SkyWest Airlines 2008 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...Portland West Yellowstone Cody Redmond/Bend Eugene Boise Idaho Falls North Bend Jackson Hole Sun Valley Medford Crescent City Eureka/Arcata Redding Chico Reno Sacramento Oakland San Francisco Modesto San Jose Fresno Monterey BakersfieldInyokern Grand Junction Montrose Cedar City St. George Las Vegas...

  • Page 3
    ... strength is reflected in the high-quality service we provide through our relationships with United Airlines and Delta Air Lines. We operate 163 aircraft in United Express operations that constitutes 53% of the entire United Express program and we operate 258 aircraft in Delta Connection operations...

  • Page 4
    ... also currently delivering over 2,300 daily departures to 214 cities in the United States, Canada, Mexico and the Caribbean on behalf of our partners. Our challenge and our opportunity for 2009 is to continue improving our top operational performance, improve cost efficiencies and develop improved...

  • Page 5
    ... year ended December 31, 2008 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-14719 SKYWEST, INC. Incorporated under the Laws of Utah 444 South River Road St. George, Utah 84790 (435) 634-3000...

  • Page 6
    ..., Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Item 13. Certain Relationships and Related Transactions ...Item 14. Principal Accountant Fees and Services...

  • Page 7
    ...Delta''), United Air Lines (''United'') and Midwest Airlines, Inc. (''Midwest''); • labor costs; • security-related and insurance costs; • weather conditions; • government legislation and regulation; • relations with our employees, including the impact of labor negotiations and agreements...

  • Page 8
    ... 990 were United Express flights, 430 were Delta Connection flights and 80 were Midwest Connect flights. SkyWest Airlines' operations are conducted from hubs located in Chicago (O'Hare), Denver, Los Angeles, Milwaukee, San Francisco and Salt Lake City. SkyWest Airlines' fleet as of December 31, 2008...

  • Page 9
    ... of SkyWest Airlines' operating costs, including costs related to fuel, landing fees, and catering. ASA ASA provides regional jet service primarily in the United States primarily from hubs located in Atlanta and Cincinnati. ASA offered more than 775 daily scheduled departures as of December 31, 2008...

  • Page 10
    ... contracts with their pilots that place restrictions on the number and size of aircraft, or the amount of flight activity, that can be operated by major airlines' regional airline contractors such as ASA and SkyWest Airlines. Greater liberalization of scope clauses generally creates more business...

  • Page 11
    ... factors for code-share partner regional airlines are code-share agreement terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. The combined operations of SkyWest Airlines and ASA represent the largest regional airline operation in the United States...

  • Page 12
    ... Airlines flies out of Chicago (O'Hare), Denver, Los Angeles and San Francisco as United Express and out of Salt Lake City as Delta Connection and Milwaukee as Midwest Connect. ASA operates as Delta Connection out of Atlanta and Cincinnati. In addition, the major airline generally provides services...

  • Page 13
    ... flight block hour, subject to annual escalation at an agreed rate. Costs directly reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs primarily related to fuel, aircraft maintenance and ownership. The SkyWest Airlines Delta Connection Agreement is scheduled...

  • Page 14
    ... related to fuel, ground handling, and aircraft maintenance and ownership. The ASA Delta Connection Agreement also provides for incentive compensation based upon ASA's performance, including on-time arrival performance and completion percentage rates. The ASA Delta Connection Agreement is scheduled...

  • Page 15
    .... As of December 31, 2008, SkyWest Airlines operated 52 CRJ700s, 67 CRJ200s and 44 Brasilia turboprops under the United Express Agreement, flying a total of approximately 990 United Express flights per day between Chicago (O'Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/ Tacoma and...

  • Page 16
    ...or turboprop aircraft pursuant to a marketing or code-share relationship with any party other than United to provide hub service at United's hubs in Chicago (O'Hare), Denver, San Francisco, Seattle/Tacoma, or Washington, D.C. (Dulles International Airport). Midwest Airline Services Agreement SkyWest...

  • Page 17
    ... a Midwest Connect carrier to or from Milwaukee International Airport. As of December 31, 2008, SkyWest Airlines and ASA scheduled the following daily flights as Delta Connection carriers: 718 flights to or from Hartsfield-Jackson Atlanta International Airport, 500 flights to or from Salt Lake City...

  • Page 18
    ...we consider SkyWest Airlines' relationships with its employees to be good. As of December 31, 2008, ASA employed approximately 4,348 full-time equivalent employees consisting of 2,502 pilots and flight attendants, 703 customer service personnel, 884 mechanics and other maintenance personnel, and 259...

  • Page 19
    ... SkyWest Airlines and ASA are subject. SkyWest Airlines' and ASA's flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. SkyWest Airlines and ASA do not currently operate at any airports where landing slots are restricted. All air...

  • Page 20
    ... the United Express Agreement due to an uncured breach by SkyWest Airlines of certain operational and performance provisions, including measures and standards related to flight completions, baggage handling and on-time arrivals. The current term of the SkyWest Airlines' Midwest Services Agreement is...

  • Page 21
    ... of our code-share agreements, Delta, United and Midwest could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the code-share services we provide. As a result, in order to offer airline service after termination of any...

  • Page 22
    ... expenses is inconsistent with the parties' treatment of those expenses under the SkyWest Airlines and ASA Delta Connection Agreements since their execution in September 2005. We have not recorded an allowance related to the dispute in our consolidated financial statements. There can be no assurance...

  • Page 23
    ... their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots. Delta's scope limitations restrict its partners from operating aircraft with over 76 seats, even if those aircraft are operated for an airline other than Delta. We...

  • Page 24
    ...City. Under the ASA Delta Connection Agreement, our growth is restricted in Atlanta, Cincinnati, New York (John F. Kennedy International Airport), Orlando and Salt Lake City. Under SkyWest Airlines' United Express Agreement, growth is restricted in Chicago (O'Hare International Airport), Denver, San...

  • Page 25
    ... flight controllers are represented by unions, including: The Air Line Pilots Association, International, the Association of Flight Attendants-CNA and the Professional Airline Flight Control Association. ASA's collective bargaining agreement with its pilots will become amendable on November 20, 2010...

  • Page 26
    ... contract flying arrangements, our partners 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 pro-rate operations. As of December 31, 2008, essentially all of our Brasilia turboprops flown for Delta...

  • Page 27
    ... or disruptions in service at one of our hub airports, due to adverse weather or for any other reason, could have a material adverse impact on our operations. We currently operate primarily through hubs in Atlanta, Los Angeles, Milwaukee, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati...

  • Page 28
    ... affected airlines operating in the region, including ASA. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago, Milwaukee and Denver. A significant interruption or disruption in service at one of our hubs...

  • Page 29
    ...allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Increased fare competition...

  • Page 30
    ... relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training...

  • Page 31
    ... a fleet of aircraft, consisting of the following types of aircraft: Aircraft Type Number of Number of Passenger Owned Aircraft Leased Aircraft Capacity Scheduled Flight Average Cruising Range (miles) Speed (mph) Average Age (years) CRJ200s ...CRJ700s ...CRJ900s ...Brasilia Turboprops . . ATR-72...

  • Page 32
    ... Airlines operated 56 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines' Brasilia turboprops are generally used in its California markets, which are characterized by high frequency service on shorter stage lengths. Ground Facilities...

  • Page 33
    ...personnel. Other airlines, including Delta, Midwest and United, provide ticket handling and/or ground support services for SkyWest Airlines in 65 of the 157 airports SkyWest Airlines serves. • We own the corporate headquarters facilities of SkyWest and SkyWest Airlines, located in St. George, Utah...

  • Page 34
    ... facility located at the Hartsfield- Jackson Atlanta International Airport. The lease agreement has a ten-year term and is scheduled to expire on February 26, 2012. • ASA leases smaller aircraft line maintenance facilities in Atlanta, Georgia; Cincinnati, Ohio; Columbia, South Carolina; Fort...

  • Page 35
    ... or supplemental obligations created by prior conduct into the Connection Agreements. The Court granted the Motion to Dismiss with respect to claims for estoppel, unilateral mistake, and mutual mistake contained in the Complaint. SkyWest Airlines and ASA currently intend to vigorously pursue their...

  • Page 36
    ...this Report, for additional information regarding these plans. Purchases of Equity Securities Our Board of Directors has adopted a stock repurchase program which authorizes us to repurchase shares of our common stock in the public market, from time to time, at prevailing prices. The stock repurchase...

  • Page 37
    ... approximately $228.6 million to purchase and retire approximately 10,356,524 shares of common stock. The authorization of Board of Directors does not have an expiration date. Stock Performance Graph The following Performance Graph and related information shall not be deemed ''soliciting material...

  • Page 38
    ... U.S operations that have equity securities traded on the Nasdaq Stock Market. The members of the Peer Group are: Air France-KLM-ADR; Air T, Inc.; Air Transport Services Group; Allegiant Travel Co.; British Airways PLC-ADR; Deutsche Lufthansa AG-ADR; Frontier Airlines Holdings; Great Lakes Aviation...

  • Page 39
    ...Data 2008 2007 Year Ended December 31, 2006 2005 2004 Block hours ...Departures ...Passengers carried ...Revenue passenger miles (000) ...Available seat miles (000) ...Revenue per available seat mile ...Cost per available seat mile ...Average passenger trip length ...Number of operating aircraft at...

  • Page 40
    ...into an Airline Services Agreement (the ''Midwest Services Agreement''). SkyWest Airlines serves markets from Midwest's hub in Milwaukee. As of December 31, 2008, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco, Denver...

  • Page 41
    ... major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On pro-rate flights, we control scheduling, ticketing, pricing and seat inventories and receive a pro-rated portion of passenger fares. As of December 31, 2008, essentially...

  • Page 42
    ... to exchange four 50-seat CRJ200s for four CRJ900s configured with 76 seats in its Delta Connection operations. On November 30, 2007, we announced that SkyWest Airlines placed a firm order for 22 aircraft with Bombardier. During the fourth quarter of 2008, SkyWest Airlines took delivery of three...

  • Page 43
    ... when service is provided. Under our contract and pro-rate flying agreements with our code-share partners, revenue is considered earned when the flight is completed. Our agreements with our code-share partners contain certain provisions pursuant to which the parties could terminate the respective...

  • Page 44
    ... Board (''Opinion No. 25''), and related interpretations in accounting for our stock-based compensation plans. Results for prior periods have not been restated. Applying SFAS No. 123(R), we estimate the fair value of stock options as of the grant date using the Black-Scholes option pricing model...

  • Page 45
    ...31, 2008, compared to the year ended December 31, 2007. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and ASA Delta Connection...

  • Page 46
    ...of income. The decrease was primarily related to the lower volume of flights serviced under ground handling contracts with United and Delta, whereby we perform ground handling services for several other regional airlines. Individual expense components are also expressed in the following table on the...

  • Page 47
    ...in number of employees was significantly due to Delta assuming responsibility from ASA in June 2007 for the performance of customer service functions in Atlanta and United transitioning 16 stations from SkyWest Airlines to other ground handlers during the second quarter of 2008. Aircraft maintenance...

  • Page 48
    ... added four used CRJ200s and two used CRJ700s to our fleet. Compared to new aircraft, used aircraft typically experience higher maintenance costs during the first year of service. Under the United Express and Midwest Services Agreements, we recognize revenue at a fixed hourly rate for mature engine...

  • Page 49
    ... December 31, 2008, compared to the year ended December 31, 2007. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. We record the amount of those reimbursements as revenue. Under the SkyWest Airlines and ASA Delta Connection Agreements, we are...

  • Page 50
    ...reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record those reimbursements as operating revenue. Under the SkyWest Airlines and ASA Delta Connection Agreements, we are reimbursed for our engine overhaul expenses...

  • Page 51
    ... fuel directly from a fuel vendor for our United Express aircraft operated out of Chicago, San Francisco, Los Angeles and Denver. Midwest also purchased all of its fuel directly from fuel vendors, which reduced our total fuel costs and related passenger revenue. The following table summarizes the...

  • Page 52
    ... 31, 2006. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. We record the amount of those reimbursements as revenue. Under the SkyWest Airlines and ASA Delta Connection Agreements, we are reimbursed for our engine overhaul expense, which we...

  • Page 53
    .... As of December 31, 2008, SkyWest Airlines has a $25 million line of credit. As of December 31, 2008 and 2007, SkyWest Airlines had no amount outstanding under the facility. The facility expires on March 31, 2009 and has a fixed interest rate of 4.01%. As of December 31, 2008, we had $41.9 million...

  • Page 54
    ... in its Delta Connection operations. These four 50-seat CRJ200s are scheduled to be placed into service under other capacity purchase agreements. In November 2007, SkyWest Airlines placed a firm order with Bombardier for the 22 new aircraft. During the fourth quarter of 2008, SkyWest Airlines took...

  • Page 55
    ...average effective interest rate on the debt related to our corporate office building was approximately 7.9% at December 31, 2008. Guarantees We have guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta Connection Agreement and the Midwest Airline Services Agreement and the...

  • Page 56
    ...contracted United Express flights. On our Delta Connection regional jet flights, Delta has agreed to bear the economic risk of fuel price fluctuations. We bear the economic risk of fuel price fluctuations on our pro-rate operations. As of December 31, 2008, essentially all of our Brasilia turboprops...

  • Page 57
    ..., 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2009 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Salt Lake City, Utah February 20, 2009...

  • Page 58
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS December 31, 2008 December 31, 2007 CURRENT ASSETS: Cash and cash equivalents Marketable securities ...Restricted cash ...Income tax receivable ...Receivables, net ...Inventories, net ...Prepaid aircraft rents ...

  • Page 59
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2008 December 31, 2007 CURRENT LIABILITIES: Current maturities of long-term debt . Accounts payable ...Accrued salaries, wages and benefits . Accrued aircraft rents ...

  • Page 60
    ... and other ...Total operating revenues ...OPERATING EXPENSES: Aircraft fuel ...Salaries, wages and benefits ...Aircraft maintenance, materials and repairs Aircraft rentals ...Depreciation and amortization ...Station rentals and landing fees ...Ground handling services ...Other, net ... $3,466...

  • Page 61
    ... offering costs and underwriting discount of $8,864 ...Exercise of common stock options ...Sale of common stock under employee stock purchase plan ...Stock based compensation expense related to the issuance of stock options and the employee stock purchase plan ...Tax benefit from exercise of common...

  • Page 62
    ...) Year Ended December 31, 2008 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Stock based compensation expense ...Maintenance expense related to disposition of rotable...

  • Page 63
    ...into an Airline Services Agreement (the ''Midwest Services Agreement''). SkyWest Airlines serves markets from Midwest's hub in Milwaukee. As of December 31, 2008, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco, Denver...

  • Page 64
    ...790 542,733 5,277 570,800 - $570,800 $ 14,974 507,147 2,208 524,329 (1,404) $522,925 $ 14,983 505,706 2,236 522,925 - $522,925 Marketable securities had the following maturities as of December 31, 2008 (in thousands): Maturities Amount Year 2009 ...Years 2010 through 2013 Years 2014 through 2018...

  • Page 65
    ...for obsolescence based on historical results 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...

  • Page 66
    ...-rate flying agreements based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive. SkyWest Airlines and ASA have each entered into a Delta Connection Agreement with Delta, pursuant to which SkyWest Airlines and ASA provide contract flight services for Delta...

  • Page 67
    .... SkyWest Airlines and ASA also have cross-termination rights between the two Delta Connection Agreements. Under the terms of the SkyWest Airlines Delta Connection Agreement, Delta has agreed to compensate SkyWest Airlines for the direct costs associated with operating the Delta Connection flights...

  • Page 68
    ... of income. Under the SkyWest Inc. Delta Connection Agreement, the SkyWest Airlines United Express Agreement and the Midwest Airlines Services Agreement, the Company receives a reimbursement for direct start-up costs for each additional aircraft placed into service. The start-up reimbursement...

  • Page 69
    ... 31, 2008 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) The Company's passenger and ground handling revenues could be impacted by a number of factors, including changes to the Company's code-share agreements with Delta, United or Midwest, contract modifications...

  • Page 70
    ...145,867 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...

  • Page 71
    ...at 3.72% to 3.86%, net of the benefits of interest rate subsidies through the Brazilian Export financing program, through 2011, secured by aircraft ...Notes payable to a bank, due in monthly installments interest based on LIBOR through 2012, interest rate at 7.9% secured by building ... . $ 529,625...

  • Page 72
    ...): 2009 ...2010 ...2011 ...2012 ...2013 ...Thereafter ...$ 129,783 135,480 139,108 189,472 137,861 1,079,784 $1,811,488 As of December 31, 2008 and 2007, SkyWest Airlines had a $25 million line of credit. As of December 31, 2008 and 2007, SkyWest Airlines had no amount outstanding under the facility...

  • Page 73
    ...in thousands): As of December 31, 2008 2007 Deferred tax assets: Accrued benefits ...Net operating loss carryforward AMT credit carryforward ...Deferred aircraft credits ...Accrued reserves and other ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $ 22,423 23,300...

  • Page 74
    ... leases 287 aircraft, as well as airport facilities, office space, and various other property and equipment under non-cancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to...

  • Page 75
    ... in its Delta Connection operations. These four CRJ200s are scheduled to be placed into service under other capacity purchase agreements. On November 30, 2007, the Company announced that it placed a firm order with Bombardier for the 22 new aircraft. During the fourth quarter of 2008, the Company...

  • Page 76
    ... matter. ASA and SkyWest Airlines v. Delta Air Lines During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and ASA of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and ASA. The dispute relates to allocation of liability...

  • Page 77
    ...'s total revenues. Employees As of December 31, 2008 the Company and SkyWest Airlines collectively employed 8,987 full-time equivalent employees consisting of 4,229 pilots and flight attendants, 3,201 customer service personnel, 1,079 mechanics and other maintenance personnel, and 478 administration...

  • Page 78
    ... failed during the year ended December 31, 2008. Therefore, quoted prices in active markets are no longer available and the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis as of December 31, 2008. These analyses consider, among other items, the...

  • Page 79
    ...Other Assets ... Restricted ... $136,620 568,567 2,233 $707,420 $136,620 26,030 - $162,650 $ - 540,084 - $540,084 $ - 2,453 2,233 Total Assets Measured at Fair Value ... $4,686 Based on market conditions, the Company uses a discounted cash flow valuation methodology for auction rate securities...

  • Page 80
    ... stock remained outstanding under the Executive Plan and the Allshare Plan. On May 2, 2006, the Company's shareholders approved the adoption of the SkyWest Inc. Long-Term Incentive Plan, which provides for the issuance of up to 6,000,000 shares of common stock to the Company's directors, employees...

  • Page 81
    .... During the year ended December 31, 2008, the Company granted 296,245 shares of restricted stock to the Company's employees under the 2006 Incentive Plan. The restricted stock has a three-year vesting period, during which the recipient must remain employed with the Company or its subsidiaries. The...

  • Page 82
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2008 (7) Capital Transactions (Continued) As of December 31, 2008, the Company had $9.9 million of total unrecognized compensation cost related to non-vested stock options and non-vested restricted ...

  • Page 83
    ... rate from year to year is subject to variability. (8) Retirement Plan and Employee Stock Purchase Plan SkyWest Retirement Plan The Company sponsors the SkyWest, Inc. Employees' Retirement Plan (the ''SkyWest Plan''). Employees who have completed 90 days of service and are at least 18 years of age...

  • Page 84
    ...purchased semi-annually at a 15% discount based on the lower of the beginning or the end of the period price. During the years ended December 31, 2008, 2007 and 2006, the Company recorded compensation expense of $3.0 million, $2.8 million and $1.8 million related to Stock Purchase Plan, respectively...

  • Page 85
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2008 (10) Related-Party Transactions (Continued) serves as the Company's transfer agent. The Company's cash balance in the accounts held at Zions as of December 31, 2008 and 2007 was $11.7 million and...

  • Page 86
    ... within 90 days of the filing date of this Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be included in our...

  • Page 87
    operational effectiveness of our internal control over financial reporting. Our management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, our management determined that, as of December 31, 2008, we maintained effective internal ...

  • Page 88
    ... responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit...

  • Page 89
    ... DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRINCIPAL ACCOUNTANT FEES AND SERVICES ''Election of Directors'', ''Corporate...

  • Page 90
    ... Delta Air Lines, Inc. United Express Agreement dated September 9, 2003, between United Air Lines, Inc., and SkyWest Airlines, Inc. Stock Option Agreement dated January 28, 1987 between Delta Air Lines, Inc. and SkyWest, Inc. Lease Agreement dated December 1,1989 between Salt Lake City Corporation...

  • Page 91
    ... to SkyWest, Inc. 2006 Employee Stock Purchase Plan SkyWest Inc. Executive Stock Incentive Plan SkyWest Inc. Allshare Stock Option Plan Airline Services Agreement dated December 20, 2006 by and between SkyWest Airlines, Inc. and Midwest Airlines, Inc SkyWest, Inc. 2002 Deferred Compensation Plan, as...

  • Page 92
    ... based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Salt Lake City, Utah February...

  • Page 93
    SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2008... obsolescence ...Allowance for doubtful accounts receivable ...Sales allowance ... $ 2,916 58 10,200 $13,174 $ 1,083 5 (3,500) $(2,412) $ (394) (16) (6,700) $(7,110) $3,605 47...

  • Page 94
    ...thereunto duly authorized, on February 20, 2009. SKYWEST, INC. By /s/ BRADFORD R. RICH Bradford R. Rich Executive Vice President and Chief Financial Officer ADDITIONAL SIGNATURES Pursuant to the requirement of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed...

  • Page 95
    SkyWest, Inc. 444 South River Road ɀ St. George, UT 84790 March 20, 2009 Dear Shareholder: You are invited to attend the Annual Meeting of Shareholders of SkyWest, Inc. scheduled to be held at 11:00 a.m., Tuesday, May 5, 2009, at our headquarters located at 444 South River Road, St. George, Utah. ...

  • Page 96

  • Page 97
    ...) SkyWest, Inc. Headquarters 444 South River Road St. George, Utah 84790 1. To elect nine directors to serve on the Board of Directors of SkyWest, Inc., (the ''Company'') until the next Annual Meeting of the Company's shareholders; To approve the SkyWest, Inc. 2009 Employee Stock Purchase Plan; To...

  • Page 98

  • Page 99
    ... Upon Termination or Change in Control ...Director Compensation ...Director Summary Compensation Table ...Security Ownership ...Proposal 2-Approval of the SkyWest, Inc. 2009 Employee Stock Purchase Plan ...Proposal 3-Ratification of Appointment of Independent Registered Public Accounting Firm...

  • Page 100

  • Page 101
    ...Solicitation This Proxy Statement, the accompanying Notice of Annual Meeting, proxy card and the Annual Report to Shareholders of SkyWest, Inc. (the ''Company'' or ''SkyWest'') are being mailed on or about March 20, 2009. The Board of Directors (the ''Board'') of the Company is soliciting your proxy...

  • Page 102
    ... appointed by the Board will vote your shares as follows: Proposal 1-FOR the election of all nine nominees for director with terms expiring at the next annual meeting of the Company's shareholders. Proposal 2-FOR the approval of the SkyWest, Inc. 2009 Employee Stock Purchase Plan. Proposal 3-FOR the...

  • Page 103
    ..., 2008 Annual Report to Shareholders and a form of proxy card or voting instruction card. All shareholders who do not receive a Notice will receive a paper copy of the proxy materials by mail. The Company believes this new process will allow it to provide its shareholders with the information they...

  • Page 104
    ...elected Chairman of the Board in 1991. Prior to joining the Company, Mr. Atkin was employed by a public accounting firm and is a certified public accountant. Mr. Atkin currently serves as a director of Zion's Bancorporation, a regional bank holding company based in Salt Lake City, Utah. Mr. Atkin is...

  • Page 105
    ... of the Republic of Ghana, and Chief Executive Officer of Euro Sky, a company organized to explore the feasibility of operating a regional airline in Austria. From March 1991 to January 1993, Mr. Atkin was Director of Business and Economic Development for the State of Utah. Mr. Atkin is an uncle of...

  • Page 106
    ... Cumming Age: Director Since: Committees: Principal Occupation: 68 1986 Chairman of Nominating and Corporate Governance Committee; Member of Compensation Committee Chairman and Chief Executive Officer of Leucadia National Corporation, a diversified holding company engaged in a variety of businesses...

  • Page 107
    ... Officer of California Bank and Trust from 1995 to 2001. Prior to 1995, he served as the President of National Bank of Arizona. Mr. Sarver is an Executive Director of Southwest Value Partners, a real estate investment company, and a director of Meritage Corporation, a builder of single-family homes...

  • Page 108
    .... Experience: Other Directorships: James Welch Age: Director Since: Committees: Principal Occupation: 54 2007 Member of Compensation Committee President, Chief Executive Officer and a director of Dynamex, Inc., a provider of same-day delivery and logistics services in the United States and Canada...

  • Page 109
    ... of the safety and quality of SkyWest Airline's operations, including aircraft flight operations, maintenance and customer service. He also oversees SkyWest Airline's relationships with Delta Air Lines, Inc. (''Delta''), United Airlines, Inc. (''United'') and Midwest Airlines, Inc. (''Midwest''). Mr...

  • Page 110
    ... has four regularly scheduled meetings per year. As determined necessary by the Board and in order to address the Company's needs, special meetings of the Board are convened from time to time. Annual Evaluations The Nominating and Corporate Governance Committee conducts annual evaluations to assess...

  • Page 111
    ... mail: Board of Directors or Name of Individual Director(s) c/o Corporate Secretary SkyWest, Inc. 444 South River Road St. George, UT 84790 Code of Ethics The Company has adopted a Code of Ethics for Directors and Senior Executive Officers, which is available on the Company's Web site, www.SkyWest...

  • Page 112
    ... assist the Board in the execution of its responsibilities: (1) Audit and Finance, (2) Compensation, and (3) Nominating and Corporate Governance. All the committees are comprised solely of non-employee, independent directors as defined by The Nasdaq Stock Market listing standards. Charters for each...

  • Page 113
    ... and stock-based compensation plans, and discharge the duties imposed on the Compensation Committee by the terms of those plans; • Review and approve any severance or termination payments proposed to be made to any current or former officer of the Company; • Prepare and issue the report of...

  • Page 114
    ... as a director. This information should be addressed to Jerry C. Atkin, Chairman and Chief Executive Officer of the Company, 444 South River Road, St. George, Utah 84790. As contemplated by the Company's Corporate Governance Guidelines, the Nominating and Corporate Governance Committee reviews the...

  • Page 115
    ... Vice President and Chief Financial Officer of the Company, SkyWest Airlines and ASA; • Russell A. Childs, President and Chief Operating Officer of SkyWest Airlines; and • Bradford R. Holt, President and Chief Operating Officer of ASA. Executive Compensation Objectives and Principles The overall...

  • Page 116
    ... the executive compensation programs of other regional air carriers. The most recent review was in 2007 and included peer airlines Midwest, Pinnacle, Republic, Frontier, Mesa, Horizon, ExpressJet, Air Tran, Jet Blue, Alaska and Southwest Airlines (the ''Peer Group Airlines''). The compensation...

  • Page 117
    ...perceived market salary rates for chief operating officers performing similar responsibilities in the Company's industry. The 2009 base salary for Mr. Atkin was recommended by the Compensation Committee and approved by the directors of the Company other than Mr. Atkin. Annual Performance-Based Bonus...

  • Page 118
    ... net income objectives set by the Compensation Committee. For the Chief Executive Officer and Chief Financial Officer, the net income target is based on the consolidated net income of the Company. In the case of the presidents of SkyWest Airlines and ASA, the targets are based on the net income of...

  • Page 119
    ... in flight scheduling experienced by SkyWest Airlines and ASA, due to the decisions made by the Company's major partners, and the general deterioration of economic conditions in the United States. After carefully evaluating the Company's operating performance, changes in flight schedules, industry...

  • Page 120
    ... Plan, a non-qualified deferred compensation plan (the ''SkyWest Deferred Compensation Plan''), for the benefit of certain highly compensated management employees, including Messrs. Atkin, Rich, Childs and Holt (for the amounts that were funded during Mr. Holt's employment at SkyWest Airlines...

  • Page 121
    ... of Code Section 162(m) in order to ensure competitive levels of total compensation for its executive officers. Stock option grants in 2008 were intended to constitute ''qualified performance-based compensation'' under Section 162(m) of the Code. The Company's 2008 restricted stock grants and annual...

  • Page 122
    ... COMMITTEE REPORT The Compensation Committee has reviewed the foregoing Compensation Discussion and Analysis and discussed with the Company's management the information set forth herein. Based on such review and discussions with management, the Compensation Committee recommended to the Board that...

  • Page 123
    ... are reported in the ''Grants of Plan-Based Awards for 2008'' table below. (3) All other compensation for Mr. Atkin for 2008 consists of: $87,450 of employer credits under the SkyWest Deferred Compensation Plan attributable to compensation earned for 2008; $2,567 in employer-paid health insurance...

  • Page 124
    ... Company's recreational equipment. (9) All other compensation for Mr. Childs for 2008 consists of: $56,220 of employer credits under the SkyWest Deferred Compensation Plan attributable to compensation earned for 2008; $3,466 in employer-paid health insurance premiums; $13,966 for a personal vehicle...

  • Page 125
    ... performance levels applicable to 2008 Non-Equity Incentive Plan Awards are described under the heading ''Annual Performance-Based Bonus'' in the ''Compensation Discussion and Analysis'' section above. (2) On February 6, 2008, the Company granted stock options and restricted stock awards pursuant...

  • Page 126
    ... February 6, 2010. (3) Awards vest on February 6, 2011. (4) Stock options awarded prior to 2006 expire ten years from date of grant. Stock options granted after 2005 expire seven years from date of grant. (5) Based on market closing price per share of Common Stock of $18.60 on December 31, 2008. 26

  • Page 127
    ... retirement or separation from employment, or on other specified dates, in a lump sum form or in installments according to a schedule elected in advance by the NEO. The following table provides information regarding the SkyWest and ASA Deferred Compensation Plans for NEOs for 2008. (a) (b) Executive...

  • Page 128
    ... (d) reflect the notational earnings (losses) during 2008 charged against each NEO's account under the SkyWest and ASA Deferred Compensation Plans. These amounts are not reported in the Summary Compensation Table because they are based on market rates determined by reference to mutual funds that are...

  • Page 129
    ... are in addition to benefits generally available to all salaried employees of the Company in connection with a termination of employment, such as distributions from the 401(k) Plans, disability and life insurance benefits, the value of employee-paid group health plan continuation coverage under the...

  • Page 130
    ...Stock. Cash Compensation Paid to Directors For the year ended December 31, 2008, all directors who were not employees of the Company received an annual cash retainer of $31,000 and attendance fees of $1,600 for each board meeting, $1,200 for each committee meeting, and $800 for each telephonic board...

  • Page 131
    ...monetary compensation for his services as Chairman. (2) Represents the closing price of the Common Stock awarded on the grant date of February 6, 2008, of $26.06 per share, multiplied by the 1,663 shares granted to each non-employee director. That amount is the aggregate grant date fair market value...

  • Page 132
    .... Amount of Beneficial Ownership Common Stock Shares Percent of Class Name Orbis Investment Management Limited ...34 Bermudiana Road Hamilton HM11, Bermuda Barclays Global Fund Advisors ...400 Howard Street San Francisco, CA 94105 Dimensional Fund Advisors LP ...Palisades West, Building One 6300...

  • Page 133
    ...future employees by allowing them to share in the Company's growth. The Stock Purchase Plan is intended to qualify as an ''employee stock purchase plan'' under Section 423 of the Code. Administration: Except for certain powers expressly reserved to the Board and the Compensation Committee, the Stock...

  • Page 134
    ... of the Stock Purchase Plan, the fair market value of the Common Stock shall be the closing sales price as reported on The Nasdaq Global Select Market on the applicable date or the nearest prior business day on which shares of the Common Stock traded. Withdrawal; Termination of Employment: Upon...

  • Page 135
    ... ordinary compensation income up to an amount equal to the product of the stock's fair market value as of the date of grant of the purchase right multiplied by the applicable purchase price discount percentage (i.e., 5%), with any additional gain taxed as a long-term capital gain. Value of Benefits...

  • Page 136
    ... Company's Web site at www.SkyWest.com, and is also available in print, free of charge, upon request. Requests for a printed copy of the Audit and Finance Committee charter should be submitted to Eric D. Christensen, Corporate Secretary of the Company, at 444 South River Road, St. George, Utah 84790...

  • Page 137
    ... reviewed the bases for management's conclusions in that report, and also reviewed the report of the independent registered public accounting firm on internal control over financial reporting. Throughout the year ended December 31, 2008, the Audit and Finance Committee reviewed management's plan...

  • Page 138
    ... addresses when the Company may recruit personnel who formerly were employed by the Company's independent registered public accounting firm. In other cases, the Audit and Finance Committee is responsible for overseeing the efficacy of management policies, including compliance with the Company's Code...

  • Page 139
    ..., respectively, for audit-related services. The amount paid in 2007 related to E&Y's consent on their audit report on the financial statements of certain of the Company's employee benefit plans. Tax Fees During the years ended December 31, 2008 and 2007, the Company did not pay fees to E&Y for tax...

  • Page 140
    ... any services to the Company, and the Company did not pay to E&Y any fees, other than those identified above. REPORT OF THE AUDIT & FINANCE COMMITTEE In connection with the financial statements for the year ended December 31, 2008, the Audit and Finance Committee has: (1) Reviewed and discussed...

  • Page 141
    ... of this Proxy Statement and the Company's 2008 Annual Report to Shareholders should submit a request by writing to Eric D. Christensen, Corporate Secretary of the Company, 444 South River Road, St. George, Utah 84790. Beneficial owners sharing an address who are receiving multiple copies of proxy...

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    Appendix A SKYWEST, INC. 2009 EMPLOYEE STOCK PURCHASE PLAN SkyWest, Inc. (the ''Company''), a Utah corporation, hereby establishes and adopts the 2009 SkyWest, Inc. Employee Stock Purchase Plan (the ''Plan''). 1. PURPOSE The purpose of the Plan is to provide eligible employees of the Company and ...

  • Page 144
    ...the last preceding date on which the prices were reported) or, if the Company is not then listed on the NASDAQ Stock Market, on such other principal securities exchange on which the Shares are traded. 2.14. ''Offering Date'' shall mean the first business day of each Offering Period. 2.15. ''Offering...

  • Page 145
    ...permits the Participant's rights to purchase stock under all employee stock purchase plans (as described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate that exceeds $25,000 of the Fair Market Value of such stock (determined at the time such option is granted) for...

  • Page 146
    ... Stock which the Participant requests to withdraw. 9. WITHDRAWAL; TERMINATION OF EMPLOYMENT 9.1. A Participant may withdraw all, but not less than all, the payroll deductions and cash dividends credited to the Participant's Account at any time by giving written notice to the Plan Administrator...

  • Page 147
    ...to take all action in connection therewith or in relation thereto as it deems necessary or advisable. The determination of the Plan Administrator or Committee, as applicable, on any matters relating to the Plan shall be final, binding and conclusive. The Company will pay all expenses incurred in the...

  • Page 148
    ... in cash, securities or other property based upon the excess of the Fair Market Value of a share of Common Stock immediately prior to the transaction over the option price. 15. TERMINATION OR AMENDMENT The Board may at any time terminate, suspend or amend the Plan as it shall deem advisable. No...

  • Page 149
    ... is applicable, the Company may (i) deduct shares of Common Stock from the Participant's Account equal in value to such amount, and (ii) the Company and any Subsidiary may deduct such amount from any other compensation payable to the Participant. 19. MISCELLANEOUS 19.1. If any provision of the Plan...

  • Page 150
    ... the shareholders of the Company do not approve the Plan in the manner that meets the requirements of Code Section 423 by June 30, 2009, the Plan shall automatically expire and terminate on that date and no shares of Common Stock shall be issued under the Plan. If approved by the shareholders on or...

  • Page 151
    ... Zions First National Bank Stock Transfer Department PO Box 9088 Salt Lake City, UT 84130 Independent Public Accountants Ernst & Young LLP 178 South Rio Grande Street, Suite 400 Salt Lake City, UT 84101 Corporate Headquarters SkyWest, Inc. 444 South River Road St. George, UT 84790 Tel: (435) 634...

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