SKYWEST INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth below should be read together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere herein. 42 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of SkyWest, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SkyWest, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ ​ ​ ​ Valuation of fixed overhead deferred revenue Description of the Matter At December 31, 2022, the Company’s deferred revenue balance totaled $113.5 million, of which $5.2 million was presented as a component of other current liabilities and $108.3 million was included in other long-term liabilities on the balance sheet. The Company’s unbilled revenue balance totaled $19.9 million, of which $9.9 million was presented as a current asset, and $10.0 million was presented as a long-term asset on the balance sheet. As discussed in Note 1 to the consolidated financial statements, under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term. The Company 43 Table of Contents recognizes revenue related to the fixed amount per aircraft per month based upon completed block hours proportionate to total forecasted block hours over the contract term. To perform the allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry. ​ Auditing the forecasted block hours over the term of the contract, which is the primary input used in the deferred revenue calculation, required extensive audit effort due to the estimation uncertainty of the forecasted block hours over the contract term. ​ How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over recognition and deferral of revenue related to block hours flown. This included controls over the forecasting process used to develop the estimated future block hours used in the calculation. We also tested controls over management’s review of the data used in the deferred revenue calculation. ​ To test the Company’s estimated deferred revenue liability, we performed audit procedures that included, among others, assessing the methodology and assumptions used by the Company in the deferred revenue calculation, including testing of the forecasted block hours and validating completeness and accuracy of the underlying data used by the Company. Specifically, we compared management’s forecasted block hours to historical flight activity, existing flight schedules with partner airlines, and industry trends and publications. We evaluated management’s ability to accurately forecast flight activity by performing hindsight analyses comparing actual historical results to past forecasts. We also performed sensitivity analyses to understand the impact of fluctuations in forecasted block hours to the deferred revenue liability. ​ ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 2003. Salt Lake City, Utah February 16, 2023 ​ 44 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ 2022 2021 CURRENT ASSETS: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 102,984 ​ $ 258,421 Marketable securities ​ 944,231 ​ 601,989 Receivables, net ​ 100,523 ​ 65,348 Inventories, net ​ 123,209 ​ 104,093 Other current assets ​ 100,334 ​ 38,742 Total current assets ​ 1,371,281 ​ 1,068,593 ​ ​ ​ ​ ​ ​ ​ PROPERTY AND EQUIPMENT: ​ ​ ​ ​ ​ ​ Aircraft and rotable spares ​ 8,143,614 ​ 7,848,100 Deposits on aircraft ​ 23,931 ​ 124,964 Buildings and ground equipment ​ 265,019 ​ 256,595 Total property and equipment, gross ​ 8,432,564 ​ 8,229,659 Less-accumulated depreciation and amortization ​ ( 2,884,084 ) ​ ( 2,731,060 ) Total property and equipment, net ​ 5,548,480 ​ 5,498,599 ​ ​ ​ ​ ​ ​ ​ OTHER ASSETS: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ 151,928 ​ ​ 238,516 Long-term receivables and other assets ​ 342,864 ​ 320,239 Total other assets ​ 494,792 ​ 558,755 Total assets ​ $ 7,414,553 ​ $ 7,125,947 See accompanying notes to consolidated financial statements. ​ 45 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ 2022 2021 CURRENT LIABILITIES: ​ ​ ​ ​ ​ Current maturities of long-term debt $ 438,502 ​ $ 391,798 Accounts payable 422,001 ​ 496,333 Accrued salaries, wages and benefits 186,285 ​ 150,583 Current maturities of operating lease liabilities 71,726 ​ 78,886 Taxes other than income taxes 20,480 ​ 28,869 Other current liabilities 33,549 ​ 48,152 Total current liabilities 1,172,543 ​ 1,194,621 ​ ​ ​ ​ ​ ​ LONG-TERM DEBT, net of current maturities 2,941,772 ​ 2,717,420 ​ ​ ​ ​ ​ ​ DEFERRED INCOME TAXES PAYABLE 687,060 ​ 663,236 ​ ​ ​ ​ ​ ​ NONCURRENT OPERATING LEASE LIABILITIES 88,622 ​ 158,274 ​ ​ ​ ​ ​ ​ OTHER LONG-TERM LIABILITIES 176,925 ​ 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; 82,592,830 and 82,335,970 shares issued as of December 31, 2022, and December 31, 2021, respectively 734,426 ​ 722,310 Retained earnings 2,236,869 ​ 2,163,916 Treasury stock, at cost, 31,994,416 and 31,956,047 shares as of December 31, 2022, and December 31, 2021, respectively ( 619,862 ) ​ ( 618,712 ) Accumulated other comprehensive loss ​ ( 3,802 ) ​ ​ — Total stockholders’ equity 2,347,631 ​ 2,267,514 Total liabilities and stockholders’ equity $ 7,414,553 ​ $ 7,125,947 See accompanying notes to consolidated financial statements. ​ 46 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ 2021 ​ ​ 2020 OPERATING REVENUES: ​ ​ ​ ​ ​ Flying agreements ​ $ 2,899,837 ​ $ 2,615,076 ​ $ 2,060,801 ​ Lease, airport services and other ​ 105,088 ​ 98,415 ​ 66,305 ​ Total operating revenues ​ 3,004,925 ​ 2,713,491 ​ 2,127,106 ​ OPERATING EXPENSES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries, wages and benefits ​ 1,211,551 ​ 986,664 ​ 826,109 ​ Aircraft maintenance, materials and repairs ​ 644,157 ​ 817,803 ​ 618,989 ​ Depreciation and amortization ​ 394,552 ​ 440,198 ​ 474,959 ​ Aircraft fuel ​ 108,456 ​ 107,057 ​ 61,739 ​ Aircraft rentals ​ 75,353 ​ 63,357 ​ 65,316 ​ Airport-related expenses ​ 71,549 ​ 104,690 ​ 93,886 ​ Special items ​ ​ — ​ ​ 84,592 ​ ​ — ​ Payroll support grant ​ ​ — ​ ​ ( 422,669 ) ​ ​ ( 345,491 ) ​ Other operating expenses ​ 318,145 ​ 255,932 ​ 222,797 ​ Total operating expenses ​ 2,823,763 ​ 2,437,624 ​ 2,018,304 ​ OPERATING INCOME ​ 181,162 ​ 275,867 ​ 108,802 ​ OTHER INCOME (EXPENSE): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 17,605 ​ 1,114 ​ 5,879 ​ Interest expense ​ ( 127,083 ) ​ ( 123,122 ) ​ ( 123,173 ) ​ Other income (expense), net ​ 20,899 ​ ( 3,249 ) ​ 1,165 ​ Total other expense, net ​ ( 88,579 ) ​ ( 125,257 ) ​ ( 116,129 ) ​ INCOME (LOSS) BEFORE INCOME TAXES ​ 92,583 ​ 150,610 ​ ( 7,327 ) ​ PROVISION FOR INCOME TAXES ​ 19,630 ​ 38,700 ​ 1,188 ​ NET INCOME (LOSS) ​ $ 72,953 ​ $ 111,910 ​ $ ( 8,515 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BASIC EARNINGS (LOSS) PER SHARE ​ $ 1.44 ​ $ 2.22 ​ $ ( 0.17 ) ​ DILUTED EARNINGS (LOSS) PER SHARE ​ $ 1.44 ​ $ 2.20 ​ $ ( 0.17 ) ​ Weighted average common shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 50,548 ​ 50,348 ​ 50,195 ​ Diluted ​ 50,644 ​ 50,753 ​ 50,195 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMPREHENSIVE INCOME (LOSS): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 72,953 ​ $ 111,910 ​ $ ( 8,515 ) ​ Net unrealized depreciation on marketable securities, net of taxes ​ ( 3,802 ) ​ — ​ — ​ TOTAL COMPREHENSIVE INCOME (LOSS) ​ $ 69,151 ​ $ 111,910 ​ $ ( 8,515 ) ​ See accompanying notes to consolidated financial statements. ​ 47 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common Stock ​ Retained ​ Treasury Stock ​ Comprehensive ​ ​ ​ ​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Income (Loss) ​ Total Balance at December 31, 2019 81,743 ​ $ 686,806 ​ $ 2,079,179 ( 31,420 ) ​ $ ( 590,971 ) ​ $ — ​ $ 2,175,014 Change in accounting principle and other (see Note 1) ​ — ​ ​ — ​ ​ ( 11,639 ) ​ — ​ ​ — ​ ​ — ​ ​ ( 11,639 ) Balance at December 31, 2019, as adjusted ​ 81,743 ​ $ 686,806 ​ $ 2,067,540 ​ ( 31,420 ) ​ $ ( 590,971 ) ​ $ — ​ $ 2,163,375 Net income (loss) — ​ ​ — ​ ( 8,515 ) — ​ — ​ — ​ ( 8,515 ) Exercise of common stock options and vested employee stock awards 287 ​ ​ 38 ​ — — ​ — ​ — ​ 38 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 108 ) ​ ​ ( 6,165 ) ​ ​ — ​ ​ ( 6,165 ) Sale of common stock under employee stock purchase plan 65 ​ ​ 2,781 ​ — — ​ — ​ — ​ 2,781 Stock based compensation expense — ​ ​ 6,802 ​ — — ​ — ​ — ​ 6,802 Treasury stock purchases — ​ ​ — ​ — ( 386 ) ​ ( 20,000 ) ​ — ​ ( 20,000 ) Cash dividends declared ($ 0.14 per share) — ​ ​ — ​ ( 7,019 ) — ​ — ​ — ​ ( 7,019 ) Warrants issued to U.S. Treasury — ​ ​ 8,248 ​ — — ​ — ​ — ​ 8,248 Balance at December 31, 2020 82,095 ​ $ 704,675 ​ $ 2,052,006 ( 31,914 ) ​ $ ( 617,136 ) ​ $ — ​ $ 2,139,545 Net income — ​ — ​ 111,910 — ​ — ​ — ​ 111,910 Exercise of common stock options and vested employee stock awards 177 ​ ​ 606 ​ — — ​ — ​ — ​ 606 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 42 ) ​ ​ ( 1,576 ) ​ ​ — ​ ​ ( 1,576 ) Sale of common stock under employee stock purchase plan 64 ​ ​ 2,540 ​ — — ​ — ​ — ​ 2,540 Stock based compensation expense — ​ 8,685 ​ — — ​ — ​ — ​ 8,685 Warrants issued to U.S. Treasury — ​ ​ 5,804 ​ ​ — ​ — ​ ​ — ​ ​ — ​ 5,804 Balance at December 31, 2021 82,336 ​ $ 722,310 ​ $ 2,163,916 ( 31,956 ) ​ $ ( 618,712 ) ​ $ — ​ $ 2,267,514 Net income — ​ — ​ 72,953 — ​ — ​ — ​ 72,953 Exercise of common stock options and vested employee stock awards 151 ​ ​ 142 ​ — — ​ — ​ — ​ 142 Employee income tax paid on vested equity awards ​ — ​ ​ — ​ ​ — ​ ( 38 ) ​ ​ ( 1,150 ) ​ ​ — ​ ​ ( 1,150 ) Sale of common stock under employee stock purchase plan 106 ​ ​ 2,815 ​ — — ​ — ​ — ​ 2,815 Stock based compensation expense — ​ 9,159 ​ — — ​ — ​ — ​ 9,159 Net unrealized depreciation on marketable securities, net of tax of $ 1,224 ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 3,802 ) ​ ​ ( 3,802 ) Balance at December 31, 2022 82,593 ​ $ 734,426 ​ $ 2,236,869 ( 31,994 ) ​ $ ( 619,862 ) ​ $ ( 3,802 ) ​ $ 2,347,631 See accompanying notes to consolidated financial statements. ​ 48 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ 2021 ​ ​ 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​ Net income (loss) ​ $ 72,953 ​ $ 111,910 ​ $ ( 8,515 ) ​ Adjustments to reconcile net income (loss) to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 394,552 ​ 440,198 ​ 474,959 ​ Stock based compensation expense ​ 9,159 ​ 8,685 ​ 6,802 ​ Write-off of maintenance assets ​ ​ — ​ ​ — ​ ​ 3,255 ​ Increase (decrease) in credit loss reserves ​ ​ ( 4,591 ) ​ ​ ( 4,249 ) ​ ​ 17,087 ​ Loss (gain) on disposal of fixed assets ​ ​ ( 7,948 ) ​ ​ ( 4,586 ) ​ ​ 445 ​ Gain on investments in other companies ​ ​ ( 11,380 ) ​ ​ — ​ ​ — ​ Net increase in deferred income taxes ​ 23,825 ​ 37,305 ​ 6,100 ​ Impairment on assets held for sale ​ ​ 51,384 ​ ​ — ​ ​ — ​ Special items ​ — ​ 84,592 ​ — ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Decrease (increase) in receivables ​ ( 32,959 ) ​ ( 30,093 ) ​ 26,831 ​ Decrease (increase) in income tax receivable ​ 7,815 ​ ( 5,570 ) ​ 7,225 ​ Decrease (increase) in inventories ​ ( 16,628 ) ​ ( 12,897 ) ​ 19,307 ​ Decrease (increase) in other current assets ​ ( 2,871 ) ​ ( 1,936 ) ​ 8,233 ​ Decrease in operating lease right-of-use assets ​ ​ 86,588 ​ ​ 43,846 ​ ​ 53,647 ​ Decrease in operating lease liabilities ​ ​ ( 76,812 ) ​ ​ ( 51,326 ) ​ ​ ( 65,557 ) ​ Increase (decrease) in deferred revenue ​ ​ 40,812 ​ ​ ( 6,832 ) ​ ​ 110,728 ​ Increase in unbilled revenue ​ ​ ( 11,491 ) ​ ​ ( 8,404 ) ​ ​ — ​ Increase (decrease) in accounts payable and other current liabilities ​ ( 42,032 ) ​ 231,177 ​ ( 26,984 ) ​ NET CASH PROVIDED BY OPERATING ACTIVITIES ​ 480,376 ​ 831,820 ​ 633,563 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ( 1,834,403 ) ​ ( 1,517,861 ) ​ ( 1,347,775 ) ​ Sales of marketable securities ​ 1,488,359 ​ 1,526,057 ​ 1,170,556 ​ Acquisition of property and equipment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aircraft and rotable spare parts ​ ( 632,460 ) ​ ( 537,574 ) ​ ( 425,618 ) ​ Buildings and ground equipment ​ ( 13,031 ) ​ ( 18,127 ) ​ ( 12,678 ) ​ Proceeds from the sale of property and equipment ​ 16,983 ​ 7,117 ​ 3,239 ​ Deposits on aircraft ​ ​ ( 37,100 ) ​ ​ ( 125,701 ) ​ ​ ( 9,625 ) ​ Aircraft deposits applied towards acquired aircraft ​ ​ 138,383 ​ ​ 32,962 ​ ​ 27,858 ​ Increase in other assets ​ ( 31,625 ) ​ ( 65,395 ) ​ ( 89,428 ) ​ NET CASH USED IN INVESTING ACTIVITIES ​ ( 904,894 ) ​ ( 698,522 ) ​ ( 683,471 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from issuance of long-term debt ​ 684,502 ​ 450,032 ​ 406,364 ​ Principal payments on long-term debt ​ ( 415,050 ) ​ ( 540,537 ) ​ ( 187,404 ) ​ Payment of debt issuance cost ​ ​ ( 2,178 ) ​ ​ ( 1,665 ) ​ ​ ( 4,130 ) ​ Net proceeds from issuance of common stock ​ 2,957 ​ 3,146 ​ 2,819 ​ Employee income tax paid on vested equity awards ​ ​ ( 1,150 ) ​ ​ ( 1,576 ) ​ ​ ( 6,165 ) ​ Purchase of treasury stock ​ — ​ — ​ ( 20,000 ) ​ Payment of cash dividends ​ — ​ — ​ ( 13,059 ) ​ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ​ 269,081 ​ ( 90,600 ) ​ 178,425 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in cash and cash equivalents ​ ( 155,437 ) ​ 42,698 ​ 128,517 ​ Cash and cash equivalents at beginning of period ​ 258,421 ​ 215,723 ​ 87,206 ​ CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 102,984 ​ $ 258,421 ​ $ 215,723 ​ See accompanying notes to consolidated financial statements. 49 Table of Contents SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ 2022 ​ 2021 ​ 2020 Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ $ 16,826 ​ $ 11,336 ​ $ 22,187 ​ Warrants issued to U.S. Treasury ​ $ — ​ $ 5,804 ​ $ 8,248 ​ Cash paid during the period for: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest, net of capitalized amounts ​ $ 125,321 ​ $ 124,918 ​ $ 125,440 ​ Income taxes ​ $ 1,166 ​ $ 6,589 ​ $ 1,780 ​ See accompanying notes to consolidated financial statements. ​ ​ 50 Table of Contents SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 (1) Nature of Operations and Summary of Significant Accounting Policies SkyWest, Inc. (the “Company”), through its subsidiary, SkyWest Airlines, Inc. (“SkyWest Airlines”) operates the largest regional airline in the United States. As of December 31, 2022, SkyWest Airlines offered scheduled passenger service under code-share agreements with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) with approximately 1,620 total daily departures to destinations in the United States, Canada and Mexico. Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system. As of December 31, 2022, the Company had 625 total aircraft in its fleet, including 517 aircraft in scheduled service or under contract under its code-share agreements, summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ E175 CRJ900 CRJ700 CRJ200 Total United 90 ​ — ​ 19 ​ 111 ​ 220 Delta ​ 84 ​ 41 ​ 5 ​ 25 ​ 155 American 20 ​ — ​ 80 ​ — ​ 100 Alaska 42 ​ — ​ — ​ — ​ 42 Aircraft in scheduled service or under contract ​ 236 ​ 41 ​ 104 ​ 136 ​ 517 Leased to third parties — ​ 5 ​ 35 ​ — ​ 40 Other* — ​ 3 ​ 28 ​ 37 ​ 68 Total Fleet 236 ​ 49 ​ 167 ​ 173 ​ 625 *As of December 31, 2022, other aircraft included: supplemental spare aircraft supporting the Company’s code-share agreements that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with the Company’s major airline partners, aircraft held for sale or aircraft that are scheduled to be disassembled for use as spare parts. For the year ended December 31, 2022, approximately 42.6 % of the Company’s aircraft in scheduled service was operated for United, approximately 30.0 % was operated for Delta, approximately 19.3 % was operated for American and approximately 8.1 % was operated for Alaska. SkyWest Airlines has been a code-share partner with Delta since 1987, United since 1997, Alaska since 2011 and American since 2012. As of December 31, 2022, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City, Detroit and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Dallas, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest. SkyWest Airlines operates the following aircraft manufactured by Bombardier: CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer. The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats. The CRJ200 is a single-class 50 -seat aircraft. Basis of Presentation The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated. In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2022, through the filing date of the Company’s annual report with the U.S. Securities and Exchange Commission. 51 Table of Contents Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no restricted cash as of December 31, 2022 and 2021. Marketable Securities The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized depreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. The Company’s position in marketable securities as of December 31, 2022 and 2021 was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross unrealized ​ Gross unrealized ​ ​ ​ ​ At December 31, 2022 Amortized Cost holding gains holding losses Fair market value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bond and bond funds ​ $ 629,280 ​ $ — ​ $ ( 5,026 ) ​ $ 624,254 ​ Commercial Paper ​ 319,977 ​ — ​ — ​ 319,977 ​ Total marketable securities ​ $ 949,257 ​ $ — ​ $ ( 5,026 ) ​ $ 944,231 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross unrealized ​ ​ Gross unrealized ​ ​ ​ ​ At December 31, 2021 Amortized Cost holding gains holding losses Fair market value Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bond and bond funds ​ $ 54,673 ​ $ — ​ $ — ​ $ 54,673 ​ Commercial Paper ​ 547,316 ​ — ​ — ​ 547,316 ​ Total marketable securities ​ $ 601,989 ​ $ — ​ $ — ​ $ 601,989 ​ ​ As of December 31, 2022 and 2021, the Company had classified $ 944.2 million and $ 602.0 million of marketable securities, respectively, as short-term because it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year . Inventories Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results, excess parts and management’s expectations of future operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types and salvage values. The inventory allowance as of December 31, 2022 and 2021, was $ 24.2 million and $ 23.0 million, respectively. Property and Equipment Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows: ​ ​ ​ ​ ​ Assets ​ Depreciable Life ​ Current Residual Value Aircraft, rotable spares, and spare engines ​ up to 22 years up to 20 % Ground equipment ​ up to 10 years 0 % Office equipment ​ up to 7 years ​ 0 % Leasehold improvements ​ Shorter of 15 years or lease term 0 % Buildings ​ 20 - 39.5 years 0 % ​ 52 Table of Contents Impairment of Long-Lived Assets As of December 31, 2022, the Company had approximately $ 5.5 billion of property and equipment, net. In accounting for these long-lived assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, the Company evaluates whether impairment indicators are present. When considering whether or not impairment of long- lived assets exists, the Company groups similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the aircraft type level. During 2022, the Company committed to a plan to sell 14 CRJ700 aircraft, resulting in an impairment on the assets held for sale of $ 51.4 million. See Note 9, “Assets Held for Sale” for more information on the assets held for sale. During 2021, the Company recorded an impairment charge of $ 84.6 million to write-down certain CRJ900 aircraft to their estimated fair value. See Note 10, “Special Items” for more information on the CRJ900 impairment. Capitalized Interest Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2022 and 2021, the Company capitalized interest costs of approximately $ 1.9 million, and during the year ended December 31, 2020, the Company capitalized interest costs of approximately $ 1.7 million. Maintenance The Company operates under a U.S. Federal Aviation Administration approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls. The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft. Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract. The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred. In 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year as a maintenance expense. There was not a similar expense in 2022 and 2021. Flying Agreements and Airport Customer Service and Other Revenues The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement. Under the Company’s capacity purchase agreements with United, Delta, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase 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 years ended December 31, 2022, 2021 and 2020, capacity purchase arrangements represented approximately 88.0 %, 84.3 % and 87.0 % of the Company’s flying agreements revenue, respectively. 53 Table of Contents 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 determines 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 years ended December 31, 2022, 2021 and 2020, prorate flying agreements represented approximately 12.0 %, 15.7 %, and 13.0 % of the Company’s flying agreements revenue, respectively. The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2022, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2022 2021 ​ 2020 Capacity purchase agreements flight operations revenue (non-lease component) ​ $ 2,028,308 ​ ​ 1,678,219 ​ ​ 1,265,923 Capacity purchase agreements fixed aircraft lease revenue ​ ​ 504,529 ​ ​ 527,173 ​ ​ 526,018 Capacity purchase agreements variable aircraft lease revenue ​ 17,664 ​ ​ — ​ ​ — Prorate agreements revenue ​ 349,336 ​ ​ 409,684 ​ ​ 268,860 Flying agreements revenue ​ $ 2,899,837 $ 2,615,076 ​ $ 2,060,801 ​ The Company allocates the total consideration received under its capacity purchase agreements between the lease and non-lease components based on stand-alone selling prices. 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 accounted for 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 (loss). During the year ended December 31, 2022, the Company amended its capacity purchase agreements with certain major airline partners that reduced certain contractual fixed monthly payments and increased certain contractual variable payments. Accordingly, the Company re-evaluated the allocation of the total consideration between the lease and non-lease components for the amended agreements, including the allocation of the consideration to the fixed and variable lease components. As a result of these amendments, the Company deferred recognizing lease revenue on $ 22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, under the straight-line method. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income (loss) because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements. A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement. The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period. The Company recognizes revenue attributed to the non-lease component received as fixed monthly payments per aircraft 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 2020 as a result of the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft for operating the aircraft did not align with revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly payments the Company received for operating the aircraft under its capacity purchase 54 Table of Contents agreements beginning in 2020. In 2022, the Company deferred $ 18.7 million of fixed monthly payments under certain agreements and recognized $ 11.5 million of unbilled revenue under certain other agreements, compared to recognizing previously deferred revenue of $ 6.8 million and $ 8.4 million of unbilled revenue in 2021. The Company’s deferred revenue and unbilled revenue balance is measured on a contract-by-contract basis and 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 respective contract terms. The Company’s total deferred revenue balance, as of December 31, 2022, was $ 144.7 million, including $ 5.2 million in other current liabilities and $ 139.5 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2022, was $ 19.9 million, including $ 9.9 million in other current assets and $ 10.0 million in other long-term assets. The Company’s deferred revenue balance as of December 31, 2021, was $ 103.9 million, including $ 24.5 million in other current liabilities and $ 79.4 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2021, of $ 8.4 million was included in other long-term assets. 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. In the event a flying agreement includes a mid-term rate reset to adjust rates prospectively and the contractual rates under the Company’s flying agreements have not been finalized at quarterly or annual financial statement dates, the Company applies the variable constraint guidance under Topic 606, where the Company records revenue to the extent it believes that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under Topic 606. The following summarizes the significant provisions of each code-share agreement the Company has with each major airline partner through SkyWest Airlines: 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 under the agreement between 2024 and 2029 · The average remaining term of the aircraft under contract is 3.5 years 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 ​ 84 41 5 ​ · Individual aircraft have scheduled removal dates from 2023 to 2033 · The average remaining term of the aircraft under contract is 5.6 years Delta Connection Prorate Agreement (prorate agreement) ​ · CRJ 200 ​ 25 * ​ · Terminable with 30 -day notice Total under Delta Connection Agreements ​ ​ ​ 155 ​ ​ ​ 55 Table of Contents American Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates American Agreement (capacity purchase agreement) ​ · E175 · CRJ 700 ​ 20 80 ​ · Individual aircraft have scheduled removal dates from 2023 to 2032 · The average remaining term of the aircraft under contract is 4.3 years Total under American Agreement ​ ​ ​ 100 ​ ​ ​ 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 · The average remaining term of the aircraft under contract is 8.8 years ​ * The Company’s prorate agreements are based on specific routes, not a specific aircraft count. The number of aircraft listed above for each prorate agreement approximates the number of aircraft the Company uses to serve the prorate routes. In addition to the contractual arrangements described above, as of December 31, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 aircraft into service, with delivery dates currently scheduled in 2023 and 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. 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 years ended December 31, 2022, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2022 2021 ​ 2020 Operating lease revenue relating to lease payments ​ $ 48,714 ​ $ 46,532 ​ $ 34,791 Operating lease revenue relating to variable lease payments ​ ​ 17,050 ​ ​ 19,998 ​ ​ 5,710 Airport customer service and other revenue ​ ​ 39,324 ​ ​ 31,885 ​ ​ 25,804 Lease, airport services and other ​ $ 105,088 ​ $ 98,415 ​ $ 66,305 56 Table of Contents The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of December 31, 2022 (in thousands): ​ ​ ​ ​ 2023 $ 45,900 2024 ​ 45,177 2025 ​ 40,207 2026 ​ 34,640 2027 ​ 34,619 Thereafter ​ 86,182 ​ ​ $ 286,725 Of the Company’s $ 5.5 billion of property and equipment, net as of December 31, 2022, $ 221.0 million of regional jet aircraft and spare engines were 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. As of December 31, 2022, the Company had $ 100.5 million in accounts receivable of which $ 73.7 million related to flying agreements. As of December 31, 2021, the Company had $ 65.3 million in accounts receivable of which $ 50.8 million related to flying agreements. Allowance for Credit Losses The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020. At adoption, the Company’s primary financial assets included trade receivables from its flying agreements, a note receivable from the sale of the Company’s subsidiary, ExpressJet Airlines, Inc., in 2019, and receivables from aircraft manufacturers and other third parties in the airline industry. The Company recorded a credit loss of $ 11.6 million net of income tax in conjunction with the adoption of Topic 326. The Company recorded this credit loss as a January 1, 2020, beginning balance sheet entry to retained earnings (net of income tax). The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of December 31, 2022, the Company had gross receivables of $ 122.5 million in current assets and gross receivables of $ 210.5 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or note receivable. During the year ended December 31, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities. 57 Table of Contents The following table summarizes the changes in allowance for credit losses: ​ ​ ​ ​ ​ ​ Allowance for Credit Losses Balance at January 1, 2020 ​ ​ 15,388 Adjustments to credit loss reserves ​ ​ 30,837 Write-offs charged against allowance ​ ​ — Balance at December 31, 2020 ​ $ 46,225 Adjustments to credit loss reserves ​ ​ ( 4,249 ) Write-offs charged against allowance ​ ​ — Balance at December 31, 2021 ​ $ 41,976 Adjustments to credit loss reserves ​ ( 4,591 ) Write-offs charged against allowance ​ — Balance at December 31, 2022 ​ $ 37,385 ​ Income Taxes The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Net Income (Loss) Per Common Share Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 PSP1 and Treasury Loan Warrants (1) ​ ​ 437 ​ ​ — ​ ​ 582 PSP2 Warrants (2) ​ ​ 125 ​ ​ — ​ ​ — PSP3 Warrants (3) ​ ​ 78 ​ ​ 78 ​ ​ — Employee Stock Awards ​ ​ 219 ​ ​ — ​ ​ 314 Total antidilutive securities ​ ​ 859 ​ ​ 78 ​ ​ 896 (1) Pursuant to the payroll support program established under the 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 2021 Consolidated 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 (“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, for the years ended December 31, 2022, 2021 and 2020, 146,000 , 140,000 and 178,000 performance share units (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2022, 2021 and 2020, respectively. 58 Table of Contents The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 Numerator: ​ ​ ​ ​ Net income (loss) ​ $ 72,953 ​ $ 111,910 ​ $ ( 8,515 ) Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share weighted average shares ​ 50,548 ​ 50,348 ​ 50,195 Dilution due to employee equity awards and warrants ​ 96 ​ 405 ​ — Diluted earnings per share weighted average shares ​ 50,644 ​ 50,753 ​ 50,195 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share ​ $ 1.44 ​ $ 2.22 ​ $ ( 0.17 ) Diluted earnings (loss) per share ​ $ 1.44 ​ $ 2.20 ​ $ ( 0.17 ) ​ Comprehensive Income (Loss) Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation (or depreciation) on marketable debt securities. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. Marketable securities are reported at fair value based on market quoted prices in the consolidated balance sheets. If quoted prices in active markets are no longer available, the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. Certain investments in other companies are reported at fair value based on market quoted prices or using the Black Scholes Option Pricing model in the consolidated balance sheets. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt. Segment Reporting GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company has two reportable segments: SkyWest Airlines and SkyWest Leasing. Information pertaining to the Company’s reportable segments is presented in Note 3, Segment Reporting . (2) Recovery from the COVID-19 Pandemic and Labor Impact COVID-19 had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021. During 2022, passenger demand recovered; however, indirect factors of COVID-19, such as employee attrition, particularly captain attrition, and workforce shortages negatively impacted the Company’s operations in 2022. Payroll Support Programs. In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the PSP1 under the CARES Act, the PSP2 under the 2021 Appropriations Act and the PSP3 under the American Rescue Plan Act. The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021. Other conditions included restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S. Department of Transportation and certain limitations on executive compensation. The payments received under the payroll support 59 Table of Contents programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan. In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock. The Company recorded the payroll grant proceeds as an offset to operating expenses in the period the funds were intended to compensate. The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021. No grants were received or recognized during 2022. In 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury (“Secured Loan”) and borrowed $ 60.0 million under the agreement and in conjunction therewith, issued warrants to purchase shares of the Company’s common stock. During 2021, the Company repaid all amounts outstanding under the secured loan with Treasury, and in connection with such repayment, terminated the Secured Loan. The following table summarizes the amounts received and warrants issued under the payroll support programs and secured loan facility (in thousands except warrant amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ Grant Loan ​ Number of Warrants PSP1 ​ $ 450,701 ​ $ 345,491 ​ $ 105,210 ​ 370,720 Secured Loan ​ ​ 60,000 ​ ​ — ​ ​ 60,000 ​ 211,416 PSP2 ​ ​ 268,070 ​ ​ 217,649 ​ ​ 50,421 ​ 124,773 PSP3 ​ 250,029 ​ 205,020 ​ 45,009 ​ 78,317 Total ​ $ 1,028,800 ​ $ 768,160 ​ $ 260,640 ​ 785,226 ​ See Note 11, “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury. (3) Segment Reporting GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company’s two reportable 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. Additionally, aircraft removed from SkyWest Airlines operations and held for sale are included in the SkyWest Leasing segment. 60 Table of Contents The following represents the Company’s segment data for the years ended December 31, 2022, 2021, and 2020 (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2022 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 2,492,318 ​ $ 512,607 ​ $ 3,004,925 Operating expense ​ 2,525,076 ​ 298,687 ​ 2,823,763 Depreciation and amortization expense ​ 182,475 ​ 212,077 ​ 394,552 Interest expense ​ 12,805 ​ 114,278 ​ 127,083 Segment profit (loss) (2) ​ ( 45,563 ) ​ 99,642 ​ 54,079 Total assets (as of December 31, 2022) ​ 2,977,804 ​ 4,436,749 ​ 7,414,553 Capital expenditures (including non-cash) ​ 82,891 ​ 579,426 ​ 662,317 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2021 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 2,192,432 ​ $ 521,059 ​ $ 2,713,491 Operating expense ​ 2,177,524 ​ 260,100 ​ 2,437,624 Depreciation and amortization expense ​ 210,281 ​ 229,917 ​ 440,198 Special items - impairment charges ​ ​ 84,592 ​ ​ — ​ ​ 84,592 Interest expense ​ 13,360 ​ 109,762 ​ 123,122 Segment profit (2) ​ 1,548 ​ 151,197 ​ 152,745 Total assets (as of December 31, 2021) ​ 2,957,745 ​ ​ 4,168,202 ​ 7,125,947 Capital expenditures (including non-cash) ​ 128,712 ​ ​ 438,325 ​ 567,037 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ ​ SkyWest ​ SkyWest ​ ​ ​ Airlines Leasing Consolidated Operating revenues (1) ​ $ 1,636,762 ​ $ 490,344 ​ $ 2,127,106 Operating expense ​ 1,716,808 ​ 301,496 ​ 2,018,304 Depreciation and amortization expense ​ 221,216 ​ 253,743 ​ 474,959 Interest expense ​ 12,381 ​ 110,792 ​ 123,173 Segment profit (loss) (2) ​ ( 92,427 ) ​ 78,056 ​ ( 14,371 ) Total assets (as of December 31, 2020) ​ 2,804,259 ​ ​ 4,083,363 ​ 6,887,622 Capital expenditures (including non-cash) ​ 124,825 ​ ​ 335,658 ​ 460,483 (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. 61 Table of Contents (4) Long-term Debt Long-term debt consisted of the following as of December 31, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2022 ​ 2021 Notes payable to banks, due in quarterly installments, plus interest at 2.33 % to 5.95 % through 2034, secured by aircraft ​ $ 2,604,058 ​ $ 2,535,827 ​ Notes payable to banks, due in monthly or semi-annual installments, plus interest at 2.68 % to 5.66 % through 2032, secured by aircraft and engines ​ 604,613 ​ 404,471 ​ Notes payable to U.S. Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus spread from 2025 through 2031, unsecured ​ 200,640 ​ 200,640 ​ Long-term debt ​ $ 3,409,311 ​ $ 3,140,938 ​ Current portion of long-term debt ​ ( 442,360 ) ​ ( 395,371 ) ​ Less long-term portion of unamortized debt issue cost, net ​ ​ ( 25,179 ) ​ ​ ( 28,147 ) ​ Long-term debt, net of current maturities and debt issue costs ​ $ 2,941,772 ​ $ 2,717,420 ​ ​ ​ ​ ​ ​ ​ ​ ​ Current portion of long-term debt ​ 442,360 ​ 395,371 ​ Less current portion of unamortized debt issue cost, net ​ ​ ( 3,858 ) ​ ​ ( 3,573 ) ​ Current portion of long-term debt, net of debt issue costs ​ $ 438,502 ​ $ 391,798 ​ ​ During 2022, the Company took delivery of 25 new E175 aircraft that the Company financed through $ 516.6 million of long-term debt. The debt associated with the 25 E175 aircraft has 5 - to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft. During 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 December 31, 2022 and 2021, the Company had $ 3.05 billion and $ 2.94 billion, respectively, of long-term debt obligations primarily related to the acquisition of aircraft and certain spare engines. The average effective interest rate on the debt related to those long-term debt obligations at December 31, 2022 and 2021, was approximately 4.0 % and 3.8 %, respectively. The aggregate amounts of principal maturities of long-term debt as of December 31, 2022 were as follows (in thousands): ​ ​ ​ ​ ​ 2023 $ 442,360 2024 ​ 443,642 ​ 2025 ​ 527,564 ​ 2026 ​ 504,269 ​ 2027 ​ 457,326 ​ Thereafter ​ 1,034,150 ​ ​ ​ $ 3,409,311 ​ ​ As of December 31, 2022, SkyWest Airlines had a $ 100 million line of credit. As of December 31, 2021, SkyWest Airlines had a $ 75 million line of credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of December 31, 2022 and 2021, SkyWest Airlines had no amounts outstanding under the line of credit facility. However, at December 31, 2022 and 2021, the Company had $ 29.9 million and $ 31.4 million, respectively, in letters of credit issued under the facility which reduced the amount available under the facility to $ 70.1 million and $ 43.6 million, respectively. The line of credit expires March 25, 2025 and has a variable interest rate of 3.5 % plus the one month SOFR rate. As of December 31, 2022 and 2021, the Company had $ 59.2 million and $ 61.4 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. 62 Table of Contents 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 December 31, 2022 and 2021, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 Carrying value ​ $ 3,409,311 ​ $ 3,140,938 Fair value ​ $ 3,264,704 ​ $ 3,132,072 ​ ​ (5) Income Taxes The provision for income taxes includes the following components (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 Current tax provision (benefit): ​ ​ ​ ​ Federal ​ $ ( 7,319 ) ​ $ — ​ $ ( 4,397 ) ​ State ​ 1,813 ​ 846 ​ ( 875 ) ​ ​ ​ ( 5,506 ) ​ 846 ​ ( 5,272 ) ​ Deferred tax provision (benefit): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ 21,587 ​ 32,510 ​ 6,659 ​ State ​ 3,549 ​ 5,344 ​ ( 199 ) ​ ​ ​ 25,136 ​ 37,854 ​ 6,460 ​ Provision for income taxes ​ $ 19,630 ​ $ 38,700 ​ $ 1,188 ​ ​ The following is a reconciliation between a federal income tax rate of 21 % and the effective tax rate which is derived by dividing the provision for income taxes by the income (loss) before the provision for income taxes (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 Computed provision (benefit) for income taxes at the statutory rate $ 19,442 $ 31,628 $ ( 1,539 ) ​ Increase (decrease) in income taxes resulting from: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State income tax provision, net of federal income tax benefit ​ 4,295 ​ 6,247 ​ 173 ​ Non-deductible expenses ​ ​ 546 ​ ​ 1,007 ​ ​ 2,539 ​ Valuation allowance changes affecting the provision for income taxes ​ 1,716 ​ — ​ ( 892 ) ​ Excess tax benefits from share-based compensation ​ ​ 534 ​ ​ ( 92 ) ​ ​ ( 1,434 ) ​ Other, net ​ ( 6,903 ) ​ ( 90 ) ​ 2,341 ​ Provision for income taxes ​ $ 19,630 ​ $ 38,700 ​ $ 1,188 ​ ​ For the year ended December 31, 2022, the Company recorded a $ 1.7 million valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period. For the year ended December 31, 2020, the Company released $ 0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period. The increase in the valuation allowance for 2022 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized. The Company recorded a $ 0.5 million expense, $ 0.1 million benefit and $ 1.4 million benefit from share-based compensation in 2022, 2021, and 2020, respectively, relating to ASU 2016-09 which, requires excess tax benefits and 63 Table of Contents deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest. For the year ended December 31, 2022, the Company recorded a $ 7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 which is recorded in “Other, net” above. The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2022 and 2021, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2022 ​ 2021 Deferred tax assets: ​ ​ ​ Accrued benefits ​ $ 29,154 ​ $ 21,401 ​ Net operating loss carryforward ​ 186,517 ​ 175,659 ​ Aircraft credits ​ 77,962 ​ 22,265 ​ Deferred revenue ​ ​ 35,385 ​ ​ 25,405 ​ Operating lease liabilities ​ ​ 39,209 ​ ​ 57,991 ​ Interest deduction limitation ​ ​ 26,469 ​ ​ — ​ Accrued reserves and other ​ 49,972 ​ 31,431 ​ Total deferred tax assets ​ 444,668 ​ 334,152 ​ Valuation allowance ​ ( 1,716 ) ​ — ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ Accelerated depreciation ​ ( 1,094,538 ) ​ ( 940,867 ) ​ Operating lease right-of-use assets ​ ​ ( 35,474 ) ​ ​ ( 56,521 ) ​ Total deferred tax liabilities ​ ( 1,130,012 ) ​ ( 997,388 ) ​ Net deferred tax liability ​ $ ( 687,060 ) ​ $ ( 663,236 ) ​ ​ The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets using the straight-line method (see Note 1, “Nature of Operations and Summary of Significant Accounting Policies”). At December 31, 2022 and 2021, the Company had federal net operating losses of approximately $ 817.4 million and $ 745.8 million and state net operating losses of approximately $ 380.6 million and $ 554.7 million, respectively. The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2022, was 21.0 % and 3.45 % , respectively. The Company anticipates that the federal and state net operating losses will start to expire in 2037 and 2023, respectively. The Company has no ongoing federal examinations. The Company has one ongoing state examination for tax year 2020. Federal tax years 2019, 2020 and 2021 are open to examination. Under Accounting Standard Codification (“ASC”) Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2022, 2021, and 2020 is as follows (in thousands) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 Unrecognized tax benefits at the beginning of year $ 15,529 $ 14,980 $ 14,620 Gross increases - current year tax positions ​ ​ — ​ ​ — ​ ​ — Gross increases - prior year tax positions ​ 343 ​ 549 ​ 360 Gross decreases - prior year tax positions ​ ​ ( 7,662 ) ​ ​ — ​ ​ — Unrecognized tax benefits at end of year ​ $ 8,210 ​ $ 15,529 ​ $ 14,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and penalties in year-end balance ​ $ 607 ​ $ 976 ​ $ 427 ​ 64 Table of Contents For the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 343,000 , $ 549,000 , and $ 360,000 , respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes. For the year ended December 31, 2022, the Company released $ 7.7 million of the prior year uncertain tax position, including interest, as the tax year statutes impacted by these positions have closed. (6) Commitments and Contingencies Self-Insurance The Company self-insures a portion of its potential losses from claims related to workers’ compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using standard industry practices and the Company’s actual experience. The Company uses judgment and estimates in determining the ultimate aggregate liabilities for claims incurred in its workers’ compensation liability. The Company also used assumptions in determining the workers compensation liability such as an estimation of loss payment and loss reporting development patterns. At December 31, 2022 and 2021, the Company’s accrued workers’ compensation liability totaled $ 21.6 million and $ 17.5 million, respectively, of which $ 8.0 million and $ 7.1 million, respectively, was short-term and included in other current liabilities. Actual results could differ from these estimates. Legal Matters The Company is subject to certain legal actions which it considers routine to its business activities. As of December 31, 2022, 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. Concentration Risk and Significant Customers The Company requires no collateral from its major airline partners or customers, but monitors the financial condition of its major airline partners. Under the majority of the Company’s code-share agreements, the Company receives weekly payments from its major code-share partners that approximate a significant percentage of the compensation earned for such period. Additionally, the Company provides certain customer service functions at multiple airports for various airlines and the Company maintains a credit loss reserve based upon expected collectability of all accounts receivable. For the years ended December 31, 2022, 2021, and 2020, the Company’s contractual relationships with Delta and United combined accounted for approximately 72.5 %, 73.5 % and 76.4 %, respectively of the Company’s total revenues. Employees Under Collective Bargaining Agreements As of December 31, 2022, the Company had approximately 13,582 employees. Although no SkyWest Airlines employees are represented by a national union, the majority of SkyWest Airline employees are covered under by a written, stable and binding collective bargaining agreement under the RLA, entered into between SkyWest Airlines and a long-established labor association, such as the SkyWest Airlines Pilot Association (“SAPA”). Aircraft Purchase Commitments As of December 31, 2022, the Company had a purchase commitment to purchase two new E175 aircraft in 2023, one new E175 aircraft in 2024 and one new E175 aircraft in 2025. Guarantees During the year ended December 31, 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, and is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income (loss) 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 65 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. (7) Leases 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 December 31, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from one year to eight years . The Company leases 32 CRJ aircraft under a lease agreement that expires in March 2024. During the year ended December 31, 2022, the Company began storing aircraft under this lease agreement, which shortened the Company’s estimated useful life of the aircraft under the lease and resulted in the Company recognizing $ 11.4 million of accelerated lease expense during the year ended December 31, 2022. 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 December 31, 2022, the Company’s right-of-use assets were $ 151.9 million, the Company’s current maturities of operating lease liabilities were $ 71.7 million, and the Company’s noncurrent lease liabilities were $ 88.6 million. During 2022, the Company paid $ 77.9 million in operating leases reflected as a reduction from operating cash flows. The table below presents lease related terms and discount rates as of December 31, 2022. ​ ​ ​ ​ As of December 31, 2022 Weighted-average remaining lease term for operating leases 6.5 years Weighted-average discount rate for operating leases 6.1 % ​ The Company’s lease costs for 2022 and 2021 included the following components (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ 2022 2021 Operating lease cost ​ $ 97,998 ​ $ 89,891 Variable and short-term lease cost ​ 1,830 ​ 4,468 Sublease income ​ ​ ( 7,089 ) ​ ​ ( 6,552 ) Total lease cost ​ $ 92,739 ​ $ 87,807 ​ As of December 31, 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 will be renewed or replaced by other leases, or the property may be purchased rather than leased. 66 Table of Contents The following table summarizes future minimum rental payments primarily related to leased aircraft and maintenance facilities required under operating leases that had initial or remaining non-cancelable lease terms as of December 31, 2022 (in thousands): ​ ​ ​ ​ ​ 2023 $ 74,557 2024 ​ 32,525 2025 ​ 15,837 2026 ​ 13,427 2027 ​ 12,291 Thereafter ​ 54,298 ​ ​ $ 202,935 ​ Total rental expense for non-cancelable aircraft operating leases was approximately $ 75.4 million, $ 63.4 million and $ 65.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. The minimum rental expense for airport station rents was approximately $ 13.2 million, $ 17.2 million and $ 20.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. (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 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 December 31, 2022 and 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis. Assets measured at fair value on a recurring basis are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements as of December 31, 2022 ​ Total Level 1 Level 2 Level 3 Marketable Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bonds and bond funds ​ $ 624,254 ​ $ — ​ $ 624,254 ​ $ — Commercial paper ​ 319,977 ​ — ​ 319,977 ​ — ​ ​ $ 944,231 ​ $ — ​ $ 944,231 ​ $ — Investments in Other Companies ​ ​ 21,380 ​ ​ 7,200 ​ ​ — ​ ​ 14,180 Cash and Cash Equivalents ​ ​ 102,984 ​ ​ 102,984 ​ ​ — ​ ​ — Total Assets Measured at Fair Value ​ $ 1,068,595 ​ $ 110,184 ​ $ 944,231 ​ $ 14,180 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ — 67 Table of Contents ​ The Company’s “Marketable Securities” classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. See Note 14, “Investments in Other Companies” regarding the Company’s investments in other companies, for the year ended December 31, 2022. The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the year ended December 31, 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. (9) Assets Held for Sal e During the year ended December 31, 2022, the Company committed to a formal plan to sell 14 CRJ700 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 $ 56.7 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 a third-party valuation, market trends and condition of the airframes and engines, considered Level 3 within the fair value hierarchy. 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 $ 51.4 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 year ended December 31, 2022. (10) Special Items During 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 3, “Segment Reporting” for the year ended December 31, 2021. (11) Capital Transactions Preferred Stock The Company is authorized to issue 5,000,000 shares of preferred stock in one or more series without shareholder approval. No shares of preferred stock are presently outstanding. The Company’s Board of Directors is authorized, without any further action by the shareholders of the Company, to (i) divide the preferred stock into series; (ii) designate each such series; (iii) fix and determine dividend rights; (iv) determine the price, terms and conditions on which shares of preferred stock may be redeemed; (v) determine the amount payable to holders of preferred stock in the event of voluntary or involuntary liquidation; (vi) determine any sinking fund provisions; and (vii) establish any conversion privileges. Stock Compensation On May 7, 2019, the Company’s shareholders approved the adoption of the SkyWest, Inc. 2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors, 68 Table of Contents employees, consultants and advisors (the “2019 Incentive Plan”). The 2019 Incentive Plan provides for awards in the form of options to acquire shares of common stock, stock appreciation rights, restricted stock grants, restricted stock units and performance awards. The 2019 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). As of December 31, 2022, the 2019 Incentive Plan had 2.8 million shares remaining available for future issuance. Stock Options The fair value of stock options awarded under the Company’s stock option plans has been estimated as of the grant date using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercises and employee termination in the option pricing model. The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding. The expected volatilities are based on the historical volatility of the Company’s traded stock and other factors. During the years ended December 31, 2022, 2021, and 2020, the Company did not grant any options to purchase shares of common stock to its employees. Options are exercisable for a period as defined by the Compensation Committee on the date granted; however, no stock option will be exercisable before six months have elapsed from the date of grant and no stock option shall be exercisable after seven years from the date of grant. The following table summarizes the stock option activity for all of the Company’s plans for the years ended December 31, 2022, 2021, and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ Aggregate ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ Remaining ​ ​ Intrinsic ​ ​ ​ Average ​ ​ ​ Average ​ ​ Number of ​ Exercise ​ Contractual ​ ​ Value ​ Number of ​ Exercise ​ Number of ​ Exercise ​ ​ Options ​ Price ​ Term ​ ​ ($000) ​ Options ​ Price ​ Options ​ Price Outstanding at beginning of year 16,633 ​ $ 14.62 1.0 years ​ $ 410.4 57,653 $ 14.74 60,231 $ 14.74 ​ Granted — ​ — ​ ​ ​ ​ ​ ​ — ​ — — ​ — ​ Exercised ( 9,817 ) ​ 14.52 ​ ​ ​ ​ ​ ​ ( 41,020 ) ​ 14.78 ( 2,578 ) ​ 14.78 ​ Cancelled — ​ — ​ ​ ​ ​ ​ ​ — ​ — — ​ — ​ Outstanding at end of year 6,816 ​ $ 14.78 0.1 years ​ $ 11.8 16,633 ​ 14.62 57,653 ​ 14.74 ​ Exercisable at December 31, 2022 6,816 ​ $ 14.78 ​ 0.1 years ​ $ 11.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at December 31, 2021 16,633 ​ $ 14.62 ​ 1.0 year ​ $ 410.4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The total intrinsic value of options to acquire shares of the Company’s common stock that were exercised during the years ended December 31, 2022, 2021, and 2020, was $ 0.1 million, $ 1.8 million and $ 0.1 million, respectively. All of the Company’s stock options were vested as of December 31, 2022. The following table summarizes information about the Company’s stock options outstanding at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options Outstanding ​ Options Exercisable ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number ​ Remaining ​ Weighted Average ​ Number ​ Weighted Average Range of Exercise Prices ​ Outstanding ​ Contractual Life ​ Exercise Price ​ Exercisable ​ Exercise Price $ 14.00 to $ 15.00 6,816 0.1 years ​ 14.78 6,816 ​ 14.78 ​ ​ Restricted Stock Units (“RSUs”) During the year ended December 31, 2022, the Company granted 66,680 restricted stock units to certain of the Company’s employees under the 2019 Incentive Plan. The restricted stock units granted during the year ended December 31, 2022, have a three-year cliff-vesting period, during which the recipient must remain employed with the Company or its subsidiaries. The weighted average fair value of the restricted stock units at the date of grants made during the year ended December 31, 2022, was $ 32.86 per share. 69 Table of Contents The following table summarizes the activity of restricted stock units granted to certain Company employees for the years ended December 31, 2022, 2021, and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ Grant-Date Fair ​ ​ Number of RSUs ​ ​ Value Non-vested RSUs outstanding at December 31, 2019 284,686 ​ $ 45.21 ​ Granted 82,505 ​ 61.45 ​ Vested ( 103,231 ) ​ 35.81 ​ Cancelled ( 25,983 ) ​ 52.31 ​ Non-vested RSUs outstanding at December 31, 2020 237,977 ​ $ 54.15 ​ Granted 44,770 ​ 44.87 ​ Vested ( 69,184 ) ​ 53.41 ​ Cancelled ( 13,390 ) ​ 52.28 ​ Non-vested RSUs outstanding at December 31, 2021 200,173 ​ $ 52.45 ​ Granted 66,680 ​ 32.86 ​ Vested ( 86,534 ) ​ 48.69 ​ Cancelled ( 20,297 ) ​ 44.91 ​ Non-vested RSUs outstanding at December 31, 2022 160,022 ​ $ 47.28 ​ ​ Performance Share Units (“PSUs”) During the year ended December 31, 2022, the Compensation Committee granted performance share units, which are performance-based restricted stock units, to certain Company employees. The PSUs have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 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. The Company’s compensation expense for performance share units is based upon the projected number of performance share units estimated to be awarded at the conclusion of the performance period. During 2022, the Compensation Committee awarded 40 % of the shares related to the performance share grant in 2019 based on the Company’s performance for the three years ended December 31, 2021, measured against the pre-established targets for the same period. This resulted in the forfeiture of 45,695 PSUs in 2022 from target related to the 2019 PSU grant. The Compensation Committee will determine the achievement of performance results and corresponding vesting of performance shares for each year’s grant in 2020, 2021 and 2022 following the conclusion of the respective performance period. At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original granted amount for performance share units granted in 2022 and 2021 and 0 % to 200 % for performance share units granted in 2020. 70 Table of Contents The following table summarizes the activity of performance share units granted at target as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ Grant-Date Fair ​ ​ Number of PSUs ​ ​ Value Non-vested PSUs outstanding at December 31, 2019 233,571 ​ $ 45.44 Granted 69,132 ​ 61.45 Additional PSUs awarded from the 2017 grant ​ 83,042 ​ ​ 35.81 Vested ( 166,084 ) ​ 35.81 Cancelled ( 23,052 ) ​ 53.66 Non-vested PSUs outstanding at December 31, 2020 196,609 ​ $ 54.17 Granted 157,210 ​ 44.87 PSUs forfeited from the 2018 grant ​ ( 11,392 ) ​ ​ 53.41 Vested ( 45,644 ) ​ 53.41 Cancelled ( 3,991 ) ​ 53.30 Non-vested PSUs outstanding at December 31, 2021 292,792 ​ $ 49.39 Granted 225,345 ​ 32.73 PSUs forfeited from the 2019 grant ​ ( 45,695 ) ​ ​ 48.87 Vested ( 30,480 ) ​ 48.87 Cancelled ( 13,032 ) ​ 41.81 Non-vested PSUs outstanding at December 31, 2022 428,930 ​ $ 40.96 ​ During the years ended December 31, 2022, 2021 and 2020, the Company granted fully-vested shares of common stock to the Company’s directors in the amounts of 24,423 , 21,175 and 14,643 shares, respectively, with a weighted average grant-date fair value of $ 32.86 , $ 44.87 and $ 61.45 respectively. During the years ended December 31, 2022, 2021 and 2020, the Company recorded equity-based compensation expense of $ 9.2 million, $ 8.7 million and $ 6.8 million, respectively. As of December 31, 2022, the Company had $ 18.5 million of total unrecognized compensation cost related to non-vested restricted stock grants and non-vested performance stock units. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and estimates of the Company’s future performance for unvested performance share units. The Company expects to recognize this cost over a weighted average period of 1.9 years. Taxes The Company’s treatment of stock option grants of non-qualified options, restricted stock units and performance shares results in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised or the restrictions lapse. Warrants During the year ended December 31, 2021, the Company issued to Treasury warrants to purchase 203,090 shares of the Company’s common stock as part of the PSP E xtension Agreement and the PSP 3 Agreement. The warrants have a five-year term from the date of issuance, and 124,773 of the warrants have an exercise price of $ 40.41 per share and 78,317 of the warrants have an exercise price of $ 57.47 per share. The weighted average grant-date fair value of these warrants was estimated at $ 32.52 and $ 22.31 per share for the 124,773 and 78,317 warrants, respectively, using the Black-Scholes option pricing model. During the year ended December 31, 2020, the Company issued to Treasury warrants to purchase 370,720 shares of the Company’s common stock as part of the CARES Act payroll support. The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance. The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 13.57 per share using the Black-Scholes option pricing model. Additionally, in 2020, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $ 60 million borrowing under the CARES Act Secured Loan facility. 71 Table of Contents The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance. The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 15.22 per share using the Black-Scholes option pricing model. The Company did not issue any warrants for the year ended December 31, 2022. (12) Retirement Plans and Employee Stock Purchase Plans SkyWest Retirement Plan The Company sponsors the SkyWest, Inc. Employees’ Retirement Plan (the “SkyWest Plan”). Employees who are at least 18 years of age are eligible for participation in the SkyWest Plan. Employees may elect to make contributions to the SkyWest Plan. Generally, the Company matches 100 % of such contributions up to levels ranging from 2 % to 12 % of compensation, based on position and years of service. SkyWest Airlines pilots with ten or more years of service receive a non-elective contribution of 12 % of their compensation in place of a matching contribution. Additionally, a discretionary contribution may be made by the Company. The Company’s combined contributions to the SkyWest Plan were $ 45.4 million, $ 42.1 million and $ 31.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. Employee Stock Purchase Plans In May 2009, the Company’s Board of Directors approved the SkyWest, Inc. 2009 Employee Stock Purchase Plan (the “2009 Stock Purchase Plan”). All employees who have completed 90 days of employment with the Company or one of its subsidiaries are eligible to participate in the 2009 Stock Purchase Plan, except employees who own five percent or more of the Company’s common stock. The 2009 Stock Purchase Plan enables employees to purchase shares of the Company’s common stock at a five percent discount, through payroll deductions. Employees can contribute up to 15 % of their base pay, not to exceed $ 25,000 each calendar year, for the purchase of shares. Shares are purchased semi-annually at a five percent discount based on the end of the period price. Employees can terminate their participation in the 2009 Stock Purchase Plan at any time upon written notice. The following table summarizes purchases made under the 2009 Employee Stock Purchase Plans during the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 Number of shares purchased ​ 105,606 ​ 63,962 ​ 65,512 ​ Average price of shares purchased ​ $ 26.66 ​ $ 39.70 ​ $ 42.45 ​ ​ The 2009 Stock Purchase Plan is a non-compensatory plan under the accounting guidance. Therefore, no compensation expense was recorded for the years ended December 31, 2022, 2021, and 2020. (13) Stock Repurchase The Company’s Board of Directors has adopted a stock repurchase program which authorizes the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices. The Company’s stock repurchase program authorizes the repurchase of up to $ 250.0 million of the Company’s common stock commencing on February 5, 2019, of which $ 139.6 million remained available at December 31, 2022. During the year ended December 31, 2020, the Company repurchased 0.4 million shares of common stock for approximately $ 20.0 million at a weighted average price per share of $ 51.87 . The Company did not repurchase any shares of its common stock during 2022 and 2021. Under the terms of the PSP3 Agreement, the Company’s restriction from repurchasing shares of its common stock ended on September 30, 2022. Additionally, during the years ended December 31, 2022, 2021 and 2020, the Company paid $ 1.2 million, $ 1.6 million and $ 6.2 million, respectively, for a net settlement of the income tax obligation on employee equity awards that vested during the applicable periods. 72 Table of Contents (14) 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 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 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 December 31, 2022. As of December 31, 2022, the Company’s investment balance in Aero Engines was $ 26.6 million. The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of the earnings generated by Aero Engines for the year ended December 31, 2022, was $ 1.4 million, which is recorded in “Other income (expense), net” on the Company’s consolidated statements of comprehensive income (loss). Fair Value Method Investment In 2021, the Company entered into a strategic partnership with Eve UAM, to develop a network of deployment for Eve UAM’s eVTOL aircraft. The Company signed a non-binding letter of intent to purchase 100 eVTOL aircraft. During the year ended December 31, 2022, the Company acquired 1,000,000 shares of common stock of 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 Eve Investments for $ 10.0 million. The Company evaluated the Eve Investments under 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): ​ ​ ​ ​ ​ Level 3 Investments: ​ ​ Balance at December 31, 2021 $ — Purchases ​ 6,551 Unrealized gains ​ 7,629 Balance at December 31, 2022 ​ $ 14,180 ​ The Company recognized unrealized gains of $ 11.4 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the year ended December 31, 2022, related to the Eve Investments. As of December 31, 2022, the fair value of the Eve Investments was $ 21.4 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet. 73 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.