Q3 2021 SkyWest Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Skywest incorporated third quarter 2021 earnings Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Robert Symons Chief Financial Officer. Please go ahead.
Yeah.
Thanks, Gena and thanks, everyone for joining us on the call today.
As Tina 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.
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 Wade will discuss discuss the fleet and related 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 vary 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 2020 Form 10-K, and other reports and filings with the Securities and Exchange Commission and now I'll turn the call over to chip.
Thank you, Rob and Eric Good afternoon, everyone. Thank you for joining us on the call today. The third quarter is typically our busiest flying season and this year is no exception. Despite what continues to be a somewhat bumpy recovery for our industry.
While we continue to navigate the evolving COVID-19 situation and its impacts our fleet remains critical to the industry recovery and demand for our product is very strong throughout this challenging period. We remain focused on several key priorities first to take care of our people second to reman to remain agile.
To deliver on our partners' needs and third to provide a solid product, while minimizing the risk and preserving our liquidity.
Recapping, our third quarter results, we reported pretax income of $14 million and net income of $10 million.
These results include our financial.
These results include our final quarter of payroll support program grants and partner revenue concessions.
We took delivery of six new E 170, fives for our American operation during the quarter. These are the first of this fleet type that we will operate for American and we look forward to placing them into contract flying early next year.
As previously announced we have secured an agreement with Delta for 16 additional E 170 fives.
Which will also be arriving next year, along with nine <unk> hundred 70 fives for Alaska. This will be a combined total of 45, New E 170, fives going into service over the next year and a half.
These these agreements reflect the current work we're doing to help lead the recovery as well as the importance of the dual class fleet in that effort. Overall these new E. One seven <unk> help us make meaningful progress toward our fleet transition by adding dual class aircraft enhancing fleet flexibility and mitigating risk over the next couple of years.
Yeah.
We continue to prepare and invest for the long term and this includes building reliability into our existing fleet maintenance.
Maintenance costs associated with that investment remain elevated and the volume and duration of maintenance events are much higher than they've been historically.
We expect these costs. We expect these costs have plateaued this year and will settle back to a new level next year.
We've also strategically embedded flexibility into our prorate model to allow for the flex up and down of our pro rate flying relative to the demand and partner need while pro rate was slightly profitable in the quarter, we continued to exercise flexibility and that model to ensure that our resources are allocated toward the best economic opportunity.
Our strong balance sheet and cash position remain key differentiators for Skywest.
We are working across all areas of the operation to ensure we're continually adapting to the changing climate and responding to what our partners need from us and operational performance remains a focus despite the clear difficulties associated with an uneven recovery, we achieved a 99, 8% adjusted completion for the third quarter with nearly 73.
More scheduled flights in the same quarter last year.
I again want to thank our incredible team of professionals, who continue to demonstrate flexibility teamwork and dedication to delivering a solid product in any situation.
Last Thursday, we experienced an I T server disrupted that affected our operations its impact was compounded by the size of our operation and the issues of currents during one of our busiest banks for the day.
Our analysis of this event is extensive and ongoing to make sure we prevent a reoccurring in the future.
After the system was restored it took us some time to get crews and plains back in place to resume normal operations. This was an inexcusable event and I want to thank our many teams across the operation whose spring into action. The moment. This system was restored to reposition aircraft and crews into.
Help re accommodate customers following the outage there are many reports of Skywest people from all work groups going above and beyond I want to extend a huge thank you to our remarkable team of 14000 professionals on the front lines, who stepped up in a big way to take care of customers and each other.
Working together with our people to successfully navigate this dynamic environment remains a top priority at Skywest, we have several programs in place to minimize the impacts of COVID-19 and to strongly encourage vaccination without implementing what has been a divisive mandate nationwide. This includes paid time off and.
Center for employees, who report full vaccination, we've also been providing COVID-19 testing programs in certain areas of the operation for well over a year now we also required daily health assessments and mass across the operation and are procuring additional kits for system wide testing with this approach we enjoy the highest vaccination rate in the REIT.
<unk> industry, we're evaluating how the executive order on vaccination may affect us.
And we are committed to working with our people to support their ability to choose as well as to protect their health and the health of our colleagues and customers.
Skywest is fortunate to enjoy and attract and retain exceptional professionals across our operation, while we maintain a robust hiring pipeline and strategy for all work groups, we have pilot classes filled well into 2020 two.
We are focused on staying proactive and continuing to attract the best professionals as we navigate through the end of this pandemic and beyond.
In summary, while there is clearly work ahead in 2022 looks to be a pandemic transition year demand for our product remains strong and we are confident our fleet will continue to fill a critical role in the return to travel we are focused on remaining aggressive and deliberate to take care of our people and our customers as we preserve our liquidity.
<unk> and execute on the recovery to emerge as a better stronger business, Rob will now take us through the financial data.
Yes.
Today, we reported third quarter GAAP net income of $10 million or 19 cents diluted earnings per share adjusted.
Adjusted net income for the third quarter was $74 million or $1 45 diluted earnings per share COO.
Q3 pretax income was $14 million on a GAAP basis and $99 million on an adjusted basis.
Outlined in the release, our adjusted income excludes a noncash impairment charge of $85 million before tax on our <unk> 900 fleet that I will discuss further momentarily.
Our diluted share count for Q3 was $50 7 million shares and our effective tax rate in Q3 was 31, 9%.
First let's talk about revenue totaled.
Total Q3 revenue of $745 million is up 63% from Q3, 2020 and is up 13% from last quarter.
Q3, 2021 revenue is only down 2% from Q3 2019 as the recovery continues.
Our Q3 block hour production was up 14% sequentially from Q2 compared to the 13% sequential increase in revenue.
Q3 revenue breaks down with contract revenue up 54% from Q3, 2020 and up 12% from Q2.
We have temporary partner revenue concessions impacting Q1, Q2, and Q3 of 2021 and in Q3 2020 for comparative purposes, Q3 was likely the last quarter with temporary revenue concessions.
Pro rate revenue was $128 million in Q3 up 111% year over year and up 24% from last quarter leasing and other revenue is up 107% year over year and 7% sequentially.
These GAAP results include the effect of a release of $19 million of deferred revenue this quarter compared to $6 million deferred during Q2 and $30 million deferred in Q3 of 2020.
As of the end of Q3, we have $118 million of accumulative deferred revenue that will be recognized in future periods.
As discussed last quarter, the timing and amount of future deferrals or reversals into revenue depends on the shape and cadence of the recovery of our flying all deferred revenue will be reversed into revenue by the end of the various contract periods.
Transitioning to our operating expenses during Q3 $115 million in PSP grants was recognized as income in the form of a contra expense in our P&L. This compares to grant income of $193 million recognized in Q1 and 114 million.
In Q2, we do not expect any additional grant income in Q4 absent any P. S. P. Three top up amounts.
As previously announced in August and highlighted in todays released we reached an agreement with Delta to placed 16, New E 175 aircraft under a long term contract.
These E 175 aircraft will replace 16 older Skywest owned or financed C. R. J 900 aircraft. We currently operate for Delta.
Under this fleet transition we are scheduled to have 16 displaced C. R. J nine hundreds in 2022, given the uncertainty of redeploying. These displaced nine hundreds we reevaluated them for impairment, which resulted in a noncash impairment charge of $85 million during the quarter.
We expect depreciation expense on these aircraft will continue until the aircraft are removed from the Delta contract.
The aggregate remaining debt and lease payment obligations on our finance <unk> nine hundreds following the removal from the Delta contract are scheduled to be only $6 million.
Let me move to the balance sheet, we ended the quarter with cash of $913 million down from $956 million last quarter. Our capex. During the third quarter was $162 million for six new <unk> hundred 75 aircrafts one used C. R. J 700.
Third aircraft spare engines and other fixed assets.
Our expectation for total 2021, Capex is approximately $600 million to $620 million, including the purchase of 12, New <unk> hundred 70 fives in the fourth quarter of this year under our previously announced contract with American.
This compares to a $438 million in Capex in 2020.
We ended Q3 with debt of $3 billion down from $3 $2 billion as of year end 2020, the only government that we have on our balance sheet is a total of $201 million in PSP 10 year unsecured no amortization low coupon loans.
Let me say a couple of things about liquidity as of September 30th 2021, our cash position of $913 million included the effect this quarter of having repaid an incremental $167 million of debt before adding 119.
A debt financing for the six new <unk> hundred 70 Fives. We also have approximately $1 $5 billion of unpledged collateral that could be deployed for additional liquidity if ever needed.
As of 932021, our debt net of cash balance is actually $421 million lower than it was pre COVID-19 at the end of 2019.
Additional flexibility comes from the fact that including partner owned aircraft over 50% of our fleet in service now has no financing obligation.
Especially in times of great uncertainty like this and consistent with our policy and practice, we are not in a position to give any specific EPS guidance at this time, but let me give you a little color first we expect Q4 earnings to be roughly breakeven to slightly negative.
The profit reduction from $99 million in Q3, adjusted pre tax earnings to Q4 is comprised of several elements.
Q4 is not expected to have any net PSP benefit no grant income and no partner concessions, although our block hour production in Q3 was in a couple percentage points of Q3 2019 levels, we anticipate some softening in production schedules in Q4 <unk>.
Most seasonality is expected to lower Q4 results from Q3 similar to pre COVID-19 patterns.
Our pro rate business is expected to also soften sequentially from Q3 to Q4 pro rate was only slightly profitable in Q3.
Wade will talk more about this in a minute.
Cancellations related to our server outage last week could end up costing us $15 million to $20 million in Q4.
Second we expect to return to 2019 production levels in 2022.
2022 maintenance expense is expected to be lower than 2021, but higher than 2019, but with some positive offsets in revenue.
We won't see the full year impact of the 45 accretive new E 175, aircrafts until 2023, some impact in 2022.
The impact in 2021 of the PSP grants net of partner concessions was a little over $200 million for the year.
We are hoping to offset that in 2022 with normal operations. As a result, 2022 earnings May look similar to 2021, excluding the 2021 impairment charge.
We believe that the actions we are taking now and expect to take over the next few quarters are setting us up nicely for the new normal in the future.
Wade.
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 announced an agreement with Delta to add 16, New E 170, Fives. We anticipate these aircraft will be placed into service beginning mid 2020.
Two through the first part of 2023. These aircraft will replace 16 older Skywest owned C. R. J 900 aircraft currently operating under contract with Delta. After we take delivery of these aircraft. We will have 87, <unk> hundred 70 fives under long term contracts with.
Delta during the first nine months of 2021, we put 17 C. R. J seven hundreds into service with American we still have 19 more C. R. J seven hundreds to add to our contract eight during Q4 2021 and 11 during 2023, bringing our America.
<unk> C. R. J 700 fleet total to 101 by the Middle of 2023, the majority of D. C. R. J seven hundreds have been in long term storage for the past few years and require extensive maintenance work to return to surface.
Also with American we have 20, new E 175 scheduled for service next year, we'd receive six of those during the third quarter and anticipate receiving 12 more during Q4 and two in the first quarter of next year.
Together these E 175, and C. R. J seven hundreds will bring our total American fleet to 121 by the middle of 2023.
Last quarter, we announced an agreement with Alaska to add nine more E 170, fives to our contract we expect to place eight of those aircraft into service during 2022 and one aircraft. During the first half of 2023 for a total of 41 under long term contracts with Alaska. We have also extended the current fee.
Fleet of 32 E 170, fives, which puts all of these aircraft under contract with Alaska for the rest of this decade during the second quarter. We worked with all of our major partners on a third round of contract concessions, which included temporary rate reductions. These concessions are reflected in our third quarter results all concern.
<unk> expired at the end of the third quarter, Let me review our current.
Production during the third quarter, our completed block hours were down by less than 2% compared to the same quarter in 2019 based on the current schedules. We have from our major partners for the fourth quarter of 2021, we anticipate that our block hours will decrease by approximately 5% compared to the third quarter of 2020.
One as we look forward to 2022, we anticipate that our block hours will be slightly higher than 2019, let.
Let me talk a little about our pro rate business, which was slightly profitable in Q3 pro rate revenue for the quarter decreased by 12% or approximately $18 million compared to Q3 2019 for Q4, we anticipate our pro rate revenue to decrease by 25% as.
Compared to Q3 2021. This decrease is primarily related to service reductions and several of our prorate cities as higher yield business travel has been slower to return we have reallocated these block hours.
To our contract flying with higher margin characteristics, we anticipate that our prorate model will continue to decrease during 2022 as we continue to grow and reallocate block hours to our contract fleet ship shifting gears to our leasing business. We currently have 39 C. R. J.
Hundreds and nine hundreds under long term leases with third parties. This line of business has very good cash flow and strong margin characteristics demand for our engine leasing business is returning and we anticipate placing several engines under long term leases next year next year, we will have 16 C. R. J nine.
Hunters that come out of the Delta contract and are currently not placed we anticipate placing these aircraft in our leasing entity after removal from the Delta contract, where we may pursue leasing opportunities for aircraft or engines. Let me talk briefly about our current maintenance expense, which continues to run above historic.
You'll norms. This is primarily due to the recovery of our flying in bringing the aircraft for American agreement out of long term storage. We currently have over 30 lines of heavy maintenance at our third party providers and the ramp up of the suppliers remain slower than anticipated.
We anticipate that we will continue maintenance at roughly these levels during the fourth quarter and expect to trend down starting next year to steadily settle at a new normal as a result of our improved fleet mix, we do not anticipate returning to 2019 maintenance cost levels. For example, we are responsible for <unk>.
Maintenance on all of our E 170, fives and have placed them under a power by the hour agreement the engine maintenance expense on the E. 170 Fives is also reimbursed in our revenue model. We have spent the last several years, reducing risk and enhancing fleet and financing flexibility to ensure we are well <unk>.
<unk>, we are committed to continue our work with each of our major partners to provide creative solutions as we work toward full demand recovery.
Okay, operator, we're ready for our Q&A now.
As a reminder to ask a question simply press star one on your telephone keypad again that is star one to ask a question. Our first question is from Ravi site with Raymond James. Please go ahead.
Hey, good afternoon, everyone.
Just on first of all a little bit on pilot levels, and just curious what youre seeing on attrition levels I know last quarter you said.
Still kind of below historical that you were planning on that moving higher.
What you're seeing there and along the same lines. We've heard from a couple of your partners that there hasn't issues. It staffing in house their in house Regionals, and wondering if you're kind of seeing the opportunity to help out there.
Savi. This is chip I appreciate the question first and foremost I think that with with the models that we have been looking at over the past several months, we anticipated higher attrition here in the fall and that has happened it's been about at the levels that we had had thought.
Understand our entire processes are spending a lot of time and effort on making sure. We evaluate you know what what to project out into the future as well as make sure. We got a very strong pipeline. So look from our perspective is as we said in the script. We've got good full classes are probably is bigger robust training.
Pipeline as we've ever had at Skywest, we're getting good strong professional candidates.
But youre right Theres a lot of attraction to Skywest pilots, we think we hire the best and we have the best training program in the World and so that certainly goes into our calculation relative to the second part of your question.
We're just focused on our own business, we continue to work with our partners on what their needs are.
From our perspective, it's a lot about making sure we have the best pilots, we take care of them and give them. The good experience that they need here and try to hang onto them and we'd love to hang onto all of them, but we understand how sometimes the math of that model work. So.
We're optimistic but this is something that we spend a tremendous amount of time watching and predicting.
Nine months out to 18 months.
As best we can.
I appreciate that Colin chip and then a little bit on that segment.
I'm, just I'm trying to understand how kind of those aircrafts are reallocated because that.
Are they kind of getting on CPA is are they being used.
As you.
Kind of backup.
When when you need it I'm just trying to understand kind of the reallocation therein.
It sounds like the assumption in the 2022 earnings outlook is that pro rate doesn't really come back or is even lower than 2021, but I'm just trying to understand a little bit more if you could provide some color on how you're thinking about that business.
Hey, Savi. This is this is wade so just to add a little bit more color to that so so number one our prorate model has a lot of flexibility to it right. So right now as I said in my script, we've seen the business demand decrease.
Over the last while and it just has not returned 100% yet so what we've been able to do is reallocate some of those pilots and other things too to contract model. So the airplanes just go in and they support the contract fleet.
We're able to fly.
Fly additional block hours under contract, but you know as business demand returns, we're going to have the flexibility to go back to what we want to and what we need to and so we're just we're going to maintain as much flexibility as we can going forward. So.
And is there kind of a general.
He kind of general color on the.
Rob you kind of the EPS kind of thinking that you provided our earnings.
Color you provided like what's assumed in there.
Well I think it's Wade said savi.
As we think of next year, and you know and as we said, it's likely fairly similar to the results of this year that.
That includes.
Recapturing somewhere in the neighborhood of a couple of hundred million dollars of.
Net grant benefit that goes away I think to Wade's point is that our expectations.
For pro rate I think our modest next year.
I appreciate the answer thanks.
Your next question is from Mike Lindbergh Lindenberg with Deutsche Bank.
Okay.
Okay. Good afternoon, everyone.
I wanted to just go back to the <unk>.
That you had it looks like in the release you talk about it being related to I.
I guess the consequences of dealing with the cyber attack.
And now we're.
So number one.
Is there any sort of insurance coverage that you get as a result of this or is this you know.
Our mistake that you made.
And then just.
This was ongoing you know there was a lot of information at least out on blocks as you can imagine in trying to get the right story here that this happened during the day that this migration occurred or was it through the night.
It seemed like.
It was happening it was right. During this part of the day with is there any way to kind of get around this ability to minimize the operational impact.
Sort of as a follow up.
Did you learn from that.
What not to do next time or maybe it was just outside of your hands given the technology.
Yes. Thanks, Mike This is Rob So let me let me clarify a couple of things that the cyber attack that occurred was a couple of weeks ago. It was from a known hacking entity and the malware that was associated with the attack.
Was quickly identified and quickly quarantined it did not have any operational impact.
That outage that we had that was a week ago today.
Was not related directly to the malware, but it was it was related from from trying to purge. The remnants of the quarantine software that was part of that so the server outage that we that we had was part of.
Repairing our system from the earlier attack it was not caused by the malware.
Okay.
Okay, and then anything that you learned from this or was this just you know you.
You can see on the blogs that this was done yesterday and should it had been done at night or maybe you can clarify that I'm just curious I mean is it.
Yeah, Mike This is chip.
Would certainly say that this is as you can see what we've disclosed that this may have cost us we have a very expensive and valuable.
Lesson book of things to learn I will also add a couple of things I mean, the impact was not just related to the fact that it happened during the day as well as a very very unfortunate large bank, but I would also add it's somewhat further complicated given our level of technology we.
We have electronic maintenance logs, which were probably the only airline in the United States that has that we have are probably one of the most technologically robust operations in the United States.
And from that perspective, we can go through a lot of the elements of redundancy the timing of when we did this.
But I can assure you that given the level of expertise that we have on this collaboration with our partners.
Internal things that we've learned we still fundamentally have a lot of confidence in the systems that we use but theres a lot of new processes that we're going to deploy and strategies to make sure. This absolutely never happens again.
So without getting into too many specifics.
There's a lot of good news bad news, mostly bad news, but.
We're very confident in some of the challenges that it departments have these days relative to cyber attacks.
It's a success story some of the clear the unfortunate part is how we went about repairing and maintaining the reliability, which we've learned tremendous lessons about that.
Okay.
Rob Thanks for clarification helpful. And then just the second question, Rob when you were talking about the partner concessions you sort of said we believe that this is the last of them and then I think Wade also.
Indicated that we're not going to see them again, but you said it in such a way that maybe you left open the door that we could see more and I just didn't know if you were.
Pointing to the fact that we have had some true ups with respect to the PSP and so maybe there's a true up or something along those lines, where maybe there would be a small payment and you were just covering your basis on that or maybe I, just misinterpreted or reading between the lines too much.
No Mike Lykke, the only the only point I was making is that associated with PSP, one and two there were sort of.
Days true ups at the sort of at the end of the process.
We've not heard anything about anything similar for PSP three at this point. So if there's if there's not we're done but I would just say, it's maybe not impossible that we could be surprised by.
An additional true up amount, but we're not aware of any.
Okay. That's helpful. Okay, great. Thanks, guys. Thanks, everyone.
Okay.
Your next question is from Duane <unk> with Evercore ISI.
Hey, Thank you.
I wanted to go back to <unk>.
The obvious question on on the attrition I Wonder if you could put.
Any numbers to kind of the current environment.
Kind of how was attrition running maybe six months ago, and where is that today.
The reason I think were asking the question is some of the announcements that came out over the course of the quarter.
From some wholly owned.
I think over at American where there were some kind of eye popping.
Bonuses around flow agreements and things of that sort and maybe you could just help.
Put your level of attrition in context.
And why you would or would not be impacted by some of those announcements that we saw.
Yes. So Duane this is chip again, thanks for the question, we're not going to get into specifics about.
The number of attrition I would say that it is clearly double digit plus more than it was.
Six months ago, I would emphasize is as expected and I would also suggest that our hiring and training is outpacing our increased attrition numbers. So I think those are the key variables that you would look to from us and as we.
<unk> looked at our classes that go out almost nine months from now.
The announcement from those particular wholly owned carriers that you mentioned does not appear to have had any impact or at least meaning.
A meaningful impact on that like we really didn't see anything so look that having been said I think that's as much detail as we can give is higher by double digit increases, but also our hiring is outpacing what the increases and.
We're extremely focused on targeting this over the next couple of years.
I appreciate that.
I guess it fit.
My guess is your operational reliability is a lot better.
Historically and today.
And if this increases your cost to serve.
For a period of time do you ultimately believe youll be compensated for that.
I think you have to look at the broader view of.
The economy, I think that Theres, probably not just our industry, but in many industries that are grappling with.
<unk>.
Labor shortages supply chain shortages raw material price increases increases in fuel and when you look at all of those variables I would suggest that as we move forward there will be upward.
Pressure on our revenue models too as we renew and as we renegotiate.
To encapsulate that so the industry needs yields obviously in business travel and international travel to help recover what's happening on the internal domestic model, but I think that theres a lot of factors.
Beyond just pilot supply that that gives us pause.
Relative to recovering some of our cost increases.
Very fair thank you.
Your next question is from Catherine O'brien with Goldman Sachs.
Hi, good afternoon, everyone. Thank you for your time.
So theoretically we've seen 50 seater capacity negatively impacted by higher fuel prices.
Our fleet is much much less exposed to this aircraft type and historically, but can you just walk us through how the higher fuel environment is impacting your meeting with D. C. Your fleet I know first time, you've actually seen unexpected short term extensions on 50 Seaters.
When do those start to roll off and what are the conversations Jonathan indicators look like thanks.
Yes, Catherine this is Wade so we as you know, we probably have around 140 to $150 50 theaters in our fleet.
Today, the demand for the 50 theaters with all with the major partners that we fly those four is still very good.
Every both of the partners we fly those four are.
Definitely interested in more 50 seat lift I will tell you that.
We're working with them on the demand and being able to fill those those those opportunities.
The fuel side will definitely.
A bit of a headwind for us in our.
<unk> business right. So that is something that we will look at very closely and we have the flexibility to allocate those block hours in other ways.
If we're not feeling that it's going in a good direction for us. So we do have lots of flexibility with with our fleet, but the demand continues to be.
Good for for the partners, we fly 50, Seaters for right now and the contract term.
With the 50 Seaters that we have they go into 2024 and 2025.
Great color, Thanks, and maybe just very quick follow up to that question and then I have one more.
What's the RFP environment like more generally.
Obviously, there's been quite a few announcements on the 75 theaters recently.
We are starting to bump up against scope on that aircraft type or do you think there.
Appetite for more thanks.
We work with all of our major partners.
On on their demands right now, it's probably not as much about historical Rfps. We're always reviewing the fleet plan with them, that's what we'd like to say and there is just always opportunities that we're creatively working with them on.
Getting more and more 76, seaters and into our fleet as you've seen what we've been able to do with with Delta American Alaska, We've been very creative with each of our partners to review their fleet needs and work with them proactively on on their fleet and how we can accommodate and help them through.
These difficult times and so we've just been more proactive than anything and we'll continue to do that we'll continue to work with our partners on their demands and their needs and what they what they're trying to accomplish so.
Okay, Great I might just sneak one more in here I appreciate all the time.
I know you still have a decent amount of Capex next year, although quite a bit lower than it's been over the last several years, if nothing changes in terms of incremental aircrafts getting added to your fleet do you think your balance sheet will be in a position to start returning cash to shareholders right around October one 2022 and that is first of all <unk> Zack Thanks again for all the time.
Hey, Katy it's Rob here. So I think in terms of Capex, we're going to do close to $600 million, maybe a little more this year in Capex next year, including the effect of 26 additional 170 fives that we're going to take delivery on.
Our Capex next year.
Likely in the 800 $800 million range or so so we're still really happy that we've got great.
Projects against which we can deploy some of deploy our cash and deploy our capital.
With respect to your question about cares Act restrictions obviously it's.
It's.
Coming up next September when those restrictions fall away, but.
We're going to look carefully at our liquidity and our balance sheet situation and right now we're again really pleased with that.
The fact that we've been able to emerge from Covid with.
Less debt net of cash than we had going in and we're going to continue to remain focused on preserving liquidity for a while here.
Got it that's my bad I'm looking at the last 10-Q didn't include the.
The new agreement reached with Delta. So so thanks, guys for the time.
Okay. Thanks Katy.
Our next question is from Helane Becker with Cowen.
Oh, Thank you very much operator.
Hi, Tim Thanks for the time.
This quarter you guys I think mentioned some stuff about supply chain issues on your maintenance and I'm just kind of wondering how that is now if that's caught up or where you stand.
Yes, Helane this is wade.
And it's I talked about a little bit in my script, and we talked about it last quarter right now we have over 30 lines of.
Of heavy maintenance going on with the with our third party providers and the ramp up continues to be.
Slower than what we would anticipate.
We have done some things internally to help mitigate a lot of this we've actually started doing some of these inspections internally and we've had very good success on that.
So it still is a challenge, but we are navigating through that I would say very very well, we've been able to work with our third party providers, we've been able to provide some flexibility with some some airplanes that are coming early from the manufacturer to kind of help through some of these challenges.
Yes.
So we're getting through it it continues to be a struggle, but I think it's something that our team has navigated extremely well.
That's very helpful. Thanks, and then my other question my follow up question.
So.
I just would like totally out of left field I saw the other day on TV that St. George Utah is one of the fastest growing if not the fastest growing city in the country.
Right now.
And it's really a lot bigger than it was when I visited last time.
Sure.
Changing the travel patterns of the folks who are moving in and are you seeing increased demand for air transportation out of St. George that would would mean you have more to do with your pro rate aircraft.
Then maybe you think you do or do people just drive over to Las Vegas and catch up.
In line of sight.
So what Helane. This is chip that's a great observation and we use and we use St. Georgia as the example.
Mostly because this is where we are in our headquarters are but where St. Georges is a very good case study for what's happening in a lot of more rural Midwestern cities throughout the United States as you can imagine what's happened in the pandemic. There is certainly a tremendous amount of movement out of big cities.
Larger.
Cities in that towards smaller cities, where they can people can work from home and it's just the evolution of the way people work, we're seeing the same things in other states, Nevada, Idaho, Colorado, All all smaller to midsized cities are growing St. George is growing for some good reasons, but a lot of others.
Cities have that real estate market that its just going crazy because the demand for people to live.
Outside the coast, a little bit and we're seeing that now does it translate into a prorate operation.
As we've said on the call there's a lot of demand for our products someone's going into these small and midsized cities someone's going to help.
Support larger point to point flying with our major partners. So I would just suggest that we are well optimized between pro rate and contract with our partners.
And there is a very good strong demand for what we're what we're providing right now.
That's great that's great color. Thank you.
And your next question is from Catherine O'brien with Goldman Sachs.
Thanks, Greg you're back on.
Quick modeling ones so.
<unk> revenue you're booking now.
How do we I guess, how do we think about that booking going forward like is 19 million a good run rate or was that only partial quarter.
You were hitting the right amount of block hours I'm, just trying to think of like the best way for us to model that if there is one thanks so much.
Thanks, Katy, Yes, I mean again as we as we mentioned there is about $118 million cumulative cumulatively.
Sitting out there in deferred revenue.
The bulk of that is going to reverse likely over the next couple of years the pattern.
It's tough to predict because again, it's going to depend on.
The pattern of the recovery the cadence of the recovery and it's hard to know.
Predict out with a lot of precision at this point, but I can tell you that.
Of that $118 million most of that is going to be recognized over the next couple of years.
Got it thank you very much thanks Todd.
And with that I will now turn the call back over to chip Childs for closing remarks.
Great. Thank you Tina again, we want to thank you for joining us on the call today.
We really appreciate your interest in Skywest again want to thank our people for their great work that they're doing we still fundamentally believe that your essential.
To the industry and to our company and with that we will talk to you next quarter.
Thank you again for joining US today. This does conclude today's presentation you may now disconnect.
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