MESA AIR GROUP INC [MESA] Filings

10-Q 1 mesa-20240331.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2024


☐	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 May 1, 2024, the registrant had 41,172,218 shares of common stock, no par value per share, issued and outstanding.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION	4

Item 1. Financial Statements	4

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations and Comprehensive Loss	5

Condensed Consolidated Statements of Stockholders' Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk	41

Item 4. Controls and Procedures	42

PART II – OTHER INFORMATION	44

Item 1. Legal Proceedings	44

Item 1A. Risk Factors	44

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

Item 3. Defaults Upon Senior Securities	44

Item 4. Mine Safety Disclosures	44

Item 5. Other Information	44

Item 6. Exhibits	44

SIGNATURES	46

Cautionary Note Regarding Forward-Looking Statements

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

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

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

▪

public health epidemics or pandemics;

▪

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

▪

the volatility of pilot and mechanic attrition;

▪

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

▪

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

▪

increases in our labor costs;

▪

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

▪

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

▪

the financial strength of United and its ability to successfully manage its businesses through a public health epidemic;

▪

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

▪

our significant amount of debt and other contractual obligations;

▪

our compliance with ongoing financial covenants under our credit facilities

▪

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

▪

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

While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

Part I – Financial Information

Item 1. Financial Statements

MESA AIR GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share amounts) (March 31, 2024 is unaudited)


	March 31,			September 30,
	2024			2023
ASSETS
Current assets:
Cash and cash equivalents	$	18,529		$	32,940
Restricted cash		2,984			3,132
Receivables, net ($1,026 and $4,016 from related party)		4,650			8,253
Expendable parts and supplies, net		29,474			29,245
Assets held for sale		38,250			57,722
Prepaid expenses and other current assets		4,550			7,294
Total current assets		98,437			138,586

Property and equipment, net		529,479			698,022
Lease and equipment deposits		1,289			1,630
Operating lease right-of-use assets		8,074			9,709
Deferred heavy maintenance, net		6,466			7,974
Assets held for sale		41,970			12,000
Other assets		20,558			30,546
Total assets	$	706,273		$	898,467

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance leases ($2,376 and $20,500 from related party)	$	94,373		$	163,550
Current portion of deferred revenue		2,809			4,880
Current maturities of operating leases		2,334			3,510
Accounts payable		57,347			58,957
Accrued compensation		13,415			10,008
Other accrued expenses		26,525			27,001
Total current liabilities		196,803			267,906
Noncurrent liabilities:
Long-term debt and finance leases, excluding current portion ($35,642 and $30,630 from related party)		299,040			364,728
Noncurrent operating lease liabilities		7,309			8,077
Deferred credits from related party		3,720			4,617
Deferred income taxes		8,907			8,414
Deferred revenue, net of current portion		7,347			16,167
Other noncurrent liabilities		28,475			28,522
Total noncurrent liabilities		354,798			430,525
Total liabilities		551,601			698,431
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 41,172,218 (2024) and 40,940,326 (2023) shares issued and outstanding, 4,899,497 (2024) and 4,899,497 (2023) warrants issued and outstanding		271,981			271,155
Accumulated deficit		(117,309	)		(71,119	)
Total stockholders' equity		154,672			200,036
Total liabilities and stockholders' equity	$	706,273		$	898,467

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

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


	Three Months Ended March 31,						Six Months Ended March 31,
	2024			2023			2024			2023
Operating revenues:
Contract revenue (2024—$111,517 and $207,928 and 2023—$52,399 and $111,769 from related party)	$	113,820		$	103,782		$	214,920		$	232,232
Pass-through and other revenue		17,762			18,052			35,439			36,776
Total operating revenues		131,582			121,834			250,359			269,008

Operating expenses:
Flight operations		49,329			54,830			101,147			113,150
Maintenance		44,272			45,985			92,899			94,272
Aircraft rent		1,408			835			2,612			4,918
General and administrative		11,133			13,538			23,142			27,526
Depreciation and amortization		9,823			16,541			23,116			31,744
Asset impairment		2,659			16,743			43,043			20,462
(Gain) on extinguishment of debt		—			—			(2,954	)		—
Other operating expenses		1,315			233			4,159			1,359
Total operating expenses		119,939			148,705			287,164			293,431
Operating income/(loss)		11,643			(26,871	)		(36,805	)		(24,423	)
Other income (expense), net:
Interest expense		(10,640	)		(13,030	)		(21,800	)		(24,306	)
Interest income		14			49			28			120
Gain on investments		7,230			—			7,230			—
Unrealized gain/(loss) on investments, net		(6,499	)		2,095			(4,048	)		416
Gain on debt forgiveness		10,500			—			10,500			—
Other income (expense), net		(516	)		538			(359	)		955
Total other income/(expense), net		89			(10,348	)		(8,449	)		(22,815	)
Income/(loss) before taxes		11,732			(37,219	)		(45,254	)		(47,238	)
Income tax expense/(benefit)		72			(2,097	)		936			(3,027	)
Net income/(loss) and comprehensive income/(loss)	$	11,660		$	(35,122	)	$	(46,190	)	$	(44,211	)
Net income/(loss) per share attributable to
common shareholders
Basic	$	0.28		$	(0.88	)	$	(1.13	)	$	(1.16	)
Diluted	$	0.28		$	(0.88	)	$	(1.13	)	$	(1.16	)
Weighted-average common shares outstanding
Basic		41,068			39,932			41,004			38,135
Diluted		41,068			39,932			41,004			38,135

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share amounts) (Unaudited)


	Six Months Ended March 31, 2023
						Common
						Stock and
						Additional
	Number of			Number of		Paid-In			Retained
	Shares			Warrants		Capital			Earnings			Total
Balance at September 30, 2022		36,376,897			4,899,497	$	259,177		$	48,997		$	308,174

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

Stock compensation expense		—			—		668			-			668
Payment of tax withholding for RSUs		(29,276	)		—		(30	)		-			(30	)
Restricted shares issued		175,661			—		—			-			-
United stock issuance		4,042,061					9,782						9,782
Employee share purchases		52,278			—		148			-			148
Net loss		—			—		—			(35,122	)		(35,122	)
Balance at March 31, 2023		40,619,274			4,899,497		270,432			4,785			275,217


	Six Months Ended March 31, 2024
						Common
						Stock and
						Additional
	Number of			Number of		Paid-In			Accumulated
	Shares			Warrants		Capital			Deficit			Total
Balance at September 30, 2023		40,940,326			4,899,497	$	271,155		$	(71,119	)	$	200,036

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

Stock compensation expense		—			—		372			—			372
Payment of tax withholding for RSUs		(1,490	)		—		(1	)		—			(1	)
Restricted shares issued		178,010			—		—			—			—
Employee share purchases		55,372			—		30			—			30
Net income		—			—		—			11,660			11,660
Balance at March 31, 2024		41,172,218			4,899,497		271,982			(117,309	)		154,672

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Six Months Ended March 31,
	2024			2023
Cash flows from operating activities:
Net loss	$	(46,190	)	$	(44,211	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation and amortization		23,116			31,744
Stock compensation expense		799			1,356
Unrealized loss/(gain) on investments, net		4,048			(416	)
Realized gain on investments		(7,230	)		—
Deferred income taxes		493			(3,207	)
Amortization of deferred credits		(573	)		218
Amortization of debt discount and issuance costs and accretion of interest into long-term debt		5,408			2,828
Asset impairment		43,043			20,462
Loss/(Gain) on sale of assets		150			(549	)
(Gain) on extinguishment of debt		(2,954	)		—
(Gain) on debt forgiveness		(10,500	)		—
Other		2,362			1,481
Changes in assets and liabilities:
Receivables		3,603			(5,946	)
Expendable parts and supplies		(229	)		(231	)
Prepaid expenses and other operating assets and liabilities		2,691			110
Accounts payable		(1,007	)		(11,685	)
Deferred revenue		(10,552	)		413
Deferred heavy maintenance, net		—			(1,382	)
Accrued expenses and other liabilities		2,219			(2,672	)
Operating lease right-of-use assets and liabilities		(309	)		3,051
Net cash provided by (used in) operating activities		8,388			(8,636	)

Cash flows from investing activities:
Capital expenditures		(13,192	)		(24,530	)
Proceeds from sale of aircraft and engines		107,735			86,104
Investment transaction costs		(380	)		—
Refund (payment) of equipment and other deposits		341			227
Net cash provided by investing activities		94,504			61,801

Cash flows from financing activities:
Proceeds from long-term debt		86,855			39,000
Principal payments on long-term debt and finance leases		(203,431	)		(97,776	)
Debt prepayment costs		(922	)		—
Payments of debt and warrant issuance costs		—			(917	)
Proceeds from issuance of ESPP		48			148
Payment of tax withholding for RSUs		(1	)		(73	)
Net cash used in financing activities		(117,451	)		(59,618	)

Net change in cash, cash equivalents and restricted cash		(14,559	)		(6,453	)
Cash, cash equivalents and restricted cash at beginning of period		36,072			61,025
Cash, cash equivalents and restricted cash at end of period	$	21,513		$	54,572

Supplemental cash flow information
Cash paid for interest	$	16,388		$	20,880
Cash paid for income taxes, net	$	—		$	26
Operating lease payments in operating cash flows	$	2,858		$	6,399
Supplemental non-cash operating activities
Right-of-use assets obtained in exchange for lease liabilities	$	419		$	821
Supplemental non-cash financing activities
Finance lease obtained in exchange for lease liability	$	—		$	64,682
Principal payments in exchange for transfer of equity investment	$	12,610		$	—
Principal forgiven	$	10,500		$	—
Accrued capital expenditures	$	—		$	1,900

See accompanying notes to these condensed consolidated financial statements.

MESA AIR GROUP, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Organization and Operations

About Mesa Air Group, Inc.

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa", the "Company", "we", "our", or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 79 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico. Mesa operated or maintained as operational spares a fleet of 80 regional aircraft with approximately 263 daily departures and 2,110 employees as of March 31, 2024. The aircraft in Mesa’s fleet were operated under the Company’s Capacity Purchase Agreement ("CPA") and Flight Services Agreement ("FSA"), leased to a third party, held for sale, or maintained as operational spares. During the three months ended March 31, 2024, we agreed to the consensual wind-down of our flight operations on behalf of DHL and ceased DHL operations as of March 1, 2024. Mesa operates all of its flights as United Express and, prior to March 1, 2024, DHL Express flights pursuant to the terms of the CPA entered into United and FSA with DHL (each, our “major partner”). Except as set forth in the following sentence, all of the Company’s consolidated contract revenues for the three and six months ended March 31, 2024 and March 31, 2023 were derived from operations associated with the CPA, FSA, leases of aircraft to a third party, and Mesa Pilot Development. Revenues during the three and six months ended March 31, 2023 also included revenues derived from our CPA with American Airlines, Inc. ("American"), which terminated in April 2023.

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

Impact of Pilot Shortage and Transition of Operations to United

During our three and six months ended March 31, 2024 and fiscal year ended September 30, 2023, the severity of the pilot shortage, elevated pilot attrition, the transition of our operations with American to United, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios. One of the primary factors contributing to the pilot shortage and attrition is the demand for pilots at major carriers, which are hiring at an accelerated rate. These airlines now seek to increase their capacity to meet the growing demand for air travel. A primary source of pilots for the major U.S. passenger and cargo carriers are the U.S. regional airlines. As a result of the pilot shortage and attrition, the Company has increased overall hourly pay by nearly 118% for captains and 172% for new hires.

As a result of pilot shortage, we produced less block hours to generate revenues. During the six months ended March 31, 2024, these challenges resulted in a negative impact on the Company’s financial results highlighted by net loss of $46.2 million, including a non-cash impairment charge of $43.0 million primarily related to the Company designating eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 spare engines as held for sale. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months from the filing of this Form 10-Q.

To address such concerns, management developed and implemented several material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months. The Company implemented the following measures during or subsequent to the three months ended March 31, 2024.

•

During the three months ended March 31, 2024, we closed the sale of 12 GE model CF34-8C engines and related parts to a third party for gross proceeds of $54.2 million and $15.9 million of net proceeds after the retirement of debt.

•

During the three months ended March 31, 2024, we mutually agreed to the consensual wind-down of our flight operations on behalf of DHL and ceased all such operations.

•

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

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

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

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

•

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

The repayment in full of the Company's $10.5 million Effective Date Bridge Loan obligations, and the prepayment (and corresponding reduction) of approximately $2.1 million in Revolving Loans (as defined therein), with the proceeds from the sale, assignment, or transfer of the Company's vested investment in Heart Aerospace Incorporated. On January 31, 2024, the Company transferred its vested investment in Heart Aerospace Incorporated to United and realized a gain on the investment of $7.2 million, net of transaction costs.

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. ("Archer") held by the Company were released as collateral for the United credit facility, as provided in Amendment No. 4. Subsequent to March 31, 2024, the Company sold 140 thousand shares of Archer for approximately $0.6 million. We expect to sell the remaining shares of Archer, with a fair value of approximately $6.9 million as of June 14, 2024, by the end of July 2024.

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

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

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

•

We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $50.3 million. On April 22, 2024, we entered into a binding Memorandum with RASPRO Trust ("RASPRO") that provides for the payment of certain commitment fee amounts by the Company, along with certain RASPRO administration fee amounts, in consideration for the deferral of the $50.3 million buyout obligation over the period of June 2024 to September 2024. Certain of the commitment fee amounts and Trust fees otherwise payable will be waived if the Company completes its purchase obligations with respect to all 15 airframes and 30 engines as set forth in the agreement. During the first fiscal quarter of 2024, we entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines. One agreement is for 30 engines for a total of $19.5 million. The second agreement is for 15 airframes (without engines) for a total of $18.8 million. Both of these transactions are expected to be completed by the end of September 2024, with net cash from these transactions expected to be approximately $(12.1) million.

Subsequent to March 31, 2024, we purchased six airframes and 15 engines from RASPRO for $22.3 million and sold them to third parties for $16.4 million. We expect to purchase and subsequently sell the remainder of the RASPRO assets by the end of July 2024.

•

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

•

On May 29, 2024, we entered into a purchase agreement with a third party providing for the sale of nine GE model CF34-8C engines for expected gross proceeds of approximately $8.8 million which will be used to pay down our loan with the United States Department of the Treasury (the "UST Loan").

•

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

•

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

The Company believes the plans and initiatives outlined above have effectively alleviated the financial concerns and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements. 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 block hours, maintenance events, labor costs, and other relevant factors. Assumptions used in the forecast may change or not occur as expected.

As of March 31, 2024, the Company has $94.4 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, and the liquidity created from the additional measures identified above. If our plans are not realized, we intend to explore additional opportunities to create liquidity by refinancing and deferring repayment of our principal maturity payments that are due within the next twelve months. The Company continues to monitor covenant compliance with its lenders as any noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

United Capacity Purchase Agreement

Under the United CPA, we have the ability to fly up to 80 aircraft for United. The aircraft can be a mix of any number of E-175, or CRJ-900 aircraft so long as the number of aircraft operating at any given time does not exceed 80. As of March 31, 2024, we operated 56 E-175 and 24 CRJ-900 aircraft under our Third Amended and Restated Capacity Purchase Agreement with United dated December 27, 2022, which amended and restated the Second Amended and Restated Capacity Purchase Agreement dated November 4, 2020 (as amended, the “United CPA” or the "Amended and Restated United CPA"). Under the United CPA, United owns 42 of our 60 E-175 aircraft. The E-175 aircraft owned by United and leased to us have terms expiring between 2024 and 2028, and the 18 E-175 aircraft owned by us have terms expiring in 2028.

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

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

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

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

•

The addition of up to 38 CRJ-900 aircraft to be operated by the Company on behalf of United under the Amended and Restated United CPA, dependent on the number of E-175 aircraft the Company is operating. As of March 31, 2024, 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).

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

•

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

•

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

•

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

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

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

Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement.

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

•

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

•

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

•

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

•

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

•

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

•

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

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

DHL Flight Services Agreement

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

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

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

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

•

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

•

If either party is declared bankrupt or insolvent;

•

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

•

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

•

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

•

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

•

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

•

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

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

Summary of Significant Accounting Policies

Basis of Presentation

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

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

Segment Reporting

As of March 31, 2024, our chief operating decision maker was the Chief Executive Officer. While we operate under a capacity purchase agreement, we do not manage our business based on any performance measure at the individual contract level. Our chief operating decision maker uses consolidated financial information to evaluate our performance and allocate resources, which is the same basis on which he communicates our results and performance to our Board of Directors. Accordingly, we have a single operating and reportable segment.

Use of Estimates

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

Contract Revenue and Pass-through and Other Revenue

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

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

We record deferred revenue when cash payments are received or are due from our major partners in advance of our performance. During the three and six months ended March 31, 2024, we recognized approximately $7.9 million and $10.9 million of previously deferred revenue, respectively. Deferred revenue is recognized as flights are completed over the remaining terms of the respective contracts.

The deferred revenue balance as of March 31, 2024 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows (in thousands):


Periods Ending September 30,		Total Deferred Revenue

MESA AIR GROUP INC [MESA] Filings
10-Q	[2024-06-17]
10-Q	[2024-05-24]
10-K	[2024-01-26]
10-Q	[2023-08-14]
10-Q	[2023-05-09]
10-Q	[2023-02-09]
10-K	[2022-12-29]
10-Q	[2022-08-08]
10-Q	[2022-05-09]
10-Q	[2022-02-09]
10-K	[2021-12-10]
10-Q	[2021-08-09]
10-Q	[2021-05-11]
10-Q	[2021-02-09]
10-K	[2020-12-14]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-Q	[2020-02-10]
10-K	[2019-12-17]
10-Q	[2019-08-14]
10-Q	[2019-05-15]
10-Q	[2019-02-13]
10-K	[2018-12-20]
10-Q	[2018-09-05]
S-1	[2018-07-13]