What changed in this filing

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Item 1. Financial Statements

2024-04-26 compared with 2023-10-27 · 171 added, 214 removed, 353 unchanged (52% of the section changed)

4 unchanged sentences

(Dollars in Thousands)

September 30,

CURRENT ASSETS:

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LIABILITIES AND STOCKHOLDERS’ EQUITY

September 30,

CURRENT LIABILITIES:

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

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

83,137,744 and 82,840,372 shares issued as of March 31, 2024, and December 31, 2023, respectively

Retained earnings

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

Accumulated other comprehensive loss

Treasury stock, at cost, 42,868,446 and 42,615,347 shares as of March 31, 2024, and December 31, 2023, respectively

Accumulated other comprehensive income

Total stockholders’ equity

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

Three months ended

Nine months ended

September 30,

OPERATING REVENUES:

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Total operating expenses

OPERATING INCOME

OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE):

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Total other expense, net

INCOME BEFORE INCOME TAXES

INCOME (LOSS) BEFORE INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

NET INCOME (LOSS)

BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

Weighted average common shares:

COMPREHENSIVE INCOME:

COMPREHENSIVE INCOME (LOSS):

Net income (loss)

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

TOTAL COMPREHENSIVE INCOME

TOTAL COMPREHENSIVE INCOME (LOSS)

See accompanying notes to condensed consolidated financial statements

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Balance at December 31, 2023

Exercise of common stock options and vested employee stock awards

Vested employee stock awards

Employee income tax paid on vested equity awards

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Treasury stock purchases

Net unrealized appreciation on marketable securities, net of tax of $ 476

Net unrealized depreciation on marketable securities, net of tax of $ 56

Balance at March 31, 2024

Stock based compensation expense

Treasury stock purchases

Net unrealized appreciation on marketable securities, net of tax of $ 488

Balance at June 30, 2023

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Treasury stock purchases

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

Balance at September 30, 2023

See accompanying notes to condensed consolidated financial statements.

SKYWEST, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In Thousands)

Treasury Stock

5 unchanged sentences

Stock based compensation expense

Treasury stock purchases

Net unrealized appreciation on marketable securities, net of tax of $ 476

Balance at March 31, 2023

Stock based compensation expense

Net unrealized depreciation on marketable securities, net of tax of $ 628

Balance at June 30, 2022

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

Stock based compensation expense

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

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

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(In Thousands)

Nine months ended

September 30,

Three months ended

NET CASH PROVIDED BY OPERATING ACTIVITIES

1 unchanged sentence

Purchases of marketable securities

( 1,758,125 )

Sales of marketable securities

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Proceeds from the sale of property and equipment

Deposits on aircraft

Aircraft deposits applied towards acquired aircraft

Decrease (increase) in other assets

7 unchanged sentences

Purchase of treasury stock

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET CASH USED IN FINANCING ACTIVITIES

Increase (decrease) in cash and cash equivalents

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(“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The Company formed SWC in 2022, with the intent to offer on-demand charter service and public charter service to underserved communities in the United States.

Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading.

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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

The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

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

Actual results could differ materially from those estimates and assumptions.

(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues

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

The Company recognizes revenue under its lease agreements ratably over the applicable lease term.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, “Segment Reporting (Accounting Standard Codification (“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 ASU 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) Operating 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 fixed-fee arrangements (referred to as “capacity purchase” agreements) with United Airlines, Inc.

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(“American”) and Alaska Airlines, Inc.

(“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.

amount per aircraft in service each month, 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.

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The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term.

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

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

For the three months ended March 31, 2024 and 2023, capacity purchase agreements represented approximately 87.0 % and 88.4 % of the Company’s flying agreements revenue, respectively.

Under the Company’s “prorate” arrangements, 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.

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.

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

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

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

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

For the three months ended September 30,

For the nine months ended September 30,

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 three months ended March 31, 2024 and 2023, prorate flying agreements and SWC revenue represented approximately 13.0 % and 11.6 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three months ended March 31, 2024 and 2023 (in thousands):

For the three months ended March 31,

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

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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 lease and non-lease components based on stand-alone selling prices.

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

The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract.

The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is accounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time.

The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income.

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

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

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

A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement.

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

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

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

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

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

During the three months ended March 31, 2024, the Company recognized $ 0.7 million of previously deferred revenue associated with the non-lease fixed monthly payments under certain agreements and decreased unbilled revenue by $ 0.3 million under certain other agreements, compared to deferring revenue of $ 39.3 million and decreasing unbilled revenue by $ 3.3 million during the three months ended March 31, 2023.

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

The Company recognizes fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments in the period when the block hours are completed.

The Company recognized $ 0.5 million of previously deferred lease revenue during the three months ended March 31, 2024, whereas the Company deferred recognizing lease revenue of $ 20.6 million during the three months ended March 31, 2023, under the straight-line basis.

The Company’s total deferred revenue balance as of March 31, 2024 was $ 373.4 million, including $ 58.0 million in other current liabilities and $ 315.4 million in other long-term liabilities.

The Company’s unbilled revenue balance was $ 7.0 million as of March 31, 2024, including $ 1.1 million in other current assets and $ 5.9 million in other long-term assets.

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

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

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

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

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 ASC Topic 606.

As of March 31, 2024, the Company had 475 aircraft in scheduled service or under contract pursuant to code-share agreements.

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

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United Express Prorate Agreement

(prorate agreement)

Terminable with 120-days’ notice

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Delta Connection Prorate Agreement

(prorate agreement)

• Terminable with 30-days’ notice

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

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

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

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

In addition to the contractual arrangements described above, as of March 31, 2024, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective major airline partners:

Delta Air Lines

United Airlines (1)

Alaska Airlines

(1) 17 of the E175 deliveries scheduled for 2024 are partner-financed so the aircraft will be provided by the major airline partner for SkyWest to operate.

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 major airline partner when the aircraft is leased from the major airline partner, place owned aircraft for sale or pursue other uses for the aircraft.

Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory or to lease the engines to a third party.

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

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

For the three months ended September 30,

For the nine months ended September 30,

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 provided by the major airline partner, place owned aircraft for sale or pursue other uses for the aircraft.

Lease, airport services and other revenues primarily consist 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 three months ended March 31, 2024 and 2023 (in thousands):

For the three months ended March 31,

Operating lease revenue

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Lease, airport services and other

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2023 (in thousands):

October 2023 through December 2023

April 2024 through December 2024

Total future minimum rental income under operating leases

Of the Company’s $ 5.5 billion of net property and equipment as of September 30, 2023, $ 206.1 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

Of the Company’s $ 5.5 billion of net property and equipment as of March 31, 2024, $ 210.4 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default.

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The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.

The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners.

The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and resolution of unresolved items with the Company’s major airline partners.

Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements.

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

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

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

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

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

As of March 31, 2024, the Company had gross receivables of $ 89.5 million in current assets and gross receivables of $ 203.9 million in other long-term assets.

During the three months ended March 31, 2024, there were no significant changes in the outstanding accounts receivable, notes receivable, guarantees or credit ratings of the entities.

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

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Write-offs charged against allowance

Balance at September 30, 2023

Balance at March 31, 2024

(3) Stock-Based Compensation

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

During the three months ended March 31, 2024, the Company granted 50,577 restricted stock units and 118,021 performance shares to certain employees of the Company under the SkyWest, Inc.

2019 Long-Term Incentive Plan.

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The weighted average fair value of these restricted stock units and performance shares on their date of grant was $ 59.57 per share .

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

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

During the three months ended March 31, 2024, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the three months ended March 31, 2024, the Company granted 12,634 fully vested shares of common stock and 2,632 fully vested restricted stock units to the Company’s directors at a grant date fair value of $ 59.57 .

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

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

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

During the three months ended March 31, 2024 and 2023, the Company recorded pre-tax stock-based compensation expense of $ 5.5 million and $ 4.3 million, respectively.

( 4) Stock Repurchase

The Company’s Board of Directors has 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 the repurchase of up to $ 250.0 million of the Company’s common stock.

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

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

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

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

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

The Company’s Board of Directors adopted a stock repurchase program in May 2023, 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.

Under the May 2023 repurchase program, the Company’s Board of Directors authorized up to $ 250.0 million for the repurchase of the Company’s common stock, superseding a prior Board authorization.

At March 31, 2024, $ 82.2 million remains available under the May 2023 authorization.

During the three months ended March 31, 2024, the Company repurchased 136,261 shares of common stock for $ 8.7 million at a weighted average price per share of $ 64.21 .

During the three months ended March 31, 2023, the Company repurchased 5.1 million shares of common stock for $ 100.0 million at a weighted average price per share of $ 19.74 .

(5) Net Income Per Common Share

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Three Months Ended

Nine Months Ended

September 30,

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 Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”) and Loan and Guarantee Agreement with the U.S.

Department of the Treasury (“U.S.

Treasury”), SkyWest issued to U.S.

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 Consolidated Appropriations Act, 2021 (“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 Act of 2021 (“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, during the nine months ended September 30, 2023 and 2022, 422,000 and 334,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds for the nine months ended September 30, 2023 and 2022, respectively.

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

Additionally, during the three months ended March 31, 2024 and 2023, 452,000 and 538,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds for these shares for the three months ended March 31, 2024 and 2023, respectively.

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

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Basic earnings per share weighted average shares

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(6) Segment Reporting

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

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.

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

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

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

The SkyWest Airlines and SWC segment also includes revenue and operating expenses attributed to other flying agreements and 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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Additionally, aircraft removed from SkyWest Airlines’ operations and held for sale are included in the SkyWest Leasing segment.

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

Three months ended September 30, 2023

SkyWest Airlines

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Interest expense

Segment profit (loss) (2)

Total assets (as of September 30, 2023)

Capital expenditures (including non-cash)

Three months ended September 30, 2022

The following represents the Company’s segment data for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three months ended March 31, 2024

SkyWest Airlines

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Interest expense

Segment profit (loss) (2)

Total assets (as of September 30, 2022)

Segment profit (2)

Total assets (as of March 31, 2024)

Capital expenditures (including non-cash)

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

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

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

Nine months ended September 30, 2023

Three months ended March 31, 2023

SkyWest Airlines

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Segment profit (loss) (2)

Total assets (as of September 30, 2023)

Capital expenditures (including non-cash)

Nine months ended September 30, 2022

SkyWest Airlines

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Interest expense

Segment profit (2)

Total assets (as of September 30, 2022)

Total assets (as of March 31, 2023)

Capital expenditures (including non-cash)

(1) Prorate revenue and airport customer service revenue are included in the SkyWest Airlines and SWC 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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The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

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

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

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

As of March 31, 2024, 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 six years .

Airport facilities

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

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

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

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

As of March 31, 2024, the Company’s right-of-use assets were $ 85.9 million, the Company’s current maturities of operating lease liabilities were $ 19.7 million, and the Company’s noncurrent lease liabilities were $ 66.2 million.

During the three months ended March 31, 2024, the Company paid $ 5.7 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of March 31, 2024:

Weighted-average remaining lease term for operating leases

Weighted-average discount rate for operating leases

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

For the three months ended September 30,

For the nine months ended September 30,

The Company’s lease costs for the three months ended March 31, 2024 and 2023 included the following components (in thousands):

For the three months ended March 31,

Operating lease cost

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Total lease cost

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

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

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

October 2023 through December 2023

As of March 31, 2024, 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.

The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of March 31, 2024 (in thousands):

April 2024 through December 2024

Total future minimum operating lease payments

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

As of March 31, 2024, the Company had a firm purchase commitment for 21 E175 aircraft from Embraer with anticipated delivery dates through 2026.

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

Oct - Dec 2023

Apr - Dec 2024

Operating lease payments for aircraft and facility obligations

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Total commitments and obligations

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

(1) At March 31, 2024, the Company’s long-term debt had fixed interest rates.

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

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 the estimated value of common stock of the Part 135 air carrier.

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

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

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, all of which was sold in 2023.

The balance of the debt under the guarantee was $ 16.1 million as of March 31, 2024.

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 $ 7.2 million as of March 31, 2024.

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.

(8) Fair Value Measurements

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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

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

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

Fair Value Measurements as of September 30, 2023

As of March 31, 2024, and December 31, 2023, the Company held certain assets that are required to be measured at fair value on a recurring basis.

Assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements as of March 31, 2024

Marketable Securities

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

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

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

See Note 11 “Investments in Other Companies” regarding the Company’s investments in other companies, for the three months ended March 31, 2024.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the three months ended March 31, 2024.

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

As of September 30, 2023, and December 31, 2022, the Company classified $ 694.2 million and $ 944.2 million of marketable securities, respectively, as short-term because it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year .

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

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

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

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

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

As of March 31, 2024, and December 31, 2023, the Company classified $ 641.2 million and $ 686.9 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 .

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

As of March 31, 2024, and December 31, 2023, the cost of the Company’s marketable securities was $ 641.0 million and $ 686.5 million, respectively.

(9) 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.

At December 31, 2023, the Company presented the $ 54.3 million of assets held for sale at their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet.

During the three months ended March 31, 2024, the Company changed its plan to sell the 14 CRJ700 aircraft and reclassified them as held for use assets in “Aircraft and rotable spares” on the Company’s consolidated balance sheet.

The Company remeasured the fair value of the held for use assets at the time of the reclassification and, as a result, for the three months ended March 31, 2024, the Company recorded a $ 4.2 million gain (pre-tax) as an offset to other operating expenses primarily due to the elimination of the estimated costs to sell the assets.

(10) Long-term Debt

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

September 30, 2023

Long-term debt consisted of the following as of March 31, 2024, and December 31, 2023 (in thousands):

March 31, 2024

December 31, 2023

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Total long-term debt, net of debt issue costs

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

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

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

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

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

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

As of March 31, 2024, the Company had $ 2.9 billion of total long-term debt, which consisted of $ 2.7 billion of debt used to finance aircraft and spare engines and $ 200.6 million of unsecured debt payable to U.S.

The average effective interest rate on the Company’s debt was approximately 4.1 % at March 31, 2024.

As of March 31, 2024 and December 31, 2023, the Company had $ 45.0 million and $ 49.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of March 31, 2024, SkyWest Airlines had a $ 100.0 million line of credit.

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

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

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

As of March 31, 2024, SkyWest Airlines had no amounts outstanding under the facility.

However, at March 31, 2024, SkyWest Airlines had $ 24.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 75.1 million.

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

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Debt is primarily classified as Level 2 within the fair value hierarchy.

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

September 30, 2023

carrying value and fair value of the Company’s long-term debt as of March 31, 2024 and December 31, 2023, were as follows (in thousands):

March 31, 2024

December 31, 2023

1 unchanged sentence

( 11) Investments in Other Companies

Equity Method Investment

Equity Method Investments

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

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

and, as of March 31, 2024, has invested a total of $ 26.6 million for an ownership interest in Aero Engines, LLC.

(“Aero Engines”).

2 unchanged sentences

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

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

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

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

Aero Engines had no debt outstanding as of March 31, 2024.

As of March 31, 2024, the Company’s investment balance in Aero Engines was $ 25.3 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of income generated by Aero Engines for the three months ended March 31, 2024, 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.

In January 2024, the Company invested an additional $ 15.1 million in Contour.

The Company has a 25 % ownership interest in Contour at March 31, 2024 and 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.

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, for the three months ended March 31, 2024, the Company recorded a loss of less than $ 0.1 million, its portion of loss generated by Contour during the fourth quarter of 2023, which was recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income.

As of March 31, 2024, the Company’s investment balance in Contour of $ 25.0 million was recorded in “Other Assets” on the Company’s consolidated balance sheet.

At March 31, 2024, the Company had $ 14.0 million in notes receivable from Contour related to the sale of aircraft under the asset provisioning agreement.

The notes are secured by aircraft and collectible within four years .

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 Investments

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

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

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

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

The 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 report ed 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.

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Balance at December 31, 2023

Realized loss on forfeiture of put options

Unrealized gains

Balance at September 30, 2023

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

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

Unrealized loss

Balance at March 31, 2024

The Company recognized unrealized losses of $ 3.5 million in “ Other income (loss) , net ” on the Company’s consolidated statements of comprehensive income for the three months ended March 31, 2024, related to the Eve Investments.

As of March 31, 2024, the fair value of the Eve Investments was $ 11.9 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

(12) Income Taxes

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

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

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

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

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

The Company’s effective tax rate for the three months ended March 31, 2024 was 24.8 %.

The Company’s effective tax rate for the three months ended March 31, 2024 varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and the impact of non-deductible expenses, partially offset by a discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the three months ended March 31, 2024.

The Company’s effective tax rate for the three months ended March 31, 2023 was 15.5 %.

The Company’s effective tax rate for the three months ended March 31, 2023 varied from the federal statutory rate of 21.0 % primarily due to the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the three months ended March 31, 2023, partially offset by the provision for state income taxes.

(13) Legal Matters

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

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

As of March 31, 2024, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

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

What changed 10-Q

Item 1. Financial Statements