SkyWest Airlines 2009 Annual Report Download - page 44

Our maintenance costs increased $54.4 million, or 14.3%, during the year ended December 31,
2009, compared to the year ended December 31, 2008. The increase was primarily related to the timing
of engine overhaul events. During the year ended December 31, 2009, our CRJ200 engine expense
under our United Express and Midwest Services Agreements increased $29.7 million. The remainder of
the increase in maintenance costs was principally due to scheduled maintenance and engine overhaul
events on our aging CRJ200 and CRJ700 aircraft.
Outlook
On October 12, 2007, we announced SkyWest Airlines’ plans to acquire 22 additional regional jet
aircraft through 2010, 18 of which SkyWest Airlines intends to operate for United Express, as part of
an aircraft transition plan. We believe this transition plan will allow United Express to remove 23
30-seat Brasilia turboprops from operation under the United Express Agreement and add 66-seat
regional jet aircraft for United Express flying. Generally, the turboprop removals are intended to occur
in conjunction with deliveries of new regional jet aircraft in an effort to facilitate a smooth transition in
existing markets. Additionally, SkyWest Airlines exchanged four 50-seat CRJ200s for four 76-seat
CRJ900s in its Delta Connection operations. On November 30, 2007, we announced that SkyWest
Airlines placed a firm order for 22 aircraft with Bombardier. As of December 31, 2009, SkyWest
Airlines had taken delivery of four CRJ900s and 14 CRJ700s under that order. SkyWest Airlines is
scheduled to take delivery of the remaining four aircraft during the first quarter of 2010.
On October 16, 2009, SkyWest Airlines entered into a series of transactions with United that
provided operational funding to United, extended SkyWest Airlines’ existing rights to operate 40
regional jet aircraft under the United Express Agreement until the end of their current lease terms (on
average 8.4 years) and created an opportunity for ASA to operate 14 regional jet aircraft as a United
Express carrier. We anticipate that ASA will begin operating as a United Express carrier starting in the
first quarter of 2010, and the 14 United Express regional jets to be flown by ASA will be in operation
by May of 2010. We also anticipate that ASA will operate these aircraft under a capacity purchase
agreement with a five-year term, and other terms which are generally consistent with the SkyWest
Airlines United Express Agreement.
Also on October 16, 2009, SkyWest Airlines extended to United a secured term loan in the
amount of $80 million. The term loan bears interest at a rate of 11%, with a ten-year amortization
period. The loan is secured by certain ground equipment and airport slot rights held by United.
SkyWest Airlines also agreed to defer certain amounts otherwise payable to SkyWest Airlines under the
SkyWest Airlines United Express Agreement. The maximum deferral amount is $49 million and any
amounts deferred accrue a deferral fee of 8%, payable weekly. United’s right to defer such payments is
scheduled to terminate in ten years.
On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under
the terms of the code-share agreement, SkyWest Airlines has agreed to operate five CRJ200s for
AirTran under a pro-rate arrangement. SkyWest Airlines commenced AirTran service with two aircraft
in December 2009 and added three additional aircraft in January and February of 2010. The code-share
agreement has a three-year term; however, after May 15, 2010, either party may terminate the
agreement upon 120 days written notice.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 to our consolidated financial
statements for the year ended December 31, 2009, included in Item 8 of this Report. Critical
accounting policies are those policies that are most important to the preparation of our consolidated
financial statements and require management’s subjective and complex judgments due to the need to
make estimates about the effect of matters that are inherently uncertain. Our critical accounting
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