MESA AIR GROUP INC

Previous wording

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.

Current wording

Our long-term agreement with United provides 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 services on behalf of United. Our CPA also shelters us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers. In providing regional flying under our CPA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of United. United controls route selection, pricing, seat inventories, marketing, and scheduling, and provides us with ground support services, airport landing slots and gate access.

Previous wording

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.

Current wording

For our fiscal year ended September 30, 2024, we had total operating revenues of $476.4 million, a 4.3% decrease, compared to $498.1 million for our fiscal year ended September 30, 2023. Net loss for our fiscal year ended September 30, 2024 was $91.0 million, or $2.21 per diluted share, compared to net loss of $120.1 million, or $3.04 per diluted share, for our fiscal year ended September 30, 2023.

Previous wording

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.

Current wording

During our fiscal year ended September 30, 2024, our completed block hours decreased by 12,711, or 6.7%, compared to our fiscal year ended September 30, 2023.

Previous wording

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.

Current wording

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 United CPA reduces our exposure to fluctuations in certain trends. The following key factors may materially affect our future performance.

Previous wording

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.

Current wording

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 was dramatically reduced. To address the diminished supply of qualified pilot candidates, regional airlines implemented significant pilot wage and bonus increases.

Previous wording

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.

Current wording

Although pilot attrition has returned to normal levels 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.

Previous wording

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.

Current wording

As a result of the decrease in scheduled flying activity for United, we produced less block hours to generate revenues. During the fiscal year ended September 30, 2024, these challenges resulted in a negative impact on the Company’s financial results highlighted by net loss of $91.0 million, primarily due to impairment expense of $73.7 million related to held for sale assets during the year. These conditions and events raised 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-K.

Previous wording

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.

Current wording

To address such concerns, management developed and implemented certain 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 following measures were implemented during the year ended September 30, 2024, and through the date of issuance of the financial statements.

Previous wording

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.

Current wording

On April 3, 2025, we entered into a purchase agreement with a third party which provides for the sale of 23 GE model CF34-8C engines to the third party for expected gross proceeds of $16.3 million, which will be used to pay down our UST Loan.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 our CPA. 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.

Previous wording

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.

Current wording

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, 2024, approximately 62.8% 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 years 2023 and 2024, 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.

Previous wording

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.

Current wording

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 agreement 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.

Previous wording

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.

Current wording

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, 2024, $52.3 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.

Previous wording

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.

Current wording

The average age of our E-175, CRJ-900, and CRJ-700 type aircraft is approximately 8.7, 18.2, and 17.4 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.

Previous wording

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.

Current wording

As of September 30, 2024, we had 47 aircraft in our fleet under lease, including 42 E-175 aircraft owned by United and leased to us at nominal amounts and five CRJ-900 aircraft on short-term leases owned by a third party. We also have two CRJ-700 aircraft that are leased to us by a third party. 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.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

Contract Revenue. Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our United CPA, along with the additional amounts received based on the number of flights and block hours flown, rental revenue for aircraft leased to a third party, and revenue received from pilots in the MPD program. Contract revenues we receive from United are paid on a weekly basis and recognized over time consistent with the delivery of service under our CPA.

Previous wording

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.

Current wording

Pass-Through and Other Revenue. Pass-through and other revenue consists of passenger insurance, aircraft property taxes, landing fees, and other aircraft and traffic servicing costs received pursuant to our United CPA, as well as certain maintenance costs related to the United owned E-175 aircraft.

Previous wording

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.

Current wording

Fuel. Fuel expense includes fuel and related fueling costs for flying we undertake outside of our CPA, including aircraft repositioning and maintenance. All aircraft fuel and related fueling costs for flying under our CPA were directly paid and supplied by United. 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 United for flying under our CPA or DHL under our FSA except fuel costs incurred for controllable ferry flights for United. Fuel expenses relating to MPD are paid by the Company.

Previous wording

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.

Current wording

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense includes expenses related to our CPA 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.

Previous wording

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.

Current wording

Depreciation. Depreciation expense is a periodic non-cash charge primarily related to aircraft, engine, aircraft improvement, and equipment depreciation.

Previous wording

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

Current wording

Gain on Investments, Net. Gain on investments, net consists of gains on the sale or transfer of our investments in equity securities to another party.

Previous wording

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.

Current wording

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 CPA.

Previous wording

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.

Current wording

While we operate under a CPA, 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.

Previous wording

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.

Current wording

We had an operating loss of $65.8 million in our year ended September 30, 2024, compared to an operating loss of $84.3 million in our year ended September 30, 2023. In our year ended September 30, 2024, we had a net loss of $91.0 million compared to a net loss of $120.1 million in our year ended September 30, 2023.

Previous wording

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.

Current wording

Total operating revenue decreased by $21.7 million, or 4.4%, to $476.4 million during our fiscal year ended September 30, 2024 as compared to our fiscal year ended September 30, 2023. Contract revenue decreased by $17.0 million, or 4.0%, to $404.3 million during our fiscal year September 30, 2024, primarily driven by reduced block hours flown, fewer aircraft under contract, and the wind-down of the DHL FSA compared to our fiscal year ended September 30, 2023, partially offset by an increased United block hour compensation rate. Our block hours flown during our fiscal year ended September 30, 2024 decreased 6.7% as compared to our fiscal year ended September 30, 2023 due to a decrease in scheduled flying on our CRJ fleet. Our pass-through and other revenue decreased by $4.7 million, or 6.1%, to $72.1 million compared to our fiscal year ended September 30, 2023 due to a decrease in pass-through maintenance related to our E-175 fleet.

Previous wording

Maintenance. Aircraft maintenance expense decreased $15.7 million, or 7.2%, to $201.9 million for our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021. This decrease was primarily driven by a decrease in C-check expense, Engine overhaul expense, and pass-through maintenance on our E-175 fleet due to overall fewer maintenance events. This decrease was partially offset by an increase in labor and other costs. Total pass-through maintenance expenses reimbursed by our major partners decreased by $8.1 million during fiscal year 2022, compared to fiscal year 2021.

Current wording

Maintenance. Aircraft maintenance expense decreased $14.9 million, or 7.5%, to $184.7 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023. This decrease was primarily driven by a decrease in pass-through engine overhaul and rotable and expendable parts, partially offset by an increase in other pass-through costs and C-check maintenance expenses. Total pass-through maintenance expenses reimbursed by our major partners decreased by $3.1 million during our fiscal year ended September 30, 2024 compared to our fiscal year ended September 30, 2023.

Previous wording

Depreciation and Amortization. Depreciation and amortization expense decreased by $21.1 million, or 25.9%, to $60.4 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022. The decrease is primarily due to aircraft in our fleet being classified as non-depreciable assets held for sale and the reduced carrying value of our CRJ-900 aircraft assets that were determined to be impaired during the prior fiscal year ended September 30, 2022.

Current wording

Depreciation and Amortization. Depreciation and amortization expense decreased by $20.3 million, or 33.7%, to $40.0 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023. The decrease is primarily due to aircraft in our fleet being sold or classified as non-depreciable assets held for sale.

Previous wording

Other Operating Expenses. Other operating expenses decreased by $4.0 million, or 53.0%, to $3.5 million for our fiscal year ended September 30, 2023 compared to our fiscal year ended September 30, 2022. The decrease is primarily due to a decrease in fuel expense.

Current wording

Other Operating Expenses. Other operating expenses increased by $3.0 million, or 86.8%, to $6.6 million for our fiscal year ended September 30, 2024 compared to our fiscal year ended September 30, 2023. The increase is primarily attributable to interrupted trip costs during the fiscal year ended September 30, 2024.

Previous wording

In our fiscal year ended September 30, 2023, our effective tax rate was 6.9% compared to 22.2% in our fiscal year ended September 30, 2022. Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, as well as any valuation allowance required on our state net operating losses.

Current wording

In our fiscal year ended September 30, 2024, our effective tax rate was (0.6)% compared to 6.9% in our fiscal year ended September 30, 2023. Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, as well as any valuation allowance required on our state net operating losses.

Previous wording

We recorded an income tax benefit of $8.7 million and $52.0 million for the fiscal years ended September 30, 2023 and 2022, respectively.

Current wording

We recorded an income tax provision of $0.5 million and an income tax benefit of $8.7 million for the fiscal years ended September 30, 2024 and 2023, respectively.

Previous wording

The income tax provision for our fiscal year ended September 30, 2023 resulted in an effective tax rate of 6.9%, which differed from the U.S. federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income. In addition to the state effective tax rate impact, other state impacts include changes in the valuation allowance against state net operating losses, expired state attributes, disallowed unrealized losses, and changes in state apportionment and statutory rates.

Current wording

The income tax provision for our fiscal year ended September 30, 2023 resulted in an effective tax rate of 6.9%, which differed from the U.S. federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income. In addition to the state effective tax rate impact, other state impacts include changes in the valuation allowance against federal and state net operating losses, expired state attributes, disallowed unrealized losses, and changes in state apportionment and statutory rates.

Previous wording

As of September 30, 2023, we had aggregate federal and state net operating loss carryforwards of approximately $562.6 million and $233.5 million, which expire in 2027-2038 and 2023-2043, respectively, with approximately $6.0 million of state net operating loss carryforwards that expired in 2023. Approximately $194.2 million of our federal NOL carryforwards are not subject to expiration.

Current wording

As of September 30, 2024, we had aggregate federal and state net operating loss carryforwards of approximately $511.7 million and $226.9 million, which expire in 2027-2038 and 2024-2044, respectively, with approximately $4.0 million of state net operating loss carryforwards that expired in 2024.

Previous wording

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 our plans to sell the remaining 15 CRJ-900 aircraft and other surplus assets, availability under our revolving credit facility with United, and further amending our United CPA. If our plans are not realized, we will be required 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.

Current wording

As of September 30, 2024, the Company has $50.5 million of principal maturity payments on long-term debt due within the next twelve months. Additionally, all outstanding principal amounts, $113.7 million as of September 30, 2024, under our UST Loan are due and payable in a single installment on October 30, 2025. 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.

Previous wording

Treasury Loan are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling (collectively, the “Collateral”). All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025 (the “Maturity Date”) and all accrued interest is payable in arrears on the first business day following the 14th day of each March, June, September and December (beginning with December 15, 2020), and on the Maturity Date. For the first 12 months, interest was paid-in-kind by increasing the principal amount of the loan by the amount of such interest due on an interest payment date. The obligations under the Treasury Loan are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds may be used for general corporate purposes and operating expenses, to the extent permitted by the CARES Act. Voluntary prepayments of loans under the Treasury Loan may be made, in whole or in part, without premium or penalty, at any time. Amounts prepaid may not be reborrowed. Mandatory prepayments of amounts outstanding under the Treasury Loan are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the Treasury Loan) occurs with respect to Mesa Airlines, Mesa Airlines will be required to repay the loans outstanding under the Treasury Loan.

Current wording

On October 30, 2020, the Company entered into a Loan and Guarantee Agreement with the U.S Treasury under the CARES Act. The loan agreement provides for a secured term loan facility of up to $200.0 million (the “Treasury Loan” or "UST Loan"). On October 30, 2020, the Company borrowed $43.0 million under the Treasury Loan and on November 13, 2020, the Company borrowed an additional $152.0 million. No additional sums are available for borrowing under the Treasury Loan. The obligations under the Treasury Loan are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling (collectively, the “Collateral”). All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025 (the "Maturity Date") and all accrued interest is payable in arrears on the first business day following the 14th day of March, June, September, and December (beginning with December 15, 2020), and on the Maturity Date. For the first 12 months, interest was paid in-kind by increasing the principal amount of the loan by the amount of such interest due on an interest payment date. The obligations under the Treasury Loan are guaranteed by the Company and Mesa Air Group Inventory Management. Voluntary prepayments of loans under the Treasury Loan may be made, in whole or in part, without premium or penalty, at any time. Amounts prepaid may not be reborrowed. Mandatory prepayments of amounts outstanding under the Treasury Loan are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the Treasury Loan) occurs with respect to Mesa Airlines, Mesa Airlines will be required to repay the loans outstanding under the Treasury Loan.

Previous wording

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

Current wording

The Treasury Loan requires the Company, under certain circumstances, including within one business day prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.55 to 1.0, Mesa Airlines will be required either to provide additional Collateral (which may include cash collateral) to secure its obligations under the Treasury Loan or repay the term loans under the Treasury Loan, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Collateral or repayment, is at least 1.55 to 1.0. On September 23, 2024, we entered into the CCR Modification Agreement to reduce our required minimum CCR to 1.44 to 1.0 through November 22, 2024, after which, the required minimum CCR will revert back to 1.55 to 1.0.

Previous wording

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

Current wording

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

Previous wording

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures, which includes purchases of spare engines, aircraft, inventory, tools, vehicles, equipment and miscellaneous projects for the year ended September 30, 2023 were approximately 7.4% of annual revenues. We expect to continue to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

Current wording

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures, which includes purchases of spare engines, aircraft, inventory, tools, vehicles, equipment and miscellaneous projects for the year ended September 30, 2024 were approximately 4.3% of annual revenues. We expect to continue to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

Previous wording

As of September 30, 2023, our principal sources of liquidity were cash and cash equivalents of $32.9 million. In addition, we had restricted cash of $3.1 million as of September 30, 2023. Restricted cash includes certificates of deposit that secure letters of credit issued for particular airport authorities as required in certain lease agreements. Furthermore, as of September 30, 2023, we also had $470.6 million in secured indebtedness incurred primarily in connection with our financing of aircraft. Our primary uses of liquidity are capital expenditures, operating lease payments, and debt repayments. As of September 30, 2023, we had $105.8 million of short-term debt, excluding finance leases, and $354.8 million of long-term debt excluding finance leases.

Current wording

As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $15.6 million. In addition, we had restricted cash of $3.0 million as of September 30, 2024. Restricted cash includes certificates of deposit that secure letters of credit issued for particular airport authorities as required in certain lease agreements. Furthermore, as of September 30, 2024, we also had $310.5 million in secured indebtedness incurred primarily in connection with our financing of aircraft. Our primary uses of liquidity are capital expenditures, operating lease payments, and debt repayments. As of September 30, 2024, we had $48.7 million of short-term debt, excluding finance leases, and $259.4 million of long-term debt excluding finance leases.