Frontier Airlines 2007 Annual Report Download - page 18

• if our flight completion factor falls below specified percentages during specified periods due to operational deficiencies that
are within our control;
• if our on time departure performance falls below specified percentages during specified periods;
• if we admit liability or are found liable for any safety infraction by the FAA that could reasonably be expected to lead to the
suspension or revocation of our operating certificate or if in US Airways' reasonable opinion we are not complying in any material
respect with applicable safety and operational requirements;
• if we fail to use commercially reasonable efforts to comply with the applicable provisions of the “Jets for Jobs” protocol;
• if our FAA operating certificate is suspended or revoked; or
• in the event that we or an affiliate of ours shall have commenced the provision of flight services under the code share
between US Airways and Republic Airline and such agreement is subsequently terminated, among other things.
In September, 2005, we purchased 113 commuter slots at Ronald Reagan Washington National (DCA) Airport and 24
commuter slots at New York-LaGuardia (LGA) Airport under our commuter slot option agreement with US Airways. We 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 DCA commuter slots at a predetermined
price. The licensing agreement between us and US Airways for the LGA commuter slots expired on December 31, 2006, but we
maintain a security interest in the LGA slots if US Airways fails to perform under the current licensing agreement.
The American Code-Share Agreement
As of December 31, 2007, we operated 15 ERJ-140 aircraft for American under a fixed-fee code-share agreement and
provided 90 flights per day between St. Louis and designated outlying cities.
Under the code-share agreement, American retains all passenger, certain cargo and other revenues associated with each
flight, and is responsible for all revenue-related expenses. We share revenue with American for certain cargo shipments. Additionally,
certain operating costs are considered "pass through" costs and American has agreed to reimburse us the actual amount of costs we
incur for these items. Fuel, landing fees, hull and liability insurance and aircraft property tax costs are pass through costs and included
in our regional airline services revenue. Aircraft lease payments are also considered a pass through cost, but are limited to a specified
limit with respect to the first 20 aircraft put into service for American. American pays us periodically throughout the month on an
agreed schedule, subject to American's right to offset amounts we owe them under the code-share agreement. A reconciliation
payment will be made by American to us if uncontrollable cancellations exceed a specified level of scheduled block hours during any
calendar quarter.
If American terminates the code-share agreement for cause, American has a call option to require that we assign to American
all of its rights under the leases of aircraft, and to lease to American the aircraft to the extent we own them, used at that time under the
code-share agreement. If American exercises its call option, we are required to pay certain maintenance costs in transferring the
aircraft to American's maintenance program.
If American terminates the code-share agreement without cause, we have the right to put the leases of the aircraft, or to sell
the aircraft to American to the extent owned by us, used under the code-share agreement to American. American also has a call option
to require us to assign to American these leases. If we exercise our put or American exercises its call right, both parties are obligated
to implement a schedule to terminate the code-share agreement in an orderly fashion and transition the aircraft from us to American.
The term of the American code-share agreement continues until February 1, 2013. American may reduce the term by one
year each time that we fail to achieve an agreed performance level. American may only exercise this right three times during the term
of the code-share agreement. The agreement may be subject to termination for cause prior to that date under various circumstances
including:
• a change in the regulations governing air carriers that materially affects the rights and/or obligations of either party, subject
to negotiation of amendments to the code-share agreement or third party mediation;
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠