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Executives

Bradford R. Rich - Chief Financial Officer & Executive Vice President

Michael J. Kraupp - Vice President, Finance & Treasurer

Analysts

Michael Linenberg – Merrill Lynch

Duane Pfenningwerth – Raymond James

Bob Mcadoo – Avondale Partners LLC

Keith Weissman – Calyon Securities

Lily Ng – Merrill Lynch

SkyWest, Inc. (SKYW) F3Q08 Earnings Call November 5, 2008 11:00 AM ET

Operator

Welcome to the SkyWest third quarter 2008 earnings conference call. For your information all participants will be in a listen only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) Please note this conference is being recorded. I would now like to turn the conference to Mr. Brad Rich, Executive Vice President and CFO.

Bradford R. Rich

Thanks to all of you for joining us this morning. We do greatly appreciate your interest and your time this morning. We all know there are a lot of things going on that are occupying peoples’ attention particularly this morning following an important and significant day yesterday. So very honestly we do appreciate your time.

Before we get started let me just introduce to who is joining me this morning from SkyWest and participating in the call. I have Chip Childs, President and Chief Operating Officer of SkyWest Airlines with me. Brad Holt, the President and Chief Operating Officer of Atlantic Southeast Airlines is also with us via phone line this morning. I have Mike Kraupp, our Vice President of Finance and Treasurer with us this morning participating who also handles our investor relations activities.

In fact I will turn the time right now to Mike to read our forward-looking statement.

Michael J. Kraupp

In addition to historical information this release and conference call may contain forward-looking statements. SkyWest may from time to time make written or oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements encompass SkyWest’s beliefs, expectations, hopes or intentions regarding future events.

Words such as expect, intends, believes, anticipates, should, likely and other similar expressions identify forward-looking statements. All forward-looking statements included in this release and conference call are made as of the date hereof and are based on information available to SkyWest as of such date.

SkyWest assumes no obligation to update any forward-looking statement. Actual results will vary and may vary materially from those anticipated, estimated, projected or expected for a number of reasons.

Bradford R. Rich

Wit that let’s go ahead and jump right into a discussion of the third quarter results. It has been an interesting quarter from many perspectives. It’s been challenging in some ways but actually quite productive and many things have come to light here in the quarter that we actually are optimistic and feeling quite good about.

From an overall perspective just looking specifically at the financial performance obviously we had some challenges during the quarter and from that perspective only from all accounts it’s been a difficult quarter. I will use primarily as the outline for the discussion today the press release that went out this morning. I assume that those of you participating on the call this morning have access to our release.

Let’s just start right into that and discuss the results for the quarter. As you can see from the release we reported operating revenues of $934.1 million compared to $875.6 million for the same period last year. We reported $26.2 million of net income or $0.45 in diluted earnings per share which compared to $42.9 million of net income and $0.68 in diluted EPS for the same period last year.

When you roll those quarterly results into our year-to-date nine month performance we reported $2.75 billion of operating revenue for the nine months compared to $2.52 billion for the same period last year. We generated $91.7 million in net income or $1.55 in diluted EPS compared to $118.3 million in net income and $1.83 in diluted EPS for the same nine months of last year.

In discussing some of the significant items that affected our financial performance for the quarter I think first of all the thing that I would point out and that we need to keep in mind as an overall frame of reference for the discussion of both revenues and expenses is the fact that our block hour production during the quarter was down 7.6% quarter-over-quarter.

The general reason for that reduction is primarily just general reductions in our schedule block hour utilization by major partners and in addition to that we also restructured our agreement with Midwest Airlines and we have the impact of that restructuring which basically ended up with us reducing the fleet from 21 to 12 revenue lines with Midwest. Those two things combined resulted in this 7.6% reduction in block hours.

Now when you look at our top line revenue generation it doesn’t really reflect the 7.6% reduction in block hours. Most of you that have been following SkyWest closely I think understand by now how our contracts work and how pass through expenses affect our top line revenue. In looking specifically at the top line revenue where we see a 6.7% increase and a $58.4 million increase in absolute dollars we need to analyze that from two perspectives.

First of all our pass through expenses which primarily are fuel and heavy engine maintenance were up quarter-over-quarter $72.2 million. When you look at that $72.2 million and then keep in mind that our absolute increase is $58.4 million that obviously means that there are some items offsetting the increase in revenue and those issues are what I just mentioned which are the production and the impact of the restructured Midwest agreement which went the other way, negative, by about $13 million.

I hope that gives some perspective here relative to top line revenue growth. Again the most significant item to take out of the revenue at the top line is that a combination of production and the Midwest impact really resulted in about $13 million less in operating revenues than we would have expected under normal operating circumstances.

When looking at our operating expenses and particularly looking at the expenses excluding fuel expense we had an increase in our cost per ASM of 6.8% to $0.094 per ASM from $0.088 in the third quarter of last year. A couple of primary reasons that those expenses are up, again focusing on CASM less fuel, first of all our maintenance expenses are up in absolutely dollars $25.6 million, again keeping in mind a 7.6% reduction in our block hour production.

A relevant part of that maintenance increase is that as I mentioned earlier our heavy engine maintenance expenses are a pass through so they go both through expense and through our top line revenue but of this $25.6 million $9.6 million are non-pass through, non-engine maintenance expenses. I think there are a couple of factors at work here.

Number one and I think most significant is that we have made a conscious decision to invest in maintenance reliability and we have some increased expenses specifically due to our emphasis and our focus on improving maintenance reliability particularly on the ASA side. That has caused some increase in the maintenance expenses. The good side is that it has also been very meaningfully and materially showing up in the improvement in our reliability from just about every way you can imagine reliability in airline.

We’ve seen good consistent improvements particularly in the ASA operation, the SkyWest Airline system has just consistently ranked at or near the top of the regional airline industry and that has held true in the third quarter as well. In addition to just the fact that our non-engine maintenance expenses are up when we have a significant reduction in the block hour or just our overall production we obviously have the difficult challenge of adjusting our overhead and infrastructure costs to be proportionate or reflective of the decrease in production.

The difficulty is, is that when there’s no consistency to the scheduling and it’s moving from schedule to schedule it makes very difficult to adjust our infrastructure and our fixed costs relative to the changes in production. So that’s been a pretty significant challenge for us during the quarter and one of the reasons that our cost per ASM is up.

A little bit more on the ASMs in the quarter, just strictly from an ASM perspective they’re down 7.1% for the quarter as I already mentioned primarily due to schedule changes and then the reduction of the Midwest line. Our fourth quarter ASMs we think we’re going to have a continuing significant challenge also in the fourth quarter.

Because of some of the volatility in the scheduling, not knowing exactly how some of this is going to play out with some of the easing in fuel prices that we’ve seen of late and the way that that impacts schedules we are not going to give at this point specific quarter-by-quarter ASM estimates as we have done previously. We will give that information to the market as we feel more confident in the accuracy of the schedules.

What we do know is that in the fourth quarter the majority of the ASA ATR fleet will be going away. We also have several aircraft that have been involved in some unfortunate incidents on the ground which has caused some damage. We have at least four CRJs that are down for an extended period. So just with some of the ongoing challenges surrounding the schedule, the ATRs going away, several CRJs down due to damage, we are going to see a lower rate of ASM production and block hour production continuing in this fourth quarter.

Another item impacting our net income obviously is just due to decreased earnings rates on our cash investments. Interest income decreased $4 million quarter-to-quarter again just primarily as a result of the reductions in the interest rates on those short term investments. I’m not going to spend a lot of time this morning reviewing the fleet. I think most of you again that have been following us over time understand pretty well the nature of the fleet, the composition of the fleet.

I guess just a reminder, at the end of the September quarter our fleet did consist of 440 aircraft. I have previously mentioned several times that during the quarter we did restructure or modify our airline services agreement with Midwest due to the financial difficulties of Midwest. I guess a couple of significant items in that restructuring, first and foremost we agreed to reduce the fleet from 21 aircraft to 12 aircraft.

We also went for a period of time where Midwest did not make the scheduled payments that they were obligated to make. Those payments have been rolled into a note and as we indicated the release due to the timing and the modified payment terms associated with the deferred amounts we have not recognized revenue on any of the amounts that have rolled into that note which in total is $7.7 million and it affected the quarter to the tune of $4.6 million in deferred amounts again that were not recognized in revenue.

On the positive side, really positive side, we ended the quarter with $729.6 million in cash and marketable securities compared to $660.4 million at the end of December. The increase in cash is net of the $90.8 million that we have spent in repurchasing our common shares. Probably just worthy of mentioning that we have repurchased 4.5 million shares. We still have 5.5 million shares that have been authorized by our Board to repurchase.

There are several other things that we disclosed in our press release just relative to ongoing issues. The 123R expense we have consistently given in the release as a point of reference. Our 123R expense in the quarter was $2.9 million pre-tax, $1.9 million after tax. The issue with the timing of our collection of reimbursement relative to maintenance, relative to the timing of the maintenance expense, again we’ve consistently brought to the market’s attention that number was $7.8 million pre-tax in the quarter.

We previously announced that we are doing a fleet transition plan where we’re acquiring 22 additional CRJ aircraft and that kind of coincides with the retirement of 23 Brazilias. We recognize that’s not new information. The relevance to that information now is that the first of those 22 new aircraft will begin delivering actually in just a few weeks with the delivery of the first of the four CRJ-900s.

The service for those aircraft will be in November, another one in December, two in January. The 700s then begin delivering in May through August of next year. We then have two in September, four October, two in December of ’09 and the remaining six will deliver January through the 1st of March of 2010.

That will be good news for us from two standpoints. First of all we’ll be eliminating some Brazilias which are getting towards the end of their lives and becoming a little bit more maintenance intensive so we’ll not only be replacing those with brand new aircraft but obviously replacing Brazilias with combination CRJ-900s and 700s will be some meaningful growth.

We have put some information in the release relative to the ongoing litigation with Delta over our IROPs expenses. I won’t spend a lot of time here with it. If people have specific questions I guess we’ll take some questions relative to that but obviously with ongoing litigation we’re very limited in what we either can or should be talking about there.

In summary I think I again just review the more significant items affecting net income for the quarter were the production decreases of 7.6% in our block hour production, the impact of the Midwest restructured agreement, a bit of an increase in our non-engine maintenance expenses. We had some other expenses accumulating to a total of about $4.5 million that spend everywhere from increased incentive payments to increased workers’ comp and health insurance, those types of issues that hit us about $4.5 million in the quarter.

Then the reduction in interest income of $4 million pre-tax. On the positive side we do have the fleet transition as I just explained that will begin this quarter, the elimination of some older Brazilias bringing in newer, larger CRJ-700s and 900s is a very good thing. One thing that I have not mentioned but we had a significant turn around in our prorate flying during the third quarter at SkyWest Airlines, both the United and the Delta prorate activities were not only net income positive but significantly cash flow positive.

The operational performance at both airlines remains very good. At SkyWest Airlines and as I mentioned earlier very significant good, if you look at just the trend line again from about every way you can measure quality and performance at a regional the trend lines are looking very good at the ASA operation as well.

For that thanks goes to the leadership of both of the operating entities, to the hard work and the efforts of all of our employees. As I mentioned we’ve had obviously from a financial performance perspective it’s been a challenging quarter. The good news is that the dedication, the hard work, the efforts of the nearly 14,000 men and women of the combined SkyWest, Inc. companies remains very strong, very positive and everybody doing everything that they can to create a good high quality operation.

For that we’re very appreciative and grateful to all of our employees. With that I will go ahead and conclude these remarks and we’ll answer some questions.

Question-And-Answer Session

Operator

(Operator Instructions) Please limit yourself to one question and a single follow up. Our first question will come from Michael Linenberg – Merrill Lynch.

Michel Linenberg – Merrill Lynch

I have a couple questions here, Brad when we look at the information that you provided regarding the lawsuit you indicated that you recognized the total of $32.4 million of revenue. When you say recognized did that show up in the revenue line this quarter and what was the catalyst for that and is the first time that you’ve actually recognized revenue with the money that Delta has held back related to this issue?

Bradford R. Rich

The fat in the matter is that when this was brought to our attention actually just about a year ago, the amount in dispute in that time I think was right on $25 million. The only issue here is that a the present time the total amount that has been recorded into revenue and that really is in dispute or you could say the total amount of our exposure to this is $32.4 million.

Michel Linenberg – Merrill Lynch

It’s $32.4 million and now that’s associated with funds that Delta has withheld. How much have they withheld at this point? Because I believe at the end of the June quarter I think it was $32.5 million. Are we still at $32.5 million or as of September 30th is that number a bit higher and are they still withholding money?

Bradford R. Rich

No, they’re still withholding money. The issue here that I’m talking about is just how much of what they’ve withheld, how much have we booked and therefore if we were to lose the suit, how much do we have exposed. That number is $32.4 million. The dispute is ongoing and Delta continues to withhold money according to their interpretation of how IROP expenses should work in the contracts.

Michel Linenberg – Merrill Lynch

My second question regarding the Delta files a motion to dismiss the complaint, you did provide a full paragraph in how that played out. In layperson’s terms, can you explain what you’re able to pursue and maybe what you’re not able to pursue? It looked like that there was some bit where they received a favorable ruling from the court. It looked like that you also received a favorable.

Can you part and parcel where things stand and maybe what you’re not able to pursue or fight?

Bradford R. Rich

Mike, obviously we have to be very careful and I’m going to be very sensitive about what we talk about in a public forum relative to ongoing litigation. What I will say is that probably something that’s not unusual in this type of litigation is that there are several aspects to and several points included within our complaint.

That was that Delta filed a motion for dismissal on all of the points. The Judge granted in favor on some and not in favor on others. From our perspective the fundamentals of our case, the fundamentals of our complaint are still alive and will be heard by the court.

Operator

Our next question will come from Duane Pfenningwerth – Raymond James.

Duane Pfenningwert – Raymond James

I was wondering if there was any revenue that was actually written off in the quarter from Midwest as opposed to rolled to a note?

Bradford R. Rich

Duane, the answer to that question is that all deferred amounts that Midwest owes us have been rolled into the note, but all of those amounts although they’ve been rolled into a note, simply due to, I hate to say it this way, due to our assessment of their financial condition, we have not recorded any of that in revenue. The other way to say that is we fully reserved all of those amounts. So 100% of our exposure with the note, in other words, has been reserved.

Duane Pfenningwert – Raymond James

Is there a one time impact this quarter so if you excluded that full reserve, what would the margin look like excluding this one time issue?

Bradford R. Rich

The impact of that in the quarter alone was I think we disclosed at $4.6 million. So of the total $7.7 million that’s in the note, the original $3.1 million we took last quarter, $4.6 million we took this quarter.

Duane Pfenningwert – Raymond James

Brad, you went through it just quickly, what are the deliveries in the fourth quarter and in 2009 in total and can you talk about the financing commitments you have in place there?

Bradford R. Rich

The first of the 900s will deliver here in just a couple of weeks. But more important than the delivery dates, we have service dates beginning one in November, one in December and two in January. Those are the four CRJ-900s. Then the 700s begin delivering early next year with service dates that are basically an aircraft a month May through August.

Then we have two in September, four in October, two in December and then the remaining six are basically two a month January, February, March.

Duane Pfenningwert – Raymond James

On your interest expense, I assume maybe what’s happening is some owned aircraft were converted to leases or maybe you’ve paid off some debt. Can you just add some detail on why that’s come down so much the last couple quarters?

Bradford R. Rich

I didn’t highlight in the discussion only because we do have some variable rate debt. The majority of it is in the ASA fleet so as rates have come down the variable rates have adjusted down, that’s the primary reason for the decrease in the interest expense. I didn’t highlight it because the interest expense related to aircraft ownership is a pass through.

So it affects both expense and revenue the same way, it has no impact on income.

Operator

Our next question will come from Bob Mcadoo – Avondale Partners LLC.

Bob Mcadoo – Avondale Partners LLC

A couple things, we got off on deliveries on Duane’s question and he had also asked you about financing on these airplanes. Where do you stand on that? We didn’t get that?

Bradford R. Rich

Before I answer the question, Bob, let me just make a general statement. We’ve been given a note or two here in the room that particularly the webcast portion of the audio has been breaking up and in and out. We’re not quite sure what the problem is, we know it’s happening. We apologize for it, but there’s not a whole lot that I know we can do about it. I guess I can do nothing more than just apologize that we have some audio breaking up, in and out over the Internet broadcast and we apologize for it.

Bob, to the question, first of all obviously this question is getting a lot f attention. We’re taking a lot of phone calls from people asking about our ability finance the aircraft. We are very confident in our ability to get debt financing for these airplanes. We don’t think that’s going to be a problem at all.

If we choose just to own and acquire with straight debt financing, we don’t think that’s going to be a problem at all. In fact we have advance commitments for the debt on these airplanes. What we are trying to do, is still our preference is to have some mix of leveraged lease or investor lease as a mix so that they’re not all just 100% financed.

The reason for that is primarily driven by the fact if we go out and take 22 brand new aircraft all on our balance sheet, we can’t fully utilize the tax benefits currently so we’d just as soon spread that around to people who can utilize the benefits currently in some form of a tax lease. Bob, I know you understand this very well. So our preference is to have a mix of some leasing, some owned aircraft, so the equity participation remains very difficult.

We are working with some parties. We’re not that optimistic about our ability to place leverage leases right now, but if we can’t we have an advance commitments for the debt to debt finance 100% of the deliveries.

Bob Mcadoo – Avondale Partners LLC

Given what you said about how variable interest expense is a pass through, to the extent that the interest rates get ugly to try to get all these done over the next several months, is that higher interest rate also going to turn into a pass through for these two contracts?

Bradford R. Rich

Yes, so what that means is that we need to proactively enter discussions with the partners that have those airplanes and jointly come up with a strategic plan whether to continue to let these rates float or whether we should take advantage of options to fix, they’re embedded in the contracts.

Bob Mcadoo – Avondale Partners LLC

A couple other little quickies, the Brazilias that are grounding, are those all in the prorate side or do you have any Brazilias that are on contract?

Bradford R. Rich

Brazilias on contract, Bob I’m not sure I understand the question.

Bob Mcadoo – Avondale Partners LLC

The arrangements under which you are flying the Brazilias, are they all prorate arrangements or do you have some normal, like you have on your RJs, where you fly so much an hour kind of contract deals?

Bradford R. Rich

Yes, of the total Brazilia fleet, 24 of them are still in contract, CPA type arrangements. The remainder, those are the aircraft that are flying in prorate.

Bob Mcadoo – Avondale Partners LLC

The ones that are leaving the system, are they contract Brazilias or are they prorate Brazilias?

Bradford R. Rich

Contract.

Bob Mcadoo – Avondale Partners LLC

So these new airplanes that are coming in that are “replacing Brazilias” are replacing Brazilias on contract?

Bradford R. Rich

Yes.

Bob Mcadoo – Avondale Partners LLC

Obviously as fuel prices come down recently I assume it’s helping the prorate side of the house. I know prorate has never been a big number but can you can you give us an idea of, of your fuel expense line, how many gallons do you have in terms of prorate gallons versus contract or pass through gallons so we can get a sense of what the windfall, I don’t know if it’s called a windfall, but the benefit that you’re getting because you don’t have to pay here what you were paying another 90 to 120 days ago on fuel.

Bradford R. Rich

Our fuel burn in the prorate system is about 1 million gallons a month. Is that the number you’re after, Bob?

Bob Mcadoo – Avondale Partners LLC

That’s what I’m looking for. Is there a way to split out the passenger revenue line, the $900 million line into prorate versus contract in round numbers?

Bradford R. Rich

Bob, you’re getting into some detail here that I don’t have immediately available. We certainly have it. If you want to call us after, we can give you that.

Bob Mcadoo – Avondale Partners LLC

Just call Mike and he’ll come up with it?

Bradford R. Rich

Yes.

Operator

Our next question will come from Keith Weissman – Calyon Securities.

Keith Weissman – Calyon Securities

I wanted to ask you about your flying levels with Delta. Have they been running at minimum levels or above in the third quarter?

Bradford R. Rich

I think it’s fair to say they are, yes, very near minimum requirements.

Keith Weissman – Calyon Securities

And with the merger complete with Northwest, do you foresee any changes to the contracts or any discussions happening where they might try to change the nature of the contract, the amount of aircraft under contractor anything related to the contract?

Bradford R. Rich

This is a good question, a couple of things come to mind. I’ll try to be short and succinct in answering this, but first of all the majority of the fleet with Delta obviously is under contract. We don’t expect any changes there other than Delta’s ability to deliver a schedule that will either be at or above the minimum requirements or it may be below. If it’s below to deal with whatever issues Delta sees fit to address within their schedule.

If it’s below the minimum requirements, then a rate adjustment is required in the contract. So Delta certainly has the latitude to do that. The other part of this that we’re trying to be very sensitive to is that I’m sure we’re not the only ones that have heard Delta make reference to their CRJ fleet and the fact that if they had their preference they would fly fewer CRJ-200s.

Obviously some of those comments have been made when fuel prices were at their peak. With fuel prices easing, maybe that will affect their perception of the CRJ-200 flying, or I should say 50 seat regional jet flying. We suspect that it will, but at the end of the day, I’m sure that if they had their preference they would have a material decrease in 50CRJs.

We are doing everything we can to try to address that in cooperation with Delta and trying to find alternate uses for the 50 seat lift. We have several initiatives under way, things that we’re pursuing and investigating and analyzing to try to deal with that. Nothing right here imminent to announce or anything like that. We are trying to do what we can to creatively find some solutions to that issue.

It’s kind of a multi-faceted issue, but I hate to ever answer questions just by saying well we have a contract that says we need to fly these. But that is the case. The only really issue there is in spite of what the contract says, we’re trying to proactively come up with some solutions and then if Delta does choose to go below minimum requirements in utilization, there’s a rate adjustment required.

The thing that’s been difficult is when we have schedules where there’s not a lot of consistency and continuity to the schedules. Because if the schedules go under requirements but then pop up the next month, we really can’t make any meaningful long term corrections in our expenses to deal with it. That’s where it really becomes counterproductive to our financial performance.

Keith Weissman – Calyon Securities

I might have missed this, but with the aircraft going from 21 to 12 at Midwest, what’s happening with those nine aircraft?

Bradford R. Rich

We are utilizing those aircraft in some respects in spare aircraft for a couple of the airplanes. First of all the aircraft are for sale. We’re trying to relocate the aircraft, either find alternate uses or just outright sell the aircraft. While we’re trying to sell the aircraft, we have some of them that are being used to fill in for aircraft out for overhaul, [c-checks], whatever so they’re being used really as maintenance spares.

But we’re also trying to do the best we can to utilize the aircraft everywhere from charters to just some other ancillary type flying, but to just to bridge this time period until we get them sold or relocated.

Keith Weissman – Calyon Securities

And how do you see the sale markets? I imagine it’s pretty slow right now.

Bradford R. Rich

It’s not as slow as some would think. Actually there are some significant efforts that are being invested in relocating and placing some of these aircraft. We actually are more optimistic about this than some might assume.

Keith Weissman – Calyon Securities

One last one on Midwest, what is the priority of claim on the Midwest note? If they were to file for bankruptcy down the line, would you be basically out of that money or would you have some type of priority on it?

Bradford R. Rich

No special priority. We’ll line up with the rest of the unsecured creditors.

Operator

Our next question will come from Lily Ng – Merrill Lynch.

Lily Ng – Merrill Lynch

Just a really quick question regarding your investment in Trip, have you made any progress regarding negotiating some capacity purchase agreement with the network carriers on Brazil? Any update on that would be great.

Bradford R. Rich

I’ll just say that there is interest there by more than one carrier, but the discussions are very early.

Operator

Our next question will come from Bob Mcadoo – Avondale Partners LLC.

Bob Mcadoo – Avondale Partners LLC

On the ATR you used the term going away, I think was the way you said it. Does that mean that Delta has decided to permanently ground those and were those planes that when you bought ASA, were those planes that were some of the assets you bought or are those the planes that are on lease?

Bradford R. Rich

Those are on lease, Bob, and from day one in the discussions for the acquisition of ASA, those airplanes were scheduled to terminate. Actually the leases did terminate and we re-entered very short term leases at Delta’s request I think primarily just to give Delta a little more time to evaluate what they wanted to do with the fleet and what portions they wanted to replace and how they wanted to replace and that sort of thing.

The lease extensions are just expiring and the airplanes will go back, but we really have no exposure there. We don’t like ATR parts exposure or anything like that to deal with. This was anticipated, it has been anticipated for a long time. It obviously is a meaningful issue from the standpoint that it’s a reduction of the fleet at ASA and so how that impacts crews and infrastructure and all that certainly is an issue. But it is something we’ve known about for a long time.

Bob Mcadoo – Avondale Partners LLC

Do you have enough turnover in the Eastern half of your system in terms of personnel so that it doesn’t mean layoffs or whatever, that you can work through this as something you’ve been able to plan for? Maybe not quite as smooth as you’d like it sounds like.

Bradford R. Rich

Yes.

Operator

We also have a question from Michael Linenberg – Merrill Lynch.

Michael Linenberg – Merrill Lynch

Something that I forgot, just to follow up something, Brad I think you made the point that you said you were very confident in the company’s ability to get debt financing for these airplanes coming in. I may have missed this, did you address the equity and are you planning to take all those airplanes and put them on balance sheet or do you think you’ll be able to get some equity participation? What does the market look like on that front?

Bradford R. Rich

Again, very confident that we have 100% of the aircraft covered on straight debt, straight debt would mean that we bring the airplanes on balance sheet. We don’t think that’s most optimal because we can’t currently utilize all the tax benefits so we would love to have some equity participation. The equity participation is very difficult to come by particularly in this market. We’re trying to be very candid, I’m not that optimistic about equity participants.

Michael Linenberg – Merrill Lynch

One more, I know you talked about whether it was inefficiencies or reduced utilization, reduced production that impacted your numbers in the quarter. That said, you’re on time and completion factor performance for SkyWest and maybe more specifically ASA, you saw significant improvement over the past three, four, five months. It seemed like ASA is now like a top five carrier and we’re looking at all carriers.

I’m just wondering how much in the goal to improve operating performance, and it seems like every regional carrier now is under the thumb of their major partners who there’s a lot of demands out there about performance. Was some of that in order to achieve those solid numbers? Did some of that result in maybe stretched block times, etc. and maybe drive some of that additional cost? Any color on that front would be great.

Bradford R. Rich

I don’t know what color to add to it other than I think your assessment is very accurate. There certainly has been some of that but I think the main thing to keep in mind is that obviously our major partners, they’re managing block time reliability very specifically.

That’s certainly at work here but the fundamentals of keeping our crews productive, implementing technology that’s required to enhance your reliability just to maintenance and the fundamentals of flowing crews and all those things that impact reliability, we remain very focused on those types of issues. That’s the part we can control.

The controllable elements of reliability, we’re remaining very focused on and both Chip and Brad at the respective entities, I think under their leadership we remain very focused on those issues and it’s showing up in the numbers.

Operator

This does conclude today’s question-and-answer session. I would like to turn the conference back over to Mr. Rich for any closing remarks.

Bradford R. Rich

I won’t take any more of your time with a lot of closing remarks. Again, we just thank you for your interest and your time today. In spite of some of the difficulties and challenges, we still remain very optimistic about the future. Again, thank you very much and we’ll conclude the call.

Operator

This does conclude today’s conference call. Thank you for attending.

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Source: SkyWest, Inc. F3Q08 (Qtr End 09/30/2008) Earnings Call Transcript
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