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TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on April 4, 2006
Registration No. 333-129831
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under the
Securities Act of 1933
SkyWest, Inc.
(Exact name of registrant as specified in its charter)
| Utah (State or other jurisdiction of incorporation or organization) | 87-0292166 (I.R.S. employer identification number) |
444 South River Road
St. George, Utah 84790
(435) 634-3200
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Bradford R. RICH
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
SKYWEST, INC.
Rich
Executive Vice President, Chief Financial Officer and Treasurer
SkyWest, Inc.
444 SOUTH RIVER ROAD
ST. GEORGE, UTAHSouth River Road
St. George, Utah 84790
(435) 634-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR
SERVICE)
COPIES TO:
634-3200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||
| Brian G. Seth R. King, Esq. PARR WADDOUPS BROWN GEE & LOVELESS 185 Salt Lake City, Utah 84111 (801) 532-7840 | Mark C. Smith, Esq. Allison R. Schneirov, Esq. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, New York 10036 (212) 735-3000 | |
Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of this Registration Statement.
------------------------Statement as determined by market conditions.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [ ]o
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [ ]o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]o
If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434,
please462(e) under the Securities Act, check the following box: [ ]
o
If this Form is a post-effective amendment to registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box: o
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED
TITLE OF EACH CLASS PROPOSED MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
Common Stock, no par
value.................. 1,610,000 $31.0625 $50,010,625 $14,753
=================================================================================================================
| Title of each class of securities to be registered | Amount to be registered(1) | Proposed maximum offering price per share(2) | Proposed maximum aggregate offering price(2) | Amount of registration fee | ||||
|---|---|---|---|---|---|---|---|---|
| Common Stock, no par value | 4,600,000 | $32.24 | $148,304,000 | $17,456(3) | ||||
- (1)
- Includes
210,000600,000 shares which theUnderwritersunderwriters have the option to purchase solely to coverover-allotments,overallotments, if any. - (2)
- Estimated
pursuant to Rule 457(c)solely for the purpose of calculating the registration fee in accordance with Rule 457(c) based on the averageof thehigh and low reported sales pricesfor the Common Stock, as reportedof our common stock ontheThe Nasdaq National Market onJanuary 14, 1998. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JANUARY 21, 1998 1,400,000 SHARES [LOGO] COMMON STOCK ------------------------ AllNovember 17, 2005. - (3)
- Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the 1,400,000 sharesSecurities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to Completion
Preliminary Prospectus dated April 4, 2006
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
P R O S P E C T U S
4,000,000 Shares
Common Stock (the "Common Stock") of
SkyWest, Inc. (the "Company") offered herebyis selling all of the shares.
The shares are being sold by the Company. The
Common Stock is quoted on theThe Nasdaq National Market under the symbol "SKYW." On January 20, 1998,March 31, 2006, the last sale price of the Common Stockshares as reported on theby The Nasdaq National Market was $36.875$29.27 per share. See "Price Range
Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 11 of Common Stockthis prospectus.
| Per Share | Total | |||
|---|---|---|---|---|
| Public offering price | $ | $ | ||
| Underwriting discount | $ | $ | ||
| Proceeds, before expenses, to SkyWest, Inc. | $ | $ |
The underwriters may also purchase up to an additional 600,000 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments.
Neither the Securities and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The shares will be ready for delivery on or about April , 2006.
| Merrill Lynch & Co. | Raymond James |
The date of this prospectus is April , 2006.
We are a descriptionholding company that operates two independent, wholly-owned subsidiaries, SkyWest Airlines and Atlantic Southeast Airlines, with a total fleet of approximately 380 aircraft and approximately 13,650 employees as of December 31, 2005. Our fleet consists of Bombardier CRJ200 Regional Jets seating 40 or 50 passengers ("CRJ200s"), Bombardier CRJ700 Regional Jets seating 66 or 70 passengers ("CRJ700s"), Embraer EMB-120 Brasilia turboprops seating 30 passengers ("Brasilia turboprops") and Avions de Transport 72-210 turboprops seating 66 passengers ("ATR-72 turboprops"). We provide on each of these aircraft types flight attendant service, as well as in-flight amenities such as snack and beverage service, lavatory facilities and overhead storage.
We operate approximately 2,350 total daily flights as The Delta Connection® in Atlanta, Salt Lake City and Cincinnati, and as United Express® in Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma under code-share agreements with Delta Air Lines and United Air Lines. We provide scheduled air service to 218 destinations in the United States, Canada, Mexico and the Caribbean. We have obtained federal registration of the indemnification arrangementsSkyWest®, SkyWest Airlines®, Atlantic Southeast Airlines® and ASA® trademarks. Delta®, Delta Connection® and The Delta Connection® are trademarks of Delta Air Lines, Inc. United® and United Express® are trademarks of United Air Lines, Inc. All other trademarks and service marks appearing in this prospectus are the property of their respective holders.
You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition and prospects may have changed since that date.
This summary contains basic information about our company and this offering, but does not contain all of the information that you should consider before investing in our common stock. You should read this summary, together with the Underwritersentire prospectus, including "Risk Factors" and other matters.
(2) Before deducting offering expenses payablethe information incorporated by reference into this prospectus as described below under "Incorporation Of Certain Information By Reference," for important information regarding our company and the Company estimatedcommon stock being sold in this offering. Unless otherwise indicated, "we," "us", "our" and similar terms refer to be
$350,000.
(3) The Company has grantedSkyWest, Inc. and our subsidiaries; "SkyWest Airlines" refers to our wholly-owned subsidiary SkyWest Airlines, Inc.; and "ASA" refers to our wholly-owned subsidiary Atlantic Southeast Airlines, Inc. Unless otherwise indicated, all information in this prospectus assumes that the Underwriters a 30-dayunderwriters' overallotment option to purchase up to 210,000 additional600,000 shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds tofrom us will not be exercised.
Our Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered and accepted by them, subject
to their right to reject orders, in whole or in part, and to certain other
conditions. It is expected
We are a holding company that delivery of certificates representing the Common
Stock will be made on or about , 1998.
THE ROBINSON-HUMPHREY COMPANY SBC WARBURG DILLON READ INC.
, 1998
3
[THREE MAPS IDENTIFYING ROUTES SERVED BY SKYWEST AIRLINES, INC.]
SkyWest Airlines, Inc. operates as the Delta Connection(R) in Salt Lake
City and Los Angeles, as United Express(R) in Los Angeles and as the Continental
Connection(TM) in selected California markets, providing scheduled air service
to 46 cities in 12 western states and Canada. On January 19, 1998, SkyWest
executed an agreement to operate as United Express at United's San Francisco
hub, beginning June 1, 1998.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE-COVERING TRANSACTIONS, SHORT-COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."
2
4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus and in the
documents and financial statements incorporated by reference herein. The
"Company" refers to SkyWest, Inc. and itstwo independent, wholly-owned subsidiaries, SkyWest Airlines Inc.
("SkyWest"), Scenicand ASA. SkyWest Airlines Inc. ("Scenic") and National Parks Transportation,
Inc. ("NPT"). Unless otherwise noted, the information in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option. The
Company's fiscal year ends on March 31. The term "fiscal 1997" refers to the
Company's fiscal year ended on March 31, 1997.
THE COMPANY
SkyWest operates aASA are regional airlineairlines offering scheduled passenger service primarilywith approximately 2,350 daily departures to 218 destinations in the western United States. SkyWest has been a code-sharing partnerStates, Canada, Mexico and the Caribbean. Substantially all of our flights are operated as either Delta Connection or United Express under code-share arrangements with Delta Air Lines, Inc. ("Delta") and Continental Airlines, Inc.
("Continental") since 1987 and 1995, respectively. Effective October 1, 1997,
SkyWest expanded its operations through a code-sharing agreement withor United Airlines,Air Lines, Inc. ("United"), with significant presence in their key domestic hubs and focus cities. SkyWest Airlines and ASA provide regional flying to our partners, primarily under long-term, fixed-fee code-share agreements that we believe improve our ability to accurately forecast our revenue stream. Under this type of agreement, our partners assume many of the most common financial risks inherent to our industry, including those relating to fuel prices, airfares and passenger load factors.
SkyWest Airlines and ASA have developed industry-leading reputations for providing quality, low-cost regional airline service during their long operating histories—SkyWest Airlines has been flying since 1972 and ASA since 1979. As of December 31, 2005, our consolidated fleet consisted of a total of 380 aircraft, of which 224 were in service with Delta and 156 were in service with United. We currently operate one type of regional jet aircraft in two differently sized configurations, the 40-and 50-seat CRJ200s and the 66- and 70-seat CRJ700s, and two types of turboprop aircraft, the 30-seat Brasilia turboprops and the 66-seat ATR-72 turboprops (which we expect to remove from service by August 2007). SkyWest offersAirlines and ASA have combined firm orders to acquire 15 additional CRJ700s and 17 Bombardier CRJ900 Regional Jets ("CRJ900s"), which can be delivered in configurations ranging between 70 and 90 seats, over the next two years and ASA is committed to sublease six additional CRJ200s from Delta commencing in 2006. We have agreements with Delta or United to place all of these aircraft into service upon their delivery. In addition, we have options to acquire 70 additional CRJ900s. We presently anticipate that delivery dates for these aircraft could start in May 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners. We believe that these option aircraft position us to capitalize on additional growth opportunities with our existing and other potential code-share partners.
The following table summarizes certain key elements of the SkyWest Airlines and ASA operations as of December 31, 2005.
| SkyWest Airlines | Atlantic Southeast Airlines | |||
|---|---|---|---|---|
| Partners | Delta, United | Delta | ||
Contract Terms | Delta—Effective through September 2020 Assumed by Delta with Bankruptcy Court approval | Delta—Effective through September 2020 Assumed by Delta with Bankruptcy Court approval | ||
United—Expires incrementally in December 2011, 2013 and 2015 Approved in Bankruptcy Court | ||||
Aircraft (number of planes) | 66-passenger CRJ700s (42) (all United) | 70-passenger CRJ700s (35) | ||
50-passenger CRJ200s (123) (57 Delta, 66 United) | 40- and 50-passenger CRJ200s (106) | |||
30-passenger Brasilia turboprops (62) (14 Delta, 48 United) | 66-passenger ATR-72 turboprops (12) (which we expect to remove from service by August 2007) | |||
Average daily scheduled departures | United:1,100 Delta:400 Total:1,500 | Delta:850 Total:850 | ||
Hubs/Focus Cities | Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland, Seattle/Tacoma, Salt Lake City | Atlanta, Salt Lake City, Cincinnati | ||
Employees | Approximately 8,100 employees(1) | Approximately 5,550 employees(1) | ||
Passengers carried in 2005 | 16.6 million | 12.0 million |
- (1)
- Full-time equivalent
Our Acquisition of Atlantic Southeast Airlines
On September 7, 2005, we completed the acquisition of ASA from Delta for $421.3 million in cash. Additionally, as part of the purchase, we paid $5.3 million of transaction fees and ASA retained approximately $1.25 billion in long-term debt. In addition, we returned to Delta $50 million in deposits that Delta had previously paid on future ASA aircraft deliveries. The combination of SkyWest Airlines and ASA created the largest regional airline in the United States. In addition to the potential benefits of scale that our increased size provides us, the combination of SkyWest Airlines and ASA presents us with new opportunities for growth through our two separate, geographically-focused regional airline platforms—SkyWest Airlines in the Western United States and ASA in the Eastern United States. Although we currently intend to operate the two subsidiaries as separate and independent entities, the skills and knowledge built by these organizations over the years will be available to benefit both. We believe the ASA acquisition also established us as Delta's most important regional airline partner,
based on our percentage of Delta's total regional capacity. We now provide the vast majority of regional airline service for Delta in Atlanta, its most important eastern hub, and Salt Lake City, its most important western hub. In connection with the ASA acquisition, we established new, separate, but substantially similar, long-term fixed-fee Delta Connection Agreements with Delta for both SkyWest Airlines and ASA. Under the agreements, which have initial terms of 15 years (subject to certain extension and termination rights), Delta has agreed that ASA will provide at least 80% of all Delta Connection departures from Atlanta and that at least 50% of ASA's Delta Connection departures will be from Atlanta. We also obtained control of 26 gates in the Hartsfield-Jackson International Airport located in Atlanta, from which we currently provide service to Delta. Delta has committed to provide to us opportunities to utilize 28 additional regional jets in our fleet by the end of 2007. Delta has also agreed that, starting in 2008, ASA is guaranteed to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers.
SkyWest Airlines provides regional jet and turboprop service in the Western United States with the exception of flying provided to United out of its Chicago (O'Hare) hub. SkyWest Airlines offered approximately 1,500 daily scheduled departures as of December 31, 2005, of which approximately 1,100 were United Express flights and approximately 400 were Delta Connection flights. SkyWest Airlines' operations are conducted from hubs located in Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland, Seattle/Tacoma and Salt Lake City. SkyWest Airlines' fleet as of December 31, 2005 consisted of 42 70-seat CRJ700s, all of which were flown for United; 123 50-seat CRJ200s, of which 66 were flown for United and 57 were flown for Delta, and 62 30-seat Brasilia turboprops, of which 48 were flown for United and 14 were flown for Delta. SkyWest Airlines conducts its Delta code-share operations pursuant to the terms of a convenient scheduleDelta Connection Agreement which obligates Delta to compensate SkyWest Airlines for its direct costs associated with operating Delta Connection flights, plus a payment based on block hours flown. SkyWest Airlines' United operations are conducted under a United Express Agreement pursuant to which SkyWest Airlines is paid primarily on a fee-per-completed block hour and frequent
flights designeddeparture basis plus a margin based on performance incentives. Under the United Express Agreement, excess margins over certain percentages must be returned or shared with United, depending on various conditions.
ASA largely provides regional jet service in the United States east of the Mississippi River, with the exception of flying provided to maximize connecting and local traffic. OperatingDelta out of its Salt Lake City hub. ASA offered more than 850 daily scheduled departures as of December 31, 2005, all of which were Delta Connection flights. ASA's operations are conducted primarily from its hubs located in Atlanta, Salt Lake City and Los Angeles, SkyWest serves 46 cities in 12
statesCincinnati. ASA's fleet as of December 31, 2005 consisted of 35 70-seat CRJ700s, 106 40 and Canada50-seat CRJ200s, and twelve ATR-72 turboprops (which we expect to remove from service by August 2007), all of which were flown for Delta. Under the terms of the ASA Delta Connection Agreement, Delta has agreed to compensate ASA for its direct costs associated with approximately 580 daily flights. In Salt Lake City and
Los Angeles, SkyWest isoperating Delta Connection flights, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, a specified margin on such costs. Additionally, the ASA Delta Connection Agreement provides for incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions.
We believe our primary strengths are:
• Largest U.S. Regional Airline with Strong Partner Relationships. As a result of our acquisition of ASA, we are the largest regional airline with market sharesin the United States, measured by the number of passengers enplanedcarried. On a combined pro forma basis for the year ended December 31, 2005, SkyWest Airlines and ASA carried in excess of 99%28 million passengers and 33%, respectively.produced more than 18 billion
"available seat miles," which represents the number of seats available for passengers, multiplied by the number of miles those seats are flown ("ASMs"). We believe the increased scale of our operations will enable us to further reduce our unit costs by more efficiently spreading our overhead and leveraging our operations, which in turn will allow us to offer our services to our partners at even more competitive costs going forward. Based on our consistent provision of high-quality, low-cost regional airline services, we have established strong code-share relationships with our current partners Delta and United, who are currently the world's second and third-largest airlines, respectively, measured by the number of passengers carried. SkyWest operatesAirlines has been a code-share partner with Delta since 1987 and with United since 1997, while ASA has been a code-share partner with Delta since 1984. At the end of 2005, we accounted for approximately 50% of Delta's and approximately 58% of United's regional flight departures, which, we believe, makes us the most important regional partner of both airlines. In addition, our dominant position in our partners' hubs and focus cities, including ASA's position in Atlanta, further reinforces our importance as an integral part of our partners' networks.
• Two Strong Operating Platforms with Significant Growth Opportunities. During more than 30 years of flight operations, SkyWest Airlines has established a strong regional airline platform in the Western United States. ASA has established its operational strength in the Eastern United States, where it holds the largest market share of all regional carriers serving Atlanta's Hartsfield-Jackson International Airport. Concentrating our operations geographically, with one platform serving the Western United States and another serving the Eastern United States, enables us to reduce our unit costs by minimizing our number of crew bases and maintenance and other facilities, and by utilizing our human and capital resources more efficiently. We believe our code-share agreements position us for continued growth of both platforms. For instance, beyond the 38 committed aircraft additions in our contracts, the ASA Delta Connection Agreement contains provisions enabling ASA to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers. Moreover, we believe the combination of the two platforms will allow us to capitalize on operational efficiencies in order to reduce costs, which, coupled with our strong financial resources, will provide us with opportunities to expand service to our existing partners or add new partners.
• Long-Term, Fixed-Fee Code-Share Agreements. We have entered into long-term, fixed-fee code-share agreements with both Delta and United that are subject to us maintaining specified performance levels. Our Delta Connection Agreements provide for minimum aircraft utilization at fixed rates, reimbursement of direct operating costs (such as fuel) and provide a more predictable revenue stream than the historically utilized "pro-rate" revenue-sharing arrangements. Under our code-share agreements, we authorize our partners to identify our flights and fares under their flight designation codes in the central reservation systems, and we are authorized to paint our aircraft in the livery of our partners, to use their service marks and to market ourselves as a code-share carrier for our partners. Notably, our Delta Connection Agreements have been assumed by Delta with U.S. Bankruptcy Court approval, and SkyWest Airlines' United Express Agreement was approved by the U.S. Bankruptcy Court prior to its execution. We believe these court orders significantly reduce the possibility that our code-share agreements will be disrupted by the Delta Connection in Salt Lake City and Los Angeles, as United Express in Los Angelesbankruptcy proceedings, and as the Continental Connection in selected California markets. On January 19,
1998, SkyWest executedincrease our prospects for long-term revenue stability and visibility.
• Experienced Management Team. The four members of our senior management team possess an addendum to its agreement with United, expanding
SkyWest's United Express operations to include approximately 168 daily flights
connecting twelve California markets with United's San Francisco hub beginning
June 1, 1998. To support operations at the San Francisco hub, SkyWest expects to
acquire 17 additional aircraft and spend approximately $12 million for related
ground and maintenance facilities, support equipment and spare parts inventory.
SkyWest operates oneaverage of the youngest fleets26 years of operating experience in the airline industry. Since 1987, SkyWest Airlines' management team has successfully managed through several industry consistingcycles while delivering industry-leading operational performance, consistent profitability and significant value to shareholders.
• High-Quality Service. We strive to deliver high-quality service in every aspect of fifty 30-seat Embraer EMB-120 Brasilia turbo-prop aircraft
("Brasilias") with an average age of 4.4 years and ten 50-seat Canadair Regional
Jets ("CRJs") with an average age of 3.1 years. In December 1996, SkyWest
completed a strategic transition out ofour operations. During the 19-seat Fairchild Metroliner III
("Metroliner") turbo-prop aircraft, which reduced the number of aircraft types
operated by SkyWest from three to two. The transition enabled SkyWest to upgrade
to an all cabin-class fleet of larger aircraft with higher operating
efficiencies and greater passenger acceptance. "Cabin-class" aircraft offer
stand-up headroom, overhead and under-seat storage, lavatories and flight
attendant service.
The addition of United as a code-sharing partner and the completion of
SkyWest's transition to an all cabin-class fleet, together with other factors,
contributed to the Company's achievement of record consolidated operating
revenues and net income for the nine monthsyear ended December 31, 1997.
Consolidated operating revenues increased 7.4% to $225.7 million from $210.0
million2005, SkyWest Airlines' average on-time performance ratio was 63.8% and net income increased 91.9% to $17.3 million from $9.0 million forits flight completion ratio was 98.1%. During the nine monthsyear ended December 31, 19972005,
SkyWest Airlines' aircraft in revenue service operated an average of 9.45 hours per day, which we believe is among the highest aircraft utilization rates in the regional airline industry. In March 2005, SkyWest Airlines was named the 2004 Regional Airline of the Year byRegional Airline World Magazine. In February 2005 and 1996, respectively.
The key elements2006, SkyWest Airlines was named the number one on-time mainland airline in the United States for 2004 and 2005, respectively, by the U.S. Department of SkyWest'sTransportation. ASA is committed to high-quality service, and we believe the combination of the SkyWest Airlines and ASA platforms presents an opportunity for both carriers to enhance the quality of their service.
• Financial Resources and Flexibility. Due in part to our success in implementing our business strategy, are:
-we possess financial resources and flexibility which distinguish us from many other regional and major carriers and which constitute a competitive advantage. At December 31, 2005, after giving effect to this offering, we would have had cash and marketable securities of approximately $320.7 million, which would have represented 16.3% of our revenues during the year ended December 31, 2005. The strength of our balance sheet and credit profile have enabled us to enter into lease and other financing transactions on terms we believe are more favorable than the terms available to many other carriers. Many major carriers currently face significant financial challenges and are experiencing difficulty financing the acquisition and operation of aircraft for themselves and their regional partners. As a result, regional carriers themselves are increasingly financing the expansion and operation of the fleet serving the major carrier's passengers. Our lower aircraft ownership costs can be shared with our partners, which we believe represents a competitive advantage when we seek additional growth. We believe our financial flexibility also allows us to take advantage of growth opportunities—such as the acquisition of ASA or placing a large aircraft order—that we might otherwise be unable to pursue if we did not possess these financial resources.
Our business strategy consists of the following elements:
• Capitalize on Relationshipsthe ASA Acquisition to Reduce Operating Costs. We believe our acquisition of ASA provides a number of significant opportunities to reduce the unit operating costs of both the SkyWest Airlines and ASA platforms without compromising passenger safety, service quality or operational reliability. Among those opportunities, we intend to focus our initial cost reduction efforts in four key areas:
- 1.
- improve the utilization of our equipment and facilities through the refinement of operational processes, elimination of redundancies and collaborative identification and implementation of operational best practices;
- 2.
- increase employee productivity by incorporating best practices, efficiently utilizing our employees to support both operating platforms, and providing incentive-based compensation and benefits that are competitive with
Code-Sharing Partners. Historically, SkyWest's growth has been assistedpackages offered by other regional carriers with whom we compete; - 3.
- leverage our position as the
development of code-sharing agreementslargest U.S. regional carrier to allocate overhead and administrative expenses over a substantially larger platform, thereby reducing unit costs; and - 4.
- reduce our aircraft acquisition and financing costs by continuing to strengthen our balance sheet through the proceeds raised from this offering and by refinancing our debt and lease obligations where appropriate.
• Expand Existing and Develop New Code-Share Agreements. We enjoy strong relationships with Delta, Unitedour existing code-share partners and Continental. SkyWest views the recent addition of United
as a code-sharing partner as a significant opportunity to further increase its
traffic and profitability by serving United's Los Angeles and San Francisco hubs
and to develop code-sharing relationships in other hubs served by United.
SkyWest workswork closely with its code-sharingthese partners to expand service to their existing markets, open new markets and schedule frequent, convenient and profitablefrequent flights. SkyWest believes thatWe view the continued development of our Delta and United relationships as significant opportunities to achieve stable, long-term growth of our business. We believe the principal reason itSkyWest Airlines has
attracted multiple code-sharingcode-share partners is its delivery of high-quality, reliable
service. SkyWest's competitive fares and ability to offer passengers
participation in the frequent flyer programs of Delta, United and Continental
are attractive incentives for passengers to fly on SkyWest. SkyWest also
believesmaintain a competitive cost structure while delivering high-quality customer service. We believe that multiple code-sharingcode-share agreements with major carriers diversifies financial and operating riskrisks by reducing reliance on a single major carrier. 3
5
- Expand Fleet SizeThis diversification may also allow us to grow at a faster rate and Increase Utilizationnot be limited by the rate at which any single partner can, or wishes to, Serve Newgrow. We intend to explore opportunities to develop additional code-share relationships with other carriers to the extent they are consistent with our business strategy.
• Focus on Larger Gauge Aircraft. We operate a greater number of large gauge regional jets than any other U.S. carrier. Large gauge regional jets, which seat approximately 70 or more passengers, offer significant opportunities for revenue and Existing
Markets. SkyWest seeksprofitability growth among major and regional carriers. Most major carriers, including Delta and United, have recognized the growth opportunities created by larger regional aircraft and are exploring opportunities to expandadd larger gauge regional jets, flown by themselves or their regional partners, to their flight systems. As of December 31, 2005, we operated a total of 77 CRJ700s, and we believe the expansion of our CRJ700 fleet will create growth opportunities in many markets in which we are the most competitive provider. For us, the operational commonality of CRJ700s and CRJ200s, which we have been flying and maintaining for more efficiently utilize its Brasilia and
CRJ aircraft to serve existing and new, profitable markets. SkyWest believes
that Brasilias are most efficiently used on shorter stage lengthsthen eleven years, offers additional operating efficiencies which we believe will enable us to provide frequentlarger gauge services at lower costs than our competitors. SkyWest Airlines and convenient service. For example, as SkyWest commenced service as
United ExpressASA have combined firm orders to acquire 15 additional CRJ700s and 17 CRJ900s over the next two years and ASA is committed to sublease six additional CRJ200s from Delta commencing in Los Angeles2006. In addition, we have options to acquire 70 additional CRJ900s, which can be configured to seat between 70 and 90 passengers. We believe the strength of our balance sheet has provided us the flexibility to place aircraft orders on a scale and timetable not easily matched by our competitors.
• Operate Limited Fleet Types. As of December 31, 2005, we operated 380 aircraft, principally of just two types, Bombardier Regional Jets and Brasilia turboprops. By simplifying our fleet, we believe we are able to limit our operating costs due to efficiencies in October 1997, Brasilias were shiftedemployee training, aircraft maintenance, lower spare parts inventory requirements and aircraft scheduling. While ASA currently operates twelve ATR-72 turboprops, we expect to remove these aircraft from less
efficient, non-hub based routes to more efficient Los Angeles hub and spoke
routes connecting with SkyWest's code-sharing partners. SkyWest's expanded role
as United Express in San Francisco will require the addition of 17 Brasilias by
June 1, 1998. CRJs are utilized on longer routes to supplement existing service by majorAugust 2007.
• Maintain a Positive Employee Culture. We believe our employees have been, and will continue to be, a key to our success. While none of the employees of SkyWest Airlines are represented by a union and ASA's pilots, flight attendants and flight controllers are all unionized, we believe that we offer our employees in both our operating subsidiaries substantially similar compensation and benefits packages that we believe differentiate us from other carriers and make us an attractive place to replace larger jets on routes where service is
discontinued by major carriers, to replace SkyWest's Brasilias as markets grow,work and to develop new markets. SkyWest believes its utilizationbuild a career. With the expansion of CRJs is amongour operations resulting from our acquisition of ASA, the highestbest efforts of all regional carriers operating CRJs.
- Increase Profitability.of our employees will be required to achieve the potential benefits envisioned by the transaction and continue to make our business successful. We believe that these factors, in combination with our historically low employee turnover rate, are a significant reason that neither SkyWest focuses on increasing profitability
through maximizing revenues per available seat mile ("RASM") and minimizing
costs per available seat mile ("CASM"). Revenues are maximized by delivery of
reliable, on-time flights, excellent customer service, efficient utilization ofAirlines nor ASA has ever had a revenue management system andwork stoppage due to a strike or other labor dispute.
Growth Opportunities
During the development of profitable code-sharing
relationships. SkyWest uses its recently acquired state-of-the-art revenue
management system to analyze markets and booking patterns and assist in
scheduling and seat inventory management to maximize revenues. The Company
believes SkyWest's development of multiple code-sharing relationships has
resulted in increased revenues without a proportionate increase in costs. A
Company-wide emphasis on cost management and more efficient utilization of
existing resources, together with the completed transition from three to two
aircraft types, has resulted in lower overhead and lower unit costs while
maintaining excellent customer service. CASM has declined in each fiscal year
since 1993 and decreased from 16.2c for the nine monthsfour years ended December 31, 19962005, our total operating revenues expanded at a compounded annual rate of 34.4% and the number of daily flights we operated increased from approximately 1,000 at the end of 2001 to 15.8c for the nine months endedapproximately 2,350 as of December 31, 1997. These reductions in CASM2005. With the exception of our acquisition of ASA, our growth during that five-year period was internally generated. We believe there are additional opportunities for expansion of our operations, consisting primarily of:
• Delivery of Aircraft Under Firm Order. We have been achieved notwithstanding a decline in stage lengths as Brasiliasfirm orders to acquire 15 additional CRJ700s and 17 CRJ900s during the two-year period ending December 31, 2007. We have been shiftedalso obtained the right to shorter hub and spoke routessublease from Delta six additional CRJ200s. We have agreements with Delta or
United to increase utilization.
- Provide Excellent Customer Service. SkyWest believes its insistence on
excellent customerplace all 38 of these aircraft into revenue service, in every aspect of its operations (including
personnel, flight equipment, in-flight amenities, baggage handling and on-time
performance and flight completion ratios) has increased customer loyalty.
SkyWest also believesunder long-term, fixed-fee contracts, promptly following their delivery.
• Potential Opportunities from Delta's Restructuring. We believe that excellent customer service is largely responsible for
its multiple code-sharing relationships as Delta United and Continental seek to
build customer loyalty and preference by partnering with high-qualityrestructures its fleet under bankruptcy protection, there may be new regional flying contracts that become available for qualified regional carriers. ASA holds certain rights to maintain its proportion of overall Delta regional flights, as well as its proportion of Atlanta regional flights. This may help ASA compete for new flying mandates, if any, that come into existence at Delta.
• Scope Clause Relief. "Scope clauses" are elements of major airlines' labor contracts with their own pilots that place restrictions on the number and size of aircraft, or the amount of flight activity, that can be operated by major airlines' regional airline contractors such as ASA and SkyWest completed its transition to an all cabin-class fleet in
December 1996, in part to provide larger,Airlines. Greater liberalization of scope clauses generally creates more comfortable aircraftbusiness opportunities for its
passengers. SkyWest believes that, for the nine months ended December 31, 1997,
its on-time performance ratio and flight completion ratio were the highest of
all regional airlines at 95.5% and 98.5%, respectively. SkyWest has achieved
these performance measures by operating oneairlines. Since 2001, five of the youngest fleets insix major national airlines (American Airlines, Inc. ("American Airlines"), United, Delta, Northwest Airlines, Inc. ("Northwest") and US Airways, Inc. ("US Airways")) have successfully achieved some scope clause liberalization. If further efforts by major airlines to relax scope clause restrictions are successful, it may create incremental opportunities for regional airlines.
• Narrowbody Replacement Flying. A meaningful portion of the recent growth of the regional airline industry resulted from the replacement of major airline-operated narrowbody jet aircraft (such as 737s, DC9s, MD80s and continuing its commitmentA319s) with regional airline-operated jets on the same route. The major airlines have effected this change in equipment in an effort to high quality maintenance.
ADDITIONAL BUSINESSES
The Company isachieve an advantage in trip costs, unit costs, frequency or a combination of these benefits. At present, the six major national airlines have a significant number of narrowbody aircraft that are more than 15 years old in their fleets. Such older aircraft are frequently less fuel- and maintenance-efficient than new aircraft. If major airlines decide to substitute newer regional airline-operated equipment for any portion of these older narrowbody aircraft upon their retirement, it may create incremental opportunities for regional airlines.
Our executive offices, which also engaged in other transportation-related businesses
through two wholly-owned subsidiaries. Scenic provides air tours and general
aviation services toserve as the Grand Canyon and other scenic regions of northern
Arizona, southern Utah and southern Nevada. Scenic operates 41 aircraft,
including 18 specially modified VistaLiner sight-seeing airplanes. NPT provides
car rental services through a fleet of Avis vehicles located at six airports
served by SkyWest. During the nine months ended December 31, 1997, Scenic and
NPT generated combined revenues of $27.9 million, representing 12.4% of the
Company's consolidated revenues for the period.
The principal executive offices of the CompanySkyWest Airlines, are located at 444 South River Road, St. George, Utah 84790, and the Company's84790. Our primary telephone number is (435) 634-3000.
4
6
THE OFFERING
634-3000 and our website address is www.skywest.com. ASA's executive offices are located at 100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354. ASA's primary telephone number is (404) 766-1400, and its website address is www.flyasa.com. The information on these websites is not part of this prospectus.
The Offering
The following information, which is based on the number of shares outstanding as of March 31, 2006, assumes that the underwriters do not exercise their overallotment option to purchase 600,000 additional shares. Please see "Underwriting" for more information concerning this option.
| Common by | 4,000,000 shares | |
Common | 63,596,298 shares(1) | |
Use of | We estimate that our net proceeds from this offering will be approximately $111 million. We intend to use these net proceeds for repayment of | |
Risk factors | See "Risk Factors" and other information included in this prospectus for discussion of factors you should carefully consider before deciding to invest in shares of our common stock. | |
Nasdaq National Market | "SKYW" | |
Overallotment option | 600,000 shares subject to the underwriters' overallotment option may be sold by us. |
- (1)
Excludes 583,865 - The number of shares outstanding after the offering excludes 6,301,002 shares of
Common Stockcommon stock reserved for issuance upon exercise of outstanding stock options with an estimated weighted average exercise price of $18.38 per share.
Summary Consolidated Financial and 287,195 sharesOperating Data
| | Historical | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Years Ended December 31, | |||||||||||
| | 2003(1) | 2004(1) | 2005(2) | |||||||||
| | (in thousands, except share, per share and airline operating data) | |||||||||||
| Consolidated Statements of Income: | ||||||||||||
| Operating revenues | $ | 888,026 | $ | 1,156,044 | $ | 1,964,048 | ||||||
| Operating income | 108,480 | 144,776 | 220,408 | |||||||||
| Net income | 66,787 | 81,952 | 112,267 | |||||||||
| Net income per common share: | ||||||||||||
| Basic | 1.16 | 1.42 | 1.94 | |||||||||
| Diluted | 1.15 | 1.40 | 1.90 | |||||||||
| Dividends declared per common share | $ | 0.08 | $ | 0.12 | $ | 0.12 | ||||||
| Weighted average number of shares outstanding: | ||||||||||||
| Basic | 57,745 | 57,858 | 57,851 | |||||||||
| Diluted | 58,127 | 58,350 | 58,933 | |||||||||
| Other Financial Data: | ||||||||||||
| Net cash from (used in): | ||||||||||||
| Operating activities | 157,743 | 246,866 | 207,534 | |||||||||
| Investing activities | (811,690 | ) | (285,321 | ) | (422,453 | ) | ||||||
| Financing activities | 635,394 | 39,068 | 242,513 | |||||||||
| Airline Operating Data: | ||||||||||||
| Passengers carried | 10,738,691 | 13,424,520 | 20,343,975 | |||||||||
| Revenue passenger miles (000s)(3) | 4,222,669 | 5,546,069 | 9,538,906 | |||||||||
| Available seat miles (000s)(4) | 5,875,029 | 7,546,318 | 12,718,973 | |||||||||
| Passenger load factor(5) | 71.9 | % | 73.5 | % | 75.0 | % | ||||||
| Revenue per available seat mile(6) | 15.1 | ¢ | 15.3 | ¢ | 15.4 | ¢ | ||||||
| Cost per available seat mile(7) | 13.4 | ¢ | 13.6 | ¢ | 14.1 | ¢ | ||||||
| EBITDA(8) | 193,797 | 231,643 | 348,231 | |||||||||
| EBITDAR(8) | 318,733 | 377,584 | 558,462 | |||||||||
| Average passenger trip length (miles) | 393 | 413 | 469 | |||||||||
| Number of aircraft in service (end of period): | ||||||||||||
| Bombardier Regional Jets: | ||||||||||||
| Owned | 30 | 32 | 119 | |||||||||
| Leased | 79 | 101 | 187 | |||||||||
| Brasilia Turboprops: | ||||||||||||
| Owned | 21 | 21 | 14 | |||||||||
| Leased | 55 | 52 | 48 | |||||||||
| ATR-72 Turboprops (Leased) | 0 | 0 | 12 | |||||||||
| Total Aircraft | 185 | 206 | 380 | |||||||||
| | As of December 31, 2005 | |||||
|---|---|---|---|---|---|---|
| | Actual | As Adjusted(9) | ||||
| | (in thousands) | |||||
| Consolidated Balance Sheet Information: | ||||||
| Cash and marketable securities | $ | 299,668 | $ | 320,687 | ||
| Aircraft and other equipment, net | 2,552,522 | 2,552,522 | ||||
| Total assets | 3,320,646 | 3,341,665 | ||||
| Long-term debt, including current maturities(10) | 1,753,903 | 1,753,903 | ||||
| Lines of credit | 90,000 | — | ||||
| Total stockholders equity | $ | 913,198 | $ | 1,024,217 | ||
- (1)
- Reflects our operations for periods prior to our acquisition of
Common Stock availableASA. Does not reflect the financial or operating performance of ASA. - (2)
- Includes financial and operating performance of ASA for the
future grantlast 115 days ofstock options under2005, since theCompany's stock option plans at January 16, 1998 . RISK FACTORS See "Risk Factors" beginningacquisition by SkyWest, Inc. - (3)
- Revenue passengers multiplied by miles carried.
- (4)
- Passenger seats available multiplied by miles flown.
- (5)
- Revenue passenger miles divided by available seat miles.
- (6)
- Total airline operating revenues divided by available seat miles.
- (7)
- Total operating and interest expenses divided by available seat miles. Total operating and interest expenses is not a calculation based on
page 7 for a discussion of certain factors thatgenerally accepted accounting principles and should not be considered as an alternative to total operating expenses. Cost per available seat mile utilizing this measurement is included as it is a measurement recognized byprospective purchasers oftheCommon Stock offered hereby. FORWARD-LOOKING STATEMENTS This Prospectus contains various forward-looking statementsinvesting public. - (8)
- EBITDA represents earnings before interest expense, income taxes, depreciation and
information that are based on management's belief, as well as assumptions made by and information currently available to management. When used in this document, the words "anticipate," "estimate," "project," "expect," and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. Among the key factors that may have a direct bearing on the Company's operating results are the risks and uncertainties described under "Risk Factors," including, among other things, changes in SkyWest's code-sharing relationships, fluctuations in the economy and the demand for air travel, the degree and nature of competition and SkyWest's ability to expand services in new and existing markets and to maintain profit margins in the face of pricing pressures. PROPRIETARY MARKS Delta(R), Delta Connection(R) and The Delta Connection(R) are trademarks of Delta Air Lines, Inc. United(R) and United Express(R)are trademarks of United Airlines, Inc. Continental(R) and Continental Connection(TM) are trademarks of Continental Airlines, Inc. 57 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND AIRLINE OPERATING DATA)NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------------------------------------------------- ---------------------- 1993 1994 1995 1996 1997 1996 1997 --------- --------- --------- --------- --------- --------- ---------CONSOLIDATED STATEMENTS OF INCOME DATA: Operating revenues(1)......... $ 146,800 $ 182,908 $ 218,075 $ 245,520 $ 278,110 $ 210,039 $ 225,683 Operating income.............. 11,465 24,680 20,341 5,710(2) 15,417 13,941 26,703 Net income.................... 6,704 14,396 13,701 4,366(2) 10,111 9,003 17,277 Net income per common share(3): Basic....................... $ 0.85 $ 1.46 $ 1.23 $ 0.42(2) $ 1.00 $ 0.89 $ 1.70 Diluted..................... 0.83 1.43 1.22 0.42(2) 1.00 0.89 1.68 OTHER FINANCIAL DATA: EBITDAR(4).................... $ 39,057 $ 56,325 $ 63,932 $ 57,725(2) $ 75,419 $ 59,436 $ 73,120 AIRLINE OPERATING DATA(5): Passengers carried............ 1,523,384 1,730,993 2,073,885 2,340,366 2,656,602 1,986,371 2,228,741 Revenue passenger miles (000)....................... 294,276 345,414 488,901 617,136 717,322 540,043 567,437 Available seat miles (000).... 669,724 727,059 976,095 1,254,334 1,413,170 1,053,935 1,113,486 Passenger load factor......... 43.9% 47.5% 50.1% 49.2% 50.8% 51.2% 51.0% Breakeven load factor......... 41.1% 41.2% 45.5% 48.4% 47.9% 48.2% 45.2% Yield per revenue passenger mile.............. 45.0c 43.9c 36.3c 33.2c 33.3c 32.9c 34.2c Revenue per available seat mile........................ 20.5c 21.6c 18.8c 16.9c 17.3c 17.3c 17.8c Cost per available seat mile........................ 19.1c 18.8c 17.1c 16.6c 16.3c 16.2c 15.8c Average passenger trip length...................... 193 200 236 264 270 272 255 Number of aircraft (end of period): Embraer Brasilia............ 19 23 28 35 50 47 50 Canadair Regional Jet....... - 4 6 10 10 10 10 Fairchild Metroliner III.... 31 28 26 18 - 5 - -- -- -- -- -- -- -- Total aircraft.......... 50 55 60 63 60 62 60AS OF DECEMBER 31, 1997 ----------------------- AS ACTUAL ADJUSTED(6) -------- -----------CONSOLIDATED BALANCE SHEET DATA: Working capital........................................... $ 68,730 $117,295 Property and equipment, net............................... 140,297 140,297 Total assets.............................................. 260,933 309,498 Long-term debt, less current maturities................... 51,248 51,248 Stockholders' equity...................................... 142,541 191,106- --------------- (1) Reflects the reclassification of non-airline commissions expense against non-airline operating revenues. (2) Includes $6.2 million of pre-tax fleet restructuring and transition expenses related to the replacement of the Metroliner turbo-prop aircraft. (3) Reflects restated net income per common share amounts as required by Statement of Financial Accounting Standards No. 128. (4)amortization. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization and aircraft rents.(5) Excludes the operations of Scenic and NPT. For definitions of the airline operating terms used in this table, seeSee "Selected Consolidated Financial and OperatingData." (6)Data" herein for a reconciliation of EBITDA and EBITDAR to net cash from operating activities for the periods indicated. EBITDA and EBITDAR are not calculations based on generally accepted accounting principles and should not be considered as alternatives to cash flow as a measure of liquidity. In addition, our calculations may not be comparable to other similarly titled measures of other companies. EBITDA and EBITDAR are included as supplemental disclosures because they may provide useful information regarding our ability to service debt and lease payments and to fund capital expenditures. Our ability to service debt and lease payments and to fund capital expenditures in the future, however, may be affected by other operating or legal requirements or uncertainties. Currently, aircraft and engine ownership costs are our most significant cash expenditure. In addition, EBITDA and EBITDAR are well recognized performance measurements in the regional airline industry and, consequently, we have provided this information. - (9)
- Adjusted to reflect the sale of
the 1,400,000sharesofferedwe are offering hereby at an assumed offering price of$36.875$29.27 per share, and the application of the estimated net proceeds therefrom.See "Use - (10)
- At December 31, 2005, 247 of
Proceeds." 68 RISK FACTORSthe aircraft operated by SkyWest Airlines and ASA were financed through operating leases. In addition to our indebtedness, at December 31, 2005, we had approximately $3.2 billion of mandatory future minimum payments under operating leases, primarily for aircraft and ground facilities. At a 7% discount factor, the present value of these obligations would be equal to approximately $2.1 billion.
Before you invest in our common stock, you should be aware that such investment involves a high degree of risk, including the risks described below. You should consider carefully these risk factors, together with all of the other information containedincluded in this Prospectus,prospectus, before you decide to purchase any shares of our common stock. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also impair our business operations. If any of the following factors should be considered carefully in evaluating an investment inrisks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the Company.
DEPENDENCE ON CODE-SHARING RELATIONSHIPS
SkyWest istrading price of our common stock may decline and you may lose all or part of your investment.
Risks Related to Our Operations
We are highly dependent on relationships createdDelta and United.
If any of our code-share agreements are terminated pursuant to the terms of those agreements, due to the bankruptcy and restructuring proceedings of Delta and United, or otherwise, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss. A termination of any of these agreements would have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by code-sharing agreements
withother code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements. Operating our airline independent from major partners would be a significant departure from our business plan, would likely be very difficult and may require significant time and resources, which may not be available to us at that point.
The current terms of the SkyWest Airlines and ASA Delta United and Continental (the "Code-Sharing Agreements") forConnection Agreements are subject to certain early termination provisions. Delta's termination rights include cross-termination rights (meaning that a substantial portionbreach by SkyWest Airlines or ASA of its business. Under SkyWest's Code-SharingDelta Connection Agreement withcould, under certain circumstances, permit Delta (the "Delta Agreement")to terminate both Delta Connection Agreements), the right to terminate each of the agreements upon the occurrence of certain force majeure events (including certain labor-related events) that prevent SkyWest Airlines or ASA from performance for certain periods and the right to terminate each of the agreements if SkyWest Airlines or ASA, as applicable, fails to maintain competitive base rate costs, subject to certain rights of SkyWest Airlines to take corrective action to reimburse Delta is not prohibited from competing on routes
served by SkyWest.for lost revenues. The current term of the Deltaour United Express Agreement continues until April 2002,
but is subject to certain early termination in various circumstances including 180 days'
notice by either party for any or no reason; provided, however, that Delta may
not terminate the Delta Agreement prior to April 1999, except for cause, as
defined in the Delta Agreement. The term of SkyWest's Code-Sharing Agreement
with United (the "United Express Agreement") is for five years ending in
September 2002 for Los Angeles operationsprovisions and ten years ending in May 2008 for
San Francisco operations, subject to termination by United upon 180 days' prior
notice.subsequent renewals. United may however, terminate the United Express Agreement for cause
upon 30 days' written notice. Any material modificationdue to or termination of the
Code-Sharing Agreements, any substantial decrease in the number of routes servedan uncured breach by SkyWest or SkyWest's code-sharing partners at hubs served by SkyWest or the
occurrenceAirlines of any event adversely affecting eithercertain operational and performance provisions, including measures and standards related to flight completions, baggage handling and on-time arrivals.
We currently use Delta's and United's systems, facilities and services to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services. If Delta or United generallywere to cease any of these operations or no longer provide these services to us, due to termination of one of our code-share agreements, a strike by Delta or United personnel or for any other reason, we may not be able to replace these services on terms and conditions as favorable as those we currently receive, or at all. Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to significantly reduce our operations. Furthermore, upon certain terminations of our code-share agreements, Delta and United could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the code-share services we provide. As a result, in order to offer airline service after termination of any of our code-share agreements, we may have to replace these airport facilities, assets and services. We may be unable to arrange such replacements on satisfactory terms, or at all.
We may be negatively impacted by the troubled financial condition, bankruptcy proceedings and restructurings of Delta and United.
Substantially all of our revenues are attributable to our code-share agreements with Delta, which is currently reorganizing under Chapter 11 of the U.S. Bankruptcy Code, and United, which recently emerged from bankruptcy proceedings. The U.S. Bankruptcy Courts charged with administration of the Delta and United bankruptcy cases have entered final orders approving the assumption of our code-share agreements. Notwithstanding those approvals, these bankruptcies and restructurings present considerable continuing risks and uncertainties for our code-share agreements and, consequently, for our operations.
Although a plan of reorganization has been confirmed in the United bankruptcy proceedings, which became effective on February 1, 2006 (subject to pending appeal), and Delta reports that it intends to reorganize and emerge from its bankruptcy proceedings, there is no assurance that either of United or Delta will ultimately succeed in its reorganization efforts or that either Delta or United will remain a going concern over the long term. Likewise, even though both Delta and United have assumed our code-share agreements with bankruptcy court approval, there is no assurance that these agreements will survive the Chapter 11 cases. For example, the Delta reorganization could be converted to liquidation, or Delta could liquidate some or all of its assets through one or more transactions with one or more third parties with bankruptcy court approval. In addition, Delta may not be able to confirm and consummate a successful plan of reorganization that provides for continued performance of its obligations under its code-share agreements with us. In the event United is not able to perform successfully under the terms of its plan of reorganization, assumption of our United Express Agreement could be subjected to similar risks.
Other aspects of the Delta and United bankruptcies and reorganizations pose additional risks to our code-share agreements. Delta may not be able to obtain bankruptcy court approval of various motions necessary for it to administer its bankruptcy case. As a consequence, Delta may not be able to maintain normal commercial terms with vendors and service providers, including other code-share partners, that are critical to its operations. Delta also may be unable to reach satisfactory resolutions of disputes arising out of collective bargaining agreements or to obtain sufficient financing to fund its business while it reorganizes. These and other factors not identified here could delay the resolution of the Delta bankruptcy and reorganization significantly and could threaten Delta's operations. As to United, even though a plan of reorganization has been confirmed in the United bankruptcy proceedings, and there is no assurance that United will be able to operate successfully under the terms of its confirmed plan.
In light of the importance of our code-share agreements with Delta and United to our business, the termination of these agreements or the failure of Delta to ultimately emerge from its bankruptcy proceeding could jeopardize our operations. Such events could leave us unable to operate much of our current aircraft fleet and the additional aircraft we are obligated to purchase. As a result, these events could have a material adverse effect on our operations and financial condition.
Even though United has emerged from bankruptcy proceedings and if Delta is ultimately able to emerge from its bankruptcy proceedings, their respective financial positions will continue to pose risks for our operations. Serial bankruptcies are not unprecedented in the Company. See
"Business -- Code-Sharing Agreements."
ABILITY TO IMPLEMENT EXPANSIONcommercial airline industry, and Delta and/or United could file for bankruptcy again after emergence from Chapter 11, in which case our code-share agreements could be subject to termination under the U.S. Bankruptcy Code. Regardless of whether subsequent bankruptcy filings prove to be necessary, Delta and United have required, and will likely continue to require, our participation in efforts to reduce costs and improve their respective financial positions. These efforts could result in lower utilization rates of our aircraft, lower departure rates on the contract flying portion of our business, and more volatile operating margins. We believe that any of these developments could have a negative effect on many aspects of our operations and financial performance.
We may not achieve the potential benefits of the ASA acquisition.
Our achievement of the potential benefits of the ASA acquisition will depend, in substantial part, on our ability to successfully implement our business strategy, including improving the utilization of equipment and facilities, increasing employee productivity and allocating overhead and administrative expenses over a larger platform. We will be unable to achieve the potential benefits of the ASA acquisition unless we are able to efficiently integrate the SkyWest Airlines and ASA operating platforms in a timely manner. The Company's principal growth strategy isintegration of SkyWest Airlines and ASA may be costly, complex and time-consuming, and the managements of SkyWest Airlines and ASA will have to devote substantial effort to such integration. If we are not able to successfully achieve these objectives, the potential benefits of the ASA acquisition may not be realized fully or at all, or they may take longer to realize than expected. In addition, assumptions underlying estimates of expected cost savings and expected revenues may be inaccurate, or general industry and business conditions may deteriorate. Our combined operations with ASA may experience increased competition that limits our ability to expand SkyWest'sour business. We cannot assure you that the ASA acquisition will result in combined results of operations and financial condition consistent with our expectations or superior to supportwhat we and ASA could have achieved independently. Nor do we represent to you that any estimates or projections we have developed or presented in connection with the operationsASA acquisition can or will be achieved.
The amounts we receive under our code-share agreements may be less than the actual amounts of its code-sharing partners. Such expansion, whichthe corresponding costs we incur.
Under our code-share agreements with Delta and United, we are compensated for certain costs we incur in providing services. With respect to costs that are defined as "pass-through" costs, our code-share partner is obligated to pay to us the actual amount of the cost (and, with respect to the ASA Delta Connection Agreement, a pre-determined rate of return based upon the actual costs we incur). With respect to other costs, our code-share partner is obligated to pay to us amounts based, in part, on pre-determined rates for certain costs. During the year ended December 31, 2005, approximately 50% of our costs were pass-through costs and 50% of our costs were reimbursable at pre-determined rates. These pre-determined rates may not be based on the actual expenses we incur in delivering the associated services. If we incur expenses that are greater than the pre-determined reimbursement amounts payable by our code-share partners, our financial results will likely consistbe negatively affected.
We have a significant amount of entry into new markets and developmentcontractual obligations.
As of existing
markets, will require additional aircraft and facilities for passenger
ticketing, check-in and boarding and aircraft maintenance and storage,
additional rights to use gatesDecember 31, 2005, we had a total of approximately $1.8 billion in the markets to be served by SkyWest and
additional personnel. In particular, SkyWest recently announced its intention to
expand its operations to include service as a United Express carrier at United's
San Francisco hub, which, if implemented, would requiretotal long-term debt obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of 17
additional Brasilias,aircraft, engines and related spare parts including debt assumed in the acquisitionASA acquisition. We also have significant long-term lease obligations primarily relating to our aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in our condensed consolidated balance sheets. At December 31, 2005, we had 247 aircraft under lease, with remaining terms ranging from one to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at December 31, 2005. At a 7% discount factor, the present value of additional maintenance facilities, the
employmentthese lease obligations was equal to approximately $2.1 billion at December 31, 2005. As of more than 475 additional employees (consistingDecember 31, 2005, we had commitments of approximately 200 pilots$838 million to purchase 15 CRJ700s and 17 CRJ900s and to lease six CRJ200's, together with related flight attendants, 50 maintenance personnelequipment. We expect to complete these deliveries by April 2007. Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and 225 customerexpansion plans to service personnel)the fixed obligations.
There are risks associated with our regional jet strategy, including potential oversupply and possible passenger dissatisfaction.
Our selection of Bombardier Regional Jets as the integrationprimary aircraft for our existing operations and projected growth involves risks, including the possibility that there may be an oversupply of regional jets available for sale in the foreseeable future, due, in part, to the financial difficulties of regional and major airlines, including Delta, United, Northwest, Comair, Inc. ("Comair"), Mesaba Aviation, Inc., and FLYi, Inc., which is in the process of liquidating its regional jet fleet. A large supply of regional jets may allow other carriers, or even new carriers, to acquire aircraft for unusually low acquisition costs, allowing them to compete more effectively in the industry, which may ultimately harm our operations and financial performance.
Our regional jet strategy also presents the risk that passengers may find the Bombardier Regional Jets to be less attractive than other aircraft, including other regional jets. Recently, several other models of regional jets have been introduced by manufacturers other than Bombardier. If passengers develop a preference for other regional jet models, our results of operation and financial condition could be negatively impacted.
We may be limited from expanding our flying within the Delta and United flight systems, and there are constraints on our ability to provide airline services to airlines other than Delta and United.
Additional growth opportunities within the Delta and United flight systems are limited by various factors. Except as currently contemplated by our existing code-share agreements, we cannot assure that Delta or United will contract with us to fly any additional aircraft. We may not receive additional growth opportunities, or may agree to modifications to our code-share agreements that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons. Furthermore, the troubled financial condition, bankruptcies and restructurings of Delta and United may reduce the growth of regional flying within their flight systems. Given the troubled nature of the airline industry, we believe that some of our competitors may be more inclined to accept reduced margins and less favorable contract terms in order to secure new or additional code-share operations. Even if we are offered growth opportunities by our major partners, those opportunities may involve economic terms or financing commitments that are unacceptable to us. Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with our existing code-share partners. Additionally, even if Delta and/or United choose to expand our fleet on terms acceptable to us, they may be allowed at any time to subsequently reduce the number of aircraft facilities and
employees into SkyWest's existing operations. There cancovered by our code-share agreements. We also cannot assure you that we will be no assurance that
SkyWest can profitably integrate this growth. The Company presently estimates
that the cost of acquiringable to obtain the additional ground and maintenance facilities, including gates and support equipment, and spare parts inventory required for the San Francisco
expansion will be approximately $12 million. There is no assurance that the
Company will be able to obtain the financing or the facilities, aircraft, gates
and personnel required in connection with its proposed expansion on a timely
basis.expand our operations. The failure to obtain such financing or such aircraft,these facilities gates
or personneland equipment would likely impede our efforts to implement our business strategy and could materially adversely affect our operating results and our financial condition.
Delta and/or United may be restricted in increasing their business with us, due to "scope" clauses in the Company'scurrent collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots. Delta's scope limitations restrict its partners from operating aircraft with over 70 seats even if those aircraft are operated for an airline other than Delta. We cannot assure that these scope clauses will not become more restrictive in the future. Any additional limit on the number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the price of our common stock.
Our business model depends on major airlines, including Delta and United, electing to contract with us instead of operating their own regional jets. Some major airlines, including Delta, American Airlines, US Airways and JetBlue Airways Corporation ("JetBlue"), own their own regional airlines or operate their own regional jets instead of entering into contracts with regional carriers. We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead
of operating their own regional jets. Our partners are not prohibited from doing so under our code-share agreements. A decision by Delta or United to phase out code-share relationships and instead acquire and operate their own regional jets could have a material adverse effect on our financial condition, and
results of operations. Dueoperations or the price of our common stock.
Additionally, our code-share agreements limit our ability to provide airline services to other airlines in certain major airport hubs of each of Delta and United. Under the limited market for purchaseSkyWest Airlines Delta Connection Agreement, our growth is contractually restricted in Atlanta, Cincinnati, Orlando and Salt Lake City. Under the ASA Delta Connection Agreement, our growth is restricted in Atlanta, Cincinnati, New York (John F. Kennedy International Airport), Orlando and Salt Lake City. Under SkyWest Airlines' United Express Agreement, growth is restricted in Chicago (O'Hare International Airport), Denver, Los Angeles, San Francisco, Seattle/Tacoma and Washington D.C. (Dulles International Airport).
Increased labor costs, strikes, labor disputes and increased unionization of Brasilia
aircraft and facilities, among other factors, there can be no assurance that the
Company's current estimates of the costs associated with its proposed expansion
will be accurate. Any material deviation in the actual costs from the Company's
current estimates couldour workforces may adversely affect our ability to conduct our business.
Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the Company's financial condition or
results of operations. In addition, part of the Company's growth strategy is to
expand its code-sharing relationships into other hubs served by United. There
can be no assurance, however, that such opportunities will arise or that the
Company will be able to execute profitably such expansion. SkyWest is also
likely to face intense competition from regional airlines currently serving the
markets into which SkyWest desires to expand. Accordingly, there can be no
assurance that the Company will be able to implement its growth strategy or that
implementation of its growth strategy will enhance its operations and
profitability. See "Business -- Business Strategy."
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DEPENDENCE ON LIMITED NUMBER OF AIRCRAFT TYPES
SkyWest's fleet consists of 50 Brasilias and ten CRJs. During the three
monthsyear ended December 31, 1997, 56%2005, our labor costs constituted approximately 24.2% of SkyWest'sour total operating costs. Increases in our labor costs could result in a material reduction in our earnings and affect our revenue under our code-share agreements. Any new collective bargaining agreements entered into by other regional carriers may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees. Future agreements with unionized and non-unionized employees may be on terms that are not as attractive as our current agreements or comparable to agreements entered into by our competitors.
ASA's pilots, flight attendants and flight controllers are represented by the following unions: The Air Line Pilots Association, International, the Association of Flight Attendants—CNA and the Professional Airline Flight Control Association. ASA's pilots and flight attendants are currently working under open labor contracts, and ASA has been in negotiations with respect to such contracts since 2002 and 2003, respectively. The contract with ASA's flight controllers becomes amendable in April 2006. Negotiations with unions representing ASA's employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements.
SkyWest Airlines' employees are not currently represented by any union; however, collective bargaining group organization efforts among those employees occur from time to time. We recognize that such efforts will likely continue in the future and may ultimately result in some or all of SkyWest Airlines' employees being represented by one or more unions. Moreover, one or more unions representing ASA employees may seek a single carrier determination by the National Mediation Board, which could require SkyWest Airlines to recognize such union or unions as the certified bargaining representative of SkyWest Airlines' employees. One or more unions representing ASA employees may also assert that SkyWest Airlines' employees should be subject to ASA collective bargaining agreements. If SkyWest Airlines' employees were to unionize or be deemed to be represented by one or more unions, negotiations with unions representing SkyWest Airlines' employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Agreements reached in collective bargaining may increase operating expenses and lower operating results and net income. If unionizing efforts among SkyWest Airlines' employees are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional administrative expenses associated with union representation.
If we are unable to reach labor agreements with any current or future unionized work groups, we may be subject to work interruptions or stoppages, which may adversely affect our ability to conduct our operations and may even allow Delta or United to terminate their respective code-share agreements.
We may be unable to obtain all of the aircraft, engines, parts or related maintenance and support services we require, which could have a material adverse impact on our business.
We rely on a limited number of aircraft types, and are dependent on Bombardier as the sole manufacturer of our regional jets. For the quarter ended December 31, 2005, approximately 62% of our available seat miles were generatedflown using CRJ200s, approximately 31% of our available seat miles were flown using CRJ700s, approximately 5% of our available seat miles were flown using Brasilia turboprops and approximately 2% of our available seat miles were flown using ATR-72 turboprops. As of December 31, 2005, we had commitments of approximately $838 million to purchase 15 CRJ700s and 17 CRJ900s and to sublease six CRJ200's, together with related flight equipment. Additionally, we have obtained options to acquire another 70 regional jets that can be delivered in 70 through 90-seat configurations. Delivery dates for these aircraft remain subject to final determination as agreed upon by Brasiliasus and 44% were generatedour major partners.
Any significant disruption or delay in the expected delivery schedule of our fleet would adversely affect our business strategy and overall operations and could have a material adverse impact on our operating results or our financial condition. Certain of Bombardier's aerospace workers are represented by CRJs. The Company'sunions and have participated in at least one strike in recent history. Any future prolonged strike at Bombardier or delay in Bombardier's production schedule as a result of labor matters could disrupt the delivery of regional jets to us, which could adversely affect our planned fleet growth. We are also dependent on General Electric as the manufacturer of our aircraft engines. General Electric also provides parts, repair and overhaul services, and other types of support services on our engines. Our operations could be materially and adversely affected by among other factors, (i) the failure or inability of Embraer-Empresa Brasileira de Aeronautica S.A. (in the case of
Brasilias)Bombardier or Bombardier, Inc. (in the case of CRJs)General Electric to provide additional
aircraft,sufficient parts or related maintenance and support services to us on a timely or economical basis, (ii)or the interruption of fleet serviceour flight operations as a result of unscheduled or unanticipated maintenance requirements (iii)for our aircraft or engines. In addition, the issuance of Federal Aviation Administration ("FAA") directives restricting or prohibiting the use of Bombardier aircraft types we operate would have a particular aircraft typematerial adverse effect on our business and operations.
Maintenance costs will likely increase as the age of our regional jet fleet increases.
Because the average age of our CRJ700s and CRJ200s is approximately 1.4 and 4.2 years, respectively, our regional jet fleet requires less maintenance now than it will in the future. We have incurred relatively low maintenance expenses on our regional jet fleet or (iv)because most of the adverse public perceptionparts on our regional jet aircraft are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. Our maintenance costs will increase significantly, both on an aircraft typeabsolute basis and as a resultpercentage of an accident or other adverse publicity. See "Business -- Flight Equipment."
FUEL COSTS AND AVAILABILITY
One of the Company's principal cost components is fuel. At SkyWest's
current rate of consumption, for every one cent increaseour operating expenses, as our fleet ages and these warranties expire. Under our United Express Agreement, specific amounts are included in the pricerates for future maintenance on CRJ200 engines used in our United Express operations. The actual cost of maintenance on CRJ200 engines may vary from the estimated rates.
If we incur problems with any of our third-party service providers, our operations could be adversely affected.
Our reliance upon others to provide essential services on behalf of our operations may limit our ability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including fuel SkyWest's annual operating expenses increase by approximately $350,000. Bothsupply and delivery, aircraft maintenance, services and ground facilities, and expect to
enter into additional similar agreements in the cost and the availability of fuelfuture. These agreements are subject to many economictermination after notice. Any material problems with the efficiency and political
factors and events occurring throughout the world. The Company has no agreement
with any fuel supplier assuring the availabilitytimeliness of our automated or price of fuel, nor has the
Company entered into any hedging transactions to assure the price of fuel.
SkyWest's ability to pass on increased fuel costs through fare increases may be
limited by several factors, including, without limitation, economic and
competitive conditions. Accordingly, the future cost and availability of fuel to
the Company cannot be predicted and substantial fuel cost increases, the
unavailability of adequate supplies or increases in federal fuel taxescontract services could have a material adverse effect on the Company'sour business, financial condition and results of operations. See "Business -- Competition and Economic Conditions."
OPERATING LEVERAGE
As is characteristic
Interruptions or disruptions in service at one of the airline industry, the Company is subjectour hub airports, due to a
high degree of operating leverage. The revenues generated from a particular
flight vary directly with the number of passengers carried and the fare
structure of the flight. However, since fixed costs comprise a high proportion
of the operating costs of each flight, the expenses of each flight do not vary
proportionately with the number of passengers carried. Accordingly,adverse weather or for any sustained decrease in the number of passengers carried or increase in operating
costs that is not offset by higher faresother reason, could have a material adverse effectimpact on our operations.
We currently operate primarily through hubs in Atlanta, Los Angeles, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati/Northern Kentucky and the Pacific Northwest. Nearly all of our flights will either originate or fly into one of these hubs. Our revenues depend primarily on our completion of flights and secondarily on service factors such as timeliness of departure and arrival. Any interruptions or disruptions could, therefore, severely and adversely affect us. Extreme weather can cause flight disruptions, and during periods of storms or adverse weather, fog, low temperatures, etc., our flights may be canceled or significantly delayed. Hurricanes Katrina and Rita, in particular, caused severe disruption to air travel in the affected areas and adversely affected airlines operating in the region, including ASA. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago and Denver. A significant interruption or disruption in service at one of our hubs, due to adverse weather or otherwise, could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe impact on our business, operations and financial performance.
Fluctuations in interest rates could adversely affect our liquidity, operating expenses and results.
A substantial portion of our indebtedness bears interest at fluctuating interest rates. These are primarily based on the Company'sLondon interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates, federal reserve rates and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event, we may have difficulty making interest payments and funding our other fixed costs and our available cash flow for general corporate requirements may be adversely affected.
Our business could be harmed if we lose the services of our key personnel.
Our business depends upon the efforts of our chief executive officer, Jerry C. Atkin, and our other key management and operating personnel. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the services of any of these individuals could harm our business. We do not maintain key-man insurance on any of our executives.
The Securities and Exchange Commission staff is investigating our accounting treatment of certain maintenance costs.
Effective January 1, 2002, we changed our method of accounting for certain engine overhaul expenses. In connection with this change, we restated our financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FINANCIAL LEVERAGE
As ofstatements for the year ended December 31, 1997,2001 and the Company had outstanding $59.7 millionfirst and second quarters of the year ended December 31, 2002. The staff of the SEC has been investigating the facts pertaining to this change in long-term debt, requiring debt service payments of $12.2 millionaccounting method and the related restatements. We have cooperated with this investigation, and have offered to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in fiscal 1998,the future. The SEC is currently reviewing our offer. If our offer is not accepted, we may be required to devote additional time and future minimum payments under long term operating leases of $457.4 million,
requiring rental payments of $42.9 millionresources in fiscal 1998. The Company's
long-term debt and operating leases require significant periodic cash payments
and there can be no assurance that the Company's operations will generate
sufficient cash flow to make such payments. The Company's financial leverage may
impair its ability to obtain or increase the cost of obtaining additional
financing, may make the Company more vulnerableresponding to the cyclicalinvestigation, and seasonal
naturewe could experience other adverse consequences.
Risks Related to the Airline Industry
We may be materially affected by the uncertainty of the airline industry.
The airline industry may restricthas experienced tremendous challenges in recent years and will likely remain volatile for the Company's abilityforeseeable future. Among other factors, the financial challenges faced by major carriers, including Delta, United and Northwest, the slowing U.S. economy and increased hostilities in Iraq, the Middle East and other regions have significantly affected, and are likely to exploit
new business opportunitiescontinue to affect, the U.S. airline industry. These events have resulted in declines and may limitshifts in passenger demand, increased insurance costs, increased government regulations and tightened credit markets, all of which have affected, and will continue to affect, the Company's flexibilityoperations and financial condition of participants in respondingthe industry, including us, major carriers (including our major partners), competitors and aircraft manufacturers. These industry developments raise substantial risks and uncertainties which will affect us, major carriers (including our major partners), competitors and aircraft manufacturers in ways that we are unable to changing business conditions. See "Management's Discussioncurrently predict.
The airline industry is highly competitive and Analysishas undergone a period of Financial Conditionconsolidation and Results of Operations -- Liquidity and Capital
Resources."
COMPETITIONtransition leaving fewer potential code-share partners.
The airline industry is highly competitive. FederalWe not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also face competition from low cost carriers and major airlines on many of our routes. Low cost carriers such as Southwest Airlines Co. ("Southwest"), JetBlue, US Airways, Frontier Airlines, Inc. ("Frontier") and AirTran Airways, Inc. ("AirTran"), among others, operate at many of our hubs, resulting in significant price competition. Additionally, a large number of other carriers operate at our hubs, creating intense competition. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the
airline industry allows competitors to rapidly enter a marketour markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Increased fare competition could adversely affect our operations and the price of our common stock. The introductionairline industry has undergone substantial consolidation, and it may in the future undergo additional consolidation. Recent examples include the merger between America West Airlines and US Airways in September 2005, and American Airlines' acquisition of deeply discounted faresthe majority of Trans World Airlines' assets in 2001. Other developments include domestic and international code-share alliances between major carriers, such as the "SkyTeam Alliance," that includes Delta, Continental and Northwest, among others. Any additional consolidation or significant alliance activity within the airline industry could limit the number of potential partners with whom we could enter into code-share relationships and materially adversely affect our relationship with our code-share partners.
Terrorist activities or warnings have dramatically impacted the airline industry, and will likely continue to do so.
The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations. The primary effects experienced by competing carriers on routes
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served by SkyWestthe airline industry include a substantial loss of passenger traffic and revenue. Although, to some degree, airline passenger traffic and revenue have recovered since the September 11th attacks, additional terrorist attacks could have a similar or connectedeven more pronounced effect. Even if additional terrorist attacks are not launched against the airline industry, there will be lasting consequences of the attacks, including increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to oneheightened security. Additional terrorist attacks and the fear of SkyWest's hubssuch attacks could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government
mandates, as well as increased security, fuel and other costs. We cannot provide any assurance that these events will not harm the introductionairline industry generally or our operations or financial condition in particular.
Rapidly increasing fuel costs have adversely affected, and will likely continue to adversely affect, the operations and financial performance of service into competitors' hubs couldthe airline industry.
The price of aircraft fuel is unpredictable and has increased significantly in recent periods. Higher fuel prices may lead to higher airfares, which would tend to decrease the passenger load of our code-share partners. In the long run, such decrease will have an adverse impact uponeffect on the Company's
financial condition or results of operations.
SkyWest not only competes with other regional airlines, some of which are
owned by or are operated as code-sharing partners of major airlines, but also
faces competition from major airline carriers on certain routes. Competition in
the southern California markets, which are serviced by SkyWest from its Los
Angeles hub, is particularly intense with a large number of competing carriers.
Manyflights such partner will ask us to provide and the revenues associated with such flights. Additionally, fuel shortages have been threatened. The future cost and availability of SkyWest's competitors are largerfuel to us cannot be predicted, and have significantly greater
financial and other resources than SkyWest. There can be no assurance that
additional carriers will not offer competing services on SkyWest's existingsubstantial fuel cost increases or future routes. See "Business -- Competition and Economic Conditions."
GENERAL ECONOMIC CONDITIONS, CYCLICALITY AND SEASONALITY
Generally, the airline industry is highly sensitive to economic conditions,
in large part due to the discretionary natureunavailability of a substantial percentageadequate supplies of both business and leisure travel. In the past many airlines, including SkyWest,
have reported decreased earnings or substantial losses resulting from periods of
economic recession, heavy fare discounting and other factors. Economic downturns
combined with competitive pressures have contributed to a number of bankruptcies
and liquidations among major and regional carriers. Negative economic conditionsfuel may have a material adverse effect on regional airlines,our results of operations. During periods of increasing fuel costs, our operating margins have been, and will likely continue to be, adversely affected.
We are subject to significant governmental regulation.
All interstate air carriers, including SkyWest.
Historically, the Company has experienced lower revenueSkyWest Airlines and earnings during
the second half of its fiscal year. SkyWest's earnings have declined on a
seasonal basis due to several factors including decreased business travel during
the holiday season and inclement weather. In addition, a large percentage of
Scenic's passengersASA, are tourists visiting the Las Vegas and Grand Canyon areas
during the summer months. See "Business -- Competition and Economic Conditions."
REGULATION
The Company is subject to regulation by the U.S. Department of Transportation (the "DOT"), the FAA and certain other governmental agencies. Regulations promulgated by the DOT primarily relate primarily to economic aspects of air service. The FAA principally regulates flight operations and safety matters
relating torequires operating, air service. In addition the Company is subject to certain other
federal and state laws relating to protection of the environment, radio
communications, labor relations, equal employment opportunityworthiness and other matters.
The DOTcertificates; approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and the FAA as well as other governmental agencies regulating the
Company, enforce their regulations through, among other mechanisms, (i)
certifications, which are necessary for the Company's continued operations,approval of flight training and (ii) administrative proceedings, which can result in civil or criminal penalties
or revocation of operating authority.
The FAA can also issue maintenance directives and other mandatory orders
relating to, among other things, inspection of aircraft, installation of new
safety-related items and the mandatory removal and replacement of aircraft parts
that the FAA believes might present a safety hazard. Such directives or orders
could increase significantly the cost of airline operations.
The Company incurs substantial costs in maintaining its current
certifications and otherwise complying with the laws, rules and regulations to
which it is subject. Although the Company has all certifications it believes to
be necessary for its continued operation and believes that it is in compliance
with all requirements currently necessary to maintain in good standing such
certifications, itretraining programs. We cannot predict whether itwe will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the Company. See "Business -- Regulation."
BRAZILIAN DEFAULT RISK
In connection with SkyWest's acquisition of substantially all of its
Brasilia aircraft, the Company has obtained the rightlaws, rules and regulations to receive subsidy
payments through an export support program sponsoredwhich we are subject. A decision by the Federative RepublicFAA to ground, or require time-consuming inspections of Brazil. The amountor maintenance on, all or any of these subsidies, which are offered by the Brazilian
government as an economic incentiveour aircraft for any reason may have a material adverse effect on our operations. In addition to purchasers of the Brazilian-made Embraer
aircraftstate and are currently payable through
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December 2006, fluctuates based upon the numberfederal regulation, airports and age of the Brasilia aircraft
eligible for subsidy payments. The subsidies currently represent approximately
$6 million in annual credits against the Company's interestmunicipalities enact rules and aircraft rental
expense related to Brasilia purchases. The subsidies would be jeopardized if the
Brazilian government failed to meet its obligations under the export support
program.regulations that affect our operations. From time to time, various airports throughout the Brazilian government has experienced economic
conditionscountry have considered limiting the use of smaller aircraft, such as our aircraft, at such airports. The imposition of any limits on the use of our aircraft at any airport at which have impaired the creditworthiness of such governmental
obligations. Any termination or significant interruption of the Brazilian
subsidy payments, which could occur for a number of reasons including the
failure of the Brazilian government to meet its obligations under its export
support program,we operate could have a material adverse effect on our operations.
The occurrence of an aviation accident would negatively impact our operations and financial condition.
An accident or incident involving one of our aircraft could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the Company'sevent of an accident, our liability insurance may not be adequate to offset our exposure to potential claims and we may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial conditionresults. Moreover, any aircraft accident or resultsincident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines.
Risks Related to Our Common Stock
We can issue additional shares without shareholder approval.
Our Restated Articles of operations. There canIncorporation, as amended (the "Restated Articles"), authorize the issuance of up to 120,000,000 shares of common stock, all of which may be no assuranceissued without any action or approval by our shareholders. As of March 31, 2006, we had 59,596,298 shares outstanding. In addition, we have a stock option plan under which 6,305,564 shares are reserved for issuance, and an employee
stock purchase plan under which 2,500,000 shares are reserved for issuance, both of which may dilute the ownership interests of our shareholders. The issuance of any additional shares of common stock would further dilute the percentage ownership of existing shareholders. Our Restated Articles also authorize the issuance of up to 5,000,000 shares of preferred stock. Our board of directors has the authority to issue preferred stock with the rights and preferences, and at the price, which it determines. Any shares of preferred stock issued would likely be senior to shares of our common stock in various regards, including dividends, payments upon liquidation and voting. The value of our common stock could be negatively affected by the issuance of any shares of preferred stock.
We issued more shares of common stock than were authorized by our employee stock purchase plan, which could result in administrative sanctions or other adverse consequences.
During the quarter ended December 31, 2005, we discovered that a default
will not occurin January and July 2005 we issued shares of common stock to our employees under the Brazilian export support program.
VOLATILITY OF STOCK PRICE
The CommonSkyWest, Inc. 1995 Employee Stock is quoted onPurchase Plan (the "Employee Stock Purchase Plan") that exceeded the Nasdaq National Market,number of shares authorized for issuance under the Employee Stock Purchase Plan. In an effort to address the over issuance, we amended the SkyWest, Inc. Executive Stock Incentive Plan (the "Executive Plan") and its trading
price has fluctuated overthe SkyWest, Inc. 2001 Allshare Stock Option Plan (the "Allshare Plan") to reduce the number of shares issuable pursuant to those plans by a broad range. See "Price Rangenumber that exceeded the number of Common Stock and
Dividends." The trading priceshares issued in excess of the Commonnumber of shares authorized pursuant to the Employee Stock could continuePurchase Plan. On February 8, 2006, after reviewing the issues associated with the over issuance, the staff of The Nasdaq Stock Market notified us that the over issuance violated the shareholder approval rule set forth in Nasdaq Marketplace Rule 4350(i)(1)(A). The Nasdaq staff letter also notified us that the reduction in the number of shares issuable pursuant to fluctuate
widely in response to variations in quarterly operatingthe Executive Plan and financial results,
announcementsthe Allshare Plan, both of which had been previously approved by our shareholders, had the effect of restoring our compliance with Marketplace Rule 4350(i)(1)(A). The Nasdaq staff letter indicates that, as of the date of the letter, the matter is closed.
The issuances of the shares of common stock that exceeded the number authorized by the CompanyEmployee Stock Purchase Plan were not registered under the Securities Act of 1933, as amended (the "Securities Act"). The failure to register those issuances could result in administrative sanctions against us or its competitors, industry trends, legislativehave other adverse consequences to us.
Distribution of dividends may decrease or regulatory changes, general economic conditions or other events or factors. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies.
DIVIDENDScease.
Historically, the Company haswe have paid dividends in varying amounts on its
Common Stock. See "Price Range of Common Stock and Dividends."our common stock. The future payment and amount of cash dividends will depend upon the Company'sour financial condition and results of operations, loan covenants and other factors deemed relevant by the Company's Boardour board of Directors.directors. There can be no assurance that the
Companywe will continue its policyour practice of paying dividends on the Common Stockour common stock or that the Companywe will have the financial resources to pay such dividends.
LABOR RELATIONS
From time to time, the Company, which does not currently have any employees
represented by labor unions, becomes aware
Provisions of collective bargaining
organizational efforts among its employees. The Company recognizes that such
efforts will likely continue in the futureour charter documents and code-share agreements may ultimately result in some or
all of its employees being represented by a union. If such efforts are
successful, the Company may be subjected to risks of work interruption or
stoppage and incur additional expenses associated with union representation of
its employees. In connection with SkyWest's proposed expansion to northern
California, it anticipates that it will hire at least 475 additional employees,
many of whom may be represented by a union in their current employment.
DELTA OPTION AGREEMENT
Under the terms of a Stock Option Agreement executed by the Company and
Delta concurrently with the Delta Agreement (the "Delta Option Agreement"),
Delta acquired shares of Common Stock, which currently represent approximately
15.1% of the outstanding Common Stock (13.3% after giving effect to the issuance
of the shares offered hereby), certain preemptive rights and registration rights
with respect to the Common Stock owned by Delta and certain rights to
representation on the Company's Board of Directors. Delta's rights under the
Delta Option Agreement may permit Delta to influence the management and policies
of the Company, and Delta's ownership of shares of Common Stock may give itaffect the ability or desire of others to affect the outcomegain control of matters submittedour company.
Our ability to a vote of the Company's
shareholders. See "Description of Capital Stock -- Common Stock"issue preferred and "-- Board
of Directors."
10
12
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Articles of Incorporation and
Bylaws, including provisions authorizing the issuance of Preferred Stock from
time to timecommon shares without stockholdershareholder approval may have the effect of delaying or preventing a change in control of the Company and may adversely affect the voting and other rights of the holders of Common Stock. In addition, theour common stock, even in circumstances where such a change in control would be viewed as desirable by most investors. The provisions of the Utah Control Shares Acquisition Act may also discourage persons or
entities interested in acquiringthe acquisition of a significant interest in or control of our company. Additionally, our code-share agreements contain termination and extension trigger provisions related to change in control type transactions that may have the Company. See "Descriptioneffect of Capital Stock.deterring a change in control of our company.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this registration statement should be considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "hope," "likely," and "continue" and similar terms used in connection with statements regarding our outlook, the revenue environment, our contract relationships, and our expected financial performance. These statements include, but are not limited to, statements about the benefits of our acquisition of ASA, including our future financial and operating results, our plans for SkyWest Airlines and ASA, our objectives, expectations and intentions and other statements that are not historical facts. You should also keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this prospectus, a prospectus supplement, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended. These risks and uncertainties include, but are not limited to, those described below under the heading "Risk Factors" and the following:
- •
- our ability to achieve anticipated potential benefits with respect to our acquisition of ASA;
- •
- our ability to obtain and maintain financing necessary for operations and other purposes;
- •
- our ability to maintain adequate liquidity;
- •
- the impact of high fuel prices on the airline industry;
- •
- the impact of global instability, including the continued impact of the United States military presence in foreign countries, the September 11, 2001 terrorist attacks and the potential impact of future hostilities, terrorist attacks or other global events;
- •
- our ability to attract and retain code-share partners;
- •
- changes in our code-share relationships;
- •
- the cyclical nature of the airline industry;
- •
- competitive practices in the airline industry, including significant fare-restructuring activities, capacity reductions and bankruptcy and other airline restructurings by major and regional carriers, including Delta and United;
- •
- global and national economic conditions;
- •
- labor costs;
- •
- security-related and insurance costs;
- •
- weather conditions;
- •
- government legislation and regulation;
- •
- unfavorable resolution of negotiations with municipalities for the leasing of facilities;
- •
- relations with ASA's unionized employees and the impact and outcome of labor negotiations;
- •
- unionization efforts among SkyWest Airlines' employees; and
- •
- other risks and uncertainties listed from time to time in our reports filed with the SEC.
There may be other factors not identified above of which we are not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.
The net proceeds to be received by the Companywe will receive from the sale of the 1,400,0004,000,000 shares of Common Stockcommon stock offered hereby,by us, assuming a public offering price of $29.27 per share and after deducting estimated underwriting discounts and offering expenses, are estimated to be approximately $48.6$111 million ($55.9127.7 million if the Underwriters' over-allotmentunderwriters' overallotment option is exercised in full).
We currently intend to use approximately $60,000,000 of the proceeds of this offering to repay all outstanding amounts borrowed by SkyWest Airlines from C.I.T. Leasing Corporation and approximately $30,000,000 of the proceeds of this offering to reduce the outstanding balance on our revolving credit facility with Zions Bank. The CompanyC.I.T. debt facility bears interest at an adjustable rate that was equal to 6.87% as of December 31, 2005 and is due in full on September 21, 2006. We have used the loan proceeds primarily for working capital purposes. The Zions Bank revolving credit facility bears interest at a rate equal to the prime rate less 0.25%, which was a net rate of 7.0% as of December 31, 2005. After discharging the outstanding amounts under these debt obligations, we currently intendsintend to use the net proceedsremainder of the proceeds from this offering for expansion of operations, including the acquisition of additional aircraftworking capital and
related spare parts, support equipment and ground facilities, and for other general corporate purposes. Based upon circumstances existing immediately prior
Pending such utilization, we intend to each aircraft acquisition, management will determine whether to purchase such
aircraft with a portion ofinvest the net proceeds from the offering or to finance the
acquisition of such aircraft through long-term loans or lease arrangements. The
Company believes the expenses of obtaining such loans or leases may be reduced
and the availability of such loans or leases may be facilitated by the increase
in stockholders' equity resulting from this offering. In connection with
SkyWest's planned expansion as the United Express carrier at United's San
Francisco hub, the Company estimates that the cost of acquiring the additional
ground and maintenance facilities, support equipment and spare parts inventory
required for the planned expansion will be approximately $12 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending specific use, the net proceeds will be invested in short-term, investment grade, interest-bearing securities.
11
13
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock
Our common stock is quoted on theThe Nasdaq National Market under the symbol "SKYW." The following table sets forth, for the periods indicated, the high and low closing sale prices per share for the Common Stock,our common stock, as reported by theThe Nasdaq National Market, and the cash dividends declared by the Company.
| | High | Low | Cash Dividends Declared | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2004: | ||||||||||
First Quarter | $ | 20.51 | $ | 17.11 | $ | 0.03 | ||||
| Second Quarter | 19.91 | 16.00 | 0.03 | |||||||
| Third Quarter | 16.88 | 13.07 | 0.03 | |||||||
| Fourth Quarter | 20.35 | 14.49 | 0.03 | |||||||
Year Ended December 31, 2005: | ||||||||||
First Quarter | $ | 20.30 | $ | 16.05 | $ | 0.03 | ||||
| Second Quarter | 19.76 | 17.35 | 0.03 | |||||||
| Third Quarter | 26.82 | 18.08 | 0.03 | |||||||
| Fourth Quarter | 32.84 | 26.25 | 0.03 | |||||||
Year Ending December 31, 2006: | ||||||||||
First Quarter | $ | 29.79 | $ | 26.02 | $ | 0.03 | ||||
The closinglast reported sale price of the Common Stock, as reported by theour common stock on The Nasdaq National Market on January 20, 1998March 31, 2006 was $36.875$29.27 per share. As of January 16,
1998, the number ofMarch 31, 2006, there were 59,596,298 shares of Common Stockour common stock outstanding, was 10,317,152 shares, held by approximately 1,100 stockholders1,150 shareholders of record, which does not include shares held in securities position listings.
The Company has
We have historically paid cash dividends on its Common Stock. In
August 1996, the Company revised its dividend policy from paying a regular annualquarterly cash dividend supplemented by special quarterly dividends paid from time to
time, to a policyon our common stock. On January 25, 2006, our Board of payingDirectors declared a regular quarterly cash dividend of $0.05$0.03 per share.share payable on April 6, 2006 to stockholders of record on March 31, 2006. The future payment and amount of cash dividends will depend upon the
Company'sour financial condition and results of operations, applicable loan covenants and other factors deemed relevant by the Company's Boardour board of Directors.
12
14
directors.
The following table sets forth the unauditedour capitalization of the Company at December 31, 1997,2005 and as adjusted to give effect to the sale of the 1,400,0004,000,000 shares of Common Stockcommon stock offered herebyby us at an assumed offering price of $36.875$29.27 per share pursuant to this offering and the application of the estimated net proceeds therefrom.
Seetherefrom, as described under "Use of Proceeds." The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements,consolidated financial statements, including the Notesnotes thereto, appearing elsewhere in this Prospectusprospectus or incorporated herein by reference.
| | December 31, 2005 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | Actual | As Adjusted | |||||||
| | (in thousands) | ||||||||
| Cash and marketable securities | $ | 299,668 | $ | 320,687 | |||||
Debt: | |||||||||
| Current portion of long-term debt(1) | $ | 331,145 | $ | 331,145 | |||||
| Long-term debt, net of current portion(1) | 1,422,758 | 1,422,758 | |||||||
| Current line of credit | 60,000 | — | |||||||
| Long-term line of credit | 30,000 | — | |||||||
| Total debt | $ | 1,843,903 | $ | 1,753,903 | |||||
| Stockholders' equity: | |||||||||
| Preferred Stock, no par value; 5,000,000 shares authorized; None outstanding | $ | — | $ | — | |||||
| Common Stock, no par value; 120,000,000 shares authorized; 58,715,575 shares outstanding; 62,715,575 shares, as adjusted(2) | 364,535 | 475,554 | |||||||
| Retained earnings | 582,620 | 582,620 | |||||||
| Treasury stock; 6,794,056 shares | (32,551 | ) | (32,551 | ) | |||||
| Net unrealized depreciation on available-for-sale securities | (1,406 | ) | (1,406 | ) | |||||
| Total stockholders' equity | 913,198 | 1,024,217 | |||||||
| Total capitalization | $ | 2,757,101 | $ | 2,778,120 | |||||
- (1)
- As of December 31,
1997, SkyWest2005, we had financed44247 ofitsour aircraft and certain ofitsour airport and maintenance facilities through operating leases. In addition to our indebtedness, as of December 31, 2005, we had approximately $3.2 billion of mandatory future payments under operating leases, primarily for aircraft and ground facilities. At a 7.0% discount factor, the present value of these obligations would be equal to approximately $2.1 billion. See Note 4 of theCompany's Notesnotes toConsolidated Financial Statementsour consolidated financial statements incorporated herein by reference. - (2)
Excludes 600,064 - The total number of our shares
issuableof common stock outstanding after this offering is based on 58,715,575 shares issued and outstanding on December 31, 2005. This number of issued and outstanding shares assumes that the underwriters' overallotment option of 600,000 shares is not exercised and excludes 6,301,002 shares of common stock reserved for issuance upon exercise of outstanding stock options we have grantedby the Companyataan estimated weighted average exercise price of$17.15$18.38 per share as of December 31, 2005.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined financial data is based upon our historical financial statements included elsewhere in this prospectus or incorporated herein, adjusted to give effect to our acquisition of ASA on September 7, 2005.
The pro forma adjustments are based upon available information and 287,195 shares availablecertain assumptions that we believe are reasonable. The unaudited pro forma condensed combined statements of income are not necessarily indicative of the future results of our operations, our financial position or the results of our operations which may have occurred had we completed the acquisition of ASA at the beginning of 2005.
The unaudited pro forma condensed combined statement of operations should be read in conjunction with our consolidated financial statements and related notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this prospectus or incorporated herein.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(Unaudited)
For the year ended December 31, 2005
(In thousands, except per share amounts)
| | Historical | | | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | SkyWest, Inc. | January 1, 2005- June 30, 2005 ASA | July 1, 2005- September 7, 2005 ASA | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
| OPERATING REVENUES: | ||||||||||||||||||
| Passenger | $ | 1,938,450 | $ | 551,323 | $ | 224,543 | $ | 22,218 | (A) | $ | 2,736,534 | |||||||
| Ground handling and other | 25,598 | — | 2,037 | — | 27,635 | |||||||||||||
| Total operating revenues | 1,964,048 | 551,323 | 226,580 | 22,218 | 2,764,169 | |||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||
| Flying operations | 1,079,292 | — | — | 394,236 | (B) | 1,473,528 | ||||||||||||
| Customer service | 271,746 | — | — | 131,964 | (C) | 403,710 | ||||||||||||
| Maintenance | 186,675 | — | — | 106,806 | (C) | 293,481 | ||||||||||||
| Depreciation and amortization | 115,275 | 40,633 | 12,517 | (5,449 | )(D) | 162,976 | ||||||||||||
| General and administrative | 90,652 | — | — | 30,284 | (C) | 120,936 | ||||||||||||
| Salaries & related costs | — | 150,092 | 56,816 | (206,908 | )(E) | — | ||||||||||||
| Aircraft fuel | — | 143,806 | 69,200 | (213,006 | )(C) | — | ||||||||||||
| Aircraft maintenance materials and outside repairs | — | 51,773 | 18,619 | (70,392 | )(C) | — | ||||||||||||
| Aircraft rent | — | 31,914 | 11,279 | (43,193 | )(C) | — | ||||||||||||
| Contracted services | — | 46,441 | 18,470 | (64,911 | )(C) | — | ||||||||||||
| Landing fees and other rents | — | 25,052 | 10,820 | (35,872 | )(C) | — | ||||||||||||
| Other | — | 29,082 | 13,661 | (42,743 | )(C) | — | ||||||||||||
| Total operating expenses | 1,743,640 | 518,793 | 211,382 | (19,184 | ) | 2,454,631 | ||||||||||||
OPERATING INCOME | 220,408 | 32,530 | 15,198 | 41,402 | 309,538 | |||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||
| Interest income | 12,943 | 2,628 | 579 | (5,082 | )(F) | 11,068 | ||||||||||||
| Interest expense | (53,330 | ) | (32,017 | ) | (14,276 | ) | 5,175 | (G) | (94,448 | ) | ||||||||
| Other | (395 | ) | 101 | (150 | ) | — | (444 | ) | ||||||||||
| Total other income (expense), net | (40,782 | ) | (29,288 | ) | (13,847 | ) | 93 | (83,824 | ) | |||||||||
INCOME BEFORE INCOME TAXES | 179,626 | 3,242 | 1,351 | 41,495 | 225,714 | |||||||||||||
| PROVISION FOR INCOME TAXES | 67,359 | 1,308 | 1,150 | 16,443 | (H) | 86,260 | ||||||||||||
| NET INCOME | $ | 112,267 | $ | 1,934 | $ | 201 | $ | 25,052 | $ | 139,454 | ||||||||
| BASIC EARNINGS PER SHARE | $ | 1.94 | $ | 2.41 | ||||||||||||||
| DILUTED EARNINGS PER SHARE | $ | 1.90 | $ | 2.37 | ||||||||||||||
WEIGHTED AVERAGE OF COMMON SHARES: | ||||||||||||||||||
| Basic | 57,851 | 57,851 | ||||||||||||||||
| Diluted | 58,933 | 58,933 | ||||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands)
- 1.
- Basis of Presentation
On September 7, 2005, we completed the acquisition of all of the issued and outstanding capital stock of ASA from ASA Holdings, Inc., a subsidiary of Delta. In connection with the acquisition of ASA, SkyWest Airlines and Delta entered into the SkyWest Airlines Delta Connection Agreement, and ASA and Delta entered into the ASA Delta Connection Agreement, whereby SkyWest Airlines and ASA have agreed to provide regional airline service in the Delta flight system. The SkyWest Airlines and ASA Delta Connection Agreements became effective September 8, 2005.
The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2005 has been prepared to illustrate the pro forma effects of the ASA acquisition as if it had occurred on January 1, 2005 and as if the ASA Delta Connection Agreement was effective January 1, 2005. The operations of ASA commencing on September 8, 2005 and through December 31, 2005, are included in our historical statement of operations. No pro forma effect has been given to the SkyWest Airlines Delta Connection Agreement prior to the effective date of September 8, 2005, as no significant changes were made to this contract.
- 2.
- Pro Forma Financial Statements and Adjustments
The pro forma condensed combined information set forth in the preceding table is presented for illustrative purposes only. Such information does not purport to be indicative of the results of operations and financial position that actually would have resulted had the acquisition occurred on the date indicated, nor is it indicative of the results that may be expected in future grantperiods. The pro forma adjustments are based upon information and assumptions available as of sharesthe date of Common
Stockthis prospectus.
The pro forma condensed combined statement of operations gives effect to the following pro forma adjustments:
(A) Reflects the restatement of ASA revenues from the ASA historical code-share agreement with Delta to the ASA Delta Connection Agreement as if the ASA Delta Connection Agreement was effective January 1, 2005. Under the terms of the ASA Delta Connection Agreement, Delta has agreed to compensate ASA for certain direct costs associated with operating its Delta Connection flights, as defined in the ASA Delta Connection Agreement, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, a specified margin on such costs. Additionally, the ASA Delta Connection Agreement provides for incentive compensation upon satisfaction of certain performance goals. Under the exerciseASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions. The pro forma revenue adjustment assumes no incentive compensation was achieved for the year ended December 31, 2005.
(B) Reflects a reclassification of stock optionsASA expenses reported under the Company's stock option
plans. See Note 5ASA financial statement classification to our financial statement classification of $404,826 for consistency purposes and a reduction of aircraft lease expense on aircraft lease obligations retained by Delta in connection with our acquisition of ASA of $(10,590).
(C) Reflects a reclassification of ASA expenses reported under the ASA financial statement classifications to our financial statement classifications for consistency purposes.
(D) Reflects an adjustment to ASA depreciation for changes in estimated useful lives for property and equipment using our accounting policies and reflects an adjustment to the depreciable basis of property and equipment and intangible assets resulting from the preliminary valuation and purchase price adjustments of $(455) and a reduction of depreciation expense on aircraft retained by Delta in connection with our acquisition of ASA of $(4,994).
(E) Reflects a reclassification of ASA expenses reported under the ASA financial statement classification to our financial statement classification of $203,762 for consistency purposes and a reduction of accrued wage expense of $3,146 to reflect amounts expected to be paid.
(F) Reflects a reduction of interest income resulting from net cash paid to Delta of $376,912 for the acquisition of ASA.
(G) Reflects the elimination of interest expense on aircraft debt obligations retained by Delta in connection with our acquisition of ASA.
(H) Reflects the income tax effects of the Company's Notes to Consolidated Financial
Statements incorporated herein by reference.
13
15
pro forma adjustments.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth our selected consolidated financial and airline operating data with respect to the Company for the periods indicated. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements,our consolidated financial statements, including the Notesnotes thereto, appearing elsewhere in this Prospectusprospectus or incorporated herein by reference herein. See
"Incorporation of Certain Information by Reference."reference. The selected consolidated financial data as of and for each of the fiscal years ended MarchDecember 31, 1993
through 19972001, 2002, 2003 and 2004 have been derived from the Consolidated Financial Statements of the
Company, which statements have beenour audited by Arthur Andersen LLP, independent
public accountants. The selected consolidated financial statements, but does not reflect the operations of ASA. The airline operating data as ofset forth below is unaudited and the airline operating data for the nine monthsyears ended December 31, 19962001, 2002, 2003 and 1997 have been derived from2004, does not reflect the unaudited Consolidated Financial Statementsoperations of the Company which, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information contained therein. DataASA. The airline operating data for the nine monthsyear ended December 31, 1997 are not necessarily indicative2005 reflects the operations of results to be expectedSkyWest Airlines for the fiscal year ending March 31, 1998. The Otherentire period and the operations of ASA for the period subsequent to September 7, 2005.
Selected Consolidated Financial DataInformation
| | Years Ended December 31, | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||
| Consolidated Statements of Income: | |||||||||||||||||||
| Operating revenues: | |||||||||||||||||||
| Passenger | $ | 595,985 | $ | 769,427 | $ | 882,062 | $ | 1,139,580 | $ | 1,938,450 | |||||||||
| Freight and Other | 5,880 | 5,020 | 5,964 | 16,464 | 25,598 | ||||||||||||||
| Total operating revenues | 601,865 | 774,447 | 888,026 | 1,156,044 | 1,964,048 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Flying Operations | 252,346 | 330,198 | 417,801 | 577,492 | 1,079,292 | ||||||||||||||
| Aircraft, traffic and passenger service | 97,827 | 123,453 | 139,125 | 180,578 | 271,746 | ||||||||||||||
| Maintenance | 87,577 | 82,786 | 83,829 | 113,537 | 186,675 | ||||||||||||||
| Depreciation and amortization | 45,888 | 57,535 | 74,419 | 76,817 | 115,275 | ||||||||||||||
| General and Administrative | 60,844 | 62,358 | 64,372 | 62,844 | 90,652 | ||||||||||||||
| U.S. Governmental airline assistance | (8,181 | ) | (1,438 | ) | — | — | — | ||||||||||||
| Total operating expenses | 536,301 | 654,892 | 779,546 | 1,011,268 | 1,743,640 | ||||||||||||||
| Operating income | 65,564 | 119,555 | 108,480 | 144,776 | 220,408 | ||||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | — | (3,611 | ) | (9,891 | ) | (18,239 | ) | (53,330 | ) | ||||||||||
| Interest income | 17,249 | 12,383 | 10,492 | 10,050 | 12,943 | ||||||||||||||
| Gain on sales of property and equipment | — | — | 406 | — | 175 | ||||||||||||||
| Loss on sale of marketable securities | — | — | — | — | (570 | ) | |||||||||||||
| Total other income (expense) | 17,249 | 8,772 | 1,007 | (8,189 | ) | (40,782 | ) | ||||||||||||
| Income before provision for income taxes | 82,813 | 128,327 | 109,487 | 136,587 | 179,626 | ||||||||||||||
| Provision for income tax | 32,297 | 50,050 | 42,700 | 54,635 | 67,359 | ||||||||||||||
| Income before cumulative effect of change in accounting principle | 50,516 | 78,277 | 66,787 | 81,952 | 112,267 | ||||||||||||||
| Cumulative effect of change in accounting principle, net of tax of $5,492 | — | 8,589 | — | — | — | ||||||||||||||
| Net Income | $ | 50,516 | $ | 86,866 | $ | 66,787 | $ | 81,952 | $ | 112,267 | |||||||||
| Basic | .90 | 1.52 | 1.16 | 1.42 | 1.94 | ||||||||||||||
| Diluted | .88 | 1.51 | 1.15 | 1.40 | 1.90 | ||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||
| Basic | 56,365 | 57,229 | 57,745 | 57,858 | 57,851 | ||||||||||||||
| Diluted | 57,237 | 57,551 | 58,127 | 58,350 | 58,933 | ||||||||||||||
| Other Financial Data: | |||||||||||||||||||
| Net cash from (used in): | |||||||||||||||||||
| Operating activities | $ | 150,791 | $ | 173,703 | $ | 157,743 | $ | 246,866 | $ | 207,534 | |||||||||
| Investing activities | (219,624 | ) | (120,592 | ) | (811,690 | ) | (285,321 | ) | (422,453 | ) | |||||||||
| Financing activities | 45,335 | 35,157 | 635,394 | 39,068 | 242,513 | ||||||||||||||
| Airline Operating Data: | |||||||||||||||||||
| Passengers carried | 6,229,867 | 8,388,935 | 10,738,691 | 13,424,520 | 20,343,975 | ||||||||||||||
| Revenue passenger miles(1) | 1,732,180 | 2,990,753 | 4,222,669 | 5,546,069 | 9,538,906 | ||||||||||||||
| Available seat miles(2) | 2,837,278 | 4,356,053 | 5,875,029 | 7,546,318 | 12,718,973 | ||||||||||||||
| Passenger load factor(3) | 61.1 | % | 68.7 | % | 71.9 | % | 73.5 | % | 75.0 | % | |||||||||
| Revenue per available seat mile(4) | 21.2 | ¢ | 17.8 | ¢ | 15.1 | ¢ | 15.3 | ¢ | 15.4 | ¢ | |||||||||
| Cost per available seat mile(5) | 18.9 | ¢ | 15.1 | ¢ | 13.4 | ¢ | 13.6 | ¢ | 14.1 | ¢ | |||||||||
| EBITDA(6) | $ | 128,701 | $ | 198,062 | $ | 193,797 | $ | 231,643 | $ | 348,231 | |||||||||
| EBITDAR(6) | $ | 201,968 | $ | 301,380 | $ | 318,733 | $ | 377,584 | $ | 558,462 | |||||||||
| Average passenger trip length (miles) | 278 | 356 | 393 | 413 | 469 | ||||||||||||||
| Number of aircraft in service (end of period): | |||||||||||||||||||
| Bombardier Regional Jets: | |||||||||||||||||||
| Owned | 5 | 6 | 30 | 32 | 119 | ||||||||||||||
| Leased | 44 | 67 | 79 | 101 | 187 | ||||||||||||||
| Brasilia Turboprops | |||||||||||||||||||
| Owned | 21 | 21 | 21 | 21 | 14 | ||||||||||||||
| Leased | 61 | 55 | 55 | 52 | 48 | ||||||||||||||
| ATR-72 Turboprops (Leased) | — | — | — | — | 12 | ||||||||||||||
| Total aircraft | 131 | 149 | 185 | 206 | 380 | ||||||||||||||
As of December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||
| | (in thousands) | ||||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||
| Cash and marketable securities | $ | 310,714 | $ | 425,424 | $ | 471,234 | $ | 540,537 | $ | 299,668 | |||||
| Working capital | 270,818 | 391,845 | 518,409 | 541,870 | 77,715 | ||||||||||
| Property and equipment, net | 441,706 | 455,998 | 843,918 | 932,547 | 2,552,522 | ||||||||||
| Total assets | 831,566 | 999,384 | 1,529,210 | 1,662,287 | 3,320,646 | ||||||||||
| Long-term debt, including current maturities(7) | 125,839 | 137,911 | 493,650 | 495,818 | 1,753,903 | ||||||||||
| Total stockholders' equity | 545,840 | 638,686 | 709,063 | 779,055 | 913,198 | ||||||||||
- (1)
- Revenue passengers multiplied by miles flown.
- (2)
- Passenger seats available multiplied by miles flown.
- (3)
- Revenue passenger miles divided by available seat miles.
- (4)
- Total airline operating revenues divided by available seat miles.
- (5)
- Total operating and
Airline Operating Data set forth below are unaudited.NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ----------------------------------------------------------------- ------------------------- 1993 1994 1995 1996 1997 1996 1997 ---------- ---------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA)CONSOLIDATED STATEMENTS OF INCOME DATA(1): Operating revenues: Passenger..................... $ 132,430 $ 151,699 $ 177,588 $ 205,034 $ 239,222 $ 177,768 $ 193,783 Freight....................... 2,573 3,099 3,802 4,291 4,174 3,120 3,099 Public service and other...... 2,067 2,411 2,401 2,159 1,243 980 852 Nonairline.................... 9,730 25,699 34,284 34,036 33,471 28,171 27,949 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total operating revenues............... 146,800 182,908 218,075 245,520 278,110 210,039 225,683 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Operating expenses: Flying operations............. 51,421 52,256 68,135 85,117 101,689 75,536 78,550 Aircraft, traffic and passenger service........... 22,230 22,621 28,218 32,522 37,044 27,234 28,464 Maintenance................... 21,804 21,853 25,530 28,713 29,149 21,594 21,721 Promotion and sales........... 15,072 16,527 20,369 25,965 29,606 22,155 20,307 Depreciation and amortization................ 7,478 8,967 11,896 15,392 18,481 13,644 14,169 General and administrative.... 8,954 12,306 11,605 11,962 12,577 9,320 11,006 Fleet restructuring and transition.................. -- -- -- 6,247 -- -- -- Nonairline.................... 8,376 23,698 31,981 33,892 34,147 26,615 24,763 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total operating expenses............... 135,335 158,228 197,734 239,810 262,693 196,098 198,980 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Operating income................ 11,465 24,680 20,341 5,710 15,417 13,941 26,703 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense.............. (1,410) (1,978) (1,100) (2,163) (2,431) (1,507) (2,037) Interest income............... 445 1,069 2,826 2,707 2,481 1,853 2,681 Gain on sales of property and equipment................... 43 74 173 556 1,113 339 541 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Total other income (expense).............. (922) (835) 1,899 1,100 1,163 685 1,185 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes.................. 10,543 23,845 22,240 6,810 16,580 14,626 27,888 Provision for income taxes...... 3,839 9,449 8,539 2,444 6,469 5,623 10,611 ---------- ---------- ----------- ----------- ----------- ----------- ----------- Net income........................ $ 6,704 $ 14,396 $ 13,701 $ 4,366 $ 10,111 $ 9,003 $ 17,277 ========== ========== =========== =========== =========== =========== =========== Net income per common share(2): Basic........................... $ 0.85 $ 1.46 $ 1.23 $ 0.42 $ 1.00 $ 0.89 $ 1.70 Diluted......................... 0.83 1.43 1.22 0.42 1.00 0.89 1.68 Weighted average common shares outstanding(2): Basic........................... 7,927 9,883 11,112 10,284 10,085 10,073 10,179 Diluted......................... 8,061 10,063 11,214 10,368 10,124 10,104 10,2971416NINE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, -------------------------------------------------------------- ----------------------- 1993 1994 1995 1996 1997 1996 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT AIRLINE OPERATING DATA)OTHER FINANCIAL DATA: EBITDAR(3)........................... $ 39,057 $ 56,325 $ 63,932 $ 57,725 $ 75,419 $ 59,436 $ 73,120 AIRLINE OPERATING DATA(4): Passengers carried................... 1,523,384 1,730,993 2,073,885 2,340,366 2,656,602 1,986,371 2,228,741 Revenue passenger miles (000)(5)..... 294,276 345,414 488,901 617,136 717,322 540,043 567,437 Available seat miles (000)(6)........ 669,724 727,059 976,095 1,254,334 1,413,170 1,053,935 1,113,486 Passenger load factor(7)............. 43.9% 47.5% 50.1% 49.2% 50.8% 51.2% 51.0% Breakeven load factor(8)............. 41.1% 41.2% 45.5% 48.4% 47.9% 48.2% 45.2% Yield per revenue passenger mile(9)............................ 45.0c 43.9c 36.3c 33.2c 33.3c 32.9c 34.2c Revenue per available seat mile(10)........................... 20.5c 21.6c 18.8c 16.9c 17.3c 17.3c 17.8c Cost per available seat mile(11)..... 19.1c 18.8c 17.1c 16.6c 16.3c 16.2c 15.8c Average passenger trip length........ 193 200 236 264 270 272 255 Number of aircraft (end of period)(12): Embraer Brasilia................... 19 23 28 35 50 47 50 Canadair Regional Jet.............. - 4 6 10 10 10 10 Fairchild Metroliner III........... 31 28 26 18 - 5 - -- -- -- -- -- -- -- Total aircraft................ 50 55 60 63 60 62 60 CONSOLIDATED BALANCE SHEET DATA: Working capital...................... $ 12,334 $ 66,615 $ 46,039 $ 32,818 $ 45,273 $ 40,670 $ 68,730 Property and equipment, net.......... 56,458 89,962 110,241 145,071 137,743 142,129 140,297 Total assets......................... 86,945 184,017 188,182 227,550 232,898 232,680 260,933 Long-term debt, less current maturities......................... 18,391 26,647 29,553 53,736 47,337 48,907 51,248 Stockholders' equity................. 42,766 122,788 117,684 115,800 124,552 123,753 142,541- --------------- (1) Reflectsinterest expenses divided by available seat miles. Total operating and interest expenses is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to total operating expenses. Cost per available seat mile utilizing this measurement is included as it is a measurement recognized by thereclassification of nonairline commissionsinvesting public. - (6)
- EBITDA represents earnings before interest expense,
against non-airline operating revenues. (2) Reflects restated netincomeper common share amountstaxes, depreciation andweighted average common shares outstanding as required by Statement of Financial Accounting Standards No. 128. (3)amortization. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization and aircraft rents. EBITDA and EBITDARis a widelyare not calculations based on generally acceptedfinancial indicator of a company's ability to incurprinciples andservice debt. However, EBITDARshould not be consideredin isolation,asa substitute for net income oralternatives to cash flowdata prepared in accordance with generally accepted accounting principles oras a measure ofa company's profitabilityliquidity. In addition, our calculations may not be comparable to other similarly titled measures of other companies. EBITDA and EBITDAR are included as supplemental disclosures because they may provide useful information regarding our ability to service debt and lease payments and to fund capital expenditures. Our ability to service debt and lease payments and to fund capital expenditures in the future, however, may be affected by other operating orliquidity. (4) Excludeslegal requirements or uncertainties. Currently, aircraft and engine ownership costs are our most significant cash expenditure. In addition, EBITDA and EBITDAR are well recognized performance measurements in theoperationsregional airline industry and, consequently, we have provided this information. - (7)
- At December 31, 2005, 247 of
Scenic and NPT. (5) Revenue passengers multiplied by miles flown. (6) Passenger seats available multiplied by miles flown. (7) Revenue passenger miles divided by available seat miles. (8) Passenger load factor at which total airline operating revenues equals total airline operating expenses, including interest expense. Calculated by dividing airline operating expenses and interest expense by airline operating revenues and multiplyingtheresult by passenger load factor. (9) Passenger revenues divided by revenue passenger miles flown. (10) Airline operating revenues divided by available seat miles. (11) Airline operating expenses and interest expense divided by available seat miles. (12) Of the 60aircraft operated by SkyWestat December 31, 1997, 44Airlines and ASA were financed through operating leases.1517In addition to our indebtedness, at December 31, 2005, we had approximately $3.2 billion of mandatory future minimum payments under operating leases, primarily for aircraft and ground facilities. At a 7% discount factor, the present value of these obligations would be equal to approximately $2.1 billion.
The following represents a reconciliation of EBITDA and EBITDAR to net cash from operating activities for the periods indicated (dollars in thousands):
| | Year Ended December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||
| EBITDAR | $ | 201,968 | $ | 301,380 | $ | 318,733 | $ | 377,584 | $ | 558,462 | ||||||||
| Aircraft Rents | (73,267 | ) | (103,318 | ) | (124,936 | ) | (145,941 | ) | (210,231 | ) | ||||||||
| EBITDA | $ | 128,701 | $ | 198,062 | $ | 193,797 | $ | 231,643 | $ | 348,231 | ||||||||
| Interest Expense | — | (3,611 | ) | (9,891 | ) | (18,239 | ) | (53,330 | ) | |||||||||
| Provision for income taxes | (32,297 | ) | (50,050 | ) | (42,700 | ) | (54,635 | ) | (67,359 | ) | ||||||||
| Maintenance expense related to disposition of rotable spares | 1,947 | 1,379 | 834 | — | — | |||||||||||||
| Gain (loss) on sale of property and equipment | — | — | 406 | — | (175 | ) | ||||||||||||
| Loss on sale of marketable securities | — | — | — | — | 570 | |||||||||||||
| Increase (decrease) in allowance for doubtful accounts | 5 | 661 | (664 | ) | (34 | ) | (5 | ) | ||||||||||
| Net increase in deferred income taxes | 6,948 | 22,206 | 91,085 | 29,598 | 17,958 | |||||||||||||
| Tax benefit from exercise of common stock options | 5,584 | 1,525 | 129 | 442 | 7,509 | |||||||||||||
| Deferred aircraft credits, netof accretion | 15,127 | 10,903 | 22,751 | 4,444 | 24,923 | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||
| Increase in restricted cash | — | — | (9,160 | ) | — | (14,524 | ) | |||||||||||
| Decrease (increase) in receivables | 3,091 | (6,890 | ) | 14,813 | (15,738 | ) | 7,895 | |||||||||||
| Decrease (increase) in income tax receivable | — | — | (62,908 | ) | 53,909 | (9,522 | ) | |||||||||||
| Decrease (increase) in inventories | (4,301 | ) | (3,750 | ) | 953 | (7,842 | ) | (8,355 | ) | |||||||||
| Decrease (increase) in other current assets and prepaid aircraft rents | (5,820 | ) | (1,988 | ) | (53,917 | ) | 1,750 | (49,356 | ) | |||||||||
| (Decrease) Increase in accounts payable and accrued aircraft rents | 12,783 | 3,313 | 5,641 | 13,921 | (6,638 | ) | ||||||||||||
| (Decrease) increase in engine overhaul accrual | 1,091 | (14,081 | ) | — | — | — | ||||||||||||
| Increase in other current liabilities | 17,932 | 16,024 | 6,574 | 7,647 | 9,712 | |||||||||||||
| Net cash provided by operating activities | $ | 150,791 | $ | 173,703 | $ | 157,743 | $ | 246,866 | $ | 207,534 | ||||||||
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, throughfollowing discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2005, 2004 and 2003. Also discussed is our financial position as of December 31, 2005 and 2004. You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus or incorporated herein by reference. This discussion and analysis contains forward-looking statements. Please refer to the section entitled "Cautionary Statement Concerning Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
Through SkyWest operates aAirlines and ASA, we operate the largest regional airline offeringin the United States. As of December 31, 2005, SkyWest Airlines and ASA offered scheduled passenger and air freight service with approximately 5802,350 total daily departures to 46 cities218 destinations in 12 western states and Canada. Total operating revenues and passengers carried
have grown consistently from fiscal 1993 through fiscal 1997, at compound annual
growth rates of approximately 17% and 15%, respectively. In fiscal 1993, SkyWest
generated approximately 670 million available seat miles ("ASMs") with its fleet
of thirty-one 19-seat Metroliners and nineteen 30-seat Brasilias at fiscal year
end. As a result of the introduction of the 50-seat CRJs beginning in fiscal
1994, the expansion of the Brasilia fleetUnited States, Canada, Mexico and the strategic transition out of
the Metroliner aircraft asCaribbean. Additionally, we provide ground handling services for approximately ten other airlines throughout our system. As of December 1996, SkyWest generated approximately 1.4
billion ASMs in fiscal 1997 with a31, 2005, our consolidated fleet consisted of 50 Brasilias229 CRJ200s (66 assigned to United and 10 CRJs at fiscal
year end. This transition out of163 assigned to Delta, including ten CRJ100s which have been upgraded to conform to the Metroliner aircraft enabled SkyWestmanufacturer's specifications for CRJ200s), 77 CRJ700s (42 assigned to upgrade its aircraftUnited and 35 assigned to an all cabin-class fleet of BrasiliasDelta), 62 Brasilia turboprops (48 assigned to United and CRJs, which
offer increased passenger acceptance14 assigned to Delta), and capacity and higher operating
efficiencies. This transition resulted in one-time pre-tax fleet restructuring
and transition expenses of $6.2 million, or $0.38 per share, in fiscal 1996.
In fiscal 1997, the Company generated net income of $10.1 million, comparedtwelve ATR-72 turboprops (all assigned to $4.4 million in fiscal 1996. The Company's profitability has continued to
improve in fiscal 1998 with net income for the nine months ended December 31,
1997 increasing 91.9% to $17.3 million from $9.0 million in the prior year
period. The improvement since fiscal 1996 reflects, among other factors, the
addition of United as a code-sharing partner and the completion of SkyWest's
transition to an all cabin-class fleet.
SkyWest has been a code-sharing partner with Delta, and Continental since
1987 and 1995, respectively. SkyWest recently expanded its code-sharing
relationshipswhich we expect to include United effective October 1, 1997. SkyWest operates as
the Delta Connection in Salt Lake City and Los Angeles, as United Express in Los
Angeles and as the Continental Connection in selected California markets.
SkyWest has executed an addendum to the United Express Agreement, expanding
SkyWest's operations to serve as the United Express carrier in San Francisco
beginning June 1, 1998. SkyWest believes that itsremove from service by August 2007). We believe our success in attracting multiple code-sharingcontractual relationships with major airline partners is attributable to itsour delivery of high qualityhigh-quality customer service with an all cabin-class fleet.
Multiple code-sharingfleet at a competitive cost structure. For the month ended December 31, 2005, approximately 59.9% of our aggregate capacity was operated under the Delta code and approximately 40.1% was operated under the United code.
SkyWest Airlines has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest Airlines expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest Airlines re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta's decision to "de-hub" its Dallas/Fort Worth operations. In 2004, SkyWest Airlines expanded its United Express operations to provide service in Chicago. As of December 31, 2005, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, and a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest, operating more than 1,500 total daily flights. In April 2003, SkyWest Airlines signed an agreement with Continental to supply Continental with regional airline feed into Continental's Houston hub beginning on July 1, 2003. In January 2005, we announced the mutual decision with Continental to end SkyWest Airlines' operations as a Continental Connection carrier and we completed the phase-out process on July 1, 2005.
ASA has been a code-share partner with Delta in Atlanta since 1984. ASA expanded its operations as a Delta Connection carrier to also include Cincinnati/Northern Kentucky and Salt Lake City in September 2002 and April 2003, respectively. ASA operates approximately 850 daily flights, all in the Delta Connection system.
Historically, multiple contractual relationships have enabled SkyWestus to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of SkyWest-controlledour controlled or "pro-rate" flying and United Express contract flying. On contract routes, the majority of flights currently operated by SkyWest (74% during the quarter
ended December 31, 1997), SkyWestmajor airline partner controls scheduling, ticketing, pricing and seat inventories and receives a prorated portion of passenger fares. we are compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures.
On United
Express contract routes, United controlspro-rate flights, we control scheduling, ticketing, pricing and seat inventories with SkyWest receiving from United negotiated minimum payments per
flight departure and incentives related toreceive a pro-rated portion of passenger volumes and levelsfares. Since August 1, 2003, substantially all of customer service.our flights have been contract flights. For the quarteryear ended December 31, 1997, 69%2005, essentially all of the Company's
capacity was generated in theour Brasilia turboprops flown for Delta and Continental codes and 31%were flown under pro-rate arrangements while approximately 92% of our Brasilia turboprops flown in the United code,system were flown under contractual arrangements, with the remaining eight percent flown under pro-rate arrangements.
In September 2005, Delta filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Prior to the date of Delta's bankruptcy filing, each of SkyWest Airlines and ASA entered into an amended Delta Connection Agreement which provides for a 15-year term, subject to certain termination and extension rights. Delta received all necessary approvals from the U.S. Bankruptcy Court and the Delta Connection Agreements were assumed by Delta on October 6, 2005. Under the terms of its Delta Connection Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis, is reimbursed for fuel and other direct costs, and is paid a margin based on completed block hours. Under its Delta Connection Agreement, ASA is compensated primarily on a fee-per-completed-block-hour basis, is directly reimbursed for fuel and other costs, and is paid a margin based on performance incentives. Notwithstanding the assumption by Delta of the Delta Connection Agreements, Delta's bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties for SkyWest Airlines, ASA or both.
Although Delta has reported that it intends to reorganize and emerge from its ongoing Chapter 11 bankruptcy proceeding, it could convert its reorganization proceeding to a liquidation proceeding under the U.S. Bankruptcy Code or liquidate some or all of its assets through one or more transactions with third parties. Such events could jeopardize our Delta Connection operations, leave us unable to efficiently utilize the additional aircraft which we are currently obligated to purchase, or result in other outcomes which could have a material adverse effect on our operating results or financial condition.
Although a plan of reorganization has been confirmed in United's bankruptcy proceedings, which became effective on February 1, 2006 (subject to pending appeal), there is no assurance that United's plan will ultimately succeed. There is no assurance that United will be able to operate successfully under the terms of its plan. In the event United is not able to perform successfully under the terms of its plan, our United Express operations could be jeopardized, which could have a material adverse effect on our operating results or financial condition.
On February 4, 2005, we announced that SkyWest Airlines had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest Airlines had placed a firm order for these CRJ700s with Bombardier. Deliveries of these aircraft began in the third quarter of 2005 and were completed in the first quarter of 2006. Our total firm aircraft orders and commitments, as of December 31, 2005, consisted of orders for 15 CRJ700s, 17 CRJ900s and commitments to lease six CRJ200's from Delta. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations are estimated to be approximately $838 million through April 2007. Additionally, our agreement with Bombardier includes options for another 70 aircraft that can be delivered in 70 through 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in May 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2005. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management's subjective and complex judgments due to the need to make estimates about the effect of
matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, aircraft maintenance, aircraft leases and impairment of long-lived assets and intangibles as discussed below. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will differ, and could differ materially from such estimates.
Revenue Recognition
Passenger and ground handling revenues are recognized when service is provided. Under our contract and pro-rate flying agreements with our code-share partners, revenue is considered earned when the flight is completed. In the event that our contractual rates have not been finalized at quarterly or annual financial statement dates, we record revenues based on a prior period's approved rates, adjusted to reflect management's current estimate of the results of the then-current contract negotiations. Our agreements with our code-share partners contain certain provisions pursuant to which the parties could terminate the respective agreements, subject to certain rights of the other party, if certain performance criteria are not maintained. Our revenues could be impacted by a number of factors, including changes to the code-share agreements, contract modifications resulting from contract renegotiations and our ability to earn incentive payments contemplated under applicable agreements.
Maintenance
We use the direct-expense method of accounting for our regional jet aircraft engine overhaul costs. Under this method, the maintenance liability is not recorded until the maintenance services are performed, thus substantially reducing significant estimates and judgments inherent under the accrual method. We use the "deferral method" of accounting for our Brasilia turboprop engine overhauls, which provides for engine overhaul costs to be capitalized and depreciated over the estimated useful life of the engine. For leased aircraft, we are subject to lease return provisions that require a minimum portion of the "life" of an overhaul be remaining on the engine at the lease return date. With respect to engine overhauls related to leased Brasilia turboprops to be returned, we adjust the estimated useful lives of the final engine overhauls based on the respective lease return dates. With respect to SkyWest Airlines, a third-party vendor provides our long-term engine services covering the scheduled and unscheduled repairs for engines on our CRJ700s. Under the terms of the agreement, we pay a set dollar amount per engine hour flown on a monthly basis and the third party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions.
Aircraft Leases
The majority of SkyWest Airlines' aircraft are leased from third parties, while 74%ASA's aircraft are primarily debt-financed on a long-term basis. In order to determine the proper classification of our leased aircraft as either operating leases or capital leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in our condensed consolidated balance sheet and accordingly, neither a lease asset nor an obligation for future lease payments is reflected in our condensed consolidated balance sheet.
Impairment of Long-Lived and Intangible Assets
As of December 31, 2005, we had approximately $2.6 billion of property and equipment and related assets. Additionally, as of December 31, 2005, we had approximately $33.0 million in intangible
assets. In accounting for these long-lived and intangible assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. We recorded an intangible asset of approximately $33.0 million relating to the acquisition of ASA. The intangible asset is being amortized over fifteen years under the straight-line method. As of December 31, 2005, we had recorded $718,000 in amortization expense. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, we evaluate whether the book value of our aircraft is impaired in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Based on the results of the evaluations, our management concluded no impairment was SkyWest-controlled flyingnecessary as of December 31, 2005. However, there is inherent risk in estimating the future cash flows used in the impairment test. If cash flows do not materialize as estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further impairment charges may be necessary in the future.
Results of Operations
2005 Compared to 2004
Operating Statistics. The following table sets forth our major operational statistics and 26%the percentage-of-change for the years identified below.
| | Year ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2005 | 2004 | % Change | ||||
| Passengers carried | 20,343,975 | 13,424,520 | 51.5 | ||||
| Revenue passenger miles (000) | 9,538,906 | 5,546,069 | 72.0 | ||||
| Available seat miles (000) | 12,718,973 | 7,546,318 | 68.5 | ||||
| Passenger load factor | 75.0 | % | 73.5 | % | 1.5 | pts | |
| Passenger breakeven load factor | 68.6 | % | 65.5 | % | 3.1 | pts | |
| Yield per revenue passenger mile | 20.3 | ¢ | 20.5 | ¢ | (1.0 | ) | |
| Revenue per available seat mile | 15.4 | ¢ | 15.3 | ¢ | 0.7 | ||
| Cost per available seat mile | 14.1 | ¢ | 13.6 | ¢ | 3.7 | ||
| Fuel cost per available seat mile | 4.6 | ¢ | 3.3 | ¢ | 39.4 | ||
| Average passenger trip length (miles) | 469 | 413 | 13.6 | ||||
Our total ASMs generated during the year ended December 31, 2005 increased 68.5% from the year ended December 31, 2004. The increase in ASMs was contract flying. Asprimarily a result of SkyWest's planned San Francisco expansion, management expects thatincreasing the percentagessize of SkyWest capacityour aircraft fleet, including our acquisition of ASA, from 206 aircraft as of December 31, 2004, to 380 aircraft as of December 31, 2005. On the date we acquired ASA, ASA's fleet consisted of 149 aircraft (35 CRJ700s, 102 CRJ200s and twelve ATRs). In addition to the aircraft acquired in connection with the United codeacquisition of ASA, we took delivery of 30 CRJ 700s and two CRJ200s during the year ended December 31, 2005.
Net Income. Net income increased to $112.3 million, or $1.90 per diluted share, for the year ended December 31, 2005, compared to $81.9 million, or $1.40 per diluted share, for the year ended December 31, 2004. Factors relating to the change in contract flying will
increase.net income are discussed below.
Operating revenues increased 69.9% for the year ended December 31, 2005, compared to the year ended December 31, 2004. The Company has continuedincrease in total operating revenues was primarily due to emphasize cost managementthe acquisition of ASA. Airline operating and better
utilization of existing resources. During the period from fiscal 1993 through
fiscal 1997, costinterest expenses, excluding fuel charges, per ASM decreased from 19.1c7.8% to 16.3c. For9.5¢ for the nine monthsyear ended December 31, 1997, cost2005, from 10.3¢ for the year ended December 31, 2004. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.
Passenger Revenues. Passenger revenues, which represented 98.7% of consolidated operating revenues for the year ended December 31, 2005, increased 70.1% to $1.94 billion for the year ended December 31, 2005, from $1.14 billion, or 98.6% of consolidated operating revenues, for the year ended December 31, 2004. Our passenger revenues, excluding fuel reimbursements from major partners, increased 51.9% for the year ended December 31, 2005. The increase in passenger revenues excluding fuel was primarily due to a 68.5% increase in ASMs, principally as a result of our increase in operating aircraft to 380 aircraft as of December 31, 2005, from 206 aircraft as of December 31, 2004. Revenue per ASM decreased furtherincreased 0.7% to 15.8c. This reduction15.4¢, from 15.3¢ for the year ended December 31, 2004, primarily due to an increase in fuel reimbursements from our major partners. Passenger revenues include an amount designed to reimburse us for aircraft ownership costs. The amount deemed to be rental income for the year ended 2005 was $308.3 million.
Passenger Load Factor. Passenger load factor increased to 75.0% for the year ended December 31, 2005, from 73.5% for the year ended December 31, 2004. The increase in load factor was due primarily to the introductionfurther development of our relationships with United and Delta whereby SkyWest Airlines supplements mainline service in previously established and developed markets. Additionally, we are experiencing higher passenger acceptance of our regional jet aircraft.
Ground Handling and Other Revenue. Total ground handling revenue for the CRJs, which offeryear ended December 31, 2005 increased approximately 55.5% from the same period of 2004. The increase was primarily related to contracts with our major partners, whereby SkyWest Airlines performs the ground handling for other regional airlines.
Total Airline Expenses Excluding Fuel. Total airline expenses for the year ended December 31, 2005, excluding fuel charges (which are substantially reimbursable by our major partners), increased approximately 55.2% from the same period of 2004. The increase was primarily a result of a 68.5% increase in ASMs (which resulted principally from the acquisition of ASA). Total operating expenses for the year ended December 31, 2005 increased at a lower unitrate than ASM growth, primarily due to the increased operating efficiencies obtained from increased stage lengths flown by the regional jets.
Operating and Interest Expenses. Operating and interest expenses increased 74.5% to $1.80 billion for the year ended December 31, 2005, compared to $1.03 billion for the year ended December 31, 2004. The increase in total operating and interest expenses was due principally to the acquisition of ASA. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 91.5% for the year ended December 31, 2005, from 89.1% for the year ended December 31, 2004. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs on longer stage lengths. In addition, the transition to an
all-Brasilia turbo-prop fleet has resulted in fewer flight interruptions and
lower maintenance costs. Furthermore, increased employee productivity has
enabled the Company to grow with few additional employees, except for flight
crews to operate the larger Embraer and CRJ aircraft.
16
18
RESULTS OF OPERATIONSyear-over-year.
The following table setstables set forth information regarding the Company'sour operating expense components. Airline operatingcomponents for the years ended December 31, 2005 and 2004. Operating expenses are expressed as a percentage of total airline operating revenues. Nonairline expensesIndividual expense components are also expressed as a percentage of nonairline revenues. Total operating expenses and
interest are expressed as a percentage of total consolidated revenues.
| | Year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2005 | 2004 | ||||||||||||
| | Amount | Percentage of Revenue | Cents per ASM | Amount | Percentage of Revenue | Cents Per ASM | ||||||||
| | (in thousands) | | | (in thousands) | | | ||||||||
| Salaries, wages and employee benefits | $ | 434,218 | 22.1 | 3.4 | $ | 282,676 | 24.5 | 3.8 | ||||||
| Aircraft costs | 325,771 | 16.6 | 2.6 | 222,837 | 19.3 | 3.0 | ||||||||
| Maintenance | 129,626 | 6.6 | 1.0 | 77,514 | 6.7 | 1.0 | ||||||||
| Fuel | 590,776 | 30.1 | 4.6 | 252,556 | 21.8 | 3.3 | ||||||||
| Other airline expenses | 263,249 | 13.4 | 2.1 | 175,686 | 15.2 | 2.3 | ||||||||
| Interest | 53,330 | 2.7 | 0.4 | 18,239 | 1.6 | 0.2 | ||||||||
| Total airline expenses | $ | 1,796,970 | 14.1 | $ | 1,029,508 | 13.6 | ||||||||
The increase resulted
primarily from a 5.1% increase in RPMs as well as a 4.0% increase in yield per
RPM. SkyWest entered into a new code-sharing relationship with United and began
operating as United Express in Los Angeles beginning October 1, 1997. This
operation has resulted in both increased RPMs and increased yield per RPM. The
increased yield per RPM also resulted from an increase in SkyWest's portion of
prorated fares with Delta in certain markets. Additionally, SkyWest acquired a
new state-of-the-art revenue management and control system which utilizes
historical booking data and trends to optimize revenue. The combination of these
factors was principally responsible for an increase in revenuecost per ASM to 17.8c
for the nine months ended December 31, 1997, compared to 17.3c for the same
period of 1996.
Management has continued its efforts to reduce airline operating costs per
ASM and as a percentage of airline operating revenues. For the nine months ended
December 31, 1997, total airline expenses and interest were 88.8% of airline
operating revenues compared to 94.0% for the nine months ended December 31,
1996.
Salaries,salaries, wages and employee benefits increased as a percentage of airline
operating revenuesdecreased to 25.2%3.4¢ for the nine monthsyear ended December 31, 1997, from
24.8%2005, compared to 3.8¢ for the nine monthsyear ended December 31, 1996.2004. The average number of full-time equivalent employees increased 97.2% to 13,304 for the nine monthsyear ended December 31, 1997, was
1,916 compared to 1,8472005 from 6,747 for the nine monthsyear ended December 31, 1996.2004. The increase in number of personnelemployees was due, in large part, to hiring flight attendantsthe acquisition of ASA and customer
serviceaddition of personnel to support increasedrequired for the new regional jet flying and ground handling operations within our United Express operations. Salaries, wages and employee
benefits
The cost per ASM increased slightly to 4.5c for the nine months ended December
31, 1997, compared to 4.3c for the nine months ended December 31, 1996, due
primarily to increased employee incentives and profit sharing.
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Aircraft expenses,aircraft costs, including aircraft rent and depreciation, decreased as a
percentage of airline operating revenues to 19.8%2.6¢ for the nine monthsyear ended December 31, 1997,2005, from 20.2%3.0¢ for the nine monthsyear ended December 31, 1996.
Aircraft costs2004. The decrease in cost per ASM were consistentwas primarily due to the addition of ASA's regional jet fleet and the addition of thirty CRJ700s, which have a lower operating cost per ASM than our existing CRJ200 and turboprop fleets.
The cost per ASM for maintenance expense remained constant at 3.5c1.0¢ for the nine monthsyear ended December 31, 19972005, and 1996.
MaintenanceDecember 31, 2004. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the change to a direct expense decreasedmaintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a percentage of airline operating revenues
to 7.7% forresult, during the nine monthsyear ended December 31, 1997,2005, we collected and recorded as revenue $25.2 million (pretax) under the United Express Agreement, with no material offset to CRJ200 engine maintenance overhauls. Because the "Maintenance" line in the table set forth above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are stated separately in the table), the maintenance expense line in the above table differs from 8.5%the maintenance line in our condensed consolidated statements of income.
The cost per ASM for fuel increased 39.4% to 4.6¢ for the nine
monthsyear ended December 31, 1996. This decrease resulted primarily2005, from the
acquisition and utilization of 15 new Brasilia aircraft, which are more
efficient than Metroliner aircraft. Maintenance expense per ASM decreased
slightly to 1.4c3.3¢ for the nine monthsyear ended December 31, 1997, from 1.5c for2004. This increase was primarily due to the nine monthsaverage price of fuel increasing to $2.05 per gallon during the year ended December 31, 1996.
Fuel expenses decreased as a percentage of airline operating revenues to
11.2%2005, from $1.45 per gallon for the nine monthsyear ended December 31, 1997, from 12.4% for the nine
months ended December 31, 1996, due primarily to a decrease in the average fuel
price per gallon to $0.85 from $0.94. Fuel costs2004.
The cost per ASM decreased to 2.0c for the nine months ended December 31, 1997, from 2.1c for the nine months ended
December 31, 1996.
Otherother expenses, primarily consisting primarily of commissions, landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased as a percentage of airline operating revenues8.7% to 24.2%2.1¢ for the nine
monthsyear ended December 31, 1997,2005, from 27.2%2.3¢ for the nine monthsyear ended December 31, 1996. The decrease is due primarily to SkyWest not incurring certain
commissions on contract-related passenger revenues.
Nonairline revenues, generated from the operations of Scenic and NPT,
decreased 0.8% to $27.9 million for the nine months ended December 31, 1997 from
$28.2 million for the nine months ended December 31, 1996. Nonairline expenses
and interest decreased 4.4% to $25.4 million for the nine months ended December
31, 1997, compared to $26.6 million for the nine months ended December 31, 1996.2004. The decrease was primarily related to the increase in stage lengths flown by our regional jets.
Interest expense increased to approximately $53.3 million during the year ended December 31, 2005, from approximately $18.2 million during the year ended December 31, 2004. The increase in
interest expense was primarily due to implementationthe acquisition of cost control measuresASA's aircraft which are primarily financed with long-term debt.
2004 Compared to 2003
Operating Statistics. The following table sets forth our major operational statistics and the restructuringpercentage-of-change for the years identified below.
| | Year ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2004 | 2003 | % Change | ||||
| Passengers carried | 13,424,520 | 10,738,691 | 25.0 | ||||
| Revenue passenger miles (000) | 5,546,069 | 4,222,669 | 31.3 | ||||
| Available seat miles (000) | 7,546,318 | 5,875,029 | 28.4 | ||||
| Passenger load factor | 73.5 | % | 71.9 | % | 1.6 | pts | |
| Passenger breakeven load factor | 65.5 | % | 63.9 | % | 1.6 | pts | |
| Yield per revenue passenger mile | 20.5 | ¢ | 20.9 | ¢ | (1.9 | ) | |
| Revenue per available seat mile | 15.3 | ¢ | 15.1 | ¢ | 1.3 | ||
| Cost per available seat mile | 13.6 | ¢ | 13.4 | ¢ | 1.5 | ||
| Fuel cost per available seat mile | 3.3 | ¢ | 2.5 | ¢ | 32.0 | ||
| Average passenger trip length (miles) | 413 | 393 | 5.1 | ||||
The total ASMs we generated during the year ended December 31, 2004 increased 28.4% from the year ended December 31, 2003. The increase in ASMs was primarily a result of the financingincrease in our operating aircraft to 206 aircraft as of flight equipmentDecember 31, 2004, from 185 aircraft as of December 31, 2003. During the year ended December 31, 2004, we took delivery of 12 new CRJ200s, four used CRJ200s with an average age of less than one year and facilities.
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated operating revenues increased 13.3% to a record $278.1 million
in fiscal 1997 compared to $245.5 million in fiscal 1996. SkyWest also
experienced continued growth in passenger enplanements, RPMs and ASMs during
fiscal 1997 compared to fiscal 1996. Consolidated net12 new CRJ700s.
Net Income. Net income increased to $10.1$81.9 million, or $1.00$1.40 per diluted share, for the year ended December 31, 2004, compared to $66.8 million, or $1.15 per diluted share, for the year ended December 31, 2003. Factors relating to the change in net income per share, in fiscal 1997, comparedare discussed below.
Passenger Revenues. Passenger revenues include an amount designed to netreimburse us for aircraft ownership cost. The amount deemed to be rental income of $4.4 million, or $0.42 per share, in fiscal 1996. The fiscal 1996
results include pre-tax fleet restructuring and transition expenses of $6.2
million, or $0.38 per share, resulting from a fleet rationalization plan related
to a restructuring of SkyWest's turbo-prop fleet.for the year ended 2004 was $187.0 million. Passenger revenues, which represented 86.0%98.6% of totalconsolidated operating revenues for the year ended December 31, 2004, increased 16.7%29.2% to $239.2$1.14 billion for the year ended December 31, 2004, from $882.1 million, in fiscal 1997or 99.3% of consolidated operating revenues, for the year ended December 31, 2003. Passenger revenues, excluding fuel reimbursements from $205.0 million in fiscal
1996.major partners, increased 21.1% for the year ended December 31, 2004. The increase in passenger revenues excluding fuel was primarily due to a 16.2%28.4% increase in RPMs, while yieldASMs, principally as a result of us increasing our operating aircraft to 206 aircraft as of December 31, 2004, from 185 aircraft as of December 31, 2003; however, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft. These efficiencies are passed on to our major partners through the rates contemplated by their respective contracts. Twelve CRJ700s and twelve additional CRJ200s were placed into service under our United Express operations during the year ended December 31, 2004. Revenue per RPM remained relatively constant at 33.3cASM increased 1.3% to 15.3¢, from 15.1¢ for the year ended December 31, 2003, primarily due to an increase in fiscal 1997 comparedfuel reimbursements from major partners.
Passenger Load Factor. Passenger load factor increased to 33.2c
in fiscal 1996.73.5% for the year ended December 31, 2004, from 71.9% for the year ended December 31, 2003. The increase in RPMsload factor was due primarily to the further development of our relationships with United and Delta whereby SkyWest Airlines supplements mainline service in previously established and developed markets. Additionally, we are experiencing higher passenger acceptance of our regional jet aircraft.
Total Airline Expenses Excluding Fuel. Total airline expenses for the year ended December 31, 2004, excluding fuel charges (which are substantially reimbursable by our major partners), increased approximately 21.4% from the same period of 2003. The increase was primarily a 20.3%result of a 28.4% increase in ASMs generated(which resulted principally from the expansion of SkyWest Airlines' regional jet fleet from 2003). Total operating expenses for the year ended December 31, 2004 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from increased stage lengths flown by CRJs, which were usedthe regional jets.
Operating and Interest Expenses. Operating and interest expenses increased 30.4% to provide service from Salt Lake City$1.03 billion for the year ended December 31, 2004, compared to destinations such as San Francisco, California, Pasco, Washington and Colorado
Springs, Colorado. Additionally, SkyWest acquired 15 new Brasilia aircraft to
replace$789.4 million for the 18 remaining Metroliner aircraft as their leases expired or were
terminated as part of the fleet rationalization program. These aircraft fleet
additions and changes resulted in a 12.7%year ended December 31, 2003. The increase in ASMs. The growth in RPMs
exceededtotal operating and interest expenses was due principally to the growth in ASMs and resulted in a passenger load factor of 50.8% in
fiscal 1997 compared to 49.2% in fiscal 1996.SkyWest Airlines' regional jet fleet from 2003. As a resultpercentage of consolidated operating revenues, total operating and interest expenses increased to 89.1% for the increased
passenger load factor and a 0.3%year ended December 31, 2004, from 88.9% for the year ended December 31, 2003. The increase in yield per RPM, revenue per ASM
increased 2.4% to 17.3c in fiscal 1997 from 16.9c in fiscal 1996.
Total airline operating expenses and interest were 94.4% of airline
operating revenues in fiscal 1997 compared to 98.4% in fiscal 1996. Exclusive of
the one-time charge related to the fleet restructuring and transition from
Metroliner to Brasilia aircraft recorded in fiscal 1996, total airline operating
expenses and interest, as a percentage of airlineconsolidated operating revenues decreased
to 94.4% in fiscal 1997 from 95.4% in fiscal 1996. This percentage decrease was
due to a 16.7% growth rate in passenger revenues compared to a 14.4%
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increase in operating expenses and interest. The 14.4% increase in operating
expenses and interest was exclusive of the one-time fleet restructuring and
transition expense recorded in fiscal 1996. Airline operating costs per ASM
decreased to 16.3c in fiscal 1997 from 16.6c in fiscal 1996. Exclusive of the
one-time fleet restructuring and transition expense, airline operating costs per
ASM would have been 16.1c for fiscal 1996. The slight increase in cost per ASM
in fiscal 1997 was primarily due to significant increases in fuel costs year-over-year.
Operating revenues increased 30.2% for the year ended December 31, 2004, compared to the year ended December 31, 2003, while total operating and interest expenses increased 30.4% over the same period. The increase in total operating revenues was primarily due to the growth in SkyWest Airlines' regional jet fleet from 2003. Airline operating and interest expenses, excluding fuel costs.
Salaries,charges, per ASM decreased 5.5% to 10.3¢ for the year ended December 31, 2004, from 10.9¢ for the year ended December 31, 2003. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.
The following table sets forth information regarding our operating expense components for the years ended December 31, 2004 and 2003. Operating expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.
| | Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2004 | 2003 | |||||||||||||
| | Amount | Percentage of Revenue | Cents per ASM | Amount | Percentage of Revenue | Cents Per ASM | |||||||||
| | (in thousands) | | | (in thousands) | | | |||||||||
| Salaries, wages and employee benefits | $ | 282,676 | 24.5 | 3.8 | $ | 225,545 | 25.4 | 3.8 | |||||||
| Aircraft costs | 222,837 | 19.3 | 3.0 | 199,355 | 22.4 | 3.4 | |||||||||
| Maintenance | 77,514 | 6.7 | 1.0 | 54,151 | 6.1 | �� | 0.9 | ||||||||
| Fuel | 252,556 | 21.8 | 3.3 | 149,429 | 16.8 | 2.5 | |||||||||
| Other airline expenses | 175,686 | 15.2 | 2.3 | 151,066 | 17.0 | 2.6 | |||||||||
| Interest | 18,239 | 1.6 | 0.2 | 9,891 | 1.1 | 0.2 | |||||||||
| Total airline expenses | $ | 1,029,508 | 13.6 | $ | 789,437 | 13.4 | |||||||||
The cost per ASM of salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 24.8% in fiscal 1997 from 26.5% in fiscal 1996. The
decrease was primarily due to airline operating revenues increasingremained constant at a faster
rate than employee related expenses.3.8¢ for the year ended December 31, 2004 and December 31, 2003. The average number of full-time equivalent employees increased 28.3% to 6,747 for the year ended December 31, 2004 from 5,257 for the year ended December 31, 2003. The increase in number of employees was 1,852due, in large part, to the addition of personnel required for fiscal 1997 comparedthe new regional jet flying and ground handling operations within our United Express operations.
The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 1,7533.0¢ for fiscal 1996.the year ended December 31, 2004, from 3.4¢ for the year ended December 31, 2003. The increasedecrease in cost per ASM was primarily due to the addition of flight attendantstwelve CRJ700s, which have a lower operating cost per ASM than our existing aircraft. Additionally, the decrease was due, in part, to our changing
the estimate on depreciable lives of rotable spares from five years to ten years effective January 2004. This change in estimate increased our pretax income by $11.5 million for new Brasilia aircraft. Salaries,the year ended December 31, 2004. The impact of this change on costs per ASM for the year ended December 31, 2004 was 0.002¢ and the remaining decrease was primarily due to the increase in the number of regional jets that were added to our fleet during 2004.
The cost per ASM for maintenance expense increased to 1.0¢ for the year ended December 31, 2004, from 0.9¢ the year ended December 31, 2003. The increase in cost per ASM was primarily due to the timing of certain maintenance events. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the change to a direct expense maintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a result, during the year ended December 31, 2004, we collected and recorded as revenue $23.3 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the "Maintenance" line in the table set forth above does not include salaries, wages and employee benefits per ASM decreased to 4.3cassociated with our maintenance operations (those costs are stated separately in fiscal 1997the table), the maintenance expense line in the above table differs from 4.5cthe maintenance line in fiscal 1996.
Aircraft expenses, including aircraft rent and depreciation, increased
slightly as a percentageour condensed consolidated statements of airline operating revenues to 20.4% in fiscal 1997
from 20.3% in fiscal 1996, as a result of the fleet transition to Brasilia
aircraft. Aircraft expenses per ASM were 3.5c in fiscal 1997, as compared to
3.4c in fiscal 1996.
Maintenance expense decreased slightly as a percentage of airline operating
revenues to 8.6% in fiscal 1997 from 9.8% in fiscal 1996. Maintenanceincome.
The cost per ASM decreasedfor fuel increased to 1.4c in fiscal 19973.3¢ for the year ended December 31, 2004, from 1.7c in fiscal 1996 due to2.5¢ for the efficiency of additional new Brasilia aircraft.
Fuel expenses increased as a percentage of airline operating revenues to
12.6% in fiscal 1997 compared to 10.9% in fiscal 1996. Theyear ended December 31, 2003. This increase was primarily due to an 18.8% increase in the average price of fuel priceincreasing to $1.45 per gallon to $0.95
in fiscal 1997during the year ended December 31, 2004, from $0.80 in fiscal 1996. As a result, fuel costs$1.12 per gallon for the year ended December 31, 2003.
The cost per ASM increased to 2.2c in fiscal 1997 from 1.8c in fiscal 1996.
Otherfor other expenses, which consist primarily consisting of commissions, landing fees, station rents,rentals, computer reservation systemssystem fees and hull and liability insurance, decreased 11.5% to 2.3¢ for the year ended December 31, 2004, from 2.6¢ for the year ended December 31, 2003. The decrease was primarily related to our elimination of certain reservation and distribution costs which were previously associated with the United Express Agreement that are now handled directly by United, along with the increase in stage lengths flown by our regional jets.
Interest expense increased asto approximately $18.2 million during the year ended December 31, 2004, from approximately $9.9 million during the year ended December 31, 2003. The increase in interest expense was primarily due to the long-debt financing of the new regional jets we acquired.
Liquidity and Capital Resources
We had working capital of $77.7 million and a percentagecurrent ratio of airline operating revenues to 27.0% in fiscal 19971.1:1 at December 31, 2005, compared to 26.9%working capital of $541.9 million and a current ratio of 4.2:1 at December 31, 2004. The decrease was principally caused by the use of cash to fund the acquisition of ASA. The principal sources of cash during the year ended December 31, 2005 were $267.5 million in fiscal 1996.net proceeds from the sale and purchase of marketable securities, $ 207.5 million provided by operating activities, $141.0 million of proceeds from the issuance of long-term debt, $90.0 million of proceeds from draws under new and existing lines of credit, $36.4 million from returns on aircraft deposits, $11.7 million from proceeds from the sale of leased aircraft, $21.8 million from the sale of common stock in connection with the exercise of stock options under our stock option and employee stock purchase plans, $6.2 million from the sale of other assets and $4.0 million of proceeds from the sale of owned aircraft. During the year ended December 31, 2005, we paid (net of cash acquired from ASA) $371.9 million as the purchase price for ASA. We invested $214.2 million in flight equipment, $101.4 million in deposits for aircraft, and $12.7 million in buildings and ground equipment. We made principal payments on long-term debt of $51.3 million and paid $7.0 million in cash dividends. These factors resulted in a $27.6 million increase in cash and cash equivalents during the year ended December 31, 2005.
Our position in marketable securities, consisting primarily of bonds, bond funds and commercial paper, decreased to $159.1 million at December 31, 2005, compared to $427.5 million at December 31, 2004. The increasedecrease in marketable securities was due primarily to rate
increasesthe $421.3 million in customer reservation systems booking fees. In addition, SkyWest
experienced rate increasespurchase price, $5.3 million in landingtransaction fees and general passenger handling
charges. Interest expense as a percentage of airline operating revenues was 1.0%
in fiscal 1997 and fiscal 1996.
Nonairline revenues decreased 1.7% to $33.5$50 million in fiscal 1997returns of aircraft deposits we paid to Delta in connection with our acquisition of ASA on September 7, 2005.
At December 31, 2005, our total capital mix was 39.1% equity and 60.9% debt, compared to $34.0 million in fiscal 1996.62.7% equity and 37.3% debt at December 31, 2004. The decrease was due to decreased passenger
enplanements in fiscal 1997. Nonairline expenses increased 0.8% to $34.1 million
for fiscal 1997 compared to $33.9 million for fiscal 1996. The slight increase
was due primarily to increased fuel costs.
FISCAL 1996 COMPARED TO FISCAL 1995
SkyWest experienced continued growth in RPMs, ASMs, and passenger
enplanements during fiscal 1996 compared to fiscal 1995. Consolidated operating
revenues increased 12.6% to a record $245.5 million in fiscal 1996 compared to
$218.1 million in fiscal 1995. Consolidated net income decreased to $4.4
million, or $0.42 diluted net income per share, in fiscal 1996, compared to net
income of $13.7 million, or $1.22 per share, in fiscal 1995. The fiscal 1996
results included a pre-tax fleet restructuring and transition expense of $6.2
million, or $0.38 per share, resulting from a fleet rationalization plan that
related to a restructuring of SkyWest's turbo-prop fleet. The $6.2 million fleet
restructuring and transition expense primarily represented crew-related costs
associated with the discontinuance of Metroliner aircraft operations as well as
accelerated maintenance costs associated with the early termination of
Metroliner leases. The amount consisted of $2.4 million of costs incurred in
fiscal 1996 and an accrual for $3.8 million of fiscal 1997 restructuring costs.
The fleet rationalization plan resulted in an all Brasilia turbo-prop fleet and
was completed by December 1996.
Passenger revenues, which represented 83.5% of total operating revenues,
increased 15.5% to $205.0 million in fiscal 1996 from $177.6 million in fiscal
1995. The increase was due to a 26.2% increase in RPMs offset by an 8.5%
decrease in yield per RPM to 33.2c in fiscal 1996 from 36.3c in fiscal 1995. The
increase in RPMs was due to the addition of four new CRJs and seven new
Brasilias, which replaced eight Metroliners as leases expired or were terminated
as part of the fleet rationalization program. These aircraft fleet additions and
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changes resulted in a 28.5% increase in ASMs. The growth in ASMs exceeded the
growth in RPMs and resulted in a decrease in passenger load factor to 49.2% in
fiscal 1996 from 50.1% in fiscal 1995. Although the passenger load factor was
only down 0.9 points and in spite of a strong trend of growth in demand
exceeding growth in capacity during the fourth quarter, passenger enplanements
did not meet management's expectation during the first nine months due to the
following factors: (i) growing reluctance of airline passengers to book flights
on Metroliner aircraft which do not have cabin-class amenities, (ii) the
schedule restructuring by Delta at the Los Angeles hub, which significantly
reduced daily departures commencing in May 1995, thereby reducing SkyWest's
connection opportunities, (iii) the impact of indirect competition from low-fare
carriers and (iv) a continuing reluctance of travel agents to book passengers on
the Delta system after Delta instigated commission capschange in the spring of 1995 as
well as commission overrides being offered by SkyWest's competitors.
Yield per revenue passenger mile decreased 8.5% to 33.2c in fiscal 1996
compared to 36.3c in fiscal 1995. The decrease was due to an 11.9% increase in
the average passenger trip length resulting from growing regional jet
operations. The 8.5% decrease in yield coupled with a lower passenger load
factor resulted in a decrease in revenue per ASM to 16.9c in fiscal 1996
compared to 18.8c in fiscal 1995.
Total airline operating expenses and interest were 98.4% of airline
operating revenues in fiscal 1996 compared to 90.7% in fiscal 1995. This
percentage increase was due to passenger enplanements not meeting expectations
which resulted in passenger revenues falling short of internal plans as well as
the airline incurring one-time fleet restructuring and transition expenses.
Exclusive of one-time fleet restructuring and transition expenses, total airline
operating expenses increased 21.0% for fiscal 1996 over fiscal 1995, while ASMs
increased 28.5%. Due to the continuing fleet rationalization program, management
has continued to reduce airline operating costs per ASM. Airline operating costs
per ASM decreased to 16.6c in fiscal 1996 from 17.1c in fiscal 1995. Exclusive
of the one-time fleet restructuring and transition expenses, airline operating
costs per ASM would have been 16.1c for fiscal 1996.
Salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 26.5% in fiscal 1996 from 27.0% in fiscal 1995. The
decreasecapital mix during 2005 was primarily due to lower employee incentive payments resulting fromour acquisition of ASA on September 7, 2005.
During 2005, SkyWest Airlines increased an existing $10.0 million bank line-of-credit facility to $40.0 million. As of December 31, 2005, SkyWest Airlines had borrowed $30.0 million under the decreasefacility. The facility expires on January 31, 2007 and bears interest at a rate equal to prime less 0.25%, which was a net rate of 7% on December 31, 2005. Additionally, SkyWest Airlines entered into a borrowing facility with C.I.T. Leasing Corporation and borrowed $60.0 million. The facility expires on September 21, 2006, with interest payable on a floating basis (which was 6.87% at December 31, 2005). The borrowings under this facility are secured by four CRJ200s. The amounts borrowed under both facilities were utilized for general corporate purposes. We intend to use the proceeds of this offering to repay the amounts currently outstanding under both facilities.
As of December 31, 2005, we had $34.6 million in profitabilityletters of credit and surety bonds outstanding with various banks and surety institutions.
On December 31, 2005, we classified $24.8 million as restricted cash, related to our workers compensation policies and the purchase of ASA. On December 31, 2004, we classified $9.2 million as restricted cash as required by our workers compensation policy.
Significant Commitments and Obligations
General
The following table summarizes our commitments and obligations stated in calendar years except as noted for fiscal 1996 compared to fiscal 1995. The
average number of full-time equivalent employees was 1,753 for 1996 compared to
1,760 for fiscal 1995. Salaries, wages and employee benefits per ASM decreased
to 4.5c in fiscal 1996 from 5.1c in fiscal 1995.
Aircraft expenses, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.3% in fiscal 1996 from 19.2% in
fiscal 1995. This percentage increased as a resulteach of the utilizationnext five years and thereafter (in thousands):
| | Total | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Firm aircraft commitments | $ | 838,000 | $ | 618,000 | $ | 220,000 | $ | — | $ | — | $ | — | $ | — | |||||||
| Operating lease payments for aircraft and facility obligations | 3,234,082 | 302,110 | 277,398 | 253,556 | 268,844 | 262,396 | 1,869,778 | ||||||||||||||
| Principal maturities on long-term debt | 1,753,903 | 331,145 | 98,752 | 102,696 | 106,925 | 111,332 | 1,003,053 | ||||||||||||||
| Lines of credit | 90,000 | 60,000 | 30,000 | — | — | — | — | ||||||||||||||
| Total commitments and obligations | $ | 5,915,985 | $ | 1,311,255 | $ | 626,150 | $ | 356,252 | $ | 375,769 | $ | 373,728 | $ | 2,872,831 | |||||||
Purchase Commitments and Options
On February 4, 2005, we announced that SkyWest Airlines had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest Airlines had placed a firm order for these CRJ700s with Bombardier. Deliveries of additional Brasiliathese aircraft began in the third quarter of 2005 and CRJwere completed in the first quarter of 2006. Our total firm aircraft orders and commitments as of December 31, 2005, consisted of orders for 15 CRJ700s, 17 CRJ900s and commitments to lease six CRJ200s from Delta. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations are estimated to be approximately $838 million. Additionally,
our agreement with Bombardier includes options for another 70 aircraft that can be delivered in 70 through 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in May 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.
SkyWest Airlines has not historically funded a substantial portion of its aircraft acquisitions with working capital. Rather, it has generally funded its aircraft acquisitions through a combination of operating leases and debt financing. At the time of each aircraft acquisition, we evaluate the financing alternatives available, and select one or more of these methods to fund the acquisition. In the event that alternative financing cannot be arranged at the time of delivery, Bombardier has historically financed aircraft acquisitions until more permanent arrangements can be made. Subsequent to this initial acquisition of an aircraft, we may also refinance the aircraft or convert one form of financing to another (e.g., replacing debt financing with leveraged lease financing).
At present, we intend to satisfy our 2006 firm aircraft purchase commitments, as well as passenger traffic falling shortour acquisition of management's expectations, resulting in lowerany additional aircraft, through a combination of operating revenues. leases and debt financing, consistent with our historical practices. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for the committed acquisitions, as well as additional aircraft, without materially reducing the amount of working capital available for our operating activities.
Aircraft costs per ASM decreased slightlyLease and Facility Obligations
We also have significant long-term lease obligations primarily relating to 3.5c in fiscal 1996our aircraft fleet. At December 31, 2005, we had 247 aircraft under lease with remaining terms ranging from 3.6c in fiscal
1995.
Maintenance expense decreased slightly asone to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at December 31, 2005. Assuming a percentage7.0% discount rate, which is the rate used to approximate the implicit rates within the applicable aircraft leases, the present value of airline operating
revenuesthese lease obligations would have been equal to 9.8% in fiscal 1996 from 10.0% in fiscal 1995. Maintenance cost per
ASM decreasedapproximately $2.1 billion at December 31, 2005.
As part of our leveraged lease agreements, we typically agree to 1.6c in fiscal 1996 from 1.9c in fiscal 1995, primarilyindemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the increased ASMs generated from operations.
Fuel expenses increased as a percentagerespective leased aircraft. See Note 4 to our consolidated financial statements.
Long-term Debt Obligations
Our total long-term debt at December 31, 2005 was $ 1,753.9 million, of which $1,746.5 million related to the acquisition of Brasilia turboprop, CRJ200 and CRJ700 aircraft and $7.4 million related to our corporate office building. The average effective rate on the debt related to the Brasilia turboprop and CRJ200 and CRJ700 aircraft was approximately 5.7% at December 31, 2005. Approximately, $256.7 million of our current portion of long-term debt is expected to be refinanced into permanent long-term financing within the next year.
Seasonality
Our results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline operating revenuesindustry is subject to 10.9% in fiscal 1996 compared to 9.0% in fiscal 1995. The increase was primarily
due to an increase in the average fuel price per gallon to $0.80 in fiscal 1996
from $0.74 in fiscal 1995. As a result, fuel costs per ASM increased slightly to
1.8c in fiscal 1996 from 1.7c in fiscal 1995.
Other expenses, which consist primarily of commissions, landing fees,
station rents, computer reservation systems and hull and liability insurance,
increased as a percentage of airline operating revenues to 26.9% in fiscal 1996
compared to 24.9% in fiscal 1995. The increase was primarily due to significant
rate increases in customer reservation systems booking fees. In addition,
SkyWest experienced rate increases in landing feesseasonal fluctuations and general passenger
handling charges. Interest expense increased as a percentage of airline
operating revenues to 1.0% in fiscal 1996 from 0.6% in fiscal 1995. The increase
was due to an increase in debt financings of new Brasilia aircraft.
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Nonairline revenues decreased 0.7% to $34.0 million in fiscal 1996 from
$34.3 million in fiscal 1995. Nonairline net income decreased to $0.4 million in
fiscal 1996 from $1.6 million in fiscal 1995. The decreases were primarily due
to the following factors: (i) a decrease in overall tourist traffic in the Grand
Canyon/Las Vegas market, (ii) the impact of low-fare competition and (iii)
Scenic's difficulty in differentiating its premium touring packages from low
price transportation alternatives. Nonairline expenses increased 6.0% to $33.9
million for fiscal 1996 compared to $32.0 million for fiscal 1995. The increase
was primarily attributable to increased fuel costs.
SEASONALITY
As is common in its industry, the Company'seconomic conditions. Our operations are somewhat favorably affected by increased travel on our pro-rate routes, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months. However, the Company
does expect some mitigation of the historical seasonal trends due to an increase
in the portion of its operations in contract flying with United. Scenic's
business is also seasonal in nature. A large percentage of Scenic's passengers
are tourists visiting the Las Vegas and Grand Canyon areas during the summer
months.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certainsummary quarterly financial and operating
datainformation for the years ended December 31, 2005 and 2004.
| | Year Ended December 31, 2005 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||
| Operating revenues (000) | $ | 340,292 | $ | 384,043 | $ | 497,349 | $ | 742,364 | $ | 1,964,048 | ||||||
| Operating income (000) | 34,446 | 44,596 | 55,994 | 85,372 | 220,408 | |||||||||||
Net income (000) | 18,765 | 24,757 | 30,060 | 38,685 | 112,267 | |||||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | 0.33 | $ | 0.43 | $ | 0.52 | $ | 0.66 | $ | 1.94 | ||||||
| Diluted | 0.32 | 0.42 | 0.51 | 0.64 | 1.90 | |||||||||||
Weighted average common shares: | ||||||||||||||||
| Basic | 57,668 | 57,671 | 57,846 | 58,218 | 57,851 | |||||||||||
| Diluted | 58,197 | 58,323 | 59,016 | 60,197 | 58,933 | |||||||||||
| | Year Ended December 31, 2004 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||
| Operating revenues (000) | $ | 253,704 | $ | 267,387 | $ | 308,265 | $ | 326,688 | $ | 1,156,044 | ||||||
| Operating income (000) | 34,857 | 35,159 | 37,942 | 36,818 | 144,776 | |||||||||||
Net income (000) | 19,370 | 20,054 | 21,279 | 21,249 | 81,952 | |||||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | 0.33 | $ | 0.35 | $ | 0.37 | $ | 0.37 | $ | 1.42 | ||||||
| Diluted | 0.33 | 0.34 | 0.37 | 0.37 | 1.40 | |||||||||||
Weighted average common shares: | ||||||||||||||||
| Basic | 58,008 | 58,056 | 57,909 | 57,458 | 57,858 | |||||||||||
| Diluted | 58,633 | 58,595 | 58,206 | 57,967 | 58,350 | |||||||||||
Accounting for Stock-Based Compensation
As contemplated by SFAS Statement 123,Accounting for Stock-Based Compensation ("SFAS 123"), we currently account for share-based payments to employees using intrinsic value method set forth in APB Opinion 25,Accounting for Stock Issued to Employees and, as such, generally recognize no compensation cost for employee stock options. We have determined that we will adopt SFAS 123 using the modified prospective method. On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R) (revised 2004),Share-Based Payment ("Statement 123(R)"), which revises SFAS No. 123 and supersedes APB Opinion 25. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123; however, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as an expense in the statement of operations based on their fair values. We adopted Statement 123(R) effective January 1, 2006.
The adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on our future results of operations, although it is not anticipated to have a significant impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, indicated:
the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (primarily because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $7,509,000, $442,000 and $129,000 in 2005, 2004, and 2003, respectively.
Quantitative and Qualitative Disclosures About Market Risk
We have been and are subject to market risks, including commodity price risk (such as, to a limited extent, aircraft fuel prices) and interest rate risk.
Aircraft Fuel
In the past, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United will bear the economic risk of fuel price fluctuations on our United Express flights. On our Delta Connection regional jet flights, Delta will bear the economic risk of fuel price fluctuations. On the majority of our Delta Connection routes flown using Brasilia turboprops, we will bear the economic risk of fuel fluctuations. At present, we believe that our results from operations will not be materially and adversely affected by fuel price volatility.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the amount of cash and securities held. The Companyinterest rates applicable to variable rate notes may rise and increase the amount of interest expense. We would also receive higher amounts of interest income on cash and securities held at the time; however, the market value of our available-for-sale securities would likely decline. At December 31, 2005, we had working capitalvariable rate notes representing 74.7% of $68.7 million and a current ratioour total long-term debt compared to 73.1% of 2.4:1our long-term debt at December 31, 1997, compared to working capital2004. For illustrative purposes only, we have estimated the impact of $45.3 million andmarket risk using a current ratiohypothetical increase in interest rates of 2.0:1 at March 31, 1997. During the first nine months of fiscal
1998, the Company invested $17.3 million in flight equipment, $7.5 million in
buildings, ground equipment and other fixed assets, reduced long-term debt by
$5.6 million and paid cash dividends of $1.5 million. The principal sources of
cash during the first nine months of fiscal 1998 were $45.8 million provided by
operating activities, $11.5 million of proceeds fromone percentage point for both variable rate long-term debt and $7.3cash and securities. Based on this hypothetical assumption, we would have incurred an additional $6.7 million fromin interest expense and received $4.9 million in additional interest income for the saleyear ended December 31, 2005 and we would have incurred an additional $3.8 million in interest expense and received $4.9 million in additional interest income for the year ended December 31, 2004.
We currently intend to finance the acquisition of marketable securities, propertyaircraft through the manufacturer, third-party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements with Delta and equipment,United, our code-share agreements currently provide that reimbursement rates will be adjusted higher or lower to reflect any changes in our aircraft rental rates.
We have an interest rate swap agreement to manage our exposure on the debt instrument related to our headquarters. Our policies do not permit management to enter into derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, we do not speculate using derivative instruments. We assess interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The fair values of our derivative instruments are recognized as other current liabilities in our accompanying balance sheet. In accordance with provisions of SFAS No. 133, we recorded a $344,000 and $691,000 liability at December 31, 2005 and 2004, respectively, in the accompanying consolidated balance sheets representing the fair value of the outstanding interest rate swap agreement. We decreased interest expense by $347,000 and $209,000 during the years ended December 31, 2005 and 2004, respectively, relating to adjustments to the fair value and of the derivatives.
General
We are a holding company that operates two independent, wholly-owned subsidiaries, SkyWest Airlines and ASA. SkyWest Airlines and ASA are regional airlines offering scheduled passenger service with approximately 2,350 daily departures to 218 destinations in the United States, Canada, Mexico and the issuanceCaribbean. Substantially all of common stock resultingour flights are operated as either Delta Connection or United Express under code-share arrangements with Delta or United, with significant presence in their key domestic hubs and focus cities. SkyWest Airlines and ASA provide regional flying to our partners under long-term, fixed-fee code-share agreements. Among other features of our fixed-fee agreements, our partners reimburse us for specified direct operating expenses (including fuel expense, which is passed through to our partners), and pay us a fee for operating the aircraft.
SkyWest Airlines and ASA have developed industry-leading reputations for providing quality, low-cost regional airline service during their long operating histories—SkyWest Airlines has been flying since 1972 and ASA since 1979. As of December 31, 2005, our consolidated fleet consisted of a total of 380 aircraft, of which 224 were in service with Delta and 156 were in service with United. We currently operate one type of regional jet aircraft in two differently sized configurations, the 40-and 50-seat CRJ200s and the 66- and 70-seat CRJ700s, and two types of turboprop aircraft, the 30-seat Embraer Brasilia turboprops and the 66-seat ATR-72 turboprops (which we expect to be removed from exercisesservice by August 2007). SkyWest Airlines and ASA have combined firm orders to acquire 15 additional CRJ700s and 17 CRJ900s over the next two years and ASA is committed to sublease six additional CRJ200s from Delta commencing in early 2006. In addition, we have options to acquire an additional 70 Bombardier Regional Jets over the next four years. We believe the option aircraft, which range in seating configurations between 70 and 90 seats, position us to capitalize on additional growth opportunities with our existing and other potential code-share partners.
Our Operating Platforms
SkyWest Airlines
SkyWest Airlines provides regional jet and turboprop service in the Western United States with the exception of employee stock options.
These factors resulted in a $32.6 million increase in cash and cash equivalents
from $37.8 million asflying provided to United out of March 31, 1997 to $70.4 millionits Chicago (O'Hare) hub. SkyWest Airlines offered approximately 1,500 daily scheduled departures as of December 31, 1997.2005, of which approximately 1,100 were United Express flights and approximately 400 were Delta Connection flights. SkyWest has options to acquire ten additional Brasilias and ten additional
CRJs at fixed prices (subject to cost escalation and delivery schedules). The
Brasilia optionsAirlines' operations are exercisable through fiscal 1999 and the CRJ options are
exercisable at any time with no expiration.
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In connection with SkyWest's expansion intoconducted from hubs located in Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland, Seattle/Tacoma and Salt Lake City. SkyWest expects
to acquire an additional 17 Brasilias. Depending upon the outcome of current
aircraft acquisition negotiations, SkyWest expects to acquire a combination of
new and used Brasilias. The deliveries are expected to be scheduled between
February and June 1998. The Company also anticipates that SkyWest will incur
costs of approximately $12.0 million associated with the acquisition of
additional ground and maintenance facilities, support equipment and spare parts
inventory related to the San Francisco expansion.
Depending in large part upon the outcome of current aircraft acquisition
negotiations, the mix of new and used Brasilia aircraft, as well as the state of
the aircraft financing market at the time, management will determine whether to
purchase these Brasilia aircraft with the net proceeds from this offering or
acquire the aircraft through third-party, long-term loans or lease arrangements.
SkyWest has significant long-term lease obligations primarily relating to
its aircraft fleet. These leases are classified as operating leases and
therefore are not reflected as liabilities in the Company's consolidated balance
sheets. At December 31, 1997, SkyWest leased 44 SkyWest aircraft and eight
Scenic aircraft under leases with an average remaining term of approximately 9.6
years. Future minimum lease payments due under all long-term operating leases
were approximately $457.4 million at December 31, 1997.
At December 31, 1997, the Company had outstanding long-term debt, including
current maturities, of approximately $59.7 million. Of the long-term debt, $48.8
million was incurred in connection with the acquisition of Brasilia aircraft and
is subject to subsidy payments through the export support program of the
Federative Republic of Brazil. The interest rates on $11.0 million of the $48.8
million of long-term debt are floating based on one month and three month LIBOR.
The subsidy payments reduced the stated interest rates on the $48.8 million of
long-term debt to an average effective rate of approximately 4.0%Airlines' fleet as of December 31, 1997. The debt is payable in either quarterly or semi-annual installments
through January 2006. The remaining $10.9 million2005 consisted of long-term debt was incurred
to purchase ten VistaLiner aircraft operated by Scenic. These ten aircraft42 70-seat CRJ700s, all of which were previously financed under long-term operating lease arrangementsflown for United; 123 50-seat CRJ200s, of which 66 were flown for United and 57 were purchased in October 1997.
The Company spent approximately $13.3 millionflown for non-aircraft capital
expenditures during the nine months ended December 31, 1997, consisting
primarilyDelta, and 62 30-seat Brasilia turboprops, of aircraft engine overhauls, aircraft modifications to be madewhich 48 were flown for United and 14 were flown for Delta. SkyWest Airlines conducts its Delta code-share operations pursuant to industry-wide FAA directives, buildingsthe terms of a Delta Connection Agreement which obligates Delta to compensate SkyWest Airlines for its direct costs associated with operating Delta Connection flights, plus a payment based on block hours flown. In addition, the SkyWest Airlines Delta Connection Agreement provides for us to increase our profitability if we reduce our total costs. SkyWest Airlines' United operations are conducted under a United Express Agreement pursuant to which SkyWest Airlines is paid primarily on a fee-per-completed block hour and ground equipment and
rental vehicles.
The Company has available $5.0 million in an unsecured bank line of creditdeparture basis plus a margin based on performance incentives. Under the United Express Agreement, excess margins over certain percentages must be returned or shared with interest payable at the bank's base rate less one-quarter percent, which
was 8.25% at December 31, 1997. The Company believes that,United, depending on various conditions.
ASA
ASA largely provides regional jet service in the absenceUnited States east of unusual circumstances and taking into account the proceeds from this offering,Mississippi River, with the working capital availableexception of flying provided to the Company will be sufficient to meetDelta out of its
present requirements, including expansion, capital expenditure, lease payment
and debt service requirements for at least the next 12 months.
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BUSINESS
GENERAL
SkyWest operates a regional airline offering scheduled passenger service
primarily in the western United States. SkyWest has been a code-sharing partner
with Delta and Continental since 1987 and 1995, respectively. Effective October
1, 1997, SkyWest expanded its operations through a code-sharing agreement with
United. SkyWest offers a convenient schedule and frequent flights designed to
maximize connecting and local traffic. Operating primarily from its hubs in Salt Lake City Utah and Los Angeles, California, SkyWest serves 46 citieshub. ASA offered more than
850 daily scheduled departures as of December 31, 2005, all of which were Delta Connection flights. ASA's operations are conducted primarily from hubs located in 12
states and Canada with approximately 580 daily flights. InAtlanta, Salt Lake City and Los Angeles, SkyWest isCincinnati. ASA's fleet as of December 31, 2005 consisted of 35 70-seat CRJ700s, 106 40 and 50-seat CRJ200s, and twelve ATR-72 turboprops (which we expect to remove from service by August 2007), all of which were flown for Delta. Under the terms of the ASA Delta Connection Agreement, Delta has agreed to compensate ASA for its direct costs associated with operating Delta Connection flights, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, a specified margin on such costs. Additionally, the ASA Delta Connection Agreement provides for incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions.
Business Strengths
We believe our primary strengths are:
• Largest U.S. Regional Airline with Strong Partner Relationships. As a result of our acquisition of ASA, we are the largest regional airline with market sharesin the United States, measured by the number of passengers enplanedcarried. On a combined pro forma basis for the year ended December 31, 2005, SkyWest Airlines and ASA carried in excess of 99%28 million passengers and 33%, respectively.produced more than 18 billion ASMs. We believe the increased scale of our operations will enable us to further reduce our unit costs by more efficiently spreading our overhead and leveraging our operations, which in turn will allow us to offer our services to our partners at even more competitive costs going forward. Based on our consistent provision of high quality, low-cost regional airline services, we have established strong code-share relationships with our current partners Delta and United, who are currently the world's second and third-largest airlines, respectively, measured by the number of passengers carried. SkyWest operatesAirlines has been a code-share partner with Delta since 1987 and with United since 1997, while ASA has been a code-share partner with Delta since 1984. Through these two platforms, we currently account for approximately 50% of Delta's and approximately 58% of United's regional flight departures, which, we believe, makes us the most important regional partner of both airlines. In addition, our dominant position in our partners' hubs and focus cities, including ASA's position in Atlanta, further reinforces our importance as an integral part of our partners' networks.
• Two Strong Operating Platforms with Significant Growth Opportunities. During more than 30 years of flight operations, SkyWest Airlines has established a strong regional airline platform in the Western United States. ASA has established its operational strength in the Eastern United States, where it holds the largest market share of all regional carriers serving Atlanta's Hartsfield-Jackson International Airport. Concentrating our operations geographically, with one platform serving the Western United States and another serving the Eastern United States, enables us to reduce our unit costs by minimizing our number of crew bases and maintenance and other facilities, and by utilizing our human and capital resources more efficiently. We believe our code-share agreements position us for continued growth of both platforms. For instance, beyond the 38 committed aircraft additions in our contracts, the ASA Delta Connection Agreement contains provisions enabling ASA to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers. Moreover, we believe the combination of the two platforms will allow us to capitalize on operational efficiencies in order to reduce costs, which, coupled with our strong financial resources, will provide us with opportunities to expand service to our existing partners or add new partners.
• Long-Term, Fixed-Fee Code-Share Agreements. We have entered into long-term, fixed-fee code-share agreements with both Delta and United that are subject to us maintaining specified performance levels. Our Delta Connection Agreements provide for minimum aircraft utilization at fixed rates, reimbursement of direct operating costs (such as fuel) and provide a more predictable revenue stream than the historically utilized "pro-rate" revenue-sharing arrangements. Under our code-share
agreements, we authorize our partners to identify our flights and fares under their flight designation codes in their computer reservation systems, and we are authorized to paint our aircraft in the livery of our partners, to use their service marks and to market ourselves as a code-share carrier for our partners. The U.S. Bankruptcy Courts charged with administration of the Delta Connection in Salt Lake City and Los Angeles, as United Express in Los Angelesbankruptcy cases have entered final orders approving the assumption of our code-share agreements. We believe these court orders significantly reduce the possibility that our code-share agreements will be disrupted by the Delta and as the Continental Connection in selected California markets. On January 19,
1998, SkyWest executedUnited bankruptcies and restructurings, and increase our prospects for long-term revenue stability and visibility.
• Experienced Management Team. The four members of our senior management team possess an addendum to its agreement with United, expanding
SkyWest's United Express operations to include approximately 168 daily flights
connecting twelve California markets with United's San Francisco hub beginning
June 1, 1998. To support operations at the San Francisco hub, SkyWest expects to
acquire 17 additional aircraft and spend approximately $12 million for related
ground and maintenance facilities, support equipment and spare parts inventory.
SkyWest operates oneaverage of the youngest fleets26 years of operating experience in the airline industry. Since 1987, SkyWest Airlines' management team has successfully managed through several industry consistingcycles while delivering industry-leading operational performance, consistent profitability and significant value to shareholders.
• High-Quality Service. We strive to deliver high-quality service in every aspect of fifty 30-seat Brasilias with an average age of 4.4 years and ten
50-seat CRJs with an average age of 3.1 years. In December 1996, SkyWest
completed a strategic transition out ofour operations. For the Metroliner turbo-prop aircraft,
which reduced the number of aircraft types operated by SkyWest from three to
two. The transition enabled SkyWest to upgrade to an all cabin-class fleet of
larger aircraft with higher operating efficiencies and greater passenger
acceptance. Cabin-class aircraft offer stand-up headroom, overhead and
under-seat storage, lavatories and flight attendant service.
The addition of United as a code-sharing partner and the completion of
SkyWest's transition for an all cabin-class fleet, together with other factors,
contributed to the Company's achievement of record consolidated operating
revenues and net income for the nine monthsyear ended December 31, 1997.
Consolidated operating revenues increased 7.4% to $225.7 million from $210.0
million2005, SkyWest Airlines' average on-time performance ratio was 63.8% and net income increased 91.9% to $17.3 million from $9.0 millionits flight completion ratio was 98.1%. Also for the nine monthsyear ended December 31, 19972005, SkyWest Airlines' aircraft in revenue service operated an average of 9.45 hours per day, which we believe is among the highest aircraft utilization rates in the regional airline industry. SkyWest Airlines was named the 2004 Regional Airline of the Year byRegional Airline World Magazine. In February 2005 and 1996, respectively.
BUSINESS STRATEGY
The key elements2006, SkyWest Airlines was named the number one on-time mainland airline in the United States for 2004 and 2005, respectively, by the U.S. Department of SkyWest'sTransportation. ASA is committed to high-quality service, and we believe the combination of the SkyWest Airlines and ASA platforms presents an opportunity for both carriers to enhance the quality of their service.
• Financial Resources and Flexibility. Due in part to our success in implementing our business strategy, are:we possess financial resources and flexibility which distinguish us from many other regional and major carriers and which constitute a competitive advantage. At December 31, 2005, after giving effect to this offering, we would have had cash and marketable securities of $320.7 million, which would have represented 16.3% of our revenues over the year ended December 31, 2005. The strength of our balance sheet and credit profile have enabled us to enter into lease and other financing transactions on terms we believe are more favorable than the terms available to many other carriers. Due in part to the financial challenges faced by their major code-share partners, regional carriers are increasingly financing the growth of their own fleets rather than operating aircraft owned by their major code-share partners. Our lower aircraft ownership costs can be shared with our partners, which we believe represents a competitive advantage when we seek additional growth. We believe our financial flexibility also allows us to take advantage of growth opportunities—such as the acquisition of ASA or placing a large aircraft order—that we might otherwise be unable to pursue if we did not possess these financial resources.
Business Strategy
Our business strategy consists of the following elements:
• Capitalize on Relationshipsthe ASA Acquisition to Reduce Operating Costs. We believe our acquisition of ASA provides a number of significant opportunities to reduce the unit operating costs of both the SkyWest Airlines and ASA platforms without compromising passenger safety, service quality or operational reliability. Among those opportunities, we intend to focus our initial cost reduction efforts in four key areas:
- 1.
- improve the utilization of our equipment and facilities through the refinement of operational processes, elimination of redundancies and collaborative identification and implementation of operational best practices;
- 2.
- increase employee productivity by incorporating best practices, efficiently utilizing our employees to support both operating platforms, and providing incentive-based compensation and benefits that are competitive with
Code-Sharing Partners. Historically, SkyWest's growth has been assistedpackages offered by other regional carriers with whom we compete; - 3.
- leverage our position as the
development of code-sharing agreementslargest U.S. regional carrier to allocate overhead and administrative expenses over a substantially larger platform, thereby reducing unit costs; and - 4.
- reduce our aircraft acquisition and financing costs by continuing to strengthen our balance sheet through the proceeds raised from this offering and by refinancing our debt and lease obligations where appropriate.
• Expand Existing and Develop New Code-Share Agreements. We enjoy strong relationships with Delta, Unitedour existing code-share partners and Continental. SkyWest views the recent addition of United
as a code-sharing partner as a significant opportunity to further increase its
traffic and profitability by serving United's Los Angeles and San Francisco hubs
and to develop code-sharing relationships in other hubs served by United.
SkyWest workswork closely with its code-sharingthese partners to expand service to their existing markets, open new markets and schedule convenient and frequent flights. We view the continued development of our Delta and profitable flights. SkyWest believes thatUnited relationships as significant opportunities to achieve stable, long-term growth of our business. We believe the principal reason itSkyWest Airlines has attracted multiple code-sharingcode-share partners is its delivery of high-quality, reliable
service. SkyWest's competitive fares and ability to offer passengers
participation in the frequent flyer programs of Delta, United and Continental
are attractive incentives for passengers to fly on SkyWest. SkyWest also
believesmaintain a competitive cost structure while delivering high-quality customer service. We believe that multiple code-sharingcode-share agreements with major carriers diversifies financial and operating riskrisks by reducing reliance on a single major carrier. Expand Fleet SizeThis diversification may also allow us to grow at a faster rate and Increase Utilizationnot be limited by the rate at which any single partner can, or wishes to, Serve New and Existing
Markets. SkyWest seeksgrow. We intend to expand and more efficiently utilize its Brasilia and
CRJ aircraftexplore opportunities to serve existing and new, profitable markets. SkyWest believes
that Brasilias are most efficiently used on shorter stage lengths to provide
frequent and convenient service. For example, as SkyWest commenced service as
United Express in Los Angeles in October 1997, Brasilias were shifted from less
efficient, non-hub based routes to more efficient Los Angeles hub and spoke
routes connectingdevelop additional code-share relationships with its code-sharing partners. SkyWest's expanded role as
United Express in San Francisco will require the addition of 17 Brasilias by
June 1, 1998. CRJs are utilized on longer routes to supplement existing service
by majorother carriers to replace largerthe extent they are consistent with our business strategy.
• Focus on Larger Gauge Aircraft. We operate a greater number of large gauge regional jets on routes where service is
discontinued by
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25than any other U.S. carrier. Large gauge regional jets, which seat approximately 70 or more passengers, offer significant opportunities for revenue and profitability growth among major carriers, to replace SkyWest's Brasilias as markets grow and to develop
new markets. SkyWest believes its utilization of CRJs is among the highest of
all regional carriers operating CRJs.
Increase Profitability. SkyWest focuses on increasing profitability through
maximizing RASM and minimizing CASM. Revenues are maximized by delivery of
reliable, on-time flights, excellent customer service, efficient utilization of
a revenue management system and the development of profitable code-sharing
relationships. SkyWest uses its recently acquired state-of-the-art revenue
management system to analyze markets and booking patterns and assist in
scheduling and seat inventory management to maximize revenues. The Company
believes SkyWest's development of multiple code-sharing relationships has
resulted in increased revenues without a proportionate increase in costs. A
Company-wide emphasis on cost management and more efficient utilization of
existing resources, together with the completed transition from three to two
aircraft types, has resulted in lower overhead and lower unit costs while
maintaining excellent customer service. CASM has declined in each fiscal year
since 1993 and decreased from 16.2c for the nine months ended December 31, 1996
to 15.8c for the nine months ended December 31, 1997. These reductions in CASM
have been achieved notwithstanding a decline in stage lengths as Brasilias have
been shifted to shorter hub and spoke routes to increase utilization.
Provide Excellent Customer Service. SkyWest believes its insistence on
excellent customer service in every aspect of its operations (including
personnel, flight equipment, in-flight amenities, baggage handling and on-time
performance and flight completion ratios) has increased customer loyalty.
SkyWest also believes that excellent customer service is largely responsible for
its multiple code-sharing relationships as Delta, United and Continental seek to
build customer loyalty and preference by partnering with high-quality regional carriers. SkyWest completed its transition to an all cabin-class fleet in
December 1996, in part to provide larger, more comfortable aircraft for its
passengers. SkyWest believes that, for the nine months ended December 31, 1997,
its on-time performance ratio and flight completion ratio were the highest of
all regional airlines at 95.5% and 98.5%, respectively. SkyWest has achieved
these performance measures by operating one of the youngest fleets in the
airline industry and continuing its commitment to high quality maintenance.
CODE-SHARING AGREEMENTS
The Company's Code-Sharing Agreements with Delta, United and Continental
authorize SkyWest to use two-letter flight designator codes ("DL," "UA" and
"CO," respectively) to identify its flights and fares in major central
reservation systems, to paint its aircraft with the colors and/or logos of its
code-sharing partners and to market and advertize its status as the Delta
Connection, United Express or Continental Connection carrier. The Code-Sharing
Agreements either allocate to the Company a portion of the total passenger fare
on a formula or other basis, subject to periodic adjustments, or provide for
payments for contracted flying on a per departure basis with incentives related
to number of passengers carried and customer service. SkyWest's passengers
participate in the frequent flyer programs of its code-sharing partners. Under
the Code-Sharing Agreements, Delta, United and Continental provide additional
services to the Company, including providing reservation services and ticket
stock, issuing tickets, providing ground support services and gate access and
coordinating cooperative marketing, advertising and other promotional efforts.
SkyWest pays negotiated fees to its code-sharing partners for services provided.
The significant terms of each of the Code-Sharing Agreements are as
follows:
Delta. SkyWest has operated as the Delta Connection at Delta's Salt Lake
City and Los Angeles hubs since 1987. The Delta Agreement was revised in 1990
and modified effective April 1, 1997 to facilitate interline connections in Salt
Lake City and Los Angeles, to adjust proration formulas (the portion of the
passenger fare allocated to SkyWest) and to permit SkyWest to seek other
code-sharing relationships in Los Angeles. The Delta Agreement continues until
April 2002 but is subject to earlier termination under various circumstances,
including upon 180 days' advance notice by either party for any or no reason.
The Delta Agreement was modified in April 1997 to be noncancellable (except for
cause) for a two-year period. Delta currently owns approximately 15.1% of the
outstanding Common Stock, which was acquired under the Delta Option Agreement
entered into in 1987, concurrently with the Delta Agreement. See "Description of
Capital Stock -- Common Stock."
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United. In July 1997, SkyWest and United entered into an Agreement in
Principle which contemplated execution of a "United Express Agreement"
(subsequently signed on January 19, 1998) pursuant to which SkyWest became a
United Express carrier at United's Los Angeles hub effective on October 1, 1997.
In January 1998, SkyWest and United also entered into an addendum to the United
Express Agreement, pursuant to which SkyWest will become the United Express
carrier at United's San Francisco hub, beginning June 1, 1998.
Under the United Express Agreement, SkyWest currently operates flights in
Los Angeles city pairs on a contract basis; i.e., United pays SkyWest a flat
rate per flight departure, an additional amount per passenger and per passenger
incentives based upon on-time performance, flight completion rates and number of
passengers carried measured against agreed upon objectives. United controls
scheduling, ticketing, pricing and seat inventories in these city pairs. SkyWest
also operates as a United Express carrier in certain city pairs where SkyWest
receives no contract payments and United controls scheduling, inventory and
pricing. United must also concur in any marketing or code-sharing relationship
with any other carrier with respect to operations covered by the United Express
Agreement. United has consented to SkyWest's Code-Sharing Agreement with Delta
in designated city pairs in Los Angeles.
The term of the United Express Agreement is for five years ending in
September 2002 with respect to operations in Los Angeles and for ten years,
ending in May 2008 with respect to operations in San Francisco, subject to
termination by United upon 180 days' prior notice. United may, however,
terminate the United Express Agreement for cause upon 30 days' written notice.
Continental. SkyWest entered into a Code-Sharing Agreement with Continental
in October 1995, which provided for service to selected California markets. The
Continental agreement expired in October 1997. SkyWest has continued to operate
as the Continental Connection without an agreement, but on the same terms as
provided in the expired agreement. Execution of a new agreement with Continental
requires the consent of United.
MARKETS
The Company believes its development of hub operations in the Salt Lake
City and Los Angeles markets has been a principal factor in the growth of
SkyWest's flight operations. As of January 1, 1998, SkyWest scheduled 91 daily
departures from Salt Lake City. SkyWest's departures are scheduled to facilitate
connections with 171 scheduled daily Delta departures from Salt Lake City as of
January 1, 1998. As of the same date, SkyWest was the largest regional carrier
at the Salt Lake City hub, with a market share of approximately 99% among
regional carriers and Delta was the largest carrier at Salt Lake City, with a
total market share of approximately 70%.
At its Los Angeles hub, where it is also the largest regional carrier, with
a 33% market share among regional carriers, SkyWest scheduled 170 daily
departures as of January 1, 1998, of which 120 departures were under the United
code and were scheduled to connect with 178 scheduled daily United departures.
As of January 1, 1998, United was the largest carrier at Los Angeles
International Airport ("LAX"), with a total market share of approximately 23%.
As of January 1, 1998, SkyWest also scheduled 50 daily departures at LAX under
the Delta and Continental codes, connecting with 59 Delta departures and 23
Continental departures. As of January 1, 1998, Delta and Continental held market
shares at LAX of approximately ten percent and three percent, respectively. Of
the 288 SkyWest total daily flights under the United code as of January 1, 1998,
240 were contracted flights.
The Company believes its Los Angeles operations have benefitted from the
location of SkyWest's gates and customer service facilities in Terminal 6, one
of the principal terminals at LAX. SkyWest's location in Terminal 6 permits
SkyWest passengers to more quickly and conveniently transfer to and fromMost major carriers, including SkyWest's code-sharing partners.
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As of January 1, 1998,Delta and United, was alsohave recognized the largest carrier at San Francisco
International Airport, with approximately 250 scheduled daily flights,
representing a total market share of approximately 60%. SkyWest presently
anticipates that its San Francisco operations will consist of 168 scheduled
daily flights, which the Company believes will represent a market share of
approximately 87% amonggrowth opportunities created by larger regional carriers in San Francisco. Although SkyWest has
announced its intentionaircraft and are exploring opportunities to commence service in San Francisco on June 1, 1998,
the routes which SkyWest proposesadd larger gauge regional jets, flown by themselves or their regional partners, to operate are preliminary and remain subject
to modification in response to a number of factors, including SkyWest's ability
to locate sufficient aircraft, obtain necessary maintenance facilities and hire,
train and integrate qualified pilots,their flight attendants, maintenance personnel
and customer service personnel. All of SkyWest's flights under the United code
in San Francisco will be contracted flights.
ROUTES
Operating from its hubs in Salt Lake City and Los Angeles, SkyWest serves
approximately 46 cities in 12 states and Canada with approximately 580 scheduled
daily flights. In addition, on June 1, 1998, SkyWest expects to commence service
in San Francisco with 168 scheduled daily flights.
SkyWest operates all of its ten CRJs and 15 of its Brasilias out of Salt
Lake City, with CRJs utilized primarily on longer stage lengths to approximately
18 destinations and Brasilias utilized to serve approximately 13 destinations.
SkyWest provides service to southern California markets, which are characterized
by high frequency service on shorter stage lengths, with 35 Brasilias, resulting
in high aircraft utilization. For example, SkyWest provides service between LAX
and San Diego every half hour and service between LAX and Palm Springs every
hour.
The following table identifies the cities served by SkyWest as of January
1, 1998, as well as the cities SkyWest proposes to serve upon commencement of
its service in San Francisco:
ARIZONA: COLORADO: SOUTH DAKOTA:
Tucson Colorado Springs Rapid City
Yuma Grand Junction UTAH:
CALIFORNIA: IDAHO: Cedar City
Arcata/Eureka* Boise Salt Lake City
Bakersfield* Idaho Falls St. George
Burbank Pocatello Vernal
Chico* Sun Valley WASHINGTON:
Fresno Twin Falls Pasco
Imperial/El Centro MONTANA: WYOMING:
Los Angeles Billings Casper
Merced* Bozeman Cody
Modesto* Butte Jackson Hole
Monterey* Helena CANADA:
Ontario Missoula Vancouver, B.C.
Orange County West Yellowstone
Palm Springs NEW MEXICO:
Redding* Albuquerque
Sacramento* NEVADA:
San Diego Elko
San Francisco Las Vegas
San Jose Reno
San Luis Obispo* OREGON:
Santa Barbara* Eugene
Santa Maria Portland
Santa Rosa*
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* Service to be provided from San Francisco commencing June 1, 1998. Of the
cities to be served by SkyWest's expanded San Francisco operations,
Bakersfield, Monterey, San Luis Obispo and Santa Barbara are currently served
from SkyWest's hubs in Los Angeles or Salt Lake City.
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FLIGHT EQUIPMENTsystems. As of December 31, 1997, SkyWest operated2005, we were operating a total of 77 CRJ700s, and we believe the expansion of our CRJ700 fleet will create growth opportunities in many markets in which we are the most competitive provider. For us, the operational commonality of 60 aircraft,
consisting of 50 BrasiliasCRJ700s and 10 CRJs, as described in the following table:
SCHEDULED AVERAGE
AIRCRAFT FLIGHT CRUISING AVERAGE
--------------- PASSENGER RANGE SPEED AGE
OWNED LEASED CAPACITY (MILES) (MPH) (YEARS)
----- ------ --------- --------- -------- -------
Brasilias.................. 16 34 30 450 300 4.4
Canadair Regional Jets..... -- 10 50 600 530 3.1
The Brasilias are turbo-prop, pressurized aircraft designed to operateCRJ200s, which we have been flying and maintaining for more economically over short-haul routes with lower passenger load factors than
larger jet aircraft. These factors make it economically feasible for SkyWestthen eleven years, offers additional operating efficiencies which we believe will enable us to provide high frequencylarger gauge services at lower costs than our competitors. SkyWest Airlines and ASA currently have combined firm orders to acquire 15 additional CRJ700s and 17 CRJ900s over the next two years, and ASA is committed to sublease six additional CRJ200s from Delta commencing in early 2006. In addition, we have options to acquire an additional 70 Bombardier Regional Jets which we can elect to be delivered in configurations ranging between 70 and 90 seats. We believe the strength of our balance sheet has provided us the flexibility to place aircraft orders on a scale and timetable not easily matched by our competitors.
• Operate Limited Fleet Types. As of December 31, 2005, we operated 380 aircraft, principally of just two types, Bombardier Regional Jets and Brasilia turboprops. By simplifying our fleet, we believe we are able to limit our operating costs due to efficiencies in employee training, aircraft maintenance, lower spare parts inventory requirements and aircraft scheduling. While ASA currently operates twelve ATR-72 turboprops, we expect to remove these aircraft from service in markets with relatively low volumes of
passenger traffic. Passenger comfort featuresby August 2007.
• Maintain a Positive Employee Culture. We believe our employees have been, and will continue to be, a key to our success. While none of the Brasilia aircraft include
stand-up headroom, a lavatory, overhead baggage compartments and flight
attendant service. During fiscal 1997, the Company acquired 15 additional
Brasilia aircraft and negotiated the early terminationemployees of its 18 remaining
Metroliner leases. The Company has secured options to purchase an additional ten
Brasilia aircraft at fixed prices (subject to cost escalation and delivery
schedules). These optionsSkyWest Airlines are exercisable through fiscal 1999.
The CRJ is one of the quietest commercial jets currently available and
offers many of the amenities of larger commercial jet aircraft, including a
stand-up cabin, overhead and under-seat storage, lavatories, in-flight snack and
beverage service, and, in many cases, more legroom than larger jets. The Company
also has options at fixed prices (subject to cost escalation and delivery
schedules) for ten additional CRJs which are exercisable at any time with no
expiration.
Scenic's operations are currently conducted using 18 specially modified
sight-seeing VistaLiners and 23 smaller aircraft.
GROUND FACILITIES
Employees of the Company perform substantially all routine airframe and
engine maintenance and periodic inspection of equipment. Maintenance is
performed primarily at facilities in Salt Lake City, Utah and Palm Springs,
California. SkyWest leases a 90,000 square foot aircraft maintenance and
training facility at the Salt Lake City International Airport and owns a 56,600
square foot maintenance facility in Palm Springs. The Salt Lake City facility
consists of a 40,000 square foot maintenance hanger and 50,000 square feet of
training and other facilities to support SkyWest's hub operations. The facility
was constructed and is owned by the Salt Lake City Airport Authority. SkyWest is
leasing the facility under an operating lease arrangement over a 36-year term,
expiring in August 2021. The Palm Springs maintenance facility supports
SkyWest's expanding southern California operations.
SkyWest leases ticket counters and check-in, boarding and other facilities
in the passenger terminal areas in the majority of the airports it serves and
staffs these facilities with SkyWest personnel. Delta and United provide ticket
handling and ground support services for SkyWest in 21 of the 46 airports
SkyWest serves.
Scenic owns a new terminal and hanger facility in Page, Arizona consisting
of 11,500 square feet of office and terminal space and 22,000 square feet of
maintenance hanger space. Scenic also leases a new terminal and hanger facility
in Las Vegas, Nevada consisting of 39,500 square feet of office and terminal
space and 28,500 square feet of maintenance hanger space.
The Company also owns its corporate headquarters, located in a 63,000
square foot building in St. George, Utah.
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SCENIC AIR TOURS
Scenic currently provides air tours and general aviation services to the
Grand Canyon and other scenic regions of northern Arizona, southern Utah and
southern Nevada. Scenic's operations are conducted principally from leased
boarding, tour and flight facilities at the North Las Vegas Airport in Las
Vegas, Nevada. Since the acquisition of Scenic in June 1993, the Company has
operated Scenic as a premium tour provider. In response to increased price
competition which has resulted in decreased revenues and earnings at Scenic, the
Company has changed top management, broadened its offering of tour packages to
appeal to cost conscious customers, implemented cost control measures and
restructured the financing of flight equipment and facilities. The Company
believes Scenic is currently well-positioned to pursue opportunities to increase
revenues and profitability of the air tour business.
NPT AUTOMOBILE RENTAL SERVICES
NPT provides car rental services at six airports served by SkyWest,
including Page, Arizona, Ely and Elko, Nevada and St. George, Cedar City and
Vernal, Utah. NPT's services are provided through a fleet of Avis vehicles
pursuant to a franchise agreement between NPT and Avis.
EMPLOYEES
As of January 1, 1998, the Company employed 2,300 full-time equivalent
employees consisting of 796 pilots and flight attendants, 246 maintenance
personnel, 950 customer service personnel, 63 reservation and marketing
personnel, and 245 employees engaged in accounting, administration and other
functions. The Company's employees are not currently represented by any union.
The Company is aware, however, that collective bargaining group organization
efforts among its employees occur from time to time and expects that such
efforts will continue in the future. If such efforts are successful, the Company
may be subjected to risks of work interruption or stoppage and incur additional
expenses associated with union representation of its employees. In connection
with SkyWest's proposed expansion into northern California, it anticipates that
it will hire at least 475 additional employees, many of whom may be represented by a union, and ASA's pilots, flight attendants and flight controllers are all unionized, we believe that
we offer our employees in both our operating subsidiaries substantially similar compensation and benefits packages that we believe differentiate us from other carriers and make us an attractive place to work and build a career. With the expansion of our operations resulting from our acquisition of ASA, the best efforts of all of our employees will be required to achieve the potential benefits envisioned by the transaction and continue to make our business successful. We believe that these factors, in combination with our historically low employee turnover rate, are a significant reason that neither SkyWest Airlines nor ASA has ever had a work stoppage due to a strike or other labor dispute.
Growth Opportunities
During the four years ended December 31, 2005, our total operating revenues expanded at a compounded annual rate of 34.4% and the number of daily flights we operated increased from approximately 1,000 at the end of 2001 to approximately 2,350 as of December 31, 2005. With the exception of our acquisition of ASA, our growth during that five-year period was internally generated. We believe there are additional opportunities for expansion of our operations, consisting primarily of:
• Delivery of Aircraft Under Firm Order. We have firm orders to acquire 15 additional CRJ700s and 17 CRJ900s during the two-year period ending December 31, 2007. We have also obtained the right to sublease from Delta six additional CRJ200s. We have agreements with Delta or United to place all 38 of these aircraft into revenue service, under long-term, fixed-fee contracts, promptly following their delivery.
• Potential Opportunities from Delta's Restructuring. We believe that as Delta restructures its fleet under bankruptcy protection, there may be new regional flying contracts that become available for qualified regional carriers. ASA holds certain rights to maintain its proportion of overall Delta regional flights, as well as its proportion of Atlanta regional flights. This may help ASA compete for new flying mandates, if any, that come into existence at Delta.
• Scope Clause Relief. "Scope clauses" are elements of major airlines' labor contracts with their own pilots that place restrictions on the number and size of aircraft, or the amount of flight activity, that can be operated by major airlines' regional airline contractors such as ASA and SkyWest Airlines. Greater liberalization of scope clauses generally creates more business opportunities for regional airlines. Since 2001, five of the six major national airlines (American Airlines, Delta, Northwest, United and US Airways) have successfully achieved some scope clause liberalization. If further efforts by major airlines to relax scope clause restrictions are successful, it may create incremental opportunities for regional airlines.
• Narrowbody Replacement Flying. A meaningful portion of the recent growth of the regional airline industry resulted from the replacement of major airline-operated narrowbody jet aircraft (such as 737s, DC9s, MD80s and A319s) with regional airline-operated jets on the same route. The major airlines have effected this change in equipment in an effort to achieve an advantage in trip costs, unit costs, frequency or a combination of these benefits. At present, the six major national airlines have a significant number of narrowbody aircraft that are more than 15 years old in their current employment. The Company has never experiencedfleets. Such older aircraft are frequently less fuel- and maintenance-efficient than new aircraft. If major airlines decide to substitute newer regional airline-operated equipment for any work stoppagesportion of these older narrowbody aircraft upon their retirement, it may create incremental opportunities for regional airlines.
Competition and considers its relationship with its employees to be good.
COMPETITION AND ECONOMIC CONDITIONSEconomic Conditions
The airline industry is highly competitive. SkyWest not only competesAirlines and ASA compete principally with other regional airlines, some of which are owned by or are operated as
code-sharing partners of majorregional airlines, but also faces with regional airlines operating without code-share agreements, low cost carriers and major airlines. The combined operations of SkyWest Airlines and ASA extend nationally throughout nearly every major geographic market in the United States. Our
competition from major
airlines on certain routes. SkyWest is the dominantincludes, therefore, nearly every other regional airline, operating
outand to a certain extent, also the major and low cost carriers. The primary competitors of SkyWest Airlines and ASA among regional airlines with code-share arrangements include Air Wisconsin Airlines Corporation, American Eagle Airlines, Inc. ("American Eagle") (owned by American Airlines), Comair (owned by Delta), ExpressJet Holdings, Inc. ("ExpressJet"), Horizon Air Industries, Inc. ("Horizon") (owned by Alaska Air Group, Inc.), Mesa Air Group, Inc. ("Mesa"), MAIR Holdings, Inc. ("MAIR"), Pinnacle Airlines Corp. ("Pinnacle"), Republic Airways Holdings Inc. ("Republic") and Trans State Airlines, Inc. Major airlines award contract flying to these regional airlines based upon, but not limited to, the following criteria: low cost, financial resources, overall customer service levels relating to on-time arrival and departure statistics, cancellation of flights, baggage handling performance and the overall image of the Salt Lake City International Airport; however, Southwest Airlines
Co.,regional airline as a national lowwhole. The principal competitive factors on pro-rate flying include fare airline, also operates outpricing, customer service, routes served, flight schedules, aircraft types and relationships with major partners.
The principal competitive factors for code-share partner regional airlines are code-share agreement terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. Based on the size of the Salt Lake City
International Airport,which results in significant price competition atcombined operations of SkyWest Airlines and ASA, we are the Salt
Lake City hub. Competitionlargest regional airline in the southern California markets, which are
serviced by SkyWest from its hub in Los Angeles, is particularly intense, with a
large number of carriers in these markets. In its markets served from LAX,
SkyWest's principal competitors include Wings West, Inc. (operating as "American
Eagle"), Trans States Airlines, Inc. (operating as "US Air Express" and "Trans
World Express") and with Mesa Airlines, Inc. (operating as "Mesa Airlines" and
"United Express"). The Company believes its principal competitor in San
Francisco will be Trans States Airlines, Inc. (operating as "US Air Express").
CertainUnited States. However, some of the Company's competitorsmajor and low-cost carriers are larger, and may have significantly greater financial and other resources than SkyWest Airlines and ASA. Additionally, regional carriers owned by major airlines, such as American Eagle and Comair, may have access to greater resources at the Company.parent level than SkyWest Airlines and ASA, and may have enhanced competitive advantages since they are subsidiaries of major airlines. Moreover, federal deregulation of the industry allows competitors to rapidly enter the Company'sour markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats.
Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature of a substantial percentage of both business and leisure travel. In the past, manyMany airlines have historically reported decreasedlower earnings or substantial losses resulting fromduring periods of economic recession, heavy fare discounting, high fuel costs and other factors.disadvantageous environments. Economic downturns combined with competitive pressures have contributed to 28
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a number of reorganizations, bankruptcies, liquidations and liquidationsbusiness combinations among major and regional carriers. NegativeThe effect of economic conditionsdownturns is somewhat mitigated by the predominantly contract-based flying arrangements of SkyWest Airlines and ASA. Nevertheless, the per passenger component in such fee structure would be affected by an economic downturn. In addition, if Delta or United, or other code-share partners we may secure in the future, experience a prolonged decline in passenger load or are harmed by low ticket prices or high fuel prices, they will likely seek to renegotiate their code-share agreements with SkyWest Airlines and ASA or cancel flights in order to reduce their costs.
Industry Overview
Majors, Low Cost Carriers and Regional Airlines
The airline industry in the United States has traditionally been dominated by several major airlines, including American Airlines, Continental, Northwest, Delta and United. The major airlines offer scheduled flights to most major U.S. cities, numerous smaller U.S. cities, and cities throughout the world through a hub and spoke network.
Low cost carriers, such as Southwest, JetBlue, US Airways, Frontier and AirTran, generally offer fewer conveniences to travelers and have a material adverse effectlower cost structures than major airlines, which permits them to offer flights to and from many of the same markets as the major airlines, but at lower prices. Low cost carriers typically fly direct flights with limited service to smaller cities, concentrating on higher demand flights to and from major population bases.
Regional airlines, such as ASA, ExpressJet, Mesa, MAIR, Pinnacle, Republic and SkyWest Airlines, typically operate smaller aircraft on lower-volume routes than major and low cost carriers. Several regional airlines, including American Eagle, Comair and Horizon, are wholly-owned subsidiaries of major airlines. In contrast to low cost carriers, regional airlines generally do not try to establish an independent route system to compete with the Company.
REGULATIONmajor airlines. Rather, regional airlines typically enter into relationships with one or more major airlines, pursuant to which the regional airline agrees to use its smaller, lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city. In exchange for such services, the major airline pays the regional airline either a fixed flight fee, termed "contract" or "fixed-fee" flights, or receives a percentage of applicable ticket revenues, termed "pro-rate" or "revenue-sharing" flights.
Growth of the Regional Airline Industry
According to the Regional Airline Association, the regional airline sector of the airline industry experienced compounded annual passenger growth of 12.3% between 2000 and 2004. We believe the increases in the number of passengers using regional airlines and the revenues of regional airlines during the last decade are attributable to a number of factors, including:
- •
- Regional airlines work with, and often benefit from the strength of, the major airlines. Since many major airlines have incorporated increased use of regional airlines into their future growth strategies, many regional airlines have expanded, and may continue to expand, with the major airlines they serve.
- •
- Regional airlines tend to have a more favorable cost structure and leaner corporate structure than many major airlines. Many regional airlines were founded in the midst of the highly competitive market that developed following deregulation of the airline industry in 1978.
- •
- Many major airlines have determined that an effective method for retaining customer loyalty and maximizing system revenue, while lowering costs, is to outsource shorter, low-volume routes to more cost-efficient regional airlines flying under the major airline's code and name.
- •
- Regional airlines are gradually replacing smaller turboprop planes with 32 to 110-seat regional jets. Such regional jets feature cabin class comfort, low noise levels and speed similar to the 120-seat plus aircraft operated by the major airlines, but are cheaper to acquire and operate because of their smaller size. We believe the increasing use of regional jets has led, and may continue to lead, to greater public acceptance of regional airlines.
Relationship of Regional and Major Airlines
Regional airlines generally enter into code-share agreements with major airlines, pursuant to which the regional airline is authorized to use the major airline's two-letter flight designator codes to identify the regional airline's flights and fares in the central reservation systems, to paint its aircraft with the colors and/or logos of its code-share partner and to market and advertise its status as a carrier for the code-share partner. For example, SkyWest Airlines flies out of Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma as United Express and out of Salt Lake City as The Delta Connection. ASA operates as The Delta Connection out of Atlanta, Cincinnati and Salt Lake City. In addition, the major airline generally provides services such as reservations, ticketing, ground support and gate access to the regional airline, and both partners often coordinate marketing, advertising and other promotional efforts. In exchange, the regional airline provides a designated number of low-capacity (usually between 30 and 70 seats) flights between larger airports served by the major airline and surrounding cities, usually in lower-volume markets.
The financial arrangements between the regional airlines and their code-share partners usually involve contract, or fixed-fee, payments based on the flights or a revenue-sharing arrangement based on the flight ticket revenues, as explained below:
• Fixed-Fee Arrangements. Under a fixed-fee arrangement, the major airline generally pays the regional airline a fixed-fee based on the flight, with additional incentives based on completion of flights, on-time performance and baggage handling performance. In addition, the major and regional airline often enter into an arrangement pursuant to which the major airline bears the risk of changes in the price of fuel and other such costs that are passed through to the major airline partner. Regional airlines benefit from a fixed-fee arrangement because they are sheltered from most of the elements that cause volatility in airline earnings, including variations in ticket prices, passenger loads and fuel prices. However, regional airlines in fixed-fee arrangements do not benefit from positive trends in ticket prices, passenger loads or fuel prices and, because the major airlines absorb most of the risks, the margin between the fixed-fees for a flight and the expected per-flight costs tends to be smaller than the margins associated with revenue-sharing arrangements.
• Revenue-Sharing Arrangements. Under a revenue-sharing arrangement, the major airline and regional airline negotiate a proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Substantially all costs associated with the regional airline flight are borne by the regional airline. In such a revenue-sharing arrangement, the regional airline realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, realizes decreased profits as ticket prices and passenger loads decrease or fuel prices increase.
Code-Share Agreements
SkyWest Airlines operates under a United Express Agreement with United, and SkyWest Airlines and ASA operate under Delta Connection Agreements with Delta. These code-share agreements authorize Delta and United to identify our flights and fares under their two-letter flight designator codes ("DL" and "UA") in the central reservation systems, and authorize us to paint our aircraft with their colors and logos and to market our status as The Delta Connection or United Express. Under each of our code-share agreements, our passengers participate in the major partner's frequent flyer program, and the major partner provides additional services such as reservations, ticket issuance, ground support services and gate access. We also coordinate our marketing, advertising and other promotional efforts with Delta and United. As of December 31, 2005, approximately 93.8% of SkyWest Airlines' and ASA's total daily flights were structured as contract flights, where Delta or United controls scheduling, ticketing, pricing and seat inventories. The remainder of our flights are pro-rate flights, where SkyWest Airlines and ASA control scheduling, ticketing, pricing and seat inventories, and share revenues with Delta or United according to pro-rate formulas. The following summaries of our code-share agreements do not purport to be complete and are qualified in their entirety by reference to the applicable agreement. Under our code-share agreements, we have commitments from our major partners to place 38 additional regional jets into service over approximately the next two years.
SkyWest Airlines Delta Connection Agreement
SkyWest Airlines and Delta are parties to an Amended and Restated Delta Connection Agreement, dated as of September 8, 2005 (the "SkyWest Airlines Delta Connection Agreement"). As of December 31, 2005, SkyWest Airlines operated 57 CRJ200s and 14 Brasilia turboprops under the SkyWest Airlines Delta Connection Agreement. SkyWest Airlines operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2005, SkyWest Airlines was operating approximately 400 Delta Connection flights per
day between Salt Lake City and designated outlying destinations. Delta is entitled to all passenger, cargo and other revenues associated with each flight.
In exchange for providing the designated number of flights and performing SkyWest Airlines' other obligations under the SkyWest Airlines Delta Connection Agreement, SkyWest Airlines receives from Delta on a weekly basis (i) reimbursement for 100% of its direct costs related to the Delta Connection flights plus (ii) a fixed dollar payment per completed flight block hour, subject to annual escalation at an agreed rate. Costs directly reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs related to fuel, ground handling, and aircraft maintenance and ownership.
The SkyWest Airlines Delta Connection Agreement terminates on September 8, 2020, unless Delta elects to exercise its option to extend the term for up to four additional five-year terms. The SkyWest Airlines Delta Connection Agreement is subject to early termination in various circumstances including:
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- if SkyWest Airlines or Delta commits a material breach of the SkyWest Airlines Delta Connection Agreement, subject to 30 days notice and cure rights;
- •
- if SkyWest Airlines fails to conduct all flight operations and maintain all aircraft under the SkyWest Airlines Delta Connection Agreement in compliance in all material respects with applicable government regulations;
- •
- if SkyWest Airlines fails to satisfy certain performance and safety requirements;
- •
- if, under certain circumstances, Delta has a right to terminate the ASA Delta Connection Agreement;
- •
- if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or
- •
- if SkyWest Airlines fails to maintain competitive base rate costs (provided that SkyWest Airlines has the right to adjust its rates prior to any such termination).
ASA Delta Connection Agreement
ASA and Delta are parties to a Second Amended and Restated Delta Connection Agreement, dated as of September 8, 2005 (the "ASA Delta Connection Agreement"). As of December 31, 2005, ASA operated 35 CRJ700s, 106 CRJ200s and twelve ATR-72 turboprops for Delta under the ASA Delta Connection Agreement. We expect to remove the twelve ATR-72 turboprops from the ASA fleet and return them to Delta by August 2007. ASA operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2005, ASA was operating more than 850 Delta Connection flights per day between Atlanta, Cincinnati, Salt Lake City and designated outlying destinations. Under the ASA Delta Connection Agreement, Delta is entitled to all passenger, cargo and other revenues associated with each flight. Commencing in 2008, ASA is guaranteed to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers.
In exchange for providing the designated number of flights and performing ASA's other obligations under the ASA Delta Connection Agreement, ASA receives from Delta on a weekly basis (i) reimbursement for 100% of its direct costs related to Delta Connection flights plus (ii) if ASA completes a certain minimum percentage of its Delta Connection flights, an amount equal to a certain percentage of the direct costs related to the Delta Connection flights (not including fuel costs). Costs directly reimbursed by Delta under the ASA Delta Connection Agreement include costs related to fuel, ground handling, and aircraft maintenance and ownership. The ASA Delta Connection Agreement also provides for incentive compensation based upon ASA's performance, including on-time arrival performance and completion percentage rates.
The ASA Delta Connection Agreement terminates on September 8, 2020, unless Delta elects to exercise its option to extend the term for up to four additional five-year terms. The ASA Delta Connection Agreement is subject to early termination in various circumstances including:
- •
- if ASA or Delta commits a material breach of the ASA Delta Connection Agreement, subject to 30 days notice and cure rights;
- •
- if ASA fails to conduct all flight operations and maintain all aircraft under the ASA Delta Connection Agreement in compliance in all material respects with applicable government regulations;
- •
- if ASA fails to satisfy certain performance and safety requirements;
- •
- if, under certain circumstances, Delta has a right to terminate the SkyWest Airlines Delta Connection Agreement;
- •
- if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or
- •
- if ASA fails to maintain competitive base rate costs (provided that ASA has the right to adjust its rates prior to any such termination).
SkyWest Airlines United Express Agreement
SkyWest Airlines and United are parties to a United Express Agreement entered into on July 31, 2003 (the "United Express Agreement"). As of December 31, 2005, SkyWest Airlines operated 42 CRJ700s, 66 CRJ200s and 48 Brasilia turboprops under the United Express Agreement, flying a total of approximately 1,100 United Express flights per day between Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma and designated outlying destinations. Generally, under the United Express Agreement, United retains all air fares, cargo rates, mail charges and other revenues associated with each flight.
In exchange for providing the designated number of flights and performing SkyWest Airlines' obligations under the United Express Agreement, SkyWest Airlines receives from United compensation (subject to an annual adjustment) of a fixed-fee per completed block hour, fixed-fee per completed departure, fixed-fee per passenger, fixed-fee for overhead and aircraft costs, and one-time start-up costs for each aircraft delivered. The United Express Agreement provides for incentives based upon SkyWest Airlines' performance, including on-time arrival performance and completion percentage rates. Additionally, certain of SkyWest Airlines' operating costs are reimbursed by United, including costs related to fuel and aircraft ownership and maintenance.
The United Express Agreement expires incrementally on December 31, 2011, 2013 and 2015. United has the option, upon one year's notice, of extending the United Express Agreement for five years. The United Express Agreement is subject to early termination in various circumstances including:
- •
- if SkyWest Airlines or United fails to fulfill an obligation under the United Express Agreement for a period of 60 days after written notice to cure;
- •
- if SkyWest Airlines' operations fall below certain performance levels for a period of three consecutive months;
- •
- subject to limitations imposed by the U.S. Bankruptcy Code, if the other party becomes insolvent, fails to pay its debts when due, takes action leading to its cessation as a going concern, makes an assignment of substantially all of its assets, or ceases or suspends operations;
- •
- if bankruptcy proceedings are commenced against the other party (subject to limitations imposed by the U.S. Bankruptcy Code) and certain specified conditions are not satisfied; or
- •
- if SkyWest Airlines operates, subject to certain exceptions, any additional regional jets or turboprop aircraft pursuant to a marketing or code-share relationship with any party other than United to provide hub service at United's hubs in Chicago (O'Hare), Denver, Los Angeles, San Francisco, Seattle/Tacoma, or Washington, D.C. (Dulles International Airport).
Markets and Routes
Our flight schedules are structured to facilitate the connection of our passengers with flights of our major partners at the airports we serve. As of December 31, 2005, SkyWest Airlines scheduled the following daily flights as a United Express carrier: 300 to or from Chicago O'Hare International Airport, 232 to or from Denver International Airport, 278 to or from Los Angeles International Airport, 36 to or from Portland International Airport, 220 to or from San Francisco International Airport, 18 to or from Seattle/Tacoma International Airport and 16 to or from other outlying airports.
As of December 31, 2005, SkyWest Airlines and ASA scheduled the following daily flights as a Delta Connection carriers: 684 to or from Hartsfield-Jackson Atlanta International Airport, 564 to or from Salt Lake City International Airport and 124 to or from Cincinnati/Northern Kentucky International Airport.
Flight Equipment
As of December 31, 2005, SkyWest Airlines and ASA operated a combined fleet of 380 aircraft, consisting of 77 CRJ700s, 229 CRJ200s, 62 Brasilia turboprops and twelve ATR-72 turboprops (which we expect to remove from service by August 2007). More information related to our aircraft fleet is described in the following tables:
SkyWest Airlines
| Aircraft Type | Number of Owned Aircraft | Number of Leased Aircraft | Passenger Capacity | Scheduled Flight Range (miles) | Average Cruising Speed (mph) | Average Age (years) | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CRJ200s | 36 | 87 | 50 | 1,100 | 530 | 3.6 | ||||||
| CRJ700s | 7 | 35 | 66 | 1,500 | 530 | 0.7 | ||||||
| Brasilia Turboprops | 14 | 48 | 30 | 500 | 300 | 8.7 |
ASA
| Aircraft Type | Number of Owned Aircraft | Number of Leased Aircraft | Passenger Capacity | Scheduled Flight Range (miles) | Average Cruising Speed (mph) | Average Age (years) | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CRJ200s | 41 | 65 | 40 or 50 | 1,100 | 530 | 4.3 | ||||||
| CRJ700s | 35 | 0 | 70 | 1,200 | 530 | 1.9 | ||||||
| ATR-72 Turboprops | 0 | 12 | 66 | 300 | 300 | 11.9 |
SkyWest Airlines and ASA have combined firm orders to acquire 15 additional CRJ700s and 17 CRJ900s, which can be delivered in configurations ranging between 70 and 90 seats, over the next two years and ASA is committed to sublease six additional CRJ200s from Delta commencing in early 2006. SkyWest and ASA do not presently have orders for additional aircraft other than these Bombardier Regional Jets. Gross committed expenditures for these 32 aircraft and related equipment, including estimated amounts for contractual price escalations will be approximately $838 million through April 2007. We presently are receiving these aircraft on an incremental schedule, and anticipate that delivery dates for these aircraft could continue through approximately April 2007;
however, actual delivery dates remain subject to final determination based on various factors. SkyWest Airlines and ASA have also obtained combined options for 70 additional CJR900s.
The following table outlines the number of Bombardier Regional Jets that SkyWest Airlines and ASA are scheduled to receive during each of the periods set forth below and the expected size and composition of our combined fleet following the receipt of these aircraft.
| | During the fiscal year ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2006 | 2007 | 2008 | 2009 | ||||
| Additional CRJ200s | 6 | 0 | 0 | 0 | ||||
| Additional CRJ700s | 24 | 8 | 0 | 0 | ||||
| Total Bombardier Regional Jets | 336 | 344 | 344 | 344 | ||||
| Total Brasilia Turboprops | 61 | 60 | 59 | 57 | ||||
| Total ATR-72 Turboprops | 12 | 0 | 0 | 0 | ||||
| Total Combined Fleet | 409 | 404 | 403 | 401 | ||||
Bombardier Regional Jets
The Bombardier Regional Jets are among the quietest commercial jets currently available and offer many of the amenities of larger commercial jet aircraft, including flight attendant service, as well as a stand-up cabin, overhead and underseat storage, lavatories and in-flight snack and beverage service. The speed of Bombardier Regional Jets is comparable to larger aircraft operated by the major airlines, and they have a range of approximately 1,600 miles; however, because of their smaller size and efficient design, the per-flight cost of operating a Bombardier Regional Jet is generally less than that of a 120-seat or larger jet aircraft.
Brasilia Turboprops
The Brasilia turboprops are 30-seat, pressurized aircraft designed to operate more economically over short-haul routes than larger jet aircraft. These factors make it economically feasible for SkyWest Airlines to provide high frequency service in markets with relatively low volumes of passenger traffic. Passenger comfort features of the Brasilia turboprops include stand-up headroom, a lavatory, overhead baggage compartments and flight attendant service. We expect that Delta and United will want us to continue to operate Brasilia turboprops in markets where passenger load and other factors make the operation of a Bombardier Regional Jet impractical. As of December 31, 2005, SkyWest Airlines operated 62 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines' Brasilia turboprops are generally used in its California markets, which are characterized by high frequency service on shorter stage lengths.
ATR-72 Turboprops
While ASA currently operates twelve ATR-72 turboprops out of Atlanta, we expect that these aircraft will be removed from service by August 2007.
Properties and Ground Operations
SkyWest Airlines and ASA own or lease the following principal properties:
SkyWest Airlines Facilities
- •
- SkyWest Airlines owns a 56,600 square foot aircraft maintenance facility in Palm Springs, California
- •
- SkyWest Airlines leases a 131,300 square foot facility at the Salt Lake International Airport. This facility consists of a 58,400 square foot aircraft maintenance hangar and 72,900 square feet of training and office space. In January 2002, we entered into a sale lease-back agreement with the Salt Lake Airport Authority. Under the agreement, we received approximately $18 million in cash in exchange for the newly constructed facility and entered into a 26-year operating lease agreement. The sales price was equal to the construction costs and no gain or loss was recognized.
- •
- SkyWest Airlines leases a 90,000 square foot aircraft maintenance and training facility at the Salt Lake City International Airport. The Salt Lake City facility consists of 40,000 square feet of maintenance facilities and 50,000 square feet of training and other facilities. We originally constructed
the Salt Lake City facility which we subsequently sold to and leased back from the Salt Lake City Airport Authority. SkyWest Airlines is leasing the facility under an operating lease arrangement over a 36-year term.
- •
- SkyWest Airlines leases a 90,000 square foot maintenance hanger and a 15,000 square foot office facility in Fresno, California.
- •
- SkyWest Airlines leases a 28,000 square foot maintenance hanger in Tucson, Arizona.
- •
- SkyWest Airlines leases ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with SkyWest Airlines personnel. Other airlines, including Delta and United, provide ticket handling and/or ground support services for SkyWest Airlines in 54 of the 121 airports to which SkyWest Airlines flies.
- •
- We own the corporate headquarters facilities of our company and SkyWest Airlines, located in St. George, Utah, in two adjacent buildings of 63,000 and 55,000 square feet, respectively. Both facilities were internally funded with cash generated from operations and were subsequently refinanced with third-party debt.
- •
- ASA leases 61,000 square feet in an office building located at the Hartsfield-Jackson Atlanta International Airport which serves as ASA's corporate headquarters. The lease expires on April 30, 2008.
- •
- ASA leases a 78,550 square foot aircraft maintenance facility in Macon, Georgia. The Macon facility also contains a 7,500 square foot training and storage facility. The Macon facility is bond-financed, with the lease expiring in 2018.
- •
- ASA leases a 39,000 square foot aircraft maintenance facility in Baton Rouge, Louisiana. ASA has the right to occupy the Baton Rouge facility rent-free until 2022.
- •
- ASA leases a 63,800 square foot parts storage facility located near the Hartsfield-Jackson Atlanta International Airport.
- •
- ASA leases smaller aircraft line maintenance facilities in Atlanta, Georgia; Salt Lake City, Utah; Columbia, South Carolina; Fort Walton Beach, Florida; Montgomery, Alabama; and Shreveport, Louisiana.
- •
- ASA uses 26 gates at the Hartsfield-Jackson Atlanta International Airport: 13 gates are leased directly from the airport authority, six gates are subleased from US Air, five gates are subleased from Delta and two gates are used pursuant to a month-to-month arrangement.
- •
- ASA leases ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with ASA
ASA Facilities
personnel. Other airlines, including Delta, provide ticket handling and/or ground support services for ASA in 84 of 123 airports ASA serves.
Our management deems SkyWest Airlines' and ASA's current facilities as being suitable and necessary to support existing operations and believes these facilities will be adequate for the foreseeable future.
Training and Aircraft Maintenance
SkyWest Airlines' and ASA's employees perform substantially all routine airframe and engine maintenance and periodic inspection of equipment at their respective maintenance facilities, and provide substantially all training to SkyWest Airlines and ASA pilots and maintenance personnel at their respective training facilities. SkyWest Airlines and ASA also contract with third party vendors for non-routine airframe and engine maintenance.
Employees
As of December 31, 2005 SkyWest and SkyWest Airlines collectively employed 8,100 full-time equivalent employees consisting of approximately 3,500 pilots and flight attendants, approximately 3,300 customer service personnel, approximately 800 mechanics and other maintenance personnel, and approximately 500 administration and support personnel. None of these employees are currently represented by a union. We are aware, however, that collective bargaining group organization efforts among SkyWest Airlines' employees occur from time to time and we anticipate that such efforts will continue in the future. During 2004, SkyWest Airlines' pilots voted against a resolution to join an officially recognized union. Under governing rules, SkyWest Airlines' pilots may again vote on this issue at any time because one year has passed since the previous vote. If unionization efforts are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional expenses associated with increased union representation of our employees. SkyWest Airlines has never experienced a work stoppage due to a strike or other labor dispute, and we consider SkyWest Airlines' relationships with its employees to be good.
As of December 31, 2005, ASA employed approximately 5,550 full-time equivalent employees consisting of approximately 2,500 pilots and flight attendants, approximately 1,750 customer service personnel, approximately 900 mechanics and other maintenance personnel, and approximately 400 administration and support personnel. Three of ASA's employee groups are represented by unions. ASA's pilots are represented by the Air Line Pilots Association International, ASA's flight attendants are represented by the Association of Flight Attendants—CWA, and ASA's flight controllers are represented by the Professional Airline Flight Control Association. The collective bargaining agreements between ASA and its pilots and flight attendants became amendable September 15, 2002 and September 26, 2003, respectively. ASA has been negotiating with the pilots and flight attendants unions since 2002 and 2003, respectively. Each of these negotiations is currently under the jurisdiction of mediators supplied by the National Mediation Board. The collective bargaining agreement between ASA and its flight controllers becomes amendable in April 2006. ASA has never experienced a work stoppage due to a strike or other labor dispute, and considers its relationships with employees to be good.
Government Regulation
All interstate air carriers, including SkyWest Airlines and Scenic,ASA, are subject to regulation by the DOT, the FAA and certain other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates,certificates; approval of personnel who may engage in flight, maintenance or operations
activities, record keepingoperating activities; record-keeping procedures in accordance with FAA requirements,requirements; and FAA approval of flight training and retraining
programs. The DOT and the FAA, as
well as otherGenerally, governmental agencies regulating the Company, enforce their regulations through, among other mechanisms, (i)ways, certifications, which are necessary for the Company's continued operations of SkyWest Airlines and (ii)ASA, and proceedings, which can result in civil or criminal penalties or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the mandatory removal and replacement of aircraft parts
that the FAA believes might present a safety hazard.
The Company believes it isparts.
We believe SkyWest Airlines and ASA are operating in material compliance with FAA regulations and holdshold all necessary operating and air worthinessairworthiness certificates and licenses. The Company incursWe incur substantial costs in maintaining its current certifications and otherwise complying with the laws, rules and regulations to which it isSkyWest Airlines and ASA are subject. The Company'sSkyWest Airlines' and ASA's flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. The Company doesSkyWest Airlines and ASA do not operate at any airports where landing slots are restricted.
All air carriers are required to comply with federal lawlaws and regulations pertaining to noise abatement and engine emissions. All air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities. The Company isSkyWest Airlines and ASA are also subject to certain other federal and state laws relating to protection of the environment, labor relations and equal employment opportunity. Management believesWe believe that the Company isSkyWest Airlines and ASA are in compliance in all material respects with these laws and regulations.
INSURANCE
In
Safety and Security
We are committed to the opinionsafety and security of management,our passengers and employees. Since the Company maintainsSeptember 11, 2001 terrorist attacks, SkyWest Airlines and ASA have taken many steps, both voluntarily and as mandated by governmental agencies, to increase the safety and security of their operations. Some of the safety and security measures we have taken, along with our code-share partners, include: aircraft security and surveillance, positive bag matching procedures, enhanced passenger and baggage screening and search procedures, and securing of cockpit doors. We are committed to complying with future safety and security requirements.
Insurance
SkyWest Airlines and ASA maintain insurance policies that we believe are of types customary in the industry and in amounts it believeswe believe are adequate to protect it and its property against material loss. TheThese policies principally provide coverage for public liability, passenger liability, baggage and cargo liability, property damage, including coverages for loss or damage to itsour flight equipment, and workers' compensation insurance. There is no assurance,We cannot assure, however, that the amount of insurance carried by the Companywe carry will be sufficient to protect itus from material loss.
LEGAL PROCEEDINGS
The Company is a party
Environmental Matters
SkyWest Airlines and ASA are subject to various federal, state, local and foreign laws and regulations relating to environmental protection matters. These laws and regulations govern such matters as environmental reporting, storage and disposal of materials and chemicals and aircraft noise. We are, and expect in the future to be, involved in various environmental matters and conditions at, or related to, our properties. We are not currently subject to any environmental cleanup orders or actions imposed by regulatory authorities. We are not aware of any active material environmental investigations related to our assets or properties.
Legal Proceedings
We are subject to certain legal actions which we consider routine to our business activities. As of December 31, 2005, our management believed, after consultation with legal proceedings incident to its
business. Incounsel, that the opinion of management, noneultimate outcome of such proceedingslegal matters is expectednot likely to have a material adverse effect on our financial position, liquidity or results of operations. The most significant of these matters is summarized below:
Securities and Exchange Commission
Effective January 1, 2002, we changed our method of accounting for CRJ200 engine overhaul expenses. In connection with the Company.
29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers and Directors
The following are theour executive officers and directors of the Company:
directors:
| Name | Age | Position | ||
|---|---|---|---|---|
| Jerry C. | 57 | Chairman | ||
Bradford R. | 44 | Executive Vice President, Chief Financial Officer and Treasurer | ||
Ron B. Reber | 52 | President and Chief Operating Officer of SkyWest Airlines | ||
Bryan T. LaBrecque | 47 | President and Chief Operating Officer of ASA | ||
Sidney J. | 71 | Lead Director | ||
W. Steve Albrecht | 58 | Director | ||
J. Ralph | 62 | Director | ||
Mervyn K. | 69 | Director | ||
Ian M. | 65 | Director | ||
Robert G. Sarver | 44 | Director | ||
Steven F. | 60 | Director |
Jerry C. Atkin joined the Companyus in July 1974 as a member of the Board of Directors and our Director of Finance. In 1975, he assumed the office of President and Chief Executive Officer. He also serves as Chairman and Chief Executive Officer of SkyWest Airlines and ASA. He was elected Chairman of the Board of our company in 1991. Prior to employment by the Company, Mr. Atkinour company, he was employed by a public accounting firmfirm. He currently serves as a director of Zions Bancorporation, a bank holding company based in Utah.
Bradford R. Rich joined us in 1987 as Corporate Controller. He currently is our Executive Vice President, Chief Financial Officer and Treasurer, and also serves in those positions at SkyWest Airlines and ASA, with responsibility for financial accounting, treasury, public reporting, investor relations, internal audit, risk management, contracts and information technology. He is a certified public accountant. Mr.
Atkin is a board member of (i) The Regence Group, a medical insurance holding
company,accountant and its subsidiary, Regence Blue Cross Blue Shield of Utah, a medical
insurance company, and (ii) Zions Bancorporation, a Utah bank holding company.
Mr. Atkin has served as a director of the Company since 1974.
was previously employed by an international public accounting firm.
Ron B. Reber has served in various capacities since joining the Companyus in 1977. He is currently Executive Vice President and Chief Operating Officer of SkyWest Airlines, with general responsibility for flight operations, maintenance, customer service, market planning, marketing, revenue control and pricing.
Bryan T. LaBrecque was appointed President and Chief Operating Officer of ASA in September 2005, following our acquisition of ASA. He also serves asjoined ASA in 1999, and has held various other positions with ASA, including Senior Vice President of NPT.
Bradford R. Rich joined the CompanyOperations. Prior to joining ASA, he was employed by Delta for many years in 1987 as Corporate Controller. He was
previously employed with a public accounting firmvarious positions, including director of The Delta Connection program, General Manager-Aircraft Acquisition and is a certified public
accountant. He is currently Executive Vice President, Chief Financial Officer
and Treasurer with responsibility for financial accounting, treasury, public
reporting, investor relations, internal audit and management information
systems.
General Manager-Fleet Planning.
Sidney J. Atkin was elected has served on our Board of Directors since 1973 and as Vice Chairman insince 1988. For more than five
years, Mr. Atkin has beenFrom 1984 to 1988, he served as our Senior Vice President. From 1958 to 2002, he was the President of Sugarloaf Corp., a Utah corporation involved in the operation of restaurants and motels. He is currently retired.
W. Steve Albrecht has served on our Board of Directors since 2003. He is the Associate Dean and Arthur Andersen Alumni Professor of Accounting, Marriott School of Management, Brigham Young University. Mr. AtkinAlbrecht, a certified public accountant, certified internal auditor, and certified
fraud examiner, joined BYU in 1977 after teaching at Stanford University and the University of Illinois. Mr. Albrecht has served as a
directorPresident of the Company since 1973.
American Accounting Association, the Association of Certified Fraud Examiners, and Beta Alpha Psi. Mr. Albrecht serves on the board of directors of ICON Health & Fitness, a manufacturer of home and commercial health and fitness equipment; Red Hat, Inc., an open source software company; Cypress SemiConductor, a Silicon Valley semiconductor firm; and SunPower Incorporated, a manufacturer of high efficiency solar cells and solar panels. He is currently a trustee for the Financial Accounting Foundation that oversees accounting standard setting in the private sector and the government sector.
J. Ralph Atkin was the is a founder of the Companyour company and served as President and Chief Executive Officer from 1972 to 1975. He has served on our Board of Directors since 1972, and served as Chairman of the Board of
Directors from 1972 to 1991. From 1984 to 1988, he served as our Senior Vice PresidentPresident. Mr. Atkin also serves as a director of Festival Airlines, an early-stage provider of charter air service. Mr. Atkin previously served as the Company. From March 1991 to January 1993, he was DirectorChief Executive Officer of BusinessGhana International Airlines, an early-stage enterprise currently exploring the funding and Economic Development for the Stateoperation of Utah. Hean airline in Africa. Mr. Atkin served as Chief Executive Officer of EuroSky, a company organized to explore the feasibility of a regional airline in Austria, during 1994 and 1995. From March 1991 to January 1993, Mr. Atkin was Director of Business and Economic Development for the State of Utah. Mr. Atkin is an attorney and
is currently engaged in the private practice of law in St. George, Utah. Mr.
Atkin is also a director of Fairchild Aircraft Incorporated and Fairchild
Aircraft Services Incorporated. Mr. Atkinattorney.
Mervyn K. Cox has served as a directoron our Board of the
CompanyDirectors since 1972.
Mervyn K. Cox has been for more than five years1974. He is an orthodontist engaged in private practice and hasis also engaged in the development and management of real estate. Mr. Cox
Ian M. Cumming has served as a directoron our Board of the CompanyDirectors since 1974.
Ian M. Cumming1986. He is Chairman and Chief Executive Officer of Leucadia National Corporation, a diversified financial services holding company principally engaged in personal and commercial lines of property and casualty insurance, life and health insurance,
banking and lending manufacturing and the trade stamps business.manufacturing. He has served
as a
30
32
directoris also Chairman of the Company since 1986. Mr. Cumming is alsoBoard of the Finova Group, Inc., a middle- market lender, a director of MK Gold
CompanyResources Co., a gold mining and Allcity Insurance Company, bothexploration company, and HomeFed Corp., a real estate investment and development company.
Robert G. Sarver has served on our Board of which are public companies.
Henry J. Eyring has been employedDirectors since 1989 by Monitor Company, an
international management consulting firm based2000. He is Chairman and Chief Executive Officer of Western Alliance Bancorporation, a commercial bank holding company doing business in Cambridge, Massachusetts. At
Monitor,Nevada, California and Arizona, and the managing partner of the Phoenix Suns, a professional basketball team. He served as Chairman of the Board and Chief Executive Officer of California Bank and Trust from 1995 to 2001. Prior to 1995, he servesserved as the President of Monitor Institute, the subsidiaryNational Bank of Monitor
that consults in the public sector.Arizona. He is also Chief Operating Officeran executive director of the
Huntsman Cancer Institute. HeSouthwest Value Partners, a real estate investment company, and is a director of Global Microtechnologies,Meritage Corporation, a computer retailing company, and Assist Cornerstone Technologies, a software
development company, is a memberbuilder of thesingle-family homes.
Steven F. Udvar-Hazy has served on our Board of Trustees of Southern Utah
University andDirectors since 1986. He is Chairman-elect of Artspace, a non-profit real estate
developer. Mr. Eyring has served as a director of the Company since 1995.
Steven F. Udvar-Hazy is currently President, DirectorChairman and Chief Executive Officer of International Lease Finance Corporation, a wholly ownedwholly-owned subsidiary of American International Group, Inc., which leases and finances commercial jet aircraft worldwide. Mr. Udvar-HazyHe has been engaged in aircraft leasing and finance for 32more than 36 years. He has served as a director of the Company since 1986.
Hyrum W. Smith is co-founder, Chief Executive Officer and Chairman of
Franklin Covey Co., a public company in business to help people gain control
over their lives and increase their productivity. Mr. Smith has been the Chief
Executive Officer of Franklin Covey Co. since February 1997, a position he also
held from April 1991 to September 1996. Mr. Smith was Senior Vice President of
Franklin Quest from December 1984 to April 1991. Franklin Covey Co. was formerly
known as Franklin Quest Co. prior to its merger with Covey Leadership Center,
Inc. in May 1997. Mr. Smith has served as a director of the Company since 1995.
J. Ralph Atkin and Sidney J. Atkin are brothers.brothers, and Jerry C. Atkin is their nephew.
KEY EMPLOYEES
In addition
The following table sets forth information with respect to the beneficial ownership of our common stock as of March 31, 2006 and as adjusted to reflect the sale of the shares of our common stock offered hereby, by:
- •
- each person known by us to be a beneficial owner of more than 5% of the outstanding shares of our common stock;
- •
- each of our directors and executive officers; and
- •
- all directors and executive officers
listed above,as a group.
Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares indicated. Except as otherwise set forth below, the business address of the following beneficial owners and members of management is our corporate office located at 444 South River Road, St. George, Utah 84790.
| | Beneficial Ownership Prior to the Offering | Beneficial Ownership After the Offering | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Name and Address of Beneficial Owner | |||||||||
| Shares | Percent(1) | Shares | Percent(2) | ||||||
| Barclays Global Investors, NA 45 Fremont St. San Francisco, CA 94105(3) | 3,593,073 | 6.0 | % | 3,593,073 | 5.7 | % | |||
| Mellon Financial Corporation One Mellon Center Pittsburgh, PA 15258(4) | 3,079,893 | 5.2 | % | 3,079,893 | 4.8 | % | |||
| Jerry C. Atkin(5) | 2,384,945 | 4.0 | % | 2,384,945 | 3.7 | % | |||
| Sidney J. Atkin(6) | 1,498,101 | 2.5 | % | 1,498,101 | 2.4 | % | |||
| Mervyn K. Cox(7) | 417,621 | * | 417,621 | * | |||||
| Bradford R. Rich(8) | 359,434 | * | 359,434 | * | |||||
| Ron B. Reber(9) | 209,026 | * | 209,026 | * | |||||
| Ian M. Cumming(10) | 66,000 | * | 66,000 | * | |||||
| J. Ralph Atkin(10) | 50,000 | * | 50,000 | * | |||||
| Robert G. Sarver(11) | 49,000 | * | 49,000 | * | |||||
| Steven Udvar-Hazy(12) | 33,600 | * | 33,600 | * | |||||
| W. Steve Albrecht | — | — | — | — | |||||
| Bryan T. LaBrecque | — | — | — | — | |||||
| All Executive Officers and Directors as a group (11 persons)(13) | 5,115,727 | 8.4 | % | 5,115,727 | 7.9 | % | |||
- *
- Represents less than 1% of total outstanding shares.
- (1)
- Based on total outstanding shares of 59,596,298 as of March 31, 2006.
- (2)
- Assumes that the underwriters do not exercise their overallotment option to purchase 600,000 additional shares.
- (3)
- Data for Barclays Global Investors is taken from a Schedule 13G, filed by Barclays Global Investors with the Securities and Exchange Commission on January 26, 2006. Based on the Schedule 13G filed by Barclays Global Investors, other shareholders affiliated with Barclays Global Investors hold an additional 1,449,148 shares of our common stock.
- (4)
- Data for Mellon Financial Corporation is taken from a Schedule 13G, filed by Mellon Financial Corporation with the Securities and Exchange Commission on February 15, 2006.
- (5)
- Includes 927,582 shares held by Mr. Atkin as trustee of a trust, 827,070 shares held by Mr. Atkin's wife as trustee of a trust, and 624,000 shares issuable upon exercise of options.
- (6)
- Includes 1,140,500 shares held by a family limited partnership of which Mr. Atkin and his wife are
key employeesthe general partners, 309,463 shares held by Mr. Atkin as trustee ofSkyWest or Scenic:NAME AGE POSITION ---- --- --------James K. Boyd.......... 40 Vice President -- Customer Service Eric D. Christensen.... 39 Vice President -- Planning and Secretary H. Michael Gibson...... 48 Vice President -- Maintenance Steven L. Hart......... 36 Vice President -- Market Development Brad Holt.............. 38 Vice President -- Flight Operations Michael J. Kraupp...... 36 Vice President -- Controller David A. Young......... 56 President -- ScenicJames K. Boyd joineda trust for theCompany in 1981. He is currently Vice President -- Customer Service with responsibility for SkyWest ticket counter, gatebenefit of his family, 138 shares held by his wife andramp personnel at all SkyWest cities. He has also served48,000 shares issuable upon exercise of options. - (7)
- Includes 199,962 shares held by Mr. Cox's wife as
Directortrustee ofStationsa trust, 19,264 shares held by Mr. Cox's children, andStation Manager. Eric D. Christensen joined the Company in 1985. He is currently Vice President -- Planning and Secretary with responsibility for aircraft performance and acquisition analysis, fleet planning and risk management. He has also served as Assistant to the President and Director32,000 shares issuable upon exercise ofFinance. H. Michael Gibson joined the Company in 1988. He is currently Vice President -- Maintenance with responsibility for aircraft maintenance, controloptions. - (8)
- Includes 352,000 shares issuable upon exercise of
parts inventory and maintenance personnel training. He has also served as Directoroptions. - (9)
- Includes 184,000 shares issuable upon exercise of
Quality Assurance for SkyWest. Steven L. Hart joined the Company in 1986. He is currently Vice President -- Market Development with responsibility for flight scheduling, revenue control and pricing. He has also served as Director Market Planning, Market Analyst and Directoroptions. - (10)
- Includes 48,000 shares issuable upon exercise of
Marketing. Brad Holt joined the Company in 1983. He is currently Vice President -- Flight Operations with responsibility for flight crew supervision and dispatch, flight safety and flight quality standards. He has also served as Directoroptions. - (11)
- Includes 32,000 shares issuable upon exercise of
Flight Standards, Chief Flight Instructor, Check Airman and Line Pilot. 3133 Michael J. Kraupp joined the Company in 1991 as financial controller for SkyWest. He has been Vice President -- Controller since 1993 with responsibility for financial accounting and public reporting. He was previously employed with a public accounting firm and is a certified public accountant. David A. Young joined the Company in 1997 as Presidentoptions. - (12)
- Includes 32,000 shares issuable upon exercise of
Scenic Airlines, Inc. on July 4, 1997. He was previously employed as Chief Executive Officeroptions. - (13)
- Includes 1,448,000 shares issuable upon exercise of
Air Fiji from 1993 to July 1997 and Chief Executive Officer of Air Macau from 1992 to 1993. Mr. Young holds a Ph.D. in aerospace management.options.
DESCRIPTION OF CAPITAL STOCK
The Company's
Our authorized capital stock consists of 40,000,000120,000,000 shares of Common Stock,common stock, no par value, and 5,000,000 shares of Preferred Stock,preferred stock, no par value.
COMMON STOCK
Common Stock
As of January 16, 1998March 31, 2006, there were 10,317,15259,596,298 shares of Common Stockour common stock issued and outstanding that were held by approximately 1,1001,150 stockholders of record. No shares of our preferred stock have been issued.
Subject to the rights of the holders of Preferred Stock,our preferred stock, each holder of Common Stock shall haveour common stock has equal ratable rights to dividends from funds legally available therefor, if, as and when declared by the Boardour board of Directors of the
Company.directors. The declaration and payment of all dividends, however, is subject to the discretion of the Boardour board of Directors.directors. In the event of our liquidation or dissolution or the winding up of theour affairs, of the Company, the holders of Common
Stockour common stock are entitled to share ratably in all assets remaining after payment of liabilities and amounts, if any, due to holders of Preferred Stock.our preferred stock. Holders of Common Stockour common stock are entitled to one vote per share on all matters whichthat stockholders may vote on at all meetings of our stockholders. The holders of Common
Stockour common stock do not have cumulative voting rights. The holders of Common Stockour common stock do not have preemptive, subscription or conversion rights, and there are no redemption or sinking fund provisions applicable thereto. All the outstanding shares of Common Stockour common stock are fully paid and nonassessable, and the shares of Common Stockour common stock to be outstanding upon completion of this offering will be fully paid and nonassessable. Pursuant to the terms of the Delta Option Agreement, in the event
the Company proposes to issue any additional voting securities and for so long
as Delta owns at least ten percent of the outstanding shares of Common
Preferred Stock and
the Delta Connection Agreement or a substantially similar agreement remains in
effect between Delta and the Company, Delta has a preemptive right to acquire,
on the same terms and conditions as the proposed issuance of securities, the
number of voting securities which, when added to all voting securities then
owned by Delta, would provide Delta with the number of votes necessary to
preserve Delta's percentage voting interest. Delta has elected not to exercise
its preemptive right under the Delta Option Agreement with respect to this
offering. Also pursuant to the terms of the Delta Option Agreement, in the event
Delta desires to sell any of its shares of Common Stock, it has the right to
demand up to two separate registrations under the Securities Act of such shares
of Common Stock. For an unlimited number of times, Delta may, within fifteen
days of receipt of notice from the Company that the Company proposes to register
under the Securities Act shares of Common Stock, require the Company to include
shares of Common Stock owned by Delta in such registration.
PREFERRED STOCK
The Company is
We are authorized to issue Preferred Stockpreferred stock from time to time in one or more series without stockholder approval. No shares of Preferred Stockpreferred stock are presently outstanding. The BoardWith respect to our preferred stock, our board of Directorsdirectors is authorized, without any further action by theour stockholders, of the Company, to (i) divide the Preferred Stockpreferred stock into series; (ii) designate each such series; (iii) fix and determine dividend rights; (iv) determine the price, terms and conditions on which shares of Preferred Stockpreferred stock may be redeemed; (v) determine the amount payable to holders of Preferred Stockpreferred stock in the event of voluntary or
involuntary liquidation; (vi) determine any sinking fund provisions; and (vii) establish any conversion privileges. Thus, the Boardour board of Directors,directors, without stockholder approval, could authorize the issuance of Preferred Stockpreferred stock with rights which could decrease the amount of earnings and assets available for distribution to holders of shares of Common Stockour common stock or otherwise adversely affect the rights of the holders of Common
Stock.our common stock. Any future issuance of Preferred Stockpreferred stock may have
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34 the effect of delaying or preventing a change in control of the Companyour company and may adversely affect the voting and other rights of the holders of Common Stock.our common stock. At present, the Company haswe have no plans to issue any Preferred Stock.
BOARD OF DIRECTORS
The Company's preferred stock.
Board of Directors currently consists
Our Bylaws provide for a total of nine directors who
are elected for one year terms at the annual meetings of the Company's
shareholders.directors. As a result of the resignation of Hyrum W. Smith as a director as discussed below,
thein January 2006, our Board of Directors currently consists of only eight directors. Furthermore, our Corporate Governance Guidelines provide for mandatory retirement for directors upon attaining the age of 70. Sidney J. Atkin, who has eight members. Pursuant toserved as a director, has reached the termsage of the
Delta Option Agreement,70 and will not stand for re-election as long as Delta ownsa director at least 10% of the
outstanding Common Stock, the Company will include at least one designee of
Delta reasonably acceptable to the Company on the slate of nominees for election
as directors nominated by the Company'sour next annual meeting. Our Board of Directors, upon the recommendation of its Nominating and will use its
reasonable best effortsCorporate Governance Committee, has nominated Henry J. Eyring to assure that such individual is elected tofill the Company'sexisting vacancy on the Board of Directors. From 1988 to April 1, 1997, the dateThe Nominating and Governance Committee of the
resignation of Delta's most recent nominee, Delta had continuous representation
on the Company'sour Board of Directors through such nominees. Sinceis currently conducting a search to identify a qualified candidate to fill the resignation,vacancy which is expected to result from Mr. Atkin's departure; however, the search has not been completed and no Delta nominee has served on the Company's Board of Directors.
Delta did not nominate any candidate for election to the Board of Directors at
the most recent annual meeting of shareholders.
UTAH CONTROL SHARES ACQUISITION ACTbeen designated.
Utah Control Shares Acquisitions Act
The Utah Control Shares AcquisitionAcquisitions Act (the "Control Shares Act") provides that any person or entity whichthat acquires 20% or more"control shares" of the outstanding voting
shares ofan "issuing public corporation" in a publicly-held Utah corporation"control share acquisition" is denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholdersshareholders of the issuing public corporation elects to restore such voting rights. The Control Shares Act provides that a person or entity acquires "control shares" whenever it acquires shares that, but for the operation for the Control ShareShares Act, would bring its voting power following such acquisition within any of the following three ranges:ranges of all voting power of the issuing public corporation: (i) 20% to 33between 1/3%,5 and 1/3; (ii) 33between 1/3% to 50%,3 and a majority; or (iii) 50%a majority or more. An "issuing public corporation" is any Utah corporation that (a) has 100 or more shareholders, (b) has its principal place of business, principal office or substantial assets within the State of Utah and (c) has more than 10% of its shareholders resident in the State of Utah, or more than 10% of its shares owned by Utah residents. A "control share acquisition" is generally defined as the direct or indirect acquisition (including through a series of acquisitions) of either ownership or voting power associated with issued and outstanding control shares. The stockholders of
a corporation may elect to exempt the stock of the corporation from the
provisions of the Control Shares Act through adoption of a provision to that
effect in the articles of incorporation or bylaws of the corporation. The
Company's Restated Articles of Incorporation (the "Restated Articles") and
Bylaws, as amended (the "Bylaws") do not exempt the Company's Common Stock from
the Control Shares Act.
Under the Control Shares Act, a person or entity that acquires control shares pursuant to a control share acquisition acquires voting rights with respect to those shares only to the extent granted by a majority of the disinterested stockholdersshareholders of each class of capital stock outstanding prior to the acquisition. The stockholdersacquiring person may file an "acquiring person statement" with the issuing public corporation setting forth the number of shares acquired and certain other specified information. Upon delivering the corporation must considerstatement together with an undertaking to pay the statusissuing public corporation's expenses of
those voting rights at the next annual or special meeting of stockholders. The
acquiror may accelerate the decision and require the corporation to hold a special shareholders' meeting, of stockholdersthe issuing public corporation is required to call a special shareholders' meeting for the purpose of considering the statusvoting rights to be accorded the shares acquired or to be acquired in the control shares acquisition. If no request for a special meeting is made, the voting rights to be accorded the control shares are to be presented at the issuing public corporation's next special or annual meeting of those rights ifshareholders. If either (i) the acquiror (i) filesacquiring person does not file an "acquiringacquiring person statement"statement with the issuing public corporation andor (ii) agrees to pay all expenses of the meeting. If the
stockholdersshareholders do not vote to restore voting rights to the control shares, the issuing public corporation may, if its articles of incorporation or bylaws so provide, redeem the control shares from the acquiroracquiring person at fair market
value. If the acquiror fails
to file an acquiring person statement, the corporation may, if its articles of
incorporation or bylaws so provide, redeem the control shares at any time within
60 days of the acquiror's last acquisition of control shares, regardless of the
decision of the stockholders to restore voting rights. The Company'sOur Restated Articles and the Bylaws do not currently provide for such redemption.a redemption right. Unless otherwise provided in the articles of incorporation or bylaws of aan issuing public corporation, stockholdersall shareholders are entitled to dissenters' rights if the control shares are accorded full voting rights and the acquiroracquiring person has obtained majority or more control shares. TheOur Restated Articles and the Bylaws do not currently deny such dissenters' rightsrights.
The directors or shareholders of a corporation may elect to exempt the stock of the corporation from the provisions of the Control Shares Act through adoption of a provision to that effect in the corporation's articles of incorporation or bylaws. To be effective, such an exemption must be adopted prior to the Company's stockholders.control shares acquisition. We have not yet taken any such action.
The provisions of the Control Shares Act may discourage companiesindividuals or entities interested in acquiring a significant interest in or control of the Company.
TRANSFER AGENT AND REGISTRARus.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stockour common stock is Zions First National Bank, N.A., Salt Lake City, Utah.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. are acting as representatives of the underwriters named below. Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, LLC and SBC
Warburg Dillon Read Inc. are acting as representatives (collectively, the
"Representatives"), have severally agreed todescribed in a purchase from the Company,agreement between us and the Company hasunderwriters, we have agreed to sell to the Underwriters,underwriters, and the underwriters severally have agreed to purchase from us, the respective number of shares of Common
Stockcommon stock set forth opposite the Underwriters' respective names.
their names below:
| Underwriter | Number of Shares | ||
|---|---|---|---|
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | |||
| Raymond James & Associates, Inc. | |||
| Total | |||
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committedunderwriters have agreed to purchase all shares of Common
Stock offered herebycommon stock being sold pursuant to the purchase agreement if any of these shares of common stock are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the purchase agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the underwriters may be required to make in respect of those liabilities.
The Underwritersunderwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectusprospectus and to certain dealers at suchthat price less a concession not in excess of $ per share. The Underwritersunderwriters may allow, and such dealers may re-allow,reallow, a concession not in excess of $ per share in sales to certain other dealers. After the public offering, the public offering price, concession and other selling termsdiscount may be changed.
The Company hasfollowing table shows the public offering price, underwriting discount and the proceeds before expenses to us.
| Per Share | Without Option | With Option | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Public offering price | $ | $ | $ | ||||||
| Underwriting discount | $ | $ | $ | ||||||
| Proceeds, before expenses, to SkyWest, Inc. | $ | $ | $ | ||||||
The expenses of the offering, not including the underwriting discount, are estimated at $500,000 and are payable by us.
Overallotment Option
We have granted an option to the Underwriters a 30-day optionunderwriters to purchase up to an aggregate of 600,000 additional 210,000 shares of Common Stock at the public offering price less the underwriting discount set forth on the cover page ofdiscount. The underwriters may exercise this Prospectus to
cover over-allotments, if any. If the Underwriters exercise their over-allotment
option the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them, as shown in the above table,
bears to the 1,400,000 shares of Common Stock offered hereby.
The Company, its executive officers and directors (beneficially owning, in
the aggregate, 1,247,430 shares of Common Stock) have agreed that they will not
offer, sell or otherwise dispose of any shares of Common Stock (other than the
shares offered by the Company in the offering), subject to certain exceptions,
for a period of 9030 days from the date of this Prospectusprospectus solely to cover any overallotments. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions
contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount set forth in the table above.
No Sales of Similar Securities
We and our executive officers and directors have agreed, with certain exceptions, not to sell or transfer any of our common stock for 90 days after the date of this prospectus without first obtaining the prior written consent of The Robinson-Humphrey Company, LLC on behalfMerrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly:
- •
- offer, pledge, sell or contract to sell any of our common stock;
- •
- sell any option or contract to purchase any of our common stock;
- •
- purchase any option or contract to sell any of our common stock;
- •
- grant any option, right or warrant to purchase or otherwise transfer of any of our common stock;
- •
- lend or otherwise dispose of or transfer any of our common stock;
- •
- request or demand that we file a registration statement related to our common stock; or
- •
- enter into any swap or other agreement that transfers, in whole or in part, the
Underwriters. Pursuanteconomic consequences of ownership of any of our common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lock-up provision applies to our common stock and to securities convertible into or exchangeable or exercisable for or repayable with our common stock. It also applies to our common stock owned now or acquired later by the Underwriting Agreement,person executing the Company has agreed to indemnifyagreement or for which the several Underwriters against certain liabilities, including liabilities
underperson executing the Securities Act.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
In connection withagreement later acquires the offering, certain Underwriterspower of disposition.
Price Stabilization and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M, during the one business day prior to the pricing
of the offering before the commencement of offers or sales of the Common Stock.
The passive market-making transactions must comply with applicable volume and
price limitations and be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
the security; however, if
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all independent bids are lowered below the passive market maker's bid, such bid
must then be lowered when certain purchase limits are exceeded.Short Positions
Until the distribution of the Common Stockshares is completed, rules of the Securities and Exchange Commission (the "Commission")SEC may limit the ability of the Underwritersunderwriters and selling group members to bid for and purchase shares of Common Stock. As an exception
to these rules,our common stock. However, the Representatives are permitted torepresentatives may engage in certain transactions that stabilize the price of the Common Stock. Such transactions may
consist ofour common stock, such as bids or purchases for the purpose of pegging, fixingto peg, fix or maintaining
the price of the Common Stock.maintain that price.
If the Underwritersunderwriters create a short position in the Common Stockour common stock in connection with the offering, (i.e.i.e., if they sell more shares of the Common Stock than are set forthlisted on the cover page of this Prospectus),prospectus, the Representativesrepresentatives may reduce thethat short position by purchasing the Common Stockshares in the open market. The Representativesrepresentatives may also elect to reduce any short position by exercising all or part of the over-allotmentoverallotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
sharesabove. Purchases of the Common Stock in the open market to reduce the Underwriters' short
position orour common stock to stabilize theits price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short position couldmay cause the price of the securityour common stock to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.
Neither the Companywe nor any of the Underwritersunderwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock.common stock. In addition, neither the Companywe nor any of the Underwritersunderwriters makes any representation that the RepresentativesU.S. representatives or the lead managers will engage in suchthese transactions or that suchthese transactions, once commenced, will not be discontinued without notice.
Passive Market Making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in the common stock on The Nasdaq National Market in accordance with Rule 103 of Regulation M under the Exchange Act during a period before the commencement of offers
or sales of common stock and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, that bid must then be lowered when specified purchase limits are exceeded.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.
Merrill Lynch, one of the underwriters, served as our financial advisor in connection with our acquisition of ASA. As part of its engagement, Merrill Lynch agreed that if following our acquisition of ASA we effected a public offering and paid fees to Merrill Lynch in connection with such offering, then it would return to us a portion of the fees that it received for acting as our financial advisor in connection with our acquisition of ASA.
The legality of the Common Stockour common stock offered hereby will be passed upon for the
Companyus by Parr Waddoups Brown Gee & Loveless, a professional corporation, ("Parr Waddoups"), Salt Lake City, Utah andUtah. Certain legal matters related to the offering will be passed upon for the Underwritersunderwriters by KingSkadden, Arps, Slate, Meagher & Spalding, Atlanta, Georgia. KingFlom LLP, New York, New York.
Ernst & Spalding will rely upon the opinion of Parr
Waddoups as to all matters of Utah law.
EXPERTS
TheYoung LLP, independent registered public accounting firm, has audited our consolidated financial statements and schedulesschedule included in our Annual Report on Form 10-K for the year ended December 31, 2005, and management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, as set forth in their reports, which are incorporated by reference in this Prospectusprospectus and elsewhere in the Registration Statement, to the
extentregistration statement. Our financial statements and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountantsschedule and management's assessment are incorporated hereinby reference in reliance upon theon Ernst & Young LLP's reports, given on their authority of said firm as experts in accounting and auditingauditing.
The balance sheets of Atlantic Southeast Airlines, Inc. as of December 31, 2004 and 2003 and the related statements of operations, cash flows and shareowner's equity for each of the three years in giving said reports.
AVAILABLE INFORMATION
Thethe period ended December 31, 2004 incorporated in this prospectus by reference from SkyWest, Inc.'s Current Report on Form 8-K/A dated November 14, 2005 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report (which report expresses an unqualified opinion on the Company's financial statements and includes explanatory paragraphs relating to (1) the Company's ability to continue as a going concern, (2) a change in the method by which the Company is subject tocompensated by Delta under the informational requirementsDelta Connection Agreement, effective January 1, 2003, and (3) the Company's change in its method of the Securities
Exchange Act of 1934 (the "1934 Act") and, in accordance therewith, files
reports, proxy statements, information statementsaccounting for goodwill and other information withintangible assets, effective January 1, 2002, to conform to Statement of Financial Accounting Standards No. 142), which is incorporated herein by reference, and have been so incorporated in reliance upon the Commission. Such reports, proxy statements, information statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at the principal offices of
the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at
its Regional Offices located in the Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. Copiesreport of such material may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy statements, information statementsfirm given upon their authority as experts in accounting and other
information regarding registrants,
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37
including the Company, that file such information electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act relating to the Common Stock offered
hereby. This Prospectus, which is part of such Registration Statement,auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
As permitted by SEC rules, this prospectus does not contain all of the information set forth, or incorporated by reference,that prospective investors can find in the Registration Statement andregistration statement of which it is a part or the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby maderegistration statement. The SEC permits us to the Registration Statement and such exhibits and
schedules, which may be inspected and copied in the manner and at the locations
described above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the Commission and incorporated herein by reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the Commission (File No.
0-14719) pursuant to the 1934 Act are hereby incorporatedincorporate by reference, into this Prospectus:
1.prospectus, information filed separately with the SEC. The Company'sinformation incorporated by reference is deemed to be part of this prospectus, and future information that we file with the SEC after the date of this
prospectus and before the termination of the offering will automatically update and supersede the information in this prospectus.
This prospectus incorporates by reference the documents set forth below that we previously have filed (File No. 0-14719) with the SEC pursuant to the Securities Exchange Act of 1934, as amended. These documents contain important information about us and our financial condition.
- 1.
- Our Annual Report on Form 10-K for the
fiscalyearended March 31, 1997. 2. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 3. The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 4. The Company's Quarterly Report on Form 10-Q for the quarterended December 31,1997. 5. The Company's2005. - 2.
- Our Current Report on Form 8-K dated
JanuarySeptember 13, 2005, as amended by Amendment No. 1 to Current Report on Form 8-K/A dated November 14, 2005 and Amendment No. 2 to Current Report on Form 8-K/A dated February 21,1998. 6.2006. - 3.
- The description of
the Common Stockour common stock contained inthe Company'sour Registration Statement on Form 8-A as filed on June 15, 1986,with the Commission under the 1934 Act,including any amendment or report filed for the purpose of updating such description.All
We hereby incorporate by reference all reports and other documents subsequently filed by the Companyus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934Exchange Act after the date of this prospectus and prior to the termination of the offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modified or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes tooffering.
We will provide, without charge, to each person to whom a copy of this Prospectus has beenprospectus is delivered, upon the written or oral request of any such person, a copy of any andor all of the foregoing documents referred(other than exhibits to above which have been or may besuch documents that are not specifically incorporated in this Prospectus by reference (other than exhibits)in such documents). RequestsPlease direct written requests for such copies should be directed to:to SkyWest, Inc., 444 South River Road, St. George, Utah 84790, Attention: Bradford R. Rich, telephone:Executive Vice President, Chief Financial Officer and Treasurer. Telephone requests may be directed to the office of our Chief Financial Officer at (435) 634-3000.
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[Three aircraft photographs]
39
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY634-3200.
WHERE YOU CAN FIND MORE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividends........................... 12
Capitalization........................ 13
Selected Consolidated Financial and
Operating Data...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 30
Description of Capital Stock.......... 32
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
Available Information................. 35
Incorporation of Certain Information
by Reference........................ 36
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1,400,000 SHARES
[LOGO]
COMMON STOCK
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PROSPECTUS
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THE ROBINSON-HUMPHREY
COMPANY
SBC WARBURG DILLON READ INC.
We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. You may read and copy any reports, statements, or other information that we file at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC also maintains an Internet site (http://www.sec.gov) that makes available to the public reports, proxy statements, and other information regarding issuers that file electronically with the SEC.
Shares of our common stock are quoted on The Nasdaq National Market. Reports, proxy statements and other information concerning us can be inspected and copied at the Public Reference Room of the National Association of Securities Dealers, 1735 K Street, N.W., 1998
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40
Washington, D.C. 20006.
We maintain an Internet website at www.skywest.com. We currently make our most recent annual report to shareholders available through our website and provide a link to the SEC's website, through which our annual, quarterly and current reports, as well as amendments to those reports, are available. In addition, we provide electronic or paper copies of its filings free of charge upon request.
4,000,000 Shares
Common Stock
P R O S P E C T U S
Merrill Lynch & Co.
Raymond James
April , 2006
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONOther Expenses of Issuance and Distribution
The following table sets forth the costs and expenses in connection with the issuance and distribution of the Common Stockcommon stock being registered, other than underwriting discounts and commissions payable by us. We will bear all of the Company.expenses listed below. All of the amounts shown are estimates, except the registration fee and the NASD filing fee.
| | Amount | |||
|---|---|---|---|---|
| SEC registration fee | $ | 17,456 | ||
| NASD filing fee | 15,330 | |||
| Accounting fees and expenses | 230,000 | |||
| Legal fees and expenses | 100,000 | |||
| Printing expenses | 120,000 | |||
| Blue sky fees and expenses | 3,000 | |||
| Transfer agent fees and expenses | 1,000 | |||
| Miscellaneous expenses | 13,214 | |||
| Total | $ | 500,000 | ||
Item 15. Indemnification of Directors and listing fees.
AMOUNT
--------
SEC registration fee........................................ $ 14,753
NASD filing fee............................................. 5,592
NASD listing fee............................................ 17,500
Accounting fees and expenses................................ 75,000
Legal fees and expenses..................................... 90,000
Printing expenses........................................... 100,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees and expenses............................ 1,000
Miscellaneous expenses...................................... 41,155
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Total............................................. $350,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERSOfficers
We are a Utah corporation. Section 16-10a-902 ("Section 902") of the Utah Revised Business Corporation Act (the "Revised Act") provides that a corporation may indemnify any individual who was, is, or is threatened to be made a named defendant or respondent (a "Party") in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (a "Proceeding"), because he or she is or was a director of the corporation or, while a director of the corporation, is or was serving at its request as a director, officer, partner, trustee, employee, fiduciary or agent of another corporation or other person or of an employee benefit plan (an "Indemnifiable Director"), against any obligation incurred with respect to a Proceeding, including any judgment, settlement, penalty, fine or reasonable expenses (including attorneys' fees), incurred in the Proceeding if his or her conduct was in good faith, he or she reasonably believed that his or her conduct was in, or not opposed to, the best interests of the corporation, and, in the case of any criminal Proceeding, he had no reasonable cause to believe hissuch conduct was unlawful; provided, however, that pursuant to Subsection 902(4): (i) indemnification under Section 902 in connection with a Proceeding by or in the right of the corporation is limited to payment of reasonable expenses (including attorneys' fees) incurred in connection with the Proceeding and (ii) the corporation may not indemnify an Indemnifiable Director in connection with a Proceeding by or in the right of the corporation in which the Indemnifiable Director was adjudged liable to the corporation, or in connection with any other Proceeding charging that the Indemnifiable Director derived an improper personal benefit, whether or not involving action in his or her official capacity, in which Proceeding he or she was adjudged liable on the basis that he or she derived an improper personal benefit.
Section 16-10a-903 ("Section 903") of the Revised Act provides that, unless limited by its articles of incorporation, a corporation shall indemnify an Indemnifiable Director who was successful, on the merits or otherwise, in the defense of any Proceeding, or in the defense of any claim, issue or matter in the Proceeding, to which he or she was a Party because he or she is or was an Indemnifiable Director of the corporation, against reasonable expenses (including attorneys' fees) incurred by him in connection with the Proceeding or claim with respect to which he or she has been successful.
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In addition to the indemnification provided by Sections 902 and 903, Section 16-10a-905 ("Section 905") of the Revised Act provides that, unless otherwise limited by a corporation's articles of incorporation, an Indemnifiable Director may apply for indemnification to the court conducting the Proceeding or to another court of competent jurisdiction. On receipt of an application and
after giving any
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41
notice the court considers necessary, (i) the court may order mandatory
indemnification under
Section 903, in which case the court shall also order the
corporation to pay the director's reasonable expenses to obtain court-ordered
indemnification, or (ii) upon the court's determination that the director is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances and regardless of whether the director met the applicable standard
of conduct set forth in Section 902, the court may order indemnification as the
court determines to be proper, except that indemnification with respect to
certain Proceedings resulting in a director being found liable as described in
Subsection 902(4) is limited to reasonable expenses (including attorneys' fees)
incurred by the director.
Section 16-10a-904 ("Section 904") of the Revised Act provides that a corporation may pay for or reimburse the reasonable expenses (including attorneys' fees) incurred by an Indemnifiable Director who is a Party to a Proceeding in advance of the final disposition of the Proceeding if (i)upon the director furnishes the corporation a written affirmationsatisfaction of his good faith
belief that he has met the applicable standard of conduct described in Section
902, (ii) the director furnishes to the corporation a written undertaking,
executed personally or in his behalf, to repay the advance if it is ultimately
determined that he did not meet the required standard of conduct, and (iii) a
determination is made that the facts then known to those making the
determination would not preclude indemnification.certain conditions.
Section 16-10a-907 of the Revised Act provides that, unless a corporation's articles of incorporation provide otherwise, (i) an officer of the corporation is entitled to mandatory indemnification under Section 903 and is entitled to apply for court orderedcourt-ordered indemnification under Section 905, in each case to the same extent as an Indemnifiable Director, (ii) the corporation may indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as an Indemnifiable Director, and (iii) a corporation may also indemnify and advance expenses to an officer, employee, fiduciary or agent who is not an Indemnifiable Director to a greater extent than the right of indemnification granted to an Indemnifiable Director, if not inconsistent with public policy, and if provided for by its articles of incorporation, bylaws, general or specific action of its board of directors or contract.
The Company's
Our Amended and Restated Bylaws (the "Bylaws") provide that, subject to the limitations described below, the Companywe shall, to the maximum extent and in the manner permitted by the Revised Act, indemnify any individual made party to a proceeding because he or she is or was a directorone of our directors or officer of the
Company,officers against liability incurred in the proceeding if his or her conduct was in good faith, he or she reasonably believed that his or her conduct was in, or not opposed to, the
Company'sour best interestinterests and, in the case of any criminal proceeding, he or she had no reasonable cause to believe hissuch conduct was unlawful. The CompanyWe may not, however, extend such indemnification to an officer or director in connection with a proceeding by us or in theour right of the Company in which such personofficer or director was adjudged liable to the Company,us, or in connection with any other proceeding charging that such person derived an improper personal benefit, whether or not involving action in his or her official capacity, in which proceeding he or she was adjudged liable on the basis that he or she derived an improper personal benefit, unless ordered by a court of competent jurisdiction. Notwithstanding the foregoing, the Bylaws obligate the Companyus to indemnify an officer or director who was successful on the merits or otherwise, in the defense of any proceeding or the defense of any claim, issue or matter in the proceeding to which hethe officer or director was a party because he or she is or was a directorone of our directors or officer of the Companyofficers against reasonable expenses that he or she incurred in connection with the proceeding or claim with respect to which he or she was successful. The Bylaws also permit the Companyus to pay for or reimburse the reasonable expenses incurred by an officer or director who is party to a proceeding in advance of final disposition of the proceeding if (i) the officer or director furnishes to the Companyus a written affirmation of hisa good faith belief that he or she has met the applicable standard of conduct necessary for indemnification, (ii) the officer or director furnishes to the Companyus a written undertaking to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct, and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification pursuant to the Bylaws. The Bylaws also provide that any indemnification or advancement of expenses provided thereby shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any articles of incorporation, bylaw, agreement, stockholdersvote of shareholders or disinterested directors, or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.
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Utah law permits director liability to be eliminated in accordance with Section 16-10a-841 of the Revised Act, which provides that the liability of a director to the corporation or its stockholdersshareholders for monetary damages for any action taken or any failure to take any action, as a director, may be limited
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or eliminated by the corporation except for liability for (i) the amount of financial benefit received by a director to which he or she is not entitled; (ii) an intentional infliction of harm on the corporation or its stockholders;shareholders; (iii) a violation of Section 16-10a-842 of the Revised Act, which prohibits unlawful distributions by a corporation to its stockholders;shareholders; or (iv) an intentional violation of criminal law. Such a provision may appear either in a corporation's articles of incorporation or bylaws; however, to be effective, such a provision must be approved by the corporation's stockholders.
The Company'sshareholders.
Our Restated Articles of Incorporation, as amended by the
Company's stockholders at the 1993 Annual Meeting of Stockholders (the "Restated
Articles"), provide that the personal liability of any director to the CompanySkyWest, Inc. or to its stockholdersshareholders for monetary damages for any action taken or the failure to take any action, as a director, is eliminated to the fullest extent permitted by Utah law.
The Bylaws provide that the Companywe may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, fiduciaryone of our directors, officers, employees, fiduciaries or agent of the Company,agents, or is or was serving at theour request of the Company as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her or incurred by him or her in such capacity or arising out of his or her status in such capacity, whether or not the Companywe would have the power to indemnify him or her against such liability under the indemnification provisions of the Bylaws or the laws of the State of Utah, as the same may hereafter beare amended or modified. The Company maintainsWe maintain insurance from commercial carriers against certain liabilities whichthat may be incurred by itsour directors and officers.
Indemnification may be granted pursuant to any other agreement, bylaw or vote of shareholders or directors. Reference is also made to the Underwriting Agreement filed herewith pursuant to which the Underwritersunderwriters have agreed to indemnify the Companyus and its offersour officers and directors against certain liabilities, including liabilities under the Securities Act. The foregoing description is necessarily general and does not describe all details regarding the indemnification of our officers, directors or controlling persons of the Company.
ITEMpersons.
| Exhibit Number | Description | |
|---|---|---|
1.1 | Form of | |
3.1 | Restated Articles of | |
3.2 | Amended and Restated Bylaws. | |
4.1 | Specimen of Common Stock | |
5.1 | Opinion of Parr Waddoups Brown Gee & Loveless | |
21.1 | List of Subsidiaries.* | |
23.1 | Consent of | |
23.2 | Consent of Deloitte & Touche LLP. | |
23.3 | Consent of Parr Waddoups Brown Gee & Loveless (included in Item | |
24.1 | Power of |
- *
To be filed by amendment. - Previously filed.
- (1)
- Incorporated by reference to the Exhibits to a Registration Statement on Form S-3 filed on
Form S-8,January 20, 1994, File No.33-60173.33-74290.
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- (2)
- Incorporated by reference to the Exhibits to a Registration Statement
filedon Form S-3 filed on July 28, 2000, File No.33-74290. II-343 ITEM333-42508.
Item 17. UNDERTAKINGSUndertakings
The Companyundersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company'sregistrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act)Act of 1934) that is incorporated by reference in the Registration Statementregistration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Companyregistrant pursuant to the foregoing provisions, or otherwise, the Companyregistrant has been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Companyregistrant of expenses incurred or paid by a director, officer or controlling person of the Companyregistrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Companyregistrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Companyregistrant hereby undertakes that:
(1)
1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectusprospectus filed as part of this Registration Statementregistration statement in reliance upon Rule 430A and contained in a form of Prospectusprospectus filed by the Companyregistrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statementregistration statement as of the time it was declared effective.
(2)
2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectusprospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES
Not applicable.
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Pursuant to the requirements of the Securities Act of 1933, the Companyregistrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused Amendment No. 1 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. George, State of Utah, on January 20, 1998.
SKYWEST, INC.
By: /s/ JERRY C. ATKIN
------------------------------------
Jerry C. Atkin
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEYApril 4, 2006.
| SkyWest, Inc. | ||
/s/ BRADFORD R. RICH Bradford R. Rich, Executive Vice President, and Chief Financial Officer and Treasurer |
Pursuant to the requirements of the Securities Act of 1933, Amendment No.1 to this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints