Q4 2019 Earnings Call

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I'm good afternoon, and welcome to the Skywest Incorporated fourth quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask question to ask a question. You can press star one on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded dead.

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 as the operator indicated. This is Rob Simmons Skywest Chief Financial Officer on the call with me today or ship child president and chief executive officer Wade Steele Chief commercial officer Woodward Chief accounting officer and Mike Thompson Skywest Airlines Chief Operating Officer wage 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 weighed will discuss the fleet and berated flying Arrangements following Wade. We will have the customary Q&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 and 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 without altering call over to chip. Thank you, Robin Eric and good afternoon everyone. Thank you for joining us on the call today the fourth quarter completes a strong 2019 for us for the full year 2019 macgruber earnings per share by 18% over 2018 and we monetized our Fleet transition initiatives and move forward as a single airline with the more efficient footprint dead.

our employees once again

Did a remarkable job delivering a solid 99.9% adjusted completion in 2019, and I want to thank our more than 14,000 employees for their efforts to work together and delivers a great product for our customers today. We announced a new flying contract with American Airlines to own and operate 20 new e175 half of these planes are expected to be placed into service in June 2020 and 1/2 and twenty Twenty-One. Additionally, we expect to take delivery of $675 which will own and operate in the first half of 2024 Delta under our previously announced the agreement these additional aircraft and agreements will certainly not be would certainly not be possible without a reliable and efficient product. The people of Skywest have a significant task. I have a significant task of executing these deliveries as we work together to deliver Quality Service on board up to up to 2,500 departures every day.

We continue to manage.

To do a changing market for our product scope limitations and competitive dynamics of lead to a much stronger demand for the older sectors of our Fleet in response to the strong customer demand. We're planning to invest in additional maintenance on our Fleet during the first half of 2020 even beyond what we discussed last quarter this year represents the start of the next phase of our Fleet transmission as we increase the new e175 aircraft in our Fleet and prepare a coj fleet for the future given the demand we're seeing we're changing our overall maintenance approach on our c o j Fleet is Sarah Jakes to improve its reliability and performance in the long run. The impact of these changes will drive additional short-term costs in the first half of 2020. However, we anticipate these investments will translate into long-term value for Skywest and for our customers, all of this makes 20/20 a pivot point for us given this investment in our Fleet. We expect 2020 earnings. Yep.

Relatively flat with 2019 but this position does for a new trajectory in 2021 and 2022. We intend to continue 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 a strong team culture quality product and opportunities pilot hiring and recruiting is still running. Well above last year's levels as we mentioned last quarter about half of our current hiring is from our existing Cadet pipeline woke up from about 10% just five years ago the contract win announced today combined with the reshaping of our business model last year reduces our overall Enterprise risk and will help the service drive to healthy balance of earnings growth and cash-flow generation. We remain very focused on sustainable opportunities that position is for long-term success. I want to again thank our great team.

Professionals for their excellence

work during 2019 Rob

Today we reported fourth-quarter. Net income of $73 compared to $67 in the fourth quarter last year for the quarter earnings per share is a dollar raise up 12% from a dollar Twenty Eight per share in the fourth quarter of 2018 pretax income of $98 million dollars for Q4 2019. It's off from pre-tax income of 91 million dollars in Q4 2018 are diluted share count of 50.8 million is down 3.4% or 1.8 million shares from Q4 last year. Our effective tax rate in Q4 was 25.8% down slightly from 26% in Q4 2018, continue to expect our tax rate to be approximately 25% for fiscal year 2020.

let me say a couple of

Things about our balance sheet as of December 31st 2019. We ended the quarter with cash of $520 down from $572 last quarter. I text during the fourth quarter was a hundred and eighty 1 million dollars including eighteen million in cash and a hundred million of debt issued to acquire five new e 1 7 5S M 39 million dollars was spent for spare engines and used their frames and $24 million dollars for other spare parts and maintenance assets as you recall the last few years. We've invested heavily in growth aircraft for our Fleet in 2018. We spend one point 1 billion dollars in capex driven primarily by the acquisition of 39 new E17 facts in 2019. We spent $636 million in capex for the full year including ten new key 175 including the acquisition at 6 a.m.

Do you want seven fives in 2020?

We expect capex to be in the range of 650 to 700 million dollars death for the quarter ended at 3 billion dollars up slightly from last quarter of including the effect of financing sixteen new ones and fives in twenty twenty and ten more in 2021. Levels should be approximately 3 billion dollars at the age of twenty twenty and around 2.8 billion by the end of 2021 again, depending on additional orders. Just a reminder that all of our debt is financing aircraft and engines and the bulk of our three billion dollars in debt is financing our Fleet of 156 e 1 7 5S that are under flying contracts largely coterminous with the related debt off Beyond 20 21, we continue to expect to deal ever Theory payment of $350 to $400 billion dollars in debt each year through the embedded amortization wage.

A principal in this mortgage style term debt before any new financing for new aircraft pursuant to any future new orders.

We

Expect strong cash generation over the next couple of years but will allow us to maintain strong liquidity delever our balance sheet and maintain the agility to respond quickly to any incremental Market opportunities during Q4. We repurchased ten million dollars of stock under our 250 million dollar program approved by the board last February . This leaves us a hundred and sixty million dollars in authorization remaining under this program. We remain committed to returning Capital to shareholders via a combination of both ends and share repurchases as per our policy and practice. Let me see if you things about fiscal year twenty-twenty without giving formal earnings-per-share guidance. I mentioned earlier 20/20 is the start of the next phase of our ongoing Fleet transition. We now expect an extra 15 million dollars in maintenance cost in the first half.

Have 20/20.

With seven million dollars of transition costs which leads us to expect full-year 2020 earnings to be flat to slightly up from 2019 know this fifteen million dollars is in addition to the thirty million dollars. We estimated last quarter this first half investment in our crj Fleet is making twenty-twenty a transition year for the purpose of putting us on a new trajectory for 2021 and twenty twenty two free cash flow in 2020 will likely be approximately $250 million dollars similar to 2019 driven by relatively flat levels of ebitda and capex compared to 2019 free cash flow can be at nicely in 2026 over 20 22 depending over 20 20 depending on aircraft orders.

We would expect earnings per share in each quarter of the first half of 2020 to be slightly down from first half of 2019 due to the investment in the office referenced earlier the investment to improve operational performance and reliability of our crj Fleet is in response to Stronger customer demand further into the future, but then we would have originally expected and ongoing scope limitations. We would expect earnings per share growth in the second half of 2020 with the second page of nicely over both the first half of 2020 and the second half of 2019 our visibility the future cash flows gives us the confidence to continue to make disciplined Investments to create shareholder value as Market opportunities present themselves as we continue to demonstrate when circumstances align. Yep.

You will be ready with a strong.

And liquid balance sheet to help our partners optimize their scope or consolidate market share. We continue to strive to drive a healthy balance between earnings growth and cash-flow way down. They'll give you some details on fleet initiatives Fleet movements and other commercial opportunities. Wait, thank you. Rob today. We announce a new phone no contract with American for which we will own and operate twenty new key 175 under a ten year contract. We anticipate delivery of ten of those aircraft laid off this year and the remaining ten during the first half of next year. We anticipate financing all the aircraft through long-term debt as we announced last August we have an agreement with them to do operate six used e 175 Center and multi-year contract scheduled to begin the first part of this year. The aircraft are financed by Delta and will be sourced from a regional off.

transitioning

Out of Delta connection as part of the same announcement Skywest agreed to purchase and operate seven new e175 for Delta instead of Skywest operating seven months new crj-900 that were to be financed by Delta and scheduled for delivery this year to summarize re 175 and our crj900 delivery streams. We are scheduled to take delivery of one more Delta owned crj-900 in the second quarter of this year, which will conclude our delivery stream for the fleet at thirteen aircrafts wage. We took delivery of five new e175 for Delta during Q4. We're scheduled to take delivery of four new and six used e 175 in the first half of this year during the second half of the Year. We're scheduled to take delivery of 12 new e175 with the final ten. E175 American scheduled for Thursday.

21 this will bring our our total e175 Fleet to 188.

The middle of 20 21, let me talk about our crj-700 in our American partnership as previously discussed. We announced an agreement to add 10 additional see our job is to that contract. We anticipate these aircraft being placed into our American System throughout this year. This will bring our Fleet total 270 crj700 under long-term contracts as Rob mentioned demand for RCR. Try flying remains very strong. And as a result of that strong customer demand, we anticipate investing in our crj Fleet during the first half of 2020 to improve reliability and customer experience as chip mentioned while these changes will drive additional short-term costs for the first half of 2020. We anticipate this investment to show an attractive return over the long term as we as it will allow us to work with our major Partners on further contract extensions. We are all Thursday.

Expecting to incur approximately $7 in the first half of the year on fleet transition expense these expenses include aircraft out of service time pilot training bringing used aircraft on our on our certificate and transitioning to aircraft two different partners. Let me shift gears to our leasing business where we continue to leverage opportunity this course, we delivered six additional crj700 under our previously announced agreement with the domestic third-party bringing the delivery count to ten of the twenty nine aircraft. These aircraft are under a ten year lease agreement and we anticipate the remaining aircraft will be delivered through the middle of this year as we communicated previously. The majority of these aircraft will be sourced from the 30s crj-700 from our previous Express Jet operation. Additionally, we have delivered all five crj900 by Air Canada under a c e

lease agreement we have

Also agreed to purchase seven use crj-700 from a third party at year end. We had closed on two of the seven aircraft. We anticipate utilizing these aircraft through a combination of operating the aircraft for other partners and leasing the aircraft to a third party finally during the fourth quarter. We invested $39 million in spare engine and used airframes, which will be used to support our Fleet this year. The engines will be used to help fund the for TCF 34-3 engines. We will lease to Delta with an anticipation five-year term. This is in addition to the aid cf34 engines already under lease with Delta. We expect the deliveries on the 40 engines to begin life this year through mid twenty Twenty-One as I've discussed we continue to utilize our flexible fleets and platform for profitable opportunities leveraging the unique position wage.

We've built over the past.

Several years to enhance our model and to minimize risk. We anticipate ongoing execution of these agreements will help ensure. We're well-positioned for 2021 and Beyond wage. Okay operator. We're ready for our Q&A now, we will now begin the question-and-answer session to ask a question. You may press * then 1 month touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time pause momentarily to assemble our roster.

The first question comes from Saudi with Raymond James, please. Go ahead.

In the past you've talked about, you know, the duration of the contracts. I think you mentioned something like eighty percent going through the end of 2020. I wonder if you can provide an update on just how many of you see PSI contracts go through maybe kind of 21 22 x time.

Yeah, sorry. This is this is Wade. The I'll kind of break it into two groups. Here are e175 aircraft. They all are under very long-term agreement. You know that as we said the the American agreement is a 10-year agreement that we just announced today. The other ones still have seven to eight years seven to eight nine years left on them. The jobs are Jeff Lee we've recently just extended the vast majority of their those there are still pockets of of C. RJ's that that will expire at the end of this year and then some of them in 2021 and twenty twenty-two and we're currently working with our major Partners on on on their needs in the demand for those aircraft off.

Got it. And then I'm guessing the crj-200 that are just on a short-term basis.

The crj-200 is what I was referring to. Yeah. Those are there are some that expired towards the end of this year and then some in 20 21 and 22 got it home and they're just curious on the on the outside. If you you have much connections that that go beyond it kind of domestic. Just wondering with all the summer national news if there's any exposure there on the on the upper right side. Yes, I'll be this is Wade. Again. Our our prorate network is a hundred percent domestic. There's there's no international law and the connectivity internationally to China I think is what you're referring to is very very very minimal. And if I might ask just one more question about the rock completion Factor was down year-over-year just curious on in in in this last quarter. I'm guessing that's kind of weather-related. Just curious. Does that have a meaningful impact on earnings?

Or is it really the the kind of a controllable completion factor that drives earnings?

Sorry, this is Wade. Again. Yeah, the completion factor is down slightly year-over-year and the and all of that is due to weather and ATC type issues there. There's always a little bit of friction when you don't complete the flights, but all of our incentives are based on adjusted completion and so it it has an impact a lot of life can be mitigated through the contracts and through our our labor groups, but there there is some small friction there makes sense. All right. Thank you.

The next question is from Mike lindenberg with Deutsche Bank, please go ahead. Oh, yeah. Hey, hey everyone just a couple here. When we look at, you know, just your Revenue line wage, then, you know, just the growth in this Airport customer service and other and I guess presumably the the leasing pieces in there as well. And so I'm not sure if you can give us, you know, maybe some break out there or will you get the point where you will start breaking that out? I'm not sure what the you know what material reality is what, you know as a percent of total revenue, which forces you or maybe requires you to do that. Thanks God.

so I think

Bank on the you know, the way that our our p&l is structured, you know Airport customer service and other you know, the the bulk of that, you know, it's going through. Some change is is our model is is changing and evolving and I think you know will consider additional, you know breakouts. But at this point I think that I think that we're happy with how it got that structured. Okay, and then the e175 that are going to America now are those all 76 with you know, I guess they're three class airplanes off. Yeah Mike, this is Wade. Yeah, they're all 76-seat aircraft. Yeah, three class consistent with you know, how the rest of the industry is doing it. Okay, great. And then just last on the birth rate business how you know, what percent does prorate represent I guess, you know, maybe four 2019. You can give me a rough number of what it represented it and yep.

From how did it perform maybe versus?

Some 2018 overall profitability. Thanks. Thanks for answering my questions my concern here. So, you know, our Pro rate is about 13% of our business still very consistent with what it has been and again, I think you know, our our Focus has been and will remain on the contract side of our business. And so, you know, I think it's probably fair to expect prorate sort of in the same range. You've seen it, you know caughel in the last couple of years. Okay. Very good. Thanks. Thanks everyone. The next question is from Duane pfennigwerth, please go ahead.

Hey, thanks, just with respect to the incremental investment that you're calling out here. Can you just go into more detail? What what is driving that and and you know, what cause you to not have your arms around that late last year? Yeah, I think that you know as you look up what we're talking about is an incremental fifteen million dollars over what we signaled last last quarter and I think you know as we've just gone through we've identified, you know, sort of incremental opportunities and I think it makes you know sense for us to do, you know to make these investments in the short term that will help position us for for better growth and better profitability in the future. I you know, I I think this is a story about you know, we're really taking two quarters to make this investment and you know q1 and Q2 of 2020 and then we start to see the Returns on that in, Georgia.

in the second half of

The year, you know, I mean right away and obviously the this positions us, you know for you know for a better growth story and 2021 and twenty twenty-two, you know, and with respect to the incremental transition costs as Wade, you know mentioned there's just a lot of moving Parts this year a lot of a lot of movement between, you know, Partners or be some out of service time as we bring in fact, you know new airplanes moving around there's some pilot training incremental costs, you know, some costs of bringing new air aircraft on two bars certificate. So there's just there's just a bit of friction and you know during this year, but all of this is great stuff all all of this is, you know, really exciting for us as we you know, look look to 20 21 and 20 22

Thank you. And then as we think about kind of a leverage points of earnings growth into next year, obviously you have the contribution of these incremental 2105 is is it is it fair for us to think that you'll get all of this kind of $45 million back next year or or you know, will there be other sort of growth Investments that you need to make money in any other kind of Leverage points in two twenty Twenty-One that you'd care to highlight? Thanks the investment, you know the investment in that maintenance is you know, it's largely a one-time event for the first half that will start to, you know, see the return on that investment, you know, as I mentioned in the you know right away in the second half of the year, you know, we expect that the second half of 2020 to show, you know, nice growth over the second half of 2019 as well as just over the first half obviously where the first half has the bulk of that investment.

and any

Else you'd care to comment on on earnings growth drivers into twenty Twenty-One. I think, you know just just the point that that we're you know, we we've got a lot of interesting conversations going on with our partners. I think you've hit on it that you know, the the bulk of that the new you know, the new airplanes with American that will be bringing in will be you know in the in the latter part of the year. So we won't see a full year effective those until you know until next year and then, you know, obviously with ten more coming in 2021. We've got that that's Thursday virtuous cycle as we continue to have the full year effect, you know pushing growth on the following year after delivery.

Okay. Thank you.

The next question is from Katherine O'Brien with Goldman Sachs, please go ahead.

Hi, good afternoon. This is actually choice.

Just a question on the contract that you have with your major. Airline Partners. I'm guessing you guys are guaranteed a minimum amount of Block hours every year, but correct me if I'm wrong and I was just wondering just over the last couple of years what the average Block hours you've actually phone is the minimum and if it is typically right in line with the minimum or maybe ten or 20% higher than that.

This is this is Wade. That's a a very good question. So that most of our contracts do have contractual minimum. We are well in excess of those contracts minimums Skywest is typically flown these aircraft very hard a lot of utilization in them were at least ten to fifteen percent above the contractual minimums in in in in all fleets and it's and it's been able to have a lot of value to us and our major partners.

Okay, that's really interesting. Thank you. And then just another question on costs just given that none of your labor force is represented by Union following the divestiture of Express Jet. Just how should we think about step up and labor costs? Is that fairly readable or are there typically larger raises every couple of years and he's also not. Yeah, this is Shifting. Thanks for the question. So, you know the way it works, but Skywest we've got some of the the best Aviation Professionals in the entire world. We do have continued to have collectively bargained agreements within our work groups that we have at home. And so these are very very consistent with what you see within the industry and our philosophy is that in order for our business model to be successful we watch her the best we're going to do the very best we can to take the best care of our employees compared to what our competition does and in turn that model has returned a phone number.

Very very good return for all the stakeholders involved.

It's Skywest both shareholders as well as the employees and customers. So so the way I would think about it, I would say it's pretty traditional within the airline industry that quite traditional Thursday the same but you know, we are not entirely shy about the fact that we want the best professionals working in Skywest. We do have them and we do all we can within our our money to take better care of them than anybody else could so I think that's basically the summary absolutely seemed like a pretty strong pipeline to I guess just a quick follow-up to that then are there other areas of customer over the next couple of years that we should be thinking about that could potentially impact margins on the contract we have or

You know, I think again this is ship I think philosophically when we take a look at our crj Fleet as we talked about in our script the philosophy behind the Investments that we're making and maintenance on our Fleet is just simply the fact that today performance is more Paramount than it ever has been. So although we will you know, potentially have some thoughts cost, you know, creep relative to that reliability the overall value that we see within our Fleet particularly the older Fleet with scope restriction and the competitive landscape is I'm driving a tremendous amount of value in return for our shareholders and our people so it's more not that we miss something it's more that we're seeing something and and we're seeing some good opportunity am moving that particular Fleet into a more proactive Health maintenance system and you know from that perspective. I don't know that that the costs associated with that are going to you know wage.

into the overall return in the long-term, so

Got it. Thank you.

The next question is from berts. Even with stifel please go ahead. Hey, good afternoon guys. Thanks for the time. So today is life partners are still looking to the independent market for regional flying. How are you positioning your business to compete against I guess at one end the low-cost Independence and that the other Spectrum the holy owns.

This is Jeff. But thanks for the questions the very good question part part of what our strategy is with. All of this is to stay very close and in good contact with our life partners and what they want and so all of our business model that we've developed over the last five to six years has been in conjunction with them. Like I just answered on the previous question performance is a Paramount and and I think that's a differentiating factor. We have very good performance on our 175. Like I said previously we wanted significantly increased the long-term performance of our c r j. So, you know from the holy own perspective and for the lower-cost elements, you know, we just I with the with the with the Holy own perspective, we work with our partners in a team working with them on ways in which we can provide value to their overall Express or connect product on the on the other end of the Dynamics that we compete with to be candid. We're we have wage.

Completely different philosophy. We have a completely different business model. We find that when we focus primarily on performance.

Value and flexibility and deliver exactly what our partners want that enables us to do some things to make sure that we have Pilots mechanics flight attendants. The very best there is Thursday and and the the carrier to them that they don't have to worry about that. They that they know is the solid section of their Express or connection portfolio. And that's what we drive time and we still see a very bright future and and growth within that philosophy that we have. Yeah that that's helpful. Thanks. Just as a quick follow-up you talked a lot about sort of this month end up demand for see RJ's is that just being driven by scope limitations or is there something else they're just demand for for smaller Jets. I think it's probably both primarily, you know, the scope limitation one is putting a lot of pressure on being able to fly 50 Cedars and you know, our our philosophy and approach is going to be that we that's what we have today. We believe that these Investments. Yep.

I continue to add long-term sustainable performance on on the crj-200 fleet as we look at that Fleet differently. And and if in fact something does change relative to scope or demand Thursday, we have the aviation professionals. We have a broad base of Fleet that we can tap into and plenty of capital to Pivot in a different direction if need be but we we're we're we stay very astute on all of those opportunities.

Great. Thanks for the time.

Next question is from Helene Becker with Colin please go ahead. Hey guys. It's actually Connor just a couple of questions on the I mean the continues to be a lot of Fleet movements like this may not be as relevant has been in the past. But just curious if you have any idle aircraft that are not under CPA or or prorate or or being leased out currently and then she kind of answer this but in terms of utilization on the pro-rate business is that is that increased with the max being out at all. Curious your thoughts are. Thanks.

Yes a car this this is Wade. So so the first question just on the idle aircraft. So the the last couple of years, you know, we've been transitioning a lot of airplanes there. There's still airplanes and transition as we talked about some of those transition costs there. You know, what are the frictions that we are facing is still transitioning airplanes from different partners. Our leasing business all of that. So there there there are still some of that and we are still going to face some of that in q1 and Q2, you know as far as so there will be the transition. But overall we have the the vast vast vast majority of our entire fleet committed. It's just it's in a transition phase. The second question was on prorate and the max age appropriate business. You know, these are these are smaller markets that the the max is not serving, you know, our our prorate business will just it's a very niche market wage.

Going to continue to serve those. We really haven't increased are you?

Malaysian because of that, you know with something that you know, these these smaller communities, you know, there is good demand and we continue to serve those but we haven't done anything different wages due to the max groundings.

Okay, great. And then just on the the $45 in maintenance investment and all you talked a bit about it already. But just curious if you could break down maybe like what actually falls in the first quarter of a second job. Like it can be obviously can be somewhat lumpy just curious about any thoughts there. Yeah, What I can tell you is that you know again compared to first quarter of a year ago, you bought both first-quarter and second-quarter will be down by a little bit and then, you know come back and second second half will have growth over first half as well as growth over the prior year off in half. So, you know, it's you know, we don't have exact timing for you. But you know, it's it's largely a first-half event and and again, you know, it's it's it's helping us off or Fleet in in a place where we can start to see a return on that investment right away. Okay, and then just just on the actual investment itself. Is it across the entire fleet or is it just

the pocket of of aircraft and and it's

So how many well it it's it's about the you know, the older sectors of our Fleet the crj fleet both 207 hundreds, but there's no is it across all of them or is there a certain number if it's across all of them? It's it's not a big deal. I would say this I would say that there's some things that we've been doing with with a certain portion of the fleet. Very small Fleet relative to what we wanted to accomplish with performance, but I would say largely it's it's pretty much the bulk of them that we're trying to get through various programs by summertime. Okay, great. And then on just one quick one, I'm on the American contractor. I assume the financing is kind of how you've done in the past 15% cash 85% death Nance. Is that correct? That's correct. Okay, great, Thank you.

The next question is from Scott showing house with Stevens, please go ahead. Hey guys. So this is just a follow-up on the last questions you have, you know, roughly $520 million cash on the balance sheet. I know you line the debt with the contract and you have you want liquidity to meet customers needs but just thinking about how you're thinking about near-term opportunities. Use this cash. Is it to acquire these use crj700 for the previous American contract? Is it something else? Is it continuing to buy back shares? Just help me walk through like your near-term opportunities with the the cash on the balance sheet. Yeah. Thanks guys. So I think it's it's it's really all of the obviously it's very important that we have a good strong and liquid balance sheet. I think as we've indicated, you know part of, you know, our our cash flow over the next couple of years will be a continue to deliver a bit. Our leverage has has dropped, you know, pretty significantly over the place.

a couple of years as

We expected it too. But you know the cash on the balance sheet, you know, the our our favorite use of cash is obviously to find, you know, a creative ways to put it to work with various, you know investment in our Fleet. Um, but you know, we all sort of very committed to returning Capital to shareholders is again, we have good visibility to to cash flow in the future where you know, we we um, you've got an active share repurchase program. We've got a dividend that that we've grown consistently over the last five years. So the answer to your question is really all of the above we intend to use the cash on our balance sheet to create shareholder value in a variety of ways, but always within the context that our favorite use of capital is to find a creative uses for that to invest in our Fleet. I'm great. Thanks Rob and follow-up. How's the leasing market for you guys? Whether it be, you know, spare parts or airframes engines. I know it's been a great market for you guys in the past. Just wanted to get a sense of birth.

Pipeline they're particularly with the opportunity to have by the end of the year with the 8th crj700 stand for.

Freed up. Yeah, this is this is Wade. So so the leasing has been it's been a a very opportunistic something for us right as a graph to become available. We've worked with several different parties and been able to find some very good homes, and it's allowed us to re Fleet and bring in new aircraft into our Fleet the the real high demand area that we that we are focusing very much in is is the engine leasing right the opportunities there are very good and we've got very good opportunity to continue to grow that business and continue to leverage our platform our relationship with our with our OEM partner on that as well. And so that's the area that there is a very high demand and that's the area that that we are really focusing in.

Great. Thanks Wade. I'll hop back in the queue.

The next question is a follow-up follow-up from Saudi Smith Raymond James, please go ahead.

All up there is just on the I think it was Burt who was asking on coming a relative positioning and I was just kind of curious as you look at it. It feels like today the way the marketplace is dead. And it's kind of Dynamics is it favors to be a bigger supplier and partner just from you know, sourcing Pilots mechanics and things like that off tip. I was wondering if you can just talk a little bit about you know, what might have might be different in this industry and if is that is a right conclusion to say that it it it helps to be bigger in in in the current environment.

Yeah, that's a very good.

And technically speaking size is always one that we kind of consider, you know, the advantages and and that I can tell you right now that we always evaluate how big we want the fleet to be we evaluate the type of Fleet we want to fly and you know, we get all sorts of questions or any other partners you're considering in those type of things just philosophically I would I would kind of step back and put us back on the Centerline. We we really do think that there's good opportunities with these for Partnerships. We have their outstanding Partners. They have tremendous operating credibility and one which enables us to to have our culture continue to grow as well from a growth perspective and how we do that. I think that we've always asked that over the last five or six years. What do we want the fleet to look like? All of those things are more about where our position is for opportunities. Sometimes we like to plan five years out but most of the time

You like to focus on what we can do today. That is just going to continue.

Need to give us opportunities in the future and and the more discipline we are today and the things that we can do culturally and with our balance sheet and with all these relationships often gives us opportunity down the road and we we don't always take every single opportunity that's given to us many times. We have conversation with major partners and we actually say it would be better for somebody else to serve them in certain time capacities. But but the nucleus of everything that we do relative to this is we we first go to our people and take a look at how strong are recruiting is and take a look at the ability for us to train and take care of our people safely. That's the first priority. Secondly we go to our partners and make sure that we're delivering the product and we have the the things that we have to deliver our product to them. And as you go through that entire circle, we're very very comfortable with our our cost structure how we're investing in our people how we're preserving. Yep.

hold for future opportunities and how we are being

Being open and candid and opportunistic with with our major Partners. So that having been said it probably is not the perfect answer to your question about do we want to get bigger and there's are there advantages to that but I think that there are advantages to organic growth and we're going to continue to provide what we believe is some very good dialogue with all four of our partners. That's a good base line for us that we are having good conversations still with all four of our partners on meeting their needs with additional organic growth. It's Skywest airlines that that having been said, we're not we don't jump on anything we should see if we can find we have to be strategic and disciplined about all of it. But we are we're genuinely I would say tu Sabe we're genuinely is as happy and not optimistic with the position that we're in with all three of those things I've discussed as well as the conversations that we're having for for a continued strong future.

That makes sense. Thank you. And if I might quickly just a clarification.

We am I correct in assuming that you have about 68 crj-700 with American today and that will get this 7 a.m. With some of these, you know transitioning in and some transitioning it out. Is that correct? Yeah, so we're we're a little bit less actually flying today. Some of them are in the process of transitioning from from one partner to another issue that some of the friction that we were talking about. But by the end of the year you are correct. We will have seventy in by the end of the year. So there there still is some of that transition would be spent some of that transition work that's being done right now to get those all up in service. All right. Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to chip child for any closing remarks. Thank you. Thanks everyone for your interest in Skywest. We appreciate your spending time with us to understand our model and the opportunities which wage.

Going forward we appreciate.

Again, we appreciate your interest and we will talk to you again next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Thursday