SkyWest Airlines 2007 Annual Report Download - page 10

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• if SkyWest Airlines fails to maintain competitive base rate costs (provided that SkyWest Airlines has the right
to adjust its rates prior to any such termination).
ASA Delta Connection Agreement
ASA and Delta are parties to the ASA Delta Connection Agreement, dated as of September 8, 2005. As of
December 31, 2007, ASA operated 37 CRJ700s, 110 CRJ200s and 12 ATR-72 turboprops for Delta under the ASA Delta
Connection Agreement. We expect to remove the 12 ATR-72 turboprops from the ASA fleet and return them to Delta by
January 31, 2009. ASA operates these aircraft to provide Delta Connection service between Delta hubs and destinations
designated by Delta. As of December 31, 2007, ASA was operating more than 750 Delta Connection flights per day between
Atlanta, Cincinnati, Salt Lake City and designated outlying destinations. Under the ASA Delta Connection Agreement, Delta
is entitled to all passenger, cargo and other revenues associated with each flight. Commencing in 2008, ASA is guaranteed to
maintain its percentage of total Delta Connection flights that it had in 2007, so long as its bid for additional regional flying is
competitive with other regional carriers.
In exchange for 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 the Delta Connection flights.
Costs directly reimbursed by Delta under the ASA Delta Connection Agreement include costs related to 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 performance and completion percentage rates.
The ASA Delta Connection Agreement is scheduled to terminate on September 8, 2020, unless Delta elects to
exercise its option to extend the term for up to four additional five-year terms. The ASA Delta Connection Agreement is
subject to early termination in various circumstances including:
• if ASA or Delta commits a material breach of the ASA Delta Connection Agreement, subject to 30 days notice
and cure rights;
• if ASA fails to conduct all flight operations and maintain all aircraft under the ASA Delta Connection
Agreement 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 has a right to terminate the SkyWest Airlines Delta Connection
Agreement;
• if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.
S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or
• if ASA fails to maintain competitive base rate costs (provided that ASA has the right to adjust its rates prior to
any such termination).
SkyWest Inc. Delta Connection Agreement
In December 2006, we expanded our relationship with Delta by entering into a Delta Connection Agreement which
awarded us the right to operate 12 CRJ700s, previously operated by Comair. This Delta Connection Agreement is ancillary
to, and satisfied certain obligations of Delta under the ASA Delta Connection Agreement. We have the right to designate
either SkyWest Airlines or ASA to operate the 12 aircraft to provide service to and from Delta’ s Cincinnati hub through
February 2012 (subject to Delta’ s right to extend the arrangement for up to three additional three-year terms). As of
December 31, 2007, we had received ten of the 12 aircraft contemplated by this Delta Connection Agreement and anticipate
receiving the remaining two aircraft by June 30, 2008. 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-fee for overhead, a
one-time start-up payment for each aircraft delivered and incentive payments based upon performance, including on-time
arrival performance and completion percentage rates. Additionally, Delta has agreed to reimburse SkyWest Airlines or ASA,
as applicable, for certain operating costs under this Delta Connection Agreement.