SkyWest Airlines 2012 Annual Report Download - page 82

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2012
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
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 certain irregular operations (‘‘IROP’’) expenses that are paid by SkyWest
Airlines and ExpressJet to their passengers under certain situations. 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. Delta continues to withhold a
portion of the funds the Company believes are payable as weekly scheduled wire payments to SkyWest
Airlines and ExpressJet (See Note 6 for additional details).
United Express Agreements
SkyWest Airlines and United have entered into a United Express Agreement, which sets forth the
principal terms and conditions governing SkyWest Airlines’ United Express operations. Under the terms
of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-
block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest
Airlines is eligible for incentive compensation upon the achievement of certain performance criteria.
The incentives are defined in the United Express Agreement as being measured and determined on a
monthly basis. At the end of each month, the Company calculates the incentives achieved during the
month and recognizes revenue accordingly.
On February 10, 2010, Atlantic Southeast and United entered into a United Express Agreement,
pursuant to which ExpressJet, as successor to Atlantic Southeast, operates 14 Bombardier CRJ200s as a
United Express carrier. The ExpressJet United Express Agreement is a capacity purchase agreement
with a five-year term, and other terms which are generally consistent with the SkyWest Airlines United
Express Agreement.
On December 1, 2009, ExpressJet Delaware and United also entered into a United Express
Agreement, which sets forth the principal terms and conditions governing the United Express
operations presently conducted by ExpressJet. Under the terms of that United Express Agreement, to
which ExpressJet became a party through the ExpressJet Combination, ExpressJet is compensated
primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other
costs. Additionally, ExpressJet is eligible for incentive compensation upon the achievement of certain
performance criteria. The incentives are defined in the ExpressJet United Express Agreement as being
measured and determined on a monthly basis. At the end of each month, the Company calculates the
incentives achieved during the month and recognizes revenue accordingly.
United Capacity Purchase Agreement
Effective November 12, 2010, ExpressJet Delaware entered into a Capacity Purchase Agreement
with Continental Airlines, Inc., to which United became a party pursuant to its merger with Continental
Airlines, Inc. in 2010 (the ‘‘United CPA’’). Pursuant to the United CPA, whereby ExpressJet Delaware
agreed to provide regional airline service in the United flight system. Under the terms of the United
CPA, to which ExpressJet succeeded as a party through the ExpressJet Combination, ExpressJet
operates 227 aircraft in the United flight system and United has agreed to compensate ExpressJet on a
monthly basis based on the block hours flown by ExpressJet and the weighted average number of
aircraft operated by ExpressJet under the United CPA. Additionally, ExpressJet may earn incentive
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