Republic Airways Holdings Inc.: Form 10-Q for the period ended Mar 31, 2025

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," "Mesa Airlines," the "Company," "we," "our," or "us") is the holding company of Mesa Airlines, a regional air carrier providing scheduled passenger service to 82 cities in 34 states, Cuba, and Mexico. As of March 31, 2025, Mesa operated a fleet of 60 Embraer 175 ("E-175") regional aircraft with approximately 238 daily departures. The aircraft in Mesa’s fleet were operated under the Company’s Capacity Purchase Agreement ("CPA"), as United Express, pursuant to the terms of the CPA entered into with United. Except as set forth in the following sentence, all of the Company’s consolidated contract revenues for the three and six months ended March 31, 2025 and March 31, 2024 were derived from operations associated with the CPA, leases of aircraft to a third party, and Mesa Pilot Development ("MPD"). Revenues during the three and six months ended March 31, 2024 also included $6.2 million in revenues derived from our Flight Services Agreement ("FSA") with DHL Network Operations (USA), inc. ("DHL"), which terminated in March 2024. Additionally, our leases of aircraft to a third party terminated upon the sale of such aircraft to United during the six months ended March 31, 2025.

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.

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 with United, along with the additional amounts received based on the number of flights and block hours flown, rental revenue for aircraft leased to a third party, and revenue from participants in Mesa Pilot Development. Contract revenues we receive from our United are paid and recognized over time consistent with the delivery of service under our CPA.

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 United.

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 assets either designated as held for sale or assets that are held and used but determined to have been impaired.

Other Operating Expenses. Other operating expenses primarily consists of fuel costs for flying we undertake outside of our CPA (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 United. All aircraft fuel and related fueling costs for flying under our CPA are directly paid and supplied by United. Accordingly, we do not record an expense or pass-through revenue for fuel supplied by United for flying under our CPA. Fuel expenses relating to MPD are paid by the Company.

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.

Gain on Investments. Gain on investments relates to gains resulting from the transfer of investments in equity securities.

Unrealized Loss on Investments, Net. Unrealized loss on investments, net relates to losses resulting from the change in fair value of investments in equity securities.

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 CPA.

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, 2025 Compared to Three Months Ended March 31, 2024

We had operating loss of $57.3 million in our three months ended March 31, 2025 compared to operating income of $11.6 million in our three months ended March 31, 2024. In our three months ended March 31, 2025, we had net loss of $58.6 million compared to net income of $11.7 million in our three months ended March 31, 2024.

Our operating results for the three months ended March 31, 2025 worsened as a result of the loss recorded on the sale of aircraft, impairment related to held for sale assets and the write down of E-175 aircraft, and a decrease in contract revenue. This was partially offset due to decreases in operating expenses from; (i) decreases in flight operations expense as a result of decreased pilot training and lower pilot wages; and (ii) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft. Our contract revenue decreased due to fewer aircraft under contract and higher deferred revenue. We also recognized the retroactive United block hour compensation rate increase for the three months ended December 31, 2023 during the three months ended March 31, 2024.

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.

"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 $36.8 million, or 28.0%, to $94.7 million for our three months ended March 31, 2025 as compared to our three months ended March 31, 2024. Contract revenue decreased by $45.4 million, or 39.9%, to $68.4 million, primarily due to fewer aircraft under contract and higher deferred revenue. We also recognized the retroactive United block hour compensation rate increase for the three months ended December 31, 2023 during the three months ended March 31, 2024. Our block hours flown during our three months ended March 31, 2025, decreased 8.7% compared to the three months ended March 31, 2024 due to fewer aircraft under contract. Our pass-through and other revenue increased by $8.6 million, or 48.2%, to $26.3 million compared to our three months ended March 31, 2024 due to an increase in pass-through maintenance related to our E-175 fleet.

Operating Expenses

Flight Operations. Flight operations expense decreased $13.1 million, or 26.6%, to $36.2 million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024. The decrease was primarily driven by decreased pilot training expense and lower pilot wages as a result of decreases in headcount.

Maintenance. Aircraft maintenance expense decreased $0.7 million, or 1.7%, to $43.5 million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024. This decrease was primarily driven by a decrease in wages. Total pass-through maintenance expenses reimbursed by United increased by $11.1 million during our three months ended March 31, 2025 compared to our three months ended March 31, 2024.

The following table presents information regarding our maintenance costs during the three months ended March 31, 2025 and March 31, 2024 (in thousands):

Aircraft Rent. Aircraft rent expense decreased $0.1 million, or 6.0%, to $1.3 million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024. The decrease is primarily due to fewer airframe lease costs during our three months ended March 31, 2025.

General and Administrative. General and administrative expense increased $0.4 million, or 3.2%, to $11.5 million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024. The increase is primarily driven by increased consulting fees, partially offset by decreases in wages and pass-through insurance costs.

Depreciation and Amortization. Depreciation and amortization expense decreased by $3.9 million, or 39.4%, to $6.0 million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024 due to aircraft in our fleet being sold or classified as non-depreciable assets held for sale.

Asset Impairment. Asset impairment of $46.2 million was recorded for our three months ended March 31, 2025 related to held for sale assets. There was $2.7 million of asset impairment recorded for the three months ended March 31, 2024 related to held for sale assets.

Loss on Sale of Assets. A loss on sale of assets of $7.7 million was recorded for our three months ended March 31, 2025 primarily related to a write off of deferred heavy maintenance upon the sale of 10 E-175 aircraft.

Other Operating Expenses. Other operating expenses decreased by $1.7 million, to $(0.4) million for our three months ended March 31, 2025 compared to our three months ended March 31, 2024. The decrease is primarily attributable to lower interrupted trip expense during the three months ended March 31, 2025.

Other Expense

Other expense increased by $5.3 million, to $5.2 million for our three months ended March 31, 2025, compared to our three months ended March 31, 2024. The increase is primarily attributable to a lack of non-operating gains during the three months ended March 31, 2025 versus gains on debt forgiveness and the sale of equity investments that occurred during the three months ended March 31, 2024. The increase was partially offset by lower interest expense and a minimal unrealized loss on investments for our three months ended March 31, 2025, versus a $6.5 million unrealized loss on investments for our three months ended March 31, 2024.

Income Taxes

The income tax benefit totaled $3.9 million for the three months ended March 31, 2025 compared to a tax benefit of $(0.1) million for the three months ended March 31, 2024. The effective tax rate ("ETR") from continuing operations was 6.2% for the three months ended March 31, 2025 compared to 0.6% for the three months ended March 31, 2024. Our ETR during the three months ended March 31, 2025 increased from the three months ended March 31, 2024, primarily as a result of certain tax depreciation 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, 2025, the Company had aggregate federal and state net operating loss carryforwards of approximately $276.2 million and $146.6 million, respectively, which expire in 2030-2038 and 2024-2043, respectively. Approximately $0.5 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

Six Months Ended March 31, 2025 Compared to Six Months Ended March 31, 2024

We had operating loss of $168.0 million in our six months ended March 31, 2025 compared to operating loss of $36.8 million in our six months ended March 31, 2024. In our six months ended March 31, 2025, we had net loss of $173.2 million compared to net loss of $46.2 million in our six months ended March 31, 2024.

Our operating results for the six months ended March 31, 2025 worsened as a result of (i) decreases in contract revenue due to reduced block hours flown and fewer aircraft under contract; (ii) large losses and impairments associated with the sale of 18 E-175 aircraft; and (iii) increased impairment expense, partially offset by (i) decreases in flight operations as a result of decreased pilot training and lower pilot wages; and (ii) decreases in depreciation expense, primarily due to the retirement and sale of several aircraft.

Operating Revenues

Total operating revenue decreased by $52.4 million, or 20.9%, to $198.0 million for our six months ended March 31, 2025 as compared to our six months ended March 31, 2024. Contract revenue decreased by $65.8 million, or 30.6%, to $149.1 million primarily driven by reduced block hours flown and fewer aircraft under contract compared to the six months ended March 31, 2024. Our block hours flown during our six months ended March 31, 2025 decreased 12.7% compared to the six months ended March 31, 2024 due to a decrease in scheduled flying for United and fewer aircraft under contract. Our pass-through and other revenue increased by $13.4 million, or 37.9%, to $48.9 million compared to our six months ended March 31, 2024 due to an increase in pass-through maintenance related to our E-175 fleet.

Operating Expenses

Flight Operations. Flight operations expense decreased $29.7 million, or 29.3%, to $71.4 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024. 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 $2.8 million, or 3.0%, to $90.0 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024. This decrease was primarily driven by a decrease in labor and rotable and expendable parts, partially offset by an increase in other pass-through engine overhaul, other pass-through costs, and C-check maintenance expenses. Total pass-through maintenance expenses reimbursed by United increased by $18.5 million during our six months ended March 31, 2025 compared to our six months ended March 31, 2024.

The following table presents information regarding our maintenance costs during the six months ended March 31, 2025 and March 31, 2024 (in thousands):

Aircraft Rent. Aircraft rent expense increased $0.3 million, or 12.6%, to $2.9 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024. The increase is primarily due greater engine lease costs during our six months ended March 31, 2025.

General and Administrative. General and administrative expense decreased $2.1 million, or 9.2%, to $21.0 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024. The decrease is primarily driven by decreases in wages and pass-through insurance costs, partially offset by increased consulting fees.

Depreciation and Amortization. Depreciation and amortization expense decreased by $9.2 million, or 39.7%, to $13.9 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024 due to aircraft in our fleet being sold or classified as non-depreciable assets held for sale.

Asset Impairment. Asset impairment of $111.8 million was recorded for our six months ended March 31, 2025 primarily related to held for sale assets and the write down of net book value of 10 E-175 aircraft. There was $43.0 million of asset impairment recorded for our six months ended March 31, 2024, related to held for sale assets.

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 debt. There was no gain on extinguishment of debt recorded for the six months ended March 31, 2025.

Other Operating Expenses. Other operating expenses decreased by $3.8 million, to $0.4 million for our six months ended March 31, 2025 compared to our six months ended March 31, 2024. The decrease is primarily attributable to lower interrupted trip expense during the six months ended March 31, 2025.

Other expense increased by $2.5 million to $2.8 million for our six months ended March 31, 2025, compared to our six months ended March 31, 2024. The increase is primarily attributable to lower non-operating gains for our six months ended March 31, 2025, partially offset by a decrease in interest expense and a lower unrealized loss on investments in equity securities.

Income Taxes

The income tax benefit totaled $5.7 million for the six months ended March 31, 2025 compared to a tax benefit of $0.9 million for the six months ended March 31, 2024. The effective tax rate ("ETR") from continuing operations was 3.1% for the six months ended March 31, 2025 compared to -2.1% for the six months ended March 31, 2024. Our ETR during the six months ended March 31, 2025 decreased from the six months ended March 31, 2024 due to 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, 2025, the Company had aggregate federal and state net operating loss carryforwards of approximately $276.2 million and $146.6 million, respectively, which expire in 2030-2038 and 2024-2043, respectively. Approximately $0.5 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):

Liquidity and Capital Resources

Going Concern

During our three and six months ended March 31, 2025 and fiscal year ended September 30, 2024, the decrease in scheduled flying activity associated with the transition of our operations with American to United, increased costs associated with pilot wages, together with increasing interest rates adversely impacted our financial results, cash flows, financial position, and other key financial ratios. Additionally, United has asked us to accelerate the removal of our CRJ-900 aircraft and transition the pilots to our E-175 fleet. These events will lead to increased costs and impact our block hour capabilities while these pilots are in training.

As a result of the decrease in scheduled flying activity for United, we produced less block hours to generate revenues. During the six months ended March 31, 2025, these challenges resulted in a negative impact on the Company’s financial results highlighted by net loss of $173.2 million, primarily due to a $54.4 million loss recorded related to the sale of 18 E-175 aircraft and $111.8 million in impairment related to held for sale assets and the write down of net book value of 10 E-175 aircraft. These conditions and events raised concerns about our ability to continue to fund our operations and meet our debt obligations over the next twelve months from the filing of this Form 10-Q.

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 following measures were implemented during the three months ended March 31, 2025, and through the date of issuance of the financial statements.

• On April 4, 2025, the Company entered into the Three Party Agreement between United, Republic, and the Company, which provides for, among other things, the following, each subject to the completion of the Merger Agreement:
• Termination of the United CPA.
• The Company to sell or dispose of all remaining Eligible Assets (as defined in the Three Party Agreement).
• The Company to extinguish all remaining debt with cash and sale of assets. Any remaining debt will be assumed by the surviving corporation or forgiven by United.
• A three percent (3%) increase in CPA block hour rates, retroactive to January 1, 2025.
• The transfer of all of the Company's rights and obligations under its agreements with Archer (as discussed in Note 15).
• On April 4, 2025, we entered into the Sixth Amendment to the Third Amended and Restated Capacity Purchase Agreement with United which provides for the following:
• The extension of the CPA rate increases agreed upon in the First Amendment to our Third Amended and Restated United CPA and the Second Amendment to our Third Amended and Restated United CPA, dated January 11, 2024, and January 19, 2024, respectively (the "January 2024 United CPA Amendments”), retroactive to January 1, 2025, through March 31, 2026.
• The extension of incentives for achieving certain performance metrics, retroactive to July 1, 2024, through March 31, 2026.
• On April 4, 2025, we entered into the Sixth Amendment to Second Amended and Restated Credit and Guaranty Agreement providing for the waiver of an existing financial covenant default with respect to the period ended March 31, 2025, and a projected financial covenant default with respect to the periods ending June 30, 2025, September 30, 2025, December 31, 2025, and March 31, 2026, each relating to a minimum liquidity requirement under our United Revolving Credit Facility.
• On April 3, 2025, we entered into a purchase agreement with a third party which provides for the sale of 23 GE model CF34-8C engines to the third party for expected gross proceeds of $16.3 million, which will be used to pay down our UST Loan.
• Based on the most recent appraisal value of our spare parts, we have $12.4 million of borrowing capacity under our United Revolving Credit Facility.
• 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, 2025, the Company has $98.6 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, and 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, 2025 were approximately 2.2% 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, 2025, our principal sources of cash are cash and cash equivalents of $54.1 million and $75.8 million in assets held for sale as of March 31, 2025. As of March 31, 2025, we had $131.7 million in secured indebtedness incurred primarily in connection with our financing of aircraft and related equipment. As of March 31, 2025, we had $98.6 million of current debt, excluding finance leases, and $31.7 million of long-term debt excluding finance leases.

Restricted Cash

As of March 31, 2025, 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, 2025 and March 31, 2024 (in thousands):

36

Net Cash Used in Operating Activities

Our primary source of cash from operating activities is cash collections from United pursuant to our CPA. 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, 2025, we had cash flow used in operating activities of $34.0 million. We had net loss of $173.2 million adjusted for the following significant non-cash items: depreciation and amortization of $13.9 million, stock-based compensation of $0.5 million, deferred income taxes of $(7.6) million, amortization of deferred credits of $(4.1) million, amortization of debt discount and financing costs and accretion of interest of $3.5 million, asset impairment of $111.8 million, loss on sale of assets of $54.4 million, gain on debt forgiveness of $(4.5) million, and $4.1 million in miscellaneous operating cash flow items. We had a net change of $(32.9) million within other net operating assets and liabilities largely driven by increases in accounts receivable and decreases in accounts payable and accrued expenses.

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.

Net Cash Provided by 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, 2025, net cash flow provided by investing activities totaled $178.0 million. Proceeds from the sale of aircraft and engines totaled $182.1 million and we invested $(4.3) million in capital expenditures, primarily consisting of rotable parts and tools. We received $0.2 million in refunds of equipment and other deposits.

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.

Net Cash Used in 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, 2025, net cash flow used in financing activities was $105.5 million, all of which was payments on long-term debt and finance leases.

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.

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, 2024 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.

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, 2025, we had $131.7 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 $1.3 million in the six months ended March 31, 2025. We did not have any fixed-rate debt as of March 31, 2025.

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. As of March 31, 2025, we had $131.7 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.

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, 2025. 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 effective as of March 31, 2025.

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, 2025 and September 30, 2024, and the results of operations and cash flows for the period ended March 31, 2025 and March 31, 2024.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2025, 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.

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, 2024 ("2024 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 2024 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 2024 Form 10-K, besides the risk factor described below:

Our failure to be current in our SEC filings could pose significant risks to our business, each of which could materially and adversely affect our financial condition and results of operations

Under the Exchange Act, the Company, as reporting company, is required to provide investors on a regular basis with periodic reports that contain important financial and business information. Examples of these reports include the annually filed Form 10-K and the quarterly filed Form 10-Q. The timely and complete submission of periodic reports provides investors with information to help them make informed investment decisions. Our inability to timely file our periodic reports with the SEC, as occurred with our Annual Report on Form 10-K for the fiscal years ended September 30, 2024 and 2023, and Quarterly Reports on Form 10-Q for the periods ended December 31, 2023, March 31, 2024, June 30, 2024, December 31, 2024, and March 31, 2025 could have an adverse impact on our ability to, among other things, (i) remain listed on the Nasdaq Stock Market, (ii) access our credit facilities, (iii) attract and retain key employees, and (iv) raise funds in the public markets, any of which could materially and adversely affect our financial condition and results of operations.