What changed in this filing

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Item 1A. Risk Factors

2024-02-15 compared with 2023-02-16 · 134 added, 111 removed, 266 unchanged (48% of the section changed)

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Risks That May Disrupt Our Operations

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

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

Our operations rely on recruiting and training qualified pilots.

FAA regulations regarding personnel certification and qualifications, and potential future changes in FAA regulations, could limit the number of qualified new entrants that we could hire.

FAA regulations regarding personnel certification and qualifications have limited, and along with potential future changes in FAA regulations, could continue to limit, the number of qualified new entrants that we could hire.

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

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

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

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

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

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

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

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

As a result, we have experienced elevated levels of pilot attrition, particularly attrition of our captains, which may continue in the future.

As we have worked to upgrade our first officers to captains, our attrition levels exceeded our upgrade and replacement levels during 2023.

Our shortage of captains resulted in a reduction of our flight schedules with our major airline partners in 2023 compared to 2022.

There is no assurance that our block hour production in 2024 will exceed our block hour production in 2023.

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

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

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

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

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

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

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

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

● impact on workforce availability and economic uncertainty;

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

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however, the occurrence of any or all of such conditions in a significant manner could materially and adversely affect our operations and financial condition and could cause our major airline partners to reduce the utilization levels of our aircraft under our code-share agreements.

Information technology security breaches, hardware or software failures, or other information technology disruptions may negatively impact our operations or reputation.

Cybersecurity incidents, hardware or software failures or other information technology disruptions may negatively impact our operations, reputation and financial condition.

The performance and reliability of our technology are critical to our ability to compete effectively.

Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as U.S.

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

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

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

In addition, cybersecurity threats pose a potential risk to the security of our information technology systems, networks and services, as well as the confidentiality and integrity of our data.

Cybersecurity risks may include security breaches, computer viruses, malicious or destructive code, ransomware and other attacks.

Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deception.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time.

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

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

We successfully quarantined the malware without disruption to our operations.

However, this quarantine breach required a rebuild of a triple-redundant server.

While moving one of our critical systems to a newly rebuilt server, we experienced a server outage that resulted in approximately 1,700 flight cancellations.

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

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

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

The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business and financial condition.

Any internal technological error, failure or large-scale external interruption in the information systems, networks, hardware, software and technological infrastructure we depend on, such as U.S.

air traffic control systems, power, telecommunications or the internet (collectively, “IT Systems”), may disrupt our internal network, impact our ability to conduct our business and result in increased costs.

Our IT Systems (including those provided by third parties) and information about our employees and other individuals and proprietary information belonging to our business such as trade secrets (“Confidential Information”) are vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications or IT System failures, computer viruses, hackers and other security issues.

In addition, we face numerous and evolving cybersecurity risks that threaten the security, confidentiality, integrity and availability of our IT Systems and Confidential Information, including from diverse threat actors such as state-sponsored organizations, opportunistic hackers and hacktivists, as well as through diverse attack vectors, such as social engineering/phishing, security breaches, malfeasance by insiders, human or technological error, computer viruses, malicious or destructive code, misconfigurations, “bugs” or other vulnerabilities in commercial software that is integrated into our (or our service providers’) IT Systems, products or services, malware (including ransomware) and other attacks, including through fraud or other means of deception.

The methods used to obtain unauthorized access, disable or degrade service or attack or sabotage systems are constantly evolving, and threat actors are becoming increasingly sophisticated in using techniques and tools – including artificial intelligence – that circumvent security controls, evade detection and remove forensic evidence.

As a result we may be unable to anticipate or to detect, investigate, remediate or recover from attacks or incidents for long periods of time.

Further, we may not be able to prevent all data breaches, misuses of data (including Confidential Information) or other cybersecurity incidents.

There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information.

Because we rely on third party vendors and service providers for functions critical to our business, including information technology infrastructure and services, successful cyberattacks that disrupt or result in unauthorized access to third party IT Systems can materially impact our operations and financial results.

Remote and hybrid working arrangements at our company (and at many third-party service providers) also increase cybersecurity risks due to the challenges associated with managing remote computing assets and security vulnerabilities that are present in many non-corporate and home networks.

We and certain of our third-party service providers have in the past experienced cybersecurity incidents and we expect such incidents to continue in varying degrees.

As further described in “Item 1C.

Cybersecurity” we had a cybersecurity incident in 2021, but based on our assessment, we do not believe the incident has or will materially affect us, including our operations, business strategy, results of operations or financial condition.

While to date no incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future.

Any cybersecurity incident or other adverse impact to the availability, integrity or confidentiality of our IT Systems or Confidential Information could compromise our ability to operate flights or technology systems, result in the loss of Confidential Information, legal claims or proceedings (such as class actions), regulatory investigations and

enforcement actions, liability or regulatory penalties, disruption to our operations, damage to our reputation, loss of existing or future customers and/or significant incident response, system restoration or remediation and future compliance costs.

Any or all of the foregoing could adversely affect our business, results of operations and financial condition.

Interruptions or disruptions in service at one of our hub airports, due to weather, system malfunctions or for any other reason, could have a material adverse impact on our operations.

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Extreme weather such as hurricanes or tornados can cause flight disruptions, and, during periods of storms or adverse weather, our flights may be canceled or significantly delayed.

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

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

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

We operate a significant number of flights to and from airports with potential winter related or other weather difficulties, including but not limited to, Chicago, Denver, Detroit, Minneapolis, Salt Lake City and San Francisco.

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

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

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Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines and could affect our relationships with our major airline partners.

In addition, any accident or incident involving a type of aircraft in our fleet could result in air travelers being reluctant to fly on our aircraft, and adversely impact our business, results of operations and financial condition.

We may experience disruption in service with key third-party service providers.

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We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject.

A decision by the FAA to ground, or require time-consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations.

A decision by the FAA to ground, or

require time-consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations.

In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations.

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Our business may be subject to additional costs or loss of government subsidies as a result of potential regulatory changes, which could have an adverse effect on our operations and financial results.

Compliance, or failure to comply, with new or existing laws, regulations and other requirements relating to the privacy, security and handling of information about individuals could adversely affect our business, results of operations, or financial condition.

We receive information related to employees and other individuals in order to run our business.

Laws, regulations and other requirements relating to the privacy, security and handling of information about individuals, alongside the application and interpretation of such requirements, are constantly evolving and developing and subject to change.

There has been heightened legislative and regulatory focus on data privacy and security in the United States and elsewhere, including in relation to cybersecurity incidents, and it is possible that new laws, amendments to or interpretations of existing laws, regulations and other requirements may require us to incur significant costs, implement new processes or change our handling of information and business operations.

In addition, any failure or perceived failure by us to comply with laws, regulations and other requirements relating to the privacy, security and handling of information could result in legal claims or proceedings (including class actions), regulatory investigations or enforcement actions.

We could incur significant costs in investigating and defending such claims and, if found liable, pay significant damages or fines or be required to make changes to our business.

Further, these proceedings and any subsequent adverse outcomes may subject us to significant negative publicity and an erosion of trust.

If any of these events were to occur, our business, results of operations, and financial condition could be materially adversely affected.

Terrorist activities or warnings have dramatically impacted the airline industry and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations.

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

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

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

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

We cannot provide any assurance that these events will not harm the airline industry generally or our operations or financial condition in particular.

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Our business model is dependent on code-share agreements with four major airline partners.

Our business model depends on major airlines electing to contract with us instead of operating their own regional jets.

Our business model depends on major airlines electing to contract with us instead of operating their own aircraft or regional jets.

Some regional airlines are owned by a major airline.

We have no guarantee that in the future our major airline partners will choose to enter into contracts with us instead of operating their own regional jets or acquiring a regional airline.

We have no guarantee that in the future our major airline partners will choose to enter into contracts with us instead of operating their own aircraft or regional jets or award more flying contracts to another regional airline.

Our major airline partners are not prohibited from doing so under our code-share agreements.

A decision by any of our major airline partners to phase out code-share relationships and instead acquire and operate their own regional jets or regional airline could have a material adverse effect on our financial results.

A decision by any of our major airline partners to phase out code-share relationships and instead acquire and operate their own regional jets or regional airline, or award more flying contracts to another regional airline, could have a material adverse effect on our financial results.

Additionally, our major airline partners may be limited in the number of regional aircraft they can operate in their network due to aircraft scope limitations they have with their labor groups.

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As of December 31, 2023, 333 out of our total 485 aircraft in scheduled service were operating under a capacity purchase arrangement or a prorate agreement with either United or Delta.

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

If our code-share relationship with United or

Delta were terminated, our operations would be significantly impacted and we would not likely have an immediate source of revenue or earnings to offset such loss.

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

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

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

Operating an airline independent from major airline partners would be a significant departure from our business plan and would likely require significant time and resources and may not be a viable alternative.

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

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

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

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

During the year ended December 31, 2023, the revenue we recognized was $242.5 million less than the fixed monthly cash payments received, primarily due to the capacity purchase agreement amendments we executed during the 2022 year.

Although we currently anticipate we will recognize previously deferred revenue throughout 2024, future contract amendments or reduced utilization levels of our aircraft could negatively impact the timing of our revenue recognition.

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

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Our growth may be limited with our major airline partners' flight systems.

Additional growth opportunities within our major airline partners’ flight systems are limited by various factors, including a limited number of regional aircraft each major airline partner can operate in its regional network due to its own labor agreements or scope limitations.

limitations in its own labor agreements.

Except as contemplated by our existing code-share agreements, we cannot be sure that our major airline partners will contract with us to fly any additional aircraft.

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

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

Due, in part, to the dynamic nature of the airline industry, major airlines may also make other strategic changes, such as changing or consolidating hub locations or operating mainline aircraft on routes previously served using regional aircraft.

If our major airline partners were to make changes such as these in their strategy and operations, our operations and financial results could be adversely impacted.

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

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

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

Our prorate revenue in 2023 continued to be negatively impacted by captain attrition to other airlines, and there is no assurance our prorate revenue will return to pre-pandemic levels in 2024 or thereafter.

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

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

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

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

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

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

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To the extent that we experience disagreements regarding the interpretation of our code-share or other agreements, we will likely expend valuable management time and financial resources in our efforts to resolve those disagreements.

Those disagreements may result in litigation, arbitration, settlement negotiations or other proceedings.

Those disagreements may result in litigation, arbitration,

settlement negotiations or other proceedings.

Furthermore, there can be no assurance that any or all of those proceedings, if commenced, would be resolved in our favor.

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

We recently began operating on-demand charter flights through our wholly-owned subsidiary, SWC, and such operations involve significant risk.

In 2022 we formed a new subsidiary, SWC, which had its first revenue generating flight in May 2023.

SWC offers on-demand charter service using CRJ200 aircraft in a 30 or less seat configuration under its own FAA operating certificate.

As we grow operations, there may be significant risks, including that SWC may divert management’s attention or the Company’s resources from our core business and strategies and that the objectives of SWC may not materialize or may take longer to materialize than anticipated.

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

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Risks Related to Our Operating Costs and Personnel

Increases in labor costs, including pilot costs, flight attendant costs, maintenance costs and overhead costs may result in lower operating margins under our capacity purchase contracts.

Increases in labor costs, including pilot costs, flight attendant costs, maintenance costs and overhead costs may result in lower operating margins under our capacity purchase agreements.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel.

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

Increases in our labor costs could

result in a material reduction in our earnings.

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

For example, during the year ended December 31, 2023 and 2022, our salary, wage and benefit costs constituted approximately 46.7% and 42.9% of our total operating costs, respectively.

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

However, we cannot provide assurance that our labor costs going forward will remain competitive because of changes in supply and demand for labor in the regional industry.

However, we cannot provide assurance that our labor costs going forward will remain competitive because of changes in supply and demand for labor in the regional airline industry.

We compete against other airlines and businesses for labor in many highly skilled positions.

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Attrition rates that exceed our ability to hire and replace applicable workgroups could negatively impact our ability to generate revenue, negatively impact our operating results, increase our training and labor costs and our business prospects could be harmed.

Additionally, under our capacity purchase contracts with United, Delta, American and Alaska, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month).

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

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

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

Additionally, under our capacity purchase agreements with United, Delta, American and Alaska, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month).

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

During the year ended December 31, 2023, approximately 91.9% of our code-share operating costs were reimbursable at pre-determined rates and 8.1% of our code-share operating costs were directly reimbursed costs, often

referred to as pass-through costs.

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

Also, on an individual aircraft basis, various in-depth maintenance procedures are typically scheduled to occur at multi-year intervals, which can result in maintenance expense fluctuations year-to-year.

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Increased labor costs, pilot and other labor availability, labor disputes and unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, maintenance technicians and other personnel.

Any new collective bargaining agreements entered into by other regional carriers with their work forces may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees.

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

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

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

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

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

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

Our employees are represented by in-house associations;

however, organizing efforts to join national unions among those employees occur from time to time.

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

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

If our employees were to unionize or be deemed to be represented by one or more national unions, negotiations with these unions could divert management’s attention and disrupt operations, which may result in low employee morale and inefficient work rules and may limit our ability to adjust to market compensation in a timely manner and negatively impact our financial results.

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

Agreements reached in union-involved collective bargaining may increase our operating expenses and negatively impact our financial results.

A national union soliciting to represent our employees may represent employees at mainline carriers or other regional airlines and may have conflicting interests with those of our employees or SkyWest.

Agreements reached in union-involved collective bargaining may negatively impact our financial results.

We may experience an increase in fuel prices in our prorate operations.

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

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

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

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

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

As of December 31, 2023, we operated 19 CRJ200s under a prorate agreement with United and six CRJ900s and four CRJ700s under a prorate agreement with Delta.

As of December 31, 2023, we had 16 CRJ200s available for on-demand charter service through SWC.

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

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

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Childs, and our other key management and operating personnel.

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

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

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

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

In 2022, we agreed to guarantee 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.

At December 31, 2023, the outstanding debt for the guarantee was $17.6 million.

In 2023, we agreed to guarantee debt for an aviation school.

The debt is secured by the school’s aircraft and engines and has a five-year term.

At December 31, 2023, the outstanding debt for the guarantee was $4.8 million.

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

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

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

Risks Related to Operating and Leasing Regional Jet Aircraft and Engines

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As of December 31, 2023, we had a total of approximately $3.0 billion in total long-term debt obligations.

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

Our long-term debt obligations included $2.8 billion of debt used to finance aircraft and spare engines and $200.6 million related to borrowings under the Payroll Support Program Agreements with U.S.

Department of the Treasury (“Treasury”).

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

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

At a 6.1% discount factor, which is the average rate used to approximate the implicit rates within the applicable leases, the present value of these lease obligations was equal to approximately $160.3 million at December 31, 2022.

Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

Under our capacity purchase agreements, our major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis.

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

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

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

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

Under our capacity purchase agreements, our major airline partners compensate us for our costs of owning the aircraft on a monthly basis.

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

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

In addition, we may seek material amounts of additional financial liquidity in the short-term, which may include drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities and/or the entry into other debt facilities, among other items.

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

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

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

As of December 31, 2023, we have firm purchase commitments for 21 E175 aircraft and spare engines totaling $610.9 million.

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

There can be no assurance that our operations will generate sufficient cash flow or liquidity to enable us to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make required debt service payments related to our existing or anticipated future obligations.

Even if we meet all required debt, lease and purchase obligations, the size of these long-term obligations could negatively affect our financial condition and results of operations in many ways, including:

Even if we meet all required debt, lease and purchase obligations,

the size of these long-term obligations could negatively affect our financial condition and results of operations in many ways, including:

● increasing the cost, or limiting the availability of, additional financing for working capital, acquisitions or other purposes;

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In 2021, we recorded a non-cash impairment of $84.6 million attributable to certain CRJ900 aircraft operating with a major airline partner as a result of contract expirations and the uncertainty about our ability to redeploy the CRJ900 aircraft with another major airline partner.

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

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

In 2023, the aircraft held for sale were written down an additional $2.3 million.

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

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

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

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

We have entered into a strategic partnership with Eve Holding, Inc.

(“Eve”, formerly EVE UAM, LLC, an Embraer company), to develop a network of deployment for Eve’s eVTOL aircraft.

To support this effort, SkyWest may provide assistance to Eve on vehicle design, vertiport specifications and the certification roadmap for eVTOL operations.

This strategic partnership involves significant risks, including:

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

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

(“Eve”) and a warrant giving us the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $0.01 per share.

The Company also received a put option from an Eve shareholder for the 1,000,000 shares of common stock of Eve payable in aircraft parts credits.

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

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

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

As of December 31, 2023, we held 399,589 shares of common stock of Eve and a warrant giving us the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $0.01 per share.

The Company also holds a put option from an Eve shareholder for 399,589 shares of common stock of Eve payable in aircraft parts credits.

At December 31, 2023, the fair value of our investments in Eve was $15.4 million and future reductions in the trading market price of Eve’s common stock will likely negatively impact our net income.

We have invested in Corporate Flight Management, Inc.

d/b/a Contour Airlines (“Contour”), which involves significant risk and may not produce a satisfactory return on our investment.

We have invested $9.9 million as of December 31, 2023, in Contour, a 14 CFR Part 135 air carrier .

This strategic investment involves significant risks, including:

● we may not realize a satisfactory return on our investment;

● the investment may divert management’s attention from our core business;

● Contour could have investment goals that are not consistent with our investment objectives, including the timing, terms and strategies for any investments.

The effect of any, or some combination, of the foregoing risks could negatively affect our financial results.

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

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We are subject to federal, state and local laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharges into water systems, safe drinking water and the management of hazardous substances and waste materials.

Certain legislative bodies and regulatory authorities are increasingly focused on climate change and have taken actions to implement additional laws, regulations, and programs intended to protect the environment.

Certain legislative bodies and regulatory authorities are increasingly focused on climate change and have taken actions to implement additional laws, regulations and programs intended to protect the environment and may require specific reporting requirements.

For example, the federal government, as well as several state and local governments, have implemented legislative and regulatory proposals and voluntary measures intended to reduce greenhouse gas emissions.

Compliance with laws, regulations, and other programs intended to reduce emissions or otherwise protect the environment may require us to reduce our emissions, secure carbon offset credits or otherwise pay for emissions, or make capital investments to modify certain aspects of our operations to reduce emissions.

Compliance with laws, regulations and other programs

intended to reduce emissions or otherwise protect the environment may require us to reduce our emissions, secure carbon offset credits or otherwise pay for emissions or make capital investments to modify certain aspects of our operations to reduce emissions.

Future policy, legal and regulatory developments relating to the protection of the environment could increase our costs and have a material adverse effect on our operations.

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Risks Related to Dividends, Share Repurchases and Our Common Stock

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

We cannot assure that we will resume dividend payments in the future and we cannot assure that we will continue stock repurchases in the future.

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

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

From April 2020 through September 30, 2022, we were restricted from paying dividends and repurchasing shares of our common stock under three Payroll Support Program Agreements and under a loan agreement with Treasury.

The Company did not declare a dividend during 2023 or 2022, following the restriction lapse under the Payroll Support Program Agreements.

During 2023, we resumed repurchasing shares of our common stock, and completed the repurchase of 10.6 million shares of common stock for $289.1 million during the year ended December 31, 2023.

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

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

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

Additionally, resuming our share repurchase program and any

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

The future payment of dividends will depend upon our financial condition, alternative uses of the Company’s cash and results of operations and other factors deemed relevant by our board of directors.

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

However , in May 2023, our board of directors approved a share repurchase program, pursuant to which we are authorized to repurchase up to $250 million of our common stock.

We are authorized to repurchase such shares of common stock at prevailing market prices in the open market, in privately negotiated transactions or by other means in accordance with federal securities laws.

Depending on market conditions and other factors, such repurchases may commence or be suspended from time to time by management without prior notice.

The actual timing, number and value of shares repurchased will be determined by our management in its discretion.

The number of shares of common stock that we may repurchase, including pursuant to the share repurchase program, will depend upon our financial condition and results of operations and other factors deemed relevant by our board of directors.

Repurchases of our common stock pursuant to our share repurchase program and any future dividends could affect our stock price and increase its volatility.

Additionally, our share repurchase program and any future dividends

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

Our common stock price may fluctuate significantly.

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general market, political and other economic conditions;

labor availability, including regional airline pilots;

new regulatory pronouncements or changes in regulatory guidelines;

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

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

In 2020, we issued warrants to purchase 370,720 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for payroll support payments we received under the CARES Act payroll support program.

Also, during 2020 we issued warrants to purchase 211,416 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for borrowing $60.0 million under the Treasury Loan Agreement.

In 2021, we issued warrants to purchase 124,773 shares of our common stock with an exercise price of $40.41 per share to Treasury as consideration for payroll support payments we received under the 2021 Appropriations Act.

Additionally, in 2021 we issued warrants to purchase 78,317 shares of our common stock with an exercise price of $57.47 per share to Treasury as consideration for payroll support payments we received under the American Rescue Plan Act.

We issued warrants to purchase shares of our common stock to Treasury for relief we received under three Payroll Support Program Agreements and a Loan Agreement with Treasury.

During 2020 and 2021, we issued warrants to Treasury as consideration for payments received under the three Payroll Support Program Agreements and a loan agreement with Treasury.

The warrants we issued to Treasury include:

warrants to purchase 582,136 shares of our common stock with an exercise price of $28.38 per share, warrants to purchase 124,773 shares of our common stock with an exercise price of $40.41 per share and warrants to purchase 78,317 shares of our common stock with an exercise price of $57.47 per share.

If Treasury exercises its option to purchase shares of our common stock under warrants previously issued to Treasury, such exercise will be dilutive to our shareholders.

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

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

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

The debt is secured by the Part 135 air carrier’s aircraft and engines and has a five-year term.

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

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

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

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors