Republic Airways Holdings reports third net income of $18.5 million, will sublease 24 Bombardier Q400s to Flybe

Republic Airways Holdings Inc. (Indianapolis) reported its financial results for the third quarter of 2014:

Republic’s pre-tax income from continuing operations for the third quarter of 2014 was $30.5 million compared to $5.4 million for the prior year’s third quarter. In the third quarter of 2013, the Company incurred an impairment charge of $21.2 million. Absent this impairment, Republic’s pre-tax income from continuing operations increased $3.9 million, or 14.7%.

Republic’s net income for the third quarter of 2014 was $18.5 million, or $0.35 per diluted share.

Republic’s pre-tax income from continuing operations for the nine months ending Sept. 30, 2014, was $86.6 million compared to $51.7 million for the same period of 2013. Absent impairment charges in both years and a fair value gain recorded in 2014, Republic’s pre-tax income from continuing operations increased from $72.9 million to $88.1 million, or 20.9%. Republic’s net income for the nine months ending Sept. 30, 2014, was $52.6 million, or $1.01 per diluted share.

During the quarter, the Company announced it would add 50 new E175 aircraft to its Capacity Purchase Agreement with United. The aircraft, which each have a term of 12 years, are expected to be delivered between mid-2015 and mid-2017. The Company and United also agreed to an early wind-down schedule for the Company’s 31 Q400 aircraft currently in operation between early 2015 and late 2016.

As previously report, Republic has entered into a sublease with Flybe Limited, a UK airline, for 24 Q400 aircraft, with deliveries to Flybe coordinated with the removal of the aircraft from United service. The remaining Q400 aircraft will be sold, leased or returned to the lessor after removing them from United service.

Operating Revenue Highlights

Operating revenues increased $11.1 million, or 3.3%, as compared to the third quarter of 2013 to $349.7 million in the third quarter of 2014. Fixed-fee service revenue increased $23.4 million, or 7.3%, to $343.7 million due to increased E175 flying with American Airlines offset by the removal of 15 E140 and 12 E145 aircraft from service. Passenger service revenue decreased $12.6 million because of the removal of E190 aircraft operating under pro-rate agreement with Frontier Airlines.

Operating Expense Highlights

The increase in wages and benefits expenses of $6.7 million, or 7.7%, was primarily due to an increase in E175 operations, an increase in the cost of benefits we provide to our employees and new pilot flight and duty rest regulations.

Fuel expense for the third quarter of 2014 decreased $6.2 million, or 54.9%, as compared to the third quarter of 2013 to $5.1 million primarily due to a 56.9% decrease in gallons consumed related to the elimination of pro-rated flying for Frontier. Fuel expense is primarily attributable to our fixed-fee charter operations and is a pass-through to our customers.

Depreciation and amortization expense for the third quarter of 2014 increased $6.7 million, or 18.1%, as compared to the third quarter of 2013 due primarily to the increase in the E175 fleet.

The other impairment charge of $21.2 million during the third quarter of 2013 was due to an impairment charge on owned E190 aircraft and the write-off of maintenance deposits on leased E190 aircraft.

Fleet Highlights

As of September 30, 2014, Republic operated a fleet of 240 aircraft. Through September, the Company has removed 27 ERJ aircraft from CPA service, and has taken delivery of 17 Embraer E175 aircraft and expects to take delivery of seven additional E175 aircraft during the remainder of 2014. As of September 30, 2014, within its fixed-fee and charter agreements, the Company operated 42 aircraft with 44-50 seats and 198 aircraft with 69-99 seats.

Balance Sheet and Liquidity

The Company’s total cash balance decreased $17.2 million to $283.5 million as of Sept. 30, 2014, compared to Dec. 31, 2013. Restricted cash increased $1.8 million, to $25.8 million, from Dec. 31, 2013, due to the escrow requirements under fixed-fee charter agreements. The Company’s unrestricted cash balance decreased $19.0 million, to $257.7 million, from Dec. 31, 2013, due mainly to equity investments into new aircraft and the redemption of a $22.3 million convertible note. A consolidated balance sheet and summary cash flow statement have been included in the tables section of this release.

During the nine months ended Sept. 30, 2014, the Company purchased 212,881 shares of its common stock on the open market at a weighted average price per share of $9.98 pursuant to the open market purchase plan approved on April 7, 2014, for total consideration of $2.1 million.

The Company’s debt increased to $2.35 billion as of September 30, 2014, compared to $2.17 billion at December 31, 2013, primarily related to the financing of 17 new E175 aircraft purchased for our American Airlines fixed-fee agreement partially offset by the Company’s debt repayments. As of September 30, 2014, about 97% of the Company’s debt is at a fixed interest rate. The Company has significant long-term lease obligations for aircraft that are classified as operating leases and are not reflected as liabilities on the Company’s consolidated balance sheet. At a 6% discount factor, the present value of these lease obligations was about $0.51 billion and $0.59 billion as of Sept. 30, 2014, and Dec. 31, 2013, respectively.

Republic Airways Holdings Inc. is an airline holding company that owns Chautauqua Airlines, Republic Airlines (2nd) and Shuttle America.

As of Sept. 30, 2014, the three airlines operated a combined fleet of about 240 aircraft and offered scheduled passenger service on more than 1,300 flights daily to about 100 cities in the U.S. and Canada through fixed-fee flights operated under our major airline partner brands, including American Eagle, Delta Connection, United Express and US Airways Express.

Copyright Photo: Brian McDonough/AirlinersGallery.com. As previously reported, United Airlines is dropping the Bombardier Q400 services operated by Republic Airlines (2nd). Bombardier DHC-8-402 (Q400) N346NG (msn 4346) arrives at Washington (Reagan National).

United Express-Republic Airlines (2nd) Aircraft Slide Show: