SkyWest Airlines 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 SkyWest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 161

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161

2015 ANNUAL REPORT
Notice of 2016 Annual Meeting and Proxy Statement

Table of contents

  • Page 1
    2 0 1 5 A N N UA L R E P O R T Notice of 2016 Ann ual M eeting and Prox y Statement

  • Page 2
    ... City Rapid City Cody Redmond/Bend Eugene Portland Gillette Toronto Appleton La Crosse Idaho Falls Sun Valley Sioux Falls Boise Muskegon Saginaw North Bend Jackson Hole Rochester Syracuse Rochester London Albany Grand Rapids Flint Manchester Madison Twin Falls Pocatello Milwaukee Casper Medford...

  • Page 3
    ... availability of qualified new pilots, fluctuating demand for the 50-seat aircraft from our major airline partners, and reaching agreements with our labor groups with open contracts. We remain focused on executing a disciplined strategy that provides both model stability and fleet flexibility. From...

  • Page 4
    ... to thank the nearly 20,000 employees across our organization for their excellent work and the outstanding service they provide. Not only have our people continued... Jerry C. Atkin Chairman SkyWest, Inc. 6MAR201519070928 Russell A. ''Chip'' Childs Chief Executive Officer and President SkyWest, Inc.

  • Page 5
    ... 31, 2015 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 No. 0-14719 SKYWEST, INC. Incorporated under the Laws of Utah 87-0292166 (IRS Employer ID No.) 444 South River Road St. George, Utah 84790...

  • Page 6
    ... Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9. Item 9A. Controls and Procedures ...Other Information ...Item 9B. PART III Item 10. Directors, Executive Officers and Corporate Governance ...Executive Compensation...

  • Page 7
    ... to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law. ITEM 1. BUSINESS General Through SkyWest Airlines and ExpressJet, we offer scheduled passenger service with approximately 3,400 daily departures...

  • Page 8
    ...from airports located in Chicago (O'Hare), Denver, Los Angeles, Houston, Minneapolis, Portland, Seattle, Phoenix, San Francisco and Salt Lake City. As of December 31, 2015, SkyWest Airlines operated a fleet of 348 aircraft consisting of the following: CRJ200 CRJ700 CRJ900 E175 Total United ...Delta...

  • Page 9
    ... scheduled departures as of December 31, 2015, of which approximately 926 were Delta Connection flights, 586 were United Express flights and 146 were American Eagle flights. As of December 31, 2015, ExpressJet operated a fleet of 312 aircraft consisting of the following: CRJ200 ERJ145 ERJ135 CRJ700...

  • Page 10
    ...lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city. In exchange for such services, the major airline pays the regional airline either a fixed flight fee, termed "contract" or "fixed-fee" flights, or receives...

  • Page 11
    ...passenger revenues related to fixed-fee contract flights, where Delta, United, Alaska and American controlled scheduling, ticketing, pricing and seat inventories. The remainder of our passenger revenues during the year ended December 31, 2015 related to pro-rate flights for Delta, United or American...

  • Page 12
    ... of the aircraft under contract is 1.9 years • Upon expiration, aircraft may be renewed or extended • Terminable with 120 days' notice SkyWest Airlines United Express Pro-rate Agreement (revenuesharing arrangement) • CRJ 200 - 26 Alaska Capacity Purchase Agreement Number of aircraft under...

  • Page 13
    ...Agreements Number of aircraft under agreements • CRJ 200 - 12 Pass through costs or costs paid directly by major partner • Fuel • Landing fees • Station Rents, Deice • Insurance • None Agreement SkyWest Airlines American Agreement (fixed-fee agreement) SkyWest Airlines American Pro-rate...

  • Page 14
    ... Code) or if either party makes an assignment for the benefit of creditors; or if ExpressJet fails to maintain competitive base rate costs (provided, however, that ExpressJet has the right to adjust its rates prior to any such termination). • • • • • SkyWest Airlines United Express...

  • Page 15
    ... lease agreements relating to aircraft operated by ExpressJet under the ExpressJet United ERJ Agreement (provided that such material default is not cured within 60 days following receipt of notice). ExpressJet's termination rights include the right to terminate the ExpressJet United ERJ Agreement if...

  • Page 16
    ... Report, for financial information regarding our business segments. Training and Aircraft Maintenance SkyWest Airlines and ExpressJet provide substantially all training to their crew members and maintenance personnel at their respective training facilities. SkyWest Airlines and ExpressJet employees...

  • Page 17
    ... Railway Labor Act Our relations with labor unions in the U.S. are governed by the Railway Labor Act (the "RLA"). Under the RLA, a labor union seeking to represent an unrepresented craft or class of employees is required to file with the National Mediation Board (the "NMB") an application alleging...

  • Page 18
    ... labor workgroup with an amendable contract could impact our financial performance. As of December 31, 2015, SkyWest and SkyWest Airlines collectively employed 10,411 full-time equivalent employees, consisting of 3,676 pilots, 2,703 flight attendants, 1,742 customer service personnel, 872 mechanics...

  • Page 19
    ..., enhanced passenger and baggage screening and search procedures, and securing of cockpit doors. We are committed to complying with future safety and security requirements. Insurance SkyWest, SkyWest Airlines and ExpressJet maintain insurance policies we believe are of types customary in the...

  • Page 20
    .... Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the year ended December 31, 2015, our salary, wage and benefit costs constituted...

  • Page 21
    ... is based upon pre-determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month). The primary operating costs intended to be compensated by the predetermined rates include labor costs, including crew training...

  • Page 22
    ... and standards related to flight completions and on-time arrivals. We currently use the systems, facilities and services of Delta and United to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and...

  • Page 23
    ... our flying within the Delta and United flight systems. Additional growth opportunities within the Delta and United flight systems are limited by various factors including a limited number of regional aircraft each major partner can operate in its regional network due to its own labor agreements...

  • Page 24
    ... to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make required debt service payments related to our existing or anticipated future obligations. Even if we meet all required debt, lease and purchase obligations, the size of these long-term obligations could...

  • Page 25
    ..., including ExpressJet. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago, San Francisco, Newark and Denver. A significant interruption or disruption in service at one of our hubs, due to adverse weather...

  • Page 26
    ..., Embraer, General Electric or Rolls Royce to provide sufficient parts or related maintenance and support services to us on a timely manner, or the interruption of our flight operations as a result of unscheduled or unanticipated maintenance requirements for our aircraft or engines. Certain flying...

  • Page 27
    ... have difficulty replacing management or other key personnel who cease to be employed by us and, therefore, the loss of the services of any of these individuals could harm our business. We do not maintain key-person insurance on any of our executive officers. Risks Related to the Airline Industry We...

  • Page 28
    ... 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 29
    ... of deterring a change in control of our company. ITEM 1B. UNRESOLVED STAFF COMMENTS None ITEM 2. PROPERTIES Flight Equipment As of December 31, 2015, our fleet available for scheduled service consisted of the following types of owned and leased aircraft: Number of Owned Aircraft Number of Leased...

  • Page 30
    ...City Department of Airports under a lease that expires in 2028. SkyWest Airlines leases a 94,000 square-foot hangar and a 32,000 square-foot office facility in Boise, Idaho. SkyWest Airlines leases a 90,000 square-foot maintenance hangar and a 15,000 square-foot office facility in Fresno, California...

  • Page 31
    ... of the Central Passenger Terminal Complex located on Concourse C and Concourse D at Hartsfield-Jackson Atlanta International Airport. The lease agreement is scheduled to expire on September, 20, 2017. ExpressJet leases a 380,000 square-foot hangar and office support facility in Houston, Texas. The...

  • Page 32
    ....58 13.91 16.55 $ 14.98 13.72 12.66 13.28 $ 11.77 11.21 7.78 7.07 The transfer agent for our common stock is Zions First National Bank, Salt Lake City, Utah. Dividends During 2015 and 2014, our Board of Directors declared regular quarterly dividends of $0.04 per share. 28

  • Page 33
    ... Consists of our SkyWest Inc. Long Term Incentive Plan, and our Employee Stock Purchase Plan. See Note 9 to our Consolidated Financial Statements for the fiscal year ended December 31, 2015, included in Item 8 of this Report, for additional information regarding these plans. Stock Performance Graph...

  • Page 34
    ... SELECTED FINANCIAL DATA The following selected financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this Report. 30

  • Page 35
    ... seat mile" represents passenger revenue divided by available seat miles. "Cost per available seat mile" represents operating expenses plus interest divided by available seat miles. "Number of operating aircraft at end of year" excludes aircraft leased to un-affiliated and affiliated entities...

  • Page 36
    ... we receive for engine maintenance under our fixed-fee arrangements. Under our United CRJ and E175 fixed-fee contracts, American fixed-fee contracts, and Alaska fixed-fee contracts, a portion of our compensation is based upon fixed hourly rates the aircraft is in operation, which is intended to...

  • Page 37
    ... passenger revenues. 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, flight departures and other operating measures. Financial Highlights...

  • Page 38
    ... to new or existing fixed-fee flying arrangements at improved economics. The number of aircraft available for scheduled service decreased from 717 aircraft at December 31, 2014 to 660 at December 31, 2015, or by 8.6%. Our completed block hours decreased 8.8% primarily due to the reduced fleet size...

  • Page 39
    ... 17 new E175 aircraft into fixed-fee flying contracts in 2016 and 2017, respectively. Critical Accounting Policies Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2015, included in Item 8 of this Report. Critical...

  • Page 40
    ... groupings are done at the fleet type or contract level. Stock-Based Compensation Expense We estimate the fair value of stock options as of the grant date using the Black-Scholes option pricing model. We use historical data to estimate option exercises and employee termination in the option pricing...

  • Page 41
    ...was amended to modify existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15...

  • Page 42
    ...due primarily to (i) our major partners purchasing an increased volume of fuel, landing fees and station rents directly from vendors on flights we operated under our fixed-fee flying agreements and (ii) a reduction in the number of engine maintenance events. The following table summarizes the amount...

  • Page 43
    ... fleet size and related decrease in the number of departures and block hours compared to the year ended December 31, 2014, which was partially offset by additional training costs for the E175 deliveries and an increase in employee benefit costs. Aircraft maintenance, materials and repairs. Aircraft...

  • Page 44
    ... aircraft was triggered by our execution of an amended and restated contract with United in November 2014. The amended and restated contract provides for accelerated lease termination dates of certain ERJ145 aircraft and advances the termination date of the ExpressJet United ERJ Agreement to operate...

  • Page 45
    ... hull and liability insurance, crew simulator training, and crew hotel costs, decreased $4.0 million, or 1.5%, during the year ended December 31, 2015, compared to the year ended December 31, 2014. The decrease in other operating expenses was primarily related to a reduction in fleet size, partially...

  • Page 46
    ... ended December 31, 2013, which was due primarily to (i) our major partners purchasing an increased volume of fuel, landing fees and station rents directly from vendors on flights we operated under our fixed-fee flying agreements and (ii) a reduction in the number of engine maintenance events. The...

  • Page 47
    ... $ Change Amount % Change Percent 2014 Cents Per ASM 2013 Cents Per ASM Salaries, wages and benefits ...Aircraft maintenance, materials and repairs ...Aircraft rentals ...Depreciation and amortization ...Aircraft fuel ...Ground handling services ...Special Items ...Station rentals and landing fees...

  • Page 48
    ...number of scheduled maintenance events and aircraft parts replacement primarily due to the timing of major maintenance events and general aging of our CRJ and ERJ fleet. We recognize engine maintenance expense on our CRJ200 engines on an as-incurred basis as maintenance expense. Under our Fixed-Rate...

  • Page 49
    ... aircraft was triggered by our execution of an amended and restated contract with United in November 2014. The amended and restated contract provides for accelerated lease termination dates of certain ERJ145 aircraft and advances the termination date of the ExpressJet United ERJ Agreement to operate...

  • Page 50
    ... the flight operations of our E175 aircraft separately from the acquisition, ownership and financing costs and related revenue. Because of this change, the "SkyWest Leasing" segment includes revenue attributed to our E175 ownership cost earned under the applicable fixed-fee flying contracts, and...

  • Page 51
    ... • SkyWest Airlines airline expense included an increase in salaries, wages and employee benefits of $29.1 million, or 4.8%, for the 2015 year compared to the 2014 year, primarily due to the additional block hour production and related crew training associated with the new E175 aircraft deliveries...

  • Page 52
    ... CRJ200 aircraft in operation under ExpressJet's United fixed-fee arrangements. ExpressJet's aircraft maintenance, materials and repairs expense, decreased $70.5 million, or 18.1%, during the 2015 year, compared to the 2014 year. The decrease was primarily due to the reduced fleet size and related...

  • Page 53
    ... the flight operations of our E175 aircraft separately from the acquisition, ownership and financing costs and related revenue. Because of this change, the "SkyWest Leasing" segment includes revenue attributed to our E175 ownership cost earned under the applicable fixed-fee flying contracts, and...

  • Page 54
    ...obligations on leased aircraft and related costs. SkyWest Airlines airline expense included an increase in salaries, wages and employee benefits of $41.1 million, or 7.2%, for the 2014 year compared to the 2013 year, primarily due to direct labor costs associated with our increased pro-rate and E175...

  • Page 55
    ... under the applicable fixed-fee flying contracts and profitability offset by the E175 aircraft depreciation and interest expense. SkyWest Leasing profit(loss) for 2013 was primarily due to maintenance costs associated with transferring aircraft costs from Air Mekong to SkyWest Airlines. Liquidity...

  • Page 56
    .... Net cash provided by financing activities increased $448.4 million, or 239.7%, during 2014, compared to 2013. The increase was primarily related to proceeds from the issuance of long term debt of $460.6 million associated with 20 E175 aircraft acquired during 2014. The remaining change in cash...

  • Page 57
    ... of our total long-term debt. Actual interest commitments will change based on the actual variable interest. Purchase Commitments and Options On May 21, 2013, we announced our execution of an agreement with Embraer, S.A. for the purchase of 100 new E175 dual-class regional jet aircraft. Of the 100...

  • Page 58
    ... of December 31, 2015, we had $1.9 billion of long-term debt obligations related to the acquisition of CRJ200, CRJ700, CRJ900 and E175 aircraft. The average effective interest rate on those long-term debt obligations was approximately 3.7% at December 31, 2015. Under our fixed-fee arrangements, the...

  • Page 59
    ...borrowings. Changes in interest rates may impact the actual financing cost associated with these aircraft. To the extent we place these aircraft in service under our code-share agreements with Delta, United, or other carriers, our code-share agreements currently provide that reimbursement rates will...

  • Page 60
    ...31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Salt Lake City, Utah...

  • Page 61
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS December 31, 2015 December 31, 2014 CURRENT ASSETS: Cash and cash equivalents ...Marketable securities ...Restricted cash ...Income tax receivable ...Receivables, net ...Inventories, net ...Prepaid aircraft ...

  • Page 62
    ...December 31, 2015 December 31, 2014 CURRENT LIABILITIES: Current maturities of long-term debt...Accounts payable ...Accrued salaries, wages and benefits ...Accrued aircraft rents ...Taxes...,478 (391,364) (289) 1,400,346 4,409,928 $ $ See accompanying notes to consolidated financial statements. 58

  • Page 63
    ...2015 2013 OPERATING REVENUES: Passenger...Ground handling and other ...Total operating revenues ...OPERATING EXPENSES: Salaries, wages and benefits ...Aircraft maintenance, materials and repairs ...Aircraft rentals ...Depreciation and amortization...Aircraft fuel...Ground handling services...58,200 ...

  • Page 64
    ... stock under employee stock purchase plan . . Stock based compensation expense related to the issuance of stock options and restricted stock Tax deficiency from exercise of common stock options ...Treasury stock purchases ...Cash dividends declared ($0.16 per share) ...Balance at December 31, 2015...

  • Page 65
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ...Stock based compensation ...

  • Page 66
    ...the Company provides ground handling services for other airlines throughout its system. As of December 31, 2015, the Company had a combined fleet of 702 aircraft consisting of the following: CRJ200 United ...Delta ...American ...Alaska...Aircraft in scheduled service ...Subleased to an un-affiliated...

  • Page 67
    ...December 31, 2015, through the filing date of the Company's annual report with the U.S. Securities and Exchange Commission. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make...

  • Page 68
    ...parts is accrued based on estimated lives of the corresponding fleet types and salvage values. The inventory allowance as of December 31, 2015 and 2014 was $13.9 million and $11.6 million, respectively. These allowances are based on management estimates, which can be modified based on future changes...

  • Page 69
    ...arrangements, "contract flying" or "capacity purchase agreements") with Delta, United, American and Alaska, the major airline generally pays the Company a fixed fee for each departure, flight or block time incurred, and an amount per aircraft in service each month with additional incentives based on...

  • Page 70
    ... have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on the lower of prior period's approved rates, as adjusted to reflect any contract negotiations and the Company's estimate of rates that will be implemented in accordance with revenue...

  • Page 71
    ... of the aircraft under contract is 1.9 years • Upon expiration, aircraft may be renewed or extended • Terminable with 120 days' notice SkyWest Airlines United Express Pro-rate Agreement (revenuesharing arrangement) • CRJ 200 - 26 Alaska Capacity Purchase Agreement Number of aircraft under...

  • Page 72
    ...fixed-fee agreements with Delta, United, Alaska, and American, the compensation structure generally consists of a combination of agreed-upon rates for operating flights and direct reimbursement for other certain costs associated with operating the aircraft. A portion of the Company's contract flying...

  • Page 73
    ...the security is expected to have a successful auction. The fair value of the Company's long-term debt is estimated based on current rates offered to the Company for similar debt and was approximately $1,939.8 million as of December 31, 2015, as compared to the carrying amount of $1,948.8 million 69

  • Page 74
    as of December 31, 2015. The Company's fair value of long-term debt as of December 31, 2014 was $1,813.1 million as compared to the carrying amount of $1,745.8 million as of December 31, 2014. Segment Reporting Generally accepted accounting principles require disclosures related to components of a ...

  • Page 75
    ...the flight operations of the Company's E175 aircraft separately from the acquisition, ownership and financing costs and related revenue. Because of this change, the "SkyWest Leasing" segment includes revenue attributed to the Company's E175 ownership cost earned under the applicable fixed-fee flying...

  • Page 76
    ...,971 535,455 $ 3,237,447 3,212,599 259,642 65,995 (41,147) 12,748 4,409,928 696,923 Year Ended December 31, 2013 SkyWest Airlines ExpressJet SkyWest Leasing Consolidated Operating revenues ...Operating expense ...Depreciation and amortization expense ...Interest expense ...Segment profit (loss...

  • Page 77
    ...15% of the aircraft purchase price was paid with cash. As of December 31, 2015, the Company had $1.9 billion of long-term debt obligations primarily related to the acquisition of CRJ200, CRJ700, CRJ900 and E175 aircraft. The average effective interest rate on the debt related to those long-term debt...

  • Page 78
    ... 31, 2014 2015 2013 Computed provision (benefit) for income taxes at the statutory rate ...Increase (decrease) in income taxes resulting from: State income tax provision (benefit), net of federal income tax benefit ...Non-deductible expenses ...Valuation allowance changes affecting the provision...

  • Page 79
    ...the IRS tax code for purchased aircraft and support equipment compared to the Company's US GAAP depreciation policy for such assets using the straight-line method (see note 1 Nature of Operations and Summary of Significant Accounting Policies). The Company's valuation allowance is related to certain...

  • Page 80
    ... leases 470 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 81
    ... Number of Active Employees Represented Employee Group Representatives Status of Agreement Atlantic Southeast Pilots . . Atlantic Southeast Flight Attendants ...Atlantic Southeast Flight Controllers...Atlantic Southeast Mechanics ...Atlantic Southeast Stock Clerks ...ExpressJet Delaware Pilots...

  • Page 82
    ... Delaware Pilots ratified a two-year contract extension to their respective labor agreements. (6) Fair Value Measurements The Company holds certain assets that are required to be measured at fair value in accordance with United States GAAP. The Company determined fair value of these assets based on...

  • Page 83
    ...pilots to operate upcoming deliveries for the E175 aircraft, the incremental training cost to hire new pilots compared to retraining existing EMB120 pilots to operate CRJ or E175 aircraft, and the uncertainty related to the number of qualified pilots available for hire, combined with the overall age...

  • Page 84
    ... hierarchy. In November 2014, the Company entered into an amended and restated contract with United that accelerated the lease terminations of certain ERJ145 aircraft and accelerated the termination date of the Company's flying contract to operate the ERJ145s with United from the year 2020 to 2017...

  • Page 85
    ... was $13.57 per share. The following table summarizes the activity of restricted stock units granted to certain Company employees as of December 31, 2015, 2014 and 2013: Weighted-Average Grant-Date Fair Value Number of Shares Non-vested shares outstanding at December 31, 2012 . Granted...Vested...

  • Page 86
    ... year ended December 31, 2015, 2014 and 2013, the Company recorded equity-based compensation expense of $5.4 million, $5.3 million and $4.4 million, respectively. As of December 31, 2015, the Company had $8.7 million of total unrecognized compensation cost related to non-vested stock options and non...

  • Page 87
    ..., based upon length of service for pilot employees. Additionally, a discretionary contribution may be made by the Company. The Company's combined contributions to the SkyWest Plan were $20.4 million, $19.3 million and $18.3 million for the years ended December 31, 2015, 2014 and 2013, respectively...

  • Page 88
    ... December 31, 2015, 2014 and 2013, respectively. Employee Stock Purchase Plans In May 2009, the Company's Board of Directors approved the SkyWest, Inc. 2009 Employee Stock Purchase Plan (the "2009 Stock Purchase Plan"). All employees who have completed 90 days of employment with the Company or one...

  • Page 89
    ...31 2.27 51,077 51,825 First Quarter Year ended December 31, 2014 Second Third Fourth Quarter Quarter Quarter Year Operating revenues ...Operating income ...Net income (loss)...Net income (loss) per common share: Basic ...Diluted ...Weighted average common shares: Basic: ...Diluted:... $ 772,386...

  • Page 90
    ... specified in the Commission rules and forms. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2015, those controls and procedures were effective to ensure that information we are required to disclose in the reports we file or...

  • Page 91
    .... Our 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...

  • Page 92
    ...December 31, 2015, pursuant to Regulation 14A of the Exchange Act. Headings in Proxy Statement "Election of Directors," "Executive Officers," "Corporate Governance," "Meetings and Committees of the Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" "Corporate Governance," "Meetings...

  • Page 93
    ..., Inc. 2009 Employee Stock Purchase Plan Capacity Purchase Agreement, dated November 12, 2010, by and among ExpressJet Airlines, Inc. and Continental Airlines, Inc. Aircraft Purchase Agreement, dated December 7, 2012, between Mitsubishi Aircraft Corporation and SkyWest Inc. Letter Agreement dated...

  • Page 94
    Number Exhibit 10.21 Form of Indemnification Agreement executed by and between SkyWest, Inc. and each of Ronald J. Mittelstaedt and Keith E. Smith, as of October 1, 2013 10.22 Amended and Restated Capacity Purchase Agreement, dated as of November 7, 2014, by and between ExpressJet Airlines, Inc. and...

  • Page 95
    ... on Form 10 Q/A filed on November 4, 2013 Incorporated by reference to the exhibits to Registrant's Annual Report on Form 10-K filed on February 14, 2014 Incorporated by reference to the exhibits to Registrant's Annual Report on Form 10-K filed on February 18, 2015 (10) (11) (12) (13) (14) (15...

  • Page 96
    ...express an opinion 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...

  • Page 97
    ... SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2015, 2014 and 2013 (Dollars in thousands) Additions Charged to Costs and Expenses Description Balance at Beginning of Year Deductions Balance at End of Year Year ended December 31, 2015: Allowance for...

  • Page 98
    ...to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K for the year ended December 31, 2015, to be signed on its behalf by the undersigned, thereunto duly authorized, on February 26, 2016. SKYWEST, INC. By...

  • Page 99
    ...Pursuant to the requirement of the Securities Act of 1934, as amended, this Annual Report on Form ...Board February 26, 2016 Chief Executive Officer (Principal Executive Officer) and Director Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer...

  • Page 100
    ...are invited to attend the Annual Meeting of Shareholders of SkyWest, Inc. scheduled to be held at 11:00 a.m., Tuesday, May 3, 2016, at our headquarters located at 444 South River Road, St. George, Utah, 84790. The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the...

  • Page 101
    ... Road Æ" St. George, UT 84790 NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS OF SKYWEST, INC. Date: Time: Place: Tuesday, May 3, 2016 11:00 a.m., Mountain Daylight Time (MDT) SkyWest, Inc. Headquarters 444 South River Road St. George, Utah 84790 1. To elect ten directors of SkyWest, Inc. (the "Company...

  • Page 102
    Proxy Statement for the Annual Meeting of Shareholders of SKYWEST, INC. To Be Held on Tuesday, May 3, 2016 TABLE OF CONTENTS Page Overview ...Proposal 1-Election of Directors ...Executive Officers ...Corporate Governance ...Meetings and Committees of the Board...Compensation Discussion and Analysis...

  • Page 103
    ... OVERVIEW 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 17, 2016. The Board of Directors of the Company (the "Board") is soliciting your...

  • Page 104
    ... revoke your proxy before the time of voting at the Meeting in any of the following ways by mailing a revised proxy card to the Chief Financial Officer of the Company; by changing your vote on the Internet website; by using the telephone voting procedures; or by voting in person at the Meeting. 2

  • Page 105
    ... this Proxy Statement, the 2015 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 process will allow it to provide its shareholders...

  • Page 106
    ..., including information regarding the specific experience, qualifications, attributes and skills that led the Board and its Nominating and Corporate Governance Committee to conclude that he or she should serve as a director of the Company at the present time, in light of the Company's business and...

  • Page 107
    ... Executive Officer until December 31, 2015. The Board nominated Mr. Atkin to serve as a director, in part, because Mr. Atkin was the Company's Chief Executive Officer for more than 41 years. Mr. Atkin has a deep knowledge and understanding of the Company, SkyWest Airlines, Inc. ("SkyWest Airlines...

  • Page 108
    ... many major corporations and other organizations and has been an expert witness in over 35 major financial statement fraud cases. The Board recognizes Mr. Albrecht's valuable contribution as a director of the Company from 2003 through 2009 and since his re-election in 2012, including his service as...

  • Page 109
    ... A. Childs Age: ...Director Since: ...Committees: ...Principal Occupation: 48 January 1, 2016 None Chief Executive Officer and President of the Company and its two operating subsidiaries, SkyWest Airlines and ExpressJet. Prior to being named Chief Executive Officer and President of SkyWest, Inc...

  • Page 110
    ... of administration at Brigham Young University Idaho since 2006. Mr. Eyring was President of the Japan Tokyo North Mission of The Church of Jesus Christ ...the Company's operations. His thoughtful application of business and legal principles has been a valuable contribution to his service on the Board....

  • Page 111
    ... aerospace entity it is today. The Board recognizes Mrs. Madden's expertise and strategic insights related to aircraft maintenance vendor planning. Additionally Mrs. Madden has extensive expertise working with international maintenance service providers. Other Directorships: . Mrs. Madden currently...

  • Page 112
    ... freight industry. The common stock of Waste Connections is traded on the New York Stock Exchange. Mr. Mittelstaedt holds a bachelor's degree in Business Economics and Finance from the University of California-Santa Barbara. The Board recognizes Mr. Mittelstaedt's expertise in making large capital...

  • Page 113
    ... Governance Committee is based, in part, on Mr. Roberts' extensive background in the aviation maintenance and overhaul industry, as well as Mr. Roberts' experience as the principal executive officer of two regional airlines and as a senior executive officer of a major airline. The Board and its...

  • Page 114
    ... President and Chief Executive Officer of Boyd Gaming Corporation ("Boyd Gaming") Mr. Smith is President, Chief Executive Officer and a director of Boyd Gaming, one of the nation's leading casino entertainment companies, with 22 operations in eight states and more than 25,000 employees. Mr. Smith is...

  • Page 115
    ... 41 years and has served as the Chairman of the Board and Chief Executive Officer of Air Lease Corporation since February 2010. Prior to his current engagement with Air Lease Corporation, which leases and finances commercial jet aircraft worldwide, Mr. Udvar-Hazy founded and served as the Chairman...

  • Page 116
    ... includes extensive experience working with organized labor groups, including labor unions. Mr. Welch's insights have been particularly valuable to the Board as the Company has addressed labor and related issues arising in the operation of SkyWest Airlines and ExpressJet. Mr. Welch also contributes...

  • Page 117
    ... of all aspects of SkyWest Airlines' operations, including safety, quality, flight operations, maintenance and customer service. He also oversees SkyWest Airline's operational relationships with American, Delta, United and Alaska. Mr. Thompson was initially employed with the Company in April 2001 as...

  • Page 118
    ... is the Chief Accounting Officer of the Company, SkyWest Airlines and ExpressJet. He is responsible for the oversight of the Company's financial accounting practices, internal controls and reporting to the U.S. Securities and Exchange Commission. Mr. Woodward was employed in various other capacities...

  • Page 119
    ... of Management The Board is responsible to encourage the Company's management to effectively implement policies and strategies developed by the Board, and to provide dynamic leadership of the Company. Board Meetings and Materials Frequency of Meetings The Board has four regularly scheduled meetings...

  • Page 120
    ... the Chief Executive Officer, review the Nominating and Corporate Governance Committee's report to assess the Chief Executive Officer's leadership in the long and short-term, as well as the Company's long-term succession plans. Annual Evaluations The Board conducts an annual evaluation to determine...

  • Page 121
    ...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 (the "Code of Ethics"), which is available on the Company's website, inc.skywest.com. The Code of Ethics includes the following principles related to the...

  • Page 122
    ... Nominating and Corporate Governance and (4) Safety and Compliance. All the committees are comprised solely of non-employee, independent directors as defined by The Nasdaq Global Select Market listing standards. Charters for each committee are available on the Company's website, inc.skywest.com. The...

  • Page 123
    ... management, establish the Company's general compensation philosophy and oversee the development and implementation of the Company's compensation programs; Recommend to the Board the base salary, incentive compensation and any other compensation for the Company's Chief Executive Officer and review...

  • Page 124
    ... the candidate's qualifications and other relevant biographical information and provide confirmation of the candidate's consent to serve as a director. This information should be addressed to Jerry C. Atkin, Chairman of the Board of the Company, 444 South River Road, St. George, Utah 84790. 22

  • Page 125
    ..., which are outlined in the Corporate Governance Guidelines, are independence, diversity, age, skills, integrity and moral responsibility, policy-making experience, ability to work constructively with the Company's management and directors, capacity to evaluate strategy and reach sound conclusions...

  • Page 126
    ... improvement in fleet mix, which included a net reduction in the total number of aircraft available for service from 717 aircraft at December 31, 2014 to 660 at December 31, 2015, summarized as follows: o o o o • Added 25 new Embraer E175 aircraft under flying contracts with improved profitability...

  • Page 127
    ... to reviewing relevant information and results. When setting total compensation for each of the Executives, the Compensation Committee reviews tally sheets which show the Executive's current compensation, including base pay, annual bonus objectives, long-term, equity-based compensation objectives...

  • Page 128
    ... of stock options, restricted stock, restricted stock units, performance shares and performance units generally is accelerated upon a change in control of the Company. The Executives serve at the will of the Board, which enables the Board to terminate the employment of any Executive with discretion...

  • Page 129
    ... Committee believes are generally competitive with the compensation paid to officers in similar positions at other airlines. Salary adjustments are considered annually and influenced by growth of the Company's operations, individual performance, changes in responsibility, changes in cost of...

  • Page 130
    ... his promotion to Chief Operating Officer in September 2015. The blended Objective Percentage of Salary for the entire year for Mr. Vais was 68%. Amount of 2015 Performance-Based Annual Bonus. The total annual performance-based bonus amounts payable to the Executives for 2015 were: Mr. Atkin-$606...

  • Page 131
    ... Based Awards." The following table summarizes the number and nature of long-term awards granted to the Executives by the Company on February 17, 2015, and in the case of mid-year position changes, April 2, 2015 and September 9, 2015, under the 2010 Plan. Time Vested LTI Shares/Stock Options Units...

  • Page 132
    ... Executives' expertise through continued employment. Recipients of restricted stock units do not pay for the underlying shares once the awards vest; however they must remain employed by the Company for three years to receive the underlying shares. Restricted stock unit awards provide the Executives...

  • Page 133
    ... to each identified target. The 2015 to 2017 goals for each Executive were based on the combined Company's targeted pre-tax earnings, cash flow from operations and increase in pre-tax return on equity, and there were no alternative operating company goals set for the Chief Operating Officers of the...

  • Page 134
    ... benefits consist primarily of employer-paid premiums on health, dental and eye insurance, a personal automobile allowance, and use of Company owned recreational equipment. The Company and its subsidiaries also maintain a non-discriminatory, broad based program under which all full-time employees...

  • Page 135
    ... the following information: • The Company's compensation policies and practices are designed to include a significant level of long-term compensation, which discourages short-term risk taking. The base salaries the Company provides to its employees are generally consistent with salaries paid for...

  • Page 136
    ...the Executives in 2013 or 2015. The amounts in column (d) also include the amounts, approved by the Compensation Committee, of discretionary performance unit awards issued in 2015 with respect to 2014, but payable in cash in 2017, subject to forfeiture in the event of termination of employment prior...

  • Page 137
    ... performance of the Company or its subsidiaries and also the achievement of individual goals. The target amount of each Executive's annual performance bonus opportunity for 2015 is reported in the "Grants of Plan-Based Awards for 2015" table below, and included in the applicable amount shown in...

  • Page 138
    ... financial statements for the year ended December 31, 2015, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. (3) On February 17, 2015, April 2, 2015 and September 8, 2015, the Company granted stock options, restricted stock units and...

  • Page 139
    .... Outstanding Equity Awards at Year-End The following table provides information on the year-end 2015 holdings of stock options and other stock awards (restricted stock units and performance shares) by the Executives. (b) Number of Securities Underlying Unexercised Options Exercisable (#) 60,282 19...

  • Page 140
    ... Plan, as applicable, is also credited with a discretionary employer contribution monthly, whether or not the Executive contributes. For 2015 that discretionary employer contribution was 15% of the Executive's salary and annual bonus. Participant account balances under the SkyWest and ExpressJet...

  • Page 141
    ... amounts in column (c) reflect the amounts of employer contributions credited under the applicable deferred compensation plan for 2015 at the rate of 15% of each Executive's 2015 base salary and annual bonus which was paid in 2015. The amounts reported in column (c) are also included in the amounts...

  • Page 142
    ...,970 (1) The amount in column (c) reflects the employer contributions credited in 2015 at the rate of 15% of Mr. Vais's 2015 base salary and 2014 annual bonus which was paid in 2015. The amount reported in column (c) is also included in the amount reported in the "Other Compensation" column of the...

  • Page 143
    ...be payable under the existing plans and programs of the Company and its subsidiaries if an Executive's employment had terminated on December 31, 2015, or the Company had undergone a change in control on December 31, 2015. These benefits are in addition to benefits generally available to all salaried...

  • Page 144
    ... restricted stock units, performance shares or performance unit awards payable in cash, and if the value of such acceleration equals or exceeds three times the Executive's average W-2 compensation with the Company for the five taxable years preceding the year of the change in control (the "Base...

  • Page 145
    ..., the Company purchased $364,000 of spare aircraft parts from NORDAM, an entity affiliated with Meredith S. Madden, a director of the Company. Review and Approval of Transactions with Related Parties The Company believes that transactions between the Company and its directors and executive officers...

  • Page 146
    ... of the Safety and Compliance Committee was paid an annual fee of $4,000 and the Lead Independent Director was paid an annual fee of $18,000. Jerry C. Atkin, who is the Chairman of the Board and was an employee of the Company during the 2015 year, received no compensation for his service on the...

  • Page 147
    ... 118,900 85,246 75,246 (1) Jerry C. Atkin, the Chairman of the Board of the Company, is not included in the foregoing table as he was an employee of the Company during the year 2015 and received no financial remuneration for his service as a director. Russell A. Childs, the Chief Executive Officer...

  • Page 148
    ...Executive, and by all directors (including nominees) and executive officers of the Company as a group. Unvested Restricted Shares Name Common Stock... (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) 4.0 % (1) Based on 51,353,043 shares outstanding as of March 4, 2016. (2) Less than one percent ...

  • Page 149
    ... following shareholders were beneficial owners of more than five percent of the outstanding shares of Common Stock. The information following is as reported in filings with the Securities and Exchange Commission. The Company is not aware of any other beneficial owner of more than five percent of the...

  • Page 150
    ... in the Company's Proxy Statement for the 2016 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2015 Executive Compensation table and the other related tables and...

  • Page 151
    ... the year ending December 31, 2016. The Company is seeking shareholder ratification of such action. It is expected that representatives of Ernst & Young LLP will attend the Meeting and be available to make a statement or respond to appropriate questions. The Board and the Audit and Finance Committee...

  • Page 152
    ... Chief Accounting Officer of the Company, at 444 South River Road, St. George, Utah 84790. How does the Audit and Finance Committee conduct its meetings? During the year ended December 31, 2015, the Audit and Finance Committee met with the senior members of the Company's financial management team at...

  • Page 153
    ...Company's report on internal controls? The Audit and Finance Committee reviewed management's report on internal control over financial reporting, required under Section 404 of the Sarbanes Oxley Act of 2002 and related rules. As part of this review, the Audit and Finance Committee reviewed the bases...

  • Page 154
    ..., 2015? Based upon its review and the discussions with management and the Company's independent registered public accounting firm, the Audit and Finance Committee recommended to the Board that the audited consolidated financial statements for the Company be included in the Company's Annual Report on...

  • Page 155
    ... is the Company's policy regarding the retention of the Company's independent registered public accounting firm? The Audit and Finance Committee has adopted a policy regarding the retention of the independent registered public accounting firm that requires pre-approval of all services by the Audit...

  • Page 156
    ... its Quarterly Reports on Form 10-Q, audits of the closing balance sheets of certain businesses acquired, and the review of the Company's registration statements. Audit-Related Fees, Tax Fees and All Other Fees The Company did not pay EY for audit-related fees, tax fees and all other fees during the...

  • Page 157
    ... auditors the independent auditor's independence. Based upon these reviews and discussions, the Audit and Finance Committee recommended to the Board at the February 10, 2016 meeting of the Board that the Company's audited financial statements be included in the Annual Report on Form 10-K for the...

  • Page 158
    ... Company's executive officers, directors and 10% shareholders are required under Section 16 of the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of these reports must also be furnished to the Company. Based solely on a review...

  • Page 159
    ... to receive a separate copy of this Proxy Statement and the Company's 2015 Annual Report to Shareholders should submit a request in writing to Robert J. Simmons, Chief Financial Officer of the Company, 444 South River Road, St. George, Utah 84790, Telephone: (435) 634-3200. Beneficial owners sharing...

  • Page 160
    ... President, Maintenance Tracy Gallo Vice President, Flight Operations Lori Hunt Vice President, People Sonya Wolford Vice President, InFlight Services CORPORATE INFORMATION Headquarters 444 South River Road St George Utah 84790 P: 435‐634‐3000 inc.skywest.com NASDAQ Stock Symbol: SKYW...

  • Page 161
    in c.sk y west.com