SkyWest Airlines 2009 Annual Report Download - page 81

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2009
(5) Commitments and Contingencies (Continued)
and add 66-seat regional jet aircraft for United Express flying. Additionally, SkyWest Airlines
exchanged four CRJ200s for four CRJ900s in its Delta Connection operations. These four 50-seat
CRJ200s were placed into service under other capacity purchase agreements. In November 2007,
SkyWest Airlines placed a firm order with Bombardier for the 22 new aircraft. As of December 31,
2009, SkyWest Airlines had taken delivery of four CRJ900s and 14 CRJ700s pursuant to that order.
SkyWest Airlines is scheduled to take delivery of the remaining four aircraft during the first quarter of
2010.
Total expenditures for these aircraft and related flight equipment, including amounts for
contractual price escalations, are estimated to be approximately $98.0 million through the first quarter
of 2010. Additionally, SkyWest Airlines’ agreement with Bombardier includes options for another 22
aircraft that can be delivered in either 70 or 90-seat configurations. Delivery dates for these aircraft
remain subject to final determination as the Company agrees upon with the Company’s major partners.
Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities.
As of December 31, 2009, management believes, after consultation with legal counsel, that the ultimate
outcome of such legal matters is not likely to have a material adverse effect on the Company’s financial
position, liquidity or results of operations. However, the following is a significant outstanding legal
matter.
ASA and SkyWest Airlines v. Delta
During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and
ASA of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines
and ASA. The dispute relates to allocation of liability for IROP expenses that are paid by SkyWest
Airlines and ASA to their passengers under certain situations. As a result, Delta withheld a combined
total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest
Airlines and ASA during December 2007. Delta continues to withhold a portion of the funds the
Company believes are payable as weekly scheduled wire payments to SkyWest Airlines and ASA. As of
December 31, 2009, the Company had recognized a cumulative total of $32.4 million of revenue
associated with the 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 ‘‘Complaint’’). Delta filed
an Answer to the Complaint and a Counterclaim against SkyWest Airlines and ASA on March 24,
2008. Delta’s Counterclaim alleges that ASA and SkyWest Airlines breached the Delta Connection
Agreements by invoicing Delta for the IROP expenses that were paid pursuant to Delta’s policies, and
claims only a portion of those expenses may be invoiced to Delta. Delta seeks unspecified damages in
its counterclaim.
On March 24, 2008, Delta filed a Motion to Dismiss the Complaint (the ‘‘Motion to Dismiss’’). A
hearing on the Motion to Dismiss was held September 5, 2008. In an order entered September 13,
2008, the Court granted in part and denied in part the Motion to Dismiss. The Court denied the
Motion to Dismiss with respect to the breach of contract claim contained in the Complaint. The Court
denied in part the Motion to Dismiss with respect to the action for declaratory judgment contained in
the Complaint, and granted in part the Motion to Dismiss to the extent the Complaint seeks to read
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