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Item 7. Management’s Discussion and Analysis

2025-05-14 compared with 2024-01-26 · 267 added, 402 removed, 434 unchanged (61% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and the other financial information included elsewhere in this Annual Report on Form 10-K.

The following discussion contains forward‑looking statements that involve risks and uncertainties such as our plans, estimates, and beliefs.

Our actual results could differ materially from those discussed in the forward-looking statements below.

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" Risk Factors" above.

Mesa Airlines is 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.

All of our flights are operated as either United Express or DHL Express flights pursuant to the terms of capacity purchase agreement ("CPA") with United and a flight services agreement ("FSA") with DHL.

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

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

We have a significant presence in several of United's key domestic hubs including Houston and Washington-Dulles.

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

During 2022, we committed to a formal plan to sell certain of our CRJ-900 aircraft.

We had 11 CRJ-900 aircraft, eight CRJ-700 aircraft, and one CRJ-200 aircraft remaining as held for sale from the fiscal year ended September 30, 2022, and classified 14 CRJ-900 aircraft as assets held for sale during the fiscal year ended September 30, 2023.

We completed the sale of seven CRJ-900 aircraft, eight CRJ-700 aircraft, and one CRJ-200 aircraft remaining from fiscal year 2022 during the fiscal year ended September 30, 2023.

Additionally, we completed the sale of three CRJ-900 aircraft that were classified as held for sale during the fiscal year ended September 30, 2023, and 15 CRJ-900 aircraft remained as assets held for sale as of September 30, 2023.

We also leased two CRJ-700 aircraft to a third party during the fiscal year.

We operated 40 CRJ-900 aircraft under our American CPA prior to the wind-down and termination of the CPA on April 3, 2023 and a mix of 20 E-175LL, 60 E-175, and 24 CRJ-900 aircraft under our United CPA.

We operate three Boeing 737-400F and one 737-800 aircraft under the DHL FSA.

As of September 30, 2023, approximately 95% of our aircraft in scheduled service were operated for United, and 5% were operated for DHL.

All our operating revenue in our 2023, 2022, and 2021 fiscal years were derived from operations associated with our American and United CPAs, DHL FSA, and from leases of aircraft to a third party.

Our long-term agreements provide us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour and flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying and cargo services on behalf of our major partners.

Our CPAs and FSAs also shelter us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers.

In providing regional flying under our CPAs, and cargo flight services under our FSA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of our major partners.

Mesa Airlines is a regional air carrier providing scheduled passenger service to 67 cities in 34 states, Cuba, and Mexico.

All of our flights are operated as United Express flights pursuant to the terms of our Amended and Restated CPA with United.

Prior to the voluntary wind-down of the DHL FSA on March 1, 2024, Mesa also operated flights as DHL Express flights pursuant to the terms of the FSA.

Under the United CPA, we operated a fleet of 67 aircraft with approximately 265 daily departures as of September 30, 2024.

We also leased two CRJ-700 aircraft to a third party during fiscal year 2024 and operated MPD, our pilot development program.

As of September 30, 2024, all of our aircraft in scheduled service were operated for United.

All of our operating revenue in our 2024, 2023, and 2022 fiscal years were derived from operations associated with our United CPA, DHL FSA, leases of aircraft to a third party, and MPD.

Operating revenue in fiscal years 2023 and 2022 were also derived from operations associated with our American CPA prior to the wind-down and termination of such CPA on April 3, 2023.

Our long-term agreement with United provides us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour and flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying services on behalf of United.

Our CPA also shelters us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers.

In providing regional flying under our CPA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of United.

United controls route selection, pricing, seat inventories, marketing, and scheduling, and provides us with ground support services, airport landing slots and gate access.

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

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

Glossary of Airline Terms

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Industry Trends

We believe our operating and business performance is driven by various factors that typically affect regional airlines and their markets, including trends which affect the broader airline and travel industries, though the terms of our CPA and FSA reduce our exposure to fluctuations in certain trends.

We believe our operating and business performance is driven by various factors that typically affect regional airlines and their markets, including trends which affect the broader airline and travel industries, though the terms of our United CPA reduces our exposure to fluctuations in certain trends.

The following key factors may materially affect our future performance.

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Congress, the FAA issued more stringent pilot qualification and crew member flight training standards, which, among other things, increased the required training time for new airline pilots from 250 hours to 1,500 hours of flight time.

With these changes, the supply of qualified pilot candidates eligible for hiring by the airline industry has been dramatically reduced.

With these changes, the supply of qualified pilot candidates eligible for hiring by the airline industry was dramatically reduced.

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

In more recent periods, our pilots continue to be recruited by other carriers, primarily the major carriers and heavy equipment cargo operators, which generally offer higher salaries and more extensive benefit programs.

The magnitude of this attrition in fiscal 2022 created significant backlogs in training, further exacerbating an already challenging environment.

These events have had, and continue to have a negative impact on pilot scheduling, work hours, and the number of pilots required to support our operations.

In August 2022, we entered into a Letter of Agreement with the Airline Pilots Association (“ALPA”), which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

To further address the diminished supply of qualified pilots, we launched the Mesa Pilot Development Program (“MPD”).

As part of this program, on September 22, 2022, we purchased 29 Pipistrel Alpha Trainer 2 aircraft.

We purchased an additional 25 Pipistrel Alpha Trainer 2 aircraft during the year ended September 30, 2023.

This new fleet is the backbone of the MPD program, with pilots being provided with the opportunity to accumulate up to 1,500 flight hours required to fly a commercial aircraft at Mesa Airlines.

Flight costs of $50 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 Airline Transport Pilot (“ATP”) certificate.

As part of candidates’

commitment to flying for Mesa Airlines, flight costs will be repaid over three years during the term of their employment.

No assurance can be given that the measures we are currently taking or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

We launched the MPD Program to address the diminished supply of qualified pilots, provide a more affordable path for pilots to reach the 1,500 flight hours required to earn their Airline Transport Pilot certificate, and provide a pipeline of potential pilots at Mesa Airlines.

As part of this program, we operate a fleet of 28 Pipistrel Alpha Trainer 2 aircraft.

Currently, pilots pay out-of-pocket for the first 250 flight hours at a rate of $60 per hour.

Subsequent flight costs of $75 per hour are financed by the Company at zero interest and, generally, require repayment of such financing over two years.

Although pilot attrition has returned to normal levels no assurance can be given that the measures we have taken or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

Pilot and Mechanic Attrition.

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If our actual pilot attrition rates are materially different than our projections, our operations and financial results could be materially and adversely affected.

Although we target maintenance staffing levels above our projected needs in order to account for attrition, which is widespread in the industry, from time to time we have experienced attrition with our maintenance technicians, who have the option to seek employment at mainline airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer.

benefit programs than regional airlines are financially able to offer.

Attrition of maintenance technicians has sometimes required us to supplement our staff with qualified temporary employees.

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Economic Conditions, Challenges and Risks

Liquidity and Going Concern.

During our fiscal year ended September 30, 2024, the decrease in scheduled flying activity associated with the transition of our operations with American to United, increased costs associated with pilot wages, together with increasing interest rates adversely impacted our financial results, cash flows, financial position, and other key financial ratios.

Additionally, United has asked us to accelerate the removal of our CRJ-900 aircraft and transition the pilots to our E-175 fleet.

These events will lead to increased costs and impact our block hour capabilities while these pilots are in training.

As a result of the decrease in scheduled flying activity for United, we produced less block hours to generate revenues.

During the fiscal year ended September 30, 2024, these challenges resulted in a negative impact on the Company’s financial results highlighted by net loss of $91.0 million, primarily due to impairment expense of $73.7 million related to held for sale assets during the year.

These conditions and events raised concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months from the filing of this Form 10-K.

To address such concerns, management developed and implemented certain material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months.

The following measures were implemented during the year ended September 30, 2024, and through the date of issuance of the financial statements.

• On April 4, 2025, the Company entered into the Three Party Agreement between United, Republic, and the Company, which provides for, among other things, the following, each subject to the completion of the Merger Agreement:

o Termination of the United CPA.

o The Company to sell or dispose of all remaining Eligible Assets (as defined in the Three Party Agreement).

o The Company to extinguish all remaining debt with cash and sale of assets.

Any remaining debt will be assumed by the surviving corporation or forgiven by United.

o A three percent (3%) increase in CPA block hour rates, retroactive to January 1, 2025.

o The transfer of all of the Company's rights and obligations under its agreements with Archer (as discussed in Note 17).

• On April 4, 2025, we entered into the Sixth Amendment to the Third Amended and Restated Capacity Purchase Agreement with United which provides for the following:

o The extension of the CPA rate increases agreed upon in the January 2024 United CPA Amendments, retroactive to January 1, 2025, through March 31, 2026.

o The extension of incentives for achieving certain performance metrics, retroactive to July 1, 2024, through March 31, 2026.

• On April 4, 2025, we entered into the Sixth Amendment to Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of an existing financial covenant default with respect to the period ended March 31, 2025, and a projected financial covenant default with respect to the periods ending June 30, 2025, September 30, 2025, December 31, 2025, and

March 31, 2026, each relating to a minimum liquidity requirement under our United Revolving Credit Facility.

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

• On December 31, 2024, we entered into an Aircraft Purchase Agreement with United which provides for the sale of 18 E-175 aircraft to United for gross proceeds of $227.7 million and net proceeds of $84.7 million after the retirement of debt.

Subsequently, we closed the sale of all 18 aircraft to United.

• On December 30, 2024, we received notice from United that $4.5 million of our Effective Date Revolving Loan balance under our United Revolving Credit Facility has been forgiven for achieving certain operational performance metrics outlined in the United CPA.

• On December 24, 2024, we entered into a purchase agreement with a third party which provides for the sale of 15 CRJ-900 airframes to the third party for expected gross proceeds of $19.0 million, which will be used to pay down our UST Loan.

On April 3, 2025, the purchase agreement was amended to include an additional 14 CRJ-900 airframes to be sold to the third party for expected gross proceeds of $9.1 million.

The total expected gross proceeds of $28.1 million will be used to pay down our UST Loan.

• On December 23, 2024, we entered into an agreement with the UST to lower the minimum CCR covenant to .99 to 1.0 effective as of November 22, 2024 through February 28, 2025.

After such date, the CCR will revert to 1.55 to 1.0.

The agreement also requires the Company to use its reasonable best efforts to cause counterparties to all Receivables (as defined in the Treasury Loan) (whether or not constituting “Eligible Receivables” (as defined in the Treasury Loan)) of the Company to be paid to the Eligible Receivables Account (as defined in the Treasury Loan).

Receivables generated from the sale of assets that are not Collateral (as defined in the Treasury Loan) are excluded from the scope of the foregoing requirement.

As a result of the lower CCR covenant, we are in compliance with this covenant as of September 30, 2024.

Additionally, on March 18, 2025, we entered into a new CCR Modification Agreement with the UST to lower the minimum CCR covenant to .91 to 1.0 effective as of February 28, 2025 through the maturity date of the loan.

• On December 23, 2024, we entered into a Waiver to Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of an existing financial covenant default with respect to the period July 1, 2024 to December 23, 2024 and a projected financial covenant default with respect to the period December 24, 2024 to December 31, 2024, each relating to a minimum liquidity requirement under our United Revolving Credit Facility.

• On December 23, 2024, we entered into the Fourth Amendment to our Third Amended and Restated United CPA which provides for the following:

o Amended certain scheduled exit dates for our E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA).

o Added provisions relating to the reimbursement by United of up to $14.0 million of pilot training costs incurred by the Company with respect to its E-175 aircraft.

• On September 25, 2024, we reached an agreement with United which provides for, among other things, the commitment to buy our two CRJ-700 aircraft out of their lease with GoJet and to purchase such aircraft for total proceeds of $11.0 million, $4.5 million of which will pay down the outstanding obligations.

Subsequent to September 30, 2024, we closed the sale of the two CRJ-700 aircraft to United.

• Based on the most recent appraisal value of our spare parts, we have $12.4 million of borrowing capacity under our United Revolving Credit Facility.

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

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

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

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

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

As of July 16, 2024, the Company was not in compliance with a financial covenant related to a minimum liquidity requirement of $15.0 million of cash and cash equivalents associated with its Second Amended and Restated Credit and Guaranty Agreement with United.

On December 23, 2024, the Company entered into a Waiver to Second Amended and Restated Credit and Guaranty Agreement providing for the waiver for the financial covenant default with respect to the period July 1, 2024 to December 23, 2024 and a projected financial covenant default with respect to the period December 24, 2024 to December 31, 2024.

Further, on April 4, 2025, the Company entered into the Sixth Amendment to Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of an existing financial covenant default with respect to the period ended March 31, 2025, and a projected financial covenant default with respect to the periods ending June 30, 2025, September 30, 2025, December 31, 2025, and March 31, 2026.

As of the issuance of this Form 10-K, we are in compliance with all financial covenants.

As of September 30, 2024, the Company had $50.5 million of principal maturity payments on long-term debt due within the next twelve months.

Additionally, all outstanding principal amounts of $113.7 million as of September 30, 2024, under our UST Loan are due and payable in a single installment on October 30, 2025.

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

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

The Company continues to monitor covenant compliance with its lenders as any noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

As of September 30, 2024, the Company is in compliance with all financial covenants.

Market Volatility.

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Consumer confidence and discretionary spending, spread of a virus, fear of terrorism or war, weakening economic conditions, fare initiatives, fluctuations in fuel prices, labor actions, changes in governmental regulations on taxes and fees, weather and other factors have contributed to a number of reorganizations, bankruptcies, liquidations, and business combinations among major and regional airlines.

The effect of economic cycles and trends may be somewhat mitigated by our reliance on CPAs.

The effect of economic cycles and trends may be somewhat mitigated by our reliance on our CPA.

If, however, United experiences a prolonged decline in the number of passengers or is negatively affected by low ticket prices or high fuel prices, it may seek rate reductions in future CPAs, or materially reduce our scheduled flights in order to reduce its costs.

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In August 2022, we entered into a three-year Letter of Agreement with ALPA, which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal years 2023 and 2024, and attrition levels have dropped to a pre-COVID level.

In September 2022, we entered into a Letter of Agreement with AFA to extend the term of our agreement by two years.

Our extension with AFA provided, among other things, an increase in compensation for our flight attendants.

Our extension with AFA provided, among other things, an

increase in compensation for our flight attendants.

The terms and conditions of our future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency or other factors, to bear higher costs than we can.

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A strike or other significant labor dispute with our unionized employees may adversely affect our ability to conduct business.

Impact of Pilot Shortage.

During our twelve months ended September 30, 2023, the severity of the pilot shortage, elevated pilot attrition, the transition of our operations with American to United, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios.

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

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

A primary source of pilots for the major U.S.

passenger and cargo carriers are the U.S.

regional airlines.

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

During the 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 payment 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.

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.

The airline industry is highly competitive.

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ability to fly contracted schedules, availability of labor resources including pilots, low operating cost, financial resources, geographical infrastructure, overall customer service levels relating to on-time arrival and flight completion percentages, and the overall image of the regional airline.

Our ability to renew our existing agreements and earn additional flying opportunities in the future will depend, in significant part, on our ability to maintain a low-cost structure competitive with other regional air carriers.

Our ability to renew our existing agreement and earn additional flying opportunities in the future will depend, in significant part, on our ability to maintain a low-cost structure competitive with other regional air carriers.

Maintenance Contracts, Costs and Timing.

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As of September 30, 2024, $52.3 million of parts inventory was consigned to us by AAR and Aviall under long-term contracts that is not reflected in our consolidated balance sheet.

The average age of our E-175, CRJ-900, Boeing 737, and CRJ-700 type aircraft is approximately 7.9, 18.1, 30.0, and 16.4 years, respectively.

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

Due to the relatively young age of our E-175 aircraft, they require less maintenance now than they will in the future.

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The purchase of leased aircraft allows us to lower our operating costs and avoid lease-related use restrictions and return conditions.

As of September 30, 2023, we had 48 aircraft in our fleet under lease, including 42 E-175 aircraft owned by United and leased to us at nominal amounts and three Boeing 737 cargo jets subleased to us by DHL at nominal amounts.

The fourth Boeing 737 cargo jet and two CRJ-700 aircraft are leased to us from third parties.

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

We also have two CRJ-700 aircraft that are leased to us by a third party.

In order to determine the proper classification of our leased aircraft as either operating leases or finance leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments.

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Components of Our Results of Operations

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

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

Operating Revenues

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Contract Revenue.

Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our CPA and FSA with our major partners, along with the additional amounts received based on the number of flights and block hours flown, and rental revenue for aircraft leased to a third party.

Contract revenues we receive from our major partners are paid on a weekly basis and recognized over time consistent with the delivery of service under our agreements.

Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our United CPA, along with the additional amounts received based on the number of flights and block hours flown, rental revenue for aircraft leased to a third party, and revenue received from pilots in the MPD program.

Contract revenues we receive from United are paid on a weekly basis and recognized over time consistent with the delivery of service under our CPA.

Pass-Through and Other Revenue.

Pass-through and other revenue consists of passenger and hull insurance, aircraft property taxes, landing fees, and other aircraft and traffic servicing costs received pursuant to our agreements with our major partners, as well as certain maintenance costs related to United owned E-175 aircraft.

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

Operating Expenses

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Flight operations expense includes costs related to salaries, bonuses and benefits earned by our pilots, flight attendants, and dispatch personnel, as well as costs related to technical publications, lodging of our flight crews, and pilot training expenses.

Fuel expense includes fuel and related fueling costs for flying we undertake outside of our CPA and FSA, including aircraft repositioning and maintenance.

All aircraft fuel and related fueling costs for flying under our CPAs were directly paid and supplied by our major partners.

Fuel expense includes fuel and related fueling costs for flying we undertake outside of our CPA, including aircraft repositioning and maintenance.

All aircraft fuel and related fueling costs for flying under our CPA were directly paid and supplied by United.

The fuel and related cost for flying under our DHL FSA were directly paid and supplied by DHL.

Accordingly, we do not record an expense or the related revenue for fuel supplied by American and United for flying under our CPAs or DHL under our FSA except fuel costs incurred for controllable ferry flights for American and United.

Accordingly, we do not record an expense or the related revenue for fuel supplied United for flying under our CPA or DHL under our FSA except fuel costs incurred for controllable ferry flights for United.

Fuel expenses relating to MPD are paid by the Company.

Maintenance expense includes costs related to engine overhauls, airframe, landing gear and normal recurring maintenance, which includes pass-through maintenance costs related to our E-175 aircraft.

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Aircraft and Traffic Servicing.

Aircraft and traffic servicing expense includes expenses related to our CPAs and FSA, including aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major partners.

Aircraft and traffic servicing expense includes expenses related to our CPA and FSA, including aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major partners.

General and Administrative.

General and administrative expense includes insurance and taxes, the majority of which are pass-through costs, non-operational administrative employee wages and related expenses, building rents, real property leases, utilities, legal, audit and other administrative expenses.

Depreciation and Amortization.

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

Amortization expense is a periodic non-cash charge related to our customer relationship intangible asset.

Depreciation.

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

Impairment expense is a non-recurring, non-cash charge related to the reduction in value of aircraft and related parts, primarily upon reclassification to held for sale.

Other Income (Expense), Net

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Interest income includes interest income on our cash and cash equivalent balances.

Loss on Investments, Net.

Loss on investments consists of losses on our investments in equity securities.

Gain on Investments, Net.

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

Unrealized (Loss)/Gain, Net.

Unrealized (loss)/gain on investments, net consists of losses or gains due to changes in the value of our investments in equity securities.

Gain on extinguishment of debt.

Gain on extinguishment of debt relates to the settlement of a loan for an amount less than the outstanding principal balance.

Gain on debt forgiveness.

Gain on debt forgiveness consists of gains resulting from the forgiveness earned on our deemed prepayment associated with our United Revolving Credit Facility for the achievement of certain performance metrics.

Other Expense.

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Segment Reporting

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance.

In consideration of ASC 280, Segment Reporting, we are not organized around specific services or geographic regions.

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

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

We currently operate in one service line providing scheduled flight services in accordance with our CPA.

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

Additionally, our CODM uses consolidated financial information to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors.

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

Our operating results for the year ended September 30, 2023 reflect an increase in flight operations expense resulting from the implementation of the new pilot pay scale that began September 15, 2022 and increased pilot training.

We also saw decreases in aircraft rent due to the new agreement with RASPRO Trust entered into in December 2022 in which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases, and depreciation and amortization expense due to the reduced carrying value of our CRJ-900 aircraft assets and aircraft in our fleet being classified as non-depreciable assets held for sale.

Additionally, we recorded $54.3 million in impairment charges related associated with designating 14

CRJ-900 aircraft as held for sale as well as our customer relationship intangible asset compared to impairment charges of $171.8 million in impairment charges associated with certain long-lived assets as well as certain of our CRJ aircraft that were classified as held for sale in our year ended September 30, 2022.

Operating Revenues

Our operating results for the fiscal year ended September 30, 2024 improved as a result of decreases in operating expenses due to (i) decreases in flight operations expense as a result of decreased pilot training and lower pilot wages;

(ii) decreases in maintenance expense, primarily due to a decrease in pass-through engine overhaul on our E-175 fleet;

(iii) decreases in general and administrative expenses, primarily due to a decrease in pass-through property tax;

and (iv) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft.

These decreases were partially offset by (i) impairment expense of $73.7 in our fiscal year ended September 30, 2024 compared to impairment expense of $54.3 million in our fiscal year ended September 30, 2023;

and (ii) a decrease in contract revenue due to reduced block hours flown, fewer aircraft under contract, and the wind-down of the DHL FSA, partially offset by an increased United block hour compensation rate.

Operating Revenues/Statistics

Year Ended September 30,

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Operating data:

Available seat miles—ASMs (thousands)

Revenue passenger miles—RPMs

Available seat miles—ASMs (thousands)

Revenue passenger miles—RPMs

Average stage length (miles)

Contract revenue per available seat

mile—CRASM (in cents)

(1) The definitions of certain terms related to the airline industry used in the table can be found under "Glossary of Airline Terms" above.

Total operating revenue decreased by $32.9 million, or 6.2%, during our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

Contract revenue decreased by $57.2 million, or 12.0% during our fiscal year September 30, 2023, primarily driven by reduced block hours flown and fewer aircraft under contract compared to our fiscal year ended September 30, 2022, partially offset by an increased United block hour compensation rate for our new pilot pay scale.

Total operating revenue decreased by $21.7 million, or 4.4%, to $476.4 million during our fiscal year ended September 30, 2024 as compared to our fiscal year ended September 30, 2023.

Contract revenue decreased by $17.0 million, or 4.0%, to $404.3 million during our fiscal year September 30, 2024, primarily driven by reduced block hours flown, fewer aircraft under contract, and the wind-down of the DHL FSA compared to our fiscal year ended September 30, 2023, partially offset by an increased United block hour compensation rate.

Our block hours flown during our fiscal year ended September 30, 2024 decreased 6.7% as compared to our fiscal year ended September 30, 2023 due to a decrease in scheduled flying on our CRJ fleet.

Our pass-through and other revenue decreased by $4.7 million, or 6.1%, to $72.1 million compared to our fiscal year ended September 30, 2023 due to a decrease in pass-through maintenance related to our E-175 fleet.

Operating Expenses

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Asset impairment

(Gain) on sale of assets

Loss/(Gain) on sale of assets

Other operating expenses

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Operating data:

Available seat miles—ASMs

Average stage length (miles)

Flight Operations.

Flight operations expense increased by $39.7 million, or 22.4%, to $216.7 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

The increase was primarily driven by the implementation of the new pilot pay scale that began September 15, 2022 and increased pilot training.

Flight operations expense decreased by $32.3 million, or 14.9%, to $184.5 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

The decrease was primarily driven by decreased pilot training expense and lower pilot wages as a result of fewer block hours flown and decreases in headcount.

Aircraft maintenance expense decreased $14.9 million, or 7.5%, to $184.7 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

This decrease was primarily driven by a lower volume of airframe C-checks, component contracts, rotable and expendable parts, and engine overhauls, partially offset by increases in pass-through engine overhauls and airframe C-checks.

This decrease was primarily driven by a decrease in pass-through engine overhaul and rotable and expendable parts, partially offset by an increase in other pass-through costs and C-check maintenance expenses.

Total pass-through maintenance expenses reimbursed by our major partners decreased by $3.1 million during our fiscal year ended September 30, 2024 compared to our fiscal year ended September 30, 2023.

The following table presents information regarding our aircraft maintenance costs during our fiscal years ended September 30, 2024 and 2023:

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Aircraft Rent.

Aircraft rent expense decreased by $30.8 million, or 83.2%, to $6.2 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

This decrease was due to the new agreement with RASPRO Trust entered into in December 2022 in which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases.

General and Administrative.

General and administrative expense increased by 4.8 million, or 10.9%, to $48.8 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

This increase was primarily due to increased property taxes, legal fees, and pass-through insurance.

Depreciation and Amortization.

Depreciation and amortization expense decreased by $21.1 million, or 25.9%, to $60.4 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

The decrease is primarily due to aircraft in our fleet being classified as non-depreciable assets held for sale and the reduced carrying value of our CRJ-900 aircraft assets that were determined to be impaired during the prior fiscal year ended September 30, 2022.

Asset Impairment.

Asset impairment expenses were $54.3 million for our year ended September 30, 2023, related to designating 14 CRJ-900 aircraft as held for sale as well as our customer relationship intangible asset compared to $171.8 million for our year ended September 30, 2022 related to certain aircraft which were designated as held for sale as well as impairment charges on our long-lived asset group for our CRJ-900 fleet.

Other Operating Expenses.

Other operating expenses decreased by $4.0 million, or 53.0%, to $3.5 million for our fiscal year ended September 30, 2023 compared to our fiscal year ended September 30, 2022.

The decrease is primarily due to a decrease in fuel expense.

Other Expense

Other expense decreased by $5.2 million, or 10.4%, to $44.5 million for our fiscal year ended September 30, 2023, compared to our fiscal year ended September 30, 2022.

The decrease is primarily a result of a $5.4 million gain on investments in equity securities during our fiscal year ended September 30, 2023 compared to a $13.7 million loss on investments in equity securities during our fiscal year ended September 30, 2022, partially offset by an increase of $12.3 million in interest expense for our fiscal year ended September 30, 2023 compared to our fiscal year ended September 30, 2022.

In our fiscal year ended September 30, 2023, our effective tax rate was 6.9% compared to 22.2% in our fiscal year ended September 30, 2022.

Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, as well as any valuation allowance required on our state net operating losses.

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

The income tax provision for our fiscal year ended September 30, 2023 resulted in an effective tax rate of 6.9%, which differed from the U.S.

federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income.

In addition to the state effective tax rate impact, other state impacts include changes in the valuation allowance against state net operating losses, expired state attributes, disallowed unrealized losses, and changes in state apportionment and statutory rates.

The income tax provision for our fiscal year ended September 30, 2022 resulted in an effective tax rate of 22.2%, which differed from the U.S.

federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income.

We continue to maintain a valuation allowance on a portion of our state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.

As of September 30, 2023, we had aggregate federal and state net operating loss carryforwards of approximately $562.6 million and $233.5 million, which expire in 2027-2038 and 2023-2043, respectively, with approximately $6.0 million of state net operating loss carryforwards that expired in 2023.

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

See Note 13 - "Income Taxes" in the notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Results of Operations

Comparison of our Fiscal Years Ended September 30, 2022 and 2021

Operating Revenues

Year Ended September 30,

Operating revenues ($ in thousands):

Pass-through and other

Total operating revenues

Operating data:

Available seat miles—ASMs (thousands)

Revenue passenger miles—RPMs

Average stage length (miles)

Contract revenue per available seat

mile—CRASM (in cents)

(1) The definitions of certain terms related to the airline industry used in the table can be found under "Glossary of Airline Terms" above.

Total operating revenue increased by $27.4 million, or 5.4%, during our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021.

Contract revenue increased by $44.0 million, or 10.1%, primarily due to normalized contractual rates from United and recognition of higher deferred revenue, partially offset by reduced block hours flown and partner utilization penalties compared to the twelve months ended September 30, 2021.

The increase in rates compared to the twelve months ended September 30, 2021 is attributable to temporarily reduced rates from United impacting the twelve months ended September 30, 2021 as a result of lower labor costs due to government assistance received during the same period.

Our pass-through and other revenue decreased during our fiscal year ended September 30, 2022 by $16.6 million, or 24.0%, primarily due to an increase in pass-through maintenance related to our E-175 fleet.

Operating Expenses

Year Ended September 30,

Operating expenses ($ in thousands):

Flight operations

Aircraft rent

General and administrative

Depreciation and amortization

Asset impairment

(Gain) on sale of assets

Government grant recognition

Other operating expenses

Total operating expenses

Operating data:

Available seat miles—ASMs (thousands)

Average stage length (miles)

Flight Operations.

Flight operations expense increased by $14.9 million, or 9.2%, to $177.0 million for our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021.

The increase was primarily driven by an increase in pilot training costs.

Aircraft maintenance expense decreased $15.7 million, or 7.2%, to $201.9 million for our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021.

This decrease was primarily driven by a decrease in C-check expense, Engine overhaul expense, and pass-through maintenance on our E-175 fleet due to overall fewer maintenance events.

This decrease was partially offset by an increase in labor and other costs.

Total pass-through maintenance expenses reimbursed by our major partners decreased by $8.1 million during fiscal year 2022, compared to fiscal year 2021.

The following table presents information regarding our aircraft maintenance costs during our fiscal years ended September 30, 2022 and 2021:

Engine overhaul

Pass-through engine overhaul

Pass-through C-check

Component contracts

Rotable and expendable parts

Other pass-through

Labor and other

Aircraft Rent.

Aircraft rent expense decreased by $2.4 million, or 6.0%, to $37.0 million for our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021.

This decrease was primarily attributable to a decrease in engine rent due to fewer leased engines as well as a decrease in rent expense from aircraft leases due to the Company’s purchase of a previously leased aircraft in March 2021.

Aircraft rent expense increased by $1.6 million, or 25.8%, to $7.8 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

This increase was due to several short-term CRJ-900 airframe and engine leases during the fiscal year ended September 30, 2024.

General and Administrative.

General and administrative expense decreased by 4.5 million, or 9.3%, to $44.2 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

This decrease was primarily due to a decrease in property taxes.

For our fiscal years ended September 30, 2022 and 2021, $8.2 million and $15.1 million, respectively, of our insurance and property tax expenses were reimbursed by our major partners.

This decrease was primarily driven by decreases in pass-through property taxes and pass-through insurance costs.

Depreciation and Amortization.

Depreciation and amortization expense decreased by $20.3 million, or 33.7%, to $40.0 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

The decrease is primarily attributable to a portion of our fleet being classified as held for sale during the twelve months ended September 30, 2022, offset by an increase in rotable parts and spare engine depreciation expense as well as amortization of deferred heavy maintenance.

The decrease is primarily due to aircraft in our fleet being sold or classified as non-depreciable assets held for sale.

Asset Impairment.

Asset impairment expenses were $62.1 million and $109.7 million for our assets held for sale and long-lived and ROU assets, respectively, for our year ended September 30, 2022 compared to zero and zero for our year ended September 30, 2021.

The increase is attributable to impairment charges on certain CRJ aircraft, both held for sale and held for use, and intangible assets of customer relationship during the year ended September 30, 2022.

Asset impairment of $73.7 million was recorded for our fiscal year ended September 30, 2024 primarily related to eight CRJ-900 aircraft, 26 CRJ-900 airframes (without engines), and 77 model CF34-8C engines being designated as held for sale.

There was $54.3 million of asset impairment recorded for our fiscal year ended September 30, 2023 related to the write-off of our customer relationship intangible asset and 14 CRJ-900 aircraft being designated as held for sale.

Loss/(Gain) on sale of assets.

Loss on sale of assets of $0.7 million was recorded for our fiscal year ended September 30, 2024 related to the sale of certain engines.

A gain on the sale of assets of $7.2 million was recorded for our fiscal year ended September 30, 2023 related to a 30-engine sale agreement.

Other Operating Expenses.

Other operating expenses decreased by $0.6 million, or 7.1%, to $7.5 million for our fiscal year ended September 30, 2022 compared to our fiscal year ended September 30, 2021.

The decrease is primarily due to lease termination expense which we incurred on a CRJ-900 aircraft purchased in March 2021 that was previously leased from a third party.

The decrease is partially offset by

loss associated with derecognition of lease incentive assets when the Company terminated the leases of CRJ-700 aircraft to GoJet during the fiscal year ended September 30, 2022.

Government Grant Recognition.

Government grant funds decreased by $119.5 million, or 100%, to zero for our fiscal year ended September 30, 2022 compared to our fiscal year ended September 30, 2021.

Under the Consolidated Appropriations Act, the government provided the Company with a grant of $56.0 million in payroll support for the period of December 2020 through March 2021, and an additional $52.2 million in payroll support under the American Recovery Plan Act for the period of April 2021 through September 2021.

We also received a total of $95.2 million under the CARES Act during the period April 2020 through October 2020, $83.8 million of which was utilized during fiscal 2020 and $11.4 million of which was utilized and recognized as an offset to operating expenses during the first quarter of fiscal year 2021.

These government grant programs were no longer available during our fiscal year ended September 30, 2022.

Other operating expenses increased by $3.0 million, or 86.8%, to $6.6 million for our fiscal year ended September 30, 2024 compared to our fiscal year ended September 30, 2023.

The increase is primarily attributable to interrupted trip costs during the fiscal year ended September 30, 2024.

Other Expense

Other expense increased by $8.9 million, or 21.8%, to $49.7 million for our fiscal year ended September 30, 2022, compared to our fiscal year ended September 30, 2021.

The increase is primarily a result of an increase in loss on investments in equity securities of $6.9 million as a result of a reduction in the market price of our investments in common stock and warrants of Archer Aviation, Inc.

See Note 8 –

“Balance Sheet Information”

in the notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion of our investments in equity securities.

Other expense decreased by $19.8 million, or 44.6%, to $24.7 million for our fiscal year ended September 30, 2024, compared to our fiscal year ended September 30, 2023.

The decrease is primarily attributable to realized gains on investments in equity securities of $8.0 million, gain on extinguishment of debt of $3.0 million, gain on debt forgiveness of $10.5 million, and decreases on interest expense.

The decrease is partially offset by $6.1 million in unrealized losses on investments in equity securities for our fiscal year ended September 30, 2024 compared to $5.4 million in unrealized gains on investments in equity securities for our fiscal year ended September 30, 2023.

In our fiscal year ended September 30, 2024, our effective tax rate was (0.6)% compared to 6.9% in our fiscal year ended September 30, 2023.

We recorded an income tax (benefit) provision of $(52.0) million and $5.8 million for the fiscal years ended September 30, 2022 and 2021, respectively.

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

The income tax provision for our fiscal year ended September 30, 2024 resulted in an effective tax rate of (0.6)%, which differed from the U.S.

federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income.

In addition to the state effective tax rate impact, other state impacts include changes in the valuation allowance against federal and state net operating losses, expired state attributes, disallowed unrealized losses, and changes in state apportionment and statutory rates.

The income tax provision for our fiscal year ended September 30, 2023 resulted in an effective tax rate of 6.9%, which differed from the U.S.

federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income.

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

Approximately $180.9 million of our federal NOL carryforwards are not subject to expiration.

See Note 12 - "Income Taxes" in the notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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(v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future;

(vi) Adjusted EBITDA and Adjusted EBITDAR do not reflect gains and losses on investments, which are non-cash gains and losses but will occur in periods when there are changes in the value of the Company’s investments in equity securities;

and (vii) Adjusted EBITDA and Adjusted EBITDAR do not reflect any cash requirements for such replacements and other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDAR differently than we do, limiting its usefulness as a comparative measure.

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Loss before taxes

Unrealized (gain)/loss on investments, net

Gain on investments, net

Unrealized loss/(gain) on investments, net

Adjustments (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)

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Adjusted EBITDAR

(1) $0.2 million and $4.5 million lease termination expense during the fiscal year ended September 30, 2022 and 2021, respectively.

(2) $(0.4) million and $1.0 million (loss)/gain on debt extinguishment related to repayment of the Company's aircraft debts during the fiscal year ended September 30, 2022 and 2021, respectively.

(1) $0.2 million of lease termination expense during the fiscal year ended September 30, 2022.

(2) $3.2 million loss from the write off of lease incentive assets during the fiscal year ended September 30, 2022.

(3) $109.7 million impairment loss related to our long-lived asset group for our CRJ-900 fleet during the fiscal year ended September 30, 2022.

(4) $3.2 million loss from write off of lease incentive assets during the fiscal year ended September 30, 2022.

(5) $3.7 million and $3.5 million impairment true-up loss on seven and 12 CRJ 900 aircraft Held for Sale during the fiscal year ended September 30, 2023 and 2022, respectively.

(6) $7.2 million and $4.7 million gain on the sale of aircraft, engines, and other assets during the fiscal year ended September 30, 2023 and 2022, respectively.

(7) $46.9 million and $58.6 million impairment loss related to certain of our aircraft which were classified as held for sale during the fiscal year ended September 30, 2023 and 2022, respectively.

(8) $3.7 million impairment loss on intangible asset during the fiscal year ended September 30, 2023.

(9) $1.2 million loss on deferred financing costs related to retirement of debts during the fiscal year ended September 30, 2023.

(4) $1.6 million, $1.2 million and $0.4 million loss on deferred financing costs related to the retirement of debts during the during the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

(5) $0.7 million loss, $7.2 million gain, and $4.7 million gain on the sale of aircraft, engines, and other assets during the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

(6) $77.4 million, $46.9 million and $58.6 million impairment loss on held for sale accounting treatment during the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

(7) $3.7 million gain, $3.7 million loss, and $3.5 million loss on impairment fair value adjustments during the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

(8) $3.7 million impairment loss on intangible assets during the fiscal year ended September 30, 2023.

(9) $6.0 million in third party costs associated with non-recurring transactions during the fiscal year ended September 30, 2024.

(10) $10.5 million gain on debt forgiveness during the fiscal year ended September 30, 2024.

(11) $3.0 million gain on extinguishment of debt during the fiscal year ended September 30, 2024.

(12) $0.9 million loss for early payment fees on the retirement of debt during the fiscal year ended September 30, 2024.

Liquidity and Capital Resources

As of September 30, 2024, the Company has $50.5 million of principal maturity payments on long-term debt due within the next twelve months.

We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations, as well as the liquidity created from our plans to sell the remaining 15 CRJ-900 aircraft and other surplus assets, availability under our revolving credit facility with United, and further amending our United CPA.

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

The Company continues to monitor covenant compliance with its lenders as any noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

In June 2020, the Company amended its RASPRO aircraft agreement to defer a $4.0 million lease payment otherwise due in June 2020.

Per the amended agreement dated June 5, 2020, the Company is required to pay this amount over the period of September 2021 through March 2024.

The Company made the accounting election available for COVID-19 related concessions provided by a lessor resulting in no change to the related lease accounting.

Additionally, all outstanding principal amounts, $113.7 million as of September 30, 2024, under our UST Loan are due and payable in a single installment on October 30, 2025.

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

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.

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

The loan agreement provides for a secured term loan facility of up to $200.0 million (the “Treasury Loan”

or "UST Loan").

The loan agreement provides for a secured term loan facility of up to $200.0 million (the “Treasury Loan” or "UST Loan").

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

No additional sums are available for borrowing under the Treasury Loan.

The obligations under the

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

All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025 (the “Maturity Date”) and all accrued interest is payable in arrears on the first business day following the 14th day of each March, June, September and December (beginning with December 15, 2020), and on the Maturity Date.

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

All principal amounts outstanding under the Treasury Loan are due and payable in a single installment on October 30, 2025 (the "Maturity Date") and all accrued interest is payable in arrears on the first business day following the 14th day of March, June, September, and December (beginning with December 15, 2020), and on the Maturity Date.

For the first 12 months, interest was paid in-kind by increasing the principal amount of the loan by the amount of such interest due on an interest payment date.

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

The proceeds may be used for general corporate purposes and operating expenses, to the extent permitted by the CARES Act.

Voluntary prepayments of loans under the Treasury Loan may be made, in whole or in part, without premium or penalty, at any time.

Voluntary prepayments of loans under the Treasury Loan may

be made, in whole or in part, without premium or penalty, at any time.

Amounts prepaid may not be reborrowed.

Mandatory prepayments of amounts outstanding under the Treasury Loan are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral and certain insurance payments related to the Collateral.

In addition, if a “change of control”

(as defined in the Treasury Loan) occurs with respect to Mesa Airlines, Mesa Airlines will be required to repay the loans outstanding under the Treasury Loan.

The Treasury Loan requires the Company, under certain circumstances, including within one business days prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio.

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 one business day prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio.

If the calculated collateral coverage ratio is less than 1.55 to 1.0, Mesa Airlines will be required either to provide additional Collateral (which may include cash collateral) to secure its obligations under the Treasury Loan or repay the term loans under the Treasury Loan, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Collateral or repayment, is at least 1.55 to 1.0.

On September 23, 2024, we entered into the CCR Modification Agreement to reduce our required minimum CCR to 1.44 to 1.0 through November 22, 2024, after which, the required minimum CCR will revert back to 1.55 to 1.0.

The Treasury Loan contains two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level.

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Additionally, the Company is required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service.

The CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020.

The Company deferred approximately $5.5 million of such taxes, with 50% of the deferred amount repaid on December 31, 2021 and the remaining 50% repaid on December 31, 2022.

We expect to meet our cash needs for the next twelve months with cash and cash equivalents, financing arrangements, proceeds from the sale of aircraft, and cash flows from operations.

As of September 30, 2023, we had $32.9 million in unrestricted liquidity.

Though our financial and operating results reflect the recovery in air travel demand during the second half of our 2021 fiscal year, we continue to monitor the longer-term impact of the pandemic, including its adverse effect on customer demand for air travel, the general economy, and our major partners.

Should the effects of COVID-19, variants thereof or a similar pandemic continue long-term, our capital requirements and sources of capital may be adversely impaired.

See “Part II, Item 1A, Risk Factors”

for additional discussion.

Sources and Uses of Cash

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Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events.

Our principal sources of liquidity are cash on hand, cash generated from operations and funds from external borrowings.

In the near term, we expect to fund our primary cash requirements through cash generated from operations and cash and cash equivalents on hand.

Our principal sources of liquidity are cash on hand, cash generated from operations, proceeds from the sale of assets, and funds from external borrowings.

In the near term, we expect to fund our primary cash requirements through cash generated from operations, cash and cash equivalents on hand, and proceeds from the sale of assets.

As discussed above, we entered into the Treasury Loan on October 30, 2020 pursuant to which we borrowed an aggregate of $195.0 million.

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▪ Factors that affect our access to bank financing and the debt and equity capital markets that could impair our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing, and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

Our ability to service our long-term debt obligations, including our equipment notes, to remain in compliance with the various covenants contained in our debt agreements and to fund our working capital, capital expenditures and business development efforts will depend on our ability to generate cash from operating activities, which is subject to, among other things, our future operating performance, as well as to other factors, some of which may be beyond our control.

operating activities, which is subject to, among other things, our future operating performance, as well as to other factors, some of which may be beyond our control.

If we fail to generate sufficient cash from operations, we may need to raise additional equity or borrow additional funds to achieve our longer-term objectives.

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As of September 30, 2024, we had $48.7 million of short-term debt, excluding finance leases, and $259.4 million of long-term debt excluding finance leases.

Sources of cash for our fiscal year ended September 30, 2023 were primarily cash flows used in operations of $24.1 million.

The negative cash flow from operations was driven by our net loss, an increase in receivables and inventory, and decreases in deferred revenue and accrued expenses.

Sources of cash for our fiscal year ended September 30, 2024 were primarily cash flows provided by operations of $34.2 million and proceeds from the sale of assets of $169.3 million.

Debt and Other Obligations

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We have significant long-term operating lease obligations primarily relating to our aircraft fleet, as well as leases of office and hangar space.

As of September 30, 2023, we had one aircraft on operating leases (excluding aircraft leased at nominal amount from United and DHL) with remaining lease terms of up to 6.1 years.

As of September 30, 2024, we had five airframes and 21 engines on operating leases (excluding aircraft leased at nominal amounts from United).

The five airframes are short-term operating leases that will be returned when the airframes are removed from the United CPA by the end of February 2025.

The engines have remaining lease terms of up to 2.2 years.

Future minimum lease payments due under all long-term operating leases were approximately $10.5 million as of September 30, 2024.

A majority of our leased aircraft are leased through trusts formed for the sole purpose of purchasing, financing, and leasing aircraft to us.

Because these are single-owner trusts in which we do not participate, we are not at risk for losses and we are not considered the primary beneficiary.

We believe that our maximum exposure under the leases are the remaining lease payments and any return condition obligations.

RASPRO Lease Facility.

On September 23, 2005, Mesa Airlines, as lessee, entered into the RASPRO Lease Facility, with RASPRO as lessor, for 15 of our CRJ-900 aircraft.

The obligations under the RASPRO Lease Facility are guaranteed by us, and basic rent is paid quarterly on each aircraft.

On each of March 10, 2014, June 5, 2014, and December 8, 2017, the RASPRO Lease Facility was amended to defer certain payments of basic rent (the "Deferred Amounts").

Until the principal of and accrued interest on the Deferred Amounts are paid in full:

(i) we and Mesa Airlines are prohibited from paying any dividends to holders of our common stock, (ii) we are prohibited from repurchasing any of our warrants or other equity interests, (iii) Mesa Airlines must maintain a minimum of $35.0 million of cash, cash equivalents and availability under lines of credit, (iv) Mesa Airlines must provide RASPRO with periodic monthly, quarterly and annual reports containing certain financial information and forecasted engine repair costs and (v) we must maintain a minimum debt-to-assets ratio.

On June 5, 2020, the Company amended its RASPRO aircraft lease agreement to defer a $4.0 million lease payment otherwise due in June 2020.

Per the amended agreement, the Company is required to pay this amount over the period of September 2021 through March 2024.

The Company made the accounting election available for COVID-19 related concessions provided by a lessor.

This event is not a lease modification and requires no changes to current accounting treatment.

Finance Leases

On February 7, 2018, Mesa Airlines, as lessee, entered into two agreements for the lease of two spare aircraft engines (the "Engine Leases").

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

At the end of the lease term, Mesa Airlines will have the option to purchase both engines for a total of $1.8 million.

The Engine Leases are reflected as finance lease obligations of $2.3 million on our consolidated balance sheet as of September 30, 2022.

The Engine Leases set forth specific redelivery requirements and conditions, but do not contain operational or financial covenants.

On April 20, 2022, Mesa Airlines, as lessee, entered into another agreement for the lease of one spare aircraft engine.

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

At the end of the lease term, Mesa Airlines will not have the option to purchase the engine.

This lease is reflected as finance lease obligations of $0.6 million on our consolidated balance sheet as of September 30, 2022.

On June 1, 2022, Mesa Airlines, as lessee, entered into two agreements for the lease of two CRJ-700 aircraft (the “Aircraft Leases”).

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

At the end of the lease term, Mesa Airlines will have the option to purchase both aircraft for a total of $1.5 million.

The Aircraft Leases are reflected as finance lease obligations of $15.1 million on our consolidated balance sheet as of September 30, 2022.

The Company has the option to purchase both aircraft for a total of $1.5 million at the end of the lease term.

On May 30, 2024, we amended the finance lease agreements providing for the revision of the lease term from June 22, 2031 to May 29, 2027.

We paid initial payments totaling approximately $1.8 million.

Subsequent to September 30, 2024, we entered into an agreement with United to buy the aircraft out of their lease with the third party and to purchase them for $11.0 million, $4.5 million of which will pay down the outstanding obligations under the associated finance leases.

The Company had previously leased 15 aircraft from RASPRO Trust as an operating lease.

In December 2022, the Company entered into an agreement with RASPRO Trust, reducing the buyout pricing 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.

As of September 30, 2023, we had 17 aircraft and one engine on finance leases with remaining lease terms of up to 7.7 years.

During the fiscal year ended September 30, 2024, the Company purchased all 15 aircraft and completely paid off the RASPRO obligation.

As of September 30, 2024, we had two aircraft on finance leases with remaining lease terms of up to 2.7 years.

Future minimum lease payments due under all long-term finance leases were approximately $4.7 million as of September 30, 2024.

Working Capital Line of Credit

In August 2016, we, as guarantor, our wholly owned subsidiaries, Mesa Airlines and MAG-AIM, as borrowers, CIT, as administrative agent, and the lenders party thereto (the “CIT Lenders”), entered into the CIT Revolving Credit Facility, pursuant to which the CIT Lenders committed to lend to Mesa Airlines and MAG-AIM revolving loans in the aggregate principal amount of up to $35.0 million.

The borrowers' and guarantor's obligations under the CIT Revolving Credit Facility are secured primarily by a first priority lien on certain engines, spare parts, and related collateral, including engine warranties and proceeds of the foregoing.

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On September 25, 2019, the Company extended the term on its $35.0 million working capital draw loan by three years, which now terminates in December 2022.

Interest is assessed on drawn amounts at one-month LIBOR plus 3.75%.

Interest is assessed on drawn amounts at one-month SOFR plus 3.75%.

In June 2020, $23.0 million was drawn to cover operational needs.

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

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.

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 $10.0 million plus fees and expenses, which is due January 31, 2024, subject to certain mandatory prepayment requirements;

provides for a revolving loan of $10.0 million plus fees and expenses, which was 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 million revolving loan;

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

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.

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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.

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.

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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.

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• 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.

held by the Company were released as collateral for the United credit facility.

• 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.

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• 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.

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 30 , 2022.

During the quarter ended March 31, 2021, a $7.0 million non-refundable purchase deposit was made for the first five engines to be delivered in calendar 2021.

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

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 7, in February 2021, the Company entered into a forward purchase contract with Archer Aviation, Inc.

(“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 Aerospace Incorporated (“Heart”) for a number of fully electric 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 7, in July 2021, the Company entered into a forward purchase contract with Heart Aerospace Incorporated (“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.

Maintenance Commitments

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Year Ended September 30,

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) operating activities

Net cash provided by investing activities

Net cash used in financing activities

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Net Cash Flow Provided by Operating Activities

Our primary source of cash from operating activities is cash collections from our major partners pursuant to our CPA and FSA.

Our primary source of cash from operating activities is cash collections from United pursuant to our CPA.

Our primary uses of cash used in operating activities are for maintenance costs, personnel costs, operating lease payments, and interest payments.

During our fiscal year ended September 30, 2024, we had cash flow provided by operating activities of $34.2 million.

We had net loss of $91.0 million adjusted for the following significant non-cash items:

asset impairment of $73.7 million, depreciation of $40.0 million, stock-based compensation expense of $1.3 million, net unrealized losses on investments in equity securities of $6.1 million, net gains on investments of $(8.0) million, amortization of deferred credits of $(1.1) million, amortization of debt discount and issuance costs and accretion of interest of $8.3 million, gain on extinguishment of debt of $(3.0) million, gain on debt forgiveness of $(10.5) million, and $4.7 million in net other operating cash flow adjustments.

We had net change of $13.5 million within other net operating assets and liabilities largely driven by accrued liabilities, accounts payable, and prepaid expenses, partially offset by deferred revenue during our fiscal year ended September 30, 2024.

During our fiscal year ended September 30, 2023, we had cash flow used in operating activities of $24.1 million.

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We had net change of $(26.8) million within other net operating assets and liabilities largely driven by accrued liabilities, accounts payable, deferred revenue, receivables, and operating leases during our fiscal year ended September 30, 2022.

During our fiscal year ended September 30, 2021, we had cash flow provided by operating activities of $132.9 million.

We had net income of $16.6 million adjusted for the following significant non-cash items:

depreciation and amortization of $82.8 million, stock-based compensation expense of $3.1 million, deferred income taxes of $5.7 million, losses on investments in equity securities of $6.8 million, amortization of deferred credits of $(2.4) million, amortization of debt discount and issuance costs and accretion of interest of $11.4 million, gain on extinguishment of debt of $(1.0) million, and loss on lease termination of $4.5 million.

We had net change of $4.8 million within other net operating assets and liabilities largely driven by accrued liabilities, accounts payable, deferred revenue, receivables, and operating leases during our fiscal year ended September 30, 2021.

Net Cash Flows Provided by (Used in) Investing Activities

Our investing activities generally consist of capital expenditures for aircraft and related flight equipment, deposits paid or returned for equipment and other purchases, and strategic investments.

Our investing activities generally consist of the sale of assets, capital expenditures for aircraft and related flight equipment, deposits paid or returned for equipment and other purchases, and strategic investments.

During our fiscal year ended September 30, 2024, our net cash flow provided by investing activities was $148.8 million.

We received a total of $158.3 million from the sale of aircraft and engines, net of transaction costs, $9.2 million from the sale of investments in equity securities, net of transaction costs, and $1.5 million in customer deposits.

Additionally, we invested $1.2 million in aircraft, $6.1 million in depreciable inventory, $3.7 million in costs associated with transitioning CRJ-900 aircraft to United operations, $3.4 million in capitalized maintenance, and $5.8 million in tools, vehicles, equipment and other miscellaneous projects.

During our fiscal year ended September 30, 2023, our net cash flow provided by investing activities was $142.3 million.

We invested $15.8 million in spare engines, $2.2 million in aircraft, $13.4 million in inventory, $2.6 million in costs associated with transitioning CRJ-900 aircraft to United operations, and $2.6 million in tools, vehicles, equipment and other miscellaneous projects.

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During our fiscal year ended September 30, 2022, our net cash flow provided by investing activities was $1.4 million.

We invested $16.7 million in spare engines, $2.2 million in aircraft, $18.4 million in inventory, $4.4 million in tools, vehicles, equipment and other miscellaneous projects.

and $7.6 million in net payments on equipment and other deposits.

Additionally, we invested a total of $0.2 million in equity securities and received a total of $50.0 million from sale of 10 CRJ-700 aircraft.

During our fiscal year ended September 30, 2021, our net cash flow used in investing activities was $33.5 million.

We invested $16.7 million in spare engines, $2.2 million in aircraft, $18.4 million in inventory, $4.4 million in tools, vehicles, equipment and other miscellaneous projects, and $7.6 million in net payments on equipment and other deposits.

Additionally, we invested a total of $10.0 million in equity securities.

Additionally, we invested a total of $0.2 million in equity securities and received a total of $50.0 million from sale of 10 CRJ-700 aircraft.

Net Cash Flows Used in Financing Activities

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We made $286.3 million of principal repayments on long-term debt during the period.

We incurred $0.9 million of costs related to debt financing and $0.4 million of payments of tax withholding for restricted stock units.

We received $0.3 million in proceeds from the issuance of common stock under our ESPP.

We incurred $0.9 million in prepayment fees and made $0.1 million of payments of tax withholding for restricted stock units.

During our fiscal year ended September 30, 2023, our net cash flow used in financing activities was $143.1 million.

We received $39.8 million of proceeds from borrowings under the Treasury Loan.

$114.9 million of principal repayments on long-term debt during the period.

We received $60.9 million of proceeds from long-term debt.

We made $203.0 million of principal repayments on long-term debt during the period.

We incurred $0.9 million of costs related to debt financing and $0.4 million of payments of tax withholding for restricted stock units.

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To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

We base our estimates on past experience and other assumptions that we

believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting estimates, which we discuss below.

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Effective October 1, 2019, we adopted ASU No.

2016-02, Leases (Topic 842) ("ASU 2016-02" or “ASC 842”) which provides guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases with terms of less than 12 months.

From a lessee perspective, our leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income.

We determine if an arrangement is a lease at inception.

Our operating lease activities are recorded in operating lease right-of-use (“ROU”) assets, current maturities of operating leases, and noncurrent operating lease liabilities in the consolidated balance sheets.

Finance leases are included in property and equipment, net, current portion of long-term debt and finance leases, and long-term debt and finance leases, excluding current portion.

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Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

In addition to the aircraft we lease from United under our United CPA and from DHL under our DHL FSA, approximately 1% of our aircraft are leased from third parties.

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

In the event that we or the third party decides to exit the activity involving leased aircraft, losses may be incurred.

In the event that we exit an activity that results in exit losses, these losses are accrued as the aircraft is removed from operations for early termination penalties, lease settle up, and other charges.

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

In addition to the aircraft we lease from United under our United CPA, approximately 7% of our aircraft are leased from third parties.

Our aircraft operating leases are all short-term leases and result in rental payments being charged to rent expense immediately.

As a lessee, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e., leases with terms of 12 months or less).

From a lessor perspective, 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 in the CPAs is designed to reimburse the Company for certain aircraft ownership costs of these aircraft.

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

From a lessor perspective, our CPA identifies the "right of use" of a specific type and number of aircraft over a stated period-of-time.

A portion of the compensation in the CPA is designed to reimburse the Company for certain aircraft ownership costs of these aircraft.

We account for the non-lease component of our CPA 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.

The Company entered into lease agreements with GoJet Airlines LLC (“GoJet”) to lease CRJ-700 aircraft as of September 30, 2021.

The lease agreements are 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 pays fixed monthly rent per aircraft and variable lease payments for supplemental rent based on monthly aircraft utilization at fixed rates.

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

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

Lease revenue for supplemental rent is deferred and recognized within contract revenue when it is probable that amounts received will not be reimbursed for future qualifying maintenance events over the lease term.

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

In September 2022, we sold 10 CRJ-700 aircraft for $50.0 million.

In January 2023, we sold the remaining eight CRJ-700 aircraft for $40.0 million.

Subsequent to September 30, 2024 we entered into an agreement with United pursuant to which United agreed to buy the two aircraft out of their lease with GoJet and purchase the aircraft.

Revenue Recognition

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

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

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

These costs, known as "pass-through costs," may include passenger liability and hull insurance as well as aircraft property taxes and other flight service expenditures defined in our agreements with our major partners.

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

Under the CPA, United generally pays a fixed monthly minimum amount per aircraft, plus certain additional amounts based upon the number of flights and block hours flown.

The contract also includes reimbursement of certain costs incurred by the Company in performing flight services.

These costs, known as "pass-through costs," may include passenger liability insurance as well as aircraft property taxes and other flight service expenditures defined in our agreement.

Additionally, for the E-175 aircraft owned by United, the CPA provides that United will reimburse the Company for heavy airframe and engine maintenance, landing gear, APUs 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 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.

The Company also receives compensation under its agreement 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 contract also includes 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 agreement.

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

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

Under the CPA and FSA, the Company has committed to perform various activities that can be generally classified into in-flight services and maintenance services.

All revenue recognized under the CPA is presented as the gross amount billed to United.

Under the United CPA, the Company has committed to perform various activities that can be generally classified into in-flight services and maintenance services.

When evaluating these services, the Company determined that the nature of its promise is to provide a single integrated service, flight services, because its contracts require integration and assumption of risk associated with both services to effectively deliver and provide the flights as scheduled over the contract term.

Therefore, the in-flight services and

maintenance services are inputs to that combined integrated flight service.

Therefore, the in-flight services and maintenance services are inputs to that combined integrated flight service.

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

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

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

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

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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 CPA 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.

The Company's CPA and FSA are renewable periodically and contain provisions pursuant to which the parties could terminate their respective agreements, subject to certain conditions, as described in Note 1.

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

The CPA and FSA are amended from time to time to change, add, or delete terms of the agreements.

The Company's revenues could be impacted by a number of factors, including amendment or termination of its CPA or FSA, contract modifications resulting from contract renegotiations, its ability to earn incentive payments contemplated under applicable agreements, and settlement of reimbursement disputes with the Company's major partners.

The Company recognized $123.0 million, $144.7 million, and $158.4 million of lease revenue for the fiscal years ended September 30, 2024, 2023, and 2022, respectively.

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

The Company's CPA is renewable periodically and contain provisions pursuant to which the parties could terminate their respective agreements, subject to certain conditions, as described in Note 1.

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

The CPA is amended from time to time to change, add, or delete terms of the agreements.

The Company's revenues could be impacted by a number of factors, including amendment or termination of its CPA, contract modifications resulting from contract renegotiations, its ability to earn incentive payments contemplated under applicable agreements, and settlement of reimbursement disputes with United.

In the event contracted rates are not finalized at a quarterly or annual financial statement date, the Company evaluates the enforceability of its contractual terms and when it has an enforceable right, it estimates the amount the Company expects to be entitled subject to the variable constraint guidance under ASC 606.

The Company's CPA and FSA contain an option that allows its major partners to assume the contractual responsibility for procuring and providing the fuel necessary to operate the flights that it operates for them.

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 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.

Services and facilities provided by the Company's major partners at no cost are presented net in its consolidated financial statements;

The Company's CPA contains an option that allows United to assume the contractual responsibility for procuring and providing the fuel necessary to operate the flights that it operates for them.

United has exercised this option.

Accordingly, the Company does not record an expense or revenue for fuel and related fueling costs for flying under its CPA.

In addition, United also provides, 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.

Services and facilities provided by United at no cost are presented net in its consolidated financial statements;

hence, no amounts are recorded for revenue or expense for these items.

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

The Company records deferred revenue when cash payments are received or are due from United in advance of the Company’s performance.

The deferred revenue balance as of September 30, 2024 of $9.6 million (current and non-current portion) represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied (as flights are completed over the remaining contract term).

Property and Equipment

The Company’s property and equipment, which primarily consists of aircraft and related flight equipment, had a net book value of $698.0 million as of September 30, 2023.

The Company monitors for

any indicators of impairment of its property and equipment and other long-lived assets whenever events or changes in circumstances indicate that the related carrying amount may be impaired.

The Company’s property and equipment, which primarily consists of aircraft and related flight equipment, had a net book value of $426.4 million as of September 30, 2024.

The Company monitors for any indicators of impairment of its property and equipment and other long-lived assets whenever events or changes in circumstances indicate that the related carrying amount may be impaired.

Factors which could be indicators of impairment include, but are not limited to:

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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.

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 our 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.

The Company’s assumptions about future conditions are important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business and impact of pilot shortage, 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.

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

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

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

The Company’s assumptions about future conditions are important to its assessment of potential impairment of its long-lived assets.

The Company will continue to monitor these conditions in future periods as new information becomes available and will update its analyses accordingly.

If an asset group is

impaired, the impairment loss recognized is the amount by which the asset group’s carrying amount exceeds its fair value.

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

As a result of operating losses and the transition of operations from American to United, we evaluated our fleet for impairment 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.

As a result of operating losses and the removal of CRJ-900 aircraft from the United CPA, we evaluated our fleet for impairment as of September 30, 2024, and determined that future cash flows from the operation of our fleet through the remaining useful life exceeded the carrying value of the fleet.

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

Income taxes are accounted for using the asset and liability method.

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Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in income tax expense in the period in which the change is made, which could have a material impact to our effective tax rate.

See Note 13 - "Income Taxes"

in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

See also "Management's Discussion and Analysis—Results of Operations—Income Taxes" for additional information.

See Note 12 - "Income Taxes" in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

See also "Management's Discussion and Analysis—Results of Operations—Income Taxes" for additional information.

Recent Accounting Pronouncements

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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 7. Management’s Discussion and Analysis