--09-30false0000810332FYNVAZhttp://fasb.org/us-gaap/2023#UsefulLifeTermOfLeaseMemberhttp://fasb.org/us-gaap/2023#UsefulLifeShorterOfTermOfLeaseOrAssetUtilityMemberhttp://fasb.org/us-gaap/2023#UsefulLifeShorterOfTermOfLeaseOrAssetUtilityMemberP1YP1YP1YP1YP1YP1Yhttp://fasb.org/us-gaap/2023#RevenueFromContractWithCustomerExcludingAssessedTaxhttp://fasb.org/us-gaap/2023#RevenueFromContractWithCustomerExcludingAssessedTaxhttp://fasb.org/us-gaap/2023#RevenueFromContractWithCustomerExcludingAssessedTaxDecember 31, 2027three yearshttp://fasb.org/us-gaap/2023#LongTermDebtAndCapitalLeaseObligationsCurrenthttp://fasb.org/us-gaap/2023#LongTermDebtAndCapitalLeaseObligations0000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentySevenMember2022-10-012023-09-300000810332mesa:UnitedCapacityPurchaseAgreementMembersrt:MaximumMember2022-10-012023-09-300000810332mesa:LoanAgreementMember2020-11-120000810332mesa:UnitedBridgeLoanQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyFourMember2022-10-012023-09-300000810332mesa:RevolvingCreditFacilityQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyEightMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-10-012023-09-300000810332us-gaap:CustomerConcentrationRiskMembermesa:AmericanAirlinesIncMemberus-gaap:SalesRevenueNetMember2022-10-012023-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-09-3000008103322019-09-300000810332mesa:LoanAgreementMembermesa:SecuredTermLoanFacilityMember2020-10-300000810332us-gaap:DomesticCountryMembermesa:PeriodOneMember2023-09-3000008103322023-12-270000810332us-gaap:RetainedEarningsMember2021-10-012022-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-09-300000810332mesa:CF348C5OrCF348E5EngineMembermesa:LetterAgreementNumberThirteenDashThreeMember2022-10-012023-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-09-062023-09-060000810332mesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2023-09-300000810332mesa:CRJ900AircraftMembermesa:UstLoanMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332mesa:UnitedCapacityPurchaseAgreementMembermesa:CRJ700AircraftMembermesa:UnitedAirlinesIncMember2022-10-012023-09-300000810332mesa:E175AircraftMembermesa:UnitedCapacityPurchaseAgreementMember2022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentyFourMember2023-09-300000810332mesa:CRJ900AircraftMembermesa:AmericanAirlinesIncMember2022-10-012023-09-3000008103322022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionQuarterlyThroughTwoThousandTwentySevenMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-10-012023-09-300000810332us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMemberus-gaap:SeniorNotesMembersrt:MinimumMembermesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:EquipmentNotesMember2023-09-300000810332srt:MaximumMembermesa:RevolvingCreditFacilityQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyEightMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-10-012023-09-300000810332srt:MinimumMemberus-gaap:EquipmentMember2023-09-300000810332us-gaap:CustomerConcentrationRiskMembermesa:UnitedAirlinesIncMemberus-gaap:SalesRevenueNetMember2021-10-012022-09-300000810332us-gaap:CustomerConcentrationRiskMembermesa:AmericanAirlinesIncMemberus-gaap:SalesRevenueNetMember2020-10-012021-09-300000810332mesa:ImpactOfPilotShortageAndAttritionMembermesa:AirframeAndEnginePurchaseCommitmentsMembersrt:ScenarioForecastMember2023-10-012024-03-310000810332us-gaap:RelatedPartyMember2023-09-300000810332us-gaap:RestrictedStockMember2020-09-300000810332us-gaap:SeniorSubordinatedNotesMembermesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:RevolvingCreditFacilityQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyEightMember2022-09-300000810332mesa:Boeing737800FMembermesa:FlightServicesAgreementMember2019-12-202019-12-2000008103322020-10-012021-09-300000810332mesa:PassThroughAndOtherRevenueMember2021-10-012022-09-300000810332srt:MinimumMembermesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2022-10-012023-09-300000810332us-gaap:CommonStockMember2022-09-300000810332mesa:CaptainsMember2023-09-300000810332us-gaap:RetainedEarningsMember2022-09-300000810332mesa:E175LLAircraftMembermesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2022-10-012023-09-300000810332mesa:EdcLoanAndMhirjJuniorNoteMember2022-10-012023-09-300000810332srt:MinimumMemberus-gaap:StateAndLocalJurisdictionMember2022-10-012023-09-300000810332mesa:RASPROAircraftLeaseAgreementMembermesa:ImpactOfPilotShortageAndAttritionMembersrt:ScenarioForecastMember2023-10-012024-03-3100008103322020-09-300000810332mesa:Cf348CAircraftMembermesa:EnginePurchaseAgreementMemberus-gaap:SubsequentEventMember2023-12-012023-12-010000810332srt:CRJ900Membermesa:LongLivedAssetsMember2022-10-012023-09-300000810332us-gaap:RelatedPartyMember2022-09-300000810332mesa:RASPROAircraftLeaseAgreementMember2020-06-300000810332srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2023-09-300000810332us-gaap:DomesticCountryMembersrt:MaximumMember2022-10-012023-09-300000810332mesa:EnginePurchaseCommitmentMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332srt:CRJ900Membermesa:LongLivedAssetsMember2020-10-012021-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMembersrt:MinimumMember2022-12-272022-12-2700008103322028-10-012023-09-300000810332mesa:Boeing737400FMembermesa:FlightServicesAgreementMember2019-12-202019-12-200000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMember2022-12-272022-12-270000810332us-gaap:RestrictedStockMember2021-10-012022-09-300000810332mesa:SeniorAndSubordinatedNotesPayableToSecuredPartiesDueInMonthlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentySevenMember2022-09-300000810332mesa:RevolvingCreditFacilityQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyEightMember2023-09-300000810332us-gaap:OtherMachineryAndEquipmentMember2022-09-300000810332mesa:ImpactOfPilotShortageAndAttritionMember2022-10-012023-09-300000810332us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembersrt:MinimumMembermesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:ContractRevenueMember2020-10-012021-09-300000810332srt:MinimumMembermesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2021-10-012022-09-300000810332mesa:ArcherAviationIncMember2022-10-012023-09-300000810332mesa:LoanAgreementMember2020-11-130000810332mesa:LoanAgreementMembermesa:SpareEngineFacilityMember2021-10-012022-09-300000810332mesa:CRJ900AircraftMembermesa:AmericanPurchaseAgreementMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332us-gaap:CommonStockMember2020-09-300000810332mesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2023-09-300000810332mesa:UnitedLineOfCreditMember2023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueTwoThousandTwentyThreeMember2022-09-300000810332mesa:CRJ900AircraftMembermesa:AircraftPurchaseAgreementMembermesa:UstLoanMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332us-gaap:RestrictedStockMember2021-10-012022-09-300000810332us-gaap:WarrantMember2021-10-012022-09-300000810332mesa:CRJ900AircraftMembermesa:UnitedCapacityPurchaseAgreementMember2023-09-012023-09-3000008103322026-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentyFourMember2021-10-012022-09-300000810332srt:MaximumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembermesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsSecuredByFlightEquipmentThroughTwoThousandTwentyThreeMember2022-09-300000810332us-gaap:PropertyPlantAndEquipmentMember2022-10-012023-09-300000810332mesa:RasproAircraftLeaseAgreementOneMembermesa:ImpactOfPilotShortageAndAttritionMembersrt:ScenarioForecastMember2023-10-012024-03-310000810332srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2023-06-300000810332mesa:SeniorAndSubordinatedNotesPayableToSecuredPartiesDueInMonthlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentySevenMember2022-10-012023-09-300000810332mesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2022-09-300000810332srt:CRJ900Membermesa:LongLivedAssetsMember2021-10-012022-09-300000810332us-gaap:OtherMachineryAndEquipmentMember2023-09-300000810332us-gaap:CustomerRelatedIntangibleAssetsMember2022-10-012023-09-300000810332mesa:LoanAgreementMembermesa:SpareEngineFacilityMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332mesa:LoanAgreementMember2020-10-300000810332mesa:OtherLongLivedAssetsMember2022-10-012023-09-300000810332mesa:RotableSparePartsMember2023-09-300000810332mesa:CRJ900AircraftMemberus-gaap:CustomerRelatedIntangibleAssetsMember2020-10-012021-09-300000810332us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembermesa:UnitedBridgeLoanQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyFourMember2022-10-012023-09-300000810332us-gaap:RestrictedStockMember2022-10-012023-09-300000810332us-gaap:RestrictedStockUnitsRSUMembersrt:MinimumMember2022-10-012023-09-300000810332us-gaap:SubsequentEventMember2023-12-012023-12-010000810332us-gaap:CustomerConcentrationRiskMembermesa:UnitedAirlinesIncMemberus-gaap:SalesRevenueNetMember2020-10-012021-09-300000810332mesa:AircraftMember2021-10-012022-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-12-272022-12-270000810332mesa:OtherLongLivedAssetsMember2021-10-012022-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2020-10-012021-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentyFourMember2022-09-300000810332us-gaap:EmployeeStockMember2019-04-092023-09-300000810332mesa:SeniorAndSubordinatedNotesPayableToSecuredPartiesDueInMonthlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentySevenMember2023-09-300000810332mesa:Boeing737400FMembermesa:FlightServicesAgreementMember2022-10-012023-09-300000810332us-gaap:RevolvingCreditFacilityMembersrt:MinimumMember2023-09-060000810332mesa:AircraftMember2023-09-300000810332us-gaap:PropertyPlantAndEquipmentMember2021-10-012022-09-300000810332mesa:ArcherAviationIncMember2021-10-012022-09-300000810332us-gaap:SubsequentEventMember2023-10-012023-10-010000810332mesa:CRJ900AircraftMemberus-gaap:SubsequentEventMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-10-012023-10-010000810332mesa:ArcherAviationIncMemberus-gaap:FairValueInputsLevel1Member2023-09-300000810332mesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2021-10-012022-09-300000810332srt:CRJ700Member2021-10-012022-09-300000810332us-gaap:DomesticCountryMembersrt:MinimumMember2022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentySevenMember2023-09-300000810332mesa:EdcLoanAndMhirjJuniorNoteMember2023-09-300000810332mesa:LoanAgreementMembermesa:EDCLoansMember2020-11-122020-11-120000810332us-gaap:DomesticCountryMember2022-09-300000810332mesa:UnitedBridgeLoanQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyFourMember2023-09-300000810332us-gaap:DomesticCountryMember2023-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2020-09-300000810332us-gaap:WarrantMember2023-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2022-10-012023-09-3000008103322027-10-012023-09-300000810332srt:MaximumMemberus-gaap:RestrictedStockUnitsRSUMember2022-10-012023-09-300000810332mesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2022-10-012023-09-300000810332mesa:PeriodTwoMemberus-gaap:StateAndLocalJurisdictionMember2023-09-300000810332mesa:E175AircraftMembermesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMembersrt:MinimumMember2022-10-012023-09-300000810332mesa:CRJ900AircraftMembersrt:ScenarioForecastMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-12-312023-12-310000810332us-gaap:SubsequentEventMember2024-01-112024-01-1100008103322021-10-012022-09-300000810332srt:MaximumMemberus-gaap:EquipmentMember2023-09-300000810332mesa:UnitedCapacityPurchaseAgreementMemberus-gaap:SubsequentEventMember2024-01-110000810332srt:CRJ900Member2021-10-012022-09-300000810332us-gaap:FairValueInputsLevel3Membermesa:HeartAerospaceIncorporatedMember2023-09-300000810332mesa:LoanAgreementMember2020-11-122020-11-120000810332mesa:NotesPayableToFinancialInstitutionQuarterlyThroughTwoThousandTwentySevenMember2022-10-012023-09-300000810332mesa:E175AircraftMembermesa:UnitedCapacityPurchaseAgreementMembersrt:MaximumMembermesa:UnitedAirlinesIncMember2022-10-012023-09-300000810332mesa:AircraftMember2022-10-012023-09-3000008103322022-09-300000810332mesa:LoanAgreementMembermesa:SecuredTermLoanFacilityMembermesa:TreasuryLoanMember2020-11-140000810332mesa:RASPROAircraftLeaseAgreementMembersrt:CRJ900Member2022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentyFourMember2022-10-012023-09-300000810332mesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2021-10-012022-09-300000810332mesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2023-01-130000810332us-gaap:RevolvingCreditFacilityMembersrt:MaximumMember2023-09-060000810332mesa:SeniorAndSubordinatedNotesPayableToSecuredPartiesDueInMonthlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentySevenMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-10-012023-09-300000810332mesa:PassThroughAndOtherRevenueMember2022-10-012023-09-300000810332mesa:LIBORMembermesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsSecuredByFlightEquipmentThroughTwoThousandTwentyThreeMember2022-10-012023-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2021-10-012022-09-3000008103322024-10-012023-09-300000810332mesa:LoanAgreementMembermesa:SpareEngineFacilityMember2021-12-3100008103322023-06-300000810332us-gaap:RevolvingCreditFacilityMemberus-gaap:SubsequentEventMember2024-01-112024-01-110000810332mesa:LoanAgreementMembermesa:SecuredTermLoanFacilityMembermesa:TreasuryLoanMember2020-10-302020-10-300000810332mesa:RasproAircraftLeaseAgreementOneMembermesa:ImpactOfPilotShortageAndAttritionMembermesa:AirframeAndEnginePurchaseCommitmentsMembersrt:ScenarioForecastMember2023-10-012024-03-310000810332us-gaap:CommonStockMember2023-09-300000810332mesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332us-gaap:RestrictedStockMember2020-10-012021-09-300000810332mesa:AircraftAndOtherFlightEquipmentMember2022-09-300000810332srt:MaximumMembermesa:TreasuryLoanMember2020-10-302020-10-300000810332mesa:RasproAircraftLeaseAgreementTwoMembermesa:ImpactOfPilotShortageAndAttritionMembersrt:ScenarioForecastMember2023-10-012024-03-310000810332us-gaap:CustomerConcentrationRiskMembermesa:AmericanAirlinesIncMemberus-gaap:SalesRevenueNetMember2021-10-012022-09-300000810332mesa:RASPROAircraftLeaseAgreementMembermesa:CRJ900AircraftMember2005-09-230000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsSecuredByFlightEquipmentThroughTwoThousandTwentyThreeMember2022-10-012023-09-300000810332mesa:RASPROAircraftLeaseAgreementMembermesa:ImpactOfPilotShortageAndAttritionMembersrt:ScenarioForecastMembermesa:AirframeAndEnginePurchaseCommitmentsMember2023-10-012024-03-310000810332us-gaap:CommonStockMember2021-09-300000810332mesa:CRJ900AircraftMemberus-gaap:CustomerRelatedIntangibleAssetsMember2021-10-012022-09-300000810332srt:MaximumMemberus-gaap:StateAndLocalJurisdictionMember2022-10-012023-09-300000810332srt:CRJ200Member2021-10-012022-09-300000810332mesa:CRJ900AircraftMembermesa:UnitedCapacityPurchaseAgreementMember2022-10-012023-09-300000810332mesa:LoanAgreementMembermesa:SecuredTermLoanFacilityMembermesa:TreasuryLoanMember2020-11-130000810332mesa:RasproAircraftLeaseAgreementTwoMembermesa:ImpactOfPilotShortageAndAttritionMembermesa:AirframeAndEnginePurchaseCommitmentsMembersrt:ScenarioForecastMember2023-10-012024-03-310000810332us-gaap:WarrantMember2020-10-012021-09-300000810332us-gaap:RetainedEarningsMember2022-10-012023-09-300000810332us-gaap:SubsequentEventMember2024-01-110000810332mesa:UnitedLineOfCreditMemberus-gaap:SubsequentEventMember2023-11-012023-11-300000810332us-gaap:EmployeeStockMember2022-10-012023-09-300000810332srt:MaximumMemberus-gaap:FurnitureAndFixturesMember2023-09-300000810332us-gaap:RetainedEarningsMember2020-09-3000008103322023-03-310000810332srt:MaximumMemberus-gaap:SeniorNotesMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembermesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:OtherLongLivedAssetsMember2020-10-012021-09-3000008103322021-09-3000008103322025-10-012023-09-300000810332us-gaap:FlightEquipmentMembersrt:MinimumMember2023-09-300000810332mesa:AmericanAirlinesIncMemberus-gaap:SubsequentEventMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-10-012023-10-010000810332mesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332mesa:CRJ900AircraftMembermesa:UstLoanMember2022-10-012023-09-300000810332us-gaap:BuildingMember2023-09-3000008103322023-10-012023-09-300000810332mesa:RASPROAircraftLeaseAgreementMember2022-12-012022-12-310000810332us-gaap:RestrictedStockMember2023-09-300000810332us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembermesa:UnitedBridgeLoanQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyFourMember2021-10-012022-09-3000008103322019-10-012020-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentySevenMember2021-10-012022-09-300000810332mesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2023-09-300000810332srt:MinimumMemberus-gaap:EmployeeStockMember2022-10-012023-09-300000810332mesa:E175AircraftMembermesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2022-10-012023-09-300000810332mesa:RevolvingCreditFacilityQuaterlyCollateralizedByUnderlyingEquipmentAndInvestmentsThroughTwoThousandTwentyEightMember2022-10-012023-09-300000810332us-gaap:CustomerRelatedIntangibleAssetsMember2020-10-012021-09-300000810332mesa:CRJ900AircraftMemberus-gaap:CustomerRelatedIntangibleAssetsMember2022-10-012023-09-300000810332mesa:CF348C5OrCF348E5EngineMembermesa:LetterAgreementNumberThirteenDashThreeMember2021-03-310000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentySevenMembermesa:LIBORMember2022-10-012023-09-300000810332us-gaap:CommonStockMember2022-10-012023-09-300000810332srt:CRJ700Member2022-10-012023-09-300000810332mesa:AmericanAirlinesIncMembersrt:CRJ900Memberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332mesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2022-10-012023-09-300000810332mesa:ContractRevenueMember2022-10-012023-09-300000810332us-gaap:PreferredStockMembermesa:HeartAerospaceIncorporatedMembermesa:ForwardPurchaseContractMember2021-07-012021-07-310000810332mesa:CRJ900AircraftMembermesa:EdcLoanAndMhirjJuniorNoteMember2015-06-300000810332us-gaap:RetainedEarningsMember2020-10-012021-09-300000810332us-gaap:FairValueInputsLevel3Member2023-09-300000810332us-gaap:RestrictedStockMember2021-09-300000810332srt:CRJ900Member2023-01-012023-01-310000810332mesa:UnitedCapacityPurchaseAgreementMemberus-gaap:SubsequentEventMember2024-01-112024-01-110000810332mesa:ImpactOfPilotShortageAndAttritionMembermesa:ExportDevelopmentBankOfCanadaAgreementMember2022-10-012023-09-300000810332mesa:AircraftAndOtherFlightEquipmentMember2023-09-300000810332us-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembermesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentyFourMember2022-10-012023-09-3000008103322022-02-280000810332mesa:CRJ900AircraftMembermesa:AmericanPurchaseAgreementMemberus-gaap:SubsequentEventMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-10-012023-10-010000810332us-gaap:VehiclesMember2023-09-300000810332mesa:LoanAgreementMembermesa:EDCLoansMember2020-11-132020-11-130000810332srt:CRJ900Member2023-09-300000810332us-gaap:LetterOfCreditMember2022-10-012023-09-300000810332srt:MaximumMemberus-gaap:EmployeeStockMember2022-10-012023-09-300000810332srt:ScenarioPreviouslyReportedMember2023-06-300000810332mesa:SeniorAndSubordinatedNotesPayableToSecuredPartiesDueInMonthlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentySevenMember2021-10-012022-09-300000810332mesa:RASPROAircraftLeaseAgreementMembermesa:ImpactOfPilotShortageAndAttritionMember2022-10-012023-09-300000810332mesa:CRJ900AircraftMembersrt:ScenarioForecastMembermesa:ExportDevelopmentBankOfCanadaAgreementMember2023-01-012024-12-310000810332srt:MaximumMembermesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2021-10-012022-09-300000810332mesa:CRJ900AircraftMember2022-10-012023-09-300000810332mesa:CRJ900AircraftMembermesa:AmericanAirlinesIncMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332srt:DirectorMember2022-10-012023-09-300000810332mesa:LoanAgreementMembermesa:SpareEngineFacilityMember2021-12-312021-12-310000810332mesa:NotesPayableToSecuredPartiesDueInQuarterlyInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-09-300000810332us-gaap:CustomerRelatedIntangibleAssetsMember2021-10-012022-09-300000810332srt:MaximumMembermesa:OtherObligationsDueToFinancialInstitutionsMonthlyOrQuarterlyCollateralizedByUnderlyingEquipmentDueTwoThousandTwentyTwoThroughTwoThousandThirtyOneMember2022-10-012023-09-300000810332mesa:TreasuryLoanMembersrt:MinimumMember2020-10-302020-10-300000810332us-gaap:CustomerConcentrationRiskMembermesa:UnitedAirlinesIncMemberus-gaap:SalesRevenueNetMember2022-10-012023-09-300000810332srt:MaximumMembermesa:HeartAerospaceIncorporatedMembermesa:ForwardPurchaseContractMember2021-07-310000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsCollateralizedByUnderlyingEquipmentThroughTwoThousandTwentySevenMember2022-09-300000810332us-gaap:PropertyPlantAndEquipmentMember2020-10-012021-09-300000810332mesa:NotesPayableToFinancialInstitutionDueInMonthlyInstallmentsSecuredByFlightEquipmentThroughTwoThousandTwentyThreeMember2021-10-012022-09-300000810332mesa:TreasuryLoanMember2023-09-300000810332mesa:ArcherAviationIncMembermesa:EVTOLAircraftMembermesa:ForwardPurchaseContractMember2021-02-280000810332us-gaap:RetainedEarningsMember2023-09-300000810332us-gaap:CommonStockMember2021-10-012022-09-300000810332us-gaap:RetainedEarningsMember2021-09-300000810332us-gaap:RestrictedStockMember2022-09-300000810332mesa:PurchaseAgreementMemberus-gaap:SubsequentEventMember2023-10-012023-10-010000810332mesa:LoanAgreementMember2022-10-012023-09-300000810332mesa:LoanAgreementMembermesa:FortyThreeMillionTreasuryLoanMember2020-10-300000810332mesa:NotesPayableToSecuredPartiesDueInSemiAnnualInstallmentsCollateralizedByUnderlyingAircraftThroughTwoThousandTwentyEightMember2022-09-300000810332mesa:PledgedAsCollateralMemberus-gaap:AirTransportationEquipmentMember2023-09-300000810332mesa:UnitedCapacityPurchaseAgreementMembermesa:UnitedAirlinesIncMember2023-01-132023-01-130000810332srt:CRJ900Member2022-10-012023-09-300000810332mesa:ArcherAviationIncMemberus-gaap:CommonClassAMember2021-09-012021-09-300000810332mesa:LoanAgreementMembermesa:HundredAndFiftyTwoMillionTreasuryLoanMember2020-11-130000810332mesa:AmericanAirlinesIncMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-05-012023-05-310000810332mesa:ContractRevenueMember2021-10-012022-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-10-012023-09-300000810332us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2021-09-300000810332mesa:LoanAgreementMembermesa:EDCLoansMember2020-11-130000810332mesa:UnitedCapacityPurchaseAgreementMembermesa:CRJ700AircraftMembermesa:UnitedAirlinesIncMember2022-08-012022-08-310000810332mesa:CRJ900AircraftMembermesa:EdcLoanAndMhirjJuniorNoteMember2022-10-012023-09-300000810332mesa:NotesPayableToFinancialInstitutionDueTwoThousandTwentyThreeMember2023-09-300000810332mesa:AmericanAirlinesIncMembersrt:CRJ900Member2022-10-012023-09-300000810332us-gaap:RevolvingCreditFacilityMember2023-09-060000810332us-gaap:CommonStockMember2020-10-012021-09-300000810332mesa:LongLivedAssetsMember2022-10-012023-09-300000810332mesa:LoanAgreementMembermesa:SecuredTermLoanFacilityMembermesa:TreasuryLoanMember2020-10-300000810332mesa:UnitedLineOfCreditMember2022-10-012023-09-300000810332mesa:CorrectionOfErrorMember2023-06-300000810332mesa:AmericanCapacityPurchaseAgreementMembermesa:EdcLoanAndMhirjJuniorNoteMember2022-10-012023-09-300000810332mesa:CF348C5OrCF348E5EngineMembermesa:LetterAgreementNumberThirteenDashThreeMember2023-09-300000810332us-gaap:CustomerRelatedIntangibleAssetsMembermesa:AmericanCapacityPurchaseAgreementMember2022-10-012023-09-300000810332mesa:NewHireFirstOfficersMember2023-09-300000810332us-gaap:DomesticCountryMember2022-10-012023-09-300000810332us-gaap:RelatedPartyMember2022-10-012023-09-300000810332us-gaap:WarrantMember2021-09-300000810332mesa:TreasuryLoanMember2022-10-012023-09-300000810332srt:MaximumMemberus-gaap:FlightEquipmentMember2023-09-300000810332us-gaap:RelatedPartyMember2020-10-012021-09-300000810332mesa:AmericanPurchaseAgreementMemberus-gaap:SubsequentEventMembermesa:EdcLoanAndMhirjJuniorNoteMember2023-10-012023-10-010000810332us-gaap:WarrantMember2022-09-3000008103322023-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMember2022-12-270000810332mesa:AmericanAirlinesIncMembermesa:EdcLoanAndMhirjJuniorNoteMember2022-10-012023-09-300000810332mesa:CF348C5OrCF348E5EngineMembermesa:LetterAgreementNumberThirteenDashThreeMember2021-01-012021-03-310000810332mesa:AircraftAndRotableSparePartsMember2023-09-300000810332us-gaap:RelatedPartyMember2021-10-012022-09-300000810332us-gaap:LeaseholdImprovementsMember2023-09-300000810332srt:CRJ700Member2023-09-300000810332us-gaap:RevolvingCreditFacilityMembermesa:UnitedCapacityPurchaseAgreementMember2023-09-062023-09-060000810332mesa:PassThroughAndOtherRevenueMember2020-10-012021-09-30mesa:Enginexbrli:purexbrli:sharesmesa:AirCraftmesa:Employeemesa:Cityiso4217:USDxbrli:sharesmesa:Segmentmesa:Stateiso4217:USDmesa:DailyDeparture

y

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

 

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

 

For the fiscal year ended September 30, 2023

Or

 

 

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

 

For the transition period from______________ to ___________.

Commission file number 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)

(602) 685-4000

Registrant's telephone number, including area code

 

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

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange of Which Registered

Common Stock, no par value

 

MESA

 

Nasdaq Global Select Market

 

Securities registered pursuant to section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10-D-1(b).

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 March 31, 2023, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value the voting and non-voting stock held by non-affiliates of the registrant was approximately $96,267,679.

As of December 27, 2023, the registrant had 40,940,326 shares of common stock, no par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement relating to its 2024 annual meeting of shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The Registrant’s definitive proxy statement for its 2024 annual meeting of shareholders will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year to which this report relates.

 

 

 


 

MESA AIR GROUP, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended September 30, 2023

TABLE OF CONTENTS

 

Page

PART I

Item 1.

Business

5

Item 1A.

Risk Factors

20

Item 1B.

Unresolved Staff Comments

39

Item 1C.

Cybersecurity

39

Item 2.

Properties

40

Item 3.

Legal Proceedings

41

Item 4.

Mine Safety Disclosures

41

PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

42

Item 6.

[Reserved]

44

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

45

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

75

Item 8.

Financial Statements and Supplementary Data

76

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

123

Item 9A.

Controls and Procedures

123

Item 9B.

Other Information

128

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

128

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

129

Item 11.

Executive Compensation

129

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

129

Item 13.

Certain Relationships and Related Transactions, and Director Independence

129

Item 14.

Principal Accountant Fees and Services

129

PART IV

Item 15.

Exhibits and Financial Statement Schedules

130

Item 16.

Form 10-K Summary

137

Signatures

138

 

2


 

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II, Item 7 of this Form 10-K under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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 Part I, Item 1A of this Annual Report on Form 10-K under the heading "Risk Factors." 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 refer 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 under a particular agreement by (ii) the maximum number of block hours that could be flown during such month under the particular agreement) under our capacity agreement;
the direct operation of regional jets by 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, 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.

3


 

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 impact of the shortage of pilots. 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.

4


 

PART I

ITEM 1. BUSINESS

General

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 86 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. As of September 30, 2023, Mesa operated a fleet of 80 regional aircraft consisting of 54 E-175 aircraft and 26 CRJ-900 aircraft with approximately 296 daily departures, four 737 cargo aircraft and approximately 2,303 employees. Mesa’s fleet were conducted under our Capacity Purchase Agreements ("CPAs") 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 Airlines, Inc. ("United") and FSA with DHL Network Operations (USA), Inc. ("DHL") (each, our “major partner”). Prior to the wind-down and termination of the Company's CPA with American Airlines, Inc. ("American") on April 3, 2023, Mesa also operated flights as American Eagle. All of the Company’s consolidated contract revenues for the twelve months ended September 30, 2023 and September 30, 2022 were derived from operations associated with the American CPA prior to April 3, 2023, the United CPA, DHL FSA, and leases of aircraft to a third party.

Under the CPA with United (the "United CPA") and FSA with DHL (the "DHL FSA"), we operated or maintained as operational spares a fleet of 120 aircraft as of September 30, 2023. We also lease two aircraft to a third party as of September 30, 2023. We operate 54 E-175 and 26 CRJ-900 aircraft under our United CPA, and four Boeing 737-400F aircraft under our DHL FSA. For our fiscal year ended September 30, 2023, approximately 23% of our revenues were earned under the American CPA, approximately 73% were earned under the United CPA, approximately 1% were earned from leases of aircraft to a third party and approximately 3% were earned under the DHL FSA. All of the Company’s consolidated contract revenues for the twelve months ended September 30, 2023 and September 30, 2022 were derived from operations associated with the American CPA, the United CPA, FSA, and leases of aircraft to a third party.

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.

Regional aircraft are optimal for short- and medium-haul scheduled flights that connect outlying communities with larger cities and act as "feeders" for domestic and international hubs. In addition, regional aircraft are well suited to serve larger city pairs during off-peak times when load factors on larger jets are low. The lower trip costs and operating efficiencies of regional aircraft, along with the competitive nature of the CPA bidding process, provide significant value to major airlines.

Impact of Pilot Shortage and Transition of Operations to United

During our twelve months 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

5


 

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-hire first officers.

As a result of pilot shortage, we produced less block hours to generate revenues and incurred penalties for operational shortfalls under our CPAs. During the twelve months ended September 30, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $24.1 million and net loss of $120.1 million including a non-cash impairment charge of $54.3 million related to the Company designating 14 CRJ-900 aircraft as held for sale and our customer relationship intangible asset. These conditions and events raised substantial doubt about our ability to continue to fund our operations and meet our debt obligations over the next twelve months.

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 year ended September 30, 2023, and through the date of issuance of the financial statements.

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.
We entered into an agreement to sell 11 CRJ-900 aircraft to a third party. The Company has closed the sale of seven of the aircraft which generated $21.0 million in gross proceeds and approximately $1.5 million in net proceeds after partial debt reduction on the UST Loan. Subsequent to September 30, 2023, we closed the sale of the remaining four CRJ-900 aircraft to the 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 of our loan with the United States Department of the Treasury ("UST Loan").
We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on seven CRJ-900 aircraft which began January 2023 through December 2024, providing approximately $14.0 million of liquidity. Additionally, the junior noteholder, MHIRJ, agreed to forgive approximately $5.0 million in principal contingent upon the repayment of $4.2 million in principal by December 31, 2023.
We entered into an agreement to sell seven surplus CRJ-900 aircraft to American. The Company has closed the sale of three of the aircraft which generated approximately $29.7 million in gross proceeds and approximately $2.4 million in net proceeds after partial debt reduction. Subsequent to September 30, 2023, the Company closed the sale of the remaining 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. $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.
We established and drew upon a new line of credit with United totaling $25.5 million. 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 flown as well as maintaining a 99.3% controllable completion factor ("CCF") over any rolling four-month period from April 2023 through December 2024. As of November 2023, the foregoing milestones have been achieved for such rolling four-month period. As a result, $9 million of the $15 million will be deemed prepaid one business day following the repayment of the Effective Date Bridge Loan discussed elsewhere herein. We consider it likely that we will achieve additional forgiveness in fiscal year 2024. Subsequently, this facility was amended to permit the Company to re-draw approximately $7.9 million of the Effective Date Bridge Loan previously repaid and increased the amount of Revolving Commitments from $30.7 million to $50.7 million. See Note 10 for a discussion of the line of credit and amount drawn as well as discussion on the deemed prepayment.

6


 

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:
o
Increased CPA rates, retroactive to October 1, 2023 through December 2024, which are projected to generate approximately $63.5 million in incremental revenue over the next twelve months.
o
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.
o
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:
o
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.
o
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.
o
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.
o
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.
o
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 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. The gross proceeds of $56.0 million will be used to retire approximately $40.0 million in associated debt and provide additional liquidity to fund operations and current debt obligations as they come due. The transaction is expected to close by the end of March 2024.
Subsequent to September 30, 2023, we entered into a purchase agreement with a third party which provides for the sale of 23 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.

 

7


 

The Company believes the plans and initiatives outlined above have effectively alleviated the substantial doubt and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements. 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 September 30, 2023, the Company has $163.6 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. See Sources and Uses of Cash in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional disclosure.

COVID-19 Pandemic

Beginning in fiscal 2020, COVID-19 surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The COVID-19 pandemic negatively affected our revenue and operating results during fiscal years 2023, 2022, 2021, and 2020. Any similar outbreaks in the future may have a material impact on our financial condition, liquidity, and results of operations in future periods. See “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding the impact of the COVID-19 pandemic on our financial results. Also, see “Part I. Item 1A. Risk Factors” for a discussion of the risks and uncertainties associated with the COVID-19 pandemic.

Our Business Strategy

Our business strategy consists of the following elements:

Maintain Low-Cost Structure

We have established ourselves as a low cost provider of regional airline and cargo flight services. We intend to continue our disciplined cost control approach through responsible outsourcing of certain operating functions, by flying large regional aircraft with associated lower maintenance costs and common flight crews across fleet types, and through the diligent control of corporate and administrative costs by implementing company-wide efforts to improve our cost structure.

Attractive Work Opportunities

We believe our employees have been, and will continue to be, a key to our success. We intend to continue to offer competitive compensation packages, foster a positive and supportive work environment and provide opportunities to fly state-of-the-art, large-gauged regional jets to differentiate us from other carriers and make us an attractive place to work and build a career.

Aircraft Fleet

We fly only large regional jets manufactured by Bombardier Aerospace (“Bombardier”) and Embraer S.A. ("Embraer"), as well as 737 cargo jets manufactured by Boeing. Mitsubishi Heavy Industries (“MHI”), who acquired the CRJ business from Bombardier, and Embraer are the primary manufacturers of regional jets operated in the United States, which allows us to enjoy operational, recruiting and cost advantages over other regional airlines that operate smaller regional aircraft from less prominent manufacturers.

8


 

As of September 30, 2023, we had 120 aircraft (owned and leased) consisting of the following:

 

Embraer
Regional
Jet-175
(70-76 seats)

 

 

Canadair
Regional
Jet-700
(50-70 seats)

 

 

Canadair
Regional
Jet-900
(76-79
seats)

 

 

Boeing 737
(Cargo)

 

 

Total

 

United Express

 

 

54

 

 

 

 

 

 

26

 

 

 

 

 

 

80

 

DHL Express

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

Held for sale

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Leased to third party

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Subtotal

 

 

54

 

 

 

2

 

 

 

41

 

 

 

4

 

 

 

101

 

Unassigned

 

 

6

 

 

 

 

 

 

13

 

 

 

 

 

 

19

 

Total

 

 

60

 

 

 

2

 

 

 

54

 

 

 

4

 

 

 

120

 

(1)
As of September 30, 2023, the Company has 15 CRJ-900 aircraft classified as assets held for sale.

The following table lists the aircraft we own and lease as of September 30, 2023 and the passenger capacity of such aircraft:

 

Type of Aircraft

 

Owned

 

 

Leased

 

 

 

Total

 

 

Passenger
Capacity

E-175 Regional Jet

 

 

18

 

 

 

42

 

(2)

 

 

60

 

 

70-76

CRJ-900 Regional Jet

 

 

54

 

 

 

 

 

 

 

54

 

 

76-79

CRJ-700 Regional Jet

 

 

 

 

 

2

 

 

 

 

2

 

 

50-70

Boeing 737 Cargo Jet

 

 

 

 

 

4

 

(3)

 

 

4

 

 

 

Total

 

 

72

 

 

 

48

 

 

 

 

120

 

 

 

 

(2)
All 42 of these E-175 aircraft are owned by United and leased to us at nominal amounts.
(3)
Three of these Boeing 737 aircraft are subleased to us by DHL at nominal amounts and the fourth aircraft is leased to us by a third party.

MHI and Embraer regional jets are among the quietest commercial jets currently available and offer many of the amenities of larger commercial jet aircraft, including flight attendant service, a stand-up cabin, overhead and under seat storage, lavatories and in-flight snack and beverage service. The speed of MHI and Embraer regional jets is comparable to larger aircraft operated by major airlines, and they have a range of approximately 1,600 miles and 2,100 miles, respectively. We do not currently have any existing arrangements with MHI or Embraer to acquire additional aircraft.

Capacity Purchase and Flight Services Agreements

Our agreements consist of the following:

Operation of E-175 and CRJ-900 under our United CPA;
Operation of Boeing 737 aircraft under our DHL FSA.

The financial arrangements between the Company and its major partners include a revenue-guarantee arrangement. Under these revenue-guarantee provisions, our major partners pay us a fixed minimum monthly amount per aircraft under contract, plus additional amounts related to departures and block hours flown. We also receive direct reimbursement of certain operating expenses, including insurance. Other expenses, including fuel and ground operations are directly paid to suppliers by our major partners. We believe we are in material compliance with the terms of our United CPA and DHL FSA.

9


 

We benefit from the revenue guarantee arrangement under our United CPA and DHL FSA because we are sheltered, to an extent, from some of the elements that cause volatility in airline financial performance, including variations in ticket prices, fluctuations in number of passengers and fuel prices. However, we do not benefit from positive trends in ticket prices (including ancillary revenue programs), the number of passengers enplaned, or reductions in fuel prices. United retains all revenue collected from passengers carried on our flights. In providing regional flying under our CPA, and cargo flying under our FSA, we use the logos, service marks and aircraft paint schemes of our major partners.

The following table summarizes our available seat miles ("ASMs") flown and contract revenue recognized under our CPAs for our fiscal years ended September 30, 2023 and 2022, respectively:

 

 

Year Ended September 30, 2023

 

 

Year Ended September 30, 2022

 

 

Available
Seat Miles

 

 

Contract
Revenue

 

 

Contract
Revenue
per ASM

 

 

Available
Seat Miles

 

 

Contract
Revenue

 

 

Contract
Revenue
per ASM

 

 

(in thousands)

 

 

(in cents)

 

 

(in thousands)

 

 

(in cents)

 

American

 

 

790,513

 

 

$

107,019

 

 

¢

 

13.54

 

 

 

2,668,953

 

 

$

234,184

 

 

¢

 

8.77

 

United

 

 

3,444,900

 

 

$

294,129

 

 

¢

 

8.54

 

 

 

4,005,795

 

 

$

207,003

 

 

¢

 

5.17

 

Other

 

 

 

 

$

20,150

 

 

 

 

 

 

 

 

 

$

37,295

 

 

 

 

 

Total

 

 

4,235,413

 

 

$

421,298

 

 

¢

 

9.95

 

 

 

6,674,748

 

 

$

478,482

 

 

¢

 

7.17

 

 

American Capacity Purchase Agreement

In December 2022, we entered into Amendment No. 11 (the “American Amendment”) to our Amended and Restated Capacity Purchase Agreement previously entered into in November 2020 (as theretofore amended, the "American CPA"). The American Amendment provided for the termination and wind-down of the American CPA by April 3, 2023 (the “Wind-down Period”), at which time all Covered Aircraft (as defined in the American CPA) were removed from the American CPA. In March 2023, we began to transition aircraft operated under the American CPA to the United CPA. The American CPA was previously set to expire by its terms on December 31, 2025.

Under the terms of the American Amendment, during the Wind-down Period (i) we continued to receive a fixed minimum monthly amount per aircraft covered by the American CPA, plus additional amounts based on the number of flights and block hours flown during each month, subject to adjustment based on the Company’s controllable completion rate and certain other factors, and (ii) American agreed not to exercise certain termination or withdrawal rights under the American CPA if we failed to meet certain operational performance targets for the three consecutive month period ending January 31, 2023.

No Material Breach (as defined in the American CPA) occurred that would have required the payment of liquidated damages. Pursuant to the American Amendment, as no material breaches occurred during the wind-down period, American agreed to waive Mesa’s failure to meet certain past operational performance targets and other requirements, which triggered termination and withdrawal rights for American pursuant to the terms of American CPA. All CCF targets were met during the Wind-down Period, and there were no penalties associated with that performance metric. The parties executed a written mutual release of all claims and acknowledgment that no Material Breaches occurred.

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 September 30, 2023 we operated 54 E-175 and 26 CRJ-900 aircraft under our Third Amended and Restated CPA with United dated December 27, 2022, which amended and restated the Second Amended and Restated CPA 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. Additionally, United leased 20 E-175LL aircraft

10


 

to us at nominal amounts during the year ended September 30, 2023. The E-175LL aircraft were removed from the CPA beginning in February 2023, with the last E-175LL aircraft being removed in April 2023.

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 September 30, 2023, we operated 24 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).

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 10, 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 then 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.

11


 

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. See also Note 18 for a discussion regarding the amendment to the Company's bylaws as it relates to the Amended and Restated United CPA.

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 early termination prior to its expiration in various circumstances including:

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.

DHL Flight Services Agreement

On December 20, 2019, we entered into a FSA with DHL (the “DHL FSA”). Under the terms of the DHL FSA, we operate four Boeing 737 aircraft to provide cargo air transportation services as of September 30, 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:

12


 

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 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.

Maintenance and Repairs

Airlines are subject to extensive regulation. We have a FAA mandated and approved maintenance program. Aircraft maintenance and repair consists of routine and non-routine maintenance, and work performed is divided into three general categories: line maintenance, heavy maintenance, and component service. We also outsource certain aircraft maintenance and other operating functions. We use competitive bidding among qualified vendors to procure these services. We have long-term maintenance contracts with AAR to provide fixed-rate parts procurement and component overhaul services for our aircraft fleet. Under these agreements, AAR provides maintenance and engineering services on any aircraft that we designate during the term of the agreement, along with access to a spare parts inventory pool, in exchange for a fixed monthly fee.

Line maintenance consists of routine daily and weekly scheduled maintenance checks on our aircraft. Line maintenance is performed at certain locations throughout our system and represents the majority of and most extensive maintenance we perform. Major airframe maintenance checks consist of a series of more complex tasks that can take from one to four weeks to accomplish and typically are required approximately every 28 months, on average, across our fleet. Engine overhauls and engine performance restoration events are quite extensive and can take two months. We maintain an inventory of spare engines to provide for continued operations during engine maintenance events. We expect to begin the initial planned engine maintenance overhauls on our new engine fleet approximately four to six years after the date of manufacture and introduction into our fleet, with subsequent engine maintenance every four to six years thereafter. Due to our current fleet size, we believe outsourcing all of our heavy maintenance, engine restoration, and major part repair is more economical than performing this work using our internal maintenance team.

Competition

We consider our primary competition to be U.S. regional airlines that currently hold or compete for CPAs for passenger services with major airlines. Our competition includes, therefore, nearly every other domestic regional airline, including Air Wisconsin Airlines Corporation; Commuetair, Inc. ("Commuteair"); Endeavor Air, Inc. (owned by Delta) ("Endeavor"); Envoy Air, Inc. ("Envoy"), PSA Airlines, Inc. ("PSA") and Piedmont Airlines, Inc. ("Piedmont") (Envoy, PSA and Piedmont are owned by American); Horizon Air Industries, Inc. (owned by Alaska Air Group, Inc.) ("Horizon"); SkyWest Inc., parent of SkyWest Airlines, Inc.; Republic Airways Holdings Inc.; and Trans States Airlines, Inc.

Major airlines typically offer CPAs to regional airlines on the basis of the following criteria: availability of labor resources; proposed contract economic terms; reliable and on-time flight operations; corporate financial resources including ability to procure and finance aircraft; customer service levels; and other factors.

13


 

Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, economic downturns, combined with competitive pressures, have contributed to a number of reorganizations, bankruptcies, liquidations, and business combinations among major and regional carriers. The effect of economic downturns is somewhat mitigated by our reliance on a CPA with revenue-guarantee provisions, but the renewal and continued profitability of our partnership with United is not guaranteed.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased utilization of our aircraft in the summer months and are unfavorably affected by increased fleet maintenance and by inclement weather during the winter months.

Aircraft Fuel

Our CPA and FSA provide that our major partners source, procure, and directly pay third-party vendors for all fuel used in the performance of those agreements. Accordingly, we do not recognize fuel expenses or revenues for flying under our CPA and FSA and we face very limited exposure to fuel price fluctuations.

Insurance

We maintain insurance policies that we believe are of types customary in the airline industry and as required by the DOT, lessors and other financing parties, and our major partners under the terms of our CPA and FSA. The policies principally provide liability coverage for public and passenger injury; damage to property; loss of or damage to flight equipment; fire; auto; directors' and officers' liability; advertiser and media liability; cyber risk liability; fiduciary; workers' compensation and employer's liability; and war risk (terrorism). Although we currently believe our insurance coverage is adequate, we cannot assure you that the amount of such coverage will not be changed or that we will not be forced to bear substantial losses from accidents.

Human Capital Management

As of September 30, 2023, we employed approximately 2,303 employees, consisting of 807 pilots or pilot recruits, 647 flight attendants, 32 flight dispatchers, 483 maintenance employees and 334 employees in administrative or other roles. Our continued success is partly dependent on our ability to continue to attract and retain qualified personnel. We have never been the subject of a labor strike or labor action that materially impacted our operations.

FAA regulations require pilots to have an Airline Transport Pilot ("ATP") license with specific ratings for the aircraft to be flown, and to be medically certified as physically fit to fly. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience. Mechanics, quality-control inspectors, and flight dispatchers must be certificated and qualified for specific aircraft. Flight attendants must have initial and periodic competency training and qualification. Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance, and aircraft inspection must also meet experience standards prescribed by FAA regulations. All safety-sensitive employees are subject to pre-employment, random, and post-accident drug testing.

The airline industry has from time to time experienced a shortage of qualified personnel, particularly with respect to pilots and maintenance technicians. In addition, as is common with most of our competitors, we have faced considerable turnover of our employees. Regional airline pilots, flight attendants, and maintenance technicians often leave to work for larger airlines, which generally offer higher salaries and better benefit programs than regional airlines are financially able to offer. Should the turnover of employees,

14


 

particularly pilots and maintenance technicians continue at the rate that has occurred over the recent past and/or, sharply increase, the result will be significantly higher training costs than otherwise would be necessary, as well as a shortage in the required number of applicable personnel, and we may need to request a reduced flight schedule with our major partners, which may result in operational performance penalties under our CPA or FSA. We cannot assure that we will be able to recruit, train and retain the qualified employees that we need to carry out our expansion plans or replace departing employees.

As of September 30, 2023, approximately 63.1% of our employees were represented by labor unions under collective-bargaining agreements, as set forth below. No other employees of ours or our subsidiaries are parties to any other collective bargaining agreement or union contracts.

 

Employee Groups

 

Number of
Employees

 

Representative

 

Labor
Agreement
Amendable
As of

Pilots

 

807

 

Air Line Pilots Association

 

10/17/2022

Flight Attendants

 

647

 

Association of Flight Attendants

 

8/30/2022

Dispatchers

 

32

 

 

 

 

Maintenance Department

 

483

 

 

 

 

Administrative

 

334

 

 

 

 

 

The Railway Labor Act ("RLA") governs our relations with labor organizations. Under the RLA, the collective bargaining agreements generally do not expire, but instead become amendable as of a stated date. If either party wishes to modify the terms of any such agreement, they must notify the other party in the manner agreed to by the parties. Under the RLA, after receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the National Mediation Board ("NMB") to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process. It is not unusual for those processes to last for many months, and even for a few years. If no agreement is reached in mediation, the NMB in its discretion may declare at some time that an impasse exists, and if an impasse is declared, the NMB proffers binding arbitration to the parties. Either party may decline to submit to arbitration. If arbitration is rejected by either party, a 30-day "cooling off" period commences. During that period (or after), a Presidential Emergency Board ("PEB") may be established, which examines the parties' positions and recommends a solution. The PEB process lasts for 30 days and is followed by another "cooling off" period of 30 days. At the end of a "cooling off" period, unless an agreement is reached or action is taken by Congress, the labor organization may strike and the airline may resort to "self-help," including the imposition of any or all of its proposed amendments and the hiring of new employees to replace any striking workers. Congress and the President have the authority to prevent "self-help" by enacting legislation that, among other things, imposes a settlement on the parties. The table above sets forth our employee groups and status of the collective bargaining agreements.

Refer to “Impact of COVID-19 Pandemic” included in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for information on human capital management actions taken by the Company in response to the COVID-19 pandemic.

Safety and Security

We are committed to the safety and security of our passengers and employees. We have taken many steps, both voluntarily and as mandated by governmental authorities, to increase the safety of our operations. Some of the safety and security measures we have taken with our major partners include aircraft security and surveillance, positive bag matching procedures, enhanced passenger and baggage screening and search procedures, and securing of cockpit doors. We are committed to complying with future safety and security requirements.

Our ongoing focus on safety relies on training our employees to proper standards and providing them with the tools and equipment they require so they can perform their job functions in a safe and efficient manner. Safety in the workplace targets several areas of our operation including dispatch, flight operations and maintenance.

15


 

The TSA and the U.S. Customs and Border Protection, each a division of the U.S. Department of Homeland Security, are responsible for certain civil aviation security matters, including passenger and baggage screening at U.S. airports, and international passenger prescreening prior to entry into or departure from U.S. international flights are subject to customs, border, immigration, and similar requirements of equivalent foreign governmental agencies. We are currently in compliance with all directives issued by such agencies. We maintain active, open lines of communication with the TSA at all of our locations to ensure proper standards for security of our personnel, equipment and facilities are exercised throughout our operations.

Facilities

In addition to aircraft, we have office and maintenance facilities to support our operations. Each of our facilities are summarized in the following table:

 

Type

 

Location

 

Ownership

 

Approximate
Square Feet

 

Corporate Headquarters

 

Phoenix, Arizona

 

Leased

 

 

33,770

 

Training Center

 

Phoenix, Arizona

 

Leased

 

 

23,783

 

Parts/Stores

 

Phoenix, Arizona

 

Leased

 

 

12,000

 

Hangar

 

Phoenix, Arizona

 

Leased

 

 

22,467

 

Office, Hangar and Warehouse

 

El Paso, Texas

 

Leased

 

 

31,292

 

Parts Storage

 

Dallas, Texas

 

Leased

 

 

8,143

 

Hangar

 

Houston, Texas

 

Leased

 

 

74,524

 

Hangar

 

Louisville, Kentucky

 

Leased

 

 

26,762

 

Hangar

 

Dulles, Washington

 

Leased

 

 

28,451

 

Cargo Building

 

Dulles, Washington

 

Leased

 

 

1,475

 

Warehouse

 

Tucson, Arizona

 

Leased

 

 

13,276

 

Warehouse, Office

 

Erlanger, Kentucky

 

Leased

 

 

7,070

 

 

Our corporate headquarters and training facilities in Phoenix, Arizona are subject to long-term leases expiring on November 30, 2032 and May 31, 2025, respectively.

We believe our facilities are suitable and adequate for our current and anticipated needs.

Foreign Ownership

Under DOT regulations and federal law, we must be owned and controlled by U.S. citizens. The restrictions imposed by federal law and regulations currently require that at least 75% of our voting stock must be owned and controlled, directly and indirectly, by persons or entities who are U.S. citizens, as defined in the Federal Aviation Act, that our president and at least two-thirds of the members of our Board of Directors and other managing officers be U.S. citizens, and that we be under the actual control of U.S. citizens. In addition, at least 51% of our total outstanding stock must be owned and controlled by U.S. citizens and no more than 49% of our stock may be held, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into "open skies" air transport agreements with the U.S. which allow unrestricted access between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country. We are currently in compliance with these ownership provisions.

Government Regulation

Aviation Regulation

The DOT and FAA have regulatory authority over air transportation in the United States and all international air service is subject to certain U.S. federal requirements and approvals, as well as the regulatory requirements of the appropriate authorities of the foreign countries involved. The DOT has authority to issue certificates of public convenience and necessity, exemptions and other economic authority required for airlines to provide domestic and foreign air transportation. International routes and

16


 

international code-sharing arrangements are regulated by the DOT and by the governments of the foreign countries involved. A U.S. airline's ability to operate flights to and from international destinations is subject to the air transport agreements between the United States and the foreign country and the carrier's ability to obtain the necessary authority from the DOT and the applicable foreign government.

The U.S. government has negotiated "open skies" agreements with many countries, which allow broad access between the United States and the applicable foreign country. With certain other countries, however, the United States has a restricted air transportation agreement. Our international flights to Mexico are governed by a bilateral air transport agreement which the DOT has determined has all of the attributes of an "open skies" agreement. Our flights to Canada, and Cuba are governed by bilateral air transport agreements between the United States and such countries. Changes in U.S., Mexican, Canadian or Cuban aviation policies could result in the alteration or termination of the corresponding air transport agreement, or otherwise affect our operations to and from these countries. There is still a degree of uncertainty about the future of scheduled commercial flight operations between the United States and Cuba as a result of changes in diplomatic relations between the two governments, as well as travel and trade restrictions implemented by the U.S. government in 2017. We are largely sheltered from the economic impact changes to existing "open skies" agreements or volatility in U.S., Mexican, Canadian, or Cuban aviation polices because United controls route selection and scheduling under our CPA.

The FAA is responsible for regulating and overseeing matters relating to the safety of air carrier flight operations, including the control of navigable air space, the qualification of flight personnel, flight training practices, compliance with FAA airline operating certificate requirements, aircraft certification and maintenance requirements and other matters affecting air safety. The FAA requires each commercial airline to obtain and hold an FAA air carrier certificate. We currently hold an FAR-121 air carrier certificate. In July 2013, as directed by the U.S. Congress, the FAA issued more stringent pilot qualification and crew member flight training standards, which increased the required training time for new airline pilots (the "FAA Qualification Standards"). The FAA Qualification Standards, which became effective in August 2013, require first officers to hold an ATP certificate, requiring 1,500 hours total flight time as a pilot. Previously, first officers were required to have only a commercial pilot certificate, which required 250 hours of flight time. The rule also mandates stricter rules to minimize pilot fatigue.

Airport Access

Flights at three major domestic airports are regulated through allocations of landing and takeoff authority (i.e., "slots" and "operating authorizations") or similar regulatory mechanisms, which limit take-offs and landings at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period. In the United States, the FAA currently regulates the allocation of slots, slot exemptions, operating authorizations, or similar capacity allocation mechanisms at two of the airports we serve, Ronald Reagan Washington National Airport (DCA) in Washington, D.C., and New York's LaGuardia Airport (LGA). In addition, John Wayne Airport (SNA) in Orange County, California, has a locally imposed slot system. Our operations at these airports generally require the allocation of slots or analogous regulatory authorizations, which are obtained by our major partners.

Consumer Protection Regulation

The DOT also has jurisdiction over certain economic issues affecting air transportation and consumer protection matters, including unfair or deceptive practices and unfair methods of competition, lengthy tarmac delays, air carriers, airline advertising, denied boarding compensation, ticket refunds, baggage liability, contracts of carriage, customer service commitments, customer complaints, and transportation of passengers with disabilities. The DOT frequently adopts new consumer protection regulations, such as rules to protect passengers addressing lengthy tarmac delays, chronically delayed flights, CPA disclosure and undisclosed display bias, and is reviewing new guidelines to address the transparency of airline non-ticket fees and refunding baggage fees for delayed checked baggage. The DOT also has authority to review certain joint venture agreements, code-sharing agreements (where an airline places its designator code on a flight operated by another airline) and wet-leasing agreements (where one airline provides aircraft and crew to another airline) between carriers and regulates other economic matters such as slot transactions.

17


 

Environmental Regulation

We are subject to various federal, state, local and foreign laws and regulations relating to environmental protection matters. These laws and regulations govern such matters as environmental reporting, storage and disposal of materials and chemicals and aircraft noise. We are, and expect in the future to be, involved in various environmental matters and conditions at, or related to, our properties. We are not currently subject to any environmental cleanup orders or actions imposed by regulatory authorities. We are not aware of any active material environmental investigations related to our assets or properties.

Other Regulations

Airlines are also subject to various other federal, state, local, and foreign laws and regulations. For example, the U.S. Department of Justice has jurisdiction over certain airline competition matters. Labor relations in the airline industry are generally governed by the RLA. The privacy and security of passenger and employee data is regulated by various domestic and foreign laws and regulations.

The U.S. government and foreign governments may consider and adopt new laws, regulations, interpretations, and policies regarding a wide variety of matters that could directly or indirectly affect our results of operations. We cannot predict what laws, regulations, interpretations, and policies might be considered in the future, nor can we judge what impact, if any, the implementation of any of these proposals or changes might have on our business.

Legal Proceedings

We are subject to certain legal actions which we consider routine to our business activities. As of September 30, 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.

Corporate Information

We are a Nevada corporation with our principal executive office located in Phoenix, Arizona. We were founded in 1982 and reincorporated in Nevada in 1996. In addition to operating Mesa Airlines, we also wholly own Mesa Air Group-Airline Inventory Management, LLC. ("MAG-AIM"), an Arizona limited liability company, which was established to purchase, distribute and manage Mesa Airlines' inventory of spare rotable and expendable parts. MAG-AIM's financial results are reflected in our consolidated financial statements.

Our principal executive offices are located at 410 North 44th Street, Suite 700, Phoenix, Arizona 85008, and our telephone number is (602) 685-4000. Our website is located at www.mesa-air.com. The information on, or accessible through, our website does not constitute part of, and is not incorporated into, this Annual Report on Form 10-K.

Mesa Airlines, the Mesa Airlines logo and our other registered or common law trade names, trademarks, or service marks appearing in this Annual Report on Form 10-K are our intellectual property. This Annual Report on Form 10-K contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies' trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us, by these companies. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Annual Report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are filed with the Securities and Exchange Commission (the "SEC"). We are subject to the informational requirements of the Exchange Act, and we file or furnish reports, proxy statements and other information with the SEC. Such reports and other information we file with the SEC are available free of charge at http://investor.mesa-air.com/financial-information/sec-filings when such

18


 

reports are available on the SEC's website. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. We periodically provide other information for investors on our corporate website, www.mesa-air.com, and our investor relations website, investor.mesa-air.com. This includes press releases and other information about financial performance, information on corporate governance and details related to our annual meeting of shareholders. The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.

 

19


 

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. Certain factors may have a material adverse effect on our business, financial condition, and results of operation. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this Annual Report on Form 10-K, including our financial statements and the related notes, and in our other filings with the SEC. Our business, financial condition, operating results, cash flow, and prospects could be materially and adversely affected by any of these risks or uncertainties. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risk Factor Summary

The following is a summary of the material risk factors that could adversely affect our business, financial condition, and results of operations:

We are highly dependent on our agreements with our major partners and our operations may be negatively impacted if our major partners experience events that negatively impact their financial strength or operations.
Reduced utilization levels of our aircraft under our agreements with our major partners would adversely impact our financial results.
If United experiences events that negatively impact its financial strength or operations, our operations may be negatively impacted.
We have a significant amount of debt and other contractual obligations, certain of which are subject to financial and other covenants.
The potential impact of the deployment of 5G wireless telecommunications system to interfere with aviation equipment
The loss of key personnel or the inability to attract additional qualified personnel could adversely affect our business.
If the supply of pilots and mechanics to the airline industry remains constrained and pilot attrition continues to exceed historical levels, our results of operations and financial condition would be negatively impacted.
Mechanic attrition and difficulty recruiting and retaining qualified maintenance technicians may negatively affect our operations and financial condition.
Increases in our labor costs may adversely affect our business, results of operations, and financial condition.
United may expand its direct operation of regional jets or seek other independent airlines to service their regional aircraft needs.
We may be limited from expanding our flying within United's flight system.
The residual value of our owned aircraft may be less than estimated in our depreciation policies.
The amounts we receive under our agreements with our major partners may be less than the corresponding costs we incur.
Strikes, labor disputes and increased unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.
We face tail risk in that we have aircraft lease commitments that extend beyond our existing contractual terms on certain aircraft, and may incur substantial maintenance costs as part of return obligations on leased aircraft.
We may incur substantial maintenance costs as part of our leased aircraft return obligations.
We may become involved in litigation that may materially adversely affect us.

20


 

Disagreements regarding the interpretation of our agreements with our major partners could have an adverse effect on our operating results and financial condition.
If we face problems with any of our third-party service providers, our operations could be adversely affected.
Maintenance costs will likely increase as the age of our jet fleet increases.
Regulatory changes or tariffs could negatively impact our business and financial condition.
The issuance of operating restrictions applicable to one of the fleet types we operate could negatively impact our business and financial condition.
If we have a failure in our technology or security breaches of our information technology infrastructure our business and financial condition may be adversely affected.
We are subject to various environmental and noise laws and regulations.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We may not be able to successfully implement our growth strategy, or make opportunistic acquisitions.
Our ability to obtain financing or access capital markets may be limited.
Negative publicity regarding our customer service could have a material adverse effect on our business, results of operations and financial condition.
Risks associated with our presence in international emerging markets may materially adversely affect us.
Future public health threats similar to COVID-19 that negatively impact the demand for air travel could adversely impact our business.
The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential major partners.
We are subject to significant governmental regulation.
Airlines are often affected by factors beyond their control including: air traffic congestion at airports; air traffic control inefficiencies; adverse weather conditions, such as hurricanes or blizzards; increased security measures; new travel-related taxes; or the outbreak of disease; any of which could have a material adverse effect on our business, results of operations, and financial condition.
Terrorist activities or warnings have dramatically impacted the airline industry and are likely to continue to do so.
The occurrence of an aviation accident involving our aircraft would negatively impact our operations and financial condition.
If our common stock is delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be restricted and negatively impacted.
The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.
If securities or industry analysts do not publish research or reports about our business or publish negative reports about our business, our stock price and trading volumes could decline.
Additional issuances of our common stock, whether by us or as a result of the exercise of our outstanding warrants, could materially affect the value of our common stock.
Our corporate charter limits certain transfers of our stock, which could have an effect on the market price and liquidity of our common stock.

21


 

We currently do not intend to pay dividends on our common stock.
The requirements of being a public company may strain our resources, increase our operating costs and divert management’s attention.
We are required to assess our internal control over financial reporting on an annual basis, and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports and have a material adverse effect on our business.

For a more complete discussion of the material risk factors relevant to us, see below.

Risks Related to Our Business

We are highly dependent on our agreements with our major partners.

We derive substantially all of our operating revenue from our CPA with United and previously with American. American accounted for approximately 23% and 45% of our total revenue for our fiscal years ended September 30, 2023 and 2022, respectively. United accounted for approximately 73% and 48% of our revenue for our fiscal years ended September 30, 2023 and 2022, respectively. Our American CPA terminated and we ceased operating aircraft on behalf of American effective April 4, 2023. A termination of our United CPA would have a material adverse effect on our business prospects, financial condition, results of operations, and cash flows. See “Item 1. Business” for additional information on our CPAs with American and United.

If our United CPA is terminated or not renewed, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss. United is not under any obligation to renew its CPA with us. A termination or expiration of this agreement would have a material adverse effect on our financial condition, cash flows, ability to satisfy debt and lease obligations, operating revenues, and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other airline partners, or, alternatively, obtain the airport facilities, gates, ticketing and ground services and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into substitute CPAs, and any such arrangements we might secure may not be as favorable to us as our current agreements. Operating an airline independently from our major partners would be a significant departure from our business plan and would likely require significant time and resources, which may not be available to us when needed.

Reduced utilization levels of our aircraft under our United CPA would have a material adverse impact our results of operations and financial condition.

Historically, our major partners have utilized our flight operations at levels at or near the maximum capacity of our fleet allocations under the applicable CPA agreements. As previously reported, we operated at significantly lower block hours during fiscal 2020 and fiscal 2021 due to the COVID pandemic.

Notwithstanding the increase in demand for air travel during the second half of fiscal 2021 and thereafter, in recent periods our high level of pilot attrition and pilot training output limitations has resulted in a reduction of our block hours flown. If we continue to experience pilot attrition above historic levels, we may experience further reductions in the block hours flown under our United CPA, and we may not be able to maintain operating efficiencies previously obtained, each of which would negatively impact our operating results and financial condition. In August 2022, we entered into a Letter of Agreement with the Airline Pilots Association (“ALPA”), which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers. These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level. However, there can be no assurance that we will be able to adequately address the pilot attrition issues or that our major partners will increase the utilization of our aircraft to historical levels in future periods if we do experience an improvement in pilot attrition. If pilot attrition persists, we may experience additional declines in utilization levels, which would in turn have a material adverse impact on our financial condition and results of operations.

22


 

Our United CPA does not require United to schedule any specified minimum level of flight operations for our aircraft. Additionally, United may remove aircraft from our United CPA with 90 days' prior notice to us. While United pays us a fixed monthly revenue amount for each aircraft under contract, a significant reduction in the utilization levels of our fleet in the future or removal of aircraft from our United CPA at United's election could reduce our revenues based on the number of flights and block hours flown for United.

Continued challenges with hiring, training, and retaining replacement pilots may lead to reduced utilization levels of our aircraft and additional penalties under our CPA and our operations and financial results could be materially and adversely impacted. Additionally, United may change routes and frequencies of flights, which can negatively impact our operating efficiencies. Changes in schedules may increase our flight costs, which could exceed the reimbursed rates paid by United. Reduced utilization levels of our aircraft or other changes to our schedules under our CPA would adversely impact our operating results and financial condition.

If United experiences events that negatively impact its financial strength or operations, our operations also may be negatively impacted.

We may be directly affected by the financial and operating strength of United. Any events, such as new pandemics, that negatively impact the financial strength of United or have a long-term effect on the use of United by airline travelers would likely have a material adverse effect on our business, financial condition, and results of operations. In the event of a decrease in United's financial or operational strength, United may seek to reduce, or be unable to make, the payments due to us under the United CPA. In addition, in some cases, they may reduce utilization of our aircraft. Although we receive guaranteed monthly revenue for each aircraft under contract and a fixed fee for each block hour or flight actually flown, United is not required to schedule any specified level of flight operations for our aircraft. If United becomes bankrupt, our agreement with them may not be assumed in bankruptcy and could be terminated. This and other events, which are outside of our control, could have a material adverse effect on our business, financial condition, and results of operations. In addition, any negative events that impact other regional carriers and that affect public perception of such carriers generally could also have a material adverse effect on our business, financial condition, and results of operations.

We have a significant amount of debt and other contractual obligations that could impair our liquidity and thereby harm our business, results of operations and financial condition.

The airline business is a capital-intensive business and, as a result, we are highly leveraged. As of September 30, 2023, we had approximately $538.3 million in total long-term principal balance (including current portion of $163.6 million, of which $57.7 million pertain to finance lease obligations) and $20.1 million available for borrowing under our United Revolving Credit Facility. Substantially all of our long-term debt was incurred in connection with the acquisition of aircraft and aircraft engines. During our fiscal years ended September 30, 2023, 2022, and 2021, our principal debt service payments totaled $203.0 million, $114.9 million, and $271.0 million, respectively.

We also have significant long-term lease obligations, primarily relating to our aircraft fleet, office space, and other facilities. As of September 30, 2023, we had one aircraft under operating leases (excluding aircraft leased at nominal amounts from United and DHL) in addition to other leases of facilities and equipment, with an average remaining term of 6.1 years. As of September 30, 2023, future minimum lease payments due under all long-term operating leases were approximately $15.2 million and future debt service obligations were $619.5 million, including finance lease obligations and interest payments.

The Company's substantial level of indebtedness, non-investment grade credit ratings, and the availability of Company assets as collateral for future loans or other indebtedness, which available collateral would be reduced under other future liquidity-raising transactions and was reduced during our fiscal year ended September 30, 2021 as a result of CARES Act loan program borrowings, may make it difficult for the Company to raise additional capital if required to meet its liquidity needs on acceptable terms, or at all.

23


 

Although the Company's cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to meet its obligations and commitments to date, the material uncertainties arising from the impact of the pilot shortage and attrition and ongoing transition of American operations to United earlier this year raised substantial doubt as to the Company’s ability to continue as a going concern. The Company is evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, obtaining equity financing, issuing debt, entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses, or selling the aircraft held for sale and our equity investments.

We cannot assure you that our operations will generate sufficient cash flow to make our required payments, or that we will be able to obtain financing to acquire additional aircraft or make other capital expenditures necessary for expansion. Our ability to pay the high level of fixed costs associated with our contractual obligations will depend on our operating performance, cash flow, and ability to secure adequate financing, which will in turn depend on, among other things, the success of our current business strategy, the U.S. economy, availability and cost of financing, as well as general economic and political conditions and other factors that are, to some extent, beyond our control. The amount of our fixed obligations could have a material adverse effect on our business, results of operations and financial condition. The degree to which we are leveraged could have important consequences to holders of our securities, including the following:

we must dedicate a substantial portion of cash flow from operations to the payment of principal and interest on applicable indebtedness which, in turn, reduces funds available for operations and capital expenditures;
our flexibility in planning for, or reacting to, changes in the markets in which we compete may be limited;
we may be at a competitive disadvantage relative to our competitors with less indebtedness;
we are rendered more vulnerable to general adverse economic and industry conditions;
we are exposed to increased interest rate risk given that a majority of our indebtedness obligations are at variable interest rates; and
our credit ratings may be reduced, and our debt and equity securities may significantly decrease in value.

Additionally, failure to pay our operating leases, debt or other fixed cost obligations or a breach of our contractual obligations could result in a variety of further adverse consequences, including the exercise of remedies by our creditors and lessors. In such a situation, it is unlikely that we would be able to cure our breach, fulfill our obligations, make required lease payments, or otherwise cover our fixed costs, which would have a material adverse effect on our business, results of operations and financial condition. In addition, several of the Company's debt agreements contain affirmative and negative covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into, create, incur, assume, or suffer to exist any liens. See “Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of this report for additional information regarding the Company's liquidity and capital resources as of September 30, 2023.

The deployment of 5G communications systems by telecommunication service providers could interfere with aviation equipment, potentially creating a material adverse effect on our business, results of operations, and financial condition.

On January 17, 2022, certain major airlines warned the United States federal government of potential adverse impacts of deploying new 5G communications systems including interfering with airplane operational and safety equipment. This could result in the cancellation of flights, diminishing safety measures, and damage to equipment. Any of these consequences could result in an adverse effect on our results of operations. The DOT and FAA have required that all United States carriers install radio altimeters

24


 

that are tolerant to 5G systems by February 2024. It is uncertain whether the DOT or FAA will impose additional restrictions that could have an adverse effect on our operations.

We are required to comply with certain ongoing financial and other covenants under certain credit facilities and leases, and if we fail to meet those covenants or otherwise suffer a default thereunder, our lenders and lessors may accelerate the payment of such obligations.

Under our (i) credit and guaranty agreement with United (the "United Revolving Credit Facility"), we are required to comply with a minimum consolidated interest and rental coverage ratio at the end of each fiscal quarter during the term of such credit facility, (ii) credit agreement with EDC, we are required to comply with a minimum fixed charge coverage ratio at the end of each fiscal quarter during the term of such credit facility, (iii) aircraft lease facility ("RASPRO Lease Facility") with RASPRO we are required to comply with minimum current ratio and debt ratio covenants and a minimum available cash covenant until all amounts outstanding thereunder have been paid in full, and (iv) loan and guarantee agreement with the U.S. Department of the Treasury (the "UST Loan"), we are required to comply with a minimum collateral coverage ratio, measured monthly during the term of such credit facility, and a minimum liquidity level, measured at the close of any business day during the term of such credit facility.

Failure to comply with the terms of these credit facilities and financing arrangements and the ongoing financial and other covenants thereunder would result in an event of default (as defined in the applicable credit facility and financing agreement) and, to the extent the applicable lenders so elect, an acceleration of our existing indebtedness following the expiration of any applicable cure periods, causing such debt to be immediately due and payable. Acceleration of such indebtedness would also trigger cross-default clauses under our other indebtedness. It could also result in the termination of all commitments to extend further credit under the United Revolving Credit Facility. We currently do not have sufficient liquidity to repay all of our outstanding debt in full if such debt were accelerated. If we are unable to pay our debts as they come due, or obtain waivers for such payments, our secured lenders could foreclose on any assets securing such debt. These events could materially adversely affect our business, results of operations and financial condition.

The loss of key personnel upon whom we depend on to operate our business or the inability to attract additional qualified personnel could adversely affect our business.

We believe that our future success will depend in large part on our ability to retain or attract highly qualified management, technical and other personnel. We may not be successful in retaining key personnel or in attracting other highly qualified personnel. Among other things, the CARES Act imposes significant restrictions on executive compensation, which will remain in place through the date that is one year after the amounts outstanding under our Loan and Guarantee Agreement with the U.S. Department of the Treasury are fully repaid. Such restrictions, over time, will likely result in lower executive compensation in the airline industry than is prevailing in other industries which may present retention challenges in the case of executives presented with alternative, non-airline opportunities. Any inability to retain or attract significant numbers of qualified management and other personnel would have a material adverse effect on our business, results of operations, and financial condition.

If the supply of pilots to the airline industry remains constrained and pilot attrition continues to exceed historical levels, our results of operations and financial condition would be negatively impacted.

In prior periods, the FAA Qualification Standards (and associated regulations) related to pilot qualification and flight training standards discussed in “Item 1. Government Regulation” dramatically reduced the supply of qualified pilot candidates and negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels under our CPAs, resulting in certain cases issuing credits to United, temporarily removing aircraft from service under a CPA, or performance penalties.

More recently, our operations have continued to be negatively impacted by the severity of the pilot shortages that have plagued the airline industry as whole, and by the associated elevated pilot attrition that

25


 

we believe has disproportionately impacted regional airlines, including us. Our pilots continue to be recruited by other carriers, primarily the major carriers and heavy equipment cargo operators, which generally offer higher salaries and more extensive benefit programs. The magnitude of this attrition in fiscal 2023 created significant backlogs in training, further exacerbating an already challenging environment. These events have had, and continue to have, a negative impact on pilot scheduling, work hours, and the number of pilots required to support our operations.

There has been significant press coverage during fiscal 2023 regarding the issues stemming from the pilot shortages (namely flight cancellations and delays by the major carriers), with no airline being immune to the issues created by the pilot shortage or the associated negative press. We have taken important steps to further attract, hire and retain qualified pilots, including the implementation of significant pilot wage and bonus increases, pilot retention initiatives, increases in training capacity, and other cost efficiency initiatives. Since implementing these measures, attrition rates have returned to pre-covid levels, and we have been able to hire qualified pilots at a rate sufficient to fill available classroom training spaces. No assurance can be given that the measures we have taken or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

In August 2022, we entered into a Letter of Agreement with the Airline Pilots Association (“ALPA”), which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers. These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

In addition to the foregoing, our pilot premium wage and bonus initiatives have substantially increased our labor costs and continue to negatively impact our operations and financial condition. Other regional air carriers have implemented similar measures, which has only served to increase the competition for qualified pilots and the costs associated with hiring pilots. As part of our Amended and Restated United CPA, United has increased rates to cover our pilot pay increases instituted in September 2022. As such, these increased costs have not materially and adversely impact our financial condition and results of operations.

If the high levels of pilot attrition return and we are unable to attract, hire and retain pilots at a rate sufficient to support required utilization levels under our CPA, we may be required to issue credits or provide offsets to United, as we have done in the past, and to reduced flight schedules with United, which has resulted in and may continue to result in monetary performance penalties under our CPA, as well as give rise to the ability of United in certain circumstances to elect to remove aircraft from the scope of our CPA. Should any of these events arise in the future, they could have a material and adverse impact on our financial condition and results of operations.

Mechanic attrition, together with difficulty recruiting and retaining qualified maintenance technicians, may negatively affect our operations and financial condition.

Our operations rely on qualified personnel, including maintenance technicians. Our maintenance technicians may seek employment at mainline airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer. Should the turnover of maintenance technicians increase, we may not be able to hire sufficient maintenance technicians to replace those leaving. Additionally, FAA regulations regarding personnel certification and qualifications, and potential future changes in FAA regulations, could limit the number of qualified new entrants that we could hire. In the event we are unable to hire and retain qualified mechanics, our business and financial condition could be adversely affected.

Increases in our labor costs, which constitute a substantial portion of our total operating costs, may adversely affect our business, results of operations and financial condition.

As a result of the FAA Qualification Standards, the supply of qualified pilots has been dramatically reduced. This shortage of pilots has driven up our pilot salaries and sign-on bonuses and resulted in a material increase in our labor costs. A continued shortage of pilots could require us to further increase our labor costs, which could result in a material reduction in our earnings.

26


 

United may expand its direct operation of regional jets or seek other independent airlines to service their regional aircraft needs, thus limiting the expansion of our relationships with them.

We depend on United electing to contract with us instead of operating their own regional jets or operating their own "captive" regional airlines through wholly owned subsidiaries. Currently, the captive regional airlines include Endeavor (owned by Delta), Envoy (owned by American), PSA (owned by American), Piedmont (owned by American), and Horizon (owned by Alaska). These major airlines possess the financial and other resources to acquire and operate their own regional jets, create, or grow their own captive regional airlines, or acquire other regional air carriers instead of entering into contracts with us. We have no guarantee that in the future United will choose to enter into contracts with us, or renew their existing agreements with us, instead of operating their own regional jets, allocating flying to their captive regional airlines, or entering into relationships with competing regional airlines. A decision by United to phase out or limit our CPA or to enter into similar agreements with our competitors would have a material adverse effect on our business, financial condition, or results of operations.

We may be limited from expanding our flying within United flight systems and there are constraints on our ability to provide services to airlines other than United.

Additional growth opportunities within United's flight system are limited by various factors, including a limited number of independent regional aircraft that United can operate in its regional network due to "scope" clauses in the current collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots. Except as contemplated by our existing agreement, we cannot be sure that United will contract with us to fly any additional aircraft.

We may not have additional growth opportunities or may agree to modifications to our agreement that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons. Given the competitive nature of the airline industry, we believe limited growth opportunities may result in competitors accepting reduced margins and less favorable contract terms in order to secure new or additional capacity purchase operations. Even if we are offered growth opportunities by United, those opportunities may involve economic terms or financing commitments that are unacceptable to us. Additionally, United may reduce the number of regional jets in its system by not renewing or extending existing flying arrangements with regional operators or transitioning those flying arrangements to their own captive regional carriers. Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with United.

Additionally, our CPA limits our ability to provide regional flying services to other airlines in certain major airport hubs of United. These restrictions may make us a less attractive partner to other major airlines whose regional flying needs do not align with our geographical restrictions.

The residual value of our owned aircraft may be less than estimated in our depreciation policies.

As of September 30, 2023, we had approximately $698.0 million of property and equipment and related assets, net of accumulated depreciation, of which $569.9 million relates to owned aircraft. In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. In the event the estimated residual value of any of our aircraft types is determined to be lower than the residual value assumptions used in our depreciation policies, the applicable aircraft type in our fleet may be impaired and may result in a material reduction in the book value of applicable aircraft types we operate or we may need to prospectively modify our depreciation policies. An impairment on any of the aircraft types we operate or an increased level of depreciation expense resulting from a change to our depreciation policies could result in a material negative impact to our financial results. For our fiscal year ended September 30, 2023, we recognized approximately $50.6 million of impairment losses on our owned aircraft and related assets. See Note 8 – “Balance Sheet Information” in the notes to the audited

27


 

consolidated financial statements included in this Annual Report on Form 10-K for further discussion of our impairment of long-lived assets.

The amounts we receive under our agreements may be less than the corresponding costs we incur.

Under our CPA with United and FSA with DHL, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures and block hours flown). The primary operating costs intended to be compensated by the pre-determined rates include labor costs, including crew training costs, certain aircraft maintenance expenses and overhead costs. During our fiscal year ended September 30, 2023, approximately $77.5 million, or 13.4%, of our operating costs under our agreements were pass-through costs, excluding fuel which is paid directly to suppliers by our major partners. If our operating costs for labor, aircraft maintenance and overhead costs exceed the compensation earned from our pre-determined rates under our agreements, our financial position and operating results will be negatively affected. During our fiscal year ended September 30, 2023, the revenue received under our CPA was not adequate to cover all corresponding costs incurred.

Strikes, labor disputes and increased unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

As of September 30, 2023, approximately 63.1% of our workforce was represented by labor unions, including the Air Line Pilots Association, International ("ALPA") and the Association of Flight Attendants ("AFA"). In August 2022, we entered into a Letter of Agreement with the ALPA, which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers. These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

The inability to negotiate acceptable contracts with existing unions or with new unions could result in work stoppages by the affected workers, lost revenues resulting from the cancellation of flights and increased operating costs as a result of higher wages or benefits paid to union members. The terms and conditions of our future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can. In addition, if we are unable to reach agreement with any of our unionized work groups in future negotiations regarding the terms of their collective bargaining agreements, we may be subject to work interruptions, stoppages, or shortages. We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize. Our labor agreements with the ALPA and AFA are amendable as of September 30, 2023. We are also subject to various ongoing employment disputes outside of the collective bargaining agreements. We consider these disputes to not be material, but any current or future dispute could become material.

Relations between air carriers and labor unions in the United States are governed by the RLA. Under the RLA, collective bargaining agreements generally contain "amendable dates" rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the NMB. This process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have been released to "self-help" by the NMB. In most circumstances, the RLA prohibits strikes; however, after release by the NMB, carriers and unions are free to engage in self-help measures such as lockouts and strikes.

Any strike, labor dispute or increased unionization among our employees could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies. For example, if a labor strike were to continue for a specified number of consecutive days or longer, United may have cause to terminate the CPA. As a result, our business, results of operations and financial condition may be materially adversely affected.

We face tail risk in that we have aircraft lease commitments that extend beyond our existing contractual terms on certain aircraft.

We currently have aircraft with leases extending past the term of their corresponding agreement. We may not be successful in extending the flying contract terms on these aircraft with our major partners. In

28


 

that event, we intend to pursue alternative uses for those aircraft over the remaining portions of their leases including, but not limited to, operating the aircraft with another major airline under a negotiated CPA, subleasing the aircraft to another operator or marketing them for sale. Additionally, we may negotiate an early lease return agreement with an aircraft's lessor. In such event, we may incur cash and non-cash early lease termination costs that would negatively impact our operations and financial condition. Additionally, if we are unable to extend a flying contract with an existing major partner but reach an agreement to place an aircraft into service with a different major partner, we likely will incur inefficiencies and incremental costs, such as changing the aircraft livery, which would negatively impact our financial results. Furthermore, we have lease aircraft buyout obligations on certain aircraft due in March 2024 that we may not be able to meet. Our inability to meet such buyout obligations could have a material adverse effect on our business, results of operations, and financial condition.

We may incur substantial maintenance costs as part of our leased aircraft return obligations.

Our aircraft lease agreements contain provisions that require us to return aircraft airframes and engines to the lessor in a specified condition or pay an amount to the lessor based on the actual return condition of the equipment. These lease return costs are recorded in the period in which they are incurred. We estimate the cost of maintenance lease return obligations and accrue such costs over the remaining lease term when the expense is probable and can be reasonably estimated. Any unexpected increase in maintenance return costs may negatively impact our financial position and results of operations.

We may become involved in litigation that may materially adversely affect us.

From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including employment, commercial, product liability, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management's attention and resources, cause us to incur significant expenses or liability and/or require us to change our business practices. Because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, results of operations and financial condition.

Disagreements regarding the interpretation of our agreements with our major partners could have an adverse effect on our operating results and financial condition.

To the extent that we experience disagreements regarding the interpretation of our CPA or FSA, we will likely expend valuable management time and financial resources in our efforts to resolve those disagreements. Those disagreements may result in litigation, arbitration, settlement negotiations, or other proceedings. Furthermore, there can be no assurance that any or all of those proceedings, if commenced, would be resolved in our favor or that we would be able to exercise sufficient leverage in any proceeding relative to our major partner to achieve a favorable outcome. An unfavorable result in any such proceeding could have adverse financial consequences or require us to modify our operations. Such disagreements and their consequences could have an adverse effect on our operating results and financial condition.

We rely on third-party suppliers as the sole manufacturers of our aircraft and aircraft engines.

We depend upon MHI, Boeing, and Embraer as the sole manufacturers of our aircraft and GE as the sole manufacturer of our aircraft engines. Our operations could be materially and adversely affected by the failure or inability of MHI, Boeing, Embraer or GE to provide sufficient parts or related maintenance and support services to us in a timely manner, or the interruption of our flight operations as a result of unscheduled or unanticipated maintenance requirements for our aircraft or engines.

Maintenance costs will likely increase as the age of our jet fleet increases.

29


 

The average age of our E-175, CRJ-900, Boeing 737 and CRJ-700 type aircraft is approximately 7.9, 18.1, 30.0, and 16.4 years, respectively. We have incurred relatively low maintenance expenses on our E-175 aircraft because most of the parts are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our operating expenses, as our fleet ages and the E-175 warranties expire. In addition, because our current aircraft were acquired over a relatively short period of time, significant maintenance events scheduled for these aircraft will occur at roughly the same intervals, meaning we will incur our most expensive scheduled maintenance obligations across our present fleet at approximately the same time. These more significant maintenance activities will result in out-of-service periods during which aircraft are dedicated to maintenance activities and unavailable for flying under our agreements. Any unexpected increase in our maintenance costs as our fleet ages or decreased revenues resulting from out-of-service periods could have an adverse effect on our cash flows, operating results, and financial condition.

If we face problems with any of our third-party service providers, our operations could be adversely affected.

Our reliance upon others to provide essential services on behalf of our operations may limit our ability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including aircraft maintenance, ground facilities and IT services, and expect to enter into additional similar agreements in the future. In particular, we rely on AAR and Aviall to provide fixed-rate parts procurement and component overhaul services for our aircraft fleet and GE to provide engine support. Our agreements with AAR, and other service providers, are subject to termination after notice. If our third-party service providers terminate their contracts with us, or do not provide timely or consistently high-quality service, we may not be able to replace them in a cost-efficient manner or in a manner timely enough to support our operational needs, which could have a material adverse effect on our business, financial condition, and results of operations. In addition, our operations could be materially and adversely affected by the failure or inability of AAR, Aviall or GE to provide sufficient parts or related maintenance and support services to us in a timely manner.

Regulatory changes or tariffs could negatively impact our business and financial condition.

We import a substantial portion of the equipment we utilize in our operations. For example, the sole manufacturers of our regional aircraft, MHI and Embraer, are headquartered in Japan and Brazil, respectively. We cannot predict the impact of potential regulatory changes or action by U.S. regulatory agencies, including the potential impact of tariffs or changes in international trade treaties on the cost and timing of parts and aircraft. Our business may be subject to additional costs as a result of potential regulatory changes, which could have an adverse effect on our operations and financial results.

The issuance of operating restrictions applicable to one of the fleet types we operate could negatively impact our business and financial condition.

We rely on a limited number of aircraft types, including CRJ-700, CRJ-900, Boeing 737, and E-175 aircraft. The issuance of FAA or manufacturer directives restricting or prohibiting the use of the aircraft types we operate could negatively impact our business and financial results.

30


 

If we have a failure in our technology or security breaches of our information technology infrastructure our business and financial condition may be adversely affected.

The performance and reliability of our technology, and the technology of our major partners, are critical to our ability to compete effectively. Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as power, telecommunications, or the internet, may disrupt our internal network. Any individual, sustained or repeated failure of our technology or that of our major partners could impact our ability to conduct our business, lower the utilization of our aircraft and result in increased costs. Our technological systems and related data, and those of our major partners, may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues.

In addition, as a part of our ordinary business operations, we collect and store sensitive data, including personal information of our employees and information of our major partners. Our information systems are subject to an increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deception. The methods used to obtain unauthorized access, disable, or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time. We may not be able to prevent all data security breaches or misuse of data. The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, employees' or business partners' information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business and financial condition.

We are subject to various environmental and noise laws and regulations, which could have a material adverse effect on our business, results of operations and financial condition.

We are subject to increasingly stringent federal, state, local, and foreign laws, regulations and ordinances relating to the protection of the environment and noise, including those relating to emissions to the air, discharges (including storm water discharges) to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. We are or may be subject to new or proposed laws and regulations that may have a direct effect (or indirect effect through our third-party specialists or airport facilities at which we operate) on our operations. In addition, U.S. airport authorities are exploring ways to limit de-icing fluid discharges. Any such existing, future, new or potential laws and regulations could have an adverse impact on our business, results of operations, and financial condition.

Similarly, we are subject to environmental laws and regulations that require us to investigate and remediate soil or groundwater to meet certain remediation standards. Under certain laws, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of wastes directly attributable to us.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of September 30, 2023, we had aggregate federal and state net operating loss (“NOL”) carryforwards of approximately $562.6 million and $233.5 million, which expire in fiscal years 2027-2038 and 2022-2042, respectively. Approximately $194.2 million of our federal NOL carryforwards are not subject to expiration. Our unused losses generally carry forward to offset future taxable income, if any, until such unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. However, US federal net operating losses generated in fiscal years 2018 and forward are not subject to expiration and, if not utilized by fiscal 2023, are only available to offset eighty percent of taxable income

31


 

each year due to changes in tax law attributable to the passage of Tax Cuts and Jobs Act. In addition, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% cumulative change in the equity ownership of certain shareholders over a rolling three-year period) under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the corporation's ability to use its pre- change net operating loss carryforwards and other pre-change tax attributes to offset future taxable income or taxes may be limited. We have experienced ownership changes in the past and may experience ownership changes as a result of future changes in our stock ownership (some of which changes may not be within our control). This, in turn, could materially reduce or eliminate our ability to use our losses or tax attributes to offset future taxable income or tax and have an adverse effect on our future cash flows.

We may not be able to successfully implement our growth strategy.

Our growth strategy has historically included, among other things, providing regional flying to other airlines and/or entering into the cargo and express shipping business. We face numerous challenges in implementing this growth strategy in the future, including our ability to:

provide regional flying to other airlines with hub cities that overlap with our existing airline partners; and
enter into relationships with third parties to carry their cargo on terms that are acceptable to us.

Our United CPA limits our ability to provide regional flying services to other airlines in certain major airport hubs of United. These restrictions may make us a less attractive partner to other major airlines whose regional flying needs do not align with our geographical restrictions.

The potential benefits of entering the air cargo and express shipping sector will depend substantially on our ability to enter into additional relationships with integrated logistics companies and transition our existing business strategies into a new sector. We may be unsuccessful in entering into relationships with integrated logistics companies to carry cargo on terms that are acceptable to us. Additionally, our ability to transition our existing business strategies into a new sector may be costly, complex, and time-consuming, and our management will have to devote substantial time and resources to such effort. As we transition into this new sector, we may experience difficulties or delays in securing gate access and other airport services necessary to operate in the air cargo and express shipping sector. Our inability to successfully implement our growth strategies could have a material adverse effect on our business, financial condition, and results of operations and any assumptions underlying estimates of expected cost savings or expected revenues may be inaccurate.

We may not be able to make opportunistic acquisitions should we elect to do so as part of our growth strategy.

If we elect to pursue an acquisition, our ability to successfully implement this transaction would depend on a variety of factors, including the approval of our acquisition target's major partners, obtaining financing on acceptable terms and compliance with the restrictions contained in our debt agreements. If we need to obtain our lenders' consent prior to an acquisition, they may refuse to provide such consent or condition their consent on our compliance with additional restrictive covenants that limit our operating flexibility. Acquisition transactions involve risks, including those associated with integrating the operations or (as applicable) separately maintaining the operations, financial reporting, disparate technologies and personnel of acquired companies; managing geographically dispersed operations; the diversion of management's attention from other business concerns; unknown risks; and the potential loss of key employees. We may not successfully integrate any businesses we may acquire in the future and may not achieve anticipated revenue and cost benefits relating to any such transactions. Strategic transactions may be expensive, time consuming and may strain our resources. Strategic transactions may not be accretive to our earnings and may negatively impact our results of operations as a result of, among other things, the incurrence of debt, one-time write-offs of goodwill and amortization expenses of other intangible assets. In addition, strategic transactions that we may pursue could result in dilutive issuances of equity securities.

32


 

Our ability to obtain financing or access capital markets may be limited.

There are a number of factors that may limit our ability to raise financing or access capital markets in the future, including our significant debt and future contractual obligations, our liquidity and credit status, our operating cash flows, the market conditions in the airline industry, U.S. and global economic conditions, the general state of the capital markets and the financial position of the major providers of commercial aircraft financing. We cannot assure you that we will be able to source external financing for future aircraft acquisitions or for other significant capital needs, and if we are unable to source financing on acceptable terms, or unable to source financing at all, our business could be materially adversely affected. To the extent we finance our activities with additional debt, we may become subject to additional financial and other covenants that may restrict our ability to pursue our business strategy or otherwise constrain our growth and operations.

Negative publicity regarding our customer service could have a material adverse effect on our business, results of operations and financial condition.

Our business strategy includes the implementation of our major partners' brand and product in order to increase customer loyalty and drive future ticket sales. In addition, we also receive certain amounts under our United CPA upon the results of passenger satisfaction surveys. However, we may experience a high number of passenger complaints related to, among other things, our customer service. These complaints, together with delayed and cancelled flights, and other service issues, are reported to the public by the DOT. If we do not meet our major partners' expectations with respect to reliability and service, our and our major partners' brand and product could be negatively impacted, which could result in customers deciding not to fly with our major partners or with us. If we are unable to provide consistently high-quality customer service, it could have an adverse effect on our relationships with our major partners.

Risks associated with our presence in international emerging markets, including political or economic instability, and failure to adequately comply with existing legal requirements, may materially adversely affect us.

Some of our target growth markets include countries with less developed economies, legal systems, financial markets and business and political environments are vulnerable to economic and political disruptions, such as significant fluctuations in gross domestic product, interest and currency exchange rates, civil disturbances, government instability, nationalization and expropriation of private assets, trafficking and the imposition of taxes or other charges by governments. The occurrence of any of these events in markets served by us now or in the future and the resulting instability may have a material adverse effect on our business, results of operations and financial condition.

We emphasize compliance with all applicable laws and regulations and have implemented and continue to implement and refresh policies, procedures and certain ongoing training of our employees, third-party specialists and partners with regard to business ethics and key legal requirements; however, we cannot assure you that our employees, third-party specialists or partners will adhere to our code of ethics, other policies or other legal requirements. If we fail to enforce our policies and procedures properly or maintain adequate recordkeeping and internal accounting practices to record our transactions accurately, we may be subject to sanctions. In the event we believe or have reason to believe our employees, third-party specialists or partners have or may have violated applicable laws or regulations, we may incur investigation costs, potential penalties and other related costs which in turn may materially adversely affect our reputation and could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Industry

The outbreak and global spread of COVID-19 beginning in our 2020 fiscal year resulted in a severe decline in demand for air travel, which has adversely impacted the business of our major partners, and in turn has had an adverse impact that has been material to our business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition, and liquidity.

33


 

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential major partners.

The airline industry is highly competitive. We compete primarily with other regional airlines, some of which are owned by or operated by major airlines. In certain instances, our competitors are larger than us and possess significantly greater financial and other resources than we do. The airline industry has undergone substantial consolidation, including the mergers between Alaska Airlines and Virgin America Inc. in 2016, American and US Airways in 2013, Southwest Airlines Co. and AirTran Airways in 2011, United and Continental Airlines in 2010 and Delta and Northwest Airlines in 2008. Any additional consolidation or significant alliance activity within the airline industry could further limit the number of potential partners with whom we could enter into CPAs.

We are subject to significant governmental regulation.

All interstate air carriers, including us, are subject to regulation by the DOT, the FAA and other governmental agencies, as described in “Item 1. Government Regulation.” We cannot predict whether we will be able to comply with all present and future laws, rules, regulations, and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules, and regulations to which we are subject. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations and require that we incur substantial on-going costs.

Airlines are often affected by factors beyond their control, including: air traffic congestion at airports; air traffic control inefficiencies; adverse weather conditions, such as hurricanes or blizzards; increased security measures; new travel-related taxes; or the outbreak of disease; any of which could have a material adverse effect on our business, results of operations, and financial condition.

Like other airlines, our business is affected by factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, increased security measures, new travel-related taxes and fees, adverse weather conditions, natural disasters, and the outbreak of disease. Factors that cause flight delays frustrate passengers and increase operating costs and decrease revenues, which in turn could adversely affect profitability. The federal government singularly controls all U.S. airspace, and airlines are completely dependent on the FAA to operate that airspace in a safe, efficient, and affordable manner. The air traffic control system, which is operated by the FAA, faces challenges in managing the growing demand for U.S. air travel. U.S. and foreign air-traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes resulting in delays. In addition, there are currently proposals before Congress that could potentially lead to the privatization of the United States' air traffic control system, which could adversely affect our business. Further, implementation of the Next Generation Air Transport System by the FAA would result in changes to aircraft routings and flight paths that could lead to increased noise complaints and lawsuits, resulting in increased costs. There are additional proposals before Congress that would treat a wide range of consumer protection issues, including, among other things, proposals to regulate seat size, which could increase the costs of doing business.

Adverse weather conditions and natural disasters, such as hurricanes, winter snowstorms, or earthquakes, can cause flight cancellations or significant delays. Cancellations or delays due to adverse weather conditions or natural disasters, air traffic control problems or inefficiencies, breaches in security or other factors may affect us to a greater degree than other, larger airlines that may be able to recover more quickly from these events, and therefore could have a material adverse effect on our business, results of operations, and financial condition to a greater degree than other air carriers. Any general reduction in airline passenger traffic could have a material adverse effect on our business, results of operations, and financial condition.

34


 

Terrorist activities or warnings have dramatically impacted the airline industry and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations. If additional terrorist attacks are launched against the airline industry, there will be lasting consequences of the attacks, which may include loss of life, property damage, increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security. We cannot provide any assurance that these events will not harm the airline industry generally or our operations or financial condition in particular.

The occurrence of an aviation accident involving our aircraft would negatively impact our operations and financial condition.

An accident or incident involving our aircraft could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the event of an accident, our liability insurance may not be adequate to offset our exposure to potential claims and we may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines.

Risks Related to Owning Our Common Stock

We are currently not in compliance with the Nasdaq continued listing requirements. If we are unable to regain compliance with Nasdaq’s listing requirements, our securities could be delisted, which could affect our common stock’s market price and liquidity and reduce our ability to raise capital.

On November 3,2023, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer meet Nasdaq Listing Rule 5450(a)(1), which requires listed companies to maintain a minimum bid price of at least $1.00 per share.

Nasdaq Listing Rule 5810(c)(3)(A) provides a compliance period of 180 calendar days, or until May 1, 2024, in which to regain compliance with the minimum bid price requirement. If we evidence a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days during the 180-day compliance period, we will automatically regain compliance. In the event we do not regain compliance with the $1.00 bid price requirement by May 1, 2024, we may be eligible for consideration of a second 180-day compliance period. To qualify for this additional compliance period, the Company would be required to transfer the listing of the common stock to the Nasdaq Capital Market. To qualify, the Company must meet the continued listing requirement for the applicable market value of publicly held shares requirement and all other applicable initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement. In addition, the Company would also be required to notify Nasdaq of its intent to cure the minimum bid price deficiency.

If we fail to regain compliance with the Nasdaq continued listing standards, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel.

The notification has no immediate effect on the listing of our common stock on Nasdaq. We intend to monitor the closing bid price of our common stock and consider our available options in the event the closing bid price of our common stock remains below $1.00 per share.

We cannot assure you that we will be able to regain compliance with Nasdaq listing standards. Our failure to continue to meet the minimum bid requirement would result in our common stock being delisted

35


 

from Nasdaq. We and holders of our securities could be materially adversely impacted if our securities are delisted from Nasdaq. In particular:

we may be unable to raise equity capital on acceptable terms or at all;
we may lose the confidence of our customers, which would jeopardize our ability to continue our business as currently conducted;
the price of our common stock will likely decrease as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws;
holders may be unable to sell or purchase our securities when they wish to do so;
we may become subject to stockholder litigation;
we may lose the interest of institutional investors in our common stock;
we may lose media and analyst coverage;
our common stock could be considered a “penny stock,” which would likely limit the level of trading activity in the secondary market for our common stock; and
we would likely lose any active trading market for our common stock, as it may only be traded on one of the over-the-counter markets, if at all.

 

The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including: (i) announcements concerning our major partners, competitors, the airline industry, or the economy in general; (ii) strategic actions by us, our major partners, or our competitors, such as acquisitions or restructurings; (iii) media reports and publications about the safety of our aircraft or the types of aircraft we operate; (iv) new regulatory pronouncements and changes in regulatory guidelines; (v) announcements concerning the availability of the types of aircraft we use; (vi) significant volatility in the market price and trading volume of companies in the airline industry; (vii) changes in financial estimates or recommendations by securities analysts or failure to meet analysts' performance expectations; (viii) sales of our common stock or other actions by insiders or investors with significant shareholdings, including sales by our principal shareholders; and (ix) general market, political and other economic conditions; and (x) in response to the risk factors described in this Annual Report on Form 10-K.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. Broad market fluctuations may materially adversely affect the trading price of our common stock. In the past, shareholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management's attention and resources, and have a material adverse effect on our business, results of operations and financial condition.

If securities or industry analysts do not publish research or reports about our business or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities and industry analysts may publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the trading price of our common stock would likely decline. If one or more of these analysts ceases to cover our company or fails to publish reports on us regularly, demand for our stock could decrease, which may cause the trading price of our common stock and the trading volume of our common stock to decline.

The value of our common stock may be materially adversely affected by additional issuances of common stock underlying our outstanding warrants.

36


 

As of September 30, 2023, we had outstanding warrants to purchase an aggregate of 4,899,497 shares of our common stock, all of which were issued to the U.S. Treasury pursuant to the terms of the Loan and Guarantee Agreement dated October 30, 2020. The warrants have a term of five years from the date of issuance and an initial exercise price of $3.98 per share. Any future warrant exercises by the U.S. Treasury, or any authorized transferee of the U.S. Treasury, will be dilutive to our existing common shareholders. Sales of substantial amounts of our common stock in the public or private market, a perception in the market that such sales could occur, or the issuance of securities exercisable into our common stock, could adversely affect the prevailing price of our common stock.

Provisions in our charter documents might deter acquisition bids for us, which could adversely affect the price of our common stock.

Our second amended and restated articles of incorporation and amended and restated bylaws contain provisions that, among other things:

authorize our Board of Directors, without shareholder approval, to designate and fix the voting powers, designations, preferences, limitations, restrictions, and relative rights of one or more series of preferred stock so designated, or right to acquire such preferred stock;
dilute the interest of, or impair the voting power of, holders of our common stock and could also have the effect of discouraging, delaying, or preventing a change of control;
establish advance notice procedures that shareholders must comply with in order to nominate candidates to our Board of Directors and propose matters to be brought before an annual or special meeting of our shareholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of our company;
authorize a majority of our Board of Directors to appoint a director to fill a vacancy created by the expansion of our Board of Directors or the resignation, death or removal of a director, which may prevent shareholders from being able to fill vacancies on our Board of Directors;
restrict the number of directors constituting our Board of Directors to within a set range, and give our Board of Directors exclusive authority to increase or decrease the number of directors within such range, which may prevent shareholders from being able to fill vacancies on our Board of Directors; and
restrict the ability of shareholders to call special meetings of shareholders.

Our corporate charter includes provisions limiting ownership by non-U.S. citizens.

To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our second amended and restated articles of incorporation restrict the ownership and voting of shares of our common stock by people and entities who are not "citizens of the United States" as that term is defined in 49 U.S.C. § 40102(a). That statute defines "citizen of the United States" as, among other things, a U.S. corporation, of which the president and at least two-thirds of the board of directors and other managing officers are individuals who are citizens of the United States, which is under the actual control of citizens of the United States and in which at least 75% of the voting interest is owned or controlled by persons who are citizens of the United States. Our second amended and restated articles of incorporation prohibit any non-U.S. citizen from owning or controlling more than 24.9% of the aggregate votes of all outstanding shares of our common stock or 49.0% of the total number of outstanding shares of our capital stock. The restrictions imposed by the above-described ownership caps are applied to each non-U.S. citizen in reverse chronological order based on the date of registration on our foreign stock record. At no time may shares of our capital stock held by non-U.S. citizens be voted unless such shares are reflected on the foreign stock record. The voting rights of non-U.S. citizens having voting control over any shares of our capital stock are subject to automatic suspension to the extent required to ensure that we are in compliance with applicable law. In the event any transfer or issuance of shares of our capital stock to a non-U.S. citizen would result in non-U.S. citizens owning more than the above-described cap amounts, such transfer or issuance will be void and of no effect.

37


 

As of September 30, 2023, we had outstanding warrants to purchase 4,899,497 shares of our common stock, all of which were held by the U.S. Treasury. We are currently in compliance with all applicable foreign ownership restrictions.

Our corporate charter limits certain transfers of our stock, which limits are intended to preserve our ability to use our net operating loss carryforwards, and these limits could have an effect on the market price and liquidity of our common stock.

To reduce the risk of a potential adverse effect on our ability to use our net operating loss carryforwards for federal income tax purposes, our second amended and restated articles of incorporation prohibit the transfer of any shares of our capital stock that would result in (i) any person or entity owning 4.75% or more of our then-outstanding capital stock, or (ii) an increase in the percentage ownership of any person or entity owning 4.75% or more of our then-outstanding capital stock. These transfer restrictions expire upon the earliest of (i) the repeal of Section 382 of the Code or any successor statute if our Board of Directors determines that such restrictions are no longer necessary to preserve our ability to use our net operating loss carryforwards, (ii) the beginning of a fiscal year to which our Board of Directors determines that no net operating losses may be carried forward, or (iii) such other date as determined by our Board of Directors. These transfer restrictions apply to the beneficial owner of the shares of our capital stock. The clients of an investment advisor are treated as the beneficial owners of stock for this purpose if the clients have the right to receive dividends, if any, the power to acquire or dispose of the shares of our capital stock, and the right to proceeds from the sale of our capital stock. Certain transactions approved by our Board of Directors, such as mergers and consolidations meeting certain requirements set forth in our articles of incorporation, are exempt from the above-described transfer restrictions. Our Board of Directors also has the ability to grant waivers, in its discretion, with respect to transfers of our stock that would otherwise be prohibited.

The transfer restrictions contained in our second amended and restated articles of incorporation may impair or prevent a sale of common stock by a shareholder and may adversely affect the price at which a shareholder can sell our common stock. In addition, this limitation may have the effect of delaying or preventing a change in control of the Company, creating a perception that a change in control cannot occur or otherwise discouraging takeover attempts that some shareholders may consider beneficial, which could also adversely affect the market price of our common stock. We cannot predict the effect that this provision in our second amended and restated articles of incorporation may have on the market price of our common stock.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We have not historically paid dividends on shares of our common stock and do not expect to pay dividends on such shares in the foreseeable future. Additionally, our United CPA, certain of our aircraft lease facilities, and our loan with the U.S. Treasury contain restrictions that limit our ability to or prohibit us from paying dividends to holders of our common stock. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our results of operations, financial condition, capital requirements, restrictions contained in current or future leases and financing instruments, business prospects and such other factors as our Board of Directors deems relevant, including restrictions under applicable law. Consequently, your only opportunity to achieve a positive return on your investment in us will be if the market price of our common stock appreciates.

General Risk Factors

The requirements of being a public company may strain our resources, increase our operating costs, divert management's attention, and affect our ability to attract and retain qualified board members or executive officers.

We became a public company in August 2018. As a public company, we incur significant legal, accounting, and other expenses, including costs associated with public company reporting requirements.

38


 

We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the SEC and the Nasdaq Global Select Market. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly and divert management's time and attention from revenue-generating activities to compliance activities. It could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

We are required to assess our internal control over financial reporting on an annual basis, and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports, result in significant expenses to remediate any internal control deficiencies and have a material adverse effect on our business, results of operations and financial condition.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for our fiscal year ended September 30, 2023 and each subsequent year. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. As of August 10, 2023, we are no longer an "emerging growth company," as defined in the JOBS Act. As such, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting and we are required to disclose, to the extent material, changes made in our internal control over financial reporting on a quarterly basis.

To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff. Management assessed the effectiveness of our internal control over financial reporting at September 30, 2023. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting as of September 30, 2023.

In future periods, if we fail to achieve and maintain an effective internal control environment, it could result in material misstatements in our financial statements and failure to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information and adversely impact our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

None.

39


 

ITEM 2. PROPERTIES

Flight Equipment

As of September 30, 2023, our aircraft fleet consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passenger

 

Flight

 

 

Cruising

 

 

Average

 

Aircraft Type

 

Owned

 

 

Leased

 

 

Total

 

 

Capacity

 

Range (miles)

 

 

Speed (mph)

 

 

Age (years)

 

E-175 Regional Jet

 

 

18

 

 

 

42

 

 

 

60

 

 

70-76

 

 

2,100

 

 

 

530

 

 

 

7.9

 

CRJ-900 Regional Jet

 

 

54

 

 

 

 

 

 

54

 

 

76-79

 

 

1,500

 

 

 

530

 

 

 

18.1

 

CRJ-700 Regional Jet

 

 

 

 

 

2

 

 

 

2

 

 

50-70

 

 

1,600

 

 

 

530

 

 

 

16.4

 

Boeing 737 Cargo Jet

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

2,600

 

 

 

530

 

 

 

30.0

 

Total

 

 

72

 

 

 

48

 

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

Several factors impact our fleet size, including contract expirations, lease expirations, growth opportunities and opportunities to transition to an alternative airline partner. Below is a summary of our fleet by aircraft type. Our actual future fleet size and mix of aircraft types will likely vary, and may vary materially, from our current fleet size.

E-175s – As of September 30, 2023, we operated 54 E-175 aircraft under our United CPA. As part of our Amended and Restated United CPA, we agreed to extend the term of 42 of our E-175 aircraft (owned by United) for an additional five years which will now expire between 2024 and 2028, subject to United's early termination rights. United also has the right to extend the term of these aircraft for four additional three-year increments. In addition, 18 of the E-175 aircraft (owned by us) operating under our United CPA expire between January 2028 and November 2028, subject to United's early termination rights. Our United CPA permits United, subject to certain conditions, including the payment of certain costs tied to aircraft type, to terminate the United CPA in its discretion, or remove aircraft from service, by giving us 90 days’ notice.
CRJ-900s – As of September 30, 2023, we operated 26 CRJ-900 aircraft under our United CPA and 28 CRJ-900 aircraft as operational spares. As part of our Amended and Restated United CPA, we may operate up to 38 CRJ-900 aircraft on behalf of United, dependent on the number of E-175 aircraft we are operating.
CRJ-700s – As of September 30, 2023, our fleet included two CRJ-700 aircraft which were leased to a third party.
Boeing 737 Cargo Jets – As of September 30, 2023, we leased one Bowing 737 aircraft from a third party and subleased three Boeing 737 aircraft from DHL under our DHL FSA. The DHL FSA expires five years from the commencement date of the first aircraft placed into service. The first revenue generating flight took place in October 2020.

40


 

Facilities

In addition to aircraft, we have office and maintenance facilities to support our operations. Each of our facilities are summarized in the following table:

Type

 

Location

 

Ownership

 

Approximate
Square Feet

 

Corporate Headquarters

 

Phoenix, Arizona

 

Leased

 

 

33,770

 

Training Center

 

Phoenix, Arizona

 

Leased

 

 

23,783

 

Parts/Stores

 

Phoenix, Arizona

 

Leased

 

 

12,000

 

Hangar

 

Phoenix, Arizona

 

Leased

 

 

22,467

 

Office, Hangar and Warehouse

 

El Paso, Texas

 

Leased

 

 

31,292

 

Parts Storage

 

Dallas, Texas

 

Leased

 

 

8,143

 

Hangar

 

Houston, Texas

 

Leased

 

 

74,524

 

Hangar

 

Louisville, Kentucky

 

Leased

 

 

26,762

 

Hangar

 

Dulles, Washington

 

Leased

 

 

28,451

 

Cargo Building

 

Dulles, Washington

 

Leased

 

 

1,475

 

Warehouse

 

Tucson, Arizona

 

Leased

 

 

13,276

 

Warehouse, Office

 

Erlanger, Kentucky

 

Leased

 

 

7,070

 

We believe our facilities are suitable and adequate for our current and anticipated needs.

We are subject to certain legal actions which we consider routine to our business activities. As of September 30, 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.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

41


 

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has traded on The Nasdaq Global Select Market under the symbol "MESA" since August 10, 2018. Prior to that date, there was no public market for our common stock.

Holders of Record

As of December 26, 2023, there were approximately 84 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, as a result, we are unable to estimate the total number of stockholders represented by these record holders.

The transfer agent and registrar for our common stock is ComputerShare Trust Company, N.A.

Dividends

We have not declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any cash dividends on our common stock for the foreseeable future. Additionally, our United CPA, certain of our aircraft lease facilities, and our loan with the U.S. Treasury contain restrictions that limit our ability to or prohibit us from paying dividends to holders of our common stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors, subject to applicable laws and financial covenants, and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our Board of Directors considers relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item with respect to our equity compensation plans is incorporated by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders ("2024 Proxy Statement") to be filed with the SEC within 120 days of our fiscal year ended September 30, 2023.

 

42


 

Stock Performance Graph

The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

The following graph compares the cumulative total return on our common stock with that of the Nasdaq Stock Market (U.S. Companies) and the Nasdaq Stock Market Transportation Index. The period shown commences on July 31, 2019, and ends on September 30, 2023, the end of our fiscal year. The graph assumes an investment of $100.00 in each of the above on the close of market on July 31, 2019. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.

 

img114637740_0.jpg 

 

This performance graph is not deemed to be incorporated by reference into any of our other filings under the Exchange Act, or the Securities Act, except to the extent we specifically incorporate it by reference into such filings.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the three months ended September 30, 2023, the Company repurchased a total of 10,443 shares of its common stock for $17 thousand to cover the income tax obligation on vested employee equity awards. The Company repurchased a total of 204,486 shares of its common stock for $0.4 million to cover the income tax obligation on vested employee equity awards during the fiscal year ended September 30, 2023.

43


 

ITEM 6. [RESERVED]

44


 

ITEM 7. 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 consolidated financial statements, the accompanying notes, and the other financial information included elsewhere in this Annual Report on Form 10-K. 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 those differences in our actual results include, but are not limited to, those discussed below and those discussed elsewhere in this Annual Report on Form 10-K, particularly in the sections "Cautionary Notes Regarding Forward-Looking Statements" and Part I, Item 1A. "Risk Factors" above.

Overview

Mesa Airlines is a regional air carrier providing scheduled passenger service to 86 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico, as well as cargo services out of Cincinnati/Northern Kentucky International Airport. All of our flights are operated as either United Express or DHL Express flights pursuant to the terms of capacity purchase agreement ("CPA") with United and a flight services agreement ("FSA") with DHL. Prior to the wind-down and termination of our CPA with American Airlines, Inc. ("American") on April 3, 2023, we also operated flights as American Eagle. We have a significant presence in several of United's key domestic hubs including Houston and Washington-Dulles.

Under the United CPA and DHL FSA, we operated or maintained as operational spares a fleet of 120 aircraft with approximately 296 daily departures as of September 30, 2023. During 2022, we committed to a formal plan to sell certain of our CRJ-900 aircraft. We had 11 CRJ-900 aircraft, eight CRJ-700 aircraft, and one CRJ-200 aircraft remaining as held for sale from the fiscal year ended September 30, 2022, and classified 14 CRJ-900 aircraft as assets held for sale during the fiscal year ended September 30, 2023. We completed the sale of seven CRJ-900 aircraft, eight CRJ-700 aircraft, and one CRJ-200 aircraft remaining from fiscal year 2022 during the fiscal year ended September 30, 2023. Additionally, we completed the sale of three CRJ-900 aircraft that were classified as held for sale during the fiscal year ended September 30, 2023, and 15 CRJ-900 aircraft remained as assets held for sale as of September 30, 2023. We also leased two CRJ-700 aircraft to a third party during the fiscal year. We operated 40 CRJ-900 aircraft under our American CPA prior to the wind-down and termination of the CPA on April 3, 2023 and a mix of 20 E-175LL, 60 E-175, and 24 CRJ-900 aircraft under our United CPA. We operate three Boeing 737-400F and one 737-800 aircraft under the DHL FSA. As of September 30, 2023, approximately 95% of our aircraft in scheduled service were operated for United, and 5% were operated for DHL. All our operating revenue in our 2023, 2022, and 2021 fiscal years were derived from operations associated with our American and United CPAs, DHL FSA, and from leases of aircraft to a third party.

Our long-term agreements provide us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour and flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying and cargo services on behalf of our major partners. Our CPAs and FSAs also shelter 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 CPAs, and cargo flight services under our FSA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of our major partners. United controls route selection, pricing, seat inventories, marketing, and scheduling, and provides 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 block hour guarantee in exchange for providing cargo services. Ground support including fueling and airport fees are paid directly by DHL.

45


 

Glossary of Airline Terms

Set forth below is a glossary of industry terms used in this Annual Report on Form 10-K:

"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.

"DOT" means the United States Department of Transportation.

"FAA" means the United States Federal Aviation Administration.

"FTE" means full-time equivalent employee.

"Load factor" means the percentage of aircraft seat miles actually occupied on a flight (RPMs divided by ASMs).

"NMB" means the National Mediation Board.

"Pass-through and other revenue" means costs from our major partners under our agreements that we equally recognize as both a revenue and an expense, including passenger and hull insurance, aircraft property taxes, landing fees, catering and certain maintenance costs related to our E-175 aircraft.

"Revenue Passenger Miles" or "RPMs" means the number of miles traveled by paying passengers.

"TSA" means the United States Transportation Security Administration.

"Utilization" means the percentage derived from dividing (i) the number of block hours actually flown during a given month under a particular CPA by (ii) the maximum number of block hours that could be flown during such month under the particular CPA.

2023 Financial Highlights

For our fiscal year ended September 30, 2023, we had total operating revenues of $498.1 million, a 6.2% decrease, compared to $531.0 million for our fiscal year ended September 30, 2022. Net loss for our fiscal year ended September 30, 2023 was $120.1 million, or $3.04 per diluted share, compared to net loss of $182.7 million, or $5.06 per diluted share, for our fiscal year ended September 30, 2022.

During our fiscal year ended September 30, 2023, our completed block hours decreased by 82,564, or 30.4%, compared to our fiscal year ended September 30, 2022.

46


 

Industry Trends

We believe our operating and business performance is driven by various factors that typically affect regional airlines and their markets, including trends which affect the broader airline and travel industries, though the terms of our CPA and FSA reduce our exposure to fluctuations in certain trends. The following key factors may materially affect our future performance.

Availability and Training of Qualified Pilots. On July 8, 2013, as directed by the U.S. Congress, the FAA issued more stringent pilot qualification and crew member flight training standards, which, among other things, increased the required training time for new airline pilots from 250 hours to 1,500 hours of flight time. With these changes, the supply of qualified pilot candidates eligible for hiring by the airline industry has been dramatically reduced. To address the diminished supply of qualified pilot candidates, regional airlines implemented significant pilot wage and bonus increases.

In more recent periods, our pilots continue to be recruited by other carriers, primarily the major carriers and heavy equipment cargo operators, which generally offer higher salaries and more extensive benefit programs. The magnitude of this attrition in fiscal 2022 created significant backlogs in training, further exacerbating an already challenging environment. These events have had, and continue to have a negative impact on pilot scheduling, work hours, and the number of pilots required to support our operations.

In August 2022, we entered into a Letter of Agreement with the Airline Pilots Association (“ALPA”), which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers. These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

To further address the diminished supply of qualified pilots, we launched the Mesa Pilot Development Program (“MPD”). As part of this program, on September 22, 2022, we purchased 29 Pipistrel Alpha Trainer 2 aircraft. We purchased an additional 25 Pipistrel Alpha Trainer 2 aircraft during the year ended September 30, 2023. This new fleet is the backbone of the MPD program, with pilots being provided with the opportunity to accumulate up to 1,500 flight hours required to fly a commercial aircraft at Mesa Airlines. Flight costs of $50 per hour, per pilot, will be fully financed by us with zero interest, providing no upfront out-of-pocket expense for flight time while the candidate is accruing the required hours to earn their Airline Transport Pilot (“ATP”) certificate. As part of candidates’ commitment to flying for Mesa Airlines, flight costs will be repaid over three years during the term of their employment.

No assurance can be given that the measures we are currently taking or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

Pilot and Mechanic Attrition. In recent years, we have experienced significant volatility in our attrition as a result of pilot wage and bonus increases at other regional air carriers, the growth of cargo, low-cost and ultra-low-cost carriers, and the number of pilots at major airlines reaching the statutory mandatory retirement age of 65 years. If our actual pilot attrition rates are materially different than our projections, our operations and financial results could be materially and adversely affected. Although we target maintenance staffing levels above our projected needs in order to account for attrition, which is widespread in the industry, from time to time we have experienced attrition with our maintenance technicians, who have the option to seek employment at mainline airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer. Attrition of maintenance technicians has sometimes required us to supplement our staff with qualified temporary employees.

As discussed generally above, we implemented a new pay structure whereby as of September 15, 2022, we offer starting wages of $100 an hour for entry-level first officers, and $150 an hour for first-year captains while captains with 20 years of experience will be paid $215 an hour to remain competitive and attract and retain experienced, qualified pilots.

47


 

Economic Conditions, Challenges and Risks

Market Volatility. The airline industry is volatile and affected by economic cycles and trends. Consumer confidence and discretionary spending, spread of a virus, fear of terrorism or war, weakening economic conditions, fare initiatives, fluctuations in fuel prices, labor actions, changes in governmental regulations on taxes and fees, weather and other factors have contributed to a number of reorganizations, bankruptcies, liquidations, and business combinations among major and regional airlines. The effect of economic cycles and trends may be somewhat mitigated by our reliance on CPAs. If, however, United experiences a prolonged decline in the number of passengers or is negatively affected by low ticket prices or high fuel prices, it may seek rate reductions in future CPAs, or materially reduce our scheduled flights in order to reduce its costs. Our financial performance could be negatively impacted by any adverse changes to the rates, number of aircraft or utilization under our CPA.

Labor. The airline industry is heavily unionized. The wages, benefits and work rules of unionized airline industry employees are determined by collective bargaining agreements. As of September 30, 2023, approximately 63.1% of our workforce was represented by the ALPA and AFA. In August 2022, we entered into a three-year Letter of Agreement with ALPA, which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers. These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level. In September 2022, we entered into a Letter of Agreement with AFA to extend the term of our agreement by two years. Our extension with AFA provided, among other things, an increase in compensation for our flight attendants. The terms and conditions of our future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can. In addition, conflicts between airlines and their unions can lead to work slowdowns or stoppages. A strike or other significant labor dispute with our unionized employees may adversely affect our ability to conduct business.

Impact of Pilot Shortage. During our twelve months 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 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 and incurred penalties for operational shortfalls under our CPAs. During the twelve months ended September 30, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $24.1 million and net loss of $120.1 million including a non-cash impairment charge of $54.3 million related to the Company designating 14 CRJ-900 aircraft as held for sale and our customer relationship intangible asset. These conditions and events raised substantial doubt about our ability to continue to fund our operations and meet our debt obligations over the next twelve months.

 

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 year ended September 30, 2023, and through the date of the issuance of the financial statements.

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.
We entered into an agreement to sell 11 CRJ-900 aircraft to a third party. The Company has closed the sale of seven of the aircraft which generated $21.0 million in gross proceeds and

48


 

approximately $1.5 million in net proceeds after partial debt reduction on the UST Loan. Subsequent to September 30, 2023, we closed the sale of the remaining four CRJ-900 aircraft to the 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 of our UST Loan.
We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on seven CRJ-900 aircraft which began January 2023 through December 2024, providing approximately $14.0 million of liquidity. Additionally, the junior noteholder, MHIRJ, agreed to forgive approximately $5.0 million in principal contingent upon the repayment of $4.2 million in principal by December 31, 2023.
We entered into an agreement to sell seven surplus CRJ-900 aircraft to American. The Company has closed the sale of three of the aircraft which generated approximately $29.7 million in gross proceeds and approximately $2.4 million in net proceeds after partial debt reduction. Subsequent to September 30, 2023, the Company closed the sale of the remaining 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. $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.
We established and drew upon a new line of credit with United totaling $25.5 million. 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 flown as well as maintaining a 99.3% controllable completion factor ("CCF") over any rolling four-month period from April 2023 through December 2024. As of November 2023, the foregoing milestones have been achieved for such rolling four-month period. As a result, $9 million of the $15 million will be deemed prepaid one business day following the repayment of the Effective Date Bridge Loan discussed elsewhere herein. We consider it likely that we will achieve additional forgiveness in fiscal year 2024. Subsequently, this facility was amended to permit the Company to re-draw approximately $7.9 million of the Effective Date Bridge Loan previously repaid and increased the amount of Revolving Commitments from $30.7 million to $50.7 million. See Note 10 for a discussion of the line of credit and amount drawn as well as discussion on the deemed prepayment.
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:
o
Increased CPA rates, retroactive to October 1, 2023 through December 31, 2024, which are projected to generate approximately $63.5 million in incremental revenue over the next twelve months.
o
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.
o
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 United 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:
o
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,

49


 

assignment, or transfer of the Company's vested investment in Heart Aerospace Incorporated.
o
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.
o
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.
o
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.
o
Loan payment 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 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. The gross proceeds of $56.0 million will be used to retire approximately $40.0 million in associated debt and provide additional liquidity to fund operations and current debt obligations as they come due. The transaction is expected to close by the end of March 2024.
Subsequent to September 30, 2023, we entered into a purchase agreement with a third party which provides for the sale of 23 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 substantial doubt and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements. 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.

Competition. The airline industry is highly competitive. We compete principally with other regional airlines. Major airlines typically award CPAs to regional airlines based on the following criteria: ability to fly contracted schedules, availability of labor resources including pilots, low operating cost, financial resources, geographical infrastructure, overall customer service levels relating to on-time arrival and flight completion percentages, and the overall image of the regional airline. Our ability to renew our existing agreements and earn additional flying opportunities in the future will depend, in significant part, on our ability to maintain a low-cost structure competitive with other regional air carriers.

Maintenance Contracts, Costs and Timing. Our employees perform routine airframe and engine maintenance along with periodic inspections of equipment at their respective maintenance facilities. We also use third-party vendors, such as AAR, Aviall, MHI, GE, and StandardAero, for certain heavy airframe and engine maintenance work, along with parts procurement and component overhaul services for our aircraft fleet. As of September 30, 2023, $59.8 million of parts inventory was consigned to us by AAR and Aviall under long-term contracts that is not reflected in our consolidated balance sheet.

50


 

The average age of our E-175, CRJ-900, Boeing 737, and CRJ-700 type aircraft is approximately 7.9, 18.1, 30.0, and 16.4 years, respectively. Due to the relatively young age of our E-175 aircraft, they require less maintenance now than they will in the future. In prior periods, we incurred relatively low maintenance expenses on our E-175 aircraft because most of the parts are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. As our E-175 aircraft age and these warranties expire, we expect that maintenance costs will increase in absolute terms and as a percentage of revenue. In addition, because our current aircraft were acquired over a relatively short period of time, significant maintenance events scheduled for these aircraft will occur at roughly the same intervals, meaning we will incur our most expensive scheduled maintenance obligations across our present fleet at approximately the same time. These more significant maintenance activities result in out-of-service periods during which aircraft are dedicated to maintenance activities and unavailable for flying under our CPA.

We use the direct expense method of accounting for our maintenance of regional jet engine overhauls, airframe, auxiliary power units and landing gear for the majority of our fleets, with the exception of Mesa-owned 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. Normal recurring maintenance is expensed when the maintenance work is completed, or over the repair period, if materially different. Our maintenance policy is determined by fleet when major maintenance is incurred. While we keep a record of expected maintenance events, the actual timing and costs of major engine maintenance expense are subject to variables such as estimated usage, government regulations and the level of unscheduled maintenance events and their actual costs. Accordingly, we cannot reliably quantify the costs or timing of future maintenance-related expenses for any significant period of time.

Aircraft Leasing and Finance Determinations. We have generally funded aircraft acquisitions through a combination of operating leases and debt financing. Our determination to lease or finance the acquisition of aircraft may be influenced by a variety of factors, including the preferences of our major partners, the strength of our balance sheet and credit profile and those of our major partners, the length and terms of the available lease or financing alternatives, the applicable interest rates, and any lease return conditions. When possible, we prefer to finance aircraft through debt rather than operating leases, due to lower operating costs, extended depreciation period, opportunity for aircraft equity, absence of lease return conditions and greater flexibility in renewing the aircraft under our CPA with our major partner after paying off the principal balance.

Subsequent to the initial acquisition of an aircraft, we may also refinance the aircraft or convert one form of financing to another (e.g., replacing an aircraft lease with debt financing). The purchase of leased aircraft allows us to lower our operating costs and avoid lease-related use restrictions and return conditions.

As of September 30, 2023, we had 48 aircraft in our fleet under lease, including 42 E-175 aircraft owned by United and leased to us at nominal amounts and three Boeing 737 cargo jets subleased to us by DHL at nominal amounts. The fourth Boeing 737 cargo jet and two CRJ-700 aircraft are leased to us from third parties. In order to determine the proper classification of our leased aircraft as either operating leases or finance leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a finance lease. Our aircraft leases classified as operating leases results in rental payments being charged to expense over the terms of the related leases.

We are also subject to lease return provisions that require a minimum portion of eligible flight time for certain components remain when the aircraft is returned at the lease expiration. We estimate the cost of maintenance lease return obligations and accrue such costs over the remaining lease term when the expense is probable and can be reasonably estimated.

See "Risk Factors" for a discussion of these factors and other risks.

51


 

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased utilization of our aircraft in the summer months and are unfavorably affected by increased fleet maintenance and by inclement weather during the winter months.

Components of Our Results of Operations

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

Operating Revenues

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

Contract Revenue. Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our CPA 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 a third party. Contract revenues we receive from our major partners are paid on a weekly basis and recognized over time consistent with the delivery of service under our agreements.

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 United owned 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.

Fuel. Fuel expense includes fuel and related fueling costs for flying we undertake outside of our CPA and FSA, including aircraft repositioning and maintenance. All aircraft fuel and related fueling costs for flying under our CPAs were directly paid and supplied by our major partners. The fuel and related cost for flying under our DHL FSA were directly paid and supplied by DHL. Accordingly, we do not record an expense or the related revenue for fuel supplied by American and United for flying under our CPAs or DHL under our FSA except fuel costs incurred for controllable ferry flights for American and United.

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.

52


 

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense includes expenses related to our CPAs and FSA, including aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major partners.

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.

Other Income (Expense), Net

Interest Expense. Interest expense is interest on our debt 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.

Loss on Investments, Net. Loss on investments consists of losses on our investments in equity securities.

Other Expense. Other expense includes expense derived from activities not classified in any other area of the consolidated statements of income.

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 one CPA and one FSA, 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

Comparison of our Fiscal Years Ended September 30, 2023 and 2022

We had an operating loss of $84.3 million in our year ended September 30, 2023, compared to an operating loss of $185.0 million in our year ended September 30, 2022. In our year ended September 30, 2023, we had a net loss of $120.1 million compared to a net loss of $182.7 million in our year ended September 30, 2022.

Our operating results for the year ended September 30, 2023 reflect an increase in flight operations expense resulting from the implementation of the new pilot pay scale that began September 15, 2022 and increased pilot training. We also saw decreases in aircraft rent 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, and depreciation and amortization expense due to the reduced carrying value of our CRJ-900 aircraft assets and aircraft in our fleet being classified as non-depreciable assets held for sale. Additionally, we recorded $54.3 million in impairment charges related associated with designating 14

53


 

CRJ-900 aircraft as held for sale as well as our customer relationship intangible asset compared to impairment charges of $171.8 million in impairment charges associated with certain long-lived assets as well as certain of our CRJ aircraft that were classified as held for sale in our year ended September 30, 2022.

 

Operating Revenues

 

 

 

Year Ended September 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

Operating revenues ($ in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Contract

 

$

421,298

 

 

$

478,482

 

 

$

(57,184

)

 

 

(12.0

)%

Pass-through and other

 

 

76,767

 

 

 

52,519

 

 

 

24,248

 

 

 

46.2

%

Total operating revenues

 

$

498,065

 

 

$

531,001

 

 

$

(32,936

)

 

 

(6.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

Operating data:

 

 

 

 

 

 

 

 

 

 

 

 

Available seat miles—ASMs (thousands)

 

 

4,235,413

 

 

 

6,674,748

 

 

 

(2,439,335

)

 

 

(36.5

)%

Block hours

 

 

188,947

 

 

 

271,511

 

 

 

(82,564

)

 

 

(30.4

)%

Revenue passenger miles—RPMs
   (thousands)

 

 

2,705,920

 

 

 

5,549,595

 

 

 

(2,843,675

)

 

 

(51.2

)%

Average stage length (miles)

 

 

552

 

 

 

509

 

 

 

43

 

 

 

8.4

%

Contract revenue per available seat
   mile—CRASM (in cents)

 

¢

9.95

 

 

¢

7.18

 

 

¢

2.77

 

 

 

38.6

%

Passengers

 

 

6,310,730

 

 

 

8,083,870

 

 

 

(1,773,140

)

 

 

(21.9

)%

 

(1)
The definitions of certain terms related to the airline industry used in the table can be found under "Glossary of Airline Terms" above.

Total operating revenue decreased by $32.9 million, or 6.2%, during our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022. Contract revenue decreased by $57.2 million, or 12.0% during our fiscal year September 30, 2023, primarily driven by reduced block hours flown and fewer aircraft under contract compared to our fiscal year ended September 30, 2022, partially offset by an increased United block hour compensation rate for our new pilot pay scale.

Operating Expenses

 

 

 

Year Ended September 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

Operating expenses ($ in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Flight operations

 

$

216,748

 

 

$

177,038

 

 

$

39,710

 

 

 

22.4

%

Maintenance

 

 

199,648

 

 

 

201,930

 

 

 

(2,282

)

 

 

(1.1

)%

Aircraft rent

 

 

6,200

 

 

 

36,989

 

 

 

(30,789

)

 

 

(83.2

)%

General and administrative

 

 

48,765

 

 

 

43,966

 

 

 

4,799

 

 

 

10.9

%

Depreciation and amortization

 

 

60,359

 

 

 

81,508

 

 

 

(21,149

)

 

 

(25.9

)%

Asset impairment

 

 

54,343

 

 

 

171,824

 

 

 

(117,481

)

 

 

(68.4

)%

(Gain) on sale of assets

 

 

(7,162

)

 

 

(4,723

)

 

 

(2,439

)

 

 

51.6

%

Other operating expenses

 

 

3,510

 

 

 

7,471

 

 

 

(3,961

)

 

 

(53.0

)%

Total operating expenses

 

$

582,411

 

 

$

716,003

 

 

$

(133,592

)

 

 

(18.7

)%

Operating data:

 

 

 

 

 

 

 

 

 

 

 

 

Available seat miles—ASMs
   (thousands)

 

 

4,235,413

 

 

 

6,674,748

 

 

 

(2,439,335

)

 

 

(36.5

)%

Block hours

 

 

188,947

 

 

 

271,511

 

 

 

(82,564

)

 

 

(30.4

)%

Average stage length (miles)

 

 

552

 

 

 

509

 

 

 

43

 

 

 

8.4

%

Departures

 

 

103,675

 

 

 

137,625

 

 

 

(33,950

)

 

 

(24.7

)%

 

Flight Operations. Flight operations expense increased by $39.7 million, or 22.4%, to $216.7 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022. The increase was primarily driven by the implementation of the new pilot pay scale that began September 15, 2022 and increased pilot training.

54


 

Maintenance. Aircraft maintenance expense decreased $2.3 million, or 1.1%, to $199.6 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022. This decrease was primarily driven by a lower volume of airframe C-checks, component contracts, rotable and expendable parts, and engine overhauls, partially offset by increases in pass-through engine overhauls and airframe C-checks.

The following table presents information regarding our aircraft maintenance costs during our fiscal years ended September 30, 2023 and 2022:

 

 

 

Year Ended September 30,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

Engine overhaul