Republic Airlines First Quarter Report 1986

Republic AmliNES
FINANCIAL
REPORT
FOR THE FIRST QUARTER
ENDED MARCH 31, 1986
To our stockholders:
Republic Airlines stockholders, at their
annual meeting in Wausau, Wisconsin,
April 23, voted in favor of the planned merger
with NWA Inc., parent company of Northwest
Airlines, Inc. A hearing is being held and an
Administrative Law Judge will make a
recommendation to the Department of
Transportation, which then will make its
decision. We expect this decision to be
favorable.
The procedure being used by the Department
of Transportation will offer further evidence of
the contribution this merger will make to
improved service for travelers, to the stability
of the economy of Republic's and Northwest's
home state, Minnesota, and to a more secure
future for Republic's employees as a result of
the opportunities offered by the combined
carrier.
Republic's stockholders will be paid $17 per
share by NWA Inc. when the merger is
consummated. The management of Republic is
pleased that the stockholders, many of whom
have supported Republic for decades, will
benefit appreciably as a result of the merger.
Republic, in the meantime, continues to offer
quality, competitive service.
During the first quarter of 1986, when the
nation's major airlines incurred substantially
reduced profits compared with last year's level,
Republic experienced a first-quarter loss, which
was anticipated, totaling $5.8 million, or
14 cents per share (primary). A year ago,
Republic earned $5.3 million, or 12 cents per
share. First-quarter traffic increased more than
33 percent over the similar period last year,
but yield (revenue per passenger mile) was
affected by industry-wide fare discounting and
was reduced to 13.45 cents from 16.13 cents a
year ago.
Operating revenues for the first quarter
reached $418.7 million compared with
$380.9 million for the similar 1985 period.
Operating expenses totaled $421.8 million
versus $362.9 million a year ago.
Republic's 33 percent first-quarter revenue
passenger mile increase was the largest among
the major carriers. The first-quarter load factor,
up six points over the previous year, also led
the major airlines.
Republic continues to strengthen its financial
position. Most notable, during the first quarter
of 1986, was the reduction in the amount of
debt relative to stockholders' equity. During
January, the Company called for the
redemption of all of its outstanding convertible
subordinated debentures. As a result, over
$85 million of debt was eliminated when the
debentures were converted into common stock.
New service was inaugurated to Cancun,
Mexico, in January and to Dayton, Ohio, and
Cedar Rapids, Iowa, in February. Planning was
completed for the May 18 inauguration of
service to Allentown/Bethlehem/Easton, Penn.,
and to the Quad Cities of Davenport/Bettendorf/
Rock Island/Moline. Peoria, Ill., will join the
Republic route system June 1.
Memphis-based Republic Express continued to
be the fastest growing regional carrier in the
nation. The airline began service last June and
now is boarding 50,000 passengers monthly.
More than 80 percent of these passengers
connect with Republic flights at Memphis and
Minneapolis/St. Paul.
In January, Republic announced the addition
of Western Airlines and Radisson Hotels to its
Frequent Flyer program. They join Pan
American World Airways, Hertz and National
Car Rental making Republic's Frequent Flyer
program even more attractive to air travelers.
Republic now has more than one million
Frequent Flyers with several thousand new
members signing up every week. With the new
airline partners, Frequent Flyers are able to
fly to new destinations such as Hawaii and
Alaska. It is part of the new "Pick-a-Perk"
program enabling passengers to exchange their
free Republic tickets for free travel on Pan Am
and Western. Frequent Flyers also can earn a
free Hertz car on weekends, a luxury upgrade
with National and free weekend nights at any
Radisson Hotel, Inn or Resort.
Three new Boeing 757s will be added to
Republic's fleet this month joining the three
that entered service in December. The
190-passenger 757s, with quiet, fuel-efficient
Rolls-Royce engines, have won immediate
passenger acceptance.
Traffic will strengthen as the peak summer
travel season approaches. With the continued
support of Republic's employees, the sustained
effectiveness of innovative marketing programs
and further improvements at the three main
hubs, Republic expects to continue its strong
financial performance. This positions the
company well for the merger with NWA Inc.
Sincerely,
DANIEL F. MAY
(/ STEPHEN M. WOLF
Chairman of the Board President and
Chief Executive Officer
May 1, 1986
Republic AIrUnes
Consolidated Balance Sheets
(unaudited-in thousands)
Consolidated Statements of Operations
(unaudited-in thousands, except per share amounts)
ASSETS
CURRENT ASSETS
Cash and short-term cash investments
Accounts receivable-less allowances
Parts and supplies-less reserves
Prepaid expenses and other
PROPERTY AND EQUIPMENT
Flight equipment owned
Flight equipment leased
Ground property and equipment owned
Ground property and equipment leased
Less accumulated depreciation, amortization
DEFERRED CHARGES, OTHER ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
Current obligations under capital leases
Air traffic liability
Accounts payable
Accrued compensation and vacation benefits
Other accrued expenses
LONG-TERM OBLIGATIONS
Long-term debt-less current maturities
Noncurrent obligations under capital leases
Long-term pension liability and other
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
Common stock, $.20 par value;
43,557,376 shares outstanding
Additional paid-in capital
Retained earnings
Employee stock to be issued
Unearned compensation for stock to be issued
March 31,
1986
$ 276,919
185,456
41,493
30,670
534,538
931,401
153,828
128,283
12,468
1,225,980
496,926
729,054
13,967
$1,277,559
$ 76,295
8,982
133,785
79,940
61,204
58,590
418,796
419,989
119,762
40,588
580,339
8,711
218,038
49,233
10,435
(7,993)
278,424
$1,277,559
December 31,
1985
$ 300,085
158,108
35,657
34,435
528,285
924,199
153,828
130,067
12,468
1,220,562
482,230
738,332
19,680
$1,286,297
$ 83,802
9,207
128,647
76,776
58,230
59,039
415,701
509,434
124,225
40,856
674,515
6,713
129,097
55,076
15,699
(10,504)
196,081
$1,286,297
OPERATING REVENUES
Passenger
Cargo
Other
OPERATING EXPENSES
Salaries and benefits
Aircraft fuel
Agency commissions
Rentals and landing fees
Maintenance materials and repairs
Depreciation and amortization....
Other
Operating profit (loss)
OTHER EXPENSES (INCOME)
Interest expense
Interest income
Gain on disposition of property,
equipment and lease rights ..
Other-net
Earnings (loss) before income taxes
and extraordinary item
INCOME TAXES (CREDIT)
Earnings (loss) before extraordinary item .
EXTRAORDINARY ITEM
Effect of utilization of tax loss carryforwards
NET EARNINGS (LOSS)
EARNINGS (LOSS) PER COMMON SHARE
PRIMARY
Before extraordinary item
Extraordinary item
Net earnings (loss)
EARNINGS (LOSS) PER COMMON SHARE-
FULLY DILUTED
Before extraordinary item
Extraordinary item
Net earnings (loss)
Three Months Ended
March 31
1986 1985
$387,173 $344,755
19,072 21,061
12,499 15,089
418,744 380,905
140,833 125,689
94,544 83,940
34,880 26,628
24,100 18,168
21,195 17,975
19,807 18,932
86,400 71,562
421,759 362,894
(3,015) 18,011
19,804 22,696
(5,061) (2,551)
(9,807) (6,018)
(1,258) (1,409)
3,678 12,718
(6,693) 5,293
(850) 2,887
(5,843) 2,406
_
2,847
$ (5,843) $ 5,253
$(.14) $.04
-
.08
$U4) $.12
$(.10) $.04
-
.08
$(.10) $.12
Operating Statistics
(in thousands, except rates) Three Months Ended
March 31
1986 1985
Passengers 4,465 3,640
Revenue passenger miles . . . .
2,878,817 2,160,510
Available seat miles
. .
4,865,375 4,034,904
Passenger load factor 59.2% 53.5%
Yield 13.45 <P 16.13C
Cargo ton miles 26,356 31,567
Annual stockholders' meeting highlights
At the annual stockholders' meeting, held at
Wausau, Wis., Stephen M. Wolf, president and chief
executive officer, reviewed the accomplishments of
the airline:
Unveiled January 23 a proposed merger with
NWA Inc., the parent of Northwest Airlines.
Increased revenue passenger miles 33 percent in
the first quarter compared with the first quarter
of 1985.
Recorded a first-quarter passenger load factor of
59.2 percent - a 5.7 point increase over the first
quarter of 1985 and the best load factor increase
among the major airlines.
Inaugurated air service from Memphis to
Cancun, Mexico.
Added Dayton, Ohio, and Cedar Rapids, Iowa, to
the route system.
Announced plans to begin flights May 18 at
Allentown/Bethlehem/Easton, Penn., and the Quad
Cities of Moline/Davenport/Rock Island/
Bettendorf, along the Iowa-Illinois border.
Decided to begin serving Peoria, Ill., effective
June 1.
Began First Class front-cabin service Feb. 14.
Enrolled Western Airlines and Radisson Hotels as
partners in Republic's Frequent Flyer program,
joining Pan American World Airways, Hertz and
National Car Rental.
Undertook a project to improve passenger seating
comfort on 64 McDonnell Douglas DC-9s through
installation of new Trimline seats.
Republic AIrUnes
7500 AIRLINE DRIVE MINNEAPOLIS, MINNESOTA 55450