10-Q 1 mesa-20221231.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended December 31, 2022

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)

 

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

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, no par value

 

MESA

 

Nasdaq Global Select Market

 

 

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

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

 

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

 

As of February 7, 2023, the registrant had 40,420,611 shares of common stock, no par value per share, issued and outstanding.

 

 

 


TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

2

 

 

Item 1. Financial Statements

2

 

 

Condensed Consolidated Balance Sheets

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

 

Condensed Consolidated Statements of Stockholders' Equity

4

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

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

28

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

37

 

 

Item 4. Controls and Procedures

38

 

 

PART II – OTHER INFORMATION

39

 

 

Item 1. Legal Proceedings

39

 

 

Item 1A. Risk Factors

39

 

 

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

39

 

 

Item 3. Defaults Upon Senior Securities

39

 

 

Item 4. Mine Safety Disclosures

39

 

 

Item 5. Other Information

39

 

 

Item 6. Exhibits

39

 

 

SIGNATURES

41

 


Cautionary Note Regarding Forward-Looking Statements

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

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," “should,” "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed with the Securities and Exchange Commission on December 29, 2022. Unless otherwise stated, references to particular years, quarters, months, or periods refer to our fiscal years ended September 30 and the associated quarters, months, and periods of those fiscal years. Each of the terms "the Company," "Mesa Airlines," "Mesa," "we," "us" and "our" as used herein refers collectively to Mesa Air Group, Inc. and its wholly owned subsidiaries, unless otherwise stated. We do not assume any obligation to revise or update any forward-looking statements.

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

public health epidemics or pandemics such as COVID-19;
the severity, magnitude, and duration of the COVID-19 pandemic, including impacts of the pandemic and of business’ and governments’ responses to the pandemic on our operations and personnel, and on demand for air travel;
the supply and retention of qualified airline pilots and mechanics and associated costs;
the volatility of pilot and mechanic attrition;
dependence on, and changes to, or non-renewal of, our capacity purchase and flight services agreements;
failure to meet certain operational performance targets in our capacity purchase and flight services agreements, which could result in termination of those agreements;
increases in our labor costs;
reduced utilization - the percentage derived from dividing (i) the number of block hours actually flown during a given month by (ii) the maximum number of block hours that could be flown during such month under our capacity purchase agreements;
the direct operation of regional jets by our major partners;
the financial strength of our major partners and their ability to successfully manage their 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 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; and
our ability to keep costs low and execute our growth strategies.

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

1


Part I – Financial Information

Item 1. Financial Statements

MESA AIR GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts) (Unaudited)

 

 

December 31,

 

 

September 30,

 

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,077

 

 

$

57,683

 

Restricted cash

 

 

3,343

 

 

 

3,342

 

Receivables, net

 

 

13,115

 

 

 

3,978

 

Expendable parts and supplies, net

 

 

25,509

 

 

 

26,715

 

Prepaid expenses and other current assets

 

 

3,953

 

 

 

6,616

 

Total current assets

 

 

101,997

 

 

 

98,334

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

945,545

 

 

 

865,254

 

Intangible assets, net

 

 

 

 

 

3,842

 

Lease and equipment deposits

 

 

1,781

 

 

 

6,085

 

Operating lease right-of-use assets

 

 

11,896

 

 

 

43,090

 

Deferred heavy maintenance, net

 

 

10,311

 

 

 

9,707

 

Assets held for sale

 

 

73,000

 

 

 

73,000

 

Other assets

 

 

14,984

 

 

 

16,290

 

Total assets

 

$

1,159,514

 

 

$

1,115,602

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and finance leases

 

$

88,802

 

 

$

97,218

 

Current portion of deferred revenue

 

 

1,204

 

 

 

385

 

Current maturities of operating leases

 

 

5,354

 

 

 

17,233

 

Accounts payable

 

 

51,257

 

 

 

59,386

 

Accrued compensation

 

 

9,097

 

 

 

11,255

 

Other accrued expenses

 

 

30,561

 

 

 

29,000

 

Total current liabilities

 

 

186,275

 

 

 

214,477

 

Noncurrent liabilities:

 

 

 

 

 

 

Long-term debt and finance leases, excluding current portion

 

 

597,816

 

 

 

502,517

 

Noncurrent operating lease liabilities

 

 

9,533

 

 

 

16,732

 

Deferred credits

 

 

2,869

 

 

 

3,082

 

Deferred income taxes

 

 

16,705

 

 

 

17,719

 

Deferred revenue, net of current portion

 

 

17,607

 

 

 

23,682

 

Other noncurrent liabilities

 

 

28,938

 

 

 

29,219

 

Total noncurrent liabilities

 

 

673,468

 

 

 

592,951

 

Total liabilities

 

 

859,743

 

 

 

807,428

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 36,378,550 (2023) and 36,376,897 (2022) shares issued and outstanding, 4,899,497 (2023) and 4,899,497 (2022) warrants issued and outstanding

 

 

259,864

 

 

 

259,177

 

Retained earnings

 

 

39,907

 

 

 

48,997

 

Total stockholders' equity

 

 

299,771

 

 

 

308,174

 

Total liabilities and stockholders' equity

 

$

1,159,514

 

 

$

1,115,602

 

See accompanying notes to these condensed consolidated financial statements.

2


MESA AIR GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

Operating revenues:

 

 

 

 

 

 

Contract revenue

 

$

128,450

 

 

$

136,894

 

Pass-through and other revenue

 

 

18,723

 

 

 

10,863

 

Total operating revenues

 

 

147,173

 

 

 

147,757

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Flight operations

 

 

58,320

 

 

 

47,598

 

Maintenance

 

 

48,287

 

 

 

58,981

 

Aircraft rent

 

 

4,083

 

 

 

9,586

 

General and administrative

 

 

13,988

 

 

 

12,578

 

Depreciation and amortization

 

 

15,203

 

 

 

21,028

 

Intangible asset impairment

 

 

3,719

 

 

 

 

Other operating expenses

 

 

1,126

 

 

 

1,972

 

Total operating expenses

 

 

144,726

 

 

 

151,743

 

Operating income (loss)

 

 

2,447

 

 

 

(3,986

)

Other income (expense), net:

 

 

 

 

 

 

Interest expense

 

 

(11,276

)

 

 

(7,930

)

Interest income

 

 

71

 

 

 

51

 

Loss on investments, net

 

 

(1,679

)

 

 

(6,462

)

Other income (expense), net

 

 

417

 

 

 

(59

)

Total other expense, net

 

 

(12,467

)

 

 

(14,400

)

Loss before taxes

 

 

(10,020

)

 

 

(18,386

)

Income tax benefit

 

 

(930

)

 

 

(4,112

)

Net loss and comprehensive loss

 

$

(9,090

)

 

$

(14,274

)

Net loss per share attributable to

 

 

 

 

 

 

common shareholders

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

(0.40

)

Diluted

 

$

(0.25

)

 

$

(0.40

)

Weighted-average common shares outstanding

 

 

 

 

 

 

Basic

 

 

36,378

 

 

 

35,963

 

Diluted

 

 

36,378

 

 

 

35,963

 

See accompanying notes to these condensed consolidated financial statements.

 

3


MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)

 

 

Three Months Ended December 31, 2021

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Number of

 

 

Number of

 

 

Paid-In

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Warrants

 

 

Capital

 

 

Earnings

 

 

Total

 

Balance at September 30, 2021

 

 

35,958,759

 

 

 

4,899,497

 

 

$

256,372

 

 

$

231,675

 

 

$

488,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

716

 

 

 

 

 

 

716

 

Repurchased shares

 

 

(2,275

)

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Restricted shares issued

 

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,274

)

 

 

(14,274

)

Balance at December 31, 2021

 

 

35,963,984

 

 

 

4,899,497

 

 

$

257,073

 

 

$

217,401

 

 

$

474,474

 

 

 

 

Three Months Ended December 31, 2022

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Number of

 

 

Number of

 

 

Paid-In

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Warrants

 

 

Capital

 

 

Earnings

 

 

Total

 

Balance at September 30, 2022

 

 

36,376,897

 

 

 

4,899,497

 

 

$

259,177

 

 

$

48,997

 

 

$

308,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

688

 

 

 

 

 

 

688

 

Repurchased shares

 

 

(847

)

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Restricted shares issued

 

 

2,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,090

)

 

 

(9,090

)

Balance at December 31, 2022

 

 

36,378,550

 

 

 

4,899,497

 

 

$

259,864

 

 

$

39,907

 

 

$

299,771

 

See accompanying notes to these condensed consolidated financial statements.

4


MESA AIR GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 

 

Three Months Ended December 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,090

)

 

$

(14,274

)

Adjustments to reconcile net loss to net cash flows provided by operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

15,203

 

 

 

21,028

 

Stock compensation expense

 

 

688

 

 

 

716

 

Loss on investments, net

 

 

1,679

 

 

 

6,462

 

Deferred income taxes

 

 

(1,014

)

 

 

(4,224

)

Amortization of deferred credits

 

 

(213

)

 

 

(213

)

Amortization of debt discount and issuance costs and accretion of interest into long-term debt

 

 

1,379

 

 

 

3,199

 

Intangible asset impairment

 

 

3,719

 

 

 

 

Other

 

 

55

 

 

 

243

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(9,137

)

 

 

248

 

Expendable parts and supplies

 

 

1,150

 

 

 

(978

)

Prepaid expenses and other operating assets and liabilities

 

 

2,290

 

 

 

2,094

 

Accounts payable

 

 

(7,008

)

 

 

174

 

Deferred revenue

 

 

(5,256

)

 

 

(4,184

)

Accrued expenses and other liabilities

 

 

(656

)

 

 

(4,868

)

Operating lease right-of-use assets and liabilities

 

 

177

 

 

 

(672

)

Net cash provided by (used in) operating activities

 

 

(6,034

)

 

 

4,751

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(16,740

)

 

 

(19,775

)

Investments in equity securities

 

 

 

 

 

(200

)

Refund (payment) of equipment and other deposits

 

 

131

 

 

 

(6,954

)

Net cash used in investing activities

 

 

(16,609

)

 

 

(26,929

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from long-term debt

 

 

39,000

 

 

 

30,811

 

Principal payments on long-term debt and finance leases

 

 

(17,544

)

 

 

(24,510

)

Payments of debt and warrant issuance costs

 

 

(417

)

 

 

(2,293

)

Repurchase of stock

 

 

(1

)

 

 

(15

)

Net cash provided by financing activities

 

 

21,038

 

 

 

3,993

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(1,605

)

 

 

(18,185

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

61,025

 

 

 

123,867

 

Cash, cash equivalents and restricted cash at end of period

 

$

59,420

 

 

$

105,682

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

7,763

 

 

$

2,815

 

Operating lease payments in operating cash flows

 

$

4,679

 

 

$

10,152

 

Supplemental non-cash operating activities

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease liabilities

 

$

236

 

 

$

4,190

 

Supplemental non-cash financing activities

 

 

 

 

 

 

Finance lease obtained in exchange for lease liability

 

$

76,185

 

 

$

 

Investments in warrants to purchase common stock

 

$

 

 

$

100

 

Accrued capital expenditures

 

$

 

 

$

1,722

 

See accompanying notes to these condensed consolidated financial statements.

5


MESA AIR GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.
Organization and Operations

About Mesa Air Group, Inc.

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 106 cities in 42 states, the District of Columbia, the Bahamas, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. As of December 31, 2022, Mesa operated a fleet of 158 aircraft with approximately 293 daily departures and 2,478 employees. Mesa’s fleet were conducted under the Company’s 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 American Eagle, United Express, or DHL Express flights pursuant to the terms of CPAs entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and FSA with DHL Network Operations (USA), Inc. (“DHL”) (each, our “major partner”). All of the Company’s consolidated contract revenues for the three months ended December 31, 2022 and 2021 were derived from operations associated with these two (2) CPAs, FSA, and leases of aircraft to a third party.

The CPAs between us and our major partners involve a revenue-guarantee arrangement whereby the major partners pay 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. The major partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of these CPAs, the major partners control route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices. Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo flight services. Ground support expenses including fueling and airport fees are paid directly by DHL.

Impact of Pilot Shortage and Attrition

During our three months ended December 31, 2022 and fiscal year ended September 30, 2022, the severity of the pilot shortage, elevated pilot attrition, 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 three months ended December 31, 2022, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $6.0 million and net loss of $9.1 million including a non-cash impairment charge related to the Company’s American intangible asset of $3.7 million. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet debt obligation in the next twelve months.

To address the events that gave rise to such concerns, management developed and implemented the following material changes to its business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months. In addition to successfully implementing these effective measures, the Company expects to develop and implement additional measures aimed at addressing periods beyond the next twelve months.

During the fourth quarter 2022, the Company reached an agreement with ALPA which increased overall pilot hourly pay by nearly 118% for captains and 172% for new-hire first officers. As a result of this agreement, we have experienced reduced attrition rates and attracted new pilots.
The Company and American have agreed to terminate and complete a wind-down of the American CPA. This will ultimately eliminate financial penalties incurred under the American CPA. In December 2022, we entered into Amendment No.11 to our American CPA that includes, among other things, disclosure regarding the wind-down of our operations with American and the termination of the American CPA.
In December 2022, we entered into the Third Amended and Restated Capacity Purchase Agreement with United which amended and restated the existing United CPA. This agreement increases block hour revenues to cover increased wages agreed to with ALPA and adds CRJ 900 aircraft currently operating under the American CPA.

6


We entered into an agreement with United to sell 18 CRJ-700 aircraft during the fiscal year ended September 30, 2022, of which ten (10) were sold. The approximate net proceeds from the sale in the prior period was $36.8 million after retirement of debt. The sale of the remaining eight (8) aircraft that are classified as assets held for sale at December 31, 2022, as discussed in Note 6, closed during January 2023. The approximate net proceeds from the sale after retirement of debt is $8.0 million.
We entered into an agreement with a third party to sell 11 of our CRJ-900 aircraft and one (1) CRJ-200 aircraft to raise capital and retire debt, as discussed in Note 6. The approximate net proceeds of the sale are expected to be $8.2 million after retirement of debt.
We entered into an agreement to sell 30 spare engines to United to raise capital and retire debt. The approximate gross proceeds from the sale are expected to be $80 million and will retire debt of $26.4 million. See Note 16 for a discussion of the engine sale agreement transaction and closing deliverables.
We established and drew upon a new line of credit with United totaling $25.5 million. See Note 9 for a discussion of the line of credit and amount drawn.
We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on seven CRJ-900 NextGen aircraft for the period of January 2023 through December 2024, providing up to $14 million of liquidity. Additionally, the junior noteholder, MHIRJ, agreed to reduce its loan amount by approximately $5 million.
We entered into an agreement with RASPRO Trust, reducing the buyout pricing on all 15 CRJ-900 aircraft at lease termination by a total of $25 million.
We established the Mesa Pilot Development Program (the "MPD Program") to increase the pilot supply to Mesa. We have entered into an agreement to purchase up to 29 state-of-the-art Pipistrel Alpha Trainer 2 aircraft. This new fleet will be the backbone of our MPD Program to help commercial pilots accelerate their accumulation of flight hours to reach the minimum flight hours required by FAA and then be hired by Mesa. As part of the program, pilots will be provided with the opportunity to accumulate up to 1,500 flight hours required to fly a commercial aircraft at Mesa Airlines. Flights costs of $25 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 ATP certificate.
We added flight training simulators and flight training instructors to expand our training capacity to backfill pilots lost to attrition.
We expanded the United Aviate program participation to include all pilots flying for Mesa. Previously, pilots had to fly under the United Express contract for a minimum of two (2) years to qualify for the flow through to United Airlines. Now, all pilots regardless of contract, are eligible to flow through to United Airlines enhancing Mesa's ability to attract and retain pilots.
We have delayed and/or deferred major spending on aircraft and engine maintenance to match the current and projected level of flight activity.

The plans and initiatives outlined above have effectively alleviated pressure on financial performance. While we continue to implement and monitor our plans and initiatives, there is no guarantee that these will continue to be effective and achieve their desired objectives.

As of December 31, 2022, the Company has $88.8 million of short-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 we have achieved as outlined above.

7


American Capacity Purchase Agreement

As of December 31, 2022, the Company operated 42 CRJ-900 aircraft under an Amended and Restated Capacity Purchase Agreement with American dated November 19, 2020 (as amended, the “American CPA”). In exchange for providing passenger flight services, 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 during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departure (“CD0”) and controllable flight completion factor (“CCF”) percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions as well as airport-related facilities and gates at American hubs and cities where we operate.

In December 2022, we entered into Amendment No. 11 (the “AA Amendment”) to the American CPA. The AA Amendment provides 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) will be removed from the American CPA. In March 2023, we will begin 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 AA Amendment, during the Wind-down Period (i) we will continue 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 has agreed not to exercise certain termination or withdrawal rights under the American CPA if we fail to meet certain operational performance targets for the three (3) consecutive month period ending January 31, 2023.

Provided we comply with the terms of the American CPA during the Wind-down Period and no Material Breach (as defined in the American CPA) has occurred, American has also 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. Failure to meet CCF targets in any given month during the Wind-down Period will result in a penalty for each performance metric that falls below an allotted threshold.

The AA Amendment provides for liquidated damages (the “Liquidated Damages Claim”) payable to American in the event of a Material Breach (as defined in the American CPA) of the American CPA or a repudiation by us of our obligations under the American CPA.

So long as we have not caused any Material Breaches during the Wind-Down Period, then immediately upon the expiration thereof, the parties have agreed to execute a written mutual release of all claims and acknowledgment that no Material Breaches have occurred under the American CPA (including, without limitation, any Liquidated Damages Claim).

United Capacity Purchase Agreement

During the quarter ended December 31, 2022, we operated 60 E-175 and 20 E-175LL aircraft under our Second Amended and Restated Capacity Purchase Agreement with United dated November 4, 2020 (as amended, the “United CPA” or the "Second Amended and Restated Capacity Purchase Agreement"). Under the United CPA, United owns 42 of the 60 E-175 aircraft and all of the E-175LL aircraft and leases them to us at nominal amounts. 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. The E-175LL aircraft have terms expiring in 2032 and 2033.

In exchange for providing passenger flight services, 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 reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. United also reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs"), and component maintenance for the E-175 aircraft owned by United. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine (9) years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement, and as of December 31, 2022, we have leased 10 CRJ-700 aircraft. During August of 2022, we committed to a formal plan to sell