SkyWest Airlines 2013 Annual Report Download - page 29

In recent years we have experienced disagreements with our major partners regarding the
interpretation of various provisions of our code-share agreements. Some of those disagreements have
resulted in litigation (see the preceding risk factor entitled ‘‘SkyWest Airlines and ExpressJet are engaged
in litigation with Delta, which may negatively impact our financial results and our relationship with Delta’’),
and we may be subject to additional disputes and litigation in the future. Those disagreements have
also required a significant amount of management time and financial resources.
To the extent that we continue to experience disagreements regarding the interpretation of our
code-share or other agreements, we will likely expend valuable management time and financial
resources in our efforts to resolve those disagreements. Those disagreements may result in litigation,
arbitration or other proceedings. Furthermore, there can be no assurance that any or all of those
proceedings, if commenced, would be resolved in our favor. An unfavorable result in any such
proceeding could have adverse financial consequences or require us to modify our operations. Such
disagreements and their consequences could have an adverse effect on our operating results and
financial condition.
We may not receive FAA approval to add the Embraer ERJ175 aircraft type to the SkyWest Airlines’ operating
certificate
The FAA regulates the safety of SkyWest Airlines’ and ExpressJet’s operations. SkyWest Airlines is
in the process of obtaining FAA authorization to add the Embraer ERJ175 aircraft type (‘‘E175’’) to
SkyWest Airlines’ operating certificate. SkyWest Airlines has executed an agreement with Embraer
regarding the delivery dates for the E175s, beginning in 2014. SkyWest Airlines has also entered into a
code share agreement with United which would engage SkyWest Airlines to operate 40 E175s for
United. If the FAA does not approve the addition of the E175 aircraft type to SkyWest Airlines’
certificate before the scheduled in-service date with United, SkyWest Airlines could be in breach of its
code-share agreement with United and many aspects of our operations and financial condition could be
impacted.
We have a significant amount of contractual obligations.
As of December 31, 2013, we had a total of approximately $1.5 billion in total long-term debt
obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of
aircraft, engines and related spare parts. We also have significant long-term lease obligations primarily
relating to our aircraft fleet. These leases are classified as operating leases and therefore are not
reflected as liabilities in our consolidated balance sheets. At December 31, 2013, we had 570 aircraft
under lease, with remaining terms ranging from one to 13 years. Future minimum lease payments due
under all long-term operating leases were approximately $1.9 billion at December 31, 2013. At a 5.8%
discount factor, the present value of these lease obligations was equal to approximately $1.5 billion at
December 31, 2013. Our high level of fixed obligations could impact our ability to obtain additional
financing to support additional expansion plans or divert cash flows from operations and expansion
plans to service the fixed obligations.
Our fleet replacement will require a significant increase in our leverage and the related cash outflows.
We currently have 260 CRJ200s with an average life of 12.1 years, 242 ERJ145s with an average
life of 12 years and 45 Brasilia turboprops with an average life of 16.5 years. We anticipate that over
the next several years, we will continue to replace these aircraft with large regional jets or turboprops.
Our fleet replacement strategy will require significant amounts of capital to acquire these large regional
jets or turboprops.
There can be no assurance that our operations will generate sufficient cash flow or liquidity to
enable us to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make
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