Q3 2019 Earnings Call
Good day and welcome to the Skywest Inc. third quarter 2019 earnings Conference call.
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I would now like to turn the conference over to Rob Simmons Chief Financial Officer. Please go ahead.
Thanks, everyone for joining us on the call today.
She operator indicated this is Rob Simmons Skywest Chief Financial Officer on the call with me today are chip Childs, President and Chief Executive Officer, Wade Steel Chief Commercial Officer, Eric Woodward, Chief Accounting Officer, and Mike Thompson, Skywest Airlines, Chief operating officer.
I'd like to start today by asking Eric to read the Safe Harbor, then I will turn the time over to chip for some comments following chip I will take us through the financial results then ways, we'll discuss the fleet and related flying arrangements. Following weighed we'll have the customary Q when a session with our sell side analysts Eric.
Today's discussion contains forward looking statements that represent our current beliefs expectations and assumptions regarding future events and are subject to risks and uncertainties.
We assume no obligation to update any forward looking statement actual results will likely very at may vary materially from those anticipated estimated or projected for a number of reasons.
Some of the factors that may cause such differences are included in our 2018 Form 10-K , and other reports and filings with the Securities and Exchange Commission.
With that I'll turn the call over to chip.
Thank you Robin Eric Good afternoon, everyone and thanks for joining us on the call today.
Quarter build on a strong first half of 2019 as we continued to monetize our fleet initiative and move forward as a single airline with a more efficient footprint.
Third quarter is often seasonally the bid just a year in terms of departures and this year reflects those result, our employees just did a remarkable job delivering a solid 99.9% adjusted completion for the quarter and continuing to improve our on time performance I want to think or nearly 14000 employees for their efforts to work.
Together and deliver a great product for our customers.
We continue to prepare for and execute on three contract wins, we announced in July and August 10, you Crj seven hundreds going into con flying contract with American beginning in early 2027, New Eone hundred 70 fives for Delta starting in Q4, and six used Eone hundred 70 fives going into contract starting in early 2012.
Okay.
These deals along with other progress that we have made recently set us up for growth in future years, and illustrate our ability to unlock growth opportunities within our partners existing scope limitations, while also making market share gains.
No this would be possible without our ability to consistently deliver reliable and efficient product. The people of Skywest continue working together to ensure we remain agile and responsive to our customers needs and are focused on delivering quality service onboard more than 2200 daily departures, providing a seamless process.
For our for partners and customers is something our people do better than any other carrier.
We continue to manage through a changing market for ever changing market for our product scope limitations and competitive dynamics have led to a much stronger demand for the older sectors of our fleet further into the future than we previously expected in response to this strong customer demand, we're planning to invest in our Crj fleet during the first half of.
2020 designed to improve the operational performance reliability reliability of our older fleet.
Even with this investment we expected that to continue earnings growth in 2020.
But we will be set up point, even stronger 2021, and 2022, Rob will give more details on that in a minute.
We intend to continue our continue liver leveraging our position in the market to realize the value of the assets within our operational scope. We're also in the fortunate position to be able to convert strong pilot availability into market opportunity and to respond quickly to our partners needs with our strong team culture quality product an opportune.
These pilot hiring and recruiting is still running more than 20% above last years levels as mentioned last quarter about half. The current hiring is from our existing pipeline up from 10% of that pipeline. Just five years ago. This is another risk area that we reduced meaningfully over the last year.
Our recent contract wins combined with reshaping our business model earlier this year reduces our overall enterprise risk and will help us drive a healthy balance of earnings growth and cash flow generation remained very focused on sustainable opportunities that position us for long term success I want to again, thank our great team a baby Asian professionals for their.
Excellent work during the third quarter Rob.
Today, we reported third quarter net income $91 million compared to $83 million in the third quarter last year third quarter earnings per share is a $1.79 up 14% from $1.57 per share in the third quarter of 2018.
Pre tax income of $119 million for Q3 is up from pre tax income of 110 million in Q3 2018, our diluted share count of 51.1 million is down 3.5% or 1.8 million shares from Q3 last year.
Our effective tax rate in Q3 was 23% down slightly from 24% in Q3 2018, we continue to expect our tax rate to be approximately 25% for Q4 of 2019 and for fiscal 2020.
Let me say a couple of things about our balance sheet as of September Thirtyth 2019.
We ended the quarter with cash of $572 million up from $550 million last quarter.
Primary uses of cash in the quarter included 25 million for share repurchases 102 million in capex, including 30 million to inquire acquire for Crj nine hundreds off lease early $39 million for spare engines and $33 million for.
Other spare parts and maintenance assets debt for the quarter ended at 3 billion down slightly from 3.1 billion last quarter.
Let me say a few things about capital expenditures as you recall the last few years, we have invested heavily in growth aircraft for our fleet and 2018, we spent $1.1 billion in Capex driven primarily by the acquisition of 39, New Eone hundred 70 fives in 2019.
We expect to deploy approximately $670 million in capex for the full year.
Absent any additional new aircraft orders, we would expect 2020 capex to be in that $3 million to $400 million range, a key driver and what could be a doubling in 2020 free cash flow over 2019.
We expected by the end of 29 team debt levels will continue to come down to under $3 billion and could be under $2 billion by the end of 2022 again, depending on additional orders just a reminder, that all of our debt is financing aircraft and the bulk of our $3 billion in debt is for.
Financing our fleet of 151. He won seven fives that are under flying contracts largely coterminous with the related debt. We continue to expect to de lever via repayment of $350 million in debt each year through the embedded amortization of principal in this mortgage style.
Term debt before any new financings for new aircraft pursuant to future new orders if any.
We expect strong cash generation over the next couple of years that will allow us to maintain strong liquidity delever, our balance sheet and maintain the agility to respond quickly to any incremental market opportunities.
During Q3, we repurchased $25 million in stock under our $250 million program approved by the board in February This leaves us $170 million an authorization remaining under this program, we remain committed to returning capital to shareholders via a combination.
Of dividends and share repurchases.
As per our policy and practice, let me say a few things about Q4 and fiscal 2020 without giving formal EPS guidance as usual, we would expect to see the normal seasonal fall off in Q4 29 team from Q2, and Q3 earnings levels that covered the strong.
Long summer season.
For fiscal 2020, we would expect to see mid to high single digit growth in earnings per share over 2019.
Free cash flow in 2020 could double from 2019 levels driven by growth in EBITDA and slower Capex spend.
We would expect earnings per share in the first half of 2020 to be flat to slightly up from the first half of 2019 due to the investment in the older part of the fleet referenced by Chip earlier. This 30 million dollar investment to improve operational performance and reliability of our Crj.
Fleet is in response to stronger customer demand further into the future than we would have originally expected and ongoing scope limitations.
We would expect stronger EPS growth in the second half of 2020, leading to mid to high single digit growth in earnings per share for fiscal 2020 over fiscal 2019.
Investing this $30 million in fleet maintenance in the first half of 2020 sets us up better for 2021 and 2022, then would have otherwise been the case upside to this scenario is possible from additional orders of new aircraft additional market share wins additional fleet.
Extensions and incremental leasing opportunities our visibility to future cash flow gives us the confidence to continue to make disciplined investments to create shareholder value as we continue to demonstrate when and if new investment opportunities come we will be ready.
With a strong and liquid balance sheet. This future capital deployment could include organic growth opportunities in contract flying pro rate flying or leasing in addition to organic growth opportunities of course, we will continue to look at returning capital to shareholders via share repurchase and dividends.
As chip mentioned, we're striving to drive a healthy balance between earnings growth and cash flow.
Wave will now give you some details on fleet initiatives fleet movements and other commercial opportunities weight.
Thank you Rob as we announced in August we have an agreement with Delta to operate six used eone hundred 70, fives under a multi year contracts scheduled to begin in the early 2020 . The aircraft are financed by Delta and will be source from a regional operator transitioning out of Delta connection.
Also announced in August Skywest has agreed to purchase and operates seven new Eone hundred 70 fives for Delta instead of Skywests operating seven new Crj nine hundreds that were to be financed by delta and scheduled for delivery in 2020 .
To summarize our aircraft deliveries Dream, we received one new Crj 900 during the third quarter for Delta.
We are scheduled to take delivery of one more Crj 900 next year. This will conclude our delivery stream for the new Crj nine hundreds at 13 aircraft. These crj nine hundreds are owned and financed by Delta. We're also scheduled to take delivery of five new Eone hundred 70 fives for Delta during Q4.
Six new Eone hundred 70 fives in the first half of 2020 and six used Eone hundred 75 by mid 2020. This will bring our total Eone hundred 75 fleet to 168 by the end of next year.
Let me talk about our American partnership.
As discussed last quarter, we announced an agreement to add 10 additional crj seven hundreds to that contract. We anticipate these aircraft being placed into our American system. Throughout 2020. This will bring our fleet totaled 70, crj seven hundreds under long term contracts demand for our small RJ flying remains very.
Strong and as result of the strong customer demand customer demand and we anticipate investing approximately $30 million and this fleet. During the first half of 2020 to improve its reliability and customer experience. This investment should show an attractive return as it will allow us to work with our major partners on further.
Contract extensions and and to continue to grow our pro rate business, Let me shift gears to our leasing business, where we continue to leverage opportunity. This quarter. We delivered four additional crj seven hundreds under our previously announced agreement with the domestic third party, bringing that delivery count to five.
Of the 29 aircraft. These aircraft are under a 10 year lease agreement and we anticipate the remaining aircraft will be delivered through the middle of next year.
Also we communicated previously the majority of these aircraft will be sourced from the 30 Crj seven hundreds from our previous Expressjet operation. We have also delivered four of five crj nine hundreds lease to air Canada under a six year lease agreement, we anticipate the remaining aircraft will be delivered by the end of this year.
During Q3 2019, we acquired for Crj nine hundreds under an early lease buyout. These four aircraft are scheduled to expire under our debt under our agreement with Delta in 2020.
We have also agreed to purchase seven used crj seven hundreds from a third party. We anticipate utilizing these 11 aircraft through a combination of operating the aircraft for our partners and leasing the aircraft or engines to a third party. Finally during the third quarter, we invested 39 million and spare engines, which will.
We used to support our fleet in 2020. The engines will then be used to help fund the 40 Cfthirty four dash three engines. We will these two delta with an anticipated five year term. This is in addition to the 13 Cfthirty four dash eight engines already under lease with Delta, we expect the delivery of the 40 inch.
As to begin late next year through mid 2021 as I've discussed we continue to utilize our flexible fleet and platform for profitable opportunities leveraging the unique position we've built over the past several years to enhance our model and minimize risk.
We anticipate ongoing execution of these ingredients will help ensure we are well positioned for 2020 and beyond.
Okay, operator, we're ready for the QNX session now.
We will now begin the question and answer session to ask a question you May press one on your Touchtone phone if you're using his speakerphone. Please pick up your hands that before pressing the Keith.
Your question. Please press Star then tail.
This time, we will pause momentarily to assemble our roster.
The first question comes from Steve O'hara with Sidoti and company. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Hey, Steve.
Hi, I guess.
Just on the.
On the moves the aircraft in the.
Commitments after this year next.
You will own the ones that you're taking this year, what 70 fives, but not on the one that you are coming next year is that correct.
So Steve this is this is wade.
So we will take delivery of five new Eone hundred 70 fives for Delta during the during Q4 of 20 Nineteena, we will own those they will also be six new Eone hundred 70 fives in the first half of 2020 that we will also owned those their six used to each 175.
That Delta House finance that our operating for another Delta connection carrier now that will transition over to us that we will not own and so those that's how the string goes.
Okay. Thank you Thats helpful. And then just on the positive commentary about.
First half of 2020 and expectations around the earnings growth.
For first half versus second half.
In the comment was around the CR gains and built into those aircraft I.
I guess I'm, just wondering is capitalized maintenance or is it runs through expense line and.
Is it how much of the.
Let's say flat I guess up slightly in the first half due to that or maybe continued building pilots like that.
For the flying that you're taking on.
As well thank you.
Yes, thanks, Steve the $30 million in the first half is the expense component of that that will run through the PML and.
As the result of that and other seasonal factors and whatnot, we would expect again like we said the first half of.
2020 to look a lot like the first half of 29 team in terms of in terms of bps, but then the second half of 2020 the growth picks up as a result of lower investment obviously in the fleet as well as the deliveries that weighed outlined already that will.
Becoming coming into service in the first half of 2020.
Okay, and then maybe just lastly, I think the commentary was that.
Based on what you're looking at right now it seemed like 2021 2022 would see.
Better earnings growth than 2020 is that was that the comment that was made yes. The comment was that I think some of the things will be doing in 2020 will set us up nicely for 2021, and 2022 without getting into any specifics, which will obviously do a year from now but I think.
The message was that the investments that we plan to make this year will will set us up very nicely for 2021.
Okay. Thank you very much.
Our next question comes from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Hey, thanks.
On the seven hundreds that you're you're leasing out that are going to be transformed into crj five fifties.
Is that universe of 29.
The total amount or or could it be bigger than that.
And is there any chance that you'd be operating them at some point down the road.
Yes. So joined this is weighed on right now we currently have 29 aircraft under under commitment to lease to that third party thats going to fly them in a 550.
We have additional crj seven hundreds and our fleet, we have very good conversations with all of our partners around the demand for those that I said in my script the demand for the small crj aircraft is extremely strong right now and we're having very good conversations with everyone around that.
So we're we're definitely.
Working with all of our partners on the best use of those aircraft.
In a word why why aren't you.
Operating this first round was that just a function of economics or do you want to see the fleet type proven out why why isn't skywest operating those.
Duane It's chip I think you just answered the question a little bit just in your two comments there from our perspective.
When you look at what our block hours are doing and what we're doing that with the 175 fleet.
Right now I would I mean, I think the underlying term as our plate is full.
And from our perspective, this worked out extremely well for us as an enterprise to be able to do this.
First question is has there ever a chance that we may flies. These 550 is there any 550 is I think way to answer that question really well.
We are probably the largest operator of crj seven hundreds in the world and we know how to do it really well and so look I think the overall point here is that we have a business model where through leasing in the operation of these aircraft. We can focus on some of the things that we want to the best add value to our.
Partners as well as our shareholders and balancing those components is something that we spent a lot of time, making sure we do the right way.
Okay leave it there thank you.
The next question comes from Savi said with Raymond James. Please go ahead.
Good afternoon I Savi.
Hi, Jason on that.
Investment is that.
Jay.
So that's another 200 700, and just curious if that does.
About extending the life of the aircraft or.
We are doing more interior.
Well in.
And how much of the life of the aircraft gets extended.
Yes Savi. This is this is weighed so the $30 million as I said in my script, but was for the small RJ fleet, which would include both the crj seven hundreds and the Crj two hundreds.
We're going through.
Both.
Our reliability campaign and then also we're we're going to make some changes to the interior of the aircraft as well to enhance the customer experience. So it's going to be a combination of these we've been doing events to extend the life of the Crj 200 for the last couple of years, we will continue to do that.
So.
Guessing Crj 200.
Did that like less than that.
Like the aircraft.
Sure.
The airplane itself you know right now.
We could in our fleet plans, we definitely see that going out there for another.
Seven eight years, it's still has a good run in front of it we don't think that it's anything immediately going away for sure. We'll continue to invest in it and we'll we'll monitor scope and see what see what the our fleet will look like in the future, but the airplane can go for a nice run and still in front of US Yes. Savi. This is chip just that.
Add to what weighted said I.
I think I think.
We didnt know, if we're going to be flying.
And we're going to continue to monitor demand and scope and all the things, but given the economics of this thing we're willing to do a lot to keep it in the system in being able to provide great service to our customers.
That makes.
I realize this is kind of smaller segment, but.
So much in your business I Wonder if you could provide some color on what you're seeing on the leasing side and I know you're focusing on the kind of the equipment I understand well just kind of what is the biggest driver.
The yield on that side and generally your outlook for for that business like.
The year.
Well I think Savi, we kind of set this up where what started this was the different approach to financing aircraft compared to what we've done in the path as we transformed our business model and as we candidly did something.
Through the sale of express that we've ended up with a lot of assets an extra assets that we've been able to monetize through leasing and on a go forward basis as we evaluate this.
There is something to be said about our business model where were the largest operator of the bombarded product, we're becoming one of the biggest in the Embraer space now as well and we have good capital we have good credibility within the marketplace and we love the flexibility that would give us relative to returning.
Good return to our shareholders and taking care of our people being able to go and have some flexibility back and forth with this.
The again, we've always said that this leasing model is only going to be within our existing platforms that we can operate we're not going to go outside of that but being the largest regional carrier in the world with a fair amount of assets as well. This is just you know strategically taking care of our people yet also finding ways to deliver.
Very good return for our shareholders and these two business models were pretty well with each other in order to do that.
Is that being driven by strong demand for the aircraft type.
Why doing it now versus maybe five years ago I guess.
Yes.
Well I I mean, you have five years ago is that when we actually decided to change our approach in financing aircraft and five years ago as when we started really have to make some tough decisions on assets relative to Expressjet I think I think the decision back long ago, we used to do leverage leases all over the place at.
And quite candidly it didnt really help.
US the cost competitive.
And deliver the right returned to our shareholders. What this also does in this other approach of owning assets and even having flexibility to lease them is also like I said and I, just being able to take care of our people, but also being able to work well within our partners. Our partners have unique set of need by their capital structures as well.
And relative to what we do with engines and aircraft and all of the things, particularly as weighted announced with Delta. We're in the business now providing value to our partners by more than just being the best operator in the industry and from our perspective, that's a huge.
Management, we can take our capital applied to our partners model.
And help them with with multitude of their business needs and that's kind of strategically I think our partners are getting that and that's why we're seeing more success now and it has in the path on but part of what our job is to be able to bring that type of creativity to our partners and we can do to help capitalize on our relationship and help there there.
Business model as well.
Thank you.
Our next question comes from Michael Linenberg with Deutsche Bank. Please go ahead.
Oh, Hey, Hey, everybody I am I guess this is a question to tip and wait I just I want to clarify the way you answered. The Wayne's question and then you went on to answer Savvis question, I guess, one could connect the dots and reasonably conclude that maybe you were planning to reconfigure some crj seven hundreds into 557.
Time next year.
Is that you weren't saying that is that the case.
I just wanted to know, we we're not saying that no.
Okay, Okay, because you talked about enhancement improvement.
They're a little around that so okay. That's okay. So that helps that.
You have that large order out there for it.
The M.R.J. 90, and I'm, just curious whether or not you have the rights to swap into the M.R.J. 100, the space get Ed.
I'm curious about your thinking around that airplane I realize that maybe that's not coming till 2021.
Maybe 2022, but.
Basically been Bharti, a out of the regional jet business, Sam thoughts on that airplane, and whether or not that would make sense, but I guess, we have to start with swap rates first.
Yes, Michael Great question, I, probably pulled back from the question candidly just a little bit just because of the.
The elements that are happening within minutes VCM bombarded quite candidly, we've got a very strong bombarded safely.
There's no question that we are having a.
Significant number of conversations.
With Mr BC and existing bombarded folks relative to the entire platform and when you talk about swap rights.
I can tell you that certainly when you have the bandwidth in the size that we are anything negotiable, yes.
The say will it work or not well.
I'd be Canada, but doesn't work and there's going to be something else very clearly and very similar if not even better.
By the time were done just because of the volume of what our needs might be going forward in the future, but but to that end. The overall conversations that we're having with the parties on.
Some of the key elements of what our business model is are going very well.
Very good engagement, good clarity and good direction generally.
Okay, Great just one that's great and then just one last really quick one on you mentioned that your pilot availability right now you're running above 20%.
Above last years levels, what what's the how does that compare to turnover, though so are you doing better how are you seeing holding on to more than what you are losing I'm just getting a sense of how many people are actually leaving skywest at this point I should say pilots what's that turnover. Thank you.
Very much so.
It's part of our strategy to always make sure we have a healthy complement of pilots for several reasons, you've heard us talk about operational reliability.
It's good to have a lot of pilots for operational reliability itself, we could have a lot of Pos make sure they get the likelihood that they deserve and the they get time off with families and everything that we feel is incredibly important so so in all of this strategic.
[noise] analysis that we do relative to pilots are hiring is extremely good we're feeling classes.
Into late spring of next year now and the attrition is in a position where we continue to build pilots.
As as we're going along so we monitor it we're getting more and more comfortable with how that visibility takes place and are comfortable with our position where we're at today.
Great. Thanks chip thanks, everyone you.
Our next question comes from Catherine O'brien with Goldman Sachs. Please go ahead.
Hi, good afternoon, everyone. Thanks for the time I'd.
Hey, guys. So I guess I can tell that I worked with Mike for quite some time.
Thank you Ms. same thing on the Crj fivefifty there but.
Maybe just asked the question on the 30 million dollar investment on another way.
Are those investments.
For aircraft that currently have.
Ill several years left on their on their contract or these setting up for potential contract extension.
These investments are they typically are are they being made on aircraft that you know it's been requested within this current contract or more set up for for the next line.
Okay. This is Wade said Thats a great question.
It's actually that the answer is it's a combination of both honestly the the.
Lot of these airplanes are under contracts for.
Long long periods of times more than 345 years right. Some of them also have some shorter exploration. So at the end of the day, we want we need to and we want to make the investment in the in the fleet in the aircraft, whether they're going to whether we know they're going to be under long term contracts are there under short term contracts we built.
Leave the fleet Ultimate will leave will be a long term fleet because of the demand that work that we're seeing from our major partners and so we're making the investment in both if the airplanes under short term or long term, we're making the investment in the fleet because we believe it will be there for a long time.
Understood maybe just one quick follow up to that one the for another one.
Would you ever.
With skywest ever make the decision to do an interior modification without having first had a discussion with the major partner.
But thats a great question at the end of that we were working very very closely with our major partners on on the interiors of their aircraft.
And so we would not go out there and do something without the the blessing and working with our major partners that were carrying their brand on their customers and we just want to make sure we're seamless and in lock step with with our major partners.
Totally makes sense and then.
I apologize in advance kind of a long winded question, but.
As we think about your impressive margin growth from the last couple of years I know thats been driven by a combination of adding new profitable fine and getting out is on profitable or less profitable fine.
I guess first this quarter, if I, if I back into the Skywest only operating margins last year basis. Some of the cost of revenue figures you given the release.
Looks like Skylife margins are flat, maybe slightly down year over year.
That I realize that could also be driven by changes in pro rate margins.
And so I guess like was the majority of your margin growth. This year driven by the reduction of unprofitable flying is that right.
And I guess, if so what inning are we in in terms of getting out of unprofitable or low fine. Thanks. So much.
Sure caveat I mean, let me let me answer the question is simply as I can I think it's a combination of a lot of different things, it's a better mix, it's a richer mix.
Of airplanes its improvements on the economics of airplanes that weve achieved that.
When we get extensions, it's the elimination of and profitable flying obviously that we've worked hard over the last five years to to eliminate any unprofitable pockets of our fleet and we've done a pretty good job of that so it's really our profitability in our ongoing profitability.
The combination of all of those things and again I think we havent nice opportunity going forward to.
Continue to work creatively within existing scope for our partners, we have opportunities to continue to take.
Take market share we've got some opportunities.
Incremental opportunities in leasing and all of these I think can help be part of our on our growth story going forward from here going forward and obviously part of that growth story is we're going to invest along the way where it makes sense.
And drive this business for profitability in the long term.
Great. Thanks for all the color.
Our next question comes from Helane Becker with Cowen. Please go ahead.
Hey, guys, it's actually cutting im on for Halloween.
I know that I know you have some contracted business going on for 2020.
But just curious on how you feel about additional growth in the years to come where there's some restrictions on scope, but wanted to see if there was any opportunities coming up in the near term.
So you're well positioned to win.
Economists chip, yes, no I think that our outlook is pretty optimistic honestly.
I would certainly.
From our perspective that we you know I think we say that every single call, but we have a very close dialogue with our partners all the time.
Ours is not just a matter of responding to RFP, but one where we engaged heavily with their overall strategic.
Ideas and initiatives that we feel like that we can fill in a multitude of ways.
There's no question that that we've been at this for awhile.
Sure, we're typically pretty pretty straight down the centerline relative to we know we have to block and tackle if you will and do the basic better than anybody else and commit to do we say, we're going to do and I can tell you that that model over the past four five years that we've been working on.
Continues to have us optimistic about our future as much as much as we ever happened so.
Thats, you know kind of what our view is on the overall thing I know, there's scope restrictions and those types of things, but if we continue to deliver the way we've been delivering and have the right dialogue with our partners. The way we have we continue to be optimistic.
Okay, and then just time of aircraft purchased off lease you guys have been pretty active.
In the in the last couple of corners in terms of doing that and buying just aircraft in general just curious how many how many of your aircraft right now our unencumbered and if you might have a top target going forward I realize that a lot of a lot of the stuff. It over the last couple of years as new on even from five so maybe not a lot of equity in those yet, but just curious if you have on income number.
Right, Yes con or if it's if you look at our fleet roughly a third of our fleet is has no financing no leasing no debt on it of any kind. There's some other parts of our fleet that are owned by our our partners.
Yes, we've got a significant chunk on our balance sheet of unencumbered assets.
Okay, Great and then just quick question on operation I know, it's going really well.
Right.
Maybe maybe slightly weird question, but.
You guys are running like near 100% on completion factor and now on an adjusted basis.
On a 90 almost 99% on there on the Ross I was always an assumption that was incredibly expensive.
Around near 100%, especially on the regional side just curious if you have any thoughts on.
On that I mean, I know that you guys get paid to complete flights, but just curious if there's any additional thoughts. Thanks. Thanks for the time.
Yes, I think yes. Thank you Conor I think youre right I think it is expensive.
But it's an investment that yield the tremendous.
Return.
Our whole culture, the DNA within our people, who we are we want to it's not just a competitive thing compared to our competition that we want to be perfect and that we want to be able to deliver a product and that's a cultural thing that goes so deep within our organization when you have a reliable operation.
Life is better for crew members and for everybody in so strategically as.
As we deploy our assets and as we continue to try to.
The the best of what we do we know it's not cheap we try to find levels of efficiency to do it but it is it is certainly an investment that yield the strong return for us so.
Great. Thank you.
Our next question comes from Bert Steuben with Stifel. Please go ahead.
Hey, guys. Good afternoon, thanks for the time.
Sure.
Just wondering how do you think about pro rate.
You talked a little bit about the Crj investments just wondering.
In this business is this with marginal reached larger regional jets or does this program just start to wind down when those retirement happen.
Hey Bird. This is this is wade.
So we are pro rate fleet is somewhere around.
Around 10% of our flying.
The pro Ray from our perspective, Ken can exist in this market. There are so many small communities out there that are underserved or not served.
Well right now and the opportunities are there's there's so many good opportunities out there in the pro rate, we want to keep a very balanced approach between contract in pro rate to make sure. We will fulfilling all of our contract obligations to the best that we can and then we'll if there are pro right opportunities out there will continue.
Due to look for those but that the demand the opportunities and per a continued to be very very strong right now.
I guess my question was maybe a little more longer term I know you said earlier that.
Seven to eight years left maybe on the two hundreds I'm just wondering down the road does that business sort of because that's like 61 debts now.
Does that start to just move back towards Cpis in the long run or we just haven't really got to that point yet.
Yes, Brad this is chip and look at the Great question I think fundamentally on.
I don't know exactly what we would say five to 10 years down the road relative to these markets I can tell you.
Particularly as you evaluate some of things VR is saying small communities, particularly in an economy like this.
Demand a fair amount of air travel and the demand is good there we've talked about that on this call and other calls as demand for this type of stuff is very very strong if something happens with the crj 200, or something like that I have no doubt one way or the other through our fleet or a larger fleet or if the majors wanted to deploy something else that.
Demand would be met right now in the law from now until the foreseeable future. That's why we're making this investment in Crj 200. This demand is strong so I, we're going to make the investment in the fleet and we continue to evaluate a going forward, but the good news is today is the demand in the size of the community.
Demand is being created into something that's right in our wheelhouse.
I appreciate that thanks.
Just one quick follow up I guess is probably for Rob.
So assuming no SCPA than the materializing next year. It seems like free cash flow should become pretty material can you just walk through sort of what the top uses are in that sat played out. Thanks.
Yes, sure bird again.
All this is you know we're going to call audibles from the line its scrimmage, if we if we need to but based on what we see today that we would think that our capex next year is going to be roughly half of where it is we said $3 million to $400 million.
Our 670, so the combination of the lower Capex and what we expect to be continued growth in EBITDA should.
It should generate powerful cash flow free cash flow growth.
Get could double in 2020 over 2019, so I think that we're in a great place that.
Based on what we publicly announced today.
We should generate a hell of lot of cash flow next year, but obviously, we've got the flexibility and the balance sheet and the liquidity that if other opportunities come there's upside to what we've talked about theres upside from.
Additional orders of new aircraft potentially there's upside from additional market share additional fleet extensions leasing opportunities, we want to make sure we keep a very nimble balance sheet and we have it.
Great. Thanks, the time.
This concludes our question and answer session I would like to turn the conference back over to chip Childs for any closing remarks.
Thank you everyone again for joining us on the call today, we're we're.
Excited about our future and some of the things that we've set ourselves up tour in the near and long term and we will get back to you and review our yearend results in three months. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.