Skywest Contract Study Committee

[buscap]

This is a repost of mine, but for those who missed it:

Hey guys,

For those who are on the fence about the union drive, I would humbly submit this:

ALPA will be whatever you guys make of it. It is much more a "local politics" organization than you have been told. Just look at the disparity of the different ALPA pilot groups out there. ie. Mesa and Comair. (lowest paid to previously highest paid)

They bring a huge arsenal of national assets, but the success or failure of the union falls almost completely at the local level. You won't find yourselves a pawn of some big ogre, nor will you find yourselves rescued.

What you will get out of the union is completely up to you. The difference is that you will be able to negotiate within a legal framework and the results of your efforts will be legally binding.

The company will still have the operational flexibility needed to remain competitive, as long as they work through the process and treat the pilot group fairly.

So pick up the phone.

That's my take.

 

[Nevets]

An Analysis of SkyWest Airlines’ Financial and
Competitive Positions and Ability to Improve Pilot
Pay and Working Conditions

SkyWest Airlines is very strong. Its ability to attract and maintain profitable, long-term air
service agreements with mainline partners—the most critical capability necessary for any
regional carrier in today’s competitive environment—has been and continues to be one of its
greatest strengths and has helped it become one of the leading express carriers. In addition to
its diversified business partners, SkyWest’s strengths in its financial position and other factors
have played roles in making it the largest regional airline in the world in terms of scheduled
capacity in 2007. This report will cover the current state of SkyWest and why SkyWest has the
ability to pay its pilots more and address the identified priority concerns of the SkyWest pilots.

In order to avoid any potential confusion between the airline and the holding company, any
reference to “SkyWest,” will always refer to SkyWest Airlines, the larger of the two airline
subsidiaries owned by SkyWest, Inc, the holding company. SKYW, the stock symbol for the
holding company, will be used when referring to the holding company.

Summary

SkyWest can pay higher wages and benefits to its pilots based on its superior financial and
competitive position. Just how strong is SkyWest? SkyWest has consistently been one of the
most profitable airlines, combining high income generation with one of the strongest balance
sheets in the industry. SkyWest has leveraged its strong financial performance, multiple
partners, and quality service to continue to grow profitably. Additionally, its balanced fleet mix
includes the second largest number of large regional jets of any carrier, the fastest growing
and, arguably the most important, segment of the regional airline industry for the foreseeable
future.

The leading factors that provide SkyWest the ability to pay its pilots more are:

* Multiple mainline partners
* Diversifies earnings stream and provides multiple growth opportunities
* Consistent strong profitability, including both operating and pre-tax results
* Shows resiliency of business
* Strong balance sheet
* Competitive advantage, provides financial cushion, easier to grow
* Consistent growth
* Helps leverage fixed costs and increase gross earnings
* Balanced fleet mix with many large regional jets
* Strategically well positioned for the future

 

[Nevets]

In addition to its financial strength, SkyWest has another incentive to pay its pilots more.

With a growing pilot shortage in the world, Jerry Atkin, SkyWest’s chairman and CEO,
admitted in an interview in the May 2007 issue of Airline Business that SKYW’s pilot attrition
costs have doubled in the last year to about $6 million a year. All regional carriers have been
affected by the growing pilot shortage, and many pilots leaving SkyWest and other regional
carriers are heading to mainline airlines whose pilots are represented by the Air Line Pilots
Association, International (ALPA). ALPA would like to help SkyWest pilots obtain higher pay
and benefits in order to stem this attrition and thereby help SkyWest continue its role as one of
the strongest regional carriers.

Strength in Mainline Partner Relations

As with nearly all regional airlines, SkyWest’s continued success is dependent on its ability to
attract and maintain profitable, long-term air service agreements with mainline partners. Its
long-lasting agreements with Delta Air Lines and United Airlines have benefited both SkyWest
and its mainline partners, and the new agreement with Midwest Airlines should do the same.
The diversity of SkyWest’s mainline partners, including the second and third largest airlines in
the country, helps reduce its exposure to any big loss due to sole reliance on just one partner.
United and Delta are both major international carriers with strong domestic networks. The
continued growth of these domestic and international networks bodes well for SkyWest, as
providing high quality regional service to feed the various hubs of these two mainline carriers
will be necessary for years to come. The new agreement with Midwest, which calls for up to 25
CRJ200s to be operated under Midwest’s code, represents just a small fraction of SkyWest’s
current operations.

In recent years, SkyWest’s contracts with both United and Delta were reaffirmed in court.
SkyWest did not have to give concessions to Delta during the latter’s Chapter 11 bankruptcy
process and in fact, SkyWest bailed out Delta by buying ASA and providing needed cash to
Delta. Of the three regional carriers providing United Express service prior to United’s
bankruptcy in 2002—SkyWest, Atlantic Coast, and Air Wisconsin—only SkyWest held onto its
air service agreement with United, as it was the only carrier to successfully renegotiate its
agreement with United.

SkyWest’s outstanding capability to maintain and even expand its air service agreements with
mainline partners in bankruptcy protection stands in great contrast to the track records of
many other regional carriers. Mesaba, Pinnacle, Comair, ASA, Air Wisconsin, and Mesa have
all lost significantly in terms of either or both capacity and rates with their mainline partners
when air service agreements were renegotiated during periods when the mainline partner was
in bankruptcy. After its unsuccessful efforts to renegotiate its air service agreements with
United and Delta, Atlantic Coast ceased to exist after its brief attempt at flying as an
independent regional carrier.

Strength in Finances

SkyWest is one of the financially strongest regional airlines exceeding that of most mainline
passenger airlines as well. A leader in generating substantial revenues and income, SkyWest
also has one of the strongest balance sheets in the industry.
7

Profitability:

In 2006, SkyWest continued to generate profits with $167.6 million in operating income earned
from $1.8 billion in total operating revenues. In the past five years, SkyWest’s operating
income has exceeded $100 million each year, one of only two regional carriers to accomplish
this during this period. As profitability is the key variable in determining an airline’s ability to
pay, SkyWest’s income generation over the past few years provides it the capability to offer
more money and benefits to its pilots.

SkyWest’s $167.6 million in operating income in 2006 placed it third among all regional
carriers last year. Republic Airways Holdings had $212.6 million, while American Eagle
generated $194.4 million in operating income.

As operating income is affected by the relative size of the carrier, a review of operating margin,
the measure where operating income is divided by operating revenue, is useful. SkyWest’s
operating margin has been declining in recent years, and in 2006, it slipped below 10% for the
first time this decade. This declining operating margin is not unique to SkyWest, as many
other regional carriers have also been experiencing this same trend since mainline airlines
have been negotiating contracts containing lower profit margins for their regional partners.

 

[USCtrojan]

Dammit Nevets, you keep using hard numbers and facts to support your conclusions. This is foreign to some of the anti-alpa cheerleaders.

Trojan

 

[Nevets]

Dammit Nevets, you keep using hard numbers and facts to support your conclusions. This is foreign to some of the anti-alpa cheerleaders.

Trojan

I don't take credit for what I've posted on this thread. This was the hard work of a couple of Skywest pilots. Skywest has many quality pilots like these guys. You guys would be in good hands with all the good guys you have if ALPA is successful.

 

[USCtrojan]

I don't take credit for what I've posted on this thread. This was the hard work of a couple of Skywest pilots. Skywest has many quality pilots like these guys. You guys would be in good hands with all the good guys you have if ALPA is successful.

I couldn't agree more. I've talked to some on the ALPA OC at SkyWest. (P.A. to name one of them) Couldn't say enough good things about him. I look forward to standing strong with the SkyWest Pilots in improving our work rules and QOL.

Trojan

 

[Nevets]

I couldn't agree more. I've talked to some on the ALPA OC at SkyWest. (P.A. to name one of them) Couldn't say enough good things about him. I look forward to standing strong with the SkyWest Pilots in improving our work rules and QOL.

Trojan

And I along with many other MEC members at other airlines look forward to working with Skywest pilots. You guys don't know how much support you will gain by becoming ALPA. Its incredible.

 

[Nevets]

While SkyWest ranked third among the top ten regional carriers in operating income for 2006,
its operating margin of 9.1% this same year placed it sixth among these same carriers. This
9.1% operating margin, while relatively low compared to some other regional carriers, is still
very high compared to most passenger carriers. Southwest, the most profitable mainline
carrier last year, had an operating margin of 10.3% in 2006. No other mainline passenger
carrier had an operating margin greater than 6%.

Pre-tax margins, defined as pre-tax income divided by total operating revenues, also provide an
insight to the financial performance of any company as it shows how leveraged a company may
be given interest expense obligations. Similar to its operating margin trends, SkyWest’s pre-tax
margins have been declining since 2002 because of the revised terms of the contracts they have
with mainline partners, but they still compare very well to those of most other regional carriers
during this decade.

SkyWest’s 7.8% pre-tax margin in 2006 placed it fifth among the top ten regional U.S. carriers.
Again, while this pre-tax margin appears relatively modest in comparison to some of the other
regional airlines, it is a very good result when compared with most mainline passenger
carriers. Southwest had a passenger mainline industry leading pre-tax margin of 8.7% in 2006,
less than a full percentage point above SkyWest’s margin, while all other mainline passenger
carriers had pre-tax margins below 4%.

Balance Sheet:
Balance sheet strength can be measured in many ways, but no matter which measure one uses
in comparing SkyWest to its competitors, SkyWest fares very well. Since SEC filings are the
preferred data source for balance sheet information, this report will focus on SKYW rather
than SkyWest in reporting balance sheet data. SKYW’s $677 million in cash at the end of the
second quarter of 2007 is much greater than any other regional carrier. In accounting for the
size disparity among the various regional carriers, a review of how many months of cash each
carrier has on hand to potentially cover its monthly operating expenses is a valuable measure.
As of June 30, 2007, SKYW has nearly three months of cash on hand, second only to Pinnacle
which has nearly four months of cash on hand.

SKYW’s balance sheet strength is also apparent by looking at its current ratio, the ratio of
current assets to current liabilities, another measure of a firm’s liquidity and its ability to meet
short-term debt obligations. Current assets are assets that can be readily converted into cash
within a year or less, and current liabilities are debts due expected within a year or less.
SKYW’s current ratio of 2.7:1 as of June 30, 2007, is equal to the industry leading ratio at Mesa
Air Group. In other words, SKYW has $2.70 for every $1.00 in current liabilities. Since any
value greater than 1:1 is an indication that the firm has enough cash to meet existing liabilities
and more, SKYW’s 2.7:1 current ratio shows that it has more than sufficient funds to meet its
short-term liabilities.

A firm’s ability to meet its long term obligations is also critical in determining its financial
strength. The total debt ratio, defined as the ratio of total liabilities to total assets, measures
the degree to which a company is employing financial leverage, the degree to which a company
uses borrowed money. Companies that are too highly leveraged may have problems paying off
debts, which could lead to difficulties in obtaining additional capital necessary to grow and can
lead to financial difficulties when a company is not producing enough cash to cover large
obligations. Typical total debt ratios in the airline industry are around 70-80%. As the chart
below shows, SKYW’s total debt ratio of 69% as of June 30, 2007 is just below these typical
levels and is another solid indicator of its strong balance sheet.

As these measures indicate, SKYW has a very strong balance sheet as compared among all
regional carriers with solid cash balances and better than average current and total debt
ratios. This strong balance sheet should serve SKYW and SkyWest well in its future.

 

[Rez O. Lewshun]

Wow.... all that extra cash and Jerry won't share it with the pilots.... with inflation, SKWY pilots are taking paycuts....

Southwest.... pilots have representation and a contract. Jerry has a contract, but no not the Skywest pilots... they don't get a contract... don't want one.... or do you?

 

[Gr82Aviate]

Wow.... all that extra cash and Jerry won't share it with the pilots.... with inflation, SKWY pilots are taking paycuts....

Southwest.... pilots have representation and a contract. Jerry has a contract, but no not the Skywest pilots... they don't get a contract... don't want one.... or do you?

We've been taking paycuts for 7+ years with no COLA, and will be for another 4 years with the generous 0% and 1% pay "raises" they offered!