A last-ditch attempt to stave off bankruptcy by Delta Air Lines has seen St. George, Utah-based SkyWest agree to buy Delta Connection subsidiary Atlantic Southeast Airlines (ASA). Scheduled for completion this month, the $425 million deal will make SkyWest by far the largest regional airline in the U.S., giving it a combined fleet of 372 airplanes, projected annual enplanements of more than 28 million and 13,400 employees.
Delta said it plans to use the proceeds from the sale to help pay down $100 million in outstanding debt to GECAS and others. The major airline lost $1.5 billion in the first half of this year and $8.5 billion in the last four calendar years.
Known to carry the strongest balance sheet in the regional airline industry, SkyWest looked like a natural suitor for ASA, given its sound cash position and tight relationship with Delta. Moreover, Bombardier CRJs account for the bulk of both airlines’ fleets, and virtually no route redundancy exists because each flies as a Delta Connection carrier.
Now serving 59 destinations for Delta out of Salt Lake City, SkyWest will control ASA’s bases in Atlanta and Cincinnati, giving it a presence in 185 Delta cities across the U.S. SkyWest already serves 96 cities as a United Express partner from seven hubs.
Talk of a possible divestiture gained instant credibility in March, when SkyWest CFO Brad Rich acknowledged that Delta “expressed its desire specifically to us” to sell one or both of its regional subsidiaries. At the time, however, it remained unclear which airline–Cincinnati-based Comair or ASA–Delta would eventually let go. For now it appears Comair’s involvement won’t extend beyond leasing up to 40 airplanes to SkyWest, none of which would come from Comair’s existing fleet of 171 CRJs. However, Delta’s most recent SEC filing said it continues to explore the possibility of other transactions.
SkyWest said it intends to operate ASA as a wholly owned subsidiary, maintaining separate labor groups and FAA operating certificates “for the foreseeable future.” It added that it anticipates no “significant” changes to either of the airlines’ route structures or fleets. However, it does plan to eliminate all 12 of ASA’s ATR 72 turboprops by the end of 2007.
Jerry Atkin will remain chairman and CEO of SkyWest and SkyWest Airlines and will also serve in those positions for ASA. Brad Rich will serve as executive vice president, CFO and treasurer for SkyWest, SkyWest Airlines and ASA. Skywest Airlines executive vice president and COO Ron Reber will become president of the St. George division. ASA senior vice president Bryan LaBrecque will serve as interim president of the new SkyWest subsidiary in Atlanta.
