ExpressJet acquisition boosts SkyWest's profits

Crunching the numbers after buying the parent company of ExpressJet Airlines delayed the release of SkyWest Inc.'s fourth-quarter results by about two weeks, but the holdup was apparently worth it.

A big chunk of the income SkyWest earned in the quarter ending Dec. 31 came by way of the ExpressJet acquisition 50 days earlier, said Brad Rich, chief financial officer of the regional airline's holding company, on Wednesday.

"Although we don't report specifically on segments, the ExpressJet operation was both positive cash flow and did generate operating income from Nov. 12 [when the acquisition was completed] to Dec. 31," Rich said in a conference call with analysts.

SkyWest earned $37.2 million, or 67 cents per diluted share, in the quarter. Net income was $19.5 million,or 34 cents per share, in the same quarter of 2009.

With the company's latest profit up almost 91 percent, shareholder and asset manager David Fried was happy with how the quarter turned out. Analysts polled by Thomson Reuters were looking for SkyWest to report earnings of 33 cents per share.

"The earnings beat expectations. They just blew away all the metrics, as far as I'm concerned," said Fried, CEO of Fried Asset Management in Pacific Palisades, Calif.

Rich said SkyWest booked an untaxed accounting profit of $15.6 million because of the ExpressJet acquisition. SkyWest realized the gain because it bought ExpressJet for less than the value of its assets and liabilities.

SkyWest is the parent company of SkyWest Airlines and Atlantic Southeast Airlines (ASA). It paid $136.5 million for ExpressJet, which became a subsidiary of ASA.

The $15.6 million gain was offset by a pretax expense of $8.8 million for professional fees and severance costs related to the acquisition.

On the other hand, the company brought in additional revenue after settling differences with partner Delta Air Lines over prices SkyWest gets for flying as Delta Connection. Block hours — the time SkyWest Airlines and ASA rack up flying for Delta and United Airlines — increased in the quarter.

In the end, the additions and subtractions produced $10.2 million, or 18 cents per share, toward the quarterly profit of $37.2 million for the company, Rich said.

SkyWest raked in $796.3 million in revenue during the quarter, up 31.7 percent from the fourth quarter of 2009. The $191.9 million increase was mostly due to a 39 percent hike in hours flown related to ExpressJet that generated $108.7 million in new revenue.

"So, of course, most of the increase in the total operating revenues resulted from the ExpressJet acquisition," Rich said.

Other highlights of the quarter:

• SkyWest ended the three-month period with $805 million in cash and marketable securities. The company's cash hoard is almost as much as its stock market value of $873.5 million, based on Wednesday's activity. SkyWest shares closed at $15.87, up 62 cents, or 4.1 percent.

• SkyWest repurchased 1.1 million shares of its common stock during the quarter. The company intends to buy back more shares in coming months, Rich said.

• SkyWest agreed to acquire eight Bombardier CRJ700 regional jets from Horizon Air, whose sister carrier is Alaska Airlines. The jets will be operated as Delta Connection aircraft. Delivery will be completed in June.

• SkyWest signed a letter of intent to fly five CRJ700 jets for Alaska Airlines, probably beginning in May.

• SkyWest ordered four new CRJ700 jets from manufacturer Bombardier Aerospace. They will fly as Delta Connection jets upon delivery later this year.

• SkyWest invested $7 million in Mekong Aviation Joint Stock Co., giving it a 30 percent stake in Air Mekong, a regional air carrier in Vietnam. Flights began Oct. 9. Some of Air Mekong's pilots formerly worked for ASA.