Frontier Airlines 2008 Annual Report Download - page 27

In October 2008, we entered into a credit agreement with US Airways. Under the agreement, we agreed to make a term loan
to US Airways in the amount of $10.0 million. Subject to certain terms and conditions, we also agreed to make an additional term loan
of up to $25.0 million.
In September 2008, we entered into an amended and restated senior secured credit agreement with Midwest. Under the
agreement, we made a one-year term loan to Midwest in the amount of $25.0 million. The loan is collateralized by substantially all of
Midwest's unencumbered assets and is generally senior to unsecured lenders' security positions to the extent of such collateral.
In October 2008, we entered into a loan agreement with Mokulele under which we are providing up to $8.0 million in direct
financing to Mokulele in the form of a line of credit, which can be converted, at our option, for up to 45% of the common stock of
Mokulele. Mokulele is currently in default of its loan and code-share agreement. We are negotiating with Mokulele the terms of a
possible recapitalization of Mokulele, but there can be no assurance that Mokulele will be recapitalized. As a part of these
negotiations, we are contemplating converting $3.0 million of our loan and injecting $3.0 million of cash in exchange for 50% of
Mokulele's common stock. Even if this recapitalization is completed, Mokulele could require additional funding, part or all of which
may come from us. If the business environment does not improve for Mokulele, our financial condition, results of operations and
liquidity could be adversely affected
A default by Frontier, US Airways, or Midwest on the loans we have made to them could have a material adverse effect on
our financial condition, results of operations, liquidity and the price of our common stock.
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 E190 and higher capacity aircraft and it is possible that our other partners
will make the same decision. Midwest has the option of directly operating the aircraft which we currently operate for them. A decision
by US Airways, American, Delta, United, Continental, Midwest or Mokulele to phase out our contract based code-share relationships
as they expire 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 74% of our workforce as of December 31, 2008. 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 the remainder of our Partners, 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, March 16, 2009 Powered by Morningstar® Document Research℠