Frontier Airlines 2005 Annual Report Download - page 55

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We are a holding company that operates Chautauqua Airlines, Inc. (“Chautauqua Airlines”), Republic Airline Inc.
(“Republic Airline”) and Shuttle America Corporation (“Shuttle America’). As of December 31, 2005, we offered scheduled
passenger service on over approximately 800 flights daily to 78 cities in 33 states, Canada and the Bahamas pursuant to code-share
agreements with AMR Corp., the parent of American Airlines, Inc. (“American”), US Airways, Inc. (“US Airways”), Delta Air
Lines, Inc. (“Delta”) and United Air Lines, Inc. (“United”). Currently, we provide our four partners with regional jet service, operating
as US Airways Express, AmericanConnection, Delta Connection or United Express, including service out of their hubs and focus
cities in Boston, Chicago, Columbus, Fort Lauderdale, Indianapolis, New York, Orlando, Philadelphia, Pittsburgh, Washington, D.C. (
Dulles and National) and St. Louis.
Chautauqua Airlines is our platform for flying the 37 to 50 seat ERJ-145 family of aircraft, and as December 31. 2005
operated 95 aircraft. Shuttle America, which we acquired from an affiliate on May 6, 2005, is our platform for flying 70-seat aircraft
and as of December 31, 2005, operated 37 ERJ-170 aircraft. Republic Airline is our platform for aircraft with more than 70 seats. As
of December 31, 2005, Republic Airline operated ten 72-seat ERJ-170 aircraft for US Airways.
In January 2005, we and Delta entered into a code-share agreement whereby the Company will operate 16 ERJ-170
aircraft for Delta, of which 9 were in service at December 31, 2005.
On June 22, 2005, the Company amended its code-share agreements with United, increasing the ERJ-170 fleet from 23 to 28
aircraft and reducing the ERJ-145 fleet from nine to seven aircraft. The five additional ERJ-170 aircraft were all placed into service by
December 31, 2005. The two ERJ-145 aircraft were removed from service and added to the Company’s charter operations beginning
in November, 2005.
On March 15, 2005, we and Wexford Capital LLC entered into an investment agreement with US Airways Group, Inc. and
US Airways. The agreement included provisions for the affirmation of an amended Chautauqua code-share agreement, a new jet
service agreement for the operation of ERJ-170 and ERJ-190 aircraft, a conditional $125,000 equity commitment and up to $110,000
in asset related financing. The Bankruptcy Court approved the agreement on March 31, 2005.
On September 21, 2005, we and US Airways entered into a global aircraft transaction agreement. Under this agreement, we
purchased 10 ERJ-170 aircraft owned by US Airways. We leased the 10 purchased aircraft back to US Airways subject to their
transfer to Republic Airline under a 10-year fixed-fee jet service agreement we entered into with US Airways on September 2, 2005.
As of December 31, 2005, seven of these aircraft had been transferred to Republic Airline. We also agreed to assume the leases of 15
additional ERJ-170 aircraft operated by US Airways and to enter into new leases for an additional three ERJ-170 aircraft. All 28
aircraft are expected to be in operation with Republic Airline by September 2006. In addition, under a commuter slot option agreement
that we and US Airways entered into on September 22, 2005, we purchased 113 commuter slots at Ronald Reagan Washington
National Airport and 24 commuter slots at New York-LaGuardia Airport. Republic assigned the right of use for these commuter slots
to US Airways and these commuter slots are being operated by US Airways and US Airways Express carriers under a licensing
agreement for which US Airways pays us rent. Prior to the expiration of the agreement to license the commuter slots, US Airways has
the right to repurchase all, but not less than all, of the Washington and LaGuardia commuter slots at a predetermined price.
From 2001 to 2005, our available seat miles, or ASMs, grew at a compounded annual growth rate of 41.2%. As of
December 31, 2005, our operational fleet consisted of 142 aircraft, including 47 ERJ-170, 70-seat and larger regional jets and
95 ERJ-145 family, 37-50 seat regional jets. Further, as of December 31, 2005, and in addition to the 18 regional jets which we will
obtain from US Airways, we have agreed to place into service an additional seven 70-seat regional jets for Delta through 2006. These
seven 70-seat regional jets are covered by firm orders we have with Embraer. We also had four firm orders and options for 35 regional
jets as of December 31, 2005, which we may convert to options for ERJ-175, ERJ-190 or ERJ-195 aircraft which range in size from
78 seats to 110 seats.
We have long-term, fixed-fee regional jet code-share agreements with each of our partners that are subject to our maintaining
specified performance levels. Pursuant to these fixed-fee agreements, which provide for minimum aircraft utilization at fixed rates, we
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠