Frontier Airlines 2005 Annual Report Download - page 87

In February 2004, the Company entered into separate code-share agreements with United to operate nine 50 seat regional jets,
twenty-three 70 seat regional jets and ten turboprop aircraft. The agreements for the ERJ-145 and ERJ-170 regional jet aircraft expire
in 2014 and 2015, respectively, and the turboprop agreement expired in 2005. The 50 seat regional jet agreement may be terminated
with or without cause by United upon 18 months prior written notice after December 31, 2007. As of December 31, 2005,
twenty-eight 70 seat regional jets and seven 50 seat regional jets were in operation.
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.
During 2005, the Company sub-leased five ERJ-145 aircraft to an airline operating in Mexico through 2013.
The code-share agreements provide the Company with a nonexclusive license to the code-share partners' trademarks, as well
as general air carrier support services, and contain provisions relating to the size and use of aircraft, insurance and service
requirements. Under certain code-share agreements, the code-share partners are required to provide reservation systems, ground
handling and other services to the Company. The Company may receive operating performance incentives from the code-share
partners based on several metrics of customer service. The Company may also be liable to the code-share partners for operating
performance penalties if customer service metrics are less than specified minimum levels.
The following sets forth code-share partners’ passenger revenue and accounts receivable as a percentage of total passenger revenue
and net receivables:
US Airways American Delta United
America
West
Passenger revenues for the years ended:
December 31, 2005 21 % 13 % 34 % 32 %
December 31, 2004 38 16 36 10
December 31, 2003 43 21 29 7%
Receivables as of:
December 31, 2005 13 17 9 32
December 31, 2004 31 37 6 2
Substantially all of the Company's revenue is derived from agreements with its four code-share partners. Termination of the
US Airways, American, Delta or United regional code-share agreements could have a material adverse effect on the Company's
financial position, results of operations and cash flows. On September 12, 2004, US Airways filed a petition for Chapter 11
bankruptcy protection. Unpaid amounts related to pre-petition claims were approximately $3.2 million, which were written off as of
September 30, 2005. We have been paid for all amounts due post-petition in accordance with our code-share agreement. In October
2005, US Airways emerged from bankruptcy. We have received 6,638 shares of US Airways common stock for our pre-petition
claims. The fair value of the shares as of December 31, 2005 was $248. United emerged from bankruptcy on February 1, 2006.
Delta is attempting to reorganize its respective businesses under Chapter 11 of the bankruptcy code. We continue to operate
all of our Delta aircraft; however, contingency plans are being developed to address potential outcomes of the Delta bankruptcy
proceedings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation—The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries, Chautauqua, Shuttle America and Republic Airline. All significant intercompany accounts and transactions are
eliminated in consolidation.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠