Frontier Airlines 2008 Annual Report Download - page 29

• the issuance of FAA directives restricting or prohibiting the use of Embraer aircraft or requiring time-consuming
inspections and maintenance; and
• the adverse public perception of a manufacturer as a result of an accident or other adverse publicity.
Any disruption or change in the delivery schedule of the three additional Embraer aircraft would affect our overall operations
and our ability to fulfill our obligations under our code-share agreements.
Further, E170 and E175 aircraft began operating in the commercial airline market in February 2004 and July 2005,
respectively. As relatively new products, these aircraft have been, and may continue to be, subject to unforeseen manufacturing and/or
reliability issues.
Our operations could be materially adversely affected by the failure or inability of Embraer or any key component
manufacturers to provide sufficient parts or related support services on a timely basis or by an interruption of fleet service as a result
of unscheduled or unanticipated maintenance requirements for our aircraft.
Reduced utilization levels of our aircraft under the fixed-fee agreements would adversely impact our revenues, earnings and
liquidity.
Our agreements with our Partners require each of them to schedule our aircraft to a minimum level of utilization. However,
the aircraft have historically been utilized more than the minimum requirement. Even though the fixed-fee rates may adjust, either up
or down, based on scheduled utilization levels or require a fixed amount per day to compensate us for our fixed costs, if our aircraft
are at or below the minimum requirement (including taking into account the stage length and frequency of our scheduled flights) we
will likely lose both the opportunity to recover a margin on the variable costs of flights that would have been flown if our aircraft were
more fully utilized and the opportunity to earn incentive compensation on such flights.
Increases in our labor costs, which constitute a substantial portion of our total operating costs, will directly impact our
earnings.
Labor costs constitute a significant percentage of our total operating costs, and we have experienced pressure to increase
wages and benefits for our employees. Under our code-share agreements, our reimbursement rates contemplate labor costs that
increase on a set schedule generally tied to an increase in the consumer price index or the actual increase in the contract. We are
entirely responsible for our labor costs, and we may not be entitled to receive increased payments for our flights if our labor costs
increase above the assumed costs included in the reimbursement rates. As a result, a significant increase in our labor costs above the
levels assumed in our reimbursement rates could result in a material reduction in our earnings. We have collective bargaining
agreements with our pilots, flight attendants and dispatchers. We cannot assure you that future agreements with our employees' unions
will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements
may increase our labor costs and reduce both our income and our competitiveness for future business opportunities.
Our business could be harmed if we lose the services of our key personnel.
Our business depends upon the efforts of our chief executive officer, Bryan Bedford, and our other key management and
operating personnel. American can terminate its code-share agreement if we replace Mr. Bedford without its consent, which cannot be
unreasonably withheld. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the
services of any of these individuals could harm our business. We maintain a "key man" life insurance policy in the amount of
$10 million for Mr. Bedford, but this amount may not adequately compensate us in the event we lose his services.
-15-
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠