SKYW - Earnings call transcript Q1 2019

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Operator

Good afternoon and welcome to the SkyWest First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.

Rob Simmons

us call joining for everyone on today. the Thanks

is SkyWest’s Chief the operator Officer. Simmons, this indicated, As Financial Rob

comments. On Chip the Commercial Harbor. the Chief SkyWest start Executive the Chief call today President turn Officer; Then Airlines’ Officer; for Childs, with Accounting over Eric I’d time Wade I me Chief today by Operating will Steel, like Mike asking Safe Chief and Officer; some Officer. Woodward, are Eric to Thomson, Chip to and read to

Chip, us fleet then related Following take Wade will flying results, will the financial I through discuss and the arrangements.

will customary Eric? Following have Wade, sell-side our session analysts. we the Q&A with

Eric Woodward

obligation Today’s discussion statement. Actual update will and are a expectations events estimated any likely contains beliefs, results and reasons. vary for may projected vary anticipated, forward-looking number no statements subject those to our of uncertainties. materially to current regarding or and from future represent forward-looking assumptions risks and that assume We

included may Securities Some XXXX and of the turn that With and factors Exchange with Form the the differences Commission. cause to that, in reports filings Chip. over XX-K I’ll our other and call are such

Chip Childs

Rob you, call joining the us and today. appreciate afternoon, Eric. on We Thank everyone. your Good

a to which our represented to quarter first a efficient as with impact more moving we risk continue footprint. a start The forward as experience reduction XXXX was fleet strong initiatives, from the transition single airline

well showing as are results inflexible aircraft already structure. benefits sale, and the buyout the an early of the of as lease quarterly leverage Our expensive of from closing ExpressJet XX

the previously two over with This with of American, pleased and aircraft the extension XX another aircraft announcement extension two quarters. announced announce Delta with XX contract along aircraft today United new very last also of XX airplanes. the to builds on We’re with multi-year

system winter well. and The operations first have the this into as included in storms the quarter continued challenging SkyWest across weather quarter

challenges a and government spanning and the maintenance across schedules. challenge unique quarter, understand nationwide, these the delivery operation. we still aircraft shutdown do Despite heavy briefly XX there’s disrupted hubs to We our also during a faced of work which network

planning a I we passengers teamwork XX,XXX product are We’re focused an to to airline for SkyWest. exceptional aviation from thank our providing on continue quarter. our operational professionals deliver very our and focus and to the expect partners want and have to ensure this come durable product on last their

in QX we purchased remaining it million $XXX under authorization $XX program million new us in program. about million $XX stock. $XXX board in was During February, repurchased million our approved by of leaving this under the

a believe with limitations. for we still quarter. XXXX this enables earnings flying and create we clear, sheet opportunity that This within a and business conditional will uniquely is of announce largest that have are develop. entered aircraft the lease that a agreement pleased as be to is to business term. operator domestic we And are into positioned alternatives demonstrated to opportunities a pursue non-flying end, XX-year SkyWest today agreements includes existing operator these as in To within scope the strong quarter, we for in these lines last lease third-party is platform. CRJXXX there discussed world, be any balance good our us we revenue growth we leasing XXXX current to XX As To smaller, to innovative incremental and assets

the scope. operational market to value later leveraging of continue assets We intend our within to expect the We the begin position this agreement optimize to year. the our in in

the to to respond be also market quickly opportunity fortunate We has our risk to availability recruiting January are year’s focused closing year. of we been extensions healthy of convert Pilot position a to will latest sale us overall hiring pilot and and needs. partners’ continued our risk combined earnings and for success. and strong balance aviation and strong to drive the continues in into nearly XX, – contract closing work able want on the professionals last XX again above remained help running these over well feel position their during for This fleet meaningfully announcements flow is reduces of On the the long-term – on opportunities another levels. area quarter. reduced our more ExpressJet than thank is XX% last us enterprise a that growth I flying We with cash very excellent January XX,XXX generation. sustainable Rob? and first

Rob Simmons

lease income compared employee excludes of of share and share, non-cash of XXXX. write-off net income for primarily for $XX related return on million share expense net $XX first associated quarter Today or XXXX. credits with settle the part with sale earnings of income QX the sale per $XX we the the the million future $XX forfeited in $X.XX $XX comprised $X.XX pretax income or manufacturer a of million pretax the Adjusted of quarter or separation and quarter gain to the was $XX a item million net of pretax, per Adjusted manufacturer of reported million for to obligations per that ExpressJet million special costs ExpressJet. aircraft included first $X.XX net to

tax in rate XX%. effective QX Our was

We rate approximately XX% continue to for to our whole. XXXX tax to as be XX% expect a

the the cash ended by net down from for $X.X the last billion, expect previously million by $XXX competitive ended XX end where and we CRJ of $XX $XX $XXX year-end. a aircraft, million, the of our say the accretive million quarter of me about include Primary are of from of leverage the and in proceeds share quarter. quarter $X.X things announced be sheet Debt important of From buyout billion lower approximately last repurchase with cash for CRJXXXs, immediately at lease couple differentiation we to at QX, $XX XX million purchase ExpressJet. would offset down quarter from $XXX cash cash quarter. million in $XXX million point sale of of for uses We Let SkyWest. that million balance

related the all our that with a Just financing billion debt. is contracts in aircraft the and our $X.X flying of is that are debt EXXX of financing XXX reminder, largely of fleet debt bulk our coterminous under

sheet, lease accounting lease I’d adopted million standard. This on sheet million liability, asset To standards prepaid balance we of impact $XXX $XX lease new point lease which which million classified was lease to on the also me of at to as some in a our long-term includes $XXX our balance end like current right-of-use million we is XX the $XX the current. a the and quarter March million had color $XXX sheet, our total out balance asset. of assets give new XXXX operating

the CRJ to aircraft, prepaid lease March at our and impacts right-of-use lease buyout early and in of lease of Following XX. year-end ratio now $XX new standard asset our long-term XX is March The lease the XX the buyout combination the early included from of million the comparability our is asset. current

for capital expenditures. to turn minute Let’s a

$XX CapEx $XX by QX I last throughout the by five should $X.X the XXXX. non-aircraft the per only QX which expect our million to XX just XX aircraft years billion invested recall, $XXX CapEx the non-aircraft driven XXXX acquisition the run EXXXs the later million from engine for Gross new in you in quarter million aircraft a CapEx year. million was This $XXX number, year, growth and new in mentioned for million spending $XX range rest CapEx, As the normal few the EXXXs. heavily for used XXXX, acquisition we primarily deploy of half for in driven $XXX including for to of In acquisitions have quarter. we CRJ is million we of of of spent fleet. incremental capital In this XXXX,

With and million we the by new to XXXX raise these over approximately plans. our $XXX nine to in delivery term and invest XXXX debt capital expected plan million middle new $XX be own of of the EXXXs of spread for XXXX,

$X.X XXXX billion of expect will by million close million fully where orders, down right in the payments now where our new XXXX embedded deliveries. likely in are annual the debt, Absent We is we around because are amortizing debt debt approximately any the our that we in peak. of by $XXX from principal billion, to offset debt $XXX aircraft in for end $X.X normal be term a the additional scheduled now EXXX

continue of we We down to delever expect debt and million neighborhood XXXX year. that by our $XXX paying in sheet the to balance will in $XXX XXXX million per

next this growth in any expect the expected about low growth to EPS the of five of but how our remove from years per will share but quarter opportunities contract results, We of discussed strong generation strong that in sheet previously the the over balance buyout opportunities. and XXXX, earnings Well, anticipated quarter couple handle a the we can double-digit the base XXXX, feel year. completed respond accretion maintain XXXX, XXXX $X.XX leasing we that us with still we considering the to quickly leverage We in maintain expect liquidity, lease the agility other low started in caveat. and now QX it. strong good we incremental market we’ve of we cash that have EPS five allow front double-digit delever our and off Last to to annual

gives opportunities with make pro to to rate flow in flying liquid continue opportunities sheet. to come, could our buy way new disciplined or a deployment and When other confidence will prior capital and and out opportunities be the as cash to us strong maturity. to or future leasing, shareholder future inflexible This ready if include expensive flying, well structures debt value. to we visibility organic investments Our investment leasing balance of as growth create contract

continue course, shareholders capital In we repurchase of will via organic share to opportunities, returning dividends. also and addition to look growth at to

we you cash a are movements initiatives. flow. and and drive commercial opportunities will and balance healthy Wade growth now on color other between As mentioned, give Chip to Wade? fleet earnings some the striving

Wade Steel

changes occurred well Rob. review implementation and the then quarter first you, during discuss agreements Thank latest additional opportunities. that of these the updates I’ll as as fleet and our

a first We later first previously year. extension are expected expected a the EXXXs into multi-year to CRJXXXs agreement, to secured received entered as of launch contract in two have with agreement on American service for new Airlines. aircraft XX – in nine-year to this new Also used add quarter, nine we our long-term announced with more maturities with aircraft were the we May. four long and have into pleased to four during a scheduled our we this quarter, These CRJXXX XXXX. part our of American to agreement year Delta the last partnership, Shifting

replace Four deliveries, new used we CRJXXXs reminder, dual will remaining received Air under Canada. a will the the while CRJXXXs our be class Continuing to five to our lessor, aircraft our leased Delta XX agreement. contract. long-term will of As be CRJXXXs these in those eight returned of Delta

remaining We expect the this year XX and of later delivery CRJXXXs next.

had a year. able under our XX we that to from Last XX we set recall quarter contract number of expire Additionally, this legacy X XX CRJXXXs, extend CRJ aircraft may including you this Delta aircraft contract. Delta were CRJXXXs CRJXXXs, to

the on EXXXs Delta for United extended to XX the quarter. from an XX extend We first three last also were term with with under XX able additional to years nine years. CRJXXXs Separately, we contract

All the risk the of of fleet. majority extensions tail our these cover across

this our We CRJXXX also sourced XX placed lease will Today, a our opportunities operation. under contract. business. party majority flying leases to XX the from third announced leverage the leasing in from to their be previous finalization to The we subject and middle of We a the to domestic be from CRJXXXs aircraft aircraft mid-XXXX. of XX-year the will continue the the term, to anticipate ExpressJet increments for of aircraft an year agreement

next. As those to with transition Canada to Air are agreement this Air Canada CRJXXXs five discussed earlier, part expected the six-year and of lease quarter I

ExpressJet. leased to have XX also We CRJXXXs

anticipates including entered into airframes quarter. to joint engines distribution One parties. the Finally, the of One SkyWest to utilize third first allowing quarter, spare transactions with a to engine XX transfer we venture their through during Regional lease us this Regional reach beginning and initiating

within these course, business any leasing and well of assets. be Of operator existing platform significant our will positioned as a

beyond. model several ongoing years these fleet the best anticipate position flexible execution built profitable for enhance for over opportunities, our minimize the remainder of continue of our will and risk. We the positioned and to help and utilize past we’ve leveraging We agreements to XXXX ensure platform we’re unique

Okay. now. Q&A Operator, we’re for ready our

Operator

ahead. [Operator first Raymond will come go Savi of from Please question Instructions] Syth James. The

Savi Syth

about but about by the contracts last longevity like tail – – should going one, you XXXX. various Hey, you quarter talk to wide generally, durations CRJXXX of bit this good think little not care afternoon. the one a through seems of there of of of talk it the Could talked Is little about contracts the risk. a lot these and kind we a about Could bit of takes how think contracts? your of you I most some

Wade Steel

this Yes. is Wade. Savi,

we’ve the a multi-year XX, American entered contracts type that’s it’s agreement, said, out there. that longer So as the into we term

into entered the XX duration quarter. the have also aircraft entered into new We two the on a those. XX-year a Those do we lease ones that are for that

All between XX somewhere of original X our EXXXs years of them. have years maturities on and

our type So there’s agreements. of are – a very lot long-term dual-class

Savi Syth

ask up? as there – just first have just kind when coming or simpler so of can one I Maybe what’s than and look coming, tails of way, it of here a kind at more some a kind you you you the have wide the year where in two

Wade Steel

Yes.

tail Now until these that we’ve entered any XXXX, significant into risk we don’t XXXX. have agreements,

Savi Syth

if on update question months or changed wondering feel Perfect. side, the might levels you an has the And supply levels kind there. recent kind and then your kind just I especially all just pilot just moving another I say of parts just there. of the kind kind here, Got about anything of how of with of was in it. if ask pilot

Chip Childs

Yes, this is good It’s question. Savi, a Chip.

have and well at to I as carriers attribute here experience far opportunities script, they’ve training SkyWest as in exceptional that We to has as we aviation go quarter in some good our us. some this for an with the our quite culture look, history, professionals and candidly. seen after year our best department, recruiting stated probably exceptional good been plus so first the our an to think, in outstanding recruiting outstanding I pilots that had spent

side, attrition but say expected. if less, would expected, On it’s much as the I even little a much that very bit not as pretty

through to talked of previous level pipeline of we’ve review think we how in the some through, at our our that fly programs pilots that learning new I clear resume pilot effort major and from flow calls, goes our put with So cares. entire

very, feel that as very have pilots we All outstanding an we’re felt and very interest comfortable have. probably we of with exceptional the and group just And just of about that is ever group. as shown our good excited SkyWest in is level

taking meeting of very our and passengers. needs that making and we that So feel comfortable sure the partners we’re about our

Savi Syth

you. Thank it. Got

Operator

The next Michael Linenberg Deutsche from question will of Bank. come

Matt Fallon

Hey for actually Matt guys, Fallon it’s Mike. on

Rob Simmons

Hey, Matt.

Matt Fallon

you a if aircraft yielding similar the rough the would candidates you mentioned yield incremental for on buying leases you us out give quarter these double-digit Last returns. that Do idea you opportunities expensive could leverage mentioned planes number CRJ of And transactions? you so, see potential returns? of see as

Rob Simmons

Yes, thanks, Matt.

we are a were that’s the as complicated. for quarter was of out broadly conversation. pockets I opportunity of a opportunity that think we and well there is pocket got believe the this in I said more counterparties other one that involved of syndicated. It as couple this quarter, done little little a more last There there – originally more

to see something would expect that interested something I it’s this but So completed not definitely we’re it’s in very that pursuing, year.

Matt Fallon

guess or a the Thanks opportunities seeing of savings ExpressJet last revenue follow-up, are I questions. my from And heard Thanks. taking since following any you? incremental it. you cost for I Got divestiture as

Chip Childs

Yes. Matt, that’s question. a great

there’s of to think that. a relative couple I things

find and both market CRJXXX think a mostly we I ways the we’ve sale part specifically, good stuff. and our side type there those large It’s announced assets more that on aircraft very a of engines. not sell did very take to of is And ExpressJet, of to like assets amount that the side. with that of is of actually intention lease the for as

that assets today, – think said be but – of can So a is that lot term opportunities it our somewhat there of quite it find bit you I leasing of a that kind ExpressJet, should we did with a we not but the announcements sell into widely assets we’ve to continue is thinking, we’re think of to sold for. I that known that that integrate going

Operator

The from next Helane come question Becker of Cowen. will

Conor Cunningham

Helane. for actually Hey, in Conor guys, it’s

the dry on couple business. of a Just questions leasing

to seems them So, that mean, about just regional long-term. them I’m new aircrafts here, curious just purchase intention yourself? with leases – and what Is than it think rather may decent conceivable pretty it of look just with like splash doing I dry actually operating you you actually a the it

Chip Childs

partners – that that’s our we enterprise. opportunities have existing existing have, seen with that with it would think so the of a question I the within of we and far with So, to would great because fall to footprint some assets strategic have long-term our what we our do with like

to would us additional we’re phase we still for would opportunities that I that. in are there could I of be those internationally, in assets, if that think lease or open whereby domestically invest say So a now. move we guys to phase, that but little we’ll any can on through we question exploration this bit develop that the is confident certainly it further. not keep developments, And of updated further right out a as you other we

Conor Cunningham

it that on little similar that you right system to just to to margin going now a the maybe the Is context forward? can fair to assume give going business be or that is

Chip Childs

Yes. I oranges, that. wouldn’t we you’re margins which certainly would our on flying aircraft business, a kind do. – say a that apples bit to is the the enjoy comparing backbone prefer to little Certainly of and of

between focus to a strategic utilized good be However, our partnerships, and approach these it’s to right they help flying we right some very to them. construct now that But to with lease are how excess assets where of support given flying the open we’re other can as and of evaluating them and that the now. not strategic assets of people have,

Rob Simmons

in firmly mind. we add capital, any going in return and do disciplined very it that time that to a I’d we’re thresholds Matt, to just with deploy way

Conor Cunningham

for Great. just then And second. a changing topics

the potential that there guys actually with this if you some deseeding realize the [ph] just actually anyone aren’t contracted at CRJXXXs. know left with I long-term approached probably fly point? a or you that. curious is – mean CRJXXX, there’s with I not I I but know Has fly lease agreement you don’t this to So about lot – new think

Chip Childs

particularly We XXX case Well, worked think of watch very compelling one our that partners. a very that we I the is with closely. it

it’s think I an product. intriguing

that the I the one we owner of number world think in are CRJXXX.

all of we partner time, very CRJXXXs has with this compelling, At think studying bases. a lot opportunities compelling we’re – watching other it it, this could XXX of across we good part some closely, that that platform – we that it’s that a also not At point, flexibilities So have case. a the very are mean good don’t could in think that we put that road. more doesn’t if but that down equally, some we time our play

Conor Cunningham

guys. Thanks great. Okay,

Operator

question O’Brien Sachs. will from Goldman The come next of Catherine

Unidentified Analyst

This guys. you on Hi And for Joyce for time. is the actually just Thank [ph] was taking wondering… Katie. I

Wade Steel

Joyce. Hi,

Unidentified Analyst

Hi.

So come have to, you’ve deal one-time a I there party with or they’d future leasing the are aircraft if if the was they leased on just wondering in you interested of CRJXXXs that for leases? to counterparts this more additional is third find if maybe be contract further as that would

Wade Steel

Yes. Joyce, Wade. this is

I their of this lot needs. with think I think a they’ve fulfilled counterparty,

them to counterparty continue current on with needs. with their continue helping some have will we from them that We additional work potentially aircraft with ones – work other we’ll aircraft this if interest be fleet, to I in leasing but or additional and us. don’t know it of

Unidentified Analyst

of year if agreement of was March longer no with you the the wondering a XXXX potential or that that new handle can you’re these And it, growth the venture, guidance if in extra just leasing on if agreement, in improvement I other extend that we Okay, XXXX bit sort got you really driving more? in earnings joint for leasing initiatives the that that that full or goodness was really for it’s that having then quarter had of mentioned front it. five

Wade Steel

Yes.

at Let some me of to of answer think, and year. look going growth some timing how just last the started the way But those EXXXs XXXX this about obviously in pleased XXXX, I see question the we when brought again from XXXX year. we’ve as and we’re we’re we

these lease through extensions, some the We’re that new though. another a some for obviously XXXX. some be Obviously read we into a of did got the XXXX quarter, read through it’s lease XXXX, the scheduled of aircrafts XX buyout But seeing to out. is XX and already We’ve we’ve initiatives last leveraged XX we good XX-year the first contract got combination quarter of – obviously think in through took to really this I economics delivered story, later planes this a new going lease from start nice it new of the in opportunities extensions. that play more as should that in year XXXX

Unidentified Analyst

Thank Okay. for you that.

Operator

next comes James. [Operator Instructions] question Savi from of The Syth Raymond

Savi Syth

for thanks Hey, the follow-up.

of but in have very rate, your on that there’s to I lot is goes that on a think and pro Just kind of clearly non-regional different. question volatility environment you space pricing a and that, the exposure

just of of if about in XQ could what talk saw you So the business the for the the size year? side pro you for in wondering rate expectation your rest and

Wade Steel

is Yes. Wade. Savi, this

rate. So the in of XX% It’s than more bit somewhere XX%, flying. as off pro far little with of XX% size to range rate, the start our as a pro first I’ll just

us. a what it’s look it So pro fairly you portion down It it’s of little for the domestic, very million. our rate, flying. the it’s than The of it’s is at a actually all [indiscernible] fuel P&L bit $X – was our it’s all side if predictable major fuel all, different small

– year-over-year. it’s a fairly it we��ve pretty get of the but year-over-year actually our won’t We So and consistent was and portion very into business. consistent it’s specific small profitability,

Savi Syth

with the the – especially stable? all. that But pretty been of things That’s that’s ESA so like and contracts kind the pricing environment

Wade Steel

for stable very been It’s us. Yes.

Savi Syth

Thank Perfect. you.

Operator

Childs any remarks. Chip like the And back over would for closing this session. turn question-and-answer concludes our I now conference to to

Chip Childs

Thanks and all you you. as Thank long to here sure flexible we positioned as continue on to call we for again very our best for the to make you, next I look to Carrie. wonderful updating quarter. usual, term like good us of today. have to at professionals well on the SkyWest – remain strategy, Like execute forward joining our we’re at sustainable everybody Thank want shareholders opportunities

Operator

conference The Thank now has today’s you for concluded. attending presentation.

your may now day. great disconnect a You Have lines.

SkyWest (SKYW) 25 Apr 192019 Q1 Earnings call transcript