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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, 2021 and 2020. Also discussed is our financial position as of December 31, 2021 and 2020. 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 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020.

Overview

We have the largest regional airline operation in the United States. As of December 31, 2021, we offered scheduled passenger and air freight service with approximately 2,080 total daily departures to destinations in the United

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States, Canada, Mexico and the Caribbean. As of December 31, 2021, we had 629 total aircraft in our fleet, including 509 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows:

Alaska 32 — — — 32

Aircraft in scheduled service or under contract 211 44 114 140 509

Leased to third parties — 5 34 — 39

*As of December 31, 2021, other aircraft included: supplemental spare aircraft supporting our code-share agreements which may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, or aircraft that are scheduled to be disassembled for use as spare parts.

**The Company took delivery of the 18 E175 aircraft under its contract with American as of December 31, 2021. The 18 E175 aircraft are scheduled to begin service in 2022.

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 2021 and changes we made to enhance the safety of our passengers and employees, including aircraft cleaning procedures and use of personal protective equipment.

During the 2021 calendar year, we made several changes to our fleet count under our flying agreements, including the addition of 18 new E175 aircraft, 24 used CRJ700 aircraft, one new and four used CRJ900 aircraft, and 10 used CRJ200 aircraft. Leases on two CRJ200 aircraft with third parties terminated during 2021.

We anticipate our fleet will continue to evolve, as we are scheduled to add two new E175 aircraft with American in 2022, 16 new E175 aircraft with Delta by the first half of 2023, and eleven new E175 aircraft with Alaska by the first half of 2023. The 16 E175 aircraft with Delta will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta. Under the terms of the contract with Delta, Delta has the right to purchase the 16 E175 aircraft at the end of the contract term at a price estimated to be the fair value at the end of the contract. 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 recovery, labor availability or other factors. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.

For the year ended December 31, 2021, approximately 43.2% of our aircraft in scheduled service or under contract were operated for United, approximately 29.3% were operated for Delta, approximately 21.2% were operated for American and approximately 6.3% 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, 2021, contract flying revenue and prorate revenue represented approximately 84.3% and 15.7%, 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.

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Financial Highlights

We had total operating revenues of $2.7 billion for the year ended December 31, 2021, a 27.6% increase compared to total operating revenues of $2.1 billion for the year ended December 31, 2020. We had net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021, compared to a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020. The significant items affecting our revenue and operating expenses during the year ended December 31, 2021, are outlined below:

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 higher passenger demand compared to the onset of the COVID-19 pandemic, the number of aircraft we operated increased from 452 as of December 31, 2020, to 509 as of December 31, 2021; the number of block hours increased from 1.0 million in 2020 to 1.3 in 2021, or by 35.6%; and the number of passengers we carried increased from 21.3 million in 2020 to 36.6 million in 2021, or by 72.2%.

As a result of increased flight schedules and additional aircraft operating under our capacity purchase agreements in 2021 compared to 2020, our capacity purchase revenue increased $413.5 million, or 23.1% in 2021. Additionally, we recognized $6.8 million of previously deferred revenue and $8.4 million of unbilled revenue for the year ended December 31, 2021, compared to deferring revenue of $110.7 million of fixed monthly payments received under our capacity purchase agreements for the year ended December 31, 2020, as further described in the section of this report entitled “Results of Operations.” As a result of increased flight schedules and passengers carried on our prorate routes, our prorate revenue increased $140.8 million, or 52.4% in 2021, as compared to 2020. Despite the ongoing COVID-19 demand recovery, the negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry, including potential labor shortages that may negatively impact our future flight schedules, may continue in 2022.

Operating Expenses

Our total operating expenses increased $419.3 million, or 20.8% for the year ended December 31, 2021, compared to the year ended December 31, 2020. This increase was primarily due to an increase in the number of flights we operated and a non-cash impairment charge of $84.6 million for the year ended December 31, 2021. Departures increased from 585,257 in 2020 to 749,943 in 2021, or by 28.1%. Additionally, we recorded $422.7 million in payroll support grants received from Treasury as an offset to our operating expenses for the year ended December 31, 2021, compared to $345.5 million recorded for the year ended December 31, 2020. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”

Fleet Activity

The following table summarizes our fleet activity for 2021:

During 2021, we took delivery of 18 new E175 aircraft and one new CRJ900 aircraft and placed the aircraft into service or under contract under capacity purchase agreements. We placed 24 (net) used CRJ700 aircraft, four used CRJ900 aircraft into service under capacity purchase agreements, and ten used CRJ200 aircraft into prorate service.

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Results of Operations

2021 Compared to 2020

Operational Statistics. The following table sets forth our major operational statistics and the associated percentages of change for the periods identified below. The increase in block hours, departures and passengers carried during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic.

For the year ended December 31,

Block hours by aircraft type: 2021 2020 % Change

Average passenger trip length (miles) 532 500 6.4 %

Operating Revenues

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

For the year ended December 31,

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.

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

For the year ended December 31,

The increase in “Capacity purchase agreements revenue: flight operations” of $201.4 million was primarily due to an increase in scheduled flights we operated under our contracts with our major airline partners as a result of the ongoing COVID-19 demand recovery. Our completed departures increased 28.1% and completed block hours increased 35.6% for the year ended December 31, 2021, compared to year ended December 31, 2020.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $212.1 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the year ended December 31, 2021, compared to the year ended December 31, 2020, combined with aircraft lease and fixed rate revenue generated from 18 E175 aircraft added to our fleet since December 31, 2020. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue

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proportionately to the number of block hours we complete, our performance obligation, for each reporting period. During the year ended December 31, 2021, the increase in our flight schedules resulted in recognizing $6.8 million of previously deferred revenue and $8.4 million in unbilled revenue on our capacity purchase agreements. For the year ended December 31, 2020, we deferred recognizing revenue on $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements. Our deferred revenue and unbilled 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 we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term. Our total deferred revenue and unbilled revenue balances were $103.9 million and $8.4 million as of December 31, 2021, respectively.

The increase in prorate agreements revenue of $140.8 million was primarily due to the increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during 2021, compared to 2020, due to the ongoing COVID-19 demand recovery.

The increase in lease, airport services and other revenues of $32.1 million was primarily due an increase in the number of flights operated at locations where we were contracted to provide airport customer service during 2021 compared to 2020 and we leased 34 CRJ700s to a third party for all of 2021, whereas we leased 34 to a third party for only a portion of 2020.

Operating Expenses

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

For the year ended December 31,

NM = Not Meaningful

Salaries, wages and benefits. The $160.6 million, or 19.4%, increase in salaries, wages and benefits was due to the increase in direct labor costs that resulted from a higher number of flights we operated during 2021 in response to demand recovery from the COVID-19 pandemic.

Aircraft maintenance, materials and repairs.The $198.8 million, or 32.1%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs, including the replacement of time-limited engine components, incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleet intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2021 compared to 2020.

Depreciation and amortization. The $34.8 million, or 7.3%, decrease in depreciation and amortization expense was primarily due to certain CRJ200 aircraft that became fully depreciated during 2020. This reduction in depreciation on our CRJ200 fleet was partially offset by an increase in depreciation expense due to the acquisition of 18 new E175 aircraft and spare engines in 2021, as well as the acquisition of eleven used CRJ700 aircraft in 2021.

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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 $10.8 million, or 11.5%, increase in airport-related expenses was primarily due to an increase in airport service activities in response to an increase in our prorate passengers.

Aircraft fuel.The $45.3 million, or 73.4%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and corresponding increase in gallons of fuel we purchased, and an increase in our average fuel cost per gallon from $1.89 in 2020 to $2.49 in 2021. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase contracts are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:

For the year ended December 31,

Aircraft rentals. The $2.0 million, or 3.0%, 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 during 2020.

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

Payroll support grant. During 2020 and 2021, we entered into three Payroll Support Program Agreements with U.S. Treasury that provided certain payroll support relief payments that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the year ended December 31, 2021, a 22.3% increase compared to $345.5 million in payroll support grant proceeds we received as a reduction to our operating expenses for year ended December 31, 2020.

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 $33.1 million, or 14.9%, increase in other operating expenses was primarily related to an increase in other operating costs that correspond to the higher number of flights we operated during 2021 compared to 2020, such as crew per diem, crew hotel costs and simulator costs.

Interest Expense.The $0.1 million, decrease in interest expense was primarily related to $3.6 million of deferred loan costs expense attributed to the payoff and termination of the secured loan agreement with U.S. Treasury in 2021, offset by a decrease in interest expense due to a lower average effective interest rate in 2021 as compared to 2020. Our average effective interest rate for 2021 and 2020 was 3.8% and 4.0%, respectively.

Total airline expenses. Our total airline expenses, comprising of our total operating expenses and interest expense, increased $419.3 million, or 19.6%, due to an increase in direct operating costs attributed to the higher number of completed flights in 2021 compared to 2020 and due to the non-cash impairment charge of $84.6 million on SkyWest operated CRJ900 aircraft in 2021, offset by an increase in the payroll support grant benefit we recorded in 2021, compared to the benefit 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

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

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

Interest income. Interest income decreased $4.8 million, or 81.1%, during 2021, compared to 2020. The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities from 2020 to 2021.

Other income (expense), net. Other income (expense), net decreased $4.4 million, compared to 2020. Other income (expense), net primarily consists of income related to our investment in a joint venture with a third party. In 2021, the joint venture incurred an increase in engine overhaul expenses compared to 2020.

Summary of provision for income taxes:

Provision for income taxes. For the years ended December 31, 2021, and December 31, 2020, our income tax provision rates were 25.7% and 16.2%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. 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, relative to our income before income taxes.

Net Income. Primarily due to the factors described above, we generated net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021, compared to a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020.

Our Business Segments 2021 compared to 2020:

For the years ended December 31, 2021 and 2020, our reporting segments included 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 and SkyWest Leasing. Overhead expenses allocated to SkyWest Leasing reflect our estimated labor expense incurred to support SkyWest Leasing activities.

The following table sets forth our segment data for the years ended December 31, 2021 and 2020 (in thousands):

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For the year ended December 31,

(dollar amounts in thousands)

Operating Revenues:

Airline Expenses:

Segment profit:

SkyWest Airlines segment profit (loss) $ 1,548 $ (92,427) $ 93,975 NM

NM = Not Meaningful

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

SkyWest Airlines Segment Profit. SkyWest Airlines segment profit increased $94.0 million during 2021, compared to 2020.

SkyWest Airlines block hour production increased to 1,319,628, or 35.6%, for 2021 from 973,338 for 2020, primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit are set forth below.

SkyWest Airlines operating revenues increased $555.7 million, or 33.9%, from 2020 to 2021 due to increased flight schedules, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic. SkyWest Airlines also provided temporary rate reductions for COVID relief to our major airline partners under our capacity purchase agreements during 2021 and 2020 in the same quarters we recognized payroll support grant proceeds from Treasury.

SkyWest Airlines airline expense increased $461.7 million, or 26.7%, from 2020 to 2021 due to the following primary factors:

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SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $73.1 million, or 93.7%, during 2021, compared to 2020, primarily due to the acquisition of 18 new E175 aircraft added to our fleet in 2021.

Liquidity and Capital Resources

As of December 31, 2021, we had $860.4 million in cash and cash equivalents and marketable securities and $43.6 million available for borrowings under our line of credit. Additionally, we have approximately $1.5 billion in unpledged aircraft engines and aircraft parts that we temporarily used as collateral in 2020 and 2021. Given our available liquidity as of December 31, 2021 and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments, and debt service obligations for at least the next 12 months.

Our total of cash and marketable securities increased from $825.9 million as December 31, 2020, to $860.4 million as of December 31, 2021, or by $34.5 million. Our total long-term debt, including current maturities decreased from $3,203.7 million as of December 31, 2020, to $3,109.2 million as of December 31, 2021, or by $94.5 million. Thus, our total long-term debt, net of cash and marketable securities, decreased from $2,377.8 million as of December 31, 2020, to $2,248.8 million as of December 31, 2021, or $129.0 million. At December 31, 2021, our total capital mix was 45.5% equity and 54.5% long-term debt, compared to 43.3% equity and 56.7% long-term debt at December 31, 2020.

As of December 31, 2021 and 2020, we had $61.4 million and $61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of December 31, 2021 and 2020.

Sources and Uses of Cash

Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the years ended December 31, 2021 and 2020, and our total cash and marketable securities position as of December 31, 2021 and December 31, 2020 (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, 2020, for a discussion of our sources and used of cash in 2020 compared to 2019.

For the year ended December 31,

December 31, December 31,

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Cash Flows provided by Operating Activities

Our cash flows provided by operating activities was $831.8 million in 2021, compared to $633.6 million in 2020. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, asset impairment charges, stock-based compensation expense, and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and deferred payroll support grant proceeds.

The increase in our cash flow from operations in 2021 compared to 2020, was primarily due an increase in net income of $120.4 million, the difference between a net loss of $8.5 million in 2020 and net income of $111.9 million in 2021, and a non-cash impairment charge of $84.6 recorded in 2021. The cash provided by these operating activities were partially offset by a reduction in depreciation expense and deferred revenue, an increase in unbilled revenue, and changes in our current asset and liability accounts, primarily due to the timing of cash payments and cash receipts in 2021 compared to 2020. The operating cash flows for 2021 and 2020 also included the benefit from the payroll support grant of $422.7 million and $345.5 million, respectively, partially offset by temporary COVID relief rate reductions provided to our major airline partners in 2021 and 2020.

Cash Flows used in Investing Activities

Our cash flows used in investing activities was $698.5 million in 2021, compared to $683.5 million in 2020. Our investing cash flows are typically impacted by various factors including our capital expenditures, such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.

The increase in our cash flow used in investing activities in 2021 compared 2020, was primarily due to an increase in aircraft deposits and acquisition of aircraft, offset by the change in purchases and sales of marketable securities. Cash used for aircraft deposits increased from $9.6 million in 2020 to $125.7 million in 2021 because of E175 aircraft purchase commitments. We acquired 18 new E175 aircraft and eleven used CRJ700 aircraft in 2021 resulting in $537.6 million in cash used for purchases of aircraft and related parts, compared to 2020 when we acquired six new E175 aircraft and 22 used CRJ700 aircraft that resulted in cash used for purchases of aircraft and spare parts of $425.6 million. Cash provided by sales of marketable securities, net of purchases of marketable securities in 2021 was $8.2 million, compared to cash used in purchases of marketable securities, net of sales of marketable securities of $177.2 million in 2020.

The increase in cash flows used in investing activities was also offset by an increase in our long-term assets resulting from timing of payments received from our major airline partners attributed to our long-term receivables and changes to our non-current deferred revenue. In 2020, we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximately 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 the payments on these long-term receivables from our major airline partners over the remaining contract terms.

Cash Flows provided by (used in) Financing Activities

Our cash flows used in financing activities was $90.6 million in 2021, compared to cash provided by financing activities of $178.4 million in 2020. Our financing 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.

The $269.0 million increase in cash used by financing activities was primarily due to an increase of $353.1 million in principal payments on long-term debt related to the additional E175 aircraft acquired subsequent to December 31, 2020, repayment of the $60 million U.S. Treasury secured loan, and early repayment of $80.1 million in aircraft debt. The increase was offset by proceeds from the issuance of long-term debt primarily due to the purchase of new E175

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aircraft in 2021 and a reduction in 2021 of cash used to purchase treasury stock and payment of dividends by $20.0 million and $13.1 million, respectively, due to restrictions under our loan agreements with U.S. Treasury.

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):

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. The anticipated future aircraft delivery dates are subject to change. As of December 31, 2021, we had a firm purchase commitment for 29 E175 aircraft from Embraer with scheduled delivery dates anticipated through 2023.

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 29 E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

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 airline partners that we operate for them under contract, we had 43 aircraft under lease with remaining terms ranging from two years to nine years as of December 31, 2021. Future minimum lease payments due under all long-term operating leases were approximately $294.3 million at December 31, 2021. Assuming a 6.0% 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 $237.2 million at December 31, 2021.

Long-term Debt Obligations

As of December 31, 2021, we had $2.94 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 3.8% at December 31, 2020. We also had $200.6 million of long-term debt obligations under the Payroll Support Program Agreements.

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

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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, long-lived assets, 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, because 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 relative to the number of block hours we completed during 2020. In 2020, we generated 973,338 block hours and we deferred recognizing revenue of $110.7 million in Fixed Monthly Payments we received during the 2020 calendar year. In 2021, we generated 1,319,628 block hours and we recognized $6.8 million of previously deferred revenue and $8.4 million of unbilled revenue. The amount of deferred revenue and unbilled 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 currently anticipate we will recognize previously deferred revenue in 2022, depending upon future block hour production and flight schedules each reporting period in 2022.

Our revenues could be impacted by several 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

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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, 2021.

Long-Lived Assets

As of December 31, 2021, we had approximately $5.5 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.

In 2021, we entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement. The 16 new E175 aircraft will replace 16 SkyWest-owned or financed CRJ900 aircraft currently under its Delta contract with expirations ranging from the second half of 2022 to early 2023. As of December 31, 2021, we only operated the CRJ900 aircraft under a flying agreement with our major airline partner Delta. As a result of this fleet transition beginning in 2022 and the uncertainty about our ability to redeploy the CRJ900 aircraft with another major airline partner, we concluded that indicators of impairment existed and therefore, we evaluated our CRJ900 fleet and related CRJ900 assets for impairment. In 2021, the Company recorded a non-cash impairment charge of $84.6 million to write-down the CRJ900 aircraft operating under the Delta contracts to their estimated fair value. The impairment analysis required us to identify applicable asset groups, perform a recoverability test using undiscounted cash flows and estimate the fair value of the asset group through the use of third-party valuations. Judgment was required to determine the impairment loss. The amounts we ultimately realize from the disposal of our CRJ900 long-lived assets may vary from our 2021 fair value assessment.

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 assets. At December 31, 2021, we had 81 aircraft that were not in scheduled service with our partners, including 63 CRJ200 aircraft and 18 CRJ700 aircraft. The CRJ200 aircraft not in scheduled service are nearly fully depreciated as of December 31, 2021. The remaining aircraft are scheduled to be placed under contract by 2023 or will be used as supplemental spare aircraft.

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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

In the past, we have not experienced sustained material 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, United, Delta, 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 years ended December 31, 2021, 2020 and 2019, approximately 16%, 13% and 18% of our total flying agreements revenue was derived from prorate arrangements. For the years ended December 31, 2021, 2020 and 2019, the average price per gallon of aircraft fuel was $2.49, $1.89 and $2.51, 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 $26.8 million, $15.4 million and $29.8 million in fuel expense for the years ended December 31, 2021, 2020 and 2019, respectively.

Interest Rates

As of December 31, 2021, our 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 United, Delta, 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. A hypothetical 10 basis point change in market interest rates would not have a material effect on our financial results.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and operating results.

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.

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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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 17, 2022 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 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

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/s/ Ernst & Young LLP

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

Salt Lake City, Utah

February 17, 2022

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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 (2,731,060) (2,455,995)

OTHER ASSETS:

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 78,886 82,641

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:

OTHER INCOME (EXPENSE):

BASIC EARNINGS (LOSS) PER SHARE $ 2.22 $ (0.17) $ 6.68

DILUTED EARNINGS (LOSS) PER SHARE $ 2.20 $ (0.17) $ 6.62

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 — 5,770 — — — — 5,770

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

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

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

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

Warrants issued to U.S. Treasury — 8,248 — — — — 8,248

Stock based compensation expense — 8,685 — — — — 8,685

Warrants issued to U.S. Treasury — 5,804 — — — — 5,804

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 (decrease) in credit loss reserves (4,249) 17,087 —

Loss (gain) on disposal of fixed assets (4,586) 445 —

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

Changes in operating assets and liabilities:

Decrease (increase) in income tax receivable (5,570) 7,225 14,795

Decrease (increase) in other current assets (1,936) 8,233 2,707

Decrease in operating lease right-of-use assets 43,846 53,647 —

Decrease in operating lease liabilities (51,326) (65,557) (895)

Increase (decrease) in deferred revenue (6,832) 110,728 —

Increase in unbilled revenue (8,404) — —

CASH FLOWS FROM INVESTING ACTIVITIES:

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

Acquisition of property and equipment:

Proceeds from the sale of property and equipment 7,117 3,239 26,008

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of common stock 3,146 2,819 6,271

Purchase of treasury stock — (20,000) (78,476)

Purchase of common stock — — (16,145)

Payment of debt issuance cost (1,665) (4,130) (1,642)

Payment of cash dividends — (13,059) (23,467)

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: 2021 2020 2019

Non-cash investing and financing activities:

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

Warrants issued to U.S. Treasury $ 5,804 $ 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, 2021

(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, 2021, SkyWest Airlines offered scheduled passenger service under code-share agreements with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) with approximately 2,080 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, 2021, the Company had 629 total aircraft in its fleet, including 509 aircraft in scheduled service or under contract under its code-share agreements, summarized as follows:

Alaska 32 — — — 32

Aircraft in scheduled service or under contract 211 44 114 140 509

Leased to third parties — 5 34 — 39

**The Company took delivery of the 18 E175 aircraft under its contract with American as of December 31, 2021. The 18 E175 aircraft are scheduled to begin service in 2022.

For the year ended December 31, 2021, approximately 43.2% of the Company’s aircraft in scheduled service was operated for United, approximately 29.3% was operated for Delta, approximately 21.2% was operated for American and approximately 6.3% 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, 2021, 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”): CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer S.A. (“Embraer”). The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats. The CRJ200 is a single-class 50-seat aircraft.

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.

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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, 2021, 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, 2021 and 2020.

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, 2021 and 2020, 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, 2021 and 2020 was as follows (in thousands):

Gross unrealized Gross unrealized

Total cash and cash equivalents $ 258,421 $ — $ — $ 258,421

Marketable securities:

Bond and bond funds $ 54,673 $ — $ — $ 54,673

Total marketable securities $ 601,989 $ — $ — $ 601,989

Total assets measured at fair value $ 860,410 $ — $ — $ 860,410

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

As of December 31, 2021 and 2020, the Company had classified $602.0 million and $610.2 million of marketable securities, respectively, as short-term since it had the ability to redeem the securities within one year.

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, 2021 and 2020, was $23.0 million and $19.7 million, respectively.

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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, 2021, the Company had approximately $5.5 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 aircraft type level.

In 2021, the Company entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement. The 16 new E175 aircraft will replace 16 SkyWest-owned or financed CRJ900 aircraft currently under its Delta contract with expirations ranging from the second half of 2022 to early 2023. As of December 31, 2021, the Company only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta. As a result of this fleet transition beginning in 2022 and the uncertainty about the Company’s ability to redeploy the CRJ900 aircraft with another major airline partner, the Company concluded that indicators of impairment existed and therefore, evaluated its CRJ900 fleet and related CRJ900 assets for impairment. In 2021, the Company recorded a non-cash impairment charge of $84.6 million to write-down the CRJ900 aircraft operating under the Delta contracts to their estimated fair value. The impairment analysis required the Company to identify applicable asset groups, perform a recoverability test using undiscounted cash flows and estimate the fair value of the asset group through the use of third-party valuations. The amounts we ultimately realize from the disposal of our CRJ900 long-lived assets may vary from our 2021 fair value assessment. See Note 9, Special Items, for the impairment charges recorded during the year ended December 31, 2021, related to the CRJ900 long-lived assets.

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

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, 2021, 2020 and 2019, the Company capitalized interest costs of approximately $1.9 million, $1.7 million, and $1.6 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. 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

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repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract.

The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred. In 2020, the Company wrote-off $3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year. There was not a similar expense in 2021 and 2019.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the years ended December 31, 2021 and 2020, capacity purchase arrangements represented approximately 84.3% and 87.0% of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate 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 years ended December 31, 2021 and 2020, prorate flying arrangements represented approximately 15.7% and 13.0% of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2021, 2020 and 2019 (in thousands):

For the year ended December 31,

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

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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 lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020. In 2021, the Company recognized $6.8 million of previously deferred revenue and $8.4 million of unbilled revenue due to an increase in flight schedules compared to deferring revenue of $110.7 million in 2020. The Company’s deferred revenue balance as of December 31, 2021, was $103.9 million, including $24.5 million in other current liabilities and $79.4 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2021, of $8.4 million was included in other long-term assets. At December 31, 2020, the Company’s deferred revenue balance of $110.7 million was included in other long-term liabilities. The Company’s deferred revenue and unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

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

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

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

United Express Agreements

Agreement Aircraft type Number ofAircraft Term / Termination Dates

Total under United Express Agreements 220

Delta Connection Agreements

Agreement Aircraft type Number ofAircraft Term / Termination Dates

Total under Delta Connection Agreements 149

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American Capacity Purchase Agreement

Agreement Aircraft type Number ofAircraft Term / Termination Dates

Total under American Agreements 108

Alaska Capacity Purchase Agreement

Agreement Aircraft type Number ofAircraft Term / Termination Dates

In addition to the contractual arrangements described above, as of December 31, 2021, SkyWest Airlines has a capacity purchase agreement with American to place two E175 aircraft into service. The delivery dates for the two new E175 aircraft are currently scheduled for 2022 and the aircraft are expected to be placed into service in 2022. SkyWest Airlines also has a capacity purchase agreement with American for eleven used CRJ700 aircraft. The aircraft are anticipated to be placed into service by the end of 2023. We anticipate using CRJ700s we already possess that are not currently under contract with a major airline partner to fulfill this agreement.

SkyWest Airlines has a capacity purchase agreement with Alaska to place eleven E175 aircraft into service. The delivery dates for the eleven new E175 aircraft are currently scheduled for 2022 and the first half of 2023, and the aircraft are expected to be placed into service in 2022 and 2023.

In 2021, SkyWest Airlines reached an agreement with Delta to place 16 E175 aircraft into service under a capacity purchase agreement. The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022 and early 2023. Under the terms of the agreement with Delta, Delta has the right to purchase the 16 E175 aircraft at the end of the contract term at a price estimated to be the fair value at the end of the contract. These 16 new E175 aircraft are expected to replace 16 CRJ900 aircraft the Company is operating under a capacity purchase agreement with Delta (see Note 9 “Special Items – Impairment Charge,” for further discussion of the Company’s CRJ900 aircraft).

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

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

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties. The following table represents the Company’s lease, airport services and other revenues for the years ended December 31, 2021, 2020 and 2019 (in thousands):

For the year ended December 31,

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The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of December 31, 2021 (in thousands):

Of the Company’s $5.5 billion of property and equipment, net as of December 31, 2021, $252.6 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.

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

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

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.

As of December 31, 2021, the Company had $65.3 million in accounts receivable of which $50.8 million related to flying agreements. As of December 31, 2020, the Company had $34.5 million in accounts receivable of which $27.5 million related to flying agreements.

Allowance for Credit Losses

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

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of December 31, 2021, the Company had gross receivables of $86.2 million in current assets and gross receivables of $230.7 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 year ended December 31, 2021, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

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

Allowance for Credit Losses

Adjustments to credit loss reserves 30,837

Write-offs charged against allowance —

Adjustments to credit loss reserves (4,249)

Write-offs charged against allowance —

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.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. 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. For the year ended December 31, 2021, 140,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2021. Additionally, for the year ended December 31, 2021, warrants to purchase 78,000 shares of common stock at $57.47 per share were excluded from the computation of Diluted EPS since the warrants' exercise price was greater than the average market price of the common shares. For 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. For 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. 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, 2021, 2020, and 2019 (in thousands):

Year Ended December 31,

Numerator:

Denominator:

Dilution due to stock options and restricted stock units 405 — 443

Diluted earnings per share weighted average shares 50,753 50,195 51,375

Basic earnings (loss) per share $ 2.22 $ (0.17) $ 6.68

Diluted earnings (loss) per share $ 2.20 $ (0.17) $ 6.62

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.

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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 $3,132.1 million as of December 31, 2021, as compared to the carrying amount of $3,140.9 million as of December 31, 2021. The Company’s fair value of long-term debt as of December 31, 2020 was $3,244.0 million as compared to the carrying amount of $3,236.0 million as of December 31, 2020.

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

Recent Accounting Pronouncements

In November 2021, the FASB issued ASU No.2021-10, Government Assistance (Topic 832):Disclosures by Business Entities about Government Assistance (ASU No. 2021-10”),which increases the transparency of government assistance received by business entities, including disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. ASU No. 2021-10 is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact that adopting ASU No. 2021-10 but does not currently expect a material impact on the Company’s consolidated financial statements.

(2) Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021. The ongoing spread of the virus and its variants continues to negatively impact our business, and the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules. Various factors outside our control may impact the demand for air travel and our flight schedules, such as the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions. Additionally, indirect factors may impede the timing of our recovery from the virus even if passenger demand returns to pre-COVID-19 levels, such as employee attrition and workforce shortages and third-party labor shortages that may result in delays in outsourced maintenance work and availability of aircraft parts.

Liquidity. At December 31, 2021, the Company had $904.0 million in total available liquidity, consisting of $860.4 million in cash and marketable securities, and $43.6 million available under SkyWest Airlines’ line of credit with a bank. Additionally, we have approximately $1.5 billion in unpledged aircraft engines and aircraft parts that we temporarily used as collateral in 2020 and 2021. At December 31, 2021, the Company’s current portion of long-term debt was $391.8 million, compared to $402.2 million at December 31, 2020.

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

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and Payroll Support Program 3 Agreement (“PSP3”) under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”). The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021. Other conditions include restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S. Department of Transportation and certain limitations on executive compensation. The payments received under the payroll support programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan. In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock. The Company recorded the payroll grant proceeds as an offset to operating expenses in the period the funds were intended to compensate. The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021.

In 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury (“Secured Loan”) and borrowed $60 million under the agreement and in conjunction therewith, issued warrants to purchase shares of the Company’s common stock. During 2021, the Company repaid all amounts outstanding under the secured loan with Treasury, and in connection with such repayment, terminated the Secured Loan.

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

Total Grant Loan Number of Warrants

See Note 4, "Long-Term Debt," for further discussion on the loans with Treasury and Note 10 “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury.

(3) Segment Reporting

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

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

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The following represents the Company’s segment data for the years ended December 31, 2021, 2020, and 2019 (in thousands).

Year ended December 31, 2021

SkyWest SkyWest

Airlines Leasing Consolidated

Year ended December 31, 2020

SkyWest SkyWest

Airlines Leasing Consolidated

Year ended December 31, 2019

SkyWest SkyWest

Airlines ExpressJet Leasing Consolidated

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

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(4) Long-term Debt

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

December 31, December 31,

During 2021, the Company took delivery of 18 new E175 aircraft that the Company financed through $354.6 million of long-term debt. The debt associated with the 18 E175 aircraft has a 5-year to 12-year term range, is due in monthly or quarterly installments with fixed annual interest rates of 2.7% to 3.1% and is secured by the E175 aircraft.

During 2021, in connection with the payroll support programs, the Company issued to Treasury promissory notes for an aggregate principal amount of $95.4 million and issued warrants to purchase up to 203,090 shares of the Company’s common stock. The Company has recorded the value of the promissory note and warrants on a relative fair value basis as $95.4 million of long-term debt and $5.8 million in common stock, respectively. The warrants have a five-year term from the date of issuance and 124,773 of the warrants have an exercise price of $40.41 per share and 78,317 of the warrants have an exercise price of $57.47 per share.

In 2020, in connection with the CARES Act, the Company entered into the Secured Loan with Treasury and borrowed $60 million under the agreement. During 2021, the Company repaid all amounts outstanding under the Secured Loan with Treasury, and in connection with such repayment, terminated the Secured Loan agreement. The total repayment amount was $61.2 million, which included all outstanding principal and accrued interest under the Secured Loan. As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the Secured Loan agreement, consisting of aircraft engines and aircraft parts, was released.

Additionally, in 2021, the Company repaid $80.1 million of debt related to aircraft early.

As of December 31, 2021 and 2020, the Company had $2.94 billion and $3.07 billion, respectively, of long-term debt obligations primarily related to the acquisition of aircraft and certain spare engines. The average effective interest rate on the debt related to those long-term debt obligations at December 31, 2021 and 2020, was approximately 3.8% and 4.0%, respectively.

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The aggregate amounts of principal maturities of long-term debt as of December 31, 2021 were as follows (in thousands):

As of December 31, 2021 and 2020, SkyWest Airlines had a $75 million line of credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of December 31, 2021 and 2020, SkyWest Airlines had no amount outstanding under the line of credit facility. However, at December 31, 2021 and 2020, the Company had $31.4 million and $35.5 million, respectively, in letters of credit issued under the facility which reduced the amount available under the facility to $43.6 million and $39.5 million, respectively. During the year ended December 31, 2021, the Company extended the expiration date of the line of credit to March 31, 2022. The facility has a variable interest rate of LIBOR plus 2.5% at December 31, 2021.

As of December 31, 2021 and 2020, the Company had $61.4 million and $61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

(5) Income Taxes

The provision for income taxes includes the following components (in thousands):

Year ended December 31,

Current tax provision (benefit):

Deferred tax provision (benefit):

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

Year ended December 31,

Increase (decrease) in income taxes resulting from:

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For the year ended December 31, 2020, the Company released $0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period. For the year ended December 31, 2019, the Company released $0.5 million of valuation allowance against certain deferred tax assets primarily associated with ExpressJet state net operating losses. The decrease in the valuation allowance for 2020 was primarily based on changes in the Company's income tax projections which reduced the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $0.1 million, $1.4 million and $3.5 million benefit from share-based compensation in 2021, 2020, and 2019, respectively, relating to ASU 2016-09 which, requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2021 and 2020, are as follows (in thousands):

As of December 31,

Deferred tax assets:

Operating lease liabilities 57,991 70,541

Valuation allowance — —

Deferred tax liabilities:

Operating lease right-of-use assets (56,521) (68,543)

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

AtDecember 31, 2021 and 2020, the Company had federal net operating losses of approximately $745.8 million and $987.0 million and state net operating losses of approximately $554.7 million and $653.1 million, respectively. The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2021, was 21.0% and 3.45%, respectively. The Company anticipates that the federal and state net operating losses will start to expire in 2036 and 2022, respectively. The Company has no ongoing federal or state examinations. Federal tax years 2018, 2019 and 2020 are open to examination.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2021, 2020, and 2019 is as follows (in thousands):

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Year ended December 31,

Unrecognized tax benefits at the beginning of year $ 14,980 $ 14,620 $ 14,553

Gross increases - current year tax positions — — —

Gross increases - prior year tax positions 549 360 67

Gross decreases - prior year tax positions — — —

Interest and penalties in year-end balance $ 976 $ 427 $ 67

For the years ending December 31, 2021, 2020, and 2019, the Company recorded $549,000, $360,000, and $67,000, respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.

(6) Commitments and Contingencies

Self-Insurance

The Company self-insures a portion of its potential losses from claims related to workers’ compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using standard industry practices and the Company’s actual experience. The Company uses judgment and estimates in determining the ultimate aggregate liabilities for claims incurred in its workers’ compensation liability. The Company also used assumptions in determining the workers compensation liability such as an estimation of loss payment and loss reporting development patterns. At December 31, 2021 and 2020, the Company’s accrued workers’ compensation liability totaled $17.5 million and $20.7 million, respectively, of which $7.1 million and $8.6 million, respectively, was short-term and included in other current liabilities. Actual results could differ from these estimates.

Legal Matters

SKYW US Equity

SKYW · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SKYW US Equity☆

SKYW · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SKYW US Equity