SkyWest Airlines 2006 Annual Report Download - page 17

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In exchangefor providing the designated number of flights and performing ASA’s other obligations
under the ASA Delta Connection Agreement, ASA receives from Delta on a weekly basis
(i)reimbursement for 100% of its direct costs related to Delta Connection flights plus (ii) if ASA
completes a certain minimum percentage of its Delta Connection flights, an amount equal to a certain
percentage of the direct costs (not including fuel costs) related to theDelta Connection flights. Costs
directly reimbursed by Deltaunder the ASA DeltaConnection Agreement include costs relatedto fuel,
ground handling, and aircraft maintenance and ownership. The ASA Delta Connection Agreement also
provides for incentive compensation based upon ASA’s performance, including on-time arrival
performanceand completion percentage rates.
TheASA Delta Connection Agreementis scheduled to terminate on September8,2020, unless Delta
elects to exercise its option to extend theterm for up to four additional five-year terms. TheASA Delta
Connection Agreement is subject to early termination in various circumstances including:
•if ASA or Delta commits a material breach of theASADelta Connection Agreement, subject to
30 days notice and cure rights;
•if ASA fails to conduct all flight operations and maintain all aircraft under the ASADelta
ConnectionAgreement in compliance in all material respects with applicable government
regulations;
•if ASA fails to satisfy certain performance and safety requirements;
•if,under certain circumstances, Delta hasaright to terminate the SkyWest Airlines Delta
Connection Agreement;
•if theother partyfilesfor bankruptcy, reorganization or similar action (subject to limitations
imposedby theU. S. Bankruptcy Code)or if either party makes an assignment for thebenefit of
creditors; or
•if ASA fails to maintaincompetitive base rate costs (provided that ASA has the right to adjust its
rates prior to any such termination).
2006 Delta AircraftAward
In December2006, we expanded our relationship with Delta by enteringinto a DeltaConnection
agreement which awardedus therightto operate 12 CRJ700s, previously operated by Comair. TheDelta
Connection Agreementis ancillary to, andsatisfied certain obligations of DeltaundertheASA Delta
Connection Agreement.We havethe right to designate either SkyWest Airlines or ASA to operatethe12
aircraft to provide service to and from Delta’s Cincinnati hub through February 2012(subjectto Delta’s
right to extend thearrangement for up to three additional three year terms). We receivedthefirst six
aircraft in January and February 2007andanticipatereceiving theremaining six aircraft through
April 2007. Under the arrangement, Delta has agreed to pay ASA or SkyWest Airlines, as applicable, a
fixed-fee per completed block hour, a fixed-fee per completed departure, a fixed-feefor overhead, a one-
time start-up payment for each aircraftdelivered and incentive payments based uponperformance,
including on-timearrival performance and completion percentage rates. Additionally, Delta has agreed to
reimburse SkyWest Airlinesor ASA, as applicable, for certain operating costs.
SkyWestAirlinesUnited Express Agreement
SkyWest Airlines andUnited are parties to the United Express Agreement entered into on July 31,
2003. As of December 31,2006, SkyWest Airlinesoperated 52 CRJ700s, 66 CRJ200s and48 Brasilia
turboprops underthe United ExpressAgreement, flying a total of approximately 1,200 United Express
flights perday between Chicago (O’Hare), Denver, Los Angeles, San Francisco, Portland and