SkyWest Airlines 2006 Annual Report Download - page 24

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Otheraspects of the Delta andUnitedbankruptcies and reorganizations pose additional risks to our
code-share agreements. Delta may not be able to obtain bankruptcy court approvalof itsproposed plan of
reorganization or variousmotions necessary for it to administer its bankruptcy case. As a consequence,
Delta may not be able to maintain normal commercial terms with vendors and service providers, including
other code-share partners that are critical to its operations. These and other factors not identified here
could significantly delaythe resolution of the Delta bankruptcy and reorganization and could threaten
Delta’s operations. As to United, even though aplanofreorganization hasbeen confirmed in the United
bankruptcy proceedings, there is no assurance that United will be able to operate successfully under the
terms of its confirmed plan.
In light of the importance of ourcode-share agreements with Delta and United to our business, the
termination of these agreements or thefailure of Delta to ultimately emerge from its bankruptcy
proceeding couldjeopardize our operations. Such events could leave us unable to operate much of our
current aircraft fleet and the additional aircraft we are obligated to purchase.As a result,they couldhavea
material adverse effect on our operations and financial condition.
Even though United has emergedfrombankruptcy proceedingsandifDelta is ultimately able to
emergefromits bankruptcyproceedings, their respective financial positionswill continue to pose risks for
our operations. Serial bankruptcies arenot unprecedented in the commercial airline industry, and Delta
and/or United could file for bankruptcy again after emergence from Chapter 11, in which case our code-
shareagreements could be subject to termination under the U.S. Bankruptcy Code. Regardless of whether
subsequent bankruptcy filings prove to be necessary, Delta and United have required, and will likely
continue to require, our participation in efforts to reduce costs and improve theirrespective financial
positions. These efforts could result in lower utilization rates of our aircraft, lower departurerates on the
contract flying portion of our business,andmorevolatile operating margins. We believe thatany of these
developmentscould haveanegative effect on many aspectsof our operationsand financial performance.
We may not achieve the potential benefits of the ASA acquisition.
Our achievement of thepotential benefits of the ASAacquisition will depend, in substantial part, on
our ability to successfully implement our business strategy, including improvingthe utilization of
equipment and facilities, increasingemployee productivity and allocating overhead and administrative
expenses over alarger platform. We will be unable to achieve the potential benefits of the ASA acquisition
unless we are ableto efficiently integrate theSkyWest Airlines and ASA operating platforms in a timely
manner. Theintegration of SkyWest Airlines and ASA may be costly, complex and time-consuming, and
the managements of SkyWest Airlines andASA will have to devotesubstantial effort to suchintegration. If
we arenot able to successfully achievethese objectives, the potentialbenefits of the ASAacquisition may
not be realized fully or at all, or they maytake longer to realize than expected. In addition, assumptions
underlying estimates of expected cost savings and expected revenues may be inaccurate, or general
industry and business conditions maydeteriorate.Our combined operations with ASA may experience
increased competition that limits our ability to expand our business. We cannot assure you that the ASA
acquisitionwill result in combinedresults of operations and financialcondition consistent with our
expectations or superior to what we andASAcould have achieved independently.
The amounts we receive under our code-share agreements may be less than the actual amounts of the
corresponding costs we incur.
Under our code-share agreements with Delta, United and Midwest, we are compensated for certain
costs we incur in providing services. With respect to costs that aredefined as “pass-through” costs, our
code-share partner is obligated to pay to us theactual amount of the cost (and, with respect to the ASA
Delta ConnectionAgreement, a pre-determined rate of return based upon the actual cost we incur). With
respect to other costs, our code-share partner is obligated to payto us amounts based, in part, on pre-