Sat "The West Australian" 17/8/02
Skywest charts a difficult flight plan
By Geoffrey Thomas
THERE is a saying in aviation that only one operator makes money out of an aircraft and in the post-September 11 environment, even that is debatable, with airlines around the world haemorrhaging red ink and filing for bankruptcy.
On Wednesday, Skywest won the three-year Argyle contract valued around $7 million and, while it appears to be a lifeline, the airline has been forced into a six month wet-lease from Alliance Airlines in Brisbane to meet the early November start-up date.
The wet-lease on a 91-seat Fokker-100 jet includes pilots and engineering support and includes a six-month option as Skywest considers acquiring its own jets.
Skywest chairman and acting chief executive Pat Ryan said yesterday that part of the deal with Alliance was an up-front payment of several months of lease payments for the Fokker-100, which are estimated by analysts to be in the region of at least $400,000.
Balancing that, however, is an unspecified advance payment from Argyle Diamonds to assist Skywest launch the service.
The actual aircraft is yet to be acquired by Alliance but there is an abundance of Fokker-100s available, although many require expensive overhauls called "C" checks.
Analysts are perplexed by the deal and who is losing money because the aircraft will be flown for only 20 hours a week, whereas Qantas subsidiary National Jet Systems aircraft fly 60 hours a week and Qantas jets fly 84 hours a week.
"Alliance Airlines are street-wise and it's hard to see any downside for them," one analyst said.
According to sources at Perth Airport, NJS bid about $8 million, $1 million higher than Skywest, mainly because the airline was using a smaller RJ70 with 70 seats to meet the contract, which required four trips a week, whereas the 91-seat Fokker-100 requires only three flights. But the question being asked is why Skywest tendered so low, given NJS' limitations and reluctance to introduce a bigger jet to meet the requirement.
Insiders say that the bid was put together after Bill Meeke was dumped as chief executive and there are concerns that there is little upside for Skywest in the deal.
But Mr Ryan says there is plenty of upside and confirmed the airline would be looking for more opportunities with the Fokker-100, including part of the Woodside contract.
Approximately 70 per cent of the Woodside contract is allocated to Qantas, with 30 per cent which can be given to any new competitive bidder.
"We will be looking at the Woodside contract," Mr Ryan said.
But he conceded that is where the difficulties start for Skywest.
The State Government has just handed Skywest exclusivity for 18 months for what are called turbo-prop routes to destinations such as Albany using 46-seat F-50s, despite strong protests from Skippers Aviation.
"We will be talking to the Government about this issue," Mr Ryan said.
Insiders in the Government suggest Cabinet is going to have a serious problem on one hand giving Skywest protection and then allowing it to compete on the plum WA routes from Perth to Karratha.
To gain Woodside work, Skywest must operate the jet on a revenue passenger transport (RPT) basis, not a charter flight.
While the airline already operates F-50 RPT flights to Karratha these are not considered any competition to a Qantas Boeing 737.
A change of aircraft to a Fokker-100 is a very different proposition.
And taking on Qantas kills off any alliance deal, which had been under discussion for feeding passengers to each other's destinations.
But Skywest needs to get this work to make the Fokker-100 turn a profit, say insiders close to the deal, while Mr Ryan has confirmed the airline is still not yet in the black.
Asked if Skywest would be profitable next month as indicated earlier, Mr Ryan said he was still waiting for new budgets to be prepared but was optimistic.
"I would be disappointed if we were not profitable," he said.
And also disappointed and angry are Skywest's F-50 pilots, who like many in the industry are not clear what the wet-lease from Alliance means to their career paths.
"Management are going to have to give us some assurances real fast or there will be industrial strife," said one.
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