SKYWEST, INC. The following discussion and analysis presents factors that had a material effect on the results of operations ofSkyWest, Inc. ("SkyWest" "we" or "us") during the three- and nine-month periods endedSeptember 30, 2020 and 2019. Also discussed is our financial condition as ofSeptember 30, 2020 andDecember 31, 2019 . You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months endedSeptember 30, 2020 , including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled "Cautionary Statement Concerning Forward-Looking Statements" for discussion of uncertainties, risks and assumptions associated with these statements. OnJanuary 22, 2019 , we completed the sale of our former wholly owned subsidiaryExpressJet Airlines, Inc. ("ExpressJet"). Our financial and operating results for the period endedSeptember 30, 2019 , contained in this Report, include the financial results ofExpressJet for the respective period, as we concluded that the sale ofExpressJet did not meet the criteria for presentation of discontinued operations. Cautionary Statement Concerning Forward-Looking Statements Certain of the statements contained in this Report should be considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "hope," "likely," and "continue" and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition and the impact of any measures, including travel restrictions, taken to mitigate the effect of the pandemic, our future growth and development plans, including our future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. Readers should keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, our actual results will vary, and may vary materially, from those anticipated, estimated, projected, or intended for a number of reasons, including but not limited to: the consequences of the COVID-19 pandemic to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular; the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result of the COVID-19 pandemic; the financial stability ofUnited Airlines, Inc. ("United"), Delta Air Lines, Inc. ("Delta"),American Airlines, Inc. ("American") andAlaska Airlines, Inc. ("Alaska") (each, a "major airline partner") and any potential impact of their financial condition on our operations; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realization of manufacturer residual value guarantees on applicable SkyWest aircraft; residual aircraft values and related impairment charges; the impact of global instability; labor relations and costs; potential fluctuations in fuel costs, and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; new aircraft deliveries; and the ability to attract and retain qualified pilots, as well as other factors identified under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , under the heading "Risk Factors" in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with theSecurities and Exchange Commission (the "SEC") and other unanticipated factors. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with theSEC may be further amplified by the global impact of the COVID-19 pandemic. There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law. 25 Table of Contents
Impact of the COVID-19 Pandemic
COVID-19, which was declared a global health pandemic by theWorld Health Organization inMarch 2020 , has surfaced in nearly all regions of the world and driven the implementation and continuation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, "shelter in place" orders and business closures. Consequently, we and our major airline partners, have experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected our revenues, including our capacity purchase agreements and prorate agreements (as defined below). The continued spread of the virus and the ongoing global pandemic has affected the majority of the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we presently expect a continued negative impact on our results of operations at a minimum for the remainder of 2020 and into 2021. In response to these developments, we have implemented measures to focus on the personal safety of our passengers and employees, while at the same time seeking to mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following: Focus on the Personal Safety of Passengers and Employees. The safety and well-being of our passengers and employees are our priorities in every decision we make. As the COVID-19 pandemic has developed, we have taken numerous steps to help passengers and employees take appropriate safety measures on the ground and in the air in keeping with currentCenters for Disease Control and Prevention recommendations, including:
? Working with our major airline partners to enhance our aircraft cleaning
procedures.
Working with our major airline partners to provide masks for crewmembers and
? ensuring that all fleet service personnel have the necessary personal
protective equipment for disinfecting the aircraft.
? Providing a number of options to employees
including pay protection and extended leave options.
Implementing workforce social distancing and protection measures, enhanced
? cleaning of our facilities, including training facilities, using methods and
products similar to what we are using on our aircraft. Capacity Reductions. Beginning inMarch 2020 , we and our major airline partners experienced an unprecedented decrease in demand for air travel and expect this decline from pre COVID-19 flight levels to continue at a minimum for the remainder of 2020 and into 2021. We depend on our major airline partners to contract with us to schedule flights. Therefore, in response to this decreased demand, we have significantly reduced our capacity. Prior to the COVID-19 pandemic, we anticipated operating approximately 2,600 daily departures in the month ofOctober 2020 ; however, inOctober 2020 we operated between approximately 1,600 to 1,700 daily departures as a result of COVID-19-related schedule reductions. We also anticipate similar schedule reductions will likely continue at a minimum throughout the remainder of 2020 and into 2021. The number of daily flights operated by us may not return to pre-COVID-19 levels for the foreseeable future. We will continue to work with our major airline partners regarding future schedules and make further demand-driven adjustments to our capacity as needed. We have removed 38 Canadair CRJ200 regional aircraft ("CRJ200") that were operating under the SkyWest Airlines Delta Connection Agreement with scheduled contract expirations in 2020 that were not extended as a result of decreased demand as ofSeptember 30, 2020 , and anticipate removing an additional 17 CRJ200 aircraft during the fourth quarter of 2020. We also terminated our American Prorate Agreement on seven CRJ200 aircraft in the second quarter of 2020 and we may have further reductions in the number of CRJ200 aircraft operating under our prorate agreements. We may receive requests by our major airline partners to defer deliveries of new or used aircraft that were previously scheduled for 2020, 2021 and 2022.
Cost Reductions. With the reduction in revenue, we have, and will continue to implement, cost saving initiatives, including:
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? Reducing employee-related costs including by:
o Offering voluntary unpaid leave to employees.
o Suspending all non-scale pay increases.
o Instituting a company-wide hiring freeze.
? Delaying non-essential projects and reducing or suspending other discretionary
spending. Liquidity. AtSeptember 30, 2020 , we had$1,374.8 million in total available liquidity, consisting of$822.0 million in cash and marketable securities,$39.8 million available underSkyWest Airlines' line of credit and an additional$513.0 million related to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") under our secured loan and guarantee agreement (the "Loan Agreement") with theU.S. Department of the Treasury ("Treasury") and the Bank of New York Mellon. Subsequently, onOctober 28, 2020 , Loan Agreement was amended and restated, which increased the amount available to us under the facility by$152 million . See Note 2 "Impact of the COVID-19 Pandemic," to the condensed consolidated financial statements for more information on the Loan Agreement. Overview We have the largest regional airline operations inthe United States through our operating subsidiarySkyWest Airlines, Inc. ("SkyWest Airlines "). As ofSeptember 30, 2020 ,SkyWest Airlines offered scheduled passenger service with approximately 1,600 total daily departures under COVID-19 related reduced schedules to destinations inthe United States ,Canada ,Mexico and theCaribbean . Our fleet of Embraer E175 regional jet aircraft ("E175"), Canadair CRJ900 regional jet aircraft ("CRJ900") and Canadair CRJ700 regional jet aircraft ("CRJ700") have a multiple-class seat configuration, whereas our CRJ200 aircraft have a single-class seat configuration. As ofSeptember 30, 2020 ,SkyWest Airlines had a total fleet of 577 aircraft, of which 448 were in scheduled service, and 129 aircraft are leased or utilized as summarized below: CRJ200 CRJ700 CRJ900 E175 Total Delta 38 6 39 67 150 United 96 19 - 90 205 American - 61 - - 61 Alaska - - - 32 32 Aircraft in scheduled service 134 86 39 189 448
Leased to an un-affiliated entity 4 13 5 -
22 Other* 70 33 4 - 107 Total 208 132 48 189 577 *As ofSeptember 30, 2020 , these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft, are aircraft available for future code-share agreements or are in the process of being parted out. As ofSeptember 30, 2020 , approximately 33% of our aircraft in scheduled service was operated for Delta, approximately 46% was operated for United, approximately 14% was operated for American and approximately 7% was operated forAlaska . Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements, typically in the form of capacity purchase agreements or prorate arrangements, each as defined below, between airlines that, among other things, allow one airline to use another airline's flight designator codes on its flights) with our major airline partners. Our success is principally dependent on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics. FromSeptember 30, 2019 toSeptember 30, 2020 , we added seven new E175 aircraft and 31 used E175 aircraft to our fleet. Additionally, we removed thirteen CRJ700 aircraft and 56 CRJ200 aircraft from scheduled service with 19 of the CRJ200 aircraft returned to the lessor while the other aircraft were temporarily removed from service in response to the COVID-19 schedule reductions, or in transition period between flying contracts with our major partners, or were placed under a lease with a third party. 27 Table of Contents We are coordinating with our major airline partners on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are based on currently available information and are subject to change. As ofSeptember 30, 2020 , we are scheduled to add four new E175 to our capacity purchase agreement with Delta during the fourth quarter of 2020. We also anticipate adding 20 new E175 aircraft with American under a capacity purchase agreement with delivery dates starting in late 2021 and ending in 2022. Subsequent toSeptember 30, 2020 , we secured an agreement to place 20 used CRJ700 aircraft under a multi-year flying contract with American. We will source the aircraft from our existing fleet with aircraft not currently under contract. The aircraft are expected to be placed into service ratably throughout 2021. As ofSeptember 30, 2020 , our capacity purchase agreement with Delta included 17 CRJ200 aircraft that are scheduled to expire in increments during the remainder of 2020 which we are not expecting to be extended as a result of the decreased demand caused by the COVID-19 pandemic. We own the 17 CRJ200 aircraft and anticipate parking the 17 CRJ200 aircraft following removal from service. We have no outstanding financing obligations on the 17 owned CRJ200 aircraft. Due to the uncertainty of obtaining future contract extensions for our CRJ200 aircraft as a result of the COVID-19 pandemic and considering the average age of our CRJ200 fleet is 18 years, we reduced the estimated useful lives of our CRJ200 aircraft to align with each aircraft's anticipated contract removal dates, which resulted in approximately$20.2 million of incremental depreciation expense during the three months endedSeptember 30, 2020 . We anticipate we will incur$8.5 million of additional depreciation expense from October toDecember 2020 resulting from the shorter estimated useful lives of our owned CRJ200 aircraft. Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as "capacity purchase agreements") and revenue-sharing arrangements (referred to as "prorate" arrangements). For the nine months endedSeptember 30, 2020 , capacity purchase revenue and prorate revenue represented approximately 87.2% and 12.8%, respectively, of our total flying agreements revenue. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures and other operating measures. On prorate routes, our revenue and profitability may fluctuate based on ticket prices and passenger loads and we are responsible for all costs to operate
the flight, including fuel. Third Quarter Summary
Our total operating revenues of
Significant items affecting our financial performance during the three months
ended
Revenue
The number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements. FromSeptember 30, 2019 toSeptember 30, 2020 , we decreased the number of aircraft in scheduled service from 483 aircraft to 448 aircraft, by removing thirteen CRJ700 aircraft, four CRJ900 aircraft and 56 CRJ200 aircraft and adding 38 E175 aircraft. Our completed block hours decreased 40.8% over the same period of 2019 28
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primarily due to a significant reduction in the number of flights we were scheduled to operate under our flying contracts as a result of the COVID-19 pandemic.
Our total revenues decreased$302.8 million for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , primarily due to the effects of the COVID-19 pandemic. Additionally, we deferred recognizing revenue on$29.6 million of fixed monthly payments received under our capacity purchase agreements during the three months endedSeptember 30, 2020 , as further described under "Results of Operations-Three Months EndedSeptember 30, 2020 and 2019-Operating Revenues." SinceMarch 2020 , the COVID-19 pandemic has had a negative impact on our revenues, especially under our prorate agreements. The number of aircraft operating under our prorate agreements decreased from 68 aircraft as ofSeptember 30, 2019 to 47 aircraft as ofSeptember 30, 2020 , or 30.9%. Additionally, our prorate revenue decreased from$145.8 million for the three months endedSeptember 30, 2019 to$60.8 million for the three months endedSeptember 30, 2020 , or 58.3%. The negative impact to our revenues as a result of the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue at a minimum throughout the remainder of 2020 and may continue through 2021 and subsequent periods. Operating Expenses
Our total operating expenses decreased$230.9 million for the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 . This decrease was primarily due to a significant reduction in the number of flights we operated as a result of the COVID-19 pandemic. Additional details regarding the decrease in our operating expenses are described in the section of this Report entitled "Results of Operations." Fleet activity
The following table summarizes our fleet scheduled for service as of:
Aircraft in Service September 30, 2020 December 31, 2019 September 30, 2019 CRJ200s 134 190 190 CRJ700s 86 94 99 CRJ900s 39 43 43 E175s 189 156 151 Total 448 483 483 Critical Accounting Policies Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year endedDecember 31, 2019 , which are presented in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management's subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, aircraft leases, long-lived assets, self-insurance and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for a description of recent accounting pronouncements.
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Results of Operations
Three Months Ended
Operational Statistics. The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below:
For the three months ended September 30,
Block hours by aircraft type: 2020 2019 % Change
E175s 117,342 135,780 (13.6) %
CRJ900s 12,861 31,595 (59.3) %
CRJ700s 45,807 75,612 (39.4) %
CRJ200s 46,551 132,946 (65.0) %
Total block hours 222,561 375,933 (40.8) %
Departures 137,493 219,272 (37.3) %
Passengers carried 4,916,403 11,568,831 (57.5) %
Passenger load factor 54.1 % 83.9 % (29.8) pts
Average passenger trip length (miles) 503 501 0.4 %
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the three months ended September 30,
2020 2019 $ Change % Change
Flying agreements $ 445,048 $ 738,838 $ (293,790) (39.8) %Lease, airport services and other 12,445 21,457 (9,012)
(42.0) %
Total operating revenues $ 457,493 $ 760,295 $ (302,802) (39.8) %
Flying agreements revenue primarily consists of revenue earned on flights we
operate under our capacity purchase agreements and prorate agreements with our
major airline partners. Lease, airport services and other revenues consist of
revenue earned from providing airport counter, gate and ramp services, and
revenue from leasing regional jet aircraft and spare engines to third parties.
Changes in our flying agreements revenue are summarized below (dollar amounts in
thousands).
For the three months ended September 30,
2020 2019 $ Change % Change
Capacity purchase agreements revenue: flight
operations $ 175,753 $ 385,537 $ (209,784) (54.4) %
Capacity purchase agreements revenue: aircraft
lease and fixed revenue 208,516 207,467 1,049 0.5 %
Prorate agreements revenue 60,779 145,834 (85,055) (58.3) %
Flying agreements revenue $ 445,048 $ 738,838 $ (293,790) (39.8) %
The decrease in "Capacity purchase agreements revenue: flight operations" of
$209.8 million was primarily due to schedule reductions experienced in 2020
resulting from the COVID-19 pandemic. Our completed departures decreased 37.3%
and completed block hours decreased 40.8% during the three months ended
September 30, 2020 compared to the three months ended September 30, 2019 .
The increase in "Capacity purchase agreements revenue: aircraft lease and fixed
revenue" of $1.0 million was primarily due to incremental lease revenue
generated from seven new E175 aircraft added to our fleet and economic
improvements made to certain existing capacity purchase agreements since
September 30, 2019 . This increase in "Capacity purchase agreement revenue:
aircraft lease revenue" was partially offset by the deferral of $29.6 million in
fixed amount per aircraft revenue. Under our capacity purchase agreements, we
are paid a fixed amount per month per
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aircraft over the contract term. We recognize the fixed amount per aircraft per month proportionately to completed flights, which is our performance obligation. We operated a materially lower number of flights during the three months endedSeptember 30, 2020 from previous levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. We anticipate the future monthly flight levels will increase over the remaining applicable contract terms compared to the three months endedSeptember 30, 2020 . Due to the materially reduced flight activity during the three months endedSeptember 30, 2020 , and based on an anticipated increase in future monthly flight volumes over the remaining contract terms, we determined the fixed amount per month per aircraft received during the three months endedSeptember 30, 2020 was disproportionately high relative to the volume of flights operated during the three months endedSeptember 30, 2020 . Accordingly, we deferred revenue attributed to the fixed amount per month per aircraft received during the three months endedSeptember 30, 2020 . Our deferred revenue balance will adjust over the remaining contract terms based on our completed flight levels each period relative to the anticipated average monthly flight levels over the remaining contract terms. The decrease in prorate agreements revenue of$85.1 million was primarily due to the impact of COVID-19 and the corresponding decrease in prorate passengers during the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 .
The
Operating Expenses
The following table summarizes our operating expenses and interest expense,
(collectively, "Total airline expenses") for the periods indicated (dollar
amounts in thousands):
For the three months ended September 30,
2020 2019 $ Change % ChangeSalaries, wages and benefits$ 194,516 $ 251,414 $ (56,898) (22.6) % Aircraft maintenance, materials and repairs 150,148 133,521 16,627 12.5 % Depreciation and amortization 121,467 92,795 28,672 30.9 % Airport-related expenses 18,003 27,808 (9,805) (35.3) % Aircraft rentals 15,785 17,676 (1,891) (10.7) % Aircraft fuel 13,641 31,063 (17,422) (56.1) %
CARES Act payroll support grant (190,200) - (190,200)
NM
Other operating expenses 59,580 59,577 3 0.0 %
Total operating expenses $ 382,940 $ 613,854 $ (230,914) (37.6) %
Interest expense 30,150 31,606 (1,456) (4.6) %
Total airline expenses $ 413,090 $ 645,460 $ (232,370) (36.0) %
Salaries, wages and benefits. The$56.9 million decrease in salaries, wages and benefits was primarily due to a reduction in scheduled departures and block hours related to the COVID-19 pandemic. Additionally, in response to the COVID-19 pandemic, we have instituted a company-wide hiring freeze, suspended all non-scale pay increases and offered voluntary unpaid leave to our employees. Aircraft maintenance, materials and repairs. The$16.6 million increase in aircraft maintenance expense was primarily due to an increase in engine maintenance expense on our older CRJ aircraft during the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 partially offset by a decrease in routine aircraft maintenance expense generally incurred proportionate to flying levels during the three months endedSeptember 30, 2020 . Depreciation and amortization. The$28.7 million increase in depreciation and amortization expense was primarily due to a reduction in the estimated useful life of our owned CRJ200 fleet that resulted in approximately$20.2 31
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million of incremental depreciation expense during the three months ended
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents (our employee customer service labor costs are reflected in salaries, wages and benefits). The$9.8 million decrease in airport-related expenses was primarily due to a decrease in scheduled departures resulting
from the COVID-19 pandemic. Aircraft rentals. The$1.9 million decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent toSeptember 30, 2019 .
Aircraft fuel. The$17.4 million decrease in fuel cost was primarily due to a reduction in the number of prorate flights we operated and the corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from$2.69 for the three months endedSeptember 30, 2019 to$1.75 for the three months endedSeptember 30, 2020 . We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partners or purchased by us and reimbursed by our major airline partners, with the direct reimbursement recorded as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated: For the three months ended September 30, (in thousands) 2020 2019 % Change Fuel gallons purchased 7,785 12,510 (37.8) % Fuel expense$ 13,641 $ 31,063 (56.1) % CARES Act payroll support grant. InApril 2020 , we entered into an agreement withTreasury and received$450.7 million in emergency relief through the CARES Act payroll support program throughSeptember 30, 2020 , of which$345.5 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants are intended to compensate and$105.2 million was in the form of a ten-year unsecured loan. We recognized$190.2 million as a reduction in labor expense during the three months endedSeptember 30, 2020 and expect to recognize the remaining$3.4 million of the grants from the CARES Act payroll support program as a reduction in expenses by the end of 2020. Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, and crew hotel costs. The increase in other operating expenses was related to an increase in our credit loss reserves of$20 million primarily due to the collectability on a note receivable associated with the Company's sale ofExpressJet in 2019 that became uncertain as a result ofExpressJet ceasing operations during the three months endedSeptember 30, 2020 . The increase to our credit loss reserves were also attributed to reductions in credit ratings on certain entities for which we have outstanding accounts receivable or notes receivable since the adoption of Topic 326. The increase in the credit loss expense was significantly offset by a decrease in other operating expenses as a result from a decrease in the number of scheduled flights related to the COVID-19 pandemic during the three months endedSeptember 30, 2020 . Interest Expense. The$1.5 million decrease in interest expense was related to an overall lower effective interest rate during the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . Total airline expenses. The$232.4 million decrease in total airline expenses was primarily related to the COVID-19 pandemic and the related decrease in scheduled departures and block hours during the three months endedSeptember 30, 2020 . 32 Table of Contents
Summary of interest income, other income (expense) and provision for income taxes:
Interest income. Interest income decreased$2.1 million , or 60.4%, during the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 . The decrease in interest income was primarily related to a decrease in interest rates earned on our marketable securities subsequent toSeptember 30, 2019 .
Other income (expense), net. Other income primarily consisted of income related to our investment in a joint venture with a third party.
Income taxes. Our provision for income taxes was 27.2% and 23.1% for the three months endedSeptember 30, 2020 and 2019, respectively. The increase in the effective tax rate primarily relates to an adjustment to the deferred state tax rate and a greater impact related to non-deductible expenses for the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 as a result of lower pretax earnings for the three months endedSeptember 30, 2020 compared to the same period of 2019. Net income. Primarily due to the factors described above, we generated a net income of$33.7 million , or$0.66 per diluted share, for the three months endedSeptember 30, 2020 , compared to net income of$91.3 million , or$1.79 per diluted share, for the three months endedSeptember 30, 2019 .
Nine Months Ended
Operational Statistics. The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below:
For the nine months ended September 30,
Block hours by aircraft type: 2020 2019
% Change
E175s 311,476 395,776 (21.3) %
CRJ900s 45,214 93,988 (51.9) %
CRJ700s 144,547 224,448 (35.6) %
CRJ200s 204,573 381,892 (46.4) %
Total block hours 705,810 1,096,104 (35.6) %
Departures 427,531 627,799 (31.9) %
Passengers carried 15,583,236 32,566,966 (52.2) %
Passenger load factor 56.7 % 82.3 % (25.6) pts
Average passenger trip length (miles) 495 501 (1.2) %
The operating statistics above excludeExpressJet's statistics prior to our sale ofExpressJet inJanuary 2019 asExpressJet's impact on our 2019 statistics
was not significant. Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the nine months ended September 30,
2020 2019 $ Change % Change
Flying agreements $ 1,490,912 $ 2,164,173 $ (673,261) (31.1) %Lease, airport services and other 46,557 64,199
(17,642) (27.5) %
Total operating revenues $ 1,537,469 $ 2,228,372 $ (690,903) (31.0) %
Flying agreements revenue primarily consists of revenue earned on flights we
operate under our capacity purchase agreements and prorate agreements with our
major airline partners. Lease, airport services and other revenues consist of
revenue earned from providing airport counter, gate and ramp services, and
revenue from leasing regional jet
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aircraft and spare engines to third parties. Changes in our flying agreements revenue are summarized below (dollar amounts in thousands).
For the nine months ended September 30,
2020 2019 $ Change % Change
Capacity purchase agreements revenue:
flight operations $ 674,222 $ 1,155,814 $ (481,592) (41.7) %
Capacity purchase agreements revenue:
aircraft lease and fixed revenue 619,354 621,526
(2,172) (0.3) %
Prorate agreements revenue 197,336 386,833 (189,497) (49.0) %
Flying agreements revenue $ 1,490,912 $ 2,164,173 $ (673,261) (31.1) %
The decrease in "Capacity purchase agreements revenue: flight operations" of
$481.6 million was primarily due to schedule reductions experienced from the
COVID-19 pandemic.
The decrease in "Capacity purchase agreements revenue: aircraft lease and fixed
revenue" of $2.2 million was primarily due to the deferral of $98.6 million in
fixed amount per aircraft revenue. Under our capacity purchase agreements, we
are paid a fixed amount per month per aircraft over the contract term. We
recognize the fixed amount per aircraft per month proportionately to completed
flights, our performance obligation. We operated a materially lower number of
flights during the nine months ended September 30, 2020 from previous levels due
to a reduction in flight schedules resulting from the COVID-19 pandemic. We
anticipate the future monthly flight levels will increase over the remaining
applicable contract terms compared to the nine months ended September 30, 2020 .
Due to the materially reduced flight activity during the nine months ended
September 30, 2020 , and based on an anticipated increase in future monthly
flight volumes over the remaining contract terms, we determined the fixed amount
per month per aircraft received during the nine months ended September 30, 2020
was disproportionately high relative to the volume of flights operated during
the nine months ended September 30, 2020 . Accordingly, we deferred revenue
attributed to the fixed amount per month per aircraft received during the nine
months ended September 30, 2020 . Our deferred revenue balance will adjust over
the remaining contract terms based on our completed flight levels each period
relative to the anticipated average monthly flight levels over the remaining
contract terms. This decrease in "Capacity purchase agreement revenue: aircraft
lease revenue" was partially offset by the incremental lease revenue generated
from seven new E175 aircraft added to our fleet and economic improvements made
to certain existing capacity purchase agreements since September 30, 2019 .
The decrease in prorate agreements revenue of $189.5 million was primarily due
to the impact of COVID-19 and the corresponding decrease in prorate passengers
during the nine months ended September 30, 2020 compared to the nine months
ended September 30, 2019 .
The $17.6 million decrease in lease, airport services and other revenues was
primarily related to a decrease in the number of flights at locations where we
were contracted to provide airport customer service during the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2019 .
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Operating Expenses
The following table summarizes our operating expenses and interest expense,
(collectively, "Total airline expenses") for the periods indicated (dollar
amounts in thousands):
For the nine months ended September 30,
2020 2019 $ Change % ChangeSalaries, wages and benefits$ 613,895 $ 752,768 $ (138,873) (18.4) % Aircraft maintenance, materials and repairs 431,654 376,572
55,082 14.6 % Depreciation and amortization 364,813 272,929 91,884 33.7 % Airport-related expenses 70,192 89,237 (19,045) (21.3) % Aircraft rentals 49,537 55,840 (6,303) (11.3) % Aircraft fuel 45,875 87,570 (41,695) (47.6) % Special items - 21,869 (21,869) NM
CARES Act payroll support grant (342,138) -
(342,138) NM Other operating expenses 167,170 184,634 (17,464) (9.5) % Total operating expenses$ 1,400,998 $ 1,841,419 $ (440,421) (23.9) % Interest expense 91,280 96,884 (5,604) (5.8) % Total airline expenses$ 1,492,278 $ 1,938,303 $ (446,025) (23.0) % Salaries, wages and benefits. The$138.9 million decrease in salaries, wages and benefits was primarily due to a reduction in scheduled departures and block hours related to the COVID-19 pandemic. Additionally, in response to the COVID-19 pandemic, we have instituted a company-wide hiring freeze, suspended all non-scale pay increases and offered voluntary unpaid leave to our employees. Aircraft maintenance, materials and repairs. The$55.1 million increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion ofSkyWest Airlines' CRJ200 and CRJ700 fleet intended to extend the operational performance and reliability of the aircraft and increased engine maintenance expense during the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Depreciation and amortization. The$91.9 million increase in depreciation and amortization expense was primarily due to a reduction in the estimated useful life of our owned CRJ200 fleet that resulted in approximately$66.0 million of incremental depreciation expense during the nine months endedSeptember 30, 2020 and due to the acquisition of seven new E175 aircraft and spare engines sinceSeptember 30, 2019 .
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents (our employee customer service labor costs are reflected in salaries, wages and benefits). The$19.0 million decrease in airport-related expenses was primarily due to a decrease in scheduled departures resulting
from the COVID-19 pandemic. Aircraft rentals. The$6.3 million decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent toSeptember 30, 2019 .
Aircraft fuel. The$41.7 million decrease in fuel cost was primarily due to a reduction in the number of prorate flights we operated and corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from$2.49 for the nine months endedSeptember 30, 2019 to$1.92 for the nine months endedSeptember 30, 2020 . We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partners or purchased by us and reimbursed by our major airline partners, with the direct reimbursement recorded as a reduction to our fuel 35
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expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:
For the nine months ended September 30,
(in thousands) 2020 2019 % Change
Fuel gallons purchased 23,892 35,108 (31.9) %
Fuel expense $ 45,875 $ 87,570 (47.6) %
Special Items. The$21.9 million special items expense for the nine months endedSeptember 30, 2019 related to a non-cash write-off of$18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer. The$18.5 million of expense was included in theSkyWest Airlines segment. The special items expense also included$3.4 million of expense associated with a cash payout of certainExpressJet employees stock equity grants as part of the sale ofExpressJet , which was reflected in theExpressJet segment. We did not have a comparable special items expense during the nine months endedSeptember 30, 2020 . CARES Act payroll support grant. InApril 2020 , we entered into an agreement withTreasury and received$450.7 million in emergency relief through the CARES Act payroll support program throughSeptember 30, 2020 , of which$345.5 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants are intended to compensate and$105.2 million was in the form of a ten-year unsecured loan. We recognized$342.1 million as a reduction in labor expense during the nine months endedSeptember 30, 2020 and expect to recognize the remaining$3.4 million of the grants from the CARES Act payroll support program as a reduction in expenses by the end of 2020. Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, and crew hotel costs. The$17.5 million decrease in other operating expenses was primarily related to an increase in our credit loss reserves of$24.2 million primarily due to the collectability on a note receivable associated with the Company's sale ofExpressJet in 2019 that became uncertain as a result ofExpressJet ceasing operations during the nine months endedSeptember 30, 2020 . The increase to our credit loss reserves were also attributed to reductions in credit ratings on certain entities for which we have outstanding accounts receivable or notes receivable since the adoption of Topic 326. The increase in the credit loss expense was significantly offset by a decrease in other operating expenses as a result from a decrease in the number of scheduled flights related to the COVID-19 pandemic during the nine months endedSeptember 30, 2020 .
Interest Expense. The$5.6 million decrease in interest expense was related to an overall lower effective interest rate during the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 . Total airline expenses. The$446.0 million decrease in total airline expenses was primarily related to the COVID-19 pandemic and the related decrease in scheduled departures and block hours during the nine months ended September
30, 2020.
Summary of interest income, other income (expense) and provision for income taxes:
Interest income. Interest income decreased$5.4 million , or 49.0%, during the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 . The decrease in interest income was primarily related to a decrease in interest rates earned on our marketable securities subsequent toSeptember 30, 2019 . Other income (expense), net. During the nine months endedSeptember 30, 2020 , we had other income, net of$1.2 million primarily related to income earned from our investment in a joint venture with a third party. During the nine months endedSeptember 30, 2019 , we had other income of$47.0 million primarily related to the gain on sale ofExpressJet . Income taxes. Our provision for income taxes was 27.1% and 23.2% for the nine months endedSeptember 30, 2020 and 2019, respectively. The increase in the effective tax rate primarily relates to an adjustment to the deferred state tax rate and a greater impact related to non-deductible expenses for the nine months endedSeptember 30, 2020 , 36 Table of Contents
compared to the nine months ended
Net income. Primarily due to the factors described above, we generated net
income of
Our Business Segments
Three Months Ended
For the three months endedSeptember 30, 2020 , we had two reportable segments, which were the basis of our internal financial reporting:SkyWest Airlines andSkyWest Leasing . Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. For the three months ended September 30, (dollar amounts in thousands) 2020 2019 $ Change % Change Operating Revenues:
SkyWest Airlines operating revenue$ 337,975 $ 641,947 $ (303,972) (47.4) % SkyWest Leasing operating revenues 119,518 118,348 1,170 1.0 % Total Operating Revenues$ 457,493 $ 760,295 $ (302,802) (39.8) % Airline Expenses: SkyWest Airlines airline expense$ 306,009 $ 563,811 $ (257,802) (45.7) % SkyWest Leasing airline expense 107,081 81,649 25,432 31.1 % Total Airline Expenses (1)$ 413,090 $ 645,460 $ (232,370) (36.0) % Segment profit: SkyWest Airlines segment profit$ 31,966 $ 78,136 $ (46,170)
(59.1) %
SkyWest Leasing profit 12,437 36,699 (24,262) (66.1) %
Total Segment Profit $ 44,403 $ 114,835 $ (70,432) (61.3) %
Interest Income 1,403 3,542 (2,139) (60.4) %
Other Income, net 405 361 44 12.2 %Consolidated Income Before Taxes$ 46,211 $ 118,738 $ (72,527)
(61.1) %
(1) Total Airline Expenses includes operating expense and interest expense
SkyWest Airlines Segment Profit.SkyWest Airlines block hour production decreased to 222,561, or 40.8%, for the three months endedSeptember 30, 2020 , from 375,933 for the three months endedSeptember 30, 2019 , primarily related to the reduced demand for air travel due to the COVID-19 pandemic. Significant items contributing to theSkyWest Airlines segment profit are set forth below. The$304.0 million , or 47.4%, decrease in SkyWest Airlines Operating Revenues for the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 , was primarily due to the COVID-19 pandemic that negatively impacted prorate revenue by$85.6 million and all other revenue (including capacity purchase agreement revenue) by$218.4 million . Additionally, we deferred recognizing revenue on$29.6 million of fixed monthly payments received under our capacity purchase agreements during the three months endedSeptember 30, 2020 .
The$257.8 million , or 45.7%, decrease in SkyWest Airlines Airline Expenses for the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 , was primarily due to the following factors:
? million, or 22.7%, primarily due to the reduction in scheduled departures and
block hours related to the COVID-19 pandemic.
37
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? million, or 37.6%, primarily due to a decrease in the estimated useful life of
SkyWest Airlines' CRJ200 fleet and the related spare engines.
to a decrease in the volume of gallons purchased along with a decrease in the
? average fuel cost per gallon in 2020 compared to 2019. The average fuel cost
per gallon was
and 2019, respectively.
? during the three months ended
support program.
? primarily related to a decrease in the number of scheduled flights related to
the COVID-19 pandemic during the three months endedSeptember 30, 2020 . SkyWest Leasing Segment Profit.SkyWest Leasing profit decreased$24.3 million during the three months endedSeptember 30, 2020 , compared to the three months endedSeptember 30, 2019 , primarily related to credit loss reserves recognized on a note receivable associated with the sale ofExpressJet , which ceased operations during the three months endedSeptember 30, 2020 and additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines as a result of COVID-19, partially offset by an additional seven new E175 aircraft added to our fleet subsequent toSeptember 30, 2019 .
Nine Months Ended
For the nine months endedSeptember 30, 2020 and following the sale ofExpressJet , we had two reportable segments, which were the basis of our internal financial reporting:SkyWest Airlines andSkyWest Leasing . Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. Our operating segments for the nine months endedSeptember 30, 2019 , prior to the sale ofExpressJet , wereSkyWest Airlines ,ExpressJet andSkyWest Leasing . During 2019, our corporate overhead expense was allocated to the operating expenses ofSkyWest Airlines andExpressJet . For the nine months ended September 30, (dollar amounts in thousands) 2020 2019 $ Change % Change Operating Revenues:SkyWest Airlines operating revenue$ 1,172,625 $ 1,854,803 $ (682,178) (36.8) % ExpressJet operating revenues - 24,050 (24,050) (100.0) %SkyWest Leasing operating revenues 364,844 349,519 15,325 4.4 % Total Operating Revenues$ 1,537,469 $ 2,228,372 $ (690,903) (31.0) % Airline Expenses:SkyWest Airlines airline expense$ 1,181,999 $ 1,662,665 $ (480,666) (28.9) % ExpressJet airline expense - 28,690 (28,690) (100.0) %SkyWest Leasing airline expense 310,279 246,948 63,331 25.6 % Total Airline Expenses (1)$ 1,492,278 $ 1,938,303 $ (446,025) (23.0) % Segment profit (loss):SkyWest Airlines segment profit (loss)$ (9,374) $ 192,138 $ (201,512) (104.9) % ExpressJet segment loss - (4,640) 4,640 (100.0) % SkyWest Leasing profit 54,565 102,571 (48,006) (46.8) % Total Segment Profit$ 45,191 $ 290,069 $ (244,878) (84.4) % Interest Income 5,652 11,081 (5,429) (49.0) % Other Income, net 1,205 47,367 (46,162) (97.5) % Consolidated Income Before Taxes$ 52,048 $ 348,517 $ (296,469) (85.1) %
(1) Total Airline Expenses includes operating expense and interest expense
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SkyWest Airlines Segment Profit. SkyWest Airlines block hour production
decreased to 705,810, or 35.6%, for the nine months ended September 30, 2020 ,
from 1,096,104 for the nine months ended September 30, 2019 , primarily due to
the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines
segment profit are set forth below.
The $682.2 million , or 36.8%, decrease in SkyWest Airlines Operating Revenues
for the nine months ended September 30, 2020 , compared to the nine months ended
September 30, 2019 , was primarily due to the COVID-19 pandemic that negatively
impacted prorate revenue by $189.5 million and all other revenue (including
capacity purchase agreement revenue) by $492.7 million . Additionally, we
deferred recognizing revenue on $98.6 million of fixed monthly payments received
under our capacity purchase agreements during the nine months ended September
30, 2020 .
The
? million, or 17.0%, primarily due to the reduction in scheduled departures and
block hours related to the COVID-19 pandemic.
by
? maintenance parts expense and direct maintenance costs incurred on a portion of
expense during the nine months ended
months endedSeptember 30, 2019 .
? million, or 37.7%, primarily due to a decrease in the estimated useful life of
SkyWest Airlines' CRJ200 fleet and the related spare engines.
?
future lease return obligations with the aircraft manufacturer during the nine
months endedSeptember 30, 2019 .
to a decrease in the volume of gallons purchased along with a decrease in the
? average fuel cost per gallon in 2020 compared to 2019. The average fuel cost
per gallon was
2019, respectively.
? during the nine months ended
support program.
? primarily related to a decrease in the number of scheduled flights related to
the COVID-19 pandemic during the nine months endedSeptember 30, 2020 . SkyWest Leasing Segment Profit.SkyWest Leasing profit decreased$48.0 million during the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 , primarily related to credit loss reserves recognized on a note receivable associated with the sale ofExpressJet , which ceased operations during the three months endedSeptember 30, 2020 and additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines as a result of COVID-19, partially offset by an additional seven new E175 aircraft added to our fleet subsequent toSeptember 30, 2019 . 39 Table of Contents
Liquidity and Capital Resources
Sources and Uses of Cash
Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the nine months endedSeptember 30, 2020 and 2019, and our total cash and marketable securities positions as ofSeptember 30, 2020 andDecember 31, 2019 (in thousands): For the nine months ended September 30, 2020 2019 $ Change % Change Net cash provided by operating activities$ 548,703 $ 582,468 $ (33,765) (5.8) % Net cash used in investing activities (261,447) (305,294) 43,847 (14.4) % Net cash provided by (used in) financing activities 43,766 (297,649) 341,415 (114.7) % September 30, December 31, 2020 2019 $ Change % Change Cash and cash equivalents$ 418,228 $ 87,206 $ 331,022 379.6 % Marketable securities 403,793 432,966 (29,173) (6.7) %
Total cash and marketable securities$ 822,021 $ 520,172
$ 301,849 58.0 %
Cash Flows provided by Operating Activities
Cash flows from operating activities decreased$33.8 million primarily due to a decrease in pretax income for the nine months endedSeptember 30, 2020 compared to the same period of 2019, partially offset by deferred revenue related to the amount of cash received under our capacity purchase agreements in excess of revenue recognized of$98.6 million as ofSeptember 30, 2020 , an increase in non-cash depreciation expense of$91.9 million for the nine months endedSeptember 30, 2020 compared to the same period of 2019 and other changes in our working capital accounts. Our operating expenses for the nine months endedSeptember 30, 2020 , were reduced by$342.1 million of CARES Act payroll support grants. We anticipate recognizing the remaining$3.4 million of payroll support grants during the fourth quarter of 2020.
Cash Flows used in Investing Activities
The$43.8 million decrease in cash used in investing activities was primarily due to a reduction in capital expenditures, which included 74 used CRJ aircraft and five new E175 aircraft during the nine months endedSeptember 30, 2019 , compared to the acquisition of four used CRJ700 aircraft and two new E175 aircraft for the nine months endedSeptember 30, 2020 . These changes represented a$249.1 million decrease in aircraft purchases and related spare aircraft assets. These decrease in capital expenditures were significantly offset by an increase in long-term receivables from our major airline partners and a net decrease in the sale of marketable securities of$68.2 million . During the nine months endedSeptember 30, 2020 , we amended certain debt agreements on our aircraft which temporarily suspended our obligation to make debt service payments for an approximately six-month period. Concurrently, we temporarily suspended required aircraft ownership payments due from our major airline partners under our capacity purchase agreements over the same period. We recorded the suspended required aircraft ownership amounts due from our major airline partners primarily as long-term receivables. Additionally, during the nine months endedSeptember 30, 2019 , we received$53.2 million from the sale ofExpressJet .
Cash Flows provided by (used in) Financing Activities
The$341.4 million increase in cash provided by financing activities was primarily related to the additional proceeds from the issuance of long-term debt of$101.4 million and the decrease in principal payments on long-term debt of$174.1 million for the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 . The decrease in principal payments on long-term debt was primarily related to temporary deferrals on long-term debt payments we received with certain lenders during the nine months endedSeptember 30, 2020 . Additionally, during the nine months endedSeptember 30, 2020 , we used an additional$26.2 million to purchase treasury shares and make 40
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income tax payments towards vested employee equity awards compared to
Liquidity and Capital Resources as of
Given the measures discussed above that we have implemented to mitigate the impact of the COVID-19 pandemic on our financial position and operations and our assumptions about its future impact on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we believe the working capital currently available to us (including funds from government assistance provided or to be provided pursuant to the CARES Act) will be sufficient to meet our present financial requirements, including anticipated expansion, planned capital expenditures, and scheduled lease payments and debt service obligations for at least the next 12 months.
At
InSeptember 2020 , we entered into the Loan Agreement withTreasury and the Bank of New York Mellon. Which permits us to borrow up to$573 million . Subsequently, onOctober 28, 2020 , the Company entered into an amendment to the Loan Agreement that permits the Company to borrow up to$725 million in the aggregate. As ofSeptember 30, 2020 , we have borrowed$60 million and may, at our option, borrow additional amounts in up to two subsequent borrowings untilMarch 26, 2021 . The proceeds are to be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Loan Agreement and the applicable provisions of the CARES Act. The loan will bear interest at a variable rate per annum equal to theLondon interbank offer rate divided by one minus the Eurodollar Reserve Percentage (as defined in the Loan Agreement) plus 3.00%. The applicable interest rate for the$60 million loan will be 3.22% per annum throughSeptember 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula. In return, we agreed to issue toTreasury warrants to purchase shares of our common stock based on a debt coverage ratio and amounts drawn under the facility. We issued warrants to purchase 211,416 shares of the Company's common stock toTreasury in conjunction with our$60 million borrowing under the facility. These warrants have an exercise price of$28.38 per share and a five-year term from the date of issuance.
Significant Commitments and Obligations
General
See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.
Purchase Commitments and Options
We are coordinating with our major airline partners and aircraft manufactures on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future delivery dates summarized below are subject to change. As ofSeptember 30, 2020 , we had a firm purchase commitment for 24 new E175 aircraft from Embraer, S.A. with delivery dates anticipated through 2022. Subsequent toSeptember 30, 2020 , we also secured agreements to acquire 21 used CRJ700 aircraft and lease the aircraft under a multi-year term to another regional airline operating for United Airlines. The aircraft purchases are expected to be financed with debt during the three months endedDecember 31, 2020 . We have in recent years funded the majority of our aircraft acquisition cost with long-term debt. At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select an appropriate method to fund the acquisition. At present, we intend to fund our acquisition of any additional aircraft through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm order for 24 new E175 aircraft with approximately 85% debt and the remaining balance with cash. 41 Table of Contents Long-term Debt Obligations
As of
Guarantees
We have guaranteed the obligations of
Seasonality Our results of operations for any interim period are not necessarily indicative of those for an entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months. The COVID-19 pandemic has negatively impacted our summer schedule and we anticipate that it will continue to have a negative impact at a minimum throughout the remainder of 2020 and into 2021. The magnitude of the impact will depend on various factors including passenger demand and the related flight schedules we are requested to operate by our major airline partners under our capacity purchase agreements.
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