SkyWest Airlines 2012 Annual Report Download - page 92

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2012
(6) Commitments and Contingencies
Lease Obligations
The Company leases 568 aircraft, as well as airport facilities, office space, and various other
property and equipment under non-cancelable operating leases which are generally on a long-term net
rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses
applicable to the leased property. The following table summarizes future minimum rental payments
required under operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2012 (in thousands):
Year ending December 31,
2013 ......................................... $ 387,999
2014 ......................................... 360,797
2015 ......................................... 309,378
2016 ......................................... 239,989
2017 ......................................... 182,291
Thereafter ....................................... 720,733
$2,201,187
The majority of the Company’s leased aircraft are owned and leased through trusts whose sole
purpose is to purchase, finance and lease these aircraft to the Company; therefore, they meet the
criteria of a variable interest entity. However, since these are single owner trusts in which the Company
does not participate, the Company is not considered at risk for losses and is not considered the primary
beneficiary. As a result, based on the current rules, the Company is not required to consolidate any of
these trusts or any other entities in applying the accounting guidance. The Company’s management
believes that the Company’s maximum exposure under these leases is the remaining lease payments.
Total rental expense for non-cancelable aircraft operating leases was approximately $333.6 million,
$346.5 million and $311.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The minimum rental expense for airport station rents was approximately $43.5 million, $42.6 million
and $43.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The Company’s leveraged lease agreements typically obligate the Company to indemnify the
equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership
of the respective leased aircraft. The terms of these contracts range up to 17 years. The Company did
not accrue any liability relating to the indemnification to the equity/owner participant because of
management’s assessment that the probability of this occurring is remote.
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.
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