SkyWest Inc (SKYW) 2002 Q4 法說會逐字稿

Good morning. Welcome to the SkyWest 2002 earnings conference call. At this time I would like to inform you this conference call is being recorded. All participants are in a listen-only mode. This conference call contains or may contain forward-looking statements based on management's beliefs and assumptions. Such statements are subject to various risks and uncertainties that could cause results to vary materially. These include but are not limited to economic, competitive, governmental, technological and other factors as identified in SkyWest's press releases or discussed from time to time in SkyWest's reports to shareholders and periodic filings with the Securities and Exchange Commission. I will turn the conference over to Bradford Rich, Executive Vice President and CFO. Please go ahead, sir.

Okay. Thank you very much operator. Thanks to all of you for your interest in SkyWest and for being willing to participate with us this morning. I did want to let you know that joining me this morning from SkyWest, we are at different locations, but participating is Ron Reber, Executive Vice President and Chief Operations Officer, then we have Mike Crop who is Vice President of Finance and Assistant Treasurer who also takes care of our Investor Relations, as well as Russell Childs, Vice President Controller with us as well. They will be available to help with questions and things when we get to that point.

First of all, just a quick review of the financial results for the fourth quarter. As you've seen in the release this morning, the actual results of 48. -- excuse me $17.8 million in net income and 31 cents in diluted earnings per share. We feel good about those earnings relative to all of the factors and the things going on in the environment today.

Probably the most significant issue to point out that embedded in the results of the fourth quarter is the fact that we did not record revenue on the United side of the operation relative to the missed wire. I think most of you know that early in December, just before United filed bankruptcy, they missed a wire payment. We have been very straight forward with, you know, publically indicating that that wire was about $9.7 million. We had a total pre filing exposure to United of about $13.5 million which we felt we had the right of offset of about $4 million. But, in any event, once that -- the collection of that missed wire became questionable, we chose not to book the revenue on that wire. So that's about $9.7 million in the quarter that is not included in our top line revenue. The EPS impact of that is about 10 cents in diluted earnings per share.

We felt like our operating performance in the fourth quarter remained very strong. Our adjusted completion factor -- when I say adjusted, adjusting for weather and ATC which we then refer to as our controllable completion factor was 98.9%. -- our adjusted ontime performance of 5 minutes was 92.7%. We are pleased with the operating performance and the operation in general just remains in very good shape. Very high quality. Just, I think, as most of you have become accustomed to in reviewing SkyWest's performance.

Our cost per ASM in the quarter actually very pleased with the reduction down to 14.9 cents. Obviously, as we have brought more regional jets into the system, that number has come down simply because of the weighting of the ASMs more heavily to CRJ. We are also very pleased with success we are having in implementing some very aggressive cost reduction techniques and some things that we believe are designed, and the objectives of which are to make sure that our costs are in line with market. There's obviously a lot of discussion, it feels like today, particularly in the regional sector about regional cost per ASM and who can do it the least expensive and all that. We feel very good about our cost structure. We believe when things are compared apples-to-apples we are in very good shape. To make sure of that we are, as I said, implementing some very aggressive cost reduction programs and initiatives to make sure that we are very competitive on the cost structure.

As far as then looking at the year-to-date -- or the year-end numbers of $86.9 million of net income, or $1.51 in diluted earnings per share, most of you I would suspect that are following the company closely have seen our filings, previous filings where we were -- we did have an issue with restatement, reaudit of 2001 and the restatement. I think the only thing, at this point that I would like to point out, is that admittedly, the year-end numbers are -- I hesitate a little bit to use the term distorted, but a little bit distorted from the cumulative in effect of the change in accounting principle which was about $8.6 million after tax. You know, that happened in previous periods that the impact on the year-to-date numbers is that $8.6 million after tax. So I just call that to your attention. I would remind you that's in the year-to-date numbers which I think distorts a little bit the year-over-year comparisons a bit.

As far as the balance sheet is concerned, the balance sheet remains in very good shape, and I believe one of the best balance sheets if not the best balance sheet in the industry. Our cash securities and equivalents at the end of December were $425.4 million. We had $111.4 million in deposits bringing our total cash in deposits to $536.8 million. Our current ratio is 4.3 times current assets to current liabilities. It's interesting to me to break these things down in per share amounts. Our cash -- just our cash and equivalents per share is at 740 per share. Total cash in deposits per share $9.35 per share. Our book value at the end of December is $11.12 per share, which I find, you know, somewhat interesting relative to current trading price of around I think just before we started the call, about $10.80 a share. Our long-term debt that you'll see in our filings at the end of the year was $125.4 million. That's down significantly from what you saw in previous filings because of some aircraft financing that we had previously done, a few airplanes were on interim financings. All of those were cleared off and are now in permanent financings at the end of the year.

At the end of the year we had no aircraft in anything but the long-term permanent financings. That brought our long-term debt down to $125 million. The present value of the offbalance sheet obligations was about $971.8 million. When you work that back into our total debt to capitalization, it gives you about 63% of debt to cap. That's a number that we obviously feel actually very good about relative to industry standards.

I'm sure that one of the things that's of most significance right now is just the kind of current status of relationships with our partners and those types of things. Let me first spend just a minute discussing some of the issues relative to the United agreement and our relationship with United. As I have already discussed, we had a pre-filing claim of about $9.7 million net. When I say net, that's net of amounts that we believe we have the right of offset. Those amounts have still not -- that amount has still not been paid, and at this point just remains a question. Again, which is why we had chosen not to book that amount as revenue in the fourth quarter.

All of the post filing cash flows are current, are being paid just as we would expect them to. So all of that relative to the post filing situation is, again, running very smoothly, actually and just as we would have expected.

We are currently in discussions with United relative to a post filing agreement both just a rate agreement itself, as well as issues pertaining to longer term agreement, which we expect to negotiate to a multi-year agreement relative to rates. As I said, we are in discussions currently. We have met several times with United, very specifically reviewing numbers, setting up models. So the discussions continue. At least it's our belief we have the ability to come to agreement on both the rate agreement and a longer term agreement in a relatively short period of time. Now, having said that, we are obviously very aware that there is a possibility that United will not successfully emerge from bankruptcy, and although I'm not going to comment at all relative to any of the probabilities or an assessment of that likelihood, we obviously know it's a possibility. Because we know it's a possibility, we are actively pursuing alternatives, you know, in the event that becomes a reality.

The first thing that I would say that we are doing to prepare for that is just making sure that we are doing our part, making sure that we are very competitive on our costs. So, again, as I mentioned earlier, we are very aggressively initiating cost reduction programs on the cost side. And as that relates specifically to United, I mean, we are doing -- what I'm saying is we believe we are doing our part getting our costs right to do our part passing that value and the savings that we are realizing back to our contracts.

The next thing that we are doing is -- is still focusing very specifically on the major hubs that we operate for United. And, I guess we just want to re-emphasize the fact that we believe very strongly in the continuing demand for our product at the United -- existing United hubs. Meaning we believe there will be demand there for regional jets with or without the United code. We believe those markets where we are controlling the market share, that -- you know, that somebody at the main line level will be providing service at their hubs. We are already there with facilities, with people, with the aircraft that are financed, and believe that demand for the product will continue at those hubs.

Having said that, though, we are also very actively developing relationships with other major partners and pursuing opportunities to fly in other major codes. I'm not at liberty, at this time, on this call to discuss in detail those discussions, but we are pursuing opportunities both for regional jet flying, as well as for additional turbo prop flying. And several of those discussions are developing quite significantly.

We are also taking advantage of this opportunity, taking advantage of what we think is an opportunity given our cost structure to develop a business model for larger, regional aircraft types. I don't want to oversell that issue, but we do believe that we are in a position to operate 70 or 90 seat aircraft, very, very cost efficiently. That's a business model we are pursuing and developing, and think that it has a place, at some point, and in some geographic areas in this market place.

We are also developing -- or considering and pursuing opportunities where we could generate additional activity in the prorate area. Now, we are going to be very careful with that. More than likely, we would not pursue additional prorate opportunities unless it involved multiple code sharing in those markets, but that is an area that we are looking at and have been pursuing.

Relative to the Delta side, I think it goes without saying that both of our carriers, our current partners, Delta and United are very actively pursuing concessions, cost reductions, trying to realize value wherever they can. Delta certainly is not exempt from these kind of pressures, and we are being -- or have been asked to consider some -- what I'd say are fairly significant concessions in this 2003 time period because of some of the success we are having with our cost reductions, which put us in a position to be able to offer some -- some reduced rates. We have done that. I don't believe that the concessions, at least at this point, are things that will affect long-term relationships. At the same time with Delta, we are actively discussing the framework and the methodology, the philosophy for a long-term agreement. Obviously the key to all of the agreements, I believe, at this point, and the condition that the industry is in, the underlying premise is that the underlying base costs must be competitive. And we believe, very strongly, that our costs are competitive and will be competitive. Given that assumption, we believe that we have all of the things in place with Delta for a very productive, longer term relationship that could involve some fairly significant growth in the Delta system and it's an agreement that we believe works, at least from a compensation standpoint, that works for both SkyWest and Delta in the longer term. So that's kind of where we're at on the Delta side.

Let me talk just very quickly about the current fleet. Current fleet is at 75 Brazilias. That's broken down to 16 Delta, 59 United. The RJ fleet is at 84 aircraft today. 51 Delta, 33 United.

As we are talking about that fleet, again I would emphasize as of the end of the year, we had no interim financings in place. All of the aircraft were long-term permanent financed. The aircraft financing, as it relates to future deliveries, let me put that in perspective a little bit. In 2003, our total deliveries scheduled are 39 net new deliveries. It actually works out 36 net new airplanes in that three airplanes will been returned. I'm talking with RJs, for a net new aircraft of 36 airplanes. We have 28 that are scheduled to go into the United system with 11 new, 8 net new going in the Delta system.

Obviously aircraft financing is a huge issue in the market today. A lot of people are asking two questions. First of all, why would we take all of these aircraft for United, given their current situation? And even if we got comfortable to take all those airplanes for United system, are we going to be able to finance all the airplanes? I do -- let me first of all address the aircraft financing issue, I believe that we are in the best position of any regional carrier in the country relative to our ability to finance the airplanes. I believe that we will be successful in obtaining the long-term debt portion. The equity seems to be a bigger challenge, at this point, and that's where our balance sheet and our liquidity become very strong, I think, strategic and competitive advantages in that if we get to the point of delivery, we have the debt in place, we don't have the equity. We have the ability, temporarily, to fund the equity on our own. Keeping in mind that we already have a time of delivery approximately 12% of the aircraft price that's already down in our deposits. So it wouldn't take very much additional capital per airplane to fund the equity portion temporarily. Now, the question, although, given that I think we have probably better ability to finance airplanes than anyone in the market, the question is, do we feel comfortable continuing to take deliveries given that so many of our current year deliveries are United's? I think we are in a good position relative to the fact that we are pursuing other opportunities for that lift. We have the opportunity to watch and see how things develop in the United reorganization. At this point we are planning to deliver all of the aircraft as scheduled to United. If there becomes a point in time that we become uncomfortable in delivering all of those scheduled deliveries to United, we believe that we are developing and have alternatives for that lift.

Now, I would also just, again, re-emphasize the fact that at least at this point, what we have heard from United, is that they want all of the airplanes that are on schedule. They still believe that the RJs are a very important part of the reorganization, and a solution to some of the issues. So, again, that's -- I'll just leave it at that for now, I guess, in that we are in the position to evaluate this as it develops and evolves. If we become uncomfortable at some point, we believe that we are creating enough alternatives for that lift that we could divert it to other opportunities. As it relates to ASM production moving forward. I believe that we are going to be right on about 1.3 billion ASMs in the first quarter of 2003, about 1.5 in the second quarter. 1.6 in the third quarter and another 1.6 in the fourth quarter which gets us just a tad over 6 billion ASMs for the year which is about 38% growth year-over-year.

A couple of things that I would mention in addition, are that back in October of 2002 we put out a press release talking about a stock buy back program that we had about 2.7 million shares that were still authorized by our board and available for repurchase. Since that time we have been in corporate blackout. We remain in blackout today. I would just say that we still stand by the press release that we put out in October, and at the point in time where we are out of blackout, at least if the stock remains around the current levels, we expect to be executing that repurchase program.

Obviously with world events that are taking place right now, what happens to our operation in the event of war, we know is an issue. We have discussed war contingency plans as it relates to our schedule and the amount of flying with both carriers. I would summarize it to say that we don't expect any material or significant reductions at all of the RJ fleet. We have been asked to consider some small reductions in the Brazilia side, but not to the extent that I believe it even hits the materialality threshold. Obviously we will be watching all these events closely and making determinations as things develop and evolve. I do believe if you see significant reductions of our activity, anything that would be deemed material, it would be on the Brazilia side. Again, don't expect any reductions in CRJs. I think with that, I'll go ahead and conclude the formal remarks and open it for questions. Again, I would ask for your cooperation. We are trying to be sensitive about people's time, and I would ask and re-emphasize that we have one question per participant.

Thank you, sir. The Q&A session will begin at this time. If you are using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question, please press star one on your push button telephone. Should you wish to withdraw your question, please press star 2 please be advised to limit yourselves to one question per person. Your question will be taken in the order it is received. Please stand by for your first question. First question comes from Michael Linenberg from Merrill Lynch.

Michael Linenberg, Hi, how are you. This is actually Michael Linenberg and Lilly Ing, we work with Mike. I have a question on interest expense. Why has it approximately $2 million higher in the December quarter versus the September quarter?

Simply because in previous periods, because of certain activities going on, we had the ability to capitalize interest, and we're just not capping as much in these periods in the fourth quarter.

Michael Linenberg, Okay, great. Thank you very much.

Yep.

Thank you. Our next question comes from William Green from Morgan Stanley. Please state your question.

Hi, Brad. I just have a question. You mentioned that Delta's asked for, I guess what you term significant concessions. Are they asking for more than United has requested?

I wouldn't -- no, I wouldn't say so. I'd say that they are both just, you know, very aggressively pursuing value wherever they can find it. I wouldn't say there's material difference. I would say we are very -- we're still a little earlier in the process with United, but we wouldn't expect a material difference between the two carriers. Yes, we are further along with Delta. So I'm just saying I don't know exactly where things are going to come out with United, but I wouldn't expect there to be material differences between the two.

So implying if margins go to whatever level with one of the carriers they'll also be that level with the other?

That's -- yeah, I'm just saying I don't think there will be a material difference.

Okay. Fair enough. Thanks.

You're welcome.

Thank you. Our next question comes from Jim Barker from Raymond James.

Brad, good morning. I'd like to learn a little bit more about how SkyWest intends to cut costs to partially offset the cost reductions you might be passing on to Delta and United. Can you provide a little detail in that regard?

I can. First of all, the first thing that we have done and implemented is basically an across the board management pay cut. Our executive management group has taken 20% pay cuts. Our Vice President level, 15. Management below that 10%. And then to some extent, based on where people's existing pay is others have taken 5%. And so we felt that was very important to do to start at the top, make sure people knew that we were very serious about this, which has put us in a position to implement other initiatives throughout the company. We are being very careful on any Cap Ex. Basically our capital spending is down to, I mean, absolutely essential Cap Ex only. We have a hiring freeze in place. Even replacement positions have to be reapproved. We are looking for better utilization out of everything that we do both utilization of the airplanes, better utilization of stations, and people, and equipment. We are relooking at the schedule, relooking at situations where we may be in one or two city pairs which makes it very hard to utilize all of the equipment and people at stations. We are fairly significant reduction of station hours. We have gone to all of our professional fee service providers and asked for concessions. We are trying to take advantage of supply chain management issues with our major partners where we may be able to realize efficiencies by tapping into their supply chain, and then in general, I'd just say we are reviewing all of our processes and how we do things, you know, looking for efficiencies. So, I mean it's a very aggressive plan, and I believe that it's yielding some very significant results.

Okay. Thank you.

You're welcome.

Thank you our next question comes from Tony Cristello from DVT Capital Markets.

Thank you. I guess my question has to do with the opportunity that you see for larger aircraft. Is that something that's coming from Delta or UAL to you right now or is that something you're pursuing on your own in hopes that there will be an opportunity to put those in someone's fleet at some point?

I'm going to -- I'll give a very quick response to this, and then Ron Reber may want to comment on this as well. First of all, I think everybody knows that we don't have -- that there is not a scope clause that allows larger aircraft in the United system at this point. We do believe, though, again this is our thinking, that at some point they will make sense in the United -- at least we believe that they're pursuing a modification of the scope which would allow the aircraft, but there's nothing firm or anything at this point with United. So we certainly do not want to represent that there is anything there, only to say that we, according to our own analysis, we think the airplanes would make sense so we are making internal plans, evaluations of the airplanes, talking to manufacturers to be in a position to take larger airplanes. So we think there's room in -- or -- we think that there's a potential for productive utilization of these airplanes in our partner systems, but at the same time, we are looking at these airplanes and trying to develop a business model that we could implement and operate effectively either inside our current major partner systems, or doing something on our own. Ron, is there anything you want to add to that?

I think you said earlier, Brad, in your statements the economics of the airplanes are right, and as the majors kind of -- as they have an opportunity to redefine their fleets, either through scope adjustments or even the elimination of scope, the airplanes' economics have been good for a long time. The 70 and the 90-seater I think will play an extremely critical role in the redevelopment of our industry, and as we deploy, assets to match what it is they're doing with their fleet plan.

So it sounds like it's a strategic approach, rather than you -- any of your partners are coming to you right now saying yes, we want those jets.

I think it's a combination of both. We are obviously having discussions with both partners. As Brad said, they are not in a position today to commit to the fleets.

That's right.

Okay. Thank you.

You're welcome.

Our next question comes from Brian Harris from Salomon, Smith, Barney.

Yeah, Brad I want to make sure I heard this correctly or didn't hear this. You didn't mention one of the potential contingency plans would be flying under your own code; is that correct?

Um -- that is not something that we would look to as -- no. That's correct. That's not something we are actively pursuing.

Okay. And -- um -- to the extent you are comfortable, let's go under the assumption that the UAL would liquidate and, I understand your logic of the need for the aircraft in other airline system that would back-fill that. But in the period between that, what would happen, you know, before clarity and a new equilibrium is established, how would you manage through that situation just some broad thoughts on that?

The broad thoughts are this, a lot of this depends on how things develop and evolve with United. If it got to the point that something -- I mean significantly different would take place with United, meaning either a chapter 7 filing, or the liquidation of hubs while still in chapter 11, we are assuming that the most productive way to preserve value is to do this in a pre negotiated, cooperative way with a replacement carrier at whatever hubs United would vacate. As long as it's done that way, we would expect very smooth transition, very little interruption to our service. If we were just to wake up and at the same time all of you saw it in the press, that United was -- had either filed 7 or had liquidated hubs, that would have some -- that has the potential to have some -- you know some interruption of our operation. We think that very unlikely, given that we think it would erode more value. That in a negotiated, cooperative transition, we are far enough into discussions with other carriers for -- to provide capacity, that -- I mean I'll just say it this way. We think we have more opportunity than we have airplanes today. So we just -- we feel very good about the way these opportunities are developing.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from Chris Kennedy from Credit Suisse First Boston.

Hi. Just clarification. Regarding the 70 and 90 seaters. You are not thinking you would fly it on your own?

Um -- we -- Ron, you can certainly help me with this one. But, at this point, certainly our preference would be to build a model for those airplanes that we know the economics would work, and we think they can work very successfully and economically both within the majors -- the current trunk carrier systems, as well as developing a product that would be attractive in the lower fair segment. And certainly our preference would be, first of all, to pursue opportunities to put those in someone else's code. So, I mean that's what we are pursuing first. Ron, any additional comments?

Yeah. I just would agree. The economics of the airplane, again, provided with the opportunity, if you could not, or chose not to place these with a major carrier, there are O and D markets out there within our service area that could support even with today's current yield environment support these aircrafts. So the opportunity exists to fly under our own code. We have some work to do to fly under a SkyWest code. Or an easier way would be to transition into a risk environment with a major carrier's code. So the opportunities are out there.

Okay. Great. Thank you.

You're welcome.

Thank you. Our next question comes from Helene Becker from Buckingham Research Group. Please state your question.

Thank you very much operator. First of all, Brad, thank you for all that information. My question is this: I was kind of surprised that your operating margin in the fourth quarter was as high as it was. I think 13.8% versus 11.1 in the year ago quarter. Could you talk to that a little bit and discuss, you know, did you get performance bonuses or something like that?

We're still -- keep in mind that we're basically operating in the fourth quarter under, you know, under the agreements that were in place for either -- the agreements that were in place for 2002 in United's case we have not technically had a signed rate agreement for any of '02 so we basically just booked the revenue based upon the cash flows coming from United. It gets a little complicated, but we have an understanding with United about what the compensation was to be when all these issues surfaced and the bankruptcy and all of that. But, meaning that, you know, we do expect that beginning in the first quarter, when we, you know, have this new period, there will be some margin softening and some margin compression in the first quarter. I don't believe that it's going to be, certainly is not going to be catastrophic, but our margins will be compressed in the first quarter. Some of what you may have been expecting to see fourth quarter will happen to some extent in the first quarter. But again, it's not going to be we'll still have earnings, but you'll have some, I think see some compression in the first quarter.

Okay. Do you have an agreement or something with them that enables you to book revenue for them? How are you doing that?

For -- .

For the first quarter?

Excuse me Helene. For which quarter?

For the one we are in now. You know, when you are doing your books now, how are you accounting for their revenue then?

We're just to the final -- kind of the final, I would term it final phases with Delta of just working through administratively how we are going to implement an agreement. You know, when I'm talking about that, we're talking about we have the basic agreement now that's been agreed to. We are still trying to sort out how we do things like performance incentives and those types of things that just administratively we are figuring out and, I think very close to agreeing on with Delta. Which will all be done, and in place, you know by the end of the first quarter. With United, all we've been told by United is, at this point, they are going to compensate us based upon the agreements that were in place prior to their filing, and they will do that up until the time that we negotiate a post filing deal.

Okay.

Okay. So that's what we're doing.

Great. Okay.

Okay?

Thank you very much for the information.

You're welcome.

Thank you. Our next question comes from Jim Alschull from Aviation Advisory Service.

Good morning. Want to pick up on your answer or follow-up on your answer to one of the previous questions about what would happen if United were to liquidate either a hub or go into chapter 7. Without mentioning any names, are some of the other majors circling some of the United hubs that you feed and looking at stepping into those shoes?

Yes. The best way I'd classify it is if you're just playing a game of chess, and you're going through different alternatives looking at what you would do if, based on the other person's move, and you basically got the other carriers all looking at the various alternatives, and so as some of them have done that and they are charting their strategies, you know, people know that we're high quality, that our costs are in good shape, that we are already positioned in those hubs and we become a logical choice for people who intend to go in and, you know, pick up activity where United may, potentially, either significantly down size or vacate. It's kind of interesting what's going on in the industry, but I think it's probably expected. The people are planning their strategies based upon how thing's involve. So yes, there are those kinds of discussions going on.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Glen Engle from Goldman Sachs. Please state your question.

Good morning. The general and administrative line was up quite a bit. Are you finding you have extra legal fees with all the United stuff that should continue for the next couple quarters?

Yes. There are some legals in there. You know, Chip or Mike Crop might want to help as to what else is causing the increase in G&A. You have probably honed in on the more significant item. Is there anything else significant enough to mention here either of you two?

This is Chip. I think it depends which period you are comparing to. The other thing is we did have a little bit of some write-off of some receivables, not significant relative to the United bankruptcy. I mean it depends on which period you compare it to. There certainly is growth year-over-year in our infrastructure that we've had to grow in relative to the growth in jets and those types of things. But depending upon the period you are comparing it to it's relatively consistent with our airline growth.

Can you give us any cost guidance for 2003?

Cost -- I don't -- I don't think that we're prepared to do that at this point. When we are, we will probably go out with something, you know, public to all of you when we're back in a position to give that kind of guidance.

But as good as your fourth quarter costs were, your new programs really haven't even kicked in yet?

That's correct. And again -- well, some of -- I think that we've got a combination, again of just fleet mix, and as the fleet continues to become predominantly more and more dominant CRJ, our costs inherently are just going -- will continue to come down. But I think it will come down in addition, as we start to realize the impact of the cost cutting initiatives. I think that we do have some of the benefit of that already in there, in that we have -- you know we've implemented things like the hiring freezes, Cap Ex reductions, and things like that that we did implement in the fourth quarter. So there is some benefit of that in the fourth quarter, but certainly not anywhere near what we think we have as far as potential. So --

Thank you.

Thank you. Our last question comes from Robert Toomey from RBC Dean Rausher. Please state your question.

Hi, Brad. I just wanted to follow-up on your answer to Helene's question on margins. You did say that margins would be compressed. Can you give us any help on, do you still see margins within that broad kind of range that you have been talking about now for the past year or two, you know in your presentations, that kind of oval-shaped range that you use for margin, is it still in the, you know, 12 to 15 range or are we talking something well below that? Can you comment on that?

Yes, I will comment on it. First of all, relative to this year, this year I'll be -- to be very honest, we see somewhat as a -- as an almost of a transition year in that I think to some extent the agreements are going to be modified a bit just in methodology, structure, and in a significant effort by the major carriers to make sure that the contracts are market contracts. Now, when we say market, we've got two components. One is market based costs and, you know, there again, a lot of different versions of where people are at relative to base costs. We believe that we're in good shape right now, and we're going to be in even better shape once we, you know, we get the full benefit of these cost reduction programs. The other component is just the targeted margins, you know, built into the contracts. I think what we're finding is, is that both Delta and United, and I'm speaking from my perspective right now. I'm not trying to put words in the mouth of Delta and United, but from our experience with what we see from both -- I guess from our discussions with Delta and United, as well as what we see in the market, as we go out and we benchmark what other carriers are doing, I mean you'll see margins with regionals that are involved in fee for departure contracts that are ranging anywhere from 6 to, you know, the 14 or so percent. So what we think that means to us is that a reasonable range is, you know, in the 10 to 11, possibly 12 if you are doing really good performance, you know, and we always have, so something in that range versus the, you know, 14s or so that we have been doing. I think on a longer term basis is reasonable to expect we would be, you know, when I say compression, talking about a couple of margin points.

And you think that's doable for '03?

I -- I think that there's a possibility that in this transition year, while we are transitioning how we do business, transitioning to different methodologies, that it could be slightly lower than that this year. I mean there's a potential for that. But, I have to be very careful at this point, because, as I said, we are not -- we don't -- we're just not to that point with United, you know, to where I can give that clear of guidance. If I -- you know, I think we have to leave it fairly general at this point to say -- I'm still very confident that we are going to make very respectable rates of returns and margins this the year. I think they will be, I'm sure that they will be lower than what we have been doing historically this year. They could be in the single digits. High single digits. But again I think this is a transition period, and that on an ongoing basis, we're far enough in discussions of where things will be on a longer term basis that I think we're very confident that we'll be in a range in that, you know, 10 or 11, or 12% based on performance on a longer term basis. And those are rates of return that will work for us. And keep in mind, too, that one reason that I think we're willing to say that our margins come down is now that we have the infrastructure and the base for significant RJ operation, our invested capital required is going to come down. So we can -- I think we are now at a point where we can -- we can grow the system with less investment required per unit of growth, which means that we should be able now to operate at a slightly lower margin, but still have very good returns. So, I mean you're asking a very good question. I don't have as much answer as I'd like to have for it today given that there's still so much uncertainty. This year I see the transition. I see the future, I see the opportunity there for agreements that are back in that competitive market range that I discussed that work for us long-term. So I don't know what else to say at this point.

So are you saying, Brad, even on lower margins than you've experienced historically that your return on capital can be as good as it has been in the past? Is that what --

That is certainly what we're trying to restructure a bit to -- to make that happen. Yes. That is what our strategy is at this point.

And -- can I ask one more? You said earlier, in answering the question about United and the potential reorganization of your business if United would actually liquidate, you said you felt very good about the way things are developing, and I assume that's based on discussions with other carriers, is that a safe assumption?

That's correct.

Okay. Thanks, Brad.

You're welcome.

Thank you. There are no further questions. I'll turn the conference back to Mr. Rich to conclude.

With that we will conclude by again thanking you for your interest. We recognize there are a lot of uncertainties and some things obviously in the market that are uncertain today. We do feel very good about the prospects for the future. Feel like our relationships are in good shape, feel like we are developing alternatives, and, you know, other opportunities as you would expect us to do. We believe all of those things going on, the opportunities, alternatives combined with our liquidity and the strength of our balance sheet put us in a very good position to be successful for quite some time into the future. So having said that, we'll go ahead. Thank you for your participation, your time and we'll go ahead and conclude.

Thank you. Ladies and gentlemen if you wish to access the replay for this call you may do so by dialing 1-800-428-6051 or area code 973-709-2089 with the pass code of 287550. This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.