Frontier Airlines 2006 Annual Report Download - page 33

Our growth plans may be adversely affected by our code-share agreements with American and Delta. Chautauqua’s
American agreement requires us to provide regional airline services exclusively for American at its St. Louis hub and within 50 statute
miles of that hub. This agreement also prohibits us from providing competing regional hub services at Memphis, Nashville and Kansas
City and means that, without American's consent, we are prohibited from operating flights under our own flight designator code or on
behalf of any other air carrier providing "hub" services in or out of these airports. Chautauqua's Delta agreement prohibits it from
conducting code-share flying into several major metropolitan airports, except under its existing code-share agreements with American
and US Airways. Republic Airline’s Delta agreement prohibits it from conducting code share flying into several major metropolitan
airports, except under its existing code-share agreement with United. Pursuant to the terms of Chautauqua's and Republic Airline’s
code-share agreement with Delta, we are prohibited from operating aircraft other than for Delta except for (1) those we operates for
our existing code-share partners, (2) the additional aircraft it may operate under its existing agreements and (3) aircraft subject to other
limited exceptions. Furthermore, pursuant to the terms of our code-share agreements with United, except for our current code-share
flying, Shuttle America and Chautauqua are prohibited from operating 50 seat or larger regional jets or turboprops from United’s
current hub airports. United’s hub airports are Denver, Washington Dulles, Los Angeles, Chicago O'Hare, Seattle and San Francisco.
Our code-share partners may be restricted in increasing the level of business that they conduct with us, thereby limiting our
growth.
In general, the pilots' unions of certain major airlines have negotiated collective bargaining agreements that restrict the
number and/or size of regional aircraft that a particular carrier may operate. A "scope" clause in US Airways' current collective
bargaining agreement with its pilots prevents US Airways from using more than 465 regional jets not flown by its pilots in its
operations. There are no quantity limitations in the US Airways “scope” limitations for small regional jets. For purposes of this
“scope” restriction, a small regional jet is defined as any aircraft configured with 78 or fewer seats. For purposes of this limitation, a
large regional jet is an aircraft configured with 79 to 90 passenger seats. US Airways can outsource up to an additional 55 aircraft,
including the ERJ-175 and CRJ-900, configured with more than 78 seats but less than 90 seats, subject to certain limitations. We
cannot assure you that US Airways will contract with us to fly any additional aircraft. Our ability to participate in additional regional
jet flying for US Airways is subject to the further limitation that we employ furloughed US Airways pilots. Our utilization of US
Airways pilots was approved by our pilots union; however, they limited their approval to 80 additional aircraft for US Airways which
includes the 28 ERJ-170s which we obtained from US Airways and the incremental ten aircraft that will be placed in service in 2008.
A "scope" clause in American's current collective bargaining agreement with its pilots limits it from operating regional jets having 51
or more seats. A "scope" clause in Delta's current collective bargaining agreement with its pilots restricts it from operating regional
jets having more than 70 to 76 seats and limits it from operating more than 175, or under certain circumstances, 200 regional jets
having 70 to 76 seats. United’s "scope" limitations restrict it from operating aircraft configured with more than 70 seats or any aircraft
weighing more than 83,000 pounds. Continental’s “scope” limitations restrict it from operating regional jets configured with more
than 51 seats.
American's "scope" limitations further limit its code-share partners, in our case Chautauqua, from operating regional jets with
51 or more seats even for partners other than American. Delta's "scope" limitations restrict its partners from operating aircraft with
over 70 seats even if those aircraft are operated for an airline other than Delta. Neither US Airways, United, Continental nor Frontier
have similar "scope" limits on the size of aircraft we can operate for our other code-share partners.
We cannot assure you that these "scope" clauses will not become more restrictive in the future. Any additional limit on the
number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the
price of our common stock.
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, 2006 and 2005, our mandatory debt service payments totaled $79.9 million and $53.4 million, respectively, and
our mandatory lease payments totaled $99.5 million and $82.0 million, respectively. We have significant lease obligations with
respect to our aircraft, which aggregated approximately $1.1 billion at December 31, 2006 and $883.6 million at December 31, 2005.
Our current growth strategy involves the acquisition by purchase or leases of at least 63 more regional jets through 2008, including 20
CRJ-200 regional jets which we intend to lease, but not including the four unassigned 70-seat regional jets and four CRJ-200 regional
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 15, 2007 Powered by Morningstar® Document Research℠