ONE-ON-ONE WITH ATLANTIC COAST AIRLINES' KERRY SKEEN

Kerry Skeen is the president, chief executive officer and chief operating officer of Atlantic Coast Airlines, a United Express carrier based at Washington Dulles International Airport. He has been with ACA since it was formed, in 1991.

Skeen started his career at Delta Air Lines in 1978, where he was credited with developing the Delta Connection regional airline system. In 1987, he moved to United Express carrier WestAir as vice president of marketing and sales, where he was in charge of airline scheduling, pricing, inflight operations, sales and promotions.

In 1989, Skeen moved east to start the Atlantic Coast division of WestAir and serve as president until it was bought by a private investment group in 1991.

C/R News interviewed Skeen a week before the release of what turned out to be record earnings for ACA. He was upbeat about the company's future and talked about the ACA fleet, its financial position (see story, page 4), his tenure as chairman of the Regional Airline Association and plans for ACA's future. Q. In early 1995, you ordered 20 Jetstream 41s. Where are you with that order? A. We have 25 J41s. Of that {initial} order of 20, we have taken delivery of nine, with the next two deliveries at the end of this quarter; that will put us at 11 of the 20. The last nine deliveries are scheduled for 1997. Q. Are there any plans to add to the fleet after the 20? A. No. At this time, we're analyzing our long-term fleet requirements and we haven't really made any decisions. The last nine J41 deliveries have very flexible terms and we could decide not to take those if we wanted, with no penalties if we decided not to take the last nine.

At the Dulles hub, we don't have the luxury of having our major partner having 400-500 flights a day like you do in some of the larger hubs. We have to survive at a hub that has approximately 60 departures by United, so that means we have to make sure we have the right-sized fleet to handle the market opportunities we have here. The 19- passenger airplane is very important to us here at Dulles. Q. The industry seems to be saying that the need for the 19-seater is fading away. Do you agree? A. It depends on where your hub is. If United had 200-300 departures a day in here, we would probably be saying what most of the other carriers are saying: you need the additional seats. The cost differential is narrowing now between 30-passenger and 19-passenger {aircraft}.

As you mature as an airline, it becomes more difficult to keep your costs in line and operate 19 seats profitably. I'll agree there's a big challenge in terms of operating 19 seats. When you look at operating in 37 cities before 9:00 a.m. out of Dulles, where United doesn't really have any feed coming in at that time of the day, it's strictly us relying on what we can produce ourselves. So you go with what the lowest departure cost is, not seat mile cost. We don't need all the seats. We want to go with the lowest departure cost, and the J31 delivers that for us. Q. The airline lost $25.1 million in 1994; how will it look in 1996? A. Looking ahead in 1996, we see continued improvement in terms of earnings. We'll have the 12-month benefit of our fleet restructuring, a catalyst for turning things around. We were still in the throes of transition in the first quarter of 1995; we still had Dash 8s on property here that we were phasing out until the end of the quarter.

We had a substantial number of crews that had to be retrained and we still had a maintenance base to close in the second quarter. We went from three maintenance bases to one. Going into 1996, we have that all behind us, so we should benefit from the full 12 months of having the fleet transition behind us.

The yields are much higher, but that's been the story for a lot of carriers. Our yields have been increasing at a faster rate than what the industry has experienced. We associate a lot of our improvement to changes we've made in our yield management department. Our yield in the third quarter was up over 22% on a year-to-year basis, where the industry was experiencing between 5% and 7% improvements. We've been helped by the overall trends in the industry, but we've also done some things internally to improve ourselves on the yield management side and we expect those trends to continue in 1996. Q. ACA has been looking at a new site for its maintenance base and headquarters in the Washington area. Where are you with that search now? A. That's part of our ongoing efforts to continue to look at ways to improve not only the operational performance of the company, but also reduce costs. We currently do all of our maintenance in Lynchburg, Va., but we are studying several issues. The first is to keep maintenance in Lynchburg. Obviously we would expect the city to roll out the welcome mat for us if we do intend to stay there. Option two would be to construct a maintenance hangar at our hub at Dulles Airport. Since there's no available facility, we'd have to construct one. We've been going through the process with the Washington Metropolitan Airport Authority looking at various sites on the airport that would be available; we have selected a site. We're working with the airport to continue our feasibility study. The third option would be to look at a different community that has an available facility and would be very aggressive in trying to solicit ACA maintenance to come to that town. With our improved financial situation now, building a facility is definitely within our reach, whereas a year or two ago, it was something that did not make a lot of sense to do. Q. What are your main goals for the airline in 1996? A. I'd like to see our employees continue to benefit from an improved work environment, an improved performance of the company, profit sharing and increased value of their stock. I'd like to continue increasing our shareholder value. At the start of the year, our stock was trading around $2 a share and it closed Feb. 22 at $10.88 a share. The other goal is to try and strengthen the balance sheet. We made great strides this year in our cash position, paying down the BAe debt early and through continued profitability. Q. What did ACA do with the $20 million in recapitalization it got from JSX Capital Corp.? A. The British Aerospace investment made available $20 million. That consisted of a $4 million term loan, a $5 million line of credit and roughly $3.8 million of preferred stock. The balance, a little over $7 million, was in common stock. In terms of equity, you had around $11 million in equity and $9 million in debt.

On the debt side, we never used the $5 million line of credit. What turned out to be broadcast as a $20 million deal was really a $15 million deal. The $4 million term loan was taken out in January 1995 and the terms of that loan were it was to be repaid in five years. Because of our substantially improved financial performance, we ended up paying it off in December 1995. So today we owe BAe no debt and they own approximately 17% of the common stock. The preferred stock is designed to where we can {buy} BAe's preferred stock if we so desire. They cannot convert that preferred stock into common stock until September 1997, so we have a lot of latitude if we want to prevent them from converting it to common stock. Q. You chaired the Regional Airline Association in 1995, during what all would agree was one of its most trying times. What were some of the highlights and lowlights during your tenure? A. We had a lot of external forces in terms of the public's perception on safety, which took a lot of the time during my tenure. I'm very pleased with what was a pretty bold step for our association, since the association hadn't been known to be very aggressive in its actions. We did the right thing in hiring a public relations firm and getting a budget that allowed that firm to succeed. We appointed a new staff position to spearhead the public relations on the RAA staff.

We developed the Associate Member Council, which I was highly in favor of. You have a lot of vested interest in terms of the aircraft manufacturers and {suppliers}. By not using their voice, their clout, their financial resources and their wisdom, we were missing a great asset.

A frustration was that it took us longer to get to the point {of hiring a public relations firm} than I would have liked. You have to understand we're a diverse organization and we represent a wide variety of carriers -- from owned regional carriers to codeshare carriers to independent to small cargo operators. Certain issues are hotter for some groups than others. It unfortunately took a lot of negative publicity to really motivate everyone to work toward that common goal of trying to come up with a long-term public relations plan instead of just trying to go out and address one issue and hope that it goes away. Structurally, the association has been improved on a long-term basis because the public relations has been something that has been needed on a short-term basis. Hopefully, through successes, the membership will view it as something we should maintain as part of our long-term strategy.