SkyWest Airlines 2005 Annual Report Download - page 18

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14
ITEM 1A. RISK FACTORS
In addition to factors discussed elsewhere in this Report, the following are important risks which could adversely affect our
future results. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also
impair our business operations. If any of the risks we describe below occur, or if any unforeseen risk develops, our operating
results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline and investors
could lose all or part of their investment in us.
Risks Related to Our Operations
We are highly dependent on Delta and United.
The current terms of the SkyWest Airlines and ASA Delta Connection Agreements are subject to certain early termination
provisions. Delta’s termination rights include cross-termination rights (meaning that a breach by SkyWest Airlines or ASA of its
Delta Connection Agreement could, under certain circumstances, permit Delta to terminate both Delta Connection Agreements),
the right to terminate each of the agreements upon the occurrence of certain force majeure events (including certain labor-related
events) that prevent SkyWest Airlines or ASA from performance for certain periods and the right to terminate each of the
agreements if SkyWest Airlines or ASA, as applicable, fails to maintain competitive base rate costs, subject to certain rights of
SkyWest Airlines to take corrective action to reimburse Delta for lost revenues. The current term of our United Express
Agreement is subject to certain early termination provisions and subsequent renewals. United may terminate the United Express
Agreement due to an uncured breach by SkyWest Airlines of certain operational and performance provisions, including measures
and standards related to flight completions, baggage handling and on-time arrivals.
If any of our code-share agreements are terminated pursuant to the terms of those agreements, due to the bankruptcy and
restructuring proceedings of Delta and United, or otherwise, we would be significantly impacted and likely would not have an
immediate source of revenue or earnings to offset such loss. A termination of any of these agreements would have a material
adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory
substitute arrangements for the utilization of the affected aircraft by other code-share partners, or, alternatively, obtain the airport
facilities and gates and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into
substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current
agreements. Operating our airline independent from major partners would be a significant departure from our business plan,
would likely be very difficult and may require significant time and resources, which may not be available to us at that point.
We currently use Delta’s and United’s systems, facilities and services to support a significant portion of our operations,
including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling,
dispatching, fuel purchasing and ground handling services. If Delta or United were to cease any of these operations or no longer
provide these services to us, due to termination of one of our code-share agreements, a strike by Delta or United personnel or for
any other reason, we may not be able to replace these services on terms and conditions as favorable as those we currently receive,
or at all. Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to
significantly reduce our operations. Furthermore, upon certain terminations of our code-share agreements, Delta and United
could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the
code-share services we provide. As a result, in order to offer airline service after termination of any of our code-share
agreements, we may have to replace these airport facilities, assets and services. We may be unable to arrange such replacements
on satisfactory terms, or at all.
We may be negatively impacted by the troubled financial condition, bankruptcy proceedings and restructurings of Delta
and United.
Substantially all of our revenues are attributable to our code-share agreements with Delta, which is currently reorganizing
under Chapter 11 of the U.S. Bankruptcy Code, and United, which recently emerged from bankruptcy proceedings. The U.S.
Bankruptcy Courts charged with administration of the Delta and United bankruptcy cases have entered final orders approving the
assumption of our code-share agreements. Notwithstanding those approvals, these bankruptcies and restructurings present
considerable continuing risks and uncertainties for our code-share agreements and, consequently, for our operations.