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Seeing the light
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Source: Aviation Daily 3.8.05
SkyWest CEO Jerry Atkin yesterday sought to cool widespread speculation that the carrier is considering buying Delta's regional subsidiaries, Atlantic Southeast (ASA) and Comair.
Atkin told The DAILY at the International Society of Transport Aircraft Trading (ISTAT) conference in Scottsdale, Ariz., that recent press reports about purchase negotiations with Delta were a stretch. "We've had solicited and unsolicited discussions with every network carrier in America -- anything beyond that is speculation," Atkin said. He later echoed that point in a presentation, saying, "There are some opportunities out there, and when we get beyond the exploratory phase, we'll talk about it."
SkyWest in the past two years has been open about its desire to use its robust balance sheet -- now at about $500 million in cash and marketable securities -- for acquisitions. It's not the first time SkyWest has eyed buying another regional carrier. The airline considered buying ExpressJet before Continental decided to spin off its regional arm.
Speculation about the Delta subsidiaries stemmed from comments by SkyWest CFO Bradford Rich at the Raymond James investor conference in Orlando on Monday. Rich said SkyWest has "had some discussions with Delta about [the sale]." He noted that Delta "has expressed their desire pretty specifically to us...We are aware of their interest, and we are looking at this."
Rich also said, however, that SkyWest is "not interested in growth for growth's sake" and that the carrier would move very carefully if it decided to pursue the Delta acquisition. "A number of issues would have to be worked out and dealt with," Rich said. Because of its strong cash position, SkyWest is "in the best position of anyone to take advantage" of this type of opportunity.
Analyst Robert Mann, of RW Mann and Co., told The DAILY that "it is easy to understand Delta's desire to monetize the regional carrier assets...to raise cash and offload debt and obligations." But he noted that Comair and ASA are among the highest-cost regional carriers in the industry, "and thus will not fetch the sort of financial multiples that ExpressJet, Pinnacle and Republic Airline Holdings have achieved."
This might result in a low purchase price and the appearance of a good deal for SkyWest or another buyer, although the subsidiaries would come with a significant "fix-up" price tag and high labor costs, Mann said. Delta would also face the issue of losing control of its regional flying.
Also at the ISTAT conference, Atkin said he finds Bombardier's proposed C- Series plane intriguing, and believes the unit costs of the 110- to 130-seat aircraft family could be attractive if the Canadian airframer launches the larger jets.
Atkin said SkyWest has looked at the plane and found its unit costs were "below anything out there in that size." He noted it's not clear how SkyWest might use the aircraft in today's marketplace but "we have a couple years to figure that out." Bombardier's board this month is scheduled to decide whether to launch the plane. One of the many options SkyWest has considered for the future is operating planes up to 150 seats as a low-cost operator. It also looked at opportunities to partner with existing low-cost airlines. Like the scenario at many regional carriers, SkyWest's deliveries are murky beyond 2005. The carrier has no firm deliveries planned after June, but Atkin said there's been a lot discussion with his carrier's major partners and other carriers about future growth.
