Republic Airlines Annual Report 1983

7500 Airline Drive Minneapolis, Minnesota 55450 612-726 7411
Letter to stockholders ............................ 1
1983 in review .................................. 2
The future ...................................... 8
Management's discussion and analysis ............... 9
Financial statements ............................. 12
Auditors' report ................................ 16
Supplemental stockholder information .............. 21
Five-year summary ............................. 24
Board of Directors and Officers ................... 25
About Republic
Republic Airlines-the nation's sixth-largest passenger
carrier-provides safe, dependable air service to the traveling
and shipping public. In 1983, Fortune magazine listed
Republic as the I 5th-largest transportation company in the
United States.
Originally called Wisconsin Central Airlines, the company
inaugurated scheduled service on February 24, 1948. The
name was changed to North Central in 1952. Southern
Airways , which began operations in 1949, was merged into
the company in 1979, and the name became "Republic."
Hughes Airwest, which also had over 30 years of experience,
was acquired in October 1980.
Republic serves 140 cities- more than any other airline in
the country- including most of the nation's metropolitan
areas and many intermediate-sized communities. Its
104,000-mile route system extends coast-to-coast, and from
Canada to Mexico and the Cayman Islands in the Caribbean.
(See map, inside front cover.)
The company carried 17. 8 million passengers in 1983, and
operates the seventh-largest commercial jet fleet in the world.
Its 163 aircraft- Boeing 727s, Douglas DC-9s and Convair
580s- make 1,300 departures daily.
Republic's 14,200 dedicated employees offer the finest type
of scheduled airline service.
BOSTON
TON, D.C.
iT PALM BEACH
:r LAUDERDALE
.LYWOOD
Ml
To our stockholders, employees and friends:
Republic Airlines and its
employees are moving toward
agreement on a three-year
Partnership Plan which should lead
to sustained profitability. The
airline would be more competitive
with reduced operating costs and
would have the potential to increase
revenues. Such a plan became
mandatory when Republic lost
$111 million in 1983 due to
unprecedented fare wars and higher
labor expenses.
Early last year, below-cost
pricing occurred in the industry as a
result of weak traffic, overcapacity,
and the extreme tactics used to
attract immediate business. Republic
faced a difficult dilemma-retain
passengers by sales promotions that
would cut revenues, or risk losing
traffic and more revenues by
holding fares at current levels.
Expecting prices to rise, the
company chose to match fares and
offer travel incentives to protect its
markets. While this brought new
passengers, the decline in total
revenues produced substantial
losses.
Recognizing the urgent need to
cut operating expenses, the airline's
employees accepted a 15 percent
wage reduction and freeze on
September 1, for a nine-month
period. As fares returned to
stronger levels in the third quarter,
losses were reduced significantly,
and a modest profit was achieved in
the fourth quarter.
For the year 1983, revenues were
$1. 51 billion and expenses totaled
$1. 62 billion, resulting in the net
loss of $111 million, or $4.28 per
share. For 1982, revenues were
$1.53 billion, with expenses of
$1. 57 billion, for a net loss of
$39. 9 million, or $1. 99 a share.
The annual results included the sale
of tax benefits of $13 million in
1983 and $17. 8 million in 1982.
Republic flew 9. 7 billion revenue
passenger miles, a five percent gain
over 1982. Cargo ton miles,
continuing to climb rapidly, rose
22 percent to 79. 7 million. The
airline carried 17. 8 million
passengers, off two percent due to
the discontinuance of certain
unprofitable routes.
The company's marketing strategy
emphasizes the primary hubs-
Minneapolis/St. Paul, Detroit,
Memphis and Phoenix. Most new
flights are targeted to strengthen
Republic's position at these cities.
Advertising is directed primarily
toward business travelers, who
account for the largest percent of
airline traffic. During 1983, the
theme ''Nobody Serves Our
Republic Like Republic'' was
dramatized in TV commercials
featuring actual passengers and
employees.
The seventh DC-9 Super 80 jet
arrived in April 1983. Republic
purchased another Super 80
in August and reached agreement
with McDonnell Douglas
Corporation to cancel the airline's
obligations for the six DC-9-80s
still on order. Pre-delivery deposits
remaining were applied to the latest
Super 80 which is being leased to
McDonnell Douglas for 18 months.
This transaction, including the net
sale of tax benefits, produced
income of $3 million for Republic.
In March 1984, the company sold
four DC-9-lOs, with delivery of
two scheduled for June and two in
September. The airline currently
operates 163 jet-powered aircraft.
To improve its working capital
position, Republic made a public
offering of equity securities in
June 1983. The company received
$58.3 million in proceeds from the
sale of 3,740,000 units, each
consisting of two shares of common
stock and a warrant to purchase one
additional common share. Also,
$8. 5 million in cash wa saved as
many employees accepted
alternatives for deferred wages due
in 1983.
Republic gratefully acknowledges
the valuable contribution of Joseph
E. Rapkin, a director who died in
May of 1983. This prominent
Milwaukee attorney and civic leader
had served the airline since 1965.
Under the proposed three-year
Partnership Plan ( described on
page 2), the company believes that
a meaningful net profit can be
earned each year through 1986.
By adopting the Plan, Republic
personnel will be making a
significant commitment to the
company, and in exchange, will
share in profits and ownership.
With the continuing support of its
stockholders, employees and
friends, Republic expects to earn a
profit in 1984 and move toward
achieving financial stability in the
future. The airline's unique route
system offers great potential, and
management looks ahead confidently
to better years.
Sincerely,
-/)f.w~.
Hal N. Carr
Chairman of the Board
~/~
Daniel F. May
~
President and
Chief Executive Officer
March 8, 1984
IUREU
ARCATA
aACRAII
SAN FRANCISC
SANJ
FRE
LOS ANGELES
FORT
GRAND CAYMAN
K
WARK
ILADELPHIA
EST PALM BEACH
ORT LAUDERDALE
OLLYWOOD
MIAMI
To our stockholders, employees and friends:
Republic Airlines and its
employees are moving toward
agreement on a three-year
Partnership Plan which should lead
to sustained profitability. The
airline would be more competitive
with reduced operating costs and
would have the potential to increase
revenues. Such a plan became
mandatory when Republic lost
$111 million in 1983 due to
unprecedented fare wars and higher
labor expenses.
Early last year, below-cost
pricing occurred in the industry as a
result of weak traffic, overcapacity,
and the extreme tactics used to
attract immediate business. Republic
faced a difficult dilemma-retain
passengers by sales promotions that
would cut revenues, or risk losing
traffic and more revenues by
holding fares at current levels.
Expecting prices to rise, the
company chose to match fares and
offer travel incentives to protect its
markets. While this brought new
passengers, the decline in total
revenues produced substantial
losses.
Recognizing the urgent need to
cut operating expenses, the airline's
employees accepted a 15 percent
wage reduction and freeze on-
September I , for a nine-month
period. As fares returned to
stronger levels in the third quarter,
losses were reduced significantly,
and a modest profit was achieved in
the fourth quarter.
For the year I 983, revenues were
$1 .51 billion and expenses totaled
$1.62 billion, resulting in the net
loss of $111 million, or $4.28 per
share. For 1982, revenues were
$1.53 billion, with expenses of
$1.57 billion, for a net loss of
$39.9 million, or $1.99 a share.
The annual results included the sale
of tax benefits of $13 million in
1983 and $17.8 million in 1982.
Republic flew 9.7 billion revenue
passenger miles, a five percent gain
over 1982. Cargo ton miles,
continuing to climb rapidly, rose
22 percent to 79. 7 million. The
airline carried 17. 8 million
passengers, off two percent due to
the discontinuance of certain
unprofitable routes.
The company's marketing strategy
emphasizes the primary hubs-
Minneapolis/St. Paul, Detroit,
Memphis and Phoenix. Most new
flights are targeted to strengthen
Republic's position at these cities.
Advertising is directed primarily
toward business travelers, who
account for the largest percent of
airline traffic. During 1983, the
theme "Nobody Serves Our
Republic Like Republic" was
dramatized in TV commercials
featuring actual passengers and
employees.
The seventh DC-9 Super 80 jet
arrived in April 1983. Republic
purchased another Super 80
in August and reached agreement
with McDonnell Douglas
Corporation to cancel the airline's
obligations for the six DC-9-80s
still on order. Pre-delivery deposits
remaining were applied to the latest
Super 80 which is being leased to
McDonnell Douglas for 18 months.
This transaction, including the net
sale of tax benefits, produced
income of $3 million for Republic.
In March 1984, the company sold
four DC-9-I0s, with delivery of
two scheduled for June and two in
September. The airline currently
operates 163 jet-powered aircraft.
To improve its working capital
position, Republic made a public
offering of equity securities in
June 1983. The company received
$58.3 million in proceeds from the
sale of 3,740,000 units, each
consisting of two shares of common
stock and a warrant to purchase one
additional common share. Also,
$8.5 million in cash was saved as
many employees accepted
alternatives for deferred wages due
in 1'983.
Republic gratefully acknowledges
the valuable contribution of Joseph
E. Rapkin, a director who died in
May of 1983. This prominent
Milwaukee attorney and civic leader
had served the airline since 1965.
Under the proposed three-year
Partnership Plan (described on
page 2), the company believes that
a meaningful net profit can be
earned each year through 1986.
By adopting the Plan, Republic
personnel will be making a
significant commitment to the
company, and in exchange, will
share in profits and ownership.
With the continuing support of its
stockholders, employees and
friends, Republic expects to earn a
profit in 1984 and move toward
achieving financial stability in the
future. The airline's unique route
system offers great potential, and
management looks ahead confidently
to better years.
Sincerely,
-/)yd/~.
Hal N. Carr
Chairman of the Board
LJ/~
Daniel F. May
~
President and
Chief Executive Officer
March 8, 1984
1983 in review
Introduction
In 1983, Republic Airlines
culminated a five-year period of rapid
and extensive change since deregulation
of the industry became law in late
1978. Southern Airways was merged
into North Central Airlines in July
1979, and the company's name changed
to Republic. Fifteen months later,
Hughes Airwest (another regional
carrier) was acquired. An air traffic
controllers' strike occurred for the first
time in the industry in August 1981,
and the Federal Aviation Administration
imposed severe operating restrictions at
most major airports.
Fuel costs rose rapidly during 1979
and 1980, before peaking in 1981.
Inflationary forces pushed interest
charges and labor costs dramatically
upward. A harsh economic recession
greatly reduced air travel, and at the
same time, dozens of new entrants
began flying. Competition-from both
established and fledgling airlines-
intensified.
Unprecedented fare wars escalated
and affected virtually every carrier in
every market during the fourth quarter
of 1982 and the first two quarters of
1983. This environment produced the
most disastrous financial period in the
history of the air transport industry, as
a number of major airlines struggled to
generate cash and to prevent declines in
market share.
Consumers, on the other hand, came
to expect extreme discounts as normal.
Carriers then faced a difficult
dilemma-to maintain fares at some
reasonable level and immediately lose
passengers to price-cutting competitors,
or to match fares and create large
operating losses.
Republic attempted to hold the line,
but decreasing load factors and traffic
levels showed that deep discounts had
to be matched. Although the company
was attracting passengers, its yield
(average revenue per passenger mile
flown) dropped drastically. Operating
revenues for the first quarter of 1983
were below the previous year. Of the
record 1.05 billion revenue passenger
miles flown in March, 26 percent came
from ticket redemptions tied to
promotions or unprofitable discounts.
The company then implemented
strong measures to boost revenues and
cut costs. A new, mileage-based fare
2
Travelers have a wide variety of destination options when
as many as 25 aircraft converge at Republic hubs during a
two-hour period.
structure was adopted. Schedules were
increased at major hubs, and service
terminated at cities with limited profit
potential. Aggressive advertising was
directed toward business, vacation, and
convention travelers.
Mid-year cost cuts
As 1983 progressed, all large carriers
began moving to reduce labor costs-
which represent up to 40 percent of all
operating expenses. Across the industry,
agreements were reached to improve
productivity, reduce base pay, eliminate
antiquated work rules, and establish
lower pay and benefit scales for new
employees.
Some airlines chose confrontation
with employees, while others worked
together to cut costs. Republic was able
to depend on the support of its 14,200
workers during these difficult and
trying times. In July 1983, all
employees were asked to accept a 15
percent pay reduction and wage freeze,
along with more productive work rules,
for a nine-month period. The program
became effective September 1, and is
saving $7 million a month. Employee
cooperation helped to steadily reduce
operating expenses, and cost per
available seat mile declined from
9.08 cents for the first quarter of 1983
to 8.24 cents in the fourth quarter.
Partnership Plan
In December 1983, the company
announced a Partnership Plan designed
to preserve the viability of the airline
in an era of intense competition from
established carriers and low-cost
entrants.
The Plan is designed to extend the
present pay cut and wage freeze
through 1986 and substantially increase
productivity. These actions would
enable the company to earn a reasonable
net profit in each of the next three
years, based on realistic fares and load
factors. Provisions of the Plan would
include employee stock ownership and
profit-sharing.
Management is working with the six
labor organizations that represent
Republic workers to develop the details
of the Plan. The agreement would
increase confidence in the company.
Passengers, travel agents, the financial
community, and the news media will
know that Republic has made a firm
commitment to do everything necessary
to ensure its future. The competition
will know that Republic can withstand
market encroachment and fare wars.
Hub strategy
By 1983, Republic's multi-hub route
structure was well developed. It focuses
on four primary hubs-Minneapolis/
St. Paul, Detroit, Memphis and
Phoenix- strengthened by other traffic
centers.
Republic's strategy for growth is to
bring passengers from medium-sized
communities to these four major cities.
Long-haul flights then carry the
travelers to their business and leisure
destinations. On some flights, up to
90 percent of Republic's passengers use
this "self-feed" system. As many as
25 aircraft converge on a hub during a
two-hour period, making dozens of
travel options available.
Since 1979, Republic's passenger
miles and market share have doubled.
(See Five-year summary on page 24.)
The number of passengers boarded at
the four primary hubs has jumped
72 percent. In 1983, each of the hubs
Passengers Boarded
At Republic Hubs
boarded over one million passengers,
with Phoenix and Memphis surpassing
that mark for the first time (see chart).
Republic now offers 109 flights each
business day from Minneapolis/St. .Paul,
92 from Detroit, 84 from Memphis,
and 63 from Phoenix.
New flights
Major new routes were introduced in
1983 to strengthen Republic's hub
cities. At Memphis, nonstops were
added to New York (LaGuardia),
Tampa/St. Petersburg/Clearwater,
Gulfport/Biloxi, Mobile/Pascagoula,
Dallas/Fort Worth and Phoenix. Detroit
was linked to Philadelphia and
Washington, D.C. (National). Phoenix
received new Republic service to
Portland, Sacramento, San Diego and
Omaha. At Minneapolis/St. Paul,
nonstops were inaugurated to St. Louis
and Columbus (OH).
Elsewhere on the system, the
company entered the following markets:
Atlanta-Houston (Hobby), Omaha-
Des Moines, Sacramento-Eugene, and
Las Vegas-Palm Springs/Indio.
In February 1984, Tulsa became
Republic's newest city, receiving
service to Wichita and the Memphis
hub. Other nonstops linked Detroit to
Memphis Phoenix Detroit
79 80 81 82 83 79 80 81 82 83 79 80 81 82 83
both Miami and Fort Lauderdale/
Hollywood; Atlanta to Orlando,
Memphis, and Milwaukee; Sioux Falls
to Rapid City; and Des Moines to
Minneapolis/St. Paul and Phoenix.
Sky Coach service
To support the Atlanta connecting
complex, Republic "Sky Coach"
service was inaugurated August 15 to
serve Columbus (GA) and military
personnel at Fort Benning. Chartered
buses with the Republic name and
corporate colors make scheduled trips
which connect with flights to and from
the Atlanta airport. This service is
listed in the Official Airline Guide.
"Sky Coach" carried 6,620 passengers
in the first four and a half months.
Similar service is being extended to
Anniston/Oxford and nearby Fort
McClellan on March 1.
Reallocated resources
Aircraft and personnel for new flights
became available when Republic
discontinued service at 18 points during
1983 and three in early 1984. Revenues
and traffic potential at these cities were
limited. The company worked closely
with the communities to secure
adequate, reliable replacement service
by regional airlines.
Minneapolis/St. Paul (Million)
2
1.5
1
.5
79 80 81 82 83 0
3
Republic presently provides airport
facilities, counter and gate space,
training, ticketing or ground service for
35 regional carriers. The company also
has joint fares and interline ticketing
agreements with over 100 regionals.
Eight are already linked to ESCORT-
Republic's computerized reservations
and telecommunications system-and a
ninth will become a co-host soon.
By teaming up with these carriers,
Republic is able to offer passengers
excellent connecting long-haul service.
Traffic growth
Traffic showed modest growth for
1983, compared with the previous year.
Passenger miles increased five percent
to 9. 7 billion, although the number of
passengers declined two percent to 17.8
million. This shows the effect of
discontinuing service to some of the
smaller cities and reallocating resources
to long-haul routes. Republic's average
passenger trip in 1983 was up seven
percent to 544 miles from 511 (see
chart). To supplement scheduled
flights, 307 charter trips served
40,773 travelers. Cargo ton miles
jumped 22 percent to 79.7 million.
Over 192,000 small shipments were
handled by the company's VIP service
Average
Passenger Haul
(Miles)
600
500
400
300
200
100
79 80 81 82 83 0
for "Very Important Packages," a gain
of eight percent.
A monthly traffic record was set in
March when 1,926,246 passengers flew
Republic. On March 25, a new daily
high was established with 73,707
passengers.
In 1983, significant gains were made
in "connecting" traffic. Transfers were
up 156 percent at Phoenix, 31 percent
in Minneapolis/St. Paul, 30 percent at
Memphis, and 15 percent at Detroit.
Cargo, including perishables such asfresh seafood, can be
swiily transported to Republic cities across the country.
4
Reservations and facilities
The automated check-in system
introduced by Republic in 1983 has
expedited procedures for reservations,
ticket counter check-in, and boarding.
Each of the l , 900 passenger agents has
received 16 hours of training on the
new system. During 1984, additional
refinements will enable passengers to
receive seat assignments when making
reservations up to 60 days in advance.
A monthly record was set in
March 1983 when reservations agents
handled 2.6 million calls. On March 21,
a single-day high occurred with
121,225 calls.
New facilities for Republic
passengers were completed at New
York (LaGuardia), Toronto, Detroit,
Fort Myers, Miami, Columbus (GA)/
Fort Benning, Houston (Hobby),
Memphis, Minneapolis/St. Paul,
Phoenix, Orange County/Santa Ana/
Anaheim, Los Angeles and San Jose
during 1983.
New air freight terminals were
occupied at Montreal, Tampa/
St. Petersburg/Clearwater, Milwaukee,
St. Louis, and Las Vegas. Construction
is currently underway on passenger or
freight terminals at Grand Cayman,
Dallas/Fort Worth, Milwaukee, Green
Bay/Clintonville, Bismarck/Mandan,
Tucson, and Sacramento.
Aircraft transactions
The seventh McDonnell Douglas
DC-9 Super 80 joined the Republic
fleet in April. In March 1984, the
company sold four DC-9-1 Os, with
delivery of two scheduled in June and
two in September. The airline currently
operates 163 jet-powered aircraft-the
seventh-largest fleet in the world-
including 133 DC-9s, 15 Boeing 727s
and 15 Convair 580s. With the new
DC-9-80 and greater aircraft utilization
from improved scheduling, available
seat miles increased seven percent for
the year.
Also, Republic and McDonnell
Douglas Corporation reached an
agreement in August 1983 which
cancelled the company's obligations for
the six DC-9-80s still on order. The
remaining pre-delivery deposits were
applied to the purchase of another
Super 80, which is being leased to
McDonnell Douglas for 18 months.
This transaction, including the net sale
of tax benefits, produced income of
$3 million for Republic.
Jet fuel
One of the company's major
expenses continues to be jet fuel. Over
one million gallons are used daily. The
price of fuel decreased nine percent in
1983 to an average of 88.3 cents per
gallon. No great changes in supply or
price are forecast for 1984.
Average Price
of Jet Fuel
(Per Gallon) (Dollars)
$1.10
1.00
.90
.80
79 80 81 82 83 .70
Republic's Flight Crew Training
Center provides pilots with federally-
approved simulator training which
significantly reduces instructional costs.
The airline has four flight simulators,
including a new DC-9-80 unit added in
May 1983-one of just two in this
country.
Besides giving instruction to
Republic pilots, the Training Center
earns $3 million annually under 30
contracts with other airlines and the
federal government for flight crew
training.
Fleet maintenance
Republic's exacting maintenance
program again kept operating
performance for 1983 among the
highest in the industry. The airline
completed 99. 2 percent of its
169 million scheduled miles. Only
three-tenths of one percent of scheduled
departures were cancelled, and just
1. 7 percent were delayed for
maintenance reasons.
At the company's Power Plant
Facility, mechanics rebuilt over 300 jet
engines. Republic performs all major
maintenance work on its JT8D engines.
Late in 1983, major aircraft
maintenance being done at the Phoenix
base was consolidated and moved to the
Main Operations Base in Minneapolis/
St. Paul. The change resulted from a
decrease in outside contract work ..
Inventory savings are expected to total
$8 million in 1984.
Skilled mechanics at Republic's Power
Plant Facility perform all major
maintenance on the company's JT8D jet
engines.
To improve passenger comfort and
convenience, Republic mechanics are
completely revamping the interiors of
the company's DC-9 Series 10 jets.
Increased leg room and enclosed
overhead bins for carry-on luggage are
the main changes. The renovation
project also includes more attractive,
contemporary decor.
5
Marketing concepts
Marketing programs are tied closely
to the development of Republic's four
primary hubs- Minneapolis/St. Paul,
Detroit, Memphis and Phoenix. More
nonstop flights to key business and
leisure destinations are being added as
resources permit. Dominance at these
important hubs assures continued
growth and discourages competition
from other carriers.
Control of fares is an increasingly
important task. Passengers have
become extremely price-conscious,
since all airlines have used drastic
discounts to attract or keep business.
Republic is determined to avoid
unprofitable fares which cause system-
wide yield erosion, but is prepared to
match prices as needed to protect its
markets.
Whats Bigger'lhan
140 CifiesAnd Flies?
6
-.,hlicAitlines.
And~ComingToTulsa.
Stmting February 1st you'll see something new in
the air over Tulsa from Republic Airlines. We serve
more U.S. cities than any other airline. And soon we'll
be helping you reach them, with new service to and
from Tulsa.
Our new nonstops
bring Wichita and
Memphis closer, with 6
quick flights every day.
From Memphis, we can
take you to major cities from
Minneapolis/St. Paul to
Miami, and
New York to New Orleans.
And here's something to make
the trip a little more interesting.
tfyou!!J~,
let us flj you free. ,
Republic's Frequent Flyer
program is the fastest way
to get a free round trip of
any major airline. Faster
than United, American
or Delta. And you can
go to any city we serve.
Just 20,000 miles does
it. It's easy to join with
instant enrollment at
check-in and even
easier to get your first
3,000 miles.
We'll give them to
you free if you become a
Frequent Flyer in February.
Look for double mileage credit
on any new flight to Wichita or
Memphis during February too.
NEW SERVICE
FRoMTuLsA
Thousands who write
can't be wrong.
Modesty prevents us from
telling you how many thousands
of complimentary letters we get
every year. The fact is, we're
Atlanta
BatonR~e
Binninghcim
ChattaMOga
cf::i
Detrait
Huntsville/
De.fur
Knaxville
Memphis
Milwaukee
proud of them. They mean
we're doing our jobs right.
They give usa
reputation to
live up to.
Miami
M~!1:!iir:ul
New Orleans
New Yark
Oiianda
Philadel,!iia
Tampa/St. Pete.
andOY<'l' "Sother c,tiCS
We like to think all
the letters say the same
thing ... Nobody Serves
Our Republic Like
Republic.
For information
and reservations call a
travel agent, your
corporate travel
planner or Republic:
800-441-1414.
~-
IIBUIUCAIRUIIES
Nixxiy Serves Our RepubliclikRpuh/ic.'
Advertisements introducing Republic's arrival in Tulsa stressed the new service
to Wichita and Memphis, while highlighting dozens of destinations reached
through the Memphis hub.
Advertising
Republic's advertising campaigns are
primarily targeted at business travelers,
who account for the largest percent of
all airline passengers. Continuing the
theme ''Nobody Serves Our Republic
Like Republic," the company has
developed a series of television
commercials and print advertisements
based on complimentary letters from
passengers who write about the good
service they receive. Authors join the
personnel involved to reenact the
situations which inspired the letters.
The ads spotlight Republic's quality
service, while displaying the
friendliness and professionalism of
employees.
Business travel
To attract more business passengers,
Republic has vigorously promoted its
Business Coach, Frequent Flyer and
Executive Suite programs.
Business Coach, priced at just $15
over a full coach fare, is an excellent
value. The traveler enjoys pre-boarding,
wider seats, and complimentary
beverages. The quiet, comfortable
atmosphere helps ensure a productive
working trip.
Over 300,000 "Frequent Flyers" are
now participating in one of the
industry's best travel bonus programs.
After every 20,000 miles flown on
Republic, Frequent Flyers receive a
free round-trip coach ticket and a
Business Coach upgrade.
''FAS TRAC, '' a computerized
mileage-tracking system, automatically
credits the mileage to the Frequent
Flyer's account through the company's
Business Travel Center.
Republic's high-mileage Frequent
Flyer of 1983 logged 325,000 miles of
travel on the airline and won a $25 ,000
automobile in a joint promotion
sponsored by the company and National
Car Rental System. In 1984, a high-
mileage Frequent Flyer will be named
each month. This person will be
awarded one year's use of a new
Oldsmobile Cutlass. By the end of
1984, half-a-million regular passengers
are expected to be Frequent Flyer
members.
Republic " Executive Suites" offer
convenient airport terminal facilities
where passengers can relax or conduct
business in attractive surroundings.
Some 17,000 travelers paid the $40
annual fee, or received a year's
complimentary membership by
accumulating 60,000 miles as a
Frequent Flyer.
Convention travel activity tripled
during 1983. Republic was designated
as the ''Official Airline'' for 600
conventions and meetings which
attracted almost one million
participants. Republic personnel
coordinate reservations and ticketing
for delegates, exhibitors, sponsors and
family members attending these
gatherings.
Sales promotion
Innovative promotions helped
Republic project its image as a major
carrier to leisure and vacation
destinations. Early in 1983, the airline
teamed with Ralston-Purina using
millions of Chex cereal boxes to offer
family discounts on complete vacation
packages. The ''ABC'' fare emphasized
Republic's extensive route system and
encouraged travelers to fly rather than
drive to nearby hubs. Purchase of a
Curtis Mathes product entitled buyers
to special discounts and a sweepstakes
drawing for free travel.
"Suntrips with Rainchecks," a
unique incentive for leisure travelers to
fly Republic, was launched in
November to stimulate winter traffic. If
rain spoiled over half of the
passenger's vacation in selected cities,
the company issued another round-trip
ticket. The program, backed by an
Members of Republic Executive Suites appreciate the
comfortq,ble facilities in terminals at seven major cities.
inexpensive weather insurance policy,
generated national attention in the news
media.
International sales
Republic's sales efforts extend well
beyond the 140 cities it serves. A
strong international marketing team is
active at another 25 locations. These
include London, Stockholm, Brussels,
Munich, Milan, Madrid, Tel Aviv,
Mexico City, Guadalajara, Caracas,
Bogota, Lima, Rio de Janeiro, Sao
Paulo, Buenos Aires, Tokyo, Seoul,
Taipei, Hong Kong, Manila, Bangkok,
Kuala Lumpur, Singapore, Jakarta and
Sydney. In 1983, a European cargo
sales office was opened in Amsterdam.
The sales staff has been increased at
the company's major hubs and other
important traffic centers to promote
Republic's quiet, comfortable Business Coach provides an
excellent atmosphere for a productive working trip or a
relaxing leisure flight.
7
additional business travel through
personal contact with large agencies
and corporate accounts. Republic joined
the PARS reservations system in 1983
and is now a co-host in the five
automated systems used by over
85 percent of U.S. travel agencies.
Volunteer activities
To publicize Republic schedules and
the cities it serves, volunteers invested
many hours of their time on sales
blitzes in 1983. Both active and retired
employees organized and participated in
the Community Ambassador Program.
Over 20,000 calls were made on
selected travel agencies and commercial
accounts in 50 cities by the 850
volunteers.
On October 8, an estimated 17,000
employees, family members, friends,
business and civic leaders, travel agents
and other invited guests participated in
a "Rally Round Republic" open house
at the airline's Main Operations Base in
Minneapolis/St. Paul. Governor Rudy
Perpich proclaimed ''Republic Airlines
Day" in Minnesota, and local news
media covered the activities
extensively. Visitors learned about the
many technical skills and sophisticated
equipment required to operate a major
airline.
The future
With adoption of a three-year
Partnership Plan, Republic will have
the competitive cost structure to
withstand price-slashing tactics and
market encroachment by other carriers,
while bringing financial stability to the
company.
Republic has always believed that
labor and management can reach
mutually beneficial objectives by
working together. Employees are one
of the company's chief assets, and their
concern and loyalty arc essential in
today 's highly-competitive, deregulated
marketplace.
8
The airline's schedules, markets and
route system will focus on supporting
its four major hubs and strengthening
other traffic centers. With improved
service to key business and leisure
destinations, the company can retain its
dominant position at these hubs.
Republic is striving to offer
passengers the finest type of airline
service. Convenient schedules, superior
operating performance, courteous
attention, excellent food service, and
prompt baggage delivery support the
company's slogan, " Nobody Serves
Our Republic Like Republic."
Active and retired employees 11
olunteered to
make personal sales calls on their own time.
In 1983, 850 volunteers visited over 20,000
travel agencies and commercial accounts to
promote the airline's service.
With its unique route structure, the
airline has great traffic potential. In
addition, its employees are making
sacrifices to ensure the airline's
survival, stability and sustained
success. Republic is determined to
return to profitability in 1984- and to
grow financially stronger in future
years.
Management's discussion and analysis
RESULTS OF OPERATIONS
1983 compared with 1982
For 1983, revenues were $1.51
billion, and operating expenses were
$1.54 billion, resulting in an operating
loss of $31 million. Nonoperating
expenses were $80 million, consisting
of interest expense of $97. 9 million,
partially offset by $13 million from the
sale of tax benefits and $4.9 million
from other nonoperating items. A net
loss of $111 million for 1983 was
incurred.
During the first six months, Republic
sustained losses of $102.9 million, due
to severe fare wars and higher labor
costs. Conversely, the company's loss
was held to $8.1 million the second
half of 1983 because of improving
yields (average revenue per passenger
mile) and employee wage concessions
which began September 1.
For 1982, revenues were $1.53
billion, operating expenses totaled
$1.49 billion, and an operating profit
of $37 .2 million resulted. Nonoperating
expenses of $77. 1 million in 1982
included interest expense of $100.7
million, offset by gains of $17. 8
million from the sale of tax benefits
and $5. 8 million from other
nonoperating items. The net loss was
$39.9 million.
Operating revenues in 1983 fell by
$19.2 million, or 1.3 percent,
compared with 1982. Although revenue
passenger miles increased five percent
in 1983, yield declined 5.8 percent to
14.41 cents from 15.29 cents in 1982
which resulted in a decrease in
passenger revenues.
In the fourth quarter of 1982, several
airlines began offering deeply-
discounted fares which Republic was
forced to match. While the availability
of discount fares increased during the
first half of 1983, the fares themselves
did not cover associated costs in many
cases. To stimulate traffic, the
company also offered free flights to
fare-paying passengers in certain
promotions, and this decreased yield
levels. For the first six months of
1983, yield dropped to 12.93 cents
from 15.38 cents in 1982- a decrease
of 15. 9 percent, contributing to the
operating loss of $66.2 million.
During the second half of 1983, yield
improved 6.3 percent over 1982 with
the expiration of most discount and
promotional fares, and the adoption of
a mileage-based pricing plan. The
company expects yield to remain at
current levels or to improve in 1984,
unless competitors resort to price-
cutting tactics. Republic will continue
to match fares on selected routes when
required to retain its market share.
Other revenues were down because
of a $9. 7 million decrease in public
service revenues. The change reflects
withdrawal of service from unprofitable
subsidized cities and government
termination of subsidy payments for the
remaining eligible cities on October 1,
1983.
Total Revenues
- (Billions)
-
- $1.5
...___
- 1
-
.5
79 80 81 82 83 0
Operating expenses increased by
$49 .1 million in 1983, or 3. 3 percent
over the previous year. Operating
expenses per available seat mile
declined, however, to 8.68 cents in
1983, from nine cents in 1982, because
capacity increased by 7 .2 percent
without a comparable increase in
expenses.
Salaries and benefits increased by
$40.9 million over 1982. This was due
to a 1. 8 percent growth in the average
number of employees in 1983 and to
wage increases which followed the
temporary 10 percent pay cut and wage
freeze taken in the first five months of
,1982. Effective September 1, 1983,
employees agreed to a 15 percent pay
cut and wage freeze. This program
reduced costs by about $28 million in
1983.
Although jet fuel consumption
increased 5 .2 percent, related expenses
were down $19.4 million because of a
9 .4 percent drop in fuel prices.
Average price per gallon was 88.3
cents in 1983, compared with 97.5
cents in 1982.
An $8.8 million increase in the cost
of maintenance materials and repairs
occurred in 1983 because of the greater
number of aircraft engine repairs and
modifications completed in order to
increase jet engine fuel efficiency.
Advertising expense was up $5 million,
compared with 1982, as Republic
continued to market the company's
service aggressively and to build name
recognition.
Net interest expense was down $2. 9
million, largely due to the decreasing
prime rate. The cancellation of
Republic's obligation to the McDonnell
Douglas Corporation for six DC-9-80
aircraft on order resulted in expenses
of $1 .4 million, due to the reversal of
capitalized interest on pre-delivery
deposits, and $2 million of other
charges.
1982 compared with 1981
For 1982, revenues reached $1.53
billion, operating expenses were $1.49
billion, and the company achieved an
operating profit of $37 .2 million.
Nonoperating expenses were $77 .1
million, primarily interest of $100.7
million, offset by $17. 8 million from
the sale of tax benefits and $5. 8 million
from other nonoperating items. This
resulted in a net loss for 1982 of $39. 9
million.
For 1981, the first full year of
operations since the acquisition of
Hughes Airwest in October 1980,
revenues were $1.45 billion, operating
expenses totaled $1.43 billion, and an
operating profit of $16.5 million
resulted. Nonoperating expenses of
$62.7 million in 1981 included interest
expense of $108.4 million, offset by
gains of $28. 9 million from the sale of
tax benefits and $16.8 million from
disposition of equipment and other
nonoperating items. The net loss was
$46.3 million.
Operating revenues in 1982 rose by
$82.3 million, or 5.7 percent, over the
previous year. Passenger revenues
increased $90.7 million, cargo was up
$8.3 million, and public service
revenues declined by $21 .4 million.
Higher passenger revenues resulted
from a 21 percent rise in passenger
9
Operating Revenues
and Operating Expenses
(Per A vailahlc Scat Mile)
Operating
Revenues
(Cents)
10.5c
l0.0
9.5
9.0
8.5
1981 1982
(Quarterly Averages)
1983 8.0
miles, and some extra traffic from a
26-day strike against another carrier.
Drastic fare discounting, which
Republic had to match, was the main
factor causing 1982 's yield to drop
12 percent to 15.29 cents, from
17. 3 7 cents in 1981. However, the
increased passenger miles more than
offset the poorer yield. Lower public
service revenues reflect the company's
withdrawal of service from unprofitable
subsidized cities.
Operating expenses were up $61. 5
million in 1982, or 4.3 percent over
the previous year. Operating expenses
per available seat mile declined,
however, to nine cents in 1982 from
9 .4 7 cents in 1981. Salaries and
benefits increased $12.6 million ,
tempered by six-month wage reductions
for most employees from December
1981 through the first five months of
1982.
Fuel expense rose $3.9 million.
Higher consumption was offset by a six
percent drop in aviation fuel prices.
10
Travel agency commissions were up
$25.3 million because a larger
proportion of revenues were generated
by travel agents-66.2 percent in 1982;
compared with 62.5 percent in
1981-and extra incentives were given
for special promotional programs.
Interest expense (before capitalized
interest) declined by $20.1 million, or
16.5 percent, from that of 1981. A
substantial portion of Republic's debt is
tied to the prime rate, which averaged
14.8 percent in 1982 and 18.8 percent
in 1981.
Inflation and Changing Prices
For information concerning the
effects of changing prices and inflation
on the company's operations, see
' ' Supplemental Stockholder
Information'' on Pages 22 and 23.
LIQUIDITY AND CAPITAL
RESOURCES
During 1983 the company had a net
loss of $111 million and used cash of
$73.8 million in its operations,
resulting in a $22.4 million deficit in
stockholders' equity as of
December 31 , 1983. The company's
independent auditors have issued a
qualified opinion on the 1983 financial
statements. (See Auditors' Report on
page 16.)
The company is currently negotiating
with representatives of its six employee
groups to obtain wage concessions and
productivity improvements under a
three-year Partnership Plan and is also
receiving monthly waivers of the
financial covenants from its major
banking group. Republic's proposed
Plan would extend the present
15 percent pay cut and wage freeze
through 1986 and substantially increase
productivity. Provisions of the Plan
would include employee profit-sharing
and stock ownership.
The company's management believes
that with the wage and other
concessions from its employee groups,
the banks will approve long-term
amendments to the Revolving Credit
Agreement. The satisfactory resolution
of these negotiations is necessary for
the company to achieve successful
operations.
Concerning the company's liquidity,
cash and short-term cash investments
totaled $59.8 million at December 31 ,
1983, compared with $125.5 million at
Passenger Yield
(Cents)
- - - -
I I
1981
-
...
-
1982
(Quarterly Averages)
20C
IS
10
5
1983
December 31, 1982. During the
1981-83 period, Republic conserved
cash and supplemented its working
capital by:
I. Reduction (f Salaries and Wages.
Effective September I, 1983,
employees accepted a 15 percent pay
cut and wage freeze for a period of
nine months, which represents a cost
reduction of $7 million a month.
Previously, a IO percent pay cut and
wage freeze were in effect for six
months through May 1982.
In 1982, most employees deferred
one month's salary until August 1983.
The $24 million deferred pay obligation
due in August 1983 was reduced by
$8.5 million when some employees
accepted $4.6 million in common stock
or deferred the payment of $3.9 million
until August 1984.
In September 1981, most employees
participated in a "stock for pay" plan
under which 15 percent of one month's
wages, or a total of $4.3 million, was
used to purchase approximately
709,000 shares at the prevailing market
price.
2. Pension Contribution Waivers. In
December 1983, the Internal Revenue
Service granted a conditional waiver
permitting the company to defer $23
million in 1982 pension contributions.
The payment must be made over the
next 15 years, with interest. A similar
waiver was granted in September 1982
for the 1981 pension contribution of
$24 million.
3. Sale of Tax Benefits. Under terms of
the Economic Recovery Tax Act of
1981, Republic received $59. 7 million
during the past three years through sale
of tax benefits from new aircraft placed
in service. Of that amount, $40.8
million has been applied to the
purchase price of eight DC-9-80s, and
$18. 9 million was used to retire debt.
Such benefits will not be available in
1984.
4. Issuance of Common Stock and
Warrants. Through a Unit offering of
7,480,000 shares of common stock and
3,740,000 warrants to purchase
common stock, the company received
proceeds of $58.3 million in June 1983.
5. Issuance of Debentures. In
December 1982, Republic issued
I 0-1 /8 percent Convertible Senior
Subordinated Debentures having a face
value of $75 million. The company.
received $71 million, after discounts
and commissions.
Prime Interest Rate
financial covenants of the Revolving
Credit Agreement include debt-to-equity
ratios and net worth requirements (as
defined under the Agreement), a cash
and short-term cash investments
minimum, limitations on capital
expenditures and additional debt, and
restrictions on the payment of common
stock dividends. These covenants
become progressively more restrictive
over the term of the agreement.
(Percent) As a result of its losses and the
......
~
I_
- -
-
I
20
15
n
10
s
restrictive nature of the Revolving
Credit Agreement, the company has
requested and has received
modifications from the banking group
on several occasions in the past.
Currently, the company is receiving
monthly waivers of the financial
convenants. Management believes the
banks will agree to long-term
amendments once an acceptable wage
and productivity agreement is reached
with the company's employee groups.
1981 1982
(Quarterly Averages)
1983 o In the future, however, Republic may
Because of the company's present
financial condition, normal sources of
external financing may not be available
at this time. The adequacy of
Republic's cash resource for
operations, capital needs and debt
retirement will, therefore, depend on
the company's return to profitability.
This requires continued cost control
efforts, a high degree of labor
productivity, and effective revenue
generation programs. The proposed
Partnership Plan would provide the
necessary support for achieving viable
operations.
The company is highly leveraged.
Outstanding debt and obligations under
capital leases, including current
maturities, totaled $817 .3 million at
December 31, 1983. Interest rates float
with the prime rate on half of this debt.
At December 31, 1983, Republic had
borrowed $377 .5 million, the maximum
available under its Revolving Credit
Agreement with its major banking
group. The borrowings are secured by
liens on most of the company's owned
aircraft, engines and ground equipment,
and certain accounts receivable. The
require additional modifications to the
covenants if operating results do not
meet the forecast.
During 1983, Republic incurred debt
of $25. 8 million in connection with the
purchase of two DC-9-80 aircraft. The
aircraft purchased in August 1983 is
being leased to McDonnell Douglas
Corporation for an 18-month period.
Concurrent with the purchase of this
aircraft, Republic and McDonnell
Douglas Corporation reached agreement
to cancel obligations for the six
remaining DC-9-80s on order.
In March 1984, the company reached
agreement to sell four DC-9-10
aircraft, with delivery scheduled later
in 1984. The proceeds from this sale
will be used primarily to retire debt.
The company periodically acquires
computer equipment, ground property
and equipment, and leasehold
improvements. The timing and source
of future capital needs cannot be
estimated at present. The amount of
capital expenditures and debt is subject
to restrictions contained in the
Revolving Credit Agreement.
11
~--REPUBLIC AIRLINES, INC.
Consolidated balance sheets
(in thousands)
ASSETS December 31
1983 1982
CURRENT ASSETS
Cash and short-term cash investments ...................... . $ 59,781 $ 125,484
Accounts receivable-less allowances ....................... . 119,690 120,974
Flight equipment parts and supplies ........................ . 49,762 49,369
Prepaid expenses and other ............................... . 33,834 32,813
263,067 328,640
PROPERTY AND EQUIPMENT-at cost
Flight equipment ....................................... . 900,309 835,338
Ground property and equipment ........................... . 1102003 1012936
1,010,312 937,274
Less accumulated depreciation ............................ . 310,194 248,606
700,118 688,668
Advance deposits on equipment ........................... . 19,641
700,118 708,309
PROPERTY AND EQUIPMENT UNDER CAP IT AL LEASES
Flight equipment ....................................... . 157,145 157,145
Ground property and equipment ........................... . 15,937 12,695
173,082 169,840
Less accumulated amortization ............................ . 43,370 32,113
129,712 137,727 1
;
DEFERRED CHARGES AND OTHER ASSETS .............. . 15,775 l IA98
$1!1082672 $1,186,174
12
(in thousands)
LIABILITIES December 31
CURRENT LIABILITIES
Current maturities of long-term debt ........................
Current obligations under capital leases ......................
Accounts payable ........................................
Interline payables and tickets outstanding ....................
Accrued compensation and vacation benefits ..................
Accrued interest .........................................
Accrued pension liability ..................................
Other accrued expenses ...................................
LONG-TERM OBLIGATIONS
Long-term debt-less current maturities ......................
Noncurrent obligations under capital leases ...................
Long-term pension liability and other .......................
COMMITMENTS AND CONTINGENCIES (Notes B, C and E)
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY ...... .
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-authorized 60,000,000 shares of $.20 par value ..
Additional paid-in capital ................................ .
Retained earnings (deficit) ................................ .
1983 1982
$ 50,079
7,834
41,488
73,478
57,200
11,849
31,826
21)81
295,535
613,941
145,454
48,123
807,518
28,000
6,126
114,630
(143,137)
(22,381)
$1, 1082672
$ 27,654
6,465
53,903
68,137
76,178
19,620
33,832
21)03
306,992
647,349
149,938
25,957
823,244
28,000
4,413
53,811
(30,286)
27,938
$1,186,174
The accompanying notes are an integral part of these statements.
13
Consolidated statements of operations
14
(in thousands except per share amounts)
Year ended December 31
1983 1982 1981
OPERATING REVENUES
Passenger. . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . $1,388,285
Cargo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,626
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,583
OPERATING EXPENSES
Salaries and benefits ........................... .
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Maintenance materials and repairs . . . . . . . . . . . .... .
Food service ................................. .
Rentals and landing fees ....................... .
Agency commissions .......................... .
Depreciation and amortization ................... .
Other ....................................... .
Operating profit (loss) .................... .
OTHER EXPENSES (INCOME)
Interest expense-net of capitalized interest ........ .
Sale of tax benefits ............................ .
Gain on disposition of equipment ................ .
Interest income and other-net ................... .
Loss before income taxes . . . . . . . . . . . ...... .
INCOME TAXES .............................. .
1,511,494
581,496
390,937
58,111
34,201
76,863
102,258
70,625
228,020
1,542,511
(31,017)
97,852
(13,046)
(923)
{3,869)
80,014
(111,031)
$1,402,693
72,914
55,061
1,530,668
540,614
410,365
49,353
33,811
76,188
103,546
68,818
210,750
1,493,445
37,223
100,703
(17,752)
(2,570)
{3,297)
77,084
(39,861)
$1,311,951
64,604
71,861
1,448,416
528,004
406,495
57,705
31,252
68,725
78,280
63,728
197,771
1,431,960
16,456
108,362
(28,930)
(13,369)
{3,396)
62,667
(46,211)
58
NET LOSS .............................. $ 011,031) $ {39,861) $ {46,269)
NET LOSS PER COMMON SHARE ....... . ${4.28) $(1.99) ${2.30)
The accompanying notes are an integral part of these statements.
Consolidated statements of changes in financial position
(in thousands)
Year ended December 31
1983 1982 1981
CASH AND SHORT-TERM CASH INVESTMENTS
AT BEGINNING OF YEAR ........................... . $125,484 $ 43,542 $ 50,145
FUNDS USED
Net loss ....................................... . 111,031 39,861 46,269
Add ( deduct) non-cash items:
Depreciation and amortization ................... . (70,625) (68,818) (63,728)
Other ....................................... . (1,966) (1,544) 652
Net change in certain working capital items ......... . 35,381 {21,106) {8,376)
Cash used in (provided from) operations ........ . 73,821 (51,607) (25,183)
Additions to property and equipment ............... . 59,969 84,291 195,318
Payment of long-term obligations .................. . 44,985 43,635 62,333
Payment of cash dividends ........................ . 1,820 4,550 4,436
Other ......................................... . 8,784 7,451 5,345
189,379 88,320 242,249
FUNDS PROVIDED
Net book value of equipment dispositions ........... . 2,372 14,635 30,423
Cancellation of advance deposits ................... . 3,428 10,416
Increase in long-term obligations .................. . 30,887 118,983 144,775
Increase in notes payable ......................... . 938 25,352
Deferral of pension payments ..................... . 23,010 24,086
Issuance of redeemable preferred stock of subsidiary .. . 28,000
Issuance of common stock and warrants ............ . 62,532 1 4,267
Options and warrants exercised .................... . 1,159
Other ......................................... . 1,447 1,203 1,670
123,676 170)62 235,646
INCREASE (DECREASE) IN CASH AND
SHORT-TERM CASH INVESTMENTS ................. . (65,703) 81,942 {6,603)
CASH AND SHORT-TERM CASH INVESTMENTS
AT END OF YEAR .................................. . $ 59,781 $125,484 $ 43,542
CHANGES IN CERTAIN WORKING CAPITAL ITEMS
Accounts receivable ............................. . $ (1,284) $ (22,744) $ 23,845
Flight equipment parts and supplies ................ . 393 1,605 4 502
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . .. 1,021 4,541 (7,458)
Accounts payable ..................... . ......... . 12,415 2,398 (614)
Interline payables and tickets outstanding ............ . (5 ,341) 16,250 (14,189)
Accrued expenses ............................... . 28,177 '{23, 156) {14,462)
$ 35,381 $ {21,106) $ (8,376)
The accompanying notes are an integral part of these statements.
15
Consolidated statements of changes in stockholders' equity (deficit)
Years ended December 31, 1981, 1982 and 1983
(in thousands)
Balance at January 1, 1981 .........................
Cash dividends:
Redeemable preferred stock .....................
Common stock ................................
Issuance of common stock ........................
Exercise of stock options and warrants ..............
Net loss for 1981 ...............................
Balance at December 31, 1981 ......................
Cash dividends on redeemable preferred stock .......
Issuance of common stock ........................
Net loss for 1982 ...............................
Balance at December 31, 1982 ......................
Cash dividends on redeemable preferred stock .......
Issuance of common stock and warrants ............
Net loss for 1983 ...............................
Balance at December 31, 1983 ......................
Common Stock
Shares
Issued Amount
20,951 $4,190
709 142
401 80
22,061 4,412
5 1
22,066 4,413
8,564 1,713
30,630 $6,126
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.
Additional Retained
Paid-In Earnings
Ca~ital (Deficit)
$ 48,607 $ 64,830
(2,336)
(2,100)
4,125
1,079
{462269)
53,811 14,125
(4,550)
{392861)
53,811 (30,286)
(1,820)
60,819
011,031)
$114,630 $ 043, 137)
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, 1983 and 1982, and the consolidated statements ofoperations, changes in stockholders' equity (deficit) and changes
in financial position for the years ended December 31, 1983, 1982 and 1981. 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. However, as described in Note B, significant uncertainties,
which include the obtaining of employee wage and other concessions, could cause the company to be unable to continue in business.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of a major
portion of recorded asset amounts 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 1983 consolidated financial statements of such adjustments, if any, as might have been
required had the outcome of the uncertainties referred to in the preceding paragraph been known, the consolidated financial statements
referred to above present fairly the financial position of Republic Airlines, Inc., and its subsidiary at December 31, I 983 and 1982,
and the results of their operations and changes in their financial position for the years ended December 31, 1983, 1982 and 1981
in conformity with generally accepted accounting principles applied on a consistent basis.
Minneapolis, Minnesota
February 3, 1984
16
Notes to financial statements
December 31, 1983, 1982 and 1981
Note A - Summary of Significant Accounting Policies
1. Principles of Consolidation: The consolidated financial
statements include the accounts of Republic Airlines West, Inc.,
a subsidiary. All significant intercompany transactions have been
eliminated. Republic Airlines West, Inc. adopted a plan of
dissolution whereby all of its assets and liabilities will be transfer-
red to Republic Airlines, Inc. Certain accounts in the 1981 and
1982 consolidated financial statements have been reclassified to
conform with the 1983 presentation.
2. Flight Equipment Parts and Supplies: Spare parts and supplies
are priced at average cost. An allowance for obsolescence
($14,101,000 at December 31, 1983 and $9,023,000 at December
31, 1982) is provided for repairable parts by allocating their cost
over the life of the related aircraft.
3. Prepaid Expenses-Engine Overhaul: The company reclassifies
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 ($21,720,000 at
December 31, 1983 and $21,322,000 at December 31, 1982).
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
capitalized 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 both financial reporting and income
tax reporting purposes. In 1983, capitalized interest of $1,428,000
was reversed due to the cancellation of aircraft orders, resulting
in a net charge of $801,000. Capitalized interest was $1,342,000
in 1982 and $13,819,000 in 1981.
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 equip-
ment 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 personnel train-
ing relating to the introduction of new types of aircraft, are
deferred and amortized over periods of up to five years. Expenses
incurred in connection with the issuance of long-term obligations
are amortized on a straight line basis over the terms of the related
obligation .
7. Passenger Revenues: Passenger revenue is recognized when
the transportation service is provided. Tickets sold but unused
are classified as a current I iabil ity.
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
methods.
9. Income Taxes: The company uses the flow-through method
of accounting for investment tax credit which reduces income
tax expense when the related liability is reduced. Investment
credits not applied currently are offset against deferred income
taxes to the extent they are applicable to previously deferred taxes
becoming payabie in the carryover periods. The company
recognizes deferred income taxes resulting from differences in
financial and income tax reporting.
Note B - Uncertainties Affecting Going Concern - The con-
solidated financial statements of the company have been prepared
on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. Accordingly, the consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of a major portion of recorded asset amounts or
the amount and classification of liabilities that might be necessary
should the company be unable to continue in the normal course
of business.
During the year ended December 31, 1983 the company incurred
a net loss of $111,031,000 and used cash of $73,821,000 in its
operations. In addition, at December 31, 1983, the company has
a deficit in stockholders' equity of $22,381,000. The company's
financial condition, operating results and inability to meet its
existing debt covenants without amendments to its loan agree-
ments (Note D(a)) may result in the company being unable to
continue in business.
The company's continuation as a going concern is principally
dependent on its ability to:
(a) Successfully conclude negotiations with representatives
of its employee groups to obtain wage and other conces-
sions on a long-term basis.
(b) Continue to reach agreement with the participants to the
Revolving Credit Agreement which will satisfactorily
modify certain restrictive covenants.
(c) Ultimately attain successful operations.
The company is currently negotiating with representatives of
its six employee groups to obtain wage and other concessions,
and has been receiving monthly waivers of its loan agreement
financial covenants. Management believes that, with the employee
wage and other concessions, the company will be able to reach
agreement on long-term amendments to the Revolving Credit
Agreement and to have successful operations which should, in
turn, enable the company to continue in the normal course of
business. Without the employee wage and other concessions,
management believes that the company may be unable to con-
tinue in the normal course of business.
Note C - Sale of Tax Benefits - The leasing provisions of the
Economic Recovery Tax Act of 1981 aJlowed the company to
enter into sale-leaseback transactions for income tax purposes
involving certain equipment additions. As a result of these
transactions, the company has recognized nonoperating income
(net of related expenses) of $13,046,000 in 1983, $17,752,000
in 1982 and $28,930,000 in 1981. Provisions of these transactions
include, among other things, indemnification of the buyer against
loss of the stipulated tax benefit amount. The company does not
expect to be able to sell tax benefits in the future.
17
Notes to financial statements
December 31, 1983, 1982 and 1981 (continued)
Note D - Long-term Debt - Substantially all flight equipment,
spare parts and ground property owned by the company and
certain accounts receivable ($42,684,000 at December 31, 1983)
are pledged as collateral against the long-term debt, consisting
of the following at December 31 (in thousands):
1983 1982
Revolving Credit Agreement (a) ......... $377,455 $395,455
Installment notes (b) .................. 157,607 145,540
Equipment Trust Certificates (c):
due May 1, 1993 ................. .. 29,850 33,000
due July 1, 1998 ................. ... 7,784 8,303
Subordinated debentures (d):
13 % due November 15, 1993 ......... 14,260 14,500
10-1/8% due December 15, 2007
(net of unamortized discount of
$1,797,000 and $1,875,000) ........ 73,703 73,125
Sundry ................ .... ......... . 3,861 5,080
Total long-term debt ..... .. ...... .... 664,020 675,003
Less current maturities (e) ..... ..... .. 50,079 27,654
$613,941 $647,349
(a) During July 1983, the company prepaid the October 1, 1983
and January 1, 1984 installments of $9,000,000 each. The balance
at December 31, 1983 (the maximum available) will be retired
in quarterly installments aggregating $27,000,000 in 1984,
$36,000,000 in 1985, $46,000,000 in 1986, $56,000,000 in 1987,
$60,000,000 in 1988, 1989, and 1990 and final payments of
$32,455,000 in 1991. The company is also required to prepay
indebtedness under the Revolving Credit Agreement to the ex-
tent cash and short-term cash investments exceed certain balances,
to the extent the company achieves profits in excess of specified
amounts, and from net proceeds from the disposition of certain
flight equipment. Interest is paid monthly to each participating
bank at % over the Citibank, N .A. alternative rate or other
rate as negotiated with individual bank participants. The effec-
tive rate at December 31, 1983 was 11 % .
Among the original loan covenants in the Revolving Credit Agree-
ment are requirements for the maintenance of debt to equity ratios,
restrictions on dividend payments and capital expenditures. As
a result of continuing losses in 1981, 1982 and 1983, these
covenants were amended to permit the company to remain in
compliance. The revised covenants, which include minimum
stockholders' equity and minimum cash and short-term cash
investments provisions, are effective through the remaining term
of the Revolving Credit Agreement. At the current time, however,
the company has obtained a waiver of certain covenants through
March 31, 1984, but management estimates that the company
may be unable to remain in compliance with current minimum
stockholders' equity and minimum cash and short-term cash
investments provisions during 1984. It will be necessary for the
company to obtain further modifications from its lenders which
it expects to obtain upon the successful negotiation of conces-
sions with its employee groups.
The company is required to maintain average compensating
balances of 10 % of the monthly aver.age loan outstanding and
to pay interest on any compensating balance shortfall at % over
the Citibank, N.A. alternative rate. During 1983 the company
was required to maintain average compensating balances (adjusted
18
for float) of $40,077,000. At December 31, 1983, the required
compensating balances (adjusted for float) were approximately
$39,108,000.
(b) Consists of various installment notes with final maturity dates
from 1985 through 1998 at interest rates ranging from 8 % (for
notes guaranteed by the Federal Aviation Administration) to 19 % .
The aggregate installment payments in 1984 will be approximately
$39,292,000 including interest.
( c) The Equipment Trust Certificates due May 1, 1993 require
semi-annual sinking fund payments of $1,575,000 from 1984
through 1992 and $1,500,000 at maturity plus interest at 9%.
The company may make semi-annual optional sinking fund
payments up to $1,575,000 and may pay off the remaining balance
in full on or after May 1, 1988 at a premium.
The Equipment Trust Certificates due July 1, 1998 require semi-
annual sinking fund payments of approximately $259,000 plus
interest at rates ranging from to 1 % over the Citibank, N .A.
alternative rate. The effective rate at December 31, 1983 was
11 V2 % . The company may pay off the remaining balance in full
at any time without a premium.
( d) On October 1, 1980, the company issued $14,500,000 of 13 %
convertible subordinated debentures due November 15, 1993 as
partial payment for the acquisition of the stock of Hughes Airwest.
Interest payments are due semi-annually. The debenture holder
may convert the principal to common stock of the company at
$12.17 per share (1,171,734 shares at December 31, 1983), sub-
ject to adjustment. The debentures are redeemable at a premium
beginning on November 16, 1985. Annual sinking fund payments
are $950,000 in each of 1984 and 1985, $1,220,000 in 1986,
$1,490,000 in 1987, $1,600,000 in each of 1988 through 1992
and $1,650,000 in 1993.
In December 1982 the company issued $75,000,000 of 10-1/8%
convertible senior subordinated debentures at 97 V2 % of face
value. The debentures, due December 15, 2007, are superior in
right of payment to the company's 13 % con~ertible subordinated
debentures. Interest payments are due semi-annually and deben-
ture holders may convert the principal to common stock of the
company at $10.00 per share (7,500,000 shares at December 31,
1983). Debentures are redeemable by the company at a premium
through December 15, 1992, and at face value thereafter, except
certain conditions must be met if redemption is to occur prior
to December 15, 1984. Sinking fund payments of $3,750,000
are due annually beginning December 15, 1992, and continuing
through December 15, 2006, with the balance due at maturity.
(e) Current maturities of all long-term debt due in each of the
next five years following December 31, 1983 are as follows (in
thousands):
1984 .......................... .. ....... $50,079
1985 ..................... . ...... . ....... 59,222
1986 ................................ . ... 65,802
1987 ....................... . ............ 72, [93
1988 .................................... 77, l08
Note E - Leases - The company has lease commitments for flight
equipment, various airport facilities, its main operating facilities,
its maintenance and training facilities, and other property and
equipment. The lease commitments for airport facilities are based
upon usage and landings and are subject to adjustment depending
upon the needs of each airport operating authority and, therefore,
certain amounts of the commitments are not determinable.
The company has capital lease agreements for 19 aircraft. The
debt obligations relating to the capitalization of these leases were
$140,918,000 at December 31, 1983. The aggregate payments
in 1984 will be approximately $19,509,000 including interest at
rates ranging from 8 % to 14 1
/2
% .
In addition, the company has various types of ground property
and equipment under capital lease agreements. The debt obliga-
tions relating to the capitalization of these leases were
$12,370,000 at December 31 , 1983. The aggregate payments in
1984 will be approximately $3,557,000 including interest at a
weighted average rate of 14 % .
At December 31, 1983, 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):
1984 .................. . ....... . .... .
1985 .. . .. . ........... . ............. .
1986 ............. . ........... .. . . .. .
1987 ...... .. ... . ..... . . . .......... . .
1988 . . .......... ..... ..... . .... . . .. .
Thereafter .... . .... . .. . . . . .... .... .. .
Total minimum lease payments .. .. . .. .
Les amounts representing interest . . .. .. .
Present value of future minimum capital
lease payments . .. . .... . ... . .. . .... .
Operating
Leases
$ 31 ,146
30,558
30,137
26,710
25,088
327,031
$470,670
Capital
Leases
$ 23,066
22,896
22,253
19,237
19,056
174,050
280,558
127,270
$153,288
Note F - Income Taxes -Income tax expense for the years ended
December 31, is as follows (in thousands):
Current income taxes (credit)
Federal .. . ......... . .... . .. . . . ... . . $
Investment tax credit . .. .. .......... .
State and local . . . . .. . . .. ..... . . . .. . .
Deferred income taxes (credit)
Federal .. .. ... . .. .. . . ... . . . .. ..... .
Investment tax credit ... .. ...... . . . . .
State and local . . ........ . .... . . . ... .
1983 1982 1981
$ $1 ,206
567
1,773
_i!.!Q)
1,663
(2,978)
1,683
(1 ,295)
- _Qj_Q)
- (1 ,605)
$ - $ 58
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):
1983 1982 1981
Income tax expense (credit)
at statutory federal
income tax rates .... . . .. ......... $(51,074) $(18,336) $(21,257)
Investment tax credit ...... . ... . . . .. 2,250
Employee Stock Ownership Plan .. . .. 88 2,346
State and local taxes net of federal
income tax benefit .. .. .. . . . .. . . .. (420)
Non-taxable permanent differences ... . 797 1,471 2,619
Tax effect of net operating loss
carryforward not recognized .... ... 50,268 16,732 13,211
Other ..... .. . .... .......... . ... .. 9 45 _L1Q2
$ - $ 58
---
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 . ... . .. . ... . .. .
Training and development .... .. .. . . .
Depreciation .. . . . . . .. . . . .. ... ... . .
Other . . .. ..... . . ...... . .. . .... .. .
1983
$ - $
1982
$ _$ __
1981
$ (2,372)
1,683
(316)
(843)
243
$ (1,605)
For Federal income tax reporting purposes, the company and its
subsidiary file separate tax returns. Republic Airlines, Inc. has,
as of December 31, 1983, a net operating loss carryover of
approximately $202,023,000 available to offset future taxable
income. Approximately $37,216,000 expires in 1995,
$29,665,000 in 1996, $22,081,000 in 1997 and $113,061,000
in 1998. Investment tax credits of $40,527,000 are available to
offset future income taxes payable and expire as follows:
$10,928,000 in 1994; $17,120,000 in 1995; $6,035,000 in 1996;
$4,098,000 in 1997; and $2,346,000 in 1998.
Republic Airlines West, Inc. has, as of December 31 , 1983, a
net operating loss carryover of approximately $79,814,000
available to offset future taxable income. Approximately
$38,050,000 expires in 1994, $23,674,000 in 1995 and
$18,090,000 in 1996. Investment tax credits of $7,707,000 are
available to offset future income taxes payable and expire as
follows: $896,000 in 1993; $4,482,000 in 1994; $402,000 in
1995; $1,724,000 in 1996; and $203 000 in 1997.
For financial reporting purposes, the company and its subsidiary
calculate income taxes on a consolidated basis. On this basis, there
are approximately $185,000,000 of net operating loss carryovers
available to offset future consolidated taxable income and con-
solidated investment tax credit carryovers of approximately
$42,000,000 are available to offset future consolidated tax
provisions. Any utilization of the pre-acquisition net operating
losses or investment credits of Republic Airlines West, Inc. will
be recorded as adjustments of the purcha e transaction.
19
Notes to financial statements
December Jl, 1983, 1982 and 1981 (continued)
The Internal Revenue Service has examined and cleared the com-
pany's federal tax returns through December 31, 1976. Federal
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 G - Retirement Plans -The company has retirement plans
covering all employee groups. Pension expense for 1983, 1982,
and 1981 was $36,784,000, $35,865,000 and $35,842,000,
respectively. The company has either made contributions to the
plans equal to the amounts accrued for pension expense or has
obtained minimum funding waivers from the Internal Revenue
Service. In December 1983 and September 1982, the company
received permission from the Internal Revenue Service to fund
$23,010,000 of the 1982 pension costs and $24,086,000 of the
1981 pension costs over a period of not more than fifteen years.
The current portion of the long-term pension liability due in 1984
is $5,335,000 including interest.
Changes during 1982 in the actuarial assumptions used in com-
puting pension costs had the effect of reducing the 1982 net loss
by approximately $2,980,000 or $.14 per share. Also in 1982,
plan improvements and early retirement pension benefits had
the effect of increasing the present value of plan benefits
approximately $44,665,000 and increasing the 1982 net loss
approximately $3,705,000 or $.17 per share. Plan improvements
during 1981 had the effect of increasing the present value of plan
benefits approximately $16,253,000 and increasing the 1981 loss
approximately $910,000 or $.04 per share. The accumulated plan
benefits and plan net assets for the company's defined benefit
plans are as follows (in thousands):
Actuarial present value of
accumulated plan benefits
Vested . . . ... . .... . .. . ..... . .... .. . . .... .
Nonvested .. .. . .... . .. . ... . .. . .. . ... . .. . .
Net assets available for benefits . ... ... . . . . . .. .
January 1
1983 1982
$321,151
33,065
$354,216
- - -
$291,697
- - -
$284,865
30,609
~
$233,463
The weighted average assumed rate of return used in determining
the above actuarial present value of accumulated plan benefits
was 7 % for both 1983 and 1982.
Note H - Warrants and Options - During the second quarter
of 1983, the company issued 3,740,000 warrants in connection
with a unit offering of common stock and warrants. The war-
rants, all of which were outstanding at December 31, 1983, enable
the holders to purchase common stock at $10.00 per share through
May 15, 1986.
20
In 1982 the company granted 155,500 warrants to certain lenders
in consideration of the debt restructuring of the Revolving Credit
Agreement and the 13 % convertible subordinated debentures due
November 15, 1993. The warrants enable the holders to purchase
common stock at $8.00 per share through August 26, 1990.
On September 1, 1983, an officer of the company was granted
an option to purchase 25,000 shares of common stock at $4.25
per share. The option terminates on August 31, 1988. At
December 31, 1983, the entire option was outstanding.
Note I - Net Loss Per Share - Primary loss per share for 1983,
1982 and 1981 was based on the weighted average number of
common shares outstanding of 26,720,591, 22,026,966 and
21,385,451, respectively. The net loss was increased by preferred
dividend requirements of $3,337,000 in 1983, $3,943,000 in 1982
and $2,942,000 in 1981 prior to computing the per common share
amount. Fully diluted loss per share is not presented because it
is anti-dilutive.
Note J - Preferred Stock and Redeemable Preferred Stock
of Subsidiary - The company has authorized but unissued
25,000,000 shares of $.01 par value Preferred Stock.
The company's subsidiary, Republic Airlines West, Inc. , has
authorized 500,000 shares of $100 par value Cumulative Pre-
ferred Stock. In February 1981, the subsidiary issued 280,000
shares in a private placement with McDonnell Douglas Corpora-
tion in connection with aircraft acquisition and financing trans-
actions. Cumulative dividends are payable quarterly at an annual
rate of $13.00 per share through April 1985, $16.00 per share
from May 1985 to January 1990, $18.00 per share from February
1990 to January 1993, and $20. 00 per share thereafter. The shares
are callable at any time, at $ 100 per share plus all unpaid
dividends. The liquidation preference is $100 per share plus
unpaid dividends before any distribution to Republic Airlines,
Inc. Quarterly sinking fund redemption, consisting 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. In
case of default, including failure to pay dividends, the shareholder
can require the company to purchase all or any portion outstanding
at $100 per share plus all unpaid dividends. In addition, the
shareholder could have required the company to purchase 9,000
shares in 1983, but waived its right to redeem these shares. The
shareholder can require the company to purchase 55,200 shares
in 1984, 46,200 shares in 1985, 59,000 shares in 1986, 72,000
shares in 1987, and 47,600 shares in I 988. With the approval
of McDonnell Douglas Corporation, the October 1983 dividend
of $910,000 was declared and paid in January 1984.
Supplemental stockholder information
FORM 10-K REPORT
For the Form 10-K report to the Securities and Exchange Com-
mission, write 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 and five are amendable in 1985.
The company has also proposed a three-year Partnership Plan
to these unions to obtain wage concessions and productivity
improvements. The company expects to reach equitable agree-
ments with these unions.
COMMON STOCK INFORMATION
The following tabulation sets forth the price range for the
company's common stock which is traded on the New York Stock
Exchange and the Midwest Stock Exchange.
1983 1982
~ Low ~ Low
1st Quarter ... ........ $10-1/8 $7-1/2 $4-3/8 $2-7/8
2nd Quarter . . . ........ 9-3/8 6-3/4 4-3/4 3-1/8
3rd Quarter .. ........ . 7-7/8 3-3/4 6-1/2 4-3/8
4th Quarter ........... 5-1 /8 3-1/2 9-1/2 4-5/8
The company did not pay any cash dividends on common stock
in 1983 or 1982, but paid a cash dividend on common stock of
$ .10 per share to its stockholders during the first quarter of 1981.
The terms of the Revolving Credit Agreement dated October 1,
1980, as presently amended, restrict payment of dividends on
or the repurchase of common stock until certain financial loan
covenants are met. At February 29, 1984, the company had
37,649 holders of common stock.
QUARTERLY SUMMARIES OF OPERATIONS
(unaudited-in thousands except per share amounts)
1983
Three Months Ended
December 31 * Se~tember 30
Operating Revenues . ......... '
...... $386,381
Operating Expenses ................. 359,052
Operating Profit (Loss) .............. 27,329
Net Earnings (Loss) ................. 4,037
Net Earnings (Loss) Per Common Share
Primary .................... .10
Fully Diluted ............... .10
* Year-end adjustments resulting from changes in estimates of various
benefit accruals increased net earning~ by approximately $6.100.000.
$392,959
385,082
7,877
(12,161)
(.44)
(.44)
June 30
$374,246
401,747
(27,501)
(43,925)
(1.83)
( l. 83)
ANNUAL MEETING
Wednesday, April 25, 1984
REGISTRARS AND TRANSFER AGENTS
Norwest Trust Company
New York, New York 10005
N orwest Bank Minneapolis, N. A.
Minneapolis, Minnesota 55480
SECURITIES LISTED
Common Stock (RAI)
New York Stock Exchange
Midwest Stock Exchange
Warrants (RAIW)
New York Stock Exchange
Convertible Senior Subordinated Debentures-
10-1 /8 % (RAIK)
New York Stock Exchange
Trustee:
Norwest Bank Minneapolis, N.A.
Minneapolis, Minnesota 55480
AUDITORS
Alexander Grant & Company
1982
Three Months Ended
March 31 December 31 Se~tember 30 June 30
$357,908 $348,579 $397,172 $412,193
396,630 378,860 378,970 367,945
(38,722) (30,281) 18,202 44,248
(58,982) (27,324) (5,824) 15,839
(2.70) (1.29) (.3 l) .68
(2.70) (1.29) (.31) .67
March 31
$372,724
367,670
5,054
(22,552)
(1.06)
(1.06)
21
Supplemental stockholder information
(continued)
EFFECTS OF CHANGING PRICES (unaudited)
Basis of preparation of 1983 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 reflect
a comprehensive application of either type of inflation accoun-
ting. During the experimental period, the FASB decided to focus
on those items most affected by changing prices, that is: (1) the
effect of both general inflation and specific price changes on in-
ventories and property and equipment and the related impact 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
ofrevenues and expenses stated in dollars of the same (constant)
general purchasing power, as measured by the average level of
the Consumer Price Index (CPI) for 1983. Under this measure-
ment method, historical amounts of depreciation expense, gain
on equipment dispositions, and spare parts inventory are adjusted
to reflect the change in the level of the CPI since the date the
properties were acquired.
Current cost accounting attempts to deal with a different issue
than earnings or loss adjusted for general inflation. The specific
prices of the company's goods and services have risen at a dif-
ferent 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
Present tax laws do not allow deductions for higher depreciation
adjustments for the effects of inflation. Thus, taxes are leviea
on the company at rates which, in real terms, exceed established
statutory rates. During periods of persistent inflation and rap-
idly increasing prices, such a tax policy effectively results in a
tax on shareholders' investment in the company.
22
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 purchasing
power. Similarly, liabilities are associated with a gain of general
purchasing power because the amount of money required to set-
tle 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 monetary 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
judgments as well as use of various estimating techniques that
have been employed to limit the cost of accumulating the data.
The data reported should not be thought of as precise
measurements of the assets and expenses involved, but as
reasonable approximations of the price changes that have occurred
in the business environment in which the company operates.
Current cost asset amounts were derived principally through a
reference guide to current selling prices supplied by 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 deprecia-
tion 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 reduced
by the effect of general inflation measured by applying the annual
rate of change in the CPI to the average current cost balance of
spare parts inventory and property and 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 or specific price changes. In
addition, noncurrent payables have not been converted to reflect
specific price changes (e.g., changes in interest rates).
CONSOLIDATED STATEMENT OF OPERATIONS
-ADJUSTED FOR CHANGING PRICES
Year ended December 3 I , 1983 (in thousands-unaudited)
Total operating revenues ........ . ....... . ... . . ...... .................. ... . .
Depreciation and amortization expense . ....... . ..... . .......... . .... . ....... .
Other operating expenses ..... .. .. . .... .................. . ................. .
Gain on disposition of equipment ... ... ........ . . ... . ............... .
Other expenses- net ........ . .. . ...... . ........................ .. .
Net loss . .. .... .. .
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 in general price level ........................... . ..... . ... .
Excess of increase in specific prices over increase in the general price level ....... .
* At December 31, 1983, current cost of inventory was $53,706,000,
and the current cost of property and equipment, net of accumulated
depreciation and amortization, was $ 1,940,059,000.
As Reported
in the
Primary Statements
$1,511,494
70,625
1,47 I ,886
(923)
80,937
1,622,525
$ (111 ,031)
Adjusted for
General
Inflation
$1,511,494
99,985
1,473,193
(437)
80,937
1,653,678
$ (142,184)
$ 33,655
FIVE-YEAR COMPARISON OF SELECTED SUPPLEMENTARY FINANCIAL DATA
-ADJUSTED FOR EFFECTS OF CHANGING PRICES
(In average 1983 constant dollars, in thousands except per share and price index amounts-unaudited)
Adjusted for Changes
in Specific Prices
(Current Cost)
$1,511,494
162,689
1,473 ,193
(946)
80,937
1,715 ,873
$ (204,379)
$ 33,655
$ 136,431
60,006
$ 76,425
Year Ended December 31
1983 1982 1981 1980 1979
Total operating revenues-at historical costs . ...... .. . ....... ........... . . $1,51 1,494 $1,530,668 $1,448,416 $ 916,715 $609,230
Total operating revenues-in average 1983 dollars ... ...... .... ...... . .. . $1,511,494 $1,579,908 $1,586,664 $1,108,378 $836,220
Historical cost information-adjusted for general inflation
Net lo s from operations .......................................... . $ (142,184) $ (78,550) $ (75,424) $ (48,990) $ (235)
Net loss from operations per common share ................... . $ (5.45) $ (3.75) $ 3.68) $ (2.36) $ (.01)
Equity in net assets at year end . . ........................... . $ 307,687 $ 351,578 $ 364,766 $ 308,957 $288,553
Current cost information
Net loss from operations ....... .............. . . . . '
... ...... ..... $ (204,379) $ (121,464) $ (11 3,9 15) $ (63,776) $ (8,429)
Net loss from operations per common share ........................... $ (7.77) $ (5.69) $ (5.48) $ (3.08) $ (.41)
Excess of increase in specific prices over increase in general price level ... $ 76,425 $ 69,094 $ 137,289 $ 99,594 $ 25,009
Equity in net assets at year end .. . . . . . . . . ' '
.......... '
....... '
.... '
$1,135,312 $1,172,238 $ 947,101 $ 784,275 $43 1,047
Gain from decline in purchasing power of net amounts owed ........ .. $ 33,655 $ 34,454 $ 75, 131 $ 67,817 $ 45,927
Cash dividends declared per common share-historical .. .. ............. $ .10 $ .20 $ .20
Cash dividends declared per common share-in average 1983 dollars ......... $ .I I $ .24 $ .27
Market price per common share at year end-historical .............. $ 3.75 $ 7.88 $ 4.13 $ 6.00 $ 6.00
Market price per common share at year end- in average 1983 dollars . .. .. .. . $ 3.69 $ 8.04 $ 4.37 $ 6.93 $ 7.79
Average consumer price index ... ..................................... 298.4 289.1 272.4 246.8 217.4
23
Five-year summary
OPERATIONS (in thousands, except per share)
1983 1982 1981 1980* 1979
Operating revenues . .......... . . . ... . . . ...... . $1 ,511,494 $1 ,530,668 $1 ,448,416 $ 916,715 $609,230
Operating expenses ...... . ... .. ......... . ..... 1,542,511 1,493,445 1,431 ,960 903,491 581 ,177
Operating profit (loss) ... . . . ...... . .. . .. . ...... (31 ,017) 37,223 16,456 13,224 28,053
Net earnings (loss) ........... .. ....... . ... . ... (111,031) (39,861) (46,269) (24,662) 13,061
Net earnings (loss) per common share- Primary . . .. (4.28) ( 1.99) (2.30) ( 1. 19) .70
- Fully diluted .. .. (4.28) (l.99) (2.30) ( l. 19) .68
OTHER FINANCIAL DATA (in thousands, except per share)
Current assets . . .. .. .... . . . .... . .. . ...... .. ... $ 263,067 $ 328,640 $ 263,296 $ 249,010 $144,691
Property and equipment-net ...... .. ......... . .. 829,830 846,036 882,196 778,375 399,632
Total assets ..................... . . . ....... .. . 1,108,672 1,186,174 1,154,567 1,036,226 549,381
Total long-term debt and capital lease obligations .. 759,395 797,287 722,434 652,257 263,035
Redeemable preferred stock of subsidiary .. ....... 28,000 28,000 28,000
Cash dividends per share of common stock . . . .... .10 .20 .20
TRAFFIC STATISTICS
Passengers ..... . .... .. ..... . . .. ....... ... ... 17,787,000 18,075 ,000 16,841,000 13,220,000 12,156,000
Passenger miles (000) .. .. ..... .. . . ..... .. ..... 9,675,000 9,231 ,000 7,641,000 4,760,000 3,847,000
Available seat miles (000) .. .... .. ....... . . . ... . 17,773,000 16,585,000 15,119,000 10,185,000 7,479,000
Passenger load factor .. .. ....... .. .... . .. . .. . .. 54.4 % 55.7% 50.5 % 46.7 % 51.4 %
Cargo ton miles (000) .. ... ...... ... ...... . .... 80,000 65 ,000 51 ,000 37,000 32,000
* From October I. 1980. Republic Airl ines West. Inc .. a
consolidated subsidiary acquired on that date. is included.
Passengers Passenger Miles Seat Miles Cargo Ton Miles
-
(Millions) (Billions) (Billions) (Millions)
-
18 9.5 17 75
-
-
----
-
15 7.5 13 60
- ~
-
-
12 5.5 I
9 45
- -
-
-
' I
n
9 3.5 5 30
79 80 81 82 83 6 79 80 81 82 83 1.5 79 80 81 82 83 79 80 81 82 83 15
24
Board of Directors
Hal N. Carr*
Chairman of the Board
Republic Airlines
Cecil A. Beasley, Jr.
Partner- Ballard and Beasley
(attorneys)
Eric Bramley t
Retired Editor
Aviation Daily
(al'iation industry news serl'ice)
G. F. DeCoursin*
Chairman of the Board
Media Graphics
(commercial xraphic arts)
David H. Hughes
President
Hughes Supply
(electrical and plumbing supplies)
Frank W. Hulse*
Vice Chairman of the Board
Republic Airlines
Alton F. Irby, Jr.
Chairman
Fred S. James & Co. of Georgia
(insurance)
Officers
Hal N. Carr
Chairman of the Board
Frank W. Hulse
Vice Chair111an of the Board
Bernard Sweet
Vice Chairman of the Board
Daniel F. May
President and
Chief Executile Officer
Stephen M. Wolf
Executive Vice President
Dorman W. Atwood
Senior Vice President-
Maintenance and Engineering
Kenneth L. Hubertus
Senior Vice President- Customer
Service
George J. Karnas
Senior Vice Presidelll- lnjlight
Service
G. Gunby Jordan
Retired Chairman of the Board
The Jordan Company
(construction)
John M. Lawrence III
Partner- lcrll'rence, Thornton,
Payne, Watson & Kling
(attorneys)
William R. Lummis
Chairman of the Board and
President
Summa Corporation
(real estate in1est111ents, a1
iation,
hotels and recreation)
Daniel F. May*
President
Republic Airlines
Morton B. Phillips
Chairman of the Board
Westland Capital Corporation
(business imest111e111s)
G. Frank Purvis, Jr. t
Chairman of the Board
Pan American Life
Insurance Co.
* Executive Committee
t Audit Committee
A. L. Maxson
Senior Vice President-Finance
Henry W. Barkhausen
Vice President and Treasurer
John F. Bordi
Vice President- Co111puter
and Communications Serl'ice
J. Kenneth Courtenay
Vice President- Regulatory
and Community Affairs
Edward A. Dingivan
Vice President- Federal Affairs
John P. Dow
Vice President- Corporate Affairs
Joseph W. Ettel
Vice President- Industrial Relations
Gramer D. Foster
Vice President- Flight Operations
Earl D. Jackson
Vice Preside11t- Mai11tenance and
Technical Senice
William E. Rankin
Vice Chairman of the Board
Summa Corporation
(real estate inl'e.1
t111e111s, a1iatio11,
hotels and recremion)
Henry M. Rosst
President
Ross Industries
(machinen 11w1111jc1ct11rer)
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 (011omers)
Kenneth B. Willett*
Chairman of the Board
First Financial Smings and
Loan Association
Frank M. Young III
Partner-North Haskell Slaughter
Young & Lell'iS (a11orneys)
Michael D. Meyer
Vice President and Controller
William E. Oakes
Vice President- Marketing
Charlotte G. Westberg
Staff Vice Presidellf
Robert P. Johnson
Assistant Vice President- Flight
' Operations
John E. Mpnger
Assistant Vice President-
Long- Range Planning
Walter E. Nielsen
Assistant Treasurer
Gloria B. Olsen
Assistallf Secretary
Raymond J. Rasenbcrger
Assisrant Secrerary
Ralph Strangis
Assistant Secretary
REPUBL I C A I RL I NES INC
M I N N E A ~' () l I < , M I N N l C.~
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