SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-14719

SKYWEST, INC.


Incorporated under the laws of Utah		87-0292166
		(I.R.S. Employer ID No.)

444 South River Road

St. George, Utah 84790

(435) 634-3000

(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, No Par Value	SKYW	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer ⌧		Accelerated filer ◻

Non-accelerated filer ◻		Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.




Class		Outstanding at October ~~30, 2020~~29, 2021
Common stock, no par value		~~50,140,172~~50,379,923

Table of Contents

SKYWEST, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION:
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders Equity	6
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4240
	Item 4.	Controls and Procedures	4240

PART II	OTHER INFORMATION:
	Item 1.	Legal Proceedings	4341
	Item 1A.	Risk Factors	4341
	Item 6.	Exhibits	4641
		Signature	4742

Exhibit 31.1	Certification of Chief Executive Officer
Exhibit 31.2	Certification of Chief Financial Officer
Exhibit 32.1	Certification of Chief Executive Officer
Exhibit 32.2	Certification of Chief Financial Officer

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS


	September 30,		December 31,		September 30,		December 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	418,228	$	87,206	$	271,831	$	215,723
Marketable securities		403,793		432,966		640,673		610,185
Income tax receivable		3,557		11,141
Receivables, net		32,890		82,977		56,320		34,462
Inventories, net		92,350		110,503		98,763		91,196
Other current assets		26,460		35,553		29,080		31,236
Total current assets		977,278		760,346		1,096,667		982,802

PROPERTY AND EQUIPMENT:
Aircraft and rotable spares		7,274,843		7,078,801		7,529,226		7,527,555
Deposits on aircraft		40,263		48,858		121,293		31,625
Buildings and ground equipment		243,692		265,398		256,348		258,863
		7,558,798		7,393,057
Total property and equipment, gross						7,906,867		7,818,043
Less-accumulated depreciation and amortization		(2,351,052)		(1,998,376)		(2,621,410)		(2,455,995)
Total property and equipment, net		5,207,746		5,394,681		5,285,457		5,362,048

OTHER ASSETS:
Operating lease right-of-use assets		296,439		336,009		248,576		282,362
Other assets		277,131		166,093
Long-term receivables and other assets						309,802		260,410
Total other assets		573,570		502,102		558,378		542,772
Total assets	$	6,758,594	$	6,657,129	$	6,940,502	$	6,887,622

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY


	September 30,		December 31,		September 30,		December 31,
	2020		2019		2021		2020
	(unaudited)				(unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	360,288	$	364,126	$	359,888	$	402,158
Accounts payable		244,047		284,473		427,903		278,677
Accrued salaries, wages and benefits		113,800		133,856		146,947		125,944
Current maturities of operating lease liabilities		83,291		94,806		78,188		82,641
Taxes other than income taxes		33,392		15,004		30,333		26,183
Other current liabilities		25,086		32,411		94,496		26,119
Total current liabilities		859,904		924,676		1,137,755		941,722

LONG-TERM DEBT, net of current maturities		2,707,769		2,628,989		2,605,063		2,801,538

DEFERRED INCOME TAXES PAYABLE		638,938		623,580		657,067		625,931

NONCURRENT OPERATING LEASE LIABILITIES		221,839		259,237		171,443		205,845

OTHER LONG-TERM LIABILITIES		145,044		45,633		107,367		173,041

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; NaN issued		—		—		—		—
Common stock, 0 par value, 120,000,000 shares authorized; 82,094,985 and 81,742,937 shares issued, as of September 30, 2020 and December 31, 2019, respectively		703,780		686,806
Common stock, 0 par value, 120,000,000 shares authorized; 82,335,782 and 82,094,985 shares issued as of September 30, 2021, and December 31, 2020, respectively						720,932		704,675
Retained earnings		2,098,456		2,079,179		2,159,584		2,052,006
Treasury stock, at cost, 31,913,635 and 31,420,179 shares issued, as of September 30, 2020 and December 31, 2019, respectively		(617,136)		(590,971)
Treasury stock, at cost, 31,955,991 and 31,913,635 shares as of September 30, 2021, and December 31, 2020, respectively						(618,709)		(617,136)
Total stockholders’ equity		2,185,100		2,175,014		2,261,807		2,139,545
Total liabilities and stockholders’ equity	$	6,758,594	$	6,657,129	$	6,940,502	$	6,887,622

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

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

~~(Unaudited)~~



	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
OPERATING REVENUES:
Flying agreements	$	719,084	$	445,048	$	1,863,242	$	1,490,912
Lease, airport services and other		25,699		12,445		73,086		46,557
Total operating revenues		744,783		457,493		1,936,328		1,537,469
OPERATING EXPENSES:
Salaries, wages and benefits		265,603		194,516		718,868		613,895
Aircraft maintenance, materials and repairs		209,795		150,148		604,501		431,654
Depreciation and amortization		109,597		121,467		329,089		364,813
Airport-related expenses		25,992		18,003		72,478		70,192
Aircraft fuel		32,561		13,641		77,622		45,875
Aircraft rentals		16,098		15,785		47,311		49,537
Special items - impairment charges		84,592		—		84,592		—
Payroll support grant		(115,352)		(190,200)		(422,669)		(342,138)
Other operating expenses		68,847		59,580		181,621		167,170
Total operating expenses		697,733		382,940		1,693,413		1,400,998
OPERATING INCOME		47,050		74,553		242,915		136,471
OTHER INCOME (EXPENSE):
Interest income		238		1,403		732		5,652
Interest expense		(28,980)		(30,150)		(94,274)		(91,280)
Other income (expense), net		(4,098)		405		(3,802)		1,205
Total other expense, net		(32,840)		(28,342)		(97,344)		(84,423)
INCOME BEFORE INCOME TAXES		14,210		46,211		145,571		52,048
PROVISION FOR INCOME TAXES		4,526		12,549		37,993		14,113
NET INCOME	$	9,684	$	33,662	$	107,578	$	37,935

BASIC EARNINGS PER SHARE	$	0.19	$	0.67	$	2.14	$	0.76
DILUTED EARNINGS PER SHARE	$	0.19	$	0.66	$	2.12	$	0.75
Weighted average common shares:
Basic		50,380		50,181		50,337		50,199
Diluted		50,725		50,622		50,726		50,445

COMPREHENSIVE INCOME:
Net income	$	9,684	$	33,662	$	107,578	$	37,935
Net unrealized depreciation on marketable securities, net of taxes		—		(307)		—		—
TOTAL COMPREHENSIVE INCOME	$	9,684	$	33,355	$	107,578	$	37,935

See accompanying notes to condensed consolidated financial statements

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)

Three months ended

Nine months ended

September 30,

September 30,


2020

2019

2020

2019

OPERATING REVENUES:

Flying agreements

$
445,048

$
738,838

$
1,490,912

$
2,164,173

Lease, airport services and other

12,445

21,457

46,557

64,199

Total operating revenues

457,493

760,295

1,537,469

2,228,372

OPERATING EXPENSES:

Salaries, wages and benefits

194,516

251,414

613,895

752,768

Aircraft maintenance, materials and repairs

150,148

133,521

431,654

376,572

Depreciation and amortization

121,467

92,795

364,813

272,929

Airport-related expenses

18,003

27,808

70,192

89,237

Aircraft rentals

15,785

17,676

49,537

55,840

Aircraft fuel

13,641

31,063

45,875

87,570

CARES Act payroll support grant

(190,200)

—

(342,138)

—

Special items

—

—

—

21,869

Other operating expenses

59,580

59,577

167,170

184,634

Total operating expenses

382,940

613,854

1,400,998

1,841,419

OPERATING INCOME

74,553

146,441

136,471

386,953

OTHER INCOME (EXPENSE):

Interest income

1,403

3,542

5,652

11,081

Interest expense

(30,150)

(31,606)

(91,280)

(96,884)

Other income, net

405

361

1,205

47,367

Total other income (expense), net

(28,342)

(27,703)

(84,423)

(38,436)

INCOME BEFORE INCOME TAXES

46,211

118,738

52,048

348,517

PROVISION FOR INCOME TAXES

12,549

27,399

14,113

80,945

NET INCOME

$
33,662

$
91,339

$
37,935

$
267,572

BASIC EARNINGS PER SHARE

$
0.67

$
1.80

$
0.76

$
5.24

DILUTED EARNINGS PER SHARE

$
0.66

$
1.79

$
0.75

$
5.19

Weighted average common shares:

Basic

50,181

50,746

50,199

51,111

Diluted

50,622

51,129

50,445

51,568

COMPREHENSIVE INCOME:

Net income

$
33,662

$
91,339

$
37,935

$
267,572

Net unrealized depreciation on debt securities, net of taxes

(307)

—

—

32

TOTAL COMPREHENSIVE INCOME

$
33,355

$
91,339

$
37,935

$
267,604


	Common Stock			Retained		Treasury Stock
	Shares	Amount		Earnings		Shares	Amount		Total
Balance at December 31, 2020	82,095	$	704,675	$	2,052,006	(31,914)	$	(617,136)	$	2,139,545
Net income	—		—		35,900	—		—		35,900
Exercise of common stock options and vested employee stock awards	177		606		—	—		—		606
Employee income tax paid on vested equity awards	—		—		—	(42)		(1,573)		(1,573)
Sale of common stock under employee stock purchase plan	30		1,139		—	—		—		1,139
Stock based compensation expense	—		2,613		—	—		—		2,613
Warrants issued to U.S. Treasury	—		3,291		—	—		—		3,291
Balance at March 31, 2021	82,302	$	712,324	$	2,087,906	(31,956)	$	(618,709)	$	2,181,521
Net income	—		—		61,994	—		—		61,994
Stock based compensation expense	—		2,877		—	—		—		2,877
Warrants issued to U.S. Treasury	—		2,513		—	—		—		2,513
Balance at June 30, 2021	82,302	$	717,714	$	2,149,900	(31,956)	$	(618,709)	$	2,248,905
Net income	—		—		9,684	—		—		9,684
Sale of common stock under employee stock purchase plan	34		1,401		—	—		—		1,401
Stock based compensation expense	—		1,817		—	—		—		1,817
Balance at September 30, 2021	82,336	$	720,932	$	2,159,584	(31,956)	$	(618,709)	$	2,261,807

See accompanying notes to condensed consolidated financial ~~statements~~statements.

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)


									Accumulated
									Other
	Common Stock			Retained		Treasury Stock			Comprehensive				Common Stock			Retained		Treasury Stock			Accumulated Other Comprehensive
	Shares	Amount		Earnings		Shares	Amount		Income		Total		Shares	Amount		Earnings		Shares	Amount		Income		Total
Balance at December 31, 2019	81,743	$	686,806	$	2,079,179	(31,420)	$	(590,971)	$	—	$	2,175,014	81,743	$	686,806	$	2,079,179	(31,420)	$	(590,971)	$	—	$	2,175,014
Change in accounting principle and other (see Note 1)	—				(11,639)	—		—		—		(11,639)
Change in accounting principle and other (see Note 3)													—		—		(11,639)	—		—		—		(11,639)
Balance at December 31, 2019, as adjusted	81,743		686,806		2,067,540	(31,420)		(590,971)		—		2,163,375	81,743		686,806		2,067,540	(31,420)		(590,971)		—		2,163,375
Net income	—		—		29,988	—		—		—		29,988	—		—		29,988	—		—		—		29,988
Exercise of common stock options and stock issued under equity award plan	287		38		—	—		—		—		38
Exercise of common stock options and vested employee stock awards													287		38		—	—		—		—		38
Employee income tax paid on vested equity awards													—		—		—	(108)		(6,165)		—		(6,165)
Sale of common stock under employee stock purchase plan	24		1,494		—	—		—		—		1,494	24		1,494		—	—		—		—		1,494
Stock-based compensation expense associated with equity awards, net of forfeitures	—		1,727		—	—		—		—		1,727
Treasury shares acquired from vested employee stock awards for income tax withholdings	—		—		—	(108)		(6,165)		—		(6,165)
Stock based compensation expense													—		1,727		—	—		—		—		1,727
Treasury stock purchases	—		—		—	(386)		(20,000)		—		(20,000)	—		—		—	(386)		(20,000)		—		(20,000)
Cash dividends declared ($0.14 per share)	—		—		(7,019)	—		—		—		(7,019)	—		—		(7,019)	—		—		—		(7,019)
Balance at March 31, 2020	82,054	$	690,065	$	2,090,509	(31,914)	$	(617,136)	$	—	$	2,163,438	82,054	$	690,065	$	2,090,509	(31,914)	$	(617,136)	$	—	$	2,163,438
Net loss	—		—		(25,715)	—		—		—		(25,715)	—		—		(25,715)	—		—		—		(25,715)
Stock based compensation expense													—		2,087		—	—		—		—		2,087
Warrants issued to U.S. Treasury													—		2,845		—	—		—		—		2,845
Net unrealized appreciation on marketable securities, net of tax of $99	—		—		—	—		—		307		307	—		—		—	—		—		307		307
Stock-based compensation expense associated with equity awards, net of forfeitures	—		2,087		—	—		—		—		2,087
CARES Act warrant issuance	—		2,845		—	—		—		—		2,845
Balance at June 30, 2020	82,054	$	694,997	$	2,064,794	(31,914)	$	(617,136)	$	307	$	2,142,962	82,054	$	694,997	$	2,064,794	(31,914)	$	(617,136)	$	307	$	2,142,962
Net income	—		—		33,662	—		—		—		33,662	—		—		33,662	—		—		—		33,662
Sale of common stock under employee stock purchase plan													41		1,287		—	—		—		—		1,287
Stock based compensation expense													—		2,093		—	—		—		—		2,093
Warrants issued to U.S. Treasury													—		5,403		—	—		—		—		5,403
Net unrealized depreciation on marketable securities, net of tax of $(99)	—		—		—	—		—		(307)		(307)	—		—		—	—		—		(307)		(307)
Sale of common stock under employee stock purchase plan	41		1,287		—	—		—		—		1,287
Stock-based compensation expense associated with equity awards, net of forfeitures	—		2,093		—	—		—		—		2,093
CARES Act warrant issuance	—		5,403		—	—		—		—		5,403
Balance at September 30, 2020	82,095	$	703,780	$	2,098,456	(31,914)	$	(617,136)	$	—	$	2,185,100	82,095	$	703,780	$	2,098,456	(31,914)	$	(617,136)	$	—	$	2,185,100

See accompanying notes to condensed consolidated financial statements.

~~Table of Contents~~

~~SKYWEST, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY~~

~~(UNAUDITED)~~

~~(In Thousands)~~

Accumulated

Other

Common Stock

Retained

Treasury Stock

Comprehensive


Shares

Amount

Earnings

Shares

Amount

Income (Loss)

Total
Balance at December 31, 2018

81,239

$
690,910

$
1,776,585

(29,851)

$
(503,182)

$
(32)

$
1,964,281
Change in accounting principle and other (see Note 7)

—

(13,141)

—

—

—

(13,141)
Balance at December 31, 2018, as adjusted

81,239

690,910

1,763,444

(29,851)

(503,182)

(32)

1,951,140
Net income

—

—

88,181

—

—

—

88,181
Net unrealized depreciation on marketable securities, net of tax of $10

—

—

—

—

—

32

32
Exercise of common stock options and stock issued under equity award plan

521

641

—

—

—

—

641
Sale of common stock under employee stock purchase plan

39

1,620

—

—

—

—

1,620
Stock-based compensation expense associated with equity awards, net of forfeitures

—

(578)

—

—

—

—

(578)
Treasury shares acquired from vested employee stock awards for income tax withholdings

—

—

—

(173)

(9,311)

—

(9,311)
Treasury stock purchases

—

—

—

(476)

(25,000)

—

(25,000)
Cash dividends declared ($0.12 per share)

—

—

(6,158)

—

—

—

(6,158)
Balance at March 31, 2019

81,799

$
692,593

$
1,845,467

(30,500)

$
(537,493)

$
—

$
2,000,567
Net income

—

—

88,052

—

—

—

88,052
Exercise of common stock options and stock issued under equity award plan

172

2,279

—

—

—

—

2,279
Stock-based compensation expense associated with equity awards, net of forfeitures

—

2,075

—

—

—

—

2,075
Treasury stock purchases

—

—

—

(311)

(18,476)

—

(18,476)
Common stock purchased and cancelled

(268)

(16,145)

—

—

—

—

(16,145)
Cash dividends declared ($0.12 per share)

—

—

(6,107)

—

—

—

(6,107)
Balance at June 30, 2019

81,703

$
680,802

$
1,927,412

(30,811)

$
(555,969)

$
—

$
2,052,245
Net income

—

—

91,339

—

—

—

91,339
Exercise of common stock options and stock issued under equity award plan

13

185

—

—

—

—

185
Sale of common stock under employee stock purchase plan

27

1,545

—

—

—

—

1,545
Stock-based compensation expense associated with equity awards, net of forfeitures

—

2,009

—

—

—

—

2,009
Treasury stock purchases

—

—

—

(442)

(25,003)

—

(25,003)
Cash dividends declared ($0.12 per share)

—

—

(6,060)

—

—

—

(6,060)
Balance at September 30, 2019

81,743

$
684,541

$
2,012,691

(31,253)

$
(580,972)

$
—

$
2,116,260

~~See accompanying notes to condensed consolidated financial statements.~~

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)


	Nine months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2021		2020
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	548,703	$	582,468	$	686,955	$	548,703

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities		(848,897)		(1,469,091)		(1,071,637)		(848,897)
Sales of marketable securities		878,070		1,566,471		1,041,149		878,070
Proceeds from the sale of aircraft, property and equipment		1,612		25,604
Acquisition of property and equipment:
Aircraft and rotable spare parts		(170,392)		(419,508)		(223,605)		(170,392)
Buildings and ground equipment		(9,398)		(61,021)		(10,473)		(9,398)
Proceeds from the sale of property and equipment						7,104		1,612
Deposits on aircraft		(625)		(31,817)		(100,105)		(625)
Aircraft deposits applied towards acquired aircraft		9,220		23,298		10,987		9,220
Net cash received from sale of ExpressJet subsidiary		—		53,200
Decrease (increase) in other assets		(121,037)		7,570
Increase in other assets						(50,205)		(121,037)
NET CASH USED IN INVESTING ACTIVITIES		(261,447)		(305,294)		(396,785)		(261,447)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		201,285		99,914		213,326		201,285
Principal payments on long-term debt		(117,182)		(291,250)		(448,466)		(117,182)
Net proceeds from issuance of common stock		2,819		6,270		3,146		2,819
Purchase of treasury and common stock and employee income tax paid on equity awards		(26,165)		(93,935)
Increase in debt issuance and lessor initial direct costs		(3,932)		(1,242)
Purchase of treasury stock						—		(20,000)
Employee income tax paid on vested equity awards						(1,573)		(6,165)
Payment of debt issuance cost						(495)		(3,932)
Payment of cash dividends		(13,059)		(17,406)		—		(13,059)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		43,766		(297,649)		(234,062)		43,766

Increase (decrease) in cash and cash equivalents		331,022		(20,475)
Increase in cash and cash equivalents						56,108		331,022
Cash and cash equivalents at beginning of period		87,206		328,384		215,723		87,206
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	418,228	$	307,909	$	271,831	$	418,228

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing activities:
Acquisition of rotable spare parts	$	8,531	$	3,662
Debt assumed on aircraft acquired under operating leases	$	—	$	14,475
Engines contributed to joint venture	$	—	$	22,313
Non-cash assets used to acquire aircraft under operating leases	$	—	$	153,566
Lease liability arising from the recognition of right-of-use asset	$	—	$	456,472
CARES Act warrant issuance	$	8,248	$	—
Non-cash investing and financing activities:
Acquisition of property and equipment					$	13,168	$	8,531
Warrants issued to U.S. Treasury					$	5,804	$	8,248
Cash paid during the period for:
Interest, net of capitalized amounts	$	95,999	$	100,100	$	96,397	$	95,999
Income taxes	$	371	$	2,415	$	6,374	$	371

SUPPLEMENTAL DISCLOSURE OF SALE OF SUBSIDIARY:
Decrease in carrying amount of assets	$	—	$	(101,448)
Decrease in carrying amount of liabilities		—		68,341
Cash received from buyers		—		79,632
Gain on sale of subsidiary	$	—	$	46,525

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(~~Note 1 —~~1) Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). On January 22, 2019, the Company completed the sale of its former wholly owned subsidiary, ExpressJet Airlines, Inc. (“ExpressJet”). The Company’s financial and operating results presented in this Report include the financial results of ExpressJet for the period of time ExpressJet was operating as a subsidiary of the Company. 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. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. 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, ~~2019.~~2020. Due in part to the ~~severe~~volatile effects from the global COVID-19 ~~(coronavirus)~~ pandemic, in addition to other factors, the results of operations for the three and nine months ended September 30, ~~2020~~2021, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~

2021.

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 ~~will likely differ, and may~~could differ materially from those estimates and assumptions.

~~Recent Accounting Pronouncements~~

~~Recently Adopted Standards~~

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”), which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosure regarding significant estimates and judgments used in estimating credit losses. Topic 326 is effective for the Company beginning January 1, 2020. The Company adopted Topic 326 on January 1, 2020. The Company’s primary financial assets as of December 31, 2019 included trade receivables from its flying agreements, a note receivable from the sale of ExpressJet, 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). See Note 3, “Flying Agreements Revenue and Lease, Airport Services and Other Revenues,” for more information on the application of Topic 326 on the Company’s results for the nine months ended September 30, 2020.

~~Note 2 —~~(2) Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, has ~~surfaced~~had a significant, negative impact on the Company’s business and financial results beginning in ~~nearly all regions~~March 2020 and has materially and adversely affected the Company’s revenues, particularly under its prorate agreements. The Company operated 137,493 flights during the third quarter of 2020, which increased to 210,251 flights, or 52.9%, during the third quarter of 2021. However, the Company operated 219,272 flights during the third quarter of 2019 and the Company has not returned to pre-COVID flight levels as of September 30, 2021. The rate of recovery from the impact of COVID-19 and whether such recovery will be sustained are uncertain as factors outside of the ~~world~~Company’s control, including the distribution and ~~driven~~efficacy of vaccines, government-imposed vaccine mandates, new variants of the ~~implementation~~virus, and ~~continuation of significant, government-imposed measures to prevent~~continued or ~~reduce its spread, including~~new government travel restrictions, ~~closing of borders, “shelter in place” orders and business closures. Consequently,~~cannot be estimated.

Liquidity. At September 30, 2021, the Company had $953.5 million in total available liquidity, consisting of $912.5 million in cash and ~~its major airline partners (as defined~~marketable securities, and $41.0 million available under SkyWest Airlines’ line of credit with a bank.

2021 Appropriations Act. In January 2021, SkyWest Airlines entered into a Payroll Support Program Extension Agreement (the “PSP Extension Agreement”) with the U.S. Department of the Treasury (“U.S. Treasury”) with respect to a payroll grant program under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”). Pursuant to the PSP Extension Agreement, SkyWest Airlines received $268.1 million from U.S. Treasury during the nine months ended September 30, 2021.

In connection with the receipt of financial assistance under the PSP Extension Agreement, SkyWest Airlines is required to comply with the relevant provisions of the 2021 Appropriations Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that the Company entered into with U.S. Treasury in ~~Note 3~~April 2020.

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below), have experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected the Company’s revenues, including its capacity purchase agreements and its prorate agreements (as defined in Note 3 below). The continued spread of the virus and the ongoing global pandemic has affected the majority of the domestic and international networks of the Company’s major airline partners for whom it conducts flight operations and relies on to set its flight schedules. While the length and severity of the reduction in demand due to COVID-19 are uncertain, the Company presently expects a continued significant negative impact on its results of operations at a minimum for the remainder of 2020 and into 2021.

In response to these developments, the Company has implemented measures to focus on the personal safety of its passengers and employees, while at the same time seeking to mitigate the impact on the Company’s financial position and operations. These measures include, but are not limited to, the following:

~~Focus on the Personal Safety of Passengers and Employees.~~ The safety and well-being of the Company’s passengers and employees are the Company’s priorities in every decision it makes. As the COVID-19 pandemic has developed, the Company has taken numerous steps to help passengers and employees take appropriate safety measures on the ground and in the air in keeping with current Centers for Disease Control and Prevention recommendations, including:

●

~~Working with the Company’s major airline partners to enhance its aircraft cleaning procedures.~~

●

Working with the Company’s major airline partners to provide masks for crewmembers and ensuring that all fleet service personnel have the necessary personal protective equipment for disinfecting the aircraft.

●

~~Providing a number of options to employees who are diagnosed with COVID-19, including pay protection and extended leave options.~~

●

Implementing workforce social distancing and protection measures, enhanced cleaning of the Company’s facilities, including training facilities, using methods and products similar to what the Company is using on its aircraft.

~~Capacity Reductions.~~ Beginning in March 2020, the Company and its major airline partners experienced an unprecedented decrease in demand for air travel and expect this decline from pre COVID-19 flight levels to continue at a minimum for the remainder of 2020 and into 2021. The Company depends on its major airline partners to contract with the Company to schedule flights. Therefore, in response to this decreased demand, the Company has significantly reduced its capacity. During the three months ended September 30, 2020, the Company’s number of departures and block hours each decreased 37.3% and 40.8%, respectively, from the three months ended September 30, 2019. The Company also anticipates similar schedule reductions will likely continue at a minimum throughout the remainder of 2020 and into 2021. The number of daily flights operated by the Company may not return to pre-COVID-19 levels for the foreseeable future. The Company will continue to work with its major airline partners regarding future schedules and make further demand-driven adjustments to its capacity as needed. The Company has removed 38 Canadair CRJ200 regional aircraft (“CRJ200”) that were operating under the SkyWest Airlines Delta ConnectionPSP Extension Agreement with scheduled contract expirations in 2020 that were not extended as a result of decreased demand as of September 30, 2020, and anticipates removing an additional 17 CRJ200 aircraft during the fourth quarter of 2020. The Company additionally terminated its American Prorate Agreement on 7 CRJ200 aircraft in the second quarter of 2020 and the Company may have further reductions in the number of CRJ200 aircraft operating under its other prorate agreements. The Company may receive requests by its major airline partners to defer deliveries of new or used aircraft that were previously scheduled for 2020, 2021 and 2022.

~~Cost Reductions.~~ ~~With the reduction in revenue, the Company has, and will continue to implement, cost saving initiatives, including:~~

●

~~Reducing employee-related costs including by:~~

~~Offering voluntary unpaid leave to employees.~~

~~Suspending all non-scale pay increases.~~

~~Instituting a company-wide hiring freeze.~~

●

~~Delaying non-essential projects and reducing or suspending other discretionary spending.~~

~~Liquidity.~~ At September 30, 2020, the Company had $1,374.8 million in total available liquidity, consisting of $822.0 million in cash and marketable securities and $39.8 million available under SkyWest Airlines’ line of credit and

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an additional $513.0 million available to draw under the Company’s secured loan with the U.S. Department of the Treasury (“Treasury”) related to the Coronavirus Aid Relief, and Economic Security Act (the “CARES Act”).

~~CARES Act.~~ On March 27, 2020, President Trump signed the CARES Act into law. The CARES Act is a relief package intended to assist many aspects of the U.S. economy, including providing the airline industry with up to $25 billion in grants to be used for employee wages, salaries and benefits.

In April 2020, SkyWest Airlines entered into an agreement with Treasury to receive $438.0 million in emergency relief through the CARES Act payroll support program to be paid in installments from April to September 2020. In conjunction with an additional paymentpayments received ~~in September 2020, SkyWest Airlines has received $450.7~~included $217.7 million in the ~~aggregate under the~~form of a payroll support program as of September 30, 2020. The relief payments are conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020. Other conditions include bans on share repurchasesgrant and dividends through September 30, 2021, continuing essential air service as directed by the U.S. Department of Transportation and certain limitations on executive compensation. The relief payments received through September 30, 2020 include $345.5$50.4 million in ~~a grant and $105.2 million in~~the form of an unsecured 10-year loan. The loan bears interest at an annual rate of 1.00% for the first five years (through ~~April 2025)~~January 2026) and the Secured Overnight Financing Rate plus 2.00% in the final five years. In return, the Company ~~agreed~~issued to ~~issue to~~U.S. Treasury warrants to purchase ~~370,720~~up to 124,773 shares of the Company’s common stock. These warrants have an exercise price of ~~$28.38~~$40.41 per share and a five-year term from the date of issuance.

The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan, which will be amortized as interest expense in the Company’s income statement over the term of the loan. The proceeds of the grant ~~are~~were recorded in cash and cash equivalents when received and ~~will be~~were recognized as a reduction in expense in ~~CARES Act~~ payroll support grant in ~~our~~the Company’s income statement over the periods that the funds were intended to compensate. The Company recorded $217.7 million of the PSP Extension Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2021.

American Rescue Plan Act of 2021. On April 23, 2021, SkyWest Airlines entered into a Payroll Support Program 3 Agreement (the “PSP 3 Agreement”) with U.S. Treasury with respect to a payroll grant program under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”).Pursuant to the PSP 3 Agreement, SkyWest Airlines received from U.S. Treasury approximately $250.0 million during the nine months ended September 30, 2021.

In connection with the receipt of financial assistance under the PSP 3 Agreement, SkyWest Airlines is required to comply with the relevant provisions of the American Rescue Plan Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program Agreement under the CARES Act and the PSP Extension Agreement under the 2021 Appropriations Act. The relevant provisions include the requirement that the funding be used exclusively for the continuation of payment of employee wages, salaries and benefits. Similar to the previous Payroll Support Programs, SkyWest Airlines and, in some cases, the Company is also subject to certain restrictions, including, but not limited to, limitations on involuntary terminations, pay rate reductions and furloughs through September 30, 2021, restrictions on the payment of dividends and the repurchase of shares through September 30, 2022, and certain limitations on executive compensation through April 1, 2023.

The PSP 3 Agreement payments received through September 30, 2021, included $205.0 million in the form of a payroll grant and $45.0 million in the form of an unsecured 10-year loan. The loan bears interest at an annual rate of 1.00% for the first five years (through April 2026) and the Secured Overnight Financing Rate plus 2.00% in the final five years. In return, the Company issued to U.S. Treasury warrants to purchase up to 78,317 shares of the Company’s common stock. These warrants have an exercise price of $57.47 per share and a five-year term from the date of issuance.

The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan, which will be amortized as interest expense in the Company’s income statement over the term of the loan. The proceeds of the grant were recorded in cash and cash equivalents when received and were recognized as a reduction in expense in payroll support grant in the Company’s income statement over the periods that the funds are intended to compensate.

~~During~~The Company recorded $205.0 million of the PSP 3 Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2020, the Company recognized $342.1 million of grant proceeds received under the CARES Act payroll support program, as a reduction in payroll expense with the remaining $3.4 million recorded as a deferred reduction in expense in other current liabilities on our balance sheet. We expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as a reduction in payroll expense by the end of 2020. See Note 9, "Long-Term Debt," for further discussion of the unsecured loans and warrants to acquire the Company’s shares issued under the CARES Act payroll support program.2021.

The CARES Act also provides for up to $25 billion in secured loans to the airline industry. In September 2020 the Company entered into a secured loan and guarantee agreement with Treasury and the Bank of New York Mellon (the “Loan Agreement”), which permits the Company to borrow up to $573 million. Subsequently, on October 28, 2020, the Company entered into an amendment to the Loan Agreement that permits the Company to borrow up to $725 million in the aggregate. As of September 30, ~~2020,~~2021, the Company has ~~borrowed $60 million and may,~~recognized all of the payroll grants received from U.S. Treasury as an offset to operating expenses.

Treasury Secured Loan. In January 2021, the Company amended the secured loan agreement with U.S. Treasury to extend the deadline pursuant to which SkyWest Airlines could, at its ~~option,~~discretion, borrow additional amounts ~~in up to 2 subsequent borrowings until~~under the facility from March 26, 2021, to May 28, 2021. The ~~proceeds are to be used for certain general corporate purposes and operating expenses in accordance with the~~other terms ~~and conditions~~ of the ~~Loan Agreement~~secured loan agreement were not affected. On May 10, 2021, the Company repaid all amounts outstanding under the secured loan, and in connection with such repayment, terminated the ~~applicable provisions~~secured loan agreement. The total repayment amount was $61.2 million, which included all outstanding principal and accrued interest under the secured loan. As a result of the ~~CARES Act. The loan will bear interest at a variable rate per annum equal to~~repayment, the ~~London interbank offer rate divided by one minus~~collateral securing the Eurodollar Reserve Percentage (as defined in the Loan Agreement) plus 3.00%. The applicable interest rate for the $60 million loan will be 3.22% per annum through September 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula. In return, the Company agreed to issue to Treasury warrants to purchase sharesobligations of ~~the Company’s common stock based on a debt coverage ratio and amounts drawn~~SkyWest Airlines under the ~~facility. The Company issued warrants to purchase 211,416 shares~~loan agreement, consisting of ~~the Company’s common stock to Treasury in conjunction with the Company’s $60 million borrowing under the facility. These warrants have an exercise price of $28.38 per share~~aircraft engines and ~~a five-year term from the date of issuance.~~

aircraft parts, was released.

~~Note 3 — Flying Agreements Revenue and Lease, Airport Services and Other Revenues~~

The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under its code-share agreements. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with Delta Air Lines, Inc. (“Delta”), United Airlines, Inc. (“United”), American

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

The Company recognizes flying agreements revenue and lease, airport services and other revenues 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. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“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. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the nine months ended September 30, ~~2020~~2021, and ~~2019,~~2020, capacity purchase agreements represented approximately ~~87.2%~~83.9% and ~~82.1%~~86.8% of the Company’s flying agreements revenue, respectively.

Under the Company’s ~~revenue-sharing~~prorate arrangements (referred to as a “prorate” or “revenue-sharing” ~~or “prorate” arrangement)~~agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates 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 nine months ended September 30, ~~2020~~2021, and ~~2019,~~2020, prorate flying ~~arrangements~~agreements represented approximately ~~12.8%~~16.1% and ~~17.9%~~13.2% of the Company’s flying agreements revenue, respectively.

Lease, airport services and other revenues primarily consist of revenue generated from aircraft and spare engines leased to third parties. Of the Company’s $5.2 billion of property and equipment, net as of September 30, 2020, $126.2 million of regional jet aircraft and spare engines was leased to third parties under operating leases as of September 30, 2020. The Company mitigates the residual asset risks of these assets by leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases. The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft that had remaining non-cancelable lease terms as of September 30, 2020 (in thousands):

October 2020 through December 2020

$
6,170

2021

24,780

2022

24,596

2023

21,643

2024

21,336

Thereafter

70,938

$
169,463

Additionally, lease, airport services and other revenues includes airport agent services, such as gate and ramp agent services at applicable airports where the Company provides such services. 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 following represents the Company’s lease, airport services and other revenue for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

2020

2019

2020

2019
Operating lease revenue

$
7,136

$
10,075

$
27,162

$
28,113
Airport customer service and other revenue

5,309

11,382

19,395

36,086
Lease, airport services and other

$
12,445

$
21,457

$
46,557

$
64,199

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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.

The following table represents the Company’s flying agreements revenue by type for the three and nine ~~month periods~~months ended September 30, ~~2020~~2021, and ~~2019~~2020 (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Capacity purchase agreements revenue: flight operations	$	175,753	$	385,537	$	674,222	$	1,155,814	$	308,273	$	175,753	$	792,501	$	674,222
Capacity purchase agreements revenue: aircraft lease and fixed revenue		208,516		207,467		619,354		621,526		282,498		208,516		770,548		619,354
Prorate agreements revenue		60,779		145,834		197,336		386,833		128,313		60,779		300,193		197,336
Flying agreements revenue	$	445,048	$	738,838	$	1,490,912	$	2,164,173	$	719,084	$	445,048	$	1,863,242	$	1,490,912

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 reflected 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. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided.

Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term. The Company recognizes revenue ~~related~~attributed to the fixed ~~amount per aircraft per month proportionately~~monthly payments proportionate to ~~completed flights, which is~~ the ~~Company’s performance obligation. The Company operated a materially lower~~ number of flights during the three and nine months ended September 30, 2020 from previous levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. The Company’s completed departures decreased 37% and completed block hours ~~decreased 41%~~completed during ~~the three months ended September 30, 2020 compared~~each reporting period, relative to the ~~three months ended September 30, 2019.~~ estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of flights operated during the ~~three and nine months ended September 30, 2020,~~COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft ~~exceeded the revenue recognized based on flights completed.~~ Accordingly, the Company deferred $29.6 million and $98.6 million of revenue attributed to the fixed amount per month per aircraft received during the three and nine months ended September 30, 2020, respectively. The Company anticipates the future monthly flight levels will increase over the remaining applicable contract terms compared to the nine months ended September 30, 2020. The Company’s deferred revenue balance will be recognized based on the Company’s completed flight levels each period relative to the anticipated flight levels over the remaining contract term.

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 ASU No. 2014-09, “Revenue from Contracts with Customers, (Topic 606)” (“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 or quarterly basis. At the end of each period during the term of an agreement, the Company

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~~calculates~~exceeded the ~~incentives achieved~~revenue recognized based on flights completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements from the second quarter of 2020 through the second quarter of 2021. During the three months ended September 30, 2021, the Company recognized $19.2 million of previously deferred revenue due to an increase in flight schedules compared to deferring revenue of $29.6 million during ~~that~~the three months ended September 30, 2020. During the nine months ended September 30, 2021, and 2020, the Company deferred revenue of $7.7 million and $98.6 million, respectively, of fixed monthly cash payments the Company received under its capacity purchase agreements. The Company’s deferred revenue balance was $118.4 million as of September 30, 2021, including $70.5 million in other current liabilities and $47.9 million in other long-term liabilities. At December 31, 2020, the Company’s deferred revenue balance of $110.7 million was included in other long-term liabilities. The Company’s deferred revenue balance will be recognized based on the number of block hours completed during each period ~~and recognizes revenue attributable to that agreement accordingly, subject~~relative to the ~~variable constraint guidance~~estimated number of block hours the Company anticipates completing over the remaining contract term.

As of September 30, 2021, the Company had 486 aircraft in scheduled service or under ~~Topic 606.~~

contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:


United Express Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
United Express Agreements (capacity purchase agreement)
	• E175 • CRJ 700 • CRJ 200	90 19 70	• Individual aircraft have scheduled removal dates from 2022 to 2029
United Express Prorate Agreement (prorate agreement)	• CRJ 200	42	• Terminable with 120-day notice
Total under United Express Agreements		221

Delta Connection Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
Delta Connection Agreement (capacity purchase agreement)	• ~~CRJ 200~~ • ~~CRJ 700~~E175 • CRJ 900 • ~~E175~~CRJ 700	1771 640 39 67	• ~~Individual aircraft have scheduled removal dates from 2020 to 2030~~
~~Delta Connection Prorate Agreement (prorate arrangement)~~	• ~~CRJ 200~~	21	• ~~Terminable with~~ ~~30-day~~ ~~notice~~

~~United Express Agreements~~
~~Agreement~~	~~Aircraft type~~	Number of Aircraft	Term / Termination Dates
~~United Express Agreements~~ ~~(capacity purchase agreement)~~	• ~~CRJ 200~~ • ~~CRJ 700~~ • ~~E175~~	70 19 905	• Individual aircraft have scheduled removal dates from 2022 to ~~2029~~2031
~~United Express~~Delta Connection Prorate Agreement (prorate ~~arrangement)~~agreement)	• CRJ 200	2629	• Terminable with ~~120-day~~30-day notice
Total under Delta Connection Agreements		145

Alaska Capacity Purchase Agreement

Agreement

Aircraft type

Number of
Aircraft

Term / Termination
Dates

Alaska Agreement

(capacity purchase agreement)

•

E175

•

Individual aircraft have scheduled removal dates ~~from 2027 to~~in 2030

In addition to the contractual arrangements described above, SkyWest Airlines has entered into capacity purchase agreements with Delta and American to place additional Embraer E175 dual-class regional jet aircraft (“E175”) into service. The Company is coordinating with its major airline partners on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are subject to change.

As of September 30, 2020, the Company is scheduled to acquire and place into service 4 new E175 aircraft in connection with its agreement with Delta by December 31, 2020. Additionally, the Company is scheduled to place 1 Canadair CRJ900 regional jet aircraft (“CRJ900”) that is to be financed by Delta under a nine-year capacity purchase agreement in 2021.

~~As of September 30, 2020, the Company was scheduled to acquire and place into service 20~~ new E175 aircraft in connection with its agreement with American. The delivery dates for the new E175 aircraft are scheduled to occur from the end of 2021 to mid-2022. Additionally, as of September 30, 2020 SkyWest Airlines had a flying contract with American to operate a total of 70 used Canadair CRJ700 regional jet aircraft (“CRJ700s”), of which 61 aircraft were under contract at September 30, 2020. In October 2020, SkyWest Airlines secured a multi-year flying contract with American for an additional 20 used CRJ700 aircraft. The Company anticipates placing the remaining 29 CRJ700 aircraft with American by the end of 2021, which is expected to result in a total of 90 CRJ700 aircraft under contract with

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~~American. During~~In addition to the ~~nine months ended September 30, 2020, the Company terminated its American Prorate Agreement on 7 CRJ200 aircraft~~contractual arrangements described above, as ~~a result of COVID-19 related passenger demand restrictions.~~

As of September 30, ~~2020, the Company’s~~2021, SkyWest Airlines has a capacity purchase agreement with ~~Delta included 17 CRJ200~~American to place 14 Embraer E175 dual-class regional jet aircraft ~~that~~(“E175”) into service. The delivery dates for the 14 new E175 aircraft are currently scheduled ~~to expire by~~for the ~~end~~fourth quarter of ~~2020~~2021 and first half of 2022 and the aircraft are ~~not~~ expected to be ~~extended as~~placed into service in 2022. SkyWest Airlines also has an agreement with American to place 19 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a result of the decreased demand caused by the COVID-19 pandemic. The Company owns the 17 CRJ200 aircraft and anticipates parking such aircraft following removal from service. The 17 CRJ200s are anticipated to be fully depreciated upon removal of service from the Delta contract. The Company has no outstanding financing obligations on the 17 owned CRJ200 aircraft. ~~During the nine months ended September 30, 2020, the Company parked 19 owned CRJ200 and returned 19 leased CRJ200 aircraft previously used for the Company’s~~multi-year capacity purchase agreement with ~~Delta~~scheduled in service dates into 2023.

SkyWest Airlines has a capacity purchase agreement with Alaska to ~~the lessor, which leases were not~~ ~~extended by the Company as a result of the decreased demand caused by the COVID-19 pandemic.~~

~~Due to the uncertainty of obtaining future contract extensions from its major airline partners~~place 9 E175 aircraft into service. The delivery dates for the ~~Company’s CRJ200~~9 new E175 aircraft ~~as a result~~are currently scheduled for 2022 and the first half of 2023, and the ~~COVID-19 pandemic~~aircraft are expected to be placed into service in 2022 and considering the average age of the Company’s CRJ200 fleet is 18 years, the Company reduced the estimated useful lives of its CRJ200 aircraft to align with each aircraft’s anticipated contract removal dates, which resulted in approximately $20.2 million of incremental depreciation expense during2023.

During the three months ended September 30, ~~2020.~~2021, SkyWest Airlines reached an agreement with Delta to place 16 E175 aircraft into service under a capacity purchase agreement. The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022. Under the terms of the agreement with Delta, Delta has the right to purchase the 16 E175 aircraft at the end of the contract term at a price estimated to be the fair value at the end of the contract. These 16 new E175 aircraft are expected to replace 16 CRJ900 regional jet aircraft (“CRJ900”) the Company ~~anticipates it will incur $8.5 million~~is operating under a capacity purchase agreement with Delta (see Note 12 “Special Items – Impairment Charge,” for further discussion of ~~additional depreciation expense from October~~the Company’s CRJ900 aircraft). Additionally, SkyWest Airlines entered into an agreement with Delta during the third quarter of 2021 to ~~December 2020 resulting from~~place 4 used CRJ900 aircraft under a short-term contract beginning in the ~~shorter estimated useful lives~~fourth quarter of ~~its owned CRJ200 aircraft.~~2021.

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 agreement, 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 ~~arrangement,~~agreement, leasing the aircraft to a third party ~~using~~or parting out the aircraft ~~parts~~to use the engines and ~~engines~~parts as spare inventory or ~~leasing spare~~to lease the engines to a third party. In

The following represents the Company’s lease, airport services and other revenue for the three and nine months ended September 30, 2021, and 2020 (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
Operating lease revenue	$	17,746	$	7,136	$	49,154	$	27,162
Airport customer service and other revenue		7,953		5,309		23,932		19,395
Lease, airport services and other	$	25,699	$	12,445	$	73,086	$	46,557

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, 2021 (in thousands):


October 2021 through December 2021	$	11,388
2022		45,428
2023		44,945
2024		42,530
2025		39,082
Thereafter		155,089
	$	338,462

Of the Company’s $5.3 billion of property and equipment, net as of September 30, 2021, $256.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases. The Company mitigates the residual asset risks of these assets by leasing aircraft and engine types that can be operated by the Company in the event ~~practical alternative uses for~~of a default. Additionally, the ~~aircraft removed from service are not available,~~operating leases typically have specified lease return condition requirements paid by the

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lessee to the Company ~~may park~~ and ~~store~~ the ~~aircraft.~~

Company typically maintains inspection rights under the leases. Additionally, lease, airport services and other revenues includes airport agent services, such as gate and ramp agent services at applicable airports where the Company provides such services. 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 ~~a number of~~several factors, including ~~the impact of the COVID-19 pandemic on the demand for air travel and associated reduction in flight schedules,~~ 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.

Allowance for credit losses

The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020. At adoption, the Company’s primary financial assets included trade receivables from its flying agreements, a note receivable from the sale of the Company’s subsidiary, ExpressJet Airlines, Inc., in 2019, and receivables from aircraft manufacturers and other third parties in the airline industry. The Company recorded a credit loss of $11.6 million net of income tax in conjunction with the adoption of Topic 326. The Company recorded this credit loss as a January 1, 2020, beginning balance sheet entry to retained earnings (net of income tax).

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of September 30, ~~2020,~~2021, the Company had gross receivables of ~~$49.0~~$79.0 million in current assets and gross receivables of ~~$171.2~~$222.8 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or note receivable. During the nine months ended September 30, ~~2020,~~2021, there were no significant changes in the collectability on a note receivable from Kair Enterprises, Inc. associated with the Company’s sale of ExpressJet in 2019 became uncertain due to ExpressJet ceasing operations during the three months ended September 30, 2020 and the credit ratings were lowered on certain entities for which the Company has outstanding accounts receivable or notes receivable ~~which were~~or the ~~primary drivers for~~credit ratings of the ~~increase in the~~entities. The Company’s credit loss reserve ~~when benchmarked against historic default rates~~was $44.6 million at September 30, 2021, compared to $46.2 million at December 31, 2020. The $1.6 million decrease in the credit loss reserve for the nine months ended September 30, 2021, was reflected as ~~of January 1, 2020, when~~a reduction to the ~~Company adopted Topic 326.~~

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

Allowance for

Credit Losses

Balance at January 1, 2020

$
15,388

Additions to credit loss reserve

24,260

Write-offs charged against the allowance

—

Balance at September 30, 2020

$
39,648

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loss expense.

~~Note 4 —~~(4) Share-Based Compensation and Stock Repurchases

During the nine months ended September 30, ~~2020,~~2021, the Company granted ~~82,505~~44,770 restricted stock units and ~~69,132~~157,210 performance shares to certain employees of the Company ~~and its subsidiaries~~ under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the ~~Company or one of the Company’s subsidiaries.~~Company. The number of performance shares awardable from the ~~2020~~2021 grants can range from 0% to ~~200%~~250% of the original amount granted depending on the Company’s performance over ~~the three-year vesting~~a two-year measurement period against the pre-established targets. Upon vesting, each restricted stock unit and performance share will be replaced with 1 share of common stock. The fair value of these restricted stock units and performance shares on their date of grant was ~~$61.45~~$44.87 per ~~share.~~share. During the nine months ended September 30, ~~2020,~~2021, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the nine months ended September 30, ~~2020,~~2021, the Company granted ~~14,643~~21,175 fully vested shares of common stock to the Company’s directors at a grant date fair value of ~~$61.45.~~$44.87.

The Company accounts for forfeitures of restricted stock units and performance ~~share grants~~shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. During the nine months ended September 30, ~~2020~~2021, and ~~2019,~~2020, the Company recorded pre-tax share-based compensation expense of ~~$5.9~~$7.3 million and ~~$8.0~~ $5.9 million, respectively. ~~Additionally,~~

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During the nine months ended September 30, 2021, the Company ~~incurred~~ ~~$7.9~~paid $1.6 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees. The Company did 0t repurchase any shares of employee severance related costs associated with the sale of ExpressJet, partially offset by a forfeiture credit of $4.5 million, primarily resulting from stock-based compensation awards that terminated upon the sale of ExpressJetits common stock during the nine months ended September 30, ~~2019.~~

2021. During the nine months ended September 30, 2020, the Company repurchased 385,606 shares of its common stock for $20.0 million and paid $6.2 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees. ~~The Company did 0t repurchase any shares of its common stock or~~ ~~pay~~ cash for the income tax obligation on vested employee equity awards during the three months ended September 30, 2020. During the nine months ended September 30, 2019, the Company repurchased 1,496,648 shares of its common stock for $84.6 million and paid $9.3 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees.

Under the terms of the ~~Company’s CARES Act Loan~~PSP 3 Agreement, the Company is ~~prohibited~~restricted from repurchasing ~~its common stock and paying dividends on~~shares of its common stock through ~~the date that is 12 months after the date on which all loan amounts outstanding under the Loan Agreement have been repaid in full.~~September 30, 2022.

~~Note 5 —~~(5) Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share. During the nine months ended September 30, 2021, 230,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2021. During the nine months ended September 30, 2020, 200,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2020. During the nine months ended September 30, ~~2019, 150,000 performance~~2021, warrants to purchase 78,000 shares ~~(at target performance)~~of common stock at $57.47 per share were excluded from the computation of Diluted EPS since the ~~Company had not achieved~~warrants' exercise price was greater than the ~~minimum target thresholds as~~average market price of the common shares during the quarters ended June 30, 2021, and September 30, ~~2019.~~2021.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Numerator:
Net Income	$	33,662	$	91,339	$	37,935	$	267,572

Net income									$	9,684	$	33,662	$	107,578	$	37,935
Denominator:
Weighted average number of common shares outstanding		50,181		50,746		50,199		51,111
Effect of outstanding share-based awards		441		383		246		457
Weighted average number of shares for diluted net income per common share		50,622		51,129		50,445		51,568
Basic earnings per share weighted average shares										50,380		50,181		50,337		50,199
Dilution due to stock options and restricted stock units										345		441		389		246
Diluted earnings per share weighted average shares										50,725		50,622		50,726		50,445

Basic earnings per share	$	0.67	$	1.80	$	0.76	$	5.24	$	0.19	$	0.67	$	2.14	$	0.76
Diluted earnings per share	$	0.66	$	1.79	$	0.75	$	5.19	$	0.19	$	0.66	$	2.12	$	0.75

~~Note 6~~ —(6) Segment Reporting

~~Prior to the~~The Company’s ~~sale of ExpressJet on January 22, 2019, the Company’s 3~~2 reporting segments ~~consisted~~consist of the operations of SkyWest Airlines ~~ExpressJet~~ and SkyWest Leasing activities. ~~The segment information presented for ExpressJet reflects~~ ~~the period of time prior to the sale, when ExpressJet was operating as a subsidiary of the Company.~~ ~~The Company concluded that the sale of ExpressJet did not meet the criteria for a discontinued operation.~~

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

~~The following represents the Company’s segment data for the three-month periods ended September 30, 2020 and 2019 (in thousands):~~

Three months ended September 30, 2020

SkyWest

SkyWest


Airlines

Leasing

Consolidated

Operating revenues (1)

$
337,975

$
119,518

$
457,493

Operating expense

303,141

79,799

382,940

Depreciation and amortization expense

59,659

61,808

121,467

Interest expense

2,868

27,282

30,150

Segment profit (2)

31,966

12,437

44,403

Total assets (as of September 30, 2020)

2,836,069

3,922,525

6,758,594

Capital expenditures (including non-cash)

4,937

—

4,937

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Three months ended September 30, 2019

SkyWest

SkyWest


Airlines

Leasing

Consolidated

Operating revenues (1)

$
641,947

$
118,348

$
760,295

Operating expense

560,646

53,208

613,854

Depreciation and amortization expense

43,353

49,442

92,795

Interest expense

3,165

28,441

31,606

Segment profit (2)

78,136

36,699

114,835

Total assets (as of September 30, 2019)

2,744,191

3,853,468

6,597,659

Capital expenditures (including non-cash)

67,394

34,597

101,991

regional jet aircraft and spare engines to third parties. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

The following represents the Company’s segment data for the three-month periods ended September 30, 2021, and 2020 (in thousands):


	Three months ended September 30, 2021
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues (1)	$	614,377	$	130,406	$	744,783
Operating expense		633,169		64,564		697,733
Depreciation and amortization expense		53,401		56,196		109,597
Special items - impairment charges		84,592		—		84,592
Interest expense		2,138		26,842		28,980
Segment profit (loss) (2)		(20,930)		39,000		18,070
Total assets (as of September 30, 2021)		2,989,600		3,950,902		6,940,502
Capital expenditures (including non-cash)		26,622		136,677		163,299


	Three months ended September 30, 2020
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues (1)	$	337,975	$	119,518	$	457,493
Operating expense		303,141		79,799		382,940
Depreciation and amortization expense		59,659		61,808		121,467
Interest expense		2,868		27,282		30,150
Segment profit (2)		31,966		12,437		44,403
Total assets (as of September 30, 2020)		2,836,069		3,922,525		6,758,594
Capital expenditures (including non-cash)		4,937		—		4,937

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

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

The following represents the Company’s segment data for the nine-month periods ended September 30, ~~2020~~2021, and ~~2019~~2020 (in thousands):


	Nine months ended September 30, 2021
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues (1)	$	1,548,422	$	387,906	$	1,936,328
Operating expense		1,498,227		195,186		1,693,413
Depreciation and amortization expense		156,878		172,211		329,089
Special items - impairment charges		84,592		—		84,592
Interest expense		11,486		82,788		94,274
Segment profit (2)		38,709		109,932		148,641
Total assets (as of September 30, 2021)		2,989,600		3,950,902		6,940,502
Capital expenditures (including non-cash)		83,650		163,596		247,246

	Nine months ended September 30, 2020
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues (1)	$	1,172,625	$	364,844	$	1,537,469
Operating expense		1,173,152		227,846		1,400,998
Depreciation and amortization expense		170,855		193,958		364,813
Interest expense		8,847		82,433		91,280
Segment profit (loss) (2)		(9,374)		54,565		45,191
Total assets (as of September 30, 2020)		2,836,069		3,922,525		6,758,594
Capital expenditures (including non-cash)		73,063		115,258		188,321

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Nine months ended September 30, 2020

SkyWest

SkyWest


Airlines

Leasing

Consolidated

Operating revenues (1)

$
1,172,625

$
364,844

$
1,537,469

Operating expense

1,173,152

227,846

1,400,998

Depreciation and amortization expense

170,855

193,958

364,813

Interest expense

8,847

82,433

91,280

Segment profit (loss) (2)

(9,374)

54,565

45,191

Total assets (as of September 30, 2020)

2,836,069

3,922,525

6,758,594

Capital expenditures (including non-cash)

73,063

115,258

188,321

Nine months ended September 30, 2019

SkyWest

SkyWest


Airlines

ExpressJet

Leasing

Consolidated

Operating revenues (1)

$
1,854,803

$
24,050

$
349,519

$
2,228,372

Operating expense

1,651,966

28,690

160,763

1,841,419

Depreciation and amortization expense

124,048

971

147,910

272,929

Special Items

18,508

3,361

—

21,869

Interest expense

10,699

—

86,185

96,884

Segment profit (loss) (2)

192,138

(4,640)

102,571

290,069

Total assets (as of September 30, 2019)

2,744,191

—

3,853,468

6,597,659

Capital expenditures (including non-cash)

184,019

—

468,213

652,232

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

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

~~Note 7~~(7) — Leases, Commitments and Contingencies

~~Effective January 1, 2019, the Company adopted Topic 842.~~ The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

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Aircraft

As of September 30, ~~2020,~~2021, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had ~~107~~43 aircraft under ~~operating leases~~long-term lease agreements with remaining terms ranging from ~~less than~~ ~~one~~three ~~year~~years to ~~ten~~nine years.

With the adoption of Topic 842 on January 1, 2019, the Company evaluated whether leased aircraft asset groups within the Company’s fleet were impaired. Under the transition guidance for Topic 842, a company is permitted to recognize a previously unrecognized impairment related to a right-of-use asset in the period prior to the adoption date of Topic 842 if the event giving rise to the impairment occurred before the adoption date. In 2016, the Company recorded an impairment on certain of its long-lived assets, which included the Company’s CRJ200 aircraft~~. In 2016, the market lease rate was less than the contractual lease rate on the Company’s CRJ200 leased aircraft. The Company recorded an impairment of~~ $13.1 million (net of tax) as an adjustment to the Company’s January 1, 2019 retained earnings related to the previously unrecognized impairment of these leased CRJ200s. The Company had 0 impairment charges related to its leased CRJ200s during the nine months ended September 30, 2020.

Airport facilities

The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to ~~36 years.~~35 years. The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

Leases

As of September 30, ~~2020,~~2021, the Company’s right-of-use assets were ~~$296.4~~$248.6 million, the Company’s current maturities of operating lease liabilities were ~~$83.3~~$78.2 million, and the Company’s noncurrent lease liabilities were ~~$221.8~~$171.4 million. During the nine months ended September 30, ~~2020,~~2021, the Company paid ~~$68.0~~$63.1 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of September 30, ~~2020.~~2021.

The Company’s lease costs for the three and nine months ended September 30, ~~2020~~2021, and ~~2019~~2020 included the following components (in thousands):

For the three months ended September 30,

For the nine months ended September 30,


2020

2019

2020

2019
Operating lease cost

$
23,538

$
25,173

$
72,696

$
80,041
Variable and short-term lease cost

950

1,343

3,501

4,164
Sublease income

(1,587)

(357)

(4,718)

(357)
Total lease cost

$
22,901

$
26,159

$
71,479

$
83,848

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	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
Operating lease cost	$	23,370	$	23,538	$	67,582	$	72,696
Variable and short-term lease cost		976		950		3,256		3,501
Sublease income		(1,888)		(1,587)		(4,717)		(4,718)
Total lease cost	$	22,458	$	22,901	$	66,121	$	71,479

As of September 30, ~~2020,~~2021, 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~~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 primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, ~~2020~~2021 (in thousands):

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October 2020 through December 2020	$	22,393
2021		85,599
October 2021 through December 2021			$	22,346
2022		76,923		80,467
2023		69,419		74,119
2024		28,091		30,426
2025				17,824
Thereafter		98,448		84,253
	$	380,873	$	309,435

The Company is coordinating with its major airline partners on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19-related schedule reductions. The anticipated future delivery dates are subject to change. As of September 30, ~~2020,~~2021, the Company had a firm purchase commitment for 2439 E175 aircraft from Embraer, S.A. (“Embraer”) with anticipated delivery dates through ~~2022.~~

~~Subsequent to September 30, 2020,~~ the ~~Company also secured agreements to acquire 21~~first half of 2023 and a firm purchase commitment for 7 used CRJ700 aircraft ~~and lease~~from a third party with anticipated delivery dates by the aircraft under a multi-year term to another regional airline operating for United Airlines. The aircraft purchases are expected to be financed with debt during the three months ended December 31, 2020.

end of 2021.

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

Total

Oct - Dec 2020

2021

2022

2023

2024

Thereafter

Operating lease payments for aircraft and facility obligations

$
380,873

$
22,393

$
85,599

$
76,923

$
69,419

$
28,091

$
98,448

Firm aircraft and spare engine commitments

655,906

114,223

139,003

402,680

—

—

—

Interest commitments (1)

541,062

28,777

114,652

99,811

82,790

67,376

147,656

Principal maturities on long-term debt

3,101,657

69,405

387,309

388,152

397,913

351,431

1,507,447

Total commitments and obligations

$
4,679,498

$
234,798

$
726,563

$
967,566

$
550,122

$
446,898

$
1,753,551


	Total		Oct - Dec 2021		2022		2023		2024		2025		Thereafter
Operating lease payments for aircraft and facility obligations	$	309,435	$	22,346	$	80,467	$	74,119	$	30,426	$	17,824	$	84,253
Firm aircraft and spare engine commitments		1,062,834		327,446		708,909		26,480		—		—		—
Interest commitments (1)		480,115		28,177		106,024		90,452		74,768		59,766		120,928
Principal maturities on long-term debt		2,996,573		92,341		378,855		386,035		380,475		395,673		1,363,194
Total commitments and obligations	$	4,848,958	$	470,310	$	1,274,255	$	577,086	$	485,669	$	473,263	$	1,568,375

(1)	At September 30, ~~2020,~~2021, the ~~Company~~Company’s long-term debt had ~~variable rate notes representing only 2.4% of its total long-term debt.~~fixed interest rates.

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Note 8 — Fair Value Measurements

The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs:


Level 1	—	Quoted prices in active markets for identical assets or liabilities.
Level 2	—	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.
Level 3	—	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, 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 September 30, 2020								Fair Value Measurements as of September 30, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	418,228	$	418,228	$	—	$	—
Marketable securities
Marketable Securities
Bonds and bond funds	$	95,183	$	—	$	95,183	$	—	$	49,129	$	—	$	49,129	$	—
Commercial paper		308,610		—		308,610		—		591,544		—		591,544		—
		403,793		—		403,793		—	$	640,673	$	—	$	640,673	$	—
Total assets measured at fair value	$	822,021	$	418,228	$	403,793	$	—
Cash and Cash Equivalents										271,831		271,831		—		—
Total Assets Measured at Fair Value									$	912,504	$	271,831	$	640,673	$	—


	Fair Value Measurements as of December 31, 2019								Fair Value Measurements as of December 31, 2020
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	87,206	$	87,206	$	—	$	—
Marketable securities
Marketable Securities
Bonds and bond funds	$	267,243	$	—	$	267,243	$	—	$	117,928	$	—	$	117,928	$	—
Commercial paper		165,723		—		165,723		—		492,257		—		492,257		—
		432,966		—		432,966		—	$	610,185	$	—	$	610,185	$	—
Total assets measured at fair value	$	520,172	$	87,206	$	432,966	$	—
Cash and Cash Equivalents										215,723		215,723		—		—
Total Assets Measured at Fair Value									$	825,908	$	215,723	$	610,185	$	—

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

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, ~~2020.~~2021. 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, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company classified ~~$403.8~~$640.7 million and ~~$433.0~~$610.2 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the cost of the Company’s total cash and cash equivalents and available for sale securities was ~~$821.8~~$912.5 million and ~~$520.2~~$825.9 million, respectively.

The fair value of the Company’s long-term debt classified as Level 2 debt was estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be ~~$3.1~~$3.0 billion as of September 30, ~~2020~~2021, and ~~$3.0~~$3.2 billion as of ~~December 31, 2019, as compared to the carrying amount of $3.1 billion as of September 30, 2020 and $3.0 billion as of December 31, 2019.~~

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December 31, 2020, as compared to the carrying amount of $3.0 billion as of September 30, 2021, and $3.2 billion as of December 31, 2020.

~~Note 9 — Long-Term~~(9) Long-term Debt

Long-term debt consisted of the following as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020 (in thousands):


	September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Current portion of long-term debt	$	364,193	$	367,954	$	363,379	$	406,005
Current portion of unamortized debt issue cost, net		(3,905)		(3,828)		(3,491)		(3,847)
Current portion of long-term debt, net of debt issue costs	$	360,288	$	364,126	$	359,888	$	402,158

Long-term debt, net of current maturities	$	2,737,464	$	2,649,569	$	2,633,194	$	2,829,997
Long-term portion of unamortized debt issue cost, net		(29,695)		(20,580)		(28,131)		(28,459)
Long-term debt, net of current maturities and debt issue costs	$	2,707,769	$	2,628,989	$	2,605,063	$	2,801,538

Total long-term debt (including current portion)	$	3,101,657	$	3,017,523	$	2,996,573	$	3,236,002
Total unamortized debt issue cost, net		(33,600)		(24,408)		(31,622)		(32,306)
Total long-term debt, net of debt issue costs	$	3,068,057	$	2,993,115	$	2,964,951	$	3,203,696

During the nine months ended September 30, ~~2020,~~2021, the Company took delivery of 26 new E175 aircraft that the Company financed through ~~$36.1~~$117.9 million of long-term debt. The debt associated with the 26 E175 aircraft has a 12-year term, is due in quarterly installments with fixed annual interest rates ~~of 2.3%~~ranging from 2.7% to 2.8% and is secured by the E175 aircraft.

During the nine months ended September 30, ~~2020,~~2021, in connection with the ~~CARES Act payroll support program,~~PSP Extension Agreement and the PSP 3 Agreement, the Company issued to U.S. Treasury a promissory ~~note~~notes for an aggregate principal amount of ~~$105.2~~$95.4 million and issued warrants to purchase ~~370,720~~up to 203,090 shares of the Company’s common stock. The Company has recorded the value of the promissory note and warrants on a relative fair value basis as ~~$105.2~~$95.4 million of long-term debt and ~~$5.0~~$5.8 million in common stock, respectively. ~~These~~The warrants have ~~an exercise price of $28.38 per share and~~ a five-year term from the date of ~~issuance.~~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 prices of $57.47 per share. See Note 2, “Impact of the COVID-19 Pandemic,” for further discussion of the terms of the payroll support program loan and warrants.

During the second quarter of 2021, the Company repaid all amounts outstanding under the secured loan with U.S. Treasury, and in connection with such repayment, terminated the secured loan agreement. The total repayment amount was $61.2 million, which included all outstanding principal and accrued interest under the secured loan. As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the secured loan agreement, consisting of aircraft engines and aircraft parts, was released.

~~Additionally, during~~During the ~~nine~~three months ended September 30, ~~2020, in connection with the CARES Act,~~2021, the Company entered into the Loan Agreement with Treasury and the Bank of New York Mellon which permits the Company to borrow up to $573 million. Subsequently, on October 28, 2020, the Company entered into an amendment to the Loan Agreement that permits the Company to borrow up to $725 million in the aggregate. As of September 30, 2020, the Company has drawn $60 million under the agreement and issued warrants to purchase 211,416 shares of the Company’s common stock. The Loan Agreement is secured by aircraft engines and aircraft parts. The Company may, at its option, borrow additional amounts in up to 2 subsequent borrowings until March 26, 2021. The proceeds will be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Loan Agreement and the applicable provisions of the CARES Act. The Company has recorded the value of the promissory note and warrants on a relative fair value basis as $60repaid $80.1 million of ~~long-term~~ debt and $3.2 million in common stock, respectively. These warrants have an exercise price of $28.38 per share and a five-year term from the date of issuance. See Note 2, “Impact of the COVID-19 Pandemic,” for further discussion of the terms of the payroll support program loan and warrants.

related to aircraft early.

As of September 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company had ~~$64.6~~$59.5 million and ~~$61.7~~$61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of September 30, ~~2020,~~2021, SkyWest Airlines had a $75 million line of credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of September 30, ~~2020,~~2021, SkyWest Airlines had 0 amount outstanding under the facility. However, at September 30, ~~2020~~2021, SkyWest Airlines had ~~$35.2~~$34.0 million in letters of credit issued under the facility, which reduced the amount available under the facility to ~~$39.8~~$41.0 million. ~~The~~During the three months ended September 30, 2021, the Company ~~obtained waivers under~~extended the expiration date of the line of credit to ~~allow the Company to receive funding under the CARES Act and to waive compliance with minimum profitability covenants through June 30, 2021.~~January 1, 2022.

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~~Note 10 — Gain on Sale of ExpressJet~~

On January 22, 2019, the Company completed the sale of its former wholly owned subsidiary ExpressJet. The Company recorded a gain of $46.5 million before income tax from the sale of ExpressJet. The closing of the transaction was completed in two parts, through an asset sale and stock sale, as further described below.

~~Asset Sale~~

On January 11, 2019, pursuant to the terms and conditions of the Asset Purchase Agreement, dated as of December 17, 2018, by and among the Company, ExpressJet and United, United acquired certain specified assets and liabilities of ExpressJet, including, among other things, aircraft engines, auxiliary power units, rotable spare parts, ground support equipment and flight training equipment for $60.8 million in cash, subject to certain purchase price adjustments (the “Asset Sale”). Certain assets and liabilities of ExpressJet were expressly excluded from the Asset Sale.

~~Stock Sale~~

Additionally, on January 22, 2019, pursuant to the terms and conditions of the Stock Purchase Agreement, dated as of December 17, 2018, by and among the Company and ManaAir, LLC, a company in which United owns a minority interest (the “Buyer”), the Buyer acquired all of the outstanding shares of capital stock of ExpressJet from the Company for $18.8 million in cash, subject to certain purchase price adjustments (the “Stock Sale,”). To facilitate payment of the purchase price for the Stock Sale, at the closing of the Stock Sale, the Company loaned $26 million to Kair Enterprises, Inc. (the “Borrower”), the majority owner of the Buyer. Such loan accrues interest at the rate of 6.85% per annum, matures on the last business day of the last month immediately preceding the two-year anniversary of the closing of the Stock Sale and is secured by, among other things, the Borrower’s ownership interests in the Buyer. The Company evaluated the collectability of this loan balance as of September 30, 2020 under Topic 326. See Note 3 - Flying Agreements Revenue and Lease, Airport Services and Other Revenues, ~~Allowances for credit losses~~ ~~for additional information.~~

~~Note 11 — Special Items~~

During the nine months ended September 30, 2019, the Company terminated an agreement with an aircraft manufacturer that obligated the Company to future aircraft lease return conditions on aircraft the Company leased. In conjunction with the terminated agreement, the aircraft manufacturer released the Company from the future aircraft lease return obligations and the Company agreed to terminate aircraft part credits previously issued by the manufacturer to the Company. As a result of the terminated agreement, the Company recorded a non-cash expense of $18.5 million (pre-tax) during the nine months ended September 30, 2019 to write-off the terminated aircraft part credits, which was reflected as a special items operating expense in the consolidated statement of comprehensive income.

Additionally, during the nine months ended September 30, 2019, the Company incurred $3.4 million of employee severance related costs associated with the sale of ExpressJet that are also reflected in special items. The Company had 0 special expense items for the nine months ended September 30, 2020.

~~Note 12~~(10) — Investment in Other Companies

During 2019, the Company created a joint venture with Regional One, Inc. (“Regional One”) by investing $22.3 million for a 75% ownership interest in Aero Engines, LLC. (“Aero Engines”). The 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.~~activities, Aero Engines has no primary beneficiary. The Company accounts for its investment in Aero Engines under the equity method. The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value. The Company ~~purchased~~ ~~15 spare engines and sold the 15 spare engines to~~invested an additional $1.0 million into Aero

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Engines ~~at net book value during 2019.~~in 2020. Aero Engines had 0 debt outstanding as of September 30, ~~2020.~~2021. As of September 30, ~~2020,~~2021, the Company’s investment balance in Aero Engines was ~~$25.1~~$19.7 million. The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of the ~~income~~loss generated by Aero Engines for the nine months ended September 30, ~~2020~~2021, was ~~$1.2~~$5.8 million, which is recorded in “Other ~~Income”~~Income (Expense)” on the Company’s consolidated statements of comprehensive income. Aero Engines’ net loss was primarily due to discrete engine overhaul events that were expensed during the nine months ended September 30, 2021.

~~Note 13 —~~(11) Income Taxes

The Company’s effective tax rate for the three months ended September 30, 2021, was 31.9%. The Company’s effective tax rate for the three months ended September 30, 2021, varied from the federal statutory rate of 21.0% primarily due to the provision for state income taxes and a greater impact related to non-deductible expenses relative to the Company’s pre-tax earnings during the period.

The Company’s effective tax rate for the nine months ended September 30, 2021, was 26.1%. The Company’s effective tax rate for the nine months ended September 30, 2021, 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.

The Company’s effective tax rate for the three months ended September 30, 2020, was 27.2%. The Company’s effective tax rate for the three months ended September 30, 2020, varied from the federal statutory rate of 21.0% primarily due to the provision for state income taxes, the impact of non-deductible expenses, and an adjustment to the deferred state tax rate.

The Company’s effective tax rate for the nine months ended September 30, 2020, was 27.1%. The Company’s effective tax rate for the nine months ended September 30, 2020, varied from the federal statutory rate of 21.0% primarily due to the provision for state income ~~taxes,~~taxes. the impact of non-deductible expenses and an adjustment to the deferred state tax rate, partially offset by a $1.4 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the nine months ended September 30, ~~2019~~2020, and discrete tax benefits related to prior year state income tax filings.

~~The Company’s effective tax rate for~~(12) Special Items – Impairment Charge

During the three months ended September 30, ~~2019 was 23.1%.~~2021, the Company entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement. The 16 new E175 aircraft will replace 16 SkyWest-owned or financed CRJ900 aircraft currently under its Delta contract with expirations ranging from the second half of 2022 to early 2023. As of September 30, 2021, SkyWest Airlines only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta. As a result of this fleet transition beginning in 2022 and the uncertainty about the Company’s ~~effective tax rate~~ability to redeploy the CRJ900 aircraft with another major airline partner, the Company concluded that indicators of impairment existed and therefore, evaluated its CRJ900 fleet and related CRJ900 assets for impairment. Pursuant to ASC 360-10, “Impairment and Disposal of Long-Lived Assets,” the Company determined that the asset group for the ~~three months ended~~CRJ900 aircraft existed at the major airline partner level. A recoverability test was performed utilizing estimated undiscounted future cash flows for the CRJ900 aircraft pursuant to applicable agreements with Delta and forecasted cash flow including the estimated value the Company would realize upon disposal of aircraft. This was compared to the carrying value of the related assets resulting in a cash flow deficiency indicating

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that an impairment existed. The impairment analysis required the Company to perform an assessment of the fair value of its long-lived assets related to the CRJ900 aircraft within the asset groups utilized in the recoverability test. The Company engaged a third party to assist in determining the fair value of these aircraft. These values were estimated based on listed market values or recent third-party market transactions for similar assets, adjusted by the related maintenance status of the fleet. All fair values are considered to be Level 3 within the fair value hierarchy. The amounts the Company may ultimately realize from the disposal of its CRJ900 long-lived assets may vary from the fair value assessments. On September 30, ~~2019 varied from~~2021, the ~~federal statutory rate~~Company recorded a non-cash impairment charge of ~~21.0% primarily due~~$84.6 million to write-down the ~~provision for state income taxes and~~CRJ900 aircraft operating under the ~~impact of non-deductible~~Delta contracts to their estimated fair value. This special item impairment charge is reflected in the SkyWest Airlines operating expenses ~~partially offset by a $1.5 million discrete tax benefit from the release of a valuation allowance on federal limited net operating losses.~~

The Company’s effective tax rate for the nine months ended September 30, 2019 was 23.2%. The Company’s effective tax rate for the nine months ended September 30, 2019 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 $3.6 million discrete tax benefit from excess tax deductions generated from employee equity transactions and a $1.5 million discrete tax benefit from the release of a valuation allowance on federal limited net operating losses that occurred during the nine months ended September 30, 2019.under Note 6, “Segment Reporting.”

~~Note 14 —~~(13) Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, ~~2020,~~2021, 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.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and nine-month periods ended September 30, ~~2020~~2021, and ~~2019.~~2020. Also discussed is our financial condition as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, ~~2020,~~2021, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.

On January 22, 2019, we completed the sale of our former wholly owned subsidiary ExpressJet Airlines, Inc. (“ExpressJet”). Our financial and operating results for the period ended September 30, 2019, contained in this Report, include the financial results of ExpressJet for the respective period, as we concluded that the sale of ExpressJet did not meet the criteria for presentation of discontinued operations.

Cautionary Statement Concerning Forward-Looking Statements

Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition and the impact of any measures, including travel restrictions, taken to mitigate the effect of the pandemic, our future growth and development plans, including our future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. Readers should keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, our actual results will vary, and may vary materially, from those anticipated, estimated, projected, or intended for a number of reasons, including but not limited to: the uncertainty of the duration, scope and impact of COVID-19; a further spread or worsening of COVID-19; the consequences of the COVID-19 pandemic to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular; the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result of the COVID-19 pandemic; the financial stability of United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”) and any potential impact of their financial condition on our operations; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realization of manufacturer residual value guarantees on applicable SkyWest aircraft; residual aircraft values and related impairment charges; the impact of global instability; labor relations and costs; potential fluctuations in fuel costs, and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; new aircraft deliveries; and the ability to attract and retain qualified pilots, as well as other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors.

There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic.

There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law.

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Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, has ~~surfaced in nearly all regions of the world and driven the implementation and continuation of~~had a significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. Consequently, we and our major airline partners, have experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected our revenues, including our capacity purchase agreements and prorate agreements (as defined below). The continued spread of the virus and the ongoing global pandemic has affected the majority of the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we presently expect a continued negative impact on our business and financial results ~~of operations at a minimum for the remainder of 2020 and into 2021.~~

In response to these developments, we have implemented measures to focus on the personal safety of our passengers and employees, while at the same time seeking to mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:

~~Focus on the Personal Safety of Passengers and Employees.~~ The safety and well-being of our passengers and employees are our priorities in every decision we make. As the COVID-19 pandemic has developed, we have taken numerous steps to help passengers and employees take appropriate safety measures on the ground and in the air in keeping with current Centers for Disease Control and Prevention recommendations, including:

●

~~Working with our major airline partners to enhance our aircraft cleaning procedures.~~

●

~~Working with our major airline partners to provide masks for crewmembers and ensuring that all fleet service personnel have the necessary personal protective equipment for disinfecting the aircraft.~~

●

~~Providing a number of options to employees who are diagnosed with COVID-19, including pay protection and extended leave options.~~

●

Implementing workforce social distancing and protection measures, enhanced cleaning of our facilities, including training facilities, using methods and products similar to what we are using on our aircraft.

~~Capacity Reductions.~~ ~~Beginning~~beginning in March 2020 we and our major airline partners experienced an unprecedented decrease in demand for air travel and expect this decline from pre COVID-19 flight levels to continue at a minimum for the remainder of 2020 and into 2021. We depend on our major airline partners to contract with us to schedule flights. Therefore, in response to this decreased demand, we have significantly reduced our capacity. Prior to the COVID-19 pandemic, we anticipated operating approximately 2,600 daily departures in the month of October 2020; however, in October 2020 we operated between approximately 1,600 to 1,700 daily departures as a result of COVID-19-related schedule reductions. We also anticipate similar schedule reductions will likely continue at a minimum throughout the remainder of 2020 and into 2021. The number of daily flights operated by us may not return to pre-COVID-19 levels for the foreseeable future. We will continue to work with our major airline partners regarding future schedules and make further demand-driven adjustments to our capacity as needed. We have removed 38 Canadair CRJ200 regional aircraft (“CRJ200”) that were operating under the SkyWest Airlines Delta Connection Agreement with scheduled contract expirations in 2020 that were not extended as a result of decreased demand as of September 30, 2020, and anticipate removing an additional 17 CRJ200 aircraft during the fourth quarter of 2020. We also terminated our American Prorate Agreement on seven CRJ200 aircraft in the second quarter of 2020 and we may have further reductions in the number of CRJ200 aircraft operating under our prorate agreements. We may receive requests by our major airline partners to defer deliveries of new or used aircraft that were previously scheduled for 2020, 2021 and 2022.

~~Cost Reductions.~~ ~~With the reduction in revenue, we have, and will continue to implement, cost saving initiatives, including:~~has materially

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●

~~Reducing employee-related costs including by:~~

~~Offering voluntary unpaid leave to employees.~~

~~Suspending all non-scale pay increases.~~

~~Instituting a company-wide hiring freeze.~~

●

~~Delaying non-essential projects and reducing or suspending other discretionary spending.~~

and adversely affected our revenues, particularly under our prorate agreements. We operated 137,493 flights during the third quarter of 2020, which increased to 210,251 flights, or 52.9%, during the third quarter of 2021. However, we operated 219,272 flights during the third quarter of 2019 and we have not returned to pre-COVID flight levels as of September 30, 2021. The rate of recovery from the impact of COVID-19 and whether such recovery will be sustained are uncertain as factors outside of our control, including the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions, cannot be estimated.

Liquidity. At September 30, ~~2020,~~2021, we had ~~$1,374.8~~$953.5 million in total available liquidity, consisting of ~~$822.0~~$912.5 million in cash and marketable securities ~~$39.8~~and $41.0 million available under SkyWest Airlines’ line of credit and an additional $513.0 million related to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) under our secured loan and guarantee agreement (the “Loan Agreement”) with the U.S. Department of the Treasury (“Treasury”) and the Bank of New York Mellon. Subsequently, on October 28, 2020, Loan Agreement was amended and restated, which increased the amount available to us under the facility by $152 million. See Note 2 “Impact of the COVID-19 Pandemic,” to the condensed consolidated financial statements for more information on the Loan Agreement.

credit.

Overview

We have the largest regional airline ~~operations~~operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of September 30, ~~2020, SkyWest Airlines~~2021, we offered scheduled passenger service with approximately ~~1,600~~2,250 total daily departures ~~under COVID-19 related reduced schedules~~ to destinations in the United States, Canada, Mexico and the Caribbean. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our CRJ200 aircraft have a single-class seat configuration. As of September 30, ~~2020, SkyWest Airlines~~2021, we had a615 total aircraft in our fleet, ~~of 577~~including 486 aircraft ~~of which 448 were~~ in scheduled service ~~and 129 aircraft are leased~~ or ~~utilized~~under contract under our code-share agreements, summarized as ~~summarized below:~~follows:


	CRJ200	CRJ700	CRJ900	E175	Total	E175	CRJ900	CRJ700	CRJ200	Total
United						90	—	19	112	221
Delta	38	6	39	67	150	71	40	5	29	145
United	96	19	—	90	205
American	—	61	—	—	61	6	—	82	—	88
Alaska	—	—	—	32	32	32	—	—	—	32
Aircraft in scheduled service	134	86	39	189	448
Leased to an un-affiliated entity	4	13	5	—	22
Aircraft in scheduled service or under contract						199	40	106	141	486
Leased to third parties						—	5	34	—	39
Other*	70	33	4	—	107	—	4	22	64	90
Total	208	132	48	189	577
Total Fleet						199	49	162	205	615

*As of September 30, ~~2020, these~~2021, other aircraft ~~have been removed from service~~include: supplemental spare aircraft supporting our code-share agreements and ~~are~~may be used in ~~the process of being placed under a~~future code-share or leasing ~~arrangement with a third party, are~~arrangements, aircraft transitioning between code-share agreements with our major airline partners, ~~and being used as supplemental spare~~or aircraft ~~are aircraft available for future code-share agreements or~~that are in the process of being parted out.

As of September 30, 2020, approximately 33% of our aircraft in scheduled service was operated for Delta, approximately 46% was operated for United, approximately 14% was operated for American and approximately 7% was operated for Alaska.

Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements, typically in the form of capacity purchase agreements or prorate ~~arrangements, each as defined below,~~agreements, between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners. Our success is principally dependent on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics. From September 30, ~~2019~~2020, to September 30, ~~2020,~~2021, we ~~added seven~~made several changes to our fleet count under our flying agreements, including the addition of ten new E175 aircraft, 20 used CRJ700 aircraft, one new CRJ900 aircraft, and 31seven used CRJ200 aircraft. Additionally, from September 30, 2020, to September 30, 2021, we increased the number of CRJ700 aircraft we leased to third parties from 13 aircraft to 34 aircraft and leases on four CRJ200 aircraft with third parties terminated.

We anticipate our fleet will continue to evolve, as we are scheduled to add 14 new E175 aircraft ~~to our fleet. Additionally, we removed thirteen~~with American by the end of 2022, nine new E175 aircraft with Alaska by the first half of 2023, 16 new E175 aircraft with Delta by the first half of 2023 and 19 used CRJ700 aircraft ~~and 56 CRJ200~~with American by 2023. The 16 E175 aircraft ~~from scheduled service~~ with 19Delta will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta. Under the terms of the ~~CRJ200~~contract with Delta, Delta has the right to purchase the 16 E175 aircraft ~~returned~~at the end of the contract term at a price estimated to be the ~~lessor while~~fair value at the ~~other aircraft were temporarily removed from service~~end of the contract. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the COVID-19 ~~schedule reductions,~~demand recovery or other factors. Our primary objective in ~~transition period between flying contracts with~~the fleet changes is to improve our ~~major partners, or were placed under a lease with a third party.~~profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.

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We are coordinating with our major airline partners on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are based on currently available information and are subject to change. As of September 30, 2020, we are scheduled to add four new E175 to our capacity purchase agreement with Delta during the fourth quarter of 2020. We also anticipate adding 20 new E175 aircraft with American under a capacity purchase agreement with delivery dates starting in late 2021, ~~and ending in 2022.~~

Subsequent to September 30, 2020, we secured an agreement to place 20 used CRJ700 aircraft under a multi-year flying contract with American. We will source the aircraft from our existing fleet with aircraft not currently under contract. The aircraft are expected to be placed into service ratably throughout 2021.

As of September 30, 2020, our capacity purchase agreement with Delta included 17 CRJ200 aircraft that are scheduled to expire in increments during the remainder of 2020 which we are not expecting to be extended as a result of the decreased demand caused by the COVID-19 pandemic. We own the 17 CRJ200 aircraft and anticipate parking the 17 CRJ200 aircraft following removal from service. We have no outstanding financing obligations on the 17 owned CRJ200 aircraft.

~~Due to the uncertainty of obtaining future contract extensions for our CRJ200 aircraft as a result of the COVID-19 pandemic and considering the average age~~approximately 45.5% of our ~~CRJ200 fleet is 18 years, we reduced the estimated useful lives of our CRJ200~~ aircraft ~~to align with each aircraft’s anticipated~~in scheduled service or under contract ~~removal dates, which resulted in~~were operated for United, approximately $20.2 million of incremental depreciation expense during the three months ended September 30, 2020. We anticipate we will incur $8.5 million of additional depreciation expense from October to December 2020 resulting from the shorter estimated useful lives of our owned CRJ200 aircraft.

29.8% were operated for Delta, approximately 18.1% were operated for American and approximately 6.6% were operated for Alaska.

Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as “capacity purchase agreements”) and revenue-sharing arrangements (referred to as “prorate” ~~arrangements)~~agreements). For the nine months ended September 30, ~~2020,~~2021, capacity purchase revenue and prorate revenue represented approximately ~~87.2%~~83.9% and ~~12.8%~~16.1%, respectively, of our total flying agreements revenue. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. On prorate routes, we have more control over scheduling, pricing and seat inventories, and we share passenger fares with our major airline partners according to prorate formulas. Our prorate revenue and profitability may fluctuate based on ticket prices and passenger loads, and we are responsible for ~~all~~the operating costs ~~to operate~~of the ~~flight,~~prorate flights, including ~~fuel.~~fuel and airport costs.

Third Quarter Summary

~~Our~~We had total operating revenues of $744.8 million for the three months ended September 30, 2021, a 62.8% increase compared to total operating revenues of $457.5 million for the three months ended September 30, ~~2020 decreased 39.8% compared to total operating revenues~~2020. We had net income of ~~$760.3~~$9.7 million, or $0.19 per diluted share, for the three months ended September 30, ~~2019. We had~~2021, compared to net income of $33.7 million, or $0.66 per diluted share, for the three months ended September 30, ~~2020, compared to net income of $91.3 million, or $1.79 per diluted share, for the three months ended September 30, 2019.~~

~~Significant~~2020. The significant items affecting our ~~financial performance~~revenue and operating expenses during the three months ended September 30, ~~2020~~2021, are outlined ~~below.~~

below:

Revenue

The number of aircraft we have in scheduled service and the number of block hours we ~~generate~~incur on our flights are primary drivers to our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers toof our revenue under our prorate flying agreements. ~~From September 30, 2019~~ As a result of higher passenger demand compared to ~~September 30, 2020, we decreased~~the onset of the COVID-19 pandemic, the number of aircraft ~~in scheduled service~~we operated increased from ~~483 aircraft~~448 as of September 30, 2020, to ~~448 aircraft, by removing thirteen CRJ700 aircraft, four CRJ900 aircraft and 56 CRJ200 aircraft and adding 38 E175 aircraft. Our completed block hours decreased 40.8% over the same period~~486 as of ~~2019~~

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~~primarily due to a significant reduction in~~September 30, 2021; the number of ~~flights~~block hours increased from 222,561 for the three months ended September 30, 2020, to 370,462 for the three months ended September 30, 2021, or by 66.5%; and the number of passengers we ~~were scheduled to operate under our flying contracts as a result of the COVID-19 pandemic.~~

~~Our total revenues decreased $302.8~~carried increased from 4.9 million for the three months ended September 30, 2020, ~~compared~~ to 10.9 million, or by 120.9%.

As a result of increased flight schedules and additional aircraft operating under our capacity purchase agreements for the three months ended September 30, ~~2019, primarily due~~2021, as compared to ~~the effects of the COVID-19 pandemic.~~three months ended September 30, 2020, our capacity purchase revenue increased $206.5 million, or 53.7%. Additionally, we recognized $19.2 million of previously deferred ~~recognizing~~ revenue onduring the three months ended September 30, 2021, compared to deferring revenue of $29.6 million of fixed monthly payments received under our capacity purchase agreements ~~during~~for the three months ended September 30, 2020, as further described ~~under~~in the section of this report entitled “Results of ~~Operations—Three Months Ended September 30, 2020~~Operations.” As a result of increased flight schedules and ~~2019—~~~~Operating Revenues~~~~.” Since March 2020, the COVID-19 pandemic has had a negative impact~~passengers carried on our ~~revenues, especially under our~~ prorate ~~agreements. The number of aircraft operating under our prorate agreements decreased from 68 aircraft as of September 30, 2019 to 47 aircraft as of September 30, 2020, or 30.9%. Additionally,~~routes, our prorate revenue ~~decreased from $145.8~~increased $67.5 million, or 111.1% for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

Operating Expenses

Our total operating expenses increased $314.8 million, or 82.2% for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. This increase was primarily due to an increase in the number of flights we operated and a non-cash impairment charge of $84.6 million for the three months ended September 30, ~~2019 to $60.8 million~~2021. Departures increased from 137,493 for the three months ended September 30, 2020, ~~or 58.3%. The negative impact~~ to our revenues as a result of the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue at a minimum throughout the remainder of 2020 and may continue through 2021 and subsequent periods.

~~Operating Expenses~~

~~Our total operating expenses decreased $230.9 million~~210,251 for the three months ended September 30, ~~2020, compared to~~2021, or by 52.9%. During the three months ended September 30, ~~2019. This decrease was primarily due~~2021, we recorded a non-cash impairment charge of $84.6 million to ~~a significant reduction in the number of flights we operated as a result of the COVID-19 pandemic.~~write-down CRJ900 aircraft operating under Delta capacity purchase agreements to their estimated fair value. Additional details regarding the ~~decrease~~increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”

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Fleet ~~activity~~Activity

The following table summarizes our fleet scheduled for service or under contract as of:


Aircraft in Service or Under Contract	September 30, 2021	December 31, 2020	September 30, 2020
E175s	199	193	189
CRJ900s	40	39	39
CRJ700s	106	90	86
CRJ200s	141	130	134
Total	486	452	448

Aircraft in Service

September 30, 2020

December 31, 2019

September 30, 2019

CRJ200s

134

190

190

CRJ700s

86

94

99

CRJ900s

39

43

43

E175s

189

156

151

Total

448

483

483

Subsequent IT Outage

In October 2021, we identified malware on our system resulting from a cyberattack. We quarantined the malware without disruption to our operations and implemented remedial measures. In connection with these remedial measures, we experienced a server outage that resulted in approximately 1,700 flight cancelations. We estimate the adverse impact of these cancelations on our financial results for the three months ending December 31, 2021, will be $15 million to $20 million (pre-tax).

Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, ~~2019,~~2020, which are presented in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, aircraft leases, long-lived assets, self-insurance and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates.

~~Recent Accounting Pronouncements~~

~~See Note 1 to the condensed consolidated financial statements for a description of recent accounting pronouncements.~~

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Results of Operations

Three Months Ended September 30, ~~2020~~2021, and ~~2019~~2020

Operational ~~Statistics.~~Statistics

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified ~~below:~~below. The increase in block hours, departures and passengers carried during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, was due to the increase in demand related to the ongoing recovery from the COVID-19 pandemic. However, we completed 219,272 flights and incurred 375,933 block hours during the three months ended September 30, 2019, indicating our flight schedules have not returned to pre-COVID-19 levels.

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For the three months ended September 30,

Block hours by aircraft type:

2020

2019

% Change

E175s

117,342

135,780

(13.6)
%
CRJ900s

12,861

31,595

(59.3)
%
CRJ700s

45,807

75,612

(39.4)
%
CRJ200s

46,551

132,946

(65.0)
%
Total block hours

222,561

375,933

(40.8)
%

Departures

137,493

219,272

(37.3)
%
Passengers carried

4,916,403

11,568,831

(57.5)
%
Passenger load factor

54.1
%
83.9
%
(29.8)
pts
Average passenger trip length (miles)

503

501

0.4
%


	For the three months ended September 30,
Block hours by aircraft type:	2021		2020		% Change
E175s	169,143		117,342		44.1	%
CRJ900s	34,031		12,861		164.6	%
CRJ700s	78,788		45,807		72.0	%
CRJ200s	88,500		46,551		90.1	%
Total block hours	370,462		222,561		66.5	%


Departures	210,251		137,493		52.9	%
Passengers carried	10,862,343		4,916,403		120.9	%
Passenger load factor	79.1	%	54.1	%	25.0	pts
Average passenger trip length (miles)	537		503		6.8	%

Operating Revenues

The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):

For the three months ended September 30,


2020

2019

$ Change

% Change

Flying agreements

$
445,048

$
738,838

$
(293,790)

(39.8)
%
Lease, airport services and other

12,445

21,457

(9,012)

(42.0)
%
Total operating revenues

$
457,493

$
760,295

$
(302,802)

(39.8)
%


	For the three months ended September 30,
	2021		2020		$ Change		% Change
Flying agreements	$	719,084	$	445,048	$	274,036	61.6	%
Lease, airport services and other		25,699		12,445		13,254	106.5	%
Total operating revenues	$	744,783	$	457,493	$	287,290	62.8	%

Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp ~~services, and revenue from leasing regional jet aircraft and spare engines to third parties. Changes in~~services.

We disaggregate our flying agreements revenue ~~are summarized below~~into the following categories (dollar amounts in thousands).:


	For the three months ended September 30,								For the three months ended September 30,
	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Capacity purchase agreements revenue: flight operations	$	175,753	$	385,537	$	(209,784)	(54.4)	%	$	308,273	$	175,753	$	132,520	75.4	%
Capacity purchase agreements revenue: aircraft lease and fixed revenue		208,516		207,467		1,049	0.5	%		282,498		208,516		73,982	35.5	%
Prorate agreements revenue		60,779		145,834		(85,055)	(58.3)	%		128,313		60,779		67,534	111.1	%
Flying agreements revenue	$	445,048	$	738,838	$	(293,790)	(39.8)	%	$	719,084	$	445,048	$	274,036	61.6	%

The ~~decrease~~increase in “Capacity purchase agreements revenue: flight operations” of ~~$209.8~~$132.5 million was primarily due to ~~schedule reductions experienced~~an increase in ~~2020 resulting from~~scheduled flights we operated under our contracts with our major airline partners as a result of the ongoing COVID-19 ~~pandemic.~~demand recovery. Our completed departures ~~decreased 37.3%~~increased 52.9% and completed block hours ~~decreased 40.8%~~increased 66.5% during the three months ended September 30, ~~2020~~2021, compared to the three months ended September 30, ~~2019.~~

2020. We provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021, and 2020 in response to the COVID-19 demand disruption impact to our partners.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of ~~$1.0~~$74.0 million was primarily due to ~~incremental~~recognizing previously deferred revenue during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, combined with aircraft lease and fixed rate revenue generated from ~~seven new~~ten E175 aircraft added to our fleet ~~and economic improvements made to certain existing capacity purchase agreements~~ since September 30, ~~2019. This increase in “Capacity purchase agreement revenue: aircraft lease revenue” was partially offset by the deferral of $29.6 million in fixed amount per aircraft revenue.~~2020. Under our capacity purchase agreements, we are paid a fixed amount per month per

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aircraft over the contract term. We recognize the fixed amount per aircraft ~~per month~~as revenue proportionately to ~~completed~~the number of flights ~~which is~~we complete, our performance ~~obligation. We operated a materially lower~~obligation, for each reporting period. During the three months ended September 30, 2021, the increase in our flight schedules resulted in recognizing $19.2 million of previously deferred revenue. For the three months ended September 30, 2020, we deferred recognizing revenue on $29.6 million of fixed monthly cash payments we received under our capacity purchase agreements. Our deferred revenue

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related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of flights we complete each reporting period relative to the number of flights we anticipate completing over the remaining contract term of each capacity purchase agreement. The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term. Our total deferred revenue balance was $118.4 million as of September 30, 2021.

The increase in prorate agreements revenue of $67.5 million was primarily due to the increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the three months ended September 30, 2020 from previous levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. We anticipate the future monthly flight levels will increase over the remaining applicable contract terms2021, compared to the three months ended September 30, ~~2020. Due to the materially reduced flight activity during the three months ended September 30,~~ 2020, and based on an anticipated increase in future monthly flight volumes over the remaining contract terms, we determined the fixed amount per month per aircraft received during the three months ended September 30, 2020 was disproportionately high relative to the volume of flights operated during the three months ended September 30, 2020. Accordingly, we deferred revenue attributed to the fixed amount per month per aircraft received during the three months ended September 30, 2020. Our deferred revenue balance will adjust over the remaining contract terms based on our completed flight levels each period relative to the anticipated average monthly flight levels over the remaining contract terms.

~~The decrease in prorate agreements revenue of $85.1 million was primarily~~ due to the ~~impact of~~ongoing COVID-19 ~~and the corresponding decrease in prorate passengers during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.~~

demand recovery.

The ~~$9.0 million decrease~~increase in lease, airport services and other revenues of $13.3 million was primarily ~~related to a decrease~~due an increase in the number of aircraft leased to third parties from 22 aircraft at September 30, 2020, to 39 aircraft at September 30, 2021, and an increase in airport service revenue due to the increase in the number of flights operated at locations where we were contracted to provide airport customer service during the three months ended September 30, ~~2020~~2021, compared to the three months ended September 30, ~~2019.~~

2020.

Operating Expenses

~~The~~Individual expense components attributable to our operations are set forth in the following table ~~summarizes our operating expenses and interest expense, (collectively, “Total airline expenses") for the periods indicated~~ (dollar amounts in thousands):


	For the three months ended September 30,
	2021		2020		$ Change		% Change
Salaries, wages and benefits	$	265,603	$	194,516	$	71,087	36.5	%
Aircraft maintenance, materials and repairs		209,795		150,148		59,647	39.7	%
Depreciation and amortization		109,597		121,467		(11,870)	(9.8)	%
Airport-related expenses		25,992		18,003		7,989	44.4	%
Aircraft fuel		32,561		13,641		18,920	138.7	%
Aircraft rentals		16,098		15,785		313	2.0	%
Special items - impairment charges		84,592		—		84,592	NM
Payroll support grant		(115,352)		(190,200)		74,848	(39.4)	%
Other operating expenses		68,847		59,580		9,267	15.6	%
Total operating expenses	$	697,733	$	382,940	$	314,793	82.2	%
Interest expense		28,980		30,150		(1,170)	(3.9)	%
Total airline expenses	$	726,713	$	413,090	$	313,623	75.9	%

For the three months ended September 30,

2020

2019

$ Change

% Change

Salaries, wages and benefits

$
194,516

$
251,414

$
(56,898)

(22.6)
%
Aircraft maintenance, materials and repairs

150,148

133,521

16,627

12.5
%
Depreciation and amortization

121,467

92,795

28,672

30.9
%
Airport-related expenses

18,003

27,808

(9,805)

(35.3)
%
Aircraft rentals

15,785

17,676

(1,891)

(10.7)
%
Aircraft fuel

13,641

31,063

(17,422)

(56.1)
%
CARES Act payroll support grant

(190,200)

—

(190,200)

NM

Other operating expenses

59,580

59,577

3

0.0
%
Total operating expenses

$
382,940

$
613,854

$
(230,914)

(37.6)
%
Interest expense

30,150

31,606

(1,456)

(4.6)
%
Total airline expenses

$
413,090

$
645,460

$
(232,370)

(36.0)
%

NM = Not Meaningful

Salaries, wages and benefits. The ~~$56.9~~$71.1 million, ~~decrease~~or 36.5%, increase in salaries, wages and benefits was ~~primarily~~ due to the increase in direct labor costs that resulted from a ~~reduction in scheduled departures and block hours related~~significantly higher number of flights we operated during the three months ended September 30, 2021, compared to the COVID-19 pandemic. Additionally, in response to the COVID-19 pandemic, we have instituted a company-wide hiring freeze, suspended all non-scale pay increases and offered voluntary unpaid leave to our employees.

three months ended September 30, 2020.

Aircraft maintenance, materials and repairs. The ~~$16.6~~$59.6 million, or 39.7%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets intended to extend the operational performance and reliability of its older aircraft, including increased engine maintenance expense ~~on our older CRJ aircraft~~ during the three months ended September 30, ~~2020~~2021, compared to the three months ended September 30, ~~2019 partially offset by a decrease in routine aircraft maintenance expense generally incurred proportionate to flying levels during the three months ended September 30,~~ 2020.

Depreciation and amortization. The ~~$28.7~~$11.9 million, ~~increase~~or 9.8%, decrease in depreciation and amortization expense was primarily due to acertain CRJ200 aircraft that became fully depreciated since September 30, 2020. This reduction in ~~the estimated useful life of~~depreciation on our ~~owned~~ CRJ200 fleet ~~that resulted~~was partially offset by an increase in ~~approximately $20.2~~depreciation expense due to the acquisition of ten new E175 aircraft and spare engines since September 30, 2020, as well as the acquisition of 30 used CRJ700 aircraft since September 30, 2020.

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~~million~~ ~~of incremental depreciation expense during the three months ended September 30, 2020 and due to the acquisition of seven new E175 aircraft and spare engines since September 30, 2019~~.

Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station ~~rents (our~~rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and ~~benefits).~~benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The ~~$9.8~~$8.0 million, ~~decrease~~or 44.4%, increase in airport-related expenses was primarily due to ~~a decrease~~an increase in ~~scheduled departures resulting from the COVID-19 pandemic.~~

~~Aircraft rentals.~~ ~~The $1.9 million decrease in aircraft rentals was primarily related to a reduction of~~ our ~~fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent to September 30, 2019.~~

prorate passengers.

Aircraft fuel. The ~~$17.4~~$18.9 million, ~~decrease~~or 138.7%, increase in fuel cost was primarily due to ~~a reduction~~an increase in the number of ~~prorate~~ flights we operated ~~and the~~under our prorate agreements, corresponding ~~decrease~~increase in gallons of fuel we purchased and ~~a decrease~~an increase in our average fuel cost per gallon from ~~$2.69 for the three months ended September 30, 2019 to~~ $1.75 for the three months ended September 30, ~~2020.~~2020, to $2.55 for the three months ended September 30, 2021. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase ~~agreements~~contracts are either purchased directly by our major airline ~~partners~~partner, or if purchased by us, ~~and reimbursed by our major airline partners, with~~we record the direct reimbursement ~~recorded~~ as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:


	For the three months ended September 30,						For the three months ended September 30,
(in thousands)	2020		2019		% Change		2021		2020		% Change
Fuel gallons purchased		7,785		12,510	(37.8)	%		12,779		7,785	64.1	%
Fuel expense	$	13,641	$	31,063	(56.1)	%	$	32,561	$	13,641	138.7	%

~~CARES Act payroll~~Aircraft rentals. The $0.3 million, or 2.0%, increase in aircraft rentals was primarily related to two additional aircraft leased from third parties since September 30, 2020.

Special items - impairment charges. Special items for the three months ended September 30, 2021, consisted of a non-cash impairment charge on SkyWest Airlines’ CRJ900 aircraft of $84.6 million. During the three months ended September 30, 2021, SkyWest reached an agreement with Delta to place 16 new E175 aircraft under contract beginning in 2022. These E175 aircraft will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta. We do not anticipate extending the contract term with Delta on these 16 CRJ900 aircraft. These factors, combined with the market value of SkyWest’s CRJ900 fleet, resulted in a non-cash impairment charge of $84.6 million.

Payroll support grant. In April ~~2020,~~2021, we entered into an agreement with U.S. Treasury and received ~~$450.7~~$250.0 million in emergency relief through the ~~CARES~~American Rescue Plan Act payroll support program, ~~through September 30, 2020,~~ of which ~~$345.5~~$205.0 million was in the form of payroll support grants that ~~are being~~were recognized as a reduction in labor expense over the periods the grants ~~are~~ intended to ~~compensate and $105.2 million was in the form of a ten-year unsecured loan.~~compensate. We recognized ~~$190.2~~$115.4 million in payroll support grant proceeds we received as a reduction ~~in labor expense during~~to our operating expenses for the three months ended September 30, ~~2020 and expect to recognize the remaining $3.4~~2021. We recognized $190.2 million ~~of the grants from the CARES Act~~in payroll support ~~program~~grant proceeds we received under similar agreements with U.S. Treasury as a reduction into our operating expenses byfor the ~~end~~three months ended September 30, 2020. As of ~~2020.~~

September 30, 2021, we have recognized the full payroll support grant benefits received from the U.S. Treasury as a reduction to our operating expenses.

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, ~~and~~ crew hotel ~~costs.~~ costs and credit loss reserves. The $9.3 million, or 15.6%, increase in other operating expenses was primarily related to an increase in ~~our credit loss reserves of $20 million primarily due~~other operating costs that correspond to the ~~collectability on a note receivable associated with the Company’s sale~~higher number of ~~ExpressJet in 2019 that became uncertain as a result of ExpressJet ceasing operations~~flights we operated during the three months ended September 30, ~~2020. The increase~~2021, compared to our credit loss reserves were also attributed to reductions in credit ratings on certain entities for which we have outstanding accounts receivable or notes receivable since the adoption of Topic 326. The increase in the credit loss expense was significantly offset by a decrease in other operating expenses as a result from a decrease in the number of scheduled flights related to the COVID-19 pandemic during the three months ended September 30, ~~2020.~~

2020, such as crew per diem, crew hotel costs and simulator costs.

Interest Expense. The ~~$1.5~~$1.2 million, or 3.9%, decrease in interest expense was primarily related to an overall lower effective interest rate during the three months ended September 30, ~~2020~~2021, compared to the three months ended September 30, ~~2019.~~2020.

Total airline expenses. ~~The $232.4 million decrease in~~Our total airline expenses, ~~was primarily related~~comprised of our total operating expenses and interest expense, increased $313.6 million, or 75.9%, due to an increase in direct operating costs attributed to the ~~COVID-19 pandemic and the related decrease in scheduled departures and block hours~~higher number of completed flights during the three months ended September 30, ~~2020.~~

2021, compared to the three months ended September 30, 2020, and due to the non-cash impairment charge of $84.6 million on SkyWest operated CRJ900 aircraft during the three months ended September 30, 2021.

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As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense, we believe our total airline expense is meaningful expense measure for management discussion and analysis purposes.

Summary of interest income, other income (expense) and provision for income taxes:

Interest income. Interest income decreased ~~$2.1~~$1.2 million, or ~~60.4%~~83.0%, during the three months ended September 30, ~~2020,~~2021, compared to the three months ended September 30, ~~2019.~~2020. The decrease in interest income was primarily related to a decrease in average interest rates ~~earned on~~attributed to our marketable securities subsequent to September 30, ~~2019.~~

2020.

Other income (expense), net. Other income primarily consisted of ~~income~~loss related to our investment in a joint venture with a third party.

~~Income taxes.~~ ~~Our provision for income taxes~~ The loss was ~~27.2% and 23.1% for~~due to discrete engine overhaul expenses incurred by the joint venture party during the three months ended September 30, 2021.

Provision for income taxes. For the three months ended September 30, 2021, and 2020, our effective income tax rates were 31.9% and ~~2019, respectively.~~27.2%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The increase in the effective tax rate primarily relates to ~~an adjustment to the deferred state tax rate and~~ a greater impact related to non-deductible expenses for the three months ended September 30, ~~2020,~~2021, compared to the three months ended September 30, ~~2019~~2020, as a result of lower ~~pretax~~pre-tax earnings for the three months ended September 30, ~~2020~~2021, compared to the same period of ~~2019.~~

2020.

Net income. Primarily due to the factors described above, we generated a net income of $9.7 million, or $0.19 per diluted share, for the three months ended September 30, 2021, compared to net income $33.7 million, or $0.66 per diluted share, for the three months ended September 30, ~~2020, compared to net income of $91.3 million, or $1.79 per diluted share, for the three months ended September 30, 2019.~~

2020.

Nine Months Ended September 30, ~~2020~~2021, and ~~2019~~2020

Operational ~~Statistics.~~Statistics

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified ~~below:~~below. The increase in block hours, departures and passengers carried during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to the increase in demand related to the ongoing recovery from the COVID-19 pandemic which began to negatively impact our operational statistics in the month of March 2020. We completed 627,799 flights and incurred 1,096,104 block hours during the nine months ended September 30, 2019, indicating our flight schedules have not returned to pre-COVID-19 levels.


	For the nine months ended September 30,
Block hours by aircraft type:	2021		2020		% Change
E175s	446,867		311,476		43.5	%
CRJ900s	87,750		45,214		94.1	%
CRJ700s	215,263		144,547		48.9	%
CRJ200s	220,809		204,573		7.9	%
Total block hours	970,689		705,810		37.5	%


Departures	550,643		427,531		28.8	%
Passengers carried	25,872,805		15,583,236		66.0	%
Passenger load factor	72.0	%	56.7	%	15.3	pts
Average passenger trip length (miles)	536		495		8.3	%

For the nine months ended September 30,

Block hours by aircraft type:

2020

2019

% Change

E175s

311,476

395,776

(21.3)
%
CRJ900s

45,214

93,988

(51.9)
%
CRJ700s

144,547

224,448

(35.6)
%
CRJ200s

204,573

381,892

(46.4)
%
Total block hours

705,810

1,096,104

(35.6)
%

Departures

427,531

627,799

(31.9)
%
Passengers carried

15,583,236

32,566,966

(52.2)
%
Passenger load factor

56.7
%
82.3
%
(25.6)
pts
Average passenger trip length (miles)

495

501

(1.2)
%

~~The operating statistics above exclude ExpressJet’s statistics prior to our sale~~Table of ~~ExpressJet in January 2019 as ExpressJet’s impact on our 2019 statistics was not significant.~~Contents

Operating Revenues

The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):


	For the nine months ended September 30,
	2021		2020		$ Change		% Change
Flying agreements	$	1,863,242	$	1,490,912	$	372,330	25.0	%
Lease, airport services and other		73,086		46,557		26,529	57.0	%
Total operating revenues	$	1,936,328	$	1,537,469	$	398,859	25.9	%

For the nine months ended September 30,


2020

2019

$ Change

% Change

Flying agreements

$
1,490,912

$
2,164,173

$
(673,261)

(31.1)
%
Lease, airport services and other

46,557

64,199

(17,642)

(27.5)
%
Total operating revenues

$
1,537,469

$
2,228,372

$
(690,903)

(31.0)
%

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~~aircraft and spare engines to third parties. Changes in~~We disaggregate our flying agreements revenue ~~are summarized below~~into the following categories (dollar amounts in thousands).:


	For the nine months ended September 30,
	2021		2020		$ Change		% Change
Capacity purchase agreements revenue: flight operations	$	792,501	$	674,222	$	118,279	17.5	%
Capacity purchase agreements revenue: aircraft lease and fixed revenue		770,548		619,354		151,194	24.4	%
Prorate agreements revenue		300,193		197,336		102,857	52.1	%
Flying agreements revenue	$	1,863,242	$	1,490,912	$	372,330	25.0	%

For the nine months ended September 30,

2020

2019

$ Change

% Change
Capacity purchase agreements revenue: flight operations

$
674,222

$
1,155,814

$
(481,592)

(41.7)
%
Capacity purchase agreements revenue: aircraft lease and fixed revenue

619,354

621,526

(2,172)

(0.3)
%
Prorate agreements revenue

197,336

386,833

(189,497)

(49.0)
%
Flying agreements revenue

$
1,490,912

$
2,164,173

$
(673,261)

(31.1)
%

The ~~decrease~~increase in “Capacity purchase agreements revenue: flight operations” of ~~$481.6~~$118.3 million was primarily due to ~~schedule~~an increase in scheduled flights we operated under our contracts with our major airline partners as a result of the ongoing COVID-19 demand recovery. Our completed departures increased 28.8% and completed block hours increased 37.5% during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. We provided temporary rate reductions ~~experienced from~~to our major airline partners under our capacity purchase agreements during the nine months ended September 30, 2021, and 2020 in response to the COVID-19 ~~pandemic.~~

demand disruption impact to our partners.

The ~~decrease~~increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of ~~$2.2~~$151.2 million was primarily due to a reduction in deferred revenue for the ~~deferral of $98.6 million~~nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, combined with an increase in aircraft lease and fixed ~~amount per~~rate revenue generated from ten E175 aircraft ~~revenue.~~added to our fleet since September 30, 2020. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft ~~per month~~as revenue proportionately to ~~completed~~the number of flights we complete, our performance ~~obligation.~~obligation, for each reporting period. We operated a materially lower number of flights during the nine months ended September 30, 2021, and 2020 ~~from previous~~compared to historical levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. ~~We anticipate the future monthly flight levels will increase over the remaining applicable contract terms compared to the nine months ended September 30, 2020.~~ Due to the ~~materially~~significantly reduced flight activity during the nine months ended September 30, 2021, and 2020, and based on an anticipated increase in future monthly flight volumes over the remaining contract terms, we determined the fixed amount per month per aircraft received during the nine months ended September 30, 2021, and 2020 was disproportionately high relative to the volume of flights operated during the nine months ended September 30, 2021, and 2020. Accordingly, we deferred recognizing revenue ~~attributed~~of $7.7 million and $98.6 million of fixed monthly cash payments we received under our capacity purchase agreements for the nine months ended September 30, 2021, and September 30, 2020, respectively. Our deferred revenue related to the fixed ~~amount per month per aircraft~~payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of flights we complete each reporting period relative to the number of flights we anticipate completing over the remaining contract term of each capacity purchase agreement. The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term. Our total deferred revenue balance was $118.4 million as of September 30, 2021.

The increase in prorate agreements revenue of $102.9 million was primarily due to the increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the nine months ended September 30, 2020. Our deferred revenue balance will adjust over the remaining contract terms based on our completed flight levels each period relative to the anticipated average monthly flight levels over the remaining contract terms. This decrease in “Capacity purchase agreement revenue: aircraft lease revenue” was partially offset by the incremental lease revenue generated from seven new E175 aircraft added to our fleet and economic improvements made to certain existing capacity purchase agreements since September 30, 2019.

The decrease in prorate agreements revenue of $189.5 million was primarily due to the impact of COVID-19 and the corresponding decrease in prorate passengers during the nine months ended September 30, 20202021, compared to the nine months ended September 30, ~~2019.~~2020, due to the COVID-19 demand recovery.

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The ~~$17.6 million decrease~~increase in lease, airport services and other revenues of $26.5 million was primarily ~~related to a decrease~~due an increase in the number of aircraft leased to third parties from 22 aircraft at September 30, 2020, to 39 aircraft at September 30, 2021, and an increase in airport service revenue due to the increase in the number of flights operated at locations where we were contracted to provide airport customer service during the nine months ended September 30, ~~2020~~2021, compared to the nine months ended September 30, ~~2019.~~2020.

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Operating Expenses


	For the nine months ended September 30,
	2021		2020		$ Change		% Change
Salaries, wages and benefits	$	718,868	$	613,895	$	104,973	17.1	%
Aircraft maintenance, materials and repairs		604,501		431,654		172,847	40.0	%
Depreciation and amortization		329,089		364,813		(35,724)	(9.8)	%
Airport-related expenses		72,478		70,192		2,286	3.3	%
Aircraft fuel		77,622		45,875		31,747	69.2	%
Aircraft rentals		47,311		49,537		(2,226)	(4.5)	%
Special items - impairment charges		84,592		—		84,592	NM
Payroll support grant		(422,669)		(342,138)		(80,531)	23.5	%
Other operating expenses		181,621		167,170		14,451	8.6	%
Total operating expenses	$	1,693,413	$	1,400,998	$	292,415	20.9	%
Interest expense		94,274		91,280		2,994	3.3	%
Total airline expenses	$	1,787,687	$	1,492,278	$	295,409	19.8	%

For the nine months ended September 30,

2020

2019

$ Change

% Change

Salaries, wages and benefits

$
613,895

$
752,768

$
(138,873)

(18.4)
%

Aircraft maintenance, materials and repairs

431,654

376,572

55,082

14.6
%

Depreciation and amortization

364,813

272,929

91,884

33.7
%

Airport-related expenses

70,192

89,237

(19,045)

(21.3)
%

Aircraft rentals

49,537

55,840

(6,303)

(11.3)
%

Aircraft fuel

45,875

87,570

(41,695)

(47.6)
%

Special items

—

21,869

(21,869)

NM

CARES Act payroll support grant

(342,138)

—

(342,138)

NM


Other operating expenses

167,170

184,634

(17,464)

(9.5)
%

Total operating expenses

$
1,400,998

$
1,841,419

$
(440,421)

(23.9)
%

Interest expense

91,280

96,884

(5,604)

(5.8)
%

Total airline expenses

$
1,492,278

$
1,938,303

$
(446,025)

(23.0)
%

NM = Not Meaningful

Salaries, wages and benefits. The ~~$138.9~~$105.0 million, ~~decrease~~or 17.1%, increase in salaries, wages and benefits was ~~primarily~~ due to the increase in direct labor costs that resulted from a ~~reduction in scheduled departures and block hours related~~higher number of flights we operated during the nine months ended September 30, 2021, compared to the COVID-19 pandemic. Additionally, in response to the COVID-19 pandemic, we have instituted a company-wide hiring freeze, suspended all non-scale pay increases and offered voluntary unpaid leave to our employees.

nine months ended September 30, 2020.

Aircraft maintenance, materials and repairs. The ~~$55.1~~$172.8 million, or 40.0%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 ~~and CRJ700 fleet~~fleets intended to extend the operational performance and reliability of ~~the~~these older aircraft, ~~and~~including increased engine maintenance expense during the nine months ended September 30, ~~2020~~2021, compared to the nine months ended September 30, ~~2019.~~

2020.

Depreciation and amortization. The ~~$91.9~~$35.7 million, ~~increase~~or 9.8%, decrease in depreciation and amortization expense was primarily due to acertain CRJ200 aircraft that became fully depreciated during 2020. This reduction in ~~the estimated useful life of~~depreciation on our ~~owned~~ CRJ200 fleet ~~that resulted~~was partially offset by an increase in ~~approximately $66.0 million~~ ~~of incremental~~ depreciation expense ~~during the nine months ended September 30, 2020 and~~ due to the acquisition of ~~seven~~ten new E175 aircraft and spare engines since September 30, ~~2019~~.

2020, as well as the acquisition of 30 used CRJ700 aircraft since September 30, 2020.

Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station ~~rents (our~~rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and ~~benefits).~~benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The ~~$19.0~~$2.3 million, ~~decrease~~or 3.3%, increase in airport-related expenses was primarily due to ~~a decrease~~an increase in ~~scheduled departures resulting from the COVID-19 pandemic.~~our prorate passengers.

Aircraft fuel. The $31.7 million, or 69.2%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and corresponding increase in gallons of fuel we purchased, and an increase in our average fuel cost per gallon from $1.92 for the nine months ended September 30, 2020, to $2.37 for the nine months ended September 30, 2021. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase contracts are either purchased directly by our major

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airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:


	For the nine months ended September 30,
(in thousands)	2021		2020		% Change
Fuel gallons purchased		32,771		23,892	37.2	%
Fuel expense	$	77,622	$	45,875	69.2	%

Aircraft rentals. The ~~$6.3~~$2.2 million, or 4.5%, decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent to September 30, ~~2019.~~

2020.

~~Aircraft fuel.~~ Special items - impairment chargesThe $41.7 million decrease in fuel cost was primarily due to a reduction in the number of prorate flights we operated and corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $2.49. Special items for the nine months ended September 30, ~~2019 to $1.92 for~~2021, consisted of a non-cash impairment charge on SkyWest Airlines’ CRJ900 aircraft of $84.6 million. During the nine months ended September 30, ~~2020.~~2021, SkyWest reached an agreement with Delta to place 16 new E175 aircraft under contract beginning in 2022. These E175 aircraft will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta. We ~~purchase and incur expense for all fuel~~do not anticipate extending the contract term with Delta on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partners or purchased by us and reimbursed by our major airline partners,these 16 CRJ900 aircraft. These factors, combined with the ~~direct reimbursement recorded as a reduction to our fuel~~

~~Table~~market value of ~~Contents~~

~~expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:~~

For the nine months ended September 30,
(in thousands)

2020

2019

% Change

Fuel gallons purchased

23,892

35,108

(31.9)
%
Fuel expense

$
45,875

$
87,570

(47.6)
%

~~Special Items.~~ ~~The $21.9 million special items expense for the nine months ended September 30, 2019 related to~~SkyWest’s CRJ900 fleet, resulted in a non-cash ~~write-off~~impairment charge of $18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer. The $18.5 million of expense was included in the SkyWest Airlines segment. The special items expense also included $3.4 million of expense associated with a cash payout of certain ExpressJet employees stock equity grants as part of the sale of ExpressJet, which was reflected in the ExpressJet segment. We did not have a comparable special items expense during the nine months ended September 30, 2020.

$84.6 million.

~~CARES Act payroll~~Payroll support grant. In ~~April 2020,~~January 2021, we entered into an agreement with U.S. Treasury and received ~~$450.7~~$233.1 million in emergency relief through the ~~CARES~~2021 Appropriations Act payroll support program, ~~through September 30, 2020,~~ of which ~~$345.5~~$193.2 million was in the form of payroll support grants that ~~are being~~were recognized as a reduction in labor expense over the periods the grants ~~are~~ intended to ~~compensate and $105.2~~compensate. Additionally, in April 2021, the Company received an additional $35.0 million in proceeds under the PSP Extension Agreement, of which $24.5 million was in the form of payroll support grants that were recognized as a ~~ten-year unsecured loan. We~~reduction of labor expense during the period the grant was intended to compensate. In April 2021, we also entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized ~~$342.1 million~~ as a reduction in labor expense ~~during~~over the periods the grants intended to compensate. We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the nine months ended September 30, ~~2020 and expect~~2021, compared to ~~recognize the remaining $3.4~~$342.1 million ~~of the grants from the CARES Act~~in payroll support ~~program~~grant proceeds we received under similar agreements with U.S. Treasury as a reduction into our operating expenses byfor the ~~end of~~nine months ended September 30, 2020.

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, ~~and~~ crew hotel ~~costs.~~ costs and credit loss reserves. The ~~$17.5~~$14.5 million, ~~decrease~~or 8.6%, increase in other operating expenses was primarily related to an increase in ~~our credit loss reserves of $24.2 million primarily due~~other operating costs that correspond to the ~~collectability on a note receivable associated with the Company’s sale~~higher number of ~~ExpressJet in 2019 that became uncertain as a result of ExpressJet ceasing operations~~flights we operated during the nine months ended September 30, ~~2020.~~2021, compared to the nine months ended September 30, 2020, such as crew per diem, crew hotel costs and simulator costs.

Interest Expense. The $3.0 million, or 3.3%, increase in interest expense was primarily related to ~~our credit loss reserves were also~~$3.6 million of deferred loan costs expense attributed to ~~reductions in credit ratings on certain entities for which we have outstanding accounts receivable or notes receivable since~~ the ~~adoption~~payoff and termination of ~~Topic 326. The increase in~~ the ~~credit loss expense was significantly offset by a decrease in other operating expenses as a result from a decrease in the number of scheduled flights related to the COVID-19 pandemic~~secured loan agreement with U.S. Treasury during the nine months ended September 30, ~~2020.~~

~~Interest Expense.~~ ~~The $5.6 million decrease in interest expense was related to~~2021, offset by an overall lower effective interest rate during the nine months ended September 30, ~~2020,~~2021, compared to the nine months ended September 30, ~~2019.~~2020.

Total airline expenses. ~~The $446.0 million decrease in~~Our total airline expenses, ~~was primarily related~~comprised of our total operating expenses and interest expense, increased $295.4 million, or 19.8%, due to an increase in direct operating costs attributed to the ~~COVID-19 pandemic and the related decrease in scheduled departures and block hours~~higher number of completed flights during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, and due to the non-cash impairment charge of $84.6 million on SkyWest operated CRJ900 aircraft during the nine months ended September 30, 2021, offset by an increase in the payroll support grant benefit we recorded during the nine months ended September 30, 2021, compared to the benefit recorded for the nine months ended September 30, 2020.

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aircraft ownership costs, including interest expense, we believe our total airline expense is meaningful expense measure for management discussion and analysis purposes.

Summary of interest income, other income (expense) and provision for income taxes:

Interest income. Interest income decreased ~~$5.4~~$4.9 million, or ~~49.0%~~87.0%, during the nine months ended September 30, ~~2020,~~2021, compared to the nine months ended September 30, ~~2019.~~2020. The decrease in interest income was primarily related to a decrease in average interest rates ~~earned on~~attributed to our marketable securities subsequent to September 30, ~~2019.~~

2020.

Other income (expense), net. ~~During the nine months ended September 30, 2020, we had other~~Other income ~~net~~primarily consisted of ~~$1.2 million primarily~~income related to ~~income earned from~~ our investment in a joint venture with a third party. ~~During~~The loss was due to discrete engine overhaul expenses incurred by the joint venture party during the nine months ended September 30, ~~2019, we had other income of $47.0 million primarily related to the gain on sale of ExpressJet.~~2021.

~~Income taxes.~~ ~~Our provision~~Provision for income ~~taxes was 27.1% and 23.2% for~~taxes. For the nine months ended September 30, 2021, and 2020, our income tax provision rates were 26.1% and ~~2019, respectively.~~27.1%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The ~~increase~~decrease in the effective tax rate primarily relates to ~~an adjustment to the deferred state tax rate and~~ a ~~greater~~lesser impact related to non-deductible expenses for the nine months ended September 30, ~~2020,~~

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2021, compared to the nine months ended September 30, ~~2019~~2020, as a result of ~~lower pretax~~higher pre-tax earnings for the nine months ended September 30, ~~2020~~2021, compared to the same period of ~~2019.~~

2020, partially offset by a $1.4 million discrete tax benefit from excess tax deductions generated from employee transactions that occurred during the nine months ended September 30, 2020.

Net income. Primarily due to the factors described above, we generated net income of 107.6 million, or $2.12 per diluted share, for the nine months ended September 30, 2021, compared to net income of $37.9 million, or $0.75 per diluted share, for the nine months ended September 30, ~~2020, compared to net income of $267.6 million, or $5.19 per diluted share, for the nine months ended September 30, 2019.~~2020.

Our Business Segments

Three Months Ended September 30, ~~2020~~2021, and ~~2019~~2020

For the three months ended September 30, ~~2020,~~2021, we had two reportable segments, which were the basis of our internal financial reporting: SkyWest Airlines and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.


	For the three months ended September 30,								For the three months ended September 30,
	(dollar amounts in thousands)								(dollar amounts in thousands)
	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Operating Revenues:
SkyWest Airlines operating revenue	$	337,975	$	641,947	$	(303,972)	(47.4)	%	$	614,377	$	337,975	$	276,402	81.8	%
SkyWest Leasing operating revenues		119,518		118,348		1,170	1.0	%		130,406		119,518		10,888	9.1	%
Total Operating Revenues	$	457,493	$	760,295	$	(302,802)	(39.8)	%	$	744,783	$	457,493	$	287,290	62.8	%
Airline Expenses:
SkyWest Airlines airline expense	$	306,009	$	563,811	$	(257,802)	(45.7)	%	$	635,307	$	306,009	$	329,298	107.6	%
SkyWest Leasing airline expense		107,081		81,649		25,432	31.1	%		91,406		107,081		(15,675)	(14.6)	%
Total Airline Expenses (1)	$	413,090	$	645,460	$	(232,370)	(36.0)	%	$	726,713	$	413,090	$	313,623	75.9	%
Segment profit:
SkyWest Airlines segment profit	$	31,966	$	78,136	$	(46,170)	(59.1)	%
SkyWest Airlines segment profit (loss)									$	(20,930)	$	31,966	$	(52,896)	NM
SkyWest Leasing profit		12,437		36,699		(24,262)	(66.1)	%		39,000		12,437		26,563	213.6	%
Total Segment Profit	$	44,403	$	114,835	$	(70,432)	(61.3)	%	$	18,070	$	44,403	$	(26,333)	(59.3)	%
Interest Income		1,403		3,542		(2,139)	(60.4)	%		238		1,403		(1,165)	(83.0)	%
Other Income, net		405		361		44	12.2	%
Other Income (Expense), net										(4,098)		405		(4,503)	NM
Consolidated Income Before Taxes	$	46,211	$	118,738	$	(72,527)	(61.1)	%	$	14,210	$	46,211	$	(32,001)	(69.2)	%

NM = Not Meaningful

(1)	Total Airline Expenses includes operating expense and interest expense

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SkyWest Airlines Segment ~~Profit.~~Profit (Loss). SkyWest Airlines segment profit decreased $52.9 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

SkyWest Airlines block hour production ~~decreased~~increased to ~~222,561,~~370,462, or ~~40.8%~~66.5%, for the three months ended September 30, ~~2020,~~2021, from ~~375,933~~222,561 for the three months ended September 30, ~~2019,~~2020, primarily ~~related~~due to ~~the~~demand recovery from reduced ~~demand for air travel due~~flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit (loss) are set forth below.

~~The $304.0~~SkyWest Airlines operating revenues increased $276.4 million, or ~~47.4%~~81.8%, ~~decrease in SkyWest Airlines Operating Revenues for~~from the three months ended September 30, 2020, ~~compared~~ to the three months ended September 30, ~~2019, was primarily~~2021, due to increased flight schedules, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 ~~pandemic that negatively impacted prorate~~pandemic. Additionally, during the three months ended September 30, 2021, SkyWest Airlines recognized $19.2 million of previously deferred revenue ~~by $85.6 million and all other revenue (including~~received under our capacity purchase ~~agreement revenue) by $218.4 million. Additionally, we deferred recognizing~~agreements compared to deferring revenue onof $29.6 million ~~of fixed monthly payments received~~during the three months ended September 30, 2020. SkyWest Airlines also provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021, and 2020.

~~The $257.8~~SkyWest Airlines airline expense increased $329.3 million, or ~~45.7%~~107.6%, ~~decrease in SkyWest Airlines Airline Expenses for~~from the three months ended September 30, 2020, ~~compared~~ to the three months ended September 30, ~~2019, was primarily~~2021, due to the following primary factors:

●

SkyWest Airlines’ salaries, wages and benefits expense ~~decreased~~increased by ~~$57.0~~$71.2 million, or ~~22.7%~~36.8%, primarily due to an increase in direct labor costs that resulted from a significantly higher number of flights we operated during the ~~reduction~~three months ended September 30, 2021, as a result of the ongoing COVID-19 demand recovery.

●

SkyWest Airlines’ aircraft maintenance, materials and repairs expense increased by $54.8 million, or 36.7%, primarily due to an increase in ~~scheduled departures~~direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ700 and ~~block hours related~~CRJ200 fleets intended to extend the operational performance and reliability of its older aircraft, including increased engine maintenance expense for the three months ended September 30, 2021, compared to the ~~COVID-19 pandemic.~~three months ended September 30, 2020.

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●

SkyWest Airlines’ depreciation and amortization expense ~~increased~~decreased by ~~$16.3~~$6.3 million, or ~~37.6%~~10.5%, primarily due to ~~a decrease~~certain CRJ200 aircraft that became fully depreciated during 2020, partially offset by an increase in depreciation expense related to the ~~estimated useful life~~acquisition of ~~SkyWest Airlines’ CRJ200 fleet and the related spare engines.~~used CRJ700 aircraft since September 30, 2020.

●

SkyWest Airlines’ fuel expense ~~decreased $17.4~~increased $18.9 million, or ~~56.1%~~138.7%, ~~primarily~~ due to ~~a decrease~~an increase in the ~~volume~~number of flights we operated under our prorate agreements and a corresponding increase in gallons of fuel we purchased ~~along with a decrease~~and an increase in ~~the~~our average fuel cost per gallon ~~in 2020 compared to 2019. The average fuel cost per gallon was~~from $1.75 ~~and $2.48~~ for the three months ended September 30, 2020, ~~and 2019, respectively.~~to $2.55 for the three months ended September 30, 2021.

●

SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million. See the Operating Expenses section of “Results of Operations – Three months ended September 30, 2021, and 2020” for further discussion on the impairment charge recorded for the three months ended September 30, 2021.

●

SkyWest Airlines recognized ~~$190.2~~$115.4 million in payroll support grant proceeds as a reduction ~~in labor expense during~~to our operating expenses for the three months ended September 30, ~~2020 from~~2021, compared to $190.2 million recognized for the ~~CARES Act payroll support program.~~three months ended September 30, 2020.

●

SkyWest Airlines’ remaining airline expenses ~~decreased $13.3~~increased $31.2 million, or ~~4.0%~~39.0%, primarily related to ~~a decrease~~an increase in other operating costs that correspond to the higher number of ~~scheduled~~ flights ~~related to the COVID-19 pandemic during~~we operated for the three months ended September 30, ~~2020.~~2021, compared to the three months ended September 30, 2020, such as crew per diem, crew hotel costs and simulator costs.

SkyWest Leasing Segment Profit. SkyWest Leasing profit ~~decreased $24.3~~increased $26.6 million, or 213.6%, during the three months ended September 30, ~~2020,~~2021, compared to the three months ended September 30, ~~2019,~~2020, primarily ~~related~~due to the

Table of Contents ~~credit loss reserves recognized on a note receivable associated with~~

increase in aircraft leased to third parties and the ~~sale~~acquisition of ExpressJet, which ceased operations during the three months ended September 30, 2020 and additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines as a result of COVID-19, partially offset by an additional seventen new E175 aircraft added to our fleet subsequent to September 30, ~~2019.~~

2020.

Nine Months Ended September 30, ~~2020~~2021, and ~~2019~~2020

For the nine months ended September 30, ~~2020 and following the sale of ExpressJet,~~2021, we had two reportable segments, which were the basis of our internal financial reporting: SkyWest Airlines and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. Our operating segments for the nine months ended September 30, 2019, prior to the sale of ExpressJet, were SkyWest Airlines, ExpressJet and SkyWest Leasing. During 2019, our corporate overhead expense was allocated to the operating expenses of SkyWest Airlines and ExpressJet.


	For the nine months ended September 30,								For the nine months ended September 30,
	(dollar amounts in thousands)								(dollar amounts in thousands)
	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Operating Revenues:
SkyWest Airlines operating revenue	$	1,172,625	$	1,854,803	$	(682,178)	(36.8)	%	$	1,548,422	$	1,172,625	$	375,797	32.0	%
ExpressJet operating revenues		—		24,050		(24,050)	(100.0)	%
SkyWest Leasing operating revenues		364,844		349,519		15,325	4.4	%		387,906		364,844		23,062	6.3	%
Total Operating Revenues	$	1,537,469	$	2,228,372	$	(690,903)	(31.0)	%	$	1,936,328	$	1,537,469	$	398,859	25.9	%
Airline Expenses:
SkyWest Airlines airline expense	$	1,181,999	$	1,662,665	$	(480,666)	(28.9)	%	$	1,509,713	$	1,181,999	$	327,714	27.7	%
ExpressJet airline expense		—		28,690		(28,690)	(100.0)	%
SkyWest Leasing airline expense		310,279		246,948		63,331	25.6	%		277,974		310,279		(32,305)	(10.4)	%
Total Airline Expenses (1)	$	1,492,278	$	1,938,303	$	(446,025)	(23.0)	%	$	1,787,687	$	1,492,278	$	295,409	19.8	%
Segment profit (loss):
Segment profit:
SkyWest Airlines segment profit (loss)	$	(9,374)	$	192,138	$	(201,512)	(104.9)	%	$	38,709	$	(9,374)	$	48,083	NM
ExpressJet segment loss		—		(4,640)		4,640	(100.0)	%
SkyWest Leasing profit		54,565		102,571		(48,006)	(46.8)	%		109,932		54,565		55,367	101.5	%
Total Segment Profit	$	45,191	$	290,069	$	(244,878)	(84.4)	%	$	148,641	$	45,191	$	103,450	228.9	%
Interest Income		5,652		11,081		(5,429)	(49.0)	%		732		5,652		(4,920)	(87.0)	%
Other Income, net		1,205		47,367		(46,162)	(97.5)	%
Other Income (Expense), net										(3,802)		1,205		(5,007)	NM
Consolidated Income Before Taxes	$	52,048	$	348,517	$	(296,469)	(85.1)	%	$	145,571	$	52,048	$	93,523	179.7	%

NM = Not Meaningful

(1)	Total Airline Expenses includes operating expense and interest expense

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SkyWest Airlines Segment Profit. SkyWest Airlines segment profit increased $48.1 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

SkyWest Airlines block hour production ~~decreased~~increased to ~~705,810,~~970,689, or ~~35.6%~~37.5%, for the nine months ended September 30, ~~2020,~~2021, from ~~1,096,104~~705,810 for the nine months ended September 30, ~~2019,~~2020, primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit are set forth below.

~~The $682.2~~SkyWest Airlines operating revenues increased $375.8 million, or ~~36.8%~~32.0%, ~~decrease in SkyWest Airlines Operating Revenues for~~from the nine months ended September 30, 2020, ~~compared~~ to the nine months ended September 30, ~~2019, was primarily~~2021, due to increased flight schedules, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 ~~pandemic that negatively impacted prorate~~pandemic. SkyWest Airlines deferred revenue ~~by $189.5~~of $7.7 million ~~and all other revenue (including capacity purchase agreement revenue) by $492.7 million. Additionally, we deferred recognizing revenue on $98.6 million~~ of ~~fixed monthly~~ payments received under our capacity purchase agreements during the nine months ended September 30, 2021, compared to deferred revenue of $98.6 million recorded during the nine months ended September 30, 2020. SkyWest Airlines also provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the nine months ended September 30, 2021, and nine months ended September 30, 2020.

~~The $480.7~~SkyWest Airlines airline expense increased $327.7 million, or ~~28.9%~~27.7%, ~~decrease in SkyWest Airlines Airline Expenses for~~from the nine months ended September 30, 2020, ~~compared~~ to the nine months ended September 30, ~~2019, was primarily~~2021, due to the following primary factors:

●

SkyWest Airlines’ salaries, wages and benefits expense ~~decreased~~increased by ~~$124.9~~$105.4 million, or ~~17.0%~~17.2%, primarily due to an increase in direct labor costs that resulted from a significantly higher number of flights we operated during the ~~reduction in scheduled departures and block hours related to~~nine months ended September 30, 2021, as a result of the ongoing COVID-19 ~~pandemic.~~demand recovery.

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●

SkyWest Airlines’ aircraft maintenance, materials and repairs expense increased by ~~$60.6~~$165.6 million, or ~~16.7%~~39.2%, primarily ~~attributable~~due to an increase in ~~maintenance parts expense and~~ direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets intended to extend the operational performance and ~~CRJ700 fleet and~~reliability of these older aircraft, including increased engine maintenance expense ~~during~~for the nine months ended September 30, ~~2020~~2021, compared to the nine months ended September 30, ~~2019.~~2020.

●

SkyWest Airlines’ depreciation and amortization expense ~~increased~~decreased by ~~$46.8~~$14.0 million, or ~~37.7%~~8.2%, primarily due to ~~a decrease~~certain CRJ200 aircraft that became fully depreciated during 2020, partially offset by an increase in depreciation expense related to the ~~estimated useful life~~acquisition of ~~SkyWest Airlines’ CRJ200 fleet and the related spare engines.~~used CRJ700 aircraft since September 30, 2020.

●

SkyWest Airlines included special items related to a non-cash write-off of $18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer during the nine months ended September 30, 2019.

●

SkyWest Airlines’ fuel expense ~~decreased $41.7~~increased $31.7 million, or ~~47.6%~~69.2%, ~~primarily~~ due to ~~a decrease~~an increase in the ~~volume~~number of flights we operated under our prorate agreements and a corresponding increase in gallons of fuel we purchased ~~along with a decrease~~and an increase in ~~the~~our average fuel cost per gallon ~~in 2020 compared to 2019. The average fuel cost per gallon was~~from $1.92 ~~and $2.49~~ for the nine months ended September 30, 2020, ~~and 2019, respectively.~~to $2.37 for the nine months ended September 30, 2021.

●

SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million. See the Operating Expenses section of “Results of Operations – Nine months ended September 30, 2021, and 2020” for further discussion on the impairment charge recorded for the nine months ended September 30, 2021.

●

SkyWest Airlines recognized ~~$342.1~~$422.7 million in payroll support grant proceeds as a reduction ~~in labor expense during~~to our operating expenses for the nine months ended September 30, ~~2020 from~~2021, compared to $342.1 million recognized for the ~~CARES Act payroll support program.~~nine months ended September 30, 2020.

●

SkyWest Airlines’ remaining airline expenses ~~decreased $60.9~~increased $34.8 million, or ~~8.7%~~12.7%, primarily related to ~~a decrease~~an increase in other operating costs that correspond to the higher number of ~~scheduled~~ flights ~~related to the COVID-19 pandemic during~~we operated for the nine months ended September 30, ~~2020.~~2021, compared to the nine months ended September 30, 2020, such as crew per diem, crew hotel costs and simulator costs.

SkyWest Leasing Segment Profit. SkyWest Leasing profit ~~decreased $48.0~~increased $55.4 million, or 101.5%, during the nine months ended September 30, ~~2020,~~2021, compared to the nine months ended September 30, ~~2019,~~2020, primarily ~~related~~due to ~~credit loss reserves recognized on a note receivable associated with~~ the ~~sale~~increase in aircraft leased to third parties and the acquisition of ExpressJet, which ceased operations during the three months ended September 30, 2020 and additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines as a result of COVID-19, partially offset by an additional seventen new E175 aircraft added to our fleet subsequent to September 30, ~~2019.~~2020.

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Liquidity and Capital Resources

As of September 30, 2021, we had $912.5 million in cash and cash equivalents and marketable securities. As of September 30, 2021, we had $41.0 million available for borrowings under our line of credit. Given our available liquidity as of September 30, 2021, and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments, debt service obligations for at least the next 12 months.

Our total cash and marketable securities increased from $825.9 million as December 31, 2020, to $912.5 million as of September 30, 2021, or by $86.6 million. Our total long-term debt, including current maturities decreased from $3,203.7 million as of December 31, 2020, to $2,965.0 million as of September 30, 2021, or by $238.7 million. Thus, our total long-term debt, net of cash and marketable securities, decreased from $2,377.8 million as of December 31, 2020, to $2,052.5 million as of September 30, 2021, or $325.3 million. At September 30, 2021, our total capital mix was 46.5% equity and 53.5% long-term debt, compared to 43.3% equity and 56.7% long-term debt at December 31, 2020.

As of September 30, 2021, and December 31, 2020, we had $59.5 million and $61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of September 30, 2021, and December 31, 2020.

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Sources and Uses of Cash

Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the nine months ended September 30, ~~2020~~2021, and ~~2019,~~2020, and our total cash and marketable securities positions as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020 (in thousands):


	For the nine months ended September 30,
	2021		2020		$ Change		% Change
Net cash provided by operating activities	$	686,955	$	548,703	$	138,252	25.2	%
Net cash used in investing activities		(396,785)		(261,447)		(135,338)	51.8	%
Net cash provided by (used in) financing activities		(234,062)		43,766		(277,828)	(634.8)	%

For the nine months ended September 30,


2020

2019

$ Change

% Change

Net cash provided by operating activities

$
548,703

$
582,468

$
(33,765)

(5.8)
%
Net cash used in investing activities

(261,447)

(305,294)

43,847

(14.4)
%
Net cash provided by (used in) financing activities

43,766

(297,649)

341,415

(114.7)
%

September 30,

December 31,




2020

2019

$ Change

% Change

Cash and cash equivalents

$
418,228

$
87,206

$
331,022

379.6
%
Marketable securities

403,793

432,966

(29,173)

(6.7)
%
Total cash and marketable securities

$
822,021

$
520,172

$
301,849

58.0
%


	September 30,		December 31,
	2021		2020		$ Change		% Change
Cash and cash equivalents	$	271,831	$	215,723	$	56,108	26.0	%
Marketable securities		640,673		610,185		30,488	5.0	%
Total	$	912,504	$	825,908	$	86,596	10.5	%

Cash Flows provided by Operating Activities

~~Cash~~Our cash flows ~~from~~provided by operating activities ~~decreased $33.8~~was $687.0 million ~~primarily due to a decrease in pretax income~~ for the nine months ended September 30, ~~2020~~2021, compared to $548.7 million for the nine months ended September 30, 2020. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense, and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and deferred payroll support grant proceeds.

The increase in our cash flow from operations for the nine months ended September 30, 2021, compared to the ~~same period of 2019, partially offset by deferred revenue related to the amount of cash received under our capacity purchase agreements in excess of revenue recognized of $98.6 million as of~~nine months ended September 30, 2020, was primarily due an increase in ~~non-cash depreciation expense of $91.9~~net income from $37.9 million for the nine months ended September 30, 2020, ~~compared~~ to ~~the same period of 2019 and other changes in our working capital accounts. Our operating expenses~~$107.6 million for the nine months ended September 30, 2021, and a non-cash impairment charge of $84.6 recorded during the nine months ended September 30, 2021. The cash provided by these operating activities were partially offset by a reduction in depreciation expense and deferred revenue, and changes in our current asset and liability accounts, primarily due to the timing of cash payments and cash receipts for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The operating cash flows for the nine months ended September 30, 2021, and 2020 ~~were reduced by~~also included the benefit from the payroll support grant of $422.7 million and $342.1 million, ~~of CARES Act payroll support grants. We anticipate recognizing the remaining $3.4 million of payroll support grants~~respectively, partially offset by temporary rate reductions provided to our major airline partners during the ~~fourth quarter of~~nine months ended September 30, 2021, and 2020.

Cash Flows used in Investing Activities

~~The $43.8 million decrease in~~Our cash flows used in investing activities was ~~primarily due to a reduction in capital expenditures, which included 74 used CRJ aircraft and five new E175 aircraft during~~$396.8 million for the nine months ended September 30, ~~2019,~~2021, compared to ~~the acquisition~~cash flows used in investing activities of ~~four used CRJ700 aircraft and two new E175 aircraft~~$261.4 million for the nine months ended September 30, 2020. ~~These changes represented a $249.1 million decrease in aircraft purchases and related spare aircraft assets. These decrease in~~Our investing cash flows are typically impacted by various factors including our capital expenditures, ~~were significantly offset by~~such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.

The increase in our cash flow used in investing activities for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was primarily due to an increase in cash used for purchases of marketable securities, net of sales of marketable securities, of $30.5 million for the nine months ended September 30, 2021, from $29.2 million in cash provided by sales of marketable securities, net of purchases of marketable securities, for the nine months ended September 30, 2020, an increase in deposits on aircraft from $0.6 million for the nine months ended September 30, 2020, to $100.1 million for the nine months ended September 30, 2021, offset by a decrease in our long-term ~~receivables~~assets resulting from timing of payments received from our major airline partners ~~and a net decrease in the sale~~attributed to our long-term

Table of ~~marketable securities of $68.2 million. During the nine months ended September 30,~~Contents

receivables. In 2020, we amended certain debt agreements on our aircraft which ~~temporarily~~ suspended our obligation to make debt service payments for an approximately six-month ~~period.~~period during 2020. Concurrently, we ~~temporarily~~ suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements ~~over~~during the same period. We ~~recorded~~anticipate collecting the ~~suspended required aircraft ownership amounts due~~payments on these long-term receivables from our major airline partners ~~primarily as long-term receivables. Additionally, during~~over the ~~nine months ended September 30, 2019, we received $53.2 million from the sale of ExpressJet.~~

remaining contract terms.

Cash Flows provided by (used in) Financing Activities

~~The $341.4 million increase~~Our cash flows used in ~~cash provided by~~ financing activities was ~~primarily related to the additional proceeds from the issuance of long-term debt of $101.4 million and the decrease in principal payments on long-term debt of $174.1~~$234.1 million for the nine months ended September 30, ~~2020,~~2021, compared to cash provided by financing activities of $43.8 million for the nine months ended September 30, 2020. Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases of our common stock and payment of cash dividends.

The $277.8 million increase in cash used in financing activities for the nine months ended September 30, 2021, compared to the nine months ended September 30, ~~2019. The decrease~~2020, was primarily due to an increase of $331.3 million in principal payments on long-term debt ~~was~~ primarily ~~related~~due the additional E175 aircraft acquired subsequent to ~~temporary deferrals on long-term debt payments we received with certain lenders during the nine months ended September 30, 2020. Additionally, during the nine months ended~~ September 30, 2020, werepayment of the $60 million U.S. Treasury secured loan, and early repayment of $80.1 million in aircraft debt. The increase was offset by a reduction in cash used ~~an additional $26.2 million~~ to purchase treasury ~~shares~~stock and ~~make~~

~~Table~~payment of ~~Contents~~

~~income tax payments towards vested employee equity awards compared to $93.9~~dividends by $20.0 million ~~for the nine months ended September 30, 2019.~~

~~Liquidity~~ and ~~Capital Resources as of September 30, 2020~~

Given the measures discussed above that we have implemented to mitigate the impact of the COVID-19 pandemic on our financial position and operations and our assumptions about its future impact on travel demand, which could be materially different$13.1 million, respectively, due to the inherent uncertainties of the current operating environment, we believe the working capital currently available to us (including funds from government assistance provided or to be provided pursuant to the CARES Act) will be sufficient to meetrestrictions under our ~~present financial requirements, including anticipated expansion, planned capital expenditures, and scheduled lease payments and debt service obligations for at least the next 12 months.~~loan agreements with U.S. Treasury.

~~At September 30, 2020, our total capital mix was 44.7% equity and 55.3% long-term debt, compared to 45.3% equity and 54.7% long-term debt at December 31, 2019.~~

In September 2020, we entered into the Loan Agreement with Treasury and the Bank of New York Mellon. Which permits us to borrow up to $573 million. Subsequently, on October 28, 2020, the Company entered into an amendment to the Loan Agreement that permits the Company to borrow up to $725 million in the aggregate. As of September 30, 2020, we have borrowed $60 million and may, at our option, borrow additional amounts in up to two subsequent borrowings until March 26, 2021. The proceeds are to be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Loan Agreement and the applicable provisions of the CARES Act. The loan will bear interest at a variable rate per annum equal to the London interbank offer rate divided by one minus the Eurodollar Reserve Percentage (as defined in the Loan Agreement) plus 3.00%. The applicable interest rate for the $60 million loan will be 3.22% per annum through September 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula. In return, we agreed to issue to Treasury warrants to purchase shares of our common stock based on a debt coverage ratio and amounts drawn under the facility. We issued warrants to purchase 211,416 shares of the Company’s common stock to Treasury in conjunction with our $60 million borrowing under the facility. These warrants have an exercise price of $28.38 per share and a five-year term from the date of issuance.

Significant Commitments and Obligations

General

See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.

Purchase Commitments and Options

We are coordinating with our major airline partners and aircraft manufactures on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are subject to change. As of September 30, ~~2020,~~2021, we had a firm purchase commitment for 2439 new E175 aircraft from Embraer ~~S.A.~~ with delivery dates anticipated ~~through 2022.~~

~~Subsequent~~into the first half of 2023. We also have a firm purchase commitment to ~~September 30, 2020, we also secured agreements to acquire 21~~purchase seven used CRJ700 aircraft ~~and lease~~with anticipated delivery dates by the aircraft under a multi-year term to another regional airline operating for United Airlines. The aircraft purchases are expected to be financed with debt during the three months ended December 31, 2020.end of 2021.

~~We have in recent years funded the majority of our aircraft acquisition cost with long-term debt.~~ At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select ~~an appropriate method~~one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our ~~acquisition of any additional~~ aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm ~~order~~purchase commitment for ~~24 new~~39 E175 aircraft with approximately ~~85%~~80-85% debt and the remaining balance with cash. We intend to fund the purchase of the seven used CRJ700 aircraft through cash on hand.

Long-term Debt Obligations

As of September 30, 2021, we had $2.8 billion of long-term debt obligations related to the acquisition of aircraft and certain spare engines. The average effective interest rate on those long-term debt obligations was approximately 4.0% at September 30, 2021. We also had $200.6 million of long-term debt obligations under the Payroll Support Program Agreement, PSP Extension Agreement, and Payroll Support Program 3 Agreement with U.S. Treasury.

Under our capacity purchase agreements, the major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.

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~~Long-term Debt Obligations~~

As of September 30, 2020, we had $3.1 billion of long-term debt obligations, including current maturities, primarily related to the acquisition of E175 aircraft. The average effective interest rate on the debt related to such aircraft was approximately 4.0% at September 30, 2020.

Guarantees

We have guaranteed the obligations of SkyWest Airlines under the ~~SkyWest Airlines Delta Connection~~United Express Agreement and the ~~SkyWest Airlines United Express~~Delta Connection Agreement for the E175 aircraft. In addition, we have guaranteed certain other ~~SkyWest Airlines~~ obligations under ~~its~~SkyWest Airlines’ aircraft financing and leasing agreements.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for an entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months. The COVID-19 pandemic ~~has negatively impacted our summer schedule and we anticipate that it will~~is anticipated to continue to ~~have a negative~~negatively impact ~~at a minimum throughout the remainder of 2020 and into 2021.~~our schedule compared to 2019 schedules (pre-COVID period). The magnitude of the impact will depend on various factors including passenger demand and the related flight schedules we are requested to operate by our major airline partners under our capacity purchase agreements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

~~In the past,~~Prior to COVID-19, we ~~have~~did not ~~experienced~~experience significant difficulties with fuel ~~availability and~~availability. Recently, some of our fuel service providers have experienced logistical challenges transporting fuel to certain airports, that resulted in isolated levels of disruption to our operations. Although there is no assurance such challenges will not get worse in the future, we currently ~~expect to~~anticipate we will be able to obtain fuel at prevailing prices in quantities sufficient to meet our ~~future~~ needs. Pursuant to our ~~capacity purchase agreements,~~contract flying arrangements, United, Delta, ~~Alaska~~American and ~~American have~~Alaska agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate operations. For the nine months ended September 30, ~~2020, prorate flying arrangements represented~~2021, approximately ~~12.8%~~16.1% of our total flying agreements ~~revenue.~~revenue was derived from prorate agreements. For the nine months ended September 30, 2021, the average price per gallon of aircraft fuel was $2.37. For illustrative purposes only, we have estimated the impact of the market risk of fuel price fluctuations on our prorate operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional ~~$11.5~~$19.4 million in fuel expense for the nine months ended September 30, ~~2020.~~

2021.

Interest Rates

As of September 30, ~~2020, we~~2021, our long-term debt had ~~variable rate notes representing 2.4% of our total long-term debt.~~fixed interest rates. We currently intend to finance the acquisition of new aircraft through manufacturer financing or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire future aircraft. To the extent we place new aircraft in service under our ~~code-share~~capacity purchase agreements with United, Delta, ~~United,~~ American, Alaska or other carriers, our ~~code-share~~capacity purchase agreements currently provide that reimbursement rates will be adjusted to reflect the interest rates effective at the closing of the respective aircraft financing.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to ensure that information we are required to

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disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of September 30, ~~2020,~~2021, those controls and procedures were effective to ensure that information we are required to disclose in the reports

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we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control

During the nine months ended September 30, ~~2020, we implemented~~2021, there were no changes toin our processes in response to the adoption of Accounting Standards Update No. 2016-13, “Financial Instruments- Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“Topic 326”) that became effective January 1, 2020. The operating effectiveness of these changes will be evaluated as part of our annual assessment of the effectiveness of internal ~~controls~~control over financial ~~reporting.~~reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to certain legal actions which we consider routine to our business activities. As of September 30, ~~2020,~~2021, our 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 our financial position, liquidity or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019, in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30,~~ 2020, and in our other filings with the SEC, which factors could materially affect our business, financial condition and results of operations. The risks described in our reports filed with the SEC are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K and Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our and our major airline partners’ business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our and our major airline partners’ business, operating results, financial condition and liquidity.

In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China, and the World Health Organization subsequently declared COVID-19 a global health pandemic. On March 11, 2020, the U.S. Department of State issued a global Level 3 “reconsider travel” advisory for all travel abroad. On March 13, 2020, the U.S. government declared a national emergency. On March 19, 2020, the U.S. Department of State issued a global Level 4 “do not travel” advisory advising U.S. citizens to avoid all international travel due to the global impact of COVID-19. Additionally, the U.S. government has issued a travel advisory for residents of certain areas of the country due to extensive community transmission of COVID-19 in the area. The U.S. government has also implemented enhanced screenings, mandatory 14-day quarantine requirements and other travel restrictions in connection with the COVID-19 pandemic, including restrictions on travel from Mexico and Canada, and many foreign and U.S. state governments have instituted similar measures and declared states of emergency.

The COVID-19 outbreak, along with the measures governments and private organizations worldwide have implemented in an attempt to contain the spread of this pandemic, has resulted in a severe decline in demand for air

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travel, which has adversely affected our and our major airline partners’ business, operations and financial condition to an unprecedented extent. Measures ranging from travel restrictions, “shelter in place” and quarantine orders, limitations on public gatherings to cancellation of public events have resulted in a precipitous decline in demand for both domestic and international business and leisure travel. In response to this material decrease in demand, our major airline partners, upon whom we depend to contract with us and to set our flight schedules, have drastically reduced their summer capacity in 2020 compared to 2019, and possibly more cuts beyond. We in turn have significantly reduced our capacity. Prior to the COVID-19 pandemic, we anticipated operating approximately 2,600 daily departures in the month of October 2020; however, in October 2020 we operated between approximately 1,600 to 1,700 daily departures as a result of COVID-19-related schedule reductions. We also anticipate similar schedule reductions will likely continue at a minimum throughout the remainder of 2020 and into 2021. We will continue to work with our major airline partners regarding future schedules and make further demand-driven adjustments to our capacity as needed. Additionally, we have removed 38 CRJ200 aircraft that were operating under the SkyWest Airlines Delta Connection Agreement with scheduled contract expirations in 2020 that were not extended as a result of decreased demand as of September 30, 2020 and anticipate removing an additional 17 CRJ200 aircraft during the fourth quarter of 2020. We also terminated our American Prorate Agreement on seven CRJ200 aircraft in the second quarter of 2020 and we may have further reductions in the number of CRJ200 aircraft operating under our prorate agreements. We may have further reductions in the number of CRJ200 aircraft operating under prorate agreements with our other major airline partners throughout 2020 and into 2021. We also may receive requests by our major airline partners to defer deliveries of new or used aircraft that were previously scheduled for 2020, 2021 and 2022. The duration and severity of the COVID-19 pandemic remain uncertain, and there can be no assurance that these actions will suffice to sustain our business and operations through this pandemic.

During the third quarter of 2020, the COVID-19 pandemic had a negative impact on our revenues. The number of aircraft operating under our prorate agreements decreased from 68 aircraft as of September 30, 2019 to 47 aircraft as of September 30, 2020, or 30.9%. Additionally, our prorate revenue decreased from $145.8 million for the three months ended September 30, 2019 to $60.8 million for the three months ended September 30, 2020, or 58.3%. The negative impact to our revenues as a result of the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue into the fourth quarter of 2020 and into 2021. Additionally, the majority of our code-share agreements set forth minimum levels of flight operations which our major airline partners are required to schedule for our operations and we are required to provide. These minimum flight operating levels are intended to provide a baseline level of expected utilization of aircraft, labor, maintenance facilities and related flight operations support. Historically, our major airline partners have utilized our flight operations at levels which exceed the minimum levels set forth in our code-share agreements; however, the COVID-19 pandemic has caused multiple of our major airline partners to reduce our utilization below the minimum levels. Given the significant impact COVID-19 has had on the airline industry, including our major airline partners, we have waived enforcing such minimum utilization contract provisions during the three months ended September 30, 2020. We may continue to waive the minimum utilization contract provisions prospectively. We may not be able to maintain operating efficiencies previously obtained, which would negatively impact our operating results and financial condition.

On April 23, 2020, SkyWest Airlines entered into a Payroll Support Program Agreement with Treasury with respect to the payroll support program under the CARES Act and received $450.7 million through September 30, 2020. Of the $450.7 million, $345.5 million was a direct grant and $105.2 million was in the form of a ten-year, low interest unsecured term loan. The payroll support program includes certain restrictions, including requirements to maintain certain levels of scheduled service, restrictions on the payment of dividends and the repurchase of our common stock through September 30, 2021, and certain limitations on executive compensation. The substance and duration of these restrictions will materially affect our operations, and we may not be successful in managing these impacts.

We may also take additional actions to improve our financial position, including measures to improve liquidity, such as drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities, and/or the entry into other debt facilities. There can be no assurance as to the timing of any such drawdown or issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all. Any such actions could be conducted in the near term, may be material in nature and could result in significant additional borrowing. Measures to improve liquidity or other strategic actions that we may take in the future in response to COVID-19 may not be effective in offsetting decreased demand, and we will not be permitted to take certain strategic actions as a result of the CARES Act, which could result in a material adverse effect on our business, operating results and financial condition.

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The full extent of the ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control, including the effectiveness of the mitigation strategies discussed above, the duration and spread of COVID-19 and related travel advisories and restrictions, the impact of COVID-19 on overall long-term demand for air travel, the impact of COVID-19 on our financial health and operations and that of our major airline partners, and future governmental actions, all of which are highly uncertain and cannot be predicted. The COVID-19 pandemic has had a material impact, and the continuation of reduced demand could have a material adverse effect, on our business, operating results, financial condition and liquidity. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

In addition, a further outbreak of COVID-19, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on our business, financial condition and operating results and those of our major airline partners. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.

~~We have a significant amount of contractual long-term debt obligations.~~

As of September 30, 2020, we had a total of approximately $3.1 billion in total long-term debt obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of aircraft and engines. We also have significant long-term lease obligations primarily relating to our aircraft fleet. As of September 30, 2020, we had 107 aircraft under operating leases with remaining terms ranging from less than one year to ten years. Future minimum lease payments due under all long-term operating leases were approximately $380.9 million at September 30, 2020. At a 6.1% discount factor, which is the average rate used to approximate the implicit rates within the applicable leases, the present value of these lease obligations was equal to approximately $305.1 million at September 30, 2020. Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

Under our capacity purchase agreements, our major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract. In the event any of our major airline partners defaults under a capacity purchase agreement or we are unable to extend the flying contract terms on aircraft with ongoing financial obligations, our financial position and financial results could be materially adversely affected.

In addition, in response to the travel restrictions, decreased demand and other effects the COVID-19 pandemic has had and is expected to have on our business, we may seek material amounts of additional financial liquidity in the short-term, which may include drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities and/or the entry into other debt facilities, among other items. There can be no assurance as to the timing of any such drawdown or issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all. In addition, we have received financial assistance that is available to the airline industry under the CARES Act, which financial assistance subjects us and our business to certain restrictions, including, but not limited to, requirements to maintain certain levels of scheduled service, restrictions on the payment of dividends and the repurchase of our common stock through September 30, 2021, and certain limitations on executive compensation.

Although the Company's cash flows from operations and its available capital have been sufficient to meet its obligations and commitments to date, the Company's liquidity has been, and may in the future be, negatively affected by the risk factors discussed in our Form 10-K for the year ended December 31, 2019, as updated by this Quarterly Report, including risks related to future results arising from the COVID-19 pandemic. If our liquidity is materially diminished, we might not be able to timely pay our leases and debts or comply with certain covenants under SkyWest Airlines’ line of credit or with other material provisions of our contractual obligations.

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ITEM 6. EXHIBITS


~~4.1~~		~~Warrant Agreement, dated as of September 29, 2020, by and between SkyWest, Inc. and the United States Department of the Treasury.~~
~~4.2~~		~~Form of Warrant (incorporated by reference to Annex B of Exhibit 4.1).~~
10.1*		~~Loan and Guarantee Agreement, dated of September 29, 2020, by and among SkyWest Airlines, Inc., the United States Department of the Treasury and the Bank of New York Mellon.~~
10.2*		~~Restatement Agreement to the Loan and Guarantee Agreement, dated of October 28, 2020, by and among SkyWest Airlines, Inc., the United States Department of the Treasury and the Bank of New York Mellon.~~
31.1		Certification of Chief Executive Officer
31.2		Certification of Chief Financial Officer
32.1		Certification of Chief Executive Officer
32.2		Certification of Chief Financial Officer
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Pursuant to Item 601(a)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted. Such exhibits and schedules are described in the referenced agreement. The Company hereby agrees to furnish to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, to be signed on its behalf by the undersigned, thereunto duly authorized, on November ~~5, 2020.~~4, 2021.


	SKYWEST, INC.

	By	/s/ Robert J. Simmons
		Robert J. Simmons
		Chief Financial Officer

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October 2020 through December 2020	$	6,170
2021		24,780
2022		24,596
2023		21,643
2024		21,336
Thereafter		70,938
	$	169,463


	Allowance for
	Credit Losses
Balance at January 1, 2020	$	15,388
Additions to credit loss reserve		24,260
Write-offs charged against the allowance		—
Balance at September 30, 2020	$	39,648


	Total		Oct - Dec 2020		2021		2022		2023		2024		Thereafter
Operating lease payments for aircraft and facility obligations	$	380,873	$	22,393	$	85,599	$	76,923	$	69,419	$	28,091	$	98,448
Firm aircraft and spare engine commitments		655,906		114,223		139,003		402,680		—		—		—
Interest commitments (1)		541,062		28,777		114,652		99,811		82,790		67,376		147,656
Principal maturities on long-term debt		3,101,657		69,405		387,309		388,152		397,913		351,431		1,507,447
Total commitments and obligations	$	4,679,498	$	234,798	$	726,563	$	967,566	$	550,122	$	446,898	$	1,753,551


Aircraft in Service	September 30, 2020	December 31, 2019	September 30, 2019
CRJ200s	134	190	190
CRJ700s	86	94	99
CRJ900s	39	43	43
E175s	189	156	151
Total	448	483	483

American ~~Agreements~~Capacity Purchase Agreement

Agreement

Aircraft type

Number of
Aircraft

Term / Termination
Dates

American Agreement
(capacity purchase agreement)

•
E175
•
CRJ ~~700~~900

•
Individual aircraft have scheduled removal dates from ~~2022~~2024 to ~~2025~~2032

Total under American Agreements