What changed in this filing

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Item 1A. Risk Factors

2023-02-16 compared with 2022-02-17 · 104 added, 94 removed, 273 unchanged (42% of the section changed)

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Risks That May Disrupt Our Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We may experience difficulty upgrading and retaining qualified pilots.

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

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

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

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

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

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

We may experience difficulty recruiting qualified pilots.

We have experienced, and may continue to experience, difficulty in recruiting, retaining, and upgrading qualified pilots.

Our operations rely on recruiting and training qualified pilots.

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

We may experience difficulty recruiting and retaining other operational personnel.

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

Our pilots may seek employment at major airlines, low-cost carriers, or cargo carriers, which generally offer higher salaries and more extensive benefit programs than regional airlines.

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

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

As we have worked to upgrade our first officers to captain, our attrition levels have exceeded our upgrade and replacement levels, and we have experienced a shortage of captains, resulting in a reduction of our flight schedules with our major airline partners that will likely continue in 2023 and may continue into 2024.

Based on our current captain and first officer availability, our block hour production in 2023 will likely be lower than our block hour production in 2022.

Operating at reduced flying schedules results in operating inefficiencies that negatively impacts our financial results.

Further, in September 2022, we increased pay rates for our pilots;

however, there is no assurance the higher pay rates will have a significant impact on recruiting, retaining, and upgrading our pilots, which could negatively impact our operations.

If we request our major airline partners to reduce our flight schedules due to pilot or other labor shortages, our major airline partners may seek to enforce financial penalties or reduce the compensation otherwise payable to us under our capacity purchase agreements, which would likely have a negative impact on our revenues and adversely impact our financial condition.

We have experienced, and may continue to experience difficulty recruiting and retaining other operational personnel.

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

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

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

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

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

Our operations and financial condition are affected by many changing economic and other conditions beyond our control, including, among others:

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

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

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

● impact on workforce availability and economic uncertainty resulting from the COVID-19 recovery;

● potential resurgence of COVID-19 or future public health threats similar to COVID-19 could negatively impact demand and the industry;

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

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

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

increased costs.

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

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

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

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

For example, during 2021, we identified malware on our system resulting from a cyberattack.

We successfully quarantined the malware without disruption to our operations.

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We estimate the impact of the outage negatively impacted our 2021 financial results by approximately $15 million (pre-tax).

We did not have a similar cybersecurity event during the year ended December 31, 2022.

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

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We operate a significant number of flights to and from airports with particular weather difficulties, including Chicago, Denver, Salt Lake City and San Francisco.

A significant interruption or disruption in service at one of our hubs, due to adverse weather, system malfunctions, airport construction, security closures or otherwise, could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe adverse impact on our operations and financial performance.

A significant interruption or disruption in service at one of our hubs, due to adverse weather, system malfunctions, airport construction, security closures or otherwise, could result

in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe adverse impact on our operations and financial performance.

The occurrence of an aviation accident involving our aircraft would negatively impact our operations and financial condition.

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The primary effects experienced by the airline industry include a substantial loss of passenger traffic and revenue.

If additional terrorist attacks are launched against the airline industry, there will be lasting consequences of the attacks, which may include loss of life, property damage, increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security.

If additional terrorist attacks are launched against the airline industry, there will be lasting consequences of such attacks, which may include loss of life, property damage, increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened

Additional terrorist attacks and the fear of such attacks could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government mandates, as well as increased security, fuel and other costs.

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

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

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

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

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

Reduced utilization levels of our aircraft under our capacity purchase agreements with our major airline partners would have a material adverse impact on the results of our operations and financial condition.

Under our capacity purchase agreements with our major airline partners, a portion of our compensation is based on pre-determined rates that are applied to our production, such as block hours, for the period.

We also receive fixed monthly payments related to overhead costs and aircraft ownership costs from our major airline partners.

Reduced utilization of our aircraft under our capacity purchase agreements will likely have a material adverse impact on the results of our operations and financial condition.

During the year ended December 31, 2022, we amended our capacity purchase agreements with certain major airline partners that reduced certain future contractual fixed monthly payments and increased future contractual variable payments.

A compensation structure that is weighted more to utilization and less to fixed payments could have a material adverse impact on the results of our operations and financial condition if utilization levels decrease.

Additionally, amendments to our capacity purchase agreements that result in changes to our future scheduled fixed monthly payments will likely impact the timing of our revenue recognition.

During the year ended December 31, 2022, the revenue we recognized was $29.3 million less than the fixed monthly cash payments received,

primarily due to the capacity purchase agreement amendments we executed during the 2022 year.

We currently anticipate we will continue to defer recognition of revenue for certain fixed monthly cash payments throughout 2023.

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

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If our major airline partners’ future strategies include a material reduction in regional aircraft generally or for specific aircraft types, such as 50-seat regional aircraft, the resulting decrease in demand in the aircraft we operate could have a material negative impact on our business and financial condition.

Additionally, future developments of electric-powered aircraft designed to operate on routes typically served by regional aircraft could impact our major airline partners’ strategy and result in a reduction of demand or increase our capital expenditures and could have a material negative impact on our business and financial condition.

Due, in part, to the dynamic nature of the airline industry, major airlines may also make other strategic changes, such as changing or consolidating hub locations.

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

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

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

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

Our prorate revenue, which is derived from passenger fares on flights we operate under our prorate arrangements, decreased from $409.7 million for the year ended December 31, 2021, to $349.3 million for the year ended December 31, 2022, or 14.7%.

Our prorate revenue in 2022 was negatively impacted by captain attrition to other airlines, and there is no assurance our prorate revenue will return to pre-pandemic levels in 2023 or thereafter.

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

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

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

We recently formed SkyWest Charter, a subsidiary offering public charter service, that involves significant risk.

In 2022 we formed a new subsidiary, SkyWest Charter, with the intent to offer public charter service to underserved communities in the United States using CRJ200 aircraft in a 30 or less seat configuration under its own FAA operating certificate.

When SkyWest Charter begins operations, which is currently expected to occur in 2023, there will be significant risks, including that SkyWest Charter may divert management’s attention or the Company’s resources from our core business and strategies and that the objectives of SkyWest Charter may not materialize or may take longer to materialize than anticipated.

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

Long-term contractual agreements, such as our code-share agreements, are subject to interpretation and disputes may arise under such agreements if the parties to an agreement apply different interpretations to that agreement.

Those disputes may divert management time and resources from the core operation of the business, and may result in litigation, arbitration or other forms of dispute resolution.

In recent years we have experienced disagreements with our major airline partners regarding the interpretation of various provisions of our code-share agreements.

Those disputes may divert management’s time and resources from the core operation of the business, and may result in litigation, arbitration or other forms of dispute resolution.

We have previously experienced disagreements with our major airline partners regarding the interpretation of various provisions of our code-share agreements.

Some of those disagreements have resulted in litigation, and we may be subject to additional disputes and litigation in the future.

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Such disagreements and their consequences could have an adverse effect on our operating results and financial condition.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential code-share partners.

The airline industry is highly competitive, which could adversely affect our operating results and financial condition.

The airline industry is highly competitive.

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

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

Certain of our competitors, including wholly-owned regional airline subsidiaries of our major airline partners, may have access to significantly greater financial and other resources than we do.

Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares.

The inability to remain competitive on the various factors valued by our major airline partners could adversely affect our operating results and financial condition.

The airline industry has undergone substantial consolidation in recent years, including the mergers between Alaska and Virgin America Inc.

in 2016, American and US Airways Group Inc.

in 2013, United and Continental Airlines, Inc.

in 2010 and Delta and Northwest Airlines, Inc.

Any additional consolidation or significant alliance activity within the airline industry could limit the number of potential partners with whom we could enter into code-share relationships and could have a material adverse effect on our relationships with our major airline partners.

Risks Related to Our Operating Costs and Personnel

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Labor costs constitute a significant percentage of our total operating costs.

Increases in our labor costs could result in a material reduction in our earnings.

Increases in our labor costs could

result in a material reduction in our earnings.

For example, during the year ended December 31, 2022 and 2021, our salary, wage and benefit costs constituted approximately 42.9% and 40.5% of our total operating costs, respectively.

In September 2022, we entered into a collective bargaining agreement with our pilots, increasing the pay rates for pilots.

Our inability to offset increased labor costs through rate increases under our capacity purchase agreements with all our major airline partners could negatively impact our operating costs.

Currently, we believe our labor costs are competitive relative to other regional airlines.

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

During the year ended December 31, 2021, approximately 91.4% of our code-share operating costs were reimbursable at pre-determined rates and 8.6% of our code-share operating costs were directly reimbursed costs, or often referred to as pass-through costs.

During the year ended December 31, 2022, approximately 91.8% of our code-share operating costs were reimbursable at pre-determined rates and 8.2% of our code-share operating costs were directly reimbursed costs, often referred to as pass-through costs.

Additionally, our aircraft maintenance costs may increase annually as our fleet ages at a higher rate than our pre-determined rates allow.

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Future agreements with represented employees may be on terms that are not as attractive as our current agreements or comparable to agreements entered into by our competitors.

Notably, in September 2022, we entered into a collective bargaining agreement with our pilots, increasing the pay rates for pilots.

The amended collective bargaining agreement is anticipated to result in an increase to our pilot costs.

For illustrative purposes, under SkyWest Airlines’ amended collective bargaining agreement, the first-year pay rate for first officers increased from approximately $46/flight hour to $90/flight hour and the first-year CRJ and E175 captain pay rate increased from approximately $76/flight hour and $81/flight hour, respectively, to $140/flight hour for both CRJ and E175 captains.

During the year ended December 31, 2022, we amended our capacity purchase agreements with certain major airline partners that resulted in higher compensation for our increased pilot pay rates.

SkyWest’s employees are represented by in-house associations;

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Such efforts will likely continue in the future and may ultimately result in some or all of our employees being represented by one or more national unions.

If our employees were to unionize or be deemed to be represented by one or more national unions, negotiations with these unions could divert management attention and disrupt operations, which may result in increased operating expenses and may negatively impact our financial results.

If our employees were to unionize or be deemed to be represented by one or more national unions, negotiations with these unions could divert management’s attention and disrupt operations, which may result in increased operating expenses and may negatively impact our financial results.

Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements.

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

Additionally,

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

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

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

Pursuant to our capacity purchase arrangements, our major airline partners have agreed to bear the economic risk of fuel price fluctuations on our contracted flights.

However, we bear the economic risk of fuel price fluctuations on our prorate operations.

However, we bear the economic risk of fuel price fluctuations on our prorate operations and expect to bear the economic risk of fuel price fluctuations on our charter operations.

As of December 31, 2022, we operated 41 CRJ200s under a prorate agreement with United and 25 CRJ200s under a prorate agreement with Delta.

Our operating and financial results with respect to these prorate arrangements can be negatively affected by the price of jet fuel in the event we are unable to increase our passenger fares.

Additionally, in the event of prolonged low fuel prices, our competitors may lower their passenger ticket prices on routes that compete with our prorate markets, which could negatively impact our passenger load factors.

Additionally, in the event of prolonged low fuel prices, our competitors may lower their passenger ticket prices on routes that compete with our prorate or charter markets, which could negatively impact our passenger load factors.

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our chief executive officer, Russell A.

Childs, and our other key management and operating personnel.

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

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

We do not maintain key-person insurance on any of our executive officers.

Risks Related to Operating and Leasing Regional Jet Aircraft and Engines

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As of December 31, 2022, we had a total of approximately $3.4 billion in total long-term debt obligations.

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

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

Our long-term debt obligations include $3.05 billion related to the acquisition of aircraft, $155.1 million of long-term debt secured by spared engines, and $200.6 million related to borrowings under the Payroll Support Program Agreements with U.S.

Department of the Treasury (“Treasury”).

Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43 aircraft under long-term lease agreements as of December 31, 2022, with 32 aircraft with a lease termination date of March 31, 2024 and 11 aircraft with remaining terms up to eight years.

Future minimum lease payments due under all long-term operating leases were approximately $202.9 million at December 31, 2022.

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The aircraft compensation structure varies by agreement but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.

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

In the event any of our major airline partners defaults under a

capacity purchase agreement or we are unable to extend the flying contract terms on aircraft with ongoing financial obligations, our financial position and financial results could be materially adversely affected.

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

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

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

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

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

As of December 31, 2022, we have firm purchase commitments for four E175 aircraft and spare engines totaling $140.3 million.

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

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

Additionally, in 2022, we committed to a plan to sell 14 CRJ700 aircraft, resulting in a non-cash impairment of $51.4 million.

Future decisions to sell aircraft could potentially result in write-downs for aircraft held-for sale.

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

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

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

We have entered into a strategic partnership with Eve UAM, an Embraer company, to develop a network of deployment for Eve UAM’s eVTOL aircraft.

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

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

In 2022, we acquired 1,000,000 shares of common stock of Eve Holding, Inc.

(“Eve”) and a warrant giving us 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 Company acquired the shares of common stock, warrant and put option (collectively, the “Eve Investments”) for $10.0 million.

At December 31, 2022, the fair value of our Eve Investments was $21.4 million and

reductions in the trading market price of Eve’s common stock will likely negatively impact our financial condition and net income.

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

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

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

During 2022, we produced approximately 5.5 million metric tons of CO 2 e primarily from jet fuel emissions, using industry emissions factors for jet fuel gallons consumed on flights we operated under our code-share agreements.

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

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

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

In the event we pursue initiatives to reduce our carbon emissions, the cost could materially and adversely affect our business plans and results of operations.

Risks Related to Dividends, Share Repurchases and Our Common Stock

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

We cannot assure we will resume dividend payments and/or stock repurchases in the future.

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

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

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

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

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

During 2020, 2021 and through September 30, 2022, we were restricted from paying dividends and repurchasing shares of our common stock under the Payroll Support Program Agreement and the Treasury Loan Agreement under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Payroll Support Program Extension Agreement under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) and the Payroll Support Program 3 Agreement under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) with Treasury.

There can be no assurance that we will resume our past practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends.

The future payment of dividends and the number of shares of common stock we may repurchase will depend upon our financial condition and results of operations and other factors deemed relevant by our board of directors.

If we resume paying cash dividends or resume a share repurchase program in the future, such dividends and repurchases could affect our stock price and increase its volatility.

The existence of a share repurchase program and any future dividends could cause our stock price to be higher than it would otherwise be and could potentially reduce the market liquidity for our stock.

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

If we resume paying cash dividends or resume a share repurchase program, such dividends and repurchases could affect our stock price and increase its volatility.

Additionally, resuming our share repurchase program and any

future dividends may reduce our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions.

Our common stock price may fluctuate significantly.

Volatility in our common stock price may prevent holders from selling shares at or above the prices paid for them.

During the year ended December 31, 2022, our common stock closing price varied between a high of $41.83 and a low of $14.87.

The market price of our common stock may fluctuate significantly for a variety of reasons, including:

general market, political and other economic conditions;

new regulatory pronouncements or changes in regulatory guidelines;

announcements concerning the airline industry, our major airline partners or competitors;

the market’s reaction to our quarterly or annual earnings or those of other companies in the airline industry;

failure to meet financial analysts’ performance expectations or changes in recommendations by financial analysts for our common stock or the stock of other airlines;

significant sales of our common stock, and other risks described in these “Risk Factors.” In recent periods, the stock market has experienced extreme declines and volatility, significantly impacting the market price of securities issued by many companies, including us and other companies in our industry.

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

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General Risk Factors

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our chief executive officer, Russell A.

Childs, and our other key management and operating personnel.

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

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

We do not maintain key-person insurance on any of our executive officers.

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

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

We have guaranteed the indebtedness of third parties that may default on their debt and require us to pay.

In 2022, we 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 the event of default, if we are unable to sell the collateral, or the fair value is less than the required payment, it could negatively impact our financial condition and financial results.

Additionally, there is no guarantee that the relationship with this entity will have a favorable effect on our ability to recruit pilots.

UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors