SkyWest Airlines 2012 Annual Report Download - page 13

• 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, however, that
SkyWest Airlines has the right to adjust its rates prior to any such termination).
ExpressJet Delta Connection Agreement
ExpressJet and Delta are parties to the ExpressJet Delta Connection Agreement, originally dated
as of September 8, 2005. As of December 31, 2012, ExpressJet operated 18 CRJ900s, 41 CRJ700s and
93 CRJ200s for Delta under the ExpressJet Delta Connection Agreement. As of December 31, 2012,
ExpressJet was operating more than 750 Delta Connection flights per day between Atlanta or Detroit
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
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.
In exchange for providing the designated number of flights and performing ExpressJet’s other
obligations under the ExpressJet Delta Connection Agreement, ExpressJet is scheduled to receive from
Delta on a weekly basis (i) specified fixed rate payments for each completed flight, which are intended
to pay for certain direct costs related to Delta Connection flights plus (ii) if ExpressJet completes a
certain minimum percentage of its Delta Connection flights, an amount equal to a certain percentage
of the direct costs (not including fuel costs) related to the Delta Connection flights. Costs directly
reimbursed by Delta under the ExpressJet Delta Connection Agreement include costs related to fuel,
ground handling, and aircraft engine maintenance and aircraft ownership. The ExpressJet Delta
Connection Agreement also provides for incentive compensation based upon ExpressJet’s performance,
including on-time arrival performance and completion percentage rates.
The ExpressJet Delta Connection Agreement provides that, upon the fifth anniversary of the
execution of the agreement (September 8, 2010), Delta obtained 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, ExpressJet (formerly Atlantic Southeast)
reached an agreement with Delta related to the second lowest rate provisions to be applied under the
ExpressJet Delta Connection Agreement. As a result of that agreement, ExpressJet and Delta have
established the contractual rates which will apply under the ExpressJet Delta Connection Agreement
through December 31, 2015.
The ExpressJet 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 ExpressJet Delta Connection Agreement is subject to early termination in various circumstances
including:
• if ExpressJet or Delta commits a material breach of the ExpressJet Delta Connection
Agreement, subject to 30-day notice and cure rights;
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