Frontier Airlines 2005 Annual Report Download - page 37

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Our fleet expansion program will require a significant increase in our leverage and the financing we require may not be
available on favorable terms or at all.
The airline business is very capital intensive and, as a result, many airline companies are highly leveraged. During the years
ended December 31, 2005 and 2004, our mandatory debt service payments totaled $53.4 million and $47.4 million, respectively, and
our mandatory lease payments totaled $82.0 million and $77.8 million, respectively. We have significant lease obligations with
respect to our aircraft, which aggregated approximately $883.6 million at December 31, 2005 and $793.0 million at December 31,
2004. Our current growth strategy involves the acquisition by purchase or lease of at least 26 more Embraer regional jets through
2006, including 15 which we will obtain from US Airways, all of which we will place in service for US Airways and Delta under our
existing code-share agreements with them, except for four which are not yet allocated. Embraer's current aggregate list price for the 11
Embraer regional jets that we will acquire from Embraer is approximately $296.0 million. We expect to lease or otherwise acquire on
credit a substantial portion of these Embraer regional jets, which will increase significantly our mandatory lease and debt service
payments.
There can be no assurance that our operations will generate sufficient cash flow to make such payments or that we will be
able to obtain financing to acquire the additional aircraft or make other capital expenditures necessary for our expansion. If we default
under our loan or lease agreements, the lender/lessor has available extensive remedies, including, without limitation, repossession of
the respective aircraft and other assets and, in the case of large creditors, the effective ability to exert control over how we allocate a
significant portion of our revenues. Even if we are able to timely service our debt, the size of our long-term debt and lease obligations
could negatively affect our financial condition, results of operations and the price of our common stock in many ways, including:
• increasing the cost, or limiting the availability of, additional financing for working capital, acquisitions or other purposes;
• limiting the ways in which we can use our cash flow, much of which may have to be used to satisfy debt and lease
obligations; and
•adversely affecting our ability to respond to changing business or economic conditions or continue our growth strategy.
If we need funds and cannot raise them on acceptable terms, or at all, we may be unable to realize our current plans or take
advantage of unanticipated opportunities and could be required to slow or stop our growth.
We currently depend on Embraer to supply us with the aircraft we require to expand.
As of December 31, 2005, we were obligated under our code-share agreements to place an additional 25 Embraer regional
jets in service through 2006, including the 18 Embraer regional jets which we will obtain from US Airways. The remaining seven
regional jets are subject to firm orders. We have financing commitments in place for all seven of these aircraft, which will be placed
into service with Delta. We also have four additional firm orders and 35 options to acquire regional jets that are exercisable through
September 2007. We are dependent on Embraer as the manufacturer of all of these jets. Our risks in relying on a single manufacturer
include:
• the possibility that Embraer could refuse, or may not be financially able, to perform its obligations under the purchase
agreement for the delivery of the regional jets;
• a fire, strike or other event could occur that affects Embraer's ability to completely or timely fulfill its contractual
obligations;
• the failure or inability of Embraer to provide sufficient parts or related support services on a timely basis;
• the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft;
• the issuance of FAA directives restricting or prohibiting the use of Embraer regional jets or requiring time-consuming
inspections and maintenance; and
• the adverse public perception of a manufacturer as a result of an accident or other adverse publicity.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠