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Republic Airways Holdings, Inc. (NASDAQ:RJET)

Q2 2008 Earnings Call Transcript

August 7, 2008 10:30 am ET

Executives

Hal Cooper – EVP, CFO, Treasurer and Secretary

Bryan Bedford – Chairman, President and CEO

Tim Dooley – VP, Financial Planning and Analysis

Analysts

Lily [ph] – Merrill Lynch

Duane Pfennigwerth – Raymond James

Steve O'Hara [ph] – Sidoti & Co.

Bob McAdoo – Avondale Partners

Keith Wiseman – Calyon Securities

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Republic Airways Holdings Incorporated earnings conference call. My name is Amid and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

I would now like to turn the presentation over to your host for today’s conference Mr. Hal Cooper, Executive Vice President and Chief Financial Officer of Republic Airways. Please proceed, sir.

Hal Cooper

Thank you, Amid, and good morning everyone. Thank you for joining us for our second quarter call. Let me start by introducing everyone in the room. Obviously, we have Bryan Bedford, our CEO; joined by Wayne Heller, our Chief Operating Officer; and Warren Wilkinson, our Corporate Comm guy; Tim Dooley, Vice President of Finance; Joe Alman [ph], our Controller; and we even have an IT guys standing by, just in case.

Let’s start with our Safe Harbor disclosure. Please note that the information contained in our release and this call contains forward-looking information as defined by United States Securities Laws. Forward-looking information is subject to risk and uncertainties and we refer you to a summary of Risk Factors contained in our most recent filing with the Securities and Exchange Commission.

Okay, let me turn the call over to Bryan who is going to walk you through some highlights very briefly with some prepared remarks and then we’ll be happy to field your questions. Bryan?

Bryan Bedford

Thanks Hal. And again let me also add my welcome to all of our listeners for our second quarter call. Looks like we have got a large group of participants today, and we thank you for your time and your interest.

As always, it’s important to open our call with a huge thank you to our 4700 co-workers for the tremendous job they are doing on behalf of our partners and our customers. Due in large part to their efforts I have to tell you we ran an outstanding airline for the June 30 quarter and provided service to more than 5 million passengers flying on us. So, again, to all of our folks out on the frontline, thank you so much and please keep up the great work.

As usual, you’ve read our earnings release that went out last night. Let me just reiterate some of the points that were made in the release for the June 30 quarter.

Operating revenues increased 22% to $391 million. That’s up from $320 million in the same quarter for ’07. Excluding fuel reimbursements, which are a pass-through cost to our partners, our underlying airline services revenues increased about 20%, which was driven mainly by a 16% increase in large EJet block hours over the prior year’s second quarter.

Total operating expenses for the second quarter of ’08, including interest expense, but excluding fuel, again, reimbursed by our partners, so our controllable cost, if you will, were $257 million, and that also is about 20% increase from the $214 million for the same period in ’07.

Operating unit cost for the quarter, excluding fuel, but including interest expenses, decreased about 2% to 7.51 cents per ASM. That’s down from 7.63 cents in ’07.

Net income for the quarter increased to $28.4 million. That’s up from $19 million in the second quarter of ’07, but let’s be clear these results include a one-time $6 million gain on the settlement of an interest rate swap. We reported that transaction, which actually had a negative implication to Q1 earnings, and I think we advised you last quarter that this gain was coming.

But excluding this item, our net income was up year-over-year about 18% to $22.4 million and earnings per share increased 39% to $0.64 from $0.46 in the second quarter of ’07. And part of that large increase is due to some stock buyback activity, which reduced shares outstanding.

And again, a reminder on the interest rate swap. There was a $2.4 million net loss in the first quarter in that mark-to-market adjustment. So the year-to-date impact and the six months numbers is actually $3.6 million net income gain and $5.8 million increase in cash.

Okay, continuing on, again, we did buy 1.9 million of our RJET stock during the quarter. Total consideration for the buyback was $33 million. We still have $59 million remaining under our existing $100 million share repurchase authorization. However, I would add, we are not currently in the market.

During the quarter, we took delivery of five new 86-seat EJet aircrafts and began removals of our 37-seat E135 aircraft. Those aircraft were flying for Delta. We did sell two of those aircraft in the quarter and we returned one aircraft to the lessor. So the net increase to our fleet for the quarter was up two units, bringing our total operating fleet to a total of 228 aircraft as of June 30, and that included 113 aircraft of the 70 to 86 E series jets. We financed all five new aircraft with fixed rate long-term debt agreements.

During the quarter, we also completed the removal from service of all 12 of the E170 aircraft that had been operating for Frontier, and I will give you a little bit more on our efforts to remarket those aircraft in just a minute.

But first let me give you a couple of updates that occurred in the weeks since we closed the quarter. First, very early in July United sent us a notice that they were exercising their right to early terminate our agreement with Chautauqua to operate seven 145 aircrafts. These are seven 50-seaters. The termination provision includes an 18-month advance notice period. So the effective date of the termination will be December 31st, 2009.

This was certainly wasn’t a surprise to us given the fact that the original United deal was essentially a five-year deal and the rates reflected five-year economics. But the deal was constructed in a way to give you an (inaudible) an option to have a 10-year term. And I also want to be clear that there are no early termination provisions of any kind in United 170 agreement.

So, we certainly have plenty of time to figure out the future of these seven aircraft. Some of them are leased, and those leases will run out effective by the early termination date. The remaining aircraft we’ll just have to find an alternative home or sell the aircraft.

In July, we also reached agreement with Delta since contentual agreement to accelerate the removal timeline for the remaining 11 E135 aircraft. The amendment shortens the removal timeline by about 60 aircraft months over what was originally contemplated in the bankruptcy restructuring agreement. We believe we received fair consideration for the accelerated termination, which includes scheduling the two of our E170 aircraft through the spring and summer of 2009. We don’t anticipate any material adverse financial impact as a result of this amendment. And we’d also remind our listeners that the 11 aircraft that we are removing quicker are already under firm agreements to be sold under the original removal dates, which range between October of 2008 and April 2009.

And finally, as we announced a few days ago, Republic combined efforts with two other unsecured creditor parties to enter into a DIP loan for Frontier. Our commitment is for $12.5 million of a total $30 million funding package. And we anticipate that funding will actually occur tomorrow.

I am sure most of you who follow this know that Frontier had already arranged a financing package, which included a DIP component and under certain conditions an equity commitment. It was our view, as well as the two other lenders in this group, and by the way all three of us are on the unsecured creditors committee, that the package that was being offered was overly beneficial to the private equity group, and to the detriment of the unsecured creditors. It’s our belief that the benefits of our agreement versus what has been proposed are an immediate access to more capital on terms that are generally more favorable to Frontier, which will allow for an open and transparent auction process when Frontier begins its process to find a sponsor for their of plan of reorganization.

I think it’s clear that Frontier and its advisors agreed with our assessment and they accepted our proposal and that proposal has subsequently been approved by the Bankruptcy Court and assuming that the final preconditions to the funding are met we again anticipate funding that tomorrow.

And regarding the 12 former Frontier 170s, let me just say, we continue to work through a number of opportunities to put those aircraft back to work or to sell the aircraft offshore. We have had parties interested in purchasing the aircraft, including placing deposits on the airplanes, but they are ultimately unable to arrange acceptable financing, which I think is a broader commentary on the shape of the credit markets in general, which are essentially broken, closed anyone but the best credits. We have also had opportunities to lease these aircraft but in fairness we simply haven’t found a financial agreement that works for us considering the – some of the credit risk we might be taking.

But we do continue to make progress on a number of other fronts to sell, lease, or otherwise redeploy these assets, but admittedly it’s a much more challenging environment that we are marketing in right now than what we were expecting three months ago. And as soon as we have some closure we’ll make those announcements when we feel it’s appropriate.

That concludes our opening comments. Amid, why don’t we open the line for questions from our listeners please?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Mike Linenberg from Merrill Lynch. You may proceed.

Lily – Merrill Lynch

Good morning guys. This is Lily [ph] on behalf of Mike.

Bryan Bedford

Hey, Lily.

Lily – Merrill Lynch

Hey. The first question is regarding the assumed capacity block rate that you put out in the website for the remainder of 2008. Could you guys just tell us what utilization levels you were assuming when you put out those numbers?

Tim Dooley

Yes, Lily, this is Tim. We included what schedules we have from our partners for the third quarter and just assumed that those schedules will continue on into the fourth quarter. The level of utilization is slightly below what we have seen in the second quarter but not materially different.

Lily – Merrill Lynch

Okay. And Tim, do you happen to have a preliminary 2009 capacity and block hour forecast?

Tim Dooley

That’s also on the website, Lily.

Lily – Merrill Lynch

So they are ready. Okay, I will go and –

Tim Dooley

Yeah it was updated last night.

Bryan Bedford

Yeah, let me add some more color to that, Lily, for the rest of our listeners. And if you look at Republic’s utilization en masse, each quarter for probably the last eight quarters, it’s hovered just about at nine or ten hours a day. We do believe we are going to see some – and have seen some fall utilization reductions on both the 50s and the 70s and I think that’s reflective of the 12% to 13% capacity reductions that we are seeing in the U.S. domestic market in general. There aren’t any wild swings in utilization and as Tim noted, we have given the best information we have based on firm schedules up through September and the feedback that we are getting from our partners for the fourth quarter. And it’s just unclear right now whether this is a permanent change or it’s a seasonal change. But we are not seeing anything that we would consider extraordinary or unusual or material. So we don’t think that we are seeing any utilization swings that are going to move the needle in terms of our financial performance.

Lily – Merrill Lynch

Great thanks. And then secondly, Hal, maybe you can remind us what the – the Frontier [ph] planes that is going to sort of have a difficult time getting rid of them. What is the financial impact on each of the planes to Republic?

Hal Cooper

The carrying cost of the planes are about $200,000 per plane per month that’s the ownership cost plus whatever we happen to do with them, storage and keep them on our maintenance program.

Lily – Merrill Lynch

Great. Thank you so much.

Bryan Bedford

Thanks.

Operator

Your next question comes from the line of Duane Pfennigwerth from Raymond James. You may proceed.

Duane Pfennigwerth – Raymond James

Hi good morning. Just in terms of the utilization in the second quarter which was a little bit ahead of your initial guidance. Can you give us some color on where you saw sort of better than expected usage?

Bryan Bedford

Yeah, Duane, really just comes down we ran a fantastic airline. Wayne Heller and his team did a great job keeping the airplanes flying. Mother nature cooperated. We didn’t a significant storm activity that impaired operations, certainly not like what we have seen in the first week of August with the storm up and down the east coast and in Texas. But, yeah, we simply outperformed our internal targets.

Duane Pfennigwerth – Raymond James

That’s great. And then can you tell me if you had any aircraft gains – sale gains in the quarter?

Bryan Bedford

They were immaterial, Duane. We did, we did offload three aircrafts, small jets. You will see some more of that in the third quarter, but nothing significant.

Duane Pfennigwerth – Raymond James

Okay great. And then I think Jim might have a question.

Jim Parker – Raymond James

Yeah, Bryan, good morning, it’s Jim Parker.

Bryan Bedford

Hi Jim.

Jim Parker – Raymond James

Just looking at the regional airline business and how you expect it to evolve over the next few years with of course the industry as a whole is in a bit of a crisis currently and the legacy carriers are trying to remove 50 seaters and what will be the role of regional airlines over the next, say, three, five year? Is there going to be a resumption of growth? And what role will the regional airlines play in this domestic market?

Bryan Bedford

Well, it’s a great question, Jim, and it’s certainly I don’t think clear to anybody whether growth is going to resume any time in the near term look at the difficulties we have putting the 170s back to work. And this isn’t just a domestic U.S. issue. High fuel prices are impacting carriers across the globe. And certainly the crisis in the banking sector where the credit markets are simply not functioning, are making it very difficult for let’s call them moderate credits, not bad credits, not great credits, but sort of guys who are in the middle, it’s making it very difficult for them to finance transactions. We certainly do see demand. And we have got a lot of activity going on including for us to operate the aircraft. But it’s just – it’s a tough market right now, no doubt about it.

As it relates to our domestic partners, different airlines are responding to the oil crisis in different ways. Some are aggressive as you look at what Delta is doing, and aggressive both in terms of how they are pulling the feet to the fire, the regional partners on operating performance, and certainly aggressive in how they are attacking consolidation of Northwest, raising the synergy bar and trying to accelerate bringing those synergies into the P&L much quicker than originally heard of it. So – I mean people are just working a lot harder trying to mitigate the adverse impact of fuel. Having said that, there is consequence to M&A activity and that’s going to be an increase in operating cost for the carriers that are involved in integration. There are well going to be increase in cost and labor and that gap between mainline cost and regional cost as it widens, hopefully, will create a little bit of an opportunity for us to move some airplanes around and become more value added as we historically have been for your partners.

And then if you want to further delve into the leads [ph] on what that looks like certainly there is a huge difference between the value proposition of 50-seaters and the value proposition of 70 to 90 seaters where there is – those who have the scope really to do more are interested in doing more, again, we are not talking huge, huge opportunities here, Jim, I mean people are sort of just nibbling around the edges trying to figure how to refine what they have. Probably the thing that we see the most right now is people are just trying to get some directionality on where fuels is going. Are we seeing an environment where fuel will moderate? Will it come back down to $100, $110? If that’s the case then it will take – I don’t think it will bring capacity back in the market, but it will certainly take some pressure to continue to shrink capacity out of the market. And that might provide a stable foundation on which to start to build again. So, I think for the next 12 months we are essentially in a holding pattern in terms of domestic opportunities. I think we are going to see some additional marginal consolidation moves. I think we are going to see some re-fleeting [ph] opportunities out there with some carriers. And that again may create some opportunities but I think at this point this is an exercise of where all carriers, large and small, are trying to restructure their operations, become more efficient, more value added, and cope with a high fuel cost environment and an uncertain economy.

Jim Parker – Raymond James

Alright. Thanks.

Bryan Bedford

You bet.

Operator

Your next question comes from the line of Steve O'Hara [ph] from Sidoti and Company. You may proceed.

Steve O'Hara – Sidoti & Co.

Good morning.

Bryan Bedford

Hi Steve.

Steve O'Hara – Sidoti & Co.

How are you?

Bryan Bedford

Doing good today, thanks.

Steve O'Hara – Sidoti & Co.

Yeah, sure. The first question is I know that with United taking the seven planes out at the end of ’09, I was just wondering has there been any conversation with American Airlines regarding their planes?

Bryan Bedford

We are talking to all of our partners. So – and without exception – we are having conversations with US Airways, with American, with United, with Continental, with Delta, again trying to act proactively with our partners and trying to do amendments with our contracts that we would consider to be win-win. And I think we accomplished that with Delta. Remains to be seen whether we can create some more opportunities with our other partners. But I would tell you the dialogs are all very positive and very consensual and I’d like to believe we will continue to make traction. You know, Steve, our goal is to sort of over time and whether that’s three, five, eight years, I don’t know, but over time we certainly want to reduce our exposure in 50-seaters and we want to increase our exposure in the products that we really feel provide the best value solution and can differentiate us from the rest of the market and that’s in the larger E series jets. So we are going to continue to look for opportunities to sell aircraft when there are interested buyers. We are going to look for opportunities to – as aircraft come off lease to pull them out of programs and return them to the lessors and just sort of reduce our exposure on the small jets and continue to look for growth prospects on the larger capacity shelves [ph].

Steve O'Hara – Sidoti & Co.

Okay. And then as a follow-up, I know you guys have a number of options regarding the ERJ-175s the upsize for 190s. Wondering what’s the timeframe on making a decision on that – on those options.

Bryan Bedford

Well, again, we have for the first time in our history, we have allowed two quarters worth of options to expire. As long as we are sitting here with 12 Embraer 170s on the ground, we are not interested in doing any speculative aircraft purchases although look I think that longer term the market opportunity is going to be in larger capacity RJs. It’s hard to see the next 12 months an opportunity coming to fruition to be perfectly frank. But in the longer term we certainly believe that’s where Republic needs to position itself. So, it’s a story that hasn’t been fully written. But with that, again, just so our listeners understand, we are not going to make speculative aircraft purchases and we have again unusually for the first time allowed Embraer options to expire. And that will continue to be the case until we sort of clear off these 12 170s.

Steve O'Hara – Sidoti & Co.

Okay, great. Thanks Bryan.

Bryan Bedford

Yes.

Operator

(Operator instructions) Your next question comes from the line of Fred Lowrance from Avondale Partners. You may proceed.

Bob McAdoo – Avondale Partners

Hi, it’s actually Bob McAdoo.

Bryan Bedford

Well, we were wondering, Bob, who Fred was, but –

Bob McAdoo – Avondale Partners

It’s the fancy call handling system you have where you actually put – you get your pin number ahead of time and register – reporting your name in early. It’s got a (inaudible) here. A quick – a couple of quick questions. Do you have – maybe you said and I have lost track of it, do you have any minimum guarantee hours in terms of utilization. You said it was kind of in I don’t know little over 10 hours. Are you – do you have guarantees that say Jee they can't go below a level or what’s kind of the status of your situation there? Are you facing the possibility as SkyWest has said from time to time Delta has come pushed on them a little? You have – are guys set up to be able to do that within the scope of your existing agreements?

Bryan Bedford

Yeah, Bob, we have minimums, maximums collars in all of our agreements and I think we have said before certainly continues to be the case that Delta has been on the small jet at these minimum levels and –

Bob McAdoo – Avondale Partners

So they are already there?

Bryan Bedford

Yes. And have been for two years.

Bob McAdoo – Avondale Partners

Will that (inaudible) on the 135s.

Bryan Bedford

And the 145s

Bob McAdoo – Avondale Partners

And the 145s as well. What about the other guys? You have – are the other guys at minimums? Are they – is there some kind of some risk that they can decide to squeeze some there?

Bryan Bedford

No, they do have minimums. They are well above the minimums and before I mentioned we are seeing some reduction but its’ not approaching the minimum.

Bob McAdoo – Avondale Partners

Okay, alright. And secondly, you talked about the additional airplanes that you are going to fly for a while as a part of the transaction to go ahead and ground the 135s early. Are those Frontier airplanes that you are using or are they just other spares or – and how long does that – those extra couple of airplanes, how long does that process last?

Bryan Bedford

Those were aircraft that were – there is 12 aircraft that we took out of service during the June quarter. There were five additional airplanes that were targeted to go into Frontier in the last half of 2008. And these are two of those aircraft. They are currently at Delta. They were going to transition into the Frontier program. Now they are going to stay with Delta through August of next year.

Bob McAdoo – Avondale Partners

What about – we got the 12 on the ground and then there is this batch of five which we talk about, which two are going to be used for a while here. What about the other three? Are they going to become surplus as well or – because they were going to go to Frontier and there is no Frontier contract to put them into. Is that–?

Bryan Bedford

Yeah, that’s correct. They will absent finding an alternative use. And again, while the market is certainly more hard than what we were expecting 90 days ago, we do have – we actually have more conversation including LOIs that are sitting out there that – where they to all come to fruition we actually wouldn’t have enough aircraft to supply the market. Do we think all those deals will come together? No. You know well we have to pick and choose between deals hopefully that would be the case. So there won't be a one market solution for these aircraft. I mean that will be a combination of some sales, some leases, and putting some aircraft back to work.

Bob McAdoo – Avondale Partners

Okay. So, although you say it’s a difficult market and whatever it sounds like it’s not like there is nothing out there to do, it’s just some of them are – something aren’t as attractive and some guys who have ideas but don’t have the money and whatever, it’s just a matter of trying to work through it. So like is that a better way to think about it?

Bryan Bedford

Oh yeah, for example, we did have some deals to sell the aircraft offshore. Reputable buyers placed significant deposits on the airplanes, went out to arrange financing and like buying a house. You have – you want to get a financing commitment that meets a certain threshold, and they couldn’t get it.

Bob McAdoo – Avondale Partners

Yeah.

Bryan Bedford

You know and of course the option was could we lease them the airplanes and we just haven’t been ready to do that yet you know –

Bob McAdoo – Avondale Partners

I assume the concern there primarily is if I lease it to somebody and they go in the tank, especially if they are offshore, you can just burn up a lot of expenses trying to figure out where you are and getting the airplane back and whatever.

Bryan Bedford

That’s true.

Bob McAdoo – Avondale Partners

Yeah. Okay. All right. That’s very helpful. Thanks a lot.

Bryan Bedford

Okay.

Operator

Your next question comes from the line of Keith Wiseman from Calyon Securities. You may proceed.

Keith Wiseman – Calyon Securities

Hi guys, a question about the share repurchase policy and putting it on hold just – what’s the rationale there and does it have anything to do with you participating in the DIP financing for Frontier? I made this comment notwithstanding today’s stock price movement just with the stock below $10 it’s been for a little while now while you would take yourself out of the market.

Hal Cooper

Well, now it doesn’t have anything to do with the Frontier DIP financing. We made the decision several weeks ago that given where we – where the market is right now, given the high fuel prices, given the counter-party risk that the market sees out there, we just decided keeping cash was better than a share repurchase program.

Keith Wiseman – Calyon Securities

And in regards to Delta contract, obviously 11 aircrafts are coming out, the smaller aircraft. Has there been any further discussion or indications that Delta will take further aircraft out especially the 37 50-seaters given that they have been pretty hard on some of other partners here?

Bryan Bedford

Well, I will take that one. This is Bryan. First – and we are not involved in the weeds [ph] on – the various events of default for the contract terminations that Delta has announced in the past. But I can say that consistently Republic operates in either the first of second position of operating reliability for all of its partners. I mean so we have always historically operated as one of the most reliable carriers in the regional airline space.

Secondly, we have historically been one of the lowest cost providers of regional jets left in the space. Are there other people that will sell their product below what Republic charges? Yes. And yet those are the guys that seem to struggle with operating quality. So you sort of get what you paid for at the end of the day. We joke around here about trying to have the Miller Lite strategy of being ‘taste great, less filling.’ I mean we want to have a great product at a great price. And historically that has been a point of differentiation in the Republic model from our peer group. And that’s still our focus, recognizing that if there is simply not demand for 50-seaters out there, and that maybe the unique case at Delta that they are oversubscribed on 50-seaters especially after the consolidation with Northwest is complete. It simply underscores the point that we need to be – maintain our position of leadership on operating quality and maintain our leadership position and operating economy. And those are going to be the keys to maintaining business or having a stable platform versus where some of our competitors might be. And I am sure our competitors are going to tell you the exact same thing. That’s the goal. Historically, we have delivered. We need to continue to deliver on both operating quality and economy. So if we do that I think we are – we certainly can control our own future. But in a world where Delta would like to see fewer 50-seaters, if there are consensual agreements that can be reached, we have certainly demonstrated with all our partners that Republic can think outside the box, Republic can do win-win deals and we can tend to make things happen that others historically haven’t been able to do.

Keith Wiseman – Calyon Securities

And lastly, has it been in the market selling – and you have already sold the 135s that were at Delta, and marketing the 170s at Frontier. Can you give any commentary I mean not specific to those sales, jus what you have seen in the market in terms of aircraft values and market prices for both the smaller and the larger RJTs?

Bryan Bedford

I think we have got a lot more clarity on the large RJ size in terms of what buyers at least have been willing to pay us subject to financing but what they thought were fair prices. And we feel like our – we bought the 170s and 175s very effectively. We think we financed them very effectively and we certainly don’t see any issues there in terms of realizing value on that fleet. We are undergoing an exercise right now where we are doing some serious appraisals on our small jet fleet. We are looking at what Continental is doing in terms of grounding aircraft. They are grounding the 135s. American is grounding the 135s. We are certainly paying attention to whether or not there is an adverse impact to the carrying values of small jets and if there is we will obviously have to do some sort of adjustment on the books. I don’t have any answer for you today. We have been able to sell 135, Steve and above our book values not significantly above, but we haven’t lost any money on those deals. We’ll just have to see – I am sorry, Keith – we’ll have to just see how things unfold going into the third quarter.

Keith Wiseman – Calyon Securities

Okay. Thank you.

Bryan Bedford

You bet.

Operator

Our last question comes from the line of Steve O'Hara with Sidoti and Company. You may proceed.

Steve O'Hara – Sidoti & Co.

Hi, just a follow-up on the $200,000 expense per plane. There was some conversation in the last – on the last call about what part of that was cash expense and if some portion of that was depreciation or anything like that. Can you just enlighten me a little bit on that?

Hal Cooper

Yeah, sure. I think in the last call we articulated the change in contribution vis-à-vis what it would have otherwise been and I think that number was around 250 to 300 something like that. And the 200 is the cash carrying cost of the asset.

Steve O'Hara – Sidoti & Co.

Okay. So depreciation will be on top of that? Okay great.

Bryan Bedford

Well, just to clarify, once these aircraft are debt finance so the $200,000 is essentially the debt service costs plus the maintenance cost plus the insurance and property taxes and sort of the normal carrying cost of having an aircraft on the certificate. The – as Hal said, the P&L contribution change from not having the aircraft long for Frontier’s closer to $300,000. So one it’s true earnings adverse change and then the other is real cash that real cash numbers the $200,000 number per shell per month.

Steve O'Hara – Sidoti & Co.

Okay, thanks a lot.

Bryan Bedford

You bet.

Operator

That concludes our question-and-answer session. I would now like to turn the call over to Bryan Bedford for closing remarks.

Bryan Bedford

Well, that’s it for this quarter. Again, I really want to thank our frontline employees for just doing a fantastic job. I don’t know how our listeners really can empathize with how difficult it is to stay focused in a world where you are seeing all of those negative news. And I think for some folks in this industry it’s awful easy to just not want to get up in the morning and go to work but I just really pick my hat and thank and praise our employees who get up every day and do just such a fantastic job for us. And encourage them to continue to do that good work and we’ll continue to try to manage the business and hopefully we will have more success to be talking about in the future. And for our shareholders who have supported us, I know it’s been a rough ride but again we are really trying to manage this business for the long term and position Republic to continue to succeed in the future and I thank you for staying with us.

And that’s it for Republic for this quarter and we will talk to you in 90 days. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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