SkyWest Airlines 2009 Annual Report Download - page 20

Express Agreements due to an uncured breach by SkyWest Airlines or ASA of certain operational and
performance provisions, including measures and standards related to flight completions, baggage
handling and on-time arrivals.
We currently use Delta’s and United’s systems, facilities and services to support a significant
portion of our operations, including airport and terminal facilities and operations, information
technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground
handling services. If Delta or United were to cease any of these operations or no longer provide these
services to us, due to termination of one of our code-share agreements, a strike or other labor
interruption by Delta or United personnel or for any other reason, we may not be able to replace these
services on terms and conditions as favorable as those we currently receive, or at all. Since our
revenues and operating profits are dependent on our level of flight operations, we could then be forced
to significantly reduce our operations. Furthermore, upon certain terminations of our code-share
agreements, Delta and United could require us to sell or assign to them facilities and inventories,
including maintenance facilities, we use in connection with the code-share services we provide. As a
result, in order to offer airline service after termination of any of our code-share agreements, we may
have to replace these airport facilities, assets and services. We may be unable to arrange such
replacements on satisfactory terms, or at all.
We may be negatively impacted by the troubled financial condition of Delta and United.
For the year ended December 31, 2009 approximately 98.1% of our ASMs were attributable to our
code-share agreements with Delta and United. Both Delta and United have incurred significant losses
in recent years, which materially weakened their financial condition. Because of their weakened
financial condition, there is no assurance that either United or Delta will ultimately succeed or will
remain a going concern over the long term. Volatility in fuel prices may negatively impact both Delta’s
and United’s results of operations and financial condition. Among other risks, Delta and United are
vulnerable both to unexpected events (such as additional terrorist attacks or additional spikes in fuel
prices) and to deterioration of the operating environment (such as a recession or significant increased
competition). There is no assurance that Delta or United will be able to operate successfully under
these financial conditions.
In light of the importance of our code-share agreements with Delta and United to our business,
the termination of these agreements could jeopardize our operations. Such events could leave us unable
to operate many of our current aircraft, as well as additional aircraft we are obligated to purchase,
which would likely result in a material adverse effect on our operations and financial condition.
The financial condition of Delta and United will continue to pose risks for our operations. Serial
bankruptcies are not unprecedented in the commercial airline industry, and Delta and/or United could
file for bankruptcy again, in which case our code-share agreements could be subject to termination
under the 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.
On October 16, 2009, SkyWest Airlines entered into a series of transactions with United that
provided operational funding to United, extended SkyWest Airlines’ existing rights to operate 40
regional jet aircraft under the SkyWest Airlines United Express Agreement until the end of their
current lease terms and created an opportunity for ASA to operate 14 regional jet aircraft as a United
Express carrier. We anticipate that ASA will begin operating as a United Express carrier starting in the
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