In January 1982, MDC sold two of the available aircraft to a third
party with the consent of the company. Concurrently, the com-
pany and MDC agreed that two replacement aircraft would be
scheduled for delivery at a later date.
The company has advanced pre-delivery deposits of $26,643,000
in cash and $28,100,000 in notes and has capitalized interest
of $12,075,000 in connection with the purchase commitments
on the remaining eleven DC-9-80 aircraft. If all eleven aircraft
were purchased according to the original delivery terms, a bal-
ance of approximately $210,000,000 would be due prior to and
at delivery to retire the pre-delivery notes and fulfill the com-
mitments. These prices may be increased by standard escala-
tion clauses during the period of construction. After the aircraft
are tendered for delivery, the company may also incur additional
interest and storage costs.
The company is presently negotiating with MDC to defer delivery
of all eleven DC-9-80 aircraft to 1983 and 1984. The aircraft
already tendered for delivery according to the original schedule
are currently being offered tor sale by MDC and have been
placed in storage. The remaining aircraft which presently are
scheduled for delivery later in 1982 will also be offered for sale.
The outcome of these negotiations including the company's ul-
timate gain or loss on the disposal of these aircraft, is not pres-
ently determinable. No provision for any loss that may result
from these purchase commitments has been recorded in the
consolidated financial statements. However, management be-
lieves that the negotiations with MDC will be satisfactorily con-
cluded and that no material losses will be incurred by the com-
pany.
The company has advanced $672,000 on two jet engines. An
additional $2,686,000 will be expended prior to delivery in 1982.
Note H - Income Taxes - Income tax expense for the years
ended December 31, is as follows (in thousands):
1981 1980 1979
Current income taxes
Federal .... .. . .. .... ...... . . $ 1,206 $ $ 2,471
Investment tax credit . . ....... 567 200 (2,090)
1,773 200 381
State and local .. . . .... . .... . (110) (60) 325
1,663 140 706
Deferred income taxes
Federal ..... .. .. . .. .. .. . .. .. (2,978) (6,384) 3,153
Investment tax credit . . . .. .. . . 1,683 4,929 (6,005)
(1,295) (1 ,455) (2,852)
State and local . . ..... .. .... . (310) (625) 396
(1 ,605) (2,080) (2,456)
$ 58 $ (1 ,940) $ (1 ,750)
Differences between income tax expense and amounts derived
by applying the statutory federal income tax rate of 46% to
income before income taxes are as follows (in thousands) :
1981 1980 1979
Income tax expense (credit)
at statutory federal
income tax rates ... . .. ...... . $(21 ,257) $(12,237) $ 5,203
Investment tax credit .... . ..... .. 2,250 5,129 (8,095)
Employee Stock Ownership Plan 2,346 1,027 715
State and local taxes net of federal
income tax benefit .... .. .. .. .. (420) (685) 389
Non-taxable permanent differences 3,099
Tax effect of net operating loss
carryforward not recognized .. . 12,731 5,021
Other . ... . . . . .. .. . .. . .... . .... 1,309 (195) 38
- -
$ 58 $ (1 ,940) $(1 ,750)
Deferred income taxes arise from timing differences between
financial and tax reporting. The tax effects of these differences
are as follows (in thousands):
Capitalized interest ...... .. . . . . .. .
Investment tax credit ... . . .. . ... .. .
Group insurance ....... . ........ .
Capitalized leases ....... . . . ..... .
Training and development . . . . .. . . .
Depreciation . . . . .. . . . ......... . . .
Other ... . .......... . ........... .
1981 1980
$ (2,372) $ (2,899)
1,683 4,929
(316) (685)
(843) (3,794)
243 369
$(1 ,605) $(2,080)
1979
$ 2,953
(6,005)
(290)
(472)
498
754
106
$(2,456)
For Federal income tax reporting purposes, the company and
its subsidiary file separate tax returns. Republic Airlines, Inc.
has, as of December 31 , 1981 , a net operating loss carryover
of approximately $94,411 ,000 available to offset future taxable
income. Approximately $37,216,000 expires in 1995 and
$57,195,000 in 1996. Investment tax credits of $33,927,000 are
available to offset future income taxes payable and expire as
follows : $10,928,000 in 1994; $17,120,000 in 1995; and
$5,879,000 in 1996.
Republic Airlines West, Inc. has, as of December 31 , 1981 , a
net operating loss carryover of approximately $53,623,000 avail-
able to offset future taxable income. Approximately $10,492,000
expires in 1994, $37,192,000 in 1995 and $5,939,000 in 1996.
Investment tax credits of $8,194,000 are available to offset future
income taxes payable and expire as follows: $937,000 in 1993;
$5,226,000 in 1994; $402,000 in 1995; and $1 ,629,000 in 1996.
For financial reporting purposes, the company and its subsidiary
calculate income taxes on a consolidated basis. On this basis,
there are approximately $38,500,000 of net operating loss car-
ryovers available to offset future consolidated taxable income
and consolidated investment tax credit carryovers of approxi-
mately $35,000,000 are available to offset future consolidated
tax provisions. Any utilization of the pre-aquisition 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 al.
lows the company to offset its federal tax liability by
the following approximate percentages (subject to the availability
of sufficient investment tax credits) : 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. Fed-
eral income tax returns of the company through December 31 ,
1979 are currently being examined. Several adjustments have
been proposed, mainly dealing with the timing of tax deductions,
and provision has been made for adjustments which may result.
Note I - Retirement Plans - The company has retirement plans
covering all employee groups. Pension expense for 1981, 1980
and 1979 was $35,842,000, $20,424,000 and $14,978,000, re-
spectively. 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. Plan improvements
during 1981 had the effect of increasing the present value of
plan benefits approximately $16,253,000 and increasing the net
loss approximately $910,000 or $.04 per share. Plan amend-
ments during 1981 not reflected in the acturial valuation at Jan-
uary 1, 1981 will increase the present value of plan benefits
approximately $31 ,000,000 and impact the pension expense in
future years. The accumulated plan benefits and plan net assets
for the company's defined benefit plans are as follows (in thou-
sands):
Actuarial present value of
accumulated plan benefits
Vested .. . ........ . ......... . ... .. ... .
Nonvested . . .. . ......... . ... . ..... . . . .
Net assets available for benefits .......... .
January 1
1981 1980
$191,580
39,342
$230,922
$232,057
$148,488
32,076
$180,564
$171 ,061
The weighted average assumed rate of return used in deter-
mining the above actuarial present value of accumulated plan
benefits was 7% for both 1981 and 1980.
Note J - Net Earnings (Loss) Per Common Share - Primary
and fully diluted loss per common share for 1981 and 1980 was
based on the weighted average number of common shares out-
standing of 21,385,451 and 20,722,638, respectively. The 1981
net loss was increased by preferred dividend requirements of
$2,942,000 prior to computing the per common share amount.
Primary earnings per common share for 1979 is based on the
weighted average number of common and common equivalent
shares outstanding (18,561 ,082). 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 earn-
ings per common and common equivalent share would have
been $.67, or a decrease of $.03 per share.
21
Notes to financial statements
December 31, 1981, 1980 and 1979 (continued)
Fully-diluted earnings per common share for 1979 is based on
the assumed issuance of additional common shares (932,131)
relating to the conversion of the debentures, and related interest
(net of income tax effect) was added to income for purposes of
the calculation.
Note K - Redeemable Preferred Stock of Subsidiary - The
company's subsidiary, Republic Airlines West, Inc., has author-
ized 500,000 shares of $100 par value Cumulative Preferred
Stock. In February, 1981, the subsidiary issued 280,000 shares
in a private placement with McDonnell Douglas in connection
with related aircraft acquisition and financing transactions. Prin-
cipal terms of the cumulative preferred stock include:
Dividends: Annual cumulative dividends are payable quarterly
at an annual rate of 13% through 1987, 16% from 1987 to 1990,
18% from 1990 to 1993, and 20% thereafter.
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.
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.
LABOR AGREEMENTS
Among the agreements the airline has with six labor unions, one
is currently under negotiation, three are amendable in 1982, and
QUARTERLY STATEMENTS OF OPERATIONS
(unaudited - in thousands except per share amounts)
1981
Three Months Ended
December31 September 30 June 30
Operating Revenues .................. $355,156 $368,224 $373,936
Operating Expenses .................. 363,191 365,526 357,171
Operating Profit (Loss) ................ (8,035) 2,698 16,765
Net Earnings (Loss) .................. (7,759) (1 8,445) (4,879)
Net Earnings (Loss) Per Common Share ... (.39) (.90) (.27)
Optional Call: Callable at any time, at $100 per share plus all
unpaid dividends.
Preference: Upon liquidation $100 per share plus unpaid div -
idends before any distribution to the parent company.
Sinking Fund Redemption: Quarterly redemption of 2% of the
outstanding shares at a price of $100 per share plus dividends
unpaid to the redemption date, begins on April 30, 1987, and is
calculated to retire all preferred shares by April 30, 1997.
Mandatory Purchase: In case of default, including failure to pay
dividends, the shareholder can require the parent company to
purchase all or any portion outstanding at $100 per share plus
all unpaid dividends. Because an agreement was reached with
the preferred stock shareholder, non payment of the January
31 , 1982 dividend did not constitute a default. In addition, the
shareholder may require the parent company to purchase 17,500
shares quarterly beginning May, 1983.
two are amendable in 1983. The company expects to reach
equitable agreements with these unions.
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.
1981 1980
High Low High Low
1st Quarter ...... . . . ..... . ... 8 5 8 5
2nd Quarter .. . ...... . ....... . 11 % 7% 6 5
3rd Quarter . .............. . .. 9% 5 9 5
4th Quarter . . .......... .. . . .. 5 3 8 5
The company paid cash dividends on common stock of $.1 0 per
share to its stockholders during the first quarter of 1981 and
$.20 per share during the first quarter of 1980. Under the re-
strictive convenants contained in the Revolving Credit Agree-
ment dated October 1, 1980, as presently amended, the com-
pany cannot declare cash dividends or acquire its own capital
stock. At February 26, 1982, the company had 39,202 holders
of common stock.
1980
Three Months Ended
March 31 December 31 * September 30 June 30 March 31
--- ---
$351 ,100 $336,773 $212,635 $197,507 $169,800
346,072 321 ,168 204,372 198,429 179,522
5,028 15,605 8,263 (922) (9,722)
(15,186) 111 (2,336) (8,676) (13,761)
(.73) .01 ( .11) (.43) (.67)
*Operations for the quarter ended December 31, 1980 and all periods thereafter include the operations of
Republic Airlines West, Inc., a consolidated subsidiary acquired on October 1, 1980.
22
Supplemental stockholder information
(continued)
CONSOLIDATED STATEMENT OF OPERATIONS
-ADJUSTED FOR CHANGING PRICES
Year ended December 31 , 1981 (in thousands- unaudited)
Total operating revenues
Depreciation and amortization expense ........... .. .. .. . . ... . ..... .
Other operating expenses ...... . .... .. ....... ... ... . .. . .......... .
Other expenses~ net ... . ... . .. .... ... ... ......... . .. . . . .. . .. . . . . .
Gain on disposition of equipment ... . . . . . . . . . ..... . . ..... . . . ....... .
Provision for income taxes . .. . . ... ... . .... . ..... . .. . ... . .. . ....... .
Loss from 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 year* . . ... . . ... ... . ... . .. .
Effect of increase of general price level .. . . ..... . ... . .. . . .. . .. . . . . . .
Excess of increase in specific prices over increase in the
general price level ......... . . .... . .... . .... . ....... . . . . . .. . . .. . .
* At December 31 , 1981 , current cost of inventory was $54,853,000,
and the current cost of property and equipment, net of accumulated
depreciation and amortization, was $1 ,611 ,311 ,000.
As Reported
in the
Primary Statements
$1 ,448,416
63,728
1,368,232
76,036
(13,369)
58
1,494,685
$ (46,269)
FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA
-ADJUSTED FOR EFFECTS OF CHANGING PRICES
Adjusted for
General
Inflation
$1 ,448,416
77,029
1,371 ,655
76,036
(7,510)
58
1,517,268
$ (68,852)
$ 68,584
Adjusted for Changes
In Specific Prices
(Current Cost)
$1,448,416
113,004
1,371 ,655
76,036
(8,347)
58
1,552,406
$ (103,990)
$ 68,584
$ 308,088
182,761
$ 125,327
(In average 1981 constant dollars, in thousands except per share and price index amounts- unaudited)
Vear ended December 31
1981 1980 1979 1978 1977
Total operating revenues-at historical costs . ....... . . . .. . ... . .... . . ... . $1,448,416 $ 916,71 5 $609,230 $487,565 $388,634
Total operating revenues-in average 1981 dollars . .. . . . .......... . .... . $1,448,41 6 $1,011,804 $763,359 $679,697 $583,272
Historical cost information-adjusted for general inflation
Net loss from operations . . .. ... . .... ....................... . .... . . $ (68,852) $ (44,721 ) $ (215)
Net loss from operations per common share .. . .... . . . ...... . . . . . . . . . $ (3.36) $ (2.1 6) $ (.01)
Equity in net assets at year-end ... .. ... . ... . .. . ................... . $ 332,984 $ 282,037 $263,411
Current cost information
Net loss from operations ... .. . . ......... . ... . . . .. . ............... .
Net loss from operations per common share .. . .. . ............ . ... . . .
$ (103,990) $ (58,21 9) $ (7,694)
$ (5.00) $ (2.81) $ (.38)
Excess of increase in specific prices over increase
in the general price level . . .... . ...... . ........ . ..... .. ......... . $ 125,327 $ 90,916 $ 22,830
Equity in net assets at year-end . . .... . ..... . ..... . .......... . ..... . $ 864,578 $ 715.,940 $393A89
Gain from decline in purchasing power of net amounts owed . . ......... . $ 68,584 $ 61 ,908 $ 41 ,926
Cash dividends declared per common share- historical ....... .. ..... . . $ .10 $ .20 $ .20 $ .16 $ .12
Cash dividends declared per common share- in average 1981 dollars ... . $ .10 $ .22 $ .25 $ .22 $ .18
Market price per common share at year-end- historical . . ...... . ...... . $ 4.13 $ 6.00 $ 6.00 $ 7.13 $ 5.00
Market price per common share at year-end- in average 1981 dollars ... . $ 3.99 $ 6.62 $ 7.52 $ 9.93 $ 7.50
Average consumer price index ........ . ..... . ... . ................... . 272.4 246.8 217.4 195.4 181 .5
NOTE: Certain data for years prior to 1979 have been omitted as permitted by FASS No. 33.
23
Supplemental stockholder information
(continued)
EFFECTS OF CHANGING PRICES (unaudited)
Basis of preparation of 1981 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 bo.th 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 1981. 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.
24
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).
Board of Directors
Hal N. Carr*
Chairman of the Board
Republic Airlines
Cecil A. Beasley, Jr.
Partner-Ballard and Beasley
(attorneys)
Eric Bramley
Retired Editor
Aviation Daily
(aviation industry news service)
G. F. DeCoursin*
Chairman of the Board
April Graphics
(commercial graphic arts)
Frank W. Hulse*
Vice Chairman of the Board
Republic Airlines
Alton F. Irby, Jr.
Chairman Ementus
Fred S. James & Co. of Georgia
(insurance)
G. Gunby Jordan
Chairman of the Board
The Jordan Company
(construction)
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 and
Chief Executtve Officer
Dorman W. Atwood
Senior Vice Pres1dent-
Mamtenance and Engmeermg
Kenneth L. Hubertus
Senior Vice President-Customer
Service
George J. Karnas
Senior Vice Pres,dent-lnf/,ght
Service
A. L. Maxson
Senior Vice Pre 1d nt mance
David E. Moran
Senior Vic Pr 1d nt M rk tmg
John M. Lawrence Ill
Partner-Lawrence, Thorton,
Payne & Watson (attorneys)
William R. Lummis
Chairman of the Board
Summa Corporation
(real estate investments, aviation,
hotels and recreation)
Daniel F. May*
President
Republic Airlines
Morton 8. 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)
G. F. Wallis
Senior Vice President-Flight
Operations
J. Kenneth Courtenay
Vice President-Route
Development
Edward A. Dingivan
Vice President-Federal Affairs
John P. Dow
Vice President-Corporate Affairs
and Secretary
William G. Drechsler
Vice President-Maintenance and
Engmeenng
Joseph W. Ettel
Vice Pres1dent-lndustnal Relations
Gramer D. Foster
Vice Pres1dent-Flymg
Earl D. Jackson
Vice President-Maintenance and
Engmeenng, Atlanta Region
Michael D. Meyer
Vice Pre 1d nt and Controller
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
of Memphis
Wm. Bew White, Jr.*
Partner-Bradley, Arant,
Rose & White (attorneys)
Kenneth 8. Willett*
Chairman of the Board
First Financial Savings and
Loan Association
Frank M. Young Ill
Partner-North Haskell Slaughter
Young & Lewis (attorneys)
* Executive Committee
William E. Oakes
Vice President-Marketing
Robert G. Rubens
Staff Vice President
Charlotte G. Westberg
Staff Vice President
W. H. Mackinnon
Treasurer
Robert P. Johnson
Assistant Vice President-Flight
Operations
John E. Manger
Assistant Vice President-
Long-range Planning
Walter E. Nielsen
Assistant Treasurer
Gloria 8. Olsen
Assistant Secretary
Raymond J. Rasenberger
Assistant Secretary
Ralph Strangis
Assistant Secretary