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SkyWest writes down CRJ200s - what next? »
Commercial Aviation Analysts
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SkyWest, Inc.  announced its fourth quarter and full year results Thursday, showing a loss for both periods.  The company is parent of SkyWest Airlines and ExpressJet.  The company reported a $270.2m net loss for the fourth quarter ending December 2016, compared to a $40.4m profit previously. This loss was due to a one-off $465.6m aircraft “asset impairment charge” during the 4Q16. The stock market reacted well to the news.

SkyWest reached an agreement with Bombardier over residual value guarantees for CRJ200 as it starts to remove the aircraft from its fleet.  SkyWest was among the original CRJ customers. The focus, going forward, is on two class aircraft.  Bombardier agreed to end residual value guarantees (RVG) on 76 CRJ200s owned by SkyWest and ExpressJet. Bombardier is paying SkyWest $90m.  “Streamlining our fleet and taking early settlement of Bombardier’s RVG obligations reduce both our overall risk profile and the future investment that would have been required in the CRJ200 fleet,” said Chip Childs, President and CEO of SkyWest, Inc. “These moves strategically position us to continue to deploy our capital against our best investment opportunities and are expected to help improve future liquidity and fleet flexibility.”

SkyWest announced ExpressJet and American Airlines agreed to place 12 dual-class CRJ700s in service under a multi-year term contract. These CRJ700s were scheduled to be removed from service under a early lease return arrangement.  SkyWest’s combined in service fleet at 3Q16 consisted of 261 Embraer and 431 Bombardier jets.

The airline has orders for 16 E-175s, 100 175-E2s and 100 MRJ90s.  SkyWest is a highly influential airline, not only in the US.  It’s fleet decisions reverberate.  What is the $90m RVG from Bombardier going to used for? If it gets re-invested in the fleet how might it be deployed?  SkyWest orders show a preference for Embraer and Mitsubishi.  Both OEMs have next generation aircraft orders with the airline, but these aircraft exceed scope limits.  SkyWest has become a big of the E-175 taking delivery of 41 in 2016.  The most recent CRJ deliveries was 2011 for CRJ700s and 2009 for a CRJ900.

However, given the delays in the E2 (because of scope, not because of technical issues) and the MRJ90 (lots of issues), SkyWest is likely to revisit its fleet planning.   Focusing on two class service means it needs to think of the larger aircraft and this means more E-175s and possibly more CRJ900s.  Since we expect the MRJ to be a problem for planning purposes, and the E-175 line likely has few open slots through 2018, it is therefore rational for SkyWest to add more CRJ900s.  Besides which, it is in the interest of the largest regional airline to ensure it has a pipeline of at least two OEMs.

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