SkyWest Inc (SKYW) 2003 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the SkyWest Incorporated First Quarter 2003 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions-and-answers after the presentation.

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 includes 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 report to share holders and periodic filings with the Securities and Exchange Commission. I will now turn the conference over to Brad Rich, Executive Vice President, Chief Financial Officer and Treasurer of SkyWest. Please go ahead Brad.

Thank you operator. Thank you to all of you for joining us today and as always we appreciate your interest in the SkyWest and your interest in our industry. Before I begin, let me also make you aware that I also have Ron Reber our Executive Vice president and Chief Operating Officer with me, as well as Mike Kraupp, Vice President of Finance and Assistant Treasurer who also takes the lead role in Investor Relations; Chip Childs one of our Vice Presidents and Controller. It goes without saying that we are on this call today while our industry is experiencing significant challenges. As always with challenges we also see opportunity and a very interesting operating environment. I will use the press release that went out this morning very specifically as our agenda for this call, and I will stick pretty closely to the topics referred to in the press release.

So first of all, just by the way of review of the results of the quarter as you have probably already seen in the release we reported income today of $13.3m for the quarter ended March 31, 2003, which is 23 cents per diluted share, that compares with $15.7m of income before the cumulative effect of change in accounting principle or 27 cents per diluted share for the same period last year. Our operating revenues increased 18.9% to $207.4m compared to $174.3m for the same quarter last year. Now let me go into some specifics now on some items that we feel are the most significant items affecting the performance. As it relates to our total operating revenues for the first quarter, obviously, when we have a 34.5% increase in capacity there obviously should -- we would expect some increase in our operating revenues.

The operating revenues also were impacted though by a 15.4% reduction in yield per RPM. Now, we have had several things that we feel very good about relative to our operating revenues in the quarter, first of which is our operational reliability most impacted by our completion factor that we have detailed in the release. Our controllable completion factor was 99.2% in the quarter, our actual completion 97.6 of scheduled flights.

Now another thing obviously impacting our revenue recognition for the quarter is the status of our agreements with both Delta and United. As indicated in the release the company has not completed negotiations with major partners with respect to its fee per departure rates for calendar year 2003 and therefore we have recorded revenues based on prior period approved rates, then reduced to reflect managements current estimate of what we expect the results of those discussions to be.

We believe that what we have done is very consistent with our defined revenue recognition policy which is very specifically detailed in our 10-K on page 37, relative to our total operating expenses and I prefer to have this discussion relative to fuel primarily from the perspective of non fuel expenses. Fuel obviously is reimbursed by our major partners and fuel by itself has had significant impact on our reported numbers. Fuel per gallon increased from 84 cents per gallon to $1.28 per gallon quarter-over-quarter. It impacted our cost per SM by seven tenths of a cent increase with the exception of fuel, we had reduced cost per SM in all of our major expense categories.

If you exclude fuel from cost per SM, the cost per SM decrease from 13.5 cents per SM to 11.6 cents per SM and I would just remind you that, that's all in cost per SM for us both fleet height combined together consisting of 86 CRJs and still 75 EMBs and it does include interest. So that’s our [inaudible] non fuel cost per SM, I guess my point here is that we very pleased with the progress that we are making on the cost side. Some of the significant, well two significant things that I would just emphasize. Our maintenance expenses are down in the quarter, significantly primarily due to a new better younger fleet of aircraft as we have rapidly brought in new CRJs and the timing of heavy maintenance bands.

Also impacting the cost per SM reduction with the impact of very aggressive cost reduction initiatives that we have implemented both at the end of last year as well as in the first quarter to give little more specifics on some of those cost reduction initiatives. Very specifically we are focusing on utilization. And when we talked about utilization, we are focusing not only on the utilization of the airplanes in trying to improve the time on the airplanes per day but we are talking about all aspect of utilization at our company, involving our utilization of our human resources, of our stations, and of all of our equipment.

We also are making good progress in the salary benefits, wages, expenses that has been achieved through salary reductions that have been implemented amongst our management group which is where we started. We have implemented in addition a non-essential employee hiring fees. When we say non-essential we are talking about any positions other than those directly related to the acquisition of an aircraft. We have significantly reduced and are having good success of controlling our capital expenditures we have gone to vendors, manufactures, and professional service providers in trying to renegotiate or negotiate discounts wherever possible. So those are the types of things we are doing to reduce our cost structure. We have had good success in the first quarter. I still don’t believe that we are reaching a full potential or realizing the full impact of those cost reductions and I do need to say that a significant effort is being made by our employee our total employee work force.

We have had their cooperation. They understand the significance we believe of what we are trying to accomplish, how important it is that we maintain a competitive cost structure and we couldn’t have done what we have accomplished and what we need to accomplish without the cooperation and the support of our work force. And they have been done an excellent job to this point. Relative to our total ASMs for the first quarter -- during the first quarter, our ASM to our total capacity increased 34.5% during the first quarter.

This was primarily the result of growing the fleet from 131 total aircraft to a 161 total aircraft. During the quarter alone, we took delivery of 13 new Regional Jets and retired one turboprop. Let me give you a few more specifics and statistics about the fleet at this point. Currently the fleet consists of 75 total EMBs; those are broken out 17 in the Delta Systems, 15 -- or 58, excuse me, in the United Systems. We have a total of 86 CRJs, 52 in the Delta System, 34 in the United System. That's a total of 161 airplanes, 69 total in the Delta System, 92 in the United System.

As far as the composition of ASMs; as you all know, the CRJs generate exponentially greater ASMs. The ASM split in the quarter was 20% EMB, 80% CRJ. ASM production in the United System was 43% of total, 57% of total in the Delta System. Our company at this point still anticipates taking delivery of all aircraft thereon from order. At this point with what we know today, with where we're at with our major partners, which I'll talk about a little more specifically, we do not anticipate deferrals of aircraft deliveries. As I mentioned, we've taken delivery of 13 aircraft in the first quarter. We have -- in the remaining quarters of this year, we have 10 aircrafts scheduled for second quarter, seven aircraft in the third quarter, and nine aircraft in the fourth quarter, for a total of 39 deliveries in this year.

As far as the ASM generation that we expect, the ASM numbers have been slightly reduced, as we indicated in the press release, due to war schedules which have been implemented by both Delta and United, which also then have impacted our scheduling. I don't believe the reductions are significant. As we have released actual results, we did $1.306b ASMs in the first quarter. We expect an estimated $1.407b in the second quarter, $1.602b in the third quarter, $1.645b in the fourth quarter, which should bring us to $5.96b for the year or approximately $6b ASMs for the year.

Obviously, there are a number of factors that need to be considered relative to that fleet brand. As I mentioned, the status of our contracts is obviously a significant issue. The condition of United, their success in reorganization is also a significant factor, our ability to finance the equipment is a significant factor. Let me address first of all our relationships with both Delta and United. I think it goes without saying, everybody is very well aware or should be very well aware that one of the most significant issues that is being focused on today is simply the cost competitiveness of our product.

We have done a significant amount of market research, benchmarking, comparing our cost structures to the extent that we can with others in the industry. Both Delta and United have spent significant amounts of time and effort in trying to determine what are market rates, and I will just say that our research, our benchmarking combined with the results of both Delta and United's research and analysis into this area which they have both shared with us, we feel confident that our cost structure is competitive. To make sure that it's competitive, as I have already gone through, we are implementing and pursuing the cost reduction initiatives. So I believe that we are and will be in very good shape with our cost structure when compared to the industry on an apples-to-apples basis, making sure that -- just making sure that we all take the time and effort to make sure that we are comparing apples with apples. So given that we feel good about our cost structure and that we are working through those issues with our partner, relationships are, I think to describe them I'd just say that we are actively in discussions with both carriers just working through issues, continuing to develop our relationships. Both relationships are productive and cooperative. We are in active discussions with United pursuing a new agreement. There will be some modifications. We expect that we will have a continuing, ongoing relationship with United. I probably would choose not to really comment or do anything that would appear that I am speaking for United relative to any kind of progress or success that they are having. We just feel confident in the underlying demand for our product in the areas that we are currently providing service for United. That’s one of the reasons that we feel very confident in pursuing our aircraft deliveries, as I have outlined them, is that we fundamentally believe in the demand for the product in those areas that we are providing service.

Now relative to aircraft financing and it also ties into some changes that you either have or will see in our balance sheet. We still believe that our balance sheet is the best balance sheet in the industry. We have good liquidity, good equity versus debt mix, so a good capital structure. And I believe that our ability to finance airplanes in this challenging environment that we are probably the best positioned of all regional carriers to continue to finance aircraft. Having said that, we certainly have our share of challenges. During the quarter, we brought a significant amount of aircraft on balance sheet. At the end of the -- currently, all of our aircraft are financed with permanent long-term debt with the exception of two aircraft. We are currently in documentation for the long-term equity to go with those aircraft deliveries and to match those up with the debt component, at which point they will be removed from our balance sheet.

And the expectation is that as long as the transaction that we are currently documenting closes that those aircraft will come off balance sheet into regular U.S. leverage leases.

So admittedly, the balance sheet has increased, the long-term debt has increased, as we have outlined in the press release. The long-term debt increased in the quarter to $315m from $125m. And again, it's related to the aircraft acquisitions where a portion was funded with long-term debt. The remaining portion funded with the own companies -- with our company's own cash as the equity component with the expectation of replacing those into leverage lease structures as soon as possible.

I believe that's one of the advantages our company has. We have been successful in the debt markets. We believe that we have the ability to attract equity capital. We are pursuing deals aggressively both in the debt markets and the equity markets.

And at this point, we would expect that we will be successful in financing the equipment but I can give no assurances that we'll successful and if we are not successful, that could change our view of the aircraft deliveries that we've outlined. We, as relative to our cash position, we’re at $488.4m in total cash securities and deposits which translates to $8.47 cents per share of book value $653.7m or $11.34 cents per share. We do have a significant amount of off-balance sheet obligation. The present value of that obligation is $971m.

I will just remind you that although we have increased the long-term debt on the balance sheet, we expect to replace that debt into leverage lease structures. Once that happens, it does come off-balance sheet but it will also increase the present value of the off-balance sheet obligations. When you put all of that together whether it’s on-balance sheet or off-balance sheet, I think our -- in our total debt to capitalization is still going to be in the 65% range, which we feel quite -- we just feel like as a very solid number in this industry. Having said that, I will conclude the formal remarks now and I open up for questions. Knowing that you got both myself and Ron Reber to answer question. You can just ask your questions generally or target them to one of us -- specifically if preferred. So, Charlene, if you would now open up for question.

Thank you, Brad. The question-and-answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press "1” “4" on your push button telephone. If you wish to withdraw your question, please press "1” “3". Management has requested that each analyst limit to one question. The questions will be taken in the order that they are received. Please standby for your first question. Our first question is coming from Michael Linenberg. Please state you question.

Hi, it is actually Sean Iiago. I work with Michael Linenberg. And just curious, I know you touched upon CAPEX and how you are looking to reduce that. What do you project for 2003 for your CAPEX spend?

About $15m a quarter. And by the way, I just add that our CAPEX number does include all of our maintenance. Any overhauls in those types of things. In our CAPEX, we are $15m in the first quarter and I think that's a good running rate for the rest of the year for quarter.

So, you are looking at really $60m for the year then?

Yes, and that's non-cash, excuse me non-aircraft CAPEX.

Okay, great. Thank you very much.

You are welcome.

Our next question is coming from William Greene. Please state your question.

Yeah. Hi Brad. Just a question for you on liquidity, what level of liquidity are you comfortable with, where do you want to see your cash balance?

Well. Very good question. I mean we -- I thought we are the -- first of all, before I give you where we’re comfortable with, the cash balance, cash securities deposits that total is obviously down in the quarter. The first quarter is very heavy quarter for us in rents. We paid about $65m in rents. Also in invested back into the deliveries another $30 -- roughly $33m. So, that's the reason that our cash is down a bit in the quarter, but this is our heaviest period. We expect to be cash flow positive and that generating cash the remainder of the year.

Now, relative to our comfort level, liquidity is -- goes without saying, is a very powerful thing in the market and with the condition that this industry is in. So, I mean if we are in a normal market, I'd say that we are -- we’ve got a little more cash than we need. In this market, we feel that it is very important. Gives us the flexibility to be our own equity into the aircraft transactions if need be, gives us the opportunity to sit back and look at opportunities, analyze them, take advantage of them when some carriers can't simply because of liquidity.

So, I mean I guess to summarize it, I mean I think we have we have more cash than liquidity than we would need on an ongoing more normalized basis. In this market, we're going to try to keep our liquidity at levels very similar to where it's at today.

Okay. And just one quick follow up. Can you at this point, repurchase your shares or are you still restricted from doing that?

We are restricted only from the standpoint that we have been advised by our council that we are in a blackout and should be blacked out and I don’t want to send off any kind of alarms or bells or whistles. I mean, I think you all understand that in this environment, we're doing everything that we can to create opportunity and alternatives and given that we are in discussions with several carriers relative to opportunities, we consider that a issue to put this in blackout. And so we're not in a position to be repurchasing shares at this point.

Okay. Thank you.

You’re welcome.

Our next question is coming from Helane Becker. Please state your question.

Thank you very much. Hi Brad. I have two questions. One is you've switched auditors again I think and could you just discuss that briefly? And the second question is on the year end balance sheet, you have the maintenance contract asset and a maintenance contract liability, could you just discuss what that is?

Yes. Helane, your first question was relative to the change in the auditors?

Well, the balance sheet was -- the annual report looks it was done by KPMG but we're being asked in the proxy to approve E&Y?

Yes.

A little confused.

No, we have made it the change in auditors and I was -- what I was trying to get from you was your question, did we change or why did we change or--?

You’ve changed twice now.

Well, yes. I mean the first time we changed, obviously it was necessitated by the fact that Arthur Anderson went away.

Right. And why did you change the second time?

I would say that it's a combination of just we were completely satisfied with service and we think we're picking up a little more airline expertise with Ernst & Young.

Right. And then could you explain us the maintenance contract asset and liability?

Helane, ask that again please.

Well, on the balance sheet for the year end numbers this year, there is this new item called maintenance contract asset and the offsets to that is just maintenance contract liability and I am confused as to what that is?

Okay.

What am I supposed to think of that? You see that, it's on page 21.

No, I understand very clearly what it is. This is an issue that was brought up in the reaudit process. It has to do with a -- it really has nothing to do with anything other than the timing of the change in our maintenance agreement with GE. And so as you know from previous filing, we did a formal change in accounting to go with the direct expense method, okay, which we are doing now and this was all discussed and everything in our 10-K.

Right.

We think it's a preferable method now by the industry and so we have adopted that method. So this has to do with the timing of when we adjusted the agreement with GE, our maintenance -- heavy maintenance service provider relative to when we made the change in the formal change in the accounting principal and it's an item that I would expect will be removed from the balance sheet here very soon. Chip wants to comment on this as well.

Helane, this is Chip Childs and just real quick, if you're looking in the 10-K and if you got a copy of it, it's very thoroughly explained on page 36 and 37. This obligation was something that as Brad has said the auditors and management felt was an obligation that should be disclosed on the asset and liability given our contractual arrangement with GE; however since we've amended the agreement in the first quarter of this year, we do not have that asset liability out on our balance sheet anymore and you will see that in our 10-Q.

Great, that’s what I also was trying to get at. Thank you very much gentlemen I appreciate your help.

You are welcome.

Our next question is coming from Brian Harris. Please state your question.

Hi Brad, your comment I think the last two conference calls do you think you are -- costs, you were quite cost comparative based on your study. Can you describe what’s the main drivers of that and is there any way to adjust for you know different geographic markets that you fly and compared to other regional operators, their different aircraft types and so forth?

Yes, there are ways to do that and the good mews is that we see both -- we see the major carrier partners making that adjustment as well and at least considering it. But obviously the main drivers -- the main things that we are concerned about is that we have the opportunity to review and compare these numbers you know making sure that we are all doing the same kind of maintenance, that we have all got proper station handling and station rents and all those kinds of things on a similar stage going, similar utilization basis. And all I am saying is that taking all of those factors into consideration, which we are also seeing our major partners take those things into consideration now. The numbers that we have generated, the numbers that we have seen our major partners generate and share with us indicates that we are very competitive and -- so I mean I don’t know what else to say about it.

Okay. Why don’t if you say you consider yourself in the top 25% in cost performance, or I mean -- what exactly -- if you could put a little bit more color on competitive what that means?

We think that we are at or near the low.

Okay.

I will put it, we know of one carrier that’s lower.

Okay that’s interesting, and then is it fair to say that you probably would you guess that the Delta rates finalized until after you do so for United and do you have any sense on what the timing will be?

Let me very clear what we are at. We have the economic deal with Delta has been increased too. What we are working through with Delta now are just some I would even classify such minor issues relative to administration of the agreement. So we are well down the road with Delta, it’s -- again just working through administrative issues. With United we are seeing a -- renewed focus at United, they are -- they now are the ones establishing what I classify as some very aggressive timeframes and I think that there is some natural motivation for them to do that.

Because as soon as possible I think they want to eliminate some of their consulting fees. They want to -- the quicker they get this process done, new contracts and rates agreed to, the quicker they can take advantage of whatever concessions they expect to get out of this process. So United is moving very aggressively establishing very aggressive timeframes. They have asked for a lot of numbers, a lot of details from us, which we have provided and they have committed that they will be back to us within two weeks from right now. So you know what they come back within a couple of weeks, two weeks, you know whether there are you know more rounds of analysis and discussion I can’t be completely sure of that. All I can say is we see United now finally being the ones that are really pursuing a very aggressive timeframe.

Okay. Thank you very much.

You are welcome.

Our next question is coming from James Higgins. Please state your question.

Yes hi! Not to beat a dead horse on this, but your -- the cost numbers you are looking at when you compare with your competitors out there, is that a sort of delivered cost to your partners? In other words does -- are you taking into account the mark up that you get versus you know say maybe what Prime Air doesn’t get? Or is it raw operating costs that you are looking at?

What I am -- see I am -- a very good question. Because obviously you know the all in cost to the major partners, the cost and margin, I will tell you that I mean the cost that we are focusing on are the raw costs focusing on a very specifically on a block hour cost is generally how we are doing the analysis. Knowing that at the end of the day that majors will analyze this based on all in cost and to be very honest with you, we see them that this point being a little less focused on just the raw side of it and saying what we are concerned about is the all in costs and that’s how they are looking at it.

I will tell you too though that we still feel very good about the all in side, at the same time we are bench marking and analyzing the raw costs. We are also bench marking and analyzing where we think other carrier’s margins are and factoring into our proposals, our suggestions to the majors what we think is the market margin. So we are approaching this and trying to be competitive both on a raw cost basis and the margin basis. We are making it very clear to our major partners that we are not interested in playing games, we are not going to a monkey around with our cost structure expecting to make up margin yield by not giving him a true indication of our real costs.

We are being very honest about what our costs are and very honest about what we think margin requirements are in order to attract capital. And you know in this market one of the significant issues that has to considered are although a lot of regional carriers would like to continue to grow rapidly and would like to [inaudible] and be successful of winning a lot of growth. One of the issues is who can finance the lift, and there has to be a reasonable margin in order to attract capital. So although that we know to do is be as honest and open with our major partners as we can on both issues knowing that there are both factors in the equation and we will be market competitive on both sides of the equation.

Great and also has United shared any of the information they have gotten from the study they are doing on regional jet capacity deployment? I think they may be doing for them, [inaudible] on that?

They have but these discussions are very confidential given that we are in discussions with them. Yes they have been open with us but its not information that I am at liberty to discuss.

Okay thank you very much.

You are welcome.

Our next question comes from James Parker. Please state your question.

Good morning Brad. Just a follow up on this issue about you told the analysis of the cost of competitors and we say that there is one that below you. One, does that include aircraft ownership costs? And secondly can that party in your opinion actually finance the aircraft?

I can’t speak for the other party and there ability to really do anything. What I can speak to is that we have a lot of experience in this issue. We believe that we have a lot of market data where other peoples ownership costs are and I will be as bold as to say that this is an area that we believe that we are best in class and have the ability to remain best in class. So it is not an area that we expect to get beat, all we think with the strength of our balance sheet, the strength of our credit, that we will not only have the ability to continue to attract capital, but to attract it at rates that will preserve that best in class status.

Okay a second question, one of the problems in the past in these contracts that you have with Delta and United has been that you had this annual rate setting process. And the problem was that the rates didn’t get set annually? Are you at liberty to say anything about how that process might go in the future? Will there be some other method that actually gets set annually that over a period of time?

I am not -- I really don’t’ want to discuss it in any amount of detail given that these are all parts of the discussion that we are having with major partners. I will say generally that is our intent and objective to make this process much less time consuming and what we've seen in the past simply because of the way the models have been designed, it introduces an element of contention. So, we are pursuing and suggesting methods and mechanisms to make the process much quicker and much more cooperative and eliminate the contention that sometimes inherit in these discussions.

Okay, Thanks.

You are welcome.

Our next question is coming from Ray Neidl, please state your question.

Yes. Just to build on the previous question, you're negotiating with both Delta and United on the rate adjustment, I assume that's going to be retroactive to the beginning of the year but that is not assured. Is that a correct assumption?

That’s correct.

Okay. Good. And I missed before the percentages you said now the current breakdown between Delta and United. Could you give me that again?

Yes. What -- I gave the mix of capacity of ASM mix which is 43% United, 57 % Delta.

Okay. Great. And the last thing is, there's been some people out there claiming that with the new rates that the main line airlines have now, the new cheaper pile up rates that they would need RJ so much in the future. I was just wondering if you would care to address that.

We think that that -- I’ll just give you my take on that, I think its flawed thinking to begin with, even with reduced rates, there is still a significant gap and the advantage that we bring to the table is not just one element of the cost structure, it’s an advantage in direct operating costs and overhead costs. So, even though one or two of the elements may be adjusted and being lowered, there is still a large gap and that’s the value that we provide and that’s why we're being so focused on our cost structure is that we know very clearly that if we lose control of the cost structure, if our cost can rise, then that erodes a portion of the value and that’s why we have to be so careful and why we're being so aggressive in this area is to ensure that competitiveness and make sure we’re contributing value. Now, although I'm certainly aware that what you indicated is being talked about by some in the industry. All I can tell you is that we're in discussions with multiple carriers for more airplanes and larger airplanes. So, there is still a number of carriers and that -- they decide from what's being talked about in the market. What's important to us is what our current partners or potential partners think about that situation and we don't see that being -- that thinking -- that certainly is not prevalent amongst carriers that we're talking to about growth opportunities.

Okay. I think in summary what you're saying to is that voids still going to remain, still going to be high growth area and SkyWest is in a good position to take advantage of that because your cost competitors and probably a better able to finance these aircraft, better than your competitors. Is that a good summary?

Very well said, Ray.

Okay. Good. Thanks Brad.

You are welcome.

Our next question is coming from George Gross. Please state your question.

Hi. In this quarter looks like we saw about a $2.6m cash outlay per aircraft. Is that what we should expect going forward?

I suspect that its -- I don’t see a thing -- I think it’s probably a good assumption. We hope that -- we're not expecting it to be that large in future quarters but I think it’s probably a sound running rate to use. And the reason I'm hesitating a little bit is because you got to have some outflow and then some inflows because as we get the airplanes permanently financed, as we close more of these deals, indicating we have a large deal that’s in documentation right now. When as that get done. Then we have returns at the same time that we're acquiring new that may require some outflow. So I mean, I don't -- maybe for modeling purposes as kind of an outside of the range, probably a prudent number to use but I don't think it is going to get much greater than it is today.

Do you consider the jet flight and the financing to be consistent with what transpired during the quarter?

Yes, -- restate your question. I am not sure I understand -- I want to make sure I understand completely your question.

We saw long-term debt increase primarily due to the acquisition of the RJs.

That's right.

Part was you know finance, it was debt and part was equity. Is the debt side going to be the same split?

Okay. What I am trying to say here is that, yes, the increase in debt is entirely due to the acquisition of CRJs. On a temporary basis I shouldn't use the term interim because these are interim financings. These are long-term debt financings at this point. We are in documentation for the equity portion. So, as the equity portion is closed those come off balance sheet going to leverage leases. At the same time we are acquiring new equipment that we either may have the leverage lease financing in place at the time or we may do these as debt originally which would bring them on balance sheet. So, what I am saying is yes, you shouldn't assume that as we continue to acquire RJs that our debt will discontinue to grow, grow, grow. No, they will be replaced with leverage leases come off balance sheet making room for us to put more on balance sheet but what I also indicated is our ability to finance these airplanes is a significant factor in how many airplanes we take and how quickly, and we are not going to bring many more aircraft on balance sheet than what we have got on currently. Okay, so we replaced them with leverage leases, bring them off, makes room to bring more on, but the level that you see currently that's about where our tolerances are. So it is not going to increase significantly.

Just a follow-up on that. For the balance of the year, you are taking on I guess, 26 more aircraft, do you have those 26 already financed in some method?

We -- not entirely, and we have in some respects the debt components in -- I would say the more challenging issue that we have today is the equity side. We have been very successful in attracting the debt our bigger challenge is the equity and we do not have at this point commitment for all those aircraft.

Thank you very much.

Thank you.

You are welcome.

We do have a follow-up question from Helane Becker. Please state your question.

It was just answered. Thank you.

Once again ladies and gentlemen if you do have a question, please press "1" followed by "4" at this time. Our next question is coming from Gaylord Flynn. Please state your question.

Thank you. I am interested in the discrepancy of any between your revenue recognition which realizes an estimate for the first quarter; it's a best guess estimate. As it compared to what you actually are billing and receiving during that same period of time realizing that that maybe retroactively adjusted so forth, could you comment on that?

Yes, we have spent a significant amount of time analyzing you know, possible outcomes of our discussions, possible ranges of where our revenue would be. We have identified that -- all that I can say in this area that I am willing to say at this point is this that we have identified ranges of outcomes, and we have booked the revenue at the lower end of those ranges. Okay, now, certainly it involves estimates to the extent those estimates are not correct. We will treat them as changes in estimates, and book them currently when we have enough information to book you all could book a change in estimate. But like I said -- I mean those who know SkyWest and have followed us, our tendency is to be conservative. I think that we have been by booking at the lower-end of these ranges.

But, you not commenting on and maybe you choose not to, and that’s understandable. What you’ve actually build and collected from your partners, how does that relate to the revenue that’s recognized?

I’m not in a position to go into any detail on that Gaylord.

Okay we’ll suffer now. [laughter]

Okay.

Thank you.

Our next question comes from Glenn Engel. Please state your question.

Good morning. Couple of questions; one, on your financings, are you finding that the terms are shorter, fewer years?

We are seeing some movement towards shorter-terms. We have not been required to -- we still found participants willing to provide the capital at our historical terms and conditions, but yes, we are seeing a movement of more participants trying to shorten the terms, yes.

And the terms are what, roughly 15 years?

Well, yes, I mean the average life of debt will move, but we are still working that debt into 16.5-year terms, lease terms.

Can you yet show us that how many aircraft do you expect to deliver in 2004? And what a range of the ASM growth could be there?

I’m not in a position to discuss that, pending the outcome of discussions with our partners.

You’re assuming that rates are attractive to January 1. Have you made any assumption debt and what happens to the $10m of pre-petition debt that you’ve already written-off?

Not in a position to comment on that other than that it’s part of the negotiation.

And the planes that are coming on for the balance of this year, are they evenly split between United, Delta and much more United?

Much more United at this point.

Thank you very much.

Once again, ladies and gentlemen, if you do have a question, please press "1" followed by "4" at this time. If there are no further questions, I’ll turn the conference back to Bradford Rich.

Okay with no further questions. I’m not going to prolong this. We have taken a lot of your time this morning, as always as I said we appreciate your interest. We feel good about the progress of our company where we are positioned, balance sheet wise, with our financing, with our companies, our workforce participation in what we are trying to accomplish. So with that being said, we will go ahead and conclude. Thank you.

Ladies and gentlemen, if you wish to ask for a replay of this call, you may do so by dialing 800--428-6051 or 973-709-2089 with an ID number of 290594. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.