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Subsequent Events

12 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

18.	Subsequent Events

On October 8, 2020, Mesa Air Group, Inc. and General Electric Company, acting through its GE-Aviation business unit, entered into Amended and Restated Letter Agreement No. 13, which deferred the initial delivery and initial payment dates. Under the terms of this amendment, the Company agreed to purchase and take delivery of 20 new spare CF34-8C5 engines commencing in May 2021, with the final spare engine being delivered in December 2021. Payments are now due in five (5) separate tranches commencing in December 2020, and in February, April, May, and June 2021.

On October 30, 2020 (the “Closing Date”), the Company entered into a Loan and Guarantee Agreement, dated as of the Closing Date (the “Loan Agreement”), by and among the Company, as a guarantor, its subsidiaries Mesa Airlines, Inc., as borrower (“Mesa Airlines”), and Mesa Air Group Inventory Management, L.L.C., as a guarantor (“Mesa Air Group Inventory Management”), the other guarantors party thereto from time to time, the United States Department of the Treasury (“Treasury”), and the Bank of New York Mellon as Administrative and Collateral Agent under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The Loan Agreement provides for a secured term loan facility of up to $200.0 million that matures on October 30, 2025. On the Closing Date, the Company borrowed $43.0 million of this commitment and on November 13, 2020, the Company borrowed an additional $152.0 million. No further borrowings are available under the Loan Agreement. The obligations of under the Loan Agreement are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment and tooling (collectively, the “Collateral”). All borrowings under the Loan Agreement will bear interest at an annual rate based on Adjusted LIBO (as defined in the Loan Agreement) plus 3.5%. The obligations are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds may be used for general corporate purposes and operating expenses, to the extent permitted by the CARES Act.

The Loan Agreement requires the Company, under certain circumstances, including within ten (10) business days prior to the last business day of March and September of each year, beginning March 2021, to appraise the value of the Collateral and recalculate the collateral coverage ratio. If the calculated collateral coverage ratio is less than 1.6 to 1.0, Mesa Airlines will be required either to provide additional Collateral (which may include cash collateral) to secure its obligations under the Loan Agreement or repay the term loans under the Loan Agreement, in such amounts that the recalculated collateral coverage ratio, after giving effect to any such additional Collateral or repayment, is at least 1.6 to 1.0.

The Loan Agreement contains two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Loan Agreement also contains customary negative and affirmative covenants for credit facilities of this type, including, among others: (a) limitations on dividends and distributions; (b) limitations on the creation of certain liens; (c) restrictions on certain dispositions, investments and acquisitions; (d) limitations on transactions with affiliates; (e) restrictions on fundamental changes to the business, and (f) restrictions on lobbying activities. Additionally, the Company is required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service.

In connection with the Loan Agreement and as partial compensation to Treasury for the provision of financial assistance under the Loan Agreement, the Company issued to Treasury warrants to purchase an aggregate of 4,899,497 shares of the Company’s common stock at an exercise price of $3.98 per share, which was the closing price of the Common Stock on The Nasdaq Stock Market on April 9, 2020. The exercise price and number of shares of common stock issuable under the Warrants are subject to adjustment as a result of anti-dilution provisions contained in the Warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option. The warrants will be accounted for within equity at a grant date fair value determined under the Black Scholes Option Pricing Model.

On November 4, 2020, Mesa Airlines entered into the Second Amended and Restated Capacity Purchase Agreement with United Airlines, Inc., which amended and restated the prior agreement between the parties dated November 26, 2019. The amendments included the following: (a) United’s ownership, in lieu of Mesa Airlines, of 20 E75LL aircraft, which will be leased to Mesa Airlines; (b) adjusted rates to account for the ownership of such aircraft by United; (c) relief from certain provisions related to minimum utilization until December 31, 2020; (d) United’s right to remove one or more E175LL aircraft if Mesa Airlines fails to meet certain financial covenants; and (e) a one-time provision for United to prepay $85.0 million under the future performance by Mesa Airlines and the application of certain discounts to certain payment

obligations of United under the United CPA. Weekly amounts due from United under the United CPA will be applied toward the balance of the $85.0 million prepayment until such prepayment is fully expended.

Prior to November 13, 2020 funding under the Loan Agreement, the Company repaid approximately $164.1 million in existing aircraft debt covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated June 27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014, and May 23, 2014, (d) Senior Loan Agreements, dated December 27, 2017, and (e) Junior Loan Agreements, also dated December 27, 2017, as further defined in Note 9, notations (1),(3),(7) and (8). The Company used approximately $82.8 million of existing cash and $81.3 million of cash proceeds received from the United prepayment described above to fund this debt pay down. The company will treat this transaction as early extinguishment of debt. The company will treat this transaction as early extinguishment of debt and expects to recognize an immaterial gain from the extinguishment.

On November 19, 2020, Mesa Airlines entered into the Amended and Restated Capacity Purchase Agreement with American Airlines, Inc., which is effective as of January 1, 2021 and amends and restates the existing Code Share and Revenue Sharing Agreement, dated as of March 20, 2001 (as theretofore amended), between Mesa and American. The amendments include the following: (a) a five-year term, commencing January 1, 2021 – December 31, 2025, covering 40 aircraft; (b) new compensation payable to Mesa Airlines during the term; (c) American’s right to withdraw aircraft under certain circumstances during the new five-year term; and (d) additional termination rights granted to American, subject to specified cure periods.