MESA AIR GROUP INC

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information set forth below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this Annual Report on Form 10-K.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Mesa Air Group, Inc. (the Company) as of September 30, 2022, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for each of the two years in the period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022 and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Ernst & Young LLP

We served as the Company’s auditor from 2019 to 2023.

December 29, 2022

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Mesa Air Group, Inc. (the Company) as of September 30, 2023, the related consolidated statements of operations and comprehensive (loss) income, stockholders' equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated January 26, 2024 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Emphasis of Matter related to Concentration of Revenue and Liquidity

As discussed in Notes 1, 2, 3 and 5 to the financial statements, the Company generates substantially all its revenues and liquidity from United Airlines, Inc. under terms of a capacity purchase agreement and other agreements. The termination or modification of these agreements may have significant adverse effects on the Company’s continuing operations and liquidity.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Forecasted Cash Flows Utilized in Assessment of Going Concern and Impairment of Long-lived Assets

As described in Notes 1 and 2 of the consolidated financial statements, the Company believes that cash on hand, ongoing cashflows from operations, in addition to obtaining equity financing, issuing debt, entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses, selling the aircraft held for sale and equity investments, is adequate to meet its cash obligations for the next twelve months following the issuance of its financial statements. Accordingly, management has disclosed the factors that give rise to initial concerns regarding the ability of the Company to continue as a going concern, as well as management’s plan and management’s conclusion as to whether the plan is probable of being both implemented and effective in alleviating the conditions giving rise to substantial doubt. The process involves the forecast of cash flows to determine whether the Company will have sufficient cash to continue operations and repay debt as it becomes due.

In addition, to determine whether impairments exist for long-lived assets, including aircraft and other related assets used in operations, among other things, the Company identified the asset groups at the capacity purchase agreement or flight services agreement level (i.e., the lowest level for which there are identifiable cash flows). The Company assesses whether indicators of impairment are present for an asset group and, when applicable, the Company evaluates recoverability of the asset group by comparing the undiscounted future cash flows to the carrying amount of the asset group. The Company estimates future cash flows based on the projections of the capacity purchase agreement or flight services agreement. In the event the asset group is not recoverable, an impairment charge is recorded and the asset group’s carrying amount is reduced to its estimated fair value.

The forecast of undiscounted cashflows prepared to assess going concern and impairment of long-lived assets was prepared with significant judgment and estimates of future cashflows based on projections of capacity purchase agreement block hours, maintenance events, labor costs, and other relevant factors.

We identified management’s evaluation of undiscounted cash flows related to the assessment of going concern and impairment of long-lived assets for the United capacity purchase agreement asset group as a critical audit matter. The undiscounted cash flows represent an estimate that is subject to significant estimation uncertainty regarding the Company’s future cash flows and the risk of bias in management’s judgments in estimating these cash flows. Auditing the undiscounted cash flows related to going concern and the impairment of long-lived assets involves a high degree of auditor judgment and an increase in audit effort.

Our audit procedures related to testing management’s evaluation of undiscounted cash flows included the following, among others:

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Evaluated the reasonableness of forecasted revenues and operating expenses, as well as management’s assumptions related to sources and uses of cash. This testing included:

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Developing an understanding of management’s plans for financing operations through discussions with management.

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Evaluating probability of future asset sales to generate cash inflows through tracing expected future asset sales to binding purchase agreements.

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Developing an understanding of management’s expectations for future changes in revenue and expenses through discussions with management, review of budgets, comparison of historical and projected block hours to be provided under capacity purchase agreement, including information obtained from the customer, consideration of pilot attrition and number of current and projected pilots, and consideration of the number of aircraft to provide services under the capacity purchase agreement.

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Evaluating the reasonableness of forecasted revenues and expenses to historical results through comparison of historical block hours provided under capacity purchase agreement, and direct and indirect expenses.

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Evaluating the completeness of the disclosures related to management’s plans.

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Evaluated the reasonableness of management’s estimate to remain in compliance with debt covenants, as of the balance sheet date and through a year from issuance.

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Evaluating the impact of the Company’s debt amendments subsequent to the balance sheet date and the amendments impact on cash flows through a year from issuance.

/s/RSM US LLP

We have served as the Company's auditor since 2023.

January 26, 2024