# Republic Airways Holdings Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Republic Airways Holdings Inc.](/companies/rjet.md) (CIK 810332)
- Form: 10-Q
- Filed: 2024-06-17
- Accepted by EDGAR: Jun 17, 2024, 16:36 ET
- Period: 2024-03-31
- Accession: 0000950170-24-074297
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/810332/000095017024074297/mesa-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/810332/000095017024074297/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $131.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-10-01 to 2024-03-31 | $250.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $11.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-10-01 to 2024-03-31 | −$36.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $10.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-10-01 to 2024-03-31 | $21.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $72.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-10-01 to 2024-03-31 | $936.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $11.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-10-01 to 2024-03-31 | −$46.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-10-01 to 2024-03-31 | −$1.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-10-01 to 2024-03-31 | −$1.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 41,068,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-10-01 to 2024-03-31 | 41,004,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-10-01 to 2024-03-31 | $8.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-10-01 to 2024-03-31 | $13.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2024-03-31 | $18.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $98.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $706.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $196.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $551.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $299.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $94.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $154.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,747 characters.

*The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements, the accompanying notes, and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties such as our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the sections titled "Cautionary Notes Regarding Forward-Looking Statements" above and "Risk Factors" below.*

### Overview

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa", the "Company", "we", "our", or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 79 cities in 36 states, the District of Columbia, Canada, Cuba, and Mexico. Mesa operated or maintained as operational spares a fleet of 84 aircraft with approximately 263 daily departures and 2,110 employees as of March 31, 2024. The aircraft in Mesa’s fleet were operated under the Company’s Capacity Purchase Agreement ("CPA") 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 United Express or DHL Express flights pursuant to the terms of the CPA entered into United and FSA with DHL (each, our “major partner”). All of the Company’s consolidated contract revenues for the three and six months ended March 31, 2024 and March 31, 2023 were derived from operations associated with the CPA, FSA, leases of aircraft to a third party, and Mesa Pilot Development. Revenues during the three and six months ended March 31, 2023 also included revenues derived from our CPA with American Airlines, Inc. ("American"), which terminated in April 2023.

As of March 31, 2024, our fleet consisted of 112 aircraft which we operated under our CPA and FSA, leased to a third party, held for sale or maintained as spares, with approximately 263 daily departures. As of March 31, 2024, we operated 56 E-175 and 24 CRJ-900 aircraft under our United CPA. We operated three Boeing 737-400F and one 737-800F aircraft under our DHL FSA. We leased two aircraft under our lease with a third party. As of March 31, 2024, approximately 93% of our aircraft in scheduled service were operated for United, approximately 5% were operated for DHL, and approximately 2% were leased to a third party. All of our operating revenue in our three and six months ended March 31, 2024 was derived from operations associated with our United CPA, DHL FSA, and from leases of aircraft to a third party.

Our United CPA provides us guaranteed monthly revenue 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 flights actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying on behalf of United. Our CPA also shelters us from many of the elements that cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in number of passengers. In providing regional flying under our CPA, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of United. United controls route selection, pricing, seat inventories, marketing and scheduling, and provide us with ground support services, airport landing slots and gate access.

Prior to the wind-down and termination of our operations under the DHL FSA, we received a fee per block hour with a minimum monthly block hour guarantee in exchange for providing cargo flight services. Ground support including fueling and airport fees were paid directly by DHL.

### Components of Results of Operations

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

### Operating Revenues

Our operating revenues consist primarily of contract revenue as well as pass-through and other revenues.

*Contract Revenue.* Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to our CPA and FSA with our major partners, along with the additional amounts received based on the number of flights and block hours flown, rental revenue for aircraft leased to GoJet Airlines L.L.C, and revenue from participants in Mesa Pilot Development. Contract revenues we receive from our major partners are paid and recognized over time consistent with the delivery of service under our CPAs and FSA.

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

### Operating Expenses

Our operating expenses consist of the following items:

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

*Maintenance.* Maintenance expense includes costs related to engine overhauls, airframe, landing gear and normal recurring maintenance, which includes pass-through maintenance costs related to our E-175 aircraft. Heavy maintenance and major overhaul costs on our owned E-175 fleet are deferred and amortized until the earlier of the end of the useful life of the related asset or the next scheduled heavy maintenance event. All other maintenance costs are expensed as incurred, except for certain maintenance contracts where labor and materials price risks have been transferred to the service provider and require payment on a utilization basis, such as flight hours. Costs incurred for maintenance and repair for utilization maintenance contracts where labor and materials price risks have been transferred to the service provider are charged to maintenance expense based on contractual payment terms. As a result of using the direct expense method for heavy maintenance on the majority of our fleets, the timing of maintenance expense reflected in the financial statements may vary significantly from period to period.

*Aircraft Rent.* Aircraft rent expense includes costs related to leased engines and aircraft.

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

*Depreciation and Amortization.* Depreciation expense is a periodic non-cash charge primarily related to aircraft, engine, and equipment depreciation. Amortization expense is a periodic non-cash charge related to our customer relationship intangible asset.

*Asset Impairment.* Asset impairment includes charges for impairments of our customer relationship intangible assets and charges for impairments of aircraft designated as held for sale.

*Other Operating Expenses.* Other operating expenses primarily consists of fuel costs for flying we undertake outside of our CPA and FSA (including aircraft re-positioning and maintenance) as well as costs for aircraft and traffic servicing, such as aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major partners. All aircraft fuel and related fueling costs for flying under our CPA and FSA are directly paid and supplied by our major partners. Accordingly, we do not record an expense or pass-through revenue for fuel supplied by United for flying under our CPA or DHL under our FSA.

### Other Income (Expense), Net

*Interest Expense.* Interest expense is interest on our debt incurred to finance purchases of aircraft, engines, and equipment, including amortization of debt financing costs and discounts.

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

*Unrealized Gain/Loss on Investments, Net.* Unrealized gain/loss on investments consists of net gains or losses on our investments in equity securities resulting from changes in the fair value of the equity securities.

*Gain on Investments.* Gain on investments consists of gains on our investments in equity securities resulting from the transfer of the investment to another party.

*Gain on Debt Forgiveness.* Gain on debt forgiveness consists of gains resulting from the forgiveness earned on our deemed prepayment associated with the United line of credit for the achievement of certain performance metrics.

*Other Expense.* Other expense includes expense derived from activities not classified in any other area of the condensed consolidated statements of operations and comprehensive loss.

### Segment Reporting

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“*CODM”*) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, *Segment Reporting*, we are not organized around specific services or geographic regions. We currently operate in one service line providing scheduled flight services in accordance with our CPAs and FSA.

While we operate under a capacity purchase agreement, we do not manage our business based on any performance measure at the individual contract level. Additionally, our CODM uses consolidated financial information to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors. The CODM bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operated as one operating and reportable segment.

### Results of Operations

### Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

We had operating income of $11.6 million in our three months ended March 31, 2024 compared to operating loss of $26.9 million in our three months ended March 31, 2023. In our three months ended March 31, 2024, we had net income of $11.7 million compared to net loss of $35.1 million in our three months ended March 31, 2023.

Our operating results for the three months ended March 31, 2024 improved as a result of increases in contract revenue due to an increased United block hour compensation rate effective October 1, 2023. We recognized the revenue block hour rate increases for the three months ended December 31, 2023 and March 31, 2024 during the quarter. This was partially offset by reduced block hours flown and fewer aircraft under contract. Our operating expenses improved as a result of (i) decreased impairment charges as a result of not designating any assets as held for sale; (ii) decreases in flight operations expense as a result of decreased pilot training and lower pilot wages; and (iii) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft.

### Operating Revenues

| Operating revenues ($ in thousands): | Three Months Ended March 31, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Contract | $113,820 | $103,782 | $10,038 | 9.7% |
| Pass-through and other | 17,762 | 18,052 | (290) | (1.6)% |
| Total operating revenues | $131,582 | $121,834 | $9,748 | 8.0% |
| Operating data: |  |  |  |  |
| Available seat miles—ASMs (thousands) | 961,761 | 1,065,771 | (104,010) | (9.8)% |
| Block hours | 43,270 | 48,186 | (4,916) | (10.2)% |
| Revenue passenger miles—RPMs (thousands) | 791,376 | 855,149 | (63,773) | (7.5)% |
| Average stage length (miles) | 544 | 542 | 2 | 0.4% |
| Contract revenue per available seat mile—CRASM (in cents) | ¢ 11.83 | ¢ 9.74 | ¢ 2.09 | 21.5% |
| Passengers | 1,422,702 | 1,545,489 | (122,787) | (7.9)% |

"Available seat miles" or "ASMs" means the number of seats available for passengers multiplied by the number of miles the seats are flown.

"Average stage length" means the average number of statute miles flown per flight segment.

“Block hours” means 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.

"CRASM" means contract revenue divided by ASMs.

"RPM" means the number of miles traveled by paying passengers.

Total operating revenue increased by $9.7 million, or 8.0%, to $131.6 million for our three months ended March 31, 2024 as compared to our three months ended March 31, 2023. Contract revenue increased by $10.0 million, or 9.7%, to $113.8 million, primarily driven by the increase in United block hour compensation rate effective October 1, 2023. We recognized the revenue block hour rate increases for the three months ended December 31, 2023 and March 31, 2024 during the quarter. This was partially offset by lower block hours and fewer aircraft under contract. Our block hours flown during our three months ended March 31, 2024, decreased 10.2% compared to the three months ended March 31, 2023 due to a decrease in scheduled flying for United across the E-175 and CRJ fleet. Our pass-through and other revenue decreased by $0.3 million, or 1.6%, to $17.8 million compared to our three months ended March 31, 2023 due to a decrease in pass-through maintenance related to our E-175 fleet.

### Operating Expenses

| Operating expenses ($ in thousands): | Three Months Ended March 31, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Flight operations | $49,329 | $54,830 | $(5,501) | (10.0)% |
| Maintenance | 44,272 | 45,985 | (1,713) | (3.7)% |
| Aircraft rent | 1,408 | 835 | 573 | 68.6% |
| General and administrative | 11,133 | 13,538 | (2,405) | (17.8)% |
| Depreciation and amortization | 9,823 | 16,541 | (6,718) | (40.6)% |
| Asset impairment | 2,659 | 16,743 | (14,084) | (84)% |
| Other operating expenses | 1,315 | 233 | 1,082 | 464.4% |
| Total operating expenses | $119,939 | $148,705 | $(28,766) | (19.3)% |
| Operating data: |  |  |  |  |
| Available seat miles—ASMs (thousands) | 961,761 | 1,065,771 | (104,010) | (9.8)% |
| Block hours | 43,270 | 48,186 | (4,916) | (10.2)% |
| Average stage length (miles) | 544 | 542 | 2 | 0.4% |
| Departures | 23,691 | 26,450 | (2,759) | (10.4)% |

*Flight Operations.* Flight operations expense decreased $5.5 million, or 10.0%, to $49.3 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023. The decrease was primarily driven by decreased pilot training expense and lower pilot wages.

*Maintenance.* Aircraft maintenance expense decreased $1.7 million, or 3.7%, to $44.3 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023. This decrease was primarily driven by a decrease in pass-through engine overhaul and rotable and expendable parts, partially offset by an increase in pass-through C-check maintenance expenses. Total pass-through maintenance expenses reimbursed by our major partners increased by $0.2 million during our three months ended March 31, 2024 compared to our three months ended March 31, 2023.

The following table presents information regarding our maintenance costs during the three months ended March 31, 2024 and March 31, 2023 (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Engine overhaul | $(5) | $115 | $(120) | (104.3)% |
| Pass-through engine overhaul | 5,542 | 7,975 | (2,433) | (30.5)% |
| C-check | 1,359 | 1,869 | (510) | (27.3)% |
| Pass-through C-check | 3,244 | 1,895 | 1,349 | 71.2% |
| Component contracts | 4,783 | 5,064 | (281) | (5.5)% |
| Rotable and expendable parts | 4,105 | 5,304 | (1,199) | (22.6)% |
| Other pass-through | 4,818 | 3,551 | 1,267 | (35.7)% |
| Labor and other | 20,426 | 20,212 | 214 | 1.1% |
| Total | $44,272 | $45,985 | $(1,713) | (3.7)% |

32

*Aircraft Rent.* Aircraft rent expense increased $0.6 million, or 68.6%, to $1.4 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023. The increase is primarily due to greater engine lease costs during our three months ended March 31, 2024.

*General and Administrative.* General and administrative expense decreased $2.4 million, or 17.8%, to $11.1 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023. The decrease is primarily driven by decreases in pass-through property taxes and pass-through insurance costs.

*Depreciation and Amortization.* Depreciation and amortization expense decreased by $6.7 million, or 40.6%, to $9.8 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023 due to aircraft in our fleet being sold or classified as non-depreciable assets held for sale.

*Asset Impairment.* Asset impairment of $2.7 million was recorded for our three months ended March 31, 2024 primarily related to a true-up adjustment on 737 rotable parts. There was $16.7 million of asset impairment recorded for the three months ended March 31, 2023 related to seven CRJ-900 aircraft being designated as held for sale.

*Other Operating Expenses.* Other operating expenses increased $1.1 million, to $1.3 million for our three months ended March 31, 2024 compared to our three months ended March 31, 2023. The increase is primarily attributable to aircraft servicing and fuel expense during the three months ended March 31, 2024.

### Other Expense

Other expense decreased $10.4 million, or 100.9%, to $(0.1) million for our three months ended March 31, 2024, compared to our three months ended March 31, 2023. The decrease is primarily attributable to realized gains on investments in equity securities of $7.2 million, gain on debt forgiveness of $10.5 million, and decreases on interest expense. The decrease is partially offset by $6.5 million in unrealized losses on investments in equity securities for our three months ended March 31, 2024 compared to a $2.1 million unrealized gain on investments in equity securities for our three months ended March 31, 2023.

### Income Taxes

The income tax expense totaled $0.1 million for the three months ended March 31, 2024 compared to a tax benefit of $2.1 million for the three months ended March 31, 2023. The effective tax rate ("ETR") from continuing operations was 0.5% for the three months ended March 31, 2024 compared to 5.6% for the three months ended March 31, 2023. Our ETR during the three months ended March 31, 2024 decreased from the three months ended March 31, 2023, primarily as a result of certain permanent tax differences, state taxes, and changes in the valuation allowance against federal and state net operating losses.

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

As of March 31, 2024, the Company had aggregate federal and state net operating loss carryforwards of approximately $477.5 million and $215.7 million, respectively, which expire in 2030-2038 and 2024-2043, respectively. Approximately $4.2 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

### Six Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023

We had operating loss of $36.8 million in our six months ended March 31, 2024 compared to operating loss of $24.4 million in our six months ended March 31, 2023. In our six months ended March 31, 2024, we had net loss of 46.2 million compared to net loss of $44.2 million in our six months ended March 31, 2023.

Our operating results for the six months ended March 31, 2024 worsened as a result of decreases in contract revenue due to reduced block hours flown and fewer aircraft under contract, partially offset by an increased United block hour compensation rate. Our operating expenses improved primarily as a result of (i) decreases in flight operations as a result of decreased pilot training and lower pilot wages; (ii) decreases in aircraft rent expense, due to the new agreement with RASPRO Trust entered into in December 2022 in which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases; (iii) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft; and (iv) the gain on extinguishment of debt in connection with the retirement of the EDC Loan and MHIRJ junior note. The decreases in operating expenses were partially offset due to greater impairment charges associated with designating assets as held for sale.

**Operating Revenues** "Available seat miles" or "ASMs" means the number of seats available for passengers multiplied by the number of miles the seats are flown.

| Operating revenues ($ in thousands): | Six Months Ended March 31, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Contract | $214,920 | $232,232 | $(17,312) | (7.5)% |
| Pass-through and other | 35,439 | 36,776 | (1,337) | (3.6)% |
| Total operating revenues | $250,359 | $269,008 | $(18,649) | (6.9)% |
| Operating data: |  |  |  |  |
| Available seat miles—ASMs (thousands) | 1,988,562 | 2,241,516 | (252,954) | (11.3)% |
| Block hours | 89,928 | 99,126 | (9,198) | (9.3)% |
| Revenue passenger miles—RPMs (thousands) | 1,656,663 | 1,861,629 | (204,966) | (11.0)% |
| Average stage length (miles) | 539 | 593 | (54) | (9.1)% |
| Contract revenue per available seat mile—CRASM (in cents) | ¢ 10.81 | ¢ 10.36 | ¢ 0.45 | 4.3% |
| Passengers | 3,030,872 | 3,292,225 | (261,353) | (7.9)% |

"Average stage length" means the average number of statute miles flown per flight segment.

“Block hours” means 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.

"CRASM" means contract revenue divided by ASMs.

"RPM" means the number of miles traveled by paying passengers.

Total operating revenue decreased by $18.6 million, or 6.9%, to $250.4 million for our six months ended March 31, 2024 as compared to our six months ended March 31, 2023. Contract revenue decreased by $17.3 million, or 7.5%, to $214.9 million primarily driven by reduced block hours flown and fewer aircraft under contract compared to the six months ended March 31, 2023, partially offset by an increased United block hour compensation rate. Our block hours flown during our six months ended March 31, 2024 decreased 9.3% compared to the six months ended March 31, 2024 due to a decrease in scheduled flying for United across the E-175 and CRJ fleet. Our pass-through and other revenue decreased by $1.3 million, or 3.6%, to $35.4 million compared to our six months ended March 31, 2023 due to a decrease in pass-through maintenance related to our E-175 fleet.

### Operating Expenses

| Operating expenses ($ in thousands): | Six Months Ended March 31, 2024 | 2023 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Flight operations | $101,147 | $113,150 | $(12,003) | (10.6)% |
| Maintenance | 92,899 | 94,272 | (1,373) | (1.5)% |
| Aircraft rent | 2,612 | 4,918 | (2,306) | (46.9)% |
| General and administrative | 23,142 | 27,526 | (4,384) | (15.9)% |
| Depreciation and amortization | 23,116 | 31,744 | (8,628) | (27.2)% |
| Asset impairment | 43,043 | 20,462 | 22,581 | 110.4% |
| (Gain) on extinguishment of debt | (2,954) | — | (2,954) | 100.0% |
| Other operating expenses | 4,159 | 1,359 | 2,800 | 206.0% |
| Total operating expenses | $287,164 | $293,431 | $(6,267) | (2.1)% |
| Operating data: |  |  |  |  |
| Available seat miles—ASMs (thousands) | 1,988,562 | 2,241,516 | (252,954) | (11.3)% |
| Block hours | 89,928 | 99,126 | (9,198) | (9.3)% |
| Average stage length (miles) | 539 | 593 | (54) | (9.1)% |
| Departures | 49,945 | 54,226 | (4,281) | (7.9)% |

34

*Flight Operations.* Flight operations expense decreased $12.0 million, or 10.6%, to $101.1 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023. The decrease was primarily driven by decreased pilot training expense and lower pilot wages as a result of fewer block hours flown.

*Maintenance.* Aircraft maintenance expense decreased $1.4 million, or 1.5%, to $92.9 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023. This decrease was primarily driven by a decrease in pass-through engine overhaul and rotable and expendable parts, partially offset by an increase in other pass-through costs and C-check maintenance expenses. Total pass-through maintenance expenses reimbursed by our major partners decreased by $1.0 million during our six months ended March 31, 2024 compared to our six months ended March 31, 2023.

The following table presents information regarding our maintenance costs during the six months ended March 31, 2024 and March 31, 2023 (in thousands):

|  | Six Months Ended March 31, 2024 | 2023 |  |  |
| --- | ---: | ---: | ---: | ---: |
| Engine overhaul | $49 | $160 | $(111) | (69.4)% |
| Pass-through engine overhaul | 11,249 | 16,640 | (5,391) | (32.4)% |
| C-check | 3,979 | 2,538 | 1,441 | 56.8% |
| Pass-through C-check | 7,048 | 6,276 | 772 | 12.3% |
| Component contracts | 10,394 | 10,412 | (18) | (0.2)% |
| Rotable and expendable parts | 8,219 | 10,687 | (2,468) | (23.1)% |
| Other pass-through | 10,257 | 6,642 | 3,615 | 54.4% |
| Labor and other | 41,704 | 40,917 | 787 | 1.9% |
| Total | $92,899 | $94,272 | $(1,373) | (1.5)% |

*Aircraft Rent.* Aircraft rent expense decreased $2.3 million, or 46.9%, to $2.6 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023. The decrease is due to our December 2022 agreement with RASPRO Trust pursuant to which 15 of our CRJ-900 aircraft were reclassified from operating leases to finance leases, offset by an increase in engine leases expense during our six months ended March 31, 2024.

*General and Administrative.* General and administrative expense decreased $4.4 million, or 15.9%, to $23.1 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023. The decrease is primarily driven by decreases in pass-through property taxes and pass-through insurance costs.

*Depreciation and Amortization.* Depreciation and amortization expense decreased by $8.6 million, or 27.2%, to $23.1 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023 due to aircraft in our fleet being classified as non-depreciable assets held for sale.

*Asset Impairment.* Asset impairment of $43.0 million was recorded for our six months ended March 31, 2024 primarily related to eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines) and 48 GE model CF34-8C engines being designated as held for sale. There was $20.5 million of asset impairment recorded for our six months ended March 31, 2023, related to the write-off of our customer relationship intangible asset and seven CRJ-900 aircraft being designated as held for sale.

*Gain on extinguishment of debt.* A gain on extinguishment of debt of $3.0 million was recorded for our six months ended March 31, 2024 related to the retirement of our EDC Loan and MHIRJ junior note. There was no gain on extinguishment of debt recorded for the six months ended March 31, 2023.

*Other Operating Expenses.* Other operating expenses increased $2.8 million, to $4.2 million for our six months ended March 31, 2024 compared to our six months ended March 31, 2023. The increase is primarily attributable to aircraft servicing and fuel expense during the six months ended March 31, 2024.

### Other Expense

Other expense decreased $14.4 million, or 63.0%, to $8.4 million for our six months ended March 31, 2024, compared to our six months ended March 31, 2023. The decrease is primarily attributable to realized gains on investments in equity securities of $7.2 million, gain on debt forgiveness of $10.5 million, and decreases on interest expense. The decrease is partially offset by $4.0 million in unrealized losses on investments in equity securities for our six months ended March 31,

2024 compared to a $0.4 million unrealized gain on investments in equity securities for our six months ended March 31, 2023.

### Income Taxes

The income tax expense totaled $0.9 million for the six months ended March 31, 2024 compared to a tax benefit of $3.0 million for the six months ended March 31, 2023. The effective tax rate ("ETR") from continuing operations was -2.1% for the six months ended March 31, 2024 compared to 6.4% for the six months ended March 31, 2023. Our ETR during the six months ended March 31, 2024 decreased from the six months ended March 31, 2023 due to permanent tax differences, state taxes, and changes in the valuation allowance against state net operating losses.

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

As of March 31, 2024, the Company had aggregate federal and state net operating loss carryforwards of approximately $477.5 million and $215.7 million, respectively, which expire in 2030-2038 and 2024-2043, respectively. Approximately $4.2 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

### Cautionary Statement Regarding Non-GAAP Measures

We present Adjusted EBITDA and Adjusted EBITDAR, which are not recognized financial measures under GAAP, in this Quarterly Report on Form 10-Q as supplemental disclosures because our senior management believes that they are well-recognized valuation metrics in the airline industry that are frequently used by companies, investors, securities analysts and other interested parties in comparing companies in our industry.

*Adjusted EBITDA*. We define Adjusted EBITDA as net income or loss before interest, income taxes, and depreciation and amortization, adjusted for gains and losses on investments, lease termination costs, impairment charges, and gains or losses on extinguishment of debt including write-off of associated financing fees.

*Adjusted EBITDAR*. We define Adjusted EBITDAR as net income or loss before interest, income taxes, depreciation and amortization, and aircraft rent, adjusted for gains and losses on investments, lease termination costs, impairment charges, and gains or losses on extinguishment of debt including write-off of associated financing fees.

Adjusted EBITDA and Adjusted EBITDAR have limitations as analytical tools. Some of the limitations applicable to these measures include: (i) Adjusted EBITDA and Adjusted EBITDAR do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; (ii) Adjusted EBITDA and Adjusted EBITDAR do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (iii) Adjusted EBITDA and Adjusted EBITDAR do not reflect changes in, or cash requirements for, our working capital needs; (iv) Adjusted EBITDA and Adjusted EBITDAR do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future; (vi) Adjusted EBITDA and Adjusted EBITDAR do not reflect gains and losses on investments, which are non-cash gains and losses but will occur in periods when there are changes in the value of our investments in equity securities; and (vii) Adjusted EBITDA and Adjusted EBITDAR do not reflect any cash requirements for such replacements and other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDAR differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, Adjusted EBITDAR should not be viewed as a measure of overall performance because it excludes aircraft rent, which is a normal, recurring cash operating expense that is necessary to operate our business. For the foregoing reasons, each of Adjusted EBITDA and Adjusted EBITDAR has significant limitations which affect its use as an indicator of our profitability. Accordingly, you are cautioned not to place undue reliance on this information.

### Adjusted EBITDA and Adjusted EBITDAR

The following table presents a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDAR (in thousands):

| Reconciliation: | Three Months Ended March 31, 2024 | 2023 | Six Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $11,660 | $(35,122) | $(46,190) | $(44,211) |
| Income tax benefit | 72 | (2,097) | 936 | (3,027) |
| Loss before taxes | 11,732 | (37,219) | $(45,254) | $(47,238) |
| Gain on investments | (7,230) | — | (7,230) | — |
| Unrealized (gain)/loss on investments, net | 6,499 | (2,095) | 4,048 | (416) |
| Adjustments(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13) | (4,692) | 16,857 | 35,399 | 20,576 |
| Adjusted loss before taxes | 6,309 | (22,457) | (13,037) | (27,078) |
| Interest expense | 10,640 | 13,030 | 21,800 | 24,306 |
| Interest income | (14) | (49) | (28) | (120) |
| Depreciation and amortization | 9,823 | 16,541 | 23,116 | 31,744 |
| Adjusted EBITDA | $26,758 | $7,065 | $31,851 | $28,852 |
| Aircraft rent | 1,408 | 835 | 2,612 | 4,918 |
| Adjusted EBITDAR | $28,166 | $7,900 | $34,463 | $33,770 |
| (1) $16.7 million loss on held for sale accounting treatment on seven CRJ-900 aircraft during the three and six months ended March 31, 2023. |  |  |  |  |
| (2) $0.7 million loss on deferred financing costs related to retirement of debts during the three and six months ended March 31, 2023. |  |  |  |  |
| (3) $0.5 million gain from sale of 10 engines during the three and six months ended March 31, 2023. |  |  |  |  |
| (4) $3.7 million impairment loss on intangible asset during the six months ended March 31, 2023 |  |  |  |  |
| (5) $10.5 million gain on debt forgiveness during the three and six months ended March 31, 2024. |  |  |  |  |
| (6) $0.9 million loss for early payment fees on the retirement of debt during the three and six months ended March 31, 2024. |  |  |  |  |
| (7) $2.2 million impairment fair value adjustment loss on 737 inventory during the three and six months ended March 31, 2024. |  |  |  |  |
| (8) $1.2 million and $3.2 million in non-recurring third party costs associated with the sale of assets and retirement of debt during the three and six months ended March 31, 2024, respectively. |  |  |  |  |
| (9) $0.2 million gain and $0.2 million loss on the sale of assets during the three and six months ended March 31, 2024, respectively. |  |  |  |  |
| (10) $1.2 million and $1.5 million loss on deferred financing costs related to retirement of debts during the three and six months ended March 31, 2024, respectively. |  |  |  |  |
| (11) $0.5 million impairment true-up loss and $4.7 million impairment true-up gain on held for sale accounting treatment during the three and six months ended March 31, 2024, respectively. |  |  |  |  |
| (12) $45.5 million impairment loss on held for sale accounting treatment on 19 airframes and 64 engines during the six months ended March 31, 2024. |  |  |  |  |
| (13) $3.0 million gain on extinguishment of debt during the six months ended March 31, 2024. |  |  |  |  |

### Liquidity and Capital Resources

#### Impact of Pilot Shortage and Transition of Operations to United

During our three and six months ended March 31, 2024 and fiscal year ended September 30, 2023, the severity of the pilot shortage, elevated pilot attrition, the transition of our operations with American to United, and increasing costs associated with pilot wages adversely impacted our financial results, cash flows, financial position, and other key financial ratios. One of the primary factors contributing to the pilot shortage and attrition is the demand for pilots at major carriers, which are hiring at an accelerated rate. These airlines now seek to increase their capacity to meet the growing demand for air travel as the global pandemic has moderated. A primary source of pilots for the major U.S. passenger and cargo carriers are the U.S. regional airlines. As a result of the pilot shortage and attrition, the Company has increased overall hourly pay by nearly 118% for captains and 172% for new hires.

As a result of pilot shortage and attrition, we produced less block hours to generate revenues. During the six months ended March 31, 2024, these challenges resulted in a negative impact on the Company’s financial results highlighted by net loss of $46.2 million including a non-cash impairment charge of $43.0 million related to the Company designating eight CRJ-900 aircraft, 11 CRJ-900 airframes (without engines), and 48 spare engines as held for sale. These conditions and events raised financial concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months.

To address such concerns, management developed and implemented several material changes to our business designed to ensure the Company could continue to fund its operations and meet its debt obligations over the next twelve months. The Company implemented the following measures during or subsequent to the three months ended March 31, 2024.

- During the three months ended March 31, 2024, we closed the sale of 12 GE model CF34-8C engines and related parts to a third party for gross proceeds of $54.2 million and $15.9 million of net proceeds after the retirement of debt.
- During the three months ended March 31, 2024, we mutually agreed to the consensual wind-down of our flight operations on behalf of DHL and ceased all such operations.
- On January 11, 2024 and January 19, 2024, we entered into the First Amendment to our Third Amended and Restated United CPA and the Second Amendment to our Third Amended and Restated United CPA (the "January 2024 United CPA Amendments"), respectively. The January 2024 United CPA Amendments provide additional liquidity and certain other amendments described below:
- Increased CPA rates, retroactive to October 1, 2023 through December 31, 2024. We generated an additional approximately $20.4 million in incremental revenue from October 1, 2023 through April 30, 2024, and are projected to generate an additional $26.8 million in incremental revenue from May 1, 2024 through December 31, 2024. We received additional payments of $21.3 million related to the block hour rate increase from October 1, 2023 through April 30, 2024.
- Amended certain notice requirements for removal by United of up to eight CRJ-900 Covered Aircraft (as defined in the United CPA) from the United CPA.
- Extended United's existing utilization waiver for the Company's operation of E-175 and CRJ-900 Covered Aircraft (as defined in the United CPA) to June 30, 2024.
- On January 11, 2024 and January 19, 2024, we entered into Amendment No. 4 to our Second Amended and Restated Credit and Guaranty Agreement, Amendment No. 1 to Stock Pledge Agreement and Limited Waiver of Conditions to Credit Extension and Waiver and Amendment No. 5 to our Second Amended and Restated Credit and Guaranty Agreement (collectively, the "January 2024 Credit Agreement Amendments"), respectively. The January 2024 Credit Agreement Amendments provide for the following:
- The repayment in full of the Company's $10.5 million Effective Date Bridge Loan obligations, and the prepayment (and corresponding reduction) of approximately $2.1 million in Revolving Loans (as defined therein), with the proceeds from the sale, assignment, or transfer of the Company's vested investment in Heart Aerospace Incorporated. On January 31, 2024, the Company transferred its vested investment in Heart Aerospace Incorporated to United and realized a gain on the investment of $7.2 million, net of transaction costs.
- As a result of the repayment of the Effective Date Bridge Loan and pay down of the Revolving Loans, the shares of capital stock of Archer Aviation, Inc. held by the Company were released as collateral for the United credit facility, as provided in Amendment No. 4. Subsequent to March 31, 2024, the Company sold 140 thousand shares of Archer for approximately $0.6 million. We expect to sell the remaining shares of Archer, with a fair value of approximately $6.9 million as of June 14, 2024, by the end of July 2024.
- The waiver of certain financial covenant defaults with respect to the fiscal quarters ended June 30, 2023, September 30, 2023, and December 31, 2023 and the waiver of projected financial covenant defaults with respect to the fiscal quarter ending March 31, 2024.
- An increase in the Applicable Margin (as defined in the United credit facility) during a specified period of time for borrowings under the Credit Agreement.
- Loan prepayment requirements in connection with the sale of four specified aircraft engines and the addition of such engines as collateral for the United credit facility for a specified period of time.
- We have 15 aircraft under the RASPRO finance lease with a buyout obligation of $50.3 million. On April 22, 2024, we entered into a binding Memorandum with RASPRO Trust ("RASPRO") that provides for the payment of certain commitment fee amounts by the Company, along with certain RASPRO administration fee amounts, in consideration for the deferral of the $50.3 million buyout obligation over the period of June 2024 to September 2024. Certain of the commitment fee amounts and Trust fees otherwise payable will be waived if the Company completes its purchase obligations with respect to all 15 airframes and 30 engines as set forth in the agreement. During the first fiscal quarter of 2024, we entered into purchase agreements with two separate parties to purchase the RASPRO aircraft and related engines. One agreement is for 30 engines for a total of $19.5 million. The second agreement is for 15 airframes (without engines) for a total of $18.8 million. Both of these transactions are expected to be completed by the end of September 2024, with net cash from these transactions expected to be approximately $(12.1) million.
- Subsequent to March 31, 2024, we purchased six airframes and 15 engines from RASPRO for $22.3 million and sold them to third parties for $16.4 million. We expect to purchase and subsequently sell the remainder of the RASPRO assets by the end of July 2024.
- On May 8, 2024, we entered into a Waiver Agreement to our Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of a certain projected financial covenant default with respect to the fiscal quarter ending June 30, 2024.
- On May 29, 2024, we entered into a purchase agreement with a third party providing for the sale of nine GE model CF34-8C engines for expected gross proceeds of approximately $8.8 million which will be used to pay down our UST Loan.
- In addition to already executed agreements to sell aircraft, the Company is actively seeking arrangements to sell other surplus assets primarily related to the CRJ fleet including aircraft, engines, and spare parts to reduce debt and optimize operations.
- We have delayed and/or deferred major spending on aircraft and engine maintenance to match the current and projected level of flight activity.

The Company believes the plans and initiatives outlined above have effectively alleviated the financial concerns and will allow the Company to meet its cash obligations for the next twelve months following the issuance of its financial statements. The forecast of undiscounted cash flows prepared to determine if the Company has the ability to meet its cash obligations over the next twelve months was prepared with significant judgment and estimates of future cash flows based on projections of CPA block hours, maintenance events, labor costs, and other relevant factors. Assumptions used in the forecast may change or not occur as expected.

As of March 31, 2024, the Company has $94.4 million of principal maturity payments on long-term debt due within the next twelve months. We plan to meet these obligations with our cash on hand, ongoing cashflows from our operations, as well as the liquidity created from the additional measures identified above. If our plans are not realized, we intend to explore additional opportunities to create liquidity by refinancing and deferring repayment of our principal maturity payments that are due within the next twelve months. The Company continues to monitor covenant compliance with its lenders as any noncompliance could have a material impact on the Company’s financial position, cash flows and results of operations.

#### Sources and Uses of Cash

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent, and debt service obligations, including principal and interest payments. Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events. Our principal sources of liquidity are cash on hand, cash generated from operations and funds from external borrowings.

We believe that the key factors that could affect our internal and external sources of cash include:

- Factors that affect our results of operations and cash flows, including the impact on our business and operations as a result of changes in demand for our services, competitive pricing pressures, and our ability to achieve further reductions in operating expenses; and
- Factors that affect our access to bank financing and the debt and equity capital markets that could impair our ability to obtain needed financing on acceptable terms or to respond to business opportunities and developments as they arise, including interest rate fluctuations, macroeconomic conditions, sudden reductions in the general availability of lending from banks or the related increase in cost to obtain bank financing, and our ability to maintain compliance with covenants under our debt agreements in effect from time to time.

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

If we fail to generate sufficient cash from operations, we may need to raise additional equity or borrow additional funds to achieve our longer-term objectives. There can be no assurance that such equity or borrowings will be available or, if available, will be at rates or prices acceptable to us.

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures are primarily directed toward our aircraft fleet and flight equipment including spare engines. Our capital expenditures, net of purchases of rotable spare parts and aircraft and spare engine financing for the six months ended March 31, 2024 were approximately 2.9% of our revenue during the same period. We expect to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

As of March 31, 2024, our principal sources of cash have been cash and cash equivalents of $18.5 million, restricted cash of $3.0 million as of March 31, 2024, and $80.3 million in assets held for sale as of March 31, 2024. As of March 31, 2024, we had $339.4 million in secured indebtedness incurred primarily in connection with our financing of aircraft and related equipment. As of March 31, 2024, we had $43.0 million of current debt, excluding finance leases, and $289.7 million of long-term debt excluding finance leases.

### Restricted Cash

As of March 31, 2024, we had $3.0 million in restricted cash. We have an agreement with a financial institution for a letter of credit facility and to issue letters of credit for particular airport authorities, worker's compensation insurance, property and casualty insurance and other business needs as required in certain lease agreements. Pursuant to the term of this agreement, $3.0 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

### Cash Flows

The following table presents information regarding our cash flows for each of the six months ended March 31, 2024 and March 31, 2023 (in thousands):

|  | Six Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $8,388 | $(8,636) |
| Net cash provided by investing activities | 94,504 | 61,801 |
| Net cash used in financing activities | (117,451) | (59,618) |
| **Net decrease in cash, cash equivalents and restricted cash** | (14,559) | (6,453) |
| Cash, cash equivalents and restricted cash at beginning of period | 36,072 | 61,025 |
| Cash, cash equivalents and restricted cash at end of period | $21,513 | $54,572 |

### Net Cash Used in Operating Activities

Our primary source of cash from operating activities is cash collections from our major partners pursuant to our CPA and FSA. Our primary uses of cash from operating activities are for maintenance costs, personnel costs, operating lease payments, and interest payments.

During our six months ended March 31, 2024, we had cash flow provided by operating activities of $8.4 million. We had net loss of $46.2 million adjusted for the following significant non-cash items: depreciation and amortization of $23.1 million, stock-based compensation of $0.8 million, deferred income taxes of $0.5 million, gains on investments in equity securities of $(7.2) million, net unrealized losses on investments in equity securities of $4.0 million, amortization of deferred credits of $(0.6) million, amortization of debt discount and financing costs and accretion of interest of $5.4 million, asset impairment of $43.0 million, loss on sale of assets of $0.2 million, gain on debt forgiveness of $(10.5) million, gain on extinguishment of debt of $(3.0) million, and $2.4 million in miscellaneous operating cash flow items. We had a net change of $(3.6) million within other net operating assets and liabilities largely driven by decreases in accounts payable, deferred revenue, and accrued expenses and other liabilities which were offset primarily by decreases in receivables and prepaid expenses in accrued expenses and other liabilities.

During our six months ended March 31, 2023, we had cash flow used in operating activities of $8.6 million. We had net loss of $44.2 million adjusted for the following significant non-cash items: depreciation and amortization of $31.7 million, stock-based compensation of $1.4 million, net gains on investments in equity securities of $(0.4) million, deferred income taxes of $(3.2) million, amortization of deferred credits of $0.2 million, amortization of debt discount and financing costs and accretion of interest of $2.8 million, and asset impairment of $20.5 million. We had a net change of $(18.3) million within other net operating assets and liabilities largely driven by decreases in accounts payable and receivables, which were offset primarily by an increase in accrued expenses and other liabilities.

### Net Cash Provided by (Used in) Investing Activities

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

During our six months ended March 31, 2024, net cash flow provided by investing activities totaled $94.5 million. Proceeds from the sale of aircraft and engines totaled $107.7 million, we invested $(13.2) million in capital expenditures, primarily consisting of rotable parts and costs associated with transferring our CRJ-900 aircraft to United operations, paid $(0.4) million in investment transaction costs, and received $0.3 million in refunds of equipment and other deposits.

During our six months ended March 31, 2023, net cash flow provided by investing activities totaled $61.8 million. Proceeds from the sale of aircraft and engines totaled $86.1 million. We invested $(24.5) million in capital expenditures primarily consisting of spare engines, rotable parts, and other equipment, and received $0.2 million in refunds of equipment and other deposits.

### Net Cash (Used in) Provided by Financing Activities

Our financing activities generally consist of debt borrowings, principal repayments of debt, payment of debt financing costs, payment of tax withholding for RSUs, and proceeds received from issuing common stock under our ESPP.

During our six months ended March 31, 2024, net cash flow used in financing activities was $117.5 million. We received $86.9 million of proceeds from long-term debt, made $(203.4) million of principal repayments on long-term debt, and paid $(0.9) million for debt prepayment costs.

During our six months ended March 31, 2023, net cash flow used in financing activities was $59.6 million. We received $39.0 million of proceeds from long-term debt, made $(97.8) million of principal repayments on long-term debt, and paid $(0.9) million of costs related to debt financing. We received $0.1 million in proceeds from the issuance of common stock under our ESPP.

### Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates.

The accompanying discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated interim financial statements included elsewhere in this Form 10-Q. We believe certain of our accounting estimates and policies are critical to understanding our financial position and results of operations. There have been no material changes to the critical accounting estimates as explained in Part 1, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 under the heading "Critical Accounting Estimates."

### Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3: "Recent Accounting Pronouncements" to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 3,561 characters.

We are subject to market risks in the ordinary course of our business. These risks include interest rate risk and, on a limited basis, commodity price risk with respect to foreign exchange transactions. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

*Interest Rate Risk.* We are subject to market risk associated with changing interest rates on our variable rate long-term debt; the variable interest rates are based on SOFR. The interest rates applicable to variable rate notes may rise and increase the amount of interest expense on our variable rate long-term debt. We do not purchase or hold any derivative instruments to protect against the effects of changes in interest rates.

As of March 31, 2024, we had $233.5 million of variable-rate debt, including current maturities. A hypothetical 100 basis point change in market interest rates would have affected interest expense by approximately $2.3 million in the six months ended March 31, 2024.

As of March 31, 2024, we had $166.6 million of fixed-rate debt, including current maturities. A hypothetical 100 basis point change in market interest rates would not impact interest expense or have a material effect on the fair value of our fixed-rate debt instruments as of March 31, 2024.

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it would stop compelling banks to submit rates for the calculation of LIBOR after 2021. In December 2020, the administrator of LIBOR proposed to cease publication of certain LIBOR settings after December 2021 and to cease publication of the remainder of the LIBOR settings after June 2023. The majority of our debt arrangements were indexed to one- and three-month LIBOR, which were sunset on June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, replaced LIBOR with SOFR after June 30, 2023. We applied expedients to agreements under LIBOR that were replaced by SOFR. Under the expedient, we now account for amendments to agreements as if the modification was not substantial. The new carrying amounts of debts consist of the carrying amount of the original debt and any additional fees associated with the modified debt instrument. New effective yields were established based on the new carrying amount and revised cash flows.

Our debts based on LIBOR have been modified to use SOFR as a reference rate which went into effect between July 31, 2023 and December 31, 2023. As of March 31, 2024, we had $306.3 million of borrowings based on SOFR.

*Foreign Currency Risk.* We have *de minimis* foreign currency risks related to our station operating expenses denominated in currencies other than the U.S. dollar, primarily the Canadian dollar. Our revenue is U.S. dollar denominated. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our financial results.

*Fuel Price Risk*. Unlike other airlines, our agreements largely shelter us from volatility related to fuel prices, which are directly paid and supplied by our major partners.

## Controls and procedures

As filed, 4,663 characters.

### Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting and has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2024. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2024.

#### Update on Remediation of Previously Reported Material Weaknesses

Management identified two material weaknesses in internal controls in the areas of (i) information technology general controls ("ITGCs"); and (ii) debt covenant compliance for the period ended September 30, 2023. Management is taking steps to successfully remediate these material weaknesses by implementing remediation efforts described below:

Management is committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal control over financial reporting. Our efforts resulting in successful remediation include:

1\. Implementing additional IT monitoring controls and strengthening our process documentation over the access management program change management domains of ITGCs

2\. Additional review procedures involving our debt covenant calculation controls and disclosure controls

Management identified a material weakness in internal controls related to the omission of a disclosure of an impairment charge associated with assets classified as held for sale for the period ended December 31, 2023. Management remains committed to the remediation of this material weakness.

Notwithstanding the assessment that our internal controls over financial reporting are not effective and that material weaknesses exist, we believe we have employed supplementary procedures to ensure the financial statements contained in this report fairly present in all material respects, our financial position as of March 31, 2024 and September 30, 2023, and the results of operations and cash flows for the period ended March 31, 2024 and March 31, 2023.

### Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2024, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

### Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct and unintentional error completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

## Risk factors

As filed, 1,142 characters.

We refer you to documents filed by us with the SEC, specifically "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 ("2023 Form 10-K"), which identify important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled "Cautionary Statements Regarding Forward-looking Statements" of this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our 2023 Form 10-K and herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K.

Filed Jun 17, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-074297. Last ingested by Listed: Oct 30, 2026, 16:35 ET. No prices; not investment advice.