SkyWest Inc
NASDAQ:SKYW
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SkyWest Inc
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Good day and thank you for standing by. Welcome to the SkyWest, Inc. Third Quarter 2021 Earnings Conference Call. At this time all participants lines are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Robert Simmons, Chief Financial Officer. Please go ahead.
Thanks, Tina and thanks, everyone, for joining us on the call today. As Tina indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steel, Chief Commercial Officer; and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor. Then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric?
Today's discussion contains forward-looking statements that represent our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our 2020 Form 10-K and other reports and filings with the Securities and Exchange Commission.
And now, I'll turn the call over to Chip.
Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. The third quarter is typically our busiest flying season and this year is no exception despite what continues to be a somewhat bumpy recovery for our industry. While we continue to navigate the evolving COVID-19 situation and its impacts, our fleet remains critical to the industry recovery and demand for our product is very strong. Throughout this challenging period, we've remained focused on several key priorities. First, to take care of our people. Second, to remain agile to deliver on our partners' needs. And third, to provide a solid product while minimizing the risk and preserving our liquidity.
Recapping our third quarter results, we reported pretax income of $14 million in net income of $10 million. These results include our financial -- these results include our final quarter of payroll support program grants and partner revenue concessions. We took delivery of six new E175s for our American operation during the quarter. These are the first of this fleet type that we will operate for American and we look forward to placing them into contract flying early next year. As previously announced, we have secured an agreement with Delta for 16 additional E175s which will also be arriving next year along with nine E175s for Alaska. This will be a combined total of 45 new E175s going into service over the next 1.5 years. These agreements reflect the current work we're doing to help lead the recovery as well as the importance of the dual-class fleet in that effort. Overall, these new E175s help us make meaningful progress toward our fleet transition by adding dual-class aircraft, enhancing fleet flexibility and mitigating risk over the next couple of years.
We continue to prepare and invest for the long term and this includes building reliability into our existing fleet. Maintenance costs associated with investment remain elevated and the volume and duration of maintenance events are much higher than they've been historically. We expect these costs -- we expect these costs to plateau this year and will settle back to a new level next year. We've also strategically embedded flexibility into our prorate model to allow for the flex up and down of our prorate flying relative to the demand and partner need. While prorate is slightly profitable in the quarter, we continue to exercise flexibility in that model to ensure that our resources are allocated toward the best economic opportunity. Our strong balance sheet and cash position remain key differentiators for SkyWest.
We are working across all areas of the operation to ensure we're continually adapting to the changing climate and responding to what our partners need from us and operational performance remains a focus. Despite the clear difficulties associated with an uneven recovery, we achieved a 99.8% adjusted completion for the third quarter with nearly 73,000 more scheduled fly from the same quarter last year. I again want to thank our incredible team of professionals who continue to demonstrate flexibility, teamwork and dedication to delivering a solid product in any situation.
Last Thursday, we experienced an IT server disrupted that affected our operations. Its impact was compounded by the size of our operation and [Phonetic] the currents during one of our busiest banks of the day. Our analysis of this event is extensive and ongoing to make sure we prevent a reoccurrence in the future. After the system was restored, it took us some time to get crews and planes back in place through [Phonetic]. This was an inexcusable event and I want to thank our many teams across the operation, who sprang into action the moment the system was restored to reposition aircraft and crews and to help re-accommodate customers following the outage. There are many reports of SkyWest people from all work groups going above and beyond. I want to extend a huge thank you to our remarkable team of 14,000 professionals on the front lines who stepped up in a big way to take care of customers and each other.
Working together with our people to successfully navigate this dynamic environment remains a top priority at SkyWest. We have several programs in place to minimize the impacts of COVID-19 and to strongly encourage vaccination without implementing what has been a device of mandate nationwide. This includes paid time off incentive for employees who report full vaccination. We've also been providing COVID testing programs in certain areas of the operation for well over a year now. We also required daily health assessments and masks across the operation and are procuring additional kits for testing. With this approach, we enjoy the highest vaccination rate in the regional industry. We are evaluating how the executive order on vaccination may affect us and we are committed to working with our people to support their ability to choose as well as to protect their health and the health of our colleagues and customers.
SkyWest is fortunate to enjoy and attract and retain exceptional professionals across our operation. While we maintain a robust hiring pipeline and strategy for all work groups, we have pilot classes filled well into 2022. We are focused on staying proactive and continuing to attract the best professionals as we navigate through the end of this pandemic and beyond.
In summary, while there is clearly work ahead and 2022 looks to be a pandemic transition year, demand for our product remains strong and we are confident our fleet will continue to fill a critical role in the return to travel. We are focused on remaining aggressive and deliberate to take care of our people and our customers as we preserve our liquidity and execute on the recovery to emerge as a better, stronger business.
Rob will now take us through the financial data.
Today, we reported third quarter GAAP net income of $10 million or $0.19 diluted earnings per share. Adjusted net income for the third quarter was $74 million or $1.45 diluted earnings per share. Q3 pretax income was $14 million on a GAAP basis and $99 million on an adjusted basis. As outlined in the release, our adjusted income excludes a noncash impairment charge of $85 million before tax on our CRJ900 fleet that I will discuss further momentarily. Our diluted share count for Q3 was 50.7 million shares and our effective tax rate in Q3 was 31.9%.
First, let's talk about revenue. Total Q3 revenue of $745 million is up 63% from Q3 2020 and is up 13% from last quarter. Q3 2021 revenue is only down 2% from Q3 2019 as the recovery continues. Our Q3 block hour production was up 14% sequentially from Q2 compared to the 13% sequential increase in revenue. Q3 revenue breaks down with contract revenue up 54% from Q3 2020 and up 12% from Q2. We have temporary partner revenue concessions impacting Q1, Q2 and Q3 of 2021 and in Q3 2020 for comparative purposes. Q3 was likely the last quarter with temporary revenue concessions. Prorate revenue was $128 million in Q3, up 111% year-over-year and up 24% from last quarter.
Leasing and other revenue is up 107% year-over-year and 7% sequentially. These GAAP results include the effect of the release of $19 million of deferred revenue this quarter compared to $6 million deferred during Q2 and $30 million deferred in Q3 in '20. As of the end of Q3, we have $118 million of cumulative deferred revenue that will be recognized in future periods. As discussed last quarter, the timing and amount of future deferrals or reversals into revenue depends on the shape and cadence of the recovery of our flying. All deferred revenue will be reversed into revenue by the end of the various contract periods.
Transitioning to our operating expenses. During Q3 $115 million in PSP grants was recognized as income in the form of a contra expense in our P&L. This compares to grant income of $193 million recognized in Q1 and $114 million in Q2. We do not expect any additional grant income in Q4 absent any PSP3 top-up amounts. As previously announced in August and highlighted in today's release, we reached an agreement with Delta to place 16 new E175 aircraft under a long-term contract. These E175 aircraft will replace 16 older SkyWest and CRJ900 aircraft we currently operate for Delta. Under this fleet transition, we are scheduled to have 16 displaced CRJ900s in 2022. Given the uncertainty of redeploying these displaced 900s, we reevaluated them for impairment which resulted in a noncash impairment charge of $85 million during the quarter. We expect depreciation expense on these aircraft will continue until the aircraft are removed from the Delta contract. The aggregate remaining debt and lease payment obligations on our finance of CRJ900s following the removal from the Delta contract are scheduled to be only $6 million.
Let me move to the balance sheet. We ended the quarter with cash of $913 million, down from $956 million last quarter. Our CapEx during the third quarter was $162 million for six new E175 aircraft, one used CRJ700 aircraft, spare engines and other fixed assets. Our expectation for total 2021 CapEx is approximately $600 million to $620 million, including the purchase of 12 new E175s in the fourth quarter of this year under our previously announced contract with American. This compares to a $438 million in CapEx in 2020. We ended Q3 with debt of $3 billion, down from $3.2 billion as of year-end 2020. The only government debt we have on our balance sheet is a total of 201 million in PSP, 10 year unsecured, no amortization, low coupon loans.
Let me say a couple of things about liquidity. As of September 30, 2021, our cash position of $913 million included the effect this quarter of having repaid an incremental $107 million of debt before adding $119 million of debt financing for the six new E175s. We also have approximately $1.5 billion of unpledged collateral that could be deployed for additional liquidity if ever needed. As of 9/30/2021, our debt net of cash balance is actually $421 million lower than it was pre-COVID at the end of 2019. Additional flexibility comes from the fact that including partner owned aircraft, over 50% of our fleet in service now has no financing obligation.
Especially in times of great uncertainty like this and consistent with our policy and practice, we are not in a position to give any specific EPS guidance at this time. But let me give you a little color. First, we expect Q4 earnings to be roughly breakeven to slightly negative. The profit reduction from $99 million in Q3 adjusted pretax earnings to Q4 is comprised of several elements. Q4 is not expected to have any net PSP benefit, no grant income and no partner concessions. Although our block hour production in Q3 was in a couple of percentage points of Q3 2019 levels, we anticipate some softening in production schedules in Q4. Normal seasonality is expected to lower Q4 results from Q3, similar to pre-COVID patterns. Our prorate business is expected to also soften sequentially from Q3 to Q4. Prorate was only slightly profitable in Q3. Wade will talk more about this in a minute.
Cancellations related to our server outage last week could end up costing us $15 million to $20 million in Q4. Second, we expect to return to 2019 production levels in 2022. 2022 maintenance expense is expected to be lower than 2021 but higher than 2019 but with some positive offsets in revenue. We won't see the full year impact of the 45 accretive new E175 aircraft until 2023, some impact in 2022. The impact in 2021 of the PSP grants net of partner concessions was a little over $200 million for the year. We're hoping to offset that in 2022 with normal operations. As a result, 2022 earnings may look similar to 2021, excluding the 2021 impairment charge. We believe that the actions we are taking now and expect to take over the next few quarters are setting us up nicely for the new normal in the future.
Wade?
Thank you, Rob. I'll provide a fleet and production status update as well as an update on our prorate and leasing businesses. To update by partner, during the quarter, we announced an agreement with Delta to add 16 new E175s. We anticipate these aircrafts will be placed into service beginning mid-2022 through the first part of 2023. These aircraft will replace 16 older SkyWest owned CRJ900 aircraft currently operating under contract with Delta. After we take delivery of these aircrafts, we will have 87 E175s under long-term contracts with delta.
During the first nine months of 2021, we put 17 CRJ700s into service with American. We still have 19 more CRJ700s to add to our contract, eight during Q4 2021 and 11 during 2023, bringing our American CRJ700 fleet total to 101 by the middle of 2023. The majority of these CRJ700s have been in long-term storage for the past few years and require extensive maintenance work to return to surface. Also with American, we have 20 new E175s scheduled for service next year. We received six of those during the third quarter and anticipate receiving 12 more during Q4 and two in the first quarter of next year. Together, these E175s and CRJ700s will bring our total American fleet to 121 by the middle of 2023.
Last quarter, we announced an agreement with Alaska to add nine more E175s to our contract. We expect to place eight of those aircrafts into service during 2022 and one aircraft during the first half of 2023 for a total of 41 under long-term contracts with Alaska. We've also extended the current fleet of 32 E175s which puts all of these aircrafts under contract with Alaska for the rest of this decade. During the second quarter we worked with all of our major partners on a third round of contract concessions which included temporary rate reductions. These concessions are reflected in our third quarter results. All concessions expired at the end of the third quarter.
Let me review our current production. During the third quarter, our completed block hours were down by less than 2% compared to the same quarter in 2019. Based on the current schedules we have from our major partners for the fourth quarter of 2021, we anticipate that our block hours will decrease by approximately 5% compared to the third quarter of 2021. As we look forward to 2022, we anticipate that our block hours will be slightly higher than 2019.
Let me talk a little about our prorate business which was slightly profitable in Q3. Prorate revenue for the quarter decreased by 12% or approximately $18 million compared to Q3 2019. For Q4, we anticipate our prorate revenue to decrease by 25% as compared to Q3 2021. This decrease is primarily related to service reductions in several of our prorate cities as higher yield business travel has been slower to return. We have reallocated these block hours to our contract line with higher-margin characteristics. We anticipate that our prorate model will continue to decrease during 2022 as we continue to grow and reallocate block hours to our contract fleet.
Shifting gears to our leasing business, we currently have 39 CRJ700s and 900s under long-term leases with third parties. This line of business has very good cash flow and strong margin characteristics. Demand for our engine leasing business is returning and we anticipate placing several engines under long-term leases next year. Next year, we will have 16 CRJ900s that come out of the Delta contract and are currently not placed. We anticipate placing these aircrafts in our leasing entity after removal from the Delta contract, where we may pursue leasing opportunities for aircraft or engines.
Let me talk briefly about our current maintenance expense which continues to run above historical norms. This is primarily due to the recovery of our flying and bringing the aircraft for American agreement out of long-term storage. We currently have over 30 lines of heavy maintenance at our third-party providers and the ramp-up of these suppliers remain slower than anticipated. We anticipate that we will continue maintenance at roughly these levels during the fourth quarter and expect to trend down starting next year to settle at a new normal. As a result of our improved fleet mix, we do not anticipate returning to 2019 maintenance cost levels. For example, we are responsible for engine maintenance on all of our E175s and have placed them under a power by the hour agreement. The engine maintenance expense on the E175s is also reimbursed in our revenue model.
We have spent the last several years reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned. We are committed to continue our work with each of our major partners to provide creative solutions as we work towards full demand recovery.
Okay. Operator, we're ready for our Q&A now.
[Operator Instructions] Our first question is from Savanthi Syth with Raymond James. Please go ahead.
Hey, good afternoon, everyone. Just on -- first, a little bit on pilot levels. I was just curious what you're seeing on attrition levels. I know last quarter, you said still kind of below historical but you were planning on that moving higher. Kind of curious what you're seeing there. And along the same lines, we've heard from a couple of your partners that they're having issues with staffing in-house -- their in-house regionals and wondering if you're kind of seeing the opportunity to help out there.
Savi, this is Chip. I appreciate the question. First and foremost, I think that with the models that we have been looking at over the past several months, we anticipated higher attrition here in the fall and that has happened. It's been about at the levels that we had thought. Understand our entire process is spending a lot of time and effort on making sure we evaluate what to project out into the future as well as make sure we've got a very strong pipeline. So look, from our perspective, as we said in the script, we've got good full classes, probably as bigger robust training pipeline as we've ever had at SkyWest. We're getting good strong professional candidates. But you're right, there's a lot of attractions to the SkyWest pilots. We think we hire the best and we have the best training program in the world. And so that certainly goes into our calculation.
Relative to the second part of your question, we are just focused on our own business. We continue to work with our partners on what their needs are. From our perspective, it's a lot about making sure we have the best pilots. We take care of them and give them the good experience that they need here and try to hang on to them. And we'd love to hang on to all of them but we understand how sometimes the math of that model works. So we're optimistic but this is something that we spend a tremendous amount of time watching and predicting nine months out to 18 months as best we can.
And then, a little bit on the prorate segment. Just -- I'm trying to understand how kind of those aircraft are reallocated because -- are they kind of getting on CPAs? Or are they being used as kind of backup spares when you need it? So I'm just trying to understand kind of the reallocation there. And it sounds like the assumption in the 2022 earnings outlook is that prorate doesn't really come back or is even lower than 2021. So I'm just trying to understand a little bit more, if you can provide some color on how you're thinking about that business?
Hello, Savi, this is Wade. So just to add a little bit more color to that. So number one, our prorate model has a lot of flexibility to it, right? So right now, as I said in my script, we've seen the business demand decrease over the last while and it just has not returned a 100% yet. So what we've been able to do is reallocate some of those pilots and other things to contract models. So the airplanes just go in and they support the contract fleet and we're able to fly additional block hours under contract. But as business demand returns, we're going to have the flexibility to go back to what we want to and what we need to. And so we're just -- we're going to maintain as much flexibility as we can going forward.
And is there kind of a general -- any kind of general color on the -- Rob, kind of the EPS kind of the thinking that you've provided or earnings -- color you provided, like what's assumed for prorate in there?
Well, I think as Wade said, Savi, as we think of next year and as we said, it's likely fairly similar to the results of this year. That includes recapturing somewhere in the neighborhood of a couple of hundred million dollars of net grant benefits that goes away. I think to Wade's point is that our expectations for prorate, I think, are modest next year.
Makes sense. I appreciate the answers. Thanks.
Our next question is from Mike Linenberg with Deutsche Bank.
Okay. Good afternoon, everyone. I want to just go back to the disruption that you had. It looks like in the release, you talked about it being related to, I guess, the consequences of dealing with the cyberattack and malware. So number one, is there any sort of insurance coverage that you get as a result of this? Or is this a mistake that you made? And then just trying to -- as this was ongoing, there was a lot of information, at least out on the blogs, as you can imagine and trying to get the right story here. Did this happen during the day that this migration occurred? Or was it through the night? It seemed like when it was happening, it was right during the part of the day. Was there any way to kind of get around this and do it to minimize the operational impact? I'm just -- and maybe sort of as a follow-up, like, did you learn from this and you know what not to do next time? Or maybe it was just outside of your hands given the technology?
Yes. Thanks, Mike. This is Rob. So let me clarify a couple of things. The cyberattack that occurred was a couple of weeks ago. It was from a known hacking entity. And the malware that was associated with the attack was quickly identified and quickly quarantined and did not have any operational impact. The outage that we had that was a week ago today was not related directly to the malware but it was related from trying to purge the remnants of the quarantine software that was part of that. So the server outage that we had, what was part of repairing our system from the earlier attack. It was not caused by the malware.
And anything that you learned from this? Or was this -- I mean, I just -- you can see on the blogs that this was done intra-day and should it have been done at night? Or maybe you can clarify on that. I'm just curious, I mean, because it was a big impact.
Yes, Mike, this is Chip. I would certainly say that this is, as you can see, what we've disclosed, this may have cost us. We have a very expensive and valuable lesson book of things to learn. I will also add a couple of things. I mean, the impact was not just related to the fact that it happened during the day as well as a very, very unfortunate large bank. But I would also add, it's so much further complicated given our level of technology. We have electronic maintenance logs which were probably the only airline in the United States that has that. We have probably one of the most technologically robust operations in United States. And from that perspective, we can go through a lot of the elements of redundancy, the timing of when we did this. But I can assure you that given the level of expertise that we have on this collaboration with our partners, internal things that we've learned. We still fundamentally have a lot of confidence in the systems that we use. But there's a lot of new processes that we're going to deploy and strategies to make sure this absolutely never happens again. So without getting into too many specifics, there's a lot of good news, bad news, mostly bad news but we're very confident in some of the challenges that IT departments have these days relative to cyberattacks. That's a success story. Some of the -- clearly unfortunate part is how we went about repairing it and maintaining the reliability which we've learned tremendous lessons about that.
And then just a second question, Rob, when you were talking about the partner concessions, you sort of said, we believe that this is the last of them. And then I think Wade also sort of indicated that we're not going to see them again but it -- you said it in such a way that maybe you left open the door that we could see more. And I just didn't know if you were pointing to the fact that we have had some true-ups with respect to the PSP. And so maybe there's a true-up for something along those lines where maybe there would be a small payment and you were just covering your bases on that? Or maybe I just misinterpreted or reading between the lines too much?
No, Mike. Look, the only point I was making is that associated with PSP1 and PSP2, there were sort of late days true-ups at the -- sort of at the end of the process. We've not heard anything about -- anything similar for PSP3 at this point. So if there's not, we're done but I would just say it's maybe not impossible that we could be surprised by an additional true-up amount but we're not aware of any.
Okay, great. Thanks, guys. Thanks, everyone.
Your next question is from Duane Pfennigwerth with Evercore ISI.
Hey, thank you. I wanted to go back to Savi's question on the attrition. I wonder if you could put any numbers to kind of the current environment, kind of how was attrition running maybe six months ago and where is that today? The reason I think we're asking the question is some of the announcements that came out over the course of the quarter from some wholly owned, I think, over at American, where there were some kind of eye-popping bonuses around flow agreements and things of that sort? And maybe you could just help put your level of attrition in context and why you would or would not be impacted by some of those announcements that we saw?
Yes. So Duane, this is Chip again. Thanks for the question. We're not going to get into specifics about the number of attrition. I would say that it is clearly double digits plus more than it was six months ago. I would emphasize it as expected. And I would also suggest that our hiring and training is outpacing our increased attrition numbers. So I think those are the key variables that you would look to from us. And as we looked at our classes that go out almost nine months from now, the announcement from those particular wholly owned carriers that you mentioned does not appear to have had any impact or at least meaningful impact on that. Like we really didn't see anything. So look, that having been said, I think that's as much detail as we can give. It's higher by double-digit increases but also our hiring is outpacing what the increase is. And we're extremely focused on targeting this over the next couple of years.
And I guess if it -- my guess is your operational reliability is a lot better historically and today. And if this increases your cost to serve for a period of time, do you ultimately believe you'll be compensated for that?
I think you have to look at the broader view of the economy. I think that there's probably not just our industry but many industries that are grappling with labor shortages, supply chain shortages, raw material price increases, increases in fuel. And when you look at all of those variables, I would suggest that as we move forward, there will be upward pressure on our revenue models too as we renew and as we renegotiate to encapsulate that. So the industry needs yields, obviously, in business travel and international travel to help recover what's happening on the internal domestic model. But I think that there's a lot of factors beyond just pilot supply that give us pause relative to recovering some of our cost increases.
Very fair. Thank you.
Your next question is from Catherine O'Brien with Goldman Sachs.
Hi, good afternoon, everyone. Thanks for the time. So historically, we've seen 50-seater capacity negatively impacted by higher fuel prices. Your fleet is much, much less exposed to this aircraft type than historically. But can you just walk us through how the higher fuel environment is impacting your remaining 50-seater fleet? Like I know for a time, you're actually seeing unexpected short-term extensions on 50-seaters. When do those start to roll off? And like what are the conversations around the 50-seaters look like?
Yes, Catherine, this is Wade. So we -- as you know, we probably have around 140 to 150 50-seaters in our fleet. Today, the demand for the 50 seaters with all -- with the major partners that we fly those for, is still very good. There's every -- both of the partners we fly those for are definitely interested in more 50-seat lift. I will tell you that. We're working with them on the demand and being able to fill those opportunities. The fuel side will definitely be a bit of a headwind for us in our prorate business, right? So that is something that we will look at very closely. And we have the flexibility to allocate those block hours in other ways if we're not feeling that it's going in a good direction for us. So we do have lots of flexibility with our fleet but the demand continues to be very good for the partners we fly 50 seaters for right now. And the contract term with the 50 seaters that we have, they go into 2024 and 2025.
And maybe just a very quick follow-up to that question and then I have one more. But what's the RFP environment like more generally? Obviously, there's been quite a few announcements on the 75 seaters recently. Do you think we're starting to bump up against scope on that aircraft type? Or do you think there's appetite for more?
We work with all of our major partners, Catherine, on their demand. Right now, it's probably not as much about historical RFPs. We're always reviewing the fleet plan with them. That's what we like to say. And there's just always opportunities that we're creatively working with them on getting more and more 76 seaters into our fleet. As you've seen what we've been able to do with Delta, American, Alaska, we've been very creative with each of our partners to review their fleet needs and work with them proactively on their fleet and how we can accommodate and help them through these difficult times. And so we've just been more proactive than anything and we'll continue to do that. We'll continue to work with our partners on their demands and their needs and what they're trying to accomplish.
I might just sneak one more in here. I appreciate it all the time. I know you still have a decent amount of CapEx next year, although quite a bit lower than it's been over the last several years. If nothing changes in terms of incremental aircraft getting added to your fleet, do you think your balance sheet would be in a position to start returning cash to shareholders right around October 1, 2022 and that's for Cares Act restrictions [indecipherable]?
Hello, Katie, it's Rob here. So I think in terms of CapEx, we're going to do close to $600 million, maybe a little more this year in CapEx. Next year, including the effect of 26 additional 175s that we're going to take delivery on. Our CapEx next year, it looks likely in the $800 million range or so. So we're still really happy that we've got great projects against which we can deploy some of -- deploy our cash and deploy our capital. With respect to your question about Cares Act restrictions, obviously, it's coming up next September when those restrictions fall away. But we're going to look carefully at our liquidity and our balance sheet situation. And right now, we're, again, really pleased with the fact that we've been able to emerge from COVID with less debt net of cash than we had going in. And we're going to continue to remain focused on preserving liquidity for a while here.
Got it. That's my bad. I was looking at the last 10-Q, didn't include the new agreement which is Delta. So, thanks guys for the time.
Okay. Thanks, Katie.
Your next question is from Helane Becker with Cowen.
Thank you very much, Operator. Hi team, thanks for the time. Last quarter, you guys, I think, mentioned some stuff about supply chain issues on your maintenance. And I'm just kind of wondering how that is now, if that's caught up or where you stand?
Yes, Helane, this is Wade. As -- and it's -- I talked about a little bit in my script and we talked about it last quarter. Right now, we have over 30 lines of heavy maintenance going on with our third-party providers. And the ramp-up continues to be slower than what we would anticipate. We have done some things internally to help mitigate a lot of this. We've actually started doing some of these inspections internally. And we've had very good success on that. So it still is a challenge but we are navigating through that, I would say, very, very well. We've been able to work with our third-party providers. We've been able to provide some flexibility with some airplanes that are coming early from the manufacturer to kind of help through some of these challenges. So we're getting through it. It continues to be a struggle but I think it's something that our team has navigated extremely well.
And then my other question, my follow-up question. So this is like totally out of our field. I saw the other day on TV that St. George, Utah is one of the fastest growing, if not the fastest-growing city in the country right now. And it's really a lot bigger than it was when I visited last time. So is that changing the travel patterns of the folks who are moving in? And are you seeing increased demand for air transportation out of St. George that would mean you have more to do with your prorate aircraft than maybe you think you do? Or do people just drive over to Las Vegas and catch up a mainline flight?
So Helane, this is Chip. It's a great observation. And we use St. George as the example, mostly because this is where we are and our headquarters are. But St. George is a very good case study for what's happening in a lot of more rural Midwestern cities throughout the United States. As you can imagine, what's happened in the pandemic, there is certainly a tremendous amount of movement out of big cities, larger cities and that towards smaller cities where they can -- people can work from home. And it's just the evolution of the way people work. We're seeing the same things in other states, even Nevada, Idaho, Colorado. All smaller to midsized cities are growing. St. Georgia is growing for some good reasons. But a lot of other cities have that real estate market that's just going crazy because the demand for people who live outside the coast a little bit and we're seeing that. Now does it translate into our prorate operation? As we've said on the call, there's a lot of demand for our products. Some is going into these small and midsized cities, some is going to help support larger point-to-point flying with our major partners. So I would just suggest that we are well optimized between prorate and contract with our partners. And there is very good, strong demand for what we're providing right now.
That's great color. Thank you.
And your next question is from Catherine O'Brien with Goldman Sachs.
Thanks. Glad to hear back on. Just one quick modeling one. So on the deferred revenue you're booking now. I know you caveat as to how that gets booked depends on block hours which sounds like they're going to be down a little bit just seasonally in the fourth quarter. But how do we -- I guess, how do we think about that booking going forward? Like is $19 million a good run rate? Or was that only partial quarter? You were hitting the right amount of blockers? I'm just trying to think of like the best way for us to model that, if there is one.
Thanks, Katie. Yes. I mean, again, as we mentioned, there's about $118 million cumulatively sitting out there in deferred revenue. The bulk of that is going to reverse likely over the next couple of years. The pattern, it's tough to predict because, again, it's going to depend on the pattern of the recovery, the cadence of the recovery and it's hard to predict that with a lot of precision at this point. But I can tell you that of that $118 million, most of that is going to be recognized over the next couple of years.
Got it. Thank you very much for the extra time.
And with that, I'll now turn the call back over to Chip Childs for closing remarks.
Great. Thank you, Tina. Again, we want to thank you for joining us on the call today. We really appreciate your interest in SkyWest. I again want to thank our people for the great work that they are doing. We still fundamentally believe that you are essential to the industry and to our company. And with that, we will talk to you next quarter.
Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.