Frontier Airlines 2008 Annual Report Download - page 26

ITEM 1A. RISK FACTORS
The following risk factors, in addition to the information discussed elsewhere herein, should be carefully considered in
evaluating us and our business:
Risks Related To Our Operations
We are dependent on our code-share relationships with our Partners.
We depend on relationships created by our regional jet fixed-fee code-share agreements with American, Continental, Delta,
Midwest, Mokulele, United and US Airways for all of our regional airline service revenues. Any material modification to, or
termination of, our code-share agreements with any of these Partners could have a material adverse effect on our financial condition,
results of our operations and the price of our common stock. Each of the code-share agreements contains a number of grounds for
termination by our Partners, including our failure to meet specified performance levels. In addition, American may terminate its
code-share agreement without cause upon 180 days notice, provided such notice may not be given prior to September 30, 2011. If
American terminates its code-share agreement for cause, it has the right to require us to assign to them our leases of all E140 aircraft
then operating under the code-share agreement or to lease such aircraft to them to the extent we own them. If American terminates our
code-share agreement other than for cause, we have the right to require American to assume our leases of all E140 aircraft then
operating under the code-share agreement, or to lease such jets from us to the extent we own them. Delta may partially or completely
terminate its code-share agreement with respect to the E145 aircraft, with or without cause, on 180 days written notice at any time
after November 2009, and may partially or completely terminate its code-share agreement with respect to the E170 aircraft, with or
without cause, on 180 days written notice at any time after July 2015. If Delta exercises this right under either agreement or if we
terminate either agreement for cause, we have the right to require Delta either to purchase, sublease or assume the lease of aircraft
leased by us with respect to any of the aircraft we previously operated for Delta under that agreement. If we choose not to exercise this
right, or if Delta terminates either agreement for cause, Delta may require us to sell or sublease to it or Delta may assume the lease of
aircraft leased by us with respect to any of the aircraft we previously operated for it under that agreement. If we wrongfully terminate
our United code-share agreement, breach certain provisions thereof or fall below certain minimum operating thresholds for three
consecutive months or any six month period in a rolling 12 month period, United can assume our ownership or leasehold interests in
the aircraft we operate for them. Continental may terminate its code-share agreement with cause or if we breach certain provisions
thereof including a breach of our guaranty granted to it. Each of Midwest and Mokulele may terminate their code-share agreements
with cause or if we breach certain provisions thereof.
In addition, because substantially all of our operating revenues are currently generated under the code-share agreements, if
any one of them is terminated, our operating revenues and net income will be materially adversely affected unless we are able to enter
into satisfactory substitute arrangements or, alternatively, fly under our own flight designator code, including obtaining the airport
facilities and gates necessary to do so. We cannot assure you that we would be able to enter into substitute code-share arrangements,
that any such substitute arrangements would be as favorable to us as the current code-share agreements or that we could successfully
fly under our own flight designator code.
For the years ended December 31, 2008, 2007 and 2006 respectively, Delta accounted for approximately 29%, 33% and 35%,
US Airways accounted for approximately 25%, 22% and 24%, United accounted for approximately 21%, 24% and 30% and American
accounted for approximately 10%, 9% and 11% of our regional airline services revenues. For the years ending December 31, 2008 and
2007 Continental accounted for approximately 12% and 10% and Frontier accounted for approximately 2% and 2% of our regional
airline services revenues. Midwest accounted for approximately 1% and Mokulele accounted for less than 1% of our regional airline
services revenues for the year ended December 31, 2008.
We may be unable to redeploy smaller aircraft removed from service.
Certain of our Partners have indicated a desire to schedule fewer 50 seat aircraft. To the extent that we agree to remove an
E140/145 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. Frontier filed for Chapter 11 bankruptcy protection in April 2008.
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 3, 2009, Standard & Poor's and Moody's, respectively,
maintained ratings of B- and Caa1 for US Airways, B- and Caa1 for AMR Corp., the parent of American, B and B2 for Delta, B- and
Caa1 for UAL Corp., the parent of United, and B and B2 for Continental. Ratings for Midwest Air Group, parent company of
Midwest, and Mokulele are not available.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠