Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Lily Ng - Merrill Lynch & Co., Inc.
Lily Ng - Merrill Lynch & Co., Inc.
My first question is regarding your underlying assumptions. When you make the statement that Colgan could possibly break even for the full year, things such as more fuel prices you are assuming or maybe are there any assumptions that the Saab aircraft is going to you will be able to sell more of the Saab aircraft?
Peter Hunt
To be clear, Colgan will not break even for 2009. Colgan already has a significant cumulative six-month operating loss, primarily from the prorate operations. While the second quarter was much better and we would expect the third quarter to be much better, as I mentioned, there will be some transition costs in the fourth quarter. We really will not see the full effect of this, in terms of it being a sustainable operation, until '09.
The assumptions that we have made there, we did model this looking at the high point of fuel costs that we hit in the late second quarter, early third quarter, of high 140s of crude oil. What we looked for was markets that we thought could not only cover direct costs, but also cover aircraft ownership costs and contribute positively to the overhead of Colgan. The markets that we are keeping are markets that we think cover all of those costs, the costs of the aircraft as well as the direct costs, and that actually do have a positive benefit to Colgan on an annual basis and with fuel in the 140s.
Lily Ng - Merrill Lynch & Co., Inc.
More looking at, when you say it being a viable part of it, you are thinking of it much more on a, when all of this stuff has been implemented on a go-forward basis, you should have a positive operating margin?
Peter Hunt
That is correct.
Lily Ng - Merrill Lynch & Co., Inc.
Peter, the impairment you took on the ARS. Does that effect any terms of the loan that you took out with ARS as the collateral?
Peter Hunt
It does not. The loan does have a net worth test incorporated into it, but we specifically excluded any charges that we would take related to auction rate securities. It seemed appropriate, given that Citibank sold us the securities that if we recorded a loss on them that it should not affect the loan. Both we and they agreed to that, so the net worth test is not affected by that charge.
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