Frontier Airlines 2004 Annual Report Download - page 12

The US Airways Code - Share Agreement
As of December 31, 2004, Chautauqua operated 35 Embraer 145 regional jets including two spare Embraer 145 regional jets for US Airways under a code - share agreement. US
Airways is currently in bankruptcy, and this agreement has not yet been assumed. We continue to operate normal flight schedules for US Airways, however, contingency plans have been
developed to address potential outcomes of the US Airways bankruptcy proceedings. The code - share agreement provides that Chautauqua will operate these aircraft to provide US Airways
Express service between US Airways hubs and cities designated by US Airways. As of December 31, 2004, Chautauqua was providing 230 flights per day as US Airways Express between
New York, Boston, Philadelphia, Pittsburgh, Indianapolis, Washington, D.C. and designated outlying cities.
US Airways provides reservation, check - in, baggage - handling, ground - support and other passenger services, landing slots, gates, tickets, baggage tags, ticket wallets and similar items
with respect to such flights and also controls scheduling, ticket prices and seat inventories with respect to such flights. Under the code - share agreement, US Airways retains all passenger, cargo
and other revenues associated with each flight, and is responsible for all revenue - related expenses. In exchange for providing the designated number of flights and performing our other obligations
under the code - share agreement, we receive from US Airways three times each month compensation of a fixed - fee per departure, a fixed - fee per block hour flown, a fixed - fee per flight hour
flown and a fixed - fee per aircraft per day. We receive an additional amount per available seat mile flown. We also receive incentives or pay penalties based upon our performance, including fleet
launch performance, on - time departure performance and completion percentage rates. These incentive and penalty payments are a relatively small component of the total compensation that we
are entitled to receive for each of our flights. The fixed rates that we receive from US Airways under the code - share agreement are increased at times specified in the agreement by an agreed
escalation factor. Additionally, certain of our operating costs are considered "pass through" costs whereby US Airways has agreed to reimburse us the actual amount of costs we incur for these
items. Fuel, landing fees, passenger catering, passenger liability insurance and aircraft property tax costs are pass through costs.
The code - share agreement terminates on March 1, 2012, unless US Airways elects to exercise its option to extend the term for three years by providing us with notice by March 1,
2011; however, US Airways may terminate the code - share agreement at any time for cause upon not less than 90 days notice and subject to our right to cure under the following conditions:
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if we fail to retain or utilize the aircraft in the manner required under the code - share agreement;
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if our flight completion factor falls below specified percentages during specified periods due to operational deficiencies that are within our control;
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if our on time departure performance falls below specified percentages during specified periods; or
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if we admit liability or are found liable for any safety infraction by the FAA that could reasonably be expected to lead to the suspension or revocation of our operating certificate or if in
US Airways' reasonable opinion we are not complying in any material respect with applicable safety and operational requirements.
In addition, if there is a regulatory change that materially and adversely affects the economic value of the agreement to us or US Airways, and we are unable to agree to amendments to
the code - share agreement to alleviate those regulatory changes within 30 days, the party materially and adversely affected may terminate the agreement upon not less than 90 days notice.
In general, we have agreed to indemnify US Airways and US Airways has agreed to indemnify us for any damages caused by any breaches of our respective obligations under the code -
share agreement or caused by our respective actions or inactions under the code - share agreement.
US Airways pays us three times each month in advance based on agreed assumptions, which amount is reconciled at the end of the month based on actual flight activity. The code - share
agreement requires US Airways to pay our fixed costs and per aircraft per day costs for a specified period of time in the event of a grounding of the Embraer regional jets as a result of a design
or manufacturing defect or a strike by our employees. If we do not perform the services under the agreement due to our failure to maintain the aircraft or comply with FAA regulations, US
Airways is not required to make any payments to us under the agreement during that time period. If we cannot provide services for any other reason, including a US Airways strike, US Airways
is required to pay us during that time period the fixed costs, the per aircraft per day costs and an agreed upon amount per available seat mile flown based on the guaranteed minimums set forth in
the agreement.
On March 15, 2005, the Company and Wexford Capital LLC, entered into an omnibus investment agreement with US Airways Group, Inc. The agreement includes provisions for the
affirmation of an amended Chautauqua code - share agreement, a potential new jet service agreement with Republic Airline for the operation of ERJ - 170 and ERJ - 190 aircraft, a conditional $125
million dollar equity commitment and up to $110 million in asset related financing. The agreement can be terminated by the Company and Wexford Capital LLC if the Omnibus Order has not
been entered by the Bankruptcy Court by April 20, 2005, and may be terminated by the Company and Wexford Capital LLC or by US Airways Group, Inc. if the closing on the issuance, sale
and purchase of the new common stock of US Airways Group, Inc. is not completed by December 31, 2005.
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