SKYW US Equity☆

ITEM 7. 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 our results of operations during the years ended December 31, 2020, 2019 and 2018. Also discussed is our financial position as of December 31, 2020 and 2019. You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Report or incorporated herein by reference. This discussion and analysis contains forward-looking statements. Please refer to the sections of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Item 1A. Risk Factors” for discussion of some of the uncertainties, risks and assumptions associated with these statements.

This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Overview

We have the largest regional airline operation in the United States. As of December 31, 2020, we offered scheduled passenger and air freight service with approximately 1,770 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. The number of flights we operated during 2020 was negatively impacted by the COVID-19 pandemic. See Competition and Economic Conditions section for additional information regarding the COVID-19 impact on our operations on page 5. As of December 31, 2020, we had 601 total aircraft in our fleet, including 452 aircraft in scheduled service under our code-share agreements, summarized as follows:

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American — ​ 65 ​ — ​ — ​ 65 ​

Alaska — ​ — ​ — ​ 32 ​ 32 ​

Leased to third parties 2 ​ 34 ​ 5 ​ — ​ 41 ​

*As of December 31, 2020, these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft, are available for future code-share agreements or are in the process of being parted out.

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Our business model is based on providing scheduled regional airline service under code-share agreements (commercial 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 centered on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics. The COVID-19 pandemic had a significant impact to our operations including a reduction in the number of flights we were scheduled to operate during 2020 and changes we made to enhance the safety of our passengers and employees, including aircraft cleaning procedures and use of personal protective equipment.

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During the 2020 calendar year, we made several changes to our fleet count under our flying agreements, including the addition of 37 new E175 aircraft, and the removal of four CRJ900 aircraft, four CRJ700 aircraft and 60 CRJ200 aircraft. Additionally, during the 2020 calendar year, we increased the number of CRJ700 aircraft we leased to third parties from 10 aircraft to 34 aircraft. Leases on two CRJ200 aircraft with third parties terminated during 2020.

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We anticipate our fleet will continue to evolve, as we are scheduled to add 20 new E175 aircraft with American, 25 used CRJ700 aircraft with American and one new CRJ900 aircraft with Delta by the end of 2022. 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 pandemic’s impact on demand. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require more maintenance cost.

For the year ended December 31, 2020, approximately 47.1% of our aircraft in scheduled service were operated for United, approximately 31.4% were operated for Delta, approximately 14.4% were operated for American and approximately 7.1% 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 capacity purchase arrangements and our prorate flying arrangements. For the year ended December 31, 2020, contract flying revenue and prorate revenue represented approximately 87.0% and 13.0%, 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, we share passenger fares with our major airline partners according to prorate formulas and we are responsible for the operating costs of the prorate flights, including fuel and airport costs.

Our financial and operating results for the years ended December 31, 2018 and 2019 contained in this Report, include the financial results and position of ExpressJet through January 22, 2019 for those respective periods.

Financial Highlights

We had total operating revenues of $2.1 billion for the year ended December 31, 2020, a 28.4% decrease compared to total operating revenues of $3.0 billion for the year ended December 31, 2019. We had a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020, compared to net income of $340.1 million, or $6.62 per diluted share, for the year ended December 31, 2019. The significant items affecting our revenue and operating expenses during the year ended December 31, 2020 are outlined below:

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Revenue

The number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements. As a result of lower passenger demand from the COVID-19 pandemic, the number of aircraft we operated decreased from 483 as of December 31, 2019 to 452 as of December 31, 2020; the number of block hours decreased from 1.5 million in 2019 to 1.0 in 2020, or by 33.5%; and the number of passengers we carried decreased from 43.7 million in 2019 to 21.3 in 2020, or by 51.3%.

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As a result of reduced flight schedules and fewer aircraft operating under our capacity purchase agreements in 2020 compared to 2019, our capacity purchase revenue decreased $576.4 million, or 24.3% in 2020. Additionally, we deferred recognizing revenue on $110.7 million of fixed monthly payments received under our capacity purchase agreements during 2020 as a result of significant reductions to our flight schedules as further described in the section of this Report entitled “Results of Operations.” Also, as a result of a reduction in the number of aircraft operating under our prorate agreements and fewer passengers carried on our prorate routes, our prorate revenue decreased by $252.1 million, or 48.4% in 2020. The negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue in 2021 and may continue into subsequent periods.

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Operating Expenses

Our total operating expenses decreased $441.4 million, or 17.9% for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily due to a significant reduction in the number of flights we operated as a result of the COVID-19 pandemic. Departures decreased from 842,098 in 2019 to 585,257 in 2020, or by 30.5%. Additionally, during 2020 we recorded $345.5 million in payroll support grants received from Treasury under the CARES Act as an offset to our operating expenses. Additional details regarding the decrease in our operating expenses are described in the section of this Report entitled “Results of Operations.”

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Fleet Activity

The following table summarizes our fleet activity for 2020:

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During 2020, we took delivery of 37 new E175 aircraft and placed the aircraft into service under capacity purchase agreements. We removed four CRJ900 aircraft from service, four (net) CRJ700 aircraft from service and 60 (net) CRJ200 aircraft from service. We are evaluating alternative uses for the four CRJ900 aircraft removed from service and we anticipate placing the four (net) CRJ700 aircraft into service with American in 2021. We returned 19 CRJ200s to the lessor and we anticipate storing the remaining 41 CRJ200s removed from service. We own the 41 CRJ200 aircraft removed from service and the aircraft are fully depreciated with no outstanding financial obligations.

Results of Operations

2020 Compared to 2019

Operational Statistics. The following table sets forth our major operational statistics and the associated percentages of change for the periods identified below. The decrease in block hours, departures and passengers carried during the year ended December 31, 2020, compared to the year ended December 31, 2019, was due to the decrease in demand related to the COVID-19 pandemic.

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​ ​ For the year ended December 31,

Block hours by aircraft type: 2020 2019 % Change

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Passenger load factor 56.4 % 82.3 % (25.9) pts

Average passenger trip length (miles) 500 ​ 500 ​ NC ​

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NC = No Change

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Operating Revenues

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

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​ ​ For the year ended December 31,

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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.

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We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):

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​ ​ For the year ended December 31, ​

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The decrease in “Capacity purchase agreements revenue: flight operations” of $593.1 million was due to a reduction in flights we were scheduled to operate by our major airline partners in 2020 as a result of decreased passenger demand in response to the COVID-19 pandemic. Our completed departures decreased 30.5% and completed block hours decreased 33.5% during 2020 compared to 2019.

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The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $16.7 million was due to the incremental lease revenue generated from six new E175 aircraft that we acquired through debt added to capacity purchase agreements and increases to the fixed monthly rates made to certain existing capacity purchase agreements that were extended since December 31, 2019. For clarity, we added a total of 37 new E175 to our capacity purchase agreements during 2020, however our major airline partners acquired 31 of these E175s and we have no aircraft ownership lease revenue associated with these 31 E175s.

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The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” in 2020 compared to 2019 was partially offset by deferred revenue we recorded in 2020 attributed to the fixed cash payments per aircraft we received under our capacity purchase agreements compared to 2019. 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 as revenue proportionately to the number of flights we complete, our performance obligation, for each reporting period. We operated a materially lower number of flights during 2020 from previous levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. We also anticipate the future number of flights we will complete over the remaining capacity purchase agreements will significantly increase from 2020 levels. Due to the materially reduced flight activity during 2020 from historical levels and based on anticipated increases in future monthly flight volumes over the remaining contract terms, we determined the fixed monthly cash payments per aircraft we received during 2020 was disproportionately high relative to the number of flights we operated during 2020. Accordingly, we deferred recognizing revenue of $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements during 2020. Our deferred revenue 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.

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The decrease in prorate agreements revenue of $252.1 million was due to the impact of COVID-19 and the corresponding decrease in passengers and passenger revenue we received on routes we operated under our prorate agreements during 2020 compared to 2019.

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The decrease in lease, airport services and other revenues of $16.4 million was primarily due to the decrease in the number of flights operated at locations where we were contracted to provide airport customer service during 2020 compared to 2019.

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Operating Expenses

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Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands).

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​ ​ For the year ended December 31, ​

​ Amount Amount Amount Percent

CARES Act payroll support grant ​ (345,491) ​ — ​ (345,491) NM ​ ​

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NM = Not Measurable

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Salaries, wages and benefits. The $175.6 million, or 17.5%, decrease in salaries, wages and benefits was due to a reduction in direct labor costs that resulted from a significantly lower number of flights we operated during 2020 in response to the COVID-19 pandemic and reductions in overhead and other labor costs. In response to the COVID-19 pandemic, we initiated various cost saving measures, including a reduction in various administrative and support positions, temporarily placed a freeze on hiring new employees, temporarily suspended all non-scale pay increases and offered voluntary unpaid leave to our employees.

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Aircraft maintenance, materials and repairs. The $104.7 million, or 20.4%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ200 and CRJ700 fleet intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2020 compared to 2019.

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Depreciation and amortization.The $106.9 million, or 29.0%, increase in depreciation and amortization expense was primarily due to a shortened estimated useful life of our owned CRJ200 fleet that resulted in approximately $74.5 million of incremental depreciation expense during 2020. During 2020, we removed 55 CRJ200 aircraft from a capacity purchase agreement with Delta, of which we returned 19 leased aircraft to the lessor and we own 36 aircraft. We also removed seven CRJ200 aircraft that we own from a prorate agreement with American. Prior to the COVID-19 pandemic, we were anticipating the agreement terms for these aircraft would have been extended beyond 2020. As we were unable to extend the flying contracts on these CRJ200s with our major airline partners and given the age of these aircraft, we shortened the estimated useful life on these aircraft to coincide with the agreement termination dates. Our depreciation also increased due to the acquisition of six new E175 aircraft and spare engines since December 31, 2019.

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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. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The $25.0 million, or 21.0%, decrease in airport-related expenses was primarily due to a decrease in airport service activities as a result of COVID-19 related flight schedule reductions.

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Aircraft rentals.The $6.7 million, or 9.3%, 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 December 31, 2019.

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Aircraft fuel.The $57.4 million, or 48.2%, decrease in fuel cost was primarily due to a decrease in the number of flights we operated under our prorate agreements and corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $2.51 in 2019 to $1.89 in 2020. 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 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:

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​ ​ For the year ended December 31,

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CARES Act payroll support grant.In April 2020, we entered into an agreement with Treasury and received $450.7 million in emergency relief through the CARES Act payroll support program through 2020, of which $345.5 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants are intended to compensate. We recognized $345.5 million in payroll support grant proceeds we received as a reduction to our operating expenses in 2020. We did not have a comparable payroll support grant in 2019.

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Special Items. The $21.9 million special items expense for 2019 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. 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 incur comparable special items expense in 2020.

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Other operating expenses.Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel costs and credit loss reserves. The $20.9 million, or 8.6%, decrease in other operating expenses was primarily related to a reduction in other operating costs that correspond to the significantly lower number of flights we operated during 2020 compared to 2019, such as crew per diem, crew hotel costs and simulator costs. These reductions were partially offset by an increase to our credit loss reserves of $30.8 million we recorded in 2020 following our adoption of the Financial Accounting Standards Board (“FASB”) “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020. The increase to our credit loss reserves in 2020 was primarily due to a reserve we recorded on a note receivable that originated from our sale of ExpressJet in 2019 that became uncertain during 2020 due to ExpressJet ceasing operations in 2020. Our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have outstanding accounts receivable or notes receivable.

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Interest Expense.The $4.6 million, or 3.6%, decrease in interest expense related to an overall lower effective interest rate on our outstanding debt from 2019 to 2020. Our average debt balance, for the 2019 calendar year and the 2020 calendar year was $3.1 billion for both periods (using the average of the beginning and ending balances of each year).

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Total airline expenses. Our total airline expenses, comprising of our total operating expenses and interest expense, decreased $446.0 million, or 17.2%, due to reduction in direct operating costs attributed to the reduced number of completed flights in 2020 compared to 2019 and due to the CARES Act payroll grant benefit we recorded in 2020. 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.

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

Interest income. Interest income decreased $8.3 million, or 58.4%, during 2020, compared to 2019. The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities from 2019 to 2020.

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Other income (expense), net. During 2020, we had other income, net of $1.2 million primarily related to income earned from our investment in a joint venture with a third party. During 2019, we had other income, net of $47.7 million primarily related to the gain on sale of ExpressJet.

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Summary of provision for income taxes:

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Provision for income taxes. For the years ended December 31, 2020 and December 31, 2019, our income tax provision rates were 16.2% and 23.8%, 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. For the year ended December 31, 2020, the lower effective tax rate was primarily due to pre-tax loss of $7.3 million and non-deductible expenses which resulted in a $1.2 million provision for income taxes. Our income tax provision rate may fluctuate each reporting period based on various factors including but not limited to, the amount of our non-deductible operating expenses, such as a portion of or crew per diem expenses, relative to our income before income taxes.

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Net Income. Primarily due to the factors described above, we generated net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020, compared to a net income of $340.1 million, or $6.62 per diluted share, for the year ended December 31, 2019.

Our Business Segments 2020 compared to 2019:

Prior to our sale of ExpressJet on January 22, 2019, our reporting segments consisted of the operations of SkyWest Airlines and ExpressJet, and the activities of SkyWest Leasing. We concluded the sale of ExpressJet did not meet the criteria for a discontinued operation. Following the sale of ExpressJet, our reporting segments include SkyWest Airlines and SkyWest Leasing.

Our chief operating decision maker analyzes the profitability of operating aircraft under our code-share agreements separately from the profitability of our financing new aircraft acquired through debt and cash placed under our capacity purchase agreements, currently consisting of our E175 fleet, and our return on such aircraft financing. More specifically, the SkyWest Leasing segment includes an allocation of revenue from our capacity purchase agreements attributed to our financing of new aircraft through debt and cash covered under such agreements (aircraft lease revenue), and the respective depreciation and interest expense of such financed aircraft. The SkyWest Leasing segment also includes the activity of acquiring and leasing used regional jet aircraft and regional aircraft engines to other entities. The SkyWest Leasing segment’s total assets and capital expenditures include new E175 aircraft acquired through the issuance of debt and our aircraft and engines leased to other entities.

The SkyWest Airlines segment includes all other revenue and operating expenses attributed to operating aircraft under our capacity purchase agreements and all revenue and operating expenses attributed to our prorate agreements and airport service agreements.

Corporate overhead expenses, primarily consisting of administrative labor costs, were allocated to the operating expenses of SkyWest Airlines, ExpressJet (prior to our sale of ExpressJet) and SkyWest Leasing. Overhead expenses allocated to SkyWest Leasing reflect our estimated labor expense incurred to support SkyWest Leasing activities.

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The following table sets forth our segment data for the years ended December 31, 2020 and 2019 (in thousands):

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​ ​ For the year ended December 31, ​

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​ ​ Amount ​ Amount ​ Amount ​ Percent

Operating Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Airline Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Segment profit (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

SkyWest Airlines Segment Profit. SkyWest Airlines segment profit decreased $343.0 million, or 136.9%, during 2020, compared to 2019.

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SkyWest Airlines block hour production decreased to 973,338, or 33.5%, for 2020 from 1,464,405 for 2019, primarily due to reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit are set forth below.

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SkyWest Airlines operating revenues decreased $841.9 million, or 34.0%, from 2019 to 2020 due to reduced flight schedules under our capacity purchase agreements, lower passenger demand and under our prorate agreements, and fewer flights we handled under our airport service agreements, collectively as a result of the COVID-19 pandemic. SkyWest Airlines capacity purchase agreement revenue decreased $570.1 million from 2019 to 2020 due to the reduction in flight scheduled and block hours, which included deferred revenue of $110.7 million of payments received under our capacity purchase agreements during 2020. SkyWest Airlines prorate and other revenue decreased $271.8 million from 2019 to 2020 due to decreased passenger demand and reduced flight schedules.

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SkyWest Airlines airline expense decreased $499.0 million, or 22.4%, from 2019 to 2020 due to the following primary factors:

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SkyWest Leasing Segment Profit. SkyWest Leasing profit decreased $60.6 million, or 43.7%, during 2020, compared to 2019, primarily related to credit loss reserves we recorded on a note receivable that originated from our sale of ExpressJet in 2019 that became uncertain during 2020 due to ExpressJet ceasing operations in 2020. Our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have an outstanding accounts receivable or notes receivable. The reduction in the SkyWest Leasing segment was also due to additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines. These reductions were partially offset by an additional six new E175 aircraft added to our fleet subsequent to December 31, 2019.

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Liquidity and Capital Resources

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As of December 31, 2020, we had $825.9 million in cash and cash equivalents and marketable securities. As of December 31, 2020, we had $665.0 million available for borrowings under the Treasury Loan Agreement and $39.5 million available for borrowings under our line of credit. We have until May 28, 2021 to draw additional borrowings under the Treasury Loan Agreement. If we do not increase our borrowings under the Treasury Loan Agreement before May 28, 2021, our pledged collateral under the $725 million facility will be significantly reduced and any excess pledged collateral will be released and available to use for new debt, if needed. Given our available liquidity as of December 31, 2020 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 (including funds from government assistance provided or may be provided pursuant to the CARES Act and the 2021 Appropriations Act) 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 of cash and marketable securities increased from $520.2 million as December 31, 2019 to $825.9 million as of December 31, 2020, or by $305.7 million. Our total long-term debt, including current maturities increased from $2,993.1 million as of December 31, 2019 to $3,203.7 million as of December 31, 2020, or by $210.6 million. Thus, our total long-term debt, net of cash and marketable securities, decreased from $2,472.9 million as of December 31, 2019 to $2,377.8 million as of December 31, 2020, or $95.2 million. At December 31, 2020, our total capital mix was 43.3% equity and 56.7% long-term debt, compared to 45.3% equity and 54.7% long-term debt at December 31, 2019.

As of December 31, 2020 and 2019, we had $61.1 million and $61.7 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of December 31, 2020 and 2019.

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Sources and Uses of Cash

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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 years ended December 31, 2020 and 2019, and our total cash and marketable securities position as of December 31, 2020 and December 31, 2019 (in thousands). See “Liquidity and Capital Resources” in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of our sources and used of cash in 2019 compared to 2018.

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​ ​ For the year ended December 31, ​

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​ December 31, December 31, ​ ​ ​

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Cash Flows provided by Operating Activities

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Our cash flows provided by operating activities was $633.6 million in 2020, compared to $721.0 million in 2019. 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 and accrued liabilities.

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The decrease in our cash flow from operations in 2020 compared to 2019 was primarily due to a reduction in our net income of $348.6 million, the difference between net income of $340.1 million in 2019 and a net loss of $8.5 million in 2020, partially offset by an increase in non-cash depreciation expense of $106.9 million in 2020 from 2019, a decrease in deferred income taxes of $103.6 million in 2020 from 2019, and due to timing cash payments and cash receipts related to our current assets and liabilities in 2020 compared to 2019.

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Cash Flows used in Investing Activities

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Our cash flows used in investing activities was $683.5 million in 2020, compared to $657.0 million in 2019. Our investing cash flows are typically impacted by various factors including our capital expenditures, including the acquisition aircraft and spare engines; deposit payments and receipts 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.

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The increase in our cash flow used in investing activities in 2020 compared to 2019 was primarily due to an increase cash used for purchases of marketable securities, net of sales of marketable securities, of $105.2 million in 2020 from $72.0 million in 2019 and an increase in our long-term assets resulting from an increase in long-term receivables from our major airline partners under our capacity purchase agreements. We amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a six-month period during 2020. Concurrently, we suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements during the same period. We anticipate collecting these payments from our major airline partners over the remaining contract terms, which was the primary factor in the increase in our long-term other assets of $94.3 million from December 31, 2019 to December 31, 2020.

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The increase in our cash flows used in investing activities was significantly offset by reduction in capital expenditures of $223.6 million in 2020 from $661.9 million in 2019. During 2020, we acquired six new E175 aircraft

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and 22 used CRJ aircraft compared to ten new E175 aircraft and 85 used CRJ aircraft in 2019, including 56 used CRJ aircraft purchased under an early lease buyout in 2019.

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Cash Flows provided by (used in) Financing Activities

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Our cash flows provided by financing activities was $178.4 million in 2020, compared to cash used for financing activities of $305.2 million in 2019. Our investing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases our common stock and payment of cash dividends.

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The $483.6 million increase in cash provided by financing activities included the additional proceeds from the issuance of long-term debt to Treasury of $105.2 million under the Payroll Support Program Agreement and $60.0 under the Treasury Loan Agreement during 2020. Additionally, we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a six-month period during 2020, which was the primary factor to our reduction in principal payments on long-term debt of $195.0 million from 2019 to 2020. See Significant Commitments and Obligations for our summary of principal maturities on our long-term debt for the next five years. We also reduced our cash used to repurchase shares of our common stock, treasury stock and payment of dividends by $16.1 million, $52.3 million, and $10.4 million, respectively, due to restrictions under the Payroll Support Program Agreement and the Treasury Loan Agreement that began in April 2020.

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Significant Commitments and Obligations

General

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

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Purchase Commitments and Options

We are coordinating with our major airline partners and aircraft manufacturers on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future aircraft delivery dates are subject to change. As of December 31, 2020, we had a firm purchase commitment for 20 E175 aircraft from Embraer with scheduled delivery dates anticipated through 2022.

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At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select 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 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 purchase commitment for 20 E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

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Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations, primarily relating to our aircraft fleet. Excluding aircraft financed by our major partners that we operate for them under contract, we had 41 aircraft under lease with remaining terms ranging from less than one to ten years as of December 31, 2020. Future minimum lease payments due under all long-term operating leases were approximately $359.7 million at December 31, 2020. Assuming a 6.1% discount rate, which is the average incremental borrowing rate we anticipate we would have incurred on debt obtained over a similar term to acquire these assets, the present value of these lease obligations would have been equal to approximately $288.6 million at December 31, 2020.

Long-term Debt Obligations

As of December 31, 2020, we had $3.07 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 December 31, 2020. We also had $165.2 million of long-term debt obligations under the Payroll Support Program Agreement and the Treasury Loan Agreement.

Under our capacity purchase arrangements, 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.

Guarantees

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

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our Consolidated Financial Statements included in Item 8 of this Report. 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 as discussed below. 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 could differ materially, from such estimates.

Revenue Recognition

Flying agreements and airport customer service and other revenues are recognized when service is provided. Under our capacity purchase and prorate flying agreements with our major airline partners, our performance obligation is determined on a per completed flight basis. Under our capacity purchase agreements, the performance obligation of each completed flight is measured using block hours incurred for each completed flight, which factors the duration of each flight. Under our airport customer service agreements, our performance obligation is measured on per departure basis for each flight we provide customer service.

A portion of our compensation under our capacity purchase agreements is designed to reimburse us for the use of the aircraft we provide under such agreements. This compensation is deemed to be lease revenue, inasmuch as the agreements identify the “right of use” or a specific type and number of aircraft over the agreement term. The amount of compensation deemed to be lease revenue is determined from the agreed upon rates for the use of the aircraft included in each capacity purchase agreement, which we believe approximates fair value for the aircraft leases.

Additionally, under our capacity purchase agreements, we typically receive a fixed monthly payment for each aircraft under contract over the agreement term (“Fixed Monthly Payments”). We recognize revenue attributed to the Fixed Monthly Payments proportionate to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. Due to the material decrease in completed block hours in 2020 from historical levels and from anticipated future levels over the remaining contract terms, we determined the amount of Fixed Monthly Payments we received in 2020 was disproportionately high

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relative to the number of block hours we completed during 2020. As of December 31, 2020, we deferred recognizing revenue of $110.7 million in Fixed Monthly Payments we received during the 2020 calendar year. We deferred recognizing revenue of $69.1 million during the second quarter of 2020 when we generated 126,026 block hours, $29.6 million during the third quarter of 2020 when we generated 222,561 block hours and $12.0 million during the fourth quarter of 2020 when we generated 267,528 block hours. The amount of deferred revenue from Fixed Monthly Payments we recognize will increase or decrease in future reporting periods depending on the number of block hours we complete during such reporting period and our then-current forecast of block hours we anticipate completing over the remaining contract term based on information available to us as that time. We anticipate we will continue to defer recognizing revenue into 2021 and may begin recognizing previously deferred amounts as revenue by late 2021 or in 2022, depending upon future block hour production and flight schedules.

Our revenues could be impacted by a number of factors, such as our flight schedules, passenger fares we receive under our prorate agreements, terminations, extensions or other amendments to our code-share agreements, our estimates used to determine the amount of revenue we defer under our capacity purchase agreements, and our ability to earn incentive payments contemplated under applicable agreements. In the event contracted rates are not finalized at a quarterly or annual financial statement date, we record that period’s revenues based on the lower of the prior period’s approved rates or our estimate of rates that will be implemented upon completion of negotiations. Also, in the event we have a reimbursement dispute with a major airline partner at a quarterly or annual financial statement date, we evaluate the dispute under established revenue recognition criteria and, provided the revenue recognition criteria have been met, we recognize revenue for that period based on our estimate of the resolution of the dispute. Our rates were finalized under our code-share agreements as of December 31, 2020.

Aircraft Leases

As of December 31, 2020, our fleet of aircraft in scheduled service included 41 aircraft under lease, excluding 58 aircraft financed by our major partners that we operate for them under contract. In order to determine the proper classification of our leased aircraft, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine the lease classification. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Under the majority of our operating leases, we are required to meet certain lease return conditions with the aircraft, which presumes a certain percent of the eligible flight time for certain components since the last overhaul remains when the aircraft is returned to the lessor. A liability for probable lease return costs is recorded after the aircraft has completed its last maintenance cycle prior to being returned. Several factors can impact the estimated liability for lease return costs including, but not limited to, timing of scheduled maintenance events and anticipated condition of the aircraft at the end of the lease term. We believe it is unlikely that materially different estimates for lease return obligations would be made or reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time estimates were made.

​

Long-Lived Assets

​

As of December 31, 2020, we had approximately $5.4 billion of property and equipment and related assets net of accumulated depreciation. In accounting for these long-lived, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. When considering whether or not impairment of long-lived assets exists, we group similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the fleet type or contract level. Factors that may impact our estimates used for depreciation include anticipated useful lives of each aircraft type and estimated residual values of each aircraft. As we operate all of our aircraft under code-share agreements with our major airline partners, changes in anticipated demand by our major airline partners for regional aircraft may impact our estimated useful lives and residual values for our aircraft, spare engines and other long-lived

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assets. At December 31, 2020, we had 108 aircraft that were not in scheduled service with our partners, including 74 CRJ200s, 30 CRJ700s, and 4 CRJ900s. The CRJ200 aircraft that were removed from the Delta and American agreements were fully depreciated as of December 31, 2020. The remaining aircraft are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft or are available for future code-share agreements.

​

Self-Insurance

​

We use a combination of insurance and self-insurance mechanisms to provide for the potential liability of certain risks, including workers’ compensation, healthcare benefits, general liability, product liability, property insurance and directors’ and officers’ liability insurance. Liabilities associated with risks retained by us are not discounted and are estimated by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.

​

Our workers’ compensation liability includes estimated outstanding losses of unpaid claims and allocated loss adjustment expenses (“ALAE”), which includes case reserves, the development of known claims and incurred but not reported claims. ALAE are the direct expenses for settling specific claims. The amounts reflect per occurrence and annual aggregate limits maintained by us. The estimated liability analysis does not include estimating a provision for unallocated loss adjustment expenses. We believe that the liability recorded at December 31, 2020 is adequate to cover all workers' compensation claims incurred through December 31, 2020. If the actual costs of such claims and related expenses exceed the amount estimated, additional reserves may be required which could have a material negative effect on our operating results. Holding other factors constant, a 10 percent increase in our estimated workers compensation liability as of December 31, 2020, would have resulted in additional expense of approximately $2.1 million for the year ended December 31, 2020.

​

The liability related to our self-insured group medical insurance plans includes an estimate for claims incurred but not paid. This estimate is created using general actuarial principles and our historical claims experience. The cost of general liability, product liability and commercial auto liability is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and historical claims experience.

​

Income Tax

​

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Estimating our tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. We make certain estimates and judgments to determine tax expense for financial statement purposes as we evaluate the effect of tax credits, tax benefits and deductions, some of which result from differences in the timing of recognition of revenue or expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to our tax provision in future periods. Each fiscal quarter we re-evaluate our tax provision and reconsider our estimates and assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

​

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Report for a description of recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

In the past, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, Delta, United, American and Alaska have 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 each of the

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years ended December 31, 2020, 2019 and 2018, approximately 13%, 18% and 16% of our total flying agreements revenue was derived from prorate arrangements. For the years ended December 31, 2020, 2019 and 2018, the average price per gallon of aircraft fuel was $1.89, $2.51 and $2.60, respectively. For illustrative purposes only, we have estimated the impact of the market risk of fuel 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 $15.4 million, $29.8 million and $29.4 million in fuel expense for the years ended December 31, 2020, 2019 and 2018, respectively.

Interest Rates

As of December 31, 2020, 97.7% of our total long-term debt had fixed interest rates. We currently intend to finance the acquisition of 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 capacity purchase agreements with Delta, United, American, Alaska or other carriers, our 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information set forth below should be read together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere herein.

​

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of SkyWest, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SkyWest, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made

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by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

​​​ ​​​​

Valuation of fixed overhead deferred revenue

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2003.

Salt Lake City, Utah

February 22, 2021

​

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ December 31, December 31,

CURRENT ASSETS: ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​

PROPERTY AND EQUIPMENT: ​ ​ ​ ​ ​ ​ ​ ​

Less-accumulated depreciation and amortization ​ ​ (2,455,995) ​ (1,998,376) ​

​ ​ ​ ​ ​ ​ ​ ​ ​

OTHER ASSETS ​ ​ ​ ​ ​ ​ ​ ​

Operating lease right-of-use assets ​ ​ ​ 282,362 ​ ​ 336,009 ​

See accompanying notes to consolidated financial statements.

​

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

CURRENT LIABILITIES: ​ ​ ​ ​ ​ ​

Current maturities of operating lease liabilities ​ 82,641 ​ 94,806

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

COMMITMENTS AND CONTINGENCIES (Note 6) ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

STOCKHOLDERS’ EQUITY: ​ ​ ​ ​ ​ ​

Preferred stock, 5,000,000 shares authorized; none issued ​ — ​ —

See accompanying notes to consolidated financial statements.

​

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Year Ended December 31,

OPERATING REVENUES: ​ ​ ​ ​ ​ ​

OPERATING EXPENSES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CARES Act payroll support grant ​ ​ ​ (345,491) ​ ​ — ​ ​ — ​

Special items ​ ​ — ​ 21,869 ​ — ​

OTHER INCOME (EXPENSE): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

BASIC EARNINGS (LOSS) PER SHARE ​ ​ $ (0.17) ​ $ 6.68 ​ $ 5.40 ​

DILUTED EARNINGS (LOSS) PER SHARE ​ ​ $ (0.17) ​ $ 6.62 ​ $ 5.30 ​

Weighted average common shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

COMPREHENSIVE INCOME (LOSS): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

See accompanying notes to consolidated financial statements.

​

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​

​ ​ Common Stock ​ Retained ​ Treasury Stock ​ Comprehensive ​ ​ ​

​ ​ Shares ​ Amount ​ Earnings ​ Shares ​ Amount ​ Income (Loss) ​ Total

Stock based compensation expense — ​ 13,105 ​ — — ​ — ​ — ​ 13,105

Treasury stock purchases — ​ — ​ — (968) ​ (54,448) ​ — ​ (54,448)

Cash dividends declared ($0.40 per share) — ​ — ​ (20,744) — ​ — ​ — ​ (20,744)

Stock based compensation expense — ​ 5,770 ​ — — ​ — ​ — ​ 5,770

Common stock purchased and cancelled (268) ​ (16,145) ​ ​ — ​ — ​ — ​ (16,145)

Cash dividends declared ($0.48 per share) — ​ — ​ (24,364) — ​ — ​ — ​ (24,364)

Net income (loss) — ​ — ​ (8,515) — ​ — ​ — ​ (8,515)

Stock based compensation expense — ​ 6,802 ​ — — ​ — ​ — ​ 6,802

Treasury stock purchases — ​ — ​ — (386) ​ ​ (20,000) ​ — ​ (20,000)

Cash dividends declared ($0.14 per share) — ​ — ​ (7,019) — ​ — ​ — ​ (7,019)

​

See accompanying notes to consolidated financial statements.

​

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​

Write-off of maintenance assets ​ ​ 3,255 ​ ​ — ​ ​ — ​

Increase in credit loss reserves ​ ​ 17,087 ​ ​ — ​ ​ — ​

Loss on disposal of fixed assets ​ ​ 445 ​ ​ — ​ ​ — ​

Gain on sale of ExpressJet subsidiary ​ ​ — ​ ​ (46,525) ​ ​ — ​

Special items ​ — ​ 21,869 ​ — ​

Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Decrease (increase) in income tax receivable ​ 7,225 ​ 14,795 ​ (20,620) ​

Decrease in operating lease right-of-use assets ​ ​ 53,647 ​ ​ — ​ ​ — ​

Increase in operating lease liabilities ​ ​ (65,557) ​ ​ (895) ​ ​ — ​

Increase in deferred revenue ​ ​ 110,728 ​ ​ — ​ ​ — ​

Decrease in deferred aircraft credits ​ — ​ — ​ (14,243) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net cash received from sale of ExpressJet subsidiary ​ — ​ 53,200 ​ — ​

Acquisition of property and equipment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net proceeds from issuance of common stock ​ 2,819 ​ 6,271 ​ 5,212 ​

Purchase of common stock ​ ​ — ​ ​ (16,145) ​ ​ — ​

Payment of debt issuance cost ​ ​ (4,130) ​ ​ (1,642) ​ ​ (3,892) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

See accompanying notes to consolidated financial statements.

​

​

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​

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ 2020 ​ 2019 ​ ​ 2018

Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Engines contributed to joint venture ​ $ — ​ $ 22,313 ​ $ —

Warrants issued under CARES Act agreements ​ $ 8,248 ​ $ — ​ $ —

Cash paid during the period for: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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 consolidated financial statements.

​

​

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SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

​

(1) Nature of Operations and Summary of Significant Accounting Policies

SkyWest, Inc. (the “Company”), through its subsidiary, SkyWest Airlines, Inc. (“SkyWest Airlines”) operates the largest regional airline in the United States. On January 22, 2019, the Company completed the sale of its former wholly owned subsidiary, ExpressJet Airlines, Inc. (“ExpressJet”). As of December 31, 2020, SkyWest Airlines offered scheduled passenger service under code-share agreements with Delta Air Lines, Inc. (“Delta”), United Airlines, Inc. (“United”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) with approximately 1,770 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system. As of December 31, 2020, the Company had 601 total aircraft in its fleet, including 452 aircraft in scheduled service under its code-share agreements, summarized as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

American — ​ 65 ​ — ​ — ​ 65 ​

Alaska — ​ — ​ — ​ 32 ​ 32 ​

Leased to third parties 2 ​ 34 ​ 5 ​ — ​ 41 ​

*As of December 31, 2020, these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with the Company’s major airline partners and being used as a supplemental spare aircraft, or are in the process of being parted out.

For the year ended December 31, 2020, approximately 47.1% of the Company’s aircraft in scheduled service operated for United, approximately 31.4% was operated for Delta, approximately 14.4% was operated for American and approximately 7.1% was operated for Alaska.

SkyWest Airlines has been a code-share partner with Delta since 1987, United since 1997, Alaska since 2011 and American since 2012. As of December 31, 2020, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City, Detroit and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Dallas, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest.

SkyWest Airlines operates the following aircraft manufactured by Bombardier Aerospace (“Bombardier”): CRJ200s, CRJ700s and CRJ900s, and E175s manufactured by Embraer S.A. (“Embraer”). The CRJ200 is a single-class 50-seat aircraft. The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats.

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Basis of Presentation

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

In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2020, through the filing date of the Company’s annual report with the U.S. Securities and Exchange Commission.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no restricted cash as of December 31, 2020 and 2019.

Marketable Securities

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized appreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. At December 31, 2020 and 2019, the fair market value of the available-for-sale securities was the amortized cost. The Company’s position in marketable securities as of December 31, 2020 and 2019 was as follows (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Gross unrealized ​ Gross unrealized ​ ​ ​ ​

Total cash and cash equivalents ​ $ 215,723 ​ $ — ​ $ — ​ $ 215,723 ​

Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total marketable securities ​ $ 610,185 ​ $ — ​ $ — ​ $ 610,185 ​

Total assets measured at fair value ​ $ 825,908 ​ $ — ​ $ — ​ $ 825,908 ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Gross unrealized ​ ​ Gross unrealized ​ ​ ​ ​

Total cash and cash equivalents ​ $ 87,206 ​ $ — ​ $ — ​ $ 87,206 ​

Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total marketable securities ​ $ 432,966 ​ $ — ​ $ — ​ $ 432,966 ​

Total assets measured at fair value ​ $ 520,172 ​ $ — ​ $ — ​ $ 520,172 ​

​

As of December 31, 2020 and 2019, the Company had classified $610.2 million and $433.0 million of marketable securities, respectively, as short-term since it had the ability to redeem the securities within one year.

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Inventories

Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results, excess parts and management’s expectations of future operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types and salvage values. The inventory allowance as of December 31, 2020 and 2019 was $19.7 million and $15.9 million, respectively.

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

​

​ ​

Assets ​ Depreciable Life ​ Current Residual Value ​

Aircraft, rotable spares, and spare engines ​ up to 22 years up to 20 % ​

Ground equipment ​ up to 10 years 0 % ​

Office equipment ​ up to 7 years ​ 0 % ​

Leasehold improvements ​ Shorter of 15 years or lease term 0 % ​

Buildings ​ 20 - 39.5 years 0 % ​

Impairment of Long-Lived Assets

As of December 31, 2020, the Company had approximately $5.4 billion of property and equipment and related assets. In accounting for these long-lived and intangible assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, the Company evaluates whether impairment indicators are present. When considering whether or not impairment of long-lived assets exists, the Company groups similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the fleet or contract level.

The Company did not recognize any impairment charges of long-lived assets during the years ended December 31, 2020, 2019 and 2018.

Capitalized Interest

Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2020, 2019 and 2018, the Company capitalized interest costs of approximately $1.7 million, $1.6 million, and $1.5 million, respectively.

Maintenance

The Company operates under a U.S. Federal Aviation Administration approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls wherein the expense is recorded when the overhaul event occurs. The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft. Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract.

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The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred. During the year ended December 31, 2020, the Company wrote-off $3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes flying agreements revenue and airport customer service 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”, “fixed-fee arrangements,” or “fixed-fee contracts”) with Delta, United, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase arrangement, such as fuel, airport landing fees and airport rents. Under the capacity purchase arrangements, the Company’s performance obligation is met and revenue is recognized 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 year ended December 31, 2020, capacity purchase arrangements represented approximately 87.0% of the Company’s flying agreements revenue.

Under the Company’s prorate arrangements (referred to as a “prorate” or “revenue-sharing” arrangement), 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 year ended December 31, 2020, prorate flying arrangements represented approximately 13.0% of the Company’s flying agreements revenue.

Lease, airport services and other revenues primarily consist of ground handling functions, 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. Additionally, airport customer service and other revenues includes revenue generated from aircraft and spare engines leased to third parties. Of the Company’s $5.4 billion of property and equipment, net as of December 31, 2020, $271.1 million of regional jet aircraft and spare engines were 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 of a default. A portion of the Company’s leases to third parties contain variable payments from lessees based on departures where the Company pays for maintenance. 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.

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The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2020, 2019 and 2018 (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the year ended December 31,

​

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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 month per aircraft over the contract term. The Company recognizes revenue attributed to the Fixed Monthly Payments proportionate to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. Due to the material decrease in completed block hours in 2020 from historical levels and from anticipated future levels over the remaining contract terms, the Company determined the amount of Fixed Monthly Payments received in 2020 was disproportionately high relative to the number of block hours completed during 2020. The Company anticipates the future number of block hours it will complete over the remaining capacity purchase agreements will significantly increase from 2020 levels. Accordingly, the Company deferred recognizing revenue of $110.7 million of fixed monthly cash payments the Company received under its capacity purchase agreements during 2020. The Company’s deferred revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of block hours it completes each reporting period relative to the number of block hours it anticipates completing over the remaining contract term of each capacity purchase agreement.

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.

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

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In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under Topic 606.

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

Delta Connection Agreements

Agreement Aircraft type ​ Number of Aircraft Term / Termination Dates

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United Express Agreements

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Agreement Aircraft type ​ Number of Aircraft Term / Termination Dates

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American Capacity Purchase Agreement

​ ​ ​ ​ ​

Agreement Aircraft type ​ Number of Aircraft Term / Termination Dates

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Alaska Capacity Purchase Agreement

​ ​ ​ ​ ​

​ ​ ​ ​ ​

Agreement Aircraft type ​ Number of Aircraft Term / Termination Dates

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In addition to the contractual arrangements described above, as of December 31, 2020, SkyWest Airlines entered into a capacity purchase agreement with American to place 20 E175 aircraft into service. The delivery dates for the 20 new E175 aircraft are currently scheduled for 2021 and 2022 and the aircraft are expected to be placed into service in 2022. SkyWest Airlines also entered into an agreement with American to place 25 used CRJ700s under a multi-year capacity purchase agreement beginning in 2021. Final delivery dates may be adjusted based on various factors.

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SkyWest Airlines also entered into an agreement with Delta to place one CRJ900 aircraft under a capacity purchase agreement in 2021. The Company anticipates Delta will acquire the aircraft and SkyWest operate the aircraft.

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When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate arrangement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party.

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The following table represents the Company’s lease, airport services and other revenues for the years ended December 31, 2020, 2019 and 2018 (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the year ended December 31,

Operating lease income relating to lease payments ​ 34,791 ​ 27,552 ​ 3,923

Operating lease income relating to variable lease payments ​ 5,710 ​ 9,608 ​ —

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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 December 31, 2020 (in thousands):

​ ​ ​ ​ ​

​ ​ ​ ​ ​

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

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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.

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As of December 31, 2020, the Company had $34.5 million in accounts receivable of which $27.5 million related to flying agreements. As of December 31, 2019, the Company had $83.0 million in accounts receivable of which $58.8 million related to flying agreements.

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Allowance for Credit Losses

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of December 31, 2020, the Company had gross receivables of $56.1 million in current assets and gross receivables of $157.4 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 twelve months ended December 31, 2020, 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 year and the credit ratings were lowered on certain entities for which the Company has outstanding accounts receivable or notes receivable, which were the primary drivers for the increase in the Company’s credit loss reserve when benchmarked against historic default rates as of January 1, 2020, when the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”).

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

​ ​ ​ ​

​ Allowance for Credit Losses

Additions to credit loss reserves ​ 30,837

Write-offs charged against allowance ​ —

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Income Taxes

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

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Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share. During the year ended December 31, 2020, 1,074,375 shares reserved for the issuance of employee equity awards and warrants to acquire the Company’s common stock were excluded in the computation of Diluted EPS since the Company reported a net loss for the year ended December 31, 2020. During the year ended December 31, 2019, 150,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2019. During the year ended December 31, 2018, 207,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2018. The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Numerator: ​ ​ ​ ​

Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings per share weighted average shares ​ 50,195 ​ 50,932 ​ 51,914 ​

Dilution due to stock options and restricted stock units ​ — ​ 443 ​ 957 ​

Diluted earnings per share weighted average shares ​ 50,195 ​ 51,375 ​ 52,871 ​

Basic earnings (loss) per share ​ $ (0.17) ​ $ 6.68 ​ $ 5.40 ​

Diluted earnings (loss) per share ​ $ (0.17) ​ $ 6.62 ​ $ 5.30 ​

Comprehensive Income (Loss)

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

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. Marketable securities are reported at fair value based on market quoted prices in the consolidated balance sheets. If quoted prices in active markets are no longer available, the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. 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 approximately $3,244.0 million as of December 31, 2020, as compared to the carrying amount of $3,236.0 million as of December 31, 2020. The Company’s fair value of long-term debt as of December 31, 2019 was $3,049.1 million as compared to the carrying amount of $3,017.5 million as of December 31, 2019.

Segment Reporting

Generally accepted accounting principles require disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company’s three operating segments (prior to the sale of ExpressJet in January 2019) consist of the operations conducted by SkyWest Airlines, ExpressJet (for the periods owned by the Company) and SkyWest Leasing. Following the sale of ExpressJet, the Company has two

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reportable segments: SkyWest Airlines and SkyWest Leasing. Information pertaining to the Company’s reportable segments is presented in Note 3, Segment Reporting.

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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 1, “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 2020.

(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 continued to spread around the world and driven the implementation and continuation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. Consequently, the Company and its major airline partners, have experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected the Company’s revenues, particularly under its prorate arrangements. The continued spread of the virus and the ongoing global pandemic has affected nearly all 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 through 2021.

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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:

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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:

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