SkyWest announced today additional fleet transitions and contract updates designed to reduce the airline’s long-term fleet risk and enhance its ability to respond to changing partner needs.
Specifically, SkyWest’s ExpressJet operation expects to transition to flying primarily dual-class aircraft in its CRJ operation by removing its CRJ200 aircraft from service over the next year.
The removal of the CRJ200 aircraft reduces ExpressJet’s future required investment in its 50-seat fleet and is expected to improve the airline’s operating efficiency by eliminating an aircraft type from its platform. SkyWest also announced today that ExpressJet and American Airlines have agreed to place 12 dual-class CRJ700s into service under a multi-year term. These CRJ700s had been scheduled to be removed from service under a previously-disclosed early lease return arrangement.
Additionally, SkyWest and Bombardier entered into a termination agreement covering Bombardier’s residual value guarantee (“RVG”) agreements on 76 CRJ200 aircraft owned by SkyWest Airlines and ExpressJet. Bombardier agreed to pay SkyWest $90 million by January 2017 along with certain other consideration in exchange for the release. Both the required sale of each aircraft and the cost to SkyWest of returning the aircraft to mid-time condition were points of risk and uncertainty for SkyWest that this termination agreement eliminates.
As a result of the expectation to remove ExpressJet CRJ200s from service and the Bombardier RVG termination agreement, SkyWest is evaluating its total 50-seat CRJ200 fleet and related long-lived assets for impairment in Q4 2016. SkyWest currently anticipates it will record a non-cash impairment charge in Q4 2016 estimated to be in the range of $440 million to $490 million (pre-tax) on its CRJ200 aircraft and other 50-seat aircraft assets, net of the $90 million in cash proceeds from the Bombardier termination agreement.
“Streamlining our fleet and taking early settlement of Bombardier’s RVG obligations reduce both our overall risk profile and the future investment that would have been required in the CRJ200 fleet,” said Chip Childs, President and CEO of SkyWest.
“These moves strategically position us to continue to deploy our capital against our best investment opportunities and are expected to help improve future liquidity and fleet flexibility.”
Bombardier issued the following statement regarding SkyWest’s announcement of the early settlement of residual value guarantee agreements on 76 CRJ aircraft:
“We are very pleased to have reached this agreement with our customer and support SkyWest’s plan to continue to operate its CRJ fleet well into the future,” said Fred Cromer, President, Bombardier Commercial Aircraft.
“Being able to extinguish these future liabilities at a significant discount highlights the positive utility of the aircraft as well as Bombardier’s strong liquidity position, our proactive cash management approach and better positions us to achieve our goal of break-even free cash flow by 2018.”