Frontier Airlines 2006 Annual Report Download - page 31

If the financial strength of any of our code-share partners decreases, our financial strength is at risk.
We are directly affected by the financial and operating strength of our code-share partners. In the event of a decrease in the
financial or operational strength of any of our code-share partners, such partner may be unable to make the payments due to us under
its code-share agreement. In addition, it may reduce utilization of our aircraft to the minimum levels specified in the code-share
agreements. US Airways and United have recently emerged from bankruptcy, and Delta is still attempting to reorganize under
bankruptcy protection. On March 13, 2007, we and Delta amended our code-share agreements. Delta has submitted the amendments
to the bankruptcy court for approval, and the amendments are currently docketed for action on March 27, 2007. In addition, it is
possible that any code-share agreement with a code-share partner that files for reorganization under Chapter 11 of the bankruptcy code
may not be assumed in bankruptcy and could be modified or terminated. Any such event could have an adverse effect on our
operations and the price of our common stock. As of February 1, 2007, Standard & Poor's and Moody's, respectively, maintained
ratings of B- and B3 for US Airways, B and B3 for AMR Corp., the parent of American, B and B2 for UAL Corp., the parent of
United, B and B3 for Continental. Ratings for Delta and for Frontier Airlines Holdings, Inc., the parent of Frontier, are not available.
Our code-share partners may expand their direct operation of regional jets thus limiting the expansion of our relationships
with them.
We depend on major airlines such as our code-share partners to contract with us instead of purchasing and operating their
own regional jets. However, some major airlines own their own regional airlines and operate their own regional jets instead of entering
into contracts with us or other regional carriers. For example, American and Delta have acquired many regional jets which they fly
under their affiliated carriers, American Eagle, with respect to American, and Comair, with respect to Delta. In addition, US Airways
is operating regional jets through its PSA subsidiary. We have no guarantee that in the future our code-share partners will choose to
enter into contracts with us instead of purchasing their own regional jets or entering into relationships with competing regional
airlines. They are not prohibited from doing so under our code-share agreements. In addition, US Airways previously announced that,
pursuant to an agreement with its pilots, US Airways will not enter into agreements with its regional affiliates to fly ERJ-190 and
higher capacity regional jets and it is possible that our other partners will make the same decision. A decision by US Airways,
American, Delta, United, Continental or Frontier to phase out our contract based code-share relationships and instead acquire and
operate their own regional jets or to enter into similar agreements with one or more of our competitors could have a material adverse
effect on our financial condition, results of operations and the price of our common stock.
Any labor disruption or labor strikes by our employees or those of our code-share partners would adversely affect our ability
to conduct our business.
All of our pilots, customer service employees, flight attendants and dispatchers are represented by unions. Collectively, these
employees represent approximately 76% of our workforce as of December 31, 2006. Although we have never had a work interruption
or stoppage and believe our relations with our unionized employees are generally good, we are subject to risks of work interruption or
stoppage and/or may incur additional administrative expenses associated with union representation of our employees. If we are unable
to reach agreement with any of our unionized work groups on the amended terms of their collective bargaining agreements, we may be
subject to work interruptions and/or stoppages. Any sustained work stoppages could adversely affect our ability to fulfill our
obligations under our code-share agreements and could have a material adverse effect on our financial condition, results of operations
and the price of our common stock.
Under the terms of our jet code-share agreement with US Airways, if we are unable to provide scheduled flights as a result of
a strike by our employees, it is only required to pay us for certain fixed costs for specified periods. Under the terms of the code-share
agreements with American, Delta, United, Continental and Frontier, none of them are required to pay us any amounts during the
period our employees are on strike and we are unable to provide scheduled flights. A sustained strike by our employees would require
us to bear costs otherwise paid by our code-share partners.
In addition, a labor disruption other than a union authorized strike may cause us to be in material breach of our code-share
agreements, all of which require us to meet specified flight completion levels during specified periods. Our code-share partners have
the right to terminate their code-share agreements if we fail to meet these completion levels.
Our current growth plans may be materially adversely affected by substantial risks, some of which are outside of our control.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 15, 2007 Powered by Morningstar® Document Research℠