UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 0-9781
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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)
Indicate by check mark whether 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 _____
_______________
As of October 16, 1998, 11,418,632 shares of Class A common stock
and 48,122,769 shares of Class B common stock were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Operating Revenue:
Passenger . . . . . . . $1,969 $1,750 $5,571 $4,960
Cargo and mail. . . . . 66 64 202 187
Other . . . . . . . . . 81 76 233 227
2,116 1,890 6,006 5,374
Operating Expenses:
Wages, salaries and
related costs. . . . . 581 462 1,599 1,305
Aircraft fuel . . . . . 181 221 554 660
Aircraft rentals. . . . 164 141 482 400
Commissions . . . . . . 155 152 448 437
Maintenance, materials
and repairs. . . . . . 150 147 455 400
Other rentals and
landing fees . . . . . 110 104 310 299
Depreciation and
amortization . . . . . 75 64 215 186
Fleet dispositions/
impairment losses:
Jet . . . . . . . . . 65 - 65 -
Turboprop . . . . . . 57 - 57 -
Other . . . . . . . . . 435 392 1,248 1,103
1,973 1,683 5,433 4,790
Operating Income . . . . 143 207 573 584
Nonoperating Income
(Expense):
Interest expense. . . . (47) (42) (131) (126)
Interest capitalized. . 14 9 42 23
Interest income . . . . 16 14 42 41
Other, net. . . . . . . (1) (2) 11 (4)
(18) (21) (36) (66)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Income before Income
Taxes and Extraordinary
Charge. . . . . . . . . $ 125 $ 186 $ 537 $ 518
Income Tax Provision . . (49) (69) (206) (192)
Distributions on
Preferred Securities
of Trust, net of
applicable income
taxes of $2, $2,
$6 and $6,
respectively. . . . . . (3) (3) (10) (10)
Income before
Extraordinary Charge. . 73 114 321 316
Extraordinary Charge,
net of applicable
income taxes of $0,
$2, $2 and $2,
respectively. . . . . . - (4) (4) (4)
Net Income . . . . . . . 73 110 317 312
Preferred Dividend
Requirements. . . . . . - - - (2)
Income Applicable to
Common Shares . . . . . $ 73 $ 110 $ 317 $ 310
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Earnings per
Common Share:
Income Before
Extraordinary Charge. $1.21 $1.97 $5.33 $5.47
Extraordinary Charge,
net of tax. . . . . . - (0.07) (0.06) (0.07)
Net Income . . . . . . $1.21 $1.90 $5.27 $5.40
Earnings per Common
Share Assuming
Dilution:
Income Before
Extraordinary Charge. $0.97 $1.48 $4.15 $4.06
Extraordinary Charge,
net of tax. . . . . . - (0.04) (0.05) (0.04)
Net Income . . . . . . $0.97 $1.44 $4.10 $4.02
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
September 30, December 31,
ASSETS 1998 1997
(Unaudited)
Current Assets:
Cash and cash equivalents, including
restricted cash and cash equivalents
of $13 and $15, respectively . . . . . . $1,226 $1,025
Short-term investments. . . . . . . . . . 44 -
Accounts receivable, net. . . . . . . . . 549 361
Spare parts and supplies, net . . . . . . 152 128
Deferred income taxes . . . . . . . . . . 111 111
Prepayments and other . . . . . . . . . . 130 103
Total current assets . . . . . . . . . . 2,212 1,728
Property and Equipment:
Owned property and equipment:
Flight equipment . . . . . . . . . . . . 2,284 1,636
Other. . . . . . . . . . . . . . . . . . 547 456
2,831 2,092
Less: Accumulated depreciation. . . . . 583 473
2,248 1,619
Purchase deposits for flight equipment 425 437
Capital leases:
Flight equipment. . . . . . . . . . . . . 359 274
Other . . . . . . . . . . . . . . . . . . 43 40
402 314
Less: Accumulated amortization . . . . . 169 145
233 169
Total property and equipment . . . . . . 2,906 2,225
Other Assets:
Routes, gates and slots, net. . . . . . . 1,231 1,425
Reorganization value in excess of
amounts allocable to identifiable
assets, net. . . . . . . . . . . . . . . - 164
Investments . . . . . . . . . . . . . . . 151 104
Other assets, net . . . . . . . . . . . . 208 184
Total other assets . . . . . . . . . . . 1,590 1,877
Total Assets. . . . . . . . . . . . . . $6,708 $5,830
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
(Unaudited)
Current Liabilities:
Current maturities of long-term debt. . . $ 197 $ 243
Current maturities of capital leases. . . 48 40
Accounts payable. . . . . . . . . . . . . 906 781
Air traffic liability . . . . . . . . . . 963 746
Accrued payroll and pensions. . . . . . . 168 158
Accrued other liabilities . . . . . . . . 284 317
Total current liabilities. . . . . . . . 2,566 2,285
Long-Term Debt . . . . . . . . . . . . . . 1,937 1,426
Capital Leases . . . . . . . . . . . . . . 211 142
Deferred Credits and Other Long-Term
Liabilities:
Deferred income taxes . . . . . . . . . . 308 435
Accruals for aircraft retirements and
excess facilities. . . . . . . . . . . . 115 123
Other . . . . . . . . . . . . . . . . . . 238 261
Total deferred credits and other
long-term liabilities . . . . . . . . . 661 819
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures (A). . . . . . . . . . . . . . 242 242
(A) The sole assets of the Trust are convertible subordinated
debentures with an aggregate principal amount of $249 million,
which bear interest at the rate of 8-1/2% per annum and mature
on December 1, 2020. Upon repayment, the Continental-
Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust will be mandatorily redeemed.
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
September 30, December 31,
1998 1997
(Unaudited)
Common Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,418,632 and 8,379,464 shares issued
and outstanding, respectively. . . . . . $ - $ -
Class B common stock - $.01 par,
200,000,000 shares authorized;
51,066,488 shares issued in 1998
and 50,512,010 shares issued and
outstanding in 1997. . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 653 639
Retained earnings . . . . . . . . . . . . 593 276
Other . . . . . . . . . . . . . . . . . . (2) -
Treasury stock - 2,894,654 Class B shares
in 1998. . . . . . . . . . . . . . . . . (154) -
Total common stockholders' equity. . . . 1,091 916
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . $6,708 $5,830
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months
Ended September 30,
1998 1997
(Unaudited)
Net Cash Provided by Operating
Activities. . . . . . . . . . . . . . . $799 $740
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries. . . . (583) (242)
Purchase deposits refunded in
connection with aircraft delivered . . 540 29
Capital expenditures. . . . . . . . . . (492) (275)
Proceeds from disposition of property
and equipment. . . . . . . . . . . . . 67 14
Investment in partner airlines. . . . . (53) -
Purchase of short-term investments. . . (44) -
Other . . . . . . . . . . . . . . . . . (18) (10)
Net cash used by investing
activities. . . . . . . . . . . . . . (583) (484)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
debt, net. . . . . . . . . . . . . . . 477 505
Payments on long-term debt and
capital lease obligations. . . . . . . (375) (627)
Purchase of Class B treasury stock. . . (191) -
Proceeds from issuance of common
stock. . . . . . . . . . . . . . . . . 51 18
Dividends paid on preferred securities
of trust . . . . . . . . . . . . . . . (16) (16)
Purchase of warrants to purchase
Class B common stock . . . . . . . . . - (94)
Redemption of preferred stock . . . . . - (48)
Purchase of 9% minority interest
in AMI . . . . . . . . . . . . . . . . - (18)
Proceeds from sale-leaseback
transactions . . . . . . . . . . . . . 41 -
Net cash used by financing activities. (13) (280)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months
Ended September 30,
1998 1997
(Unaudited)
Net Increase (Decrease) in Cash and
Cash Equivalents. . . . . . . . . . . . $ 203 $(24)
Cash and Cash Equivalents - Beginning
of Period (A) . . . . . . . . . . . . . 1,010 985
Cash and Cash Equivalents - End of
Period (A). . . . . . . . . . . . . . . $1,213 $961
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . $ 98 $104
Income taxes paid . . . . . . . . . . . $ 13 $ 7
Investing and Financing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 335 $207
Capital lease obligations incurred. . . $ 111 $ 15
Reduction of capital lease
obligations in connection with
refinanced aircraft. . . . . . . . . . $ - $ 97
Financed purchase deposits for
flight equipment, net. . . . . . . . . $ - $ 52
Purchase deposits refunded and used
to reduce debt . . . . . . . . . . . . $ - $ 31
(A) Excludes restricted cash of $15 million and $76 million at
January 1, 1998 and 1997, respectively, and $13 million and $27
million at September 30, 1998 and 1997, respectively.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments necessary to
present fairly the financial position, results of operations and
cash flows for the periods indicated. Such adjustments are of a
normal, recurring nature. The accompanying consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Annual
Report of Continental Airlines, Inc. (the "Company" or
"Continental") on Form 10-K for the year ended December 31, 1997.
NOTE 1 - SHORT-TERM INVESTMENTS
During 1998, the Company began investing in commercial paper with
original maturities in excess of 90 days but less than 270 days.
These investments are classified as short-term investments in the
consolidated balance sheet. Short-term investments are stated at
cost, which approximates market value.
NOTE 2 - INTANGIBLES
During 1998, the Company determined that it would be able to
recognize additional net operating losses ("NOLs") attributable to
the Company's predecessor as a result of the completion of several
transactions resulting in recognition of built-in gains for federal
income tax purposes. This benefit was used to reduce to zero
reorganization value in excess of amounts allocable to identifiable
assets in the first quarter of 1998. During the third quarter of
1998, the Company determined that additional NOLs of the Company's
predecessor could be benefitted and accordingly reduced both the
valuation allowance and routes, gates and slots by $152 million.
NOTE 3 - FLEET DISPOSITIONS/IMPAIRMENT LOSSES
On August 11, 1998, the Company announced that Continental
Micronesia, Inc. ("CMI"), a wholly owned subsidiary of the Company,
plans to accelerate the retirement of its four Boeing 747 aircraft
by April 1999 and its remaining thirteen Boeing 727 aircraft by
December 2000. The Boeing 747s will be replaced by DC-10-30
aircraft and the Boeing 727 aircraft will be replaced with a
reduced number of Boeing 737 aircraft. In addition, Continental
Express, Inc. ("Express"), a wholly owned subsidiary of the
Company, will accelerate the retirement of certain turboprop
aircraft by 2000, including its fleet of 32 EMB-120 turboprop
aircraft, as regional jets are acquired to replace turboprops.
In connection with its decision to accelerate the replacement of
these aircraft, the Company performed an evaluation to determine,
in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), whether future
cash flows (undiscounted and without interest charges) expected to
result from the use and eventual disposition of these aircraft will
be less than the aggregate carrying amount of these aircraft and
the related assets. As a result of the evaluation, management
determined that the estimated future cash flows expected to be
generated by these aircraft will be less than their carrying
amount, and therefore, these aircraft are impaired as defined by
SFAS 121. Consequently, the original cost basis of these aircraft
and related items was reduced to reflect the fair market value at
the date the decision was made, resulting in a $59 million fleet
disposition/impairment loss. In determining the fair market value
of these assets, the Company considered recent transactions
involving sales of similar aircraft and market trends in aircraft
dispositions. The remaining $63 million of the fleet
disposition/impairment loss includes cash and non-cash costs
related primarily to future commitments on leased aircraft past the
dates they will be removed from service and the write-down of
related inventory to its estimated fair market value. The combined
charge of $122 million ($77 million after tax) was recorded in the
third quarter of 1998.
NOTE 4 - EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share (in millions):
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Numerator:
Income before extraordinary
charge . . . . . . . . . . . . $ 73 $114 $321 $316
Extraordinary charge, net of
applicable income taxes. . . . - (4) (4) (4)
Net income. . . . . . . . . . . 73 110 317 312
Preferred stock dividends . . . - - - (2)
Numerator for basic earnings per
share - income available to
common stockholders . . . . . . 73 110 317 310
Effect of dilutive securities:
Preferred Securities of Trust . 3 3 9 9
6-3/4% convertible subordinated
notes. . . . . . . . . . . . . 2 2 6 6
5 5 15 15
Numerator for diluted earnings
per share - income available
to common stockholders after
assumed conversions. . . . . . $ 78 $115 $332 $325
Denominator:
Denominator for basic earnings
per share - weighted-average
shares . . . . . . . . . . . . 60.3 58.0 60.0 57.4
Effect of dilutive securities:
Employee stock options . . . . 1.7 1.6 1.9 1.5
Warrants . . . . . . . . . . . - 2.5 1.1 3.8
Restricted Class B common
stock . . . . . . . . . . . . - 0.4 - 0.4
Preferred Securities of Trust. 10.3 10.3 10.3 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . 7.6 7.6 7.6 7.6
Dilutive potential common
shares. . . . . . . . . . . . 19.6 22.4 20.9 23.6
Denominator for diluted
earnings per share - adjusted
weighted-average and assumed
conversions. . . . . . . . . . 79.9 80.4 80.9 81.0
NOTE 5 - INCOME TAXES
Income taxes for the three and nine months ended September 30, 1998
and 1997 were provided at the estimated annual effective tax rate.
Such rate differs from the federal statutory rate of 35%, primarily
due to state income taxes and the effect of certain expenses that
are not deductible for income tax purposes.
At December 31, 1997, the Company had NOL carryforwards of $1.9
billion for federal income tax purposes that will expire through
2009 and federal investment tax credit carryforwards of $45 million
that will expire through 2001. As a result of the change in
ownership of the Company on April 27, 1993, the ultimate
utilization of the Company's NOLs and investment tax credits will
be limited. Reflecting this limitation, the Company recorded a
valuation allowance of $617 million at December 31, 1997.
Realization of a substantial portion of the Company's remaining
NOLs required the completion of transactions resulting in
recognition of built-in gains for federal income tax purposes.
During 1998, the Company has consummated several such transactions,
the benefit of which resulted in the elimination of reorganization
value in excess of amounts allocable to identifiable assets in the
first quarter of 1998. During the third quarter of 1998, the
Company determined that additional NOLs of the Company's
predecessor could be benefitted and accordingly reduced both the
valuation allowance and routes, gates and slots by $152 million.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
NOTE 6 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 - "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS 130 had no impact on the Company's
net income or stockholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and
changes in minimum pension liabilities, which prior to adoption
were reported separately in stockholders' equity, to be included in
other comprehensive income.
During the third quarters of 1998 and 1997, total comprehensive
income amounted to $70 million and $110 million, respectively. For
the nine months ended September 30, 1998 and 1997, total
comprehensive income amounted to $313 million and $311 million,
respectively.
NOTE 7 - OTHER
On January 26, 1998, the Company announced that, in connection with
an agreement by Air Partners, L.P. ("Air Partners") to dispose of
its interest in the Company to an affiliate of Northwest Airlines,
Inc. ("Northwest"), the Company had entered into a long-term global
alliance with Northwest involving schedule coordination, frequent
flyer reciprocity, executive lounge access, airport facility
coordination, code-sharing, the formation of a joint venture among
the two carriers and KLM Royal Dutch Airlines with respect to their
trans-Atlantic services, cooperation regarding other alliance
partners of the two carriers and regional alliance development,
certain coordinated sales programs, preferred reservations displays
and other activities. On October 23, 1998, the Department of
Justice ("DOJ") filed a lawsuit against Northwest and Continental
challenging Northwest's acquisition of an interest in Continental.
The DOJ is not seeking to preliminarily enjoin the transaction, nor
is it challenging the alliance with Northwest at this time,
although it is continuing to investigate certain specific aspects
of the alliance. Continental expects to implement its alliance
with Northwest promptly after the closing of Northwest's
acquisition of an equity interest in Continental. While it is not
possible to predict the ultimate outcome of this litigation, the
Company does not believe that this litigation will have a material
adverse effect on the Company.
In February 1998, the Company completed an offering of $773 million
of pass-through certificates to be used to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of up to 24 aircraft scheduled to be delivered
through December 1998.
In addition, during the first quarter of 1998, Continental
completed several offerings totaling approximately $98 million
aggregate principal amount of tax-exempt special facilities revenue
bonds to finance certain airport facility projects. These bonds
are guaranteed by Continental and are payable solely from rentals
paid by Continental under long-term lease agreements with the
respective governing bodies.
In April 1998, the Company completed an offering of $187 million of
pass-through certificates to be used to refinance the debt related
to 14 aircraft currently owned by Continental. In connection with
this refinancing, Continental recorded a $4 million after tax
extraordinary charge to consolidated earnings in the second quarter
of 1998.
On April 24, 1998 Air Partners exercised warrants to purchase
2,298,134 shares of Class A common stock with an exercise price of
$7.50 per share and warrants to purchase 741,334 shares of Class A
common stock with an exercise price of $15.00 per share. The
Company no longer has any warrants outstanding.
In May 1998, Express signed a memorandum of understanding to
purchase 25 Embraer ERJ-135 ("ERJ-135") 37-seat regional jets,
deliverable through the third quarter of 1999, with options for an
additional 50 aircraft exercisable through 2005. The Company
currently plans to finance the new aircraft using lease financing
and to account for all of these aircraft as operating leases.
On May 21, 1998, the stockholders of the Company approved the
Continental Airlines, Inc. 1998 Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan provides that the Company
may issue shares of restricted Class B common stock or grant
options to purchase shares of Class B common stock to non-employee
directors and employees of the Company or its subsidiaries.
Subject to adjustment as provided in the Incentive Plan, the
aggregate number of shares of Class B common stock that may be
issued under the Incentive Plan may not exceed 5,500,000 shares,
which may be originally issued or treasury shares or a combination
thereof.
In June 1998, a new five-year collective bargaining agreement,
retroactive to October 1997, was ratified by Continental's pilots,
who are represented by the Independent Association of Continental
Pilots ("IACP"). The agreement becomes amendable in October 2002.
The Company began accruing for the increased costs of the new
agreement in the fourth quarter of 1997. The Company estimates
that the increased costs will be approximately $113 million for
1998. Also in June 1998, the pilots at Express, who are also
represented by the IACP, rejected a new five-year tentative
agreement which had been submitted to them for ratification. The
parties resumed bargaining with respect to a revised Express
contract with the assistance of the National Mediation Board
("NMB") in the third quarter of 1998. While it is not possible to
predict the outcome of those negotiations, the Company does not
believe it will have a material financial impact on the Company.
The Company's dispatchers, represented by the Transport Workers'
Union ("TWU"), ratified a new five-year collective bargaining
agreement in July 1998. The agreement becomes amendable in October
2003. On October 9, 1998, the Company and the International
Brotherhood of Teamsters (the "Teamsters") reached a tentative
agreement for an initial four-year collective bargaining agreement
covering the Company's mechanics and related employees. The
agreement will be submitted for a ratification vote, the results of
which will be known in mid-November 1998. While it is not possible
to predict the outcome of the ratification vote, the Company does
not believe it will have a material financial impact on the
Company.
Also in June 1998, the Company sold its remaining 317,140 shares of
America West Holding Corporation ("America West") Class B common
stock realizing net proceeds of approximately $8.9 million and a
gain of $6 million.
In 1998, the Company's Board of Directors authorized the
expenditure of up to $300 million to repurchase shares of the
Company's common stock or convertible securities. No time limit
was placed on the duration of the repurchase program. Subject to
applicable securities laws, such purchases occur at times and in
amounts that the Company deems appropriate. As of October 16,
1998, 3,695,800 shares had been repurchased for a total of $197
million.
In October 1998, the Company entered into an agreement to offer
$524 million of pass-through certificates to be used to finance
(through either leveraged leases or secured debt financings) the
debt portion of the acquisition cost of up to 14 aircraft scheduled
to be delivered from December 1998 to April 1999. The transaction
is expected to be completed in early November of 1998.
NOTE 8 - SEGMENTS DISCLOSURE
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131 - "Disclosure
About Segments of an Enterprise and Related Information" ("SFAS
131"). Although SFAS 131 became effective the first quarter of
1998, Continental has elected not to report segment information in
interim financial statements in the first year of application
consistent with the provisions of the statement.
NOTE 9 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133 - Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted for years beginning after June 15, 1999.
The Company will adopt SFAS 133 in the fourth quarter of 1998.
Management does not anticipate that the adoption of SFAS 133 will
have a significant effect on earnings or the financial position of
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the risk factors set forth in
the Company's Form 10-K for the year ended December 31, 1997 which
identify important factors that could cause actual results to
differ materially from those in the forward-looking statements.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, fare sale activities, excise and
similar taxes, changing levels of operations, fuel prices, foreign
currency exchange rates and general economic conditions. To date,
the recent turmoil in the world's financial markets has not had a
material impact on the Company's results of operations. Although
CMI's results in Asia have declined in recent years, the Company
successfully redeployed CMI capacity into the stronger domestic
markets and CMI's recent results have improved. In addition, the
Company believes it is well positioned to respond to market
conditions in the event of a sustained economic downturn for the
following reasons: underdeveloped hubs with strong local traffic;
a flexible fleet plan; a strong cash balance, a $225 million unused
revolving credit facility and a well developed alliance network.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three and nine months ended September 30, 1998 as compared to
the corresponding periods ended September 30, 1997.
Comparison of Three Months Ended September 30, 1998 to Three Months
Ended September 30, 1997
The Company recorded consolidated net income of $73 million for the
three months ended September 30, 1998 as compared to consolidated
net income of $110 million for the three months ended September 30,
1997. Net income was significantly impacted by a $122 million ($77
million after-tax) fleet disposition/impairment loss resulting from
the Company's decision to accelerate the retirement of certain jet
and turboprop aircraft.
Passenger revenue increased 12.5%, $219 million, during the quarter
ended September 30, 1998 as compared to the same period in 1997,
which was principally due to a 14.6% increase in revenue passenger
miles, partially offset by a 2.7% decrease in yield.
Wages, salaries and related costs increased 25.8%, $119 million,
during the quarter ended September 30, 1998 as compared to the same
period in 1997, primarily due to an 11.1% increase in average full-
time equivalent employees and higher wage rates resulting from the
Company's decision to increase employee wages to industry standards
by the year 2000.
Aircraft fuel expense decreased 18.1%, $40 million, in the three
months ended September 30, 1998 as compared to the same period in
the prior year. The average price per gallon decreased 26.0% from
60.23 cents in the third quarter of 1997 to 44.59 cents in the
third quarter of 1998. This reduction was partially offset by a
10.2% increase in the quantity of jet fuel used, principally
reflecting increased capacity.
Aircraft rentals increased $23 million or 16.3% due to the delivery
of new aircraft.
Maintenance, materials and repairs increased 2.0%, $3 million,
during the quarter ended September 30, 1998 as compared to the same
period in 1997 due to the volume and timing of engine overhauls and
routine maintenance as part of the Company's ongoing maintenance
program.
Depreciation and amortization expense increased 17.2%, $11 million,
in the third quarter of 1998 compared to the third quarter of 1997
primarily due to the addition of new aircraft and related spare
parts. These increases were partially offset by a reduction in the
amortization of reorganization value in excess of amounts allocable
to identifiable assets and routes, gates and slots. See Note 2.
As a result of its decision to accelerate the retirement of certain
jet and turboprop aircraft (see Note 3), the Company recorded a
fleet disposition/ impairment loss of $122 million.
Other operating expense increased 11.0%, $43 million, in the three
months ended September 30, 1998 as compared to the same period in
the prior year, as a result of increases in passenger and aircraft
servicing expense, reservations and sales expense and other
miscellaneous expense, primarily due to the 11.1% increase in
available seat miles.
Comparison of Nine Months Ended September 30, 1998 to Nine Months
Ended September 30, 1997
The Company recorded consolidated net income of $317 million and
$312 million for the nine months ended September 30, 1998 and 1997,
respectively. Net income was significantly impacted by a $122
million ($77 million after-tax) fleet disposition/impairment loss
resulting from the Company's decision to accelerate the retirement
of certain jet and turboprop aircraft. Management believes that
the Company benefitted in the first quarter of 1997 from the
expiration of the aviation trust fund tax (the "ticket tax"). The
ticket tax was reinstated on March 7, 1997. Management believes
that the ticket tax has a negative impact on the Company, although
neither the amount of such negative impact directly resulting from
the reimposition of the ticket tax, nor the benefit realized by its
previous expiration, can be precisely determined.
Passenger revenue increased 12.3%, $611 million, during the nine
months ended September 30, 1998 as compared to the same period in
1997. The increase was due to a 13.5% increase in revenue
passenger miles, partially offset by a 1.9% decrease in yield.
Wages, salaries and related costs increased 22.5%, $294 million,
during the nine months ended September 30, 1998 as compared to the
same period in 1997, primarily due to an 11.6% increase in average
full-time equivalent employees and higher wage rates resulting from
the Company's decision to increase employee wages to industry
standards by the year 2000.
Aircraft fuel expense decreased 16.1%, $106 million, in the nine
months ended September 30, 1998 as compared to the same period in
the prior year. The average price per gallon decreased 24.9% from
63.45 cents in the first nine months of 1997 to 47.66 cents in the
first nine months of 1998. This reduction was partially offset by
an 11.1% increase in the quantity of jet fuel used principally
reflecting increased capacity.
Aircraft rentals increased 20.5%, $82 million, during the nine
months ended September 30, 1998 as compared to the same period in
1997, due primarily to the delivery of new aircraft.
Maintenance, materials and repairs increased 13.8%, $55 million,
during the nine months ended September 30, 1998 as compared to the
same period in 1997. Aircraft maintenance expense in the second
quarter of 1997 was reduced by $16 million due to the reversal of
reserves that were no longer required as a result of the
acquisition of 10 aircraft previously leased by the Company. In
addition, maintenance expense increased due to the volume and
timing of engine overhauls as part of the Company's ongoing
maintenance program.
Depreciation and amortization expense increased 15.6%, $29 million,
in the first nine months of 1998 compared to the same period in
1997 primarily due to the addition of new aircraft and related
spare parts. These increases were partially offset by a reduction
in the amortization of reorganization value in excess of amounts
allocable to identifiable assets and routes, gates and slots. See
Note 2.
As a result of its decision to accelerate the retirement of certain
jet and turboprop aircraft (see Note 3), the Company recorded a
fleet disposition/impairment loss of $122 million.
Other operating expense increased 13.1%, $145 million, in the nine
months ended September 30, 1998 as compared to the same period in
the prior year, primarily as a result of increases in passenger and
aircraft servicing expense, reservations and sales expense and
other miscellaneous expense, primarily due to the 11.5% increase in
available seat miles.
The Company's other nonoperating income (expense) in the nine
months ended September 30, 1998 included a $6 million gain on the
sale of America West stock. Other nonoperating expense in the
first nine months of 1997 consisted primarily of foreign currency
losses.
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jet operations, for the periods
indicated is as follows:
Three Months Ended Net
September 30, Increase/
1998 1997 (Decrease)
Revenue passenger miles
(millions) (1). . . . . . . . . . 14,944 13,038 14.6 %
Available seat miles
(millions) (2). . . . . . . . . . 19,642 17,686 11.1 %
Passenger load factor (3). . . . . 76.1% 73.7% 2.4 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 62.8% 61.8% 1.0 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.22 9.18 0.4 %
Total revenue per available
seat mile (cents) . . . . . . . . 10.06 10.05 0.1 %
Operating cost per available
seat mile (cents) (5) . . . . . . 8.82 8.98 (1.8)%
Average yield per revenue
passenger mile (cents) (6) . . . 12.12 12.45 (2.7)%
Average fare per revenue
passenger . . . . . . . . . . . .$155.39 $149.96 3.6 %
Revenue passengers (thousands) . . 11,655 10,822 7.7 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,067 991 7.7 %
Average daily utilization of
each aircraft (hours) (7). . . . 10:20 10:19 0.2 %
Actual aircraft in fleet at
end of period (8) . . . . . . . . 359 334 7.5 %
Nine Months Ended Net
September 30, Increase/
1998 1997 (Decrease)
Revenue passenger miles
(millions) (1). . . . . . . . . . 40,691 35,851 13.5 %
Available seat miles
(millions) (2). . . . . . . . . .55,739 50,004 11.5 %
Passenger load factor (3). . . . . 73.0% 71.7% 1.3 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 60.9% 59.6% 1.3 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.24 9.26 (0.2)%
Total revenue per available
seat mile (cents) . . . . . . . . 10.12 10.16 (0.4)%
Operating cost per available
seat mile (cents) (5) . . . . . . 8.93 9.05 (1.3)%
Average yield per revenue
passenger mile (cents) (6) . . . 12.66 12.91 (1.9)%
Average fare per revenue
passenger . . . . . . . . . . . .$156.17 $149.19 4.7 %
Revenue passengers (thousands) . .32,988 31,022 6.3 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,040 954 9.0 %
Average daily utilization of
each aircraft (hours) (7). . . . 10:17 10:14 0.5 %
Actual aircraft in fleet at
end of period (8) . . . . . . . . 359 334 7.5 %
Continental has entered into block-space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. For the three months ended
September 30, 1998, the table above excludes 554 million available
seat miles, and related revenue passenger miles and enplanements,
operated by Continental but purchased and marketed by the other
carrier, and includes 99 million available seat miles, and related
revenue passenger miles and enplanements, operated by other
carriers but purchased and marketed by Continental. For the nine
months ended September 30, 1998, the table above excludes 1,230
million available seat miles, and related revenue passenger miles
and enplanements, operated by Continental but purchased and
marketed by the other carrier, and includes 164 million available
seat miles, and related revenue passenger miles and enplanements,
operated by other carriers but purchased and marketed by
Continental.
__________________
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) 1998 excludes a fleet disposition/ impairment loss totaling
$122 million.
(6) The average revenue received for each mile a revenue
passenger is carried.
(7) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(8) Excludes all-cargo 727 aircraft (six in 1998 and four in
1997) at CMI. During the first nine months of 1998, the
Company took delivery of 47 aircraft and removed 25 aircraft
from service.
LIQUIDITY AND CAPITAL COMMITMENTS
In the first nine months of 1998, the Company completed several
transactions intended to strengthen its long-term financial
position and enhance earnings.
In February 1998, the Company completed an offering of $773 million
of pass-through certificates to be used to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of up to 24 aircraft scheduled to be delivered
through December 1998.
In addition, during the first quarter of 1998 Continental completed
several offerings totaling approximately $98 million aggregate
principal amount of tax-exempt special facilities revenue bonds to
finance certain airport facility projects. These bonds are
guaranteed by Continental and are payable solely from rentals paid
by Continental under long-term lease agreements with the respective
governing bodies.
In April 1998, the Company completed an offering of $187 million of
pass-through certificates used to refinance the debt related to 14
aircraft currently owned by Continental.
As of September 30, 1998, the Company had $1.2 billion in cash and
cash equivalents (excluding restricted cash of $13 million) and $44
million of short-term investments, compared to $1 billion in cash
and cash equivalents (excluding restricted cash of $15 million) as
of December 31, 1997. Net cash provided by operating activities
increased $59 million during the nine months ended September 30,
1998 compared to the same period in the prior year primarily due to
an improvement in operating income (excluding a $122 million fleet
disposition/impairment loss). Net cash used by investing
activities increased $99 million for the nine months ending
September 30, 1998 compared to the same period in the prior year,
primarily as a result of higher capital and fleet-related
expenditures. Net cash used by financing activities for the nine
months ended September 30, 1998 compared to the same period in the
prior year decreased $267 million primarily due to a decrease in
payments on long-term debt and capital lease obligations. This
decrease was partially due to the repayment of a $275 million
secured term loan in 1997.
Deferred Tax Assets. The Company had, as of December 31, 1997,
deferred tax assets aggregating $1.1 billion, including
$631 million of NOLs. Realization of a substantial portion of the
Company's remaining NOLs required the completion of transactions
resulting in recognition of built-in gains for federal income tax
purposes. During 1998, the Company has consummated several such
transactions, the benefit of which resulted in the elimination of
reorganization value in excess of amounts allocable to identifiable
assets in the first quarter of 1998. During the third quarter of
1998, the Company determined that additional NOLs of the Company's
predecessor could be benefitted and accordingly reduced both the
valuation allowance and routes, gates and slots by $152 million.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
As a result of NOLs, the Company will not pay United States federal
income taxes (other than alternative minimum tax) until it has
recorded approximately an additional $1 billion of taxable income
following December 31, 1997. 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. Based on information currently available, the Company does
not believe that the Air Partners agreement to dispose of its
interest in the Company to an affiliate of Northwest will result in
an ownership change for purposes of Section 382.
Purchase Commitments. As of October 16, 1998, Continental had firm
commitments with The Boeing Company ("Boeing") to take delivery of
a total of 117 jet aircraft during the years 1998 through 2005 with
options for an additional 115 aircraft (exercisable subject to
certain conditions). These new aircraft will replace older, less
efficient Stage 2 aircraft and allow for growth of operations. The
estimated aggregate cost of the Company's firm commitments for the
Boeing aircraft is approximately $5.5 billion. As of October 16,
1998, Continental had completed or had third-party commitments for
a total of approximately $521 million in financing for its future
Boeing deliveries, and had commitments or letters of intent from
various sources for backstop financing for approximately one-third
of the anticipated remaining acquisition cost of such Boeing
deliveries. The Company currently plans on financing the new
Boeing aircraft with a combination of enhanced equipment trust
certificates, lease equity and other third-party financing, 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 engines,
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.
During the first nine months of 1998, the Company took delivery of
47 jet aircraft of which 39 were financed through enhanced
equipment trust certificates.
As of October 16, 1998, Express had firm commitments for 41 Embraer
ERJ-145 ("ERJ-145") 50-seat regional jets and a memorandum of
understanding to purchase 25 ERJ-135 37-seat regional jets, with
options for an additional 125 ERJ-145 and 50 ERJ-135 aircraft
exercisable through 2008. Neither Express nor Continental will
have any obligation to take any such firm aircraft that are not
financed by a third party and leased to the Company. Express took
delivery of 15 of the ERJ-145 firm aircraft in the first three
quarters of 1998 and will take delivery of the remaining 66 firm
aircraft through the third quarter of 2001. The Company expects to
account for all of these aircraft as operating leases.
Continental expects its cash outlays for 1998 capital expenditures,
exclusive of fleet plan requirements, to aggregate $231 million,
primarily relating to mainframe, software application and
automation infrastructure projects, aircraft modifications and
mandatory maintenance projects, passenger terminal facility
improvements and office, maintenance, telecommunications and ground
equipment. Continental's capital expenditures during the nine
months ended September 30, 1998 aggregated $144 million, exclusive
of fleet plan requirements.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Year 2000 and Euro.
As described in its annual report on Form 10-K for the year ended
December 31, 1997, the Company implemented a Year 2000 project in
early 1997 to ensure that the Company's computer systems will
function properly in the year 2000 and thereafter. The total cost
for the project (excluding internal payroll costs) is currently
expected to approximate $12-15 million, which is being funded with
cash from operations. As of September 30, 1998, the Company had
incurred and expensed approximately $10 million relating to its
Year 2000 project.
The Company's Year 2000 project involves the review of a number of
internal and third party components. Each component is subjected
to the project's five phases, which consist of inventory of
systems, evaluation and analysis, modification implementation, user
testing and integration compliance. The components are currently
in various stages of completion; however, the Company's entire Year
2000 project is anticipated to be completed by early 1999. This
should allow for the Company sufficient time for any additional
analysis, modification and testing which may be required. The
Company's business, financial condition or results of operations
could be materially adversely affected by the failure of its
systems or those operated by third parties on which the Company's
business relies (including those of the Federal Aviation
Administration) to operate properly beyond 1999. There can be no
assurance that such systems will be modified for Year 2000
operational requirements on a timely basis. Although the Company
currently has day to day operational contingency plans, management
is in the process of updating these plans for possible Year 2000
specific operational requirements.
Effective January 1, 1999, eleven of the fifteen countries
comprising the European Union will begin a transition to a single
monetary unit, the "euro", which is scheduled to be completed by
July 1, 2002. The Company has developed a plan designed to allow
it to effectively operate in euros. Management does not anticipate
that the implementation of this single currency plan will have a
material effect on the Company's operations or financial condition.
Bond Financings. In December 1997, Continental substantially
completed construction of a new hangar and improvements to a cargo
facility at Continental's hub at Newark International Airport.
Continental completed the financing of these projects in April 1998
with $23 million of tax-exempt bonds. Continental is also planning
a major facility expansion at Newark which would require, among
other matters, agreements to be reached with the applicable airport
authority.
Continental has announced plans to expand its facilities at its
Hopkins International Airport hub in Cleveland, which expansion is
expected to be completed in the third quarter of 1999. The
expansion, which will include a new jet concourse for the regional
jet service offered by Express, as well as other facility
improvements, is expected to cost approximately $156 million and
will be funded principally by a combination of tax-exempt special
facilities revenue bonds issued in March 1998 and general airport
revenue bonds issued in December 1997 in each case by the City of
Cleveland. In connection therewith, Continental has guaranteed the
special facilities revenue bonds and has entered into a long-term
lease with the City of Cleveland under which rental payments will
be sufficient to service both series of bonds.
Employees. In June 1998, a new five-year collective bargaining
agreement, retroactive to October 1997, was ratified by
Continental's pilots, who are represented by the IACP. The
agreement becomes amendable in October 2002. The Company began
accruing for the increased costs of the new agreement in the fourth
quarter of 1997. The Company estimates that the increased costs
will be approximately $113 million for 1998. Also in June 1998,
the pilots at Express, who are also represented by the IACP,
rejected a new five-year tentative agreement which had been
submitted to them for ratification. The parties resumed bargaining
with respect to a revised Express contract with the assistance of
the NMB in the third quarter of 1998. While it is not possible to
predict the outcome of those negotiations, the Company does not
believe it will have a material financial impact on the Company.
The Company's dispatchers, represented by the TWU, ratified a new
five-year collective bargaining agreement in July 1998. The
agreement becomes amendable in October 2003. On October 9, 1998,
the Company and the Teamsters reached a tentative agreement for an
initial four-year collective bargaining agreement covering the
Company's mechanics and related employees. The agreement will be
submitted for a ratification vote, the results of which will be
known in mid-November 1998. While it is not possible to predict
the outcome of the ratification vote, the Company does not believe
it will have a material financial impact on the Company.
In September 1997, Continental announced that it intends to bring
all employees to industry standard wages (the average of the top
ten U.S. air carriers as ranked by the U.S. Department of
Transportation excluding Continental) within 36 months. The
announcement further stated that wage increases will be phased in
over the 36-month period as revenue, interest rates and rental
rates reached industry standards. Continental estimates that the
increased wages will aggregate approximately $500 million over the
36-month period.
Other. On January 26, 1998, the Company announced that, in
connection with an agreement by Air Partners to dispose of its
interest in the Company to an affiliate of Northwest, the Company
had entered into a long-term global alliance with Northwest. The
Company estimated at the time of the announcement that the alliance
with Northwest, when fully phased in over a three-year period,
would generate in excess of $500 million in additional annual pre-
tax operating income for the carriers, and anticipated that
approximately 45% of such pre-tax operating income would accrue to
the Company. On October 23, 1998, the Department of Justice
("DOJ") filed a lawsuit against Northwest and Continental
challenging Northwest's acquisition of an interest in Continental.
The DOJ is not seeking to preliminarily enjoin the transaction, nor
is it challenging the alliance with Northwest at this time,
although it is continuing to investigate certain specific aspects
of the alliance. Continental expects to implement its alliance
with Northwest promptly after the closing of Northwest's
acquisition of an equity interest in Continental. While it is not
possible to predict the ultimate outcome of this litigation, the
Company does not believe that this litigation will have a material
adverse effect on the Company.
In February 1998, Continental began a block-space arrangement
whereby it is committed to purchase capacity on another carrier at
a cost of approximately $147 million per year. This arrangement is
for 10 years. Pursuant to other block-space arrangements, other
carriers are committed to purchase capacity on Continental.
In 1998, the Company's Board of Directors authorized the
expenditure of up to $300 million to repurchase shares of the
Company's common stock or convertible securities. No time limit
was placed on the duration of the repurchase program. Subject to
applicable securities laws, such purchases occur at times and in
amounts that the Company deems appropriate. As of October 16,
1998, 3,695,800 shares had been repurchased for a total of $197
million.
Historically, the Company has entered into petroleum call options
to provide some short-term protection against a sharp increase in
jet fuel prices. In light of declining fuel prices and the high
cost of call options with strike prices at spreads above current
prices, which have typically been purchased by the Company, the
Company's petroleum call option contracts currently provide
protection only against significantly higher fuel prices with
respect to approximately three months of the Company's fuel needs,
in the event of a fuel supply shortage resulting from a disruption
of oil imports or otherwise.
To reduce the potential negative impact on CMI's dollar earnings,
CMI entered into forward contracts in the fourth quarter of 1998 as
a hedge against a portion of its expected net yen cash flow
position. The forward contracts represent 95% of the estimated net
yen cash flows through the first quarter of 1999. See Note 9.
Management believes that the Company's costs are likely to be
affected in the future by (i) higher aircraft ownership costs as
new aircraft are delivered, (ii) higher wages, salaries and related
costs as the Company compensates its employees comparable to
industry average, (iii) changes in the costs of materials and
services (in particular, the cost of fuel, which can fluctuate
significantly in response to global market conditions),
(iv) changes in governmental regulations and taxes affecting air
transportation and the costs charged for airport access, including
new security requirements, (v) changes in the Company's fleet and
related capacity and (vi) the Company's continuing efforts to
reduce costs throughout its operations, including reduced
maintenance costs for new aircraft, reduced distribution expense
from using Continental's electronic ticket product and the Internet
for bookings, and reduced interest expense.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
For information regarding the Company's exposure to certain market
risks, see Item 7A. Quantitative and Qualitative Disclosures About
Market Risk in Continental's Annual Report on Form 10-K for the
year ended December 31, 1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Supplemental Agreement No. 6, including exhibits
and side letters, to Purchase Agreement No. 1951
between the Company and The Boeing Company
relating to the purchase of Boeing 737 aircraft,
dated July 30, 1998.
10.2 Supplemental Agreement No. 11, including exhibits
and side letters, to Purchase Agreement No. 1783
between the Company and The Boeing Company
relating to the purchase of Boeing 757 aircraft,
dated July 30, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Report dated July 30, 1998 reporting Item 7.
"Financial Statements and Exhibits". No
financial statements were filed with the report,
which included an Exhibit Index related to the
Restated Financial Data Schedules for 1995, 1996
and 1997.
(ii) Report dated September 24, 1998 reporting Item 5.
"Other Events". No financial statements were
filed with the report, which included a Press
Release related to the stock repurchase program.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: October 23, 1998 by: /s/ Lawrence W. Kellner
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: October 23, 1998 /s/ Michael P. Bonds
Michael P. Bonds
Vice President and Controller
(Chief Accounting Officer)
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
10.1 Supplemental Agreement No. 6, including exhibits and side
letters, to Purchase Agreement No. 1951 between the
Company and The Boeing Company relating to the purchase
of Boeing 737 aircraft, dated July 30, 1998. (1)
10.2 Supplemental Agreement No. 11, including exhibits and
side letters, to Purchase Agreement No. 1783 between the
Company and The Boeing Company relating to the purchase
of Boeing 757 aircraft, dated July 30, 1998. (1)
27.1 Financial Data Schedule.
___________________
(1) The Company has applied to the Commission for
confidential treatment of a portion of this exhibit.
EXHIBIT 10.1
Supplemental Agreement No. 6
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of July 30, 1998,
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents and Articles:
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. 6.
1.2 Remove and replace, in its entirely, Table T-2 entitled
"Aircraft Deliveries and Descriptions, Model 737-700 Aircraft" with
new Table T-2 attached hereto for the Model 737-700 Aircraft
reflecting the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT].
1.3 Remove and replace, in its entirely, Table T-3 entitled
"Aircraft Deliveries and Descriptions, Model 737-800 Aircraft" with
new Table T-3 attached hereto for the Model 737-800 Aircraft
reflecting the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT].
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1951-3R2, "Option Aircraft - Model 737-824 Aircraft" with Letter
Agreement 1951-3R3, "Option Aircraft - Model 737-824 Aircraft",
attached hereto, to reflect to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2.2 Remove and replace, in its entirety, Letter Agreement
1951-9R1, "Option Aircraft - Model 737-624 Aircraft" with Letter
Agreement 1951-9R2, "Option Aircraft - Model 737-724 Aircraft",
attached hereto, to reflect [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2.3 Delete Letter Agreement 1951-10 "Configuration Matters &
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] - Model 737-624 Aircraft" from the
Agreement to reflect that there are no pending orders for Model
737-624 Aircraft.
2.4 Delete Letter Agreement 6-1162-MMF-379R1 "Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] - Model 737-624" from the Agreement to
reflect that there are no pending orders for Model 737-624
Aircraft.
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/ David M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale. . . . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk
of Loss . . . . . . . . . . . . . . . . . . 2-1
3. Price of Aircraft . . . . . . . . . . . . . 3-1 SA 5
4. Taxes . . . . . . . . . . . . . . . . . . . 4-1
5. Payment . . . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay . . . . . . . . . . . . . . 6-1
7. Changes to the Detail
Specification . . . . . . . . . . . . . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License . . . . . . 8-1 SA 5
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
15. Miscellaneous . . . . . . . . . . . . . . . 15-1
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500. . . . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700. . . . . . . . . . . T-2 SA 6
Aircraft Deliveries and
Descriptions - 737-800. . . . . . . . . . . T-3 SA 6
Aircraft Deliveries and
Descriptions - 737-600. . . . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900. . . . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724. . . SA 2
A-2 Aircraft Configuration - Model 737-824. . . SA 2
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. . . SA 5
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 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price) . . . SA 1
D1 Airframe and Engine Price Adjustments -
Current Generation Aircraft . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price) . . . SA 5
E Buyer Furnished Equipment
Provisions Document. . . . . . . . . . . . . . . SA 5
F Defined Terms Document. . . . . . . . . . . SA 5
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment . . . . . . SA 5
1951-3R3 Option Aircraft-Model 737-824 Aircraft SA 6
1951-4R1 Waiver of Aircraft Demonstration . . . SA 1
1951-5R2 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA 5
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
1951-6 Configuration Matters. . . . . . . . .
1951-7R1 Spares Initial Provisioning. . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft . . . . . . . . . . . . . . . SA 4
1951-9R2 Option Aircraft-Model 737-724 Aircraft SA 6
1951-11R1 Escalation Sharing-Current Generation
Aircraft . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft SA 5
1951-13 Configuration Matters - Model 737-924. SA 5
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-296 [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-308R3 Disclosure of Confidential . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED SA 1
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED SA 5
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
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 [CONFIDENTIAL MATERIAL OMITTED SA 3
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED SA 3
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-GOC-131R2 Special Matters . . . . . . . SA 5
6-1162-DMH-365 [CONFIDENTIAL MATERIAL OMITTED SA 5
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
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
1951-3R3
July 30, 1998
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1951-3R3 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-824 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated
July 23, 1996(the Agreement) between The Boeing Company (Boeing)
and Continental Airlines, Inc. (Buyer) relating to Model 737-824
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-3R2 dated May 21,
1998.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing
hereby agrees to manufacture and sell up to [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] to Buyer, on the same terms and conditions set forth
in the Agreement, except as otherwise described in Attachment A
hereto, and subject to the terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, and concurrent
with the execution of the Agreement for the Aircraft, Buyer will
pay a deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option
Aircraft (the Option Deposit). In the event Buyer exercises an
option herein for an Option Aircraft, the amount of the Option
Deposit for such Option Aircraft will be credited against the
first advance payment due for such Option Aircraft pursuant to
the advance payment schedule set forth in Article 5 of the
Agreement.
In the event that Buyer does not exercise its option to purchase
a particular Option Aircraft pursuant to the terms and conditions
set forth herein, Boeing shall be entitled to retain the Option
Deposit for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before
the first business day of the month in each Option Exercise Date
shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing
and Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the
applicable Option Aircraft to the Agreement as a firm Aircraft
(the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period
contemplated herein, either party shall have the right,
exercisable by written or telegraphic notice given to the other
within ten (10) days after such period, to cancel the purchase of
such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase
an Option Aircraft if any of the following events are not
accomplished by the respective dates contemplated in this Letter
Agreement, or in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for
any reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with
respect to such Option Aircraft pursuant to paragraph 3 herein;
or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is
based on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice
to the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and
obligations of the parties with respect to an Option Aircraft for
which the option to purchase has been cancelled shall thereupon
terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ David M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 30, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Model 737-824 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808, Revision E,
dated September 15, 1995, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-800
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes.Changes to the Detail
Specification pursuant to the provisions of the clauses above
shall include the effects of such changes upon Option Aircraft
weight, balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base
aircraft price (pursuant to Article 3 of the Agreement) of the
Option Aircraft will be adjusted to Boeing's and the engine
manufacturer's then-current prices as of the date of execution of
the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such
features as of the date of execution of the Option Aircraft
Supplemental Agreement only to the extent that such increase is
attributable to an increase in Boeing's cost for purchased
equipment.
2.1.3 Escalation Adjustments. The base
airframe and special features price will be escalated according
to the applicable airframe and engine manufacturer escalation
provisions contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be
adjusted if they are changed by the engine manufacturer prior to
signing the Option Aircraft Supplemental Agreement. In such
case, the then-current engine escalation provisions in effect at
the time of execution of the Option Aircraft Supplemental
Agreement will be incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing
may adjust the basic price and the advance payment base prices
for any changes mutually agreed upon by Buyer and Boeing
subsequent to the date that Buyer and Boeing enter into the
Option Aircraft Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total
price for items of Buyer Furnished Equipment (BFE) changed to
Seller Purchased Equipment (SPE) pursuant to the Detail
Specification is included in the Option Aircraft price build-up.
The purchase price of the Option Aircraft will be adjusted by the
price charged to Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
1951-9R2
July 30, 1998
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1951-9R2 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-724 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated
July 23, 1996(the Agreement) between The Boeing Company (Boeing)
and Continental Airlines, Inc. (Buyer) relating to Model 737-724
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-9R1 dated May 21,
1998.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing
hereby agrees to manufacture and sell up to [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] to Buyer, on the same terms and conditions set forth
in the Agreement, except as otherwise described in Attachment A
hereto, and subject to the terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, and concurrent
with the execution of the Agreement for the Aircraft, Buyer will
pay a deposit to Boeing of [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] for each Option
Aircraft (the Option Deposit). In the event Buyer exercises an
option herein for an Option Aircraft, the amount of the Option
Deposit for such Option Aircraft will be credited against the
first advance payment due for such Option Aircraft pursuant to
the advance payment schedule set forth in Article 5 of the
Agreement.
In the event that Buyer does not exercise its option to purchase
a particular Option Aircraft pursuant to the terms and conditions
set forth herein, Boeing shall be entitled to retain the Option
Deposit for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before
the first business day of the month in each Option Exercise Date
shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing
and Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the
applicable Option Aircraft to the Agreement as a firm Aircraft
(the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period
contemplated herein, either party shall have the right,
exercisable by written or telegraphic notice given to the other
within ten (10) days after such period, to cancel the purchase of
such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase
an Option Aircraft if any of the following events are not
accomplished by the respective dates contemplated in this Letter
Agreement, or in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for
any reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with
respect to such Option Aircraft pursuant to paragraph 3 herein;
or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is
based on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice
to the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and
obligations of the parties with respect to an Option Aircraft for
which the option to purchase has been cancelled shall thereupon
terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/David M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 30, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Model 737-724 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808-42, dated as of
January 6, 1997, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model
737-700 aircraft which are developed by Boeing between the date
of the Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes.Changes to the Detail
Specification pursuant to the provisions of the clauses above
shall include the effects of such changes upon Option Aircraft
weight, balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base
aircraft price (pursuant to Article 3 of the Agreement) of the
Option Aircraft will be adjusted to Boeing's and the engine
manufacturer's then-current prices as of the date of execution of
the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such
features as of the date of execution of the Option Aircraft
Supplemental Agreement only to the extent that such increase is
attributable to an increase in Boeing's cost for purchased
equipment.
2.1.3 Escalation Adjustments. The base
airframe and special features price will be escalated according
to the applicable airframe and engine manufacturer escalation
provisions contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be
adjusted if they are changed by the engine manufacturer prior to
signing the Option Aircraft Supplemental Agreement. In such
case, the then-current engine escalation provisions in effect at
the time of execution of the Option Aircraft Supplemental
Agreement will be incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing
may adjust the basic price and the advance payment base prices
for any changes mutually agreed upon by Buyer and Boeing
subsequent to the date that Buyer and Boeing enter into the
Option Aircraft Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total
price for items of Buyer Furnished Equipment (BFE) changed to
Seller Purchased Equipment (SPE) pursuant to the Detail
Specification is included in the Option Aircraft price build-up.
The purchase price of the Option Aircraft will be adjusted by the
price charged to Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Agreement.
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-2
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
EXHIBIT 10.2
Supplemental Agreement No. 11
to
Purchase Agreement No. 1783
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 757-224 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of July 30, 1998
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1783 dated March 18, 1993, as amended and supplemented,
relating to Boeing Model 757-224 aircraft (the Agreement); and
WHEREAS, Buyer wishes to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
WHEREAS, Boeing and Buyer have agreed to amend the Agreement
to incorporate certain other changes as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the Table of
Contents with a new Table of Contents (attached hereto) to reflect
amendment of the Agreement as of the date of this Supplemental
Agreement.
1.2 Remove and replace, in its entirety, Article 1, Subject
Matter of Sale, with new Article 1 (attached hereto) to incorporate
the addition of Block C Aircraft.
1.3 Remove and replace, in its entirety, Article 2,
Delivery, Title and Risk of Loss, with new Article 2 (attached
hereto) to incorporate a revised delivery schedule for the Block C
Aircraft.
1.4 Remove and replace, in its entirety, Article 3, Price of
Aircraft, with new Article 3 (attached hereto) to incorporate
revised Advance Payment Base Prices for the Block C Aircraft.
1.5 Remove and replace, in its entirety, the Delivery
Schedule for Model 757-224 Aircraft, following Article 15, with a
revised delivery schedule (attached hereto) to incorporate current
Aircraft delivery data.
2. Exhibits:
2.1 Remove and replace, in its entirety, Exhibit D entitled
"AIRFRAME AND ENGINE PRICE ADJUSTMENT" with new Exhibit D (attached
hereto) to incorporate the Aircraft Price Adjustment provisions for
Aircraft and Engine with a 1997 Base Price.
3. Letter Agreements:
3.1 Add revised Letter Agreement 1783-10R3, Option Aircraft,
to incorporate [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT].
4. Payment of Additional Advance Payments.
Within three (3) business days after execution of this
Supplemental Agreement, Buyer shall transfer to Boeing's account at
Chase Manhattan Bank, New York, N.Y., the sum [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT].
The Agreement will be deemed to be supplemented to the extent
herein provided and as so supplemented will continue in full force
and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ John A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
PURCHASE AGREEMENT
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Relating to Boeing Model 757-224 Aircraft
Purchase Agreement Number 1783
TABLE OF CONTENTS
ARTICLES Page Revised
By
ARTICLE 1. Subject Matter of Sale. . . . . . . 1-1 SA#11
ARTICLE 2. Delivery, Title and Risk of Loss. . 2-1 SA#11
ARTICLE 3. Price of Aircraft . . . . . . . . . 3-1 SA#11
ARTICLE 4. Taxes . . . . . . . . . . . . . . . 4-1
ARTICLE 5. Payment . . . . . . . . . . . . . . 5-1
ARTICLE 6. Excusable Delay . . . . . . . . . . 6-1
ARTICLE 7. Changes to the Detail Specification 7-1 SA#4
ARTICLE 8. Federal Aviation Requirements and
Certificates. . . . . . . . . . . . 8-1
ARTICLE 9. Representatives, Inspection,
Flights and Test Data . . . . . . . 9-1
ARTICLE 10. Assignment, Resale or Lease . . . . 10-1
ARTICLE 11. Termination for Certain Events. . . 11-1
ARTICLE 12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . 12-1
ARTICLE 13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . 13-1 SA#2
ARTICLE 14. Contractual Notices and Requests. . 14-1
ARTICLE 15. Miscellaneous . . . . . . . . . . . 15-1
Schedule for Delivery of Model 757-224 Aircraft. SA#11
TABLE OF CONTENTS (Continued)
EXHIBITS
EXHIBIT A Aircraft Configuration. . . . . . . A-1 SA#8
EXHIBIT B Product Assurance Document. . . . . B-1 SA#2
EXHIBIT C Customer Support Document . . . . . C-1 SA#2
EXHIBIT D Price Adjustments Due to Economic
Fluctuations - Airframe and Engines D-1 SA#11
EXHIBIT E Buyer Furnished Equipment Provisions
Document. . . . . . . . . . . . . . E-1 SA#4
EXHIBIT F Defined Terms Document. . . . . . . F-1 SA#2
LETTER AGREEMENTS
1783-1 Spare Parts Support SA#2
1783-2 Seller Purchased Equipment SA#2
1783-4 Waiver of Aircraft Demonstration SA#2
Flights
1783-5 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA #2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
1783-6 Configuration Matters SA#2
1783-7 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
1783-8 Spare Parts Provisioning SA#2
1783-9R1 Escalation Sharing SA#10
1783-10R3 Option Aircraft SA#11
6-1162-WLJ-359 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA #2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-WLJ-367R5 Disclosure of Confidential Info SA#9
6-1162-WLJ-369 Additional Considerations SA#2
6-1162-WLJ-372 Conditions Relating to SA#2
Purchase Agreement
6-1162-WLJ-380 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-WLJ-384 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-WLJ-391R1 Special Purchase Agreement Provisions SA#4
6-1162-WLJ-393 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#2
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-WLJ-405 Certain Additional Contractual SA#2
Matters
6-1162-WLJ-409 Satisfaction of Conditions Relating SA#2
to the Purchase Agreement
6-1162-WLJ-497 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#3
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-RGP-946R1 Special Provisions Relating to SA#5
the Rescheduled Aircraft
6-1162-MMF-289R1 [CONFIDENTIAL MATERIAL OMITTED AND FILED SA#10
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6-1162-MMF-319 Special Provisions Relating to SA#7
the Rescheduled Aircraft
6-1162-GOC-132 Special Matters SA#10
TABLE OF CONTENTS (Continued)
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 April 29, 1993
Supplemental Agreement No. 2 November 4, 1993
Supplemental Agreement No. 3 November 19, 1993
Supplemental Agreement No. 4 March 31, 1995
Supplemental Agreement No. 5 November 30, 1995
Supplemental Agreement No. 6 June 13, 1996
Supplemental Agreement No. 7 July 23, 1996
Supplemental Agreement No. 8 October 27, 1996
Supplemental Agreement No. 9 August 13, 1997
Supplemental Agreement No.10 October 10, 1997
Supplemental Agreement No. 11 July 30, 1998
ARTICLE 1.Subject Matter of Sale.
1.1 The Aircraft. Boeing will manufacture and deliver to
Buyer and Buyer will purchase and accept delivery from Boeing of
the following Boeing Model 757-224 aircraft (the Aircraft).
1.1.1 Block A, A-1 and B Aircraft. Twenty-seven (27)
Block A and A-1 Aircraft (the Block A and A-1 Aircraft), Nine (9)
Block B Aircraft (the Block B Aircraft), and One (1) Block C
Aircraft (the Block C Aircraft) manufactured in accordance with
Boeing detail specification D924N104-3, dated as of even date
herewith, as described in Exhibit A, and as modified from time to
time in accordance with this Agreement (Detail Specification).
1.2 Additional Goods and Services. In connection with the
sale of the Aircraft, Boeing will also provide to Buyer certain
other things under this Agreement, including data, documents,
training and services, all as described in this Agreement.
1.3 [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
1.4 Defined Terms. For ease of use, certain terms are
treated as defined terms in this Agreement. Such terms are
identified with a capital letter and set forth and/or defined in
Exhibit F.
ARTICLE 2.Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered to
Buyer by Boeing, and Buyer will accept delivery of the Aircraft, in
accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Notice of Target Delivery Date. Boeing will give Buyer
notice of the Target Delivery Date of the Aircraft approximately 30
days prior to the scheduled month of delivery.
2.3 Notice of Delivery Date. Boeing will give Buyer at
least 7 days' notice of the delivery date of the Aircraft. If an
Aircraft delivery is delayed beyond such delivery date due to the
responsibility of Buyer, Buyer will reimburse Boeing for all costs
incurred by Boeing as a result of such delay, including amounts for
storage, insurance, Taxes, preservation or protection of the
Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at a
facility selected by Boeing in the State of Washington, unless
mutually agreed otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of an
Aircraft will pass from Boeing to Buyer upon delivery of such
Aircraft, but not prior thereto.
2.6 Documents of Title. Upon delivery of and payment for
each Aircraft, Boeing shall deliver to Buyer a bill of sale duly
conveying to Buyer good title to such Aircraft free and clear of
all liens, claims, charges and encumbrances of every kind
whatsoever, and such other appropriate documents of title as Buyer
may reasonably request.
ARTICLE 3.Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features listed in
Exhibit A which have been selected by Buyer.
3.1.2 Base Airframe Price is the Aircraft Basic Price
excluding the price of Special Features and Engines.
3.1.3 Engine Price is the price established by the
Engine manufacturer for the Engines installed on the Aircraft
including all accessories, equipment and parts set forth in Exhibit
D.
3.1.4 Aircraft Basic Price is comprised of the Base
Airframe Price, the Engine Price and the price of the Special
Features.
3.1.5 Economic Price Adjustment is the adjustment to
the Aircraft Basic Price (Base Airframe, Engine and Special
Features) as calculated pursuant to Exhibit D.
3.1.6 Aircraft Price is the total amount Buyer is to
pay for the Aircraft at the time of delivery.
3.1.7 Price First Published is the first price
published by Boeing for the same model of aircraft to be delivered
in the same general time period as the affected Aircraft and is
used to establish the Base Airframe Price when the Base Airframe
Price was not established at the time of execution of this
Agreement.
3.2 Aircraft Basic Price.
3.2.1 Block A Aircraft. The Aircraft Basic Price of
the Block A Aircraft, expressed in July 1992 dollars, is set forth
below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED AND
Special Features FILED SEPARATELY WITH THE SECURITIES
Engine Price AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL
Block A Aircraft TREATMENT]
Basic Price
3.2.2 Block A-1 and Block B Aircraft. The Aircraft
Basic Price of the Block A-1 and Block B Aircraft with delivery,
expressed in July 1992 dollars, is set forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED AND
Special Features FILED SEPARATELY WITH THE SECURITIES
Engine Price AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL
Block A-1/B Aircraft TREATMENT]
Basic Price
The special features value above for the Block A-1 and Block B
Aircraft incorporates the special features reprice activity noted
in Exhibit A-1 which includes Exhibit A, Change Orders 1,2, and 3
plus accepted Master Changes as of June 1, 1996.
3.2.2 Block C Aircraft. The Aircraft Basic Price of the Block C
Aircraft with delivery, expressed in July 1997 dollars, is set
forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL OMITTED AND
Special Features FILED SEPARATELY WITH THE SECURITIES
Engine Price AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL
Block C Aircraft TREATMENT]
Basic Price
The special features value above for the Block C Aircraft
incorporates the special features reprice activity noted in Exhibit
A-1 which includes Exhibit A, Change Orders 1,2, and 3 plus
accepted Master Changes as of June 1, 1996.
3.3 Aircraft Price.
3.3.1 Block A Aircraft, Block A-1 Aircraft and Block
B Aircraft. The Aircraft Price of the Block A Aircraft, Block A-1
Aircraft and Block B Aircraft will be established at the time of
delivery of such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block A Aircraft Basic Price,
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] plus
3.3.1.2 the Economic Price Adjustments for
the respective Aircraft Basic Price, as calculated pursuant to the
formulas set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block A, Block A-1 and Block
B Aircraft) plus
3.3.1.3 other price adjustments made pursuant
to this Agreement or other written agreements executed by Boeing
and Buyer.
3.3.1 Block C Aircraft. The Aircraft Price of the
Block C Aircraft will be established at the time of delivery of
such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block C Aircraft Basic Price,
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] plus
3.3.1.2 the Economic Price Adjustments for
the Aircraft Basic Price, as calculated pursuant to the formulas
set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block C Aircraft) plus
3.3.1.3 other price adjustments made pursuant
to this Agreement or other written agreements executed by Boeing
and Buyer.
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance payment
purposes, the following estimated delivery prices of the Aircraft
have been established, using currently available forecasts of the
escalation factors used by Boeing as of the date of signing this
Agreement. The Advance Payment Base Price of each Aircraft is set
forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3.4.2 Adjustment of Advance Payment Base Prices -
Long-Lead Aircraft. For Aircraft scheduled for delivery 36 months
or more after the date of this Agreement, the Advance Payment Base
Prices appearing in Article 3.4.1 will be used to determine the
amount of the first advance payment to be made by Buyer on the
Aircraft. No later than 25 months before the scheduled month of
delivery of the first Aircraft scheduled for delivery in a calendar
year (First Aircraft), Boeing will increase or decrease the Advance
Payment Base Price of the First Aircraft and all Aircraft scheduled
for delivery after the First Aircraft as required to reflect the
effects of (i) any adjustments in the Aircraft Price pursuant to
this Agreement and (ii) the then-current forecasted escalation
factors used by Boeing. Boeing will provide the adjusted Advance
Payment Base Prices for each affected Aircraft to Buyer, and the
advance payment schedule will be considered amended to substitute
such adjusted Advance Payment Base Prices.
Continental Airlines, Inc.
Delivery Schedule for Model 757-224 Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
AIRFRAME AND ENGINE PRICE ADJUSTMENT
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Exhibit D to Purchase Agreement Number 1783
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRFRAME PRICE ADJUSTMENT
(1992 Base Price)
(Relating to Block A, A-1, and B Aircraft)
1. Formula.
The Airframe Price Adjustment will be determined at the time
of Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Airframe Price Adjustment.
L = [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
M = COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
P = Aircraft Basic Price (as set forth in Article 3.2 of
this Agreement) less the base price of Engines (as
defined in this Exhibit D) in the amount of
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT]
ECI = A value using the "Employment Cost Index for workers in
aerospace manufacturing" (aircraft manufacturing,
standard industrial classification code 3721,
compensation, base month and year June 1989 = 100), as
released by the Bureau of Labor Statistics, U.S.
Department of Labor on a quarterly basis for the months
of March, June, September and December, calculated as
follows: A three-month arithmetic average value
(expressed as a decimal and rounded to the nearest
tenth) will be determined using the months set forth in
the table below for the applicable Aircraft, with the
released Employment Cost Index value described above for
the month of March also being used for the months of
January and February; the value for June also used for
April and May; the value for September also used for
July and August; and the value for December also used
for October and November.
ICI = The three-month arithmetic average of the released
monthly values for the Industrial Commodities Index as
set forth in the "Producer Prices and Price Index" (Base
Year 1982 = 100) as released by the Bureau of Labor
Statistics, U.S. Department of Labor values (expressed
as a decimal and rounded to the nearest tenth) for the
months set forth in the table below for the applicable
Aircraft.
In determining the value of L, the ratio of ECI divided by
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] will be expressed as a decimal rounded to
the nearest ten-thousandth and then multiplied by [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] will be expressed as a decimal rounded to
the nearest ten-thousandth and then multiplied by [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
Month of Scheduled
Aircraft Delivery as Quantity Months to be Utilized
Set Forth in Article of in Determining the
2.1 of this Agreement Aircraft Value of ECI and ICI
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. If at the time of delivery of an Aircraft Boeing is unable to
determine the Airframe Price Adjustment because the applicable
values to be used to determine the ECI and ICI have not been
released by the Bureau of Labor Statistics, then:
2.1 The Airframe Price Adjustment, to be used at the time of
delivery of each of the Aircraft, will be determined by utilizing
the escalation provisions set forth above. The values released by
the Bureau of Labor Statistics and available to Boeing 30 days
prior to scheduled month of Aircraft delivery will be used to
determine the ECI and ICI values for the applicable months
(including those noted as preliminary by the Bureau of Labor
Statistics) to calculate the Airframe Price Adjustment. If no
values have been released for an applicable month, the provisions
set forth in Paragraph 2.2 below will apply. If prior to delivery
of an Aircraft the U.S. Department of Labor changes the base year
for determination of the ECI or ICI values as defined above, such
rebased values will be incorporated in the Airframe Price
Adjustment calculation. The payment by Buyer to Boeing of the
amount of the Purchase Price for such Aircraft, as determined at
the time of Aircraft delivery, will be deemed to be the payment for
such Aircraft required at the delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department
of Labor substantially revises the methodology used for the
determination of the values to be used to determine the ECI and ICI
values (in contrast to benchmark adjustments or other corrections
of previously released values), or for any reason has not released
values needed to determine the applicable Aircraft Airframe Price
Adjustment, the parties will, prior to delivery of any such
Aircraft, select a substitute for such values from data published
by the Bureau of Labor Statistics or other similar data reported by
non-governmental United States organizations, such substitute to
lead in application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use of the
original values as they may have fluctuated during the applicable
time period. Appropriate revision of the formula will be made as
required to reflect any substitute values. However, if within 24
months from delivery of the Aircraft the Bureau of Labor Statistics
should resume releasing values for the months needed to determine
the Airframe Price Adjustment, such values will be used to
determine any increase or decrease in the Airframe Price Adjustment
for the Aircraft from that determined at the time of delivery of
such Aircraft.
2.3 In the event escalation provisions are made
non-enforceable or otherwise rendered null and void by any agency
of the United States Government, the parties agree, to the extent
they may lawfully do so, to equitably adjust the Purchase Price of
any affected Aircraft to reflect an allowance for increases or
decreases in labor compensation and material costs occurring since
February, 1992, which is consistent with the applicable provisions
of paragraph 1 of this Exhibit D.
2.4 If required, Boeing will submit either a supplemental
invoice or refund the amounts due Buyer as appropriate to reflect
any increase or decrease in the Airframe Price Adjustment for the
Aircraft from that determined at the time of delivery of such
Aircraft. Any payments due Boeing or Buyer will be made with
reasonable promptness.
3. For the calculations herein, the values released by the Bureau
of Labor Statistics and available to Boeing 30 days prior to
scheduled month of Aircraft delivery will be used to determine the
ECI and ICI values for the applicable months (including those noted
as preliminary by the Bureau of Labor Statistics) to calculate the
Airframe Price Adjustment.
Note: Any rounding of a number, as required under this
Exhibit D with respect to escalation of the airframe
price, will be accomplished as follows: if the first
digit of the portion to be dropped from the number to be
rounded is five or greater, the preceding digit will be
raised to the next higher number.
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRFRAME PRICE ADJUSTMENT
(1997 Base Price)
(Relating to Block C Aircraft)
1. Formula.
The Airframe Price Adjustment will be determined at the time
of Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Airframe Price Adjustment.
L = [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
M = REQUEST FOR CONFIDENTIAL TREATMENT]
P = Aircraft Basic Price (as set forth in Article 3.2 of
this Agreement) less the base price of Engines (as
defined in this Exhibit D) in the amount of
$+ .
ECI = A value using the "Employment Cost Index for workers in
aerospace manufacturing" (aircraft manufacturing,
standard industrial classification code 3721,
compensation, base month and year June 1989 = 100), as
released by the Bureau of Labor Statistics, U.S.
Department of Labor on a quarterly basis for the months
of March, June, September and December, calculated as
follows: A three-month arithmetic average value
(expressed as a decimal and rounded to the nearest
tenth) will be determined using the months set forth in
the table below for the applicable Aircraft, with the
released Employment Cost Index value described above for
the month of March also being used for the months of
January and February; the value for June also used for
April and May; the value for September also used for
July and August; and the value for December also used
for October and November.
ICI = The three-month arithmetic average of the released
monthly values for the Industrial Commodities Index as
set forth in the "Producer Prices and Price Index" (Base
Year 1982 = 100) as released by the Bureau of Labor
Statistics, U.S. Department of Labor values (expressed
as a decimal and rounded to the nearest tenth) for the
months set forth in the table below for the applicable
Aircraft.
In determining the value of L, the ratio of ECI divided by
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] will be expressed as a decimal rounded to
the nearest ten-thousandth and then multiplied by [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] will be expressed as a decimal rounded to
the nearest ten-thousandth and then multiplied by [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
Months to be Utilized
Month of Scheduled in Determining the
Aircraft Delivery Value of ECI and ICI
January June B, July B, Aug. B
February July B, Aug. B, Sept. B
March Aug. B, Sept. B, Oct. B
April Sept. B, Oct. B, Nov. B
May Oct. B, Nov. B, Dec. B
June Nov. B, Dec. B, Jan. D
July Dec. B, Jan. D, Feb. D
August Jan. D, Feb. D, Mar. D
September Feb. D, Mar. D, Apr. D
October Mar. D, Apr. D, May D
November Apr. D, May D, June D
December May D, June D, July D
The following definitions of B and D will apply:
B = The calendar year before the year in which the
scheduled month of delivery as set forth in
Article 2.1 occurs.
D = The calendar year during which the scheduled
month of delivery as set forth in Article 2.1
occurs.
2. If at the time of delivery of an Aircraft Boeing is unable to
determine the Airframe Price Adjustment because the applicable
values to be used to determine the ECI and ICI have not been
released by the Bureau of Labor Statistics, then:
2.1 The Airframe Price Adjustment, to be used at the time of
delivery of each Aircraft, will be determined by utilizing the
escalation provisions set forth above. The values released by the
Bureau of Labor Statistics and available to Boeing 30 days prior to
scheduled Aircraft delivery will be used to determine the ECI and
ICI values for the applicable months (including those noted as
preliminary by the Bureau of Labor Statistics) to calculate the
Airframe Price Adjustment. If no values have been released for an
applicable month, the provisions set forth in Paragraph 2.2 below
will apply. If prior to delivery of an Aircraft the U.S.
Department of Labor changes the base year for determination of the
ECI or ICI values as defined above, such rebased values will be
incorporated in the Airframe Price Adjustment calculation. The
payment by Buyer to Boeing of the amount of the Purchase Price for
such Aircraft, as determined at the time of Aircraft delivery, will
be deemed to be the payment for such Aircraft required at the
delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department
of Labor substantially revises the methodology used for the
determination of the values to be used to determine the ECI and ICI
values (in contrast to benchmark adjustments or other corrections
of previously released values), or for any reason has not released
values needed to determine the applicable Aircraft Airframe Price
Adjustment, the parties will, prior to delivery of any such
Aircraft, select a substitute for such values from data published
by the Bureau of Labor Statistics or other similar data reported by
non-governmental United States organizations, such substitute to
lead in application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use of the
original values as they may have fluctuated during the applicable
time period. Appropriate revision of the formula will be made as
required to reflect any substitute values. However, if within 24
months from delivery of the Aircraft the Bureau of Labor Statistics
should resume releasing values for the months needed to determine
the Airframe Price Adjustment, such values will be used to
determine any increase or decrease in the Airframe Price Adjustment
for the Aircraft from that determined at the time of delivery of
such Aircraft.
2.3 In the event escalation provisions are made
non-enforceable or otherwise rendered null and void by any agency
of the United States Government, the parties agree, to the extent
they may lawfully do so, to equitably adjust the Purchase Price of
any affected Aircraft to reflect an allowance for increases or
decreases in labor compensation and material costs occurring since
February, 1997, which is consistent with the applicable provisions
of paragraph 1 of this Exhibit D.
3. For the calculations herein, the values released by the Bureau
of Labor Statistics and available to Boeing 30 days prior to
scheduled Aircraft delivery will be used to determine the ECI and
ICI values for the applicable months (including those noted as
preliminary by the Bureau of Labor Statistics) to calculate the
Airframe Price Adjustment.
Note: Any rounding of a number, as required under this
Exhibit D with respect to escalation of the airframe
price, will be accomplished as follows: if the first
digit of the portion to be dropped from the number to be
rounded is five or greater, the preceding digit will be
raised to the next higher number.
ENGINE PRICE ADJUSTMENT - ROLLS-ROYCE
(1992 BASE PRICE)
(Relating to Block A, A-1, and B Aircraft)
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
ENGINE PRICE ADJUSTMENT - ROLLS-ROYCE
(1997 BASE PRICE)
(Relating to Block C Aircraft)
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
July 30, 1998
1783-10R3
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1783-10R3 to
Purchase Agreement No. 1783 - Option Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1783 dated
March 18, 1993 (the Purchase Agreement) between THE BOEING COMPANY
(Boeing) and CONTINENTAL AIRLINES, INC. (Buyer) relating to Model
757-224 aircraft (Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1783-10R2.
All terms used and not defined herein shall have the same meaning
as in the Purchase Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] to Buyer, on the
same terms and conditions set forth in the Purchase Agreement,
except as otherwise described in Attachment A hereto, and subject
to the terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, and concurrent
with Buyer's payment to Boeing of initial advance payments required
under Supplemental Agreement No. 6 to the Purchase Agreement for
the Aircraft, Buyer will pay a deposit to Boeing of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] for each Option Aircraft (the Option Deposit). In the
event Buyer exercises an option herein for an Option Aircraft, the
amount of the Option Deposit for such Option Aircraft will be
credited against the first advance payment due for such Option
Aircraft pursuant to the advance payment schedule set forth in
Article 5 of the Purchase Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft, Buyer
shall give written notice thereof to Boeing on or before the first
business day of the month in each Option Exercise Date shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Purchase Agreement to add the
applicable Option Aircraft to the Purchase Agreement as a firm
Aircraft (the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this letter agreement, or
in the Purchase Agreement, as the case may be:
(i) purchase of an Aircraft under the Purchase Agreement for
any reason not attributable to the canceling party;
(ii) payment by Buyer of the Option Deposit with respect to
such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option Aircraft
pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Purchase Agreement shall be on a one-for-one basis, for each
Aircraft so terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been canceled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or excluded
herein, all Option Aircraft that are added to the Purchase Agreement
by an Option Aircraft Supplemental Agreement as firm Aircraft shall
benefit from all the applicable terms, conditions and provisions of
the Purchase Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By John A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: July 30, 1998
CONTINENTAL AIRLINES, INC.,
By Brian Davis
Its Vice President
Attachment
Model 757-224 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are described
by Boeing Detail Specification D924N104-3, dated March 18, 1993, as
amended and revised pursuant to the Purchase Agreement.
1.2 Changes. The Option Aircraft Detail Specification shall
be revised to include:
(1) Changes applicable to the basic Model 757-200
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard Certificate
of Airworthiness.
1.3 Effect of Changes. Changes to the Detail Specification
pursuant to the provisions of the clauses above shall include the
effects of such changes upon Option Aircraft weight, balance, design
and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base airframe and
base engine price (pursuant to Article 3 of the Purchase Agreement)
of the Option Aircraft will be adjusted to Boeing's and the engine
manufacturer's then-current prices as of the date of execution of
the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special features
incorporated in the Option Aircraft Detail Specification will be
adjusted to Boeing's then-current prices for such features as of the
date of execution of the Option Aircraft Supplemental Agreement only
to the extent that such increase is attributable to an increase in
Boeing's cost for purchased equipment.
2.1.3 Escalation Adjustments. The base airframe and
special features price will be escalated according to the applicable
airframe and engine manufacturer escalation provisions contained in
Exhibit D of the Purchase Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to the signing
the Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may adjust
the basic price and the advance payment base prices for any changes
mutually agreed upon by Buyer and Boeing subsequent to the date that
Buyer and Boeing enter into the Option Aircraft Supplemental
Agreement.
2.1.5 BFE to SPE. An estimate of the total price for
items of Buyer Furnished Equipment (BFE) changed to Seller Purchased
Equipment (SPE) pursuant to the Detail Specification is included in
the Option Aircraft price build-up. The purchase price of the
Option Aircraft will be adjusted by the price charged to Boeing for
such items plus 10% of such price.
2.1.6 Certification of Rolls-Royce Engines. It is
understood by the parties that the price offered hereunder of the
Rolls-Royce Engines may be adjusted by Rolls-Royce to reflect
changes required to be incorporated to satisfy any new or amended
United States Federal Aviation Administration (FAA) regulations.
Therefore, in the event that after May 31, 1990, the FAA or other
applicable U.S. Federal Agency issues new rules or regulations or
changes or amends then-existing rules or regulations, and such new,
changed or amended rules or regulations require changes to or
modification of the Engines (Engine Modifications), then: (i)
Boeing shall adjust the purchase price of the Option Aircraft in the
amount by which Rolls-Royce revises its price of the Engines to
Boeing as a result of such Engine Modifications; (ii) if the Engine
Modifications require any change, modification or alteration to the
Option Aircraft (Option Aircraft Modifications), the charge for
making the Option Aircraft Modifications shall be added to the
purchase price of the Option Aircraft; (iii) notwithstanding the
provisions of paragraph 1 of this Letter Agreement, the time of
delivery of the Option Aircraft shall be extended to the extent of
any delay attributable to the Engine or Option Aircraft
Modifications and said delay shall be deemed excusable; and (iv)
Boeing shall, if necessary, revise the Option Aircraft Detail
Specification as required to reflect the effects of the Engine
Modifications or Option Aircraft Modifications.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the Option
Aircraft pursuant to the schedule for payment of advance payments
provided in the Purchase Agreement.
5
9-MOS
DEC-31-1998
SEP-30-1998
1,226
44
549
0
152
2,212
2,906
752
6,708
2,566
0
242
0
1
1,090
6,708
6,006
6,006
0
0
5,433
0
131
537
206
321
0
4
0
317
5.27
4.10
