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Monday, February 11, 2008

SkyWest Revenues, Net Up, Files Suit Against DL

Delta and United are finding the Bombardier CRJ 200 too expensive to operate with the fuel rates and is switching them out for larger equipment. Related Story  While that may not be news, since Mesa reported the same thing in its financial webcast, SkyWest Inc Executive Vice President and Chief Financial Officer Brad Rich reported that the company expects further reductions based on discussions in progress, but some utilization would come back in the summer. Related Story SkyWest is continuing to negotiate with its major partners to do more with a preference for switching more CRJ 200s for CRJ 900s, according to Rich, who spoke to analysts during its fourth quarter/year-end financial webcast. “With the high fuel prices, it is that type that takes the biggest hit,” he said, reporting that the airline is close to its contract minimums for the aircraft. “There has been no decrease for the CRJ 700s and 900s. We could take another four to five percent in block hours if our partners took us right to the minimums, which is not catastrophic but we don’t see it happening. If the CRJ 200 economics means it will be disproportionately hit, we’re going to be as creative as possible to find alternative uses for the aircraft through relocaton, although it won’t be on a one-for-one basis.”
Rich indicated that available seat mile growth was 13.7 percent in 2007 and would be less aggressive in 2008. However, he cited aircraft deliveries and SkyWest Airlines’ assumption of all Midwest Airlines Midwest Connection flying as factors in growth plans for this year. Related Story
CEO Jerry Atkin reported to analysts at the recent Raymond James conference that the company is actively looking at offshore opportunities. SkyWest is holding back its cash instead of going beyond the $125 million in stock repurchases done last year, although Rich reported that the company will buy back enough stock to eliminate the dilution caused by its stock employee incentive plan.
SkyWest, said Atkin, wants the cash available until it can determine how various opportunities on which it is now working develop. CEO Jerry Atkin said that the opportunities would take most if not all the cash on hand for the two the three opportunities under development as part of its initiative that takes invests 10 percent of its capital in foreign, fast growing markets, which, for now include Europe, Mexico, Brazil and China. Related Story The company continued repurchasing outstanding shares of its common stock and had repurchased 5.0 million shares under the program, at an average cost of $25.20 per share and a total cost of approximately $125.9 million.
Additionally, on November 8, 2007, SkyWest announced the authorization by its Board of Directors to repurchase up to an additional 5.0 million shares of its common stock, although none have been repurchased so far. He also said that the airline would pass on an acquisition of Comair for now. Even so, the company filed suit last week against Delta and it is conceivable a resolution could impact Comair, the sale of which has been put on hold until the major carrier’s merger plans are made clear. (See related story below)
Rich reported that crew costs exceeded the company’s internal budget in 2007, as did fuel and maintenance, much of which was on the Atlantic Southeast Airlines (ASA) side.
ASA has improved performance to the point that it is now ranked 10th in the DOT on time and completion performance statistics, up from 20th. The trend that started in early December, six months after Delta took on its partner’s performance issues at Atlanta. Related Story The improvement continued through January and is expected to get better with the advent of the new maintenance and headquarters facility at Atlanta Hartsfield. Related Story Newly installed President and COO Brad Holt reported that the elimination of the Age 60 rule has helped with attrition as has the newly approved contract struck between ASA and the Air Line Pilots Association (ALPA) Related Story

SkyWest Results
SkyWest, Inc. reported net income of $159.2 million for the year ended December 31, 2007, or $2.49 per diluted share, compared to $145.8 million of net income or $2.30 per diluted share for the year-ago period. The company also reported operating revenues of $3.37 billion for the year were up 8.3 percent increase, compared to $3.11 billion for the same period last year.
For the fourth quarter, SkyWest reported operating revenues of $854.7 million for the quarter ended December 31, 2007, an 8.3 percent increase, compared to $789.6 million for the same period last year. SkyWest also reported net income of $40.9 million for the quarter, or $0.66 per diluted share, compared to $31.2 million of net income or $0.48 per diluted share for the same period last year. The company cited a 12.7 percent increase in available seat miles during the fourth quarter as well as increased fuel cost reimbursements by major partners, recorded as operating revenues and operating expenses, under contract flying arrangements. Operating revenues were also negatively impacted by a 3.9 percent decrease in revenue per available seat mile.
Total operating expenses and interest per ASM for the fourth quarter of 2007, excluding fuel charges of $283.7 million or $0.049 per ASM, was $0.089, compared to $0.095 for the same quarter last year. The decrease resulted from the addition of 29 additional regional jet aircraft during the year and the fact that SkyWest was not impacted by the severe weather in the fourth quarter 2007 that hit it in the same 2006 quarter.
Total ASMs for the fourth quarter of 2007 increased 12.7 percent from the fourth quarter of 2006, primarily as a result of SkyWest increasing its total fleet size to 436 aircraft as of December 31. SkyWest’s fleet consisted of: 365 regional jets (233 Delta, 117 United and 15 Midwest); 59 EMB-120 aircraft (48 United, and 11 Delta); and 12 ATR72 aircraft (all Delta). During the fourth quarter of 2007, SkyWest generated 5.81 billion ASMs, compared to 5.16 billion ASMs during the same period of 2006. At December 31, SkyWest had $660.4 million in cash and marketable securities compared to $651.9 million in the year-ago period. SkyWest’s long-term debt increased to approximately $1.73 billion as of December 31, compared to $1.67 billion at December 31, 2006, consistent with SkyWest’s refinancing arrangements on aircraft and making normal recurring debt payments.
(See financial and operating statistics below)

SkyWest File Suit in $25 million Dispute with DL
SkyWest Inc filed suit against Delta last week in a dispute of a $25 million payment SkyWest and its sister airline Atlantic Southeast Airlines said its major partners owed to it regarding payments made to passengers owing to irregular operations. During the quarter, Delta notified SkyWest, SkyWest Airlines and Atlantic Southeast Airlines of a dispute related to the allocation of liability for certain irregular operations (“IROP”) expenses that are paid by SkyWest Airlines and ASA to their passengers under certain situations. Saying the majority of IROP expenses were the responsibility of SkyWest and ASA, Delta unilaterally withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and ASA during December.
Subsequent to year end, SkyWest has filed a lawsuit in Georgia state court disputing Delta’s treatment of the matter. SkyWest, Inc. filed the complaint in Superior Court of Fulton County, Georgia.
“Although we and Delta are both committed to maintain a productive and cooperative long-term relationship and remain focused on continued improvements of our Delta Connection operations, we simply have a disagreement over the IROP (irregular operations) contract language,” said Bradford R. Rich, executive vice president and CFO of SkyWest, Inc. “However, due to the inability to resolve the matter informally, we are seeking legal remedies to protect our contractual rights under our agreements.”

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