Republic Holdings Posts Q4, Year-End Profits

“Last year was another outstanding year and certainly the busiest in our 34-year history,” Republic Holdings CEO Bryan Bedford told investors during its fourth quarter/year-end investor’s call last week during which he said the company is well placed to take advantages of any opportunities...

For immediate service; more information; and multi-user access (site license), non-profit organization, educational institute pricing, contact Karen Garner kgarner@accessintel.com at (301) 354-1612.

This story is only available to paid subscribers. Please login below with your username and password if you are a subscriber.

Username:
Password:
	What is my password?

Subscribe     Trial

“Last year was another outstanding year and certainly the busiest in our 34-year history,” Republic Holdings CEO Bryan Bedford told investors during its fourth quarter/year-end investor’s call last week during which he said the company is well placed to take advantages of any opportunities that may arise from consolidation. Just as he did during the recent Raymond James conference, Bedford forestalled obvious consolidation questions by saying that, despite popular wisdom indicated regionals are harmed by consolidation, it is just the opposite. Related Story
“The thinking is at some levels that what is good for our partners is universally bad for regionals,” he said. “The primary concern has been that we have a risk in that our contracts would be terminated or renegotiated and we’d have margin compression. Or, at least there would be no growth as the network’s hubs were rationalized. I want to assure you that none of our contracts can be terminated or renegotiated as the result of M&A activity with our partners. In the worst case scenario our business could level off in 2009.
“But if you look back over the last four years, all of our partners were in bankruptcy and there were real fears that our margins would be eliminated or even the entire business eliminated,” he continued. “For high cost, inefficient carriers that turned out to be true, but it has always been our opinion that for high-quality, low-cost regional operators, we’d come out in good financial shape with new opportunities to grow and that is exactly what happened. We feel exactly the same way with the current consolidation. Our biggest risk is the counter-party risk so anything that will make our partners stronger reduces that risk.”
He pointed out that the company closed the year with a 26 percent growth rate and expected that 2008 will yield a 20 percent growth rate based on business already under contract, dropping to seven percent in 2009. “If we continue to operate a high-quality, low-cost regional business and we continue to give employees the right tools and the right product, we will be in a position to respond to what will certainly be real opportunities that will present themselves if and when transactions occur,” he concluded.

Mergers Opposed
Meanwhile, the proposed mergers between Delta and Northwest as well as the United/Continental merger face stiff opposition on Capitol Hill as Congressman James Oberstar (D-MN) has gone on record as opposing such deals. The Wall Street Journal reported the former could be announced within weeks while the latter is under negotiations between the two carriers.
Reuters reported Oberstar, the House Committee on Transportation and Infrastructure Chair, plans to build a case against mergers if one or more come to fruition. While Congress does not have the authority to stop mergers; its can pressure the Department of Justice, which does have such authority.
Speaking before the Reuters Regulation Summit in Washington, Oberstar said he wants regulators and antitrust officials to appreciate the “long view” on the Hill’s various merger concerns, especially with respect to fares, service and consumer choice, said the news agency.
"We can build a pretty strong case,” Reuters quoted the legislator. "We did that in previous unconsummated merger proposals. I don't have all that data together yet but I think we'll be in a good position…I am concerned the (Transportation Department) will not raise its voice here and they should….If we allow the creation of a global mega-carrier, the others cannot stand still to defend their market share, to defend their market interests. They too will have to undertake merger talks and ventures."

Republic Results
Despite fourth quarter transition costs of $2 million and full-year transition costs of $19 million, the company reported the highest growth rate in the regional industry as it took 25 86-seat Embraer ERJ 175s and 24 CRJ 200s last year, a 26 percent increase in capacity. It also began two new partnerships as a Frontier Jet Express and a Continental Express, business transferred from Horizon and ExpressJet, respectively. It also amended its Delta agreement, agreeing to spin out ERJ 135s at a rate of two aircraft per month, beginning last September and continuing through the first half of 2008. He also reported that the airline will continue to experience a higher than average pilot attrition rate as the pilots from its US Airways Jets-for-Jobs program concludes, resulting in $1 million to $2 million in additional training costs per quarter this year. The rate for the remaining 40 shells in the Delta program was reduced by three percent.
The company is expecting another 22 aircraft this year, said Bedford, who pointed out it took its 100th and 101st E jets last year, only two years after launching E Jet operations.
Republic Holdings, which contributed to the profitability of regional operations at US Airways, Continental, United and Delta, today reported net income of $24.3 million, or $0.65 per diluted share, for the quarter ended December 31, 2007, compared to $20.4 million of net income, or $0.46 per diluted share, for the same period last year. The company also reported net income of $82.8 million for 2007, or $2.02 per diluted share. Republic Airways Holdings Inc. reported operating revenues of $351.8 million for the quarter ended, a 19.2 percent increase, compared to $295.3 million for the same period last year.

Fourth Quarter Highlights
Excluding reimbursement for fuel expense, which is a pass-through cost to partners, regional airline service revenues increased 26.3 percent to $268.0 million for the fourth quarter of 2007 from $212.2 million for the same quarter of 2006, primarily as a result of a 25.7 percent increase in block hours. The block hour increase reflects the addition of 49 aircraft that were placed into service throughout the year and the loss of one aircraft which was removed from charter service and subleased offshore.
During the quarter the company took delivery of eight, new 86-seat Embraer ERJ 175 aircraft.
Total operating expenses for the fourth quarter of 2007, including interest expense but excluding fuel charges, reimbursable under capacity purchase agreements, of $237.5 million, increased approximately 27.0 percent from $187.0 million for the same quarter of 2006. Operating cost per ASM (CASM), including interest expense but excluding fuel, decreased to 7.38 cents from 7.63 cents in the prior year's fourth quarter. For the quarter, the company reported a 31.2 percent increase in available seat miles (ASMs) to 3.22 billion ASMs, up from 2.45 billion ASMs during the same period last year.
This year's fourth quarter results included a year-to-date adjustment for state tax liabilities which increased net income for the quarter by approximately $2.7 million. The negative impact on pre-tax earnings for transition expenses during the quarter was approximately $2 million, consistent with the guidance provided by the company.
Also during the quarter, the company repurchased approximately 1.8 million shares of its common stock for total consideration of approximately $37.1 million. On December 14, the Board of Directors authorized an additional $100 million share repurchase program. As of December 31, 2007, $98.6 million of this authorization remained.

Full Year 2007 Highlights
For the full year ended December 31, operating revenues increased 13.1 percent to $1.29 billion, compared to $1.14 billion for the same period last year. Excluding reimbursement for fuel expense, regional airline services revenues increased 23.4 percent to $978.0 million for 2007 from $792.7 million for 2006, primarily as a result of a 22.1 percent increase in block hours. The impact on 2007 pre-tax earnings for transition expenses, which include un-reimbursed aircraft costs, increased pilot training expenses, and forgone profits on the company's reduced scheduled operations during the year, was approximately $19 million.
The company increased its operating fleet to 219 aircraft as of December 31, 2007, from 171 as of December 31, 2006. During the year the company repurchased over seven million shares of its common stock for total consideration of $142.4 million. This reduction in basic shares, coupled with the cancellation of over 3.4 million warrants as a result of amending its Delta agreements, reduced the company's diluted share count for the fourth quarter of 2007 by more than 15 percent from the fourth quarter of 2006.
Total ASMs for 2007 increased 25.7 percent from 2006 to 11.5 billion and block hours increased 22.1 percent from 2006 to almost 680,000 in 2007. Operating cost per ASM (CASM), including interest expense but excluding fuel decreased to 7.58 cents in 2007 from 7.61 cents in 2006.
At December 31, Republic Holdings, which also flies as an American Connection, had $164.0 million in cash and marketable securities compared to $195.5 million as of December 31, 2006.