Atlantic Coast Airlines Holdings, Inc. Business Information, Profile, and History

Company Perspectives:

The same values and principals that guided the early years of the company are the ones that have forged our current--and future--successes: a strong spirit of excitement about growth and new opportunities; an appreciation of the creative challenge of working in an environment where cost-consciousness, efficiency, and maximum productivity are paramount; determination to succeed, even in the face of incredible obstacles; and a strong sense of the value of providing excellent service to our partners, passengers, employees, and shareholders. Although ACA is a company made up of people from a wide range of backgrounds, experiences, and cultures, anyone who values teamwork, loves new challenges, and possesses an inner drive to succeed is always welcome on the ACA team. Everyone at ACA is of equal importance. The work of the person loading baggage on the ramp is of equal worth to the work of the captain in the cockpit. The clerical work of processing invoices is as important as the work of a station supervisor. We have no special groups. There are no unimportant positions. Every job is vital to the continued success of ACA, because working together, there is nothing we cannot do.

History of Atlantic Coast Airlines Holdings, Inc.

Atlantic Coast Airlines Holdings, Inc. (ACAI) is the parent company for the regional airline that shares its name. Atlantic Coast Airlines (ACA) operates feeder routes for major airlines. Much of its growth has come from its role as the United Express affiliate operating from Chicago's O'Hare Airport and Dulles Airport in Washington, D.C. ACA also flies as under the Delta Connection banner from La Guardia in New York and Logan in Boston.

Origins

The story of Atlantic Coast Airlines begins with WestAir Commuter Airlines Inc., the United Airlines Inc. regional partner operating in California and the Pacific Northwest in the late 1980s. According to the Washington Times, Fresno-based WestAir was the country's largest regional airline holding company.

In December 1989, United asked WestAir to hastily put together a new operation on the other side of the country to replace a partner that suddenly went out of business, four-year-old Presidential Airways. The new WestAir unit would be using the United Express name, which had been sullied in the East by the flight cancellations and other disruptions that attended Presidential's bankruptcy.

The Atlantic Coast division's first day of operations was December 15, 1989, just 11 days after the call from United. Company lore recalls tales of the mostly Californian staffers stepping into one of the D.C. area's coldest winters. After a couple of weeks at a Holiday Inn, a two-room office was set up in Sterling, Virginia. The company had 50 employees at the time.

The division started with six Brasilian-made turboprop aircraft on six routes. By the end of 1990, it was carrying 480 passengers a day; the fleet of 23 aircraft connected 23 cities.

High tech companies in the Dulles corridor provided a lot of demand for ACA flights linking smaller communities, notes the Washington Post. One important early route was to Jacksonville, Florida, where AOL maintained a training center. Columbus, Ohio, became an important destination after AOL acquired CompuServe Inc. Raleigh, in the heart of North Carolina's Research Triangle, was another important destination for techies.

ACA Spun Off in 1991

In 1991, WestAir Holdings Inc. faced its own set of financial troubles and in October sold off the fledgling Atlantic Coast division to a group of investors lead by C. Edward Acker, a veteran of Pan Am World Airways Inc., Branniff, and Air Florida. Acker's group paid $22.7 million for ACA. Kerry B. Skeen, a senior vice-president at WestAir, was named president in 1992 and became CEO three years later. A native of Georgia, Skeen had started his aviation career with a seven-month stint as a janitor for Delta Air Lines Inc.

ACA went public on the NASDAQ exchange in 1993. While United Airlines lost nearly a billion dollars in 1992, ACA, like most regionals, had not been affected to the same degree as the majors by the post-Gulf War recession. Ever expanding, ACA began originating flights at Newark and Orlando (following United's expansion into Florida) as well as Dulles, where it had more daily departures than any other airline, including the majors.

Employment at ACA doubled in 1993 alone, as ACA took over many north-south flights that United abandoned that February. United also sold ACA the Dulles-based operations of its Air Wisconsin subsidiary, another feeder line that it had acquired one year earlier. There were also discussions between United and its unions over the possibility of United buying ACA.

The next year was a particularly difficult one for the carrier. On January 7, one of its planes crashed in Ohio, killing five people. A particularly nasty winter caused ACA to cancel 18 percent of its flights in the first seven weeks of 1994. The company spent the next few months coping with the effect of the winter on revenues and the strain of growing so quickly the previous year. It made some layoffs and simplified its fleet by returning its 12 Embraer Brasilia turboprops to Mesa Airlines in exchange for a dozen British Aerospace (BAe) Jetstream 31 aircraft. BAe also provided a $20 million capital infusion. The new hubs at Orlando and Newark, where ACA faced a fare war with the short-lived Continental Lite, were all but abandoned. Nevertheless, ACA posted a $25 million loss for the year, though a turnaround was well in evidence by mid-1995.

First Jets in 1997

By 1996, ACA was operating 52 planes. The airline's first jets began to arrive in 1997, soon after ACA placed an order for a dozen of Bombardier's Canadair Regional Jet (CRJ). United lagged behind its competitors in having its regional partners switch to regional jets. ACA's first CRJ arrived before United and its pilots' union had formally approved it for the United Express program, and so was delivered in ACA's own blue and white livery.

The new jets powered rapid expansion. ACA had 2,000 employees in 1998; staff had quadrupled in just six years. The company celebrated the opening of its new $10 million maintenance hangar at Washington-Dulles (IAD), the hub of its route network. A regional concourse opened at IAD the next year. ACA had established a second regional jet hub at United's own home base of Chicago O'Hare (ORD), where an entire concourse was eventually dedicated just to ACA's United Express operations. Another major construction project was the company's new headquarters in Dulles, Virginia. ACA earned $30.4 million on revenue of $289.9 million in 1998.

Connecting with Delta in 2000

Yet another exciting development was announced in October 1999: the beginning of ACA's partnership with Delta. ACA Delta Connection was launched using small Fairchild-Dornier 328JET aircraft rather than the Canadair jets.

Skeen succeeded Ed Ackers as chairman upon his retirement in 2000 as Tom Moore became president. The Delta operations were known as Atlantic Coast Jet during their first year. The first flights originated at New York LaGuardia before routes from Boston and Cincinnati were added.

There was still more expansion on the United Express side. In November 2000, ACA announced it was tripling these operations and confirmed a conditional order for 27 Canadair regional jets worth $594 million. Just a couple of months later, ACA ordered 145 Fairchild Dornier 328JETs for its Delta Connection operations, a commitment worth $1.75 billion. However, ACA cancelled this order in February 2002 after Fairchild went insolvent and gave Bombardier another $870 million worth of business.

In March 2001, United offered to sell ACA Allegheny, Piedmont, and PSA as part of its acquisition of US Airways. The US Airways buy was scuttled by antitrust regulators, but ACA still reached an arrangement to operate these regionals.

A new ten-year contract signed with United in 2001 gave ACA a fixed fee for every United Express flight it operated, rather than ACA having to share revenue with United. As a result, ACA was much less affected by the effects of 9/11 than was United. ACA's net income was $34 million for 2001, and the company was expanding even as United scaled back its own operations by a fifth.

United Airlines accounted for 85 percent of ACA's revenues; UAL's bankruptcy had the potential to greatly affect ACA's fortunes. ACA and Air Wisconsin, both of which had many new planes on order, asked the bankruptcy court to force United to decide on renewing their contracts by February 28, 2003, but this request was denied. UAL's recovery depended on regional jets, and ACA's financial health was dependent on UAL staying in business. ACA could lose a great deal of business were UAL's planes to be grounded by a strike or financial reasons.

ACA's 100th regional jet was delivered in 2002 as the carrier grew to a total fleet of 130 planes. Employment had more than doubled, to 4,800, in four years, as ACA carried 22,000 people a day on 600 daily flights to 68 destinations. The company expected to have an all-jet fleet of 154 aircraft by 2004.

ACA posted a profit of $34.3 million on revenues of $583 million in 2001. These figures rose to $39.3 million and $760.5 million in 2002. Although ACA weathered the post-9/11 industry turmoil well, concern over the war in Iraq in early 2003 caused Wall Street to abandon ACAI along with all the other airline stocks, observed the Washington Post. Concern over UAL's future was another factor.

Principal Operating Units: ACA/Delta Connection; ACA/United Express.

Principal Competitors: AirTran Holdings, Inc.; American Eagle; Comair, Inc.; US Airways Group, Inc.

Chronology

• Key Dates:
• 1989: WestAir hastily forms an Atlantic Coast division to handle United Express traffic.
• 1991: WestAir sells off its Atlantic Coast division.
• 1993: ACA goes public on NASDAQ exchange.
• 1997: ACA's first jets are delivered.
• 1998: The company opens a maintenance hangar at Washington-Dulles.
• 2000: ACA Delta Connection lifts off.