<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-14719
SKYWEST, INC.
Incorporated under the Laws of Utah 87-0292166
(IRS Employer ID No.)
444 South River Road
St. George, Utah 84790
(435) 634-3000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
The aggregate market value of Common Stock held by non-affiliates (based
upon the closing sale price of the Common Stock on the NASDAQ National Market
System) on June 17, 1999, was approximately $440,954,689.
As of June 17, 1999, there were 24,508,658 shares of Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended March 31, 1999, are incorporated by reference in Part II as
specified.
Portions of the Registrant's Proxy Statement to be used in connection
with the solicitation of proxies to be voted at the Registrant's 1999 Annual
Meeting of Shareholders, to be filed with the Commission, are incorporated by
reference in Part III as specified.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
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SKYWEST, INC.
FISCAL 1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Item 1. Business.........................................................................3
Item 2. Properties.......................................................................8
Item 3. Legal Proceedings................................................................9
Item 4. Submission of Matters to a Vote of Security Holders..............................9
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters...................................................10
Item 6. Selected Financial Data.........................................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................10
Item 8. Financial Statements and Supplementary Data.....................................11
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.............11
PART III
Item 10. Directors and Executive Officers of the Registrant..............................11
Item 11. Executive Compensation..........................................................11
Item 12. Security Ownership of Certain Beneficial
Owners and Management.........................................................11
Item 13. Certain Relationships and Related Transactions..................................11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...........................................................12
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
SkyWest, Inc. (the "Company"), through its wholly-owned subsidiary, SkyWest
Airlines, Inc. ("SkyWest"), operates one of the larger regional airlines in the
United States. SkyWest provides passenger and air freight service and completes
nearly 1,000 daily flights. Pursuant to a joint marketing and code sharing
agreement with Delta Airlines, Inc. (?Delta?), SkyWest operates as a Delta
Connection in certain SkyWest markets. In October 1995, SkyWest entered into a
marketing and code sharing agreement with Continental Airlines, Inc.
(?Continental?) which allowed SkyWest to operate as a Continental Connection in
certain markets which operated in and out of Los Angeles. SkyWest ceased using
the Continental code effective July 15, 1998. Effective October 1, 1997, SkyWest
entered into a new code-sharing agreement ("United Express Agreement") with
United Airlines, Inc. ("United") and began operating as United Express in Los
Angeles, California. On January 19, 1998, SkyWest executed an addendum to the
United Express Agreement to provide service as United Express in San Francisco,
California, which began June 1, 1998. On February 9, 1998, SkyWest executed
another addendum to the United Express Agreement to provide service as United
Express in United's Portland and Seattle/Tacoma markets and in additional Los
Angeles markets, which began April 23, 1998. Prior to October 1, 1998, 97
percent of SkyWest's traffic was carried under the Delta code and 3 percent was
carried under the Continental code. In addition, all of SkyWest's flights
operated under the Delta code and certain flights operating out of Los Angeles
operated under both Delta and Continental codes. As of May 31, 1999, 47 percent
of SkyWest's traffic was carried under the Delta code, and 53 percent was
carried under the United code. Additionally, 23 percent of SkyWest's flights
operated under the Delta code and 77 percent operated under the United code.
With principal hubs located at the Los Angeles, Salt Lake City, San Francisco,
Portland and Seattle/Tacoma, SkyWest offers a convenient and frequent flight
schedule designed to maximize connecting and origin-destination traffic for its
major code-sharing partners. SkyWest currently operates a fleet of 89 turboprop
aircraft and 11 regional jet aircraft.
Founded in 1972, the Company has experienced significant growth. During the past
five fiscal years, consolidated operating revenues have increased at a
compounded annual growth rate of 20.4 percent, from $184.7 million in fiscal
1995 to $388.6 million in fiscal 1999. Total passengers carried by SkyWest have
increased from approximately 2,074,000 to approximately 4,901,000 over the same
period. In fiscal 1999, the Company achieved record levels of passengers
carried, record consolidated operating revenues of $388.6 million, and net
income increased 90.6 percent to $41.8 million or $1.69 per diluted share.
The Company is also engaged in another transportation business, through its
wholly-owned subsidiary, National Parks Transportation, Inc. ("NPT"). NPT
provides car rental services through a fleet of Avis vehicles located at six
airports. NPT accounted for less than one percent of consolidated revenues in
fiscal 1999. During fiscal 1999, the Company sold the operations of its
wholly-owned subsidiary, Scenic Airlines, Inc. ("Scenic"). Scenic provided air
tours and general aviation services to the scenic regions of Northern Arizona
and Southern Utah. The Scenic operations have been reflected as "Discontinued
Operations" in the Company's consolidated financial statements incorporated
herein by reference. The revenues of Scenic amounted to $28.0 million for fiscal
1999.
JOINT MARKETING AND CODE SHARING AGREEMENTS
Since April 1987, SkyWest has operated as a Delta Connection in certain SkyWest
markets pursuant to the terms of a joint marketing and code sharing agreement
with Delta. On July 1, 1990, SkyWest and Delta entered into a revised Delta
Connection Agreement (the "Delta Connection Agreement"), modified on April 1,
1997 and May 24,1999, under which SkyWest coordinates with Delta to facilitate
interline connections at Salt Lake City International Airport. The primary
benefit of this affiliation is the use of the Delta designation code (DL) in
listing flights in the Official Airline Guide and in the computerized
reservation systems used throughout the industry. SkyWest's code sharing
arrangement allocates to SkyWest, on certain flights, a portion of the passenger
fare on a formula or other basis, subject to periodic adjustments. This code
sharing agreement also provides for negotiated minimum payments per
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flight departure and incentives related to passenger volumes and levels of
customer service, on certain flights. SkyWest also participates in cooperative
advertising and marketing activities with Delta, including Delta's Frequent
Flyer Program, the Delta Meeting Network and Delta Dream Vacations.
The Company believes the arrangement created between SkyWest and Delta is
similar to those which exist between other major and regional airlines. The
Delta Connection Agreement is subject to termination in various circumstances,
including upon 180 days' advance notice by either party for any or no reason.
Delta currently owns approximately 13 percent of the Company's outstanding
common stock. Pursuant to a Stock Option Agreement between Delta and the
Company, Delta holds preemptive rights and registration rights (two demand
rights and unlimited "piggy-back" rights) with respect to the Common Stock owned
by Delta, as well as the right to designate one nominee for the Company's Board
of Directors, so long as Delta owns at least ten percent of all Common Stock.
Effective April 1, 1997, W. Martin Braham, Delta's designated Board member
resigned from the Board, at Delta's request. All Delta designated board members
of other regional airlines with similar arrangements also resigned. However, so
long as Delta is the owner of 10% or more of the Company's outstanding Common
Stock, the Company is required to include a designee of Delta reasonably
acceptable to the Company on the slate of nominees for election of directors
nominated by the Company's Board of Directors and to use its best efforts to
assure the election of the designee to the Board of Directors. Delta has not
designated a nominee to replace Mr. Braham and the Company does not otherwise
intend to nominate a replacement for the vacancy created by Mr. Braham's
resignation.
Since October 1995, SkyWest had operated as a Continental Connection, in
Southern California markets which utilized Los Angeles as a connecting hub,
pursuant to the terms of a marketing and code sharing agreement (the
"Continental Connection Agreement") with Continental. The benefits under this
agreement were similar to those described under the Delta Connection Agreement.
As of October 24, 1997, the Continental Connection Agreement terminated,
however, SkyWest had continued to provide service as a Continental Connection.
Effective July 15, 1998, SkyWest terminated all service as a Continental
Connection.
Effective October 1, 1998, SkyWest began operating as a United Express carrier
in Los Angeles, under a United Express Agreement. The benefits under this
agreement are similar to those described under the Delta Connection and
Continental Connection agreements. This agreement terminates on September 30,
2002, however, may be terminated earlier based on certain provisions in the
agreement. United may also terminate the agreement for convenience upon 180 days
written notice; however, written notice shall not be given earlier than
September 30, 1999. The amendment agreements executed on January 19, 1998 and
February 9, 1998, terminate on May 31, 2008, however, may be terminated earlier
based on certain provisions in the agreements. The additional flights in Los
Angeles covered in the February 9, 1998 agreement terminate on the same day as
those in the agreement dated October 1, 1998. United may also terminate these
agreements for convenience upon 180 days written notice. On United Express
routes, United controls scheduling, ticketing, pricing and seat inventories with
SkyWest receiving from United negotiated minimum payments per flight departure
and incentives related to passenger and volumes and levels of customer service.
By entering this agreement with United, it has enabled SkyWest to reduce
reliance on any single major airline code and to enhance and stabilize operating
results through a mix of SkyWest-controlled flying and contract flying as
previously described.
ROUTES
SkyWest's flight schedules are structured to facilitate the connection of its
passengers with flights of Delta and United at the airports it serves. The
following table shows selected information about the cities served by SkyWest as
of June 17, 1999.
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<TABLE>
<CAPTION>
Served
State and City Since(1)
- -------------- --------
<S> <C>
Arizona:
Yuma..........................................................1979
California:
San Diego.....................................................1968
Palm Springs..................................................1970
Los Angeles...................................................1977
Imperial......................................................1979
Ontario.......................................................1981
Santa Maria...................................................1982
Santa Barbara.................................................1983
Bakersfield...................................................1983
Fresno........................................................1985
Sacramento....................................................1986
San Francisco.................................................1995
San Jose......................................................1986
San Luis Obispo...............................................1986
Orange County.................................................1986
Monterey......................................................1987
Cresent City..................................................1998
Eureka........................................................1998
Redding.......................................................1998
Chico.........................................................1998
Santa Rosa....................................................1998
Modesto.......................................................1998
Merced........................................................1998
Visalia.......................................................1998
Inyokern......................................................1998
Oxnard........................................................1998
Carlsbad......................................................1998
Colorado:
Grand Junction................................................1983
Colorado Springs..............................................1995
Idaho:
Pocatello.....................................................1980
Idaho Falls...................................................1982
Twin Falls....................................................1983
Boise.........................................................1988
Sun Valley....................................................1990
</TABLE>
5
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<TABLE>
<CAPTION>
Served
State and City Since(1)
- -------------- --------
<S> <C>
Montana:
West Yellowstone..............................................1986(2)
Helena........................................................1988(2)
Bozeman.......................................................1988
Billings......................................................1988
Butte.........................................................1988
Missoula......................................................1998
Nebraska:
Omaha.........................................................1998
New Mexico:
Albuquerque...................................................1995
Nevada:
Las Vegas.....................................................1974
Elko..........................................................1982
Reno..........................................................1982
Oregon:
Eugene........................................................1995
Portland......................................................1995
Redmond.......................................................1998
Medford.......................................................1998
South Dakota:
Rapid City....................................................1994
Utah:
Cedar City....................................................1972
Salt Lake City................................................1972
St. George....................................................1972
Vernal........................................................1982
Washington:
Pasco.........................................................1996
Yakima........................................................1998
Bellingham....................................................1998
Seattle.......................................................1998
Spokane.......................................................1999
Wyoming:
Jackson Hole..................................................1986
Casper........................................................1994
Cody..........................................................1995
Canada:
Vancouver B.C.................................................1997
Calgary.......................................................1999
</TABLE>
(1) Refers to the calendar year service was initiated.
(2) Service is provided on a seasonal basis.
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GOVERNMENT REGULATION
All interstate air carriers, including SkyWest, are subject to regulation by the
FAA. The FAA requires operating, air worthiness and other certificates; FAA
approval of personnel who may engage in flight, maintenance or operation
activities; record keeping procedures in accordance with FAA requirements; and
FAA approval of flight training and retraining programs. SkyWest operates under
a FAR Part 121 certificate. SkyWest also operates under a Canadian Foreign Air
Operator Certificate issued by the Minister of Transport Canada.
The Company believes it is operating in compliance with FAA regulations and
holds all necessary operating and air worthiness certificates and licenses. The
Company's flight operations, maintenance programs, record keeping and training
programs are conducted under FAA approved procedures. The Company does not
operate at any airports where landing slots are restricted.
All air carriers are required to comply with federal law and regulations
pertaining to noise abatement and engine emissions. All air carriers are also
subject to certain provisions of the Federal Communications Act of 1934, as
amended, because of their extensive use of radio and other communication
facilities. Management believes that the Company is in compliance in all
material respects with these laws and regulations.
COMPETITION
The airline industry is highly competitive. SkyWest not only competes with other
regional airlines, some of which are owned by or are operated as code sharing
partners of major airlines, but also faces competition from major airlines on
certain routes. SkyWest is the dominant regional airline operating out of the
Salt Lake City and San Francisco International Airports. Competition in the
southern California markets, which are serviced by SkyWest from its hub in Los
Angeles, is particularly intense, with a variety of carriers in these markets.
In its markets served from the Los Angeles International Airport, SkyWest's
principal competitors include Wings West, Inc. (operating as "American Eagle"),
and Trans States, Inc. (operating as "USAir Express" and "Trans World Express").
In its Pacific Northwest markets, SkyWest's principal competitor is Horizon Air
Industries, Inc. (operating as "Horizon Airlines"). SkyWest also faces indirect
low-fare competition from carriers such as Southwest Airlines and Shuttle by
United.
The Company believes that the principal competitive factors affecting decisions
by travelers in SkyWest's markets are the frequency, convenience and reliability
of flights and, to a lesser extent, the level of fares.
EMPLOYEES
As of June 17, 1999, the Company employed 3,243 full-time equivalent employees
consisting of 1,282 pilots and flight attendants, 408 maintenance personnel,
1,328 customer service personnel, 20 reservation and marketing personnel, and
205 employees engaged in accounting, administration and other functions. The
Company's employees are not represented by any union. The Company is aware,
however, that collective bargaining group organization efforts among its
employees occur from time to time and are expected to continue in the future.
The Company has never experienced any work stoppages and considers its
relationship with its employees to be very good.
YEAR 2000 COMPLIANCE
The Company is currently modifying computer systems and application programs, as
well as imbedded technology in the Company's equipment, for year 2000
compliance, with project completion scheduled for September 30, 1999. The
Company believes that the cost to modify its systems or applications will not
have a material effect on its financial position or results of operations. Any
expenditures will be funded through operating cash flows while any costs for new
software will be capitalized and amortized over the software's useful life.
Although the Company is working cooperatively with third parties with systems
upon which the Company must rely, the Company can not give any assurances that
the systems of other parties will be year 2000 compliant on a timely basis.
Systems operated by others which the Company would use and/or rely on would
include: Federal Aviation Administration Air Traffic Control, computer
reservation systems for travel agent sales as well as Delta and United
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reservation, passenger check-in and ticketing systems. The failure of the
systems or equipment of the Company or third parties (which the Company believes
is the most likely worst case scenario) could result in the reduction or
suspension of the Company's operations and could have a material adverse effect
on the Company's financial condition and results of operations.
The Company is reviewing and revising its business interruption contingency
plans. The review, together with any necessary revisions, will be completed
concurrent with the modifications to existing systems and application programs
by September 30, 1999. The review of these plans will include how to maintain
safety as well as performing certain functions and processes manually. Due to
the uncertainty, related to year 2000 issues, the Company's contingency plan
will be ongoing in nature and may require further modifications to existing
systems as new information is made available and the Company further assess the
readiness of third parties upon which the Company relies.
SEASONALITY
As is common in the airline industry, SkyWest's operations are favorably
affected by increased travel, historically occurring in the summer months, and
are unfavorably affected by decreased business travel during the months from
November through January and by inclement weather which occasionally results in
cancelled flights, principally during the winter months. However, SkyWest does
expect some mitigation of the historical seasonal trends due to an increase in
the portion of its operations in contract flying.
FORWARD-LOOKING STATEMENTS
This form 10-K contains various forward-looking statements and information that
are based on management's belief, as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "estimate," "project," "expect," and similar expressions are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on the Company's operating results
include, among other things, changes in SkyWest's code-sharing relationships,
fluctuations in the economy and the demand for air travel, the degree and nature
of competition and SkyWest's ability to expand services in new and existing
markets and to maintain profit margins in the face of pricing pressures.
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
As of June 17, 1999, SkyWest owned or leased the following types of aircraft:
<TABLE>
<CAPTION>
NUMBER OF SCHEDULED AVERAGE
AIRCRAFT FLIGHT CRUISING AVERAGE
----------------- PASSENGER RANGE SPEED AGE
TYPE OF AIRCRAFT OWNED LEASED CAPACITY (MILES) (MPH) (YEARS)
- ---------------- ----- ------ --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Brasilia......................... 21 68 30 300 300 5.5
Canadair Regional Jet............ -- 11 50 850 530 4.6
</TABLE>
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SkyWest's aircraft are turboprop and jet pressurized aircraft designed to
operate more economically over short-haul routes with lower passenger load
factors than larger jet aircraft. These factors make it economically feasible
for SkyWest to provide high frequency service in markets with relatively low
volumes of passenger traffic. Passenger comfort features of these aircraft
include stand-up headroom, a lavatory, overhead baggage compartments and flight
attendant service. Fiscal year 1995 marked the introduction of the Canadair
Regional Jet ("CRJs"). SkyWest operates eleven of these aircraft on stage
lengths up to 850 miles.
During fiscal 1998, SkyWest entered into an agreement to purchase 20 new
Brasilia aircraft, related spare parts inventory and support equipment. Two of
these aircraft were delivered in fiscal 1998 and 13 were delivered in fiscal
1999. At March 31, 1999, SkyWest had agreed to purchase the remaining five
Brasilia aircraft, related spare parts inventory and support equipment at an
aggregate cost of approximately $40.0 million, including estimated cost
escalations. SkyWest also has options to acquire 30 additional Brasilia aircraft
at fixed prices (subject to cost escalations and delivery schedules) exercisable
through fiscal 2000. During fiscal 1999, SkyWest Airlines entered into an
agreement to acquire 25 CRJs and related spares parts inventory and support
equipment together with options on 25 additional aircraft. Subsequent to March
31, 1999, SkyWest Airlines entered into an agreement to acquire an additional 10
CRJs and secured options for an additional 20 aircraft. This brings the total
firm order to 35 jet aircraft and 35 options at an aggregate cost of
approximately $787.5 million. The options to acquire 35 additional CRJs are at
fixed prices (subject to cost escalations) and delivery schedules and are
exercisable through July 2003.
GROUND FACILITIES
Employees of SkyWest perform substantially all routine airframe and engine
maintenance and periodic inspection of equipment. Maintenance is performed
primarily at facilities in Palm Springs, California, Salt Lake City, Utah, and
Fresno, California. SkyWest owns a 56,600 square foot maintenance facility in
Palm Springs, California and leases a 90,000 square foot aircraft maintenance
and training facility at the Salt Lake International Airport. The facility
consists of a 40,000 square foot maintenance hangar and 50,000 square feet of
training and other facilities to support SkyWest's growing hub operations. The
facility was constructed and is owned by the Salt Lake City Airport Authority.
SkyWest is leasing the facility under an operating lease arrangement over a
36-year term. The Company also leases a 90,000 square foot maintenance hanger
and 15,000 square foot office facility in Fresno, California.
SkyWest leases ticket counters, check-in, and boarding and other facilities in
the passenger terminal areas in the majority of the airports it serves and
staffs these facilities with SkyWest personnel. Delta and United provide ticket
handling and/or ground support services for SkyWest in 30 of the 64 airports it
serves.
The Company's corporate headquarters are located in a 63,000 square foot
building in St. George, Utah. Management deems the Company?s facilities as being
suitable and necessary to support existing operations and believes the Company's
facilities are adequate for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine legal proceedings incident to its business. In
the opinion of management, none of such proceedings are expected to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter and quoted in the NASDAQ
National Market System under the symbol "SKYW." At June 17, 1999, there were
approximately 1,061 stockholders of record. Securities held of record do not
include shares held in securities position listings. The following table sets
forth the range of high and low closing sales prices for the Company's Common
Stock.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
----------- -----------
Quarter High Low High Low
------- ------ ------ ----- ------
<S> <C> <C> <C> <C>
First $29.75 $17.69 $8.50 $ 6.00
Second 34.00 15.00 10.32 7.69
Third 32.69 16.06 14.81 10.13
Fourth 38.00 25.13 21.06 14.75
</TABLE>
The transfer agent for the Company's Common Stock is Zions First National Bank,
Salt Lake City, Utah. During fiscal 1999 and 1998, the Board of Directors
declared regular quarterly dividends of $.03 each quarter.
On May 5, 1998, the Company's Board of Directors declared a 100 percent stock
dividend (one share for each share outstanding) payable to stockholders of
record on May 20, 1998. The dividend was distributed on June 8, 1998. The
Company paid cash in lieu of issuing fractional shares.
On May 4, 1999, the Company's Board of Directors declared a regular quarterly
cash dividend of $.03 per share payable to stockholders of record on June 30,
1999, distributable July 14, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to
page 1 of the Company's Annual Report to Shareholders for the fiscal year ended
March 31, 1999, furnished herewith to the Commission as Exhibit 13.1 to this
report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to
pages 12 through 16 of the Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1999, furnished herewith to the Commission as
Exhibit 13.1 to this report on Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company included on pages 17
through 30 of the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1999, furnished herewith to the Commission as Exhibit 13.1 to
this report on Form 10-K, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
All items in Part III are incorporated herein by reference to the Company's
Proxy Statement for its 1999 annual stockholders meeting to be held August 10,
1999, to be filed with the Commission.
<TABLE>
<CAPTION>
Headings in
Proxy Statement
---------------
<S> <C> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS "Election of Directors" and
OF THE REGISTRANT. "Executive Officers"
ITEM 11. EXECUTIVE COMPENSATION. "Executive Compensation" and
"Report of the Compensation Committee"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL "Election of Directors" and
OWNERS AND MANAGEMENT. "Security Ownership of Certain
Beneficial Owners and
Management"
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. "Certain Relationships and
Related Transactions"
</TABLE>
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed:
1. Financial Statements. The following consolidated financial
statements of SkyWest, Inc., included in the Annual Report to
Shareholders for the year ended March 31, 1999, are
incorporated herein by reference in Item 8 of this report on
Form 10-K.
- Report of independent public accountants
- Consolidated balance sheets as of March 31, 1999 and 1998
- Consolidated statements of income for the years ended March
31, 1999, 1998 and 1997
- Consolidated statements of stockholders' equity for the
years ended March 31, 1999, 1998 and 1997
- Consolidated statements of cash flows for the years ended
March 31, 1999, 1998 and 1997
- Notes to consolidated financial statements
2. Financial Statement Schedules. The following consolidated
financial statement schedule of SkyWest, Inc. is included in
Item 14(d) hereof.
- Report of independent public accountants on financial
statement schedule
- Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are not applicable, and therefore have been
omitted.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1999.
(c) Exhibits.
<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ ------- --------------- --------
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation................................(1)
3.2 Amended By-Laws...................................................(6)
4.1 Articles IV and VI of Restated Articles of
Incorporation describing the Common Shares
and shareholders rights (included in
Exhibit 3.1)......................................................(1)
</TABLE>
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<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ ------- --------------- --------
<S> <C> <C> <C>
4.2 Article II of the Amended By-Laws defining the
rights of Common Shareholders (included in
Exhibit 3.2).......................................................(6)
10.1 SkyWest, Inc. Amended and Combined Incentive and
Non-Statutory Stock Option Plan....................................(6)
10.2 Delta Connection agreement dated January 13, 1987
between Delta Air Lines, Inc. and SkyWest
Airlines, Inc......................................................(2)
10.3 Stock Option agreement dated January 28,
1987 between Delta Air Lines, Inc. and
SkyWest, Inc.......................................................(2)
10.13 Lease Agreement dated December 1,1989 between
Salt Lake City Corporation and SkyWest Airlines,
Inc................................................................(7)
10.15 Purchase Agreement dated July 23,1993 between
Bombardier Regional Aircraft Division and
SkyWest Airlines, Inc..............................................(9)
10.16 Purchase agreement No. DSP/AJV-042/95 dated
June 9, 1995 between Embraer - Empresa
Brasileira de Aeronautica S.A. and
SkyWest Airlines, Inc.............................................(10)
10.17 SkyWest, Inc. 1995 Employee
Stock Purchase Plan...............................................(10)
10.18 Marketing and Code Sharing Agreement dated
October 24, 1996 between Continental Airlines,
Inc. and SkyWest Airlines, Inc....................................(11)
10.19 Purchase agreement No. GCT-008/98 dated
March 26, 1998 between Embraer-Empresa
Brasileira de Aeronautica S.A. and SkyWest Airlines, Inc..........(12)
10.20 Purchase agreement No. PA-0428 dated January 15, 1999
between Bombardier, Inc. and SkyWest Airlines, Inc...................................X
13.1 Certain portions of the Annual Report to Shareholders
for the year ended March 31, 1999, are incorporated
by reference into this report on Form 10-K...........................................X
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ ------- --------------- --------
<S> <C> <C> <C>
22.1 Subsidiaries of the Registrant....................................(1)
24.1 Consent of independent public accountants...........................................X
27.1 Financial Data Schedule.............................................................x
</TABLE>
- --------------
(1) Incorporated by reference to Registration Statement on Form S-1, File No.
33-5823.
(2) Incorporated by reference to Registrant's 10-Q filed for the quarter ended
December 31, 1986.
(3) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1987.
(4) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1989.
(5) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1990.
(6) Incorporated by reference to Registration Statement on Form S-8, File No.
33-41285.
(7) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1992.
(8) Incorporated by reference to Registration Statement on Form S-2, File No.
33-61958.
(9) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1994.
(10) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1995.
(11) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1996.
(12) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31,1998.
14
<PAGE> 15
(d) Financial Statement Schedule.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To SkyWest, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in SkyWest, Inc.'s Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated May 19, 1999. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in Item 14 (a)(2) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Salt Lake City, Utah
May 19, 1999
15
<PAGE> 16
SKYWEST, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Additions
Balance at Charged To Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended March 31, 1999:
Allowance for obsolescence $ 180,000 $ 200,000 $ -- $ 380,000
Allowance for doubtful
accounts receivable 123,768 100,000 (21,094) 202,674
--------- --------- --------- ---------
$ 303,768 $ 300,000 $ (21,094) $ 582,674
========= ========= ========= =========
Year Ended March 31, 1998:
Allowance for obsolescence $ 280,000 $ -- $(100,000) $ 180,000
Allowance for doubtful
accounts receivable 103,978 77,728 (57,938) 123,768
--------- --------- --------- ---------
$ 383,978 $ 77,728 $(157,938) $ 303,768
========= ========= ========= =========
Year Ended March 31, 1997:
Allowance for obsolescence $ 180,000 $ 100,000 $ -- $ 280,000
Allowance for doubtful
accounts receivable 221,345 44,686 (162,053) 103,978
--------- --------- --------- ---------
$ 401,345 $ 144,686 $(162,053) $ 383,978
========= ========= ========= =========
</TABLE>
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SKYWEST, INC.
By /s/ Jerry C. Atkin
--------------------------------------------
Jerry C. Atkin
Chairman, President and Chief Executive Officer
Pursuant to the requirement of the Securities Act of 1934, this report has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Names Capacities Date
----- ---------- ----
<S> <C> <C>
/s/ Jerry C. Atkin Chairman of the Board, President and June 17, 1999
- ------------------------- Chief Executive Officer
Jerry C. Atkin
/s/ Sidney J. Atkin Vice Chairman of the Board June 17, 1999
- ------------------------- and Director
Sidney J. Atkin
Executive Vice President, June 17, 1999
/s/ Bradford R. Rich Chief Financial Officer and Treasurer
- ------------------------- (principal financial and
Bradford R. Rich accounting officer)
/s/ J. Ralph Atkin Director June 17, 1999
- -------------------------
J. Ralph Atkin
Director
- -------------------------
Mervyn K. Cox
Director
- -------------------------
Ian M. Cumming
Director
- -------------------------
Steven F. Udvar-Hazy
/s/ Henry J. Eyring Director June 17, 1999
- -------------------------
Henry J. Eyring
/s/ Hyrum W. Smith Director June 17, 1999
- --------------------------
Hyrum W. Smith
</TABLE>
17
<PAGE> 1
EXHIBIT 10.20
MASTER PURCHASE AGREEMENT
NO. PA-0428
BETWEEN
BOMBARDIER INC.
AND
SKYWEST AIRLINES, INC.
-1-
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE
-------
<S> <C>
1 INTERPRETATION
2 SUBJECT MATTER OF SALE
3 AIRLINE SUPPORT SERVICES AND WARRANTY
4 PRICE
5 PAYMENT
6 DELIVERY PROGRAM
7 BUYER INFORMATION
8 CERTIFICATION FOR EXPORT
9 ACCEPTANCE PROCEDURE 1
10 TITLE AND RISK
11 CHANGES
12 BUYER'S REPRESENTATIVES AT MANUFACTURE SITE
13 EXCUSABLE DELAY
14 NON-EXCUSABLE DELAY
15 LOSS OR DAMAGE
16 TERMINATION
17 NOTICES
18 INDEMNITY AGAINST PATENT INFRINGEMENT
19 LIMITATION OF LIABILITY AND INDEMNIFICATION
20 ASSIGNMENT
21 SUCCESSORS
22 APPLICABLE LAW'S
23 CONFIDENTIAL NATURE OF AGREEMENT
24 AGREEMENT
EXHIBITS
--------
I CERTIFICATE OF ACCEPTANCE
II BILL OF SALE
III CERTIFICATE OF RECEIPT OF AIRCRAFT
IV CHANGE ORDER
ANNEXES
-------
A AIRLINE SERVICES
B. WARRANTY AND SERVICE LIFE POLICY
</TABLE>
-2-
<PAGE> 3
This Master Purchase Agreement is made on the 15th day of January, 1999
BY AND BETWEEN: BOMBARDIER INC., a Canadian corporation represented by
BOMBARDIER AEROSPACE, REGIONAL AIRCRAFT having an office at 123
Garratt Boulevard, Downsview, Ontario, Canada ("Bombardier")
AND: SkyWest Airlines, Inc., a Utah corporation having its offices at
444 South River Road, St. George, Utah, 84790, USA ("Buyer")
WHEREAS Buyer man in future desire to purchase new Aircraft (as defined
in Article 1.4 of this Master Purchase Agreement) and related
data, documents, and services under this Agreement (as defined
in Article 1.4 of this Master Purchase Agreement) from
Bombardier, and the parties desire to agree in advance on the
terms that will govern such purchase; and
WHEREAS This Master Purchase Agreement and any subsequent amendments
thereto, together with the Supplement(s) that may be executed
from time to time, will be the governing document for any future
transactions between Bombardier and Buyer relating to the
purchase and sale of new Bombardier products, currently being
offered for sale by Bombardier Aerospace, Regional Aircraft.
NOW THEREFORE, in consideration of the mutual covenants herein contained, Buyer
and Bombardier agree as follows:
-3-
<PAGE> 4
ARTICLE I - INTERPRETATION
1.1 The recitals above have been inserted for convenience only and do not
form part of this Agreement.
1.2 The headings in this Agreement are included for convenience only and
shall not be used in the construction and interpretation of this
Agreement.
1.3 In this Agreement, unless otherwise expressly provided, the singular
includes the plural and vice-versa.
1.4 In this Agreement the following expressions shall, unless otherwise
expressly provided, mean:
(a) "Acceptance Period" shall have the meaning attributed to it in
Article 9.3;
(b) "Acceptance Date" shall have the meaning attributed to it in
Article 9.7(a);
(c) "Agreement" means this Master Purchase Agreement and
Supplements, if any, including their Exhibits, Annexes,
Schedules and Appendices, if any, either attached hereto (each
of which is incorporated in the -Agreement by this reference) or
subsequently agreed by the parties, hereto, pursuant to the
provisions of this Agreement;
(d) "Aircraft" shall have the meaning attributed to it in the
applicable Supplement;
(e) "Aircraft Purchase Price" shall have the meaning attributed to
it in the applicable Supplement;
(f) "Base Price" shall have the meaning attributed to it in the
applicable Supplement;
(g) "Bill of Sale" shall have the meaning attributed to it in
Article 9.7(c);
(h) "Buyer Selected Optional Features" shall have the meaning
attributed to it in the applicable Supplement;
(i) "Delivery Date" shall have the meaning attributed to it in
Article 9.7(c);
(j) "Economic Adjustment Formula", if applicable, shall have the
meaning attributed to it in the applicable Supplement;
-4-
<PAGE> 5
(k) "Excusable Delay" shall have the meaning attributed to it in
Article 13.1;
(l) "FAA" shall have the meaning attributed to it in Article 8.1;
(m) "Non-Excusable Delay" shall have the meaning attributed to it in
Article 14.1;
(n) "Notice" shall have the meaning attributed to it in Article
17.1;
(o) "Other Patents' shall have the meaning attributed to it in
Article 18.1;
(p) "Permitted Change" shall have the meaning attributed to it in
Article 11.2;
(q) "Readiness Date" shall have the meaning attributed to it in
Article 9.1;
(r) "Regulatory Change" shall have the meaning attributed to it in
Article 8.4;
(s) "Scheduled Delivery Date" shall have the meaning attributed to
it in the applicable Supplement;
(t) "Specification" shall have the meaning attributed to it in the
applicable Supplement;
(u) "Supplement" means a supplementary agreement to this Agreement
entered into by the parties for the purchase of specific
products currently offered for sale by Bombardier Aerospace,
Regional Aircraft;
(v) "Taxes" shall have the meaning attributed to it in Article 4.2;
and
(w) "TC" shall have the meaning attributed to it in Article 8.1.
1.5 All dollar amounts in this Agreement are in United States Dollars.
-5-
<PAGE> 6
ARTICLE 2 - SUBJECT MATTER OF SALE
2.1 A description of the Aircraft being purchased and sold under the terms
of this Agreement and the related Bombardier specification document
number(s) will be set out in the applicable Supplement. Until a
Supplement, in the form of Supplement No. PA-428-1 attached hereto, is
executed between the parties hereto, neither party shall have any
obligation under the terms of this Agreement.
2.2 This Agreement shall be applicable to the purchase of Aircraft completed
during a period of three (3) years from the date hereof as evidenced by
the execution of a Supplement.
-6-
<PAGE> 7
ARTICLE 3 - CUSTOMER SUPPORT SERVICES AND WARRANTY
3.1 Bombardier shall provide to Buyer the customer support services pursuant
to the provisions of Annex A attached hereto and the applicable
Supplement.
3.2 Bombardier shall provide to Buyer the warranty and the service life
policy described in Annex B attached hereto and the applicable
Supplement which shall be the exclusive warranty applicable to the
Aircraft.
3.3 Unless expressly stated otherwise, the services referred to in 3.1 and
3.2 above and the applicable Supplement are incidental to the sale of
the Aircraft and are included in the Aircraft Purchase Price.
-7-
<PAGE> 8
ARTICLE 4 - PRICE
4.1 (a) The base price for each of the Aircraft is set out in the
applicable Supplement.
(b) The base price of the Buyer Selected Optional Features is set
out in the applicable Supplement.
4.2 The Aircraft Purchase Price (as defined in the applicable Supplement)
does not include any taxes, fees or duties including, but not limited
to, sales, use, value added (including the Canadian Goods and Services
Tax), personal property, gross receipts, franchise, excise taxes,
assessments or duties ("Taxes") which are-or may be imposed by law upon
Bombardier, any affiliate of Bombardier, Buyer or the Aircraft whether
or not there is an obligation for Bombardier to collect same from Buyer,
by any taxing authority or jurisdiction occasioned by, relating to or as
a result of the execution of this Agreement or the sale, lease,
delivery, storage, use or other consumption of any Aircraft or any other
matter, good or service provided under or in connection with this
Agreement. According to legislation as of the date hereof, Canadian
taxes, duties and Goods and Services Tax are not applicable to aircraft
sold and immediately exported from Canada.
4.3 If any Taxes (other than Canadian income taxes charged on the income of
Bombardier) are imposed upon Buyer or become due or are to be collected
from Bombardier by any taxing authority, Bombardier shall notify Buyer
and Buyer shall promptly, but no later than ten (10) working days after
receiving such notice, pay such Taxes directly to the taxing authority,
or reimburse Bombardier for such Taxes, as the case may be, including
interest and penalties.
4.4 Upon Bombardier's request, Buyer shall execute and deliver to Bombardier
any documents that Bombardier deems necessary or desirable in connection
with any exemption from or reduction of or the contestation of or the
defense against any imposition of Taxes.
-8-
<PAGE> 9
ARTICLE 5 - PAYMENT
5.1 The terms of payment for the Aircraft purchased and sold under the terms
of this Agreement shall be set-out in the applicable Supplement.
5.2 Subject to the provisions of Article 9.9 hereof, should Buyer fail to
make any of the payments required under the applicable Supplement on or
before the stipulated date and Buyer does not correct the failure within
a period of thirty (30) days thereafter, Buyer shall be in default and
any Supplement and this Agreement as it relates thereto shall
automatically terminate and Bombardier shall have no further obligation
to Buyer under any Supplement and this Agreement as it relates thereto,
including the obligation to proceed further with the manufacture of the
Aircraft on behalf of Buyer or the sale and/or delivery of the Aircraft
to Buyer. Notwithstanding the preceding sentence Bombardier shall have
the option (but not the obligation) of waiving such termination should
Buyer make arrangements satisfactory to Bombardier for such payment and
all future payments within ten (10) calendar days of Buyer's default.
5.3 Buyer shall pay Bombardier daily interest on late payments, from the
date that any payment becomes due up to and including the day prior to
receipt of payment, at a rate of two percent (2%) per annum over the
prime rate charged by the National Bank of Canada from time to time,
calculated and compounded monthly. Bombardier's right to receive such
interest is in addition to any other right or remedy Bombardier has at
law as a result of Buyer's failure to make payments when due.
5.4 Buyer shall make all payments due under this Agreement and/or any
applicable Supplement in immediately available United States Dollars by
deposit on or before the due date, to Bombardier's account, in the
manner set out in the applicable Supplement.
5.5 All amounts due with respect to each Aircraft shall be paid on or prior
to the Delivery Date of the respective Aircraft.
5.6 All payments provided for under this Agreement and/or any applicable
Supplement shall be made so as to be received by Bombardier in
immediately available funds on or before the dates stipulated herein.
5.7 Bombardier shall remain the exclusive owner of the Aircraft, free and
clear of all rights, liens, charges or encumbrances created by or
through Buyer, until such time as all payments referred to in this
Article 5 have been received in full by Bombardier.
-9-
<PAGE> 10
ARTICLE 6 - DELIVERY PROGRAM
6.1 The Aircraft shall be offered for inspection and acceptance to Buyer at
Bombardier's facility and during the month(s) set forth in the
applicable Supplement.
-10-
<PAGE> 11
ARTICLE 7 - BUYER INFORMATION
7.1 During the manufacture of the Aircraft, Buyer shall provide to
Bombardier on or before the date required by Bombardier, all information
as Bombardier may reasonably request to manufacture the Aircraft
including, without limitation, the selection of furnishings, internal
and external colour schemes.
Buyer will, not less that the number of months set forth in the
applicable Supplement, prior to the delivery of the first Aircraft
governed by such Supplement:
(a) provide Bombardier with an external paint scheme agreed on by
the parties;
(b) select interior colours (from Bombardier's standard colours);
and
(c) provide to Bombardier, on drawings which will be forwarded to
Buyer, language translations for interior and exterior Aircraft
labels.
Failure of Buyer to comply with these requirements may result in an
increase in price, a delay in delivery of the Aircraft, or both.
-11-
<PAGE> 12
ARTICLE 8 - CERTIFICATION FOR EXPORT
8.1 Bombardier has obtained or will obtain from Transport Canada,
Airworthiness ("TC"), a TC Type Approval or Certificate (Transport
Category) and from the Federal Aviation Administration of the United
States ("FAA") an FAA Type Certificate for the type of aircraft
purchased under this Agreement and any applicable Supplement.
8.2 Bombardier shall provide to Buyer a TC Certificate of Airworthiness
(Transport Category) for Export to the United States of America, on or
before the Delivery Date.
8.3 Bombardier shall not be obligated to obtain any other certificates or
approvals as part of this Agreement. The obtaining of any import license
or authority required to import or operate the Aircraft into any country
outside of Canada shall be the responsibility of Buyer. Bombardier
shall, to the extent permitted by law, and with Buyer's assistance, seek
the issuance of a Canadian export license to enable Buyer to export the
Aircraft from Canada subject to prevailing export control regulations in
effect on the Delivery Date.
8.4 If any addition or change to, or modification or testing of the Aircraft
is required by any law or governmental regulation or requirement or
interpretation thereof by any governmental agency having jurisdiction in
order to meet the requirements of Article 8.2 (a "Regulatory Change"),
such Regulatory Change shall be made to the Aircraft prior to Delivery
Date, or at such other time after the Delivery Date as the parties may
agree upon.
8.5 The Regulatory Change shall be made without additional charge to Buyer
unless such Regulatory Change is:
(a) necessary to comply with any requirement of the country
specified in the TC Certificate of Airworthiness for Export,
which varies from or is in addition to its regulation,
requirement or interpretation in effect on the date hereof for
the issuance of a Certificate of Airworthiness in said country,
in which case Buyer shall pay Bombardier's reasonable charges
for such Regulatory Change, or
(b) required by any governmental law or regulations or
interpretation thereof promulgated by TC, or the FAA as
applicable, which is effective subsequent to the date of this
Agreement but before the Delivery Date and which is applicable
to all aircraft in general or to all aircraft of the same
category as the Aircraft, in which case Buyer shall pay
Bombardier's reasonable charges for such Regulatory Change
incorporated in any such Aircraft.
8.6 If delivery of the Aircraft is delayed by the incorporation of any
Regulatory Change, such
-12-
<PAGE> 13
delay shall be an Excusable Delay within the meaning of Article 13.
8.7 Bombardier shall issue a Change Order, reflecting any Regulatory Change
required to be made under this Article 8, which shall set forth in
detail the particular changes to be made and the effect, if any, of such
changes on design, performance, weight, balance, time of delivery, Base
Price and Aircraft Purchase Price. Any Change Orders issued pursuant to
this Article shall be effective and binding upon the date of
Bombardier's transmittal of such Change Order.
8.8 If the use of any of the certificates identified in this Article 8 are
discontinued during the performance of this Agreement, reference to such
discontinued certificate shall be deemed a reference to any other
certificate or instrument which corresponds to such certificate or, if
there should not be any such other certificate or instrument, then
Bombardier shall be deemed to have obtained such discontinued
certificate(s) upon demonstrating that the Aircraft complies
substantially with the Specification.
8.9 Reference to a regulatory authority shall include any succeeding
department or agency then responsible for the duties of said regulatory
authority.
-13-
<PAGE> 14
ARTICLE 9 - ACCEPTANCE PROCEDURE
9.1 Bombardier shall give Buyer at least thirty (30) days advance notice, by
facsimile or telegraphic communication or other expeditious means, of
the projected date of readiness of each Aircraft for inspection and
delivery.
Bombardier shall give Buyer at least ten (10) working days advance
notice, by facsimile or telegraphic communication or other expeditious
means, of the date on which an Aircraft will be ready for Buyer's
inspection, flight test and acceptance (the "Readiness Date").
9.2 Within two (2) days following receipt by Buyer of the notice of
Readiness Date Buyer shall:
(a) provide notice to Bombardier as to the source and method of
payment of the balance of the Aircraft Purchase Price;
(b) identify to Bombardier the names of Buyer's representatives who
will participate in the inspection, flight test and acceptance;
and
(c) provide evidence of the authority of the designated persons to
execute the Certificate of Acceptance and other delivery
documents on behalf of Buyer.
9.3 Buyer shall have three (3) consecutive working days commencing on the
Readiness Date in which to complete the inspection and flight test (such
three (3) working day period being the "Acceptance Period").
9.4 Up to four (4) representatives of Buyer may participate in Buyer's
ground inspection of the Aircraft and two (2) representatives of Buyer
may participate in the flight test. Bombardier shall, if requested by
Buyer, perform an acceptance flight of not less than one (1) and not
more than three (3) hours duration. Ground inspection and flight test
shall be conducted in accordance with Bombardier's acceptance procedures
(a copy of which shall be provided to Buyer at least 30 days prior to
the Scheduled Delivery Date of the first Aircraft governed by the
applicable Supplement hereunder) and at Bombardier's expense. At all
times during ground inspection and flight test, Bombardier shall retain
control over the Aircraft.
9.5 If no Aircraft defect or discrepancy is revealed during the ground
inspection or flight test, Buyer shall accept the Aircraft on or before
the last day of the Acceptance Period in accordance with the provisions
of Article 9.7.
9.6 If any material defect or discrepancy in the Aircraft is revealed by
Buyer's ground
-14-
<PAGE> 15
inspection or flight test, the defect or discrepancy will promptly be
corrected by Bombardier, at no cost to Buyer, which correction may occur
during or after the Acceptance Period depending on the nature of the
defect or discrepancy and of the time required for correction. To the
extent necessary to verify such correction, Bombardier shall perform one
(1) or more further acceptance flights.
9.7 Upon completion of the ground inspection and acceptance flight of the
Aircraft and correction of any defects or discrepancies:
(a) Buyer will sign a Certificate of Acceptance (in the form of
Exhibit I hereto ) for the Aircraft. Execution of the
Certificate of Acceptance by or on behalf of Buyer shall be
evidence of Buyer having examined the Aircraft and found it in
accordance with the provisions of this Agreement. The date of
signature of the Certificate of Acceptance shall be the
"Acceptance Date";
(b) Bombardier will supply a TC Certificate of Airworthiness for
Export, and
(c) Buyer shall pay Bombardier the balance of the Aircraft Purchase
Price and any other amounts due, at which time Bombardier shall
issue a bill of sale (in the form of Exhibit 11 hereto) passing
to Buyer good title to the Aircraft free and clear of all liens,
claims, charges and encumbrances except for those liens, charges
or encumbrances created by or claimed through Buyer (the "Bill
of Sale"). The date on which Bombardier delivers the Bill of
Sale and Buyer takes delivery of the Aircraft shall be the
"Delivery Date".
Delivery of the Aircraft shall be evidenced by the execution and
delivery of the Bill of Sale and of the Certificate of Receipt of
Aircraft (in the form of Exhibit III hereto ).
9.8 Provided that Bombardier has met all of its obligations under this
Article 9, should Buyer not accept, pay for and take delivery of any of
the Aircraft governed by the applicable Supplement within ten (10)
calendar days after the end of the Acceptance Period of such Aircraft,
Buyer shall be deemed to be in default of the terms of this Agreement
with respect to all the undelivered Aircraft governed by the applicable
Supplement.
-15-
<PAGE> 16
9.9 Buyer shall promptly, upon demand, reimburse Bombardier for all costs
and expenses reasonably incurred by Bombardier as a result of Buyer's
failure to accept or take delivery of the Aircraft, including but not
limited to reasonable amounts for storage, insurance, taxes,
preservation or protection of the Aircraft. Provided that Bombardier has
met all of its obligations under this Article 9, should Buyer not
accept, pay for and/or take delivery of any one of the Aircraft governed
by a Supplement within thirty (30) calendar days following the end of
the Acceptance Period, the present Agreement, with respect to all
Aircraft governed by such Supplement shall automatically terminate.
Bombardier shall however, have the option (but not the obligation) of
waiving such termination should Buyer, within ten (10) calendar days
following such termination, make arrangements satisfactory to Bombardier
to accept delivery and provide payment for all amounts owing or to
become due pursuant to this Agreement and the applicable Supplement.
-16-
<PAGE> 17
ARTICLE 10 - TITLE AND RISK
10.1 Title to the Aircraft and risk of loss of or damage to the Aircraft
passes to Buyer when Bombardier presents the Bill of Sale to Buyer on
the Delivery Date.
10.2 If, after transfer of title on the Delivery Date, the Aircraft remains
in or is returned to the care, custody or control of Bombardier, Buyer
shall retain risk of loss of, or damage to the Aircraft and for itself
and on behalf of its insurer(s) hereby waives and renounces to, and
releases Bombardier and any of Bombardier's affiliates from any claim,
whether direct, indirect or by way of subrogation, for damages to or
loss of the Aircraft arising out of, or related to, or by reason of such
care, custody or control.
-17-
<PAGE> 18
ARTICLE 11 - CHANGES
11.1 Other than a Permitted Change as described in Article 11.2, or a
Regulatory Change as described in Article 8.4, any change to the
Aircraft (including without limitation the Specification) or any
features, changing such Aircraft from that described in the
Specification, requested by Buyer, and as may be mutually agreed upon by
the parties hereto, shall be made using it change order ("Change Order)
substantially in the format of Exhibit IV hereto. Should Buyer request a
change, Bombardier shall advise Buyer, to the extent reasonably
practiced, of the effect, if any, of such change request on:
(a) the Scheduled Delivery Date;
(b) the price and payment terms applicable to the Change Order; and
(c) any other material provisions of this Agreement which will be
affected by the Change Order.
Such Change Order shall become effective and binding on the parties
hereto when signed by a duly authorized representative of each party.
11.2 Bombardier, prior to the Delivery Date and without a Change Order or
Buyer's consent, may:
(a) substitute the kind, type or source of any material, part,
accessory or equipment with any other material, part, accessory
or equipment of like, equivalent or better kind or type; or
(b) make such change or modification to the Specification as it
deems appropriate to:
1) improve the Aircraft, its maintainability or appearance,
or
2) to prevent delays in manufacture or delivery, or
3) to meet the delivery requirements of Articles 2, 6 and
8, other than with respect to a Regulatory Change to
which the provisions of Articles 8.4 and 8.5 shall
apply,
provided that such substitution, change or modification shall not affect
the Aircraft Purchase Price or materially affect the Scheduled Delivery
Date, interchangeability or replaceability of spare parts or performance
characteristics of the Aircraft. Any change made in accordance with the
provisions of this Article 11.2 shall be deemed to be a "Permitted
Change" and the cost thereof shall be borne by Bombardier.
-18-
<PAGE> 19
ARTICLE 12 - BUYER'S REPRESENTATIVES AT MANUFACTURE SITE
12.1 From time to time, commencing with the date which is thirty (30) days
prior to the Scheduled Delivery Date of the first Aircraft governed by
the applicable Supplement, and ending with the Delivery Date of the last
Aircraft purchased hereunder, Bombardier shall furnish, without charge,
office space at Bombardier's facility for one (1) representative of
Buyer. Buyer shall be responsible for all expenses of its representative
and shall notify Bombardier at least thirty (30) days prior to the first
scheduled visit of such representative and three (3) days for each
subsequent visit.
12.2 Bombardier's and Bombardier's affiliates' facilities shall be accessible
to Buyer's representative during normal working hours. Buyer's
representative shall have the right to periodically observe the work at
Bombardier's or Bombardier's affiliates' facilities where the work is
being carried out provided there shall be no disruption in the
performance of the work.
12.3 Bombardier shall advise Buyer's representative of Bombardier's or
Bombardier's affiliates' rules and regulations applicable at the
facilities being visited and Buyer's representative shall conform to
such rules and regulations.
12.4 At any time prior to delivery of the Aircraft, Buyer's representative
may request, in writing, correction of parts or materials which they
reasonably believe are not in accordance with the Specification.
Bombardier shall provide a written response to any such request.
Communication between Buyer's representative and Bombardier shall be
solely through Bombardier's Contract Department or its designate.
12.5 BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS
BOMBARDIER, ITS ASSIGNEES AND AFFILIATES AND THEIR OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES AND ABILITIES, DAMAGES, CONTRACTORS FROM AND AGAINST
ALL LIABILITIES LOSSES, COSTS AND EXPENSES RESULTING FROM INJURIES TO OR
DEATH OF OR LOSS OF OR DAMAGE TO PROPERTY OF BUYER OR BUYER'S
REPRESENTATIVES WHILE AT BOMBARDIER'S OR BOMBARDIER'S AFFILIATES OR
SUBCONTRACTOR'S FACILITIES AND/OR DURING INSPECTION, FLIGHT TEST OR
ACCEPTANCE OF THE AIRCRAFT, WHETHER OR NOT CAUSED BY THE ACTIVE, PASSIVE
OR IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF BOMBARDIER, ITS
ASSIGNEES, AFFILIATES OR THEIR OFFICERS, DIRECTORS, AGENTS, EMPLOYEES OR
CONTRACTORS.
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ARTICLE 13 - EXCUSABLE DELAY
13.1 In the event of a delay-on the part of Bombardier in the performance of
its obligations or responsibilities under the provisions of this
Agreement or any applicable Supplement due directly or indirectly to a
cause which is beyond the reasonable control or without the fault or
negligence of Bombardier (an "Excusable Delay"), Bombardier shall not be
liable for, nor be deemed to be in default under this Agreement nor
under the applicable Supplement on account of such delay in delivery of
the Aircraft or other performance hereunder and the time fixed or
required for the performance of any obligation or responsibility in this
Agreement or the applicable Supplement shall be extended for a period
equal to the period during which any such cause or the effect thereof
persist. Excusable Delay shall be deemed to include, without limitation,
delays occasioned by the following causes:
(a) force majeure or acts of God;
(b) war, warlike operations, act of the enemy, armed aggression,
civil commotion, insurrection, riot or embargo;
(c) fire, explosion, earthquake, lightning, flood, draught,
windstorm or other action of the elements or other catastrophic
or serious accidents;
(d) epidemic or quarantine restrictions;
(e) any legislation, act, order, directive or regulation of any
governmental or other duly constituted authority;
(f) strikes, lock-out, walk-out, and/or other labour troubles
causing cessation, slow- down or interruption of work;
(g) lack or shortage or delay in delivery of supplies, materials,
accessories, equipment, tools or parts;
(h) delay or failure of carriers, subcontractors or suppliers for
any reason whatsoever; or
(i) delay in obtaining type certification or any airworthiness
approval or certificate, or any equivalent approval or
certification, by reason of any law or governmental order,
directive or regulation or any change thereto, or interpretation
thereof, by a governmental agency, the effective date of which
is subsequent to the date of the applicable Supplement, or by
reason of any change or addition made by Bombardier or its
affiliates as a result of a request of or requirement made by a
governmental .agency to the compliance program of Bombardier or
of its affiliate, or any part thereof, as same may have been
approved by TC, or change to the interpretation thereof to
obtain any such airworthiness approval or certificate.
13.2 (a) If Bombardier concludes, based on its appraisal of the facts and
normal scheduling procedures, that due to Excusable Delay
delivery-of an Aircraft will be delayed for more than twelve
(12) months after the originally Scheduled Delivery Date or any
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<PAGE> 21
revised date agreed to in writing by the parties, Bombardier
shall promptly notify Buyer in writing and either party may then
terminate the applicable supplement and the Agreement as it
relates thereto with respect to such Aircraft by giving written
notice to the other within fifteen (15) days after receipt by
Buyer of Bombardier's notice.
(b) If, due to Excusable Delay, delivery of an Aircraft is delayed
for more than twelve (12) months after the Scheduled Delivery
Date, either party may terminate the applicable Supplement and
the Agreement as it relates thereto with respect to such
Aircraft by giving written notice to the other within fifteen
(15) days after the expiration of such twelve (12) month period.
13.3 Termination under Article 13.2 shall discharge all obligations and
liabilities of Buyer and Bombardier hereunder with respect to such
delayed Aircraft and all related undelivered items and services, except
that Bombardier shall promptly repay to Buyer, and Bombardier's sole
liability and responsibility shall be limited to the repayment to Buyer,
of all advancements for such Aircraft received by Bombardier less, any
amount due by Buyer to Bombardier.
13.4 The termination rights set forth in Article 13.2 are in substitution for
any and all other rights of termination or contract lapse arising by
operation of law in connection with Excusable Delays.
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ARTICLE 14 - NON-EXCUSABLE DELAY
14.1 If delivery of the Aircraft is delayed by causes- not excused under
Article 13.1 (a "Non-Excusable Delay"), Bombardier shall pay Buyer, as
liquidated damages and not as a penalty, the amount as set forth in the
applicable Supplement for each day of Non-Excusable Delay in excess of
a grace period of the number of days set forth in the applicable
Supplement, to a maximum of the amount set forth in the applicable
Supplement for any such delayed Aircraft.
14.2 Any right Buyer might otherwise have to refuse to accept delivery of an
Aircraft when offered by Bombardier for inspection and acceptance
following a Non-Excusable Delay is included within the rights and
remedies for which the liquidated damages provided pursuant to Article
14.1 are the exclusive right and remedy. Buyer will not have the right
to refuse to take delivery of any Aircraft because of a Non-Excusable
Delay unless and until the aggregate duration of the Non-Excusable Delay
for such Aircraft exceeds the period as set forth in the applicable
Supplement. If Bombardier has not offered an Aircraft for inspection and
acceptance before the end of that period as set forth in the applicable
Supplement, Buyer may terminate the Agreement as to such Aircraft by
giving notice to Bombardier. If, no such notice having been given,
Bombardier offers such Aircraft, for inspection and acceptance and Buyer
refuses to take delivery of such Aircraft because of Non-Excusable
Delay, Buyer will be deemed to have terminated the Agreement and the
applicable Supplement as to such Aircraft. Buyer shall, effective upon
such termination, be entitled to recover from Bombardier, as liquidated
damages and not as a penalty, the aggregate amount of liquidated damages
calculated under Article 14.1 to the date of termination. In addition
Bombardier shall promptly repay to Buyer all advance payments for such
Aircraft plus daily simple interest thereon from the date of receipt to
the date of repayment at the prime rate charged by the National Bank of
Canada from time to time, calculated and compounded monthly.
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ARTICLE 15 - LOSS OR DAMAGE
15.1 In the event that prior to the Delivery Date of any Aircraft, the
Aircraft is lost, destroyed or damaged beyond repair due to any cause,
Bombardier shall promptly notify Buyer in writing. Such notice shall
specify the earliest date reasonably possible, consistent with
Bombardier's other contractual commitments and production schedule, by
which Bombardier estimates it would be able to deliver a replacement for
the lost, destroyed or damaged Aircraft. The applicable Supplement and
this Agreement as it relates thereto shall automatically terminate with
respect to such Aircraft unless Buyer gives Bombardier written notice,
within thirty (30) days of Bombardier's notice, that Buyer desires a
replacement for such Aircraft. If Buyer gives such notice to Bombardier,
the parties shall execute an amendment to the applicable Supplement
which shall set forth the Delivery Date for such replacement aircraft
and corresponding new replacement Aircraft Purchase Price; provided,
however, that nothing herein shall obligate Bombardier to manufacture
and deliver such replacement aircraft if it would require the
reactivation or acceleration of its production line for the model of
aircraft purchased hereunder. The terms and conditions of this Agreement
and the applicable Supplement applicable to the replaced Aircraft shall
apply to the replacement aircraft.
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ARTICLE 16 - TERMINATION
16.1 Any Supplement hereto and this Agreement as it relates thereto may be
terminated, in whole or in part, with respect to any or all of the
Aircraft governed by such Supplement before the applicable Delivery Date
by Bombardier or Buyer by notice of termination to the other party upon
the occurrence of any of the following events:
(a) a party makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts or generally
does not pay its debts as they become due; or
(b) a receiver or trustee is appointed for a party or for
substantially all of such party's assets and, if appointed
without such party's consent, such appointment is not discharged
or stayed within thirty (30) calendar days thereafter; or
(c) proceedings or action under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors are
instituted by or against a party, and, if contested by such
party, are not dismissed or stayed, within thirty (30) calendar
days thereafter; or
(d) any writ of attachment or execution or any similar process is
issued or levied against a party or any significant part of its
property and is not released, stayed, bonded or vacated within
thirty (30) calendar days after its issue or levy.
16.2 In addition, any Supplement hereto and this Agreement as it relates
thereto may be terminated, in whole or in part, before the Delivery Date
with respect to any or all undelivered Aircraft governed by the
applicable Supplement:
(a) as otherwise provided in this Agreement or the applicable
Supplement; or
(b) by Bombardier, if Buyer is in default or breach of any material
term or condition of this Agreement or the applicable Supplement
and Buyer does not cure such default or breach within thirty
(30) calendar days after receipt of notice from Bombardier
specifying such default or breach.
(c) by Buyer, if Bombardier is in default or breach of any material
term or condition of this Agreement or the applicable Supplement
and such breach remains uncured for a period of sixty (60)
calendar days following receipt of a notice from Buyer
specifying the nature of default or breach.
16.3 In case of termination under Articles 5.2 or 9.9, or by Bombardier
pursuant to Articles 16.1 or 16.2:
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<PAGE> 25
(a) all rights (including property rights), if any, which Buyer or
its assignee may have or may have had in or to this Agreement
and the applicable Supplement or any or all of the undelivered
Aircraft governed by such Supplement shall become null and void
with immediate effect;
(b) Bombardier may sell, lease or otherwise dispose of such Aircraft
to another party free of any claim by Buyer; and
(c) all amounts paid by Buyer with respect to the applicable
undelivered Aircraft governed by the applicable Supplement shall
be retained by Bombardier and shall be applied against the
costs, expenses, losses and damages incurred by Bombardier as a
result of Buyer's default and/or the termination of this
Agreement and the applicable Supplement. Buyer hereby
acknowledges and recognizes that such costs, expenses, losses
and damages will aggregate not less than the amount previously
paid by Buyer with respect to such undelivered Aircraft.
16.4 Subject to Article 14.1, in the event of termination of this Agreement
and the applicable Supplement by Buyer, Buyer's sole rights, remedies
and recourses against Bombardier and Bombardier's obligations to Buyer
shall be limited to only the return by Bombardier of those amounts paid
by Buyer to Bombardier hereunder on account of the undelivered Aircraft
governed by the applicable Supplement.
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ARTICLE 17 - NOTICES
17.1 Any notice, request, approval, permission, consent or other
communication ("Notice"), to be given or required under this Agreement
or a Supplement shall be provided in writing, by registered mail,
facsimile, courier, telegraphic or other electronic communication
providing reasonable proof of transmission, except that no notice shall
be sent by mail if disruption of postal service exists or is threatened
either in the country of origin or of destination, by the party giving
the Notice and shall be addressed as follows:
(a) Notices to Bombardier shall be addressed to:
Bombardier Inc.
Bombardier Aerospace, Regional Aircraft 123
123 Garratt Boulevard
Downsview, Ontario
Canada M3K 1Y5
Attention: Director of Contracts
Facsimile: (416) 375-4533
(b) Notices to Buyer shall be addressed to:
SkyWest Airlines, Inc.
444 South River Road
St. George, Utah
USA, 84790
Attention: Vice-President, Planning
Facsimile: (435) 634-3305
17.2 Notice given in accordance with Article 17.1 shall be deemed
sufficiently given to and received by the addressees:
(a) if delivered by hand, on the day when the same shall have been
so delivered; or
(b) if mailed or sent by courier on the day indicated on the
corresponding acknowledgment of receipt; or
(c) if sent by telex or facsimile on the day indicated by the
acknowledgment or the answer back of the-receiver in provable
form.
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ARTICLE 18 - INDEMNITY AGAINST PATENT INFRINGEMENT
18.1 In the case of any actual or alleged infringement of any Canadian or
United States patent or, subject to the conditions and exceptions set
forth below, any patent issued under the laws of any other country in
which Buyer from time to time may lawfully operate the Aircraft ("Other
Patents"), by the Aircraft, or by any system, accessory, equipment or
part installed in such Aircraft at the time title to such Aircraft
passes to Buyer, Bombardier shall indemnify, protect and hold harmless
Buyer from and against all claims, suits, actions, liabilities, damages
and costs resulting from the infringement, excluding any indirect,
punitive incidental or consequential damages (which include without
limitation loss of revenue or loss of profit) and Bombardier shall, at
its option and expense:
(a) procure for Buyer the right under such patent to use such
system, accessory, equipment or part; or
(b) replace such system, accessory, equipment or part with one of
the similar nature and quality that is non-infringing; or
(c) modify such system, accessory, equipment or part to make same
non-infringing in a manner such as to keep it otherwise in
compliance with the requirements of this Agreement.
Bombardier's obligation hereunder shall extend to Other Patents only if
from the time of design of the Aircraft, system, accessory, equipment or
part until the alleged infringement claims are resolved:
(d) such other country and the country in which the Aircraft is
permanently registered have ratified and adhered to and are at
the time of the actual or alleged infringement contracting
parties to the Chicago Convention on International Civil
Aviation of December 7, 1944 and are fully entitled to all
benefits of Article 27 thereof, and
(e) such other country and the country of registration shall each
have been a party to the International Convention for the
Protection of Industrial Property (Paris Convention) or have
enacted patent laws which recognize and give adequate protection
to inventions made by the nationals of other countries which
have ratified, adhered to and are contracting parties to both of
the forgoing conventions.
18.2 The foregoing indemnity does not apply to BFE, or to avionics, engines
or any system, accessory, equipment or part that was not manufactured to
Bombardier's detailed design or to any. system, accessory, equipment or
part manufactured by a third party to Bombardier's detailed design
without Bombardier's authorization.
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<PAGE> 28
18.3 Buyer's remedy and Bombardier's obligation and liability under this
Article are conditional upon (i) Buyer giving Bombardier written notice
within ten (10) days after Buyer receives notice of a suit or action
against Buyer alleging infringement or within twenty (20) days after
Buyer receives any other written claim of infringement (ii) Buyer uses
reasonable efforts in full cooperation with Bombardier to reduce or
mitigate any such expenses, damages, costs or royalties involved, and
(iii) Buyer finishes promptly to Bombardier all data, papers and records
in its possession or control necessary or useful to resist and defend
against such claim or suit. Bombardier may at its option conduct
negotiations with any party claiming infringement and may intervene in
any suit or action. Whether or not Bombardier intervenes, Bombardier
shall be entitled at any stage of the proceedings to assume or control
the defense. Buyer's remedy and Bombardier's obligation and liability
are further conditional upon Bombardier's prior approval of Buyer's
payment or assumption of any liabilities, expenses, damages, royalties
or costs for which Bombardier may be held liable or responsible.
18.4 THE INDEMNITY, OBLIGATIONS AND LIABILITIES OF BOMBARDIER AND REMEDIES OF
BUYER SET OUT IN THIS ARTICLE ARE EXCLUSIVE AND ACCEPTED BY BUYER TO BE
IN LIEU OF AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES
AND RENOUNCES, ALL OTHER INDEMNITIES, OBLIGATIONS AND LIABILITIES OF
BOMBARDIER AND OF ITS AFFILIATES AND ALL OTHER RIGHTS, REMEDIES AND
CLAIMS, INCLUDING CLAIMS FOR DAMAGES, DIRECT, INDIRECT, PUNITIVE
INCIDENTAL OR CONSEQUENTIAL, OF BUYER AGAINST BOMBARDIER AND ITS
AFFILIATES EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT
TO ANY ACTUAL OR ALLEGED PATENT INFRINGEMENT BY THE AIRCRAFT OR ANY
INSTALLED SYSTEM, ACCESSORY, EQUIPMENT OR PART.
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ARTICLE 19 - LIMITATION OF LIABILITY AND INDEMNIFICATION
19.1 BOMBARDIER SHALL HAVE NO OBLIGATION OR LIABILITY (AT LAW OR IN EQUITY),
WHETHER ARISING IN CONTRACT (INCLUDING WITHOUT LIMITATION, WARRANTY), IN
TORT (INCLUDING THE ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE, OR GROSS
NEGLIGENCE OR WILLFUL. MISCONDUCT, OR STRICT PRODUCTS LIABILITY OF
BOMBARDIER OR ITS AFFILIATES), OR OTHERWISE, FOR ANY CLAIM CAUSE OF
ACTION, OR MATTER OF ANY KIND ARISING UNDER, IN CONNECTION WITH OR
PURSUANT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN, FOR
LOSS OF USE, REVENUE OR PROFIT OR FOR ANY OTHER INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE.
19.3 THE WARRANTIES, LIABILITIES AND OBLIGATIONS OF BOMBARDIER, AND THE
REMEDIES OF BUYER SET FORTH IN THIS AGREEMENT) ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL
OTHER WARRANTIES, GUARANTEES, OBLIGATIONS, REPRESENTATIONS AND
LIABILITIES OF, AND RIGHTS, CLAIMS, REMEDIES, DAMAGES, COSTS AND
EXPENSES AGAINST, BOMBARDIER OR ANY SUCCESSOR OR PERMITTED ASSIGNEE,
EXPRESSED OR IMPLIED ARISING IN FACT, IN LAW, IN EQUITY, IN CONTRACT, IN
TORT OR OTHERWISE, INCLUDING BUT NOT LIMITED TO (a) ANY IMPLIED WARRANTY
OR CONDITIONS OF MERCHANTABILITY OR FITNESS, (b) ANY IMPLIED WARRANTY OR
CONDITION ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE
OF TRADE, (c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR
NON-CONFORMANCE OR DEFECT OR FAILURE OF ANY KIND OR LOSS OF OR DAMAGE TO
ANY AIRCRAFT OR PART THEREOF, ANY SPARE PARTS OR ANY TECHNICAL DATA,
PRODUCT, DOCUMENT OR SERVICE PROVIDED UNDER THIS AGREEMENT, (d) ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO
ANY AIRCRAFT, ANY BRAD PARTS, ANY VENDOR PARTS, ANY SPARE PARTS OR ANY
TECHNICAL DATA.
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19.3 BUYER HEREBY RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS
BOMBARDIER, ITS SUBSIDIARIES, AFFILIATES, SUBCONTRACTORS AND LESSORS,
AND THEIR RESPECTIVE EMPLOYEES, DIRECTORS, OFFICERS AND AGENTS, AND EACH
OF THEM, FROM AND AGAINST ALL LIABILITIES, CLAIMS, DAMAGES, LOSSES,
COSTS AND EXPENSES FOR LOSS OF OR DAMAGE TO PROPERTY INCLUDING ANY
AIRCRAFT, AND LOSS OF USE THEREOF, OR INJURIES TO OR DEATH OF ANY AND
ALL PERSONS (INCLUDING BUYER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES
BUT EXCLUDING BOMBARDIER'S DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES),
ARISING DIRECTLY OR INDIRECTLY OUT OF OR IN CONNECTION WITH ANY SERVICE
PROVIDED UNDER THIS AGREEMENT.
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ARTICLE 20 - ASSIGNMENT
20.1 Either party may assign, sell, transfer or dispose of (in whole or in
part) any of its rights and obligations hereunder or a Supplement to a
wholly owned subsidiary or affiliate provided that there is no increase
to the liability and/or responsibility of the non-assigning party and
that the assigning party remains jointly and severally liable with any
assignee for the performance of its obligation under this Agreement.
20.2 Except as provided in Article 20.1, Buyer shall not assign, sell,
transfer or dispose of (in whole or in part) any of its rights or
obligations hereunder or a Supplement without Bombardier's prior written
consent. In the event of such assignment, sale, transfer or disposition
Buyer shall remain jointly and severally liable with any assignee for
the performance of all and any of Buyer's obligations under this
Agreement and Bombardier reserves the right as a condition of its
consent to amend one or more of the terms and conditions of this
Agreement and (including for more certainty) the applicable Supplement.
20.3 Notwithstanding Article 20.2 above, Buyer may assign, after transfer of
title of the Aircraft, its rights under this Agreement, save and except
for any rights of Buyer which are expressly stated to be personal to
Buyer, to a third party purchaser of any one of the Aircraft, provided
said third party acknowledges in writing to be bound by the applicable
terms and conditions of this Agreement, and provided that there is no
increase to the liability and/or responsibility of Bombardier.
20.4 Bombardier may assign any of its rights to receive money hereunder
without the prior consent of Buyer.
20.5 Notwithstanding the other provisions of this Article 20, Bombardier
shall, at Buyer's cost and expense, if so requested in writing by Buyer,
take any action reasonably required for the purpose of causing any of
the Aircraft to be subjected (i) to, after the Delivery Date, an
equipment trust, conditional sale or lien, or (ii) to another
arrangement for the financing of the Aircraft by Buyer, providing,
however, there shall be no increase to the liability and/or
responsibility of Bombardier arising through such financing.
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ARTICLE 21 - SUCCESSORS
21.1 This Agreement shall inure to the benefit of and-be binding upon each of
Bombardier and Buyer and their respective successors and permitted
assignees.
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ARTICLE 22 - APPLICABLE LAWS
22.1 THIS AGREEMENT (AND INCLUDING FOR MORE CERTAINTY ANY APPLICABLE
SUPPLEMENTS) SHALL BE SUBJECT TO AND CONSTRUED IN ACCORDANCE WITH AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY THE DOMESTIC LAWS OF THE
PROVINCE OF ONTARIO, CANADA, EXCLUDING THE CHOICE OF LAW RULES, AND THE
PARTIES HAVE AGREED THAT THE APPLICATION OF THE UNITED NATIONS
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS IS HEREBY
EXCLUDED.
22.2 Bombardier's obligations under this Agreement shall be subject to and
apply only to the extent permitted by applicable laws, regulations,
directives an/or orders regarding export controls.
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ARTICLE 23 - CONFIDENTIAL NATURE OF AGREEMENT
23.1 This Agreement is confidential between the parties and shall not,
without the prior written consent of the other party, be disclosed by
either party in whole or in part to any other person or body except:
iii) as may be required by financial institutions or
arrangers involved with the financing of the Aircraft,
and then only subject to such person or body agreeing to
execute the other party's confidentiality agreement. It
is the disclosing party's responsibility to have such
form executed with any third party prior to disclosure
of any such information and to provide such form to the
other party for approval. The foregoing does not apply
where the disclosing party or the applicable third party
is required to disclose such information by law or
compelled by court order to do so, and
iv) as may be required by United Airlines Inc. ("United"),
and then only after a request in writing from United and
only subject to specified receiving personnel of United
agreeing to execute a confidentiality agreement in a
form reasonably acceptable to Bombardier.
23.2 Except as may be reasonably required for the normal operation,
maintenance, overhaul and repair of the Aircraft, Buyer shall hold
confidential all technical data and information supplied by or on behalf
of Bombardier. Buyer shall not reproduce any technical data or
information or divulge the same to any third party without the prior
written consent of Bombardier.
23.3 Either party may announce the signing of this Agreement by means of a
notice to the press provided that the content and date of the notice has
been agreed to by the other party.
23.4 In the event that this Agreement is required to be filed as an exhibit
to a registration statement under the Securities Act of 1933 as amended,
(the "Securities" Act) or a periodic report under the Exchange Act of
1934, as amended (the "Exchange" Act) Buyer shall notify Bombardier, by
written notice, at least forty-five (45) days prior to the date of such
anticipated filing of such determination and the reasons therefor, and
shall use its best efforts to work with Bombardier to prepare and file
with the Securities and Exchange Commission (the "Commission") a request
for confidential treatment pursuant to Rule 24b-2 under the Exchange Act
or Rule 406 under the Securities Act, as the case may be, with respect
to information in this Agreement, and such other information as
Bombardier may reasonably request.
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Subject to compliance with the foregoing, and notwithstanding the other
provisions of this Article, portions of this Agreement or a Supplement hereto
may be filed as exhibits to such registration statement or periodic report to
the extent required by the Commission and such filing shall not constitute a
breach hereof by Buyer. This provision shall survive until the latter of (i) the
complete performance by Buyer of its obligation hereunder or (ii) two (2) years
from the date hereof.
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ARTICLE 24 - AGREEMENT
24.1 This Agreement including any Supplements pursuant hereto, as same may be
amended from time to time, and the matters referred to herein constitute
the entire Agreement between Bombardier and Buyer with respect to the
Bombardier products governed by the applicable Supplements and supersede
and cancel all prior representations, brochures, alleged warranties,
statements, negotiations, undertakings, letters, memoranda of agreement,
proposals, acceptances, agreements, understandings, contracts and
communications, whether oral or written, between Bombardier and Buyer or
their respective agents, with respect to or in connection with the
subject matter of this Agreement and the applicable Supplement and no
agreement or understanding varying the terms and conditions hereof shall
be binding on either Bombardier or Buyer hereto unless an amendment to
this Agreement or the applicable Supplement is issued and duly signed by
their respective authorized representatives. In the event of any
inconsistencies between this Agreement and a Supplement or other
documents referred to herein, the provisions of the Supplement shall
prevail.
24.2 If any of the provisions of this Agreement or a Supplement are for any
reason declared by judgment of a court of competent jurisdiction to be
unenforceable or ineffective, those provisions shall be deemed severable
from the other provisions of this Agreement/the Supplement and the
remainder of this Agreement/the Supplement shall remain in full force
and effect.
24.3 THE BENEFIT OF THE WAIVER, RELEASE, RENUNCIATION AND EXCLUSION OF
LIABILITY IN ARTICLE 19, EXTENDS ALSO TO THE OTHER DIVISIONS, OTHER
SUBSIDIARIES, AND OTHER AFFILIATES OF BOMBARDIER INC. (COLLECTIVELY THE
"BOMBARDIER GROUP") AND TO THE OFFICERS, DIRECTORS, EMPLOYEES AND
REPRESENTATIVES OF THE BOMBARDIER GROUP.
24.4 Bombardier and Buyer confirm to each other they have each obtained the
required authorizations and fulfilled any conditions applicable to
enable each of them to enter into this Agreement and any Supplement.
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<PAGE> 37
24.5 Buyer and Bombardier agree that this Agreement has been the subject of
discussion and negotiation and is fully understood by the parties hereto
and that the other mutual agreements of the parties set forth herein
were arrived at in consideration of the provisions contained in
Articles, 12.5, 18.4, 19, Annex A Article 2.9.4.5 and Annex B Article
5.1.
In witness whereof this Agreement was signed on the date written hereof:
For and on behalf of For an on behalf of
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
--------------------------- -----------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
---------------------------
Eric Christensen
Vice President, Planning
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ANNEX A
AIRLINE SERVICES
TECHNICAL SUPPORT, SPARE PARTS, TRAINING AND TECHNICAL DATA
The following Airline Services are those services to which reference is made in
Article 3 of the Agreement.
ARTICLE I - TECHNICAL SUPPORT
1.2 FACTORY SERVICE
Bombardier agrees to maintain or cause to be maintained the capability
to respond to Buyer's technical inquiries, to conduct investigations
concerning repetitive maintenance problems and to issue findings and
recommend action thereon. This service shall be provided for as long as
ten (10) of the Aircraft type(s) purchased under this Agreement remain
in commercial air transport service.
1.2 FIELD SERVICE REPRESENTATIVE
1.2.1 SERVICES
Bombardier shall assign one (1) or more Field Service
Representative ("FSW") to Buyer's main base of operation or
other location as may be mutually agreed, all as provided in the
applicable Supplement.
1.2.2 TERM
The FSR term is as set out in the applicable Supplement.
1.2.3 RESPONSIBILITY
The FSR's responsibility shall be to provide technical advice to
Buyer for the line maintenance and operation of the Aircraft
systems and troubleshooting during scheduled and unscheduled
maintenance by Buyer's designated personnel ("FSR Services").
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1.2.4 TRAVEL
If requested by Buyer, the FSR may, at Buyer's expense, travel
to another location to provide technical advice to Buyer.
1.2.5 OFFICE FACILITIES
Buyer shall furnish the FSR, at no charge to Bombardier,
suitable and private office facilities and related equipment
including desk, file cabinet, access to two telephone lines,
facsimile and photocopy equipment conveniently located at
Buyer's main base of operation or other location as may be
mutually agreed.
1.2.6 ADDITIONAL EXPENSES
Buyer shall reimburse Bombardier (net of any additional taxes on
such reimbursement) the amount of any and all taxes (except
Canadian taxes on the income of the FSR) and fees of whatever
nature, including any customs duties, withholding taxes or fees
together with any penalties or interest thereon, paid or
incurred by Bombardier or the FSR or other Bombardier employee
as a result of or in connection with the rendering of the
services.
1.2.7 RIGHT TO STOP WORK
Bombardier shall not be required to commence or continue the FSR
Services when:
(a) there is a labour dispute or work stoppage in progress
at Buyer's facilities;
(b) there exist war, risk of war or warlike operations,
riots or insurrections;
(c) there exist conditions that are dangerous to the safety
or health of the FSR or other Bombardier employee; or
(d) the Government of the country where Buyer's. facilities
are located or where Buyer desires the FSR to travel
refuses the Bombardier employee permission to enter said
country or Buyer's base of operations.
1.2.8 WORK PERMITS AND CLEARANCES
Buyer shall arrange for all necessary work permits and airport
security clearances required for the FSR or other Bombardier
employee to permit timely accomplishment of the FSR services.
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1.3 MAINTENANCE PLANNING SUPPORT
1.3.1 SCHEDULED MAINTENANCE TASK CARDS
As described in the applicable Supplement, Bombardier shall
provide Buyer Bombardier's standard format scheduled maintenance
task cards that shall conform Aircraft at the Delivery Date. At
Buyer's request Bombardier shall provide a proposal for task
cards produced to Buyer's format.
1.3.2 IN-SERVICE MAINTENANCE DATA
Buyer agrees to provide to Bombardier in-service maintenance
data in order to provide updates to Bombardier's recommended
maintenance program. Buyer and Bombardier shall agree on
standards and frequency for communication of such data.
1.4 ADDITIONAL SERVICES
At Buyer's request Bombardier shall provide a proposal to provide such
additional support services as the parties may agree upon, which may
include special investigations, maintenance and repair of the Aircraft.
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ARTICLE 2 - SPARE PARTS, GSE, TOOLS AND TEST EQUIPMENT
2.1.1 DEFINITIONS
a. "BOMBARDIER PARTS":
any spare parts, ground support equipment, tools and test
equipment which bear an inhouse Cage Code number in the
Bombardier Provisioning Files (as that expression is defined in
ATA Specification 2000).
b. "POWER PLANT PARTS":
any power plant or power plant part or assembly carrying the
power plant manufacturer's part number or any part furnished by
the power plant manufacturer for incorporation on the Aircraft.
c. "VENDOR PARTS":
any spare parts, ground support equipment, tools and test
equipment for the Aircraft which are not Bombardier Parts or
Power Plant Parts.
d. "SPARE PARTS":
all materials, spare parts, assemblies, special tools and items
of equipment, including ground support equipment, ordered for
the Aircraft by Buyer from Bombardier. The term Spare Parts
includes Bombardier Parts, Power Plant Part and Vendor Parts.
e. "ORDER":
any order for Spare Parts issued by Buyer to Bombardier; and f.
"Technical Data": shall have the meaning attributed to it in the
applicable Supplement.
2.1 TERM AND APPLICABILITY
The term of this Annex A Article-2 shall become effective on the date
hereof and shall remain in full force and effect with respect to the
purchase and sale of Spare Parts for each Aircraft so long as at least
ten (10) of the Aircraft remain in commercial air transport service. The
provisions of Annex A Articles 2.2, and 2.6.5 shall survive expiration
or termination of this Agreement.
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2.2 ORDER TERMS
Terms and conditions hereof shall apply to all Orders placed by Buyer
with Bombardier in lieu of any terms and conditions in Buyer's purchase
orders.
2.3 PURCHASE AND SALE OF SPARE PARTS
2.3.1 AGREEMENT TO MANUFACTURE AND SELL
Bombardier shall manufacture, or procure, and make available for
sale to Buyer suitable Spare Parts in quantities sufficient to
meet the reasonably anticipated needs of Buyer for normal
maintenance and normal spares inventory replacement for each
Aircraft. During the term specified in Annex A Article 2.1
above, Bombardier shall also maintain a shelf stock of certain
Bombardier Parts selected by Bombardier to ensure reasonable
re-order lead times and emergency support. Bombardier shall
maintain a reasonable quantity of Bombardier Insurance parts.
Insurance parts as used herein shall include, but not be limited
to, dispatch-essential parts such as major flight control
surfaces.
2.4 AGREEMENT TO PURCHASE BOMBARDIER PARTS
2.4.1 PURCHASE OF BOMBARDIER PARTS
In consideration of Bombardier's obligation under Annex A
Article 2.3.1, during the term stated in Annex A Article 2.1,
Buyer agrees to purchase Bombardier Parts only from Bombardier
or from airlines operating the same type aircraft purchased
herein. Buyer may however purchase Bombardier Parts from any
source whatsoever, redesign Bombardier Parts, or have them
redesigned, manufacture Bombardier Parts, or have them
manufactured, under the following conditions:
(a) When less than ten (10) aircraft of the type purchased
under this Agreement are operated in scheduled
commercial air transport service;
(b) Any time Bombardier Parts are needed to effect emergency
repairs on the Aircraft, provided that such purchase,
redesign or manufacture by or from sources other than
Bombardier allows Buyer to obtain Bombardier Parts in
less time than Bombardier requires to furnish them; or
(c) If Buyer has notified Bombardier in writing that any
Bombardier Parts are defective or unsatisfactory in use
and if within a reasonable period thereafter
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Bombardier has not provided a satisfactory resolution or
made redesigned Bombardier Parts available.
2.4.2 BUYER'S RIGHT TO PURCHASE, REDESIGN OR MANUFACTURE
Buyer's right to purchase, redesign or to have redesigned or
manufacture or to have manufactured Bombardier Parts under the
preceding Article shall not be construed as a granting of a
license by Bombardier and shall not obligate Bombardier to
disclose to anyone Technical Data or other information nor to
the payment of any license fee or royalty or create any
obligation whatsoever to Bombardier and Bombardier shall be
relieved of any obligation or liability with respect to patent
infringement in connection with any such redesigned part. Buyer
shall be responsible for obtaining all regulatory authority
approvals required by Buyer to repair the Aircraft using
redesigned or manufactured Bombardier Parts as described in the
preceding Article. Any such redesigned part shall be identified
with Buyer's part number only.
2.4.3 NOTICE TO BOMBARDIER OF REDESIGNED PARTS
If Buyer redesigns or has had any Bombardier Parts redesigned,
Buyer shall immediately thereafter advise Bombardier and make
available to Bombardier and its affiliates any such redesigned
part or manufacturing process therefor or drawings thereof. If
Bombardier requests, Buyer shall negotiate with Bombardier,
within sixty (60) calendar days after such redesigned part or
manufacturing process therefor or drawings thereof are made
available to Bombardier, for the granting to Bombardier of the
exclusive manufacturing rights of the redesigned part.
2.5 PURCHASE OF VENDOR PARTS & POWER PLANT PARTS
Bombardier shall not be obligated to maintain a stock of Vendor Parts or
Power Plant Parts. Bombardier may elect to maintain a spares stock of
selected Vendor Parts at its own discretion to support provisioning and
replenishment sales. Bombardier agrees to use reasonable efforts to
require its vendors to comply with the terms and conditions of this
Annex A Article 2 as they apply to Vendor Parts. Vendor Parts shall be
delivered in accordance with the vendor's quoted lead time plus
Bombardier's internal processing time.
2.6 SPARE PARTS PRICING
2.6.1 SPARE PARTS PRICE CATALOGUE
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Prices for commonly used Bombardier Parts and Vendor Parts
stocked by Bombardier shall be published in the spare parts
price catalogue ("Spare Parts Price Catalogue"). Bombardier
shall hold the published prices firm for catalogue stock class
items for a period of twelve (12) months and shall provide at
least ninety (90) calendar days notice prior to changing the
published price.
2.6.2 BOMBARDIER PRICES FOR VENDOR PARTS
If Buyer orders Vendor Parts from Bombardier, the price shall be
as published in the Spare Parts Price Catalogue.
2.6.3 QUOTATIONS
Price and delivery quotations for items not included in the
Spare Parts Price Catalogue shall be provided at Buyer's request
by Bombardier. Price quotations will be held firm for a period
of ninety (90) calendar days or as otherwise specified by
Bombardier. Responses to quotation requests will be provided
within ten (10) calendar days.
2.6.4 PRICE APPLICABILITY
The purchase price of Bombardier Parts shall be the applicable
price set forth in the Spare Parts Price Catalogue at time of
receipt by Bombardier of Buyer's Order or as quoted by
Bombardier to Buyer upon request. If Buyer requests accelerated
delivery or special handling for Bombardier Parts not included
in the Spare Parts Price Catalogue, Bombardier may increase the
price from the original quotation to cover any additional costs
to Bombardier.
2.6.5 CURRENCY AND TAXES
All Spare Parts Price Catalogue and quotation prices shall be in
U.S. dollars and exclusive of transportation, taxes, duties and
licenses.
Buyer shall pay to Bombardier upon demand the amount of any
sales, use, value-added, excise or similar taxes imposed by any
federal, provincial or local taxing authority within Canada, and
the amount of all taxes imposed by any taxing authority outside
Canada, required to be paid by Bombardier as a result of any
sale, use, delivery, storage or transfer of any Spare Parts. If
Bombardier has reason to believe that any such tax is
applicable, Bombardier shall separately state the amount of such
tax in its invoice. If a claim is made against Bombardier for
any such tax, Bombardier shall promptly notify Buyer.
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In addition, Buyer shall pay to Bombardier on demand the amount
of any customs duties required to be paid by Bombardier with
respect to the importation by Buyer of any Spare Parts.
2.6.6 VENDOR PRICING
Bombardier shall use reasonable efforts to require its major
vendors to maintain any published price for their parts for a
period of at least twelve (12) months with a ninety (90)
calendar day notice period prior to changing a published price.
2.7 PROVISIONING
2.7.1 PRE-PROVISIONING/PROVISIONING CONFERENCE
Pre-provisioning and provisioning conferences shall be convened
on dates to be mutually agreed between Buyer and Bombardier in
order to:
(i) discuss the operational parameters to be provided by
Buyer to Bombardier which Bombardier considers necessary
for preparing its quantity recommendations for initial
provisioning of Spare Parts to be purchased from
Bombardier or vendors ("Provisioning Items");
(ii) review Buyer's ground support equipment and special tool
requirements for the Aircraft;
(iii) discuss the format of the provisioning documentation to
be provided to Buyer from Bombardier for the selection
of Provisioning Items; and
(iv) arrive at a schedule of events for the initial
provisioning process, including the establishment of a
date for the initial provisioning conference ("Initial
Provisioning Conference") which shall be scheduled where
possible at least twelve (12) months prior to delivery
of the first Aircraft under an applicable Supplement.
The time and location of the pre-provisioning conference shall
be mutually agreed upon between the parties; however, Bombardier
and Buyer shall use their best efforts to convene such meeting
within thirty (30) days after execution of the applicable
Supplement.
2.8 INITIAL PROVISIONING DOCUMENTATION
Initial provisioning documentation for Bombardier Parts and Vendor Parts
shall be
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provided by Bombardier as follows:
(a) Bombardier shall provide, as applicable to Buyer, no later than
eighteen (18) months prior to the Scheduled Delivery Date of the
first Aircraft under the applicable Supplement or as may be
mutually agreed, the initial issue of provisioning files as
required by ATA Specification 2000, Chapter I (as may be amended
by Bombardier);
Revisions to this provisioning data shall be issued by
Bombardier every ninety (90) calendar days until ninety (90)
calendar days following the Delivery Date of the last Aircraft
under the applicable Supplement or as may be mutually agreed;
(b) Bombardier shall provide, as required by Buyer, all data files
defined in Chapter 1 of ATA Specification 2000; and
(c) the Illustrated Parts Catalogue designed to support provisioning
shall be issued concurrently with provisioning data files and
revised at ninety (90) calendar day intervals.
2.8.1 OBLIGATION TO SUBSTITUTE OBSOLETE SPARE PARTS
In the event that, prior to delivery of the first Aircraft under
an applicable Supplement, any Spare Part purchased by Buyer from
Bombardier is rendered obsolete or unusable due to the redesign
of the Aircraft or of any accessory, equipment or part thereto
(other than a redesign at Buyer's request), Bombardier shall
deliver to Buyer new and usable Spare Parts in substitution for
such obsolete or unusable Spare Parts upon return of such Spare
Parts to Bombardier by Buyer. Bombardier shall credit Buyer's
account with Bombardier with the price paid by Buyer for any
such obsolete or unusable Spare Part and shall invoice Buyer for
the purchase price of any such substitute Spare Part delivered
to Buyer.
2.8.2 DELIVERY OF OBSOLETE SPARE PARTS AND SUBSTITUTES
Obsolete or unusable Spare Parts returned by Buyer pursuant to
Annex A Article 2.8.1. shall be delivered to Bombardier at its
plant in Ontario or Quebec, or such other destination as
Bombardier may reasonably designate. Spare Parts substituted for
such returned obsolete or unusable Spare Parts shall be
delivered to Buyer from Bombardier's plant in Ontario or Quebec,
or such other Bombardier shipping point as Bombardier may
reasonably designate. Bombardier shall pay the freight charges
for the shipment from Buyer to Bombardier of any such obsolete
or unusable Spare Part and for the shipment from Bombardier to
Buyer of any such substitute Spare Part.
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2.8.3 OBLIGATION TO REPURCHASE SURPLUS PROVISIONING ITEMS
During a period commencing one (1) year after the Delivery Date
of the first Aircraft under an applicable Supplement, and ending
five (5) years after such Delivery Date, Bombardier shall, upon
receipt of Buyer's written request and subject to the exceptions
in Annex A Article 2.8.4, repurchase unused and undamaged
Provisioning Items which: (i) were recommended by Bombardier as
initial provisioning for the Aircraft, (ii) were purchased by
Buyer from Bombardier, and (iii) are surplus to Buyer's needs.
2.8.4 EXCEPTIONS
Bombardier shall not be obligated under Annex A Article 2.8.3 to
repurchase any of the following: (i) quantities of Provisioning
Items in excess of those quantities recommended by Bombardier in
its Recommended Spare Parts List ("RSPL") for the Aircraft, (ii)
Power Plant Parts, QEC Kits, standard hardware, bulk and raw
materials, ground support equipment and special tools, (iii)
Provisioning Items which have become obsolete or have been
replaced by other Provisioning Items as a result of (a) Buyer's
modification of the Aircraft or (b) design improvement by the
Aircraft manufacturer or the vendor (other than Provisioning
Items which have become obsolete because of a defect in design
if such defect has not been remedied by an offer by Bombardier
or the vendor to provide no charge retrofit kits or replacement
parts which correct such defect), and (iv) Provisioning Items
which become surplus as a result of a change in Buyer's
operating parameters provided to Bombardier pursuant to Annex A
Article 2.7, which were the basis of Bombardier's initial
provisioning recommendations for the Aircraft.
2.8.5 NOTIFICATION AND FORMAT
Buyer shall notify Bombardier, in writing, when Buyer desires to
return Provisioning Items which Buyer's review indicates are
eligible for repurchase by Bombardier under the provisions of
Annex A Article 2.8.3. Buyer's notification shall include a
detailed summary, in part number sequence, of the Provisioning
Items Buyer desires to return. Such summary shall be in the form
of listings as may be mutually agreed between Bombardier and
Buyer, and shall include part number, nomenclature, purchase
order number, purchase order date and quantity to be returned.
Within five (5) business days after receipt of Buyer's
notification Bombardier shall advise Buyer, in writing, when
Bombardier's review of such summary from Buyer will be
completed.
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2.8.6 REVIEW AND ACCEPTANCE BY BOMBARDIER
Upon completion of Bombardier's review of any detailed summary
submitted by Buyer pursuant to Annex A Article 2.8.5.,
Bombardier shall issue to Buyer a Material Return Authorization
notice ("MRA") for those Provisioning Items Bombardier agrees
are eligible for repurchase in accordance with Annex A Article
2.8.3. Bombardier will advise Buyer of the reason that any
Provisioning Items included in Buyer's detailed summary are not
eligible for return. The MRA notice shall state the date by
which Provisioning Items listed in the MRA notice must be
redelivered to Bombardier and Buyer shall arrange for shipment
of such Provisioning Items accordingly.
2.8.7 PRICE AND PAYMENT
The price of each Provisioning Item repurchased by Bombardier
pursuant to Annex A Article 2.8.6 will be the original invoice
price thereof. Bombardier shall pay the repurchase price by
issuing a credit memorandum in favour of Buyer which may be
applied against amounts due Bombardier for the purchase of Spare
Parts and services..
2.8.8 RETURN OF SURPLUS PROVISIONING ITEMS
Provisioning Items repurchased by Bombardier pursuant to Annex A
Article 2.8.6 shall be delivered to Bombardier Free Carrier
(Incoterms), at its plant in Ontario or Quebec, or other such
destination as Bombardier may reasonably designate.
2.8.9 OBSOLETE SPARE PARTS AND SURPLUS PROVISIONING ITEMS - TITLE AND
RISK OF LOSS
Title to and risk of loss of any obsolete or unusable Spare
Parts returned to Bombardier pursuant to Annex A Article 2.8.8
shall pass to Bombardier upon delivery thereof to Bombardier.
Title to and risk of loss of any Spare Parts substituted for an
obsolete or unusable Spare Part pursuant to Annex A Article
2.8.1 shall pass to Buyer upon delivery thereof to Buyer. Title
to and risk of loss of any Provisioning Items repurchased by
Bombardier pursuant to Annex A Article 2.8.3 shall pass to
Bombardier upon delivery thereof to Bombardier. With respect to
the obsolete or unusable Spare Parts which may be returned to
Bombardier and the Spare Parts substituted therefor, pursuant to
Annex A Article 2.8.1, and the Provisioning Items which may be
repurchased by Bombardier, pursuant to Annex A Article 2.8.3,
the party which has the risk of loss of any such Spare Part or
Provisioning Item shall have the responsibility, of providing
any insurance coverage thereon desired by such party.
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2.9 PROCEDURE FOR ORDERING SPARE PARTS
Orders for Spare Parts may be placed by Buyer to Bombardier by any
method of order placement (including but not limited to SITA, ARINC,
telecopier, letter, telex, facsimile, telephone or hard copy purchase
order).
2.9.1 REQUIREMENTS
Orders shall include at a minimum order number, part number,
nomenclature, quantity, delivery schedule requested, shipping
instructions and Bombardier's price, if available. Buyer agrees
that orders placed with Bombardier shall conform to the
requirements and procedures contained in ATA Specification 2000,
as applicable to Buyer.
2.9.2 PROCESSING OF ORDERS
Upon acceptance of any Order, unless otherwise directed by
Buyer, Bombardier shall, if the Spare Parts are in stock,
proceed immediately to prepare the Spare Parts for shipment to
Buyer. If Bombardier does not have the Spare Parts in stock,
Bombardier shall proceed immediately to acquire or manufacture
the Spare Parts. Purchase order status and actions related to
the shipment of Spare Parts shall be generally consistent with
the provisions of the World Airline Suppliers Guide and the
applicable portions of ATA Specification 2000, as applicable to
Buyer.
2.9.3 CHANGES
Bombardier reserves the right, without Buyer's consent, to make
any necessary corrections or changes in the design, part number
and nomenclature of Spare Parts covered by an Order, to
substitute Spare Parts and to adjust prices accordingly,
provided that interchangeability is not affected and the unit
price is not increased by more than 10% or $50.00, whichever is
less. Bombardier shall promptly give Buyer written notice of
corrections, changes, substitutions and consequent price
adjustments. Corrections, changes, substitutions and price
adjustments which affect interchangeability or exceed the price
limitations set forth above may be made only with Buyer's
consent, which consent shall conclusively be deemed to have been
given unless Buyer gives Bombardier written notice. of objection
within fifteen (15) business days after receipt of Bombardier's
notice. In case of any objection, the affected Spare Part will
be deemed to be deleted from Buyer's Order.
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2.9.4 ELECTRONIC DATA INTERCHANGE
Bombardier is not currently using EDI, however, if and when
Bombardier has the capability and equipment to utilize EDI
Bombardier will offer EDI transactions in accordance to the
parameters set forth below.
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2.9.4.1 USE OF ELECTRONIC DATA INTERCHANGE (EDI)
The SPEC 2000 Protocol shall be used for any EDI
transaction. Buyer and Bombardier shall implement
security procedures to ensure proper use of this
communication. A message will be considered received
only at the point where it is in a format which can be
accepted by the receiving computer according to ATA SPEC
2000 rules on transmissions. If garbled transmissions
are received, the receiver shall promptly notify the
sender through use of the SI REJECT command.
2.9.4.2 ACCEPTANCE OF EDI TRANSACTIONS
The SIBOOKED transaction creates an obligation on the
part of Buyer to purchase the material and quantities as
specified in the transmission. Bombardier is obliged to
sell the material and quantities as specified except as
may be identified in a subsequent SIORDEXC message. With
respect to a SIQUOTES transaction, Buyer and Bombardier
are bound to respect the prices quoted in the
transmission in 'any resultant SIBOOKED order
transaction based upon that SIQUOTES message within the
validity period of the SIQUOTES message. An SINVOICE
message will be considered as the official commercial
invoice for the goods shipped. An SISTOCKS, SISHIPPD,
SIPOSTAT or SIPNSTAT message creates no obligations on
either the Buyer or Bombardier.
If an SIBOOKED acknowledgment is not sent within 24
hours by Bombardier then Buyer shall resend the original
message.
Any document which has been properly received shall not
give rise to any obligation unless and until the party
receiving such document has properly transmitted in
return an acknowledgment document according to SPEC 2000
Protocol.
2.9.4.3 SYSTEMS OPERATIONS
Buyer and Bombardier, at their own expense, shall
provide and maintain the equipment, software, services
and testing necessary to effectively and reliably
transmit and receive documents.
2.9.4.4 VALIDITY OF DOCUMENTS
Annex A Article 2.9.4 has been agreed to by Buyer and
Bombardier to
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evidence their mutual intent to create binding purchase
and sale obligations pursuant to the electronic
transmission and receipt of documents as described
herein.
Such documents properly transmitted pursuant to this
Annex A Article 2.9.4 shall be considered, in connection
with any transaction or any other agreement, to be a
"writing" or "in writing" and shall be deemed for all
purposes (a) to have been "signed" and (b) to constitute
an "original" when printed from electronic files or
records established and maintained in the normal course
of business.
Buyer and Bombardier agree not to contest the validity
or enforceability of signed documents under the
provisions of any applicable law relating to whether
certain agreements are to be in writing or signed by
either party to be bound thereby. Signed documents, if
introduced as evidence on paper in any judicial,
arbitration, mediation or administrative proceedings,
will be admissible as between Buyer and Bombardier to
the same extent and under the same conditions as other
business records originated and maintained in
documentary form. Neither Buyer nor Bombardier shall
contest the admissibility of copies of signed documents
under either the business records exception to the
hearsay rule or the best evidence rule on the basis that
the signed documents were not originated or maintained
in documentary form.
2.10 PACKING
All Spare Parts ordered shall receive standard commercial packing
suitable for export shipment via air freight. Such standard packing will
generally be to ATA 300 standards as amended from time to time. All AOG
orders will be handled, processed, packed and shipped separately.
2.11 PACKING LIST
Bombardier shall insert in each shipment a packing list/release note
itemized to show:
(i) the contents of the shipment,
(ii) the approved signature of Bombardier's TC authority attesting to
the airworthiness of the Spare Parts.
(iii) value of the shipment for customs clearance if required.
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2.12 CONTAINER MARKS
Upon Buyer's request each container shall be marked with shipping marks
as specified on the Order. In addition Bombardier shall, upon request,
include in the markings: gross weight and cubic measurements.
2.13 DELIVERY, TITLE AND RISK OF LOSS
2.13.1 DELIVERY POINT
Spare Parts shall be delivered to Buyer in one of the following
manners at Bombardier's sole option:
(i) Free Carrier (Incoterrns 1990) Bombardier's plant in
either Ontario or Quebec, Canada; or
(ii) Free Carrier (Incotenns 1990) other Bombardier depots or
shipping points; or
(iii) Free Carrier (Incoterms 1990) vendor's or
subcontractor's plant.
2.13.2 DELIVERY TIME
Bombardier shall use reasonable efforts so that shipment of
Bombardier Parts to Buyer be as follows:
(a) AOG ORDERS
Ship AOG Orders within four (4) hours of receipt of
Order. Buyer's affected Aircraft factory production
number shall be required on AOG Orders;
(b) CRITICAL ORDERS (A1)
Ship critical Orders within twenty-four (24) hours of
order receipt;
(c) EXPEDITE ORDERS (A2)
Ship expedite Orders within seven (7) calendar days of
order receipt;
(d) INITIAL PROVISIONING ORDERS
Prior to the Delivery Date of the first Aircraft under
an applicable Supplement or as may be mutually agreed;
and
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(e) OTHER ORDERS
Shipment of stock items shall be approximately thirty
(30) calendar days after Bombardier's receipt of Buyer's
Order. Shipment of non-stock items shall be in
accordance with quoted lead times or lead times
published in the current Spare Parts Price Catalogue,
procurement data, or provisioning data.
2.14 COLLECT SHIPMENTS
Where collect shipments are not deemed practicable by Bombardier,
charges for shipment, insurance, prepaid freight charges and all other
costs paid by Bombardier shall be paid by Buyer promptly upon
presentation to Buyer of invoices covering the same.
2.15 FREIGHT FORWARDER
If Buyer elects to use the services of a freight forwarder for the
onward movement of Spare Parts, Buyer agrees to release Bombardier from
and indemnify it for any liability for any fines or seizures of Spare
Parts imposed under any governmental Goods in Transit regulations. Any
such fines levied against Bombardier will be invoiced to Buyer and any
Spare Parts seized under such regulations will be deemed to be received,
inspected, and accepted by Buyer at the time of seizure.
2.16 REIMBURSEMENT OF EXPENSES
If Bombardier gives Buyer written notice that an Order is ready for
shipment and shipment is delayed more than thirty (30) days at Buyer's
request or without Bombardier's fault or responsibility, Buyer shall
promptly reimburse Bombardier upon demand for all costs and expenses,
including but not limited to reasonable amounts for storage, handling,
insurance and taxes, incurred by Bombardier as a result of such delay.
2.17 TITLE AND RISK OF LOSS
Property and title to the Spare Parts will pass to Buyer upon payment
for the Spare Parts in full. Until payment in full for Spare Parts, (a)
title to them will not pass to Buyer, and (b) Bombardier maintains a
purchase money security interest in them. Risk of loss of the Spare
Parts will pass to the Buyer upon delivery by Bombardier. With respect
to Spare Parts rejected by Buyer pursuant to Annex A Article 2.19, risk
of loss shall remain with Buyer until such Spare Parts are re-delivered
to Bombardier.
Bombardier agrees to notify Buyer when material is shipped and shall
provide carrier's reference information (i.e., waybill number).
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2.18 INSPECTION AND ACCEPTANCE
All Spare Parts shall be subject to inspection by Buyer at destination.
Use of Spare Parts or failure of Buyer to give notice of rejection
within thirty (30) days after receipt shall constitute acceptance.
Acceptance shall be final and Buyer waives the right to revoke
acceptance for any reason, whether or not known to Buyer at the time of
acceptance. Buyer's remedies for defects discovered before acceptance
are exclusively provided for in Annex A Article 2.19 herein.
2.19 REJECTION
Any notice of rejection referred to in Annex A Article 2.18 shall
specify the reasons for rejection. If Bombardier concurs with a
rejection, Bombardier shall, at its option, correct, repair or replace
the rejected Spare Parts. Buyer shall, upon receipt of Bombardier's
written instructions and Material Return Authorization ("MRA") number,
return the rejected Spare Parts to Bombardier at its specified plant, or
other destination as may be mutually agreeable. The return of the
rejected Spare Parts to Bombardier and the return or delivery of a
corrected or repaired rejected Spare Part or any replacement for any
such Spare Part to Buyer shall be at Bombardier's expense. Any
corrected, repaired or replacement Spare Parts shall be subject to the
provisions of this Agreement including any applicable Supplement..
2.20 PAYMENT
Except as provided in Annex A Article 2.22 below, payment terms shall be
net thirty (30) calendar days of invoice date for established open
accounts. Any overdue amount shall bear interest from the due date until
actual payment is received by Bombardier at an annual rate of interest
equal to the U.S. prime interest rate as established from time to time
by the National Bank of Canada, plus two percent (2%) calculated and
compounded monthly.
2.21 PAYMENT FOR PROVISIONING ITEMS
Payment for Provisioning Items shall be made by Buyer as follows:
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
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2.22 MODIFIED TERMS OF PAYMENT
Bombardier reserves the right to alter the terms of payment:
(i) at any time by giving Buyer thirty (30) days' prior written
notice of the new terms, and
(ii) without prior notice if Buyer fails to pay when due an amount
Buyer owes under any agreement with Bombardier.
2.23 REGULATIONS
Buyer shall comply with all applicable monetary and exchange control
regulations and shall obtain any necessary authority from the
governmental agencies administering such regulations to enable Buyer to
make payments at the time and place and in the manner specified herein.
2.24 CANCELLATION OF ORDERS
Except as otherwise may apply to initial provisioning, if Buyer cancels
an Order, Bombardier, at its option, shall be entitled to recover actual
damages, but not less than the following cancellation charges or more
than the purchase price of the Spare Parts covered by the Order:
(a) if work accomplished on the Order has been limited to Bombardier
Spares Department, or the part has been identified as "shelf
stock" in the Spare Parts Price Catalogue, no cancellation
charges shall be made;
(b) if production planning has been completed on the Order and shop
orders have been written, but no shop time or material charges
have been made against the Order, the cancellation charge shall
be ten percent (10%) of the price but not to exceed $100 per
unit;
(c) if shop time or material charges have been made against the
Order, the cancellation charge shall be based on the cost of
such time and materials, plus overhead; and
(d) if the Spare Parts covered by the Order can be absorbed into
Bombardier's inventory without increasing Bombardier's normal
maximum stock level, no cancellation charges shall be made.
2.25 LEASE
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Bombardier shall select and make available certain parts for lease,
subject to availability Buyer has the option to negotiate a lease
agreement with Bombardier separate from this Agreement and the
applicable Supplement.
2.26 ADDITIONAL TERMS AND CONDITIONS
Bombardier's conditions of sale are deemed to incorporate the terms and
conditions stated herein, and within an applicable Supplement.
Additional terms and conditions applicable at time of receipt of each
order from Buyer may be added providing such terms and conditions do not
conflict with the terms and conditions provided herein and within an
applicable Supplement. Such additional terms and conditions shall be
provided to Buyer at least ninety (90) calendar days prior to their
effective date.
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ARTICLE 3 - TRAINING
3.1 GENERAL TERMS
3.1.1 The objective of the training programs (the "Programs")
described in this Agreement and the applicable Supplement is to
familiarize and assist Buyer's personnel in the introduction,
operation, and maintenance of the Aircraft.
3.1.2 Bombardier shall offer the Programs to Buyer in the English
language, at a Bombardier designated facility. The Programs
shall be completed prior to the Delivery Date of the last
Aircraft purchased under the applicable Supplement.
3.1.3 Buyer shall be responsible for all travel and living expenses
(including local transportation) of Buyer's personnel incurred
in connection with the Programs.
3.1.4 The Programs shall be designed to reflect the model and/or
configuration of the Aircraft and may include differences
training to identify such configuration or model. Manuals or
other training material which are provided during the Programs
exclude revision service.
3.1.5 The Programs are designed for candidates who meet the following
minimum prerequisites:
Pilots
(a) hold airplane multi-engine land rating;
(b) have recent multi-crew experience;
(c) hold valid instrument flight rating;
(d) hold valid medical certificate;
(e) have a functional comprehension of the English language;
(f) captains hold current and valid ATP license or
equivalent (minimum of 3,000 hours recommended); and
(g) first officers hold current and valid commercial license
or equivalent (minimum of 1,500 hours recommended).
Flight Attendants
(a) qualified flight attendant with previous experience; or
(b) hold recent flight attendant training course certificate
including fire fighting training, first aid training,
in-flight emergency training, safety procedures training
and crew communications training; and
(c) have a functional comprehension of the English language.
Flight Dispatchers
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(a) qualified flight dispatcher with previous experience; or
(b) familiar with aircraft performance, weight and balance
and flight planning; and
(c) have a functional comprehension of the English language.
Maintenance Technician
(a) hold a valid AME license or equivalent, or have
sufficient knowledge and experience (minimum 3 years
experience recommended);
(b) have experience with digital communications, glass
cockpit and built-in test equipment; and
(c) have a functional comprehension of the English language.
3.1.6 Prior to commencement of the Programs, upgrade training can be
arranged for Buyer's personnel who do not meet the above minimum
requirements. Any such upgrade training shall be provided upon
terms and conditions to be mutually agreed.
3.1.7 Should any of Buyer's personnel who do not meet the above
minimum requirements encounter problems during their training,
any additional training or costs (such as costs for
interpreters) shall be bourne by Buyer.
3.1.8 A training conference shall be held, if practicable, no later
than twelve (12) months prior to the Scheduled Delivery Date of
the first Aircraft to Buyer, or as may be otherwise agreed, to
establish the content and schedule of the Programs.
3.1.9 Buyer may convert any of the Programs to any other of the
Programs for equivalent value.
3.2 FLIGHT CREW TRAINING
3.2.1 TRAINING ALLOTMENTS AND COURSE DESCRIPTIONS
Flight crew training allotments and course descriptions are set
out in the applicable Supplement.
3.2.2. RECURRENT TRAINING
At Buyer's request, Bombardier shall assist Buyer to obtain
recurrent training as set forth in the applicable Supplement
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3.3 MAINTENANCE TRAINING
3.3.1 TRAINING ALLOTMENTS AND COURSE DESCRIPTIONS
Maintenance training allotments and course descriptions are set
out in the applicable Supplement.
3.3.2 SPECIALIST COURSES
At Buyer's request, Bombardier shall assist Buyer to obtain
specialist courses as set forth in the applicable Supplement.
3.3.3 RECURRENT TRAINING
At Buyer's request, Bombardier shall assist Buyer to obtain
recurrent training as set forth in the applicable Supplement.
3.3.4 VENDOR TRAINING
At Buyer's request, Bombardier shall assist Buyer to obtain
vendor maintenance training.
3.4 INSURANCE
3.4.1 Only in the event that such insurance is applicable, Buyer shall
at all times during flight training in Buyer's Aircraft secure
and maintain in effect, at its own expense, insurance policies
covering the Aircraft including without limitation:
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
3.4.2 The liability policy shall name Bombardier (and its affiliates)
as additional insured. The hull policy shall contain a waiver of
subrogation in favour of Bombardier (and its affiliates). All
insurance policies shall provide for payments despite any
misrepresentations or breach of warranty by any person (other
than the assured receiving payments) and shall not be subject to
any offset by any other insurance
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carried by Bombardier except that -Buyer shall not be required
to provide insurance with respect to the manufacturing, repair
and maintenance activities of Bombardier (and of its affiliates)
and the related potential liability (product or otherwise)
arising therefrom.
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ARTICLE 4 - TECHNICAL DATA
4.1 TECHNICAL DATA PROVIDED
Bombardier shall furnish to Buyer the Technical Data described in the
applicable Supplement (the "Technical Data"). The Technical Data shall
be in the English language and shall provide information on items
manufactured according to Bombardier's detailed design and in those
units of measure used in the Specification or as may otherwise be
required to reflect Aircraft instrumentation, as may be mutually agreed.
4.2 SHIPMENT
Except for the Airplane Flight Manual, Quick Reference Handbook, Flight
Crew Operating Manual, and Weight and Balance Manual which will be
provided with each Aircraft at time of delivery, all Technical Data
provided hereunder shall be shipped to Buyer Free Carrier (Incoterms)
Bombardier's designated facilities. Buyer's shipping address and contact
information is as follows:
SkyWest Airlines
444 South River Road
St. George, Utah
84790-2086
Attention: Sheree Adams
Facsimile: 435 634 3607
Telephone: 435 634 3610
4.3 REVISION SERVICE
Bombardier will provide Buyer with a revision service, free of charge,
for a period of six (6) months following the Delivery Date of Buyer's
last Aircraft. This revision service shall apply to the Technical Data
only. Subsequent to this six (6) month period, Buyer shall be
responsible for any revision services provided by Bombardier, at
Bombardier's then current list prices.
Revisions to the Technical Data to reflect the Aircraft configuration at
delivery shall be provided to Buyer within six (6) months following the
Delivery Date of each respective Aircraft.
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Provided the revision service is being supplied under the terms of this
Agreement or by subsequent purchase order, Bombardier shall incorporate
all applicable Bombardier originated Service Bulletins into the
appropriate Technical Data documents (in a regular revision cycle),
following formal notification by Buyer that such Service Bulletins have
been or shall be incorporated on Buyer's Aircraft. The Technical Data
shall then contain both the original and revised Aircraft configuration
until Buyer advises Bombardier in writing that one configuration is no
longer required.
4.4 PROPRIETARY TECHNICAL DATA
It is understood and Buyer acknowledges that the Technical Data provided
herein and any revisions thereto is proprietary to Bombardier and all
rights to copyright belong to Bombardier and the Technical Data shall be
kept confidential by Buyer. Buyer agrees to use the Technical Data
solely to maintain, operate, overhaul or repair the Aircraft or to make
installation or alteration thereto allowed by Bombardier
Technical Data shall not be disclosed to third parties or used by Buyer
or furnished by Buyer for the design or manufacture of any aircraft or
Spare Parts including Bombardier Parts or items of equipment, except
when manufacture or redesign is permitted under the provisions of Annex
A Article 2.4 of the Agreement, and then only to the extent and for the
purposes expressly permitted therein, and provided further the recipient
shall provide a non-disclosure undertaking acceptable to Bombardier.
Buyer may convert any of the Technical Data to any other of the
Technical Data for equivalent value.
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ANNEX B
WARRANTY AND SERVICE LIFE POLICY
ARTICLE 1 - WARRANTY
The following warranty is that to which reference is made in Article 3 of the
Agreement.
1.1 WARRANTY
1.1.1 Subject to Annex B Articles 1.9, 1.10, and 2.0, Bombardier
warrants that, at the date of delivery of the Aircraft or
Bombardier Part, as applicable:
(a) the Aircraft shall conform to the Specification, except
that any matter stated in the Specification as type
characteristics, estimates or approximations is excluded
from this Warranty;
(b) the Aircraft shall be free from defects caused by the
failure of Bombardier to install a Vendor Part or
Powerplant Part in accordance with reasonable
instructions of the vendor;
(c) the Bombardier Parts shall be free from defects in
material or workmanship; and
(d) the Bombardier Parts shall be free from defects in
design, having regard to the state of the art as of the
date of such design, and
(e) the Aircraft computer systems (hardware and software)
that process date data shall do so correctly in the year
2000.
1.1.2 The Warranty set forth in Annex B Article 1.1.1(c) and (d) above
shall also be applicable to Bombardier Parts purchased as Spare
Parts.
1.1.3 Bombardier further warrants that, at the time of delivery, the
Technical Data shall be free from error.
1.2 WARRANTY PERIOD
1.2.1 The Warranty set forth in Annex B Article 1.1. shall remain in
effect for any defect covered by the Warranty (a "Defect")
becoming apparent during the following
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periods (individually, the "Warranty Period"):
(a) for failure to conform to the Specification and in the
installation referred to in Annex B Article 1.1.1(a) and
1.1.1(b), the number of months set forth in the applicable
Supplement from the Delivery Date;
(b) for those Defects in material or workmanship in Bombardier Parts
referred to in Annex B Article 1.1.1(c) and 1.1.2, the number of
months set forth in the applicable Supplement from the date of
delivery of such parts;
(c) for those Defects in design referred to in Annex B Article
1.1.1(d), the number of months set forth in the applicable
Supplement from the date of delivery of such parts;
(d) for Defects in the Aircraft computer systems that process date
data referred to in Annex B Article 1.1.1(e), from January 1,
2000 to December 31, 2000; and
(e) for errors in the Technical Data referred to in Annex B Article
1.1.3, twelve (12) months from the date of delivery of the
applicable Technical Data.
1.3 Repair, Replacement or Rework
As to each matter covered by this Warranty Bombardier's sole obligation
and liability under this Warranty is expressly limited to, at
Bombardier's election, correction by the repair, replacement or rework
of the defective part or item of Technical Data. The repaired, replaced
or reworked part or item of Technical Data which is the subject of the
Warranty claim shall then be warranted under the same terms and
conditions for the then unexpired portion of the Warranty Period.
In the case of a Defect relating to non-conformance with the
Specification, Bombardier shall correct that Defect in the equipment
item or part in which the Defect appears, except that Bombardier will
not be obligated to correct any Defect which has no material adverse
effect on the maintenance, use or operation of the Aircraft.
1.4 Claims Information
Bombardier's obligations hereunder are subject to a Warranty claim to be
submitted in writing to Bombardier's warranty administrator, which claim
shall include but not be limited to the following information:
(a) the identity of the part or item involved, including the Part
number, serial number if
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applicable nomenclature and the quantity claimed to be
defective;
(b) the manufacturer's serial number of the Aircraft from which the
part was removed;
(c) the date the claimed Defect became apparent to Buyer;
(d) the total flight hours (and cycles if applicable) accrued on the
part at the time the claimed Defect became apparent to Buyer;
and
(e) a description of the claimed Defect and the circumstances
pertaining thereto.
1.5 Bombardier's Approval
Within ten (10) working days following receipt of Buyer's Warranty claim
for a Defect accompanied by Buyer's request for permission as applicable
to correct a Defect, Bombardier shall notify Buyer of its decision on
the request. Approval under this Article shall not constitute a
determination as to the existence of a Defect as described in Annex B
Article 1. 1 above.
1.6 Timely Corrections
Bombardier shall make the repair, replacement or rework, following
receipt of the defective part or item, with reasonable care and
dispatch.
1.7 Labour Reimbursement
For correction of Defects Bombardier shall establish a reasonable
estimate for the labour hours required for the repair, replacement or
rework of the defective Bombardier Part and, if the repair, replacement
or rework is performed by Buyer, Bombardier shall reimburse Buyer for
Bombardier estimated hours or for Buyer's actual labour hours, whichever
is less, for the repair, replacement or rework of the defective
Bombardier Part excluding any work necessary to gain access to said
Bombardier Part. Such reimbursement shall be based upon Buyer's direct
labour rate per man-hour plus burden rate of fifty percent (50%),
subject to annual review and adjustment of such labour rate as mutually
agreed; provided, however, that this amount shall not exceed fifty
percent (50%) of the Bombardier published selling labour rate.
1.8 Approval, Audit, Transportation and Waiver
All Warranty claims shall be subject to audit and approval by
Bombardier. Bombardier will use reasonable efforts to advise in writing
the disposition of Buyer's Warranty claim within thirty (30) days
following the receipt of the claim and (if requested) return of the
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defective Bombardier Part to Bombardier's designated facility.
Bombardier shall notify Buyer of Bombardier's disposition of each claim.
Buyer shall pay all costs of transportation of the defective part from
Buyer to Bombardier and shall pay all costs of transportation of the
repaired, corrected or replacement parts back to Buyer.
1.9 Limitations
1.9.1 Bombardier shall be relieved of and shall have no obligation or
liability under this Warranty if
(a) the Aircraft was operated with any products or parts not
specifically approved by Bombardier, unless Buyer furnishes
reasonable evidence acceptable to Bombardier that such products
or parts were not a cause of the Defect; or
(b) the Aircraft was not operated or maintained in accordance with
the Technical Data and the manufacturer's documentation
furnished to Buyer (including Service Bulletins and
airworthiness directives) unless Buyer furnishes reasonable
evidence acceptable to Bombardier that such operation or
maintenance was not a cause of the Defect; or
(c) the Aircraft was not operated under normal airline use, unless
Buyer furnishes reasonable evidence acceptable to Bombardier
that such operation was not a cause of the Defect; or
(d) Buyer does not
1) report the Defect in writing to Bombardier's Warranty
administrator within thirty (30) calendar days following
such Defect becoming apparent, and
2) retain the Bombardier Part claimed to be defective until
advised by Bombardier to return such Bombardier Part to
Bombardier's designated facility in order for Bombardier
to finalize its evaluation of the Warranty claim or to
otherwise dispose of such Bombardier Part; or
(e) Buyer does not submit reasonable proof to Bombardier within
thirty (30) calendar days after the Defect becomes apparent that
the, Defect is due to a matter covered within this Warranty; or
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(f) Buyer does not allow Bombardier reasonable opportunity to be
present during the disassembly and inspection of the Bombardier
Part claimed to be defective.
1.10 Normal Usage
Normal wear and tear and the need for regular maintenance and overhaul
shall not constitute a Defect or failure under this Warranty.
1.11 Overhaul of Warranty Parts
Bombardier's liability for a Bombardier Part which has a Defect and is
overhauled by Buyer within the Warranty Period shall be limited only to
that portion of the labour and material replacement related to the
Defect.
1.12 No Fault Found
In the event that a Bombardier Part returned under a Warranty claim is
subsequently established to be serviceable then Bombardier shall be
entitled to charge and recover from Buyer any reasonable costs incurred
by Bombardier in connection with such Warranty claim. Providing,
however, in the event that repetitive in-service failure occurs on the
particular Bombardier Part which is subsequently identified by
Bombardier on a repeated basis to be "no fault found", then Bombardier
and Buyer shall discuss and mutually agree a course of further action to
help identify the problem. In the event the fault is ultimately
confirmed to be a legitimate Warranty claim then the above mentioned
costs incurred by Bombardier and charged to Buyer shall be waived.
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ARTICLE 2 - VENDOR WARRANTIES
2.1 Warranties from Vendors
The Warranty provisions of this Annex B apply to Bombardier Parts only.
However, Bombardier has made or shall make reasonable efforts to obtain
favourable warranties from vendors, with respect to Vendor Parts and
Power Plant Parts. Except as specifically provided under this Annex B
Article 2, Bombardier shall have no liability or responsibility for any
such Vendor Parts and Power Plant Parts and the warranties for those
Vendor Parts and Power Plant Parts shall be the responsibility of the
vendor and a matter as between Buyer and vendor.
2.2 Vendor Warranty Backstop
For those Vendor Parts installed on the Aircraft at the Delivery Date or
subsequently purchased through Bombardier, excluding the Powerplant or
the Power Plant Parts, in the event the parties agree that a vendor is
in default in the performance of any material obligation under any
applicable warranty obtained by Bombardier from such vendor pursuant to
Annex B Article 2.1 above, the warranties and all other terms and
conditions of Annex B Article I shall become applicable as if the Vendor
Parts had been a Bombardier Part, except that the warranty period shall
be the Warranty Period as set forth herein or by the vendor's warranty,
whichever is shorter and all transportation costs associated with the
Vendor Parts shall be borne by Buyer.
2.3 Bombardier's Interface Commitment
In the event of a dispute in the application of a Vendor Part warranty,
at Buyer's request addressed to Bombardier's warranty administrator,
Bombardier shall, without charge, conduct an investigation and analysis
of any such dispute resulting from a technical interface problem to
determine, if possible, the cause of the interface problem and then
recommend feasible corrective action. Buyer shall furnish to Bombardier
all data and information in Buyer's possession relevant to the interface
problem and shall cooperate with Bombardier in the conduct of its
investigation and such tests as may be required. Bombardier, at the
conclusion of its investigation, shall advise Buyer in writing of
Bombardier's opinion as to the cause of the problem and Bombardier's
recommended corrective action.
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ARTICLE 3 - SERVICE LIFE POLICY
3.1 Applicability
The Service Life Policy ("SLP") described in this Annex B, Article 3
shall apply if fleetwide and repetitive failures occur in any Covered
Component which is defined in Annex B Article 3.7 below.
3.2 Term
3.2.1 Should such failures occur in any Covered Component within one
hundred and forty-four (144) months following delivery of the
Aircraft containing such Covered Component, Bombardier shall, as
promptly as practicable and at its option;
(a) design and/or furnish a correction for such failed
Covered Component; or
(b) furnish a replacement Covered Component (exclusive of
standard parts such as bearings, bushings, nuts, bolts,
consumables and similar low value items).
3.3 Price
Any Covered Component which Bombardier is required to furnish under this
SLP shall be provided for at a price calculated in accordance with the
following formula:
P = C x T
-----
144
Where:
P = Price of Covered Component to Buyer;
C = Bombardier's then current price for the Covered Component;
T = The total time to the nearest month since the Aircraft containing
the Covered Component was delivered by Bombardier.
3.4 Conditions and Limitations
3.4.1 The following general conditions and limitations shall apply to the SLP:
(a) the transportation cost for the return to Bombardier's
designated facility, if practicable, of any failed Covered
Component necessary for failure
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investigation or redesigning studies shall be borne by Buyer;
(b) Bombardier's obligations under this SLP are conditional upon the
submission of reasonable proof acceptable to Bombardier that the
failure is covered hereby;
(c) Buyer shall report any failure of a Covered Component in writing
to Bombardier's Warranty administrator within two (2) months
after such failure becomes evident. Failure to give this
required notice shall excuse Bombardier from all obligations
with respect to such failure;
(d) the provisions of Annex B Article 1.9 of the Warranty (except
for subparagraphs (d) and (e) thereof) are incorporated by this
reference and shall condition Bombardier's obligations under
this SLP with respect to any Covered Component;
(e) Bombardier's obligations under this SLP shall not apply to an,
Aircraft which has not been correctly modified in accordance
with the specifications or instructions contained in the
relevant Service Bulletins which are furnished to Buyer prior to
receipt by Bombardier from Buyer of any notice of an occurrence
which constitutes a failure in a Covered Component. The
provisions of this subparagraph shall not apply in the event
that Buyer furnishes reasonable evidence acceptable to
Bombardier that such failure was not caused by Buyer's failure
to so modify the Aircraft;
(f) this SLP shall not apply to a failure of a Covered Component if
Bombardier determines that such failure may not reasonably be
expected to occur on a fleetwide and repetitive basis; and
(g) this SLP shall not apply to a Covered Component where the
failure results from an accident, abuse, misuse, degradation,
negligence or wrongful act or omission, unauthorized repair or
modification adversely affecting a Covered Component, impact or
foreign object damage, to any Covered Component.
3.5 Coverage
This SLP is neither a warranty, performance guarantee nor an agreement
to modify the Aircraft to conform to new developments in design and
manufacturing art. Bombardier's obligation is only to provide correction
instructions to correct a Covered Component or furnish replacement at a
reduced price as provided in this SLP.
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3.6 Assignment
Buyer's rights under this SLP shall not be assigned, sold, leased,
transferred or otherwise alienated by contract, operation of law or
otherwise, without Bombardier's prior written consent. Any unauthorized
assignment, sale, lease, transfer, or other alienation of Buyer's rights
under the SLP shall immediately void all of Bombardier's obligations
under the SLP.
3.7 Covered Component
Only those items or part thereof listed in the applicable Supplement
shall be deemed to be a Covered Component, and subject to the provisions
of this SLP.
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ARTICLE 4 - GENERAL
4.l It is agreed that Bombardier shall not be obligated to provide to Buyer
any remedy which is a duplicate of any other remedy which has been
provided to Buyer under any other part of this Annex B.
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ARTICLE 5 - DISCLAIMER
5.1 BOMBARDIER SHALL HAVE NO OBLIGATION OR LIABILITY (AT LAW OR IN
EQUITY) IN CONTRACT (INCLUDING, WITHOUT LIMITATION, WARRANTY),
IN TORT (WHETHER OR NOT ARISING FROM THE ACTIVE, PASSIVE OR
IMPUTED NEGLIGENCE OR STRICT PRODUCTS LIABILITY OF BOMBARDIER OR
ITS AFFILIATES) OR OTHERWISE, FOR ANY INDIRECT,. PUNITIVE,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT
LIMITATION LOSS OF USE, LOSS OF REVENUE OR LOSS OF PROFIT, WITH
RESPECT TO:
1) ANY DEFECT IN THE SPARE PARTS OR ANY OTHER THING
DELIVERED UNDER ANNEX B TO THIS AGREEMENT;
2) ANY DELAY IN DELIVERY OR COMPLETE FAILURE TO DELIVER ANY
PRODUCT OR SERVICES, INCLUDING SPARE PARTS, FOR ANY
REASON WHATSOEVER; OR
3) ANY FAILURE TO PERFORM ANY OF ITS OTHER OBLIGATIONS
UNDER ANNEX B TO THIS AGREEMENT.
NOTHING IN THIS ARTICLE SHALL BE CONSTRUED TO ALTER OBLIGATIONS
EXPRESSLY ASSUMED BY BOMBARDIER IN OTHER PROVISIONS OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION THE PROVISIONS OF ANNEX "B".
-74-
<PAGE> 75
EXHIBIT 1 TO THE AGREEMENT
CERTIFICATE OF ACCEPTANCE
The undersigned hereby acknowledges on behalf of Buyer acceptance of the
Aircraft bearing manufacturer's serial number fitted with two (2)
/General Electric CF-34-3AI/3BI/8CI turbofan [Canadair Regional Jet]/
Pratt & Whitney of Canada, Ltd. PWC-120/121/123/150 turboprop [Dash SI/
engines bearing serial numbers and /and two (2) (Hamilton Standard
14SF-/7/15/23/) (Dowty R408) propellers/ as being in accordance with the
terms and conditions of this Agreement signed on the day of 19 between
Bombardier Aerospace, Regional Aircraft and Buyer.
Place: Date:
---------------------- -----------------------------------
Signed for and on behalf of
[Buyer's name]
Per:
------------------------------
Title:
----------------------------
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<PAGE> 76
EXHIBIT II TO THE AGREEMENT
BILL OF SALE
1. FOR VALUABLE CONSIDERATION, BOMBARDIER AEROSPACE, REGIONAL AIRCRAFT,
OWNER OF THE FULL LEGAL AND BENEFICIAL TITLE OF THE AIRCRAFT DESCRIBED
AS FOLLOWS:
ONE CANADAIR REGIONAL JET MODEL /CL-600-2B19/CL-600-2C10/ [CANADAIR
REGIONAL JET] DE HAVILLAND DHC-8-100/200/300/400/ [DASH 8] AIRCRAFT
BEARING:
MANUFACTURER'S SERIAL NO.:_________________________________________
WITH:
CF34-3A1/3B1/8C1 [CANADAIR REGIONAL JET] / PWC -/120/121/123/150/
[DASH 8] ENGINES SERIAL NOS.:________________________, AND
AUXILIARY POWER UNIT NO.: _________________________________
DOES THIS _________ DAY OF __________19__ HEREBY SELL, GRANT, TRANSFER AND
DELIVER ALL RIGHT TITLE AND INTEREST IN AND TO SUCH AIRCRAFT UNTO: [BUYER'S
NAME].
BY VIRTUE OF THE EXECUTION OF THIS BILL OF SALE, BOMBARDIER HEREBY DIVESTS
ITSELF OF ALL ITS RIGHT, TITLE AND INTEREST OF ANY KIND IN THE AIRCRAFT, IN
FAVOUR OF BUYER.
BUYER:
PLACE: TIME:
------------------------------ ----------------------------------
For and on behalf of
BOMBARDIER INC.
Bombardier Aerospace, Regional Aircraft
Per:
--------------------------------
Title:
------------------------------
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<PAGE> 77
EXHIBIT III TO THE AGREEMENT
CERTIFICATE OF RECEIPT OF AIRCRAFT
THE UNDERSIGNED HEREBY ACKNOWLEDGES TO HAVE RECEIVED FROM BOMBARDIER
AEROSPACE, REGIONAL AIRCRAFT, AT/ THE DOWNSVIEW AIRPORT, ADJACENT TO
BOMBARDIER'S PLANT IN DOWNSVIEW, PROVINCE OF ONTARIO, CANADA [DASH 8]/ DORVAL
AIRPORT, ADJACENT TO BOMBARDIER'S PLANT IN DORVAL, PROVINCE OF QUEBEC, CANADA,
[CANADAIR REGIONAL JET]/ ON THE ____________ DAY OF____________, AT THE HOUR
OF_______________ O'CLOCK, ONE (1) / CANADAIR REGIONAL JET MODEL
/CL-600-2B19/CL-600-2C10/ SERIES 100/200/700/ de HAVILLAND
DHC-8-/100/200/300/400/ AIRCRAFT, BEARING SERIAL NUMBER__________, INCLUDING
WITH THE AIRCRAFT TWO (2) /CF34- 3A1/3B1/8C1 TURBOFAN / PWC-/120/121/123/150
TURBOPROP / ENGINES BEARING MANUFACTURER'S SERIAL NUMBERS ______________ &
______________AND TWO (2) [HAMILTON STANDARD 14SF-/7/15/23] [DOWTY R408 ]
PROPELLERS AND OTHER MAJOR REPLACEABLE ACCESSORIES ATTACHED TO THE AIRCRAFT AND
ENGINES.
Signed for and on behalf of [Buyer's name]:
Per:
--------------------------------
Title:
------------------------------
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<PAGE> 78
EXHIBIT IV TO THE AGREEMENT
CHANGE ORDER
(PRO FORMA)
CONTRACT CHANGE ORDER
PURCHASER:
PURCHASE AGREEMENT NO.: AIRCRAFT TYPE:
C.C.O. NO.: DATED:
PAGE ___ of ___
REASON FOR CHANGE:
DESCRIPTION OF CHANGE:
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT WILL REMAIN UNCHANGED
For administrative purposes only, a consolidation of the amendments contained in
this CCO is attached. In the event of inconsistencies between the consolidation
and this CCO, this CCO shall prevail.
- --------------------------------------------------------------------------------
FOR AND ON BEHALF OF: FOR AND ON BEHALF OF:
Bombardier Aerospace [BUYER]
Regional Aircraft
Signed: Signed:
---------------------------- ---------------------------------
Date: Date:
---------------------------- ---------------------------------
-78-
<PAGE> 79
SUPPLEMENT NO. PA-428-1
TO MASTER PURCHASE AGREEMENT NO. PA-0428
BETWEEN
BOMBARDIER INC.
AND
SKYWEST AIRLINES, INC.
This Supplement when accepted and agreed to by SkyWest Airlines, Inc. (the
"Buyer") will become part of the Master Purchase Agreement No. PA-0428 entered
into between BOMBARDIER INC., a Canadian corporation represented by Bombardier
Aerospace, Regional Aircraft having offices at 123 Garratt Boulevard, Downsview,
Ontario, Canada ("Bombardier") and SkyWest Airlines, Inc.("Buyer") dated the
15th day of January, 1999 (the "Agreement') and will evidence our further
agreement with respect to the matters set forth below.
The provisions of the Agreement shall apply to the Bombardier products purchased
and sold in accordance with this Supplement. All capitalized terms herein,
unless defined herein, shall have the same respective meanings as in the
Agreement. This Supplement is subject to the provisions of the Agreement, all of
which are incorporated herein, provided that in the event of any inconsistency
between the provision of the Agreement and the provisions of this Supplement,
the latter shall take precedence.
ARTICLE 1 SUBJECT MATTER OF SALE
Article 1 supplements to Article 2 of the Agreement.
1.1 Aircraft
Subject to the provisions of the Agreement and this Supplement,
Bombardier will sell and Buyer will purchase Twenty Five (25) aircraft
model CL-600-2B19 Canadair Regional Jet Series 200 aircraft manufactured
pursuant to Type Specification number RAD-601R-157 issue NC dated
January 1999 noted in Schedule I hereto as same may be modified from
time to time in accordance with the Agreement and this Supplement (the
"Specification") as supplemented to reflect the incorporation of the
Buyer selected optional features ("Buyer Selected Optional Features")
set forth in Schedule 2 hereto (collectively the "Aircraft").
-1-
<PAGE> 80
ARTICLE 2.0 PRICE
Article 2 supplements Article 4 of the Agreement.
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
The Aircraft base price shall be the base price for the Aircraft as
stated in paragraph (a), plus the base price of the Buyer Selected
Optional Features as stated in paragraph (b) ("Base Price").
2.2 The price of the Aircraft for the Scheduled Delivery Date shall be the
Base Price adjusted for changes made pursuant to Article 11 of the
Agreement and any Regulatory Changes pursuant to Article 8.4 of the
Agreement, and further adjusted to the Delivery Date to reflect economic
fluctuations during the period from July 1, 1998 to the Delivery Date of
each Aircraft ("Aircraft Purchase Price"). Such adjustments shall be
based on the economic adjustment formula attached hereto as Schedule 3
("Economic Adjustment Formula") but when adjusted, the Aircraft Purchase
Price shall in no case be lower than the Aircraft Base Price, as
stipulated in Article 3.1 herein.
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-2-
<PAGE> 81
ARTICLE 3.0 PAYMENT
Articles 3.1 and 3.2 supplement Article 5.1 of the Agreement. Article 3.3
supplement Article 5.4 of the Agreement.
3.1 Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
3.2 Terms of payment for each Aircraft are as follows:
(a) Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
(b) the Aircraft Purchase Price on or before the Delivery Date of
such Aircraft to Buyer.
The advance payment referred to in 3.2 (a) will be retained by
Bombardier and returned to Buyer, without interest, in equal
amounts upon delivery of each Aircraft.
3.3 Buyer shall make all payments due under this Agreement and this
Supplement in immediately available United States Dollars by deposit on
or before the due date, to Bombardier's account in the following manner:
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this
-3-
<PAGE> 82
Exhibit 10.20 to the Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") by SkyWest, Inc.
The omitted portions, which are the subject of an application for
confidential treatment and have been filed separately with the
Commission, are identified in this exhibit by the placement of this
legend.
-4-
<PAGE> 83
ARTICLE 4.0 DELIVERY PROGRAM
ARTICLE 4.0 SUPPLEMENTS ARTICLE 6.0 OF THE AGREEMENT.
4.1 The Aircraft shall be offered for inspection and acceptance to Buyer at
Bombardier's facility in Montreal, Quebec during the months set forth as
follows (the "Scheduled Delivery Dates"):
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-5-
<PAGE> 84
ARTICLE 5.0 BUYER INFORMATION
Article 5.0 supplements Article 7.0 of the Agreement.
5.1 Pursuant to Article 7.1 of the Agreement, Buyer shall provide the
information set forth in Article 7.1 of the Agreement, at least fifteen
(15) months prior to the Scheduled Delivery Date of the first Aircraft.
-6-
<PAGE> 85
ARTICLE 6.0 NON-EXCUSABLE DELAY
Article 6.1 supplements Article 14.1 of the Agreement.
6.1 Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
Article 6.2 supplements Article 14.1 of the Agreement.
6.2 The period of days referred to is sixty (60) days in Article 14.1 of the
Agreement.
-7-
<PAGE> 86
ARTICLE 7.0 TECHNICAL SUPPORT
Article 7.0 supplements Annex A, Article 1.0 of the Agreement.
7.1 The FSR term referred to in Annex A, Article 1.2.2 is as follows:
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-8-
<PAGE> 87
ARTICLE 8.0 TRAINING
Article 8.0 supplements Annex A, Article 3.2 and 3.3 of the Agreement.
8.1. Flight Crew
8.1.1 Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
8.1.2 Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
8.2. Maintenance
8.2.1 Intentionally left blank.
8.2.2 Intentionally left blank.
8.3 Course Training Material
Bombardier shall provide three (3) sets (one each of AME-E, AME-M and flight
crew) of the training materials (without revision service) used to conduct
Bombardier's standard training as detailed herein:
i) 35 mm slides;
ii) Lesson Guides;
iii) Overhead Projection Transparencies; and
-9-
<PAGE> 88
one (1) set for Computer Based Training ("CBT") devices (without revision
service) capable of operating ten (10) work stations as follows:
iv) a license for CBT software for maintenance training
(both AME-M and AME-E), including: (for AME-M) OHPS
transparencies; videos walk-around; set of manuals;
flight deck book; engine run up manual; large cockpit
layout, and one (1) full course instructor training, or
(for AME-E) Collins video; TCAS video; set of manuals;
large cockpit layout, and one (1) full course instructor
training; and
v) a license for CBT software for flight crew, including:
OHPS transparencies; videos walk-around; set-of manuals;
flight deck book; large cockpit layout, and one (1) full
course instructor training.
The course training materials set forth above shall be available to Buyer during
the first quarter 2000. Bombardier shall promptly advise Buyer of the date of
release of such training materials. The course training materials are for the
internal use of Buyer only.
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<PAGE> 89
ARTICLE 9.0 TECHNICAL DATA
LIST OF TECHNICAL DATA
COLUMN HEADING EXPLANATION OF CODES
ITEM
1 DOC DOCUMENT
Title of Technical Data provided.
2 CONFIG CONFIGURATION
G = Contains data common to all aircraft of the same
type (Generic).
C = Contains data unique to Buyer's Aircraft
(Customized).
3 MEDIUM Buyer selects one of the following media specified in
the table: 1 = Print two sides
2 = Microfilm
3 = Print one side
4 = Laminated Cardboard
5 = CD ROM (single)
6 = CD ROM (network)
4 REVISION Y = Periodic revision service applies
N = Revision service not applicable
S = Revised as required by Bombardier
5 QUANTITY
(Number) = Quantity per the Agreement
(Number) PER = Quantity per Aircraft
6 DELIVERY
ATD = At time of the Delivery Date of the first
Aircraft.
PTD = Prior to the Delivery Date of each or the first
Aircraft
(as applicable).
7 ATA Y = Document is per ATA Specification 100,
Revision 26.
N = Document is to Bombardier's existing commercial
practices.
-11-
<PAGE> 90
With the delivery of the first Aircraft, Bombardier will provide to Buyer at no
additional charge one set of the technical manuals listed below
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ITEM DOC CONF MEDIUM QTY REV DEL ATA REMARKS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. AIRCRAFT MAINTENANCE MANUAL (AMM) G 1 or 5 12 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
1A AIRCRAFT MAINTENANCE MANUAL (AMM) G 6 2 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
2. ILLUSTRATED PARTS MANUAL/CATALOG (IPC) G 1 or 5 12 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
2A ILLUSTRATED PARTS MANUAL/CATALOG (IPC) G 6 2 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
3. STRUCTURAL REPAIR MANUAL (SRM) G 1, 2 4 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
4. COMPONENT MAINTENANCE MANUAL (CMM) G 1, 2 4 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
5. POWER PLANT BUILD-UP MANUAL G 1, 2 4 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
6. WIRING DIAGRAM MANUAL C 1 or 5 12 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
6A. WIRING DIAGRAM MANUAL C 6 2 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
7. ILLUSTRATED TOOL & EQUIPMENT MANUAL G 1, 2 4 Y PTD Y
(ITEM)
- ----------------------------------------------------------------------------------------------------------
8. SERVICE BULLETINS G 1 1 S PTD Y SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------
9. NON DESTRUCTIVE TEST MANUAL (NDT) G 1 4 Y PTD Y
- ----------------------------------------------------------------------------------------------------------
10. MAINTENANCE PROGRAM DOCUMENT (MPD) G 1 4 S PTD Y SEE NOTE 2
- ----------------------------------------------------------------------------------------------------------
11. FAA OR DOT AIRPLANE FLIGHT MANUAL (AFM) C 1 27 S ATD N
- ----------------------------------------------------------------------------------------------------------
12. WEIGHT & BALANCE MANUAL G 1 1 PER Y ATD Y
- ----------------------------------------------------------------------------------------------------------
13. MASTER MINIMUM EQUIPMENT LIST (MMEL) G 1 1 S ASAP N
- ----------------------------------------------------------------------------------------------------------
14. QUICK REFERENCE HANDBOOK C 1 27 S ATD N
- ----------------------------------------------------------------------------------------------------------
15. FLIGHT CREW OPERATING MANUAL (FCOM) C 1 27 S ATD N
- ----------------------------------------------------------------------------------------------------------
16. MAINTENANCE TASK CARDS C 3 4 S PTD N
- ----------------------------------------------------------------------------------------------------------
17. FLIGHT PLANNING & CRUISE CONTROL MANUAL G 1 4 S ASAP N
- ----------------------------------------------------------------------------------------------------------
18. AIRCRAFT CHARACTERISTICS FOR AIRPORT G 1 4 N ASAP N SEE NOTE 3
PLANNING
- ----------------------------------------------------------------------------------------------------------
19. ON-BOARD WIRING DIAGRAM BOOK C 3 A/R N ATD N SEE NOTE 4
- ----------------------------------------------------------------------------------------------------------
20. MAINTENANCE FACILITIES & EQUIPMENT G 1 4 S ASAP N
PLANNING MANUAL
- ----------------------------------------------------------------------------------------------------------
21. SYSTEM SCHEMATIC MANUAL (SSM) G 1, 2 4 Y ATD Y
- ----------------------------------------------------------------------------------------------------------
22. PASSENGER INFORMATION SHEET G 3 1 S ATD N SEE NOTE 5
- ----------------------------------------------------------------------------------------------------------
23. PILOT CHECKLIST C 4 27 S ATD N
- ----------------------------------------------------------------------------------------------------------
24. CRASH CREW CHART G 4 1 PER S ATD N
- ----------------------------------------------------------------------------------------------------------
25. FAULT ISOLATION MANUAL G 1 25 S ATD N
- ----------------------------------------------------------------------------------------------------------
26. DISPATCH DEVIATION GUIDE G 1 4 S PTD N
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 1: SERVICE BULLETINS
-12-
<PAGE> 91
Aperture cards of the service drawing(s) will be provided in lieu of drawings
when practical.
NOTE 2: MAINTENANCE PROGRAM DOCUMENT
This manual provides the basis for Buyer's initial maintenance program.
NOTE 3: AIRCRAFT CHARACTERISTICS FOR AIRPORT PLANNING
This manual contains data on Aircraft ground maneuver and handling.
NOTE 4: ON-BOARD WIRING DIAGRAM BOOK
This book contains wiring diagrams for interim reference until the
Wiring Diagram Manual is revised to reflect the Aircraft at the Delivery
Date.
NOTE 5: PASSENGER INFORMATION CARDS
Bombardier will provide one (1) reproducible master for the preparation
of passenger information cards. For an additional cost, subject to
negotiation, Bombardier will provide full colour laminated passenger
information cards in quantities required.
NOTE 6: TECHNICAL DATA EXCHANGE
Buyer has the ability to adjust the quantities of Technical Data and
revision services in accordance to the permitted parameters specified in
the manual chart of this Article 9 in this Supplement for equivalent
value of other Technical Data or revision services.
NOTE 7: REVISION SERVICES
Bombardier will provide revision services for a period of three (3)
years.
-13-
<PAGE> 92
ARTICLE 10.0 WARRANTY
Article 10.0 below supplements Annex B, Article 1.0 of the Agreement.
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-14-
<PAGE> 93
ARTICLE 11.0 SLP COVERED COMPONENTS
Article 11.0 supplements Annex B, Article 3.7 of the Agreement.
11.1 WING
a. Upper and lower integral stringer machined wing planks.
b. Machined spar, including auxiliary spars.
c. Caps, webs and stiffeners on fabricated spars.
d. Front spar to rear spar wing box ribs.
e. Main landing gear (MLG) machined trunnion rib.
f. MLG side stay machined attachment fittings.
g. Wing/fuselage machined attachment fittings.
11.2 FUSELAGE
a. Window and windshield frame structure, but excluding the windows
and windshield. Exterior skins, doublers, circumferential frames
but excluding all systems, fairings, insulation, lining and
decorative clips and brackets.
b. Engine mount support box structure and machined pylon attachment
fittings. Primary structure frames around body openings for
passenger door, baggage door, avionics door, flying control
access door, APU access door and emergency exits.
c. Nose landing gear well structure, including wheel well walls,
ceiling, pressure bulkheads and pressure floor structural
components at fuselage wing cutout.
11.3 VERTICAL STABILIZER
a. All spars.
b. Horizontal to vertical stabilizer machined attachment fittings.
-15-
<PAGE> 94
c. Front spar to fuselage frame machined attachment fittings.
d. Exterior skins, ribs, stringers between front and rear spars and
machined closing rib.
11.4 HORIZONTAL STABILIZER
Front and rear spars and exterior skins, rib and stringers between front
and rear spars.
-16-
<PAGE> 95
In witness whereof this Supplement was signed on the date written hereof:
For and on behalf of For and on behalf of
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
------------------------- -------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
-------------------------
Eric Christensen
Vice President, Planning
-17-
<PAGE> 96
SCHEDULE 1 TO SUPPLEMENT NO. PA-428-1
TYPE SPECIFICATION
NUMBER RAD-60IR-157 ISSUE NC
JANUARY 1999
-18-
<PAGE> 97
SCHEDULE 2 TO SUPPLEMENT NO. PA-428-1
BUYER SELECTED OPTIONAL FEATURES
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-19-
<PAGE> 98
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-20-
<PAGE> 99
SCHEDULE 3 TO SUPPLEMENT NO. PA-428-1
ECONOMIC ADJUSTMENT FORMULA
Pursuant to the provision of Article 4 of the Agreement, economic adjustment
will be calculated using the following Economic Adjustment Formula:
Pp = PO(O.28 LD+0.35 ED+0.20 CD+0.15 MD+0.02 FD)
-- -- -- -- --
LO EO co MO OF
Where:
Pp = Aircraft Purchase Price;
Po = Base Price;
LD = the Canadian tabour index based upon arithmetic the average of
the indices for the fourth, fifth and sixth months prior to the
month of delivery of the relevant Aircraft;
LO = 19.93 being the arithmetic average of the Canadian labour index
for the months of January, February and March 1998;
ED = the U.S. tabour index based upon arithmetic the average of the
indices for the fourth, fifth and sixth months prior to the
month of delivery of the relevant Aircraft;
EO = 18.99 being the arithmetic average of the U.S. labor index for
the months of January, February and March 1998;
CD the Industrial Commodities index based upon the arithmetic
average of the indices for the fourth, fifth and sixth months
prior to the month of delivery of the relevant Aircraft;
CO 125.40 being the arithmetic average of the Industrial
Commodities index for the months of January, February and March
1998;
MD the Material index based upon the average of the arithmetic
indices for the fourth, fifth and sixth months prior to the
month of delivery of the relevant Aircraft; and
MO 129.87 being the arithmetic average of the Material index which
for the months of January, February and March 1998.
-21-
<PAGE> 100
FD = the fuel index based upon the average of the arithmetic indices
for the fourth, fifth and sixth months prior to the month of
delivery of the relevant Aircraft; and
OF = 76.6 being the arithmetic average of the Fuel index which for
the months of January, February and March 1998.
For the purpose of the, Economic Adjustment Formula and the calculation of the
economic adjustment:
(a) the Canadian labour index shall be the index provided in the
Standard Industrial Classification (S.I.C.) Code 321 for Average
Hourly Earnings (including overtime) for the Aircraft and Parts
Industry (Canada) published by Statistics Canada in "Employment
Earnings and Hours" Table 3. 1.
(b) the U.S. labour index shall be the index provided in the Bureau
of Labor Statistics (B.L.S.) Code 372 Gross Hourly Earnings of
production and non-supervisory workers in the Aircraft and
Aircraft Parts Industry as published by the U.S. Department of
Labor, Bureau of Labor Statistics in "Employment and Earnings"
Table C-2.
(c) the Industrial Commodities index shall be the index provided in
the Producer Price Index as Industrial Commodities as published
by the U.S. Department of Labor, Bureau of Labor Statistics in
"Producer Prices and Price Indexes" Table 6.
(d) the material index shall be the index provided in the Producer
Price Index for Code 10 Metals and Metals Products as published
by the U.S. Department of Labor, Bureau of Labor Statistics in
"Producer Prices and Price Indexes" Table 6.
(e) the fuel index shall be the index provided in the Bureau of
Labor Statistics (B.L.S.) Code 5 "Fuel and Related Products and
Power" Table 6 as published by the U.S. Department of Labor.
(f) in the event that Bombardier shall be prevented from calculating
the Aircraft Purchase Price of each Aircraft due to any delay in
the publication of the required indices, Bombardier shall use
the last provisionally published indices, and in the event that
provisional indices are not available, Bombardier shall
extrapolate from the last three (3) months of published indices
and such calculation of the Aircraft Purchase Price shall be
accepted by the parties as final.
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<PAGE> 101
(g) the indices used in the Economic Adjustment Formula and the
weighting assigned to them represent the projection by
Bombardier of the manner in which Bombardier will incur cost in
the production of the Aircraft. In the event there is a change
in circumstances which materially affects the indices chosen or
the weighting assigned to them, the indices and/or the weighting
shall be amended accordingly. The change in circumstances
referred to above shall include but not be limited to:
1) Any change in the basis upon which the chosen indices
have been calculated or if any of said indices are
discontinued or withdrawn from publication,
2) Any change in manufacturing plan involving the letting
of a new subcontract or the termination of an existing
sub-contract, and
3) Any change in the escalation or economic adjustment
formula used in a vendor or sub-contractor contract with
Bombardier; and
In the calculation of the Aircraft Purchase Price the following guidelines in
respect of decimal places shall apply:
(a) All indices in the Economic Adjustment Formula shall be used to
the second decimal place,
(b) The Economic Adjustment Formula shall be calculated to four
decimal places, and
(c) The Aircraft Purchase Price resulting from the Economic
Adjustment Formula shall be corrected to the nearest dollar.
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<PAGE> 102
SCHEDULE 4 TO SUPPLEMENT NO. PA-428-1
OPTION AIRCRAFT
1.0 Bombardier hereby agrees to grant Buyer the option to purchase an
additional Twenty Five (25) Canadair Regional Jet Series 200 aircraft as
described in Article 1 of this Supplement (the "Option Aircraft") for
the benefit of Buyer under the following general conditions:
Disclosure Regarding Confidential Information: Portions of pages 55 and
60 of the Purchase Agreement and portions of pages 2-5, 7-9, 14, 19, 20,
24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56 and 59 of the Supplements and
Schedules thereto of the Purchase Agreement have been omitted from this
Exhibit 10.20 to the Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") by SkyWest, Inc.
The omitted portions, which are the subject of an application for
confidential treatment and have been filed separately with the
Commission, are identified in this exhibit by the placement of this
legend.
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<PAGE> 103
The advance payment referred to in 1.5 (a), will be retained by Bombardier and
returned to Buyer, without interest, in equal amounts upon delivery of the
respective Option Aircraft.
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
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<PAGE> 104
2.0 Upon exercise of Buyer's right to purchase the Option Aircraft, the
parties shall deem all definitions, terms and conditions of the
Agreement and this Supplement as being applicable to the purchase of the
Option Aircraft, unless expressly noted otherwise.
3.0 The provisions of this Schedule are personal to Buyer and shall not be
assigned or otherwise disposed of by Buyer without the prior written
consent of Bombardier. 4.0 This Schedule constitutes an integral part of
the Agreement and subject to the terms and conditions contained therein.
SkyWest Airlines, Inc BOMBARDIER INC. Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
----------------------------- ---------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
-----------------------------
Eric Christensen
Vice President, Planning
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<PAGE> 105
SCHEDULE 5 TO SUPPLEMENT NO. PA-428-1
CONVERSION RIGHTS
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
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<PAGE> 106
6.0 This Schedule constitutes an integral part of the Agreement and subject to
the terms and conditions contained therein.
SkyWest Airlines, Inc. BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-28-
<PAGE> 107
SCHEDULE 6 TO SUPPLEMENT NO. PA428-1
FINANCING ASSISTANCE
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-29-
<PAGE> 108
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-30-
<PAGE> 109
SkyWest Airlines, Inc. BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-31-
<PAGE> 110
SCHEDULE 7 TO SUPPLEMENT NO. PA-428-1
DISPATCH RELIABILITY GUARANTEE
1.0 Intent
The intent of the Dispatch Reliability Guarantee ("DRG") is to achieve
the full potential of the inherent technical reliability of the Aircraft
through the joint efforts of Bombardier and Buyer. To that end,
Bombardier agrees to take action as specified below and Buyer agrees to
set its Aircraft fleet dispatch reliability target equal to or greater
than 0.4% above the Guarantee Value so that both Buyer and Bombardier's
technical staff can pursue attainment of the Guarantee Value (as defined
in Article 3.0 below)
For the purpose of this Guarantee, the dispatch reliability shall be for
the Aircraft purchased under the Supplement. It is understood by
Bombardier and Buyer that this Guarantee does not replace, cancel or
extend similar dispatch reliability guarantees agreed upon in previous
agreements between the parties, which guarantees -shall remain in force
and effect pursuant to their respective terms and conditions,
2.0 Definition
As defined in World Airlines Technical Operations Glossary (W.A.T.O.G.),
a chargeable technical delay shall be any delay greater than fifteen (I
5) minutes beyond scheduled revenue departure time caused by malfunction
of equipment affecting any of the Aircraft ("Chargeable Technical
Delay") and a cancellation shall be the deletion of the flight from
Buyer's operating schedule, provided that no more than one (1) delay or
cancellation shall be charged to a specific malfunction
("Cancellation").
3.0 Guarantee Value
Bombardier guarantees that the Aircraft dispatch reliability with
respect to avoidance of Chargeable Technical Delays or Cancellations
shall, at the end of the period indicated below, meet the guarantee
value percentages specified below ("Guarantee Value")
<TABLE>
<CAPTION>
Period Guarantee Value (%)
------ -------------------
<S> <C>
Months six to twelve 97.5
Months thirteen to eighteen 98.0
Months nineteen twenty-four 98.5
Months twenty-five to thirty-six 99.0
</TABLE>
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<PAGE> 111
4.0 Term of Guarantee
The term of this guarantee shall commence on the date of start of
revenue service of Buyer's first delivered Aircraft and shall expire
three (3) years thereafter or whenever the ninety-nine percent (99%)
dispatch reliability is achieved for six (6) consecutive months,
whichever comes first.
5.0 Formula
As the term is used herein, "dispatch reliability" shall be a six (6)
month moving average numerical value (expressed as a percentage) which
shall be calculated by application of the following formula:
DR = 100(l - CD/SD)
Where:
DR = Dispatch Reliability (expressed as percentage)
CD = Total Chargeable Technical Delays and Cancellations
SD = Total Scheduled Revenue Departures
6.0 Assumptions
The Guarantee Value is predicated on a revenue flight length of ninety
(90) minutes, a minimum turnaround time of forty (40) minutes and a
minimum through stop time of twenty (20) minutes. Bombardier reserves
the right to renegotiate the Guarantee Value in the event of deviation
in the aforemade assumptions.
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<PAGE> 112
7.0 Conditions and Limitations
7.1 Any delay or cancellation due to any one or more of the
following causes shall not be considered a Chargeable Technical
Delay or Cancellation in computing compliance with this DRG:
a) Delay or cancellation due to operation or maintenance of
equipment in the Aircraft not being in accordance with
the approved Technical Data;
b) Delay or cancellation due to acts or omissions of Buyer
including but not limited to unavailability of
serviceable spare parts, ground support equipment or
personnel, and not dispatching in accordance with the
approved Minimum Equipment List;
c) Delay or cancellation caused by problems that have had
relevant recommended Service Bulletins or Airworthiness
Directives issued against them, if Buyer has not
incorporated the bulletin on the Aircraft in question,
provided that Buyer has had reasonable time to
incorporate said bulletin or directive consistent with
Buyer's maintenance program;
d) Delay or cancellation caused by BFE of Buyer or Buyer
designated equipment (equipment designated by Buyer and
purchased by Bombardier on behalf of Buyer);
e) Delay or cancellation caused by Power Plant Parts;
f) Delay or cancellation due to any modifications to the
Aircraft made by Buyer without Bombardier's written
approval unless Buyer furnishes reasonable evidence that
such modification was not a prime cause of the delay; or
g) Any delay or cancellation due to acts of God or acts of
third parties or force majeure.
7.2 Reporting
Buyer shall provide to Bombardier not later than thirty (30)
days after the last day of each month all reports as required by
Buyer's regulatory authority. Buyer shall also provide a report
to Bombardier of the corrective action for such Chargeable
Technical Delays or Cancellations, and- the information on
modifications or Service Bulletins relevant to such Chargeable
Technical
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<PAGE> 113
Delays or Cancellations accomplished during each month. Buyer
shall also provide Bombardier such other information and data as
Bombardier may reasonably request for the purpose of analyzing
Chargeable Technical Delays or Cancellations. Bombardier shall
respond to the data in a timely manner and shall provide Buyer
with a summary of fleetwide reliability reports on a monthly
basis.
7.3 Master Record
The master record of dispatch reliability will be maintained by
Bombardier based upon information provided by Buyer's
maintenance control program as requested herein.
Bombardier shall format the data into Bombardier's format. 8.0
Corrective Action
8.0 Corrective Action
8.1 In the event the achieved dispatch reliability, as reported to
Buyer by Bombardier, fails to equal the Guarantee Value for the
applicable period, Bombardier and Buyer will jointly review the
performance for that period to identify improvement changes
required. Bombardier shall also provide, at no charge, if
requested by Buyer:
a) Technical service support to analyze Buyer's operating
procedures, maintenance practices, training programs,
manuals and publications and related procedures,
practices, policies and programs that can have an
adverse effect on dispatch reliability and recommend any
changes in such procedures, practices, policies and
programs reasonably indicated to improve the dispatch
reliability;
b) Review of data related to parts, material, components,
accessories and equipment incorporated in, and used in
connection with, the Aircraft and furnish technical
advice and information to Buyer for the purpose of
improving the dispatch reliability of the Aircraft;
c) Corrective Bombardier engineering design changes and
modification kits of Bombardier Parts and material for
the Aircraft which will, in the joint opinion of Buyer
and Bombardier, cause-the performance of the Aircraft
upon Buyer's installation, to meet or exceed the
dispatch reliability guarantee. The modification kits
and design changes supplied by Bombardier which provide
added value to Buyer beyond that required to reach the
specified guarantee value- will be negotiated by
Bombardier and Buyer to define the cost allocation of
the "Added
-35-
<PAGE> 114
Value". Bombardier will pay for direct labour hours
incurred based on Bombardier's estimated labour hours or
Buyer's actual labour hours, whichever is less, for the
percentage as determined above of the installation cost
necessary to meet the Guarantee Value. Buyer and
Bombardier agree that Buyer's obligations to install
such modification kits shall be consistent with Buyer's
maintenance program. Thereafter, failure by Buyer to
install a Bombardier change shall result in the
exclusion of the associated malfunction from the
dispatch reliability computation, unless Buyer can
demonstrate to Bombardier's reasonable satisfaction that
the change would not have eliminated the malfunction;
and
d) Bombardier shall use its reasonable efforts to require
its suppliers to provide corrective action at no charge
to Buyer to the extent required when Chargeable
Technical Delays or Cancellations exceed the guaranteed
dispatch reliability as a direct result of failure of
equipment designed by such suppliers.
8.2 Bombardier's liability to investigate and provide corrective
action under the terms of this DRG shall be dependent upon the
quality, extent and regularity of information and data reported
to Bombardier by Buyer.
9.0 Implementation of Changes
Buyer may, at its option, decline to implement any change proposed by
Bombardier under Article 8.0 above. If Buyer so declines, Bombardier may
adjust the number of Chargeable Technical Delays or Cancellations by an
amount consistent with the expected reduction in Chargeable Technical
Delays or Cancellations based on reasonable substantiation to Buyer and
on other operator experience, if any, as if such change has been
incorporated. Bombardier shall not make adjustments when Buyer has
demonstrated to Bombardier's reasonable satisfaction that such change is
not cost effective to Buyer.
10.0 Duplicate Remedies
It is agreed that Bombardier shall not be obligated to provide to Buyer
any remedy which is a duplicate of any other remedy which has been
provided to Buyer elsewhere under the Agreement, by the Power Plant
manufacturer or by any vendor.
11.0 The provisions of this Schedule are personal to Buyer and shall not 'be
assigned or otherwise disposed of by Buyer without the prior written
consent of Bombardier.
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<PAGE> 115
13.0 This Schedule constitutes an integral part of the Agreement and subject
to the terms and conditions contained therein.
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc. BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-37-
<PAGE> 116
SCHEDULE 8 TO SUPPLEMENT NO. PA-428-1
PERFORMANCE GUARANTEE
1.0 Aircraft Configuration
The guarantees listed below are based on the Aircraft configuration as
defined in Supplement NO.PA-428-1. Appropriate adjustments shall be made
for any changes to the specifications of the Aircraft which have been
approved by Buyer and Bombardier and which cause changes to the
performance of the Aircraft.
2.0 Performance Guarantee
2.1 Take-off Performance
FAR take-off field length, at a take-off gross weight of 53,000
lb (24,040 kg) at the start of ground run, at sea level with
zero runaway slope, no obstacles, zero wind, ISA conditions,
shall be not more than 6,305 ft (1,922 m).
2.2 Landing Performance
FAR landing field length at a landing weight of 47,000 lb
(21,319 kg), sea level, ISA conditions, no obstacles, shall be
not more than 4,850 ft (1,478 m).
2.3 Speed
Level flight airspeed at 46,000 lb (20,865 kg) gross weight at a
pressure altitude of 35,000 ft, using maximum cruise thrust with
A.C.U. bleed only, in ISA conditions shall be not less than 0.79
M, 455 Kts TAS (843 km/hr).
2.4 Specific Air Range
The nautical air miles per pound of fuel in ISA conditions, at
35,000 ft altitude, at an aircraft gross weight of 46,000 lb
(20,865 kg), at a true Mach number of 0.74 M shall be not less
than 0. 1 85 nam/lb (.755 km/kg).
2.5 Mission Performance
For a mission with an equivalent still air range (stage length)
of 1,600 nautical miles, when operated under the conditions
specified below,. the block fuel burnt shall be not more than
10,217 lb (4,634 kg) when carrying a fixed payload of 10,250 lb
(4,649 kg) representative of 50 passengers at 205 lb (90.3 kg)
per passenger.
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<PAGE> 117
The mission is flown at ISA conditions throughout.
Climb is made starting at sea level to 35-000 ft pressure
altitude using a climb speed schedule of 250 KCAS / 0.70 M.
Initial cruise is at 35,000 feet pressure altitude at a cruise
Mach number of 0.74 M. Step climb is made starting at 35,000
feet to 37,000 feet pressure altitudes using a climb speed
schedule of 250 KCAS/0.70m. Final cruise is at 37,000 feet
pressure altitude at a cruise Mock of 0.74m. Thrust during both
cruise is not to exceed maximum cruise thrust.
Descent is made from 37,000 feet pressure altitude to sea level
using a descent speed schedule of 0.70 M / 250 KCAS.
For the purpose of this guarantee the following are fixed
quantities and allowances:
- 10 minute engine start and taxi fuel is 13 3 lb (60 kg).
- 1 minute take-off fuel including acceleration to initial
climb speed is 107 lb (49 kg).
- Usable reserve fuel remaining upon completion of descent
phase, based on the reserve profile specified below is
1,866 lb (846 kg).
1) 100 nm (185 km) diversion including:
i) climb from sea level to 22,000 ft at a speed of
250 KCAS
ii) cruise at 22,000 ft at long range cruise speed
iii) descent to sea level at a speed of 250 KCAS
2) plus fuel equivalent to 45 minute hold at 22,000 feet at
minimum drag speed (Vmo).
The stage length is defined as the sum of the climb, cruise and
descent distances.
M denotes true Mach number.
Block fuel includes engine start, taxi, take-off, climb, cruise
and descent.
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<PAGE> 118
The fuel burn guarantee is based on the fixed estimated OWE of
30,800 lb (13,971 kg).
3.0 Weights
3.1 Maximum Zero Fuel Weight Guarantee
The Maximum Zero Fuel Weight (MZFW) shall not be less than
44,000 lb (19,958 kg).
3.2 Maximum Landing Weight Guarantee
The maximum landing Weight (MLW) shall not be less than 47,000
lb (21,319 kg).
3.3 Maximum Take-Off Weight Guarantee
The Maximum Take-Off Weight (MTOW) shall not be less than 53,000
lb (24,040 kg).
4.0 Performance Guarantee Conditions
4.1 All guaranteed performance data are based on the ICAO
International Standard Atmosphere unless noted otherwise.
Altitudes are pressure altitudes.
4.2 FAR take-off and landing performance are based on the
requirements of FAR 25 as defined in Transport Canada data sheet
A-131, Issue 13.
4.3 Take-off and landing performance guarantees are based on
operation from hard surfaced, level and dry. runways with no
wind, no line-up allowance or no obstacles unless noted
otherwise and with anti-skid and automatic spoilers operative.
4.4 When establishing the take-off performance, no air shall be bled
from the engine(s) for cabin air conditioning or anti-icing and
APR shall be armed and available when one engine fails. The APU
shall be off.
4.5 Speed, specific air range, and the climb, cruise, and descent
portion of the mission guarantee include allowance for normal
engine bleed and power extraction. Normal engine bleed is
defined as that bleed required to maintain a cabin pressure
altitude not exceeding 8,000, ft at the maximum operating
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<PAGE> 119
altitude with an average cabin ventilation rate of not less than
570 cu.ft./min. (I 6.3 m3/min) and a cabin temperature of
72(degree)F (22(degree)C).
4.6 Normal power extraction assumes the use of electrical services
such as to require a power level 24 Kilowatts, total, to be
provided with both engines operative and of 15 Kilowatts to be
provided with one engine inoperative.
4.7 Fuel density is assumed to be 6.70 lb/US gallon (0.803 kg/1).
All performance guarantees are based on the use of a fuel with a
lower heating value (LHV) of 18,550 BTU/lb (43,147
kilojoules/kg) and on an Aircraft centre of gravity location of
25% of the mean aerodynamic chord.
4.8 All guarantees are contingent upon engine acceptance test
performance acceptable to BOMBARDIER and are applicable to a new
airframe - engine combination only.
5.0 Guarantee Compliance
5.1 Compliance with take-off and landing performance guarantees
shall be demonstrated by reference to the approved DOT Airplane
Flight Manual adjusted to reflect any differences due to change
in certification requirements of interpretation thereof.
5.2 Compliance with speed, specific air range and mission
performance guarantees shall be established by calculations
based on flight test data obtained for an aircraft configuration
similar to that defined by this specification and should be
demonstrated by reference to the Flight Planning and Cruise
Control Manual.
5.3 Data derived from tests shall be adjusted as required by
conventional methods of correction, interpolation or
extrapolation in accordance with established aeronautical
practices to show compliance with the performance guarantees.
6.0 Remedies
6.1 In the event of a shortfall in the guarantees contained in this
Letter Agreement, BOMBARDIER shall endeavor and shall use its
reasonable efforts to develop corrective measures. Such measures
shall be developed within a period of twelve (12) months from
the delivery of the first Airerdft under the Agreement (or such
other longer period as is required in view of the corrective
measures involved).
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<PAGE> 120
7.0 The provisions of this Letter Agreement are personal to Buyer and shall
not be assigned or otherwise disposed of by Buyer without the prior
written consent of BOMBARDIER.
8.0 This Letter Agreement constitutes an integral part of the Agreement and
subject to the terms and conditions contained therein.
SkyWest Airlines, Inc. BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Bradford R. Rich
----------------------------
Eric Christensen
Vice President, Planning
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<PAGE> 121
SCHEDULE 9 TO SUPPLEMENT NO. PA-428-1
AIRFRAME DIRECT MAINTENANCE COST GUARANTEE
1.0 Intent
1.1 The intent of the Airframe direct maintenance cost guarantee is
to achieve the full potential of the maintainability of the
Aircraft through the joint efforts of Bombardier and Buyer. To
that end, Bombardier agrees to provide credits pursuant to the
terms and conditions hereof and Buyer agrees to provide data
defined below.
1.2 The "Airframe" shall mean the Aircraft excluding Power Plant
Parts, related maintenance activities (such as overhaul, hot
section inspection, basic unscheduled repairs, LCF components,
scheduled and unscheduled line replaceable unit repair and
overhaul), Buyer Furnished Equipment (BFE) and Ground Support
Equipment (GSE).
2.0
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
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<PAGE> 122
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
3.0 Calculation of Cost
3.1 Airframe Direct Maintenance Labour ("ADMUL)
The ADML shall be defined as the annual man-hours, in Buyer's
cost allocation system assigned to collect direct labour
charges, without burden, expended in direct maintenance of the
Aircraft. Notwithstanding Buyer's internal cost allocation
system, all elements of indirect labour such as shop cleaning,
workplace maintenance, material handling, overtime premium, idle
time and inventory control or labour resulting from damage,
misdiagnosis (no fault found) or misuse shall be excluded from
the calculation of Airframe direct maintenance man-hours; and
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<PAGE> 123
[Original contains blank page]
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<PAGE> 124
3.2 Airframe Direct Maintenance Material Cost ("ADMMC") The ADMMC is
defined as the annual cost of material consumed, which excludes
initial provisioning purchases, for the direct airframe
maintenance of the Aircraft, -less any transportation, duties,
taxes or license fees. Notwithstanding Buyer's internal cost
allocation system, all elements of indirect material such as
cleaning supplies, consumable tools, hydraulic fluids, oils and
greases, welding supplies, sealants, paints, protective
coatings, adhesives or material resulting from damage,
misdiagnosis (no fault found) or misuse are excluded from the
calculation of ADMMC.
3.3 Airframe Direct Outside Service Cost ("ADOSO The ADOSC is
defined as the annual cost expended in outside services for
direct airframe maintenance of the Aircraft. The ADOSC shall
include the total outside service charges of both labour and
material costs, but excluding transportation and taxes.
3.4 Hourly Airframe Direct Maintenance Cost ("ADMC")
The following formula shall be used to calculate the annual
hourly ADMC:
ADMC = (ADML)(LC) + ADMMC + ADOSC
--------------------------
T
Where:
ADML = Airframe Direct Maintenance Labour expressed in man-hours,
LC = Labour cost from Appendix A, item 4,
ADMMC = Airframe Direct Maintenance Material Cost,
ADOSC = Airframe Direct Outside Service Cost,
T = Total flight hours for the Aircraft recorded for the applicable
year.
4.0 Credit Calculation
4.1 The ADMC calculated in accordance with sub paragraph 3.4 hereof,
shall be compared by Bombardier against the ADMCG on an annual
basis.
-46-
<PAGE> 125
4.2 If the ADMC exceeds the ADMCG by more than ten percent (10%)
Buyer's balance account will be credited with a compensation
credit ("Qb") calculated in accordance with the following
formula:
Qb = 0.5 (ADMC - ADMCG) T
Where:
Qb-@ = Buyer's compensation credit in dollars when Qb
is positive,
ADMC = The ADMC values for the relevant year,
ADMCG = Airframe Direct Maintenance Cost Guarantee
defined in sub paragraph 2.1 hereof,
T = Same meaning as used in Article 3.4, above
4.3 If the ADMC is less than the ADMCG, Bombardier shall accrue an
incentive credit ("Qs") which shall be used as an offset against
any potential liabilities of Bombardier during the term of this
Schedule in accordance with the following formula:
Qs 0.5 (ADMCG - ADMC) T
Where:
Qs Bombardier's incentive credit in dollars when Qs is positive.
ADMC, ADMCG and T shall have the same meaning as used in Article
4.2 above.
5.0 Credit Payment
5.1 At the end of the term of this guarantee, the sum of Buyer's
compensation credit calculated pursuant to Article 4.2 above,
and the sum of Bombardier's incentive credit calculated pursuant
to Article 4.3 above, shall be compared by the following formula
to determine if a credit is due to Buyer.
Credit due Buyer = EQb - YQs
Qb and Qs shall have the same meaning as used in Article 4.2 and
Article 4.3 above.
-47-
<PAGE> 126
5.2 Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
5.3 If the credit due to Buyer is negative, Buyer will be under no
obligation to compensate Bombardier, nor shall Bombardier owe
any compensation to Buyer.
6.0 Audit
Upon five (5) business days prior written notification by Bombardier to
Buyer and at Bombardier's expense, Bombardier shall have the right
during normal business hours to audit all charges reported under this
Schedule, Buyer's applicable maintenance practices and procedures, and
applicable Aircraft records, where normally and customarily maintained,
relative to maintenance, Service Bulletin incorporation and modification
of the Aircraft. Such audit shall not interfere with the conduct of
business by Buyer nor shall Buyer be required to undertake or incur
additional liability or obligations with respect to the audit.
7.0 Reporting
7.1 Bombardier shall provide a quarterly report to Buyer on the
status of the Airframe direct maintenance cost based on data
submitted by Buyer and approved by Bombardier. Failure of Buyer
to provide the required data, in spite of Bombardier's notice
and within thirty (30) days thereof, shall void this Schedule.
7.2 The Airframe Direct Maintenance Cost Guarantee was based upon
the assumptions outlined in the Appendix to this Schedule. Any
deviation from the assumptions outlined in the. Appendix shall
cause a modification in the Airframe Direct Maintenance Cost
Guarantee by Bombardier.
8.0 The provisions of this Schedule are personal to Buyer and shall not be
assigned or otherwise disposed of by Buyer without the prior written
consent of Bombardier.
9.0 This Schedule constitutes an integral part of the Agreement and subject
to the terms and conditions contained therein.
-48-
<PAGE> 127
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-49-
<PAGE> 128
APPENDIX A
AIRFRAME DIRECT MAINTENANCE COST GUARANTEE
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-50-
<PAGE> 129
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-51-
<PAGE> 130
Appendix B
ADMCG Economic Adjustment Formula
The ADMCO economic adjustment will be calculated using the following Guarantee
Adjustment (GA) Formula. The ADMCG term is specified in Section 2. 1.1 of the
Schedule.
GA = GI - GO
Where GI=GO[0.60(LI/LO)+0.40(MI/MO)]
GA = ADMCG Value Adjustment
G0 = ADMCG Value
GI = ADMCG Value adjusted to the final year
L1 = the current year index for labour obtained by calculating the
arithmetic average of the labour indexes published by the United
States Department of Labour Statistics - Employer and Earnings
Index for the fourth, fifth and sixth months prior to the month
in the current year which defines the ADMCG term.
L0 = the delivery year index for labour obtained by calculating the
arithmetic average of the labour indexes published by the United
States Department of Labour Statistics - Employer and Earnings
Index for the fourth, fifth and sixth months prior to the date
specified in Appendix A, Article 3 of this Schedule.
M1 = the current year index for material obtained by calculating the
arithmetic average of the material indexes published by the
United States Department of Labour - Material Industrial
Commodities, Producer Price Index, for the fourth, fifth and
sixth months prior to the month in the current year which
defines the ADMCG term.
M0 = the delivery year index for material obtained by calculating the
arithmetic average of the material indexes published by the
United States Department of Labour - Material Industrial
Commodities, Producer Price Index, for the fourth, fifth and
sixth months prior- to the date specified in Appendix A, Article
3 of this Schedule.
If, during any economic adjustment period, L1 is less than L0, L1 will be deemed
to equal L0 and if M1 is less than M0, M1 will be deemed to equal M0.
-52-
<PAGE> 131
SCHEDULE 10 TO SUPPLEMENT NO. PA-428-1
CREDIT MEMORANDA
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
-53-
<PAGE> 132
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-54-
<PAGE> 133
SCHEDULE 11 TO SUPPLEMENT NO. PA428-1
TERMINATION
1.0 Buyer may terminate the Agreement for any reason whatsoever by written
notice to Bombardier by midnight in St. George, Utah, United States of
America on Wednesday, January 20, 1999. Receipt of such notice will make
the Agreement null and void and neither party shall have any obligation
or liability to other. If no such notice is received, the Agreement
shall be in full force and effect.
2.0 The provisions of this Schedule are personal to Buyer and shall not be
assigned or otherwise disposed of by Buyer without the prior written
consent of Bombardier.
3.0 This Schedule constitutes an integral part of the Agreement and subject
to the terms and conditions contained therein.
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Director of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-55-
<PAGE> 134
SCHEDULE 12 TO SUPPLEMENT NO. PA-428-1
EVENT OF DEFAULT
1.0 Notwithstanding the provisions of Article 16.3 of the Agreement, in
consideration of Buyer having entered into the Agreement, Bombardier
agrees that:
(a) should Buyer be in default or breach of a material term or condition
of the Agreement and such default or breach remains uncured as provided
in Article 16.2 of the Agreement, other than a default under Article 9.8
of the Agreement,
(b) should, as a result of a default or breach referred to -in (a)
above, Bombardier terminate the Agreement, and
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
2.0 Nothing herein contained shall limit any of Bombardier's rights with
respect to a default resulting in a termination less than eighteen (I 8)
months prior to the Scheduled Delivery Dates of the sixteenth to twenty
fifth Aircraft, as applicable.
3.0 Without prejudice to Bombardier's rights to seek additional damages
above such retained amounts incurred as a direct result of Buyer's
default, the balance of any of Buyer's advance payments mode with
respect to terminate Aircraft than held by Bombardier over the amount
Bombardier is permitted to retain under this Schedule shall be returned
to Buyer without interest by wire transfer of immediately available
funds within five (5) business days of the affective date of
transaction.
4.0 In the event of a termination to which reference is made to in Article I
hereof, Buyer's rights into or with respect to any undelivered Aircraft
and into and with respect to any Option Aircraft shall immediately
terminate and be null and void.
5.0 In the event of the termination of the Agreement, this Schedule shall
become automatically null and void.
-56-
<PAGE> 135
6.0 The provisions of this Schedule are personal to Buyer and shall not be
assigned or otherwise disposed of by Buyer without the prior written
consent of Bombardier.
7.0 This Schedule constitutes an integral part of the Agreement and subject
to the terms and conditions contained therein.
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ /Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-57-
<PAGE> 136
SCHEDULE 13 TO SUPPLEMENT NO. PA-428-1
CREDIT RECONCILLIATION
1.0 Notwithstanding the provisions of Schedule 10 of the Agreement, in
consideration of Buyer having entered into the Agreement, Bombardier
agrees:
2.0 In consideration of Buyer having entered into the Agreement for the
purchase of twenty five (25) Aircraft, five (5) years after the last
Aircraft is delivered to Buyer, at the request of Buyer, Bombardier will
liquidate in Buyer's favour, any credit memoranda amounts issued
pursuant to this Agreement and remaining outstanding following
reconciliation of any payments due to Bombardier at the time.
3.0 This Schedule constitutes an integral part of the Agreement and subject
to the terms and conditions contained therein.
Should there be any inconsistency between this Schedule and the Agreement with
respect to the subject matter covered by the terms hereof, then this Schedule
shall prevail.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planrung.
-58-
<PAGE> 137
SCHEDULE 14 TO SUPPLEMENT NO. PA-428-1
CONDITIONAL PAYMENT
Disclosure Regarding Confidential Information:
Portions of pages 55 and 60 of the Purchase Agreement and portions of
pages 2-5, 7-9, 14, 19, 20, 24-27, 29, 30, 43, 44, 48, 50, 51, 53, 56
and 59 of the Supplements and Schedules thereto of the Purchase
Agreement have been omitted from this Exhibit 10.20 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the
"Commission") by SkyWest, Inc. The omitted portions, which are the
subject of an application for confidential treatment and have been filed
separately with the Commission, are identified in this exhibit by the
placement of this legend.
SkyWest Airlines, Inc BOMBARDIER INC.
Bombardier Aerospace
Signed: /s/ Bradford R. Rich Signed: /s/ H. Anne Woodyatt
---------------------------- ----------------------------------
Bradford R. Rich H. Anne Woodyatt
Executive Vice President Manager of Contracts
CFO, and Treasurer Regional Aircraft
Signed: /s/ Eric Christensen
----------------------------
Eric Christensen
Vice President, Planning
-59-
<PAGE> 1
EXHIBIT 13.1
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Year Ended March 31,
- ------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 388,626 $ 266,135 $ 245,766 $ 212,483 $ 184,701
Operating income (000) $ 64,305 $ 32,819 $ 16,025 $ 5,636 $ 18,239
Net income (000)(1) $ 41,835 $ 21,944 $ 10,111 $ 4,366 $ 13,701
Net income per common share(2):
Basic $ 1.73 $ 1.06 $ .50 $ .21 $ .62
Diluted $ 1.69 $ 1.04 $ .50 $ .21 $ .61
Weighted average shares (000)(2):
Basic 24,199 20,799 20,170 20,568 22,224
Diluted 24,787 21,168 20,248 20,736 22,428
Total assets (000) $ 417,660 $ 318,914 $ 231,934 $ 226,996 $ 187,063
Current assets (000) $ 216,684 $ 189,771 $ 89,336 $ 75,908 $ 70,525
Current liabilities (000) $ 74,326 $ 46,662 $ 44,058 $ 43,090 $ 24,486
Long-term debt (000) $ 61,830 $ 41,109 $ 47,337 $ 53,736 $ 29,553
Stockholders' equity (000) $ 256,256 $ 211,133 $ 124,552 $ 115,800 $ 117,684
Return on average equity 17.9% 14.8% 8.3% 3.7% 11.1%
OPERATING DATA
Passengers carried 4,900,921 2,989,062 2,656,602 2,340,366 2,073,885
Revenue passenger miles (000) 1,015,872 745,386 717,322 617,136 488,901
Available seat miles (000) 1,844,123 1,463,975 1,413,170 1,254,334 976,095
Load factor 55.1% 50.9% 50.8% 49.2% 50.1%
Break-even load factor 46.3% 45.0% 47.9% 48.4% 45.5%
Yield per revenue passenger mile 37.5c 34.8c 33.3c 33.2c 36.3c
Revenue per available seat mile 21.0c 18.1c 17.3c 16.9c 18.8c
Cost per available seat mile 17.6c 16.0c 16.3c 16.6c 17.1c
Average passenger trip length 207 249 270 264 236
Number of aircraft at end of year 99 60 60 63 60
</TABLE>
<PAGE> 2
QUARTERLY FINANCIAL AND STOCK PRICE DATA
<TABLE>
<CAPTION>
Fiscal Year 1999
- ------------------------------------------------------------------------------------------------
First Second Third Fourth Year
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues (000) $81,959 $101,229 $102,255 $103,183 $388,626
Operating income (000) $13,502 $ 17,708 $ 15,276 $ 17,819 $ 64,305
Net income (000)(1) $ 9,741 $ 12,854 $ 8,525 $ 10,715 $ 41,835
Net income per common share(2):
Basic $ .41 $ .53 $ .35 $ .44 $ 1.73
Diluted $ .40 $ .52 $ .34 $ .43 $ 1.69
Stock price data(2): High $ 29.75 $ 34.00 $ 32.69 $ 38.00 $ 38.00
Low $ 17.69 $ 15.00 $ 16.06 $ 25.13 $ 15.00
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998
- --------------------------------------------------------------------------------------------
First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues (000) $63,322 $68,813 $66,975 $67,025 $266,135
Operating income (000) $ 5,708 $ 9,536 $ 8,406 $ 9,169 $ 32,819
Net income (000) $ 4,345 $ 7,510 $ 5,422 $ 4,667 $ 21,944
Net income per common share(2):
Basic $ .22 $ .37 $ .27 $ .21 $ 1.06
Diluted $ .22 $ .37 $ .26 $ .21 $ 1.04
Stock price data(2): High $ 8.50 $ 10.32 $ 14.81 $ 21.06 $ 21.06
Low $ 6.00 $ 7.69 $ 10.13 $ 14.75 $ 6.00
</TABLE>
(1) During fiscal 1999, the Company sold the operations of Scenic Airlines,
Inc., and recorded related losses of $793,000, or $(.03) per diluted share. The
Scenic Operations have been reflected as Discontinued Operations in the
accompanying consolidated financial statements, with corresponding
reclassifications to previously reported information.
(2) On May 5, 1998, the Company's Board of Directors declared a 100 percent
stock dividend (one share for each share outstanding) payable to stockholders of
record on May 20, 1998. The dividend was distributed on June 8, 1998. The
Company paid cash in lieu of issuing fractional shares. All common shares and
per share information in the accompanying consolidated financial statements have
been retroactively adjusted to reflect this stock dividend.
As of April 30, 1999, there were 1,060 holders of common stock. Cash dividends
of $.12 and $.10 per share of outstanding common stock were paid in fiscal years
1999 and 1998, respectively.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company through SkyWest Airlines, Inc. ("SkyWest"), operates a regional
airline offering scheduled passenger service with approximately 1,000 daily
departures to 64 cities in 13 western states and Canada. Total operating
revenues and passengers carried have grown consistently from fiscal 1994 through
fiscal 1999, at compounded annual growth rates of approximately 19.7 percent and
23.1 percent, respectively. In fiscal 1994, SkyWest generated approximately 727
million available seat miles ("ASMs") and had a fleet of twenty-eight 19-seat
Metroliners, twenty-three 30-seat Brasilias and four Canadair Regional Jets
("CRJs") at fiscal year end. As a result of additional aircraft acquisitions,
SkyWest generated approximately 1.8 billion ASMs in fiscal 1999 with a fleet of
88 Brasilias and 11 CRJs at fiscal year end. The transition out of the
Metroliner aircraft enabled SkyWest to upgrade its aircraft to an all
cabin-class fleet of Brasilias and CRJs, which offer increased passenger
acceptance and capacity and higher operating efficiencies. The transition
resulted in one-time pre-tax fleet restructuring and transition expenses of $6.2
million, or $.19 per share, in fiscal 1996.
In fiscal 1999, the Company generated net income of $41.8 million, compared to
$21.9 million in fiscal 1998 and $10.1 million in fiscal 1997. During fiscal
1999, the Company sold the operations of Scenic Airlines, Inc., and recorded a
net loss of $.8 million. The amount has been reflected as Discontinued
Operations in the accompanying consolidated financial statements. The
improvement since fiscal 1996 reflects, among other factors, the addition of
United Airlines, Inc. ("United") as a code sharing partner and the completion of
SkyWest's transition to an all cabin-class fleet.
SkyWest has been a code-sharing partner with Delta Air Lines, Inc. ("Delta") and
United Airlines, Inc. ("United") since 1987 and 1997, respectively. In February
1998, SkyWest executed an amendment to the United Express Agreement to provide
service as United Express in United's Portland and Seattle/Tacoma markets and in
additional Los Angeles markets which began in April 1998. In January 1998,
SkyWest executed an addendum to the United Express Agreement, expanding
SkyWest's operations to serve as the United Express carrier in San Francisco
which began in June 1998. SkyWest operates as the Delta Connection in Salt Lake
City and as United Express in Los Angeles, San Francisco and in the Pacific
Northwest. SkyWest believes that its success in attracting multiple code-sharing
relationships is attributed to its delivery of high quality customer service
with an all cabin-class fleet.
Multiple code-sharing relationships have enabled SkyWest to reduce reliance on
any single major airline code and to enhance and stabilize operating results
through a mix of SkyWest-controlled flying and contract flying. On
SkyWest-controlled flights, SkyWest controls scheduling, ticketing, pricing and
seat inventories and receives a prorated portion of passenger fares. On contract
routes, the major partner controls scheduling, ticketing, pricing and seat
inventories with SkyWest receiving from United negotiated payments per flight
departure and incentives related to passenger volumes and levels of customer
service. As of April 4, 1999, approximately 60 percent of SkyWest's capacity was
in contract flying and 40 percent was in SkyWest-controlled flying. Another
benefit of the multiple code-sharing relationship is the ability to grow within
two major airline systems. The Company has agreements to acquire an additional
35 CRJs with options for an additional 35 aircraft with deliveries beginning in
June 2000. These aircraft will be allocated between the United Express and Delta
Connection operations.
The Company has continued to emphasize cost management and better utilization of
existing resources. During fiscal 1999, SkyWest experienced a 17 percent
decrease in the average passenger trip length, however cost per ASM increased
only 10 percent from 16.0c in fiscal 1998 to 17.6c in fiscal 1999. Cost per ASM
increased at a lower rate due to efficiencies gained from having an all-Brasilia
turboprop fleet.
<PAGE> 4
RESULTS OF OPERATIONS
The following table sets forth information regarding the Company's operating
expense components. Airline operating expenses are expressed as a percentage of
total airline operating revenues. Nonairline expenses are expressed as a
percentage of total nonairline revenues. Total operating expenses and interest
are expressed as a percentage of total consolidated revenues.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------
Percent Cents Percent Cents Percent Cents
of per of per of per
Amount Revenue ASM Amount Revenue ASM Amount Revenue ASM
-------- ------- ----- -------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and employee
benefits .......................... $101,243 26.2% 5.5c $ 67,591 25.5% 4.6c $ 60,759 24.8% 4.3c
Aircraft costs ....................... 70,561 18.2 3.8 52,357 19.8 3.6 49,822 20.4 3.5
Maintenance .......................... 36,563 9.5 2.0 20,535 7.8 1.4 20,929 8.6 1.4
Fuel ................................. 29,477 7.6 1.6 28,510 10.8 2.0 30,713 12.6 2.2
Other airline expenses ............... 84,712 21.9 4.6 62,701 23.7 4.3 66,323 27.0 4.7
Interest ............................. 2,376 .6 .1 1,639 .6 .1 2,431 1.0 .2
-------- ---- ---- -------- ---- ---- -------- ----- ----
Total airline expenses ............... 324,932 84.0 17.6c 233,333 88.3 16.0c 230,977 94.4 16.3c
-------- ---- ==== -------- ---- ==== -------- ----- ====
Other ................................ 1,765 94.1 1,622 93.6 1,194 106.6
-------- ---- -------- ---- -------- -----
Total operating expenses and
interest .......................... $326,697 84.1% $234,955 88.3% $232,171 94.5%
======== ==== ======== ==== ======== =====
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
During fiscal 1999, SkyWest dramatically expanded its code-sharing agreements
with United Airlines and added a record number of aircraft to the fleet. As a
result, SkyWest experienced high growth factors in available seat miles
("ASMs"), revenue passenger miles ("RPMs"), passengers carried and load factors.
In fiscal 1999, net income increased 90.6 percent to $41.8 million, or $1.69 per
diluted share, compared to $21.9 million, or $1.04 per diluted share in fiscal
1998. Consolidated operating revenues increased 46.0 percent to a record $388.6
million in fiscal 1999 compared to $266.1 million in fiscal 1998.
Passenger revenues, which represented 98.1 percent of total operating revenues,
increased 47.1 percent to $381.4 million in fiscal 1999 compared to $259.3
million or 97.4 percent of total operating revenues in fiscal 1998. The increase
is due to a 36.3 percent increase in RPMs and a 7.8 percent increase in yield
per RPM. Effective April 23, 1998, SkyWest expanded its code-sharing
relationship with United, as United Express, and began operating flights to/from
Seattle and Portland. SkyWest also expanded their United Express operations at
Los Angeles at the same time. Effective June 1, 1998, SkyWest further expanded
its United Express operations and began operating flights to/from San Francisco.
The increase in yield per RPM is also the result of improved revenue management
resulting from schedule refinements and fleet rationalization. SkyWest also
continues to maximize revenue by use of a state-of-the-art revenue management
and control system which utilizes historical booking data and trends to optimize
revenue. Together, these factors increased revenue per ASM 16.0 percent to 21.0c
in fiscal 1999 compared to 18.1c in fiscal 1998.
During fiscal 1999, total airline operating revenues increased 46.3 percent and
total airline operating expenses increased only 39.0 percent. As a result, total
airline operating expenses and interest were 84.0 percent of total airline
operating revenues in fiscal 1999 compared to 88.4 percent in fiscal 1998.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 26.2 percent in fiscal 1999 from 25.5 percent in fiscal
1998. The increase is primarily the result of incentive payments to employees,
which are based on SkyWest's profitability. The average number of employees was
3,092 for fiscal 1999 compared to 1,915 for fiscal 1998. The large increase is
due to the addition of personnel required for SkyWest's expansion. Salaries,
wages and employee benefits per ASM increased to 5.5c in fiscal 1999 from 4.6c
in fiscal 1998.
<PAGE> 5
Aircraft costs, including aircraft rent and depreciation, decreased slightly as
a percentage of airline operating revenues to 18.2 percent in fiscal 1999 from
19.8 percent in fiscal 1998. The decrease is due to airline operating revenues
increasing at a faster rate than aircraft costs. Aircraft costs per ASM were
3.8c in fiscal 1999 compared to 3.6c in fiscal 1998.
Maintenance expense increased slightly as a percentage of airline operating
revenues to 9.5 percent in fiscal 1999 from 7.8 percent in fiscal 1998. The
increase is due to the Company incurring initial heavy maintenance charges to
bring the acquired used Brasilias up to SkyWest's maintenance standards.
Maintenance cost per ASM was 2.0c in fiscal 1999, compared to 1.4c in fiscal
1998.
Fuel costs decreased as a percentage of airline operating revenues to 7.6
percent in fiscal 1999 from 10.8 percent in fiscal 1998. The decrease is due to
primarily to a decrease in the average cost of fuel per gallon to 64c in fiscal
1999 from 81c in fiscal 1998. As a result, fuel costs per ASM decreased to 1.6c
in fiscal 1999 from 2.0c in fiscal 1998.
Other expenses, which consist primarily of commissions, landing fees, station
rents, computer reservation systems and hull and liability insurance, decreased
as a percentage of airline operating revenues to 21.9 percent in fiscal 1999
compared to 23.7 percent in fiscal 1998. The decrease is primarily the result of
the Company not incurring commissions on United Express related passenger
revenues. However, due to a 17 percent decrease in the average passenger trip
length, cost per ASM increased to 4.6c in fiscal 1999 from 4.3c in fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
In fiscal 1998, consolidated net income increased 117.0 percent to $21.9
million, or $1.04 per diluted share compared to $10.1 million, or $.50 per
diluted share in fiscal 1997. Consolidated operating revenues increased to
$266.1 million in fiscal 1998 compared to $245.8 in fiscal 1997.
Passenger revenues, which represented 97.4 percent of total operating revenues,
increased 8.4 percent to $259.3 million in fiscal 1998 compared to $239.2
million or 97.3 percent of total operating revenues in fiscal 1997. The increase
was due to a 4.5 percent increase in yield per RPM and a 3.9 percent increase in
RPMs. SkyWest entered into a new code-sharing relationship with United and began
operating as United Express in Los Angeles beginning October 1, 1997. This
operation resulted in both increased RPMs and increased yield per RPM. The 4.5
percent increase in yield per RPM also resulted from an increase in the
Company's portion of prorated fares with Delta in certain markets. SkyWest also
acquired a new state-of-the-art revenue management and control system which
utilizes historical booking data and trends to optimize revenue. The combination
of these factors resulted in an increase in revenue per ASM to 18.1c in fiscal
1998 compared to 17.3c in fiscal 1997.
Management continued its efforts to reduce airline operating costs per ASM and
as a percentage of airline operating revenues. Total airline operating expenses
and interest were 88.4 percent of total airline operating revenues in fiscal
1998 compared to 94.4 percent in fiscal 1997. This percentage decrease was due
to an 8.1 percent increase in total airline operating revenues and only a 1.2
percent increase in total airline operating expenses. This improvement was
primarily the result of the increase in revenues from the new United Express
flying as well as the Company not incurring expenses such as traffic commissions
and certain traffic handling expenses related to this flying. Airline operating
costs per ASM decreased to 16.0c in fiscal 1998 from 16.3c in fiscal 1997.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 25.5 percent in fiscal 1998 from 24.8 percent in fiscal
1997. The increase was primarily the result of incentive payments to employees,
which are based on the Company's profitability. The average number of employees
was 1,915 for fiscal 1998 compared to 1,852 for fiscal 1997. The increase was
due to the addition of crew members required for the Company's expansion.
Salaries, wages and employee benefits per ASM increased to 4.6c in fiscal 1998
from 4.3c in fiscal 1997.
Aircraft costs, including aircraft rent and depreciation, decreased slightly as
a percentage of airline operating revenues to 19.8 percent in fiscal 1998 from
20.4 percent in fiscal 1997. The decrease was due to airline operating revenues
increasing at a faster rate than aircraft costs. Aircraft costs per ASM were 3.6
cents in fiscal 1998 compared to 3.5c in fiscal 1997.
<PAGE> 6
Maintenance expense decreased slightly as a percentage of airline operating
revenues to 7.8 percent in fiscal 1998 from 8.6 percent in fiscal 1997. The
decrease was due to airline operating revenues increasing while maintenance
expenses decreased, in fiscal 1998, due to the utilization of newer Brasilia
aircraft. Maintenance cost per ASM was 1.4c in fiscal 1998 and 1997.
Fuel costs decreased as a percentage of airline operating revenues to 10.8
percent in fiscal 1998 from 12.6 percent in fiscal 1997. The decrease was due to
airline operating revenues increasing 8.1 percent while fuel costs decreased 7.2
percent in fiscal 1998 compared to fiscal 1997. The decrease in fuel costs was
due to a reduction in the average fuel price per gallon from 95c in fiscal 1997
to 81c in fiscal 1998. As a result, fuel costs per ASM decreased to 2.0c in
fiscal 1998 from 2.2c in fiscal 1997.
Other expenses, which consist primarily of commissions, landing fees, station
rents, computer reservation systems and hull and liability insurance, decreased
as a percentage of airline operating revenues to 23.7 percent in fiscal 1998
compared to 27.0 percent in fiscal 1997. The decrease was primarily the result
of the Company not incurring commissions on United contract related passenger
revenues. Due to the decrease in other expenses, cost per ASM decreased to 4.3c
in fiscal 1998 from 4.7c in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $142.4 million and a current ratio of 2.9:1
at March 31, 1999 compared to working capital of $143.1 million and a current
ratio of 4.1:1 at March 31, 1998. The decrease in the current ratio is the
result of the Company paying $41.4 million in deposits on aircraft orders which
are recorded in long-term assets. The principal sources of funds during fiscal
1999 were $78.0 million generated from operations, $29.2 million from the
issuance of long-term debt, $21.2 million from the sale of Scenic, $5.0 million
from the sale of common stock, $2.9 million of proceeds from the sale of
property and equipment, and $1.2 million of tax benefit from exercise of common
stock options. During fiscal 1999, the Company invested $94.9 million in
available-for-sale securities, $58.8 million in flight equipment, and, $41.4
million in deposits on aircraft, and $10.4 million in buildings, ground
equipment and other assets. The Company also reduced long-term debt by $16.7
million and paid $2.8 million in cash dividends. These factors resulted in an
$87.5 million decrease in cash and cash equivalents during fiscal 1999.
The Company's position in available-for-sale securities, consisting primarily of
bonds, bond funds and commercial paper, increased to $109.6 million at March 31,
1999 compared to $14.6 million at March 31, 1998.
During fiscal 1998, SkyWest entered into an agreement to purchase 20 new
Brasilia aircraft, related spare parts inventory and support equipment. Two of
these aircraft were delivered in fiscal 1998 and 13 were delivered in fiscal
1999. At March 31, 1999, SkyWest had agreed to purchase the remaining five
Brasilia aircraft, related spare parts inventory and support equipment at an
aggregate cost of approximately $40.0 million, including estimated cost
escalations. During fiscal 1999, SkyWest entered into an agreement to acquire 25
CRJs and related spares parts inventory and support equipment together with
options on 25 additional aircraft. Subsequent, to year-end, SkyWest entered into
an agreement to acquire an additional 10 CRJs and secured options for an
additional 20 aircraft. This brings the total firm order to 35 jet aircraft and
35 options at an aggregate cost of approximately $787.5 million. The options to
acquire 35 additional CRJs are at fixed prices (subject to cost escalations) and
delivery schedules and are exercisable through July 2003.
The Company has significant long-term lease obligations primarily relating to
its aircraft fleet. These leases are classified as operating leases and
therefore are not reflected as liabilities in the Company's consolidated balance
sheets. At March 31, 1999, the Company leased 78 aircraft with remaining lease
terms ranging from 1 to 15 years. Future minimum lease payments due under all
long-term operating leases were approximately $583.0 million at March 31, 1999.
The Company's long-term debt was incurred in connection with the acquisition of
Brasilia aircraft and certain amounts are supported by continuing subsidy
payments through the export support program of the Federative Republic of
Brazil. The subsidy payments reduce the stated interest rates to an average
effective rate of approximately 3.90 percent on $41.1 million of the long-term
debt, at March 31, 1999. The continuing subsidy payments are at risk to the
Company if the Federative Republic of Brazil does not meet its obligations under
the export support program. While the Company has no reason to believe, based on
information currently available, that the
<PAGE> 7
Company will not continue to receive these subsidy payments from the Federative
Republic of Brazil in the future, there can be no assurance that such a default
will not occur. On the remaining long-term debt of $29.2 million, the average
effective rate is 3.80 percent at March 31, 1999 and the lender has assumed the
risk of the subsidy payments.
The Company expended approximately $36.7 million for non-aircraft capital
expenditures during the year ended March 31, 1999, consisting primarily of
aircraft engine overhauls, ground and ramp equipment and rotable spares related
to the expansion, aircraft modifications to be made pursuant to industry-wide
FAA directives, buildings and ground equipment and rental vehicles.
The Company has available $10.0 million in an unsecured bank line of credit with
interest payable at the bank's base rate less one-quarter percent, which was a
net rate of 7.50 percent at March 31, 1999. The Company believes that in the
absence of unusual circumstances the working capital available to the Company
will be sufficient to meet its present requirements, including expansion,
capital expenditure, lease payment and debt service requirements for at least
the next 12 months.
YEAR 2000 COMPLIANCE
The Company is currently modifying computer systems and application programs, as
well as imbedded technology in the Company's equipment, for year 2000
compliance, with project completion scheduled for September 30, 1999. The
Company believes that the cost to modify its systems or applications will not
have a material effect on its financial position or results of operations. Any
expenditures will be funded through operating cash flows while any costs for new
software will be capitalized and amortized over the software's useful life.
Although the Company is working cooperatively with third parties with systems
upon which the Company must rely, the Company can not give any assurances that
the systems of other parties will be year 2000 compliant on a timely basis.
Systems operated by others which the Company would use and/or rely on would
include: Federal Aviation Administration Air Traffic Control, computer
reservation systems for travel agent sales as well as Delta and United
reservation, passenger check-in and ticketing systems. The failure of the
systems or equipment of the Company or third parties (which the Company believes
is the most likely worst case scenario) could result in the reduction of
suspension of the Company's operations and could have a material adverse effect
on the Company's financial condition and results of operations.
The Company is reviewing and revising its business interruption contingency
plans. The review, together with any necessary revisions, will be completed
concurrent with the modifications to existing systems and application programs
by September 30, 1999. The review of these plans will include how to maintain
safety as well as performing certain functions and processes manually. Due to
the uncertainty, related to year 2000 issues, the Company's contingency plan
will be ongoing in nature and may require further modifications to existing
systems as new information is made available and the Company further assess the
readiness of third parties upon which the Company relies.
SEASONALITY
As is common in the airline industry, the Company's operations are favorably
affected by increased travel, historically occurring in the summer months and
are unfavorably affected by decreased business travel during the months from
November through January and by inclement weather which occasionally results in
cancelled flights, principally during the winter months. However, the Company
does expect some mitigation of the historical seasonal trends due to an increase
in contract flying operations.
<PAGE> 8
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this annual report
are the responsibility of SkyWest, Inc. management. The consolidated financial
statements contained in this report have been audited by Arthur Andersen LLP,
independent public accountants, whose report appears below.
The Company maintains a system of internal controls that provide reasonable
assurance as to the integrity and reliability of the financial statements, the
safeguarding of its assets against loss or unauthorized use and the prevention
and detection of fraudulent financial reporting.
The board of directors pursues its responsibility for these statements through
its audit committee, which consists solely of directors who are neither officers
nor employees of the Company. The audit committee meets periodically with the
independent public accountants, the internal auditors and representatives of
management to discuss internal accounting control, auditing and financial
reporting matters.
/s/ Jerry C. Atkin /s/ Bradford R. Rich
- ---------------------------------- ----------------------------------
Jerry C. Atkin Bradford R. Rich
Chairman, President and Executive Vice President
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SkyWest, Inc.:
We have audited the accompanying consolidated balance sheets of SkyWest, Inc. (a
Utah corporation) and subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SkyWest, Inc. and subsidiaries
as of March 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- --------------------------
Salt Lake City, Utah
May 19, 1999
<PAGE> 9
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
================================================================================
ASSETS
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 52,237 $ 139,772
Available-for-sale securities 109,580 14,627
Receivables, less allowance for doubtful accounts of
$203 in 1999 and $124 in 1998 13,273 8,984
Inventories 13,863 8,361
Prepaid aircraft rents 18,755 12,145
Other current assets 8,976 4,286
Net current assets of discontinued operations -- 1,596
--------- ---------
Total current assets 216,684 189,771
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Aircraft and rotable spares 225,233 167,482
Buildings and ground equipment 39,418 33,785
Deposits on aircraft 41,463 --
Rental vehicles 4,603 3,137
--------- ---------
310,717 204,404
Less-accumulated depreciation and
amortization (111,793) (89,716)
--------- ---------
198,924 114,688
--------- ---------
NET NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS -- 12,647
--------- ---------
OTHER ASSETS 2,052 1,808
--------- ---------
$ 417,660 $ 318,914
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE> 10
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,497 $ 6,300
Trade accounts payable 45,630 30,110
Accrued salaries, wages and benefits 10,471 7,317
Income taxes payable 5,937 --
Taxes other than income taxes 2,372 1,698
Air traffic liability 1,419 1,237
--------- ---------
Total current liabilities 74,326 46,662
--------- ---------
LONG-TERM DEBT, net of current maturities 61,830 41,109
--------- ---------
DEFERRED INCOME TAXES PAYABLE 25,248 20,010
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued
Common stock, no par value, 40,000,000 shares authorized;
27,418,594 and 26,959,110 shares issued, respectively 162,116 155,917
Retained earnings 114,425 75,501
Treasury stock, at cost, 2,949,200 shares (20,285) (20,285)
--------- ---------
Total stockholders' equity 256,256 211,133
--------- ---------
$ 417,660 $ 318,914
========= =========
</TABLE>
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the year ended March 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Passenger $ 381,409 $ 259,314 $ 239,222
Freight and other 7,217 6,821 6,544
------------ ------------ ------------
Total operating revenues 388,626 266,135 245,766
------------ ------------ ------------
Operating expenses:
Flying operations 137,231 103,636 101,689
Aircraft, traffic and passenger service 58,826 38,957 37,044
Maintenance 51,370 29,299 29,149
Promotion and sales 29,432 25,505 29,606
Depreciation and amortization 23,237 19,305 18,481
General and administrative 22,460 14,992 12,577
Other 1,765 1,622 1,195
------------ ------------ ------------
Total operating expenses 324,321 233,316 229,741
------------ ------------ ------------
Operating income 64,305 32,819 16,025
------------ ------------ ------------
Other income (expense):
Interest expense (2,376) (1,639) (2,431)
Interest income 7,553 4,090 2,328
Gain (loss) on sales of property and equipment 419 (45) 936
------------ ------------ ------------
Total other income 5,596 2,406 833
------------ ------------ ------------
Income before provision for income taxes 69,901 35,225 16,858
Provision for income taxes 27,273 13,565 6,856
------------ ------------ ------------
Income from continuing operations 42,628 21,660 10,002
------------ ------------ ------------
Discontinued operations, net of income taxes:
(Loss) income from operations of Scenic Airlines (168) 284 109
Loss on disposition of Scenic Airlines (625) -- --
------------ ------------ ------------
(793) 284 109
------------ ------------ ------------
Net income $ 41,835 $ 21,944 $ 10,111
============ ============ ============
Income from continuing operations per common share:
Basic $ 1.76 $ 1.04 $ .49
Diluted $ 1.72 $ 1.02 $ .49
(Loss) income from discontinued operations per common share:
Basic $ (.03) $ .02 $ .01
Diluted $ (.03) $ .02 $ .01
Net income per common share:
Basic $ 1.73 $ 1.06 $ .50
Diluted $ 1.69 $ 1.04 $ .50
Weighted average number of common shares outstanding:
Basic 24,199,000 20,799,000 20,170,000
Diluted 24,787,000 21,168,000 20,248,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------- Retained --------------------------
Shares Amount Earnings Shares Amount
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 23,043,616 $ 88,183 $ 47,902 (2,949,200) $ (20,285)
Net income -- -- 10,111 -- --
Exercise of common stock options
(at a price of $2.75 per share) 102,500 282 -- -- --
Sale of common stock under
employee stock purchase plan 103,506 588 -- -- --
Tax benefit from exercise of common
stock options -- 93 -- -- --
Cash dividends ($.12 per share) -- -- (2,322) -- --
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 23,249,622 89,146 55,691 (2,949,200) (20,285)
Net income -- -- 21,944 -- --
Exercise of common stock options
(at prices ranging from $6.32 to
$16.63 per share) 383,420 3,465 -- -- --
Sale of common stock under
employee stock purchase plan 106,068 663 -- -- --
Sale of common stock, net of offering
costs of $3,648 3,220,000 61,557 -- -- --
Tax benefit from exercise of common
stock options -- 1,086 -- -- --
Cash dividends ($.10 per share) -- -- (2,134) -- --
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 26,959,110 155,917 75,501 (2,949,200) (20,285)
Net income -- -- 41,835 -- --
Exercise of common stock options
(at prices ranging from $6.88 to
$16.63 per share) 399,606 3,905 -- -- --
Sale of common stock under
employee stock purchase plan 59,878 1,062 -- -- --
Tax benefit from exercise of common
stock options -- 1,232 -- -- --
Cash dividends ($.12 per share) -- -- (2,911) -- --
---------- ---------- ---------- ---------- ----------
Balance at March 31,1999 27,418,594 $ 162,116 $ 114,425 (2,949,200) $ (20,285)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the year ended March 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,835 $ 21,944 $ 10,111
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,237 19,305 18,481
Nonairline depreciation and amortization 1,026 4,848 3,585
Maintenance expense related to disposition of rotable spares 259 322 286
Gain on sales of property and equipment (419) (374) (1,113)
Loss on disposition of Scenic Airlines 992 -- --
Increase (decrease) in allowance for doubtful accounts 79 20 (117)
Increase in deferred income taxes 5,238 4,023 1,617
Amortization of deferred credits -- -- (1,614)
Changes in operating assets and liabilities:
(Increase) decrease in receivables (4,368) 132 2,159
Increase in inventories, net of dispositions (5,502) (1,749) (1,064)
Increase in other current assets (11,300) (2,802) (2,681)
Decrease in net current assets of discontinued operations 1,596 -- --
Increase in trade accounts payable 15,386 1,896 4,965
Decrease in fleet restructuring accrual -- (290) (3,498)
Increase in other current liabilities 9,947 1,132 854
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 78,006 48,407 31,971
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (94,953) -- --
Proceeds from sale of available-for-sale securities -- 3,343 1,127
Acquisition of property and equipment:
Aircraft and rotable spares (58,780) (22,812) (11,979)
Deposits on aircraft and rotable spares (41,463) -- --
Buildings and ground equipment (5,633) (4,572) (4,886)
Rental vehicles (4,989) (2,392) (2,850)
Proceeds from sales of property and equipment 2,899 11,238 2,945
Proceeds from sale of Scenic Airlines 21,141 -- --
Decrease in deposits on aircraft and rotable spares -- -- 3,603
Increase in net long-term assets of discontinued operations 914 -- --
(Increase) decrease in other assets (616) (29) 413
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (181,480) (15,224) (11,627)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 4,967 65,685 870
Tax benefit from exercise of common stock options 1,232 1,086 93
Payment of cash dividends (2,778) (2,041) (1,814)
Reduction of long-term debt (16,700) (7,427) (6,236)
Proceeds from issuance of long-term debt 29,218 11,500 --
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,939 68,803 (7,087)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (87,535) 101,986 13,257
Cash and cash equivalents at beginning of year 139,772 37,786 24,529
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,237 $ 139,772 $ 37,786
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,601 $ 3,012 $ 2,399
Income taxes 18,233 8,221 3,950
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SkyWest, Inc. (a Utah corporation) and its wholly owned subsidiaries, SkyWest
Airlines, Inc. ("SkyWest"), Scenic Airlines, Inc. ("Scenic") and National Parks
Transportation, Inc. ("NPT"), collectively (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
During fiscal 1999, the Company consummated two agreements for the sale of
Scenic. As a result, certain reclassifications have been made in the
accompanying consolidated financial statements to reflect the impact of these
sales and to classify the operations of Scenic as Discontinued Operations (see
Note 7).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
AVAILABLE-FOR-SALE SECURITIES
The Company's investments in debt and equity securities have been classified as
available-for-sale securities and are recorded at fair market value. The
Company's position in available-for-sale securities consists primarily of bonds,
bond funds, and commercial paper. Significant unrealized holding gains and
losses will be recorded as a separate component of stockholders? equity.
INVENTORIES
Inventories include expendable parts, fuel and supplies and are valued at
weighted average cost less an allowance for obsolescence. Expendable parts are
charged to expense as used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over their useful
lives to their estimated residual values using the straight-line method as
follows:
<TABLE>
<S> <C>
Aircraft and rotable spares 3 - 14 years
Buildings and ground equipment 3 - 39.5 years
Rental vehicles 4 years
</TABLE>
MAINTENANCE
The Company operates under an FAA approved continuous inspection and maintenance
program. The normal cost of recurring maintenance is charged to expense when
incurred. The Company uses the deferred method of accounting for EMB-120 engine
overhauls and uses the accrual method of accounting for regional jet engine
overhauls.
<PAGE> 15
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PASSENGER AND FREIGHT REVENUES
Passenger and freight revenues are recognized when service is provided.
Passenger tickets sold but not used and the liability to other airlines are
recorded as air traffic liability.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax consequences of
all temporary differences between the tax bases of assets and liabilities and
their reported amounts in the consolidated financial statements that will result
in taxable or deductible amounts in future years when the reported amounts of
the assets and liabilities are recovered or settled. As of March 31, 1999 and
1998, the Company had recorded current deferred tax assets of $6,789,000 and
$2,065,000, respectively (which are included in other current assets), and
deferred tax liabilities of $25,248,000 and $20,010,000, respectively.
NET INCOME PER COMMON SHARE
Basic net income per common share ("Basic EPS") excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding during the fiscal year. Diluted net income per common share
("Diluted EPS") reflects the potential dilution that could occur if stock
options or other contracts to issue common stock were exercised or converted
into common stock. The computation of Diluted EPS does not assume exercise or
conversion of securities that would have an antidilutive effect on net income
per common share. Net income per common share amounts and share data have been
restated for all periods presented to reflect Basic and Diluted EPS as a result
of the stock dividend described in Note 5.
Following is a reconciliation of the numerator and denominator of Basic EPS to
the numerator and denominator of Diluted EPS for all periods presented (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended March 31, 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $41,835 $21,944 $10,111
======= ======= =======
Denominator:
Weighted average common shares outstanding 24,199 20,799 20,170
Effect of options 588 369 78
------- ------- -------
24,787 21,168 20,248
======= ======= =======
Basic EPS $ 1.73 $ 1.06 $ .50
Diluted EPS $ 1.69 $ 1.04 $ .50
======= ======= =======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, available-for-sale securities, receivables and accounts
payable approximate fair values because of the immediate or short-term maturity
of these financial instruments. The fair value of the Company?s long-term debt
is estimated based on current rates offered to the Company for similar debt and
approximates $63,573,000 as of March 31, 1999, as compared to the carrying
amount of $70,327,000.
SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement requires disclosures related
to components of a company for which separate financial information is available
that is evaluated regularly by the Company's chief operating decision maker in
deciding how to allocate resources and in assessing performance. As a result of
the sale of Scenic in fiscal 1999, (see Note 7), management believes that the
Company has only one operating segment in accordance with SFAS No. 131 because
the Company's core remaining business consists of scheduled airline passenger
service.
<PAGE> 16
(2) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
As of March 31,
1999 1998
------- --------
(in thousands)
<S> <C> <C>
Notes payable to bank, due in semi-annual
installments plus interest at 3.72% to 3.85%,
net of the benefits of interest rate subsidies
through the Brazilian Export financing program,
through February 2011, secured by aircraft $29,218 $ --
Notes payable to banks, due in monthly
installments including interest at 6.70% to
7.37% through January 2006, secured by aircraft 20,734 23,342
Notes payable to bank and financing company, due in
quarterly installments plus interest at 7.64% to
8.58% through March 2005, secured by aircraft 7,410 8,464
Note payable to bank, due in monthly installments
plus interest at 6.36% through November 2000,
balloon payment of $3,937,000 due December 2000,
secured by aircraft 5,274 6,046
Note payable to bank, due in quarterly
installments plus interest based on three month
LIBOR (6.70% at March 31, 1999) through
September 2003, secured by aircraft 3,010 3,679
Note payable to bank, due in monthly installments
plus interest based on one month LIBOR (6.75% at
March 31, 1999) through June 2003, secured by
aircraft 2,790 3,446
Note payable to bank, due in semi-annual
installments plus interest at 8.50% through May
2002, secured by aircraft 1,891 2,432
------- --------
70,327 47,409
Less current maturities (8,497) (6,300)
------- --------
$61,830 $41,109
======= =======
</TABLE>
The aggregate amounts of principal maturities of long-term debt as of March 31,
1999, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000 $ 8,497
2001 8,804
2002 9,131
2003 9,209
2004 7,771
Thereafter 26,915
-------
$70,327
=======
</TABLE>
<PAGE> 17
2. LONG-TERM DEBT (continued)
The Company's long-term debt was incurred in connection with the acquisition of
Brasilia aircraft and certain amounts are supported by continuing subsidy
payments through the export support program of the Federative Republic of
Brazil. The subsidy payments reduce the stated interest rates to an average
effective rate of approximately 3.90 percent, on $41.1 million of the long-term
debt, at March 31, 1999. The continuing subsidy payments are at risk to the
Company if the Federative Republic of Brazil does not meet its obligations under
the export support program. While the Company has no reason to believe, based on
information currently available, that the Company will not continue to receive
these subsidy payments from the Federative Republic of Brazil in the future,
there can be no assurance that such a default will not occur. On the remaining
long-term debt of $29.2 million, the lender has assumed the risk of the subsidy
payments which has reduced the average effective rate on this debt to
approximately 3.80 percent at March 31, 1999.
As of March 31, 1999, the Company had available $10,000,000 in an unsecured bank
line of credit with interest payable at the bank's base rate less one-quarter
percent, which was a net rate of 7.50 percent at March 31, 1999.
Certain of the Company's long-term debt arrangements contain limitations on,
among other things, sale or lease of assets and ratio of long-term debt to
tangible net worth. As of March 31, 1999, the Company was in compliance with all
the debt covenants.
(3) INCOME TAXES
The provision for income taxes includes the following components (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current tax provision:
Federal $22,297 $ 7,457 $ 3,663
State 4,348 2,104 394
------- ------- -------
26,645 9,561 4,057
------- ------- -------
Deferred tax provision :
Federal 528 3,363 2,344
State 100 641 455
------- ------- -------
628 4,004 2,799
------- ------- -------
Provision for income taxes $27,273 $13,565 $ 6,856
======= ======= =======
</TABLE>
The following is a reconciliation between the statutory Federal income tax rates
(at 35 percent for fiscal 1999 and 1998 and at a blended rate of 34 percent on
taxable income up to $10,000,000 and 35 percent for taxable income in excess of
$10,000,000 for fiscal 1997) and the effective rate which is derived by dividing
the provision for income taxes by income before provision for income taxes (in
thousands).
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" provision for income
taxes at the statutory rates $ 24,465 $ 12,329 $ 5,800
Increase (decrease) in income taxes:
resulting from:
State income taxes, net of Federal
income tax benefit 2,777 1,391 711
Other, net 31 (155) 345
-------- -------- --------
Provision for income taxes $ 27,273 $ 13,565 $ 6,856
======== ======== ========
</TABLE>
<PAGE> 18
3. INCOME TAXES (continued)
The significant components of the net deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
As of March 31,
------------------------
Deferred tax assets: 1999 1998
-------- --------
<S> <C> <C>
Accrued benefits $ 1,293 $ 1,038
Engine overhaul accrual 2,867 2,216
AMT credit carry forward -- 216
Accrued expense reserves and other 2,995 1,465
-------- --------
Total deferred tax assets 7,155 4,935
-------- --------
Deferred tax liabilities:
Accelerated depreciation (24,879) (22,285)
Other (735) (595)
-------- --------
Total deferred tax liabilities (25,614) (22,880)
-------- --------
Net deferred tax liability $(18,459) $(17,945)
======== ========
</TABLE>
(4) COMMITMENTS AND CONTINGENT LIABILITIES
LEASE OBLIGATIONS
The Company leases 78 aircraft, as well as airport facilities, office space, and
various other property and equipment under noncancelable 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. Management expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases. The following
summarizes future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year as of
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000 $ 59,705
2001 56,841
2002 56,045
2003 52,682
2004 48,657
Thereafter 309,056
--------
$582,986
========
</TABLE>
Total rental expense for noncancelable operating leases was approximately
$49,232,000, $35,188,000, and $35,058,000 for the years ended March 31, 1999,
1998 and 1997, respectively.
The above minimum rental payments do not include landing fees, which amounted to
approximately $10,629,000, $6,505,000, and $6,259,000 for the years ended March
31, 1999, 1998 and 1997, respectively.
PURCHASE COMMITMENTS AND OPTIONS
During fiscal 1998, SkyWest entered into an agreement to purchase 20 new
Brasilia aircraft, related spare parts inventory and support equipment. Two of
these aircraft were delivered in fiscal 1998 and 13 were delivered in fiscal
1999. At March 31, 1999, SkyWest had agreed to purchase the remaining five
Brasilia aircraft, related spare parts inventory and support equipment at an
aggregate cost of approximately $40.0 million, including estimated cost
escalations. During fiscal 1999, SkyWest entered into an agreement to acquire 25
Canadair regional jets and related spares parts inventory and support equipment
together with options on 25 additional aircraft. Subsequent, to year-end,
SkyWest entered into an agreement to acquire an additional 10 Canadair regional
jets and secured options for an additional 20 aircraft. This brings the total
firm order to 35 jet aircraft and 35 options at an aggregate cost of
approximately $787.5 million. The options to acquire 35 additional
<PAGE> 19
4. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Canadair regional jets are at fixed prices (subject to cost escalations) and
delivery schedules and are exercisable through July 2003.
LEGAL MATTERS
The Company is the subject of certain legal actions, which it considers routine
to its business activities. As of March 31, 1999, management believes that any
potential liability to the Company under such actions will not materially effect
the accompanying consolidated financial statements.
STANDBY LETTERS OF CREDIT
As of March 31, 1999, the Company has outstanding letters of credit totaling
approximately $2,909,000 related to requirements of certain airports, port
authorities and workers compensation agreements.
CASH AND CASH EQUIVALENTS
As of March 31, 1999, the Company has demand deposits and money market accounts
totaling $658,000 with Wells Fargo Bank, $900,000 with Bank of America, $232,000
with Edward D. Jones, $2,458,000 with Citibank, $120,000 with Bank One, and
$25,291,000 with Zions First National Bank. These balances exceed the $100,000
limit for insurance by the Federal Deposit Insurance Corporation.
(5) CAPITAL TRANSACTIONS
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock from time
to time in one or more series without stockholder approval. No shares of
preferred stock are presently outstanding. The Board of Directors is authorized,
without any further action by the stockholders of the Company, to (i) divide the
preferred stock into series; (ii) designate each such series; (iii) fix and
determine dividend rights; (iv) determine the price, terms and conditions on
which shares of preferred stock may be redeemed; (v) determine the amount
payable to holders of preferred stock in the event of voluntary or involuntary
liquidation; (vi) determine any sinking fund provisions; and (vii) establish any
conversion privileges.
STOCK OFFERING
On February 20, 1998, the Company completed a public offering of 3,220,000
shares of common stock which generated net proceeds of $61,557,000 after
deducting underwriting commissions and other expenses.
STOCK DIVIDEND
On May 5, 1998, the Company's Board of Directors declared a 100 percent stock
dividend (one share for each share outstanding) payable to stockholders of
record on May 20, 1998. The dividend was distributed on June 8, 1998. The
Company paid cash in lieu of issuing fractional shares. All common shares and
per share information in the accompanying consolidated financial statements have
been retroactively adjusted to reflect this stock dividend.
SUBSEQUENT CASH DIVIDEND
On May 4, 1999, the Company's Board of Directors declared a regular quarterly
cash dividend of $.03 per share payable to stockholders of record on June 30,
1999, distributable July 14, 1999.
STOCK OPTIONS
The Company's Board of Directors and Stockholders have approved the SkyWest,
Inc. Amended and Combined Incentive and Non-statutory Stock Option Plan ("the
Option Plan"). The Option Plan provides for the issuance of
<PAGE> 20
5. CAPITAL TRANSACTIONS (continued)
a maximum of 3,000,000 shares of common stock to officers, directors and other
key employees. The Option Plan is administered by the Board of Directors who
designate option grants as either incentive or non-statutory. Incentive stock
options are granted at not less than 100 percent of the market value of the
underlying common stock on the date of grant. Non-statutory stock options are
granted at a price as determined by the Board of Directors.
Both types of options are exercisable for the period as defined by the Board of
Directors at the date granted; however, no stock option will be exercisable
before six months have elapsed from the date it is granted and no incentive
stock option shall be exercisable after ten years from the date of grant. The
following table summarizes the stock option activity for fiscal years 1997, 1998
and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- --------------------- ----------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Price Options Price Options Price
--------- -------- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,062,498 $8.81 1,132,350 $9.19 990,716 $ 8.34
Granted 238,000 7.48 346,000 6.65 660,000 21.93
Exercised (102,500) 2.75 (383,420) 9.04 (399,606) 9.77
Canceled (65,648) 6.90 (104,214) 9.33 (24,637) 17.73
--------- ----- ------- ----- --------- ------
Outstanding at end of year 1,132,350 $9.19 990,716 $8.34 1,226,473 $14.90
========= ===== ========== ===== ========= ======
Options exerciseable at
year-end 316,000 289,716 79,112
Weighted average fair
value of options
granted during the year $ 6.43 $ 4.97 $ 8.99
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -------------------------------------
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at March 31,1999 Contractual Life Price at March 31,1999 Price
- -------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$5 to $15 591,112 6.4 years $ 7.30 79,112 $9.77
$16 to $25 635,361 7.9 years 21.96 -- --
--------- ------
$5 to $25 1,226,473 7.2 years 14.90 79,112 9.77
========= ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans, which
include the Option Plan and the Stock Purchase Plan (see Note 6). SFAS No. 123,
?Accounting for Stock-Based Compensation,? requires pro forma information
regarding net income and net income per share as if the Company had accounted
for its stock options and employee stock purchases granted or sold subsequent to
April 1, 1996, under the fair value method of the statement. The fair value of
these stock options and employee stock purchases was estimated at the grant date
using the Black-Scholes option pricing model with the following assumptions used
for grants in fiscal 1999, 1998 and 1997: a risk-free interest rate of 4.8
percent for fiscal 1999, 5.6 percent for fiscal 1998 and 6.5 percent for fiscal
1997, a dividend yield of .5 percent for fiscal 1999 and 1998 and 1.5 percent
for fiscal 1997, a volatility factor of the expected common stock price of .465
for fiscal 1999, .390 for fiscal 1998 and .508 for fiscal 1997 and a weighted
average expected life of four years for the stock options and six months for
employee stock purchases for all the years presented. For purposes of the pro
forma disclosures, the estimated fair value of the stock options and employee
stock purchases is amortized over the vesting period of the respective stock
options and employee stock purchases.
<PAGE> 21
5. CAPITAL TRANSACTIONS (continued)
Following are the pro forma disclosures and the related impact on net income and
net income per share (in thousands, except per share information):
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported $41,835 $21,944 $10,111
Pro forma $40,194 $21,213 $ 9,838
Net income per common share:
Diluted as reported $ 1.69 $ 1.04 $ .50
Diluted pro forma $ 1.62 $ 1.00 $ .49
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 1, 1996, and due to the nature and timing of option
grants, the resulting pro forma compensation cost may not be indicative of
future years.
(6) RETIREMENT PLAN AND EMPLOYEE STOCK PURCHASE PLAN
RETIREMENT PLAN
The Company sponsors the SkyWest Airlines Employee's Retirement Plan (the
"Plan"). Employees who have completed one year of service and are 21 years of
age are eligible for participation in the Plan. Employees may elect to make
contributions to the Plan. The Company matches 100 percent of such contributions
up to 2 percent, 4 percent or 6 percent of the individual participant's
compensation, based upon length of service. Additionally, a discretionary
contribution may be made by the Company. The Company?s combined contribution was
$3,800,000, $2,729,000 and $1,960,000 to the Plan for the years ended March 31,
1999, 1998 and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
On February 7, 1996, the Company?s Board of Directors approved the SkyWest, Inc.
1996 Employee Stock Purchase Plan (?the Stock Purchase Plan?). All employees who
have completed 90 days of employment are eligible to participate, except
officers who are highly compensated employees under section 414 (q) of the
Internal Revenue Code. The Stock Purchase Plan enables employees to purchase
shares of the Company?s common stock at a 15 percent discount, through payroll
deductions. Employees can contribute two to 15 percent of their base pay, not to
exceed $21,250 each calendar year, for the purchase of shares. For the fiscal
year ended March 31, 1999, 59,878 shares were purchased by employees at prices
of $12.38 and $ 25.18. For the fiscal year ended March 31, 1998, 106,068 shares
were purchased by employees at prices of $5.90 and $6.64. For the fiscal year
ended March 31, 1997, 103,506 shares were purchased by employees at prices of
$5.47 and $5.90. In addition, as of March 31, 1999, $488,000 had been withheld
for the future purchase of shares. Shares are purchased semi-annually at the
lower of the beginning or the end of the period price. Employees can terminate
from the Stock Purchase Plan at anytime upon written notice.
(7) DISCONTINUED OPERATIONS
On August 26, 1998, the Company entered into an Asset Purchase Agreement
("Agreement") with Eagle Canyon Airlines, Inc., ("Eagle") to sell a majority of
the assets of Scenic Airlines, Inc., ("Scenic"). Included under the Agreement
were all of the assets, properties, rights and business of Scenic related to its
Las Vegas based tour and scheduled flight operations. The agreement was
consummated on December 23, 1998 with the Company receiving cash proceeds of
$16.2 million. Additionally, the Company recorded a pretax loss of approximately
$0.3 million on the sale.
On January 11, 1999, the Company entered into an agreement ("Page Agreement")
with JCMI, LLC, to sell the remainder of the assets and business of Scenic. The
Page Agreement includes all of the assets, properties, rights and business of
Scenic related to its Page, Arizona tour operations. The agreement was
consummated on March 2, 1999 with the Company receiving total proceeds of $5.0
million consisting of cash and a secured promissory note of $1.9 million. The
Company recorded a pretax loss of approximately $0.7 million on the sale.
<PAGE> 22
7. DISCONTINUED OPERATIONS (continued)
The accompanying condensed consolidated financial statements reflect the
operations of Scenic as Discontinued Operations. Accordingly, the revenues,
costs and expenses, assets and liabilities of Scenic have been excluded from the
respective captions in the financial statements and have been reported through
the date of disposition as income (loss) from discontinued operations, net of
income taxes and net assets of discontinued operations. The revenues of Scenic
amounted to $28.0 million, $31.0 million and $32.0 million for the years ended
March 31, 1999, 1998 and 1997, respectively.
(8) RELATED-PARTY TRANSACTIONS
The Company and Delta Air Lines, Inc. ("Delta") operate under a joint marketing
and code-sharing agreement under which the Company uses the Delta two letter
designator code (DL) in displaying its schedules on certain flights in the
automated airline reservation systems used throughout the industry. During
fiscal 1998, the Company entered into a code-sharing agreement with United
Airlines, Inc. ("United"). The Company uses the United two letter designator
code (UA) in displaying schedules on certain flights in the automated airline
reservation systems used throughout the industry.
As of March 31, 1999, Delta owned 3,107,798 shares of common stock which
represents approximately 13 percent of the outstanding common stock of the
Company. The Company leases various terminal facilities from Delta and Delta
provides certain services to the Company, including advertising, reservation and
ground handling services. Expenses paid to Delta under these agreements were
approximately $8,409,000, $8,893,000 and $11,218,000 during the years ended
March 31, 1999, 1998 and 1997, respectively. United provides services to the
Company consisting of passenger and ground handling-services. The Company paid
$5,294,000 and $742,000 to United for their services for the year ended March
31, 1999 and 1998, respectively.
The Company had a net receivable from Delta of $761,000 as of March 31, 1999 and
a net payable to Delta of $65,000 as of March 31, 1998. The Company had net
receivables from United of $1,553,000 and $1,687,000 as of March 31, 1999 and
1998, respectively.
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated May 19,1999 included in SkyWest,
Inc.'s Annual Report to Shareholders for the fiscal year ended March 31, 1999.
We further consent to the incorporation of our report dated May 19, 1999,
incorporated by reference in this Form 10-K, into the Company's previously filed
Registration Statements No. 33-41285 and No. 33-60173.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Salt Lake City, Utah
June 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 52,237
<SECURITIES> 109,580
<RECEIVABLES> 13,476
<ALLOWANCES> 203
<INVENTORY> 13,863
<CURRENT-ASSETS> 216,801
<PP&E> 310,717
<DEPRECIATION> 111,793
<TOTAL-ASSETS> 417,660
<CURRENT-LIABILITIES> 74,326
<BONDS> 61,830
0
0
<COMMON> 141,831
<OTHER-SE> 256,256
<TOTAL-LIABILITY-AND-EQUITY> 417,660
<SALES> 388,626
<TOTAL-REVENUES> 388,626
<CGS> 0
<TOTAL-COSTS> 324,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,376
<INCOME-PRETAX> 69,901
<INCOME-TAX> 27,273
<INCOME-CONTINUING> 42,628
<DISCONTINUED> (793)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,835
<EPS-BASIC> 1.73
<EPS-DILUTED> 1.69
</TABLE>
