Consolidation 2008..XJET joins SKW inc or Republic Holdings?

777forever · January 22nd, 2008, 20:02

EX-99.2 3 d53250exv99w2.htm LETTER TO JAMES REAM, CEO OF THE ISSUER.

Exhibit 99.2

VIA FACSIMILE AND U.S. MAIL

January 22, 2008

Mr. James B. Ream
President, Chief Executive Officer and Director
ExpressJet Holdings, Inc.
700 North Sam Houston Parkway West
Suite 200
Houston, Texas 77067

Dear Mr. Ream,

Hayman Capital Master Fund, L.P., an investment fund that my firm advises, currently owns 3,420,206 shares, or 6.25%, of the outstanding common stock of ExpressJet Holdings, Inc. (the “Company”). As you will recall, I met with you and members of your senior management team in November at your office in Houston to discuss the Company’s future business and strategy. Since we began accumulating stock in June 2007, we have watched the value of the Company’s stock decline by nearly 60%.

We have continued to conduct due diligence on the Company and believe that the current per share price of $2.67 does not reflect the true value of the Company. We believe that the reason the equity value has declined so significantly is largely a result of management’s decision to launch the “Branded Flying” strategy in the face of an economic recession. Since this program’s launch in early 2007, the Company’s (i) unrestricted cash balances have been depleted by over $50 million, (ii) cash flow from operations have swung from a positive $86 million for the first nine months of 2006 to a negative $8.4 million for the same period in 2007, and (iii) capital expenditures have almost tripled from $15.6 million to $43.8 million during the same periods. With the equity value rapidly approaching the Company’s net cash position on a per share basis, it is clear that the market ascribes less than $1.00 per share of value to the

operating company. Clearly the Branded Flying strategy is, at least, partially responsible for the destruction of roughly $300 million in shareholder value over the past year. It also seems clear that the Company’s shareholders have also lost faith in your business strategy.

It is absolutely the wrong time for the Company to continue ramping up the Branded Flying strategy, and the Company should immediately abandon this course of action and return to the Company’s “bread and butter” arrangements of fixed price / pro rate flying agreements. Further, unless the Company adopts the initiatives described at the end of this letter, we think that the Company’s dismal 2007 operating results – coupled with the overall deteriorating market conditions for airline stocks – will leave the Company no choice but to issue new equity or additional convertible debt which will undoubtedly depress the stock price and further harm the Company’s shareholders.

Branded Flying

We believe that the manner in which the Company reports its Branded Flying results obscures the already lackluster Branded Flying results reported to date. Specifically, reporting the Delta pro-rate planes in the Branded Flying segment obfuscates the true operating performance of the Branded Flying strategy. Instead, these should be reported separately. If the Company removed the impact of the Delta pro-rate arrangements, the Company’s load factors, yield, and fuel costs for the Branded Flying strategy would all likely be well below sustainable levels. We believe that current fuel prices coupled with the overall economic climate, require load factors approaching 70% for this operation (excluding Delta’s pro-rate arrangements) to simply break even. It is difficult to imagine that these levels will be achieved in 2008 or for years to come. At the Company’s current trajectory, the Branded Flying strategy is doomed to failure and, to continue down this path, is reckless.

Continental Airline Arrangements

As a large shareholder, we are also extremely concerned by the manner in which the Company handled the Continental Airlines’ (“Continental”) contract negotiations in 2006 and 2007. It is our understanding that Continental approached the Company in 2006 to discuss its right to reduce its commitment under the Continental CPA, to discuss the Company’s proposed 2007 block hour rates and the components of cost that comprise them, and the overall relationship and pricing levels relative to the market. We believe that management mishandled the negotiations and miscalculated Continental reactions to the Company’s heavy handed negotiating tactics – which eventually unfolded in two ways. First, the parties initiated an arbitration regarding Continental’s dispute over the 2007 block hour rates and the underlying components of costs that the Company was advancing, and then the Company wasted $2.5 million in legal expense pursing its weak position which eventually illustrated that Continental was right and that the Company’s tactics were wrong. As a consequence, the Company’s contract with Continental has now been reduced by 69 planes – 25% of the Company’s entire fleet! While we understand that one of Continental’s primary objectives in the negotiation was to get the rates reduced or to get the planes back, the fact that the Company kept the planes

2

rather than returning them to Continental, appears to be an expensive and spiteful mistake. With this unexpected, newly-created surplus of airplanes, the Company embarked on its ill-fated Branded Flying strategy, a decision which we believe cost the Company over $100 million in total costs and aggregate losses in 2007.

It is unclear what the Company intended to accomplish by its negotiating strategy, but it clearly did not work and, in fact, backfired. As you well know, the Company’s contract with Continental is significantly above market and every day that goes by only hardens Continental’s position. Continental will undoubtedly release an additional 51 planes at the end of this year which will further reduce the Company’s overall cash flows by at least another 25%. We recognize that the Company may be concerned about the Most Favored Nation (“MFN”) provision in your Continental contract and that to scale up with any other carrier on a fixed price agreement may jeopardize those arrangements. However, based on the current circumstances, now is the time to strongly consider re-negotiating those provisions in exchange for the long term certainty of that relationship.

Delta Airline Arrangements

While we believe that signing a two-year capacity purchase agreement with Delta last year was a positive move, we note that the structure of this new contract has very similar provisions relating to completed block hours and certain pass through costs as the Company’s contract with Continental. In our view, this is what the Company does best and provides for the most immediate solution to the Company’s current problems. We also note that the Delta contract is only for 10 planes which conveniently avoids the MFN provisions of the Continental contract. While we are not privy to the actual pricing, we estimate that it must be lower than the arrangements in place with Continental. This reduction would seem to be a clear indication as to where the future pricing must be to maintain the Continental arrangements over the long term.

Overall

We believe that the Company must immediately do the following:

1. Repair the Continental relationship at the executive level. Do not let pride stand in the way of making real progress. The Company should seriously consider re-negotiating and extending/solidifying its existing arrangements, including eliminating the MFN provision before Continental releases the next 51 planes. This would significantly aid in the Company’s marketing and pricing efforts to replace or refinance its convertible bonds and provide the flexibility that is clearly needed for the Company to ramp up relationships with other major carriers. While we recognize this action by itself would result in a near term reduction of cash flows from the Continental arrangement, the Company could condition the reductions on Continental taking back additional planes such that the Company’s overall cash-flows from Continental would at least be maintained at current levels. The cash burn that the Company is currently experiencing

3

on those planes would then be mitigated such that the overall financial consequence of this renegotiation would be a net positive. 2. Sublease or seek to place with other carriers the balance of the planes which are currently providing service for the Branded Flying (excluding those that are on pro-rate for Delta). We will not support the Company’s efforts to attempt to build its own private label airline. We think the risks are too great and this strategy is irresponsible and will continue to destroy shareholder value. 3. Sell all non-core assets, including Wing Holdings, InTech Aerospace Services, Flight Services and Systems, American Composites, and the Saltillo Jet Center, to generate additional liquidity. 4. Engage an investment bank to run a real M & A process. We believe that the Company must look past private equity players and Continental. We see tremendous synergies with Republic Airways Holdings, Inc. and Skywest, Inc. and would urge the Company to explore these possibilities. 5. Refocus on the Company’s core competencies – fixed rate/pro rate flying agreements with major airlines. The Company’s overall track record is this area is among the best in the business; however, to continue to embrace a start up Branded Flying strategy in this economic environment is corporate suicide.

We urge you and the Company’s Board of Directors to carefully consider our suggestions. We firmly believe that you have a valuable enterprise worth significantly more than the current stock price. We note however, that management and the board hold less than 2% of the Company in stock and options – perhaps as little as .0035% in actual ownership with all of the options being out of the money. With such little ownership, we are concerned that management may be more motivated by its ongoing salary and benefits than on increasing shareholder value. As a large shareholder, I can assure you that we will continue to monitor the Company’s management decisions, operations and performance.

Sincerely,

J. Kyle Bass
Managing Member

cc:
George R. Bravante, Jr.
Janet Morrison Clarke
Kim A. Fadel
Salvatore J. Badalamenti
Judith R. Haberkorn
Patrick Kelly
Bonnie S. Reitz

4

mikecweb · January 22nd, 2008, 20:14

YES! My favorite word in the English language. Synergies

I feel very strong synergies between myself and Carrie Underwood. I think I'll look into hitting it this weekend.

cfii2007 · January 22nd, 2008, 20:58

Good one!!!!!!!!!

Seggy · January 22nd, 2008, 21:06

pump and dump

ljg · January 22nd, 2008, 21:12

Quote:

Originally Posted by mikecweb

YES! My favorite word in the English language. Synergies

I feel very strong synergies between myself and Carrie Underwood. I think I'll look into hitting it this weekend.

Next thing that will happen is Jessica Simpson will accompany Mike to Simuflite. She likes to hang around Dallas alot for some reason. Interesting letter.

surreal1221 · January 22nd, 2008, 21:20

Very interesting.

I'd hope they goto RAH. That way at least they are going to a union company.

wheelsup · January 22nd, 2008, 22:07

Another reason why long term careers at regionals mean nothing. We are completely disposable...(that's what management wants). Our costs must be "industry average" or below in order to remain employed.

Baronman · January 23rd, 2008, 01:08

Huh? Surreal...You hope we become part of Republic? Lay off the drugs...Seriously. I think you may have 3000 pilots on suicide watch if that were to occur. I'd kill myself if I ever found myself strapped in the right side of a EMB 170 slinging gear and reading the Reverand's newsletters. I think I'd literally tie the escaper rope around my neck and sling myself out the window.

zmiller4 · January 23rd, 2008, 01:19

Quote:

Originally Posted by Baronman

Huh? Surreal...You hope we become part of Republic? Lay off the drugs...Seriously. I think you may have 3000 pilots on suicide watch if that were to occur. I'd kill myself if I ever found myself strapped in the right side of a EMB 170 slinging gear and reading the Reverand's newsletters. I think I'd literally tie the escaper rope around my neck and sling myself out the window.

Apparently, you didn't get the memo. Being union is the only thing that determines the quality of an airline.

(

)

Btw, I hope Xjt won't (and don't think they will) have to merge with anyone. Bad for all parties involved.

OldTownPilot · January 23rd, 2008, 01:25

Guys, consider the source. That's all.

Fund managers like mergers with paradigm-shifts and synergies

MusketeerMan · January 23rd, 2008, 01:27

Quote:

Originally Posted by Baronman

Huh? Surreal...You hope we become part of Republic? Lay off the drugs...Seriously. I think you may have 3000 pilots on suicide watch if that were to occur. I'd kill myself if I ever found myself strapped in the right side of a EMB 170 slinging gear and reading the Reverand's newsletters. I think I'd literally tie the escaper rope around my neck and sling myself out the window.

I COMPLETELY agree! I haven't even started flying the line yet here and every single pilot I talk to is absolutely miserable! In fact, we're losing several a day due to suicide! And reading the Reverand's newsletters are difficult as I'm physically forced to click on the buttons and open up his letters! Man, I had no idea it would be this difficult here!

blee256 · January 23rd, 2008, 02:54

I doubt republic would buy them, arent they going away from 50 seat flying?

Clocks · January 23rd, 2008, 06:43

Quote:

Originally Posted by Seggy

pump and dump

That's the best analysis I've heard so far.

The hedge fund has ZERO interest in xjet's long term survival or existence. They will sell everything they own and walk away the moment they can turn the necessary return for their investors.

What's good for the hedge fund may, or may not, be whats good for xjet.

surreal1221 · January 23rd, 2008, 08:53

Quote:

Originally Posted by Baronman

Huh? Surreal...You hope we become part of Republic? Lay off the drugs...Seriously. I think you may have 3000 pilots on suicide watch if that were to occur. I'd kill myself if I ever found myself strapped in the right side of a EMB 170 slinging gear and reading the Reverand's newsletters. I think I'd literally tie the escaper rope around my neck and sling myself out the window.

No drugs. . .

I'd hate to see the monster that is SKW eat up another regional. That, coupled with the fact that SKW is non-union, and may never become union leaves me to (if XJT even does get parted out. . .) support the better option of being purchased by a company that at least has a union.

Quote:

Originally Posted by zmiller4

Apparently, you didn't get the memo. Being union is the only thing that determines the quality of an airline.

Btw, I hope Xjt won't (and don't think they will) have to merge with anyone. Bad for all parties involved.

To the first sentence. . .yes, to me it does matter. It is not the only thing, but to me, it is number one, amongst a never ending list of things that are also a matter of concern for me.

The second sentence, I also hope nothing happens to XJT and they are able to continue any progress they currently are enjoying, and more importantly that the progress continues in the right direction so that this little "rumot" doesn't become fact.

Quote:

Originally Posted by MusketeerMan

I COMPLETELY agree! I haven't even started flying the line yet here and every single pilot I talk to is absolutely miserable! In fact, we're losing several a day due to suicide! And reading the Reverand's newsletters are difficult as I'm physically forced to click on the buttons and open up his letters! Man, I had no idea it would be this difficult here!

I honestly haven't heard one bad thing about RAH. Besides the fact that CHQ is jokingly called Shaniqua.

wheelsup · January 23rd, 2008, 08:59

XJT doesn't really own anything do they? Maybe a few headquarters buildings and a paint shop but their aircraft are all leased. If RAH or SKW were to buy XJT they would be buying the CAL code share (which isn't solid anymore) and a paint shop. Neither of those companies wants anything to do with 50 seaters anymore either, and CAL scope currently won't allow for anything more than 50 seat jets.

To put it in perspective, SKW spent what, $400 mil on ASA and that came with 200 planes and a 15 year agreement with DAL.

777forever · January 23rd, 2008, 09:35

Quote:

It is our understanding that Continental approached the Company in 2006 to discuss its right to reduce its commitment under the Continental CPA, to discuss the Company’s proposed 2007 block hour rates and the components of cost that comprise them, and the overall relationship and pricing levels relative to the market. We believe that management mishandled the negotiations and miscalculated Continental reactions to the Company’s heavy handed negotiating tactics – which eventually unfolded in two ways. First, the parties initiated an arbitration regarding Continental’s dispute over the 2007 block hour rates and the underlying components of costs that the Company was advancing, and then the Company wasted $2.5 million in legal expense pursing its weak position which eventually illustrated that Continental was right and that the Company’s tactics were wrong. As a consequence, the Company’s contract with Continental has now been reduced by 69 planes – 25% of the Company’s entire fleet! While we understand that one of Continental’s primary objectives in the negotiation was to get the rates reduced or to get the planes back, the fact that the Company kept the planes

This is an interesting paragraph. Seems like the writer is blaming management for losing the planes to Continental by refusing to drop rates.

777forever · January 23rd, 2008, 09:43

Quote:

Originally Posted by Clocks

That's the best analysis I've heard so far.

The hedge fund has ZERO interest in xjet's long term survival or existence. They will sell everything they own and walk away the moment they can turn the necessary return for their investors.

What's good for the hedge fund may, or may not, be whats good for xjet.

I don't know man, sounds like this guy has interest in the long term survival of XJET. From a business standpoint all his recommendations sound excellent and pretty common sense to me. Sometimes moves have to be made that will benefit the company and not the employee but hey, thats business.

mtsu_av8er · January 23rd, 2008, 10:30

Quote:

Originally Posted by mikecweb

I feel very strong synergies between myself and Carrie Underwood. I think I'll look into hitting it this weekend.

You can feel free . . . I already tagged that.

kellwolf · January 23rd, 2008, 10:32

Sounds to me like this firm thought they could invest in an airline and make money off the bat. Someone didn't research that too well.

Reading it, there are hints that Hayman Capital doesn't really understand how airlines work. Yes, the Delta stuff is good for XJT, but they can't just say "Let's fly more planes for Delta." If they could....they WOULD. What they fail to understand is that if XJT didn't go with the branded flying that money would have been gone anyway. You can't make money with those airplanes elsewhere. The company might not be down on reserve cash like it is now, but I'm willing to bet the shares would have drop anyway b/c they wouldn't be bringing in as much money with 69 fewer airplanes. I doubt they'd have the Delta flying either. If I recall, some of those 69 planes are the ones flying for Delta....and the ones that were under jetBlue and Frontier. Without taking the gamble on the branded flying, they wouldn't have had the airframes to position themselves for those contracts.

100LLguy · January 23rd, 2008, 10:35

Quote:

Originally Posted by 777forever

I don't know man, sounds like this guy has interest in the long term survival of XJET. From a business standpoint all his recommendations sound excellent and pretty common sense to me. Sometimes moves have to be made that will benefit the company and not the employee but hey, thats business.

You bet they have an interest in the company....They've lost 60% of their money since they've invested....i'm sure they are sick of standing by watching their money bleed away.

And yes, they are blaming management for not reducing rates for Continental. They wouldn't have been in this situation had they reduced their operating costs. Instead, they pulled the planes and started branded - ie....see multi million dollar losses and stock prices fall from 12 bucks to 2 dollars

Clocks · January 23rd, 2008, 10:43

Quote:

Originally Posted by 777forever

I don't know man, sounds like this guy has interest in the long term survival of XJET. From a business standpoint all his recommendations sound excellent and pretty common sense to me. Sometimes moves have to be made that will benefit the company and not the employee but hey, thats business.

I agree from my perspective as a fairly ignorant newbie that a lot of the recommendations make sense. My real point was that if the hedge fund's suggestions are good long term advice for xjet, it's just a coincidence. My understanding of hedge funds is that they dump a large amount of money into relatively risky proposals to turn a quick profit.

kellwolf · January 23rd, 2008, 10:46

Quote:

Originally Posted by 100LLguy

You bet they have an interest in the company....They've lost 60% of their money since they've invested....i'm sure they are sick of standing by watching their money bleed away.

And yes, they are blaming management for not reducing rates for Continental. They wouldn't have been in this situation had they reduced their operating costs. Instead, they pulled the planes and started branded - ie....see multi million dollar losses and stock prices fall from 12 bucks to 2 dollars

How were they gonna reduce operating costs? They can't control the price of fuel. The only way to reduce operating costs would be to slash wages across the board. Then you've got a problem b/c you can't get pilots. Look at Pinnacle. We haven't lowered wages, but we're no where close to what other regionals pay. So, we wind up paying millions in cancellation penalties to NWA b/c we can't staff the flying. Management is probably breathing a sigh of relief that those planes are going to Mesaba, otherwise, we'd STILL be paying cancellation penalties. If XJT had slashed their pilot wages, FOs would have decided to go elsewhere, CAs wouldn't be sticking around and the stock price would be falling anyway (for the record PCL is at a 52 week low right now, mostly due to uncertainty with the labor issues). Instead, XJT can attract the cream of the crop when it comes to pilots at the regional level b/c of their pay and QOL. This increases the chances of people making it through training and increases the completion factor due to better experienced crews. Happy pilots mean fewer sick calls, which means less money spent to cover those calling in sick. You rarely have guys that start training at XJT only to drop out b/c they find out it's not for them. Can't say the same for PCL right now. Assuming we can actually fill an FO class (which is rare currently), probably 2-3 of those will bail sometime during training b/c they decided they don't like where they're working.

777forever · January 23rd, 2008, 10:53

Quote:

Originally Posted by kellwolf

Sounds to me like this firm thought they could invest in an airline and make money off the bat. Someone didn't research that too well.

Reading it, there are hints that Hayman Capital doesn't really understand how airlines work. Yes, the Delta stuff is good for XJT, but they can't just say "Let's fly more planes for Delta." If they could....they WOULD. What they fail to understand is that if XJT didn't go with the branded flying that money would have been gone anyway. You can't make money with those airplanes elsewhere. The company might not be down on reserve cash like it is now, but I'm willing to bet the shares would have drop anyway b/c they wouldn't be bringing in as much money with 69 fewer airplanes. I doubt they'd have the Delta flying either. If I recall, some of those 69 planes are the ones flying for Delta....and the ones that were under jetBlue and Frontier. Without taking the gamble on the branded flying, they wouldn't have had the airframes to position themselves for those contracts.

Kellwolf Im pretty sure J. Kyle Bass knows more about the airline business then you and I will ever know combined. Many pilots, especially those without business backgrounds, are quick to say 'these hedge fund managers don't know anything about the airline business' when a business decision affects them negatively. Do you honestly think a multi-million dollar hedge fund firm would invest millions of dollars in an airline without doing their homework?

777forever · January 23rd, 2008, 11:06

Quote:

Originally Posted by kellwolf

How were they gonna reduce operating costs? They can't control the price of fuel. The only way to reduce operating costs would be to slash wages across the board. Then you've got a problem b/c you can't get pilots. Look at Pinnacle. We haven't lowered wages, but we're no where close to what other regionals pay. So, we wind up paying millions in cancellation penalties to NWA b/c we can't staff the flying. Management is probably breathing a sigh of relief that those planes are going to Mesaba, otherwise, we'd STILL be paying cancellation penalties. If XJT had slashed their pilot wages, FOs would have decided to go elsewhere, CAs wouldn't be sticking around and the stock price would be falling anyway (for the record PCL is at a 52 week low right now, mostly due to uncertainty with the labor issues). Instead, XJT can attract the cream of the crop when it comes to pilots at the regional level b/c of their pay and QOL. This increases the chances of people making it through training and increases the completion factor due to better experienced crews. Happy pilots mean fewer sick calls, which means less money spent to cover those calling in sick. You rarely have guys that start training at XJT only to drop out b/c they find out it's not for them. Can't say the same for PCL right now. Assuming we can actually fill an FO class (which is rare currently), probably 2-3 of those will bail sometime during training b/c they decided they don't like where they're working.

How do you know that? Have you been meeting with management? There is more to it than just slashing wages. You have to look at financial statements and see what included in operating costs. I doubt that pilot wages was the main cause of high operating costs. Apparently XJET could have dropped their rates with CAL because the rates with Delta are closer to industry average. Looks like they got too bold with Continental who laughed and ran off with Chataqwhatever to the Prom.

stuckingfk · January 23rd, 2008, 11:12

Quote:

Originally Posted by 777forever

Kellwolf Im pretty sure J. Kyle Bass knows more about the airline business then you and I will ever know combined. Many pilots, especially those without business backgrounds, are quick to say 'these hedge fund managers don't know anything about the airline business' when a business decision affects them negatively. Do you honestly think a multi-million dollar hedge fund firm would invest millions of dollars in an airline without doing their homework?

Just because someone does their homework, doesn't mean they did it well.

Apparently this company screwed the pooch and Kyle Bass is trying to save face, job, etc.

January 22nd, 2008, 20:02	#1
777forever Old Skool Join Date: Mar 2006 Location: ATL Posts: 1,931	Consolidation 2008..XJET joins SKW inc or Republic Holdings? EX-99.2 3 d53250exv99w2.htm LETTER TO JAMES REAM, CEO OF THE ISSUER. Exhibit 99.2 VIA FACSIMILE AND U.S. MAIL January 22, 2008 Mr. James B. Ream President, Chief Executive Officer and Director ExpressJet Holdings, Inc. 700 North Sam Houston Parkway West Suite 200 Houston, Texas 77067 Dear Mr. Ream, Hayman Capital Master Fund, L.P., an investment fund that my firm advises, currently owns 3,420,206 shares, or 6.25%, of the outstanding common stock of ExpressJet Holdings, Inc. (the “Company”). As you will recall, I met with you and members of your senior management team in November at your office in Houston to discuss the Company’s future business and strategy. Since we began accumulating stock in June 2007, we have watched the value of the Company’s stock decline by nearly 60%. We have continued to conduct due diligence on the Company and believe that the current per share price of $2.67 does not reflect the true value of the Company. We believe that the reason the equity value has declined so significantly is largely a result of management’s decision to launch the “Branded Flying” strategy in the face of an economic recession. Since this program’s launch in early 2007, the Company’s (i) unrestricted cash balances have been depleted by over $50 million, (ii) cash flow from operations have swung from a positive $86 million for the first nine months of 2006 to a negative $8.4 million for the same period in 2007, and (iii) capital expenditures have almost tripled from $15.6 million to $43.8 million during the same periods. With the equity value rapidly approaching the Company’s net cash position on a per share basis, it is clear that the market ascribes less than $1.00 per share of value to the operating company. Clearly the Branded Flying strategy is, at least, partially responsible for the destruction of roughly $300 million in shareholder value over the past year. It also seems clear that the Company’s shareholders have also lost faith in your business strategy. It is absolutely the wrong time for the Company to continue ramping up the Branded Flying strategy, and the Company should immediately abandon this course of action and return to the Company’s “bread and butter” arrangements of fixed price / pro rate flying agreements. Further, unless the Company adopts the initiatives described at the end of this letter, we think that the Company’s dismal 2007 operating results – coupled with the overall deteriorating market conditions for airline stocks – will leave the Company no choice but to issue new equity or additional convertible debt which will undoubtedly depress the stock price and further harm the Company’s shareholders. Branded Flying We believe that the manner in which the Company reports its Branded Flying results obscures the already lackluster Branded Flying results reported to date. Specifically, reporting the Delta pro-rate planes in the Branded Flying segment obfuscates the true operating performance of the Branded Flying strategy. Instead, these should be reported separately. If the Company removed the impact of the Delta pro-rate arrangements, the Company’s load factors, yield, and fuel costs for the Branded Flying strategy would all likely be well below sustainable levels. We believe that current fuel prices coupled with the overall economic climate, require load factors approaching 70% for this operation (excluding Delta’s pro-rate arrangements) to simply break even. It is difficult to imagine that these levels will be achieved in 2008 or for years to come. At the Company’s current trajectory, the Branded Flying strategy is doomed to failure and, to continue down this path, is reckless. Continental Airline Arrangements As a large shareholder, we are also extremely concerned by the manner in which the Company handled the Continental Airlines’ (“Continental”) contract negotiations in 2006 and 2007. It is our understanding that Continental approached the Company in 2006 to discuss its right to reduce its commitment under the Continental CPA, to discuss the Company’s proposed 2007 block hour rates and the components of cost that comprise them, and the overall relationship and pricing levels relative to the market. We believe that management mishandled the negotiations and miscalculated Continental reactions to the Company’s heavy handed negotiating tactics – which eventually unfolded in two ways. First, the parties initiated an arbitration regarding Continental’s dispute over the 2007 block hour rates and the underlying components of costs that the Company was advancing, and then the Company wasted $2.5 million in legal expense pursing its weak position which eventually illustrated that Continental was right and that the Company’s tactics were wrong. As a consequence, the Company’s contract with Continental has now been reduced by 69 planes – 25% of the Company’s entire fleet! While we understand that one of Continental’s primary objectives in the negotiation was to get the rates reduced or to get the planes back, the fact that the Company kept the planes 2 rather than returning them to Continental, appears to be an expensive and spiteful mistake. With this unexpected, newly-created surplus of airplanes, the Company embarked on its ill-fated Branded Flying strategy, a decision which we believe cost the Company over $100 million in total costs and aggregate losses in 2007. It is unclear what the Company intended to accomplish by its negotiating strategy, but it clearly did not work and, in fact, backfired. As you well know, the Company’s contract with Continental is significantly above market and every day that goes by only hardens Continental’s position. Continental will undoubtedly release an additional 51 planes at the end of this year which will further reduce the Company’s overall cash flows by at least another 25%. We recognize that the Company may be concerned about the Most Favored Nation (“MFN”) provision in your Continental contract and that to scale up with any other carrier on a fixed price agreement may jeopardize those arrangements. However, based on the current circumstances, now is the time to strongly consider re-negotiating those provisions in exchange for the long term certainty of that relationship. Delta Airline Arrangements While we believe that signing a two-year capacity purchase agreement with Delta last year was a positive move, we note that the structure of this new contract has very similar provisions relating to completed block hours and certain pass through costs as the Company’s contract with Continental. In our view, this is what the Company does best and provides for the most immediate solution to the Company’s current problems. We also note that the Delta contract is only for 10 planes which conveniently avoids the MFN provisions of the Continental contract. While we are not privy to the actual pricing, we estimate that it must be lower than the arrangements in place with Continental. This reduction would seem to be a clear indication as to where the future pricing must be to maintain the Continental arrangements over the long term. Overall We believe that the Company must immediately do the following: 1. Repair the Continental relationship at the executive level. Do not let pride stand in the way of making real progress. The Company should seriously consider re-negotiating and extending/solidifying its existing arrangements, including eliminating the MFN provision before Continental releases the next 51 planes. This would significantly aid in the Company’s marketing and pricing efforts to replace or refinance its convertible bonds and provide the flexibility that is clearly needed for the Company to ramp up relationships with other major carriers. While we recognize this action by itself would result in a near term reduction of cash flows from the Continental arrangement, the Company could condition the reductions on Continental taking back additional planes such that the Company’s overall cash-flows from Continental would at least be maintained at current levels. The cash burn that the Company is currently experiencing 3 on those planes would then be mitigated such that the overall financial consequence of this renegotiation would be a net positive. 2. Sublease or seek to place with other carriers the balance of the planes which are currently providing service for the Branded Flying (excluding those that are on pro-rate for Delta). We will not support the Company’s efforts to attempt to build its own private label airline. We think the risks are too great and this strategy is irresponsible and will continue to destroy shareholder value. 3. Sell all non-core assets, including Wing Holdings, InTech Aerospace Services, Flight Services and Systems, American Composites, and the Saltillo Jet Center, to generate additional liquidity. 4. Engage an investment bank to run a real M & A process. We believe that the Company must look past private equity players and Continental. We see tremendous synergies with Republic Airways Holdings, Inc. and Skywest, Inc. and would urge the Company to explore these possibilities. 5. Refocus on the Company’s core competencies – fixed rate/pro rate flying agreements with major airlines. The Company’s overall track record is this area is among the best in the business; however, to continue to embrace a start up Branded Flying strategy in this economic environment is corporate suicide. We urge you and the Company’s Board of Directors to carefully consider our suggestions. We firmly believe that you have a valuable enterprise worth significantly more than the current stock price. We note however, that management and the board hold less than 2% of the Company in stock and options – perhaps as little as .0035% in actual ownership with all of the options being out of the money. With such little ownership, we are concerned that management may be more motivated by its ongoing salary and benefits than on increasing shareholder value. As a large shareholder, I can assure you that we will continue to monitor the Company’s management decisions, operations and performance. Sincerely, J. Kyle Bass Managing Member cc: George R. Bravante, Jr. Janet Morrison Clarke Kim A. Fadel Salvatore J. Badalamenti Judith R. Haberkorn Patrick Kelly Bonnie S. Reitz 4 __________________ Comm-ASEL, MEL, Inst. CFI, CFII, MEI TT: 700 Part 121 ATR72 FO B.S. Aviation Management-Business Minor Southeastern Oklahoma State University Cum Laude Graduate

January 22nd, 2008, 20:14	#2
mikecweb Old Skool Join Date: Oct 2005 Location: KBOS Posts: 2,871	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi YES! My favorite word in the English language. Synergies I feel very strong synergies between myself and Carrie Underwood. I think I'll look into hitting it this weekend. __________________ Why run a company when you can destroy it - George Gonzalez When three failed airlines on a resume just isn't enough.

January 22nd, 2008, 20:58	#3
cfii2007 Old Skool Join Date: Jun 2007 Posts: 1,697	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Good one!!!!!!!!!

January 22nd, 2008, 21:06	#4
Seggy Old Skool Join Date: Jan 2004 Location: Somewhere in the Northeast Posts: 5,270	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi pump and dump __________________ www.alpa.org

January 22nd, 2008, 21:20	#6
surreal1221 Old Skool Join Date: Jul 2006 Location: Alpha Tango Lima Posts: 9,840	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Very interesting. I'd hope they goto RAH. That way at least they are going to a union company. __________________ AGI.MEI.CFI.CFII.FO.CRJ2 \| Josh \| The TRoP \| Rmble On \| ALPA \| IVAW \| ACLU \|

January 22nd, 2008, 22:07	#7
wheelsup Old Skool Join Date: Mar 2004 Location: _ Posts: 5,497	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Another reason why long term careers at regionals mean nothing. We are completely disposable...(that's what management wants). Our costs must be "industry average" or below in order to remain employed. __________________ "It takes just as much time to be nice to someone as it does to be a jerk."

January 23rd, 2008, 01:08	#8
Baronman Senior Member Join Date: Dec 2001 Location: NEWARK Posts: 1,078	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Huh? Surreal...You hope we become part of Republic? Lay off the drugs...Seriously. I think you may have 3000 pilots on suicide watch if that were to occur. I'd kill myself if I ever found myself strapped in the right side of a EMB 170 slinging gear and reading the Reverand's newsletters. I think I'd literally tie the escaper rope around my neck and sling myself out the window. __________________ "I got a FEVER, and the only perscription is more Cow-Bell!"

January 23rd, 2008, 01:25	#10
OldTownPilot Old Skool Join Date: May 2005 Location: BGR (Bangor, ME) Posts: 3,035 Blog Entries: 6	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Guys, consider the source. That's all. Fund managers like mergers with paradigm-shifts and synergies __________________ As a wise man said, sumb!tch flew in, sumb!tch'll fly out. Ski Hard. Party Harder.

January 23rd, 2008, 02:54	#12
blee256 Old Skool Join Date: Oct 2002 Location: lower canada Posts: 1,649	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi I doubt republic would buy them, arent they going away from 50 seat flying? __________________ According to a report by Goldman Sachs economists, "the most important contributor to higher profit margins over the past five years has been a decline in labor's share of national income."

January 23rd, 2008, 08:59	#15
wheelsup Old Skool Join Date: Mar 2004 Location: _ Posts: 5,497	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi XJT doesn't really own anything do they? Maybe a few headquarters buildings and a paint shop but their aircraft are all leased. If RAH or SKW were to buy XJT they would be buying the CAL code share (which isn't solid anymore) and a paint shop. Neither of those companies wants anything to do with 50 seaters anymore either, and CAL scope currently won't allow for anything more than 50 seat jets. To put it in perspective, SKW spent what, $400 mil on ASA and that came with 200 planes and a 15 year agreement with DAL. __________________ "It takes just as much time to be nice to someone as it does to be a jerk."

January 23rd, 2008, 10:32	#19
kellwolf Old Skool Join Date: Jun 2003 Location: Memphis, TN Posts: 13,863	Re: Consolidation 2008..XJET joins SKW inc or Republic Holdi Sounds to me like this firm thought they could invest in an airline and make money off the bat. Someone didn't research that too well. Reading it, there are hints that Hayman Capital doesn't really understand how airlines work. Yes, the Delta stuff is good for XJT, but they can't just say "Let's fly more planes for Delta." If they could....they WOULD. What they fail to understand is that if XJT didn't go with the branded flying that money would have been gone anyway. You can't make money with those airplanes elsewhere. The company might not be down on reserve cash like it is now, but I'm willing to bet the shares would have drop anyway b/c they wouldn't be bringing in as much money with 69 fewer airplanes. I doubt they'd have the Delta flying either. If I recall, some of those 69 planes are the ones flying for Delta....and the ones that were under jetBlue and Frontier. Without taking the gamble on the branded flying, they wouldn't have had the airframes to position themselves for those contracts. __________________ "I'm The Doctor, by the way. Run for your life!"