Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~March 31~~June 30, 2021, the registrant had ~~35,700,161~~35,891,029 shares of common stock, no par value per share, issued and outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects", "intends," "plans," "predicts," "will," "would," “should,” "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to, those discussed in Part I, Item 1A of ~~this~~our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 under the heading "Risk Factors." Unless otherwise stated, references to particular years, quarters, months, or periods refer to our fiscal years ended September 30 and the associated quarters, months, and periods of those fiscal years. Each of the terms the "Company," "Mesa Airlines," "Mesa," "we," "us" and "our" as used herein refers collectively to Mesa Air Group, Inc. and its wholly owned subsidiaries, unless otherwise stated. We do not assume any obligation to revise or update any forward-looking statements.

The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. While we may elect to update these forward-looking statements at some point in the future, whether as a result of any new information, future events, or otherwise, we have no current intention of doing so except to the extent required by applicable law.

	March 31,		September 30,		June 30,		September 30,
	2021		2020		2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	147,867	$	99,395	$	180,398	$	99,395
Restricted cash		3,351		3,446		3,352		3,446
Receivables, net		13,867		13,712		4,947		13,712
Expendable parts and supplies, net		23,044		22,971		24,707		22,971
Prepaid expenses and other current assets		8,956		16,067		8,956		16,067
Total current assets		197,085		155,591		222,360		155,591

Property and equipment, net		1,180,684		1,212,415		1,164,193		1,212,415
Intangibles, net		7,412		8,032
Intangible assets, net						7,102		8,032
Lease and equipment deposits		8,242		1,899		8,149		1,899
Operating lease right-of-use assets		105,521		123,251		97,894		123,251
Other assets		20,647		742		25,315		742
Total assets	$	1,519,591	$	1,501,930	$	1,525,013	$	1,501,930

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing leases	$	103,980	$	189,268
Current portion of long-term debt and finance leases					$	107,728	$	189,268
Current portion of deferred revenue		4,356		9,389		6,486		9,389
Current maturities of operating leases		44,016		43,932		37,058		43,932
Accounts payable		70,012		53,229		52,835		53,229
Accrued compensation		10,449		12,030		12,432		12,030
Other accrued expenses		28,610		45,478		59,452		45,478
Total current liabilities		261,423		353,326		275,991		353,326
Noncurrent liabilities:
Long-term debt and financing leases, excluding current portion		600,058		542,456
Long-term debt and finance leases, excluding current portion						585,761		542,456
Noncurrent operating lease liabilities		38,405		62,531		35,007		62,531
Deferred credits		7,442		5,705		4,147		5,705
Deferred income taxes		70,929		64,275		72,305		64,275
Deferred revenue, net of current portion		29,502		14,369		29,265		14,369
Other noncurrent liabilities		20,988		1,409		27,870		1,409
Total noncurrent liabilities		767,324		690,745		754,355		690,745
Total liabilities		1,028,747		1,044,071		1,030,346		1,044,071
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock of no par value, 5,000,000 shares authorized; 0 shares issued and outstanding		—		—		—		—
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 35,700,161 (2021) and 35,526,918 (2020) shares issued and outstanding, 4,899,497 (2021) and 0 (2020) warrants issued and outstanding		255,950		242,772
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 35,891,029 (2021) and 35,526,918 (2020) shares issued and outstanding, 4,899,497 (2021) and 0 (2020) warrants issued and outstanding						255,497		242,772
Retained earnings		234,894		215,087		239,170		215,087
Total stockholders' equity		490,844		457,859		494,667		457,859
Total liabilities and stockholders' equity	$	1,519,591	$	1,501,930	$	1,525,013	$	1,501,930

	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Operating revenues:
Contract revenue	$	81,712		$	165,781		$	208,870		$	337,580		$	109,654		$	71,648		$	318,524		$	409,228
Pass-through and other		15,568			14,115			38,781			26,351
Pass-through and other revenue														15,503			1,451			54,284			27,802
Total operating revenues		97,280			179,896			247,651			363,931			125,157			73,099			372,808			437,030

Operating expenses:
Flight operations		37,403			52,891			74,367			105,535			41,314			29,664			115,681			135,199
Fuel		198			188			588			358			234			146			822			504
Maintenance		51,773			64,335			104,637			122,430			51,986			22,591			156,623			145,021
Aircraft rent		9,992			12,285			20,040			23,614			9,648			15,582			29,688			39,196
Aircraft and traffic servicing		743			1,336			1,644			2,400			682			538			2,326			2,938
General and administrative		11,164			14,500			24,237			27,496			12,087			11,737			36,324			39,233
Depreciation and amortization		20,705			20,469			41,175			41,021			20,933			20,635			62,108			61,656
Lease termination		4,508			—			4,508			—			—			—			4,508			—
Government grant recognition		(55,967	)		—			(67,278	)		—			(26,101	)		(43,018	)		(93,379	)		(43,018	)
Total operating expenses		80,519			166,004			203,918			322,854			110,783			57,875			314,701			380,729
Operating income		16,761			13,892			43,733			41,077			14,374			15,224			58,107			56,301
Other (expenses) income, net:
Other (expense) income, net:
Interest expense		(8,755	)		(11,673	)		(17,837	)		(24,300	)		(8,627	)		(10,368	)		(26,464	)		(34,668	)
Interest income		79			36			205			94			82			1			287			95
Other (expense) income, net		(506	)		937			417			641			(28	)		79			389			720
Total other (expense), net		(9,182	)		(10,700	)		(17,215	)		(23,565	)		(8,573	)		(10,288	)		(25,788	)		(33,853	)
Income before taxes		7,579			3,192			26,518			17,512			5,801			4,936			32,319			22,448
Income tax expense		1,890			1,307			6,711			4,842			1,525			1,517			8,236			6,359
Net income and comprehensive income	$	5,689		$	1,885		$	19,807		$	12,670		$	4,276		$	3,419		$	24,083		$	16,089
Net income per share attributable to
common shareholders
Basic	$	0.16		$	0.05		$	0.56		$	0.36		$	0.12		$	0.10		$	0.68		$	0.46
Diluted	$	0.14		$	0.05		$	0.52		$	0.36		$	0.11		$	0.10		$	0.62		$	0.46
Weighted-average common shares outstanding
Basic		35,628			35,141			35,579			35,082			35,769			35,299			35,642			35,154
Diluted		39,432			35,265			38,382			35,220			39,513			35,299			38,811			35,248

	Six Months Ended March 31, 2020														Nine Months Ended June 30, 2020
							Common														Common
							Stock and														Stock and
							Additional														Additional
	Number of			Number of			Paid-In			Retained					Number of			Number of			Paid-In			Retained
	Shares			Warrants			Capital			Earnings		Total			Shares			Warrants			Capital			Earnings		Total
Balance at September 30, 2019		31,413,287			3,600,953		$	238,504		$	187,364	$	425,868			31,413,287			3,600,953		$	238,504		$	187,364	$	425,868

Adoption ASU 2018-09 Stock compensation- income taxes		—			—			—			259		259
Adoption of ASU 2018-09 Stock compensation- income taxes																—			—			—			259		259
Stock compensation expense		—			—			1,320			—		1,320			—			—			1,320			—		1,320
Repurchased shares and warrants		(5,558	)		—			(41	)		—		(41	)		(5,558	)		—			(41	)		—		(41	)
Warrants converted to common stock		1,612,481			(1,612,481	)		—			—		—			1,612,481			(1,612,481	)		—			—		—
Restricted shares issued		18,916			—			—			—		—			18,916			—			—			—		—
Net income		—			—			—			10,785		10,785			—			—			—			10,785		10,785
Balance at December 31, 2019		33,039,126			1,988,472		$	239,783		$	198,408	$	438,191			33,039,126			1,988,472		$	239,783		$	198,408	$	438,191

Stock compensation expense		—			—			1,193			—		1,193			—			—			1,193			—		1,193
Repurchased shares and warrants		(18,244	)		—			(160	)		—		(160	)		(18,244	)		—			(160	)		—		(160	)
Warrants converted to common stock		1,988,472			(1,988,472	)		—			—		—			1,988,472			(1,988,472	)		—			—		—
Restricted shares issued		141,614			—			—			—		—			141,614			—			—			—		—
Employee share purchases		43,934			—			243			—		243			43,934			—			243			—		243
Net income		—			—			—			1,885		1,885			—			—			—			1,885		1,885
Balance at March 31, 2020		35,194,902			—		$	241,059		$	200,293	$	441,352			35,194,902			—		$	241,059		$	200,293	$	441,352

Stock compensation expense																—			—			1,020			—		1,020
Repurchased shares and warrants																(88,785	)		—			(297	)		—		(297	)
Restricted shares issued																308,167			—			—			—		—
Net income																—			—			—			3,419		3,419
Balance at June 30, 2020																35,414,284			—		$	241,782		$	203,712	$	445,494

	Six Months Ended March 31, 2021													Nine Months Ended June 30, 2021
						Common													Common
						Stock and													Stock and
						Additional													Additional
	Number of			Number of		Paid-In			Retained					Number of			Number of		Paid-In			Retained
	Shares			Warrants		Capital			Earnings		Total			Shares			Warrants		Capital			Earnings		Total
Balance at September 30, 2020		35,526,918			—	$	242,772		$	215,087	$	457,859			35,526,918			—	$	242,772		$	215,087	$	457,859

Stock compensation expense		—			—		850			—		850			—			—		850			—		850
Repurchased shares		(2,256	)		—		(19	)		—		(19	)		(2,256	)		—		(19	)		—		(19	)
Restricted shares issued		7,500			—		—			—		—			7,500			—		—			—		—
Issuance of warrants, net of issuance costs		—			4,899,497		11,489			—		11,489			—			4,899,497		11,489			—		11,489
Net income		—			—		—			14,118		14,118			—			—		—			14,118		14,118
Balance at December 31, 2020		35,532,162			4,899,497	$	255,092		$	229,205	$	484,297			35,532,162			4,899,497	$	255,092		$	229,205	$	484,297


Stock compensation expense		—			—		808			—		808			—			—		808			—		808
Repurchased shares and warrants		(14,680	)		—		(157	)		—		(157	)
Warrants converted to common stock		—			—		—			—		—
Repurchased shares															(14,680	)		—		(157	)		—		(157	)
Restricted shares issued		124,609			—		—			—		—			124,609			—		—			—		—
Employee share purchases		58,070			—		207			—		207			58,070			—		207			—		207
Net income		—			—		—			5,689		5,689			—			—		—			5,689		5,689
Balance at March 31, 2021		35,700,161			4,899,497	$	255,950		$	234,894	$	490,844			35,700,161			4,899,497	$	255,950		$	234,894	$	490,844

Stock compensation expense															—			—		756			—		756
Repurchased shares															(122,960	)		—		(1,209	)		—		(1,209	)
Restricted shares issued															313,828			—		—			—		—
Net income															—			—		—			4,276		4,276
Balance at June 30, 2021															35,891,029			4,899,497	$	255,497		$	239,170	$	494,667

	Six Months Ended March 31,						Nine Months Ended June 30,
	2021			2020			2021			2020
Cash flows from operating activities:
Net income	$	19,807		$	12,670		$	24,083		$	16,089
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		41,175			41,021			62,108			61,656
Stock compensation expense		1,658			2,513			2,414			3,533
Deferred income taxes		6,654			4,490			8,030			5,902
Long-term deferred revenue								—			12,240
Amortization of deferred credits		(2,258	)		(2,041	)		(2,471	)		(2,928	)
Amortization of debt discount and issuance costs		4,994			2,149			8,185			3,182
Gain on extinguishment of debt		(950	)		—			(950	)		—
Loss on disposal of assets		25			514			50			528
Provision for obsolete expendable parts and supplies		22			306			168			287
Loss on lease termination		4,508			—			4,508			—
Changes in assets and liabilities:
Receivables		(155	)		9,019			8,765			8,462
Expendable parts and supplies		(84	)		(1,382	)		(1,894	)		(1,403	)
Prepaid expenses and other current assets		(1,988	)		97
Prepaid expenses and other assets								226			(1,257	)
Accounts payable		15,470			(602	)		(398	)		(9,890	)
Deferred revenue		10,099			—			11,993			—
Accrued liabilities		(14,091	)		2,122
Change in operating lease right-of- use assets		(6,311	)		(5,674	)
Accrued expenses and other liabilities								15,436			11,659
Change in operating lease right-of-use assets and liabilities								(9,041	)		(4,459	)
Net cash provided by operating activities		78,575			65,202			131,212			103,601

Cash flows from investing activities:
Capital expenditures		(5,261	)		(12,968	)		(10,717	)		(25,160	)
Net returns (payments) on equipment & other deposits		(6,414	)		(11,805	)		(6,322	)		46
Net cash used in investing activities		(11,675	)		(24,773	)		(17,039	)		(25,114	)

Cash flows from financing activities:
Proceeds from long-term debt		195,000			23,000			195,000			23,000
Proceeds from issuance of common stock under ESPP								207			—
Principal payments on long-term debt and financing leases		(212,020	)		(79,395	)		(225,760	)		(103,718	)
Payments of debt and warrant issuance		(1,326	)		(494	)
Payments of debt and warrant issuance costs								(1,326	)		(1,394	)
Repurchase of stock		(176	)		(201	)		(1,385	)		(498	)
Net cash used in financing activities		(18,522	)		(57,090	)		(33,264	)		(82,610	)

Net change in cash, cash equivalents and restricted cash		48,378			(16,661	)		80,909			(4,123	)
Cash, cash equivalents and restricted cash at beginning of period		102,841			72,501			102,841			72,501
Cash, cash equivalents and restricted cash at end of period	$	151,219		$	55,840		$	183,750		$	68,378

Supplemental cash flow information
Cash paid for interest	$	16,922		$	22,402		$	22,905		$	30,375
Cash paid for income taxes, net	$	49		$	45		$	398		$	45
Operating lease payments in operating cash flows	$	25,716		$	26,240		$	37,640		$	34,919
Supplemental non-cash transactions
Warrants received from Archer Aviation Inc. ("Archer")	$	16.4		$	—
Right-of-use assets (disposed) obtained	$	(320	)	$	145,627
Debt issuance cost related to loan agreement with US Department of Treasury	$	(1,887	)	$	—
Warrants received for entering into agreements with Archer Aviation Inc. ("Archer")							$	16,374		$	—
Right-of-use assets obtained							$	454		$	145,054
Debt issuance cost related to loan agreement with US Department of the Treasury							$	(1,887	)	$	—
Accrued capital expenditures	$	—		$	98		$	59		$	60

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is athe holding company ~~whose principal subsidiary,~~of Mesa Airlines, Inc. ("Mesa Airlines"), ~~operates as~~ a regional air carrier providing scheduled flight service to ~~112~~116 cities in 3836 states, the District of Columbia, and Mexico as well as cargo ~~flight~~ services ~~originating from~~out of Cincinnati/Northern Kentucky International Airport. As of ~~March 31,~~June 30, 2021, Mesa operated, under the Company’s Capacity Purchase Agreements, Flight Services Agreement or as operational spares, a fleet of ~~163~~155 aircraft with approximately ~~440~~470 daily departures and ~~3,111~~3,191 employees. Mesa also leases 12 aircraft to a third party. Mesa operates all of its flights on behalf of major partners as either American Eagle, United Express, or DHL Express flights pursuant to the terms of ~~the~~ Capacity Purchase Agreements (“CPAs”) entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and a Flight Services Agreement (“FSA”) with DHL Network Operations (USA), Inc. (“DHL”).

The financial arrangements between the Company and its major partners involve a revenue-guarantee arrangement whereby the major partner pays fixed-fees for each aircraft under contract, departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing flight services. The major partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of these capacity purchase agreements, the major ~~airline~~partner controls route selection, pricing, and seat inventories, reducing the Company's exposure to fluctuations in passenger traffic, fare levels, and fuel prices.

As of ~~March 31,~~June 30, 2021, the Company operated 45 CRJ-900 aircraft under the American Capacity Purchase ~~Agreement.~~Agreement (the “American CPA”). In exchange for providing flight services, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departures and controllable completion percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions, as well as airport-related facilities and gates at American hubs and cities where we operate.

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

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

On April 9, 2021, we entered into Amendment No. 2 (“Amendment No. 2”) to the Amended and Restated American Capacity Purchase Agreement. The amendments in Amendment No. 2 reflect the following:

On ~~April 19,~~August 9, 2021, we entered into Amendment No. 35 (“Amendment No. 3”5”) to the Amended and Restated American Capacity Purchase Agreement. The amendments in Amendment No. 35 reflect the following:

Our Amended and Restated American Capacity Purchase Agreement is subject to termination prior to its expiration, subject to the Company’s right to cure, in various circumstances including:

Our Amended and Restated American Capacity Purchase Agreement is also subject to withdrawal rights, providing American with the right and option to withdraw 1 aircraft, upon each occurrence of the following:

As of ~~March 31,~~June 30, 2021, we operated 60 E-175 and 1620 E-175LL aircraft for United under the United Capacity Purchase ~~Agreement.~~Agreement (the “United CPA”). In exchange for providing the flight services under our United ~~Capacity Purchase Agreement,~~CPA, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United also reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

Under our United ~~Capacity Purchase Agreement,~~CPA, United owns 42 of the 60 E-175 and all of the E-175LL aircraft and leases them to us at nominal amounts. United reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the 42 United owned E-175 aircraft.

On November 26, 2019, we amended and restated our United ~~Capacity Purchase Agreement.~~CPA. The Amended and Restated United ~~Purchase Agreement~~CPA included the following amendments:

On November 4, 2020, we amended and restated our United ~~Capacity Purchase Agreement.~~CPA. The amendments reflect the following:

Our United ~~Capacity Purchase Agreement~~CPA is subject to the following termination rights prior to its ~~expiration.~~expiration:

Our United Capacity Purchase Agreement provides for temporary rate reductions for the period April 2020 to September 2020. The basis for the reduction is lower labor costs due to the grant received by the Company under the Payroll Support Program (PSP). The First Amendment also provides for further temporary rate reductions if the Payroll Support Program is extended.

On December 20, 2019, the Company entered into a Flight Services Agreement with DHL. Under the terms of this agreement, Mesa operates 2 Boeing 737-400F aircraft to provide cargo air transportation services to DHL. In exchange for providing ~~air~~such services, the Company receives a fee per block hour with a minimum block hour guarantee. The Company is eligible for a monthly performance bonus or subject to a monthly penalty based on timeliness and completion performance. Ground support including fueling and airport fees are paid directly by DHL.

Under our Flight Services Agreement, DHL leases 2 Boeing 737-400F aircraft and subleases them to us at nominal amounts. DHL reimburses us on a pass-through basis for all costs related to heavy maintenance including ~~c-checks, off-wing~~C-checks, off-

wing engine maintenance and overhauls including LLPs, Landing Gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and LLPs. Certain items such as fuel, de-icing fluids, landing fees, aircraft ground handling fees, en-route navigation fees and custom fees are paid directly to suppliers by DHL or otherwise reimbursed if incurred by the Company.

The Flight Services Agreement expires five (5) years from the commencement date of the first aircraft placed into ~~service.~~service, which was in October 2020. DHL has the option to extend the agreement with respect to one or more aircraft for a period of one year with 90 days’ advance written notice.

Our DHL Flight Services Agreement is subject to following termination rights prior to its expiration:

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and its wholly owned operating subsidiaries. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). All intercompany accounts and transactions have been eliminated in consolidation. Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.

These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended September 30, 2020 included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020 on file with the U.S. Securities and Exchange Commission (the "SEC"). Information and footnote disclosures normally included in financial statements have been condensed or omitted in these condensed consolidated financial statements pursuant to the rules and regulations of the SEC and GAAP. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented.

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS ~~Act,"~~Act") and may remain an emerging growth company until the last day of its fiscal year following the fifth anniversary of the Company’s initial public offering (“IPO”), subject to specified conditions. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As of ~~March 31,~~June 30, 2021, our chief operating decision maker was the Chief Executive Officer. While the Company operates under separate capacity purchase agreements and a flight services agreement, we do not manage our business based on any performance measure at the individual contract level. Our chief operating decision maker uses consolidated financial information to evaluate our performance and allocate resources, which is the same basis on which he communicates our results and performance to our Board of Directors. Accordingly, we have a single operating and reportable segment.

The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Actual results could differ from those estimates.

Contract ~~revenue~~Revenue and ~~Pass- through~~Pass-through and ~~other~~Other Revenue

The Company recognizes contract revenue when the service is provided under its capacity purchase agreements and flight services agreement. Under the capacity purchase agreements and flight services agreement, our major partners generally pay for each departure, flight hour or block hour, and an amount per aircraft in service each month with additional incentives based on flight completion, on-time performance, and other operating metrics. The Company’s performance obligation is met as each flight is completed, and revenue is recognized and reflected in contract revenue.

Contract revenue also includes temporary rate reductions under our capacity purchase agreements impacting the period from December 2020 to September 2021. The basis for the reductions is temporary improvements in our cost structure being passed onto our major partners, primarily from lower labor costs due to the grants received under the Payroll Support Program Extensions (PSP2 and PSP3).

A portion of the Company's compensation under its capacity purchase agreements with American and United is designed to reimburse the Company for certain aircraft ownership costs. Such costs ~~including~~include aircraft principal and interest debt service costs, aircraft depreciation, and interest expense or aircraft lease expense costs while the aircraft is under contract. The Company has concluded that a component of its revenue under these agreements is deemed to be lease revenue, as such agreements identify the "right of use" of a specific type and number of aircraft over a stated period-of-time. The lease revenue associated with the Company's capacity purchase agreements is accounted for as an operating lease and is reflected as contract revenue on the Company's consolidated statements of operations. The Company recognized ~~$18.1~~$41.2 million and ~~$52.4~~$52.0 million of lease revenue for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and ~~$67.6~~$131.8 million and ~~$105.7~~$157.7 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statements of operations and comprehensive income because the use of the aircraft is not a separate activity offrom the total service provided under our capacity purchase agreements.

The Company recognizes pass-through revenue when the service is provided under its capacity purchase agreements and flight services agreement. Pass-through revenue represents reimbursements for certain direct expenses incurred including passenger liability and hull insurance, property taxes, other direct costs defined within the capacity purchase agreements, and major maintenance on aircraft leased at nominal rates. The Company’s performance obligation is met when each flight is completed or as the maintenance services are performed, and revenue is recognized and reflected in pass-through and other revenue.

The Company entered into lease agreements with GoJet Airlines LLC (“GoJet”) to lease ~~6 CRJ 700~~12 CRJ-700 aircraft as of ~~March~~June 2021. The lease agreements are accounted for as operating leases and have a term of ~~nine-years~~nine (9) years beginning on the delivery date of each aircraft. ~~The Company intends to lease our entire fleet of 20 CRJ 700 aircraft to GoJet with final aircraft deliveries expected by October 2021.~~ Under the lease agreements, GoJet pays fixed monthly rent per aircraft and variable lease payments for supplemental rent based on monthly aircraft utilization at fixed rates. Supplemental rent payments are subject to reimbursement following GoJet’s completion of qualifying maintenance events defined in the agreements. Lease revenue for fixed monthly rent payments is recognized ratably within ~~pass-through and other~~contract revenue. Lease revenue for supplemental rent is deferred and recognized within ~~pass-through and other~~contract revenue when it is probable that amounts received will not be reimbursed for future qualifying maintenance events over the lease term.

The Company mitigates the residual asset risks through supplemental rent payments and by leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases have specified lease return condition requirements and the Company maintains inspection rights under the leases. As of ~~March 31,~~June 30, 2021, the Company recognized ~~$4.8~~$10.1 million of lease incentive assets and ~~$4.2~~$8.8 million of related lease incentive obligations for reimbursement of certain aircraft maintenance costs defined within the lease agreements. Lease incentive assets ~~will be~~are recognized as a reduction to lease revenue over the lease term.

Lease revenue recognized under the GoJet agreements, net of amortization of the lease incentive assets, was $3.4 million and ~~amounts~~$4.0 million for the three and nine months ended June 30, 2021, respectively. Amounts deferred for supplemental rent payments ~~were immaterial~~totaled $0.2 million as of ~~March 31,~~June 30, 2021. The following table summarizes future minimum rental income under operating leases related to leased aircraft that had remaining non-cancelable lease terms as of ~~March 31,~~June 30, 2021 ~~(In~~(in thousands):

Periods Ending March 31,	Total Payments
Remainder of 2021	$	3,276
Periods Ending September 30,			Total Payments
2021 (remainder of)			$	3,276
2022		6,552		13,104
2023		6,552		13,104
2024		6,552		13,104
2025		6,552		13,104
Thereafter		28,962		59,029
Total	$	58,446	$	114,721

The Company records deferred revenue when cash payments are received or are due from our ~~airline~~major partners in advance of the Company’s performance, including amounts that are refundable. During the three and nine months ended ~~March 31,~~June 30, 2021, the Company deferred ~~$4.9~~$1.9 million and $12.0 million of revenue, respectively, which was billed and paid by our major partners.

The deferred revenue balance as of ~~March 31,~~June 30, 2021 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows ~~(In~~(in thousands):

Periods Ending March 31,	Total Maturities
Remainder of 2021	$	675
Periods Ending September 30,			Deferred Revenue Recognized
2021 (remainder of)			$	1,825
2022		9,097		7,388
2023		9,430		10,101
2024		9,169		9,860
2025		3,695		4,621
Thereafter		1,792		1,956
Total	$	33,858	$	35,751

As discussed in Note 1, we lease, at nominal rates, certain aircraft from United and DHL under our United Capacity Purchase Agreement and DHL Flight Services Agreement, which are excluded from operating lease assets and liabilities as the lease contracts do not represent embedded leases under ASC 842. Other than nominal leases with our major partners, approximately 10% of our aircraft are leased from third parties. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the term of the related leases. In the event that we or one of our major ~~airline~~ partners decide to exit an activity involving leased aircraft, losses may be incurred. In the event that we exit an activity that results in exit losses, these losses are accrued as each aircraft is removed from operations for early termination penalties, lease settle up and other charges. Additionally, any remaining ROU assets and lease liabilities would be written off.

The majority of the Company's leased aircraft are leased through trusts that have a sole purpose to purchase, finance, and lease these aircraft to the Company; therefore, they meet the criteria of a variable interest entity. However, since these are single-owner trusts in which the Company does not participate, the Company is not at risk for losses and is not considered the primary beneficiary. Management believes that the Company's maximum exposure under these leases is the remaining lease payments.

In March 2021, the Company purchased a leased CRJ 900 aircraft prior to the expiration of the lease term resulting in the lease termination expenses of $4.5 million. Termination expenses primarily related to the reversal of maintenance deposits on the aircraft that were no longer refundable from the lessor at termination of the lease.

Contract liabilities consist of deferred credits for cost reimbursements from major ~~airline~~ partners related to aircraft modifications and employee training associated with capacity purchase agreements. The deferred credits are recognized over time depicting the pattern of the transfer ~~of control~~ of services resulting in ratable recognition of revenue over the remaining term of the capacity purchase agreements.

Current and non-current deferred credits are recorded to other accrued expenses and non-current deferred credits in the condensed consolidated balance sheets. The Company's total current and non-current deferred credit contract liability balances at ~~March 31,~~June 30, 2021 and September 30, 2020 are ~~$5.2~~$5.0 million and $8.5 million, respectively. The Company recognized ~~$1.1~~$0.2 million and $0.9 million of the deferred credits within contract revenue during the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and ~~$1.9~~$2.1 million and ~~$2.0~~$2.9 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

The Company operates under ~~an FAA~~a Federal Aviation Administration (“FAA”) approved continuous inspection and maintenance program. The cost of non-major scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are charged to maintenance expense as incurred.

The Company accounts for heavy maintenance and major overhaul costs on ~~our~~its owned E-175 fleet under the deferral method whereby the cost of heavy maintenance and major overhaul is deferred and amortized until the earlier of the end of the useful life of the related asset or the next scheduled heavy maintenance event. Amortization of heavy maintenance and major overhaul costs charged to depreciation and amortization expense was ~~immaterial~~$0.1 million for the three ~~months~~ and ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020. At ~~March 31,~~June 30, 2021 and September 30, 2020, the Company had a deferred heavy maintenance balance, net of accumulated amortization, of ~~$1.2~~$2.8 million and $0$0.0 million, respectively.

The Company accounts for heavy maintenance and major overhaul costs for all other fleets under the direct expense method ~~where~~whereby costs are expensed to maintenance expense 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.

Engine overhaul expense totaled ~~$6.9~~$4.0 million and ~~$14.5~~$3.2 million for the three months ended ~~March 31,~~June 30, 2021, and 2020, respectively, of which ~~$2.2~~$2.7 million and ~~$0.7~~$0.4 million, respectively, was pass-through expense. Engine overhaul expense totaled ~~$21.3~~$25.3 million and ~~$25.1~~$28.3 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021, and 2020, respectively, of which ~~$11.8~~$14.5 million and ~~$2.6~~$3.0 million, respectively, was pass-through expense. Airframe C-check expense totaled $14.1 million and ~~$10.5~~$2.9 million for the three months ended ~~March 31,~~June 30, 2021, and 2020, respectively, of which $5.6 million and ~~$3.9~~$0.8 million, respectively, was pass-through expense. Airframe C-check expense totaled ~~$24.2~~$38.3 million and ~~$17.8~~$20.6 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021, and 2020, respectively, of which ~~$12.7~~$18.3 million and ~~$5.1~~$5.9 million, respectively, was pass-through expense.

In February 2021, the Company was granted $48.7 million in financial assistance by the U.S. Department of the Treasury under the Payroll Support Program Extension (“PSP2”) under the Consolidated Appropriations Act of 2021. In March 2021, ~~we were~~the Company was notified that, based on funding availability, recipients that were currently in compliance with executed PSP agreements would receive an additional award amount. As a result, the ~~company was granted~~Company received an additional $7.3 million through ~~the~~ PSP2 in April 2021 for a total grant of $56.0 million. ~~The additional $7.3 million was received in April 2021.~~ PSP2 funding must be used exclusively for the continuation of payment of employee wages, salaries, and benefits and is conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs from the date of the extension agreement through March 2021. Other conditions include prohibitions on share repurchases and dividends through March 2022 and certain limitations on executive compensation until October 2022. The Department of Transportation also has the authority until March 1, 2022 to require airlines that received payroll support program funds to maintain scheduled air service deemed necessary to any point served by the airline before March 1, 2020.

On April 15, 2021, the Company was notified by the U.S. Department of the Treasury ~~we are~~that it was eligible to receive funds under the third Payroll Support Program ~~(PSP3)~~(“PSP3”), which was created under the American Recovery Plan Act of 2021 ~~(ARP)~~(“ARPA”), enacted on March 11, 2021. PSP3 provides additional funding for passenger air carriers and contractors that received financial assistance under ~~the Payroll Support Program Extension (PSP2). PSP3~~PSP2. The funding must be used exclusively for the continuation of payment of employee wages, salaries, and benefits. Based on the share of funds we received from the first extension of the payroll support program, and the similar structures of both extensions, we estimate that we will receive approximately $52.2 million. However, the actual amounts received and the allocation could differ from our estimates. The Company was granted $52.2 million and received the first PSP3 installment of $26.1 million onin April ~~23,~~2021 and the second installment of $26.1 million in May 2021. These payments are conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs through September 2021 or the date on which assistance provided under the agreement is exhausted, whichever is later. Other conditions ~~would~~ include prohibitions on share repurchases and dividends through September 2022 and certain limitations on executive compensation until April 2023.

During the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021, the Company recognized ~~$56.0~~$26.1 million and ~~$67.3~~$93.4 million, respectively, for the payroll support government funds. WeDuring the three and nine months ended June 30, 2020, the Company recognized $43.0 million for the payroll support government funds. As of June 30, 2021, there are $26.1 million of deferred ~~$11.3 million~~payments remaining under ~~PSP1 that was~~PSP3, which are recorded within other accrued liabilities in the condensed consolidated balance sheets and will be recognized as a reduction of operating expenses during the ~~three months~~quarter ended ~~December 31,2020. As of March 31,2021, there are 0 deferred payments.~~

discontinued. Optional expedients can be applied from March 12, 2020 through December 31, 2022. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In June 2016, the FASB issued new guidance requiring all expected credit losses for financial instruments held at the reporting date to be measured based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial instruments measured at amortized cost and also applies to some off-balance sheet credit exposures. Our adoption of this guidance on a modified retrospective basis on October 1, 2020 did not have a material impact as credit losses have not been, and are not expected to be, significant based on historical collection trends, the financial condition of our ~~airline~~major partners and external market factors.

In August 2018, the FASB issued new guidance aligning the accounting for implementation costs incurred in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this guidance on a prospective basis on October 1, 2020. Amounts capitalized are immaterial.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. The guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and interim periods within those fiscal periods. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This ASU provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the market transition from the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued. Optional expedients can be applied from March 12, 2020 through December 31, 2022. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are primarily held by financial institutions in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions. As of ~~March 31,~~June 30, 2021, the Company had $3.4 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~~terms of this agreement, $3.4 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. At ~~March 31,~~June 30, 2021, the Company had capacity purchase agreements with American and United and a flight services agreement with DHL. Substantially all of the Company's condensed consolidated revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 ~~and~~was derived from these agreements. Substantially all of the Company’s accounts receivable at ~~March 31,~~June 30, 2021 and September 30, 2020 was derived from these agreements. American accounted for approximately 45% and ~~51%~~60% of the Company's total revenue for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and 46 % and ~~51%~~53% of the Company’s total revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and ~~2020.~~2020, respectively. United accounted for approximately ~~53%~~51% and ~~49%~~40% of the Company's total revenue for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and 52% and ~~49%~~47% of the Company’s total revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and ~~2020.~~2020, respectively. A termination of either the American or the United capacity purchase ~~agreement~~agreements would have a material adverse effect on the Company's business prospects, financial condition, results of operations, and cash flows.

Amounts billed by the Company under the capacity purchase agreements and flight services agreement are subject to the Company's interpretation of the applicable ~~capacity purchase~~ agreement and are subject to audit by the Company's major ~~airline~~ partners. Periodically, the Company's major ~~airline~~ partners dispute amounts billed and pay amounts less than the amount billed. Ultimate collection of the remaining amounts not only depends upon the Company prevailing under the applicable audit, but also

upon the financial well-being of the major ~~airline~~ partner. As such, the Company periodically reviews amounts due based on historical collection trends, the financial condition of ~~airline~~major partners and current external market factors and records a reserve for amounts estimated to be uncollectible. The allowance for doubtful accounts was ~~$1.3~~$1.4 million and $0.8 million at ~~March 31,~~June 30, 2021 and September 30, 2020, respectively. If the Company's ability to collect these receivables and the financial viability of its major partners is materially different than estimated, the Company's estimate of the allowance could be materially impacted.

Information about the intangible assets of the Company as of ~~March 31,~~June 30, 2021 and September 30, 2020, is as follows (in thousands):

	March 31,			September 30,			June 30,			September 30,
	2021			2020			2021			2020
Customer relationship	$	43,800		$	43,800		$	43,800		$	43,800
Accumulated amortization		(36,388	)		(35,768	)		(36,698	)		(35,768	)
Net carrying value	$	7,412		$	8,032		$	7,102		$	8,032

Total amortization expense recognized was approximately $0.3 million and $0.4 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and ~~$0.6~~$0.9 million and ~~$0.7~~$1.1 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and

2020, respectively. The Company expects to record amortization expense of $~~0.6~~$0.3 million for the remainder of 2021, and $~~1.0~~$1.0 million, $0.9 million, $0.8 million, $0.7 million for fiscal years 2022, 2023, 2024 and 2025, respectively.

As of ~~March 31,~~June 30, 2021, the Company’s intangible ~~assets~~assets’ remaining weighted average term is ~~14.6~~14.3 years.

Certain significant amounts included in the Company's condensed consolidated balance sheet as of ~~March 31,~~June 30, 2021 and September 30, 2020, consisted of the following (in thousands):

	March 31,			September 30,			June 30,			September 30,
	2021			2020			2021			2020
Expendable parts and supplies, net:
Expendable parts and supplies	$	27,324		$	27,431		$	29,135		$	27,431
Less: obsolescence and other		(4,280	)		(4,460	)		(4,428	)		(4,460	)
	$	23,044		$	22,971		$	24,707		$	22,971

Prepaid expenses and other current assets:
Deferred offering and reimbursed costs	$	—		$	1,261		$	—		$	1,261
Prepaid aviation insurance								4,662			2,396
Other		8,956			14,806			4,294			12,410
	$	8,956		$	16,067		$	8,956		$	16,067
Property and equipment, net:
Aircraft and other flight equipment substantially pledged	$	1,603,377		$	1,596,174		$	1,606,276		$	1,596,174
Other equipment		5,189			5,147			5,116			5,147
Leasehold improvements		2,763			2,763			2,790			2,763
Vehicles		1,114			1,032			1,115			1,032
Building		699			699			699			699
Furniture and fixtures		303			302			302			302
Total property and equipment		1,613,445			1,606,117			1,616,298			1,606,117
Less: accumulated depreciation		(432,761	)		(393,702	)		(452,105	)		(393,702	)
	$	1,180,684		$	1,212,415		$	1,164,193		$	1,212,415
Other Assets:
Other assets:
Warrants	$	16,374		$	—		$	16,374		$	—
Other		4,273			—			8,941			742
	$	20,647		$	—		$	25,315		$	742
Other accrued expenses:
Accrued property taxes	$	5,996		$	11,354		$	7,479		$	11,354
Accrued interest		2,480			3,268			4,814			3,268
Accrued vacation		5,718			5,975			5,967			5,975
Deferred PSP payments								26,100			11,311
Other		14,416			24,881			15,092			13,570
	$	28,610		$	45,478		$	59,452		$	45,478

The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the undiscounted net cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated fair value. The Company has assessed whether any impairment of its long-lived assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of ~~March 31,~~June 30, 2021. The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business, are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

Depreciation expense totaled approximately ~~$20.4~~$20.6 million and ~~$20.1~~$20.2 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and ~~$40.6~~$61.2 million and ~~$40.3~~$60.5 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

In connection with a negotiated forward purchase contract for electrically-powered vertical takeoff and landing aircraft ~~(eVTOL aircraft)~~(“eVTOL aircraft”) executed in February 2021, we obtained equity warrant assets giving us the right to acquire 1,171,649

shares of common stock in Archer Aviation, Inc. (Archer), a private, venture-backed company. Our investments in Archer do not have a readily determinable fair value, so we account for them using the measurement alternative under ASC 321 and measure the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition of the investment or other features that indicate a discount to fair value is warranted. Any changes in fair value from the grant date fair value of the equity warrant assets will be recognized as increases or decreases on our balance sheet and as net gains or losses on equity warrant assets, in other (expense) income, net. We estimated the initial equity warrant asset value to be $16.4 million based on publicly available information as of the ~~Archer enterprise valuation disclosed within a February 10, 2021 S-4 filing with the SEC.~~grant date. There were no observable price changes or transactions as of ~~March 31,~~June 30, 2021 and as such, no adjustments to the recorded grant date fair value of the equity warrant assets ~~was~~were recorded.

The grant date value of the warrants, $16.4 million, was recognized as a vendor credit liability within other noncurrent liabilities. The liability related to the warrant assets will be settled in the future, as a reduction of the acquisition date value of the eVTOL aircraft contemplated in the related ~~asset~~aircraft purchase agreement.

Fair value is an exit price representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. Accounting standards include disclosure requirements relating to the fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:

The carrying values reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

The Company's debt agreements are not traded on an active market. The Company has determined the estimated fair value of its debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.

The estimated fair value of the Company's total long-term debt, including current maturities, were as follows (in millions):

Long-term debt as of ~~March 31,~~June 30, 2021 and September 30, 2020, consisted of the following (in thousands):

	March 31,			September 30,			June 30,			September 30,
	2021			2020			2021			2020
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2022⁽¹⁾⁽²⁾	$	—		$	41,472		$	—		$	41,472
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2024⁽³⁾		—			55,674			—			55,674
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2027⁽⁴⁾		106,092			105,887			106,198			105,887
Notes payable to secured parties, collateralized by the underlying
aircraft, due 2028⁽⁵⁾		162,247			172,137			162,247			172,137
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2028⁽⁶⁾		130,505			138,114			126,650			138,114
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2022⁽⁷⁾		—			47,319			—			47,319
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2022⁽⁸⁾		—			29,682			—			29,682
Notes payable to financial institution due 2020⁽¹⁰⁾		1,523			1,523
Notes payable to financial institution due 2020⁽⁹⁾								1,523			1,523
Notes payable to financial institution, collateralized by the underlying
equipment, due 2020⁽¹¹⁾		—			4,182
equipment, due 2020⁽¹⁰⁾								—			4,182
Other obligations due to financial institution, collateralized by the underlying
equipment, due 2023⁽¹²⁾		5,663			6,864
equipment, due 2023⁽¹¹⁾								5,128			6,864
Notes payable to financial institution, collateralized by the underlying
equipment, due 2024⁽¹³⁾		54,573			63,341
equipment, due 2024⁽¹²⁾								50,097			63,341
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2023⁽¹⁴⁾		39,375			48,125
Notes payable to financial institution due 2023 ⁽¹⁵⁾		5,000			6,000
Revolving Credit Facility ⁽¹⁶⁾		22,930			22,930
Notes payable to financial institution due 2025 ⁽¹⁷⁾		197,525			—
aircraft, due 2023⁽¹³⁾								35,000			48,125
Notes payable to financial institution due 2023⁽¹⁴⁾								4,500			6,000
Revolving Credit Facility⁽¹⁵⁾								22,930			22,930
Notes payable to financial institution due 2025⁽¹⁶⁾								199,383			—
Gross long-term debt, including current maturities		725,433			743,250			713,656			743,250
Less unamortized debt issuance costs		(10,598	)		—			(9,948	)		(11,526	)
Less Notes payable warrants		(10,797	)		(11,526	)		(10,219	)		—
Net long-term debt, including current maturities		704,038			731,724			693,489			731,724
Less current portion		(103,980	)		(189,268	)		(107,728	)		(189,268	)
Net long-term debt	$	600,058		$	542,456		$	585,761		$	542,456

Principal maturities of long-term debt as of ~~March 31,~~June 30, 2021, and for each of the next five years are as follows (in thousands):

March 31, 2021	Total Principal
Remainder of 2021	$	59,013
Periods Ending September 30			Total Principal
2021 (remainder of)			$	45,273
2022		113,682		113,682
2023		89,462		89,462
2024		61,209		61,209
2025		56,526		56,526
Thereafter		345,541		347,504
	$	725,433	$	713,656

The net book value of collateralized aircraft and equipment as of ~~March 31,~~June 30, 2021 was ~~$1,060.0~~$1,044.1 million.

In December 2015, an Enhanced Equipment Trust Certificate ("EETC") pass-through trust was created to issue pass-through certificates to obtain financing for new E-175 aircraft. At ~~March 31,~~June 30, 2021, Mesa has $162.2 million of equipment notes outstanding issued under the EETC financing included in long-term debt on the condensed consolidated balance sheets.

~~sheets.~~ The structure of the EETC financing consists of a pass-through trust created by Mesa to issue pass-through certificates, which represent fractional undivided interests in the pass-through trust and are not obligations of Mesa.

The proceeds of the issuance of the pass-through certificates were used to purchase equipment notes which were issued by Mesa and secured by its aircraft. The payment obligations under the equipment notes are those of Mesa. Proceeds received from the sale of pass-through certificates were initially held by a depositary in escrow for the benefit of the certificate holders until Mesa issued equipment notes to the trust, which purchased such notes with a portion of the escrowed funds.

Mesa evaluated whether the pass-through trust formed for its EETC financing is a Variable Interest Entity ("VIE") and required to be consolidated. The pass-through trust was determined to be a ~~VIE,~~VIE; however, the Company has determined that it ~~does~~is not ~~have a variable interest in~~the primary beneficiary of the pass-through trust, and therefore, has not consolidated the pass-through trust with its financial statements.

On September 25, 2019, the Company extended the term on ~~their~~its $35.0 million working capital draw loan by three years, which now terminates in September 2022. Interest is assessed on drawn amounts at one-month LIBOR plus 3.75%. As of ~~March 31,~~June 30, 2021, $22.9 million has been drawn on the revolver.

Future borrowings, if any, under this facility are subject to, among other things, the Company having sufficient unencumbered assets to meet the borrowing base requirements under the facility.

On October 30, 2020, the Company entered into a Loan and Guarantee Agreement with ~~United States~~U.S. Department of the Treasury (the “U.S. Treasury”) for a secured loan facility of up to $200.0 million that matures in October 2025 (“the Treasury ~~Loan Agreement”~~Loan”). On October 30, 2020, the Company borrowed $43.0 million ~~(“the $43M Treasury Loan”)~~ and on November 13, 2020, the Company borrowed an additional $152.0 ~~million (“the $152M Treasury Loan”), collectively referred to as the “Treasury Term Loan Facility”.~~million. NaN further borrowings are available under the Treasury ~~Loan Agreement.~~Loan. The Company also issued warrants to purchase shares of common stock to the U.S. Treasury.

The Treasury Loan ~~and Guarantee Agreement bear~~bears interest at a variable rate equal to (a)(i) the LIBOR rate divided by (ii) one minus the Eurodollar Reserve Percentage plus (b) 3.50%. Accrued interest on the loans will be payable in arrears on the first business day following the 14^th day of each March, June, September, and December, beginning with December 15, ~~2021.~~2020.

All principal amounts outstanding under the Treasury Loan ~~and Guarantee Agreement~~ are due and payable in a single installment on October 30, 2025 (the “Maturity Date”). Interest will be paid by increasing the principal amount of the loan by the amount of such interest due on an interest payment date for the first 12 months. Mesa's obligations under the Treasury Loan ~~Agreement~~ are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment and tooling (collectively, the “Collateral”). The obligations under the Treasury Loan ~~Agreement~~ are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds may be used for general corporate purposes and operating expenses, to the extent permitted by the CARES Act. Voluntary prepayments of loans under the Treasury Loan ~~Agreement~~ may be made, in whole or in part, by Mesa Airlines, without premium or penalty, at any time and from time to time. Amounts prepaid may not be reborrowed. Mandatory prepayments of loans under the Treasury Loan ~~Agreement~~ are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the ~~Loan Agreement)~~Treasury Loan) occurs with respect to Mesa Airlines, Mesa Airlines will be required to repay the loans outstanding under the ~~Loan Agreement.~~Treasury Loan.

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

The Treasury Loan ~~Agreement~~ contains two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Treasury Loan ~~Agreement~~ also contains customary negative and affirmative covenants for credit facilities of this type, including, among others: (a) limitations on dividends and distributions; (b) limitations on the creation of certain liens;

(c) restrictions on certain dispositions, investments and acquisitions; (d) limitations on transactions with affiliates; (e) restrictions on fundamental changes to the business, and (f) restrictions on lobbying activities. Additionally, the Company is required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service.

In connection with the Loan and Guarantee Agreement and as partial compensation to Treasury for the provision of financial assistance under the Loan and Guarantee Agreement, the Company issued to Treasury warrants to purchase an aggregate of 4,899,497 shares of the Company’s common stock at an exercise price of $3.98 per share, which was the closing price of the Common Stock on The Nasdaq Stock Market on April 9, 2020. The exercise price and number of shares of common stock issuable under the Warrants are subject to adjustment as a result of anti-dilution provisions contained in the Warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the condensed consolidated balance sheet.

The Company incurred $3.1 million in debt issuance costs relating to the ~~Loan and Guarantee Agreement.~~Treasury Loan. In accordance with the applicable guidance, Mesa allocated the debt issuance costs between the Treasury Loan and related warrants. At funding on October 30, 2020, the ~~$43M Treasury Loan~~initial $43.0 million was recorded net of $0.7 million in capitalized debt issuance costs. At funding on November 13, 2020, the ~~$152M Treasury Loan~~remaining $152.0 million was recorded net of $2.3 million in capitalized debt issuance costs. The remaining $0.1 million in debt issuance costs was allocated to the warrants as a reduction to the warrant value within additional paid-in capital. Debt issuance costs allocated to the debt are amortized into interest expense using the effective interest method over the term of the related loan.

Prior to the November 13, 2020 funding of the ~~$152M~~$152.0 million portion of the Treasury Loan, the Company repaid $167.7 million in existing aircraft debt covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated June 27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014, and May 23, 2014, (d) Senior Loan Agreements, dated December 27, 2017, and (e) Junior Loan Agreements, also dated December 27, 2017 (collectively, “the EDC Loans”). The Company made payments totaling ~~$164.1~~$164.2 million to repay the EDC Loans, consisting of principal of $167.7 million, and a ~~$3.6~~$3.5 million discount on the balance owed. Additionally, in connection with the repayment, $2.5 million of unamortized original issue discount and deferred financing costs were recorded as a loss on debt extinguishment, resulting in a net gain on extinguishment of $1.0 million recorded within other income.

As of ~~March 31,~~June 30, 2021, the Company is in compliance ~~will~~with all debt covenants.

Calculations of net income per common share attributable to Mesa Air Group were as follows (in thousands, except per share data):

	Three Months Ended March 31,				Six Months Ended March 31,				Three Months Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Net income attributable to Mesa Air Group	$	5,689	$	1,885	$	19,807	$	12,670	$	4,276	$	3,419	$	24,083	$	16,089
Basic weighted average common shares outstanding		35,628		35,141		35,579		35,082		35,769		35,299		35,642		35,154
Add: Incremental shares for:
Dilutive share adjustment - UST Warrant		3,038		—		2,183		138
Dilutive share adjustment - Restricted Shares		766		124		620		—
Dilutive share adjustment - UST warrant										3,084		—		2,536		—
Dilutive share adjustment - restricted shares										660		—		633		94
Diluted weighted average common shares outstanding		39,432		35,265		38,382		35,220		39,513		35,299		38,811		35,248
Net income per common share attributable to Mesa Air Group:
Basic	$	0.16	$	0.05	$	0.56	$	0.36	$	0.12	$	0.10	$	0.68	$	0.46
Diluted	$	0.14	$	0.05	$	0.52	$	0.36	$	0.11	$	0.10	$	0.62	$	0.46

Basic income per common share is computed by dividing net income attributable to Mesa Air Group by the weighted average number of common shares outstanding during the period.

The number of incremental shares from the assumed issuance of shares relating to restricted stock and exercise of warrants (excluding warrants with a nominal conversion price) is calculated by applying the treasury stock method. Share-based awards and warrants whose impact is ~~considered to be~~ anti-dilutive under the treasury stock method were excluded from the diluted net income ~~or loss~~ per share calculation. In loss periods, these incremental shares are excluded from the calculation of diluted loss per share, as the inclusion of unvested restricted stock and warrants would have an anti-dilutive effect. There were 0 anti-dilutive shares relating to restricted stock and exercise of warrants that were excluded from the calculation of diluted ~~loss~~income per share for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020.

The Company previously issued warrants to third parties, which had a five-year term to be converted to common stock at an exercise price of $0.004 per share. Persons who were not U.S. citizens held certain of these outstanding warrants. The warrants are exercisable if consistent with federal law, which requires that no more than 24.9% of the Company's stock be voted, directly or indirectly, or controlled by persons who are not U.S. citizens. The warrants can be converted to common stock upon warrant holders demonstrating U.S. citizenship or if consistent with above described federal law ownership limitations. In June 2018, the Company and holders agreed to extend the term of outstanding warrants set to expire by five years (through fiscal year 2023). All of these warrants were converted to common shares as of March 31, ~~2020 and these warrants were not related to any of the warrants the Company issued pursuant to the terms of a Treasury Warrant Agreement under the Loan and Guarantee Agreement entered on October 30,~~ 2020.

In July 2018, the Company's Board of Directors and Compensation Committee approved the issuance of shares of restricted common stock under its 2018 Equity Incentive Plan (the "2018 Plan") immediately following completion of the Company's IPO to certain of its employees and directors in exchange for the cancellation of existing restricted phantom stock units, unvested restricted shares, and ~~SARs.~~stock appreciation rights (“SARs”). The shares of restricted common stock issued under the 2018 Plan in exchange for the cancellation of restricted phantom stock units, unvested restricted shares and SARs are subject to vesting on the same terms set forth in the prior vesting schedules and are not subject to acceleration in connection with the 2018 Plan issuances.

On April 9, 2019, and pursuant to Section 4.4 of the 2018 Plan in connection with the 2.5-for-1 stock split effected on August 8, 2018, the board of directors approved an increase in the number of shares authorized for issuance under the 2018 Plan by 1,000,000 shares of common stock.

On October 30, 2020, the Company entered into the Loan and Guarantee Agreement with the ~~United States Department of the~~U.S. Treasury ~~(the “Treasury”)~~ and the Bank of New York Mellon, as Administrative and Collateral Agent, under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

In connection with the Loan and Guarantee Agreement and as partial compensation to the U.S. Treasury for the provision of financial assistance under the Loan and Guarantee Agreement, the Company issued warrants to the U.S. Treasury to purchase shares of the Company’s common stock, no par value, at an exercise price of $3.98 per share (the “Exercise Price”), which was the closing price of the ~~Common Stock~~common stock on The Nasdaq Stock Market on April 9, 2020. The ~~Warrants~~warrants were issued pursuant to the terms of a Treasury Warrant Agreement entered into by the Company and the Treasury. The exercise price and number of ~~Warrant Shares~~warrant shares issuable under the ~~Warrants~~warrants are subject to adjustment as a result of anti-dilution provisions contained in the ~~Warrants~~warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option. The warrants ~~will be~~are accounted for within equity at a grant date fair value determined under the Black Scholes Option Pricing Model. As of ~~March 31,~~June 30, 2021, 4,899,497 warrants were issued and outstanding.

The Company has not historically paid dividends on shares of its common stock. Additionally, the Loan and Guarantee Agreement and the Company's aircraft lease facility (the "RASPRO" Lease Facility) with RASPRO Trust 2005, a pass-through trust, contain restrictions that limit the Company's ability to or prohibit it from paying dividends to holders of its common stock.

The Company’s effective tax rate (ETR) from continuing operations was ~~24.9%~~26.3% and ~~25.3%~~25.5% for the three ~~months~~ and ~~six~~nine months ended ~~March 31,~~June 30, 2021, respectively, and ~~40.9%~~30.7% and ~~27.6%~~28.3% for the three ~~months~~ and ~~six~~nine months ended ~~March 31,2020,~~June 30, 2020, respectively. The Company's ETR during the three ~~months~~ and ~~six~~nine months ended ~~March 31,~~June 30, 2021 was different from the prior year tax rates as a result of the vesting and exercise of stock compensation, ~~where the tax deduction~~ state taxes, ~~differed from the book expense,~~ changes in the valuation allowance against state net operating losses, ~~and~~ changes in state statutory ~~rates.~~

The Company's ETR during the six months ended March 31, 2020 was different than the statutory rate of 21% as a result of the vesting and exercise of stock compensation, state taxes, and changes in valuation allowance against state net operating losses,rates, as well as differences between the book and tax deductions associated with meals, entertainment, employer ~~provided~~provide parking, and compensation of officers.

The Company's ETR during the nine months ended June 30, 2021 was different than the U.S. federal statutory rate of 21% as a result of state taxes, the vesting and exercise of stock compensation, differences in the GAAP and tax deductibility of meals and parking benefits, and changes in the valuation allowance against state net operating losses.

As of September 30, 2020, the Company had aggregate federal and state net operating loss carryovers of approximately ~~$512.4~~$512.6 million and $223.9 million, respectively, which expire in fiscal years 2027-2038 and 2021-2040, respectively. Approximately $0.7 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

The restricted share activity for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 ~~were~~is summarized as follows:

				Weighted-					Weighted-
				Average					Average
	Number			Grant Date		Number			Grant Date
	of Shares			Fair Value		of Shares			Fair Value
Restricted shares unvested at September 30, 2020		1,195,548		$	5.47		1,195,548		$	5.47
Granted		121,688			8.58		305,374			9.54
Vested		(132,109	)		8.75		(445,937	)		7.16
Forfeited		(17,500	)		4.90		(35,500	)		4.75
Restricted shares unvested at March 31, 2021		1,167,627		$	5.44
Restricted shares unvested at June 30, 2021							1,019,485		$	5.98

As of ~~March 31,~~June 30, 2021, there was ~~$4.4~~$5.4 million of total unrecognized compensation cost related to unvested share-based compensation ~~arrangements. That cost~~arrangements, which is expected to be recognized over a weighted-average period of ~~2.3~~2.6 years.

Compensation cost for share-based awards are recognized on a straight-line basis over the vesting period. Share-based compensation expense for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$0.8~~$0.7 million and ~~$1.2~~$1.0 million, respectively, and for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$1.7~~$2.4 million and ~~$2.5~~$3.5 million, respectively.

The Company repurchased ~~175,925~~139,896 shares of its common stock for ~~$0.2~~$1.4 million to cover the income tax obligation on vested employee equity awards and warrant conversions during the ~~six~~nine months ended ~~March 31,~~June 30, 2021.

The Company ~~has granted~~grants restricted stock units (“RSUs”) as part of its long-term incentive compensation to employees and non-employee members of the Board of Directors. RSUs generally vest over a period of 3 to 5 years for employees and ~~over~~ one year for members of the Board of Directors. The restricted common stock underlying RSUs are not deemed issued or outstanding upon grant, and do not carry any voting rights.

The Mesa Air Group, Inc. 2019 Employee Stock Purchase Plan (the "2019 ~~ESPP~~ESPP”") is a nonqualified plan that provides eligible employees of Mesa Air Group, Inc. with an opportunity to purchase Mesa Air Group, Inc. ordinary shares through payroll deductions. Under the 2019 ESPP, eligible employees may purchase Mesa Air Group, Inc. ordinary shares through the Employee Stock Purchase Plan. Under the 2019 ESPP, eligible employees may elect to contribute 1% to 15% of their eligible compensation during each semi-annual offering period to purchase Mesa Air Group, Inc. ordinary shares at a 10% discount.

A maximum of 500,000 Mesa Air Group, Inc. ordinary shares may be issued under the 2019 ESPP. As of ~~March 31,~~June 30, 2021, eligible employees purchased and the Company issued 157,714 Mesa Air Group, Inc. ordinary ~~shares under the 2019 ESPP.~~shares.

As of ~~March 31,~~June 30, 2021, the Company leased 17 aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases. The leases require the Company to pay all taxes, maintenance, insurance, and other operating expenses. Rental expense is recognized on a straight-line basis over the lease term, net of lessor rebates and other incentives. The Company expects that, in the normal course of business, such operating leases that expire will be renewed or replaced by other leases, or the property may be purchased rather than leased.

It is common for us, as the lessee, to agree to indemnify the lessor and the lessor's related parties for tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased airport facility and office space premises. This type of indemnity typically makes us responsible to indemnified parties for liabilities arising out of the conduct of, among others, contractors, licensees, and invitees at, or in connection with, the use or occupancy of the leased premises. This indemnity often extends to related liabilities arising from the negligence of the indemnified parties but usually excludes any liabilities caused by either their sole or gross negligence or their willful misconduct.

Our aircraft and other equipment lease and financing agreements typically contain provisions requiring us, as the lessee or obligor, to indemnify the other parties to those agreements, including certain of those parties' related persons, against virtually any liabilities that might arise from the use or operation of the aircraft or other equipment.

We believe that our insurance would cover most of our exposure to liabilities and related indemnities associated with the commercial real estate leases and aircraft and other equipment lease and financing agreements described above. While our insurance does not typically cover environmental liabilities, we have insurance policies in place as required by applicable environmental laws. We cannot reasonably estimate our potential future payments under the indemnities and related provisions described above because we cannot predict (1) when and under what circumstances these provisions may be triggered and (2) the amount that would be payable if the provisions were triggered because the amounts would be based on facts and circumstances existing at such time.

Aggregate rental expense under all operating aircraft, equipment and facility leases totaled approximately $13.9 million and ~~$18.6~~$15.6 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and ~~$27.7~~$41.6 million and ~~$35.4~~$51.0 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

As of ~~March 31,~~June 30, 2021, the Company’s operating leases have a remaining weighted average lease ~~terms~~term of ~~3.1~~2.9 years and our operating lease liabilities were measured using a weighted average discount rate of 4.2%.

On February 26, 2021, the Company and General Electric Company (“GE”), acting through its GE-Aviation business unit, entered into an Amended and Restated Letter Agreement No. 13-3. The Company agreed to purchase and take delivery of 10ten (10) new CF34-8C5 or CF34-8E5 engines with delivery dates starting from July 1, 2021 through November 1^,2022. During the quarter ended March 31, 2021, a $7.0 million non-refundable purchase deposit was made for the first 5 engines to be delivered in calendar 2021. The Company has options to purchase an additional ten (10) ~~ten~~ similar engines beyond 2022. The total purchase commitment related to these 10ten (10) engines is approximately $50.0 million.

If the Company fails to accept delivery of the spare engines when duly tendered, the Company may be assessed a minimum cancellation charge based on the engine price determined as of the date of scheduled engine delivery to the Company.

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs.

The Company is subject to 2 putative class action lawsuits alleging federal securities law violations in connection with our IPO, 1 in the Superior Court of the State of Arizona and 1 in U.S. District Court of Arizona. These purported class actions were filed in March and April 2020 against the Company, certain current and former officers and directors, and certain underwriters of the Company’s IPO. The state and federal lawsuits each make the same or similar allegations of violations of the Securities Act of 1933, as amended, for allegedly making materially false and misleading statements in, or omitting material information from, our IPO registration statement. The plaintiffs seek unspecified monetary damages and other relief. In addition, we are subject to certain legal actions which we consider routine to our business activities. As of ~~March 31,~~June 30, 2021, our management believed, ~~after consultation with legal counsel,~~ that the ultimate ~~outcome~~outcomes of the two putative class action lawsuits and such other routine legal matters are not likely to have a material adverse effect on our financial position, liquidity, or results of operations.

~~On April 15,~~In connection with a negotiated forward purchase contract for fully electric aircraft (the “Aircraft Purchase Agreement”) executed in July 2021, the Company ~~was notified by~~entered into a Series A Preferred Stock Purchase Agreement (the “Series A Preferred Stock Purchase Agreement”) and acquired $5.0 million of preferred stock in Heart Aerospace Incorporated (“Heart”). Heart is a privately held company developing an electric aircraft for, among other things, commercial passenger transportation. The initial investment in preferred stock is expected to be measured at cost. The Aircraft Purchase Agreement provides for the ~~U.S. Department~~purchase of 100 nineteen-seat electric aircraft (“ES-19” aircraft) with an option to purchase an additional 50 ES-19 aircraft, at the ~~Treasury we are eligible~~Company’s election. The Company’s obligation to ~~receive funds under~~purchase the ~~third Payroll Support Program (PSP3) as described~~ES-19 aircraft is subject to the Company and Heart first agreeing in ~~Note 2.~~the future to a number of terms and conditions, which may or may not be met. In connection with the Aircraft Purchase Agreement and Series A Preferred Stock Purchase Agreement, the Company also obtained a warrant to purchase common shares of Heart. The warrant vests and becomes exercisable in tranches upon completion of specified future milestones.

On ~~April~~August 9, 2021, the Company entered into Amendment No. 25 (“Amendment No. ~~2”) to the Amended and Restated American Capacity Purchase Agreement as described in Note 1.~~

~~On April 19, 2021, the Company entered into Amendment No. 3 (“Amendment No. 3”~~5”) to the Amended and Restated American Capacity Purchase Agreement as described in Note 1.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

Mesa Airlines is a regional air carrier providing scheduled ~~flight~~passenger service to ~~112~~116 cities in 3836 states, the District of Columbia, and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. All of our flights are operated as either American Eagle, United Express, or DHL Express flights pursuant to the terms of capacity purchase agreements (“CPAs”) entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”), and ~~DHL~~ ~~Express~~ pursuant to the terms of a Flight Services Agreement (“~~FSA”~~FSA”) with DHL Network Operations (USA), Inc. (“DHL”) (each, our "major ~~airline~~ partner"). We have a significant presence in several of our major ~~airline~~ partners' key domestic hubs and focus cities, including Dallas, Houston, Phoenix and Washington-Dulles.

As of ~~March 31,~~June 30, 2021, we operated, under the ~~Capacity Purchase Agreements,~~CPAs, FSA or as ~~spare,~~operational spares, a fleet of ~~163~~155 aircraft with approximately ~~440~~470 daily departures. We also lease 12 aircraft to a third party. We operate 45 CRJ-900 aircraft under our ~~capacity purchase agreement with~~ American ~~(our "American Capacity Purchase Agreement"~~)CPA and 60 E-175 and 1620 E-175LL aircraft under our ~~capacity purchase agreement with~~ United ~~(our "United Capacity Purchase Agreement"~~).CPA. We operate 2 Boeing ~~737- F400~~737-F400 aircraft under the ~~Flight Services Agreement~~FSA with ~~DHL Network Operations.~~DHL. For the three months ended ~~March 31,~~June 30, 2021, approximately ~~53%~~63% of our aircraft in scheduled service were operated for United, approximately ~~45%~~35% were operated for American and 2% were operated for DHL. All of our operating revenue in ~~our six~~the nine months ended ~~March 31,~~June 30, 2021 was derived from operations associated with our American and United ~~Capacity Purchase Agreements~~CPAs and DHL ~~Flight Services Agreement.~~FSA.

Our long-term ~~capacity purchase agreements~~CPAs provide 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 flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying on behalf of our major ~~airline~~ partners. Our ~~capacity purchase agreements~~CPAs also shelter 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 ~~capacity purchase agreements,~~CPAs, we use the logos, service marks, flight crew uniforms and aircraft paint schemes of our major ~~airline~~ partners. Our major ~~airline~~ partners control route selection, pricing, seat inventories, marketing, and scheduling, and provide us with ground support services, airport landing slots and gate access.

The rapid spread of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world significantly reduced demand for air travel beginning in the quarter ended March 31, 2020. This reduction in demand had an unprecedented and materially adverse impact on our revenues and financial position in the prior year that has continued into fiscal year 2021. However, as discussed further below, we experienced improvement in our financial results in the quarter ended June 30, 2021, which we expect to continue the remainder of fiscal 2021.

The funds the Company received under the Payroll Support Program and its Loan and Guarantee Agreement with the U.S. Treasury, coupled with the Company’s diligent cost saving, have helped to partially offset the negative impacts of COVID-19 on the Company’s business. Since a portion of our revenue is fixed due to the structure of our CPAs, the impact of COVID-19 on the Company’s operations has been less severe. In addition, we have limited exposure to fluctuations in passenger traffic, ticket, and fuel prices.

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

Our condensed consolidated 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 capacity purchase agreements and flight services agreement with our major ~~airline~~ partners, along with the additional amounts received based on the number of flights and block hours ~~flown.~~flown, and rental revenue for aircraft leased to GoJet. Contract revenues we receive from our major ~~airline~~ partners are paid and recognized by us on a weekly basis.

Pass-Through and ~~Other.~~Other Revenue. Pass-through and other revenue consists of passenger and hull insurance, aircraft property taxes, other direct costs, and certain maintenance costs related to our E-175 aircraft.

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.

Fuel. Fuel expense includes fuel and related fueling costs for flying we undertake outside of our capacity purchase agreements and flight service agreement, including aircraft repositioning and maintenance. All aircraft fuel and related fueling costs for flying under our capacity purchase agreements were directly paid and supplied by our major ~~airline~~ partners. The fuel and related cost for flying under our FSA were directly paid and supplied by DHL. We do not record an expense or the related revenue for fuel supplied by American and United for flying under our capacity purchase agreements ~~and~~or DHL under our FSA.

Maintenance. Maintenance expense includes routine repair and maintenance and heavy maintenance costs for airframes, engines, auxiliary power units and landing gears. ~~Maintenance~~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.

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

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense includes expenses related to our capacity purchase agreements, including aircraft cleaning, passenger disruption reimbursements, international navigation fees and wages of airport operations personnel, a portion of which are reimbursable by our major ~~airline~~ partners.

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.

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

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

Other Expense. Other expense includes expense derived from activities not classified in any other area of the condensed consolidated statements of income, including write-offs of miscellaneous third-party fees.

Operating segments are defined as components of an enterprise about which ~~separate~~discrete financial information is available that is evaluated regularly by the chief operating decision maker 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 capacity purchase ~~agreements.~~agreements and flight services agreement.

While we operate under two separate capacity purchase agreements and one flight services agreement, we do not manage our business based on any performance measure at the individual contract level. Additionally, our chief operating decision maker (“CODM”) uses condensed 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.

We present Adjusted EBITDA and Adjusted EBITDAR, ~~in this Quarterly Report on Form 10-Q,~~ 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~~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 the impact of revaluation of liability awards, lease termination costs, loss on extinguishment of debt, and 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 the impact of revaluation of liability awards, lease termination costs, loss on extinguishment of debt, and 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; and (vi) 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.

Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

We had operating income of ~~$16.8~~$14.4 million in our three months ended ~~March 31,~~June 30, 2021 compared to operating income of ~~$13.9~~$15.2 million in our three months ended ~~March 31,~~June 30, 2020. In our three months ended ~~March 31,~~June 30, 2021, we had net income of ~~$5.7~~$4.3 million compared to net income of ~~$1.9~~$3.4 million in our three months ended ~~March 31,~~June 30, 2020. Our operating results for the three months ended ~~March 31,~~June 30, 2021 reflected ~~a decrease~~an increase in contract and pass-through revenue due to ~~reduced rates to partners related to PSP2 and lower flying on our CRJ-900, CRJ-700, and E-175 fleet due~~the lessened impact of COVID-19 as compared to the ~~impact of COVID-19.~~quarter ended June 30, 2020.

Flight operations expense ~~decreased~~increased in the three months ended ~~March 31,~~June 30, 2021 due to ~~lower~~higher pilot and flight attendant wages and pilot training expenses. Our maintenance expense ~~decreased~~increased primarily due to ~~fewer heavy engine maintenance~~a higher number of C-check events, ~~and lower~~higher utilization of component contracts, ~~parts,~~higher pass-through maintenance, and higher labor ~~expense, offset by higher c-check expense and pass-through maintenance.~~expense. Aircraft rent expense decreased primarily due to fewer leased engines. ~~In addition, general and administrative expense decrease as a result of lower pass-through property taxes.~~ Lastly, we recognized the Federal Grant received through the Payroll Support Agreement under the CARES Act with the U.S. Department of the Treasury.

	Three Months Ended March 31,									Three Months Ended June 30,
	2021		2020		Change					2021		2020		Change
Operating revenues ($ in thousands):
Contract	$	81,712	$	165,781	$	(84,069	)	(50.7	)%	$	109,654	$	71,648	$	38,006	53.0	%
Pass-through and other		15,568		14,115		1,453		10.3	%
Pass-through and other revenue											15,503		1,451		14,052	968.4	%
Total operating revenues	$	97,280	$	179,896	$	(82,616	)	(45.9	)%	$	125,157	$	73,099	$	52,058	71.2	%

Operating data:
Available seat miles—ASMs (thousands)		1,771,498		2,611,940		(840,442	)	(32.2	)%		2,056,905		783,702		1,273,203	162.5	%
Block hours		73,942		108,305		(34,363	)	(31.7	)%		85,162		31,622		53,540	169.3	%
Revenue passenger miles—RPMs (thousands)		1,148,498		1,785,153		(636,655	)	(35.7	)%		1,692,687		314,422		1,378,265	438.3	%
Average stage length (miles)		690		619		71		11.5	%		651		567		84	14.8	%
Contract revenue per available seat mile—CRASM (in cents)	¢ 4.61		¢ 6.35		¢ 1.74			(27.4	)%	¢ 5.33		¢ 9.14		¢ (3.81)		(41.7	)%
Passengers		1,684,043		2,838,412		(1,154,369	)	(40.7	)%		2,572,303		548,705		2,023,598	368.8	%

"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.

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

Total operating revenue ~~decreased~~increased by ~~$82.6~~$52.1 million, or ~~45.9%~~71.2%, to ~~$97.3~~$125.2 million for our three months ended ~~March 31,~~June 30, 2021 as compared to our three months ended ~~March 31,~~June 30, 2020. Contract revenue ~~decreased~~increased by ~~$84.1~~$38.0 million, or ~~50.7%~~53.0%, to ~~$81.7~~$109.7 million primarily due to ~~a decrease in~~increased flying on our CRJ-900 ~~CRJ-700,~~ and E-175 ~~fleet~~fleets and increased demand for air travel as state and local governments in the United States continue to lift travel and gathering restrictions, partially offset by a ~~result of the impact of COVID-19,~~ temporary ~~reduced~~reduction in rates to our major partners and flying fewer aircraft under the American CPA. Our block hours flown during our three months ended ~~March 31,~~June 30, 2021, ~~decreased 31.7%~~increased 169.3% compared to the three months ended ~~March 31,~~June 30, 2020 due to ~~decreased~~increased flying onacross all ~~our~~ fleets. Our pass-through and other revenue increased during our three months ended ~~March 31,~~June 30, 2021 by ~~$1.5~~$14.1 million, or ~~10.3%~~968.4%, to ~~$15.6~~$15.5 million primarily due to increased pass-through maintenance revenue related to our E-175 fleet. In addition, the decrease is attributable to reduced rates to partners related to PSP2 and fewer aircraft operating under the Amended and Restated American Purchase Agreementon all fleets.

	Three Months Ended March 31,										Three Months Ended June 30,
	2021			2020		Change					2021			2020			Change
Operating expenses ($ in thousands):
Flight operations	$	37,403		$	52,891	$	(15,488	)	(29.3	)%	$	41,314		$	29,664		$	11,650		39.3	%
Fuel		198			188		10		5.3	%		234			146			88		60.3	%
Maintenance		51,773			64,335		(12,562	)	(19.5	)%		51,986			22,591			29,395		130.1	%
Aircraft rent		9,992			12,285		(2,293	)	(18.7	)%		9,648			15,582			(5,934	)	(38.1	)%
Aircraft and traffic servicing		743			1,336		(593	)	(44.4	)%		682			538			144		26.8	%
General and administrative		11,164			14,500		(3,336	)	(23.0	)%		12,087			11,737			350		3.0	%
Depreciation and amortization		20,705			20,469		236		1.2	%		20,933			20,635			298		1.4	%
Lease termination		4,508			—		4,508		100.0	%
Government grant recognition		(55,967	)		—		(55,967	)	100.0	%		(26,101	)		(43,018	)		16,917		(39.3	)%
Total operating expenses	$	80,519		$	166,004	$	(85,485	)	(51.5	)%	$	110,783		$	57,875		$	52,908		91.4	%

Operating data:
Available seat miles—ASMs (thousands)		1,771,498			2,611,940		(840,442	)	(32.2	)%		2,056,905			783,702			1,273,203		162.5	%
Block hours		73,942			108,305		(34,363	)	(31.7	)%		85,162			31,622			53,540		169.3	%
Average stage length (miles)		690			619		71		11.5	%		651			567			84		14.8	%
Departures		35,344			55,435		(20,091	)	(36.2	)%		42,390			18,092			24,298		134.3	%

Flight Operations. Flight operations expense ~~decreased $15.5~~increased $11.7 million, or ~~29.3%~~39.3%, to ~~$37.4~~$41.3 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The ~~decrease~~increase was primarily driven by ~~a decrease~~an increase in pilot and flight attendant wages due to ~~lower~~higher block hours as well as pilot training related costs.

Fuel. Fuel expense increased ~~$0.01~~$0.1 million, or ~~5.3%~~60.3%, to $0.2 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The increase was primarily driven by fuel expense related to ~~c-checks.~~C-checks and ferry flights. All fuel costs related to flying under our capacity purchase agreements during our three months ended ~~March 31,~~June 30, 2021 and 2020 were directly paid to suppliers by our major ~~airline~~ partners.

Maintenance. Aircraft maintenance costs ~~decreased $12.6~~increased $29.4 million, or ~~19.5%~~130.1%, to ~~$51.8~~$52.0 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. This ~~decrease~~increase was primarily driven by ~~a decrease~~increases in ~~engine overhaul,~~C-checks, component contracts, parts, pass-through maintenance, and labor and other ~~expense. This decrease was partially offset by an increase in c-check, pass-through c-check,~~expense and ~~pass-through engine overhaul expense.~~availability of parts for certain fleets. Total pass-through maintenance expenses reimbursed by our major ~~airline~~ partners increased by ~~$2.3~~$15.0 million during our three months ended ~~March 31,~~June 30, 2021.

The following table presents information regarding our maintenance costs during the three months ended ~~March 31,~~June 30, 2021 and 2020 (in thousands):

	Three Months Ended March 31,									Three Months Ended June 30,
	2021		2020		Change					2021		2020			Change
Engine overhaul	$	4,709	$	13,794	$	(9,085	)	(65.9	)%	$	1,307	$	2,816		$	(1,509	)	(53.6	)%
Pass-through engine overhaul		2,173		704		1,469		208.7	%		2,740		402			2,338		581.6	%
C-check		8,506		6,640		1,866		28.1	%		8,567		2,096			6,471		308.7	%
Pass-through C-check		5,603		3,873		1,730		44.7	%		5,553		762			4,791		628.7	%
Component contracts		6,370		9,395		(3,025	)	(32.2	)%		7,349		3,162			4,187		132.4	%
Rotable and expendable parts		5,064		7,461		(2,397	)	(32.1	)%		5,921		3,381			2,540		75.1	%
Other pass-through		3,658		4,511		(853	)	(18.9	)%		4,260		(3,660	)		7,920		216.4	%
Labor and other		15,690		17,957		(2,267	)	(12.6	)%		16,289		13,632			2,657		19.5	%
Total	$	51,773	$	64,335	$	(12,562	)	(19.5	)%	$	51,986	$	22,591		$	29,395		130.1	%

Aircraft Rent. Aircraft rent expense decreased ~~$2.3~~$5.9 million, or ~~18.7%~~38.1%, to ~~$10.0~~$9.6 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The decrease is attributable to a ~~$2.3 million~~ decrease in engine rent due to fewer leased ~~engines.~~engines as well as a decrease in rent expense from aircraft leases due to the Company’s purchase of a previously leased aircraft in March 2021.

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense ~~decreased $0.6~~increased $0.1 million, or ~~44.4%~~26.8%, to $0.7 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The ~~decrease~~increase is primarily due to ~~a decrease~~an increase in ~~interrupted trip expense~~pass-through legal and ~~pass-through~~ regulatory charges. ~~For our three months ended March 31, 2021 and 2020, 49.9% and 32.0%, respectively, of our aircraft and traffic servicing expenses were reimbursed by our major airline partners.~~

General and Administrative. General and administrative expense ~~decreased $3.3~~increased $0.4 million, or ~~23.0%~~3.0%, to ~~$11.2~~$12.1 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The ~~decrease~~increase is primarily due to an increase in wages and labor as well as liability insurance, offset by a decrease in ~~pass-through~~ property ~~tax.~~taxes. For our three months ended ~~March 31,~~June 30, 2021 and 2020, ~~$2.9~~$3.3 million and ~~$4.9~~$3.9 million, respectively, of our insurance and property tax expenses were reimbursed by our major ~~airline~~ partners.

Depreciation and Amortization. Depreciation and amortization expense increased ~~$0.2~~$0.3 million, or ~~1.2%~~1.4%, to ~~$20.7~~$20.9 million for our three months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The increase is primarily attributable to an increase in rotable inventory and ~~spare engines~~deferred heavy maintenance depreciation expense, partially offset by a decrease in intangible asset amortization ~~of intangibles~~ expense.

~~Lease Termination.~~Government Grant Recognition. ~~Lease termination expense increased $4.5~~Payroll support government plan funds decreased $16.9 million, or ~~100.0%~~39.3%, to ~~$4.5~~$26.1 million for our three months ended March 31, 2021 compared to the same period in 2020.This increase is attributable to the termination expense resulting from the purchase of CRJ-900 aircraft, which were previously leased from Bombardier Capital.

~~Government grant recognition.~~ ~~Payroll Support Government Plan funds increased $56.0 million, or 100.0%, to $56.0 million for our three months ended March 31,~~June 30, 2021 compared to the same period in 2020. ~~Under~~The decrease is primarily due to the ~~CARES Act, the government provided the Company with a grant~~timing of ~~$56.0 million in~~receipt and recognition of payroll support ~~for~~funds in the ~~period of December 2020 through March 2021.~~prior period.

Other expense decreased ~~$1.5~~$1.7 million, or ~~14.2%~~16.7%, to ~~$9.2~~$8.6 million for our three months ended ~~March 31,~~June 30, 2021, compared to the same period in 2020. The decrease is primarily a result of a decrease in interest expense due to ~~lower interest rates on our loan agreement with U.S. Department of Treasury and~~ a decrease in outstanding aircraft principal ~~balances.~~balances and lower interest rates resulting from the Loan and Guarantee Agreement with the U.S. Department of the Treasury.

The Company's effective tax rate (ETR) from continuing operations was ~~24.9%~~26.3% for the three months ended ~~March 31,~~June 30, 2021 and ~~40.9%~~30.7% for the three months ended ~~March 31,~~June 30, 2020. The Company's ETR during the three months ended ~~March 31,~~June 30, 2021 was different from the U.S. federal statutory rate of 21% primarily due to permanent book and tax deductible expense differences, vesting of stock compensation where the tax deduction differed from the book expense, state taxes, changes in the valuation allowance against state net operating losses, and changes in state apportionment and state statutory rates. We continue to maintain a valuation allowance on a portion of our 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.

The Company's current year effective tax rate ~~increased~~decreased compared to the prior year tax rate as a result of ~~a decrease~~an increase to the forecast for the current fiscal year, as the Company's permanent differences between book and taxable income therefore have ~~a larger~~less of an impact on the Company's effective tax rate. In addition, the Company's rate varied from the prior year's as a result of the vesting of stock compensation where the tax deduction differed from the book expense, state taxes, changes in the valuation allowance against state net operating losses, and changes in state statutory rates.

As of September 30, 2020, the Company had aggregate federal and state net operating loss carryforwards of ~~$512.4~~$512.6 million and $223.9 million, respectively, which expire in 2027-2038 and 2021-2040, respectively. Approximately $0.7 million of state net operating loss carryforwards are expected to expire in the current year.

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2021 Compared to ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2020

We had operating income of ~~$43.7~~$58.1 million in our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to operating income of ~~$41.1~~$56.3 million in our ~~six~~nine months ended ~~March 31,~~June 30, 2020. In our ~~six~~nine months ended ~~March 31,~~June 30, 2021, we had net income of ~~$19.8~~$24.1 million compared to net income of ~~$12.7~~$16.0 million in our ~~six~~nine months ended ~~March 31,~~June 30, 2020. Our operating results for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 reflected a decrease in contract revenue primarily due to ~~reduced rates to partners related to PSP2 and~~ lower flying ~~on our CRJ-900, CRJ-700, and E-175 fleet~~ due to the impact of COVID-19, and an increase in pass-through and other revenues primarily due to an increase in ~~E-175 maintenance~~ pass-through ~~expense.~~maintenance.

Flight operations expense decreased in the ~~six~~nine months ended ~~March 31,~~June 30, 2021 due to lower pilot and flight attendant wages and pilot training expenses. Our maintenance expense ~~decreased~~increased primarily due to ~~fewer c-checks~~a higher number of C-checks and ~~heavy engine maintenance events and lower~~higher component contracts, ~~parts,~~ and ~~labor expense,~~higher pass-through maintenance, offset by ~~higher pass-through maintenance.~~lower maintenance expense related to engine overhauls, labor, and parts. Aircraft rent expense decreased primarily due fewer leased engines. In addition, general and

administrative expense decreased as a result of lower pass-through property taxes. Lastly, we recognized the Federal Grant received through the Payroll Support Agreement under the CARES Act with the U.S. Department of the Treasury.

	Six Months Ended March 31,									Nine Months Ended June 30,
	2021		2020		Change					2021		2020		Change
Operating revenues ($ in thousands):
Contract	$	208,870	$	337,580	$	(128,710	)	(38.1	)%	$	318,524	$	409,228	$	(90,704	)	(22.2	)%
Pass-through and other		38,781		26,351		12,430		47.2	%
Pass-through and other revenue											54,284		27,802		26,482		95.3	%
Total operating revenues	$	247,651	$	363,931	$	(116,280	)	(32.0	)%	$	372,808	$	437,030	$	(64,222	)	(14.7	)%

Operating data:
Available seat miles—ASMs (thousands)		3,442,441		5,347,325		(1,904,884	)	(35.6	)%		5,499,346		6,131,028		(631,682	)	(10.3	)%
Block hours		143,189		223,866		(80,677	)	(36.0	)%		228,351		255,488		(27,137	)	(10.6	)%
Revenue passenger miles—RPMs (thousands)		2,319,909		3,936,747		(1,616,838	)	(41.1	)%		4,012,596		4,251,169		(238,573	)	(5.6	)%
Average stage length (miles)		664		595		69		11.6	%		659		591		68		11.5	%
Contract revenue per available seat mile—CRASM (in cents)	¢ 6.07		¢ 6.31		¢ (0.24)			(3.8	)%	¢ 5.79		¢ 6.67		¢ (0.88)			(13.2	)%
Passengers		3,513,757		6,535,550		(3,021,793	)	(46.2	)%		6,086,060		7,084,255		(998,195	)	(14.1	)%

~~"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.~~

Total operating revenue decreased by ~~$116.3~~$64.2 million, or ~~32.0%~~14.7%, to ~~$247.7~~$372.8 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 as compared to our ~~six~~nine months ended ~~March 31,~~June 30, 2020. Contract revenue decreased by ~~$128.7~~$90.7 million, or ~~38.1%~~22.2%, to ~~$208.9~~$318.5 million primarily due to a decrease in flying ~~on our CRJ-900, CRJ-700, and E-175 fleet~~ as a result of the impact of the COVID-19 pandemic including travel restrictions beginning in our second fiscal quarter of 2020, a temporary ~~reduced rate~~reduction in rates to our major partners and flying fewer aircraft under the American CPA. Our block hours flown during our ~~six~~nine months ended ~~March 31,~~June 30, 2021 decreased ~~36.0%~~10.6% compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2020 primarily due to decreased flying on our CRJ-900, CRJ-700, and E-175 fleets. Our pass-through and other revenue increased during our ~~six~~nine months ended ~~March 31,~~June 30, 2021 by ~~$12.4~~$26.5 million, or ~~47.2%~~95.3%, to ~~$38.8~~$54.3 million primarily due to pass-through maintenance revenue related to our E-175 fleet. ~~In addition, the decrease is attributable to reduced rates to partners related to PSP2 and fewer aircraft operating under the Amended and Restated American Purchase Agreement.~~

	Six Months Ended March 31,										Nine Months Ended June 30,
	2021			2020		Change					2021			2020			Change
Operating expenses ($ in thousands):
Flight operations	$	74,367		$	105,535	$	(31,168	)	(29.5	)%	$	115,681		$	135,199		$	(19,518	)	(14.4	)%
Fuel		588			358		230		64.2	%		822			504			318		63.1	%
Maintenance		104,637			122,430		(17,793	)	(14.5	)%		156,623			145,021			11,602		8.0	%
Aircraft rent		20,040			23,614		(3,574	)	(15.1	)%		29,688			39,196			(9,508	)	(24.3	)%
Aircraft and traffic servicing		1,644			2,400		(756	)	(31.5	)%		2,326			2,938			(612	)	(20.8	)%
General and administrative		24,237			27,496		(3,259	)	(11.9	)%		36,324			39,233			(2,909	)	(7.4	)%
Depreciation and amortization		41,175			41,021		154		0.4	%		62,108			61,656			452		0.7	%
Lease termination		4,508			—		4,508		100.0	%		4,508			—			4,508		100.0	%
Government grant recognition		(67,278	)		—		(67,278	)	100.0	%		(93,379	)		(43,018	)		(50,361	)	117.1	%
Total operating expenses	$	203,918		$	322,854	$	(118,936	)	(36.8	)%	$	314,701		$	380,729		$	(66,028	)	(17.3	)%

Operating data:
Available seat miles—ASMs (thousands)		3,442,441			5,347,325		(1,904,884	)	(35.6	)%		5,499,346			6,131,028			(631,682	)	(10.3	)%
Block hours		143,189			223,866		(80,677	)	(36.0	)%		228,351			255,488			(27,137	)	(10.6	)%
Average stage length (miles)		664			595		69		11.6	%		659			591			68		11.5	%
Departures		182,557			118,160		64,397		54.5	%		113,004			136,252			(23,248	)	(17.1	)%

Flight Operations. Flight operations expense decreased ~~$31.2~~$19.5 million, or ~~29.5%~~14.4%, to ~~$74.4~~$115.7 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The decrease was primarily driven by a decrease in pilot and flight attendant wages due to lower block hours as well as lower pilot training related costs.

Fuel. Fuel expense increased ~~$0.2~~$0.3 million, or ~~64.2%~~63.1%, to ~~$0.6~~$0.8 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The increase was primarily driven by fuel expense related to the delivery of the new

E-175 aircraft. All fuel costs related to flying under our capacity purchase agreements and flight services agreement during our ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 were directly paid to suppliers by our major ~~airline~~ partners.

Maintenance. Aircraft maintenance costs ~~decreased $17.8~~increased $11.6 million, or ~~14.5%~~8.0%, to ~~$104.6~~$156.6 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. This ~~decrease~~increase was primarily driven by an increase in C-check expense and pass through maintenance. This increase was partially offset by a decrease in engine overhaul, ~~expense, component contracts, parts, and~~ labor, and ~~other expense. This decrease was partially offset by an increase in pass-through engine overhaul and pass-through c-check expense.~~parts. Total pass-through maintenance expenses reimbursed by our major ~~airline~~ partners increased by ~~$14.8~~$29.9 million during our ~~six~~nine months ended ~~March 31,~~June 30, 2021.

The following table presents information regarding our maintenance costs during our ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 (in thousands):

	Six Months Ended March 31,									Nine Months Ended June 30,
	2021		2020		Change					2021		2020		Change
Engine overhaul	$	9,462	$	22,545	$	(13,083	)	(58.0	)%	$	10,769	$	25,361	$	(14,592	)	(57.5	)%
Pass-through engine overhaul		11,806		2,555		9,251		362.1	%		14,546		2,956		11,590		392.1	%
C-check		11,464		12,692		(1,228	)	(9.7	)%		20,031		14,787		5,244		35.5	%
Pass-through C-check		12,741		5,093		7,648		150.2	%		18,294		5,856		12,438		212.4	%
Component contracts		12,157		19,082		(6,925	)	(36.3	)%		19,506		22,243		(2,737	)	(12.3	)%
Rotable and expendable parts		10,382		14,866		(4,484	)	(30.2	)%		16,303		18,247		(1,944	)	(10.7	)%
Other pass-through		6,770		8,848		(2,078	)	(23.5	)%		11,030		5,188		5,842		112.6	%
Labor and other		29,855		36,749		(6,894	)	(18.8	)%		46,144		50,383		(4,239	)	(8.4	)%
Total	$	104,637	$	122,430	$	(17,793	)	(14.5	)%	$	156,623	$	145,021	$	11,602		8.0	%

Aircraft Rent. Aircraft rent expense decreased ~~$3.6~~$9.5 million, or ~~15.1%~~24.3%, to ~~$20.0~~$29.7 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The decrease is attributable to ~~$3.6 million~~a decrease in engine rent due to fewer leased engines.

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense decreased ~~$0.8~~$0.6 million, or ~~31.5%~~20.8%, to ~~$1.6~~$2.3 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The decrease is primarily due to a decrease in interrupted trip expense and pass-through regulatory charges, partially offset by an increase in pass-through legal fees related to our GoJet ~~lease. For our six months ended March 31, 2021 and 2020, 54.7% and 36.5%, respectively, of our aircraft and traffic servicing expenses were reimbursed by our major airline partners.~~leases.

General and Administrative. General and administrative expense decreased ~~$3.3~~$2.9 million, or ~~11.9%~~7.4%, to ~~$24.2~~$36.3 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The decrease is primarily due to a decrease in pass-through property taxes. For our ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, ~~$7.4~~$10.7 million and ~~$9.3~~$13.2 million, respectively, of our insurance and property tax expenses were reimbursed by our major ~~airline~~ partners.

Depreciation and Amortization. Depreciation and amortization expense increased ~~$0.2~~$0.5 million, or ~~0.4%~~0.7%, to ~~$41.2~~$62.1 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. The increase is primarily attributable to an increase in rotables and spare engines depreciation expense, partially offset by a decrease in amortization of intangibles expense.

Lease Termination. Lease termination expense increased $4.5 million, or 100.0%, to $4.5 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. This increase is attributable to the termination expense resulting from the purchase ~~the purchase~~ of a CRJ-900 aircraft, which was previously leased from Bombardier Capital.

Government ~~grant recognition.~~Grant Recognition. Payroll ~~Support Government Plan~~support government plan funds increased ~~$67.3~~$50.4 million, or ~~100.0%~~117.1%, to ~~$67.3~~$93.4 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the same period in 2020. Under the ~~CARES~~Consolidated Appropriations Act, the government provided the Company with a grant of $56.0 million in payroll support for the period of December 2020 through March 2021, and an additional $52.2 million in payroll support under the American Recovery Plan Act for the period of April 2021 through September 2021, of which, $26.1 million has been recognized as of June 30, 2021. We also recognized $11.3 million of the grant amount received for the period of April through October 2020 ~~as of~~during the quarter ended December 31, 2020.

Other expense decreased ~~$6.4~~$8.1 million, or ~~26.9%~~23.8%, to ~~$17.2~~$25.8 million for our ~~six~~nine months ended ~~March 31,~~June 30, 2021, compared to the same period in 2020. The decrease is primarily a result of a decrease in interest expense due to lower interest rates on our loan agreement with the U.S. Department of the Treasury and a decrease in outstanding aircraft principal balances.

The income tax expense totaled ~~$6.7~~$8.2 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 as compared to a tax expense of ~~$4.8~~$6.4 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020. The effective tax rate was ~~25.3%~~25.5% versus ~~27.6%~~28.3% in the prior year.

The effective tax rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 was impacted by vesting of stock compensation where the tax deduction differed from the book expense, state taxes, changes in the valuation allowance against state net operating losses, and changes in state statutory rates.

We file income tax returns in the US and in various state jurisdictions with varying statutes of limitations. We are generally no longer subject to income tax examination by tax authorities for years prior to 2017 and 2016 for federal and state purposes, respectively, ~~with the exception of~~except for the examination of our net operating losses. The balance of unrecognized tax benefits is not anticipated to fluctuate significantly from fiscal 2020 to fiscal 2021. It is our policy to recognize interest expense and penalties related to uncertain income tax matters as a component of income tax expense.

The following table presents a reconciliation of net income to estimated Adjusted EBITDA and Adjusted EBITDAR for the period presented (in thousands):

	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Reconciliation:
Net income	$	5,689		$	1,885		$	19,807		$	12,670		$	4,276		$	3,419		$	24,083		$	16,089
Income tax expense		1,890			1,307			6,711			4,842			1,525			1,517			8,236			6,359
Income before taxes	$	7,579		$	3,192		$	26,518		$	17,512		$	5,801		$	4,936		$	32,319		$	22,448
Adjustments⁽¹⁾⁽²⁾		4,508			—			3,558			—			—			—			3,558			—
Adjusted income before taxes		12,087			3,192			30,076			17,512			5,801			4,936			35,877			22,448
Interest expense		8,755			11,673			17,837			24,300			8,627			10,368			26,464			34,668
Interest income		(79	)		(36	)		(205	)		(94	)		(82	)		(1	)		(287	)		(95	)
Depreciation and amortization		20,705			20,469			41,175			41,021			20,933			20,635			62,108			61,656
Adjusted EBITDA	$	41,468		$	35,298		$	88,883		$	82,739		$	35,279		$	35,938		$	124,162		$	118,677
Aircraft rent		9,992			12,285			20,040			23,614			9,648			15,582			29,688			39,196
Adjusted EBITDAR	$	51,460		$	47,583		$	108,923		$	106,353		$	44,927		$	51,520		$	153,850		$	157,873

As a result of the COVID-19 pandemic, we ~~have taken,~~undertook certain actions in 2020 and ~~are continuing to take, certain actions~~the early part of 2021 to increase liquidity and strengthen our financial position. These actions ~~include:~~

~~Working~~included working with our major partners and original equipment manufacturers ("OEM") to delay the timing of our future aircraft and spare engine ~~deliveries.~~deliveries, delaying non-essential heavy maintenance, and reducing or suspending other discretionary spending.

On April 15, 2021, the Company was notified by the U.S. Department of the Treasury we ~~are~~were eligible to receive funds under the third Payroll Support Program ~~(PSP3)~~(“PSP3”), which was created under the American Recovery Plan Act of 2021 ~~(ARP)~~(“ARPA”), enacted on March 11, 2021. The amount of financial assistance received by the Company ~~expects it will be eligible and estimates the amount is~~was approximately $52.2 million. The Company received the first installment of $26.1 million in April 2021 and the second installment of $26.1 million in May 2021.

On October 30, 2020, the Company entered into a Loan and Guarantee Agreement with the U.S. Department of the Treasury for a secured loan facility of up to $200.0 million that matures in October 2025 (the “Treasury Loan”). On October 30, 2020, the Company borrowed $43.0 million and on November 13, 2020, the Company borrowed an additional $152.0 million. No further borrowings are available under the Treasury Loan.

Prior to the November 13, 2020 funding of the $152.0 million portion of the Treasury Loan, the Company repaid $167.7 million in existing aircraft debt covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated June 27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014, and May 23, ~~2021.~~2014, (d) Senior Loan Agreements, dated December 27, 2017, and (e) Junior Loan Agreements, also dated December 27, 2017 (collectively, “the EDC Loans”). The Company made payments totaling $164.2 million to repay the EDC Loans, consisting of principal of $167.7 million, and a $3.5 million discount on the balance owed.

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 to pay 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 the cash grant we received under the payroll support programs (PSP, PSP2, PSP3) and the ~~Loan and Guarantee Agreement we entered into with the~~funds received under our Treasury ~~(the “US Treasury~~

Loan, ~~Agreement”), each under the CARES Act,~~ 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:

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 working capital, 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 to 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 and other terms acceptable to us.

We believe that cash flow from operating activities coupled with existing cash and cash equivalents, short-term investments, existing credit facilities, financing arrangements and government assistance under the CARES Act, will be adequate to fund our operating and capital needs, as well as enable us to maintain compliance with our various debt agreements, through at least the next 12 months. To the extent that results, or events, differ from our financial projections or business plans, our liquidity may be adversely impacted.

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. Our capital expenditures, net of purchases of rotable spare parts and aircraft and spare engine financing for the ~~six~~nine months ending ~~March 31,2021~~June 30, 2021 is approximately ~~0.9%~~1.9% of annual ~~revenue, which is lower compared to our historical expense as the Company is focusing on cost savings due to COVID 19 pandemic impact on the airline industry.~~revenue. 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,~~June 30, 2021, our principal sources of liquidity were cash and cash equivalents of ~~$147.9~~$180.4 million. In addition, we had restricted cash of $3.4 million as of ~~March 31,~~June 30, 2021. As of ~~March 31,~~June 30, 2021, we also had ~~$718.2~~$707.0 million in secured indebtedness incurred primarily in connection with our financing of aircraft. As of ~~March 31,~~June 30, 2021, we had ~~$101.8~~$105.4 million of short-term debt, excluding capital leases, and ~~$618.0~~$603.1 million of long-term debt excluding capital leases.

As of ~~March 31,~~June 30, 2021, we had $3.4 million in restricted cash. We have an agreement with a financial institution for 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, $3.4 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

The following table presents information regarding our cash flows for each of the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 (in thousands):

	Six Months Ended March 31,						Nine Months Ended June 30,
	2021			2020			2021			2020
Net cash provided by operating activities	$	78,575		$	65,202		$	131,212		$	103,601
Net cash used in investing activities		(11,675	)		(24,773	)		(17,039	)		(25,114	)
Net cash used in financing activities		(18,522	)		(57,090	)		(33,264	)		(82,610	)
Net increase (decrease) in cash and cash equivalents		48,378			(16,661	)
Cash and cash equivalents at beginning of period		102,841			72,501
Cash and cash equivalents at end of period	$	151,219		$	55,840
Net increase (decrease) in cash, cash equivalents and restricted cash								80,909			(4,123	)
Cash, cash equivalents and restricted cash at beginning of period								102,841			72,501
Cash, cash equivalents and restricted cash at end of period							$	183,750		$	68,378

During our ~~six~~nine months ended ~~March 31,~~June 30, 2021, we had cash flow provided by operating activities of ~~$78.6~~$131.2 million. We had net income of ~~$19.8~~$24.1 million adjusted for the following significant non-cash items: depreciation and amortization of ~~$41.2~~$62.1 million, stock-based compensation of ~~$1.7~~$2.4 million, deferred income taxes of ~~$6.6~~$8.0 million, amortization of deferred credits of ~~$(2.3)~~$(2.5) million, amortization of debt discount and issuance costs of ~~$5.0~~$8.2 million, gain on extinguishment of debt of $(1.0) million, and loss on contract termination of $4.5 million. We had a net change of ~~$2.9~~$25.1 million within other net operating assets and liabilities largely driven by an increase in ~~accounts payable,~~ deferred revenue and accrued liabilities and a decrease in ~~accrued liabilities~~accounts receivable during our ~~six~~nine months ended ~~March 31,~~June 30, 2021.

During our ~~six~~nine months ended ~~March 31,~~June 30, 2020, we had cash flow provided by operating activities of ~~$65.2~~$103.6 million. We had net income of ~~$12.7~~$16.1 million adjusted for the following significant non-cash items: depreciation and amortization of ~~$41.0~~$61.7 million, stock-based compensation of ~~$2.5~~$3.5 million, deferred income taxes of ~~$4.5~~$5.9 million, amortization of deferred credits of ~~$(2.0)~~$(2.9) million, amortization of debt financing costs and accretion of interest on non-interest bearing subordinated notes of ~~$2.1~~$3.2 million, ~~and~~ $0.5 million loss on disposal of ~~assets.~~assets and provision for obsolete expendable parts of $0.3 million. We had a net change of ~~$3.9~~$3.1 million within other net operating assets and liabilities largely driven by an increase in accrued liability during our ~~six~~nine months ended ~~March 31,~~June 30, 2020.

During our ~~six~~nine months ended ~~March 31,~~June 30, 2021, net cash flow used in investing activities totaled ~~$11.7~~$17.0 million. We invested ~~$2.9~~$4.9 million in inventory, $1.6 million in aircraft purchases, ~~$0.1~~and $4.2 million in tools, vehicles, ~~$0.7 million in tools,~~ equipment and miscellaneous projects and ~~$6.4~~$6.3 million in net returns and payments on equipment and other deposits.

During our ~~six~~nine months ended ~~March 31,~~June 30, 2020, net cash flow used in investing activities totaled ~~$24.8~~$25.1 million. We invested ~~$3.6~~$11.0 million in spare engines and $3.8 million in aircraft improvements, ~~$7.6~~$8.4 million in inventory, ~~$1.7~~$1.9 million in tools and miscellaneous projects and ~~$11.8~~$13.8 million in ~~net returns~~lease and ~~payments on~~ equipment deposits offset by $13.9 million from the return of lease and ~~other~~equipment deposits.

During our ~~six~~nine months ended ~~March 31,~~June 30, 2021, net cash flow used in financing activities was ~~$18.5~~$33.3 million. We received $195.0 million of proceeds from our US Treasury ~~Loan Agreement.~~Loan. We made ~~$212.0~~$225.8 million of principal repayments on long-term debt during the period. We incurred $1.3 million of costs related to debt ~~financing.~~financing and $1.4 million of costs related to the repurchase of shares of our common stock. We received $0.2 million in proceeds from the issuance of common stock under our ESPP.

During our ~~six~~nine months ended ~~March 31,~~June 30, 2020, net cash flow used in financing activities was ~~$57.1~~$82.6 million. We drew $23.0 million from our $35.0 million working capital draw loan for operational needs. We made ~~$79.4~~$103.7 million of principal repayments on long-term debt during the period. We incurred ~~$0.5~~$1.4 million of costs related to debt financing and ~~$0.2~~$0.5 million of costs related to the repurchase of shares of our common stock.

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a Company has (i) made guarantees, (ii) a retained or a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company.

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (the "SEC").

A majority of our leased aircraft are leased through trusts formed for the sole purpose of purchasing, financing, and leasing aircraft to us. Because these are single-owner trusts in which we do not participate, we are not at risk for losses and we are not considered the primary beneficiary. We believe that our maximum exposure under the leases are the remaining lease payments and any return condition obligations.

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, which we discuss below.

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 policies are critical to understanding our financial position and results of operations. There have been no changes to the critical accounting policies as explained in Part 1, Item 7 of the 2020 Form 10-K under the heading "Critical Accounting Policies."

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note ~~2: "Summary of Significant~~3: "Recent Accounting ~~Policies"~~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 LIBOR. 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,~~June 30, 2021, we had ~~$533.8~~$521.1 million of variable-rate debt, including current maturities. A hypothetical 50 basis point change in market interest rates would have affected interest expense by approximately ~~$2.7~~$2.6 million in the ~~six~~nine months ended ~~March 31,~~June 30, 2021.

As of ~~March 31,~~June 30, 2021, we had ~~$192.2~~$191.2 million of fixed-rate debt, including current maturities. A hypothetical 50 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,~~June 30, 2021.

On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, or what effect these changes in views or alternatives may have on financial markets for LIBOR-linked financial instruments. While the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by Treasury securities, we cannot currently predict whether this index will gain widespread acceptance as a replacement

for LIBOR. It is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere.

We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. As of ~~March 31,~~June 30, 2021, we had ~~$533.8~~$521.1 million of borrowings based on LIBOR. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected.

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 capacity purchase agreements largely shelter us from volatility related to fuel prices, which are directly paid and supplied by our major ~~airline~~ partners.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.

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 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 are subject to two putative class action lawsuits alleging federal securities law violations in connection with our IPO— one in the Superior Court of the State of Arizona and one in U.S. District Court of Arizona. These purported class actions were filed in March and April 2020 against the Company, certain current and former officers and directors, and certain underwriters of the Company’s IPO. The state and federal lawsuits each make the same or similar allegations of violations of the Securities Act of 1933, as amended, for allegedly making materially false and misleading statements in, or omitting material information from, our IPO registration statement. The plaintiffs seek unspecified monetary damages and other relief.

In addition, we are subject to certain legal actions which we consider routine to our business activities. As of ~~March 31,~~June 30, 2021, our management believed, after consultation with legal counsel, that the ultimate outcome of the two putative class action lawsuits and such other routine legal matters are not likely to have a material adverse effect on our financial position, liquidity or results of operations.

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, 2020, 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 Annual Report on Form 10-K for the fiscal year ended September 30, 2020 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Nevada		85-0302351
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

410 North 44th Street, Suite 700 Phoenix, Arizona 85008		85008
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		MESA		Nasdaq Global Select Market

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets	2

Condensed Consolidated Statements of Operations and Comprehensive Income	3

Condensed Consolidated Statements of Stockholders' Equity	4

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2526

Item 3. Quantitative and Qualitative Disclosures About Market Risk	37

Item 4. Controls and Procedures	38

PART II – OTHER INFORMATION	3940

Item 1. Legal Proceedings	3940

Item 1A. Risk Factors	3940

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3940

Item 3. Defaults Upon Senior Securities	3940

Item 4. Mine Safety Disclosures	3940

Item 5. Other Information	3940

Item 6. Exhibits	3940

SIGNATURES	4142

Exhibit No.		Exhibit Description
10.1		Payroll ~~support~~Support Program 3 Agreement by and between The Department of the Treasury and Mesa Airlines, Inc., dated as of ~~February~~April 21, 2021
10.2.1**		Amendment No. 2 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc. and American Airlines, Inc. dated April 9, 2021
10.2.2**		Amendment No. 3 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc. and American Airlines, Inc. dated April 19, 2021
10.2.3**		Amendment No. 4 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc. and American Airlines, Inc. dated June 9, 2021
31.1		Certification of Principal Executive Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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	MESA AIR GROUP, INC.

Date: ~~May 10,~~August 9, 2021	By:	/s/ Michael J. Lotz
		Michael J. Lotz President and Chief Financial Officer (Principal Financial Officer)

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒


	March 31, 2021				September 30, 2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt and financing leases, including current maturities⁽¹⁾	$	725.4	$	731.4	$	743.3	$	768.7


	June 30, 2021				September 30, 2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt and finance leases, including current maturities⁽¹⁾	$	713.7	$	724.8	$	743.3	$	768.7