SkyWest Airlines 2006 Annual Report Download - page 23

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Thecurrent terms of theSkyWest,SkyWest Airlines andASA 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 itsDelta Connection Agreement could,under
certain circumstances, permit Delta to terminate both Delta ConnectionAgreements), the right to
terminate each of theagreements upon theoccurrence of certain force majeure events(includingcertain
labor-related events) that prevent SkyWest Airlines or ASA from performance for certain periods andthe
rightto terminate each of the agreements if SkyWest Airlinesor ASA, as applicable, failstomaintain
competitive base rate costs, subject to certainrights of SkyWest Airlines to take corrective action to
reimburse Delta for lost revenues. The current term of theSkyWest Airlines’ 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.
We currently use Delta’s andUnited’s systems, facilities and services to support a significant portion
of our operations, including airport and terminal facilities and operations, information technology support,
ticketingandreservations,scheduling, dispatching, fuel purchasing andgroundhandling services.If Delta
or United were to ceaseany of these operations or no longer provide these services to us, due to
terminationof one of our code-share agreements,astrike by Delta or United personnelor for anyother
reason, we maynot be able to replace these services on termsandconditions as favorableas those we
currently receive,orat all. Since ourrevenues and operating profits are dependent on our levelofflight
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 andinventories, including maintenance facilities, we usein connection with the code-share
serviceswe provide.As aresult, in order to offer airline service after termination of anyof our code-share
agreements, we mayhave 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 areattributable to ourcode-share agreements with Delta, which is
currently reorganizing under Chapter 11 of theU.S. Bankruptcy Code, andUnited, which recently
emerged from bankruptcy proceedings.The U.S. Bankruptcy Courts charged with administration of the
Deltaand United bankruptcy cases have enteredfinal orders approving theassumption of our code-share
agreements.Notwithstanding those approvals, these bankruptcies andrestructurings present considerable
continuing risks and uncertainties for ourcode-share agreements and, consequently, for our operations.
Althoughaplan of reorganizationhas been confirmed in the United bankruptcyproceedings,which
became effective on February 1, 2006, and Delta has recently filed aproposal plan of reorganization and
scheduled aconfirmation hearing during April 2007, there is no assurance that either United or Delta will
ultimately succeed in its reorganization efforts or will remain agoing concern overthe long term. Likewise,
even though both DeltaandUnited have assumed our code-shareagreements with bankruptcy court
approval, there is no assurance that these agreements will survive theChapter 11 cases. For example, the
Delta reorganization could be converted to a liquidation, or Deltacould liquidate some or all of its assets
through one or moretransactions with one or more third parties with bankruptcy court approval. In
addition, Deltamay not be ableto confirm and consummate a successful plan of reorganizationthat
provides for continued performance of its obligations under its code-share agreements with us. In the
event United is not able to perform successfully under theterms of its plan of reorganization, assumption
of our United Express Agreement could be subjectedto similar risks.