Began Operations: 1972
SkyWest Airlines is a North American Regional Airline owned by SkyWest, Inc. and headquartered in St. George, Utah, USA. and is a member of the Regional Airline Association. SkyWest Airlines flies to 169 cities, in 37 States, Washington D.C., 5 Canadian Provinces and 2 cities in Mexico. The airline serves as a feeder airline, operating under contract with various major carriers. It flies as SkyWest Airlines in a partnership with United Express on behalf of United Airlines, as US Airways Express on behalf of US Airways, as Delta Connection on behalf of Delta Air Lines, and as American Eagle on behalf of American Airlines.
As of September 2012, SkyWest employs over 10,000 people throughout North America. The airline averages 1,724 departures a day, with 1,037 operating as United Express, 526 operating as Delta Connection, 91 operating as US Airways Express, 46 operating as American Eagle and 24 operating as Alaska Airlines. In total, SkyWest carried 24.5 million passengers in 2011. The current President and CEO of SkyWest Inc. is Jerry Atkin, with Chip Childs as President and Chief Operating Officer of SkyWest Airlines.
Frustrated by the limited extent of existing air service, Ralph Atkin, a St. George, Utah lawyer, purchased Dixie Airlines to shuttle businessmen to Salt Lake City in 1972. After early struggles, SkyWest began steady expansion across the Western US. It became the eleventh largest regional carrier in 1984 when it acquired Sun Aire Lines of Palm Springs, California, and had its initial public offering in 1986.
In 1985, SkyWest began codesharing as Western Express, a feeder service for Western Airlines at its Salt Lake City hub, later acquired by Delta. In 1995, SkyWest began operating flights for Continental Airlines out of LAX. The relationship was discontinued two years later when SkyWest began flying for United Airlines. SkyWest's United Express flights out of SFO, LAX and DEN became its largest operation by the late 1990s. A partnership with Continental was revived in 2003 out of George Bush Intercontinental Airport, but was discontinued in June 2005. On August 15, 2005, Delta announced that it was selling Atlantic Southeast Airlines to the newly incorporated SkyWest, Inc. for $425 million in cash. The acquisition was completed on September 8, 2005.
On August 4, 2010, SkyWest Inc. announced that it planned to acquire ExpressJet Airlines and merge it with SkyWest subsidiary Atlantic Southeast Airlines in a deal reported to have a value of $133 million. The purchase aligned the largest commuter operations of United Airlines and Continental Airlines, who were in a merger process, and was approved on September 13, 2010, by the Federal Trade Commission.
In February 2011, Alaska Airlines announced SkyWest would be replacing six Horizon Air flights on the West Coast beginning May 14. The flights were scheduled to based out of Seattle and Portland, and fly to several California cities including Fresno, Burbank, Santa Barbara and Ontario. Alaska Airlines has similar agreements with PenAir for Alaskan flights and Horizon Air for flights in the lower 48.
In June 2011, AirTran Airways announced that it would end codesharing and partnership with SkyWest effective September 2011. Two months later, SkyWest announced a codesharing agreement with US Airways, effective early to mid-2012, to operate CRJ200 aircraft from US Airways' hub in Phoenix, Ariz.
In September 2012, SkyWest announced that it would begin a capacity purchase agreement with American Airlines for 12 CRJ200 aircraft from American's hub in Los Angeles, California, effective November 15, 2012.
SkyWest Airlines Partnerships
SkyWest Airlines has code sharing agreements with Delta, United, Alaska Airlines, American Airlines, and US Airways. These code sharing agreements allow SkyWest Airlines to operate as United Express, Delta Connection, US Airways Express, American Eagle, and Alaska Airlines. Delta, United, Alaska Airlines, American Airlines, and US Airways provide reservations, ticket sales, ground support services, and gate access while SkyWest Airlines handles the flight operations. Under all of SkyWest agreements, passengers are allowed to participate in the other airlines’ frequent flyer program.
Delta Air Lines
On September 8, 2005, SkyWest and Delta Connections entered a code sharing agreement. As of December 31, 2012, SkyWest Airlines operated 21 CRJ900s,13 CRJ700s, and 52 CRJ200s for Delta Connections. SkyWest Airlines operates these aircraft to provide feeder service between Delta hubs and other destinations chosen by Delta. As of December 31, 2012, SkyWest Airlines was operating approximately 519 Delta Connection flights per day.
Under the SkyWest - Delta Connection agreement, SkyWest Airlines receives from Delta reimbursement for all of the direct costs related to the flight; including fuel, ground handling, and maintenance, and aircraft ownership cost. SkyWest also receives a fixed payment for each completed flight hour.
The SkyWest - Delta Connection agreement ends on September 8, 2020, unless Delta elects to use its option to extend the agreement for up to four five-year terms. The agreement can also be terminated with 30 days’ notice if SkyWest fails to meet the agreed upon obligations. These obligations include if SkyWest fails to conduct its flight operations and maintenance of its aircraft under the terms of the agreement or in compliance with government regulations. The contract can be terminated if SkyWest Airlines fails to maintain performance and safety requirements or if either airline files for bankruptcy or reorganization. The contract can also be terminated if SkyWest Airlines fails to maintain a competitive rate among other regional airlines.
On July 31, 2003, SkyWest and United Express entered into a code sharing agreement. As of December 31, 2010, SkyWest Airlines operated 70 CRJ700s, 83 CRJ200s, and 44 Embraer 120 turboprops under the SkyWest United agreement. SkyWest flights are used provide feeder service between United hubs and other lower density destinations.
Under the agreement, United retains all air fares, cargo rates, mail charges and other revenues associated with each flight. SkyWest then receives from United a fixed fee for each flight hour, departure, passenger, and a fixed-fee for overhead and aircraft costs.  SkyWest also receives one time startup cost for each aircraft delivered. The code-sharing agreement also provides certain incentives based upon SkyWest performance. These incentives include on-time arrival performance and completion percentage rates. Direct operating costs are also reimbursed by United. These cost include fuel, aircraft ownership, and maintenance costs.
The SkyWest United agreement ends on December 31, 2015. United has the option of extending the agreement for an additional five years. However, the agreement is subject to early termination if SkyWest or United fails to fulfill certain obligations agreed to under the code sharing agreement. The agreement will be terminated if SkyWest operations fall below certain performance levels for a period of three consecutive months. The agreement will also be cancelled if either airline files for bankruptcy or for reorganization. The agreement is also subject to early termination if SkyWest operates any aircraft that is supposed to be operated exclusively for United flights for any other purpose.
On February 25, 2011, SkyWest Airlines entered an agreement with Alaska Airlines. The SkyWest Alaska Airlines agreement means that SkyWest operates and maintains its aircraft, while Alaska Airlines is responsible for scheduling, pricing and marketing the flights. SkyWest Airlines currently flies to 10 destinations in the United States for Alaska Airlines. Those cities include Seattle to Omaha, Colorado Springs, Long Beach, Santa Barbara Steamboat Springs/Hayden, and Fresno, Boise to San Diego, plus Portland to Burbank, Ontario, Santa Barbara and Long Beach. Skywest will begin flying Salt Lake City to Portland, Seattle, and San Diego in mid-2014. As of 2014, SkyWest operates eight Bombardier CRJ-700s on these routes. Alaska Airlines passengers flying on SkyWest flights will also qualify for Alaska Airlines’ frequent flier program.
On September 12, 2012, SkyWest Airlines and American Airlines entered agreement. The agreement is a four-year agreement that allows SkyWest to handle some of its regional flying as a way to save money while American is in bankruptcy protection. SkyWest will fly 23 Bombardier CRJ200s under the American Eagle designation.
On December 16, 2011, SkyWest Airlines signed a three year agreement with US Airways. The agreement calls for SkyWest to operate 14 CRJ200 regional jet aircraft as US Airways Express. SkyWest will operate all of these flights out of Phoenix Sky Harbor International Airport as a feeder operation for the airport.
In August 2010, SkyWest announced that it had entered into a definitive merger agreement with ExpressJet Holdings, whereby Atlantic Southeast, as SkyWest's wholly owned subsidiary, will purchase ExpressJet for $6.75 per share. Day one of the combined airlines was Friday, November 12, 2010. The combined airline will be based in Atlanta. ExpressJet currently operates as Continental Express and United Express. The airline expects to be operating under one certificate 4th quarter of 2011.
On July 13, 2011, Atlantic Southeast announced that it will change its name to "SureJet" after completion of its merger with ExpressJet. However, the reaction of employee groups at both airlines was so negative that the new name was put on hold less than 24 hours after being announced. Brand information and press releases pertaining to "SureJet" have been removed from Atlantic Southeast's public and employee websites and the company's combined identity was reconsidered. On October 14, 2011, the company announced that Atlantic Southeast's official company name will change to ExpressJet Airlines on December 31, 2011. On November 22, 2011, both Atlantic Southeast and ExpressJet gained approval from the FAA for a single operating certificate that would allow them to operate as a single carrier under the ExpressJet name making ExpressJet the largest regional airline in the world with more than 400 aircraft.
SkyWest to buy ASA in $425 million deal
by Gregory Polek
- October 2, 2006, 10:43 AM
A last-ditch attempt to stave off bankruptcy by Delta Air Lines has seen St. George, Utah-based SkyWest agree to buy Delta Connection subsidiary Atlantic Southeast Airlines (ASA). Scheduled for completion this month, the $425 million deal will make SkyWest by far the largest regional airline in the U.S., giving it a combined fleet of 372 airplanes, projected annual enplanements of more than 28 million and 13,400 employees.
Delta said it plans to use the proceeds from the sale to help pay down $100 million in outstanding debt to GECAS and others. The major airline lost $1.5 billion in the first half of this year and $8.5 billion in the last four calendar years.
Known to carry the strongest balance sheet in the regional airline industry, SkyWest looked like a natural suitor for ASA, given its sound cash position and tight relationship with Delta. Moreover, Bombardier CRJs account for the bulk of both airlines’ fleets, and virtually no route redundancy exists because each flies as a Delta Connection carrier.
Now serving 59 destinations for Delta out of Salt Lake City, SkyWest will control ASA’s bases in Atlanta and Cincinnati, giving it a presence in 185 Delta cities across the U.S. SkyWest already serves 96 cities as a United Express partner from seven hubs.
Talk of a possible divestiture gained instant credibility in March, when SkyWest CFO Brad Rich acknowledged that Delta “expressed its desire specifically to us” to sell one or both of its regional subsidiaries. At the time, however, it remained unclear which airline–Cincinnati-based Comair or ASA–Delta would eventually let go. For now it appears Comair’s involvement won’t extend beyond leasing up to 40 airplanes to SkyWest, none of which would come from Comair’s existing fleet of 171 CRJs. However, Delta’s most recent SEC filing said it continues to explore the possibility of other transactions.
SkyWest said it intends to operate ASA as a wholly owned subsidiary, maintaining separate labor groups and FAA operating certificates “for the foreseeable future.” It added that it anticipates no “significant” changes to either of the airlines’ route structures or fleets. However, it does plan to eliminate all 12 of ASA’s ATR 72 turboprops by the end of 2007.
Jerry Atkin will remain chairman and CEO of SkyWest and SkyWest Airlines and will also serve in those positions for ASA. Brad Rich will serve as executive vice president, CFO and treasurer for SkyWest, SkyWest Airlines and ASA. Skywest Airlines executive vice president and COO Ron Reber will become president of the St. George division. ASA senior vice president Bryan LaBrecque will serve as interim president of the new SkyWest subsidiary in Atlanta.
In April 2008, SkyWest, Inc. proposed an acquisition of ExpressJet at a price of $3.50/share. ExpressJet Holdings Inc. said its special committee unanimously rejected the proposal. SkyWest rescinded the offer in early June after ExpressJet Holdings and Continental signed a new 7-year Capacity Purchase Agreement. This proposal was ultimately not successful.
From The Weall Street Journal
Aug 4, 2010
SkyWest to Buy ExpressJet for $133 Million
By DOUG CAMERON
The consolidation of the U.S. airline industry continued Wednesday as two of the largest regional carriers announced plans to combine.
SkyWest Inc. agreed to pay $133 million in cash for ExpressJet Holdings Inc. in a move that marries the commuter operations of merger partners Continental Airlines Inc. and UAL Corp.'s United Airlines.The enlarged airline would have 696 planes and handle 50 million passengers a year on some 4,000 daily flights.The U.S. network airlines have sold or spun off almost all of their regional business, subcontracting the flying to operators like SkyWest, which plans to combine ExpressJet with the Atlantic Southeast Airlines business it acquired from Delta Air Lines Inc. in 2005.Brad Rich, SkyWest's chief financial officer, didn't rule out further deals as the regional sector tries to handle pressure from the majors to cut costs and improve efficiency.ExpressJet turned down a $3.50-a-share takeover approach from SkyWest in 2008, but accepted the new $6.75-a-share proposal. The airlines hope to close the deal in the fourth quarter.Rich said the new deal is completely different as it has reached a new pact to fly on behalf of Continental that extends the existing term and will ease its aircraft replacement plans.The enlarged SkyWest will be the largest operator of jets made by Embraer and Bombardier Inc.Rich said SkyWest aimed to combine the airlines within 12 months, and forecast a 45-50 cent boost to annual earnings from $60 million to $70 million in cost savings.SkyWest also plans to diversify by investing $7 million for a 30% stake in Vietnamese start-up Mekong Air, providing four regional jets and technical support.ExpressJet shares recently doubled in price to $6.56, with SkyWest up 1.1% at $12.55.
SkyWest to acquire ExpressJet in continued US regional consolidation
CAPA > Aviation Analysis > SkyWest to acquire ExpressJet in continued US regional consolidation
5th August, 2010
It takes a lot to overshadow Republic Airways Holdings, but SkyWest managed to do just that yesterday as it literally stepped on RJET’s second quarter conference call when it announced not only its second quarter profits but its acquisition of ExpressJet Airlines (XJT). SkyWest Inc Executive Vice President and CFO Brad Rich said the acquisition and merger with SkyWest subsidiary Atlantic Southeast Airlines (ASA) means SkyWest Inc will be the largest provider to the nation’s two largest carriers – Delta and the combined United-Continental entity.
SkyWest made a similar run at ExpressJet in 2008, but noted the price was much more attractive this time around. Rich indicated there were issues between Continental and ExpressJet that were out of SkyWest’s control during that last effort and the current deal is quite different.
SkyWest will acquire the Houston-based carrier for USD133 million in cash with SkyWest’s existing cash reserves at USD6.75 per share and merge it into its Atlantic Southeast operations, adding Continental Express to its portfolio. SkyWest retains the USD96 million of XJT’s cash balance including restricted cash.
“We have been anxious and looking forward to a relationship with Continental and have been watching ExpressJet for a long time,” he said. “We saw an opportunity to re-engage and negotiate what we think is a very fair contract and get the transaction we think will work.” He added it was a very tight merger agreement.
"We believe this transaction provides a significant premium over ExpressJet's current market price for its stockholders and that the combined airline will be able to provide a stable, platform for growth for ExpressJet employees after this transaction closes," said ExpressJet Board Chair George Bravante. Shares of XJT doubled after the announcement but had been trading about USD2.50 during July. SkyWest shares rose 3.5% after the announcement.
Subject to antitrust approval, SkyWest is confident of gaining such approvals by year’s end since the ASA and XJT networks are largely complementary. Rich reported that XJT clients United and Continental have already signed on to the deal, although it is not contingent on their merger, nor is their approval necessary.
The deal provides additional stability – to ExpressJet clients and employees alike – to what has been considered a shaky airline for a long time. Indeed, the move for ExpressJet basically answers the complaint of Edmunds White Partners Jon Evans, who, during the company’s first quarter conference call, wished the company would just close.
See related report: ExpressJet facing significant headwinds even with new business
ExpressJet has been struggling since executives bought the operation from Continental and later decided to use a portion of its fleet for a point-to-point independent operation which closed in the wake of spiraling fuel costs; hopefully putting paid to any further attempts by regionals to break out of their capacity purchase mold.
Rich indicated the merger, once a single operating certificate (SOC) has been achieved, will result in a potential for USD0.45 - USD0.50 of incremental annual EPS. It is also expected to generate positive cash flows of approximately USD35 million annually once SOC is achieved. The post-merger integration plan – with 35 projects already identified in order to achieve the new CPA with Continental – will begin immediately after closing in the fourth quarter and will yield USD60-70 million in annual savings including maintenance, overhead and purchased goods and services once the two airlines have a single certificate. That will increase its margin. Rich cautioned, however, that the benefits are dependent on the ability to realize cost savings and integration benefits but he also indicated that, true to SkyWest conservative style, management has a “high degree of confidence in its ability to achieve its targets.”
“These integration savings should be measured against a total starting cost base of approximately USD760 million per year for ExpressJet, and against USD1.3 billion for the combined ASA/ExpressJet (not including fuel and aircraft lease/ownership costs),” said Rich. ExpressJet reported USD735 million in operating expenses for 2009.
Strategic value outlined
Why ExpressJet, Rich was asked. “First, it was made possible because of the quality of the operations and the dedication of its front line employees,” he said. “There is no way this transaction is a fixer upper from an operational standpoint. This is a highly respected, high quality operation and it fits with our quality commitment at ASA and SkyWest. This is an important day in history of the company.
“When you combine the strengths of SkyWest Inc and bring those to bear, you create more value to all interested parties,” he continued. “We bring stability and the possibility for ExpressJet to grow with the access to our capital and that will be reflected in the operation over the next few years. This will lead to significant expense reductions once it is merged with ASA. We achieve our financial and strategic objective which is materially accretive.”
He also said that SkyWest believes in the power of incumbency when it comes to contract renewals. It becomes Continental’s main regional partner which affords it the ability to “gain the inside track to fly the aircraft that will replace Continental’s existing 50-seat jets” with “significant upside possible if Continental gains scope relief and can fly larger gauge aircraft.”
While ExpressJet will maintain a significant operational presence at Houston, headquarters will be consolidated with ASA in Atlanta. Bravante indicated that in addition to the hubs at Houston, Newark/New York and Cleveland there will be operations at hubs in Chicago O'Hare and Washington Dulles for United Airlines. In addition, it is expected that the vast majority of front-line employee positions will not be impacted by the acquisition.
The Boards of Directors of both companies unanimously approved the definitive merger agreement. The transaction is not subject to a financing condition, but is subject to approval by ExpressJet stockholders.
New CPA with Continental
XJT will be merged into ASA on an aggressive schedule of 12-18 months after closing, but Rich indicated the company is shooting for a 12- to 14-month target. SkyWest has already negotiated a new capacity purchase agreement with Continental which will become effective with the consummation of the acquisition. The new CPA capitalises on the economies of scale SkyWest Inc offers in purchasing and other areas which reduces the cost of providing the service over what ExpressJet could do on its on, he said in discussing the move with analysts yesterday.
The new agreement includes the current CPA fleet of 206 XJT Embraer 145 aircraft for a 10-year term with five years of rate protection and a 2015 rate reset. The scheduled reduction of XJT’s fleet to 190 aircraft goes away with the new deal, according to Vice President Finance and Treasurer Mike Kraupp, who added that the Continental Express fleet could grow to 221 since the new agreement allows for 15 additional growth aircraft to be added during the term of the contract.
It also includes the ability to replace 75 aircraft, likely with larger regional jets should Continental obtain scope relief from pilots or, perhaps the Q400, if it does not, as rival Pinnacle is banking on with its large Q400 orders.
“The aircraft could be either or,” said Kraupp. “What we have to wait and see is what happens with scope between the United and Continental merger. That could mean additional larger gauge turboprops or larger gauge regional jets. But what we have done is create the rights to that business if that is what Continental wants us to do.”
In addition to the increased stability of one of its Express partners, Continental gets a continuation of favorable regional pricing and service quality, improved counterparty risk with SkyWest replacing undercapitalized ExpressJet.
SkyWest also has the ability to acquire next generation regional aircraft not only on optimal terms, compared to XJT, but shift the burden of ownership from Continental – which owns XJT’s Embraer fleet – to SkyWest as the St. George-based carrier has done with its other major clients. Rich boasted SkyWest having the best balance sheet in the industry, with approximately $800 million of cash post-deal.
Despite that, SkyWest is not in the market for a massive fleet replacement order any time soon, he added. “We have very few 50-seaters rolling off now – less than five this year and a similar number next year,” said Kraupp, noting that there is little tail risk on its fleet. “We’ll let the 50-seaters go away to lessors through lease expirations and will rely on our partners to determine the type of aircraft they want. We’ll keep an eye on the market. Another thing you have to realize is there is a new offering in the market with Mitsubishi Aircraft which adds more competition into the market. We also have a wild card in what happens with scope.”
He expressed no interest in the Bombardier CSeries owing to the fact it exceeds current scope requirements. “We see it as an opportunity if there is scope relief but we don’t know if and when that will occur.”
SkyWest may not be done
The acquisition is not unexpected at all considering SkyWest’s penchant for growing by acquisition in its quest to expand its client portfolio, as well as the continuing struggle of ExpressJet as an independent operator. In response to a question as to whether the company was no longer in the market for further acquisitions, Rich said the company will look at other opportunities. “We could handle more on the SkyWest side,” he said. “We are aggressively pursuing a number of opportunities on that side – other acquisition opportunities and organic growth opportunities. We are looking at opportunities all the time. The issue here is opportunities that would generate shareholder value and employee stability.” He also noted that SkyWest will continue buying back shares as part of its already-approved share repurchase program in addition to pursuing other opportunities.
“We wouldn’t be doing our job if we weren’t looking at other opportunities,” explained Kraupp later. “We are in a position to look at things. SkyWest still has resources available when and if an opportunity comes along.”
However, he indicated that American Eagle was not such an opportunity having looked at and rejected it when it was first offered for sale by American in November of 2008. “From our perspective it is a high-cost entity,” said Kraupp. “We looked at it in 2008 and the initial proposal on the CPA wasn’t very compelling at the time so we decided not to play and have no interest now because I don’t know what has changed from then until now that would allow for our interest.”
The merger combines ASA’s fleet of Bombardier regional jets with XJT’s fleet of 244 Embraer 145s and makes SkyWest the largest worldwide operator for both manufacturers, said Rich. ExpressJet began flying as a United Express in the fourth quarter, expanding its fixed-fee portfolio for the first time with short term contracts for 32 aircraft. Rich called that an interesting dynamic with an unknown impact from the pending UA/CO merger. He noted 10 aircraft expire at the end of the year and discussions were under way between ExpressJet and Continental as to whether there will be any extensions. “We’ve left it up to the Continental and ExpressJet management,” he said. ASA added a United Express operation at Dulles as its first diversification recently as well.
Six of ExpressJet’s aircraft are currently dedicated to charter operations while 206 are devoted to its fixed-fee operations as a Continental Express.
It also combines ASA’s Delta Connection and United Express operations with ExpressJet’s Continental and United express operations. XJT is Continental’s largest Express operator at Houston, Newark and Cleveland – Continental’s fortress hubs – increasing its appeal to SkyWest. In addition, ASA will retain all United and Continental flying – 86% of XJT’s business – as well as all XJT crew bases. However, its corporate jet operation – worth USD56 million in 2009, up 42.4% from the year-ago period – and all other operational centers remain under review.
There will be no change to management at either SkyWest or ASA airlines or SkyWest Inc and ASA COO Brad Holt will be adding XJT integration and oversight to his ASA duties.
ExpressJet reports its second quarter earnings next week. In the first quarter it increased its net loss year on year 41.4% to USD16.1 million. For 2009 it narrowed its net loss to USD3.3 million, down 96.5% on operating revenues of USD688.2 million, a decline of 47.8% from the year-ago period.
As with ASA, XJT pilots are represented by the Air Line Pilots Association, but there are no other employee work groups unionised at ASA, largely owing to SkyWest’s dedication to helping employees share in the benefits of a successful company. Indeed, its stock buybacks are specifically designed to mitigate the diluting impact of its generous employee equity plan. XJT’s pilot contract becomes amendable in December. The Teamsters represent its 900 mechanics while the Transport Workers represent 100 dispatchers. The International Association of Machinists represents it 1,000 flight attendants.
SkyWest is a prime target for unions having staved off several attempts over the years. However, the new National Mediation Board ruling allowing a majority of those voting to determine the success of a unionisation effort puts that under threat. SkyWest Airlines President Chip Childs noted pilots are coming in saying they dislike the new ruling with his response being that if they don’t like it they must make sure to vote. He also pointed out the imbalance of the NMB decision noting that while it makes it easier to vote a union in, it did not change the rules on voting a union out.
Rich pointed out that the ExpressJet’s good labour-management relations have been a little tarnished by the company’s fiscal troubles but overall, according to the discussions with labor groups at XJT, relations have been generally good. “These are dedicated, professional people and are a great group to run a great airline,” he said. “They match any of our groups and are a force to be reckoned with. I believe they are fully on board to make the merger work the way we intend it.”
SkyWest investing in growth
The acquisition is a typical move for the St George, UT-based SkyWest since it has strategically grown through acquisition for its entire 38-year history. Its last acquisition was ASA, acquired from Delta in 2005. It has already invested in Trip airlines in Brazil and is working on a USD7 million investment in a new Vietnamese start up – Air Mekong. Many of ASA’s top managers are already in country providing airline start up guidance for the new entrant.
Scheduled for start in October with four, 86-seat CRJ 900s, Air Mekong results from a government policy to increase competition in Vietnam. It announced it wanted to issue licenses for companies to explore start ups, according to Kraupp, with two or three coming to fruition. “Vietnam is very underserved,” he said. “It only has one airline – Vietnam Airlines – and the government is looking to create competition. Its proposal on issuing licenses, I think, was recognition that its economy is growing and there are many US industrial firms investing in the country. The government wants to open this up a little bit. We recognize there is opportunity in markets and many cities are underserved.”
The investment is the second international venture for SkyWest having invested USD30 million in Brazil’s Trip for 20% ownership. Kraupp cited different ownership laws for the difference of USD7 million for a 30% ownership in the Vietnamese new venture.
Kraupp responded to a question about how SkyWest would protect itself from what happened to Mesa in its joint venture with Shenzhen and Kunpeng Airlines. Mesa invested millions and placed five of a number of CRJ200s there before being told Kunpeng not only did not want its aircraft but basically kicked the US carrier out of the deal.
“This is a different deal,” Kraupp said citing the government license proposals. “We are not attempting to place aircraft not in service there. SkyWest Leasing has gone out and procured the four aircraft. Our investment is relatively modest and we are looking at it from an opportunistic investment. If it doesn’t turn out, as the lessor, we can bring those aircraft back and use them. We are going to explore and see how it goes. We like how there is an opportunity to expand and if it doesn’t work there is not a lot of money at risk.”
Subsidiary Atlantic Southeast Airlines will acquire all of the outstanding shares of common stock of ExpressJet Holdings, Inc. for USD6.75 per share in cash, representing a net purchase price of approximately USD133 million after accounting for the shares already owned by Atlantic Southeast.
Upon completion of the merger, ExpressJet will become a wholly-owned subsidiary of Atlantic Southeast, with the intention of combining the operations of ExpressJet Airlines and Atlantic Southeast, subject to receipt of necessary regulatory approvals. The parties anticipate that both airlines will continue to operate under separate airline operating certificates until the regulatory process can be completed for combining the airlines under a single operating certificate. Pending receipt of that single operating certificate, Atlantic Southeast intends to transition certain existing ExpressJet support functions to Atlantic Southeast and SkyWest. The company expects to benefit from greater efficiencies of scale and capitalising on growth opportunities as contracts covering 500 regional jets expire between now and 2016.
"We are extremely pleased to reach this definitive merger agreement with ExpressJet and look forward to the consummation of the transaction," said Rich. "We also look forward to the integration of these two successful airlines and employee work groups and hope to create integration benefits that will solidify the long-term future of each of these airlines in a very competitive industry," he continued.
Raymond James & Associates were the investment bankers for the deal, while Parr Brown Gee and Loveless were legal advisors. Oliver Wyman is working on the post-merger integration plan.