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* Hawaiian Airlines completed its debt refinancing and redeemed Holdings' outstanding Subordinated Convertible Notes
* Management will host investor call at 5 p.m. ET to discuss results
Mark Dunkerley, President and Chief Executive Officer commented, "The first quarter of 2006 was a difficult one for Hawaiian, which is reflected in our operating, pre-tax and net loss for the period. While part of the challenge is attributable to this being a seasonally weaker period of the year, and to significant non-recurring expenses included in our numbers, intense competition and the rising price of fuel have undermined our financial performance as well. However, we remain committed to our strategic direction and are focused on taking the tactical steps necessary to improve our financial performance in what we anticipate will remain a challenging environment in the near-term."
Mr. Dunkerley continued, "On a more positive note, the quarter was marked by several significant milestones, most notably our acquisition of four 767- 300 aircraft and the restructuring of our balance sheet. We are pleased with the continued strong demand for our services and the outstanding support of our customers. Hawaiian's dedicated employees continue to set the standard for customer service as evidenced by our unparalleled load factors and operating performance."
As previously announced, Hawaiian emerged from bankruptcy on June 2, 2005. Effective April 1, 2003, following Hawaiian's bankruptcy filing, through June 1, 2005, the day prior to Hawaiian's emergence from bankruptcy, Holdings deconsolidated Hawaiian and accounted for its interest in Hawaiian using the cost method of accounting. As a result, the financial results of Holdings during that period do not include Hawaiian's financial results. Holdings generated no revenue during the three months ended March 31, 2005, and its operating expenses consisted primarily of professional fees related to Hawaiian's bankruptcy case and maintaining Holdings' status as a public company. Hawaiian's emergence from bankruptcy was accounted for as a business combination, the acquisition of Hawaiian by Holdings. As a consequence, the results of operations for Hawaiian are included in the consolidated results of the Company from June 2, 2005 forward.
On a consolidated GAAP basis, the Company reported an operating loss of $4.6 million and a net loss of $12.3 million for the first quarter 2006.
Consolidated/Combined Holdings and Airlines Results
Because Hawaiian's emergence from bankruptcy was accounted for as a business combination, the assets and liabilities of Hawaiian were adjusted to their fair values as of June 2, 2005, and the results of operations of Hawaiian are included in the Company's consolidated results from that point forward. In an effort to clarify some of the complex accounting required as a result of Hawaiian's emergence from bankruptcy and provide readers with a basis for comparison with the financial information published by Hawaiian during bankruptcy, the following discussion compares consolidated results for the quarter ended March 31, 2006 to the combined financial results of Holdings and Hawaiian for the prior year. These combined results are not, however, defined within accounting principles generally accepted in the United States and therefore should not be considered in isolation, or as a substitute for, the equivalent measure defined in U.S. GAAP.
The adjustments to record Hawaiian's assets and liabilities at fair value resulted in significant additional depreciation and amortization expense in the current period and on an on-going basis, as well as several other non-cash differences. The consolidated results of operations for the first quarter ended March 31, 2006 were affected by the application of purchase accounting as follows:
3 Months Ended Mar. 31, 2006 (in millions) Operating Revenue - Increase/(decrease) in operating revenue: Passenger - Reduction of deferred revenue from sales of miles in frequent flyer program $(2.6) Total increase/(decrease) in operating revenue $(2.6) Operating Expenses - Increase/(decrease) in operating exepense: Aircraft rent - amortization of unfavorable operating leases $(0.8) Maintenance materials and repairs - favorable aircraft maintenance contracts $0.3 Other rentals and landing fees - amortization of favorable operating leases $1.3 Depreciation and amortization $3.9 Total increase/(decrease) in operating expense $4.7 Operating Income - Increase/(decrease) in operating income $(7.3) Non Operating Income/Expense - Interest expense - amortization of debt discount due to recognizing debt discount at fair value $(0.2) Interest income - accretion due to recognizing aircraft maintenance and lease security deposits at fair value $0.4 Total $0.2 Income (Loss) Before Income Taxes $(7.2)
First quarter operating revenue was $209.7 million, a 10.8% increase over the combined first quarter 2005 results. Passenger revenue represented approximately 90% of operating revenue in the first quarter of both 2005 and 2006. Charter, cargo and other revenues represented the balance. Passenger yield (passenger revenue per revenue passenger mile, or RPM) increased 1.1% to 11.66 cents from 11.54 cents in the first quarter 2005. Operating revenue per available seat mile (RASM) increased 5.7% to 11.06 cents in the first quarter of 2006 from 10.46 cents in the first quarter 2005.
Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Selected Combined Statistical Data Three months ended March 31, 2006 2005 Change (in millions) Scheduled Operations: Revenue passenger miles (RPM) 1,625.8 1,471.4 10.5% Available seat miles (ASM) 1,858.6 1,728.9 7.5% Passenger load factor (RPM/ASM) 87.5% 85.1% Total Operations Operating Revenue per ASM (RASM) 11.06 cents 10.46 cents 5.7% Operating Cost per ASM (CASM) 11.30 cents 10.12 cents 11.7% CASM ex-fuel 8.30 cents 8.00 cents 3.8% Adjusted CASM ex-fuel* 8.05 cents 8.00 cents 0.6% * adjusted for purchase accounting differences
Total operating expenses for the first quarter increased 17.1% to $214.3 million, from $183.1 million for the first quarter of 2005. The higher expenses were primarily the result of an $18.6 million, or 48.6%, increase in aircraft fuel costs to $57.0 million. Certain of Hawaiian's jet fuel forward contracts were not designated for hedge accounting upon their inception. As a result of the subsequent designation of jet fuel forward contracts during 2005 at times when spot prices were generally higher than the settlement price of the contracts, Hawaiian's reported fuel expense during the first quarter of 2006 does not reflect the full economic benefits of the forward contracts or the cash savings achieved by Hawaiian. As a result, fuel expense in the first quarter of 2006 includes hedge losses of $3.4 million, although the settlement of forward contracts designated for the first quarter resulted in cash payments to Hawaiian totaling $1.9 million. Hawaiian's average cost per gallon of jet fuel rose 42% to $2.09 (including taxes, delivery and hedging losses) for the quarter. Aircraft fuel represented 26.6% of operating expense in the first quarter 2006, as compared to 20.9% in the same period a year ago.
Depreciation and amortization expenses increased over 200% to $6.8 million, primarily due to the fair market value adjustments to Hawaiian's assets under purchase accounting. Additionally, materials and repairs expenses increased $2.7 million to $16.8 million due to an increase in engine overhaul events and the inclusion of additional aircraft under a power-by-the-hour contract, as well as increases in power-by-the-hour rates. Other operating expenses increased $1.6 million, or 4.1%, as compared to the first quarter of 2005, primarily as a result of increased professional fees related to the conclusion during the first quarter of Sarbanes-Oxley compliance efforts for the 2005 fiscal year.
Operating cost per available seat mile (CASM) for the first quarter 2006 increased 11.7% year-over-year to 11.30 cents. CASM excluding fuel and adjusting for the non-cash differences related to purchase accounting, increased 0.6% in the first quarter of 2006 relative to the prior year. As a result of the higher expenses, the Company reported an operating loss of $4.6 million in the first quarter, compared to an operating profit of $6.3 million in first quarter of 2005 on a combined basis. Effective January 1, the Company adopted SFAS No. 123(R) which resulted in an increase of approximately $1.1 million in salaries and benefits expense. For the remainder of 2006, excluding future stock grants, the Company expects charges for stock-based compensation under SFAS No. 123(R) to be approximately $3.6 million in aggregate.
Non-operating expenses for the first quarter totaled $7.5 million. Included in this total is approximately $3.1 million in non-recurring expenses associated with the refinancing of Hawaiian's term loans during the quarter.
Recent Events: * During the first quarter of 2006, Hawaiian purchased four used Boeing 767-300 aircraft at a combined cost of approximately $32 million. These aircraft are currently being modified and overhauled for entry into Hawaiian's operations. The Company plans to use three of the aircraft to expand its service between Hawaii and the US mainland beginning during the third and fourth quarters of 2006, with the fourth serving as a spare. * For the first quarter of 2006, Hawaiian maintained its ranking as the nation's best airline for on-time performance, baggage handling and fewest flight cancellations based on statistics issued by the U.S. Department of Transportation. * In March 2006, Hawaiian increased its term loan borrowings under its Term A and Term B credit facilities by approximately $91 million. * In April 2006, Holdings completed the redemption of its outstanding subordinated convertible notes, thereby avoiding significant dilution to shareholders. Had the notes not been redeemed they would have become convertible on June 2, 2006 into approximately 12 million shares of the Company's common stock at a conversion price of $4.35. The redemption, discussed in more detail below, completed a balance sheet restructuring which commenced in March with Hawaiian's expansion of its term loan facilities. Liquidity, Capital Resources and Fuel Hedging: * As of March 31, 2006, the Company had unrestricted cash and cash equivalents of $153.7 million. * On April 21, 2006, Holdings completed the redemption of its $52.3 million outstanding subordinated convertible notes originally issued in conjunction with Hawaiian's emergence from bankruptcy in June 2005. Redemption of the notes required a cash payment of 105% of the principal balance outstanding plus accrued interest, resulting in a total redemption outlay of $55.9 million. The redemption was primarily funded through the release from escrow of previously restricted cash sourced through Hawaiian's term loan refinancing in March, and as such did not materially reduce unrestricted cash. Redemption of the subordinated convertible notes will result in a one-time charge of approximately $28.3 million which will be recognized in the second quarter 2006 primarily attributable to the non-cash write-off of the unamortized debt discount associated with the notes. * For the quarter ended March 31, 2006, net cash provided by operating activities before reorganization activities was $16.8 million, compared to $12.7 million for the comparable period in 2005. * Hawaiian's current jet fuel hedge position for the remainder of 2006 is outlined in the table below: Average Forward Average Contract Settlement Percentage Designation Price of Gallons of Quarterly Price Per Forward Hedged Consumption Gallon(1) Contract (thousands) Hedged Second Quarter 2006 $1.992 $1.733 16,254 59% Third Quarter 2006 $2.052 $2.024 11,970 42% Fourth Quarter 2006 $1.923 $2.042 2,730 10% (1) Designation prices are based on spot prices on the date of designation of the applicable jet fuel forward contracts, and represent the prices per gallon that the fuel expenses to be recognized in our financial statements will be based upon. Investor Conference Call
Hawaiian Holdings' quarterly earnings conference call is scheduled to begin later today (Monday, May 8, 2006) at 5:00 p.m., Eastern Daylight Time (USA). The conference call will be broadcast live over the Internet. Investors may listen to the live audio webcast on the investor relations section of the Company's website at www.hawaiianair.com. For those who are not available for the live broadcast, the call will be archived on Hawaiian's investor website.
Hawaiian was the nation's number one carrier for on-time service, fewest flight cancellations and best baggage service reliability in 2005 and the first quarter of 2006, according to reports by the U.S. Department of Transportation. Consumer travel surveys conducted by Conde Nast Traveler, Travel + Leisure, and Zagat all rank Hawaiian as the top domestic airline serving Hawaii.
Now in its 77th year of continuous service in Hawaii, Hawaiian is the state's biggest and longest-serving airline, and the second largest provider of passenger air service between Hawaii and the U.S. mainland. Hawaiian offers nonstop service to Hawaii from more U.S. gateway cities than any other airline (nine), as well as service to Australia, American Samoa and Tahiti. Hawaiian also provides approximately 100 daily jet flights among the Hawaiian Islands.
Hawaiian Airlines, Inc. is a subsidiary of Hawaiian Holdings, Inc. (Amex: HA; PCX). Additional information is available at HawaiianAirlines.com.
The foregoing information contains certain forward-looking statements that reflect the Company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment which may cause the Company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's filings with the Securities and Exchange Commission.
Hawaiian Holdings, Inc. Consolidated Balance Sheets (in thousands) March 31, December 31, 2006 2005 (unaudited) ASSETS Current Assets: Cash and cash equivalents $153,656 $153,388 Restricted cash 70,804 53,420 Accounts receivable, net of allowance for doubtful accounts of $861 and $912 as of March 31, 2006 and December 31, 2005, respectively 38,986 35,278 Spare parts and supplies, net 14,503 14,578 Deferred tax assets 10,160 9,269 Prepaid expenses and other 21,515 21,673 Total 309,624 287,606 Property and equipment, less accumulated depreciation and amortization of $8,153 and $5,751 as of March 31, 2006 and December 31, 2005, respectively 85,237 51,277 Other Assets: Long-term prepayments and other 98,866 29,253 Intangible assets, net of accumulated amortization of $19,906 and $13,936 as of March 31, 2006 and December 31, 2005, respectively 185,235 191,205 Goodwill 107,032 107,179 Total Assets $785,994 $666,520 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $35,867 $39,089 Air traffic liability 212,593 162,638 Other accrued liabilities 39,926 62,969 Current maturities of long-term debt and capital lease obligations 14,785 13,064 Total 303,171 277,760 Long-Term Debt and Capital Lease Obligations 158,637 77,576 Other Liabilities and Deferred Credits: Accumulated pension and other postretirement benefit obligations 198,103 196,831 Other liabilities and deferred credits 60,637 57,017 Deferred income taxes 10,160 9,269 Total 268,900 263,117 Commitments and Contingent Liabilities Shareholders' Equity: Special preferred stock, three shares outstanding as of March 31, 2006 and December 31, 2005 -- -- Common stock, 45,945,800 and 45,349,100 outstanding as of March 31, 2006 and December 31, 2005, respectively 459 453 Capital in excess of par value 213,486 203,479 Accumulated deficit (156,013) (143,721) Accumulated other comprehensive loss: Loss on hedge instruments (2,646) (12,144) Total 55,286 48,067 Total Liabilities and Shareholders' Equity $785,994 $666,520 Hawaiian Holdings, Inc. Consolidated Statements of Operations (unaudited) Three Months Ended March 31, 2006(*) 2005(**) (in thousands, except per share data) Operating Revenue: Passenger $189,590 $-- Charter 2,274 -- Cargo 8,088 -- Other 9,769 -- Total 209,721 -- Operating Expenses: Wages and benefits 58,169 -- Aircraft fuel, including taxes and oil 56,962 -- Aircraft rent 27,358 -- Maintenance materials and repairs 16,772 -- Depreciation and amortization 6,764 -- Other rentals and landing fees 5,915 -- Sales commissions 1,856 -- Other 40,519 2,095 Total 214,315 2,095 Operating Loss (4,594) (2,095) Nonoperating Income (Expense): Interest and amortization of debt discounts and issuance costs (3,637) -- Extinguishment and modification of long-term debt (3,072) -- Interest income 2,429 -- Other, net (3,234) -- Total (7,514) -- Loss Before Income Taxes (12,108) (2,095) Income tax expense 184 -- Net Loss $(12,292) $(2,095) Net Loss Per Common Stock Share: Basic $(0.27) $(0.07) Diluted $(0.27) $(0.07) Weighted Average Number of Common Stock Shares Outstanding: Basic 45,722 30,751 Diluted 45,722 30,751 (*) Includes the consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. for the entire period presented. (**) Includes only the results of operations of Hawaiian Holdings, Inc. for the entire period presented. Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Combined Statements of Operations (unaudited) Three Months ended March 31, 2006(*) 2005(**) (in thousands) Operating Revenue: Passenger $189,590 $169,747 Charter 2,274 4,519 Cargo 8,088 7,046 Other 9,769 8,032 Total 209,721 189,344 Operating Expenses: Wages and benefits 58,169 56,290 Aircraft fuel, including taxes and oil 56,962 38,335 Aircraft rent 27,358 26,141 Maintenance materials and repairs 16,772 14,071 Depreciation and amortization 6,764 2,200 Other rentals and landing fees 5,915 5,713 Sales commissions 1,856 1,394 Other 40,519 38,922 Total 214,315 183,066 Operating Income (Loss) (4,594) 6,278 Nonoperating Income (Expense): Reorganization items, net -- (5,851) Interest and amortization of debt discount and issuance costs (3,637) (334) Extinguishment and modification of long-term debt (3,072) -- Interest income 2,429 -- Other, net (3,234) (1,319) Total (7,514) (7,504) Loss Before Income Taxes (12,108) (1,226) Income tax expense 184 505 Net Loss $(12,292) $(1,731) (*) Consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. (**) Combined results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. Hawaiian Holdings, Inc. Reconciliation of GAAP Results to Adjusted Historical Cost Financial Results (unaudited) Three months ended March 31, 2006 2005 (in millions) GAAP operating expenses $214.3 $2.1 Hawaiian expenses pre-June 2, 2005 (a) $-- 181.0 Combined Holdings and Airlines operating expenses $214.3 $183.1 Aircraft fuel, including taxes and oil $57.0 $38.3 Adjusted operating expenses $157.4 $144.7 Add (Subtract) impact of purchase accounting: Aircraft and other rental expense (b) $(0.5) $-- Maintenance materials and repairs (c) $(0.3) $-- Depreciation and amortization (d) $(3.9) $-- Adjusted Historical Cost operating expenses, ex-fuel $152.6 $144.7 Available Seat Miles (millions) 1,896.2 1,809.5 CASM - GAAP 11.30 cents NM add Hawaiian expenses CASM -- 10.00 cents CASM - Combined 11.30 10.12 less aircraft fuel 3.00 2.12 CASM - Combined, ex-fuel 8.30 8.00 Impact of purchase accounting adjustments -0.25 -- CASM - Adjusted for historical cost, ex-fuel 8.05 cents 8.00 cents Footnotes: (a) On June 2, 2005, the Company reconsolidated Hawaiian for financial reporting purposes. The reconsolidation was accounted for as a business combination with Hawaiian's assets and liabilities being adjusted to their fair values as of June 2, 2005. Hawaiian's results prior to June 2, 2005 were not included in Holdings' results of operations. (b) The Company recorded a net deferred credit for certain operating leases with contractual rentals in excess of current market rates as of June 2, 2005. The net credit serves to reduce aircraft rental expense each period. (c) The Company recorded an intangible asset for certain aircraft maintenance contracts with contractual rates less than current market rates for similar services at June 2, 2005. (d) Adjustment to reflect the impact on depreciation and amortization expense due to the amortization of intangible assets and certain PP recorded at June 2, 2005.
CFO of Hawaiian Airlines,
both of Integrated Corporate Relations,
1-310-395-2215, for Hawaiian Holdings, Inc.;
VP Public Affairs of Hawaiian Airlines,
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