Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is a holding company whose principal subsidiary, Mesa Airlines, Inc. ("Mesa Airlines"), operates as a regional air carrier providing scheduled flight service to 116 cities in 42 states, the District of Columbia, the Bahamas, and Mexico as well as Cargo services out of Cincinnati/Northern Kentucky International Airport. As of December 31, 2020, Mesa operated a fleet of 159 aircraft with approximately 420 daily departures and 3,200 employees. Mesa operates all of its flights as either American Eagle, United Express, or DHL Express flights pursuant to the terms of the capacity purchase agreements entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and Flight Services Agreement (“FSA”) with DHL Network Operations (USA), Inc.

The financial arrangements between the Company and its major airline partners involve a revenue-guarantee arrangement (i.e. a "capacity purchase agreement") whereby the major airline pays a monthly guaranteed amount for each aircraft under contract, a fixed fee for each block hour (the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination) and flight flown and reimbursement of certain direct operating expenses in exchange for providing regional flying. The major airline partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of these capacity purchase agreements, the major airline controls route selection, pricing and seat inventories, thereby reducing the Company's exposure to fluctuations in passenger traffic, fare levels, and fuel prices.

As of December 31, 2020, the Company operated 54 CRJ-900 aircraft for American under a Capacity Purchase Agreement. In exchange for providing flight services under our American Capacity Purchase Agreement, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departures and controllable completion percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes, all as set forth in our American Capacity Purchase Agreement. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions, as well as airport-related facilities and gates at American hubs and cities where we operate.

Our American Capacity Purchase Agreement establishes utilization credits which are required to be paid if the Company does not operate at minimum levels of flight operations. In prior periods, the FAA Qualification Standards (as defined below) have negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels, and, as a result, we have issued credits to American pursuant to the terms of our American Capacity Purchase Agreement.

On November 19, 2020, we entered into an Amended and Restated American Capacity Purchase Agreement (the “Amended and Restated American Capacity Purchase Agreement”) with American which is effective as of January 1, 2021 and amends and restates the Code Share and Revenue Sharing Agreement, dated as of March 20, 2001 (as theretofore amended, supplemented and modified, the “Existing CPA”), between Mesa Airlines and American. The Amended and Restated American Purchase Agreement included the following amendments to the Existing CPA:

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A five-year term, commencing January 1, 2021 – December 31, 2025, covering 40 aircraft;

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Establishes new compensation payable to Mesa Airlines during the new term;

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Grants American the option in its sole discretion to withdraw up to: (a) 10 aircraft during calendar year 2021, provided that for the 6-month period ending June 30, 2021, American may only exercise this right if the number of mainline narrow body aircraft in American’s fleet has been reduced by a specified number of aircraft during such period, (b) 5 aircraft during each of calendar years 2022 and 2023, and (c) during the period from January 1, 2024 to July 31, 2024. American can remove the first 20 aircraft to the extent not otherwise removed in 2021 – 2023, and thereafter they have the right to remove the last 20 aircraft;

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Also grants American the right to withdraw a limited number of aircraft in connection with the failure to meet certain performance objectives for the fleet over consecutive monthly periods, or failure to satisfactorily complete established cabin interior program requirements by certain deadlines; and

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Provides American with additional termination rights, subject to certain cure periods, including the occurrence of a force majeure event (as defined in the American CPA) that lasts for a specified number of consecutive days (including but not limited to a future epidemic or pandemic), the occurrence of a labor dispute that affects Mesa’s ability to operate over a specified number of days, and operating in violation of any existing American collective bargaining agreement.

Our existing American Capacity Purchase Agreement is subject to following termination prior to its expiration on December 31,2025, subject to the Company’s right to cure, in various circumstances including:

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

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Failure by the Company or American to perform the covenants, conditions or provisions of the American Capacity Purchase Agreement, subject to 15 days' notice and cure rights;

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If we are required by the FAA or the DOT to suspend operations and we have not resumed operations within three business days, except as a result of an emergency airworthiness directive from the FAA affecting all similarly equipped aircraft, American may terminate the agreement;

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If our controllable flight completion factor falls below certain levels for a specified period of time, subject to our right to cure, or;

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

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

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

On December 22, 2020, we entered into Amendment No. 1 (“Amendment No. 1”) to the Amended and Restated American Capacity Purchase Agreement. The amendments in Amendment No. 1 reflect the following:

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The addition of CRJ-900 aircraft to the American CPA (collectively, the “Incremental Aircraft”) in accordance with the following schedule: (i) 3 aircraft, commencing January 5, 2021 to March 3, 2021, and (ii) increasing to a total of 5 aircraft, commencing March 4, 2021. The term of the Incremental Aircraft will be determined by American in its sole discretion;

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American’s right, exercisable in its sole discretion, to withdraw any Incremental Aircraft upon 60 days’ prior notice. American may specify one or more dates for the withdrawal of such Incremental Aircraft.

As of December 31, 2020, we operated 20 CRJ-700, 60 E-175 and 12 E-175LL aircraft for United under our United Capacity Purchase Agreement. We expect to operate a total of 60 E175 and 20 E-175LL aircraft by mid-year in 2021 when we take delivery of the remaining 8 E-175LL aircraft by the end of June 2021. In exchange for providing the flight services under our United Capacity Purchase Agreement, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United also reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

Under our United Capacity Purchase Agreement, United owns 42 of the 60 E-175 and all of the new E175-LL aircraft (discussed below) and leases them to us at nominal amounts. United reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the 42 E-175 and all E-175LL aircraft owned by United. Our United Capacity Purchase Agreement permits United, subject to certain conditions, including the payment of certain costs tied to aircraft type, to terminate the agreement in its discretion, or remove aircraft from service, by giving us notice of 90 days or more. If United elects to terminate our United Capacity Purchase Agreement in its entirety or permanently remove select aircraft from service, we are permitted to return any of the affected E-175 aircraft leased from United at no cost to us.

On November 26, 2019, we amended and restated our United Capacity Purchase Agreement to, among other things, incorporate the terms of the 14 prior amendments to that Agreement and to extend the term thereof through the addition of 20 new Embraer E175LL aircraft to the scope of such Agreement. These new aircraft were to be financed and owned by us and operated for a period of twelve (12) years from the in-service date. Deliveries of the new E175LL aircraft were scheduled to begin in May 2020. In March 2020, the deliveries of the new E175LL aircraft were negotiated between United and Embraer to begin in September 2020 and be completed by the quarter ended June 30, 2021. Commencing five (5) years after the actual in-service date, United has the right to remove the E175LL aircraft from service by giving us notice of 90 days or more, subject to certain conditions, including the payment of certain wind-down expenses plus, if removed prior to the ten (10) year anniversary of the in-service date, certain accelerated margin payments.

In addition to adding the 20 new E175LL aircraft to the amended and restated United Capacity Purchase Agreement, we extended the term of our 42 E-175 aircraft leased from United for an additional five (5) years, which now expire between 2024 and 2028. In addition, we own 18 E-175 aircraft that are operated for United and come out of service under the United Capacity Purchase Agreement in 2028. Under the amended and restated United Capacity Purchase Agreement, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of seven (7) years. We will continue to operate such aircraft until they are transitioned to the new service provider. United has a right to purchase the CRJ-700 aircraft at the then fair market value.

On November 4, 2020, we amended and restated our United Capacity Purchase Agreement to, among other things, amend the ownership by United, in lieu of the Company, of 20 E175LL aircraft that will be leased to the Company. Per the amendment, these new aircraft will be now financed by United and leased to the Company to operate for a period of twelve (12) years from the in-service date. As of December 30, 2020, 12 E175LL have been delivered and the remaining 8 are expected to be delivered by the end of June 2021. We agreed to adjusted rates to account for the change in ownership of the E175LL aircraft, relief from certain provisions related to minimum utilization until December 31, 2021 and an additional right of United to remove one or more E175LL aircraft in the event that the Company fails to meet certain financial covenants. The Company is leasing these aircrafts from United at nominal rates, these leases are not considered embedded leases within the contract and are excluded from the Company’s right-of-use assets and operating lease liabilities under ASC 842.

We also agreed to a one-time provision for United to prepay $81.5 million under the United CPA for future performance by the Company (the “Prepayment”), and certain discounts on services provided under the capacity purchase agreement. We elected the practical expedient concerning the evaluation of a significant financing component for the Prepayment received in November 2020, and have accounted for the payment received within current deferred revenue. As of December 31, 2020, we have recognized $33.3 million of the Prepayment deferred revenue for flight services performed and expect to recognize the remaining balance to revenue as flight services are performed during the second quarter of 2021. The terms of the Prepayment also include affirmative and negative covenants and events of default customary for transactions of this type. Proceeds from the Prepayment were used to retire debt on certain airframes and engines that serve as collateral under the term loan facility provided to the Company by the U.S. Treasury. See Note 8.

On December 20, 2019, the Company entered into a Flight Services Agreement with DHL Network Operations (USA), Inc. Under the terms of this agreement, Mesa operates two Boeing 737-400F aircraft to provide air transportation services to DHL. The Company receives a fee per block hour with a minimum block hour guarantee. In addition, the costs for heavy maintenance including c-checks, off-wing engine maintenance and overhauls including LLPs, Landing Gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and LLPs are a direct pass through to DHL. Ground support including fueling and airport fees are paid directly by DHL. The Company is eligible for a monthly performance bonus or subject to a monthly penalty based on timeliness and completion performance.

In connection with the Flight Services Agreement, the Company also entered into an Aircraft Sublease Agreement with DHL for the two Boeing 737-400F aircraft at no cost. The leases are not considered embedded leases within the contract and are excluded from the Company’s right-of-use assets and operating lease liabilities under ASC 842.