Frontier Airlines 2007 Annual Report Download - page 25

Our current growth plans may be materially adversely affected by substantial risks, some of which are outside of our control.
We plan to acquire an additional 29 ERJ-170/175 aircraft by the end of 2008, all of which are subject to firm orders. At
December 31, 2007, we had agreements to place all of the 29 aircraft into service with our Partners. We have financing commitments
in place for all of these firm orders. If we are incorrect in our assessment of the profitability and feasibility of our growth plans, if
circumstances change in a way that was unforeseen by us or if we are unable to consummate financing for these aircraft, we may not
be able to grow as planned.
Under our code-share agreements, we are obligated to place in service an additional 29 aircraft through March 2009, at an
aggregate cost, excluding the cost of acquiring the aircraft and related parts, to us of approximately $6.4 million. These costs, which
are related to the acquisition of these aircraft, include the acquisition of related additional ground and maintenance facilities and
support equipment, the employment of approximately 500 additional employees and the integration of those aircraft, facilities and
employees into our existing operations.
As of December 31, 2007, we had options to purchase an aggregate of 74 aircraft from Embraer. If we choose to exercise
options to purchase aircraft from Embraer prior to obtaining a commitment from existing or future partners to place the aircraft in
service, we will be obligated to purchase the aircraft from Embraer and to bear the cost of operation even if we cannot place the
aircraft in service with a code-share partner, which could have a material adverse effect on our financial condition, results of
operations and the price of our common stock.
Our ability to manage our growth effectively and efficiently requires us to continue to accurately forecast our equipment and
human resources needs and to continue to expend funds to improve our operating, financial and management controls, reporting
systems, procurement process and procedures. In addition, we must effectively expand, train and manage our employee base, which
could be costly. Our growth will place a significant strain on our management and other corporate resources. If we are unable to
manage our anticipated growth effectively and efficiently, our business could be harmed.
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 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 aircraft 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 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 aircraft not flown by its pilots in its operations.
There are no quantity limitations in the US Airways “scope” limitations for small aircraft. 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 pilots union limited their approval to 80 additional aircraft for US
Airways, which includes the 28 ERJ-170s obtained from US Airways, the 20 ERJ-175s added during 2007 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 aircraft having 51 or more seats. A "scope" clause in Delta's current collective bargaining agreement with its
pilots restricts it from operating aircraft having more than 70 to 76 seats and limits it from operating more than 175, or under certain
circumstances, 200 aircraft 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 aircraft
configured with more than 51 seats.
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠