|
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
|
||
|
WASHINGTON,
D.C. 20549
|
||
|
FORM
10-K
|
||
|
(Mark
One)
|
||
|
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
||
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
||
|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
|
||
|
OR
|
||
|
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
|
||
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
||
|
FOR
THE TRANSITION PERIOD FROM __________ TO __________
|
||
|
Commission
File Number 1-10323
|
||
 |
||
|
CONTINENTAL
AIRLINES, INC.
|
||
|
(Exact
name of registrant as specified in its charter)
|
||
|
Delaware
|
74-2099724
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
1600
Smith Street, Dept. HQSEO, Houston, Texas
|
77002
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
Registrant's
telephone number, including area
code: 713-324-2950
|
||
|
Securities
registered pursuant to Section 12(b) of the Act:
|
||
|
Title of Each
Class
|
Name
of Each Exchange
On Which
Registered
|
|
|
Class
B Common Stock, par value $.01 per share
|
New
York Stock Exchange
|
|
|
Securities
registered pursuant to Section 12(g) of the
Act: None
|
||
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes X No
_____
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act. Yes No X
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes X No
_____
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-5 (Section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes No
_____
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form
10-K. [X]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of " large
accelerated filer," “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. Large accelerated filer X
Accelerated
filer ___ Non-accelerated filer ___ Smaller
reporting company ___
(Do not check if a
smaller
reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No X
As of June 30, 2009, the aggregate
market value of the registrant's common stock held by non-affiliates of the
registrant was $1.1 billion based on the closing sale price as reported on the
New York Stock Exchange.
Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
|
Class
|
Outstanding at
February 16, 2010
|
|
Class
B Common Stock, $.01 par value per share
|
139,057,281
shares
|
__________________
|
DOCUMENTS
INCORPORATED BY REFERENCE
|
|
Proxy
Statement for Annual Meeting of Stockholders to be held on June 9,
2010: PART III
|
TABLE OF
CONTENTS
|
PAGE
|
|||
|
PART
I
|
|||
|
Item
1.
|
5
|
||
|
5
|
|||
|
6
|
|||
|
6
|
|||
|
6
|
|||
|
7
|
|||
|
8
|
|||
|
10
|
|||
|
11
|
|||
|
12
|
|||
|
13
|
|||
|
14
|
|||
|
Item
1A.
|
17
|
||
|
17
|
|||
|
22
|
|||
|
Item
1B.
|
26
|
||
|
Item
2.
|
26
|
||
|
26
|
|||
|
29
|
|||
|
Item
3.
|
29
|
||
|
29
|
|||
|
30
|
|||
|
31
|
|||
|
Item
4.
|
31
|
||
|
PART
II
|
|||
|
Item
5.
|
32
|
||
|
32
|
|||
|
32
|
|||
|
32
|
|||
|
Item
6.
|
33
|
||
|
Item
7.
|
39
|
||
|
39
|
|||
|
43
|
|||
|
55
|
|||
|
62
|
|||
|
62
|
|||
|
70
|
|||
|
70
|
|||
|
Item
7A.
|
70
|
||
|
Item
8.
|
73
|
||
|
73
|
|||
|
74
|
|||
|
76
|
|||
|
76
|
|||
|
77
|
|||
|
78
|
|||
|
80
|
|||
|
82
|
|||
|
Item
9.
|
135
|
||
|
Item
9A.
|
135
|
||
|
Item
9B.
|
137
|
||
|
PART
III
|
|||
|
Item
10.
|
138
|
||
|
Item
11.
|
138
|
||
|
Item
12.
|
138
|
||
|
Item
13.
|
138
|
||
|
Item
14.
|
138
|
||
|
PART
IV
|
|||
|
Item
15.
|
139
|
||
|
140
|
|||
|
142
|
|||
PART
I
Continental Airlines, Inc., a Delaware
corporation incorporated in 1980, is a major U.S. air carrier engaged in the
business of transporting passengers, cargo and mail. The terms
"Continental," "we," "us," "our" and similar terms refer to Continental
Airlines, Inc. and, unless the context indicates otherwise, its consolidated
subsidiaries.
We are the world's fifth largest
airline as measured by the number of scheduled miles flown by revenue passengers
in 2009. Including our wholly-owned subsidiary, Continental
Micronesia, Inc. ("CMI"), and regional flights operated on our behalf under
capacity purchase agreements with other carriers, we operate more than 2,000
daily departures. As of December 31, 2009, we flew to 118 domestic
and 124 international
destinations and offered additional connecting service through alliances with
domestic and foreign carriers. We directly served 28 Trans-Atlantic
destinations, 11 Canadian cities, seven South American cities and four
Trans-Pacific destinations from the U.S. mainland as of December 31,
2009. In addition, we provide service to more destinations in Mexico
and Central America than any other U.S. airline, serving 39
cities. Through our Guam hub, CMI provides extensive service in the
western Pacific, including service to more Japanese cities than any other U.S.
carrier.
General information about us, including
our Corporate Governance Guidelines and the charters for the committees of our
Board of Directors, can be found on our website, continental.com. Our
Board has adopted the "Ethics and Compliance Guidelines," which apply to all
directors, officers and employees of Continental and its subsidiaries and serve
as our "Code of Ethics" under Item 406 of Regulation S-K and as our "Code of
Business Conduct and Ethics" as required by Section 303A.10 of the New York
Stock Exchange ("NYSE") Listed Company Manual. The Ethics and
Compliance Guidelines also are available on our website, and future amendments
to or waivers from compliance with these guidelines will be disclosed on our
website in accordance with Item 5.05 of Form 8-K.
Copies of these charters and guidelines
are available in print to any stockholder who requests them. Written
requests for such copies may be directed to our Secretary at Continental
Airlines, Inc., P.O. Box 4607, Houston,
Texas 77210-4607. Electronic copies of our annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as
well as any amendments and exhibits to those reports, are available free of
charge through our website as soon as reasonably practicable after we file them
with, or furnish them to, the U.S. Securities and Exchange Commission
("SEC").
Information on our website is not
incorporated into this Form 10-K or our other securities filings and is not a
part of them.
This Form 10-K contains forward-looking
statements that are not limited to historical facts, but reflect our current
beliefs, expectations or intentions regarding future events. All
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. For examples of those risks and uncertainties, see the
cautionary statements contained in Item 1A. "Risk
Factors." See Item 1A. "Risk Factors" and Item
7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview" for a discussion of trends and factors
affecting us and our industry. Also see Item 8. "Financial
Statements and Supplementary Data, Note 18 - Segment Reporting" for financial
information about each of our business segments. We undertake no
obligation to publicly update or revise any forward-looking statements to
reflect events or circumstances that may arise after the date of this report,
except as required by applicable law.
We operate our domestic route system
primarily through our hubs in the New York metropolitan area at Newark Liberty
International Airport ("New York Liberty"), in Houston, Texas at George Bush
Intercontinental Airport ("Houston Bush") and in Cleveland, Ohio at Hopkins
International Airport ("Cleveland Hopkins"). Each of our domestic
hubs is located in a large business and population center, contributing to a
large amount of "origin and destination" traffic. Our hub system
allows us to transport passengers between a large number of destinations with
substantially more frequent service than if each route were served
directly. The hub system also allows us to add service to a new
destination from a large number of cities using only one or a limited number of
aircraft. As of December 31, 2009, we operated 75% of the average
daily departures from New York Liberty, 84% of the average daily departures from
Houston Bush and 65% of the average daily departures from Cleveland Hopkins, in
each case based on scheduled passenger departures and including regional flights
flown for us under capacity purchase agreements.
We directly serve destinations
throughout Europe, Asia, Canada, Mexico, Central and South America and the
Caribbean. We also provide service to numerous other destinations
through codesharing arrangements with other carriers and have extensive
operations in the western Pacific conducted by CMI. As measured by
2009 available seat miles, approximately 51% of our mainline operations is
dedicated to international service.
New York Liberty is a significant
international gateway for our operations. From New York Liberty, we
served 28 Trans-Atlantic destinations, four Trans-Pacific destinations, eight
cities in Canada, four cities in Mexico, seven cities in Central America, four
cities in South America and 16 Caribbean destinations at December 31,
2009. We expect to begin daily service between New York Liberty and
Munich, Germany in March 2010.
Houston Bush is the focus of our
flights to destinations in Mexico and Central and South America. As
of December 31, 2009, we flew from Houston Bush to 29 cities in Mexico, ten
cities in Central America, seven cities in South America, six Caribbean
destinations, four cities in Canada, four cities in Europe and
Tokyo.
At December 31, 2009, we flew from
Cleveland Hopkins to two cities in Canada, San Juan, Puerto Rico and Cancun,
Mexico.
From its hub operations based on the
island of Guam, as of December 31, 2009, CMI provided service to nine cities in Japan, more
than any other U.S. carrier, as well as other Pacific rim destinations,
including Manila, Philippines and Cairns, Australia. CMI is the
principal air carrier in the Micronesian Islands, where it pioneered scheduled
air service in 1968. CMI's route system is linked to the U.S.
mainland through Tokyo and Honolulu, each of which CMI serves non-stop from
Guam. CMI began service from Guam and Honolulu to Nadi, Fiji in
December 2009.
See Item 8. "Financial
Statements and Supplementary Data, Note 18 - Segment Reporting," for operating
revenue by geographical area.
We have extensive commercial
relationships with other airlines, which are often referred to generally as
“alliances” and may include (a) codesharing (one carrier placing its name and
flight number, or "code," on flights operated by the other carrier), (b)
reciprocal frequent flyer program participation, reciprocal airport lounge
access and other joint activities (such as seamless check-in at airports) and/or
(c) capacity purchase agreements. Alliances allow airlines to develop
their route structures by enabling them to offer their passengers greater
destination coverage, while providing member airlines with the potential for
both increased revenues and cost savings. We seek in particular to
develop international alliance relationships that complement our own route
system and permit expanded service through our hubs to major international
destinations. International alliances enable us to provide our
passengers better connecting service from our international flights to other
destinations beyond an alliance airline’s hub and expand the product line that
we may offer in a foreign destination.
On October 27, 2009, we joined Star
Alliance. Star Alliance was established in 1997 as the first global
airline alliance to offer customers worldwide reach and a smooth travel
experience. As a member of Star Alliance, we have bilateral
commercial agreements with all 25 other Star Alliance members, including
reciprocal earning and redemption of frequent flyer miles. The
members are Air Canada, Air China, Air New Zealand, All Nippon Airways (“ANA”),
Asiana Airlines, Austrian Airlines, British Midland Airways (“bmi”), Brussels
Airlines, EgyptAir, LOT Polish Airlines, Lufthansa, Scandinavian Airlines
(“SAS”), Shanghai Airlines, Singapore Airlines, South African Airways, Spanair,
Swiss International Air Lines, TAP Portugal, Thai Airways International, Turkish
Airlines, United Airlines (“United”) and US Airways. Regional member
carriers Adria Airways (Slovenia), Blue1 (Finland) and Croatia Airlines enhance
the global network. Aegean Airlines, Air India and TAM Airlines have
also been accepted as future members. Overall, Star Alliance network
offers more than 19,700 daily flights to 1,077 destinations in 175
countries.
As of December 31, 2009, we also had
codesharing agreements with Star Alliance members United, Lufthansa, Air Canada,
bmi and Asiana Airlines. Codesharing with additional airlines in Star
Alliance is being implemented, with codesharing with Air New Zealand, ANA and
SAS expected to begin in March 2010.
On July 10, 2009, the U.S. Department
of Transportation (“DOT”) approved our application to join United and a group of
eight other carriers within Star Alliance that already hold antitrust
immunity. This approval enables us, United and these other immunized
Star Alliance carriers to work closely together to deliver highly competitive
international flight schedules, fares and service and provides competitive
balance to antitrust-immunized carriers in SkyTeam. Additionally, we,
United, Lufthansa and Air Canada are permitted under antitrust immunity to
establish a trans-Atlantic joint venture to create a more efficient and
comprehensive trans-Atlantic network for our respective customers, offering
those customers more service, scheduling and pricing options and establishing a
framework for
similar
joint ventures in other regions of the world. The DOT’s approval of
antitrust immunity is subject to certain conditions and limitations that are not
expected to diminish materially the benefits of our participation in Star
Alliance or the trans-Atlantic joint venture. On December 23, 2009,
we, United and ANA filed an application with the DOT for antitrust immunity to
enable the three carriers to establish a trans-Pacific joint venture, offering
similar benefits to our trans-Pacific customers. We are seeking a
modification to our pilot collective bargaining agreement to permit us to engage
in revenue sharing with a domestic air carrier, which is a component of the
proposed joint ventures.
In
addition to our current participation in Star Alliance, we have a domestic
codesharing agreement with Hawaiian Airlines and international codesharing
agreements with Copa Airlines (an airline based in Panama), Emirates (the flag
carrier of the United Arab Emirates), EVA Airways Corporation (an airline based
in Taiwan), Virgin Atlantic Airways and French rail operator
SNCF. Additionally, we have codeshare agreements with Gulfstream
International Airlines, Hyannis Air Service, Inc. ("Cape Air"), Colgan Air, Inc.
("Colgan") and Hawaii Island Air, Inc. ("Island Air"), who provide us with
commuter feed traffic. We also have a train-to-plane alliance with
Amtrak.
We have regional capacity purchase
agreements with ExpressJet Airlines, Inc. ("ExpressJet"), a wholly-owned
subsidiary of ExpressJet Holdings, Inc. ("Holdings"), Chautauqua Airlines, Inc.,
("Chautauqua"), a wholly-owned subsidiary of Republic Airways Holdings, Inc.,
Colgan Air, Inc. (“Colgan”), a wholly-owned subsidiary of Pinnacle
Airlines Corp., and Champlain Enterprises, Inc. ("CommutAir"). See
Item 8. "Financial Statements and Supplementary Data, Note 16 - Regional
Capacity Purchase Agreements" for further discussion of our capacity purchase
agreements.
Except for the four regional capacity
purchase agreements listed above, all of our codeshare relationships are
currently free-sell codeshares, where the marketing carrier sells seats on the
operating carrier's flights from the operating carrier's inventory, but takes no
inventory risk. In contrast, under our capacity purchase agreements,
we (as the marketing carrier) purchase all seats on covered flights and are
responsible for all scheduling, pricing and seat inventories. Some of
our alliance relationships include other cooperative undertakings such as joint
purchasing, joint corporate sales contracts, airport handling, facilities
sharing or joint technology development.
Regional
Operations
Our regional operations are conducted
by other operators on our behalf, primarily under capacity purchase
agreements. We schedule and market the regional flights provided for
us by other operators under capacity purchase agreements. Our
regional operations using regional jet aircraft are conducted under the name
"Continental Express" by ExpressJet and Chautauqua, and those using turboprop
aircraft are conducted under the name "Continental Connection" by CommutAir and
Colgan. As of December 31, 2009, our regional operators served 102
destinations in the United States, 26 cities in Mexico and eight cities in
Canada. This regional service complements our operations by carrying
traffic that connects onto our mainline jets and allows more frequent flights to
smaller cities than could be provided economically with mainline jet
aircraft. Additional commuter feed traffic currently is provided to
us by other alliance airlines, as discussed above.
Under our capacity purchase agreement
with ExpressJet (the “ExpressJet CPA”), we purchase all of the capacity from the
ExpressJet flights covered by the agreement. In exchange for
ExpressJet's operation of the flights and performance of other obligations under
the ExpressJet CPA, we have agreed to pay ExpressJet a pre-determined rate,
subject to annual inflation adjustments (capped at 3.5%), for each block hour
flown (the hours from gate departure to gate arrival) and to reimburse
ExpressJet for various pass-through expenses (with no margin or mark-up) related
to the flights, including aviation insurance, property taxes, international
navigation fees, depreciation (primarily aircraft-related), landing fees and
certain maintenance expenses. Under the ExpressJet CPA, we are
responsible for the cost of providing fuel for all flights and for paying
aircraft rent for all of the aircraft operated on our behalf. The
ExpressJet CPA also contains incentive bonus and rebate provisions based upon
ExpressJet's operational performance.
The capacity purchase provisions of the
ExpressJet CPA currently cover a minimum of 190 regional jets and, as of
December 31, 2009, ExpressJet operated 212 Embraer 50-seat regional jets under
those provisions of the contract. The minimum number of covered
aircraft will be reduced as leases on covered aircraft expire. The
ExpressJet CPA will expire in June 2015, with provisions for an appropriate
wind-down period, and has no renewal or extension options. ExpressJet
also subleases 32 Embraer 50-seat regional jets from us that are not operated on
our behalf.
Chautauqua operates 50-seat regional
jets as a Continental Express carrier under a capacity purchase agreement (the
"Chautauqua CPA"). As of December 31, 2009, 22 aircraft were being
flown by Chautauqua for us. The Chautauqua CPA requires us to pay
Chautauqua a fixed fee, subject to annual inflation adjustments (capped at
3.5%), for each block hour flown for its operation of the
aircraft. Chautauqua supplies the aircraft that it operates under the
agreement. Aircraft are scheduled to be removed from service under
the Chautauqua CPA each year through 2012, provided that we have the unilateral
right to extend the Chautauqua CPA on the same terms on an aircraft-by-aircraft
basis for a period of up to five years in the aggregate for 20 aircraft and for
up to three years in the aggregate for seven aircraft, subject to the renewal
terms of the related aircraft lease. Chautauqua also subleases five
Embraer 37-seat aircraft from us that are not operated on our
behalf.
Colgan operates fourteen 74-seat
Bombardier Q400 twin-turboprop aircraft as a Continental Connection carrier on
short and medium-distance routes from New York Liberty on our
behalf. Colgan operates the flights under a capacity purchase
agreement with us. In January 2009, we amended the capacity purchase
agreement to increase by 15 the number of Q400 aircraft to be operated by Colgan
on our behalf. We expect that Colgan will begin operating these 15
additional aircraft as they are delivered, beginning in the third quarter of
2010 through the second quarter of 2011. Each aircraft is scheduled
to be covered by the agreement for ten years following the date such aircraft is
delivered into service thereunder. Colgan supplies all of the
aircraft that it operates under the agreement.
Our
capacity purchase agreement with CommutAir (the "CommutAir CPA") provides for
CommutAir to operate sixteen 37-seat Bombardier Q200 twin-turboprop aircraft as
a Continental Connection carrier on short distance routes from Cleveland Hopkins
and New York Liberty. CommutAir supplies all of the aircraft that it
operates under the agreement.
Marketing
As with other major domestic
hub-and-spoke carriers, a majority of our revenue comes from tickets sold by
travel agents. Although we generally do not pay base commissions, we
often negotiate compensation to travel agents based on their performance in
selling our tickets or based on competitive conditions in particular
markets. A significant portion of our revenue, including a
significant portion of our higher yield traffic, is derived from bookings made
through third party global distribution systems ("GDSs") used by many travel
agents and travel purchasers.
We use the internet to provide
travel-related services for our customers and to reduce our overall distribution
costs. We have marketing agreements with internet travel service
companies such as Expedia, Hotwire, Orbitz and Travelocity. Although
customers' use of the internet has helped to reduce our distribution costs, it
also has lowered our yields because it has enhanced the visibility of competing
fares offered by other carriers.
Our website, continental.com, is our
lowest cost distribution channel. We recorded approximately $3.2
billion in ticket sales on continental.com in 2009. The site offers
customers the ability to purchase, change and refund tickets on-line, to
check-in on-line and to have direct access to information such as schedules,
reservations, flight status, frequent flyer account information (including the
ability to redeem and change reward travel) and Continental travel
specials. Tickets purchased through our website accounted for 30% of
our passenger revenue during 2009.
Substantially all of our sales involve
our electronic ticketing, or e-ticket, product. Our e-ticket product
enables us to process customer and revenue information more
efficiently. E-ticketed passengers have the ability to check-in at
continental.com for all domestic and international travel. On-line
check-in allows customers to obtain a printed or electronic boarding pass from
their home, office or hotel up to 24 hours prior to departure and to proceed
directly to security at the airport, bypassing the ticket counter and saving
time. Passengers with baggage who check-in on-line may use special
kiosks at our hub airports to check their bags rapidly. E-ticketed
passengers also can use self-service kiosks to check-in. Our
customers have access to approximately 1,600 Continental self-service kiosks at
173 airports throughout our system, including all domestic airports we
serve. During 2009, 84% of all check-ins were done on-line or at
self-service kiosks.
Our first aircraft equipped with our
new flat-bed BusinessFirst seats began service in the fourth quarter of
2009. These seats, which will be offered on long-haul international
routes, allow customers to lie completely flat and provide 6½ feet of sleeping
space in the fully extended position (six feet four inches on Boeing 757-200
aircraft). The seats include laptop power and feature 15.4-inch video
monitors. We will install the flat-bed seats on our entire
fleet of Boeing 777, 757-200 and 767-200 aircraft and substantially all of our
767-400 aircraft, as well as on our Boeing 787 fleet as those aircraft are
delivered to us.
Our
Boeing 777 and 757-200 aircraft are currently equipped with Audio Video on
Demand entertainment systems in each BusinessFirst/first class and economy
seat. Customers can start, stop, pause, rewind or fast forward movies
and music at any time. The system features a large selection of
movies, television shows, music and interactive video games. The
system will also be provided on other aircraft equipped with flat-bed seats as
those seats are installed.
We are installing DIRECTV® satellite
programming on our entire fleet of narrowbody Next-Generation Boeing 737
aircraft (737-700, 737-800,737-900 and 737-900ER aircraft) and Boeing 757-300
aircraft. DIRECTV® offers customers the choice of more than 100
channels of live television and previously recorded programming. This
service is complimentary in first class and available at each seat in economy
class for a fee. We have completed installation of DIRECTV® on 48
aircraft as of December 31, 2009 and expect to complete installation of DIRECTV®
on our entire fleet of Boeing 737 Next-Generation aircraft by the end of 2010
and our Boeing 757-300 aircraft by mid-2011.
We introduced the cashless cabin in the
fourth quarter of 2009, and expect to have a cashless environment on-board our
entire fleet by early in the second quarter of 2010. In a cashless
cabin, flight crews accept credit and debit cards exclusively for on-board
purchases.
Our
Presidents Club lounges offer a wide range of amenities to make customers’
travel experience productive and enjoyable. Services offered include
complimentary beverages, light snacks and bar service, assistance with
arrangements for travel on us, high-speed wireless Internet access, local
telephone calls and fax machines. Arrival shower facilities are
available at select locations. The lounges are available to
Presidents Club members and to BusinessFirst customers, Star Alliance Gold Elite
members and Star Alliance international first and business class customers on
the day of travel.
During 2008, we began implementation of
our joint project with the Transportation Security Administration ("TSA") to be
the first U.S. carrier to launch a paperless boarding pass pilot program that
allows passengers to receive boarding passes electronically on their cell phones
or PDAs, and use those devices to pass through security and board the
aircraft. The new technology heightens the ability to detect
fraudulent boarding passes while improving customer service and reducing paper
use. This service is currently available at each of our hubs and
other select airports.
We offer a carbon offsetting program
developed in partnership with non-profit Sustainable Travel
International. This program allows customers to view the carbon
footprint of their booked itinerary and choose among a number of options to
reduce the impact of carbon dioxide emissions of their flights. For
customers who elect to participate in this program, their contributions are made
directly to Sustainable Travel International to fund the purchase of offsets,
which are generated from sustainable development projects including
reforestation, renewable energy and energy conservation. We receive
no revenue related to this program.
We maintain our "OnePass" frequent
flyer program to encourage repeat travel. OnePass allows passengers
to earn mileage credits by flying on us and certain other alliance
carriers. We also sell mileage credits to credit/debit card
companies, hotels, car rental agencies, utilities and various shopping and gift
merchants participating in OnePass. Mileage credits can be redeemed
for free, discounted or upgraded travel on Continental, Continental Express,
Continental Connection, CMI or alliance airlines. Most travel awards
are subject to capacity limitations.
During 2009, OnePass participants
claimed approximately 1.3 million round-trip awards. Frequent flyer
awards accounted for an estimated 6.0% of our consolidated revenue passenger
miles. We believe displacement of revenue passengers by passengers
who redeem rewards earned by flying on us is minimal given our ability to manage
frequent flyer inventory and the low ratio of OnePass award usage to revenue
passenger miles. At December 31, 2009, we had an outstanding
liability associated with approximately 2.6 million free round-trip travel
awards that were expected to be redeemed for free travel on Continental,
Continental Express, Continental Connection, CMI or alliance
airlines. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies and
Estimates - Frequent Flier Accounting" for a detailed discussion concerning the
accounting treatment of our OnePass frequent flier program.
Our EliteAccess service is offered to
OnePass members who qualify for Elite status (based on the number of paid flight
miles and the fares purchased in a calendar year), first class and BusinessFirst
ticket holders and travelers with high-yield coach tickets who qualify as Elite
for the Day. EliteAccess passengers receive preferential treatment in
the check-in, boarding and baggage claim areas, are not charged fees for checked
bags and have special security lanes at certain airports. We also
provide a guarantee of no middle seat assignment for those passengers using a
full-fare, unrestricted ticket.
Competition
The U.S. airline industry is
characterized by substantial competition with respect to fares, fees, routes and
services, which is particularly pronounced in domestic
markets. Carriers use discount fares to stimulate traffic during
periods of slack demand, or when they begin service to new cities or have excess
capacity, to generate cash flow and to establish, increase or preserve market
share. Many of our competitors have greater financial resources
and/or lower cost structures than we do, in some cases as the result
of their bankruptcies and/or mergers. In recent years, the domestic
market share held by low-cost carriers has increased significantly and is
expected to continue to increase. The increased market presence of
low-cost carriers, which engage in substantial price discounting, has diminished
the ability of the network carriers to maintain sufficient fare levels in
domestic markets to achieve and sustain profitability. We cannot
predict whether or for how long these trends will continue.
In addition to price competition,
airlines also compete for market share by increasing the size of their route
system and the number of markets they serve. Several of our domestic
competitors are continuing to increase their international capacity, including
service to some destinations that we currently serve. Additionally,
the "open skies" agreement between the United States and the European Union,
which became effective on March 30, 2008, is resulting in increased competition
from European and U.S. airlines in these international markets, and may give
rise to additional consolidation or better integration opportunities among
European carriers. The “open skies” agreement between the United
States and Japan announced in December 2009 is also likely to increase
competition in affected markets if it becomes effective. The
increased competition in these international markets, particularly to the extent
our competitors engage in price discounting, may have a material adverse effect
on our results of operations, financial condition or liquidity.
We also compete with U.S. and foreign
carriers, including major network carriers, low-cost carriers and regional
carriers, throughout our global network on the basis of scheduling, availability
of non-stop and connecting flights, on-time performance, type of equipment,
cabin configuration, amenities provided to passengers, frequent flyer programs,
on-board products, markets served and other services.
We are also facing stronger competition
from carriers that have participated in industry consolidation or expanded
airline alliances and joint ventures. See Item 1A. "Risk Factors -
Risk Factors Relating to the Airline Industry - The airline is highly
competitive and susceptible to price discounting" below for a discussion of the
competitive advantages enjoyed by carriers participating in industry
consolidation and/or airline alliances and joint ventures.
As of December 31, 2009, we had
approximately 41,300 employees, which, due to the number of part-time employees,
represents 39,640 full-time equivalent employees consisting of approximately
16,225 customer service agents, reservations agents, ramp and other airport
personnel, 8,740 flight attendants, 6,195 management and clerical employees,
4,270 pilots, 4,090 mechanics and 120 dispatchers. Approximately 45%
of our full-time equivalent employees are represented by unions as of December
31, 2009. The following table reflects the principal collective
bargaining agreements, and their respective amendable dates, of Continental and
CMI:
|
Employee
Group
|
Approximate
Number
of
Full-time
Equivalent
Employees
|
Representing
Union
|
Contract
Amendable
Date
|
|
|
Continental
Flight
Attendants
|
8,460
|
International
Association of
Machinists
and Aerospace
Workers
("IAM")
|
December
2009
|
|
|
Continental
Pilots
|
4,270
|
Air
Line Pilots Association
International
("ALPA")
|
December
2008
|
|
|
Continental
Mechanics
|
3,965
|
International
Brotherhood of
Teamsters
("Teamsters")
|
December
2008
|
|
|
CMI
Fleet and Passenger
Service
Employees
|
420
|
Teamsters
|
November
2011
|
|
|
CMI
Flight Attendants
|
280
|
IAM
|
December
2010
|
|
|
Continental
Dispatchers
|
120
|
Transport
Workers Union
("TWU")
|
December
2008
|
|
|
CMI
Mechanics
|
125
|
Teamsters
|
December
2009
|
|
|
Continental
Flight
Simulator
Technicians
|
40
|
TWU
|
December
2012
|
|
On February 12, 2010, the National
Mediation Board informed us that our fleet service employees had voted in favor
of representation by the Teamsters. The election covers approximately
7,600 employees, or 6,340 full-time equivalent ramp, operations and cargo
agents.
Approximately 97% of our full-time
equivalent employees represented by unions as of December 31, 2009 are covered
by collective bargaining agreements that are currently amendable or become
amendable in 2010. The collective bargaining agreements with our
pilots, mechanics and certain other work groups became amendable in December
2008 and those with our flight attendants and CMI mechanics became amendable in
December 2009. On July 6, 2009, our flight simulator technicians
ratified a new four-year collective bargaining agreement with
us. With respect to our workgroups with amendable contracts, we have
been meeting with representatives of the applicable unions to negotiate amended
collective bargaining agreements with a goal of reaching agreements that are
fair to us and to our employees, but to date the parties have not reached new
agreements. Negotiations often take considerable time. For
example, we began negotiating with our pilots’ union in February 2007, and we
only received their first economic proposal in December 2009. We
cannot predict the outcome of our ongoing negotiations with our unionized
workgroups, although significant increases in the pay and benefits resulting
from new collective bargaining agreements could have a material adverse effect
on us. Furthermore, there can be no assurance that our generally good
labor relations and high labor productivity will continue.
Federal
Regulations. We provide air transportation under certificates
of public convenience and necessity issued by the DOT. These
certificates may be altered, amended, modified or suspended by the DOT if public
convenience and necessity so require, or may be revoked for intentional failure
by the holder of the certificate to comply with the terms and conditions of a
certificate. Continental and CMI each operate under a separate air
carrier certificate issued by the Federal Aviation Administration ("FAA"), which
may be amended, suspended or revoked by the FAA if the public interest and
safety in air commerce so require.
Airlines are regulated by the FAA,
primarily in the areas of flight operations, maintenance, ground facilities and
other technical matters. Pursuant to these regulations, we have
established, and the FAA has approved, a maintenance program for each type of
aircraft we operate that provides for the ongoing maintenance of our aircraft,
ranging from frequent routine inspections to major overhauls.
Airlines are subject to extensive
regulatory and legal compliance requirements that result in significant costs
and can adversely affect us. Additional laws, regulations, airport
rates and charges and growth constraints have been proposed from time to time
that could significantly increase the cost of airline operations or reduce
revenue. In addition, to address concerns about airport congestion,
the FAA has designated certain airports, including New York Liberty, New York’s
John F. Kennedy International Airport (“Kennedy”) and LaGuardia Airport
(“LaGuardia”) as “high density traffic airports,” and has imposed operating
restrictions at these three airports, which may include capacity
reductions. The FAA has also designated New York Liberty and Kennedy
as Level 3 Coordinated Airports under the International Air Transport
Association Worldwide Scheduling Guidelines, which requires us to participate in
seasonal FAA procedures for capacity allocation and schedule coordination for
New York Liberty and to have slots to operate at that
airport. Additional restrictions on airline routes and takeoff and
landing slots may be proposed that could affect rights of ownership and
transfer. Although we do not believe that these current operating
restrictions will have a material adverse effect on our operations at New York
Liberty, we cannot predict the impact of future capacity constraints or
allocations or other restrictions on our operations that might be imposed by the
FAA, Congress or other regulators, which could have a material adverse effect on
us.
Under the Aviation and Transportation
Security Act (the "Aviation Security Act") and related federal regulations,
substantially all security screeners at airports are federal employees and
significant other elements of airline and airport security are overseen and
performed by federal employees, including federal security managers, federal law
enforcement officers, federal air marshals and federal security
screeners. Among other matters, the law mandates improved flight deck
security, deployment of federal air marshals onboard flights, improved airport
perimeter access security, airline crew security training, enhanced security
screening of passengers, baggage, cargo, mail, employees and vendors, enhanced
training and qualifications of security screening personnel, additional
provision of passenger data to U.S. Customs and Border Protection and enhanced
background checks.
Airports from time to time seek to
increase the rates charged to airlines, and the ability of airlines to contest
such increases has been restricted by federal statutes, DOT and FAA regulations
and judicial decisions. Under the Aviation Security Act, funding for
passenger security is provided in part by a per enplanement ticket tax
(passenger security fee) of $2.50, subject to a $5 per one-way trip
cap. The Aviation Security Act also allows the TSA to assess an
aviation security infrastructure fee on each airline up to the total amount
spent by that airline on passenger and property screening in calendar year 2000
and, starting in fiscal year 2005, to impose a new methodology for calculating
assessments. TSA has continued to assess this fee on
airlines. Furthermore, because of significantly higher security and
other costs incurred by airports since September 11, 2001, many airports have
significantly increased their rates and charges to airlines, including us, and
may do so again in the future. Most airports where we operate
impose passenger facility charges of up to $4.50 per segment, subject to an $18
per roundtrip cap.
In time of war or during a national
emergency or defense-oriented situation, we and other air carriers could be
required to provide airlift services to the Air Mobility Command under the Civil
Reserve Air Fleet program ("CRAF"). If we were required in the future
to provide a substantial number of aircraft and crew to the Air Mobility Command
under CRAF, our operations could be materially adversely affected.
International
Regulations. The availability of international routes to U.S.
carriers is regulated by treaties and related agreements between the United
States and foreign governments. The United States typically follows
the practice of encouraging foreign governments to accept multiple carrier
designation on foreign routes, although certain countries have sought to limit
the number of carriers allowed to fly these routes. Certain foreign governments
impose limitations on the ability of air carriers to serve a particular city
and/or airport within their country from the United States. Bilateral
agreements between the United States and foreign governments often include
restrictions on the number of carriers (designations), operations (frequencies),
or airports (points) that can be served. When designations are
limited, only a certain number of airlines of each country may provide service
between the countries. When frequencies are limited, operations are
restricted to a certain number of weekly flights (as awarded by the United
States to the domestic carrier, based on the bilateral limits). When
points are limited, only certain airports within a country can be
served.
For a U.S. carrier to fly to any
international destination that is not subject to an "open skies" agreement
(meaning all carriers have access to any destination in a particular country),
it must first obtain approval from both the United States and the foreign
country where the destination is located, which is referred to as a "foreign
route authority." Route authorities to some international
destinations can be sold between carriers, and their value can vary because of
limits on accessibility. For those international routes where there
is a limit on the number of carriers or frequency of flights, studies have shown
that these routes have more value than those without restrictions. To
the extent foreign countries adopt open skies policies or otherwise liberalize
or eliminate restrictions on international
routes,
those actions would increase competition and potentially decrease the value of a
route. We cannot predict what laws, treaties and regulations relating
to international routes will be adopted or their resulting impact on us, but the
overall trend in recent years has been an increase in the number of “open skies”
agreements, as evidenced by “open skies” agreements between the United States
and the European Union and between the United States and Japan (if it becomes
effective). The impact of any future changes in governmental
regulation of international routes could be significant.
Environmental
Regulations. Many aspects of airlines' operations are also
subject to increasingly stringent federal, state, local and foreign laws
protecting the environment, including the imposition of additional taxes on
airlines or their passengers. Future regulatory developments in the
United States and abroad could adversely affect operations and increase
operating costs in the airline industry. The European Union has
issued a directive to member states to include aviation in its Greenhouse Gas
Emissions Trading Scheme (“ETS”), which requires us to begin monitoring our
emissions of carbon dioxide effective January 1, 2010 and have emissions
allowances equal to the amount of our carbon dioxide emissions to operate
flights to and from member states of the European Union in January 2012 and
thereafter, including flights between the United States and the European
Union. On December 16, 2009, we joined a lawsuit in the United
Kingdom with the Air Transport Association of America, American Airlines
(“American”) and United to challenge the extension of the European Union’s ETS
to include aviation and the imposition of its requirements on us. In
addition, non-EU governments are expected to challenge the application of the EU
ETS to their airlines; however, we may be forced to comply with the EU ETS
requirements during the pendency of a legal challenge. We may have to
purchase emissions allowances through the EU ETS to cover EU flights that exceed
our free allowances, which could result in substantial costs for
us.
Other regulatory actions that may be
taken in the future by the U.S. government, foreign governments (including the
European Union), or the International Civil Aviation Organization to address
climate change or limit the emission of greenhouse gases by the aviation sector
are unknown at this time. Climate change legislation has been
introduced in the U.S. Congress, including a proposal to require transportation
fuel producers and importers to acquire allowances sufficient to offset the
emissions resulting from combustion of their fuels. We cannot
predict, however, if any such legislation will pass the Congress or, if passed
and enacted into law, how it would specifically apply to the aviation
industry. In addition, effective January 14, 2010, the Administrator
of the U.S. Environmental Protection Agency (“EPA”) found that current and
projected concentrations of greenhouse gases in the atmosphere threaten the
public health and welfare. Although legal challenges and legislative
proposals are expected that may invalidate this endangerment finding and the
EPA’s assertion of authority under the Clean Air Act, the finding could result
in EPA regulation of commercial aircraft emissions if EPA finds, as expected,
that such emissions contribute to greenhouse gas pollution.
The impact to us and our industry from
any additional legislation or regulations addressing climate change is likely to
be adverse and could be significant, particularly if regulators were to conclude
that emissions from commercial aircraft cause significant harm to the upper
atmosphere or have a greater impact on climate change than other
industries. Potential actions may include the imposition of
requirements on airlines or transportation fuel producers and importers to
purchase emission offsets or credits, which could require participation in
emissions allowance trading (such as required in the European Union) and
increase the cost of carbon-based fuels (such as jet fuel), substantial taxes on
emissions and growth restrictions on airline operations, among other potential
regulatory actions.
The DOT allows local airport
authorities to implement procedures designed to abate special noise problems,
provided those procedures do not unreasonably interfere with interstate or
foreign commerce or the national transportation system. Some
airports, including certain major airports serving Boston, Chicago, Los Angeles,
San Diego, Orange County (California), Washington, D.C., Denver and San
Francisco, have established airport restrictions to limit noise, including
restrictions on aircraft types to be used and limits on the number and
scheduling of hourly or daily operations. In some instances, these
restrictions have caused curtailments in services or increased operating costs,
and could limit our ability to expand our operations at the affected
airports. Local authorities at other airports could consider adopting
similar noise regulations. Some foreign airports, including major
airports in countries such as the United Kingdom, France, Spain, Belgium,
Germany and Japan, have adopted similar restrictions to limit noise, and in some
instances our operations and costs have been adversely affected in the same
manner as described above.
Item
1A. Risk Factors.
There
are many factors that continue to threaten our operations, financial condition,
results of operations and liquidity. These factors are discussed
below.
Risk
Factors Relating to the Company
Fuel
prices or disruptions in fuel supplies could have a material adverse effect on
us. Expenditures for
fuel and related taxes represent the largest single cost of operating our
business. These costs include fuel costs on flights flown for us
under capacity purchase agreements. Our operations depend on the
availability of jet fuel supplies, and our results are significantly impacted by
changes in jet fuel prices, especially during periods of high volatility such as
2008. If fuel prices rise significantly in a short period of time, we
may be unable to increase fares or other fees sufficiently to offset fully our
increased fuel costs.
We routinely hedge a portion of our
future fuel requirements to protect against rising fuel
costs. However, there can be no assurance that our hedge contracts
will provide any particular level of protection against increased fuel costs or
that our counterparties will be able to perform under our hedge contracts, such
as in the case of a counterparty's bankruptcy. Because of the large
volume of jet fuel that we consume in our business, entering into hedge
contracts for any substantial portion of our future projected fuel requirements
is costly. Additionally, a deterioration in our financial condition
could negatively affect our ability to enter into new hedge contracts in the
future.
Significant declines in fuel prices
(such as those experienced in the last six months of 2008) may increase the
costs associated with our fuel hedging arrangements to the extent we have
entered into swaps or collars. Swaps and put options sold as part of
a collar obligate us to make payments to the counterparty upon settlement of the
contracts if the price of the commodity hedged falls below the agreed upon
amount. Historically, declining crude oil prices have resulted in our
being required to post significant amounts of collateral to cover potential
amounts owed with respect to swap and collar contracts that have not yet
settled. Additionally, lower fuel prices may result in increased
industry capacity and lower fares, especially to the extent that reduced fuel
costs justify increased utilization by airlines of less fuel efficient aircraft
that are unprofitable during periods of higher fuel prices.
Fuel prices could increase dramatically
and supplies could be disrupted as a result of international political and
economic circumstances, such as increasing international demand resulting from a
global economic recovery, conflicts or instability in the Middle East or other
oil producing regions and diplomatic tensions between the United States and oil
producing nations, as well as OPEC production decisions, disruptions of oil
imports, environmental concerns, weather, refinery outages or maintenance and
other unpredictable events.
Further volatility in jet fuel prices
or disruptions in fuel supplies, whether as a result of natural disasters or
otherwise, could have a material adverse effect on our results of operations,
financial condition and liquidity.
Disruptions
in the global capital markets coupled with our high leverage may affect our
ability to satisfy our significant financing needs or meet our
obligations. As is the case
with many of our principal competitors, we have a high proportion of debt
compared to our capital. We have a significant amount of fixed
obligations, including debt, aircraft leases and financings, leases of airport
property and other facilities and pension funding obligations. At
December 31, 2009, we had approximately $6.3 billion of debt and capital lease
obligations, including $2.1 billion that will come due by the end of 2011
(consisting of $1.0 billion during 2010 and $1.1 billion during
2011).
In addition, we have substantial
non-cancelable commitments for capital expenditures, including the acquisition
of new aircraft and related spare engines. To meet these obligations, we must
access the global capital markets and/or achieve and sustain
profitability. If there are future disruptions in the global capital
markets, as were experienced in late 2008 through mid-2009, we may be unable to
obtain financing or otherwise access the capital markets on favorable
terms. See “Management’s Discussion of Financial Condition and
Results of Operations – Liquidity and Capital Resources” included in Item 7 of
this report for a discussion of our obligations and the status of our efforts to
meet our financing needs.
Credit
rating downgrades could have a material adverse effect on our
liquidity. Reductions in our
credit ratings may increase the cost and reduce the availability of financing to
us in the future. We do not have any debt obligations that would be
accelerated as a result of a credit rating downgrade. However, we
would have to post additional collateral under our credit card processing
agreements with Chase Bank USA, N.A. ("Chase") and American Express and under
our workers' compensation program if our debt rating falls below specified
levels, as described below.
Failure
to meet our financial covenants would adversely affect our liquidity. Our credit card
processing agreement with Chase (the "Chase processing agreement") contains
financial covenants which require, among other things, that we post additional
cash collateral if we fail to maintain (1) a minimum level of unrestricted cash,
cash equivalents and short-term investments, (2) a minimum ratio of unrestricted
cash, cash equivalents and short-term investments to current liabilities of 0.25
to 1.0 or (3) a minimum senior unsecured debt rating of at least Caa3 and CCC-
from Moody's and Standard & Poor's, respectively. If a covenant
trigger under the Chase processing agreement results in our posting additional
collateral under that agreement, we would also be required to post additional
collateral under our credit card processing agreement with American
Express.
The amount of additional cash
collateral that we may be required to post if we fail to comply with the
financial covenants described above, which is based on our then-current air
traffic liability exposure (as defined in each agreement), could be
significant. See “Financial Statements and Supplementary Data, Note
19 – Commitments and Contingencies” included in Item 8 of this report for a
detailed discussion of our collateral posting obligations under these credit
card processing agreements.
Depending on our unrestricted cash,
cash equivalents and short-term investments balance at the time, the posting of
a significant amount of cash collateral could cause our unrestricted cash and
short-term investments balance to fall below the minimum balance of $1.0 billion
required under our $350 million secured term loan facility, resulting in a
default under that facility. The posting of such additional
collateral under these circumstances and/or the acceleration of amounts borrowed
under our secured term loan facility (or other remedies pursued by the lenders
thereunder) would likely have a material adverse effect on our financial
condition.
We are currently in compliance with all
of the covenants under these agreements.
Our
obligations for funding our defined benefit pension plans are affected by
factors beyond our control. We have defined
benefit pension plans covering substantially all of our U.S. employees other
than employees of our Chelsea Food Services division and CMI. The
timing and amount of our funding requirements under these plans depend upon a
number of factors, including labor negotiations and changes to pension plan
benefits as well as factors outside of our control, such as the number of
retiring employees, asset returns, interest rates and changes in pension
laws. Changes to these and other factors, such as liquidity
requirements, that can significantly increase our funding requirements could
have a material adverse effect on our financial condition.
Our
initiatives to increase revenues may not be adequate or successful. As we seek to
achieve and sustain profitability, we must continue to take steps to generate
additional revenues. These measures include charging separately for
services that previously had been included within the price of a ticket,
charging for other goods and services and increasing our existing
fees. We intend to introduce additional ancillary revenue initiatives
in the future. We can offer no assurance that these new measures or
any future initiatives will be successful in increasing our
revenues. Additionally, the implementation of some of these
initiatives could create technical and logistical challenges for
us. Any new and increased fees or charges might also reduce the
demand for travel on our airline or across the airline industry in general,
particularly in light of current weakened global economic
conditions.
Delays in
scheduled aircraft deliveries continue to adversely affect our ability to expand
our international capacity. Because all of
our widebody aircraft are already fully utilized, we will need to acquire
additional widebody aircraft to grow internationally when the level of demand
for international air travel supports such growth. We have
contractual commitments to purchase the long-range widebody aircraft that we
currently believe are necessary for our international growth, but significant
delays in their deliveries have occurred. We have been, and continue
to be, adversely impacted by those delays. If significant additional
delays in the deliveries of these new aircraft occur, we will only be able to
accomplish international growth by making alternate arrangements to acquire the
necessary long-range aircraft, if available and possibly on less financially
favorable terms, including higher ownership and operating costs.
Labor
disruptions could adversely affect our operations. Although we enjoy
generally good relations with our employees, we can provide no assurance that we
will be able to maintain these good relations in the future or avoid labor
disruptions, including a strike. The amendable dates for many of our
collective bargaining agreements have passed, including the agreements with the
unions representing our pilots, flight attendants and mechanics. We
are currently in talks with representatives of the applicable
unions. We cannot predict the outcome of these negotiations, and any
labor disruption, including a strike, that results in a prolonged significant
reduction in flights would have a material adverse effect on our results of
operations and financial condition.
Our labor
costs may not be competitive. Labor costs
constitute a significant percentage of our total operating costs. All
of the major hub-and-spoke carriers with whom we compete have achieved
significant labor cost reductions, whether in or out of
bankruptcy. Our wages, salaries and benefits cost per available seat
mile, measured on a stage length adjusted basis, is higher than that of many of
our competitors. These higher labor costs may adversely affect our
ability to achieve and sustain profitability while competing with other airlines
that have achieved lower relative labor costs. Additionally, we
cannot predict the outcome of our ongoing negotiations with our unionized
workgroups, although significant increases in the pay and benefits resulting
from new collective bargaining agreements could have a material adverse effect
on us.
If we
experience problems with certain of our third party regional operators, our
operations could be materially adversely affected. All of our
regional operations are conducted by third party operators on our behalf,
primarily under capacity purchase agreements. Due to our reliance on
third parties to provide these essential services, we are subject to the risks
of disruptions to their operations, which may result from many of the same risk
factors disclosed in this report. In addition, we may also experience
disruption to our regional operations if we terminate the capacity purchase
agreement with one or more of our current operators and transition the services
to another provider. As our regional segment provides revenue to us
directly and indirectly (by providing flow traffic to our hubs), a significant
disruption to our regional operations could have a material adverse effect on
our results of operations and financial condition.
Interruptions
or disruptions in service at one of our hub airports could have a material
adverse effect on our operations. We operate
principally through our hub operations at New York Liberty, Houston Bush,
Cleveland Hopkins and Guam. Substantially all of our flights either
originate from or fly into one of these locations, contributing to a large
amount of "origin and destination" traffic. A significant
interruption or disruption in service at one of our hubs resulting from air
traffic control delays, weather conditions, growth constraints, relations with
third party service providers, failure of computer systems, labor relations,
fuel supplies, terrorist activities, security breaches or otherwise could result
in the cancellation or delay of a significant portion of our flights and, as a
result, our business could be materially adversely affected.
We could
experience adverse publicity and declining revenues as a result of an accident
involving our aircraft or the aircraft of our regional carriers. Any accident
involving an aircraft that we operate or an aircraft that is operated under our
brand by one of our regional carriers could have a material adverse effect on us
if such accident created a public perception that our operations or those of our
regional carriers are less safe or reliable than other airlines, resulting in
passengers being reluctant to fly on us or our regional carriers. In
addition, any such accident could expose us to significant tort
liability. Although we currently maintain liability insurance in
amounts and of the type we believe to be consistent with industry practice to
cover damages arising from any such accidents, and our regional carriers carry
similar insurance and generally indemnify us for their operations on our behalf,
if our liability exceeds the applicable policy limits or the ability of a
carrier to indemnify us, we could incur substantial losses from an
accident.
A
significant failure or disruption of the computer systems on which we rely could
adversely affect our business. We depend heavily
on computer systems and technology to operate our business, such as flight
operations systems, communications systems, airport systems and reservations
systems (including continental.com and third party global distribution systems).
These systems could suffer substantial or repeated disruptions due to events
beyond our control, including natural disasters, power failures, terrorist
attacks, equipment or software failures, computer viruses or
hackers. Any such disruptions could materially impair our flight and
airport operations and our ability to market our services, and could result in
increased costs, lost revenue and the loss or compromise of important
data. Although we have taken measures in an effort to reduce the
adverse effects of certain potential failures or disruptions, if these steps are
not adequate to prevent or remedy the risks, our business may be materially
adversely affected.
Our net
operating loss carryforwards may be limited. At December 31,
2009, we had estimated net operating loss carryforwards ("NOLs") of $3.9 billion
for federal income tax purposes that expire beginning in 2020 and continuing
through 2029. Section 382 of the Internal Revenue Code ("Section
382") imposes limitations on a corporation's ability to utilize NOLs if it
experiences an "ownership change." In general terms, an ownership
change may result from transactions increasing the ownership of certain
stockholders in the stock of a corporation by more than 50 percentage points
over a three-year period.
In the event of an ownership change,
utilization of our NOLs would be subject to an annual limitation under Section
382 determined by multiplying the value of our stock at the time of the
ownership change by the applicable long-term tax-exempt rate (which is 4.16% for
December 2009). Any unused annual limitation may be carried over to
later years.
For purposes of Section 382, increases
in share holdings by, or that result in a person becoming, a holder of 5% or
more of the outstanding shares of our common stock are aggregated for purposes
of determining whether an "ownership change" has occurred. Because
our common stock has been trading at low market prices, the cost of acquiring a
sufficient number of shares of our common stock to become a holder of 5% or more
of the outstanding shares, and the cost of acquiring additional shares by
existing holders, has decreased significantly from historical levels, increasing
the possibility that we could experience an "ownership
change." Although we cannot currently predict whether or when such an
"ownership change" may occur, an ownership change as of December 31, 2009 would
have resulted in a $103 million limit to our annual NOL utilization, before
consideration of any built-in gains. The imposition of this
limitation on our ability to use our NOLs to offset future taxable income could
cause us to pay U.S. federal income taxes earlier than if such limitation were
not in effect and could cause such NOLs to expire unused, reducing or
eliminating the benefit of such NOLs. In addition, depending on the
market value of our common stock at the time of any such ownership change, a
limitation on our ability to use our NOLs could require us to recognize a
significant non-cash tax charge, the amount of which we cannot estimate at this
time.
The
global recession could continue to result in less demand for air
travel. The airline
industry is highly cyclical, and the level of demand for air travel is
correlated to the strength of the U.S. and global economies. The
severe economic recession in the U.S. and global economies had a substantial
negative impact on the demand for air carrier services beginning in the fourth
quarter of 2008. This decline in demand has disproportionately
reduced the volume of high-yield traffic in the premium cabins on domestic and
international flights, as many business travelers either curtailed their travel
or purchased lower yield economy tickets. The diminished volume of
high-yield traffic has significantly reduced airline revenues since the fourth
quarter of 2008.
We cannot predict how quickly or fully
demand for air travel will recover. Stagnant or worsening global
economic conditions that continue to contribute to the loss of business and
leisure traffic, particularly the loss of high-yield international traffic in
our first class and BusinessFirst cabins, could have a material adverse effect
on our results of operations and financial condition.
The
airline industry is highly competitive and susceptible to price
discounting. The U.S. airline industry is characterized by
substantial price competition, especially in domestic
markets. Carriers use discount fares to stimulate traffic during
periods of slack demand, or when they begin service to new cities or have excess
capacity, to generate cash flow and to establish, increase or preserve market
share. Some of our competitors have greater financial resources
(including a larger percentage or more favorable fuel hedges against price
increases) and/or lower cost structures than we do, in some cases as the result
of bankruptcies and/or mergers. In recent years, the domestic market
share held by low-cost carriers has increased significantly and is expected to
continue to increase. The increased market presence of low-cost
carriers, which engage in substantial price discounting, has diminished the
ability of the network carriers to maintain sufficient fare levels in domestic
markets to achieve sustained profitability. We cannot predict whether
or for how long these trends will continue.
In addition to price competition,
airlines also compete for market share by increasing the size of their route
system and the number of markets they serve. Several of our domestic
competitors have increased their international capacity, including service to
some destinations that we currently serve. Additionally, the "open
skies" agreement between the United States and the European Union, which became
effective on March 30, 2008 is resulting in increased competition from European
and U.S. airlines in these international markets, and may give rise to
additional consolidation or better integration opportunities among European
carriers. The “open skies” agreement between the United States and
Japan announced in December 2009 is also likely to increase competition in
affected markets if it becomes effective. The increased competition
in these international markets, particularly to the extent our competitors
engage in price discounting, may have a material adverse effect on our results
of operations, financial condition or liquidity.
Expanded
government regulation could further increase our operating costs and restrict
our ability to conduct our business. Airlines are
subject to extensive regulatory and legal compliance requirements that result in
significant costs and can adversely affect us. Additional laws,
regulations, airport rates and charges and growth constraints have been proposed
from time to time that could significantly increase the cost of airline
operations or reduce revenue. In addition, to address concerns about
airport congestion, the FAA has designated certain airports, including New York
Liberty, Kennedy and LaGuardia as “high density traffic airports,” and has
imposed operating restrictions at these three airports, which may include
capacity reductions. In addition, the FAA has designated New York
Liberty and Kennedy as Level 3 Coordinated Airports under the International Air
Transport Association Worldwide Scheduling Guidelines, which requires us to
participate in seasonal FAA procedures for capacity allocation and schedule
coordination for New York Liberty and to have slots to operate at that
airport. Additional restrictions on airline routes and takeoff and
landing slots may be proposed that could affect rights of ownership and
transfer. Although we do not believe that these current operating
restrictions will have a material adverse effect on our operations at New York
Liberty, we cannot predict the impact of future capacity constraints or
allocations or other restrictions on our operations that might be imposed by the
FAA, Congress or other regulators, which could have a material adverse effect on
us.
The FAA from time to time issues
directives and other regulations relating to the maintenance and operation of
aircraft that require significant expenditures or operational restrictions, and
which could include the temporary grounding of an entire aircraft type if the
FAA identifies design, manufacturing, maintenance or other issues requiring
immediate corrective action. FAA requirements cover, among other
things, retirement of older aircraft, security measures, collision avoidance
systems, airborne windshear avoidance systems, noise abatement and other
environmental concerns, aircraft operation and safety and increased inspections
and maintenance procedures to be conducted on older aircraft. These
FAA directives or requirements could have a material adverse effect on
us.
Many aspects of airlines' operations
also are subject to increasingly stringent federal, state, local and foreign
laws protecting the environment, including the imposition of additional taxes on
airlines or their passengers. Future regulatory developments in the
United States and abroad could adversely affect operations and increase
operating costs in the airline industry. The European Union has
issued a directive to member states to include aviation in its Greenhouse Gas
ETS, which requires us to begin monitoring our emissions of carbon dioxide
effective January 1, 2010 and have emissions allowances equal to the amount of
our carbon dioxide emissions to operate flights to and from member states of the
European Union in January 2012 and thereafter, including flights between the
United States and the European Union. On December 16, 2009, we joined
a lawsuit in the United Kingdom with the Air Transport Association of America,
American and United to challenge the extension of the European Union’s ETS to
include aviation and the imposition of its requirements on us. In
addition, non-EU governments are expected to challenge the application of the EU
ETS to their airlines; however, we may be forced to comply with the EU ETS
requirements during the pendency of a legal challenge. We may have to
purchase emissions allowances through the EU ETS to cover EU flights that exceed
our free allowances, which could result in substantial costs for
us.
Other regulatory actions that may be
taken in the future by the U.S. government, other foreign governments or the
International Civil Aviation Organization to address concerns about climate
change and air emissions from the aviation sector are unknown at this
time. Climate change legislation has been introduced in the U.S.
Congress, including a proposal to require transportation fuel producers and
importers to acquire allowances sufficient to offset the emissions resulting
from combustion of their fuels. We cannot predict, however, if any
such legislation will pass the Congress or, if passed and enacted into law, how
it would specifically apply to the aviation industry. In addition,
effective January 14, 2010, the Administrator of EPA found that current and
projected concentrations of greenhouse gases in the atmosphere threaten the
public health and welfare. Although legal challenges and legislative
proposals are expected that may invalidate this endangerment finding and the
EPA’s assertion of authority under the Clean Air Act, the finding could result
in EPA regulation of commercial aircraft emissions if EPA finds, as expected,
that such emissions contribute to greenhouse gas pollution.
The impact to
us and our industry from any additional legislation or regulations addressing
climate change is likely to be adverse and could be significant, particularly if
regulators were to conclude that emissions from commercial aircraft cause
significant harm to the upper atmosphere or have a greater impact on climate
change than other industries. Potential actions may include the
imposition of requirements on airlines or transportation fuel producers and
importers to purchase emission offsets or credits, which could require
participation in emissions allowance trading (such as required in the European
Union) and increase the cost of carbon-based fuels (such as jet fuel),
substantial taxes on emissions and growth restrictions on airline operations,
among other potential regulatory actions.
Further, the ability of U.S. carriers
to operate international routes is subject to change because the applicable
arrangements between the United States and foreign governments may be amended
from time to time, or because appropriate slots or facilities are not made
available. We cannot provide assurance that laws or regulations
enacted in the future will not have a significant adverse effect on
us.
Additional
terrorist attacks or international hostilities may further adversely affect our
financial condition, results of operations and liquidity. The
terrorist attacks of September 11, 2001 involving commercial aircraft severely
and adversely affected our financial condition, results of operations and
liquidity and the airline industry generally. Airlines continue to be
a target of terrorist attacks. Additional terrorist attacks, even if
not made directly on the airline industry, or the fear of such attacks
(including elevated national threat warnings or selective cancellation or
redirection of flights due to terror threats such as the August 2006 terrorist
plot targeting multiple airlines, including us), could negatively affect us and
the airline industry. The potential negative effects include
increased security, insurance and other costs for us and lost revenue from
increased ticket refunds and decreased ticket sales. Our financial
resources might not be sufficient to absorb the adverse effects of any further
terrorist attacks or other international hostilities involving the United
States.
Additional
security requirements may increase our costs and decrease our
traffic. Since September
11, 2001, the Department of Homeland Security ("DHS") and TSA have implemented
numerous security measures that affect airline operations and costs, and they
are likely to implement additional measures in the future. Most
recently, DHS has begun to implement the US-VISIT program (a program of
fingerprinting and photographing foreign visa holders), announced that it will
implement greater use of passenger data for evaluating security measures to be
taken with respect to individual passengers, expanded the use of federal air
marshals on our flights (who do not pay for their seats and thus displace
revenue passengers and cause increased customer complaints from displaced
passengers), begun investigating a requirement to install aircraft security
systems (such as devices on commercial aircraft as countermeasures against
portable surface to air missiles) and expanded cargo and baggage
screening. DHS also has required certain flights to be cancelled on
short notice for security reasons, and has required certain airports to remain
at higher security levels than other locations. In addition, foreign
governments also have begun to institute additional security measures at foreign
airports we serve, out of their own security concerns or in response to security
measures imposed by the United States.
Moreover, the TSA has imposed measures
affecting the contents of baggage that may be carried on an
aircraft. The TSA and other security regulators could impose other
measures as necessary to respond to security threats that may arise in the
future.
A large portion of the costs of these
security measures is borne by the airlines and their passengers, and we believe
that these and other security measures have the effect of decreasing the demand
for air travel and the overall attractiveness of air transportation as compared
to other modes of transportation. Additional security measures
required by the U.S. and foreign governments in the future, such as further
expanded cargo screening, might increase our costs or decrease the demand for
air travel, adversely affecting our financial results.
The
airline industry is heavily taxed. The airline
industry is subject to extensive government fees and taxation that negatively
impact our revenue. The U.S. airline industry is one of the most
heavily taxed of all industries. These fees and taxes have grown
significantly in the past decade for domestic flights, and various U.S. fees and
taxes also are assessed on international flights. In addition, the
governments of foreign countries in which we operate impose on U.S. airlines,
including us, various fees and taxes, and these assessments have been increasing
in number and amount in recent years. Certain of these fees and taxes
must be included in the fares we advertise or quote to our
customers. Due to the competitive revenue environment, many increases
in these fees and taxes have been absorbed by the airline industry rather than
being passed on to the passenger. Further increases in fees and taxes
may reduce demand for air travel and thus our revenues.
Airlines
may continue to participate in industry consolidation or alliances, which could
have a material adverse effect on us. We are facing
stronger competition from carriers that have participated in industry
consolidation and from expanded airline alliances and joint
ventures.
Since its deregulation in 1978, the
U.S. airline industry has undergone substantial consolidation and additional
consolidation may occur in light of the recently completed merger of Delta and
Northwest, which changed the competitive environment for us and the entire
airline industry. As a result of the announcement of the
Delta/Northwest merger agreement, we conducted a comprehensive review of our
strategic alternatives and announced in April 2008 that we had determined that
the best course for us was not to merge with another airline at such
time. Through consolidation, carriers have the opportunity to
significantly expand the reach of their networks, which is of primary importance
to business travelers, and to achieve cost reductions by eliminating redundancy
in their networks and their management structures.
Through participation in airline
alliances and/or joint ventures, carriers granted anti-trust immunity by the
appropriate regulatory authorities are able to coordinate their routes, pool
their revenues and costs and enjoy other mutual benefits, such as frequent flier
program reciprocity, achieving many of the benefits of
consolidation. For example, in 2009, Air France-KLM, Delta and
Northwest launched a new trans-Atlantic joint venture among those airlines that
involves coordination of routes, fares, schedules and other matters among those
airlines, Alitalia and CSA Czech Airlines. American, British Airways
and Iberia have received tentative DOT approval of their application for
anti-trust immunity for a similar trans-Atlantic joint venture, which would also
involve many of the same benefits. Delta recently attempted to induce
Japan Airlines to leave its current alliance and join Delta’s alliance, although
it was unsuccessful.
There may be additional consolidation
or changes in airline alliances and/or joint ventures in the future, any of
which could result in one or more airlines or alliances with more extensive
route networks and/or lower costs structures than currently exist, changing the
competitive landscape for the airline industry and having a material adverse
effect on us.
Insurance
costs could increase materially or key coverage could become
unavailable. The September 11,
2001 terrorist attacks led to a significant increase in insurance premiums and a
decrease in the insurance coverage available to commercial
airlines. Furthermore, our ability to continue to obtain certain
types of insurance remains uncertain. Since the terrorist attacks,
the U.S. government has provided war risk (terrorism) insurance to U.S.
commercial airlines to cover losses. War risk insurance in amounts
necessary for our operations, and at premiums that are not excessive, is not
currently available in the commercial insurance market. If the
government discontinues this coverage in whole or in part, we may be able to
obtain comparable coverage in the commercial insurance market only, if it is
available at all, for substantially higher premiums and on more restrictive
terms. If we are unable to obtain adequate war risk insurance, our
business could be materially and adversely affected.
Public
health threats affecting travel behavior could have a material adverse effect on
the industry. Public health threats, such as the H1N1 flu
virus, the bird flu, Severe Acute Respiratory Syndrome (SARs) and other highly
communicable diseases, outbreaks of which have occurred in various parts of the
world in which we operate, could adversely impact our operations and the
worldwide demand for air travel. Travel restrictions or operational
problems, such as quarantining of personnel or inability to access our
facilities or aircraft in any part of the world in which we operate, or any
reduction in the demand for air travel caused by public health threats in the
future, may materially adversely affect our operations and financial
results.
Our
results of operations fluctuate due to seasonality and other factors associated
with the airline industry. Due to greater
demand for air travel during the summer months, revenue in the airline industry
in the second and third quarters of the year is generally stronger than revenue
in the first and fourth quarters of the year for most U.S. air
carriers. Our results of operations generally reflect this
seasonality, but also have been impacted by numerous other factors that are not
necessarily seasonal, including excise and similar taxes, weather and air
traffic control delays, as well as the other factors discussed
above. As a result, our operating results for a quarterly period are
not necessarily indicative of operating results for an entire year, and
historical operating results are not necessarily indicative of future operating
results.
Item
1B. Unresolved Staff Comments.
None.
As of December 31, 2009, our operating
fleet consisted of 337 mainline jets and 264 regional aircraft. The
337 mainline jets are operated exclusively by us, while the 264 regional
aircraft are operated on our behalf by other operators under capacity purchase
agreements.
We own or lease 274 regional
jets. Of these, 212 are leased or subleased to ExpressJet and
operated on our behalf under a capacity purchase agreement with ExpressJet, 37
are subleased to other operators but are not operated on our behalf and 25 are
temporarily grounded. Additionally, our regional operating fleet
includes 52 regional jet and turboprop aircraft owned or leased by third parties
that are operated on our behalf by other operators under capacity purchase
agreements.
The following table summarizes our
operating fleet (aircraft operated by us and by others on our behalf) as of
December 31, 2009:
|
Seats
in
|
Average
|
|||||||||||
|
Third-Party
|
Standard
|
Age
|
||||||||||
|
Aircraft
Type
|
Total
|
Owned
|
Leased
|
Aircraft
|
Configuration
|
(In
Years)
|
||||||
|
Mainline
(a):
|
||||||||||||
|
777-200ER
|
20
|
8
|
12
|
-
|
285
|
9.6
|
||||||
|
767-400ER
|
16
|
14
|
2
|
-
|
235
|
8.3
|
||||||
|
767-200ER
|
10
|
9
|
1
|
-
|
174
|
8.8
|
||||||
|
757-300
|
18
|
9
|
9
|
-
|
216
|
7.3
|
||||||
|
757-200
|
41
|
15
|
26
|
-
|
175
|
12.9
|
||||||
|
737-900ER
|
30
|
30
|
-
|
-
|
173
|
1.2
|
||||||
|
737-900
|
12
|
8
|
4
|
-
|
173
|
8.3
|
||||||
|
737-800
|
117
|
44
|
73
|
-
|
160
|
7.8
|
||||||
|
737-700
|
36
|
12
|
24
|
-
|
124
|
11.0
|
||||||
|
737-500
|
34
|
-
|
34
|
-
|
114
|
13.7
|
||||||
|
737-300
|
3
|
3
|
-
|
-
|
124
|
23.6
|
||||||
|
Total
mainline
|
337
|
152
|
185
|
-
|
9.0
|
|||||||
|
Regional
(b):
|
||||||||||||
|
ERJ-145XR
|
89
|
-
|
89
|
-
|
50
|
|||||||
|
ERJ-145
|
138
|
18
|
105
|
15
|
(c)
|
50
|
||||||
|
CRJ200LR
|
7
|
-
|
-
|
7
|
(c)
|
50
|
||||||
|
Q400
|
14
|
-
|
-
|
14
|
(d)
|
74
|
||||||
|
Q200
|
16
|
-
|
-
|
16
|
(e)
|
37
|
||||||
|
Total
regional
|
264
|
18
|
194
|
52
|
||||||||
|
Total
|
601
|
170
|
379
|
52
|
||||||||
|
(a)
|
Excludes
seven grounded Boeing 737-500 aircraft (four owned and three leased) and
ten grounded Boeing 737-300 aircraft (seven owned and three leased) and
two leased 757-300 aircraft delivered but not yet placed into
service.
|
|
(b)
|
Excludes
25 ERJ-135 aircraft that are temporarily grounded and 15 ERJ145XR
aircraft, 17 ERJ-145 aircraft and five ERJ-135 aircraft that are subleased
to other operators, but are not operated on our behalf.
|
|
(c)
|
Operated
by Chautauqua under a capacity purchase agreement.
|
|
(d)
|
Operated
by Colgan under a capacity purchase agreement.
|
|
(e)
|
Operated
by CommutAir under a capacity purchase
agreement.
|
Most of the aircraft and engines we own
are subject to mortgages.
Mainline Fleet
Activity. During 2009, we placed into service 13 new Boeing
737-900ER aircraft, one new Boeing 737-800 aircraft and one leased Boeing
757-300 aircraft. We removed 20 Boeing 737-300 aircraft and eight
Boeing 737-500 aircraft from service during 2009. We removed three
additional Boeing 737-500 aircraft and one Boeing 737-300 aircraft from service
in January 2010. By March 2010, we expect to remove our two remaining
Boeing 737-300 aircraft from service.
At December 31, 2009, we had four owned
and three leased Boeing 737-500 aircraft that were grounded. We had
also grounded seven owned and three leased Boeing 737-300
aircraft. The three leased Boeing 737-300 aircraft were returned to
the lessor in January 2010 and the leases on the three Boeing 737-500 aircraft
will expire during the first half of 2012.
During 2009, we sold eight 737-500
aircraft to foreign buyers. We sold one grounded Boeing 737-500
aircraft to a foreign buyer in February 2010 and have agreements to sell the
three remaining grounded Boeing 737-500 aircraft to foreign
buyers. These sales are subject to customary closing conditions, some
of which are outside of our control, and we cannot give any assurances that the
buyers of these aircraft will be able to obtain financing for these
transactions, that there will not be delays in deliveries or that the closing of
these transactions will occur. We hold cash deposits that secure the
buyers’ obligations under the aircraft sale contracts and we are entitled to
damages under the aircraft sale contract if the buyers do not take delivery of
the aircraft when required.
We have also agreed to lease four
Boeing 757-300 aircraft from Boeing Capital Corporation. As of
December 31, 2009, three of these aircraft had been delivered, one of which had
been placed into service. We expect all of these aircraft to be
placed into service during 2010.
Regional Fleet
Activity. In January 2009, we amended our capacity purchase
agreement with Colgan to increase by 15 the number of Q400 aircraft to be
operated by Colgan on our behalf. We expect that Colgan will begin
operating these 15 additional aircraft as they are delivered to Colgan,
beginning in the third quarter of 2010 through the second quarter of
2011. Each aircraft is scheduled to be covered by the agreement for
ten years following the date the aircraft is delivered into
service. Colgan supplies all of the aircraft that it operates under
the agreement.
In July 2009, we entered into
agreements to sublease five temporarily grounded ERJ-135 aircraft to
Chautauqua. These aircraft will not be operated for
us. The subleases have terms of five years, but may be cancelled by
the lessee under certain conditions after an initial term of two
years. The remaining 25 ERJ-135 aircraft continue to be temporarily
grounded. The leases on the 30 ERJ-135 aircraft expire in 2016
through 2018. We are evaluating our options regarding these 25
aircraft, including permanently grounding them.
In December 2009, we agreed with
ExpressJet to amend our capacity purchase agreement to permit ExpressJet to fly
eight ERJ-145 aircraft for another carrier under a capacity purchase
agreement. These eight aircraft are subleased from us and were
previously flown for us under our capacity purchase agreement. As of
December 31, 2009, two of these aircraft had been removed from service for
us. The remaining six aircraft will be removed from service for us
during the first half of 2010. The subleases have an average initial
term of two and one-half years.
Firm Order and Option
Aircraft. As of December 31, 2009 we had firm commitments to
purchase 84 new aircraft (55 Boeing 737 aircraft, four Boeing 777 aircraft and
25 Boeing 787 aircraft) scheduled for delivery from 2010 through 2016, with an
estimated aggregate cost of $5.1 billion including related spare
engines. In addition to our firm order aircraft, we had options to
purchase a total of 98 additional Boeing aircraft as of December 31,
2009.
We are currently scheduled to take
delivery of two Boeing 777 aircraft and 12 Boeing 737 aircraft in
2010. Due to issues arising out of the governmental certification
process used by the manufacturer of the coach seats on the Boeing 777 aircraft
and the coach and first class seats on the Boeing 737 aircraft scheduled for
delivery this year, we expect a delay in delivery of between one and six months
for most of the aircraft scheduled for delivery in 2010. This seat
manufacturer also provided the seats installed on most of the Boeing aircraft
currently in our fleet. We do not believe these issues will have a
material impact on our ability to continue to operate any of the aircraft in our
fleet.
Facilities
Our principal facilities are located at
New York Liberty, Houston Bush, Cleveland Hopkins and A.B. Won Pat International
Airport in Guam. Substantially all of these facilities are leased on
a net-rental basis, as we are responsible for maintenance, insurance and other
facility-related expenses and services. At each hub location, we
generally have multiple leases covering different types of facilities, and those
leases have expiration dates ranging from 2010 to 2030.
At each of our three domestic hub
cities and most other locations, our passenger and baggage handling space is
leased directly from the airport authority on varying terms dependent on
prevailing practice at each airport. We also maintain administrative
offices, terminal, catering, cargo and other airport facilities, training
facilities, maintenance facilities and other facilities, in each case as
necessary to support our operations in the cities we serve.
See Item 8. “Financial Statements and
Supplementary Data, Note 19 – Commitments and Contingencies” for a discussion of
certain of our guarantees relating to our principal facilities, as well as our
contingent liability for US Airways’ obligations under a lease agreement
covering the East End Terminal at LaGuardia Airport.
During
the period between 1997 and 2001, we reduced or capped the base commissions that
we paid to domestic travel agents, and in 2002 we eliminated those base
commissions. These actions were similar to those also taken by other air
carriers. We are a defendant, along with several other air carriers,
in two lawsuits brought by travel agencies that purportedly opted out of a prior
class action entitled Sarah Futch Hall d/b/a/
Travel Specialists v. United Air Lines, et al. (U.S.D.C., Eastern
District of North Carolina), filed on June 21, 2000, in which the defendant
airlines prevailed on summary judgment that was upheld on
appeal. These similar suits against Continental and other major
carriers allege violations of antitrust laws in reducing and ultimately
eliminating the base commissions formerly paid to travel agents and seek
unspecified money damages and certain injunctive relief under the Clayton Act
and the Sherman Anti-Trust Act. The pending cases, which currently
involve a total of 90 travel agency plaintiffs, are Tam Travel, Inc. v. Delta
Air Lines, Inc., et al. (U.S.D.C., Northern District of California),
filed on April 9, 2003 and Swope Travel Agency, et al.
v. Orbitz LLC et al. (U.S.D.C., Eastern District
of
Texas), filed on June 5, 2003. By order dated November 10, 2003,
these actions were transferred and consolidated for pretrial purposes by the
Judicial Panel on Multidistrict Litigation to the Northern District of
Ohio. On October 29, 2007, the judge for the consolidated lawsuit
dismissed the case for failure to meet the heightened pleading standards
established earlier in 2007 by the U.S. Supreme Court’s decision in Bell Atlantic Corp. v.
Twombly. On October 2, 2009, the U.S. Court of Appeals for the
Sixth Circuit affirmed the trial court’s dismissal of the case, and on December
18, 2009, the plaintiffs’ request for rehearing by the Sixth Circuit en banc was
denied. The plaintiffs now have the opportunity to appeal to the U.S.
Supreme Court. The plaintiffs in the Swope lawsuit, encompassing 43
travel agencies, have also alleged that certain claims raised in their lawsuit
were not, in fact, dismissed. The trial court has not yet ruled on
that issue. In the consolidated lawsuit, we believe the plaintiffs’
claims are without merit, and we intend to defend vigorously any
appeal. Nevertheless, a final adverse court decision awarding
substantial money damages could have a material adverse effect on our results of
operations, financial condition or liquidity.
Environmental
Proceedings
Under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(commonly known as “Superfund”) and similar state environment cleanup laws,
generators of waste disposed of at designated sites may, under certain
circumstances, be subject to joint and several liability for investigation and
remediation costs. We (including our predecessors) have been
identified as a potentially responsible party at one federal site and one state
site that are undergoing or have undergone investigation or
remediation. Although applicable case law is evolving and some cases
may be interpreted to the contrary, we believe that some or all of any liability
claims associated with these sites were discharged by confirmation of our 1993
Plan of Reorganization, principally because our exposure is based on alleged
offsite disposal known as of the date of confirmation. Even if any
such claims were not discharged, on the basis of currently available
information, we believe that our potential liability for our allocable share of
the cost to remedy each site (if and to the extent we are found to be liable) is
not, in the aggregate, material; however, we have not been designated a “de
minimis” contributor at either site.
In 2001, the California Regional Water
Quality Control Board (“CRWQCB”) mandated a field study of the area surrounding
our aircraft maintenance hangar in Los Angeles. The study was
completed in September 2001 and identified jet fuel and solvent contamination on
and adjacent to this site. In April 2005, we began environmental
remediation of jet fuel contamination surrounding our aircraft maintenance
hangar pursuant to a workplan submitted to (and approved by) the CRWQCB and our
landlord, the Los Angeles World Airports. Additionally, we could be
responsible for environmental remediation costs primarily related to solvent
contamination on and near this site.
Although
we are not currently subject to any environmental cleanup orders imposed by
regulatory authorities, we are undertaking voluntary investigation or
remediation at certain properties in consultation with such
authorities. The full nature and extent of any contamination at these
properties and the parties responsible for such contamination have not been
determined, but based on currently available information and our current
reserves, we do not believe that any environmental liability associated with
such properties will have a material adverse effect on us.
At December 31, 2009, we had an accrual
for estimated costs of environmental remediation throughout our system of $30
million, based primarily on third-party environmental studies and estimates as
to the extent of the contamination and nature of the required remedial
actions. We have evaluated and recorded this accrual for environmental
remediation costs separately from any related insurance recovery. We did
not have any receivables related to environmental insurance recoveries at
December 31, 2009. Based on currently available information, we
believe that our accrual for potential environmental remediation costs is
adequate, although our accrual could be adjusted in the future due to new
information or changed circumstances. However, we do not expect these
items to materially affect our results of operations, financial condition or
liquidity.
We and/or certain of our subsidiaries
are defendants in various other pending lawsuits and proceedings and are subject
to various other claims arising in the normal course of our business, many of
which are covered in whole or in part by insurance. Although the
outcome of these lawsuits and proceedings (including the probable loss we might
experience as a result of an adverse outcome) cannot be predicted with certainty
at this time, we believe, after consulting with outside counsel, that the
ultimate disposition of such suits will not have a material adverse effect on
us.
Not
applicable.
PART
II
Item
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Our Class B common stock, which we
refer to as our common stock, trades on the NYSE under the symbol
“CAL.” The table below shows the high and low sales prices for our
common stock as reported in the consolidated transaction reporting system during
2009 and 2008.
|
Class
B
Common
Stock
|
||||||
|
High
|
Low
|
|||||
|
2009
|
Fourth
Quarter
|
$18.75
|
$10.94
|
|||
|
Third
Quarter
|
$17.55
|
$8.76
|
||||
|
Second
Quarter
|
$15.76
|
$7.86
|
||||
|
First
Quarter
|
$21.83
|
$6.37
|
||||
|
2008
|
Fourth
Quarter
|
$20.89
|
$9.49
|
|||
|
Third
Quarter
|
$21.40
|
$5.91
|
||||
|
Second
Quarter
|
$23.42
|
$9.70
|
||||
|
First
Quarter
|
$31.25
|
$17.19
|
||||
As of February 16, 2010, there were
approximately 18,890 holders of record of our common stock. We paid
no cash dividends on our common stock during 2009 or 2008 and have no current
intention of doing so.
Our certificate of incorporation
provides that no shares of capital stock may be voted by or at the direction of
persons who are not U.S. citizens unless the shares are registered on a separate
stock record. Our bylaws further provide that no shares will be
registered on the separate stock record if the amount so registered would exceed
U.S. foreign ownership restrictions. United States law currently limits the
voting power in us (and other U.S. airlines) of persons who are not citizens of
the United States to 25%.
See Item 12. “Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters” for
information regarding our equity compensation plans as of December 31,
2009.
None.
The following financial information for
the five years ended December 31, 2009 has been derived from our consolidated
financial statements. This information should be read in conjunction
with our consolidated financial statements and note thereto included in Item 8.
“Financial Statements and Supplementary Data” of this report.
|
Statement
of Operations Data (in millions except per
share data):
|
|||||
|
Year
Ended December 31,
|
|||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|
|
Operating
revenue
|
$12,586
|
$15,241
|
$14,232
|
$13,128
|
$11,208
|
|
Operating
expenses
|
12,732
|
15,555
|
13,545
|
12,660
|
11,247
|
|
Operating
income (loss)
|
(146)
|
(314)
|
687
|
468
|
(39)
|
|
Income
(loss) before cumulative effect of change
in
accounting principle
|
(282)
|
(586)
|
439
|
361
|
(75)
|
|
Cumulative
effect of change in accounting principle
|
-
|
-
|
-
|
(26)
|
-
|
|
Net
income (loss)
|
(282)
|
(586)
|
439
|
335
|
(75)
|
|
Net
income (loss) excluding special items (1)
|
(295)
|
(352)
|
529
|
296
|
(212)
|
|
Earnings
(loss) per share:
|
|||||
|
Basic:
|
|||||
|
Income
(loss) before cumulative effect of
change
in accounting principle
|
$(2.18)
|
$(5.54)
|
$ 4.53
|
$ 4.05
|
$(1.06)
|
|
Cumulative
effect of change in accounting principle
|
-
|
-
|
-
|
(0.29)
|
-
|
|
Net
income (loss)
|
$(2.18)
|
$(5.54)
|
$ 4.53
|
$ 3.76
|
$(1.06)
|
|
Diluted:
|
|||||
|
Income
(loss) before cumulative effect of
change
in accounting principle
|
$(2.18)
|
$(5.54)
|
$ 4.05
|
$ 3.51
|
$(1.08)
|
|
Cumulative
effect of change in accounting principle
|
-
|
-
|
-
|
(0.23)
|
-
|
|
Net
income (loss)
|
$(2.18)
|
$(5.54)
|
$ 4.05
|
$ 3.28
|
$(1.08)
|
|
(1)
|
See
“Reconciliation of GAAP to non-GAAP Financial Measures” in this
Item.
|
|
Balance
Sheet Data (in millions):
|
|||||
|
As
of December 31,
|
|||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|
|
Unrestricted
cash, cash equivalents and
short-term
investments
|
$2,856
|
$2,643
|
$2,803
|
$2,484
|
$ 1,957
|
|
Total
assets
|
12,781
|
12,686
|
12,105
|
11,308
|
10,529
|
|
Long-term
debt and capital lease obligations
|
5,291
|
5,353
|
4,337
|
4,820
|
5,010
|
|
Stockholders’
equity
|
590
|
123
|
1,569
|
386
|
273
|
Selected
Operating Data
We have two reportable
segments: mainline and regional. The mainline segment
consists of flights to cities using larger jets while the regional segment
currently consists of flights with a capacity of 79 or fewer
seats. As of December 31, 2009, the regional segment was operated by
ExpressJet, Chautauqua, CommutAir and Colgan under capacity purchase
agreements.
|
Year
Ended December 31,
|
|||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|
|
Mainline
Operations:
|
|||||
|
Passengers
(thousands) (1)
|
45,573
|
48,682
|
50,960
|
48,788
|
44,939
|
|
Revenue
passenger miles (millions) (2)
|
79,824
|
82,806
|
84,309
|
79,192
|
71,261
|
|
Available
seat miles (millions) (3)
|
97,407
|
102,527
|
103,139
|
97,667
|
89,647
|
|
Cargo
ton miles (millions)
|
948
|
1,005
|
1,037
|
1,075
|
1,018
|
|
Passenger
load factor (4):
|
|||||
|
Mainline
|
81.9%
|
80.8%
|
81.7%
|
81.1%
|
79.5%
|
|
Domestic
|
84.8%
|
83.3%
|
83.9%
|
83.6%
|
81.2%
|
|
International
|
79.2%
|
78.2%
|
79.4%
|
78.2%
|
77.5%
|
|
Passenger
revenue per available seat mile (cents)
|
9.49
|
11.10
|
10.47
|
9.96
|
9.32
|
|
Total
revenue per available seat mile (cents)
|
10.92
|
12.51
|
11.65
|
11.17
|
10.46
|
|
Average
yield per revenue passenger mile (cents) (5)
|
11.58
|
13.75
|
12.80
|
12.29
|
11.73
|
|
Average
fare per revenue passenger
|
$204.89
|
$236.26
|
$214.06
|
$201.81
|
$188.67
|
|
Cost
per available seat mile (cents)
|
10.75
|
12.44
|
10.83
|
10.56
|
10.22
|
|
Cost
per available seat mile excluding special
charges
and aircraft fuel and related taxes (cents) (6)
|
7.79
|
7.50
|
7.57
|
7.42
|
7.42
|
|
Average
price per gallon of fuel, including fuel taxes
|
$1.98
|
$3.27
|
$2.18
|
$2.06
|
$1.78
|
|
Fuel
gallons consumed (millions)
|
1,395
|
1,498
|
1,542
|
1,471
|
1,376
|
|
Aircraft
in fleet at end of period (7)
|
337
|
350
|
365
|
366
|
356
|
|
Average
length of aircraft flight (miles)
|
1,550
|
1,494
|
1,450
|
1,431
|
1,388
|
|
Average
daily utilization of each aircraft (hours) (8)
|
10:37
|
11:06
|
11:34
|
11:07
|
10:31
|
|
Regional
Operations:
|
|||||
|
Passengers
(thousands) (1)
|
17,236
|
18,010
|
17,970
|
18,331
|
16,076
|
|
Revenue
passenger miles (millions) (2)
|
9,312
|
9,880
|
9,856
|
10,325
|
8,938
|
|
Available
seat miles (millions) (3)
|
12,147
|
12,984
|
12,599
|
13,251
|
11,973
|
|
Passenger
load factor (4)
|
76.7%
|
76.1%
|
78.2%
|
77.9%
|
74.7%
|
|
Passenger
revenue per available seat mile (cents)
|
15.59
|
18.14
|
17.47
|
17.15
|
15.67
|
|
Average
yield per revenue passenger mile (cents) (5)
|
20.34
|
23.83
|
22.33
|
22.01
|
20.99
|
|
Aircraft
in fleet at end of period (7)
|
264
|
282
|
263
|
282
|
266
|
|
Year
Ended December 31,
|
|||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|
|
Consolidated
Operations:
|
|||||
|
Passengers
(thousands) (1)
|
62,809
|
66,692
|
68,930
|
67,119
|
61,015
|
|
Revenue
passenger miles (millions) (2)
|
89,136
|
92,686
|
94,165
|
89,517
|
80,199
|
|
Available
seat miles (millions) (3)
|
109,554
|
115,511
|
115,738
|
110,918
|
101,620
|
|
Passenger
load factor (4)
|
81.4%
|
80.2%
|
81.4%
|
80.7%
|
78.9%
|
|
Passenger
revenue per available seat mile (cents)
|
10.17
|
11.89
|
11.23
|
10.82
|
10.07
|
|
Average
yield per revenue passenger mile (cents) (5)
|
12.50
|
14.82
|
13.80
|
13.41
|
12.76
|
|
Cost
per available seat mile (cents)
|
11.62
|
13.47
|
11.70
|
11.41
|
11.07
|
|
Cost
per available seat mile excluding special
charges
and aircraft fuel and related taxes (cents) (6)
|
8.46
|
8.19
|
8.21
|
8.06
|
8.08
|
|
Average
price per gallon of fuel, including fuel taxes
|
$1.97
|
$3.27
|
$2.18
|
$2.06
|
$1.78
|
|
Fuel
gallons consumed (millions)
|
1,681
|
1,809
|
1,853
|
1,791
|
1,671
|
|
(1)
|
The
number of revenue passengers measured by each flight segment
flown.
|
|
(2)
|
The
number of scheduled miles flown by revenue passengers.
|
|
(3)
|
The
number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
|
|
(4)
|
Revenue
passenger miles divided by available seat miles.
|
|
(5)
|
The
average passenger revenue received for each revenue passenger mile
flown.
|
|
(6)
|
See
“Reconciliation of GAAP to non-GAAP Financial Measures” in this
Item.
|
|
(7)
|
Excludes
aircraft that were removed from service. Regional aircraft
include aircraft operated by all carriers under capacity purchase
agreements, but exclude any aircraft that were subleased to other
operators but not operated on our behalf.
|
|
(8)
|
The
average number of hours per day that an aircraft flown in revenue service
is operated (from gate departure to gate
arrival).
|
Reconciliation
of GAAP to non-GAAP Financial Measures
Non-GAAP financial measures are
presented because they provide management and investors the ability to measure
and monitor our performance on a consistent basis. Special items
relate to activities that are not central to our ongoing operations or are
unusual in nature. A reconciliation of net income (loss) to the
non-GAAP financial measure of net income (loss) excluding special items for the
year ended December 31 is as follows (in millions):
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||
|
Net
income (loss) excluding special items:
|
||||||||||||
|
Net
income (loss) – GAAP
|
$(282)
|
$(586)
|
$439
|
$335
|
$(75)
|
|||||||
|
Special
charges:
|
||||||||||||
|
Operating
(expense) income:
|
||||||||||||
|
Aircraft-related
charges
|
(89)
|
(40)
|
22
|
18
|
16
|
|||||||
|
Pension
settlement/curtailment charges
|
(29)
|
(52)
|
(31)
|
(59)
|
(83)
|
|||||||
|
Severance
|
(5)
|
(34)
|
-
|
-
|
-
|
|||||||
|
Route
impairment
|
(12)
|
(18)
|
-
|
-
|
-
|
|||||||
|
Other
|
(10)
|
(37)
|
(4)
|
14
|
-
|
|||||||
|
Other
special (expense) income items:
|
||||||||||||
|
Gains
on sale of investments
|
-
|
78
|
37
|
92
|
204
|
|||||||
|
Loss
on fuel hedge contracts with Lehman
Brothers
|
-
|
(125)
|
-
|
-
|
-
|
|||||||
|
Other-than-temporary
impairment of auction
rate
securities
|
-
|
(60)
|
-
|
-
|
-
|
|||||||
|
Fair
value of auction rate securities put right
received
|
-
|
26
|
-
|
-
|
-
|
|||||||
|
Income
tax benefit (expense):
|
||||||||||||
|
Intraperiod
tax allocation
|
158
|
-
|
-
|
-
|
-
|
|||||||
|
NOL
utilization
|
-
|
28
|
(114)
|
-
|
-
|
|||||||
|
Cumulative
effect of change in accounting
principal
|
-
|
-
|
-
|
(26)
|
-
|
|||||||
|
Total
special items – income (expense)
|
13
|
(234)
|
(90)
|
39
|
137
|
|||||||
|
Net
income (loss) excluding special items –
non-GAAP
|
$(295)
|
$(352)
|
$529
|
$296
|
$(212)
|
|||||||
Cost per available seat mile (CASM) is
a common metric used in the airline industry to measure an airline’s cost
structure and efficiency. CASM trends can be distorted by items that
are not central to our ongoing operations or are unusual in
nature. Additionally, both the cost and availability of fuel are
subject to many economic and political factors beyond our
control. CASM excluding special charges and aircraft fuel and related
taxes provides management and investors the ability to measure our cost
performance absent special items and fuel price volatility. A
reconciliation
of GAAP
operating expenses used to determine CASM to the non-GAAP operating expenses
used to determine CASM excluding special charges and aircraft fuel and related
taxes for the year ended December 31 is as follows (in millions, except CASM
amounts):
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||
|
Mainline
cost per available seat mile excluding special
charges
and aircraft fuel and related taxes:
|
|||||||
|
Operating
expenses – GAAP
|
$10,471
|
$12,753
|
$11,171
|
$10,314
|
$ 9,162
|
||
|
Special
charges:
|
|||||||
|
Aircraft-related
charges
|
(70)
|
(40)
|
22
|
18
|
16
|
||
|
Pension
settlement/curtailment charges
|
(29)
|
(52)
|
(31)
|
(59)
|
(83)
|
||
|
Severance
|
(5)
|
(34)
|
-
|
-
|
-
|
||
|
Route
impairment
|
(12)
|
(18)
|
-
|
-
|
-
|
||
|
Other
|
(9)
|
(11)
|
(4)
|
14
|
-
|
||
|
Aircraft
fuel and related taxes
|
(2,755)
|
(4,905)
|
(3,354)
|
(3,034)
|
(2,443)
|
||
|
Operating
expenses excluding above items –
non-GAAP
|
$ 7,591
|
$ 7,693
|
$ 7,804
|
$ 7,253
|
$ 6,652
|
||
|
Available
seat miles – mainline
|
97,407
|
102,527
|
103,139
|
97,667
|
89,647
|
||
|
CASM
– GAAP (cents)
|
10.75
|
12.44
|
10.83
|
10.56
|
10.22
|
||
|
CASM
excluding special charges and aircraft
fuel
and related taxes – non-GAAP (cents)
|
7.79
|
7.50
|
7.57
|
7.42
|
7.42
|
||
|
Consolidated
cost per available seat mile excluding
special
charges and aircraft fuel and related taxes:
|
|||||||
|
Operating
expenses – GAAP
|
$12,732
|
$15,555
|
$13,545
|
$12,660
|
$11,247
|
||
|
Special
charges:
|
|||||||
|
Aircraft-related
charges
|
(89)
|
(40)
|
22
|
18
|
16
|
||
|
Pension
settlement/curtailment charges
|
(29)
|
(52)
|
(31)
|
(59)
|
(83)
|
||
|
Severance
|
(5)
|
(34)
|
-
|
-
|
-
|
||
|
Route
impairment
|
(12)
|
(18)
|
-
|
-
|
-
|
||
|
Other
|
(10)
|
(37)
|
(4)
|
14
|
-
|
||
|
Aircraft
fuel and related taxes
|
(3,317)
|
(5,919)
|
(4,034)
|
(3,697)
|
(2,974)
|
||
|
Operating
expenses excluding above items –
non-GAAP
|
$ 9,270
|
$ 9,455
|
$ 9,498
|
$ 8,936
|
$ 8,206
|
||
|
Available
seat miles – consolidated
|
109,554
|
115,511
|
115,738
|
110,918
|
101,620
|
||
|
CASM
– GAAP (cents)
|
11.62
|
13.47
|
11.70
|
11.41
|
11.07
|
||
|
CASM
excluding special charges and aircraft
fuel
and related taxes – non-GAAP (cents)
|
8.46
|
8.19
|
8.21
|
8.06
|
8.08
|
||
The following discussion contains
forward-looking statements that are not limited to historical facts, but reflect
our current beliefs, expectations or intentions regarding future
events. All forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. For examples of those risks and
uncertainties, see the cautionary statements contained in Item 1A. “ Risk
Factors – Risk Factors Relating to the Company” and “Risk Factors – Risk Factors
Relating to the Airline Industry.” We undertake no obligation to
publicly update or revise any forward-looking statements to reflect events or
circumstances that may arise after the date of this report, except as required
by applicable law.
Overview
We recorded a net loss of $282 million
for the year ended December 31, 2009, as compared to a net loss of $586 million
for the year ended December 31, 2008. Our net loss in 2009 was
primarily the result of the global recession. Excluding special
items, we recorded a net loss of $295 million for the year ended December 31,
2009, compared to a net loss of $352 million for the year ended December 31,
2008. Net loss excluding special items is significant because it
provides management and investors the ability to measure and monitor our
performance on a consistent basis. Special items relate to activities
that are not central to our ongoing operations or are unusual in
nature. A reconciliation of our net loss to the non-GAAP financial
measure of net loss excluding special items is provided in Item
6. “Selected Financial Data.”
2009
Financial Highlights
|
·
|
Passenger
revenue decreased 18.9% during 2009 as compared to 2008, primarily due to
lower fares and less high-yield business traffic attributable to the
global recession.
|
|
·
|
Operating
income (loss), a key measure of our performance, improved to a loss of
$146 million in 2009 compared to a $314 million loss in 2008, primarily
due to lower fuel prices offset by lower revenue.
|
|
·
|
We
raised approximately $1.7 billion through the issuance of common stock,
enhanced equipment trust certificates and convertible debt and through
other new secured borrowings.
|
|
·
|
Unrestricted
cash, cash equivalents and short-term investments totaled $2.9 billion at
December 31, 2009, as compared to $2.6 billion at December 31,
2008.
|
2009
Operational Highlights
|
·
|
We
joined Star Alliance on October 27, 2009.
|
|
·
|
Consolidated
traffic decreased 3.8% and capacity decreased 5.2% during 2009 as compared
to 2008, resulting in a consolidated load factor of 81.4%, 1.2 points
higher than the prior year consolidated load factor.
|
|
·
|
We
recorded a DOT on-time arrival rate of 78.8% for Continental mainline
flights and a mainline segment completion factor of 99.5% for 2009,
compared to a DOT on-time arrival rate of 74.0% and a mainline segment
completion factor of 98.9% for 2008. We also operated 101 days
without a single mainline flight
cancellation.
|
|
·
|
We
placed into service 13 new Boeing 737-900ER, one new Boeing 737-800 and
one leased Boeing 757-300 aircraft and removed 20 Boeing 737-300 and eight
Boeing 737-500 aircraft from our mainline fleet. The average
age of our mainline fleet was nine years at December 31,
2009.
|
Outlook
The severe global economic recession
significantly diminished the demand for air travel beginning in the fourth
quarter of 2008 and disrupted the global capital markets, resulting in a
difficult financial environment for U.S. network carriers. Although
we have seen some indications that the airline industry may be experiencing the
early stages of a recovery, we cannot predict how quickly or fully demand for
air travel will recover, and continued weakness in such demand would hinder our
ability to achieve and sustain profitability. Moreover, although
access to the capital markets has improved over the past several months, as
evidenced by our recent financing transactions, we cannot give any assurances
that we will be able to obtain additional financing or otherwise access the
capital markets in the future on acceptable terms (or at all). We
must achieve and sustain profitability and/or access the capital markets to meet
our significant long-term debt and capital lease obligations and future
commitments for capital expenditures, including the acquisition of aircraft and
related spare engines.
Economic
Conditions. The severe economic recession in the U.S. and
global economies has had a significant negative impact on the demand for air
carrier services beginning in the fourth quarter of 2008. Passenger
revenue in 2009 for U.S. airlines, as reported by the Air Transport Association
of America, declined 18% compared to 2008. The decline in demand for
air travel in 2008 and 2009 disproportionately reduced the volume of high-yield
traffic, as many business travelers either curtailed their travel or purchased
lower yield economy tickets. Although recent improvements in
corporate bookings and revenue trends suggest that the airline industry may be
experiencing the early stages of a recovery, we cannot predict how quickly or
fully demand for air travel will recover. If global economic
conditions fail to improve or worsen, resulting in continuing demand weakness
and reduced revenues, we may be unable to offset the reduced revenues fully
through further cost and capacity reductions or other measures.
In addition to its effect on demand for
our services, the global economic recession severely disrupted the global
capital markets, resulting in a diminished availability of financing and higher
cost for financing that was obtainable. Although access to the
capital markets has improved over the past several months, as evidenced by our
recent financing transactions, if economic conditions again worsen or these
markets experience further disruptions, we may be unable to obtain financing on
acceptable terms (or at all) to refinance certain maturing debt we would
normally expect to refinance and to satisfy future capital
commitments.
Fuel
Costs. We benefited from significantly lower fuel costs during
2009. Our average consolidated (mainline and regional) jet fuel price
per gallon including related taxes decreased to $1.97 in 2009 from
$3.27 in 2008. If fuel prices rise significantly from their current
levels, we may be unable to raise fares or other fees sufficiently to offset
fully our increased costs.
In an effort to address the risk of
rising fuel prices, we enter into fuel hedging arrangements from time to time,
including collars that minimize the up-front costs. However, a
precipitous decline in crude oil prices, as experienced during the second half
of 2008, may result in significant costs to us in cases where our hedging
arrangements obligate us to make payments to the counterparties to the extent
that the price of crude falls below the applicable agreed-upon
amounts. Our hedge contracts for 2009, which were largely entered
into before oil prices fell, resulted in $0.23 per gallon of additional fuel
expense during 2009.
Based on our expected fuel consumption
in 2010, a one dollar change in the price of a barrel of crude oil would change
our annual fuel expense by approximately $41 million, assuming no changes to the
refining margins and our fuel hedging program. We believe that our
modern, fuel-efficient fleet continues to provide us with a competitive
advantage relative to our peers and a long-term hedge against rising fuel
prices.
Revenue-Generating and Cost
Saving Measures. In response to the significant decline in
revenue, we implemented a number of measures to raise revenues and reduce costs
that are designed to achieve approximately $100 million in annual benefits when
fully implemented in 2010. These measures included the elimination of
certain operational, management and clerical positions across the company during
2009. We also increased or implemented fees for certain services we
provide, including checked baggage.
Going forward, we intend to offer
additional goods and services relating to air travel that will permit customers
to select product attributes that they wish to consume, and pay for, and not
select other product attributes that they do not wish to consume or pay
for. A portion of the goods and services will come from “unbundling”
our current product, while another portion will come from goods and services
that we do not currently offer. The revenue that we derive from these
goods and services, which is generally referred to as ancillary revenue,
typically has higher margins than that of our core product and is an important
element of our strategy to return to profitability and sustain that
profitability.
Additionally, we will continue to
invest in technology designed to assist customers with
self-service. We believe that many of our customers desire more
control over their travel experience, and wish to use tools that will permit
them to do so through all phases of travel, from pre-purchase to
post-flight. We will also invest in technology designed to help us
make better operational decisions and more efficiently assist customers at
airports, while lowering our operating costs.
Capacity. Because
of the adverse economic conditions in 2009, we reduced our consolidated capacity
by 5.2% in 2009 and rescheduled aircraft deliveries. We do not
anticipate returning to significant capacity growth unless the level of demand
for air travel, economic conditions and our financial performance improve
sufficiently to justify such growth. We expect only modest capacity
growth for 2010, with our consolidated capacity increasing between 1.0% and
2.0%. We expect our mainline capacity to increase between 1.5% and
2.5%, with mainline domestic capacity remaining about flat and mainline
international capacity increasing between 4.0% and 5.0%. The
international capacity increase is primarily due to the run-rate of
international routes added in 2009 and the restoration of our schedule to Mexico
following our capacity reductions in 2009 related to the H1N1 flu
virus.
Our future ability to grow our capacity
could be adversely impacted by manufacturer delays in aircraft
deliveries. We currently expect the first of our 25 Boeing 787
aircraft to be delivered in the second half of 2011, approximately two and a
half years late.
Star
Alliance. On October 27, 2009, we joined Star Alliance and
implemented code-sharing and reciprocity of frequent flier programs, elite
customer recognition and airport lounge use with United, Lufthansa, Air Canada
and other Star Alliance members.
On July 10, 2009, the DOT approved our
application to join United and a group of eight other carriers within Star
Alliance that already hold antitrust immunity. This approval enables
us, United and these other immunized Star Alliance carriers to work closely
together to deliver highly competitive international flight schedules, fares and
service and provides competitive balance to antitrust-immunized carriers in
SkyTeam. Additionally, we, United, Lufthansa and Air Canada have
received final DOT approval to establish a trans-Atlantic joint venture to
create a more efficient and comprehensive trans-Atlantic network for our
respective customers, offering those customers more service, scheduling and
pricing options and establishing a framework for similar joint ventures in other
regions of the world. The DOT’s approval of antitrust immunity is
subject to certain conditions and limitations that are not expected to diminish
materially the benefits of our participation in Star Alliance or the
trans-Atlantic joint venture. On December 23, 2009, we, United and
ANA filed an application with the DOT for antitrust immunity to enable the three
carriers to establish a trans-Pacific joint venture, offering similar benefits
to our trans-Pacific customers. We are seeking a modification to our
pilot collective bargaining agreement to permit us to engage in revenue sharing
with a domestic air carrier, which is a component of the proposed joint
ventures.
The full implementation of some of the
arrangements relating to Star Alliance requires the approval of domestic and
foreign regulatory agencies. These agencies may deny us necessary
approvals, delay certain approvals or, in connection with granting any such
approvals, impose requirements, limitations or costs on us or on other Star
Alliance members, or require us or them to divest slots, gates, routes or other
assets. In certain cases, such actions could prevent us from
consummating the transactions contemplated by our alliance
agreements.
Labor
Costs. Our ability to achieve and sustain profitability also
depends on continuing our efforts to implement and maintain a more competitive
cost structure. Approximately 97% of our full-time equivalent
employees represented by unions as of December 31, 2009 are covered by
collective bargaining agreements that are currently amendable or become
amendable in 2010. In addition, on February 12, 2010, the National
Mediation Board informed us that our fleet service employees had voted in favor
of representation by the Teamsters. The election covers approximately
7,600 employees, or 6,340 full-time equivalent ramp, operations and cargo
agents. The collective bargaining agreements with our pilots,
mechanics and certain other work groups became amendable in December 2008 and
those with our flight attendants and CMI mechanics became amendable in December
2009. On July 6, 2009, our flight simulator technicians ratified a
new four-year collective bargaining agreement with us. With respect
to our workgroups with amendable contracts, we have been meeting with
representatives of the applicable unions to negotiate amended collective
bargaining agreements with a goal of reaching agreements that are fair to us and
to our employees, but to date the parties have not reached new
agreements. Negotiations often take considerable time. For
example, we began negotiating with our pilots’ union in February 2007, and we
only received their first economic proposal in December 2009. We
cannot predict the outcome of our ongoing negotiations with our unionized
workgroups, although significant increases in the pay and benefits resulting
from new collective bargaining agreements could have a material adverse effect
on us. Furthermore, there can be no assurance that our generally good
labor relations and high labor productivity can continue.
Results
of Operations
Special
Items. The comparability of our financial results between
years is affected by a number of special items. Our results for each
of the last three years include the following special items (in
millions):
|
Income
(Expense)
|
|||
|
2009
|
2008
|
2007
|
|
|
Operating
(expense) income:
|
|||
|
Aircraft-related
charges (1)
|
$ (89)
|
$ (40)
|
$ 22
|
|
Pension
settlement charges (2)
|
(29)
|
(52)
|
(31)
|
|
Severance
(1)
|
(5)
|
(34)
|
-
|
|
Route
impairment (3)
|
(12)
|
(18)
|
-
|
|
Other
(1)
|
(10)
|
(37)
|
(4)
|
|
Total
special charges classified as operating items
|
(145)
|
(181)
|
(13)
|
|
Nonoperating
(expense) income:
|
|||
|
Gains
on sales of investments (4)
|
-
|
78
|
37
|
|
Loss
on fuel hedge contracts with Lehman Brothers (5)
|
-
|
(125)
|
-
|
|
Other-than-temporary
impairment of auction rate securities (6)
|
-
|
(60)
|
-
|
|
Fair
value of auction rate securities put right received (6)
|
-
|
26
|
-
|
|
Total
special non-operating items
|
-
|
(81)
|
37
|
|
Income
tax benefit (expense):
|
|||
|
Intraperiod
tax allocation (7)
|
158
|
-
|
-
|
|
NOL
utilization (7)
|
-
|
28
|
(114)
|
|
Total
special items – income (expense)
|
$ 13
|
$(234)
|
$ (90)
|
|
(1)
|
See
Note 13 to our consolidated financial statements contained in Item 8 of
this report.
|
|
|
(2)
|
See
Note 11 to our consolidated financial statements contained in Item 8 of
this report.
|
|
|
(3)
|
See
Notes 1 and 2 to our consolidated financial statements contained in Item 8
of this report.
|
|
|
(4)
|
See
Note 14 to our consolidated financial statements contained in Item 8 of
this report.
|
|
|
(5)
|
See
Note 7 to our consolidated financial statements contained in Item 8 of
this report.
|
|
|
(6)
|
See
Note 6 to our consolidated financial statements contained in Item 8 of
this report.
|
|
|
(7)
|
See
Note 12 to our consolidated financial statements contained in Item 8 of
this report.
|
|
Comparison
of Year Ended December 31, 2009 to December 31, 2008
Consolidated Results of
Operations
Significant components of our
consolidated operating results for the year ended December 31 were as follows
(in millions, except percentage changes):
|
Increase
|
%
Increase
|
|||||||
|
2009
|
2008
|
(Decrease)
|
(Decrease)
|
|||||
|
Operating
revenue
|
$12,586
|
$15,241
|
$ (2,655)
|
(17.4)%
|
||||
|
Operating
expenses
|
12,732
|
15,555
|
(2,823)
|
(18.1)%
|
||||
|
Operating
loss
|
(146)
|
(314)
|
(168)
|
(53.5)%
|
||||
|
Nonoperating
income (expense)
|
(293)
|
(381)
|
(88)
|
(23.1)%
|
||||
|
Income
tax benefit
|
157
|
109
|
48
|
44.0
%
|
||||
|
Net
loss
|
$ (282)
|
$ (586)
|
$ (304)
|
(51.9)%
|
||||
Each of these items is discussed in the
following sections.
Operating
Revenue. The table below shows components of operating revenue
for the year ended December 31, 2009 and period to period comparisons for
operating revenue, passenger revenue per available seat mile (“RASM”) and
available seat miles (“ASMs”) by geographic region for our mainline and regional
operations:
|
Revenue
|
%
Increase
(Decrease)
in
2009 vs
2008
|
|||||
|
(in
millions)
|
Revenue
|
RASM
|
ASMs
|
|||
|
Passenger
revenue:
|
||||||
|
Domestic
|
$ 4,581
|
(18.7)%
|
(12.6)%
|
(6.9)%
|
||
|
Trans-Atlantic
|
2,249
|
(24.6)%
|
(17.2)%
|
(8.9)%
|
||
|
Latin
America
|
1,483
|
(15.3)%
|
(16.0)%
|
0.9 %
|
||
|
Pacific
|
931
|
(8.4)%
|
(15.4)%
|
8.5 %
|
||
|
Total
Mainline
|
9,244
|
(18.8)%
|
(14.5)%
|
(5.0)%
|
||
|
Regional
|
1,894
|
(19.6)%
|
(14.0)%
|
(6.4)%
|
||
|
Total
|
11,138
|
(18.9)%
|
(14.5)%
|
(5.2)%
|
||
|
Cargo
|
366
|
(26.4)%
|
||||
|
Other
|
1,082
|
7.4 %
|
||||
|
Operating
revenue
|
$12,586
|
(17.4)%
|
||||
Passenger revenue decreased
significantly in 2009 as compared to 2008 due to reduced traffic, less capacity
and lower RASM. The reduced traffic and lower RASM reflects lower
fares and less high-yield business traffic attributable to the global
recession. The decline in demand has disproportionately reduced the
volume of high-yield traffic, as many business travelers are either curtailing
their travel or purchasing lower yield economy tickets.
Cargo revenue decreased due to lower
fuel surcharge rates and decreased freight volume. Other revenue
increased due to the implementation of new fees for checking bags in 2008 and a
change in how certain costs are handled under our capacity purchase agreement
with ExpressJet, offset in part by a reduction in sublease income received from
ExpressJet and decreased revenue associated with sales of mileage credits in our
OnePass frequent flyer program and ticket change fees.
Operating
Expenses. The table below shows period-to-period comparisons
by type of operating expense for our consolidated operations for the year ended
December 31 (in millions, except percentage changes):
|
2009
|
2008
|
Increase
(Decrease)
|
%
Increase
(Decrease)
|
|||
|
Aircraft fuel and related
taxes
|
$3,317
|
$ 5,919
|
$(2,602)
|
(44.0)%
|
||
|
Wages, salaries and related
costs
|
3,137
|
2,957
|
180
|
6.1 %
|
||
|
Aircraft rentals
|
934
|
976
|
(42)
|
(4.3)%
|
||
|
Regional capacity purchase,
net
|
848
|
1,059
|
(211)
|
(19.9)%
|
||
|
Landing fees and other
rentals
|
841
|
853
|
(12)
|
(1.4)%
|
||
|
Distribution costs
|
624
|
717
|
(93)
|
(13.0)%
|
||
|
Maintenance, materials and
repairs
|
617
|
612
|
5
|
0.8
%
|
||
|
Depreciation and
amortization
|
494
|
438
|
56
|
12.8 %
|
||
|
Passenger services
|
373
|
406
|
(33)
|
(8.1)%
|
||
|
Special charges
|
145
|
181
|
(36)
|
NM
|
||
|
Other
|
1,402
|
1,437
|
(35)
|
(2.4)%
|
||
|
$12,732
|
$15,555
|
$(2,823)
|
(18.1)%
|
|||
|
NM
– Not meaningful
|
||||||
Operating expenses decreased 18.1%
primarily due to the following:
|
·
|
Aircraft fuel and
related taxes decreased due to a 39.8% decrease in consolidated jet
fuel prices and decreased flying. Our average jet fuel price
per gallon including related taxes decreased to $1.97 in 2009 from $3.27
in 2008. Our average jet fuel price includes losses related to
our fuel hedging program of $0.23 per gallon in 2009 compared to losses of
$0.10 per gallon in 2008.
|
|
·
|
Wages, salaries and
related costs increased primarily due to $155 million of higher
pension expense resulting primarily from lower returns on plan assets in
2008. Higher wage rates and health insurance costs were offset
by a 5% reduction in the number of full-time equivalent
employees.
|
|
·
|
Aircraft
rentals decreased due to the retirement of leased Boeing 737
aircraft in 2008 and 2009. New aircraft delivered in 2008 and
2009 were purchased, with the related expense being reported in
depreciation and amortization and interest expense.
|
|
·
|
Regional capacity
purchase, net, includes expenses related to our capacity purchase
agreements. Our most significant capacity purchase agreement is
with ExpressJet. We also have agreements with Chautauqua,
Colgan and CommutAir. The net amounts consisted of the
following for the year ended December 31 (in millions, except percentage
changes):
|
|
Increase
|
%
Increase
|
||||||||
|
2009
|
2008
|
(Decrease)
|
(Decrease)
|
||||||
|
Capacity
purchase expenses
|
$848
|
$1,181
|
$(333)
|
(28.2)%
|
|||||
|
Aircraft
sublease income
|
-
|
(122)
|
(122)
|
(100.0)%
|
|||||
|
Regional
capacity purchase, net
|
$848
|
$1,059
|
$(211)
|
(19.9)%
|
|||||
|
Capacity
purchase expenses decreased due to rate reductions in conjunction with our
amended capacity purchase agreement with ExpressJet effective July 1, 2008
and capacity reductions. There was no aircraft sublease income
in 2009 because ExpressJet no longer pays sublease rent for aircraft
operated on our behalf. Sublease income on aircraft that were
subleased to other operators, but not operated on our behalf, of $23
million and $76 million for 2009
and 2008, respectively, is recorded as other revenue.
|
|
|
·
|
Distribution
costs decreased due to lower credit card discount fees, booking
fees and travel agency commissions, all of which resulted from decreased
passenger revenue.
|
|
·
|
Depreciation and
amortization expense increased in 2009 due to higher capitalizable
project costs, acceleration of depreciation on exiting aircraft and
increased depreciation from new aircraft.
|
|
·
|
Passenger
services expenses decreased due to fewer meals and beverages in
2009 compared to 2008, resulting from the decreased demand for air travel
in the weak economy, and lower mishandled baggage
expenses.
|
|
·
|
Special
charges. See Note 13 to our consolidated financial
statements contained in Item 8 of this report for a discussion of the
special charges.
|
|
·
|
Other operating
expenses decreased due to insurance settlements received in 2009
related to Hurricane Ike, reduced technology expenses resulting from new
contracts, lower expense due to station closings, the impact on certain
expenses of more favorable foreign currency exchange rates, lower OnePass
reward expenses and lower ground handling, security and outside services
costs as a result of capacity reductions, partially offset by increases in
expenses resulting from changes in who is contractually responsible for
certain costs under our capacity purchase agreement with
ExpressJet.
|
Nonoperating Income
(Expense). Nonoperating expense decreased $88 million in 2009
compared 2008 due to the following:
|
·
|
Net interest
expense increased $44 million primarily as a result of lower
interest income.
|
|
·
|
Gain on sale of
investments in 2008 consisted of $78 million related to the sale of
our remaining interests in Copa.
|
|
·
|
Other-than-temporary
impairment losses on investments included a loss of $60
million in 2008 to reflect the decline in the value of our student
loan-related auction rate securities.
|
|
·
|
Other nonoperating
income (expense) included fuel hedge ineffectiveness gains of $7
million and $26 million in 2009
and 2008, respectively. The ineffectiveness was caused by our
non-jet fuel derivatives experiencing a higher relative increase in value
than the jet fuel being hedged. Other nonoperating income
(expense) in 2009 also included foreign exchange gains of $8 million,
compared to losses of $37 million in 2008, and an increase in the fair
value of the cash surrender value of company-owned life insurance
policies. Additionally, other nonoperating income (expense) in
2008 included $125 million expense related to changes in the fair value of
fuel derivative contracts with Lehman Brothers that were deemed
ineffective after Lehman Brothers declared bankruptcy and a gain of $26
million related to our receipt of a put right covering certain of the
student loan-related auction rate
securities.
|
Income
Taxes. We are required to consider all items (including items
recorded in other comprehensive income) in determining the amount of tax benefit
that results from a loss from continuing operations and that should be allocated
to continuing operations. As a result, we recorded a $158 million
non-cash tax benefit on the loss from continuing operations for 2009, which is
exactly offset by income tax expense on other comprehensive
income. However, while the income tax benefit from continuing
operations is reported in our consolidated statement of operations, the income
tax expense on other comprehensive income is recorded directly to other
comprehensive income, which is a component of stockholders’
equity. Because the income tax expense on other comprehensive income
is equal to the income tax benefit from continuing operations, our net deferred
tax position at December 31, 2009 is not impacted by this tax
allocation.
Excluding this special item, our
effective tax rates differ from the federal statutory rate of 35% primarily due
to the following: changes in the valuation allowance, expenses that
are not deductible for federal income tax purposes and state income
taxes. We are required to provide a valuation allowance for our
deferred tax assets in excess of deferred tax liabilities because we have
concluded that it is more likely than not that such deferred tax assets
ultimately will not be realized.
Segment
Results of Operations
We have two reportable
segments: mainline and regional. The mainline segment
consists of flights to cities using larger jets while the regional segment
currently consists of flights with a capacity of 79 or fewer
seats. As of December 31, 2009, the regional segment was operated by
ExpressJet, Chautauqua, CommutAir and Colgan through capacity purchase
agreements. Under these agreements, we purchase all of the capacity
related to aircraft covered by the contracts and are responsible for setting
prices and selling all of the related seat inventory. In exchange for
the regional carriers’ operation of the flights, we pay the regional carriers
for each scheduled block hour based on agreed formulas. Under the
agreements, we recognize all passenger, cargo and other revenue associated with
each flight, and are responsible for most revenue-related expenses, including
commissions, reservations and catering.
We evaluate segment performance based
on several factors, of which the primary financial measure is operating income
(loss). However, we do not manage our business or allocate resources
based on segment operating profit or loss because (1) our flight schedules are
designed to maximize revenue from passengers flying, (2) many operations of the
two segments are substantially integrated (for example, airport operations,
sales and marketing, scheduling and ticketing), and (3) management decisions are
based on their anticipated impact on the overall network, not on one individual
segment.
Mainline Results of
Operations. Significant components of our mainline segment’s
operating results for the year ended December 31 were as follows (in millions,
except percentage changes):
|
2009
|
2008
|
Increase
(Decrease)
|
%
Increase
(Decrease)
|
|||||
|
Operating
revenue
|
$10,635
|
$12,827
|
$(2,192)
|
(17.1)%
|
||||
|
Operating
expenses:
|
||||||||
|
Aircraft
fuel and related taxes
|
2,755
|
4,905
|
(2,150)
|
(43.8)%
|
||||
|
Wages,
salaries and related costs
|
2,968
|
2,850
|
118
|
4.1
%
|
||||
|
Aircraft
rentals
|
621
|
662
|
(41)
|
(6.2)%
|
||||
|
Landing
fees and other rentals
|
741
|
782
|
(41)
|
(5.2)%
|
||||
|
Distribution
costs
|
534
|
611
|
(77)
|
(12.6)%
|
||||
|
Maintenance,
materials and repairs
|
617
|
612
|
5
|
0.8 %
|
||||
|
Depreciation
and amortization
|
481
|
427
|
54
|
12.6 %
|
||||
|
Passenger
services
|
349
|
384
|
(35)
|
(9.1)%
|
||||
|
Special
charges
|
125
|
155
|
(30)
|
NM
|
||||
|
Other
|
1,280
|
1,365
|
(85)
|
(6.2)%
|
||||
|
10,471
|
12,753
|
(2,282)
|
(17.9)%
|
|||||
|
Operating
income
|
$ 164
|
$ 74
|
$ 90
|
121.6 %
|
||||
The variances in specific line items
for the mainline segment were due to the same factors discussed under
consolidated results of operations.
Regional Results of
Operations. Significant components of our regional segment’s
operating results for the year ended December 31 were as follows (in millions,
except percentage changes):
|
Increase
|
%
Increase
|
|||||||
|
2009
|
2008
|
(Decrease)
|
(Decrease)
|
|||||
|
Operating
revenue
|
$1,951
|
$2,414
|
$(463)
|
(19.2)%
|
||||
|
Operating
expenses:
|
||||||||
|
Aircraft
fuel and related taxes
|
562
|
1,014
|
(452)
|
(44.6)%
|
||||
|
Wages,
salaries and related costs
|
169
|
107
|
62
|
57.9 %
|
||||
|
Aircraft
rentals
|
313
|
314
|
(1)
|
(0.3)%
|
||||
|
Regional
capacity purchase, net
|
848
|
1,059
|
(211)
|
(19.9)%
|
||||
|
Landing
fees and other rentals
|
100
|
71
|
29
|
40.8 %
|
||||
|
Distribution
costs
|
90
|
106
|
(16)
|
(15.1)%
|
||||
|
Depreciation
and amortization
|
13
|
11
|
2
|
18.2 %
|
||||
|
Passenger
services
|
24
|
22
|
2
|
9.1 %
|
||||
|
Special
charges
|
20
|
26
|
(6)
|
NM
|
||||
|
Other
|
122
|
72
|
50
|
69.4 %
|
||||
|
2,261
|
2,802
|
(541)
|
(19.3)%
|
|||||
|
Operating
loss
|
$ (310)
|
$(388)
|
$ (78)
|
(20.1)%
|
||||
The reported results of our regional
segment do not reflect the total contribution of the regional segment to our
system-wide operations. The regional segment generates revenue for
the mainline segment as it feeds passengers from smaller cities into our
hubs. The variances in specific line items for the regional segment
reflect generally the same factors discussed under consolidated results of
operations, with the exception of wages, salaries and related costs, landing
fees and other rentals, passenger services and other operating
expenses. These expenses increased for the regional segment due to
changes in who is contractually responsible for certain costs under our capacity
purchase agreement with ExpressJet and the transition of management of certain
airports to us from ExpressJet.
Comparison
of Year Ended December 31, 2008 to December 31, 2007
Consolidated Results of
Operations
Significant components of our
consolidated operating results for the year ended December 31 were as follows
(in millions, except percentage changes):
|
Increase
|
%
Increase
|
|||||||
|
2008
|
2007
|
(Decrease)
|
(Decrease)
|
|||||
|
Operating
revenue
|
$15,241
|
$14,232
|
$ 1,009
|
7.1%
|
||||
|
Operating
expenses
|
15,555
|
13,545
|
2,010
|
14.8%
|
||||
|
Operating
income (loss)
|
(314)
|
687
|
(1,001)
|
NM
|
||||
|
Nonoperating
income (expense)
|
(381)
|
(131)
|
250
|
NM
|
||||
|
Income
tax benefit (expense)
|
109
|
(117)
|
226
|
NM
|
||||
|
Net
income (loss)
|
$ (586)
|
$ 439
|
$(1,025)
|
NM
|
||||
Each of these items is discussed in the
following sections.
Operating
Revenue. The table below shows components of operating revenue
for the year ended December 31, 2008 and period to period comparisons for
operating revenue, RASM and ASMs by geographic region for our mainline and
regional operations:
|
Revenue
|
%
Increase
(Decrease)
in
2008 vs
2007
|
|||||
|
(in
millions)
|
Revenue
|
RASM
|
ASMs
|
|||
|
Passenger
revenue:
|
||||||
|
Domestic
|
$ 5,633
|
1.2 %
|
6.4 %
|
(4.9)%
|
||
|
Trans-Atlantic
|
2,983
|
11.6 %
|
2.5 %
|
8.9 %
|
||
|
Latin
America
|
1,750
|
12.1 %
|
9.4 %
|
2.5 %
|
||
|
Pacific
|
1,016
|
2.3 %
|
8.5 %
|
(5.6)%
|
||
|
Total
Mainline
|
11,382
|
5.4 %
|
6.0 %
|
(0.6)%
|
||
|
Regional
|
2,355
|
7.0 %
|
3.8 %
|
3.1 %
|
||
|
Total
|
13,737
|
5.7 %
|
5.9 %
|
(0.2)%
|
||
|
Cargo
|
497
|
9.7 %
|
||||
|
Other
|
1,007
|
28.4 %
|
||||
|
Operating
revenue
|
$15,241
|
7.1 %
|
||||
Passenger revenue increased due to
increased international traffic on increased capacity and increased
fares. The improved RASM reflects our actions taken to increase fares
and implement more restrictions on low fare tickets, as well as our domestic
capacity reductions commenced in September 2008.
Cargo revenue increased due to higher
fuel surcharge rates and increased mail volume. Other revenue
increased due to higher revenue associated with sales of mileage credits on our
OnePass frequent flyer program, higher ticket change fees, the implementation of
new fees for checking bags and changes in how certain costs are handled under
the ExpressJet CPA.
Operating
Expenses. The table below shows period-to-period comparisons
by type of operating expense for our consolidated operations for the year ended
December 31 (in millions, except percentage changes):
|
2008
|
2007
|
Increase
(Decrease)
|
%
Increase
(Decrease)
|
|||
|
Aircraft fuel and related
taxes
|
$ 5,919
|
$ 4,034
|
$1,885
|
46.7 %
|
||
|
Wages, salaries and related
costs
|
2,957
|
3,127
|
(170)
|
(5.4)%
|
||
|
Aircraft rentals
|
976
|
994
|
(18)
|
(1.8)%
|
||
|
Regional capacity purchase,
net
|
1,059
|
1,113
|
(54)
|
(4.9)%
|
||
|
Landing fees and other
rentals
|
853
|
790
|
63
|
8.0 %
|
||
|
Distribution costs
|
717
|
682
|
35
|
5.1 %
|
||
|
Maintenance, materials and
repairs
|
612
|
621
|
(9)
|
(1.4)%
|
||
|
Depreciation and
amortization
|
438
|
413
|
25
|
6.1 %
|
||
|
Passenger services
|
406
|
389
|
17
|
4.4 %
|
||
|
Special charges
|
181
|
13
|
168
|
NM
|
||
|
Other
|
1,437
|
1,369
|
68
|
5.0 %
|
||
|
$15,555
|
$13,545
|
$2,010
|
14.8 %
|
|||
Operating expenses increased 14.8%
primarily due to the following:
|
·
|
Aircraft fuel and
related taxes increased due to a 50.0% increase in jet fuel
prices. Our average jet fuel price per gallon including related
taxes increased to $3.27 in 2008 from $2.18 in 2007. Our
average jet fuel price includes losses related to our fuel hedging program
of $0.10 per gallon in 2008, compared to gains of $0.02 per gallon in
2007.
|
|
·
|
Wages, salaries and
related costs decreased primarily due to a $172 million decrease in
profit sharing expenses. Although the average number of full
time equivalent employees decreased approximately 1% in 2008, the impact
on expenses was offset by wage increases.
|
|
·
|
Aircraft
rentals decreased due to the retirement of several Boeing 737
aircraft. New aircraft delivered in 2008 were all purchased,
with the related expense being reflected in depreciation and
amortization.
|
|
·
|
Regional capacity
purchase, net includes expenses related to our capacity purchase
agreements. Our most significant capacity purchase agreement is
with ExpressJet. Regional capacity purchase, net is net of our
rental income on aircraft leased to ExpressJet and flown for us in 2007
and the first six months of 2008. Under the ExpressJet CPA,
ExpressJet no longer pays sublease rent for aircraft operated on our
behalf. The net amounts consisted of the following for the year
ended December 31 (in millions, except percentage
changes):
|
|
Increase
|
%
Increase
|
||||||||
|
2008
|
2007
|
(Decrease)
|
(Decrease)
|
||||||
|
Capacity
purchase expenses
|
$1,181
|
$1,379
|
$(198)
|
(14.4)%
|
|||||
|
Aircraft
sublease income
|
(122)
|
(266)
|
(144)
|
(54.1)%
|
|||||
|
Regional
capacity purchase, net
|
$1,059
|
$1,113
|
$ (54)
|
(4.9)%
|
|||||
|
Regional
capacity purchase, net did not change significantly compared to
2007. Sublease income on aircraft that were subleased to other
operators, but not operated on our behalf, of $76 million and $79 million
for 2008 and 2007, respectively, is recorded as other
revenue.
|
|||||||||
|
·
|
Landing fees and other
rentals increased primarily due to a higher number of international
flights and rate increases.
|
||||||||
|
·
|
Distribution
costs, which consist primarily of reservation booking fees, credit
card fees and commissions, increased due to a 5.7% increase in passenger
revenue.
|
||||||||
|
·
|
Other operating
expenses increased primarily due to a greater number of
international flights, which resulted in increased air navigation fees and
ground handling, security and related expenses, changes in who is
contractually responsible for certain costs under the ExpressJet CPA and
higher OnePass reward expenses.
|
||||||||
|
·
|
Special
charges. See Note 13 to our consolidated financial
statements contained in Item 8 of this report for a discussion of the
special charges.
|
||||||||
Nonoperating Income
(Expense). Nonoperating income (expense) includes net interest
expense (interest expense less interest income and capitalized interest), gains
from dispositions of investments and any ineffectiveness of our derivative
financial instruments. Total nonoperating expense increased $250
million in 2008 compared to 2007 due to the following:
|
·
|
Net interest
expense increased $72 million primarily due to lower interest
income resulting from lower interest rates on investments and lower cash,
cash equivalents and short-term investments balances.
|
|
·
|
Gain on sale of
investments of $78 million in 2008 related to the sale of our
remaining interests in Copa. Gain on
sale of investments in 2007 consisted of $30 million related to the sale
of our interest in ARINC, Inc. (“ARINC”) and $7 million related to the
sale of our remaining interest in Holdings.
|
|
·
|
Other-than-temporary
impairment losses on investments included a loss of $60
million in 2008 to reflect the decline in the value of our student
loan-related auction rate securities.
|
|
·
|
Other nonoperating
income (expense) included $125 million expense related to changes
in the fair value of fuel derivative contracts with Lehman Brothers that
were deemed ineffective after Lehman Brothers declared bankruptcy in
2008. This account also includes other fuel hedge
ineffectiveness gains of $26 million and $14 million in 2008 and 2007,
respectively, caused by our non-jet fuel derivatives experiencing a higher
relative change in value than the jet fuel being hedged. Other
nonoperating income expense in 2008 also includes a gain of $26 million
related to our receipt of a put right covering certain of the student
loan-related auction rate securities.
Other
variances in other nonoperating income (expense) include $37 million of
foreign currency exchange losses in 2008 compared to gains of $2 million
in 2007, a $16 million increase in the fair value of the cash surrender
value of company owned life insurance policies in 2008 compared to a $3
million increase in 2007 and $6 million less equity in earnings of other
companies in 2008 compared to 2007 resulting from our decreased ownership
of Copa and Holdings.
|
Income
Taxes. In the fourth quarter of 2007, we recorded income tax
expense of $114 million to increase the valuation allowance to be fully reserved
for certain NOLs, expiring in 2008 through 2011, which more likely than not
would not be realized prior to their expiration. In the second
quarter of 2008, we recorded an income tax benefit of $28 million resulting from
higher utilization of those NOLs than had been previously
anticipated.
Segment
Results of Operations
Mainline Results of
Operations. Significant components of our mainline segment’s
operating results for the year ended December 31 were as follows (in millions,
except percentage changes):
|
2008
|
2007
|
Increase
(Decrease)
|
%
Increase
(Decrease)
|
|||||
|
Operating
revenue
|
$12,827
|
$12,019
|
$ 808
|
6.7 %
|
||||
|
Operating
expenses:
|
||||||||
|
Aircraft
fuel and related taxes
|
4,905
|
3,354
|
1,551
|
46.2 %
|
||||
|
Wages,
salaries and related costs
|
2,850
|
3,073
|
(223)
|
(7.3)%
|
||||
|
Aircraft
rentals
|
662
|
680
|
(18)
|
(2.6)%
|
||||
|
Landing
fees and other rentals
|
782
|
738
|
44
|
6.0 %
|
||||
|
Distribution
costs
|
611
|
583
|
28
|
4.8 %
|
||||
|
Maintenance,
materials and repairs
|
612
|
621
|
(9)
|
(1.4)%
|
||||
|
Depreciation
and amortization
|
427
|
400
|
27
|
6.8 %
|
||||
|
Passenger
services
|
384
|
374
|
10
|
2.7 %
|
||||
|
Special
charges
|
155
|
13
|
142
|
NM
|
||||
|
Other
|
1,365
|
1,335
|
30
|
2.2 %
|
||||
|
12,753
|
11,171
|
1,582
|
14.2 %
|
|||||
|
Operating
income
|
$ 74
|
$ 848
|
$(774)
|
(91.3)%
|
||||
The variances in specific line items
for the mainline segment were due to the same factors discussed under
consolidated results of operations.
Regional Results of
Operations. Significant components of our regional segment’s
operating results for the year ended December 31 were as follows (in millions,
except percentage changes):
|
Increase
|
%
Increase
|
|||||||
|
2008
|
2007
|
(Decrease)
|
(Decrease)
|
|||||
|
Operating
revenue
|
$2,414
|
$2,213
|
$ 201
|
9.1 %
|
||||
|
Operating
expenses:
|
||||||||
|
Aircraft
fuel and related taxes
|
1,014
|
680
|
334
|
49.1 %
|
||||
|
Wages,
salaries and related costs
|
107
|
54
|
53
|
98.1 %
|
||||
|
Aircraft
rentals
|
314
|
314
|
-
|
-
|
||||
|
Regional
capacity purchase, net
|
1,059
|
1,113
|
(54)
|
(4.9)%
|
||||
|
Landing
fees and other rentals
|
71
|
52
|
19
|
36.5
%
|
||||
|
Distribution
costs
|
106
|
99
|
7
|
7.1 %
|
||||
|
Depreciation
and amortization
|
11
|
13
|
(2)
|
(15.4)%
|
||||
|
Passenger
services
|
22
|
15
|
7
|
46.7 %
|
||||
|
Special
charges
|
26
|
-
|
26
|
NM
|
||||
|
Other
|
72
|
34
|
38
|
NM
|
||||
|
2,802
|
2,374
|
428
|
18.0 %
|
|||||
|
Operating
loss
|
$(388)
|
$(161)
|
$(227)
|
NM
|
||||
The reported results of our regional
segment do not reflect the total contribution of the regional segment to our
system-wide operations. The regional segment generates revenue for
the mainline segment as it provides flow traffic to our hubs. The
variances in material line items for the regional segment reflect generally the
same factors discussed under consolidated results of operations and changes in
who is contractually responsible for certain costs under the ExpressJet
CPA.
Liquidity
and Capital Resources
As of December 31, 2009, we had $2.9
billion in unrestricted cash, cash equivalents and short-term investments, which
is $213 million higher than at December 31, 2008. At December 31,
2009, we also had $164 million of restricted cash, cash equivalents and
short-term investments, which is primarily collateral for estimated future
workers’ compensation claims, credit card processing contracts, letters of
credit and performance bonds. Restricted cash, cash equivalents and
short-term investments at December 31, 2008 totaled $190 million. The
decrease in restricted cash is primarily the result of the substitution of cash
collateral for student loan-related auction rate securities previously posted as
collateral under our workers’ compensation program. The use of cash
as collateral lowered the amount required to be posted.
As is the case with many of our
principal competitors, we have a high proportion of debt compared to our
capital. We have a significant amount of fixed obligations, including
debt, aircraft leases and financings, leases of airport property and other
facilities and pension funding obligations. At December 31, 2009, we
had approximately $6.3 billion of debt and capital lease obligations, including
$2.1 billion that will come due by the end of 2011 (consisting of $1.0 billion
during 2010 and $1.1 billion during 2011). In addition, we have
substantial non-cancelable commitments for capital expenditures, including the
acquisition of new aircraft and related spare engines.
We do not currently have any undrawn
lines of credit or revolving credit facilities and most of our otherwise readily
financeable assets are encumbered. The global economic recession
severely disrupted the global capital markets, resulting in a diminished
availability of financing and higher cost for financing that was
obtainable. Although access to the capital markets has improved over
the past several months, as evidenced by our recent financing transactions, we
cannot give any assurances that we will be able to obtain additional financing
or otherwise access the capital markets in the future on acceptable terms (or at
all). We must achieve and sustain profitability and/or access the
capital markets to meet our significant long-term debt and capital lease
obligations and future commitments for capital expenditures, including the
acquisition of aircraft and related spare engines.
Operating
Activities. Net cash flows provided by operations for the year
ended December 31, 2009 were $362 million, an improvement of $686 million from
the $324 million in net cash used by operating activities in
2008. The increase in cash flows provided by operations in 2009
compared to 2008 is primarily the result of an improvement in operating
results. Our operating loss was $168 million lower in 2009 than in
2008. Also, operating cash flows in 2008 were negatively impacted by
our posting $171 million of cash collateral related to our fuel hedges, which
were in a net liability position at December 31, 2008.
Investing
Activities. Cash flows used in investing activities for the
year ended December 31 were as follows (in millions):
|
Cash
|
||||||
|
Increase
|
||||||
|
2009
|
2008
|
(Decrease)
|
||||
|
Capital
expenditures
|
$(381)
|
$(373)
|
$ (8)
|
|||
|
Aircraft
purchase deposits refunded (paid), net
|
29
|
102
|
(73)
|
|||
|
(Purchase)
sale of short-term investments, net
|
180
|
115
|
65
|
|||
|
Proceeds
from sales of investments, net
|
30
|
171
|
(141)
|
|||
|
Expenditures
for airport operating rights
|
(22)
|
(131)
|
109
|
|||
|
Proceeds
from sales of property and equipment
|
64
|
113
|
(49)
|
|||
|
Decrease
(increase) in restricted cash, cash equivalents
and
short-term investments
|
26
|
(13)
|
39
|
|||
|
Other
cash flows from investing activities
|
(4)
|
-
|
(4)
|
|||
|
Net
cash used in investing activities
|
$ (78)
|
$ (16)
|
$ (62)
|
|||
Capital expenditures for 2009 consisted
of $264 million of fleet expenditures and $117 million of non-fleet
expenditures. Fleet expenditures in 2009 included the portion of the
aircraft purchase price in excess of financings, the installation of winglets,
the installation of Audio Video on Demand entertainment systems and flat-bed
BusinessFirst seats for certain Boeing 777 and 757 aircraft and flight
simulators and training equipment. The 2009 non-fleet expenditures
were primarily for Star Alliance-related costs, ground service equipment and
technology and terminal enhancements.
We have substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of December 31, 2009, we had firm commitments to
purchase 84 new Boeing aircraft scheduled for delivery from 2010 through 2016,
with an estimated aggregate cost of $5.1 billion including related spare
engines. In addition to our firm order aircraft, we had options to
purchase a total of 98 additional Boeing aircraft as of December 31,
2009. Projected net capital expenditures for 2010 are as follows (in
millions):
|
Fleet
related (excluding aircraft to be acquired through the issuance of
debt)
|
$265
|
|
Non-fleet
|
140
|
|
Net
capital expenditures
|
$405
|
|
Aircraft
purchase deposits
|
25
|
|
Projected
net capital expenditures
|
$430
|
Projected fleet expenditures include
the portion of the aircraft purchase price in excess of financings, flight
simulators and training equipment related to Boeing 787 aircraft, aircraft
reconfigurations and other product enhancements including winglet installations,
Audio Video on Demand systems, flat-bed BusinessFirst seats and in-seat power
installations. Projected non-fleet capital expenditures are primarily
for Star Alliance-related costs and technology and terminal
enhancements. While some of our projected capital expenditures are
related to projects we have committed to, a significant number of projects can
be deferred. Should economic conditions warrant, we will reduce our
capital expenditures, and expect to be able to do so without materially
impacting our operations.
Net purchase deposits refunded were
lower in 2009 as the result of fewer aircraft deliveries in 2009 than in
2008.
Proceeds from sales of short-term
investments were higher in 2009 than in 2008 due to the conversion of short-term
investments to cash and cash equivalents.
We sold eight Boeing 737-500 aircraft
to foreign buyers during 2009 and received cash proceeds of $53 million, in
addition to deposits received in 2008. We sold one grounded Boeing
737-500 aircraft to a foreign buyer in February 2010 and we have agreements to
sell the three remaining grounded Boeing 737-500 aircraft to foreign
buyers. These sales are subject to customary closing conditions, some
of which are outside of our control, and we cannot give any assurances that the
buyers of these aircraft will be able to obtain financing for these
transactions, that there will not be delays in deliveries or that the closing of
these transactions will occur. We hold cash deposits that secure the
buyers’ obligations under the aircraft sale contracts, and we are entitled to
damages under the aircraft sale contract if the buyers do not take delivery of
the aircraft when required.
Expenditures for airport operating
rights relate to our acquisition of slots at London’s Heathrow
Airport.
Financing
Activities. Cash flows provided by financing activities for
the year ended December 31 were as follows (in millions):
|
Cash
|
||||||
|
Increase
|
||||||
|
2009
|
2008
|
(Decrease)
|
||||
|
Payments
on long-term debt and capital lease obligations
|
$(610)
|
$(641)
|
$ 31
|
|||
|
Proceeds
from issuance of long-term debt, net
|
538
|
642
|
(104)
|
|||
|
Proceeds
from public offering of common stock, net
|
158
|
358
|
(200)
|
|||
|
Proceeds
from issuance of common stock pursuant to stock plans
|
11
|
18
|
(7)
|
|||
|
Net
cash provided by financing activities
|
$ 97
|
$ 377
|
$(280)
|
|||
Debt Secured by
Aircraft. In April 2007, we obtained financing for 12 Boeing
737-800s and 18 Boeing 737-900ERs. We applied this financing to 30
Boeing aircraft delivered to us in 2008 and 2009 and recorded related debt of
$1.1 billion, including $121 million recorded in 2009 and $1.0 billion recorded
in 2008.
On July 1, 2009, we obtained financing
for 12 currently owned Boeing aircraft and five new Boeing 737-900ER
aircraft. An enhanced equipment trust raised $390 million through the
issuance of a single class of enhanced equipment trust certificates bearing
interest at 9%. During 2009, we issued equipment notes with respect
to the 12 currently owned aircraft, resulting in proceeds of $249 million cash
for our general corporate purposes, and equipment notes with respect to five new
Boeing 737-900ER aircraft, resulting in proceeds of $141 million to finance the
purchase of the aircraft. Principal payments on the equipment notes
and the corresponding distribution of these payments to certificate holders are
scheduled from January 2010 through July 2016.
In November 2009, we obtained financing
for eight currently owned Boeing aircraft, nine new Boeing 737-800 aircraft and
two new Boeing 777 aircraft. These aircraft are expected to be
refinanced or delivered by August 31, 2010. In connection with this
financing, enhanced equipment trusts raised $644 million through the issuance of
two classes of enhanced equipment trust certificates. Class A
certificates, with an aggregate principal amount of $528 million, bear interest
at 7.25% and Class B certificates, with an aggregate principal amount of $117
million, bear interest at 9.25%. The proceeds from the sale of the
certificates are initially being held by a depositary in escrow for the benefit
of the certificate holders until we issue equipment notes to the trust, which
will purchase such notes with a portion of the escrowed funds. These
escrowed funds are not guaranteed by us and are not reported as debt on our
consolidated balance sheet because the proceeds held by the depositary are not
our assets. Any unused proceeds will be distributed directly to the
certificate holders. Principal payments on the equipment notes and
the corresponding distribution of these payments to certificate holders will
begin in November 2010 and will end in November 2019 for Class A certificates
and in May 2017 for Class B certificates.
During 2009, we entered into loan
agreements under which we borrowed $180 million. This indebtedness is
secured by five new Boeing 737-900ER aircraft and two Boeing 737-800 aircraft
that this debt refinanced. During 2008, we obtained $268 million
through three separate financings secured by two new Boeing 737-900ER aircraft,
seven Boeing 757-200 aircraft and five Boeing 737-700 aircraft.
We have backstop financing available
for the three other Boeing 737 aircraft
scheduled for delivery in 2010, subject to customary closing
conditions. However, we do not have backstop financing or any other
financing currently in place for the balance of the Boeing aircraft on
order. Further financing will be needed to satisfy our capital
commitments for our firm order aircraft and other related capital
expenditures. We can provide no assurance that the backstop financing
or any other financing not already in place for our aircraft deliveries will be
available to us when needed on acceptable terms or at all. Since the
commitments for firm order aircraft are non-cancelable, and assuming no breach
of the agreement by Boeing, if we are unable to obtain financing and cannot
otherwise satisfy our commitment to purchase these aircraft, the manufacturer
could exercise its rights and remedies under applicable law, such as seeking to
terminate the contract for a material breach, selling the aircraft to one or
more other parties and suing us for damages to recover any resulting losses
incurred by the manufacturer.
Other Financing
Activities. In December 2009, we issued $230 million in
principal amount of 4.5% convertible notes and received proceeds of $224
million. The notes mature on January 15, 2015 and are convertible
into our Class B common stock at an initial conversion price of approximately
$19.87 per share. We do not have the option to pay the conversion
price in cash; however, holders of the notes may require us to repurchase all or
a portion of their notes for cash at par plus any accrued and unpaid interest if
certain changes in control of Continental occur. The conversion price
may also be adjusted within a specified range in certain circumstances if a
change in control of Continental occurs.
On December 30, 2009, we entered into
an amendment of our Debit Card Marketing Agreement with JPMorgan Chase Bank,
N.A. (“JP Morgan Chase”) under which JP Morgan Chase purchases frequent flyer
mileage credits to be earned by One Pass members for making purchases using a
Continental branded debit card issued by JP Morgan Chase. The
agreement provides for a payment to us of $40 million in early 2010 for the
advance purchase of frequent flyer mileage credits beginning January 1, 2016, or
earlier in certain circumstances. The purchase of mileage credits has
been treated as a loan from JP Morgan Chase with an implicit interest rate of
5.5% and is reported as long-term debt in our consolidated balance
sheet.
On June 10, 2008, we entered into an
amendment and restatement of our Bankcard Agreement with Chase, under which
Chase purchases frequent flyer mileage credits to be earned by OnePass members
for making purchases using a Continental branded credit card issued by
Chase. The Bankcard Agreement provides for a payment to us of $413
million, of which $235 million relates to the advance purchase of frequent flyer
mileage credits for the year 2016 and the balance of which is in consideration
for certain other commitments with respect to the co-branding relationship,
including the extension of the term of the Bankcard Agreement until December 31,
2016. In connection with the advance purchase of mileage credits, we
have provided a security interest to Chase in certain routes and slots,
including certain slots at London’s Heathrow Airport. The $235
million purchase of mileage credits has been treated as a loan from Chase with
an implicit interest rate of 6.18% and is reported as long-term debt in our
consolidated balance sheet. Our liability will be reduced ratably in
2016 as the mileage credits are issued to Chase.
In August 2009, we completed a public
offering of 14 million shares of our common stock at a price to the public of
$11.20 per share, raising net proceeds of $158 million for general corporate
purposes. We received net proceeds of $358 million in 2008 from
public offerings totaling 24 million shares of our common stock.
Liquidity and Credit Support
Providers. We have utilized proceeds from the issuance of
enhanced equipment trust certificates to finance the acquisition of 246 leased
and owned mainline jet aircraft, certain spare engines and certain spare
parts. Typically, these enhanced equipment trust certificates contain
liquidity facilities whereby a third party agrees to make payments sufficient to
pay at least 18 months of interest on the applicable certificates if a payment
default occurs. The liquidity providers for these certificates
include the following: Credit Agricole S.A., Landesbank
Hessen-Thuringen Girozentrale, Morgan Stanley Capital Services, Morgan Stanley
Bank, Westdeutsche Landesbank Girozentrale, AIG Matched Funding Corp., ABN AMRO
Bank N.V., Credit Suisse, Caisse des Depots et Consignations, Bayerische
Landesbank Girozentrale, ING Bank N.V., De Nationale Investeringsbank N.V.,
Natixis S.A. and RZB Finance LLC.
We are also the issuer of enhanced
equipment trust certificates secured by 135 leased regional jet aircraft
currently operated by ExpressJet. The liquidity providers for these
certificates include the following: ABN AMRO Bank N.V., Chicago Branch, Citibank
N.A., Citicorp North America, Inc., Landesbank Baden-Wurttemberg, RZB Finance
LLC and WestLB AG, New York Branch.
We currently utilize policy providers
to provide credit support on three separate financings with an outstanding
principal balance of $452 million at December 31, 2009. The policy
providers have unconditionally guaranteed the payment of interest on the notes
when due and the payment of principal on the notes no later than 24 months after
the final scheduled payment date. Policy providers on these notes are
Ambac Assurance Corporation (a subsidiary of Ambac Financial Group, Inc.) and
Financial Guaranty Insurance Company (a subsidiary of
FGIC). Financial information for the parent company of Ambac
Assurance Corporation is available over the internet at the SEC’s website at
www.sec.gov or at the SEC’s public reference room in Washington, D.C. and
financial information for FGIC is available over the internet at
www.fgic.com. A policy provider is also used as credit support for
the financing of certain facilities at Houston Bush, currently subject to a
sublease by us to the City of Houston, with an outstanding balance of $42
million at December 31, 2009.
Contractual
Obligations. The following table summarizes the effect that
minimum debt, lease and other material noncancelable commitments listed below
are expected to have on our future cash flows (in millions):
|
Contractual
Obligations
|
Payments
Due
|
Later
Years
|
|||||
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
||
|
Long-term
debt (1)
|
$
7,632
|
$1,254
|
$ 1,380
|
$ 767
|
$ 811
|
$ 474
|
$2,946
|
|
Capital
lease obligations (1)
|
466
|
17
|
16
|
16
|
16
|
16
|
385
|
|
Aircraft
operating leases (2)
|
8,145
|
994
|
977
|
948
|
933
|
904
|
3,389
|
|
Nonaircraft
operating leases (3)
|
5,830
|
462
|
426
|
513
|
376
|
359
|
3,694
|
|
Capacity
purchase agreements (4)
|
4,306
|
693
|
693
|
704
|
683
|
649
|
884
|
|
Aircraft
and other purchase
commitments
(5)
|
5,393
|
712
|
855
|
646
|
723
|
903
|
1,554
|
|
Projected
pension contributions (6)
|
1,393
|
119
|
132
|
179
|
161
|
160
|
642
|
|
Total
(7)
|
$33,165
|
$4,251
|
$4,479
|
$3,773
|
$3,703
|
$3,465
|
$13,494
|
|
(1)
|
Represents
contractual amounts due, including interest. Interest on
floating rate debt was estimated using rates in effect at December 31,
2009.
|
|
(2)
|
Represents
contractual amounts due and excludes $139 million of projected sublease
income to be received on aircraft that are subleased to other operators,
but not operated on our behalf.
|
|
(3)
|
Represents
minimum contractual amounts.
|
|
(4)
|
Represents
our estimates of future minimum noncancelable commitments under our
capacity purchase agreements and does not include the portion of the
underlying obligations for aircraft leased to ExpressJet or deemed to be
leased from Chautauqua, CommutAir or Colgan and facility rent that is
disclosed as part of aircraft and nonaircraft operating
leases. See Note 16 to our consolidated financial statements
contained in Item 8 of this report for the significant assumptions used to
estimate the payments.
|
|
(5)
|
Represents
contractual commitments for firm order aircraft and spare engines only,
net of previously paid purchase deposits, and noncancelable commitments to
purchase goods and services, primarily information technology
support. See Note 19 to our consolidated financial statements
contained in Item 8 of this report for a discussion of our purchase
commitments.
|
|
(6)
|
Represents
our estimate of the minimum funding requirements as determined by
government regulations. Amounts are subject to change based on
numerous assumptions, including the performance of the assets in the plan
and bond rates. See “Critical Accounting Policies and
Estimates” in this Item for a discussion of our assumptions regarding our
pension plans.
|
|
(7)
|
Total contractual obligations do not include long-term contracts where the
commitment is variable in nature, such as credit card processing
agreements and cost-per-hour
engine maintenance agreements, or where short-term cancellation
provisions exist.
|
We expect to fund our future capital
and purchase commitments through internally generated funds, general company
financings and aircraft financing transactions. However, especially
if there are any further disruptions in the global capital markets as
experienced in late 2008 and into 2009, there can be no assurance that
sufficient financing will be available for all aircraft and other capital
expenditures or that, if necessary, we will be able to defer or otherwise
renegotiate our capital commitments.
Other
Liquidity Matters
See the indicated notes to our
consolidated financial statements contained in Item 8. “Financial
Statements and Supplementary Data” of this report for the following other
matters affecting our liquidity and commitments.
|
Long-term
debt and related covenants
|
Note
4
|
|
Operating
Leases
|
Note
5
|
|
Investment
in student loan-related auction rate securities
|
Note
6
|
|
Fuel
hedges
|
Note
7
|
|
Pension
obligations
|
Note
11
|
|
Regional
capacity purchase agreements
|
Note
16
|
|
Guarantees
and Indemnifications, credit card processing agreements, credit
ratings
and
environmental liabilities
|
Note
19
|
An off-balance sheet arrangement is any
transaction, agreement or other contractual arrangement involving an
unconsolidated entity under which a company has (1) made guarantees, (2) a
retained or a contingent interest in transferred assets, (3) an obligation under
derivative instruments classified as equity or (4) any obligation arising out of
a material variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to the company, or that
engages in leasing, hedging or research and development arrangements with the
company.
We have no arrangements of the types
described in the first three categories that we believe may have a material
current or future effect on our results of operations. Certain
guarantees that we do not expect to have a material current or future effect on
our results of operations, financial condition or liquidity are disclosed in
Note 19 to our consolidated financial statements contained in Item 8 of this
report.
We do have obligations arising out of
variable interests in unconsolidated entities. See Note 15 to our
consolidated financial statements contained in Item 8 of this report for a
discussion of our off-balance sheet aircraft leases, airport leases (which
include the US Airways contingent liability), subsidiary trust and our capacity
purchase agreement with ExpressJet.
Our consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of our consolidated financial
statements requires us to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities at the date of our financial
statements. Actual results may differ from these estimates under
different assumptions or conditions.
Critical accounting policies are
defined as those that are reflective of significant judgments and uncertainties,
and potentially result in materially different results under different
assumptions and conditions. We believe that our critical accounting
policies are limited to those described below. For a detailed
discussion on the application of these and other accounting policies, see Note 1
to our consolidated financial statements contained in Item 8 of this
report.
Pension
Plans. We account for our defined benefit pension plans in
accordance with Accounting Standards Codification (“ASC”) Subtopic 715-30,
“Defined Benefit Plans – Pension.” Under this guidance, pension
expense is recognized on an accrual basis over employees’ approximate service
periods. We recognized expense for our defined benefit pension plans
totaling $279 million, $147 million and $191 million in 2009, 2008 and 2007,
respectively, including settlement charges. We currently expect our
expense related to our defined benefit pension plans to be approximately $215
million in 2010.
Our plans’ under-funded status was $1.3
billion at December 31, 2009 and $1.4 billion at December 31,
2008. Funding requirements for tax-qualified defined benefit pension
plans are determined by government regulations. During 2009, we
contributed $176 million to our tax-qualified defined benefit pension plans,
satisfying our minimum funding requirements during calendar year
2009. We contributed an additional $34 million to our tax-qualified
defined benefit pension plans in January 2010. We estimate that our
remaining minimum funding requirements during calendar year 2010 are
approximately $85 million.
The fair value of our plans’ assets
increased from $1.1 billion at December 31, 2008 to $1.4 billion at December 31,
2009. When calculating pension expense for 2009, we assumed that our
plans’ assets would generate a long-term rate of return of 8.25%. We
assumed a long-term rate of return for calculating pension expense in 2008 and
2007 of 8.5% and 8.26%, respectively. We develop our expected
long-term rate of return assumption based on historical experience and by
evaluating input from the trustee managing the plans’ assets. Our expected long-term
rate of return on plan assets is based on a target allocation of assets, which
is based on our goal of earning the highest rate of return while maintaining
risk at acceptable levels. Our projected long-term rate of return is
slightly higher than some market indices due to the active management of our
plans’ assets, and is supported by the historical returns on our plans’
assets. The plans strive to have assets sufficiently diversified so
that adverse or unexpected results from one security class will not have an
unduly detrimental impact on the entire portfolio. We regularly
review our actual asset allocation and the pension plans’ investments are
periodically rebalanced to our targeted allocation when considered
appropriate.
The defined benefit pension plans’
assets consist primarily of equity and fixed-income securities held through
common collective trusts. Equity securities include investments in
large-cap and small-cap companies. Fixed-income securities include
corporate bonds of companies in diversified industries and asset- and
mortgage-backed securities. Investments in equity securities and
fixed-income securities are commingled funds valued at the unit of participation
value of shares held by the plans’ trust. The private equity funds
invest primarily in common stock of companies in diversified industries and in
buyout, venture capital and special situation funds. Investments in
private equity funds are valued at the net asset value of shares held by the
plans’ trust at year end. Our allocation of assets was as follows at
December 31, 2009:
|
Percent of
Total
|
Expected
Long-Term
Rate
of Return
|
|||
|
Equity
securities:
|
||||
|
U.S.
companies
|
48%
|
8%
|
||
|
International
companies
|
21
|
9
|
||
|
Fixed-income
securities
|
21
|
5
|
||
|
Private
equity funds
|
10
|
11
|
||
Pension expense increases as the
expected rate of return on plan assets decreases. When calculating
pension expense for 2010, we will assume that our plans' assets will generate a
weighted-average long-term rate of return of 8.0%. The decrease of 25
basis points from the rate used to determine 2009 expense reflects lower
expected returns on investments due to the global recession. Lowering
the expected long-term rate of return on our plan assets by an additional 50
basis points (from 8.0% to 7.5%) would increase our estimated 2010 pension
expense by approximately $7 million.
We discounted our future pension
obligations using a weighted average rate of 6.01% at December 31, 2009,
compared to 6.13% at December 31, 2008. We determine the appropriate
discount rate for each of our plans based on current rates on high quality
corporate bonds that would generate the cash flow necessary to pay plan benefits
when due. This approach can result in different discount rates for
different plans, depending on each plan's projected benefit
payments. The pension liability and future pension expense both
increase as the discount rate is reduced. Lowering the discount rate
by 50 basis points (from 6.01% to 5.51%) would increase our pension liability at
December 31, 2009 by approximately $243 million and increase our
estimated 2010 pension expense by approximately $30 million.
At December 31, 2009, we have
unrecognized net actuarial losses of $1.2 billion related to our defined benefit
pension plans. Our estimated 2010 expense related to our defined
benefit pension plans of $215 million includes the recognition of approximately
$87 million of these losses.
Future changes in plan asset returns,
plan provisions, assumed discount rates, pension funding law and various other
factors related to the participants in our pension plans will impact our future
pension expense and liabilities. We cannot predict with certainty
what these factors will be in the future.
Revenue
Recognition. We recognize passenger revenue when
transportation is provided or when the ticket expires unused, rather than when a
ticket is sold. Revenue is recognized for unused non-refundable
tickets on the date of the intended flight if the passenger did not notify us of
his or her intention to change the itinerary.
The amount of passenger ticket sales
not yet recognized as revenue is included in our consolidated balance sheets as
air traffic and frequent flyer liability. We perform periodic
evaluations of the estimated liability for passenger ticket sales and any
adjustments, which can be significant, are included in results of operations for
the periods in which the evaluations are completed. These adjustments
relate primarily to differences between our statistical estimation of certain
revenue transactions and the related sales price, as well as refunds, exchanges,
interline transactions and other items for which final settlement occurs in
periods subsequent to the sale of the related tickets at amounts other than the
original sales price.
Ticket change fees relate to
non-refundable tickets, but are considered a separate transaction from the air
transportation because they represent a charge for our additional service to
modify a previous sale. Ticket change fees are recognized as other
revenue in our consolidated statement of operations at the time the fees are
assessed.
Frequent Flyer
Accounting. For those OnePass accounts that have sufficient
mileage credits to claim the lowest level of free travel, we record a liability
for either the estimated incremental cost of providing travel awards that are
expected to be redeemed with us or the contractual rate of expected redemption
on alliance carriers. Incremental cost includes the cost of fuel,
meals, insurance and miscellaneous supplies, less any fees charged to the
passenger for redeeming the rewards, but does not include any costs for aircraft
ownership, maintenance, labor or overhead allocation. We recorded an
adjustment of $27 million to increase passenger revenue and reduce our frequent
flyer liability during 2008 for the impact of redemption fees after we increased
them during 2008. A change to these cost estimates, the actual
redemption activity, the amount of redemptions on alliance carriers or the
minimum award level could have a significant impact on our liability in the
period of change as well as future years. The liability is adjusted
periodically based on awards earned, awards redeemed, changes in the incremental
costs and changes in the OnePass
program,
and is included in the accompanying consolidated balance sheets as air traffic
and frequent flyer liability. Changes in the liability are recognized
as passenger revenue in the period of change.
We also sell mileage credits in our
frequent flyer program to participating entities, such as credit/debit card
companies, alliance carriers, hotels, car rental agencies, utilities and various
shopping and gift merchants. Revenue from the sale of mileage credits
is deferred and recognized as passenger revenue over the period when
transportation is expected to be provided, based on estimates of its fair
value. Amounts received in excess of the expected transportation's
fair value are recognized in income currently and classified as other
revenue. A change to the time period over which the mileage credits
are used (currently six to 26 months), the actual redemption activity or our
estimate of the amount or fair value of expected transportation could have a
significant impact on our revenue in the year of change as well as future
years.
Prior to joining Star Alliance in
October 2009, we based our estimate of the fair value of transportation related
to frequent flyer miles sold on the rates we charged other
airlines. In connection with joining Star Alliance, we changed our
estimate of the related transportation’s fair value to be based on the rate that
is equivalent to the fare of a round trip ticket with restrictions similar to a
frequent flyer reward. We made this change due to the disparate
values of rates charged in reciprocal agreements with other Star Alliance
members. The resulting fair values are generally higher than under
our former estimates and will result in a larger portion of sales of OnePass
miles being deferred and then amortized into passenger revenue and a lower
portion being recognized as other revenue.
During the year ended December 31,
2009, OnePass participants claimed approximately 1.3 million round-trip
awards. Frequent flyer awards accounted for an estimated 6.0% of our
consolidated revenue passenger miles. We believe displacement of
revenue passengers is minimal given our ability to manage frequent flyer
inventory and the low ratio of OnePass award usage to revenue passenger
miles.
At December 31, 2009, we estimated that
approximately 2.6 million free round-trip travel awards outstanding were
expected to be redeemed for free travel on Continental, Continental Express,
Continental Connection, CMI or alliance airlines. Our total liability
for future OnePass award redemptions for free travel and unrecognized revenue
from sales of OnePass miles to other companies was approximately $348 million at
December 31, 2009. This liability is recognized as a component of air
traffic and frequent flyer liability in our consolidated balance
sheets.
Fair Value
Measurements. We have certain assets and liabilities that are
measured at fair value on a recurring basis. ASC Subtopic 820, “Fair
Value Measurements and Disclosures” (“ASC Topic 820”), clarifies that fair value
is an exit price, representing the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants based on the highest and best use of the asset or
liability. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. ASC Topic 820 requires us to use
valuation techniques to measure fair value that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs are
prioritized as follows:
|
Level
1:
|
Observable
inputs such as quoted prices for identical assets or liabilities in active
markets
|
|
|
Level
2:
|
Other
inputs that are observable directly or indirectly, such as quoted prices
for similar assets or liabilities or market-corroborated
inputs
|
|
|
Level
3:
|
Unobservable
inputs for which there is little or no market data and which require us to
develop our own assumptions about how market participants would price the
assets or liabilities
|
We have three items that are classified
as Level 3: auction rate securities, a put right on certain
auction rate securities and fuel hedging derivatives. The
determination of the fair value of these items requires us to make critical
assumptions.
Student Loan-Related Auction
Rate Securities and Put Right. At December 31, 2009, we held
student loan-related auction rate securities with a fair value of $201 million
and a par value of $252 million. These securities were classified as
follows (in millions):
|
Fair
Value
|
Par
Value
|
Amortized
Cost
|
||||
|
Short-term
investments:
|
||||||
|
Available-for-sale
|
$136
|
$166
|
$136
|
|||
|
Trading
|
65
|
86
|
N/A
|
|||
|
Total
|
$201
|
$252
|
||||
These securities are variable-rate debt
instruments with contractual maturities generally greater than ten years and
whose interest rates are reset every 7, 28 or 35 days, depending on the terms of
the particular instrument. These securities are secured by pools of
student loans guaranteed by state-designated guaranty agencies and reinsured by
the U.S. government. All of the auction rate securities we hold are
senior obligations under the applicable indentures authorizing the issuance of
the securities. Auctions for these securities began failing in the
first quarter of 2008 and have continued to fail, resulting in our holding such
securities and the issuers of these securities paying interest adjusted to the
maximum contractual rates.
Prior to the first quarter of 2008, the
carrying value of auction rate securities approximated fair value due to the
frequent resetting of the interest rate and the existence of a liquid
market. Although we will earn interest on these investments involved
in failed auctions at the maximum contractual rate, the estimated market value
of these auction rate securities no longer approximates par value due to the
lack of liquidity in the market for these securities at their par
value. We recorded losses totaling $60 million during 2008 to reflect
the other-than-temporary decline in the fair value of these
securities. These losses are included in nonoperating income
(expense) in our consolidated statement of operations. Following this
other-than-temporary impairment, a new amortized cost basis was established for
available-for-sale securities equal to the then fair value. The
difference between this amortized cost and the cash flows expected to be
collected is being accreted as interest income.
We estimated the fair value of these
securities to be $201 million at December 31, 2009, taking into consideration
the limited sales and offers to purchase securities and using
internally-developed models of the expected future cash flows related to the
securities. Our models incorporated our probability-weighted
assumptions about the cash flows of the underlying student loans and discounts
to reflect a lack of liquidity in the market for these securities.
In addition, in 2008, one institution
granted us a put right permitting us in 2010 to sell to the institution at their
full par value auction rate securities with a par value of $125
million. The institution has also committed to loan us 75% of the
market value of these securities at any time until the put right is
exercised. The put right is recorded at fair value in prepayments and
other assets on our consolidated balance sheet. We determined the
fair value based on the difference between the risk-adjusted discounted expected
cash flows from the underlying auction rate securities without the put right and
with the put right being exercised in 2010. We have classified the
underlying auction rate securities as trading securities and elected the fair
value option under the Fair Value Subsections of ASC Topic 825-10, “Financial
Instruments,” for the put right, with changes in the fair value of the put right
and the underlying auction rate securities recognized in earnings
currently.
During 2009, we sold, at par, auction
rate securities having a par value of $40 million. Most of these
securities were sold to the institution that had granted us the put
right. We recognized gains on the sales using the specific
identification method and recorded losses for the cancellation of the related
put rights. The net gains are included in other non-operating income
(expense) in our consolidated statement of operations and were not
material.
We continue to monitor the market for
auction rate securities and consider its impact, if any, on the fair value of
our investments. If current market conditions deteriorate further, we
may be required to record additional losses on these securities.
Property and
Equipment. As of December 31, 2009, the net carrying amount of
our property and equipment was $7.4 billion, which represents 58% of our total
assets. In addition to the original cost of these assets, the net
carrying amount of our property and equipment is impacted by a number of
accounting policy elections, including estimates, assumptions and judgments
relative to capitalized costs, the estimation of useful lives and residual
values and, when necessary, the recognition of asset impairment
charges. Our property and equipment accounting policies are designed
to depreciate our assets over their estimated useful lives and residual values
of our aircraft, reflecting both historical experience and expectations
regarding future operations, utilization and performance of our
assets.
In addition, our policies are designed
to appropriately and consistently capitalize costs incurred to enhance, improve
and extend the useful lives of our assets and expense those costs incurred to
repair and maintain the existing condition of our
aircraft. Capitalized costs increase the carrying values and
depreciation expense of the related assets, which also impact our results of
operations.
Useful lives of aircraft are difficult
to estimate due to a variety of factors, including technological advances that
impact the efficiency of aircraft, changes in market or economic conditions and
changes in laws or regulations affecting the airline industry. We
evaluate the remaining useful lives of our aircraft when certain events occur
that directly impact our assessment of the remaining useful lives of the
aircraft and include changes in operating condition, functional capability and
market and economic factors. Both depreciable lives and residual
values are regularly reviewed for our aircraft and spare parts to recognize
changes in our fleet plan and other relevant information. Jet
aircraft and rotable spare parts are assumed to have estimated residual values
of 15% and 10%, respectively, of original cost; other categories of property and
equipment are assumed to have no residual value. A one year increase
in the useful lives of our owned aircraft would reduce annual depreciation
expense by approximately $12 million while a one year decrease would increase
annual depreciation expense by approximately $12 million. A one
percent decrease in residual value of our owned aircraft would increase annual
depreciation expense by approximately $2 million.
Impairments of Long-Lived
Assets. We record impairment losses on long-lived assets,
consisting principally of property and equipment and domestic airport operating
rights, when events or changes in circumstances indicate, in management's
judgment, that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount of
those assets. Our cash flow estimates are based on historical results
adjusted to reflect our best estimate of future market and operating
conditions. The net carrying value of assets not recoverable is
reduced to fair value if lower than the carrying value. In
determining the fair market value of the assets, we consider market trends,
recent transactions involving sales of similar assets and, if necessary,
estimates of future discounted cash flows.
We recorded a $31 million impairment
charge on the Boeing 737-300 and 737-500 fleets in 2009 related to our decision
in June 2008 to retire all of our Boeing 737-300 aircraft and a significant
portion of our Boeing 737-500 fleet by early 2010. We recorded an
initial impairment charge in 2008 for each of these fleet types. The
additional write-down in 2009 reflects the further reduction in the fair value
of these fleet types in the then current economic environment. In
both periods, we determined that indicators of impairment were present for these
fleets. Fleet assets include owned aircraft, improvements on leased
aircraft, rotable spare parts, spare engines and simulators. Based on
our evaluations, we determined that the carrying amounts of these fleets were
impaired and wrote them down to their estimated fair value. We
estimated the fair values based on current market quotes and our expected
proceeds from the sale of the assets.
We recorded $39 million of other
charges related to our mainline fleet, primarily related to the grounding and
sale of Boeing 737-300 and 737-500 aircraft and the write-off of certain
obsolete spare parts. The 737-300 and 737-500 aircraft fleets and
spare parts, a portion of which was being sold on consignment, experienced
further declines in fair values during the fourth quarter of 2009 primarily as
the result of additional 737 aircraft being grounded by other
airlines.
At December 31, 2009, we had four owned
and three leased Boeing 737-500 aircraft that were grounded. We had
also grounded seven owned and three leased Boeing 737-300
aircraft. The owned Boeing 737-500 and 737-300 aircraft are being
carried at aggregate fair values of $33 million and $22 million,
respectively. The three leased Boeing 737-300 aircraft were returned
to the lessor in January 2010 and the leases on the three Boeing 737-500
aircraft will expire during the first half of 2012. We have also
temporarily grounded 25 leased 37-seat ERJ-135 aircraft and have subleased five
others for terms of five years. The leases on these 30 ERJ-135
aircraft expire in 2016 through 2018.
We provide an allowance for spare parts
inventory obsolescence over the remaining useful life of the related aircraft,
plus allowances for spare parts currently identified as excess. These
allowances are based on our estimates and industry trends, which are subject to
change and, where available, reference to market rates and
transactions. The estimates are more likely to change when we near
the end of a fleet life or when we remove entire fleets from service sooner than
originally planned.
Impairments of Intangible
Assets. We also perform annual impairment tests on our routes
and international airport landing slots, which are indefinite life intangible
assets, as of October 1 of each year. In prior years, we determined
the fair value of each route by modeling the expected future discounted cash
flows. If the calculated fair value was lower than the carrying value
of a route, an impairment loss would have been recognized for the difference
between the two amounts. With the adoption of new accounting rules,
fair value is now determined as an exit price, representing the price that would
be received in an orderly transaction between market participants based on the
highest and best use of the asset, rather than as the result of an
internally-generated cash flow analysis.
Our international route assets were
recorded as part of our “fresh start” accounting when we emerged from bankruptcy
in1993 rather than as the result of purchase transactions. These
assets include both the value of the route and operating rights at the
destination airports. Therefore, we consider the fair values of both
the route authority and the airport operating rights when performing the annual
impairment test for these assets. Certain of our international routes
are to countries that are subject to “open skies” agreements, meaning that all
carriers have access to any destination in that country. In these
cases, if there are no significant barriers to new entrants to serve the
international destination, such as airport slot restrictions or gate
availability, there is no market for the route asset and, therefore, it has no
fair value under the new definition of fair value. As a result, we
recorded a $12 million non-cash special charge in 2009 to write off our
international routes to certain locations in Mexico and Central
America.
The other intangible assets established
in 1993 were routes and airport operating rights for Paris, Madrid, Mexico City,
Tokyo and CMI’s network in the Pacific rim and Japan. In addition, we
have acquired intangible assets in recent years through the purchase of slots at
London’s Heathrow Airport. The carrying value of these
indefinite-lived intangible assets was $701 million at December 31,
2009. There have not been many market transactions involving these
assets upon which to base fair values. Therefore, we determined the
fair value of these assets using a discounted cash flow model based on our
internal cash flow projections adjusted, where necessary, for differences
between our underlying assumptions and those of other market
participants.
As a result of our analysis, we
concluded that there was no impairment of our routes and international landing
slots other than the $12 million we wrote off for routes having no fair
value. Our analysis required us to make a number of assumptions about
our future cash flows, our cost of capital and how other market participants
would value the assets. While we believe that our assumptions are
appropriate, changes in the assumptions could have a material effect on the
results of our analysis and our conclusions.
In 2008, we recorded an $18 million
non-cash charge to write off an intangible route asset as a result of our
decision to move all of our flights between New York Liberty and London from
London Gatwick Airport to London Heathrow Airport.
See Note 2 to our consolidated
financial statements contained in Item 8 of this report for a discussion of
recently issued accounting standards.
Related
Party Transactions
See Note 17 to our consolidated
financial statements contained in Item 8 of this report for a discussion of
related party transactions.
Market
Risk Sensitive Instruments and Positions
We are subject to certain market risks,
including commodity price risk (i.e., aircraft fuel prices), interest rate risk,
foreign currency risk and price changes related to certain investments in debt
and equity securities. The adverse effects of potential changes in
these market risks are discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may have on
overall economic activity nor do they consider additional actions we may take to
mitigate our exposure to such changes. Actual results may
differ. See the notes to our consolidated financial statements
contained in Item 8 of this report for a description of our accounting policies
and other information related to these financial instruments. We do
not hold or issue derivative financial instruments for trading
purposes.
Aircraft
Fuel. Our results of operations are significantly impacted by
changes in the price of aircraft fuel. During 2009 and 2008, aircraft
fuel and related taxes accounted for 26.0% and 38.0%, respectively, of our
operating expenses. Based on our expected fuel consumption in 2010, a
one dollar increase in the price of crude oil will increase our annual fuel
expense by approximately $41 million, before assuming no changes to the refining
margins and our fuel hedging program.
We routinely hedge a portion of our
future fuel requirements, provided the hedges are expected to be cost
effective. We have historically entered into swap agreements or
purchased call options to protect us against sudden and significant increases in
jet fuel prices. We conduct our fuel hedging activities using a
combination of jet fuel, crude oil and heating oil contracts. We
strive to maintain fuel hedging levels and exposure generally comparable to that
of our major competitors, so that our fuel cost is not disproportionate to
theirs.
As of December 31, 2009, our projected
fuel requirements for 2010 were hedged as follows:
|
Maximum
Price
|
Minimum
Price
|
|||||||
|
%
of
Expected
Consumption
|
Weighted
Average
Price
(per
gallon)
|
%
of
Expected
Consumption
|
Weighted
Average
Price
(per
gallon)
|
|||||
|
Gulf
Coast jet fuel swaps
|
1%
|
$1.94
|
1%
|
$1.94
|
||||
|
WTI
crude oil swaps
|
2
|
1.84
|
2
|
1.84
|
||||
|
WTI
crude oil call options
|
4
|
2.20
|
N/A
|
N/A
|
||||
|
Total
|
7%
|
3%
|
||||||
At December 31, 2009, the fair value of
our fuel derivatives was $14 million and is included in prepayments and other
current assets in our consolidated balance sheet. We estimate that a
10% decrease in the price of crude oil and heating oil at December 31, 2009
would decrease the fair value of the fuel derivatives outstanding at that date
by approximately $20 million.
At
December 31, 2008, our fuel derivatives were in a net loss position of $415
million resulting from the substantial decline in crude oil
prices. This fair value is reported in accrued other current
liabilities in our consolidated balance sheet.
Because our fuel hedges were in a net
liability position at December 31, 2008, we were required to post cash
collateral with our counterparties totaling $171 million. These
amounts are reported in prepayments and other current assets in our consolidated
balance sheet.
Foreign
Currency. We are exposed to the effect of exchange rate
fluctuations on the U.S. dollar value of foreign currency denominated operating
revenue and expenses. We have historically used foreign currency
average rate options and forward contracts to hedge against the currency risk
associated with our forecasted Japanese yen, British pound, Canadian dollar and
euro-denominated cash flows.
At December 31, 2009, we had forward
contracts outstanding to hedge 30% of our projected Japanese yen-denominated
cash inflows, primarily from passenger ticket sales, through 2010. At
December 31, 2009, the fair value of those hedges was $5 million and is included
in prepayments and other current assets in our consolidated balance
sheet. We estimate that a uniform 10% strengthening in the value of
the U.S. dollar relative to the Japanese yen at December 31, 2009 would increase
the fair value for our yen hedges by $9 million and decrease our underlying
exposure by $31 million, resulting in a net loss of $22 million.
At December 31, 2008, we had forward
contracts outstanding to hedge the following cash inflows (primarily from
passenger ticket sales) in foreign currencies:
|
·
|
36%
of our projected Japanese yen-denominated cash inflows in
2009
|
|
·
|
6%
of our projected euro-denominated cash inflows in
2009
|
At December 31, 2008, the fair value of
our foreign currency hedges was $(8) million and is included in accrued other
liabilities in our consolidated balance sheet.
Interest
Rates. Our results of operations are affected by fluctuations
in interest rates (e.g., interest expense on variable-rate debt and interest
income earned on short-term investments). We had approximately $2.0
billion of variable-rate debt as of December 31, 2009 and December 31,
2008. If average interest rates increased by 100 basis points during
2010 as compared to 2009, our projected 2010 interest expense would increase by
approximately $19 million after taking into account scheduled
maturities.
As of December 31, 2009 and 2008, we
estimated the fair value of $4.1 billion and $3.7 billion (carrying value) of
our fixed-rate debt to be $4.0 billion and $3.0 billion, respectively, based
upon discounted future cash flows using our current incremental borrowing rates
for similar types of instruments or market prices. If market interest
rates increased 100 basis points at December 31, 2009, the fair value of our
fixed-rate debt would decrease by approximately $106 million.
A change in market interest rates would
also impact interest income earned on our cash, cash equivalents and short-term
investments. Assuming our cash, cash equivalents and short-term
investments remain at their average 2009 levels, a 100 basis point increase or
decrease in interest rates would result in a corresponding increase or decrease
in interest income of approximately $26 million during 2010.
Investment
Risk. Our short-term investments primarily include
certificates of deposit placed through an account registry service ("CDARS") and
auction rate securities. While the CDARS are insured by the Federal
Deposit Insurance Corporation and the auction rate securities are secured by
pools of student loans guaranteed by state-designated guaranty agencies and
reinsured by the U.S. government, we are subject to investment risk for the fair
value of the investments. Our short-term investments had a fair value
of $310 million at December 31, 2009, including amounts that were classified as
restricted cash, cash equivalents and short-term investments.
Our defined benefit plans had assets
with a fair value of $1.4 billion at December 31, 2009, compared to a fair value
of $1.1 billion at December 31, 2008. A significant portion of
the plans' assets consists of U.S. and international equities held through
common collective trusts. Lower asset values can result in higher
required contributions and pension expense in future years and a decrease in our
stockholders' equity.
The Board
of Directors and Stockholders
Continental
Airlines, Inc.
We have audited the accompanying
consolidated balance sheets of Continental Airlines, Inc. (the "Company") as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, common stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company at December 31, 2009 and
2008, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December
31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 17, 2010 expressed an unqualified
opinion thereon.
ERNST &
YOUNG LLP
Houston,
Texas
February
17, 2010
CONTINENTAL
AIRLINES, INC.
(In
millions, except per share data)
|
Year
Ended December 31,
|
|||
|
2009
|
2008
|
2007
|
|
|
Operating
Revenue:
|
|||
|
Passenger (excluding fees and
taxes of $1,476, $1,531 and $1,499,
respectively)
|
$11,138
|
$13,737
|
$12,995
|
|
Cargo
|
366
|
497
|
453
|
|
Other
|
1,082
|
1,007
|
784
|
|
Total Operating
Revenue
|
12,586
|
15,241
|
14,232
|
|
Operating
Expenses:
|
|||
|
Aircraft fuel and related
taxes
|
3,317
|
5,919
|
4,034
|
|
Wages, salaries and related
costs
|
3,137
|
2,957
|
3,127
|
|
Aircraft
rentals
|
934
|
976
|
994
|
|
Regional capacity purchase,
net
|
848
|
1,059
|
1,113
|
|
Landing fees and other
rentals
|
841
|
853
|
790
|
|
Distribution
costs
|
624
|
717
|
682
|
|
Maintenance, materials and
repairs
|
617
|
612
|
621
|
|
Depreciation and
amortization
|
494
|
438
|
413
|
|
Passenger
services
|
373
|
406
|
389
|
|
Special charges
|
145
|
181
|
13
|
|
Other
|
1,402
|
1,437
|
1,369
|
|
Total Operating
Expenses
|
12,732
|
15,555
|
13,545
|
|
Operating
Income (Loss)
|
(146)
|
(314)
|
687
|
|
Nonoperating
Income (Expense):
|
|||
|
Interest
expense
|
(367)
|
(376)
|
(393)
|
|
Interest
capitalized
|
33
|
33
|
27
|
|
Interest income
|
12
|
65
|
160
|
|
Gains on sale of
investments
|
-
|
78
|
37
|
|
Other-than-temporary impairment
losses on investments
|
-
|
(60)
|
-
|
|
Other, net
|
29
|
(121)
|
38
|
|
Total Nonoperating Income
(Expense)
|
(293)
|
(381)
|
(131)
|
|
Income
(Loss) before Income Taxes
|
(439)
|
(695)
|
556
|
|
Income
Tax Benefit (Expense)
|
157
|
109
|
(117)
|
|
Net
Income (Loss)
|
$ (282)
|
$ (586)
|
$ 439
|
(continued
on next page)
CONTINENTAL
AIRLINES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
millions, except per share data)
|
Year
Ended December 31,
|
|||
|
2009
|
2008
|
2007
|
|
|
Earnings
(Loss) per Share:
|
|||
|
Basic
|
$(2.18)
|
$(5.54)
|
$4.53
|
|
Diluted
|
$(2.18)
|
$(5.54)
|
$4.05
|
|
Shares
Used for Computation:
|
|||
|
Basic
|
129
|
106
|
97
|
|
Diluted
|
129
|
106
|
114
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CONTINENTAL
AIRLINES, INC.
(In
millions, except for share data)
|
December
31,
|
||||
|
ASSETS
|
2009
|
2008
|
||
|
Current
Assets:
|
||||
|
Cash and cash
equivalents
|
$ 2,546
|
$ 2,165
|
||
|
Short-term
investments
|
310
|
478
|
||
|
Total unrestricted cash, cash
equivalents and short-term investments
|
2,856
|
2,643
|
||
|
Restricted cash, cash equivalents
and short-term investments
|
164
|
190
|
||
|
Accounts receivable, net of
allowance for doubtful receivables of $7 and $7
|
494
|
453
|
||
|
Spare parts and supplies, net of
allowance for obsolescence of $113 and $102
|
254
|
235
|
||
|
Deferred income
taxes
|
203
|
216
|
||
|
Prepayments and
other
|
402
|
610
|
||
|
Total current
assets
|
4,373
|
4,347
|
||
|
Property
and Equipment:
|
||||
|
Owned property and
equipment:
|
||||
|
Flight equipment
|
8,769
|
8,446
|
||
|
Other
|
1,787
|
1,694
|
||
|
Flight equipment and
other
|
10,556
|
10,140
|
||
|
Less: Accumulated
depreciation
|
3,509
|
3,229
|
||
|
Owned property and equipment,
net
|
7,047
|
6,911
|
||
|
Purchase deposits for flight
equipment
|
242
|
275
|
||
|
Capital leases
|
194
|
194
|
||
|
Less: Accumulated
amortization
|
63
|
53
|
||
|
Capital leases,
net
|
131
|
141
|
||
|
Total property and
equipment, net
|
7,420
|
7,327
|
||
|
Routes
and airport operating rights, net of accumulated amortization of
$389
and
$375
|
778
|
804
|
||
|
Other
assets, net
|
210
|
208
|
||
|
Total
Assets
|
$12,781
|
$12,686
|
||
(continued
on next page)
CONTINENTAL
AIRLINES, INC.
(In
millions, except for share data)
|
December
31,
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2009
|
2008
|
||
|
Current
Liabilities:
|
||||
|
Current maturities of long-term
debt and capital leases
|
$ 975
|
$ 519
|
||
|
Accounts payable
|
924
|
1,021
|
||
|
Air traffic and frequent flyer
liability
|
1,855
|
1,881
|
||
|
Accrued payroll
|
367
|
345
|
||
|
Accrued other
liabilities
|
268
|
708
|
||
|
Total current
liabilities
|
4,389
|
4,474
|
||
|
Long-Term
Debt and Capital Leases
|
5,291
|
5,353
|
||
|
Deferred
Income Taxes
|
203
|
216
|
||
|
Accrued
Pension Liability
|
1,248
|
1,417
|
||
|
Accrued
Retiree Medical Benefits
|
216
|
234
|
||
|
Other
Liabilities
|
844
|
869
|
||
|
Commitments
and Contingencies
|
||||
|
Stockholders'
Equity:
|
||||
|
Class B common stock - $.01 par,
400,000,000 shares authorized;
138,537,127 and 123,264,534
shares issued and outstanding
|
1
|
1
|
||
|
Additional paid-in
capital
|
2,216
|
2,038
|
||
|
Accumulated
deficit
|
(442)
|
(160)
|
||
|
Accumulated other comprehensive
loss
|
(1,185)
|
(1,756)
|
||
|
Total stockholders'
equity
|
590
|
123
|
||
|
Total
Liabilities and Stockholders' Equity
|
$12,781
|
$12,686
|
||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CONTINENTAL
AIRLINES, INC.
(In
millions)
|
Year
Ended December 31,
|
|||
|
2009
|
2008
|
2007
|
|
|
Cash
Flows from Operating Activities:
|
|||
|
Net income
(loss)
|
$ (282)
|
$ (586)
|
$ 439
|
|
Adjustments to reconcile net
income (loss) to net cash provided by
operating
activities:
|
|||
|
Depreciation and
amortization
|
494
|
438
|
413
|
|
Special charges
|
145
|
181
|
13
|
|
Deferred income tax (benefit)
expense
|
(158)
|
(111)
|
111
|
|
Gains on sale of
investments
|
-
|
(78)
|
(37)
|
|
Loss on fuel hedge contracts
with Lehman Brothers
|
-
|
125
|
-
|
|
Other-than-temporary losses on
investments
|
-
|
60
|
-
|
|
Stock-based compensation
related to equity awards
|
9
|
16
|
27
|
|
Other adjustments,
net
|
55
|
(14)
|
50
|
|
Changes in operating assets and
liabilities:
|
|||
|
(Increase) decrease in accounts
receivable
|
12
|
147
|
(29)
|
|
(Increase) decrease in spare
parts and supplies
|
(34)
|
5
|
(66)
|
|
(Increase) decrease in
prepayments and other assets
|
206
|
(167)
|
16
|
|
Increase (decrease) in accounts
payable
|
(104)
|
(10)
|
71
|
|
Increase (decrease) in air
traffic and frequent flyer liability
|
(26)
|
(86)
|
255
|
|
Increase (decrease) in accrued
payroll, pension liability and other
|
45
|
(244)
|
(130)
|
|
Net cash (used in) provided by
operating activities
|
362
|
(324)
|
1,133
|
|
Cash
Flows from Investing Activities:
|
|||
|
Capital
expenditures
|
(381)
|
(373)
|
(329)
|
|
Aircraft purchase deposits
refunded (paid), net
|
29
|
102
|
(219)
|
|
(Purchase) sale of short-term
investments, net
|
180
|
115
|
(314)
|
|
Proceeds from sales of
investments, net
|
30
|
171
|
65
|
|
Expenditures for airport
operating rights
|
(22)
|
(131)
|
(116)
|
|
Proceeds from sales of property
and equipment
|
64
|
113
|
67
|
|
Decrease (increase) in
restricted cash, cash equivalents and short-term
investments
|
26
|
(13)
|
86
|
|
Other cash flows from investing
activities
|
(4)
|
-
|
-
|
|
Net cash used in investing
activities
|
(78)
|
(16)
|
(760)
|
|
Cash
Flows from Financing Activities:
|
|||
|
Payments on long-term debt and
capital lease obligations
|
(610)
|
(641)
|
(429)
|
|
Proceeds from issuance of
long-term debt, net
|
538
|
642
|
26
|
|
Proceeds from public offering
of common stock, net
|
158
|
358
|
-
|
|
Proceeds from issuance of
common stock pursuant to stock plans
|
11
|
18
|
35
|
|
Net cash provided by (used in)
financing activities
|
97
|
377
|
(368)
|
|
Net
Increase in Cash and Cash Equivalents
|
381
|
37
|
5
|
|
Cash
and Cash Equivalents - Beginning of Period
|
2,165
|
2,128
|
2,123
|
|
Cash
and Cash Equivalents - End of Period
|
$2,546
|
$2,165
|
$2,128
|
(continued
on next page)
CONTINENTAL
AIRLINES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
millions)
|
Year
Ended December 31,
|
|||
|
2009
|
2008
|
2007
|
|
|
Supplemental
Cash Flows Information:
|
|||
|
Interest paid
|
$ 326
|
$ 365
|
$ 383
|
|
Income taxes
paid
|
$ 1
|
$ 5
|
$ 2
|
|
Investing and Financing
Activities Not Affecting Cash:
|
|||
|
Property and equipment acquired
through the issuance of debt
|
$ 402
|
$1,014
|
$ 190
|
|
Reduction of debt in exchange
for sale of frequent flyer miles
|
$ -
|
$ (38)
|
$ (37)
|
|
Transfer of auction rate
securities from available-for-sale to trading
|
$ -
|
$ 97
|
$ -
|
|
Common stock issued upon
conversion of 4.5% convertible notes
|
$ -
|
$ -
|
$ 170
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CONTINENTAL
AIRLINES, INC.
(In
millions)
|
Retained
|
Accumulated
|
|||||||||
|
Class
B
|
Additional
|
Earnings
|
Other
|
|||||||
|
Common
Stock
|
Paid-In
|
(Accumulated
|
Comprehensive
|
|||||||
|
Shares
|
Amount
|
Capital
|
Deficit)
|
Income
(Loss)
|
Total
|
|||||
|
Balance
at December 31, 2006
|
92
|
$ 1
|
$1,411
|
$ (13)
|
$(1,013)
|
$ 386
|
||||
|
Net
income
|
-
|
-
|
-
|
439
|
-
|
439
|
||||
|
Other
comprehensive income:
|
||||||||||
|
Net
change in unrealized gain
(loss)
on derivative instruments
|
-
|
-
|
-
|
-
|
45
|
45
|
||||
|
Net
change related to employee
benefit
plans
|
-
|
-
|
-
|
-
|
463
|
463
|
||||
|
Total
Comprehensive Income
|
947
|
|||||||||
|
Conversion
of 4.5%
convertible
notes
|
4
|
-
|
174
|
-
|
-
|
174
|
||||
|
Issuance
of common stock
pursuant
to stock plans
|
2
|
-
|
35
|
-
|
-
|
35
|
||||
|
Stock-based
compensation
|
-
|
-
|
27
|
-
|
-
|
27
|
||||
|
Balance
at December 31, 2007
|
98
|
1
|
1,647
|
426
|
(505)
|
1,569
|
||||
|
Net
loss
|
-
|
-
|
-
|
(586)
|
-
|
(586)
|
||||
|
Other
comprehensive loss:
|
||||||||||
|
Net
change in unrealized gain
(loss)
on derivative instruments
and
other
|
-
|
-
|
-
|
-
|
(441)
|
(441)
|
||||
|
Net
change related to employee
benefit
plans
|
-
|
-
|
-
|
-
|
(810)
|
(810)
|
||||
|
Total
Comprehensive Loss
|
(1,837)
|
|||||||||
|
Issuance
of common stock
pursuant
to stock plans
|
1
|
-
|
17
|
-
|
-
|
17
|
||||
|
Issuance
of common stock
pursuant
to stock offerings
|
24
|
-
|
358
|
-
|
-
|
358
|
||||
|
Stock-based
compensation
|
-
|
-
|
16
|
-
|
-
|
16
|
||||
|
Balance
at December 31, 2008
|
123
|
1
|
2,038
|
(160)
|
(1,756)
|
123
|
||||
(continued
on next page)
CONTINENTAL
AIRLINES, INC.
CONSOLIDATED
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(In
millions)
|
Retained
|
Accumulated
|
|||||||||
|
Class
B
|
Additional
|
Earnings
|
Other
|
|||||||
|
Common
Stock
|
Paid-In
|
(Accumulated
|
Comprehensive
|
|||||||
|
Shares
|
Amount
|
Capital
|
Deficit)
|
Income
(Loss)
|
Total
|
|||||
|
Net
loss
|
-
|
-
|
-
|
(282)
|
-
|
(282)
|
||||
|
Other
comprehensive income:
|
||||||||||
|
Net
change in unrealized gain
(loss)
on derivative instruments
and
other
|
-
|
-
|
-
|
-
|
424
|
424
|
||||
|
Net
change related to employee
benefit
plans
|
-
|
-
|
-
|
-
|
305
|
305
|
||||
|
Tax
expense on other
comprehensive
income
|
-
|
-
|
-
|
-
|
(158)
|
(158)
|
||||
|
Total
Comprehensive Income
|
289
|
|||||||||
|
Issuance
of common stock
pursuant
to stock plans
|
2
|
-
|
11
|
-
|
-
|
11
|
||||
|
Issuance
of common stock
pursuant
to stock offerings
|
14
|
-
|
158
|
-
|
-
|
158
|
||||
|
Stock-based
compensation
|
-
|
-
|
9
|
-
|
-
|
9
|
||||
|
Balance
at December 31, 2009
|
139
|
$ 1
|
$2,216
|
$(442)
|
$(1,185)
|
$ 590
|
||||
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these statements.
CONTINENTAL
AIRLINES, INC.
Continental Airlines, Inc., a Delaware
corporation, is a major United States air carrier engaged in the business of
transporting passengers, cargo and mail. Including our wholly-owned
subsidiary, Continental Micronesia, Inc. ("CMI"), and regional flights operated
on our behalf under capacity purchase agreements with other carriers, we are the
world's fifth largest airline as measured by the number of scheduled miles flown
by revenue passengers in 2009. Our regional capacity purchase
agreements are with ExpressJet Airlines, Inc. ("ExpressJet"), a wholly-owned
subsidiary of ExpressJet Holdings, Inc. ("Holdings"), Chautauqua Airlines, Inc.
("Chautauqua"), a wholly-owned subsidiary of Republic Airways Holdings, Inc.,
Colgan Air, Inc. (“Colgan”), a wholly-owned subsidiary of Pinnacle Airlines
Corp., and Champlain Enterprises, Inc. ("CommutAir"). Our regional
operations using regional jet aircraft are conducted under the name "Continental
Express" and those using turboprop aircraft are conducted under the name
"Continental Connection."
As used in these Notes to Consolidated
Financial Statements, the terms "Continental," "we," "us," "our" and similar
terms refer to Continental Airlines, Inc. and, unless the context indicates
otherwise, its consolidated subsidiaries.
We have evaluated subsequent events
through February 17, 2010, which is the date these financial statements were
issued.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Principles of
Consolidation. Our consolidated financial statements
include the accounts of Continental and all wholly-owned
subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
|
|
(b)
|
Use of
Estimates. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those
estimates.
|
|
(c)
|
Cash and Cash
Equivalents. We classify short-term, highly liquid
investments which are readily convertible into cash and have a maturity of
three months or less when purchased as cash and cash
equivalents. Restricted cash, cash equivalents and short-term
investments is primarily collateral for estimated future workers'
compensation claims, credit card processing contracts, letters of credit
and performance bonds.
|
|
(d)
|
Short-term
Investments. Short-term investments primarily include
certificates of deposit placed through an account registry service
("CDARS") and auction rate securities. The CDARS we hold have
original maturities of 91 days and are insured by the Federal Deposit
Insurance Corporation. Short-term investments are classified as
available-for-sale or trading securities and are stated at fair
value. Trading securities consist of student loan-related
auction rate securities for which we have received an option to put the
securities back to the broker, discussed in Note 6. Realized
gains and losses on specific investments are reflected in non-operating
income (expense) in our consolidated statements of
operations. Unrealized gains and losses on available-for-sale
and trading securities are reflected as a component of accumulated other
comprehensive loss and non-operating income (expense) in our consolidated
statements of operations, respectively.
|
|
|
(e)
|
Spare Parts and
Supplies. Inventories, expendable parts and supplies
related to flight equipment are carried at average acquisition cost and
are expensed when consumed in operations. An allowance for
obsolescence is provided over the remaining lease term or the estimated
useful life of the related aircraft, as well as to reduce the carrying
cost of spare parts currently identified as excess to the lower of
amortized cost or net realizable value. We recorded additions
to this allowance for expense of $12 million, $26 million and $11 million
in the years ended December 31, 2009, 2008 and 2007,
respectively. Spare parts and supplies are assumed to have an
estimated residual value of 10% of original cost. These
allowances are based on management estimates, which are subject to
change.
|
|
|
(f)
|
Property and
Equipment. Property and equipment is recorded at cost
and is depreciated to estimated residual value over its estimated useful
life using the straight-line method. Jet aircraft and rotable
spare parts are assumed to have residual values of 15% and 10%,
respectively, of original cost; other categories of property and equipment
are assumed to have no residual value. The estimated useful
lives of our property and equipment are as follows:
|
|
|
Estimated Useful
Life
|
||
|
Jet
aircraft and simulators
|
25
to 30 years
|
|
|
Rotable
spare parts
|
Average
lease term or
useful
life for related aircraft
|
|
|
Buildings
and improvements
|
10
to 30 years
|
|
|
Vehicles
and equipment
|
5
to 10 years
|
|
|
Computer
software
|
3
to 5 years
|
|
|
Capital
leases
|
Shorter
of lease
term
or useful life
|
|
|
Leasehold
improvements
|
Shorter
of lease
term
or useful life
|
|
|
Amortization
of assets recorded under capital leases is included in depreciation
expense in our consolidated statement of operations.
|
||
|
The
carrying amount of computer software was $85 million and $80 million at
December 31, 2009 and 2008, respectively. Depreciation expense
related to computer software was $30 million, $27 million and $28 million
in the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
|
(g)
|
Routes and Airport
Operating Rights. Routes represent the right to fly
between cities in different countries. Airport operating rights
represent gate space and slots (the right to schedule an arrival or
departure within designated hours at a particular
airport). Routes and international airport operating rights are
indefinite-lived intangible assets and are not
amortized. Routes and international airport operating rights
totaled $701 million and $713 million at December 31, 2009 and 2008,
respectively. We perform a test for impairment of our routes
and international slots in the fourth quarter of each year. In
2009, we recorded a $12 million non-cash charge to write off intangible
route assets related to certain Mexican and Central American locations as
a result of our annual impairment analysis. We determined that
these routes had no fair value since they are subject to “open skies”
agreements and there are no other barriers to flying to these
locations. In 2008, we recorded an $18 million non-cash charge
to write off an intangible route asset as a result of our decision to move
all of our flights between Newark Liberty International Airport ("New York
Liberty") and London from London Gatwick Airport to London Heathrow
Airport. These write-offs are included in special charges in
our consolidated statement of operations.
|
|
Airport
operating rights at domestic airports totaled $77 million and $91 million
at December 31, 2009 and 2008, respectively. These assets are
amortized over the stated term of the related lease (for gates) or 20
years (for slots). Amortization expense related to domestic
airport operating rights was $14 million for each of the years ended
December 31, 2009, 2008 and 2007. We expect annual amortization
expense related to domestic airport operating rights to be approximately
$14 million in each of the next three years and $8 million and $6 million
in 2013 and 2014, respectively.
|
|
|
(h)
|
Measurement of
Impairment of Long-Lived Assets. We record impairment
losses on long-lived assets, consisting principally of property and
equipment and domestic airport operating rights, when events or changes in
circumstances indicate, in management's judgment, that the assets might be
impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those
assets. The net carrying value of assets not recoverable is
reduced to fair value if lower than the carrying value. In
determining the fair market value of the assets, we consider market
trends, recent transactions involving sales of similar assets and, if
necessary, estimates of future discounted cash flows. See Note
13 for a discussion of aircraft impairment charges.
|
|
(i)
|
Revenue/Air Traffic
Liability. Passenger revenue is recognized either when
transportation is provided or when the ticket expires unused, rather than
when a ticket is sold. Revenue is recognized for unused
non-refundable tickets on the date of the intended flight if the passenger
did not notify us of his or her intention to change the
itinerary.
|
|
We
are required to charge certain taxes and fees on our passenger
tickets. These taxes and fees include U.S. federal
transportation taxes, federal security charges, airport passenger facility
charges and foreign arrival and departure taxes. These taxes
and fees are legal assessments on the customer. As we have a
legal obligation to act as a collection agent with respect to these taxes
and fees, we do not include such amounts in passenger
revenue. We record a liability when the amounts are
collected and relieve the liability when payments are made to the
applicable government agency.
|
|
|
Under
our capacity purchase agreements with regional carriers, we purchase all
of the capacity related to aircraft covered by the contracts and are
responsible for selling all of the related seat inventory. We
record the related passenger revenue and related expenses, with payments
under the capacity purchase agreements reflected as a separate operating
expense in our consolidated statement of operations.
|
|
|
The
amount of passenger ticket sales not yet recognized as revenue is included
in our consolidated balance sheets as air traffic and frequent flyer
liability. We perform periodic evaluations of the estimated
liability for passenger ticket sales and any adjustments, which can be
significant, are included in results of operations for the periods in
which the evaluations are completed. These adjustments relate primarily to
differences between our statistical estimation of certain revenue
transactions and the related sales price, as well as refunds, exchanges,
interline transactions and other items for which final settlement occurs
in periods subsequent to the sale of the related tickets at amounts other
than the original sales price.
|
|
|
Revenue
from the shipment of cargo and mail is recognized when transportation is
provided. Other revenue includes revenue from the sale of
frequent flyer miles (see (j) below), ticket change fees, baggage fees,
charter services, sublease income on aircraft leased to Holdings but not
operated for us and other incidental services. Ticket change
fees relate to non-refundable tickets, but are considered a separate
transaction from the air transportation because they represent a charge
for our additional service to modify a previous sale. Ticket
change fees are recognized as other revenue in our consolidated statement
of operations at the time the fees are assessed.
|
|
|
(j)
|
Frequent Flyer
Program. For those OnePass accounts that have sufficient
mileage credits to claim the lowest level of free travel, we record a
liability for either the estimated incremental cost of providing travel
awards that are expected to be redeemed with us or the contractual rate of
expected redemption on alliance carriers. Incremental cost
includes the cost of fuel, meals, insurance and miscellaneous supplies,
less any fees charged to the passenger for redeeming the rewards, but does
not include any costs for aircraft ownership, maintenance, labor or
overhead allocation. We recorded an adjustment of $27 million
($0.24 per basic and diluted share) to increase passenger revenue and
reduce our frequent flyer liability during 2008 for the impact of
redemption fees after we increased them during 2008. A change
to these cost estimates, the actual redemption activity, the amount of
redemptions on alliance carriers or the minimum award level could have a
significant impact on our liability in the period of change as well as
future years. The liability is adjusted periodically based on
awards earned, awards redeemed, changes in the incremental costs and
changes in the OnePass program, and is included in the accompanying
consolidated balance sheets as air traffic and frequent flyer
liability. Changes in the liability are recognized as passenger
revenue in the period of change.
|
|
We
also sell mileage credits in our frequent flyer program to participating
entities, such as credit/debit card companies, alliance carriers, hotels,
car rental agencies, utilities and various shopping and gift
merchants. Revenue from the sale of mileage credits is deferred
and recognized as passenger revenue over the period when transportation is
expected to be provided, based on estimates of its fair
value. Amounts received in excess of the expected
transportation's fair value are recognized in income currently and
classified as other revenue. A change to the time period over
which the mileage credits are used (currently six to 26 months), the
actual redemption activity or our estimate of the amount or fair value of
expected transportation could have a significant impact on our revenue in
the year of change as well as future years.
|
|
|
Prior
to joining Star Alliance in October 2009, we based our estimate of the
fair value of transportation related to frequent flyer miles sold on the
rates we charged other airlines. In connection with joining
Star Alliance, we changed our estimate of the related transportation’s
fair value to be based on the rate that is equivalent to the fare of a
round trip ticket with restrictions similar to a frequent flyer
reward. We made this change due to the disparate values of
rates charged in reciprocal agreements with other Star Alliance
members. The resulting fair values are generally higher than
under our former estimates and will result in a larger portion of sales of
OnePass miles being deferred and then amortized into passenger revenue and
a lower portion being recognized as other revenue.
|
|
|
At
December 31, 2009, we estimated that approximately 2.6 million free
round-trip travel awards outstanding were expected to be redeemed for free
travel on Continental, Continental Express, Continental Connection, CMI or
alliance airlines. Our total liability for future OnePass award
redemptions for free travel and unrecognized revenue from sales of OnePass
miles to other companies was approximately $348 million at December 31,
2009. This liability is recognized as a component of air
traffic and frequent flyer liability in our consolidated balance
sheets.
|
|
|
(k)
|
Maintenance and Repair
Costs. Maintenance and repair costs for owned and leased
flight equipment, including the overhaul of aircraft components, are
charged to operating expense as incurred. Maintenance and
repair costs also include engine overhaul costs covered by cost-per-hour
agreements, a majority of which are expensed on the basis of hours
flown.
|
|
(l)
|
Advertising
Costs. We expense the costs of advertising as
incurred. Advertising expense was $102 million, $93 million and
$106 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
(m)
|
Regional Capacity
Purchase, Net. Payments made to regional carriers under
capacity purchase agreements are reported in regional capacity purchase,
net, in our consolidated statement of operations. Regional
capacity purchase, net, is net of our rental income on aircraft leased to
ExpressJet and flown for us through June 30, 2008. Beginning
July 1, 2008, ExpressJet no longer pays us sublease rent for aircraft
operated on our behalf.
|
|
(n)
|
Foreign Currency Gains
(Losses). Foreign currency gains (losses) are recorded
as part of other, net non-operating income (expense) in our consolidated
statements of operations. Foreign currency gains (losses) were
$8 million, $(37) million and $2 million for the years ended December 31,
2009, 2008 and 2007, respectively.
|
|
(o)
|
Reclassifications. Certain
reclassifications have been made in the prior years’ consolidated
financial statements and related note disclosures to conform to the
current year’s presentation.
|
NOTE
2 – ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
Codification. Effective
July 1, 2009, the Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) became the single official source of
authoritative, nongovernmental generally accepted accounting principles (“GAAP”)
in the United States. The historical GAAP hierarchy was eliminated
and the ASC became the only level of authoritative GAAP, other than guidance
issued by the Securities and Exchange Commission. Our accounting
policies were not affected by the conversion to ASC. However,
references to specific accounting standards in the footnotes to our consolidated
financial statements have been changed to refer to the appropriate section of
ASC.
Fair
Value. In September 2006, the FASB issued guidance which
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. This guidance is contained
in ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic
820”). In February 2008, the FASB deferred the effective date to
January 1, 2009 for all nonfinancial assets and liabilities, except for those
that are recognized or disclosed at fair value on a recurring basis (that is, at
least annually). We adopted the deferred provisions of ASC Topic 820
on January 1, 2009. Application of the new
rules affected our annual impairment testing for our international routes and
airport operating rights, which we perform as of October 1 of each
year. In prior years, we determined the fair value of each route by
modeling the expected future discounted cash flows. If the calculated
fair value was lower than the carrying value of a route, an impairment loss
would have been recognized for the difference between the two
amounts. With the adoption of new accounting rules, fair value is now
determined as an exit price, representing the price that would be received in an
orderly transaction between market participants based on the highest and best
use of the asset, rather than as the result of an internally-generated cash flow
analysis. Certain of our international routes are to countries that
are subject to “open skies” agreements, meaning that all carriers have access to
any destination in that country. In these cases, if there are no
significant barriers to new entrants to serve the international destination,
such as airport slot restrictions or gate availability, there is no market for
the route asset and, therefore, it has no fair value under the new definition of
fair value. As a result, we recorded a $12 million non-cash special
charge in the fourth quarter of 2009 to write off certain of our international
routes. The routes written off are not pledged as collateral under
our debt agreements. Our compliance with our debt agreements was not
affected by this new guidance.
In April 2009, the FASB issued
additional guidance for estimating fair value in accordance with ASC Topic
820. The additional guidance addresses estimating fair value when the
volume and level of activity for an asset or liability has significantly
decreased in relation to normal market activity for the asset or
liability. We adopted the provisions of this guidance for the quarter
ended June 30, 2009. The adoption did not have a material effect on
our consolidated financial statements.
Variable Interest
Entities. In June 2009, the FASB issued guidance to change
financial reporting by enterprises involved with variable interest entities
(“VIEs”). The standard replaces the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a VIE with an approach focused on identifying which enterprise has
the power to direct the activities of a VIE and the obligation to absorb losses
of the entity or the right to receive the entity’s residual
returns. This accounting standard is effective for us on January 1,
2010. We are currently evaluating the requirements of this
pronouncement and have not determined the impact, if any, that adoption of this
standard will have on our consolidated financial statements.
Revenue Arrangements with
Multiple Deliverables. In October 2009, the FASB issued
guidance that changes the accounting for revenue arrangements with multiple
deliverables. The guidance requires an entity to allocate
consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices and eliminates the use of the residual
method of allocation. The guidance establishes a hierarchy for
determining the selling price of a deliverable, based on vendor-specific
objective evidence, third-party evidence or estimated selling
price. In addition, this guidance expands required disclosures
related to a vendor’s multiple-deliverable revenue arrangements. This
accounting standard is effective for us on January 1, 2011 and may change our
accounting for the sale of frequent flyer mileage credits discussed in Note
1(j). We may elect to adopt this guidance through either prospective
application for revenue arrangements entered into, or materially modified, after
the effective date or retrospective application to all applicable revenue
arrangements for all periods presented. We are currently evaluating
the requirements of this pronouncement and have not determined the impact, if
any, that adoption of this standard will have on our consolidated financial
statements.
NOTE
3 - EARNINGS PER SHARE
The following table sets forth the
components of basic and diluted earnings (loss) per share (in
millions):
|
2009
|
2008
|
2007
|
||||
|
Numerator:
|
||||||
|
Numerator
for basic earnings (loss) per share - net income (loss)
|
$(282)
|
$(586)
|
$439
|
|||
|
Effect
of dilutive securities - interest expense on:
|
||||||
|
5%
convertible notes
|
-
|
-
|
12
|
|||
|
6%
convertible junior subordinated debentures
held
by subsidiary trust
|
-
|
-
|
12
|
|||
|
Numerator
for diluted earnings (loss) per share - net
income
(loss) after assumed conversions
|
$(282)
|
$(586)
|
$463
|
|||
|
Denominator:
|
||||||
|
Denominator
for basic earnings (loss) per share -
weighted
average shares
|
129
|
106
|
97
|
|||
|
Effect
of dilutive securities:
|
||||||
|
5%
convertible notes
|
-
|
-
|
9
|
|||
|
6%
convertible junior subordinated debentures
held
by subsidiary trust
|
-
|
-
|
4
|
|||
|
Employee
stock options
|
-
|
-
|
4
|
|||
|
Dilutive
potential shares
|
-
|
-
|
17
|
|||
|
Denominator
for diluted earnings (loss) per share -
weighted-average
shares after assumed conversions
|
129
|
106
|
114
|
|||
The adjustments to net income to
determine the numerator for diluted earnings per share are net of the related
effect of profit sharing and income taxes, where applicable.
Approximately 14 million and 13 million
potential shares of common stock related to convertible debt securities were
excluded from the computation of diluted earnings (loss) per share in the year
ended December 31, 2009 and 2008, respectively, because they were
antidilutive. In addition, approximately eight million, eight million
and one million weighted average options to purchase shares of our common stock
were excluded from the computation of diluted earnings (loss) per share for the
years ended December 31, 2009, 2008 and 2007, respectively, because the effect
of including the options would have been antidilutive.
NOTE
4 - LONG-TERM DEBT
Long-term debt at December 31 consisted
of the following (in millions):
|
2009
|
2008
|
|||
|
Secured
|
||||
|
Notes
payable, interest rates of 5.375% to 9.0% (weighted average rate
of
7.1%
as of December 31, 2009), payable through 2022
|
$3,066
|
$2,862
|
||
|
Floating
rate notes, with indicated interest rates:
|
||||
|
LIBOR
(0.251% on December 31, 2009) plus 0.35% to 1.95%, payable
through
2020
|
1,153
|
1,345
|
||
|
LIBOR
plus 3.375%, payable in 2011
|
350
|
350
|
||
|
LIBOR
plus 3.125% to 3.25%, payable through 2014
|
188
|
192
|
||
|
LIBOR
plus 2.5% to 5.0%, payable through 2019
|
266
|
157
|
||
|
Advance
purchases of mileage credits, implicit interest rates of 5.5% to
6.18%
|
186
|
148
|
||
|
Other
|
5
|
15
|
||
|
Unsecured
|
||||
|
6.0%
convertible junior subordinated debentures, payable in
2030
|
248
|
248
|
||
|
4.5%
convertible notes, payable in 2015
|
230
|
-
|
||
|
Note
payable, interest rate of 8.75%, payable in 2011
|
200
|
200
|
||
|
5%
convertible notes, callable beginning in 2010
|
169
|
157
|
||
|
Other
|
9
|
-
|
||
|
6,070
|
5,674
|
|||
|
Less: current
maturities
|
972
|
516
|
||
|
Total
|
$5,098
|
$5,158
|
||
Maturities of long-term debt due over
the next five years are as follows (in millions):
|
Year
ending December 31,
|
||
|
2010
|
$ 972
|
|
|
2011
|
1,142
|
|
|
2012
|
584
|
|
|
2013
|
650
|
|
|
2014
|
332
|
|
Most of our property and equipment,
spare parts inventory, certain routes and the outstanding common stock and
substantially all of the other assets of our wholly-owned subsidiaries Air
Micronesia, Inc. ("AMI") and CMI are subject to agreements securing our
indebtedness.
At December 31, 2009, we also had
letters of credit and performance bonds relating to various real estate, customs
and aircraft financing obligations in the amount of $109 million with expiration
dates through September 2013.
2007 Enhanced Equipment
Trust Certificates. In April 2007, we obtained financing for
12 Boeing 737-800s and 18 Boeing 737-900ERs. We applied a portion of
this financing to 27 Boeing aircraft delivered to us in 2008 and recorded
related debt of $1.0 billion. We applied the final portion of this
financing to three Boeing 737 aircraft delivered to us in the first half of 2009
and recorded related debt of $121 million. In connection with this
financing, enhanced equipment trusts raised $1.1 billion through the issuance of
three classes of enhanced equipment trust certificates. Class A
certificates, with an aggregate principal amount of $757 million, bear interest
at 5.983%, Class B certificates, with an aggregate principal amount of $222
million, bear interest at 6.903% and Class C certificates, with an aggregate
principal amount of $168 million, bear interest at 7.339%. Principal
payments on the equipment notes and the corresponding distribution of these
payments to certificate holders will begin in April 2010 and will end in April
2022 for Class A and B certificates and April 2014 for Class C
certificates.
2009-1 Enhanced Equipment
Trust Certificates. On July 1, 2009, we obtained financing for
12 currently owned Boeing aircraft and five new Boeing 737-900ER
aircraft. A pass-through trust raised $390 million through the
issuance of a single class of enhanced equipment trust certificates bearing
interest at 9%. During 2009, we issued equipment notes with respect
to the 12 currently owned aircraft, resulting in proceeds of $249 million cash
for our general corporate purposes, and equipment notes with respect to five new
Boeing 737-900ER aircraft, resulting in proceeds of $141 million to finance the
purchase of the aircraft. Principal payments on the equipment notes
and the corresponding distribution of these payments to certificate holders are
scheduled from January 2010 through July 2016.
2009-2 Enhanced Equipment
Trust Certificates. In November 2009, we obtained financing
for eight currently owned Boeing aircraft, nine new Boeing 737-800 aircraft and
two new Boeing 777 aircraft. These aircraft are expected to be
refinanced or delivered by August 31, 2010. In connection with this
financing, enhanced equipment trusts raised $644 million through the issuance of
two classes of enhanced equipment trust certificates. Class A
certificates, with an aggregate principal amount of $528 million, bear interest
at 7.25% and Class B certificates, with an aggregate principal amount of $117
million, bear interest at 9.25%. The proceeds from the sale of the
certificates are initially being held by a depositary in escrow for the benefit
of the certificate holders until we issue equipment notes to the trust, which
will purchase such notes with a portion of the escrowed funds. These
escrowed funds are not guaranteed by us and are not reported as debt on our
consolidated balance sheet because the proceeds held by the depositary are not
our assets. Any unused proceeds will be distributed directly to the
certificate holders. Principal payments on the equipment notes and
the corresponding distribution of these payments to certificate holders will
begin in November 2010 and will end in November 2019 for Class A certificates
and in May 2017 for Class B certificates.
Other Debt Secured by
Aircraft. During 2009, we entered into loan agreements under
which we borrowed $180 million. This indebtedness is secured by five
new Boeing 737-900ER aircraft and two Boeing 737-800 aircraft that this debt
refinanced. During 2008, we obtained $268 million through three
separate financings secured by two new Boeing 737-900ER aircraft, seven Boeing
757-200 aircraft and five Boeing 737-700 aircraft.
Advance Purchases of Mileage
Credits. On December 30, 2009, we entered into an amendment of
our Debit Card Marketing Agreement with JPMorgan Chase Bank, N.A. (“JP Morgan
Chase”) under which JP Morgan Chase purchases frequent flyer mileage credits to
be earned by One Pass members for making purchases using a Continental branded
debit card issued by JP Morgan Chase. The agreement provides for a
payment to us of $40 million in early 2010 for the advance purchase of frequent
flyer mileage credits beginning January 1, 2016, or earlier in certain
circumstances. The purchase of mileage credits has been treated as a
loan from JP Morgan Chase with an implicit interest rate of 5.5% and is reported
as long-term debt in our consolidated balance sheet.
On June 10, 2008, we entered into an
amendment and restatement of our Bankcard Joint Marketing Agreement (the
"Bankcard Agreement") with Chase Bank USA, N.A. ("Chase"), under which Chase
purchases frequent flyer mileage credits to be earned by OnePass members for
making purchases using a Continental branded credit card issued by
Chase. The Bankcard Agreement provides for a payment to us of $413
million, of which $235 million relates to the advance purchase of frequent flyer
mileage credits for the year 2016. In connection with the advance
purchase of mileage credits, we have provided a security interest to Chase in
certain routes and slots, including certain slots at London's Heathrow
Airport. The $235 million purchase of mileage credits has been
treated as a loan from Chase with an implicit interest rate of 6.18% and is
reported as long-term debt in our consolidated balance sheet. Our
liability will be reduced ratably in 2016 as the mileage credits are issued to
Chase.
The remaining $178 million received
from Chase is in consideration for certain other commitments with respect to the
co-branding relationship, including the extension of the term of the Bankcard
Agreement until December 31, 2016. This amount is reported in other
liabilities in our consolidated balance sheet and is being recognized as other
revenue on a straight-line basis over the term of the agreement.
Secured Term Loan
Facility. We and CMI have loans under a $350 million secured
term loan facility. The loans are secured by certain of our U.S.-Asia
routes and related assets, all of the outstanding common stock of our
wholly-owned subsidiaries AMI and CMI and substantially all of the other assets
of AMI and CMI, including route authorities and related assets. The
loans bear interest at a rate equal to the London Interbank Offered Rate
("LIBOR") plus 3.375% and are due in June 2011. The facility requires
us to maintain a minimum balance of unrestricted cash and short-term investments
of $1.0 billion at the end of each month. The loans may become due and
payable immediately if we fail to maintain the monthly minimum cash balance and
upon the occurrence of other customary events of default under the loan
documents. If we fail to maintain a minimum balance of unrestricted
cash and short-term investments of $1.125 billion, we and CMI will be
required to make a mandatory aggregate $50 million prepayment of the
loans.
In addition, the facility provides that
if the ratio of the outstanding loan balance to the value of the collateral
securing the loans, as determined by the most recently delivered periodic
appraisal, is greater than 52.5%, we and CMI will be required to post additional
collateral or prepay the loans to reestablish a loan-to-collateral value ratio
of not greater than 52.5%. We are currently in compliance with the
covenants in the facility.
Notes Secured by Spare Parts
Inventory. We have two series of notes secured by the majority
of our spare parts inventory. The senior equipment notes, which total
$190 million in principal amount, bear interest at the three-month LIBOR plus
0.35%. The junior equipment notes, which total $130 million in
principal amount, bear interest at the three-month LIBOR plus
3.125%. A portion of the spare parts inventory that serves as
collateral for the equipment notes is classified as property and equipment and
the remainder is classified as spare parts and supplies, net.
In connection with these equipment
notes, we entered into a collateral maintenance agreement requiring us, among
other things, to maintain a loan-to-collateral value ratio of not greater than
45% with respect to the senior series of equipment notes and a
loan-to-collateral value ratio of not greater than 75% with respect to both
series of notes combined. We must also maintain a certain level of
rotable components within the spare parts collateral pool. These
ratios are calculated semi-annually based on an independent appraisal of the
spare parts collateral pool. If any of the collateral ratio
requirements are not met, we must take action to meet all ratio requirements by
adding additional eligible spare parts to the collateral pool, redeeming a
portion of the outstanding notes, providing other collateral acceptable to the
bond insurance policy provider for the senior series of equipment notes or any
combination of the above actions. We are currently in compliance with
these covenants.
Convertible Debt
Securities. In December 2009, we issued $230 million in
principal amount of 4.5% convertible notes and received proceeds of $224
million. The notes mature on January 15, 2015 and are convertible
into our Class B common stock at an initial conversion price of approximately
$19.87 per share. We do not have the option to pay the conversion
price in cash; however, holders of the notes may require us to repurchase all or
a portion of their notes for cash at par plus any accrued and unpaid interest if
certain changes in control of Continental occur. The conversion price
may also be adjusted within a specified range in certain circumstances if a
change in control of Continental occurs.
Our 5% convertible notes with a
principal amount of $175 million and carrying amount of $169 million are
convertible into 50 shares of our common stock per $1,000 principal amount at a
conversion price of $20 per share. If a holder of the notes exercises
the conversion right, in lieu of delivering shares of our common stock, we may
elect to pay cash or a combination of cash and shares of our common stock for
the notes surrendered. All or a portion of the notes are also
redeemable for cash at our option on or after June 18, 2010 at par plus accrued
and unpaid interest, if any. Holders of the notes may require us to
repurchase all or a portion of their notes at par plus any accrued and unpaid
interest on June 15 of 2010, 2013 or 2018. Therefore, we have
classified these notes in current maturities of long-term debt and capital
leases in our consolidated balance sheet at December 31, 2009. We may
at our option choose to pay the repurchase price on those dates in cash, shares
of our common stock or any combination thereof. However, if we are
required to repurchase all or a portion of the notes, our policy is to settle
the notes in cash. Holders of the notes may
also require us to repurchase all or a portion of their notes for cash at par
plus any accrued and unpaid interest if certain changes in control of
Continental occur.
Because the 5% convertible notes may be
settled in either cash or common stock upon conversion, accounting rules require
us to separately account for the debt and equity components of the notes in a
manner that reflects our nonconvertible debt (unsecured debt) borrowing rate
when interest expense is recognized. The debt and equity components
recognized for our 5% convertible notes were as follows at December 31 (in
millions):
|
2009
|
2008
|
||||
|
Principal
amount of convertible notes
|
$175
|
$175
|
|||
|
Unamortized
discount
|
6
|
18
|
|||
|
Net
carrying amount
|
169
|
157
|
|||
|
Additional
paid-in capital
|
64
|
64
|
|||
At December 31, 2009, the unamortized
discount had a remaining recognition period of approximately 6
months.
The amount of interest expense
recognized and effective interest rate for the 5% convertible notes for the year
ended December 31 were as follows (in millions):
|
2009
|
2008
|
2007
|
||||
|
Contractual
coupon interest
|
$ 9
|
$ 9
|
$ 9
|
|||
|
Amortization
of discount on 5% convertible notes
|
12
|
11
|
10
|
|||
|
Interest
expense
|
$21
|
$20
|
$19
|
|||
|
Effective
interest rate
|
13%
|
13%
|
13%
|
|||
In November 2000, Continental Airlines
Finance Trust II, a Delaware statutory business trust (the "Trust") of which we
own all the common trust securities, completed a private placement of five
million 6% convertible preferred securities, called Term Income Deferrable
Equity Securities or "TIDES." The TIDES have a liquidation value of
$50 per preferred security and are convertible at any time at the option of the
holder into shares of common stock at a conversion rate of $60 per share of
common stock (equivalent to approximately 0.8333 share of common stock for each
preferred security). Distributions on the preferred securities are
payable by the Trust at an annual rate of 6% of the liquidation value of $50 per
preferred security.
The sole assets of the Trust are 6%
convertible junior subordinated debentures ("convertible subordinated
debentures") with an aggregate principal amount of $248 million as of December
31, 2009 issued by us and which mature on November 15, 2030. The
convertible subordinated debentures are redeemable by us, in whole or in part,
on or after November 20, 2003 at designated redemption prices. If we
redeem the convertible subordinated debentures, the Trust must redeem the TIDES
on a pro rata basis having an aggregate liquidation value equal to the aggregate
principal amount of the convertible subordinated debentures
redeemed. Otherwise, the TIDES will be redeemed upon maturity of the
convertible subordinated debentures, unless previously converted.
Taking into consideration our
obligations under (i) the preferred securities guarantee relating to the TIDES,
(ii) the indenture relating to the convertible subordinated debentures to pay
all debt and obligations and all costs and expenses of the Trust (other than
U.S. withholding taxes) and (iii) the indenture, the declaration relating to the
TIDES and the convertible subordinated debentures, we have fully and
unconditionally guaranteed payment of (i) the distributions on the TIDES, (ii)
the amount payable upon redemption of the TIDES and (iii) the liquidation amount
of the TIDES.
In January 2007, $170 million in
principal amount of our 4.5% convertible notes due on February 1, 2007 was
converted by the holders into 4.3 million shares of our Class B common stock at
a conversion price of $40 per share. The remaining $30 million in
principal amount was paid on February 1, 2007.
NOTE
5 - LEASES
We lease certain aircraft and other
assets under long-term lease arrangements. Other leased assets
include real property, airport and terminal facilities, maintenance facilities,
training centers and general offices. Most aircraft leases include
both renewal options and purchase options. Because renewals of our
existing leases are not considered to be reasonably assured at the inception of
each lease, rental payments that would be due during the renewal periods are not
included in the determination of straight-line rent
expense. Leasehold improvements are amortized over the shorter of the
related lease term or their useful life. Any purchase options are
generally effective at the end of the lease term at the then-current fair market
value. Our leases do not include residual value
guarantees.
At December 31, 2009, the scheduled
future minimum lease payments under capital leases and the scheduled future
minimum lease rental payments required under operating leases were as follows
(in millions):
|
Capital
Leases
|
Operating
Leases
|
||||||
|
Aircraft
|
Non-aircraft
|
||||||
|
Year
ending December 31,
|
|||||||
|
2010
|
$ 17
|
$ 994
|
$ 462
|
||||
|
2011
|
16
|
977
|
426
|
||||
|
2012
|
16
|
948
|
513
|
||||
|
2013
|
16
|
933
|
376
|
||||
|
2014
|
16
|
904
|
359
|
||||
|
Later
years
|
385
|
3,389
|
3,694
|
||||
|
Total
minimum lease payments
|
466
|
$8,145
|
$5,830
|
||||
|
Less: amount
representing interest
|
270
|
||||||
|
Present
value of capital leases
|
196
|
||||||
|
Less: current
maturities of capital leases
|
3
|
||||||
|
Long-term
capital leases
|
$193
|
||||||
At December 31, 2009, we had 449
aircraft under operating leases, including 193 mainline aircraft and 256
regional jets. These operating leases have remaining lease terms
ranging up to 15 years. The operating lease amounts for aircraft
presented above include a portion of our minimum noncancelable payments under
capacity purchase agreements with our other regional carriers which represents
the deemed lease commitments on the related aircraft. See Note 16 for
a discussion of our regional capacity purchase agreements.
The table above does not include
projected sublease income of $139 million to be received through 2015 from other
operators related to aircraft that are not operated on our behalf. We
expect such sublease income to be $29 million, $29 million, $26 million, $22
million and $22 million in each of the next five years,
respectively.
Rent expense for non-aircraft operating
leases totaled $578 million, $580 million and $535 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
NOTE
6 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Accounting rules for fair value clarify
that fair value is an exit price, representing the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants based on the highest and best use of the asset or
liability. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. ASC Topic 820 requires us to use
valuation techniques to measure fair value that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs are
prioritized as follows:
|
Level
1:
|
Observable
inputs such as quoted prices for identical assets or liabilities in active
markets
|
|
|
Level
2:
|
Other
inputs that are observable directly or indirectly, such as quoted prices
for similar assets or liabilities or market-corroborated
inputs
|
|
|
Level
3:
|
Unobservable
inputs for which there is little or no market data and which require us to
develop our own assumptions about how market participants would price the
assets or liabilities
|
|
|
The
valuation techniques that may be used to measure fair value are as
follows:
|
|
(A)
|
Market
approach - Uses prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities
|
|
|
(B)
|
Income
approach - Uses valuation techniques to convert future amounts to a single
present amount based on current market expectations about those future
amounts, including present value techniques, option-pricing models and
excess earnings method
|
|
|
(C)
|
Cost
approach - Based on the amount that currently would be required to replace
the service capacity of an asset (replacement
cost)
|
Assets (liabilities) measured at fair
value on a recurring basis during the period include (in millions):
|
Carrying
Amount as of
December 31,
2009
|
Level
1
|
Level
2
|
Level
3
|
Valuation
Technique
|
||
|
Cash
and cash equivalents
|
$2,546
|
$2,546
|
$-
|
$ -
|
(A)
|
|
|
Short-term
investments:
|
||||||
|
Auction
rate securities
|
201
|
-
|
-
|
201
|
(B)
|
|
|
Other
|
109
|
109
|
-
|
-
|
(A)
|
|
|
Restricted
cash, cash equivalents and
short-term
investments
|
164
|
164
|
-
|
-
|
(A)
|
|
|
Auction
rate securities put right
|
20
|
-
|
-
|
20
|
(B)
|
|
|
Fuel
derivatives
|
14
|
-
|
-
|
14
|
(A)
|
|
|
Foreign
currency derivatives
|
5
|
-
|
5
|
-
|
(A)
|
|
Assets measured at fair value on a
nonrecurring basis during 2009 include our Boeing 737-300 and 737-500 fleets and
related assets. We recorded impairment losses on these assets in the
quarter ended June 30, 2009. As a result of the impairments, we
measured these assets at fair value at June 30, 2009, as follows (in
millions):
|
Carrying
Amount as of
June 30,
2009
|
Level
1
|
Level
2
|
Level
3
|
Total
Losses
|
||||||
|
Property
and Equipment:
|
||||||||||
|
Boeing
737-300 fleet
|
$90
|
-
|
-
|
$90
|
$(19)
|
|||||
|
Boeing
737-500 fleet
|
82
|
-
|
-
|
82
|
(12)
|
|||||
|
$(31)
|
||||||||||
We recorded additional losses in the
fourth quarter of 2009 associated with these fleet types as discussed in Note
13. Of the $36 million in fourth quarter aircraft related special
charges, $23 million was associated with Boeing 737-300 and 737-500 aircraft and
parts that had been sent out for sale on consignment.
The determination of fair value of each
of these items is discussed below:
Cash, Cash Equivalents and
Restricted Cash. Cash, cash equivalents and restricted cash
consist primarily of U.S. Government and Agency money market funds and other
AAA-rated money market funds with original maturities of three months or
less. The original cost of these assets approximates fair value due
to their short-term maturity.
Short-Term Investments Other
than Auction Rate Securities. Short-term investments other
than auction rate securities primarily consist of CDARS. The fair
values of these investments are based on observable market data.
Student Loan-Related Auction
Rate Securities. At December 31, 2009, we held student
loan-related auction rate securities with a fair value of $201 million and a par
value of $252 million. These securities were classified as follows
(in millions):
|
Fair
Value
|
Par
Value
|
Amortized
Cost
|
||||
|
Short-term
investments:
|
||||||
|
Available-for-sale
|
$136
|
$166
|
$136
|
|||
|
Trading
|
65
|
86
|
N/A
|
|||
|
Total
|
$201
|
$252
|
||||
These securities are variable-rate debt
instruments with contractual maturities generally greater than ten years and
whose interest rates are reset every 7, 28 or 35 days, depending on the terms of
the particular instrument. These securities are secured by pools of
student loans guaranteed by state-designated guaranty agencies and reinsured by
the U.S. government. All of the auction rate securities we hold are
senior obligations under the applicable indentures authorizing the issuance of
the securities. Auctions for these securities began failing in the
first quarter of 2008 and have continued to fail, resulting in our holding such
securities and the issuers of these securities paying interest adjusted to the
maximum contractual rates.
Prior to the first quarter of 2008, the
carrying value of auction rate securities approximated fair value due to the
frequent resetting of the interest rate and the existence of a liquid
market. Although we will earn interest on these investments involved
in failed auctions at the maximum contractual rate, the estimated market value
of these auction rate securities no longer approximates par value due to the
lack of liquidity in the market for these securities at their par
value. We recorded losses totaling $60 million during 2008 to reflect
the other-than-temporary decline in the fair value of these
securities. Following this other-than-temporary impairment, a new
amortized cost basis was established for available-for-sale securities equal to
the then fair value. The difference between this amortized cost and
the cash flows expected to be collected is being accreted as interest
income.
We estimated the fair value of these
securities to be $201 million at December 31, 2009, taking into consideration
the limited sales and offers to purchase securities and using
internally-developed models of the expected future cash flows related to the
securities. Our models incorporated our probability-weighted
assumptions about the cash flows of the underlying student loans and discounts
to reflect a lack of liquidity in the market for these securities.
In addition, in 2008, one institution
granted us a put right permitting us in 2010 to sell to the institution at their
full par value auction rate securities with a par value of $125
million. The institution has also committed to loan us 75% of the
market value of these securities at any time until the put right is
exercised. The put right is recorded at fair value in prepayments and
other assets on our consolidated balance sheet. We determined the
fair value based on the difference between the risk-adjusted discounted expected
cash flows from the underlying auction rate securities without the put right and
with the put right being exercised in 2010. The initial fair value of
the put right was $26 million. We have classified the underlying
auction rate securities as trading securities and elected the fair value option
under the Fair Value Subsections of ASC Topic 825-10, “Financial Instruments,”
for the put right, with changes in the fair value of the put right and the
underlying auction rate securities recognized in other nonoperating income
(expense) currently.
During 2009, we sold, at par, auction
rate securities having a par value of $40 million. Most of these
securities were sold to the institution that had granted us the put
right. We recognized gains on the sales using the specific
identification method and recorded losses of the cancellation of the related put
rights. The net gains are included in other non-operating income
(expense) in our consolidated statement of operations and were not
material.
We continue to monitor the market for
auction rate securities and consider its impact, if any, on the fair value of
our investments. If current market conditions deteriorate further, we
may be required to record additional losses on these securities.
Fuel
Derivatives. We determine the fair value of our fuel
derivatives by obtaining inputs from a broker's pricing model that is based on
inputs that are either readily available in public markets or can be derived
from information available in publicly quoted markets. We verify the
reasonableness of these inputs by comparing the resulting fair values to similar
quotes from our counterparties as of each date for which financial statements
are prepared. For derivatives not covered by collateral, we also make
an adjustment to incorporate credit risk into the valuation. Due to
the fact that certain of the inputs utilized to determine the fair value of the
fuel derivatives are unobservable (principally volatility of crude oil prices
and the credit risk adjustments), we have categorized these option contracts as
Level 3.
Foreign Currency
Derivatives. We determine the fair value of our foreign
currency derivatives by comparing our contract rate to a published forward price
of the underlying currency, which is based on market rates for comparable
transactions.
Property and Equipment -
Boeing 737-300 and 737-500 Aircraft Fleets. As discussed in
Note 13, we wrote down our Boeing 737-300 and 737-500 fleets to their respective
fair values in the second quarter of 2009. Fleet assets include owned
aircraft, improvements on leased aircraft, rotable spare parts, spare engines
and simulators. We estimated the fair values based on current market
conditions, the condition of our aircraft and our expected proceeds from the
sale of the assets.
Unobservable
Inputs. The reconciliation of our assets measured at fair
value on a recurring basis using unobservable inputs (Level 3) for the year
ended December 31, 2009 is as follows (in millions):
|
Student
Loan-Related
Auction Rate
Securities
|
Auction
Rate
Securities Put
Right
|
Fuel
Derivatives
|
||||
|
Balance
at December 31, 2008
|
$229
|
$26
|
$(415)
|
|||
|
Purchases,
sales, issuances and settlements (net)
|
(40)
|
-
|
393
|
|||
|
Gains
and losses:
|
||||||
|
Reported in
earnings:
|
||||||
|
Realized
|
8
|
(7)
|
-
|
|||
|
Unrealized
|
1
|
1
|
7
|
|||
|
Reported in other comprehensive
income (loss)
|
3
|
-
|
29
|
|||
|
Balance
at December 31, 2009
|
$201
|
$20
|
$ 14
|
|||
Other Financial
Instruments. Other financial instruments that are not subject
to the disclosure requirements of ASC Topic 820 are as follows:
|
·
|
Debt. The
fair value of our debt with a carrying value of $6.1 billion at December
31, 2009 and $5.7 billion at December 31, 2008 was approximately $5.8
billion and $4.6 billion, respectively. These estimates were
based on either market prices or the discounted amount of future cash
flows using our current incremental rate of borrowing for similar
liabilities.
|
|
·
|
Investment in COLI
Products. In connection with certain of our supplemental
retirement plans, we previously held company owned life insurance policies
on certain of our employees. We terminated all of the policies
in 2009. As of December 31, 2008, the carrying value of the
cash surrender value of the life insurance policies was $26 million, which
was based on the fair value of the underlying
investments.
|
|
·
|
Accounts Receivable
and Accounts Payable. The fair values of accounts
receivable and accounts payable approximated carrying value due to their
short-term maturity.
|
NOTE
7 - HEDGING ACTIVITIES
As part of our risk management program,
we use a variety of derivative financial instruments to help manage our risks
associated with changes in fuel prices and foreign currency exchange
rates. We do not hold or issue derivative financial instruments for
trading purposes.
We are exposed to credit losses in the
event of non-performance by issuers of derivative financial
instruments. To manage credit risks, we select issuers based on
credit ratings, limit our exposure to any one issuer under our defined
guidelines and monitor the market position with each counterparty.
Fuel Price Risk
Management. We routinely hedge a portion of our future fuel
requirements, provided the hedges are expected to be cost
effective. We have historically entered into swap agreements or
purchased call options to protect us against sudden and significant increases in
jet fuel prices. We conduct our fuel hedging activities using a
combination of jet fuel, crude oil and heating oil contracts. We
strive to maintain fuel hedging levels and exposure generally comparable to that
of our major competitors, so that our fuel cost is not disproportionate to
theirs.
As of December 31, 2009, our projected
fuel requirements for 2010 were hedged as follows:
|
Maximum
Price
|
Minimum
Price
|
|||||||
|
%
of
Expected
Consumption
|
Weighted
Average
Price
(per
gallon)
|
%
of
Expected
Consumption
|
Weighted
Average
Price
(per
gallon)
|
|||||
|
Gulf
Coast jet fuel swaps
|
1%
|
$1.94
|
1%
|
$1.94
|
||||
|
WTI
crude oil swaps
|
2
|
1.84
|
2
|
1.84
|
||||
|
WTI
crude oil call options
|
4
|
2.20
|
N/A
|
N/A
|
||||
|
Total
|
7%
|
3%
|
||||||
We account for our fuel derivatives as
cash flow hedges and record them at fair value in our consolidated balance sheet
with the change in fair value, to the extent effective, being recorded to
accumulated other comprehensive income (loss) (“accumulated OCI”), net of
applicable income taxes. Fuel hedge gains (losses) are recognized as
a component of fuel expense when the underlying fuel being hedged is
used. The ineffective portion of our fuel hedges is determined based
on the correlation between jet fuel and crude oil or heating oil prices and is
included in nonoperating income (expense) in our consolidated statement of
operations.
When our fuel hedges are in a liability
position, we may be required to post cash collateral with our
counterparties. We were not required to post any such collateral at
December 31, 2009. Because our fuel hedges were in a net liability
position at December 31, 2008, we were required to post cash collateral with our
counterparties totaling $171 million. These amounts are reported in
prepayments and other current assets in our consolidated balance
sheet.
Foreign Currency Exchange
Risk Management. We have historically used foreign currency
average rate options and forward contracts to hedge against the currency risk
associated with our forecasted Japanese yen, British pound, Canadian dollar and
euro-denominated cash flows. The average rate options and forward
contracts have only nominal intrinsic value at the date
contracted. At December 31, 2009, we had forward contracts
outstanding to hedge 30% of our projected Japanese yen-denominated cash inflows,
primarily from passenger ticket sales, through 2010.
We account for these instruments as
cash flow hedges. They are recorded at fair value in our consolidated
balance sheet with the offset to accumulated OCI, net of applicable income taxes
and hedge ineffectiveness, and are recognized as passenger revenue in the month
of sale. We measure hedge effectiveness of average rate options and
forward contracts based on the forward price of the underlying
currency. Hedge ineffectiveness, if any, is included in other
nonoperating income (expense) in our consolidated statement of
operations.
Quantitative
Disclosures. At December 31, 2009, all of our derivative
instruments were designated as cash flow hedges and were reported in our
consolidated balance sheet as follows (in millions):
|
Asset
Derivatives
|
Liability
Derivatives
|
|||||
|
Balance
Sheet
Location
|
Fair
Value
|
Balance
Sheet
Location
|
Fair
Value
|
|||
|
Fuel
derivatives
|
Prepayments
and other current assets
|
$ 14
|
Accrued
other current liabilities
|
$ -
|
||
|
Foreign
currency derivatives
|
Prepayments
and other current assets
|
5
|
Accrued
other current liabilities
|
-
|
||
|
Total
derivatives
|
$ 19
|
$ -
|
||||
The gains and losses related to our
derivative instruments reported in our consolidated balance sheet at December
31, 2009 and our consolidated statement of operations for the year
ended December 31, 2009 were as follows (in millions):
|
Cash Flow
Hedges
|
Gain
(Loss)
Recognized
in
OCI
(Effective
Portion)
|
Gain
(Loss) Reclassified from
Accumulated
OCI into Income
(Effective
Portion)
|
Gain
(Loss) Recognized in
Income (Ineffective
Portion)
|
|||||
|
Income
Statement
Location
|
Amount
|
Income
Statement
Location
|
Amount
|
|||||
|
Fuel
derivatives
|
$36
|
Aircraft
fuel and
related
taxes
|
$(380)
|
Other
nonoperating
income
(expense)
|
$7
|
|||
|
Foreign
currency derivatives
|
10
|
Passenger
revenue
|
(2)
|
Other
nonoperating
income
(expense)
|
-
|
|||
|
Total
|
$46
|
$(382)
|
$7
|
|||||
Lehman Brothers, one of the
counterparties to our fuel derivative contracts, declared bankruptcy on
September 15, 2008. As a result, we determined that our fuel
derivative contracts with Lehman Brothers were not highly effective
hedges. Therefore, we discontinued hedge accounting for these
contracts as of September 15, 2008 and all subsequent changes in the contracts’
fair values were reported in earnings. In 2008, we recognized losses
of $125 million in other non-operating income (expense) related to the changes
in the fair value of these contracts. In January 2009, we settled all
open contracts with Lehman Brothers.
NOTE
8 - PREFERRED AND COMMON STOCK
Preferred
Stock. On April 14, 2008, Northwest Airlines, Inc.
("Northwest") and Delta Air Lines, Inc. ("Delta") announced that they had
entered into a merger agreement. Northwest previously held the one
outstanding share of our Series B preferred stock, which prevented us from
engaging in certain business combinations or other activities without
Northwest's consent. We were entitled to redeem the share of Series B
preferred stock for a nominal sum upon the execution of a definitive merger
agreement by Northwest with respect to a transaction constituting a change of
control of Northwest, which occurred upon Northwest's entry into the merger
agreement with Delta. As a result, we redeemed and cancelled the
Series B preferred stock in the second quarter of 2008, eliminating Northwest's
right to prevent us from engaging in certain business combinations or other
activities.
Common
Stock. We currently have one class of common stock issued and
outstanding, Class B common stock. Each share of common stock is entitled to one
vote per share. In August 2009, we completed a public offering of
14.4 million shares of our common stock at a price to the public of $11.20 per
share, raising net proceeds of $158 million. In June 2008, we
completed a public offering of 11 million shares of our common stock at a price
to the public of $14.80 per share, raising net proceeds of $162
million. Additionally, in the fourth quarter of 2008, we completed a
public offering of 13 million shares of our common stock at an average price to
the public of $15.84 per share, raising net proceeds of $196
million. Proceeds from each of these offerings were used for general
corporate purposes. At December 31, 2009, approximately 40 million
shares were reserved for future issuance related to the conversion of
convertible debt securities and the issuance of stock under our stock incentive
plans.
As discussed in Note 4, $170 million in
principal amount of our 4.5% convertible notes was converted by the holders into
4.3 million shares of our common stock in January 2007 at a conversion price of
$40 per share.
Stockholder Rights
Plan. On November 20, 2008, our stockholder rights plan
expired. As a result, each outstanding share of our common stock is
no longer accompanied by a right. The holders of common stock were
not entitled to any payment as a result of the expiration of the rights plan and
the rights issued thereunder.
NOTE
9 - STOCK PLANS AND AWARDS
Stock
Options. Stock options are awarded with exercise prices equal
to the fair market value of our common stock on the date of
grant. Management level employee stock options typically vest over a
four year period and generally have five year terms. Expense related
to each portion of an option grant is recognized on a straight-line basis over
the specific vesting period for those options. Outside director stock
options vest in full on the date of grant and have ten year
terms. Under the terms of our management incentive plans, a change in
control would result in options outstanding under those plans becoming
exercisable in full.
The table below summarizes stock option
transactions pursuant to our plans (share data in thousands):
|
2009
|
2008
|
2007
|
|||||||
|
Options
|
Weighted-
Average
Exercise
Price
|
Options
|
Weighted-
Average
Exercise
Price
|
Options
|
Weighted-
Average
Exercise
Price
|
||||
|
Outstanding
at
beginning
of
year
|
7,972
|
$16.65
|
7,817
|
$17.36
|
8,991
|
$15.12
|
|||
|
Granted
|
713
|
$ 9.40
|
752
|
$10.84
|
728
|
$35.72
|
|||
|
Exercised
|
(383)
|
$11.72
|
(375)
|
$12.49
|
(1,699)
|
$13.39
|
|||
|
Cancelled
|
(188)
|
$23.86
|
(222)
|
$29.14
|
(203)
|
$17.29
|
|||
|
Outstanding
at
end
of year
|
8,114
|
$16.08
|
7,972
|
$16.65
|
7,817
|
$17.36
|
|||
|
Exercisable
at
end
of year
|
6,550
|
$15.98
|
6,212
|
$15.08
|
3,393
|
$15.45
|
|||
As of December 31, 2009, stock options
outstanding at the end of the period had a weighted average contractual life of
2.4 years and an
aggregate intrinsic value of $38 million. Options exercisable at
December 31, 2009 had a weighted average contractual life of 2.1 years and an
aggregate intrinsic value of $28 million.
The fair value of options is determined
at the grant date using a Black-Scholes-Merton option-pricing model, which
requires us to make several assumptions. The risk-free interest rate
is based on the U.S. Treasury yield curve in effect for the expected term of the
option at the time of grant. The dividend yield on our common stock
is assumed to be zero since we historically have not paid dividends and have no
current plans to do so in the future. The market price volatility of
our common stock is based on the historical volatility of our common stock over
a time period equal to the expected term of the option and ending on the grant
date. The expected life of the options is based on our historical
experience for various work groups. We recognize expense only for
those option awards expected to vest, using an estimated forfeiture rate based
on our historical experience. The forfeiture rate may be revised in
future periods if actual forfeitures differ from our assumptions. The
weighted-average fair value of options granted during the year ended December 31
was determined based on the following weighted-average assumptions:
|
2009
|
2008
|
2007
|
||
|
Risk-free
interest rate
|
2.0%
|
3.1%
|
4.9%
|
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
|
|
Expected
market price volatility of our common stock
|
86%
|
62%
|
57%
|
|
|
Expected
life of options (years)
|
3.9
|
3.9
|
3.9
|
|
|
Fair
value of options granted
|
$5.75
|
$5.32
|
$16.95
|
The total intrinsic value of options
exercised during the year ended December 31, 2009, 2008 and 2007 was $2 million,
$3 million and $45 million, respectively.
The following tables summarize the
range of exercise prices and the weighted average remaining contractual life of
the options outstanding and the range of exercise prices for the options
exercisable at December 31, 2009 (share data in thousands):
|
Options
Outstanding
|
|||||||
|
Range
of
Exercise
Prices
|
Number
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||
|
$9.22-$11.72
|
1,286
|
4.3
|
$ 9.59
|
||||
|
$11.89
|
4,333
|
1.9
|
$11.89
|
||||
|
$11.96-$20.31
|
1,124
|
2.4
|
$19.21
|
||||
|
$20.97-$49.80
|
1,371
|
2.3
|
$32.83
|
||||
|
$9.22-$49.80
|
8,114
|
2.4
|
$16.08
|
||||
|
Options
Exercisable
|
||||||||
|
Range
of
Exercise
Prices
|
Number
|
Weighted
Average
Exercise
Price
|
||||||
|
$9.22-$11.72
|
206
|
$ 9.84
|
||||||
|
$11.89
|
4,333
|
$11.89
|
||||||
|
$11.96-$20.31
|
1,081
|
$19.34
|
||||||
|
$20.97-$49.80
|
930
|
$32.52
|
||||||
|
$9.22-$49.80
|
6,550
|
$15.98
|
||||||
Employee Stock Purchase
Plan. All of our employees (including CMI employees) are
eligible to participate in the 2004 Employee Stock Purchase Plan (the "2004
ESPP"). At the end of each fiscal quarter, participants may purchase
shares of our common stock at a discount of 15% off the fair market value of the
stock on either the first day or the last day of the quarter (whichever is
lower), subject to a minimum purchase price of $10 per share. This
discount is reduced to zero as the fair market value approaches $10 per
share. If the fair market value is below the $10 per share minimum
price on the last day of a quarter, then the participants will not be permitted
to purchase the common stock for such quarterly purchase period and we will
refund to those participants the amount of their unused payroll
deductions. During 2009, 2008 and 2007, approximately 0.5 million,
1.1 million and 0.4 million shares, respectively, of common stock were issued to
participants at a weighted-average purchase price of $11.81, $12.76 and $27.84
per share, respectively. On June 10, 2009, our stockholders
approved an amendment to the 2004 ESPP, under which we had sold to participants
all of the remaining previously authorized shares in the first quarter of
2009. The amendment made 3.5 million shares of common stock available
for purchase by participants under the 2004 ESPP and extended the term of the
plan to December 31, 2019. In January 2010, 0.2 million shares were
purchased related to the fourth quarter of 2009 at a price of $12.82 per
share.
Incentive
Plan. Our incentive plan for granting equity and performance
awards to management level employees and equity awards to non-employee directors
expired on October 3, 2009. The plan remains effective solely for
purposes of governing the terms of outstanding awards and no further awards may
be granted under the plan. On December 1, 2009, our Board of
Directors approved our new Incentive Plan 2010, subject to stockholder
approval. We expect to submit the new incentive plan to our
stockholders for approval in 2010.
Profit Based RSU
Awards. We have issued profit based restricted stock unit
(“RSUs”) awards pursuant to our Long-Term Incentive and RSU Program, which can
result in cash payments to our officers upon the achievement of specified profit
sharing-based performance targets. The performance targets require
that we reach target levels of cumulative employee profit sharing during the
performance period and that we have net income calculated in accordance with
U.S. generally accepted accounting principles for the applicable fiscal year in
which the cumulative profit sharing target is met. To serve as a
retention feature, payments related to the achievement of a performance target
generally will be made in annual increments over a three-year period to
participants who remain continuously employed by us through each payment
date. Payments also are conditioned on our having, at the end of the
fiscal year preceding the date any payment is made, a minimum unrestricted cash,
cash equivalents and short-term investments balance as set by the Human
Resources Committee of our Board of Directors. If we do not achieve
the minimum cash balance applicable to a payment date, the payment will be
deferred until the next payment date (March 1 of the next year), subject to a
limit on the number of years payments may be carried forward. Payment
amounts are calculated based on the number of RSUs subject to the award, the
average closing price of our common stock during the 20 trading days preceding
the payment date and the payment percentage set by the Human Resources Committee
of our Board of Directors for achieving the applicable profit sharing-based
performance target.
We account for the profit based RSU
awards as liability awards. Once it is probable that a profit
sharing-based performance target will be met, we measure the awards at fair
value based on the current stock price. The related expense is
recognized ratably over the required service period, which ends on each payment
date, after adjustment for changes in the then-current market price of our
common stock.
The awards that had a performance
period commencing April 1, 2006 and ending December 31, 2009 achieved the
highest level cumulative profit sharing performance target based on cumulative
profit sharing payments to our broad based employees of $262 million during the
performance period. As a result, payments totaling $20 million and
$52 million were made in March 2009 and 2008, respectively, with respect to
these profit based RSU awards. The third and final payment related to
these 1.4 million awards will be made in March 2010.
The 0.5 million RSU awards with a
performance period commencing January 1, 2007 and ending December 31, 2009
expired without vesting on December 31, 2009 because the minimum cumulative
profit sharing target was not met. No payments will be made with
respect to these awards. We have two other grants of profit based RSU
awards outstanding at December 31, 2009. The following table sets
forth information about these grants:
|
2009
Grant
|
2008
Grant
|
|
|
Initial
grant date
|
February
2009
|
February
2008
|
|
Number
of RSU awards outstanding
|
1.3
million
|
0.8
million
|
|
Performance
period
|
January
1, 2009-
December
31, 2011
|
January
1, 2008-
December
31, 2010
|
|
Cumulative
profit sharing targets (range)
|
$0-$375
million
|
$0-$275
million
|
|
Cumulative
profit sharing achieved to date
for
applicable performance period
|
$0
|
$0
|
|
Payment
percentages (range)
|
0%-400%
|
0%-200%
|
|
Probable
payment percentage:
|
||
|
As
of December 31, 2009
|
0%
|
0%
|
|
As
of December 31, 2008
|
N/A
|
100%
|
|
Unrestricted
cash, cash equivalents and
short-term
investments hurdle
|
$2.2
billion
|
$2.2
billion
|
As of December 31, 2009, we had
recorded no liability associated with the profit based RSU awards for the
performance periods commencing January 1, 2008 or 2009 because we had not
achieved, and did not reasonably expect to achieve, any of the cumulative profit
sharing-based performance targets for those awards. On December 31,
2009, our enhanced profit sharing plan expired. Pursuant to the terms
of the 2008 and 2009 RSU grants, and in order to comply with the provisions of
Internal Revenue Code Section 162(m), achievement of a performance target for
such grants will continue to be determined under and based upon the definition
of annual award pool in the enhanced profit sharing plan that expired on
December 31, 2009.
Stock-Based Compensation
Expense. Total stock-based compensation expense included in
wages, salaries and related costs for the years ended December 31, 2009, 2008
and 2007 was $(3) million, $47 million and $75 million,
respectively. As of December 31, 2009, $5 million of compensation
cost attributable to future service related to unvested employee stock options
and profit based RSU awards with a performance period commencing April 1, 2006
and ending December 31, 2009 had not yet been recognized. This amount
will be recognized in expense over a weighted-average period of 1.2
years.
NOTE
10 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other
comprehensive loss (which are all net of applicable income taxes) were as
follows (in millions):
|
Defined
Benefit Pension and
Retiree Medical
Benefits Plans
|
Unrealized
Gain
(Loss)
on
Derivative
Instruments
and Other
|
||||||||
|
Unrecognized
Prior
Service
Cost
|
Unrecognized
Actuarial
Gains
(Losses)
|
Income
Tax
Benefit
(Expense)
|
Total
|
||||||
|
Balance
at December 31, 2006
|
$(262)
|
$(971)
|
$ (16)
|
$ 236
|
$(1,013)
|
||||
|
Derivative
financial instruments:
|
|||||||||
|
Reclassification
into earnings
|
-
|
-
|
(48)
|
-
|
(48)
|
||||
|
Change
in fair value
|
-
|
-
|
93
|
-
|
93
|
||||
|
Employee
benefit plans:
|
|||||||||
|
Reclassification
of unrecognized
net
actuarial loss into
earnings
|
-
|
97
|
-
|
-
|
97
|
||||
|
Reclassification
of prior service
cost
into earnings
|
30
|
-
|
-
|
-
|
30
|
||||
|
Current
year prior service cost
|
(18)
|
-
|
-
|
-
|
(18)
|
||||
|
Current
year actuarial gain
|
-
|
354
|
-
|
-
|
354
|
||||
|
Balance
at December 31, 2007
|
(250)
|
(520)
|
29
|
236
|
(505)
|
||||
|
Derivative
financial instruments:
|
|||||||||
|
Reclassification
into earnings
|
-
|
-
|
170
|
-
|
170
|
||||
|
Change
in fair value
|
-
|
-
|
(608)
|
-
|
(608)
|
||||
|
Unrealized
loss on student loan-
related
auction rate securities
|
-
|
-
|
(3)
|
-
|
(3)
|
||||
|
Employee
benefit plans:
|
|||||||||
|
Reclassification
of unrecognized
net
actuarial loss into
earnings
|
-
|
85
|
-
|
-
|
85
|
||||
|
Reclassification
of prior service
cost
into earnings
|
31
|
-
|
-
|
-
|
31
|
||||
|
Current
year actuarial loss
|
-
|
(926)
|
-
|
-
|
(926)
|
||||
|
Balance
at December 31, 2008
|
(219)
|
(1,361)
|
(412)
|
236
|
(1,756)
|
||||
|
Defined
Benefit Pension and
Retiree Medical
Benefits Plans
|
Unrealized
Gain
(Loss)
on
Derivative
Instruments
and Other |
||||||||
|
Unrecognized
Prior
Service
Cost
|
Unrecognized
Actuarial
Gains
(Losses)
|
Income
Tax
Benefit
(Expense)
|
Total
|
||||||
|
Derivative
financial instruments:
|
|||||||||
|
Reclassification
into earnings
|
-
|
-
|
375
|
-
|
375
|
||||
|
Change
in fair value
|
-
|
-
|
46
|
-
|
46
|
||||
|
Unrealized
gain on student loan-
related
auction rate securities
|
-
|
-
|
3
|
-
|
3
|
||||
|
Employee
benefit plans:
|
|||||||||
|
Reclassification
of unrecognized
net
actuarial loss into
earnings
|
-
|
138
|
-
|
-
|
138
|
||||
|
Reclassification
of prior service
cost
into earnings
|
31
|
-
|
-
|
-
|
31
|
||||
|
Current
year actuarial gain
|
-
|
136
|
-
|
-
|
136
|
||||
|
Income
tax expense
|
-
|
-
|
-
|
(158)
|
(158)
|
||||
|
Balance
at December 31, 2009
|
$(188)
|
$(1,087)
|
$ 12
|
$ 78
|
$(1,185)
|
||||
NOTE
11 - EMPLOYEE BENEFIT PLANS
Our employee benefits plans include
defined benefit pension plans, defined contribution (including 401(k) savings)
plans and a welfare benefit plan, which includes retiree medical
benefits. Substantially all of our domestic employees are covered by
one or more of these plans.
Defined Benefit Pension
Plans. Benefits under our defined benefit pension plans are
based on a combination of years of benefit accrual service and an employee's
final average compensation. Under the collective bargaining agreement
with our pilots ratified on March 31, 2005, which we refer to as the "pilot
agreement," future defined benefit accruals for pilots ceased and retirement
benefits accruing in the future are provided through two pilot-only defined
contribution plans. As required by the pilot agreement, defined
benefit pension assets and obligations related to pilots in our primary defined
benefit pension plan (covering substantially all U.S. employees other than
Chelsea Food Services division ("Chelsea") and CMI employees) were spun out into
a separate pilot-only defined benefit pension plan, which we refer to as the
"pilot defined benefit pension plan." On May 31, 2005, future benefit
accruals for pilots ceased and the pilot defined benefit pension plan was
"frozen." As of that freeze date, all existing accrued benefits for
pilots (including the right to receive a lump sum payment upon retirement) were
preserved in the pilot defined benefit pension plan. Accruals for
non-pilot employees under our primary defined benefit pension plan
continue.
Retiree Medical Benefits
Plans. Our retiree medical programs are self-insured
arrangements that permit retirees who meet certain age and service requirements
to continue medical coverage between retirement and Medicare
eligibility. Eligible employees are required to pay a portion of the
costs of their retiree medical benefits, which in some cases may be offset by
accumulated unused sick time at the time of their retirement. Plan
benefits are subject to co-payments, deductibles and other limits as described
in the plans. We account for the retiree medical benefits plan under
ASC Topic 715, “Compensation – Retirement Benefits,” which requires recognition
of the expected cost of benefits over the employee's service
period.
Obligation and Funded
Status. Our pension and retiree medical benefits obligations
are measured as of December 31 of each year. The following table sets
forth the changes in projected benefit obligation of the defined benefit pension
and retiree medical benefits plans at December 31 (in millions):
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
|||||||
|
2009
|
2008
|
2009
|
2008
|
|||||
|
Accumulated
benefit obligation
|
$2,401
|
$2,273
|
N/A
|
N/A
|
||||
|
Benefit
obligation at beginning of year
|
2,482
|
$2,353
|
$249
|
$252
|
||||
|
Service
cost
|
65
|
59
|
11
|
12
|
||||
|
Interest
cost
|
153
|
149
|
15
|
16
|
||||
|
Actuarial
(gains) losses
|
70
|
168
|
(26)
|
(17)
|
||||
|
Participant
contributions
|
-
|
-
|
2
|
2
|
||||
|
Benefits
paid
|
(49)
|
(118)
|
(18)
|
(16)
|
||||
|
Lump
sum settlements
|
(92)
|
(129)
|
-
|
-
|
||||
|
Benefit
obligation at end of year
|
$2,629
|
$2,482
|
$233
|
$249
|
||||
The retiree medical benefits plan and
certain supplemental defined benefit pension plans are unfunded. The
following table sets forth the change in the fair value of the defined benefit
pension plans' assets at December 31 (in millions):
|
2009
|
2008
|
|||
|
Fair
value of plan assets at beginning of year
|
$1,057
|
$1,817
|
||
|
Actual
gains (losses) on plan assets
|
268
|
(618)
|
||
|
Employer
contributions, including benefits
paid
under unfunded plans
|
187
|
105
|
||
|
Benefits
paid
|
(49)
|
(118)
|
||
|
Lump
sum settlements
|
(92)
|
(129)
|
||
|
Fair
value of plan assets at end of year
|
$1,371
|
$1,057
|
||
The unfunded portion of the defined
benefit pension and retiree medical benefits liabilities were recognized in the
accompanying consolidated balance sheets at December 31 as follows (in
millions):
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
|||||||
|
2009
|
2008
|
2009
|
2008
|
|||||
|
Accrued
payroll
|
$ 10
|
$ 8
|
$ 17
|
$ 15
|
||||
|
Accrued
pension liability
|
1,248
|
1,417
|
-
|
-
|
||||
|
Accrued
retiree medical benefits
|
-
|
-
|
216
|
234
|
||||
|
Funded
status of the plans - net underfunded
|
$1,258
|
$1,425
|
$ 233
|
$249
|
||||
The amounts in accumulated other
comprehensive loss that have not yet been recognized as components of net
periodic benefit expense at December 31, 2009 were as follows (in
millions):
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
|||
|
Unrecognized
prior service cost
|
$ 22
|
$166
|
||
|
Unrecognized
actuarial (gains) losses
|
$1,174
|
$(87)
|
||
Unrecognized prior service cost is
expensed using a straight-line amortization of the cost over the average future
service of employees expected to receive benefits under the
plans. The following table sets forth the amounts of unrecognized
prior service cost and net actuarial loss recorded in accumulated other
comprehensive loss expected to be recognized as components of net periodic
benefit expense during 2010 (in millions):
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
|||
|
Prior
service cost
|
$ 10
|
$21
|
||
|
Actuarial
(gains) losses
|
$ 87
|
$(4)
|
||
The following actuarial assumptions
were used to determine our benefit obligations at December 31:
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||
|
Weighted
average discount rate
|
6.01%
|
6.13%
|
5.57%
|
6.03%
|
|||||
|
Weighted
average rate of compensation increase
|
2.30%
|
2.30%
|
-
|
-
|
|||||
|
Health
care cost trend rate
|
-
|
-
|
7.50%
|
7.50%
|
|||||
The December 31, 2009 health care cost
trend rate is assumed to decline gradually to 5% by 2015.
Net periodic defined benefit pension
and retiree medical benefits expense for the year ended December 31 included the
following components (in millions):
|
Defined Benefit
Pension
|
Retiree Medical
Benefits
|
|||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
|
Service
cost
|
$ 65
|
$ 59
|
$ 61
|
$ 11
|
$12
|
$11
|
|
Interest
cost
|
153
|
149
|
158
|
15
|
15
|
14
|
|
Expected
return on plan assets
|
(89)
|
(157)
|
(137)
|
-
|
-
|
-
|
|
Amortization
of unrecognized
net
actuarial (gain) loss
|
111
|
34
|
68
|
(2)
|
(1)
|
(2)
|
|
Amortization
of prior service cost
|
10
|
10
|
10
|
21
|
21
|
20
|
|
Net
periodic benefit expense
|
250
|
95
|
160
|
45
|
47
|
43
|
|
Settlement
charges (included in
special
charges)
|
29
|
52
|
31
|
-
|
-
|
-
|
|
Net
benefit expense
|
$ 279
|
$ 147
|
$ 191
|
$ 45
|
$47
|
$43
|
During 2009, 2008 and 2007, we recorded
non-cash settlement charges totaling $29 million, $52 million and $31 million,
respectively, related to lump sum distributions from our pilot-only defined
benefit pension plan to pilots who retired. Settlement accounting is
required if, for a given year, the cost of all settlements exceeds, or is
expected to exceed, the sum of the service cost and interest cost components of
net periodic pension expense for a plan. Under settlement accounting,
unrecognized plan gains or losses must be recognized immediately in proportion
to the percentage reduction of the plan's projected benefit
obligation.
The following actuarial assumptions
were used to determine our net periodic benefit expense for the year ended
December 31:
|
Defined Benefit
Pension
|
Retiree Medical
Benefits
|
|||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
|
Weighted
average discount rate
|
6.13%
|
6.27%
|
5.95%
|
6.03%
|
6.02%
|
5.76%
|
|
Expected
long-term rate of return
on
plan assets
|
8.25%
|
8.50%
|
8.26%
|
-
|
-
|
-
|
|
Weighted
average rate of
compensation increase
|
2.30%
|
2.30%
|
2.30%
|
-
|
-
|
-
|
|
Health
care cost trend rate
|
-
|
-
|
-
|
7.50%
|
8.00%
|
8.00%
|
The 2009 health care cost trend rate is
assumed to decline gradually to 5% by 2014.
A one percentage point change in the
assumed health care cost trend rate would have the following effect (in
millions):
|
One
Percent
Increase
|
One
Percent
Decrease
|
|||
|
Impact
on 2009 retiree medical benefits expense
|
$ 3
|
$ (2)
|
||
|
Impact
on accrued retiree medical benefits as of
December
31, 2009
|
$22
|
$(20)
|
||
The defined benefit pension plans'
assets consist primarily of equity and fixed-income securities held through
common collective trusts. The fair values of our defined benefit
pension plans’ assets as of December 31, 2009 were as follows (in
millions):
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||
|
Equity
securities:
|
|||||
|
U.S.
companies
|
$ 661
|
$ -
|
$ 661
|
$ -
|
|
|
International
companies
|
292
|
-
|
292
|
||
|
Fixed-income
securities
|
290
|
-
|
290
|
-
|
|
|
Private
equity funds
|
128
|
-
|
-
|
128
|
|
|
Total
|
$1,371
|
$ -
|
$1,243
|
$128
|
|
See Note 6 for a discussion of the
levels of inputs to determine fair value.
Equity securities include investments
in large-cap and small-cap companies. Fixed-income securities include
corporate bonds of companies in diversified industries and asset- and
mortgage-backed securities. Investments in equity securities and
fixed-income securities are commingled funds valued at the unit of participation
value of shares held by the plans’ trust.
The private equity funds invest
primarily in common stock of companies in diversified industries and in buyout,
venture capital and special situation funds. Investments in private
equity funds are valued at the net asset value of shares held by the plans’
trust at year end.
The reconciliation of our defined
benefit plans assets measured at fair value using unobservable inputs (Level 3)
for the year ended December 31, 2009 is as follows (in millions):
|
Private Equity
Funds
|
||
|
Balance
at December 31, 2008
|
$127
|
|
|
Actual
return on plan assets:
|
||
|
Unrealized
gains (losses) relating to assets still held at year end
|
(2)
|
|
|
Purchases,
sales, issuances and settlements (net)
|
3
|
|
|
Balance
at December 31, 2009
|
$128
|
|
We develop our expected long-term rate
of return assumption based on historical experience and by evaluating input from
the trustee managing the plans' assets. Our expected long-term
rate of return on plan assets is based on a target allocation of assets, which
is based on our goal of earning the highest rate of return while maintaining
risk at acceptable levels. The plans strive to have assets
sufficiently diversified so that adverse or unexpected results from one security
class will not have an unduly detrimental impact on the entire
portfolio. We regularly review our actual asset allocation and the
pension plans' investments are periodically rebalanced to our targeted
allocation when considered appropriate. Plan assets are allocated
within the following guidelines:
|
Percent of
Total
|
Expected
Long-Term
Rate of
Return
|
|||
|
Equity
securities:
|
||||
|
U.S.
companies
|
35-55%
|
8%
|
||
|
International
companies
|
15-25
|
9
|
||
|
Fixed-income
securities
|
15-25
|
5
|
||
|
Other
|
0-15
|
11
|
||
Funding requirements for tax-qualified
defined benefit pension plans are determined by government
regulations. During 2009, we contributed $176 million to our
tax-qualified defined benefit pension plans, satisfying our minimum funding
requirements during calendar year 2009. We contributed an additional
$34 million to our tax-qualified defined benefit pension plans in January
2010. We estimate that our remaining minimum funding requirements
during calendar year 2010 are approximately $85 million.
We project that our defined benefit
pension and retiree medical plans will make the following benefit payments,
which reflect expected future service and include expected lump sum
distributions, during the year ended December 31 (in millions):
|
Defined
Benefit
Pension
|
Retiree
Medical
Benefits
|
||||
|
2010
|
$ 155
|
$ 17
|
|||
|
2011
|
165
|
17
|
|||
|
2012
|
180
|
17
|
|||
|
2013
|
192
|
17
|
|||
|
2014
|
208
|
18
|
|||
|
2015
through 2019
|
946
|
105
|
|||
Defined Contribution Plans
for Pilots. As required by the pilot agreement, two pilot-only
defined contribution plans were established in 2005. One of these
plans is a money purchase pension plan -- a type of defined contribution plan
subject to the minimum funding rules of the Internal Revenue
Code. Contributions under this plan are generally expressed as a
percentage of applicable pilot compensation, subject to limits under the
Internal Revenue Code. The other pilot-only defined contribution plan
is a 401(k) plan that was established by transferring the pilot accounts from
our pre-existing primary 401(k) plan (covering substantially all of our U.S.
employees other than CMI employees) to a separate pilot-only 401(k)
plan. Pilots may make elective pre-tax and/or post-tax contributions
to the pilot-only 401(k) plan. In addition, the pilot agreement
provides for variable employer contributions to the pilot-only 401(k) plan based
on pre-tax profits during a portion of the term of the pilot
agreement. To the extent the Internal Revenue Code limits preclude
employer contributions called for by the pilot agreement, the disallowed amount
will be paid directly to the pilots as current wages under a corresponding
nonqualified arrangement. Our expense related to the defined
contribution plans for pilots was $77 million, $82 million and $69 million in
the years ended December 31, 2009, 2008 and 2007, respectively.
Other 401(k)
Plans. We have two other defined contribution 401(k) employee
savings plans in addition to the pilot-only 401(k) plan, a 401(k) plan covering
substantially all domestic employees except for pilots and a 401(k) plan
covering substantially all of the employees of CMI. Participants in
the non-pilot 401(k) plans may make elective pre-tax and/or post-tax
contributions, and substantially all of those participants who are not and will
not become eligible for the Company's defined benefit pension plans are eligible
to receive employer non-elective contributions, expressed as a percentage of
applicable compensation, under the non-pilot 401(k) plans. The
non-pilot 401(k) plans were amended effective January 1, 2009 to provide for the
reinstatement of service-based employer matching contributions for certain
workgroups at levels ranging up to 50% of employee contributions of up to 6% of
the employee’s salary, based on seniority. Company matching
contributions are made in cash. For the years ended December 31,
2009, 2008 and 2007, total expense for these defined contribution plans was $19
million, $6 million and $5 million, respectively.
Profit Sharing
Plan. Our enhanced profit sharing plan, which was in place
through December 31, 2009, created an award pool for employees of 30% of the
first $250 million of annual pre-tax income, 25% of the next $250 million and
20% of amounts over $500 million. Payment of profit sharing to
eligible employees would be made under the plan in the fiscal year following the
year in which profit sharing is earned and the related expense is
recorded. Substantially all of our employees participated in this
program except for officers and management directors. We recognized
$172 million of profit sharing expense and related payroll taxes in
2007. This amount is included in wages, salaries and related costs in
our consolidated statements of operations. As we incurred losses in
2009 and 2008, there was no profit sharing expense in those years.
On December 31, 2009, our enhanced
profit sharing plan expired. Effective January 1, 2010, we adopted a
new profit sharing plan with a five year term. Our new profit sharing
plan creates an award pool of 15% of annual pre-tax income excluding special,
unusual or non-recurring items. Generally, the profit sharing pool
will be distributed among eligible employees based on an employee’s annual base
pay relative to the annual base pay of all employees.
NOTE
12 - INCOME TAXES
Income tax benefit (expense) for the
year ended December 31 consisted of the following (in millions):
|
2009
|
2008
|
2007
|
||||
|
Federal:
|
||||||
|
Current
|
$ -
|
$ (2)
|
$ (3)
|
|||
|
Deferred
|
143
|
233
|
(194)
|
|||
|
State:
|
||||||
|
Current
|
(1)
|
-
|
(2)
|
|||
|
Deferred
|
15
|
20
|
(17)
|
|||
|
Foreign:
|
||||||
|
Current
|
-
|
-
|
(1)
|
|||
|
Tax
benefit resulting from intraperiod tax
allocation
|
158
|
-
|
-
|
|||
|
Valuation
allowance
|
(158)
|
(142)
|
100
|
|||
|
Total
income tax benefit (expense)
|
$ 157
|
$ 109
|
$(117)
|
|||
We are required to consider all items
(including items recorded in other comprehensive income) in determining the
amount of tax benefit that results from a loss from continuing operations and
that should be allocated to continuing operations. As a result, we
recorded a $158 million non-cash tax benefit on the loss from continuing
operations for 2009, which is exactly offset by income tax expense on other
comprehensive income. However, while the income tax benefit from
continuing operations is reported in our consolidated statement of operations,
the income tax expense on other comprehensive income is recorded directly to
other comprehensive income, which is a component of stockholders’
equity. Because the income tax expense on other comprehensive income
is equal to the income tax benefit from continuing operations, our net deferred
tax position at December 31, 2009 is not impacted by this tax
allocation.
The reconciliation of income tax
computed at the United States federal statutory tax rate to income tax benefit
(expense) for the years ended December 31 is as follows (in
millions):
|
Amount
|
Percentage
|
|||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
|
Income
tax benefit (expense)
at
United States statutory rates
|
$154
|
$243
|
$(194)
|
35.0%
|
35.0%
|
35.0%
|
|
State
income tax benefit (expense),
net
of federal benefit (expense)
|
9
|
14
|
(12)
|
2.0
|
2.0
|
2.1
|
|
Meals
and entertainment disallowance
|
(4)
|
(5)
|
(6)
|
(1.0)
|
(0.7)
|
1.1
|
|
Tax
benefit resulting from intraperiod
tax
allocation
|
158
|
-
|
-
|
36.0
|
-
|
-
|
|
Valuation
allowance
|
(158)
|
(142)
|
100
|
(36.0)
|
(20.4)
|
(18.0)
|
|
Other
|
(2)
|
(1)
|
(5)
|
(0.3)
|
(0.1)
|
0.9
|
|
Income
tax benefit (expense)
|
$ 157
|
$ 109
|
$(117)
|
35.7 %
|
15.8 %
|
21.1%
|
For financial reporting purposes,
income tax benefit recorded on losses results in deferred tax
assets. We have concluded that we are required to provide a valuation
allowance for net deferred tax assets due to our continued losses and our
determination that it is more likely than not that such deferred tax assets
would ultimately not be realized. As a result, our losses are
generally not reduced by any tax benefit. Consequently, we also did
not record any provision for income taxes on our pre-tax income in 2007 because
we utilized a portion of the net operating loss carryforwards ("NOLs") for which
we had not previously recognized a benefit. In the fourth quarter of
2007, we recorded income tax expense of $114 million to increase the valuation
allowance to be fully reserved for certain NOLs, expiring in 2008 through 2011,
which more likely than not would not be realized prior to their
expiration. In the second quarter of 2008, we recorded an income tax
benefit of $28 million resulting from higher utilization of those NOLs than had
been previously anticipated. We have approximately $3.9 billion of
additional NOLs for federal income tax purposes, which expire between the years
2020 and 2029, available for use to offset future cash income
taxes.
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the related amounts used for
income tax purposes. Significant components of our deferred tax
assets and (liabilities) as of December 31 were as follows (in
millions):
|
2009
|
2008
|
|||
|
Fixed
assets, intangibles and spare parts
|
$(1,775)
|
$(1,767)
|
||
|
Other,
net
|
(58)
|
-
|
||
|
Gross
deferred tax liabilities
|
(1,833)
|
(1,767)
|
||
|
Net
operating loss carryforwards
|
1,412
|
1,355
|
||
|
Pension
liability
|
412
|
481
|
||
|
Accrued
liabilities
|
516
|
558
|
||
|
Other,
net
|
56
|
161
|
||
|
Gross
deferred tax assets
|
2,396
|
2,555
|
||
|
Valuation
allowance
|
(563)
|
(788)
|
||
|
Net
deferred tax liability
|
-
|
-
|
||
|
Less: current
deferred tax asset
|
203
|
216
|
||
|
Non-current
deferred tax liability
|
$ (203)
|
$ (216)
|
||
Section 382 of the Internal Revenue
Code ("Section 382") imposes limitations on a corporation's ability to utilize
NOLs if it experiences an "ownership change." In general terms, an
ownership change may result from transactions increasing the ownership of
certain stockholders in the stock of a corporation by more than 50 percentage
points over a three-year period. In the event of an ownership change,
utilization of our NOLs would be subject to an annual limitation under Section
382 determined by multiplying the value of our stock at the time of the
ownership change by the applicable long-term tax-exempt rate (which is 4.16% for
December 2009). Any unused annual limitation may be carried over to
later years. The amount of the limitation may, under certain
circumstances, be increased by the built-in gains in assets held by us at the
time of the change that are recognized in the five-year period after the
change. If we were to have an ownership change as of December 31,
2009 under current conditions, our annual NOL utilization could be limited to
$103 million per year, before consideration of any built-in gains.
Activity in our deferred tax asset
valuation allowance for the year ended December 31 was as follows (in
millions):
|
2009
|
2008
|
2007
|
|
|
Balance
at beginning of year
|
$ 788
|
$ 192
|
$ 473
|
|
Valuation
allowance (utilized) provided for taxes related to:
|
|||
|
Income
(loss) before income taxes
|
158
|
142
|
(100)
|
|
Items
recorded directly to accumulated other
comprehensive
loss
|
(269)
|
462
|
(187)
|
|
Expiration
of NOLs
|
(115)
|
-
|
-
|
|
Other
|
1
|
(8)
|
6
|
|
Balance
at end of year
|
$ 563
|
$ 788
|
$ 192
|
Our federal and state income tax
returns for years after 2005 remain subject to examination by the taxing
authorities.
NOTE
13 - SPECIAL CHARGES
Special charges for the years ended
December 31 were as follows (in millions):
|
2009
|
2008
|
2007
|
|
|
Aircraft-related
charges
|
$ 89
|
$ 40
|
$(22)
|
|
Pension
settlement charges (see Note 11)
|
29
|
52
|
31
|
|
Severance
|
5
|
34
|
-
|
|
Route
impairment (see Notes 1 and 2)
|
12
|
18
|
-
|
|
Other
|
10
|
37
|
4
|
|
Total
special charges
|
$ 145
|
$ 181
|
$ 13
|
The special charges all relate to our
mainline segment unless otherwise noted.
Year Ended December 31,
2009. Aircraft-related charges of $89 million in 2009 include
$31 million of non-cash impairments of owned Boeing 737-300 and 737-500 aircraft
and related assets, $39 million of other aircraft-related charges and $19
million of losses related to subleasing regional jets.
We recorded a $31 million impairment
charge on the Boeing 737-300 and 737-500 fleets related to our decision in June
2008 to retire all of our Boeing 737-300 aircraft and a significant portion of
our Boeing 737-500 aircraft by early 2010. We recorded an initial
impairment charge in 2008 for each of these fleet types. The
additional write-down in 2009 reflects the further reduction in the fair value
of these fleet types in the current economic environment. In both
periods, we determined that indicators of impairment were present for these
fleets. Fleet assets include owned aircraft, improvements on leased
aircraft, rotable spare parts, spare engines and simulators. Based on
our evaluations, we determined that the carrying amounts of these fleets were
impaired and wrote them down to their estimated fair value. We
estimated the fair values based on current market quotes and our expected
proceeds from the sale of the assets.
We recorded $39 million of other
charges related to our mainline fleet, primarily related to the grounding and
sale of Boeing 737-300 and 737-500 aircraft and the write-off of certain
obsolete spare parts. The 737-300 and 737-500 aircraft fleets and
spare parts, a portion of which was being sold on consignment, experienced
further declines in fair values during the fourth quarter of 2009 primarily as
the result of additional 737 aircraft being grounded by other
airlines. During 2009, we sold eight 737-500 aircraft to foreign
buyers. Our gains on these sales were not material.
In December 2009, we agreed with
ExpressJet to amend our capacity purchase agreement to permit ExpressJet to fly
eight ERJ-145 aircraft for another carrier under a capacity purchase
agreement. These eight aircraft are subleased from us and were
previously flown for us under our capacity purchase agreement. We
recorded a $13 million charge in our regional segment based on the difference
between the sublease rental and the contracted rental payments on those aircraft
during the two and one-half year average initial term of the related sublease
agreement.
In July 2009, we entered into
agreements to sublease five temporarily grounded ERJ-135 aircraft to Chautauqua
beginning in the third quarter of 2009. These aircraft will not be
operated for us. The subleases have terms of five years, but may be
cancelled by the lessee under certain conditions after an initial term of two
years. We recorded a $6 million charge in our regional segment for
the difference between the sublease rental income and the contracted rental
payments on those aircraft during the initial term of the
agreement.
At December 31, 2009, we had four owned
and three leased Boeing 737-500 aircraft that were grounded. We had
also grounded seven owned and three leased Boeing 737-300
aircraft. The owned Boeing 737-500 and 737-300 aircraft are being
carried at aggregate fair values of $33 million and $22 million,
respectively. The three leased Boeing 737-300 aircraft were returned
to the lessor in January 2010 and the leases on the three Boeing 737-500
aircraft will expire during the first half of 2012. We have also
temporarily grounded 25 leased 37-seat ERJ-135 aircraft and have subleased five
others for terms of five years. The leases on these 30 ERJ-135
aircraft expire in 2016 through 2018.
If economic conditions deteriorate
further, we may incur additional special charges in future periods as we attempt
to dispose of our grounded Boeing 737-300 and 737-500
aircraft. Additionally, we may incur further accounting charges as a
result of future fleet actions, including costs associated with future lease
payments on the 30 ERJ-135 aircraft. We are not able to estimate the
amount and timing of these future charges.
During 2009, we announced plans to
eliminate certain operational, management and clerical positions across the
company. We recorded a charge of $5 million for severance and other
costs during the third quarter of 2009 in connection with the reductions in
force, furloughs and leaves of absence.
Other special charges in 2009 related
primarily to an adjustment to our reserve for unused facilities due to
reductions in expected sublease income for a maintenance hangar in
Denver.
Year Ended December 31,
2008. Aircraft-related charges of $40 million in 2008 include
non-cash impairments on owned Boeing 737-300 and 737-500 aircraft and related
assets. Aircraft-related charges in 2008 also includes charges for
future lease costs on permanently grounded 737-300 aircraft and gains on the
sale of ten Boeing 737-500 aircraft.
In conjunction with the 2008 capacity
reductions, we incurred $34 million for severance and continuing medical
coverage for employees accepting early retirement packages or company-offered
leaves of absence during 2008. Approximately 3,000 positions were
eliminated as a result of the capacity reductions, the majority of which were
implemented in September 2008.
Other special charges in 2008 related
primarily to contract settlements with regional carriers and adjustments to
reserves for unused facilities.
Year Ended December 31,
2007. Aircraft related credits of $22 million in 2007 related
primarily to the sale of three 737-500 aircraft. Other special
charges in 2007 of $4 million related to a change in the mandatory retirement
age for our pilots from age 60 to 65 signed into law on December 31,
2007. Because of the extension of the mandatory retirement age, we
recorded an additional $4 million liability for the long-term disability plan
for our pilots in 2007.
Accrual
Activity. Activity related to the accruals for severance and
medical costs and future lease payments on permanently grounded aircraft and
unused facilities is as follows (in millions):
|
Severance/
Medical
Costs
|
Permanently
Grounded
Aircraft
|
Unused
Facilities
|
||||
|
Balance
at December 31, 2006
|
$ -
|
$ -
|
$10
|
|||
|
Accrual
|
-
|
-
|
-
|
|||
|
Payments
|
-
|
-
|
(2)
|
|||
|
Balance
At December 31, 2007
|
-
|
-
|
8
|
|||
|
Accrual
|
34
|
14
|
14
|
|||
|
Payments
|
(6)
|
(4)
|
(2)
|
|||
|
Balance
at December 31, 2008
|
28
|
10
|
20
|
|||
|
Accrual
|
5
|
1
|
10
|
|||
|
Payments
|
(19)
|
(9)
|
(4)
|
|||
|
Balance
at December 31, 2009
|
$ 14
|
$ 2
|
$26
|
|||
|
Cumulative
accruals January 1, 2007
through
December 31, 2009
|
$ 39
|
$ 15
|
$24
|
|||
These
accruals and payments relate primarily to our mainline segment. Cash
payments related to the accruals for severance and medical costs will be made
through the third quarter of 2011. Remaining lease payments on
permanently grounded aircraft and unused facilities will be made through 2010
and 2018, respectively.
NOTE
14 – GAINS ON SALES OF INVESTMENTS
Copa. In May 2008, we
sold all of our remaining shares of Copa Holdings, S.A. (“Copa”) Class A common
stock for net proceeds of $149 million and recognized a gain of $78
million.
Holdings. In
2007, we sold all of our shares of the common stock of Holdings, the parent
company of ExpressJet, to third parties for cash proceeds of $35
million. We recognized a gain of $7 million as a result of these
sales.
ARINC. ARINC,
Inc. (“ARINC”) develops and operates communications and information processing
systems and provides systems engineering and other services to the aviation
industry and other industries. In 2007, we sold all of our ARINC
common stock and received cash proceeds of $30
million. Our investment in ARINC had no carrying value, resulting in
a gain of $30 million.
NOTE
15 - VARIABLE INTEREST ENTITIES
Certain types of entities in which a
company absorbs a majority of another entity's expected losses, receives a
majority of the other entity's expected residual returns, or both, as a result
of ownership, contractual or other financial interests in the other entity are
required to be consolidated. These entities are called "variable
interest entities." The principal characteristics of variable
interest entities are (1) an insufficient amount of equity to absorb the
entity's expected losses, (2) equity owners as a group are not able to make
decisions about the entity's activities, or (3) equity that does not absorb the
entity's losses or receive the entity's residual returns. "Variable
interests" are contractual, ownership or other monetary interests in an entity
that change with fluctuations in the entity's net asset value. As a
result, variable interest entities can arise from items such as lease
agreements, loan arrangements, guarantees or service contracts.
If an entity is determined to be a
"variable interest entity," the entity must be consolidated by the "primary
beneficiary." The primary beneficiary is the holder of the variable
interests that absorbs a majority of the variable interest entity's expected
losses or receives a majority of the entity's residual returns in the event no
holder has a majority of the expected losses. There is no primary
beneficiary in cases where no single holder absorbs the majority of the expected
losses or receives a majority of the residual returns. The
determination of the primary beneficiary is based on projected cash flows at the
inception of the variable interests.
We have variable interests in the
following types of variable interest entities:
Aircraft
Leases. We are the lessee in a series of operating leases
covering the majority of our leased aircraft. The lessors are trusts
established specifically to purchase, finance and lease aircraft to
us. These leasing entities meet the criteria for variable interest
entities. We are generally not the primary beneficiary of the leasing
entities if the lease terms are consistent with market terms at the inception of
the lease and do not include a residual value guarantee, fixed-price purchase
option or similar feature that obligates us to absorb decreases in value or
entitles us to participate in increases in the value of the
aircraft. This is the case for many of our operating leases; however,
leases of approximately 75 mainline jet aircraft contain a fixed-price purchase
option that allows us to purchase the aircraft at predetermined prices on
specified dates during the lease term. Additionally, leases of
substantially all of our 256 leased regional jet aircraft contain an option to
purchase the aircraft at the end of the lease term at prices that, depending on
market conditions, could be below fair value. We have not
consolidated the related trusts because, even taking into consideration these
purchase options, we are still not the primary beneficiary based on our cash
flow analyses. Our maximum exposure under these leases is the
remaining lease payments, which are reflected in future lease commitments in
Note 5.
Airport
Leases. We are the lessee of real property under long-term
operating leases at a number of airports where we are also the guarantor of
approximately $1.5 billion of underlying debt and interest
thereon. These leases are typically with municipalities or other
governmental entities, which are excluded from the consolidation requirements
concerning variable interest entities. To the extent our lease and
related guarantee are with a separate legal entity other than a governmental
entity, we are not the primary beneficiary because the lease terms are
consistent with market terms at the inception of the lease and the lease does
not include a residual value guarantee, fixed-price purchase option or similar
feature as discussed above.
Subsidiary
Trust. We have a subsidiary trust that has mandatorily
redeemable preferred securities outstanding with a liquidation value of $248
million. The trust is a variable interest entity because we have a
limited ability to make decisions about its activities. However, we
are not the primary beneficiary of the trust. Therefore, the trust
and the mandatorily redeemable preferred securities issued by the trust are not
reported on our balance sheets. Instead, we report our 6% convertible
junior subordinated debentures held by the trust as long-term debt and interest
on the notes is recorded as interest expense for all periods presented in the
accompanying financial statements.
NOTE
16 - REGIONAL CAPACITY PURCHASE AGREEMENTS
Capacity Purchase Agreement
with ExpressJet
General. In
June 2008, we entered into the Second Amended and Restated Capacity Purchase
Agreement with ExpressJet and certain of its affiliates (the " ExpressJet CPA"),
which amended and restated our capacity purchase agreement with ExpressJet
effective July 1, 2008. Under the ExpressJet CPA, we purchase all of
the capacity from the ExpressJet flights covered by the agreement at a
negotiated price.
Capacity and Fleet
Matters. At December 31, 2009, 212 Embraer 50-seat regional
jets were being operated as covered aircraft under the ExpressJet
CPA. The minimum number of covered aircraft under the ExpressJet CPA
is currently 190 regional jets, and will be reduced as leases on covered
aircraft expire. ExpressJet also subleases 32 Embraer 50-seat
regional jets from us outside of the capacity purchase provisions of the
ExpressJet CPA at reduced rental rates. During September 2008, we
temporarily grounded all 30 of the subleased 37-seat ERJ 135 aircraft being
flown by ExpressJet on our behalf and notified ExpressJet that these aircraft
would be withdrawn from the ExpressJet CPA. Five of these aircraft
are now subleased to Chautauqua.
Term of
Agreement. The ExpressJet CPA will expire in June 2015, with
provisions for an appropriate wind-down period, and has no renewal or extension
options. We may terminate the agreement at any time for "cause" (as
defined in the ExpressJet CPA) and either party may terminate for breach of the
agreement, subject to certain notice and cure periods. The ExpressJet
CPA also modified our rights under our former capacity purchase agreement by
reducing the scope of change-in-control limitations on ExpressJet, reducing
restrictions on ExpressJet flying into our hub airports, and removing the
most-favored-nation clause relating to agreements ExpressJet may enter into with
other airlines.
Compensation and Operational
Responsibilities. In exchange for ExpressJet's operation of
the flights and performance of other obligations under the ExpressJet CPA, we
have agreed to pay ExpressJet a pre-determined rate, subject to annual inflation
adjustments (capped at 3.5%), for each block hour flown (the hours from gate
departure to gate arrival) and to reimburse ExpressJet for various pass-through
expenses (with no margin or mark-up) related to the flights, including aviation
insurance, property taxes, international navigation fees, depreciation
(primarily aircraft-related), landing fees and certain maintenance
expenses. Under the ExpressJet CPA, we are responsible for the cost
of providing fuel for all flights and for paying aircraft rent for all of the
aircraft covered by the ExpressJet CPA. The ExpressJet CPA contains
incentive bonus and rebate provisions based upon ExpressJet's operational
performance.
Service
Agreements. We provide various services to ExpressJet,
including loading fuel into aircraft, certain customer services such as ground
handling, related airport terminal real estate, certain technology services
dedicated to flight opening and closeout processes and aviation insurance
procurement. Prior to the July 1, 2008 amendment to the ExpressJet
CPA, we charged ExpressJet for these services at rates in accordance with the
then-effective capacity purchase agreement. For providing these
services, we charged ExpressJet approximately $41 million and $88 million in
2008 and 2007, respectively. Effective July 1, 2008, we still provide
these services but do not charge ExpressJet.
Leases. As
of December 31, 2009, ExpressJet leased all 212 of the aircraft flown for us
under long-term operating leases from us. During the base term of the
ExpressJet CPA and an appropriate wind-down period, ExpressJet's lease
agreements with us have substantially the same terms as the lease agreements
between us and the lessor, except that ExpressJet does not pay us rent on the
aircraft operated under the capacity purchase provisions of the ExpressJet
CPA. Aircraft will be removed from the ExpressJet CPA as their
lease period ends. Upon expiration of the ExpressJet CPA, ExpressJet
has the option to retain up to 150 aircraft through the remaining lease terms
and replacing us as the primary obligor under the leases, releasing us from all
obligations related to the leases. ExpressJet also leases or
subleases, under various operating leases, ground equipment and substantially
all of its ground facilities, including facilities at public airports, from us
or the municipalities or agencies owning and controlling such
airports. If ExpressJet defaults on any of its payment obligations
with us, we are entitled to reduce any payments required to be made by us to
ExpressJet under the ExpressJet CPA by the amount of the defaulted
payment.
As of December 31, 2009, ExpressJet
subleased from us and operated 32 aircraft outside of the capacity purchase
provisions of ExpressJet CPA. The lease agreements for these aircraft
have substantially the same terms as the lease agreements between us and the
lessor, except that ExpressJet pays us reduced rent on these
aircraft. Our total rental income related to all leases with
ExpressJet was approximately $23 million, $205 million and $360 million in 2009,
2008 and 2007, respectively, including $22 million, $76 million and $79 million,
respectively, related to regional jets operated by ExpressJet outside of the
capacity purchase provisions of the ExpressJet CPA, which is reported as other
revenue. Our aircraft rental income on aircraft flown for us through
June 30, 2008 is reported as a reduction to regional capacity purchase,
net.
Capacity Purchase Agreement
with Chautauqua
Chautauqua operates 50-seat regional
jets as a Continental Express carrier under a capacity purchase agreement ("the
Chautauqua CPA"). As of December 31, 2009, 22 aircraft were being
flown by Chautauqua for us. The Chautauqua CPA requires us to pay
Chautauqua a fixed fee, subject to annual inflation adjustments (capped at
3.5%), for each block hour flown for its operation of the
aircraft. Chautauqua supplies the aircraft that it operates under the
agreement. Aircraft are scheduled to be removed from service under
the Chautauqua CPA each year through 2012, provided that we have the unilateral
right to extend the Chautauqua CPA on the same terms on an aircraft-by-aircraft
basis for a period of up to five years in the aggregate for 20 aircraft and for
up to three years in the aggregate for seven aircraft, subject to the renewal
terms of the related aircraft lease. Chautauqua also subleases five
Embraer 37-seat aircraft from us that are not operated on our
behalf.
Capacity Purchase Agreement
with Colgan
Colgan operates fourteen 74-seat
Bombardier Q400 twin-turboprop aircraft as a Continental Connection carrier on
short and medium-distance routes from New York Liberty on our
behalf. Colgan operates the flights under a capacity purchase
agreement with us. In January 2009, we amended the capacity purchase
agreement to increase by 15 the number of Q400 aircraft to be operated by Colgan
on our behalf. We expect that Colgan will begin operating these 15
additional aircraft as they are delivered, beginning in the third quarter of
2010 through the second quarter of 2011. Each aircraft is scheduled
to be covered by the agreement for ten years following the date such aircraft is
delivered into service thereunder. Colgan supplies all of the
aircraft that it operates under the agreement.
Capacity Purchase Agreement
with CommutAir
Our capacity purchase agreement with
CommutAir (the "CommutAir CPA"), provides for CommutAir to operate sixteen
37-seat Bombardier Q200 twin-turboprop aircraft as a Continental Connection
carrier on short distance routes from Cleveland Hopkins and New York
Liberty. CommutAir supplies all of the aircraft that it operates
under the agreement.
Indemnification Under
Capacity Purchase Agreements
Under each of these capacity purchase
agreements, our regional operator is generally required to indemnify us for any
claims arising in connection with its operation of the aircraft under the
agreement and to maintain separate insurance to cover its indemnification
obligation.
Commitments under Capacity
Purchase Agreements
Our future commitments under our
capacity purchase agreements are dependent on numerous variables, and are
therefore difficult to predict. The most important of these variables
is the number of scheduled block hours. Although we are not required
to purchase a minimum number of block hours under certain of our capacity
purchase agreements, we have set forth below estimates of our future payments
under the agreement based on our stated assumptions. These estimates
of our future payments under all of the capacity purchase agreements do not
include the portion of the underlying obligation for any aircraft leased to
ExpressJet or deemed to be leased from Chautauqua, CommutAir or Colgan and
facility rent that are disclosed as part of aircraft and nonaircraft operating
leases. For purposes of calculating these estimates, we have assumed
(1) the number of block hours flown is based on our anticipated level of flight
activity or at any contractual minimum utilization levels if applicable, (2)
that we will reduce the fleet as rapidly as contractually allowed under each
agreement, (3) that aircraft utilization, stage length and load factors will
remain constant, (4) that each carrier's operational performance will remain at
historic levels, and (5) that inflation is projected to be between 0.3% and 2.4%
per year. Based on these assumptions, our future payments through the
end of the terms of our capacity purchase agreements at December 31, 2009 were
estimated as follows (in millions):
|
Year
ending December 31,
|
|||
|
2010
|
$ 693
|
||
|
2011
|
693
|
||
|
2012
|
704
|
||
|
2013
|
683
|
||
|
2014
|
649
|
||
|
Later
years
|
884
|
||
|
Total
|
$4,306
|
||
It is important to note that the actual
amounts we pay to our regional operators under capacity purchase agreements
could differ materially from these estimates. For example, a 10%
increase or decrease in scheduled block hours for all of our regional operators
(whether as a result of changes in average daily utilization or otherwise) in
2010 would result in a corresponding increase or decrease in cash obligations
under the capacity purchase agreements of approximately 9.2%, or $64
million.
NOTE
17 - RELATED PARTY TRANSACTIONS
Prior to April 2008, Northwest
Airlines, Inc. held the sole share of our Series B preferred
stock. Until October 2009, we had a global alliance with Northwest
involving extensive codesharing, frequent flyer reciprocity and other
cooperative activities. The other cooperative activities are
considered normal to the daily operations of both airlines. As a
result of these other cooperative activities, we paid Northwest $9 million and
$28 million in 2008 and 2007, respectively, and Northwest paid us $9 million and
$13 million in 2008 and 2007, respectively. The payments to and from
Northwest were in the ordinary course of business were based on prevailing
market rates. These payments do not include interline billings, which
are common among airlines for transportation-related services.
NOTE
18 - SEGMENT REPORTING
We have two reportable
segments: mainline and regional. The mainline segment consists of
flights using larger jets while the regional segment currently consists of
flights with a capacity of 79 or fewer seats. As of December 31,
2009, the regional segment was operated by ExpressJet, Chautauqua, CommutAir and
Colgan through capacity purchase agreements. See Note 16 for further
discussion of the capacity purchase agreements.
We evaluate segment performance based
on several factors, of which the primary financial measure is operating income
(loss). However, we do not manage our business or allocate resources
based on segment operating profit or loss because (1) our flight schedules are
designed to maximize revenue from passengers flying, (2) many operations of the
two segments are substantially integrated (for example, airport operations,
sales and marketing, scheduling and ticketing) and (3) management decisions are
based on their anticipated impact on the overall network, not on one individual
segment.
Financial information for the year
ended December 31 by business segment is set forth below (in
millions):
|
2009
|
2008
|
2007
|
|||||
|
Operating
Revenue:
|
|||||||
|
Mainline
|
$10,635
|
$12,827
|
$12,019
|
||||
|
Regional
|
1,951
|
2,414
|
2,213
|
||||
|
Total
Consolidated
|
$12,586
|
$15,241
|
$14,232
|
||||
|
Depreciation
and amortization expense:
|
|||||||
|
Mainline
|
$ 481
|
$ 427
|
$ 400
|
||||
|
Regional
|
13
|
11
|
13
|
||||
|
Total
Consolidated
|
$ 494
|
$ 438
|
$ 413
|
||||
|
Special
Charges (Note 13):
|
|||||||
|
Mainline
|
$ 125
|
$ 155
|
$ 13
|
||||
|
Regional
|
20
|
26
|
-
|
||||
|
Total
Consolidated
|
$ 145
|
$ 181
|
$ 13
|
||||
|
Operating
Income (Loss):
|
|||||||
|
Mainline
|
$ 164
|
$ 74
|
$ 848
|
||||
|
Regional
|
(310)
|
(388)
|
(161)
|
||||
|
Total
Consolidated
|
$ (146)
|
$ (314)
|
$ 687
|
||||
|
Interest
Expense:
|
|||||||
|
Mainline
|
$ 355
|
$ 363
|
$ 379
|
||||
|
Regional
|
12
|
13
|
14
|
||||
|
Total
Consolidated
|
$ 367
|
$ 376
|
$ 393
|
||||
|
Interest
Income:
|
|||||||
|
Mainline
|
$ 12
|
$ 65
|
$ 160
|
||||
|
Regional
|
-
|
-
|
-
|
||||
|
Total
Consolidated
|
$ 12
|
$ 65
|
$ 160
|
||||
|
Income
Tax Benefit (Expense):
|
|||||||
|
Mainline
|
$ 42
|
$ 51
|
$(150)
|
||||
|
Regional
|
115
|
58
|
33
|
||||
|
Total
Consolidated
|
$ 157
|
$ 109
|
$(117)
|
||||
|
Net
Income (Loss):
|
|||||||
|
Mainline
|
$ (76)
|
$ (243)
|
$ 581
|
||||
|
Regional
|
(206)
|
(343)
|
(142)
|
||||
|
Total
Consolidated
|
$(282)
|
$(586)
|
$ 439
|
||||
The amounts presented above are
presented on the basis of how our management reviews segment
results. Under this basis, the regional segment's revenue includes a
pro-rated share of our ticket revenue for segments flown by regional carriers
and expenses include all activity related to the regional operations, regardless
of whether the costs were paid directly by us or to the regional
carriers.
Information concerning operating
revenue by principal geographic area for the year ended December 31 is as
follows (in millions):
|
2009
|
2008
|
2007
|
||||
|
Domestic
|
$ 6,941
|
$8,327
|
$8,053
|
|||
|
Trans-Atlantic
|
2,614
|
3,448
|
3,065
|
|||
|
Latin
America
|
1,947
|
2,283
|
1,981
|
|||
|
Pacific
|
1,084
|
1,183
|
1,133
|
|||
|
$12,586
|
$15,241
|
$14,232
|
||||
We attribute revenue among the
geographical areas based upon the origin and destination of each flight
segment. Our tangible assets and capital expenditures consist
primarily of flight and related ground support equipment, which is mobile across
geographic markets and, therefore, has not been allocated.
NOTE
19 - COMMITMENTS AND CONTINGENCIES
Aircraft Purchase
Commitments. As of December 31, 2009 we had firm commitments
to purchase 84 new aircraft (55 Boeing 737 aircraft,
four Boeing 777 aircraft and 25 Boeing 787 aircraft)
scheduled for delivery from 2010 through 2016, with an estimated aggregate cost
of $5.1 billion including related spare engines. We are currently
scheduled to take delivery of two Boeing 777 aircraft and 12 Boeing 737 aircraft
in 2010. In addition to our firm order aircraft, we had options to
purchase a total of 98 additional Boeing aircraft as of December 31,
2009.
As discussed in Note 4, we have
obtained financing for the two Boeing 777 aircraft and nine of the Boeing 737
aircraft to be delivered in 2010. We have backstop financing
available for the three other Boeing 737 aircraft
scheduled for delivery in 2010, subject to customary closing
conditions. However, we do not have backstop financing or any other
financing currently in place for the balance of the Boeing aircraft on
order. Further financing will be needed to satisfy our capital
commitments for our firm aircraft and other related capital
expenditures. We can provide no assurance that backstop financing or
any other financing not already in place for our aircraft deliveries will be
available to us when needed on acceptable terms or at all. Since the
commitments for firm order aircraft are non-cancelable, and assuming no breach
of the agreement by Boeing, if we are unable to obtain financing and cannot
otherwise satisfy our commitment to purchase these aircraft, the manufacturer
could exercise its rights and remedies under applicable law, such as seeking to
terminate the contract for a material breach, selling the aircraft to one or
more other parties and suing us for damages to recover any resulting losses
incurred by the manufacturer.
Financings and
Guarantees. We are the guarantor of approximately $1.7 billion
in aggregate principal amount of tax-exempt special facilities revenue bonds and
interest thereon, excluding the US Airways contingent liability described
below. These bonds, issued by various airport municipalities, are
payable solely from our rentals paid under long-term agreements with the
respective governing bodies. The leasing arrangements associated with
approximately $1.5 billion of these obligations are accounted for as operating
leases, and the leasing arrangements associated with approximately $190 million
of these obligations are accounted for as capital leases.
We are contingently liable for US
Airways' obligations under a lease agreement between US Airways and the Port
Authority of New York and New Jersey related to the East End Terminal at
LaGuardia airport. These obligations include the payment of ground
rentals to the Port Authority and the payment of other rentals in respect of the
full amounts owed on special facilities revenue bonds issued by the Port
Authority having an outstanding par amount of $109 million at December 31, 2009
and a final scheduled maturity in 2015. If US Airways defaults on
these obligations, we would be obligated to cure the default and we would have
the right to occupy the terminal after US Airways' interest in the lease had
been terminated.
We also had letters of credit and
performance bonds relating to various real estate, customs and aircraft
financing obligations at December 31, 2009 in the amount of $109
million. These letters of credit and performance bonds have
expiration dates through September 2013.
General Guarantees and
Indemnifications. We are the lessee under many real estate
leases. It is common in such commercial lease transactions for us as
the lessee to agree to indemnify the lessor and other related third parties for
tort liabilities that arise out of or relate to our use or occupancy of the
leased premises and the use or occupancy of the leased premises by regional
carriers operating flights on our behalf. In some cases, this
indemnity extends to related liabilities arising from the negligence of the
indemnified parties, but usually excludes any liabilities caused by their gross
negligence or willful misconduct. Additionally, we typically
indemnify such parties for any environmental liability that arises out of or
relates to our use of the leased premises.
In our aircraft financing agreements,
we typically indemnify the financing parties, trustees acting on their behalf
and other related parties against liabilities that arise from the manufacture,
design, ownership, financing, use, operation and maintenance of the aircraft and
for tort liability, whether or not these liabilities arise out of or relate to
the negligence of these indemnified parties, except for their gross negligence
or willful misconduct.
We expect that we would be covered by
insurance (subject to deductibles) for most tort liabilities and related
indemnities described above with respect to real estate we lease and aircraft we
operate.
In our financing transactions that
include loans, we typically agree to reimburse lenders for any reduced returns
with respect to the loans due to any change in capital requirements and, in the
case of loans in which the interest rate is based on the London Interbank
Offered Rate ("LIBOR"), for certain other increased costs that the lenders incur
in carrying these loans as a result of any change in law, subject in most cases
to certain mitigation obligations of the lenders. At December 31,
2009, we had $1.5 billion of floating rate debt and $229 million of fixed rate
debt, with remaining terms of up to ten years, that is subject to these
increased cost provisions. In several financing transactions
involving loans or leases from non-U.S. entities, with remaining terms of up to
ten years and an aggregate carrying value of $1.5 billion, we bear the
risk of any change in tax laws that would subject loan or lease payments
thereunder to non-U.S. entities to withholding taxes, subject to customary
exclusions.
We may be required to make future
payments under the foregoing indemnities and agreements due to unknown variables
related to potential government changes in capital adequacy requirements, laws
governing LIBOR based loans or tax laws, the amounts of which cannot be
estimated at this time.
Credit Card Processing
Agreements. The covenants contained in our domestic
bank-issued credit card processing agreement with Chase require that we post
additional cash collateral if we fail to maintain (1) a minimum level of
unrestricted cash, cash equivalents and short-term investments, (2) a minimum
ratio of unrestricted cash, cash equivalents and short-term investments to
current liabilities of 0.25 to 1.0 or (3) a minimum senior unsecured debt rating
of at least Caa3 and CCC- from Moody's and Standard & Poor's,
respectively.
Under the terms of our credit card
processing agreement with American Express, if a covenant trigger under the
Chase processing agreement requires us to post additional collateral under that
agreement, we would be required to post additional collateral under the American
Express processing agreement. The amount of additional collateral
required under the American Express processing agreement would be based on a
percentage of the value of unused tickets (for travel at a future date)
purchased by customers using the American Express card. The
percentage for purposes of this calculation is the same as the percentage
applied under the Chase processing agreement, after taking into account certain
other risk protection maintained by American Express.
Under these processing agreements and
based on our current air traffic liability exposure (as defined in each
agreement), we would be required to post collateral up to the following amounts
if we failed to comply with the covenants described above:
|
·
|
a
total of $65 million if our unrestricted cash, cash equivalents and
short-term investments balance falls below $2.0
billion;
|
|
·
|
a
total of $203 million if we fail to maintain the minimum unsecured debt
ratings specified above;
|
|
·
|
a
total of $387 million if our unrestricted cash, cash equivalents and
short-term investments balance (plus any collateral posted at Chase) falls
below $1.4 billion or if our ratio of unrestricted cash, cash equivalents
and short-term investments to current liabilities falls below 0.25 to 1.0;
and
|
|
·
|
a
total of $846 million if our unrestricted cash, cash equivalents and
short-term investments balance (plus any collateral posted at Chase) falls
below $1.0 billion or if our ratio of unrestricted cash, cash equivalents
and short-term investments to current liabilities falls below 0.22 to
1.0.
|
The amounts shown above are incremental
to the current collateral we have posted with these companies. We are
currently in compliance with all of the covenants under these processing
agreements.
Credit
Ratings. At December 31, 2009, our senior unsecured debt was
rated B3 by Moody's and CCC+ by Standard & Poor's. These ratings
are significantly below investment grade. Our current credit ratings
increase the costs we incur when issuing debt, adversely affect the terms of
such debt and limit our financing options. Additional reductions in
our credit ratings could further increase our borrowing costs and reduce the
availability of financing to us in the future. We do not have any
debt obligations that would be accelerated as a result of a credit rating
downgrade. However, as discussed above, we would have to post
additional collateral of approximately $203 million under our Chase and American
Express processing agreements if our senior unsecured debt rating were to fall
below Caa3 as rated by Moody's or CCC- as rated by Standard &
Poor's. The insurer under our workers’ compensation program has the
right to require us to post up to $32 million of additional collateral under a
number of conditions, including based on our current senior unsecured debt
rating, which is currently at the minimum of B3 as rated by Moody’s and below
the minimum of B- as rated by Standard & Poor’s. We could also be
required to post a higher amount of collateral with our fuel hedge
counterparties if our credit ratings were to fall, or if our unrestricted cash,
cash equivalents and short-term investments balance fell below certain specified
levels, and our fuel hedges were in a liability position. In such a
case, the total amount of the collateral that we might be required to post at
any time would be up to the amount of our liability under the related derivative
instruments to our respective counterparties. Our fuel hedging
agreement with one counterparty also requires us to post additional collateral
of up to 10% of the notional amount of our hedging contracts with that
counterparty if our senior unsecured debt rating by Moody’s or Standard &
Poor’s is below B3 or B-, respectively. Our fuel derivative contracts
do not contain any other credit risk-related contingent features, other than
those related to a change in control.
Employees. As
of December 31, 2009, we had approximately 41,300 employees, which, due to the
number of part-time employees, represents 39,640 full-time equivalent
employees. Approximately 45% of our full-time equivalent employees
are represented by unions.
Approximately 97% of our full-time
equivalent employees represented by unions as of December 31, 2009 are covered
by collective bargaining agreements that are currently amendable or become
amendable in 2010. In addition, on February 12, 2010, the National
Mediation Board informed us that our fleet service employees had voted in favor
of representation by the International Brotherhood of Teamsters. The
election covers approximately 7,600 employees, or 6,340 full-time equivalent
ramp, operations and cargo agents. The collective bargaining
agreements with our pilots, mechanics and certain other work groups became
amendable in December 2008 and those with our flight attendants and CMI
mechanics became amendable in December 2009. On July 6, 2009, our
flight simulator technicians ratified a new four-year collective bargaining
agreement with us. With respect to our workgroups with amendable
contracts, we have been meeting with representatives of the applicable unions to
negotiate amended collective bargaining agreements with a goal of reaching
agreements that are fair to us and to our employees, but to date the parties
have not reached new agreements. We cannot predict the outcome of our
ongoing negotiations with our unionized workgroups, although significant
increases in the pay and benefits resulting from new collective bargaining
agreements could have a material adverse effect on us. Furthermore,
there can be no assurance that our generally good labor relations and high labor
productivity will continue.
Environmental
Matters. In 2001, the California Regional Water Quality Control
Board ("CRWQCB") mandated a field study of the area surrounding our aircraft
maintenance hangar in Los Angeles. The study was completed in
September 2001 and identified jet fuel and solvent contamination on and adjacent
to this site. In April 2005, we began environmental remediation of
jet fuel contamination surrounding our aircraft maintenance hangar pursuant to a
workplan submitted to (and approved by) the CRWQCB and our landlord, the Los
Angeles World Airports. Additionally, we could be responsible for
environmental remediation costs primarily related to solvent contamination on
and near this site.
At December 31, 2009, we had an accrual
for estimated costs of environmental remediation throughout our system of $30
million, based primarily on third-party environmental studies and estimates as
to the extent of the contamination and nature of the required remedial
actions. We have evaluated and recorded this accrual for environmental
remediation costs separately from any related insurance recovery. We did
not have any receivables related to environmental insurance recoveries at
December 31, 2009. Based on currently available information, we
believe that our accrual for potential environmental remediation costs is
adequate, although our accrual could be adjusted in the future due to new
information or changed circumstances. However, we do not expect these
items to materially affect our results of operations, financial condition or
liquidity.
Legal
Proceedings. During the period between 1997 and 2001, we reduced or
capped the base commissions that we paid to domestic travel agents, and in 2002
we eliminated those base commissions. These actions were similar to those
also taken by other air carriers. We are a defendant, along with
several other air carriers, in two lawsuits brought by travel agencies that
purportedly opted out of a prior class action entitled Sarah Futch Hall d/b/a/
Travel Specialists v. United Air Lines, et al. (U.S.D.C., Eastern
District of North Carolina), filed on June 21, 2000, in which the defendant
airlines prevailed on summary judgment that was upheld on
appeal. These similar suits against Continental and other major
carriers allege violations of antitrust laws in reducing and ultimately
eliminating the base commissions formerly paid to travel agents and seek
unspecified money damages and certain injunctive relief under the Clayton Act
and the Sherman Anti-Trust Act. The pending cases, which currently
involve a total of 90 travel agency plaintiffs, are Tam Travel, Inc. v. Delta
Air Lines, Inc., et al. (U.S.D.C., Northern District of California),
filed on April 9, 2003 and Swope Travel Agency, et al.
v. Orbitz LLC et al. (U.S.D.C., Eastern District of Texas), filed on June
5, 2003. By order dated November 10, 2003, these actions were
transferred and consolidated for pretrial purposes by the Judicial Panel on
Multidistrict Litigation to the Northern District of Ohio. On October
29, 2007, the judge for the consolidated lawsuit dismissed the case for failure
to meet the heightened pleading standards established earlier in 2007 by the
U.S. Supreme Court's decision in Bell Atlantic Corp. v.
Twombly. On October 2, 2009, the U.S. Court of Appeals for the
Sixth Circuit affirmed the trial court’s dismissal of the case. On
December 18, 2009, the plaintiffs’ request for rehearing by the Sixth Circuit
en banc was
denied. The plaintiffs now have the opportunity to appeal to the U.S.
Supreme Court. The plaintiffs in the Swope lawsuit, encompassing 43
travel agencies, have also alleged that certain claims raised in their lawsuit
were not, in fact, dismissed. The trial court has not yet ruled on
that issue. In the consolidated lawsuit, we believe the plaintiffs'
claims are without merit, and we intend to defend vigorously any
appeal. Nevertheless, a final adverse court decision awarding
substantial money damages could have a material adverse effect on our results of
operations, financial condition or liquidity.
We and/or certain of our subsidiaries
are defendants in various other pending lawsuits and proceedings and are subject
to various other claims arising in the normal course of our business, many of
which are covered in whole or in part by insurance. Although the
outcome of these lawsuits and proceedings (including the probable loss we might
experience as a result of an adverse outcome) cannot be predicted with certainty
at this time, we believe, after consulting with outside counsel, that the
ultimate disposition of such suits will not have a material adverse effect on
us.
NOTE
20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by
quarter for 2009 and 2008 is as follows (in millions, except per share
data):
|
Three
Months Ended
|
||||||||
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||
|
2009
|
||||||||
|
Operating
revenue
|
$2,962
|
$3,126
|
$3,317
|
$3,182
|
||||
|
Operating
income (loss)
|
(55)
|
(154)
|
61
|
1
|
||||
|
Nonoperating
income (expense), net
|
(81)
|
(59)
|
(79)
|
(73)
|
||||
|
Net
income (loss)
|
(136)
|
(213)
|
(18)
|
85
|
||||
|
Earnings
(loss) per share:
|
||||||||
|
Basic
|
$(1.10)
|
$(1.72)
|
$(0.14)
|
$ 0.61
|
||||
|
Diluted
|
$(1.10)
|
$(1.72)
|
$(0.14)
|
$ 0.60
|
||||
|
2008
|
||||||||
|
Operating
revenue
|
$3,570
|
$4,044
|
$4,156
|
$3,471
|
||||
|
Operating
loss
|
(66)
|
(71)
|
(152)
|
(25)
|
||||
|
Nonoperating
income (expense), net
|
(61)
|
22
|
(98)
|
(242)
|
||||
|
Net
loss
|
(82)
|
(5)
|
(230)
|
(269)
|
||||
|
Loss
per share:
|
||||||||
|
Basic
|
$(0.82)
|
$(0.05)
|
$(2.09)
|
$(2.35)
|
||||
|
Diluted
|
$(0.82)
|
$(0.05)
|
$(2.09)
|
$(2.35)
|
||||
The quarterly income (loss) amounts
were impacted by the following special income (expense) items:
|
Three
Months Ended
|
||||||||
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||
|
2009
|
||||||||
|
Operating
earnings:
|
||||||||
|
Aircraft-related
charges
|
$ (4)
|
$(43)
|
$ (6)
|
$ (36)
|
||||
|
Pension
settlement charges
|
-
|
-
|
-
|
(29)
|
||||
|
Severance
|
-
|
-
|
(5)
|
-
|
||||
|
Route
impairment
|
-
|
-
|
-
|
(12)
|
||||
|
Other
|
-
|
(1)
|
(9)
|
-
|
||||
|
Total
special charges in operating earnings
|
$ (4)
|
$(44)
|
$(20)
|
$ (77)
|
||||
|
Additional
special items:
|
||||||||
|
Income
tax benefit related to intraperiod
tax
allocation
|
$ -
|
$ -
|
$ -
|
$ 158
|
||||
|
2008
|
||||||||
|
Operating
earnings:
|
||||||||
|
Aircraft-related
charges
|
$ 8
|
$(41)
|
$(12)
|
$ 5
|
||||
|
Pension
settlement charges
|
-
|
-
|
(8)
|
(44)
|
||||
|
Severance
|
-
|
-
|
(33)
|
(1)
|
||||
|
Route
impairment
|
-
|
-
|
(18)
|
-
|
||||
|
Other
|
-
|
(17)
|
(20)
|
-
|
||||
|
Total
special charges in operating earnings
|
$ 8
|
$(58)
|
$(91)
|
$ (40)
|
||||
|
Additional
special items:
|
||||||||
|
Gains
on sales of investments
|
$ -
|
$ 78
|
$ -
|
$ -
|
||||
|
Loss
on fuel hedge contracts with
Lehman
Brothers
|
-
|
-
|
-
|
(125)
|
||||
|
Other-than-temporary
impairment of
auction
rate securities
|
-
|
(29)
|
-
|
(31)
|
||||
|
Fair
value of auction rate securities put
right
received
|
-
|
-
|
-
|
26
|
||||
|
Income
tax benefit related to NOL
utilization
|
-
|
28
|
-
|
-
|
||||
There were no changes in or
disagreements on any matters of accounting principles or financial statement
disclosure between us and our independent registered public accountants during
our two most recent fiscal years or any subsequent interim period.
Management's Conclusion on
the Effectiveness of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have
evaluated, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this Form 10-K. Our disclosure
controls and procedures are designed to provide reasonable assurance that the
information required to be disclosed by us in reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure and is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC. Based upon the evaluation, our principal executive
officer and principal financial officer have concluded that our disclosure
controls and procedures were effective as of December 31, 2009 at the reasonable
assurance level.
Management's Report on
Internal Control over Financial Reporting
Management of the Company is
responsible for establishing and maintaining effective internal control over
financial reporting, as such term is defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. The Company's internal control over
financial reporting is a process designed to provide reasonable assurance to the
Company's management and Board of Directors regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
reporting and financial statement preparation and presentation.
Under the supervision and with the
participation of the Company's management, including our Chief Executive Officer
and Chief Financial Officer, an assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2009 was
conducted. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control - Integrated Framework. Based on their assessment,
management concluded that, as of December 31, 2009, the Company's internal
control over financial reporting was effective based on those
criteria.
The effectiveness of our internal
control over financial reporting as of December 31, 2009, has been audited by
Ernst & Young LLP, the independent registered public accounting firm who
also has audited the Company's consolidated financial statements included in
this Annual Report on Form 10-K. Ernst & Young's report on the
Company's internal control over financial reporting appears below.
Changes in Internal
Controls
There was no change in our internal
control over financial reporting during the quarter ended December 31, 2009,
that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Report of Independent
Registered Public Accounting Firm
The Board
of Directors and Stockholders
Continental
Airlines, Inc.
We have audited the internal control
over financial reporting of Continental Airlines, Inc. (the "Company") as of
December 31, 2009, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the "COSO criteria"). The Company's management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management's Report on Internal
Control over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of the Company as of December 31, 2009
and 2008, and the related consolidated statements of operations, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2009 and our report dated February 17, 2010 expressed an
unqualified opinion thereon.
ERNST
& YOUNG
LLP
Houston,
Texas
February
17, 2010
Item
9B. Other Information.
Profit Sharing
Plan. On February 17, 2009, the Board of Directors of
Continental Airlines, Inc. (the “Company”) approved a new profit sharing plan
effective January 1, 2010, with a term of five years. The Company’s
prior enhanced profit sharing plan, adopted in connection with wage and benefit
reductions in 2005, expired on December 31, 2009. Under the new
profit sharing plan, the Company will create a profit sharing award pool equal
to 15 percent of its pre-tax income (adjusted for special, unusual or
non-recurring items). Generally, the profit sharing pool will be
distributed among eligible employees based on an employee’s annual base pay
relative to the annual base pay of all employees. The profit sharing
plan will pay out for any year that the Company earns pre-tax income (adjusted
for special, unusual or non-recurring items), except in years when the amount of
such pre-tax income results in a profit sharing award pool below 0.2% of the
annual base pay of all employees. In that case, the profit sharing
award pool for that year would be carried forward and included in a subsequent
year’s payout. All employees (other than officers and
management-level employees above a designated level) who are in a work group
that is not represented by a union are eligible to participate in the profit
sharing plan. Employees who are in a work group that is represented
by a union will be eligible to participate in the new profit sharing plan if
specifically provided pursuant to the terms of a ratified collective bargaining
agreement (a “CBA”). International employees are generally eligible
to participate in the profit sharing plan, subject to their applicable work
rules, CBAs and legal requirements. Eligibility is determined as of
the last day of the relevant year. The foregoing description of the
profit sharing plan is qualified in its entirety by reference to the full text
of the plan, which is filed as Exhibit 10.18 to this report.
PART
III
Incorporated herein by reference from
our definitive proxy statement for the annual meeting of stockholders to be held
on June 9, 2010.
Incorporated herein by reference from
our definitive proxy statement for the annual meeting of stockholders to be held
on June 9, 2010.
Stockholder Matters.
Incorporated herein by reference from
our definitive proxy statement for the annual meeting of stockholders to be held
on June 9, 2010 and
from Item 5. "Market for Registrant's Common Equity and Related
Stockholder Matters" of this Form 10-K.
Incorporated herein by reference from
our definitive proxy statement for the annual meeting of stockholders to be held
on June 9, 2010.
Incorporated herein by reference from
our definitive proxy statement for the annual meeting of stockholders to be held
on June 9, 2010.
PART
IV
|
(a)
|
The
following financial statements are included in Item
8. "Financial Statements and Supplementary
Data":
|
Report of
Independent Registered Public Accounting Firm
Consolidated
Statements of Operations for each of the Three Years in the Period
Ended
December 31, 2009
Consolidated
Balance Sheets as of December 31, 2009 and 2008
Consolidated
Statements of Cash Flows for each of the Three Years in the Period
Ended
December 31, 2009
Consolidated
Statements of Common Stockholders' Equity for each of the Three
Years
in the Period Ended December 31,
2009
Notes to
Consolidated Financial Statements
|
(b)
|
Financial
Statement Schedules:
|
All
schedules have been omitted because they are inapplicable, not required, or the
information is included elsewhere in the consolidated financial statements or
notes thereto.
|
(c)
|
See
accompanying Index to Exhibits.
|
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CONTINENTAL
AIRLINES, INC.
|
|
|
By
/s/ ZANE C.
ROWE
|
|
|
Zane C. Rowe
|
|
|
Executive Vice President
and
|
|
|
Chief Financial
Officer
|
|
|
(On behalf of
Registrant)
|
Date:
February 17,
2010
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities indicated on February 17, 2010.
|
Signature
|
Capacity
|
|
/s/ JEFFERY A.
SMISEK
|
Chairman,
President, and Chief Executive Officer
|
|
Jeffery
A. Smisek
|
(Principal
Executive Officer)
|
|
/s/ ZANE C.
ROWE
|
Executive
Vice President and
|
|
Zane
C. Rowe
|
Chief
Financial Officer
|
|
(Principal
Financial Officer)
|
|
|
/s/ CHRIS
KENNY
|
Vice
President and Controller
|
|
Chris
Kenny
|
(Principal
Accounting Officer)
|
|
KIRBYJON H.
CALDWELL*
|
Director
|
|
Kirbyjon
H. Caldwell
|
|
|
CAROLYN
CORVI*
|
Director
|
|
Carolyn
Corvi
|
|
|
DOUGLAS H.
McCORKINDALE*
|
Director
|
|
Douglas
H. McCorkindale
|
|
|
HENRY L. MEYER
III*
|
Director
|
|
Henry
L. Meyer III
|
|
|
OSCAR
MUNOZ*
|
Director
|
|
Oscar
Munoz
|
|
|
LAURENCE E.
SIMMONS*
|
Director
|
|
Laurence
E. Simmons
|
|
|
KAREN HASTIE
WILLIAMS*
|
Director
|
|
Karen
Hastie Williams
|
|
|
RONALD B.
WOODARD*
|
Director
|
|
Ronald
B. Woodard
|
|
|
CHARLES A.
YAMARONE*
|
Director
|
|
Charles
A. Yamarone
|
|
*By
|
/s/ Jennifer L.
Vogel
|
|
Jennifer
L. Vogel
|
|
|
Attorney-in-fact
|
|
|
February
17, 2010
|
CONTINENTAL
AIRLINES, INC.
|
3.1
|
Amended
and Restated Certificate of Incorporation of Continental, as amended
through June 6, 2006 - incorporated by reference to Exhibit 3.1 to
Continental's Annual Report on Form 10-K for the year ended December 31,
2006 (File no. 1-10323) (the "2006 10-K").
|
|
3.1(a)
|
Certificate
of Designation of Series A Junior Participating Preferred Stock, included
as Exhibit A to Exhibit 3.1.
|
|
3.1(a)(i)
|
Certificate
of Amendment of Certificate of Designation of Series A Junior
Participating Preferred Stock - incorporated by reference to Exhibit
3.1(b) to Continental's Annual Report on Form 10-K for the year ended
December 31, 2001 (File no. 1-10323) (the "2001 10-K").
|
|
3.1(a)(ii)
|
Certificate
of Increase - Series A Junior Participating Preferred Stock - incorporated
by reference to Exhibit 3.1(a)(ii) to Continental's Quarterly Report on
Form 10-Q for the period ended June 30, 2008 (File no.
1-10323).
|
|
3.2
|
Amended
and Restated Bylaws of Continental, effective as of June 10, 2009 –
incorporated by reference to Exhibit 3.2 to Continental’s Current Report
on Form 8-K dated June 10, 2009 (File no. 1-10323).
|
|
4.1
|
Specimen
Class B Common Stock Certificate of Continental - incorporated by
reference to Exhibit 4.1 to Continental's Registration Statement on Form
8-A/A filed November 21, 2008.
|
|
4.2
|
Warrant
Agreement dated as of April 27, 1993, between Continental and Continental
as warrant agent - incorporated by reference to Exhibit 4.7 to
Continental's Current Report on Form 8-K, dated April 16, 1993 (File no.
1-10323). (No warrants remain outstanding under the agreement,
but some of its terms are incorporated into Continental's stock option
agreements.)
|
|
4.3
|
Continental
hereby agrees to furnish to the Commission, upon request, copies of
certain instruments defining the rights of holders of long-term debt of
the kind described in Item 601(b)(4)(iii)(A) of Regulation
S-K.
|
|
10.1
|
Agreement
of Lease dated as of January 11, 1985, between the Port Authority of New
York and New Jersey and People Express, Inc., regarding Terminal C (the
"Terminal C Lease") - incorporated by reference to Exhibit 10.61 to the
Annual Report on Form 10-K (File no. 0-9781) of People Express, Inc. for
the year ended December 31, 1984.
|
|
10.1(a)
|
Assignment
of Lease with Assumption and Consent dated as of August 15, 1987, among
the Port Authority of New York and New Jersey, People Express Airlines,
Inc. and Continental - incorporated by reference to Exhibit 10.2 to
Continental's Annual Report on Form 10-K (File no. 1-8475) for the year
ended December 31, 1987 (the "1987 10-K").
|
|
10.1(b)
|
Supplemental
Agreement Nos. 1 through 6 to the Terminal C Lease - incorporated by
reference to Exhibit 10.3 to the 1987 10-K.
|
|
10.1(c)
|
Supplemental
Agreement No. 7 to the Terminal C Lease - incorporated by reference to
Exhibit 10.4 to Continental's Annual Report on Form 10-K (File no.
1-10323) for the year ended December 31, 1988 (the "1988
10-K").
|
|
10.1(d)
|
Supplemental
Agreements No. 8 through 11 to the Terminal C Lease - incorporated by
reference to Exhibit 10.10 to Continental's Form S-1 Registration
Statement (No. 33-68870).
|
|
10.1(e)
|
Supplemental
Agreements No. 12 through 15 to the Terminal C Lease - incorporated by
reference to Exhibit 10.2(d) to Continental's Annual Report on Form 10-K
(File no. 1-10323) for the year ended December 31,
1995.
|
|
10.1(f)
|
Supplemental
Agreement No. 16 to the Terminal C Lease - incorporated by reference to
Exhibit 10.1(e) to Continental's Annual Report on Form 10-K for the year
ended December 31, 1997 (File no. 1-10323) (the "1997
10-K").
|
|
10.1(g)
|
Supplemental
Agreement No. 17 to the Terminal C Lease - incorporated by reference to
Exhibit 10.1(f) to Continental's Annual Report on Form 10-K for the year
ended December 31, 1999 (File no. 1-10323) (the "1999
10-K").
|
|
10.1(h)
|
Supplemental
Agreement No. 18 to the Terminal C Lease - incorporated by reference to
Exhibit 10.5 to the 2003 Q-1 10-Q.
|
|
10.1(i)
|
Supplemental
Agreement No. 19 to the Terminal C Lease - incorporated by reference to
Exhibit 10.4 to Continental's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003 (File no. 1-10323).
|
|
10.1(j)
|
Supplemental
Agreement No. 20 - to the Terminal C Lease - incorporated by reference to
Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q for quarter
ended September 30, 2003 (File no. 1-10323) (the "2003 Q-3
10-Q").
|
|
10.1(k)
|
Supplemental
Agreement No. 21 dated as of June 1, 2003 to Agreement of Lease between
the Company and the Port Authority of New York and New Jersey regarding
Terminal C at Newark Liberty International Airport - incorporated by
reference to Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2005 (File no. 1-10323) (the "2005 Q-2
10-Q").
|
|
10.1(l)
|
Supplemental
Agreement No. 22 - to the Terminal C Lease - incorporated by reference to
Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004 (File no. 1-10323) (the "2004 Q-1
10-Q").
|
|
10.1(m)
|
Supplemental
Agreement No. 23 - to the Terminal C Lease - incorporated by reference to
Exhibit 10.1(m) to Continental's Annual Report on Form 10-K for the year
ended December 31, 2005 (File no. 1-10323) (the "2005
10-K").
|
|
10.1(n)
|
Supplemental
Agreement No. 24 - to the Terminal C Lease - incorporated by reference to
Exhibit 10.1(n) to the 2005 10-K.
|
|
10.2
|
Airport
Use and Lease Agreement dated as of January 1, 1998 between Continental
and the City of Houston, Texas ("Houston") regarding George Bush
Intercontinental Airport - incorporated by reference to Exhibit 10.30 to
Continental's Annual Report on Form 10-K for the year ended December 31,
1998 (File no. 1-10323) (the "1998 10-K").
|
|
10.2(a)
|
Special
Facilities Lease Agreement dated as of March 1, 1997 between Continental
and Houston regarding an automated people mover project at Bush
Intercontinental - incorporated by reference to Exhibit 10.30(a) to the
1998 10-K.
|
|
10.2(b)
|
Amended
and Restated Special Facilities Lease Agreement dated as of December 1,
1998 by and between Continental and Houston regarding certain terminal
improvements projects at Bush Intercontinental - incorporated by reference
to Exhibit 10.30(b) to the 1998 10-K.
|
|
10.2(c)
|
Amended
and Restated Special Facilities Lease Agreement dated December 1, 1998 by
and between Continental and Houston regarding certain airport improvement
projects at Bush Intercontinental - incorporated by reference to Exhibit
10.30(c) to the 1998 10-K.
|
|
10.2(d)
|
Terminal
E Lease and Special Facilities Lease Agreement dated as of August 1, 2001
between Continental and Houston regarding Bush Intercontinental -
incorporated by reference to Exhibit 10.8 to Continental's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001 (File no.
1-10323) (the "2001 Q-3 10-Q").
|
|
10.2(e)
|
Supplement
to Terminal E Lease and Special Facilities Lease Agreement dated as of
August 1, 2001 - incorporated by reference to Exhibit 10.2(e) to
Continental's Annual Report on Form 10-K for the year ended December 31,
2002 (File no. 1-10323) (the "2002 10-K").
|
|
10.3
|
Agreement
and Lease dated as of May 1987, as supplemented, between Continental and
the City of Cleveland, Ohio ("Cleveland") regarding Hopkins International
Airport - incorporated by reference to Exhibit 10.6 to Continental's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993
(File no. 1-10323).
|
|
10.3(a)
|
Special
Facilities Lease Agreement dated as of October 24, 1997 by and between
Continental and Cleveland regarding certain concourse expansion projects
at Hopkins International (the "1997 SFLA") - incorporated by reference to
Exhibit 10.31(a) to the 1998 10-K.
|
|
10.3(b)
|
First
Supplemental Special Facilities Lease Agreement dated as of March 1, 1998,
and relating to the 1997 SFLA - incorporated by reference to Exhibit 10.1
to Continental's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 (File no. 1-10323) (the "1999 Q-1 10-Q").
|
|
10.3(c)
|
Special
Facilities Lease Agreement dated as of December 1, 1989 by and between
Continental and Cleveland regarding Hopkins International (the "1989
SFLA") - incorporated by reference to Exhibit 10.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
(File no. 1-10323) (the "1999 Q-3 10-Q").
|
|
10.3(d)
|
First
Supplemental Special Facilities Lease Agreement dated as of March 1, 1998,
and relating to the 1989 SFLA - incorporated by reference to Exhibit
10.1(a) to the 1999 Q-3 10-Q.
|
|
10.3(e)
|
Second
Supplemental Special Facilities Lease Agreement dated as of March 1, 1998,
and relating to the 1989 SFLA - incorporated by reference to Exhibit
10.1(b) to the 1999 Q-3 10-Q.
|
|
10.3(f)
|
Amendment
No. 1, dated January 1, 2006, to Agreement and Lease dated as of May 1987,
as supplemented, between Continental and Cleveland regarding Hopkins
International Airport - incorporated by reference to Exhibit 10.3(f) to
the 2005 10-K.
|
|
10.3(g)
|
Amendment
No. 2, dated March 25, 2009, to Agreement and Lease dated as of May 1987,
as supplemented, between Continental and Cleveland regarding Hopkins
International Airport – incorporated by reference to Exhibit 10.1 to
Continental’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2009 (the “2009 Q-2 10-Q”).
|
|
10.3(h)
|
Amendment
No. 3, dated April 3, 2009, to Agreement and Lease dated as of May 1987,
as supplemented, between Continental and Cleveland regarding Hopkins
International Airport – incorporated by reference to Exhibit 10.2 to the
2009 Q-2 10-Q.
|
|
10.4*
|
Employment
Agreement dated as of October 15, 2007 between Continental and Lawrence W.
Kellner - incorporated by reference to Exhibit 10.2 to Continental's Form
10-Q for the quarter ended September 30, 2007 (File no. 1-10323) (the
"2007 Q-3 10-Q").
|
|
10.4(a)*
|
Compensation
Reduction Agreement for Lawrence W. Kellner dated December 22, 2004 -
incorporated by reference to Exhibit 99.1 to Continental's Current Report
on Form 8-K dated December 22, 2004 (File no. 1-10323) (the "12/04
8-K").
|
|
10.4(b)*
|
Amendment
to Compensation Reduction Agreement for Lawrence W. Kellner dated February
15, 2005 - incorporated by reference to Exhibit 10.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File
no. 1-10323) (the "2005 Q-1 10-Q").
|
|
10.4(c)*
|
Letter
Agreement dated as of May 30, 2008 between Continental and Larry Kellner -
incorporated by reference to Exhibit 99.2 to Continental's Current Report
on Form 8-K dated June 5, 2008 (the "06/08 8-K").
|
|
10.5*
|
Employment
Agreement dated as of October 15, 2007 between Continental and Jeffery A.
Smisek - incorporated by reference to Exhibit 10.3 to the 2007 Q-3
10-Q.
|
|
10.5(a)*
|
Compensation
Reduction Agreement for Jeffery A. Smisek dated December 22, 2004 -
incorporated by reference to Exhibit 99.2 to the 12/04
8-K.
|
|
10.5(b)*
|
Amendment
to Compensation Reduction Agreement for Jeffery A. Smisek dated February
15, 2005 - incorporated by reference to Exhibit 10.2 to the 2005 Q-1
10-Q.
|
|
10.5(c)*
|
Letter
Agreement dated as of May 30, 2008 between Continental and Jeffery Smisek
- incorporated by reference to Exhibit 99.3 to the 06/08
8-K.
|
|
10.5(d)*
|
Confidentiality
and Non-Competition Agreement dated April 23, 2009 between Continental and
Jeffery A. Smisek – incorporated by reference to Exhibit 10.1 to
Continental’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2009 (the “2009 Q-1 10-Q”).
|
|
10.5(e)*
|
Letter
Agreement dated as of September 30, 2009 between Continental and Jeffery
Smisek (clarifying certain terms of his Employment Agreement in connection
with his promotion to Chairman, President and CEO on January 1, 2010) –
incorporated by reference to Exhibit 10.1 to Continental’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009 (the “2009
Q-3 10-Q”).
|
|
10.5(f)*
|
Letter
Agreement dated as of January 4, 2010 between Continental and Jeffery
Smisek (pursuant to which he waives his salary and annual incentive
pursuant to the terms set forth therein) – incorporated by reference to
Exhibit 99.1 to Continental’s Current Report on Form 8-K dated January 4,
2010.
|
|
10.6*
|
Employment
Agreement dated as of August 31, 2008 between Continental and Zane Rowe -
incorporated by reference to Exhibit 10.2 to Continental's Form 10-Q for
the quarter ended September 30, 2008 (File no. 1-10323) (the "2008 Q-3
10-Q").
|
|
10.6(a)*
|
Confidentiality
and Non-Competition Agreement dated April 23, 2009 between Continental and
Zane C. Rowe – incorporated by reference to Exhibit 10.2 to the 2009 Q-1
10-Q.
|
|
10.7*
|
Employment
Agreement dated as of October 15, 2007 between Continental and Mark J.
Moran - incorporated by reference to Exhibit 10.6 to the 2007 Q-3
10-Q.
|
|
10.7(a)*
|
Compensation
Reduction Agreement for Mark J. Moran dated December 22, 2004 -
incorporated by reference to Exhibit 10.7(a) to the 2005
10-K.
|
|
10.7(b)*
|
Amendment
to Compensation Reduction Agreement for Mark J. Moran dated February 15,
2005 - incorporated by reference to Exhibit 10.7(b) to the 2005
10-K.
|
|
10.7(c)*
|
Confidentiality
and Non-Competition Agreement dated April 23, 2009 between Continental and
Mark J. Moran – incorporated by reference to Exhibit 10.4 to the 2009 Q-1
10-Q.
|
|
10.8*
|
Employment
Agreement dated as of October 15, 2007 between Continental and James E.
Compton - incorporated by reference to Exhibit 10.4 to the 2007 Q-3
10-Q.
|
|
10.8(a)*
|
Compensation
Reduction Agreement for James E. Compton dated December 22, 2004 - incorporated by
reference to Exhibit 10.8(a) to Continental's Annual Report on Form 10-K
for the year ended December 31, 2004 (File no. 1-10323) (the "2004
10-K").
|
|
10.8(b)*
|
Amendment
to Compensation Reduction Agreement for James E. Compton dated February
15, 2005 - incorporated by reference to Exhibit 10.4 to the 2005 Q-1
10-Q.
|
|
10.8(c)*
|
Confidentiality
and Non-Competition Agreement dated April 23, 2009 between Continental and
James E. Compton – incorporated by reference to Exhibit 10.3 to the 2009
Q-1 10-Q.
|
|
10.9*
|
Continental
Airlines, Inc. 1998 Stock Incentive Plan ("1998 Incentive Plan") -
incorporated by reference to Exhibit 4.3 to Continental's Form S-8
Registration Statement (No. 333-57297).
|
|
10.9(a)*
|
Amendment
No. 1 to 1998 Incentive Plan, 1997 Stock Incentive Plan and 1994 Incentive
Equity Plan, dated May 15, 2001 - incorporated by reference to Exhibit
10.2 to Continental's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (File no. 1-10323) (the "2001 Q-2
10-Q").
|
|
10.9(b)*
|
Amendment
to 1998 Incentive Plan, 1997 Stock Incentive Plan and 1994 Incentive
Equity Plan, dated March 12, 2004 - incorporated by reference to Exhibit
10.5 to the 2004 Q-1 10-Q.
|
|
10.9(c)*
|
Form
of Outside Director Stock Option Grant pursuant to the 1998 Incentive Plan
– incorporated by reference to Exhibit 10.12(c) to the 2006
10-K.
|
|
10.10*
|
Continental
Airlines, Inc. Incentive Plan 2000, as amended and restated ("Incentive
Plan 2000") - incorporated by reference to Exhibit 10.1 to
Continental's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 (File no. 1-10323) (the "2002 Q-1
10-Q").
|
|
10.10(a)*
|
Amendment
to Incentive Plan 2000, dated March 12, 2004 - incorporated by reference
to Exhibit 10.6 to the 2004 Q-1 10-Q.
|
|
10.10(b)*
|
Second
Amendment to Incentive Plan 2000, dated June 6, 2006 - incorporated by
reference to Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006 (File no. 1-10323) (the "2006
Q-2 10-Q").
|
|
10.10(c)*
|
Third
Amendment to Incentive Plan 2000, dated September 14, 2006 - incorporated
by reference to Exhibit 10.1 to Continental's Quarterly Report on Form
10-Q for the quarter ended September 30, 2006 (File no. 1-10323)
(the "2006 Q-3 10-Q").
|
|
10.10(d)*
|
Form
of Outside Director Stock Option Agreement pursuant to Incentive Plan 2000
– incorporated by reference to Exhibit 10.14(b) to the 2000
10-K.
|
|
10.10(e)*
|
Form
of Outside Director Stock Option Grant pursuant to Incentive Plan 2000
(updated form to facilitate electronic delivery) – incorporated by
reference to Exhibit 10.1 to Continental’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2008 (File no. l1-10323) (the “2008 Q-1
10-Q”).
|
|
10.11*
|
Continental
Airlines, Inc. Long-Term Incentive and RSU Program, as amended and
restated through February 18, 2009 (adopted pursuant to Incentive Plan
2000) – incorporated by reference to Exhibit 10.14 to Continental’s Annual
Report on Form 10-K for the year ended December 31, 2008 (the “2008
10-K”).
|
|
10.11(a)*
|
Form
of Award Notice pursuant to Continental Airlines, Inc. Long-Term Incentive
and RSU Program (Profit Based RSU Awards under Incentive Plan 2000) –
incorporated by reference to Exhibit 10.14(a) to the 2008
10-K.
|
|
10.11(b)*
|
Form
of Award Notice pursuant to Continental Airlines, Inc. Long-Term Incentive
and RSU Program (NLTIP Award under Incentive Plan 2000) - incorporated by
reference to Exhibit 10.16(b) to the 2005 10-K.
|
|
10.12*
|
Continental
Airlines, Inc. Incentive Plan 2010, as amended and restated February 17,
2010 (the “Incentive Plan 2010”). (3)
|
|
10.12(a)*
|
Form
of Non-Employee Director Option Grant Document pursuant to Incentive Plan
2010. (3)
|
|
10.13*
|
Continental
Airlines, Inc. Annual Executive Incentive Program (adopted pursuant to
Incentive Plan 2010) (the “AIP”). (3)
|
|
10.13(a)*
|
Form
of Award Notice pursuant to the AIP. (3)
|
|
10.14*
|
Continental
Airlines, Inc. Long-Term Incentive and RSU Program (adopted pursuant to
Incentive Plan 2010) (the “LTIP/RSU Program”).
(3)
|
|
10.14(a)*
|
Form
of Award Notice pursuant to the LTIP/RSU Program (Profit Based RSU Award
under Incentive Plan 2010). (3)
|
|
10.14(b)*
|
Form
of Award Notice pursuant to the LTIP/RSU Program (LTIP Award under
Incentive Plan 2010). (3)
|
|
10.15*
|
Continental
Airlines, Inc. 2005 Broad Based Employee Stock Option Plan - incorporated
by reference to Exhibit 10.8 to the 2005 Q-1 10-Q.
|
|
10.16*
|
Continental
Airlines, Inc. 2005 Pilot Supplemental Option Plan - incorporated by
reference to Exhibit 10.9 to the 2005 Q-1 10-Q.
|
|
10.17*
|
Continental
Airlines, Inc. Enhanced Profit Sharing Plan, as amended through February
23, 2007 - incorporated by reference to Exhibit 10.19 to the
2006 10-K.
|
|
10.18*
|
Continental
Airlines, Inc. Profit Sharing Plan, as adopted February 17, 2010.
(3)
|
|
10.19*
|
Summary
of Non-Employee Director compensation. (3)
|
|
10.20*
|
Form
of Letter Agreement relating to certain flight benefits between
Continental and each of its non-employee
directors. (3)
|
|
10.21
|
Amended
and Restated Credit and Guaranty Agreement, dated as of August 3, 2006,
among Continental and Continental Micronesia, Inc., as borrowers and
guarantors, Air Micronesia, Inc., as a guarantor, Merrill Lynch Mortgage
Capital, Inc., as administrative agent, and the lenders party thereto -
incorporated by reference to Exhibit 10.3 to the 2006 Q-3 10-Q.
(1)
|
|
10.22
|
Purchase
Agreement No. 1951, including exhibits and side letters thereto, between
the Company and Boeing, dated July 23, 1996, relating to the purchase of
Boeing 737 aircraft ("P.A. 1951") - incorporated by reference to Exhibit
10.8 to Continental's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 (File no. 1-10323). (1)
|
|
10.22(a)
|
Supplemental
Agreement No. 1 to P.A. 1951, dated October 10, 1996 - incorporated by
reference to Exhibit 10.14(a) to Continental's Annual Report on Form 10-K
for the year ended December 31, 1996 (File no.
1-1-323). (1)
|
|
10.22(b)
|
Supplemental
Agreement No. 2 to P.A. 1951, dated March 5, 1997 - incorporated by
reference to Exhibit 10.3 to Continental's Quarterly Report on Form 10-Q
for the quarter ending March 31, 1997 (File no.
1-10323). (1)
|
|
10.22(c)
|
Supplemental
Agreement No. 3, including exhibit and side letter, to P.A. 1951, dated
July 17, 1997 - incorporated by reference to Exhibit 10.14(c) to the 1997
10-K. (1)
|
|
10.22(d)
|
Supplemental
Agreement No. 4, including exhibits and side letters, to P.A. 1951, dated
October 10, 1997 - incorporated by reference to Exhibit 10.14(d) to the
1997 10-K. (1)
|
|
10.22(e)
|
Supplemental
Agreement No. 5, including exhibits and side letters, to P.A. 1951, dated
October 10, 1997 - incorporated by reference to Exhibit 10.1 to
Continental's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (File no.
1-10323). (1)
|
|
10.22(f)
|
Supplemental
Agreement No. 6, including exhibits and side letters, to P.A. 1951, dated
July 30, 1998 - incorporated by reference to Exhibit 10.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(File no. 1-10323). (1)
|
|
10.22(g)
|
Supplemental
Agreement No. 7, including side letters, to P.A. 1951, dated November 12,
1998 - incorporated by reference to Exhibit 10.24(g) to the 1998
10-K. (1)
|
|
10.22(h)
|
Supplemental
Agreement No. 8, including side letters, to P.A. 1951, dated December 7,
1998 - incorporated by reference to Exhibit 10.24(h) to the 1998
10-K. (1)
|
|
10.22(i)
|
Letter
Agreement No. 6-1162-GOC-131R1 to P.A. 1951, dated March 26, 1998 -
incorporated by reference to Exhibit 10.1 to Continental's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (File no.
1-10323). (1)
|
|
10.22(j)
|
Supplemental
Agreement No. 9, including side letters, to P.A. 1951, dated February 18,
1999 - incorporated by reference to Exhibit 10.4 to the 1999 Q-1
10-Q. (1)
|
|
10.22(k)
|
Supplemental
Agreement No. 10, including side letters, to P.A. 1951, dated March 19,
1999 - incorporated by reference to Exhibit 10.4(a) to the 1999 Q-1
10-Q. (1)
|
|
10.22(l)
|
Supplemental
Agreement No. 11, including side letters, to P.A. 1951, dated March 14,
1999 - incorporated by reference to Exhibit 10.4(a) to Continental's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
no. 1-10323). (1)
|
|
10.22(m)
|
Supplemental
Agreement No. 12, including side letters, to P.A. 1951, dated July 2, 1999
- incorporated by reference to Exhibit 10.8 to the 1999 Q-3
10-Q. (1)
|
|
10.22(n)
|
Supplemental
Agreement No. 13 to P.A. 1951, dated October 13, 1999 - incorporated by
reference to Exhibit 10.25(n) to the 1999
10-K. (1)
|
|
10.22(o)
|
Supplemental
Agreement No. 14 to P.A. 1951, dated December 13, 1999 - incorporated by
reference to Exhibit 10.25(o) to the 1999
10-K. (1)
|
|
10.22(p)
|
Supplemental
Agreement No. 15, including side letters, to P.A. 1951, dated January 13,
2000 - incorporated by reference to Exhibit 10.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File
no. 1-10323) (the "2000 Q-1 10-Q"). (1)
|
|
10.22(q)
|
Supplemental
Agreement No. 16, including side letters, to P.A. 1951, dated March 17,
2000 - incorporated by reference to the 2000 Q-1
10-Q. (1)
|
|
10.22(r)
|
Supplemental
Agreement No. 17, including side letters, to P.A. 1951, dated May 16, 2000
- incorporated by reference to Exhibit 10.2 to Continental's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000 (File no.
1-10323). (1)
|
|
10.22(s)
|
Supplemental
Agreement No. 18, including side letters, to P.A. 1951, dated September
11, 2000 - incorporated by reference to Exhibit 10.6 to Continental's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
(File no. 1-10323). (1)
|
|
10.22(t)
|
Supplemental
Agreement No. 19, including side letters, to P.A. 1951, dated October 31,
2000 - incorporated by reference to Exhibit 10.20(t) to the 2000
10-K. (1)
|
|
10.22(u)
|
Supplemental
Agreement No. 20, including side letters, to P.A. 1951, dated December 21,
2000 - incorporated by reference to Exhibit 10.20(u) to the 2000
10-K. (1)
|
|
10.22(v)
|
Supplemental
Agreement No. 21, including side letters, to P.A. 1951, dated March 30,
2001 - incorporated by reference to Exhibit 10.1 to Continental's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (File
no. 1-10323). (1)
|
|
10.22(w)
|
Supplemental
Agreement No. 22, including side letters, to P.A. 1951, dated May 23,
2001 - incorporated by reference to Exhibit 10.3 to
the 2001 Q-2 10-Q. (1)
|
|
10.22(x)
|
Supplemental
Agreement No. 23, including side letters, to P.A. 1951, dated June 29,
2001 - incorporated by reference to Exhibit 10.4 to
the 2001 Q-2 10-Q. (1)
|
|
10.22(y)
|
Supplemental
Agreement No. 24, including side letters, to P.A. 1951, dated August 31,
2001 - incorporated by reference to Exhibit 10.11 to the 2001 Q-3
10-Q. (1)
|
|
10.22(z)
|
Supplemental
Agreement No. 25, including side letters, to P.A. 1951, dated December 31,
2001 - incorporated by reference to Exhibit 10.22(z) to the 2001
10-K. (1)
|
|
10.22(aa)
|
Supplemental
Agreement No. 26, including side letters, to P.A. 1951, dated March 29,
2002 - incorporated by reference to Exhibit 10.4 to the 2002 Q-1
10-Q. (1)
|
|
10.22(ab)
|
Supplemental
Agreement No. 27, including side letters, to P.A. 1951, dated November 6,
2002 - incorporated by reference to Exhibit 10.4 to the 2002 Q-1
10-Q. (1)
|
|
10.22(ac)
|
Supplemental
Agreement No. 28, including side letters, to P.A. 1951, dated April 1,
2003 - incorporated by reference to Exhibit 10.2 to the 2003 Q-1
10-Q. (1)
|
|
10.22(ad)
|
Supplemental
Agreement No. 29, including side letters, to P.A. 1951, dated August 19,
2003 - incorporated by reference to Exhibit 10.2 to the 2003 Q-3 10-Q.
(1)
|
|
10.22(ae)
|
Supplemental
Agreement No. 30 to P.A. 1951, dated as of November 4, 2003 - incorporated
by reference to Exhibit 10.23(ae) to Continental's Annual Report on Form
10-K for the year ended December 31, 2003 (File no. 1-10323) (the "2003
10-K"). (1)
|
|
10.22(af)
|
Supplemental
Agreement No. 31 to P.A. 1951, dated as of August 20, 2004 - incorporated
by reference to Exhibit 10.4 to Continental's Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 (File no. 1-10323) (the
"2004 Q-3 10-Q"). (1)
|
|
10.22(ag)
|
Supplemental
Agreement No. 32 to P.A. 1951, including side letters, dated as of
December 29, 2004 - incorporated by reference to Exhibit 10.21(ag) to the
2004 10-K. (1)
|
|
10.22(ah)
|
Supplemental
Agreement No. 33 to P.A. 1951, including side letters, dated as of
December 29, 2004 - incorporated by reference to Exhibit 10.21(ah) to the
2004 10-K. (1)
|
|
10.22(ai)
|
Supplemental
Agreement No. 34 dated June 22, 2005 to P.A. 1951 - incorporated by
reference to Exhibit 10.3 to the 2005 Q-2 10-Q. (1)
|
|
10.22(aj)
|
Supplemental
Agreement No. 35 dated June 30, 2005 to P.A. 1951 - incorporated by
reference to Exhibit 10.4 to the 2005 Q-2 10-Q. (1)
|
|
10.22(ak)
|
Supplemental
Agreement No. 36 dated July 28, 2005 to P.A. 1951 - incorporated by
reference to Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2005 (File no. 1-10323) (the "2005 Q-3
10-Q"). (1)
|
|
10.22(al)
|
Supplemental
Agreement No. 37 dated March 30, 2006, to P.A. 1951 - incorporated by
reference to Exhibit 10.2 to Continental's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006 (File no. 1-10323) (the "2006 Q-1
10-Q"). (1)
|
|
10.22(am)
|
Supplemental
Agreement No. 38, dated June 6, 2006, to P.A. 1951 - incorporated by
reference to Exhibit 10.3 to the 2006 Q-2
10-Q. (1)
|
|
10.22(an)
|
Supplemental
Agreement No. 39, dated August 3, 2006, to P.A. 1951 - incorporated by
reference to Exhibit 10.4 to the 2006 Q-3 10-Q. (1)
|
|
10.22(ao)
|
Supplemental
Agreement No. 40, dated December 5, 2006, to P.A. 1951 -
incorporated by reference to Exhibit 10.23(ao) to the 2006
10-K. (1)
|
|
10.22(ap)
|
Supplemental
Agreement No. 41, dated June 1, 2007, to P.A. 1951 - incorporated by
reference to Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007 (File no. 1-10323) (the "2007 Q-2
10-Q"). (1)
|
|
10.22(aq)
|
Supplemental
Agreement No. 42, dated June 12, 2007, to P.A. 1951 - incorporated by
reference to Exhibit 10.2 to the 2007 Q-2 10-Q. (1)
|
|
10.22(ar)
|
Supplemental
Agreement No. 43, dated July 18, 2007 to P.A. 1951 - incorporated by
reference to Exhibit 10.1 to the 2007 Q-3
10-Q. (1)
|
|
10.22(as)
|
Supplemental
Agreement No. 44, dated December 7, 2007, to P.A. 1951 - incorporated by
reference to Exhibit 10.21(as) to Continental's Annual Report on Form 10-K
for the year ended December 31, 2007 (File no. 1-10323) (the "2007
10-K"). (1)
|
|
10.22(at)
|
Supplemental
Agreement No. 45, dated February 20, 2008, to P.A. 1951 - incorporated by
reference to Exhibit 10.2 to the 2008 Q-1
10-Q. (1)
|
|
10.22(au)
|
Supplemental
Agreement No. 46, dated June 25, 2008, to P.A. 1951 - incorporated by
reference to Exhibit 10.5 to the 2008 Q-2
10-Q. (1)
|
|
10.22(av)
|
Supplemental
Agreement No. 47, dated October 30, 2008, to P.A. 1951 – incorporated by
reference to Exhibit 10.21(av) to the 2008 10-K. (1)
|
|
10.22(aw)
|
Supplemental
Agreement No. 48, dated January 29, 2009, to P.A. 1951 – incorporated by
reference to Exhibit 10.3 to the 2009 Q-2 10-Q.(1)
|
|
10.22(ax)
|
Supplemental
Agreement No. 49, dated May 1, 2009, to P.A. 1951 – incorporated by
reference to Exhibit 10.4 to the 2009 Q-2 10-Q.(1)
|
|
10.22(ay)
|
Supplemental
Agreement No. 50, dated July 23, 2009, to P.A. 1951 – incorporated by
reference to Exhibit 10.2 to Continental’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2009 (the “2009 Q-3
10-Q”).(1)
|
|
10.22(az)
|
Supplemental
Agreement No. 51, dated August 5, 2009, to P.A. 1951 – incorporated by
reference to Exhibit 10.3 to the 2009 Q-3 10-Q. (1)
|
|
10.22(ba)
|
Supplemental
Agreement No. 52, dated August 31, 2009, to P.A. 1951 – incorporated by
reference to Exhibit 10.4 to the 2009 Q-3 10-Q. (1)
|
|
10.22(bb)
|
Supplemental
Agreement No. 53, dated December 23, 2009, to P.A. 1951.
(2)(3)
|
|
10.23
|
Aircraft
General Terms Agreement between the Company and Boeing, dated October 10,
1997 - incorporated by reference to Exhibit 10.15 to the 1997
10-K. (1)
|
|
10.23(a)
|
Letter
Agreement No. 6-1162-GOC-136 between the Company and Boeing, dated October
10, 1997, relating to certain long-term aircraft purchase commitments of
the Company - incorporated by reference to Exhibit 10.15(a) to the 1997
10-K. (1)
|
|
10.24
|
Purchase
Agreement No. 2061, including exhibits and side letters, between the
Company and Boeing, dated October 10, 1997, relating to the purchase of
Boeing 777 aircraft ("P.A. 2061") - incorporated by reference to Exhibit
10.17 to the 1997 10-K. (1)
|
|
10.24(a)
|
Supplemental
Agreement No. 1 to P.A. 2061 dated December 18, 1997 - incorporated by
reference to Exhibit 10.17(a) as to the 1997
10-K. (1)
|
|
10.24(b)
|
Supplemental
Agreement No. 2, including side letter, to P.A. 2061, dated July 30, 1998
- incorporated by reference to Exhibit 10.27(b) to the 1998
10-K. (1)
|
|
10.24(c)
|
Supplemental
Agreement No. 3, including side letter, to P.A. 2061, dated September 25,
1998 - incorporated by reference to Exhibit 10.27(c) to the 1998
10-K. (1)
|
|
10.24(d)
|
Supplemental
Agreement No. 4, including side letter, to P.A. 2061, dated February 3,
1999 - incorporated by reference to Exhibit 10.5 to the 1999 Q-1
10-Q. (1)
|
|
10.24(e)
|
Supplemental
Agreement No. 5, including side letter, to P.A. 2061, dated March 26, 1999
- incorporated by reference to Exhibit 10.5(a) to the 1999 Q-1
10-Q. (1)
|
|
10.24(f)
|
Supplemental
Agreement No. 6 to P.A. 2061, dated June 25, 2002 - incorporated by
reference to Exhibit 10.12 to Continental's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002 (File no. 1-10323) (the "2002 Q-2
10-Q"). (1)
|
|
10.24(g)
|
Supplemental
Agreement No. 7, including side letter, to P.A. 2061, dated October 31,
2000 - incorporated by reference to Exhibit 10.23(g) to the 2000
10-K. (1)
|
|
10.24(h)
|
Supplemental
Agreement No. 8, including a side letter, to P.A. 2061, dated June 29,
2001 - incorporated by reference to Exhibit 10.5 to the 2001 Q-2
10-Q. (1)
|
|
10.24(i)
|
Supplemental
Agreement No. 9 to P.A. 2061, dated June 25, 2002 - incorporated by
reference to Exhibit 10.12 to the 2002 Q-2
10-Q. (1)
|
|
10.24(j)
|
Supplemental
Agreement No. 10 to P.A. 2061, dated November 4, 2003 - incorporated by
reference to Exhibit 10.26(j) to the 2003 10-K. (1)
|
|
10.24(k)
|
Supplemental
Agreement No. 11 to P.A. 2061, dated July 28, 2005 - incorporated by
reference to Exhibit 10.2 to the 2005 Q-3 10-Q. (1)
|
|
10.24(l)
|
Supplemental
Agreement No. 12 to P.A. 2061, dated March 17, 2006 - incorporated by
reference to Exhibit 10.3 to the 2006 Q-1
10-Q. (1)
|
|
10.24(m)
|
Supplemental
Agreement No. 13, dated December 3, 2007, to P.A. 2061 - incorporated by
reference to Exhibit 10.23(m) to the 2007
10-K. (1)
|
|
10.24(n)
|
Supplemental
Agreement No. 14 to P.A. 2061, dated February 20, 2008 - incorporated by
reference to Exhibit 10.3 to the 2008 Q-1
10-Q. (1)
|
|
10.24(o)
|
Supplemental
Agreement No. 15, dated October 15, 2008, to P.A. 2061 - incorporated by
reference to Exhibit 10.5 to the 2009 Q-2
10-Q. (1)
|
|
10.24(p)
|
Supplemental
Agreement No. 16, dated May 1, 2009, to P.A. 2061 - incorporated by
reference to Exhibit 10.6 to the 2009 Q-2
10-Q. (1)
|
|
10.24(q)
|
Supplemental
Agreement No. 17, dated August 31, 2009, to P.A. 2061 - incorporated by
reference to Exhibit 10.5 to the 2009 Q-3
10-Q. (1)
|
|
10.24(r)
|
Supplemental
Agreement no. 18, dated December 23, 2009, to P.A.
2061. (2)(3)
|
|
10.25
|
Letter
Agreement 6-1162-CHL-048 between the Company and Boeing, dated February 8,
2002, amending P.A. 1951, 2333, 2211, 2060 and 2061 - incorporated by
reference to Exhibit 10.44 to the 2001
10-K. (1)
|
|
10.26
|
Purchase
Agreement No. 2484, including exhibits and side letters, between the
Company and Boeing, dated December 29, 2004, relating to the purchase of
Boeing 7E7 aircraft (now known as 787 aircraft) ("P.A. 2484") - incorporated by
reference to Exhibit 10.27 to the 2004 10-K. (1)
|
|
10.26(a)
|
Supplemental
Agreement No. 1 to P.A. 2484, dated June 30, 2005 - incorporated by
reference to Exhibit 10.5 to the 2005 Q-2 10-Q. (1)
|
|
10.26(b)
|
Supplemental
Agreement No. 2, including exhibits and side letters, to P.A. 2484, dated
January 20, 2006 - incorporated by reference to Exhibit 10.27(b) to the
2005 10-K. (1)
|
|
10.26(c)
|
Supplemental
Agreement No. 3, dated May 3, 2006, to P.A. 2484 - incorporated by
reference to Exhibit 10.4 to the 2006 Q-2 10-Q. (1)
|
|
10.26(d)
|
Supplemental
Agreement No. 4, dated July 14, 2006, to P.A. 2484 - incorporated by
reference to Exhibit 10.5 to the 2006 Q-3
10-Q. (1)
|
|
10.26(e)
|
Supplemental
Agreement No. 5, dated March 12, 2007, to P.A. 2484 - incorporated by
reference to Exhibit 10.1 to Continental's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2007 (File no.
1-10323). (1)
|
|
10.26(f)
|
Supplemental
Agreement No. 6, dated October 22, 2008, to P.A. 2484 – incorporated by
reference to Exhibit 10.25(f) to the 2008 10-K. (1)
|
|
10.27
|
Amended
and Restated Letter Agreement No. 11 between Continental and General
Electric Company, dated August 8, 2005, relating to certain long-term
engine purchase commitments of Continental - incorporated by reference to
Exhibit 10.3 to the 2005 Q-3 10-Q. (1)
|
|
10.28
|
Standstill
Agreement dated as of November 15, 2000 among the Company, Northwest
Airlines Holdings Corporation, Northwest Airlines Corporation and
Northwest Airlines, Inc. - incorporated by reference to Exhibit 99.8 to
the 11/00 8-K.
|
|
10.29
|
Second
Amended and Restated Capacity Purchase Agreement ("XJT Capacity Purchase
Agreement") among Continental, ExpressJet Holdings, Inc., XJT Holdings,
Inc. and ExpressJet Airlines, Inc. dated June 5, 2008 - incorporated by
reference to Exhibit 10.4 to the 2008 Q-2 10-Q. (1)
|
|
10.29(a)
|
First
Amendment to the XJT Capacity Purchase Agreement, dated as of August 29,
2008 - incorporated by reference to Exhibit 10.1 to the 2008 Q-3
10-Q.
|
|
10.29(b)
|
Second
Amendment to the XJT Capacity Purchase Agreement, dated as of December 23,
2008
–
incorporated by reference to Exhibit 10.28(b) to the 2008 10-K.
(1)
|
|
10.29(c)
|
Third
Amendment to the XJT Capacity Purchase Agreement, dated as of December 22,
2009. (2) (3)
|
|
10.30
|
Agreement
between the Company and the United States of America, acting through the
Transportation Security Administration, dated May 7, 2003 - incorporated
by reference to Exhibit 10.1 to Continental's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003 (File no.
1-10323).
|
|
21.1
|
List
of Subsidiaries of Continental. (3)
|
|
23.1
|
Consent
of Ernst & Young LLP. (3)
|
|
24.1
|
Powers
of attorney executed by certain directors and officers of
Continental. (3)
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer. (3)
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer. (3)
|
|
32.1
|
Section
1350 Certifications. (4)
|
______________
*These
exhibits relate to management contracts or compensatory plans or
arrangements.
|
(1)
|
The
Commission has granted confidential treatment for a portion of this
exhibit.
|
|
(2)
|
Continental
has applied to the Commission for confidential treatment of a portion of
this exhibit.
|
|
(3)
|
Filed
herewith.
|
|
(4)
|
Furnished
herewith.
|
Exhibit
10.12
CONTINENTAL
AIRLINES, INC.
INCENTIVE
PLAN 2010
(as
amended and restated through February 17, 2010)
1.
PURPOSE
The
purpose of the Continental
Airlines, Inc. Incentive Plan 2010 is to provide a means through which
Continental Airlines, Inc. and its subsidiaries may attract able persons to
serve as directors, or to enter or remain in the employ of the Company (as
defined below) or its subsidiaries, and to provide a means whereby those
individuals upon whom the responsibilities of the successful administration and
management of the Company and its subsidiaries rest, and whose present and
potential contributions to the Company and its subsidiaries are of importance,
can acquire and maintain stock ownership, thereby strengthening their concern
for the welfare of the Company and its subsidiaries. A further purpose of the
Plan is to provide such individuals with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company and its
subsidiaries. Accordingly, the Plan provides for granting Incentive Stock
Options, Non-Qualified Options, SARs, Restricted Stock Awards, Performance
Awards, Incentive Awards, and Other Stock Awards, or any combination of the
foregoing, as is best suited to the circumstances of the particular
person.
2.
DEFINITIONS
The
following definitions (including any plural thereof) shall be applicable
throughout the Plan unless specifically modified by any Section:
(a) “Administrator” means the
Committee or the Chief Executive Officer of the Company (if the Chief Executive
Officer is a Director), subject to the provisions of Section 4(a) of the
Plan.
(b) “Award” means, individually or
collectively, any Option, SAR, Restricted Stock Award, Performance Award,
Incentive Award, or Other Stock Award.
(c) “Board” means the Board of
Directors of the Company.
(d) “Change in Control” shall have
the meaning assigned to such term in Section 12(e) of the Plan.
(e) “Code” means the Internal
Revenue Code of 1986, as amended from time to time. Reference in the Plan to any
section of the Code shall be deemed to include any amendments or successor
provisions to such section and any regulations promulgated under such
section.
(f) “Committee” means a committee
of the Board comprised solely of two or more outside Directors (within the
meaning of the term “outside directors” as used in section 162(m) of the Code
and applicable interpretive authority thereunder and within the meaning of
“Non-Employee Director” as defined in Rule 16b-3). Such committee shall be the
Human Resources Committee of the Board unless and until the Board designates
another committee of the Board to serve as the Committee.
(g) “Common Stock” means the Class
B common stock, $.01 par value, of the Company, or any security into which such
common stock may be changed by reason of any transaction or event of the type
described in Section 12 of the Plan.
(h) “Company” shall mean
Continental Airlines, Inc., a Delaware corporation, or any successor
thereto.
(i) “Director” means an individual
who is a member of the Board.
(j) “Disability” means, with
respect to any person, such person’s disability entitling him or her to benefits
under the Company’s group long-term disability plan; provided, however, that if
such person is not eligible to participate in such plan, then such person shall
be considered to have incurred a “Disability” if and when the Administrator
determines in its discretion that such person has become incapacitated for a
period of at least 180 days by accident, sickness, or other circumstance which
renders such person mentally or physically incapable of performing the material
duties and services required of him or her in his or her employment on a
full-time basis during such period.
(k) “employee” means any person
(which may include a Director) in an employment relationship with the Company or
any parent corporation (as defined in section 424 of the Code) or any
subsidiary.
(l) “Exchange Act” means the
Securities Exchange Act of 1934, as amended.
(m) “Grant Document” means the
document or documents, which may be in electronic format, evidencing an Award
under the Plan, which may be either an agreement between the Company and the
Holder as to the Award (with any amendments thereto) or a notice of grant of the
Award from the Company to the Holder (including any attached statement of the
terms and conditions of the Award and any modifications thereto made in
accordance with the Plan). References in the Plan to terms to be included in a
Grant Document may alternatively be included in a program adopted by the
Committee pursuant to the Plan to implement the Plan provisions.
(n) “Holder” means an employee or a
Director who has been granted an Award.
(o) “Incentive Award” means an Award granted
under Section 10 of the Plan.
(p) “Incentive Stock Option” means
an incentive stock option within the meaning of section 422 of the
Code.
(q) “Market Value per Share”
means, as of any specified date, the closing sale price of the Common Stock on
that date (or, if there are no sales on that date, the last preceding date on
which there was a sale) in the principal securities market in which the Common
Stock is then traded. If the Common Stock is not publicly traded at the time a
determination of “Market Value per Share” is required to be made hereunder, the
determination of such amount shall be made by the Administrator in such manner
as it deems appropriate and is consistent with the requirements of section 409A
of the Code.
(r) “Non-Qualified Option” means an
Option that is not an Incentive Stock Option.
(s) “Option” means an Award
granted under Section 7 of the Plan and includes both Non-Qualified Options and
Incentive Stock Options to purchase Common Stock.
(t) “Other Stock Award” means an
Award granted under Section 11 of the Plan.
(u) “Performance Award” means
an Award granted under Section 9 of the Plan.
(v) “Performance Measure” means a
performance measure established by the Administrator that may be absolute,
relative to one or more other companies, relative to one or more indexes, or
measured by reference to the Company alone or the Company together with one or
more of its subsidiaries. In addition, a Performance Measure may be
subject to adjustment by the Administrator for changes in accounting principles,
to satisfy regulatory requirements, and other specified significant
extraordinary items or events. A Performance Measure may be based
upon any of the following:
|
(i)
|
the
price of a share of Common Stock,
|
|
|
(ii)
|
the
Company’s earnings per share,
|
|
|
(iii)
|
the
Company’s market share or the market share of a business unit of the
Company designated by the
Administrator,
|
|
|
(iv)
|
the
Company’s sales or the sales of a business unit of the Company designated
by the Administrator,
|
|
|
(v)
|
operating
income or operating income margin of the Company or a business unit of the
Company,
|
|
|
(vi)
|
any
operational or financial performance measure or metric with respect to the
Company or any business unit or operational level within the
Company,
|
|
|
(vii)
|
earnings
or earnings margin before or after interest, taxes, depreciation,
amortization and/or aircraft rent of the Company or any business unit of
the Company designated by the
Administrator,
|
|
|
(viii)
|
net
income or net income margin (before or after taxes) of the Company or any
business unit of the Company designated by the
Administrator,
|
|
|
(ix)
|
return
on capital, assets, or stockholders’ equity achieved by the
Company,
|
|
(x)
|
cash
flow or return on investment of the Company or any business unit of the
Company designated by the
Administrator,
|
|
(xi)
|
maintenance
or achievement of a specified level of cash, cash equivalents and
short-term investments (determined with or without regard to restricted
cash, cash equivalents and short-term
investments),
|
|
|
(xii)
|
total
stockholders’ return, or
|
|
|
(xiii)
|
a
combination of any of the foregoing, including any average, weighted
average, minimum, hurdle, rate of increase or other measure of any or any
combination thereof.
|
(w) “Personal Representative” means the person who
upon the death, Disability, or incompetency of a Holder shall have acquired, by
will or by the laws of descent and distribution or by other legal proceedings,
the right to exercise an Option or SAR or the right to any Restricted Stock
Award, Performance Award, Incentive Award, or Other Stock Award theretofore
granted or made to such Holder.
(x) “Plan” means the Continental
Airlines, Inc. Incentive Plan 2010, as amended from time to time.
(y) “Restricted Stock” means
shares of Common Stock granted pursuant to a Restricted Stock Award as to which
neither the substantial risk of forfeiture nor the restriction on transfer
referred to in Section 8 of the Plan has expired.
(z) “Restricted Stock Award” means
an Award of Restricted Stock granted under Section 8 of the Plan.
(aa) “Rule 16b-3” means Rule 16b-3
promulgated under the Exchange Act, as such rule may be amended from time to
time, and any successor rule, regulation or statute fulfilling the same or
similar function.
(bb) “SAR” means a stock
appreciation right granted under Section 7 of the Plan, and may be granted
in connection with
an Option or independent of an Option.
(cc) “subsidiary” means any entity
(other than the Company) with respect to which the Company, directly or
indirectly through one or more other entities, owns equity interests possessing
50 percent or more of the total combined voting power of all equity interests of
such entity (excluding voting power that arises only upon the occurrence of one
or more specified events).
3.
EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan became effective on the date
of its adoption by the Board (December 1, 2009), subject to approval by the
stockholders of the Company at the Company’s 2010 annual meeting of
stockholders. Notwithstanding any provision of the Plan or in any
Grant Document, no Option or SAR shall be exercisable, no Restricted Stock Award
or Other Stock Award shall be granted, and no Award shall vest or be payable in
cash or settled in Common Stock prior to such stockholder approval. No further
Awards may be granted under the Plan after 10 years from the date of the
adoption of the Plan by the Board. The Plan shall remain in effect
(for the purpose of governing outstanding Awards) until all Options and SARs
granted under the Plan have been exercised or expired, all restrictions imposed
upon Restricted Stock Awards granted under the Plan have been eliminated or the
Restricted Stock Awards have been forfeited, and all Performance Awards,
Incentive Awards and Other Stock Awards have been satisfied or have
terminated.
4.
ADMINISTRATION
(a) Administrator. The Plan shall
be administered by the Administrator, so that (i) Awards made to, and the
administration (or interpretation of any provision) of the Plan as it relates
to, any person who is subject to section 16 of the Exchange Act, shall be made
or effected by the Committee, and (ii) Awards made to, and the administration
(or interpretation of any provision) of the Plan as it relates to, any person
who is not subject to section 16 of the Exchange Act, shall be made or effected
by the Chief Executive Officer of the Company (or, if the Chief Executive
Officer is not a Director, the Committee), unless the Plan specifies that the
Committee shall take specific action (in which case such action may only be
taken by the Committee) or the Committee (as to any Award described in this
clause (ii) or the administration or interpretation of any specific provision of
the Plan) specifies that it shall serve as
Administrator. Notwithstanding the foregoing, the Committee may from
time to time in its discretion put any conditions and restrictions on the powers
that may be exercised by the Chief Executive Officer of the Company in his or
her capacity as Administrator.
(b) Powers. Subject to the express
provisions of the Plan, the Administrator shall have authority, in its
discretion, to determine which employees or Directors shall receive an Award,
the time or times when such Award shall be granted, the type of Award that shall
be granted, the number of shares to be subject to each Option, Restricted Stock
Award, Other Stock Award, or SAR, and the number of shares to be subject to or
the value of each Performance Award or Incentive Award. In making such
determinations, the Administrator shall take into account the nature of the
services rendered by the respective employees or Directors, their present and
potential contribution to the Company’s success, and such other factors as the
Administrator in its sole discretion shall deem relevant.
(c) Additional Powers. The
Administrator shall have such additional powers as are delegated to it by the
other provisions of the Plan. Subject to the express provisions of the Plan,
this shall include the power to construe the Plan and the respective agreements
executed hereunder, to prescribe rules and regulations relating to the Plan, and
to determine the terms, restrictions, and provisions of the Grant Documents,
including such terms, restrictions, and provisions as shall be requisite in the
judgment of the Administrator to cause designated Options to qualify as
Incentive Stock Options, and to make all other determinations necessary or
advisable for administering the Plan. The Administrator may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
Grant Document relating to an Award in the manner and to the extent it shall
deem expedient to carry the Plan or any such Grant Document into effect. All
determinations and decisions of the Administrator on the matters referred to in
this Section 4 and in construing the provisions of the Plan shall be conclusive;
provided, however, that in the event of any conflict in any such determination
as between the Committee and the Chief Executive Officer of the Company, each
acting in capacity as Administrator of the Plan, the determination of the
Committee shall be conclusive.
(d) Forfeiture in Certain Circumstances
(“Clawback”). The Committee may terminate an Award if it
determines that the Holder of such Award has engaged in material misconduct.
Material misconduct includes conduct adversely affecting the Company’s
reputation, financial condition, results of operations or prospects, or which
constitutes fraud or theft of Company assets, and such other conduct as may be
set forth in a Grant Document. If such material misconduct results,
directly or indirectly, in any error in financial information used in the
determination of compensation paid to the Award Holder and the effect of such
error is to increase the payment amount pursuant to an Award, the Committee also
may require the Holder to reimburse the Company for all or a portion of the
compensation provided to such Holder in connection with any such
Award. In addition, if there is a material restatement of Company’s
financial statements that affects the financial information used in the
determination of compensation paid to the Award Holder, then the Committee may
take such action, in its sole discretion, as it deems necessary to adjust such
compensation.
5.
SHARES SUBJECT TO THE PLAN, AWARD LIMITS,
AND
GRANT OF AWARDS
(a) Shares Subject to the Plan and Award
Limits. Subject to adjustment in the same manner as provided in Section
12 with respect to shares of Common Stock subject to Options then outstanding,
the aggregate maximum number of shares of Common Stock that may be issued under
the Plan, and the aggregate maximum number of shares of Common Stock that may be
issued under the Plan through Incentive Stock Options, shall not exceed
3,750,000 shares. To the extent that an Award lapses, the Holder’s rights to an
Award terminate, shares issued under an Award are forfeited, or an Award is paid
in cash such that all or some of the shares of Common Stock covered by the Award
are not issued to the Holder pursuant to the Award, then any such forfeited or
unissued shares of Common Stock then subject to such Award shall not be deemed
to have been issued under the Plan (including for purposes of the limitations
set forth in subparagraphs (i) thru (v) and (d)(v) below) and shall be added
back to the number of shares available for issuance under the Plan (provided the
grant of such Award resulted in a reduction in such number) and shall be
available for the grant of an Award under the Plan. Notwithstanding the
foregoing, the following shares of Common Stock may not again be made available
for issuance pursuant to an Award under the Plan: (A) shares of Common Stock not
issued or delivered as a result of the net settlement of an outstanding Award,
or (B) shares of Common Stock used to pay the exercise price or withholding
taxes related to an outstanding Award. Further, if any shares of Common Stock
are purchased by the Company on the open market with the proceeds of an Option
exercise, such purchase shall not result in any increase in the number of shares
available for issuance under the Plan. Notwithstanding any provision in the Plan
to the contrary,
|
|
(i)
|
the
aggregate maximum number of shares of Common Stock that may be subject
to
|
|
|
(A)
|
Options,
SARs, Restricted Stock Awards, and Other Stock Awards,
and
|
|
|
(B)
|
Incentive
Awards and Performance Awards that must be settled
in shares of Common Stock
|
granted
to any one individual during the term of the Plan may not exceed 50% of the
aggregate maximum number of shares of Common Stock that may be issued under the
Plan (as adjusted from time to time in accordance with the provisions of the
Plan); and provided that any Performance Awards that must be settled in shares
of Common Stock shall be measured for purposes of this limitation based on the
maximum award level at the date of grant unless and until the settlement of such
Performance Awards, at which point the settlement amount shall be taken into
account instead of the maximum amount underlying such Performance Award at
grant, and
|
|
(ii)
|
the
aggregate maximum number of shares of Common Stock that may be subject
to
|
|
|
(A)
|
Options,
SARs, Restricted Stock Awards, and Other Stock Awards,
and
|
|
|
(B)
|
Incentive
Awards and Performance Awards that must be settled
in shares of Common Stock
|
granted
to non-employee Directors during the term of the Plan may not exceed 500,000
shares (subject to adjustment in the same manner as provided in Section 12 with
respect to shares of Common Stock subject to Options then outstanding); and
provided that any Performance Awards that must be settled in shares of Common
Stock shall be measured for purposes of this limitation based on the maximum
award level at the date of grant unless and until the settlement of such
Performance Awards, at which point the settlement amount shall be taken into
account instead of the maximum amount underlying such Performance Award at
grant, and
|
|
(iii)
|
the
aggregate maximum number of shares of Common Stock that may be issued as
Restricted Stock Awards or Other Stock Awards or in settlement of
Incentive Awards or Performance Awards during the term of the Plan may not
exceed 1,000,000 shares (subject to adjustment in the same manner as
provided in Section 12 with respect to shares of Common Stock subject to
Options then outstanding and provided that shares issued under such Awards
that are forfeited back to the Company shall again be available for
issuance within such limit),
|
|
|
(iv)
|
the
maximum amount of compensation that may be paid under all Performance
Awards that may be settled
in cash (including the fair market value (determined based upon Market
Value per Share) of any shares of Common Stock paid in satisfaction of
such Performance Awards) granted to any one individual during any calendar
year may not exceed $20 million, and any payment due with respect to a
Performance Award shall be paid no later than 10 years after the date of
grant of such Performance Award,
and
|
|
|
(v)
|
the
aggregate maximum number of shares of Common Stock that may be subject
to
|
|
|
(A)
|
Options,
SARs, Restricted Stock Awards, and Other Stock Awards,
and
|
|
|
(B)
|
Incentive
Awards and Performance Awards that must be settled
in shares of Common Stock
|
granted
during the term of the Plan and that do not contain the minimum exercisability
or vesting requirements as set forth in paragraphs (d) below may not exceed 5%
of the aggregate maximum number of shares of Common Stock that may be issued
under the Plan (subject to adjustment in the same manner as provided in Section
12).
The
limitations set forth in clauses (i) and (iv) of the preceding sentence shall be
applied in a manner that will permit Awards that are intended to provide
“performance-based” compensation for purposes of section 162(m) of the Code to
satisfy the requirements of such section, including, without limitation,
counting against such maximum number of shares, to the extent required under
section 162(m) of the Code and applicable interpretive authority thereunder, any
shares subject to Options or SARs granted to employees that are canceled or
repriced.
(b) Grant of Awards. The
Administrator may from time to time grant Awards to one or more employees or
Directors determined by it to be eligible for participation in the Plan in
accordance with the terms of the Plan.
(c) Stock Offered. Subject to the
limitations set forth in Section 5(a) above, the stock to be offered pursuant to
an Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company. Any of such shares that
remain unissued and that are not subject to outstanding Awards at the
termination of the Plan shall cease to be subject to the Plan but, until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. The shares of
Common Stock to be issued pursuant to any Award may be represented by physical
stock certificates or may be uncertificated. Notwithstanding references in the
Plan to certificates, the Company may deliver uncertificated shares of Common
Stock in connection with any Award. No fractional shares of Common Stock shall
be delivered, nor shall any cash in lieu of fractional shares be
paid.
(d) Minimum Exercisability or Vesting
Requirements.
|
(i)
|
Time Vested
Awards. Awards granted to employees that have a
condition to exercise or vesting related solely to the continued
employment of the employee may not be exercisable in full, and any
applicable vesting conditions shall not be released, in less than three
years from the date of grant (but pro rata exercisability and release of
any applicable vesting conditions may be permitted over such time);
provided that if an Award is granted with conditions that relate to both
time and Performance Measures, the Award may vest upon the earlier
satisfaction of the Performance Measures, subject to subparagraph (ii)
below.
|
|
(ii)
|
Performance Based
Awards. Awards granted to employees that have a
condition to exercise or vesting based on the achievement of Performance
Measures shall have a minimum waiting period for exercise or vesting of
one year from the date of grant.
|
|
(iii)
|
Awards to non-employee
Directors. Awards granted to non-employee Directors
pursuant to the Company’s non-employee Director compensation program,
which may be amended from time to time, need not be subject to the
requirements set forth in subparagraphs (i) and (ii) above and may vest in
full on the date of grant. However, discretionary Awards to
non-employee Directors shall be subject to the requirements set forth in
subparagraphs (i) and (ii) above.
|
|
(iv)
|
Permitted
Exceptions. The exercisability and vesting requirements
set forth in subparagraphs (i), (ii), and (iii) above shall not be
applicable to (A) grants to new hires in lieu of cash compensation to
replace forfeited awards from a prior employer, including Awards described
in Section 7(h), (B) acceleration of exercisability or vesting upon the
death, Disability or retirement of the Holder and upon certain other
terminations of employment as provided pursuant to the terms of any
employment agreement with a Holder entered into with the Company prior to
the Effective Date of the Plan, (C) acceleration of exercisability or
vesting upon a Change in Control or Corporate Change, and (D) grants of
Awards made in payment of other earned cash-based incentive
compensation.
|
|
(v)
|
Administrator
Discretion. The Administrator shall have the discretion
to grant an Award that does not contain the minimum exercisability and
vesting requirements as set forth in this paragraph (d) subject to the
limitation set forth in paragraph (a)(v)
above.
|
6.
ELIGIBILITY
Awards may be granted only to persons
who, at the time of grant, are employees or Directors. An Award may be granted
on more than one occasion to the same person and, subject to the limitations set
forth in the Plan, Awards may include an Incentive Stock Option, a Non-Qualified
Option, an SAR, a Restricted Stock Award, a Performance Award, an Incentive
Award, an Other Stock Award, or any combination thereof.
7.
OPTIONS AND SARS
(a) Option Period. The term of
each Option shall be as specified by the Administrator at the date of grant, but
in no event shall an Option be exercisable after the expiration of 10 years from
the date of grant.
(b) Exercise of Option. Subject to
Section 5(d), an Option shall be exercisable in whole or in such installments
and at such times as determined by the Administrator.
(c) Special Limitations on Incentive
Stock Options. An Incentive Stock Option may be granted only to an
individual who is employed by the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company at the time
the Option is granted. To the extent that the aggregate fair market value
(determined at the time the respective Incentive Stock Option is granted) of
stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year under all incentive stock
option plans of the Company and its parent and subsidiary corporations exceeds
$100,000, such Incentive Stock Options shall be treated as Non-Qualified
Options. The Administrator shall determine, in accordance with applicable
provisions of the Code, Treasury regulations and other administrative
pronouncements, which of a Holder’s Incentive Stock Options will not constitute
Incentive Stock Options because of such limitation and shall notify the Holder
of such determination as soon as practicable after such determination. No
Incentive Stock Option shall be granted to an individual if, at the time the
Option is granted, such individual owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of its
parent or subsidiary corporation, within the meaning of section 422(b)(6) of the
Code, unless (i) at the time such Option is granted the option price is at least
110% of the Market Value per Share of the Common Stock subject to the Option and
(ii) such Option by its terms is not exercisable after the expiration of five
years from the date of grant. Except as otherwise provided in section 421 or 422
of the Code, an Incentive Stock Option shall not be transferable otherwise than
by will or the laws of descent and distribution, and shall be exercisable during
the Holder’s lifetime only by such Holder or the Holder’s guardian or Personal
Representative.
(d) Option Grant Document. Each
Option shall be evidenced by a Grant Document in such form and containing such
provisions not inconsistent with the provisions of the Plan as the Administrator
from time to time shall approve, including, without limitation, provisions to
qualify an Option as an Incentive Stock Option under section 422 of the Code.
Each Option Grant Document shall specify the effect of termination of employment
or membership on the Board, as applicable, on the exercisability of the Option.
The terms and conditions of the respective Option Grant Documents need not be
identical.
(e) Option Price and Payment. The
price at which a share of Common Stock may be purchased upon exercise of an
Option shall be set forth in the Option Grant Document and shall be determined
by the Administrator but, subject to adjustment as provided in Section 12, such
purchase price shall not be less than the Market Value per Share of a share of
Common Stock on the date such Option is granted. The Option or portion thereof
may be exercised by delivery of an irrevocable notice of exercise, which may be
in electronic format, to the Company or to a third party administrator
designated by the Company. To the extent permitted by the Administrator, the
Holder of an Option may pay the Option purchase price, in whole or in part, by
delivery of a number of shares of Common Stock (plus cash if necessary) having a
fair market value (determined based upon the Market Value per Share) equal to
the Option purchase price of the portion of the Option being exercised. To the
extent permitted by the Administrator and applicable law, the Holder also may
exercise the Option through a “cashless exercise” of the Option pursuant to
procedures satisfactory to the Administrator with respect thereto. Separate
stock certificates shall be issued by the Company for those shares acquired
pursuant to the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of any Non-Qualified Option.
(f) Stockholder Rights and Privileges.
The Holder of an Option or an SAR shall be entitled to all the rights and
privileges of a stockholder only with respect to such shares of Common Stock as
have been acquired under the Option or the SAR and for which certificates
representing such Common Stock have been registered in the Holder’s
name.
(g) SARs. A SAR provides the
Holder with a right to acquire, upon exercise of the right, Common Stock and/or,
in the sole discretion of the Administrator, cash having an aggregate value
equal to the then excess of the Market Value per Share of the shares with
respect to which the right is exercised over the exercise price therefor. The
Administrator shall retain final authority to determine whether a Holder shall
be permitted, and to approve any election by a Holder, to receive cash in full
or partial settlement of a SAR. The Administrator (concurrently with the grant
of an Option or subsequent to such grant) may, in its sole discretion, grant
SARs to any Holder of an Option. In the case of any SAR that is granted in
connection with an Incentive Stock Option, such SAR shall be exercisable only
when the Market Value per Share of the Common Stock exceeds the price specified
therefor in the Option or portion thereof to be surrendered. In the case of any
SAR that is granted in connection with an Option, the exercise of the SAR shall
result in the surrender of the right to purchase a number of shares under the
Option equal to the number of shares with respect to which the SAR is exercised
(and vice versa). In addition, a SAR may be granted independently of an Option
pursuant to a Grant Document in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Administrator from time to
time shall approve; provided however that (i) the exercise price per share of
Common Stock subject to the SAR shall be determined by the Administrator but,
subject to adjustment as provided in Section 12, such exercise price shall not
be less than the Market Value per Share of a share of Common Stock on the date
such SAR is granted, (ii) the term of the SAR shall be as specified by the
Administrator at the date of grant, but in no event shall an SAR be exercisable
after the expiration of 10 years from the date of grant, and (iii) subject to
Section 5(d), the SAR shall be exercisable in whole or in such installments and
at such times as determined by the Administrator. Additional terms and
conditions governing any SAR may from time to time be prescribed by the
Administrator in its sole discretion.
(h) Options and SARs in Substitution for
Stock Options Granted by Other Entities. Options and SARs may be granted
under the Plan from time to time in substitution for stock options and such
rights held by individuals providing service to corporations or other entities
who become employees or Directors as a result of a merger or consolidation or
other business combination of the employing corporation with the Company or any
subsidiary.
(i) Repricing. Without the
affirmative vote of holders of a majority of the shares of Common Stock cast in
person or by proxy at a meeting of the stockholders of the Company at which a
quorum representing a majority of all outstanding shares is present or
represented by proxy, except for adjustments authorized under Section 12,
neither the Board nor the Administrator shall approve either (i) the
cancellation of outstanding Options or SARs and the grant in substitution
therefore of any new Awards under the Plan having a lower option or exercise
price than that of the cancelled Options or SARs specified on the original date
of grant, or (ii) the amendment of outstanding Options or SARs to reduce the
option or exercise price thereof below the price specified for such Award on the
original date of grant. This Section 7(i) shall not be construed to
apply to “issuing or assuming a stock option in a transaction to which section
424(a) applies,” within the meaning of section 424 of the Code.
8.
RESTRICTED STOCK AWARDS
(a) Stockholder Rights and Privileges.
Unless provided otherwise in the related Grant Document, each grant of
Restricted Stock pursuant to a Restricted Stock Award will constitute an
immediate transfer to the Holder of all stockholder rights and privileges with
respect to the shares of Common Stock subject to the Restricted Stock Award,
including record and beneficial ownership, the right to receive dividends and
all voting and other ownership rights, except that (i) the Holder shall not be
entitled to delivery of the stock certificate until the Forfeiture Restrictions
(defined in paragraph (b) below) have expired, (ii) the Company shall retain
custody of the stock until the Forfeiture Restrictions have expired, (iii) the
Holder may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of the stock underlying the Restricted Stock Award until the Forfeiture
Restrictions have expired, (iv) a breach of the terms and conditions established
by the Committee pursuant to the applicable Grant Document shall cause a
forfeiture of the Restricted Stock Award, and (v) with respect to the payment of
any dividend with respect to shares of Common Stock subject to the applicable
Grant Document directly to the Holder, each such dividend shall be paid no later
than the end of the calendar year in which the dividends are paid to
stockholders of such class of shares or, if later, the fifteenth day of the
third month following the date the dividends are paid to stockholders of such
class of shares. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions, or restrictions
relating to the Restricted Stock Award, including, but not limited to, rules
pertaining to the termination of employment or service (by retirement,
Disability, death, or otherwise) of a Holder prior to expiration of the
Forfeitures Restrictions. Such additional terms, conditions, or restrictions
shall be set forth in the Grant Document related to such Award.
(b) Substantial Risk of Forfeiture and
Restrictions on Transfer. Shares of Common Stock that are the subject of
a Restricted Stock Award shall be subject to one or more restrictions determined
by the Administrator in its sole discretion, including, without limitation, a
restriction that constitutes a “substantial risk of forfeiture” within the
meaning of section 83 of the Code and applicable interpretive authority
thereunder (the “Forfeiture Restrictions”). Each Restricted Stock
Award may have different Forfeiture Restrictions, in the discretion of the
Administrator. The Administrator may provide that the Forfeiture Restrictions
shall lapse upon (i) the attainment of one or more Performance Measures, (ii)
the Holder’s continued employment with the Company or a subsidiary or continued
service as a Director for a specified period of time, (iii) the occurrence of
any event or the satisfaction of any other condition specified by the
Administrator in its sole discretion, or (iv) a combination of any of the
foregoing. During such period or periods during which such Forfeiture
Restrictions are to continue and subject to the provisions of Section 5(d), the
transferability of the Restricted Stock subject to such restrictions will be
prohibited or restricted in a manner and to the extent prescribed by the
Administrator at the date of grant.
(c) Payment for Restricted
Stock. The Administrator shall determine the amount and form
of any payment for Common Stock received pursuant to a Restricted Stock Award
(which payment may be an amount that is less than the Market Value per Share on
the date of grant); provided, however, that in the absence of such a
determination, a Holder shall not be required to make any payment for Common
Stock received pursuant to a Restricted Stock Award, except to the extent
otherwise required by law.
(d) Restricted Stock Grant Document.
Each grant of Restricted Stock shall be evidenced by a Grant Document in
such form and containing such provisions not inconsistent with the provisions of
the Plan as the Administrator from time to time shall approve. The terms and
conditions of the respective Restricted Stock Grant Documents need not be
identical.
9.
PERFORMANCE AWARDS
(a) Performance
Period. The Administrator shall establish, with respect to and
at the time of each Performance Award, the number of shares of Common Stock
subject to, or the maximum value of, the Performance Award and a performance
period over which the performance applicable to the Performance Award shall be
measured. A Performance Award may be granted in the form of a “restricted stock
unit” or “RSU” award or such other form as determined by the Administrator from
time to time.
(b) Performance
Measures. A Performance Award shall be awarded to a Holder
contingent upon future performance of the Company or any subsidiary, division,
or department thereof during the performance period. To the extent that
compliance with section 162(m) of the Code is intended with respect to an Award,
the Committee shall establish the Performance Measures applicable to such
Performance Award within the applicable time period permitted by section 162(m)
of the Code, subject to adjustment thereto as may be determined by the
Administrator for changes in accounting principles and other specified
significant extraordinary items or events as permitted by section 162(m) of the
Code. The Administrator, in its sole discretion, may provide for an adjustable
(i) number of shares of Common Stock subject to the Performance Award or (ii)
value of the Performance Award based upon the level of achievement of
Performance Measures.
(c) Awards Criteria. In
determining the value of Performance Awards, the Administrator may take into
account a Holder’s responsibility level, performance, potential, other Awards,
and such other considerations as it deems appropriate. The
Administrator, in its sole discretion, may provide for a reduction in the number
of shares of Common Stock subject to the Performance Award or the value of a
Holder’s Performance Award during the performance period, if permitted by the
applicable Grant Document.
(d) Payment. Following
the end of the performance period for a Performance Award (or at such other time
as the applicable Grant Document may provide, subject to Section 5(d)), the
Holder of a Performance Award shall be entitled to receive payment of an amount
not exceeding the number of shares of Common Stock subject to, or the maximum
value of, the Performance Award, based on the achievement of the Performance
Measures for such performance period, as determined by the Administrator and
certified by the Committee if and as required by section 162(m) of the Code.
Payment of a Performance Award may be made in cash, Common Stock (valued at the
Market Value per Share), or a combination thereof, as determined by the
Administrator. Payment shall be made in a lump sum or in installments
as prescribed by the Committee. If a Performance Award covering shares of Common
Stock is to be paid in cash, such payment shall be based on the Market Value per
Share on the payment date or such other date, or averaged over such period, as
may be specified by the Committee in the applicable Grant Document.
(e) Termination of
Award. A Performance Award shall terminate if the Holder does
not remain continuously in the employ (or in service as a Director) of the
Company or a subsidiary at all times during the applicable performance period,
except as otherwise set forth in the applicable Grant Document or determined by
the Administrator.
(f) Performance Award Grant
Document. Each grant of a Performance Award shall be evidenced
by a Grant Document in such form and containing such provisions not inconsistent
with the provisions of the Plan as the Administrator from time to time shall
approve. The terms and conditions of the respective Performance Award
Grant Documents need not be identical.
|
|
10. INCENTIVE
AWARDS
|
(a) Incentive
Awards. Incentive Awards are rights to receive shares of
Common Stock (or the Market Value per Share thereof), or rights to receive an
amount equal to any appreciation or increase in the Market Value per Share of
Common Stock over a specified period of time, which vest over a period of time,
subject to Section 5(d), as established by the Administrator, without
satisfaction of any performance criteria or objectives. The
Administrator may, in its discretion, require payment or other conditions of the
Holder respecting any Incentive Award. An Incentive Award may be
granted in the form of a “phantom stock” award or “restricted stock unit” or
“RSU” award or such other form as determined by the Administrator from time to
time.
(b) Award Period. The
Administrator shall establish, with respect to and at the time of each Incentive
Award, a period over which the Award shall vest with respect to the
Holder.
(c) Awards Criteria. In
determining the value of Incentive Awards, the Administrator shall take into
account a Holder’s responsibility level, performance, potential, other Awards,
and such other considerations as it deems appropriate.
(d) Payment. Following
the end of the vesting period for an Incentive Award (or at such other time as
the applicable Grant Document may provide), the Holder of an Incentive Award
shall be entitled to receive payment of an amount, not exceeding the maximum
value of the Incentive Award, based on the then vested value of the
Award. Payment of an Incentive Award may be made in cash, Common
Stock (valued at the Market Value per Share), or a combination thereof as
determined by the Administrator. Payment shall be made in a lump sum,
except as otherwise set forth in the applicable Grant Document. Cash dividend
equivalents may be paid during or after the vesting period with respect to an
Incentive Award, as determined by the Administrator.
(e) Termination of
Award. An Incentive Award shall terminate if the Holder does
not remain continuously in the employ (or in service as a Director) of the
Company or a subsidiary at all times during the applicable vesting period,
except as otherwise set forth in the applicable Grant Document or determined by
the Administrator.
(f) Incentive Award Grant
Document. Each grant of an Incentive Award shall be evidenced
by a Grant Document in such form and containing such provisions not inconsistent
with the provisions of the Plan as the Administrator from time to time shall
approve. The terms and conditions of the respective Incentive Award
Grant Documents need not be identical.
11.
OTHER STOCK AWARDS
(a) Other Stock
Awards. Each Other Stock Award granted to a Holder shall
constitute a transfer of unrestricted shares of Common Stock on such terms and
conditions as the Administrator shall determine. Other Stock Awards
shall be made in shares of Common Stock and, subject to Section 5(d), need not
be subject to performance criteria or objectives or to
forfeiture. The purchase price, if any, for shares of Common Stock
issued in connection with an Other Stock Award shall be determined by the
Administrator in its sole discretion.
(b) Other Stock Award Grant
Document. Each grant of an Other Stock Award shall be
evidenced by a Grant Document in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Administrator from time to
time shall approve. The terms and conditions of the respective Other
Stock Award Grant Documents need not be identical.
12.
RECAPITALIZATION, REORGANIZATION AND OTHER CHANGES
(a) No Effect on Right or Power.
The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company or any subsidiary to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company’s or any subsidiary’s capital
structure or its business, any merger or consolidation of the Company or any
subsidiary, any issue of debt or equity securities ahead of or affecting Common
Stock or the rights thereof, the dissolution or liquidation of the Company or
any subsidiary or any sale, lease, exchange or other disposition of all or any
part of its assets or business or any other corporate act or
proceeding.
(b) Subdivision or Consolidation of
Shares; Common Stock Dividends. The shares with respect to
which Awards may be granted are shares of Common Stock as presently constituted,
but if, and whenever, prior to the expiration of an Award theretofore granted,
the Company shall effect a subdivision or consolidation of shares of Common
Stock or the payment of a Common Stock dividend on Common Stock without receipt
of full consideration by the Company, the number of shares of Common Stock with
respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding shares,
shall be proportionately increased, and, if applicable, the purchase price per
share shall be proportionately reduced, and (ii) in the event of a reduction in
the number of outstanding shares, shall be proportionately reduced, and, if
applicable, the purchase price per share shall be proportionately
increased. Any fractional share resulting from such adjustment shall
be rounded up or down to the next whole share as determined by the
Administrator. Further, the Committee shall have the authority to
make such further adjustments to Awards pursuant to this paragraph as necessary
to avoid adverse accounting effects or to satisfy regulatory
requirements.
(c) Adjustments to Options and
SARs. If the Company recapitalizes, reclassifies its capital
stock, or otherwise changes its capital structure (a “recapitalization”), the
number and class of shares of Common Stock or other property (including cash)
covered by an Option or SAR theretofore granted and, if applicable, the purchase
price of Common Stock or other property subject to such Option or SAR shall be
adjusted so that such Option or SAR shall thereafter cover the number and class
of shares of stock and other property to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
the recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Option or SAR.
If (i)
the Company shall not be the surviving entity in any merger or consolidation (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases, or
exchanges or agrees to sell, lease, or exchange all or substantially all of its
assets to any other person or entity, or (iii) the Company is dissolved and
liquidated (each such event is referred to herein as a “Corporate Change”),
then, the Committee, acting in its sole discretion without the consent or
approval of any Holder, shall effect one or more of the following alternatives
in an equitable and appropriate manner to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
which alternatives may vary among individual Holders and which may vary among
Options or SARs held by any individual Holder:
|
|
(1)
|
accelerate
the time at which Options or SARs then outstanding may be exercised so
that such Awards may be exercised in full for a limited period of time on
or before a specified date (before or after such Corporate Change) fixed
by the Committee, after which specified date all such unexercised Awards
and all rights of Holders thereunder shall
terminate,
|
|
|
(2)
|
require
the mandatory surrender to the Company by all or selected Holders of some
or all of the outstanding Options or SARs held by such Holders
(irrespective of whether such Awards are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Company shall
thereupon cancel such Awards and shall pay (or cause to be paid) to each
Holder an amount of cash per share equal to the excess, if any, of the
Corporate Change Value (as defined below) of the shares subject to such
Awards over the exercise price(s) under such Awards for such shares,
or
|
|
|
(3)
|
make
such adjustments to Options or SARs then outstanding as the Committee
deems appropriate to reflect such Corporate Change and to prevent the
dilution or enlargement of rights (provided, however, that the Committee
may determine in its sole discretion that no adjustment is necessary to
such Awards then outstanding), including, without limitation, adjusting
such an Award to provide that the number and class of shares of Common
Stock covered by such Award shall be adjusted so that such Award shall
thereafter cover securities of the surviving or acquiring corporation or
other property (including, without limitation, cash) as determined by the
Committee in its sole discretion.
|
For the
purposes of this Section 12(c), the “Corporate Change Value” shall equal the
amount determined in clause (A) or (B), whichever is applicable, as follows: (A)
the per share price offered to stockholders of the Company in any such merger,
consolidation, sale of assets or dissolution transaction, or (B) if a Corporate
Change occurs other than pursuant to an offer to stockholders, the fair market
value per share of the shares into which such Options or SARs being surrendered
are exercisable, as determined by the Committee as of the date determined by the
Committee (in accordance with section 409A of the Code to the extent applicable)
to be the date of cancellation and surrender of such Awards. In the
event that the consideration in any transaction described in this Section 12(c)
above consists of anything other than cash, the Committee shall determine the
fair cash equivalent of the portion of the consideration offered which is other
than cash.
(d) Other Changes in Common Stock and
Company Transactions. In the event of changes in the outstanding Common
Stock or corporate transactions involving the Company, including, but not
limited to, recapitalizations, reorganizations, mergers, consolidations,
combinations, split-ups, split-offs, spin-offs, stock splits, exchanges,
liquidations, issuances of rights or warrants, or other relevant changes in
capitalization or distributions (other than ordinary dividends) to the holders
of Common Stock occurring after the date of the grant of any Award, and not
otherwise provided for in this Section 12 with respect to such Award, then such
Award and the related Grant Document shall be subject to adjustment by the
Committee at its sole discretion in a timely, equitable and appropriate manner
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under such Award (including, without limitation,
adjustments as to the number and price of shares of Common Stock or other
consideration subject to such Award). In the event of any such change
in the outstanding Common Stock, corporate transaction or distribution to the
holders of Common Stock, or upon the occurrence of any other event described in
this Section 12, the aggregate maximum number of shares available under the
Plan, the aggregate maximum number of shares that may be issued under the Plan
through Incentive Stock Options, the kind of shares that may be delivered under
the Plan and the provisions of Section 5(a) imposing limits on the numbers of
shares of Common Stock covered by Awards granted or issued under the Plan shall
be adjusted appropriately by the Committee. Adjustments to Awards
pursuant to this paragraph may include, but shall not be limited to, (i)
adjustments to the number and kind of shares subject to outstanding Awards, (ii)
adjustments of the purchase price or exercise price, if applicable, of
outstanding Awards, (iii) replacement of Awards with other Awards that the
Committee determines have comparable value and which are based on stock of a
company resulting from the transaction, and (iv) cancellation of an Award in
return for a payment of cash, property or a combination thereof having an
aggregate value equal to the current value of the Award (as determined by the
Committee). Notwithstanding the foregoing, (x) adjustments pursuant to this
Section 12 shall be subject to any required stockholder action and (y) to the
extent required by section 409A of the Code, no adjustment shall be made in a
manner that would give rise to an impermissible acceleration of the time or form
of a payment of a benefit under the Plan pursuant to section 409A(a)(3) of the
Code and any regulations or guidance issued thereunder.
(e) Change in Control. As used in
the Plan (except as otherwise provided in an applicable Grant Document), the
term “Change in Control” shall mean:
(aa) any
person (within the meaning of Section 13(d) or 14(d) under the Exchange Act,
including any group (within the meaning of Section 13(d)(3) under the Exchange
Act), a “Person”) is or
becomes the “beneficial owner” (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company (such Person being referred to as an
“Acquiring
Person”) representing 25% or more of the combined voting power of the
Company’s outstanding securities; other
than beneficial ownership by (i) the Company or any subsidiary of the
Company, or (ii) any employee benefit plan of the Company or any Person
organized, appointed or established pursuant to the terms of any such employee
benefit plan (unless such plan or Person is a party to or is utilized in
connection with a transaction led by Outside Persons (as defined below)), or
(iii) a Person who files a Schedule 13G with the Securities and Exchange
Commission pursuant to the requirements of Rule 13d-1 under the Exchange Act,
with respect to its holdings of the Company’s voting securities (“Schedule 13G”), if
and for so long as such Person is and remains eligible to file a Schedule 13G
with respect to its holdings of the Company’s voting
securities. (Persons referred to in clauses (i) through (iii) hereof
are hereinafter referred to as “Excluded Persons”);
or
(bb)
individuals who constituted the Board as of December 1, 2009 (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board, provided
that any individual becoming a director on or after December 1, 2009 whose
appointment to fill a vacancy or to fill a new Board position or whose
nomination for election by the Company’s stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board;
or
(cc) the
Company merges with or consolidates into or engages in a reorganization or
similar transaction with another entity pursuant to a transaction in which the
Company is not the “Controlling Corporation” (as defined below); or
(dd) the
Company sells or otherwise disposes of all or substantially all of its assets,
other than to Excluded Persons.
For
purposes of clause (aa) above, the term “Outside Persons”
means any Persons other than (I) Persons described in clauses (aa)(i) or (iii)
above (as to Persons described in clause (aa)(iii) above, while they are
Excluded Persons) and (II) members of senior management of the Company in office
immediately prior to the time the Acquiring Person acquires the beneficial
ownership described in clause (aa).
For
purposes of clause (cc) above, the Company shall be considered to be the “Controlling
Corporation” in any merger, consolidation, reorganization or similar
transaction unless either (1) the stockholders of the Company immediately prior
to the consummation of the transaction (the “Old Stockholders”)
would not, immediately after such consummation, beneficially own, directly or
indirectly, securities of the resulting or acquiring entity entitled to elect a
majority of the members of the Board of Directors or other governing body of the
resulting entity or (2) those persons who were Directors of the Company
immediately prior to the consummation of the proposed transaction would not,
immediately after such consummation, constitute a majority of the directors of
the resulting entity, provided that (I) there shall be excluded from the
determination of the voting power of the Old Stockholders securities in the
resulting entity beneficially owned, directly or indirectly, by the other party
to the transaction and any such securities beneficially owned, directly or
indirectly, by any Person acting in concert with the other party to the
transaction, (II) there shall be excluded from the determination of the voting
power of the Old Stockholders securities in the resulting entity acquired in any
such transaction other than as a result of the beneficial ownership of Company
securities prior to the transaction and (III) persons who are directors of the
resulting entity shall be deemed not to have been Directors of the Company
immediately prior to the consummation of the transaction if they were elected as
Directors of the Company within 90 days prior to the consummation of the
transaction.
13.
AMENDMENT AND TERMINATION
(a) The Plan. Subject
to the last sentence of Section 3 hereof, the Board in its discretion may
terminate the Plan at any time with respect to any shares of Common Stock for
which Awards have not theretofore been granted. Subject to Section
13(c) hereof, the Board shall have the right to amend the Plan or any part
thereof from time to time, and the Administrator may amend any Award (and its
related Grant Document) at any time, except as otherwise specifically provided
in such Grant Document; provided that no change in any Award theretofore granted
may be made which would impair the rights of the Holder thereof without the
consent of such Holder, and provided further that the Board may not, without
approval of the stockholders of the Company, amend the Plan to (i) increase the
maximum aggregate number of shares that may be issued under the Plan, (ii)
increase the maximum aggregate number of shares that may be issued under the
Plan pursuant to Incentive Stock Options, (iii) change the class of individuals
eligible to receive Awards under the Plan, or (iv) amend or delete Section
7(i). Notwithstanding the foregoing, prior to the date of stockholder
approval of the Plan at the Company’s 2010 annual stockholder meeting, the Board
may authorize the Committee to amend the Plan or any part thereof, including but
not limited to the provisions referenced in clauses (i) thru (iv)
above.
(b) Grant
Documents. Subject to the consent of the Holder and the
restrictions set forth in the Plan, the Administrator may, in its sole
discretion, amend an outstanding Grant Document from time to time in any manner
that is not inconsistent with the provisions of the Plan.
(c) Stockholder Approval
Requirements. To the extent stockholder approval of an
amendment to the Plan is necessary to satisfy (i) the requirements of Rule 16b-3
or (ii) any securities exchange listing requirements of the New York Stock
Exchange or other securities exchange on which the Common Stock is then listed,
no such amendment shall be effective unless and until so approved by the
stockholders of the Company.
14.
MISCELLANEOUS
(a) No Right to an Award. Neither
the adoption of the Plan nor any action of the Board or the Administrator shall
be deemed to give an employee or Director any right to be granted an Award
except as may be evidenced by a Grant Document from the Company reflecting a
grant by the Company of an Award to such person and setting forth the terms and
conditions thereof. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the performance of its obligations
under any Award.
(b) No Employment or Membership Rights
Conferred. Nothing contained in the Plan shall (i) confer upon any
employee any right with respect to continuation of employment with the Company
or any subsidiary or (ii) interfere in any way with the right of the Company or
any subsidiary to terminate his or her employment at any time. Nothing contained
in the Plan shall confer upon any Director any right with respect to
continuation of membership on the Board. For purposes of the Plan,
except as otherwise determined by the Administrator, an employee shall be
considered to be in the employment of the Company as long as the employee
remains an employee of (1) the Company, (2) a parent corporation with respect to
the Company, (3) a subsidiary, or (4) a corporation or a parent or subsidiary of
such corporation assuming or substituting a new award for an Award granted under
the Plan. Without limiting the scope of the preceding sentence and
except as otherwise determined by the Administrator, an employee shall be
considered to have terminated employment with the Company at the time of the
termination of the “subsidiary” status under the Plan of the entity or other
organization that employs such employee. Any question as to whether
and when there has been a termination of such employment, and the cause of such
termination, shall be determined by the Administrator and its determination
shall be final.
(c) Compliance with Laws. The
grant of Awards and the issuance of Common Stock pursuant to any Award shall be
subject to compliance with all applicable requirements of federal, state, local
and foreign law with respect to such securities and the requirements of any
stock exchange upon which the Common Stock may then be listed. The Company shall
not be obligated to issue any Common Stock pursuant to any Award granted under
the Plan at any time when the shares covered by such Award have not been
registered under the Securities Act of 1933, as amended, and such other state
and federal laws, rules, and regulations as the Company or the Administrator
deems applicable or, in the opinion of legal counsel for the Company, there is
no exemption from the registration requirements of such laws, rules, and
regulations available for the issuance and sale of such shares. The
Administrator shall have the right to suspend the right of any Holder to
exercise an Option during any period in which the Administrator deems such
suspension to be necessary or appropriate to comply with applicable laws, rules,
and regulations.
(d) Withholding. The Company shall
have the right to (i) make deductions from any settlement or exercise of an
Award made under the Plan, including the delivery of shares, or require shares
or cash or both be withheld from any Award, in each case in an amount sufficient
to satisfy withholding of any taxes required by law, or (ii) take such other
action as may be necessary or appropriate to satisfy any such tax withholding
obligations. The Administrator may determine the manner in which such tax
withholding may be satisfied, and may permit shares of Common Stock (together
with cash, as appropriate) to be used to satisfy required tax withholding based
on the Market Value per Share of any such shares of Common Stock.
(e) No Restriction on Corporate Action.
Subject to the restrictions contained in Section 13, nothing contained in
the Plan shall be construed to prevent the Company or any subsidiary from taking
any corporate action, whether or not such action would have an adverse effect on
the Plan or any Award granted hereunder. No employee, Director, beneficiary or
other person shall have any claim against the Company or any subsidiary as a
result of any such action.
(f) Restrictions on Transfer. An
Award (other than an Incentive Stock Option, which shall be subject to the
transfer restrictions set forth in Section 7(c)) shall not be transferable
otherwise than (i) by will or the laws of descent and distribution, (ii)
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder, or (iii) with the consent of the Administrator. In the
discretion of the Administrator, a percentage (determined by the Administrator
and set forth in the applicable Grant Document) of the aggregate shares of
Common Stock obtained from exercises of an Option (which percentage may be
satisfied out of particular exercises as determined by the Administrator and set
forth in the applicable Grant Document) shall not be transferable prior to the
earliest to occur of (x) the termination of the relevant Option term (or such
shorter period as may be determined by the Administrator and set forth in the
Grant Document), (y) the Holder’s retirement, death or Disability, or (z)
termination of the Holder’s employment with the Company and its
subsidiaries.
(g) Governing
Law. The Plan shall be construed in accordance with the laws of the State of
Texas, without regard to conflicts of laws principles thereof.
Exhibit 10.12(a)
Non-Employee
Director
Option
Grant Document
Pursuant
to the
Continental
Airlines, Inc. Incentive Plan 2010 (the “Plan”)
If
the Holder accepts this Option, the Holder agrees to be bound by all of the
terms, provisions, conditions and limitations of the Plan and this Option Grant
Document.
In
addition to any electronic confirmation and/or acceptance procedures established
for this Option Grant Document, any exercise of this Option shall evidence
Holder’s acceptance of the terms, provisions, conditions and limitations of the
Plan and this Option Grant Document.
The
Plan is hereby incorporated by reference into this Option Grant Document.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Plan.
1. Grant of
Option. The Holder has
been granted an Option pursuant to the terms of this Option Grant Document (and
under and subject to the terms of the Plan) to purchase shares of Common Stock
of the Company. The number of shares of Common Stock (“Shares”)
subject to this Option Grant Document and the date of grant (“Grant Date”) are
as set forth in the records of the Company and as communicated to the Holder by
the Company directly or through the systems (which may include online systems)
of a third party administrator engaged by the Company for such purpose and
available for review by Holder in connection with this Option Grant
Document. In the event of any conflict between any communications to
the Holder by the Company, the records of any third party administrator, and the
records of the Company (including the approval by the Administrator of the
Company’s stock option grant policy for non-employee Directors), the records of
the Company shall control. The Shares, when issued to the Holder upon
the exercise of the Option, shall be fully paid and nonassessable. The Option is
not intended to qualify as an Incentive Stock Option. [Notwithstanding
the foregoing or any other provision of this Option Grant Document, this Option
is subject to approval of the Plan by the stockholders of the Company and shall
terminate if the Plan is not approved by the stockholders of the Company at the
Company’s 2010 annual meeting of stockholders.]
2. Option
Term. Subject
to earlier termination as provided herein, the Option shall terminate on the
tenth anniversary of the Grant Date. The period during which the
Option is in effect is referred to as the “Option Period.”
3. Option
Price. The
grant price or exercise price (the “Option Price”) of the Shares subject to the
Option shall be equal to the Market Value per Share on the Grant
Date.
4. Vesting. [for
options awarded prior to stockholder approval: The total number of Shares
subject to this Option shall vest immediately upon the later of (i) the Grant
Date and (ii) the date that the Plan is approved by the stockholders of the
Company.] [for
options awarded after stockholder approval: The total number of
Shares subject to this Option shall vest immediately upon the Grant
Date.] The vested Shares that may be acquired under the Option may be
purchased at any time after they become vested, in whole or in part, during the
Option Period.
5. Method of
Exercise and Payment. The
Option or a portion thereof may be exercised by delivery of an irrevocable
notice to the Company (or, if applicable, to a third party administrator engaged
by the Company to perform services for the Company with respect to the Plan)
stating the number of Shares with respect to which the Option is being exercised
together with payment for such Shares. Payment shall be made (i) in
cash or by check acceptable to the Company, (ii) in nonforfeitable, unrestricted
shares of the Company’s Common Stock owned by Holder at the time of exercise of
the Option having an aggregate market value (measured by the Market Value per
Share) at the date of exercise equal to the aggregate exercise price of the
Option being exercised or (iii) by a combination of (i) and (ii). In
addition, at the request of Holder, and to the extent permitted by applicable
law and subject to Paragraph 13, the Option may be exercised pursuant to a
“cashless exercise” arrangement with any brokerage firm approved by the
Administrator or its delegate under which arrangement such brokerage firm, on
behalf of Holder, shall pay to the Company the exercise price of the Options
being exercised, and the Company, pursuant to an irrevocable notice from Holder,
shall promptly after receipt of the exercise price deliver the shares being
purchased to such firm. Holder acknowledges and agrees that the
Company may provide personal information about Holder and information concerning
the Option or any other Award under the Plan to any third party engaged by the
Company to provide administrative or brokerage services relating to the
Plan.
6. Termination
of Board Service. The
Option shall terminate on, and may not be exercised after the earlier of (i) the
date that is one year after termination of Holder’s service on the Board for any
reason and (ii) the expiration of the Option Period.
7. No Rights
in Shares. Holder
shall have no rights as a stockholder in respect of Shares until such Holder
becomes the holder of record of such Shares.
8. Certain
Restrictions. By
exercising the Option, Holder agrees that if at the time of such exercise the
sale of Shares issued hereunder is not covered by an effective registration
statement filed under the Securities Act of 1933 (“Act”), Holder will acquire
the Shares for Holder’s own account and without a view to resale or distribution
in violation of the Act or any other securities law, and upon any such
acquisition Holder will enter into such written representations, warranties and
agreements as Company may reasonably request in order to comply with the Act or
any other securities law or with this Option Grant Document.
9. Shares
Reserved. Company
shall at all times during the Option Period reserve and keep available such
number of Shares as will be sufficient to satisfy the requirements of this
Option.
10. Nontransferability
of Option. The
Option granted pursuant to this Option Grant Document is not transferable other
than by will, the laws of descent and distribution or by qualified domestic
relations order. The Option will be exercisable during Holder’s
lifetime only by Holder or by Holder’s guardian or Personal
Representative. No right or benefit hereunder shall in any manner be
liable for or subject to any debts, contracts, liabilities, or torts of
Holder.
11. Amendment
and Termination; Electronic Procedures. No
amendment or termination of the Option shall be made by the Board or the
Administrator at any time without the written consent of Holder. No
amendment or termination of the Plan will adversely affect the rights,
privileges and option of Holder under the Option without the written consent of
Holder. Holder hereby consents and agrees to electronic delivery of
any Plan documents, proxy materials, annual reports and other related documents.
Holder consents to electronic delivery, review, confirmation and acceptance
procedures with respect to this Option Grant Document and the
Option. Holder agrees that his or her electronic signature is the
same as, and shall have the same force and effect as, his or her manual
signature. Holder consents and agrees that any such electronic
procedures may be effected by a third party engaged by the Company to provide
administrative services related to the Plan, including any program adopted under
the Plan.
12. No
Guarantee of Board Service. The
Option shall not confer upon Holder any right with respect to continuance of
service on the Board, nor shall it interfere in any way with any right to
terminate Holder’s Board service at any time.
13. Withholding
of Taxes. Company shall have the right to (i) make deductions
from any settlement or exercise of an Option granted under the Plan, including
the delivery of shares, or require shares or cash or both be withheld from any
Option, in each case in an amount sufficient to satisfy withholding of any taxes
required by law, or (ii) take any other action as may be necessary or
appropriate to satisfy any such tax withholding obligations.
14. No
Guarantee of Tax Consequences. Neither the Company nor any
subsidiary nor the Administrator makes any commitment or guarantee that any
federal, state, local or foreign tax treatment will apply or be available to any
person eligible for benefits under the Option.
15. Severability. In
the event that any provision of the Option shall be held illegal, invalid, or
unenforceable for any reason, such provision shall be fully severable, but shall
not affect the remaining provisions of the Option, and the Option shall be
construed and enforced as if the illegal, invalid, or unenforceable provision
had never been included herein.
16. Governing
Law. The Plan
and the Option shall be construed in accordance with the laws of the State of
Texas, without regard to conflicts of laws principles
thereof.
Exhibit
10.13
CONTINENTAL
AIRLINES, INC.
ANNUAL
EXECUTIVE
INCENTIVE PROGRAM
1. Purpose. This
Continental Airlines, Inc. Annual Executive Incentive Program (the “Program”)
has been adopted by the Human Resources Committee of the Board of Directors of
Continental Airlines, Inc., a Delaware corporation (the “Company”), to implement
in part the Performance Award provisions of the Continental Airlines, Inc.
Incentive Plan 2010 (as amended from time to time, the “Incentive Plan 2010”),
and is intended to provide a method for attracting, motivating, and retaining
key officers of the Company and its subsidiaries and to compensate such officers
based on performance measures based upon pre-tax income of the Company and its
consolidated subsidiaries as described herein. The Program and
participation hereunder shall be subject to the terms of the Incentive Plan
2010, including the limitations on the maximum amount of compensation that may
be paid with respect to Performance Awards (as such term is defined in the
Incentive Plan 2010) as provided therein.
2. Participants. Each
of the Chief Executive Officer, the President, each Executive Vice President and
each Senior Vice President of the Company shall automatically participate in the
Program with respect to each fiscal year, and, with respect to a particular
fiscal year, such other officers of the Company or its subsidiaries shall
participate in the Program as may be recommended to the Human Resources
Committee of the Board of Directors of the Company (the “Committee”) by the
Chief Executive Officer of the Company and designated by the Committee to be a
participant in the Program with respect to such fiscal year. Each of the
foregoing persons is referred to herein as a “Participant,” and the right to
participate in the Program for a fiscal year or portion thereof constitutes a
Performance Award under the Incentive Plan 2010. The Chief Executive
Officer shall have the power to terminate any Participant’s participation in the
Program upon written notice to such Participant of such termination, subject to
ratification of such action by the Committee.
3. Definitions. Where
the following words and phrases are used in the Program, they shall have the
respective meanings set forth below, unless the context clearly indicates to the
contrary:
|
|
(a)
|
“Annual
Incentive Payment” with respect to a Participant for a fiscal year shall
be equal to the dollar amount calculated by multiplying such Participant’s
Base Salary with respect to such fiscal year by: (1) zero percent (0%), if
the Pre-tax Income with respect to such fiscal year is less than the Entry
Level Pre-tax Income with respect to such fiscal year, or (2) fifty
percent (50%) if the Pre-tax Income with respect to such fiscal year is at
least equal to the Entry Level Pre-tax Income with respect to such fiscal
year, and (if the Pre-tax Income with respect to such fiscal year exceeds
the Entry Level Pre-tax Income with respect to such fiscal year) an
additional Target Incentive Percentage (or prorated portion thereof) for
each million dollars (or portion thereof) that the Pre-tax Income with
respect to such fiscal year exceeds the Entry Level Pre-tax Income with
respect to such fiscal year, up to and including the Target Level Pre-tax
Income with respect to such fiscal year, and (if the Pre-tax Income with
respect to such fiscal year exceeds the Target Level Pre-tax Income with
respect to such fiscal year) an additional Stretch Incentive Percentage
(or prorated portion thereof) for each million dollars (or portion
thereof) that the Pre-tax Income with respect to such fiscal year exceeds
the Target Level Pre-tax Income with respect to such fiscal year, up to
and including the Stretch Level Pre-tax Income with respect to such fiscal
year.
|
|
|
(b)
|
“Base
Salary” with respect to a fiscal year means the Participant’s base annual
salary with respect to such fiscal year payable by the Company or a
consolidated subsidiary, as in effect on the last day of such fiscal year
(or as in effect on such other date as may be specified in the
Program).
|
|
|
(c)
|
“Cash
Hurdle” means, with respect to a fiscal year, that the Company’s cash,
cash equivalents and short term investments (excluding restricted cash,
cash equivalents and short term investments) at the end of such fiscal
year, as reflected on the regularly prepared and publicly available
consolidated balance sheet of the Company prepared in accordance with
applicable accounting rules, is equal to or greater than the dollar amount
established by the Committee as the Cash Hurdle with respect to such
fiscal year as provided in Section 5
hereof.
|
|
|
(d)
|
“Change
in Control” means a “Change in Control” as defined in the Incentive Plan
2010 as in effect on the date the Incentive Plan 2010 is approved by the
stockholders of the Company.
|
|
|
(e)
|
“Entry
Level Pre-tax Income” with respect to a fiscal year means the amount
established by the Committee as the Entry Level Pre-tax Income with
respect to such fiscal year pursuant to Section 5
hereof.
|
|
|
(f)
|
“Pre-tax
Income” means, with respect to each fiscal year, the consolidated income
before taxes but after minority interest (as computed using net income
(loss) before taxes) of the Company for such fiscal year as shown on the
Company’s consolidated financial statements for such fiscal year, but
calculated excluding any special, unusual or non-recurring items as
determined by the Committee in accordance with applicable accounting
rules.
|
|
|
(g)
|
“Stretch
Incentive Percentage” with respect to a fiscal year means that percentage
established by the Committee as the Stretch Incentive Percentage with
respect to such fiscal year pursuant to Section 5
hereof.
|
|
|
(h)
|
“Stretch
Level Pre-tax Income” with respect to a fiscal year means the amount
established by the Committee as the Stretch Level Pre-tax Income with
respect to such fiscal year pursuant to Section 5
hereof.
|
|
|
(i)
|
“Target
Incentive Percentage” with respect to a fiscal year means that percentage
established by the Committee as the Target Incentive Percentage with
respect to such fiscal year pursuant to Section 5
hereof.
|
|
|
(j)
|
“Target
Level Pre-tax Income” with respect to a fiscal year means the amount
established by the Committee as the Target Level Pre-tax Income with
respect to such fiscal year pursuant to Section 5
hereof.
|
4. Annual Incentive
Payments. Each Participant in the Program who has remained
continuously employed by the Company or a subsidiary during an entire fiscal
year covered by the Program shall receive, as soon as reasonably practicable
after the certification by the Committee described in Section 5 below with
respect to such fiscal year (but in no event later than the 15th day of the
third month following the end of such fiscal year), a cash payment with respect
to such fiscal year equal to the Annual Incentive Payment, if any, for such
Participant with respect to such fiscal year; provided that the Cash Hurdle for
such fiscal year has been achieved (and if such Cash Hurdle has not been
achieved, then no Annual Incentive Payment shall be payable with respect to such
fiscal year). If a person becomes a Participant after the first day
of a fiscal year, then (a) such Participant’s Annual Incentive Payment, if any,
with respect to such fiscal year shall be pro-rated based on a fraction, the
numerator of which is the number of days during the period beginning on the date
of such Participant’s commencement of participation in the Program for such
fiscal year and ending on the last day of such fiscal year, and the denominator
of which is 365, and (b) the continuous employment requirement set forth in the
first sentence of this Section 4 for the fiscal year in which such Participant
begins participation in the Program shall apply only to that portion of such
fiscal year beginning on the date of such Participant’s commencement of
participation (rather than the entire fiscal year).
5. Administration. The
Program will be administered by the Committee, which at all times will consist
of not less than two persons, each of whom is an “outside director” within the
meaning of section 162(m) of the Internal Revenue Code of 1986, as amended (the
“Code”). The action of a majority of the members of the Committee
will be the act of the Committee. The Committee shall, within 90 days
after the beginning of each fiscal year of the Company beginning on or after
January 1, 2010, establish in writing the Entry Level Pre-tax Income, the Target
Level Pre-tax Income, the Stretch Level Pre-tax Income, the Target Incentive
Percentage, the Stretch Incentive Percentage, and the Cash Hurdle for such
fiscal year for purposes of the Program, in each case subject to adjustment as
determined by the Committee in its discretion as a result of changes in
accounting principles and other significant extraordinary items or events;
provided that in respect of any Award intended to qualify as performance-based
compensation within the meaning of section 162(m) of the Code, such adjustments
may only be made if and to the extent permitted by section 162(m) of the
Code.
The
interpretation and construction by the Committee of any provision of the
Program, and any determination or action by the Committee pursuant to any
provision hereof, will be final and conclusive for all purposes, and each
Participant’s participation in the Program is expressly subject to the
foregoing. No member of the Committee shall be liable for any action
or determination taken or made in good faith or upon reliance in good faith on
the records of the Company or information presented to the Committee by the
Company’s officers, employees, or other persons (including the Company’s outside
auditors) as to matters such member reasonably believes are within such other
person’s professional or expert competence. If a Participant
disagrees with any decision, determination, or action made or taken by the
Committee, then the dispute will be limited to whether the Committee has
satisfied its duty to make such decision or determination or take such action in
good faith.
As soon
as is reasonably practical after the end of each fiscal year during which the
Program is effective (but in no event later than the time which will permit the
Company to pay any required Annual Incentive Payment for such fiscal year within
the time period prescribed in Section 4 above), the Committee shall certify in
writing (including by electronic mail transmission), prior to the payment of any
Annual Incentive Payment with respect to such fiscal year, whether the
performance goals set forth herein have been met and whether any other material
terms relating to the payment of such Annual Incentive Payment have been
satisfied, to the extent required by section 162(m) of the Code. For
purposes of the preceding sentence, approved minutes of the Committee meeting in
which the certification is made shall be treated as a written
certification.
6. Payments upon a Change in
Control. If a Change in Control occurs and on the date thereof
or thereafter during the year in which such Change in Control occurs (a “Change
Year”), a Participant suffers a Qualifying Event (as herein defined), then such
Participant shall, upon the occurrence of the Qualifying Event, receive an
amount in cash from the Company equal to the maximum Annual Incentive Payment
payable to such Participant with respect to such Change Year (calculated as if
the Stretch Level Pre-tax Income and the Cash Hurdle had been achieved,
irrespective of actual results, and based on such Participant’s Base Salary as
in effect on the first day of such Change Year, or if higher, as in effect
immediately prior to the occurrence of the Change in Control) and such
Participant shall not be entitled to any additional Annual Incentive Payment
with respect to such Change Year.
As used
herein, the term “Qualifying Event” with respect to a Participant means (i) the
termination of such Participant’s participation in the Program or a reduction in
such Participant’s Base Salary, (ii) the assignment to such Participant by the
Board of Directors or the Committee or other officers or representatives of the
Company of duties materially inconsistent with the duties associated with his
position as such duties are constituted as of the first day of the Change Year,
(iii) a material diminution in the nature or scope of such Participant’s
authority, responsibilities, or title from those applicable to him as of the
first day of the Change Year, (iv) the occurrence of material acts or conduct on
the part of the Company or its officers or representatives which prevent such
Participant from performing his duties and responsibilities as they existed on
the first day of the Change Year, (v) the Company requiring such Participant to
be permanently based anywhere outside a major urban center in the state (or, if
applicable, foreign country, U.S. territory or other applicable sovereign
entity) in which he was based as of the first day of the Change Year, or (vi)
the taking of any action by the Company that would materially adversely affect
the corporate amenities enjoyed by such Participant on the first day of the
Change Year, except in each case if such Participant’s employment with the
Company and its subsidiaries is terminated (a) upon such Participant’s death,
(b) upon disability entitling him to benefits under the Company’s group
long-term disability plan, (c) for cause, which for purposes hereof shall mean
(1) in the case of a Participant with an employment agreement with the Company
or a subsidiary, the involuntary termination by the Company (or, if applicable,
a subsidiary) of such Participant’s employment under circumstances that do not
require the Company (or such subsidiary) to pay to such Participant a
“Termination Payment” or “Monthly Severance Amount,” as such terms are defined
in such Participant’s employment agreement, and (2) in the case of a Participant
who does not have an employment agreement with the Company or a subsidiary, the
involuntary termination by the Company (or, if applicable, a subsidiary) of such
Participant’s employment based upon a determination by the Committee or an
authorized officer of the Company (or such subsidiary) that such Participant has
engaged in gross negligence or willful misconduct in the performance of, or such
Participant has abused alcohol or drugs rendering him unable to perform, the
material duties and services required of him in his employment, or (d) upon the
voluntary resignation from employment of such Participant (other than in
connection with circumstances which would permit such Participant to receive
severance benefits pursuant to any contract of employment between such
Participant and the Company or any of its subsidiaries).
7. Amendments, Termination and Other
Matters. Subject to the other provisions of this Section 7,
the Program may be amended from time to time or terminated by the Committee;
provided that the Program may not be amended or terminated in a manner that
would impair the rights of any Participant with respect to any outstanding
Performance Award with respect to a fiscal year that has ended prior to such
amendment or termination without the consent of such Participant, and may not be
amended or terminated in contemplation of or in connection with a Change in
Control, nor may any Participant’s participation herein be terminated in
connection with a Change in Control, unless adequate and effective provision for
the making of all payments otherwise payable pursuant to Section 6 of the
Program (as in effect on the date of the adoption of the Program) with respect
to such Change in Control shall be made in connection with any such amendment or
termination.
Participation
in the Program by a Participant shall terminate upon such Participant’s
termination of employment with the Company and its subsidiaries or as otherwise
set forth herein, and no Participant shall have any right to continue to
participate in the Program or have any vested right to any incentive or other
payment hereunder (except as aforesaid in connection with a Change in Control
and except with respect to fiscal years which have already ended prior to such
amendment or termination or prior to such Participant’s termination of
employment with the Company and its subsidiaries).
Participation
in the Program shall not confer any right of future employment. The
Program is not intended to create a pension or welfare benefit plan and is
intended to be exempt from application of the Employee Retirement Income
Security Act of 1974, as amended. The Program is unfunded and shall
not create, or be construed to create, a trust or separate fund or funds, and
each Participant shall be entitled only to look to the Company for any benefit
hereunder, and shall have no greater right than an unsecured creditor of the
Company.
No
liability whatsoever shall attach to or be incurred by any past, present or
future stockholders, officers or directors, as such, of the Company or any of
its subsidiaries, under or by reason of the Program or the administration
thereof, and each Participant, in consideration of receiving benefits and
participating hereunder, expressly waives and releases any and all claims
relating to any such liability.
No
incentive payment or Performance Award or other right, title, interest, or
benefit hereunder shall ever be assignable or transferable, or liable for, or
charged with any of the torts or obligations of a Participant or any person
claiming under a Participant, or be subject to seizure by any creditor of a
Participant or any person claiming under a Participant. No
Participant or any person claiming under a Participant shall have the power to
anticipate or dispose of any incentive payment, Performance Award or other
right, title, interest, or benefit hereunder in any manner until the same shall
have actually been distributed free and clear of the terms of the
Program. Incentive payments hereunder shall be payable only to the
Participant (or in the event of the death of a Participant, any payment due
under the Program to such Participant shall be made to such Participant’s
estate). Notwithstanding the preceding provisions of this paragraph,
the Committee shall comply with the terms of any qualified domestic relations
order (as defined in the Incentive Plan 2010) providing for the transfer or
assignment of all or any portion of a Participant’s interest under the
Program. The provisions of the Program shall be binding on all
successors and assigns of a Participant, including without limitation the estate
of such Participant and the executor, administrator or trustee of such estate,
or any receiver or trustee in bankruptcy or representative of the Participant’s
creditors.
Wherever
appropriate herein, words used in the singular shall be considered to include
the plural, and words used in the plural shall be considered to include the
singular. The masculine gender, where appearing in the Program, shall
be deemed to include the feminine gender.
The
Program shall be construed in accordance with the laws of the State of
Texas.
8. Tax
Withholding. The Company shall have the right to withhold from
any payment hereunder all applicable federal, state, local and other taxes as
required by law.
9. Effective Date. The
Program shall be effective as of the date of its adoption by the Committee and
shall be applicable to fiscal years of the Company beginning on or after January
1, 2010.
Exhibit
10.13(a)
ANNUAL
INCENTIVE AWARD NOTICE
to
[Name]
Pursuant
to the Continental Airlines, Inc.
Annual
Executive Incentive Program
Fiscal
Year 20xx
This
document constitutes your formal notice of an Award under the Continental
Airlines, Inc. Annual Executive Incentive Program (as amended from time to time,
the “Annual Incentive Program”) adopted under the Continental Airlines, Inc.
Incentive Plan 2010 (as amended from time to time, the “Incentive Plan
2010”). This notice evidences your right to participate in the Annual
Incentive Program with respect to the period commencing on January 1, 20xx and
ending on December 31, 20xx (the “Fiscal Year”), subject to the terms of the
Annual Incentive Program and the Incentive Plan 2010. [The Annual
Incentive Program, your participation in the Annual Incentive Program and any
payment under the Annual Incentive Program are subject to, and contingent upon,
approval of the Incentive Plan 2010 by the stockholders of the Company at the
Company’s 2010 annual meeting of stockholders.]
The Human
Resources Committee of the Board of Directors of the Company (the “Committee”)
has established the following performance goals for the Fiscal
Year: (1) Entry Level Pre-tax Income of $_______; (2) Target Level
Pre-tax Income of $_______; (3) Stretch Level Pre-tax Income of $_______; and
(4) a Cash Hurdle of $___ billion.
The
Pre-tax Income performance goal is achieved if the Company’s Pre-tax Income is
equal to or greater than the Entry Level Pre-tax Income specified by the
Committee. The Cash Hurdle is achieved if the Company’s total
unrestricted cash, cash equivalents and short-term investments as of the last
day of the Fiscal Year is equal to or greater than the Cash Hurdle specified by
the Committee.
If these
performance goals are achieved and you remain continuously employed by the
Company or its subsidiaries throughout the entire Fiscal Year, then your Annual
Incentive Payment for the Fiscal Year will be equal to your base annual salary
in effect on the last day of the Fiscal Year multiplied by a percentage equal to
50% plus (1) an additional ____% (or prorated portion thereof) for each million
dollars (or portion thereof) by which the Company’s Pre-tax Income exceeds the
Entry Level Pre-tax Income, up to and including the Target Level Pre-tax Income
(representing a target incentive opportunity of __%), and (2) if the Company’s
Pre-tax Income for the Fiscal Year exceeds the Target Level Pre-tax Income for
such period, an additional ___% (or prorated portion thereof) for each million
dollars (or portion thereof) by which the Company’s Pre-tax Income exceeds the
Target Level Pre-tax Income, up to and including the Stretch Level Pre-tax
Income (representing a stretch incentive opportunity of __%).
Your
Annual Incentive Payment may be prorated as provided in the Annual Incentive
Program under certain circumstances. If you suffer a Qualifying Event
on or after the occurrence of a Change in Control, you will receive an amount in
cash equal to the Annual Incentive Payment calculated as if the Stretch Level
Pre-tax Income and Cash Hurdle had been achieved for the Fiscal
Year.
Capitalized
terms used in this notice are defined in the Annual Incentive
Program. The Annual Incentive Program and the Incentive Plan 2010 are
hereby incorporated into this notice by reference. If you have
any questions, or wish to obtain a copy of the Annual Incentive Program or the
Incentive Plan 2010, please contact __________.
CONTINENTAL
AIRLINES, INC.
By: ______________________________
|
|
[Name]
|
Exhibit
10.14
CONTINENTAL
AIRLINES, INC.
LONG
TERM INCENTIVE AND RSU PROGRAM
I. PURPOSE OF
PROGRAM
1.1 Purpose. This Continental
Airlines, Inc. Long Term Incentive and RSU Program (the “Program”) has been
adopted by the Human Resources Committee of the Board of Directors of
Continental Airlines, Inc., a Delaware corporation (the “Company”), to implement
in part the Performance Award provisions of the Continental Airlines, Inc.
Incentive Plan 2010 (as amended from time to time, the “Incentive Plan 2010”),
and is intended to provide a method for attracting, motivating, and retaining
key employees to assist in the development and growth of the Company and its
Subsidiaries. The Program and Awards hereunder shall be subject to
the terms of the Incentive Plan 2010, including the limitations on the maximum
amount of compensation that may be paid with respect to Performance Awards (as
such term is defined in the Incentive Plan 2010) as provided
therein.
II. DEFINITIONS AND
CONSTRUCTION
2.1 Definitions. Where the
following words and phrases are used in the Program, they shall have the
respective meanings set forth below, unless the context clearly indicates to the
contrary:
(a) “Administrator”
means the Committee or the Chief Executive Officer of the Company (if the Chief
Executive Officer is a director of the Company), subject to the provisions of
Section 3.1.
(b) “Award”
means, with respect to each Participant for a Performance Period, such
Participant’s opportunity to earn a Payment Amount for such Performance Period,
upon the satisfaction of the terms and conditions of the
Program. Awards shall relate to an LTIP Performance Target (“LTIP
Awards”) or a Profit Based RSU Performance Target (“Profit Based RSU
Awards”). Awards hereunder constitute Performance Awards (as such
term is defined in the Incentive Plan 2010) under the Incentive Plan
2010.
(c) “Award
Notice” means a written notice issued by the Company to a Participant evidencing
such Participant’s receipt of an Award with respect to a Performance
Period.
(d) “Base
Amount” means, with respect to a Participant, the sum of (i) the Participant’s
base annual salary payable by the Company or a Subsidiary, plus (ii) an
additional amount equal to the amount described in clause (i) multiplied by the
Participant’s Base Amount Multiple.
(e) “Base
Amount Multiple” means, with respect to a Participant who receives an LTIP Award
for an LTIP Performance Period, the percentage established by the Committee as
the Base Amount Multiple with respect to such Award pursuant to Section
3.1.
(f) “Basis
Point” means one one-hundredth of one percent (0.01%).
(g) “Board”
means the Board of Directors of the Company
(h) “Cash
Hurdle” means, with respect to an LTIP Performance Period or a Profit Based RSU
Performance Period, the dollar amount established by the Committee as the Cash
Hurdle with respect to such Performance Period pursuant to Section 3.1, and
achievement of the Cash Hurdle means (i) in the case of an LTIP Performance
Period, that the Company’s cash, cash equivalents and short term investments
(excluding restricted cash, cash equivalents and short term investments) at the
end of such Performance Period, as reflected on the regularly prepared and
publicly available balance sheet of the Company and its consolidated
subsidiaries prepared in accordance with applicable accounting rules, is equal
to or greater than the dollar amount established by the Committee as the Cash
Hurdle for such Performance Period, and (ii) in the case of a Profit Based RSU
Performance Period, that the Company’s cash, cash equivalents and short term
investments (excluding restricted cash, cash equivalents and short term
investments) at the end of the Fiscal Year prior to the applicable Specified
Payment Date (the “Cash Hurdle Measurement Date”), as reflected on the regularly
prepared and publicly available balance sheet of the Company and its
consolidated subsidiaries prepared in accordance with applicable accounting
rules, is equal to or greater than the dollar amount established by the
Committee as the Cash Hurdle for such Performance Period.
(i) “Change
in Control” means a “Change in Control” as defined in the Incentive Plan 2010 as
in effect on the date the Incentive Plan 2010 is approved by the stockholders of
the Company.
(j) “Code”
means the Internal Revenue Code of 1986, as amended.
(k) “Committee”
means a committee of the Board comprised solely of two or more outside directors
(within the meaning of the term “outside directors” as used in section 162(m) of
the Code). Such committee shall be the Human Resources Committee of
the Board unless and until the Board designates another committee of the Board
to serve as the Committee.
(l) “Company”
means Continental Airlines, Inc., a Delaware corporation.
(m) “Company
Stock” means the Class B common stock, par value $0.01 per share, of the
Company.
(n) “Cumulative
Profit Sharing Pool” means, with respect to the last day of a Fiscal Year in a
Profit Based RSU Performance Period, the aggregate amount of the Profit Sharing
Pools, if any, for such Fiscal Year and for all prior Fiscal Years in such
Profit Based RSU Performance Period.
(o) “Cumulative
Profit Sharing Pool Target” means, with respect to a Profit Based RSU
Performance Period, the dollar amount established by the Committee as the
Cumulative Profit Sharing Pool Target with respect to such Performance Period
pursuant to Section 3.1. The Committee may set multiple levels
(including through interpolation) for the Cumulative Profit Sharing Pool Target
that may apply to a single Profit Based RSU Performance Period (and each such
level is referred to herein as a “Cumulative Profit Sharing Pool Target Level”),
and the Payout Structure relating to the Profit Based RSU Award for such
Performance Period may specify different Profit Based RSU Payment Percentages
depending on the Cumulative Profit Sharing Pool Target Level achieved (including
the interpolation of Profit Based RSU Payment Percentages if the Cumulative
Profit Sharing Pool Target Levels include interpolated
levels). Achievement of a Cumulative Profit Sharing Pool Target means
that, as of the last day of a Fiscal Year in the Profit Based RSU Performance
Period, the Cumulative Profit Sharing Pool equals or exceeds a Cumulative Profit
Sharing Pool Target Level that has not been so achieved as of the last day of
any prior Fiscal Year in such Profit Based RSU Performance Period (and the
Cumulative Profit Sharing Pool Target shall be deemed achieved for such Fiscal
Year only with respect to the highest such Cumulative Profit Sharing Pool Target
Level so achieved for such Fiscal Year).
(p) “Disability”
or “Disabled” means, with respect to a Participant, that such Participant is, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, receiving income replacement benefits for a period
of not less than three months under an accident and health plan covering
employees of such Participant’s employer.
(q) “EBITDAR”
means, with respect to the Company and each company in the Industry Group and
each LTIP Performance Period, the aggregate earnings of the Company or such
company and its consolidated subsidiaries during the Performance Period,
determined prior to the charges, costs, and expenses associated with interest,
income taxes, depreciation, amortization, and aircraft rent. EBITDAR
shall be determined based on the regularly prepared and publicly available
statements of operations of the Company and each company in the Industry Group
prepared in accordance with applicable accounting rules (and if necessary to
determine certain items, based on Form 41 data filed by the Company or such
company with the Department of Transportation); provided, however, that EBITDAR
shall be adjusted to exclude (i) non-operating income or expense, (ii)
write-offs of assets (including aircraft and associated parts), (iii) one-time
gains or losses from the disposal of assets, and (iv) any other item of gain,
loss, or expense determined to be special, extraordinary or unusual in nature or
infrequent in occurrence, in each case under clauses (i), (ii), (iii) and (iv)
as determined by the Committee in accordance with applicable accounting
rules. If the fiscal year of a company in the Industry Group is not
the calendar year, then such company’s EBITDAR for an LTIP Performance Period
shall be determined based upon the fiscal quarters of such company that coincide
with the fiscal quarters contained in such Performance Period. Further, if a
company in the Industry Group provides publicly available statements of
operations with respect to its airline business that are separate from the
statements of operations provided with respect to its other businesses, then
such company’s EBITDAR shall be determined based solely upon the separately
provided statements of operations pertaining to its airline
business.
(r) “EBITDAR
Margin” means, with respect to the Company and each LTIP Performance Period, the
cumulative EBITDAR for the Company for such Performance Period divided by the
Company’s cumulative revenues (determined on a consolidated basis based on the
regularly prepared and publicly available statements of operations of the
Company prepared in accordance with applicable accounting rules) over such
Performance Period; provided, however, that, such cumulative revenues shall be
adjusted to exclude any item determined to be special, extraordinary or unusual
in nature or infrequent in occurrence as determined by the Committee in
accordance with applicable accounting rules.
(s) “Eligible
Employee” means any individual who is a staff vice president or more senior
officer of the Company or a Subsidiary.
(t) “Entry
EBITDAR Margin” means, with respect to each LTIP Performance Period, the
percentage determined by dividing (i) the cumulative EBITDAR of all companies in
the Industry Group for such Performance Period by (ii) all such companies’
cumulative revenues (determined as provided in Section 2.1(r) with respect to
the Company) over such Performance Period. If the fiscal year of a
company in the Industry Group is not the calendar year, then such company’s
cumulative revenues for an LTIP Performance Period shall be determined based
upon the fiscal quarters of such company that coincide with the fiscal quarters
contained in such Performance Period. Further, if a company in the
Industry Group provides publicly available statements of operations with respect
to its airline business that are separate from the statements of operations
provided with respect to its other businesses, then such company’s cumulative
revenues shall be determined based solely upon the separately provided
statements of operations pertaining to its airline business.
(u) “Entry
Level LTIP Percentage” means, with respect to each Participant who receives an
LTIP Award for an LTIP Performance Period, the percentage established by the
Committee as the Entry Level LTIP Percentage for such Participant with respect
to such Award pursuant to Section 3.1.
(v) “Fiscal
Year” means each 12-consecutive month period commencing on
January 1.
(w) “Incentive
Plan 2010” means the Continental Airlines, Inc. Incentive Plan 2010, as amended
from time to time.
(x) “Industry
Group” means, with respect to each LTIP Performance Period, the companies
determined in accordance with the provisions of Article V for such Performance
Period.
(y) “LTIP
Performance Period” means each three-year period commencing on the first day of
a calendar year that begins on or after January 1,
2010. Notwithstanding the foregoing, no new LTIP Performance Period
shall commence on or after the date upon which a Change in Control occurs,
unless otherwise determined by the Committee.
(z) “Market
Value per Share” means, as of any specified date, the simple average of the
closing sales prices of Company Stock in the principal securities market in
which the Company Stock is then traded over the 20 most recent consecutive
Trading Days ending on the last Trading Day preceding the specified date,
adjusted appropriately by the Committee for any stock splits, stock dividends,
reverse stock splits, special dividends or other similar matters occurring
during or with respect to any relevant measurement period.
(aa) “Maximum
Aggregate Payment Amount” means an amount equal to the product of (i) the Profit
Based RSU Payment Percentage applicable to the highest Cumulative Profit Sharing
Pool Target Level established by the Committee with respect to such Award
multiplied by (ii) a dollar amount determined by the Committee in its sole
discretion; provided, however, that the Committee may, in its sole discretion,
determine whether or not to establish a Maximum Aggregate Payment Amount with
respect to any particular RSU. The Maximum Aggregate Payment Amount,
if any, with respect to an RSU subject to an outstanding Profit Based RSU Award
shall be subject to appropriate adjustment by the Committee for any stock
splits, stock dividends, reverse stock splits, special dividends or other
similar matters relating to Company Stock occurring after the date of grant of
such Award.
(bb) “Participant”
means an Eligible Employee who has received an Award under the Program with
respect to a Performance Period pursuant to Section 4.1.
(cc) “Payment
Amount” (A) with respect to LTIP Awards means, with respect to each Participant
and each LTIP Performance Period for which the LTIP Performance Target is
satisfied, an amount equal to (i) such Participant’s Base Amount in effect as of
the earlier of (1) the last day of such LTIP Performance Period, (2) the date of
such Participant’s death, Disability or Retirement, or (3) the day immediately
preceding the date upon which such Participant suffers a Qualifying Event on or
after the occurrence of a Change in Control, multiplied by (ii) the Payout
Percentage applicable to such Participant for such LTIP Performance Period, and
(B) with respect to each Profit Based RSU Award and related Profit Based RSU
Performance Period, means each amount payable pursuant to Section 6.2(b), 6.3(b)
and 6.4(b). Notwithstanding the foregoing, a Payment Amount may be
pro-rated as provided in the Program.
(dd) “Payout
Percentage” means, with respect to each Participant for an LTIP Performance
Period for which the LTIP Performance Target is satisfied, a percentage,
determined as of the earlier of (i) the last day of such Performance Period,
(ii) the date of such Participant’s death, Disability or Retirement, or (iii)
the day immediately preceding the date upon which such Participant suffers a
Qualifying Event on or after the occurrence of a Change in Control, equal to
such Participant’s Entry Level LTIP Percentage plus (A) if the Company’s EBITDAR
Margin with respect to such Performance Period exceeds the Entry EBITDAR Margin
with respect to such Performance Period, an additional percentage equal to (x)
such Participant’s Target Level LTIP Percentage divided by (y) the difference
between the Target EBITDAR Margin with respect to such Performance Period and
the Entry EBITDAR Margin with respect to such Performance Period (expressed in
Basis Points), for each Basis Point that the Company’s EBITDAR Margin with
respect to such Performance Period exceeds the Entry EBITDAR Margin with respect
to such Performance Period, up to and including the Target EBITDAR Margin with
respect to such Performance Period, and (B) if the Company’s EBITDAR Margin with
respect to such Performance Period exceeds the Target EBITDAR Margin with
respect to such Performance Period, an additional percentage equal to (x) such
Participant’s Stretch Level LTIP Percentage divided by (y) the difference
between the Stretch EBITDAR Margin with respect to such Performance Period and
the Target EBITDAR Margin with respect to such Performance Period (expressed in
Basis Points), for each Basis Point that the Company’s EBITDAR Margin with
respect to such Performance Period exceeds the Target EBITDAR Margin with
respect to such Performance Period, up to and including the Stretch EBITDAR
Margin with respect to such Performance Period.
(ee) “Payout
Structure” means, with respect to each Profit Based RSU Performance Period, a
Profit Based RSU Payment Percentage determined by the Committee to apply to each
Cumulative Profit Sharing Pool Target Level relating to such Performance
Period. The Payout Structure for each Profit Based RSU Performance
Period shall be established by the Committee pursuant to Section
3.1.
(ff) “Performance
Period” means an LTIP Performance Period or a Profit Based RSU Performance
Period, as applicable or as the context requires.
(gg) “Performance
Target” means (A) with respect to an LTIP Performance Period, that (1) the Cash
Hurdle with respect to such Performance Period has been achieved, and (2) the
Company’s EBITDAR Margin with respect to such Performance Period equals or
exceeds the Entry EBITDAR Margin with respect to such Performance Period
(clauses (A)(1) and (2) together, the “LTIP Performance Target”), and (B) with
respect to a Profit Based RSU Performance Period, that, as of the last day of a
Fiscal Year in such Performance Period, the Cumulative Profit Sharing Pool
Target for such Performance Period has been achieved (clause (B), the “Profit
Based RSU Performance Target”).
(hh) “Profit
Based RSU Payment Percentage” means, with respect to each Profit Based RSU
Performance Period, the percentage of the RSUs subject to the related Profit
Based RSU Award for which payments may be made under the Program upon
achievement of a particular Cumulative Profit Sharing Pool Target Level relating
to such Performance Period. The Profit Based RSU Payment Percentages
for a Profit Based RSU Performance Period shall be determined by the Committee
in connection with the Committee’s determination of the Payout Structure for
such Performance Period.
(ii) “Profit
Based RSU Performance Period” means each period established by the Committee
pursuant to Section 3.1 that consists of one or more consecutive Fiscal Years
that begin on or after January 1, 2010.
(jj) “Profit
Sharing Pool” means, with respect to each Fiscal Year, the “Annual Award Pool”
for such Fiscal Year determined under (and based on the definition of such term
set forth in) the Company’s broad-based profit sharing plan (the “PSP”) as in
effect on the 90th day
of the Profit Based RSU Performance Period that includes such Fiscal Year;
provided, however, that any Minor Pool (as defined in the PSP) with respect to a
Fiscal Year that ended prior to the beginning of any Profit Based RSU
Performance Period shall not be included in the Profit Sharing Pool with respect
to a Fiscal Year in such Performance Period.
(kk) “Program”
means this Continental Airlines, Inc. Long Term Incentive and RSU Program, as
amended from time to time.
(ll) “Qualifying
Event” means, with respect to a Participant, the termination of such
Participant’s employment with the Company under circumstances which would permit
such Participant to receive a Termination Payment or Monthly Severance Amount
(as such terms are defined in such Participant’s employment agreement), or
similar payment, pursuant to any contract of employment between such Participant
and the Company or any Subsidiary.
(mm) “Retirement,”
“Retires” or “Retired” means retirement of a Participant from employment with
the Company pursuant to the provisions of the Continental Retirement Plan, as
amended from time to time.
(nn) “RSUs”
means the method of denominating Profit Based RSU Awards, which shall be granted
in whole numbers and which are denominated in Company Stock for purposes of
Incentive Plan 2010. The number of RSUs subject to an outstanding
Profit Based RSU Award shall be subject to appropriate adjustment by the
Committee for any stock splits, stock dividends, reverse stock splits, special
dividends or other similar matters relating to Company Stock occurring after the
date of grant of such Award and during or with respect to the applicable
Performance Period.
(oo) “Section
16” means Section 16 of the Securities Exchange Act of 1934, as amended
(including any successor section to the same or similar effect).
(pp) “Specified
Payment Date” means, with respect to a Profit Based RSU Performance Target that
is achieved for any Profit Based RSU Performance Period as of the last day of a
Fiscal Year, (i) with respect to a payment under Section 6.2(b)(i) for such
Fiscal Year, the first day of the 3rd month following the end of such Fiscal
Year, (ii) with respect to a payment under Section 6.2(b)(ii) for such Fiscal
Year, the first day of the 15th month following the end of such Fiscal Year, and
(iii) with respect to a payment under Section 6.2(b)(iii) for such Fiscal Year,
the first day of the 27th month following the end of such Fiscal
Year. With respect to each Fiscal Year during a Profit Based RSU
Performance Period for which a Profit Based RSU Performance Target is achieved,
the Specified Payment Date referred to in clause (i) of the preceding sentence
is referred to herein as the “First Specified Payment Date,” the Specified
Payment Date referred to in clause (ii) of the preceding sentence is referred to
herein as the “Second Specified Payment Date,” and the Specified Payment Date
referred to in clause (iii) of the preceding sentence is referred to herein as
the “Third Specified Payment Date.” Notwithstanding the foregoing, a
Specified Payment Date may be deferred as provided in Section
6.2(b).
(qq) “Stretch
EBITDAR Margin” means, with respect to an LTIP Performance Period, the
percentage established by the Committee to be the Stretch EBITDAR Margin with
respect to such Performance Period pursuant to Section 3.1, which shall be
expressed as the Target EBITDAR Margin plus that number of Basis Points
established by the Committee pursuant to Section 3.1.
(rr) “Stretch
Level LTIP Percentage” means, with respect to each Participant who receives an
LTIP Award for an LTIP Performance Period, the percentage established by the
Committee as the Stretch Level LTIP Percentage for such Participant with respect
to such Award pursuant to Section 3.1.
(ss) “Subsidiary”
for purposes of participation in the Program means any entity (other than the
Company) with respect to which the Company, directly or indirectly through one
or more other entities, owns equity interests possessing 50 percent or more of
the total combined voting power of all equity interests of such entity
(excluding voting power that arises only upon the occurrence of one or more
specified events).
(tt) “Target
EBITDAR Margin” means, with respect to an LTIP Performance Period, the
percentage established by the Committee to be the Target EBITDAR Margin with
respect to such Performance Period pursuant to Section 3.1, which shall be
expressed as the Entry EBITDAR Margin plus that number of Basis Points
established by the Committee pursuant to Section 3.1.
(uu) “Target
Level LTIP Percentage” means, with respect to each Participant who receives an
LTIP Award for an LTIP Performance Period, the percentage established by the
Committee as the Target Level LTIP Percentage for such Participant with respect
to such Award pursuant to Section 3.1.
(vv) “Trading
Day” means a day during which trading in securities generally occurs in the
principal securities market in which Company Stock is traded.
2.2 Number,
Gender, Headings, and Periods of Time. Wherever
appropriate herein, words used in the singular shall be considered to include
the plural, and words used in the plural shall be considered to include the
singular. The masculine gender, where appearing in the Program, shall
be deemed to include the feminine gender. The headings of Articles,
Sections, and Paragraphs herein are included solely for
convenience. If there is any conflict between such headings and the
text of the Program, the text shall control. All references to
Articles, Sections, and Paragraphs are to the Program unless otherwise
indicated. Any reference in the Program to a period or number of
days, weeks, months, or years shall mean, respectively, calendar days, calendar
weeks, calendar months, or calendar years unless expressly provided
otherwise.
III. ADMINISTRATION
3.1 Administration
by the Administrator. The Program shall
be administered by the Administrator, so that (i) Awards made to, and the
administration (or interpretation of any provision) of the Program as it relates
to, any person who is subject to Section 16, shall be made or effected by the
Committee, and (ii) Awards made to, and the administration (or interpretation of
any provision) of the Program as it relates to, any person who is not subject to
Section 16, shall be made or effected by the Chief Executive Officer of the
Company (or, if the Chief Executive Officer is not a director of the Company,
the Committee), unless the Program specifies that the Committee shall take
specific action (in which case such action may only be taken by the Committee)
or the Committee (as to any Award described in this clause (ii) or the
administration or interpretation of any specific provision of the Program)
specifies that it shall serve as Administrator. Notwithstanding the
foregoing, the Committee may from time to time in its discretion put any
conditions and restrictions on the powers that may be exercised by the Chief
Executive Officer of the Company in his or her capacity as
Administrator. The action of a majority of the members of the
Committee will be the act of the Committee.
The
Committee may from time to time in its discretion establish in writing for
purposes of the Program a Profit Based RSU Performance Period that consists of
one or more consecutive Fiscal Years. The Committee shall, within 90
days after the first day of each Performance Period commencing on or after
January 1, 2010 (but in no event after the date required for a performance goal
to be considered preestablished under section 162(m) of the Code), establish in
writing for purposes of the Program: (i) for LTIP Awards, (A) the applicable
Target EBITDAR Margin and Stretch EBITDAR Margin (such that at all times the
Stretch EBITDAR Margin shall be higher than the Target EBITDAR Margin, which in
turn shall be higher than the Entry EBITDAR Margin) and the Cash Hurdle for each
such Performance Period and (B) the Base Amount Multiple, Entry Level LTIP
Percentage, Target Level LTIP Percentage and Stretch Level LTIP Percentage for
each Participant with respect to such Performance Period, and (ii) for Profit
Based RSU Awards, the Cash Hurdle, the Cumulative Profit Sharing Pool Target
Levels (including the Cumulative Profit Sharing Pool Target Level that shall
apply for purposes of Section 6.4(b)), the related Payout Structure for such
Performance Period and the Maximum Aggregate Payment Amount, if any, applicable
to the RSUs subject to such Award. The targets and other amounts
established by the Committee pursuant to the preceding sentence shall in each
case be subject to adjustment as determined by the Committee in its discretion
as a result of changes in accounting principles and other significant
extraordinary items or events; provided that in respect of any Award intended to
qualify as performance-based compensation within the meaning of section 162(m)
of the Code, such adjustments may only be made if and to the extent permitted by
section 162(m) of the Code.
3.2 Powers of
the Administrator. The Administrator
shall supervise the administration and enforcement of the Program according to
the terms and provisions hereof and shall have the sole discretionary authority
and all of the powers necessary to accomplish these purposes. The
Administrator (which shall be limited solely to the Committee with respect to
clauses (e), (f), (g), (h), (i) and (j) below and as described in clause (c)
below) shall have all of the powers specified for it under the Program,
including, without limitation, the power, right, or authority: (a) to designate
an Eligible Employee as a Participant with respect to a Performance Period at
any time prior to the last day of such period, (b) from time to time to
establish rules and procedures for the administration of the Program, which are
not inconsistent with the provisions of the Program or the Incentive Plan 2010,
and any such rules and procedures shall be effective as if included in the
Program, (c) to construe in its discretion all terms, provisions, conditions and
limitations of the Program and any Award, and to determine the number of RSUs
subject to a Profit Based RSU Award to a Participant (which determination with
respect to any person who is subject to Section 16 shall be made only by the
Committee), (d) to correct any defect or to supply any omission or to reconcile
any inconsistency that may appear in the Program in such manner and to such
extent as the Administrator shall deem appropriate, (e) to determine the Target
EBITDAR Margin, the Stretch EBITDAR Margin, the Cumulative Profit Sharing Pool
Target Levels and the Participant Base Amount Multiples, Entry Level LTIP
Percentages, Target Level LTIP Percentages and Stretch Level LTIP Percentages
with respect to each relevant Performance Period, (f) to determine the Cash
Hurdle for each relevant Performance Period, (g) to determine the Payout
Structure and the Maximum Aggregate Payment Amount, if any, for each Profit
Based RSU Award, (h) to make determinations as to whether the Performance
Targets for the various Performance Periods were satisfied, (i) to make
determinations as to whether the Cash Hurdles for the various Profit Based RSU
Performance Periods were satisfied, (j) to certify in writing, prior to the
payment of any amount under the Program with respect to a Performance Period,
whether the Performance Targets relating to such Performance Period and any
other material terms of the Program have in fact been satisfied, and (k) to make
all other determinations necessary or advisable for the administration of the
Program. The Administrator may correct any defect or supply any omission or
reconcile any inconsistency in the Program or in any Award or Award Notice in
the manner and to the extent it shall deem expedient to carry it into
effect.
3.3 Administrator
Decisions Conclusive; Standard of Care. The Administrator
shall, in its sole discretion exercised in good faith (which, for purposes of
this Section 3.3, shall mean the application of reasonable business judgment),
make all decisions and determinations and take all actions necessary in
connection with the administration of the Program. All such
decisions, determinations, and actions by the Administrator shall be final,
binding, and conclusive upon all persons. However, in the event of
any conflict in any such determination as between the Committee and the Chief
Executive Officer of the Company, each acting in its or his capacity as
Administrator of the Plan, the determination of the Committee shall be
conclusive. The Administrator shall not be liable for any action or
determination taken or made in good faith or upon reliance in good faith on the
records of the Company or information presented to the Administrator by the
Company’s officers, employees, or other persons (including the Company’s outside
auditors) as to matters the Administrator reasonably believes are within such
other person’s professional or expert competence. If a Participant
disagrees with any decision, determination, or action made or taken by the
Administrator, then the dispute will be limited to whether the Administrator has
satisfied its duty to make such decision or determination or take such action in
good faith. No liability whatsoever shall attach to or be incurred by
any past, present or future stockholders, officers or directors, as such, of the
Company or any of its Subsidiaries, under or by reason of the Program or the
administration thereof, and each Participant, in consideration of receiving
benefits and participating hereunder, expressly waives and releases any and all
claims relating to any such liability.
IV. PARTICIPATION AND AWARD
NOTICES
4.1 Participation. Each individual
who is an Eligible Employee on the first day of a Performance Period shall
automatically be a Participant and receive an Award with respect to such
Performance Period, unless otherwise determined by the Administrator prior to
the first day of the relevant Performance Period. LTIP Awards shall
be made with respect to LTIP Performance Periods and Profit Based RSU Awards
shall be made with respect to Profit Based RSU Performance
Periods. Each individual who becomes an Eligible Employee after the
first day of a Performance Period shall become a Participant and receive an
Award with respect to such Performance Period only if such individual is
selected prior to the last day of such Performance Period by the Administrator
in its sole discretion for participation in the Program with respect to such
Performance Period. Unless otherwise determined by the Administrator,
Payment Amounts with respect to an LTIP Award for an individual who becomes a
Participant with respect to such Award after the first day of the related
Performance Period shall be pro-rated based on a fraction, the numerator of
which is (except as otherwise provided in Section 6.3 or Section 6.4) the number
of days during the period beginning on the date of such Participant’s
commencement of participation in the Program for such Performance Period and
ending on the last day of such Performance Period, and the denominator of which
is the total number of days in such Performance Period. In addition,
unless otherwise determined by the Administrator, Payment Amounts under Section
6.2(b) with respect to an individual who becomes a Participant with respect to a
Profit Based RSU Performance Period after the first day of such Performance
Period shall be pro-rated based on a fraction, the numerator of which is (except
as otherwise provided in Section 6.3) the number of days during the period
beginning on the date of such Participant’s commencement of participation in the
Program for such Performance Period and ending on the date of the applicable
payment under Section 6.2(b), and the denominator of which is (except as
otherwise provided in Section 6.3) the number of days in the period beginning on
the first day of the relevant Profit Based RSU Performance Period and ending on
the date of the applicable payment under Section 6.2(b).
4.2 Award
Notices. The Company shall
provide an Award Notice to each Eligible Employee who becomes a Participant with
respect to a Performance Period within 90 days after such Eligible Employee
becomes such a Participant. With respect to Profit Based RSU Awards
to a Participant, the Administrator shall determine in each case the number of
RSUs subject to the Award as of the date of grant of the Award. Each
Award Notice with respect to a Profit Based RSU Award shall specify (a) the
Performance Period to which the Award relates, (b) the applicable Cumulative
Profit Sharing Pool Target Levels and Cash Hurdle, (c) the number of RSUs
subject to the Award as of the date of grant of the Award, and (d) the Payout
Structure and the Maximum Aggregate Payment Amount, if any, applicable to the
Award. Each Award Notice with respect to an LTIP Award shall specify
(A) the Performance Period to which the Award relates, (B) the applicable Cash
Hurdle, Target EBITDAR Margin and Stretch EBITDAR Margin, (C) the applicable
Base Amount Multiple, and (D) the applicable Payout Percentages set forth in
Section 2.1(dd) hereof with respect to the Participant applicable upon the date
of grant of the Award.
V. INDUSTRY
GROUP
5.1 Initial
Designation. The Industry
Group shall consist of Alaska Air Group, Inc., AMR Corporation, Delta Air Lines,
Inc., Southwest Airlines Co., UAL Corporation, and US Airways Group, Inc.;
provided, however, that (a) within 90 days after the first day of each LTIP
Performance Period, the Committee may in its discretion add any United States
certificated scheduled mainline air carrier to, or remove any such company from,
the Industry Group for such Performance Period and (b) the Industry Group for
each LTIP Performance Period shall be subject to adjustment as provided in
Section 5.2.
5.2 Adjustments
to the Industry Group During an LTIP Performance Period. Except as
provided in clause (a) of the proviso to Section 5.1, no company shall be added
to, or removed from, the Industry Group for an LTIP Performance Period during
such period; provided, however, that a company shall be removed from the
Industry Group for an LTIP Performance Period if (a) during such period, (i)
such company ceases to maintain publicly available statements of operations
prepared in accordance with applicable accounting rules, (ii) such company is
not the surviving entity in any merger, consolidation, or other non-bankruptcy
reorganization (or survives only as a subsidiary of an entity other than a
previously wholly owned subsidiary of such company), (iii) such company sells,
leases, or exchanges all or substantially all of its assets to any other person
or entity (other than a previously wholly owned subsidiary of such company), or
(iv) such company is dissolved and liquidated, or (b) more than 20% of such
company’s revenues (determined on a consolidated basis based on the regularly
prepared and publicly available statements of operations of such company
prepared in accordance with applicable accounting rules) for any fiscal year of
such company that ends during such Performance Period are attributable to the
operation of businesses other than such company’s airline business and such
company does not provide publicly available statements of operations with
respect to its airline business that are separate from the statements of
operations provided with respect to its other businesses.
VI. AWARD
PAYMENTS
6.1 Determinations
and Certification by the Committee. As soon as
administratively feasible after the end of each LTIP Performance Period, and as
soon as administratively feasible after the end of each Fiscal Year in a Profit
Based RSU Performance Period, as the case may be, the Committee shall determine
whether the applicable Performance Target for such Performance Period has been
met (including, with respect to a Profit Based RSU Performance Period, the
Cumulative Profit Sharing Pool Target Level, if any, that has been achieved) and
whether any other material terms relating to the payment of the related Awards
have been satisfied. As soon as administratively feasible on or
before each Specified Payment Date under Section 6.2(b), the Committee shall
determine whether the Cash Hurdle for any Cash Hurdle Measurement Date related
to such Specified Payment Date has been met. The Committee’s
determination as to whether the applicable Performance Target for a Performance
Period, the Cash Hurdle for a Cash Hurdle Measurement Date and any other
material terms relating to the payment of the related Awards have been satisfied
shall be certified by the Committee in writing (including by electronic mail
transmission) and delivered to the Secretary of the Company. For
purposes of the preceding sentence, approved minutes of the Committee meeting in
which the certification is made shall be treated as a written
certification. Notwithstanding the foregoing, each written
certification by the Committee (including a certification by electronic email
transmission) under this Section 6.1 shall be made by a date which will permit
the Company to comply with the time of payment requirements of Sections 6.2 and
6.3 (after giving effect to the provisions of Section 6.7).
6.2 Eligibility
for Payment of Awards. Subject to the
delayed payment restrictions of Section 6.6, payments with respect to Awards
shall be made as follows:
(a) LTIP
Awards. Upon the Committee’s written certification in
accordance with Section 6.1 that the applicable LTIP Performance Target for an
LTIP Performance Period and any other material terms relating to the payment of
the related Awards have been satisfied, each Participant who has received an
Award with respect to the relevant Performance Period for which the related
Performance Target and other material terms have been satisfied, who has
remained continuously employed by the Company from the date he or she received
such Award until the last day of such Performance Period and who has not
surrendered such Award to the Company shall be entitled to the Payment Amount
applicable to such Participant’s Award for such Performance
Period. Except as provided in Section 6.3(a) and Section 6.4(a), if a
Participant’s employment with the Company terminates for any reason whatsoever
prior to the last day of an LTIP Performance Period, then such Participant shall
not be entitled to receive any payment under the Program with respect to his or
her Award for such Performance Period, unless otherwise determined by the
Administrator or otherwise provided in the Participant’s employment agreement
with the Company. Payment of the amount to which a Participant
becomes entitled pursuant to this Section 6.2(a) shall be made by the Company on
or before the 15th day of the third calendar month following the end of the
applicable Performance Period.
(b) Profit Based RSU
Awards. If the Committee certifies in writing in accordance
with Section 6.1 that a Profit Based RSU Performance Target has been achieved as
of the last day of a Fiscal Year in a Profit Based RSU Performance Period, then
each Participant who has received an Award with respect to such Performance
Period for which the related Performance Target and other material terms
(including the relevant Cash Hurdle for the Cash Hurdle Measurement Date) have
been satisfied shall receive the following payments with respect to the
achievement of such Performance Target as of the last day of such Fiscal Year,
provided that such Participant remains continuously employed by the Company from
the date he or she received such Award until the date of payment specified
below:
(i) on
the First Specified Payment Date for such Fiscal Year, a payment in an amount
equal to (A) one third of the number of RSUs subject to such Award as of such
Specified Payment Date multiplied by (B) the
Profit Based RSU Payment Percentage applicable to the Cumulative Profit Sharing
Pool Target Level achieved at the end of such Fiscal Year multiplied by (C) the
Market Value per Share as of such First Specified Payment Date;
(ii) on
the Second Specified Payment Date for such Fiscal Year, a payment in an amount
equal to (A) one third of the number of RSUs subject to such Award as of such
Specified Payment Date multiplied by (B) the
Profit Based RSU Payment Percentage applicable to the Cumulative Profit Sharing
Pool Target Level achieved at the end of such Fiscal Year multiplied by (C) the
Market Value per Share as of such Second Specified Payment Date;
and
(iii) on
the Third Specified Payment Date for such Fiscal Year, a payment in an amount
equal to (A) one third of the number of RSUs subject to such Award as of such
Specified Payment Date multiplied by (B) the
Profit Based RSU Payment Percentage applicable to the Cumulative Profit Sharing
Pool Target Level achieved at the end of such Fiscal Year multiplied by (C) the
Market Value per Share as of such Third Specified Payment Date.
Notwithstanding
the foregoing, if the Cash Hurdle for the relevant Profit Based RSU Performance
Period has not been achieved as of an applicable Specified Payment Date set
forth above and been certified by the Committee in writing in accordance with
Section 6.1, then such Specified Payment Date shall be deferred and shall be
deemed to occur on the next annual anniversary date of the original Specified
Payment Date for which the Committee certifies in writing in accordance with
Section 6.1 that such Cash Hurdle was achieved; provided, however, that if such
Cash Hurdle is not so achieved on or before the first day of the 87th month
following the end of the Fiscal Year to which such Specified Payment Date
relates, then no payment shall be made under this Section 6.2(b) for such
Specified Payment Date with respect to the related Profit Based RSU
Award. Except as provided in Section 6.3(b) and Section 6.4(b), if a
Participant’s employment with the Company terminates for any reason whatsoever
prior to a payment date specified in this Section 6.2(b), then such Participant
shall not be entitled to receive any payment with respect to his or her Profit
Based RSU Award for such payment date or for any subsequent payment date, unless
otherwise determined by the Administrator or otherwise provided in the
Participant’s employment agreement with the Company.
Notwithstanding
the preceding provisions of this Section 6.2(b) or the provisions of Sections
6.3(b) and 6.4(b), in no event shall the aggregate payments under the Program to
a Participant with respect to an RSU subject to a Profit Based RSU Award exceed
an amount equal to the Maximum Aggregate Payment Amount, if any, applicable to
such RSU. To the extent that any payment provided under the Program
with respect to an RSU (determined without regard to the limitation described in
the preceding sentence) would, together with all prior payments made with
respect to such RSU, exceed the limitation described in the preceding sentence,
then such excess shall not be paid under the Program and the holder of such RSU
shall have no rights or entitlements to any such excess amount.
6.3 Death, Disability or
Retirement.
(a) LTIP
Awards. Except as provided in Section 6.4(a) and except as
specifically provided in a Participant’s employment agreement or retirement
agreement with the Company, if during an LTIP Performance Period with respect to
which a Participant has received an Award, such Participant dies or becomes
Disabled or Retires, then as to such Participant only (i) the Administrator,
with respect to each LTIP Performance Period that began prior to the date of
such Participant’s death, Disability or Retirement and which has not ended as of
such date, shall as promptly as practicable determine (based on publicly
available data with respect to each LTIP Performance Period that began prior to
the date of such Participant’s death, Disability or Retirement and which has not
ended as of such date) the Company’s EBITDAR Margin and the Entry EBITDAR Margin
through the most recent practicable date and the Company’s cash flow through the
most recent practicable date, and the Company’s resulting cash, cash equivalents
and short term investments, excluding restricted cash, cash equivalents and
short term investments at the most recent practicable date, and shall determine,
based on such data and publicly available data with respect to the companies
contained in the Industry Group (and, if deemed appropriate by the
Administrator, annualizing or otherwise making assumptions with respect to any
relevant data), whether the Company has achieved the relevant LTIP Performance
Target through such most recent practicable date (and if so, the LTIP
Performance Target shall be deemed to have been met, as to such Participant
only), and (ii) the provisions of Sections 6.1 and 6.2(a) shall cease to apply
with respect to each such Performance Period. Except as provided in
Section 6.4(a) and except as specifically provided in a Participant’s employment
agreement or retirement agreement with the Company, with respect to each LTIP
Performance Period that began prior to the date of such Participant’s death,
Disability or Retirement and which has not ended as of such date with respect to
which the LTIP Performance Target has been satisfied in the manner described in
clause (i) of the preceding sentence, such Participant (or, in the case of
death, such Participant’s estate) shall (A) receive a payment from the Company,
within five business days after the determination by the Administrator referred
to in clause (i) of the foregoing sentence (but in no event later than March 15
of the calendar year following the calendar year in which occurred the
Participant’s death, Disability or Retirement), equal to the relevant Payment
Amount applicable to such Participant’s LTIP Award for such LTIP Performance
Period multiplied by a fraction, the numerator of which is the number of days
during the period beginning on the date of such Participant’s commencement of
participation in the Program for such LTIP Performance Period and ending on the
date such Participant died, became Disabled or Retired, and the denominator of
which is the number of days in the entire LTIP Performance Period, and (B) not
be entitled to any additional payment under the Program with respect to such
LTIP Performance Period.
(b) Profit Based RSU
Awards. Except as provided in Section 6.4(b) and except as
specifically provided in a Participant’s employment agreement or retirement
agreement with the Company, if during a Profit Based RSU Performance Period with
respect to which a Participant has received an Award (or after such Performance
Period has ended but prior to the date such Participant has received all
payments to which such Participant may have otherwise been entitled to under
Section 6.2(b) if such Participant had continued to be employed by the Company),
such Participant dies or becomes Disabled or Retires, then, as to such
Participant only, such Participant shall receive a payment on the Applicable
Specified Payment Date (as defined below) in an amount equal to the aggregate
remaining individual payments (each, an “Individual Payment”) that such
Participant would have otherwise received with respect to such Award pursuant to
the provisions of Section 6.2(b) determined as if such Participant had remained
continuously employed by the Company until the applicable payment date and
assuming that the Cash Hurdle applicable to each such Individual Payment was
achieved at the earliest relevant time, except that:
(A) each
such Individual Payment shall be multiplied by a fraction, the numerator of
which is the number of days during the period beginning on the date of such
Participant’s commencement of participation in the Program for the relevant
Profit Based RSU Performance Period and ending on the date such Participant
died, became Disabled or Retired, and the denominator of which is the number of
days in the period beginning on the first day of the relevant Profit Based RSU
Performance Period and ending on the earliest date after the date such
Participant died, became Disabled or Retired as of which payment of such
Individual Payment could have been made under Section 6.2(b) (determined based
upon the assumption that the Cash Hurdle applicable to such payment was
satisfied); and
(B) no
payments shall be made to or for the benefit of such Participant with respect to
any Profit Based RSU Performance Target that is achieved with respect to a
Fiscal Year that begins after the date of such Participant’s death, Disability
or Retirement.
For
purposes of the preceding sentence, the “Applicable Specified Payment Date”
means, with respect to each relevant Profit Based RSU Performance Period, the
Specified Payment Date next occurring (and for which the Cash Hurdle was
actually achieved) with respect to such Performance Period after the Fiscal Year
in which the Participant died, became Disabled or Retired.
Notwithstanding
the foregoing, except as specifically provided in a Participant’s employment
agreement or retirement agreement with the Company, (1) if a Change in Control
occurs after the date of such Participant’s death, Disability or Retirement,
then each payment to which such Participant may still be entitled to pursuant to
the preceding provisions of this Section 6.3(b) as of the date of such Change in
Control that has not previously been paid to such Participant shall be paid to
such Participant within five business days after the date of such Change in
Control, and (2) each such payment shall be determined in the manner described
in such provisions, except that the amount of such payment shall be based on the
Market Value per Share as of the date of such Change in Control (rather than as
of the date specified in Section 6.2(b)).
6.4 Change in
Control.
(a) LTIP
Awards. Upon the occurrence of a Change in Control, with
respect to each Participant who is employed by the Company on the day
immediately preceding the date of such Change in Control, (i) the LTIP
Performance Targets, including achievement of the Stretch EBITDAR Margin, for
each relevant Performance Period that began prior to the date of such Change in
Control and which has not ended as of such date shall be deemed to have been
satisfied, and (ii) the provisions of Sections 6.1, 6.2(a) and 6.3(a) shall
cease to apply with respect to each such Performance Period.
If a
Change in Control occurs during an LTIP Performance Period, then, on or before
the Applicable Payment Date (as defined below) following the end of each
calendar year in such LTIP Performance Period ending on or after the date of
such Change in Control, each Retirement Eligible Participant (as defined below)
with respect to such calendar year who has received an LTIP Award with respect
to such LTIP Performance Period shall receive a payment from the Company equal
to (i) the Payment Amount applicable to such Participant’s LTIP Award for such
LTIP Performance Period (determined as if such Participant had Retired on the
last day of such calendar year) multiplied by a fraction, the numerator of which
is the number of days during the period beginning on the date of such
Participant’s commencement of participation in the Program for such LTIP
Performance Period and ending on the last day of such calendar year, and the
denominator of which is the number of days in the entire LTIP Performance
Period, minus (ii) the aggregate payments, if any, made to such Participant
pursuant to this paragraph with respect to prior calendar years. For
purposes of the preceding sentence, (A) the “Applicable Payment Date” with
respect to a calendar year shall mean the fifteenth day of the third calendar
month following the end of such year (or, in the case of the last calendar year
in an LTIP Performance Period, such term shall mean the fifth business day after
the end of such year), and (B) a Participant shall be considered a “Retirement
Eligible Participant” with respect to a calendar year if such Participant was
eligible to Retire during such year and did not suffer a Qualifying Event, die,
become Disabled or Retire during such year.
If a
Change in Control occurs and on the date thereof or thereafter during an LTIP
Performance Period described in the first paragraph of this Section 6.4(a) a
Participant who has received an LTIP Award with respect to such LTIP Performance
Period suffers a Qualifying Event or subsequent to the Change in Control dies,
becomes Disabled, or Retires, then, with respect to each such LTIP Performance
Period, such Participant (or, in the case of death, such Participant’s estate)
shall (i) within five business days after the occurrence of the Qualifying
Event, death, Disability or Retirement, receive a payment from the Company equal
to (A) the Payment Amount applicable to such Participant’s LTIP Award for such
LTIP Performance Period multiplied by a fraction, the numerator of which is the
number of days during the period beginning on the date of such Participant’s
commencement of participation in the Program for such LTIP Performance Period
and ending on the date such Participant died, became Disabled, Retired or
suffered the Qualifying Event, and the denominator of which is the number of
days in the entire LTIP Performance Period, minus (B) the aggregate payments, if
any, made or payable to such Participant pursuant to the second paragraph of
this Section 6.4(a) with respect to calendar years that ended prior to the date
of such Participant’s Qualifying Event, death, Disability or Retirement, and
(ii) not be entitled to any additional payment under the Program with respect to
such LTIP Performance Period (other than any unpaid amount owed to such
Participant pursuant to the second paragraph of this Section 6.4(a) with respect
to a calendar year that ended prior to the date of such Participant’s Qualifying
Event, death, Disability or Retirement).
If a
Change in Control occurs and a Participant who has received an Award with
respect to an LTIP Performance Period described in the first paragraph of this
Section 6.4(a) did not die, become Disabled, Retire or suffer a Qualifying Event
during such Performance Period and such Participant remained continuously
employed by the Company from the date he or she received such Award until the
last day of such Performance Period, then, with respect to each such Performance
Period, such Participant shall receive a payment from the Company within five
business days after the last day of such Performance Period in an amount equal
to (i) the Payment Amount applicable to such Participant’s Award for such
Performance Period, minus (ii) the aggregate payments, if any, made or payable
to such Participant pursuant to the second paragraph of this Section 6.4(a) with
respect to such Award.
(b) Profit Based RSU
Awards. Upon the occurrence of a Change in Control, (i) the
Cash Hurdle for each Profit Based RSU Performance Period that began prior to the
date of such Change in Control and for which a potential for payment under
Sections 6.2(b) or 6.3(b) exists as of the date of such Change in Control shall
be deemed to have been satisfied, and (ii) the Profit Based RSU Performance
Targets for each Profit Based RSU Performance Period that began prior to the
date of such Change in Control and which has not ended as of such date shall be
deemed to have been satisfied for the Fiscal Year in which the Change in Control
occurs at the Cumulative Profit Sharing Pool Target Level established by the
Committee for purposes of this Section 6.4(b) at the time of grant of the
related Award (provided that this clause (ii) shall not be applicable with
respect to any such Profit Based RSU Performance Period if such Profit Based RSU
Performance Target was satisfied in a Fiscal Year that ended prior to the Fiscal
Year in which such Change in Control occurs at such Cumulative Profit Sharing
Pool Target Level or a higher level). Notwithstanding any provision
in the Program to the contrary, upon the occurrence of a Change in Control, no
Profit Based RSU Performance Target may be achieved with respect to a Fiscal
Year that begins after the date of such Change in Control, and no payments shall
be made to or for the benefit of any Participant with respect to any Profit
Based RSU Performance Target that would have otherwise been achieved for any
such Fiscal Year.
If a
Change in Control occurs, then the provisions of Sections 6.2(b) and 6.3(b)
shall continue to apply to the Profit Based RSU Performance Periods described in
the preceding paragraph with the following modifications:
(i) certification
by the Committee under Section 6.1 of the achievement of the relevant Profit
Based RSU Performance Target and Cash Hurdle shall not be required;
(ii) the
Payment Amount described in Section 6.2(b) as of each applicable Specified
Payment Date that occurs after the date of such Change in Control shall be based
on the Market Value per Share as of the date of such Change in Control (rather
than the Market Value per Share as of such Specified Payment Date);
and
(iii) if
on or after the occurrence of such Change in Control and prior to receiving all
payments pursuant to Section 6.2(b) with respect to such Profit Based RSU
Performance Periods a Participant who has received a Profit Based RSU Award with
respect to such Profit Based RSU Performance Periods suffers a Qualifying Event
or subsequent to the Change in Control dies, becomes Disabled, or Retires, then
such Participant (or, in the case of death, such Participant’s estate) shall (A)
within five business days after the occurrence of the Qualifying Event, death,
Disability or Retirement, receive a payment from the Company equal to the
aggregate of such remaining Payment Amounts, and (B) not be entitled to any
additional payment under the Program with respect to such Payment Amounts;
provided, however, that if a Participant who has received a Profit Based RSU
Award with respect to such Profit Based RSU Performance Periods is eligible to
Retire as of the date of such Change in Control or continues in employment with
the Company after such Change in Control until the date such Participant first
becomes eligible to Retire, and if such Participant does not suffer a Qualifying
Event, die, become Disabled or Retire prior to such Participant’s Applicable
Retirement Date (as defined below), then the payments described in the preceding
provisions of this clause (iii) shall not be made following such Participant’s
Retirement as provided above, but, rather, shall be made on or before the March
15 that next follows such Participant’s Applicable Retirement Date.
For
purposes of clause (iii) of the preceding sentence, a Participant’s “Applicable
Retirement Date” is the date that is five business days before March 15 of the
calendar year next following the later of (x) the calendar year in which such
Change in Control occurs or (y) the calendar year in which such Participant
first became eligible to Retire.
6.5 Form of
Payment of Awards. All payments to
be made under the Program to a Participant with respect to an Award shall be
paid in a single lump sum payment in cash; provided, however, that, to the
extent permitted and subject to any limitations under the Incentive Plan 2010
and applicable laws and securities exchange rules, the Committee may, in its
sole discretion, direct that payment of Profit Based RSU Awards be made either
(a) in shares of Company Stock, but if and only if at the time of payment the
Company has an effective registration statement under the Securities Act of
1933, as amended, covering the issuance of Company Stock under the Program, or
(b) in a combination of cash and/or shares of Company Stock. If the
Committee elects to direct the Company to pay all or a portion of a payment due
for Profit Based RSU Awards in shares of Company Stock, then the number of
shares of Company Stock shall be determined by multiplying (i) one third of the
number of RSUs subject to such Award that are to be so paid in Company Stock by
(ii) the Profit Based RSU Payment Percentage applicable to the Cumulative Profit
Sharing Pool Target Level achieved with respect to the payment to be made in
shares on the Specified Payment Date, rounding such number of shares down to the
nearest whole share. Notwithstanding the preceding provisions of this
Section 6.5, if a payment to be made under the Program to a Participant with
respect to a Profit Based RSU Award is limited due to the application of the
Program limitations relating to the Maximum Aggregate Payment Amount, then such
payment may not be made in shares of Company Stock.
6.6 Delayed
Payment Restriction. With respect to a
Participant who is identified as a specified employee (within the meaning of
section 409A(a)(2)(B)(i) of the Code and as determined by the Company in
accordance with any of the methods permitted under the regulations issued under
section 409A of the Code) and who is to receive a payment hereunder (which
payment is not a “short-term deferral” for purposes of section 409A of the Code)
on account of such Participant’s separation from service (within the meaning of
section 409A(a)(2)(A)(i) of the Code and applicable administrative guidance
thereunder, but excluding a separation from service by reason of death or
Disability), the payment to such Participant shall not be made prior to the
earlier of (a) the date that is six months after the Participant’s termination
of employment or (b) the date of death of the Participant. In such
event, any payment to which the Participant would have otherwise been entitled
during the first six months following the Participant’s termination of
employment (or, if earlier, prior to the Participant’s date of death) shall be
accumulated and paid in the form of a single lump sum payment to the Participant
on the date that is six months after the Participant’s termination of employment
or to the Participant’s estate on the date of the Participant’s death, as
applicable.
6.7 Time of
Payment Obligations. Any obligation
hereunder to make a payment on a specified date shall be deemed to have been
satisfied in the event that such payment is made within five business days after
such specified date; provided, however, that, with respect to a payment that is
intended to qualify as a “short-term deferral” under section 409A of the Code,
in no event shall such payment be made later than the date required in order for
such payment to so qualify.
VII. TERMINATION AND AMENDMENT OF
PROGRAM
7.1 Termination
and Amendment. Subject to the
terms of this Section 7.1, the Committee may amend the Program at any time and
from time to time, and the Committee may at any time terminate the Program (in
its entirety or as it applies to one or more specified Subsidiaries) with
respect to Performance Periods that have not commenced as of the date of such
Committee action; provided, however, that, (a) except as provided in the
following sentence, the Program may not be amended in a manner that would impair
the rights of any Participant with respect to any outstanding Award without the
consent of such Participant, and (b) to the extent required by section 409A of
the Code, the Program may not be amended or terminated in a manner that would
give rise to an impermissible acceleration of the time or form of a payment of a
benefit under the Program pursuant to section 409A(a)(3) of the Code and any
regulations or guidance issued thereunder. Notwithstanding anything
in the Program or an Award Notice to the contrary, if the Committee determines
that the terms of the Program and/or any Award Notice do not, in whole or in
part, satisfy the requirements of section 409A of the Code (or the requirements
for an exemption to the application of section 409A of the Code), then the
Committee, in its sole discretion, may unilaterally modify the Program and any
such Award Notice in such manner as it deems appropriate to comply with such
section and any regulations or guidance issued thereunder (or to qualify for an
exemption to the application of such section). No Participant’s
participation herein may be terminated in contemplation of or in connection with
a Change in Control. The Program may not be amended or terminated in
contemplation of or in connection with a Change in Control unless adequate and
effective provision for the making of all payments otherwise payable pursuant to
Section 6.4 of the Program (as in effect on the date of the adoption of the
Program by the Committee) with respect to such Change in Control shall be made
in connection with any such amendment or termination. The Committee
shall remain in existence after the termination of the Program for the period
determined necessary by the Committee to facilitate the termination of the
Program and the payment of any outstanding Awards hereunder, and all provisions
of the Program that are necessary, in the opinion of the Committee, for
equitable operation of the Program during such period shall remain in
force.
VIII. MISCELLANEOUS
PROVISIONS
8.1 No Effect
on Employment Relationship. Except as
expressly provided otherwise herein, for all purposes of the Program, a
Participant shall be considered to be in the employment of the Company as long
as he or she has not incurred a separation from service with the Company and its
affiliates within the meaning of section 409A(a)(2)(A)(i) of the Code and
applicable administrative guidance issued thereunder; provided, however, that
whether such a separation from service has occurred shall be determined based
upon a reasonably anticipated permanent reduction in the level of bona fide
services to be performed to no more than 20% (or 49% if the Participant will no
longer serve as an officer of the Company) of the average level of bona fide
services provided in the immediately preceding 36 months. Nothing in
the adoption of the Program, the grant of Awards, or the payment of amounts
under the Program shall confer on any person the right to continued employment
by the Company or any Subsidiary or affect in any way the right of the Company
(or a Subsidiary, if applicable) to terminate such employment at any
time. Unless otherwise provided in a written employment agreement,
the employment of each Participant shall be on an at-will basis, and the
employment relationship may be terminated at any time by either the Participant
or the Participant’s employer for any reason whatsoever, with or without
cause. Any question as to whether and when there has been a
termination of a Participant’s employment for purposes of the Program, and the
reason for such termination, shall be determined solely by and in the discretion
of the Administrator, and its determination shall be final, binding, and
conclusive on all parties.
8.2 Prohibition
Against Assignment or Encumbrance. No Award or other
right, title, interest, or benefit hereunder shall ever be assignable or
transferable, or liable for, or charged with any of the torts or obligations of
a Participant or any person claiming under a Participant, or be subject to
seizure by any creditor of a Participant or any person claiming under a
Participant. No Participant or any person claiming under a
Participant shall have the power to anticipate or dispose of any Award or other
right, title, interest, or benefit hereunder in any manner until the same shall
have actually been distributed free and clear of the terms of the
Program. Payments with respect to an Award shall be payable only to
the Participant (or (a) in the event of a Disability that renders such
Participant incapable of conducting his or her own affairs, any payment due
under the Program to such Participant shall be made to his or her duly appointed
legal representative and (b) in the event of the death of a Participant, any
payment due under the Program to such Participant shall be made to his or her
estate). Notwithstanding the preceding provisions of this paragraph, the
Administrator shall comply with the terms of any qualified domestic relations
order (as defined in the Incentive Plan 2010) providing for the transfer or
assignment of all or any portion of a Participant’s interest under the
Program. The provisions of the Program shall be binding on all
successors and permitted assigns of a Participant, including without limitation
the estate of such Participant and the executor, administrator or trustee of
such estate, or any receiver or trustee in bankruptcy or representative of the
Participant’s creditors.
8.3 Unfunded,
Unsecured Program. The Program shall
constitute an unfunded, unsecured obligation of the Company to make payments of
incentive compensation to certain individuals from its general assets in
accordance with the Program. Each Award granted under the Program
merely constitutes a mechanism for measuring such incentive compensation and
does not constitute a property right or interest in the Company, any Subsidiary,
or any of their assets. Neither the establishment of the Program, the
granting of Awards, nor any other action taken in connection with the Program
shall be deemed to create an escrow or trust fund of any kind.
8.4 No Rights
of Participant. No Participant
shall have any security or other interest in any assets of the Company or any
Subsidiary or in Company Stock as a result of participation in the Program
(except after payment thereof to the Participant). Participants and
all persons claiming under Participants shall rely solely on the unsecured
promise of the Company set forth herein, and nothing in the Program, an Award or
an Award Notice shall be construed to give a Participant or anyone claiming
under a Participant any right, title, interest, or claim in or to any specific
asset, fund, entity, reserve, account, or property of any kind whatsoever owned
by the Company or any Subsidiary or in which the Company or any Subsidiary may
have an interest now or in the future; but each Participant shall have the right
to enforce any claim hereunder in the same manner as a general
creditor. Neither the establishment of the Program nor participation
hereunder shall create any right in any Participant to make any decision, or
provide input with respect to any decision, relating to the business of the
Company or any Subsidiary.
8.5 Tax
Withholding. The Company and
the Subsidiaries shall deduct and withhold, or cause to be withheld, from a
Participant’s payment, including the delivery of Company Stock, made under the
Program, or from any other payment to such Participant, an amount necessary to
satisfy any and all tax withholding obligations arising under applicable local,
state, federal, or foreign laws associated with such payment. The
Company and the Subsidiaries may take any other action as may in their opinion
be necessary to satisfy all obligations for the payment and withholding of such
taxes.
8.6 No Effect
on Other Compensation Arrangements. Nothing contained
in the Program or any Participant’s Award or Award Notice shall prevent the
Company or any Subsidiary from adopting or continuing in effect other or
additional compensation arrangements affecting any
Participant. Nothing in the Program shall be construed to affect the
provisions of any other compensation plan or program maintained by the Company
or any Subsidiary.
8.7 Subsidiaries. The Company may
require any Subsidiary employing a Participant to assume and guarantee the
Company’s obligations hereunder to such Participant, either at all times or
solely in the event that such Subsidiary ceases to be a Subsidiary.
8.8 Governing
Law. The Program shall
be construed in accordance with the laws of the State of Texas.
Exhibit
10.14(a)
PROFIT
BASED RSU AWARD NOTICE
to
[Name]
Pursuant
to the Continental Airlines, Inc.
Long
Term Incentive and RSU Program
Performance
Period January 1, 20xx to December 31, 20xx
This
document constitutes your formal Award Notice with respect to a Profit Based RSU
Award as a Participant under the Continental Airlines, Inc. Long Term Incentive
and RSU Program (as amended from time to time, the “Program”) adopted under the
Continental Airlines, Inc. Incentive Plan 2010 (as amended from time
to time, the “Incentive Plan 2010”). This Award Notice evidences your
receipt of a Profit Based RSU Award under the Program with respect to the Profit
Based RSU Performance Period commencing on January 1, 20xx and ending on
December 31, 20xx (the “Performance Period”), subject to the terms of the
Program and the Incentive Plan 2010. [The Program, your participation
in the Program and any payment under the Program are subject to, and contingent
upon, approval of the Incentive Plan 2010 by the stockholders of the Company at
the Company’s 2010 annual meeting of stockholders.]
The Human
Resources Committee of the Board of Directors of the Company (the “Committee”)
has established certain performance goals for purposes of Profit Based RSU
Awards under the Program. The Committee has established the following
terms and performance goals with respect to your Profit Based RSU
Award:
(a) Number of RSUs. The number of
RSUs subject to this Profit Based RSU Award as of the date of grant is
_____.
(b)
Performance Target and Cash
Hurdle. The Performance Target applicable to this Profit Based
RSU Award is satisfied when a Cumulative Profit Sharing Pool Target is achieved
for a particular Fiscal Year. The Cumulative Profit Sharing Pool
Target Level(s) applicable to this Profit Based RSU Award are as
follows:
[Level
One $__________
(*)]
[* The Committee shall establish the
Cumulative Profit Sharing Pool Target Level(s) in accordance with the terms of
the Program at the time of the Award.]
The Cumulative Profit Sharing Pool
Target Level that shall be deemed to have been achieved upon a Change in Control
for purposes of Section 6.4(b) of the Program is Level ____ for this Profit
Based RSU Award.
The Cash Hurdle applicable to this
Profit Based RSU Award is $___ billion.
(c) Payout Structure. The Payout
Structure applicable to this Profit Based RSU Award is as follows:
|
Cumulative
Profit Sharing Pool
Target Level
Achieved
|
Profit
Based RSU Payment Percentage (which
is
the percentage of RSUs for which
payments may be
made)
|
|
[Level
One]
|
[X%(**)]
|
[** The Committee shall determine the
Profit Based RSU Payment Percentage applicable to each Cumulative Profit Sharing
Pool Target Level achieved, and whether Profit Based RSU Payment Percentages
will be interpolated above Level One, in accordance with the terms of the
Program at the time of the Award.]
(d) Award
Payments. Payments with respect to achieving a Performance
Target will be made in three installments on the first day of the 3rd month,
15th month and 27th month following the end of the Fiscal Year in which the
Performance Target was achieved, subject to achievement of the Cash
Hurdle. The Payment Amount payable on such dates with respect to the
achievement of a Performance Target will be equal to one third of the number of
RSUs subject to this Profit Based RSU Award multiplied by the applicable Profit
Based RSU Payment Percentage (determined based on the Cumulative Profit Sharing
Pool Target Level achieved) multiplied by the Market Value per Share on the
payment date (the average closing sales price of a share of Company Stock over
the 20-consecutive Trading Days immediately preceding such payment date or, in
the event of a Change in Control, immediately preceding the date of the Change
in Control). [Notwithstanding the foregoing, in no event will the
aggregate payments under the Program with respect to an RSU subject to this
Profit Based RSU Award exceed an amount equal to $___ (the “Maximum Aggregate
Payment Amount,” which amount is subject to adjustment as provided in the
Program).***] [*** The Maximum Aggregate Payment Amount will be included if
established by the Committee in accordance with the terms of the Program at the
time of the Award.] If the Company does not achieve the Cash Hurdle
applicable to a payment date, the payment will be deferred to the next payment
date (March 1st of the following year, subject to a limit on the number of years
payments may be carried forward).Receipt of a Payment Amount is also conditioned
on your continuous employment with the Company or its subsidiaries through the
applicable payment date (with limited exceptions). A Payment Amount
may be pro-rated as provided in the Program under certain
circumstances.
(e) General. Capitalized
terms used in this Award Notice are defined in the Program. The Program and the
Incentive Plan 2010 are hereby incorporated into this Award Notice by
reference. If you have any questions, or wish to obtain a copy of the
Program or the Incentive Plan 2010, please contact [_________].
CONTINENTAL
AIRLINES, INC.
By:
[Name]
Exhibit10.14(b)
LTIP
AWARD NOTICE
to
[Name]
Pursuant
to the Continental Airlines, Inc.
Long
Term Incentive and RSU Program
Performance
Period January 1, 20xx to December 31, 20xx
This
document constitutes your formal Award Notice with respect to an LTIP Award as a
Participant under the Continental Airlines, Inc. Long Term Incentive and RSU
Program (as amended from time to time, the “Program”) adopted under the
Continental Airlines, Inc. Incentive Plan 2010 (as amended from time to time,
the “Incentive Plan 2010”). This Award Notice evidences your receipt
of an LTIP Award under the Program with respect to the LTIP Performance Period
commencing on January 1, 20xx and ending on December 31, 20xx (the “Performance
Period”), subject to the terms of the Program and the Incentive Plan
2010. [The Program, your participation in the Program and any payment
under the Program are subject to, and contingent upon, approval of the Incentive
Plan 2010 by the stockholders of the Company at the Company’s 2010 annual
meeting of stockholders.]
The Human
Resources Committee of the Board of Directors of the Company (the “Committee”)
has established certain performance goals for purposes of LTIP Awards under the
Program. The performance goals with respect to the Performance Period
relate to (1) the EBITDAR Margin achieved by the Company as compared to the
Entry EBITDAR Margin and (2) the Company’s achievement of the Cash
Hurdle. EBITDAR Margin (which is more specifically defined in the
Program) generally means the cumulative EBITDAR achieved for the Performance
Period by the Company divided by the Company’s cumulative revenues over the
Performance Period. The Entry EBITDAR Margin (which is also more
specifically defined in the Program) generally means the cumulative EBITDAR of
all companies in the Industry Group (currently
[__________________________________________]) for the Performance Period divided
by all such companies’ cumulative revenues over such period. The Cash
Hurdle is achieved if the Company’s total unrestricted cash, cash equivalents
and short-term investments at the end of the Performance Period is equal to or
greater than a target amount set by the Committee.
The
Committee has established the following performance goals for the Performance
Period: (1) Target EBITDAR Margin equal to Entry EBITDAR Margin plus
___ Basis Points; (2) Stretch EBITDAR Margin equal to Target EBITDAR Margin plus
___ Basis Points; and (3) a Cash Hurdle of $___ billion.
If the
Company’s EBITDAR Margin is at least equal to the Entry EBITDAR Margin for the
Performance Period and the Cash Hurdle is achieved, the Payment Amount with
respect to this LTIP Award will be (A) your Payout Percentage times (B) your Base
Amount.
Payout Percentage.
Based on your position at ___________, 20xx, your Payout Percentage is equal to
__% (representing the entry level payout percentage), plus (1) an
additional __% for each Basis Point by which the Company’s EBITDAR Margin with
respect to the Performance Period exceeds the Entry EBITDAR Margin with respect
to such period, up to and including the Target EBITDAR Margin with respect to
the Performance Period (representing a target level payout percentage of __%),
and (2) an additional __% for each Basis Point by which the Company’s EBITDAR
Margin with respect to the Performance Period exceeds the Target EBITDAR Margin
with respect to such period, up to and including the Stretch EBITDAR Margin with
respect to the Performance Period (representing a stretch level payout
percentage of __%).
Base Amount. Your
Base Amount is equal to your base annual salary plus a deemed bonus which, based
on your position at ___________, 20xx, is ___% of your base annual
salary.
The
Payment Amount received with respect to this LTIP Award will be based on your
Payout Percentage and Base Amount determined as of the earlier of the last day
of the Performance Period, the date of your death, Disability or Retirement, or
the day immediately preceding the date upon which you suffer a Qualifying Event
on or after the occurrence of a Change in Control, and so may differ from the
numbers set forth in this Award Notice.
Receipt
of a Payment Amount is also conditioned on your continuous employment with the
Company or its subsidiaries until the last day of the Performance Period (with
limited exceptions, as described above). Upon the occurrence of a
Change in Control, performance targets with respect to LTIP Awards under the
Program are deemed satisfied at the “Stretch” performance level. A Payment
Amount may be pro-rated as provided in the Program (for example, if you become a
participant in the Program after January 1, 20xx, or if your employment
terminates under certain circumstances prior to the last day of the Performance
Period).
Capitalized
terms used in this Award Notice are defined in the Program. The
Program and the Incentive Plan 2010 are hereby incorporated into this Award
Notice by reference. If you have any questions, or wish to obtain a
copy of the Program or the Incentive Plan 2010, please contact
________.
CONTINENTAL
AIRLINES, INC.
By:
[Name]
Exhibit
10.18
CONTINENTAL
AIRLINES, INC.
PROFIT
SHARING PLAN
(As
adopted on February 17, 2010)
CONTINENTAL
AIRLINES, INC.
PROFIT
SHARING PLAN
(As
adopted on February 17, 2010)
ARTICLE I
DEFINITIONS
As used
in this Plan, the following terms with initial capital letters have the meanings
set forth below, unless the context reasonably requires a broader, narrower or
different meaning.
1.1 Award. “Award” means, with
respect to each Year, the amount equal to the portion of the Annual Award Pool
allocated to each Participant for such Year as determined under Section
6.1.
1.2 Annual Award
Pool. “Annual Award Pool” means, with respect to each Year,
the total amount available for allocation to Participants for such Year, as
determined under Article V.
1.3 Beneficiary. “Beneficiary”
means the person or persons determined in accordance with Section 7.3 to
receive any unpaid portion of any Award distributable under the Plan on account
of the death of a Participant.
1.4 Base Pay. “Base
Pay” means, with respect to each Employee, the regular straight-time earnings or
base salary, together with payments for overtime, on-time performance bonuses
and commissions or sales incentives, paid with respect to such Employee by the
Company or a Subsidiary, but excluding any equity based compensation, any
payments under this Plan, any other bonuses and any other special
payments.
1.5 Board. “Board”
means the Board of Directors of the Company.
1.6 Code. “Code” means
the Internal Revenue Code of 1986, as amended.
1.7 Committee. “Committee”
means the committee described in Section 3.1 that is
appointed by the Board to administer the Plan.
1.8 Company. “Company”
means Continental Airlines, Inc., a Delaware corporation, or any successor which
assumes the Plan.
1.9 Effective Date.
“Effective Date” has the meaning set forth in Section
2.2.
1.10 Employee.
“Employee” means any full-time or part-time employee (i) on
the payroll of the Company or of any wholly owned Subsidiary, or (ii) on the
payroll of any other Subsidiary if, and on such terms as, designated by the
Committee or the Board. For this purpose, “on the payroll” shall mean
paid by payroll check through payroll and not a check through accounts payable,
without regard to any reclassification resulting from any controversy concerning
the employment status of the Employee.
1.11 Employment.
“Employment” means employment by the Company or a
Subsidiary. In this regard, neither the transfer of a Participant
from Employment by the Company to Employment by a Subsidiary nor the transfer of
a Participant from Employment by a Subsidiary to Employment by the Company or
another Subsidiary shall be deemed to be a termination of Employment of the
Participant. Moreover, the Employment of a Participant shall not be
deemed to have been terminated because of absence from active Employment on
account of temporary illness or during authorized vacation or during temporary
leaves of absence from active employment granted by the Company or a Subsidiary
for reasons of professional advancement, education, health, government service,
or during any period the Participant is on a company authorized leave of
absence, family medical leave, or military leave, in each case in accordance
with the Company’s applicable leave policy, or during any period required to be
treated as a leave of absence by virtue of any valid law or
agreement.
1.12 Excluded Person.
“Excluded Person” has the meaning set forth in Section
4.1.
1.13 Participant. “Participant” has the
meaning set forth in Section
4.1.
1.14 Plan. “Plan” means
the Continental Airlines, Inc. Profit Sharing Plan, the terms of which are set
forth herein, and as the same may hereafter be amended from time to
time.
1.15 Pre-tax Income. “Pre-tax Income” means,
with respect to each Year, the consolidated income before taxes but after
minority interest (as computed using net income (loss) before taxes) of the
Company for such Year as shown on the Company’s consolidated financial
statements for such Year, but calculated excluding any special, unusual or
non-recurring items as determined by the Committee in
accordance with applicable accounting rules.
1.16 Retired. “Retired”
or “Retirement” means the termination of Employment (for any reason other than
involuntary termination for cause), after satisfaction of all age and service
requirements for (i) either early retirement or normal retirement under the
Continental Retirement Plan, as amended from time to time or (ii) satisfaction
of any other requirements constituting a “retirement” with respect to a Year as
approved by the Committee in its sole discretion.
1.17 Subsidiary.
“Subsidiary” means (i) any wholly owned subsidiary of the
Company or of any wholly owned subsidiary thereof, or (ii) any other corporation
or business venture in which the Company owns, directly or indirectly, a
significant financial interest, but only if, and on such terms as, the Committee
designates such corporation or business venture to be a Subsidiary for the
purposes of this Plan for any Year, and if the board of directors (or equivalent
governing authority) of such corporation or business venture consents to being
designated as a Subsidiary for purposes hereof.
1.18 Year. “Year” means
the period corresponding to the fiscal year of the Company and for purposes of
this Plan refers to the Year for which an Annual Award Pool has been determined
to be available for allocation to Participants pursuant to the terms of the
Plan.
ARTICLE
II
THE
PLAN
2.1 Purpose. The
purpose of the Plan is to promote the growth and prosperity of the Company and
each Subsidiary, to motivate Participants to achieve strategic, financial and
operating objectives, to reward improvement in financial performance, and to
provide a variable incentive compensation component to enhance total
compensation in a manner that is competitive in the industry, thereby permitting
the Company and each Subsidiary to attract and retain superior personnel at all
levels of responsibility and to provide Participants with an additional
incentive to contribute to the success of the Company and its
Subsidiaries. The Plan provides for incentive compensation and,
accordingly, is not intended to be a plan that is subject to Parts 1 through 4
of Subtitle B of Title I of the Employee Retirement Income Security Act of
1974, as amended, and shall be administered accordingly.
2.2 Effective Date.
The Plan shall become effective for the Year beginning
January 1, 2010 (the “Effective Date”).
ARTICLE
III
ADMINISTRATION
3.1 Composition and Authority of
Committee. The Plan shall be solely administered by a
committee appointed by the Board, which Committee shall consist of at least
three members. Such Committee shall be the Human Resources Committee
of the Board or such other Committee as may be designated by the Board, in its
sole discretion, to administer the Plan. The Board shall have the
power from time to time to remove members of the Committee and to fill vacancies
on the Committee arising by resignation, death, removal, or
otherwise. Subject to the express provisions of the Plan, the
Committee shall have full authority to make all decisions and determinations in
its sole discretion and take all other actions necessary or advisable in the
administration and interpretation of the Plan. All such decisions,
determinations, and actions by the Committee shall be final, binding, and
conclusive upon all persons.
3.2 Action by Committee.
A majority of the members of the Committee shall constitute a
quorum for the transaction of business, and the vote of a majority of the
members of the Committee present at a meeting of the Committee shall decide any
question brought before the meeting and shall be the act of the
Committee. In addition, the Committee may act by unanimous written
consent and may also take any other action otherwise proper under the Plan by an
affirmative vote, taken without a meeting, of a majority of its
members.
3.3 Delegation. The
Committee may, in its discretion, delegate one or more of its duties to an
officer or Employee of the Company or a committee composed of officers and/or
Employees of the Company, but may not delegate its authority to interpret the
Plan.
3.4 Reliance upon Information.
Neither the Committee nor any officer or Employee of the
Company (including any committee composed of officers and/or Employees of the
Company to whom duties are delegated pursuant to Section 3.3) shall be
liable for any decision or action taken in good faith in connection with the
administration of the Plan. Without limiting the generality of the
foregoing, any such decision or action taken by the Committee or any such
persons in reliance upon any information supplied to it or them by any officer
of the Company or any Subsidiary, the Company’s or any Subsidiary’s legal
counsel or the Company’s or any Subsidiary’s independent accountants or internal
audit staff in connection with the administration of the Plan shall be deemed to
have been taken in good faith.
ARTICLE
IV
PARTICIPATION
4.1 Participation.
(a) Subject
to the other provisions of this Section 4.1, for any
Year, each Employee who, as of the last day of the Year, remains in Employment
(or who has Retired from Employment or died while an Employee during such
Year) shall be a “Participant” with respect to such Year. Each
Employee who is a member of a workgroup that is not collectively
bargained as of the last day of a Year shall be a Participant in the Plan as of
January 1st of
such Year. Each Employee who is a member of a workgroup that is
collectively bargained as of the last day of a Year shall be a Participant in
the Plan with respect to such Year only if specifically provided pursuant to the
terms of a ratified collective bargaining agreement between the Company (or a
Subsidiary, as applicable) and the union representing such workgroup (a “CBA”),
with participation to be effective solely for the period provided in the
CBA. If a workgroup is represented by a union but has a CBA that has
become amendable prior to or during a Year and the successor CBA has not been
ratified by the last day of such Year, then Employees in that workgroup are
Excluded Persons (as defined below) for such Year, unless the terms of the CBA
specifically provide for participation during the amendable
period. The participation of an international Employee shall be
subject to the terms the CBA, if any, local work rules and legal requirements
applicable to each such Employee.
(b) Notwithstanding
Section 4.1(a),
the following persons shall not be Participants and shall be “Excluded Persons”
with respect to a Year:
|
(i)
|
any
Employee who participates during such Year in any officer-level or
director-level annual incentive program, or any other bonus program of the
Company or a Subsidiary that the Committee designates as excluding such
Employee from participation under the Plan with respect to such Year;
and
|
|
(ii)
|
any
Employee who is a Grade 46 or higher level Employee (which for all
purposes under the Plan shall include any equivalent Employee grade
level(s) used at a Company division or Subsidiary) on the last day of such
Year (or who has Retired from Employment or died as a Grade 46 or higher
level Employee); and
|
|
(iii)
|
any
Employee who is a member of a workgroup as of the last day of such Year
that does not participate in the Plan pursuant to the provisions of Section 4.1(a)
(including any Employee who has Retired or died as a member of such
workgroup).
|
(c) Subject
to Section 7.5,
each Participant with respect to a Year shall be entitled to share in any Annual
Award Pool for such Year in accordance with the allocation and vesting
provisions set forth in Article VI. With respect to a particular
Employee, the workgroup shall mean the workgroup that such Employee is
principally associated with as of the last day of a particular Year (or, if
earlier, upon the Employee’s death or Retirement).
ARTICLE
V
ANNUAL
AWARD POOL
5.1 Annual Award Pool. Subject to Section 5.2, the
“Annual Award Pool” for any Year shall be an amount equal to A
multiplied by B,
where:
A equals the dollar amount of
Pre-tax Income, if any, earned with respect to such Year multiplied by 15%;
and
B equals a fraction, the
numerator of which is the total Base Pay of all Participants for such Year and
the denominator of which is the sum of (i) the total Base Pay of all
Participants for such Year plus
(ii) the total Base Pay of all Excluded Persons for such Year.
5.2 Minor Pools. Notwithstanding the
provisions of Section
5.1, if the Annual Award Pool, as calculated in accordance with Section 5.1 with
respect to any Year, is less than two tenths of one percent (0.2%) of the
denominator used in the fraction set forth in item B of Section 5.1 (such
amount being referred to as a “Minor Pool”), then, at the discretion of the
Committee, the Annual Award Pool for that Year shall be deemed to be zero, and
the amount of the Minor Pool (and any other prior Minor Pool amounts not yet
paid out under the Plan) shall be carried forward and added to the Annual Award
Pool for the following Year (or any next succeeding Year as may be necessary for
the Annual Award Pool for the Year in question to exceed two tenths of one
percent (0.2%) of the denominator used in the fraction set forth in item B of Section 5.1 for such
Year). Any Minor Pool remaining upon the termination of the Plan and
not included in a successor profit sharing plan shall revert to the Company and
not be paid out.
ARTICLE
VI
ALLOCATION
AND VESTING OF AWARDS
6.1 Allocation of Annual Award Pool,
Vesting. As soon as practicable after the close of each
Year, the Company’s Controller shall determine whether there is an Annual Award
Pool and, if so, shall certify the Annual Award Pool for that Year and allocate
such Annual Award Pool to each Participant who satisfies the requirements of
Section 4.1
(and any amount not so allocated shall not be paid to Participants hereunder) in
the proportion that (A) the total Base Pay of each such Participant paid with
respect to such Year (subject to adjustment as described below) bears to (B) the
total Base Pay for all Participants with respect to such Year. In
calculating the total Base Pay of each Participant pursuant to clause (A), with
respect to any Participant who is a member of a workgroup that did not
participate in the Plan with respect to the full Year as set forth in Section 4.1, the
total Base Pay of such Participant shall be adjusted to reflect only the portion of such
Participant’s Base Pay paid with respect to the period during the Year that such
workgroup is eligible to participate in the Plan as provided in Section
4.1. In addition, the Award to any
Participant who participates during such Year in any required profit sharing or
similar arrangement with respect to the Company or any Subsidiary pursuant to
the legal requirements of the country or other jurisdiction of such
Participant’s residence or principal place of work (a “Local Award”) shall be
reduced by the amount of such Local Award paid or accrued to such Participant
with respect to such Year, and such amount shall be retained by the Company or
Subsidiary, as applicable.
The Committee shall review the
Controller’s certification and allocation of the Annual Award Pool and shall
approve the payment of the Annual Award Pool to the
Participants. Subject to Section 7.5, amounts
so approved shall be 100% vested and nonforfeitable and shall be payable in
accordance with Article VII.
ARTICLE
VII
DISTRIBUTIONS
AND PAYMENTS
7.1 Payor of Awards.
Subject to the following provisions hereof, any Award payable
under the Plan with respect to a Participant for a given Year shall be the
obligation of and paid by the Company or any Subsidiary, whichever may be
applicable, or any successor pursuant to Section 9.2, that
employed the Participant at the end of the Year with respect to which the Award
was made. Adoption and maintenance of the Plan by the Company and any
Subsidiary shall not create a joint venture or partnership relationship among or
between such persons for purposes of payment of Awards under the Plan or for any
other purpose.
7.2 Cash Payment. Subject to Section 7.5, the
Award shall be paid by the Company or Subsidiary, as the case may be, to the
Participant (or Beneficiary) in full in the form of a single sum payment in cash
as promptly as administratively practicable following the last day of the Year
to which the Award pertains; but in any event not later than two and one-half
months following the last day of the Year to which the Award
pertains. The Company or Subsidiary, as the case may be, shall deduct
from amounts paid under this Section 7.2 any taxes
required to be withheld by applicable law any other proper withholding of
amounts owed by the Participant to the Company or Subsidiary.
7.3 Death of Participant.
Any Award with respect to a Participant that remains unpaid,
in whole or in part, at the death of the Participant shall (subject to Section 7.5 and the
provisions of Section
7.2 regarding withholding of taxes) be paid in a single sum payment of
cash to the Participant’s Beneficiary as soon as administratively practicable
following the death of the Participant (but no sooner than Awards are generally
paid). Each Participant shall have the right to designate a
Beneficiary to receive any amount payable under the Plan with respect to the
Participant after the Participant’s death. Any designation (or change in
designation) of a Beneficiary must be filed with the Company in a time and
manner designated by the Company in order to be effective. Any such designation
of a Beneficiary may be revoked by the Participant by filing a later valid
designation or an instrument of revocation with the Company in a time and manner
designated by the Company. If no Beneficiary designation under the
Plan is on file with the Company at the time of the death of the Participant or
if such designation is not effective for any reason as determined by the
Company, then the Participant’s Beneficiary for purposes of the Plan shall be
determined as follows:
|
|
(a)
|
If
the Participant leaves a surviving spouse, then the Participant’s
Beneficiary shall be such surviving
spouse;
|
|
|
(b)
|
If
the Participant leaves no surviving spouse, then the Participant’s
Beneficiary shall be his or her beneficiary affirmatively designated under
the Company’s principal plan that provides a retirement benefit on behalf
of the Participant (other than a qualified defined benefit plan or money
purchase pension plan within the meaning of Section 401(a) of the Code);
or
|
|
|
(c)
|
If
the Participant (i) leaves no surviving spouse and (ii) as of the date of
his or her death, does not have an account balance under the plan referred
to in clause (b) above, has no beneficiary designation on file under such
plan, or his or her beneficiary designation under such plan is not
effective for any reason as determined by the administrator of such plan,
then the Participant’s Beneficiary shall be (A) the Participant’s executor
or administrator for the benefit of the Participant’s estate or
(B) the Participant’s heirs at law if there is no executor or
administrator of the Participant’s
estate.
|
7.4 Nonalienation of Benefits.
No right or benefit under this Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge
the same will be void. No right or benefit hereunder shall in any
manner be liable for or subject to any debts, contracts, liabilities, or torts
of the person entitled to such benefits. If any Participant (or
Beneficiary) hereunder shall become bankrupt or attempt to anticipate, alienate,
assign, sell, pledge, encumber, or charge any right or benefit hereunder, or if
any creditor shall attempt to subject the same to a writ of garnishment,
attachment, execution, sequestration, or any other form of process or
involuntary lien or seizure, then such right or benefit shall, in the discretion
of the Committee, cease and terminate.
7.5 Forfeiture for Cause.
Notwithstanding any other provision of the Plan, a
Participant (and his or her Beneficiary) shall forfeit his or her Award if his
or her Employment is terminated for cause or gross misconduct prior to payment
of such Award. The determination of whether a termination of
Employment is for cause or gross misconduct shall be made at the sole discretion
of the Company or Subsidiary, as the case may be, that employed such
Employee. All such determinations
shall be final, binding, and conclusive upon all persons.
ARTICLE
VIII
TERMINATION
OR AMENDMENT OF THE PLAN
8.1 Termination or Amendment.
Unless earlier terminated as provided below, the Plan shall
automatically terminate at the close of business on December 31, 2014; provided
that the Plan shall remain in effect thereafter to the extent necessary to
permit payment of any Awards with respect to the Year 2014. The Board
(or the Committee) may at any time amend, modify, revise or terminate the
Plan. There are no acquired rights arising pursuant to the
Plan.
8.2 Modification or Termination following
Award. Subject to the provisions of Section 9.2,
modification, amendment, revision or termination of the Plan shall not adversely
affect rights or obligations under the Plan with respect to any Awards made
prior to such modification, amendment, revision or termination, without the
consent of the affected persons. Awards shall be deemed made as of
the last day of a Year.
ARTICLE
IX
MISCELLANEOUS
9.1 Other Compensation Plans.
The adoption of the Plan shall not affect any other
compensation plans in effect for the Company or any Subsidiary or affiliate of
the Company except as may specifically be provided under the terms and
provisions of such other plan or awards made thereunder, nor shall the Plan
preclude the Company or any Subsidiary or affiliate thereof from establishing
any other forms of incentive or other compensation for Employees.
9.2 Powers of the Company.
The existence of outstanding and unpaid Awards under the Plan
shall not affect in any way the right or power of the Company or any Subsidiary
to make or authorize any adjustments, stock dividends, spin-offs or other
extraordinary dividends, stock splits, combinations of shares,
recapitalizations, reorganizations or other changes in the Company’s or
Subsidiary’s capital structure or in its business, or any merger or
consolidation of the Company or any Subsidiary, or any issue of bonds,
debentures, common or preferred stock, if applicable, or the dissolution or
liquidation of the Company or any Subsidiary, or any sale or transfer of all or
any part of its assets or business, or any other act or proceeding, whether of a
similar character or otherwise.
If the
Company or any Subsidiary (or any successor thereto) elects to dissolve, enter
into a sale of its assets, or enter into any reorganization incident to which it
is not the surviving entity, unless the surviving or successor entity shall
formally agree to assume the Plan, then the Plan shall terminate with respect to
the Company or any Subsidiary (or any successor thereto) on the earlier of the
date of closing or the effective date, whichever may be applicable, of such
transaction, and the full amount of any Awards remaining unpaid in respect of
Years ended prior to such applicable date shall nevertheless be paid to each
such Participant (or Beneficiary) in a single lump sum payment of cash in
accordance with the terms of the Plan.
9.3 Plan Binding on Successors.
The Plan shall be binding upon the successors and assigns of
the Company and any Subsidiary.
9.4 No Guarantee of Employment.
Nothing contained in this Plan shall be deemed to give any
Participant or Employee the right to be retained in the service of the Company
or any Subsidiary or affiliate of the Company or to interfere with the right of
the Company or any Subsidiary or affiliate of the Company to discharge any
Participant or Employee at any time, including at the end of any Year,
regardless of the effect which such discharge shall have upon a Participant in
the Plan.
9.5 Liability of Employer.
Each Participant, Beneficiary or other person who shall claim
a right or benefit under this Plan shall be entitled only to look to the
Participant’s employer for such benefit, and no officer, director, or employee
of the Company or any Subsidiary or member of the Committee or any other person
shall have any liability for such benefit.
9.6 Payment of Plan Expenses.
The Company and each Subsidiary will pay its pro rata
share of all expenses that may arise in connection with the administration of
this Plan.
9.7 Headings. Any
headings or subheadings in this Plan are inserted for convenience of reference
only and are to be ignored in the construction of any provisions
hereof. All references in this Plan to Articles and Sections are to
Articles and Sections of this Plan unless specified otherwise.
9.8 Gender and Tense.
Any words herein used in the masculine shall be read and
construed in the feminine where they would so apply. Words in the
singular shall be read and construed as though in the plural in all cases where
they would so apply.
9.9 Governing Law.
This Plan shall be construed in accordance with the laws of
the State of Texas to the extent federal law does not supersede and preempt
Texas law.
9.10 Severability. If
any provision of this Plan shall be held illegal, invalid, or unenforceable for
any reason, such provision shall be fully severable, but shall not affect the
remaining provisions of the Plan, and the Plan shall be construed and enforced
as if the illegal, invalid, or unenforceable provision had never been included
herein.
9.11 No Guarantee of Tax Consequences.
None of the Company, any Subsidiary, the Committee or any
officer or director makes any commitment or guarantee that any federal or state
tax treatment will apply or be available to any person participating or eligible
to participate in this Plan.
9.12 Notice. Whenever
any notice is required or permitted hereunder, such notice must be in writing
and personally delivered or sent by mail. Any notice required or
permitted to be delivered hereunder shall be deemed to be delivered on the date
which it is personally delivered, or, whether actually received or not, on the
third business day after it is deposited in the United States mail, postage
prepaid, addressed to the person who is to receive it at the address specified
below. The Company or a Subsidiary shall be entitled to use the
address of a Participant as it appears in the personnel records of the
employer. Participants shall be entitled to use, as the address for
the Company or a Subsidiary, the address of the Company’s principal corporate
office. Any person entitled to notice hereunder may waive such
notice.
Exhibit
10.19
CONTINENTAL
AIRLINES, INC.
Non-Employee
Director Compensation Summary
Effective
February 17, 2010, members of our board of directors who are not full-time
employees of Continental Airlines, Inc. receive the following
compensation:
|
·
|
$25,000
per year, plus an additional annual fee
of:
|
|
§
|
$40,000
for the chairperson of the Audit
Committee;
|
|
§
|
$20,000
for the chairperson of the Corporate Governance Committee and Human
Resources Committee;
|
|
§
|
$25,000
for members of the Audit Committee (other than the
chairperson);
|
|
§
|
$15,000
for members of the Human Resources Committee (other than members who
receive an additional fee for service as the chairperson of a
committee);
|
|
§
|
$20,000
for the lead independent director;
|
|
·
|
$1,400
($2,100 for the chairperson) for each board and committee meeting
physically attended (other than an Audit Committee
meeting);
|
|
·
|
$2,000
($3,000 for the chairperson) for each Audit Committee meeting physically
attended;
|
|
·
|
$700
for each board meeting attended by
telephone;
|
|
·
|
$350
for each committee meeting attended by telephone ($500 for each Audit
Committee meeting attended by
telephone);
|
|
·
|
restricted
stock in an amount equal to $50,000, valued based on the closing price per
share of the company’s common stock on the trading date preceding the date
of grant, awarded following each annual stockholders meeting and upon
election to the board if the member is first elected to the board other
than at an annual stockholders meeting, with the restrictions on such
shares to lapse on the one year anniversary of the grant date (subject to
acceleration of the vesting in limited
circumstances);
|
|
·
|
lifetime
flight benefits, comprised of space-available personal and family flight
passes, a travel card permitting positive space travel by the director,
the director’s family and certain other individuals (which is taxable to
the director, subject to reimbursement of certain of such taxes by the
company only during the period of such director’s service on our board,
unless such director had an existing contractual right to such
reimbursements as of May 26, 2009), frequent flyer cards, airport lounge
cards and airport parking where available to Continental at no incremental
cost;
|
|
·
|
limited
flight benefits for the surviving spouse for ten years following a
director’s death; and
|
|
·
|
$2,500
as compensation for time spent on orientation matters in connection with a
director’s first election to the Board of Directors or the director’s
appointment to a committee of the Board on which he or she has not
recently served.
|
In
addition, non-employee directors who conduct Continental business in their
capacities as directors on Continental’s behalf at the request of the board or
the Chairman of the Board are paid (i) for telephone participation in board
and committee meetings as if they were physically present, if their conducting
that business makes it impractical for them to attend the meeting in person, and
(ii) $3,000 per day spent outside the United States while conducting that
business.
All
directors, including those who are full-time employees who serve as directors,
receive reimbursement of expenses incurred in attending meetings. Directors also
receive travel privileges on some other airlines through arrangements entered
into between Continental and such airlines.
Exhibit
10.20
[FORM
LETTER FOR NON-EMPLOYEE DIRECTOR ELECTED PRIOR TO MAY 27, 2009]
February
20, 2008
[name and
address of director]
RE: Continental
Airlines Flight Benefits
Dear
[first name],
At its
November 27, 2007 meeting, the Board of Directors of Continental Airlines, Inc.
(the “Company”), acting pursuant to the recommendation of the Corporate
Governance Committee of the Board of Directors and resolutions duly adopted by
the Board, made certain adjustments to our flight benefits program in order to
comply with I.R.C. Section 409A (“409A”). This letter agreement sets
forth the contractual obligations of the parties with respect to the flight
benefits, as contemplated and authorized by such resolutions. This
letter agreement supersedes and replaces any prior agreements between you and
the Company relating to flight benefits.
Flight
Benefits are provided for your lifetime subject to the terms and conditions set
forth in Exhibit
A attached hereto. For purposes of Exhibit A, you are
referred to as “Non-Employee Director.”
This
letter agreement shall be binding upon and inure to the benefit of the Company
and any successor of the Company, including without limitation any person,
association, or entity which may hereafter acquire or succeed to all or
substantially all of the business or assets of the Company by any means, whether
director or indirect, by purchase, merger, consolidation, or
otherwise. This letter agreement and the benefits or obligations
hereunder may not be assigned by you.
If you
are in agreement with the terms of this letter agreement and the terms of the
flight benefits set forth on Exhibit A, please
execute the attached copy hereof and return it to the Company at the above
address, whereupon this letter agreement will become a binding obligation of the
parties hereto.
Very
truly yours,
CONTINENTAL
AIRLINES,
INC. ACCEPTED AND AGREED
As
of the date first above written
By: __________________________
[name]
[name of
director]
[title]
[FORM
LETTER FOR NON-EMPLOYEE DIRECTOR ELECTED AFTER MAY 27, 2009]
[date]
[name and
address of director]
RE: Continental
Airlines Flight Benefits
Dear
[first name],
This
letter agreement sets forth the contractual obligations with respect to the
flight benefits, as set forth on Exhibit A, provided by Continental Airlines,
Inc. (the “Company”) to you in connection with your service as a member of the
Board of Directors of the Company. For purposes of Exhibit A, you are
referred to as “Non-Employee Director.”
This
letter agreement shall be binding upon and inure to the benefit of the Company
and any successor of the Company, including without limitation any person,
association, or entity which may hereafter acquire or succeed to all or
substantially all of the business or assets of the Company by any means, whether
direct or indirect, by purchase, merger, consolidation, or
otherwise. This letter agreement and the benefits or obligations
hereunder may not be assigned by you.
If you
are in agreement with the terms of this letter agreement and the terms of the
flight benefits set forth on Exhibit A, please
execute the attached copy hereof and return it to the Company at the above
address, whereupon this letter agreement will become a binding obligation of the
parties hereto.
Very
truly yours,
CONTINENTAL
AIRLINES,
INC. ACCEPTED
AND AGREED
As of the date first above
written
By: __________________________
[name] [name of
director]
[title]
Exhibit
A
Continental
Airlines, Inc.
Flight
Benefits Effective January 1, 2008
1. Scope;
Effectiveness. Effective January 1, 2008 [Insert for
Non-Employee Directors first elected after January 1, 2008: or the date of your
first election to the Board, if later], Flight Benefits will be provided for
your lifetime subject to the terms set forth in this Exhibit
A. [Insert for Non-Employee Directors elected prior to January 1,
2008: Non-Employee Director’s accrued benefits and rights with
respect to the Flight Benefits under the terms of Non-Employee Director’s
existing agreement(s) with Company are hereby surrendered and
cancelled.]
2. Definitions. As used in this
Exhibit, the following terms shall have the meanings assigned
below.
(i) “Flight Benefits”
shall mean lifetime flight benefits on each airline in the CO System consisting
of the following:
(a) space
available flight passes, including appropriate flight pass identification cards,
for Non-Employee Director and Non-Employee Director’s Eligible Family
Members;
(b) a
Universal Air Travel Plan (UATP) card or, in the event of discontinuance of the
UATP program, a similar charge card or other authorization mechanism permitting
the purchase of air travel through direct billing to Company or any successor or
successors thereto (which successor card or mechanism shall be deemed included
as appropriate in all references herein to “UATP card”) in Non-Employee
Director’s name for charging (subject to the restrictions set forth in paragraph
3 below) on an annual, calendar-year basis up to the Annual Travel Limit,
tickets on the CO System (in any fare class) for travel by Non-Employee
Director, Non-Employee Director’s spouse, Non-Employee Director’s family and
significant others as determined by Non-Employee Director;
(c) Platinum
Elite OnePass Cards (or similar highest category successor frequent flyer cards)
in Non-Employee Director’s and Non-Employee Director’s spouse’s
names;
(d) a
membership for Non-Employee Director and Non-Employee Director’s spouse in
Company’s Presidents Club (or any successor program); and
(e) payment
by Company to Non-Employee Director, while Non-Employee Director serves as a
member of the Board of Directors of Company [Insert for Non-Employee Directors
serving on the Board prior to May 27, 2009: (and, if Non-Employee
Director shall have five or more years of service on the Board of Directors of
Company, or retires from the Board after age 70, for the lifetime of
Non-Employee Director)], of an annual (calendar year) amount up to the Annual
Gross Up Limit sufficient to pay, on an after tax basis (i.e., after the payment
by Non-Employee Director of all taxes on such amount), the U.S. federal, state
and local income taxes on imputed income resulting from flights purchased with
the UATP card or resulting from any other flight benefits extended to
Non-Employee Director as a result of Non-Employee Director’s service to Company,
and any payment by Company to Non-Employee Director pursuant to this paragraph
2(e) shall be made on or as soon as practicable following the day on which the
required tax is remitted by or on behalf of Non-Employee Director (but not later
than the end of the taxable year following the year in which such tax is
remitted).
(ii) “affiliates” means any
entity controlled by, controlling, or under common control with Company, it
being understood that control of an entity shall require the direct or indirect
ownership of a majority of the outstanding capital stock of such
entity.
(iii) “Annual Travel Limit”
means an amount granted annually (on a calendar-year basis and effective January
1 of each year) by Company to Non-Employee Director equal to the amount of the
annual grant Non-Employee Director received for 2007 [Insert for Non-Employee
Directors first elected after January 1, 2008: (or, if your first election to
the Board is after January 1, 2008, an amount equal to the annual grant provided
to each other Non-Employee Director for such year)], which annual amount shall be
adjusted upon any change in the valuation methodology used by Company to
calculate imputed income from flights for U.S. federal income tax purposes so as
to preserve such annual benefit level for purchases of tickets on the CO System
(e.g., if a change in the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that would result using the
prior valuation methodology, then the Annual Travel Limit would be increased by
15%). In determining any adjustment, Company shall be entitled to
rely on its good faith calculation, as verified by its internal audit department
or independent auditors, which calculation will be provided to Non-Employee
Director upon request. Company will provide Non-Employee Director an
annual statement specifying the Annual Travel Limit and will notify Non-Employee
Director promptly of any adjustments to the Annual Travel Limit described in
this paragraph. Any portion of the Annual Travel Limit that remains
unused at the end of the calendar year for which it was awarded shall expire and
be of no further use or value.
(iv) “Annual Gross Up
Limit” means an amount granted annually (on a calendar-year basis and
effective January 1 of each year) by Company to Non-Employee Director in an
amount equal to the amount of the annual grant Non-Employee Director received
for the flight benefits program year 2007 [Insert for Non-Employee Directors
first elected after January 1, 2008: (or, if your first election to the Board is
after January 1, 2008, an amount equal to the annual grant provided to each
other Non-Employee Director for such year)], which amount shall be adjusted upon
any change in the valuation methodology used by Company to calculate imputed
income from flights for U.S. federal income tax purposes so as to preserve such
annual benefit level of tax gross up (e.g., if a change in the valuation
methodology results, on average, in such flights being valued 15% higher than
the valuation that would result using the prior valuation methodology, then the
Annual Gross Up Limit would be increased by 15%). In determining any
adjustment, Company shall be entitled to rely on its good faith calculation, as
verified by its internal audit department or independent auditors, which
calculation will be provided to Non-Employee Director upon
request. Company will provide Non-Employee Director an annual
statement specifying the Annual Gross Up Limit and will notify Non-Employee
Director promptly of any adjustments to the Annual Gross Up Limit described in
this paragraph. Any portion of the Annual Gross Up Limit that remains
unused at the end of the calendar year for which it was awarded shall expire and
be of no further use or value.
(v) “CO System” shall mean
(a) flights operated by Company or any of its affiliates or any successor or
successors thereto and (b) flights operated on behalf of Company by any third
party under capacity purchase agreements with Company; provided that, unless
otherwise communicated to Non-Employee Director and subject to clause (b), CO
System shall not include flights on any other carriers, including Continental
Connection carriers and other alliance/codeshare carriers.
(vi) “Eligible Family
Members” means, with respect to each annual benefit year, Non-Employee
Director’s spouse or travel companion, dependent unmarried children through age
20 and through age 25 if full-time students, and a maximum of two parents (which
may be biological or step-parents); provided that an Eligible Family Member
shall not include any individual with respect to whom a benefit described in
paragraph 2(i)(a) is taxable.
3. Restrictions
on Use; Consequences of Misuse.
(i) Personal Use
Restriction. Non-Employee Director agrees that the Flight
Benefits are to be used solely for personal reasons and may not be used for
business purposes (other than business on behalf of Company), and that credit
availability on Non-Employee Director’s UATP card may be suspended and
Non-Employee Director’s UATP card may be revoked or cancelled if (A) such UATP
card is used for business purposes (other than business on behalf of Company)
and (B) after receiving written notice from Company to cease such usage,
Non-Employee Director again uses Non-Employee Director’s UATP card for any
business purpose (other than business on behalf of Company).
(ii) Booking and Ticketing;
Accounting; Reimbursement.
(a) No
tickets issued on the CO System in connection with the Flight Benefits may be
purchased other than directly from Company or its successor or successors (i.e.,
no travel agent or other fee or commission based distributor may be used), nor
may any such tickets be sold or transferred by Non-Employee Director or any
other person, nor may any such tickets be used by any person other than the
person in whose name the ticket is issued.
(b) Non-Employee
Director shall be responsible for all charges on Non-Employee Director’s UATP
card in excess of the Annual Travel Limit or that are not for flights on the CO
System. Non-Employee Director agrees to reimburse Company, after
receipt of an invoice or other accounting statement, for all charges on
Non-Employee Director’s UATP card that are not for flights on the CO System and
that are not otherwise reimbursable to Non-Employee Director under the
applicable policies of Company for reimbursement of business expenses of
Non-Employee Directors of Company, or that are for tickets in excess of the
Annual Travel Limit or that violate the restrictions set forth in this Exhibit,
which reimbursement shall be made promptly (and in any event within 45 days
after receipt of such invoice or other accounting
statement). Non-Employee Director agrees that the credit availability
under Non-Employee Director’s UATP card may be suspended if Non-Employee
Director does not timely reimburse Company as described in the foregoing
sentence or if Non-Employee Director exceeds the applicable Annual Travel Limit;
provided, that, immediately upon Company’s receipt of Non-Employee Director’s
reimbursement in full (or, in the case of exceeding the applicable Annual Travel
Limit, beginning the next following year and after such reimbursement), the
credit availability under Non-Employee Director’s UATP card will be
restored.
4. Imputed
Income. The sole cost to Non-Employee Director of flights on
the CO System pursuant to use of Non-Employee Director’s Flight Benefits will be
the imputed income with respect to flights on the CO System charged on
Non-Employee Director’s UATP card, or as otherwise required by law, and reported
to Non-Employee Director as required by applicable law. For purposes
of tax reporting of Flight Benefits, it is the practice of Company to calculate
taxable amounts based on the fiscal period commencing November 1 and ending on
the following October 31 (for example, Flight Benefits utilized (i.e. “flown”)
during the twelve-month period from November 1, 2007 to October 31, 2008 are
reported as a taxable benefit for year 2008). Company shall have sole
discretion to change this practice, including if additional reporting tools
become available to process Flight Benefits data [Insert for Non-Employee
Directors first elected after January 1, 2008: , the tax withholding process
changes,] or as required by law.
5. Section
409A Matters. It is intended that the Flight Benefits program
described in this Exhibit comply with the limitations and requirements of
Section 409A of the Internal Revenue Code (the “Code”) to the extent applicable,
and all provisions herein shall be construed and interpreted in accordance with
such intent. If Company reasonably determines in good faith that any
provision of such program, when considered individually or in connection with
the terms of any other nonqualified deferred compensation plan maintained by
Company or any affiliate of Company, violates Section 409A of the Code, such
provision will not be effected but will instead be interpreted and amended to
comply with Section 409A of the Code, and any corrections of operation or
administration necessary to comply with Section 409A of the Code shall be
implemented; provided, however, that no such interpretation, amendment or
correction shall result in Non-Employee Director being treated worse than other
former non-management members of the Board of Directors of Company who
terminated service with flight benefits substantially equivalent to those
provided upon termination of service by Non-Employee Director.
6. Survivor
Benefits. Upon Non-Employee Director’s death, in addition to
the lifetime benefits provided Non-Employee Director’s spouse pursuant to
paragraphs 2(i)(c) and (d) of this Exhibit, Non-Employee Director’s surviving
spouse and children will be permitted to continue to use (in the proportions
specified in Non-Employee Director’s last will and testament or, if not so
specified or if Non-Employee Director dies intestate, in equal proportions)
Non-Employee Director’s Flight Benefits as follows: an annual survivor travel
limit shall be granted annually on January 1 of each calendar year during the
ten calendar year period beginning January 1st of the calendar year following
Non-Employee Director’s death and ending on December 31st of the year of the
tenth anniversary of the Non-Employee Director’s death (such annual survivor
benefit amount to be $10,000), which annual amount shall be adjusted upon any
change in the valuation methodology used by Company for imputed income from
flights for U.S. federal income tax purposes so as to preserve an annual benefit
level for purchase of tickets on the CO System at least as favorable as the
benefit in effect on January 1, 2008 [Insert for Non-Employee Directors first
elected after January 1, 2008: (or, if your first election to the Board is after
January 1, 2008, an annual benefit level at least as favorable as the benefit in
effect on the date of your first election to the Board)]. In
determining any adjustment pursuant to the first sentence of this paragraph,
Company shall be entitled to rely on its good faith calculation as verified by
its internal audit department or independent auditors, which calculation will be
provided to the Non-Employee Director’s surviving spouse and children upon
request. Company will provide Non-Employee Director’s surviving
spouse and children an annual statement specifying the annual survivor benefit
and any adjustments described in this paragraph. Any portion of the
annual survivor benefit described in this paragraph that remains unused at the
end of the calendar year for which it was awarded shall terminate and be of no
further use or value. All rights, duties and obligations of
Non-Employee Director, and all rights, duties and obligations of Company,
relating to Non-Employee Director’s usage of Flight Benefits contained in this
Exhibit shall be applicable to usage of Non-Employee Director’s Flight Benefits
by Non-Employee Director’s surviving spouse and children, and the provision of
such Flight Benefits to Non-Employee Director’s surviving spouse and children
shall be conditioned upon written acknowledgement of and agreement thereto by
Non-Employee Director’s surviving spouse and children who may use such Flight
Benefits.
Exhibit 10.22(bb)
Supplemental
Agreement No. 53
to
Purchase
Agreement No. 1951
Between
The
Boeing Company
and
Continental
Airlines, Inc.
Relating
to Boeing Model 737 Aircraft
THIS
SUPPLEMENTAL AGREEMENT, is entered into as of December
23, 2009 by and between THE BOEING COMPANY (Boeing) and CONTINENTAL AIRLINES,
INC. (Buyer);
WHEREAS,
the parties agree to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
WHEREAS,
Customer wishes to exercise its [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Whereas,
Customer previously agreed to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Whereas,
in consideration of [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT], Customer agrees to allow Boeing to
use certain aircraft for flight testing as provided under letter Agreement
6-1162-RCN-1890;
Supplemental
Agreement No. 53 to
Purchase
Agreement No. 1951
NOW
THEREFORE, in consideration of the mutual covenants herein contained, the
parties agree to amend the Agreement as follows:
|
|
1.
|
Table of Contents,
Articles, Tables, Exhibits, and Letter
Agreements:
|
1.1 Remove
and replace, in its entirety, the “Table of Contents”, with the “Table of
Contents” attached hereto, to reflect the changes made by this Supplemental
Agreement No. 53.
1.2 Remove
and replace, in their entirety, pages T-2-2 and T-2-3 of Table 1 entitled the
“Aircraft Deliveries and Descriptions, Model 737-700 Aircraft”, with the revised
pages T-2-2 and T-2-3 of Table 1 attached hereto.
1.3 Remove
and replace, in their entirety, pages T-6-1 and T-6-2 of Table 1 entitled the
“Aircraft Deliveries and Descriptions, Model 737-900ER Aircraft”, with the
revised pages T-6-1 and T-6-2 of Table 1 attached hereto, and add page
T-6-3.
1.4 Remove
and replace the cover page to Exhibit A-6.1 and insert new Exhibit A-6.2 after
Exhibit A-6.1.
1.5
Letter Agreement no. 6-1162-RCN-1888 entitled Use of Aircraft – Boeing
747-800 and 787 Flight Test Training, is hereby incorporated into the
Purchase Agreement.
1.6
Letter Agreement no. 6-1162-RCN-1890 entitled Use of Aircraft for
Testing, is hereby incorporated into the Purchase Agreement.
2. Option
Aircraft Deposit Refund
In consideration of Customer’s
Agreement to allow Boeing to use certain Aircraft for testing under Letter
Agreement No. 6-1162-RCN-1890, Boeing hereby agrees to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Supplemental
Agreement No. 53 to
Purchase
Agreement No. 1951
The
Agreement will be deemed to be supplemented to the extent herein provided as of
the date hereof and as so supplemented will continue in full force and
effect.
EXECUTED
IN DUPLICATE as of the day and year first written above.
THE
BOEING
COMPANY CONTINENTAL
AIRLINES, INC.
By:/s/ Susan
Englander By:
/s/
Jacques Lapointe
Its:
Attorney-in-Fact Its: Senior Vice President –
Procurement
TABLE OF
CONTENTS
|
Page
|
SA
|
||
|
ARTICLES
|
Number
|
Number
|
|
|
1.
|
Subject
Matter of Sale
|
1-1
|
SA
39
|
|
2.
|
Delivery,
Title and Risk of Loss
|
2-1
|
|
|
3.
|
Price
of Aircraft
|
3-1
|
SA
39
|
|
4.
|
Taxes
|
4-1
|
|
|
5.
|
Payment
|
5-1
|
|
|
6.
|
Excusable
Delay
|
6-1
|
|
|
7.
|
Changes
to the Detail Specification
|
7-1
|
SA
39
|
|
8.
|
Federal
Aviation Requirements and
Certificates
and Export License
|
8-1
|
SA
39
|
|
9.
|
Representatives,
Inspection,
Flights
and Test Data
|
9-1
|
|
|
10.
|
Assignment,
Resale or Lease
|
10-1
|
|
|
11.
|
Termination
for Certain Events
|
11-1
|
|
|
12.
|
Product
Assurance, Disclaimer and
Release;
Exclusion of Liabilities;
Customer
Support; Indemnification
and
Insurance
|
12-1
|
|
|
13.
|
Buyer
Furnished Equipment and
Spare
Parts
|
13-1
|
|
|
14.
|
Contractual
Notices and Requests
|
14-1
|
SA
39
|
|
15.
|
Miscellaneous
|
15-1
|
|
|
|
TABLE
OF CONTENTS
|
|
Page
|
SA
|
||
|
TABLES
|
Number
|
Number
|
|
|
1.
|
Aircraft
Deliveries and
Descriptions
– 737-500
|
T-1
|
SA
3
|
|
Aircraft
Deliveries and
Descriptions
– 737-700
|
T-2
|
SA
53
|
|
|
Aircraft
Deliveries and
Descriptions
– 737-800
|
T-3
|
SA
52
|
|
|
Aircraft
Deliveries and
Descriptions
– 737-600
|
T-4
|
SA
4
|
|
|
Aircraft
Deliveries and
Descriptions
– 737-900
|
T-5
|
SA
39
|
|
|
Aircraft
Deliveries and
Descriptions
– 737-900ER
|
T-6
|
SA
53
|
|
|
EXHIBITS
|
|||
|
A-1
|
Aircraft
Configuration – Model 737-724
(Aircraft
delivering through July 2004)
|
SA
26
|
|
|
A-1.1
|
Aircraft
Configuration – Model 737-724
(Aircraft
delivering on or after August 2004)
|
SA
46
|
|
|
A-2
|
Aircraft
Configuration – Model 737-824
(Aircraft
delivering through July 2004)
|
SA
26
|
|
|
A-2.1
|
Aircraft
Configuration – Model 737-824
(Aircraft
delivering August 2004 through
December
2007)
|
SA
41
|
|
|
A-2.2
|
Aircraft
Configuration – Model 737-824
(Aircraft
delivering January 2008 through
July
2008)
|
SA
45
|
|
|
A-2.3
|
Aircraft
Configuration – Model 737-824
(Aircraft
scheduled to deliver between August 2008 and October 2010)
|
SA
50
|
|
|
A-2.4
|
Aircraft
Configuration – Model 737-824
(Aircraft
scheduled to deliver in or after November 2010)
|
SA
50
|
|
|
A-3
|
Aircraft
Configuration – Model 737-624
|
SA
1
|
|
|
A-4
|
Aircraft
Configuration – Model 737-524
|
SA
3
|
|
|
A-5
|
Aircraft
Configuration – Model 737-924
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
26
|
|
|
A-6
|
Aircraft
Configuration – Model 737-924ER
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
45
|
|
|
A-6.1
|
Aircraft
Configuration – Model 737-924ER
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
53
|
|
|
A-6.2
|
Aircraft
Configuration – Model 737-924ER
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
53
|
|
|
B
|
Product
Assurance Document
|
SA
1
|
|
|
C
|
Customer
Support Document – Code Two –
Major
Model Differences
|
SA
1
|
|
|
C1
|
Customer
Support Document – Code Three –
Minor
Model Differences
|
SA
39
|
|
|
D
|
Aircraft
Price Adjustments – New Generation
Aircraft
(1995 Base Price - [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
1
|
|
|
D1
|
Airframe
and Engine Price Adjustments –
Current
Generation Aircraft
|
SA
1
|
|
|
D2
|
Aircraft
Price Adjustments – New Generation
Aircraft
(1997 Base Price - [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
5
|
|
|
D3
|
Aircraft
Price Adjustments - New
Generation
Aircraft (July 2003 Base Price –
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
41
|
|
|
D4
|
Escalation
Adjustment – Airframe and
Optional
Features [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
41
|
|
|
E
|
Buyer
Furnished Equipment Provisions Document
|
SA
39
|
|
|
F
|
Defined
Terms Document
|
SA
5
|
|
|
|
TABLE
OF CONTENTS
|
|
SA
|
||||
|
LETTER AGREEMENTS
|
Number
|
|||
|
1951-1
|
Not
Used
|
|||
|
1951-2R4
|
Seller
Purchased Equipment
|
SA
39
|
||
|
1951-3R22
|
Option
Aircraft-Model 737-824 Aircraft
|
SA
38
|
||
|
1951-4R1
|
Waiver
of Aircraft Demonstration
|
SA
1
|
||
|
1951-5R3
|
Promotional
Support – New Generation
Aircraft
|
SA
48
|
||
|
1951-6
|
Configuration
Matters
|
|||
|
1951-7R1
|
Spares
Initial Provisioning
|
SA
1
|
||
|
1951-8R2
|
Escalation
Sharing – New Generation Aircraft
|
SA
4
|
||
|
1951-9R21
|
Option
Aircraft-Model 737-724 Aircraft
|
SA
48
|
||
|
1951-11R1
|
Escalation
Sharing-Current Generation
Aircraft
|
SA
4
|
||
|
1951-12R7
|
Option
Aircraft – Model 737-924 Aircraft
|
SA
32
|
||
|
1951-13
|
Configuration
Matters – Model 737-924
|
SA
5
|
||
|
1951-14
|
Installation
of Cabin Systems Equipment
737-924
|
SA
22
|
||
|
1951-15
|
Configuration
Matters – Model 737-924ER
|
SA
39
|
||
TABLE OF
CONTENTS
|
SA
|
||||
|
RESTRICTED LETTER
AGREEMENTS
|
Number
|
|||
|
6-1162-MMF-295
|
Performance
Guarantees – Model
737-724
Aircraft
|
|||
|
6-1162-MMF-296
|
Performance
Guarantees – Model
737-824
Aircraft
|
|||
|
6-1162-MMF-308R4
|
Disclosure
of Confidential
Information
|
SA
39
|
||
|
6-1162-MMF-309R1
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
1
|
||
|
6-1162-MMF-311R6
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
46
|
||
|
6-1162-MMF-312R1
|
Special
Purchase Agreement Provisions
|
SA
1
|
||
|
6-1162-MMF-319
|
Special
Provisions Relating to the
Rescheduled
Aircraft
|
|||
|
6-1162-MMF-378R1
|
Performance
Guarantees – Model
737-524
Aircraft
|
SA
3
|
||
|
6-1162-GOC-015R1
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
31
|
||
|
6-1162-GOC-131R10
|
Special
Matters
|
SA
46
|
||
|
6-1162-DMH-365
|
Performance
Guarantees – Model
737-924
Aircraft
|
SA
5
|
||
|
6-1162-DMH-624
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
8
|
||
|
6-1162-DMH-680
|
Delivery
Delay Resolution Program
|
SA
9
|
||
|
6-1162-DMH-1020
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
14
|
||
|
6-1162-DMH-1035
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
15
|
||
|
6-1162-DMH-1054
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
16
|
||
|
6-1162-CHL-048
|
Rescheduled
Aircraft Agreement
|
SA
26
|
||
|
6-1162-CHL-195
|
Restructure
Agreement for Model
737NG
and 757-300 Aircraft
|
SA
30
|
||
|
6-1162-MSA-768
|
Performance
Guarantees – Model
737-924ER
Aircraft
|
SA
39
|
||
|
6-1162-SEE-133
|
[CONFIDENTIAL
MATERIAL OMITTED AND
FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
46
|
||
|
6-1162-SEE-0176R4
|
Record
Option Proposals
|
SA
48
|
||
|
6-1162-SEE-0187
|
Passenger
Service Unit Resolution
|
SA
50
|
||
|
6-1162-SEE-0225R1
|
Use
of Aircraft – Carbon Brakes [CONFIDENTIAL MATERIAL OMITTED
AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] Testing
|
SA
50
|
||
|
6-1162-SEE-0263
|
Use
of Aircraft – 737NG
Performance
Improvement Package Testing
|
SA
50
|
||
|
6-1162-RCN-1888
|
Use
of Aircraft – Boeing 747-800 and 787 Flight Test Training
|
SA
53
|
||
|
6-1162-RCN-1890
|
Use
of Aircraft for Testing
|
SA
53
|
||
TABLE OF
CONTENTS
|
SUPPLEMENTAL AGREEMENTS
|
DATED AS OF:
|
|
Supplemental
Agreement No. 1
|
October
10, 1996
|
|
Supplemental
Agreement No. 2
|
March
5, 1997
|
|
Supplemental
Agreement No. 3
|
July
17, 1997
|
|
Supplemental
Agreement No. 4
|
October
10, 1997
|
|
Supplemental
Agreement No. 5
|
May
21, 1998
|
|
Supplemental
Agreement No. 6
|
July
30, 1998
|
|
Supplemental
Agreement No. 7
|
November
12, 1998
|
|
Supplemental
Agreement No. 8
|
December
7, 1998
|
|
Supplemental
Agreement No. 9
|
February
18, 1999
|
|
Supplemental
Agreement No. 10
|
March
19, 1999
|
|
Supplemental
Agreement No. 11
|
May
14, 1999
|
|
Supplemental
Agreement No. 12
|
July
2, 1999
|
|
Supplemental
Agreement No. 13
|
October
13, 1999
|
|
Supplemental
Agreement No. 14
|
December
13, 1999
|
|
Supplemental
Agreement No. 15
|
January
13, 2000
|
|
Supplemental
Agreement No. 16
|
March
17, 2000
|
|
Supplemental
Agreement No. 17
|
May
16, 2000
|
|
Supplemental
Agreement No. 18
|
September
11, 2000
|
|
Supplemental
Agreement No. 19
|
October
31, 2000
|
|
Supplemental
Agreement No. 20
|
December
21, 2000
|
|
Supplemental
Agreement No. 21
|
March
30, 2001
|
|
Supplemental
Agreement No. 22
|
May
23, 2001
|
|
Supplemental
Agreement No. 23
|
June
29, 2001
|
|
Supplemental
Agreement No. 24
|
August
31, 2001
|
|
Supplemental
Agreement No. 25
|
December
31, 2001
|
|
Supplemental
Agreement No. 26
|
March
29, 2002
|
|
Supplemental
Agreement No. 27
|
November
6, 2002
|
|
Supplemental
Agreement No. 28
|
April
1, 2003
|
|
Supplemental
Agreement No. 29
|
August
19, 2003
|
|
Supplemental
Agreement No. 30
|
November
4, 2003
|
|
Supplemental
Agreement No. 31
|
August
20, 2004
|
|
Supplemental
Agreement No. 32
|
December
29, 2004
|
|
Supplemental
Agreement No. 33
|
December
29, 2004
|
|
Supplemental
Agreement No. 34
|
June
22, 2005
|
|
Supplemental
Agreement No. 35
|
June
30, 2005
|
|
Supplemental
Agreement No. 36
|
July
21, 2005
|
|
Supplemental
Agreement No. 37
|
March
30, 2006
|
|
Supplemental
Agreement No. 38
|
June
6, 2006
|
|
Supplemental
Agreement No. 39
|
August
3, 2006
|
|
Supplemental
Agreement No. 40
|
December
5, 2006
|
|
Supplemental
Agreement No. 41
|
June
1, 2007
|
|
Supplemental
Agreement No. 42
|
June
13, 2007
|
|
Supplemental
Agreement No. 43
|
July
18, 2007
|
|
Supplemental
Agreement No. 44
|
December
7, 2007
|
|
Supplemental
Agreement No. 45
|
February
20, 2008
|
|
Supplemental
Agreement No. 46
|
June
25, 2008
|
|
Supplemental
Agreement No. 47
|
October
30, 2008
|
|
Supplemental
Agreement No. 48
|
January
29, 2009
|
|
Supplemental
Agreement No. 49
|
May
1, 2009
|
|
Supplemental
Agreement No. 50
|
July
23, 2009
|
|
Supplemental
Agreement No. 51
|
August
5, 2009
|
|
Supplemental
Agreement No. 52
|
August
31, 2009
|
|
Supplemental
Agreement No. 53
|
December
23, 2009
|
Table
1 to Purchase Agreement 1951
Aircraft
Deliveries and Descriptions
Model
737-700 Aircraft
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
T-2-2
Boeing
Proprietary SA53
Table
1 to Purchase Agreement 1951
Aircraft
Deliveries and Descriptions
Model
737-700 Aircraft
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
T-2-3
Boeing
Proprietary SA53
Table
1 to Purchase Agreement 1951
Aircraft
Deliveries and Descriptions
Model
737-900ER Aircraft
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
T-6-1
Boeing
Proprietary SA53
Table
1 to Purchase Agreement 1951
Aircraft
Deliveries and Descriptions
Model
737-900ER Aircraft
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
T-6-2
Boeing
Proprietary SA53
Table
1 to Purchase Agreement 1951
Aircraft
Deliveries and Descriptions
Model
737-900ER Aircraft
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
T-6-3
Boeing
Proprietary SA53
AIRCRAFT
CONFIGURATION
between
THE
BOEING COMPANY
and
CONTINENTAL
AIRLINES, INC.
Exhibit
A-6.2 to Purchase Agreement Number 1951
(737-924ER
Aircraft
delivering
during or after January 2011)
PA
1951 A-6.2-1 SA
53
5a—1951
SA53 -900ER Exhibit
A-6-2.xls BOEING
PROPRIETARY
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
December
23, 2009
6-1162-RCN-1888
Continental
Airlines, Inc.
1600
Smith Street
Houston,
TX 77002
|
Attention:
|
Mr.
Ron Baur
|
|
Subject:
|
Use
of Aircraft – Boeing 747-800 and 787 Flight Test
Training
|
|
Reference:
|
(a)
Purchase Agreement No. 1951 (the Purchase Agreement) between The Boeing
Company (Boeing) and Continental Airlines, Inc. (Customer) relating to
Model 737 Aircraft
|
(b)
Letter No. 6-1162-SEE-0225R1, dated July 23, 2009; Subject: Use of Aircraft –
Carbon Brakes [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Testing
All terms
used but not defined in this Letter Agreement have the same meaning as in the
Purchase Agreement.
In the
reference (b) Letter, Boeing and Customer agreed that one (1) Model 737-900ER
Aircraft, with serial number [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT], will be used by Boeing for the
purpose of testing carbon brakes for use on the model 737NG
Aircraft. In addition to such testing, Boeing and Customer further
agree that such Aircraft will be used for certain Boeing flight test
training. Such Aircraft is hereinafter referred to as the Test
Aircraft and such test program is hereinafter referred to as the Test
Program.
[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
|
1.
|
Test
Program
|
The Test
Aircraft will be flown for a total of up to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] flight hours in order to
train Boeing personal for the flight testing of the model 747-800 and 787
aircraft.
2. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
3. Other
Terms
All other terms and conditions,
including but not limited to the refurbishment of the Test Aircraft, contained
in the reference (b) Letter will continue to be in full force and
effect.
4. Confidential
Treatment.
Customer
understands that certain commercial information contained in this Letter
Agreement are considered by Boeing as confidential. Customer agrees
that it will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of
Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as required by law.
Very
truly yours,
THE
BOEING COMPANY
By /s/ Susan
Englander
Its Attorney-in-Fact
ACCEPTED
AND AGREED to by
CONTINENTAL
AIRLINES, INC.
By /s/ Jacques
Lapointe
Its Senior Vice President,
Procurement
December
23, 2009
6-1162-RCN-1890
Continental
Airlines, Inc.
1600
Smith Street
Houston,
TX 77002
|
Attention:
|
Mr.
Ron Baur
|
|
Subject:
|
Use
of Aircraft for Testing
|
|
Reference:
|
(a)
Purchase Agreement No. 1951 (the Purchase Agreement) between The Boeing
Company (Boeing) and Continental Airlines, Inc. (Customer) relating to
Model 737 Aircraft
|
(b)
Letter No. 6-1162-SEE-0263, dated July 23, 2009; Subject “Use of Aircraft –
737NG Performance Improvement Package Testing”
This
letter agreement (Letter Agreement) amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Customer
agreed in the reference (b) Letter Agreement to allow Boeing to use one (1)
Model 737 Aircraft, with serial number [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT], for certain testing. In
consideration of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT], Customer
further agrees, subject to Customer’s concurrence of the scope of such further
test flight profile in accordance with the terms below, to allow Boeing to use
such Aircraft or any other Aircraft to conduct certain other additional testing
subject to the requirements herein. Each such additional test program
is hereinafter referred to as the Test Program and each Aircraft used for such
additional testing is hereinafter referred to as the Test Aircraft.
Customer
will accept delivery of the Test Aircraft without any reduction in the Aircraft
Price on account of the depreciation and wear and tear resulting from such
testing, subject to the provisions set forth below.
1. Test Aircraft and Test
Program
Prior to
commencement of each respective Test Program, Boeing will fill in the
information identified in the Attachment and provide such Attachment to Customer
for its approval of the respective Test Program. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
.
The
Boeing Engineering Work Authorization form (EWA) provided to Customer will
contain the estimated flight test hours and cycles for the Test
Program. Boeing agrees to obtain Customer’s prior permission before
conducting any flight testing that would result in the Aircraft flying for a
greater number of flight test hours and cycles than the number of estimated
fight test hours and cycles contained in the EWA.
If
requested by Customer, Boeing agrees to share the Test Program results with
Customer, provided that Customer agree to treat such results as Confidential
Information and not disclose it to third parties without Boeing’s prior written
permission.
[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Prior to
delivery of the Test Aircraft, designated Customer representatives may inspect
the Test Aircraft in accordance with Article 9.2 of the Purchase
Agreement. In addition, Boeing will provide to Customer a
report detailing the test conditions that the Test Aircraft, and in particular,
the landing gear, was subjected to during the Test Program to verify that test
conditions were within design parameters. Any items deemed to be beyond
reasonable wear and tear will be addressed via standard delivery processes
subject to discussion between Boeing and Customer.
2. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
3. Removal of Wiring and Test
Instrumentation.
The wiring installation in the Test
Aircraft will be the same as in the other 737 Aircraft being purchased by the
Customer under the Agreement. Boeing will remove all flight test
wiring and instrumentation to the extent practicable. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
4. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
5. Warranty.
The terms
and conditions of the Product Assurance Document (Exhibit C to the AGTA) will
run full term from the date of the delivery of the Test Aircraft to
Customer. If any Boeing supplier, except the Engine manufacturer,
refuses to honor any valid warranty claim submitted by Customer solely on the
basis of use or time expiration relating to the Test Program or refurbishment,
Boeing will assume responsibility for such claim using the supplier warranty
terms and conditions as though the warranty period began with delivery of the
Test Aircraft to Customer.
6. Wheels, Tires and
Brakes.
If
indicated in the Attachment, Boeing will remove the Test Program tires, wheels,
and brakes and replace with the production tires, wheels and brakes on the Test
Aircraft after such Test Program and prior to delivery of the Test
Aircraft.
7. Accomplishment of
Maintenance Check.
Boeing
will maintain the Test Aircraft with an Airplane Inspection Program (AIP) as
required by 14 CFR 91.409 (e). Scheduled maintenance and inspection
intervals will be based on a Low Utilization Maintenance Plan from the 737
Maintenance Planning Document as described in the AIP.
8. List of Greases, Oils and
Other Fluids.
Boeing
will provide Customer in a timely manner a list of part and/or specification
numbers and suppliers of the greases, oils and other fluids used to service the
Test Aircraft during the flight test program.
9. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
10. Termination of Boeing’s
Right to Use Aircraft for Test Programs
10.1 One
of the items identified in the Attachment is the dollar value of each respective
Test Program. This value will be determined by Boeing acting in good
faith. Boeing’s right to use Customer’s Aircraft for Test Programs
hereunder will terminate when the cumulative value of the Test Programs
identified in the Attachment equals $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
10.2 [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
11. Confidential
Treatment.
Customer
understands that certain commercial information contained in this Letter
Agreement are considered by Boeing as confidential. Customer agrees
that it will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of
Boeing, disclose this Letter Agreement or any information contained herein to
any other person or entity, except as required by law.
Very
truly yours,
THE
BOEING COMPANY
By /s/ Susan
Englander
Its Attorney-in-Fact
ACCEPTED
AND AGREED TO this
Date: December 23,
2009
CONTINENTAL
AIRLINES, INC.
By /s/ Jacques
Lapointe
Its Senior Vice
President, Procurement
Attachment
to 6-1162-RCN-1890
Update
No. 1
|
Aircraft
No.
|
EWA
No. *
|
Estimated
Flight Test Hrs.
|
Actual
Flight Test Hrs.
|
Scheduled
Delivery Month
|
Revised
Delivery Month
|
Test
Program $ Value
|
Wheels,
tires, brakes replaced?
|
Engines
Borescoped?
|
|
3138/YJ571
|
Y3333-003
|
No
greater than [***]
|
TBD**
|
TBD**
|
$[***]
|
No
|
Yes
|
|
* EWA is
the Boeing Engineering Work Authorization form number. Such form
contains the test description and will be provided to Customer concurrent with
this attachment.
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
[***
CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
Approved
by:
CONTINENTAL
AIRLINES, INC.
By /s/ Jacques
Lapointe
Its Senior Vice President,
Procurement
Exhibit
10.24(r)
Supplemental
Agreement No. 18
to
Purchase
Agreement No. 2061
between
The
Boeing Company
and
Continental
Airlines, Inc.
Relating
to Boeing Model 777 Aircraft
THIS SUPPLEMENTAL AGREEMENT, is entered
into as of December
23, 2009 by and between THE BOEING COMPANY (Boeing) and CONTINENTAL AIRLINES,
INC. (Customer);
WHEREAS, the parties hereto entered
into Purchase Agreement No. 2061 dated October 10, 1997 (the Purchase Agreement)
relating to Boeing Model 777-200ER Aircraft (the Aircraft);
and
WHEREAS,
the parties agree to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
NOW
THEREFORE, in consideration of the mutual covenants herein contained, the
parties agree to amend the Purchase Agreement as follows:
1. Revised Table of
Contents
Remove and replace, in its entirety,
the “Table of
Contents”, with the “Table of Contents”
attached hereto, to reflect the changes made by this Supplemental Agreement No.
18.
2. Revised Table
4
Remove
and replace, in its entirety, Table 4 “Aircraft Delivery, Description, Price and
Advance Payments” with a revised Table 4 attached hereto to reflect removal of
the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
PA
2061 SA18-1
CAL
Supplemental
Agreement No. 18
To
Purchase Agreement No. 2061
3. Other
Terms
Boeing agrees the advance payments paid
with respect to the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT].
The effectiveness of this Supplemental
Agreement is contingent on the concurrent execution of the 737 supplemental
agreement no. 53 to purchase agreement no. 1951.
The
Purchase Agreement will be deemed to be supplemented to the extent herein
provided as of the date hereof and as so supplemented will continue in full
force and effect.
EXECUTED
IN DUPLICATE as of the day and year first written above.
THE
BOEING
COMPANY CONTINENTAL
AIRLINES, INC.
By: /s/ Susan
Englander By: /s/ Jacques
Lapointe
Its:
Attorney-in-Fact Its:_Senior Vice President –
Procurement
PA
2061 SA18-1
CAL
TABLE OF
CONTENTS
|
ARTICLES
|
Revised By:
|
||
|
1.
|
Quantity,
Model and Description
|
SA
No. 13
|
|
|
2.
|
Delivery
Schedule
|
SA
No. 13
|
|
|
3.
|
Price
|
SA
No. 13
|
|
|
4.
|
Payment
|
SA
No. 13
|
|
|
5.
|
Miscellaneous
|
SA
No. 13
|
|
|
TABLE
|
|||
|
1.
|
Aircraft
Information Table 1
|
SA
No. 5
|
|
|
2.
|
Aircraft
Information Table 2
|
SA
No. 9
|
|
|
3.
|
Aircraft
Information Table 3
|
SA
No. 11
|
|
|
4.
|
Aircraft
Information Table 4
|
SA
No. 18
|
|
|
EXHIBIT
|
|||
|
A.
|
Aircraft
Configuration
|
||
|
A1.
|
Aircraft
Configuration for 777-200ER Aircraft (applicable to Table 4
Aircraft)
|
SA
No. 14
|
|
|
B.
|
Aircraft
Delivery Requirements and Responsibilities
|
||
|
SUPPLEMENTAL EXHIBITS
|
|||
|
AE1.
|
Escalation
Adjustment/Airframe and Optional Features (applicable to Table 3
Aircraft)
|
SA
No. 14
|
|
|
AE1-1.
|
Escalation
Adjustment/Airframe and Optional Features (applicable to Table 4
Aircraft)
|
SA
No. 14
|
|
|
BFE1.
|
BFE
Variables
|
||
|
BFE2.
|
BFE
Variables (applicable to Table 4 Aircraft)
|
SA
No. 14
|
|
|
CS1.
|
Customer
Support Variables
|
||
|
EE1.
|
Engine
Escalation/Engine Warranty and Patent Indemnity
|
||
|
EE2.
|
Engine
Escalation/Engine Warranty and Patent Indemnity
|
SA
No. 9
|
|
|
EE3.
|
Engine
Escalation/Engine Warranty and Patent Indemnity (applicable to Tables 3
and 4 Aircraft)
|
SA
No. 13
|
|
|
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
|||
|
LETTER AGREEMENTS
|
|||
|
2061-1R10
|
Option
Aircraft
|
SA
No. 14
|
|
|
2061-2
|
Demonstration
Flights
|
||
|
2061-3
|
Installation
of Cabin Systems Equipment
|
||
|
2061-4
|
Spares
Initial Provisioning
|
||
|
2061-5
|
Flight
Crew Training Spares
|
||
|
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
|
SA
No. 12
|
||
|
6-1162-AJH-899
|
Supplemental
[CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
|
SA
No. 13
|
|
|
TABLE
OF CONTENTS
|
|||
|
CONFIDENTIAL LETTER
AGREEMENTS
|
Revised By:
|
||
|
6-1161-GOC-087
|
Aircraft
Performance Guarantees
|
||
|
6-1162-GOC-088
|
Promotion
Support
|
||
|
6-1162-GOC-089R4
|
Special
Matters
|
SA
No. 14
|
|
|
6-1162-GOC-172
|
Additional
Matters
|
SA
No. 1
|
|
|
6-1162-CHL-048
|
Rescheduled
Aircraft Agreement
|
SA
No. 9
|
|
|
6-1162-CHL-195
|
Restructure
Agreement for Model 737NG and 757-300 Aircraft
|
SA
No. 10
|
|
|
SUPPLEMENTAL AGREEMENTS
|
Dated as of:
|
|
Supplemental
Agreement No. 1
|
December
18, 1997
|
|
Supplemental
Agreement No. 2
|
July
30, 1998
|
|
Supplemental
Agreement No. 3
|
September
25, 1998
|
|
Supplemental
Agreement No. 4
|
February
3, 1999
|
|
Supplemental
Agreement No. 5
|
March
26, 1999
|
|
Supplemental
Agreement No. 6
|
May
14, 1999
|
|
Supplemental
Agreement No. 7
|
October
31, 2000
|
|
Supplemental
Agreement No. 8
|
June
29, 2001
|
|
Supplemental
Agreement No. 9
|
June
25, 2002
|
|
Supplemental
Agreement No. 10
|
November
4, 2003
|
|
Supplemental
Agreement No. 11
|
July
28, 2005
|
|
Supplemental
Agreement No. 12
|
March
17, 2006
|
|
Supplemental
Agreement No. 13
|
December
3, 2007
|
|
Supplemental
Agreement No. 14
|
February
20, 2008
|
|
Supplemental
Agreement No. 15
|
October
15, 2008
|
|
Supplemental
Agreement No. 16
|
May
1, 2009
|
|
Supplemental
Agreement No. 17
|
August
31, 2009
|
|
Supplemental
Agreement No. 18
|
December
23, 2009
|
Table
4
to
Purchase Agreement 2061
Aircraft
Delivery, Description, Price and Advance Payments
[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
Page
1
CAL Boeing Proprietary SA
18
Exhibit
10.29(c)
Third
Amendment to the Second Amended and Restated
Capacity
Purchase Agreement
This
third amendment (this “Amendment”) to that certain Second Amended and Restated
Capacity Purchase Agreement among Continental Airlines, Inc. (“Continental”),
ExpressJet Holdings, Inc. (“Holdings”), XJT Holdings, Inc. (“XJT”) and
ExpressJet Airlines, Inc. (“ExpressJet” and, collectively with Holdings and XJT,
“Contractor”) dated as of June 5, 2008, as previously amended by the parties
(the “Agreement”) is entered into this 22nd day
of December, 2009 by and between Continental and Contractor. Except
as otherwise specified herein, capitalized terms shall have the meanings
ascribed in the Agreement.
WHEREAS, Contractor desires to
sublease from Continental eight (8) Embraer 145 aircraft, that are currently
Covered Aircraft, as Uncovered Aircraft in order to assist with Contractor’s
fleet needs for the provision of services to United Air Lines under a capacity
purchase agreement and in Contractor’s charter operations; and
WHEREAS, Continental is
willing to sublease such aircraft as Uncovered Aircraft, in accordance with the
terms set forth herein; and
WHEREAS, the parties desire to
amend certain provisions of the Agreement related to or impacted by the
conversion of such aircraft from Covered Aircraft to Uncovered
Aircraft;
NOW THEREFORE, in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree to amend the Agreement as follows:
Section
1. Section 2.04(b) is deleted in its entirety and replaced with
the following:
“(b) Revenue-Risk
Aircraft. Contractor previously operated 13 Original Aircraft
pursuant to the terms and conditions of the Delta Pro-Rate Agreement (“Delta Pro-Rate
Aircraft”), 46 Original Aircraft under its own brand through scheduled
service under the “ExpressJet Airlines” brand and also through charter
operations (“Branded
Aircraft”), and will operate 8 Original Aircraft either pursuant to the
terms and conditions of the United CPA or as Branded Aircraft (“Additional Uncovered
Aircraft”), such Delta Pro-Rate Aircraft, Branded Aircraft, and
Additional Uncovered Aircraft (and, in the case of Additional Uncovered
Aircraft, the associated engines) being identified in Section C of Schedule 1 hereto
(collectively, the “Revenue Risk
Aircraft”).
(i) Contractor
returned 29 of the Revenue-Risk Aircraft to Continental on or prior to December
1, 2008.
(ii) The
parties acknowledge that the 30 Revenue-Risk Aircraft identified as “Retained"
in the tables in Section C of Schedule 1 hereto
captioned “Delta Prorate Aircraft” and “Branded Aircraft” (the “Retained Aircraft”)
shall be retained by Contractor as Uncovered Aircraft until the seventh
anniversary of the Effective Date, on which date, subject to the provisions of
Section 8.05,
Contractor shall deliver possession of such Retained Aircraft to Continental (or
its designee) in accordance with the provisions of Section
2.08. Contemporaneously with the execution of this Agreement,
the Basic Rent payable under each Uncovered Aircraft Sublease related to a
Retained Aircraft shall be reduced by 50 percent for such seven year
period.
Terms Relating to Additional
Uncovered Aircraft
Basic
Rent
Notwithstanding
the terms of the relevant Uncovered Aircraft Sublease and Schedule 2 hereto, the
Basic Rent payable under each Uncovered Aircraft Sublease for Additional
Uncovered Aircraft will be the following. The Basic Rent will be $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] per Additional Uncovered Aircraft per
month, through the period ending at the end of the month in which the total
number of aircraft months for the Uncovered Aircraft Subleases (measured in the
aggregate for all Additional Uncovered Aircraft) equals two hundred forty (240)
(the “Baseline
Date”). (For purposes of calculating the Baseline Date, if any
partial month in which an Uncovered Aircraft Sublease commences on or before the
15th of
the month, then such month shall count as a full aircraft month, and, if any
partial month in which an Uncovered Aircraft Sublease commences after the
15th of
the month, then such month shall not count as any portion of an aircraft
month.) During the month in which the Baseline Date is reached, the
Basic Rent will be $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] per Additional Uncovered Aircraft per
month for each aircraft month in excess of two hundred forty (240) accrued
during such month. For eighteen months after the Baseline Date, the
Basic Rent will be $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] per Additional Uncovered Aircraft per
month. For the nineteenth month after the Baseline Date and for so
long thereafter as such Uncovered Aircraft Sublease is in effect, the Basic Rent
will be $[CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] per Additional
Uncovered Aircraft per month. Contractor shall provide reasonable
documentation and access to Contractor’s maintenance records so that Continental
may substantiate all charges, maintenance events, operational statistics and
expenses reimbursable hereunder. The Basic Rent for partial months
will be pro-rated based on the number of calendar days in such
month. Notwithstanding the payment terms for Basic Rent set forth in
the applicable Uncovered Aircraft Sublease, payment of Basic Rent for the
Additional Uncovered Aircraft for each month will be made on the first Business
Day of such month, or the first Business Day of the term of each applicable
Uncovered Aircraft Sublease, if such Uncovered Aircraft Sublease term commences
after the first Business Day of any month.
Landing
Gear Charge
In
addition to the Basic Rent and engine LLP charges set forth below, Contractor
shall also pay to Continental a charge of $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] for every aircraft cycle flown after
the sublease term commencement by the Additional Uncovered Aircraft for so long
as each Additional Uncovered Aircraft remains an Additional Uncovered Aircraft
as compensation for the consumption of landing gear useful life between
overhauls, including the consumption of the useful life of landing gear LLP.
These charges are non-refundable and are not in any way predicated or contingent
upon the performance of any landing gear maintenance, overhaul or parts
replacement. Such payment shall be made on the 15th day of the month
following the month of operation (or if such day is not a Business Day, the next
Business Day). If Contractor incurs out-of-pocket expenses for the
scheduled overhaul of landing gear, including landing gear LLP replacement
expenses (excluding removal and installation expenses and otherwise consistent
with Section
B4(a)(viii) of Schedule 3) for
landing gear removed from such Uncovered Aircraft, then Continental shall
reimburse Contractor for such expenses, within 30 days of Contractor’s
presentation to Continental of an invoice along with evidence that Contractor
has paid all applicable third parties for such material and
services. Contractor shall, in a manner consistent with industry best
practices, prolong the life of landing gear assemblies as long as possible
before removing for scheduled maintenance.
Engine
LLP Charge
In
addition to the Basic Rent and landing gear charges set forth above, Contractor
shall also pay to Continental a charge of $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] for every aircraft cycle flown after
the Uncovered Aircraft Sublease term commencement by the Additional Uncovered
Aircraft for so long as each Additional Uncovered Aircraft remains an
Additional Uncovered Aircraft as compensation for the consumption of the useful
life of engine LLP. It being acknowledged that, as of December 22,
2009, Contractor is providing [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] spare engines either owned or leased
outside of any Covered Aircraft Sublease or Uncovered Aircraft Sublease (“Spare
Engines”), Contractor and Continental agree to reduce the above rate of $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] to $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] for the term and any extension
thereof of the Additional Uncovered Aircraft subleases for so long as Contractor
continues to provide at least [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] Spare Engines. To the
extent that the number of Spare Engines become less than [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] (whether or not periodically
unserviceable in the ordinary course of business), the rate of $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] will be increased by $[CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT] for each such Spare Engine up to a
maximum rate of $[CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]. These
charges are non-refundable and are not in any way predicated or contingent upon
the replacement of any engine LLP. Such payment shall be made on the
15th day of the month following the month of operation (or if such day is not a
Business Day, the next Business Day).
Engine
LLP Program
If the
Engine Maintenance Agreement is amended to provide coverage for LLP replacement
in exchange for a charge per cycle (or a similar arrangement) (an “LLP Program”) and the
engines associated with the Additional Uncovered Aircraft pursuant to the
applicable Uncovered Aircraft Sublease are included within the scope of such LLP
Program, then, upon the commencement of such LLP Program and thereafter, for so
long as such engines remain within the scope of an LLP Program, Contractor shall
be relieved of its obligation to pay the engine LLP charge described above,
conditioned upon Contractor making payment to the maintenance provider of the
LLP Program services, for all charges payable under such LLP Program relating to
the cycles (or other operable parameter that may be the basis for payment under
such LLP Program). Without limiting Contractor’s right to decide
whether or not the engines associated with the Additional Uncovered Aircraft are
included within the scope of an LLP Program, Contractor shall keep the engines
associated with the Additional Uncovered Aircraft within the scope of the Engine
Maintenance Agreement (excluding any provisions related to such LLP Program),
unless otherwise agreed by Continental.
Engine
LLP Replacement Expenses
If
Contractor incurs out-of-pocket engine LLP replacement expenses for the cycle
limit driven replacement of LLP for engines associated under the applicable
Uncovered Aircraft Sublease with the Additional Uncovered Aircraft, (consistent
with Section
B4(a)(ix) of Schedule 3), then
Continental shall reimburse Contractor for such expenses, within 30 days of
Contractor’s presentation to Continental of an invoice along with evidence that
Contractor has paid all applicable third parties for such material and
services. Contractor shall, in a manner consistent with industry best
practices, prolong the life of engine LLP as long as possible before
replacement.
Uncovered
Aircraft Sublease Term Commencement
The term of each Uncovered Aircraft
Sublease for the Additional Uncovered Aircraft will commence on the later of the
(i) date that such aircraft is released from its status as a Covered Aircraft
and no longer providing Regional Airline Services, or (ii) date set forth in the
following schedule: (a) December 29, 2009 for the first two
Additional Uncovered Aircraft, (b) January 5, 2010 for the third, fourth, fifth
and sixth Additional Uncovered Aircraft and (c) April 6, 2010 for the seventh
and eighth Additional Uncovered Aircraft. Upon transition of such
aircraft from Covered Aircraft to Additional Uncovered Aircraft, such aircraft
shall be fully fueled at Continental’s expense and Contractor shall deliver to
Continental a delivery receipt, including a description of operational and
maintenance history, in a form reasonably acceptable to
Continental.
Uncovered
Aircraft Sublease Term Duration
The
average term of all of the Uncovered Aircraft Subleases for the Additional
Uncovered Aircraft will be thirty (30) months from May 1, 2010, provided that the minimum
term for any such Uncovered Aircraft Sublease is twenty-four (24) months from
May 1, 2010, and provided
further that if the thirty (30) month average term described above for
such Uncovered Aircraft Subleases is less than the average term of all the
aircraft operated by Contractor pursuant to the United CPA, then, upon
Continental’s election, the term of one or more of such Uncovered Aircraft
Subleases for the Additional Uncovered CPA Aircraft will be extended such that
the average term (measured from May 1, 2010) of all the Uncovered Aircraft
Subleases for Additional Uncovered Aircraft equals the average initial term for
all of the aircraft operated by Contractor pursuant to the United
CPA. If United elects to extend the term of the United CPA, then
Contractor shall immediately notify Continental of such election in
writing.
Each time
that United extends the term of the United CPA Continental may extend the term
of one or more of the Uncovered Aircraft Subleases for Additional Uncovered
Aircraft for the term of such extension (but not beyond April 30, 2015), but not
more than the number of Uncovered Aircraft Subleases that would cause the total
number of Uncovered Aircraft Sublease terms extended (including any extension
options exercised by Contractor as provided below) to exceed one Additional
Uncovered Aircraft Sublease for every two aircraft covered by such extension of
the United CPA. Within twenty (20) days of notice by Contractor to
Continental that United has elected to extend the United CPA, Continental shall
provide notice to Contractor identifying the particular Uncovered Aircraft
Subleases that Continental elects to extend, if any, as described
above.
Each time
that United extends the term of the United CPA, provided that Continental is
given notice of such election no less than six (6) months prior to the effective
date of such extension, Contractor may extend the term of one or more the
Uncovered Aircraft Subleases for Additional Uncovered Aircraft for the term of
such extension (but not beyond April 30, 2015), but not more than the number of
Uncovered Aircraft Subleases that would cause the total number of Uncovered
Aircraft Sublease terms extended (including any extension options exercised by
Continental as provided above) to exceed one Additional Uncovered Aircraft
Sublease for every two aircraft covered by such extension of the United
CPA. Within twenty (20) days of notice by Contractor to Continental
that United has elected to extend the United CPA, Contractor shall provide
notice to Continental of the number of Uncovered Aircraft Subleases that
Contractor wishes to extend. Continental shall select the particular
Additional Uncovered Aircraft for which the Uncovered Aircraft Sublease(s) will
be extended.
Return
of Additional Uncovered Aircraft
Upon
expiration of each such Uncovered Aircraft Sublease for the Additional Uncovered
Aircraft, Contractor shall comply with the provisions of Section 2.08 and
10.01 related
to return of Uncovered Aircraft and return such aircraft fully
fueled. Contractor may not operate any Uncovered Aircraft in
commercial service, whether scheduled or otherwise, if such aircraft are in any
livery that incorporates Continental Marks.
Contractor
Representations Regarding the United CPA
Contractor warrants and represents that
(a) of the twenty-two (22) aircraft to be operated by Contractor
pursuant to the United CPA (i) the term of 11 of such aircraft is not less than
twenty-four (24) months, and (ii) the term of the other eleven (11) aircraft is
not less than thirty-six (36) months (b) Contractor will
immediately notify Continental of any notice provided by United related to any
extension of the term of the United CPA, (c) Contractor will promptly provide
notice of any change to the notice provisions of the United CPA relating to the
term thereof, and (d) Contractor will provide a true and correct representation
with respect to the term of the United CPA and any extension
options.
Section
2. Section
2.08 is amended by changing the reference to “Section 2.04” in the
32nd line
of the section, so that it reads in relevant part:
“…except
those Uncovered Aircraft being returned to Continental under Section 2.04(a) or
2.04(b)(i)….”
Section
3. Section
3.03 is amended by adding the following to the end of the section:
“Notwithstanding
any provision of this Agreement to the contrary, Continental will not be
responsible for reimbursement of additional Contractor expenses, to the extent
that such additional expenses increase due to the impact of the operations of
the Additional Uncovered Aircraft.”
Section
4. Section
10.01 is deleted in its entirety and replaced with the following:
“Section
10.01 Conversion of Covered Aircraft
Livery. Without limiting Contractor’s obligations in respect
of any return conditions under any Covered Aircraft Sublease or Uncovered
Aircraft Sublease, for each Delta CPA or Revenue Risk Aircraft, at such time as
such aircraft is returned to Continental, if such aircraft is not already
prepared in the livery required by Paragraph 8 of Exhibit G and not already
configured in the same manner such aircraft was configured at the time of its
withdrawal from the capacity purchase provisions of the Existing CPA prior to
becoming a Delta CPA or Revenue Risk Aircraft, as applicable (including the
removal of all items installed in connection with XM radio, in-seat power or any
other such additions to the aircraft), then Contractor shall cause each such
aircraft to be prepared in such livery and be configured (including, without
limitation, the seating and interior configuration) in the same manner such
aircraft was configured at the time of its withdrawal from the capacity purchase
provisions of the Existing CPA prior to becoming a Delta CPA or Revenue Risk
Aircraft, as applicable (including the removal of all items installed in
connection with XM radio, in-seat power or any other such additions to the
aircraft), prior to its being placed into such service, and provide all
documentation required by applicable FARs relating to such
reconfiguration. Contractor shall be responsible for all costs
related to such preparation and reconfiguration.”
Section
5. The
following definition of “Additional Uncovered Aircraft” is added to Exhibit
A:
“Additional Uncovered Aircraft
– is defined in Section
2.04(b).”
Section
6. The
following definition of “Baseline Date” is added to Exhibit A:
“Baseline Date – is defined
in Section
2.04(b)(ii).”
Section
7. The
definition of “Basic Rent” is deleted in its entirety from Exhibit A and
replaced with the following:
“Basic Rent – is defined, with
respect to any Covered Aircraft, in the Covered Aircraft Sublease for such
Covered Aircraft and, with respect to any Uncovered Aircraft, other than the
Additional Uncovered Aircraft, in the Uncovered Aircraft Sublease for such
Uncovered Aircraft as modified by Section 2.04(b)(ii) and Schedule 2 hereto,
and, in the case of each Additional Uncovered Aircraft, for so long as such
Additional Uncovered Aircraft remains an Additional Uncovered Aircraft pursuant
to the terms of this Agreement, in Section 2.04(b)(ii).”
Section
8. The
following definition of “LLP Program” is added to Exhibit A:
“LLP Program” – is defined in
Section
2.04(b)(ii).
Section
9. The
following definition of “United” is added to Exhibit A:
“United – means United Air
Lines, Inc., a Delaware corporation, and its successors and
assigns.”
Section
10. The
following definition of “United CPA” is added to Exhibit A:
“United CPA – means the
capacity purchase agreement to be entered into by and among Contactor and
United, the general terms of which are described in Contractor’s third quarter
of 2009 10Q as filed with the Securities and Exchange Commission on November 16,
2009, and as same may be extended pursuant to the terms thereof.”
Section
11. Schedule
1 is deleted in its entirety and replaced with the attached restated Schedule
1.
Section
11. Appendix
1 to Schedule 3 is amended by deleting the definition of “Baseline Monthly Block
Hours” in its entirety and replacing it with the following:
“’Baseline Monthly Block Hours’
means the following number of block hours for each calendar month set forth
below:
For
December,
2009: [XXX]
For
January,
2010:
[XXX]
For
February,
2010: [XXX]
For
March,
2010:
[XXX]
Following
March, 2010,
For each
April:
[XXX]
For each
May:
[XXX]
For each
June:
[XXX]
For each
July: [XXX]
For each
August:
[XXX]
For each
September: [XXX]
For each
October: [XXX]
For each
November: [XXX]
For each
December: [XXX]
For each
January:
[XXX]
For each
February: [XXX]
For each
March:
[XXX]”
Except as
expressly amended in this Amendment, the Agreement remains in full force and
effect.
[“XXX”
REPRESENTS CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.]
IN
WITNESS WHEREOF, Continental, Holdings, XJT and ExpressJet have caused this
Amendment to be executed in duplicate (each of which duplicates are deemed to be
an original) by their duly authorized representatives as of the date first set
forth above.
EXPRESSJET
HOLDINGS,
INC. CONTINENTAL
AIRLINES, INC.
By: __/s/ Chuck
Coble___________ By: __/s/ Zane
Rowe_______________
Name:
Chuck
Coble
Name: Zane
Rowe
Title: Vice
President Field
Services,
Title: Executive Vice President &
Purchasing
and Corporate Real
Estate Chief
Financial Officer
XJT
HOLDINGS, INC.
By: __/s/ Chuck
Coble___________
Name:
Chuck Coble
Title:
Vice President Field Services,
Purchasing
and Corporate Real Estate
EXPRESSJET
AIRLINES, INC.
By: __/s/ Chuck
Coble___________
Name:
Chuck Coble
Title: Vice
President Field Services,
Purchasing
and Corporate Real Estate
SCHEDULE
1
|
|
Section
A
|
|
Covered
Aircraft
|
Tail
|
US
Reg
|
Retained
|
|
|
1
|
925
|
N14925
|
||
|
2
|
926
|
N15926
|
||
|
3
|
927
|
N16927
|
||
|
4
|
928
|
N17928
|
||
|
5
|
929
|
N13929
|
||
|
6
|
930
|
N14930
|
||
|
7
|
932
|
N15932
|
||
|
8
|
933
|
N14933
|
||
|
9
|
934
|
N12934
|
||
|
10
|
935
|
N13935
|
||
|
11
|
936
|
N13936
|
||
|
12
|
937
|
N14937
|
||
|
13
|
938
|
N14938
|
||
|
14
|
939
|
N14939
|
||
|
15
|
940
|
N14940
|
||
|
16
|
941
|
N15941
|
||
|
17
|
942
|
N14942
|
||
|
18
|
943
|
N14943
|
||
|
19
|
944
|
N16944
|
||
|
20
|
945
|
N14945
|
||
|
21
|
946
|
N12946
|
||
|
22
|
947
|
N14947
|
||
|
23
|
948
|
N15948
|
||
|
24
|
535
|
N11535
|
||
|
25
|
536
|
N11536
|
||
|
26
|
537
|
N21537
|
||
|
27
|
538
|
N13538
|
||
|
28
|
539
|
N11539
|
||
|
29
|
540
|
N12540
|
||
|
30
|
5411
|
N16541
|
||
|
31
|
5421
|
N14542
|
||
|
32
|
543
|
N14543
|
||
|
33
|
545
|
N26545
|
||
|
34
|
548
|
N11548
|
||
|
35
|
549
|
N26549
|
||
|
36
|
550
|
N13550
|
||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
37
|
551
|
N11551
|
|||
|
38
|
552
|
N12552
|
|||
|
39
|
553
|
N13553
|
|||
|
40
|
554
|
N19554
|
|||
|
41
|
555
|
N15555
|
|||
|
42
|
556
|
N18556
|
|||
|
43
|
557
|
N18557
|
|||
|
44
|
558
|
N14558
|
|||
|
45
|
564
|
N12564
|
|||
|
46
|
565
|
N11565
|
|||
|
47
|
566
|
N13566
|
|||
|
48
|
567
|
N12567
|
|||
|
49
|
571
|
N16571
|
|||
|
50
|
572
|
N15572
|
|||
|
51
|
5731
|
N14573
|
|||
|
52
|
5741
|
N15574
|
|||
|
53
|
900
|
N12900
|
|||
|
54
|
901
|
N48901
|
|||
|
55
|
902
|
N14902
|
|||
|
56
|
903
|
N13903
|
|||
|
57
|
904
|
N14904
|
|||
|
58
|
905
|
N14905
|
|||
|
59
|
906
|
N22906
|
|||
|
60
|
910
|
N15910
|
|||
|
61
|
911
|
N16911
|
|||
|
62
|
912
|
N15912
|
|||
|
63
|
913
|
N13913
|
|||
|
64
|
914
|
N13914
|
|||
|
65
|
915
|
N36915
|
|||
|
66
|
916
|
N14916
|
|||
|
67
|
917
|
N29917
|
|||
|
68
|
918
|
N16918
|
|||
|
69
|
919
|
N16919
|
|||
|
70
|
9201
|
N14920
|
|||
|
71
|
921
|
N12921
|
|||
|
72
|
922
|
N12922
|
|||
|
73
|
9231
|
N14923
|
|||
|
74
|
9241
|
N12924
|
|||
|
75
|
949
|
N13949
|
|||
|
76
|
950
|
N14950
|
|||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
77
|
951
|
N16951
|
|||
|
78
|
952
|
N14952
|
|||
|
79
|
953
|
N14953
|
|||
|
80
|
954
|
N16954
|
|||
|
81
|
955
|
N13955
|
|||
|
82
|
956
|
N13956
|
|||
|
83
|
957
|
N12957
|
|||
|
84
|
958
|
N13958
|
|||
|
85
|
959
|
N14959
|
|||
|
86
|
960
|
N14960
|
|||
|
87
|
961
|
N16961
|
|||
|
88
|
962
|
N27962
|
|||
|
89
|
963
|
N16963
|
|||
|
90
|
964
|
N13964
|
|||
|
91
|
965
|
N13965
|
|||
|
92
|
966
|
N19966
|
|||
|
93
|
967
|
N12967
|
|||
|
94
|
968
|
N13968
|
|||
|
95
|
969
|
N13969
|
|||
|
96
|
970
|
N13970
|
|||
|
97
|
971
|
N22971
|
|||
|
98
|
972
|
N14972
|
|||
|
99
|
973
|
N15973
|
|||
|
100
|
974
|
N14974
|
|||
|
101
|
975
|
N13975
|
|||
|
102
|
976
|
N16976
|
|||
|
103
|
977
|
N14977
|
|||
|
104
|
978
|
N13978
|
|||
|
105
|
979
|
N13979
|
|||
|
106
|
980
|
N15980
|
|||
|
107
|
981
|
N16981
|
|||
|
108
|
982
|
N18982
|
|||
|
109
|
983
|
N15983
|
|||
|
110
|
984
|
N17984
|
|||
|
111
|
985
|
N15985
|
|||
|
112
|
986
|
N15986
|
|||
|
113
|
987
|
N16987
|
|||
|
114
|
988
|
N13988
|
|||
|
115
|
989
|
N13989
|
|||
|
116
|
990
|
N13990
|
|||
|
117
|
991
|
N14991
|
|||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
118
|
992
|
N13992
|
|||
|
119
|
993
|
N14993
|
|||
|
120
|
994
|
N13994
|
|||
|
121
|
995
|
N13995
|
|||
|
122
|
996
|
N12996
|
|||
|
123
|
997
|
N13997
|
|||
|
124
|
998
|
N14998
|
|||
|
125
|
9991
|
N16999
|
|||
|
126
|
101
|
N18101
|
|||
|
127
|
102
|
N18102
|
|||
|
128
|
103
|
N24103
|
|||
|
129
|
104
|
N41104
|
|||
|
130
|
105
|
N14105
|
|||
|
131
|
106
|
N11106
|
|||
|
132
|
107
|
N11107
|
|||
|
133
|
108
|
N17108
|
|||
|
134
|
109
|
N11109
|
|||
|
135
|
110
|
N34110
|
|||
|
136
|
111
|
N34111
|
|||
|
137
|
112
|
N16112
|
|||
|
138
|
113
|
N11113
|
|||
|
139
|
114
|
N18114
|
|||
|
140
|
115
|
N17115
|
|||
|
141
|
116
|
N14116
|
|||
|
142
|
117
|
N14117
|
|||
|
143
|
118
|
N13118
|
|||
|
144
|
119
|
N11119
|
|||
|
145
|
120
|
N18120
|
|||
|
146
|
121
|
N11121
|
|||
|
147
|
122
|
N12122
|
|||
|
148
|
123
|
N13123
|
|||
|
149
|
124
|
N13124
|
|||
|
150
|
125
|
N14125
|
|||
|
151
|
126
|
N12126
|
|||
|
152
|
127
|
N11127
|
|||
|
153
|
128
|
N24128
|
|||
|
154
|
129
|
N21129
|
|||
|
155
|
130
|
N21130
|
|||
|
156
|
131
|
N31131
|
|||
|
157
|
132
|
N13132
|
|||
|
158
|
133
|
N13133
|
|||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
159
|
134
|
N25134
|
|||
|
160
|
135
|
N12135
|
|||
|
161
|
136
|
N12136
|
|||
|
162
|
137
|
N11137
|
|||
|
163
|
138
|
N17138
|
|||
|
164
|
139
|
N23139
|
|||
|
165
|
140
|
N11140
|
|||
|
166
|
141
|
N26141
|
|||
|
167
|
142
|
N12142
|
|||
|
168
|
143
|
N14143
|
|||
|
169
|
144
|
N21144
|
|||
|
170
|
145
|
N12145
|
|||
|
171
|
146
|
N17146
|
|||
|
172
|
147
|
N16147
|
|||
|
173
|
148
|
N14148
|
|||
|
174
|
149
|
N16149
|
|||
|
175
|
150
|
N11150
|
|||
|
176
|
151
|
N16151
|
|||
|
177
|
152
|
N27152
|
|||
|
178
|
153
|
N14153
|
|||
|
179
|
154
|
N21154
|
|||
|
180
|
155
|
N11155
|
|||
|
181
|
156
|
N10156
|
|||
|
182
|
157
|
N12157
|
|||
|
183
|
158
|
N14158
|
|||
|
184
|
159
|
N17159
|
|||
|
185
|
160
|
N12160
|
|||
|
186
|
161
|
N13161
|
|||
|
187
|
162
|
N14162
|
|||
|
188
|
171
|
N14171
|
|||
|
189
|
172
|
N12172
|
|||
|
190
|
176
|
N11176
|
|||
|
191
|
177
|
N14177
|
|||
|
192
|
179
|
N14179
|
|||
|
193
|
180
|
N14180
|
|||
|
194
|
181
|
N11181
|
|||
|
195
|
182
|
N33182
|
|||
|
196
|
183
|
N16183
|
|||
|
197
|
184
|
N11184
|
|||
|
198
|
188
|
N14188
|
|||
|
199
|
189
|
N11189
|
|||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
200
|
190
|
N27190
|
|||
|
201
|
191
|
N11191
|
|||
|
202
|
192
|
N11192
|
|||
|
203
|
193
|
N11193
|
|||
|
204
|
194
|
N11194
|
|||
|
205
|
195
|
N12195
|
|||
|
206
|
196
|
N17196
|
|||
|
207
|
197
|
N21197
|
|||
|
208
|
198
|
N14198
|
|||
|
209
|
199
|
N11199
|
|||
|
210
|
200
|
N27200
|
|||
|
211
|
201
|
N12201
|
|||
|
212
|
202
|
N13202
|
|||
|
213
|
203
|
N14203
|
|||
|
214
|
204
|
N14204
|
|||
|
215
|
501*
|
N16501
|
|||
|
216
|
502*
|
N16502
|
|||
|
217
|
503*
|
N19503
|
|||
|
218
|
504*
|
N25504
|
|||
|
219
|
505*
|
N14505
|
|||
|
220
|
506*
|
N27506
|
|||
|
221
|
507*
|
N17507
|
|||
|
222
|
508*
|
N14508
|
|||
|
223
|
509*
|
N15509
|
|||
|
224
|
510*
|
N16510
|
|||
|
225
|
511*
|
N16511
|
|||
|
226
|
512*
|
N27512
|
|||
|
227
|
513*
|
N17513
|
|||
|
228
|
514*
|
N14514
|
|||
|
229
|
515*
|
N29515
|
|||
|
230
|
516*
|
N14516
|
|||
|
231
|
517*
|
N24517
|
|||
|
232
|
518*
|
N28518
|
|||
|
233
|
519*
|
N12519
|
|||
|
234
|
520*
|
N16520
|
|||
|
235
|
521*
|
N17521
|
|||
|
236
|
522*
|
N14522
|
|||
|
237
|
523*
|
N27523
|
|||
|
238
|
524*
|
N17524
|
|||
|
239
|
525**
|
N16525
|
|||
|
240
|
526*
|
N11526
|
|||
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
||
|
241
|
527*
|
N15527
|
|||
|
242
|
528*
|
N12528
|
|||
|
243
|
529*
|
N28529
|
|||
|
244
|
530*
|
N12530
|
|||
|
*
|
withdrawn
Covered Aircraft pursuant to Section 2.05 and Continental’s notification
to ExpressJet on September 5th,
2008
|
|
|
**
|
withdrawn
Covered Aircraft pursuant to Section 2.05 and Continental’s notification
to ExpressJet on September 9th,
2008
|
1 Will
transition to Additional Uncovered Aircraft in accordance with Section 2.04 (b)
(ii)
|
|
Section
B
|
|
|
Delta CPA
Aircraft
|
|
|
Section
C
|
|
|
Revenue Risk
Aircraft
|
|
|
Delta-Prorate
Aircraft
|
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
|
1
|
165
|
N11165
|
X
|
|
2
|
167
|
N12167
|
X
|
|
3
|
168
|
N14168
|
X
|
|
4
|
169
|
N17169
|
X
|
|
5
|
170
|
N16170
|
X
|
|
6
|
173
|
N14173
|
X
|
|
7
|
175
|
N12175
|
X
|
|
8
|
569
|
N12569
|
X
|
|
9
|
570
|
N14570
|
X
|
|
10
|
575
|
N11575
|
X
|
|
11
|
907
|
N14907
|
X
|
|
12
|
908
|
N13908
|
X
|
|
13
|
909
|
N22909
|
X
|
|
|
Branded
Aircraft
|
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
|
1
|
163
|
N12163
|
X
|
|
2
|
164
|
N11164
|
X
|
|
3
|
166
|
N12166
|
X
|
|
4
|
174
|
N14174
|
X
|
|
5
|
178
|
N16178
|
X
|
|
6
|
185
|
N17185
|
X
|
|
7
|
186
|
N14186
|
X
|
|
8
|
187
|
N11187
|
X
|
|
9
|
544
|
N11544
|
X
|
|
10
|
546
|
N16546
|
X
|
|
11
|
547
|
N11547
|
X
|
|
12
|
559
|
N16559
|
X
|
|
13
|
560
|
N17560
|
X
|
|
14
|
561
|
N16561
|
X
|
|
15
|
562
|
N14562
|
X
|
|
16
|
563
|
N12563
|
X
|
|
17
|
568
|
N14568
|
X
|
|
|
Section
C
|
|
|
Additional Uncovered
Aircraft
|
|
Aircraft
|
Tail
|
US
Reg
|
Retained
|
Associated
Engines
|
|
1
|
5411
|
N16541
|
312005,
312010
|
|
|
2
|
5421
|
N14542
|
312006,
312009
|
|
|
3
|
5731
|
N14573
|
312173,
312215
|
|
|
4
|
5741
|
N15574
|
312210,
312211
|
|
|
5
|
9201
|
N14920
|
311617,
311678
|
|
|
6
|
9231
|
N14923
|
311535,
311537
|
|
|
7
|
9241
|
N12924
|
311520,
311521
|
|
|
8
|
9991
|
N16999
|
311499,
311511
|
1 Will
transition to Additional Uncovered Aircraft in accordance with Section 2.04 (b)
(ii)
EXHIBIT
21.1
SUBSIDIARIES
OF CONTINENTAL AIRLINES
As
of February 17, 2010
|
Name of
Subsidiary
|
Jurisdiction
of
Incorporation
or Organization
|
|
|
Air
Micronesia, Inc.
|
Delaware
|
|
|
CAL
CARGO, S.A. de C.V.
|
Mexico
|
|
|
CALFINCO
Inc.
|
Delaware
|
|
|
Century
Casualty Company
|
Vermont
|
|
|
Continental
Airlines de Mexico, S.A.
|
Mexico
|
|
|
Continental
Airlines Domain Name Limited
|
England
|
|
|
Continental
Airlines Finance Trust II
|
Delaware
|
|
|
Continental
Airlines Fuel Purchasing Group, LLC
|
Delaware
|
|
|
Continental
Airlines, Inc. Supplemental Retirement Plan for Pilots Trust
Agreement
|
Delaware
|
|
|
Continental
Airlines Purchasing Holdings LLC
|
Delaware
|
|
|
Continental
Airlines Purchasing Services LLC
|
Delaware
|
|
|
Continental
Express, Inc.
|
Delaware
|
|
|
Continental
Micronesia, Inc.
|
Delaware
|
|
|
Presidents
Club of Guam, Inc.
|
Delaware
|
|
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the following Registration
Statements of Continental Airlines, Inc. and each related Prospectus of our
reports dated February 17, 2010, with respect to the consolidated financial
statements of Continental Airlines, Inc. and the effectiveness of internal
control over financial reporting of Continental Airlines, Inc., included in the
Annual Report (Form 10-K) of Continental Airlines, Inc. for the year ended
December 31, 2009.
|
Form
|
Description
|
|
S-8
|
1997
Stock Incentive Plan (No. 333-23165)
|
|
S-8
|
1998
Stock Incentive Plan (No. 333-57297)
|
|
S-8
|
2000
Incentive Plan (No. 333-39762)
|
|
S-8
|
2004
Employee Stock Purchase Plan (No. 333-113444)
|
|
S-8
|
Supplemental
Saving Plan for Management Pilots (No. 333-50938)
|
|
S-8
|
2005
Broad Based Employee Stock Option Plan and 2005 Pilot Supplemental Option
Plan (No. 333-126891)
|
|
S-8
|
Incentive
Plan 2000 - additional 1.5 million shares of Class B Common Stock (No.
333-134904)
|
|
S-8
|
2004
Employee Stock Purchase Plan – additional 3.5 million shares of Class B
Common Stock (No. 333-159994)
|
|
S-3
|
Registration
Statement relating to Warrants, Class A Common Stock and Class B Common
Stock and sales by certain Selling Security holders and the related
Prospectus (No. 333-09739)
|
|
S-3
|
Registration
Statement relating to $500,000,000 of the Company's Debt Securities, Class
B Common Stock, Preferred Stock, Stock Purchase Contracts, Stock Purchase
Units, Depositary Shares, Warrants, Junior Subordinated Trust Debentures
and Guarantee of Trust Preferred Securities and Trust Preferred Securities
of Continental Airlines Finance Trust III (Universal Shelf) and the
related Prospectus (No. 333-71906)
|
|
S-3
|
Registration
Statement relating to $250,000,000 of Term Income Deferrable Equity
Securities (TIDES) of Continental Airlines Finance Trust II, and
Convertible Junior Subordinated Debentures, a Preferred Securities
Guarantee of the TIDES and Class B Common Stock of the Company (No.
333-55144)
|
|
S-3
|
Registration
Statement relating to $175,000,000 of the Company's 5% Convertible Notes
due 2023 (No. 333-108576)
|
|
S-3
|
Registration
Statement relating to $1 billion of the Company's Debt Securities, Class B
Common Stock, Preferred Stock, Stock Purchase Contracts, Stock Purchase
Units, Depositary Shares, Warrants, Subscription Rights and Pass Through
Certificates, and the related Prospectus (No.
333-128289)
|
|
S-3ASR
|
Automatic
Shelf Registration Statement relating to the Company's Debt Securities,
Class B Common Stock, Preferred Stock, Stock Purchase Contracts, Stock
Purchase Units, Depositary Shares, Warrants, Subscription Rights and Pass
Through Certificates, and the related Prospectuses (No.
333-158781)
|
Houston,
Texas
February
17, 2010
Exhibit
24.1
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Kirbyjon H.
Caldwell
|
||
|
(Signature)
|
|
Printed
Name:
|
Kirbyjon
H. Caldwell
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Carolyn
Corvi
|
||
|
(Signature)
|
|
Printed
Name:
|
Carolyn
Corvi
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Douglas H.
McCorkindale
|
||
|
(Signature)
|
|
Printed
Name:
|
Douglas
H. McCorkindale
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Henry L. Meyer
III
|
||
|
(Signature)
|
|
Printed
Name:
|
Henry
L. Meyer III
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Oscar
Munoz
|
||
|
(Signature)
|
|
Printed
Name:
|
Oscar
Munoz
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Laurence E.
Simmons
|
||
|
(Signature)
|
|
Printed
Name:
|
Laurence
E. Simmons
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Jeffery A.
Smisek
|
||
|
(Signature)
|
|
Printed
Name:
|
Jeffery
A. Smisek
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Karen Hastie
Williams
|
||
|
(Signature)
|
|
Printed
Name:
|
Karen
Hastie Williams
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Ronald B.
Woodard
|
||
|
(Signature)
|
|
Printed
Name:
|
Ronald
B. Woodard
|
Dated and
effective as of February 17, 2010
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that the undersigned, a director and/or officer of
Continental Airlines, Inc. (the “Company”), does hereby constitute and appoint
Jennifer L. Vogel, Lori A. Gobillot and Gerald W. Clanton, or any of them, as
the undersigned’s true and lawful attorneys in fact and agents to execute in the
name, place and stead of the undersigned the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 (and any amendments thereto), to be
filed by the Company under the Securities Exchange Act of 1934, as amended, as
fully and effectively in all respects as the undersigned could do if personally
present.
IN WITNESS WHEREOF, the undersigned has
signed this Power of Attorney on and as of the date set forth
below.
|
/s/
Charles A.
Yamarone
|
||
|
(Signature)
|
|
Printed
Name:
|
Charles
A. Yamarone
|
Dated and
effective as of February 17, 2010
EXHBIT
31.1
CERTIFICATION
I,
Jeffery A. Smisek, certify that:
1. I
have reviewed this annual report on Form 10-K of Continental Airlines,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or
other employees who have a significant
role in the registrant's internal control over financial
reporting.
|
Date:
February 17, 2010
/s/ Jeffery A.
Smisek
Jeffery
A. Smisek
Chairman,
President and
Chief
Executive Officer
EXHIBIT
31.2
CERTIFICATION
I, Zane
C. Rowe, certify that:
1. I
have reviewed this annual report on Form 10-K of Continental Airlines,
Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date:
February 17, 2010
/s/ Zane C.
Rowe
Zane C.
Rowe
Executive
Vice President and
Chief
Financial Officer
EXHIBIT
32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections
(a) and (b) of Section 1350, Chapter 63 of Title 18, United States
Code)
Pursuant
to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Continental Airlines, Inc., a Delaware corporation (the
“Company”), does hereby certify, to such officer's knowledge, that:
The
Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the
“Form 10-K”) of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed
original of this written statement required by Section 906 has been provided to
Continental Airlines, Inc. and will be retained by Continental Airlines, Inc.
and furnished to the Securities and Exchange Commission or its staff upon
request.
Dated:
February 17, 2010
/s/ Jeffery A.
Smisek
Jeffery
A. Smisek
Chairman,
President and
Chief
Executive Officer
/s/ Zane C.
Rowe
Zane C.
Rowe
Executive
Vice President and
Chief
Financial Officer