SKYWEST INC 10-Q

Item 1. Financial Statements ​ SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) ​ ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2021 2020 ​ ​ (unaudited) ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 271,831 ​ $ 215,723 Marketable securities ​ 640,673 ​ 610,185 Receivables, net ​ 56,320 ​ 34,462 Inventories, net ​ 98,763 ​ 91,196 Other current assets ​ 29,080 ​ 31,236 Total current assets ​ 1,096,667 ​ 982,802 ​ ​ ​ ​ ​ ​ ​ PROPERTY AND EQUIPMENT: ​ ​ ​ ​ ​ ​ Aircraft and rotable spares ​ 7,529,226 ​ 7,527,555 Deposits on aircraft ​ 121,293 ​ 31,625 Buildings and ground equipment ​ 256,348 ​ 258,863 Total property and equipment, gross ​ 7,906,867 ​ 7,818,043 Less-accumulated depreciation and amortization ​ ( 2,621,410 ) ​ ( 2,455,995 ) Total property and equipment, net ​ 5,285,457 ​ 5,362,048 ​ ​ ​ ​ ​ ​ ​ OTHER ASSETS: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ 248,576 ​ ​ 282,362 Long-term receivables and other assets ​ 309,802 ​ 260,410 Total other assets ​ 558,378 ​ 542,772 Total assets ​ $ 6,940,502 ​ $ 6,887,622 ​ See accompanying notes to condensed consolidated financial statements. ​ 3 Table of Contents ​ SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2021 2020 ​ (unaudited) ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ ​ Current maturities of long-term debt $ 359,888 ​ $ 402,158 Accounts payable 427,903 ​ 278,677 Accrued salaries, wages and benefits 146,947 ​ 125,944 Current maturities of operating lease liabilities 78,188 ​ 82,641 Taxes other than income taxes 30,333 ​ 26,183 Other current liabilities 94,496 ​ 26,119 Total current liabilities 1,137,755 ​ 941,722 ​ ​ ​ ​ ​ ​ LONG-TERM DEBT, net of current maturities 2,605,063 ​ 2,801,538 ​ ​ ​ ​ ​ ​ DEFERRED INCOME TAXES PAYABLE 657,067 ​ 625,931 ​ ​ ​ ​ ​ ​ NONCURRENT OPERATING LEASE LIABILITIES 171,443 ​ 205,845 ​ ​ ​ ​ ​ ​ OTHER LONG-TERM LIABILITIES 107,367 ​ 173,041 ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ ​ ​ ​ Preferred stock, 5,000,000 shares authorized; none issued — ​ — Common stock, no par value, 120,000,000 shares authorized; 82,335,782 and 82,094,985 shares issued as of September 30, 2021, and December 31, 2020, respectively 720,932 ​ 704,675 Retained earnings 2,159,584 ​ 2,052,006 Treasury stock, at cost, 31,955,991 and 31,913,635 shares as of September 30, 2021, and December 31, 2020, respectively ( 618,709 ) ​ ( 617,136 ) Total stockholders’ equity 2,261,807 ​ 2,139,545 Total liabilities and stockholders’ equity $ 6,940,502 ​ $ 6,887,622 ​ See accompanying notes to condensed consolidated financial statements. ​ 4 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Dollars and Shares in Thousands, Except per Share Amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 OPERATING REVENUES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Flying agreements ​ $ 719,084 ​ $ 445,048 ​ $ 1,863,242 ​ $ 1,490,912 Lease, airport services and other ​ 25,699 ​ 12,445 ​ 73,086 ​ 46,557 Total operating revenues ​ 744,783 ​ 457,493 ​ 1,936,328 ​ 1,537,469 OPERATING EXPENSES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries, wages and benefits ​ 265,603 ​ 194,516 ​ 718,868 ​ 613,895 Aircraft maintenance, materials and repairs ​ 209,795 ​ 150,148 ​ 604,501 ​ 431,654 Depreciation and amortization ​ 109,597 ​ 121,467 ​ 329,089 ​ 364,813 Airport-related expenses ​ 25,992 ​ 18,003 ​ 72,478 ​ 70,192 Aircraft fuel ​ 32,561 ​ 13,641 ​ 77,622 ​ 45,875 Aircraft rentals ​ 16,098 ​ 15,785 ​ 47,311 ​ 49,537 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 ​ ​ — Payroll support grant ​ ​ ( 115,352 ) ​ ​ ( 190,200 ) ​ ​ ( 422,669 ) ​ ​ ( 342,138 ) Other operating expenses ​ 68,847 ​ 59,580 ​ 181,621 ​ 167,170 Total operating expenses ​ 697,733 ​ 382,940 ​ 1,693,413 ​ 1,400,998 OPERATING INCOME ​ 47,050 ​ 74,553 ​ 242,915 ​ 136,471 OTHER INCOME (EXPENSE): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 238 ​ 1,403 ​ 732 ​ 5,652 Interest expense ​ ( 28,980 ) ​ ( 30,150 ) ​ ( 94,274 ) ​ ( 91,280 ) Other income (expense), net ​ ( 4,098 ) ​ 405 ​ ( 3,802 ) ​ 1,205 Total other expense, net ​ ( 32,840 ) ​ ( 28,342 ) ​ ( 97,344 ) ​ ( 84,423 ) INCOME BEFORE INCOME TAXES ​ 14,210 ​ 46,211 ​ 145,571 ​ 52,048 PROVISION FOR INCOME TAXES ​ 4,526 ​ 12,549 ​ 37,993 ​ 14,113 NET INCOME ​ $ 9,684 ​ $ 33,662 ​ $ 107,578 ​ $ 37,935 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BASIC EARNINGS PER SHARE ​ $ 0.19 ​ $ 0.67 ​ $ 2.14 ​ $ 0.76 DILUTED EARNINGS PER SHARE ​ $ 0.19 ​ $ 0.66 ​ $ 2.12 ​ $ 0.75 Weighted average common shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 50,380 ​ 50,181 ​ 50,337 ​ 50,199 Diluted ​ 50,725 ​ 50,622 ​ 50,726 ​ 50,445 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMPREHENSIVE INCOME: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 9,684 ​ $ 33,662 ​ $ 107,578 ​ $ 37,935 Net unrealized depreciation on marketable securities, net of taxes ​ — ​ ( 307 ) ​ — ​ — TOTAL COMPREHENSIVE INCOME ​ $ 9,684 ​ $ 33,355 ​ $ 107,578 ​ $ 37,935 ​ See accompanying notes to condensed consolidated financial statements ​ 5 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Retained ​ Treasury Stock ​ ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Total Balance at December 31, 2020 82,095 ​ $ 704,675 ​ $ 2,052,006 ( 31,914 ) ​ $ ( 617,136 ) ​ $ 2,139,545 Net income — ​ — ​ 35,900 — ​ — ​ 35,900 Exercise of common stock options and vested employee stock awards 177 ​ ​ 606 ​ — — ​ — ​ 606 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 42 ) ​ ​ ( 1,573 ) ​ ​ ( 1,573 ) Sale of common stock under employee stock purchase plan 30 ​ ​ 1,139 ​ — — ​ — ​ 1,139 Stock based compensation expense ​ — ​ ​ 2,613 ​ ​ — ​ — ​ ​ — ​ ​ 2,613 Warrants issued to U.S. Treasury — ​ 3,291 ​ — — ​ — ​ 3,291 Balance at March 31, 2021 82,302 ​ $ 712,324 ​ $ 2,087,906 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,181,521 Net income — ​ — ​ 61,994 — ​ — ​ ​ 61,994 Stock based compensation expense — ​ 2,877 ​ — — ​ — ​ ​ 2,877 Warrants issued to U.S. Treasury — ​ 2,513 ​ — — ​ — ​ 2,513 Balance at June 30, 2021 82,302 ​ $ 717,714 ​ $ 2,149,900 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,248,905 Net income — ​ — ​ 9,684 — ​ — ​ ​ 9,684 Sale of common stock under employee stock purchase plan 34 ​ ​ 1,401 ​ — — ​ — ​ 1,401 Stock based compensation expense — ​ 1,817 ​ — — ​ — ​ ​ 1,817 Balance at September 30, 2021 82,336 ​ $ 720,932 ​ $ 2,159,584 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,261,807 ​ ​ See accompanying notes to condensed consolidated financial statements. ​ ​ 6 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Retained ​ Treasury Stock ​ Accumulated Other Comprehensive ​ ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Income ​ Total Balance at December 31, 2019 81,743 ​ $ 686,806 ​ $ 2,079,179 ( 31,420 ) ​ $ ( 590,971 ) ​ $ — ​ $ 2,175,014 Change in accounting principle and other (see Note 3) ​ — ​ ​ — ​ ​ ( 11,639 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 11,639 ) Balance at December 31, 2019, as adjusted ​ 81,743 ​ ​ 686,806 ​ ​ 2,067,540 ​ ( 31,420 ) ​ ​ ( 590,971 ) ​ ​ — ​ ​ 2,163,375 Net income — ​ — ​ 29,988 — ​ — ​ — ​ 29,988 Exercise of common stock options and vested employee stock awards 287 ​ ​ 38 ​ — — ​ — ​ — ​ 38 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 108 ) ​ ​ ( 6,165 ) ​ ​ — ​ ​ ( 6,165 ) Sale of common stock under employee stock purchase plan 24 ​ ​ 1,494 ​ — — ​ — ​ — ​ 1,494 Stock based compensation expense — ​ 1,727 ​ — — ​ — ​ — ​ 1,727 Treasury stock purchases — ​ — ​ — ( 386 ) ​ ​ ( 20,000 ) ​ ​ — ​ ( 20,000 ) Cash dividends declared ($ 0.14 per share) — ​ — ​ ( 7,019 ) — ​ — ​ — ​ ( 7,019 ) Balance at March 31, 2020 82,054 ​ $ 690,065 ​ $ 2,090,509 ( 31,914 ) ​ $ ( 617,136 ) ​ $ — ​ $ 2,163,438 Net loss — ​ — ​ ( 25,715 ) — ​ — ​ — ​ ( 25,715 ) Stock based compensation expense — ​ 2,087 ​ — — ​ — ​ — ​ 2,087 Warrants issued to U.S. Treasury — ​ 2,845 ​ — — ​ — ​ — ​ 2,845 Net unrealized appreciation on marketable securities, net of tax of $ 99 ​ — ​ — ​ — — ​ — ​ 307 ​ 307 Balance at June 30, 2020 82,054 ​ $ 694,997 ​ $ 2,064,794 ( 31,914 ) ​ $ ( 617,136 ) ​ $ 307 ​ $ 2,142,962 Net income — ​ — ​ 33,662 — ​ — ​ — ​ 33,662 Sale of common stock under employee stock purchase plan 41 ​ ​ 1,287 ​ — — ​ — ​ — ​ 1,287 Stock based compensation expense — ​ 2,093 ​ — — ​ — ​ — ​ 2,093 Warrants issued to U.S. Treasury — ​ 5,403 ​ — — ​ — ​ — ​ 5,403 Net unrealized depreciation on marketable securities, net of tax of $( 99 ) ​ — ​ — ​ — — ​ — ​ ( 307 ) ​ ( 307 ) Balance at September 30, 2020 82,095 ​ $ 703,780 ​ $ 2,098,456 ( 31,914 ) ​ $ ( 617,136 ) ​ $ — ​ $ 2,185,100 ​ ​ See accompanying notes to condensed consolidated financial statements. ​ 7 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ September 30, ​ 2021 2020 NET CASH PROVIDED BY OPERATING ACTIVITIES ​ $ 686,955 ​ $ 548,703 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ( 1,071,637 ) ​ ( 848,897 ) Sales of marketable securities ​ 1,041,149 ​ 878,070 Acquisition of property and equipment: ​ ​ ​ ​ ​ ​ Aircraft and rotable spare parts ​ ( 223,605 ) ​ ( 170,392 ) Buildings and ground equipment ​ ( 10,473 ) ​ ( 9,398 ) Proceeds from the sale of property and equipment ​ 7,104 ​ 1,612 Deposits on aircraft ​ ​ ( 100,105 ) ​ ​ ( 625 ) Aircraft deposits applied towards acquired aircraft ​ ​ 10,987 ​ ​ 9,220 Increase in other assets ​ ( 50,205 ) ​ ( 121,037 ) NET CASH USED IN INVESTING ACTIVITIES ​ ( 396,785 ) ​ ( 261,447 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ Proceeds from issuance of long-term debt ​ 213,326 ​ 201,285 Principal payments on long-term debt ​ ( 448,466 ) ​ ( 117,182 ) Net proceeds from issuance of common stock ​ 3,146 ​ 2,819 Purchase of treasury stock ​ — ​ ( 20,000 ) Employee income tax paid on vested equity awards ​ ​ ( 1,573 ) ​ ​ ( 6,165 ) Payment of debt issuance cost ​ ​ ( 495 ) ​ ​ ( 3,932 ) Payment of cash dividends ​ — ​ ( 13,059 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ​ ( 234,062 ) ​ 43,766 ​ ​ ​ ​ ​ ​ ​ Increase in cash and cash equivalents ​ 56,108 ​ 331,022 Cash and cash equivalents at beginning of period ​ 215,723 ​ 87,206 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 271,831 ​ $ 418,228 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ $ 13,168 ​ $ 8,531 Warrants issued to U.S. Treasury ​ $ 5,804 ​ $ 8,248 Cash paid during the period for: ​ ​ ​ ​ ​ ​ Interest, net of capitalized amounts ​ $ 96,397 ​ $ 95,999 Income taxes ​ $ 6,374 ​ $ 371 ​ See accompanying notes to condensed consolidated financial statements. ​ 8 Table of Contents SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ​ ( 1) Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Due in part to the volatile effects from the global COVID-19 pandemic, in addition to other factors, the results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. The preparation of financial statements in conformity with GAAP 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 materially from those estimates and assumptions. (2) Impact of the COVID-19 Pandemic COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, has had a significant, negative impact on the Company’s business and financial results beginning in March 2020 and has materially and adversely affected the Company’s revenues, particularly under its prorate agreements. The Company operated 137,493 flights during the third quarter of 2020, which increased to 210,251 flights, or 52.9 %, during the third quarter of 2021. However, the Company operated 219,272 flights during the third quarter of 2019 and the Company has not returned to pre-COVID flight levels as of September 30, 2021. The rate of recovery from the impact of COVID-19 and whether such recovery will be sustained are uncertain as factors outside of the Company’s control, including the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions, cannot be estimated. Liquidity. At September 30, 2021, the Company had $ 953.5 million in total available liquidity, consisting of $ 912.5 million in cash and marketable securities, and $ 41.0 million available under SkyWest Airlines’ line of credit with a bank. 2021 Appropriations Act. In January 2021, SkyWest Airlines entered into a Payroll Support Program Extension Agreement (the “PSP Extension Agreement”) with the U.S. Department of the Treasury (“U.S. Treasury”) with respect to a payroll grant program under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”). Pursuant to the PSP Extension Agreement, SkyWest Airlines received $ 268.1 million from U.S. Treasury during the nine months ended September 30, 2021. In connection with the receipt of financial assistance under the PSP Extension Agreement, SkyWest Airlines is required to comply with the relevant provisions of the 2021 Appropriations Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that the Company entered into with U.S. Treasury in April 2020. 9 Table of Contents The PSP Extension Agreement payments received included $ 217.7 million in the form of a payroll grant and $ 50.4 million in the form of an unsecured 10-year loan. The loan bears interest at an annual rate of 1.00 % for the first five years (through January 2026) and the Secured Overnight Financing Rate plus 2.00 % in the final five years . In return, the Company issued to U.S. Treasury warrants to purchase up to 124,773 shares of the Company’s common stock. These warrants have an exercise price of $ 40.41 per share and a five-year term from the date of issuance. The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan, which will be amortized as interest expense in the Company’s income statement over the term of the loan. The proceeds of the grant were recorded in cash and cash equivalents when received and were recognized as a reduction in expense in payroll support grant in the Company’s income statement over the periods that the funds were intended to compensate. The Company recorded $ 217.7 million of the PSP Extension Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2021. American Rescue Plan Act of 2021. On April 23, 2021, SkyWest Airlines entered into a Payroll Support Program 3 Agreement (the “PSP 3 Agreement”) with U.S. Treasury with respect to a payroll grant program under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”). Pursuant to the PSP 3 Agreement, SkyWest Airlines received from U.S. Treasury approximately $ 250.0 million during the nine months ended September 30, 2021. In connection with the receipt of financial assistance under the PSP 3 Agreement, SkyWest Airlines is required to comply with the relevant provisions of the American Rescue Plan Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program Agreement under the CARES Act and the PSP Extension Agreement under the 2021 Appropriations Act. The relevant provisions include the requirement that the funding be used exclusively for the continuation of payment of employee wages, salaries and benefits. Similar to the previous Payroll Support Programs, SkyWest Airlines and, in some cases, the Company is also subject to certain restrictions, including, but not limited to, limitations on involuntary terminations, pay rate reductions and furloughs through September 30, 2021, restrictions on the payment of dividends and the repurchase of shares through September 30, 2022, and certain limitations on executive compensation through April 1, 2023. The PSP 3 Agreement payments received through September 30, 2021, included $ 205.0 million in the form of a payroll grant and $ 45.0 million in the form of an unsecured 10-year loan. The loan bears interest at an annual rate of 1.00 % for the first five years (through April 2026) and the Secured Overnight Financing Rate plus 2.00 % in the final five years . In return, the Company issued to U.S. Treasury warrants to purchase up to 78,317 shares of the Company’s common stock. These warrants have an exercise price of $ 57.47 per share and a five-year term from the date of issuance. The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan, which will be amortized as interest expense in the Company’s income statement over the term of the loan. The proceeds of the grant were recorded in cash and cash equivalents when received and were recognized as a reduction in expense in payroll support grant in the Company’s income statement over the periods that the funds are intended to compensate. The Company recorded $ 205.0 million of the PSP 3 Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2021. As of September 30, 2021, the Company has recognized all of the payroll grants received from U.S. Treasury as an offset to operating expenses. Treasury Secured Loan. In January 2021, the Company amended the secured loan agreement with U.S. Treasury to extend the deadline pursuant to which SkyWest Airlines could, at its discretion, borrow additional amounts under the facility from March 26, 2021, to May 28, 2021. The other terms of the secured loan agreement were not affected. On May 10, 2021, the Company repaid all amounts outstanding under the secured loan, and in connection with such repayment, terminated the secured loan agreement. The total repayment amount was $ 61.2 million, which included all outstanding principal and accrued interest under the secured loan. As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the loan agreement, consisting of aircraft engines and aircraft parts, was released. 10 Table of Contents (3) Flying Agreements Revenue and Lease, Airport Services and Other Revenues The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the nine months ended September 30, 2021, and 2020, capacity purchase agreements represented approximately 83.9 % and 86.8 % of the Company’s flying agreements revenue, respectively. Under the Company’s prorate arrangements (referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the nine months ended September 30, 2021, and 2020, prorate flying agreements represented approximately 16.1 % and 13.2 % of the Company’s flying agreements revenue, respectively. The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2021, and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2021 2020 2021 2020 Capacity purchase agreements revenue: flight operations ​ $ 308,273 ​ $ 175,753 ​ $ 792,501 ​ $ 674,222 Capacity purchase agreements revenue: aircraft lease and fixed revenue ​ 282,498 ​ 208,516 ​ 770,548 ​ 619,354 Prorate agreements revenue ​ 128,313 ​ 60,779 ​ 300,193 ​ 197,336 Flying agreements revenue ​ $ 719,084 ​ $ 445,048 ​ $ 1,863,242 $ 1,490,912 ​ A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided. Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term. The Company recognizes revenue attributed to the fixed monthly payments proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of flights operated during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft 11 Table of Contents exceeded the revenue recognized based on flights completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements from the second quarter of 2020 through the second quarter of 2021. During the three months ended September 30, 2021, the Company recognized $ 19.2 million of previously deferred revenue due to an increase in flight schedules compared to deferring revenue of $ 29.6 million during the three months ended September 30, 2020. During the nine months ended September 30, 2021, and 2020, the Company deferred revenue of $ 7.7 million and $ 98.6 million, respectively, of fixed monthly cash payments the Company received under its capacity purchase agreements. The Company’s deferred revenue balance was $ 118.4 million as of September 30, 2021, including $ 70.5 million in other current liabilities and $ 47.9 million in other long-term liabilities. At December 31, 2020, the Company’s deferred revenue balance of $ 110.7 million was included in other long-term liabilities. The Company’s deferred revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis. As of September 30, 2021, the Company had 486 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner: ​ ​ ​ ​ ​ ​ ​ United Express Agreements Agreement Aircraft type Number of Aircraft Term / Termination Dates United Express Agreements (capacity purchase agreement) ​ • E175 • CRJ 700 • CRJ 200 ​ 90 19 70 ​ • Individual aircraft have scheduled removal dates from 2022 to 2029 United Express Prorate Agreement (prorate agreement) ​ • CRJ 200 ​ 42 ​ • Terminable with 120-day notice Total under United Express Agreements ​ ​ ​ 221 ​ ​ ​ Delta Connection Agreements Agreement Aircraft type Number of Aircraft Term / Termination Dates Delta Connection Agreement (capacity purchase agreement) ​ • E175 • CRJ 900 • CRJ 700 ​ 71 40 5 ​ • Individual aircraft have scheduled removal dates from 2022 to 2031 Delta Connection Prorate Agreement (prorate agreement) ​ • CRJ 200 ​ 29 ​ • Terminable with 30-day notice Total under Delta Connection Agreements ​ ​ ​ 145 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ American Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates American Agreement (capacity purchase agreement) ​ • E175 • CRJ 900 ​ 6 82 ​ • Individual aircraft have scheduled removal dates from 2024 to 2032 Total under American Agreements ​ ​ ​ 88 ​ ​ ​ ​ Alaska Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates Alaska Agreement (capacity purchase agreement) ​ • E175 ​ 32 ​ • Individual aircraft have scheduled removal dates in 2030 ​ 12 Table of Contents In addition to the contractual arrangements described above, as of September 30, 2021, SkyWest Airlines has a capacity purchase agreement with American to place 14 Embraer E175 dual-class regional jet aircraft (“E175”) into service. The delivery dates for the 14 new E175 aircraft are currently scheduled for the fourth quarter of 2021 and first half of 2022 and the aircraft are expected to be placed into service in 2022. SkyWest Airlines also has an agreement with American to place 19 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement with scheduled in service dates into 2023. SkyWest Airlines has a capacity purchase agreement with Alaska to place nine E175 aircraft into service. The delivery dates for the nine new E175 aircraft are currently scheduled for 2022 and the first half of 2023, and the aircraft are expected to be placed into service in 2022 and 2023. During the three months ended September 30, 2021, SkyWest Airlines reached an agreement with Delta to place 16 E175 aircraft into service under a capacity purchase agreement. The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022. Under the terms of the agreement with Delta, Delta has the right to purchase the 16 E175 aircraft at the end of the contract term at a price estimated to be the fair value at the end of the contract. These 16 new E175 aircraft are expected to replace 16 CRJ900 regional jet aircraft (“CRJ900”) the Company is operating under a capacity purchase agreement with Delta (see Note 12 “Special Items – Impairment Charge,” for further discussion of the Company’s CRJ900 aircraft). Additionally, SkyWest Airlines entered into an agreement with Delta during the third quarter of 2021 to place four used CRJ900 aircraft under a short-term contract beginning in the fourth quarter of 2021. Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors. When an aircraft is scheduled to be removed from a capacity purchase agreement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party. The following represents the Company’s lease, airport services and other revenue for the three and nine months ended September 30, 2021, and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2021 2020 2021 2020 Operating lease revenue ​ $ 17,746 ​ $ 7,136 ​ $ 49,154 ​ $ 27,162 Airport customer service and other revenue ​ ​ 7,953 ​ ​ 5,309 ​ ​ 23,932 ​ ​ 19,395 Lease, airport services and other ​ $ 25,699 ​ $ 12,445 $ 73,086 ​ $ 46,557 ​ The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2021 (in thousands): ​ ​ ​ ​ ​ October 2021 through December 2021 $ 11,388 2022 ​ 45,428 2023 ​ 44,945 2024 ​ 42,530 2025 ​ 39,082 Thereafter ​ 155,089 ​ ​ $ 338,462 ​ Of the Company’s $ 5.3 billion of property and equipment, net as of September 30, 2021, $ 256.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases. The Company mitigates the residual asset risks of these assets by leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the 13 Table of Contents lessee to the Company and the Company typically maintains inspection rights under the leases. Additionally, lease, airport services and other revenues includes airport agent services, such as gate and ramp agent services at applicable airports where the Company provides such services. The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term. The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners. Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements. Allowance for credit losses The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020. At adoption, the Company’s primary financial assets included trade receivables from its flying agreements, a note receivable from the sale of the Company’s subsidiary, ExpressJet Airlines, Inc., in 2019, and receivables from aircraft manufacturers and other third parties in the airline industry. The Company recorded a credit loss of $ 11.6 million net of income tax in conjunction with the adoption of Topic 326. The Company recorded this credit loss as a January 1, 2020, beginning balance sheet entry to retained earnings (net of income tax). The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of September 30, 2021, the Company had gross receivables of $ 79.0 million in current assets and gross receivables of $ 222.8 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or note receivable. During the nine months ended September 30, 2021, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities. The Company’s credit loss reserve was $ 44.6 million at September 30, 2021, compared to $ 46.2 million at December 31, 2020. The $ 1.6 million decrease in the credit loss reserve for the nine months ended September 30, 2021, was reflected as a reduction to the credit loss expense. (4) Share-Based Compensation and Stock Repurchases During the nine months ended September 30, 2021, the Company granted 44,770 restricted stock units and 157,210 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 2021 grants can range from 0 % to 250 % of the original amount granted depending on the Company’s performance over a two-year measurement period against the pre-established targets. Upon vesting, each restricted stock unit and performance share will be replaced with one share of common stock. The fair value of these restricted stock units and performance shares on their date of grant was $ 44.87 per share . During the nine months ended September 30, 2021, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the nine months ended September 30, 2021, the Company granted 21,175 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 44.87 . The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. During the nine months ended September 30, 2021, and 2020, the Company recorded pre-tax share-based compensation expense of $ 7.3 million and $ 5.9 million, respectively. 14 Table of Contents During the nine months ended September 30, 2021, the Company paid $ 1.6 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees. The Company did no t repurchase any shares of its common stock during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company repurchased 385,606 shares of its common stock for $ 20.0 million and paid $ 6.2 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees. Under the terms of the PSP 3 Agreement, the Company is restricted from repurchasing shares of its common stock through September 30, 2022. (5) 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 period. 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 anti-dilutive effect on net income per common share. During the nine months ended September 30, 2021, 230,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2021. During the nine months ended September 30, 2020, 200,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2020. During the nine months ended September 30, 2021, warrants to purchase 78,000 shares of common stock at $ 57.47 per share were excluded from the computation of Diluted EPS since the warrants' exercise price was greater than the average market price of the common shares during the quarters ended June 30, 2021, and September 30, 2021. The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2021 ​ 2020 2021 ​ 2020 Numerator: ​ ​ ​ ​ ​ Net income ​ $ 9,684 ​ $ 33,662 ​ $ 107,578 ​ $ 37,935 Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share weighted average shares ​ 50,380 ​ 50,181 ​ 50,337 ​ 50,199 Dilution due to stock options and restricted stock units ​ 345 ​ 441 ​ 389 ​ 246 Diluted earnings per share weighted average shares ​ 50,725 ​ 50,622 ​ 50,726 ​ 50,445 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 0.19 ​ $ 0.67 ​ $ 2.14 ​ $ 0.76 Diluted earnings per share ​ $ 0.19 ​ $ 0.66 ​ $ 2.12 ​ $ 0.75 ​ ​ (6) Segment Reporting The Company’s two reporting segments consist of the operations of SkyWest Airlines and SkyWest Leasing activities. The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing 15 Table of Contents regional jet aircraft and spare engines to third parties. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties. The following represents the Company’s segment data for the three-month periods ended September 30, 2021, and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 614,377 ​ $ 130,406 ​ $ 744,783 Operating expense ​ 633,169 ​ 64,564 ​ 697,733 Depreciation and amortization expense ​ 53,401 ​ 56,196 ​ 109,597 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 Interest expense ​ 2,138 ​ 26,842 ​ 28,980 Segment profit (loss) (2) ​ ( 20,930 ) ​ 39,000 ​ 18,070 Total assets (as of September 30, 2021) ​ 2,989,600 ​ 3,950,902 ​ 6,940,502 Capital expenditures (including non-cash) ​ 26,622 ​ 136,677 ​ 163,299 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2020 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 337,975 ​ $ 119,518 ​ $ 457,493 Operating expense ​ 303,141 ​ 79,799 ​ 382,940 Depreciation and amortization expense ​ 59,659 ​ 61,808 ​ 121,467 Interest expense ​ 2,868 ​ 27,282 ​ 30,150 Segment profit (2) ​ 31,966 ​ 12,437 ​ 44,403 Total assets (as of September 30, 2020) ​ 2,836,069 ​ 3,922,525 ​ 6,758,594 Capital expenditures (including non-cash) ​ 4,937 ​ — ​ 4,937 (1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines segment. (2) Segment profit (loss) is equal to operating income less interest expense. The following represents the Company’s segment data for the nine-month periods ended September 30, 2021, and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 1,548,422 ​ $ 387,906 ​ $ 1,936,328 Operating expense ​ 1,498,227 ​ 195,186 ​ 1,693,413 Depreciation and amortization expense ​ 156,878 ​ 172,211 ​ 329,089 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 Interest expense ​ 11,486 ​ 82,788 ​ 94,274 Segment profit (2) ​ 38,709 ​ 109,932 ​ 148,641 Total assets (as of September 30, 2021) ​ 2,989,600 ​ 3,950,902 ​ 6,940,502 Capital expenditures (including non-cash) ​ 83,650 ​ 163,596 ​ 247,246 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 1,172,625 ​ $ 364,844 ​ $ 1,537,469 Operating expense ​ 1,173,152 ​ 227,846 ​ 1,400,998 Depreciation and amortization expense ​ 170,855 ​ 193,958 ​ 364,813 Interest expense ​ 8,847 ​ 82,433 ​ 91,280 Segment profit (loss) (2) ​ ( 9,374 ) ​ 54,565 ​ 45,191 Total assets (as of September 30, 2020) ​ 2,836,069 ​ ​ 3,922,525 ​ 6,758,594 Capital expenditures (including non-cash) ​ 73,063 ​ ​ 115,258 ​ 188,321 16 Table of Contents (1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines segment. (2) Segment profit (loss) is equal to operating income less interest expense ​ (7) — Leases, Commitments and Contingencies The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement. Aircraft As of September 30, 2021, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from three years to nine years . Airport facilities The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 35 years . The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance. Leases As of September 30, 2021, the Company’s right-of-use assets were $ 248.6 million, the Company’s current maturities of operating lease liabilities were $ 78.2 million, and the Company’s noncurrent lease liabilities were $ 171.4 million. During the nine months ended September 30, 2021, the Company paid $ 63.1 million in operating leases reflected as a reduction from operating cash flows. The table below presents lease related terms and discount rates as of September 30, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2021 Weighted-average remaining lease term for operating leases 6.3 years Weighted-average discount rate for operating leases ​ 6.0 % ​ The Company’s lease costs for the three and nine months ended September 30, 2021, and 2020 included the following components (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2021 2020 2021 2020 Operating lease cost ​ $ 23,370 ​ $ 23,538 ​ $ 67,582 ​ $ 72,696 Variable and short-term lease cost ​ 976 ​ 950 ​ 3,256 ​ 3,501 Sublease income ​ ​ ( 1,888 ) ​ ​ ( 1,587 ) ​ ​ ( 4,717 ) ​ ​ ( 4,718 ) Total lease cost ​ $ 22,458 ​ $ 22,901 $ 66,121 ​ $ 71,479 ​ As of September 30, 2021, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2021 (in thousands): 17 Table of Contents ​ ​ ​ ​ ​ October 2021 through December 2021 $ 22,346 2022 ​ 80,467 2023 ​ 74,119 2024 ​ 30,426 2025 ​ 17,824 Thereafter ​ 84,253 ​ ​ $ 309,435 ​ As of September 30, 2021, the Company had a firm purchase commitment for 39 E175 aircraft from Embraer, S.A. (“Embraer”) with anticipated delivery dates through the first half of 2023 and a firm purchase commitment for seven used CRJ700 aircraft from a third party with anticipated delivery dates by the end of 2021. The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Oct - Dec 2021 2022 2023 2024 2025 Thereafter Operating lease payments for aircraft and facility obligations ​ $ 309,435 ​ $ 22,346 ​ $ 80,467 ​ $ 74,119 ​ $ 30,426 ​ $ 17,824 ​ $ 84,253 Firm aircraft and spare engine commitments ​ 1,062,834 ​ ​ 327,446 ​ ​ 708,909 ​ ​ 26,480 ​ ​ — ​ ​ — ​ ​ — Interest commitments (1) ​ 480,115 ​ ​ 28,177 ​ ​ 106,024 ​ ​ 90,452 ​ ​ 74,768 ​ ​ 59,766 ​ ​ 120,928 Principal maturities on long-term debt ​ 2,996,573 ​ ​ 92,341 ​ ​ 378,855 ​ ​ 386,035 ​ ​ 380,475 ​ ​ 395,673 ​ ​ 1,363,194 Total commitments and obligations ​ $ 4,848,958 ​ $ 470,310 ​ $ 1,274,255 ​ $ 577,086 ​ $ 485,669 ​ $ 473,263 ​ $ 1,568,375 (1) At September 30, 2021, the Company’s long-term debt had fixed interest rates. 18 Table of Contents Note 8 — Fair Value Measurements The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs: ​ ​ ​ ​ ​ Level 1 ​ — ​ Quoted prices in active markets for identical assets or liabilities. Level 2 ​ — ​ Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities. Level 3 ​ — ​ Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions. ​ As of September 30, 2021, and December 31, 2020, the Company held certain assets that are required to be measured at fair value on a recurring basis. Assets measured at fair value on a recurring basis are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of September 30, 2021 ​ Total Level 1 Level 2 Level 3 Marketable Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bonds and bond funds ​ $ 49,129 ​ $ — ​ $ 49,129 ​ $ — Commercial paper ​ 591,544 ​ — ​ 591,544 ​ — ​ ​ $ 640,673 ​ $ — ​ $ 640,673 ​ $ — Cash and Cash Equivalents ​ ​ 271,831 ​ ​ 271,831 ​ ​ — ​ ​ — Total Assets Measured at Fair Value ​ $ 912,504 ​ $ 271,831 ​ $ 640,673 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of December 31, 2020 ​ ​ Total ​ Level 1 ​ Level 2 ​ Level 3 Marketable Securities ​ ​ ​ ​ Bonds and bond funds ​ $ 117,928 ​ $ — ​ $ 117,928 ​ $ — Commercial paper ​ 492,257 ​ — ​ 492,257 ​ — ​ ​ $ 610,185 ​ $ — ​ $ 610,185 ​ $ — Cash and Cash Equivalents ​ ​ 215,723 ​ ​ 215,723 ​ ​ — ​ ​ — Total Assets Measured at Fair Value ​ $ 825,908 ​ $ 215,723 ​ $ 610,185 ​ $ — ​ The Company’s “marketable securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities. The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2021. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. As of September 30, 2021, and December 31, 2020, the Company classified $ 640.7 million and $ 610.2 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of September 30, 2021, and December 31, 2020, the cost of the Company’s total cash and cash equivalents and available for sale securities was $ 912.5 million and $ 825.9 million, respectively. The fair value of the Company’s long-term debt classified as Level 2 debt was estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $ 3.0 billion as of September 30, 2021, and $ 3.2 billion as of 19 Table of Contents December 31, 2020, as compared to the carrying amount of $ 3.0 billion as of September 30, 2021, and $ 3.2 billion as of December 31, 2020. (9) Long-term Debt ​ Long-term debt consisted of the following as of September 30, 2021, and December 31, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ December 31, 2020 Current portion of long-term debt $ 363,379 ​ $ 406,005 Current portion of unamortized debt issue cost, net ​ ( 3,491 ) ​ ​ ( 3,847 ) Current portion of long-term debt, net of debt issue costs $ 359,888 ​ $ 402,158 ​ ​ ​ ​ ​ ​ Long-term debt, net of current maturities $ 2,633,194 ​ $ 2,829,997 Long-term portion of unamortized debt issue cost, net ​ ( 28,131 ) ​ ​ ( 28,459 ) Long-term debt, net of current maturities and debt issue costs $ 2,605,063 ​ $ 2,801,538 ​ ​ ​ ​ ​ ​ Total long-term debt (including current portion) $ 2,996,573 ​ $ 3,236,002 Total unamortized debt issue cost, net ​ ( 31,622 ) ​ ​ ( 32,306 ) Total long-term debt, net of debt issue costs $ 2,964,951 ​ $ 3,203,696 ​ During the nine months ended September 30, 2021, the Company took delivery of six new E175 aircraft that the Company financed through $ 117.9 million of long-term debt. The debt associated with the six E175 aircraft has a 12-year term, is due in quarterly installments with fixed annual interest rates ranging from 2.7 % to 2.8 % and is secured by the E175 aircraft. During the nine months ended September 30, 2021, in connection with the PSP Extension Agreement and the PSP 3 Agreement, the Company issued to U.S. Treasury promissory notes for an aggregate principal amount of $ 95.4 million and issued warrants to purchase up to 203,090 shares of the Company’s common stock. The Company has recorded the value of the promissory note and warrants on a relative fair value basis as $ 95.4 million of long-term debt and $ 5.8 million in common stock, respectively. The warrants have a five-year term from the date of issuance and 124,773 of the warrants have an exercise price of $ 40.41 per share and 78,317 of the warrants have an exercise prices of $ 57.47 per share. See Note 2, “Impact of the COVID-19 Pandemic,” for further discussion of the terms of the payroll support program loan and warrants. During the second quarter of 2021, the Company repaid all amounts outstanding under the secured loan with U.S. Treasury, and in connection with such repayment, terminated the secured loan agreement. The total repayment amount was $ 61.2 million, which included all outstanding principal and accrued interest under the secured loan. As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the secured loan agreement, consisting of aircraft engines and aircraft parts, was released. During the three months ended September 30, 2021, the Company repaid $ 80.1 million of debt related to aircraft early. As of September 30, 2021, and December 31, 2020, the Company had $ 59.5 million and $ 61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. As of September 30, 2021, SkyWest Airlines had a $ 75 million line of credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of September 30, 2021, SkyWest Airlines had no amount outstanding under the facility. However, at September 30, 2021, SkyWest Airlines had $ 34.0 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 41.0 million. During the three months ended September 30, 2021, the Company extended the expiration date of the line of credit to January 1, 2022. 20 Table of Contents (10) — Investment in Other Companies ​ During 2019, the Company created a joint venture with Regional One, Inc. (“Regional One”) by investing $ 22.3 million for a 75 % ownership interest in Aero Engines, LLC. (“Aero Engines”). The primary purpose of Aero Engines is to lease engines to third parties. Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions. The Company determined Aero Engines is a variable interest entity as the Company has a 75 % ownership interest in Aero Engines and all material decisions require unanimous approval from the Company and Regional One, resulting in disproportionate ownership rights relative to voting rights. As unanimous approval is required for all Aero Engines’ material activities, Aero Engines has no primary beneficiary. The Company accounts for its investment in Aero Engines under the equity method. The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value. The Company invested an additional $ 1.0 million into Aero Engines in 2020. Aero Engines had no debt outstanding as of September 30, 2021. As of September 30, 2021, the Company’s investment balance in Aero Engines was $ 19.7 million. The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of the loss generated by Aero Engines for the nine months ended September 30, 2021, was $ 5.8 million, which is recorded in “Other Income (Expense)” on the Company’s consolidated statements of comprehensive income. Aero Engines’ net loss was primarily due to discrete engine overhaul events that were expensed during the nine months ended September 30, 2021. ​ (11) Income Taxes ​ The Company’s effective tax rate for the three months ended September 30, 2021, was 31.9 %. The Company’s effective tax rate for the three months ended September 30, 2021, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and a greater impact related to non-deductible expenses relative to the Company’s pre-tax earnings during the period. ​ The Company’s effective tax rate for the nine months ended September 30, 2021, was 26.1 %. The Company’s effective tax rate for the nine months ended September 30, 2021, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and the impact of non-deductible expenses. ​ The Company’s effective tax rate for the three months ended September 30, 2020, was 27.2 %. The Company’s effective tax rate for the three months ended September 30, 2020, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes, the impact of non-deductible expenses, and an adjustment to the deferred state tax rate. ​ The Company’s effective tax rate for the nine months ended September 30, 2020, was 27.1 %. The Company’s effective tax rate for the nine months ended September 30, 2020, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes. the impact of non-deductible expenses and an adjustment to the deferred state tax rate, partially offset by a $ 1.4 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the nine months ended September 30, 2020, and discrete tax benefits related to prior year state income tax filings. ​ (12) Special Items – Impairment Charge ​ During the three months ended September 30, 2021, the Company entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement. The 16 new E175 aircraft will replace 16 SkyWest-owned or financed CRJ900 aircraft currently under its Delta contract with expirations ranging from the second half of 2022 to early 2023. As of September 30, 2021, SkyWest Airlines only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta. As a result of this fleet transition beginning in 2022 and the uncertainty about the Company’s ability to redeploy the CRJ900 aircraft with another major airline partner, the Company concluded that indicators of impairment existed and therefore, evaluated its CRJ900 fleet and related CRJ900 assets for impairment. Pursuant to ASC 360-10, “Impairment and Disposal of Long-Lived Assets,” the Company determined that the asset group for the CRJ900 aircraft existed at the major airline partner level. A recoverability test was performed utilizing estimated undiscounted future cash flows for the CRJ900 aircraft pursuant to applicable agreements with Delta and forecasted cash flow including the estimated value the Company would realize upon disposal of aircraft. This was compared to the carrying value of the related assets resulting in a cash flow deficiency indicating 21 Table of Contents that an impairment existed. The impairment analysis required the Company to perform an assessment of the fair value of its long-lived assets related to the CRJ900 aircraft within the asset groups utilized in the recoverability test. The Company engaged a third party to assist in determining the fair value of these aircraft. These values were estimated based on listed market values or recent third-party market transactions for similar assets, adjusted by the related maintenance status of the fleet. All fair values are considered to be Level 3 within the fair value hierarchy. The amounts the Company may ultimately realize from the disposal of its CRJ900 long-lived assets may vary from the fair value assessments. On September 30, 2021, the Company recorded a non-cash impairment charge of $ 84.6 million to write-down the CRJ900 aircraft operating under the Delta contracts to their estimated fair value. This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 6, “Segment Reporting.” ​ (13) Legal Matters ​ The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, 2021, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 22 Table of Contents