SkyWest Inc (SKYW) announced last week it is offering 4 million shares of common stock and expects to raise $99.3 million to repay short-term debt and use the funds for working capital and other general purposes. At the same time it is adjusting to lower performance incentive payments it expects to receive in the first quarter owing to slipping on the performance mandated by its contracts with its major carriers. Cost per share for the new offering will be $26.05 compared to the approximate per-share cost in the first quarter of $28.11 per share. Co-managing the sale are Merrill Lynch and Raymond James & Associates.

In its first quarter statement, the airline said it expects between $33.9 and $37.8 million in net income, although final results will not be announced until May. Another issue it deems atypical for its operations besides the lower incentive payments include the start-up costs on the delivery of 10 Bombardier CRJ700s that went into service in January and February. Instead of being reimbursed by their major partners immediately, these reimbursements will come throughout 2006.

Michael Kraupp, Vice President-Finance and Assistant Treasurer of the Delta Connection and United Express operator, said its on-time performance, completion factor and baggage handling all slipped system-wide. "Since it happened in more than one geographic area, it is hard to pinpoint one specific reason," said Kraupp. "We now have a concerted effort, getting back to the various operations groups, to find ways to get those numbers back up."

When asked if much of the slippage was owing to factors beyond its control as reflected in the Consumer Air Travel Report issued by the Department of Transportation recently, he said he didn't think it was solely that. "You have to remember that historically we have a good record and there are reasons we achieved that, too." (RAN, April 10, 2006).

Calyon Securities Analyst Ray Neidle retained its Buy recommendation on SkyWest agreeing the costs associated with its adjustments were atypical. Neidle also pointed to its ability to protect itself against the fuel increases, which Kraupp explained as part of its cost-plus contracts. Neidle also cited several opportunities SkyWest can exploit when he indicated the airline was "exceeding our expectations." Specifically, he pointed to SkyWest's bid to add Continental and Northwest to its stable of contract partners.

Kraupp indicated that they were always looking for such opportunities and were actively bidding on both. "They are currently evaluating the bids they've received," he said, adding, he expects a decision in the next 60 to 90 days.

Kraupp also said the threatened strike by Delta pilots would be catastrophic for everyone but even in the worst case scenario - one in which Delta goes out of business - others will replace it, providing an opportunity for SkyWest to continue its feeder work. But that worst-case scenario would mean the pilots would end up without jobs, making it unlikely, he said.

>> Michael Kraupp, (435) 634-3203.<<