Frontier Airlines 2005 Annual Report Download - page 31

ITEM 1A. RISK FACTORS
The following risk factors, in addition to the information discussed elsewhere herein, should be carefully considered in
evaluating us and our business:
Risks Related To Our Operations
We are dependent on our code-share relationships with our major partners.
We depend on relationships created by our regional jet code-share agreements with US Airways, American, Delta and United
for all of our passenger revenue. Any material modification to, or termination of, our code-share agreements with any of these partners
could have a material adverse effect on our financial condition, results of our operations and the price of our common stock. Each of
the code-share agreements contains a number of grounds for termination by our partners, including our failure to meet specified
performance levels. In addition, American may terminate its code-share agreement without cause upon 180 days notice, provided such
notice may not be given prior to September 30, 2008. If American terminates its code-share agreement for cause, it has the right to
require us to assign to them our leases of all ERJ-140 regional jets then operating under the code-share agreement or to lease such jets
to them to the extent we own them. If American terminates our code-share agreement other than for cause, we have the right to require
American to assume our leases of all ERJ-140 regional jets then operating under the code-share agreement, or to lease such jets from
us to the extent we own them. Delta may partially or completely terminate its code-share agreement with respect to the ERJ-135/145
aircraft, with or without cause, on 180 days written notice at any time after November 2009, and may partially or completely terminate
its code-share agreement with respect to the ERJ-170 aircraft, with or without cause, on 180 days written notice at any time after
July 2012. If Delta exercises this right under either agreement or if we terminate either agreement for cause, we have the right to
require Delta either to purchase, sublease or assume the lease of aircraft leased by us with respect to any of the aircraft we previously
operated for Delta under that agreement. If we choose not to exercise this right, or if Delta terminates either agreement for cause,
Delta may require us to sell or sublease to it or Delta may assume the lease of aircraft leased by us with respect to any of the aircraft
we previously operated for it under that agreement. In addition, our code share agreements with Delta have not been and may not be
assumed by Delta in bankruptcy and may be modified or terminated. United may terminate its code-share agreement with respect to
the ERJ-145 aircraft without cause on 18 months prior written notice, provided that such notice may not be delivered prior to
December 31, 2008. If we wrongfully terminate our code-share agreement, breach certain provisions thereof or fall below certain
minimum operating thresholds for three consecutive months or any six month period in a rolling 12 month period, United can assume
our ownership or leasehold interests in the jets we operate for them.
In addition, because substantially all of our passenger revenues are currently generated under the code-share agreements, if
any one of them is terminated, our operating revenues and net income will be materially adversely affected unless we are able to enter
into satisfactory substitute arrangements or, alternatively, fly under our own flight designator code, including obtaining the airport
facilities and gates necessary to do so. We cannot assure you that we would be able to enter into substitute code-share arrangements,
that any such substitute arrangements would be as favorable to us as the current code-share agreements or that we could successfully
fly under our own flight designator code.
For the years ended December 31, 2005 and 2004, respectively, US Airways accounted for approximately 21% and 38% of
our passenger revenues, Delta accounted for approximately 34% and 36% of our passenger revenues, American accounted for
approximately 13% and 16% of our passenger revenues and United accounted for approximately 32% and 10% of our passenger
revenues. We have granted to Delta warrants to purchase an aggregate of 3,435,000 shares of our common stock. The exercise prices
of these warrants range from $11.60 to $13.00 per share. In addition, beyond the 16 aircraft that we are contractually committed to
place into service for Delta through 2006, Delta is entitled to a warrant to purchase 60,000 shares of our common stock for each
additional aircraft we place into service for it. The exercise price of each of these warrants will be the lower of the then current market
price of our common stock or the average of the closing prices of our common stock for the 30 days prior to such aircraft being placed
into service.
Our code-share agreement with Delta will be terminated if Delta does not emerge from bankruptcy.
Delta is attempting to reorganize its business under Chapter 11 of the bankruptcy code. Under the terms of our code-share agreement
with Delta, if the plan of reorganization is not confirmed in Chapter 11 bankruptcy or if the bankruptcy is converted to liquidation
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠