| REPUBLIC AIRWAYS HOLDINGS INC ITEM 1A RISK FACTORS The following risk factors, in addition to the information discussed elsewhere herein, should be carefully considered in evaluating us and our business: Risks Related To Our Operations We are dependent on our code-share relationships with our major partners |
| We depend on relationships created by our regional jet code-share agreements with US Airways, American, Delta and United for all of our passenger revenue |
| Any material modification to, or termination of, our code-share agreements with any of these partners could have a material adverse effect on our financial condition, results of our operations and the price of our common stock |
| Each of the code-share agreements contains a number of grounds for termination by our partners, including our failure to meet specified performance levels |
| In addition, American may terminate its code-share agreement without cause upon 180 days notice, provided such notice may not be given prior to September 30, 2008 |
| If American terminates its code-share agreement for cause, it has the right to require us to assign to them our leases of all ERJ-140 regional jets then operating under the code-share agreement or to lease such jets to them to the extent we own them |
| If American terminates our code-share agreement other than for cause, we have the right to require American to assume our leases of all ERJ-140 regional jets then operating under the code-share agreement, or to lease such jets from us to the extent we own them |
| Delta may partially or completely terminate its code-share agreement with respect to the ERJ-135/145 aircraft, with or without cause, on 180 days written notice at any time after November 2009, and may partially or completely terminate its code-share agreement with respect to the ERJ-170 aircraft, with or without cause, on 180 days written notice at any time after July 2012 |
| If Delta exercises this right under either agreement or if we terminate either agreement for cause, we have the right to require Delta either to purchase, sublease or assume the lease of aircraft leased by us with respect to any of the aircraft we previously operated for Delta under that agreement |
| If we choose not to exercise this right, or if Delta terminates either agreement for cause, Delta may require us to sell or sublease to it or Delta may assume the lease of aircraft leased by us with respect to any of the aircraft we previously operated for it under that agreement |
| In addition, our code share agreements with Delta have not been and may not be assumed by Delta in bankruptcy and may be modified or terminated |
| United may terminate its code-share agreement with respect to the ERJ-145 aircraft without cause on 18 months prior written notice, provided that such notice may not be delivered prior to December 31, 2008 |
| If we wrongfully terminate our code-share agreement, breach certain provisions thereof or fall below certain minimum operating thresholds for three consecutive months or any six month period in a rolling 12 month period, United can assume our ownership or leasehold interests in the jets we operate for them |
| In addition, because substantially all of our passenger revenues are currently generated under the code-share agreements, if any one of them is terminated, our operating revenues and net income will be materially adversely affected unless we are able to enter into satisfactory substitute arrangements or, alternatively, fly under our own flight designator code, including obtaining the airport facilities and gates necessary to do so |
| We cannot assure you that we would be able to enter into substitute code-share arrangements, that any such substitute arrangements would be as favorable to us as the current code-share agreements or that we could successfully fly under our own flight designator code |
| For the years ended December 31, 2005 and 2004, respectively, US Airways accounted for approximately 21prca and 38prca of our passenger revenues, Delta accounted for approximately 34prca and 36prca of our passenger revenues, American accounted for approximately 13prca and 16prca of our passenger revenues and United accounted for approximately 32prca and 10prca of our passenger revenues |
| We have granted to Delta warrants to purchase an aggregate of 3cmam435cmam000 shares of our common stock |
| The exercise prices of these warrants range from dlra11dtta60 to dlra13dtta00 per share |
| In addition, beyond the 16 aircraft that we are contractually committed to place into service for Delta through 2006, Delta is entitled to a warrant to purchase 60cmam000 shares of our common stock for each additional aircraft we place into service for it |
| The exercise price of each of these warrants will be the lower of the then current market price of our common stock or the average of the closing prices of our common stock for the 30 days prior to such aircraft being placed into service |
| Our code-share agreement with Delta will be terminated if Delta does not emerge from bankruptcy |
| Delta is attempting to reorganize its business under Chapter 11 of the bankruptcy code |
| Under the terms of our code-share agreement with Delta, if the plan of reorganization is not confirmed in Chapter 11 bankruptcy or if the bankruptcy is converted to liquidation under Chapter 7 of the bankruptcy code, then our code-share agreements will be terminated |
| If the agreements are terminated, we must still accept for delivery the aircraft which had not been delivered but that we would have flown for that airline |
| Although we are entitled to recoup certain expenses in connection with the aircraft, including certain fees paid to the manufacturer as well as our ownership costs of the aircraft for a transitional period of time, a termination of these agreements could have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of these aircraft by other code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly under our own flight designator code |
| We cannot assure you that we would be able to enter into substitute code-share arrangements, that any such substitute code-share arrangements would be as favorable to us as the current code-share arrangements with Delta, or that we could, in the alternative, successfully fly under our own flight designator code |
| -17- _________________________________________________________________ We may be unable to redeploy smaller aircraft removed from service in response to our code-share partners &apos demand for larger aircraft |
| Our inability to sell, sublease and/or redeploy aircraft that have been removed from service could have a material adverse effect on our financial condition, results of operations and the price of our common stock |
| If the financial strength of any of our code-share partners decreases, our financial strength is at risk |
| We are directly affected by the financial and operating strength of our code-share partners |
| In the event of a decrease in the financial or operational strength of any of our code-share partners, such partner may be unable to make the payments due to us under its code-share agreement |
| In addition, it may reduce utilization of our aircraft to the minimum levels specified in the code-share agreements |
| US Airways and United recently emerged from bankruptcy, and Delta has filed to reorganize its business under Chapter 11 of the bankruptcy code |
| In addition, it is possible that any code-share agreement with a code-share partner that files for reorganization under Chapter 11 of the bankruptcy code may not be assumed in bankruptcy and could be modified or terminated |
| Any such event could have an adverse effect on our operations and the price of our common stock |
| Our code-share agreements with Delta have not yet been assumed |
| As of February 1, 2006, Standard & Poorapstas and Moodyapstas, respectively, maintained ratings of B- and Ba2 for US Airways, B- and Caa2 for AMR Corp, the parent of American, D and C for Delta and D and B1 for UAL Corp, the parent of United |
| Our code-share partners may expand their direct operation of regional jets thus limiting the expansion of our relationships with them |
| We depend on major airlines like US Airways, American, Delta and United electing to contract with us instead of purchasing and operating their own regional jets |
| However, some major airlines own their own regional airlines and operate their own regional jets instead of entering into contracts with us or other regional carriers |
| For example, American and Delta have acquired many regional jets which they fly under their affiliated carriers, American Eagle, with respect to American, and Comair, with respect to Delta |
| In addition, US Airways is operating regional jets through its PSA subsidiary |
| We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead of purchasing their own regional jets or entering into relationships with competing regional airlines |
| They are not prohibited from doing so under our code-share agreements |
| In addition, US Airways recently announced that, pursuant to an agreement with its pilots, US Airways will not enter into agreements with its regional affiliates to fly ERJ-190 and higher capacity regional jets and it is possible that our other partners will make the same decision |
| A decision by US Airways, American, Delta or United to phase out our contract based code-share relationships and instead acquire and operate their own regional jets or to enter into similar agreements with one or more of our competitors could have a material adverse effect on our financial condition, results of operations and the price of our common stock |
| Any labor disruption or labor strikes by our employees or those of our code-share partners, including Deltaapstas pilots, would adversely affect our ability to conduct our business |
| All of our pilots, customer service employees, flight attendants and dispatchers are represented by unions |
| Collectively, these employees represent approximately 76prca of our workforce as of December 31, 2005 |
| Although we have never had a work interruption or stoppage and believe our relations with our unionized employees are generally good, we are subject to risks of work interruption or stoppage and/or may incur additional administrative expenses associated with union representation of our employees |
| If we are unable to reach agreement with any of our unionized work groups on the amended terms of their collective bargaining agreements, we may be subject to work interruptions and/or stoppages |
| Any sustained work stoppages could adversely affect our ability to fulfill our obligations under our code-share agreements and could have a material adverse effect on our financial condition, results of operations and the price of our common stock |
| Under the terms of our jet code-share agreement with US Airways, if we are unable to provide scheduled flights as a result of a strike by our employees, it is only required to pay us for certain fixed costs for specified periods |
| Under the terms of the code-share agreements with American, Delta and United, none of them are required to pay us any amounts during the period our employees are on strike and we are unable to provide scheduled flights |
| A sustained strike by our employees would require us to bear costs otherwise paid by our code-share partners |
| In addition, a labor disruption other than a union authorized strike may cause us to be in material breach of our code-share agreements, all of which require us to meet specified flight completion levels during specified periods |
| Our code-share partners have the right to terminate their code-share agreements if we fail to meet these completion levels |
| Deltaapstas pilots have threatened to strike if Delta is successful in rejecting the pilots &apos labor agreement |
| Such a strike would most likely cause Delta to suspend operations for at least the length of the strike and, consequently, could force Delta to liquidate |
| In the event of such a strike and/or liquidation of Delta, our financial condition, results of operations and the price of our common stock would be adversely affected |
| -18- _________________________________________________________________ Our current growth plans may be materially adversely affected by substantial risks, some of which are outside of our control |
| In addition to the remaining 18 Embraer ERJ-170 aircraft which will be transitioned from US Airways, we plan to acquire an additional 11 Embraer ERJ-170 regional jets by the end of 2006, all of which are subject to firm orders |
| Of these aircraft, four aircraft, are not yet allocated to any of our partners |
| We have financing commitments in place for all of these firm orders |
| If we are incorrect in our assessment of the profitability and feasibility of our growth plans, if circumstances change in a way that was unforeseen by us or if we are unable to consummate financing for these aircraft, we may not be able to grow as planned |
| Under our code-share agreements, as of December 31, 2005 we were obligated to place in service an additional 25 Embraer regional jets through 2006 at an aggregate cost (excluding the cost of acquiring the aircraft and related parts) to us of approximately dlra6dtta3 million |
| These costs, which are related to the acquisition of these aircraft, include the acquisition of related additional ground and maintenance facilities and support equipment, the employment of approximately 670 additional employees and the integration of those aircraft, facilities and employees into our existing operations |
| As of December 31, 2005, we had four firm orders and options to purchase an aggregate of 35 regional jets from Embraer, in addition to the 18 regional jets which we will obtain from US Airways and the seven regional jets we will fly for Delta |
| If we choose to exercise options to purchase aircraft from Embraer prior to obtaining a commitment from existing or future code-share partners to place the aircraft in service, we will be obligated to purchase the aircraft from Embraer and to bear the cost of operation even if we cannot place the aircraft in service with a code-share partner, which could have a material adverse effect on our financial condition, results of operations and the price of our common stock |
| Our ability to manage our growth effectively and efficiently requires us to continue to forecast accurately our equipment and human resources needs and to continue to expend funds to improve our operating, financial and management controls, reporting systems, procurement process and procedures |
| In addition, we must effectively expand, train and manage our employee base, which could be costly |
| Our growth will place a significant strain on our management and other corporate resources |
| If we are unable to manage our anticipated growth effectively and efficiently, our business could be harmed |
| Our growth plans may be adversely affected by our code-share agreements with American and Delta |
| Our American agreement requires us to provide regional airline services exclusively for American at its St |
| Louis hub and within 50 statute miles of that hub |
| This agreement also prohibits us from providing competing regional hub services at Memphis, Nashville and Kansas City and means that, without Americanapstas consent, we are prohibited from operating flights under our own flight designator code or on behalf of any other air carrier providing "e hub "e services in or out of these airports |
| Chautauquaapstas Delta agreement prohibits it from conducting code-share flying into several major metropolitan airports, except under its existing code-share agreements with American and US Airways |
| Pursuant to the terms of Chautauquaapstas code-share agreement with Delta, it is prohibited from operating aircraft other than for Delta except for (1) those it operates for its existing code-share partners, (2) the additional aircraft it may operate under its existing agreements and (3) aircraft subject to other limited exceptions |
| Furthermore, pursuant to the terms of our code-share agreements with United, except for our current code-share flying, we are prohibited from operating 50 seat or larger regional jets or turboprops from United’s current hub airports |
| United’s hub airports are Denver, Washington Dulles, Los Angeles, Chicago O &apos Hare, Seattle and San Francisco |
| Our code-share partners may be restricted in increasing the level of business that they conduct with us, thereby limiting our growth |
| In general, the pilots &apos unions of certain major airlines have negotiated collective bargaining agreements that restrict the number and/or size of regional aircraft that a particular carrier may operate |
| A "e scope "e clause in US Airways &apos current collective bargaining agreement with its pilots prevents US Airways from using more than 465 large regional jets not flown by its pilots in its operations |
| For purposes of this limitation, a large regional jet is an aircraft configured with 86 or more passenger seats |
| There are no quantity limitations in the US Airways “scope” limitations for small regional jets |
| For purposes of this “scope” restriction, a small regional jet is defined as any aircraft configured with 78 or fewer seats |
| US Airways can outsource up to an additional 55 aircraft, including the ERJ-175 and CRJ-900, configured with more than 78 seats but less than 90 seats, subject to certain limitations |
| We cannot assure you that US Airways will contract with us to fly any additional aircraft |
| Our ability to participate in additional regional jet flying for US Airways is subject to the further limitation that we employ furloughed US Airways pilots |
| Our utilization of US Airways pilots was approved by our pilots union; however, they limited their approval to 80 additional aircraft for US Airways which includes the 25 ERJ-170s which we will obtain from US Airways |
| A "e scope "e clause in Americanapstas current collective bargaining agreement with its pilots limits it from operating regional jets having 51 or more seats |
| A "e scope "e clause in Deltaapstas current collective bargaining agreement with its pilots restricts it from operating regional jets having more than 70 seats and limits it from operating more than 125, or under certain circumstances, 150, regional jets having 70 seats |
| United’s "e scope "e limitations restrict it from operating aircraft configured with more than 70 seats or any aircraft weighing more than 83cmam000 pounds |
| Americanapstas "e scope "e limitations further limit its code-share partners, in our case Chautauqua, from operating regional jets with 51 or more seats even for partners other than American |
| Deltaapstas "e scope "e limitations restrict its partners from operating aircraft with over 70 seats even if those aircraft are operated for an airline other than Delta |
| Neither US Airways nor United have similar "e scope "e limits on the size of aircraft we can operate for our other code-share partners |
| We cannot assure you that these "e scope "e clauses will not become more restrictive in the future |
| Any additional limit on the number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the price of our common stock |
| -19- _________________________________________________________________ Our fleet expansion program will require a significant increase in our leverage and the financing we require may not be available on favorable terms or at all |
| The airline business is very capital intensive and, as a result, many airline companies are highly leveraged |
| During the years ended December 31, 2005 and 2004, our mandatory debt service payments totaled dlra53dtta4 million and dlra47dtta4 million, respectively, and our mandatory lease payments totaled dlra82dtta0 million and dlra77dtta8 million, respectively |
| We have significant lease obligations with respect to our aircraft, which aggregated approximately dlra883dtta6 million at December 31, 2005 and dlra793dtta0 million at December 31, 2004 |
| Our current growth strategy involves the acquisition by purchase or lease of at least 26 more Embraer regional jets through 2006, including 15 which we will obtain from US Airways, all of which we will place in service for US Airways and Delta under our existing code-share agreements with them, except for four which are not yet allocated |
| Embraerapstas current aggregate list price for the 11 Embraer regional jets that we will acquire from Embraer is approximately dlra296dtta0 million |
| We expect to lease or otherwise acquire on credit a substantial portion of these Embraer regional jets, which will increase significantly our mandatory lease and debt service payments |
| There can be no assurance that our operations will generate sufficient cash flow to make such payments or that we will be able to obtain financing to acquire the additional aircraft or make other capital expenditures necessary for our expansion |
| If we default under our loan or lease agreements, the lender/lessor has available extensive remedies, including, without limitation, repossession of the respective aircraft and other assets and, in the case of large creditors, the effective ability to exert control over how we allocate a significant portion of our revenues |
| Even if we are able to timely service our debt, the size of our long-term debt and lease obligations could negatively affect our financial condition, results of operations and the price of our common stock in many ways, including: • increasing the cost, or limiting the availability of, additional financing for working capital, acquisitions or other purposes; • limiting the ways in which we can use our cash flow, much of which may have to be used to satisfy debt and lease obligations; and •adversely affecting our ability to respond to changing business or economic conditions or continue our growth strategy |
| If we need funds and cannot raise them on acceptable terms, or at all, we may be unable to realize our current plans or take advantage of unanticipated opportunities and could be required to slow or stop our growth |
| We currently depend on Embraer to supply us with the aircraft we require to expand |
| As of December 31, 2005, we were obligated under our code-share agreements to place an additional 25 Embraer regional jets in service through 2006, including the 18 Embraer regional jets which we will obtain from US Airways |
| The remaining seven regional jets are subject to firm orders |
| We have financing commitments in place for all seven of these aircraft, which will be placed into service with Delta |
| We also have four additional firm orders and 35 options to acquire regional jets that are exercisable through September 2007 |
| We are dependent on Embraer as the manufacturer of all of these jets |
| Our risks in relying on a single manufacturer include: • the possibility that Embraer could refuse, or may not be financially able, to perform its obligations under the purchase agreement for the delivery of the regional jets; • a fire, strike or other event could occur that affects Embraerapstas ability to completely or timely fulfill its contractual obligations; • the failure or inability of Embraer to provide sufficient parts or related support services on a timely basis; • the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft; • the issuance of FAA directives restricting or prohibiting the use of Embraer regional jets or requiring time-consuming inspections and maintenance; and • the adverse public perception of a manufacturer as a result of an accident or other adverse publicity |
| Any disruption or change in the delivery schedule of these Embraer regional jets would affect our overall operations and our ability to fulfill our obligations under our code-share agreements |
| Further, ERJ-170 aircraft began operating in the commercial airline market in February 2004 |
| As a new product, these aircraft have been, and may continue to be, subject to unforeseen manufacturing and/or reliability issues |
| Our operations could be materially adversely affected by the failure or inability of Embraer or any key component manufacturers to provide sufficient parts or related support services on a timely basis or by an interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for our aircraft |
| Reduced utilization levels of our aircraft under the fixed-fee agreements would adversely impact our revenues and earnings |
| Our agreements with US Airways, American, Delta and United require each of them to schedule our aircraft to a minimum level of utilization |
| However, the aircraft have historically been utilized more than the minimum requirement |
| Even though the fixed-fee rates adjust, either up or down, based on scheduled utilization levels or require a fixed amount per day to compensate us for our fixed costs, if our aircraft are at or below the minimum requirement (including taking into account the stage length and frequency of our scheduled flights) we will likely lose both the opportunity to recover a margin on the variable costs of flights that would have been flown if our aircraft were more fully utilized and the opportunity to earn incentive compensation on such flights |
| For example, as a result of Deltaapstas bankruptcy, Delta has begun to utilize our smaller aircraft at less than historical levels |
| -20- _________________________________________________________________ Increases in our labor costs, which constitute a substantial portion of our total operating costs, will directly impact our earnings |
| Labor costs constitute a significant percentage of our total operating costs, and we have experienced pressure to increase wages and benefits for our employees |
| Under our code-share agreements, our reimbursement rates contemplate labor costs that increase on a set schedule generally tied to an increase in the consumer price index or the actual increase in the contract |
| We are entirely responsible for our labor costs, and we may not be entitled to receive increased payments for our flights if our labor costs increase above the assumed costs included in the reimbursement rates |
| As a result, a significant increase in our labor costs above the levels assumed in our reimbursement rates could result in a material reduction in our earnings |
| We have collective bargaining agreements with our pilots, customer service employees, flight attendants and dispatchers |
| Our customer service agents, pilots, dispatchers and flight attendant agreements are amendable in December 2005, October 2007, February 2007 and September 2009, respectively |
| We cannot assure you that future agreements with our employees &apos unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs and reduce both our income and our competitiveness for future business opportunities |
| Our business could be harmed if we lose the services of our key personnel |
| Our business depends upon the efforts of our chief executive officer, Bryan Bedford, and our other key management and operating personnel |
| American can terminate its code-share agreement if we replace Mr |
| Bedford without its consent, which cannot be unreasonably withheld |
| We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the services of any of these individuals could harm our business |
| We maintain a "e key man "e life insurance policy in the amount of dlra10 million for Mr |
| Bedford, but this amount may not adequately compensate us in the event we lose his services |
| We may experience difficulty finding, training and retaining employees |
| Our business is labor intensive |
| We intend to hire a large number of pilots, flight attendants, maintenance technicians and other personnel associated with our expansion plans |
| The airline industry has from time to time experienced a shortage of qualified personnel, specifically pilots and maintenance technicians |
| In addition, as is common with most of our competitors, we have, from time to time, faced considerable turnover of our employees |
| Although our employee turnover has decreased significantly since September 11, 2001, our pilots, flight attendants and maintenance technicians sometimes leave to work for larger airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer |
| Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, the result will be significantly higher training costs than otherwise would be necessary |
| We cannot assure you that we will be able to recruit, train and retain the qualified employees that we need to carry out our expansion plans or to replace departing employees |
| If we are unable to hire and retain qualified employees at a reasonable cost, we may be unable to complete our expansion plans, which could materially adversely affect our financial condition, results of operations and the price of our common stock |
| We are at risk of losses stemming from an accident involving any of our aircraft |
| While we have never had a crash over our 32 year history, it is possible that one or more of our aircraft may crash or be involved in an accident in the future, causing death or injury to individual air travelers and our employees and destroying the aircraft and the property of third parties |
| In addition, if one of our aircraft were to crash or be involved in an accident we would be exposed to significant tort liability |
| Such liability could include liability arising from the claims of passengers or their estates seeking to recover damages for death or injury |
| There can be no assurance that the insurance we carry to cover such damages will be adequate |
| Accidents could also result in unforeseen mechanical and maintenance costs |
| In addition, any accident involving an aircraft that we operate could create a public perception that our aircraft are not safe, which could result in air travelers being reluctant to fly on our aircraft and a decrease in revenues |
| Such a decrease could materially adversely affect our financial condition, results of operations and the price of our common stock |
| -21- _________________________________________________________________ We have been named as a defendant in a lawsuit filed by certain US Airways pilots We and an affiliate of Wexford Capital, among others including US Airways and the Airline Pilots Association, have been named as defendants in a lawsuit filed in October 2005 by certain US Airways pilots |
| The lawsuit as it relates to us would require us to employ certain pilots of US Airways under terms that would be more favorable to the pilots as compared to terms that were contemplated to be offered to the pilots by us |
| Subsequent to the filing of the case, an arbitrator has ruled that we are not required to provide the number of positions that were demanded by the plaintiffs |
| We, on the advice of our counsel, believe that the lawsuit, as it relates to us, is wholly without merit and we will ask the court to dismiss the lawsuit against us at the earliest practicable date |
| The lawsuit asks for monetary damages of dlra1dtta2 billion |
| Wexford Capital has significant influence over our affairs by virtue of its significant ownership of our common stock and they may make decisions with which you disagree |
| WexAir LLC, which is owned by several investment funds managed by Wexford Capital, on a fully diluted basis, owns beneficially approximately 21dtta5prca of our common stock |
| As a result of its significant level of ownership, Wexford Capital and its affiliates have significant influence over matters affecting us, including the election of directors as long as they own or control a significant percentage of our common stock |
| They may make decisions which you and other stockholders will not be able to affect by voting your shares |
| We may have conflicts of interest with Wexford Capital, and because of its significant ownership, we may not be able to resolve these conflicts on an armapstas length basis |
| Wexford Capital and its affiliates are actively engaged in the airline business |
| Conflicts of interest may in the future arise between Wexford Capital and its affiliates, on the one hand, and us, on the other hand, in a number of areas relating to our business and our past and ongoing relationships |
| Factors that may create a conflict of interest between Wexford Capital and us include the following: • on May 6, 2005, we acquired Shuttle America from an affiliate of Wexford Capital, in connection with which we executed a dlra1dtta0 million promissory note in favor of such affiliate of Wexford Capital and assumed less than dlra0dtta7 million of Shuttle Americaapstas debt |
| This promissory note has since been repaid |
| In addition, for Wexford Capitalapstas assistance in structuring the investment agreement with US Airways, we agreed to pay Wexford Capital dlra500cmam000 upon US Airwayapstas emergence from bankruptcy as well as the payment of Wexford Capitalapstas expenses, including the payment of up to approximately dlra850cmam000 to an unrelated third party consultant retained by us and Wexford Capital; • Wexford Capital may in the future make significant investments in other airline companies that directly compete with us; • sales or distributions by the selling stockholder, WexAir LLC, of all or any portion of its ownership interest in us; and • two of our directors also are directors, managing members or general partners of Wexford Capital and its affiliates |
| Wexford Capital is under no obligation to resolve any conflicts that might develop between it and its affiliates and us in a manner that is favorable to us and we cannot guarantee that such conflicts will not result in harmful consequences to our business or future prospects |
| In addition, Wexford Capital and its affiliates are not obligated to advise us of any investment or business opportunities of which they are aware, and they are not contractually restricted or prohibited from competing with us |
| We have specifically renounced in our certificate of incorporation any interest or expectancy that Wexford Capital and its affiliates, including its directors and officers, will offer to us any investment or business opportunity of which they are aware |
| -22- _________________________________________________________________ Risks Associated with the airline industry The airline industry is highly competitive |
| Within the airline industry, we not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also face competition from low-fare airlines and major airlines on many of our routes, including carriers that fly point to point instead of to or through a hub |
| Other low-fare carriers serve the Indianapolis International Airport, which results in significant price competition in the Indianapolis market, one of our major markets |
| Competition in the eastern United States markets, which we service from US Airways &apos hubs in New York, Boston, Philadelphia and Washington, DC and from Deltaapstas hub in Orlando, is particularly intense, due to the large number of carriers in those markets |
| In addition, some of our competitors are larger and have significantly greater financial and other resources than we do |
| Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares |
| The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats |
| In addition to traditional competition among airlines, the industry faces competition from video teleconferencing and other methods of electronic communication |
| New advances in technology may add a new dimension of competition to the industry as business travelers seek lower-cost substitutes for air travel |
| Continued high fuel costs would harm the airline industry |
| Fuel costs constitute a substantial portion of the total operating expenses of the airline industry |
| There have been significant increases in fuel costs and continued high fuel costs such as those which have been experienced during 2005 would harm the airline industryapstas financial condition and results of operations |
| Historically, fuel costs have been subject to wide price fluctuations based on geopolitical issues, supply and demand and other factors |
| Fuel availability is also affected by demand for home heating oil, gasoline and other petroleum products |
| Because of the effect of these events on the price and availability of fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty |
| Further, in the event of a fuel supply shortage or further increases in fuel prices, a curtailment of scheduled service could result |
| The airline industry has been subject to a number of strikes which could affect our business |
| The airline industry has been negatively impacted by a number of labor strikes |
| Any new collective bargaining agreement entered into by other regional carriers may result in higher industry wages and increase pressure on us to increase the wages and benefits of our employees |
| Furthermore, since each of our code-share partners is a significant source of revenue, any labor disruption or labor strike by the employees of any one of our code-share partners could have a material adverse effect on our financial condition, results of operations and the price of our common stock |
| Airlines are often affected by certain factors beyond their control, including weather conditions which can affect their operations |
| Generally, revenues for airlines depend on the number of passengers carried, the fare paid by each passenger and service factors, such as the timeliness of departure and arrival |
| During periods of fog, ice, low temperatures, storms or other adverse weather conditions, flights may be cancelled or significantly delayed |
| For example, Hurricane Wilma forced us to suspend some of our operations in Florida for a number of days |
| Under our fixed-fee code-share agreements, we are partially protected against cancellations due to weather or air traffic control, although these factors may affect our ability to receive incentive payments for flying more than the minimum number of flights specified in our code-share agreements |
| Should we enter into pro-rate revenue sharing agreements in the future we will not be protected against weather or air traffic control cancellations and our revenues could suffer as a result |
| The airline industry has recently gone through a period of consolidation and transition; consequently, we have fewer potential partners |
| Since 1978 and continuing to the present, the airline industry has undergone substantial consolidation, and it may in the future undergo additional consolidation |
| For example, in April 2001, American acquired the majority of Trans World Airlines, Inc |
| apstas assets |
| Our relationship with American resulted from this transaction |
| Other recent developments include the domestic code-share alliance between United and US Airways, a similar new relationship among Delta, Continental and Northwest and the merger of America West and US Airways |
| We, as well as our code-share partners, routinely monitor changes in the competitive landscape and engage in analysis and discussions regarding our strategic position, including potential alliances and business combination transactions |
| Further consolidation could limit the number of potential partners with whom we could enter into code-share relationships |
| Any additional consolidation or significant alliance activity within the airline industry could materially adversely affect our relationship with our code-share partners |
| -23- _________________________________________________________________ The airline industry is heavily regulated |
| Airlines are subject to extensive regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs |
| In the last several years, the FAA has issued a number of directives and other regulations relating to the maintenance and operation of aircraft that have required us to make significant expenditures |
| FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne wind shear avoidance systems, noise abatement, commuter aircraft safety and increased inspection and maintenance procedures to be conducted on older aircraft |
| We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject |
| We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not significantly increase our costs of doing business |
| The FAA has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety related items and removal and replacement of aircraft parts that have failed or may fail in the future |
| A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of our Embraer regional jets, for any reason, could negatively impact our results of operations |
| In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations |
| From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as Embraer regional jets, at such airports |
| The imposition of any limits on the use of Embraer regional jets at any airport at which we operate could interfere with our obligations under our code-share agreements and severely interrupt our business operations |
| Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenues |
| For instance, "e passenger bill of rights "e legislation was introduced in Congress that, if enacted, would have, among other things, required the payment of compensation to passengers as a result of certain delays and limited the ability of carriers to prohibit or restrict usage of certain tickets |
| This legislation is not currently active but if it is reintroduced, these measures could have the effect of raising ticket prices, reducing revenue and increasing costs |
| Restrictions on the ownership and transfer of airline routes and takeoff and landing slots have also been proposed |
| In addition, as a result of the terrorist attacks in New York and Washington, DC in September 2001, the FAA and the Transportation Security Administration (TSA) have imposed stringent security requirements on airlines |
| We cannot predict what other new regulations may be imposed on airlines and we cannot assure you that laws or regulations enacted in the future will not materially adversely affect our financial condition, results of operations and the price of our common stock |
| Since our common stock began trading on The NASDAQ National Market on May 27, 2004, the market price of our common stock has ranged from a low of dlra8dtta15 to a high of dlra16dtta85 per share |
| The market price of our common stock may continue to fluctuate substantially due to a variety of factors, many of which are beyond our control, including: • announcements concerning our code-share partners, competitors, the airline industry or the economy in general; • strategic actions by us, our code-share partners or our competitors, such as acquisitions or restructurings; • media reports and publications about the safety of our aircraft or the aircraft types we operate; • new regulatory pronouncements and changes in regulatory guidelines; • general and industry specific economic conditions; • changes in financial estimates or recommendations by securities analysts; • sales of our common stock or other actions by investors with significant shareholdings or our code-share partners; and • general market conditions |
| The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies |
| These broad market fluctuations may adversely affect the trading price of our common stock |
| In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities |
| Any similar litigation against us could result in substantial costs, divert managementapstas attention and resources and harm our business |
| Future sales of our common stock by our stockholders could depress the price of our common stock |
| Sales of a large number of shares of our common stock, the availability of a large number of shares for sale, or sales of shares of our common stock by Wexford Capital and/or its affiliates or Delta could adversely affect the market price of our common stock and could impair our ability to raise funds in additional stock offerings |
| We have 41cmam837cmam685 shares of common stock outstanding as of February 1, 2006 |
| We are subject to an agreement with the underwriters of our last public offering that restricts our ability to sell or transfer our stock until March 15, 2006 |
| In addition, the selling stockholder and our directors and executive officers are subject to agreements with the underwriters of our last public offering that restrict their ability to sell or transfer their stock until March 1, 2006, with certain exceptions, including the ability of certain executive officers to sell up to 200cmam000 shares of common stock under their existing 10b5-1 plans |
| Merrill Lynch & Co, on behalf of the underwriters, may, in its sole discretion and at any time, waive the restrictions on transfer under these agreements during the applicable periods |
| After these agreements expire, all of these shares will be eligible for sale in the public market |
| -25- _________________________________________________________________ Our incorporation documents and Delaware law have provisions that could delay or prevent a change in control of our company, which could negatively affect your investment |
| In addition to the fact that Wexford Capital, through its affiliates owns approximately 21dtta5prca of our common stock, our certificate of incorporation and bylaws and Delaware law contain provisions that could delay or prevent a change in control of our company that stockholders may consider favorable |
| Certain of these provisions: • authorize the issuance of up to 5cmam000cmam000 shares of preferred stock that can be created and issued by our board of directors without prior stockholder approval, commonly referred to as "e blank check "e preferred stock, with rights senior to those of our common stock; • limit the persons who can call special stockholder meetings; • provide that a supermajority vote of our stockholders is required to amend our certificate of incorporation or bylaws; and • establish advance notice requirements to nominate directors for election to our board of directors or to propose matters that can be acted on by stockholders at stockholder meetings |
| These and other provisions in our incorporation documents and Delaware law could allow our board of directors to affect your rights as a stockholder by making it more difficult for stockholders to replace board members |
| Because our board of directors is responsible for appointing members of our management team, these provisions could in turn affect any attempt to replace the current management team |
| In addition, these provisions could deprive our stockholders of opportunities to realize a premium on the shares of common stock owned by them |
| Our charter documents include provisions limiting voting by foreign owners |
| Our certificate of incorporation provides that shares of capital stock may not be voted by or at the direction of persons who are not citizens of the United States if the number of such shares would exceed applicable foreign ownership restrictions |
| US law currently requires that no more than 25prca of the voting stock of our company (or any other domestic airline) may be owned directly or indirectly by persons who are not citizens of the United States |
| Additional Information The Company files annual, quarterly and current reports and other information with the Securities and Exchange Commission (the "e SEC "e or the "e Commission "e ) |
| These materials can be inspected and copied at the SECapstas Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 |
| Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330 |
| The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC The address of the SECapstas Internet site is www |
| On our website, rjet |
| com/Investment |
| asp, we provide free of charge our Annual Report on From 10K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as soon as reasonably practicable after they have been electronically filed or furnished to the Securities and Exchange Commission |
| The code of ethics, adopted by our Board of Directors, which applies to all our employees, can also be found on our website, rjet |
| Our audit committee charter is also available on our website |