SkyWest Inc (SKYW) 2006 Q1 法說會逐字稿

Good morning, and thank you for joining the ExpressJet Holdings first-quarter earnings conference call. At this time, all participants will be on listen-only until the question-and-answer portion of today's conference. (OPERATOR INSTRUCTIONS) Also, today's conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the conference over to Ms. Kristy Nicholas, Senior Manager of Treasury. Thank you, ma'am, you may begin.

Thank you, Melissa. Good morning, everyone, and thank you for joining the ExpressJet Holdings first-quarter conference call. On the call we have Jim Ream, President and Chief Executive Officer, and Fred Cromer, Vice President and Chief Financial Officer.

Portions of this call may contain forward-looking statements not limited to historical facts but reflecting our current beliefs, expectations, or intentions regarding future events. A number of factors could cause actual results to differ materially from those in the forward-looking statements. Additional information concerning risk factors that could affect our actual results is described in our filings with the SEC including our 2005 10-K.

During this call, certain non-GAAP financial disclosures may be made relating to our performance measures. In accordance with SEC rules, we will provide a reconciliation to our most directly comparable GAAP financial measures on our website at expressjet.com.

Jim will cover the operating and financial results for the quarter; then Jim and Fred will take questions. Now I would like to introduce Jim Ream.

Good morning, everybody. What I thought I would do is spend a quick moment just hitting the high points off of the first quarter's results, talk a little bit about the announcement we recently made on retaining the 69 aircraft, and then open it up for questions.

For the quarter, we made $23.8 million, worked out to $0.40 a share on a fully distributed basis. Components of that revenue was up 7.7%. Block hours were up 12% with 20 more aircraft, and our utilization was up 3% year-over-year. Our incentives were down about $1.2 million versus last year's first quarter, a function of a higher benchmark and the controllable completion factor for us coming in at 99.8 versus 99.9 last year. We had a security breach in Terminal B that drove the principal difference in where we were year-over-year.

On the expense side, another quarter of continuing to drive down our unit cost. We had about a 3% reduction in our cost per ASMs, so we are very happy with how expenses continue to track with where we thought they would ultimately end up being. Closed the quarter with $232 million in unrestricted cash; and our debt and capital leases totaled $154 million.

So that kind of high points off the quarter. Let me talk a little bit about kind of what we have been working on around here since our last conference call.

During the last call, I gave kind of an overview of how the discussions were going with Continental. Just to kind of summarize, we did everything we thought we could to sort of keep us out of this kind of drama with them. We looked at all the other agreements out there. Obviously, Continental set the deal up initially when they sold it for years ago. So looking at where agreements had kind of transitioned to, all the items where we thought that we could give them relief on, in terms of what we would be charged a margin on, we tried to -- we made proposals that would have in fact given them those savings. To a point where, by the time we calculated through all of the things that we were willing to give in concessions, we would have earned a fair amount less than our peer group on amount per ASM.

There has been some discussions about whether or not we had the unions in the room talking about how they might be able to participate constructively. They were involved, and we had some very good dialogue with them and some great ideas about what we could do there to give Continental some further economic relief and still keep all the productivity benefits that we have in our agreement.

All of that was kind of rolled into the (indiscernible) that we gave them. Ultimately, they declined on our offer to make that effective in 2006 for all 274 aircraft.

The thing that they told us is that they were sort of more interested in kind of changing real fundamental structure of the deal, one of which would be aircraft, who would control the aircraft, and whether or not we would get paid on the capital cost of those aircraft. You know, that kind of drove us to a point where we would have earned so much less than anybody else per ASM that it was just very difficult for us to sign up for the entire fleet to do that, and starting all of that in '06.

And more fundamentally losing control of the aircraft was just so different than what was sold to the public that we did not feel comfortable doing that. The deal was not originally marketed as a project finance set of cash flows. We were kind of marketed as a regional airline. Good, bad, or otherwise we have decided that we're going to stay in the airline business. So we just could not take that extra step.

Now I understand how other folks might be able to sort of bid on the margin. They understand they don't have any capital risk on the airplane, so maybe they thought they could generates some extra cash flow. It looked like the economics were pretty dicey by the time you even had to invest in training and inventory. At some point you would have broken even, years down the road. But you could see where companies might be enticed to kind of get that done, especially if they thought there was a bigger deal following on that.

But for us to take all the fleet and move to that kind of fundamental change from where the deal was sold, we just could not bring ourselves to sort of make that step. So, it leaves us in kind of a little bit of a strategic dilemma.

Obviously, it is just difficult to think about shrinking 25% of what you do for a living, just because another company decides that you should do so. It is difficult for the investors to get their mind wrapped around whether or not this is a real company or not. We have had employee issues, obviously, trying to retain and motivate folks in a customer service based business, of where this organization was going and what kind of stability they could look for.

Just mechanically in the airline business, giving up that many airplanes, just the impact on your unit cost from running that many aircraft would have put a lot of pressure on us and put us in a probable death spiral, when you would have looked at our competitiveness after making a decision of giving up on those aircraft.

So we have been for the last six months working on various alternatives of where we might be able to deploy the aircraft. This is obviously the hardest assignment we would have, is the decision that Continental made, which is to give us the 25% back which they have rights to under the agreement.

We have restrictions about flying into the markets that we currently fly to today; so we cannot come back into the hub. So it's a pretty tall order to figure out how to make all of that work. But the work we have done gives us some pause for optimism.

We have been looking at several different kind of business platforms. Let me touch on a couple then make just a brief comment. We have looked at taking these aircraft and approaching other network carriers to see whether or not we could supplement the service that they currently have. That would seem like a very tall order, if we had just the aircraft that principally were operated in these other networks with the range and mission capability of those planes.

But Continental gave us, of the 69 airplanes, 44 of them are the long-range XRs. Most networks do not have that mission capability currently in a 50-seat aircraft. So we have had good conversations so far in what we could possibly do to help those networks out, reach some of the thinner communities that they can't quite get to today.

The second thing we have done, we have done a lot of work offshore. We talked about that over the course of the last year. But we have -- there are obviously developing networks there, and coverage of the smaller communities with these type of aircraft is very much in the formative stages. We think we have made a lot of progress there. That would be applicable for the LRs or the XR aircraft.

A third thing we have looked at is whether or not you could take the aircraft and move it into a corporate application. Obviously, the airplane's capability, tube size, reliability, all those, on our cost capability on the plane gives this aircraft a pretty favorable niche within the cabin size that it would command.

We have done a lot of work in that over the last year, and we feel comfortable, whether we move some number of airplanes into a corporate configuration or in a charter configuration, we think that there is a business there that will be worth pursuing.

Then just finally, whether or not there is an opportunity as the industry has stabilized somewhat, whether or not you could take some number of aircraft and connect smaller communities together in a kind of branded flying. Sort of develop service patterns that gives you a chance to develop traffic flows between communities today that do not have great service options, without obviously trying to go into major metropolitan areas and trying to steal traffic away from carriers with bigger aircraft.

This would be kind of completely different than what has been done before. We have worked on this for the last three years in that analysis, and we feel that there will be some opportunities there that we will be able to move into that arena as well.

So the punchline is that the 69 aircraft will not go into one particular home. It will touch all of these different business platforms and in some cases numerous customers within those business platforms. So we have got a lot of projects moving forward kind of simultaneously.

Continental obviously dictated kind of the tempo at which we are going to take the planes and the timing of all of that. But we think we can kind of manage that and be able to sort of make that transition as smooth as we possibly can.

The Board met last week. They have been briefed all along in this. They felt that we have made enough progress in these areas that it would make sense to give Continental notice that we would keep the 69 aircraft, to let the investment community know that we were going to take those aircraft, that we were going to make a home for them, and to let our employees know that this Company was going to grow and develop into new areas.

So we are obviously trying to take this challenge and turn it into a real opportunity for us. We feel that there is a reasonable chance that we can come out as a stronger organization as a result of Continental's decision.

A couple things. We have seen, obviously, written reports whether it is through the media, the investor analyst community, that this smells similar to what happened with Atlantic Coast, both in terms of kind of the analysis they did on whether or not to take the deal with the major they were working for, then ultimately the business plan that they developed and had a very difficult time pulling together.

This has -- we think it is not similar. That we tried everything we could not to end up in this situation with the network that we are supporting today. It got to a point that the risk and rate of return trade-off just made it such that we had to kind of move forward into other areas with those aircraft, given where Continental wanted to drive the economics.

The business planning side of it, of what we do with the 69 aircraft, will be in numerous areas and will not be sort of centered around a kind of geographical play of trying to claim some part of the country as our home, and then trying to defend that with aircraft. That is just very difficult to do, given competitive dynamics.

Final thing. We have a 200 basis point increase in the rent cost on the aircraft that we will keep. That has been talked about somewhat as very difficult for us to work through. The 200 basis points, obviously not a negotiated point; it is (inaudible) Continental wrote into the deal before they sold it.

What we did is the analysis of whether or not you could replace the aircraft and have a cheaper all-in capital cost than you would by just paying the increase in 200 basis points. These aircraft that we took delivery of at pretty favorable financing with the launch carrier economics; and at the time there was a substantial amount of export benefit that we received within the financing of these aircraft.

So really by the time you roll in the 200 basis points you're pretty close to whether or not -- if you went and bought aircraft today, under what is available from a financing standpoint. Obviously the [profit] benefit has largely gone. So kind of cost-wise, we are about indifferent with whether we get new aircraft or keep the ones that we would get from Continental with the increased capital cost.

That is the high points. It is obviously a difficult time that we have got to kind of work through. We would have done anything not to sort of end up where we are. But that said, I think the management folks are pretty determined to turn this into a positive for our investors.

We are pretty guarded on how difficult it will all be; but at some point there does seem to be enough positives that we continue to stumble upon to feel that we're going to be able to get through this.

I think when it is all said and over with, people are going to look at this and say that, well, these aircraft in this area, that is pretty creative, I like that. These over here, I understand how that is going to work. These over here, gosh, that smells risky, but I can see why they would do that. Then there is just going to be a whole list, a whole series of new business ventures that we will be involved with.

There obviously will be different risk profiles with each one of those. But I think they will also serve as growth platforms to where we can obviously grow this business beyond where we ever would have just working for Continental.

So I'm sorry for rambling on, but that this kind of the summary of where we are. I think Fred and I are in position to answer any questions. So Melissa, why don't we start that process?

(OPERATOR INSTRUCTIONS) Mike Linenberg with Merrill Lynch.

I guess just two questions. Jim, appreciate you walked through a thorough analysis and your thinking. I'm just curious. As you thought through this process, and you look at some of the elements of the contract where Continental could pull another 25% of the fleet three years out, and/or do an outright termination, how does that get incorporated into this analysis? Because one view is that you may now be on somewhat of a slippery slope. I mean, how -- maybe just for the audience -- could you characterize your relationship with Continental today? I mean, how do things stand?

Well, that -- it's difficult to answer a question, Mike. The kind of the relationship was obviously a key part of the whole analysis. The Board we had principally came about through personal relationship with senior Continental officials. So everybody was understanding the risk, understanding what would have been in the best interest for the shareholders, everybody wanted to do what they could to try to make this work.

You, I'm sure, Mike, can appreciate kind of going from being an airline to going to being just a serious of cash flows based on (multiple speakers) more than we could do for the whole fleet.

In terms of what Continental's rights are under the agreement, they can in another three years decide that they want to pull down 25% of the remaining fleet. That would be 51 aircraft, something like that, that they could give us.

I believe if we are successful enough with the 69 that that is unlikely, given that the fact is that the aircraft still works really well within the Continental network. We're not privileged to this information, but I would be surprised if it still was not one of the top-performing return on system-level contributions from an [ROX] standpoint. So I think the aircraft works well. They have never complained about our service capability.

On the expense side we benchmark ourselves all the time down at the kind of the point of attack level. I think we're very competitive.

So as far as I'm concerned I think the relationship is going to continue for quite some time. If they terminate the whole deal it is actually a little bit easier on us, because then we can get ourselves back into the hubs. We are obviously not giving the 205 back either. If we're keeping the 69 -- and that is the harder assignment -- we would never give any planes back on the 205. So that is a little bit easier for us.

At the end of the day, Mike, one of the things we have to try to remind the investment community is that if we made $510 million in passenger revenue for Continental in the first quarter, then we are ultimately a $2.1 billion revenue carrier. These small carriers operated under pro rate deals before this capacity bias came along.

So we're not afraid of the airline business. We think we could be very successful at it. Again, I think our folks do such a great job that I believe we're going to be successful. But that is how we have kind of framed it up. Obviously, finding productive homes for the 69 aircraft is a key part of this whole strategy.

Okay, good. My second question relates to the financing of the airplanes. The 69 is Continental holding the master lease and you subleasing them. I'm somewhat intrigued by operating some of these aircraft offshore. Do you run into any sort of situation where, if they are being operated offshore, that maybe some of the tax attributes, some of the benefits that would accrue to Continental are no longer available to them, since they're not being operated on U.S. soil?

Is that an issue? Then as a result, would you have to make Continental whole for that potential tax loss?

Yes, it is a part of the analysis, for sure. And somewhat have given notice now is that in 30 days we will have the tail number, so we will have the exact profile of each aircraft and understand which ones work better than others in the things that we are looking at.

So all of that is kind of included in the economic analysis kind of broadly when we're thinking about what these opportunities look like. Then when we add the specific tail numbers we will be able to kind of fine-tune that. So, yes, it is clearly -- it is just a feature of the analysis, and we are on top of it.

Okay. Then just one quick last one. When we look at margins going forward, you came up with new rates; you're target a 10% operating margin. The margin was a little bit lower. It looks like some of it was related to, as you put it, I think, investment in some of the new -- some of these additional entities.

As you grow that part of the business and for -- and I get a sense that you are. It seems like every 10-Q that comes out there is another four or five different things that you're doing, which is good, because some of this stuff is very high-margin business. But in the near term it is going to take some investment. There may be some additional cost.

As we look out through the year, should we think that maybe that the margins will be below 10% as you grow some of this aviation ancillary business?

Yes, I think right now, some of what you are seeing is you're seeing a lot of effort to analyze the business platforms and finding productive homes for the 69 aircraft. Obviously, those expenses, whether that is management or outside services that we need to help develop those plans, would not be reimbursable under the capacity buy agreement.

So as we bring those business plans online in the first and second quarter of next year, then we will have to kind of wait-and-see what those profiles of those earnings look like. Then we will have a better gauge.

But the amount of money were spent in the first quarter to develop those businesses, I don't see that changing between now and year end. So you should just include that in your modeling when you are thinking about what is reimbursable and what is not reimbursable.

Well, great. Thank you very much.

Mike, one of those items that is in there, too, is the stock option expense under the new FAS 123 that hit us this year. There will be more disclosure of that in the Q, but that is one of the items that is kind of coming forward this year, and we don't earn a margin on those expenses.

Fred, what was the absolute 123(R) charge in the quarter?

You will be able to see that in the Q when we file it.

Okay, thank you.

Glenn Engel with Goldman Sachs.

A couple questions. One is that if you sign a deal with another carrier, sort of a code-sharing type deal, is that more likely to be a revenue-sharing deal than a cost-plus, given the most favored nation clause for Continental?

You know, not necessarily. I think that when you look -- obviously these other carriers have service from other providers. Whenever we have -- when there has been times where they have thought about whether or not to bring on somebody else or not, and we participated in that to some degree, we have always got a lot of compliments on ultimately how it all sort of stacked up to what they were looking at.

So I think when you look at sort of somebody that provides the station support that we do, and then the extent of flying in out of kind of more complicated hubs, we stack up pretty well, Glenn, and consistent with what people pay. So on a kind of a net-net economic amount we would earn per seat mile, I think all of that is going to be pretty close to market.

So then the debate is whether or not the network we are talking to would rather do -- which structure would they rather work in? Everybody is sort of far enough along in this capacity buy world that, depending on where the network is, we can have good conversations about the pros and cons of that. You can just see the same circular conversation about what would be good or what they would prefer.

So I don't know exactly how this is going to shake out. But there's still a lot of benefits to the capacity buy deal, because really kind of maximizing the network benefit had so much more power than kind of the issues that arise when two people are trying to schedule into a given network.

Second question is one of the options would have been just a gradual liquidation. It would seem like even under a gradual liquidation, with Continental largely paying the transition cost, you probably still could've gotten a value that was maybe 8, 9, $10 per share. Why wasn't that a better option than the risky airline strategy?

Well, I think we have made enough progress in all these areas that I talked about, and some are riskier than others. Some deals will work out to be pretty comparable to the economics that we currently have that -- you know, kind of walking down a path to termination. If you decided not to keep the 69 aircraft, then you are walking down that path.

So, I think given the performance we have in the marketplace, our overall capability, the uses we saw for the aircraft, the value we still think we bring to the Continental network, it just didn't sort of say at this point in time that we should shut down a Company that does a really good job.

Not to mention just the difficulties of managing that transition. Some of that kind of works well on a spreadsheet and then a little bit more difficult to work that on a Monday morning. So, you put all those things into consideration and we just feel more optimistic taking the path we have taken rather than shutting the place down.

You have a forecast here of capital spending this year being about $11.5 million. Is that just Continental? What would be the startup or capital investment you're going to need to put all these things into play?

It is $11 million just kind of supporting Continental. Some of the back-office systems stuff will probably sit within that $11 million budget. The bigger stuff of what we may have to do, we have not identified exactly how much capital that is going to take.

We have got -- we're kind of modeling out the cash flows kind of by month over the next couple of years. That will vary as we kind of progress with these things that we're working on, Glenn. So unfortunately I don't have a number for you until we get further down the path.

When would you -- how quickly do you think you can get breakeven on each of these new ventures?

I don't know, it is just hard to answer it. If it works out the way the conversations are progressing today, a fair number of the stuff will cash flow right away, and the other stuff will just have more of a spool to it.

So it will be ultimately be a mix, I believe. But as you can appreciate, some of this is just in such the formative stages that we will have to kind of wait-and-see. We may end up with all the aircraft working in sort of a network base; and then obviously it's different than if all the aircraft are in some sort of branded flying. So it can kind of swing all over the map, Glenn.

We are just -- you know, that is the difficult thing. We obviously took all this (indiscernible) the uncertainty for the investment community was one of the biggest things we are worried about in trying to come up with a deal with Continental. The fact that that didn't work, we are just -- we feel bad about not being able to provide better direction. But it's just where we are right now.

Thank you.

Ray Neidl with Calyon Securities.

Jim, do you still have those options available with Embraer for taking additional aircraft? Would that be part of your business plan for expansion under these options? Would you be looking to take some of the larger RJs?

We do have the option aircraft still available to us. And yes, if we can find some growth, some of these platforms that end up where we need more aircraft going forward, those would absolutely be the aircraft that we would use.

In terms of the bigger aircraft, it is just not kind of where our specialty is right now. Given the assignment in front of us I think we will be concentrating in the 50-seat arena for a while.

Now we have done the analysis around the economic profile of the aircraft. We had the capability to do it if we thought there was an opportunity there. So we will just have to kind of get through this first step here before we decide where that airplane may fit in our future.

But right now given all of the stuff that is in front of us, it is just not an immediate -- yes, we are going to buy that plane here in the next six months.

Okay, to clarify a couple of things that -- points that you were making here. In three years there is the possibility that you could lose another 25% of your business with Continental. If that did happen, is it under the same circumstances, you would have the option of taking those aircraft?

Yes.

Okay. Then finally on the tax situation. I take it the tax situation if you go overseas with an RJ is different for each equipment type. I think that is what you were clarifying. So you can still do a foreign deal at least with some of the aircraft. I am just wondering, how far along are you in that analysis?

We are pretty far along in sort of what the economic cost is by fleet type. So we understand. Then we would understand the breakpoint of a new aircraft in that arena, versus taking an existing airplane.

Obviously, to the extent we're talking about LRs, those have been with us for a while. So a fair amount of the tax benefit has already been sort of worked through on those aircraft. So the impact there is much smaller than the latest XR delivery that we have just taken.

So, in the spectrum of things, the last XR we have taken, I doubt if that is working out offshore. The first LR that would be in the tail numbers that we were going to get back, I bet that is going to work and work out pretty well.

Okay, great. Just a general question. I don't know if you can answer this or not. You said you still have a good relationship with Continental. But it seems like with what they did here, you had some kind of falling out with that company. I was just wondering, do you have any reasoning why Continental took the actions that they did?

No, other than what I stated, Ray. I think they felt that they were principally in the -- they are in the head lease for the aircraft. I think the fundamental issue that we had the falling out on is they wanted to retain control of those aircraft and didn't feel like we should be compensated for those aircraft, because they were fundamentally in the head lease.

Our point all along was, if that is what had been told initially then we could understand that point. But it's a little late now to come in and start changing the description of what this organization is. So you know it's just a point that we could never close on.

And it is such a big number that you could just sort of see where economically they would have felt compelled to walk down that path, and it would have been something impossible for us to come close to closing on.

Okay, thank you very much, and good luck.

Jamie Baker with JPMorgan Chase.

Question on pitching new business. Your commentary on the 200 basis points was helpful. But you then concede that you are still likely to emerge with somewhat uncompetitive lease economics; and your labor costs at least appear to be higher than most.

I'm going to try and be delicate here, but how do you actually pitch ExpressJet to a potential partner if you are viewed out of the box as having expensive planes and expensive people? I am really just wondering how you sort of start the conversation with -- whether it's a Northwest or a Kingfisher or whomever?

You know, it is impossible for folks kind of staring at a P&L, they way they are reported on right now, to do a cost comparison. What is easy to do is that you get a schedule for some number of aircraft, and you price it out. They say, wow; that is the same as we are paying today.

So the fact is it is all in the point of attack. When you take a look at the full range of all the cost elements, it would cost about 2.2 to $2.3 billion to sort of run a full airline the way we operate it today in the current fuel environment. So the fact that our cost structure is less than $1.6 billion says you are already looking at something that is artificial.

So really just sort of looking at the core economics of what does it take to cover these service points that we're going to be bidding on, really gives us an opportunity to demonstrate what the overall performance capability of this Company is.

Certainly, we have signed the most recent labor deals, so they are going to be slightly more expensive than where the industry is. But the work rules work really well, in our ability to work in very complicated environments, and be able to move crews around and recover by the next day.

So you put the service capability, how we run the airports, maintenance programs, everything, in play and you end up with a cost profile that is pretty similar to what other people are paying.

Then kind of finally it is just the mission capability of the airplane. The fact is that nobody else is operating this aircraft. So if you're looking at those communities and you think you have got an opportunity to add cash flow into a network, and we can do that as effectively as they are doing thousand-mile flights, then the conversations actually go pretty smoothly.

Okay, interesting. As a follow-up to that, U.S. regional airlining has been arguably the most profitable segment of the airline business, at least from the perspective of somebody that operates planes. I would argue leasing planes is far more lucrative. But I don't have any data on corporate flying.

Just looking at historic margins, regional flying was great work if you could get it. Are any of the alternatives you're looking at likely to be more lucrative than U.S. fee per departure type flying?

There's a couple of things offshore that will match where we are with the economics. The corporate stuff has -- it really depends in which arena you kind of work. Some of it looks like it is going to be a little better; and in some of it we're going to have to develop a little bit more.

What helps us a bit is the tube size of the aircraft and the cost of what it takes for us to operate that airplane, coupled with reliability of how we can take care of that aircraft coast to coast.

So there are some things that we can bring that gives us pricing for something that may be typically more expensive to operate out there, that we could do better, and ultimately hit to the same profit margins that you would not see if you had to operate the aircraft that those folks operate today. But with us operating on our aircraft, we might get there.

Interesting. Okay, thanks a lot, Jim. Appreciate it.

Jim Parker with Raymond James.

A couple of questions and maybe following up on what some people have asked. Regarding offshore, are you able to tell us just in general which parts of the world might have the better opportunities for your aircraft?

No. I don't want to sort of get into that, because some of the ones that we're really moving along, it would be easy enough to kind of dial in to where -- what we are doing there. So I need just a little more time to kind of work through that.

I would have to say that if it is -- we're doing a little more work over in Asia. We have actually got a team over there doing some pricing of some network stuff now. That is probably not going to apply to these 69 aircraft. In fact it won't apply; I don't know why I said probably.

So some of the stuff that we're looking at there would be a new aircraft order if we are ultimately able to bring those deals to closure. So some of the stuff that we're working on may in fact be different than sort of trying to find homes for the 69 aircraft.

But there are a couple solutions out there offshore where we think it will apply to the 69 aircraft. I just need a little more time to kind of work through that.

Right, and these four or five areas of new business here, do you -- are you required to use your current labor groups to do that? Pilots in particular.

Well, we are in conversations with the pilots, our pilot union, and they have been very helpful in coming up with programs to allow us to operate these aircraft in the areas that we need to operate. So that process is going along really smoothly.

So I guess I would turn it around and say, yes, we get to use the folks that we have; and they have been very helpful in setting us up so we think we can be successful there.

Just one last thing. Would you explain again the impact on why Continental might not elect to cancel the entire agreement on the remaining aircraft?

Well, I think it's -- I can't really speculate on how their analysis is going to work because I have done a very bad job of that here over the last three or four months. Obviously it changes the world greatly if they do that, because all the controls that they have on us today largely go away and we would get --

I would maintain that our home may not be Houston, but it is darn sure Laredo. We fly to a lot of communities. There's big local markets. We obviously can -- the inventories that are set on the aircraft are set towards kind of maximizing the network benefit, not necessarily maximizing our own profitability.

So when I look at kind of the revenue that we generate on our aircraft out of the smaller committees that we operate, it just puts you back into those difficult conversations of connecting incentives to try to get us to do the right thing, trying to coordinate schedules where you can't really do it when you don't control the schedule. All those things you have seen over the last 20 years of why folks have either owned them, or then sold them, and then rebought them back. And then this capacity buy structure was supposed to keep people out of that particular process this industry was trapped in.

So really Continental would just be kind of opening it back up into the way things used to run back in the day. So I just can't imagine why that makes sense from their network to do that. But they may decide to do it anyway; and if they do it, then we're back into the airline business big time.

Thank you.

(OPERATOR INSTRUCTIONS) Helane Becker with Benchmark.

Just a couple things. One, do you have to make any changes to your operating certificate in order to do the sort of four or five business plans that you're thinking of?

My second question is, can you give us an update on your Wings operation, the company that you acquired last year? We haven't heard much about that this morning.

Yes, the operating certificate stuff we're in pretty good shape on, on all the stuff onshore. If we're doing some stuff offshore that means that we obviously have to comply with the regulations down there and turn ourself into a certified carrier to operate in that country. So we are -- to the extent that those things are moving along, that takes a fair amount of work.

So the offshore stuff I would describe as we are pretty darn close commercially; but operationally you have got some challenges. So that is a step that we're -- half the management guys are off trying to make sure all that comes together. So there are challenges in kind of pulling that off, but right now we think we have got a pretty good bead on it.

In terms of Wing Aviation, they are very busy and growing their paint facility and their maintenance programs. We're very happy with that. We certainly have benefited greatly in our perspective on the corporate world having that investment in that company. We have learned a lot from them.

We think we brought some synergies to sort of how their operation functions. To the extent we have got some number of aircraft in corporate configured, that would clearly leverage their position in that business pretty well.

Is there any way you can say, or will you put it in the Q, what their revenue contribution was this quarter?

Yes. Right now, we're still not a controlling entity, so it would all just be done on an equity basis. Until we expand that relationship with aircraft and involvement with them there, you probably will not see those numbers. But to the extent that we do have a fair number of airplanes working there, we will be talking about them more prominently, and then it will be a lot more visible.

, Okay. Then my last question is with respect to your Board of Directors. Are there any other changes that have to be made as you kind of move these 69 aircraft away and kind of move to be more independent? I know Tom resigned, but that was for a different reason.

That's right. No, Continental has relinquished their right to have a member on our Board, so most of our Board members are independent. We have one Board member who through a relationship is still not quite independent but will be pretty quickly. So I think we're just about there.

Okay. Do you know if they still own any of your equity?

Right now, they own 8.5%.

Okay, great. Thank you for your help.

Jan Loeb with AmTrust Financial.

Could you talk a little bit about your share repurchase? You haven't done any recently. With the stock at the price that it is, one would think that now would be a great time to do that. But can you, because of things that you're working on? Give us a little color on that, please.

Yes, it was really tempting with where we were trading. There is just so much uncertain in our world right now that the Board could just not quite get comfortable with continuing with that program.

To the extent we can get some stability to these things and we have got better visibility and a good sense of how the liquidity of the business looks, then we will absolutely go back and redo that analysis. But right now, we're not doing any of it. Painfully so.

Okay, one last thing is, if you listen to some of the other regional jet companies and their conference calls, they make comments like -- we would pick up this kind of business at these rates every single day. What would be your comment to that?

Well, the rates again are just -- it so difficult to talk about, because it is a function of what does it take for you and the expenses you're going to have. What do you have to do? What capital do you have at risk? And what is the mission?

In the bid that Continental put out there for the way they were trying to approach the business, you really are very much just a service company. So the overall cost structure would be incredibly low. So the margin on that could still be at 10%, and it is going to seem attractive to folks if they are in the need of a 50-seat airplane.

It is just a function of are there going to be folks in our sector that decide that they just want to be a service based company, that show up with some crews and some line maintenance functions; and then in five years rebid themselves with somebody else who would show up with new crews and a new maintenance program.

So it is very difficult to build a sustainable business there, because you're always going to be undercut by the next new guy coming in behind you. So I don't think it is the right path to go down. So that is why we chose between the two worlds of just turning back into somebody that shows up with a couple of pilots, versus sort of being something similar to an airline. We chose plan B.

Great, thank you very much. I am sure that you will be successful with plan B.

Thank you.

Thank you, I show no further questions at this time.

Okay, I really appreciate everybody being on the call. Hopefully it was helpful and we will obviously keep the market informed just as soon as we have some information that we can share. Again, thanks. Good morning.

Thank you, that concludes today's conference. You may all disconnect at this time.