Alaska Airlines Speeds Transition to All-Boeing 737 Fleet

Alaska Airlines today announced that the Alaska Air Group Board of Directors has authorized a plan to transition the airline to a fleet of all-Boeing 737 aircraft by the end of 2008. The board’s action will accelerate the retirement of the airline’s MD-80 fleet.

To accomplish the transition, Alaska now anticipates taking delivery of 39 737-800s between 2006 and 2008, including the two aircraft that have already been delivered in 2006. In addition to these airplanes, Alaska has firm commitments for 13 aircraft, options for 24 and purchase rights for 27 in 2009 and beyond.

"This decision represents a major milestone in our transformation and moves us significantly along the path toward becoming an undisputed leader in our industry. Having a common fleet and growing with next-generation, fuel- efficient Boeing 737s will make a major difference in our operating costs, fleet reliability and the onboard experience for our customers," said Bill Ayer, Alaska’s chairman and chief executive officer. "This move represents a significant upfront investment and will continue our momentum toward sustained profitability, growth and long-term job security and career opportunities for our employees."

The plan to retire the airline’s 26 MD-80 aircraft by the end of 2008 will require an investment of approximately $750 million. It is expected to save more than $115 million per year in operating expenses once the transition is complete, primarily by lowering costs for fuel, maintenance, training and crew scheduling.

"This level of investment requires that we continue our transformation and keep delivering on our cost goals and profit objectives," Ayer said. "Our employees are a crucial part of that equation, and we need to continue working together to provide optimum value for our customers."

The acceleration of the conversion plan, when combined with the purchase of new aircraft, will expand Alaska’s fleet to 114 aircraft from 110 at the start of 2006, and is expected to increase available seat miles (ASMs or the number of seats available per mile flown) by 18 percent by the end of 2008. With an average fleet age of eight years following the transition, Alaska will have one of the youngest fleets in the industry.

The new agreement with Boeing and a December 2005 equity offering that raised $200 million were key elements in accelerating the fleet changeover. The equity offering strengthened Alaska’s balance sheet, helping to offset the charge to equity associated with the early retirement of the MD-80 fleet.

Expected exit costs and impairment charges

The airline expects to record a non-cash impairment charge during the first quarter of 2006 associated with its 15 owned MD-80 aircraft to reduce their carrying value to fair market value. Although the amount of the special charge has not been finalized, the airline expects it to be between $130 million and $150 million before tax (or between $80 million and $95 million after tax).

Alaska Airlines also has 11 leased MD-80 aircraft. The airline is unable to determine the amount or timing of future charges associated with its leased MD-80 aircraft, but expects the total of these charges also to be in the range of $130 million to $150 million before tax (or between $80 million and $95 million after tax). These charges will be recognized in future periods as the disposition plans are finalized.

Combined, the airline expects total special charges to its income statement to be between $160 million and $190 million after tax.

For more details, please refer to the Form 8-K report filed today by the airline with the Securities and Exchange Commission.

Teleconference scheduled to discuss transition

Alaska Airlines has scheduled a conference call at 11 a.m. Pacific time/2 p.m. Eastern time today (Monday, March 13) to discuss the transition plan. Interested parties may listen to the call and view a PowerPoint presentation via webcast at alaskaair.com.

Alaska Airlines and sister carrier, Horizon Air, together serve 88 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air newsroom at http://newsroom.alaskaair.com/ .

This report contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from that indicated by any forward- looking statements. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost-reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; our inability to secure new aircraft financing; the implementation of our growth strategy; the timing of MD-80 disposal, the market value of MD-80 aircraft, and the amounts of potential lease termination payments with lessors and sublease payments from sublessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the company’s Annual Report for the year ended Dec. 31, 2005, on Form 10-K. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release to conform them to actual results.

SOURCE: Alaska Airlines