SkyWest Airlines 2009 Annual Report Download - page 13

The SkyWest Airlines 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 SkyWest Airlines Delta Connection Agreement is subject to early termination in various
circumstances, including:
• if SkyWest Airlines or Delta commits a material breach of the SkyWest Airlines Delta
Connection Agreement, subject to 30 days notice and cure rights;
• if SkyWest Airlines fails to conduct all flight operations and maintain all aircraft under the
SkyWest Airlines Delta Connection Agreement in compliance in all material respects with
applicable government regulations;
• if SkyWest Airlines fails to satisfy certain performance and safety requirements;
• if, under certain circumstances, Delta has a right to terminate the ASA 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 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, 2009, ASA operated ten CRJ900s, 38 CRJ700s and 112 CRJ200s for Delta
under the ASA Delta Connection Agreement. On January 9, 2009, ASA reached an agreement with
Delta to operate an additional ten CRJ900s. The aircraft were previously ordered by Delta and are
now being contracted for flying with ASA. As of December 31, 2009, ASA had taken delivery of all of
these aircraft. ASA intends to use the aircraft as replacements for 20, 50-seat CRJ200s that are
scheduled for removal from contract service between January and August 2010, which is earlier than
the existing scheduled termination dates as contained in the Delta Connection Agreement. ASA
operates these aircraft to provide Delta Connection service between Delta hubs and destinations
designated by Delta. As of December 31, 2009, ASA was operating more than 780 Delta Connection
flights per day between Atlanta, Cincinnati 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 bids submitted by 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 is scheduled to receive 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.
Among other provisions, the ASA Delta Connection Agreement provides that, beginning with the
third anniversary of the execution of the agreement (September 8, 2008), Delta has the right to require
that certain contractual rates under that agreement shall not exceed the average rate of all carriers
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