SkyWest conference call notes

[~~~^~~~]

SkyWest conference call (AC delivery info & future ASA ops)

These are just my notes from a very informative conference call.

Investor’s Conference Call - Tuesday, August 16, 2005 9:00 AM Eastern

Jerry Atkin:
[font=&quot] [/font]Largest Regional Airline with 2.5 Billion in annual revenues
[font=&quot] [/font]Separate, but substantially similar code share agreement with Delta, lasting 15 years
[font=&quot] [/font]Return to Delta 50 million in advance aircraft deposits
[font=&quot] [/font]Provisions for Skywest to retain $125m if Delta cancels the agreement during Chapter 11 reorganization

Brad Rich:
Capacity Growth:
[font=&quot] [/font]28 new regional jet aircraft as a result of this agreement by the end of 2007
[font=&quot] [/font]46 combined growth aircraft (inclusion of Skywest’s current orders) consisting 6 additional CRJ200’s and 40 CRJ700’s.
ASA maintaining its importance of its Atlanta operations:
[font=&quot] [/font]ASA will operate at least 80% of all Delta Connection departures in Atlanta
[font=&quot] [/font]At least 50% of ASA’s total departures will be in Atlanta
[font=&quot] [/font]In 2008, ASA will maintain the right to these percentages of total flying if ASA’s bid for flying is competitive

Protections in event of a bankruptcy filing:
[font=&quot] [/font]SkyWest is now critical to the Atlanta hub
[font=&quot] [/font]SkyWest is Delta’s largest regional partner by fleet size and ASM’s
[font=&quot] [/font]Portion of purchase price is being held in escrow for risk mitigation if Delta renegotiates contracts in Chapter 11. Any changes in the contract would be offset by cash held in escrow.
[font=&quot] [/font]Delta will retain 40 of the 50 seat ASA Aircraft on Delta’s balance sheet. ASA will continue to operate these aircraft – but Delta will retain the long term obligations on these jets
[font=&quot] [/font]SkyWest / ASA will hold 26 gates in the Atlanta Airport. These gates will be available for use for other airlines.

Q&A
[font=&quot] [/font]The current ASA ATR’s will remain in ASA’s operation.
[font=&quot] [/font]The current ASA management and maintenance structure will remain “close to the customer.” Only the financial, information technologies and other back office functions currently provided by Delta will be transferred.
[font=&quot] [/font]Buy funded by SkyWest’s cash, they may get outside financing if market is favorable
[font=&quot] [/font]ASA has 50 million in cash coming over with ASA. The ASA has 1.7Bn dollars in capitalized leases (debt)
[font=&quot] [/font]The 28 “new” airplanes are existing orders at ASA and SkyWest. There will be an exercise of existing options from the current ASA / Bombardier order.
[font=&quot] [/font]There are no plans for a another acquisition in the short term, but acquiring additional carriers are a goal and this acquisition puts SkyWest in an improved position for future transactions.
[font=&quot] [/font]SkyWest was concerned that too much revenue was tied to United. Only 28% of the revenue was projected to come from Delta. That revenue is in better balance now.
[font=&quot] [/font]SkyWest believes it is in a good position to extend into larger aircraft as their major airline partners are moving in that direction. They have not made a decision on the E190 at this time.
[font=&quot] [/font]The 26 gates in Atlanta have a lot of strategic value. They have discussed the valuation, but they feel Atlanta gates are an important strategic item.
[font=&quot] [/font]The Escrow fund will earn interest income and who ever gets the Escrow will also get the interest.
[font=&quot] [/font]SkyWest needed guarantees that the Atlanta position will be maintained. This is guaranteed by the 80% of all the Regional Activity in Atlanta being provided by ASA and that at least 50% of ASA’s activity will be from Atlanta.
[font=&quot] [/font]SkyWest has maintained the right to enter into other code share relationship. This includes the rights for ASA to expand into code share with other airlines.
[font=&quot][/font]The labor question of a single carrier certification exists. Jerry Atkins answered that they are well aware of this issue and that there are specific limitations they could not cross without exposing the SkyWest to the risk of a single carrier certification. It is their intention to not cross the line.
[font=&quot] [/font]SkyWest has to have the proper structure, cost and service. ACA only had one of these three.
[font=&quot] [/font]The ASA runs a “good, sound, solid operation.” There is not a lot of “low hanging fruit” for cost reduction. Some redundancies can be eliminated and provide some benefits through a “best practices” comparison. SkyWest was very careful with regard to termination rights and items that are under SkyWest’s control. Much of the agreement has to do with control and this has not been talked about much. SkyWest indicates the change in control will benefit efficiency.
[font=&quot] [/font]Both the ASA and SkyWest contracts have been renegotiated, the new contract is more similar to the SkyWest agreement. The ASA agreement has market margins similar to the rest of the industry, including those negotiated with other carriers during bankruptcy. The new agreements were not negotiated downward from the previous agreements.
[font=&quot] [/font]Leaving 40 CRJ200’s aircraft on Delta’s balance sheet was risk mitigation. If something happens to Delta, Skywest does not have to deal with those airplanes and serves as a safety valve if there are too many 50 seat aircraft on the market.
[font=&quot] [/font]What keeps SkyWest from transferring ASA assets to the non-union carrier? After a long pause… The response to this caught SkyWest “flat footed” because “that had not been part of our objectives and we don’t know the answer, it has not been part of our thinking at all.” Jerry Atkin responded that the challenges were not internal, SkyWest against ASA, but external, remaining cost competitive with the rest of the industry.

Before Delta’s acquisition of ASA, ASA had the lowest costs per seat mile in the industry. Today the ASA unit cost is similar to the Skywest, within the allowances for scheduling differences and other outside requirements by the major partners.

 

[crashpad]

Skywest has usually been great commuter to fly on. Now that they've kicked Comair in the balls' they're even better.

 

[StaySeated]

Better lease shed than they could have done in bk

"ASA has 50 million in cash coming over with ASA. The ASA has 1.7Bn dollars in capitalized leases (debt)"


So DAL gets 400 or so mil in cash and sheds 1.7 billion in lease payments. Pretty sweet transaction on their part.

Crash, uhh wtf does this have to do with comair and how did skywest score one to the nuts?

 

[~~~^~~~]

No one seems to pick up on the fact that SkyWest negotiated something ALPA has not been able to get for the ASA pilots - scope - sort of.

80% of Connection flying out of ATL is something. It also indicates that ASA is not going away through an asset transfer. In fact, it appears ASA picked up some 70 seaters, maybe as many as 28. The airplanes will be allocated by SkyWest holdings, but they came from options on the existing DCI buy.

 

[JoeMerchant]

No one seems to pick up on the fact that SkyWest negotiated something ALPA has not been able to get for the ASA pilots - scope - sort of.

80% of Connection flying out of ATL is something. It also indicates that ASA is not going away through an asset transfer. In fact, it appears ASA picked up some 70 seaters, maybe as many as 28. The airplanes will be allocated by SkyWest holdings, but they came from options on the existing DCI buy.

I picked up on it Fins. Thanks for the info. Maybe Jerry can teach a course at Herndon on "Brand Scope". Do you think DW will send a thank you note to Jerry for achieving something that ALPA has only given lip service to?

Joe

 

[spinproof]

80% of Connection flying out of ATL is something. It also indicates that ASA is not going away through an asset transfer. In fact, it appears ASA picked up some 70 seaters, maybe as many as 28. The airplanes will be allocated by SkyWest holdings, but they came from options on the existing DCI buy.

As with everything the "devil" is in the details.

"SkyWest needed guarantees that the Atlanta position will be maintained. This is guaranteed by the 80% of all the Regional Activity in Atlanta being provided by ASA and that at least 50% of ASA’s activity will be from Atlanta."

Fins I'm not sure I would agree this will prevent asset transfer. There is something here in the wording that has a "weasel" sound that concerns me. I believe it's the reference to "regional activity".

 

[~~~^~~~]

Do you think DW will send a thank you note to Jerry for achieving something that ALPA has only given lip service to?

Joe

Hee Hee, nope, but Duane might slip a Single Carrier Petition in with this year's Christmas Card.

Where is the General? Don't tell me he is out flying. He never flies, he surfs like the rest of us.... I thought he'd be very happy that those pesky Connection pilots got sold off (along with unrestricted gates in ATL).

 

[bvt1151]

fins,

Excellent notes! A very worthy post.

 

[SkyW120]

Fins,

Thanks for taking great notes! Do you still have the phone number for that conference call? Sometimes they archive and replay them.

Thanks
J

These are just my notes from a very informative conference call.

Investor’s Conference Call - Tuesday, August 16, 2005 9:00 AM Eastern

Jerry Atkins:
[font=&quot] [/font]Largest Regional Airline with 2.5 Billion in annual revenues
[font=&quot] [/font]Separate, but substantially similar code share agreement with Delta, lasting 15 years
[font=&quot] [/font]Return to Delta 50 million in advance aircraft deposits
[font=&quot] [/font]Provisions for Skywest to retain $125m if Delta cancels the agreement during Chapter 11 reorganization

Brad Rich:
Capacity Growth:
[font=&quot] [/font]28 new regional jet aircraft as a result of this agreement by the end of 2007
[font=&quot] [/font]46 combined growth aircraft (inclusion of Skywest’s current orders) consisting 6 additional CRJ200’s and 40 CRJ700’s.
ASA maintaining its importance of its Atlanta operations:
[font=&quot] [/font]ASA will operate at least 80% of all Delta Connection departures in Atlanta
[font=&quot] [/font]At least 50% of ASA’s total departures will be in Atlanta
[font=&quot] [/font]In 2008, ASA will maintain the right to these percentages of total flying if ASA’s bid for flying is competitive

Protections in event of a bankruptcy filing:
[font=&quot] [/font]SkyWest is now critical to the Atlanta hub
[font=&quot] [/font]SkyWest is Delta’s largest regional partner by fleet size and ASM’s
[font=&quot] [/font]Portion of purchase price is being held in escrow for risk mitigation if Delta renegotiates contracts in Chapter 11. Any changes in the contract would be offset by cash held in escrow.
[font=&quot] [/font]Delta will retain 40 of the 50 seat ASA Aircraft on Delta’s balance sheet. ASA will continue to operate these aircraft – but Delta will retain the long term obligations on these jets
[font=&quot] [/font]SkyWest / ASA will hold 26 gates in the Atlanta Airport. These gates will be available for use for other airlines.

Q&A
[font=&quot] [/font]The current ASA ATR’s will remain in ASA’s operation.
[font=&quot] [/font]The current ASA management and maintenance structure will remain “close to the customer.” Only the financial, information technologies and other back office functions currently provided by Delta will be transferred.
[font=&quot] [/font]Buy funded by SkyWest’s cash, they may get outside financing if market is favorable
[font=&quot] [/font]ASA has 50 million in cash coming over with ASA. The ASA has 1.7Bn dollars in capitalized leases (debt)
[font=&quot] [/font]The 28 “new” airplanes are existing orders at ASA and SkyWest. There will be an exercise of existing options from the current ASA / Bombardier order.
[font=&quot] [/font]There are no plans for a another acquisition in the short term, but acquiring additional carriers are a goal and this acquisition puts SkyWest in an improved position for future transactions.
[font=&quot] [/font]SkyWest was concerned that too much revenue was tied to United. Only 28% of the revenue was projected to come from Delta. That revenue is in better balance now.
[font=&quot] [/font]SkyWest believes it is in a good position to extend into larger aircraft as their major airline partners are moving in that direction. They have not made a decision on the E190 at this time.
[font=&quot] [/font]The 26 gates in Atlanta have a lot of strategic value. They have discussed the valuation, but they feel Atlanta gates are an important strategic item.
[font=&quot] [/font]The Escrow fund will earn interest income and who ever gets the Escrow will also get the interest.
[font=&quot] [/font]SkyWest needed guarantees that the Atlanta position will be maintained. This is guaranteed by the 80% of all the Regional Activity in Atlanta being provided by ASA and that at least 50% of ASA’s activity will be from Atlanta.
[font=&quot] [/font]SkyWest has maintained the right to enter into other code share relationship. This includes the rights for ASA to expand into code share with other airlines.
[font=&quot][/font]The labor question of a single carrier certification exists. Jerry Atkins answered that they are well aware of this issue and that there are specific limitations they could not cross without exposing the SkyWest to the risk of a single carrier certification. It is their intention to not cross the line.
[font=&quot] [/font]SkyWest has to have the proper structure, cost and service. ACA only had one of these three.
[font=&quot] [/font]The ASA runs a “good, sound, solid operation.” There is not a lot of “low hanging fruit” for cost reduction. Some redundancies can be eliminated and provide some benefits through a “best practices” comparison. SkyWest was very careful with regard to termination rights and items that are under SkyWest’s control. Much of the agreement has to do with control and this has not been talked about much. SkyWest indicates the change in control will benefit efficiency.
[font=&quot] [/font]Both the ASA and SkyWest contracts have been renegotiated, the new contract is more similar to the SkyWest agreement. The ASA agreement has market margins similar to the rest of the industry, including those negotiated with other carriers during bankruptcy. The new agreements were not negotiated downward from the previous agreements.
[font=&quot] [/font]Leaving 40 CRJ200’s aircraft on Delta’s balance sheet was risk mitigation. If something happens to Delta, Skywest does not have to deal with those airplanes and serves as a safety valve if there are too many 50 seat aircraft on the market.
[font=&quot] [/font]What keeps SkyWest from transferring ASA assets to the non-union carrier? After a long pause… The response to this caught SkyWest “flat footed” because “that had not been part of our objectives and we don’t know the answer, it has not been part of our thinking at all.” Jerry Atkin responded that the challenges were not internal, SkyWest against ASA, but external, remaining cost competitive with the rest of the industry.

Before Delta’s acquisition of ASA, ASA had the lowest costs per seat mile in the industry. Today the ASA unit cost is similar to the Skywest, within the allowances for scheduling differences and other outside requirements by the major partners.

 

[~~~^~~~]

Here you go - link to SkyWest conference call.

http://www.videonewswire.com/event.asp?id=30151

 

[AV8700]

Good job Fins

 

[homerjdispatch]

Just an FYI....

Its Jerry Atkin, NOT Jerry Atkins.
(might be something you want to remember)

 

[Tim47SIP]

Fins

No one seems to pick up on the fact that SkyWest negotiated something ALPA has not been able to get for the ASA pilots - scope - sort of.

80% of Connection flying out of ATL is something. It also indicates that ASA is not going away through an asset transfer. In fact, it appears ASA picked up some 70 seaters, maybe as many as 28. The airplanes will be allocated by SkyWest holdings, but they came from options on the existing DCI buy.

I will bet that it was NOT Skywest that negotiated this. I think that it WAS Delta that insisted on this. I think they were trying to take care of us. I also wonder if Delta made sure that we could not fly any other code to compete against them. Just a thought.

 

[Bluto]

Just an FYI....

Its Jerry Atkin, NOT Jerry Atkins.
(might be something you want to remember)

Homer, just an FYI, you don't have to be a tool to everyone. You might want to remember that, too.

 

[homerjdispatch]

Thanks for the advice. I will try my best!

(didnt realize some people are so sensitive)

 

[FL000]

Homer, just an FYI, you don't have to be a tool to everyone. You might want to remember that, too.

It's a good thing to know your boss's name. There are tons of people at DAL/DCI that don't know how to pronounce Grinstein, or thought it was "Leo Mullins."

 

[AV8700]

I also wonder if Delta made sure that we could not fly any other code to compete against them. Just a thought.

I'll try to find the quote but I'm sure it said ASA can fly other code.

 

[Well-hung Start]

We're all gonna miss Skip Barnadette!

 

[FL990]

I'll try to find the quote but I'm sure it said ASA can fly other code.

It did...I just listened to the meeting that fins posted...ASA will be able to operate for other codes. Also, Tim...come on, Delta wasn't trying to protect us at ASA...If there was anything they were trying to protect, and I would like to add that I think this was a skywest mandate (in terms of guaranteed flying for asa cause who wants to buy an airline that will lose all its passengers the moment it is purchased)...anyway, what i was saying was that if delta did put this in as you suggest, it would be to protect there hub..to keep Skywest from pulling out of atlanta and going to say chicago for United or something (just an example).

I still think that this was part of the agreement that was required more by Skykwest than by delta.

Also, something I picked up on that wasn't in fins notes which were excellent by the way, is that:

Atkin mentioned that the ASA pilot and FA contracts were still open and that this was not a contengency of the aquisition in any way. In other words, looks like we will be talkin to Skywest now...And there are already hints at Whipsaw unfortunately (when they spoke about extending the 80% Atlanta portion of the contract beyond 2007 as long as ASA remains competitive....

 

[bigshooter]

Great job fins.