Frontier Airlines 2010 Annual Report Download - page 16

Pursuant to a licensing agreement, we assigned 113 commuter slots at Ronald Reagan Washington National (DCA) Airport and 24
commuter slots at New York-LaGuardia (LGA) Airport to US Airways and these commuter slots are being operated by US Airways and US
Airways Express carriers. Prior to the expiration of this agreement, US Airways has the right to repurchase all, but not less than all, of the
DCA commuter slots at a predetermined price. The licensing agreement between us and US Airways for the LGA commuter slots expired on
December 31, 2006, but we maintain a security interest in the LGA slots if US Airways fails to perform under the current licensing
agreement.
The Delta Code-Share Agreements
As of December 31, 2010, we operated 24 E145 aircraft and 16 E175 aircraft for Delta under fixed-fee code-share agreements. As
of December 31, 2010, we provided 211 flights per day as Delta Connection.
Unless otherwise extended or amended, the code-share agreements for the E145 and E175 aircraft terminate in May 2016 and
January 2019, respectively. Delta may terminate the code-share agreements at any time, with or without cause, if it provides us 180 days
written notice, for the E145 regional jet code-share agreement, and July 2015 for the E170 regional jet code-share agreement. With respect to
the E145 agreement, if Delta chooses to terminate any aircraft early, it may not reduce the number of aircraft in service to less than 12 during
the 12-month period following the 180 day initial notice period unless it completely terminates the code-share agreement. We refer to this as
Delta's partial termination right.
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. As of December 31, 2010, the Company estimates a payment of $79.6 million and $115.6 million would be required
from Delta should they exercise the early termination provision under the E145 or E170 agreement, respectively. If we choose not to exercise
our put right, or if Delta terminates either agreement for cause, they may require us to sell or sublease to them 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.
Certain of our operating costs are considered "pass through" costs, whereby Delta has agreed to reimburse us the actual amount of
costs we incur for these items. Beginning in June 2009 we did not record fuel expense and the related revenue for the Delta operations.
Aircraft rent/ownership expenses are also considered a pass through cost, but the reimbursement is limited to specified amounts for certain
aircraft. Engine maintenance expenses, landing fees, passenger liability insurance, hull insurance, war risk insurance, de-icing costs, and
aircraft property taxes are some of the pass through costs included in our fixed-fee services revenue.
On January 31, 2011, we entered into an amendment to the Delta Connection agreement. The amendment establishes the annual base
rate costs for certain periods, adds eight additional E170 aircraft within the scope of the agreement and amends certain provisions of the
agreement.
The agreements may be subject to immediate or early termination under various circumstances.
The United Code-Share Agreements
As of December 31, 2010, we operated 38 E170 aircraft and provided 202 flights per day as United Express. The seven E145 aircraft
operated under this agreement at December 31, 2009 were removed from service in early January 2010. Two of the aircraft were returned to
our lessor and the remaining five were placed into our branded operations.
The fixed rates that we receive from United under the code-share agreements are annually adjusted in accordance with an agreed
escalation formula. Additionally, certain of our operating costs are considered "pass through" costs whereby United has agreed to reimburse
us the actual amount of costs we incur for these items. Fuel and oil, landing fees, war risk insurance, liability insurance and aircraft property
taxes are pass through costs and included in our fixed-fee services revenue. United provides fuel directly in certain locations.
The E145 code-share agreement was terminated effective January 2010. Unless otherwise extended or amended, the E170
code-share agreement terminates on June 30, 2019, with certain aircraft terms expiring between June 2016 and June 2019. United has the
option of extending the E170 agreement for five years or less. In addition, the code-share agreements may be terminated under certain
conditions.
United has a call option to assume our ownership or leasehold interest in certain aircraft if we wrongfully terminate the code-share
agreements or if United terminates the agreements for our breach for certain reasons.
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