Delta Airlines 2004 Annual Report Download - page 90

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 8. Purchase Commitments and Contingencies
Aircraft Order Commitments
Future commitments for aircraft on firm order as of December 31, 2004 are estimated to be $4.2 billion. The following table shows the timing of these
commitments:
Year Ending December 31,
(in millions) Amount
2005 $ 1,002
2006 598
2007 1,645
2008 510
2009 406
Total $ 4,161
Our aircraft order commitments for the year ending December 31, 2005 include approximately (1) $520 million related to our agreement to purchase 32
CRJ-200 aircraft, for which financing is available to us on a long-term secured basis when we acquire these aircraft (see Note 6) and (2) $415 million related
to our commitment to purchase 11 B737-800 aircraft, for which we have entered into a definitive agreement to sell to a third party immediately following
delivery of these aircraft to us by the manufacturer in 2005. For additional information about our agreement to sell these B737-800 aircraft, see "Other
Contingencies — Planned Sale of Aircraft" in this Note.
Contract Carrier Agreements
During the three years ended December 31, 2004, we had contract carrier agreements with three regional air carriers, FLYi, Inc. (formerly Atlantic Coast
Airlines) ("Flyi"), SkyWest Airlines, Inc. ("SkyWest") and Chautauqua. Under these agreements, the regional air carriers operate certain of their aircraft using
our flight code, and we schedule those aircraft, sell the seats on those flights and retain the related revenues. We pay those airlines an amount, as defined in
the applicable agreement, which is based on an annual determination of their cost of operating those flights and other factors intended to approximate market
rates for those services. Our contract carrier agreement with SkyWest expires in 2010 and our agreement with Chautauqua expires in 2016.
In April 2004, we notified Flyi of our election to terminate its contract carrier agreement due to Flyi's decision to operate a new low-fare airline using jet
aircraft with more than 70 seats. Flyi ceased operating Delta Connection flights in November 2004. Flyi exercised its right to require us to assume the leases
on the 30 Fairchild Dornier FRJ-328 regional jet aircraft that it operated for us. We are currently conducting inspections of these aircraft. After we complete
the inspections, we expect to assume these leases. We estimate that the total remaining lease payments on these 30 aircraft leases will be approximately
$275 million. These lease payments will be made over the remaining terms of the aircraft leases, which are approximately 13 years. We are evaluating our
options for utilizing these 30 aircraft, including having another air carrier operate these aircraft for us under the Delta Connection carrier program. Obligations
related to these leases are not included in the table in Note 7 since we are still conducting the inspections of these aircraft and have not assumed the leases.
There are no residual value guarantees related to these leases.
If we assume the leases for the 30 FRJ-328 aircraft as currently in effect, a Flyi bankruptcy or insolvency or, with respect to certain of the leases, a Flyi
default under various contracts, including leases, loans and purchase contracts having a value or amount in excess of $15 million, would constitute an event of
default. If an event of default were to occur, the financing parties could exercise one or more remedies, including the right to require us to purchase the
aircraft at a purchase price stipulated in the applicable lease. At March 1, 2005, the purchase price for each aircraft was approximately $9 million, which we
estimate exceeds the current market value of each aircraft by approximately $3 million. Our estimate of the current market value of these aircraft is based on
published industry data. We cannot determine the likelihood of the occurrence of an event relating to
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