SkyWest Airlines 2008 Annual Report Download - page 48

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increase was primarily related to the timing of engine overhaul events. Our engine overhaul expense
increased approximately $54.8 million during the year ended December 31, 2008 compared to the year
ended December 31, 2007. The majority of the engine overhauls related to aircraft operated under our
Delta Connection Agreements and we were reimbursed for such engine overhaul costs by Delta. Such
reimbursements are reflected as passenger revenue in our consolidated statements of income. The
increase in maintenance excluding engine overhaul costs was principally due to other scheduled
maintenance events on our aging CRJ200 and CRJ 700 aircraft and repairs incurred on aircraft
damaged during the normal course of business. Additionally, since December 31, 2007, we added four
used CRJ200s and two used CRJ700s to our fleet. Compared to new aircraft, used aircraft typically
experience higher maintenance costs during the first year of service.
Under the United Express and Midwest Services Agreements, we recognize revenue at a fixed
hourly rate for mature engine maintenance on regional jet engines. We record the gross amount of that
maintenance as revenue in our consolidated statements of income, and we recognize engine
maintenance expense on our CRJ 200 regional jet engines on an as incurred basis as maintenance
expense in our consolidated statements of income. As a result, during the year ended December 31,
2008, we collected and recorded $31.4 million (pretax) of revenue in excess of our maintenance expense
under the United Express Agreement and the Midwest Services Agreement, which is intended to
compensate us for the expense of future engine maintenance overhauls.
Aircraft rentals. Aircraft rentals increased $1.3 million or 0.5% during the year ended
December 31, 2008, compared to the year ended December 31, 2007. The increase in aircraft rents was
primarily due to the addition of two used CRJ700s that were financed through long-term leases.
Depreciation and amortization. Depreciation and amortization expense increased $11.3 million , or
5.4%, during the year ended December 31, 2008, compared to the year ended December 31, 2007. The
increase in depreciation and amortization was primarily due to the addition of four CRJ200 and three
CRJ900s that were financed using long-term debt.
Station rentals and landing fees. Station rentals and landing fees expense decreased $3.7 million ,
or 2.8%, during the year ended December 31, 2008, compared to the year ended December 31, 2007.
Our station rents and landing fee costs can be impacted based upon the volume of passengers carried
and the number of departures. The decrease in station rentals and landing fees expense was primarily
due to a 2.7% decrease in passengers carried and a 3.6% decrease in departures during the year ended
December 31, 2008.
Ground handling service. Ground handling service expense decreased $34.2 million , or 24.4%,
during the year ended December 31, 2008, compared to the year ended December 31, 2007. The
decrease in ground handling was due primarily to Delta assuming responsibility from ASA in June 2007
for the performance of customer service functions in Atlanta and United transitioning 16 stations from
SkyWest Airlines to other ground handlers during the second quarter of 2008.
Other expenses. Other expense, primarily consisting of property taxes, hull and liability insurance,
crew simulator training and crew hotel costs, decreased $2.8 million , or 1.7%, during the year ended
December 31, 2008, compared to the year ended December 31, 2007. The decrease in other expenses
was primarily due to the decrease in crew simulator training and crew hotel costs. These decreases
were due primarily to fewer training events in 2008, primarily caused by lower production such as a
decrease of 3.6% in departures during the year ended December 31, 2008.
Interest. Interest expense decreased $20.3 million, or 16.0% during the year ended December 31,
2008 compared to the year ended December 31, 2007. The decrease in interest expense was
substantially due to a decrease in interest rates. At December 31, 2008, we had variable rate notes
representing 46.6% of our total long-term debt . The majority of our variable rate notes are based on
44