What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-22 · 134 added, 126 removed, 233 unchanged (53% of the section changed)

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Risks That May Disrupt Our Operations

The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our and our major airline partners’ business, operating results, financial condition and liquidity.

The demand for air travel has not fully recovered from the COVID-19 pandemic, which has adversely impacted our and our major airline partners’ business, operating results, financial condition and liquidity.

The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our and our major airline partners’ business, operating results, financial condition and liquidity.

In March 2020, the World Health Organization declared COVID-19 a global health pandemic.

COVID-19 is present in nearly all regions around the world and has resulted in travel restrictions and business slowdowns or shutdowns in affected areas.

COVID-19 and its variants has resulted in travel restrictions and business slowdowns or shutdowns in affected areas.

As a result, the United States government implemented various domestic and international travel advisories and has also implemented enhanced screenings, mandatory quarantine requirements and other travel restrictions in connection with the COVID-19 pandemic.

Many foreign and U.S.

state governments have instituted similar measures and declared states of emergency.

The COVID-19 outbreak, along with the measures governments and private organizations worldwide have implemented in an attempt to contain the spread of this pandemic, has resulted in a severe decline in demand for air travel, which has adversely affected our and our major airline partners’ business, operations and financial condition to an unprecedented extent.

Measures ranging from travel restrictions, “shelter in place” and quarantine orders, limitations on public gatherings to cancellation of public events have resulted in a precipitous decline in demand for both domestic and international business and leisure travel.

In response to this material decrease in demand, our major airline partners, upon whom we depend to contract with us and to set our flight schedules, have drastically reduced their capacity in 2020 compared to 2019.

We in turn have significantly reduced our capacity.

We also anticipate schedule reductions below our 2019 flight levels will likely continue in 2021 and may continue thereafter.

The COVID-19 outbreak, along with the measures governments and private organizations worldwide have implemented to contain the spread of this pandemic, has resulted in a severe decline in demand for air travel, which has adversely affected our and our major airline partners’ business, operations and financial condition to an unprecedented extent.

In response to this material decrease in demand, our major airline partners, upon whom we depend to contract with us and to set our flight schedules, drastically reduced our flights in 2020 compared to 2019.

Although our flight schedules significantly increased in 2021 compared to 2020, we have not returned to pre-pandemic flight levels, and we cannot predict whether such levels will return in 2022 and thereafter.

We will continue to work with our major airline partners regarding future schedules and make further demand-driven adjustments to our capacity as needed.

The duration and severity of the COVID-19 pandemic remain uncertain, and there can be no assurance that these actions will suffice to sustain our business and operations through this pandemic.

During 2020, the COVID-19 pandemic had a negative impact on our revenues.

Our total revenue decreased from $2,972.0 million for the year ended December 31, 2019 to $2,127.1 million for the year ended December 31, 2020, or 28.4%.

Our total block hours on flights we operated decreased from 1.46 million for the year ended December 31, 2019 to 0.97 million for the year ended December 31, 2020, or 33.5%.

Our prorate revenue, which is derived from passenger fares on flights we operate under our prorate agreements, decreased from $521.0 million for the year ended December 31, 2019 to $268.9 million for the year ended December 31, 2020, or 48.4%.

The number of aircraft operating under our prorate agreements decreased from 67 aircraft as of December 31, 2019 to 60 aircraft as of December 31, 2020, or 10.4%.

The negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue into 2021 and potentially thereafter.

Due to the materially reduced flight activity during 2020 from historical levels and based on anticipated increases in future monthly flight volumes over the remaining capacity purchase agreements term, we determined the fixed monthly cash payments per aircraft we received during 2020 was disproportionately high relative to the number of flights we operated during 2020.

Accordingly, we deferred recognizing revenue of $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements during 2020.

Our deferred revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of flights we complete each reporting period relative to the number of flights we anticipate completing over the remaining contract term of each capacity purchase agreement.

The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term.

Additionally, the majority of our capacity purchase agreements set forth an expectation of minimum levels of flight operations which our major airline partners are expected to schedule for our operations and we are expected to provide.

These minimum flight operating levels are intended to provide a baseline expectation for aircraft utilization, which allows us to plan for labor requirements, maintenance facilities and related flight operations support.

Historically, our major airline partners have scheduled our aircraft utilization which meet or exceed the minimum levels set forth in our code-share agreements;

however, the COVID-19 pandemic has caused multiple of our major airline partners to reduce our utilization below the minimum expected levels for portions of 2020.

In the event our fleet utilization does not return to pre-COVID levels, we may not be able to maintain operating efficiencies previously obtained, which would negatively impact our operating results and financial condition.

On April 23, 2020, SkyWest Airlines entered into a Payroll Support Program Agreement with Treasury that provides certain payroll support relief payments under the CARES Act, under which we received $450.7 million through December 31, 2020.

Additionally, on January 15, 2021 SkyWest Airlines entered into a Payroll Support Program Extension Agreement with Treasury under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) that provides similar payroll support relief payments, under which SkyWest Airlines expects to receive approximately $233.1 million, of which SkyWest Airlines received $116.5 in January 2021 and expects to receive the remaining balance in February 2021.

Of the combined $683.8 million expected to be received under the Payroll Support Program Agreement and Payroll Support Program Extension Agreement, approximately $145.1 million was in the form of a ten-year unsecured term loan.

The payroll support programs include certain restrictions, including requirements to maintain certain levels of scheduled service, restrictions on the payment of dividends and the repurchase of our common stock through October 1, 2022, and certain limitations on executive compensation.

We may experience significant fluctuations in in our future monthly flight schedules from our major airline partners in response to anticipated demand and the ongoing recovery from the COVID-19 pandemic.

During 2020 and 2021, the COVID-19 pandemic had a negative impact on our revenues.

Our total revenue decreased from $2,972.0 million for the year ended December 31, 2019, to $2,127.1 million for the year ended December 31, 2020, or 28.4% and to $2,713.5 million for the year ended December 31, 2021, a decrease of 8.7% compared to the year ended December 31, 2019.

Total block hours on flights we operated decreased from 1.46 million for the year ended December 31, 2019, to 0.97 million for the year ended December 31, 2020, or 33.5% and to 1.32 million for the year ended December 31, 2021, a decrease of 9.9% compared to the year ended December 31, 2019.

The negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry may continue into 2022 and potentially thereafter.

During 2020 and 2021, SkyWest Airlines entered into three payroll support program agreements (the “Payroll Support Program Agreements”) with the U.S.

Department of the Treasury (“Treasury”) that provided certain payroll support relief payments.

During 2020, we received $345.5 million in the form of a payroll grant that was reflected as a reduction to operating expenses and we received $105.2 million in the form of a ten-year unsecured loan, which remained outstanding as of December 31, 2021.

During 2021, we received $422.7 million in the form of a payroll grant that was reflected as a reduction to operating expenses and we received $95.4 million in the form of a ten-year unsecured loan, which remained outstanding as of December 31, 2021.

The payroll support programs include certain restrictions, including requirements to maintain certain levels of scheduled service, restrictions on the payment of dividends and the repurchase of our common stock through September 30, 2022, and certain limitations on executive compensation.

There is no assurance that we will receive additional payroll support from Treasury.

Additionally, during 2020 SkyWest Airlines entered into a secured loan and guarantee agreement with Treasury (the “Treasury Loan Agreement”), which permits us to borrow up to $725 million under a five-year term.

We have through May 28, 2021 to increase our borrowings under the Treasury Loan Agreement up to the permissible amount.

As of December 31, 2020, we borrowed $60 million under the Treasury Loan Agreement.

Additionally, during 2020 SkyWest Airlines entered into a secured loan and guarantee agreement with Treasury (the “Treasury Loan Agreement”), which permitted us to borrow up to $725 million under a five-year term.

Upon execution, we borrowed $60 million under the Treasury Loan Agreement.

The Treasury Loan Agreement includes certain restrictions, including on the payment of dividends, repurchase of our common stock and executive compensation for a twelve-month period following repayment of the loan in full.

The Treasury Loan Agreement is secured by certain aircraft and spare aircraft parts and is subject to periodical appraisals and loan-to-value ratios.

The substance and duration of these restrictions may have materially negative affect our operations and financial results.

We lose our ability to draw additional amounts under the Treasury Loan Agreement after May 28, 2021.

In the event we repay the full amount outstanding under the Treasury Loan Agreement, the Treasury Loan Agreement will terminate.

During 2021, we repaid amounts outstanding under the Treasury Loan and terminated the Treasury Loan Agreement.

There is no assurance Treasury will provide similar financing arrangements in the future.

We may also take additional actions to improve our financial position, including measures to improve liquidity, such as drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities, and/or the entry into other debt facilities.

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Any such actions could be conducted in the near term, may be material in nature and could result in significant additional borrowing.

Measures to improve liquidity or other strategic actions that we may take in the future in response to COVID-19 may not be effective in offsetting decreased demand, and we will not be permitted to take certain strategic actions as a result of the CARES Act and the Payroll Support Program Extension Agreement, which could result in a material adverse effect on our business, operating results and financial condition.

The full extent of the ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control, including the effectiveness of the mitigation strategies discussed above, the duration and spread of COVID-19 and related travel advisories and restrictions, the impact of COVID-19 on overall long-term demand for air travel, the impact of COVID-19 on our financial health and operations and that of our major airline partners, and future governmental actions, all of which are highly uncertain and cannot be predicted.

Measures to improve liquidity or other strategic actions that we may take in the future in response to COVID-19 may not be effective in offsetting decreased demand, and we will not be permitted to take certain strategic actions as a result of the Payroll Support Program Agreements, which could result in a material adverse effect on our business, operating results and financial condition.

The full extent of the ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control, including the effectiveness of the mitigation strategies discussed above, the duration and spread of COVID-19 and its variants and related travel advisories and restrictions, the impact of COVID-19 on overall long-term demand for air travel, the impact of COVID-19 on our financial health and operations and that of our major airline partners, recovery plans initiated by major airlines and others in the airline industry, the impact of potential vaccine mandates on employee attrition and future governmental actions, all of which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has had a material impact, and the continuation of reduced demand could have a material adverse effect, on our business, operating results, financial condition and liquidity.

In addition, a further outbreak of COVID-19, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on our business, financial condition and operating results and those of our major airline partners.

In addition, a further outbreak of COVID-19 and its variants, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on our business, financial condition and operating results and those of our major airline partners.

Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.

We may experience difficulty upgrading and retaining qualified pilots.

Our operations rely on retaining qualified pilots, including captains and first officers.

Our pilots may seek employment at major airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines.

In response to the COVID-19 pandemic, several major airlines offered their employees early retirement programs in 2020 and have publicly announced their intention to hire significant levels of pilots in the near term.

As a result, we are experiencing elevated levels of pilot attrition, particularly attrition of our captains.

As we work to upgrade our first officers to captain, if attrition levels exceed our upgrade and replacement levels, we likely will experience a shortage of captains, due to training time and other factors, resulting in a reduction of our flight schedules with our major airline partners.

If we request our major airline partners to reduce our flight schedules due to pilot or other labor shortages, our major airline partners may seek to enforce financial penalties or reduce the compensation otherwise

payable to us under our capacity purchase, which would likely have a negative impact on our revenues and adversely impact our financial condition.

We may experience difficulty recruiting qualified pilots.

Our operations rely on recruiting and training qualified pilots.

FAA regulations regarding personnel certification and qualifications, and potential future changes in FAA regulations, could limit the number of qualified new entrants that we could hire.

In the event we are unable to hire qualified pilots, we may be unable to operate requested flight schedules under our capacity purchase agreements, which could result in a reduction in revenue and operating inefficiencies, such as incremental new-hire training costs, and our business and financial condition could be adversely affected.

We may experience difficulty recruiting and retaining other operational personnel.

In addition to pilots, our operations rely on recruiting and retaining other qualified personnel, including, but not limited to, flight attendants, maintenance technicians, dispatch personnel, crew support and other operational personnel.

Our operational personnel may seek employment at major airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines.

Should the turnover of our employees sharply increase, we may not be able to hire sufficient personnel to replace those leaving.

In the event we are unable to hire and retain qualified personnel, including flight attendants and maintenance technicians, we may be unable to operate requested flight schedules under our capacity purchase agreements, which could result in a reduction in revenue and operating inefficiencies, such as incremental new-hire training costs, and our business and financial condition could be adversely affected.

Various negative economic or industry conditions may result in reductions to our flight schedules, which could materially and adversely affect our operations and financial condition.

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● disruptions in the credit markets, which may impact availability of financing;

● actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation, higher interest rates, public health emergencies (including the COVID-19 pandemic), wars, terrorist attacks or political instability;

● actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation, higher interest rates, public health emergencies (including the COVID-19 pandemic and related variants), wars, terrorist attacks or political instability;

● changes in consumer preferences, perceptions, spending patterns or demographic trends;

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air traffic control systems;

● interference on aviation equipment from the deployment of 5G wireless telecommunications systems;

● price of jet fuel and oil that may negatively impact the number of flights we are scheduled to operate by our major airline partners under our capacity purchase agreements and may negatively impact the profitability of our prorate agreements;

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however, the occurrence of any or all of such conditions in a significant manner could materially and adversely affect our operations and financial condition and could cause our major airline partners to reduce the utilization levels of our aircraft under our code-share agreements.

Information technology security breaches, hardware or software failures, or other information technology disruptions may negatively impact our operations or reputation.

The performance and reliability of our technology are critical to our ability to compete effectively.

Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as U.S.

air traffic control systems, power, telecommunications or the internet, may disrupt our internal network.

Any individual failure or repeated failure of technology could impact our ability to conduct our business and result in

increased costs.

Our technological systems and related data may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.

In addition, cybersecurity threats pose a potential risk to the security of our information technology systems, networks and services, as well as the confidentiality and integrity of our data.

Cybersecurity risks may include security breaches, computer viruses, malicious or destructive code, ransomware and other attacks.

Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deception.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time.

We may not be able to prevent all data security breaches or misuse of data.

During 2021, we identified malware on our system resulting from a cyberattack.

We successfully quarantined the malware without disruption to our operations.

However, this quarantine breach required a rebuild of a triple-redundant server.

While moving one of our critical systems to a newly rebuilt server, we experienced a server outage that resulted in approximately 1,700 flight cancellations.

We estimate the impact of the outage negatively impacted our 2021 financial results by approximately $18 million (pre-tax).

Although we have changed our procedures related to migrating critical systems to new servers, we cannot assure a similar outage will not reoccur.

The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business and financial condition.

Interruptions or disruptions in service at one of our hub airports, due to weather, system malfunctions or for any other reason, could have a material adverse impact on our operations.

We currently operate primarily through hubs supporting our major airline partners’ route network across the United States.

We currently operate primarily through hubs supporting our major airline partners’ route networks across the United States.

Nearly all of our flights either originate from or fly into one of these hubs.

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Even though we strive to formalize agreements with these vendors that define expected service levels, our use of outside vendors increases our exposure to several risks.

In the event that one or more vendors goes into bankruptcy, ceases operation or fails to perform as promised, replacement services may not be readily available at competitive rates, or at all.

In the event that one or more vendors experiences labor shortages, aircraft part shortages, goes into bankruptcy, ceases operation or fails to perform as promised, replacement services may not be readily available at competitive rates, or at all.

If one of our vendors fails to perform adequately, we may experience increased costs, delays, maintenance issues, safety issues or negative public perception of our airline.

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The FAA requires operating, air worthiness and other certificates;

approval of personnel who may engage in flight,

maintenance or operation activities;

approval of personnel who may engage in flight, maintenance or operation activities;

recordkeeping procedures in accordance with FAA requirements;

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Scope limitations could limit our ability to increase the number of aircraft operating under our code-share agreements.

As of December 31, 2020, 355 out of our total 452 aircraft in scheduled service were operating under a capacity purchase arrangement or a prorate agreement with either Delta or United.

If our code-share relationship with Delta or United were terminated, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss.

A termination of either of these relationships would likely have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as an independent airline.

As of December 31, 2021, 369 out of our total 509 aircraft in scheduled service were operating under a capacity purchase arrangement or a prorate agreement with either United or Delta.

If our code-share relationship with United or Delta were terminated, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss.

facilities and gates and make the other arrangements necessary to fly as an independent airline.

We may not be able to enter into substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements.

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We also currently use the systems, facilities and services of our major airline partners to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services.

If our major airline partners ceased to maintain any of these systems, close any of these facilities or no longer provide these services to us, due to termination of one of our code-share agreements, a strike or other labor interruption by personnel working for our major airline partners or for any other reason, we may not be able to obtain alternative systems, facilities or services on terms and conditions as favorable as those we currently receive, or at all.

If our major airline partners cease to maintain any of these systems, close any of these facilities or no longer provide these services to us, due to termination of one of our code-share agreements, a strike or other labor interruption by personnel working for our major airline partners or for any other reason, we may not be able to obtain alternative systems, facilities or services on terms and conditions as favorable as those we currently receive, or at all.

Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to significantly reduce our operations.

Furthermore, upon certain terminations of our code-share agreements, our major airline partners could require us to sell or assign to them certain airport related facilities, we use in connection with the code-share services we provide.

As a result, in order to offer airline service after termination of any of our code-share agreements, we may have to replace these facilities.

We may be unable to arrange such replacements on satisfactory terms, or at all.

Our major airline partners may experience events that negatively impact their financial strength or operations, which may also negatively impact our operations.

Our business model relies significantly on our major airline partners, and we may be negatively affected by their financial and operating strength.

Events impacting airline travel, including pandemics such as COVID-19, that negatively impact the financial strength of our major airline partners or have a long-term effect on the use of our major airline partners by airline travelers would likely have a material adverse effect on our business, financial condition, and results of operations.

If our major airline partners experience adverse effects to their operational or financial condition, they may be unable to make payments due to us under their capacity purchase agreements or may need to reduce utilization of our aircraft.

Additionally, if one of our major airline partners undergoes bankruptcy, our agreement with such partner may not be assumed in bankruptcy and could be terminated.

This and other events, which are outside of our control, could have a material adverse effect on our business, financial condition, and results of operations.

Our growth may be limited with our major airline partners' flight systems.

Additional growth opportunities within our major airline partners’ flight systems are limited by various factors, including a limited number of regional aircraft each such major airline partner can operate in its regional network due to its own labor agreements.

Additional growth opportunities within our major airline partners’ flight systems are limited by various factors, including a limited number of regional aircraft each major airline partner can operate in its regional network due to its own labor agreements or scope limitations.

Except as contemplated by our existing code-share agreements, we cannot be sure that our major airline partners will contract with us to fly any additional aircraft.

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If our major airline partners were to make changes such as these in their strategy and operations, our operations and financial results could be adversely impacted.

Our prorate arrangements with our major airline partners are terminable upon notice of 120 days or less.

Our prorate flying agreements with our major airline partners permit the major airline partner to terminate the agreement in its discretion by giving us notice of 120 days or less.

Our prorate arrangements with our major airline partners may not return to pre-pandemic revenue levels and are terminable upon notice of 120 days or less.

Our prorate revenue, which is derived from passenger fares on flights we operate under our prorate arrangements, decreased from $521.0 million for the year ended December 31, 2019 to $268.9 million for the year ended December 31, 2020, or 48.4% and to $409.7 million for the year ended December 31, 2021, or 21.4% when compared to the year ended December 31, 2019.

Our prorate revenue and passenger demand was negatively impacted by the COVID-19 pandemic, and there is no assurance our prorate revenue will return to pre-pandemic levels in 2022 or thereafter.

We may reduce the volume of flying under our prorate arrangements in the future based on several factors including, but not limited to, passenger demand on prorate routes and labor availability.

Our prorate flying agreements with our major airline partners permit each major airline partner to terminate the agreement in its discretion by giving us notice of 120 days or less.

If one of our major airline partners elects to terminate a flying agreement with notice of 120 days or less, our ability to use the aircraft under an alternative agreement with similar economics may be limited, which could negatively impact our financial results.

Additionally, even if we can subsequently place the aircraft into service with a different major airline partner, of which there can be no assurance, we likely would incur inefficiencies and incremental costs, such as changing the aircraft livery, during the transition period, which would negatively impact our financial results.

Additionally, even if we could subsequently place the aircraft into service with a different major airline partner, of which there can be no assurance, we likely would incur inefficiencies and incremental costs, such as changing the aircraft livery, during the transition period, which would negatively impact our financial results.

Disagreements regarding the interpretation of our code-share agreements with our major airline partners could have an adverse effect on our operating results and financial condition.

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Our major airline partners rely on us to fly passengers from various locations into their hubs under our code-share agreements at competitive terms.

We not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also indirectly face competition from low-cost carriers, such as Southwest, Allegiant, Spirit and JetBlue among others, who compete with our major airline partners on many routes we operate.

We not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also indirectly face competition from low-cost carriers, such as Southwest, Allegiant, Spirit, JetBlue and others, who compete with our major airline partners on many routes we operate.

Certain of our competitors are larger and have significantly greater financial and other resources than we do.

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in 2016, American and US Airways Group Inc.

in 2013, Southwest Airlines Co.

and AirTran Holdings, Inc.

in 2013, United and Continental Airlines, Inc.

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Risks Related to Our Operating Costs and Personnel

Increases in labor costs, including pilot costs, maintenance costs and overhead costs may result in lower operating margins under our capacity purchase contracts.

Increases in labor costs, including pilot costs, flight attendant costs, maintenance costs and overhead costs may result in lower operating margins under our capacity purchase contracts.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel.

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We compete against other airlines and businesses for labor in many highly skilled positions.

If we are unable to hire, train and retain qualified employees at a reasonable cost, sustain employee engagement in our strategic vision, or if we are unsuccessful at implementing succession plans for our key staff, we may be unable to grow

or sustain our business.

Attrition beyond normal levels could negatively impact our operating results, increase our training and labor costs and our business prospects could be harmed.

Additionally, under our capacity purchase contracts with Delta, United, American and Alaska, a portion of our compensation is based upon pre- determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month).

Labor costs to recruit, incentivize and retain skilled employees may significantly increase in the future due to increased competition for the limited number of qualified industry personnel.

Attrition rates that exceed our ability to hire and replace applicable workgroups could negatively impact our ability to generate revenue, negatively impact our operating results, increase our training and labor costs and our business prospects could be harmed.

Additionally, under our capacity purchase contracts with United, Delta, American and Alaska, a portion of our compensation is based upon pre- determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month).

The primary operating costs intended to be compensated by the pre-determined rates include labor costs, including crew training costs, certain aircraft maintenance expenses, and overhead costs.

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If our operating costs for labor, aircraft maintenance and overhead costs exceed the compensation earned from our pre-determined rates under our capacity purchase arrangements, our financial position and operating results will be negatively affected.

We may experience difficulty recruiting and retaining qualified pilots and maintenance technicians.

Our operations rely on qualified personnel, including pilots, flight attendants and maintenance technicians.

Our pilots, flight attendants and maintenance technicians may seek employment at mainline airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer.

Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, we may not be able to hire sufficient pilots and maintenance technicians to replace those leaving.

Additionally, FAA regulations regarding personnel certification and qualifications, and potential future changes in FAA regulations, could limit the number of qualified new entrants that we could hire.

In the event we are unable to hire and retain qualified personnel, including pilots and mechanics, our business and financial condition could be adversely affected.

Increased labor costs, labor disputes and unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel.

Increased labor costs, pilot and other labor availability, labor disputes and unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, maintenance technicians and other personnel.

Any new collective bargaining agreements entered into by other regional carriers with their work forces may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees.

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If there are additional outbreaks of hostilities or other conflicts in oil-producing areas or elsewhere, or a reduction in refining capacity (due to weather events, for example), or governmental limits on the production or sale of jet fuel, there could be a reduction in the supply of jet fuel and significant increases in the cost of jet fuel.

Additionally, our operations may experience disruptions from temporary fuel shortages by our fuel vendors resulting from fuel quality

issues, refueling disruption, or other challenges.

Additionally,

our operations may experience disruptions from temporary fuel shortages by our fuel vendors resulting from fuel quality issues, refueling disruption, or other challenges.

Major reductions in the availability of jet fuel or significant increases in its cost, or a continuation of high fuel prices for a significant period of time, would have a material adverse impact on us.

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As of December 31, 2021, we had a total of approximately $3.1 billion in total long-term debt obligations.

Our long-term debt obligations include $3.07 billion related to the acquisition of aircraft, $105.2 million related to borrowings under the Payroll Support Program Agreement with Treasury under the CARES Act and $60.0 million related to borrowings under the Treasury Loan Agreement.

Excluding aircraft financed by our major partners that we operate for them under contract, we had 41 aircraft under long-term lease agreements as of December 31, 2020, with remaining terms up to ten years.

Our long-term debt obligations include $2.94 billion related to the acquisition of aircraft and $200.6 million related to borrowings under the Payroll Support Program Agreements with Treasury.

Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43 aircraft under long-term lease agreements as of December 31, 2021, with remaining terms up to nine years.

Future minimum lease payments due under all long-term operating leases were approximately $294.3 million at December 31, 2021.

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In the event any of our major airline partners defaults under a capacity purchase agreement or we are unable to extend the flying contract terms on aircraft with ongoing financial obligations, our financial position and financial results could be materially adversely affected.

In addition, in response to the travel restrictions, decreased demand and other effects the COVID-19 pandemic has had and is expected to have on our business, we may seek material amounts of additional financial liquidity in the short-term, which may include drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities and/or the entry into other debt facilities, among other items.

In addition, given the negative effects the COVID-19 pandemic has had and may continue to have on our business, including demand fluctuations, labor shortages or other effects, we may seek material amounts of additional financial liquidity in the short-term, which may include drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities and/or the entry into other debt facilities, among other items.

There can be no assurance as to the timing of any such drawdown or issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all.

In addition, we have received financial assistance that is available to the airline industry under the CARES Act and the 2021 Appropriations Act, which financial assistance subjects us and our business to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the repurchase of our common stock, and certain limitations on executive compensation for a twelve-month period following the full repayment of borrowings under the Treasury Loan Agreement.

If our liquidity is materially diminished, we might not be able to timely pay our leases and debts or comply with certain covenants under SkyWest Airlines’ line of credit, Treasury Loan Agreement or with other material provisions of our contractual obligations.

Our anticipated fleet replacement would require a significant increase in our leverage and the related cash requirements.

We currently have 206 CRJ200s, of which 130 were in-service as of December 31, 2020, with an average life of 18.5 years.

Over the next several years, we may continue to replace the CRJ200s with larger regional jets.

If we continue to add new aircraft to our fleet, we anticipate using significant amounts of capital to acquire these larger regional jets.

If our liquidity is materially diminished, we might not be able to timely pay our leases and debts or comply with certain covenants under SkyWest Airlines’ line of credit or with other material provisions of our contractual obligations.

Our anticipated aircraft purchases are expected to require a significant increase in our leverage and the related cash requirements.

As of December 31, 2021, we have firm purchase commitments for 29 E175 aircraft and spare engines totaling $0.8 billion.

Over the next several years, if we continue to add new aircraft to our fleet, we anticipate using significant amounts of capital to acquire these aircraft.

There can be no assurance that our operations will generate sufficient cash flow or liquidity to enable us to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make required debt service payments related to our existing or anticipated future obligations.

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In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate.

Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long- lived assets.

Factors indicating potential impairment include, but are not limited to, amendments to our capacity purchase agreements that impact the anticipated cash flows for our aircraft, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets.

In the event the estimated residual value of any of our aircraft types is determined to be lower than the residual value assumptions used in our depreciation policies, the applicable aircraft type in our fleet may be impaired and may result in a material reduction in the book value of applicable aircraft types we operate or we may need to prospectively modify our depreciation policies.

In 2021, we recorded a non-cash impairment of $84.6 million attributable to certain CRJ900 aircraft operating with a major airline partner as a result of contract expirations and the uncertainty about our ability to redeploy the CRJ900 aircraft with another major airline partner.

An impairment on any of our aircraft types we operate or an increased level of depreciation expense resulting from a change to our depreciation policy and assumptions could result in a material negative impact to our financial results.

We have aircraft lease and debt commitments that extend beyond our existing capacity purchase contractual term on certain aircraft.

Under our capacity purchase agreement with one of our major airline partners, we have a total of 18 CRJ700s with flying contract expirations scheduled between 2022 and 2023.

Our underlying debt financing obligations associated with each of these aircraft are scheduled to terminate in 2024 and 2025 on an aircraft-by-aircraft basis.

We may not be successful in extending the flying contract term on these aircraft with our major airline partner at acceptable economic terms.

In the event we are unsuccessful in extending the flying contract terms on these aircraft, we intend to pursue alternative uses for the aircraft over the remaining aircraft financing term including, but not limited to, operating the aircraft with another major carrier under a negotiated code- share agreement or subleasing the aircraft to another operator.

Additionally, we may negotiate an early lease return agreement with the aircraft lessor.

In the event we are unable to extend the flying contract terms for these aircraft at each respective contract’s expiration, we may incur cash and non-

cash early lease termination costs that would negatively impact our operations and financial condition.

Additionally, in the event we are unable to extend a flying contract with an existing major airline partner, but reach an agreement to place the aircraft into service with a different major airline partner, we likely will incur inefficiencies and incremental costs, such as changing the aircraft livery, which would negatively impact our financial results.

We lease aircraft and engines to third parties and the lessee may default under the lease terms, which could negatively affect our financial condition, cash flow and results of operations.

We lease CRJ aircraft and engines used on CRJ aircraft to third parties.

We leased five CRJ900 aircraft, 34 CRJ700 aircraft, and engines used on CRJ aircraft to third parties as of December 31, 2021.

In the event a lessee defaults under the terms of the lease agreement, we may incur additional costs, including legal and other expenses necessary to repossess the aircraft or engines, particularly if the lessee is contesting the proceedings or is in bankruptcy.

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In addition, if we were unable to resolve a dispute with our joint venture partner that retains material managerial veto rights, we might reach an impasse that could require us to dissolve the joint venture at a time and in a manner that could negatively affect our financial results.

We entered into a partnership with a third party to develop demand for electric-powered aircraft that involves significant uncertainty and risk.

We have entered into a strategic partnership with Eve UAM, LLC (“Eve”), an Embraer company, to develop a network of deployment for Eve’s electric vertical takeoff and landing (“eVTOL”) aircraft.

To support this effort, SkyWest and Eve plan to dedicate a team to focus on vehicle design, vertiport specifications, and the certification roadmap for eVTOL operations.

This strategic partnership involves significant risks, including:

● development and certification of the aircraft is uncertain or may take longer than expected;

● future customer demand for eVTOL aircraft is uncertain;

● other parties are developing electric-powered aircraft and the level of competition may increase;

● the extent government regulation of eVTOL aircraft and its related infrastructure is uncertain, and the cost of compliance with any such regulations may be significant;

● we may not realize a satisfactory return on our investment;

● our partner might fail to fulfill its obligations.

The effect of any, or some combination, of the foregoing risks could affect our partnership with Eve and future benefits may not materialize.

We are subject to various environmental requirements, including laws and regulations related to climate change and emissions.

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Future policy, legal, and regulatory developments relating to the protection of the environment could increase our costs and have a material adverse effect on our operations.

We support our major airline partners’ goals and strategies to reduce carbon emissions on flights we operate under our code-share agreements and, as we work to support each of our major airline partners’ goals and strategies, initiatives to reduce emissions may not materialize and could materially and adversely affect the Company's business plans, strategies, and results of operations.

During 2021, we produced approximately 5.7 million metric tons of CO 2 e from fuel burned, using industry emissions factors, on flights we operated under our code-share agreements.

Under our flying contracts, our major airline partners are responsible for fuel procurement and selection of the type of aircraft we operate and have significant control over our flight schedules.

Accordingly, we anticipate our major airline partners will take responsibility for carbon emissions incurred on our contract flights.

Each of our major airline partners may have different goals, strategies and timelines to reduce carbon emissions on our flights.

We are largely dependent on the direction from our major airline partners regarding long-term fuel saving initiatives such as engine innovations reducing fuel consumption, use of sustainable alternative fuels, carbon sequestration programs, air traffic flow routing efficiencies, among other initiatives.

Each of our major airline partners may pursue alternative strategies and goals to reduce carbon emissions on flights we operate under our code-share agreements that may impact the rate at which we are able to reduce our carbon emissions, if at all.

There is no assurance our major airline partners will take responsibility for carbon emissions incurred under our contract flights and no assurance future long-term fuel saving initiatives will materialize.

In the event we pursue purchasing carbon offsets as an alternative strategy to reduce our carbon emissions, the cost could materially and adversely affect our business plans and results of operations.

Risks Related to Dividends, Share Repurchases and Our Common Stock

We are currently restricted from paying dividends or repurchasing our stock under the CARES Act Treasury Loan Agreement we executed in 2020 and the Payroll Support Program Extension Agreement we executed in January 2021.

We are currently restricted from paying dividends or repurchasing our stock under our agreements with Treasury.

Historically, we have paid dividends and repurchased shares of our common stock in varying amounts.

During 2020, we entered into two agreements with Treasury under the CARES Act, the Payroll Support Program Agreement and the Treasury Loan Agreement.

Additionally, in January 2021 we entered into the Payroll Support Program Extension Agreement with Treasury under the 2021 Appropriations Act.

Each of these agreements restrict us from the payment of dividends and the repurchase of our common stock.

The dividend and share repurchase restriction term is longer under the Treasury Loan Agreement, which is a twelve-month period following repayment of the loan in full.

Although the Treasury Loan Agreement has a five-year term, we may repay the loan in full prior to the termination date without penalty.

There is no assurance we will repay the loan in full prior to the loan termination date.

Following the dividend and share repurchase restriction lapse under the Treasury Loan Agreement, there can be no assurance that we will resume our past practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends.

During 2020 and 2021, we entered into several agreements with Treasury, the Payroll Support Program Agreement and the Treasury Loan Agreement under the CARES Act, the Payroll Support Program Extension Agreement under the 2021 Appropriations Act and the Payroll Support Program 3 Agreement under the American Rescue Plan Act.

Under the terms of these agreements, we are restricted from the payment of dividends and the repurchase of our common stock through September 30, 2022.

Following the dividend and share repurchase restriction lapse under our agreements with Treasury, there can be no assurance that we will resume our past practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends.

Similarly, there also can be no assurance that we will continue our practice of repurchasing shares of common stock or that we will have the financial resources to repurchase shares of common stock in the future.

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Additionally, resuming our share repurchase program and any future dividends may reduce our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions.

We issued warrants to purchase shares of our common stock to Treasury for relief we received under the CARES Act and the 2021 Appropriations Act , and we are obligated to issue additional warrants to Treasury if we borrow additional amounts under our Treasury Loan Agreement.

During 2020, we issued warrants to purchase 370,220 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for payroll support payments we received under the CARES Act payroll support program.

We issued warrants to purchase shares of our common stock to Treasury for relief we received under the CARES Act, the 2021 Appropriations Act , and the American Rescue Plan Act.

In 2020, we issued warrants to purchase 370,720 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for payroll support payments we received under the CARES Act payroll support program.

Also, during 2020 we issued warrants to purchase 211,416 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for borrowing $60.0 million under the Treasury Loan Agreement.

We are eligible to borrow up to $725.0 million under the Treasury Loan Agreement through May 28, 2021, subject to the terms of the Treasury Loan Agreement.

On the date of any subsequent borrowing under the Treasury Loan Agreement, we obligated to issue to Treasury an additional warrant for a number of shares of our common stock equal to 10% of such borrowing amount, divided by the exercise price of $28.38 per share.

Additionally, in January 2021, we agreed to issue warrants to purchase up to 98,815 shares of our common stock with an exercise price of $40.41 per share to Treasury as consideration for payroll support payments we received under the 2021 Appropriations Act.

As of February 22, 2021, we had issued 12,288 of such warrants.

If we increase our borrowings under the Treasury Loan Agreement, our obligation to issue additional warrants to Treasury may be dilutive to existing shareholders.

Additionally, if Treasury exercises its option to purchase shares of our common stock under warrants previously issued to Treasury, such exercise will be dilutive to our shareholders.

In 2021, we issued warrants to purchase 124,773 shares of our common stock with an exercise price of $40.41 per share to Treasury as consideration for payroll support payments we received under the 2021 Appropriations Act.

Additionally, in 2021 we issued warrants to purchase 78,317 shares of our common stock with an exercise price of $57.47 per share to Treasury as consideration for payroll support payments we received under the American Rescue Plan Act.

If Treasury exercises its option to purchase shares of our common stock under warrants previously issued to Treasury, such exercise will be dilutive to our shareholders.

As of December 31, 2021, Treasury has not exercised any of the warrants issued.

Provisions of our charter documents and code-share agreements may limit the ability or desire of others to gain control of our company.

common stock, even in circumstances where such a change in control would be viewed as desirable by most investors.

Our ability to issue shares of preferred and common stock without shareholder approval may have the effect of delaying or preventing a change in control and may adversely affect the voting and other rights of the holders of our common stock, even in circumstances where such a change in control would be viewed as desirable by most investors.

The provisions of the Utah Control Shares Acquisitions Act may also discourage the acquisition of a significant interest in or control of our company.

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Childs, and our other key management and operating personnel.

Under the terms of the Payroll Support Program 3 Agreement, we are subject to certain limitations on executive compensation through April 1, 2023.

We may have difficulty replacing management or other key personnel who cease to be employed by us and, therefore, the loss of the services of any of these individuals could harm our business.

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We may be a party to litigation in the normal course of business or otherwise, which could affect our financial condition and results of operations.

We may become party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, arising in the ordinary course of our business or otherwise, including those related to tort, environmental, employment and commercial legal issues.

We may become party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, arising in the ordinary course of our business or otherwise, including, but not limited to those related to injury or tort, environmental, employment and commercial legal issues.

Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control.

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The adoption of new tax legislation or changes to existing tax laws and regulations could adversely affect our financial condition or results of operations.

The airline industry is one of the most heavily taxed industries in the United States.

We are subject to tax laws and regulations of the U.S.

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or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations.

Information technology security breaches, hardware or software failures, or other information technology disruptions may negatively impact our operations or reputation.

The performance and reliability of our technology are critical to our ability to compete effectively.

Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as U.S.

air traffic control systems, power, telecommunications or the internet, may disrupt our internal network.

Any individual failure or repeated failure of technology could impact our ability to conduct our business and result in increased costs.

Our technological systems and related data may be vulnerable to a variety of sources of interruption due

to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.

In addition, cybersecurity threats pose a potential risk to the security of our information technology systems, networks and services, as well as the confidentiality and integrity of our data.

Cybersecurity risks may include security breaches, computer viruses, malicious or destructive code, ransomware and other attacks.

Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deception.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time.

We may not be able to prevent all data security breaches or misuse of data.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors