SkyWest Airlines 2011 Annual Report Download - page 89

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2011
(7) Commitments and Contingencies (Continued)
Self-insurance
The Company self-insures a portion of its potential losses from claims related to workers’
compensation, environmental issues, property damage, medical insurance for employees and general
liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred,
using standard industry practices and the Company’s actual experience. Actual results could differ from
these estimates.
Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities.
As of December 31, 2011, 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.
SkyWest Airlines and ExpressJet 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 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 (now ExpressJet) 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, the
Company had recognized a cumulative total of $31.7 million of revenue associated with the funds
withheld by Delta. Since July 1, 2008, the Company has not recognized revenue related to IROP
expense reimbursements withheld by Delta because collection of those reimbursements is the subject of
litigation and is 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
dismissal. On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory
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