"This quarter was one of transition for ExpressJet," said ExpressJet President and CEO Jim Ream. "Everyone at the company worked hard to redirect this entire organization, and I feel we have made enormous progress in a short amount of time.”
Ream indicated the company made significant strides in cost saving efforts since July. “However, heading into winter, we expect fewer block hours due to seasonality and Delta's early termination of our capacity purchase agreement to create additional cost pressures for us to manage,” he said. However, with similar utilization, ExpressJet believes it would have produced cash-flow breakeven results during fourth quarter 2008 based on the progress made thus far on cost saving measures.
ExpressJet Holdings posted a $13 million improvement for the third quarter 2008 compared to the year-ago period, although Q3 experienced a loss of $10 million, excluding special charges and other non-operating items. Including special charges, net of taxes and a deferred tax valuation totaling $5.2 million, ExpressJet reported a net loss totaling $4.8 million or $0.30 per share.

The non-operating items incurred during third quarter 2008 included:
• $15.4 million in tax-effected special charges related to suspended flying operations effective September 2,
• $8.6 million gain, net of taxes, on the modification of the terms of ExpressJet's 11.25% 2023 Convertible Notes,
• $16.8 million for a tax-effected gain on the previously reported $23 million monetization of fuel hedges; and
• $4.8 million valuation allowance related to a previously recorded deferred tax asset.
For the nine months ended September 2008, ExpressJet reported a loss of $67.8 million or $7.76 per share. Excluding special items, ExpressJet's year-to-date loss totaled $43.2 million or $4.94 per share.

Contract Flying
ExpressJet operated under two capacity purchase agreements during the third quarter. As of September 30, ExpressJet flew 214 aircraft under the amended capacity purchase agreement with Continental Airlines, Inc. that began on July 1, and operated 10 aircraft for Delta Air Lines, Inc. under a capacity purchase agreement through September 1.
During the third quarter, ExpressJet produced 2.1 billion revenue passenger miles and 176,912 block hours under these agreements. For the nine months ended September 2008, ExpressJet reported 6.3 billion revenue passenger miles and 548,457 block hours on the 224 aircraft flown under capacity purchase contracts for Continental and Delta.
ExpressJet returned 29 50-seat EMB-145 aircraft, previously used in its branded flying operations, to Continental and terminated its related financial obligations. Subsequent to the quarter's end, ExpressJet returned 10 50-seat EMB-145XR aircraft, previously flown for to Continental and also terminated the associated financial obligations. Continental elected to include all 39 aircraft returned by ExpressJet in the amended capacity purchase agreement, and decided to remove the entire fleet of 30 EMB-135 jets, adding nine incremental aircraft to the agreement. With the addition of these aircraft, the Continental Express fleet of 214 aircraft operated at a utilization level of eight hours per day during October 2008.

Branded Flying
From July 1 through September 1, ExpressJet operated 47 aircraft in its branded fleet flying 367 million revenue passenger miles on 455 million available seat miles for a load factor of 81 percent. However, ExpressJet suspended both pro-rate flying for Delta and its ExpressJet branded operations effective September 2. As described above, per the terms of the amended capacity purchase agreement with Continental, ExpressJet returned 29 aircraft from its branded flying operations to Continental and terminated its associated financial obligations with respect to those aircraft. The remaining 18 aircraft were reallocated to ExpressJet's charter/corporate aviation division increasing its fleet by quarter end to 30 jets.

Corporate Aviation
During the quarter, ExpressJet operated an average of 13 aircraft in its charter fleet compared to five aircraft during third quarter 2007. With the additional capacity, ExpressJet increased its charter revenue 282 percent year over year. To accommodate the growing business, ExpressJet intends to increase its fleet to 30 aircraft during the fourth quarter 2008. Of the 30 aircraft ExpressJet will operate during the fourth quarter, it redesigned six to reduce the seat count to 41 and increase the pitch to match a first class seat on a 737-800 aircraft.
ExpressJet's expected fleet count by year-end 2008 totals 244 aircraft -- 214 planes flying as Continental Express and 30 planes operating in ExpressJet's corporate aviation division.

Financial Overview
ExpressJet generated $262.3 million in revenue during the three months ended September 30. Under the amended capacity purchase agreement, Continental paid ExpressJet $161.1 million in block hour revenue and pass-through expense reimbursements. Including fixed fee revenue from Delta and charter operations, contract revenue earned during the third quarter totaled approximately $184.4 million. In the branded segment, ExpressJet produced $69.3 million in revenue through September 1. Revenue from ground handling and other services totaled $9.5 million for the three months ended September 30. Year-to-date, ExpressJet's revenue totaled $1.2 billion a 7.4 percent decrease over the year prior.
ExpressJet previously announced that it needed to realize $35 million in wage, salary and benefit reductions from all employees. During the third quarter, $10 million in concessions were realized through reductions provided by management and clerical employees. An additional $5 million will be contributed by the airport services division through wage and benefit reductions as well as productivity improvements. The company also sought $20 million from its unionized labor groups and previously announced that it reached tentative agreements with its four unions representing the pilots and instructors, mechanics, flight attendants and dispatchers. ExpressJet received notification from each union that its respective membership voted to ratify the tentative agreements effective November 1. However, the company is waiting on final approval from one labor union's national office. Until ExpressJet receives such approval, no agreement will be executed. ExpressJet fully expects to receive final approval on all agreements and for the ratified agreements to be
The company also incurred special charges of approximately $29 million during the quarter related to its suspended flying, including $19.3 million in severance and benefit charges caused by its reduction in force, $1.6 million in lease return costs, $1.2 million in expenses related to the early termination of contracts and $6.3 million for rent obligations through 2010 at facilities previously used to support its suspended operations. An additional $0.6 million was incurred to redeploy ground service equipment to other flight operations.
ExpressJet ended third quarter 2008 with $145.3 million in cash, cash equivalents and short-term investments. The cash balance includes $24.7 million in restricted cash and $52.7 million in short-term investments after an accounting adjustment to impair the value of these investments.
As previously disclosed, ExpressJet purchased approximately $65 million in auction rate securities, currently reported at fair value as short-term investments. Subsequent to the quarter's end, ExpressJet monetized $5 million of its auction rate security portfolio for 91.25 percent of the securities' face value. ExpressJet continues to monitor the auction rate security market and will aggressively pursue monetizing the assets at or near face value through additional market transactions and may also pursue litigation if necessary to recoup par value.
ExpressJet spent approximately $14.2 million during the third quarter on non-recurring expenses related to its suspended flying operations and expects to spend approximately $8.3 million for the remainder of 2008, $3.9 million for 2009 and $1.1 million in 2010.
As of September 30, ExpressJet carried a $4.2 million credit card holdback balance as restricted cash. The balance relates to branded flying revenue earned but not yet settled with Discover, MasterCard/Visa and American Express. ExpressJet currently has a $2.6 million remaining holdback balance in restricted cash. The company expects the current settlement pace to continue and to realize substantially all the remaining holdback balance as cash by year-end 2008.
During the quarter, ExpressJet spent $2.3 million under its previously announced securities repurchase program to buy back 10.6 million shares of the company's common stock.
Capital expenditures totaled $2 million for third quarter 2008 compared to $11.5 million during the same period in 2007. ExpressJet anticipates capital expenditures for the remainder of 2008 to be approximately $2 million and forecasts spending between $5 million and $10 million in capital in 2009 to fulfill operational requirements.
During the quarter, ExpressJet participated in two financing transactions. In the first transaction, the company issued 163,824,975 shares of common stock in payment of the repurchase price for the principal amount of 4.25 percent convertible notes due 2023 validly tendered and to settle accrued and unpaid interest due August 1, 2008.
In the second transaction, ExpressJet entered into a supplemental indenture that became effective on August 2, 2008 for the $68.5 million in convertible notes that remained outstanding on that date. The supplemental indenture provided benefits to noteholders, including: $51 million in spare parts and approximately $45 million in spare engines as collateral to the notes; an increased coupon of 11.2 percent over the remaining note term; and an additional put right in three years on August 1, 2011. Noteholders of record for the remaining outstanding notes on August 2, 2008, automatically began receiving the benefits of the supplemental indenture related to the 11.25 percent Convertible Notes due 2023.
In a third transaction, ExpressJet received approval from stockholders on October 1 to effect a 1:10 reverse stock split of its common stock. The 1:10 reverse split allowed ExpressJet to immediately return to trading on all NYSE Group platforms. By successfully completing the transaction, ExpressJet also intends to return to compliance with the continued listing standards of the New York Stock Exchange once the six month cure period expires on January 18, 2009. ExpressJet's common stock began trading on a split-adjusted basis on October 2, 2008.