Republic Airlines Second Quarter Report 1986

Republic AirUnes
Financial
Report
For the Second Quarter
Ended June 30, 1986
To our stockholders:
Republic Airlines earned $35 million in the
second quarter, equal to 72 cents primary
earnings per share. It is our second best
financial performance for a quarter ending
June 30 and the third best quarter in our
history.
The $35 million net profit included
$3 million, or six cents per share, in tax loss
carryforwards.
We achieved a quarterly operating profit of
$55.3 million on operating revenues of
$464.2 million and operating expenses of
$408.9 million. Seat mile costs were down to
7.68 cents from 8.44 cents a year earlier.
A year ago, our second-quarter net earnings
of $120.1 million, or $3.26 per share, included
extraordinary items totaling $80.2 million or
$2.19 per share.
Republic continued to strengthen its balance
sheet by improving its debt-to-equity ratio from
3.7 to 1 at year end to 1.2 to 1 currently,
through retirement of bank debt, conversion of
debentures and exercise of warrants.
Our share of the nation's passenger traffic
continued to grow during the quarter. Revenue
passenger miles increased 12.6 percent to
3.21 billion in the quarter with available seat
miles growing 15.3 percent. This double-digit
improvement in traffic is particularly
significant because figures for the second
quarter last year were inflated by passengers
gained from a strike at United Airlines.
For the first half of 1986, Republic and only
one other major airline recorded traffic
increases that outpaced growth in capacity.
From January through June, our revenue
passenger miles increased 21.5 percent to
6.09 billion while capacity was up 17.8 percent
to 10.19 billion. This resulted in nearly a
2 point increase in load factor to 59.7 percent.
The growth in capacity can be traced to the
delivery in May of three more Boeing 757
jetliners, completing our purchase of six of
these quiet, fuel efficient, 190-passenger
aircraft. The new B-757s now are in use at
each of Republic's main traffic centers in
Detroit, Minneapolis/St. Paul and Memphis and
fly high demand routes, principally among the
hubs and from the hubs to the West Coast.
Despite the traffic increases during the
quarter, profits were moderated at Republic
and industrywide by declining revenue per
passenger mile. Our second-quarter yield
decreased 9.2 percent to 13.49 cents from the
same period in 1985. Nevertheless, careful cost
control, effective marketing, declining fuel
prices and employee support continued to be
the basis for a profitable operation.
A major highlight of the quarter was a
June 27 recommendation from a
Transportation Department judge that our
merger with Northwest Airlines be approved. A
final decision on the $884 million transaction,
which you approved at our April 23
stockholders' meeting, is expected before the
end of July.
Considerable planning is underway at both
airlines to ensure a smooth integration of
Republic into Northwest. The new airline will
continue our growth at Detroit, Minneapolis/
St. Paul and Memphis, and will emphasize
quality service, convenient flying schedules and
affordable fares. Routes will span 38 states and
19 countries.
Your support of Republic as stockholders will
be rewarded when Northwest purchases
Republic stock at $17 per share once the
anticipated merger receives government
approval. Your support of Republic as a
passenger also will be rewarded in your new
association with Northwest. Northwest will
acquire and expand Republic's domestic
strength and at the same time will offer you
attentive service to a broad range of
international destinations.
Your support has not gone unnoticed as it
has made possible our accomplishments to date.
We urge you to transfer your allegiance to the
new Northwest Airlines when the merger is
completed.
Sincerely,
DANIEL F. MAY t/ STEPHEN M. WOLF
Chairman of the Board President and
Chief Executive Officer
July 28, 1986
Republic AIrUnes
Consolidated Balance Sheets
(unaudited-in thousands)
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
15% participating non-cumulative junior preferred
stock, $.01 par value; 10,000 shares authorized,
7,199 shares outstanding in 1986
Common stock, $.20 par value; 60,000,000 shares
authorized, 47,413,315 shares outstanding
in 1986
Additional paid-in capital
Retained earnings
Employee stock to be issued
Unearned compensation for stock to be issued
Consolidated Statements of Earnings Operating Statistics
June 30,
1986
December 31,
1985
$ 218,833 $ 300,085
189,116 158,108
44,863 35,657
27,819 34,435
480,631 528,285
940,435 924,199
153,893 153,828
133,475 130,067
12,694 12,468
1,240,497 1,220,562
517,016 482,230
723,481 738,332
13,032 19,680
$1,217,144 $1,286,297
$ 17,094 $ 83,802
8,368 9,207
159,153 128,647
81,864 76,776
55,555 58,230
73,274 59,039
395,308 415,701
293,438 509,434
120,841 124,225
54,916 40,856
469,195 674,515
9,483 6,713
257,989 129,097
84,245 55,076
6,408 15,699
(5,484) (10,504)
352,641 196,081
$1,217,144 $1,286,297
(unaudited-in thousands, except per share amounts)
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
OTHER EXPENSES (INCOME)
Interest expense
Interest income
Gain on disposition of property,
equipment and lease rights
Other-net
Earnings before income taxes
and extraordinary items
INCOME TAXES
Earnings before extraordinary items .
EXTRAORDINARY ITEMS
Effect of utilization of
tax loss carryforwards
Gain on pension plan termination
NET EARNINGS
EARNINGS PER COMMON SHARE
PRIMARY
Before extraordinary items
Extraordinary items
Net earnings
EARNINGS PER COMMON SHARE-
FULLY DILUTED
Before extraordinary items
Extraordinary items
Net earnings
Three Months Ended Six Months Ended
June 30 June 30
1986 1985 1986 1985
$432,636 $422,668 $819,809 $767,423
19,485 20,787 38,557 41,848
12,064 12,136 24,563 27,225
464,185 455,591 882,929 836,496
142,479 133,613 283,312 259,302
72,923 91,212 167,467 175,152
35,350 35,028 70,230 61,656
25,713 20,095 49,813 38,263
22,523 16,505 43,718 34,480
20,361 18,995 40,168 37,927
89,567 74,386 175,967 145,948
408,916 389,834 830,675 752,728
55,269 65,757 52,254 83,768
16,250 23,211 36,054 45,907
(3,949) (4,016) (9,010) (6,567)
(198) (10,773) (10,005) (16,791)
(1,463) (889) (2,721) (2,298)
10,640 7,533 14,318 20,251
44,629 58,224 37,936 63,517
12,637 18,232 11,787 21,119
31,992 39,992 26,149 42,398
3,020 17,980 3,020 20,827
-
62,175 -
62,175
$ 35,012 $120,147 $ 29,169 $125,400
$.66 $1.07 $.57 $1.11
.06 2.19 .07 2.27
$.72 $3.26 $.64 $3.38
$.66 $ .90 $.56 $ .96
.06 1.78 .06 1.86
$.72 $2.68 $.62 $2.82
(in thousands, except rates) Three Months Ended
June 30
1986 1985
Passengers
Revenue passenger miles. .
Available seat miles
Passenger load factor
Yield
Cargo ton miles
5,049
3,207,198
5,326,615
60.2%
13.49C
26,998
4,661
2,847,717
4,619,802
61.6%
14.86C
29,182
Six Months Ended
June 30
1986 1985
Passengers
Revenue passenger miles. .
Available seat miles
Passenger load factor
Yield
Cargo ton miles
9,514
6,086,015
10,191,990
59.7%
13.47C
53,354
8,301
5,008,227
8,654,706
57.9%
15.40C
60,749
Highlights of the quarter:
Distributing $6.9 million in 1985 profit-sharing
checks to Republic employees.
Adding three more Boeing 757s to Republic's fleet.
Enhancing passenger comfort through installation
of new seats on all 64 of Republic's DC-9-30
aircraft.
Inaugurating service at Moline, Ill., Peoria, Ill.,
and Allentown/Bethlehem/Easton, Pa.
Commencing nonstop flights from Memphis to San
Diego, John F. Kennedy International Airport in
New York, Orange County/Santa Ana/Anaheim
and Grand Rapids; from Minneapolis/St. Paul to
Sacramento and Rapid City; and from Detroit to
Louisville.
Celebrating the first anniversary of Republic
Express regional airline feeder service at the
Detroit and Memphis hubs.
Opening a 24,000-square-foot flight kitchen in
Detroit.
Earning an American Marketing Association
award for Republic's "Perks" advertising
campaign.
Accepting national airline sponsor status for
"Hands Across America," the fund-raising
campaign for the nation's homeless.
Improving passenger service by accepting advance
seat assignment and advance boarding passes
prepared by travel agencies.
Republic AIrUnes
7500 AIRLINE DRIVE MINNEAPOLIS, MINNESOTA 55450