SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
Incorporated under the laws of | ||
(I.R.S. Employer ID No.) |
(
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Accelerated filer ◻ | ||
Non-accelerated filer ◻ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October 25, 2024 | |
Common stock, no par value |
SKYWEST, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
3 | |||
3 | |||
5 | |||
6 | |||
8 | |||
9 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||
40 | |||
41 | |||
41 | |||
41 | |||
42 | |||
42 | |||
42 | |||
43 | |||
Exhibit 31.1 | Certification of Chief Executive Officer | ||
Exhibit 31.2 | Certification of Chief Financial Officer | ||
Exhibit 32.1 | Certification of Chief Executive Officer | ||
Exhibit 32.2 | Certification of Chief Financial Officer |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
September 30, |
| December 31, | ||||
| 2024 |
| 2023 | |||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Marketable securities |
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Receivables, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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PROPERTY AND EQUIPMENT: | ||||||
Aircraft and rotable spares |
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Deposits on aircraft |
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Buildings and ground equipment |
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Total property and equipment, gross |
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Less-accumulated depreciation and amortization |
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Total property and equipment, net |
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OTHER ASSETS: | ||||||
Operating lease right-of-use assets | | | ||||
Long-term receivables and other assets |
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Total other assets |
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Total assets | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30, |
| December 31, | ||||
| 2024 |
| 2023 | |||
CURRENT LIABILITIES: | ||||||
Current maturities of long-term debt | $ | | $ | | ||
Accounts payable |
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Accrued salaries, wages and benefits |
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Current maturities of operating lease liabilities |
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Taxes other than income taxes |
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Other current liabilities |
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Total current liabilities |
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LONG-TERM DEBT, net of current maturities |
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DEFERRED INCOME TAXES PAYABLE |
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NONCURRENT OPERATING LEASE LIABILITIES |
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OTHER LONG-TERM LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (Note 7) | ||||||
STOCKHOLDERS’ EQUITY: | ||||||
Preferred stock, |
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Common stock, |
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Retained earnings |
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Treasury stock, at cost, |
| ( |
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Accumulated other comprehensive income | | | ||||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars and Shares in Thousands, Except per Share Amounts)
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
OPERATING REVENUES: | ||||||||||||
Flying agreements | $ | | $ | | $ | | $ | | ||||
Lease, airport services and other |
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Total operating revenues |
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OPERATING EXPENSES: | ||||||||||||
Salaries, wages and benefits |
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Aircraft maintenance, materials and repairs |
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Depreciation and amortization |
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Aircraft fuel |
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Airport-related expenses |
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Aircraft rentals |
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Other operating expenses |
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Total operating expenses |
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OPERATING INCOME |
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OTHER INCOME (EXPENSE): | ||||||||||||
Interest income |
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Interest expense |
| ( |
| ( |
| ( |
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Other income (loss), net |
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| ( |
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Total other expense, net |
| ( |
| ( |
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INCOME BEFORE INCOME TAXES |
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PROVISION (BENEFIT) FOR INCOME TAXES |
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NET INCOME | $ | | $ | | $ | | $ | | ||||
BASIC EARNINGS PER SHARE | $ | | $ | | $ | | $ | | ||||
DILUTED EARNINGS PER SHARE | $ | | $ | | $ | | $ | | ||||
Weighted average common shares: | ||||||||||||
Basic |
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Diluted |
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COMPREHENSIVE INCOME: | ||||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Net unrealized appreciation on marketable securities, net of taxes |
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TOTAL COMPREHENSIVE INCOME | $ | | $ | | $ | | $ | |
See accompanying notes to condensed consolidated financial statements
5
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Common Stock | Retained | Treasury Stock | Comprehensive | ||||||||||||||||
Shares | Amount | Earnings | Shares | Amount | Income (Loss) | Total | |||||||||||||
Balance at December 31, 2023 |
| | $ | | $ | |
| ( | $ | ( | $ | | $ | | |||||
Net income |
| — |
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Stock awards |
| | — |
| — |
| — |
| — |
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| — | ||||||
Employee income tax paid on stock awards | — | — | — | ( | ( | — | ( | ||||||||||||
Sale of common stock under employee stock purchase plan |
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| — |
| — |
| — |
| — |
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Stock based compensation expense |
| — |
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| — |
| — |
| — |
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Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized depreciation on marketable securities, net of tax of $ | — | — | — | — | — | ( | ( | ||||||||||||
Balance at March 31, 2024 | | $ | | $ | | ( | $ | ( | $ | | $ | | |||||||
Net income |
| — |
| — |
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Stock awards | |
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| — | — | |||||||
Stock based compensation expense | — |
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Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized depreciation on marketable securities, net of tax of $ | — | — | — | — | — | ( | ( | ||||||||||||
Balance at June 30, 2024 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | | |||||
Net income |
| — |
| — |
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Sale of common stock under employee stock purchase plan |
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Issuance of common stock upon warrant exercise, net | | — |
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Stock based compensation expense | — |
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Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
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Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at September 30, 2024 |
| | $ | | $ | |
| ( | $ | ( | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
6
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Common Stock | Retained | Treasury Stock | Comprehensive | ||||||||||||||||
Shares | Amount | Earnings | Shares | Amount | Loss | Total | |||||||||||||
Balance at December 31, 2022 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | | |||||
Net loss |
| — |
| — |
| ( |
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| — | ( | ||||||
Stock awards |
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Employee income tax paid on stock awards | — | — | — | ( | ( | — | ( | ||||||||||||
Sale of common stock under employee stock purchase plan |
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Stock based compensation expense |
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Treasury stock purchases | — |
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| ( |
| ( |
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Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at March 31, 2023 | | $ | | $ | | ( | $ | ( | $ | ( | $ | | |||||||
Net income |
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Stock based compensation expense | — |
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Treasury stock purchases | — |
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| ( |
| ( |
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Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at June 30, 2023 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | | |||||
Net income |
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Sale of common stock under employee stock purchase plan |
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Stock based compensation expense | — |
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Treasury stock purchases | — |
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| ( |
| ( |
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Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at September 30, 2023 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
7
SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Nine months ended | ||||||
September 30, | ||||||
| 2024 |
| 2023 | |||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | | $ | | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchases of marketable securities |
| ( | ( | |||
Sales of marketable securities |
| | | |||
Acquisition of property and equipment: | ||||||
Aircraft and rotable spare parts |
| ( | ( | |||
Buildings and ground equipment |
| ( | ( | |||
Proceeds from the sale of property and equipment |
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Deposits on aircraft | — | ( | ||||
Aircraft deposits applied towards acquired aircraft | | — | ||||
Decrease (increase) in other assets |
| ( | | |||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
| ( |
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Proceeds from issuance of long-term debt |
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Principal payments on long-term debt |
| ( | ( | |||
Payment of debt issuance cost | ( | ( | ||||
Net proceeds from issuance of common stock |
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Employee income tax paid on vested equity awards | ( | ( | ||||
Purchase of treasury stock and excise tax |
| ( | ( | |||
NET CASH USED IN FINANCING ACTIVITIES |
| ( |
| ( | ||
Increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Non-cash investing and financing activities: | ||||||
Acquisition of property and equipment | $ | | $ | | ||
Derecognition of right of use assets | $ | — | $ | ( | ||
Derecognition of operating lease liabilities | $ | — | $ | | ||
Cash paid during the period for: | ||||||
Interest, net of capitalized amounts | $ | | $ | | ||
Income taxes | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
8
SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Condensed Consolidated Financial Statements
Basis of Presentation
The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”), its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”), its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Accounting Standard Codification (“ASC”) Topic 280) – Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (ASC Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.
(2) Operating Revenues
The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase” agreements) with United Airlines, Inc. (“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
9
amount per aircraft in service each month, with additional incentives based on flight completion, on-time performance or other performance metrics. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the nine months ended September 30, 2024 and 2023, capacity purchase agreements represented approximately
Under the Company’s “prorate” agreements, the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company determines that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. Certain routes under the Company’s prorate agreements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally
The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2024 and 2023 (in thousands):
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
Capacity purchase agreements flight operations revenue (non-lease component) | $ | | $ | | $ | | $ | | ||||
Capacity purchase agreements fixed aircraft lease revenue | | | | | ||||||||
Capacity purchase agreements variable aircraft lease revenue |
| |
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Prorate agreements and SWC revenue |
| |
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Flying agreements revenue | $ | | $ | | $ | | $ | |
The Company allocates the total consideration received under its capacity purchase agreements between lease and non-lease components based on stand-alone selling prices. A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement. The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period. The Company recognizes revenue attributed to the non-lease component received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements. The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period. During the nine months ended September 30, 2024, the Company recognized $
10
compared to deferring revenue of $
A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is accounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. The Company recognizes fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments in the period when the block hours are completed. The Company recognized $
The Company’s total deferred revenue balance as of September 30, 2024 was $
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 several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under ASC Topic 606.
As of September 30, 2024, the Company had
United Express Agreements | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
United Express Agreements (capacity purchase agreement) | • E175 • CRJ700 • CRJ200 | Individual aircraft have scheduled expiration dates from 2024 to 2029 | ||||
United Express Prorate Agreement | • CRJ200 | Terminable with notice | ||||
Total under United Express Agreements |
11
Delta Connection Agreements | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
Delta Connection Agreement (capacity purchase agreement) | • E175 • CRJ900 • CRJ700 | Individual aircraft have scheduled expiration dates from 2025 to 2034 | ||||
Delta Connection Prorate Agreement | • CRJ900 • CRJ700** | | Terminable with notice | |||
Total under Delta Connection Agreements |
American Capacity Purchase Agreement | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
American Agreement (capacity purchase agreement) | • E175 • CRJ700 | Individual aircraft have scheduled expiration dates from 2025 to 2032 | ||||
Total under American Agreement |
Alaska Capacity Purchase Agreement | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
Alaska Agreement (capacity purchase agreement) | • E175 | Individual aircraft have scheduled expiration dates from 2030 to 2034 |
* | The Company’s prorate agreements are based on specific routes, not a specific aircraft count. The number of aircraft listed above for each prorate agreement approximates the number of aircraft the Company uses to serve the prorate routes. |
** Includes CRJ550 aircraft, a
In addition to the contractual arrangements described above, as of September 30, 2024, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective major airline partners:
| Q4 2024 |
| 2025 |
| 2026 | Total | ||
United Airlines |
| |
| |
| | | |
Alaska Airlines |
| — |
| |
| — | | |
Total |
| |
| |
| | |
The Company also entered into multiple agreements with United in September and October 2024 to place a total of
Final delivery and in-service dates for aircraft to be placed under contract are subject to change and may be adjusted based on various factors.
When an aircraft is scheduled for expiration from a capacity purchase agreement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the major airline partner when the aircraft is provided by the major airline partner, place owned aircraft for sale or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory.
Lease, airport services and other revenues primarily consist of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at
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various airports where the Company has been contracted by third parties to provide such services. The following table represents the Company’s lease, airport services and other revenues for the three and nine months ended September 30, 2024 and 2023 (in thousands):
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
Operating lease revenue | $ | | $ | | $ | | $ | | ||||
Airport customer service and other revenue | | | | | ||||||||
Lease, airport services and other | $ | | $ | | $ | | $ | |
The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2024 (in thousands):
October 2024 through December 2024 |
| $ | |
2025 |
| ||
2026 |
| ||
2027 |
| ||
2028 |
| ||
Thereafter |
| ||
Total future minimum rental income under operating leases | $ |
Of the Company’s $