ACAI Atlantic Coast Airlines Holdings (MM)

Atlantic Coast Airlines Holdings, Inc. Reports Second Quarter 2004 Financial and Operating Results DULLES, Va., July 28 /PRNewswire-FirstCall/ -- Atlantic Coast Airlines Holdings, Inc. (NASDAQ:ACAI), parent of Atlantic Coast Airlines (ACA) and Independence Air, today reported a second quarter 2004 net loss of $27.1 million (($0.60) per diluted share) compared to second quarter 2003 net income of $45.7 million ($1.01 per diluted share) in accordance with Generally Accepted Accounting Principles (GAAP). The company's results for second quarter 2004 and 2003 reflect several special items as noted below and in the Pro-Forma Financial Results table at the end of this press release. The company's net loss for second quarter 2004 includes: --$21.9 million (pre-tax) charge for the early retirement of ten leased Jetstream-41 (J-41) turboprop aircraft --$3.6 million (pre-tax) impairment charges to write-down the value of one owned 328JET aircraft and certain J-41 expendable parts inventory to current estimated fair market value Excluding the charges and credits, the company reported a net loss of $11.4 million or ($0.25) per diluted share compared to net income of $17.2 million or $0.38 per diluted share in the second quarter 2003. A reconciliation of results as reported in accordance with GAAP to these non- GAAP presentations for the three and six months ended June 30, 2004 and 2003 is included in the Pro-Forma Financial Results table at the end of this press release. Results for the second quarter were impacted by the start of the transition to Independence Air. Results reflect reduced revenue as aircraft exited the company's United Express program commencing June 4, 2004 and were phased into Independence Air service commencing June 16, 2004, as well as increased sales and marketing expense associated with the Independence Air operations. In addition, second quarter results were impacted by the following items: --$1.1 million United revenue dispute -- United withheld $1.1 million from payments due in June. The company believes these payments were required under its agreements with United and has filed a motion with the bankruptcy court to collect this amount. --$1 million for CRJ painting expense --$1 million reserve for an FAA fine previously disclosed and for a potential liability associated with a prior grievance filed under the company's labor agreements The company's exit from the United Express program as a result of United's decision to reject its agreement with ACA is nearly complete, with the transfer of the last aircraft and stations out of the United Express program scheduled for August 3, 2004. Once flights have been completed on that date, the company will no longer operate in partnership with United, and ACA's remaining 26 United Express CRJs will be released and undergo interior and exterior upgrades prior to entering service for Independence Air. The five J-41 turboprops currently in the United Express program will be immediately retired, leaving the company with a modern all-jet fleet. In addition, the company is working on a transition plan with Delta Air Lines to exit the company's Delta Connection agreement. Following the decision by Delta to terminate the agreement without cause, the company exercised its right in July to require Delta to assume the leases on 30 of the 33 328JETs that are used in the Delta Connection operation. The company currently anticipates that it will finish service in the Delta Connection program and transfer 30 of its 328JET aircraft to Delta by November 2, 2004. On June 16, 2004, the company began new low-fare service as Independence Air from Washington Dulles International Airport. To date, new service and market launches continue as scheduled. Independence Air now has 56 jet aircraft in service, while the upgrade process for the remaining 31 jets remains on or ahead of schedule. Two-thirds of the "A" concourse at Dulles -- constituting 24 aircraft parking positions -- has been upgraded for the Independence Air operation, with the final one-third to be converted in August. Eight more gates in the "B" concourse designed to handle A319 service will come online beginning in the fourth quarter of this year. Service currently exists from Washington Dulles to 22 markets, with additional flights to the following destinations scheduled to commence or expand in the coming weeks: August 1: New York/JFK (13 daily roundtrips, expanding to 17 on 8/4), Greensboro (9 daily roundtrips), Cleveland (9 daily roundtrips), Savannah/Hilton Head (6 daily roundtrips), Atlanta (expands from 8 daily roundtrips to 16) August 15: Hartford (8 daily roundtrips), Columbus (8 daily roundtrips), Dayton (8 daily roundtrips), Indianapolis (7 daily roundtrips) August 23: Detroit (8 daily roundtrips), Pittsburgh (8 daily roundtrips), Providence (8 daily roundtrips), Louisville (6 daily roundtrips), Jacksonville (expands from 6 daily roundtrips to 7) September 1: Stewart/Newburgh (6 daily roundtrips) By September 1, 2004, the Independence Air schedule will grow to 600 daily departures, and its operation at Washington Dulles will be the largest low- fare hub in the United States in terms of number of departures. Prior to the opening of trading on August 4, 2004, the company will change the name of its corporate parent and stock ticker symbol to reflect its newly- premiered Independence Air brand name. Parent company Atlantic Coast Airlines Holdings, Inc. will become FLYi, Inc. and its symbol on the Nasdaq National Market will change from ACAI to FLYI, mirroring the Independence Air web address http://www.flyi.com/. Current shareholders will not need to take any action as a result of this change. The operating entity will continue to operate as Atlantic Coast Airlines through November 2, 2004, at which time it will be changed to Independence Air, Inc. and the company's FAA operating certificate will reflect that identity. Independence Air will begin adding 27 brand new 132-passenger Airbus A319s at Washington Dulles this fall. The Airbus aircraft -- scheduled to launch in November -- will allow Independence Air to offer low-fare service non-stop from Washington to major destinations in Florida, the Midwest and across the country to the West Coast. Independence Air plans to add live satellite TV or other programming in every seatback of its Airbus aircraft early next year. The company employs over 4,200 aviation professionals. For more information about Atlantic Coast Airlines Holdings, Inc., visit our website at http://www.atlanticcoast.com/. For more information about Independence Air, you are invited to visit http://www.flyi.com/. Statements in this press release and by company executives regarding its implementation of new business strategies, as well as regarding operations, earnings, revenues and costs, include forward-looking information. A number of risks and uncertainties exist which could cause actual results to differ materially from these projected results. Such risks and uncertainties include, among others: the ability of the Company to implement its transition out of the United Express and Delta Connection programs; the ability to effectively implement its low-fare business strategy utilizing regional jets and Airbus aircraft, and to compete effectively as a low-fare carrier, including passenger response to the Company's new service, and the response of competitors with respect to service levels and fares in markets served by the Company; the effects of high fuel prices on the Company; the ability of government agencies involved in airport operations to handle the increased number of flights and passengers anticipated at Washington Dulles without interference with airline operations; the ability to complete the acquisition of, obtain certification for, and secure financing of, its Airbus aircraft, and to successfully integrate these aircraft into its fleet; the ability to implement its assignment to Delta or others the leases of the 328JET aircraft currently used in the Company's Delta Connection operations; the possibility that the Company will remain obligated under the leases for 328JET aircraft currently used in the Delta Connection operations anticipated to be assigned to Delta, and would be obligated to fulfill these obligations should Delta default at any time prior to the expiration of the leases; unexpected costs or procedural complications arising from the insolvency of Fairchild Dornier GmbH, the manufacturer and equity owner of the 328JETs; the ability to successfully remarket the J-41 aircraft; the ability to successfully hire and train employees in sufficient numbers to implement the transition; the ability to reach agreement with AMFA and AFA-CWA on mutually satisfactory contracts; and general economic and industry conditions, any of which may impact the Company, its aircraft manufacturers and its other suppliers in ways that the Company is not currently able to predict. Certain of these and other risk factors are more fully disclosed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and in its Quarterly Report on Form 10-Q for the period ended March 31, 2004. These statements are made as of July 28, 2004 and Atlantic Coast Airlines Holdings, Inc. undertakes no obligation to update any such forward-looking information, including as a result of any new information, future events, changed expectations or otherwise. Condensed Consolidated Financial Results (in thousands, except per share amounts) Unaudited Second Quarter Ended June 30, Pct. 2004 2003 Change Operating revenues: Passenger revenue $189,708 $223,720 (15.2%) Other revenue 778 3,410 (77.2%) Total operating revenues 190,486 227,130 (16.1%) Operating expenses: Salaries and related costs 53,539 53,657 (0.2%) Aircraft fuel 39,042 32,458 20.3% Aircraft maintenance and materials 23,012 20,390 12.9% Aircraft rentals 31,254 32,356 (3.4%) Sales and marketing 17,709 5,831 203.7% Facility rents and landing fees 12,673 12,674 nmf Depreciation and amortization 10,400 7,009 48.4% Other 22,017 20,135 9.3% Aircraft early retirement charge 21,867 (34,586) nmf Total operating expenses 231,513 149,924 54.4% Operating income (loss) (41,027) 77,206 (153.1%) Non-operating expense (2,862) (1,210) 136.5% Government compensation - 1,520 nmf Income (loss) before taxes (43,889) 77,516 (156.6%) Income tax provision (benefit) (16,813) 31,781 (152.9%) Net income (loss) $(27,076) $45,735 (159.2%) Net income (loss) per common and common equivalent shares: Basic $(0.60) $1.01 Diluted $(0.60) $1.01 Weighted average number of common and common equivalent shares Basic 45,334 45,247 Diluted 45,334 45,344 Operating Statistics-Second Quarter Pct. 2004 2003 Change Revenue passenger miles (000's) 776,735 854,915 (9.1%) Available seat miles (000's) 1,051,347 1,135,166 (7.4%) Load factor 73.9% 75.3% (1.4 pts.) Passengers 1,977,751 2,181,332 (9.3%) Revenue departures 65,823 73,249 (10.1%) Revenue block hours 94,469 103,494 (8.7%) Yield per RPM (cents) 24.4 26.2 (6.9%) Passenger revenue per ASM (cents) 18.0 19.7 (8.6%) Operating cost per ASM (cents) 22.0 13.2 66.7% Operating cost per ASM excluding aircraft early retirement charge (cents) 19.9 16.3 22.1% Operating cost per ASM excluding fuel and aircraft early retirement charge (cents) 16.2 13.4 20.9% Operating margin (21.5%) 34.0% (55.5 pts.) Operating margin excluding aircraft early retirement charge (10.1%) 18.8% (28.8 pts.) Average passenger trip length (miles) 393 392 0.2% Condensed Consolidated Financial Results (in thousands, except per share amounts) Unaudited Six Months Ended June 30, Pct. 2004 2003 Change Operating revenues: Passenger revenue $399,146 $422,322 (5.5%) Other revenue 3,391 9,017 (62.4%) Total operating revenues 402,537 431,339 (6.7%) Operating expenses: Salaries and related costs 107,505 109,178 (1.5%) Aircraft fuel 77,991 72,309 7.9% Aircraft maintenance and materials 44,190 42,650 3.6% Aircraft rentals 62,961 64,095 (1.8%) Sales and marketing 25,084 12,267 104.5% Facility rents and landing fees 25,802 24,701 4.5% Depreciation and amortization 17,694 13,119 34.9% Other 45,433 46,549 (2.4%) Aircraft early retirement charge 28,618 (34,586) 182.7% Total operating expenses 435,278 350,282 24.3% Operating income (loss) (32,741) 81,057 (140.4%) Non-operating expense (5,207) (1,678) (210.3%) Government compensation - 1,520 nmf Income (loss) before taxes (37,948) 80,899 (146.9%) Income tax provision (benefit) (14,496) 33,169 (143.7%) Net income (loss) $(23,452) $47,730 (149.1%) Net income (loss) per common and common equivalent shares: Basic $(0.52) $1.06 Diluted $(0.52) $1.05 Weighted average number of common and common equivalent shares: Basic 45,334 45,236 Diluted 45,334 45,334 Operating Statistics-Six Months Ending June 30, Pct. 2004 2003 Change Revenue passenger miles (000's) 1,514,643 1,600,999 (5.4%) Available seat miles (000's) 2,184,084 2,235,709 (2.3%) Load factor 69.3% 71.6% (2.3 pts.) Passengers 3,859,553 4,103,941 (6.0%) Revenue departures 135,606 145,268 (6.7%) Revenue block hours 195,948 209,112 (6.3%) Yield per RPM (cents) 26.4 26.4 0.0% Passenger revenue per ASM (cents) 18.3 18.9 (3.2%) Operating cost per ASM (cents) 19.9 15.7 26.8% Operating cost per ASM excluding aircraft early retirement charge (cents) 18.6 17.2 8.1% Operating cost per ASM excluding fuel and aircraft early retirement charge (cents) 15.0 14.0 7.1% Operating margin (8.1%) 18.8% (26.9 pts.) Operating margin excluding aircraft early retirement charge (1.0%) 10.8% (11.8 pts.) Average passenger trip length (miles) 392 390 0.5% Pro-Forma Financial Results (in thousands, except per share amounts) Second Quarter 2004 Income Net Income EPS (loss) (loss) Before Tax Loss as reported in accordance with GAAP $(43,889) $(27,076) $(0.60) J-41 retirement charge 21,867 13,514 0.30 Impairment losses 3,537 2,185 0.05 Pro-forma results $(18,485) $(11,377) $(0.25) Second Quarter 2003 Income Net Income EPS Before Tax Income as reported in accordance with GAAP $77,516 $45,735 $1.01 Reversal of the J-41 retirement charge (34,586) (20,406) (0.45) Portion of the United rate settlement related to previous period (12,343) (7,282) (0.16) Government compensation (1,520) (897) (0.02) Pro-forma results $29,067 $17,150 $0.38 Six Months Ended June 30, 2004 Income Net Income EPS (loss) (loss) Before Tax Loss as reported in accordance with GAAP $(37,948) $(23,452) $(0.52) J-41 retirement charge 28,618 17,686 0.40 Impairment losses 3,537 2,185 0.05 Pro-forma results $(5,793) $(3,581) $(0.07) Six Months Ended June 30, 2003 Income Net Income EPS Before Tax Income as reported in accordance with GAAP $80,899 $47,730 $1.05 Reversal of the J-41 retirement charge (34,586) (20,406) (0.45) Government compensation (1,520) (897) (0.02) Pro-forma results $44,793 $26,427 $0.58 Notes to Pro-Forma Financial Results: The company's Pro-Forma Financial Results present non-GAAP financial measures that the company uses for internal managerial purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business. Management strongly encourages investors to review the company's financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. With respect to the specific matters addressed in the Pro-Forma Financial Results, the company has excluded the following items for the reasons addressed below: --J-41 retirement charges and reversals: The company excludes for pro forma results charges and credits, if any, associated with the retirement of aircraft from its fleet. These amounts typically represent the expense of future commitments, and are not considered by management to be indicative of current period operations. Under Financial Accounting Standards Board Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which the company adopted on January 1 2003, liabilities for the costs associated with retirement of the company's remaining J-41s will be recognized when the liabilities are incurred. Reversals or earlier non-cash charges occurred in 2003 when the company revised J-41 retirement plans that were established prior to the company's adoption of Statement No. 146. --Impairment losses for owned 328JET aircraft and J-41 expendable parts inventory: Under Financial Accounting Standards Board Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," impairment exists when the carrying amount of a long-lived asset exceeds its fair value and the carrying amount of the asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposition of the asset. Once an impairment loss is recognized, the adjusted carrying amount of the long-lived asset establishes a new cost basis. --Government compensation: The government payments are based on special legislation for specific areas for which the government has determined to provide benefits to airlines. These payments are not treated as operating income in the company's financial statements and are not considered by management when evaluating the company's performance. --Portions of the rate settlement with United in the second quarter 2003 related to a previous period: The company records its revenue based on fee per departure rates paid by its partners, which rates are subject to adjustment annually. When rates are not agreed as of the completion of a given period, the company records its revenue based on an estimate of the rates. Upon agreement on rates, the company records, in the period rates are agreed, adjustments for the estimates made for the prior periods. Management believes that the adjustments for the impact of changes to estimates provide additional information for period-to-period comparisons of operating performance. Selected Balance Sheet Data (in thousands) June 30, December 31, 2004 2003 Unaudited Audited % Change (000s) (000s) Cash, cash equivalents and short-term investments $345,431 $297,934 15.9% Restricted cash 22,382 14,829 50.9% Aircraft deposits 97,196 46,990 106.8% Stockholders' equity 335,812 359,414 (6.6%) Working capital 343,253 270,849 26.7% DATASOURCE: Atlantic Coast Airlines CONTACT: Rick DeLisi, Director, Corporate Communications, of Atlantic Coast Airlines, +1-703-650-6019 Web site: http://www.atlanticcoast.com/ http://www.flyi.com/

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