Sabre Tax Receivable Agreement

Sabre Tax Receivable Agreement

Prior to 2014, Sabre was a private company with private equity firms as majority shareholders. Prior to the IPO, the company had entered into a tax debt agreement (TAX Receivable Agreement, TRA) with its shareholders, which is not considered part of its net debt. The agreement does not affect the tax rate, the declared income taxes or the amount of cash taxes it pays. The savings made last year seemed to give the company more financial flexibility. In a telephone conversation with analysts Tuesday, Sabre executives said earnings per share rose 6 percent during the quarter, driven by growth in operating results and a lower tax rate due to the impact of U.S. tax reform. The reduction in the effective tax rate has been reduced from 29.5% to 21.6%, due to a reduction in the statutory tax rate in the United States as a result of U.S. tax reform. In the past, lufthansa, like many airlines, had agreed to charge Sabre a small courtesy fee for these passive bookings, but the assumption was that it would be rare for agents to do so. Overall, tax savings represent only a portion of the company`s turnover. But the tax savings probably provided some of the money to enable Sabre to acquire technology provider Farelogix last November for $360 million. The reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent last year hit many businesses.

Sabre, a travel technology giant based in Southlake, Texas, is an example. JetBlue executives have sounded the alarm that Sabre may have invested too little in its technology system and that the carrier could be in safer hands with a competitor like Amadeus, two sources said. On Tuesday, CEO Sean Menke reported a significant profit for the company. JetBlue Airways has agreed to renew its contract to use Sabre`s operating software, a so-called passenger service system. On February 1, the Texas Supreme Court ruled in Lufthansa Group`s favor against Sabre in a dispute over whether state courts have the power to review any of Lufthansa`s disputes with the Texas-based company. Last year, Sabre won the renewal of Aeromexico, which had been put under pressure by Delta, one of its major investors, to switch to Delta`s AIR4 passenger service system. Delta relocated Virgin Atlantic to its system a few years ago. In 2017, Southwest and Air Canada each changed part of their software operation to the systems of technology rival Amadeus. Since 2014, Sabre`s IT solutions have been losing market share to Amadeus, despite the unit`s lower profitability compared to its nearest counterpart, according to a research report on the shares of investment bank Berenberg last month.

“We now believe that [TRA payments] will be exceeded a year earlier than expected a year ago,” Douglas Barnett, executive vice president and chief financial officer, said in a telephone conversation with investors on Tuesday. “Because of the changes brought about by U.S. tax reform, we think we`re going to pay the balance in 2020.” Renewal was compromised by incidents in October and November 2016, when JetBlue was one of several customers of Sabre`s central reservation system, which experienced disruptions that disrupted operations and affected passenger booking and boarding.