SkyWest Airlines 2009 Annual Report Download - page 14

within the Delta Connection Program. On October 23, 2009, Delta sent a letter to ASA requiring it to
either adjust the rates payable under the ASA Delta Connection Agreement or accept termination of
that agreement. Delta’s letter also notified ASA of Delta’s estimate of the average rates to be applied
under the ASA Delta Connection Agreement. On October 28, 2009, ASA notified Delta of its election
to adjust the rates payable under the ASA Delta Connection Agreement; however, ASA also notified
Delta of its disagreement with Delta’s estimated rates and its belief that the methodology Delta used to
calculate its estimated rates is inconsistent with the terms of the ASA Delta Connection Agreement.
ASA and Delta have exchanged subsequent correspondence, and ASA continues to negotiate with
Delta in an effort to determine an appropriate methodology for calculating the average rates of the
carriers within the Delta Connection Program.
The ASA Delta Connection Agreement provides that, beginning with the fifth anniversary of the
execution of the agreement (September 8, 2010), Delta has the right to require that certain contractual
rates under that agreement shall not exceed the second lowest of all carriers within the Delta
Connection Program.
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 2007, 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, primarily 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). 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.
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