SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported):

October 17, 2002

 

 

 

CONTINENTAL AIRLINES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

1-10323

74-2099724

(State or other jurisdiction

(Commission File Number)

(IRS Employer

of incorporation)

 

Identification No.)

 

1600 Smith Street, Dept. HQSEO, Houston, Texas

77002

(Address of principal executive offices)

(Zip Code)

(713) 324-2950

(Registrant's telephone number, including area code)

 

Item 5. Other Events.

On October 17, 2002, we provided a letter to analysts and other parties presenting information relating to our financial and operational outlook for 2002. The letter is filed herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 7. Financial Statements and Exhibits.

       
 

(c) Exhibits

   
       
 

99.1 Letter to Analysts

   
       
       

 

 

 

 

 

SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Continental Airlines, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CONTINENTAL AIRLINES, INC.

 

 

October 17, 2002

By: /s/ Diane Dayhoff                           

 

Diane Dayhoff

 

Staff Vice President-Finance

 

EXHIBIT INDEX

 

99.1

Letter to Analysts

 

 

 

 

 

Diane Dayhoff
Staff Vice President Finance
1600 Smith Street, HSQII
Houston, Texas 77002

October 17, 2002

 

 

Dear Investors and Analysts:

Today Continental reported a third quarter net loss of $37 million ($0.58 diluted loss per share) and operating income of $46 million ($0.72 operating income per share).

Continental ended the third quarter with approximately $1.3 billion in cash and short-term investments. We anticipate that our cash balance at year-end 2002 will be approximately $1 billion assuming no additional financings or sale of ExpressJet stock. We are estimating our fourth quarter operating cash burn to average about $1.5 million a day. On an "all-in" basis, which includes principal payments and capital expenditures, we are estimating cash burn will be approximately $3 million a day.

We are on track to achieve pre-tax contributions of approximately $80 million this year from our recently announced revenue-generating and cost-reduction initiatives. We are pleased with the performance of these initiatives thus far and they were a large driver behind our better than expected cost performance in the third quarter.

We expect that, once fully implemented, the incremental net pre-tax contribution of Delta and its partners to our Northwest/Continental Alliance will be approximately $50 to $75 million. This takes into account the impact of the approved United/US Airways Alliance.

We are continuing to alter our capacity to match demand. For the fourth quarter we have reduced year-over-year domestic capacity growth to 4% and mainline system capacity growth to 7%. Updated guidance for several operating and financial statistics for fourth quarter 2002, full year 2002 and 2003 can be found on Attachment A.

Continental ended the quarter with 366 jet aircraft (excluding regional jets) in service. A copy of our Fleet Plan for 2002 and 2003 is attached (Attachment B).

Please visit our website at continental.com for other information regarding Continental Airlines. If you should have any questions regarding this information, please do not hesitate to contact us.

 

Sincerely,

Diane Dayhoff

This letter contains forward-looking statements that are not limited to historical facts, but reflect the Company's current beliefs, expectations or intentions regarding future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. For examples of such risks and uncertainties, please see the risk factors set forth in the Company's 2001 10-K and its other securities filings, which identify important matters such as terrorist attacks, domestic and international economic conditions, the significant cost of aircraft fuel, labor costs, competition and industry conditions including the demand for air travel, airline pricing environment and industry capacity decisions, regulatory matters and the seasonal nature of the airline business. In addition to the foregoing risks, there can be no assurance that the Company will be able to achieve the pre-tax contributions from the re venue generating and cost-reducing initiatives discussed in this letter, which will depend, among other matters, on customer acceptance and competitor actions.

Date

Attachment A

Continental Airlines' Quarterly Update

 

2002 Estimated

Year-over-Year %Change

2003 Estimated

Year-over-Year %Change

ASMs

4th Qtr.(E)

Full Year(E)

Full Year(E)

Domestic
Latin America
Europe
Pacific
System

Continental Express

4.0%
8.5%
12.0%
22.0%
7.0%

23.0%

(7.0)%
(1.5)%
(2.0)%
(4.5)%
(5.0)%

14.5%

(4)%
(2)%
8%
5%
(1)%

31%

 
 

2002 Estimate

2003 Estimate

Load Factor

4th Qtr.(E)

Full Year(E)

Full Year(E)

Continental
Continental Express

70 - 71%
62 - 63%

73 - 74%
62 - 63%

74 - 75%
64 - 65%

 

2002 Estimated
Year-over-Year Change

2003 Estimated
Year-over-Year Change

Jet Operating Statistics

4th Qtr.(E)

Full Year(E)

Full Year(E)

CASM
CASM Holding Fuel Price Constant
Fuel Gallons Consumed

Fuel Price (excluding fuel taxes)

(2) - (1)%
(5) - (4)%
5 - 6%

79 - 82 cents

(3) - (2)%
(2) - (1)%
(10) - (9)%

69 - 72 cents

4 - 5%
3 - 4%
(1) - 0%

74 - 78 cents

 

 

2002
Estimated Amounts

2003
Estimated Amounts

Financial

4th Qtr.(E)

Full Year(E)

Full Year(E)

Aircraft Rent
Net Interest Expense
Dividends on Preferred Stock of Trust

$228 Million 
$80 Million 
$2.4 Million

$915 Million  
$300 Million   
$9.6 Million

$915 Million  
$310 Million   
$9.6 Million

 

Fuel Hedges

% of Volume Hedged

Wtd. Average
Strike Price of Caps

Fourth Quarter 2002:

 

Total/Average:

First Quarter 2003:

25%

25%

45%

95%

75%

$25/Barrel

$28/Barrel

$33/Barrel

$30/Barrel

$33/Barrel

 

Attachment A

 

Cash Capital Expenditures

2002 Estimated Amounts

($Millions)

2003 Estimated Amounts

($Millions)

Fleet*

Non-Fleet

Rotable Parts & Capitalized Interest

Total

Net Purchase Deposits

Financing*

$398 

140 

33 

$571 

(141)

(150)

$280 

 

$110

170

115

$395

25

0

$420

 

*Capital Expenditures for 2002 includes $150 million of expenditures related to two aircraft purchased and delivered in the second quarter but collateralized with debt financing in the third quarter.

 

EPS Estimated Share Count

Share count estimates for calculating basic and diluted earnings per share at different income levels are as follows:

Fourth Quarter 2002 (Millions)

Quarterly

Number of Shares

 

Earnings Level

Basic

Diluted

Interest Addback

Over $36

Between $19 - $36

Under $19

65.3

65.3

65.3

74.4

70.3

65.3

$3.6

$1.4

--

Full Year 2002 (Millions)

Year-to-date

Number of Shares

 

Earnings Level

Basic

Diluted

Interest Addback

Over $137
Between $73 - $137

Under $73

64.2
64.2
64.2

73.4
69.2
64.2

$14.2

$5.7
- --

Full Year 2003 (Millions)

Year-to-date

Number of Shares

 

Earnings Level

Basic

Diluted

Interest Addback

Over $140
Between $74 - $140

Under $74

65.3
65.3
65.3

74.4
70.3
65.3

$14.2

$5.7
- --

These share count charts are based upon several assumptions including market stock price and number of shares outstanding. The number of shares used in the actual EPS calculation will likely be different from those set forth above.

                Attachment B
  Continental Airlines In-Service Jet Fleet Plan
  Includes Continental, Continental Micronesia and Continental Express Regional Jets
    September 30, 2002  
                 
        Increase/     Increase/  
    Total @   (Decrease) Total @   (Decrease) Total @
  Jet 9/30/02   4Q02E YE 2002E   2003E YE 2003E
  777-200ER 18   - 18   - 18
  767-400ER 16   - 16   - 16
  767-200ER 10   - 10   - 10
  757-300 4   - 4   - 4
  757-200 41   - 41   - 41
  737-900 12   - 12   - 12
  737-800 77   - 77   4 81
  MD-80 30   (1) 29   (3) 26
  737-700 36   - 36   - 36
  737-300 57   1* 58   (8) 50
  737-500 65   - 65   (2) 63
  Total Jet 366   - 366   (9) 357
                 
  Regional Jet              
  ERJ-145XR -   18 18   48 66
  ERJ-145 140   - 140   - 140
  ERJ-135 30   - 30   - 30
  Total Regional Jet 170   18 188   48 236
                 
  Total              
  Jet 366   - 366   (9) 357
  Regional Jet 170   18 188   48 236
  Total YE Jet Count 536   18 554   39 593
                 
                 
  * Temporarily grounded aircraft returned to service