Legal Matters

6 Months Ended

Jun. 30, 2011

Legal Matters

Legal Matters

Note J — Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2011, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, the following are significant outstanding legal matters.

Atlantic Southeast and SkyWest Airlines v. Delta

During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast (the “Connection Agreements”). The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses paid by SkyWest Airlines and Atlantic Southeast to their passengers and vendors under certain situations.  During the period between the execution of the Connection Agreements in September 2005 and December 2007, SkyWest Airlines and Atlantic Southeast passed through to Delta IROP expenses that were paid pursuant to Delta’s policies, and Delta accepted and reimbursed all of those expenses.  Delta now claims it is obligated to reimburse only a fraction of the IROP expenses.  As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007.  Since December 2007, Delta has continued to withhold payments from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast, and has disputed subsequent billings for IROP expenses.  As of June 30, 2011, the Company had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by Delta.  Since July 1, 2008, the Company has not recognized revenue related to IROP expense reimbursements withheld by Delta because collection of those reimbursements is the subject of litigation and is therefore not reasonably assured. On February 1, 2008, SkyWest Airlines and Atlantic Southeast filed a Complaint in the Superior Court for Fulton County, Georgia (“Superior Court”) challenging Delta’s treatment of the matter and seeking recovery of the payments withheld by Delta and any future withholdings related to this issue.  Delta filed an Answer to the SkyWest Airlines/Atlantic Southeast Complaint and a Counterclaim against SkyWest Airlines and Atlantic Southeast on March 24, 2008.  Delta’s Counterclaim alleged that Atlantic Southeast and SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for IROP expenses that were paid pursuant to Delta’s policies, and claims only a portion of those expenses may be invoiced to Delta.

After proceedings that included contested motions, document discovery, and some depositions, Delta voluntarily dismissed its counterclaim.  Discovery in that action was not yet complete.  On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory rights to voluntarily dismiss their claims in the Fulton County Superior Court, and filed a new complaint (the “State Court Complaint”) in the Georgia State Court of Fulton County (the “State Court”).  The claims continue to include Breach of Contract, Breach of Contract based on Mutual Departure, Breach of Contract based on Voluntary Payment, and Breach of the Duty of Good Faith and Fair Dealing.  Delta moved for partial dismissal of the State Court Complaint and filed a separate action in the Superior Court containing claims for declaratory judgment and breach of the confidentiality provisions of the Delta Connection Agreements.  SkyWest Airlines and Atlantic Southeast moved for dismissal of Delta’s claims in the Superior Court.  A hearing on SkyWest’s and Atlantic Southeast’s motion was held on April 27, 2011, after which the Superior Court dismissed Delta’s Complaint in its entirety.  Proceedings under the State Court Complaint were stayed by the State Court pending the outcome of SkyWest’s and Atlantic Southeast’s motion to dismiss Delta’s claims in the Superior Court.  The stay was lifted on July 20, 2011.  No hearing has yet been scheduled on Delta’s motion for partial dismissal of the State Court Complaint.

SkyWest Airlines and Atlantic Southeast continue to vigorously pursue their claims set forth in the State Court Complaint.