Item 1.02 Termination of a Material Definitive Agreement.
On December 19, 2022, Air Wisconsin Airlines LLC ("Air Wisconsin"), an indirect
wholly owned subsidiary of Harbor Diversified, Inc. (the "Company"), delivered
written notice to United Airlines, Inc. ("United") terminating the capacity
purchase agreement, dated February 26, 2017, by and between Air Wisconsin and
United (as amended, the "United capacity purchase agreement") as a result of
material breaches of the agreement by United.
Under the United capacity purchase agreement, United agreed to purchase the
capacity of Air Wisconsin's CRJ-200 regional jets, which Air Wisconsin operates
as United Express, with a presence at both Chicago O'Hare and Washington Dulles
international airports. Subject to certain limited exceptions, under the United
capacity purchase agreement United is required to pay Air Wisconsin fixed daily
revenue for each aircraft covered under the agreement, a fixed payment for each
departure and block hour flown, and reimbursement of certain direct operating
expenses in exchange for Air Wisconsin's provision of regional flying services.
In addition, Air Wisconsin is eligible to receive incentive payments, or
required to pay penalties, upon the achievement of, or failure to achieve,
certain performance criteria primarily based on flight completion, on-time
performance, and customer satisfaction ratings.
Air Wisconsin terminated the agreement in connection with United's failure to
provide to Air Wisconsin certain negotiable instruments evidencing certain
accruing obligations it owes to Air Wisconsin. As of November 30, 2022, the
aggregate accrued principal amount of such obligations was approximately
$17.5 million. Air Wisconsin does not expect to incur any early termination
penalties in connection with the termination of the United capacity purchase
agreement.
Although the termination was effective as of December 19, 2022, the United
capacity purchase agreement provides a process for determining the "wind-down"
schedule for withdrawal of aircraft from the agreement following termination.
The parties can agree to modify that process and have discussed doing so but
there can be no assurance that an agreement will be reached. Air Wisconsin will
continue flying for United under the agreement until the wind-down period
provided in the wind-down schedule has ended and all of the covered aircraft
have been withdrawn from the agreement. Air Wisconsin anticipates the wind-down
schedule will accommodate the transition of aircraft from the provision of
service to United to the provision of service to American Airlines, Inc.
pursuant to the capacity purchase agreement Air Wisconsin entered into with
American in August 2022 (the "American capacity purchase agreement"). Although
the wind-down schedule with United has not been finally determined, Air
Wisconsin expects to commence flying operations for American in March 2023.
The foregoing descriptions of the United capacity purchase agreement and
American capacity purchase agreement do not purport to be complete and are
qualified in their entirety by reference to the United capacity purchase
agreement, a redacted copy of which was filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and the
American capacity purchase agreement, a redacted copy of which was filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2022.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements about the
United capacity purchase agreement, the dispute between Air Wisconsin and
United, the wind-down schedule under the United capacity purchase agreement, and
Air Wisconsin's flying operations with American. Forward-looking statements
include all statements that are not solely historical facts and can be
identified by terms such as "believe," "could," "estimate," "expect," "may,"
"should," or similar expressions. Investors are cautioned not to place undue
reliance on these forward-looking statements, which are subject to numerous
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by such statements, including the risks and
uncertainties addressed under the heading "Risk Factors" and elsewhere in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2021, the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2022, and the other filings the Company makes with the Securities
and Exchange Commission from time to time. These forward-looking statements
speak only as of the date of this Current Report on Form 8-K and the Company
undertakes no obligation to update these forward-looking statements to reflect
events or circumstances occurring after the date of this Current Report on Form
8-K.
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