SkyWest Catches Delta in a Tough Spot; Snaps Up ASA in Shrewd Move

SkyWest, founded in 1972 as a puddle jumper to fly business travelers between St. George and Salt Lake City, had morphed into the largest and among the most profitable independent regional carriers in the United States.


Three years ago, Delta Air Lines approached SkyWest with a question: Would the Utah-based holding company be interested in buying Delta's Atlantic Southeast Airlines subsidiary?

SkyWest chief executive Jerry Atkin was intrigued, and a conversation began. In early 2005, the talk turned serious, and in August the two companies announced a deal.

Suddenly, SkyWest, founded in 1972 as a puddle jumper to fly business travelers between St. George and Salt Lake City, had morphed into the largest and among the most profitable independent regional carriers in the United States.

To put the deal in perspective, SkyWest was buying an airline not much smaller than itself. Atlanta-based ASA's revenues were close to $1 billion last year. It employs about 5,700 people and last year it carried 12 million passengers.

The deal was hard to refuse. For $425 million, SkyWest was getting an airline that bankrupt Delta had bought in 1999 for $700 million. Since then, ASA had more than doubled in size, adding more than 100 regional jets and nearly 3,000 employees.

"It was a business opportunity, which we look for on a regular basis, that happened to be in the wrapping of an acquisition, rather than SkyWest waking up and saying, 'Oh, we're on an acquisition binge and [ASA] is the first one,' " said 57-year-old Atkin, who has run the company for 31 years from its desert redoubt in St. George.

Translation: ASA was the biggest move in SkyWest history, but it didn't fit the pattern of growth developed during the three decades Atkin has guided the airline.

A different approach: Although SkyWest had bought an airline in the past - it acquired Sun Aire in 1984 - and Atkin has thought of starting a low-cost airline in the mold of a Southwest or a JetBlue, SkyWest is known as a contract carrier. Instead of flying under its own brand name, SkyWest operates as Delta Connection and United Express, supplying airplanes and crews for Delta and United Airlines.

That strategy isn't about to change. SkyWest recently submitted bids for two more carrier contracts, which boils down to growth without the headaches inherent in an acquisition.

Atkin refuses to identify the companies. But he says they are among the top five or six major airlines, and they are not Delta or United. They would be "significant business," involving "an appreciable number of airplanes."

"Whether it would be buying a company, or whether it would be adding 60 to 70 airplanes, the effort and money and stuff that goes into it is not different, and it's a lot cleaner to do without an acquisition," he said.

Observers say Northwest Airlines and Continental Airlines are the most likely companies. "I would bet, dollars down, that Northwest is one of them. Continental is the other," said Ray Neidl, an airline analyst for Calyon Securities in New York.

Starting March 31, Northwest passengers flying from Asia into Los Angeles and San Francisco will no longer be provided connections to Las Vegas and Phoenix by America West. Last year, Northwest ordered regional carrier Pinnacle Airlines to ground jets it leases from Northwest. And Northwest told another regional carrier, Mesaba, that it will take back 35 of its jets and return them to leasing companies.

In December, Continental told ExpressJet it was pulling back 69 regional jets after failing to win a cheaper contract from the carrier. Continental also said the airline would seek bids from other regional carriers to operate the aircraft at a lower cost. It already has a relationship with SkyWest, which flies a few routes for the Houston-based carrier.

"SkyWest is a leasing company, and there are too many of those leasing companies out there. There will be a shakeout, and SkyWest is in the pole position to survive," said Michael Boyd, president of the Boyd Group, an Evergreen, Colo.-based consulting company that tracks the airline industry.

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