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Item 8. Financial Statements and Supplementary Data

2024-01-26 compared with 2022-12-29 · 606 added, 438 removed, 659 unchanged (61% of the section changed)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mesa Air Group, Inc.

(the Company) as of September 30, 2022 and 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for each of the three 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 2021 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with U.S.

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.

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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.

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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.

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

Phoenix, Arizona

December 29, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Mesa Air Group, Inc.

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.

Basis for Opinion

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:

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:

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

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

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.

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.

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

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.

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.

Phoenix, Arizona

January 26, 2024

MESA AIR GROUP, INC.

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Restricted cash

Receivables, net

Receivables, net ($ 4,016 and $ 85 from related party)

Expendable parts and supplies, net

Assets held for sale

Prepaid expenses and other current assets

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Assets held for sale

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

Current portion of long-term debt and finance leases

Current portion of long-term debt and finance

leases ($ 20,500 and $ 0 from related party)

Current portion of deferred revenue

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Total current liabilities

Long-term debt and finance leases, excluding current portion

Noncurrent liabilities:

Long-term debt and finance leases, excluding current

portion ($ 30,630 and $ 0 from related party)

Noncurrent operating lease liabilities

Deferred credits

Deferred credits ($ 4,617 and $ 2,193 from related party)

Deferred income taxes

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Stockholders' equity:

Common stock of no par value and additional paid-in capital, 125,000,000

shares authorized;

36,376,897 (2022) and 35,958,759 (2021) shares

issued and outstanding, and 4,899,497 (2022) and 4,899,497 (2021) warrants

issued and outstanding

Retained earnings

Common stock of no par value and additional paid-in

capital, 125,000,000 shares authorized;

(2023) and 36,376,897 (2022) shares issued and

outstanding, 4,899,497 (2023) and 4,899,497

(2022) warrants issued and outstanding

(Accumulated deficit)/Retained Earnings

Total stockholders' equity

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Consolidated Statements of Operations and Comprehensive (Loss) Income

(in thousands, except per share amounts)

(in thousands)

Year Ended September 30,

Operating revenues:

Contract revenue

Contract revenue (2023—$ 294,129 , 2022—$ 207,003 , and 2021—$ 198,212 from related party)

Pass-through and other revenue

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Asset impairment

(Gain) on sale of assets

Other operating expenses

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Interest income

Gain on sale aircraft

Loss on investments, net

Unrealized gain/(loss) on investments, net

Other (expense)/income, net

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(Loss)/income before taxes

Income tax (benefit) provision

Income tax (benefit)/expense

Net (loss)/income and comprehensive (loss)/income

Net (loss) income per share

Weighted-average common shares outstanding

Net loss per share attributable to

common shareholders

Weighted-average common shares

See accompanying notes to these consolidated financial statements.

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(in thousands, except share amounts)

Earnings/(Accumulated Deficit)

Balance at September 30, 2020

Adoption of ASU 2018-09, Stock compensation-

Stock compensation expense

Repurchased shares

Warrants converted to common stock

Payment of tax withholding for

Issuance of warrants, net of issuance costs

Restricted shares issued

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Stock compensation expense

Repurchased shares

Issuance of warrants, net of issuance costs

Payment of tax withholding for

Restricted shares issued

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Stock compensation expense

Repurchased shares

Payment of tax withholding for

Restricted shares issued

United Stock Issuance

Employee share purchases

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Net (Loss)/Income

Adjustments to reconcile net (loss) income to net cash flows provided

by operating activities:

Adjustments to reconcile net loss to net cash flows provided by (used in)

operating activities:

Depreciation and amortization

Stock compensation expense

Loss on investments, net

Unrealized (gain)/loss on investments, net

Deferred income taxes

Asset impairment

Amortization of deferred credits

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

Amortization of debt discount and issuance costs and accretion of

interest into long-term debt

Asset impairment

(Gain)/Loss on sale of assets

Loss/(Gain) on extinguishment of debt

Loss (gain) on disposal of assets

Provision for obsolete expendable parts and supplies

Loss on lease termination

Changes in assets and liabilities:

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Accrued expenses and other liabilities

Change in operating lease right-of-use assets and liabilities

Net cash provided by operating activities

Operating lease right-of-use assets and liabilities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Capital expenditures

Proceeds from sale of flight equipment and expendable inventory

Investments in equity securities

Net payments on equipment & other deposits

Proceeds from sale of aircraft and engines

Refund (payment) of equipment and other deposits

Net cash provided by (used in) investing activities

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Proceeds from issuance of common stock under ESPP

Repurchase of stock

Payment of tax withholding for RSUs

Net cash used in financing activities

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Operating lease payments in operating cash flows

Supplemental disclosure of non-cash operating activities

Supplemental non-cash operating activities

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

Supplemental disclosure of non-cash financing activities

Accrued capital expenditures

Supplemental non-cash financing activities

Finance lease obtained in exchange for lease liability

Acquisition of finance leases

Investments in warrants to purchase common stock

Accrued capital expenditures

Debt issuance cost related to loan agreement with U.S.

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MESA AIR GROUP, INC.

Notes to Consolidated Financial Statements

Notes to Consolidated Fi nancial Statements

Organization and Operations

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc.

("Mesa" or the "Company") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 107 cities in 39 states, the District of Columbia, the Bahamas, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport.

As of September 30, 2022, Mesa operated a fleet of 158 aircraft with approximately 306 daily departures and 2,454 employees.

Mesa’s fleet were operated conducted under the Company’s Capacity Purchase Agreements (“CPAs”) and Flight Services Agreement (“FSA”), leased to a third party, held for sale or maintained as operational spares.

Mesa operates all of its flights as either American Eagle, United Express, or DHL Express flights pursuant to the terms of CPAs entered into with American Airlines, Inc.

(“American”) and United Airlines, Inc.

(“United”) and FSA with DHL Network Operations (USA), Inc.

(“DHL”) (each, our “major partner”).

All of the Company’s consolidated contract revenues for the fiscal years ended September 30, 2022, 2021, and 2020 were derived from operations associated with these two (2) CPAs, FSA, and leases of aircraft to a third party.

The CPAs between us and our major partners involve a revenue-guarantee arrangement whereby the major partners pay fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services.

The major partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees.

Under the terms of these CPAs, the major partners control route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices.

("Mesa", the "Company", "we", "our", or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 86 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport.

Under the United CPA and DHL FSA, Mesa operated or maintained as operational spares a fleet of 120 aircraft with approximately 296 daily departures and 2,303 employees as of September 30, 2023.

Mesa’s fleet were conducted under the Company’s Capacity Purchase Agreements (“CPAs”) and Flight Services Agreement (“FSA”), leased to a third party, held for sale or maintained as operational spares.

Mesa operates all of its flights as either United Express or DHL Express flights pursuant to the terms of the CPA entered into United Airlines, Inc.

(“United”) and FSA with DHL Network Operations (USA), Inc.

(“DHL”) (each, our “major partner”).

Prior to the wind-down and termination of the Company's CPA with American Airlines, Inc.

("American") on April 3, 2023, Mesa also operated flights as American Eagle.

All of the Company’s consolidated contract revenues for the twelve months ended September 30, 2023 and September 30, 2022 were derived from operations associated with the American CPA prior to April 3, 2023, the United CPA, FSA, and leases of aircraft to a third party.

The United CPA involves a revenue-guarantee arrangement whereby United pays fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services.

United also pays certain expenses directly to suppliers, such as fuel, ground operations and landing fees.

Under the terms of the CPA, United controls route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices.

Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo flight services.

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Impact of Pilot Shortage and Attrition

Impact of Pilot Shortage

During our fiscal year ended September 30, 2022, the severity of the pilot shortage, elevated pilot attrition, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios.

One of the primary factors contributing to the pilot shortage and attrition is the demand for pilots at major carriers, which are hiring at an accelerated rate.

During our fiscal year ended September 30, 2023 , the severity of the pilot shortage and attrition and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios.

These conditions and events raised substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

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 to backfill the thousands of pilots whom they offered early retirements to at the beginning of the pandemic.

These airlines now seek to increase their capacity to meet the growing demand for air travel as the global pandemic has moderated.

A primary source of pilots for the major US passenger and cargo carriers are the US regional airlines.

As a result of the pilot shortage and attrition, the Company has increased overall hourly pay of nearly 118 % for captains and 172 % for new-hire first officers.

As a result of pilot shortage and attrition, we produced less block hours to generate revenues and incurred penalties for operational shortfalls under our CPAs.

These challenges resulted in a negative impact on the Company’s financial results highlighted by operating cash flows of $ 13.4 million and net loss of $ 182.7 million including a non-cash impairment charge related to the Company’s American asset group of $ 171.8 million.

These conditions and events raised financial concerns about our ability to continue to fund our operations and meet debt obligation in the next twelve months.

To address the events that gave rise to such concerns, management developed and implemented the following material changes to its business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next 12 months.

In addition to successfully implementing these effective measures, the Company expects to develop and implement additional measures aimed at addressing periods beyond the next 12 months.

In the fourth quarter, the Company reached an agreement with ALPA which increased overall pilot hourly pay by nearly 118 % for captains and 172 % for new-hire first officers.

As a result of this agreement, we have experienced reduced attrition rates and attracted new pilots.

The Company and American have agreed to terminate and complete a wind-down of the American CPA.

This will ultimately eliminate financial penalties incurred under the American CPA.

In December 2022, we entered into Amendment No.11 to our American CPA.

See the disclosure under Note 18 - "Subsequent Events" in the notes to the audited consolidated financial statements included in this Annual Report on Form 10-K for a discussion of Amendment No.

11 which includes among other things, disclosure regarding the wind-down of our operations with American and the termination of the American CPA.

In December 2022, we entered into the Third Amended and Restated Capacity Purchase Agreement with United which amended and restated the existing United CPA.

This agreement increases block hour revenues to cover increased wages agreed to with ALPA and adds CRJ 900 aircraft currently operating under the American CPA.

See the disclosure under Note 18 - "Subsequent Events" in the notes to the audited consolidated financial statement included in this Annual Report on Form 10-K for a discussion of the Amended and Restated United

CPA which includes among others, disclosure regarding the transition of the aircraft operated under the American CPA to be operated under the Third Amended and Restated United CPA .

We entered into an agreement with United to sell 18 CRJ-700 aircraft during the reporting period, of which 10 were sold.

The approximate net proceeds from the sale in the quarter was $ 36.8 million after retirement of debt.

The remaining eight ( 8 ) are expected to close in early January 2022.

The approximate net proceeds from the sale and after retirement of debt is $ 8 million.

We entered into an agreement with a third party to sell eleven ( 11 ) of our CRJ-900 aircraft and one CRJ-200 aircraft to raise capital and retire debt.

The approximate net proceeds from the sale are expected to be $ 8.2 million after retirement of debt.

We entered into an agreement to sell 30 spare engines to United to raise capital and retire debt.

The approximate gross proceeds from the sale are expected to be $ 80 million and will retire debt of $ 26.4 million.

We established a new line of credit totaling $ 25.5 million to draw upon when needed.

See the disclosure under Note 18 - "subsequent Events" in the notes to the audited consolidated financial statements included in this Annual Report on Form 10-K for a discussion of the line of credit and amount drawn upon subsequently.

We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on all seven aircraft for the period of January 2023 through December 2024, providing up to $ 14 million of liquidity.

Additionally, the junior noteholder MHIRJ agreed to reduce its loan amount by approximately $ 5 million.

We entered into an agreement with RASPRO Trust, reducing the buyout pricing on all 15 aircraft at lease termination by a total of $ 25 million .

We established the Mesa Pilot Development Program (the "MPD Program") to increase the pilot supply to Mesa..

We have entered into an agreement to purchase up to 29 state-of-the-art Pipistrel Alpha Trainer 2 aircraft.

This new fleet will be the backbone of our MPD Program to help commercial pilots accelerate their accumulation of flight hours to reach the minimum flight hours required by FAA and then be hired by Mesa.

As part of the program, pilots will be provided with the opportunity to accumulate up to 1,500 flight hours required to fly a commercial aircraft at Mesa Airlines.

Flights costs of $ 25 per hour, per pilot, will be fully financed by us with zero interest, providing no upfront out-of-pocket expense for flight time while the candidate is accruing the required hours to earn their ATP certificate.

We added flight training simulators and flight training instructors to expand our training capacity to backfill pilots lost to attrition.

We have expanded the United Aviate program participation to include all pilots flying for Mesa.

Previously, pilots had to fly under the United Express contract for a minimum of two (2) years to qualify for the flow through to United Airlines.

Now, all pilots regardless of contract, are eligible to flow through to United Airlines enhancing Mesa's ability to attract and retain pilots.

During the twelve months ended September 30, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $ 24.1 million and net loss of $ 120.1 million including a non-cash impairment charge of $ 54.3 million related to the Company designating 14 CRJ-900 aircraft as held for sale and our customer relationship intangible asset.

These conditions and events raised substantial doubt about our ability to continue to fund our operations and meet our debt obligations over the next twelve months.

To address such concerns, management developed and implemented several material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt

obligations over the next twelve months.

The Company implemented the following measures during the year ended September 30, 2023, and through the date of the issuance of the financial statements.

We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $ 50.3 million at the end of March 2024.

We entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines.

One agreement is for 30 engines for a total of $ 19.5 million.

The second agreement is for 15 airframes (without engines) for a total of $ 18.8 million.

Both of these transactions are expected to be completed by the end of March 2024, with net cash from these transactions expected to be approximately $( 12.1 ) million.

We entered into an agreement to sell 11 CRJ-900 aircraft to a third party.

The Company has closed the sale of seven of the aircraft which generated $ 21.0 million in gross proceeds and approximately $ 1.5 million in net proceeds after partial debt reduction on the UST Loan.

Subsequent to September 30, 2023, we closed the sale of the remaining four CRJ-900 aircraft to the third party for gross proceeds of $ 12.0 million.

Net proceeds from the sale of all four aircraft was $ 6.5 million after partial debt reduction of our UST Loan.

We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on seven CRJ-900 aircraft which began January 2023 through December 2024, providing approximately $ 14.0 million of liquidity.

Additionally, the junior noteholder, MHIRJ, agreed to forgive approximately $ 5.0 million in principal contingent upon the repayment of $ 4.2 million in principal by December 31, 2023.

We entered into an agreement to sell seven surplus CRJ-900 aircraft to American.

The Company has closed the sale of three of the aircraft which generated approximately $ 29.7 million in gross proceeds and approximately $ 2.4 million in net proceeds after partial debt reduction.

Subsequent to September 30, 2023, the Company closed the sale of the remaining four CRJ-900 aircraft to American for gross proceeds of $ 41.5 million.

Net proceeds from the sale of all four aircraft was $ 5.7 million after the retirement of the EDC Loan and MHIRJ junior note.

$ 0.6 million in proceeds from the sale of each aircraft was repaid to MHIRJ for a total of $ 4.2 million, and we achieved approximately $ 5.0 million of forgiveness on the MHIRJ junior note.

We established and drew upon a new line of credit with United totaling $ 25.5 million.

The United line of credit contains an additional deemed prepayment of $ 15 million with potential forgiveness upon the achievement of a certain number of block hours flown as well as maintaining a 99.3 % controllable completion factor ("CCF") over any rolling four-month period from April 2023 through December 2024.

As of November 2023, the foregoing milestones have been achieved for such rolling four-month period.

As a result, $ 9 million of the $ 15 million will be deemed prepaid one business day following the repayment of the Effective Date Bridge Loan discussed elsewhere herein.

We consider it likely that we will achieve additional forgiveness in fiscal year 2024.

Subsequently, this facility was amended to permit the Company to re-draw approximately $ 7.9 million of the Effective Date Bridge Loan previously repaid and increased the amount of Revolving Commitments from $ 30.7 million to $ 50.7 million.

See Note 10 for a discussion of the line of credit and amount drawn as well as discussion on the deemed prepayment.

On January 11, 2024 and January 19, 2024, we entered into the First Amendment to our Third Amended and Restated United CPA and the Second Amendment to our Third Amended and Restated United CPA (the "January 2024 United CPA Amendments"), respectively.

The January 2024 United CPA Amendments provide additional liquidity and certain other amendments described below

o Increased CPA rates, retroactive to October 1, 2023 through December 31, 2024, which are projected to generate approximately $ 63.5 million in incremental revenue over the next twelve months.

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

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

On January 11, 2024 and January 19, 2024, we entered into Amendment No.

4 to our Second Amended and Restated Credit and Guaranty Agreement, Amendment No.

1 to Stock Pledge Agreement and Limited Waiver of Conditions to Credit Extension United and Waiver and Amendment No.

5 to our Second Amended and Restated Credit and Guaranty Agreement (collectively, the "January 2024 Credit Agreement Amendments"), respectively.

The January 2024 Credit Agreement Amendments provide for the following:

o The repayment in full of the Company's $ 10.5 million Effective Date Bridge Loan obligations, and the prepayment (and corresponding reduction) of approximately $ 2.1 million in Revolving Loans (as defined therein), with the proceeds from the sale, assignment, or transfer of the Company's vested investment in Heart Aerospace Incorporated.

o As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc.

held by the Company are being released as collateral for the United credit facility, subject to certain conditions.

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

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

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

On December 1, 2023, we entered into an agreement with a third party to sell 12 surplus GE model CF34-8C aircraft engines and related parts.

The gross proceeds of $ 56.0 million will be used to retire approximately $ 40.0 million in associated debt and provide additional liquidity to fund operations and current debt obligations as they come due.

The transaction is expected to close by the end of March 2024.

Subsequent to September 30, 2023, we entered into a purchase agreement with a third party which provides for the sale of 23 engines for gross proceeds of $ 11.5 million which will be used to pay down our UST Loan.

The transaction is expected to close by the end of December 2024.

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

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

These plans and initiatives outlined above have effectively alleviated pressure on financial performance.

While we continue implement and monitor our plans and initiatives, there is no guarantee that these will continue to be effective and achieve their desired objectives.

As of September 30, 2022, the Company has $ 97.2 million of short-term debt due within the next twelve months.

We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations, as well as the liquidity we have achieved as outlined above.

The Company believes the plans and initiatives outlined above have effectively alleviated the substantial doubt and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements.

The forecast of undiscounted cash flows prepared to determine if the Company has the ability to meet its cash obligations over the next twelve months was prepared with significant judgment and estimates of future cash flows based on projections of CPA and FSA block hours, maintenance events, labor costs, and other relevant factors.

Assumptions used in the forecast may change or not occur as expected.

As of September 30, 2023 , the Company has $ 163.6 million of principal maturity payments on long-term debt due within the next twelve months.

We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations, as well as the liquidity created from the additional measures identified above.

If our plans are not realized, we intend to explore additional opportunities to create liquidity by refinancing and deferring repayment of our principal maturity payments that are due within the next twelve months.

The Company continues to monitor covenant compliance with its lenders as any

noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

Correction of Immaterial Misstatement

Subsequent to the issuance of the Company's 2022 consolidated financial statements, management determined that there was an error regarding the classification of a $ 4.7 million gain on sale of assets for the year ended September 30, 2022.

The gain on sale of assets was previously reported as a non-operating gain when it should have been reported as part of operations.

We have now reported the prior year gain on sale of assets as part of operations, consistent with the current period classification.

The error had no effect on the Company's previously reported net income, earnings per share, or net cash flows from operating, investing, or financing activities for the year ended September 30, 2022.

Management evaluated the error considering both quantitative and qualitative factors and concluded it was immaterial to previously issued financial statements.

Correction of Error (Unaudited)

Subsequent to the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, and in connection with the preparation of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, the Company identified an approximately $ 30.6 million balance sheet error associated with the classification of debt on the condensed consolidated balance sheet as of June 30, 2023.

The error was due to certain covenant requirements that were not met under our Second Amended and Restated Credit and Guaranty Agreement dated as of June 30, 2022, with United.

The debt covenants consisted of the 12-month rolling consolidated interest and rental coverage ratio covenants for the quarter ended June 30, 2023.

As a result, approximately $ 30.6 million should have been classified as current portion of long-term debt and finance leases on the condensed consolidated balance sheet as opposed to long-term debt and finance leases, excluding current portion.

In addition, the Company incorrectly stated in the going concern disclosures within the footnotes to our financial statements included in the 3 rd Quarter 10-Q that, as of June 30, 2023, the Company was in compliance with all of its debt covenants.

Except as discussed above, the error had no impact on the Company's condensed consolidated balance sheet as of June 30, 2023.

The error also had no impact on the Company's condensed consolidated statements of operations, stockholders' equity, and cash flows for the three-month and nine-month periods ended June 30, 2023.

The following table shows the original reported balances and restated balances reflecting the correction.

June 30, 2023 (Unaudited)

Current liabilities:

Current portion of long-term debt and finance leases

Total current liabilities

Noncurrent liabilities:

Long-term debt and finance leases, excluding current portion

Total noncurrent liabilities

Total liabilities

American Capacity Purchase Agreement

As of September 30, 2022, the Company operated 42 CRJ-900 aircraft under an Amended and Restated Capacity Purchase Agreement with American dated November 19, 2020 (as amended, the “American CPA”).

In exchange for providing passenger flight services, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month.

In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departure (“CD0”) and controllable flight completion (“CCF”) percentages.

American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes.

Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American.

In addition, American also provides, at no cost to us, certain ground handling and customer service functions as well as airport-related facilities and gates at American hubs and cities where we operate.

The American CPA expires on December 31, 2025 .

Our American CPA is subject to termination prior to its expiration, subject to our right to cure, in various circumstances including:

If either American or we become insolvent, file for bankruptcy, or fail to pay the debts as they become due , the non-defaulting party may terminate the agreement;

If either we or American fail to perform the covenants, conditions, or provisions of the American CPA, subject to certain notice and cure rights, the non-defaulting party may terminate the agreement;

If, at any time during the term of the American CPA, the number of covered aircraft is less than twenty (20);

If we are required by the United States Federal Aviation Administration (“FAA”) or the United States Department of Transportation (“DOT”) to suspend operations and we have not resumed operations within three (3) business days, except as a result of an emergency airworthiness directive from the FAA affecting all similarly equipped aircraft ;

If either our CCF or CD0 falls below certain levels for a specified period of time;

Upon the occurrence of a force majeure event (as defined in the American CPA) that lasts for a specified period of consecutive days and affects our ability to operate scheduled flights, including a future epidemic or pandemic;

If a labor dispute affects our ability to operate over a specified number of days or we operate in violation of any existing American collective bargaining agreement;

Upon a change in our ownership or control without the written approval of American.

Under the American CPA, American had the option in its sole discretion to withdraw up to:

(i) 10 aircraft during calendar year 2021, (ii) five ( 5 ) aircraft during each of calendar years 2022 and 2023, and (iii) during the period from January 1, 2024 to July 31, 2024, American can remove the first 20 aircraft to the extent not otherwise removed in 2021 - 2023, and thereafter American has the right to remove the remaining 20 aircraft.

American also has the right and option to withdraw a specified number of aircraft upon each occurrence of the following:

If our CCF falls below certain levels for a specified period of time, American may withdraw one (1) aircraft ;

If our CD0 falls below certain levels for a specified period of time, American may withdraw one (1) aircraft ;

If we fail to satisfactorily complete established cabin interior program requirements by certain deadlines, American may withdraw one (1) aircraft;

If our block hour utilization falls below certain levels for a specified period of time, American may withdraw a specified number of aircraft.

During fiscal year 2021, we entered into amendments to the American CPA.

The amendments reflect the following:

The addition of CRJ-900 aircraft to the American CPA (collectively, the “Incremental Aircraft”) in accordance with the following schedule:

(i) three ( 3 ) aircraft, from January 5, 2021 to March 3, 2021, (ii) increasing to a total of five ( 5 ) aircraft, from March 4, 2021 to May 5, 2021, (iii) decreasing to a total of three ( 3 ) aircraft, from May 6, 2021 to June 2, 2021, and (iv) increasing to a total of five ( 5 ) aircraft, from June 3, 2021 to August 17, 2021.

A temporary reduction in certain rates for the period December 2020 through September 2021.

The waiver of the operational performance metrics for the month of August 2021, and extension of the deadline for completing certain cabin interior and refurbishment requirements as defined in the American CPA to December 31, 2021.

Increases to incentive and penalty compensation under the American CPA, effective beginning in October 2021.

On June 10, 2022, we amended our American CPA, pursuant to Amendment No.

8 thereto, to modify certain commercial terms thereunder.

On June 20, 2022, we amended our American CPA, pursuant to Amendment No.

9 thereto, which amended and restated Schedule 1 (Covered Aircraft) to the American CPA and set forth certain equipment modification requirements with respect to Covered Aircraft added to such Schedule.

For the months of May and June 2022, we did not meet the CCF or CD0 minimum performance levels under the American CPA.

The failure to meet these minimum performance levels for two (2) consecutive months under the terms of the American CPA gives American the right to remove two (2) additional aircraft from the CPA, one (1) aircraft for not meeting the CCF minimum performance level for two (2) consecutive months and one (1) aircraft for not meeting the CD0 minimum performance level for two (2) consecutive months.

The Company's failure to meet the CCF or CD0 minimum performance levels for three (3) consecutive months gives American the right to terminate the CPA upon 90 days' notice and to provide a wind-down schedule.

Subsequently on July 28, 2022, we amended our American CPA, pursuant to Amendment No.

10 thereto, to, among other things, (a) modify certain commercial terms, (b) provide that, commencing with calendar months after January 1, 2022, during any calendar month in which a Notification Shortfall (as defined in the CPA) occurs, bonuses and rebates will not be assessed, (c) reset the CCF and CD0 three (3)-month measurement periods for purposes of American’s termination rights under the CPA to commence August 2022, and (d) amend certain other amounts payable to us thereunder.

In addition to the foregoing, our block hour utilization has fallen below required levels in prior months, which also gives American the right to withdraw certain aircraft, subject to complying with applicable notice requirements under the American CPA.

For the months of August, September, and October 2022, we did not meet the CD0 minimum performance levels under the American CPA.

As noted above, the failure to meet such performance levels for two (2) consecutive months under the terms of the American CPA gives American the right to remove one (1) additional aircraft from the CPA for not meeting the CD0 minimum performance levels for two (2) consecutive months.

The Company’s failure to meet the CD0 minimum performance levels for three (3) consecutive months gives American the right to terminate the CPA upon 90 days’ notice and to provide a wind-down schedule.

In December 2022, we entered into Amendment No.11 to our American CPA.

See Note 18 – “ Subsequent Events ” for a discussion of Amendment No.11, which includes, among other things, disclosure regarding the wind down of our operations under the American CPA and the transition of such aircraft to the United CPA.

In December 2022, we entered into Amendment No.

11 (the “American Amendment”) to the American CPA.

The American Amendment provided for the termination and wind-down of the American CPA by April 3, 2023 (the “Wind-down Period”), at which time all Covered Aircraft (as defined in the American CPA) were removed from the American CPA.

In March 2023, we began to transition aircraft operated under the American CPA to the United CPA.

The American CPA was previously set to expire by its terms on December 31, 2025.

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

No Material Breach (as defined in the American CPA) occurred that would have required the payment of liquidated damages.

Pursuant to the American Amendment, as no material breaches occurred during the wind-down period, American agreed to waive Mesa’s failure to meet certain past operational performance targets and other requirements, which triggered termination and withdrawal rights for American pursuant to the terms of American CPA.

All CCF targets were met during the Wind-down Period, and there were no penalties associated with that performance metric.

The parties executed a written mutual release of all claims and acknowledgment that no Material Breaches occurred.

United Capacity Purchase Agreement

As of September 30, 2022, we operated 20 E-175LL and 60 E-175 aircraft under a Second Amended and Restated Capacity Purchase Agreement with United dated November 4, 2020 (as amended, the “United CPA”).

Under our United CPA, United owns 42 of the 60 E-175 and all of the E-175LL aircraft and leases them to us at nominal amounts.

Under the United CPA, we have the ability to fly up to 80 aircraft for United.

The aircraft can be a mix of any number of E-175 or CRJ-900 aircraft so long as the number of aircraft operating at any given time does not exceed 80 .

As of September 30, 2023 we operated 54 E-175 and 26 CRJ-900 aircraft under our Third Amended and Restated CPA with United dated December 27, 2022, which amended and restated the Second Amended and Restated CPA dated November 4, 2020 (as amended, the “United CPA”

or the "Amended and Restated United CPA").

Under the United CPA, United owns 42 of our 60 E-175 aircraft.

The E-175 aircraft owned by United and leased to us have terms expiring between 2024 and 2028 , and the 18 E-175 aircraft owned by us have terms expiring in 2028 .

The E-175LL aircraft have terms expiring between 2032 and 2033 .

United reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance.

United also reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs"), and component maintenance for the E-175 aircraft owned by United.

Additionally, United leased 20 E-175LL aircraft to us at nominal amounts during the year ended September 30, 2023.

The E-175LL aircraft were removed from the CPA beginning in February 2023, with the last E-175LL aircraft being removed in April 2023.

In exchange for providing flight services under our United CPA, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys.

United also reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance.

Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

United reimburses us on a pass-through basis for certain costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the aircraft owned by United.

Our United CPA permits United, subject to certain conditions, including the payment of certain costs tied to aircraft type, to terminate the agreement in its discretion, or remove aircraft from service, by giving us notice of 90 days or more .

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

In addition, if United removes any of our 18 owned E-175 aircraft from service at its direction, United would remain obligated, at our option, to assume the aircraft ownership and associated debt with respect to such aircraft through the end of the term of the United CPA.

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

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

As of September 30, 2023, we operated 24 CRJ-900 aircraft under our Amended and Restated United CPA;

An increase in rates to cover the Company’s pilot pay increases instituted in September 2022, effective through September 2025;

United to be responsible for all costs associated with converting the CRJ-900 aircraft for operation in United’s network;

Terms providing that United may remove the CRJ-900 aircraft from the scope of the United CPA, subject to certain notice and other requirements;

United’s existing utilization waiver for the Company’s operation of E-175LL Covered Aircraft (as defined in the United CPA) to be extended to December 31, 2023;

The extension of existing monthly operational performance incentives;

An agreement by the Company to not enter into new regional air carrier service agreements, excluding the Company’s existing agreement with DHL, and provided that this restriction shall not apply from and after the earlier to occur of (i) January 1, 2026 and (ii) the Company's satisfaction of certain Performance Milestones (as defined in the Amended and Restated United CPA).

Additionally, in January 2023, in consideration for entering in the Amended and Restated United CPA and providing the revolving line of credit, discussed in Note 10, the Company (i) granted United the right to designate one individual to the Company's board of directors (the "United Designee"), which occurred effective May 2, 2023 with the appointment of Jonathan Ireland and (ii) issued to United 4,042,061 shares of the Company’s common stock equal to approximately 10 % of the Company’s 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.

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

Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine years .

We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement, and as of June 30, 2022, have entered into agreements to lease 20 of our 20 CRJ-700 aircraft.

During August of 2022, we committed to a formal plan to sell 18 of our 20 CRJ-700 aircraft and subsequently terminated the leases on the 18 CRJ-700 aircraft.

As of September 30, 2022, we sold 10 of the 18 CRJ-700 aircraft.

See Note 7 – “ Assets Held for Sale ” for further discussion of the CRJ-700 aircraft classified as held for sale as of September 30, 2022.

Our United CPA is subject to termination rights prior to its expiration, including :

We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement.

During August of 2022, we committed to a formal plan to sell 18 of our CRJ-700 aircraft and terminated the leases on the 18 CRJ-700 aircraft, which have all subsequently been sold.

Our United CPA is subject to early termination prior to its expiration in various circumstances including:

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

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

I f 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;

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;

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 E-175 aircraft leased from United at no cost to us;

Commencing five (5) years after the actual in-service date, United has the right to remove the E-175 aircraft from service by giving us notice of 90 days or more, subject to certain conditions, including the payment of certain wind-down expenses plus, if removed prior to the 10 year anniversary of the in-service date, certain accelerated margin payments.

See Note 18 – “Subsequent Events” for a discussion of the Amended and Restated United CPA, which includes among others, disclosure regarding the transition of the aircraft operated under the American CPA to be operated under the Amended and Restated United CPA .

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

DHL Flight Services Agreement

On December 20, 2019, we entered into a Flight Services Agreement with DHL (the “DHL FSA”).

Under the terms of the DHL FSA, we operate three (3) Boeing 737-400F aircraft to provide cargo air transportation services as of September 30, 2022.

On December 20, 2019, we entered into a FSA with DHL (the “DHL FSA”).

Under the terms of the DHL FSA, we operate four Boeing 737 aircraft to provide cargo air transportation services as of September 30, 2023.

In exchange for providing cargo flight services, we receive a fee per block hour with a minimum block hour guarantee.

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Ground support expenses including fueling and airport fees are paid directly by DHL.

Under our DHL FSA, DHL leases two (2) Boeing 737-400F aircraft 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.

Under our DHL FSA, DHL leases two Boeing 737-400F aircraft and one 737-800F and subleases them to us at nominal amounts.

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.

The third Boeing 737-400F aircraft is leased to us as an operating lease by a third party.

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 (1) or more aircraft for a period of one (1) year with 90 days’ advance written notice .

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

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;

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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 day’s written notice .

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

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

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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.

For the months of April, May, and June 2022, we did not meet the CCF and CA minimum performance levels under the DHL FSA.

The failure to meet the minimum performance levels for three (3) consecutive months under the terms of the DHL FSA gives DHL the right to terminate the FSA.

Management has received a waiver arising out of the failure to meet the aforementioned CCF and CA performance levels.

For the months of July, August, and September 2022, we did not meet the CCF and CA minimum performance levels under the DHL FSA.

The failure to meet the minimum performance levels for three (3) consecutive months under the terms

of the DHL FSA gives DHL the right to terminate the FSA.

Management has received a waiver arising out of the failure to meet the aforementioned CCF and CA performance levels.

Summary of Significant Accounting Policies

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All intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.

The Company is an " emerging growth company, " as defined in the Jumpstart Our Business Startups Act of 2012 (the " JOBS Act ") and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the IPO, subject to specified conditions.

The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.

The Company has elected to " opt out " of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

The consolidated financial statements have been prepared assuming the Company will continue as a going concern.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company generated a net loss of $ 120.1 million and cash flow used in operations of $ 24.1 million for the year ended September 30, 2023.

As of September 30, 2023 ,

the Company had a working capital deficit of $ 129.3 million, an accumulated deficit of $ 71.1 million, and cash and cash equivalents of $ 32.9 million.

The Company is evaluating strategies to obtain the required additional funding for future operations.

These strategies may include, but are not limited to, obtaining equity financing, issuing debt, entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses, or selling the aircraft held for sale and our equity investments.

Use of Estimates

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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 flying services in accordance with our capacity purchase agreements and flight services agreement.

While we operate under two (2) separate capacity purchase agreements and a flight services agreement, we do not manage our business based on any performance measure at the individual contract level.

Additionally, our chief operating decision maker (“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.

We currently operate in one service line providing scheduled flying services in accordance with our CPAs and FSAs.

While we operate under a CPA and a FSA, we do not manage our business based on any performance measure at the individual contract level.

As of September 30, 2023 , our chief operating decision maker ("CODM") was the Chief Executive Officer.

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.

Our 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.

All of our operating revenue in our 2022, 2021, and 2020 fiscal years was derived from operations associated with our American and United CPAs, DHL FSA, and from leases of aircraft to a third party.

It is currently impractical to provide certain information on our revenue from our customers for each of our services and geographic information on our revenues and long-lived assets.

Cash and Cash Equivalents

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The Company provides an allowance for obsolescence for such parts and supplies over the useful life of its aircraft after considering the useful life of each aircraft fleet, the estimated cost of expendable parts expected to be on hand at the end of the useful life, and the estimated salvage value of the parts.

This allowance for expendable parts account was $ 3.8 million and $ 3.2 million as of September 30, 2022 and 2021, respectively.

This allowance for

expendable parts account was $ 4.1 million and $ 3.8 million as of September 30, 2023 and 2022, respectively.

Property and Equipment

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If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to its estimated fair value.

To determine whether impairments exist for aircraft and other related assets used in operations, we group assets at the capacity purchase agreement, flight services agreement, or fleet type level (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity purchase or flight services agreement, block hours, maintenance events, labor costs and other relevant factors.

To determine whether impairments exist for aircraft and other related assets used in operations, we group assets at the CPA and FSA level (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity purchase or FSA, block hours, maintenance events, labor costs and other relevant factors.

If an asset group is impaired, the impairment loss recognized is the amount by which the asset group's carrying amount exceeds its estimated fair value.

We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available.

Due to the impacts of the pilot shortage and the pilot wage increase, we evaluated all asset groups during the quarter ended September 30, 2022 and determined that only the asset group associated with the CRJ-900 fleet operating under the American CPA was impaired as discussed in Note 8 - " Balance Sheet Information ", because the future cash flows from the operation of other asset groups through the respective retirement dates exceeded the carrying value.

The Company recognized impairment charges of $ 109.7 million, zero , and zero on property and equipment and other long-lived and ROU assets for the years ended September 30, 2022, 2021, and 2020 respectively.

Due to operating losses and the transition of operations from American to United, we evaluated our United fleet as of September 30, 2023 , and determined that future cash flows from the operation of our fleet through the respective remaining useful life exceeded the carrying value of the fleet.

As such, no impairment charges were recorded to our fleet.

The Company recognized impairment charges of zero , 109.7 million, and zero on property and equipment and other long-lived assets for the years ended September 30, 2023 , 2022, and 2021 respectively.

Assets Held for Sale

We classify assets as held for sale when our management approves and commits to a formal plan of sale that is probable of being completed within one (1) year.

We classify assets as held for sale when (i) our management approves and commits to a formal plan of sale that is probable of being completed within one year;

(ii) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

(iii) an active program to locate a buyer has been initiated;

(iv) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value;

and (v) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

Assets designated as held for sale are recorded at the lower of their current carrying value or their fair market value, less costs to sell, beginning in the period in which the assets meet the criteria to be classified as held for sale.

See Note 7 – “ Assets Held for Sale ” for further discussion of our assets classified as held for sale as of September 30, 2022

If the market value, less costs to sell, is lower than the current carrying value, an impairment loss is recorded on the asset designated as held for sale.

The Company recognized impairment charges of $ 50.6 million, $ 62.1 million, and zero on assets designated as held for sale for the years ended September 30, 2023, 2022, and 2021, respectively.

See Note 7 –

“Assets Held for Sale”

for further discussion of our assets classified as held for sale as of September 30, 2023

Fair Value Measurements

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Each fair value measurement is reported in one of three levels:

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly;

Level 3 – Unobservable inputs in which there is little or no market data, requiring an entity to develop its own assumptions.

Level 1 –

Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 –

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly;

Level 3 –

Unobservable inputs in which there is little or no market data, requiring an entity to develop its own assumptions.

Debt Financing Costs

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Debt financing costs with no related recognized debt liability are presented as assets, with the current portion included in prepaid expenses and other current assets and the noncurrent portion included in other assets on the consolidated balance sheet.

Unutilized Manufacturer Credits

Manufacturer credits received in connection with aircraft purchases that can be used for the future purchase of certain goods and services are recorded as a prepaid asset based on the value of the credits expected to be utilized, and the Company reduces the asset as the credits are utilized to fund such purchases.

The current portion is included in prepaid expenses and other current assets and the noncurrent portion is included in other assets on the consolidated balance sheet.

Intangible Assets

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The Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset and if the carrying amount of the asset exceeds fair value.

If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to its estimated fair value.

The Company recognized an impairment loss of $ 1.9 million, zero , and zero on intangible assets for the year ended September 30, 2022, 2021, and 2020 respectively.

If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to its

estimated fair value.

The Company recognized an impairment loss of $ 3.7 million, $ 1.9 million, and zero on intangible assets for the year ended September 30, 2023 , 2022, and 2021 respectively.

Other noncurrent assets primarily consist of the non-current portion of lease incentives related to aircraft which Mesa leases to third parties and investments in equity securities.

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Revenue Recognition

The Company recognizes revenue when the service is provided under its capacity purchase agreements and flight services agreement.

Under these agreements, the Company’s major partners generally pay a fixed monthly minimum amount per aircraft, plus certain additional amounts based upon the number of departures and block hours or flight hours flown.

The Company recognizes revenue when the service is provided under its CPAs and FSAs.

The agreements also include reimbursement of certain direct costs incurred by the Company in performing flight services.

These costs, known as " pass-through costs, " may include passenger and hull insurance as well as aircraft property taxes.

These costs, known as " pass-through costs, " may include passenger liability and hull insurance as well as aircraft property taxes.

Additionally, for the E-175 aircraft owned by United, United reimburses the Company for heavy airframe and engine maintenance, landing gear maintenance, APU maintenance, and component maintenance.

The Company also receives compensation under its agreements for heavy maintenance expenses at a fixed hourly rate or per aircraft rate for all aircraft in scheduled service other than the E-175 aircraft owned by United.

The contracts also include a profit margin on certain reimbursable costs, as well as incentives and penalties based on certain operational benchmarks.

The contracts also include incentives and penalties based on certain operational benchmarks.

The Company is eligible to receive incentive compensation upon the achievement of certain performance criteria defined in the agreements.

At the end of each period during the term of an agreement, the Company calculates the incentives or penalties achieved during that period and recognizes revenue attributable to the agreement during the period accordingly, subject to the variable constraint guidance in accordance ASC 606.

At the end of each period during the term of an agreement, the Company calculates the incentives or penalties

achieved during that period and recognizes revenue attributable to the agreement during the period accordingly, subject to the variable constraint guidance in accordance ASC 606.

All revenue recognized under these contracts is presented as the gross amount billed to the major partners.

See Note 3 - “ Contract Revenue and Pass-through and Other Revenue ” for further information.

See Note 3 - “Contract Revenue and Pass-through and Other Revenue”

for further information.

The Company has committed to perform various activities that can be generally classified into in-flight services and maintenance services.

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Both the services occur over the term of the agreement and the performance of maintenance services significantly effects the utility of the in-flight services.

The Company's individual flights flown under the capacity purchase agreements and flight services agreement are deemed to be distinct and the flight service promised in the agreements represents a series of services that should be accounted for as a single performance obligation.

The Company's individual flights flown under the CPAs and FSAs are deemed to be distinct and the flight service promised in the agreements represents a series of services that should be accounted for as a single performance obligation.

This single performance obligation is satisfied over time as the flights are completed.

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This results in a pattern of revenue recognition that follows the variable amounts billed from the Company to its customers.

A portion of the Company's compensation under its capacity purchase agreements with American and United is designed to reimburse the Company for certain aircraft ownership costs.

A portion of the Company's compensation under its CPAs with American and United is designed to reimburse the Company for certain aircraft ownership costs.

Such costs include aircraft principal and interest debt service costs, aircraft depreciation, and interest expense or aircraft lease expense costs while the aircraft is under contract.

The Company has concluded that a component of its revenue under these agreements is deemed to be lease revenue, as such agreements identify the " right of use " of a specific type and number of aircraft over a stated period-of-time.

The lease revenue associated with the Company's capacity purchase agreements is accounted for as an operating lease and is reflected as contract revenue on the Company's consolidated statements of operations and comprehensive (loss) income .

The lease revenue associated with the Company's CPAs is accounted for as an operating lease and is reflected as contract revenue on the Company's consolidated statements of operations and comprehensive (loss) income.

The Company recognized $ 144.7 million, $ 158.4 million, and $ 170.2 million of lease revenue for the year ended September 30, 2023, 2022, and 2021, respectively.

The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statements of operations and comprehensive (loss) income because the use of the aircraft is not a separate activity of the total service provided under our capacity purchase agreements.

The Company's capacity purchase agreements and flight services agreement are renewable periodically and contain provisions pursuant to which the parties could terminate their respective agreements, or withdraw aircraft under their respective agreements, subject to certain conditions as described in Note 1.

The Company's CPAs and FSAs are renewable periodically and contain provisions pursuant to which the parties could terminate their respective agreements, or withdraw aircraft under their respective agreements, subject to certain conditions as described in Note 1.

The agreements also contain terms with respect to covered aircraft, services provided, and compensation as described in Note 1.

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All of the Company's major partners have exercised this option.

Accordingly, the Company does not record an expense or revenue for fuel and related fueling costs for flying under its capacity purchase agreements or flight services agreement.

Accordingly, the Company does not record

an expense or revenue for fuel and related fueling costs for flying under its CPAs or FSA.

In addition, the Company's major partners also provide, at no cost to the Company, certain ground handling and customer service functions, as well as airport-related facilities and gates at their hubs and other cities.

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Contract Liabilities

Contract liabilities consist of deferred credits representing upfront payments received from major partners related to aircraft modifications associated with capacity purchase agreements and pilot training.

The deferred credits are recognized over time depicting the pattern of transfer of the related services over the term of the capacity purchase agreements.

Contract liabilities consist of deferred credits representing upfront payments received from major partners related to aircraft modifications associated with CPAs and pilot training.

The deferred credits are recognized over time depicting the pattern of transfer of the related services over the term of the CPAs.

Current and non-current deferred credits are recorded to other accrued expenses and non-current deferred credits in the consolidated balance sheets, respectively.

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Contract assets are recorded as other assets in the consolidated balance sheets.

The Company's contract assets balance at September 30, 2022 and September 30, 2021 was zero and zero , respectively.

Contract cost amortization was zero , $ 2.0 million and $ 1.9 million for the year ended September 30, 2022, 2021, and 2020, respectively.

The Company's contract assets balance at September 30, 2023 and September 30, 2022 was approximately $ 8.8 million and zero , respectively.

Contract cost amortization was approximately $ 1.0 million, zero , and $ 2.0 million for the year ended September 30, 2023 , 2022, and 2021, respectively.

Maintenance Expense

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The Company accounts for heavy maintenance and major overhaul costs on its owned E-175 fleet under the deferral method whereby the cost of heavy maintenance and major overhaul is deferred and amortized until the earlier of the end of the useful life of the related asset or the next scheduled heavy maintenance event.

Amortization of heavy maintenance and major overhaul costs charged to depreciation and amortization expense was $ 1.9 million, $ 0.4 million, and zero for the fiscal year ended September 30, 2022, 2021, and 2020, respectively.

At September 30, 2022 and September 30, 2021, the Company had a deferred heavy maintenance balance, net of accumulated amortization, of $ 9.7 million and $ 3.5 million, respectively.

Amortization of heavy maintenance and major overhaul costs charged to depreciation and amortization expense was approximately $ 3.1 million, $ 1.9 million, and $ 0.4 million for the fiscal year ended September 30, 2023, 2022, and 2021, respectively.

At September 30, 2023 and September 30, 2022 , the Company had a deferred heavy maintenance balance, net of accumulated amortization, of approximately $ 8.0 and $ 9.7 million, respectively.

The Company accounts for heavy maintenance and major overhaul costs for all other fleets under the direct expense method whereby costs are expensed to maintenance expense as incurred, except for certain maintenance contracts where labor and materials price risks have been transferred to the service provider and require payment on a utilization basis, such as flight hours.

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Under the Company's aircraft operating lease agreements and FAA operating regulations, it is obligated to perform all required maintenance activities on its fleet, including component repairs, scheduled airframe checks and major engine restoration events.

The Company estimates the timing of the next major maintenance event based on assumptions including estimated usage, FAA-mandated maintenance intervals, and average removal times as recommended by the manufacturer.

The Company estimates the timing of the next major maintenance event based on assumptions including estimated usage, FAA-mandated maintenance

intervals, and average removal times as recommended by the manufacturer.

The timing and the cost of maintenance are based on estimates, which can be impacted by changes in utilization of its aircraft, changes in government regulations and suggested manufacturer maintenance intervals.

Major maintenance events consist of overhauls to major components.

Engine overhaul expense totaled $ 23.6 million, $ 31.4 million and $ 40.5 million for the years ended September 30, 2022, 2021, and 2020, respectively, of which $ 21.7 million, $ 16.8 million, and $ 7.0 million, respectively, was pass-through expense.

Airframe check expense totaled $ 22.1 million, $ 51.1 million and $ 23.5 million for the years ended September 30, 2022, 2021, and 2020, respectively, of which $ 3.2 million, $ 20.5 million, and $ 7.2 million, respectively, was pass-through expense.

Engine overhaul expense totaled approximately $ 32.4 million, $ 23.6 million, and $ 31.4 million for the years ended September 30, 2023 , 2022, and 2021, respectively, of which approximately $ 31.9 million, $ 21.7 million, and $ 16.8 million, respectively, was pass-through expense.

Airframe check expense totaled approximately $ 23.4 million, $ 22.1 million, and $ 51.1 million for the years ended September 30, 2023 , 2022, and 2021, respectively, of which approximately $ 16.9 million, $ 3.2 million, and $ 20.5 million, respectively, was pass-through expense.

Pursuant to the United CPA, United reimburses the Company for heavy maintenance on certain E-175 aircraft.

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Operating lease costs are recognized on a straight-line basis over the lease term, while finance leases result in a front-loaded expense pattern.

To determine whether impairments exist for aircraft and other related assets used in operations, we group assets, including ROU assets, at the capacity purchase agreement, flight services agreement, or fleet type level (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of capacity purchase or flight services agreement, block hours, maintenance events, labor costs and other relevant factors.

Due to the impacts of the pilot shortage and the pilot wage increase, we evaluated all asset groups during the quarter ended September 30, 2022 and determined that the asset group associated with the CRJ-900 fleet operating under the American CPA, discussed in Note 8 – “ Balance Sheet Information ”, required impairment.

This resulted in an impairment loss of $ 15.2 million to the leased aircraft in the asset group for the CRJ-900 fleet operating for the quarter ended September 30, 2022, which was recorded in asset impairment on our consolidated statements of operations and comprehensive (loss) income.

To determine whether impairments exist for aircraft and other related assets used in operations, we group assets, including ROU assets, at the CPA or FSA level (i.e., the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of CPA or FSA, block hours, maintenance events, labor costs and other relevant factors.

As all of our aircraft leases besides one with an insignificant value on our books are leased to us from United or DHL at nominal amounts and not recorded on our books, we did no t assess leased aircraft for impairment.

The Company recorded impairment losses of zero , $ 10.5 million, and zero for the years ended September 30, 2023, 2022, and 2021, respectively.

As a lessee, we have elected a short-term lease practical expedient on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to leases with terms of 12 months or less.

Our capacity purchase agreements identify the "right of use" of a specific type and number of aircraft over a stated period-of-time.

A portion of the compensation under our capacity purchase agreements are designed to reimburse the Company, as lessor, for certain aircraft ownership costs of these aircraft.

Our CPAs identify the "right of use" of a specific type and number of aircraft over a stated period-of-time.

A portion of the compensation under our CPAs are designed to reimburse the Company, as lessor, for certain aircraft ownership costs of these aircraft.

We account for the non-lease component under ASC 606 and account for the lease component under ASC 842.

We allocate the consideration in the contract between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

We allocate the consideration in the contract

between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

As discussed in Note 1, we lease, at nominal rates, certain aircraft from United and DHL under our United CPA and DHL FSA, which are excluded from operating lease assets and liabilities as they do not represent embedded leases under ASC 842.

Other than nominal leases with our major partners, approximately 1 % of our aircraft are leased from third parties.

All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the term of the related leases.

Our aircraft classified as operating leases results in rental payments being charged to expense over the term of the related leases.

In the event that we or one of our major partners decide to exit an activity involving leased aircraft, losses may be incurred.

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Additionally, any remaining ROU assets and lease liabilities will be written off.

The majority of the Company's leased aircraft are leased through trusts that have a sole purpose to purchase, finance, and lease these aircraft to the Company;

therefore, they meet the criteria of a variable interest entity.

However, since these are single-owner trusts in which the Company does not participate, the Company is not at risk for losses and is not considered the primary beneficiary.

Management believes that the Company's maximum exposure under these leases is the remaining lease payments.

Contract Revenue and Pass-through and Other Revenue

The Company recognizes contract revenue when the service is provided under its capacity purchase agreements and flight services agreement.

Under the capacity purchase agreements and flight services agreement, our major partners generally pay for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion, on-time performance, and other operating metrics.

The Company’s performance obligation is met when each flight is completed, and revenue is recognized and reflected in contract revenue.

The Company’s contract revenue also includes temporary rate reductions during fiscal year 2021 under our capacity purchase agreements.

The basis for the reductions is temporary improvements in our cost structure being passed on to our major partners, primarily from lower labor costs due to the grants received under the Payroll Support Program and its extensions through the year ended September 30, 2021.

The Company’s contract revenue for fiscal year ended September 30, 2022 does not include any rate reductions.

The Company recognizes pass-through revenue when the service is provided under its capacity purchase agreements and flight services agreement.

The Company recognizes contract revenue when the service is provided under its CPA and FSA.

Under the CPA and FSA, our major partners generally pay for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion, on-time performance, and other operating metrics.

The Company’s performance obligation is met when each flight is completed, and revenue is recognized and reflected in contract revenue.

The Company recognizes pass-through revenue when the service is provided under its CPA and FSA.

Pass-through revenue represents reimbursements for certain direct expenses incurred including passenger liability and hull insurance, property taxes, other direct costs defined within the agreements, and major maintenance on aircraft leased at nominal rates.

The Company’s 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.

The Company records deferred revenue when cash payments are received or are due from our major partners in advance of the Company’s performance, including amounts that are refundable.

The Company deferred $ 10.4 million and $ 10.7 million of revenue during the years ended September 30, 2022 and September 30, 2021, respectively, which was billed to and paid by our major partners.

The Company’s 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.

The Company records deferred revenue when cash payments are received or are due from our major partners in advance of the Company’s performance, including amounts that are refundable.

The Company recognized approximately $ 3.0 million of previously deferred revenue, and deferred $ 10.4 million of revenue during the years ended September 30, 2023 and 2022, respectively, which was billed to and paid by our major partners.

Deferred revenue is recognized as flights are completed over the remaining contract term.

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Total Revenue

A portion of the Company's compensation under its capacity purchase agreements with American and United is designed to reimburse the Company for certain aircraft ownership costs.

A portion of the Company's compensation under its CPA with United and formerly American is designed to reimburse the Company for certain aircraft ownership costs.

Such costs include aircraft principal and interest debt service costs, aircraft depreciation, and interest expense or aircraft lease expense costs while the aircraft is under contract.

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We account for the non-lease component under ASC 606 and account for the lease component under ASC 842.

The Company recognized $ 158.4 million, $ 170.2 million, and $ 208.9 million of lease revenue for the years ended September 30, 2022, 2021, and 2020, respectively.

The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statements of operations and comprehensive (loss) income because the use of the aircraft is not a separate activity from the total service provided under our capacity purchase agreements.

Historically, the Company entered into lease agreements with GoJet Airlines LLC (“GoJet”) to lease CRJ-700 aircraft.

We allocate the

consideration in the contract between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

The Company recognized approximately $ 144.7 million, $ 158.4 million, and $ 170.2 million of lease revenue for the years ended September 30, 2023, 2022, and 2021, respectively.

Historically, the Company entered into lease agreements with GoJet Airlines LLC (“GoJet”) to lease CRJ-700 aircraft.

The lease agreements were accounted for as operating leases and had a term of nine years beginning on the delivery date of each aircraft.

Under the lease agreements, GoJet paid fixed monthly rent per aircraft and variable lease payments for supplemental rent based on monthly aircraft utilization at fixed rates.

Supplemental rent payments were subject to reimbursement following GoJet’s completion of qualifying maintenance events defined in the agreements.

Lease revenue for fixed monthly rent payments were recognized on a straight-line basis within contract revenue.

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Lease incentive obligations for reimbursements of certain aircraft maintenance costs are recognized as lease incentive assets and were amortized on a straight-line basis and recognized as a reduction to lease revenue over the lease term.

During August of 2022, the Company classified 18 CRJ-700 aircraft as assets held for sale (see Note 7) and terminated all lease agreements with GoJet.

As a result of the lease termination, the Company recognized a loss from immediately derecognizing lease incentive assets of $ 3.2 million.

This loss is recorded in operating expense.

Prior to the lease termination, lease revenue recognized under the GoJet agreements, net of amortization of the lease incentive assets, was $ 30.0 million, $ 9.5 million, and zero for the years ended September 30, 2022, 2021, and 2020 respectively.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

This ASU provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued.

Optional expedients can be applied from March 12, 2020 through December 31, 2022.

We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In March 2022, the FASB issued new guidance to expand the scope of financial assets that can be included in a closed portfolio hedged using the portfolio layer method to allow consistent accounting for similar hedges.

The expanded scope permits the application of the same portfolio hedging method to both prepayable and non-prepayable financial assets.

The standard will be effective for annual reporting periods beginning after December 15, 2022, including interim reporting periods within those fiscal years.

We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

This ASU provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR), or another reference rate expected to be discontinued.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, has determined that the U.S.

dollar LIBOR will be replaced by the Secured Overnight Financing Rate (SOFR) after June 30, 2023.

Optional expedients can be applied through December 31, 2024.

Under the expedient, the Company will account for amendments to agreements as if the modification was not substantial.

The new carrying amounts of debts will consist of the carrying amount of the original debt and any additional fees associated with the modified debt instrument.

A new effective yield will be established based on the new carrying amount and revised cash flows.

In June 2022, the FASB issued new guidance to clarify the fair value measurement guidance for equity securities subject to contractual restrictions that prohibit the sale of an equity security.

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Pursuant to the terms of this agreement, $ 3.1 million and $ 3.3 million of outstanding letters of credit are required to be collateralized by amounts on deposit as of September 30, 2023 and 2022, respectively, which are classified as restricted cash.

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date.

At September 30, 2022, the Company had capacity purchase agreements with American and United and a flight services agreement with DHL.

Substantially all of the Company's consolidated revenue for the years ended September 30, 2022, 2021, and 2020 and accounts receivable at the end of September 30, 2022 and 2021 was derived from these agreements.

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date.

At September 30, 2023, the Company had a CPA with United and a FSA with DHL.

Substantially all of the Company's consolidated revenue for the years ended September 30, 2023, 2022, and 2021 and accounts receivable at the end of September 30, 2023 and 2022 was derived from these agreements as well as the CPA with American which was terminated on April 3, 2023.

In certain cases, the terms of these agreements are not aligned with the lease obligations on the aircraft performing services under such agreements.

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United accounted for approximately 73 %, 48 %, and 52 % of the Company's total revenue for the years ended September 30, 2023 , 2022, and 2021, respectively.

A termination of either the American or the United capacity purchase agreement would have a material adverse effect on the Company's business prospects, financial condition, results of operations, and cash flows.

A termination of the United CPA would have a material adverse effect on the Company's business prospects, financial condition, results of operations, and cash flows.

Intangible Assets

The Company includes its intangible assets of customer relationship in the asset group associated with the CRJ-900 fleet operating under the American CPA and monitors for any indicators of impairment of the asset group.

When certain conditions or changes in the economic situation exist, the asset group may be impaired if the carrying amount of the assets is not recoverable and that carrying amount exceeds the asset group’s fair value.

Due to the impacts of the pilot shortage and the pilot wage increase, we evaluated all asset groups during the quarter ended September 30, 2022 and determined that the asset group for the CRJ-900 fleet operating under the American CPA was impaired.

As a result, the Company recognized an impairment loss of $ 1.9 million on the customer relationship related to the CRJ-900 fleet operating under the American CPA during the quarter ended September 30, 2022, which was recorded in asset impairment on our consolidated statements of operations and comprehensive (loss) income.

The Company did no t record any impairment losses related to its intangible assets during the years ended September 30, 2021 and 2020.

Due to the impacts of the pilot shortage and the pilot wage increase, we evaluated all asset groups during the year ended September 30, 2023 and determined that the asset group for the CRJ-900 fleet operating under the American CPA was impaired.

As a result, the Company recognized an impairment loss of $ 3.7 million and $ 1.9 million on the customer relationship related to the CRJ-900 fleet operating under the American CPA during the year ended September 30, 2023 and 2022, respectively, which was recorded in asset impairment on our consolidated statements of operations and comprehensive (loss) income.

The Company did no t record any impairment losses related to its intangible assets during the year ended September 30, 2021.

Information about the intangible assets of the Company at September 30, 2023 and 2022, is as follows (in thousands):

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Net carrying value

Total amortization expense recognized was approximately $ 1.0 million, $ 1.2 million, and $ 1.5 million for the fiscal years ended September 30, 2022, 2021, and 2020.

The Company’s intangible assets have a remaining amortization period

of three ( 3 ) years .

The Company expects to record amortization expense of $ 1.3 million, $ 1.3 million, and $ 1.2 million for fiscal years 2023, 2024 , and 2025 , respectively.

Total amortization expense recognized was approximately $ 0.1 million, $ 1.0 million, and $ 1.2 million, for the fiscal years ended September 30, 2023, 2022, and 2021, respectively.

The Company recognized an impairment loss of $ 3.7 million on the customer relationship related to the American CPA during the year ended September 30, 2023 , which was recorded in asset impairment on our condensed consolidated statements of operations and comprehensive loss.

Accordingly, we expect to record amortization expense of zero for fiscal year 2024 and thereafter.

Assets Held for Sale

During 2022, our management committed to a formal plan to sell certain of our CRJ-900, CRJ-200, and CRJ-700 aircraft.

The aircraft are expected to be disposed of via sale by December 31, 2022.

Accordingly, we determined the aircraft met the criteria to be classified as assets held for sale and have separately presented them in our consolidated balance sheet at the lower of their current carrying value or their fair market value less costs to sell.

During the year ended September 30, 2023, management disposed of our remaining CRJ-200 aircraft and our remaining CRJ-700 aircraft besides two which are leased to a third party.

Additionally, management continued our plan to sell certain of our CRJ-900 aircraft, and determined that 14 CRJ-900 aircraft met the criteria to be classified as assets held for sale during the year ended September 30, 2023.

We have a total of 15 aircraft held for sale as of September 30, 2023, all of which are CRJ-900 aircraft.

These aircraft are presented separately in our condensed consolidated balance sheet at the lower of their current carrying value or their fair market value less costs to sell.

The fair values are based upon observable and unobservable inputs, including recent purchase offers and market trends and conditions.

The assumptions used to determine the fair value of our assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which we will continue to monitor in future periods as new information becomes available.

Prior to the ultimate sale of the assets, subsequent changes in our estimate of the fair value of our assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value.

In connection with the classification of these assets as held for sale, we recorded impairment losses of $ 62.0 million, which are reflected within impairment of assets held for sale in our consolidated statements of operations and comprehensive (loss) income (loss).

In September 2022, the Company completed the sale of 10 CRJ-700 aircraft for $ 50.0 million in cash proceeds.

The disposed aircraft had a held for sale value of $ 45.3 million and the Company recognized $ 4.7 million of gain on sale, which is reflected within gain on sale of aircraft on our consolidated statements of operations and comprehensive (loss) income.

As of September 30, 2022, the Company has 11 CRJ-900 aircraft, eight ( 8 ) CRJ-700 aircraft, and one ( 1 ) CRJ-200 aircraft that are classified as assets held for sale with a net book value of $ 73.0 million, which is reflected within assets held for sale on our consolidated balance sheet.

The assumptions used to determine the fair value of our assets held for sale, excluding agreed upon purchase offers, are subject to inherent uncertainty and could produce a wide range of outcomes which we will continue to monitor in future periods as new information becomes available.

carrying value.

As of September 30, 2022, the Company had eight CRJ-700 classified as held for sale.

During the year ended September 30, 2023 , the Company closed the sale of all eight CRJ-700 aircraft for gross proceeds of $ 40.0 million.

Net proceeds from the sale after retirement of debt was $ 8.0 million.

As of September 30, 2022, the Company had 11 CRJ-900 aircraft and one CRJ-200 aircraft classified as held for sale.

During the year ended September 30, 2023, the Company closed the sale of seven of the CRJ-900 aircraft to a third party for gross proceeds of $ 21.0 million.

Net proceeds from the sale after partial debt reduction was $ 1.5 million.

The sale of the remaining four CRJ-900 aircraft is expected to close in January 2023 and generate another $ 12.0 million in gross proceeds.

Additionally, our CRJ-200 aircraft classified as held for sale as of September 30, 2022 was included in this deal.

As the aircraft was fully depreciated, there was no loss recorded on the disposal.

During the year ended September 30, 2023, t he Company entered into an agreement to sell seven surplus CRJ-900 aircraft to American.

As of September 30, 2023, the Company has closed the sale of three of the aircraft which generated approximately $ 29.7 million in gross proceeds and approximately $ 2.4 million in net proceeds after partial debt reduction.

Subsequent to September 30, 2023, the Company closed the sale of the remaining four CRJ-900 aircraft to American for gross proceeds of $ 41.5 million.

Net proceeds from the sale of all four aircraft was $ 5.7 million after the retirement of the EDC Loan and MHIRJ junior note.

During the year ended September 30, 2023 , the Company closed the sale of seven CRJ-900 aircraft to a third party.

The proceeds of $ 21 million from the sale of the CRJ-900 aircraft were used to pay down the Company's obligations under its UST Loan.

During the year ended September 30, 2023 , the Company designated seven of our CRJ-900 aircraft under the agreement with RASPRO Trust as held for sale.

Subsequent to September 30, 2023 , we entered into an agreement with a third party to sell 12 surplus engines.

The transaction is expected to close by the end of March 2024.

As of September 30, 2023 , the Company has 15 CRJ-900 aircraft that are classified as assets held for sale with a net book value of $ 69.7 million, $ 57.7 million of which is classified as current assets on our condensed consolidated balance sheet and $ 12.0 million of which is classified as noncurrent assets on our condensed consolidated balance sheet.

Balance Sheet Information

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Expendable parts and supplies

obsolescence and other

expendable parts warranty

Prepaid expenses and other current assets:

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Lease incentives

Prepaid fuel and other

Property and equipment, net:

Aircraft and other flight equipment

substantially pledged

Other equipment

Leasehold improvements

Furniture and fixtures

Total property and equipment

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Lease incentives

Contract asset

Other accrued expenses:

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Accrued maintenance

Accrued liability on government payroll program

Accrued liability on government payroll

Accrued simulator costs

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Long-term employee benefits

Long term liability on government payroll program

Impairment of long-lived assets

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The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the undiscounted net cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated fair value.

We group assets at the capacity purchase agreement, flight services agreement, and fleet-type level (i.e., the lowest level for which there are identifiable cash flows).

If impairment indicators exist with respect to any of the asset groups, we estimate future cash flows based on projections of capacity purchase or flight services agreement, block hours, maintenance events, labor costs and other relevant factors.

Due to the impacts of the pilot shortage and the pilot wage increase, the Company assessed whether any impairment of its long-lived assets existed for all asset groups during the quarter ended September 30, 2022.

The Company has determined that impairment charges were deemed necessary only for the asset group associated with the CRJ-900 fleet operating under the American CPA because the future cash flows from the operation of other asset groups through the respective retirement dates exceeded the carrying value.

We group assets at the CPA and FSA level (i.e., the lowest level for which there are identifiable cash flows).

If impairment indicators exist with respect to any of the asset groups, we estimate future cash flows based on projections of capacity purchase or FSA, block hours, maintenance events, labor costs and other relevant factors.

Due to operating losses and the transition of operations from American to United, the Company assessed whether any impairment of its long-lived assets existed for our United fleet as of September 30, 2023 .

As future cash flows from the operation of our United fleet through the respective remaining useful life exceeded the carrying value of the fleet, the Company determined that no impairment charges were necessary for the United fleet.

The asset group associated with the CRJ-900 fleet includes owned aircraft, leased aircraft, intangible assets of customer relationship, and other relevant long-lived assets.

The fair values of assets within the CRJ-900 fleet were calculated using Level 3 fair value inputs based primarily upon recent market transactions, appraisals, and third-party bids, which were corroborated with published pricing guides and our assessment of existing market conditions based on industry knowledge.

For the year ended September 30, 2022, the Company recognized a total impairment loss of $ 109.7 million related to the asset group associate with the CRJ-900 fleet, of which $ 92.6 million was related to property and equipment, $ 15.2 million was related to operating lease right-of-use assets, and $ 1.9 million was related to intangible asset of customer relationship.

These impairment charges were recorded in asset impairment on our consolidated statements of operations and comprehensive (loss) income.

The Company did no t record any impairment losses related to its long-lived assets during the years ended September 30, 2021 and 2020.

The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business, are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

The Company recorded impairment losses of zero , $ 116.6 million, and zero related to its long-lived assets for the years ended September 30, 2023, 2022, and 2021, respectively.

The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

Depreciation Expense on Property and Equipment

Depreciation expense on property and equipment totaled $ 60.2 million, $ 80.5 million, and $ 81.2 million for the years ended September 30, 2023, 2022, and 2021, respectively.

In connection with a negotiated forward purchase contract for electrically-powered vertical takeoff and landing aircraft (“eVTOL aircraft”) executed in February 2021, we obtained equity warrant assets giving us the right to acquire a number shares of common stock in Archer Aviation, Inc.

(“Archer”), which at the time of our initial investment was a private, venture-backed company.

As the initial investment in Archer did not have a readily determinable fair value, we accounted for this investment using the measurement alternative under ASC 321 and measured the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer.

We estimated the initial equity warrant asset value to be $ 16.4 million based on publicly available information as of the grant date.

In September 2021, the merger between Archer and a special purpose acquisition company (“SPAC”) was completed, resulting in a readily determinable fair value of our investments in Archer.

Accordingly, gains and losses associated with changes in the fair value of our investments in Archer are measured in earnings, in accordance with ASC 321.

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The liability related to the warrant assets will be settled in the future, as a reduction of the acquisition date value of the eVTOL aircraft contemplated in the related aircraft purchase agreement.

In connection with closing of the merger between Archer and the SPAC described above, in September 2021, we purchased 500,000 Class A common shares in Archer for $ 5.0 million, and obtained an additional warrant to purchase shares of Archer with a total grant date value of $ 5.6 million.

In connection with closing of the merger between Archer and the SPAC described above, in September 2021, we purchased 500,000 Class A common shares in Archer for $ 5.0 million, and obtained

an additional warrant to purchase shares of Archer with a total grant date value of $ 5.6 million.

The initial value of the warrants was recognized as a vendor credit liability within other noncurrent liabilities, and will be settled in the future, as a reduction of the acquisition date value of the eVTOL aircraft contemplated in the related aircraft purchase agreement.

Because these investments have readily

determinable fair values, gains and losses resulting from changes in fair value of the investments are reflected in earnings, in accordance with ASC 321.

Because these investments have readily determinable fair values, gains and losses resulting from changes in fair value of the investments are reflected in earnings, in accordance with ASC 321.

All of our vested warrants have been exercised into shares of Archer common stock.

Losses on our investments in Archer totaled $ 13.7 million and $ 6.8 million during the fiscal years ended September 30, 2022 and 2021, and are reflected in loss on investments, net in our Consolidated Statements of Operations and Comprehensive (Loss) Income.

The fair values of the Company’s investments in Archer are Level 1 within the fair value hierarchy as the values are determined using quoted prices for the equity securities.

In connection with a negotiated forward purchase contract for fully electric aircraft executed in July 2021, we obtained $ 5.0 million of preferred stock in Heart Aerospace Incorporated (“Heart”), a privately held company.

Gains/(losses) on our investments in Archer totaled $ 5.6 million and ($ 13.7 ) million during the fiscal years ended September 30, 2023 and 2022, respectively and are reflected in gain/(loss) on investments, net in our consolidated statement of operations.

The fair values of the Company’s investments in Archer are Level 1 within the fair value hierarchy as the values are determined using quoted prices for the equity securities.

The value of the Company's investment in Archer is $ 11.5 million as of September 30, 2023.

Our investment in Heart does not have a readily determinable fair value, so we account for the investment using the measurement alternative under ASC 321 and measure the investment at initial cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer.

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There were no identical or similar transactions during the fiscal year ended September 30, 2023, and as such, no adjustments to the initial cost of the equity investment resulting from observable price changes have been recorded at September 30, 2023.

In connection with a negotiated forward purchase contract for hybrid-electric vertical takeoff and landing (“VTOL”) aircraft executed in February 2022, we obtained a warrant giving us the right to acquire a number of shares of common stock in the privately-held manufacturer of the VTOL aircraft.

The fair values of the Company’s investments in Heart are Level 3 within the fair value hierarchy as the values are determined using unobservable inputs in which there is little or no market data, requiring the Company to develop our own assumptions.

The value of the Company's investment in Heart is $ 5.0 million as of September 30, 2023.

These investments do not have a readily determinable fair value, so we account for them using the measurement alternative under ASC 321 and measure the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer.

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The liability related to the warrant assets will be settled in the future, as a reduction of the acquisition date value of the VTOL aircraft contemplated in the related forward purchase agreement.

Total net losses on our investments in equity securities totaled $ 13.7 million during the year ended September 30, 2022, respectively, and are reflected in loss on investments, net in our consolidated statements of operations and comprehensive (loss) income.

The fair values of the Company’s investments in the privately-held manufacturer noted above are Level 3 within the fair value hierarchy as the values are determined using unobservable inputs in which there is little or no market data, requiring the Company to develop our own assumptions.

The value of the Company's investment is $ 3.5 million as of September 30, 2023.

Total net gains/(losses) on our investments in equity securities totaled $ 5.4 million and ($ 13.7 ) million during the year ended September 30, 2023 and 2022, respectively, and are reflected in gain/(loss) on investments, net in our consolidated statements of operations and comprehensive (loss) income.

As of September 30, 2023, the aggregate carrying amount of our investments in equity securities was $ 20.3 million, and the carrying amount of our investments without readily determinable fair values was $ 8.8 million.

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September 30, 2022

Long-term debt, including current maturities ( 1)

Long-term debt and finance leases, including

current maturities (1)

(1) Current and prior period long-term debts' carrying and fair values exclude net debt issuance costs.

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September 30,

Senior and subordinated notes payable to secured parties, due in monthly installments, interest based on LIBOR plus interest spread at 2.71 % through 2027 , collateralized by the underlying aircraft

Notes payable to secured parties, due in semi-annual installments, interest based on LIBOR plus interest spread at 4.75 % to 6.25 % through 2028 , collateralized by the underlying aircraft

Notes payable to secured parties, due in quarterly installments, interest based on LIBOR plus interest at spread 2.20 % to 2.32 % for senior note & 4.50 % for subordinated note through 2028 , collateralized by the underlying aircraft

Other obligations due to financial institution, monthly and/or quarterly interest due from 2022 through 2031 , collateralized by the underlying equipment

Notes payable to financial institution, due in monthly installments, interest based on LIBOR plus interest spread at 3.10 % through 2024 , collateralized by the underlying equipment

Notes payable to financial institution, due in monthly installments, plus interest spread at 5.00 % through 2022 , collateralized by the underlying aircraft

Notes payable to financial institution, due in monthly installments, plus interest spread at 5.00 % through 2023 , secured by flight equipment

Revolving credit facility, monthly interest based on LIBOR plus interest spread at 3.75 % through 2022

Notes payable to financial institution, quarterly interest based on LIBOR plus interest spread at 3.50 % through 2027

Notes payable to financial institution, due in monthly installments, interest based on LIBOR plus interest spread at 4.24 % , through 2027 , collateralized by the underlying equipment

Senior and subordinated notes payable to secured parties,

due in monthly installments, interest based on SOFR

plus interest spread at 2.71 % through 2027 ,

collateralized by the underlying aircraft

Notes payable to secured parties, due in semi-annual installments,

interest based on SOFR plus interest spread at 4.75 % to 6.25 %

through 2028 , collateralized by the underlying aircraft

Notes payable to secured parties, due in quarterly installments,

interest based on SOFR plus interest at spread 2.20 % to 2.32 %

for senior note & 4.50 % for subordinated note through 2028 ,

collateralized by the underlying aircraft

Revolving credit facility, quarterly interest based on SOFR plus

interest spread at 4.50 % through 2028 , with incentives for up

to $ 15 million based on achieving certain performance metrics

United Bridge Loan - due in quarterly installments based on SOFR

plus interest spread at 4.50 % through 2024

Other obligations due to financial institution, monthly and/or quarterly

interest due from 2022 through 2031 , collateralized

by the underlying equipment

Notes payable to financial institution, due in monthly installments,

interest based on SOFR plus interest spread at 3.10 % through

2024 , collateralized by the underlying equipment

Notes payable to financial institution, due in monthly installments, plus

interest spread at 5.00 % through 2023 , secured by flight equipment

Notes payable to financial institution, due in monthly installments,

interest based on fixed interest of 7.50 %, through 2027 ,

collateralized by the underlying equipment

Notes payable to financial institution, quarterly interest based

on SOFR plus interest spread at 3.50 % through 2027

Gross long-term debt, including current maturities

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Principal maturities of long-term debt as of September 30, 2023, and for each of the next five years are as follows (in thousands):

Periods Ending June 30,

Total Principal

Periods Ending September 30,

The net book value of collateralized aircraft and equipment as of September 30, 2022 was $ 856.9 .

The net book value of collateralized aircraft and equipment as of September 30, 2023 was $ 660.4 million.

EDC Loan and MHIRJ Junior Note

In June 2015, we entered into seven separate credit agreements with EDC and junior noteholder, MHIRJ, to finance seven CRJ-900 aircraft with a maturity date of June 30, 2027 .

In November 2022, we entered into a letter amendment with EDC which provided for the deferral of a portion of scheduled principal payments on our existing loan, beginning in January 2023 through December 2024.

The total amount originally scheduled to be deferred during the deferral period was approximately $ 14.0 million.

The deferral of the scheduled principal payments was originally scheduled to be repaid on the maturity date of June 30, 2027 .

Additionally, the junior noteholder, MHIRJ, agreed to forgive approximately $ 5.0 million in principal contingent upon the repayment of $ 4.2 million in by December 31, 2023.

On May 31, 2023, we entered into an agreement with American (the "American Purchase Agreement") to sell all seven aircraft under the EDC Loan and MHIRJ Junior note to American and eliminate the remaining associated debt.

As of September 30, 2023, the sale of three of the EDC aircraft has closed, and approximately $ 27.2 million of principal was eliminated with proceeds from the sale.

A total of $ 34.6 million of principal between the senior and junior notes was paid off during fiscal year 2023.

As of September 30, 2023, we have $ 39.0 million outstanding on the EDC Loan and MHIRJ Junior note.

Subsequent to September 30, 2023, we closed the sale of the remaining four CRJ-900 aircraft as part of the American Purchase Agreement, and used a portion of the proceeds to retire the EDC Loan and MHIRJ junior note.

$ 0.6 million in proceeds from the sale of each aircraft was repaid to MHIRJ for a total of $ 4.2 million, and we achieved approximately $ 5.0 million of forgiveness on the MHIRJ junior note.

Enhanced Equipment Trust Certificate ("EETC")

In December 2015, an Enhanced Equipment Trust Certificate ("EETC") pass-through trust was created to issue pass-through certificates to obtain financing for new E-175 aircraft.

At September 30, 2022, Mesa has $ 131.0 million of equipment notes outstanding issued under the EETC financing included in long-term debt on the consolidated balance sheets.

$ 22.2 million in principal payments were made during the year, and as of September 30, 2023, Mesa has $ 108.8 million of equipment notes outstanding issued under the EETC financing included in long-term debt on the consolidated balance sheets.

The structure of the EETC financing consists of a pass-through trust created by Mesa to issue pass-through certificates, which represent fractional undivided interests in the pass-through trust and are not obligations of Mesa.

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however, the Company has determined that it is not the primary beneficiary of the pass-through trust, and therefore, has not consolidated the pass-through trust with its financial statements.

CIT Revolving Credit Facility

On June 30, 2022, we entered into the Second Amended and Restated Credit and Guaranty Agreement by and among Mesa Airlines and Mesa Air Group Airline Inventory Management, L.L.C., as borrowers, Mesa Air Group, as a Guarantor, the other guarantors party thereto from time to time, CIT Bank, as Administrative Agent, and the other lenders party thereto, which was effective as of June 30, 2022 and extended the maturity date of the facility by three (3) months to December 31, 2022.

As of September 30, 2022, $ 15.6 million of the draw loan remained outstanding.

Future borrowings, if any, under this facility are subject to, among other things, the Company having sufficient unencumbered assets to meet the borrowing base requirements under the facility.

Our CIT revolving credit facility includes a minimum interest and rental coverage ratio covenant.

In March and April 2022, we entered into amendments to the CIT revolving credit facility which lowered the minimum interest and rental coverage ratio covenant for the year September 30, 2022.

As a result, we are in compliance with this covenant.

United Revolving Credit Facility

On December 27, 2022, in connection with entering into the Amended and Restated United CPA, (i) United agreed to purchase and assume all of First Citizens’

rights and obligations as a lender under the Existing Facility pursuant to an Assignment and Assumption Agreement, (ii) United and CIT Bank agreed to amend the Existing Facility pursuant to an Amendment No.

1, dated December 27, 2022 (“Amendment No.

1”), and an Amendment No.

2, dated January 27, 2023 (“Amendment No.

the Existing Facility as amended by Amendment No.

1 and Amendment No.

2, the "Amended Facility"), and (iii) Wilmington Trust,

National Association agreed to assume all of CIT Bank’s rights and obligations as Administrative Agent pursuant to an Agency Resignation, Appointment and Assumption Agreement, dated as of January 27, 2023.

Amendment No.

1, among other things, extends the Maturity Date from the earlier to occur of November 30, 2028, or the date of the termination of the Amended and Restated United CPA;

provides for a revolving loan of $ 10.5 million plus fees and expenses, which is due January 31, 2024, subject to certain mandatory prepayment requirements;

provides for Revolving Commitments equal to $ 30.7 million plus the original principal amount of the $ 10.5 million revolving loan;

amortization of the obligations outstanding under the existing CIT Agreement commencing quarterly until March 31, 2025;

and a covenant capping Restricted Payments (as defined in the Amended Facility) at $ 5.0 million per fiscal year, a consolidated interest and rental coverage ratio of 1.00 to 1.00 covenant, and a Liquidity (as defined in the Amended Facility) requirement of not less than $ 15.0 million at the close of any business day.

Interest assessed under the Amended Facility is 3.50 % for Base Rate Loans and 4.50 % for Term SOFR Loans (as such terms are defined in the Amended Facility).

Amendment No.

2, among other things, amends the definition of Controlled Account (as defined in the Amended Facility).

Amounts borrowed under this Amended Facility are secured by a collateral pool consisting of a combination of expendable parts, rotable parts and engines and a pledge of the Company’s stock in certain aviation companies.

United funded $ 25.5 million as of the closing date of Amendment No.

1, to be used for general corporate purposes.

The United line of credit contains an additional deemed prepayment of $ 15 million with potential forgiveness upon the achievement of a certain number of block hours as well as maintaining a CCF of at least 99.3 % over any rolling four-month period from January 2023 through December 2024.

In order to earn forgiveness on the deemed prepayment, we must also have repaid the bridge loan in full.

As of September 30, 2023, we have achieved $ 9.0 million in forgiveness.

However, as the bridge loan is still outstanding as of September 30, 2023, the forgiveness is not currently recognizable.

On September 6, 2023, the Company amended the existing United Credit Facility to (i) permit the Company to re-draw approximately $ 7.9 million of the Effective Date Bridge Loan (as defined in the United Credit Facility) previously repaid;

(ii) increased the amount of Revolving Commitments (as defined in the United Credit Facility) from $ 30.7 million to $ 50.7 million, in each case, plus the original principal amount of the Effective Date Bridge Loan and subject to the Borrowing Base (as defined in the United Credit Facility);

and (iii) amended the calculation of the Borrowing Base.

Amounts borrowed under this facility bear interest at 3.50 % for Base Rate Loans and 4.50 % per annum for Term SOFR Loans.

Amounts borrowed under the Amended Credit Facility are secured by a collateral pool consisting of a combination of expendable parts, rotable parts and engines, a pledge of certain of the Company’s bank accounts and a pledge of the Company’s stock in certain aviation companies.

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 ("Amendment No.

4") 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.

As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc.

held by the Company are being released as collateral for the United credit facility, subject to certain conditions.

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.

Loan Agreement with the United States Department of the Treasury

On October 30, 2020, the Company entered into a Loan and Guarantee Agreement with U.S.

Department of the Treasury (the “U.S.

Treasury”) for a secured loan facility of up to $ 200.0 million that matures in October 2025 (“the Treasury Loan”).

Department of the Treasury (the “U.S.

Treasury”) for a secured loan facility of up to $ 200.0 million that matures in October 2025 (“the Treasury Loan”).

On October 30, 2020, the Company borrowed $ 43.0 million and on November 13, 2020, the Company borrowed an additional $ 152.0 million.

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Accrued interest on the loans 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.

All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025 (the “Maturity Date”).

Interest is paid in kind by increasing the principal amount of the loan by the amount of such

interest due on an interest payment date for the first 12 months of the loan .

Mesa's 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”).

Interest is paid in kind by increasing the principal amount of the loan by the amount of such interest due on an interest payment date for the first 12 months of the loan.

Mesa's obligations under the Treasury Loan are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, and tooling (collectively, the “Collateral”).

The obligations under the Treasury Loan are guaranteed by the Company and Mesa Air Group Inventory Management.

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Mandatory prepayments of loans 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.

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.

The Treasury Loan requires the Company, under certain circumstances, including within 10 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.

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Treasury for the provision of financial assistance under the Treasury Loan, the Company issued to the U.S.

Treasury warrants to purchase an aggregate of 4,899,497 shares of the Company’s common stock at an exercise price of $ 3.98 per share, which was the closing price of the Common Stock on The Nasdaq Stock Market on April 9, 2020.

The exercise price and number of shares of common stock issuable under the Warrants are subject to adjustment as a result of anti-dilution provisions contained in the Warrants for certain stock issuances, dividends, and other corporate actions.

The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option.

For accounting purposes, the fair value for the Warrant was estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Loan in the consolidated balance sheet.

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Debt issuance costs allocated to the debt are amortized into interest expense using the effective interest method over the term of the related loan.

Prior to the November 13, 2020 funding of the $152.0 million portion of the Treasury Loan, the Company repaid $ 167.7 million in existing aircraft debt covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated June 27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014, and May 23, 2014, (d) Senior Loan Agreements, dated December 27, 2017, and (e) Junior Loan Agreements, also dated December 27, 2017 (collectively, “the EDC Loans”).

Prior to the November 13, 2020 funding of the $ 152.0 million portion of the Treasury Loan, the Company repaid $ 167.7 million in existing aircraft debt covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated June 27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014, and May 23, 2014, (d) Senior Loan Agreements, dated December 27, 2017, and (e) Junior Loan Agreements, also dated December 27, 2017 (collectively, “the EDC Loans”).

The Company made payments totaling $ 164.2 million to repay the EDC Loans, consisting of principal of $ 167.7 million, and a $ 3.5 million discount on the balance owed.

Additionally, in connection with the repayment, $ 2.5 million of unamortized original issue discount and deferred financing costs were recorded as a loss on debt extinguishment, resulting in a net gain on extinguishment of $ 1.0 million recorded within other income.

In April 2022, we entered into an agreement with the U.S.

Treasury to lower the minimum collateral coverage ratio covenant to 1.5 to 1.0 through September 30, 2022.

As of September 30, 2022, the Company is in compliance with all debt covenants.

As of September 30, 2023, Mesa has $ 139.1 million outstanding under the Treasury Loan.

$ 65.8 million in principal payments were made during the year.

Spare Engine Financing

In December 2021, we entered into a loan agreement with a financing institution to finance certain purchases of spare engines via a newly formed limited liability company (“LLC”).

The loan agreement provides for aggregate borrowings of up to $ 54.0 million through November 2022.

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The borrowings are the obligation of the newly formed LLC and are guaranteed by Mesa Airlines, Inc.

The newly formed LLC, which is wholly owned by Mesa, was determined to be a VIE for which we are the primary beneficiary because we have the power to direct the activities of the LLC that most significantly impact the LLC’s economic performance and the obligation to absorb losses and right to receive benefits from the LLC in our capacity as sole member of the LLC and guarantor of the borrowings.

Subsequent to September 30, 2023 , we entered into an agreement with a third party to purchase the 12 spare engines under the loan agreement.

The transaction is expected to close by the end of March 2024, and will eliminate all remaining debt under the loan agreement.

Therefore, the LLC is consolidated in our financial statements and the borrowings are reflected as long-term debt in our consolidated balance sheets.

The loan agreement contains a loan-to-value (“LTV”) financial covenant pursuant to which we are required to prepay certain amounts of the loan if the aggregate outstanding principal balance of the loan exceeds a specified percentage of the appraised value of the engines beginning in the 12 th full month after closing and each June 1 and December 1 thereafter.

As of September 30, 2022, we were in compliance with all debt covenants.

Earnings Per Share

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Net (loss)/income

Basic weighted average common shares

Basic weighted average common

shares outstanding

Incremental shares for:

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Dilutive effect of restricted stock

Diluted weighted average common shares

Diluted weighted average common

shares outstanding

Net (loss)/income per common share

attributable to Mesa Air Group:

Basic (loss) income per common share is computed by dividing net (loss) income attributable to Mesa Air Group by the weighted average number of common shares outstanding during the period.

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Treasury for the provision of financial assistance under the Treasury Loan, the Company issued warrants to the U.S.

Treasury to purchase shares of the Company’s common stock, no par value, at an exercise price of $ 3.98 per share (the “Exercise Price”), which was the closing price of the common stock on The Nasdaq Stock Market on April 9, 2020.

The warrants were issued pursuant to the terms of a Treasury Warrant Agreement entered into by the Company and the U.S.

The exercise price and number of warrant shares issuable under the warrants are subject to adjustment as a result of anti-dilution provisions contained in the warrants for certain stock issuances, dividends, and other corporate actions.

The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option.

The warrants expire on the

fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option.

The warrants are accounted for within equity at a grant date fair value determined under the Black-Scholes Option Pricing Model.

As of September 30, 2023 , 4,899,497 warrants were issued and outstanding.

Subsequent changes in fair value are not recognized as long as the warrants outstanding continue to be classified in equity.

The Company has not historically paid dividends on shares of its common stock.

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The provision for income taxes consists of the following:

Years Ended September 30,

Year Ended September 30,

(in thousands)

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The reconciliation between the effective tax rate on income from continuing operations and the statutory tax rate is as follows:

Years Ended September 30,

Year Ended September 30,

(in thousands)

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The components of the Company's deferred taxes as of September 30, 2023 and 2022 are as follows:

Years Ended September 30,

Year Ended September 30,

(in thousands)

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Deferred revenue

Interest expense carryforward

Gross deferred tax assets

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Total deferred tax liabilities

Net deferred tax liability

The Company has federal and state income tax net operating losses (“NOL”) carryforwards of $ 591.4 million and $ 247.0 million, which expire in fiscal years 2027 - 2038 and 2022 - 2042 , respectively.

Net deferred tax liabilities

The Company has federal and state income tax net operating losses (“NOL”) carryforwards of $ 562.6 million and $ 233.5 million, which expire in fiscal years 2027 - 2038 and 2023 - 2043 , respectively.

Approximately $ 194.2 million of our federal NOL carryforwards are not subject to expiration.

These NOL carryovers are only available to offset 80 % of taxable income in years in which they are utilized due to tax law changes as a result of the Tax Cuts and Jobs Act.

The Company believes that it is more likely than not that the benefit from certain state NOL carryforwards will not be realized.

In recognition of this risk, the Company has provided a valuation allowance of $ 2.9 million as of September 30, 2022 and $ 2.9 million as of September 30, 2021 on the deferred tax assets related to these state NOL carryforwards.

The Company also has $ 29.1 million of interest expense carryovers as a result of 163j limitations as of September 30, 2023.

The Company cannot conclude that it is more likely than not that the benefit from certain federal and state NOL carryforwards will not be realized.

In recognition of this uncertainty, the Company has provided a valuation allowance of $ 21.1 million as of September 30, 2023 and $ 2.9 million as of September 30, 2022 on the deferred tax assets related to these state NOL carryforwards.

If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets will be recognized as a reduction of income tax expense.

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The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits.

Because of the change of ownership provisions of the Tax Reform Act of 1986, the use of a portion of our NOL and tax credit carryforwards may be limited in future periods.

Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of our NOL and tax credit carryforwards may be limited in future periods.

Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

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Based on the study conducted at that time, a portion of the federal NOLs were determined to be limited by IRC Section 382, resulting in the Company writing off a portion of its NOLs at that time.

Additionally, the Company’s initial public offering in August of 2018 resulted in a change in ownership under Section 382 of the Internal Revenue Code.

The Company completed an update to the analysis of any potential limitation on the use of its net operating losses under Section 382 for the fiscal year ended September 30, 2023.

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The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

Years Ended September 30,

Year Ended September 30,

(in thousands)

Unrecognized tax benefits — October 1

Gross decreases — tax positions in prior period

Gross increases — tax positions in prior period

Unrecognized tax benefits — September 30

The Company’s unrecognized tax benefits of $ 4.9 million, $ 4.9 million and $ 4.9 million as of September 30, 2022, 2021, and 2020, respectively, is included as an offset to the net deferred tax asset balance.

Unrecognized tax benefits —

Gross decreases —

tax positions in prior period

Gross increases —

tax positions in prior period

Unrecognized tax benefits —

The Company’s unrecognized tax benefits of $ 4.9 million, $ 4.9 million and $ 4.9 million as of September 30, 2023, 2022, and 2021, respectively, is included as an offset to the net deferred tax asset balance.

If recognized, the balance of the uncertain tax benefits would impact the effective tax rate.

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The Company recognizes forfeitures of share-based awards as they occur.

Share-based compensation expense for the years ended September 30, 2022, 2021, and 2020 was $ 2.8 million, $ 3.1 million, and $ 4.4 million, respectively.

Share-based compensation expense for the years ended September 30, 2023, 2022, and 2021 was approximately $ 2.3 million, $ 2.8 million, and $ 3.1 million, respectively.

Share-based compensation expense is recorded in general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income.

The Company repurchased 147,108 shares of its common stock for $ 0.5 million to cover the income tax obligation on vested employee equity awards during the fiscal year ended September 30, 2022.

The Company repurchased 155,174 shares of its common stock for $ 1.5 million to cover the income tax obligation on vested employee equity awards and warrant conversions during the fiscal year ended September 30, 2021.

During the fiscal year ended September 30, 2020, the Company repurchased 142,439 shares of its common stock for $ 0.6 million to cover the income tax obligation on vested employee equity awards.

The Company repurchased 204,486 shares of its common stock for approximately $ 0.4 million to cover the income tax obligation on vested employee equity awards during the fiscal year ended September 30, 2023 .

The Company repurchased 147,108 shares of its common stock for approximately $ 0.5 million to cover the income tax obligation on vested employee equity awards and warrant conversions during the fiscal year ended September 30, 2022.

During the fiscal year ended September 30, 2021 , the Company repurchased 155,174 shares of its common stock for approximately $ 1.5 million to cover the income tax obligation on vested employee equity awards.

Employee Stock Purchase Plan

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Aggregate rental expense under all operating aircraft, equipment and facility leases totaled approximately $ 12.2 million, $ 43.4 million, and $ 44.6 million for the year ended September 30, 2023, 2022, and 2021, respectively.

At September 30, 2022, the Company leased 2 aircraft and 3 spare engines under non-cancelable finance leases.

At September 30, 2023 , the Company leased 15 aircraft and three spare engines under non-cancelable finance leases.

Basic rent on finance leases is paid monthly and at the end of the lease term.

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Total lease costs

As of September 30, 2022, the Company’s operating lease right-of-use assets were $ 43.1 million, the Company’s current maturities of operating lease liabilities were $ 17.2 million, and the Company’s noncurrent operating lease liabilities were $ 16.7 million.

As of September 30, 2022, the Company’s current portion of finance lease liabilities were $ 2.7 million, and the Company’s noncurrent finance lease liabilities were $ 15.3 million.

The Company’s operating lease payments included in operating cash flows for the year ended September 30, 2022 and 2021 were $ 36.3 million and $ 47.6 million, respectively.

The Company’s finance lease interest payments included in operating cash flows for the year ended September 30, 2022 and 2021 were $ 0.3 million and $ 0.6 million, respectively.

The Company’s finance lease principal payments included in financing cash flows for the year ended September 30, 2022 and 2021 were $ 2.5 million and $ 2.3 million, respectively.

This resulted in an impairment loss of $ 15.2 million to the leased aircraft within the asset group for the CRJ-900 fleet operating for the year ended September 30, 2022, which was recorded in asset impairment on our consolidated statements of operations and comprehensive (loss) income.

Additionally, we recorded a $ 0.2 million of impairment on certain operating lease ROU assets associated with the abandonment of a leased facility during the year ended September 30, 2022.

The Company did no t record any impairment losses related to its operating lease right-of-use assets during the years ended September 30, 2021 and 2020.

As of September 30, 2023 , the Company’s operating lease right-of-use assets were $ 9.7 million, the Company’s current maturities of operating lease liabilities were $ 3.5 million, and the Company’s noncurrent operating lease liabilities were $ 8.1 million.

As of September 30, 2023, the Company’s current portion of finance lease liabilities were $ 57.7 million, and the Company’s noncurrent finance lease liabilities were $ 9.9 million.

The Company’s operating lease payments included in operating cash flows for the year ended September 30, 2023 and 2022 were approximately $ 9.5 million and $ 36.3 million, respectively.

The Company’s finance lease interest payments included in operating cash flows for the year ended September 30, 2023 and 2022 were $ 1.2 million and $ 0.3 million, respectively.

The Company’s finance lease principal payments included in financing cash flows for the year ended September 30, 2023 and 2022 were $ 15.1 million and $ 2.5 million, respectively.

The Company recorded impairment losses of zero , $ 10.5 million, and zero for the years ended September 30, 2023, 2022, and 2021, respectively.

The table below presents the weighted average remaining terms and discount rates for our operating and finance leases as of September 30, 2023:

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Operating Leases

Finance Leases

Total lease payments

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The Company made the accounting election available for COVID-19 related concessions provided by a lessor and accordingly, this was not a lease modification and required no changes to current accounting treatment.

As of September 30, 2022, we were in compliance with the covenants in the RASPRO Lease Facility.

In December 2022, the Company entered into an agreement with RASPRO Trust, reducing the buyout price on all 15 aircraft at lease termination by a total of $ 25 million.

Under the terms of the new agreement, the Company reclassified these leases as finance leases.

Commitments and Contingencies

We are involved in various legal proceedings (including, but not limited to, insured claims) and FAA civil action proceedings which we consider routine to our business activities on an ongoing basis.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our consolidated financial statements.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the

estimated liability in our consolidated financial statements.

If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome;

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In assessing the materiality of a proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business.

With respect to the matters disclosed in Item 3:

“Legal Proceedings”, we believed that the ultimate outcomes of the two ( 2 ) putative class action lawsuits and such other routine legal matters are not likely to have a material adverse effect on our financial position, liquidity, or results of operations.

However, legal and regulatory proceedings are inherently unpredictable and subject to significant uncertainties.

If one or more matters were resolved against us in a reporting period for amounts in excess of management’s expectations, the impact on our operating results or financial condition for that reporting period could be material.

As of September 30, 2023, we believed that the ultimate outcomes of routine legal matters are not likely to have a material adverse effect on our financial position, liquidity, or results of operations.

Engine Purchase Commitments

On February 26, 2021, the Company and General Electric Company (“GE”), acting through its GE-Aviation business unit, entered into an Amended and Restated Letter Agreement No.

The Company agreed to purchase and take delivery of 10 new CF34-8C5 or CF34-8E5 engines with delivery dates starting from July 1, 2021 through November 1, 2022.

2 unchanged sentences

The total purchase commitment related to these 10 engines is approximately $ 52.2 million.

As of September 30, 2022, we have purchased nine (9) of the engines pursuant to the Amended and Restated Letter Agreement No.

13-3 with delivery of the remaining three (3) engines expected to take place during calendar year 2023.

As of September 30, 2023, we have purchased all of the engines pursuant to the Amended and Restated Letter Agreement No.

If the Company fails to accept delivery of the spare engines when duly tendered, the Company may be assessed a minimum cancellation charge based on the engine price determined as of the date of scheduled engine delivery to the Company.

Electric Aircraft Forward Purchase Commitments

As described in Note 8, in February 2021, the Company entered into a forward purchase contract with Archer for a number of electrically-powered vertical takeoff and landing aircraft (“eVTOL aircraft”).

The aggregate base commitment for the eVTOL aircraft is $ 200.0 million, with an option to purchase additional aircraft.

The Company’s obligation to purchase the eVTOL aircraft is subject to the Company and Archer first agreeing in the future to a number of terms and conditions, which may or may not be met.

As described in Note 8, in July 2021, the Company entered into a forward purchase contract with Heart for a number of fully electric aircraft.

The maximum aggregate base commitment for the aircraft is $ 1,200.0 million, with an option to purchase additional aircraft.

The Company’s obligation to purchase the aircraft is subject to the Company and Heart first agreeing in the future to a number of terms and conditions, which may or may not be met.

Other Commitments

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Subsequent Events

Amendment No.

11 to American CPA

In December 2022, we entered into Amendment No.

11 (the “AA Amendment”) to the American CPA.

The AA Amendment provides for the termination and wind-down of the American CPA by April 3, 2023 (the “Wind-down Period”), at which time all Covered Aircraft (as defined in the American CPA) will be removed from the American CPA.

We will begin to place aircraft operated under the American CPA with in March 2023.

As of the date if this Annual Report on Form 10-K, we operate 42 CRJ-900 aircraft under the American CPA, including two (2) operational spares.

The American CPA was previously set to expire by its terms on December 31, 2025.

Under the terms of the AA Amendment, during the Wind-down Period (i) we will continue to receive a fixed minimum monthly amount per aircraft covered by the American CPA, plus additional amounts based on the number flights and block hours actually flown during each month, subject to adjustment based on the Company’s controllable completion rate and certain other factors, and (ii) American has agreed not to exercise certain any termination or withdrawal rights under the American CPA if we fail to meet certain operational performance targets for the three (3) consecutive month period ending January 31, 2023.

Provided we comply with the terms of the American CPA during the Wind-down Period and no Material Breach (as defined in the American CPA) has occurred, American has also agreed to waive Mesa’s failure to meet certain past operational performance targets and other requirements, which triggered termination and withdrawal rights for American pursuant to the terms of American CPA.

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

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

Amendment and Restatement of the United CPA

On December 27, 2022, we entered into the Third Amended and Restated Capacity Purchase Agreement with United (as amended and restated, the “Amended and Restated United CPA”), which amends and restates the Second Amended and Restated Capacity Purchase Agreement, dated as of November 4, 2020, with United (as theretofore amended).

The Amended and Restated United CPA provides, among other things, for the following amended terms:

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 from the scope of the United CPA the CRJ-900, subject to certain notice and other requirements;

United’s existing utilization waiver for the Company’s operation of E175LL Covered Aircraft (as defined in the United CPA) to be extended to December 31, 2023;

The extension of existing monthly operational performance incentives;

An agreement by the Company to not enter into new regional air carrier service agreements, excluding the Company’s existing agreement with DHL.

In consideration for entering into the Amended and Restated United CPA and providing the revolving line of credit (discussed below), the Company has agreed to (i) grant United the right to designate one individual (the “United Designee”) to be appointed to the Company’s board of directors, and (ii) issue to United shares of our common stock equal to ten percent (10.0%) of the Company’s issued and outstanding shares on a fully diluted basis as of the date of such issuance (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 (5.0%).

The United Shares will be issued pursuant to an equity purchase agreement, which will contain customary representations, warranties, covenants and indemnities for such a transaction, including pre-emptive rights relating to the issuance of any equity securities by the Company.

The Company will also enter into 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.

Revolving Line of Credit

In connection with the above-referenced Amendment to the United CPA, United has agreed to purchase and assume, pursuant to an Assignment and Assumption Agreement (the “Assignment”), all of CIT Bank’s rights and obligations under Mesa’s and Mesa Air Group Airline Inventory Management, L.L.C.’s existing revolving credit facility with CIT, which is guaranteed by the Company (the “Existing Agreement”).

In connection with the effectiveness of the Assignment, the Existing Agreement will be amended (as so amended, the “Amended Credit Facility”) to, among other things, (i) extend the Revolving Loan Maturity Date (as defined in the Amended Credit Facility) from the earlier to occur of November 30, 2028 or the date of the termination of the United CPA;

(ii) provide for a revolving loan of $ 10.0 million plus certain other fees (the “Effective Date Bridge Loan”), which will be due and payable on January 31, 2024, subject to certain mandatory prepayment requirements;

(iii) provide for Revolving Commitments (as defined in the Amended Credit Facility) equal to $ 30.7 million (inclusive of the amount outstanding under such facility as of the effective date of the Assignment) plus the original principal amount of the Effective Date Bridge Loan;

(iv) amortization of the obligations outstanding under the Existing Agreement commencing the last business day of each fiscal quarter commencing the fiscal quarter ending March 31, 2025;

(v) a covenant capping Restricted Payments (as defined in the Amended Credit Facility) at $ 5.0 million per fiscal year, a consolidated interest and rental coverage ratio of 1.00 to 1.00 covenant, measured at the end of each fiscal quarter, and a Liquidity (as defined in the Amended Credit Facility) requirement of not less than $ 15.0 million at close of any business day.

Amounts borrowed under this facility bear interest at 3.50 % for Base Rate Loans and 4.50 % per annum for Term SOFR Loans (as each term is defined in the Amended Credit Facility.

Amounts borrowed under the Amended Credit Facility will be secured by a collateral pool consisting of a combination of expendable parts, rotable parts and engines and a pledge of the Company’s stock in certain aviation companies.

Amendment to the Loan and Guarantee Agreement with the United States Department of the Treasury

On December 22, 2022, Mesa Air Group, Inc.

(the “Company”) and its wholly owned subsidiaries, Mesa Airlines, Inc.

(“Mesa”) and Mesa Air Group Airline Inventory Management, L.L.C., entered into a Modification and Waiver Agreement (the “Modification Agreement”) with the United States Department of the Treasury (the “Treasury”) and The Bank of New York Mellon, as Administrative Agent and Collateral Agent (the “Bank of New York”).

The Modification Agreement provides for the amendment of the Loan and Guarantee Agreement, dated as of October 30, 2020 (as theretofore amended, the “Loan Agreement”), among Mesa, as Borrower, the Company, as a Guarantor, the Guarantors party thereto from time to time, the Treasury, and the Bank of New York.

The amended terms include, among others, the following:

(i) a modification of the Collateral Coverage Ratio covenant with respect to amounts on deposit in the Eligible Receivables Account and the Collateral Coverage Ratio covenant, effective through the maturity date of the Loan Agreement;

and (ii) a waiver of the Collateral Coverage Ratio covenant requirement with respect to the release of liens on Collateral.

The Modification Agreement also imposes certain obligations on the Company in connection with its sale of Collateral subject to the Loan Agreement and certain lien release obligations on the Treasury with respect to such sales.

Capitalized terms used herein but not otherwise defined have the meanings assigned to such terms in the Loan Agreement.

Amendment to Credit Agreement with Economic Development Corporation of Canada

On December 15 , 2022, the Company entered into an agreement to renegotiate an existing credit agreement with the Economic Development Corporation of Canada (“EDC”) and Mitsubishi Heavy Industries RJ Aviation, Inc.

(“MHIRJ”) that would, among other things, (i) reduce principal amortization on seven (7) CRJ-900 certain airframes financed with EDC for 24 months, with such deferred sum repaid at maturity in June 2027, subject to certain engine overhaul investment requirements in year two (2) to be agreed upon, and (ii) forgive $ 700,000 of subordinated debt payable to MHIRJ on each of the seven (7) CRJ-900 aircraft if repaid prior to December 31, 2023.

United Agreements

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, which are projected to generate approximately $ 63.5 million in incremental revenue over the next twelve months.

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 ("Amendment No.

4") 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:

As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc.

held by the Company are being released as collateral for the United credit facility, subject to certain conditions.

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.

American Purchase Agreement

Subsequent to September 30, 2023, we closed the sale of the four remaining CRJ-900 aircraft to American for gross proceeds of $ 41.5 million.

Net proceeds from the sale of all four aircraft was $ 5.7 million after the retirement of the EDC Loan and the MHIRJ junior noteholder debt.

As part of our letter amendment entered into with MHIRJ in November 2022, approximately $ 5.0 million in principal was forgiven upon the repayment of $ 4.2 million in principal before December 31, 2023.

Aircraft Purchase Agreement

Subsequent to September 30, 2023, we closed the sale of the remaining four CRJ-900 aircraft as part of an aircraft purchase agreement to a third party for gross proceeds of $ 12.0 million.

Net proceeds from the sale of all four aircraft was $ 6.5 million after partial debt reduction of our UST Loan.

Engine Purchase Agreement

On December 1, 2023, we entered into an agreement with a third party to sell 12 surplus GE model CF34-8C aircraft engines and related parts.

The transaction is expected to close by the end of March 2024.

Engine Purchase Commitment

The transaction is expected to close by the end of December 2024.

Airframe and Engine Purchase Commitments

We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $ 50.3 million at the end of March 2024.

Subsequent to September 30, 2023, we entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines.

One agreement is for 30 engines for a total of $ 19.5 million.

The second agreement is for 15 airframes (without engines) for a total of $ 18.8 million.

Both of these transactions are expected to be completed by the end of March 2024, with net cash from these transactions expected to be approximately $( 12.1 ) million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data