BB&T Capital upgraded Atlantic Coast Airlines (ACAI

) and SkyWest (SKYW

) to strong buy from buy.

Analyst Anthony Cristello says a revised contract with pilots includes pay cuts and other cost savings. He thinks this should allow Atlantic Coast and SkyWest to present UAL Corp., parent of United Airlines, with an even more attractive cost structure for regional jet operations.

With pilots now on board, Cristello thinks Atlantic Coast and United are close to a new deal -- one that is similar to a United-SkyWest deal reached earlier this month -- that would allow Atlantic Coast to take new code share partners, although this is a concern for investors. Still, Cristello doesn't think Atlantic Coast has exhausted its avenues for growth.

He raised Atlantic Coast's 64 cents 2003 earnings per share estimate to 74 cents, and raised the $1.00 2004 earnings per share to $1.10. He also raised the $12 target to $20.