Delta Airlines 2002 Annual Report Download - page 155

We may terminate the ACA and SkyWest agreements without cause at any time by
giving the airlines certain advance notice. If we terminate the ACA agreement in
this manner, ACA has the right to (1) assign to us leased aircraft that it
operates for us, provided we are able to continue the leases on the same
financial terms ACA had prior to the assignment, and (2) require us to purchase,
at fair value, aircraft that ACA operates for us and owns at the time of the
termination. If we terminate the SkyWest agreement in this manner, SkyWest has
the right to assign to us leased regional jet aircraft that it operates for us,
provided we are able to continue the leases on the same terms SkyWest had prior
to the assignment.
We may not terminate the Chautauqua agreement without cause during the
approximately first five years of its term. After that period, we may terminate
this agreement without cause at any time. If we terminate the Chautauqua
agreement in this manner, Chautauqua has the right to (1) assign to us leased
aircraft that it operates for us, provided we are able to continue the leases on
the same terms Chautauqua had prior to the assignment, and (2) require us to
purchase or sublease any of the aircraft that it owns and operates for us. If we
are required to purchase aircraft owned by Chautauqua, the purchase price would
be equal to the amount necessary (1) to reimburse Chautauqua for the equity it
provided to purchase the aircraft and (2) to repay in full any debt outstanding
at such time that is not being assumed in connection with such purchase. If we
are required to sublease aircraft owned by Chautauqua, the sublease would have
(1) a rate equal to the debt payments of Chautauqua for the debt financing of
the aircraft calculated as if 90% of the aircraft was debt financed by
Chautauqua and (2) specified other terms and conditions.
We estimate that the total fair value of the aircraft that all three regional
air carriers could assign to us or require that we purchase is approximately
$1.5 billion.
LEGAL CONTINGENCIES
We are involved in legal proceedings relating to antitrust matters, employment
practices, environmental issues and other matters concerning our business. We
cannot reasonably estimate the potential loss for certain legal proceedings
because, for example, the litigation is in its early stages or the plaintiff
does not specify damages being sought. Although the ultimate outcome of our
legal proceedings cannot be predicted with certainty, we believe that the
resolution of these actions will not have a material adverse effect on our
Consolidated Financial Statements.
OTHER CONTINGENCIES
REGIONAL AIRPORTS IMPROVEMENT CORPORATION (RAIC)
In 1996, the RAIC refinanced $88 million in Facilities Sublease Revenue Bonds
which had been initially issued in 1985 for the construction of certain airport
terminal facilities at Los Angeles International Airport for Western Airlines
(Western) prior to our merger with them. We are obligated under a facilities
sublease with the RAIC to pay the trustee rent in an amount sufficient to pay
the debt service on the bonds. When the bonds were refinanced in 1996, we also
provided a guarantee to the bond trustee covering the payment of the debt
service on the bonds substantially similar to the guarantee provided by Western
in 1985. In November 2002, the City of Los Angeles (City) deposited in escrow
with the bond trustee approximately $38 million as prepayment of an ongoing
rental credit for certain City areas within the terminal facilities constructed
and financed with the bonds. Subsequent to December 31, 2002, these escrow funds
were used to purchase, at a discount in the open market, and retire
approximately $41 million principal amount of the bonds.
GENERAL INDEMNIFICATIONS
We are the lessee under many real estate leases. It is common in these
commercial lease transactions for us, as the lessee, to agree to indemnify the
lessor and other related third parties for tort, environmental and other
liabilities that arise out of or relate to our use or occupancy of the leased
premises. Typically, this type of indemnity would make us responsible to
indemnified parties for liabilities arising out of the conduct of, among others,
contractors, licensees and invitees at or in connection with the use or
occupancy of the leased premises. Often, this indemnity extends to related
liabilities arising from the negligence of the indemnified parties, but usually
excludes any liabilities caused by their gross negligence or willful misconduct.
Our aircraft and other equipment lease and financing agreements typically
contain provisions requiring us, as the lessee or obligor, to indemnify the
other parties to those agreements, including certain related parties, against
virtually any liabilities that might arise from the condition, use or operation
of the aircraft or such other equipment.
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