SkyWest Airlines 2006 Annual Report Download - page 68

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62
(5) Commitments and Contingencies
Lease Obligations
TheCompany leases 268 aircraft, as well as airport facilities, office space, andvarious other property
and equipment under non-cancelable operating leaseswhich are generally on a long-term net rentbasis
wherethe Company pays taxes, maintenance, insurance and certain other operatingexpenses applicableto
theleased property. Management expects that, in the normal course of business, leases that expire will be
renewed or replaced by other leases. The followingtable summarizesfuture minimum rental payments
required under operating leases that have initial or remaining non-cancelable leaseterms in excess of one
year as of December 31,2006(inthousands):
Year ending December 31,
2007..........................................................$295,045
2008..........................................................285,647
2009..........................................................299,830
2010..........................................................293,441
2011..........................................................289,590
Thereafter.......................................................1,994,023
$3,457,576
In January 2003, theFASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest
Entities, which requires the consolidation of variable interest entities. Themajorityof the Company’s
leasedaircraft are owned andleased through trusts whosesolepurpose is to purchase, financeand lease
these aircraft to the Company; therefore, they meet the criteriaofavariable interest entity. However, since
these are single owner trusts in which the Companydoes not participate, theCompany is not at risk for
losses and is not considered theprimary beneficiary. As aresult, based on the current rules, theCompany
is not required to consolidateany of these trusts or any other entities in applying FIN 46.Management
believes that the Company’s maximum exposure under these leases is theremaininglease payments.
Totalrental expense for non-cancelableaircraft operating leases was approximately $281.5 million,
$210.2 million and $145.9 million for the years ended December 31, 2006,2005 and 2004, respectively. The
above minimum rental expense does not include airport station rents, which amounted to approximately
$50.3 million, $29.6 million and $21.0 million for the years ended December 31, 2006,2005 and 2004,
respectively.
TheCompany’s leveraged lease agreements, typically obligate theCompany to indemnify the
equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of
the respective leased aircraft. The terms of these contracts range up to 18 years. The Company did not
accrue any liability relating to the indemnification to the equity/ownerparticipant because of
management’s assessment that the probabilityof this occurring is remote.
Self-insurance
TheCompany self-insuresaportion of its potential losses fromclaimsrelated to workers’
compensation, environmentalissues, propertydamage, medical insurance for employees and general
liability. Losses are accrued based on an estimate of theultimate aggregateliability for claims incurred,
using standard industry practices andthe Company’s actual experience. Actual results could differ from
these estimates.