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~~April 28, 2022, ~~2021,~~ the registrant had ~~35,700,161~~36,131,745 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.~~amended (the “Exchange Act”). 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 1A1A. Risk Factors of ~~this~~our Annual Report on Form 10-K ~~under~~for the ~~heading "Risk Factors.~~"fiscal year ended September 30, 2021 filed with the Securities and Exchange Commission on December 10, 2021. 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,		March 31,		September 30,
	2021		2020		2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	147,867	$	99,395	$	75,896	$	120,517
Restricted cash		3,351		3,446		3,351		3,350
Receivables, net		13,867		13,712		6,849		3,167
Expendable parts and supplies, net		23,044		22,971		26,255		24,467
Prepaid expenses and other current assets		8,956		16,067		7,608		6,885
Total current assets		197,085		155,591		119,959		158,386

Property and equipment, net		1,180,684		1,212,415		1,064,349		1,151,891
Intangibles, net		7,412		8,032
Intangible assets, net						6,281		6,792
Lease and equipment deposits		8,242		1,899		8,371		6,808
Operating lease right-of-use assets		105,521		123,251		79,706		93,100
Deferred heavy maintenance, net						5,289		3,499
Assets held for sale						36,528		—
Other assets		20,647		742		32,873		36,121
Total assets	$	1,519,591	$	1,501,930	$	1,353,356	$	1,456,597

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					$	111,671	$	111,710
Current portion of deferred revenue		4,356		9,389		2,675		6,298
Current maturities of operating leases		44,016		43,932		16,601		32,652
Accounts payable		70,012		53,229		76,733		61,476
Accrued compensation		10,449		12,030		10,285		12,399
Other accrued expenses		28,610		45,478		31,406		33,657
Total current liabilities		261,423		353,326		249,371		258,192
Noncurrent liabilities:
Long-term debt and financing leases, excluding current portion		600,058		542,456
Long-term debt and finance leases, excluding current portion						521,457		539,700
Noncurrent operating lease liabilities		38,405		62,531		29,936		33,991
Deferred credits		7,442		5,705		3,508		3,934
Deferred income taxes		70,929		64,275		53,281		69,940
Deferred revenue, net of current portion		29,502		14,369		26,868		28,202
Other noncurrent liabilities		20,988		1,409		36,394		34,591
Total noncurrent liabilities		767,324		690,745		671,444		710,358
Total liabilities		1,028,747		1,044,071		920,815		968,550
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 16)
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; 36,126,724 (2022) and 35,958,759 (2021) shares issued and outstanding, 4,899,497 (2022) and 4,899,497 (2021) warrants issued and outstanding						257,923		256,372
Retained earnings		234,894		215,087		174,618		231,675
Total stockholders' equity		490,844		457,859		432,541		488,047
Total liabilities and stockholders' equity	$	1,519,591	$	1,501,930	$	1,353,356	$	1,456,597

	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating revenues:
Contract revenue	$	81,712		$	165,781		$	208,870		$	337,580		$	111,988		$	81,712		$	248,882		$	208,870
Pass-through and other		15,568			14,115			38,781			26,351
Pass-through and other revenue														11,225			15,568			22,088			38,781
Total operating revenues		97,280			179,896			247,651			363,931			123,213			97,280			270,970			247,651

Operating expenses:
Flight operations		37,403			52,891			74,367			105,535			42,410			37,403			90,008			74,367
Fuel		198			188			588			358
Maintenance		51,773			64,335			104,637			122,430			47,357			51,773			106,338			104,637
Aircraft rent		9,992			12,285			20,040			23,614			9,434			9,992			19,020			20,040
Aircraft and traffic servicing		743			1,336			1,644			2,400
General and administrative		11,164			14,500			24,237			27,496			7,860			11,164			20,438			24,237
Depreciation and amortization		20,705			20,469			41,175			41,021			20,747			20,705			41,775			41,175
Lease termination		4,508			—			4,508			—			—			4,508			—			4,508
Impairment of assets held for sale														39,475			—			39,475			—
Other operating expenses														685			941			2,657			2,232
Government grant recognition		(55,967	)		—			(67,278	)		—			—			(55,967	)		—			(67,278	)
Total operating expenses		80,519			166,004			203,918			322,854			167,968			80,519			319,711			203,918
Operating income		16,761			13,892			43,733			41,077
Other (expenses) income, net:
Operating income (loss)														(44,755	)		16,761			(48,741	)		43,733
Other income (expense), net:
Interest expense		(8,755	)		(11,673	)		(17,837	)		(24,300	)		(8,120	)		(8,755	)		(16,050	)		(17,837	)
Interest income		79			36			205			94			42			79			93			205
Other (expense) income, net		(506	)		937			417			641
Total other (expense), net		(9,182	)		(10,700	)		(17,215	)		(23,565	)
Income before taxes		7,579			3,192			26,518			17,512
Income tax expense		1,890			1,307			6,711			4,842
Net income and comprehensive income	$	5,689		$	1,885		$	19,807		$	12,670
Net income per share attributable to
Loss on investments, net														(2,261	)		—			(8,723	)		—
Other income (expense), net														(71	)		(506	)		(130	)		417
Total other expense, net														(10,410	)		(9,182	)		(24,810	)		(17,215	)
Income (loss) before taxes														(55,165	)		7,579			(73,551	)		26,518
Income tax expense (benefit)														(12,382	)		1,890			(16,494	)		6,711
Net income (loss) and comprehensive income (loss)													$	(42,783	)	$	5,689		$	(57,057	)	$	19,807
Net income (loss) per share attributable to
common shareholders
Basic	$	0.16		$	0.05		$	0.56		$	0.36		$	(1.19	)	$	0.16		$	(1.58	)	$	0.56
Diluted	$	0.14		$	0.05		$	0.52		$	0.36		$	(1.19	)	$	0.14		$	(1.58	)	$	0.52
Weighted-average common shares outstanding
Basic		35,628			35,141			35,579			35,082			36,048			35,628			36,005			35,579
Diluted		39,432			35,265			38,382			35,220			36,048			39,432			36,005			38,382

Six Months Ended March 31, 2020

Common

Stock and

Additional

Number of

Number of

Paid-In

Retained

Shares

Warrants

Capital

Earnings

Total

Balance at September 30, 2019

31,413,287

3,600,953

$
238,504

$
187,364

$
425,868

Adoption ASU 2018-09 Stock compensation-
income taxes

—

—

—

259

259

Stock compensation expense

—

—

1,320

—

1,320

Repurchased shares and warrants

(5,558
)

—

(41
)

—

(41
)
Warrants converted to common stock

1,612,481

(1,612,481
)

—

—

—

Restricted shares issued

18,916

—

—

—

—

Net income

—

—

—

10,785

10,785

Balance at December 31, 2019

33,039,126

1,988,472

$
239,783

$
198,408

$
438,191

Stock compensation expense

—

—

1,193

—

1,193

Repurchased shares and warrants

(18,244
)

—

(160
)

—

(160
)
Warrants converted to common stock

1,988,472

(1,988,472
)

—

—

—

Restricted shares issued

141,614

—

—

—

—

Employee share purchases

43,934

—

243

—

243

Net income

—

—

—

1,885

1,885

Balance at March 31, 2020

35,194,902

—

$
241,059

$
200,293

$
441,352

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

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

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

Six Months Ended March 31, 2021

Common

Stock and

Additional

Number of

Number of

Paid-In

Retained

Shares

Warrants

Capital

Earnings

Total

Balance at September 30, 2020

35,526,918

—

$
242,772

$
215,087

$
457,859

Stock compensation expense

—

—

850

—

850

Repurchased shares

(2,256
)

—

(19
)

—

(19
)
Restricted shares issued

7,500

—

—

—

—

Issuance of warrants, net of issuance costs

—

4,899,497

11,489

—

11,489

Net income

—

—

—

14,118

14,118

Balance at December 31, 2020

35,532,162

4,899,497

$
255,092

$
229,205

$
484,297

Stock compensation expense

—

—

808

—

808

Repurchased shares and warrants

(14,680
)

—

(157
)

—

(157
)
Warrants converted to common stock

—

—

—

—

—

Restricted shares issued

124,609

—

—

—

—

Employee share purchases

58,070

—

207

—

207

Net income

—

—

—

5,689

5,689

Balance at March 31, 2021

35,700,161

4,899,497

$
255,950

$
234,894

$
490,844

	Six Months Ended March 31, 2022
						Common
						Stock and
						Additional
	Number of			Number of		Paid-In			Retained
	Shares			Warrants		Capital			Earnings			Total
Balance at September 30, 2021		35,958,759			4,899,497	$	256,372		$	231,675		$	488,047

Stock compensation expense		—			—		716			—			716
Repurchased shares		(2,275	)		—		(15	)		—			(15	)
Restricted shares issued		7,500			—		—			—			—
Net loss		—			—		—			(14,274	)		(14,274	)
Balance at December 31, 2021		35,963,984			4,899,497	$	257,073		$	217,401		$	474,474

Stock compensation expense		—			—		671			—			671
Repurchased shares		(13,421	)		—		(60	)		—			(60	)
Restricted shares issued		122,594			—		—			—			—
Employee share purchases		53,567			—		239			—			239
Net loss		—			—		—			(42,783	)		(42,783	)
Balance at March 31, 2022		36,126,724			4,899,497	$	257,923		$	174,618		$	432,541

	Six Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income	$	19,807		$	12,670
Adjustments to reconcile net income to net cash flows provided by operating activities:
Net income (loss)							$	(57,057	)	$	19,807
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		41,175			41,021			41,775			41,175
Stock compensation expense		1,658			2,513			1,387			1,658
Loss on investments, net								8,723			—
Deferred income taxes		6,654			4,490			(16,659	)		6,654
Amortization of deferred credits		(2,258	)		(2,041	)		(426	)		(2,258	)
Amortization of debt discount and issuance costs		4,994			2,149
Gain on extinguishment of debt		(950	)		—
Loss on disposal of assets		25			514
Provision for obsolete expendable parts and supplies		22			306
Loss on lease termination		4,508			—
Amortization of debt discount and issuance costs and accretion of interest into long-term debt								6,605			4,994
Lease termination								—			4,508
Impairment of assets held for sale								39,475			—
Other								910			(903	)
Changes in assets and liabilities:
Receivables		(155	)		9,019			(3,682	)		(155	)
Expendable parts and supplies		(84	)		(1,382	)		(2,249	)		(84	)
Prepaid expenses and other current assets		(1,988	)		97
Prepaid expenses and other operating assets and liabilities								(1,741	)		(1,988	)
Accounts payable		15,470			(602	)		14,413			15,470
Deferred heavy maintenance, net								(2,430	)		—
Deferred revenue		10,099			—			(4,957	)		10,099
Accrued liabilities		(14,091	)		2,122
Change in operating lease right-of- use assets		(6,311	)		(5,674	)
Accrued expenses and other liabilities								(7,048	)		(14,092	)
Operating lease right-of-use assets and liabilities								(7,081	)		(6,311	)
Net cash provided by operating activities		78,575			65,202			9,958			78,574

Cash flows from investing activities:
Capital expenditures		(5,261	)		(12,968	)		(22,850	)		(5,261	)
Net returns (payments) on equipment & other deposits		(6,414	)		(11,805	)
Investments in equity securities								(200	)		—
Payments of equipment and other deposits								(6,954	)		(6,954	)
Returns of equipment and other deposits								—			540
Net cash used in investing activities		(11,675	)		(24,773	)		(30,004	)		(11,675	)

Cash flows from financing activities:
Proceeds from long-term debt		195,000			23,000			30,811			195,000
Principal payments on long-term debt and financing leases		(212,020	)		(79,395	)
Payments of debt and warrant issuance		(1,326	)		(494	)
Proceeds from issuance of common stock under ESPP								239			—
Principal payments on long-term debt and finance leases								(53,135	)		(212,020	)
Payments of debt and warrant issuance costs								(2,414	)		(1,326	)
Repurchase of stock		(176	)		(201	)		(75	)		(176	)
Net cash used in financing activities		(18,522	)		(57,090	)		(24,574	)		(18,522	)

Net change in cash, cash equivalents and restricted cash		48,378			(16,661	)		(44,620	)		48,377
Cash, cash equivalents and restricted cash at beginning of period		102,841			72,501			123,867			102,841
Cash, cash equivalents and restricted cash at end of period	$	151,219		$	55,840		$	79,247		$	151,218

Supplemental cash flow information
Cash paid for interest	$	16,922		$	22,402		$	9,464		$	16,922
Cash paid for income taxes, net	$	49		$	45		$	176		$	49
Operating lease payments in operating cash flows	$	25,716		$	26,240		$	26,224		$	25,716
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	)	$	—
Supplemental non-cash operating activities
Right-of-use assets obtained (disposed) in exchange for lease liabilities							$	4,870		$	(320	)
Supplemental non-cash financing activities
Investments in warrants to purchase common stock							$	3,260		$	16,374
Debt issuance cost related to loan agreement with US Department of the Treasury							$	—		$	(1,887	)
Accrued capital expenditures	$	—		$	98		$	1,283		$	—

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~~110 cities in 3840 states, the District of Columbia, the Bahamas, and Mexico as well as cargo flight services ~~originating from~~out of Cincinnati/Northern Kentucky International Airport. As of March 31, ~~2021, Mesa~~2022, Mesa’s fleet consisted of 168 aircraft which were operated under the Company’s Capacity Purchase Agreements (“CPAs”) and Flight Services Agreement (“FSA”), leased to a ~~fleet of 163 aircraft~~third party, held for sale or maintained as operational spares, with approximately ~~440~~349 daily departures and ~~3,111~~2,800 employees. 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”)~~CPAs entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and ~~Flight Services Agreement (“FSA”)~~FSA with DHL Network Operations (USA), Inc. (“DHL”) (each, our “major partner”).

The ~~financial arrangements~~CPAs between ~~the Company~~us and ~~its~~our 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,~~CPAs, the major ~~airline~~partner controls route selection, pricing, and seat inventories, reducing ~~the Company's~~our exposure to fluctuations in passenger traffic, fare levels, and fuel prices. Under our FSA with DHL, we receive a fee per block hour with a minimum block hour guarantee in exchange for providing cargo flight services. Ground support expenses including fueling and airport fees are paid directly by DHL.

As of March 31, ~~2021, the Company~~2022, we operated 4540 CRJ-900 aircraft under ~~the American~~an Amended and Restated Capacity Purchase ~~Agreement.~~Agreement with American dated November 19, 2020 (as amended, the “American CPA”). In exchange for providing passenger flight services, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time ~~departures~~departure (“CD0”) and controllable flight completion (“CCF”) percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property taxes. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions as well as airport-related facilities and gates at American hubs and cities where we operate.

~~On November 19, 2020, we entered into an Amended and Restated~~ The American Capacity Purchase Agreement (the “Amended and Restated American Capacity Purchase Agreement”). The Amended and Restated American Capacity Purchase Agreement included the following amendments to the existing CPA:

OnCPA expires 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, 2021, we entered into Amendment No. 3 (“Amendment No. 3”) to the Amended and Restated American Capacity Purchase Agreement. The amendments in Amendment No. 3 reflect the following:~~

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

Under the American CPA, American has the option in its sole discretion to withdraw up to: (i) 10 aircraft during calendar year 2021, (ii) 5 aircraft during each of calendar years 2022 and 2023, and (iii) during the period from January 1, 2024 to July 31, 2024, American can remove the first 20 aircraft to the extent not otherwise removed in 2021 – 2023, and thereafter American has the right to remove the remaining 20 aircraft. American also has the right and option to withdraw a specified number of aircraft upon each occurrence of the following:

For the months of November and December 2021 and January 2022, we did not meet the CCF or CD0 minimum performance levels under the American CPA. Under the terms of the American CPA, the failure to meet the CCF or CD0 minimum performance levels for three (3) consecutive months gives American the right to terminate the CPA upon 90 days' notice and to provide a wind-down schedule for the aircraft covered under the American CPA. American agreed to waive any default arising out of the failure to meet the CCF or CD0 performance levels in January, which eliminated the right to terminate the American CPA for failure to meet the CD0 and CCF performance levels for the three (3) consecutive months ended January 2022, and agreed to reset the 3-consecutive month period to commence with the month of February 2022. Additionally, American has the right to remove two (2) additional aircraft from the CPA, one (1) aircraft for not meeting the CD0 minimum performance level for two consecutive months and one (1) aircraft for not meeting the CCF minimum performance level for two (2) consecutive months. American also agreed to waive its right to remove two (2) aircraft in connection with missing the November and December 2021 CCF and CD0 minimum performance levels. In the future, American has the right to remove additional aircraft should we fail to meet the CCF or CD0 minimum performance levels in subsequent two (2) consecutive month periods.

In March 2022, we amended our American CPA to, among other things, modify certain penalty and incentive compensation as defined in the American CPA.

As of March 31, ~~2021,~~2022, we operated 60 E-175 and 1620 E-175LL aircraft ~~for United~~ under ~~the United~~a Second Amended and Restated Capacity Purchase ~~Agreement.~~Agreement with United dated November 4, 2020 (as amended, the “United CPA”). In exchange for providing ~~the~~passenger flight services, ~~under our United Capacity Purchase Agreement,~~ we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United ~~also~~ reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. ~~Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.~~

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

Under our United CPA, United owns 42 of the 60 E-175 aircraft and all of the E-175LL aircraft and leases them to us at nominal amounts. The E-175 aircraft owned by United and leased to us have terms expiring between 2024 and 2028, and the 18 E-175 aircraft owned ~~E-175~~by us have terms expiring in 2028. The E-175LL aircraft have terms expiring between 2032 and 2033.

Pursuant to the United CPA, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of nine (9) years. We ceased operating our CRJ-700 fleet in February 2021 in connection with the transfer of those aircraft into a lease agreement, and as of March 31, 2022, have entered into agreements to lease 18 of our 20 CRJ-700 aircraft.

~~On November 26, 2019, we amended and restated our~~Our United ~~Capacity Purchase Agreement. The Amended and Restated United Purchase Agreement included the following amendments:~~CPA is subject to termination rights prior to its expiration in various circumstances including:

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

~~Our~~ ~~United Capacity Purchase Agreement is subject to following termination rights prior to its 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~~we entered into a Flight Services Agreement with ~~DHL.~~DHL (the “DHL FSA”). Under the terms of ~~this agreement, Mesa operates~~the DHL FSA, we operate 2 (2) Boeing 737-400F aircraft to provide cargo air transportation ~~services to DHL.~~services. In exchange for providing ~~air~~cargo flight services, ~~the Company receives~~we receive a fee per block hour with a minimum block hour guarantee. ~~The Company is~~We are 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 FSA, DHL leases 2 (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,~~C-checks, off-wing engine maintenance and overhauls including ~~LLPs, Landing Gear~~life limited parts (“LLPs”), landing gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and LLPs. Certain items such as fuel, de-icing fluids, landing fees, aircraft ground handling fees, en-route navigation fees, and custom fees are paid directly to suppliers by DHL or otherwise reimbursed if incurred by ~~the Company.~~us.

~~The Flight Services Agreement~~Our DHL FSA 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~~FSA is subject to ~~following~~ termination rights prior to its ~~expiration:~~expiration in various circumstances including:

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~~GAAP 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~~2021 included in the Company's Annual Report on Form 10-K for the year ended September 30, ~~2020~~2021 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, ~~2021,~~2022, our chief operating decision maker was the Chief Executive Officer. While ~~the Company operates~~we operate under two 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.

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

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 including 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 million and $52.4 million of lease revenue for the three months ended March 31, 2021 and 2020, respectively, and $67.6 million and $105.7 million during the six months ended March 31, 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 of the total service provided under our capacity purchase agreements.

~~The Company recognizes~~We recognize pass-through revenue when the service is provided under ~~its capacity purchase agreements~~our CPAs and ~~flight services agreement.~~FSA. 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 from our major partners at nominal rates. ~~The Company’s~~Our 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.

We record deferred revenue when cash payments are received or are due from our major partners in advance of our performance. During the three and six months ended March 31, 2022, we recognized $0.8 million and $5.0 million of previously deferred revenue, respectively. Deferred revenue is recognized as flights are completed over the remaining terms of the respective contracts.

The deferred revenue balance as of March 31, 2022 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 thousands):

A portion of our compensation under our CPAs with American and United is designed to reimburse the Company for certain aircraft ownership costs. Such costs include aircraft principal and interest debt service costs, aircraft depreciation, and interest expense or aircraft lease expense costs while the aircraft is under contract. We have concluded this component of the compensation under these agreements is lease revenue, as such agreements identify the "right of use" of a specific type and number of aircraft over a stated period of time. We account for the non-lease component under ASC 606 and account for the lease component under ASC 842. We allocate the consideration in the contract between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

The lease revenue associated with our CPAs is accounted for as an operating lease and is reflected as contract revenue in the condensed consolidated statements of operations. We recognized $39.5 million and $41.0 million of lease revenue for the three months ended March 31, 2022 and 2021, respectively, and $79.8 million and $90.5 million during the six months ended March 31, 2022 and 2021, respectively. We have not separately stated aircraft rental income in the condensed consolidated statements of operations because the use of the aircraft is not a separate activity from the total service provided under our CPAs.

We have entered into lease agreements with GoJet Airlines LLC (“GoJet”) to lease ~~6 CRJ 700~~18 CRJ-700 aircraft as of March ~~2021.~~31, 2022. 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~~We mitigate the residual asset risks through supplemental rent payments and by leasing aircraft and engine types that we can ~~be operated by the Company~~operate in the event of a default. Additionally, the ~~operating~~ leases have specified lease return condition requirements and ~~the Company maintains~~we maintain inspection rights under the leases. As of March 31, ~~2021, the Company~~2022, we recognized ~~$4.8~~$14.7 million of lease incentive assets, net of amortization, and ~~$4.2~~$11.5 million of related lease incentive obligations for reimbursement of certain aircraft maintenance costs defined within the lease agreements. Lease incentive assets ~~will be~~are amortized on a straight-line basis and 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 $6.8 million and ~~amounts~~$13.3 million for the three and six months ended March 31, 2022, respectively. Amounts deferred for supplemental rent payments ~~were immaterial~~totaled $1.9 million as of March 31, ~~2021.~~ 2022.

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, ~~2021 (In~~2022 (in thousands):

Periods Ending March 31,	Total Payments
Remainder of 2021	$	3,276
2022		6,552
Periods Ending September 30,			Total Payments
2022 (remainder of)			$	9,828
2023		6,552		19,656
2024		6,552		19,656
2025		6,552		19,656
2026				19,656
Thereafter		28,962		72,474
Total	$	58,446	$	160,926

~~The Company records deferred revenue when cash~~We determine if an arrangement is a lease at inception. As a lessee, we have lease agreements with lease and non-lease components and have elected to account for such components as a single lease component. Our operating lease activities are recorded in operating lease right-of-use assets, current maturities of operating leases, and noncurrent operating lease liabilities in the condensed consolidated balance sheets. Finance leases are reflected in property and equipment, net, current portion of long-term debt and finance leases, and long-term debt and finance leases, excluding current portion in the condensed consolidated balance sheets.

Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Certain variable lease payments are ~~received or are due from our airline partners~~not included in ~~advance~~the calculation of the ~~Company’s performance, including amounts~~right-of-use assets and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. In determining the present value of lease payments, we use either the implicit rate in the lease when it is readily determinable or our estimated incremental borrowing rate, based on information available at the lease commencement. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease costs are ~~refundable. During the three months ended March 31, 2021, the Company deferred $4.9 million of revenue which was billed and paid by our partners.~~

~~The deferred revenue balance as of March 31, 2021 represents our aggregate remaining performance obligations that will be~~ recognized ~~as revenue~~on a straight-line basis over the ~~period~~lease term, while finance leases result in ~~which~~a front-loaded expense pattern.

As a lessee, we have elected a short-term lease practical expedient on all classes of underlying assets, permitting us to not apply the ~~performance obligations are satisfied, and is expected~~recognition requirements of ASC 842 to ~~be recognized as revenue as follows (In thousands):~~leases with terms of 12 months or less.

~~As discussed in Note 1, we~~We lease, at nominal rates, certain aircraft from United and DHL under our United ~~Capacity Purchase Agreement~~CPA and DHL ~~Flight Services Agreement,~~FSA, which are excluded from operating lease assets and liabilities as ~~the lease contracts~~they do not represent embedded leases under ASC 842. Other than such leases at nominal ~~leases with our major partners,~~amounts, approximately ~~10%~~11% 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~~are written off.

The majority of ~~the Company's~~our leased aircraft are leased through trusts that have a sole purpose to purchase, finance, and lease these aircraft to ~~the Company;~~us; therefore, they meet the criteria of a variable interest entity. However, since these are single-owner trusts in which ~~the Company does~~we do not participate, ~~the Company is~~we are not at risk for losses and isare not considered the primary beneficiary. Management believes that ~~the Company's~~our 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~~pilot 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 toin other accrued expenses and non-current deferred credits in the condensed consolidated balance sheets. ~~The Company's~~Our total current and non-current deferred credit balances at March 31, ~~2021~~2022 and September 30, ~~2020 are $5.2~~2021 were $4.4 million and ~~$8.5~~$4.8 million, respectively. ~~The Company~~We recognized ~~$1.1~~$0.2 million and ~~$0.9~~$1.1 million of the deferred credits within contract revenue during the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$1.9~~$0.4 million and ~~$2.0~~$1.9 million during the six months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~The Company operates~~We operate under an 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~~We account for heavy maintenance and major overhaul costs on our 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~~$0.4 million and $0.0 million for the three months ended March 31, 2022 and 2021, respectively, and $0.6 million and $0.0 million for the six months ended March 31, 2022 and 2021, ~~and 2020. At~~respectively. As of March 31, ~~2021~~2022 and September 30, ~~2020, the Company had~~2021, our deferred heavy maintenance balance, net of accumulated amortization, ~~of $1.2~~was $5.3 million and $0$3.5 million, respectively.

~~The Company accounts~~We account 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~~$4.8 million and ~~$14.5~~$6.9 million for the three months ended March 31, ~~2021,~~2022 and ~~2020,~~2021, respectively, of which ~~$2.2~~$4.6 million and ~~$0.7~~$2.2 million, respectively, was pass-through expense. Engine overhaul expense totaled ~~$21.3~~$10.1 million and ~~$25.1~~$21.3 million for the six months ended March 31, ~~2021,~~2022 and ~~2020,~~2021, respectively, of which ~~$11.8~~$8.4 million and ~~$2.6~~$11.8 million, respectively, was pass-through expense. Airframe C-check expense totaled ~~$14.1~~$4.7 million and ~~$10.5~~$14.1 million for the three months ended March 31, ~~2021,~~2022 and ~~2020,~~2021, respectively, of which ~~$5.6~~$0.5 million and ~~$3.9~~$5.6 million, respectively, was pass-through expense. Airframe C-check expense totaled ~~$24.2~~$13.8 million and ~~$17.8~~$24.2 million for the six months ended March 31, ~~2021,~~2022 and ~~2020,~~2021, respectively, of which ~~$12.7~~$0.5 million and ~~$5.1~~$12.7 million, respectively, was pass-through expense.

~~In February 2021,~~We classify assets as held for sale when our management approves and commits to a formal plan of sale that is probable of being completed within one year. Assets designated as held for sale are recorded at the ~~Company was granted $48.7 million~~lower of their current carrying value or their fair market value, less costs to sell, beginning in ~~financial assistance by~~ the ~~Department~~period in which the assets meet the criteria to be classified as held for sale. See Note 6 for further discussion of ~~the Treasury under the Payroll Support Program Extension (“PSP2”) under the Consolidated Appropriations Act~~our assets classified as held for sale as of ~~2021. In March 2021~~, we were 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 an additional $7.3 million through the PSP2 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 eligible to receive funds under the third Payroll Support Program (PSP3), which was created under the American Recovery Plan Act of 2021 (ARP), 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 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 received the first PSP3 installment of $26.1 million on April 23, 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 months ended~~ March 31, 2021, the Company recognized $56.0 million and $67.3 million respectively, for the payroll support government funds. We deferred $11.3 million under PSP1 that was recognized during the three months ended December 31,2020. As of March 31,2021, there are 0 deferred payments.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by eliminating certain exceptions allowable under the existing guidance related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. Our adoption of this guidance on October 1, 2021 did not have a material impact.

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 London Interbank Offered Rate (LIBOR) or another reference rate expected to be

discontinued. Optional expedients can be applied ~~from March 12, 2020~~ through December 31, 2022. We ~~are currently evaluating the impact~~continue to evaluate our contracts 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 partners and external market factors.reference LIBOR.

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~~We maintain our cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions.

As of March 31, ~~2021, the Company~~2022, we 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~~our total revenue or net accounts receivable balance at each respective balance sheet date. ~~At March 31, 2021, the Company had capacity purchase agreements with American and United and a flight services agreement with DHL. Substantially all~~All of ~~the Company's condensed consolidated~~our revenue for the three and six months ended March 31, 2022 and 2021 was derived from the American and ~~2020~~United CPAs, DHL FSA, and from leases of our CRJ-700 aircraft to GoJet. Substantially all of our accounts receivable at March 31, ~~2021~~2022 and September 30, ~~2020~~2021 was derived from these agreements.

American accounted for approximately 46% and 45% ~~and 51%~~ of ~~the Company's~~our total revenue for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~46 %~~46% and ~~51%~~46% of our total revenue for the six months ended March 31, 2022 and 2021, ~~and 2020.~~respectively. United accounted for approximately 47% and 53% ~~and 49%~~ of ~~the Company's~~our total revenue for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and 48% and 52% ~~and 49%~~of our total revenue for the six months ended March 31, 2022 and 2021, ~~and 2020.~~respectively. A termination of either the American or ~~the~~ United ~~capacity purchase agreement~~CPA would have a material adverse effect on ~~the Company's~~our business prospects, financial condition, results of operations, and cash flows.

Amounts billed ~~by the Company~~ under ~~capacity purchase~~our agreements are subject to ~~the Company's~~our interpretation of the applicable ~~capacity purchase~~ agreement and are subject to audit by ~~the Company's~~our major ~~airline~~ partners. Periodically, ~~the Company's~~our 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~~we review amounts due based on historical collection trends, the financial condition of ~~airline~~the major partners, and current external market factors and ~~records~~record a reserve for amounts estimated to be ~~uncollectible. The~~uncollectible in accordance with the applicable guidance for expected credit losses. Our allowance for doubtful accounts was ~~$1.3 million and $0.8 million at~~0t material as of March 31, ~~2021 and~~2022 or September 30, ~~2020, respectively.~~2021. If ~~the Company's~~our ability to collect these receivables and the financial viability of ~~its~~our major partners is materially different than estimated, ~~the Company's~~our estimate of the allowance for credit losses could be materially impacted.

Information about ~~the~~our intangible assets ~~of the Company~~ as of March 31, ~~2021~~2022 and September 30, ~~2020,~~2021, is as follows (in thousands):

	March 31,			September 30,			March 31,			September 30,
	2021			2020			2022			2021
Customer relationship	$	43,800		$	43,800		$	43,800		$	43,800
Accumulated amortization		(36,388	)		(35,768	)		(37,519	)		(37,008	)
Net carrying value	$	7,412		$	8,032		$	6,281		$	6,792

Total amortization expense recognized was ~~approximately~~ $0.3 million and ~~$0.4~~$0.3 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$0.6~~$0.5 million and ~~$0.7~~$0.6 million for the six months ended March 31, 2022 and 2021, ~~and~~

~~2020~~ respectively. ~~The Company expects~~We expect to record amortization expense of $~~0.6~~$0.5 million for the remainder of ~~2021,~~2022, and $~~1.0~~ ~~million,~~ $0.9 million, $0.8 million, $0.7 million, and $0.6 million for fiscal years ~~2022,~~ 2023, 2024, 2025 and ~~2025, respectively.~~2026, respectively, and $2.8 million of amortization expense thereafter.

As of March 31, ~~2021, the Company’s~~2022, our intangible ~~assets~~assets’ remaining weighted average term is ~~14.6~~13.5 years.

During the three months ended March 31, 2022, our management committed to a formal plan to sell certain of our CRJ-900 and CRJ-200 aircraft. The aircraft are expected to be disposed of via sale within the next 12 months. Accordingly, we determined the aircraft met the criteria to be classified as assets held for sale and have separately presented them in our condensed consolidated balance sheet at the lower of their current carrying value or their fair market value less costs to sell. The fair values are based upon observable and unobservable inputs, including recent purchase offers and market trends and conditions. The assumptions used to determine the fair value of our assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which we will continue to monitor in future periods as new information becomes available. Prior to the ultimate sale of the assets, subsequent changes in our estimate of the fair value of our assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value. In connection with the classification of these assets as held for sale, we recorded impairment losses of $39.5 million, which are reflected within impairment of assets held for sale in our condensed consolidated statements of operations and comprehensive loss.

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

	March 31,			September 30,			March 31,			September 30,
	2021			2020			2022			2021
Expendable parts and supplies, net:
Expendable parts and supplies	$	27,324		$	27,431		$	31,817		$	29,297
Less: obsolescence and other		(4,280	)		(4,460	)		(5,562	)		(4,830	)
	$	23,044		$	22,971		$	26,255		$	24,467

Prepaid expenses and other current assets:
Deferred offering and reimbursed costs	$	—		$	1,261
Prepaid aviation insurance							$	2,236		$	2,171
Lease incentives								1,792			1,445
Other		8,956			14,806			3,580			3,269
	$	8,956		$	16,067		$	7,608		$	6,885
Property and equipment, net:
Aircraft and other flight equipment substantially pledged	$	1,603,377		$	1,596,174
Aircraft and other flight equipment							$	1,507,441		$	1,611,544
Other equipment		5,189			5,147			5,369			4,934
Leasehold improvements		2,763			2,763			2,776			2,776
Vehicles		1,114			1,032			950			1,184
Building		699			699			699			699
Furniture and fixtures		303			302			298			300
Total property and equipment		1,613,445			1,606,117			1,517,533			1,621,437
Less: accumulated depreciation		(432,761	)		(393,702	)		(453,184	)		(469,546	)
	$	1,180,684		$	1,212,415		$	1,064,349		$	1,151,891
Other Assets:
Warrants	$	16,374		$	—
Other assets:
Investments in equity securities							$	19,904		$	25,149
Lease incentives								12,904			10,957
Other		4,273			—			65			15
	$	20,647		$	—		$	32,873		$	36,121
Other accrued expenses:
Accrued property taxes	$	5,996		$	11,354		$	3,940		$	8,783
Accrued interest		2,480			3,268			2,546			2,565
Accrued vacation		5,718			5,975			5,190			5,936
Other		14,416			24,881			19,730			16,373
	$	28,610		$	45,478		$	31,406		$	33,657
Other noncurrent liabilities:
Warrant liabilities							$	25,225		$	21,964
Lease incentive obligations								6,503			6,358
Other								4,666			6,269
							$	36,394		$	34,591

~~The Company records~~We record 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~~We have assessed whether any impairment of ~~its~~our long-lived assets held and used existed and ~~has~~have determined that no charges were deemed necessary under applicable accounting standards as of March 31, ~~2021. The Company’s~~2022. Our assumptions about future conditions ~~important~~relevant to ~~its~~the assessment of potential impairment of ~~its~~our long-lived assets ~~including the impact of the COVID-19 pandemic to its business,~~held and used are subject to uncertainty, and ~~the Company~~we will continue to monitor these conditions in future periods as new information becomes available, and will update ~~its~~our analyses accordingly.

Depreciation ~~expense~~of property and equipment totaled ~~approximately $20.4~~$20.1 million and ~~$20.1~~$20.4 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and $40.6 million and ~~$40.3~~$40.6 million for the six months ended March 31, ~~2021~~2022 and ~~2020,~~2021, 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~~warrants giving us the right to acquire ~~1,171,649~~a number shares of common stock in Archer Aviation, Inc. ~~(Archer),~~(“Archer”). We estimated the initial equity warrant asset value to be $16.4 million based on publicly available information as of the grant date. In September 2021, the merger between Archer and a ~~private, venture-backed company.~~ special purpose acquisition company (“SPAC”) was completed, resulting in a readily determinable fair value of our investments in Archer. Accordingly, gains and losses associated with changes in the fair value of our investments in Archer are measured in earnings, in accordance with ASC 321, Investments – Equity Securities. In connection with the closing of the merger between Archer and the SPAC, we purchased 500,000 Class A common shares in Archer for $5.0 million, and obtained an additional warrant to purchase shares of Archer with a total grant date value of $5.6 million. All of our vested warrants have been exercised into shares of Archer common stock.

The initial grant date values of the warrants were 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 aircraft purchase agreement.

Our investments in Archer are classified as Level 1 within the fair value hierarchy as the values are determined using quoted prices for the equity securities.

In connection with a negotiated forward purchase contract for fully electric aircraft executed in July 2021, we obtained $5.0 million of preferred stock in Heart Aerospace Incorporated (“Heart”), a privately held company. Our investment in Heart does not have a readily determinable fair value, so we account for the investment using the measurement alternative under ASC 321 and measure the investment at initial 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 change to fair value is warranted. Any changes in fair value from the initial cost of the investment in preferred stock are recognized as increases or decreases on our balance sheet and as net gains or losses on investments in equity securities. The initial investment in preferred stock was measured at cost of $5.0 million.

In connection with a negotiated forward purchase contract for hybrid-electric vertical takeoff and landing (“VTOL”) aircraft executed in February 2022, we obtained a warrant giving us the right to acquire a number of shares of common stock in the privately-held manufacturer of the VTOL aircraft. These investments 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 to the investment on our balance sheet and as net gains or losses on investments equity ~~warrant assets, in other (expense) income, net.~~securities. We estimated the initial ~~equity~~ warrant asset value to be ~~$16.4~~$3.2 million based on prices of similar investments in the Archer enterprise valuation disclosed within a February 10, 2021 S-4 filing with the SEC. There were no observable price changes or transactions as of March 31, 2021, and as such no adjustments to the recorded grant date fair value of the equity warrant assets was recorded.

same issuer. The grant date value of the warrants, ~~$16.4~~$3.2 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~~VTOL aircraft contemplated in the related ~~asset~~forward purchase agreement.

Total net losses on our investments in equity securities totaled $2.3 million and $8.7 million during the three and six months ended March 31, 2022, respectively, and are reflected in loss on investments, net in our condensed consolidated statement of operations. As of March 31, 2022, the aggregate carrying amount of our investments in equity securities was $19.9 million, and the carrying amount of our investments without readily determinable fair values was $9.0 million.

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. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. 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:

Other than our assets held for sale and investments in equity securities described in Notes 6 and 7, respectively, we did not measure any of our assets or liabilities at fair value on a recurring or nonrecurring basis as of March 31, 2022 and September 30, 2021.

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~~Our debt agreements are not traded on an active market. ~~The Company has~~We have determined the estimated fair value of ~~its~~our 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~~We utilize the discounted cash flow method to estimate the fair value of Level 3 debt.

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

Long-term debt as of March 31, ~~2021~~2022 and September 30, ~~2020,~~2021, consisted of the following (in thousands):

March 31,

September 30,

2021

2020

Notes payable to financial institution, collateralized by the underlying

aircraft, due 2022⁽¹⁾⁽²⁾

$
—

$
41,472

Notes payable to financial institution, collateralized by the underlying

aircraft, due 2024⁽³⁾

—

55,674

Senior and subordinated notes payable to secured parties, collateralized

by the underlying aircraft, due 2027⁽⁴⁾

106,092

105,887

Notes payable to secured parties, collateralized by the underlying

aircraft, due 2028⁽⁵⁾

162,247

172,137

Senior and subordinated notes payable to secured parties, collateralized

by the underlying aircraft, due 2028⁽⁶⁾

130,505

138,114

Senior and subordinated notes payable to secured parties, collateralized

by the underlying aircraft, due 2022⁽⁷⁾

—

47,319

Senior and subordinated notes payable to secured parties, collateralized

by the underlying aircraft, due 2022⁽⁸⁾

—

29,682

Notes payable to financial institution due 2020⁽¹⁰⁾

1,523

1,523

Notes payable to financial institution, collateralized by the underlying

equipment, due 2020⁽¹¹⁾

—

4,182

Other obligations due to financial institution, collateralized by the underlying

equipment, due 2023⁽¹²⁾

5,663

6,864

Notes payable to financial institution, collateralized by the underlying

equipment, due 2024⁽¹³⁾

54,573

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

—

Gross long-term debt, including current maturities

725,433

743,250

Less unamortized debt issuance costs

(10,598
)

—

Less Notes payable warrants

(10,797
)

(11,526
)
Net long-term debt, including current maturities

704,038

731,724

Less current portion

(103,980
)

(189,268
)
Net long-term debt

$
600,058

$
542,456

	March 31,			September 30,
	2022			2021
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2027⁽¹⁾		80,244			86,551
Notes payable to secured parties, collateralized by the underlying
aircraft, due 2028⁽²⁾		141,690			152,100
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2028⁽³⁾		114,883			122,762
Other obligations due to financial institution, collateralized by the underlying
equipment, due 2023⁽⁴⁾		3,448			4,581
Notes payable to financial institution, collateralized by the underlying
equipment, due 2024⁽⁵⁾		36,290			45,559
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2023⁽⁶⁾		21,875			30,625
Notes payable to financial institution due 2023⁽⁷⁾		3,000			4,000
Revolving credit facility⁽⁸⁾		15,630			22,930
Notes payable to U.S. Treasury due 2025⁽⁹⁾		204,947			201,227
Notes payable to financial institution, collateralized by the underlying
equipment, due 2027⁽¹⁰⁾		29,943			—
Gross long-term debt, including current maturities		651,950			670,335
Less unamortized debt issuance costs		(10,368	)		(9,295	)
Less notes payable warrants		(8,454	)		(9,630	)
Net long-term debt, including current maturities		633,128			651,410
Less current portion, net of unamortized debt issuance costs		(111,671	)		(111,710	)
Net long-term debt	$	521,457		$	539,700

Principal maturities of long-term debt as of March 31, ~~2021,~~2022, and for each of the next five years are as follows (in thousands):

March 31, 2021	Total Principal
Remainder of 2021	$	59,013
2022		113,682
Periods Ending September 30,			Total Principal
2022 (remainder of)			$	64,018
2023		89,462		94,670
2024		61,209		66,417
2025		56,526		61,734
2026				268,972
Thereafter		345,541		96,139
	$	725,433	$	651,950

The ~~net book~~carrying value of collateralized aircraft and equipment as of March 31, ~~2021~~2022 was ~~$1,060.0~~$1,029.7 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. AtAs of March 31, ~~2021 Mesa has $162.2~~2022, we had $141.7 million of equipment notes outstanding issued under the EETC financing included in long-term debt onin the condensed consolidated balance

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

On September 25, 2019, ~~the Company~~we extended the term on ~~their~~our $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, ~~2021, $22.9 million has been drawn~~2022, the amount outstanding on the ~~revolver.~~working capital draw loan was $15.6 million.

~~Future borrowings, if any, under~~Our CIT revolving credit facility includes a minimum interest and rental coverage ratio covenant. In March and April 2022, we entered into amendments to the CIT revolving credit facility which lowered the minimum interest and rental coverage ratio covenant for the December 2021, March 2022, and June 2022 quarters. As a result, we are in compliance with this ~~facility are subject to, among other things, the Company having sufficient unencumbered assets to meet the borrowing base requirements under the facility.~~covenant.

On October 30, 2020, ~~the Company~~we entered into a ~~Loan~~loan and ~~Guarantee Agreement~~guarantee agreement with ~~United States~~the 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,~~During the ~~Company borrowed $43.0 million (“the $43M Treasury Loan”) and on November 13, 2020, the Company~~first quarter of fiscal 2021, we borrowed an ~~additional $152.0 million (“the $152M Treasury Loan”), collectively referred to as the “Treasury Term Loan Facility”.~~aggregate of $195.0 million. NaN further borrowings are available under the Treasury ~~Loan Agreement. The Company also issued warrants to purchase shares of common stock to the U.S. Treasury.~~Loan.

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~~is payable in arrears, or paid-in-kind by increasing the principal balance of the loan by such interest payment, on the first business day following the 14^th day of each March, June, September, and ~~December, beginning with December 15, 2021.~~December.

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~~2025. Through March 31, 2022, interest on the Treasury Loan has been paid-in-kind by increasing the principal amount of the loan by the amount of such interest due on anthe interest payment ~~date for the first 12 months. Mesa's~~date. Our obligations under the Treasury Loan ~~Agreement~~ are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment, flight simulators, 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~~were used for general corporate purposes and operating expenses, to the extent permitted by the ~~CARES Act.~~Coronavirus Aid, Relief, and Economic Security Act (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~~we will be required to repay the loans outstanding under the ~~Loan Agreement.~~

The Treasury Loan ~~Agreement~~ requires ~~the Company,~~us, 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~~we are required either to provide additional Collateral (which may include cash collateral) to secure ~~its~~the 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~~we are 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 Treasury Loan ~~and Guarantee Agreement~~ and as partial compensation to the U.S. Treasury for the provision of financial assistance under the Treasury Loan, ~~and Guarantee Agreement, the Company~~we issued to the U.S. Treasury warrants to purchase an aggregate of 4,899,497 shares of ~~the Company’s~~our 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~~common stock on April 9, 2020. The exercise price and number of shares of common stock 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~~our option. ~~For accounting purposes, the~~The fair value ~~for~~of the ~~Treasury Loan Warrant Shares is~~warrants was 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.~~ In ~~accordance~~April 2022, we entered into an agreement with the ~~applicable guidance, Mesa allocated~~U.S. Treasury to lower the ~~debt issuance costs between~~minimum collateral coverage ratio covenant to 1.5 to 1.0 through September 30, 2022. As a result, we are in compliance with this covenant as of March 31, 2022.

In December 2021, we entered into a loan agreement with a financing institution to finance certain purchases of spare engines via a newly-formed limited liability company (“LLC”). The loan agreement provides for aggregate borrowings of up to $54.0 million through November 2022. In December 2021, we borrowed an aggregate of $30.8 million under the ~~Treasury Loan~~loan agreement, which matures in December 2027. The borrowed amounts are collateralized by the underlying engines and ~~related warrants. At funding on October 30, 2020,~~require monthly principal and interest payments until maturity. Borrowings under the ~~$43M Treasury Loan was recorded net of $0.7 million in capitalized debt issuance costs. At funding on November 13, 2020,~~loan agreement bear interest at the ~~$152M Treasury Loan was recorded net of $2.3 million in capitalized debt issuance costs.~~monthly LIBOR plus 4.25%. The ~~remaining $0.1 million in debt issuance costs was allocated to~~borrowings are 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 termobligation of the ~~related loan.~~newly-formed LLC and are guaranteed by Mesa Airlines, Inc.

~~Prior~~The newly-formed LLC, which is wholly-owned by Mesa, was determined to be a VIE for which we are the ~~November 13, 2020 funding~~primary beneficiary because we have the power to direct the activities of the ~~$152M Treasury Loan,~~LLC that most significantly impact the ~~Company repaid $167.7 million~~LLC’s economic performance and the obligation to absorb losses and right to receive benefits from the LLC in ~~existing aircraft~~our capacity as sole member of the LLC and guarantor of the borrowings. Therefore, this entity is consolidated in our financial statements and the borrowings are reflected as long-term debt ~~covering 44 aircraft, including indebtedness under its (a) Senior Loan Agreements, dated~~in our condensed consolidated balance sheet.

The loan agreement contains a loan-to-value (“LTV”) financial covenant pursuant to which we are required to prepay certain amounts of the loan if the aggregate outstanding principal balance of the loan exceeds a specified percentage of the appraised value of the engines beginning in the 12^th full month after closing and each June ~~27, 2018, (b) Junior Loan Agreements, also dated June 27, 2018, (c) Credit Agreements, dated January 31, 2007, April 16, 2014,~~1 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 million to repay the EDC Loans, consisting of principal of $167.7 million, and a $3.6 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.1 thereafter.

As of March 31, ~~2021, the Company is~~2022, we were in compliance ~~will~~with all debt covenants.

Calculations of net income (loss) 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 March 31,					Six Months Ended March 31,
	2021		2020		2021		2020		2022			2021		2022			2021
Net income attributable to Mesa Air Group	$	5,689	$	1,885	$	19,807	$	12,670
Net income (loss) attributable to Mesa Air Group									$	(42,783	)	$	5,689	$	(57,057	)	$	19,807
Basic weighted average common shares outstanding		35,628		35,141		35,579		35,082		36,048			35,628		36,005			35,579
Add: Incremental shares for:
Dilutive share adjustment - UST Warrant		3,038		—		2,183		138
Dilutive share adjustment - Restricted Shares		766		124		620		—
Dilutive effect of warrants										—			3,038		—			2,183
Dilutive effect of restricted stock										—			766		—			620
Diluted weighted average common shares outstanding		39,432		35,265		38,382		35,220		36,048			39,432		36,005			38,382
Net income per common share attributable to Mesa Air Group:
Net income (loss) per common share attributable to Mesa Air Group:
Basic	$	0.16	$	0.05	$	0.56	$	0.36	$	(1.19	)	$	0.16	$	(1.58	)	$	0.56
Diluted	$	0.14	$	0.05	$	0.52	$	0.36	$	(1.19	)	$	0.14	$	(1.58	)	$	0.52

Basic income or loss per common share is computed by dividing net income or loss 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~~are 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~~

The following number of weighted-average potentially dilutive shares ~~relating to restricted stock and exercise of warrants that~~ were excluded from the calculation of diluted ~~loss~~net income (loss) per share ~~for~~because the ~~three and six months ended March 31, 2021 and 2020.~~effect of including such potentially dilutive shares would have been anti-dilutive:

~~The Company previously~~As discussed in Note 9, we 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~~the 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. 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 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 Treasury for the provision of financial assistance under the Loan and Guarantee Agreement, the Company issued warrants to the Treasury to purchase shares of ~~the Company’s~~our 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 on The Nasdaq Stock Market on April 9, 2020. The Warrants were issued pursuant to the terms of a Treasury Warrant Agreement entered into by the Company and the Treasury.share. The exercise price and number of ~~Warrant Shares~~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~~our option. The warrants ~~will be~~were accounted for within equity at a grant date fair value determined under the ~~Black Scholes Option Pricing Model~~Black-Scholes option pricing model. As of March 31, ~~2021,~~2022, 4,899,497 warrants were issued and outstanding.

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

~~The Company’s~~Our effective tax rate (ETR) from continuing operations was 22.4% and 22.4% for the three and six months ended March 31, 2022, respectively, and 24.9% and 25.3% for the three ~~months~~ and six months ended March 31, 2021, ~~respectively and 40.9% and 27.6% for the three months and six months ended March 31,2020,~~ respectively. ~~The Company's~~Our ETR during the three ~~months~~ and six months ended March 31, ~~2021~~2022 was different from the prior year tax rates primarily as a result of vesting 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~~ For the six months ended March 31, ~~2020 was different than~~2022, we used the ~~statutory~~year-to-date effective tax rate ~~of 21% as~~method to determine the interim income tax benefit because a ~~result~~reliable estimate of the ~~vesting and exercise of stock compensation, state taxes, and changes in~~annual effective tax rate could not be made.

We continue to maintain a valuation allowance ~~against~~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 ~~well as differences between~~compared to prior years in which the ~~book and tax deductions associated with meals, entertainment, employer provided parking, and compensation of officers.~~net operating losses were generated.

As of September 30, ~~2020, the Company~~2021, we had aggregate federal and state net operating loss ~~carryovers~~carryforwards of approximately ~~$512.4~~$541.3 million and ~~$223.9~~$235.7 million, respectively, which expire in fiscal years 2027-2038 and ~~2021-2040,~~2022-2041, respectively. Approximately ~~$0.7~~$1.2 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

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

As of March 31, 2021, there was $4.4 million, of total unrecognized compensation cost related to unvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.3 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, 2021 and 2020 was $0.8 million and $1.2 million, respectively~~, and for the six months ended March 31, 2021 and 2020 was $1.7 million and $2.5 million, respectively.~~

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

~~The Company has granted~~We grant restricted stock units (“RSUs”) as part of ~~its~~our 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 restricted share activity for the six months ended March 31, 2022 is summarized as follows:

As of March 31, 2022, there was $4.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.6 years.

Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period. Share-based compensation expense for the three months ended March 31, 2022 and 2021 was $0.7 million and $0.8 million, respectively, and for the six months ended March 31, 2022 and 2021 was $1.4 million and $1.7 million, respectively.

We repurchased 15,696 shares of our common stock for $0.1 million to cover the income tax obligation on vested employee equity awards during the six months ended March 31, 2022.

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, ~~2021,~~2022, eligible employees purchased and ~~the Company~~we issued ~~157,714~~an aggregate of 247,761 Mesa Air Group, Inc. ordinary shares under the 2019 ~~ESPP.~~ESPP, 53,567 of which were purchased and issued during the three and six months ended March 31, 2022.

As of March 31, ~~2021, the Company~~2022, we leased 1718 aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases. The leases generally require ~~the Company~~us 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~~We expect 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~~$11.0 million and ~~$18.6~~$11.3 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$27.7~~$22.2 million and ~~$35.4~~$22.7 million for the six months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

As of March 31, ~~2021, the Company’s~~2022, our operating leases have a remaining weighted average lease ~~terms~~term of ~~3.1~~3.7 years and our operating lease liabilities were measured using a weighted average discount rate of ~~4.2%~~4.4%.

During the three and six months ended March 31, 2022, we recorded a $0.4 million impairment of certain operating lease ROU assets associated with the abandonment of a leased facility.

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~~We 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 (10) ten similar engines beyond 2022. The total purchase commitment related to these 10ten (10) engines is approximately ~~$50.0~~$52.2 million. We also have options to purchase an additional ten (10) similar engines beyond 2022. As of March 31, 2022, we have purchased 5 of the engines pursuant to the Amended and Restated Letter Agreement No. 13-3 with delivery of the remaining five (5) engines expected to take place during calendar year 2022.

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

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.

On March 2, 2022, the parties in the federal lawsuit attended a mediation and reached an agreement in principle to settle all claims asserted in that action for the sum of $5.0 million, which will be paid by the Company’s directors’ and officers’ insurance carriers. The settlement is subject to final documentation and preliminary and final approval by the federal court. The motion for preliminary approval must be filed on or before May 9, 2022. If preliminary and final approval is obtained, the claims of all putative class members, whether asserted in the federal or state actions, will be extinguished, unless and only to the extent that a particular class member takes affirmative steps to have its claims excluded.

In addition, we are subject to certain legal actions which we consider routine to our business activities. ~~As of March 31, 2021, our management believed, after consultation with~~

We are involved in various legal ~~counsel,~~proceedings (including, but not limited to, insured claims) and FAA civil action proceedings that ~~the ultimate outcome of the two putative class action lawsuits and such other routine legal matters are~~we do not ~~likely to~~believe will have a material adverse effect onupon our business, financial ~~position, liquidity~~condition, or results of ~~operations.~~operations, although no assurance can be given to the ultimate outcome of any such proceedings.

As described in Note 7, in February 2021, we entered into a forward purchase contract with Archer for a number of eVTOL aircraft. The aggregate base commitment for the eVTOL aircraft is $200.0 million, with an option to purchase additional aircraft. Our obligation to purchase the eVTOL aircraft is subject to the Company and Archer first agreeing in the future to a number of terms and conditions, which may or may not be met.

As described in Note 7, in July 2021, we entered into a forward purchase contract with Heart for a number of fully electric aircraft. The maximum aggregate base commitment for the aircraft is $1,200.0 million, with an option to purchase additional aircraft. Our obligation to purchase the aircraft is subject to the Company and Heart first agreeing in the future to a number of terms and conditions, which may or may not be met.

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.

~~On April 15, 2021, the Company was notified by the U.S. Department of the Treasury we are eligible to receive funds under the third Payroll Support Program (PSP3) as~~As described in Note 2.

On9, in April ~~9, 2021, the Company~~2022 we entered into ~~Amendment No. 2 (“Amendment No. 2”)~~an agreement with the U.S. Treasury to lower the ~~Amended and Restated American Capacity Purchase Agreement as~~minimum collateral coverage ratio covenant to 1.5 to 1.0 through September 30, 2022.

On9, in April ~~19, 2021, the Company~~2022 we entered into ~~Amendment No. 3 (“Amendment No. 3”)~~an amendment to the ~~Amended~~CIT revolving credit facility which lowered the minimum financial ratio covenant for the March 2022 and ~~Restated American Capacity Purchase Agreement as described in Note 1.~~June 2022 quarters.

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~~110 cities in 3840 states, the District of Columbia, the Bahamas, 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, ~~2021,~~2022, our fleet consisted of 168 aircraft which we operated under ~~the Capacity Purchase Agreements,~~our CPAs and FSA, leased to a third party, held for sale or maintained as ~~spare, a fleet of 163 aircraft~~spares, with approximately ~~440~~349 daily departures. We operate 4540 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~~737-400F aircraft under ~~the Flight Services Agreement with~~our DHL ~~Network Operations. For the three months ended~~FSA. As of March 31, ~~2021,~~2022, approximately ~~53%~~65% of our aircraft in scheduled service were operated for United, approximately ~~45%~~33% were operated for American and 2% were operated for DHL. All of our operating revenue in our three and six months ended March 31, ~~2021~~2022 was derived from operations associated with our American and United ~~Capacity Purchase Agreements~~CPAs, DHL FSA, and ~~DHL Flight Services Agreement.~~from leases of aircraft to a third party.

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~~flights 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.

Under our DHL FSA, we receive a fee per block hour with a minimum monthly block hour guarantee in exchange for providing cargo flight services. Ground support including fueling and airport fees are paid directly by DHL.

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 both fiscal 2020 and 2021 that has continued into fiscal 2022. While there was a moderate increase in demand for air travel beginning in fiscal 2021, we continue to be impacted by the direct and indirect effects of the virus, including increased employee attrition and employee absence rates, and a decrease in the supply of qualified pilots. The exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall U.S. and global economy, as well as the uncertainty of certain factors outside of our control including current or future travel restrictions, vaccination effectiveness, vaccine mandates, and future variants of the virus. Since a portion of our revenue is fixed due to the structure of our CPAs, the impact to Mesa from the COVID-19 pandemic has been partially mitigated. In addition, our exposure to fluctuations in passenger traffic, ticket and fuel prices is limited.

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~~CPAs and FSA 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 Airlines LLC. Contract revenues we receive from our major ~~airline~~ partners are paid and recognized ~~by us on a weekly basis.~~over time consistent with the delivery of service under our CPAs and FSA.

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

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 DHL under our FSA.

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

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

~~Aircraft and Traffic Servicing.~~ Aircraft and traffic servicing 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.

Impairment of Assets Held for Sale. Impairment of assets held for sale includes charges for impairments of our assets held for sale, including changes in the fair value of assets held for sale.

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

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.~~and discounts.

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

Loss on Investments, Net. Loss on investments consists of net losses on our investments in equity securities resulting from changes in the fair value of the equity securities.

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.~~operations.

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 (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, ~~"Segment~~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 had operating loss of $44.8 million in our three months ended March 31, 2022 compared to operating income of $16.8 million in our three months ended March 31, 2021. In our three months ended March 31, 2022, we had net loss of $42.8 million compared to net income of $5.7 million in our three months ended March 31, 2021.

Our operating results for the three months ended March 31, 2022 reflect impairment charges of $39.5 million on certain of our CRJ aircraft classified as held for sale, as described in Note 6 to the condensed consolidated financial statements. Additionally, there were no government grant funds utilized as an offset to operating expenses during the three months ended March 31, 2022, compared to $56.0 million during the three months ended March 31, 2021.

	Three Months Ended March 31,
	2022		2021		Change
Operating revenues ($ in thousands):
Contract	$	111,988	$	81,712	$	30,276		37.1	%
Pass-through and other		11,225		15,568		(4,343	)	(27.9	)%
Total operating revenues	$	123,213	$	97,280	$	25,933		26.7	%

Operating data:
Available seat miles—ASMs (thousands)		1,616,896		1,771,498		(154,602	)	(8.7	)%
Block hours		65,613		73,942		(8,329	)	(11.3	)%
Revenue passenger miles—RPMs (thousands)		1,305,159		1,148,498		156,661		13.6	%
Average stage length (miles)		671		690		(19	)	(2.8	)%
Contract revenue per available seat mile—CRASM (in cents)	¢	6.93	¢	4.61	¢	2.32		50.3	%
Passengers		1,921,635		1,684,043		237,592		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 increased by $25.9 million, or 26.7%, to $123.2 million for our three months ended March 31, 2022 as compared to our three months ended March 31, 2021. Contract revenue increased by $30.3 million, or 37.1%, to $112.0 million primarily due to normalized contractual rates from our major partners, partially offset by reduced block hours flown compared to the three months ended March 31, 2021. The increase in rates compared to the three months ended March 31, 2021 is attributable to temporarily reduced rates from our major partners impacting the three months ended March 31, 2021 as a result of lower labor costs due to government assistance received during the same period. Our block hours flown during our three months ended March 31, 2022, decreased 11.3% compared to the three months ended March 31, 2021 due to a decrease in scheduled flying for our major partners across all fleets. Our pass-through and other revenue decreased during our three months ended March 31, 2022 by $4.3 million, or 27.9%, to $11.2 million primarily due to a decrease in pass-through maintenance on our E-175 fleet.

	Three Months Ended March 31,
	2022		2021			Change
Operating expenses ($ in thousands):
Flight operations	$	42,410	$	37,403		$	5,007		13.4	%
Maintenance		47,357		51,773			(4,416	)	(8.5	)%
Aircraft rent		9,434		9,992			(558	)	(5.6	)%
General and administrative		7,860		11,164			(3,304	)	(29.6	)%
Depreciation and amortization		20,747		20,705			42		0.2	%
Lease termination		—		4,508			(4,508	)	(100.0	)%
Impairment of assets held for sale		39,475		—			39,475		100.0	%
Other operating expenses		685		941			(256	)	(27.2	)%
Government grant recognition		—		(55,967	)		55,967		(100.0	)%
Total operating expenses	$	167,968	$	80,519		$	87,449		108.6	%

Operating data:
Available seat miles—ASMs (thousands)		1,616,896		1,771,498			(154,602	)	(8.7	)%
Block hours		65,613		73,942			(8,329	)	(11.3	)%
Average stage length (miles)		671		690			(19	)	(2.8	)%
Departures		31,983		35,270			(3,287	)	(9.3	)%

Flight Operations. Flight operations expense increased $5.0 million, or 13.4%, to $42.4 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. The increase was primarily driven by an increase in pilot and flight attendant wages and lodging expenses and pilot training-related costs.

Maintenance. Aircraft maintenance expense decreased $4.4 million, or 8.5%, to $47.4 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. This decrease was primarily driven by a lower volume of airframe C-checks and engine overhauls, partially offset by increases in parts, labor, and other maintenance expenses. Total pass-through maintenance expenses reimbursed by our major partners decreased by $1.9 million during our three months ended March 31, 2022 compared to our three months ended March 31, 2021.

The following table presents information regarding our maintenance costs during the three months ended March 31, 2022 and 2021 (in thousands):

Aircraft Rent. Aircraft rent expense decreased $0.6 million, or 5.6%, to $9.4 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. The decrease is attributable to a decrease in engine rent due to fewer leased engines as well as a decrease in aircraft rent due to the purchase of a CRJ-900 aircraft during fiscal 2021 that was previously under lease.

General and Administrative. General and administrative expense decreased $3.3 million, or 29.6%, to $7.9 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. The decrease is primarily due to a decrease in property taxes. For our three months ended March 31, 2022 and 2021, $0.1 million and $2.9 million, respectively, of our insurance and property tax expenses were reimbursed by our major partners.

Depreciation and Amortization. Depreciation and amortization expense increased by less than $0.1 million, or 0.2%, to $20.7 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021.

Lease Termination. Lease termination expense decreased $4.5 million, or 100.0%, to $0.0 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. This decrease is attributable to the termination expense recorded during our three months ended March 31, 2021 resulting from the purchase of a CRJ-900 aircraft, which was previously leased from Bombardier Capital.

Impairment of Assets Held for Sale. Impairment of assets held for sale was $39.5 million for our three months ended March 31, 2022 compared to $0.0 for our three months ended March 31, 2021. The increase is attributable to impairment charges on our CRJ aircraft classified as held for sale during the three months ended March 31, 2022.

Other Operating Expenses. Other operating expenses decreased $0.3 million, or 27.2%, to $0.7 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. The decrease is primarily due to lower aircraft cleaning expenses partially offset by higher fuel costs and charges related to the abandonment of a leased facility during the three months ended March 31, 2022.

Government Grant Recognition. Recognition of payroll support funds decreased $56.0 million, or 100.0%, to $0.0 million for our three months ended March 31, 2022 compared to our three months ended March 31, 2021. Under the Consolidated Appropriations Act of 2021, the government provided the Company with a grant of $56.0 million in payroll support for which was recognized as an offset to operating expense during the three months ended March 31, 2021. There were no government grant funds received by the Company recognized as an offset to operating expense during the three months ended March 31, 2022.

Other expense increased $1.2 million, or 13.4%, to $10.4 million for our three months ended March 31, 2022, compared to our three months ended March 31, 2021. The increase is primarily attributable to net losses on investments in equity securities of $2.3 million, partially offset by a decrease in interest expense of $0.6 million due to lower interest rates on our Treasury Loan and a decrease in outstanding aircraft principal balances.

Our effective tax rate (ETR) from continuing operations was 22.4% for the three months ended March 31, 2022 and 24.9% for the three months ended March 31, 2021. Our ETR during the three months ended March 31, 2022 decreased from the prior year tax rate primarily as a result of certain permanent tax differences, state taxes, and changes in the valuation allowance against state net operating losses. For the three months ended March 31, 2022, we used the year-to-date effective tax rate method to determine the interim income tax benefit because a reliable estimate of the annual effective tax rate could not be made.

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.

As of September 30, 2021, the Company had aggregate federal and state net operating loss carryforwards of $541.3 million and $235.7 million, respectively, which expire in 2027-2038 and 2022-2041, respectively. Approximately $1.2 million of state net operating loss carryforwards are expected to expire in the current year.

We had operating loss of $48.7 million in our six months ended March 31, 2022 compared to operating income of $43.7 million in our six months ended March 31, 2021. In our six months ended March 31, 2022, we had net loss of $57.1 million compared to net income of $19.8 million in our six months ended March 31, 2021.

Our operating results for the six months ended March 31, 2022 reflect an increase in flight operations expense due to higher pilot and flight attendant wages, lodging, and training expenses. We also recognized impairment charges of $39.5 million on certain of our CRJ aircraft classified as held for sale during the six months ended March 31, 2022, as described in Note 6 to the condensed consolidated financial statements. Additionally, there were no government grant funds utilized as an offset to operating expenses during the six months ended March 31, 2022, compared to $67.3 million during the six months ended March 31, 2021.

	Six Months Ended March 31,
	2022		2021		Change
Operating revenues ($ in thousands):
Contract	$	248,882	$	208,870	$	40,012		19.2	%
Pass-through and other		22,088		38,781		(16,693	)	(43.0	)%
Total operating revenues	$	270,970	$	247,651	$	23,319		9.4	%

Operating data:
Available seat miles—ASMs (thousands)		3,721,517		3,442,441		279,076		8.1	%
Block hours		151,692		143,189		8,503		5.9	%
Revenue passenger miles—RPMs (thousands)		3,069,320		2,319,909		749,411		32.3	%
Average stage length (miles)		656		664		(8	)	(1.2	)%
Contract revenue per available seat mile—CRASM (in cents)	¢	6.69	¢	6.07	¢	0.62		10.2	%
Passengers		4,615,103		3,513,757		1,101,346		31.3	%

Total operating revenue increased by $23.3 million, or 9.4%, to $271.0 million for our six months ended March 31, 2022 as compared to our six months ended March 31, 2021. Contract revenue increased by $40.0 million, or 19.2%, to $248.9 million primarily due to an increase in block hours flown and normalized contractual rates from our major partners compared to the six months ended March 31, 2021. The increase in rates compared to the six months ended March 31, 2021 is attributable to temporarily reduced rates from our major partners impacting the six months ended March 31, 2021 as a result of lower labor costs due to government assistance received during the same period. Our pass-through and other revenue decreased during our six months ended March 31, 2022 by $16.7 million, or 43.0%, to $22.1 million primarily due to a decrease in pass-through maintenance related to our E-175 fleet and pass-through property taxes.

	Six Months Ended March 31,
	2022		2021			Change
Operating expenses ($ in thousands):
Flight operations	$	90,008	$	74,367		$	15,641		21.0	%
Maintenance		106,338		104,637			1,701		1.6	%
Aircraft rent		19,020		20,040			(1,020	)	(5.1	)%
General and administrative		20,438		24,237			(3,799	)	(15.7	)%
Depreciation and amortization		41,775		41,175			600		1.5	%
Lease termination		—		4,508			(4,508	)	(100.0	)%
Impairment of assets held for sale		39,475		—			39,475		100.0	%
Other operating expenses		2,657		2,232			425		19.0	%
Government grant recognition		—		(67,278	)		67,278		(100.0	)%
Total operating expenses	$	319,711	$	203,918		$	115,793		56.8	%

Operating data:
Available seat miles—ASMs (thousands)		3,721,517		3,442,441			279,076		8.1	%
Block hours		151,692		143,189			8,503		5.9	%
Average stage length (miles)		656		664			(8	)	(1.2	)%
Departures		75,430		70,614			4,816		6.8	%

Flight Operations. Flight operations expense increased $15.6 million, or 21.0%, to $90.0 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The increase was primarily driven by an increase in pilot and flight attendant wages and lodging expenses as well as pilot training-related costs.

Maintenance.Aircraft maintenance expense increased $1.7 million, or 1.6%, to $106.3 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. This increase was primarily driven by an increase parts, component contracts, labor and other expenses. This increase was partially offset by a decrease in engine overhaul and C-check expense. Total pass-through maintenance expenses reimbursed by our major partners decreased by $10.4 million during our six months ended March 31, 2022 compared to our six months ended March 31, 2021

The following table presents information regarding our maintenance costs during our six months ended March 31, 2022 and 2021 (in thousands):

Aircraft Rent. Aircraft rent expense decreased $1.0 million, or 5.1%, to $19.0 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The decrease is attributable to a decrease in engine rent due to fewer leased engines and decrease in aircraft rent due to the purchase of a CRJ-900 aircraft during fiscal 2021 that was previously under lease.

General and Administrative. General and administrative expense decreased $3.8 million, or 15.7%, to $20.4 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The decrease is primarily due to a decrease in pass-through property taxes. For our six months ended March 31, 2022 and 2021, $3.3 million and $7.4 million, respectively, of our insurance and property tax expenses were reimbursed by our major partners.

Depreciation and Amortization. Depreciation and amortization expense increased $0.6 million, or 1.5%, to $41.8 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The increase is primarily attributable to an increase in rotable part and spare engine depreciation expense as well as amortization of deferred heavy maintenance, partially offset by a decrease in aircraft depreciation expense as a result of a portion of our fleet being classified as held for sale during the six months ended March 31, 2022.

Lease Termination. Lease termination expense decreased $4.5 million, or 100.0%, to $0.0 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. This decrease is attributable to the termination expense resulting from the purchase of a CRJ-900 aircraft during our six months ended March 31, 2021, which was previously leased from Bombardier Capital.

Impairment of Assets Held for Sale. Impairment of assets held for sale was $39.5 million for our six months ended March 31, 2022 compared to $0.0 million for our six months ended March 31, 2021. The increase is attributable to impairment charges on our CRJ aircraft classified as held for sale during the three months ended March 31, 2022.

Other Operating Expenses. Other operating expenses increased $0.4 million, or 19.0%, to $2.7 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The increase is primarily due to higher fuel costs and charges related to the abandonment of a leased facility, partially offset by lower aircraft cleaning expenses during the six months ended March 31, 2022.

Government Grant Recognition. Recognition of payroll support funds decreased $67.3 million, or 100.0%, to $0.0 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. During the six months ended March 31, 2021, we recognized $67.3 million in payroll support from the Payroll Support Program and its extension as an offset to operating expense. There were no government grant funds received by the Company recognized as an offset to operating expense during the six months ended March 31, 2022.

Other expense increased $7.6 million, or 44.1%, to $24.8 million for our six months ended March 31, 2022 compared to our six months ended March 31, 2021. The increase is primarily attributable to net losses on investments in equity securities of $8.7 million, partially offset by a decrease in interest expense of $1.8 million due to lower interest rates on our Treasury Loan and a decrease in outstanding aircraft principal balances.

The income tax benefit totaled $16.5 million for the six months ended March 31, 2022 as compared to a tax expense of $6.7 million for the six months ended March 31, 2021. The effective tax rate was 22.4% for the six months ended March 31, 2022 compared to 25.3% for the six months ended March 31, 2021. Our ETR during the six months ended March 31, 2022 was different from the U.S. federal statutory rate of 21% primarily due to vesting of stock compensation, state taxes, changes in the valuation allowance against state net operating losses, and changes in state statutory rates. For the six months ended March 31, 2022, we used the year-to-date effective tax rate method to determine the interim income tax benefit because a reliable estimate of the annual effective tax rate could not be made.

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,~~gains and losses on investments, lease termination costs, ~~loss~~impairment charges, and gains or losses on extinguishment of debt ~~and~~including write-off of associated financing fees.

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

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

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

We had operating income of $16.8 million in our three months ended March 31, 2021 compared to operating income of $13.9 million in our three months ended March 31, 2020. In our three months ended March 31, 2021, we had net income of $5.7 million compared to net income of $1.9 million in our three months ended March 31, 2020. Our operating results for the three months ended March 31, 2021 reflected a decrease in contract revenue 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.

Flight operations expense decreased in the three months ended March 31, 2021 due to lower pilot and flight attendant wages and pilot training expenses. Our maintenance expense decreased primarily due to fewer heavy engine maintenance events and lower component contracts, parts, and labor expense, offset by higher c-check expense and pass-through maintenance. Aircraft rent expense decreased primarily due 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,

2021

2020

Change

Operating revenues ($ in thousands):

Contract

$
81,712

$
165,781

$
(84,069
)

(50.7
)%
Pass-through and other

15,568

14,115

1,453

10.3
%
Total operating revenues

$
97,280

$
179,896

$
(82,616
)

(45.9
)%

Operating data:

Available seat miles—ASMs (thousands)

1,771,498

2,611,940

(840,442
)

(32.2
)%
Block hours

73,942

108,305

(34,363
)

(31.7
)%
Revenue passenger miles—RPMs (thousands)

1,148,498

1,785,153

(636,655
)

(35.7
)%
Average stage length (miles)

690

619

71

11.5
%
Contract revenue per available seat mile—CRASM
(in cents)

¢ 4.61

¢ 6.35

¢ 1.74

(27.4
)%
Passengers

1,684,043

2,838,412

(1,154,369
)

(40.7
)%

~~"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 $82.6 million, or 45.9%, to $97.3 million for our three months ended March 31, 2021 as compared to our three months ended March 31, 2020. Contract revenue decreased by $84.1 million, or 50.7%, to $81.7 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 COVID-19, temporary reduced rates to our partners and flying fewer aircraft under the American CPA. Our block hours flown during our three months ended March 31, 2021, decreased 31.7% compared to the three months ended March 31, 2020 due to decreased flying on all our fleets. Our pass-through and other revenue increased during our three months ended March 31, 2021 by $1.5 million, or 10.3%, to $15.6 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

Three Months Ended March 31,

2021

2020

Change

Operating expenses ($ in thousands):

Flight operations

$
37,403

$
52,891

$
(15,488
)

(29.3
)%
Fuel

198

188

10

5.3
%
Maintenance

51,773

64,335

(12,562
)

(19.5
)%
Aircraft rent

9,992

12,285

(2,293
)

(18.7
)%
Aircraft and traffic servicing

743

1,336

(593
)

(44.4
)%
General and administrative

11,164

14,500

(3,336
)

(23.0
)%
Depreciation and amortization

20,705

20,469

236

1.2
%
Lease termination

4,508

—

4,508

100.0
%
Government grant recognition

(55,967
)

—

(55,967
)

100.0
%
Total operating expenses

$
80,519

$
166,004

$
(85,485
)

(51.5
)%

Operating data:

Available seat miles—ASMs (thousands)

1,771,498

2,611,940

(840,442
)

(32.2
)%
Block hours

73,942

108,305

(34,363
)

(31.7
)%
Average stage length (miles)

690

619

71

11.5
%
Departures

35,344

55,435

(20,091
)

(36.2
)%

~~Flight Operations.~~ Flight operations expense decreased $15.5 million, or 29.3%, to $37.4 million for our three months ended March 31, 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 pilot training related costs.

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

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

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

~~Aircraft Rent.~~ Aircraft rent expense decreased $2.3 million, or 18.7%, to $10.0 million for our three months ended March 31, 2021 compared to the same period in 2020. The decrease is attributable a $2.3 million decrease in engine rent due to fewer leased engines.

~~Aircraft and Traffic Servicing.~~ Aircraft and traffic servicing expense decreased $0.6 million, or 44.4%, to $0.7 million for our three months ended March 31, 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. 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 million, or 23.0%, to $11.2 million for our three months ended March 31, 2021 compared to the same period in 2020. The decrease is primarily due to a decrease in pass-through property tax. For our three months ended March 31, 2021 and 2020, $2.9 million and $4.9 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 million, or 1.2%, to $20.7 million for our three months ended March 31, 2021 compared to the same period in 2020. The increase is primarily attributable to an increase in rotable inventory 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 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, 2021 compared to the same period in 2020. Under the CARES 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.

Other expense decreased $1.5 million, or 14.2%, to $9.2 million for our three months ended March 31, 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.

The Company's effective tax rate (ETR) from continuing operations was 24.9% for the three months ended March 31, 2021 and 40.9% for the three months ended March 31, 2020. The Company's ETR during the three months ended March 31, 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 compared to the prior year tax rate as a result of a decrease to the forecast for the current fiscal year, as the Company's permanent differences between book and taxable income therefore have a larger 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 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.

~~We had operating income of $43.7 million~~ in our six months ended March 31, 2021 compared to operating income of $41.1 million in our six months ended March 31, 2020. In our six months ended March 31, 2021, we had net income of $19.8 million compared to net income of $12.7 million in our six months ended March 31, 2020. Our operating results for the six months ended March 31, 2021 reflected a decrease in contract revenue 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.

Flight operations expense decreased in the six months ended March 31, 2021 due to lower pilot and flight attendant wages and pilot training expenses. Our maintenance expense decreased primarily due to fewer c-checks and heavy engine maintenance events and lower component contracts, parts, and labor expense, offset by higher pass-through maintenance. 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,

2021

2020

Change

Operating revenues ($ in thousands):

Contract

$
208,870

$
337,580

$
(128,710
)

(38.1
)%
Pass-through and other

38,781

26,351

12,430

47.2
%
Total operating revenues

$
247,651

$
363,931

$
(116,280
)

(32.0
)%

Operating data:

Available seat miles—ASMs (thousands)

3,442,441

5,347,325

(1,904,884
)

(35.6
)%
Block hours

143,189

223,866

(80,677
)

(36.0
)%
Revenue passenger miles—RPMs (thousands)

2,319,909

3,936,747

(1,616,838
)

(41.1
)%
Average stage length (miles)

664

595

69

11.6
%
Contract revenue per available seat mile—CRASM
(in cents)

¢ 6.07

¢ 6.31

¢ (0.24)

(3.8
)%
Passengers

3,513,757

6,535,550

(3,021,793
)

(46.2
)%

~~"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.~~

Total operating revenue decreased by $116.3 million, or 32.0%, to $247.7 million for our six months ended March 31, 2021 as compared to our six months ended March 31, 2020. Contract revenue decreased by $128.7 million, or 38.1%, to $208.9 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 COVID-19, temporary reduced rate to our partners and ~~flying fewer aircraft under the American CPA~~. Our block hours flown during our six months ended March 31, 2021 decreased 36.0% compared to the six months ended March 31, 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 months ended March 31, 2021 by $12.4 million, or 47.2%, to $38.8 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,

2021

2020

Change

Operating expenses ($ in thousands):

Flight operations

$
74,367

$
105,535

$
(31,168
)

(29.5
)%
Fuel

588

358

230

64.2
%
Maintenance

104,637

122,430

(17,793
)

(14.5
)%
Aircraft rent

20,040

23,614

(3,574
)

(15.1
)%
Aircraft and traffic servicing

1,644

2,400

(756
)

(31.5
)%
General and administrative

24,237

27,496

(3,259
)

(11.9
)%
Depreciation and amortization

41,175

41,021

154

0.4
%
Lease termination

4,508

—

4,508

100.0
%
Government grant recognition

(67,278
)

—

(67,278
)

100.0
%
Total operating expenses

$
203,918

$
322,854

$
(118,936
)

(36.8
)%

Operating data:

Available seat miles—ASMs (thousands)

3,442,441

5,347,325

(1,904,884
)

(35.6
)%
Block hours

143,189

223,866

(80,677
)

(36.0
)%
Average stage length (miles)

664

595

69

11.6
%
Departures

182,557

118,160

64,397

54.5
%

~~Flight Operations.~~ ~~Flight operations expense decreased $31.2 million, or 29.5%, to $74.4 million for our six months ended March 31, 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 pilot training related costs.~~

~~Fuel.Fuel expense increased $0.2 million, or 64.2%, to $0.6 million for our six months ended March 31, 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 during our six months ended March 31, 2021 and 2020 were directly paid to suppliers by our major airline partners.~~

~~Maintenance.~~Aircraft maintenance costs decreased $17.8 million, or 14.5%, to $104.6 million for our six months ended March 31, 2021 compared to the same period in 2020. This decrease was primarily driven 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. Total pass-through maintenance expenses reimbursed by our major airline partners increased by $14.8 million during our six months ended March 31, 2021.

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

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

~~Aircraft and Traffic Servicing.~~ Aircraft and traffic servicing expense decreased $0.8 million, or 31.5%, to $1.6 million for our six months ended March 31, 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.

~~General and Administrative.~~ General and administrative expense decreased $3.3 million, or 11.9%, to $24.2 million for our six months ended March 31, 2021 compared to the same period in 2020. The decrease is primarily due to a decrease in pass-through property taxes. For our six months ended March 31, 2021 and 2020, $7.4 million and $9.3 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 million, or 0.4%, to $41.2 million for our six months ended March 31, 2021 compared to the same period in 2020.~~ ~~The increase is primarily attributable to an increase in 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 months ended March 31, 2021 compared to the same period in 2020. This increase is attributable to the termination expense resulting from the purchase the purchase of CRJ-900 aircraft, which was previously leased from Bombardier Capital.

~~Government grant recognition.~~ Payroll Support Government Plan funds increased $67.3 million, or 100.0%, to $67.3 million for our six months ended March 31, 2021 compared to the same period in 2020. Under the CARES 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. We also recognized $11.3 million of the grant amount received for the period of April through October 2020 as of December 31, 2020.

~~Other expense decreased $6.4 million, or 26.9%, to $17.2 million for our six months ended March 31, 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.

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

The effective tax rate for the six months ended March 31, 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 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 (loss) 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 March 31,						Six Months Ended March 31,
	2021			2020			2021			2020			2022			2021			2022			2021
Reconciliation:
Net income	$	5,689		$	1,885		$	19,807		$	12,670
Income tax expense		1,890			1,307			6,711			4,842
Income before taxes	$	7,579		$	3,192		$	26,518		$	17,512
Adjustments⁽¹⁾⁽²⁾		4,508			—			3,558			—
Adjusted income before taxes		12,087			3,192			30,076			17,512
Net income (loss)													$	(42,783	)	$	5,689		$	(57,057	)	$	19,807
Income tax expense (benefit)														(12,382	)		1,890			(16,494	)		6,711
Income (loss) before taxes													$	(55,165	)	$	7,579		$	(73,551	)	$	26,518
Loss on investments, net														2,261			—			8,723			—
Adjustments^(1)(2)(3)(4)														39,843			4,508			39,843			3,558
Adjusted income (loss) before taxes														(13,061	)		12,087			(24,985	)		30,076
Interest expense		8,755			11,673			17,837			24,300			8,120			8,755			16,050			17,837
Interest income		(79	)		(36	)		(205	)		(94	)		(42	)		(79	)		(93	)		(205	)
Depreciation and amortization		20,705			20,469			41,175			41,021			20,747			20,705			41,775			41,175
Adjusted EBITDA	$	41,468		$	35,298		$	88,883		$	82,739		$	15,764		$	41,468		$	32,747		$	88,883
Aircraft rent		9,992			12,285			20,040			23,614			9,434			9,992			19,020			20,040
Adjusted EBITDAR	$	51,460		$	47,583		$	108,923		$	106,353		$	25,198		$	51,460		$	51,767		$	108,923

~~As a result of~~We believe that cash flow from operating activities coupled with existing cash and cash equivalents, existing credit facilities, and financing arrangements will be adequate to fund our operating and capital needs, as well as enable us to maintain compliance with our various debt and other contractual agreements, through at least the ~~COVID-19 pandemic, we have taken, and are continuing to take, certain actions to increase liquidity and strengthen~~next 12 months. To the extent that results or events differ from our financial ~~position. These actions include:~~projections or business plans, our liquidity may be adversely impacted.

~~Working with our major partners and original equipment manufacturers ("OEM") to delay the timing of our future aircraft and spare engine deliveries.~~

In February 2021, the Company was granted $48.7 million in financial assistance by the Department of the Treasury under the Payroll Support Program Extension (“PSP2”) under the Consolidated Appropriations Act of 2021. In March 202132

, we were 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 an additional $7.3 million through the PSP2 for a total grant of $56.0 million. The additional $7.3 million was received in April 2021.

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 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 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.~~equipment including spare engines. Our capital expenditures, net of purchases of rotable spare parts and aircraft and spare engine financing for the six months ~~ending~~ended March ~~31,2021 is~~31, 2022 were approximately 0.9% of ~~annual~~our revenue ~~which is lower compared to our historical expense as~~during the ~~Company is focusing on cost savings due to COVID 19 pandemic impact on the airline industry.~~same period. We expect to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

As of March 31, ~~2021,~~2022, our principal sources of liquidity were cash and cash equivalents of ~~$147.9~~$75.9 million. In addition, we had restricted cash of $3.4 million as of March 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, we ~~also~~ had ~~$718.2~~$648.5 million in secured indebtedness incurred primarily in connection with our financing of ~~aircraft.~~84 total aircraft and related equipment. As of March 31, ~~2021,~~2022, we had ~~$101.8~~$108.2 million of ~~short-term~~current debt, excluding ~~capital~~finance leases, and ~~$618.0~~$540.3 million of long-term debt excluding ~~capital~~finance leases.

As of March 31, ~~2021,~~2022, we 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 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 months ended March 31, ~~2021~~2022 and ~~2020~~2021 (in thousands):

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

During our six months ended March 31, 2022, we had cash flow provided by operating activities of $10.0 million. We had net loss of $57.1 million adjusted for the following significant non-cash items: depreciation and amortization of $41.8 million, stock-based compensation of $1.4 million, net losses on investments in equity securities of $8.7 million, deferred income taxes of $(16.7) million, amortization of deferred credits of $(0.4) million, amortization of debt discount and financing costs and accretion of interest of $6.6 million, and impairment of assets held for sale of $39.5 million. We had a net change of $(14.8) million within other net operating assets and liabilities largely driven by decreases in accrued expenses and other liabilities, deferred revenue, and operating lease liabilities and an increase in accounts receivable, partially offset by an increase in accounts payable during our six months ended March 31, 2022.

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

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

During our six months ended March 31, ~~2020, we had~~2022, net cash flow ~~provided by operating~~used in investing activities ~~of $65.2~~totaled $30.0 million. We ~~had net income~~invested $22.9 million in capital expenditures primarily consisting of ~~$12.7~~spare engines, rotable parts, and other equipment, and $6.9 million ~~adjusted for the following significant non-cash items: depreciation~~in payments of equipment and ~~amortization~~other deposits. We invested a total of ~~$41.0~~$0.2 million ~~stock-based compensation~~in equity securities of ~~$2.5 million, deferred income taxes of $4.5~~million, amortization of deferred credits of $(2.0) million, amortization of debt financing costs and accretion of interest on non-interest bearing subordinated notes of $2.1 million and $0.5 million loss on disposal of assets. We had a ~~net change of $3.9 million within other net operating assets and liabilities largely driven by an increase in accrued liability during our six months ended March 31, 2020.~~

During our six months ended March 31, 2021, net cash flow used in investing activities totaled $11.7 million. We invested $2.9 million in inventory, $1.6 million in aircraft purchases, $0.1 million in vehicles, $0.7 million in tools and other equipment and miscellaneous projects and ~~$6.4~~$6.9 million in ~~net returns and~~ payments onof equipment and other deposits offset by $0.5 million from the return of lease and equipment deposits.

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

During our six months ended March 31, ~~2020,~~2022, net cash flow used in ~~investing~~financing activities ~~totaled $24.8~~was $24.6 million. We ~~invested $3.6~~received $30.8 million of proceeds from long-term debt. We made $53.1 million of principal repayments on long-term debt and paid $2.4 million of costs related to debt financing. We received $0.2 million in ~~aircraft improvements, $7.6 million in inventory, $1.7 million in miscellaneous projects and $11.8 million in~~ ~~net returns and payments on equipment and other deposits.~~proceeds from the issuance of common stock under our ESPP.

During our six months ended March 31, 2021, net cash flow used in financing activities was $18.5 million. We received $195.0 million of proceeds from ~~our US~~the Treasury ~~Loan Agreement.~~Loan. We made $212.0 million of principal repayments on long-term ~~debt during the period.~~debt. We ~~incurred~~paid $1.3 million of costs related to debt financing.

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

The accompanying discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated interim financial statements included elsewhere in this Form 10-Q. We believe certain of our accounting estimates and policies are critical to understanding our financial position and results of operations. There have been no material changes to the critical accounting ~~policies~~estimates as explained in Part 1, Item 7 of ~~the 2020~~our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 under the heading "Critical Accounting ~~Policies.~~Estimates."

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, ~~2021,~~2022, we had ~~$533.8~~$484.5 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~~$1.2 million in the six months ended March 31, ~~2021.~~2022.

As of March 31, ~~2021,~~2022, we had ~~$192.2~~$167.5 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, ~~2021.~~2022.

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~~In December 2020, the administrator of ~~calculating~~ LIBOR proposed to cease publication of certain LIBOR settings after December 2021 and to cease publication of the remainder of the LIBOR settings after June 2023. The majority of our debt arrangements are indexed to one- and three-month LIBOR, which 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 havesunset on ~~financial markets for LIBOR-linked financial instruments.~~June 30, 2023. 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, ~~2021,~~2022, we had ~~$533.8~~$484.5 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"))~~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.

During the three months ended March 31, 2022, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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—~~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.

On March 2, 2022, the parties in the federal lawsuit attended a mediation and reached an agreement in principle to settle all claims asserted in that action for the sum of $5 million, which will be paid by the Company’s directors’ and officers’ insurance carriers. The ~~plaintiffs seek unspecified monetary damages~~settlement is subject to final documentation and ~~other relief.~~preliminary and final approval by the federal court. The motion for preliminary approval must be filed on or before May 9, 2022. If preliminary and final approval is obtained, the claims of all putative class members, whether asserted in the federal or state actions, will be extinguished, unless and only to the extent that a particular class member takes affirmative steps to have its claims excluded.

In addition, we are subject to certain legal actions which we consider routine to our business activities. As of March 31, ~~2021,~~2022, 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.

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,~~2021, 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~~2021 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.

The Company repurchased ~~175,925~~15,696 shares of its common stock for ~~$0.2~~$0.1 million to cover the income tax obligation on vested employee equity awards and warrant conversions during the six months ended March 31, ~~2021~~2022.

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 (Loss)	3

Condensed Consolidated Statements of Stockholders' Equity	4

Condensed Consolidated Statements of Cash Flows	65

Notes to Condensed Consolidated Financial Statements	76

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2524

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3735

Item 4. Controls and Procedures	3836

PART II – OTHER INFORMATION	3937

Item 1. Legal Proceedings	3937

Item 1A. Risk Factors	3937

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3937

Item 3. Defaults Upon Senior Securities	3937

Item 4. Mine Safety Disclosures	3937

Item 5. Other Information	3937

Item 6. Exhibits	3937

SIGNATURES	4139


	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


	March 31, 2022				September 30, 2021
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt and finance leases, including current maturities⁽¹⁾	$	652.0	$	609.7	$	670.3	$	676.8

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒

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

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

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

Periods Ending September 30,	Total Revenue
2022 (remainder of)	$	714
2023		5,051
2024		9,330
2025		6,253
2026		3,673
Thereafter		4,522
Total	$	29,543

Periods Ending March 31,	Total Maturities
Remainder of 2021	$	675
2022		9,097
2023		9,430
2024		9,169
2025		3,695
Thereafter		1,792
Total	$	33,858

				Weighted-
				Average
	Number			Grant Date
	of Shares			Fair Value
Restricted shares unvested at September 30, 2020		1,195,548		$	5.47
Granted		121,688			8.58
Vested		(132,109	)		8.75
Forfeited		(17,500	)		4.90
Restricted shares unvested at March 31, 2021		1,167,627		$	5.44

Exhibit No.		Exhibit Description
~~10.1~~10.1**		~~Payroll support Program~~Second Amendment to the Second Amended and Restated United Capacity Purchase Agreement between ~~The Department of the Treasury~~United Airlines, Inc. and Mesa Airlines, Inc., dated ~~as of~~ February ~~3, 2021~~4, 2022

10.2 *		Amendment No. 7 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc. and American Airlines, Inc. dated March 31, 2022

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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101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	MESA AIR GROUP, INC.

Date: May ~~10, 2021~~9, 2022	By:	/s/ ~~Michael J. Lotz~~D. Torque Zubeck
		~~Michael J. Lotz~~Torque Zubeck ~~President and~~ Chief Financial Officer (Principal Financial Officer)