Accurate ASA, Skywest, Delta article

~~~^~~~

Well-known member
Joined
Dec 21, 2001
Posts
6,137
Total Time
7,500+
[font=Tahoma, Verdan, Lucida]A Transaction of Mutual Necessity
[/font][font=Tahoma, Verdan, Lucida]Skywest Buys ASA: Keeping The Mother Ship Afloat[/font]
[font=Tahoma, Verdan, Lucida]How to describe it? [/font]
[font=Tahoma, Verdan, Lucida]Lenders of last resort? Or, maybe, it's the equivalent of borrowing from the kids to make the house payment, in order to keep a roof over their heads.[/font]
[font=Tahoma, Verdan, Lucida]Pretty much, that's a couple of ways of describing the rationale behind Delta's sale of ASA to Skywest.[/font]
[font=Tahoma, Verdan, Lucida]The deal is aimed at mutually-assured benefits for all sides.The deal gives Delta some $300 million in immediate cash, and some breathing room. It also helps keep Delta - which is critical to Skywest's future - afloat. Simply put, if DL were to go away, the loss of this revenue stream to Skywest could possibly be lethal, or at the least very damaging to Skywest's P&L.[/font]
[font=Tahoma, Verdan, Lucida]Skywest: Choosing Between Two Unpleasant Options[/font][font=Tahoma, Verdan, Lucida]. Some silly media stories notwithstanding, it must be remembered that companies like Skywest are not airlines anymore. They are in a much tougher business, which is selling capacity and crew time to major airlines. It's a segment of the industry that's already over-populated with players and with small jets. A culling of the herd is inevitable. [/font]
http://www.aviationplanning.com/images/swdl1.JPG[font=Tahoma, Verdan, Lucida]Clearly, Skywest doesn't want to be a cull-ee. This means that in doing this deal, Skywest has made a calculated decision between two tough options. One option was to sit still in a situation were Delta, one of its major customers (and one of its major revenue streams) could file Chapter 11, allowing it to do additional take-it-or-leave it cram-downs on Skywest, a la United. Or, the other option was that Skywest could buy ASA, engineering the deal to give Delta much-needed cash, along with some safeguards for Skywest should DL ultimately file bankruptcy. [/font]
[font=Tahoma, Verdan, Lucida]Option One was out of the question. But the downside of Option Two was Skywest ending up with a whole additional fleet of RJs (plus some turboprops) in a segment of the industry that is facing one whale of a shake-out in hte not too distant future. Nevertheless, the second option was less odoriferous.[/font]
[font=Tahoma, Verdan, Lucida]Bottom line: the deal is one aimed at trying to buttress mutual survival for both Delta and Skywest. Delta gets cash and time. Skywest, a major vendor to Delta, has a less problematic future as well.[/font]
[font=Tahoma, Verdan, Lucida]ASA: The Red-Headed Stepchild.[/font][font=Tahoma, Verdan, Lucida] That leaves Skywest the owner of ASA, an operation that is as fundamentally different from Skywest as a coal barge is from a luxury cruise ship. On the surface, ASA just brings problems to the Skywest table. [/font]
[font=Tahoma, Verdan, Lucida]Skywest is arguably one of the best-managed companies, let alone best-managed airlines, in the country. Despite the strains of growth over the past three years, it has managed to maintain a culture of clean airplanes, good service, and rational management. The fact the company remains entirely non-union is a testament to its leadership. Employees seek out union representation when they feel they have legitimate doubts about some aspects of how their airline is run. These, apparently, are not a large part of the work environment at Skywest.[/font]
[font=Tahoma, Verdan, Lucida]ASA, on the other hand, has been, to put it mildly, service-challenged. Small communities throughout the South over the years have a wide range of stories they can relate regarding service quality that at times could only be described as rivaling that of Aeroflot. Concourse C at ATL (the part occupied by ASA) was at one time a living case study in customer service that was "on-automatic," which for all intents and purposes indicated that ASA management had been on a permanent leave of absence. It's possible that Delta has historically lost revenue on the basis of some consumers simply refusing to fly a DL itinerary that involved ASA.[/font]
[font=Tahoma, Verdan, Lucida]But this is another positive part of the Skywest buy. It's highly likely that Skywest will install new infrastructure and, hopefully, new key members of management at ASA. The result could be improved service, increased brand loyalty for Delta, and a stronger competitive position.[/font]
[font=Tahoma, Verdan, Lucida]More Shake-Outs To Come For Small Jet Providers.[/font][font=Tahoma, Verdan, Lucida] The hard economic fact is that small jet ("RJ") operations are going to face increasing economic pressures, both from higher fuel costs as well as from the continuing squeeze on revenues driven by competing small jet providers vying to sell services to major carriers. (Witness the recent shifts of aircraft by Air Wisconsin, and the Mesa/Delta deal - both left somebody else out in the cold.) Then consider the inevitable continuing efforts on the part of major carriers to pay their SJPs (and all of their other vendors) less for their services, and we have a picture that's a whole lot less rosy than some on Wall Street would have us believe about "regional airlines." [/font]
[font=Tahoma, Verdan, Lucida]Delta paid a reported $700 million for ASA, and sold it for what will ultimately be just over $400 million. [/font]
[font=Tahoma, Verdan, Lucida]Do the math. RJs and RJ-providers are not a growth industry.

Source Michael Boyd - Aviationplanning.com
[/font]​
 
Last edited:
Top