SkyWest Airlines 2008 Annual Report Download - page 16

• if SkyWest Airlines’ operations fall below certain performance levels for a period of three
consecutive months;
• subject to limitations imposed by the U.S. Bankruptcy Code, if the other party becomes
insolvent, fails to pay its debts when due, takes action leading to its cessation as a going concern,
makes an assignment of substantially all of its assets, or ceases or suspends operations;
• if bankruptcy proceedings are commenced against the other party (subject to limitations imposed
by the U.S. Bankruptcy Code) and certain specified conditions are not satisfied; or
• if SkyWest Airlines operates, subject to certain exceptions, any additional regional jets or
turboprop aircraft pursuant to a marketing or code-share relationship with any party other than
United to provide hub service at United’s hubs in Chicago (O’Hare), Denver, San Francisco,
Seattle/Tacoma, or Washington, D.C. (Dulles International Airport).
Midwest Airline Services Agreement
SkyWest Airlines and Midwest are parties to the Midwest Services Agreement entered into on
December 20, 2006. In June 2008, SkyWest Airlines was notified that Midwest was in the process of
organizing a financial restructuring. SkyWest Airlines subsequently agreed to reduce the number of
aircraft operating under the Midwest Services Agreement from 21 aircraft to 12 aircraft. SkyWest
Airlines also agreed to defer a portion of Midwest’s weekly payment obligations from July 1, 2008
through November 30, 2008. The amount SkyWest Airlines agreed to defer, plus certain amounts
Midwest owed to us at June 30, 2008, will be payable, with interest by Midwest in four equal quarterly
payments starting on August 31, 2009. As of December 31, 2008, SkyWest Airlines flew approximately
80 Midwest Connect flights per day between Milwaukee and designated outlying destinations.
In exchange for providing the designated number of flights and performing SkyWest Airlines’ other
obligations under the Midwest Services Agreement, Midwest has agreed to pay SkyWest Airlines on a
weekly basis a fixed fee per completed block hour, a fixed fee per completed departure, a fixed fee for
overhead, and a reimbursement of certain direct costs when a new aircraft is delivered. The Midwest
Services Agreement provides for incentives or penalties based upon SkyWest Airlines’ performance,
including on-time arrival performance and completion percentage rates. Additionally, Midwest has
agreed to reimburse certain of SkyWest Airlines’ operating costs, including costs related to fuel, landing
fees, and catering.
The Midwest Services Agreement expires at various dates during 2010. The Midwest Services
Agreement is subject to early termination in various circumstances, including:
• 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.
• if SkyWest Airlines or Midwest commits a material breach of the Midwest Services Agreement,
subject to 30 days notice and cure rights;
• if SkyWest Airlines’ operations fall below certain performance levels, subject to a cure period; or
• if SkyWest Airlines fails to conduct all flight operations and maintain all aircraft under the
Midwest Services Agreement in compliance in all material respects with applicable government
regulations.
Markets and Routes
As of December 31, 2008, SkyWest Airlines scheduled the following daily flights as a United
Express carrier: 218 flights to or from Chicago O’Hare International Airport, 274 flights to or from
12