SkyWest Airlines 2011 Annual Report Download - page 13

are intended to pay for certain costs related to the Delta Connection flights, plus (ii) a fixed dollar
payment per completed flight block hour, subject to annual escalation at an agreed rate. Costs directly
reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs primarily
related to fuel, aircraft engine maintenance and aircraft ownership.
The SkyWest Airlines 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 rates of all carriers
within the Delta Connection Program. On November 19, 2010, SkyWest Airlines reached an agreement
with Delta related to the second lowest rate provisions to be applied under the SkyWest Airlines Delta
Connection Agreement. As a result of that agreement, SkyWest Airlines and Delta have established the
contractual rates which will apply under the SkyWest Airlines Delta Connection Agreement through
December 31, 2015.
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-day 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 ExpressJet 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).
ExpressJet Delta Connection Agreement
ExpressJet (formerly Atlantic Southeast) and Delta are parties to the ExpressJet Delta Connection
Agreement, originally dated as of September 8, 2005. As of December 31, 2011, ExpressJet (formerly
Atlantic Southeast) operated ten CRJ900s, 46 CRJ700s and 99 CRJ200s for Delta under the ExpressJet
Delta Connection Agreement. As of December 31, 2011, ExpressJet (formerly Atlantic Southeast) was
operating more than 650 Delta Connection flights per day between Atlanta or Cincinnati and outlying
destinations. Under the ExpressJet Delta Connection Agreement, Delta is entitled to all passenger,
cargo and other revenues associated with each flight. Commencing in 2008, ExpressJet (formerly
Atlantic Southeast) obtained the right 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.
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