Q2 2020 SkyWest Inc Earnings Call
[music].
All participants will be in Michigan only about so do you need assistance. These signal like conference specialist by pressing this darcie followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Nope just the bank is being recorded I would not like during the conference over to Rob Simmons Chief Financial Officer. Please go ahead.
Thanks, everyone for joining us on the call today.
The operator indicated this is Rob Simmons Skywest, Chief Financial Officer on the call with me today or trip child's President and Chief Executive Officer waves steal cheap commercial officer, and Eric Woodward Cheap accounting 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 ship I will take us through the financial results than Wadable discuss the fleet and related flying arrangements. Following weighed we will have the customary Q&A session with ourselves size analyst Eric.
Today's discussion contains forward looking statements that represent our current beliefs expectations and assumptions regarding future events and our subject to risks and uncertainties, we assume no obligation to update any forward looking statement.
Actual results will likely very it may very 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 2019 form 10-K, and other reports an filings with the Securities and Exchange Commission and now I'll turn the call over to chip.
Okay.
Thank you Robin Eric Good afternoon, everyone. Thank you for joining us on the call today I know, you're all well aware that the aviation industry is currently navigating the largest demand downturn in its history and nowhere airline is immune two of them pack. However, despite the obvious challenges facing our industry I'm proud of our skywest people over.
Responded quickly to take care of each other or passengers and our airline.
We're still very focused on our keep priorities to get us through this to the other side of this pandemic first the personal health and wellbeing of our people and passengers remains our top focus second we're focused on maintaining the cash in liquidity necessary to work through this crisis and third are continued flexibility in working with our partners.
[noise] to meet their needs will remain a key different <unk> did differentiator and I'm sure we are well positioned for recovery.
During cute too we received 307 million of the 438 million total we expect receiving payroll support funding under the cares that this relief combined with our work in the marketplace, an aggressive cost management will help our cash position as you work to navigate this crisis isn't sure where position for recovery, Rob we'll talk more.
[noise] liquidity in a minute.
We continue working closely with our major airlines partners as well as a help and industry officials to stay ahead of the latest CDC guidance and ensure the health and wellbeing of our people and passengers we've implemented robust cleaning and disinfectant measures onboard aircraft and it all skywest facilities reduce customer touch points.
And implemented face covering policies company why.
We expect many of these changes will remain in place and definitely and we appreciate the rapid response in partnership with our people were pleased to resume <unk>.
Continued qualification training with stringent requirements for social different thing cleaning and face coverings with success during the corner.
I'm proud of our teams who have demonstrated remarkable grace and professionalism and adapting to this new environment.
All of this has been accomplished against the very challenging social backdrop, we've been appalled at the racism and violence that our country and many of our cities.
Bases at risk humanity, and respect begins with each of us individually and collectively as an organization, we stand with our black employees against racism, and we remain committed to serving each of our diverse employees and customers.
We also continue working closely with our people that take steps to manage cost in this environment as of today just over 4000 employees have elected to take voluntary time off or early retirement.
A large portion of our nonoperational teams are working on reduced in flexible schedules, we expect to be quite some time before demand fully returned and is likely will need to streamline and resize, our airline, including reducing our management and administrative positions before year round.
However, we continue working with our labor work groups toward creative solutions to avoid crew member furloughs.
These are very difficult decisions and we do not take them lately. However, taking important cost measures in the near term will ensure a longterm viability and success.
During the quarter overall sweet utilization remained remain lessee fishing with block hours at about one third of what we flew a year ago.
Some perspective on that and we should've, we would have expected to fly about 2600 daily departures during the quarter and made that number was approximately 800 and jeunet increased slightly to 900 and in July we saw modest increase to 1300 daily departures.
With the recent resurgence resurgent in the virus, we expected to purchases will likely flanner drop off in the fall as we've previously discussed weird prepared to respond as necessary. If the climate continues to deteriorate.
Our continued agility will remain a key component of this recovery.
And I silver lining in this crisis is that it has resulted in an accelerated improvement of our fleet mix. We received 26 80 175 during the quarter most of them, which began service a quarter N. At the same time or removed several 50 seed aircrafts from contract during the quarter and expect to remove more from our Delta agreement with their natural expert.
<unk> that year N.
In June of 19, our fleet mixed with was 60 per cent duo class and June of this year. It was 66 per cent and will continue to increase.
[noise] excuse me as we've shared previously.
We have a little 10, Oh tell risk.
And the most flexible fleet and the regional space.
As we shared last quarter, we provide a flexing we provided flexibility support to our partners through through the quarter, including temporary rate reductions in contract minimum and on track of minimum waivers.
These temporary contract provision will expire in September and October we continue working closely and collaborate constantly with each of our partners twin sure we're best position to meet their neat.
Undoubtedly the next several months will be turbulent.
But as demand returns weird coughing and our free will continue to feel a critical role.
And the returned to travel.
We're focused on navigating this crisis aggressively and deliberately to take care of our people in our customers as we preserve our liquidity and plan for recovery.
Will continue to work together with our people in our partners twins sure we emerge as they better stronger business.
Robin and they'll take us through the financial data.
[noise] today, we reported a second quarter net loss of $26 million or 51 cents per share our share account for cute too was 50.1 million and our effective tax rate and cute too was 23%.
B scalp results include the effect of a deferral of $69 million of revenue with no associated deferred expense our partners have already paid us in cash for this revenue as part of the fixed rate component of our contracts and it does not represent an ongoing off like obligation for.
To our partners.
But as a result of the unusually large covid related disruption in the number of block hours. We are flying some of that fixed ray revenue will be deferred and recognized in the future based on anticipated flight schedules over the life of the various remaining contracts pursuant to this.
Six O six accounting standard.
We have never had to defer this big straight revenue historically, the cash flow and economics of our contracts are obviously unaffected by this accounting deferral.
The timing an amount of future deferrals and the reversal thereof into revenue depends on the shape and timing of the recovery of our flying all deferred revenue will be reversed into revenue by the end of the various contract periods.
Let me move to the balance sheet, we ended the quarter with cash from $762 million from $578 million last corridor.
[noise] Capex during the second quarter was $93 million, including $43 million for two new you 170 fives under our Delta contract.
$42 million and spare engines and $8 million for other items.
This point, our expectation just to pull back dark capex for the year from $636 million last year, two $3 million to $400 million of this year, including the acquisition of for New E 170, fives by the end of the year.
We ended the quarter with that $2.97 billion down slightly from $3 billion as of your rent.
Let's talk about liquidity on June are June 30th cash position was $762 million. In addition to availability of $66 million on a revolving line of credit.
During cute too we received $307 million in payroll support funding under the cares act of which $245 million as a grant and $62 million is alone.
Another $131 million will come in Q3 of which 92 million as a grant and $39 million alone.
C N the math $101 million of the total for 138 million and P. S. P funding. It was in the form of a tenured term loan with the 1% interest rate for the first five years with the remaining $337 million being a grant.
A corner and we had unencumbered assets of over $1 billion, primarily and engines and aircraft. This unpledged collateral gives us access two additional liquidity alternatives, which we will evaluate including $497 million in senior secured term financing.
Under the loan program of the Cares Act, we have signed a nonbinding L. O Y for this long program through the U S. Treasury and are currently in the weeds working on documentation and are still considering our level and the timing of our participation.
The total 337 million, we will receiving PSP grant money 152 million was recognized in cute too as income [noise] in the form of a contract expense laid out clearly has its own line item in our P. N L. The remaining 185.
[noise] won't be recognized and the second half of the year.
93 million dollar difference between the grant cash received in cute too of $245 million and the $152 million recognized as income is sitting on the June 30th balance sheet as a current deferred income I'd, which will reverse and the second pass.
[noise] last quarter, we estimated that we would burn cashed through the end of the year at a rate of about $30 million per month or $1 million per day.
Based on June ending cache of $762 million estimated yearend cache of $700 million, an additional P. S. P that of $39 million, we are estimating cash burn on average through the end of the year to be $16 million per month.
Or about a half a million dollars per day <unk>.
This cash in cash burn analysis ignores theater fact of any incremental terrorist act loan program money and continues to assume know draw on a revolver.
Current modeling subject to many uncertainties and with modest recovery and flying an incremental costs rationalizations assumed by yearend isn't it Casper and improves in 2021.
Just a man disruption event shines a spotlight on the importance of how we haven't been derisking our business model over the last five years well knowing in our industry is immune to the economic effects of the Kobe crisis, we continue to feel good about how weird position to whether the storm.
The economic effects turned out to be worse and the recovery slower than we currently expect we have additional liquidity tools, we can call on including our revolver. Our 497 million dollar allocation of secured cares act loans and other secured loan alternatives.
Access by pulling our over $1 billion in Unpledged collateral to work.
In addition to our core liquidity position I'm going to remind you of a couple of things that are nice to have during this time of uncertainty and give us more flexibility than others in our space number one.
33% of our fleet has no financing remaining on at this number goes to 45%. When you include partner owned aircraft that we operate.
Number two minimal tail risk of around $100 million. This is the dollar delta between the financing term and contract term. Our next pocket of his tail risk is now out to 2023, and it's zero on the Delta to hundreds expiring later this year.
Especially in times of great uncertainty liked us inconsistent with our policy and practice, we are not in a position to give any formal or informal E. P. S guidance at this time it goes without saying that this cold would've been has been a setback to our plans.
But I went to highlight that we have the remaining 185 million grant component up the P. S. P. [noise] that is expected to be recorded as income in the second half with most or all of that and cute three.
As I mentioned earlier, the amount and timing of additional deferred revenue in the future reversal thereof into revenue depends on the shape and timing of the recovery of our flying.
Wait till now give you some details on fleet initiatives sleep movements and other commercial opportunities wait.
Thank you, Rob I'll provide a fleet and production status update as well as an update on our pro rate and leasing businesses to update by partner during the quarter. We took delivery of two new eat 175 for Delta. We finance these aircraft with longterm that we currently have four new he wants.
75, an order under our Delta agreement, which are scheduled to deliver during the fourth quarter. We're also scheduled to play six used E 175 source from another operator into Delta service all of these aircraft drawn property and three year currently in service the remaining three year scheduled to.
<unk> service early next year. We are also scheduled to take delivery of our final Delta financed C. R. A J 900 during Q4 of this year.
You may recall that we have 55 C. R. J 200 scheduled to expire under our Delta agreement at the end of this year during the quarter. We came to an agreement to terminate the 19 Delta One C. R. J 200 and are returned these aircraft to Delta we do not anticipate.
The remaining 30 36 aircraft will be renewed these aircraft or skywest owned with no remaining financing obligations and will be fully depreciated by the end of the year.
Under our United partnership we took delivery.
Uh-huh remaining twenty-five used E 170, fives, the majority of which began service in June and July. These aircraft are financed by United and we're source from another United Express operator.
As shared last quarter, we worked with American to modify the timing of our 20, New E 175 deliveries. We know expect delivery of these aircraft during the fourth quarter of 2021 through the middle of 2022 [noise] are nine previously announced C. R. J 700.
Now scheduled to be placed into service during Q4, 2020, and the first half of 2021.
Let me review our current production during the second quarter are completed block hours were down by 66% compared to the same quarter last year based on the current scheduled we have from our major partners for the third quarter. We anticipate that are block hours will be down by approximately 40 to 45.
Percent compared to the third quarter of last year.
[noise] 175 sleep continues to fill an important need for a major partners. While the majority of the reduction in block hours have been on the C. R. A J 200 fleet. We anticipate that are cute three he wants to 75 block hours will be down approximately 10% as compared to choose three last year, while our two three.
C. R. J 200 block hours will be down by approximately 65 per cent as of December 31st 2019, We had 156 E 175 under contract with our major partners by the Middle of 2022, we expect to have 213.
E 175 under contract with our partners during the corridor, we finalized our contract concessions with all of our major partners. These included temporarily waving contract minimums differing the startup contracts temporary rate reductions during Q2, and two three and passing three.
Sort of differing certain aircraft ownership charters there were negotiated with our primary creditor's.
The largest concession during the quarter was differing payment due from our partners related to a certain aircraft ownership costs of approximately $75 million.
For a gap purposes, we still recognize the revenue associated with the differ payments related to aircraft ownership. During the second quarter. We expect that differed ownership amounts will be paid back over the remaining C. P. A contract terms all of these concessions expire in either September.
Or October that'd be talk about our prorate business during the second quarter, we reduced our prorate block hours by approximately 54% and the revenue decreased by 73% or approximately $98 million. We anticipate are prorate block hours to be reduced by approximately 30 per se.
During the corner compared to last year. We currently expect 20 per cent of our block hours will be removed for the foreseeable future.
We expect our pro rate revenue will be approximately $95 million less during the third quarter of 2020 compared to 2019.
Specific to R. C. R. J 200 fleet, we had over 200 C. R. J 200 flying in our system prior to the onset of Cove. It in the United States with the anticipated reductions at Delta and our Prorate Sweet we estimate reducing R. C. R. J 200 sleep by approximately.
70 aircraft by ear and as Disgusts previously we have returned 19th C. R. J 200 to Delta. We're also in the process of returning 10-C R. J 200 to third party lessors. We currently anticipate having 40 access C. R. J two owners by the end of 2020 and expect to sell.
Or part out several of these aircraft given the age of our C. R. J 200 feet and the number of upcoming removals from surface. We have shortened the estimated useful lives of R. C. R. J 200 aircraft for depreciation purposes to align with our anticipated contract removals with each applicable partner.
This contributed to an increase of approximately $42 million of incremental depreciation expense during the second quarter. We anticipate we will incur approximately $30 million of additional depreciation expense and the second half of 2020 compared to the second half of 2019.
Let me shift gears to our leasing business. We have 13 of 29 C. R. J 700 under leash to a third party. However, we do not anticipate delivering the remaining six aircraft to the let's see we are working with several parties to operate the 16 of aircraft. It Skywest we believe these Eric.
Craft will be placed under contract with a major partner during the second half of 2021.
Q4 last year, we had 15 engines under short term lease agreements and commitment to least 40 additional engine starting 2021 as of today. The majority of these engines have been returned and we're working with the let's see on the commitment for the 40 engines in summary, we do not expect the demand to reach.
Turn for a leasing business. During 2021, we also agreed to purchase seven use C. R. J 700 from a third party during the second quarter.
We closed on the final two aircraft under this commitment. This crisis is unprecedented in our history and we are committed to to working with each of our major partners to provide creative solutions and respond quickly to their needs. We have spent the last several years, reducing risks and enhancing fleet and financing flexibility.
Which will ensure where position to navigate this challenging environment.
Okay, operator, we're ready for the Q&A portion of the call.
Thank you. So you know if he does have a question and answer session.
Ask a question you May prep sorry, then one on your touch Jonestown. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please that's starting to the first question today comes from Saudi say Raymond James. Please go ahead.
Hello, Good afternoon, everyone.
Just on the concessions that used to add to the partner I. Appreciate the detail you provided given the recent weakening I wonder what your comfort level is that you wouldn't have to can I go back in and revisit these concessions and extend them beyond <unk> how long you've.
Provided it before so far.
Yeah, sorry. This is chip I would you know in relation to the concessions, we're certainly not gonna get into too many details on the call, but I mean I would reiterate that we've spent the last several years creatively finding solutions with our partners, where we can add value over the long term that <unk> that would work.
Very well for us given some of the things we're facing this fall we're gonna continue to utilize that exact same strategy and what emphasize that we're in this for the long game. We hope that this Ah pandemic gets over quickly that would be good for all of us, but relative to you know some of the things that we need to do with our partners.
What do you just stand ready to do whatever we need to to provide for them given the dynamic environment that we're in and and we're gonna continue to exercise that philosophy over this over the fallen into the winter months.
Hopefully <unk> and then just on the the 29 C. O. J 700 that you were thinking of placing I think it's it's at 13 now I think last card. He might've mentioned you had play 16, so I'm guessing from where returned.
And you'd mentioned that you were you looking to replace that with another partner is that you expecting to place C. O J 700, where you'll be doing the fine or is that and are there are.
Suddenly secret evening.
Yeah. So I'll be this is wade thank for the question Yeah. So as I said the 13th what we did have 16 of the 29th delivered we took three of those back during the quarter.
So we <unk>, we have 16 undelivered, we will not we do not anticipate delivering those to the let's see they're not in a current financial position to take them and so we are as Skywest Airlines looking to fly those and operate those for another major partner, we're working with all of our major.
It's on potential demand they have for them.
Anytime I think just one last question I know previously as you know when when we rent and just kind of environment and and maybe not having this.
For the man.
You know you wanted to focus on the core business, but I I wonder if given the and can I slow a demand recovery out lesson and they're kind of a pilot that you had if you might consider.
And I'm moving into the car or a side of business.
That's a good question, we've certainly explored that but I think as we continue to evaluate some of the things that we can do to meet the demands of our partners. You know, we're not candidly not that Ah energetic to jump into a high risk very low margin business of that nature, Although we have a lot of airplane.
Since we're gonna continue to you know by wait what's out there in the market, but that is clearly not one of our key focuses at this time.
Thank you.
My next question comes from Katherine O'brien I've called them Faxed. Please go ahead.
Yeah, you're good afternoon, everyone. Thanks for your time.
Oh Man cave.
Just one more question on this this third party aircrafts. So you know with some of those.
Uhm aircrafts.
Third party.
Is there any penalty they've got paid the skylight.
Let me nation for that or or that was you know you didn't need worked it out.
Okay. This this is wade yeah, we we won't get into the specifics of those we were we did receive some <unk> level of compensation for that but I'm not gonna get into the specifics of you know the the settlement with that let's see.
Okay, that's that sounds like there uhm.
No retirement or on the 14th T. R. A J.
You're telling me I'm gonna be here, you know grilled on his salary depreciation over the next couple of corridors.
That means.
I'm, sorry, I meant charges on those.
And then I yeah.
And then one more after that.
Yeah. So on the on the <unk>. Okay. This is way it's on the 40 aircrafts. The majority of those are you know.
Delta right now as I said in my script, we have an accelerated the depreciation on those.
Those aircraft will all be fully depreciated by year and and so as of right now we do not anticipate taking any impairment charge.
C R. A J 200 feet at this time, yeah, Katie as we as we said earlier you know if you'd like a depreciation and cute too it's up by a little over $40 million that reflects some of that accelerated depreciation and the second half of the year. It's gonna continue to run a little hot compared to a year ago.
And we think that'll be about $30 million in the second half above above last year second half depreciation.
Okay, Great like me to think one more in a car so yeah, I guess on on teacher costs Ah.
Can you sound like you're a looting eventually having some more efficiency them to get into your Hum you know it looks like you're at.
Operating costs forgot about 15%, obviously I'm sure some of that was that sorry depreciation.
Putting upward pressure on that but block hours were down for.
Heard that you know you back.
The the gap close between operating costs.
Or or should we expect it that's similar relationship between the two.
Corner it needed to fourthquarter as well.
Yeah, I think candy. This is chip it's a great question on one of them, we are valued way more than almost anything today and and there's just a lot of a lot of factors in variables going into that answer that is a little bit too soon to answer that you know given the nature of our business the size of our air.
<unk> the volume that were flying the things that we can do.
No as we as we you know or assisting our partners in helping with this recovery. There's a lot of variation in schedules even in the last four months have changed significantly. So look again, we gotta stand ready to do with our partners want us to do <unk>.
And from that perspective, I think we do things like.
Like I mentioned in my script, we have a lot of employees taken voluntary time off we're gonna be very fluid with the communication with our people and our partners more than anything you know relative to cost we're going to continue to work on ways to streamline, particularly overheads and those types of past, but but more than any.
Thing, it's still goes back to a couple of things in our motto, where we want to be fluid with our partners and be ready to execute what they need in the recovery process. So it's a little too early at this point to still say exactly what that's gonna do cause the importance of US you know being ready to help our partners is paramount.
And you said thanks for all the time.
The next question comes from Helane Becker Kelly and please go ahead.
Thanks, Operator, Hi, Ah gentleman things for the time.
So one question I have is when you think about taking the second alone.
From the <unk> W y.
You're in a pretty good position you have significant unencumbered assets you're working through.
You know the issues with your partner so I take the money why not put yourself in a position to kind of when the recovery.
And continue to be able to pay dividends and buyback stock when things turn around.
Yeah, Hello, and thanks for the question like I think cause we pointed out we do feel very good about our core liquidity situation and we view some of those including the 497 million Cares Act loan as as a nice alternative for us, but you know again, we expect to be at 700 million.
Or so eight year and with all that continuing to have an undrawn revolver. So I I think though you know <unk> in this in this environment. It's it's my job, it's our job to make sure that we have alternative just in case that this recovery is is slower and longer.
Than anyone might anticipate right now you know we're planning for a number of different scenarios and so it's nice to have alternatives and those alternatives already enable by the fact that we went into this crisis with a very strong balance sheet that included over $1 billion of Unpledged collateral but.
Can be calm Ah liquidity sources for us if it needs if if need be.
Thinks that's very helpful. And then the other question I have is when you talked and you're prepared remarks about and I'm not sure [laughter] well actually send this but you talked about third card or black hours right now being down 40 to 45 per cent compared to last year <unk>.
Can you say how much time your your partner is R.
<unk> notice how much I'm gonna say just completely wrong [laughter] can you say the how much in advance notice are your partner's, giving you in terms of changing the block our forecasts and and are you able to do so without significant penalty to your own.
<unk>.
Yeah, I would atlanticist chip.
Some great question you know back in March It was like I think all of US know what March was like when this was unfolding and it was just it was just one of the most terrific month to the industry seeing and you know, we adapted pretty well with a hard on us it's extraordinarily hard on us it's extraordinarily hard on our people when you.
Have something like March and April, but you know through these types of experiences we evolve and adapt in today you know there's very little of it today there was some but there's very little Lubbock today and and with the notices.
Again, I I may keep repeating myself, we just have to be ready to to you know be prepared to help facilitate what our partners needed in this recovery and so.
You you can see you know it's almost like all of US are becoming <unk>, you know virologist or whatever to try to figure out what's happening with the infection rates and with travel and specifically throughout the country. All of these things are probably more dynamic than any of us I've ever seen in the industry before but that having been said, we're evolving poured that and see this is an opportune.
<unk>, we can adapt quickly then we're gonna have a longterm competitive advantage because the level of of you know uncertainty and variability within the schedules. We've learned to accept we want as much advance notice as possible and you know for for another you know data point in August were flying 17.
[noise] hundred block hours fly today.
And you know from that perspective, there's a wide range of things that we can do so we again needs to be ready to respond to what our partners need is the is the recovery happens and when it happened. So look evolution is a good thing and I think we're doing a good job of that or even relative to fly schedules and geography, what we need to pay attention to going for for a partner.
Uhm. Thank you that is that is very very helpful. Thank you for your insight I appreciate it.
The next question comes from Mike Lindenberg asked me to Bank. Please go ahead.
Oh, Yeah, Hey.
Good afternoon, everyone, Rob I just in the way. The the numbers are portrayed you made the decision I guess not to call out any special items or you know <unk> court adjustments, whether it was the cares Act.
You know receipt of that you know that money has a contract Spence I guess.
D N a upsizing the you know the revenue deferral. If you know in order to Sorta look at you guys on an apples to apples basis with the others you know, they're probably some adjustments that we would make are those the three main sort of you know caught special items, if he will or am I are there others that that I'm missing.
No looks like there were a number of sort of unusual items and so we it was a pretty easy decision to just present the gap numbers, but then make sure we provided lots of.
Lots of visibility into what those other ones, where obviously we've got a differed you know revenue component that is is new this quarter. We've got you know a part of the P. S. P. Grant that was <unk> you know the where the cash was received but you know the recognition will be deferred yep. We've got we've got depreciation you know.
Running unusually high just you know because of some of the you know the changes we've made and they used to life assumptions on some of the you know, particularly the two hundreds yeah. We've got maintenance expense, that's running a little hard for a variety of reasons. Some mentioned event. So [noise] take your pick you know <unk> give me a new lots of ingredients you can you can <unk>.
Take whatever pro forma pie you'd like [laughter], that's what I figured just the some clarity the DNA increase how much what you told us $30 million for the second half well, what what would've DNA ban or what was kind of pick up in the June quarter, you know called the extraordinary increase in DNA since he made the decision too.
You know to to get you know you're getting out of those airplanes earlier yeah. Yeah. It was so it was up a total of you know 42 million and <unk>. The bulk about was related to the you know the the wind down of some of the big contracts early.
Okay. Okay. So like the big picture items, It's 42, plus the 67 revenue.
No less whatever I think it was 150 on the care, it's just kind of how I think about it okay. That's.
That's that's helpful. And then my second question is yeah. We talk about you know this secured loan program and we learned yesterday actually that you know certain carriers of a certain credit quality may actually be able to do an unsecured.
For the loan program part of the the cares Act and I'm just curious if he's actually looked into that do you actually you know as it essential that you pledge collateral is there a way maybe maybe it's a higher interest cost who knows [laughter] and then the other point that we heard yesterday from another company was that they've also looked at the main street lending program and they believe they qualify.
They were relatively smaller company and you were relatively smaller company as well and I'm curious if that's something that would work for you because one of the benefits of that is that there's no dilution hit her <unk> I shouldn't say delicious <unk>, there's no warrant obligation [laughter]. So I'm not curious should be looked into that thoughts on that.
Yeah. So like we're yeah again as I mentioned on the thing we're in the in the middle of the documentation of phase phase on the on the Treasury loan program and we would expect that that's gonna close.
Relatively soon that you know again, we've got we've got quite a bit of flexibility under that program, which we like where you know we have until next march to draw down.
The full amount of that if we want so we we we feel like we've got you know the government has made available are great program to us and you know and we continue to you know what will continue to evaluate the timing and the amount of our involvement in okay. And then just one quick last one you know what we learn.
And on the United call. They they did take down there capex pretty meaningfully and they went on to say that [noise] airplanes that they were originally gonna take delivery oven put on there balance sheet are now going to one of their regional partners and you know as best as I can tell looking across the landscape.
I can only think of one maybe I don't know one and a half regional carriers out there that would even have the balance sheet to take on the capex reduction that United indicated on their call and yet I don't see anything in your release.
Are are there other airplanes that you're taking delivery on you know if they're gonna be thrown on behalf of United down The road that you just maybe you haven't.
Finished up the documentation and it's not seinfield and delivered anything on that front that we should be aware of.
Yeah. My <unk> this is a chip.
Yep and it to the to the extent that we have new aircraft coming in our businesses that we absolutely will be the ones flying those if we were to finance, though so okay. How can only speaking there's nothing from our perspective that that's happening with we have a lot of conversations with our partners.
Clearly nothing short term unless something changes.
Here soon but but.
Principal from our perspective is that if we're gonna buy a new airplanes rolling in our financing, but we fly.
Okay very good thanks, thanks, everyone.
The next question comes from Joseph Bernardi as people. Please go ahead.
Yeah, Hey, a good evening guys get up.
Ah.
I I tried to follow the I guess, the the movie pieces from asleep standpoint, but I'm not I wasn't smart enough to keep up. So can you just maybe kind of walk through over the next few quarters contractually what what you're asleep looks like and then how realistic is it that.
That actually plays out relative too I don't know scope.
And and mainline sleep changes that some of your partner's just <unk>.
Contractually what would the fleet looks like over the next several quarters and then kind of realistically where do you think you all emerge on the other side isn't thank you.
Yeah. Joe This is way that's a that's a great question. Yeah. There there are a lot asleep movement right now we're we're working with all of our major partners. If you look in the release as of the end of the second quarter. We had 471 airplanes that we were flying there's definitely going to be some movement between now and the end of the year we Ain't.
Tessa paint that our fleet will be somewhere around 450 airplanes by the end of the year primary the biggest changes will be primarily the delta 50 theaters coming out and then we'll be adding in some new additional American flying on the 700 side and then some.
175 is on the Delta side. So those are kind of the big sleep movement, but at the end of the day when you boil it all down will be a brown 450 airplanes.
Skywest at the end of the end of the year.
[noise], okay. So so.
You think that that's guy with it it kind of emerges from this with a similar roughly similar fleets. Then you you came into it even though your partner's you were talking about some of them talking about getting significantly well <unk> materially smaller.
Right.
So you know a couple of things that you can look out you know we've taken a lot of 175 is that were financed by a major partners during.
The the the pandemic right. We took the 25 United that were finance from those guys. We did not have those last year. Those are all on property today and those are offsetting a lot of the C. R. A J 200 that are going away and so you know as we talked a blood in our scripts. You know we are you know this has accelerated our fleet.
A replacement and it says it's been in it <unk> it's.
One bright spot of it it it has accelerated it and you know we are going to have more and more 170 fives as we emerge out of this as I said in my script by the Middle of 2022, we're gonna have 213, 1758 year, and we had 156 right and so there's been a very nice.
Growth in our 175 and the 175 your block hours pair it over a period, you know and and the third quarter. We think it's only gonna be a down around 10%. So.
We've done a very nice job in our dog class of of of growing that are 50 theater will shrink, but <unk> you know it is down a little bit but.
We're going to merge with around 450 airplanes.
Okay. That's helpful. I wish I paid for the soundproof doors in my House I apologize for the second of noise, but.
Chip can you talk about maybe what you think somebody this means in terms of how much regional flying do you. Your your partner's do in house first look to outsource to a third party kind of what's your address will mark it looks like on the other side of this thank you.
Yeah I just you know briefly it's like I said, a couple of times when I call. There's a lot of a lot of.
A lot of <unk>.
Various bowls associated with this I mean, I I will say I think what we're trying to bring to the marketplace is a couple of things that other carriers may not be able to and that is a significant amount of capital if necessary.
A lot of flexibility with what we can do with flight schedules as well as you know the ability to just execute so you know relative to internal you know carriers, we're really not far enough down the pathway to see what that might look like I think everybody's still trying to scramble, there's a lot of very.
A lot of variables happening. This fall is there gonna be more cares money or is there gonna be you know a resurgence in the in the virus infection is it gonna go away more there's just so many variables it's hard to see.
The only thing that we know that we can do is control or we can control.
We feel like we've got an exceptional strategy over the last several years with our partners.
We kind of feel a little bit like we were built for today to be honest with you and what we want to accomplish in the long term is more important I think and what we can do in the short term, but that having been said, we think that by working with our people and partners. We're optimistic that we could emerge very very strong when.
<unk> the domestic demand returned it so.
That's about all we can say for that right now given given the amount of uncertainty.
That's helpful. Thank you.
My next question come from Steve O'hara, with Cydonia and company. Please go ahead.
Oh, hi, good afternoon.
Hi, Steve.
Hi, It was just curious maybe just quickly on the deferred revenue I I thought you said you would received the cash from that.
Flying or maybe I was wrong and that but can you just explained to me.
What happened there with the deferred revenue and receive a a catch I guess if it wasn't the cat she was a receipt I understand.
Yeah, So we deferred recognition of $69 million of revenue during the quarter. This was revenue for which we have been completely paid it is revenue for which we have no ongoing no obligation, but under six O. Six we were require.
<unk>.
You know to defer portion of the fixed straight component of our contracts.
Yeah, because of the disruption in our production on our block hours being being down so much.
Okay. Okay.
And then you know maybe you know if you'd think about obviously is a lot of questions right now about you know.
The future etcetera, but I need you know my Sumption as well that you know you're you're not slashing costs in the effort to you know kind of maintain flexibility on the other side and I mean, I guess can you just talk about how long it would take you to.
Get your course, you know to the right place to kind of become profitable again at whatever that flying level is I mean, obviously.
If that's 20 per cent of where you are today, that's gonna be a lot different but you know if you're talking about Ah reduce level flying you know within a reasonable time, what how long would it take you to get your cost structured to that love it.
So Steve this is chip if if we knew what to fly a level is going to be.
I would say we could do it as early as October one.
And we would do it as early as October one if we knew exactly what we were dealing with next summer, but but that's.
That's why from our perspective, it's a little too soon.
Give some answers on you know the overall structure of the airline outside of some of the management and overhead costs. We're gonna go ahead, and and make some of those changes anyway cause you know we need to but relative to the broader picture, we really need to get a better volume and working with four separate partners. How this is impacting them in <unk>.
How we can respond to them before we can adapt you know to those costs now to a certain extent of the volumes are good next spring and summer. Then then it's easier, but if we if we see something different and then get continues to deteriorate over the next six to nine months, depending upon your outlook of with a virus then we're gonna have to make some extremely.
[noise] decisions, but by the time, we know what next summer looks like that's that's kind of the finish line that we know we got him we gotta get too and we don't quite have data points on that yet so <unk> the answer to your questions. We can get there very quickly as soon as we know that answer as I think several other airlines are demonstrating the.
Need given the volumes of or they're going to be fun. So quickly, but we just we need to know what spring and summer next year it looks like before we.
Go through you know.
Really significant process. It may may I hit the frontline employees or no my salt on those types of things.
Okay, Alright, thank you very much.
My next question today is a follow up from Katherine O'brien appointment. Please go ahead.
Alright, thanks, so much next time.
I think I don't think there's gonna be clear cut answer to that but you know prior to all of the you know we were we were thinking about Ah Ah glidepath too you know either materially reducing your that.
And it sounds like growing earning sure bye back with ketchup or you know, adding additional cat that Crazy man.
And and growing up yet that way I guess now.
You know probably.
Path a growing on extra demand maybe seemed a little further out that's a very weird.
But on on the password or anything that I guess like how.
How much.
Would you need to.
To not be able to just like pay off.
You know regular cream and or do they can't C. N N. Like you know is that would have to be something really draconian like a lot of early contact termination.
Or you know could it be being rude to the minimum corrado, two years, and and and and having contact for awhile. So I know kind of along with your question, but I guess, it's like trying to get a sense of.
How how bad things I have to get for you guys to not be able to pay off that that and so if you look at refinancing just you know I'm trying to trying to get a sense of like on the other side of that.
What the balance sheet what with.
Yeah. So I didn't Katie that's a really really good question, but I would I would presented by fleet.
The the the desk, we have is very specific to the E. R. J 175, sleep, which is ironically the fleet that our partners are.
Utilizing the most particularly today and we anticipate that they will utilize at the most as we go through more and more of this week economic recovery. The Bombardier sleet. His waist kind of pointed out is there a larger fleet and it's largely paid off with very very little tell risk.
Well as you know very little that associated with the Bombardier Sweet and also very little.
Appreciate them by the time, we're done by the end of this year. So I I think you have to look at it in those terms are most valuable fleet and the recovery is also the one that has the majority of the that if not all of the that on it which is providing that type of value to our partner so.
It's not that how will you reduce your fleet. So that you couldn't make those payments we could reduce.
The Bombardier a side of the house, if we had to a lot and it would never you know penetrate you know the need for what we would be recovering from the 175 to make those that payment. So.
I think I think the story here is it's a great question.
And we look at that a lot, but it's mostly about the fleet type what the dead is attached to and the values that that sweet is providing our partners in this recovery process that helps solidify and stabilize you know kind of what your general question is about the payment.
And in case, you just one other thing.
Just a reminder, that you know of the 3 billion dollar close to $3 billion in that we have none of that other than this little sliver of this new cares Act peace. None of that does is general purpose dead. You know for you know <unk> corporate that's all the all of.
That other than that peace as financing airplanes, and you know the bulk of those are in those fully amortizing structures were those that that gets fully service by the you know by the.
And if the term and that's <unk> you know that that's something that we like very much in terms of the overall structure of our balance sheet that we've got we've got that that's match to the assets.
Okay, that's great. So.
It seems like you probably won't be running into that thank you very much next time.
Thanks Katie.
The next question is another follow up some hobbies sake Raymond James. Please go ahead.
Alright, thanks for the follow up just a question on the Casper and Rob I think you talked about maybe 15 million.
A month Casper and that seems to be down from 30 million that you were talking about last quarter and wondering what was that the you know the drivers is that a reduction and how how do you think about it and she had entered in the end of the year.
Yeah sure well, obviously as you can see we generated get cash during the quarter, you know caches up $184 million quarter over quarter.
That is up 71 million, though you know so you can think of it is that we generated a little over $100 million during the quarter from the you know a variety of different sources. So you know as we look at it is remodel the last six months of the year again, we assume will be somewhere in the neighborhood of $700 million.
A year and down from the 762, where we are right now or where we were as of June 30th and then but we've got you know $39 million of new cares I bet. That's part of that mix. So we're going to account that is burned too. So you know if you look at you know cash reduction.
You know from 762 down to 700, and then count $39 million of that new cares that is byrne as well.
Because that's that's also included in the cash forecast that gets you to your Byrne, that's about $16 million a month or just a little over $500000 a burn a day down from what was a million dollars a day, we estimated by the end of the year last quarter.
I guess, but I'm not quite cashing is what drove the difference is it better cost execution is it maybe revenue knocked down as much as you had feared.
Some of it's just timing of the receipt of some of these programs and but we're also you know we've also been very successful is chip mentioned and some of these initiatives.
Where we've got where we got voluntary time off programs that have worked very well for us as well.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to checking accounts for any closing remarks.
Thank you Elissa and thank you all for joining us on the call today. We appreciate your interest in Skywest I want to again, thank our painful.
We have a solid foundation and simply the best team in the industry I'm proud of our airline in our teams and the great work, they're doing to support each other in the long term successive skywest and with that we will talk to your next quarter. Thank you.
The conference is now concluded. Thank you for attending today's presentation may now disconnect.