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Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-16 · 238 added, 238 removed, 677 unchanged (41% of the section changed)

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We have audited the accompanying consolidated balance sheets of SkyWest, Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”).

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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At December 31, 2023, the Company’s deferred revenue balance totaled $374.6 million, of which $61.0 million was presented as a component of other current liabilities and $313.6 million was included in other long-term liabilities on the balance sheet.

The Company’s unbilled revenue balance totaled $19.9 million, of which $9.9 million was presented as a current asset, and $10.0 million was presented as a long-term asset on the balance sheet.

The Company’s unbilled revenue balance totaled $7.3 million, of which $1.2 million was presented as a component of other current assets, and $6.1 million was included in other long-term assets on the balance sheet.

As discussed in Note 1 to the consolidated financial statements, under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term.

recognizes revenue related to the fixed amount per aircraft per month based upon completed block hours proportionate to total forecasted block hours over the contract term.

To perform the allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry.

To perform the allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity.

Auditing the forecasted block hours over the term of the contract, which is the primary input used in the deferred revenue calculation, required extensive audit effort due to the estimation uncertainty of the forecasted block hours over the contract term.

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To test the Company’s estimated deferred revenue liability, we performed audit procedures that included, among others, assessing the methodology and assumptions used by the Company in the deferred revenue calculation, including testing of the forecasted block hours and validating completeness and accuracy of the underlying data used by the Company.

Specifically, we compared management’s forecasted block hours to historical flight activity, existing flight schedules with partner airlines, and industry trends and publications.

Specifically, we compared management’s forecasted block hours to historical flight activity and existing flight schedules with partner airlines.

We evaluated management’s ability to accurately forecast flight activity by performing hindsight analyses comparing actual historical results to past forecasts.

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Treasury stock, at cost, 42,615,347 and 31,994,416 shares as of December 31, 2023, and December 31, 2022, respectively

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Total stockholders’ equity

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

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Aircraft fuel

Aircraft rentals

Airport-related expenses

Aircraft rentals

Special items

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Interest expense

Other income (expense), net

Other income (loss), net

Total other expense, net

INCOME (LOSS) BEFORE INCOME TAXES

INCOME BEFORE INCOME TAXES

PROVISION 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)

Net unrealized depreciation on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME:

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

TOTAL COMPREHENSIVE INCOME

See accompanying notes to consolidated financial statements.

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Balance at December 31, 2020

Change in accounting principle and other (see Note 1)

Balance at December 31, 2019, as adjusted

Net income (loss)

Exercise of common stock options and vested employee stock awards

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Stock based compensation expense

Treasury stock purchases

Cash dividends declared ($ 0.14 per share)

Warrants issued to U.S.

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Stock based compensation expense

Warrants issued to U.S.

Net unrealized depreciation on marketable securities, net of tax of $ 1,224

Balance at December 31, 2022

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Stock based compensation expense

Net unrealized depreciation on marketable securities, net of tax of $ 1,224

Treasury stock purchases and related excise tax

Net unrealized appreciation on marketable securities, net of tax of $ 1,329

Balance at December 31, 2023

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Stock based compensation expense

Write-off of maintenance assets

Increase (decrease) in credit loss reserves

Loss (gain) on disposal of fixed assets

Gain on investments in other companies

Decrease in credit loss reserves

Gain on disposal of fixed assets

Loss (gain) on investments in other companies

Net increase in deferred income taxes

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Decrease (increase) in income tax receivable

Decrease (increase) in inventories

Increase in inventories

Decrease (increase) in other current assets

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Increase (decrease) in deferred revenue

Increase in unbilled revenue

Decrease (increase) in unbilled revenue

Increase (decrease) in accounts payable and other current liabilities

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Aircraft deposits applied towards acquired aircraft

Increase in other assets

Decrease (increase) in other assets

NET CASH USED IN INVESTING ACTIVITIES

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Employee income tax paid on vested equity awards

Purchase of treasury stock

Payment of cash dividends

Purchase of treasury stock and related excise tax

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

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Acquisition of property and equipment

Derecognition of right of use assets

Derecognition of operating lease liabilities

Warrants issued to U.S.

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Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system.

In 2022, the Company formed SkyWest Charter, LLC (“SWC”), which had its first revenue generating flight in May 2023.

SWC offers an on-demand charter flight service.

As of December 31, 2023, the Company had 603 total aircraft in its fleet, including 485 aircraft in scheduled service or under contract under its code-share agreements, summarized as follows:

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(1) As of December 31, 2023, other aircraft included:

supplemental spare aircraft supporting the Company’s code-share agreements that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with the Company’s major airline partners, aircraft held for sale or aircraft that are scheduled to be disassembled for use as spare parts.

supplemental spare aircraft supporting the Company’s code-share agreements that may be placed under future code-share or leasing arrangements, aircraft transitioning between code-share agreements with the Company’s major airline partners, aircraft held-for-sale or aircraft that are scheduled to be disassembled for use as spare parts.

For the year ended December 31, 2023, approximately 40.8 % of the Company’s aircraft in scheduled service was operated for United, approximately 27.8 % was operated for Delta, approximately 22.7 % was operated for American and approximately 8.7 % was operated for Alaska.

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As of December 31, 2023, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City, Detroit and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Dallas, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest.

SkyWest Airlines operates the following aircraft manufactured by Bombardier:

SkyWest Airlines operates the following aircraft manufactured by MHI RJ Aviation ULC, formerly known as Bombardier Aerospace (“Bombardier”):

CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer.

The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats.

The CRJ200 is a single-class 50 -seat aircraft.

The CRJ200 is typically a single-class 50 -seat aircraft.

SWC operates the CRJ200 in a 30 -seat configuration.

Basis of Presentation

The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated.

The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines and SWC and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated.

In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2023, through the filing date of the Company’s annual report with the U.S.

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Marketable Securities

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized depreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized appreciation (depreciation) reported as a component of accumulated other comprehensive income in stockholders’ equity.

At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense.

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As of December 31, 2023 and 2022, the Company had classified $ 686.9 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 .

Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results, excess parts and management’s expectations of future operations.

Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical part turnover, excess parts and management’s expectations of future operations.

Expendable inventory parts are charged to expense as used.

An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types and salvage values.

An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types, anticipated part usage and salvage values.

The inventory allowance as of December 31, 2023 and 2022, was $ 26.1 million and $ 24.2 million, respectively.

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As of December 31, 2023, the Company had approximately $ 5.5 billion of property and equipment, net.

In accounting for these long-lived assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate.

In accounting for these long-lived assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of such assets, and the potential for impairment based on projected future cash flows and estimated fair value of the assets.

Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets.

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During 2022, the Company committed to a plan to sell 14 CRJ700 aircraft, resulting in an impairment on the assets held for sale of $ 51.4 million.

During 2023, the Company wrote-down the assets held for sale for an additional $ 2.3 million.

See Note 8, “Assets Held for Sale” for more information on the assets held for sale.

During 2021, the Company recorded an impairment charge of $ 84.6 million to write-down certain CRJ900 aircraft to their estimated fair value.

See Note 10, “Special Items” for more information on the CRJ900 impairment.

Capitalized Interest

Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset.

During the years ended December 31, 2022 and 2021, the Company capitalized interest costs of approximately $ 1.9 million, and during the year ended December 31, 2020, the Company capitalized interest costs of approximately $ 1.7 million.

During the years ended December 31, 2023, 2022 and 2021, the Company capitalized interest costs of approximately $ 1.5 million, $ 1.9 million and $ 1.9 million, respectively.

The Company operates under a U.S.

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The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown per month and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract.

The repair costs for engines not covered by these hourly service agreements are expensed when repair services are incurred.

The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred.

In 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year as a maintenance expense.

There was not a similar expense in 2022 and 2021.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement.

Under the Company’s capacity purchase agreements with United, Delta, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance.

The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents.

Under the Company’s capacity purchase agreements with United, Delta, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month (a portion of which is accounted for as aircraft lease consideration), with additional incentives based on flight completion, on-time performance or other performance metrics.

The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel,

airport landing fees and airport rents.

Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue.

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For the years ended December 31, 2023, 2022 and 2021, capacity purchase arrangements represented approximately 86.5 %, 88.0 % and 84.3 % of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner.

Under the Company’s prorate arrangements (also referred to as a “prorate” 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.

Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company determines that it will receive for each completed flight.

The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term.

For the years ended December 31, 2022, 2021 and 2020, prorate flying agreements represented approximately 12.0 %, 15.7 %, and 13.0 % of the Company’s flying agreements revenue, respectively.

Certain routes under the Company’s prorate arrangements are subsidized by the U.S.

Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service.

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.

Under the Company’s charter operations, SWC, the Company negotiates a fare for the charter flight with the customer.

The performance obligation is met and revenue is recognized upon completion of the flight.

For the years ended December 31, 2023, 2022 and 2021, prorate flying agreements and SWC revenue represented approximately 13.5 %, 12.0 %, and 15.7 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2023, 2022 and 2021 (in thousands):

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Capacity purchase agreements variable aircraft lease revenue

Prorate agreements revenue

Prorate agreements and SWC revenue

Flying agreements revenue

The Company allocates the total consideration received under its capacity purchase agreements between the lease and non-lease components based on stand-alone selling prices.

The Company allocates the total consideration received under its capacity purchase agreements between lease and non-lease components based on stand-alone selling prices.

A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs.

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

Accordingly, the Company re-evaluated the allocation of the total consideration between the lease and non-lease components for the amended agreements, including the allocation of the consideration to the fixed and variable lease components.

As a result of these amendments, the Company deferred recognizing lease revenue on $ 22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, under the straight-line method.

The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income (loss) because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements.

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.

As a result of these capacity purchase agreement amendments executed in 2022, during the year ended December 31, 2023, the Company deferred recognizing lease revenue on $ 78.5 million of the allocated fixed monthly lease payments received during the year ended December 31, 2023, under the straight-line method.

The Company deferred recognizing lease revenue on $ 22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, under the straight-line method.

The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of

comprehensive income 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.

Due to the lower number of block hours completed during 2020 as a result of the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft for operating the aircraft did not align with revenue recognized based on block hours completed.

Accordingly, the Company deferred recognizing revenue on fixed monthly payments the Company received for operating the aircraft under its capacity purchase

agreements beginning in 2020.

In 2022, the Company deferred $ 18.7 million of fixed monthly payments under certain agreements and recognized $ 11.5 million of unbilled revenue under certain other agreements, compared to recognizing previously deferred revenue of $ 6.8 million and $ 8.4 million of unbilled revenue in 2021.

The Company’s deferred revenue and unbilled revenue balance is measured on a contract-by-contract basis and will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining respective contract terms.

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.

In 2023, the Company deferred recognizing revenue on $ 151.4 million of fixed monthly payments under certain agreements and unbilled revenue decreased by $ 12.6 million under certain other agreements, compared to deferring revenue of $ 18.7 million and recognizing $ 11.5 million of unbilled revenue in 2022.

The Company’s total deferred revenue balance as of December 31, 2023, was $ 374.6 million, including $ 61.0 million in other current liabilities and $ 313.6 million in other long-term liabilities.

The Company’s unbilled revenue balance as of December 31, 2023, was $ 7.3 million, including $ 1.2 million in other current assets and $ 6.1 million in other long-term assets.

The Company’s deferred revenue balance as of December 31, 2021, was $ 103.9 million, including $ 24.5 million in other current liabilities and $ 79.4 million in other long-term liabilities.

The Company’s unbilled revenue balance as of December 31, 2021, of $ 8.4 million was included in other long-term assets.

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

T he Company’s unbilled revenue balance as of December 31, 2022, was $ 19.9 million, including $ 9.9 million in other current assets and $ 10.0 million in other long-term assets.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month.

The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

In the event a flying agreement includes a mid-term rate reset to adjust rates prospectively and the contractual rates under the Company’s flying agreements have not been finalized at quarterly or annual financial statement dates, the Company applies the variable constraint guidance under Topic 606, where the Company records revenue to the extent it believes that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria.

The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis.

At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under Topic 606.

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

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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 December 31, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 aircraft into service, with delivery dates currently scheduled in 2023 and 2024.

SkyWest Airlines has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service with a delivery date currently scheduled for 2025.

In addition to the contractual arrangements described above, as of December 31, 2023, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective partners:

Delta Air Lines

United Airlines

Alaska Airlines

Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.

When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft.

Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party.

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

The following table represents the Company’s lease, airport services and other revenues for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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 or engines to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory.

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at various airports where the Company has been contracted by third parties to provide such services.

The following table

represents the Company’s lease, airport services and other revenues for the years ended December 31, 2023, 2022 and 2021 (in thousands):

For the year ended December 31,

Operating lease revenue relating to lease payments

Operating lease revenue

Operating lease revenue relating to variable lease payments

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The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of December 31, 2023 (in thousands):

Total future minimum rental income under operating leases

Of the Company’s $ 5.5 billion of property and equipment, net as of December 31, 2023, $ 216.0 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

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Allowance for Credit Losses

The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020.

At adoption, the Company’s primary financial assets included trade receivables from its flying agreements, a note receivable from the sale of the Company’s subsidiary, ExpressJet Airlines, Inc., in 2019, and receivables from aircraft manufacturers and other third parties in the airline industry.

The Company recorded a credit loss of $ 11.6 million net of income tax in conjunction with the adoption of Topic 326.

The Company recorded this credit loss as a January 1, 2020, beginning balance sheet entry to retained earnings (net of income tax).

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

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

During the year ended December 31, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

During the year ended December 31, 2023, the Company recorded $ 0.2 million of adjustments to the credit loss reserve and wrote-off $ 18.5 million in receivables that were 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.

The following table summarizes the changes in allowance for credit losses:

Allowance for Credit Losses

Balance at January 1, 2020

Balance at December 31, 2020

Adjustments to credit loss reserves

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The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.

Net Income (Loss) Per Common Share

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

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):

Year Ended December 31,

PSP1 and Treasury Loan Warrants (1)

PSP2 Warrants (2)

PSP3 Warrants (3)

Treasury Warrants (1)

Employee Stock Awards

Total antidilutive securities

(1) Pursuant to the payroll support program established under the CARES Act (“PSP1”) and Loan and Guarantee Agreement with the U.S.

Department of the Treasury (“U.S.

Treasury”), SkyWest issued to Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 28.38 per share.

(2) Pursuant to the payroll support program established under the 2021 Consolidated Appropriations Act (“PSP2”), SkyWest issued to U.S.

Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 40.41 per share.

(3) Pursuant to the payroll support program established under the American Rescue Plan (“PSP3”), SkyWest issued to U.S.

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

Additionally, for the years ended December 31, 2022, 2021 and 2020, 146,000 , 140,000 and 178,000 performance share units (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2022, 2021 and 2020, respectively.

Department of the Treasury (“Treasury”) warrants to purchase shares of SkyWest common stock issued pursuant to the three Payroll Support Program Agreements and a loan agreement .

See Note 10, “Payroll Support Programs” and Note 11, “Capital Transactions” for further discussion on the warrants issued to Treasury.

Additionally, for the years ended December 31, 2023, 2022 and 2021, 334,000 , 146,000 and 140,000 performance share units (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds for these units as of December 31, 2023, 2022 and 2021, respectively.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

Net income (loss)

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

Comprehensive Income (Loss)

Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation (or depreciation) on marketable debt securities.

Basic earnings per share

Diluted earnings per share

Comprehensive Income

Comprehensive income includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation (or depreciation) on marketable debt securities.

Fair Value of Financial Instruments

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GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance.

The Company’s two reportable segments consist of (1) the operations of SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) SkyWest Leasing activities.

I nformation pertaining to the Company’s reportable segments is presented in Note 2, Segment Reporting .

The Company has two reportable segments:

SkyWest Airlines and SkyWest Leasing.

Information pertaining to the Company’s reportable segments is presented in Note 3, Segment Reporting .

(2) Recovery from the COVID-19 Pandemic and Labor Impact

COVID-19 had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021.

During 2022, passenger demand recovered;

however, indirect factors of COVID-19, such as employee attrition, particularly captain attrition, and workforce shortages negatively impacted the Company’s operations in 2022.

Payroll Support Programs.

In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the PSP1 under the CARES Act, the PSP2 under the 2021 Appropriations Act and the PSP3 under the American Rescue Plan Act.

The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021.

Other conditions included restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S.

Department of Transportation and certain limitations on executive compensation.

The payments received under the payroll support

programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan.

In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock.

The Company recorded the payroll grant proceeds as an offset to operating expenses in the period the funds were intended to compensate.

The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021.

No grants were received or recognized during 2022.

In 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury (“Secured Loan”) and borrowed $ 60.0 million under the agreement and in conjunction therewith, issued warrants to purchase shares of the Company’s common stock.

During 2021, the Company repaid all amounts outstanding under the secured loan with Treasury, and in connection with such repayment, terminated the Secured Loan.

The following table summarizes the amounts received and warrants issued under the payroll support programs and secured loan facility (in thousands except warrant amounts):

Number of Warrants

See Note 11, “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury.

(1) SkyWest Airlines and SWC and (2) SkyWest Leasing.

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update No.

2023-07, “Segment Reporting (ASC Topic 280) – Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued Accounting Standards Update No.

2023-09, “Income Taxes (ASC Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid.

The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

(2) Segment Reporting

The Company’s two reportable segments consist of the operations of SkyWest Airlines and SkyWest Leasing activities.

The Company’s two reportable segments consist of (1) the operations of SkyWest Airlines and SWC and (2) SkyWest Leasing activities.

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft.

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

The SkyWest 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 other flying or airport services agreements.

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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Year ended December 31, 2023

SkyWest Airlines

Operating revenues (1)

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Year ended December 31, 2022

SkyWest Airlines

Operating revenues (1)

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Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (2)

Segment profit (loss) (2)

Total assets (as of December 31, 2022)

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Year ended December 31, 2021

SkyWest Airlines

Operating revenues (1)

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Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (loss) (2)

Segment profit (2)

Total assets (as of December 31, 2021)

Capital expenditures (including non-cash)

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

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

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

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Notes payable to U.S.

Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus spread from 2025 through 2031, unsecured

Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus 2.0 % from 2025 through 2031, unsecured

Long-term debt

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Current portion of long-term debt, net of debt issue costs

During 2022, the Company took delivery of 25 new E175 aircraft that the Company financed through $ 516.6 million of long-term debt.

The debt associated with the 25 E175 aircraft has 5 - to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft.

During 2022, the Company executed promissory notes for $ 167.9 million.

The promissory notes have three - to four-year terms, are due in monthly installments with fixed annual interest rates of 3.6 % to 4.7 % and are secured by spare engines.

As of December 31, 2022 and 2021, the Company had $ 3.05 billion and $ 2.94 billion, respectively, of long-term debt obligations primarily related to the acquisition of aircraft and certain spare engines.

The average effective interest rate on the debt related to those long-term debt obligations at December 31, 2022 and 2021, was approximately 4.0 % and 3.8 %, respectively.

As of December 31, 2023 and 2022, the Company had $ 3.0 billion and $ 3.4 billion, respectively, of total long-term debt.

The average effective interest rate on the Company’s debt was approximately 4.1 % and 4.0 % at December 31, 2023 and 2022, respectively.

During 2023, the Company took delivery of two new E175 aircraft that the Company financed through $ 44.7 million of long-term debt.

The debt associated with the two E175 aircraft has 12-year terms, is due in quarterly installments, and is secured by the E175 aircraft.

During 2023, the Company executed a promissory note for $ 25 million.

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

The aggregate amounts of principal maturities of long-term debt as of December 31, 2023 were as follows (in thousands):

As of December 31, 2022, SkyWest Airlines had a $ 100 million line of credit.

As of December 31, 2021, SkyWest Airlines had a $ 75 million line of credit.

As of December 31, 2023 and 2022, 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.

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Provision for income taxes

The following is a reconciliation between a federal income tax rate of 21 % and the effective tax rate which is derived by dividing the provision for income taxes by the income (loss) before the provision for income taxes (in thousands):

The following is a reconciliation between a federal income tax rate of 21 % and the effective tax rate which is derived by dividing the provision for income taxes by the income before the provision for income taxes (in thousands):

Year ended December 31,

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Excess tax benefits from share-based compensation

Change in unrecognized tax benefit

Provision for income taxes

For the year ended December 31, 2022, the Company recorded a $ 1.7 million valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period.

For the year ended December 31, 2020, the Company released $ 0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period.

The increase in the valuation allowance for 2022 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $ 0.5 million expense, $ 0.1 million benefit and $ 1.4 million benefit from share-based compensation in 2022, 2021, and 2020, respectively, relating to ASU 2016-09 which, requires excess tax benefits and

deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

For the year ended December 31, 2022, the Company recorded a $ 7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 which is recorded in “Other, net” above.

For the year ended December 31, 2023, the Company released a $ 1.1 million valuation allowance related to certain deferred tax assets associated with state net operating losses with a limited carry forward period.

For the year ended December 31, 2022, the Company recorded a $ 1.7 mi llion valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period.

The decrease in the valuation allowance for 2023 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to be utilized prior to the deferred tax assets expiring.

The Company recorded a $ 0.9 million expense, $ 0.5 million expense and $ 0.1 million benefit from share-based compensation in 2023, 2022, and 2021, respectively, relating to ASU 2016-09 which requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and stock awards vest.

The Company recorded a $ 7.6 million and $ 7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 for the years ended December 31, 2023 and December 31, 2022, respectively.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2023 and 2022, are as follows (in thousands):

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( 1,108,042 )

( 1,094,538 )

Operating lease right-of-use assets

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( 1,129,076 )

( 1,130,012 )

Net deferred tax liability

The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets using the straight-line method (see Note 1, “Nature of Operations and Summary of Significant Accounting Policies”).

The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets (see Note 1, “Nature of Operations and Summary of Significant Accounting Policies”).

At December 31, 2023 and 2022, the Company had federal net operating losses of approximately $ 566.3 million and $ 817.4 million and state net operating losses of approximately $ 316.2 million and $ 380.6 million, respectively.

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The Company anticipates that the federal and state net operating losses will start to expire in 2035 and 2024, respectively.

The Company has no ongoing federal examinations.

The Company has one ongoing state examination for tax year 2020.

The Company has no ongoing federal or state examinations.

Federal tax years 2020, 2021 and 2022 are open to examination.

Under Accounting Standard Codification (“ASC”) Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2023, 2022, and 2021 is as follows (in thousands) :

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For the years ended December 31, 2023, 2022, and 2021, the Company recorded $ 191,000 , $ 343,000 , and $ 549,000 , respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.

For the year ended December 31, 2022, the Company released $ 7.7 million of the prior year uncertain tax position, including interest, as the tax year statutes impacted by these positions have closed.

(5) Commitments and Contingencies

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The Company requires no collateral from its major airline partners or customers, but monitors the financial condition of its major airline partners.

Under the majority of the Company’s code-share agreements, the Company receives weekly payments from its major code-share partners that approximate a significant percentage of the compensation earned for such period.

Under the majority of the Company’s code-share agreements, the Company receives weekly payments from its major code-share partners that approximate a significant percentage of the

compensation earned for such period.

Additionally, the Company provides certain customer service functions at multiple airports for various airlines and the Company maintains a credit loss reserve based upon expected collectability of all accounts receivable.

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As of December 31, 2023, the Company had approximately 13,000 employees.

Although no SkyWest Airlines employees are represented by a national union, the majority of SkyWest Airline employees are covered under by a written, stable and binding collective bargaining agreement under the RLA, entered into between SkyWest Airlines and a long-established labor association, such as the SkyWest Airlines Pilot Association (“SAPA”).

Although no SkyWest Airlines employees are represented by a national union, the majority of SkyWest Airline employees are covered by a written, stable and binding collective bargaining agreement under the Railway Labor Act, entered into between SkyWest Airlines and long-established labor associations, such as the SkyWest Airlines Pilot Association (“SAPA”).

Aircraft Purchase Commitments

As of December 31, 2022, the Company had a purchase commitment to purchase two new E175 aircraft in 2023, one new E175 aircraft in 2024 and one new E175 aircraft in 2025.

During the year ended December 31, 2022, the Company agreed to guarantee $ 19.8 million of debt for a 14 CFR Part 135 air carrier.

As of December 31, 2023, the Company had a purchase commitment to purchase five new E175 aircraft in 2024, eight new E175 aircraft in 2025 and eight new E175 aircraft in 2026.

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

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

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

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

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

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 year ended December 31, 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, net” on the Company’s consolidated statements of comprehensive income.

The balance of the debt under the guarantee was $ 17.6 million as of December 31, 2023.

In 2023, the Company agreed to guarantee up to $ 12.0 million of debt for an aviation school.

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

In exchange for providing the guarantee, the Company receives 2.0 % annually of the guaranteed amount as consideration in cash.

The balance of the debt under the guarantee was $ 4.8 million as of December 31, 2023.

The purpose of these guarantees is to help reduce the financing costs of aircraft for the third-parties in an effort to increase the potential number of commercial pilots in the Company’s hiring pipeline.

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

The Company leases property and equipment under operating leases.

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

As of December 31, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from one year to eight years .

The Company leases 32 CRJ aircraft under a lease agreement that expires in March 2024.

During the year ended December 31, 2022, the Company began storing aircraft under this lease agreement, which shortened the Company’s estimated useful life of the aircraft under the lease and resulted in the Company recognizing $ 11.4 million of accelerated lease expense during the year ended December 31, 2022.

During the year ended December 31, 2023, the Company acquired 35 CRJ aircraft under early lease buyout arrangements with the lessors for $ 142.4 million.

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

As of December 31, 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 five to seven years.

These eight aircraft are subleased to a third-party.

Airport facilities

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The remaining lease terms for facility space vary from one month to 33 years.

The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

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 December 31, 2023, the Company’s right-of-use assets were $ 86.7 million, the Company’s current maturities of operating lease liabilities were $ 19.3 million, and the Company’s noncurrent lease liabilities were $ 67.4 million.

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The table below presents lease related terms and discount rates as of December 31, 2023:

As of December 31, 2022

Weighted-average remaining lease term for operating leases

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As of December 31, 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 will be renewed or replaced by other leases, or the property may be purchased rather than leased.

The following table summarizes future minimum rental payments primarily related to leased aircraft and maintenance facilities required under operating leases that had initial or remaining non-cancelable lease terms as of December 31, 2022 (in thousands):

Total rental expense for non-cancelable aircraft operating leases was approximately $ 75.4 million, $ 63.4 million and $ 65.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The minimum rental expense for airport station rents was approximately $ 13.2 million, $ 17.2 million and $ 20.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company expects that, in the normal course of business, such operating leases that expire will be renewed or replaced by other leases.

The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of December 31, 2023 (in thousands):

Total future minimum operating lease payments

(7) Fair Value Measurements

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Commercial paper

Investments in Other Companies

Cash and Cash Equivalents

Total Assets Measured at Fair Value

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

See Note 14, “Investments in Other Companies” regarding the Company’s investments in other companies, for the year ended December 31, 2022.

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

See Note 14, “Investments in Other Companies” regarding the Company’s investments in other companies.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the year ended December 31, 2023.

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(8) Assets Held for Sal e

During the year ended December 31, 2022, the Company committed to a formal plan to sell 14 CRJ700 aircraft.

The aircraft are expected to be disposed of via sale within the next 12 months.

Accordingly, the Company determined the aircraft met the criteria to be classified as assets held for sale.

In 2022, the Company committed to a formal plan to sell 14 CRJ700 aircraft and determined the aircraft met the criteria to be classified as assets held for sale.

In connection with the classification of these assets as held for sale, the Company recorded an impairment loss of $ 51.4 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the year ended December 31, 2022.

During 2023, the Company recorded a $ 2.3 million loss related to changes in the fair value of the 14 aircraft held for sale which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the year ended December 31, 2023.

The Company presented the $ 54.3 million of assets held for sale at the lower of their current carrying value or their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet.

The fair values are based upon observable and unobservable inputs, including a third-party valuation, market trends and condition of the airframes and engines, considered Level 3 within the fair value hierarchy.

The fair values were based upon observable and unobservable inputs, including a third-party valuation, market trends and condition of the airframes and engines.

The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which the Company will continue to monitor in future periods as new information becomes available.

Prior to the ultimate sale of the assets, subsequent changes in the estimate of the fair value of the assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value.

(9) Special Items

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This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 2, “Segment Reporting” for the year ended December 31, 2021.

(10) Payroll Support Programs

In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the payroll support program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”), the payroll support program established under the Consolidated Appropriations Act, 2021 (“PSP2”) and the payroll support program established under the American Rescue Plan Act of 2021 (“PSP3”), collectively “Payroll Support Programs”.

The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021.

Other conditions included restrictions on share repurchases and dividends through September 30, 2022, continuing EAS as directed by the U.S.

Department of Transportation and certain limitations on executive compensation.

The payments received under the payroll support programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan.

In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock.

During the year ended December 31, 2021, the Company recorded $ 422.7 million of payroll grant proceeds as an offset to operating expenses.

No grants were received or recognized during 2022 and 2023.

During 2021, the Company repaid all amounts outstanding under the secured loan with Treasury, and in connection with such repayment, terminated the Secured Loan.

See Note 11, “Capital Transactions” for further discussion on the warrants issued to Treasury.

(11) Capital Transactions

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No shares of preferred stock are presently outstanding.

The Company’s Board of Directors is authorized, without any further action by the shareholders of the Company, to (i) divide the preferred stock into series;

The Company’s Board of Directors is

authorized, without any further action by the shareholders of the Company, to (i) divide the preferred stock into series;

(ii) designate each such series;

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On May 7, 2019, the Company’s shareholders approved the adoption of the SkyWest, Inc.

2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors,

employees, consultants and advisors (the “2019 Incentive Plan”).

2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors, employees, consultants and advisors (the “2019 Incentive Plan”).

The 2019 Incentive Plan provides for awards in the form of options to acquire shares of common stock, stock appreciation rights, restricted stock grants, restricted stock units and performance awards.

The 2019 Incentive Plan is subject to a fungible ratio concept, such that the issuance of stock options and stock appreciation rights reduces the number of available shares under the 2019 Incentive Plan on a 1 -for-1 basis, and the issuance of other awards reduces the number of available shares under the 2019 Incentive Plan on a 1.65 -for-1 basis.

The 2019 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”).

As of December 31, 2022, the 2019 Incentive Plan had 2.8 million shares remaining available for future issuance.

As of December 31, 2023, the 2019 Incentive Plan had 2.6 million plan shares remaining available for future issuance, based on target for granted and unvested performance share units.

Stock Options

The fair value of stock options awarded under the Company’s stock option plans has been estimated as of the grant date using the Black-Scholes option pricing model.

The Company uses historical data to estimate option exercises and employee termination in the option pricing model.

The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding.

The expected volatilities are based on the historical volatility of the Company’s traded stock and other factors.

During the years ended December 31, 2023, 2022 and 2021, the Company did not grant any options to purchase shares of common stock to its employees.

Options are exercisable for a period as defined by the Compensation Committee on the date granted;

however, no stock option will be exercisable before six months have elapsed from the date of grant and no stock option shall be exercisable after seven years from the date of grant.

The following table summarizes the stock option activity for all of the Company’s plans for the years ended December 31, 2022, 2021, and 2020.

The Company had no outstanding stock options as of December 31, 2023.

The following table summarizes the stock option activity for the years ended December 31, 2023, 2022 and 2021.

Outstanding at beginning of year

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Exercisable at December 31, 2022

The total intrinsic value of options to acquire shares of the Company’s common stock that were exercised during the years ended December 31, 2022, 2021, and 2020, was $ 0.1 million, $ 1.8 million and $ 0.1 million, respectively.

All of the Company’s stock options were vested as of December 31, 2022.

The following table summarizes information about the Company’s stock options outstanding at December 31, 2022:

Options Outstanding

Options Exercisable

Weighted Average

Range of Exercise Prices

Contractual Life

Exercise Price

The total intrinsic value of options to acquire shares of the Company’s common stock that were exercised was $ 0.1 million for the years ended December 31, 2023 and 2022, and $ 1.8 million for the year ended December 31, 2021.

Restricted Stock Units (“RSUs”)

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The Compensation Committee will determine the achievement of performance results and corresponding vesting of performance shares for each year’s grant in 2021, 2022 and 2023 following the conclusion of the respective performance period.

At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original granted amount for performance share units granted in 2022 and 2021 and 0 % to 200 % for performance share units granted in 2020.

The following table summarizes the activity of performance share units granted at target as of December 31, 2022:

At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original target amount for performance share units granted in 2023, 2022 and 2021.

The following table summarizes the activity of PSUs for the years ended December 31, 2023, 2022 and 2021.

The number of PSUs granted in the table reflects target performance for the grant in each respective year.

The number of achieved PSUs (at, above, or below target) are reflected in the year the performance is certified by the Board, as indicated in the table:

Weighted-Average

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Non-vested PSUs outstanding at December 31, 2020

Additional PSUs awarded from the 2017 grant

PSUs forfeited from the 2018 grant due to performance

Non-vested PSUs outstanding at December 31, 2021

PSUs forfeited from the 2018 grant

PSUs forfeited from the 2019 grant due to performance

Non-vested PSUs outstanding at December 31, 2022

PSUs forfeited from the 2019 grant

PSUs forfeited from the 2020 grant due to performance

Non-vested PSUs outstanding at December 31, 2023

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The Company’s treatment of stock option grants of non-qualified options, restricted stock units and performance shares results in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised or the restrictions lapse.

During the year ended December 31, 2021, the Company issued to Treasury warrants to purchase 203,090 shares of the Company’s common stock as part of the PSP E xtension Agreement and the PSP 3 Agreement.

The warrants have a five-year term from the date of issuance, and 124,773 of the warrants have an exercise price of $ 40.41 per share and 78,317 of the warrants have an exercise price of $ 57.47 per share.

The weighted average grant-date fair value of these warrants was estimated at $ 32.52 and $ 22.31 per share for the 124,773 and 78,317 warrants, respectively, using the Black-Scholes option pricing model.

During the year ended December 31, 2020, the Company issued to Treasury warrants to purchase 370,720 shares of the Company’s common stock as part of the CARES Act payroll support.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 13.57 per share using the Black-Scholes option pricing model.

Additionally, in 2020, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $ 60 million borrowing under the CARES Act Secured Loan facility.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 15.22 per share using the Black-Scholes option pricing model.

The Company did not issue any warrants for the year ended December 31, 2022.

In 2020 and 2021, the Company issued to Treasury warrants to purchase shares of the Company’s common stock under the Payroll Support Programs and Secured Loan.

The warrants have a five-year term from the date of issuance.

The weighted average grant-date fair value of these warrants was estimated using the Black-Scholes option pricing model.

The Company did not issue any warrants for the years ended December 31, 2023 and 2022.

The following table summarizes the warrants issued under the payroll support programs and secured loan facility:

Number of Warrants

Exercise Price

Weighted Average Grant-Date Fair Value

(12) Retirement Plans and Employee Stock Purchase Plans

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Employees’ Retirement Plan (the “SkyWest Plan”).

Employees who are at least 18 years of age are eligible for participation in the SkyWest Plan.

Subject to certain specified exceptions, all employees of the Company are eligible to participate in the SkyWest Plan.

Employees may elect to make contributions to the SkyWest Plan.

Generally, the Company matches 100 % of such contributions up to levels ranging from 2 % to 12 % of compensation, based on position and years of service.

SkyWest Airlines pilots with ten or more years of service receive a non-elective contribution of 12 % of their compensation in place of a matching contribution.

Eligible employees who are SAPA pilots and SWC captains are eligible for non-elective profit sharing contributions ranging from 0 % to 20 %, based on position and years of service.

Additionally, a discretionary contribution may be made by the Company.

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(13) Stock Repurchase

The Company’s Board of Directors has adopted a stock repurchase program which authorizes the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices.

The Company’s stock repurchase program authorizes the repurchase of up to $ 250.0 million of the Company’s common stock commencing on February 5, 2019, of which $ 139.6 million remained available at December 31, 2022.

During the year ended December 31, 2020, the Company repurchased 0.4 million shares of common stock for approximately $ 20.0 million at a weighted average price per share of $ 51.87 .

The Company did not repurchase any shares of its common stock during 2022 and 2021.

Under the terms of the PSP3 Agreement, the Company’s restriction from repurchasing shares of its common stock ended on September 30, 2022.

The Company’s Board of Directors adopted stock repurchase programs in both February 2019 and May 2023, which authorize the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices.

The Company’s February 2019 stock repurchase program authorized up to $ 250.0 million for the repurchase of the Company’s common stock.

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

At December 31, 2023, $ 90.9 million remained available under the May 2023 authorization.

During the year ended December 31, 2023, the Company repurchased 10.6 million shares of common stock for $ 289.1 million at a weighted average price per share of $ 27.30 , of which $ 130.0 million was repurchased under the February 2019 stock repurchase program and $ 159.1 million was repurchased under the May 2023 stock repurchase program.

The Company also recorded $ 2.9 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the year ended December 31, 2023.

The Company did not have any stock repurchases during the years ended December 31, 2022 and 2021.

Additionally, during the years ended December 31, 2023, 2022 and 2021, the Company paid $ 0.6 million, $ 1.2 million and $ 1.6 million, respectively, for a net settlement of the income tax obligation on employee equity awards that vested during the applicable periods.

(14) Investments in Other Companies

Equity Method Investment

Equity Method Investments

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

(“Regional One”) by investing $ 22.3 million for a 75 % ownership interest in Aero Engines, LLC.

(“Regional One”) and, as of December 31, 2023, has invested a total of $ 26.6 million for a 75 % ownership interest in Aero Engines, LLC.

(“Aero Engines”).

The Company invested an additional $ 1.0 million into Aero Engines in 2020 and $ 3.3 million during 2022 and retained a 75 % ownership interest.

The primary purpose of Aero Engines is to lease engines to third parties.

Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions.

The Company determined Aero Engines is a variable interest entity as the Company has a 75 % ownership interest in Aero Engines and all material decisions require unanimous approval from the Company and Regional One, resulting in disproportionate ownership rights relative to voting rights.

As unanimous approval is required for all Aero Engines’ material activities.

Aero Engines has no primary beneficiary.

The Company accounts for its investment in Aero Engines under the equity method.

Aero Engines requires unanimous approval from the Company and Regional One for all material transactions.

Although the Company determined Aero Engines is a variable interest entity, Aero Engines has no primary beneficiary as the voting rights are disproportionate to the ownership rights.

Accordingly, the Company accounts for its investment in Aero Engines under the equity method.

The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value.

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The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of the earnings generated by Aero Engines for the year ended December 31, 2022, was $ 1.4 million, which is recorded in “Other income (expense), net” on the Company’s consolidated statements of comprehensive income (loss).

The Company’s portion of the income generated by Aero Engines for the year ended December 31, 2023, was $ 0.2 million, which is recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income.

In December 2023, the Company invested $ 9.9 million for a 9.9 % ownership interest in Corporate Flight Management, Inc.

d/b/a C ontour Airlines (“Contour”), a 14 CFR Part 135 air carrier.

The Company holds one of five seats, or 20 % , on Contour’s board of directors.

The Contour arrangement also includes an asset provisioning agreement under which the Company will provide CRJ airframes, engines and rotable parts to Contour.

Subsequent to December 31, 2023, the Company increased its investment in Contour to $ 25.0 million for a 25.0 % ownership interest.

The Company accounts for its investment in Contour under the equity method where the investment is reported at cost and adjusted each period for the Company’s share of Contour’s income or loss, recorded on a one quarter lag.

Accordingly, no income or loss was recorded associated with the Company’s equity investment in Contour during the year ended December 31, 2023.

As of December 31, 2023, the Company’s investment balance in Contour of $ 9.9 million was recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.

Fair Value Method Investment

In 2021, the Company entered into a strategic partnership with Eve UAM, to develop a network of deployment for Eve UAM’s eVTOL aircraft.

In 2021, the Company entered into a strategic partnership with Eve UAM (“Eve”), to develop a network of deployment for Eve’s eVTOL aircraft.

The Company signed a non-binding letter of intent to purchase 100 eVTOL aircraft.

During the year ended December 31, 2022, the Company acquired 1,000,000 shares of common stock of Eve and a warrant giving the Company the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $ 0.01 per share.

In 2022, the Company acquired 1,000,000 shares of common stock of Eve and a warrant giving the Company the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $ 0.01 per share.

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

The intent of the put option is to reduce the Company’s investment risk in Eve.

The warrant expires in May 2032, and the put option expires in December 2031.

The Company acquired the Eve Investments for $ 10.0 million.

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

The 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 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 year ended December 31, 2023, the Company sold 600,411 shares of common stock of Eve, which concurrently forfeited the 600,411 shares subject to the put option from the Eve shareholder.

The shares of common stock of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security.

The warrant and put option are classified as Level 3 within the fair value hierarchy, and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the warrant and put option, including an expected volatility of 49 % , which is a significant unobservable input that was derived from historical volatility of comparable companies.

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

Level 3 Investments:

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 52 % , 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, 2021

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Balance at December 31, 2022

The Company recognized unrealized gains of $ 11.4 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the year ended December 31, 2022, related to the Eve Investments.

Realized loss on forfeiture of put options

Unrealized loss

Balance at December 31, 2023

The Company recognized a realized gain of $ 2.1 million from the sale of the Eve shares, net of the forfeited put options, and unrealized losses of $ 3.1 million related to the Eve Investments, both were included in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income for the year ended December 31, 2023.

As of December 31, 2023, the fair value of the Eve Investments was $ 15.4 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

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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 8. Financial Statements and Supplementary Data