SkyWest, Inc. has reported its financial and operating results for Q3 2020, including net income of $34 million, or $0.66 per diluted share, compared to net income of $91 million, or $1.79 per diluted share, for Q3 2019. The primary factor in SkyWest’s lower results in Q3 2020 compared to Q3 2019 was reduced flight schedules and lower demand resulting from the COVID-19 pandemic.
Commenting on the results, Chip Childs, Chief Executive Officer of SkyWest, said, “Over the past several months, we have worked with our partners and our people to respond quickly and aggressively to the worst crisis our industry has experienced. The SkyWest team continues to demonstrate exceptional dedication and flexibility, and I want to thank them for their hard work and focus through this challenge. We are committed and remain laser-focused on ensuring we are positioned for the long-term, maintaining strong liquidity, and delivering on our partners’ objectives in the recovery.”
Revenue was $457 million in Q3 2020, down from $760 million in Q3 2019, due to the COVID-19 pandemic that caused a significant reduction in the number of scheduled flights SkyWest operated under its flying contracts compared to the same period last year. Total block hours in Q3 2020 were down 41% from Q3 2019.
SkyWest deferred recognizing revenue on $30 million of fixed monthly payments received during Q3 2020, down from $69 million of revenue that was deferred in Q2 2020. SkyWest will recognize the deferred revenue based on completed flights over the remaining contract term.
Operating expenses were $383 million in Q3 2020, down from $614 million in Q3 2019 due to fewer flights operated compared to the same period last year, with $190 millionin CARES Act payroll support (described under “Capital and Liquidity” below) recognized as an offset to salaries and wages expense in Q3 2020. SkyWest anticipates recognizing the remaining $3 million in payroll support grants in Q4 2020.
SkyWest secured an agreement to place 20 used CRJ700s under a multi-year flying contract with American Airlines. SkyWest anticipates using its own aircraft not currently under contract with a partner to fulfill this agreement. The aircraft are expected to be placed into service ratably throughout 2021. Following the placement of these 20 aircraft, combined with anticipated placement of four CRJ700s in Q4 2020 and five CRJ700s in 2021 under a previously announced deal, SkyWest is scheduled to have a total of 90 CRJ700s under contract with American by the end of 2021.
SkyWest also secured agreements to acquire 21 used CRJ700s in a 50-seat configuration and lease the aircraft under a multi-year term to another regional airline operating for United Airlines. The aircraft purchases and leases are expected to be completed in Q4 2020.
Status Update on Previously Announced Deals
SkyWest is coordinating with its major airline partners to optimize the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are based on currently available information and are subject to change.
Flying contract with Delta Air Lines (“Delta”)
- Four new E175 aircraft to be financed and operated by SkyWest are scheduled for delivery in Q4 2020. Normal cash down payments are already covered by deposits paid last year.
- One new CRJ900 aircraft to be financed by Delta and operated by SkyWest is scheduled for delivery in 2021.
Flying contract with American for E175 aircraft
Twenty new E175 aircraft to be financed and operated by SkyWest:
- Five aircraft deliveries are anticipated in Q4 2021 and 15 deliveries in 2022
- SkyWest anticipates financing the aircraft through debt
Flying contract with Delta for CRJ200 aircraft
As previously announced, SkyWest’s capacity purchase agreement with Delta for CRJ200 aircraft is scheduled to expire in 2020. SkyWest owns the remaining 17 CRJ200 aircraft under contract with Delta as of September 30, 2020. SkyWest has no outstanding financing obligations on these 17 CRJ200 aircraft and anticipates these aircraft will be fully depreciated upon removal from the Delta contract.
Capital and Liquidity
SkyWest had $822 million in cash and marketable securities at September 30, 2020, up from $762 million at June 30, 2020. Total debt at September 30, 2020 was $3.1 billion, up from $3.0 billion at June 30, 2020. Capital expenditures during Q3 2020 was $10 million for a spare engine and other maintenance assets.
During Q3 2020, as previously announced, SkyWest and SkyWest Airlines entered into a $573 million, five-year secured loan facility with the U.S. Treasury Department (“Treasury”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). SkyWest Airlines borrowed the minimum required $60 million under the facility at closing. In October, SkyWest increased its loan capacity under this facility to $725 million. SkyWest Airlines has until March 2021 to borrow additional amounts under the facility. SkyWest issued warrants to purchase 211,416 shares of common stock to Treasury in conjunction with the initial $60 million draw.
During Q3 2020, SkyWest received $144 million in payroll support funding, including $101 million in grants and $43 million in unsecured debt, under the previously announced Payroll Support Program Agreement (“PSP Agreement”) with Treasury. In aggregate, SkyWest received $450 million under the PSP Agreement in 2020, including $345 million in direct grants and $105 million in unsecured debt. SkyWest recognized $152 million and $190 million in payroll grant expense reductions in Q2 2020 and Q3 2020, respectively, and anticipates recognizing the remaining $3 millionin Q4 2020.
As of September 30, 2020, SkyWest had a $75 million line of credit facility. SkyWest had approximately $35 million of letters of credit issued under the facility and $40 million available under the line at quarter-end.
American Eagle-SkyWest aircraft photo gallery: