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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):
June 10, 1997
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-09781 74-2099724
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2929 Allen Parkway, Suite 2010, Houston, Texas 77019
(Address of principal executive offices) (Zip Code)
(713) 834-2950
(Registrant's telephone number, including area code)
Item 5.Other Events.
On June 10, 1997 Continental Airlines, Inc. issued a press release
which is filed herewith as Exhibit 99.1 and incorporated herein by
reference. Such press release announces that the Company has
signed a letter of intent with The Boeing Company (Boeing) to
purchase 35 new widebody aircraft. This new order consists of five
firm Boeing 777-200 aircraft and 30 firm Boeing 767-400ER aircraft,
with options for additional 777 and 767 aircraft to be negotiated
by the parties.
The following information contains forward looking statements, and
certain assumptions upon which such forward looking statements are
in part based. Numerous important factors, including those factors
identified as Risk Factors set forth under the captions "Risk
Factors Relating to the Company" and "Risk Factors Relating to the
Airline Industry" in the Company's Form 10-K for the year ended
December 31, 1996, which factors are filed herewith as Exhibit 99.2
and incorporated herein by reference, and the fact that the
assumptions set forth below could prove incorrect, could cause
actual results to differ materially from those contained in such
forward looking statements.
The Company estimates that it would have achieved a 7.6% decrease
in its European widebody operating cost per available seat mile
(CASM) in 1996 if it had used 767-400ER and 777-200 aircraft in
lieu of DC10-30 aircraft in its European operations. The estimated
decrease in European widebody CASM, from 8.18 cents per available
seat mile (ASM) to 7.56 cents per ASM (in 1996 year dollars), is
comprised of a 0.55 cent per ASM decrease in fuel costs, a 0.34
cents per ASM decrease in maintenance expense, a 0.28 cent per ASM
decrease due to increased ASMs, and a 0.55 cent per ASM increase
due to higher ownership and other costs. The associated
assumptions are as follows:
1. 8.18 cents CASM based on 1996 European DC10-30
results. 1996 European DC10-30 operating expenses were
$428.6 million, and 1996 European DC10-30 ASMs were 5,242
million.
2. DC10-30 fleet (242 seats) is replaced using a 3:1
ratio of 767-400ER aircraft to 777-200 aircraft (240 and
285 seats, respectively).
3. 767-400ER and 777-200 ownership costs assume
negotiated prices and leveraged lease financing financed
at the Company's most recently completed enhanced
equipment trust certificates interest rates.
4. Costs assume 1996 year dollars.
5. Fuel costs assumed at 63 cents per gallon, and fuel
savings are based on DC10-30 burn rates adjusted for 767-
400ER and 777-200 burn rates under Company operating
rules.
6. Mature maintenance costs are assumed for new aircraft,
based on Boeing data for 767-400ER and 777-200 aircraft,
adjusted to reflect Company costs.
The Company anticipates raising approximately $3.1 billion in the
enhanced equipment trust certificate market during the remainder of
1997 ($500 million), 1998 ($1,150 million) and 1999 ($1,450
million) to finance its scheduled Boeing aircraft deliveries
(including widebody deliveries during that period which are the
subject of the letter of intent), and to obtain the remainder of
the financing for such deliveries during that period through lease
equity and internally generated funds. The Company believes that
it could currently issue enhanced equipment trust certificates at
a blended interest rate of approximately 7.4%, based on June 6,
1997 treasury yields.
As of June 10, 1997, the Company has firm commitments with Boeing
to take delivery of a total of 125 principally narrowbody jet
aircraft during the years 1997 through 2003 with options for an
additional 90 aircraft (exercisable subject to certain conditions).
These aircraft will replace older, less efficient Stage 2 aircraft
and allow for growth of operations. In addition, the Company has
recently signed a letter of intent with Boeing to purchase 35 new
widebody jet aircraft. This new order consists of five firm Boeing
777-200 aircraft and 30 firm Boeing 767-400ER aircraft, with
options for additional 777 and 767 aircraft to be negotiated by the
parties. The new widebody aircraft will replace Continental's fleet
of DC10-10 and DC10-30 aircraft, which will be retired as the new
Boeing aircraft are delivered, and will also be used to expand the
airline's international and transcontinental service. Ten firm
delivery 777 aircraft (including five aircraft the Company already
had on order, the deliveries of which will be accelerated) will be
delivered in September 1998 through May 1999, and the thirty firm
767 aircraft will be delivered in mid- 2000 through the end of
2004. In connection with this order, the Company will obtain the
flexibility to substitute certain aircraft on order with Boeing
and will obtain other benefits. The new order with Boeing is
subject to the negotiation and execution of definitive
documentation. It provides that the Company will purchase from
Boeing the carrier's requirements for new jet aircraft (other than
regional jets) over the next twenty years, subject to certain
conditions. The Company requested a business offer from Boeing
which would include the requirements commitment in order to obtain
more favorable terms and flexibility.
The estimated aggregate cost of the Company's firm commitments for
the 125 Boeing aircraft previously ordered and the 35 widebody
aircraft included in the recent Boeing letter of intent is
approximately $7 billion. The Company has completed or has third
party commitments for a total of approximately $800 million in
financing for its future narrowbody Boeing deliveries, and has
commitments or letters of intent from various sources for backstop
financing for approximately one-fourth of the anticipated
acquisition cost of its future narrowbody and widebody Boeing
deliveries. The Company currently plans on financing the new Boeing
aircraft with enhanced equipment trust certificates or similar
financing and lease equity, subject to availability and market
conditions. However, further financing will be needed to satisfy
the Company's capital commitments for other aircraft and aircraft-
related expenditures such as spare parts, simulators and related
items. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not
covered by firm financing commitments. Deliveries of new Boeing
aircraft are expected to increase aircraft rental, depreciation and
interest costs while generating cost savings in the areas of
maintenance, fuel and pilot training.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
99.1 Press Release.
99.2 The matters set forth under the captions "Risk
Factors Relating to the Company" and "Risk
Factors Relating to the Airline Industry" set
forth on pages 18-24 of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1996 are hereby incorporated
herein by reference.
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.
By /s/ Jeffery A. Smisek
Jeffery A. Smisek
Executive Vice President
and General Counsel
June 10, 1997
EXHIBIT INDEX
99.1 Press release, dated June 10, 1997.
99.2 The matters set forth under the captions "Risk Factors
Relating to the Company" and "Risk Factors Relating to the
Airline Industry" set forth on pages 18-24 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1996 are hereby incorporated herein by reference.
Exhibit 99.1
CONTINENTAL AIRLINES ANNOUNCES WIDEBODY AIRCRAFT ORDER
HOUSTON, June 10, 1997: Continental Airlines (NYSE: CAI.B and
CAI.A) announced today that it has signed a letter of intent with
The Boeing Company to purchase 35 new widebody aircraft. The order
consists of five firm Boeing 777-200 aircraft and 30 firm new
generation Boeing 767-400ER aircraft, with options for additional
777 and 767 aircraft to be negotiated by the parties. This order
is in addition to the five firm 777 aircraft which the airline
already has on order with Boeing, the deliveries of which will be
accelerated as part of this order.
"Continental now has a fleet plan that makes us competitive in
every market well into the next century. This latest order will
reduce our total cost while providing the latest in technology and
comfort to our customers," said Gordon Bethune, chairman of the
board and chief executive officer of Continental Airlines.
The new widebody aircraft will replace Continental's fleet of
six DC10-10 and 31 DC10-30 aircraft, which will be retired as the
new Boeing aircraft are delivered, and will also be used to expand
the airline's international and transcontinental service. The ten
firm delivery 777 aircraft (including the five aircraft the company
already had on order) will be delivered in September 1998 through
May 1999, and the thirty firm 767 aircraft will be delivered in
mid- 2000 through the end of 2004.
The new order with Boeing is subject to the negotiation and
execution of definitive documentation. It provides that
Continental will purchase from Boeing the carrier's requirements
for new jet aircraft (other than regional jets) over the next
twenty years, subject to certain conditions. Continental requested
a business offer from Boeing which would include the requirements
commitment in order to obtain more favorable terms and flexibility.
In connection with this order, the company will obtain the
flexibility to substitute certain aircraft on order with Boeing
and will obtain other benefits. The Company anticipates funding
the deliveries of its new widebody aircraft principally through the
enhanced equipment trust certificate (EETC) market.
Continental Airlines is the fifth largest airline in the U.S.,
offering more than 2,000 jet and Express departures daily to 129
domestic and 58 international destinations. Operating major hubs
in Newark, Houston, Guam and Cleveland, Continental is
strategically positioned for transcontinental travel, and offers
extensive service to Latin America and Europe via its Houston and
Newark gateways. Continental has been named best airline in
customer satisfaction for long-haul flights (500 miles or more) for
the second year in a row by Frequent Flyer magazine and J.D. Power
and Associates. During 1996, Continental was named "Airline of the
Year" by Air Transport World magazine and Best Elite-Level Frequent
Flyer Program by Inside Flyer magazine.