Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Skywest Inc (NASDAQ:SKYW)
Q2 2020 Earnings Call
Jul 30, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the SkyWest Incorated. Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.

Robert J. Simmons -- Chief Financial Officer

Thanks, everyone for joining us on the call today. As the operator 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?

Eric Woodward -- Chief Accounting Officer

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 2019 Form 10-K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Chip Childs -- President and Chief Executive Officer

Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. I know you're all well aware that the aviation industry is currently navigating the largest demand downturn in its history and no airline is immune to its impact. However, despite the obvious challenges facing our industry, I'm proud of our SkyWest people who responded quickly to take care of each other, our passengers and our airlines. We're still very focused on our key priorities to get us through this to the other side of this pandemic.

First, the personal health and well-being of our people and passengers remains our top focus. Second, we're focused on maintaining the cash and liquidity necessary to work through this crisis. And third, our continued flexibility in working with our partners to meet their needs will remain a key differentiator and ensure we are well positioned for recovery.

During Q2, we received $307 million of the $438 million total, we expect to receive in payroll support funding under the CARES Act. This release combined with our work in the marketplace in aggressive cost management will help our cash position, as we work to navigate this crisis and ensure we're positioned for a recovery. Rob will talk more about our liquidity in a minute.

We continue working closely with our major airline partners as well as the health and industry officials to stay ahead of the latest CDC guidance and ensure the health and well-being of our people and passengers. We have implemented robust cleaning and disinfectant measures on board aircraft and in all SkyWest facilities, reduce customer touch points and implemented face covering policies companywide. We expect many of these changes will remain in place indefinitely and we appreciate the rapid response and partnership with our people.

We are pleased to resume continued qualification training with stringent requirements for social distancing, cleaning and face coverings with success during the quarter. I'm proud of our teams who have demonstrated remarkable grace and professionalism in adapting to this new environment. All of this has been accomplished against a very challenging social backdrop. We have been a paw [Phonetic] that the racism and violence at our country and many of our cities, hubs and basis at risk. Humanity and respect begins with each of us individually and collectively. As an organization, we stand with our black employees against racism and we remain committed to serving each of our diverse employees and customers.

We also continue working closely with our people to take steps to manage cost in this environment. As of today, just over 4,000 employees have elected to take voluntary time-off or early retirement. A large portion of our non-operational teams are working on reduced and flexible schedules. We expect to be quite some time before demand fully returns and is likely, we'll need to streamline and resize our airline including reducing our management and administrative positions before year-end. However, we continue working with our labor work groups toward creative solutions to avoid crew member furloughs. These are very difficult decisions and we do not take them lightly. However, taking important cost measures in the near-term will ensure our long-term viability and success.

During the quarter, overall fleet utilization remained less efficient with block hours at about one-third of what we flew a year ago. To provide some perspective on that, we should have -- we would have expected to fly about 2,600 daily departures during the quarter. In May, that number was approximately 800. In June, it increased slightly to 900. And in July, we saw a modest increase to 3,100 daily departures. With the recent resurgence in the virus, we expect that departures will likely flatten our drop-off in the fall. As we have previously discussed, we are prepared to respond as necessary, if the climate continues to deteriorate.

Our continued agility will remain a key component of this recovery. A nice silver lining in this crisis is that it has resulted in an accelerated improvement of our fleet mix. We received 26 E175s during the quarter, most of them which began service at quarter end. At the same time, we removed several 50-seat aircraft from contract during the quarter and expect to remove more from our Delta agreement with their natural expirations at year-end.

In June of '19, our fleet mix was 60% dual-class. In June of this year, it was 66% and will continue to increase. Excuse me, as we've shared previously, we have little to know tail [Phonetic] risk, and the most flexible fleet in the regional space. As we shared last quarter, we provided flexibility and support to our partners through the quarter including temporary rate reductions and contract minimum waivers. These temporary contract provision will expire in September and October. We continue working closely and collaboratively with each of our partners to ensure we are best positioned to meet their needs.

Undoubtedly, the next several months will be turbulent, but as demand returns, we are confident and our fleet will continue to fill a critical role in the return to travel. We are focused on navigating this crisis aggressively and deliberately to take care of our people and our customers as we preserve our liquidity and plan for recovery. We will continue to work together with our people and our partners to ensure we emerge as a better, stronger business.

Rob will now take us through the financial data.

Robert J. Simmons -- Chief Financial Officer

Today, we reported a second quarter net loss of $26 million or $0.51 per share. Our share count for Q2 was $50.1 million and our effective tax rate in Q2 was 23%. These GAAP results include the effect of a deferral of $69 million of revenue with no associated deferred expense.

Our partners have already paid us in cash for this revenue as part of the fixed rate component of our contracts and it does not represent an ongoing obligation for us to our partners. But as a result of the unusually large COVID-related disruption in the number of block hours we are flying, some of that fixed rate revenue will be deferred and recognized in the future based on anticipated flight schedules over the life of the various remaining contracts, pursuant to the 606 accounting standard.

We have never had to defer this fixed rate revenue, historically. The cash flow and economics of our contracts are obviously unaffected by this accounting deferral. The timing and amount of future deferrals and the reversal thereof into revenue, depends on the shape and timing of the recovery of our flying. All deferred revenue will be reversed into revenue by the end of the various contract periods.

Let me move to the balance sheet. We ended the quarter with cash of $762 million, up from $578 million last quarter. Our capex during the second quarter was $93 million, including $43 million for two new E175s under our Delta contract, $42 million in spare engines, and $8 million for other items. At this point, our expectation is to pull back our capex for the year from $636 million last year to $300 million to $400 million this year. Including the acquisition of four new E175s by the end of the year. We ended the quarter with debt of $2.97 billion, down slightly from $3 billion as of year-end.

Let's talk about liquidity. On June -- our June 30 cash position was $762 million, in addition to availability of $66 million on our revolving line of credit. During Q2, we received $307 million in payroll support funding under the CARES Act, of which $245 million is a grant and $62 million is a loan. Another $131 million will come in Q3, of which $92 million is a grant and $39 million is a loan. As you see in the math, $101 million of the total $438 million in PSP funding is in the form of a 10-year term loan with a 1% interest rate for the first-five years, with the remaining $337 million being a grant.

At quarter end, we had unencumbered assets of over $1 billion, primarily in engines and aircraft. This unpledged collateral gives us access to additional liquidity alternatives, which we will evaluate, including $497 million in senior secured term financing under the loan program of the CARES Act. We have signed a non-binding LOI for this loan program through the US Treasury and are currently in the [Indecipherable] working on documentation and are still considering our level and the timing of our participation.

Of the total $337 million, we will receive in PSP grant money, $152 million was recognized in Q2 as income, in the form of a contra expense laid out clearly as its own line item in our P&L. The remaining $185 million will be recognized in the second half of the year. The $93 million difference between the grant cash received in Q2 of $245 million and the $152 million recognized as income is sitting on the June 30 balance sheet as a current deferred income item, which will reverse in the second half.

Last quarter, we estimated that we would burn cash through the end of the year at a rate of about $30 million per month or $1 million per day. Based on June ending cash of $762 million, estimated year-end cash of $700 million and additional PSP debt of $39 million. We are estimating cash burn on average through the end of the year to be $16 million per month or about $0.5 million per day. This cash and cash burn analysis ignores the effect of any incremental CARES Act loan program money and continues to assume no draw on our revolver.

Our current modeling subject to many uncertainties and with modest recovery in flying and incremental cost rationalizations assumed by year-end if the cash burn improves in 2021. This demand disruption event shines a spotlight on the importance of how we have been derisking our business model over the last five years. While no one in our industry is immune to the economic effects of the COVID crisis, we continue to feel good about how we are positioned to weather the storm. If the economic effects turn out to be worse and the recovery slower than we currently expect, we have additional liquidity tools we can call on including our revolver, our $497 million allocation of secured CARES Act loans and other secured loan alternatives accessed by putting our over $1 billion in unpledged collateral to work.

In addition to our core liquidity position, I'm going to remind you a couple things that are nice to have during this time of uncertainty and give us more flexibility than others in our space. Number one, 33% of our fleet has no financing remaining on it. This number goes to 45% when you include partner owned aircraft that we operate. Number two, minimal tail risk of around $100 million. This is the dollar Delta between the financing term and contract term. Our next pocket of tail risk is now out to 2023 and a zero on the Delta 200s expiring later this year.

Especially in times of great uncertainty like this and consistent with our policy and practice, we are not in a position to give any formal or informal EPS guidance at this time. It goes without saying that this COVID event has been a setback to our plans. But I would highlight that we have the remaining $185 million grant component of the PSP that is expected to be recorded as income in the second half with most or all of that in Q3. As I mentioned earlier, the amount and timing of additional deferred revenue and the future reversal thereof into revenue depends on the shape and timing of the recovery of our flying. Wade will now give you some details on fleet initiatives, fleet movements and other commercial opportunities. Wade?

Wade Steel -- Chief Commercial Officer

Thank you, Rob. I'll provide a fleet and production status update as well as an update on our pro rate and leasing businesses. To update by partner, during the quarter, we took delivery of two new E175s for Delta. We financed these aircraft with long-term debt. We currently have four new E175s on order under our Delta agreement, which are scheduled to deliver during the fourth quarter. We are also scheduled to play six used E175s sourced from another operator in to Delta service. All of these aircraft are on property and three year currently in service. The remaining three year scheduled to begin service early next year. We are also scheduled to take delivery of our final Delta financed CRJ900 during Q4 of this year.

You may recall that we have 55 CRJ200s scheduled to expire under our Delta agreement at the end of this year. During the quarter, we came to an agreement to terminate the 19 Delta-owned CRJ200s and a return these aircraft to Delta. We do not anticipate the remaining 36 aircraft will be renewed. These aircraft are SkyWest owned with no remaining financing obligations and will be fully depreciated by the end of the year. Under our United partnership, we took delivery of our remaining 25 used E175s, the majority of which began service in June and July. These aircraft are financed by United and were sourced from another United Express operator. As last quarter, we worked with American to modify the timing of our 20 new E175s deliveries. We now expect delivery of these aircraft during the fourth quarter of 2021 through the middle of 2022. Our nine previously announced CRJ700s are now scheduled to be placed into service during Q4 2020 and the first half of 2021.

Let me review our current production. During the second quarter, our completed block hours were down by 66% compared to the same quarter last year. Based on the current schedules, we have from our major partners for the third quarter, we anticipate that our block hours will be down by approximately 40% to 45% compared to the third quarter of last year. The E175 fleet continues to fill an important need for our major partners. While the majority of the reduction in block hours have been on the CRJ200 fleet. We anticipate that our Q3 E175 block hours will be down approximately 10% as compared to Q3 last year. While our Q3 CRJ200 block hours will be down by approximately 65%.

As of December 31, 2019, we had 156 E175s under contract with our major partners. By the middle of 2022, we expect to have 213 E175s under contract with our partners. During the quarter, we finalized our contract concessions with all of our major partners. These included temporarily waving contract minimums, deferring the start of contracts, temporary rate reductions during Q2 and Q3, and passing through the benefit of deferring certain aircraft ownership charges that were negotiated with our primary creditors.

The largest concession during the quarter was deferring payment due from our partners related to certain aircraft ownership, cost of approximately $75 million. For GAAP purposes, we still recognize the revenue associated with the deferred payments related to aircraft ownership during the second quarter. We expect that the deferred ownership amounts will be paid back over the remaining CPA contract terms. All of these concessions expire in either September or October.

Let me talk about our pro rate business. During the second quarter, we reduced our pro rate block hours by approximately 54%. And the revenue decreased by 73% or approximately $98 million. We anticipate our pro rate block hours to be reduced by approximately 30% during the quarter compared to last year. We currently expect 20% of our block hours will be removed for the foreseeable future. We expect our pro rate revenue will be approximately $95 million less during the third quarter of 2020 compared to 2019.

Specific to our CRJ200 fleet, we had over 200 CRJ200s flying in our system prior to the onset of COVID in the United States. With the anticipated reductions at Delta and our pro rate fleet, we estimate reducing our CRJ200 fleet by approximately 70 aircraft by year-end. As discussed previously, we have returned 19 CRJ200s to Delta. We are also in the process of returning 10 CRJ200 to third-party lessors. We currently anticipate having 40 excess CRJ200s by the end of 2020 and expect to sell or part out several of these aircraft.

Given the age of our CRJ200 fleet and the number of upcoming removals from service. We have shortened the estimated useful lives of our CRJ200s aircraft for depreciation purposes to align with our anticipated contract removals with each applicable partner. This contributed to an increase of approximately $42 million of incremental depreciation expense during the second quarter. We anticipate we will incur approximately $30 million of additional depreciation expense in the second half of 2020 compared to the second half of 2019.

Let me shift gears to our leasing business. We have 13 of 29 CRJ700s under lease to a third-party. However, we do not anticipate delivering the remaining six aircraft to the lessee. We are working with several parties to operate these 16 aircraft at SkyWest. We believe these aircraft will be placed under contract with the major partners during the second half of 2021. During Q4 last year, we had 15 engines under short-term lease agreements and commitment to lease 40 additional engines during 2021. As of today, the majority of these engines have been returned and we are working with the lessee on the commitment for the 40 engines.

In summary, we do not expect the demand to return for our leasing business during 2021. We also agreed to purchase seven new CRJ700s from a third-party during the second quarter. We closed on the final two aircraft under this commitment. This crisis is unprecedented in our history and we are committed to working with each of our major partners to provide creative solutions and respond quickly to their needs. We have spent the last several years reducing risk and enhancing fleet and financing flexibility, which will ensure we're positioned to navigate this challenging environment.

Robert J. Simmons -- Chief Financial Officer

Okay. Operator, we're ready for the Q&A portion of the call.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Savi Syth of Raymond James. Please go ahead.

Savi Syth -- Raymond James -- Analyst

Hey. Good afternoon, everyone. Just on the concessions that you've granted to the partner, appreciate the detail you provided. Given the recent weakening, I wonder what your comfort level is that you wouldn't have to kind of go back and revisit these concessions and extend them beyond kind of how long you've provided it for so far.

Chip Childs -- President and Chief Executive Officer

Yeah, Savi. This is Chip. I would -- in relation to the concessions we're certainly not going to get into too many details on the call, but I mean, I would reiterate that we've spent the last several years creatively finding solutions with our partners, where we can add value over the long term that has worked very well for us. Given some of the things we're facing this fall, we're going to continue to utilize that exact same strategy and would emphasize that we're in this for the long game. We hope that this pandemic gets over quickly that would be good for all of us. But relative to some of the things that we need to do with our partners, we need to stand ready to do whatever we need to, to provide for them. Given the dynamic environment that we're in and we're going to continue to exercise that philosophy over this over the fallen into the winter months.

Savi Syth -- Raymond James -- Analyst

Helpful. And then just on the 29 CRJ700s that you were thinking of placing. I think it's 13 now, I think last quarter you might have mentioned you had placed 16, so I'm guessing some will return. And you've mentioned that you were -- you're looking to place that with another partner, is that you expecting to place those CRJ700, where you will be doing the flying or is that another sub-lease agreement?

Wade Steel -- Chief Commercial Officer

Yeah, Savi. This is Wade. Thanks for the question. Yeah. So as I said, 13 -- what we did have 16 of the 29 delivered. We took three of those back during the quarter. So we have 16 undelivered. We will not -- we do not anticipate delivering those to the lessee. They're not in a current financial position to take them. And so we are at SkyWest Airlines looking to fly those and operate those for another major partner and we're working with all of our major partners on potential demand they have for them.

Savi Syth -- Raymond James -- Analyst

Got it. And if I may squeeze just one last question. I know previously, when we went in this current environment and maybe not having this outlook for demand. You wanted to focus on the core business, but I wonder, given the kind of slow demand recovery outlook and kind of the pilot levels that you have, if you might consider kind of moving into the cargo side of business.

Eric Woodward -- Chief Accounting Officer

That's a good question. We've certainly explore that, but I think as we continue to evaluate some of the things that we can do to meet the demands of our partners. We're not -- candidly not that energetic to jump into a high risk, very low margin business of that nature. Although we have a lot of airplanes. We're going to continue to evaluate what's out there in the market, but that is clearly not one of our key focuses at this time.

Savi Syth -- Raymond James -- Analyst

Thank you.

Operator

Your next question comes from Catherine O'Brien of Goldman Sachs. Please go ahead.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey. Good afternoon, everyone. Thanks for the time.

Robert J. Simmons -- Chief Financial Officer

Hi, Katy.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey, guys. So just one more question on this, the third-party lease aircraft. So with some of those coming back and obviously, the remaining aircraft that third-parties are able to take. Is there any penalties have got paid to SkyWest for that or financial lineation for that or that was -- you worked it out?

Wade Steel -- Chief Commercial Officer

Yeah, Katie. This is Wade. We won't get into the specifics of those. We were -- we did receive some level of compensation for that, but I'm not going to get into the specifics of the settlement with that lessee.

Catherine O'Brien -- Goldman Sachs -- Analyst

Okay. That's a light air. And then maybe just on the retirement or on the 40 CRJs is retiring or selling into the year, will that accelerated depreciation over the next couple of quarters? Do you expect that means we won't see any impairment charges on those? And then -- yeah, and then one more after that?

Wade Steel -- Chief Commercial Officer

It's OK. This is Wade. So on the 40 aircraft and the majority of those are at Delta right now. As I said in my script, we have accelerated the depreciation on those. Those aircraft will all be fully depreciated by year-end. And so, as of right now, we do not anticipate taking any impairment charge on the CRJ200 fleet at this time.

Eric Woodward -- Chief Accounting Officer

Yeah, Katie. As we, as we said earlier, if you look at depreciation in Q2, it's up by little over $40 million that reflects some of that accelerated depreciation in the second half of the year. It's going to continue to run a little hot compared to a year ago and we think that will be about $30 million in the second half above last year's second half depreciation.

Catherine O'Brien -- Goldman Sachs -- Analyst

Okay. Great. If I can maybe just sneak one more in on costs. So just on future cost reduction opportunities now like you're alluding to potentially having some more efficiencies as we get into year-end. It looks like you're [Indecipherable] operating costs were down about 16%. Obviously I'm sure some of that -- was that accelerated deprecations putting upward pressure on that, but block hours were down 66%. Do you expect to see the gap close between operating costs year-over-year and block hours year-over-year or should we expect a similar relationship between the two into the third quarter and maybe the fourth quarter as well?

Chip Childs -- President and Chief Executive Officer

Yeah. I think -- Katie, this is Chip. It's a great question and one that we have evaluate more than almost anything today. And there's just a lot of factors and variables going into that answer that is a little bit too soon to answer that. Given the nature of our business, the size of our aircraft the volume that we're flying, the things that we can do as we know are assisting our partners and helping with this recovery, there is a lot of variation and schedules even in the last four months have changed significantly. So look, again we've got a stand ready to do at our partners want us to do.

And from that perspective, I think we do things like what we -- like, I mentioned in my script, we have a lot of employees taken voluntary time off. We're going to be very fluid with the communication with our people and our partners. More than anything relative to cost, we're going to continue to work on ways to streamline particularly overheads and those types of costs, but more than anything it's still goes back to a couple of things in our model where we want to be fluid with our partners and be ready to execute what they need in the recovery process. So it's a little too early at this point to still say exactly what that's going to do because the importance of us being ready to help our partners is paramount.

Catherine O'Brien -- Goldman Sachs -- Analyst

Understood. Thanks for all the time.

Operator

The next question comes from Helane Becker of Cowen. Please go ahead.

Helane Becker -- Cowen -- Analyst

Thanks, operator. Hi, gentlemen. Thanks for the time. So one question I have is, when you think about taking the second loan from the CARES Act, why -- you're in a pretty good position you have significant unencumbered assets. You're working through all of -- the issues with your partners. Why take the money? Why not put yourself in a position to kind of win the recovery and continue to be able to pay dividends and buyback stock when things turn around?

Robert J. Simmons -- Chief Financial Officer

Yeah, Helane. Thanks for the question. Look, I think, as we pointed out, we do feel very good about our core liquidity situation and we view some of those including the $497 million CARES Act loan as a nice alternative for us. But again, we expect to be at $700 million or so at year end without that continuing to have an undrawn revolver. So I think though in this environment, it's my job, it's our job to make sure that we have alternative just in case that this recovery is slower and longer than anyone might anticipate right now. We're planning for a number of different scenarios and so it's nice to have alternatives. And those alternatives are enabled by the fact that we went into this crisis with a very strong balance sheet that included over $1 billion of unpledged collateral that can become liquidity sources for us, if it needs -- if need be.

Helane Becker -- Cowen -- Analyst

Thanks. That's very helpful. And then, the other question I have is, when you talked in your prepared remarks about -- and I'm not sure who actually said this, but you talked about third quarter block hours right now being down 40% to 45% compared to last year. Can you say, how much time your partners are did notice, how much? I'm going to say this completely wrong, but can you say that, how much in advance notice? Are your partners giving you in terms of changing those block hour forecasts? And are you able to do so without significant penalty to your own income statement and balance sheet?

Chip Childs -- President and Chief Executive Officer

Yeah, I would -- Helane, this is Chip. That is a great question. Back in March, it was -- look, I think, all of us know what March was like when this was unfolding. It was just one of the most terrific month that the industry has seen and we adapt it pretty well. It's hard on us, it's extraordinarily hard on us, it's extraordinarily hard on our people, when you have something like March and into April. But through these types of experiences we evolve and adapt. And today there is very little of it today, there is some, but there is very little of it today. And with the notices, again I may keep repeating myself, we just have to be ready to be prepared to help facilitate what our partners need in this recovery.

And so you can see, it's almost like all of us are becoming virologist or whatever to try to figure out what's happening with the infection rates and with travel and specifically throughout the country. All of these things are probably more dynamic than any of us have ever seen in the industry before. But that having been said, we're evolving toward that and see this as an opportunity that we can adapt quickly. Then we're going to have a long-term competitive advantage because the level of uncertainty and variability within the schedules. We've learned to accept. We want as much [Indecipherable] as possible. And for another data point in August we're flying 1,700 block hours flights a day.

And from that perspective, there is a wide range of things that we can do, so we again need to be ready to respond to what our partners need is the, as the recovery happens and when it happens. So look evolution is a good thing. And I think we're doing a good job of that even relative to flight schedules and geography. What we need to pay attention to going forward for our partners.

Helane Becker -- Cowen -- Analyst

Thank you. That is very, very helpful. Thank you for your insight. I appreciate it.

Operator

The next question comes from Mike Linenberg of Deutsche Bank. Please go ahead.

Mike Linenberg -- Deutsche Bank -- Analyst

Yeah. Hey. Good afternoon, everyone. Rob, I just -- in the way the numbers are per trade, you made the decision, I guess not to call out any special items or call it adjustments, whether it was the CARES Act, receipt of it that money as the contract spends, I guess. The DNA upsizing the revenue deferral. In order to sort of look at you guys on an apples-to-apples basis with others, there's probably some adjustments that we would make. Are those this three main sort of call it, special items, if you will, or am I -- are there others that I'm missing?

Eric Woodward -- Chief Accounting Officer

No. Look Mike there were a number of sort of unusual items, and so we -- it was a pretty easy decision to just present the GAAP numbers. But then, make sure we provided lots of visibility into what those other ones were. Obviously we've got a deferred revenue component that is new this quarter. We've got a part of that PSP grant that was -- that where the cash was received, but the recognition will be deferred. Yeah. We've got depreciation running unusually high because of some of the changes we've made and the useful life assumptions on some of the -- particularly the 200s. And we've got maintenance expense that's running a little hard for a variety of reasons, some engine events. So pick your pack, we've given you lots of ingredients. You can bake whatever pro forma pie you'd like.

Mike Linenberg -- Deutsche Bank -- Analyst

That's what I figured. Just the some clarity the DNA increase, how much, I mean you told us $30 million for the second half. What would have DNA been or what was kind of a pickup in the June quarter, call it the extraordinary increase in DNA since you made the decision to get -- you're getting out of those airplanes earlier?

Eric Woodward -- Chief Accounting Officer

Yeah. So it was up a total of $42 million and the bulk of that was related to the wind down of some of their -- the contracts early.

Mike Linenberg -- Deutsche Bank -- Analyst

Okay. So like the big picture items, it's 42 plus the 67 revenue [Phonetic] less that whatever I think it was 150 on the CARES is kind of how I think about it. Okay. That's helpful. And then my second question is, we talk about this secured loan program and we learned yesterday actually that certain carriers of a certain credit quality may actually be able to do an unsecured for the loan program part of the of the CARES Act. And I'm just curious if you've actually looked into that. Do you actually, is it essential that you pledge collateral. Is there a way, maybe it's a higher interest cost, who knows. And then the other point that we heard yesterday from another company was that, they have also looked at the main street lending program and they believe they qualify, they are relatively smaller company and you're relatively smaller company as well. And I'm curious if that's something that would work for you, because one of the benefits of that is that there is no dilution hit or dilution -- efficiency dilution. There is no warrant obligation. So I'm not curious if you've looked into that thoughts on that?

Eric Woodward -- Chief Accounting Officer

Yeah. So again as I mentioned on the thing we're in the middle of the documentation of phase on the treasury loan program and we would expect that's going to close relatively soon. Again we've got quite a bit of flexibility under that program, which we like, where we have until next March to draw down the full amount of that if we want. So we feel like we've got -- the government has made available a great program to us and we continue to -- we'll continue to evaluate the timing and the amount of our involvement in that.

Mike Linenberg -- Deutsche Bank -- Analyst

Okay. And then just one quick last one, what we learned on the United call they did take down their capex pretty meaningfully and they went on to say that airplanes that they were originally going to take delivery of and put on their balance sheet are now going to one of their regional partners, and as best as I can tell, looking across the landscape, I can only think of one, maybe I don't know 1.5 regional carriers out there that would even have the balance sheet to take on the capex reduction that United indicated on their call. And yet, I don't see anything in your release, are there other airplanes that you're taking delivery on that are going to be flown on behalf of United down the road that you just maybe you haven't finished up the documentation and it's not signed sealed and delivered. Anything on that front that we should be aware of?

Chip Childs -- President and Chief Executive Officer

Yeah, Mike. This is Chip. Ended to the extent that we have new aircraft coming in. Our businesses that we have so we will be the ones flying those, if we were to finance those.

Mike Linenberg -- Deutsche Bank -- Analyst

Okay.

Chip Childs -- President and Chief Executive Officer

Candidly speaking there is nothing from our perspective, if that's happening. We have a lot of conversations with our partners. Clearly nothing short term unless something changes here soon, but the principal from our perspective is that if we are going to buy a new airplanes rolling in a finance than what we fly.

Mike Linenberg -- Deutsche Bank -- Analyst

Okay. Very good. Thanks, Chip. Thanks everyone.

Operator

The next question comes from Joseph DeNardi of Stifel. Please go ahead.

Joseph DeNardi -- Stifel -- Analyst

Yeah. Good evening, guys. Good afternoon. Wade, I tried to follow the -- I guess the moving pieces from a fleet standpoint, but I'm not -- I wasn't smart enough to keep up. So can you just maybe kind of walk through over the next few quarters contractually what you're fleet looks like and then how realistic is it that actually plays out relative to, I don't know, scope and mainline fleet changes at some of your partners? Just contractually what the fleet looks like over the next several quarters and then kind of realistically where you think you all emerge on the other side of it? Thank you.

Wade Steel -- Chief Commercial Officer

Yeah. Joe. This is Wade. That's a great question. There are a lot of fleet movement right now. We're working with all of our major partners. If you look in the release, as of the end of the second quarter, we had 471 airplanes that we are flying. There is definitely going to be some movement between now and the end of the year. We anticipate that our fleet will be somewhere around 450 airplanes by the end of the year. Primary -- the biggest changes will be primarily the Delta 50-seaters coming out and then we'll be adding in some new additional American flying on the 700 side and then some 175s on the Delta side. So those are kind of the big fleet movement, but at the end of the day, when you boil it all down will be around 450 airplanes at SkyWest at the end of the year.

Joseph DeNardi -- Stifel -- Analyst

Okay. So you think that SkyWest it kind of emerges from this with a similar -- roughly similar fleet size than you came into it, even though your partners are talking about -- some of them are talking about getting significantly -- well materially smaller, is that right?

Robert J. Simmons -- Chief Financial Officer

So a couple of things that you can look at. We've taken a lot of 175s that were financed by our major partners during the pandemic right. We took the 25 United that were financed from those guys. We did not have those last year. Those are all on property today. And those are offsetting a lot of the CRJ200s that are going away. And so as we talked [Indecipherable] in our script. We are -- this has accelerated our fleet replacement and it's one bright spot of it. It has accelerated it and we are going to have more and more 175s as we have merge out of this. As I said in my script by the middle of 2022, we're going to have 213, 175, at year-end we had 156, right. And so there has been a very nice growth in our 175s. In the 175s, our block hours period over period in the third quarter, we think it's only going to be a down around 10%. So we've done a very nice job in our dual class of growing that. Our 50-seaters will shrink, but net-net, it is down a little bit, but we'll -- we're going to merge with around 450 airplanes.

Joseph DeNardi -- Stifel -- Analyst

Okay. That's helpful. I wish I'd paid for the soundproof doors in my house, so apologise for the crack or noise. But Chip, can you talk about maybe what you think some of this means in terms of how much regional flying your partners do in-house versus look to outsource to a third-party kind of what your addressable market looks like on the other side of this? Thank you.

Chip Childs -- President and Chief Executive Officer

Yeah. I just -- briefly, it's like I said, a couple of times in the call is a lot of variables associated with this. I mean I will say, I think what we're trying to bring to the marketplace is a couple of things that other carriers may not be able to and that is a significant amount of capital if necessary. A lot of flexibility with what we can do, with flight schedules as well as the ability to just execute. So relative to internal carriers, we're really not far enough down the pathway to see what that might look like. I think everybody is still trying to scramble. There's a lot of variables happening this fall, as they're going to be CARES money or is there going to be a resurgence in the virus infection as they're going to go away more, there is just so many variables, it's hard to see.

The only thing that we know that we can do is control what we can control, and we feel like we've got an exceptional strategy over the last several years with our partners. We kind of feel a little bit like we were built for today to be honest with you and what we want to accomplish in the long term is more important, I think than what we can do in the short term. But that having been said, we think that by working with our people and partners we're optimistic that we could emerge very, very strong, when the domestic demand returns. So that's about all we can say to that right now given the amount of uncertainty.

Joseph DeNardi -- Stifel -- Analyst

That's helpful. Thank you.

Operator

The next question comes from Steve O'Hara with Sidoti and Company. Please go ahead.

Steve O'Hara -- Sidoti and Company -- Analyst

Hi. Good afternoon.

Robert J. Simmons -- Chief Financial Officer

Hi, Steve.

Steve O'Hara -- Sidoti and Company -- Analyst

Hi. I was just curious maybe just quickly on the deferred revenue. I thought you said you had received the cash from that flying or maybe I was wrong in that. But can you just explain to me what happened there with the deferred revenue and receipt of the cash. I guess if it was -- if the cash was received I understand.

Eric Woodward -- Chief Accounting Officer

Yeah. So we deferred recognition of $69 million of revenue during the quarter. This was revenue for which we have been completely paid. It is revenue for which we have no ongoing obligation but under 606, we were required to defer a portion of the fixed rate component of our contracts because of the disruption in our production, our block hours being down so much.

Steve O'Hara -- Sidoti and Company -- Analyst

Okay. And then maybe, so if you think about obviously its a lot of questions right now about the future, etc., but I mean, my assumption as well that you're not slashing costs in the effort to kind of maintain flexibility on the other side, and I mean I guess can you just talk about how long it would take you to get your costs to the right place to kind of become profitable again at whatever that flying level is, I mean obviously if that's 20% of where you are today that's going to be a lot different. But if you're talking about a reduced level of flying within a reasonable time. What -- how long would it take you to get your cost structure to that level?

Chip Childs -- President and Chief Executive Officer

So Steve, this is Chip. If we knew what the flight level is going to be, I would say we could do it as early as October 1 and we would do it as early as October 1. If we knew exactly what we were dealing with next summer, but that's why from our perspective, it's a little too soon to give some answers on the overall structure of the airline, outside is some of the management overhead costs. We're going to go ahead and make some of those changes anyway because we need to, but relative to the broader picture we really need to get a better volume in working with four separate partners, how this is impacting them and how we can respond to them before we can adapt to those costs.

Now to a certain extent of the volumes are good next spring and summer then it's easier, but if we see something different and this get continues to deteriorate over the next six months to nine months, depending upon your outlook of the virus, then we're going to have to make some extremely difficult decisions. But by the time, we know what next summer looks like that's kind of the finish line that we know we got to get to and we don't quite have data points on that yet. So answer to your question is, if we can get there very quickly as soon as we know that answer as I think several other airlines are demonstrating the need given the volumes of, are there going to be flying. So quickly, but we just -- we need to know what spring and summer next year looks like before we go to a really significant process it may hit the front-line employees or domiciled in those types of things.

Steve O'Hara -- Sidoti and Company -- Analyst

Okay. All right. Thank you very much.

Operator

The next question today is a follow-up from Catherine O'Brien of Goldman Sachs. Please go ahead.

Catherine O'Brien -- Goldman Sachs -- Analyst

Thanks so much for the extra time. I think -- I don't think there's going to be a clear-cut answer to this. But prior to all of this, we were thinking about a glide path to either materially reducing your time [Phonetic] and potentially growing earnings through share buybacks, etc. Or adding additional capex for demand and growing EPS that way. I guess probably the path of growing on extra demand may be seems a little further out at the very least, but on the path of reducing debt, I guess, like how much lost [Phonetic] line would you need to see to not be able to just like pay off those regular recurring amortization payments?

Like, is that [Indecipherable] really draconian like a lot of early contract terminations or could it just be being reduced to the minimum [Indecipherable] the next two years and having contracts roll off. So I know kind of a long-winded question, but I guess, it's like trying to get a sense of how bad things have to get for you guys to not really pay off that debt and potentially, if you look at refinancing. Just trying to trying to get a sense of like on the other side of this, what the balance sheet would look like?

Eric Woodward -- Chief Accounting Officer

Yeah. So I think Katie, that's a really, really good question. But I would present it by fleet. The debt that we have is very specific to the ERJ 175 fleet which is ironically, the fleet that our partners are utilizing the most particularly today and we anticipate that they will utilize it the most as we go through more and more of this economic recovery. The Bombardier fleet is way it's kind of pointed out is our larger fleet and it's largely paid off with very little tail risk as well as very little debt associated with the Bombardier fleet and also very little depreciation by the time we're done by the end of this year. So I think you have to look at it in those terms, almost valuable fleet in a recovery is also the one that has the majority of the debt, if not all of the debt on it, which is providing that type of value to our partners.

So it's not that, how will you reduce your fleet, so that you couldn't make those payments. We could reduce the Bombardier side of the house, if we had to a lot and it would never penetrate the need for what we will be recovering from the 175s and make those debt payments. So look, I think, the story here is, it's a great question and we look at that a lot, but it's mostly about the fleet type, what the debt is attached to and the value that fleet is providing our partners in this recovery process that helps solidify and stabilize, kind of what your general question is about the payments.

Robert J. Simmons -- Chief Financial Officer

And Katie, just one other thing that just a reminder that of the $3 billion or close to $3 billion in debt we have none of that other than this little [Indecipherable] of this new CARES Act piece. None of that debt is general purpose debt, corporate debt, that's all -- all of our debt other than that piece is financing airplanes and the bulk of those are in those fully amortizing structures where those that debt gets fully serviced by the end of the term. And that's, that's something that we like very much in terms of the overall structure of our balance sheet that we've got. We've got debt that's matched to the assets.

Catherine O'Brien -- Goldman Sachs -- Analyst

Okay. That's great. So seems like we probably won't be running into that. Thank you very much for extra time.

Robert J. Simmons -- Chief Financial Officer

Thanks, Katie.

Operator

The next question is another follow-up from Savi Syth of Raymond James. Please go ahead.

Savi Syth -- Raymond James -- Analyst

Hey. Thanks for the follow-up. Just a question on the cash burn. Rob, I think you talked about maybe $15 million a month cash burn that seems to be down from $30 million that you were talking about last quarter and wondering what was the drivers of that reduction and how you think about it as you head into the end of the year?

Robert J. Simmons -- Chief Financial Officer

Yeah, sure. Well, obviously, as you can see we generated good cash during the quarter. Cash is up $184 million quarter-over-quarter. Debt is up $71 million. So you can think of that, as that we generated a little over $100 million during the quarter from a variety of different sources. So as we look at -- as we model the last six months of the year, again we assume will be somewhere in the neighborhood of $700 million at year-end, down from the $762 million where we are right now, or where we were as of June 30. And then, but we've got $39 million of new CARES Act debt that's part of that mix. So we're going to count that as burn two. So if you look at cash reduction from $762 million down to $700 million and then count $39 million of that new CARES Act debt as burn as well because that's also included in the cash forecast that gets you to your burn it's about $16 million a month, or just a little over $500,000 of burn a day down from what was $1 million a day. We estimated by the end of the year last quarter.

Savi Syth -- Raymond James -- Analyst

So I guess what I'm not quite caching is what drove the difference is it better cost execution, is it maybe revenue not down as much as you had feared?

Robert J. Simmons -- Chief Financial Officer

Some of it's just timing of the receipt of some of these programs and that we're also -- we've also been very successful as Chip mentioned in some of these initiatives, where we've got voluntary time up programs that have worked very well for us as well.

Savi Syth -- Raymond James -- Analyst

Excellent. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chip Childs for any closing remarks.

Chip Childs -- President and Chief Executive Officer

Thank you, Alisa and thank you all for joining us on the call today. We appreciate your interest in SkyWest. I want to again thank our people. We have a solid foundation and simply the best team in the industry. I'm proud of our airline and our teams and the great work they're doing to support each other in the long-term success of SkyWest. And with that we will talk to you next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Robert J. Simmons -- Chief Financial Officer

Eric Woodward -- Chief Accounting Officer

Chip Childs -- President and Chief Executive Officer

Wade Steel -- Chief Commercial Officer

Savi Syth -- Raymond James -- Analyst

Catherine O'Brien -- Goldman Sachs -- Analyst

Helane Becker -- Cowen -- Analyst

Mike Linenberg -- Deutsche Bank -- Analyst

Joseph DeNardi -- Stifel -- Analyst

Steve O'Hara -- Sidoti and Company -- Analyst

More SKYW analysis

All earnings call transcripts

AlphaStreet Logo