XML 18 R8.htm IDEA: XBRL DOCUMENT
v3.23.1

Organization and Operations | 6 Months Ended
--- | ---
Mar. 31, 2023
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Organization and Operations | 1. Organization and Operations About Mesa Air Group, Inc. Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 105 cities in 42 states, the District of Columbia, the Bahamas, Cuba, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. As of March 31, 2023, Mesa operated a fleet of 109 aircraft with approximately 325 daily departures and 2,388 employees. Mesa’s fleet were conducted under the Company’s Capacity Purchase Agreements (“CPAs”) and Flight Services Agreement (“FSA”), leased to a third party, held for sale or maintained as operational spares. Mesa operates all of its flights as either American Eagle, United Express, or DHL Express flights pursuant to the terms of CPAs entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and FSA with DHL Network Operations (USA), Inc. (“DHL”) (each, our “major partner”). All of the Company’s consolidated contract revenues for the three and six months ended March 31, 2023 and March 31, 2022 were derived from operations associated with these two (2) CPAs, FSA, and leases of aircraft to a third party. The CPAs between us and our major partners involve a revenue-guarantee arrangement whereby the major partners pay fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services. The major partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of these CPAs, the major partners control route selection, pricing, and seat inventories, reducing our exposure to fluctuations in passenger traffic, fare levels, and fuel prices. Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo flight services. Ground support expenses including fueling and airport fees are paid directly by DHL. Amendments to Bylaws On January 13, 2023, the Company’s Board of Directors approved a resolution to amend the Company’s Amended and Restated Bylaws (the “Bylaws”) in connection with the Company’s entry into the Amended and Restated United CPA, see Note 1, which provides United with the right to designate one (1) representative to be a member of the Board, provided that United holds at least five percent (5%) of the issued and outstanding shares of capital stock of the Company, and provided that such United Designee shall be subject to the reasonable approval of the Board. Until the earlier of January 1, 2026, or the Company’s entry into a definitive binding agreement for the performance of regional airline services with a major air carrier other than United, the Board shall not take, or make any recommendation to the stockholders of the Company with respect to several actions, including: • Merge or consolidate any of the Company’s subsidiaries with or into any other entity, or sell, transfer or dispose of all or substantially all of the assets of the Company; • Enter into a purchase transaction that would result in the cash balance of the Company to fall below a certain threshold; • Enter into new lines of business, provided that this restriction shall not apply from and after the first point in time, if any, after the satisfaction of certain performance milestones; or • Amend or modify the Bylaws or Articles of Incorporation of the Company that would alter, amend, or repeal any of the foregoing. Impact of Pilot Shortage and Attrition During our three and six months ended March 31, 2023 and fiscal year ended September 30, 2022, the severity of the pilot shortage, elevated pilot attrition, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios. One of the primary factors contributing to the pilot shortage and attrition is the demand for pilots at major carriers, which are hiring at an accelerated rate. These airlines now seek to increase their capacity to meet the growing demand for air travel as the global pandemic has moderated. A primary source of pilots for the major U.S. passenger and cargo carriers are the U.S. regional airlines. As a result of pilot shortage and attrition, we produced less block hours to generate revenues and incurred penalties for operational shortfalls under our CPAs. During the six months ended March 31, 2023, these challenges resulted in a negative impact on the Company’s financial results highlighted by cash flows used in operations of $8.6 million and net loss of $44.2 million including a non-cash impairment charge of $20.5 million related to both the Company designating seven (7) CRJ-900 aircraft as held for sale and our customer relationship intangible asset. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet our debt obligation in the next twelve months. To address the events that gave rise to such concerns, management developed and implemented the following material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months. In addition to successfully implementing these effective measures, the Company expects to develop and implement additional measures aimed at addressing periods beyond the next twelve months. • During the fourth quarter 2022, the Company reached an agreement with ALPA which increased overall pilot hourly pay by nearly 118% for captains and 172% for new-hire first officers. As a result of this agreement, we have experienced reduced attrition rates and attracted new pilots. • The Company and American agreed to terminate and complete a wind-down of the American CPA. This will ultimately eliminate financial penalties incurred under the American CPA. In December 2022, we entered into Amendment No.11 to our American CPA that includes, among other things, disclosure regarding the wind-down of our operations with American and the termination of the American CPA. • In December 2022, we entered into the Third Amended and Restated Capacity Purchase Agreement with United which amended and restated the existing United CPA. This agreement increases block hour revenues to cover increased wages agreed to with ALPA and adds CRJ 900 aircraft currently operating under the American CPA. • Eight (8) CRJ-700 aircraft were sold to United during the quarter ended March 31, 2023. The approximate net proceeds from the sale was $8 million after retirement of debt. See Note 6 for a discussion on assets held for sale. • We entered into an agreement with a third party to sell eleven (11) of our CRJ-900 aircraft and one (1) CRJ-200 aircraft to raise capital and retire debt. Four (4) aircraft were sold during the quarter ended March 31, 2023, and we expect to complete the sale of the remaining seven (7) aircraft before 2023 fiscal year end. The approximate gross proceeds from all eleven (11) is expected to be $33 million and net proceeds of $8.2 million after retirement of debt. Sale from remaining seven (7) aircraft will generate approximately $21 million of gross proceeds. See Note 6 for a discussion on assets held for sale. • We entered into a letter agreement to sell seven (7) surplus CRJ-900 aircraft. This transaction is expected to generate gross proceeds of approximately $72 million and eliminate approximately $69 million of debt. • We entered into an agreement to sell 30 spare engines to United to raise capital and retire debt. The approximate gross proceeds from the sale are expected to be $88 million and will retire debt of $34.4 million. The sale of ten (10) of the engines closed in March 2023. The approximate net proceeds from the sale were $28.6 million after the retirement of $5.6 million of debt. An additional six (6) engines were sold in April 2023 for approximately $11 million which was used to reduce the debt balance. See Note 16 for a discussion of the engine sale agreement transaction and closing deliverables. • We established and drew upo n a new line of credit with United totaling $25.5 million. The new line of credit contains an additional deemed prepayment of $15 million with potential forgiveness upon the achievement of certain performance metrics. See Note 9 for a discussion of the line of credit and amount drawn. • We entered into an agreement with Export Development Bank of Canada (EDC), reducing debt and interest payments on seven (7) CRJ-900 NextGen aircraft for the period of January 2023 through December 2024, providing up to $14 million of liquidity. Additionally, the junior noteholder, MHIRJ, agreed to reduce its loan amount by approximately $5 million. • We entered into an agreement with RASPRO Trust, reducing the buyout pricing on all 15 CRJ-900 aircraft at lease termination by a total of $25 million. The buyout price is approximately $52 million and Seven (7) of these aircraft have been designated as held for sale. See Note 6 for a discussion on assets held for sale. • We established the Mesa Pilot Development Program (the "MPD Program") to increase the pilot supply to Mesa. We have entered into an agreement to purchase up to 29 state-of-the-art Pipistrel Alpha Trainer 2 aircraft. This new fleet will be the backbone of our MPD Program to help commercial pilots accelerate their accumulation of flight hours to reach the minimum flight hours required by FAA and then be hired by Mesa. As part of the program, pilots will be provided with the opportunity to accumulate up to 1,500 flight hours required to fly a commercial aircraft at Mesa Airlines. Flights costs of $25 per hour, per pilot, will be fully financed by us with zero interest, providing no upfront out-of-pocket expense for flight time while the candidate is accruing the required hours to earn their Airline Transport Pilot (ATP) certificate. • We added flight training simulators and flight training instructors to expand our training capacity to backfill pilots lost to attrition. • We expanded the United Aviate program participation to include all pilots flying for Mesa. Previously, pilots had to fly under the United Express contract for a minimum of two (2) years to qualify for the flow through to United Airlines. Now, all pilots regardless of contract, are eligible to flow through to United Airlines enhancing Mesa's ability to attract and retain pilots. • We have delayed and/or deferred major spending on aircraft and engine maintenance to match the current and projected level of flight activity. The plans and initiatives outlined above have effectively alleviated pressure on financial performance. While we continue to implement and monitor our plans and initiatives, there is no guarantee that these will continue to be effective and achieve their desired objectives. As of March 31, 2023, the Company has $145.0 million of short-term debt due within the next twelve months. We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations along with the liquidity we expect to achieve from disposition of surplus assets and other plans to improve cash from operation as outlined above. Subsequent to March 31, 2023, the Company has received gross proceeds of approximately $11 million from the sale of six (6) engines and the proceeds were used to pay down debt. American Capacity Purchase Agreement During the three months ended March 31, 2023, the Company operated 40 CRJ-900 aircraft under an Amended and Restated Capacity Purchase Agreement with American dated November 19, 2020 (as amended, the “American CPA”). In exchange for providing passenger flight services, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departure (“CD0”) and controllable flight completion factor (“CCF”) percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions as well as airport-related facilities and gates at American hubs and cities where we operate. In December 2022, we entered into Amendment No. 11 (the “AA Amendment”) to the American CPA. The AA Amendment provides for the termination and wind-down of the American CPA by April 3, 2023 (the “Wind-down Period”), at which time all Covered Aircraft (as defined in the American CPA) will be removed from the American CPA. In March 2023, we will begin to transition aircraft operated under the American CPA to the United CPA. The American CPA was previously set to expire by its terms on December 31, 2025. Under the terms of the AA Amendment, during the Wind-down Period (i) we will continue to receive a fixed minimum monthly amount per aircraft covered by the American CPA, plus additional amounts based on the number of flights and block hours flown during each month, subject to adjustment based on the Company’s controllable completion rate and certain other factors, and (ii) American has agreed not to exercise certain termination or withdrawal rights under the American CPA if we fail to meet certain operational performance targets for the three (3) consecutive month period ending January 31, 2023. Provided we comply with the terms of the American CPA during the Wind-down Period and no Material Breach (as defined in the American CPA) has occurred, American has also agreed to waive Mesa’s failure to meet certain past operational performance targets and other requirements, which triggered termination and withdrawal rights for American pursuant to the terms of American CPA. Failure to meet CCF targets in any given month during the Wind-down Period will result in a penalty for each performance metric that falls below an allotted threshold. The AA Amendment provides for liquidated damages (the “Liquidated Damages Claim”) payable to American in the event of a Material Breach (as defined in the American CPA) of the American CPA or a repudiation by us of our obligations under the American CPA. So long as we have not caused any Material Breaches during the Wind-Down Period, then immediately upon the expiration thereof, the parties have agreed to execute a written mutual release of all claims and acknowledgment that no Material Breaches have occurred under the American CPA (including, without limitation, any Liquidated Damages Claim). United Capacity Purchase Agreement During the quarter ended March 31, 2023, we operated 60 E-175, three (3) E-175LL and ten (10) CRJ 900 aircraft under our Third Amended and Restated Capacity Purchase Agreement with United dated December 27, 2022, which amended and restated the Second Amended and Restated Capacity Purchase Agreement dated November 4, 2020 (as amended, the “United CPA” or the "Amended and Restated United CPA"). Under the United CPA, United owns 42 of the 60 E-175 aircraft and all of the E-175LL aircraft and leases them to us at nominal amounts. The E-175 aircraft owned by United and leased to us have terms expiring between 2024 and 2028, and the 18 E-175 aircraft owned by us have terms expiring in 2028. The E-175LL aircraft have terms expiring in 2032 and 2033. In exchange for providing passenger flight services, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. United also reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs"), and component maintenance for the E-175 aircraft owned by United. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United. Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine (9) years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement, and as of December 31, 2022, we have leased ten (10) CRJ-700 aircraft. During August of 2022, we committed to a formal plan to sell 18 CRJ-700 aircraft. As of March 31, 2023, we sold all 18 CRJ-700 aircraft as planned. Our United CPA is subject to termination prior to its expiration, including under the following circumstances: • If certain operational performance factors fall below a specified percentage for a specified time, subject to notice under certain circumstances; • If we fail to perform the material covenants, agreements, terms or conditions of our United CPA or similar agreements with United, subject to 30 days' notice and cure rights; • If either United or we become insolvent, file bankruptcy, or fail to pay debts when due, the non-defaulting party may terminate the agreement; • If we merge with, or if control of us is acquired by another air carrier or a corporation directly or indirectly owning or controlling another air carrier; • United, subject to certain conditions, including the payment of certain costs tied to aircraft type, may terminate the agreement in its discretion, or remove E-175 aircraft from service, by giving us notice of 90 days or more; and • If United elects to terminate our United CPA in its entirety or permanently remove aircraft from service, we are permitted to return any of the affected E-175 aircraft leased from United at no cost to us. On December 27, 2022, we entered into the Amended and Restated United CPA, which provides, among other things, for the following amended terms: • The addition of up to 38 CRJ-900 aircraft to be operated by the Company on behalf of United under the Amended and Restated United CPA, dependent on the number of E-175 aircraft the Company is operating. As of March 31, 2023, we operated ten (10) CRJ-900 aircraft under our Amended and Restated United CPA; • An increase in rates to cover the Company’s pilot pay increases instituted in September 2022, effective through September 2025; • United to be responsible for all costs associated with converting the CRJ-900 aircraft for operation in United’s network; • Terms providing that United may remove the CRJ-900 aircraft from the scope of the United CPA, subject to certain notice and other requirements; • United’s existing utilization waiver for the Company’s operation of E175LL Covered Aircraft (as defined in the United CPA) to be extended to December 31, 2023; • The extension of existing monthly operational performance incentives; and • An agreement by the Company to not enter into new regional air carrier service agreements, excluding the Company’s existing agreement with DHL, and provided that this restriction shall not apply from and after the earlier to occur of (i) January 1, 2026 and (ii) the Company's satisfaction of certain Performance Milestones (as defined in the Amended and Restated United CPA). Also in January 2023, consideration for entering in the Amended and Restated United CPA and providing the revolving line of credit, discussed in Note 9, the Company (i) agreed to grant United the right to designate one (1) individual (the "United Designee") and (ii) issued to United 4,042,061 shares of the Company’s common stock, no par value per share, equal to approximately 10% of the Company’s issued and outstanding capital stock on such date (the "United Shares"). United's board designee rights will terminate at such time as United's equity ownership in the Company falls below five percent (5%). United was also granted pre-emptive rights relating to the issuance of any equity securities by the Company and certain registration rights, set forth in a definitive registration rights agreement with United, granting United customary demand registration rights in respect of publicly registered offerings of the Company, subject to usual and customary exceptions and limitations. See also Note 17 for a discussion regarding the amendment to the Company's bylaws as it relates to the Amended and Restated United CPA. DHL Flight Services Agreement On December 20, 2019, we entered into a Flight Services Agreement with DHL (the “DHL FSA”). Under the terms of the DHL FSA, we operate four (4) Boeing 737 aircraft to provide cargo air transportation services as of March 31, 2023. In exchange for providing cargo flight services, we receive a fee per block hour with a minimum block hour guarantee. We are eligible for a monthly performance bonus or subject to a monthly penalty based on timeliness and completion performance. Ground support expenses including fueling and airport fees are paid directly by DHL. Under our DHL FSA, DHL leases two (2) Boeing 737-400F aircraft and one (1) 737-800F and subleases them to us at nominal amounts. DHL reimburses us on a pass-through basis for all costs related to heavy maintenance including C-checks, off-wing engine maintenance and overhauls including life limited parts (“LLPs”), landing gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and LLPs. Certain items such as fuel, de-icing fluids, landing fees, aircraft ground handling fees, en-route navigation fees, and custom fees are paid directly to suppliers by DHL or otherwise reimbursed if incurred by us. A third Boeing 737-400F aircraft is leased to us under an operating lease by a third party. The DHL FSA expires five (5) years from the commencement date of the first aircraft placed into service, which was in October 2020. DHL has the option to extend the agreement with respect to one (1) or more aircraft for a period of one (1) year with 90 days’ advance written notice. Our DHL FSA is subject to the following termination rights prior to its expiration: • If either party fails to comply with the obligations, warranties, representations, or undertakings under the DHL FSA, subject to certain notice and cure rights; • If either party is declared bankrupt or insolvent; • If we are unable to legally operate the aircraft under the DHL FSA for a specified number of days; • At any time after the first anniversary of the commencement date of the first aircraft placed in service with 90 days' written notice. • If we fail to comply with performance standards for three (3) consecutive measurement periods. • If we are subject to a labor incident that materially and adversely affects our ability to perform services under the DHL FSA for a specified number of days; • Upon a change in control or ownership of the Company; and • DHL may terminate the agreement for a specific aircraft if it is subject to a total loss and the Company does not provide alternate services at our expense, or if the aircraft becomes unavailable for more than 30 days due to unscheduled maintenance.

X
- References No definition available. + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI https://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI https://asc.fasb.org/topic&trid=2197479 + Details
Name: | us-gaap_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration