# SKYWEST INC (SKYW) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SKYWEST INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/793733/000155837022001335/skyw-20211231x10k.htm
Accession: 0001558370-22-001335
Filing date: 2022-02-17
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SKYW/
All MD&A years: /company/SKYW/mda/
Next year: /company/SKYW/mda/fy2022/ (FY 2022)

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

30

Table of Contents

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","E175","","CRJ900","","CRJ700","","CRJ200","","Total"],["United","","90","\u200b","\u2014","\u200b","19","\u200b","111","\u200b","220"],["Delta","\u200b","71","\u200b","44","\u200b","5","\u200b","29","\u200b","149"],["American","","18","**","\u2014","\u200b","90","\u200b","\u2014","\u200b","108"],["Alaska","","32","\u200b","\u2014","\u200b","\u2014","\u200b","\u2014","\u200b","32"],["Aircraft in scheduled service or under contract","\u200b","211","\u200b","44","\u200b","114","\u200b","140","\u200b","509"],["Leased to third parties","","\u2014","\u200b","5","\u200b","34","\u200b","\u2014","\u200b","39"],["Other*","","\u2014","\u200b","\u2014","\u200b","18","\u200b","63","\u200b","81"],["Total Fleet","","211","\u200b","49","\u200b","166","\u200b","203","\u200b","629"]]
[[/GREPCENT_TABLE]]

*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.

31

Table of Contents

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Aircraft in Service or Under Contract","","December 31, 2020","","Additions","","Removals","\u200b","December 31, 2021"],["E175s","","193","","18","","\u2014","\u200b","211"],["CRJ900s","","39","","5","","\u2014","\u200b","44"],["CRJ700s","","90","","25","","(1)","\u200b","114"],["CRJ200s","","130","","10","","\u2014","\u200b","140"],["Total","","452","","58","","(1)","\u200b","509"]]
[[/GREPCENT_TABLE]]

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.

32

Table of Contents

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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["Block hours by aircraft type:","","2021","","2020","","% Change"],["E175s","","613,465","\u200b","435,557","\u200b","40.8","%"],["CRJ900s","\u200b","116,576","\u200b","66,640","\u200b","74.9","%"],["CRJ700s","\u200b","289,902","\u200b","200,860","\u200b","44.3","%"],["CRJ200s","","299,685","\u200b","270,281","\u200b","10.9","%"],["Total block hours","\u200b","1,319,628","\u200b","973,338","\u200b","35.6","%"],["\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Departures","","749,943","\u200b","585,257","\u200b","28.1","%"],["Passengers carried","","36,608,918","\u200b","21,255,931","\u200b","72.2","%"],["Passenger load factor","","74.6","%","56.4","%","18.2","pts"],["Average passenger trip length (miles)","","532","\u200b","500","\u200b","6.4","%"]]
[[/GREPCENT_TABLE]]

Operating Revenues

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

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["\u200b","","2021","","2020","","$ Change","","% Change"],["Flying agreements","\u200b","$","2,615,076","\u200b","$","2,060,801","\u200b","$","554,275","\u200b","26.9","%"],["Lease, airport services and other","\u200b","","98,415","\u200b","","66,305","\u200b","","32,110","\u200b","48.4","%"],["Total operating revenues","\u200b","$","2,713,491","\u200b","$","2,127,106","\u200b","$","586,385","","27.6","%"]]
[[/GREPCENT_TABLE]]

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):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["\u200b","\u200b","2021","\u200b","2020","\u200b","$ Change","\u200b","% Change"],["Capacity purchase agreements revenue: flight operations","","$","1,146,375","","$","945,008","","$","201,367","","21.3","%"],["Capacity purchase agreements revenue: aircraft lease and fixed revenue","\u200b","","1,059,017","\u200b","","846,933","\u200b","","212,084","","25.0","%"],["Prorate agreements revenue","\u200b","","409,684","\u200b","\u200b","268,860","\u200b","\u200b","140,824","","52.4","%"],["Flying agreements revenue","\u200b","$","2,615,076","\u200b","$","2,060,801","\u200b","$","554,275","","26.9","%"]]
[[/GREPCENT_TABLE]]

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

33

Table of Contents

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).

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["\u200b","\u200b","2021","\u200b","2020","\u200b","$ Change","\u200b","% Change"],["Salaries, wages and benefits","\u200b","$","986,664","\u200b","$","826,109","\u200b","$","160,555","\u200b","19.4","%"],["Aircraft maintenance, materials and repairs","\u200b","","817,803","\u200b","","618,989","\u200b","","198,814","","32.1","%"],["Depreciation and amortization","\u200b","","440,198","\u200b","","474,959","\u200b","","(34,761)","","(7.3)","%"],["Airport-related expenses","\u200b","","104,690","\u200b","","93,886","\u200b","","10,804","","11.5","%"],["Aircraft fuel","\u200b","","107,057","\u200b","","61,739","\u200b","","45,318","","73.4","%"],["Aircraft rentals","\u200b","","63,357","\u200b","","65,316","\u200b","","(1,959)","","(3.0)","%"],["Special items","\u200b","","84,592","\u200b","","\u2014","\u200b","","84,592","","NM","\u200b"],["Payroll support grant","\u200b","\u200b","(422,669)","\u200b","\u200b","(345,491)","\u200b","\u200b","(77,178)","\u200b","22.3","%"],["Other operating expenses","\u200b","","255,932","\u200b","","222,797","\u200b","","33,135","","14.9","%"],["Total operating expenses","\u200b","$","2,437,624","\u200b","$","2,018,304","\u200b","$","419,320","","20.8","%"],["Interest expense","\u200b","","123,122","\u200b","","123,173","\u200b","","(51)","","(0.0)","%"],["Total airline expenses","\u200b","$","2,560,746","\u200b","$","2,141,477","\u200b","$","419,269","","19.6","%"]]
[[/GREPCENT_TABLE]]

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.

34

Table of Contents

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:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["(in thousands)","","2021","","2020","","% Change"],["Fuel gallons purchased","\u200b","\u200b","43,059","\u200b","\u200b","32,590","\u200b","32.1","%"],["Fuel expense","\u200b","$","107,057","\u200b","$","61,739","","73.4","%"]]
[[/GREPCENT_TABLE]]

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

35

Table of Contents

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):

36

Table of Contents

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["\u200b","\u200b","(dollar amounts in thousands)"],["\u200b","","2021","","2020","","$ Change","","% Change"],["Operating Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SkyWest Airlines operating revenue","\u200b","$","2,192,432","\u200b","$","1,636,762","\u200b","$","555,670","","33.9","%"],["SkyWest Leasing operating revenues","\u200b","","521,059","\u200b","","490,344","\u200b","","30,715","","6.3","%"],["Total Operating Revenues","\u200b","$","2,713,491","\u200b","$","2,127,106","\u200b","$","586,385","","27.6","%"],["Airline Expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SkyWest Airlines airline expense","\u200b","$","2,190,884","\u200b","$","1,729,189","\u200b","$","461,695","","26.7","%"],["SkyWest Leasing airline expense","\u200b","","369,862","\u200b","","412,288","\u200b","","(42,426)","","(10.3)","%"],["Total Airline Expenses (1)","\u200b","$","2,560,746","\u200b","$","2,141,477","\u200b","$","419,269","","19.6","%"],["Segment profit:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SkyWest Airlines segment profit (loss)","\u200b","$","1,548","\u200b","$","(92,427)","\u200b","$","93,975","","NM","\u200b"],["SkyWest Leasing profit","\u200b","","151,197","\u200b","","78,056","\u200b","","73,141","","93.7","%"],["Total Segment Profit","\u200b","$","152,745","\u200b","$","(14,371)","\u200b","$","167,116","","NM","\u200b"],["Interest Income","\u200b","","1,114","\u200b","","5,879","\u200b","","(4,765)","","(81.1)","%"],["Other Income (Expense), net","\u200b","","(3,249)","\u200b","","1,165","\u200b","","(4,414)","","NM","\u200b"],["Consolidated Income Before Taxes","\u200b","$","150,610","\u200b","$","(7,327)","\u200b","$","157,937","","NM","\u200b"]]
[[/GREPCENT_TABLE]]

NM = Not Meaningful

[[GREPCENT_TABLE]]
[["(1)","Total Airline Expenses includes operating expense and interest expense"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines\u2019 salaries, wages and benefits expense increased by $161.2 million, or 19.6%, primarily due to an increase in direct labor costs that resulted from a significantly higher number of flights we operated during 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines\u2019 aircraft maintenance, materials and repairs expense increased by $191.9 million, or 31.7%, primarily due to an increase in direct maintenance costs, including the replacement of time-limited engine components, incurred on a portion of SkyWest Airlines\u2019 CRJ700 and CRJ200 fleets intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2021 compared to 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines\u2019 depreciation and amortization expense decreased by $10.9 million, or 4.9%, primarily due to certain CRJ200 aircraft that became fully depreciated during 2020, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft in 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines\u2019 fuel expense increased $45.3 million, or 73.4%, due to an increase in the number of flights we operated under our prorate agreements and a 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."]]
[[/GREPCENT_TABLE]]

37

Table of Contents

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines recognized $422.7 million in payroll support grant proceeds as a reduction to our operating expenses in 2021, a 22.3% increase compared to $345.5 million recognized in 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million in 2021. See the Operating Expenses section of \u201cResults of Operations\u201d for further discussion on the impairment charge recorded in 2021. SkyWest Airlines did not have a comparable charge in 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","SkyWest Airlines\u2019 remaining airline expenses increased $66.8 million, or 18.4%, primarily related to an increase in other operating costs that correspond to the higher number of flights we operated in 2021 compared to 2020, such as crew per diem, crew hotel costs and simulator costs."]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended December 31,"],["\u200b","","2021","","2020","","$ Change","","% Change"],["Net cash provided by operating activities","\u200b","$","831,820","\u200b","$","633,563","\u200b","$","198,257","\u200b","31.3","%"],["Net cash used in investing activities","\u200b","","(698,522)","\u200b","","(683,471)","\u200b","","(15,051)","","2.2","%"],["Net cash provided by (used in) financing activities","\u200b","","(90,600)","\u200b","","178,425","\u200b","","(269,025)","","(150.8)","%"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31,","","December 31,","","\u200b","\u200b","","\u200b"],["\u200b","\u200b","2021","\u200b","2020","\u200b","$ Change","\u200b","% Change"],["Cash and cash equivalents","\u200b","$","258,421","\u200b","$","215,723","\u200b","$","42,698","","19.8","%"],["Marketable securities","\u200b","","601,989","\u200b","","610,185","\u200b","","(8,196)","","(1.3)","%"],["Total","\u200b","$","860,410","\u200b","$","825,908","\u200b","$","34,502","","4.2","%"]]
[[/GREPCENT_TABLE]]

​

38

Table of Contents

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

39

Table of Contents

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):

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Total","","2022","","2023","","2024","","2025","","2026","","Thereafter"],["Operating lease payments for aircraft and facility obligations","\u200b","$","294,265","\u200b","$","81,911","\u200b","$","75,598","\u200b","$","31,446","\u200b","$","17,481","\u200b","$","15,427","\u200b","$","72,402"],["Firm aircraft and spare engine commitments","","\u200b","791,095","\u200b","\u200b","723,076","\u200b","\u200b","68,019","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Interest commitments (1)","","\u200b","491,330","\u200b","\u200b","113,099","\u200b","\u200b","96,987","\u200b","\u200b","80,752","\u200b","\u200b","65,185","\u200b","\u200b","49,391","\u200b","\u200b","85,916"],["Principal maturities on long-term debt","","\u200b","3,140,938","\u200b","\u200b","395,371","\u200b","\u200b","403,091","\u200b","\u200b","398,084","\u200b","\u200b","413,846","\u200b","\u200b","423,227","\u200b","\u200b","1,107,319"],["Total commitments and obligations","\u200b","$","4,717,628","\u200b","$","1,313,457","\u200b","$","643,695","\u200b","$","510,282","\u200b","$","496,512","\u200b","$","488,045","\u200b","$","1,265,637"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","At December 31, 2021, all of our total long-term debt associated with aircraft had fixed interest rates."]]
[[/GREPCENT_TABLE]]

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

40

Table of Contents

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

41

Table of Contents

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.

42

Table of Contents