SkyWest Airlines 2008 Annual Report Download - page 22

Download and view the complete annual report

Please find page 22 of the 2008 SkyWest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

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 are defined as ‘‘pass-through’’
costs, our code-share partner is obligated to pay to us the actual amount of the cost (and, with respect
to the ASA Delta Connection Agreement, 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 pay to us amounts based,
in part, on pre-determined rates for certain costs. During the year ended December 31, 2008,
approximately 55% of our costs were pass-through costs and approximately 45% of our costs were
reimbursable at pre-determined rates. These pre-determined rates may not be based on the actual
expenses we incur in delivering the associated services. If we incur expenses that are greater than the
pre-determined reimbursement amounts payable by our code-share partners, our financial results will
be negatively affected.
SkyWest Airlines and ASA are engaged in litigation with Delta, which may negatively impact our financial
results and our relationship with Delta
During the quarter ended December 31, 2007, Delta notified SkyWest, SkyWest Airlines and ASA
of a dispute under the SkyWest Airlines and ASA Delta Connection Agreements. The dispute relates
to allocation of liability for certain irregular operations (‘‘IROP’’) expenses that are paid by SkyWest
Airlines and ASA to Delta Connection passengers under certain situations. As a result of the dispute,
Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly
scheduled wire payments to SkyWest and ASA during December 2007. Delta continues to withhold a
portion of the funds we believe are payable as weekly scheduled wire payments to SkyWest and ASA.
As of December 31, 2008, we had recognized a cumulative total of $32.4 million of revenue associated
with funds withheld by Delta. On February 1, 2008, SkyWest Airlines and ASA filed a lawsuit in
Georgia state court disputing Delta’s treatment of the matter. The position Delta has taken with
respect to IROP expenses is inconsistent with the parties’ treatment of those expenses under the
SkyWest Airlines and ASA Delta Connection Agreements since their execution in September 2005. We
have not recorded an allowance related to the dispute in our consolidated financial statements. There
can be no assurance that the dispute will be resolved consistent with the position taken by SkyWest
Airlines and ASA. If the dispute is not resolved consistent with the position taken by SkyWest Airlines
and ASA our financial results would be negatively impacted. The litigation may have other negative
effects on our relationship with Delta and our operations under the existing Delta Connection
Agreements.
We have a significant amount of contractual obligations.
As of December 31, 2008, we had a total of approximately $1.8 billion in total long-term debt
obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of
aircraft, engines and related spare parts. We also have significant long-term lease obligations primarily
relating to our aircraft fleet. These leases are classified as operating leases and therefore are not
reflected as liabilities in our consolidated balance sheets. At December 31, 2008, we had 287 aircraft
under lease, with remaining terms ranging from one to 17 years. Future minimum lease payments due
under all long-term operating leases were approximately $3.0 billion at December 31, 2008. At a 7.39%
discount factor, the present value of these lease obligations was equal to approximately $2.0 billion at
December 31, 2008. As of December 31, 2008, we had commitments of approximately $459.7 million to
purchase one CRJ900s and 18 CRJ700s. We expect to complete these deliveries by the first quarter of
2010. On January 9, 2009, we announced that ASA has reached an agreement with Delta to operate an
additional 10 CRJ900 regional jet aircraft. The aircraft were previously ordered by Delta and are now
being contracted for flying with ASA. ASA expects to take delivery of these aircraft between February
18