SkyWest Airlines 2013 Annual Report Download - page 26

the number of pilots required to be employed for our operations or other aspects of our operations,
and negatively impact our operations and financial condition.
The supply of pilots to the airline industry may be limited.
On July 8, 2013, as was directed by the U.S. Congress, FAA issued more robust, new pilot
qualification standards, granting recognition of historical FAA and airline industry crew member flight
training standards. With the application of the new rules, the supply of qualified pilot candidates
eligible for hiring by the airline industry has been dramatically reduced. If, we are unable to secure the
services of sufficient eligible pilots to staff our routes, our operations and financial results could be
materially affected.
New student pilot certificates have decreased dramatically, especially in the past three years, and
subsequently the pool of eligible pilots qualified to be new hires into the airline industry has been
diminishing significantly. In addition, the major network air carriers have done only minimal pilot
hiring in the past several years because of the industry capacity reduction following the events of
September 11, 2001, the most recent economic recession that began in the fall of 2008, and the
increase in statutory mandatory retirement age for pilots from age 60 to age 65. Due to revised pilot
duty time rules that are effective January of 2014, there has been an acceleration of pilot staffing in
recent months which on its own merits, should be a one-time increase in pilot staffing amongst all air
carriers affected by FAR part 117. Also effective January 2014, mandatory pilot retirement rules will
again begin to force major network carriers to hire replacement pilots.
The current pilot shortage may increase training costs and we may not have enough pilots to
conduct our operations. The lack of qualified pilots to conduct our operations would negatively impact
our operations and financial condition.
We are highly dependent on Delta and United.
As of December 31, 2013, we had 703 aircraft out of our total 757 aircraft operating under a fixed
fee contract or a revenue sharing agreement with either Delta or United. If our code-share agreements
with Delta or United are terminated, we would be significantly impacted and likely would not have an
immediate source of revenue or earnings to offset such loss. A termination of either of these
agreements would likely have a material adverse effect on our financial condition, operating revenues
and net income unless we are able to enter into satisfactory substitute arrangements for the utilization
of the affected aircraft by other code-share partners, or, alternatively, obtain the airport facilities and
gates and make the other arrangements necessary to fly as an independent airline. We may not be able
to enter into substitute code-share arrangements, and any such arrangements we might secure may not
be as favorable to us as our current agreements. Operating our airlines independent from major
partners would be a significant departure from our business plan, would likely be very difficult and
would likely require significant time and resources, which may not be available to us at that point.
The current terms of the SkyWest Airlines and ExpressJet Delta Connection Agreements are
subject to certain early termination provisions. Delta’s termination rights include cross-termination
rights (meaning that a breach by either of SkyWest Airlines or ExpressJet of its Delta Connection
Agreement could, under certain circumstances, permit Delta to terminate any or all of the Delta
Connection Agreements), the right to terminate each of the agreements upon the occurrence of certain
force majeure events (including certain labor-related events) that prevent SkyWest Airlines or
ExpressJet from performance for certain periods and the right to terminate each of the agreements if
SkyWest Airlines or ExpressJet, as applicable, fails to maintain competitive base rate costs, subject to
certain rights of SkyWest Airlines to take corrective action to reimburse Delta for lost revenues. The
current terms of the SkyWest Airlines and ExpressJet United Express Agreements are subject to certain
early termination provisions and subsequent renewals. United may terminate the SkyWest Airlines and
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