SkyWest Airlines 2013 Annual Report Download - page 28

U.S. Bankruptcy Code. Regardless of whether subsequent bankruptcy filings prove to be necessary,
Delta and United have required, and will likely continue to require, our participation in efforts to
reduce costs and improve their respective financial positions. These efforts could result in lower
utilization rates of our aircraft, lower departure rates on the contract flying portion of our business,
more volatile operating margins and more aggressive contractual positions, which could result in
additional litigation. We believe that any of these developments could have a negative effect on many
aspects of our operations and financial condition.
SkyWest Airlines and ExpressJet are engaged in litigation with Delta, which may negatively impact our
financial results and our relationship with Delta
During the quarter ended December 31, 2007, Delta notified SkyWest, 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 during December 2007. Since December 2007, Delta has continued to withhold payments
from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast (now ExpressJet),
and has disputed subsequent billings for IROP expenses. Since July 1, 2008, we have 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. As of December 31, 2013, we
had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by
Delta prior to July 1, 2008.The current status of the litigation with Delta is summarized below in
Item 3. Legal Proceedings.
There can be no assurance that the dispute between SkyWest Airlines and ExpressJet, on the one
hand, and Delta, on the other hand, will be resolved consistent with the position taken by SkyWest
Airlines and ExpressJet. If the dispute is not resolved consistent with the position taken by SkyWest
Airlines and ExpressJet, our financial results would be negatively impacted. The litigation may have
other negative effects on our relationship with Delta and our operations under the existing Delta
Connection Agreements.
Disagreements regarding the interpretation of our code-share agreements with our major partners could have
an adverse effect on our operating results and financial condition.
SkyWest, SkyWest Airlines and ExpressJet are parties to code-share agreements with Delta and
United. For the year ended December 31, 2013, approximately 94.5% of our ASMs were attributable to
flights we flew under those agreements. We anticipate that, for the foreseeable future, substantially all
of our revenues will be generated under existing or future code-share agreements.
Contractual agreements, such as our code-share agreements, are subject to interpretation and
disputes may arise under such agreements if the parties to an agreement apply different interpretations
to that agreement. Those disputes may divert management time and resources from the core operation
of the business, and may result in litigation, arbitration or other forms of dispute resolution.
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