SkyWest Airlines 2014 Annual Report Download - page 46

Operating Expenses and Other Income items
Salaries, wages and employee benefits increased $46.8 million, or 3.9%, during the year ended
December 31, 2014, compared to the year ended December 31, 2013. The increase in salaries, wages
and employee benefit expenses was primarily due to increased pilot costs associated with the
implementation of the Airline Safety and Pilot Training Improvement Act of 2009 (the ‘‘Improvement
Act’’), which had a negative effect on pilot scheduling and work hours in 2014. We anticipate that the
negative impact of compliance with the Improvement Act we experienced in 2014 will continue in
future periods. The increase in salaries, wages and employee benefits was also due to additional hiring
and training associated with the deliveries of our E175 aircraft, which we anticipate will continue into
2015.
During the year ended December 31, 2014, we recorded $74.8 million in special items that
consisted primarily of impairment charges to write-down owned EMB120 aircraft and related long-lived
assets to their estimated fair value, accrued obligations on the leased aircraft and related costs. The
special item associated with the EMB120 aircraft was triggered by our decision to remove the EMB120
aircraft from service by the second quarter of 2015. The special item additionally consists of
impairment charges to write-down certain ERJ145 long-lived assets to their estimated fair value and
aircraft lease return and related costs. The special item associated with the ERJ145 aircraft was
triggered by the execution of an amended and restated contract with United that accelerates the lease
termination dates of certain ERJ145 aircraft and accelerated the termination date of the ExpressJet
United ERJ Agreement to operate the ERJ145s from the year 2020 to 2017. The special item also
includes the write-down of assets associated with the disposition of our paint facility located in Saltillo,
Mexico, which was sold during the year ended December 31, 2014.
Other operating expenses, which primarily consist of property taxes, hull and liability insurance,
crew simulator training and crew hotel costs, increased $24.5 million, or 10.2%, during the year ended
December 31, 2014, compared to the year ended December 31, 2013. The increase in other expenses
during the year ended December 31, 2014 was primarily due to an increase in crew lodging expenses
resulting from our compliance with the Improvement Act.
We recorded a gain of $24.9 million in other income during the year ended December 31, 2014
related to the completion of the sale of our ownership interest in Trip Linhas Arereas S.A., a Brazilian
regional airline (‘‘TRIP’’).
Other Significant Developments in 2014
In May 2014, SkyWest Airlines inducted its first E175 aircraft into service pursuant to the SkyWest
Airlines United Express Agreement. As of December 31, 2014, we had taken delivery of 20 E175
aircraft and we anticipate taking delivery of the remaining 20 E175 aircraft in 2015. The United
Express Agreement has a 12-year term for each of the aircraft subject to the agreement, and other
terms which are generally consistent with the SkyWest Airlines United Express Agreement.
In November 2014, SkyWest Airlines reached an agreement with Alaska to place seven E175
aircraft into service pursuant to the SkyWest Airlines Alaska Agreement. We anticipate taking
deliveries of the seven aircraft between mid-2015 and the first quarter of 2016.
In November 2014, ExpressJet reached an agreement with American to operate 15 used ERJ145s.
We anticipate the aircraft will be placed into service during the first half of 2015. We intend to lease
the aircraft from American and we anticipate operating the aircraft through the end of 2016.
In November 2014, we made the decision to remove all EMB120 aircraft from service by the end
of the second quarter of 2015. As of December 31, 2014, we owned 18 EMB120s and leased
25 EMB120 aircraft. We are actively marketing our owned EMB120 aircraft and our EMB120 aircraft
spare parts inventory.
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