SkyWest Airlines 2010 Annual Report Download - page 92

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010
(6) Commitments and Contingencies (Continued)
Purchase Commitments and Options
On January 4, 2011, the Company announced SkyWest Airlines’ plans to acquire four additional
regional jet aircraft during 2011. SkyWest Airlines plans to place these aircraft into operate these under
the SkyWest Airlines Delta Connection Agreement. Additionally, the Company. announced plans to
lease eight used CRJ700s from another operator. SkyWest Airlines and Atlantic Southeast plan to
operate the eight CRJ700s under the SkyWest Airlines and Atlantic Southeast Delta Connection
Agreements. On January 25, 2011, SkyWest Airlines agreed to operate five CRJ700s for Alaska Air
Group, Inc. (‘‘Alaska Airlines’’). SkyWest Airlines plans to lease these aircraft from Alaska Airlines for
a nominal amount.
Total expenditures for these aircraft and related flight equipment, including amounts for
contractual price escalations, are estimated to be approximately $193.5 million through 2011.
Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities.
As of December 31, 2010, 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.
Atlantic Southeast and SkyWest Airlines v. Delta
During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and
Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with
SkyWest Airlines and Atlantic Southeast. The dispute relates to allocation of liability for IROP
expenses that are paid by SkyWest Airlines and Atlantic Southeast 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 Atlantic Southeast 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 Atlantic Southeast. As of December 31, 2010, the
Company had recognized a cumulative total of $31.7 million of revenue associated with the funds
withheld by Delta. On February 1, 2008, SkyWest Airlines and Atlantic Southeast 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 Atlantic Southeast on March 24,
2008. Delta’s Counterclaim alleges that Atlantic Southeast 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. After proceedings that
included contested motions, document discovery, and some depositions, Delta voluntarily dismissed its
counterclaim. Discovery in that action was not yet complete. On February 14, 2011, SkyWest Airlines
and Atlantic Southeast exercised their statutory rights to voluntarily dismiss their claims in the Fulton
County, Georgia Superior Court, and filed a new complaint in the Georgia State Court of Fulton
County. The claims continue to include Breach of Contract, Breach of Contract based on Mutual
Departure, Breach of Contract based on Voluntary Payment, and Breach of the Duty of Good Faith
and Fair Dealing.
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