SkyWest Airlines 2013 Annual Report Download - page 3

To our Shareholders:
Thank you for your investment and interest in SkyWest. We are pleased to report net income of
$59 million, or $1.12 per diluted share, for the year ended December 31, 2013. This net income
represents an increase of approximately 15% compared to the same period last year. In reviewing 2013,
we believe we clearly made progress in many areas, but in some we did not. We will discuss both our
2013 accomplishments and challenges as well as our strategic objectives and plans to make progress in
the future.
Accomplishments in 2013
On May 21, 2013, we announced the completion of an agreement with Embraer S.A. (‘‘Embraer’’)
for the purchase of up to 100 new E175 dual-class regional jet aircraft. This transaction was the
culmination of a very long, but productive process which positioned SkyWest strategically to respond to
upcoming US major carrier requests for proposals (‘‘RFP’s’’) that were anticipated to be issued in the
market. From our perspective, the transaction locked in very competitive pricing and terms and
conditions to be used in our responses to the US major carrier RFP’s, as previously noted.
Additionally, no significant financial obligations are created under this agreement until SkyWest
successfully enters into an agreement with a major airline partner, at which time the aircraft are
considered ‘‘firm orders’’. This agreement also provided for 100 options for additional E175 aircraft.
Additionally on May 21, 2013, we announced that SkyWest was successful in the RFP process and
was awarded a 12-year capacity purchase agreement with United Airlines, Inc. (‘‘United Airlines’’) to
operate 40 new E175, dual-class 76-seat, regional jet aircraft as United Express. The E175 aircraft
represents a new type for the SkyWest Airlines, Inc. (‘‘SkyWest Airlines’’) operating certificate and as
such we have invested time and financial resources toward regulatory approvals, spare aircraft parts and
flight crew training during the year just ended. We will receive the first of these new aircraft during the
first quarter of 2014, with 21 aircraft expected to be delivered by year-end 2014. The remaining 19
aircraft are currently expected to be delivered by July 2015. These 40 new E175 aircraft will be
operated by SkyWest Airlines, one of the operating airlines in our portfolio. We look forward to
integrating these aircraft into our operations and believe they will make a positive contribution to our
future financial results.
On June 17, 2013, we jointly announced an agreement with Embraer to be the launch customer for
the E2 regional jet aircraft. The E2 is a new generation E175 aircraft with enhanced aircraft and
engine technologies, offering superior economics compared to other aircraft in its class. The current
projected availability for the E2 is 2020.
In our report to shareholders for 2012, we outlined an agreement that was reached with American
Airlines, Inc., to operate 23 CRJ200 regional jet aircraft as American Eagle. SkyWest Airlines began
flying 12 of these aircraft at Los Angeles, CA in November 2012. The remaining 11 aircraft began
flying at Dallas, TX in February 2013, and are operated by ExpressJet Airlines, Inc. (‘‘ExpressJet
Airlines’’), another of our operating airlines.
Also in our 2012 report to shareholders, we outlined an agreement with Delta Air Lines (‘‘Delta’’)
that provided for SkyWest to take delivery of 34 dual-class regional jet aircraft in exchange for
removing 66 CRJ200 regional jet aircraft from our contract with Delta prior to their natural
expirations. We took delivery of all 34 dual-class aircraft by May 2013; and as of December 31, 2013,
we had removed 33 of the 66 CRJ200 aircraft. Of the 33 aircraft removed from the Delta contract, 23
aircraft are operating as American Eagle, as previously noted. The remaining aircraft to be removed
are primarily Delta financed aircraft with no remaining financial obligations owed by SkyWest after
their removal from the contract. We anticipate that 29 of these aircraft will be removed in 2014 and the
remaining four in early 2015.
The strategic benefits of these transactions are: 1) the expansion of agreements with an additional
US major partner, 2) geographic expansion in other hubs and important changes in the mix of aircraft
in our portfolio, 3) eliminating additional 50-seat aircraft and adding additional dual-class aircraft that