What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-17 compared with 2021-02-22 · 247 added, 274 removed, 708 unchanged (42% of the section changed)

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Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

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Description of the Matter

At December 31, 2020, the Company’s deferred revenue balance totaled $110.7 million, which was presented as a component of other long-term liabilities on the balance sheet.

At December 31, 2021, the Company’s deferred revenue balance totaled $103.9 million, of which $24.5 million was presented as a component of other current liabilities and $79.4 million was included in other long-term liabilities on the balance sheet.

As discussed in Note 1 to the consolidated financial statements, 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 related to the fixed amount per aircraft per month based upon completed block hours proportionate to total forecasted block hours over the contract term.

To perform the allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry.

To perform the

allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry.

Auditing the forecasted block hours over the term of the contract, which is the primary input used in the deferred revenue calculation, required extensive audit effort due to the estimation uncertainty of the forecasted block hours over the contract term resulting from the COVID-19 pandemic.

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Marketable securities

Income tax receivable

Receivables, net

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Buildings and ground equipment

Total property and equipment, gross

Less-accumulated depreciation and amortization

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Total property and equipment, net

OTHER ASSETS:

Operating lease right-of-use assets

Other long-term assets

Long-term receivables and other assets

Total other assets

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Common stock, no par value, 120,000,000 shares authorized;

82,094,985 and 81,742,937 shares issued, respectively

82,335,970 and 82,094,985 shares issued as of December 31, 2021, and December 31, 2020, respectively

Retained earnings

Treasury stock, at cost, 31,913,635 and 31,420,179 shares, respectively

Treasury stock, at cost, 31,956,047 and 31,913,635 shares as of December 31, 2021, and December 31, 2020, respectively

Total stockholders’ equity

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Airport-related expenses

Aircraft rentals

Aircraft fuel

CARES Act payroll support grant

Aircraft rentals

Special items

Payroll support grant

Other operating expenses

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Interest expense

Other income (expense), net

Total other expense, net

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Balance at December 31, 2018

Net unrealized appreciation on marketable securities, net of tax of $ 6

Exercise of common stock options and vested restricted stock units

Shares acquired from vested employee stock awards for income tax withholdings

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Treasury stock purchases

Cash dividends declared ($ 0.40 per share)

Balance at December 31, 2018

Change in accounting principle and other (see Note 7)

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Net unrealized appreciation on marketable securities, net of tax of $ 10

Exercise of common stock options and vested restricted stock units

Shares acquired from vested employee stock awards for income tax withholdings

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

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Net income (loss)

Exercise of common stock options and vested restricted stock units

Shares acquired from vested employee stock awards for income tax withholdings

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

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Cash dividends declared ($ 0.14 per share)

Warrants issued under CARES Act agreements

Warrants issued to U.S.

Balance at December 31, 2020

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Warrants issued to U.S.

Balance at December 31, 2021

See accompanying notes to consolidated financial statements.

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Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

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Write-off of maintenance assets

Increase in credit loss reserves

Loss on disposal of fixed assets

Increase (decrease) in credit loss reserves

Loss (gain) on disposal of fixed assets

Net increase in deferred income taxes

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Decrease (increase) in inventories

Decrease in other current assets

Decrease (increase) in other current assets

Decrease in operating lease right-of-use assets

Increase in operating lease liabilities

Increase in deferred revenue

Decrease in deferred aircraft credits

Decrease in operating lease liabilities

Increase (decrease) in deferred revenue

Increase in unbilled revenue

Increase (decrease) in accounts payable and other current liabilities

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Aircraft and rotable spare parts

( 1,062,380 )

Buildings and ground equipment

Proceeds from the sale of aircraft, property and equipment

Proceeds from the sale of property and equipment

Deposits on aircraft

Return of deposits applied towards acquired aircraft

Aircraft deposits applied towards acquired aircraft

Decrease (increase) in other assets

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Non-cash investing and financing activities:

Acquisition of rotable spare parts

Acquisition of property and equipment

Debt assumed on aircraft acquired under operating leases

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Lease liability arising from the recognition of right-of-use asset

Warrants issued under CARES Act agreements

Warrants issued to U.S.

Cash paid during the period for:

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(“ExpressJet”).

As of December 31, 2020, SkyWest Airlines offered scheduled passenger service under code-share agreements with Delta Air Lines, Inc.

(“Delta”), United Airlines, Inc.

(“United”), American Airlines, Inc.

As of December 31, 2021, SkyWest Airlines offered scheduled passenger service under code-share agreements with United Airlines, Inc.

(“United”), Delta Air Lines, Inc.

(“Delta”), American Airlines, Inc.

(“American”) and Alaska Airlines, Inc.

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Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system.

As of December 31, 2020, the Company had 601 total aircraft in its fleet, including 452 aircraft in scheduled service under its code-share agreements, summarized as follows:

Aircraft in scheduled service

As of December 31, 2021, the Company had 629 total aircraft in its fleet, including 509 aircraft in scheduled service or under contract under its code-share agreements, summarized as follows:

Aircraft in scheduled service or under contract

Leased to third parties

*As of December 31, 2020, these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with the Company’s major airline partners and being used as a supplemental spare aircraft, or are in the process of being parted out.

For the year ended December 31, 2020, approximately 47.1 % of the Company’s aircraft in scheduled service operated for United, approximately 31.4 % was operated for Delta, approximately 14.4 % was operated for American and approximately 7.1 % was operated for Alaska.

*As of December 31, 2021, other aircraft included:

supplemental spare aircraft supporting our code-share agreements which may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, or aircraft that are scheduled to be disassembled for use as spare parts.

**The Company took delivery of the 18 E175 aircraft under its contract with American as of December 31, 2021.

The 18 E175 aircraft are scheduled to begin service in 2022.

For the year ended December 31, 2021, approximately 43.2 % of the Company’s aircraft in scheduled service was operated for United, approximately 29.3 % was operated for Delta, approximately 21.2 % was operated for American and approximately 6.3 % was operated for Alaska.

SkyWest Airlines has been a code-share partner with Delta since 1987, United since 1997, Alaska since 2011 and American since 2012.

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CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer S.A.

The CRJ200 is a single-class 50 -seat aircraft.

The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats.

The CRJ200 is a single-class 50 -seat aircraft.

Basis of Presentation

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When considering whether or not impairment of long- lived assets exists, the Company groups similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group.

Asset groupings are done at the fleet or contract level.

Asset groupings are done at the aircraft type level.

In 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 December 31, 2021, the Company 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.

In 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.

The impairment analysis required the Company to identify applicable asset groups, perform a recoverability test using undiscounted cash flows and estimate the fair value of the asset group through the use of third-party valuations.

The amounts we ultimately realize from the disposal of our CRJ900 long-lived assets may vary from our 2021 fair value assessment.

See Note 9, Special Items, for the impairment charges recorded during the year ended December 31, 2021, related to the CRJ900 long-lived assets.

The Company did no t recognize any impairment charges of long-lived assets during the years ended December 31, 2020 and 2019.

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Federal Aviation Administration approved continuous inspection and maintenance program.

The Company uses the direct expense method of accounting for its regional jet engine overhauls wherein the expense is recorded when the overhaul event occurs.

The Company uses the direct expense method of accounting for its regional jet engine overhauls.

The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to

repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract.

The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred.

During the year ended December 31, 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year.

In 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year.

There was not a similar expense in 2021 and 2019.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes flying agreements revenue and airport customer service and other revenues when the service is provided under its code-share agreements.

Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”, “fixed-fee arrangements,” or “fixed-fee contracts”) with Delta, United, American and 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 arrangement, such as fuel, airport landing fees and airport rents.

Under the capacity purchase arrangements, the Company’s performance obligation is met and revenue is recognized when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue.

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 year ended December 31, 2020, capacity purchase arrangements represented approximately 87.0 % of the Company’s flying agreements revenue.

Under the Company’s prorate arrangements (referred to as a “prorate” or “revenue-sharing” arrangement), 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.

For the years ended December 31, 2021 and 2020, capacity purchase arrangements represented approximately 84.3 % and 87.0 % 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 year ended December 31, 2020, prorate flying arrangements represented approximately 13.0 % of the Company’s flying agreements revenue.

Lease, airport services and other revenues primarily consist of ground handling functions, 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.

Additionally, airport customer service and other revenues includes revenue generated from aircraft and spare engines leased to third parties.

Of the Company’s $ 5.4 billion of property and equipment, net as of December 31, 2020, $ 271.1 million of regional jet aircraft and spare engines were 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.

A portion of the Company’s leases to third parties contain variable payments from lessees based on departures where the Company pays for maintenance.

Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases.

For the years ended December 31, 2021 and 2020, prorate flying arrangements represented approximately 15.7 % and 13.0 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2021, 2020 and 2019 (in thousands):

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Capacity purchase agreements revenue:

aircraft lease

aircraft lease and fixed revenue

Prorate agreements revenue

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Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per month per aircraft over the contract term.

The Company recognizes revenue attributed to the Fixed Monthly Payments proportionate to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term.

Due to the material decrease in completed block hours in 2020 from historical levels and from anticipated future levels over the remaining contract terms, the Company determined the amount of Fixed Monthly Payments received in 2020 was disproportionately high relative to the number of block hours completed during 2020.

The Company anticipates the future number of block hours it will complete over the remaining capacity purchase agreements will significantly increase from 2020 levels.

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

The Company’s deferred revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of block hours it completes each reporting period relative to the number of block hours it anticipates completing over the remaining contract term of each capacity purchase agreement.

The Company recognizes revenue attributed to the fixed monthly payments proportionate

to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term.

Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed.

Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020.

In 2021, the Company recognized $ 6.8 million of previously deferred revenue and $ 8.4 million of unbilled revenue due to an increase in flight schedules compared to deferring revenue of $ 110.7 million in 2020.

The Company’s deferred revenue balance as of December 31, 2021, was $ 103.9 million, including $ 24.5 million in other current liabilities and $ 79.4 million in other long-term liabilities.

The Company’s unbilled revenue balance as of December 31, 2021, of $ 8.4 million was included in other long-term assets.

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 and unbilled 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.

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The following summarizes the significant provisions of each code-share agreement the Company has with each major airline partner through SkyWest Airlines:

Delta Connection Agreements

United Express Agreements

Aircraft type

Number of Aircraft

Term / Termination Dates

Delta Connection Agreement

(capacity purchase arrangement)

Individual aircraft have scheduled removal dates from 2021 to 2030

United Express Agreements

(capacity purchase agreement)

Individual aircraft have scheduled removal dates under the agreement between 2024 and 2029

The average remaining term of the aircraft under contract is 4.2 years

Delta Connection Prorate Agreement (prorate arrangement)

United Express Prorate Agreement

(prorate agreement)

Terminable with 120 -day notice

United Express Agreements

Total under United Express Agreements

Delta Connection Agreements

Aircraft type

Number of Aircraft

Term / Termination Dates

United Express Agreements

(capacity purchase arrangement)

Individual aircraft have scheduled removal dates under the agreement between 2022 and 2029

Delta Connection Agreement

(capacity purchase agreement)

Individual aircraft have scheduled removal dates from 2022 to 2031

The average remaining term of the aircraft under contract is 5.5 years

United Express Prorate Agreement (prorate arrangement)

Delta Connection Prorate Agreement

(prorate agreement)

Terminable with 30 -day notice

Total under Delta Connection Agreements

American Capacity Purchase Agreement

Aircraft type

Number of Aircraft

Term / Termination Dates

American Agreement

(capacity purchase arrangement)

(capacity purchase agreement)

Individual aircraft have scheduled removal dates from 2024 to 2032

The average remaining term of the aircraft under contract is 4.8 years

Total under American Agreements

Alaska Capacity Purchase Agreement

Aircraft type

Number of Aircraft

Term / Termination Dates

Alaska Agreement

(capacity purchase arrangement)

● Individual aircraft have scheduled removal dates from 2027 to 2030

(capacity purchase agreement)

Individual aircraft have scheduled removal dates in 2030

The average remaining term of the aircraft under contract is 8.6 years

In addition to the contractual arrangements described above, as of December 31, 2020, SkyWest Airlines entered into a capacity purchase agreement with American to place 20 E175 aircraft into service.

The delivery dates for the 20 new E175 aircraft are currently scheduled for 2021 and 2022 and the aircraft are expected to be placed into service in 2022.

SkyWest Airlines also entered into an agreement with American to place 25 used CRJ700s under a multi-year capacity purchase agreement beginning in 2021.

Final delivery dates may be adjusted based on various factors.

SkyWest Airlines also entered into an agreement with Delta to place one CRJ900 aircraft under a capacity purchase agreement in 2021.

The Company anticipates Delta will acquire the aircraft and SkyWest operate the aircraft.

In addition to the contractual arrangements described above, as of December 31, 2021, SkyWest Airlines has a capacity purchase agreement with American to place two E175 aircraft into service.

The delivery dates for the two new E175 aircraft are currently scheduled for 2022 and the aircraft are expected to be placed into service in 2022.

SkyWest Airlines also has a capacity purchase agreement with American for eleven used CRJ700 aircraft.

The aircraft are anticipated to be placed into service by the end of 2023.

We anticipate using CRJ700s we already possess that are not currently under contract with a major airline partner to fulfill this agreement.

SkyWest Airlines has a capacity purchase agreement with Alaska to place eleven E175 aircraft into service.

The delivery dates for the eleven 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.

In 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 and early 2023.

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 aircraft the Company is operating under a capacity purchase agreement with Delta (see Note 9 “Special Items – Impairment Charge,” for further discussion of the Company’s CRJ900 aircraft).

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 arrangement, 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 arrangement, 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.

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.

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties.

The following table represents the Company’s lease, airport services and other revenues for the years ended December 31, 2021, 2020 and 2019 (in thousands):

For the year ended December 31,

Operating lease revenue relating to lease payments

Operating lease revenue relating to variable lease payments

Airport customer service and other revenue

Operating lease income relating to lease payments

Operating lease income relating to variable lease payments

Lease, airport services and other

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft that had remaining non-cancelable lease terms as of December 31, 2020 (in thousands):

The Company’s operating revenues could be impacted by a number of 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.

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 December 31, 2021 (in thousands):

Of the Company’s $ 5.5 billion of property and equipment, net as of December 31, 2021, $ 252.6 million of regional jet aircraft and spare engines were 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.

A portion of the Company’s leases to third parties contain variable payments from lessees based on departures where the Company pays for maintenance.

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.

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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.

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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 twelve months ended December 31, 2020, the collectability on a note receivable from Kair Enterprises, Inc.

associated with the Company’s sale of ExpressJet in 2019 became uncertain due to ExpressJet ceasing operations during the year and the credit ratings were lowered on certain entities for which the Company has outstanding accounts receivable or notes receivable, which were the primary drivers for the increase in the Company’s credit loss reserve when benchmarked against historic default rates as of January 1, 2020, when the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) .

During the year ended December 31, 2021, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

The following table summarizes the changes in allowance for credit losses:

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Balance at January 1, 2020

Additions to credit loss reserves

Adjustments to credit loss reserves

Write-offs charged against allowance

Balance at December 31, 2020

Adjustments to credit loss reserves

Write-offs charged against allowance

Balance at December 31, 2021

The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.

Net Income (Loss) Per Common Share

Basic net income (loss) 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.

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) 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 (loss) per common share.

During the year ended December 31, 2020, 1,074,375 shares reserved for the issuance of employee equity awards and warrants to acquire the Company’s common stock were excluded in the computation of Diluted EPS since the Company reported a net loss for the year ended December 31, 2020.

During the year ended December 31, 2019, 150,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2019.

During the year ended December 31, 2018, 207,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2018.

For the year ended December 31, 2021, 140,000 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 December 31, 2021.

Additionally, for the year ended December 31 , 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.

For the year ended December 31, 2020, 1,074,375 shares reserved for the issuance of employee equity awards and warrants to acquire the Company’s common stock were excluded in the computation of Diluted EPS since the Company reported a net loss for the year ended December 31, 2020.

For the year ended December 31, 2019, 150,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2019.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2021, 2020, and 2019 (in thousands):

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The Company’s three operating segments (prior to the sale of ExpressJet in January 2019) consist of the operations conducted by SkyWest Airlines, ExpressJet (for the periods owned by the Company) and SkyWest Leasing.

Following the sale of ExpressJet, the Company has two

reportable segments:

Following the sale of ExpressJet, the Company has two reportable segments:

SkyWest Airlines and SkyWest Leasing.

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Recent Accounting Pronouncements

Recently Adopted Standards

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”), which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosure regarding significant estimates and judgments used in estimating credit losses.

Topic 326 is effective for the Company beginning January 1, 2020.

The Company adopted Topic 326 on January 1, 2020.

The Company’s primary financial assets as of December 31, 2019 included trade receivables from its flying agreements, a note receivable from the sale of ExpressJet, 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).

See Note 1, “Flying Agreements Revenue and Lease, Airport Services and Other Revenues,” for more information on the application of Topic 326 on the Company’s results for 2020.

In November 2021, the FASB issued ASU No.2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance (ASU No.

2021-10”), which increases the transparency of government assistance received by business entities, including disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.

2021-10 is effective for annual reporting periods beginning after December 15, 2021.

The Company is currently evaluating the impact that adopting ASU No.

2021-10 but does not currently expect a material impact on the Company’s consolidated financial statements .

(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 continued to spread around the world and driven the implementation and continuation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures.

Consequently, the Company and its major airline partners, have experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected the Company’s revenues, particularly under its prorate arrangements.

The continued spread of the virus and the ongoing global pandemic has affected nearly all of the domestic and international networks of the Company’s major airline partners for whom it conducts flight operations and relies on to set its flight schedules.

While the length and severity of the reduction in demand due to COVID-19 are uncertain, the Company presently expects a continued significant negative impact on its results of operations at a minimum through 2021.

In response to these developments, the Company has implemented measures to focus on the personal safety of its passengers and employees, while at the same time seeking to mitigate the impact on the Company’s financial position and operations.

These measures include, but are not limited to, the following:

Focus on the Personal Safety of Passengers and Employees.

The safety and well-being of the Company’s passengers and employees are the Company’s priorities in every decision it makes.

As the COVID-19 pandemic has developed, the Company has taken numerous steps to help passengers and employees take appropriate safety measures on the ground and in the air in keeping with current Centers for Disease Control and Prevention recommendations, including:

● Working with the Company’s major airline partners to enhance its aircraft cleaning procedures.

● Working with the Company’s major airline partners to provide masks for crewmembers and ensuring that all fleet service personnel have the necessary personal protective equipment for disinfecting the aircraft.

● Providing a number of options to employees who are diagnosed with COVID-19, including pay protection and extended leave options.

● Implementing workforce social distancing and protection measures, and enhanced cleaning of the Company’s facilities, including training facilities, using methods and products similar to what the Company is using on its aircraft.

Capacity Reductions.

Beginning in March 2020, the Company and its major airline partners experienced an unprecedented decrease in demand for air travel and expect this decline from 2019 levels to continue throughout 2021 and possibly thereafter.

The Company depends on its major airline partners to contract with the Company to operate

scheduled flights.

Therefore, in response to this decreased demand, the Company has significantly reduced its capacity.

During the year ended December 31, 2020, the Company’s number of departures and block hours each decreased 30.5 % and 33.5 %, respectively, from the year ended December 31, 2019.

The number of daily scheduled flights operated by the Company may not return to pre-COVID-19 levels by the end of 2021 or possibly thereafter.

The Company will continue to work with its major airline partners regarding future schedules and make demand-driven adjustments to its capacity as needed.

The Company removed 55 CRJ200 aircraft that were operating under the SkyWest Airlines Delta Connection Agreement as a result of contract expirations that were not extended during the 2020 calendar year.

The Company additionally terminated its American Prorate Agreement on seven CRJ200 aircraft in the second quarter of 2020 and the Company may have further reductions in the number of CRJ200 aircraft operating under its other prorate agreements.

The Company may receive requests by its major airline partners to defer deliveries of new or used aircraft that were previously scheduled for delivery in 2021 and 2022.

Cost Reductions.

With the reduction in revenue, the Company has, and may continue to implement, cost saving initiatives, including:

● Reducing employee-related costs including by:

o Offering voluntary unpaid leave to employees.

o Suspending all non-scale pay increases.

o Instituting a company-wide hiring freeze.

● Delaying non-essential projects and reducing or suspending other discretionary spending.

At December 31, 2020, the Company had $ 1,530.4 million in total available liquidity, consisting of $ 825.9 million in cash and marketable securities, $ 39.5 million available under SkyWest Airlines’ line of credit and an additional $ 665.0 million related to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) under the Company’s secured loan with the U.S.

Department of the Treasury (“Treasury”).

On March 27, 2020, President Trump signed the CARES Act into law.

The CARES Act is a relief package intended to assist many aspects of the U.S.

economy, including providing the airline industry with up to $ 25 billion in grants to be used for employee wages, salaries and benefits.

In April 2020, SkyWest Airlines entered into an agreement with Treasury to receive $ 438.0 million in emergency relief through the CARES Act payroll support program to be paid in installments from April to September 2020, which was amended and increased to $ 450.7 million.

SkyWest Airlines received the $ 450.7 million in the aggregate under the payroll support program during the year ended December 31, 2020.

The relief payments are conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020.

Other conditions include bans on share repurchases and dividends through September 30, 2021, continuing essential air service as directed by the U.S.

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021.

The ongoing spread of the virus and its variants continues to negatively impact our business, and the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules.

Various factors outside our control may impact the demand for air travel and our flight schedules, such as the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions.

Additionally, indirect factors may impede the timing of our recovery from the virus even if passenger demand returns to pre-COVID-19 levels, such as employee attrition and workforce shortages and third-party labor shortages that may result in delays in outsourced maintenance work and availability of aircraft parts.

At December 31, 2021, the Company had $ 904.0 million in total available liquidity, consisting of $ 860.4 million in cash and marketable securities, and $ 43.6 million available under SkyWest Airlines’ line of credit with a bank.

Additionally, we have approximately $ 1.5 billion in unpledged aircraft engines and aircraft parts that we temporarily used as collateral in 2020 and 2021.

At December 31, 2021, the Company’s current portion of long-term debt was $ 391.8 million, compared to $ 402.2 million at December 31, 2020.

Payroll Support Programs.

In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the Payroll Support Program (“PSP1”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Payroll Support Program Extension Agreement (“PSP2”) under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”)

and Payroll Support Program 3 Agreement (“PSP3”) under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”).

The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021.

Other conditions include restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S.

Department of Transportation and certain limitations on executive compensation.

The relief payments received under the CARES Act payroll support program included $ 345.5 million in a grant and $ 105.2 million in an unsecured 10-year loan.

The loan bears interest at an annual rate of 1.00 % for the first five years (through April 2025) and the Secured Overnight Financing Rate plus 2.00 % in the final five years.

The payments received under the payroll support programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan.

In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock.

These warrants have an exercise price of $ 28.38 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 are recorded in cash and cash equivalents when received and will be recognized as a reduction in expense in CARES Act payroll support grant in our income statement over the periods that the funds are intended to compensate.

During the year ended December 31, 2020, the Company recognized $ 345.5 million of grant proceeds received under the CARES Act payroll support program, as a reduction in payroll expense.

The Company recorded the payroll grant proceeds as an offset to operating expenses in the period the funds were intended to compensate.

The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021.

In 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury (“Secured Loan”) and borrowed $ 60 million under the agreement and in conjunction therewith, issued warrants to purchase shares of the Company’s common stock.

During 2021, the Company repaid all amounts outstanding under the secured loan with Treasury, and in connection with such repayment, terminated the Secured Loan.

The following table summarizes the amounts received and warrants issued under the payroll support programs and secured loan facility (in thousands except warrant amounts):

Number of Warrants

See Note 4, "Long-Term Debt,"

for further discussion of the unsecured loans and warrants to acquire the Company’s shares issued under the CARES Act payroll support program.

The CARES Act also provides for up to $ 25 billion in secured loans to the airline industry.

In September 2020 the Company entered into a secured loan and guarantee agreement with Treasury (the “Treasury Loan Agreement”), which permits the Company to borrow up to $ 573 million.

Subsequently, on October 28, 2020, the Company entered into an amendment to the Treasury Loan Agreement that permits the Company to borrow up to $ 725 million in the aggregate.

As of December 31, 2020, the Company has borrowed $ 60 million and may, at its option, borrow additional amounts in up to two subsequent borrowings until May 28, 2021.

The proceeds are to be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Treasury Loan Agreement and the applicable provisions of the CARES Act.

The loan will bear interest at a variable rate per annum equal to the London interbank offer rate divided by one minus the Eurodollar Reserve Percentage (as defined in the Treasury Loan Agreement) plus 3.00 %.

The applicable interest rate for the $ 60 million loan will be 3.22 % per annum through September 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula.

In return, the Company agreed to issue to Treasury warrants to purchase shares of the Company’s common stock based on a debt coverage ratio and amounts drawn under the facility.

The Company issued warrants to purchase 211,416 shares of the Company’s common stock to Treasury in conjunction with the Company’s $ 60 million borrowing under the facility.

These warrants have an exercise price of $ 28.38 per share and a five-year term from the date of issuance.

for further discussion on the loans with Treasury and Note 10 “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury.

(3) Segment Reporting

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Year ended December 31, 2021

SkyWest Leasing

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items

Interest expense

Segment profit (loss) (1)

Segment profit (2)

Capital expenditures (including non-cash)

Year ended December 31, 2020

SkyWest Leasing

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items

Interest expense

2 unchanged sentences

Year ended December 31, 2019

SkyWest Leasing

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items

Interest expense

1 unchanged sentence

Capital expenditures (including non-cash)

(1) Segment profit is operating income less interest expense

(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.

(4) Long-term Debt

Long-term debt consisted of the following as of December 31, 2021 and 2020 (in thousands):

Notes payable to a financing company, due in semi-annual installments, with a fixed interest rate of 3.25 % through 2021, secured by aircraft

Notes payable to banks, due in semi-annual installments plus interest at 6.24 % to 6.51 % through 2021, secured by aircraft

Notes payable to banks, due in monthly or semi-annual installments, plus interest at 2.68 % to 6.86 % through 2029, secured by aircraft

Notes payable to banks, due in quarterly installments, plus interest at 2.33 % to 5.08 % through 2033, secured by aircraft

Notes payable to bank, due in monthly installments interest based on LIBOR plus interest spread at 2.65 % through 2021

Notes payable to US Government, interest due quarterly based on LIBOR plus interest spread currently at 3.22 % through 2025, secured by parts and engines

Notes payable to banks, due in monthly or semi-annual installments, plus interest at 2.68 % to 5.03 % through 2031, secured by aircraft

Notes payable to US Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus spread from 2025 through 2031, unsecured

Notes payable to US Government, interest due quarterly based on LIBOR plus interest spread currently at 3.22 % through 2025, secured by parts and engines

Notes payable to bank, due in monthly installments interest based on LIBOR plus interest spread at 2.65 % through 2021

Notes payable to banks, due in semi-annual installments plus interest at 6.24 % to 6.51 % through 2021, secured by aircraft

Notes payable to a financing company, due in semi-annual installments, with a fixed interest rate of 3.25 % through 2021, secured by aircraft

Long-term debt

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Current portion of long-term debt, net of debt issue costs

During 2020, the Company took delivery of six new E175 aircraft that the Company financed through $ 107.7 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 of 2.3 % to 3.45 % and is secured by the E175 aircraft.

During 2020, the Company took delivery of 21 used CRJ700 aircraft that the Company financed through $ 133.5 million of long-term debt.

The debt associated with the 10 of the CRJ700 aircraft has a 7.5 -year term, is due in quarterly installments with fixed annual interest rates of 3.5 % and is secured by the CRJ700 aircraft.

The debt associated with 11 of the CRJ700 aircraft has a 5-year term, is due in monthly installments with fixed annual interest rates of 4.0 % and is secured by the CRJ700 aircraft.

During 2020, in connection with the CARES Act payroll support program, the Company issued to Treasury a promissory note for an aggregate principal amount of $ 105.2 million and issued warrants to purchase 370,720 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 $ 105.2 million of long-term debt and $ 5.0 million in common stock, respectively.

These warrants have an exercise price of $ 28.38 per share and a five-year term from the date of issuance.

Additionally, during 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury which permits the Company to borrow up to $ 573 million.

Subsequently, on October 28, 2020, the Company entered into an amendment to the Treasury Loan Agreement that permits the Company to borrow up to $ 725 million in the aggregate.

As of December 31, 2020, the Company has drawn $ 60 million under the agreement and issued warrants to purchase 211,416 shares of the Company’s common stock.

The Treasury Loan Agreement is secured by aircraft engines and aircraft parts.

The Company may, at its option, borrow additional amounts in up to two subsequent borrowings until May 28, 2021.

The proceeds will be used for certain general corporate purposes and

operating expenses in accordance with the terms and conditions of the Treasury Loan Agreement and the applicable provisions of the CARES Act.

During 2021, the Company took delivery of 18 new E175 aircraft that the Company financed through $ 354.6 million of long-term debt.

The debt associated with the 18 E175 aircraft has a 5-year to 12-year term range, is due in monthly or quarterly installments with fixed annual interest rates of 2.7 % to 3.1 % and is secured by the E175 aircraft.

During 2021, in connection with the payroll support programs, the Company issued to 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.

These warrants have an exercise price of $ 28.38 per share and a five-year term from the date of issuance.

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 price of $ 57.47 per share.

In 2020, in connection with the CARES Act, the Company entered into the Secured Loan with Treasury and borrowed $ 60 million under the agreement.

During 2021, the Company repaid all amounts outstanding under the Secured Loan with 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.

Additionally, in 2021, the Company repaid $ 80.1 million of debt related to aircraft early.

As of December 31, 2021 and 2020, the Company had $ 2.94 billion and $ 3.07 billion, respectively, of long-term debt obligations primarily related to the acquisition of aircraft and certain spare engines.

The average effective interest rate on the debt related to those long-term debt obligations at December 31, 2021 and 2020, was approximately 3.8 % and 4.0 %, respectively.

During the year ended December 31, 2019, the Company used $ 30.1 million in cash to extinguish $ 30.1 million in debt early.

These payments did not result in a pre-tax gain or loss in the consolidated statements of comprehensive income (loss).

The aggregate amounts of principal maturities of long-term debt as of December 31, 2021 were as follows (in thousands):

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The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets.

As of December 31, 2020, the Company obtained waivers for the line of credit agreement that permitted the Company to receive funding under the CARES Act and waived compliance with minimum profitability covenants through June 30, 2021.

As of December 31, 2021 and 2020, SkyWest Airlines had no amount outstanding under the line of credit facility.

However, at December 31, 2021 and 2020, the Company had $ 31.4 million and $ 35.5 million, respectively, in letters of credit issued under the facility which reduced the amount available under the facility to $ 43.6 million and $ 39.5 million, respectively.

The facility expires on September 1, 2021 and has a variable interest rate of LIBOR plus 2.5 % at December 31, 2020.

As of December 31, 2020 and 2019, the Company had $ 61.1 million and $ 61.7 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions in addition to the letters of credit outstanding under the line of credit.

During the year ended December 31, 2021, the Company extended the expiration date of the line of credit to March 31, 2022.

The facility has a variable interest rate of LIBOR plus 2.5 % at December 31, 2021.

As of December 31, 2021 and 2020, the Company had $ 61.4 million and $ 61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

(5) Income Taxes

3 unchanged sentences

Deferred tax provision (benefit):

Provision (benefit) for income taxes

Provision for income taxes

The following is a reconciliation between a federal income tax rate of 21 % and the effective tax rate which is derived by dividing the provision for income taxes by the income (loss) before the provision for income taxes (in thousands):

Year ended December 31,

Computed provision for income taxes at the statutory rate

Computed provision (benefit) for income taxes at the statutory rate

Increase (decrease) in income taxes resulting from:

2 unchanged sentences

Valuation allowance changes affecting the provision for income taxes

Foreign income taxes, net of federal & state benefit

Excess tax benefits from share-based compensation

2 unchanged sentences

For the year ended December 31, 2019, the Company released $ 0.5 million of valuation allowance against certain deferred tax assets primarily associated with ExpressJet state net operating losses.

For the year ended December 31, 2018, the Company released $ 1.2 million valuation allowance, respectively against certain deferred tax assets primarily associated with ExpressJet state net operating losses with a limited carry forward period and Company capital losses with a limited carry forward period.

The decrease in the valuation allowance for 2020 was primarily based on changes in the Company's income tax projections which reduced the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

5 unchanged sentences

Net operating loss carryforward

AMT credit carryforward

Aircraft credits

Deferred revenue

Operating lease liabilities

Accrued reserves and other

3 unchanged sentences

Accelerated depreciation

( 1,032,957 )

Operating lease right-of-use assets

Total deferred tax liabilities

4 unchanged sentences

The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2021, was 21.0 % and 3.45 %, respectively.

The Company anticipated that the federal and state net operating losses will start to expire in 2036 and 2021, respectively.

As of December 31, 2019, the Company also had an alternative minimum tax credit of approximately $ 4.4 million, which did not expire.

Under the CARES Act of 2020, these credits were realized by claiming a refundable credit during 2020.

The Company anticipates that the federal and state net operating losses will start to expire in 2036 and 2022, respectively.

The Company has no ongoing federal or state examinations.

Federal tax years 2018, 2019 and 2020 are open to examination.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

13 unchanged sentences

The Company uses judgment and estimates in determining the ultimate aggregate liabilities for claims incurred in its workers’ compensation liability.

The Company also used significant assumptions in determining the workers compensation liability such as an estimation of loss payment and loss reporting development patterns.

At December 31, 2020 and 2019, the Company’s accrued workers’ compensation liability totaled $ 20.7 million and $ 23.9 million, respectively.

The Company also used assumptions in determining the workers compensation liability such as an estimation of loss payment and loss reporting development patterns.

At December 31, 2021 and 2020, the Company’s accrued workers’ compensation liability totaled $ 17.5 million and $ 20.7 million, respectively, of which $ 7.1 million and $ 8.6 million, respectively, was short-term and included in other current liabilities.

Actual results could differ from these estimates.

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Employees Under Collective Bargaining Agreements

As of December 31, 2020, the Company had approximately 12,502 full- time equivalent employees.

As of December 31, 2021, the Company had approximately 15,205 employees.

Although no SkyWest Airlines employees are represented by a national union, certain SkyWest Airline employees are covered under a stable and binding collective bargaining agreement that is administered by employee representatives.

Aircraft Purchase Commitments

As of December 31, 2020, the Company had a purchase commitment to purchase 20 new E175 aircraft in late 2021 and early 2022.

Subsequent to December 31, 2020, the Company entered into a purchase commitment to purchase 12 used CRJ700 aircraft in 2021.

As of December 31, 2021, the Company had a purchase commitment to purchase 29 new E175 aircraft in 2022 and 2023.

Effective January 1, 2019, the Company adopted Topic 842.

2 unchanged sentences

The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

As of December 31, 2020, excluding aircraft financed by our major partners that we operate for them under contract, the Company had 41 aircraft under long-term lease agreements with remaining terms ranging from less than one year to ten years .

As of December 31, 2021, excluding aircraft financed by our major airline partners that we operate for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from two years to nine years .

With the adoption of Topic 842, the Company evaluated whether leased aircraft asset groups within the Company’s fleet were impaired.

5 unchanged sentences

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 airport.

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 .

4 unchanged sentences

As of December 31, 2021

Weighted-average remaining lease term

Operating leases

Weighted-average discount rate

Operating leases

Weighted-average remaining lease term for operating leases

Weighted-average discount rate for operating leases

The Company’s lease costs for 2021 and 2020 included the following components (in thousands):

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Commercial paper

Cash, Cash Equivalents and Restricted Cash

Cash and Cash Equivalents

Total Assets Measured at Fair Value

3 unchanged sentences

Commercial paper

Cash, Cash Equivalents and Restricted Cash

Cash and Cash Equivalents

Total Assets Measured at Fair Value

The Company’s “Marketable Securities” classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities.

No significant transfers between Level 1, Level 2 and Level 3 occurred during the year ended December 31, 2020.

The Company did no t make any significant transfers of securities between Level 1, Level 2 and Level 3 during the year ended December 31, 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.

(9) Special Items

The following table summarizes the components of the Company's special items, for the year ended December 31, 2020, 2019 and 2018 (in thousands):

During 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.

In 2021, SkyWest Airlines only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta.

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 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.

During 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 3, “Segment Reporting.”

The following table summarizes the components of the Company's special items, for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Year ended December 31,

Special items:

CRJ900 Impairment Charge 1

Parts Credit 2

1 unchanged sentence

Total special items

(1) Consists of the impairment charges to write-down CRJ900 aircraft in 2021 to their estimated fair value as discussed above.

(2) The Company terminated an agreement with an aircraft manufacturer that obligated the Company to future aircraft lease return conditions on aircraft the Company leased.

In conjunction with the terminated agreement, the aircraft manufacturer released the Company from the future aircraft lease return obligations and the Company agreed to terminate aircraft part credits previously issued by the manufacturer to the Company.

In conjunction with the terminated agreement, the aircraft manufacturer released the Company from the future aircraft lease return obligations and the Company agreed to

terminate aircraft part credits previously issued by the manufacturer to the Company.

As a result of the terminated agreement, the Company recorded a non-cash expense of $ 18.5 million (pre-tax) during 2019 to write-off the terminated aircraft part credits, which was reflected as a special items operating expense in the consolidated statement of comprehensive income.

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During the year ended December 31, 2021, the Compensation Committee granted performance share units, which are performance-based restricted stock units, to certain Company employees.

The PSUs are based on cumulative three-year performance-based metrics ending December 31, 2022 that the Company must meet before those awards may be measured and earned.

The PSUs 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 two one-year measurement periods against the pre-established targets.

The Company’s compensation expense for performance share units is based upon the projected number of performance share units estimated to be awarded at the conclusion of the performance period.

During 2020, the Compensation Committee awarded 83,042 additional shares of stock related to the performance share grant in 2017 based on the Company’s performance for the three years ended December 31, 2019 measured against the pre-established targets for the same period.

During 2021, the Compensation Committee awarded 80 % of the shares related to the performance share grant in 2018 based on the Company’s performance for the three years ended December 31, 2020, measured against the pre-established targets for the same period.

This resulted in the forfeiture of 11,392 PSUs in 2021 from target related to the 2018 PSU grant.

The Compensation Committee will determine the achievement of performance results and corresponding vesting of performance shares for each year’s grant in 2019, 2020 and 2021 following the conclusion of the respective performance period.

At the end of each performance period, the number of shares awarded can range from 0 % to 200 % of the original granted amount for performance share units granted in 2020, 2019 and 2018.

At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original granted amount for performance share units granted in 2021 and 0 % to 200 % for performance share units granted in 2020 and 2019.

The following table summarizes the activity of performance share units granted at target as of December 31, 2021:

Weighted-Average

Grant-Date Fair

Number of PSUs

4 unchanged sentences

Non-vested PSUs outstanding at December 31, 2020

Additional PSUs awarded from the 2017 grant

PSUs forfeited from the 2018 grant

Non-vested PSUs outstanding at December 31, 2021

1 unchanged sentence

During the year ended December 31, 2021, 2020 and 2019, the Company recorded equity-based compensation expense of $ 8.7 million, $ 6.8 million and $ 10.3 million, respectively.

Additionally, the Company incurred $ 7.9 million of employee severance related costs associated with the sale of ExpressJet, partially offset by a forfeiture credit of $ 4.5 million, primarily resulting from stock-based compensation awards that terminated upon the sale of ExpressJet during 2019.

Additionally, in 2019, the Company incurred $ 7.9 million of employee severance related costs associated with the sale of ExpressJet, partially offset by a forfeiture credit of $ 4.5 million, primarily resulting from stock-based compensation awards that terminated upon the sale of ExpressJet during 2019.

As of December 31, 2021, the Company had $ 16.5 million of total unrecognized compensation cost related to non-vested restricted stock grants and non-vested performance stock units.

2 unchanged sentences

The Company’s treatment of stock option grants of non-qualified options, restricted stock units and performance shares results in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised or the restrictions lapse.

During the year ended December 31, 2021, the Company issued to Treasury warrants to purchase 203,090 shares of the Company’s common stock as part of the PSP E xtension Agreement and the PSP 3 Agreement.

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 price of $ 57.47 per share.

The weighted average fair value of these warrants was estimated at $ 32.52 and $ 22.31 per share for the 124,773 and 78,317 warrants, respectively, using the Black-Scholes option pricing model.

During the year ended December 31, 2020, the Company issued to Treasury warrants to purchase 370,720 shares of the Company’s common stock as part of the CARES Act payroll support.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The fair value of the warrants issued to Treasury was estimated as of the grant date using the Black-Scholes option pricing model.

The fair value of the warrants issued to

Treasury was estimated as of the grant date using the Black-Scholes option pricing model.

The Company estimated a weighted average fair value of the warrants issued to Treasury at $ 13.57 per share.

Additionally, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $ 60 million borrowing under the CARES Act Secured Loan facility.

warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

Additionally, in 2020, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $ 60 million borrowing under the CARES Act Secured Loan facility.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The weighted average fair value of these warrants was estimated at $ 15.22 per share using the Black-Scholes option pricing model.

25 unchanged sentences

The Company’s stock repurchase program authorizes the repurchase of up to $ 250.0 million of the Company’s common stock commencing on February 5, 2019, of which $ 139.6 million remained available at December 31, 2021.

Under the terms of the Treasury Loan Agreement, the Company is restricted from repurchasing shares of its common stock for a twelve-month period following repayment of the loan in full.

During the years ended December 31, 2020, 2019 and 2018, the Company repurchased 0.4 million, 1.7 million and 1.0 million shares of common stock for approximately $ 20.0 million, $ 94.6 million and $ 54.4 million, respectively at a weighted average price per share of $ 51.87 , $ 56.86 and $ 56.25 , respectively.

During the years ended December 31, 2020 and 2019, the Company purchased as treasury shares or purchased and cancelled 0.4 million and 1.7 million shares of common stock for approximately $ 20.0 million and $ 94.6 million, respectively at a weighted average price per share of $ 51.87 and $ 56.86 , respectively.

The company did not repurchase any shares of its common stock during 2021.

Under the terms of the PSP 3 Agreement, the Company is restricted from repurchasing shares of its common stock through September 30, 2022.

Additionally, during the year ended December 31, 2021, 2020 and 2019, the Company paid $ 1.6 million, $ 6.2 million and $ 9.3 million, respectively, for a net settlement of the income tax obligation on employee equity awards that vested during the applicable periods.

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(“Aero Engines”).

The Company invested an additional $ 1.0 million into Aero Engines in 2020.

The primary purpose of Aero Engines is to lease engines to third parties.

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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 purchased 15 spare engines and sold the 15 spare engines to Aero Engines at net book value during 2019.

Since the initial investment, the Company has invested an additional $ 1.0 million into Aero Engines during 2020.

The Company purchased 15 spare engines and sold the 15 spare engines to Aero Engines at net book value.

Aero Engines had no debt outstanding as of December 31, 2021.

1 unchanged sentence

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 income generated by Aero Engines for 2020 was $ 1.6 million.

(16) Subsequent Events

On January 15, 2021, SkyWest Airlines entered into a Payroll Support Program Extension Agreement (the “PSP Extension Agreement”) with Treasury with respect to a payroll grant program under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”).

Payroll Support Program Extension Agreement

Pursuant to the PSP Extension Agreement, SkyWest Airlines expects to receive from Treasury approximately $ 233.1 million in the aggregate during the first quarter of 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 CARES 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 Payroll Support Program under the CARES Act, SkyWest Airlines and, in some cases, the Company will also be subject to certain restrictions, including, but not limited to, limitations on involuntary terminations, salary reductions and furloughs through March 31, 2021, restrictions on the payment of dividends and the repurchase of shares through October 1, 2022, and certain limitations on executive compensation.

SkyWest Airlines is also required to recall employees involuntarily terminated or furloughed after September 30, 2020 with pay from December 1, 2020 to March 31, 2021.

Promissory Note

As partial compensation to Treasury for the provision of financial assistance under the PSP Extension Agreement, SkyWest Airlines issued, and the Company guaranteed, a promissory note (the “Promissory Note”) to Treasury on the Closing Date.

The Promissory Note provides for SkyWest Airlines’ unconditional promise to pay to Treasury the expected principal sum of up to approximately $ 39.9 million.

The Promissory Note will bear interest at a rate equal to 1.00 % per annum until the fifth anniversary of the Closing Date, and 2.00 % plus an interest rate based on the secured overnight financing rate per annum (but not less than 0.00 %) thereafter until the tenth anniversary of the Closing Date (the “Maturity Date”).

Accrued interest will be payable in arrears on the last business day of each of March and September of each year, beginning with March 31, 2021.

The aggregate unpaid principal amount of the Promissory Note, all accrued and unpaid interest and all other amounts payable under the Promissory Note will be due and payable on the Maturity Date.

Warrant Agreement and Warrants

In connection with the PSP Extension Agreement and as partial compensation to Treasury for the provision of financial assistance under the PSP Extension Agreement, the Company will issue warrants (each a “Warrant” and, collectively, the “Warrants”) to Treasury to purchase up to an expected aggregate of 98,815 shares (the “Warrant Shares”) of the Company’s common stock, at an exercise price of $ 40.41 per share, which was the closing price of the Common Stock on The Nasdaq Stock Market on December 24, 2020.

The Warrants will be issued pursuant to the terms of a Warrant Agreement entered into by the Company and Treasury on January 15, 2021.

The number of Warrant Shares to be issued is subject to adjustment as a result of certain anti-dilution provisions contained in the Warrants.

Treasury Loan Agreement Borrowing Extension

On January 15, 2021, SkyWest Airlines and the Company entered into an additional amendment to the Loan Agreement with Treasury to provide that the deadline pursuant to which SkyWest Airlines may, at its discretion, borrow additional amounts under the facility was extended from March 26, 2021 to May 28, 2021.

The other terms of the Loan Agreement were not affected.

(17) Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for 2020 and 2019 is as follows (in thousands, except per share data):

Year ended December 31, 2020

Operating revenues

Operating income

Net income per common share:

Weighted average common shares:

Year ended December 31, 2019

Operating revenues

Operating income

Net income (1)

Net income per common share:

Weighted average common shares:

(1) Net income for the first quarter of 2019 included a $ 46.5 million gain related to the sale of ExpressJet (see Note 14 Gain on Sale of ExpressJet for more details) and a $ 21.9 million special charge (see Note 9 Special Items for more details).

The Company’s portion of the loss generated by Aero Engines for the year ended December 31, 2021, was $ 5.3 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 engine overhaul costs that were expensed during the year ended December 31, 2021.

In 2021, the Company entered into a strategic partnership with Eve UAM, LLC (“Eve”), to develop a network of deployment for Eve’s electric vertical takeoff and landing (“eVTOL”) aircraft.

The Company signed a non-binding letter

of intent to purchase 100 eVTOL aircraft.

As part of the partnership, the Company anticipates it will acquire an equity interest in Eve in 2022, upon completion of certain events by Eve.

As of December 31, 2021, no monetary transactions have occurred.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data