[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides the company's unaudited financial statements, management's analysis, market risk disclosures, and internal control effectiveness [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2022, including the Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, and Statements of Cash Flows, with a significant net loss of $42.8 million primarily due to an impairment charge and absence of government grant recognition [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, highlighting changes in assets, liabilities, and equity between reporting periods Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items (In thousands) | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $75,896 | $120,517 | | Total current assets | $119,959 | $158,386 | | Property and equipment, net | $1,064,349 | $1,151,891 | | Assets held for sale | $36,528 | $0 | | **Total assets** | **$1,353,356** | **$1,456,597** | | **Liabilities & Equity** | | | | Current portion of long-term debt | $111,671 | $111,710 | | Total current liabilities | $249,371 | $258,192 | | Long-term debt and finance leases, net | $521,457 | $539,700 | | Total liabilities | $920,815 | $968,550 | | Total stockholders' equity | $432,541 | $488,047 | | **Total liabilities and stockholders' equity** | **$1,353,356** | **$1,456,597** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Details the company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations (Unaudited, In thousands, except per share amounts) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $123,213 | $97,280 | $270,970 | $247,651 | | Total operating expenses | $167,968 | $80,519 | $319,711 | $203,918 | | Impairment of assets held for sale | $39,475 | $0 | $39,475 | $0 | | Government grant recognition | $0 | $(55,967) | $0 | $(67,278) | | Operating income (loss) | $(44,755) | $16,761 | $(48,741) | $43,733 | | Net income (loss) | $(42,783) | $5,689 | $(57,057) | $19,807 | | Diluted EPS | $(1.19) | $0.14 | $(1.58) | $0.52 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in the company's equity accounts, including net income, share repurchases, and other comprehensive income - Total stockholders' equity decreased from **$488.0 million** at September 30, 2021, to **$432.5 million** at March 31, 2022. The decrease was primarily driven by a net loss of **$57.1 million** for the six-month period[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities over the reporting period Condensed Consolidated Statements of Cash Flows (Unaudited, In thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,958 | $78,574 | | Net cash used in investing activities | $(30,004) | $(11,675) | | Net cash used in financing activities | $(24,574) | $(18,522) | | **Net change in cash, cash equivalents and restricted cash** | **$(44,620)** | **$48,377** | | Cash, cash equivalents and restricted cash at end of period | $79,247 | $151,218 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of the accounting policies, significant transactions, and other financial information supporting the consolidated financial statements - Mesa operates under revenue-guarantee Capacity Purchase Agreements (CPAs) with American Airlines and United Airlines, and a Flight Services Agreement (FSA) with DHL, reducing exposure to passenger traffic and fuel price fluctuations[22](index=22&type=chunk)[23](index=23&type=chunk) - For November 2021, December 2021, and January 2022, Mesa did not meet minimum operational performance levels under the American CPA, but American waived its termination right for this period[27](index=27&type=chunk) - During the quarter ended March 31, 2022, management committed to a plan to sell certain CRJ-900 and CRJ-200 aircraft, resulting in their reclassification as 'held for sale' and an impairment loss of **$39.5 million**[74](index=74&type=chunk) - As of March 31, 2022, American and United accounted for approximately **46%** and **47%** of total revenue, respectively, for the quarter, indicating that termination of either CPA would have a material adverse effect[70](index=70&type=chunk) - The company has forward purchase commitments for electric vertical takeoff and landing (eVTOL) aircraft from Archer (**$200.0 million** base commitment) and fully electric aircraft from Heart (**$1,200.0 million** maximum base commitment), subject to future agreements[133](index=133&type=chunk)[134](index=134&type=chunk) - In March and April 2022, the company amended its CIT revolving credit facility and its Treasury Loan agreement to lower minimum financial covenant ratios, ensuring compliance as of the reporting date[98](index=98&type=chunk)[105](index=105&type=chunk)[136](index=136&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the Q2 2022 net loss of $42.8 million to a $39.5 million impairment charge on CRJ aircraft held for sale and the absence of $56.0 million in government grant recognition that benefited the prior-year quarter, despite a 26.7% increase in operating revenues due to normalized contract rates [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Analyzes the key drivers of changes in operating revenues and expenses, including the impact of impairment charges and government grants Operating Revenue Comparison (Three Months Ended March 31) | Revenue Type ($ in thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract | $111,988 | $81,712 | $30,276 | 37.1% | | Pass-through and other | $11,225 | $15,568 | $(4,343) | (27.9)% | | **Total operating revenues** | **$123,213** | **$97,280** | **$25,933** | **26.7%** | - The **37.1%** increase in contract revenue for the quarter was primarily due to normalized contractual rates, partially offset by an **11.3%** decrease in block hours flown[163](index=163&type=chunk) Operating Expense Comparison (Three Months Ended March 31) | Expense Type ($ in thousands) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $42,410 | $37,403 | $5,007 | 13.4% | | Maintenance | $47,357 | $51,773 | $(4,416) | (8.5)% | | Impairment of assets held for sale | $39,475 | $0 | $39,475 | 100.0% | | Government grant recognition | $0 | $(55,967) | $55,967 | (100.0)% | | **Total operating expenses** | **$167,968** | **$80,519** | **$87,449** | **108.6%** | - Flight operations expense increased by **13.4%** due to higher pilot and flight attendant wages, lodging, and training costs, while maintenance expense decreased by **8.5%** due to a lower volume of C-checks and engine overhauls[164](index=164&type=chunk)[165](index=165&type=chunk) Adjusted EBITDA and EBITDAR Reconciliation (Three Months Ended March 31, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income (loss) | $(42,783) | $5,689 | | Adjustments (Impairment, etc.) | $39,843 | $4,508 | | **Adjusted EBITDA** | **$15,764** | **$41,468** | | Aircraft rent | $9,434 | $9,992 | | **Adjusted EBITDAR** | **$25,198** | **$51,460** | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet its short-term and long-term financial obligations, detailing cash sources, uses, and changes in liquidity - As of March 31, 2022, the company's principal sources of liquidity were cash and cash equivalents of **$75.9 million**, a significant decrease from **$120.5 million** at September 30, 2021[204](index=204&type=chunk)[11](index=11&type=chunk) - Net cash provided by operating activities for the six months ended March 31, 2022, was **$10.0 million**, a sharp decline from **$78.6 million** in the prior-year period, driven by the net loss and changes in working capital[207](index=207&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - Net cash used in investing activities for the six-month period was **$30.0 million**, primarily for capital expenditures on spare engines and rotable parts[212](index=212&type=chunk) - Net cash used in financing activities was **$24.6 million**, reflecting **$53.1 million** in principal debt repayments partially offset by **$30.8 million** in new long-term debt proceeds[215](index=215&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk associated with its $484.5 million in variable-rate debt, which is based on LIBOR, with fuel price risk largely mitigated through CPA structures and foreign currency risk considered de minimis - The company is exposed to interest rate risk on **$484.5 million** of variable-rate debt, where a hypothetical **50 basis point** change in market interest rates would have affected interest expense by approximately **$1.2 million** in the six months ended March 31, 2022[221](index=221&type=chunk)[222](index=222&type=chunk) - The company is monitoring the planned cessation of LIBOR after June 2023, as the majority of its debt is indexed to it, and its replacement could cause interest payable to be different or higher than expected[224](index=224&type=chunk)[225](index=225&type=chunk) - Fuel price risk is largely sheltered by agreements where major partners directly pay for and supply fuel, and foreign currency risk is minimal as revenue is U.S. dollar denominated and foreign expenses are not material[226](index=226&type=chunk)[227](index=227&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of the end of the quarter, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter ended March 31, 2022 - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[228](index=228&type=chunk) - No changes in internal control over financial reporting occurred during the three months ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[229](index=229&type=chunk) [PART II – OTHER INFORMATION](index=39&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company has reached an agreement in principle to settle two putative class action lawsuits related to its IPO for a sum of $5.0 million, which is subject to court approval and will be paid by the company's directors' and officers' insurance carriers - On March 2, 2022, the company reached an agreement in principle to settle federal class action lawsuits related to its IPO for **$5.0 million**[232](index=232&type=chunk) - The settlement will be paid by the company's directors' and officers' insurance carriers and is subject to final documentation and court approval[232](index=232&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section directs investors to the detailed discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021, cautioning that these and other unknown risks could materially and adversely affect the company's business and financial results - The report refers to "Item 1A. Risk Factors" in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021, for a comprehensive list of important risk factors[234](index=234&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the six months ended March 31, 2022, the company repurchased 15,696 shares of its common stock for $0.1 million to cover income tax obligations arising from vested employee equity awards - The Company repurchased **15,696 shares** of its common stock for **$0.1 million** to cover income tax obligations on vested employee equity awards during the six months ended March 31, 2022[235](index=235&type=chunk) [Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None - None[236](index=236&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[237](index=237&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) None - None[238](index=238&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to capacity purchase agreements with United Airlines and American Airlines, and certifications by the Principal Executive Officer and Principal Financial Officer - Lists filed exhibits, including amendments to the United and American capacity purchase agreements and required officer certifications[240](index=240&type=chunk)

Financial Data and Key Metrics Changes - For Q1 2022, the company reported a net loss of $14.3 million or $0.40 per diluted share, with an adjusted net loss of $9.3 million or $0.26 per diluted share, excluding $6.5 million in noncash losses on investments [36] - Revenue for Q1 2022 was $147.8 million, a decrease of $2.6 million or 1.7% from $150.4 million in Q1 2021 [37] - Operating expenses for Q1 2022 were $151.7 million, up $26 million from Q4 2021 and $28.3 million from Q1 2021 [39] Business Line Data and Key Metrics Changes - The controllable completion factor (CCF) for United operations was 98.3%, while for American operations it was 97.2%, both affected by pilot attrition and COVID-related absences [25][27] - The company flew 86,079 block hours in the December quarter, a 24.3% increase from the previous year but 9.3% below the last quarter [21] Market Data and Key Metrics Changes - The company experienced unprecedented volatility in sick calls, with rates as high as 23% in November and December compared to a historical average of 5% [10] - The pilot attrition rate has increased significantly as mainline carriers begin hiring, impacting the company's operational capacity [11] Company Strategy and Development Direction - The company is focusing on diversifying revenue through partnerships and investments in environmentally friendly technologies, including electric aircraft [16][18] - The cargo operation with DHL is performing well, with plans to expand the fleet to include a third 737-400F aircraft [15][33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that while COVID's impact is lessening, pilot attrition remains a significant challenge that will affect financial performance [12][46] - The company aims to achieve breakeven by Q4 of the fiscal year, focusing on increasing pilot training output and managing attrition [45][49] Other Important Information - The company has secured additional simulator time to enhance pilot training and is actively recruiting to fill critical positions [30][96] - The company has booked $4 million in penalties due to not meeting contractual obligations, but management believes discussions with partners will be productive [73][76] Q&A Session Summary Question: Breakdown of COVID-related impact on the December quarter - Management indicated that heavy maintenance issues would be resolved in the current quarter, with increased training costs expected to continue [52][53] Question: Comfort level regarding attrition and block hour rates - Management expressed confidence in managing attrition and highlighted the importance of securing simulator time for training [56][60] Question: Differences in pilot attrition between passenger and cargo operations - Management noted that cargo operations did not experience the same level of attrition and are currently expanding the cargo fleet [68][70] Question: Modifications to contracts with American due to waivers - Management confirmed that there were no modifications to the American contract, but discussions regarding penalties are ongoing [82] Question: Current attrition levels and historical context - Management reported that attrition is currently running between 3% to 5% per month, with efforts in place to manage training and recruitment [91] Question: Concerns about filling pilot training classes - Management indicated that while applications are slightly down from pre-pandemic levels, they are still able to fill classes and are actively recruiting [94][96]

PART I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Mesa Air Group, Inc. for the quarterly period ended December 31, 2021, including balance sheets, statements of operations, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Mesa Air Group's balance sheet as of December 31, 2021, shows a slight decrease in total assets, liabilities, and stockholders' equity compared to the prior quarter Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $102,332 | $120,517 | | Total current assets | $138,295 | $158,386 | | Property and equipment, net | $1,157,922 | $1,151,891 | | **Total assets** | **$1,434,495** | **$1,456,597** | | Total current liabilities | $250,376 | $258,192 | | Long-term debt and finance leases | $547,409 | $539,700 | | **Total liabilities** | **$960,021** | **$968,550** | | **Total stockholders' equity** | **$474,474** | **$488,047** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) The company reported a net loss for the three months ended December 31, 2021, primarily due to increased operating expenses and the absence of prior-year government grant recognition Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Total operating revenues | $147,757 | $150,371 | | Total operating expenses | $151,743 | $123,399 | | Operating income (loss) | $(3,986) | $26,972 | | Net income (loss) | $(14,274) | $14,118 | | Diluted EPS | $(0.40) | $0.39 | - The prior year's operating expenses were significantly reduced by an **$11.3 million government grant recognition**, which was absent in the current quarter[13](index=13&type=chunk) - A **loss on investments of $6.5 million** contributed to the net loss in the current quarter, compared to zero in the prior-year period[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company's cash flow statement for the quarter shows a significant decrease in net cash provided by operating activities, alongside increased cash used in investing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,751 | $79,273 | | Net cash used in investing activities | $(26,929) | $(1,773) | | Net cash provided by financing activities | $3,993 | $4,593 | | **Net change in cash** | **$(18,185)** | **$82,093** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's operations, accounting policies, significant debt, strategic investments in electric aircraft, and a critical subsequent event regarding performance failures under its American CPA - As of December 31, 2021, Mesa operated **167 aircraft** under CPAs with American (**40 CRJ-900s**) and United (**80 E-175s**), and an FSA with DHL (**2 Boeing 737-400Fs**)[22](index=22&type=chunk)[24](index=24&type=chunk)[27](index=27&type=chunk) - The company has a significant concentration of credit risk, with American and United accounting for **45% and 49% of total revenue**, respectively, for the quarter[63](index=63&type=chunk) - The company holds investments in electric aircraft companies Archer Aviation and Heart Aerospace, and reported a **$6.5 million loss** on its Archer investment during the quarter[73](index=73&type=chunk)[74](index=74&type=chunk) - Subsequent to the quarter's end, the company failed to meet minimum performance levels under its American CPA for three consecutive months, but American waived the resulting default and termination right[118](index=118&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for the quarter, attributing the shift to an operating loss to increased costs and the non-recurrence of a prior-year government grant, while detailing liquidity and non-GAAP measures - The company's shift to a net loss of **$14.3 million** from a net income of **$14.1 million** in the prior year was primarily due to higher operating costs and the non-recurrence of an **$11.3 million government grant**[142](index=142&type=chunk)[143](index=143&type=chunk) Operating Revenue Comparison (in thousands) | Revenue Type | Q1 FY2022 | Q1 FY2021 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Contract | $136,894 | $127,158 | $9,736 | 7.7% | | Pass-through and other | $10,863 | $23,213 | $(12,350) | (53.2)% | | **Total** | **$147,757** | **$150,371** | **$(2,614)** | **(1.7)%** | - Maintenance expense increased by **11.6% to $59.0 million**, driven by more C-checks and higher costs for components, parts, and labor due to increased flying[149](index=149&type=chunk) Reconciliation to Adjusted EBITDA and Adjusted EBITDAR (in thousands) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net income (loss) | $(14,274) | $14,118 | | **Adjusted EBITDA** | **$16,983** | **$47,415** | | Aircraft rent | $9,586 | $10,048 | | **Adjusted EBITDAR** | **$26,569** | **$57,463** | - As of December 31, 2021, the company had **$102.3 million in unrestricted liquidity** (cash and cash equivalents)[166](index=166&type=chunk)[171](index=171&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its significant variable-rate debt, with minimal exposure to foreign currency and fuel price risks due to contractual agreements - The company is exposed to interest rate risk with **$499.6 million of variable-rate debt** outstanding as of December 31, 2021[185](index=185&type=chunk) - A hypothetical **50 basis point change** in market interest rates would have affected interest expense by approximately **$0.6 million** in the quarter[185](index=185&type=chunk) - The company is managing the transition away from LIBOR, as the majority of its debt arrangements are indexed to it and its publication is set to cease after June 2023[187](index=187&type=chunk) - Fuel price risk is largely mitigated as fuel is directly paid for and supplied by major partners under the CPA and FSA agreements[190](index=190&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, ensuring timely and accurate financial reporting - Based on their evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[191](index=191&type=chunk) PART II [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is a defendant in two putative class action lawsuits alleging securities law violations related to its IPO, which management believes will not materially affect its financial position - Mesa is subject to two putative class action lawsuits alleging securities law violations in connection with its IPO[193](index=193&type=chunk) - Management believes these legal matters are not likely to have a material adverse effect on the company's financial condition or results of operations[194](index=194&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 - The report refers to "Item 1A. Risk Factors" in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for a discussion of important risk factors[195](index=195&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company repurchased **2,275 shares** of common stock for **$0.1 million** to cover income tax obligations from vested employee equity awards - The company repurchased **2,275 shares** of its common stock for **$0.1 million** to cover tax obligations on vested employee equity awards[196](index=196&type=chunk)

Part I [Business](index=4&type=section&id=Item%201.%20Business) Mesa Air Group operates as a regional air carrier for major partners, utilizing capacity purchase and flight services agreements to ensure revenue stability and mitigate operational risks [General Overview](index=4&type=section&id=Item%201.%20Business-General%20Overview) Mesa Air Group provides scheduled passenger and cargo services as a regional carrier for major partners under agreements that guarantee revenue and mitigate operational risks - Mesa operates as a regional carrier for American Eagle, United Express, and DHL Express, serving **129 cities** across **39 states**, the District of Columbia, the Bahamas, and Mexico[13](index=13&type=chunk) FY 2021 Revenue Breakdown by Partner | Partner | Revenue Contribution | Agreement Type | | :--- | :--- | :--- | | United Airlines | ~52% | CPA | | American Airlines | ~45% | CPA | | DHL Express | ~1% | FSA | | Third-Party Leases | ~2% | Lease | - The company's agreements provide **guaranteed monthly revenue**, fixed fees per block hour, and reimbursement of certain operating expenses, which **mitigates financial volatility** from fuel prices, ticket prices, and passenger numbers[15](index=15&type=chunk) [Business Strategy](index=5&type=section&id=Item%201.%20Business-Business%20Strategy) Mesa's business strategy focuses on maintaining a low-cost structure, attracting and retaining personnel, managing a prudent capital structure, and minimizing aircraft-related financial risks - Mesa's core strategies include: - **Maintain Low-Cost Structure:** Achieved through responsible outsourcing, flying large regional aircraft with lower maintenance costs, and diligent control of administrative expenses - **Attractive Work Opportunities:** Offering competitive compensation and opportunities to fly modern, large regional jets to attract and retain pilots - **Prudent Capital Structure:** Maintaining a conservative balance sheet to optimize terms with lessors and vendors - **Minimize Tail Risk:** Structuring aircraft financing to align with the terms of its capacity purchase agreements, reducing financial exposure beyond contract life[19](index=19&type=chunk)[20](index=20&type=chunk)[22](index=22&type=chunk) [Aircraft Fleet](index=5&type=section&id=Item%201.%20Business-Aircraft%20Fleet) As of September 30, 2021, Mesa's fleet comprised 167 owned and leased aircraft, including Embraer, CRJ, and Boeing models, primarily assigned to American, United, and DHL operations Aircraft Fleet Assignment as of September 30, 2021 | Partner/Status | E-175 | CRJ-700 | CRJ-900 | CRJ-200 | Boeing 737 (Cargo) | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | American Eagle | — | — | 40 | — | — | 40 | | United Express | 80 | — | — | — | — | 80 | | DHL Express | — | — | — | — | 2 | 2 | | Leased to third party | — | 14 | — | — | — | 14 | | Unassigned/Spare | — | 6 | 24 | 1 | — | 31 | | **Total** | **80** | **20** | **64** | **1** | **2** | **167** | Aircraft Ownership as of September 30, 2021 | Type of Aircraft | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | E-175 Regional Jet | 18 | 62 | 80 | | CRJ-900 Regional Jet | 49 | 15 | 64 | | CRJ-700 Regional Jet | 18 | 2 | 20 | | CRJ-200 Regional Jet | 1 | — | 1 | | Boeing 737 Cargo Jet | — | 2 | 2 | | **Total** | **86** | **81** | **167** | [Capacity Purchase and Flight Services Agreements](index=6&type=section&id=Item%201.%20Business-Capacity%20Purchase%20and%20Flight%20Services%20Agreements) Mesa's revenue is primarily derived from long-term capacity purchase and flight services agreements with American, United, and DHL, providing fixed revenues and cost reimbursements - The American CPA was amended effective January 1, 2021, covering **40 CRJ-900 aircraft** for a new **five-year term ending December 31, 2025**[33](index=33&type=chunk) - Under the United CPA, Mesa operates **80 E-175 aircraft**, with United owning **62** (including **20 new E-175LLs**) and leasing them to Mesa at nominal amounts, and the agreement for **42 aircraft extended to between 2024 and 2028**[36](index=36&type=chunk)[37](index=37&type=chunk)[41](index=41&type=chunk) - In November 2020, the United CPA was amended for United to own the **20 new E175LL aircraft**, including adjusted rates and a **one-time prepayment of $81.5 million** from United to Mesa[42](index=42&type=chunk) - The DHL FSA, commenced in October 2020, has a **five-year term** for Mesa to operate **two Boeing 737-400F cargo aircraft**, with DHL leasing the aircraft and reimbursing heavy maintenance costs[44](index=44&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Human Capital Management](index=11&type=section&id=Item%201.%20Business-Human%20Capital%20Management) As of September 30, 2021, Mesa employed 3,241 individuals, with a significant portion unionized, facing industry-wide pilot and mechanic shortages impacting operations and costs Employee Breakdown as of September 30, 2021 | Employee Group | Number of Employees | Representative | | :--- | :--- | :--- | | Pilots | 1,258 | Air Line Pilots Association | | Flight Attendants | 1,143 | Association of Flight Attendants | | Dispatchers | 42 | N/A | | Maintenance Dept. | 531 | N/A | | Administrative | 267 | N/A | - Approximately **74.1% of the company's employees** were represented by labor unions under collective-bargaining agreements[63](index=63&type=chunk) - The collective bargaining agreement with the Air Line Pilots Association (ALPA) became amendable in **July 2021**, and with the Association of Flight Attendants (AFA) in **October 2021**[64](index=64&type=chunk)[130](index=130&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business risks including high dependence on major partners, substantial debt, and labor shortages, alongside industry-specific challenges like pandemic impacts, intense competition, and regulatory burdens [Risks Related to Our Business](index=18&type=section&id=Item%201A.%20Risk%20Factors-Risks%20Related%20to%20Our%20Business) Mesa's business is highly vulnerable to its dependence on major airline partners, significant debt obligations, and the ongoing challenge of attracting and retaining qualified pilots and mechanics - The company is highly dependent on its agreements with American and United, which accounted for approximately **45% and 52% of total revenue**, respectively, in fiscal year 2021[95](index=95&type=chunk) - As of September 30, 2021, the company had approximately **$670.3 million in total long-term debt** and must comply with financial covenants, where failure could lead to debt acceleration[105](index=105&type=chunk)[111](index=111&type=chunk) - The **limited supply of qualified pilots**, driven by FAA qualification standards, has **increased labor costs** and presents a risk of being unable to meet required flight schedules, potentially resulting in penalties[115](index=115&type=chunk)[116](index=116&type=chunk) - The company faces **"tail risk"** with aircraft lease commitments extending beyond existing flying contracts, potentially incurring costs if new agreements or subleases are not secured[134](index=134&type=chunk) [Risks Related to Our Industry](index=30&type=section&id=Item%201A.%20Risk%20Factors-Risks%20Related%20to%20Our%20Industry) The airline industry poses systemic risks to Mesa, including the severe impact of the COVID-19 pandemic, intense competition, extensive government regulation, and external operational factors - The COVID-19 pandemic led to a **severe decline in air travel demand**, causing major partners to significantly cut capacity and resulting in a **material decline in block hours** for Mesa in fiscal 2020 and 2021[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) - To mitigate the pandemic's impact, the company received **$95.2 million** from the Payroll Support Program (PSP) and extensions, and a **$200.0 million secured loan** from the U.S. Treasury under the CARES Act[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - The airline industry is **highly competitive** and has undergone **significant consolidation**, limiting the number of potential major airline partners for regional carriers[169](index=169&type=chunk) [Risks Related to Owning Our Common Stock](index=33&type=section&id=Item%201A.%20Risk%20Factors-Risks%20Related%20to%20Owning%20Our%20Common%20Stock) Owning Mesa's common stock carries risks including price volatility, charter restrictions on ownership and transfers, absence of dividends, and reduced disclosure as an emerging growth company - As of September 30, 2021, the company had outstanding warrants issued to the U.S. Treasury to purchase **4,899,497 shares of common stock**, which could be dilutive to existing shareholders if exercised[179](index=179&type=chunk) - The company's charter restricts ownership by non-U.S. citizens to **24.9% of voting power** and **49.0% of total capital stock** to comply with federal law[181](index=181&type=chunk) - To preserve its net operating loss carryforwards, the charter prohibits stock transfers resulting in any person or entity owning **4.75% or more of outstanding capital stock**[184](index=184&type=chunk) - The company **does not intend to pay dividends**, and its ability to do so is restricted by certain lease facilities and its loan agreement with the U.S. Treasury[186](index=186&type=chunk) [Properties](index=37&type=section&id=Item%202.%20Properties) As of September 30, 2021, Mesa's properties include a fleet of 167 owned and leased aircraft, alongside various leased facilities for corporate, training, maintenance, and office operations Aircraft Fleet Details as of September 30, 2021 | Aircraft Type | Owned | Leased | Total | Passenger Capacity | Average Age (years) | | :--- | :--- | :--- | :--- | :--- | :--- | | E-175 Regional Jet | 18 | 62 | 80 | 70-76 | 4.8 | | CRJ-900 Regional Jet | 49 | 15 | 64 | 76-79 | 15.0 | | CRJ-700 Regional Jet | 18 | 2 | 20 | 70 | 17.7 | | CRJ-200 Regional Jet | 1 | — | 1 | 50 | 27.7 | | Boeing 737 Cargo Jet | — | 2 | 2 | N/A | 26.9 | | **Total** | **86** | **81** | **167** | | | - The company leases numerous facilities, including its **corporate headquarters and training center in Phoenix, Arizona**, and hangars and warehouses in key operational locations like Dallas, Houston, and Washington-Dulles[201](index=201&type=chunk) [Legal Proceedings](index=38&type=section&id=Item%203.%20Legal%20Proceedings) Mesa is defending two class action lawsuits alleging federal securities law violations related to its 2018 IPO, though management anticipates no material adverse financial impact - Mesa is subject to **two class action lawsuits** alleging violations of the Securities Act of 1933 in connection with its August 2018 IPO[202](index=202&type=chunk) - Management believes the ultimate outcome of these lawsuits is **not likely to have a material adverse effect** on the company's financial position, liquidity, or results of operations[203](index=203&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Mesa's common stock trades on Nasdaq, the company does not pay dividends, and it repurchased shares in FY 2021 to cover employee equity award tax obligations - The company's common stock has traded on The Nasdaq Global Select Market under the symbol **"MESA" since August 10, 2018**[206](index=206&type=chunk) - The company has **not declared or paid any cash dividends** and does not intend to in the foreseeable future[209](index=209&type=chunk) - In FY 2021, the company repurchased **155,174 shares for $1.5 million** to cover income tax obligations on vested employee equity awards[216](index=216&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Mesa's financial performance for fiscal years 2019-2021, detailing the COVID-19 pandemic's impact, operational responses, revenue and expense drivers, liquidity, and capital resources [Impact of the COVID-19 Pandemic](index=41&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Impact%20of%20the%20COVID-19%20Pandemic) The COVID-19 pandemic significantly impacted Mesa's revenues and operations, leading to reduced block hours, but the company mitigated effects through cost savings and substantial government aid - The company received a total of **$95.2 million** under the initial Payroll Support Program (PSP) and an aggregate of **$108.2 million** under extensions PSP2 and PSP3 during fiscal 2021[229](index=229&type=chunk) - In October 2020, the company entered into a **five-year, $200.0 million secured loan agreement** with the U.S. Treasury under the CARES Act, borrowing the full amount by November 2020[229](index=229&type=chunk)[327](index=327&type=chunk) - A portion of the company's reduced labor costs from government assistance was **passed on to its major partners** in the form of temporary rate reductions during the 2021 fiscal year[229](index=229&type=chunk)[450](index=450&type=chunk) [Results of Operations](index=49&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Results%20of%20Operations) In FY 2021, operating revenues decreased 7.6% to $503.6 million and net income fell to $16.6 million, primarily due to temporary rate reductions despite increased block hours FY 2021 vs. FY 2020 Financial Results (in thousands) | Metric | FY 2021 | FY 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $503,591 | $545,070 | (7.6)% | | Total Operating Expenses | $440,395 | $464,903 | (5.3)% | | Net Income | $16,588 | $27,464 | (39.6)% | | Diluted EPS | $0.43 | $0.78 | (44.9)% | | Block Hours | 323,219 | 313,110 | 3.2% | - The **14.2% decrease in FY 2021 contract revenue** was primarily due to temporary rate reductions provided to major partners as a result of lower labor costs from government assistance[273](index=273&type=chunk) - Maintenance expense in FY 2021 **increased by 13.3% to $217.6 million**, driven by a rise in C-check expenses and pass-through maintenance on the E-175 fleet[277](index=277&type=chunk) FY 2020 vs. FY 2019 Financial Results (in thousands) | Metric | FY 2020 | FY 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $545,070 | $723,357 | (24.6)% | | Total Operating Expenses | $464,903 | $602,220 | (22.8)% | | Net Income | $27,464 | $47,580 | (42.3)% | | Diluted EPS | $0.78 | $1.36 | (42.6)% | | Block Hours | 313,110 | 456,247 | (31.4)% | [Liquidity and Capital Resources](index=58&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Liquidity%20and%20Capital%20Resources) As of September 30, 2021, Mesa had $120.5 million in unrestricted liquidity, with cash generated from operations and a U.S. Treasury loan, while managing $824.5 million in total long-term debt - As of September 30, 2021, the company had **$120.5 million in unrestricted cash and cash equivalents**[333](index=333&type=chunk)[341](index=341&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $132,871 | $174,662 | $151,676 | | Net cash used in investing activities | ($33,471) | ($26,667) | ($104,842) | | Net cash used in financing activities | ($78,374) | ($117,655) | ($81,467) | - As of September 30, 2021, total long-term debt (including principal, projected interest, and lease obligations) was **$824.5 million**, with **73.7% at a variable interest rate**[343](index=343&type=chunk)[344](index=344&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Mesa's primary market risk is interest rate exposure on its $496.2 million variable-rate debt, while fuel price risk is mitigated by partner agreements - The company is subject to interest rate risk on its **$496.2 million of variable-rate debt**, where a **50 basis point change** would impact annual interest expense by approximately **$2.5 million**[408](index=408&type=chunk) - Fuel price risk is largely mitigated as **major partners directly procure and pay for fuel** under the terms of the service agreements[411](index=411&type=chunk) [Financial Statements and Supplementary Data](index=72&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Mesa's audited consolidated financial statements for fiscal years 2019-2021, including balance sheets, income statements, cash flows, and comprehensive notes on accounting policies and key financial items Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $120,517 | $99,395 | | Total current assets | $158,386 | $155,591 | | Property and equipment, net | $1,151,891 | $1,212,415 | | **Total Assets** | **$1,456,597** | **$1,501,930** | | **Liabilities & Equity** | | | | Current portion of long-term debt | $111,710 | $189,268 | | Total current liabilities | $258,192 | $353,326 | | Long-term debt, excl. current | $539,700 | $542,456 | | **Total Liabilities** | **$968,550** | **$1,044,071** | | **Total Stockholders' Equity** | **$488,047** | **$457,859** | Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total operating revenues | $503,591 | $545,070 | $723,357 | | Total operating expenses | $440,395 | $464,903 | $602,220 | | Operating income | $63,196 | $80,167 | $121,137 | | Net income | $16,588 | $27,464 | $47,580 | [Controls and Procedures](index=113&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that Mesa's disclosure controls and internal control over financial reporting were effective as of September 30, 2021, with no material changes during the quarter - Management concluded that as of September 30, 2021, the company's **disclosure controls and procedures were effective** at a reasonable assurance level[631](index=631&type=chunk) - Management determined that the company maintained **effective internal control over financial reporting** as of September 30, 2021, based on the COSO framework[636](index=636&type=chunk) - The Annual Report does not include an attestation report from the company's auditor on internal controls, as Mesa qualifies for an exemption as an **"emerging growth company"** under the JOBS Act[637](index=637&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=115&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding directors, executive officers, and corporate governance is **incorporated by reference** from the forthcoming 2022 Proxy Statement[640](index=640&type=chunk) [Executive Compensation](index=115&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation details are incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding executive compensation is **incorporated by reference** from the forthcoming 2022 Proxy Statement[642](index=642&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=115&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding security ownership is **incorporated by reference** from the forthcoming 2022 Proxy Statement[643](index=643&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=115&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is **incorporated by reference** from the forthcoming 2022 Proxy Statement[644](index=644&type=chunk) [Principal Accountant Fees and Services](index=115&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Details on principal accountant fees and services are incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding principal accountant fees and services is **incorporated by reference** from the forthcoming 2022 Proxy Statement[645](index=645&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=116&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of all exhibits and financial statements filed as part of the Annual Report on Form 10-K - This section contains the index of financial statements and a list of all exhibits filed with the Form 10-K[647](index=647&type=chunk)[649](index=649&type=chunk)

Mesa Air Group, Inc. (NASDAQ:MESA) Q4 2021 Earnings Conference Call December 9, 2021 4:30 PM ET Company Participants Susan Donofrio - Head, Investor Relations Jonathan Ornstein - Chairman and CEO Brad Rich - Executive Vice President and COO Michael Lotz - President Torque Zubeck - Chief Financial Officer Conference Call Participants Savi Syth - Raymond James Helane Becker - Cowen Mike Linenberg - Deutsche Bank Operator Welcome to the Mesa Airlines Q4 Investor Conference Call. All participants are on a liste ...

Financial Data and Key Metrics Changes - The company reported a pre-tax profit of $5.8 million and net income of $4.3 million, or $0.11 per diluted share, compared to net income of $3.4 million or $0.10 per diluted share in the same quarter last year [7][21] - Cash for the quarter, excluding restricted cash, increased by $32.5 million to $180.4 million, with an expected fiscal year ending cash balance of approximately $100 million to $110 million [21][23] - Total debt at the end of the quarter was $713.7 million, down $11 million from the prior quarter, with a projected reduction of $46 million in the fourth quarter of 2021 [22] Business Line Data and Key Metrics Changes - The company flew 85,162 block hours, a 169.3% increase from last year and a 15.2% increase from the previous quarter [11] - The controllable completion factor was 99.7% compared to 100% a year ago, and the controllable on-time departure rate was 88% versus 94.1% a year ago [12] Market Data and Key Metrics Changes - The company anticipates that daily aircraft utilization in its United operations will be about 88% of pre-COVID levels and slightly over 100% in its American operation for the September quarter [12] - The aviation industry continues to face challenges, including rapid demand increases, employee turnover, and supply chain issues [12][13] Company Strategy and Development Direction - The company is investing in next-generation aircraft technology, including a commitment to sustainable aviation operations and plans to add 100 electric ES19 aircraft to its regional fleet by 2026 [9][10] - The company aims to strengthen long-term relationships with major airline partners through investments in electric aircraft technology [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of air travel demand and the company's ability to adapt to changes in the operating environment [6][12] - The company is focused on hiring and training to meet increasing staffing requirements, having hired 250 pilots since April [17][42] Other Important Information - The company received $52.2 million in PSP3 funds in Q3, which will provide temporary rate reductions to partners [23] - The company is evaluating options for its European joint venture, expecting to start operations in calendar year 2022 [24][60] Q&A Session Summary Question: Operational performance related to maintenance issues - The lack of available CRJ-900s is due to deferred heavy checks during the pandemic, leading to delays in aircraft returning to service [30][36] Question: Expectations for maintenance costs and pilot costs per block hour - Maintenance costs are expected to remain elevated into the next fiscal year, with a return to normal run rates anticipated by the second or third quarter of 2022 [32][34] Question: Impact of weather on operations - Weather has impacted operations, but the primary issue has been the inability to reset the system due to a lack of adequate spare aircraft [40] Question: Attrition rates and pilot hiring - Pilot attrition during the pandemic was in single digits, with current hiring efforts aimed at building a cushion for future flying demands [42] Question: Electric vehicle investments and future partnerships - The company is open to expanding partnerships in electric aircraft technology and is committed to being a leader in decarbonization efforts [46] Question: Growth opportunities in cargo versus passenger services - The company sees strong growth opportunities in both cargo and passenger services, with a focus on long-term relationships with partners like DHL [52]

[Company Information](index=1&type=section&id=Company%20Information) Details Mesa Air Group, Inc.'s filer status and common stock structure - Mesa Air Group, Inc. is an **accelerated filer** and an **emerging growth company**[3](index=3&type=chunk)[4](index=4&type=chunk) Common Stock Information (June 30, 2021) | Metric | Value | | :--- | :--- | | Shares Authorized | 125,000,000 | | Shares Issued and Outstanding | 35,891,029 | | Warrants Issued and Outstanding | 4,899,497 | [Cautionary Note Regarding Forward Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) Highlights inherent uncertainties and risks that could cause actual results to differ from forward-looking statements - Forward-looking statements are subject to known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially[7](index=7&type=chunk)[8](index=8&type=chunk) - Key factors that could cause actual results to differ include public health epidemics (e.g., COVID-19), supply and retention of qualified airline pilots and mechanics, dependence on capacity purchase agreements, increases in labor costs, and significant debt[9](index=9&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) Presents the unaudited condensed consolidated financial statements and related notes for Mesa Air Group, Inc. [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited condensed consolidated financial statements and accompanying notes for Mesa Air Group, Inc. [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes the Company's financial position, including assets, liabilities, and equity, for the specified periods Condensed Consolidated Balance Sheets (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $180,398 | $99,395 | | Total current assets | $222,360 | $155,591 | | Property and equipment, net | $1,164,193 | $1,212,415 | | Total assets | $1,525,013 | $1,501,930 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $275,991 | $353,326 | | Total noncurrent liabilities | $754,355 | $690,745 | | Total liabilities | $1,030,346 | $1,044,071 | | Total stockholders' equity | $494,667 | $457,859 | | Total liabilities and stockholders' equity | $1,525,013 | $1,501,930 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Details the Company's operating performance, including revenues, expenses, and net income, for the specified periods Condensed Consolidated Statements of Operations (Three Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total operating revenues | $125,157 | $73,099 | +71.2% | | Total operating expenses | $110,783 | $57,875 | +91.4% | | Operating income | $14,374 | $15,224 | -5.6% | | Net income | $4,276 | $3,419 | +25.1% | | Basic EPS | $0.12 | $0.10 | +20.0% | | Diluted EPS | $0.11 | $0.10 | +10.0% | Condensed Consolidated Statements of Operations (Nine Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total operating revenues | $372,808 | $437,030 | -14.7% | | Total operating expenses | $314,701 | $380,729 | -17.3% | | Operating income | $58,107 | $56,301 | +3.2% | | Net income | $24,083 | $16,089 | +49.7% | | Basic EPS | $0.68 | $0.46 | +47.8% | | Diluted EPS | $0.62 | $0.46 | +34.8% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in stockholders' equity, including common stock, retained earnings, and total equity, for the specified period Condensed Consolidated Statements of Stockholders' Equity (Nine Months Ended June 30, 2021) | (In thousands, except share amounts) | Common Stock and Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | | Balance at September 30, 2020 | $242,772 | $215,087 | $457,859 | | Stock compensation expense | $2,314 | — | $2,314 | | Issuance of warrants, net of issuance costs | $11,489 | — | $11,489 | | Net income | — | $24,083 | $24,083 | | Balance at June 30, 2021 | $255,497 | $239,170 | $494,667 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the Company's cash inflows and outflows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $131,212 | $103,601 | +26.6% | | Net cash used in investing activities | $(17,039) | $(25,114) | -32.1% | | Net cash used in financing activities | $(33,264) | $(82,610) | -59.7% | | Net change in cash, cash equivalents and restricted cash | $80,909 | $(4,123) | N/A | | Cash, cash equivalents and restricted cash at end of period | $183,750 | $68,378 | +168.7% | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Organization and Operations](index=9&type=section&id=Note%201.%20Organization%20and%20Operations) Describes Mesa Air Group, Inc.'s business, operational structure, fleet, and key capacity purchase agreements - Mesa Air Group, Inc. operates as a regional air carrier (Mesa Airlines) providing scheduled flight service to **116 cities** in **36 states**, D.C., and Mexico, and cargo services out of Cincinnati/Northern Kentucky International Airport[24](index=24&type=chunk) - As of June 30, 2021, Mesa operated a fleet of **155 aircraft** with approximately **470 daily departures**, and leases **12 aircraft** to a third party[24](index=24&type=chunk) - All flights are operated on behalf of major partners (American Eagle, United Express, DHL Express) under Capacity Purchase Agreements (CPAs) or a Flight Services Agreement (FSA)[24](index=24&type=chunk) - Financial arrangements are revenue-guarantee, with major partners paying fixed-fees and reimbursing certain direct operating expenses, reducing Mesa's exposure to passenger traffic, fare levels, and fuel prices[25](index=25&type=chunk) - The American CPA was amended and restated, extending the term to December 31, 2025, reducing aircraft to **40 CRJ-900s**, and providing American options to withdraw aircraft[28](index=28&type=chunk) - The United CPA was amended, transferring financing and ownership of **20 E-175 LL aircraft** to United, and extending the term for **42 E-175 aircraft** leased from United and **18 owned E-175 aircraft**[34](index=34&type=chunk)[36](index=36&type=chunk) - The DHL FSA involves operating **two Boeing 737-400F aircraft** for cargo services, with a fee per block hour and performance bonuses/penalties[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the Company's key accounting principles, including revenue recognition, maintenance, and government grant treatment - The Company operates as a **single operating and reportable segment**, with the CEO using consolidated financial information to evaluate performance and allocate resources[42](index=42&type=chunk)[152](index=152&type=chunk) - Contract revenue is recognized when service is provided under CPAs and FSA, including fixed monthly amounts, per-flight/block-hour fees, and incentives[44](index=44&type=chunk)[46](index=46&type=chunk)[48](index=48&type=chunk) - Pass-through revenue represents reimbursements for direct expenses like insurance, property taxes, and major maintenance on nominally leased aircraft[47](index=47&type=chunk) - Heavy maintenance and major overhaul costs for owned E-175 fleet are deferred and amortized; for other fleets, costs are expensed as incurred, except for utilization-based contracts[58](index=58&type=chunk)[59](index=59&type=chunk) Government Grant Recognition (Three and Nine Months Ended June 30) | (In thousands) | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Government grant recognition | $(26,101) | $(93,379) | $(43,018) | $(43,018) | - The Company received **$56.0 million** under PSP2 and **$52.2 million** under PSP3, with **$26.1 million** of PSP3 deferred as of June 30, 2021, to be recognized in Q3 2021[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Note 3. Recent Accounting Pronouncements](index=16&type=section&id=Note%203.%20Recent%20Accounting%20Pronouncements) Discusses the adoption and evaluation of new accounting standards and their impact on the financial statements - Adopted new guidance on expected credit losses (ASU 2016-13) on October 1, 2020, with **no material impact**[64](index=64&type=chunk) - Adopted new guidance on cloud computing arrangement implementation costs (ASU 2018-15) on October 1, 2020; capitalized amounts are **immaterial**[65](index=65&type=chunk) - Currently evaluating the impact of new guidance to simplify accounting for income taxes (effective after December 15, 2020) and Reference Rate Reform (ASU 2020-04) on consolidated financial statements[66](index=66&type=chunk)[67](index=67&type=chunk) [Note 4. Concentrations of Credit Risk](index=16&type=section&id=Note%204.%20Concentrations%20of%20Credit%20Risk) Identifies significant revenue and accounts receivable concentrations with major airline partners and related risks - Substantially all revenue and accounts receivable are derived from capacity purchase agreements with American Airlines and United Airlines, and a flight services agreement with DHL[69](index=69&type=chunk) Revenue Concentration by Major Partner (Three and Nine Months Ended June 30, 2021) | Partner | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | American Airlines | ~45% | ~46% | | United Airlines | ~51% | ~52% | - A termination of either the American or United CPA would have a **material adverse effect** on the Company's business[69](index=69&type=chunk) - Allowance for doubtful accounts was **$1.4 million** at June 30, 2021, up from **$0.8 million** at September 30, 2020[71](index=71&type=chunk) [Note 5. Intangible Assets](index=17&type=section&id=Note%205.%20Intangible%20Assets) Details the Company's intangible assets, including customer relationships, amortization, and remaining useful life Intangible Assets (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Customer relationship | $43,800 | $43,800 | | Accumulated amortization | $(36,698) | $(35,768) | | Net carrying value | $7,102 | $8,032 | - Total amortization expense was **$0.9 million** for the nine months ended June 30, 2021, down from **$1.1 million** in the prior year[72](index=72&type=chunk) - The remaining weighted average term for intangible assets is **14.3 years** as of June 30, 2021[73](index=73&type=chunk) [Note 6. Balance Sheet Information](index=18&type=section&id=Note%206.%20Balance%20Sheet%20Information) Provides additional details on selected balance sheet items, including expendable parts, prepaid expenses, and other assets Selected Balance Sheet Items (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Expendable parts and supplies, net | $24,707 | $22,971 | | Prepaid expenses and other current assets | $8,956 | $16,067 | | Property and equipment, net | $1,164,193 | $1,212,415 | | Other assets | $25,315 | $742 | | Other accrued expenses | $59,452 | $45,478 | - Other assets increased significantly due to **$16.4 million** in equity warrant assets obtained in connection with a forward purchase contract for eVTOL aircraft from Archer Aviation, Inc[77](index=77&type=chunk)[78](index=78&type=chunk) - The grant date value of the warrants (**$16.4 million**) was recognized as a vendor credit liability within other noncurrent liabilities, to be settled as a reduction of eVTOL aircraft acquisition cost[79](index=79&type=chunk) - No impairment charges were deemed necessary for long-lived assets as of June 30, 2021[75](index=75&type=chunk) [Note 7. Fair Value Measurements](index=19&type=section&id=Note%207.%20Fair%20Value%20Measurements) Explains the fair value measurement methodologies for financial instruments, particularly long-term debt - Carrying values for cash, receivables, and payables approximate fair value due to short-term maturity[80](index=80&type=chunk) - Estimated fair value of debt is classified as Level 3, using the discounted cash flow method due to unobservable inputs[81](index=81&type=chunk) Fair Value of Long-Term Debt (June 30, 2021 vs. September 30, 2020) | (In millions) | June 30, 2021 Carrying Value | June 30, 2021 Fair Value | September 30, 2020 Carrying Value | September 30, 2020 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Long-term debt and finance leases, including current maturities | $713.7 | $724.8 | $743.3 | $768.7 | [Note 8. Long-Term Debt, Finance Leases and Other Borrowings](index=20&type=section&id=Note%208.%20Long-Term%20Debt,%20Finance%20Leases%20and%20Other%20Borrowings) Details the Company's debt structure, including the U.S. Treasury Loan, warrants, and compliance with covenants Net Long-Term Debt (June 30, 2021 vs. September 30, 2020) | (In thousands) | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Gross long-term debt, including current maturities | $713,656 | $743,250 | | Less unamortized debt issuance costs | $(9,948) | $(11,526) | | Less Notes payable warrants | $(10,219) | — | | Net long-term debt, including current maturities | $693,489 | $731,724 | | Less current portion | $(107,728) | $(189,268) | | Net long-term debt | $585,761 | $542,456 | - The Company entered into a Loan and Guarantee Agreement with the U.S. Department of the Treasury for a secured loan facility of up to **$200.0 million**, maturing October 2025[88](index=88&type=chunk)[94](index=94&type=chunk) - **$195.0 million** was borrowed by November 2020[94](index=94&type=chunk) - In connection with the Treasury Loan, the Company issued warrants to purchase **4,899,497 shares** of common stock to the U.S. Treasury at an exercise price of **$3.98 per share**[94](index=94&type=chunk)[100](index=100&type=chunk) - Prior to the Treasury Loan funding, the Company repaid **$167.7 million** in existing aircraft debt, resulting in a net gain on extinguishment of **$1.0 million**[102](index=102&type=chunk) - As of June 30, 2021, the Company is **in compliance with all debt covenants**[103](index=103&type=chunk) [Note 9. Earnings Per Share and Equity](index=23&type=section&id=Note%209.%20Earnings%20Per%20Share%20and%20Equity) Presents the calculation of basic and diluted earnings per share and equity components for the specified periods Net Income Per Common Share (Three Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | | :--- | :--- | | Net income attributable to Mesa Air Group | $4,276 | $3,419 | | Basic weighted average common shares outstanding | 35,769 | 35,299 | | Diluted weighted average common shares outstanding | 39,513 | 35,299 | | Basic EPS | $0.12 | $0.10 | | Diluted EPS | $0.11 | $0.10 | Net Income Per Common Share (Nine Months Ended June 30) | (In thousands, except per share) | 2021 | 2020 | | :--- | :--- | | Net income attributable to Mesa Air Group | $24,083 | $16,089 | | Basic weighted average common shares outstanding | 35,642 | 35,154 | | Diluted weighted average common shares outstanding | 38,811 | 35,248 | | Basic EPS | $0.68 | $0.46 | | Diluted EPS | $0.62 | $0.46 | - Dilutive share adjustment for the UST warrant was **3,084 thousand shares** for the three months ended June 30, 2021, and **2,536 thousand shares** for the nine months ended June 30, 2021[104](index=104&type=chunk) [Note 10. Common Stock](index=24&type=section&id=Note%2010.%20Common%20Stock) Provides information on common stock, outstanding warrants, and restrictions on dividend payments - All previously outstanding warrants (not related to the Treasury Loan) were converted to common shares as of March 31, 2020[106](index=106&type=chunk) - As of June 30, 2021, **4,899,497 warrants** issued to the U.S. Treasury were outstanding, exercisable at **$3.98 per share**[109](index=109&type=chunk) - The Company has not historically paid dividends, and current loan/lease agreements restrict or prohibit dividend payments[110](index=110&type=chunk) [Note 11. Income Taxes](index=24&type=section&id=Note%2011.%20Income%20Taxes) Discusses the Company's effective tax rate, deferred taxes, and net operating loss carryovers Effective Tax Rate (ETR) from Continuing Operations | Period | 2021 ETR | 2020 ETR | | :--- | :--- | :--- | | Three Months Ended June 30 | 26.3% | 30.7% | | Nine Months Ended June 30 | 25.5% | 28.3% | - ETR differences from prior year and the U.S. federal statutory rate (**21%**) are due to stock compensation, state taxes, changes in valuation allowance against state net operating losses, and other book/tax differences[111](index=111&type=chunk)[112](index=112&type=chunk) - As of September 30, 2020, the Company had federal and state net operating loss carryovers of approximately **$512.6 million** and **$223.9 million**, respectively[113](index=113&type=chunk) [Note 12. Share-Based Compensation and Stock Repurchases](index=25&type=section&id=Note%2012.%20Share-Based%20Compensation%20and%20Stock%20Repurchases) Details restricted share activity, share-based compensation expense, and common stock repurchases Restricted Share Activity (Nine Months Ended June 30, 2021) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Restricted shares unvested at September 30, 2020 | 1,195,548 | $5.47 | | Granted | 305,374 | $9.54 | | Vested | (445,937) | $7.16 | | Forfeited | (35,500) | $4.75 | | Restricted shares unvested at June 30, 2021 | 1,019,485 | $5.98 | Share-Based Compensation Expense | Period | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Three Months Ended June 30 | $0.7 | $1.0 | | Nine Months Ended June 30 | $2.4 | $3.5 | - As of June 30, 2021, **$5.4 million** of unrecognized compensation cost related to unvested share-based compensation is expected to be recognized over a weighted-average period of **2.6 years**[114](index=114&type=chunk) - The Company repurchased **139,896 shares** for **$1.4 million** during the nine months ended June 30, 2021, to cover income tax obligations on vested employee equity awards[116](index=116&type=chunk) [Note 13. Employee Stock Purchase Plan](index=25&type=section&id=Note%2013.%20Employee%20Stock%20Purchase%20Plan) Describes the Company's Employee Stock Purchase Plan, including eligibility and share issuance limits - The 2019 ESPP allows eligible employees to purchase ordinary shares at a **10% discount** through payroll deductions[118](index=118&type=chunk) - A maximum of **500,000 ordinary shares** may be issued under the 2019 ESPP; **157,714 shares** were purchased and issued as of June 30, 2021[119](index=119&type=chunk) [Note 14. Commitments and Contingencies](index=25&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) Outlines the Company's operating lease obligations, engine purchase commitments, and pending legal proceedings - As of June 30, 2021, the Company leased **17 aircraft**, airport facilities, office space, and other property under non-cancelable operating leases, with a remaining weighted average lease term of **2.9 years**[120](index=120&type=chunk)[124](index=124&type=chunk) Aggregate Rental Expense Under Operating Leases | Period | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Three Months Ended June 30 | $13.9 | $15.6 | | Nine Months Ended June 30 | $41.6 | $51.0 | - The Company committed to purchase **ten new CF34-8C5 or CF34-8E5 engines** from GE for approximately **$50.0 million**, with deliveries from July 2021 to November 2022[125](index=125&type=chunk) - A **$7.0 million** deposit was made for the first five engines[125](index=125&type=chunk) - The Company is subject to two putative class action lawsuits alleging federal securities law violations related to its IPO, but management believes the ultimate outcome is not likely to have a **material adverse effect**[128](index=128&type=chunk) [Note 15. Subsequent Events](index=27&type=section&id=Note%2015.%20Subsequent%20Events) Reports significant events occurring after the balance sheet date, including new investments and agreement amendments - In July 2021, the Company invested **$5.0 million** in preferred stock of Heart Aerospace Incorporated, a developer of electric aircraft, and obtained a warrant to purchase common shares[129](index=129&type=chunk) - The Company entered into an Aircraft Purchase Agreement for **100 nineteen-seat electric aircraft** (ES-19) with an option for an additional **50**, subject to future terms and conditions[129](index=129&type=chunk) - Amendment No. 5 to the Amended and Restated American Capacity Purchase Agreement was entered into on August 9, 2021, as described in Note 1[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes the Company's financial condition, results of operations, and liquidity, including COVID-19 impacts - The Company increased liquidity through Payroll Support Programs (PSP2: **$56.0M**, PSP3: **$52.2M**) and a **$200.0M** secured loan from the U.S. Treasury[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) - Prior to the Treasury Loan, **$167.7 million** in existing aircraft debt was repaid[199](index=199&type=chunk) - Principal sources of liquidity are government grants, Treasury Loan, cash on hand, operating cash flow, and external borrowings[200](index=200&type=chunk) - As of June 30, 2021, cash and cash equivalents were **$180.4 million**, with **$3.4 million** in restricted cash[205](index=205&type=chunk)[206](index=206&type=chunk) - Management believes current liquidity sources are **adequate to fund operating and capital needs** and maintain debt covenant compliance for at least the next **12 months**[203](index=203&type=chunk) [Overview](index=28&type=section&id=Overview) Provides an overview of Mesa Airlines' operations, fleet, and revenue model under capacity purchase agreements - Mesa Airlines operates as a regional air carrier for American Eagle, United Express, and DHL Express under capacity purchase agreements (CPAs) and a flight services agreement (FSA)[133](index=133&type=chunk) - As of June 30, 2021, the fleet comprised **155 aircraft** with approximately **470 daily departures**, including **45 CRJ-900s** for American, **80 E-175/E-175LLs** for United, and **2 Boeing 737-F400s** for DHL[134](index=134&type=chunk) - CPAs provide guaranteed monthly revenue, fixed fees per block hour/flight, and reimbursement of certain direct operating expenses, shielding the Company from fuel price, ticket price, and passenger fluctuation volatility[135](index=135&type=chunk) [Impact of the COVID-19 Pandemic](index=28&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) Discusses the pandemic's adverse effects on air travel demand and the mitigating impact of government support and CPAs - COVID-19 significantly reduced demand for air travel, adversely impacting revenues and financial position in fiscal year 2020 and early 2021, though Q3 2021 showed improvement[136](index=136&type=chunk) - Payroll Support Program funds and the U.S. Treasury Loan, combined with cost savings, partially offset negative impacts[137](index=137&type=chunk) - Fixed revenue structure of CPAs limited severity[137](index=137&type=chunk) [Components of Results of Operations](index=28&type=section&id=Components%20of%20Results%20of%20Operations) Explains the key components of the Company's operating revenues and expenses [Operating Revenues](index=28&type=section&id=Operating%20Revenues_MD%26A) Describes the sources of operating revenues, including contract revenue and pass-through reimbursements - Contract revenue includes fixed monthly aircraft fees, per-flight/block-hour fees, and rental revenue from aircraft leased to GoJet[140](index=140&type=chunk) - Pass-through and other revenue covers reimbursements for passenger/hull insurance, aircraft property taxes, other direct costs, and certain E-175 maintenance costs[141](index=141&type=chunk) [Operating Expenses](index=29&type=section&id=Operating%20Expenses_MD%26A) Details the various categories of operating expenses, such as flight operations, maintenance, and aircraft rent - Flight operations expense includes pilot, flight attendant, and dispatch personnel salaries, bonuses, benefits, and training[142](index=142&type=chunk) - Fuel expense is for non-CPA/FSA flights (repositioning, maintenance); fuel for CPA/FSA flights is directly paid by major partners[143](index=143&type=chunk) - Maintenance expense covers routine and heavy maintenance; heavy maintenance for owned E-175s is deferred, others expensed as incurred or based on utilization contracts[144](index=144&type=chunk) - Aircraft rent expense covers leased engines and aircraft[145](index=145&type=chunk) - General and administrative expense includes insurance, taxes (mostly pass-through), administrative wages, building rents, utilities, legal, and audit expenses[146](index=146&type=chunk) [Other (Expense) Income, Net](index=29&type=section&id=Other%20(Expense)%20Income,%20Net_MD%26A) Explains the components of other expense and income, primarily interest expense and income - Interest expense relates to debt for aircraft, engine, and equipment purchases, including amortization of debt financing costs[148](index=148&type=chunk) - Interest income is from cash and cash equivalent balances[149](index=149&type=chunk) [Segment Reporting](index=29&type=section&id=Segment%20Reporting_MD%26A) Confirms the Company operates as a **single operating and reportable segment** for financial evaluation - The Company operates as a **single operating and reportable segment**, as the chief operating decision maker evaluates performance and allocates resources on a consolidated basis[151](index=151&type=chunk)[152](index=152&type=chunk) [Cautionary Statement Regarding Non-GAAP Measures](index=30&type=section&id=Cautionary%20Statement%20Regarding%20Non-GAAP%20Measures) Defines and explains the use and limitations of non-GAAP financial measures like Adjusted EBITDA and EBITDAR - Adjusted EBITDA and Adjusted EBITDAR are presented as supplemental non-GAAP measures, used by management, investors, and analysts for industry comparisons[153](index=153&type=chunk) - Adjusted EBITDA is net income/loss before interest, income taxes, depreciation, and amortization, adjusted for revaluation of liability awards, lease termination costs, loss on debt extinguishment, and financing fee write-offs[154](index=154&type=chunk) - Adjusted EBITDAR further adjusts Adjusted EBITDA by excluding aircraft rent[155](index=155&type=chunk) - These non-GAAP measures have limitations, as they do not reflect cash expenditures for capital, working capital, debt service, or asset replacement, and may not be comparable across companies[156](index=156&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations_MD%26A) Analyzes the Company's financial performance for the three and nine months ended June 30, 2021, compared to prior periods [Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020](index=30&type=section&id=Three%20Months%20Ended%20June%2030,%202021%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202020) Compares the Company's operating revenues, expenses, and net income for the three months ended June 30, 2021 and 2020 Operating Revenues (Three Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract revenue | $109,654 | $71,648 | $38,006 | 53.0% | | Pass-through and other revenue | $15,503 | $1,451 | $14,052 | 968.4% | | Total operating revenues | $125,157 | $73,099 | $52,058 | 71.2% | Operating Data (Three Months Ended June 30) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Available seat miles (thousands) | 2,056,905 | 783,702 | 1,273,203 | 162.5% | | Block hours | 85,162 | 31,622 | 53,540 | 169.3% | | Revenue passenger miles (thousands) | 1,692,687 | 314,422 | 1,378,265 | 438.3% | | Passengers | 2,572,303 | 548,705 | 2,023,598 | 368.8% | Operating Expenses (Three Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $41,314 | $29,664 | $11,650 | 39.3% | | Maintenance | $51,986 | $22,591 | $29,395 | 130.1% | | Aircraft rent | $9,648 | $15,582 | $(5,934) | (38.1)% | | Government grant recognition | $(26,101) | $(43,018) | $16,917 | (39.3)% | | Total operating expenses | $110,783 | $57,875 | $52,908 | 91.4% | - Net income increased by **25.1%** to **$4.3 million**, driven by increased contract and pass-through revenue due to lessened COVID-19 impact, partially offset by higher operating expenses[157](index=157&type=chunk)[162](index=162&type=chunk) - Maintenance expense increased significantly (**130.1%**) due to higher C-check events, component contracts, pass-through maintenance, and labor[166](index=166&type=chunk) - Aircraft rent expense decreased (**38.1%**) due to fewer leased engines and the purchase of a previously leased aircraft[167](index=167&type=chunk) - Other expense decreased (**16.7%**) due to lower interest expense from reduced principal balances and lower interest rates on the Treasury Loan[172](index=172&type=chunk) [Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020](index=33&type=section&id=Nine%20Months%20Ended%20June%2030,%202021%20Compared%20to%20Nine%20Months%20Ended%20June%2030,%202020) Compares the Company's operating revenues, expenses, and net income for the nine months ended June 30, 2021 and 2020 Operating Revenues (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Contract revenue | $318,524 | $409,228 | $(90,704) | (22.2)% | | Pass-through and other revenue | $54,284 | $27,802 | $26,482 | 95.3% | | Total operating revenues | $372,808 | $437,030 | $(64,222) | (14.7)% | Operating Data (Nine Months Ended June 30) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Available seat miles (thousands) | 5,499,346 | 6,131,028 | (631,682) | (10.3)% | | Block hours | 228,351 | 255,488 | (27,137) | (10.6)% | | Passengers | 6,086,060 | 7,084,255 | (998,195) | (14.1)% | Operating Expenses (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Flight operations | $115,681 | $135,199 | $(19,518) | (14.4)% | | Maintenance | $156,623 | $145,021 | $11,602 | 8.0% | | Aircraft rent | $29,688 | $39,196 | $(9,508) | (24.3)% | | Lease termination | $4,508 | — | $4,508 | 100.0% | | Government grant recognition | $(93,379) | $(43,018) | $(50,361) | 117.1% | | Total operating expenses | $314,701 | $380,729 | $(66,028) | (17.3)% | - Net income increased by **49.7%** to **$24.1 million**, despite a **14.7%** decrease in total operating revenue, primarily due to a significant increase in government grant recognition and lower operating expenses[176](index=176&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - Contract revenue decreased (**22.2%**) due to lower flying from COVID-19 impacts and temporary rate reductions, while pass-through revenue increased (**95.3%**) due to higher pass-through maintenance[179](index=179&type=chunk) - Government grant recognition increased by **117.1%** to **$93.4 million**, reflecting funds from PSP2 and PSP3[189](index=189&type=chunk) Adjusted EBITDA and Adjusted EBITDAR (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | | Net income | $24,083 | $16,089 | | Adjusted EBITDA | $124,162 | $118,677 | | Adjusted EBITDAR | $153,850 | $157,873 | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the Company's financial liquidity, capital needs, and sources of cash, including government support and debt [Sources and Uses of Cash](index=37&type=section&id=Sources%20and%20Uses%20of%20Cash) Identifies the primary cash requirements and factors influencing the Company's cash sources - Cash is required for operating expenses, working capital, capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent, and debt service[200](index=200&type=chunk) - Key factors affecting cash sources include operational results, demand for services, competitive pricing, operating expense reductions, and access to financing/capital markets[201](index=201&type=chunk) [Restricted Cash](index=38&type=section&id=Restricted%20Cash) Explains the nature and amount of restricted cash held as collateral for various business needs - As of June 30, 2021, restricted cash totaled **$3.4 million**, collateralizing outstanding letters of credit for airport authorities, insurance, and other business needs[206](index=206&type=chunk) [Cash Flows](index=38&type=section&id=Cash%20Flows_MD%26A) Summarizes the Company's cash flows from operating, investing, and financing activities for the specified periods Net Cash Flow Summary (Nine Months Ended June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | | Net cash provided by operating activities | $131,212 | $103,601 | | Net cash used in investing activities | $(17,039) | $(25,114) | | Net cash used in financing activities | $(33,264) | $(82,610) | | Net change in cash, cash equivalents and restricted cash | $80,909 | $(4,123) | - Operating cash flow increased by **$27.6 million** (**26.6%**) to **$131.2 million**, driven by net income and changes in operating assets/liabilities[208](index=208&type=chunk) - Investing activities used **$17.0 million**, primarily for inventory, aircraft purchases, tools, and equipment[210](index=210&type=chunk) - Financing activities used **$33.3 million**, including **$195.0 million** from the Treasury Loan, offset by **$225.8 million** in debt repayments[212](index=212&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of off-balance sheet arrangements and explains the treatment of leased aircraft - The Company does not currently have any off-balance sheet arrangements as defined by SEC rules[215](index=215&type=chunk) - A majority of leased aircraft are through single-owner trusts where the Company is not the primary beneficiary, limiting exposure to remaining lease payments and return condition obligations[216](index=216&type=chunk) [Critical Accounting Policies and Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Refers to the Annual Report for details on critical accounting policies and estimates - No changes to critical accounting policies as explained in the 2020 Form 10-K[218](index=218&type=chunk) [Recently Issued Accounting Pronouncements](index=39&type=section&id=Recently%20Issued%20Accounting%20Pronouncements_MD%26A) Refers to Note 3 for information on recently issued accounting pronouncements - Refers to Note 3 for a description of recently issued accounting pronouncements[219](index=219&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Assesses the Company's exposure to market risks, including interest rate, foreign currency, and fuel price risks [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) Analyzes the Company's exposure to interest rate fluctuations on variable-rate debt and the impact of LIBOR discontinuation - The Company is exposed to interest rate risk on **$521.1 million** of variable-rate long-term debt (including current maturities) as of June 30, 2021, based on LIBOR[221](index=221&type=chunk)[222](index=222&type=chunk) - A hypothetical **50 basis point** change in market interest rates would affect interest expense by approximately **$2.6 million** for the nine months ended June 30, 2021[222](index=222&type=chunk) - The discontinuation of LIBOR after 2021 poses uncertainty regarding replacement rates and potential impacts on financial markets and the Company's LIBOR-based debt[224](index=224&type=chunk)[225](index=225&type=chunk) [Foreign Currency Risk](index=40&type=section&id=Foreign%20Currency%20Risk) Discusses the Company's minimal exposure to foreign currency fluctuations and lack of hedging programs - The Company has de minimis foreign currency risks related to station operating expenses denominated primarily in Canadian dollars, with all revenue in U.S. dollars[226](index=226&type=chunk) - Foreign currency transaction gains and losses have been **not material**, and **no formal hedging program is in place**[226](index=226&type=chunk) [Fuel Price Risk](index=40&type=section&id=Fuel%20Price%20Risk) Explains how capacity purchase agreements mitigate the Company's exposure to fuel price volatility - Capacity purchase agreements largely shelter the Company from fuel price volatility, as fuel is directly paid and supplied by major partners[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures and acknowledges inherent limitations of internal controls [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) States management's conclusion on the effectiveness of disclosure controls and procedures as of June 30, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were **effective as of June 30, 2021**[228](index=228&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=41&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Acknowledges the inherent limitations of any internal control system, including design judgment and potential for misconduct - The effectiveness of any internal control system is subject to inherent limitations, including judgment in design and operation, and the inability to eliminate misconduct completely[229](index=229&type=chunk) [PART II – OTHER INFORMATION](index=42&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) Presents other required information not covered in the financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) Details the Company's involvement in putative class action lawsuits and management's assessment of their potential impact - The Company is subject to two putative class action lawsuits alleging federal securities law violations in connection with its IPO, seeking unspecified monetary damages[128](index=128&type=chunk)[231](index=231&type=chunk) - Management believes the ultimate outcome of these lawsuits and other routine legal matters is not likely to have a **material adverse effect** on the Company's financial position, liquidity, or results of operations[128](index=128&type=chunk)[232](index=232&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) Refers to the Annual Report for comprehensive risk factors and notes the potential for additional unknown risks - Readers are referred to 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and the 'Cautionary Statements Regarding Forward-looking Statements' in this report for important risk factors[233](index=233&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also **materially adversely affect** the business[233](index=233&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on common stock repurchases made to cover income tax obligations on employee equity awards - The Company repurchased **139,896 shares** of common stock for **$1.4 million** during the nine months ended June 30, 2021[116](index=116&type=chunk)[234](index=234&type=chunk) - The purpose of the repurchases was to cover income tax obligations on vested employee equity awards and warrant conversions[116](index=116&type=chunk)[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that there were no defaults upon senior securities during the reported period - **None**[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the Company's operations - **Not applicable**[235](index=235&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) Indicates that there is no other information to report under this item - **None**[236](index=236&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including various agreements, amendments, and certifications - Includes Payroll Support Program 3 Agreement, amendments to the American Capacity Purchase Agreement, and certifications by principal executive and financial officers[238](index=238&type=chunk) [SIGNATURES](index=44&type=section&id=SIGNATURES) Provides the official signatures for the Quarterly Report on Form 10-Q - Report signed by Michael J. Lotz, President and Chief Financial Officer, on August 9, 2021[242](index=242&type=chunk)

Financial Data and Key Metrics Changes - The company reported a pretax profit of $7.6 million, with an adjusted pretax profit of $12.1 million or $0.23 per share, compared to a net income of $1.9 million or $0.05 per diluted share in the same quarter last year [10][36] - The net income for Q2 2021 was $5.7 million, an increase from $1.9 million in Q2 2020, primarily due to a $56 million pretax benefit received through PSP2 under the CARES Act [36][37] - Cash at the end of Q2 was $148 million, down from $181 million in Q1, with total debt reduced to $725 million from $746 million [38][41] Business Line Data and Key Metrics Changes - The company generated 73,942 block hours, down 32% from the previous year but improved by 6.8% from the December quarter [18] - The controllable completion factor was 99.9%, consistent with the previous year, while controllable on-time departures improved to 91.1% from 81.3% a year ago [21] - The company added five additional CRJ aircraft to its American operation, with a current fleet of 64 CRJ-900s [22][23] Market Data and Key Metrics Changes - The company expects June quarter utilization in the United operation to be 75% to 80% of pre-COVID levels and approximately 100% in the American operation [19] - The September quarter is projected to be 85% to 90% at United and a little over 100% in the American operation [19] Company Strategy and Development Direction - The company is focusing on adopting new technology and decarbonization of air travel, including an investment in Archer Aviation's eVTOL aircraft [13][14] - The company aims to be a leader in decarbonization and eco-friendly flying, with plans to expand regional jet operations in Europe [12][96] - The company is committed to improving operational performance and maintaining strong relationships with partners [17][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a gradual improvement in block hours and operational performance as the vaccine rollout continues [42] - The company anticipates a steady increase in block hours and is focused on addressing heavy maintenance needs that were deferred during the pandemic [43][90] - Management highlighted the importance of maintaining strong operational performance and industry-leading economics for long-term growth [18][45] Other Important Information - The company has secured a third 737-400 cargo aircraft to support its operations with DHL [30] - The company is actively hiring and training to meet increasing staffing requirements across operational divisions [32][34] Q&A Session Summary Question: Block hours guidance - Management indicated that the slight decrease in block hours guidance is due to a more conservative estimate as schedules are changing week-to-week [48][50] Question: CRJ purchase off lease - The company is focused on buying out leases to own aircraft, with the recent purchase being financially attractive due to low cash outlay and avoidance of return conditions [51][52] Question: CapEx and storm impact - For fiscal 2021, the company plans to acquire one GE engine, with additional engines in fiscal 2022 and 2023 [56][58] - The estimated impact of the storm and power outages in Texas was about $3 million, with a mix of costs covered by the company and partners [60][68] Question: Future contract rates - Lower contract rates were tied to COVID and the PSP program, and management does not expect these rates to continue in the absence of PSP [68][69] Question: Joint venture accounting - The accounting for the joint venture with Gramercy Associates is still under consideration, with no significant impact expected in the current fiscal year [72] Question: Long-term capital structure - The company plans to focus on paying down debt while maintaining liquidity, with a target debt to capital ratio and continued aircraft purchases [74][76] Question: Normalized margins post-COVID - Management expects margins to return to pre-COVID levels by fiscal 2022, with ongoing heavy maintenance impacting this year's performance [81][82]

Financial Performance - Mesa Airlines reported operating income of $16.8 million for the three months ended March 31, 2021, compared to $13.9 million for the same period in 2020, reflecting an increase of 20.9%[152] - Net income for the three months ended March 31, 2021, was $5.7 million, up from $1.9 million in the same period in 2020, indicating a significant improvement in profitability[152] - Total operating revenues decreased by $82.6 million, or 45.9%, to $97.3 million for the three months ended March 31, 2021, compared to $179.9 million for the same period in 2020[157] - Total operating revenue decreased by $116.3 million, or 32.0%, to $247.7 million for the six months ended March 31, 2021 compared to the same period in 2020[176] - Adjusted EBITDA increased to $88.9 million for the six months ended March 31, 2021, compared to $82.7 million for the same period in 2020[191] Revenue Breakdown - Contract revenue fell by $84.1 million, or 50.7%, to $81.7 million, primarily due to reduced flying on the CRJ-900, CRJ-700, and E-175 fleets as a result of COVID-19[157] - Contract revenue decreased by $128.7 million, or 38.1%, to $208.9 million primarily due to reduced flying on the CRJ-900, CRJ-700, and E-175 fleet as a result of COVID-19[176] - Pass-through and other revenue increased by $1.5 million, or 10.3%, to $15.6 million, primarily due to pass-through maintenance revenue related to the E-175 fleet[157] - Pass-through and other revenue increased by $12.4 million, or 47.2%, to $38.8 million for the six months ended March 31, 2021, primarily due to maintenance revenue related to the E-175 fleet[176] Operating Metrics - Available seat miles (ASMs) decreased by 32.2% to 1,771,498 thousand for the three months ended March 31, 2021, compared to 2,611,940 thousand for the same period in 2020[155] - Block hours flown decreased by 31.7% to 73,942 for the three months ended March 31, 2021, compared to 108,305 for the same period in 2020[155] - Revenue passenger miles (RPMs) decreased by 35.7% to 1,148,498 thousand for the three months ended March 31, 2021, compared to 1,785,153 thousand for the same period in 2020[155] - The average stage length increased by 11.5% to 690 miles for the three months ended March 31, 2021, compared to 619 miles for the same period in 2020[155] - Average stage length increased by 11.5% to 690 miles for the three months ended March 31, 2021 compared to 619 miles for the same period in 2020[158] Expenses - Total operating expenses decreased by $85.5 million, or 51.5%, to $80.5 million for the three months ended March 31, 2021 compared to the same period in 2020[158] - Flight operations expense decreased by $15.5 million, or 29.3%, to $37.4 million for the three months ended March 31, 2021 due to lower pilot and flight attendant wages[158] - Aircraft maintenance costs decreased by $12.6 million, or 19.5%, to $51.8 million for the three months ended March 31, 2021, primarily driven by a decrease in engine overhaul and component contracts[160] - Total operating expenses decreased by $118.9 million, or 36.8%, to $203.9 million for the six months ended March 31, 2021, compared to the same period in 2020[177] - Flight operations expense decreased by $31.2 million, or 29.5%, to $74.4 million, primarily due to lower pilot and flight attendant wages[177] - General and administrative expenses decreased by $3.3 million, or 11.9%, to $24.2 million, primarily due to a decrease in pass-through property taxes[183] Government Support - The company recognized a Federal Grant received through the Payroll Support Agreement under the CARES Act, contributing to the decrease in flight operations and general administrative expenses[153] - Government grant recognition increased by $56.0 million, or 100.0%, to $56.0 million for the three months ended March 31, 2021 under the CARES Act[166] - The company recognized $67.3 million in government grant funds for payroll support, an increase of 100.0% compared to the same period in 2020[186] - The company expects to receive approximately $52.2 million under the third Payroll Support Program (PSP3) as part of the American Recovery Plan Act[195] Cash Flow and Debt - As of March 31, 2021, the company had cash and cash equivalents of $147.9 million and restricted cash of $3.4 million[202] - For the six months ended March 31, 2021, net cash provided by operating activities was $78.6 million, an increase from $65.2 million in the same period of 2020[205][206] - The company reported a net increase in cash and cash equivalents of $48.4 million for the six months ended March 31, 2021, compared to a decrease of $16.7 million in the prior year[205] - Net cash used in investing activities for the six months ended March 31, 2021, was $11.7 million, significantly lower than $24.8 million in the same period of 2020[208][209] - During the six months ended March 31, 2021, net cash used in financing activities was $18.5 million, compared to $57.1 million in the prior year[210][211] - The company had $533.8 million of variable-rate debt as of March 31, 2021, with a hypothetical 50 basis point change in market interest rates potentially affecting interest expense by approximately $2.7 million[220] - The company had $192.2 million of fixed-rate debt as of March 31, 2021, with no material effect on interest expense from a hypothetical 50 basis point change in market interest rates[221] Risk Factors - The company did not have any off-balance sheet arrangements during the periods presented[213] - The company has de minimis foreign currency risks related to station operating expenses, primarily in Canadian dollars, with no material impact on financial results[225] - Fuel price volatility is largely mitigated by capacity purchase agreements with major airline partners, which directly pay and supply fuel[226]

Financial Data and Key Metrics Changes - The company reported a net income of $14.1 million or $0.39 per share for Q1 2021, compared to a net income of $10.8 million or $0.31 per diluted share in the same quarter last year [24] - The increase in earnings was primarily due to an $11.3 million pre-tax benefit received through the Payroll Support Program (PSP) under the CARES Act, offset by a 26% reduction in contract revenue due to reduced flying as a result of COVID-19 [25] - Cash for the quarter, excluding restricted cash, increased by $82 million to $181 million, with $48 million being the balance of the United CPA prepayment [27] Business Line Data and Key Metrics Changes - The operational performance showed significant improvement, with a controllable completion factor of 99.9% compared to 99.8% a year ago, and controllable on-time departures at 91.1% compared to 81.3% a year ago [17] - The company signed a five-year extension with American Airlines for 40 aircraft and launched cargo operations for DHL with two 737-400 freighter aircraft [9][10] Market Data and Key Metrics Changes - The company expects block hour production for the March quarter to be about 70% of pre-COVID levels and 75% to 80% for the June quarter, indicating a gradual increase in operations throughout the year [16][33] - The company anticipates total debt to decline from $746 million to approximately $650 million by the end of fiscal year 2021, with principal payments scheduled for fiscal years 2022 and 2023 totaling $200 million [30] Company Strategy and Development Direction - The company aims to focus on existing partners and opportunities to expand and grow its overall business, leveraging its industry-leading cost structure and operational excellence [14] - The management highlighted the trend of industry consolidation, positioning the company as a potential survivor and participant in future mergers or acquisitions [50][78] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding recovery tied to vaccine distribution, noting improvements in operational performance despite ongoing challenges [7][8] - The company believes it is well-capitalized and positioned to seek new opportunities as the industry evolves [39] Other Important Information - The company received a $195 million loan under the CARES Act program and chose not to furlough any employees despite the expiration of the Payroll Support Program [9] - The company is exploring additional cargo opportunities beyond its current partnership with DHL [71] Q&A Session Summary Question: Impact of PSP on financials - The remaining $38 million from PSP will be reflected in the March quarter, with any rate reductions related to December recorded in the same quarter [42][43] Question: American Airlines contract flexibility - The guidance includes the additional five aircraft through May, with expectations for continued operational quality leading to more opportunities [44][46] Question: Industry consolidation opportunities - The company is positioned to take advantage of industry consolidation trends, with potential for mergers or acquisitions to grow its fleet [50][78] Question: Cash position for March quarter - The company expects to end the March quarter with a strong cash position, estimating around $130 million after accounting for various payments [55][56] Question: Future cargo operations - The company sees significant cargo opportunities and aims to add aircraft gradually, with a focus on operational performance [67][71] Question: M&A opportunities - The company is evaluating M&A opportunities, particularly in the cargo sector, while maintaining cooperation with partners [76][78]