Frontier Airlines 2004 Annual Report Download - page 22

Our current growth plans may be materially affected by substantial risks, some of which are outside of our control.
We plan to acquire at least an additional 28 Embraer ERJ - 170 regional jets by December 2006, all of which are subject to firm orders. We have financing commitments in place for 24 of
these 28 aircraft. If we are incorrect in our assessment of the profitability and feasibility of our growth plans, if circumstances change in a way that was unforeseen by us or if we are unable to
consummate financing for these aircraft, we may not be able to grow as planned.
Under our code - share agreements, we are obligated to place in service an additional 28 Embraer regional jets through 2006 at an aggregate cost (excluding the cost of acquiring the
aircraft) to us of approximately $6.6 million. These costs, which are related to the acquisition of these aircraft, include the acquisition of related additional ground and maintenance facilities and
support equipment, the employment of approximately 750 additional employees and the integration of those aircraft, facilities and employees into our existing operations.
As of December 31, 2004, we had conditional firm orders or options to purchase 95 regional jets from Embraer. If we choose to exercise options to purchase aircraft from Embraer
prior to obtaining a commitment from existing or future code - share partners to place the aircraft in service, we will be obligated to purchase the aircraft from Embraer and to bear the cost of
operation even if we cannot place the aircraft in service with a code - share partner, which could have a material adverse effect on our financial condition, results of operations and the price of our
common stock.
Our ability to manage our growth effectively and efficiently requires us to continue to forecast accurately our equipment needs and human resources and to continue to expend funds to
improve our operating, financial and management controls, reporting systems, procurement process and procedures. In addition, we must effectively expand, train and manage our employee
base, which could be costly. Our growth will place a significant strain on our management and other corporate resources. If we are unable to manage our anticipated growth effectively and
efficiently, our business could be harmed.
Our growth plans may be adversely affected by our code - share agreements with American and Delta. Our American agreement requires us to provide regional airline services exclusively
for American at its St. Louis hub and within 50 statute miles of that hub. This agreement also prohibits us from providing competing regional hub services at Memphis, Nashville and Kansas City
and means that, without American's consent, we are prohibited from operating flights under our own flight designator code or on behalf of any other air carrier providing "hub" services in or out
of these airports. Chautauqua's Delta agreement prohibits it from conducting code - share flying into several major metropolitan airports, except under its existing code - share agreements with
American and US Airways. Pursuant to the terms of Chautauqua's code - share agreement with Delta, it is prohibited from operating aircraft other than for Delta except for (1) those it operates
for its existing code - share partners, (2) the additional aircraft it may operate under its existing agreements and (3) aircraft subject to other limited exceptions. Furthermore, pursuant to the terms
of our code - share agreements with United, except for our current code - share flying, we are prohibited from operating 50 seat or larger regional jets or turboprops from United's current hub
airports. United's hub airports are Denver, Washington - Dulles, Los Angeles, Chicago - O'Hare, Seattle and San Francisco.
Our code - share partners may be restricted in increasing the level of business that they conduct with us, thereby limiting our growth.
In general, the pilots' unions of certain major airlines have negotiated collective bargaining agreements that restrict the number and/or size of regional aircraft that a particular carrier may
operate. A "scope" clause in US Airways' current collective bargaining agreement with its pilots prevents US Airways from using more than 465 regional jets not flown by its pilots in its
operations. This restriction does not apply to ERJ - 170s. The "scope" clause prevents US Airways from using more than 60 90 - seat or larger aircraft not flown by US Airways or its subsidiaries.
We cannot assure you that US Airways will contract with us to fly any additional aircraft. Our ability to participate in additional regional jet flying for US Airways is subject to the further limitation
that we employ furloughed US Airways pilots. Our utilization of US Airways pilots was approved by our pilots union, however, they limited their approval to 32 additional aircraft for US
Airways. Thus far, we have only utilized nine of the 32 aircraft under the jets for jobs approval. A "scope" clause in American's current collective bargaining agreement with its pilots limits it from
operating regional jets having 51 or more seats. A "scope" clause in Delta's current collective bargaining agreement with its pilots restricts it from operating regional jets having more than 70 seats
and limits it from operating more than 125, or under certain circumstances, 150, regional jets having 70 seats.
We cannot assure you that these "scope" clauses will not become more restrictive in the future. Any additional limit on the number of regional jets we can fly for our code - share partners
could have a material adverse effect on our expansion plans and the price of our common stock.
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