Hayman finds fault with ExpressJet's Branded Flying strategy

By Lisa Kerner

Charlotte, N.C., Jan. 22 - ExpressJet Holdings, Inc. investor Hayman Advisors, LP said since it first acquired the company's stock in June 2007, the stock has declined by nearly 60%.

Hayman, in a letter to company chief executive officer James B. Ream, said the current per-share price of $2.67 does not reflect ExpressJet's true value. The letter was included in a schedule 13D filing with the Securities and Exchange Commission.

Hayman beneficially owns 3,420,206 shares, or 6.25%, of the outstanding common stock of ExpressJet.

"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," the letter said.

According to Hayman, since the strategy's inception in early 2007, ExpressJet's:

• Unrestricted cash balances have been depleted by over $50 million;

• Cash flow from operations has 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

• Capital expenditures have almost tripled from $15.6 million to $43.8 million during the same periods.

"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," Hayman said in its letter.

The investor expressed fears that ExpressJet's 2007 operating results may mean the company will have to issue new equity or additional convertible debt, further depressing the stock price and harming the company's shareholders.

Hayman took issue with the manner in which ExpressJet reports its Branded Flying results. For example, "reporting the Delta pro-rate planes in the Branded Flying segment obfuscates the true operating performance of the Branded Flying strategy."

The stockholder also cited its concern about how ExpressJet handled Continental Airlines Inc.'s contract negotiations in 2006 and 2007, resulting in a surplus of airplanes.

"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," Hayman said.

The investor wants ExpressJet to:

• Repair its relationship with Continental at the executive level;

• Sublease or seek to place with other carriers the balance of the planes that are currently providing service for the Branded Flying;

• Sell all non-core assets;

• Engage an investment bank to run a "real" mergers and acquisition process; and

• Refocus on core competencies.

Houston-based ExpressJet operates as a regional airline under the name Continental Express.

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