SkyWest Airlines 2011 Annual Report Download - page 40

leased to Saltillo Jet Center S. de R.L. de C.V., a subsidiary of ExpressJet, for use in its aircraft
painting business.
Our management deems the current facilities of SkyWest, SkyWest Airlines and ExpressJet as being
suitable to support existing operations and believes these facilities will be adequate for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
We are subject to certain legal actions which we consider routine to our business activities. As of
December 31, 2011, our management believed, after consultation with legal counsel, that the ultimate
outcome of such legal matters is not likely to have a material adverse effect on our financial position,
liquidity or results of operations. However, the following are significant outstanding legal matters,
which if not resolved consistent with the position we have taken in those matters, would negatively
impact our financial results.
SkyWest Airlines and ExpressJet v. Delta
During the quarter ended December 31, 2007, Delta notified SkyWest, 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 the allocation of liability for certain
irregular operation (‘‘IROP’’) expenses paid by SkyWest Airlines and Atlantic Southeast to their
passengers and vendors under certain situations. During the period between the execution of the Delta
Connection Agreements in September 2005 and December 2007, SkyWest Airlines and Atlantic
Southeast passed through to Delta IROP expenses that were paid pursuant to Delta’s policies, and
Delta accepted and reimbursed those expenses. Delta now claims it is obligated to reimburse only a
fraction of the IROP expenses. As a result, Delta withheld a combined total of approximately
$25 million (pre-tax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic
Southeast during December 2007. Since December 2007, Delta has continued to withhold payments
from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast, and has disputed
subsequent billings for IROP expenses. As of December 31, 2011, we had recognized a cumulative total
of $31.7 million of revenue associated with the funds withheld by Delta. Since July 1, 2008, we have not
recognized revenue related to IROP expense reimbursements withheld by Delta because collection of
those reimbursements is the subject of litigation and is therefore not reasonably assured. On
February 1, 2008, SkyWest Airlines and Atlantic Southeast filed a Complaint in the Superior Court for
Fulton County, Georgia (‘‘Superior Court’’) challenging Delta’s treatment of the matter and seeking
recovery of the payments withheld by Delta and any future withholdings related to this issue. Delta
filed an Answer to the SkyWest Airlines and Atlantic Southeast Complaint and a Counterclaim against
SkyWest Airlines and Atlantic Southeast on March 24, 2008. Delta’s Counterclaim alleged that Atlantic
Southeast and SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for
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 depositions, Delta
voluntarily dismissed its Counterclaim. Discovery in that action was not complete at the time of the
dismissal. On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory
rights to voluntarily dismiss their claims in the Superior Court, and filed a new complaint (the ‘‘State
Court Complaint’’) in the Georgia State Court of Fulton County (the ‘‘State Court’’). 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. Delta
moved for partial dismissal of the State Court Complaint, which motion was denied in its entirety.
Delta also filed a separate action in the Superior Court containing claims for declaratory judgment and
breach of the confidentiality provisions of the Delta Connection Agreements. SkyWest Airlines and
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