SkyWest Airlines 2005 Annual Report Download - page 51

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(1) Nature of Operations and Summary of Significant Accounting Policies
SkyWest, Inc. (the “Company”), through its wholly-owned subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and
Atlantic Southeast Airlines, Inc. (“ASA”), operates the largest regional airline in the United States. As of December 31, 2005,
SkyWest and ASA offered scheduled passenger and air freight service with approximately 2,400 total daily departures to 218
different destinations in the United States, Canada, Mexico and the Caribbean. Additionally, the Company provides ground
handling services for approximately ten other airlines throughout its system. As of December 31, 2005, the Company’s fleet
consisted of 229 40- and 50-seat Bombardier CRJ200 Regional Jet aircraft (“CRJ200s”) (66 assigned to United Air Lines, Inc.
(“United”), 163 assigned to Delta Air Lines, Inc. (“Delta”) 77 70-seat Bombardier CRJ 700 Regional Jet aircraft (“CRJ700s”) (42
assigned to United and 35 assigned to Delta), 62 Embraer Brasilia EMB-120 turboprops (“Brasilia Turboprops”) (48 assigned to
United and 14 assigned to Delta), and 12 Avions de Transport 72-210 (“ATR-72 turboprops”) (all assigned to Delta). For the
month ended December 31, 2005, approximately 59.9% of the Company’s capacity was operated under the Delta code and
approximately 40.1% was operated under the United code.
SkyWest Airlines has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997,
respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma,
San Francisco and additional Los Angeles markets. In 2001, SkyWest Airlines expanded its operations to serve as the Delta
Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest Airlines re-deployed all its Delta Connection
flights to Salt Lake City as a result of Delta’s decision to “de-hub” its Dallas/Fort Worth operations. In 2004, SkyWest Airlines
expanded its United Express operations to provide service in Chicago. As of December 31, 2005, SkyWest Airlines operated
approximately 1,500 total daily flights as a Delta Connection carrier in Salt Lake City, and a United Express carrier in Chicago
(O’Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma. SkyWest Airlines believes its success in attracting
multiple contractual relationships with major airline partners is attributable to its delivery of high-quality customer service with an
all cabin-class fleet at a competitive cost structure. In April 2003, SkyWest Airlines signed an agreement with Continental
Airlines, Inc. (“Continental”) to supply Continental with regional airline feed into Continental’s Houston hub beginning on July 1,
2003. The Continental flying represented only approximately 1.5% of the Company’s 2004 ASM production and generated less
than 1.0% of the Company’s 2005 operating income. In January 2005, the Company announced the mutual decision with
Continental to end SkyWest Airlines’ operations as a Continental Connection carrier and the Company completed the phase-out
process on July 1, 2005.
On September 7, 2005, the Company completed the acquisition of all of the issued and outstanding capital stock of ASA.
ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. The consolidated statements of
income reported herein contain 114 days of operations relating to ASA from September 8, 2005 to December 31, 2005.
Pursuant to the terms of the Stock Purchase Agreement entered into between the Company, Delta and ASA Holdings, Inc.
(“ASA Holdings”) the Company paid $421.3 million in cash for ASA, plus $5.3 million of transaction fees. Additionally, as part
of the purchase, the Company assumed approximately $1,251.3 million in long-term debt which combined with the amounts paid
at closing, resulted in an aggregate purchase price of approximately $1,677.9 million. The purchase price of ASA has been
adjusted to reflect certain post-closing adjustments related to ASA’s working capital as of September 7, 2005.
ASA has been a code-share partner with Delta in Atlanta since 1984. ASA expanded its operations as a Delta Connection
carrier to also include Cincinnati/Northern Kentucky and Salt Lake City in September 2002 and April 2003, respectively. ASA
operates approximately 850 daily flights, all in the Delta Connection system.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of SkyWest, Inc. and its wholly-owned subsidiaries,
SkyWest Airlines and ASA, with all inter-company transactions and balances having been eliminated.