Airlines sector: why only SkyWest passes our quality screen

2026-06-23 · By Lubin Danilo, founder of Lubin Investment

In our screener, the broad aviation sector reveals striking disparities. SkyWest (SKYW) achieves a perfect score with a very low multiple and a large discount. OMAB (Mexican airports) also achieves a perfect score. Heico (aeronautical parts) scores 9/10 but is very overvalued. Major airlines (Delta, United, Southwest) generally score between 5 and 7/10.

• SkyWest (SKYW): perfect score, very low multiple, large discount by our method.
• OMAB (Mexico airports): perfect score, extremely low multiple.
• Heico (aeronautical parts): 9/10 but significantly overvalued.
• TransDigm (components): 8/10, high valuation.
• Major airlines: scores generally between 5 and 7/10.

Why aviation destroys value

Warren Buffett once said that shareholders would have been better served if someone had shot down the Wright Brothers' plane at Kitty Hawk. The airline industry accumulates structural disadvantages: colossal fixed costs (planes, maintenance, airports), high pilot salaries, jet fuel as the main variable cost, fierce price competition, and extreme sensitivity to economic, health, or geopolitical shocks. Most major airlines have filed for bankruptcy at least once. Free cash flow is structurally unpredictable.

SkyWest: the absolute exception

SkyWest Airlines is an American regional carrier that flies on behalf of the major airlines (Delta, United, American, Alaska) under fixed contracts. This model is radically different from a traditional airline: SkyWest is paid per aircraft operated and per flight hour, regardless of load factor. The load risk is borne by the major, not SkyWest. The result: predictable FCF, sound financial structure, and a perfect score in our screener. Its very low multiple reflects the persistent discount the market applies to all aviation players, even the highest quality ones.

OMAB: airports as infrastructure

Grupo Aeroportuario del Centro Norte (OMAB) operates 13 airports in northern and central Mexico, including Monterrey airport. Airports are quasi-monopolistic infrastructure: a city generally has only one main airport. OMAB benefits from long-term concessions granted by the Mexican government, with revenues indexed to passenger traffic. Stable and predictable FCF. Perfect score in our screener, with an extremely low multiple.

Heico and TransDigm: the aeronautical supply chain

Heico (HEI) and TransDigm (TDG) operate in the manufacturing and distribution of spare parts and components for the aeronautical industry. These players benefit from high entry barriers (FAA certifications, manufacturer relationships) and recurring revenues. Heico scores 9/10 in our screener, with only the DSO slightly failing. But its multiple of over 50 times FCF makes it very unattractive under our method. TransDigm scores 8/10 with similarly high valuation.

Our sector verdict

The broad aviation sector is not homogeneous. Traditional airlines are structurally unattractive for our method. However, contract models (SkyWest), infrastructure (OMAB), and quality supply chain players (Heico, TransDigm) offer significantly superior profiles. SkyWest is in our buy zone today, making it the most attractive case in the sector within our database.

FAQ

Why do major airlines fail your screener?

Major airlines (Delta, United, Southwest, Air France) have structurally volatile FCF, high fleet-related debt, enormous fixed costs, and extreme sensitivity to external shocks (COVID, recession, fuel price spikes). Our criteria value FCF predictability and quality, two rare qualities in traditional air transport. Scores of 5 to 7/10 reflect failures on multiple criteria simultaneously.

How does SkyWest's contract model work?

SkyWest operates regional flights for Delta, United, American, and Alaska under Capacity Purchase Agreements. The major defines routes, schedules, and ticket prices. SkyWest is paid per aircraft operated, per flight hour, or per passenger transported depending on the contracts. It does not bear load risk. This model generates stable and predictable FCF, very different from an airline competing directly on ticket prices.

What is OMAB and why is it in our screener?

OMAB (Grupo Aeroportuario del Centro Norte) is a Mexican airport operator listed on the NYSE and BMV. It operates 13 airports including Monterrey (the most active), Culiacán, Mazatlán, and Ciudad Juárez. It is quasi-monopolistic infrastructure with long-term concessions. FCF is stable and predictable, margins are high. Perfect score in our screener, Airports and Air Services sector.

Is Heico expensive relative to its quality?

Heico is a very high quality company (9/10) that manufactures FAA-certified alternative aeronautical parts. But with a multiple of over 50 times FCF, the valuation is very high under our method. This means future growth prospects are already largely priced in. Our method waits for a significant correction before giving an entry signal on Heico.

Why did Warren Buffett sell his airline holdings in 2020?

In May 2020, at the height of the COVID crisis, Berkshire Hathaway sold all its positions in major airlines (Delta, United, American, Southwest) at large losses. Buffett admitted he had underestimated the structural fragility of the sector to exogenous shocks. Traditional aviation is massively capital-intensive, generates little FCF in normal periods, and can quickly turn to deeply negative FCF during a crisis. Our method captures this fragility through its FCF quality criteria.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).