SkyWest Airlines 2008 Annual Report Download - page 74

Download and view the complete annual report

Please find page 74 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

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2008
(4) Commitments and Contingencies
Lease Obligations
The Company leases 287 aircraft, as well as airport facilities, office space, and various other
property and equipment under non-cancelable operating leases which are generally on a long-term net
rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses
applicable to the leased property. Management expects that, in the normal course of business, leases
that expire will be renewed or replaced by other leases. The following table summarizes future
minimum rental payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2008 (in thousands):
Year ending December 31,
2009 ................................................ $ 325,134
2010 ................................................ 309,593
2011 ................................................ 300,221
2012 ................................................ 300,596
2013 ................................................ 292,941
Thereafter ............................................. 1,477,811
$3,006,296
FASB Interpretation No. 46 (‘‘FIN 46’’), Consolidation of Variable Interest Entities, requires the
consolidation of variable interest entities. The majority of the Company’s leased aircraft are owned and
leased through trusts whose sole purpose is to purchase, finance and lease these aircraft to the
Company; therefore, they meet the criteria of a variable interest entity. However, since these are single
owner trusts in which the Company does not participate, the Company is not considered at risk for
losses and is not considered the primary beneficiary. As a result, based on the current rules, the
Company is not required to consolidate any of these trusts or any other entities in applying FIN 46.
Management believes that the Company’s maximum exposure under these leases is the remaining lease
payments.
Total rental expense for non-cancelable aircraft operating leases was approximately $295.8 million,
$294.4 million and $281.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.
The minimum rental expense for airport station rents was approximately $59.4 million, $61.7 million
and $50.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.
The Company’s leveraged lease agreements, typically obligate the Company 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 17 years. The Company did
not accrue any liability relating to the indemnification to the equity/owner participant because of
management’s assessment that the probability of this occurring is remote.
Self-insurance
The Company self-insures a portion of its potential losses from claims related to workers’
compensation, environmental issues, property damage, medical insurance for employees and general
liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred,
70