Frontier Airlines 2007 Annual Report Download - page 24

We may be unable to redeploy smaller aircraft removed from service in response to our Partners' demand for larger aircraft.
Certain of our Partners have requested that we replace ERJ-145 and smaller aircraft with larger aircraft. To the extent that we
agree to remove an ERJ-145 or smaller aircraft from service, we must either sell or sublease the aircraft to another party or redeploy it
in order to cover our carrying expenses for that aircraft. Our inability to sell, sublease and/or redeploy aircraft that have been removed
from service could have a material adverse effect on our financial condition, results of operations and the price of our common stock.
If the financial strength of any of our Partners decreases, our financial strength is at risk.
We are directly affected by the financial and operating strength of our Partners. In the event of a decrease in the financial or
operational strength of any of our 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, Delta and United have recently emerged from bankruptcy. 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, 2008, Standard & Poor's and Moody's, respectively, maintained ratings of B- and B3 for US Airways, B and B2 for AMR
Corp., the parent of American, B and B2 for Delta, B and B2 for UAL Corp., the parent of United, and B and B2 for Continental.
Ratings for Frontier Airlines Holdings, Inc., the parent of Frontier, are not available.
Our Partners may expand their direct operation of aircraft thus limiting the expansion of our relationships with them.
We depend on major airlines such as our Partners to contract with us instead of purchasing and operating their own aircraft.
However, some major airlines own their own regional airlines and operate their own aircraft instead of entering into contracts with us
or other regional carriers. For example, American and Delta have acquired many aircraft 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 aircraft through its
PSA subsidiary. We have no guarantee that in the future our Partners will choose to enter into contracts with us instead of purchasing
their own aircraft 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 aircraft 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 aircraft 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 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 77% of our workforce as of December 31, 2007. 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 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 Partners have the right to
terminate their code-share agreements if we fail to meet these completion levels.
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠