What changed in this filing

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Item 1. Financial Statements

2023-10-27 compared with 2023-08-03 · 147 added, 126 removed, 420 unchanged (39% of the section changed)

4 unchanged sentences

(Dollars in Thousands)

September 30,

CURRENT ASSETS:

24 unchanged sentences

LIABILITIES AND STOCKHOLDERS’ EQUITY

September 30,

CURRENT LIABILITIES:

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

82,800,633 and 82,592,830 shares issued as of June 30, 2023, and December 31, 2022, respectively

82,840,372 and 82,592,830 shares issued as of September 30, 2023, and December 31, 2022, respectively

Retained earnings

Treasury stock, at cost, 40,427,758 and 31,994,416 shares as of June 30, 2023, and December 31, 2022, respectively

Treasury stock, at cost, 41,619,716 and 31,994,416 shares as of September 30, 2023, and December 31, 2022, respectively

Accumulated other comprehensive loss

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars and Shares in Thousands, Except per Share Amounts)

Three months ended

Six months ended

Nine months ended

September 30,

OPERATING REVENUES:

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Interest expense

Other income, net

Other income (loss), net

Total other expense, net

INCOME (LOSS) BEFORE INCOME TAXES

INCOME BEFORE INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

NET INCOME (LOSS)

BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

Weighted average common shares:

COMPREHENSIVE INCOME (LOSS):

Net income (loss)

COMPREHENSIVE INCOME:

Net unrealized appreciation (depreciation) on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME (LOSS)

TOTAL COMPREHENSIVE INCOME

See accompanying notes to condensed consolidated financial statements

6 unchanged sentences

Balance at December 31, 2022

Net income (loss)

Exercise of common stock options and vested employee stock awards

9 unchanged sentences

Balance at June 30, 2023

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Treasury stock purchases

Net unrealized appreciation on marketable securities, net of tax of $ 201

Balance at September 30, 2023

See accompanying notes to condensed consolidated financial statements.

14 unchanged sentences

Balance at June 30, 2022

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Net unrealized depreciation on marketable securities, net of tax of $ 843

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In Thousands)

Six months ended

Nine months ended

September 30,

NET CASH PROVIDED BY OPERATING ACTIVITIES

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Due in part to the uncertain rate of recovery from workforce shortages, in addition to other factors, the results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Due in part to the uncertain rate of recovery from workforce shortages, in addition to other factors, the results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

11 unchanged sentences

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 both the six months ended June 30, 2023 and 2022, capacity purchase agreements represented approximately 88.3 % of the Company’s flying agreements revenue.

For the nine months ended September 30, 2023 and 2022, capacity purchase agreements represented approximately 87.2 % and 88.0 % of the Company’s flying agreements revenue, respectively.

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

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The EAS contracts are generally two years in duration and the Company recognizes EAS revenue on a per-completed-flight basis pursuant to the terms of each contract.

For both the six months ended June 30, 2023 and 2022, prorate flying agreements represented approximately 11.7 % of the Company’s flying agreements revenue.

The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2023 and 2022 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

For the nine months ended September 30, 2023 and 2022, prorate flying agreements represented approximately 12.8 % and 12.0 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2023 and 2022 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Capacity purchase agreements flight operations revenue (non-lease component)

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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 three months ended December 31, 2022, the Company amended certain of its capacity purchase agreements resulting in a portion of the Company’s aircraft lease revenue becoming variable beginning in the fourth quarter of 2022.

Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the six months ended June 30, 2023, the Company deferred recognizing lease revenue on $ 40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, 2023, 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.

Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the nine months ended September 30, 2023, the Company deferred recognizing lease revenue on $ 59.3 million of the allocated fixed monthly lease payments received during the nine months ended September 30, 2023, 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 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.

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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.

During the six months ended June 30, 2023, the Company deferred $ 77.4 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $ 6.0 million under certain other agreements, compared to recognizing $ 17.6 million of previously deferred revenue and $ 9.3 million of unbilled revenue during the six months ended June 30, 2022.

The Company’s total deferred revenue balance as of June 30, 2023 was $ 262.1 million, including $ 7.3 million in other current liabilities and $ 254.8 million in other long-term liabilities.

The Company’s unbilled revenue balance was $ 13.9 million as of June 30, 2023, including $ 7.2 million in other current assets and $ 6.7 million in other long-term assets.

Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements.

The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period.

During the nine months ended September 30, 2023, the Company deferred recognizing revenue on $ 111.9 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $ 8.7 million under certain other agreements, compared to recognizing $ 25.8 million of previously deferred revenue and $ 14.4 million of unbilled revenue during the nine months ended September 30, 2022.

The Company’s total deferred revenue balance as of September 30, 2023 was $ 315.9 million, including $ 10.0 million in other current liabilities and $ 305.9 million in other long-term liabilities.

The Company’s unbilled revenue balance was $ 11.2 million as of September 30, 2023, including $ 3.4 million in other current assets and $ 7.8 million in other long-term assets.

The Company’s deferred revenue balance was $ 144.7 million as of December 31, 2022, including $ 5.2 million in other current liabilities and $ 139.5 million in other long-term liabilities.

The Company’s unbilled revenue balance was

$ 19.9 million as of December 31, 2022, including $ 9.9 million in other current assets and $ 10.0 million in other long-term assets.

The Company’s unbilled revenue balance was $ 19.9 million as of December 31, 2022, including $ 9.9 million in other current assets and $ 10.0 million 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.

As of June 30, 2023, the Company had 492 aircraft in scheduled service or under contract pursuant to code-share agreements.

As of September 30, 2023, the Company had 493 aircraft in scheduled service or under contract pursuant to code-share agreements.

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

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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 June 30, 2023, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 regional jet aircraft (“E175”) from Embraer, S.A.

In addition to the contractual arrangements described above, as of September 30, 2023, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 regional jet aircraft (“E175”) from Embraer, S.A.

(“Embraer”) into service, with delivery dates currently s cheduled in 2023 and 2024.

SkyWest Airlines has a capacity purchase agreement with United to place 19 E175 aircraft into service with delivery dates currently scheduled in 2024, 2025 and 2026.

SkyWest Airlines also 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.

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 major airline partner when the aircraft is leased from the major airline partner, 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 disassembling aircraft components such as the engines and parts to be used as spare inventory or to lease the engines to a third party.

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

The following table represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2023 and 2022 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

The following table represents the Company’s lease, airport services and other revenues for the three and nine months ended September 30, 2023 and 2022 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Operating lease revenue

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Lease, airport services and other

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 June 30, 2023 (in thousands):

July 2023 through December 2023

October 2023 through December 2023

Total future minimum rental income under operating leases

Of the Company’s $ 5.5 billion of net property and equipment as of June 30, 2023, $ 211.8 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

Of the Company’s $ 5.5 billion of net property and equipment as of September 30, 2023, $ 206.1 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.

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The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance.

As of June 30, 2023, the Company had gross receivables of $ 123.1 million in current assets and gross receivables of $ 201.7 million in other long-term assets.

As of September 30, 2023, the Company had gross receivables of $ 136.3 million in current assets and gross receivables of $ 200.0 million in other long-term assets.

The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable.

During the six months ended June 30, 2023, the Company

wrote-off a $ 3.6 million receivable that was fully reserved as of December 31, 2022.

During the nine months ended September 30, 2023, the Company wrote-off a $ 3.6 million receivable that was fully reserved as of December 31, 2022.

There were no other significant changes in the outstanding accounts receivable, notes receivable or credit ratings of the entities.

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Write-offs charged against allowance

Balance at June 30, 2023

Balance at September 30, 2023

(3) Stock-Based Compensation

During the six months ended June 30, 2023, the Company granted 125,780 restricted stock units and 391,810 performance shares to certain employees of the Company under the SkyWest, Inc.

During the nine months ended September 30, 2023, the Company granted 125,780 restricted stock units and 391,810 performance shares to certain employees of the Company under the SkyWest, Inc.

2019 Long-Term Incentive Plan.

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The weighted average fair value of these restricted stock units and performance shares on their date of grant was $ 18.65 per share .

During the six months ended June 30, 2023, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the six months ended June 30, 2023, the Company granted 37,534 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 18.65 .

During the nine months ended September 30, 2023, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the nine months ended September 30, 2023, the Company granted 37,534 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 18.65 .

The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur.

1 unchanged sentence

Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics.

During the six months ended June 30, 2023 and 2022, the Company recorded pre-tax stock-based compensation expense of $ 8.6 million and $ 7.4 million, respectively.

During the nine months ended September 30, 2023 and 2022, the Company recorded pre-tax stock-based compensation expense of $ 12.9 million and $ 11.1 million, respectively.

( 4) Stock Repurchase

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In May 2023, the Company’s Board of Directors authorized the repurchase of up to $ 250.0 million of the Company’s common stock, superseding the February 2019 authorization.

At June 30, 2023, $ 185.9 million remains available under the May 2023 authorization.

During the six months ended June 30, 2023, the Company repurchased 8.4 million shares of common stock for $ 194.1 million at a weighted average price per share of $ 23.10 .

The Company also recorded $ 1.9 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the six months ended June 30, 2023.

The Company did not have any stock repurchases during the six months ended June 30, 2022.

(5) 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.

At September 30, 2023, $ 135.9 million remains available under the May 2023 authorization.

During the nine months ended September 30, 2023, the Company repurchased 9.6 million shares of common stock for $ 244.1 million at a weighted average price per share of $ 25.44 .

The Company also recorded $ 2.4 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the nine months ended September 30, 2023.

The Company did not have any stock repurchases during the nine months ended September 30, 2022.

(5) Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period.

Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock.

The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.

The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share.

Securities that could potentially dilute Basic EPS in the future, and which were excluded from the calculation of Diluted EPS because inclusion of such share would be anti-dilutive, are as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

PSP1 and Treasury Loan Warrants (1)

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Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 57.47 per share.

Additionally, during the six months ended June 30, 2023 and 2022, 538,000 and 350,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds for the three and six months ended June 30, 2023 and 2022, respectively.

Additionally, during the nine months ended September 30, 2023 and 2022, 422,000 and 334,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds for the nine months ended September 30, 2023 and 2022, respectively.

The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS are as follows for the periods indicated (in thousands, except per share data):

Three Months Ended

Six Months Ended

Net income (loss)

Nine Months Ended

September 30,

Basic earnings per share weighted average shares

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Diluted earnings per share weighted average shares

Basic earnings (loss) per share

Diluted earnings (loss) per share

Basic earnings per share

Diluted earnings per share

(6) Segment Reporting

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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 and SWC segment includes revenue

earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs and revenue and operating expenses attributed to charter flight services.

The SkyWest Airlines and SWC segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs and revenue and operating expenses attributed to charter flight services.

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.

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Additionally, aircraft removed from SkyWest Airlines’ operations and held for sale are included in the SkyWest Leasing segment.

The following represents the Company’s segment data for the three-month periods ended June 30, 2023 and 2022 (in thousands):

Three months ended June 30, 2023

The following represents the Company’s segment data for the three-month periods ended September 30, 2023 and 2022 (in thousands):

Three months ended September 30, 2023

SkyWest Airlines

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Segment profit (loss) (2)

Total assets (as of June 30, 2023)

Total assets (as of September 30, 2023)

Capital expenditures (including non-cash)

Three months ended June 30, 2022

Three months ended September 30, 2022

SkyWest Airlines

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Interest expense

Segment profit (2)

Total assets (as of June 30, 2022)

Segment profit (loss) (2)

Total assets (as of September 30, 2022)

Capital expenditures (including non-cash)

(1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines and SWC segment.

(1) Prorate revenue and airport customer service revenue are included in the SkyWest Airlines and SWC segment.

(2) Segment profit (loss) is equal to operating income less interest expense.

The following represents the Company’s segment data for the six-month periods ended June 30, 2023 and 2022 (in thousands):

Six months ended June 30, 2023

The following represents the Company’s segment data for the nine-month periods ended September 30, 2023 and 2022 (in thousands):

Nine months ended September 30, 2023

SkyWest Airlines

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Segment profit (loss) (2)

Total assets (as of June 30, 2023)

Total assets (as of September 30, 2023)

Capital expenditures (including non-cash)

Six months ended June 30, 2022

Nine months ended September 30, 2022

SkyWest Airlines

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Segment profit (2)

Total assets (as of June 30, 2022)

Total assets (as of September 30, 2022)

Capital expenditures (including non-cash)

(1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines and SWC segment.

(1) Prorate revenue and airport customer service revenue are included in the SkyWest Airlines and SWC segment.

(2) Segment profit (loss) is equal to operating income less interest expense.

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

During the six months ended June 30, 2023, the Company acquired 32 CRJ aircraft under an early lease buyout arrangement with the lessor for $ 125.5 million.

As of June 30, 2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased 11 aircraft under long-term lease agreements with remaining terms ranging from one year to seven years .

During the nine months ended September 30, 2023, the Company acquired 35 CRJ aircraft under early lease buyout arrangements with the lessors for $ 142.4 million, which included three CRJ aircraft acquired during the three months ended September 30, 2023.

The aircraft were in the Company’s operating fleet when the lease buyouts occurred.

As of September 30, 2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased eight aircraft under long-term lease agreements with remaining terms ranging from six to seven years .

Airport facilities

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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.

As of June 30, 2023, the Company’s right-of-use assets were $ 92.8 million, the Company’s current maturities of operating lease liabilities were $ 18.7 million, and the Company’s noncurrent lease liabilities were $ 73.9 million.

During the six months ended June 30, 2023, the Company paid $ 17.9 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of June 30, 2023:

As of September 30, 2023, the Company’s right-of-use assets were $ 85.7 million, the Company’s current maturities of operating lease liabilities were $ 19.2 million, and the Company’s noncurrent lease liabilities were $ 66.5 million.

During the nine months ended September 30, 2023, the Company paid $ 26.2 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of September 30, 2023:

Weighted-average remaining lease term for operating leases

Weighted-average discount rate for operating leases

The Company’s lease costs for the three and six months ended June 30, 2023 and 2022 included the following components (in thousands):

For the three months ended June 30,

For the six months ended June 30,

The Company’s lease costs for the three and nine months ended September 30, 2023 and 2022 included the following components (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Operating lease cost

2 unchanged sentences

Total lease cost

As of June 30, 2023, 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.

As of September 30, 2023, the Company leased aircraft, airport facilities, office space and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.

The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased.

The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of June 30, 2023 (in thousands):

July 2023 through December 2023

The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2023 (in thousands):

October 2023 through December 2023

Total future minimum operating lease payments

As of June 30, 2023, the Company had a firm purchase commitment for four E175 aircraft from Embraer with anticipated delivery dates through 2025.

As of September 30, 2023, the Company had a firm purchase commitment for 23 E175 aircraft from Embraer with anticipated delivery dates through 2026.

The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):

Jul - Dec 2023

Oct - Dec 2023

Operating lease payments for aircraft and facility obligations

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Total commitments and obligations

(1) At June 30, 2023, the Company’s long-term debt had fixed interest rates.

(1) At September 30, 2023, the Company’s long-term debt had fixed interest rates.

In 2022, the Company agreed to guarantee $ 19.8 million of debt for a 14 CFR Part 135 air carrier.

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The purpose of the arrangement is to increase the potential number of commercial pilots in the Company’s hiring pipeline.

In exchange for providing the guarantee, the Company received 6.5 % of the guaranteed amount as consideration, payable in common stock of the Part 135 air carrier, which will be recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income over the term of the guarantee.

The Company also recorded the estimated credit loss associated with the guarantee in “Other long-term liabilities” on the Company’s 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.

In exchange for providing the guarantee, the Company received 6.5 % of the guaranteed amount as consideration, payable in the estimated value of common stock of the Part 135 air carrier.

During the three months ended September 30, 2023, the Company sold all of its shares of common stock of the Part 135 air carrier and recorded a gain of $ 0.5 million in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income.

The Company also recorded the estimated credit loss associated with the guarantee based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.

(8) Fair Value Measurements

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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 June 30, 2023, and December 31, 2022, the Company held certain assets that are required to be measured at fair value on a recurring basis.

As of September 30, 2023, and December 31, 2022, the Company held certain assets that are required to be measured at fair value on a recurring basis.

The Company’s assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements as of June 30, 2023

Fair Value Measurements as of September 30, 2023

Marketable Securities

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

See Note 10 “Investments in Other Companies” regarding the Company’s investment in other companies, for the six months ended June 30, 2023.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the six months ended June 30, 2023.

See Note 10 “Investments in Other Companies” regarding the Company’s investment in other companies, for the nine months ended September 30, 2023.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2023.

The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

As of June 30, 2023, and December 31, 2022, the Company classified $ 747.9 million and $ 944.2 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 .

As of June 30, 2023, and December 31, 2022, the cost of the Company’s marketable securities was $ 749.0 million and $ 949.3 million, respectively.

As of June 30, 2023, the Company had $ 56.7 million in held-for-sale assets included in “Other current assets” on the Company’s consolidated balance sheet related to 14 CRJ700 aircraft.

As of September 30, 2023, and December 31, 2022, the Company classified $ 694.2 million and $ 944.2 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 .

As of September 30, 2023, and December 31, 2022, the cost of the Company’s marketable securities was $ 694.4 million and $ 949.3 million, respectively.

As of September 30, 2023, the Company had $ 56.7 million in held-for-sale assets included in “Other current assets” on the Company’s consolidated balance sheet related to 14 CRJ700 aircraft.

The fair values were based upon observable and unobservable inputs, including a third-party valuation, market trends and conditions 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.

The Company did not record a gain or loss associated with its assets held for sale during the six months ended June 30, 2023.

The Company did not record a gain or loss associated with its assets held for sale during the nine months ended September 30, 2023.

(9) Long-term Debt

Long-term debt consisted of the following as of June 30, 2023, and December 31, 2022 (in thousands):

June 30, 2023

Long-term debt consisted of the following as of September 30, 2023, and December 31, 2022 (in thousands):

September 30, 2023

December 31, 2022

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Total long-term debt, net of debt issue costs

As of June 30, 2023, the Company had $ 3.2 billion of total long-term debt, which consisted of $ 3.0 billion of debt used to finance aircraft and spare engines and $ 200.6 million of unsecured debt payable to U.S.

The average effective interest rate on the Company’s debt was approximately 4.1 % at June 30, 2023.

During six months ended June 30, 2023, the Company executed a promissory note for $ 25.0 million.

As of September 30, 2023, the Company had $ 3.1 billion of total long-term debt, which consisted of $ 2.9 billion of debt used to finance aircraft and spare engines and $ 200.6 million of unsecured debt payable to U.S.

The average effective interest rate on the Company’s debt was approximately 4.1 % at September 30, 2023.

During nine months ended September 30, 2023, the Company executed a promissory note for $ 25.0 million.

The promissory note has an eight -year term, is due in monthly installments, has a fixed annual interest rate of 5.6 % and is secured by spare engines.

As of June 30, 2023 and December 31, 2022, the Company had $ 59.6 million and $ 59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of June 30, 2023, SkyWest Airlines had a $ 100.0 million line of credit.

As of September 30, 2023 and December 31, 2022, the Company had $ 50.8 million and $ 59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of September 30, 2023, SkyWest Airlines had a $ 100.0 million line of credit.

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

As of June 30, 2023, SkyWest Airlines had no amounts outstanding under the facility.

However, at June 30, 2023, SkyWest Airlines had $ 29.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 70.1 million.

As of September 30, 2023, SkyWest Airlines had no amounts outstanding under the facility.

However, at September 30, 2023, SkyWest Airlines had $ 29.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 70.1 million.

The line of credit expires March 25, 2025 and has a variable interest rate of 3.5 % plus the one month SOFR rate.

2 unchanged sentences

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 June 30, 2023 and December 31, 2022, were as follows (in thousands):

June 30, 2023

The carrying value and fair value of the Company’s long-term debt as of September 30, 2023 and December 31, 2022, were as follows (in thousands):

September 30, 2023

December 31, 2022

3 unchanged sentences

During 2019, the Company created a joint venture with Regional One, Inc.

and, as of June 30, 2023, has invested a total of $ 26.6 million for an ownership interest in Aero Engines, LLC.

and, as of September 30, 2023, has invested a total of $ 26.6 million for an ownership interest in Aero Engines, LLC.

(“Aero Engines”).

2 unchanged sentences

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 June 30, 2023.

As of June 30, 2023, the Company’s investment balance in Aero Engines was $ 24.9 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of loss generated by Aero Engines for the six months ended June 30, 2023, was $ 0.1 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income.

Aero Engines had no debt outstanding as of September 30, 2023.

September 30, 2023, the Company’s investment balance in Aero Engines was $ 25.0 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of income generated by Aero Engines for the nine months ended September 30, 2023, was $ 0.1 million, which is recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income.

Fair Value Method Investments

3 unchanged sentences

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 intent of the put option is to reduce the Company’s investment risk in Eve, and the put option expires in December 2031.

The Company is restricted from selling the shares underlying the warrant until May 2025, and the warrant expires in May 2032.

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

The Company evaluated the Eve Investments under Accounting Standard Codification (“ASC”) Topic 321, “Investments – Equity Securities” and ASC Topic 815, “Derivatives and Hedging,” and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings.

During the three months ended September 30, 2023, the Company sold 471,654 shares of common stock of Eve, which concurrently forfeited the number of shares subject to the put option from the Eve shareholder by 471,654 shares.

The Company’s sale of the Eve shares, net of the forfeited put options, resulted in a realized gain of $ 1.7 million and was included in “Other income (loss) , net” on the Company’s consolidated statements of comprehensive income for the three months ended September 30, 2023.

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 50 % , 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:

The warrant and put option are classified as Level 3 within the fair value hierarchy (“Eve Level 3 Investments”), and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the Eve Level 3 Investments , including an expected volatility of 50 % , which is a significant unobservable input that was derived from historical volatility of comparable companies.

The table below shows the reconciliation of the Eve Level 3 Investments (in thousands):

Eve Level 3 Investments:

Balance at December 31, 2022

Realized loss on forfeiture of put options

Unrealized gains

Balance at June 30, 2023

The Company recognized unrealized gains of $ 7.9 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the six months ended June 30, 2023, related to the Eve Investments.

As of June 30, 2023, the fair value of the Eve Investments was $ 29.3 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

Balance at September 30, 2023

The Company recognized unrealized losses of $ 0.6 million in “Other income (loss) , net” on the Company’s consolidated statements of comprehensive income for the nine months ended September 30, 2023, related to the Eve Investments.

As of September 30, 2023, the fair value of the Eve Investments was $ 18.5 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

(11) Income Taxes

The Company’s effective tax rate for the six months ended June 30, 2023 was 21.6 %.

The Company’s effective tax rate for the six months ended June 30, 2023 varied from the federal statutory rate of 21.0 % primarily due to the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the six months ended June 30, 2023, partially offset by the provision for state income taxes.

The Company’s effective tax rate for the six months ended June 30, 2022 was 26.5 %.

The Company’s effective tax rate for the six months ended June 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes, the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the six months ended June 30, 2022.

The Company’s effective tax rate for the nine months ended September 30, 2023 was ( 6.0 )%.

The Company’s effective tax rate for the nine months ended September 30, 2023 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.6 million of a previously recorded uncertain tax position liability and a benefit from a partial release of the valuation allowance on state net operating losses anticipated to be utilized prior to expiration.

These benefits were partially offset by the provision for state income taxes, the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the nine months ended September 30, 2023.

The Company’s effective tax rate for the nine months ended September 30, 2022 was 22.2 %.

The Company’s effective tax rate for the nine months ended September 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization.

(12) Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities.

As of June 30, 2023, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

As of September 30, 2023, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

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

What changed 10-Q

Item 1. Financial Statements