Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Lily Ng with Merrill Lynch. Please proceed.
Lily Ng – Merrill Lynch
My first question is regarding whether you could give me an update on some of the issues you raised last quarter with the Northwest ASA. I know they were not big items but given the fact that they’re probably a bit busy this last quarter I was wondering if you have any just updates on those three things that they had issue with you about?
Peter D. Hunt
Sure Lily I’m happy to update you. One thing that I should have pointed out, when you look at our operating results we did have a dispute on how much of a performance based payment we would owe to Northwest for the first half of 07 and we settled that out in the fourth quarter for an additional $500,000. So that was a reduction of revenue item that we had in the fourth quarter here. So, all those performance penalty issues are over and behind us. Both we and Northwest agreed that that was a very fair settlement. With respect to the two ongoing items that would affect the rates that we would receive under the airline services agreement nothing has really happened. We think Northwest has been a little distracted with some other things that they might be looking at in the meantime they are continuing to pay us as we have always been paid under the ASA and at some point we would guess that they will turn their attention back to this and we’ve agreed that at that point we will arbitrate the issues. But, at this point nothing has really changed.
Lily Ng – Merrill Lynch
Great. My second question is regarding to Colgan, I know that you guys are putting in tall this initiatives to try and improve the operation. At this juncture do you have an estimate of the timeline that you think things are going to turn around? Or, perhaps you have a target operating margin in mind for Colgan recognizing that it’s highly seasonal but maybe something for 2008? Do you want to get back to 5% operating margin for instance? Just your thoughts on that would be great.
Peter D. Hunt
Well, we’ve always said that we’ve targeted a pre-tax margin of 3 to 5% and we look at pre-tax because there is a portion of Colgan’s fleet that are owned and have debt associated with them and we need to cover all costs of ownership including the interest costs so that’s what we target. I think that the first quarter will still be a challenge for Colgan quite frankly. Seasonally, it’s still a tough quarter although not as tough as the fourth quarter and it’s during the first quarter that we’re taking on the initiative to transition our maintenance operations to Dulles and we’re also moving those nine markets from Pittsburgh to Dulles. The movement of those markets is occurring as we speak and all nine will be moved by sometime in March. So I think the first quarter will still be a challenge, the second and third quarters tend to be strong for Colgan anyways and we are optimistic that some of these initiatives will be working at that point. I will tell you that before we go into another winter if we haven’t gotten a plan where we’ve increased Colgan’s revenue or reduced their costs enough to offset fuel or if fuel itself hasn’t come back down to a more rational level we will make adjustments. We do not want to in the long term fly prorate operations that don’t work at $100 fuel.
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