SEC Form 10-Q filed by Mesa Air Group Inc.

5/24/24 12:31:30 PM ET

$MESA

Air Freight/Delivery Services

Consumer Discretionary

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38626

MESA AIR GROUP, INC.

(Exact name of registrant as specified in its charter)


Nevada		85-0302351
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

410 North 44th Street, Suite 700 Phoenix, Arizona 85008		85008
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (602) 685-4000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	MESA	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 1, 2024, the registrant had 40,940,326 shares of common stock, no par value per share, issued and outstanding.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION	4

Item 1. Financial Statements	4

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations and Comprehensive Loss	5

Condensed Consolidated Statements of Stockholders' Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3. Quantitative and Qualitative Disclosures About Market Risk	41

Item 4. Controls and Procedures	42

PART II – OTHER INFORMATION	44

Item 1. Legal Proceedings	44

Item 1A. Risk Factors	44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3. Defaults Upon Senior Securities	44

Item 4. Mine Safety Disclosures	44

Item 5. Other Information	44

Item 6. Exhibits	44

SIGNATURES	46

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," “should,” "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the Securities and Exchange Commission on January 26, 2024. Unless otherwise stated, references to particular years, quarters, months, or periods refer to our fiscal years ended September 30 and the associated quarters, months, and periods of those fiscal years. Each of the terms "the Company," "Mesa Airlines," "Mesa," "we," "us" and "our" as used herein refers collectively to Mesa Air Group, Inc. and its wholly owned subsidiaries, unless otherwise stated. We do not assume any obligation to revise or update any forward-looking statements.

The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

▪

public health epidemics or pandemics such as COVID-19;

▪

the severity, magnitude, and duration of the COVID-19 pandemic, including impacts of the pandemic and of business’ and governments’ responses to the pandemic on our operations and personnel, and on demand for air travel;

▪

the supply and retention of qualified airline pilots and mechanics and associated costs;

▪

the volatility of pilot and mechanic attrition;

▪

dependence on, and changes to, or non-renewal of, our capacity purchase and flight services agreements;

▪

failure to meet certain operational performance targets in our capacity purchase and flight services agreements, which could result in termination of those agreements;

▪

increases in our labor costs;

▪

reduced utilization - the percentage derived from dividing (i) the number of block hours actually flown during a given month by (ii) the maximum number of block hours that could be flown during such month under our capacity purchase agreement;

▪

the direct operation of regional jets United Airlines, Inc. ("United");

▪

the financial strength of United and its ability to successfully manage its businesses through the unprecedented decline in air travel attributable to the COVID-19 pandemic or any other public health epidemic;

▪

restrictions under our Amended and Restated United CPA to enter into new regional air carrier service agreements, excluding our existing Flight Services Agreement with DHL Network Operations (USA), Inc. ("DHL"), which restrictions will remain in place until the earlier to occur of (i) January 1, 2026 and (ii) the Company’s satisfaction of certain Performance Milestones (as defined in the Amended and Restated United CPA);

▪

our significant amount of debt and other contractual obligations;

▪

our compliance with ongoing financial covenants under our credit facilities

▪

our ability to keep costs low and execute our growth strategies; and

▪

the effects of extreme or severe weather conditions that impacts our ability to complete scheduled flights.

Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

Part I – Financial Information

Item 1. Financial Statements

MESA AIR GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts) (December 31, 2023 is unaudited)


	December 31,			September 30,
	2023			2023
ASSETS
Current assets:
Cash and cash equivalents	$	16,068		$	32,940
Restricted cash		3,134			3,132
Receivables, net ($1,265 and $4,016 from related party)		5,517			8,253
Expendable parts and supplies, net		28,830			29,245
Assets held for sale		92,260			57,722
Prepaid expenses and other current assets		4,476			7,294
Total current assets		150,285			138,586

Property and equipment, net		534,459			698,022
Lease and equipment deposits		1,630			1,630
Operating lease right-of-use assets		8,959			9,709
Deferred heavy maintenance, net		7,200			7,974
Assets held for sale		40,336			12,000
Other assets		32,764			30,546
Total assets	$	775,633		$	898,467

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance leases ($19,335 and $20,500 from related party)	$	156,789		$	163,550
Current portion of deferred revenue		3,983			4,880
Current maturities of operating leases		3,240			3,510
Accounts payable		54,451			58,957
Accrued compensation		7,657			10,008
Other accrued expenses		27,774			27,001
Total current liabilities		253,894			267,906
Noncurrent liabilities:
Long-term debt and finance leases, excluding current portion ($36,795 and $30,630 from related party)		315,464			364,728
Noncurrent operating lease liabilities		7,706			8,077
Deferred credits from related party		4,464			4,617
Deferred income taxes		8,842			8,414
Deferred revenue, net of current portion		14,062			16,167
Other noncurrent liabilities		28,589			28,522
Total noncurrent liabilities		379,127			430,525
Total liabilities		633,021			698,431
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 40,940,326 (2024) and 40,940,326 (2023) shares issued and outstanding, 4,899,497 (2024) and 4,899,497 (2023) warrants issued and outstanding		271,581			271,155
Accumulated deficit		(128,969	)		(71,119	)
Total stockholders' equity		142,612			200,036
Total liabilities and stockholders' equity	$	775,633		$	898,467

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts) (Unaudited)


	Three Months Ended December 31,
	2023			2022
Operating revenues:
Contract revenue ($96,412 and $59,370 from related party)	$	101,100		$	128,450
Pass-through and other revenue		17,677			18,723
Total operating revenues		118,777			147,173

Operating expenses:
Flight operations		51,818			58,320
Maintenance		48,627			48,287
Aircraft rent		1,204			4,083
General and administrative		12,009			13,988
Depreciation and amortization		13,293			15,203
Asset impairment		40,384			3,719
Loss on sale of assets		386			—
(Gain) on extinguishment of debt		(2,954	)		—
Other operating expenses		2,458			1,126
Total operating expenses		167,225			144,726
Operating income/(loss)		(48,448	)		2,447
Other income (expense), net:
Interest expense		(11,160	)		(11,276	)
Interest income		14			71
Unrealized gain/(loss) on investments, net		2,451			(1,679	)
Other income (expense), net		157			417
Total other expense, net		(8,538	)		(12,467	)
Loss before taxes		(56,986	)		(10,020	)
Income tax expense/(benefit)		864			(930	)
Net loss and comprehensive loss	$	(57,850	)	$	(9,090	)
Net loss per share attributable to
common shareholders
Basic	$	(1.41	)	$	(0.25	)
Diluted	$	(1.41	)	$	(0.25	)
Weighted-average common shares outstanding
Basic		40,940			36,378
Diluted		40,940			36,378

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)


	Three Months Ended December 31, 2022
						Common
						Stock and
						Additional
	Number of			Number of		Paid-In			Retained
	Shares			Warrants		Capital			Earnings			Total
Balance at September 30, 2022		36,376,897			4,899,497	$	259,177		$	48,997		$	308,174

Stock compensation expense		—			—		688			—			688
Payment of tax withholding for RSUs		(847	)		—		(1	)		—			(1	)
Restricted shares issued		2,500			—		—			—			—
Net loss		—			—		—			(9,090	)		(9,090	)
Balance at December 31, 2022		36,378,550			4,899,497	$	259,864		$	39,907		$	299,771


	Three Months Ended December 31, 2023
					Common
					Stock and
					Additional
	Number of		Number of		Paid-In		Accumulated
	Shares		Warrants		Capital		Deficit			Total
Balance at September 30, 2023		40,940,326		4,899,497	$	271,155	$	(71,119	)	$	200,036

Stock compensation expense		—		—		427		—			427
Net loss		—		—		—		(57,850	)		(57,850	)
Balance at December 31, 2023		40,940,326		4,899,497	$	271,582	$	(128,969	)	$	142,612

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Three Months Ended December 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(57,850	)	$	(9,090	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation and amortization		13,293			15,203
Stock compensation expense		427			688
Unrealized (gain)/loss on investments, net		(2,451	)		1,679
Deferred income taxes		428			(1,014	)
Amortization of deferred credits		(153	)		(213	)
Amortization of debt discount and issuance costs and accretion of interest into long-term debt		2,291			1,379
Asset impairment		40,384			3,719
(Gain)/loss on sale of assets		386			—
(Gain) on extinguishment of debt		(2,954	)		—
Other		912			55
Changes in assets and liabilities:
Receivables		2,736			(9,137	)
Expendable parts and supplies		415			1,150
Prepaid expenses and other operating assets and liabilities		2,604			2,290
Accounts payable		(3,903	)		(7,008	)
Deferred revenue		(3,002	)		(5,256	)
Accrued expenses and other liabilities		(1,513	)		(656	)
Operating lease right-of-use assets and liabilities		109			177
Net cash used in operating activities		(7,841	)		(6,034	)

Cash flows from investing activities:
Capital expenditures		(6,884	)		(16,740	)
Proceeds from sale of aircraft and engines		53,489			—
Refund (payment) of equipment and other deposits		—			131
Net cash provided by (used in) investing activities		46,605			(16,609	)

Cash flows from financing activities:
Proceeds from long-term debt		81,855			39,000
Principal payments on long-term debt and finance leases		(137,489	)		(17,544	)
Payments of debt and warrant issuance costs		—			(417	)
Payment of tax withholding for RSUs		—			(1	)
Net cash (used in) provided by financing activities		(55,634	)		21,038

Net change in cash, cash equivalents and restricted cash		(16,870	)		(1,605	)
Cash, cash equivalents and restricted cash at beginning of period		36,072			61,025
Cash, cash equivalents and restricted cash at end of period	$	19,202		$	59,420

Supplemental cash flow information
Cash paid for interest	$	6,948		$	7,763
Cash paid for income taxes, net	$	—		$	—
Operating lease payments in operating cash flows	$	1,211		$	4,679
Supplemental non-cash operating activities
Right-of-use assets obtained in exchange for lease liabilities	$	339		$	236
Supplemental non-cash financing activities
Finance lease obtained in exchange for lease liability	$	—		$	76,185

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Organization and Operations

About Mesa Air Group, Inc.

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa", the "Company", "we", "our", or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 82 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. Mesa operated or maintained as operational spares a fleet of 80 regional aircraft with approximately 280 daily departures and 2,246 employees as of December 31, 2023. Mesa’s fleet were conducted under the Company’s Capacity Purchase Agreement ("CPA") and Flight Services Agreement ("FSA"), leased to a third party, held for sale, or maintained as operational spares. Mesa operates all of its flights as either United Express or DHL Express flights pursuant to the terms of the CPA entered into United and FSA with DHL (each, our “major partner”). Except as set forth in the following sentence, all of the Company’s consolidated contract revenues for the three months ended December 31, 2023 and December 31, 2022 were derived from operations associated with the CPA, FSA, and leases of aircraft to a third party. Revenues during the period ended December 31, 2022 also included revenues derived from our CPA with American Airlines, Inc. ("American"), which terminated in April 2023.

The United CPA involves a revenue-guarantee arrangement whereby United pays fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services. United also pays certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of the CPA, United controls route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices. Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo flight services. Ground support expenses including fueling and airport fees are paid directly by DHL.

Impact of Pilot Shortage and Transition of Operations to United

During our three months ended December 31, 2023 and fiscal year ended September 30, 2023, the severity of the pilot shortage, elevated pilot attrition, the transition of our operations with American to United, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios. One of the primary factors contributing to the pilot shortage and attrition is the demand for pilots at major carriers, which are hiring at an accelerated rate. These airlines now seek to increase their capacity to meet the growing demand for air travel. A primary source of pilots for the major U.S. passenger and cargo carriers are the U.S. regional airlines. As a result of the pilot shortage and attrition, the Company has increased overall hourly pay of nearly 118% for captains and 172% for new hires.

As a result of pilot shortage, we produced less block hours to generate revenues. During the three months ended December 31, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $7.8 million and net loss of $57.9 million, including a non-cash impairment charge of $40.4 million related to the Company designating eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 spare engines as held for sale. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months from the filing of this Form 10-Q.

To address such concerns, management developed and implemented several material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months. The Company implemented the following measures during the three months ended December 31, 2023.

•

We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $50.3 million at the end of March 2024. We entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines. One agreement is for 30 engines for a total of $19.5 million. The second agreement is for 15 airframes (without engines) for a total of $18.8 million. Both of these transactions are expected to be completed by the end of September 2024, with net cash from these transactions expected to be approximately $(12.1) million. Subsequent to December 31, 2023, the Company entered into a binding Memorandum with RASPRO to defer the $50.3 million buyout obligation until September 2024, subject to the payment of certain commitment fee amounts

which are due in May, July, and August, along with certain RASPRO Trust administration fee amounts. See note 16 for additional disclosure regarding the binding Memorandum.

•

The Company closed the sale of the remaining four aircraft during the three months ended December 31, 2023 as part of an agreement entered into with a third party for the sale of 11 CRJ-900 aircraft. We previously reported on the sale of seven of the aircraft in our 2023 Form 10-K. Gross proceeds from the sale of the remaining four aircraft was $12.0 million. Net proceeds from the sale of all four aircraft was $6.5 million after partial debt reduction of our loan with the United States Department of the Treasury (the "UST Loan").

•

The Company closed the sale of the remaining four aircraft during the three months ended December 31, 2023 as part of an agreement entered into with American for the sale of seven CRJ-900 aircraft. Gross proceeds from the sale of the remaining four aircraft was $41.5 million. Net proceeds from the sale of all four aircraft was $5.7 million after the retirement of our loan with Export Development Bank of Canada ("EDC Loan") and the junior note with MHIRJ ("MHIRJ junior note"). MHIRJ had previously agreed to forgive approximately $5.0 million in principal contingent upon the repayment of $4.2 million in principal by December 31, 2023. $0.6 million in proceeds from the sale of each aircraft was repaid to MHIRJ for a total of $4.2 million, and we achieved approximately $5.0 million of forgiveness on the MHIRJ junior note.

•

On January 11, 2024 and January 19, 2024, we entered into the First Amendment to our Third Amended and Restated United CPA and the Second Amendment to our Third Amended and Restated United CPA (the "January 2024 United CPA Amendments"), respectively. The January 2024 United CPA Amendments provide additional liquidity and certain other amendments described below:

Increased CPA rates, retroactive to October 1, 2023 through December 31, 2024. We generated an additional approximately $20.4 million in incremental revenue from October 1, 2023 through April 30, 2024, and are projected to generate an additional $26.8 million in incremental revenue from May 1, 2024 through December 31, 2024. We received additional payments of $8.8 million in January related to the block hour rate increase from October 1, 2023 through December 31, 2023, and $21.3 million in additional payments related to the block hour rate increase from October 1, 2023 through April 30, 2024.

Amended certain notice requirements for removal by United of up to eight CRJ-900 Covered Aircraft (as defined in the United CPA) from the United CPA.

Extended United's existing utilization waiver for the Company's operation of E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA) to June 30, 2024.

•

On January 11, 2024 and January 19, 2024, we entered into Amendment No. 4 to our Second Amended and Restated Credit and Guaranty Agreement, Amendment No. 1 to Stock Pledge Agreement and Limited Waiver of Conditions to Credit Extension and Waiver and Amendment No. 5 to our Second Amended and Restated Credit and Guaranty Agreement (collectively, the "January 2024 Credit Agreement Amendments"), respectively. The January 2024 Credit Agreement Amendments provide for the following:

The repayment in full of the Company's $10.5 million Effective Date Bridge Loan obligations, and the prepayment (and corresponding reduction) of approximately $2.1 million in Revolving Loans (as defined therein), with the proceeds from the sale, assignment, or transfer of the Company's vested investment in Heart Aerospace Incorporated. Subsequent to December 31, 2023, the Company transferred its vested investment in Heart Aerospace Incorporated to United and realized a gain on the investment of $7.2 million.

As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc. held by the Company were released as collateral for the United credit facility, as provided in Amendment No. 4.

The waiver of certain financial covenant defaults with respect to the fiscal quarters ended June 30, 2023, September 30, 2023, and December 31, 2023 and the waiver of projected financial covenant defaults with respect to the fiscal quarter ending March 31, 2024.

An increase in the Applicable Margin (as defined in the United credit facility) during a specified period of time for borrowings under the Credit Agreement.

Loan prepayment requirements in connection with the sale of four specified aircraft engines and the addition of such engines as collateral for the United credit facility for a specified period of time.

•

On May 8, 2024, we entered into a Waiver Agreement to our Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of a certain projected financial covenant default with respect to the fiscal quarter ending June 30, 2024.

•

On December 1, 2023, we entered into an agreement with a third party to sell 12 surplus GE model CF34-8C aircraft engines and related parts. Subsequent to December 31, 2023, we closed the sale of all 12 engines for gross proceeds of $54.2 million and $15.9 million of net proceeds after the retirement of debt.

•

We entered into a purchase agreement with a third party which provides for the sale of 23 spare engines for gross proceeds of $11.5 million which will be used to pay down our UST Loan. The transaction is expected to close by the end of December 2024.

•

In addition to already executed agreements to sell aircraft, the Company is actively seeking arrangements to sell other surplus assets primarily related to the CRJ fleet including aircraft, engines, and spare parts to reduce debt and optimize operations.

•

We have delayed and/or deferred major spending on aircraft and engine maintenance to match the current and projected level of flight activity.

The Company believes the plans and initiatives outlined above have effectively alleviated the financial concerns and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements. On April 22, 2024, the Company entered into a binding Memorandum that provides for the payment of certain commitment fee amounts by the Company, which are due in May, July, and August, along with certain RASPRO Trust administration fee amounts, in consideration for the deferral of the buyout obligation until September 2024. Certain of the commitment fee amounts and Trust fees otherwise payable will be waived if the Company completes its purchase obligations with respect to all 15 airframes and 30 engines as set forth in the Memorandum. The terms agreed to in the Memorandum will be set forth in a definitive lease amendment to be entered into by the parties.

The forecast of undiscounted cash flows prepared to determine if the Company has the ability to meet its cash obligations over the next twelve months was prepared with significant judgment and estimates of future cash flows based on projections of CPA and FSA block hours, maintenance events, labor costs, and other relevant factors. Assumptions used in the forecast may change or not occur as expected.

As of December 31, 2023, the Company has $156.8 million of principal maturity payments on long-term debt due within the next twelve months. We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations, as well as the liquidity created from the additional measures identified above. If our plans are not realized, we intend to explore additional opportunities to create liquidity by refinancing and deferring repayment of our principal maturity payments that are due within the next twelve months. The Company continues to monitor covenant compliance with its lenders as any noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

United Capacity Purchase Agreement

Under the United CPA, we have the ability to fly up to 80 aircraft for United. The aircraft can be a mix of any number of E-175, or CRJ-900 aircraft so long as the number of aircraft operating at any given time does not exceed 80. As of December 31, 2023, we operated 54 E-175 and 26 CRJ-900 aircraft under our Third Amended and Restated Capacity Purchase Agreement with United dated December 27, 2022, which amended and restated the Second Amended and Restated Capacity Purchase Agreement dated November 4, 2020 (as amended, the “United CPA” or the "Amended and Restated United CPA"). Under the United CPA, United owns 42 of our 60 E-175 aircraft. The E-175 aircraft owned by United and leased to us have terms expiring between 2024 and 2028, and the 18 E-175 aircraft owned by us have terms expiring in 2028.

In exchange for providing flight services under our United CPA, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United also reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

United reimburses us on a pass-through basis for certain costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the aircraft owned by United. Our United CPA permits United, subject to certain conditions, including the payment of certain costs tied to aircraft type, to terminate the agreement in its discretion, or remove aircraft from service, by giving us notice of 90 days or more. If United elects to terminate our United CPA in its entirety or permanently remove select aircraft from service, we are permitted to return any of the affected aircraft leased from United at no cost to us. In addition, if United removes any of our 18 owned E-175 aircraft

from service at its direction, United would remain obligated, at our option, to assume the aircraft ownership and associated debt with respect to such aircraft through the end of the term of the United CPA.

On December 27, 2022, we entered into the Amended and Restated United CPA, which provides, among other things, for the following amended terms:

•

The addition of up to 38 CRJ-900 aircraft to be operated by the Company on behalf of United under the Amended and Restated United CPA, dependent on the number of E-175 aircraft the Company is operating. As of December 31, 2023, we operated 26 CRJ-900 aircraft under our Amended and Restated United CPA;

•

An increase in rates to cover the Company’s pilot pay increases instituted in September 2022, effective through September 2025;

•

United to be responsible for all costs associated with converting the CRJ-900 aircraft for operation in United’s network;

•

Terms providing that United may remove the CRJ-900 aircraft from the scope of the United CPA, subject to certain notice and other requirements;

•

United's existing utilization waiver for the Company’s operation of E-175LL Covered Aircraft (as defined in the United CPA) to be extended to December 31, 2023;

•

The extension of existing monthly operational performance incentives; and

•

An agreement by the Company to not enter into new regional air carrier service agreements, excluding the Company’s existing agreement with DHL, and provided that this restriction shall not apply from and after the earlier to occur of (i) January 1, 2026 and (ii) the Company's satisfaction of certain Performance Milestones (as defined in the Amended and Restated United CPA).

In January 2024, the Amended and Restated United CPA was amended with the January 2024 United CPA Amendments which provide for the following:

•

Increased CPA rates, retroactive to October 1, 2023 through December 31, 2024;

•

Amended certain notice requirements for removal by United of up to eight CRJ-900 Covered Aircraft (as defined in the United CPA) from the United CPA;

•

Extended United's existing utilization waiver for the Company's operation of E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA) to June 30, 2024.

Additionally, in January 2023, in consideration for entering in the Amended and Restated United CPA and providing the revolving line of credit, discussed in Note 8, the Company (i) granted United the right to designate one individual to the Company's board of directors (the "United Designee"), which occurred effective May 2, 2023 with the appointment of Jonathan Ireland and (ii) issued to United 4,042,061 shares of the Company’s common stock equal to approximately 10% of the Company’s issued and outstanding capital stock on such date (the "United Shares"). United's board designee rights will terminate at such time as United's equity ownership in the Company falls below five percent (5%) of the Company's issued and outstanding stock.

United was also granted pre-emptive rights relating to the issuance of any equity securities by the Company and certain registration rights, set forth in a definitive registration rights agreement with United, granting United customary demand registration rights in respect of publicly registered offerings of the Company, subject to usual and customary exceptions and limitations.

Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement. During August of 2022, we committed to a formal plan to sell 18 of our CRJ-700 aircraft and terminated the leases on the 18 CRJ-700 aircraft, which have all subsequently been sold.

Our United CPA is subject to termination prior to its expiration, including under the following circumstances:

•

If certain operational performance factors fall below a specified percentage for a specified time, subject to notice under certain circumstances;

•

If we fail to perform the material covenants, agreements, terms or conditions of our United CPA or similar agreements with United, subject to 30 days' notice and cure rights;

•

If either United or we become insolvent, file bankruptcy, or fail to pay debts when due, the non-defaulting party may terminate the agreement;

•

If we merge with, or if control of us is acquired by another air carrier or a corporation directly or indirectly owning or controlling another air carrier;

•

United, subject to certain conditions, including the payment of certain costs tied to aircraft type, may terminate the agreement in its discretion, or remove E-175 aircraft from service, by giving us notice of 90 days or more; and

•

If United elects to terminate our United CPA in its entirety or permanently remove aircraft from service, we are permitted to return any of the affected E-175 aircraft leased from United at no cost to us.

On February 29, 2024, March 29, 2024, April 1, 2024, April 19, 2024, and April 30, 2024, we received individual notices from United exercising its right under Section 2.4(a) of the United CPA to remove a total of 10 CRJ-900 Covered Aircraft (as defined in the United CPA), effective as follows: two aircraft - March 31, 2024; two aircraft - April 30, 2024; one aircraft - May 21, 2024; one aircraft - May 31, 2024; two aircraft - June 30, 2024; and two aircraft - July 31, 2024.

DHL Flight Services Agreement

On December 20, 2019, we entered into a Flight Services Agreement with DHL (the “DHL FSA”). Under the terms of the DHL FSA, we operate four Boeing 737 aircraft which are leased to us from DHL and a third party to provide cargo air transportation services as of December 31, 2023. In exchange for providing cargo flight services, we receive a fee per block hour with a minimum block hour guarantee. We are eligible for a monthly performance bonus or subject to a monthly penalty based on timeliness and completion performance. Ground support expenses including fueling and airport fees are paid directly by DHL.

Under our DHL FSA, DHL leases two Boeing 737-400F aircraft and one 737-800F and subleases them to us at nominal amounts. DHL reimburses us on a pass-through basis for all costs related to heavy maintenance including C-checks, off-wing engine maintenance and overhauls including life limited parts (“LLPs”), landing gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and LLPs. Certain items such as fuel, de-icing fluids, landing fees, aircraft ground handling fees, en-route navigation fees, and custom fees are paid directly to suppliers by DHL or otherwise reimbursed if incurred by us. A third Boeing 737-400F aircraft is leased to us under an operating lease by a third party.

The DHL FSA expires five years from the commencement date of the first aircraft placed into service, which was in October 2020. DHL has the option to extend the agreement with respect to one or more aircraft for a period of one year with 90 days’ advance written notice.

Our DHL FSA is subject to the following termination rights prior to its expiration:

•

If either party fails to comply with the obligations, warranties, representations, or undertakings under the DHL FSA, subject to certain notice and cure rights;

•

If either party is declared bankrupt or insolvent;

•

If we are unable to legally operate the aircraft under the DHL FSA for a specified number of days;

•

At any time after the first anniversary of the commencement date of the first aircraft placed in service with 90 days' written notice.

•

If we fail to comply with performance standards for three (3) consecutive measurement periods.

•

If we are subject to a labor incident that materially and adversely affects our ability to perform services under the DHL FSA for a specified number of days;

•

Upon a change in control or ownership of the Company; and

•

DHL may terminate the agreement for a specific aircraft if it is subject to a total loss and the Company does not provide alternate services at our expense, or if the aircraft becomes unavailable for more than 30 days due to unscheduled maintenance.

In February 2024, we mutually agreed to the consensual wind-down of our flight operations on behalf of DHL and ceased all such operations on March 1, 2024.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and its wholly owned operating subsidiaries. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). All intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended September 30, 2023 included in the Company's Annual Report on Form 10-K for the year ended September 30, 2023 on file with the U.S. Securities and Exchange Commission (the "SEC"). Information and footnote disclosures normally included in financial statements have been condensed or omitted in these condensed consolidated financial statements pursuant to the rules and regulations of the SEC and GAAP. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented.

Segment Reporting

As of December 31, 2023, our chief operating decision maker was the Chief Executive Officer. While we operate under a capacity purchase agreement and a flight services agreement, we do not manage our business based on any performance measure at the individual contract level. Our chief operating decision maker uses consolidated financial information to evaluate our performance and allocate resources, which is the same basis on which he communicates our results and performance to our Board of Directors. Accordingly, we have a single operating and reportable segment.

Use of Estimates

The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results could differ from those estimates.

Contract Revenue and Pass-through and Other Revenue

We recognize contract revenue when the service is provided under our CPA and FSA. Under the CPA and FSA, our major partners generally pay for each departure, flight hour or block hour incurred, and an amount per aircraft in service each month with additional incentives or penalties based on flight completion, on-time performance, and other operating metrics. Our performance obligation is met as each flight is completed, and revenue is recognized and reflected in contract revenue.

We recognize pass-through revenue when the service is provided under our CPA and FSA. Pass-through revenue represents reimbursements for certain direct expenses incurred including passenger liability and hull insurance, property taxes, other direct costs defined within the agreements, and major maintenance on aircraft leased from our major partners at nominal rates. Our performance obligation is met when each flight is completed or as the maintenance services are performed, and revenue is recognized and reflected in pass-through and other revenue.

We record deferred revenue when cash payments are received or are due from our major partners in advance of our performance. During the three months ended December 31, 2023, we recognized approximately $3.0 million of previously deferred revenue. Deferred revenue is recognized as flights are completed over the remaining terms of the respective contracts.

The deferred revenue balance as of December 31, 2023 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows (in thousands):


Periods Ending December 31,	Total Deferred Revenue
2024 (remainder of)	$	2,139
2025		5,733
2026		4,350
2027		4,093
2028		1,625
Thereafter		105
Total	$	18,045

A portion of our compensation under our CPA with United is designed to reimburse the Company for certain aircraft ownership costs. Such costs include aircraft principal and interest debt service costs, aircraft depreciation, and interest expense or aircraft lease expense costs while the aircraft is under contract. We have concluded this component of the compensation under these agreements is lease revenue, as such agreements identify the "right of use" of a specific type and number of aircraft over a stated period of time. We account for the non-lease component under ASC 606 and account for the lease component under ASC 842. We allocate the consideration in the contract between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

The lease revenue associated with our CPA is accounted for as an operating lease and is reflected as contract revenue in the condensed consolidated statements of operations and comprehensive loss. We recognized $34.9 million and $41.1 million of lease revenue for the three months ended December 31, 2023 and December 31, 2022, respectively. We have not separately stated aircraft rental income in the condensed consolidated statements of operations and comprehensive loss because the use of the aircraft is not a separate activity from the total service provided under our CPA.

Historically, the Company had lease agreements with GoJet Airlines LLC (“GoJet”) to lease 20 CRJ-700 aircraft. The lease agreements are accounted for as operating leases and have a term of nine (9) years beginning on the delivery date of each aircraft. Under the lease agreements, GoJet pays fixed monthly rent per aircraft and variable lease payments for supplemental rent based on monthly aircraft utilization at fixed rates. Supplemental rent payments are subject to reimbursement following GoJet’s completion of qualifying maintenance events defined in the agreements. Lease revenue for fixed monthly rent payments is recognized ratably within contract revenue. Lease revenue for supplemental rent is deferred and recognized within contract revenue when it is probable that amounts received will not be reimbursed for future qualifying maintenance events over the lease term.

The Company mitigated the residual asset risks through supplemental rent payments and by leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the leases have specified lease return condition requirements and we maintain inspection rights under the leases. Lease incentive obligations for reimbursements of certain aircraft maintenance costs are recognized as lease incentive assets and were amortized on a straight-line basis and recognized as a reduction to lease revenue over the lease term.

During fiscal year 2022, the Company terminated its lease agreements with GoJet to lease 18 of the 20 CRJ-700 aircraft and classified the 18 aircraft as assets held for sale. All 18 aircraft were sold as of December 31, 2023. The remaining two lease agreements are accounted for as finance leases.

The following table summarizes future minimum rental payments under operating leases related to leased aircraft that had remaining non-cancelable lease terms as of December 31, 2023 (in thousands):


Periods Ending December 31,	Total Payments
2024 (remainder of)	$	1,638
2025		2,184
2026		2,184
2027		2,184
2028		2,184
Thereafter		5,824
Total	$	16,198

Leases

We determine if an arrangement is a lease at inception. As a lessee, we have lease agreements with lease and non-lease components and have elected to account for such components as a single lease component. Our operating lease activities are recorded in operating lease right-of-use assets, current maturities of operating leases, and noncurrent operating lease liabilities in the condensed consolidated balance sheets. Finance leases are reflected in property and equipment, net, current portion of long-term debt and finance leases, and long-term debt and finance leases, excluding current portion in the condensed consolidated balance sheets.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Certain variable lease payments are not included in the calculation of the right-of-use assets and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. In determining the present value of lease payments, we use either the implicit rate in the lease when it is readily determinable or our estimated incremental borrowing rate, based on information available at the lease commencement. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease costs are recognized on a straight-line basis over the lease term, while finance leases result in a front-loaded expense pattern.

As a lessee, we have elected a short-term lease practical expedient on all classes of underlying assets, permitting us to not apply the recognition requirements of ASC 842 to leases with terms of 12 months or less.

We lease, at nominal rates, certain aircraft from United and DHL under our CPA and FSA, which are excluded from operating lease assets and liabilities as they do not represent embedded leases under ASC 842. Other than such leases at nominal amounts, 18 of our aircraft are leased from third parties. In the event that we or one of our major partners decide to exit an activity involving leased aircraft, losses may be incurred. In the event that we exit an activity that results in exit losses, these losses are accrued as each aircraft is removed from operations for early termination penalties, lease settle up and other charges. Additionally, any remaining ROU assets and lease liabilities are written off.

Contract Liabilities

Contract liabilities consist of deferred credits for cost reimbursements from major partners related to aircraft modifications and pilot training associated with the capacity purchase agreement. The deferred credits are recognized over time depicting the pattern of the transfer of control of services resulting in ratable recognition of revenue over the remaining term of the capacity purchase agreement.

Current and non-current deferred credits are recorded in other accrued expenses and non-current deferred credits in the condensed consolidated balance sheets. Our total current and non-current deferred credit balances at December 31, 2023 and September 30, 2023 were $4.9 million and $5.1 million, respectively. We recognized $1.0 million and $0.2 million of the deferred credits within contract revenue during the three months ended December 31, 2023 and December 31, 2022, respectively.

Maintenance Expense

We operate under an FAA approved continuous inspection and maintenance program. The cost of non-major scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are charged to maintenance expense as incurred.

We account for heavy maintenance and major overhaul costs on our owned E-175 fleet under the deferral method whereby the cost of heavy maintenance and major overhaul is deferred and amortized until the earlier of the end of the useful life of the related asset or the next scheduled heavy maintenance event. Amortization of heavy maintenance and major overhaul costs charged to depreciation and amortization expense was $0.8 million and $0.8 million for the three months ended December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023 and September 30, 2023, our deferred heavy maintenance balance, net of accumulated amortization, was $7.2 million and $8.0 million, respectively.

We account for heavy maintenance and major overhaul costs for all other fleets under the direct expense method whereby costs are expensed to maintenance expense as incurred, except for certain maintenance contracts where labor and materials price risks have been transferred to the service provider and require payment on a utilization basis, such as flight hours. Costs incurred for maintenance and repair for utilization maintenance contracts where labor and materials price risks have been transferred to the service provider are charged to maintenance expense based on contractual payment terms.

Engine overhaul expense totaled $5.8 million and $8.7 million for the three months ended December 31, 2023 and December 31, 2022, respectively, of which $5.7 million and $8.7 million, respectively, was pass-through expense. Airframe C-check expense totaled $6.4 million and $5.1 million for the three months ended December 31, 2023 and December 31, 2022, respectively, of which $3.8 million and $4.4 million, respectively, was pass-through expense.

Assets Held for Sale

We classify assets as held for sale when our management approves and commits to a formal plan of sale that is probable of being completed within one year. Assets designated as held for sale are recorded at the lower of their current carrying value or their fair market value, less costs to sell, beginning in the period in which the assets meet the criteria to be classified as held for sale. See Note 5 for further discussion of our assets classified as held for sale as of December 31, 2023.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This ASU provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR), or another reference rate expected to be discontinued. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has determined that the U.S. dollar LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR). Optional expedients can be applied through December 31, 2024. Under the expedient, the Company will account for amendments to agreements as if the modification was not substantial. The new carrying amounts of debts will consist of the carrying amount of the original debt and any additional fees associated with the modified debt instrument. A new effective yield will be established based on the new carrying amount and revised cash flows.

In June 2022, the FASB issued new guidance to clarify the fair value measurement guidance for equity securities subject to contractual restrictions that prohibit the sale of an equity security. Further, the guidance introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The standard will be effective for annual reporting periods beginning after December 15, 2023, including interim reporting periods within those fiscal years. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

Concentrations of Credit Risk

Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are primarily held by financial institutions in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. We maintain our cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions.

As of December 31, 2023, we had $3.1 million in restricted cash. We have an agreement with a financial institution for a letter of credit facility and to issue letters of credit for particular airport authorities, worker's compensation insurance, property and casualty insurance and other business needs as required in certain lease agreements. Pursuant to the terms of this agreement, $3.1 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

Significant customers are those which represent more than 10% of our total revenue or net accounts receivable balance at each respective balance sheet date. All of our revenue for the three months ended December 31, 2023 and December 31, 2022 was derived from the American and United CPAs, DHL FSA, and from leases of our CRJ-700 aircraft to GoJet. Substantially all of our accounts receivable at December 31, 2023 and September 30, 2023 was derived from these agreements.

American accounted for 0% and approximately 45% of our total revenue for the three months ended December 31, 2023 and December 31, 2022, respectively. United accounted for approximately 96% and 50% of our total revenue for the three months ended December 31, 2023 and December 31, 2022, respectively. The wind-down period of the American CPA ended on April 3, 2023, at which the American CPA was officially terminated. A termination of the United CPA would have a material adverse effect on our business prospects, financial condition, results of operations, and cash flows.

Amounts billed under our agreements are subject to our interpretation of the applicable agreement and are subject to audit by our major partners. Periodically, our major partners dispute amounts billed and pay amounts less than the amount billed. Ultimate collection of the remaining amounts not only depends upon the Company prevailing under the applicable audit, but also upon the financial well-being of the major partner. As such, we review amounts due based on historical collection trends, the financial condition of the major partners, and current external market factors and record a reserve for amounts estimated to be uncollectible in accordance with the applicable guidance for expected credit losses. Our allowance for doubtful accounts was not material as of December 31, 2023 or September 30, 2023. If our ability to collect these receivables and the financial viability of our major partners is materially different than estimated, our estimate of the allowance for credit losses could be materially impacted.

Assets Held for Sale

During 2022, our management committed to a formal plan to sell certain of our CRJ-900, CRJ-200, and CRJ-700 aircraft. Accordingly, we determined the aircraft met the criteria to be classified as assets held for sale and have separately presented them in our condensed consolidated balance sheet at the lower of their current carrying value or their fair market value less costs to sell. The fair values are based upon observable and unobservable inputs, including recent purchase offers and market trends and conditions. The assumptions used to determine the fair value of our assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which we will continue to monitor in future periods as new information becomes available. Prior to the ultimate sale of the assets, subsequent changes in our estimate of the fair value of our assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value.

As of September 30, 2023, the Company had 15 CRJ-900 aircraft classified as held for sale with a net book value of $69.7 million, $57.7 million was classified as classified as current assets on our condensed consolidated balance sheet and $12.0 million of which was classified as noncurrent assets on our condensed consolidated balance sheet. During the three months ended December 31, 2023, the Company closed the sale of four CRJ-900 aircraft to American for gross proceeds of $41.5 million. Net proceeds from the sale of all four aircraft was $5.7 million after the retirement of the EDC Loan and MHIRJ junior note. Additionally, during the three months ended December 31, 2023, the Company closed the sale of four CRJ-900 aircraft to a third party for gross proceeds of $12.0 million. Net proceeds from the sale of all four aircraft was $6.5 million after partial debt reduction on the UST Loan. The sale of these assets reduced the total held for sale balance by $53.9 million, $41.9 million of which reduced the balance of current held for sale assets and $12.0 million of which reduced the balance of noncurrent held for sale assets.

During the three months ended December 31, 2023, eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 GE model CF34-8C engines were designated as held for sale. The Company wrote down the value of the assets with signed purchase agreements to the agreed upon sales price, which approximates fair value, and wrote down the value

of held for sale assets with no signed agreement to a third party appraisal value. The Company reclassified $111.7 million to held for sale related to these assets, $71.4 million of which is classified as current assets on our condensed consolidated balance sheet and $40.3 million of which is classified as noncurrent assets on our condensed consolidated balance sheet. The Company recorded an impairment loss of $45.5 million on the assets designated as held for sale during the three months ended December 31, 2023, which was slightly offset by a $5.1 million impairment gain due to fair value adjustments on assets previously designated as held for sale. The total impairment loss related to held for sale assets during the three months ended December 31, 2023 was $40.4 million.

As of December 31, 2023, the Company has 15 CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 engines that are classified as assets held for sale with a net book value of $132.6 million, $92.3 million of which is classified as current assets on our condensed consolidated balance sheet and $40.3 million of which is classified as noncurrent assets on our condensed consolidated balance sheet. The following table summarizes the Company's held for sale activity during the three months ended December 31, 2023 (in millions):


	Total			Current Assets			Noncurrent Assets

Held for sale balance as of September 30, 2023	$	69.7		$	57.7		$	12.0
Assets sold		(53.9	)		(41.9	)		(12.0	)
Assets reclassified to held for sale		111.7			71.4			40.3
Impairment gain due to fair value adjustments		5.1			5.1			—
Held for sale balance as of December 31, 2023	$	132.6		$	92.3		$	40.3

Balance Sheet Information

Certain significant amounts included in the condensed consolidated balance sheets consisted of the following (in thousands):


	December 31,			September 30,
	2023			2023
Expendable parts and supplies, net:
Expendable parts and supplies	$	40,215		$	39,630
Less: expendable parts warranty		(7,218	)		(6,295	)
Less: obsolescence		(4,167	)		(4,090	)
	$	28,830		$	29,245
Prepaid expenses and other current assets:
Prepaid aviation insurance	$	1,596		$	3,176
Prepaid vendors		896			143
Prepaid other insurance		761			1,205
Lease incentives		143			1,125
Prepaid fuel and other		1,080			1,645
	$	4,476		$	7,294
Property and equipment, net:
Aircraft and other flight equipment	$	779,436		$	1,039,782
Other equipment		9,467			9,421
Total property and equipment		788,903			1,049,203
Less: accumulated depreciation		(254,444	)		(351,181	)
	$	534,459		$	698,022
Other assets:
Investments in equity securities	$	23,021		$	20,320
Lease incentives		919			954
Contract asset		8,309			8,756
Other		515			516
	$	32,764		$	30,546
Other accrued expenses:
Accrued property taxes	$	3,052		$	5,281
Accrued interest		5,099			3,447
Accrued vacation		6,933			6,763
Accrued lodging		3,165			3,984
Accrued maintenance		1,546			2,117
Accrued simulator costs		242			1,006
Accrued employee benefits		1,681			1,450
Accrued fleet operating expense		1,668			650
Other		4,388			2,303
	$	27,774		$	27,001
Other noncurrent liabilities:
Warrant liabilities	$	25,225		$	25,225
Lease incentive obligations		1,050			1,050
Long-term employee benefits		495			429
Other		1,819			1,818
	$	28,589		$	28,522

Impairment of Long-lived Assets

The Company monitors for any indicators of impairment of the long-lived fixed assets. When certain conditions or changes in the economic situation exist, the assets may be impaired and the carrying amount of the assets exceed their fair value. The assets are then tested for recoverability of carrying amount. The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the undiscounted net cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated fair value.

We group assets at the capacity purchase agreement, flight services agreement, and fleet-type level (i.e., the lowest level for which there are identifiable cash flows). If impairment indicators exist with respect to any of the asset groups, we estimate future cash flows based on projections of capacity purchase or flight services agreement, block hours, maintenance events, labor costs and other relevant factors.

During the fiscal year ended September 30, 2023, due to the impacts of the pilot shortage and the pilot wage increase, the Company assessed whether any indicators of impairment existed in any of our long-lived asset groups. The Company concluded that the net book value of our United asset group was fully recoverable and did not record any impairment.

During the three months ended December 31, 2023, eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 GE model CF34-7C engines were reclassified to held for sale and evaluated for impairment. The Company determined that the carrying value of the assets exceeded their estimated fair value and recognized an impairment loss of $40.4 million during the three months ended December 31, 2023 related to the held for sale aircraft. The Company determined that no other indicators of impairment were present during the quarter and no further steps were determined to be necessary.

The Company’s assumptions about future conditions relevant to the assessment of potential impairment of its long-lived assets are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

Depreciation Expense on Property and Equipment:

Depreciation of property and equipment totaled $13.3 million and $14.4 million for the three months ended December 31, 2023 and December 31, 2022, respectively.

Other Assets

In connection with a negotiated forward purchase contract for electrically-powered vertical takeoff and landing aircraft (“eVTOL aircraft”) executed in February 2021, we obtained equity warrant assets giving us the right to acquire a number shares of common stock in Archer Aviation, Inc. (“Archer”), which at the time of our initial investment was a private, venture-backed company. As the initial investment in Archer did not have a readily determinable fair value, we accounted for this investment using the measurement alternative under ASC 321, Investments – Equity Securities, and measured the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. We estimated the initial equity warrant asset value to be $16.4 million based on publicly available information as of the grant date. In September 2021, the merger between Archer and a special purpose acquisition company (“SPAC”) was completed, resulting in a readily determinable fair value of our investments in Archer. Accordingly, gains and losses associated with changes in the fair value of our investments in Archer are reported in earnings, in accordance with ASC 321.

The initial grant date values of the warrants, $16.4 million, was recognized as a vendor credit liability within other noncurrent liabilities. The liability related to the warrant assets will be settled in the future, as a reduction of the acquisition date value of the eVTOL aircraft contemplated in the related aircraft purchase agreement.

In connection with closing of the merger between Archer and the SPAC described above, in September 2021, we purchased 500,000 Class A common shares in Archer for $5.0 million and obtained an additional warrant to purchase shares of Archer with a total grant date value of $5.6 million. The initial value of the warrants was recognized as a vendor credit liability within other noncurrent liabilities, and will be settled in the future, as a reduction of the acquisition date value of the eVTOL aircraft contemplated in the related aircraft purchase agreement. Because these investments have readily determinable fair values, gains and losses resulting from changes in fair value of the investments are reflected in earnings, in accordance with ASC 321. All of our vested warrants have been exercised into shares of Archer common stock.

The fair values of the Company’s investments in Archer are Level 1 within the fair value hierarchy as the values are determined using quoted prices for the equity securities. The Company recorded a $2.5 million unrealized gain on the investment in Archer during the three months ended December 31, 2023. The total value of the investment in Archer is $13.9 million as of December 31, 2023.

In connection with a negotiated forward purchase contract for fully electric aircraft executed in July 2021, we obtained $5.0 million of preferred stock in Heart Aerospace Incorporated (“Heart”), a privately held company. Our investment in Heart does not have a readily determinable fair value, so we account for the investment using the measurement alternative under

ASC 321 and measure the investment at initial cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition of the investment, or other features that indicate a change to fair value is warranted. Any changes in fair value from the initial cost of the investment in preferred stock are recognized as increases or decreases on our balance sheet and as net gains or losses on investments in equity securities. The initial investment in preferred stock was measured at cost of $5.0 million. Subsequent to December 31, 2023, the Company transferred its vested investment in Heart to United and realized a gain on the investment of $7.2 million.

In connection with a negotiated forward purchase contract for hybrid-electric vertical takeoff and landing (“VTOL”) aircraft executed in February 2022, we obtained a warrant giving us the right to acquire a number of shares of common stock in the privately-held manufacturer of the VTOL aircraft. These investments do not have a readily determinable fair value, so we account for them using the measurement alternative under ASC 321 and measure the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition of the investment or other features that indicate a discount to fair value is warranted. Any changes in fair value from the grant date value of the warrant assets will be recognized as increases or decreases to the investment on our balance sheet and as net gains or losses on investments in equity securities. We estimated the initial warrant asset value to be $3.2 million based on prices of similar investments in the same issuer. The grant date value of the warrants, $3.2 million, was recognized as a vendor credit liability within other noncurrent liabilities. The liability related to the warrant assets will be settled in the future, as a reduction of the acquisition date value of the VTOL aircraft contemplated in the related forward purchase agreement.

On March 12, 2024, the privately-held manufacturer of the VTOL aircraft, XTI Aerospace, Inc ("XTIA")., and its merger subsidiary completed their merger agreement, and began trading as XTIA on the Nasdaq Composite on March 13, 2024, resulting in a readily determinable fair value on our investment in XTIA. The fair values of the Company's investments in XTIA are now Level 1 within the fair value hierarchy as the values are determined using quoted prices for the equity securities.

Total net gain/(loss) on our investments in equity securities totaled $2.5 million and $(1.7) million for the three months ended December 31, 2023 and December 31, 2022, respectively, and are reflected in unrealized gain/(loss) on investments, net in our condensed consolidated statements of operations and comprehensive loss. As of December 31, 2023 and September 30, 2023, the aggregate carrying amount of our investments in equity securities was $23.0 million and $20.3 million, respectively, and the carrying amount of our investments without readily determinable fair values was $8.8 million and $8.8 million, respectively.

Fair Value Measurements

Fair value is an exit price representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Accounting standards include disclosure requirements relating to the fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:


Level 1	—	Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2	—	Inputs, other than quoted prices in active markets, which are observable either directly or indirectly; and
Level 3	—	Unobservable inputs in which there is little or no market data, requiring an entity to develop its own assumptions.

Other than our assets held for sale and investments in equity securities described in Notes 5 and 6, respectively, we did not measure any of our assets or liabilities at fair value on a recurring or nonrecurring basis as of December 31, 2023 and September 30, 2023.

The carrying values reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

Our debt agreements are not traded on an active market. We have determined the estimated fair value of our debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and, therefore, could be sensitive to changes in inputs. We utilize the discounted cash flow method to estimate the fair value of Level 3 debt.

The carrying value and estimated fair value of our total long-term debt and finance leases, including current maturities, were as follows (in millions):



	December 31, 2023				September 30, 2023
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt and finance leases, including current maturities(1)	$	481.0	$	456.0	$	538.3	$	493.6

(1) Current and prior period long-term debts' carrying and fair values exclude net debt issuance costs.

Long-Term Debt, Finance Leases, and Other Borrowings

Long-term debt as of December 31, 2023 and September 30, 2023, consisted of the following (in thousands):


	December 31,			September 30,
	2023			2023

Senior and subordinated notes payable to secured parties, due in monthly installments, interest based on SOFR plus interest spread at 2.71% through 2027, collateralized by the underlying aircraft	$	-		$	39,018
Notes payable to secured parties, due in semi-annual installments, interest based on SOFR plus interest spread at 4.75% to 6.25% through 2028, collateralized by the underlying aircraft		108,815			108,815
Notes payable to secured parties, due in quarterly installments, interest based on SOFR plus interest at spread 2.20% to 2.32% for senior note & 4.50% for subordinated note through 2028, collateralized by the underlying aircraft		86,194			90,401
Revolving credit facility, quarterly interest based on SOFR plus interest spread at 4.50% through 2028, with incentives for up to $15 million based on achieving certain performance metrics		45,630			40,630
United Bridge Loan - due in quarterly installments based on SOFR plus interest spread at 4.50% through 2024		10,500			10,500
Other obligations due to financial institution, monthly and/or quarterly interest due from 2022 through 2031, collateralized by the underlying equipment		68,540			67,637
Notes payable to financial institution, due in monthly installments, interest based on SOFR plus interest spread at 3.10% through 2024, collateralized by the underlying equipment		271			1,075
Notes payable to financial institution, due in monthly installments, interest based on fixed interest of 7.50%, through 2024, collateralized by the underlying equipment		38,846			41,098
Notes payable to financial institution, quarterly interest based on SOFR plus interest spread at 3.50% through 2027		122,155			139,100
Gross long-term debt, including current maturities		480,951			538,274
Less unamortized debt issuance costs		(4,383	)		(5,083	)
Less notes payable warrants		(4,315	)		(4,913	)
Net long-term debt, including current maturities		472,253			528,278
Less current portion, net of unamortized debt issuance costs		(156,789	)		(163,550	)
Net long-term debt	$	315,464		$	364,728

Principal maturities of long-term debt as of December 31, 2023, and for each of the next five years are as follows (in thousands):


Periods Ending December 31,	Total Principal
2024 (remainder of)	$	152,275
2025		49,263
2026		172,700
2027		51,313
2028		30,878
Thereafter		24,522
	$	480,951

The carrying value of collateralized aircraft and equipment as of December 31, 2023 was approximately $586.6 million.

Enhanced Equipment Trust Certificate ("EETC")

In December 2015, an Enhanced Equipment Trust Certificate ("EETC") pass-through trust was created to issue pass-through certificates to obtain financing for new E-175 aircraft. As of December 31, 2023, we had $108.8 million of equipment notes outstanding issued under the EETC financing included in long-term debt in the condensed consolidated balance sheets. The structure of the EETC financing consists of a pass-through trust created by Mesa to issue pass-through certificates, which represent fractional undivided interests in the pass-through trust and are not obligations of Mesa.

The proceeds of the issuance of the pass-through certificates were used to purchase equipment notes which were issued by Mesa and secured by its aircraft. The payment obligations under the equipment notes are those of Mesa. Proceeds received from the sale of pass-through certificates were initially held by a depositary in escrow for the benefit of the certificate holders until Mesa issued equipment notes to the trust, which purchased such notes with a portion of the escrowed funds.

We evaluated whether the pass-through trust formed for the EETC financing is a Variable Interest Entity ("VIE") and required to be consolidated. We have determined we do not have a variable interest in the pass-through trust, and therefore, we have not consolidated the pass-through trust with our financial statements.

United Revolving Credit Facility

On December 27, 2022, in connection with entering into the Amended and Restated United CPA, (i) United agreed to purchase and assume all of First Citizens’ rights and obligations as a lender under the Existing Facility pursuant to an Assignment and Assumption Agreement, (ii) United and CIT Bank agreed to amend the Existing Facility pursuant to an Amendment No. 1, dated December 27, 2022 (“Amendment No. 1”), and an Amendment No. 2, dated January 27, 2023 (“Amendment No. 2”; the Existing Facility as amended by Amendment No. 1 and Amendment No. 2, the "Amended Facility"), and (iii) Wilmington Trust, National Association agreed to assume all of CIT Bank’s rights and obligations as Administrative Agent pursuant to an Agency Resignation, Appointment and Assumption Agreement, dated as of January 27, 2023. Amendment No. 1, among other things, extends the Maturity Date from the earlier to occur of November 30, 2028, or the date of the termination of the Amended and Restated United CPA; provides for a revolving loan of $10.5 million plus fees and expenses, which is due January 31, 2024, subject to certain mandatory prepayment requirements; provides for Revolving Commitments equal to $30.7 million plus the original principal amount of the $10.5 million revolving loan; amortization of the obligations outstanding under the existing CIT Agreement commencing quarterly until March 31, 2025; and a covenant capping Restricted Payments (as defined in the Amended Facility) at $5.0 million per fiscal year, a consolidated interest and rental coverage ratio of 1.00 to 1.00 covenant, and a Liquidity (as defined in the Amended Facility) requirement of not less than $15.0 million at the close of any business day. Interest assessed under the Amended Facility is 3.50% for Base Rate Loans and 4.50% for Term SOFR Loans (as such terms are defined in the Amended Facility). Amendment No. 2, among other things, amends the definition of Controlled Account (as defined in the Amended Facility). Amounts borrowed under this Amended Facility are secured by a collateral pool consisting of a combination of expendable parts, rotable parts and engines and a pledge of the Company’s stock in certain aviation companies. United funded $25.5 million as of the closing date of Amendment No. 1, to be used for general corporate purposes.

The United line of credit contains an additional deemed prepayment of $15 million with potential forgiveness upon the achievement of a certain number of block hours as well as maintaining a CCF of at least 99.3% over any rolling four-month period from April 2023 through December 2025. In order to earn forgiveness on the deemed prepayment, we must also have repaid the bridge loan in full. As of December 31, 2023, we have achieved $9.75 million in forgiveness. Subsequent

to December 31, 2023, we earned an additional $0.75 million in forgiveness. As the bridge loan is still outstanding as of December 31, 2023, the forgiveness is not currently recognizable. However, subsequent to December 31, 2023, the Company repaid our bridge loan in full, and the $10.5 million in forgiveness achieved was recognized as a deemed prepayment. $4.5 million of the deemed prepayment remains outstanding.

On September 6, 2023, the Company amended the existing United Credit Facility to (i) permit the Company to re-draw approximately $7.9 million of the Effective Date Bridge Loan (as defined in the United Credit Facility) previously repaid; (ii) increased the amount of Revolving Commitments (as defined in the United Credit Facility) from $30.7 million to $50.7 million, in each case, plus the original principal amount of the Effective Date Bridge Loan and subject to the Borrowing Base (as defined in the United Credit Facility); and (iii) amended the calculation of the Borrowing Base. Amounts borrowed under this facility bear interest at 3.50% for Base Rate Loans and 4.50% per annum for Term SOFR Loans. Amounts borrowed under the Amended Credit Facility are secured by a collateral pool consisting of a combination of expendable parts, rotable parts and engines, a pledge of certain of the Company’s bank accounts and a pledge of the Company’s stock in certain aviation companies. As of May 23, 2024, the Company has $2.2 million available to draw on the line of credit.

On January 11, 2024 and January 19, 2024, we entered into Amendment No. 4 to our Second Amended and Restated Credit and Guaranty Agreement, Amendment No. 1 to Stock Pledge Agreement and Limited Waiver of Conditions to Credit Extension ("Amendment No. 4") and Waiver and Amendment No. 5 to our Second Amended and Restated Credit and Guaranty Agreement (collectively, the "January 2024 Credit Agreement Amendments"), respectively. The January 2024 Credit Agreement Amendments provide for the following:

•

An increase in the Applicable Margin (as defined in the United credit facility) during a specified period of time for borrowings under the Credit Agreement.

•

Loan Agreement with the United States Department of the Treasury

On October 30, 2020, we entered into a loan and guarantee agreement with the U.S. Department of the Treasury (the “U.S. Treasury”) for a secured loan facility of up to $200.0 million that matures in October 2025 (“the Treasury Loan”). During the first quarter of fiscal 2021, we borrowed an aggregate of $195.0 million. No further borrowings are available under the Treasury Loan.

The Treasury Loan bears interest at a variable rate equal to (a)(i) the SOFR rate divided by (ii) one minus the Eurodollar Reserve Percentage plus (b) 3.50%. Accrued interest on the loans is payable in arrears, or paid-in-kind by increasing the principal balance of the loan by such interest payment, on the first business day following the 14th day of each March, June, September, and December.

All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025. Commencing in June 2022, we initiated the payment of interest in lieu of increasing the principal amount of the loan. Our obligations under the Treasury Loan are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, flight simulators, and tooling (collectively, the “Collateral”). The obligations under the Treasury Loan are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds were used for general corporate purposes and operating expenses, to the extent permitted by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Voluntary prepayments of the Treasury Loan may be made, in whole or in part, without premium or penalty, at any time and from time to time. Amounts prepaid may not be reborrowed. Mandatory prepayments of the Treasury Loan are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral, and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the Treasury Loan) occurs with respect to Mesa Airlines, we will be required to repay the loans outstanding under the Treasury Loan.

The Treasury Loan requires us, under certain circumstances, including within 10 business days prior to the last business day of March and September of each year beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.55 to 1.0, we are required either to provide additional Collateral (which may include cash collateral) to secure the obligations under the Treasury Loan or repay the term loans under the Treasury Loan, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Collateral or repayment, is at least 1.55 to 1.0.

The Treasury Loan contains two (2) financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Treasury Loan also contains customary negative and affirmative covenants for credit facilities of this type, including, among others: (a) limitations on dividends and distributions; (b) limitations on the creation of certain liens; (c) restrictions on certain dispositions, investments, and acquisitions; (d) limitations on transactions with affiliates; (e) restrictions on fundamental changes to the business, and (f) restrictions on lobbying activities. Additionally, we are required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service.

In connection with the Treasury Loan and as partial compensation to the U.S. Treasury for the provision of financial assistance under the Treasury Loan, we issued to the U.S. Treasury warrants to purchase an aggregate of 4,899,497 shares of our common stock at an exercise price of $3.98 per share, which was the closing price of the common stock on April 9, 2020. The exercise price and number of shares of common stock issuable under the warrants are subject to adjustment as a result of anti-dilution provisions contained in the warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at our option. The fair value of the warrants was estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Loan in the condensed consolidated balance sheets.

Spare Engine Financing

In December 2021, we entered into a loan agreement with a financing institution to finance certain purchases of spare engines via a newly formed limited liability company (“LLC”). The loan agreement provides for aggregate borrowings of up to $54.0 million through November 2022. In December 2021, we borrowed an aggregate of $35.3 million under the loan agreement, which matures in December 2027. The borrowed amounts are collateralized by the underlying engines and require monthly principal and interest payments until maturity. In December 2022, the agreement was amended for the borrowings under the loan agreement to bear a fixed interest rate of 7.5%. The borrowings are the obligation of the newly formed LLC and are guaranteed by Mesa Airlines, Inc.

The newly formed LLC, which is wholly owned by Mesa, was determined to be a VIE for which we are the primary beneficiary because we have the power to direct the activities of the LLC that most significantly impact the LLC’s economic performance and the obligation to absorb losses and right to receive benefits from the LLC in our capacity as sole member of the LLC and guarantor of the borrowings. Therefore, the LLC is consolidated in our financial statements and the borrowings are reflected as long-term debt in our condensed consolidated balance sheets.

The loan agreement contains a loan-to-value (“LTV”) financial covenant pursuant to which we are required to prepay certain amounts of the loan if the aggregate outstanding principal balance of the loan exceeds a specified percentage of the appraised value of the engines beginning in the 12th full month after closing and each June 1 and December 1 thereafter.

Loss Per Share

Calculations of net loss per common share were as follows (in thousands):


	Three Months Ended December 31,
	2023			2022
Net loss	$	(57,850	)	$	(9,090	)
Basic weighted average common shares outstanding		40,940			36,378
Diluted weighted average common shares outstanding		40,940			36,378
Net loss per common share attributable to Mesa Air Group:
Basic	$	(1.41	)	$	(0.25	)
Diluted	$	(1.41	)	$	(0.25	)

Basic income or loss per common share is computed by dividing net income or loss attributable to Mesa Air Group by the weighted average number of common shares outstanding during the period.

The number of incremental shares from the assumed issuance of shares relating to restricted stock and exercise of warrants is calculated by applying the treasury stock method. Share-based awards and warrants whose impact is anti-dilutive under the treasury stock method are excluded from the diluted net income or loss per share calculation. In loss periods, these incremental shares are excluded from the calculation of diluted loss per share, as the inclusion of unvested restricted stock and warrants would have an anti-dilutive effect.

10.

Common Stock

As discussed in Note 8, we issued warrants to the U.S. Treasury to purchase shares of our common stock, no par value, at an exercise price of $3.98 per share. The exercise price and number of shares issuable under the warrants are subject to adjustment as a result of anti-dilution provisions contained in the warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at our option. The warrants were accounted for within equity at a grant date fair value determined under the Black-Scholes option pricing model. As of December 31, 2023, 4,899,497 warrants were issued and outstanding.

We have not historically paid dividends on shares of our common stock. Additionally, the Treasury Loan and our aircraft lease facility with RASPRO Trust 2005, a pass-through trust, contain restrictions that limit our ability to or prohibit us from paying dividends to holders of our common stock.

11.

Income Taxes

Our effective tax rate ("ETR") from continuing operations was -1.5% and 9.3% for the three months ended December 31, 2023 and 2022, respectively. The Company’s ETR during the three months ended December 31, 2023 decreased from the prior year tax rate, primarily as a result of certain permanent tax differences, state taxes, and changes in the valuation allowance against federal and state net operating losses.

We continue to maintain a valuation allowance on a portion of our federal and state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.

As of December 31, 2023, the Company had aggregate federal and state net operating loss carryforwards of approximately $560.0 million and $247.0 million, respectively, which expire in 2030-2038 and 2024-2043, respectively. Approximately $4.5 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

12.

Share-Based Compensation

Restricted Stock

We grant restricted stock units (“RSUs”) as part of our long-term incentive compensation to employees and non-employee members of the Board of Directors. RSUs generally vest over a period of three to five years for employees and one year for members of the Board of Directors. The restricted common stock underlying RSUs are not deemed issued or outstanding upon grant, and do not carry any voting rights.

The restricted share activity for the three months ended December 31, 2023 is summarized as follows:


				Weighted-
				Average
	Number			Grant Date
	of Shares			Fair Value
Restricted shares unvested at September 30, 2023		736,891		$	3.35
Granted		—		$	—
Vested		—		$	—
Forfeited		(8,000	)	$	4.72
Restricted shares unvested at December 31, 2023		728,891		$	3.33

As of December 31, 2023, there was $1.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.5 years.

Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period. Share-based compensation expense for the three months ended December 31, 2023 and December 31, 2022 was $0.4 million and $0.7 million, respectively.

Shares for Restricted Stock Units Tax Withholding

The amounts remitted for employee withholding taxes during the three months ended December 31, 2023 and December 31, 2022 were zero and $1.0 thousand, respectively, for which the Company withheld zero and 847 shares of our common stock, respectively, that were underlying the RSUs that vested.

13.

Employee Stock Purchase Plan

2019 ESPP

The Mesa Air Group, Inc. 2019 Employee Stock Purchase Plan ("2019 ESPP”) is a nonqualified plan that provides eligible employees of Mesa Air Group, Inc. with an opportunity to purchase Mesa Air Group, Inc. ordinary shares through payroll deductions. Under the 2019 ESPP, eligible employees may elect to contribute 1% to 15% of their eligible compensation during each semi-annual offering period to purchase Mesa Air Group, Inc. ordinary shares at a 10% discount.

A maximum of 500,000 Mesa Air Group, Inc. ordinary shares may be issued under the 2019 ESPP. As of December 31, 2023, eligible employees purchased and we issued an aggregate of 444,590 Mesa Air Group, Inc. ordinary shares under the 2019 ESPP.

14.

Leases

As of December 31, 2023, we leased 18 aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating and finance leases. The leases generally require us to pay all taxes, maintenance, insurance, and other operating expenses. Operating leased expense is recognized as a rental expense on a straight-line basis over the lease term, net of lessor rebates and other incentives. Finance lease is capitalized and depreciated over the useful life of the asset.

Aggregate rental expense under all aircraft, equipment and facility leases totaled approximately $8.0 million and $6.9 million for the three months ended December 31, 2023 and December 31, 2022, respectively.

The components of our lease costs were as follows (in thousands):


	Three Months Ended December 31,
	2023		2022
Operating lease costs	$	1,278	$	4,699
Variable and short-term lease costs		1,279		889
Interest expense on finance lease liabilities		1,289		274
Amortization expense of finance lease assets		4,123		1,046
Total lease costs	$	7,969	$	6,907

As of December 31, 2023, our operating leases have a remaining weighted average lease term of 6.2 years and our operating lease liabilities were measured using a weighted average discount rate of 5.8%.

RASPRO Lease Facility

Historically, Mesa Airlines, as lessee, entered into the RASPRO Lease Facility, with RASPRO as lessor, for 15 of our CRJ-900 aircraft classified as operating leases. The obligations under the RASPRO Lease Facility are guaranteed by us, and basic rent is paid quarterly on each aircraft. During December 2022, the Company entered into an agreement with RASPRO Trust, reducing the buyout pricing on all 15 aircraft at lease termination by a total of $25 million. Under the terms of the new agreement, the Company reclassified these leases as finance leases.

15.

Commitments and Contingencies

Litigation

We are subject to certain legal actions which we consider routine to our business activities. As of December 31, 2023, our management believed the ultimate outcomes of other routine legal matters are not likely to have a material adverse effect on our financial position, liquidity or results of operations.

Electric Aircraft Forward Purchase Commitments

As described in Note 6, in February 2021, we entered into a forward purchase contract with Archer for a number of eVTOL aircraft. The aggregate base commitment for the eVTOL aircraft is $200.0 million, with an option to purchase additional aircraft. Our obligation to purchase the eVTOL aircraft is subject to the Company and Archer first agreeing in the future to a number of terms and conditions, which may or may not be met.

As described in Note 6, in July 2021, we entered into a forward purchase contract with Heart for a number of fully electric aircraft. The maximum aggregate base commitment for the aircraft is $1,200.0 million, with an option to purchase additional aircraft. Our obligation to purchase the aircraft is subject to the Company and Heart first agreeing in the future to a number of terms and conditions, which may or may not be met.

Other Commitments

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs.

16.

Subsequent Events

United Agreements

and are projected to generate an additional $26.8 million in incremental revenue from May 1, 2024 through December 31, 2024.

•

Amended certain notice requirements for removal by United of up to eight CRJ-900 Covered Aircraft (as defined in the United CPA) from the United CPA.

•

Extended United's existing utilization waiver for the Company's operation of E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA) to June 30, 2024.

On January 11, 2024 and January 19, 2024, we entered into Amendment No. 4 to our Second Amended and Restated Credit and Guaranty Agreement, Amendment No. 1 to Stock Pledge Agreement and Limited Waiver of Conditions to Credit Extension ("Amendment No. 4") and Waiver and Amendment No. 5 to our Second Amended and Restated Credit and Guaranty Agreement (collectively, the "January 2024 Credit Agreement Amendments"), respectively. The January 2024 Credit Agreement Amendments provide for the following:

•

As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc. held by the Company are being released as collateral for the United credit facility, subject to certain conditions. Additionally, as a result of the repayment of the Effective Date Bridge Loan, $10.5 million of the potential $15 million deemed prepayment was achieved and recognized as prepaid.

•

An increase in the Applicable Margin (as defined in the United credit facility) during a specified period of time for borrowings under the Credit Agreement.

•

On February 29, 2024, March 29, 2024, April 1, 2024, and April 19, 2024, and April 30, 2024, we received individual notices from United exercising its right under Section 2.4(a) of the United CPA to remove a total of 10 CRJ-900 Covered Aircraft (as defined in the United CPA), effective as follows: two aircraft - March 31, 2024; two aircraft - April 30, 2024; one aircraft - May 21, 2024; one aircraft - May 31, 2024; two aircraft June 30, 2024; and two aircraft - July 31, 2024.

DHL Amendment

In February 2024, we mutually agreed to the consensual wind-down of our flight operations on behalf of DHL and ceased all such operations on March 1, 2024.

Engine Purchase Agreement

Subsequent to December 31, 2023, we closed the sale of all 12 engines as part of the engine purchase agreement with a third party for gross proceeds of $54.2 million and $15.9 million of net proceeds after the retirement of debt.

RASPRO Letter Agreement and Memorandum

On April 15, 2024, the Company entered into a letter agreement with RASPRO to defer the $50.3 million buyout obligation until May 15, 2024, subject to the payment of additional sums by April 15, 2024 and April 29, 2024 and certain other conditions.

On April 22, 2024, the Company entered into a binding Memorandum that provides for the payment of certain commitment fee amounts by the Company, which are due in May, July, and August, along with certain RASPRO Trust administration fee amounts, in consideration for the deferral of the buyout obligation until September 2024. Certain of the commitment fee amounts and Trust fees otherwise payable will be waived if the Company completes its purchase obligations with respect to all 15 airframes and 30 engines as set forth in the Memorandum. The terms agreed to in the Memorandum will be set forth in a definitive lease amendment to be entered into by the parties.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements, the accompanying notes, and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties such as our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the sections titled "Cautionary Notes Regarding Forward-Looking Statements" above and "Risk Factors" below.

Overview

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa", the "Company", "we", "our", or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 82 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. Mesa operated or maintained as operational spares a fleet of 84 aircraft with approximately 280 daily departures and 2,246 employees as of December 31, 2023. Mesa’s fleet were conducted under the Company’s Capacity Purchase Agreement ("CPA") and Flight Services Agreement ("FSA"), leased to a third party, held for sale, or maintained as operational spares. Mesa operates all of its flights as either United Express or DHL Express flights pursuant to the terms of the CPA entered into United and FSA with DHL (each, our “major partner”). All of the Company’s consolidated contract revenues for the three months ended December 31, 2023 and December 31, 2022 were derived from operations associated with the CPA, FSA, and leases of aircraft to a third party. Revenues during the period ended December 31, 2022 also included revenues derived from our CPA with American Airlines, Inc. ("American"), which terminated in April 2023.

As of December 31, 2023, our fleet consisted of 112 aircraft which we operated under our CPA and FSA, leased to a third party, held for sale, or maintained as spares, with approximately 280 daily departures. As of December 31, 2023, we operated 54 E-175 and 26 CRJ-900 aircraft under our United CPA. We operated three Boeing 737-400F and one 737-800F aircraft under our DHL FSA. We leased two aircraft under our lease with a third party. As of December 31, 2023, approximately 93% of our aircraft in scheduled service were operated for United, approximately 5% were operated for DHL, and approximately 2% were leased to a third party. All of our operating revenue in our three months ended December 31, 2023 was derived from operations associated with our United CPA, DHL FSA, and from leases of aircraft to a third party.

Our United CPA provides us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour (the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination) and flights actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying on behalf of United. Our CPA also shelters us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers. In providing regional flying under our CPA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of United. United controls route selection, pricing, seat inventories, marketing and scheduling, and provide us with ground support services, airport landing slots and gate access.

Under our DHL FSA, we receive a fee per block hour with a minimum monthly block hour guarantee in exchange for providing cargo flight services. Ground support including fueling and airport fees are paid directly by DHL.

Components of Results of Operations

The following discussion summarizes the key components of our condensed consolidated statements of operations and comprehensive loss.

Operating Revenues

Our operating revenues consist primarily of contract revenue as well as pass-through and other revenues.

Contract Revenue. Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our CPAs and FSA with our major partners, along with the additional amounts received based on the number of flights and block hours flown, and rental revenue for aircraft leased to GoJet Airlines L.L.C. Contract revenues we receive from our major partners are paid and recognized over time consistent with the delivery of service under our CPAs and FSA.

Pass-Through and Other Revenue. Pass-through and other revenue consists of passenger and hull insurance, aircraft property taxes, landing fees, and other aircraft and traffic servicing costs received pursuant to our agreements with our major partners, as well as certain maintenance costs related to our E-175 aircraft.

Operating Expenses

Our operating expenses consist of the following items:

Flight Operations. Flight operations expense includes costs related to salaries, bonuses and benefits earned by our pilots, flight attendants, and dispatch personnel, as well as costs related to technical publications, lodging of our flight crews and pilot training expenses.

Maintenance. Maintenance expense includes costs related to engine overhauls, airframe, landing gear and normal recurring maintenance, which includes pass-through maintenance costs related to our E-175 aircraft. Heavy maintenance and major overhaul costs on our owned E-175 fleet are deferred and amortized until the earlier of the end of the useful life of the related asset or the next scheduled heavy maintenance event. All other maintenance costs are expensed as incurred, except for certain maintenance contracts where labor and materials price risks have been transferred to the service provider and require payment on a utilization basis, such as flight hours. Costs incurred for maintenance and repair for utilization maintenance contracts where labor and materials price risks have been transferred to the service provider are charged to maintenance expense based on contractual payment terms. As a result of using the direct expense method for heavy maintenance on the majority of our fleets, the timing of maintenance expense reflected in the financial statements may vary significantly from period to period.

Aircraft Rent. Aircraft rent expense includes costs related to leased engines and aircraft.

General and Administrative. General and administrative expense includes insurance and taxes, the majority of which are pass-through costs, non-operational administrative employee wages and related expenses, building rents, real property leases, utilities, legal, audit and other administrative expenses.

Depreciation and Amortization. Depreciation expense is a periodic non-cash charge primarily related to aircraft, engine, and equipment depreciation. Amortization expense is a periodic non-cash charge related to our customer relationship intangible asset.

Asset Impairment. Asset impairment includes charges for impairments of our customer relationship intangible assets and charges for impairments of aircraft designated as held for sale.

Other Operating Expenses. Other operating expenses primarily consists of fuel costs for flying we undertake outside of our CPAs and FSA (including aircraft re-positioning and maintenance) as well as costs for aircraft and traffic servicing, such as aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major partners. All aircraft fuel and related fueling costs for flying under our CPAs and FSA are directly paid and supplied by our major partners. Accordingly, we do not record an expense or pass-through revenue for fuel supplied by American and United for flying under our CPAs or DHL under our FSA.

Other Income (Expense), Net

Interest Expense. Interest expense is interest on our debt incurred to finance purchases of aircraft, engines, and equipment, including amortization of debt financing costs and discounts.

Interest Income. Interest income includes interest income on our cash and cash equivalent balances.

Gain/Loss on Investments, Net. Gain/loss on investments consists of net gains or losses on our investments in equity securities resulting from changes in the fair value of the equity securities.

Other Expense. Other expense includes expense derived from activities not classified in any other area of the condensed consolidated statements of operations and comprehensive loss.

Segment Reporting

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, Segment Reporting, we are not organized around specific services or geographic regions. We currently operate in one service line providing scheduled flight services in accordance with our CPAs and FSA.

While we operate under a capacity purchase agreement and a flight services agreement, we do not manage our business based on any performance measure at the individual contract level. Additionally, our CODM uses consolidated financial information to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors. The CODM bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operated as one operating and reportable segment.

Results of Operations

Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022

We had operating loss of $48.4 million in our three months ended December 31, 2023 compared to operating income of $2.4 million in our three months ended December 31, 2022. In our three months ended December 31, 2023, we had net loss of $57.9 million compared to net loss of $9.1 million in our three months ended December 31, 2022.

Our operating results for the three months ended December 31, 2023 worsened as a result of decreases in contract revenue due to reduced block hours flown and fewer aircraft under contract, partially offset by an increased United block hour compensation rate for our new pilot pay scale. Our operating expenses worsened primarily as a result of impairment charges associated with designating assets as held for sale. The increase in operating expense is partially offset due to (i) decreases in flight operations as a result of decreased pilot training and lower pilot wages; (ii) decreases in aircraft rent expense, due to the new agreement with RASPRO Trust entered into in December 2022 in which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases; (iii) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft; and (iv) the gain on extinguishment of debt in connection with the retirement of the EDC Loan and MHIRJ junior note.

Operating Revenues


	Three Months Ended December 31,
	2023		2022		Change
Operating revenues ($ in thousands):
Contract	$	101,100	$	128,450	$	(27,350	)	(21.3	)%
Pass-through and other		17,677		18,723		(1,046	)	(5.6	)%
Total operating revenues	$	118,777	$	147,173	$	(28,396	)	(19.3	)%

Operating data:
Available seat miles—ASMs (thousands)		1,026,800		1,175,745		(148,945	)	(12.7	)%
Block hours		46,658		50,940		(4,282	)	(8.4	)%
Revenue passenger miles—RPMs (thousands)		865,287		1,006,480		(141,193	)	(14.0	)%
Average stage length (miles)		535		565		(30	)	(5.3	)%
Contract revenue per available seat mile—CRASM (in cents)	¢	9.85	¢	10.92	¢	(1.07	)	(9.8	)%
Passengers		1,608,170		1,746,376		(138,206	)	(7.9	)%

"Available seat miles" or "ASMs" means the number of seats available for passengers multiplied by the number of miles the seats are flown.

"Average stage length" means the average number of statute miles flown per flight segment.

“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.

"CRASM" means contract revenue divided by ASMs.

"RPM" means the number of miles traveled by paying passengers.

Total operating revenue decreased by $28.4 million, or 19.3%, to $118.8 million for our three months ended December 31, 2023 as compared to our three months ended December 31, 2022. Contract revenue decreased by $27.4 million, or 21.3%, to $101.1 million primarily driven by reduced block hours flown and fewer aircraft under contract compared to the three months ended December 31, 2022. Our block hours flown during our three months ended December 31, 2023, decreased 8.4% compared to the three months ended December 31, 2022 due to a decrease in scheduled flying for United across the E-175 and CRJ fleet. Our pass-through and other revenue decreased by $1.0 million, or 5.6%, to $17.7 million compared to our three months ended December 31, 2022 due to a decrease in pass-through maintenance related to our E-175 fleet.

Operating Expenses


	Three Months Ended December 31,
	2023			2022		Change
Operating expenses ($ in thousands):
Flight operations	$	51,818		$	58,320	$	(6,502	)	(11.1	)%
Maintenance		48,627			48,287		340		0.7	%
Aircraft rent		1,204			4,083		(2,879	)	(70.5	)%
General and administrative		12,009			13,988		(1,979	)	(14.1	)%
Depreciation and amortization		13,293			15,203		(1,910	)	(12.6	)%
Asset impairment		40,384			3,719		36,665		986	%
Loss on sale of assets		386			—		386		100.0	%
(Gain) on extinguishment of debt		(2,954	)		—		(2,954	)	100.0	%
Other operating expenses		2,458			1,126		1,332		118.3	%
Total operating expenses	$	167,225		$	144,726	$	22,499		15.5	%
Operating data:
Available seat miles—ASMs (thousands)		1,026,800			1,175,745		(148,945	)	(12.7	)%
Block hours		46,658			50,940		(4,282	)	(8.4	)%
Average stage length (miles)		535			565		(30	)	(5.3	)%
Departures		26,254			27,776		(1,522	)	(5.5	)%

Flight Operations. Flight operations expense decreased $6.5 million, or 11.1%, to $51.8 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022. The decrease was primarily driven by decreased pilot training and lower pilot wages.

Maintenance. Aircraft maintenance expense increased $0.3 million, or 0.7%, to $48.6 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022. This increase was primarily driven by an increase in C-check maintenance expenses, partially offset by engine overhaul. Total pass-through maintenance expenses reimbursed by our major partners decreased by $1.2 million during our three months ended December 31, 2023 compared to our three months ended December 31, 2022.

The following table presents information regarding our maintenance costs during the three months ended December 31, 2023 and December 31, 2022 (in thousands):


	Three Months Ended December 31,
	2023		2022		Change
Engine overhaul	$	54	$	45	$	9		20.0	%
Pass-through engine overhaul		5,707		8,665		(2,958	)	(34.1	)%
C-check		2,620		669		1,951		291.6	%
Pass-through C-check		3,804		4,381		(577	)	(13.2	)%
Component contracts		5,611		5,348		263		4.9	%
Rotable and expendable parts		4,114		5,383		(1,269	)	(23.6	)%
Other pass-through		5,439		3,091		2,348		(76.0	)%
Labor and other		21,278		20,705		573		2.8	%
Total	$	48,627	$	48,287	$	340		0.7	%

Aircraft Rent. Aircraft rent expense decreased $2.9 million, or 70.5%, to $1.2 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022. The decrease is primarily due to our

December 2022 agreement with RASPRO Trust pursuant to which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases.

General and Administrative. General and administrative expense decreased 2.0 million, or 14.1%, to $12.0 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022. The decrease is primarily driven by decreases in pass-through property taxes and legal fees.

Depreciation and Amortization. Depreciation and amortization expense decreased by $1.9 million, or 12.6%, to $13.3 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022 due to aircraft in our fleet being classified as non-depreciable assets held for sale.

Asset Impairment. Asset impairment of $40.4 million was recorded for our three months ended December 31, 2023 related to eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines) and 48 GE model CF34-8C engines being designated as held for sale. There was $3.7 million of asset impairment recorded for the three months ended December 31, 2022, related to the write-off of our customer relationship intangible asset.

Loss on sale of assets. A loss on the sale of assets of $0.4 million was recorded for our three months ended December 31, 2023 related to the sale of four CRJ-900 aircraft to American. There was no loss on sale of assets recorded for the three months ended December 31, 2022.

Gain on extinguishment of debt. A gain on the extinguishment of debt of $3.0 million was recorded for our three months ended December 31, 2023 related to the retirement of our EDC Loan and MHIRJ junior note. There was no gain on extinguishment of debt recorded for the three months ended December 31, 2022.

Other Operating Expenses. Other operating expenses increased $1.3 million, or 118.3%, to $2.5 million for our three months ended December 31, 2023 compared to our three months ended December 31, 2022. The increase is primarily attributable to aircraft servicing expense during the three months ended December 31, 2023.

Other Expense

Other expense decreased $3.9 million, or 31.5%, to $8.5 million for our three months ended December 31, 2023, compared to our three months ended December 31, 2022. The decrease is primarily attributable to unrealized gains on investments in equity securities of $2.5 million for our three months ended December 31, 2023 compared to a $1.7 million unrealized loss on investments in equity securities for our three months ended December 31, 2022.

Income Taxes

The income tax benefit totaled $(0.9) million for the three months ended December 31, 2023 compared to a tax benefit of $0.9 million for the three months ended December 31, 2022. The effective tax rate ("ETR") from continuing operations was -1.5% for the three months ended December 31, 2023 compared to 9.3% for the three months ended December 31, 2022. Our ETR during the three months ended December 31, 2023 decreased from the three months ended December 31, 2022 due to permanent tax differences, state taxes, and changes in the valuation allowance against state net operating losses.

Cautionary Statement Regarding Non-GAAP Measures

We present Adjusted EBITDA and Adjusted EBITDAR, which are not recognized financial measures under GAAP, in this Quarterly Report on Form 10-Q as supplemental disclosures because our senior management believes that they are well-recognized valuation metrics in the airline industry that are frequently used by companies, investors, securities analysts and other interested parties in comparing companies in our industry.

Adjusted EBITDA. We define Adjusted EBITDA as net income or loss before interest, income taxes, and depreciation and amortization, adjusted for gains and losses on investments, lease termination costs, impairment charges, and gains or losses on extinguishment of debt including write-off of associated financing fees.

Adjusted EBITDAR. We define Adjusted EBITDAR as net income or loss before interest, income taxes, depreciation and amortization, and aircraft rent, adjusted for gains and losses on investments, lease termination costs, impairment charges, and gains or losses on extinguishment of debt including write-off of associated financing fees.

Adjusted EBITDA and Adjusted EBITDAR have limitations as analytical tools. Some of the limitations applicable to these measures include: (i) Adjusted EBITDA and Adjusted EBITDAR do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; (ii) Adjusted EBITDA and Adjusted EBITDAR do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (iii) Adjusted EBITDA and Adjusted EBITDAR do not reflect changes in, or cash requirements for, our working capital needs; (iv) Adjusted EBITDA and Adjusted EBITDAR do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future; (vi) Adjusted EBITDA and Adjusted EBITDAR do not reflect gains and losses on investments, which are non-cash gains and losses but will occur in periods when there are changes in the value of our investments in equity securities; and (vii) Adjusted EBITDA and Adjusted EBITDAR do not reflect any cash requirements for such replacements and other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDAR differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, Adjusted EBITDAR should not be viewed as a measure of overall performance because it excludes aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. For the foregoing reasons, each of Adjusted EBITDA and Adjusted EBITDAR has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information.

Adjusted EBITDA and Adjusted EBITDAR

The following table presents a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDAR (in thousands):


	Three Months Ended December 31,
	2023			2022
Reconciliation:
Net loss	$	(57,850	)	$	(9,090	)
Income tax benefit		864			(930	)
Loss before taxes		(56,986	)		(10,020	)
Unrealized (gain)/loss on investments, net		(2,451	)		1,679
Adjustments(1)(2)(3)(4)(5)(6)(7)		40,091			3,719
Adjusted loss before taxes		(19,346	)		(4,622	)
Interest expense		11,160			11,276
Interest income		(14	)		(71	)
Depreciation and amortization		13,293			15,203
Adjusted EBITDA	$	5,093		$	21,786
Aircraft rent		1,204			4,083
Adjusted EBITDAR	$	6,297		$	25,869

(1) $3.7 million impairment loss on intangible asset during the three months ended December 31, 2022.
(2) $45.5 million impairment loss on held for sale accounting treatment on 19 airframes and 64 engines during the three months ended December 31, 2023.
(3) $5.1 million impairment true-up adjustment gain on held for sale accounting treatment on 15 CRJ 900 aircraft during the three months ended December 31, 2023.
(4) $3.0 million gain on extinguishment of debt during the three months ended December 31, 2023.
(5) $2.0 million in non recurring third party costs associated with the marketing and sale of assets and the gain on extinguishment of debt during the three months ended December 31, 2023.
(6) $0.3 million loss on deferred financing costs related to retirement of debts during the three months ended December 31, 2023.
(7) $0.4 million loss on the sale of four aircraft during the three months ended December 31, 2023.

Liquidity and Capital Resources

Impact of Pilot Shortage and Transition of Operations to United

which are hiring at an accelerated rate. These airlines now seek to increase their capacity to meet the growing demand for air travel as the global pandemic has moderated. A primary source of pilots for the major U.S. passenger and cargo carriers are the U.S. regional airlines.

As a result of pilot shortage and attrition, we produced less block hours to generate revenues. During the three months ended December 31, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $7.8 million and net loss of $57.9 million including a non-cash impairment charge of $40.4 million related to the Company designating eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 spare engines as held for sale. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months.

•

We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $50.3 million at the end of March 2024. We entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines. One agreement is for 30 engines for a total of $19.5 million. The second agreement is for 15 airframes (without engines) for a total of $18.8 million. Both of these transactions are expected to be completed by the end of March 2024, with net cash from these transactions expected to be approximately $(12.1) million. Subsequent to December 31, 2023, the Company entered into a binding Memorandum with RASPRO to defer the $50.3 million buyout obligation until September 2024, subject to the payment of certain commitment fee amounts which are due in May, July, and August, along with certain RASPRO Trust administration fee amounts.

•

The Company closed the sale of the remaining four aircraft during the three months ended December 31, 2023 as part of an agreement entered into with American for the sale of seven CRJ-900 aircraft. Gross proceeds from the sale of the remaining four aircraft was $41.5 million. Net proceeds from the sale of all four aircraft was $5.7 million after the retirement of our EDC Loan and MHIRJ junior note. MHIRJ had previously agreed to forgive approximately $5.0 million in principal contingent upon the repayment of $4.2 million in principal by December 31, 2023. $0.6 million in proceeds from the sale of each aircraft was repaid to MHIRJ for a total of $4.2 million, and we achieved approximately $5.0 million of forgiveness on the MHIRJ junior note.

•

Amended certain notice requirements for removal by United of up to eight CRJ-900 Covered Aircraft (as defined in the United CPA) from the United CPA.

Extended United's existing utilization waiver for the Company's operation of E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA) to June 30, 2024.

•

An increase in the Applicable Margin (as defined in the United credit facility) during a specified period of time for borrowings under the Credit Agreement.

•

We have delayed and/or deferred major spending on aircraft and engine maintenance to match the current and projected level of flight activity.

Sources and Uses of Cash

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent, and debt service obligations, including principal and interest payments. Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events. Our principal sources of liquidity are cash on hand, cash generated from operations and funds from external borrowings.

We believe that the key factors that could affect our internal and external sources of cash include:

•

Factors that affect our results of operations and cash flows, including the impact on our business and operations as a result of changes in demand for our services, competitive pricing pressures, and our ability to achieve further reductions in operating expenses; and

•

Factors that affect our access to bank financing and the debt and equity capital markets that could impair our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing, and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

Our ability to service our long-term debt obligations, including our equipment notes, to remain in compliance with the various covenants contained in our debt agreements and to fund our working capital requirements, capital expenditures and business development efforts will depend on our ability to generate cash from operating activities, which is subject to, among other things, our future operating performance, as well as other factors, some of which may be beyond our control.

If we fail to generate sufficient cash from operations, we may need to raise additional equity or borrow additional funds to achieve our longer-term objectives. There can be no assurance that such equity or borrowings will be available or, if available, will be at rates or prices acceptable to us.

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures are primarily directed toward our aircraft fleet and flight equipment including spare engines. Our capital expenditures, net of purchases of rotable spare parts and aircraft and spare engine financing for the three months ended December 31, 2023 were approximately 4.3% of our revenue during the same period. We expect to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

As of December 31, 2023, our principal sources of cash have been cash and cash equivalents of $16.1 million, restricted cash of $3.1 million as of December 31, 2023, and $132.6 million in assets held for sale as of December 31, 2023. As of December 31, 2023, we had $412.4 million in secured indebtedness incurred primarily in connection with our financing of aircraft and related equipment. As of December 31, 2023, we had $97.9 million of current debt, excluding finance leases, and $305.8 million of long-term debt excluding finance leases.

Restricted Cash

As of December 31, 2023, we had $3.1 million in restricted cash. We have an agreement with a financial institution for a letter of credit facility and to issue letters of credit for particular airport authorities, worker's compensation insurance, property and casualty insurance and other business needs as required in certain lease agreements. Pursuant to the term of this agreement, $3.1 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

Cash Flows

The following table presents information regarding our cash flows for each of the three months ended December 31, 2023 and December 31, 2022 (in thousands):


	Three Months Ended December 31,
	2023			2022
Net cash used in operating activities	$	(7,841	)	$	(6,034	)
Net cash provided by (used in) investing activities		46,605			(16,609	)
Net cash (used in) provided by financing activities		(55,634	)		21,038
Net decrease in cash, cash equivalents and restricted cash		(16,870	)		(1,605	)
Cash, cash equivalents and restricted cash at beginning of period		36,072			61,025
Cash, cash equivalents and restricted cash at end of period	$	19,202		$	59,420

Net Cash Used in Operating Activities

Our primary source of cash from operating activities is cash collections from our major partners pursuant to our CPA and FSA. Our primary uses of cash from operating activities are for maintenance costs, personnel costs, operating lease payments, and interest payments.

During our three months ended December 31, 2023, we had cash flow used in operating activities of $7.8 million. We had net loss of $57.9 million adjusted for the following significant non-cash items: depreciation and amortization of $13.3 million, stock-based compensation of $0.4 million, deferred income taxes of $0.4 million, net gains on investments in equity securities of $(2.5) million, amortization of deferred credits of $(0.2) million, amortization of debt discount and financing costs and accretion of interest of $2.3 million, asset impairment of $40.4 million, loss on sale of assets of $0.4 million, gain on extinguishment of debt of $(3.0) million, and $0.9 million in miscellaneous operating cash flow items. We had a net change of $(2.6) million within other net operating assets and liabilities largely driven by decreases in accounts payable, deferred revenue, and accrued expenses and other liabilities which were offset primarily by decreases in receivables and prepaid expenses in accrued expenses and other liabilities.

During our three months ended December 31, 2022, we had cash flow used in operating activities of $6.0 million. We had net loss of $9.1 million adjusted for the following significant non-cash items: depreciation and amortization of $15.2 million, stock-based compensation of $0.7 million, net losses on investments in equity securities of $1.7 million, deferred income taxes of $(1.0) million, amortization of deferred credits of $(0.2) million, amortization of debt discount and financing costs and accretion of interest of $1.4 million, and asset impairment of $3.7 million. We had a net change of $(18.4) million within other net operating assets and liabilities largely driven by decreases in accounts payable and receivables, which were offset primarily by an increase in accrued expenses and other liabilities.

Net Cash Provided by (Used in) Investing Activities

Our investing activities generally consist of capital expenditures for aircraft and related flight equipment, deposits paid or returned for equipment and other purchases, and strategic investments.

During our three months ended December 31, 2023, net cash flow provided by investing activities totaled $46.6 million. Proceeds from the sale of aircraft and engines totaled $53.5 million and we invested $6.9 million in capital expenditures, primarily consisting of rotable parts and costs associated with transferring our CRJ-900 aircraft to United operations.

During our three months ended December 31, 2022, net cash flow used in investing activities totaled $16.6 million. We invested $16.7 million in capital expenditures primarily consisting of spare engines, rotable parts, and other equipment, and $0.1 million in refunds of equipment and other deposits.

Net Cash (Used in) Provided by Financing Activities

Our financing activities generally consist of debt borrowings, principal repayments of debt, payment of debt financing costs, payment of tax withholding for RSUs, and proceeds received from issuing common stock under our ESPP.

During our three months ended December 31, 2023, net cash flow used in financing activities was $55.6 million. We received $81.9 million of proceeds from long-term debt and made $137.5 million of principal repayments on long-term debt.

During our three months ended December 31, 2022, net cash flow provided by financing activities was $21.0 million. We received $39.0 million of proceeds from long-term debt and made $17.5 million of principal repayments on long-term debt and paid $0.4 million of costs related to debt financing.

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates.

The accompanying discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated interim financial statements included elsewhere in this Form 10-Q. We believe certain of our accounting estimates and policies are critical to understanding our financial position and results of operations. There have been no material changes to the critical accounting estimates as explained in Part 1, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 under the heading "Critical Accounting Estimates."

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3: "Recent Accounting Pronouncements" to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks in the ordinary course of our business. These risks include interest rate risk and, on a limited basis, commodity price risk with respect to foreign exchange transactions. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

Interest Rate Risk. We are subject to market risk associated with changing interest rates on our variable rate long-term debt; the variable interest rates are based on SOFR. The interest rates applicable to variable rate notes may rise and increase the amount of interest expense on our variable rate long-term debt. We do not purchase or hold any derivative instruments to protect against the effects of changes in interest rates.

As of December 31, 2023, we had $255.6 million of variable-rate debt, including current maturities. A hypothetical 100 basis point change in market interest rates would have affected interest expense by approximately $1.9 million in the three months ended December 31, 2023.

As of December 31, 2023, we had $225.3 million of fixed-rate debt, including current maturities. A hypothetical 100 basis point change in market interest rates would not impact interest expense or have a material effect on the fair value of our fixed-rate debt instruments as of December 31, 2023.

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In December 2020, the administrator of LIBOR proposed to cease publication of certain LIBOR settings after December 2021 and to cease publication of the remainder of the LIBOR settings after June 2023. The majority of our debt arrangements are indexed to one- and three-month LIBOR, which will be sunset on June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has determined that the U.S. dollar LIBOR will be replaced by SOFR after June 30, 2023. We have the option to apply expedients to agreements under LIBOR that are being replaced by another index including SOFR. Under the expedient, we will account for amendments to agreements as if the modification was not substantial. The new carrying amounts of debts will consist of the carrying amount of the original debt and any additional fees associated with the modified debt instrument. A new effective yield will be established based on the new carrying amount and revised cash flows.

Our debts based on LIBOR have been modified to use SOFR as a reference rate which went into effect between July 31, 2023 and December 31, 2023. As of December 31, 2023, we had $367.3 million of borrowings based on SOFR.

Foreign Currency Risk. We have de minimis foreign currency risks related to our station operating expenses denominated in currencies other than the U.S. dollar, primarily the Canadian dollar. Our revenue is U.S. dollar denominated. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our financial results.

Fuel Price Risk. Unlike other airlines, our agreements largely shelter us from volatility related to fuel prices, which are directly paid and supplied by our major partners.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting and has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2023. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2023.

Update on Remediation of Previously Reported Material Weaknesses

Management identified two material weaknesses in internal controls in the areas of (i) information technology general controls ("ITGCs"); and (ii) debt covenant compliance for the period ended September 30, 2023. Management is taking steps to successfully remediate these material weaknesses by implementing remediation efforts described below:

Management is committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal control over financial reporting. Our efforts resulting in successful remediation include:

Implementing additional IT monitoring controls and strengthening our process documentation over the access management program change management domains of ITGCs

Additional review procedures involving our debt covenant calculation controls and disclosure controls

Notwithstanding the assessment that our internal controls over financial reporting are not effective and that material weaknesses exist, we believe we have employed supplementary procedures to ensure the financial statements contained in this report fairly present in all material respects, our financial position as of December 31, 2023 and September 30, 2023, and the results of operations and cash flows for the period ended December 31, 2023 and December 31, 2022.

Changes in Internal Control Over Financial Reporting

Management determined that there was a material weakness related to the omission of a disclosure of an impairment charge associated with newly classified held for sale assets as further described below. There were no other changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2023.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct and unintentional error completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Subsequent Event Omitted Disclosure

Management's review of controls over required disclosures were not performed at the proper level of precision to detect an omitted disclosure of an impairment charge associated with the newly classified assets held for sale of approximately $40.4 million. This impairment was disclosed in the financial information as of and for the three months ended December 31, 2023. This omitted disclosure is a material weakness over the review of subsequent event disclosures related to assets classified as held for sale after the balance sheet date but before the report release date and the impairment charge related to those assets. Management is committed to the remediation of this material weakness.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

We refer you to documents filed by us with the SEC, specifically "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 ("2023 Form 10-K"), which identify important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled "Cautionary Statements Regarding Forward-looking Statements" of this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our 2023 Form 10-K and herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

Item 6. Exhibits

EXHIBIT INDEX


Exhibit No.		Exhibit Description

10.10.10**		First Amendment to the Third Amended and Restated Capacity Purchase Agreement between United Airlines, Inc. and Mesa Airlines, Inc., dated January 13

10.21**		Engine Purchase Agreement by and between Delta Airlines, Inc. and Mesa Airlines, Inc., dated December 1, 2023

10.22**		Engine Sales Agreement by and between GE Aviation Materials, Inc. and Mesa Airlines, Inc., dated March 14, 2024

31.1		Certification of Principal Executive Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* This certification will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.

** Certain confidential information contained in this agreement has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MESA AIR GROUP, INC.

Date: May 23, 2024	By:	/s/ Michael J. Lotz
		Michael J. Lotz Chief Financial Officer (Principal Financial Officer)

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Date	Price Target	Rating	Analyst
2/4/2022		Outperform → Market Perform	Raymond James
1/7/2022	$12.00 → $8.00	Buy → Neutral	BofA Securities
12/10/2021	$13.00 → $12.50	Outperform	Raymond James
12/10/2021	$15.00 → $7.00	Buy → Hold	Deutsche Bank
11/29/2021	$14.00 → $13.00	Outperform	Raymond James

SEC Form 10-Q filed by Mesa Air Group Inc.

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