SKYWEST INC 10-Q

Item 1. Financial Statements ​ SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) ​ ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2022 2021 ​ ​ (unaudited) ​ ​ ​ CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 38,850 ​ $ 258,421 Marketable securities ​ 965,347 ​ 601,989 Receivables, net ​ 72,836 ​ 65,348 Inventories, net ​ 118,728 ​ 104,093 Other current assets ​ 66,428 ​ 38,742 Total current assets ​ 1,262,189 ​ 1,068,593 ​ ​ ​ ​ ​ ​ ​ PROPERTY AND EQUIPMENT: ​ ​ ​ ​ ​ ​ Aircraft and rotable spares ​ 8,262,736 ​ 7,848,100 Deposits on aircraft ​ 47,229 ​ 124,964 Buildings and ground equipment ​ 262,466 ​ 256,595 Total property and equipment, gross ​ 8,572,431 ​ 8,229,659 Less-accumulated depreciation and amortization ​ ( 2,933,660 ) ​ ( 2,731,060 ) Total property and equipment, net ​ 5,638,771 ​ 5,498,599 ​ ​ ​ ​ ​ ​ ​ OTHER ASSETS: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ 192,709 ​ ​ 238,516 Long-term receivables and other assets ​ 360,535 ​ 320,239 Total other assets ​ 553,244 ​ 558,755 Total assets ​ $ 7,454,204 ​ $ 7,125,947 ​ See accompanying notes to condensed consolidated financial statements. ​ 3 Table of Contents ​ SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ 2022 2021 ​ (unaudited) ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ ​ ​ Current maturities of long-term debt $ 429,425 ​ $ 391,798 Accounts payable 381,400 ​ 496,333 Accrued salaries, wages and benefits 195,082 ​ 150,583 Current maturities of operating lease liabilities 74,141 ​ 78,886 Taxes other than income taxes 36,213 ​ 28,869 Other current liabilities 43,634 ​ 48,152 Total current liabilities 1,159,895 ​ 1,194,621 ​ ​ ​ ​ ​ ​ LONG-TERM DEBT, net of current maturities 2,982,034 ​ 2,717,420 ​ ​ ​ ​ ​ ​ DEFERRED INCOME TAXES PAYABLE 683,828 ​ 663,236 ​ ​ ​ ​ ​ ​ NONCURRENT OPERATING LEASE LIABILITIES 117,823 ​ 158,274 ​ ​ ​ ​ ​ ​ OTHER LONG-TERM LIABILITIES 114,676 ​ 124,882 ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY: ​ ​ ​ ​ ​ Preferred stock, 5,000,000 shares authorized; none issued — ​ — Common stock, no par value, 120,000,000 shares authorized; 82,591,558 and 82,335,970 shares issued as of September 30, 2022, and December 31, 2021, respectively 736,406 ​ 722,310 Retained earnings 2,283,973 ​ 2,163,916 Treasury stock, at cost, 31,994,416 and 31,956,047 shares as of September 30, 2022, and December 31, 2021, respectively ( 619,862 ) ​ ( 618,712 ) Accumulated other comprehensive loss ​ ( 4,569 ) ​ ​ — Total stockholders’ equity 2,395,948 ​ 2,267,514 Total liabilities and stockholders’ equity $ 7,454,204 ​ $ 7,125,947 ​ See accompanying notes to condensed consolidated financial statements. ​ 4 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Dollars and Shares in Thousands, Except per Share Amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2022 2021 2022 2021 OPERATING REVENUES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Flying agreements ​ $ 763,514 ​ $ 719,084 ​ $ 2,245,351 ​ $ 1,863,242 ​ Lease, airport services and other ​ 25,929 ​ 25,699 ​ 78,329 ​ 73,086 ​ Total operating revenues ​ 789,443 ​ 744,783 ​ 2,323,680 ​ 1,936,328 ​ OPERATING EXPENSES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries, wages and benefits ​ 307,727 ​ 265,603 ​ 896,347 ​ 718,868 ​ Aircraft maintenance, materials and repairs ​ 183,182 ​ 209,795 ​ 506,478 ​ 604,501 ​ Depreciation and amortization ​ 97,433 ​ 109,597 ​ 297,427 ​ 329,089 ​ Aircraft fuel ​ 28,179 ​ 32,561 ​ 85,089 ​ 77,622 ​ Airport-related expenses ​ 17,501 ​ 25,992 ​ 54,196 ​ 72,478 ​ Aircraft rentals ​ 16,089 ​ 16,098 ​ 48,109 ​ 47,311 ​ Special items - impairment charges ​ ​ — ​ ​ 84,592 ​ ​ — ​ ​ 84,592 ​ Payroll support grant ​ ​ — ​ ​ ( 115,352 ) ​ ​ — ​ ​ ( 422,669 ) ​ Other operating expenses ​ 63,756 ​ 68,847 ​ 219,808 ​ 181,621 ​ Total operating expenses ​ 713,867 ​ 697,733 ​ 2,107,454 ​ 1,693,413 ​ OPERATING INCOME ​ 75,576 ​ 47,050 ​ 216,226 ​ 242,915 ​ OTHER INCOME (EXPENSE): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 6,348 ​ 238 ​ 9,332 ​ 732 ​ Interest expense ​ ( 33,283 ) ​ ( 28,980 ) ​ ( 92,308 ) ​ ( 94,274 ) ​ Other income (expense), net ​ 8,112 ​ ( 4,098 ) ​ 21,011 ​ ( 3,802 ) ​ Total other expense, net ​ ( 18,823 ) ​ ( 32,840 ) ​ ( 61,965 ) ​ ( 97,344 ) ​ INCOME BEFORE INCOME TAXES ​ 56,753 ​ 14,210 ​ 154,261 ​ 145,571 ​ PROVISION FOR INCOME TAXES ​ 8,381 ​ 4,526 ​ 34,204 ​ 37,993 ​ NET INCOME ​ $ 48,372 ​ $ 9,684 ​ $ 120,057 ​ $ 107,578 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BASIC EARNINGS PER SHARE ​ $ 0.96 ​ $ 0.19 ​ $ 2.38 ​ $ 2.14 ​ DILUTED EARNINGS PER SHARE ​ $ 0.96 ​ $ 0.19 ​ $ 2.37 ​ $ 2.12 ​ Weighted average common shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 50,593 ​ 50,380 ​ 50,531 ​ 50,337 ​ Diluted ​ 50,636 ​ 50,725 ​ 50,636 ​ 50,726 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMPREHENSIVE INCOME: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 48,372 ​ $ 9,684 ​ $ 120,057 ​ $ 107,578 ​ Net unrealized depreciation on marketable securities, net of taxes ​ ( 2,624 ) ​ — ​ ( 4,569 ) ​ — ​ TOTAL COMPREHENSIVE INCOME ​ $ 45,748 ​ $ 9,684 ​ $ 115,488 ​ $ 107,578 ​ ​ See accompanying notes to condensed consolidated financial statements ​ 5 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ Common Stock ​ Retained ​ Treasury Stock ​ Comprehensive ​ ​ ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Loss ​ ​ Total Balance at December 31, 2021 82,336 ​ $ 722,310 ​ $ 2,163,916 ( 31,956 ) ​ $ ( 618,712 ) ​ $ — ​ ​ $ 2,267,514 Net income — ​ — ​ 17,734 — ​ — ​ — ​ ​ 17,734 Exercise of common stock options and vested employee stock awards 139 ​ ​ 27 ​ — — ​ — ​ — ​ ​ 27 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 37 ) ​ ​ ( 1,123 ) ​ ​ — ​ ​ ​ ( 1,123 ) Sale of common stock under employee stock purchase plan 40 ​ ​ 1,487 ​ — — ​ — ​ — ​ ​ 1,487 Stock based compensation expense ​ — ​ ​ 4,076 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ​ 4,076 Balance at March 31, 2022 82,515 ​ $ 727,900 ​ $ 2,181,650 ( 31,993 ) ​ $ ( 619,835 ) ​ $ — ​ ​ $ 2,289,715 Net income — ​ — ​ 53,951 — ​ — ​ — ​ ​ ​ 53,951 Stock based compensation expense — ​ 3,310 ​ — — ​ — ​ — ​ ​ ​ 3,310 Net unrealized depreciation on marketable securities, net of tax of $ 628 ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 1,945 ) ​ ​ ​ ( 1,945 ) Balance at June 30, 2022 82,515 ​ $ 731,210 ​ $ 2,235,601 ( 31,993 ) ​ $ ( 619,835 ) ​ $ ( 1,945 ) ​ ​ $ 2,345,031 Net income — ​ — ​ 48,372 — ​ — ​ — ​ ​ ​ 48,372 Exercise of common stock options and vested employee stock awards 11 ​ ​ 115 ​ — — ​ — ​ — ​ ​ 115 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 1 ) ​ ​ ( 27 ) ​ ​ — ​ ​ ​ ( 27 ) Sale of common stock under employee stock purchase plan 66 ​ ​ 1,329 ​ — — ​ — ​ — ​ ​ 1,329 Stock based compensation expense — ​ 3,752 ​ — — ​ — ​ — ​ ​ ​ 3,752 Net unrealized depreciation on marketable securities, net of tax of $ 843 ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,624 ) ​ ​ ​ ( 2,624 ) Balance at September 30, 2022 82,592 ​ $ 736,406 ​ $ 2,283,973 ( 31,994 ) ​ $ ( 619,862 ) ​ $ ( 4,569 ) ​ ​ $ 2,395,948 ​ See accompanying notes to condensed consolidated financial statements. ​ 6 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Retained ​ Treasury Stock ​ ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Total Balance at December 31, 2020 82,095 ​ $ 704,675 ​ $ 2,052,006 ( 31,914 ) ​ $ ( 617,136 ) ​ $ 2,139,545 Net income — ​ — ​ 35,900 — ​ — ​ 35,900 Exercise of common stock options and vested employee stock awards 177 ​ ​ 606 ​ — — ​ — ​ 606 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 42 ) ​ ​ ( 1,573 ) ​ ​ ( 1,573 ) Sale of common stock under employee stock purchase plan 30 ​ ​ 1,139 ​ — — ​ — ​ 1,139 Stock based compensation expense ​ — ​ ​ 2,613 ​ ​ — ​ — ​ ​ — ​ ​ 2,613 Warrants issued to U.S. Treasury — ​ 3,291 ​ — — ​ — ​ 3,291 Balance at March 31, 2021 82,302 ​ $ 712,324 ​ $ 2,087,906 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,181,521 Net income — ​ — ​ 61,994 — ​ — ​ ​ 61,994 Stock based compensation expense — ​ 2,877 ​ — — ​ — ​ ​ 2,877 Warrants issued to U.S. Treasury — ​ 2,513 ​ — — ​ — ​ 2,513 Balance at June 30, 2021 82,302 ​ $ 717,714 ​ $ 2,149,900 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,248,905 Net income — ​ — ​ 9,684 — ​ — ​ ​ 9,684 Sale of common stock under employee stock purchase plan 34 ​ ​ 1,401 ​ — — ​ — ​ 1,401 Stock based compensation expense — ​ 1,817 ​ — — ​ — ​ ​ 1,817 Balance at September 30, 2021 82,336 ​ $ 720,932 ​ $ 2,159,584 ( 31,956 ) ​ $ ( 618,709 ) ​ $ 2,261,807 ​ See accompanying notes to condensed consolidated financial statements. ​ ​ ​ 7 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended ​ ​ September 30, ​ 2022 2021 NET CASH PROVIDED BY OPERATING ACTIVITIES ​ $ 343,535 ​ $ 686,955 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ( 1,758,125 ) ​ ( 1,071,637 ) Sales of marketable securities ​ 1,390,198 ​ 1,041,149 Acquisition of property and equipment: ​ ​ ​ ​ ​ ​ Aircraft and rotable spare parts ​ ( 522,683 ) ​ ( 223,605 ) Buildings and ground equipment ​ ( 11,365 ) ​ ( 10,473 ) Proceeds from the sale of property and equipment ​ 8,494 ​ 7,104 Deposits on aircraft ​ ​ ( 37,100 ) ​ ​ ( 100,105 ) Aircraft deposits applied towards acquired aircraft ​ ​ 115,085 ​ ​ 10,987 Increase in other assets ​ ( 49,073 ) ​ ( 50,205 ) NET CASH USED IN INVESTING ACTIVITIES ​ ( 864,569 ) ​ ( 396,785 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ Proceeds from issuance of long-term debt ​ 601,389 ​ 213,326 Principal payments on long-term debt ​ ( 299,785 ) ​ ( 448,466 ) Net proceeds from issuance of common stock ​ 2,958 ​ 3,146 Employee income tax paid on vested equity awards ​ ​ ( 1,150 ) ​ ​ ( 1,573 ) Payment of debt issuance cost ​ ​ ( 1,949 ) ​ ​ ( 495 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ​ 301,463 ​ ( 234,062 ) ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in cash and cash equivalents ​ ( 219,571 ) ​ 56,108 Cash and cash equivalents at beginning of period ​ 258,421 ​ 215,723 CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 38,850 ​ $ 271,831 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ $ 15,801 ​ $ 13,168 Warrants issued to U.S. Treasury ​ $ — ​ $ 5,804 Cash paid during the period for: ​ ​ ​ ​ ​ ​ Interest, net of capitalized amounts ​ $ 92,230 ​ $ 96,397 Income taxes ​ $ 356 ​ $ 6,374 ​ See accompanying notes to condensed consolidated financial statements. ​ 8 Table of Contents SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ​ ( 1) Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. (2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the nine months ended September 30, 2022 and 2021, capacity purchase agreements represented approximately 88.0 % and 83.9 % of the Company’s flying agreements revenue, respectively. Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met, and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the nine months ended September 30, 2022 and 2021, prorate flying agreements represented approximately 12.0 % and 16.1 % of the Company’s flying agreements revenue, respectively. 9 Table of Contents The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2022 2021 ​ 2022 2021 Capacity purchase agreements revenue: flight operations ​ $ 376,596 ​ $ 308,273 ​ $ 1,112,526 ​ $ 792,501 Capacity purchase agreements revenue: aircraft lease and fixed revenue ​ 292,174 ​ 282,498 ​ 864,178 ​ 770,548 Prorate agreements revenue ​ 94,744 ​ 128,313 ​ 268,647 ​ 300,193 Flying agreements revenue ​ $ 763,514 ​ $ 719,084 ​ $ 2,245,351 ​ $ 1,863,242 ​ A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided. Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per month per aircraft over the contract term. The Company recognizes revenue attributed to the fixed monthly payments proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of 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. Based on the number of completed block hours during the nine months ended September 30, 2022, the Company recognized $ 25.8 million of previously deferred revenue and $ 14.4 million of unbilled revenue, compared to deferring revenue of $ 7.7 million during the nine months ended September 30, 2021. The Company’s deferred revenue balance was $ 78.1 million as of September 30, 2022, including $ 1.7 million in other current liabilities and $ 76.4 million in other long-term liabilities. The Company’s deferred revenue balance was $ 103.9 million as of December 31, 2021, including $ 24.5 million in other current liabilities and $ 79.4 million in other long-term liabilities. The Company’s unbilled revenue balance was $ 22.8 million as of September 30, 2022, including $ 13.2 million in other current assets and $ 9.6 million in other long-term assets. The Company’s unbilled revenue balance was $ 8.4 million as of December 31, 2021, and was included in other long-term assets. 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. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis. As of September 30, 2022, the Company had 530 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner: ​ 10 Table of Contents ​ ​ ​ ​ ​ ​ ​ United Express Agreements Agreement Aircraft type Number of Aircraft Term / Termination Dates United Express Agreements (Capacity purchase agreement) ​ • E175 • CRJ 700 • CRJ 200 ​ 90 19 70 ​ • Individual aircraft have scheduled removal dates from 2024 to 2029 United Express Prorate Agreement (Prorate agreement) ​ • CRJ 200 ​ 41 ​ • Terminable with 120-day notice Total under United Express Agreements ​ ​ ​ 220 ​ ​ ​ Delta Connection Agreements Agreement Aircraft type Number of Aircraft Term / Termination Dates Delta Connection Agreement (Capacity purchase agreement) ​ • E175 • CRJ 900 • CRJ 700 • CRJ 200 ​ ​ 80 44 5 9 ​ • Individual aircraft have scheduled removal dates from 2022 to 2032 Delta Connection Prorate Agreement (Prorate agreement) ​ • CRJ 200 ​ 20 ​ • Terminable with 30-day notice Total under Delta Connection Agreements ​ ​ ​ 158 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ American Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates American Agreement (Capacity purchase agreement) ​ • E175 • CRJ 700 ​ 20 90 ​ • Individual aircraft have scheduled removal dates from 2022 to 2032 Total under American Agreement ​ ​ ​ 110 ​ ​ ​ ​ Alaska Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates Alaska Agreement (Capacity purchase agreement) ​ • E175 ​ 42 ​ • Individual aircraft have scheduled removal dates from 2030 to 2034 ​ In addition to the contractual arrangements described above, as of September 30, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place seven additional Embraer E175 regional jet aircraft (“E175”) into service, with delivery dates currently scheduled for the fourth quarter of 2022 through 2024. SkyWest Airlines has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service, with a delivery date currently scheduled for 2025. SkyWest Airlines also has an agreement with American to place 11 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement in 2023. 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 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 three and nine months ended September 30, 2022 and 2021 (in thousands): 11 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2022 2021 ​ 2022 2021 Operating lease revenue ​ $ 15,928 ​ $ 17,746 ​ $ 48,933 ​ $ 49,154 Airport customer service and other revenue ​ ​ 10,001 ​ ​ 7,953 ​ ​ 29,396 ​ ​ 23,932 Lease, airport services and other ​ $ 25,929 ​ $ 25,699 ​ $ 78,329 ​ $ 73,086 ​ The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2022 (in thousands): ​ ​ ​ ​ October 2022 through December 2022 $ 11,918 2023 ​ 47,303 2024 ​ 45,279 2025 ​ 40,317 2026 ​ 34,758 Thereafter ​ 121,524 ​ ​ $ 301,099 ​ Of the Company’s $ 5.6 billion of property and equipment, net, as of September 30, 2022, $ 234.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases. The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases. The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term. The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners. Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements. Allowance for credit losses The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of September 30, 2022, the Company had gross receivables of $ 94.2 million in current assets and gross receivables of $ 227.6 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the nine months ended September 30, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities. The Company’s credit loss reserve was $ 38.0 million at September 30, 2022, compared to $ 42.0 million at December 31, 2021. The $ 4.0 million decrease in the credit loss reserve for the nine months ended September 30, 2022, was reflected as a decrease to the credit loss expense. (3) Stock-Based Compensation During the nine months ended September 30, 2022, the Company granted 66,680 restricted stock units and 225,345 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 2022 grants can range from 0 % to 250 % of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share 12 Table of Contents will be replaced with one share of common stock. The weighted average fair value of these restricted stock units and performance shares on their date of grant was $ 32.76 per share . During the nine months ended September 30, 2022, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the nine months ended September 30, 2022, the Company granted 24,423 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 32.86 . The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the nine months ended September 30, 2022 and 2021, the Company recorded pre-tax stock-based compensation expense of $ 11.1 million and $ 7.3 million, respectively. (4) Net Income Per Common Share Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share. Securities that could potentially dilute Basic EPS in the future, and which were excluded from the calculation of Diluted EPS because inclusion of such share would be anti-dilutive, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2022 ​ 2021 2022 ​ 2021 PSP1 and Treasury Loan Warrants (1) ​ ​ 582 ​ ​ — ​ ​ 388 ​ ​ — PSP2 Warrants (2) ​ ​ 125 ​ ​ — ​ ​ 125 ​ ​ — PSP3 Warrants (3) ​ ​ 78 ​ ​ 78 ​ ​ 78 ​ ​ 78 Employee Stock Awards ​ ​ 308 ​ ​ — ​ ​ 124 ​ ​ — Total antidilutive securities ​ 1,093 ​ 78 ​ 715 ​ 78 ​ (1) Pursuant to the payroll support program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”) and Loan and Guarantee Agreement with the U.S. Department of the Treasury (“U.S. Treasury”), SkyWest issued to Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 28.38 per share. (2) Pursuant to the payroll support program established under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) (“PSP2”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 40.41 per share. (3) Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) (“PSP3”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 57.47 per share. Additionally, during the nine months ended September 30, 2022, 334,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2022. During the nine months ended September 30, 2021, 230,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2021. 13 Table of Contents The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2022 ​ 2021 2022 ​ 2021 Numerator: ​ ​ ​ ​ ​ Net income ​ $ 48,372 ​ $ 9,684 ​ $ 120,057 ​ $ 107,578 Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share weighted average shares ​ 50,593 ​ 50,380 ​ 50,531 ​ 50,337 Dilutive effect of employee stock awards and warrants ​ 43 ​ 345 ​ 105 ​ 389 Diluted earnings per share weighted average shares ​ 50,636 ​ 50,725 ​ 50,636 ​ 50,726 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 0.96 ​ $ 0.19 ​ $ 2.38 ​ $ 2.14 Diluted earnings per share ​ $ 0.96 ​ $ 0.19 ​ $ 2.37 ​ $ 2.12 ​ ​ (5) Segment Reporting The Company’s two reporting segments consist of the operations of SkyWest Airlines and SkyWest Leasing activities. The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties and other activities. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties. The following represents the Company’s segment data for the three-month periods ended September 30, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2022 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 651,494 ​ $ 137,949 ​ $ 789,443 Operating expense ​ 649,466 ​ 64,401 ​ 713,867 Depreciation and amortization expense ​ 43,787 ​ 53,646 ​ 97,433 Interest expense ​ 4,067 ​ 29,216 ​ 33,283 Segment profit (loss) (2) ​ ( 2,039 ) ​ 44,332 ​ 42,293 Total assets (as of September 30, 2022) ​ 2,973,223 ​ 4,480,981 ​ 7,454,204 Capital expenditures (including non-cash) ​ 12,419 ​ 208,667 ​ 221,086 ​ 14 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 614,377 ​ $ 130,406 ​ $ 744,783 Operating expense ​ 633,169 ​ 64,564 ​ 697,733 Depreciation and amortization expense ​ 53,401 ​ 56,196 ​ 109,597 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 Interest expense ​ 2,138 ​ 26,842 ​ 28,980 Segment profit (loss) (2) ​ ( 20,930 ) ​ 39,000 ​ 18,070 Total assets (as of September 30, 2021) ​ 2,989,600 ​ 3,950,902 ​ 6,940,502 Capital expenditures (including non-cash) ​ 26,622 ​ 136,677 ​ 163,299 (1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines segment. (2) Segment profit (loss) is equal to operating income less interest expense. The following represents the Company’s segment data for the nine-month periods ended September 30, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2022 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 1,918,746 ​ $ 404,934 ​ $ 2,323,680 Operating expense ​ 1,906,739 ​ 200,715 ​ 2,107,454 Depreciation and amortization expense ​ 136,463 ​ 160,964 ​ 297,427 Interest expense ​ 8,506 ​ 83,802 ​ 92,308 Segment profit (2) ​ 3,501 ​ 120,417 ​ 123,918 Total assets (as of September 30, 2022) ​ 2,973,223 ​ 4,480,981 ​ 7,454,204 Capital expenditures (including non-cash) ​ 65,125 ​ 484,724 ​ 549,849 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 1,548,422 ​ $ 387,906 ​ $ 1,936,328 Operating expense ​ 1,498,227 ​ 195,186 ​ 1,693,413 Depreciation and amortization expense ​ 156,878 ​ 172,211 ​ 329,089 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 Interest expense ​ 11,486 ​ 82,788 ​ 94,274 Segment profit (2) ​ 38,709 ​ 109,932 ​ 148,641 Total assets (as of September 30, 2021) ​ 2,989,600 ​ ​ 3,950,902 ​ 6,940,502 Capital expenditures (including non-cash) ​ 83,650 ​ ​ 163,596 ​ 247,246 (1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines segment. (2) Segment profit is equal to operating income less interest expense. 15 Table of Contents (6) Assets Held for Sale During the nine months ended September 30, 2022, the Company committed to a formal plan to sell four CRJ-700 aircraft. The aircraft are expected to be disposed of via sale within the next 12 months. Accordingly, the Company determined the aircraft met the criteria to be classified as assets held for sale. The Company presented the $ 13.5 million of assets held for sale at the lower of their current carrying value or their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet. The fair values are based upon observable and unobservable inputs, including market trends and conditions. The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which the Company will continue to monitor in future periods as new information becomes available. Prior to the ultimate sale of the assets, subsequent changes in the estimate of the fair value of the assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value. In connection with the classification of these assets as held for sale, the Company recorded an impairment loss of $ 15.2 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the nine months ended September 30, 2022. (7) Leases, Commitments, Guarantees and Contingencies The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement. Aircraft As of September 30, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company was the lessee of 43 aircraft under long-term lease agreements with remaining terms ranging from two years to eight years . Airport facilities The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 34 years . The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance. Leases As of September 30, 2022, the Company’s right-of-use assets were $ 192.7 million, the Company’s current maturities of operating lease liabilities were $ 74.1 million, and the Company’s noncurrent lease liabilities were $ 117.8 million. During the nine months ended September 30, 2022, the Company paid $ 56.9 million in operating leases reflected as a reduction from operating cash flows. The table below presents lease related terms and discount rates as of September 30, 2022. ​ ​ ​ ​ As of September 30, 2022 Weighted-average remaining lease term for operating leases 6.4 years Weighted-average discount rate for operating leases 6.0 % ​ 16 Table of Contents The Company’s lease costs for the three and nine months ended September 30, 2022 and 2021 included the following components (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2022 2021 2022 2021 Operating lease cost ​ $ 21,697 ​ $ 23,370 ​ $ 65,360 ​ $ 67,582 Variable and short-term lease cost ​ 765 ​ 976 ​ 2,588 ​ 3,256 Sublease income ​ ​ ( 1,845 ) ​ ​ ( 1,888 ) ​ ​ ( 5,492 ) ​ ​ ( 4,717 ) Total lease cost ​ $ 20,617 ​ $ 22,458 $ 62,456 ​ $ 66,121 ​ As of September 30, 2022, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2022 (in thousands): ​ ​ ​ ​ ​ July 2022 through December 2022 $ 22,328 2023 ​ 76,223 2024 ​ 33,452 2025 ​ 17,590 2026 ​ 15,491 Thereafter ​ 72,872 ​ ​ $ 237,956 ​ As of September 30, 2022, the Company had a firm purchase commitment for eight E175 aircraft from Embraer, S.A. (“Embraer”) with anticipated delivery dates through 2025. The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Oct - Dec 2022 2023 2024 2025 2026 Thereafter Operating lease payments for aircraft and facility obligations ​ $ 237,956 ​ $ 22,328 ​ $ 76,223 ​ $ 33,452 ​ $ 17,590 ​ $ 15,491 ​ $ 72,872 Firm aircraft and spare engine commitments ​ 244,425 ​ ​ 104,088 ​ ​ 85,670 ​ ​ 26,896 ​ ​ 27,771 ​ ​ — ​ ​ — Interest commitments (1) ​ 565,683 ​ ​ 32,824 ​ ​ 126,265 ​ ​ 108,355 ​ ​ 88,733 ​ ​ 69,670 ​ ​ 139,836 Principal maturities on long-term debt ​ 3,441,734 ​ ​ 110,392 ​ ​ 437,798 ​ ​ 438,782 ​ ​ 522,388 ​ ​ 498,757 ​ ​ 1,433,617 Total commitments and obligations ​ $ 4,489,798 ​ $ 269,632 ​ $ 725,956 ​ $ 607,485 ​ $ 656,482 ​ $ 583,918 ​ $ 1,646,325 (1) At September 30, 2022, the Company’s long-term debt had fixed interest rates. Guarantees During the nine months ended September 30, 2022, the Company agreed to guarantee $ 19.8 million of debt for a 14 CFR Part 135 air carrier. The debt is secured by the Part 135 air carrier’s aircraft and engines and has a five-year term. The purpose of the arrangement is to increase the potential number of commercial pilots in the Company’s hiring pipeline. In exchange for providing the guarantee, the Company received 6.5 % of the guaranteed amount as consideration, payable in common stock of the Part 135 air carrier, which will be recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income over the term of the guarantee. The Company also recorded the estimated credit loss associated with the guarantee in “Other long-term liabilities” on the Company’s 17 Table of Contents consolidated balance sheet based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term. (8) Fair Value Measurements The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs: ​ ​ ​ ​ ​ Level 1 ​ — ​ Quoted prices in active markets for identical assets or liabilities. Level 2 ​ — ​ Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities. Level 3 ​ — ​ Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions. ​ As of September 30, 2022, and December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis. The Company’s assets measured at fair value on a recurring basis are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of September 30, 2022 ​ Total Level 1 Level 2 Level 3 Marketable Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bonds and bond funds ​ $ 645,346 ​ $ — ​ $ 645,346 ​ $ — Commercial paper ​ 320,001 ​ — ​ 320,001 ​ — ​ ​ $ 965,347 ​ $ — ​ $ 965,347 ​ $ — Investments in Other Companies ​ ​ 26,112 ​ ​ 9,240 ​ ​ — ​ ​ 16,872 Cash and Cash Equivalents ​ ​ 38,850 ​ ​ 38,850 ​ ​ — ​ ​ — Total Assets Measured at Fair Value ​ $ 1,030,309 ​ $ 48,090 ​ $ 965,347 ​ $ 16,872 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of December 31, 2021 ​ ​ Total ​ Level 1 ​ Level 2 ​ Level 3 Marketable Securities ​ ​ ​ ​ Bonds and bond funds ​ $ 54,673 ​ $ — ​ $ 54,673 ​ $ — Commercial paper ​ 547,316 ​ — ​ 547,316 ​ — ​ ​ $ 601,989 ​ $ — ​ $ 601,989 ​ $ — Cash and Cash Equivalents ​ ​ 258,421 ​ ​ 258,421 ​ ​ — ​ ​ — Total Assets Measured at Fair Value ​ $ 860,410 ​ $ 258,421 ​ $ 601,989 ​ $ — ​ The Company’s “marketable securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities. See Note 10 “Investments in Other Companies” regarding the Company’s investment in other companies, for the nine months ended September 30, 2022. The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2022. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. As of September 30, 2022, and December 31, 2021, the Company classified $ 965.3 million and $ 602.0 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of September 30, 2022, and December 31, 2021, the cost of the Company’s total cash and cash equivalents and marketable securities was $ 1,010.2 million and $ 860.4 million, respectively. 18 Table of Contents (9) Long-term Debt Long-term debt consisted of the following as of September 30, 2022, and December 31, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ December 31, 2021 Current portion of long-term debt $ 433,283 ​ $ 395,371 Current portion of unamortized debt issue cost, net ​ ( 3,858 ) ​ ​ ( 3,573 ) Current portion of long-term debt, net of debt issue costs $ 429,425 ​ $ 391,798 ​ ​ ​ ​ ​ ​ Long-term debt, net of current maturities $ 3,008,451 ​ $ 2,745,567 Long-term portion of unamortized debt issue cost, net ​ ( 26,417 ) ​ ​ ( 28,147 ) Long-term debt, net of current maturities and debt issue costs $ 2,982,034 ​ $ 2,717,420 ​ ​ ​ ​ ​ ​ Total long-term debt (including current portion) $ 3,441,734 ​ $ 3,140,938 Total unamortized debt issue cost, net ​ ( 30,275 ) ​ ​ ( 31,720 ) Total long-term debt, net of debt issue costs $ 3,411,459 ​ $ 3,109,218 ​ During the nine months ended September 30, 2022, the Company took delivery of 21 new E175 aircraft that the Company financed through $ 430.9 million of long-term debt. The debt associated with the E175 aircraft has 5 - to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft. During the nine months ended September 30, 2022, the Company executed promissory notes for $ 167.9 million. The promissory notes have three - to four-year terms, are due in monthly installments with fixed annual interest rates of 3.6 % to 4.7 % and are secured by spare engines. As of both September 30, 2022, and December 31, 2021, the Company had $ 61.4 million in letters of credit and surety bonds outstanding with various banks and surety institutions. As of September 30, 2022, SkyWest Airlines had a $ 100 million line of credit with an expiration date of March 25, 2025. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of September 30, 2022, SkyWest Airlines had no amount outstanding under the facility. However, at September 30, 2022, SkyWest Airlines had $ 31.4 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 68.6 million. The Company’s debt agreements are not traded on an active market and are recorded at carrying value on the Company’s consolidated balance sheet. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt. Debt is primarily classified as Level 2 within the fair value hierarchy. The carrying value and fair value of the Company’s long-term debt as of September 30, 2022 and December 31, 2021, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ December 31, 2021 Carrying value $ 3,441,734 ​ $ 3,140,938 Fair value $ 3,298,578 ​ $ 3,132,072 ​ ( 10) Investments in Other Companies Equity Method Investment During 2019, the Company created a joint venture with Regional One, Inc. (“Regional One”) by investing $ 22.3 million for a 75 % ownership interest in Aero Engines, LLC. (“Aero Engines”). The Company invested an additional $ 1.0 million into Aero Engines in 2020 and $ 3.3 million during the first quarter of 2022 and retained a 75 % ownership interest. The primary purpose of Aero Engines is to lease engines to third parties. Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions. The Company determined Aero Engines is a variable interest entity as the Company 19 Table of Contents has a 75 % ownership interest in Aero Engines and all material decisions require unanimous approval from the Company and Regional One, resulting in disproportionate ownership rights relative to voting rights. As unanimous approval is required for all Aero Engines’ material activities. Aero Engines has no primary beneficiary. The Company accounts for its investment in Aero Engines under the equity method. The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value. Aero Engines had no debt outstanding as of September 30, 2022. As of September 30, 2022, the Company’s investment balance in Aero Engines was $ 24.7 million. The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of earnings generated by Aero Engines for the nine months ended September 30, 2022, was $ 1.2 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income. Fair Value Method Investments In 2021, the Company entered into a strategic partnership with Eve UAM, LLC (“Eve UAM”), to develop a network of deployment for Eve UAM’s electric vertical takeoff and landing (“eVTOL”) aircraft. The Company signed a non-binding letter of intent to purchase 100 eVTOL aircraft. During the nine months ended September 30, 2022, the Company acquired 1,000,000 shares of common stock of Eve Holding, Inc. (“Eve”) and a warrant giving the Company the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $ 0.01 per share. The Company also received a put option from an Eve shareholder for the 1,000,000 shares of common stock of Eve payable in aircraft parts credits. The intent of the put option is to reduce the Company’s investment risk in Eve. The warrant expires in May 2032, and the put option expires in December 2031. The Company acquired the shares of common stock, warrant and put option (collectively the “Eve Investments”) for $ 10.0 million. The Company evaluated the Eve Investments under Accounting Standard Codification (“ASC”) Topic 321, “Investments – Equity Securities” and ASC Topic 815, “Derivatives and Hedging,” and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings. The shares of common stock of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security. The warrant and put option are classified as Level 3 within the fair value hierarchy, and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the warrant and put option, including an expected volatility of 49 %, which is a significant unobservable input that was derived from historical volatility of comparable companies. The table below shows the reconciliation of the Level 3 warrant and put option Eve Investments (in thousands): ​ ​ ​ ​ ​ Balance at March 31, 2022 $ — Purchases ​ 6,551 Unrealized gains ​ 6,773 Balance at June 30, 2022 ​ $ 13,324 Unrealized gains ​ 3,548 Balance at September 30, 2022 ​ $ 16,872 ​ The Company recognized unrealized gains of $ 16.1 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the nine months ended September 30, 2022, related to the Eve Investments. As of September 30, 2022, the fair value of the Eve Investments was $ 26.1 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet. (11) Income Taxes The Company’s effective tax rate for the three months ended September 30, 2022 was 14.8 %. The Company’s effective tax rate for the three months ended September 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses, and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization. 20 Table of Contents The Company’s effective tax rate for the nine months ended September 30, 2022 was 22.2 %. The Company’s effective tax rate for the nine months ended September 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses, and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization. The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 31.9 % and 26.1 %, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2021 varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and the impact of non-deductible expenses. (12) Special Items – Impairment Charge During the three and nine months ended September 30, 2021, the Company recorded a non-cash impairment charge of $ 84.6 million to write-down certain CRJ900 aircraft to their estimated fair value. In 2021, the Company evaluated its CRJ900 fleet and related CRJ900 assets for impairment. Pursuant to ASC 360-10, “Impairment and Disposal of Long-Lived Assets,” the Company determined that the asset group for the CRJ900 aircraft existed at the major airline partner level. A recoverability test was performed utilizing estimated undiscounted future cash flows for the CRJ900 aircraft pursuant to applicable capacity purchase agreement terms 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. This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 5, “Segment Reporting” for the three and nine months ended September 30, 2021. The Company did not have a similar impairment charge at the fleet level during the nine months ended September 30, 2022. (13) Legal Matters The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, 2022, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.