MESA AIR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

December 17, 2019 at 06:11 am EST

The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements,
the accompanying notes, and the other financial information included elsewhere
in this Annual Report on Form 10-K. The following discussion contains
forwardlooking 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 those differences in our actual results include, but are
not limited to, those discussed below and those discussed elsewhere in this
Annual Report on Form 10-K, particularly in the sections "Cautionary Notes
Regarding Forward-Looking Statements" above and Part I, Item 1A. "Risk Factors"
above.

Overview

Mesa Airlines is a regional air carrier providing scheduled passenger service to
125 cities in 39 states, the District of Columbia, Canada, Mexico and Cuba. All
of our flights are operated as either American Eagle or United Express flights
pursuant to the terms of capacity purchase agreements we entered into with
American and United. 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 September 30, 2019, we operated a fleet of 145 aircraft with approximately
730 daily departures. We operate 62 CRJ-900 aircraft under our American Capacity
Purchase Agreement and 20 CRJ-700 and 60 E-175 aircraft under our United
Capacity Purchase Agreement. For our fiscal year ended September 30, 2019,
approximately 44% of our aircraft in scheduled service were operated for
American and approximately 56% were operated for United. All of our operating
revenue in our 2019, 2018 and 2017 fiscal years was derived from operations
associated with our American and United Capacity Purchase Agreements.

Our long-term capacity purchase agreements provide us guaranteed monthly revenue
for each aircraft under contract, a fixed fee for each block hour and flight
actually flown, and reimbursement of certain direct operating expenses in
exchange for providing regional flying on behalf of our major airline partners.
Our capacity purchase agreements 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, 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.

2019 Financial Highlights



For our fiscal year ended September 30, 2019, we had total operating revenues of
$723.4 million, a 6.1% increase, compared to $681.6 million for our fiscal year
ended September 30, 2018. Net income for our fiscal year ended September 30,
2019 was $47.6 million, or $1.36 per diluted share, compared to net income of
$33.3 million, or $1.32 per diluted share, for our fiscal year ended September
30, 2018.

We recorded two one-time adjustments in fiscal 2019. The first was $9.5 million
of non-cash lease termination expense related to our acquisition of ten CRJ-700
aircraft, which were previously leased under our aircraft lease facility with
Wells Fargo Bank Northwest, National Association, as owner trustee and lessor
(the "GECAS Lease Facility"). The second adjustment was $3.6 million of loss on
extinguishment of debt related to repayment of the Company's Spare Engine
Facility 2019.

During our 2019 fiscal year, we increased our completed block hours by 45,273, or 11.0%, compared to our fiscal year ended September 30, 2018.

Industry Trends



We believe our operating and business performance is driven by various factors
that typically affect regional airlines and their markets, including trends
which affect the broader airline and travel industries, though our capacity
purchase agreements reduce our exposure to fluctuations in certain trends. The
following key factors may materially affect our future performance.

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Availability and Training of Qualified Pilots. On July 8, 2013, as directed by
the U.S. Congress, the FAA issued more stringent pilot qualification and crew
member flight training standards, which, among other things, increased the
required training time for new airline pilots from 250 hours to 1,500 hours of
flight time. With these changes, the supply of qualified pilot candidates
eligible for hiring by the airline industry has been dramatically reduced. To
address the diminished supply of qualified pilot candidates, regional airlines
implemented significant pilot wage and bonus increases.

In prior periods, these factors caused our pilot attrition rates to be higher
than our ability to hire and retain replacement pilots and resulted in being
unable to provide flight services at or exceeding the minimum flight operating
levels expected by our major airline partners. However, in July 2017, we reached
a new four-year collective bargaining agreement with our pilots that provides
increases in our pilots' wages, premium pay for flying on scheduled days off and
competitive signing bonuses for prospective new pilots. Following the
ratification of our new collective bargaining agreement, our average number of
new pilot applications per month during our 2019 and 2018 fiscal year exceeded
pilot attrition. Our results of operations may be negatively impacted if we are
unable to hire and train our pilots in a timely manner.

Pilot Attrition. In recent years, we have experienced significant volatility in
our attrition as a result of pilot wage and bonus increases at other regional
air carriers, the growth of cargo, low-cost and ultra low-cost carriers and the
number of pilots at major airlines reaching the statutory mandatory retirement
age of 65 years. If our actual pilot attrition rates are materially different
than our projections, our operations and financial results could be materially
and adversely affected.

Economic Conditions, Challenges and Risks



Market Volatility. The airline industry is volatile and affected by economic
cycles and trends. Consumer confidence and discretionary spending, fear of
terrorism or war, weakening economic conditions, fare initiatives, fluctuations
in fuel prices, labor actions, changes in governmental regulations on taxes and
fees, weather and other factors have contributed to a number of reorganizations,
bankruptcies, liquidations and business combinations among major and regional
airlines. The effect of economic cycles and trends may be somewhat mitigated by
our reliance on capacity purchase agreements. If, however, any of our major
airline partners experiences a prolonged decline in the number of passengers or
is negatively affected by low ticket prices or high fuel prices, it may seek
rate reductions in future capacity purchase agreements, or materially reduce our
scheduled flights in order to reduce its costs. Our financial performance could
be negatively impacted by any adverse changes to the rates, number of aircraft
or utilization under our capacity purchase agreements.

Labor. The airline industry is heavily unionized. The wages, benefits and work
rules of unionized airline industry employees are determined by collective
bargaining agreements. As of September 30, 2019, approximately 75.6% of our
workforce was represented by the ALPA and AFA. Our pilots and flight attendants
ratified new four-year collective bargaining agreements during calendar 2017.
The agreements include rate increases for three years and two years,
respectively, after the amendable dates. The new agreements are amendable
following their four-year term and include labor rate structures for two years
(flight attendants) and three years (pilots), respectively, after the amendable
dates. The terms and conditions of our future collective bargaining agreements
may be affected by the results of collective bargaining negotiations at other
airlines that may have a greater ability, due to larger scale, greater
efficiency or other factors, to bear higher costs than we can. In addition,
conflicts between airlines and their unions can lead to work slowdowns or
stoppages. A strike or other significant labor dispute with our unionized
employees may adversely affect our ability to conduct business.

Competition. The airline industry is highly competitive. We compete principally
with other regional airlines. Major airlines typically award capacity purchase
agreements to regional airlines based on the following criteria: ability to fly
contracted schedules, availability of labor resources, including pilots, low
operating cost, financial resources, geographical infrastructure, overall
customer service levels relating to on-time arrival and flight completion
percentages and the overall image of the regional airline. Our ability to renew
our existing agreements and earn additional flying opportunities in the future
will depend, in significant part, on our ability to maintain a low-cost
structure competitive with other regional air carriers.

Maintenance Contracts, Costs and Timing. Our employees perform routine airframe
and engine maintenance along with periodic inspections of equipment at their
respective maintenance facilities. We also use third-party vendors, such as AAR,
Aviall, Bombardier, GE and StandardAero, for certain heavy airframe and engine
maintenance work, along with parts procurement and component overhaul services
for our aircraft fleet. As of September 30, 2019, $59.9 million of parts
inventory was consigned to us by AAR and Aviall under long-term contracts that
is not reflected on our balance sheet.

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The average age of our E-175, CRJ-900 and CRJ-700 type aircraft is approximately
3.9, 13.0 and 15.7 years, respectively. Due to the relatively young age of
our E-175 aircraft, they require less maintenance now than they will in the
future. Over the past five years, we have incurred relatively low maintenance
expenses on our E-175 aircraft because most of the parts are under multi-year
warranties and a limited number of heavy airframe checks and engine overhauls
have occurred. As our E-175 aircraft age and these warranties expire, we expect
that maintenance costs will increase in absolute terms and as a percentage of
revenue. In addition, because our current aircraft were acquired over a
relatively short period of time, significant maintenance events scheduled for
these aircraft will occur at roughly the same intervals, meaning we will incur
our most expensive scheduled maintenance obligations across our present fleet at
approximately the same time. These more significant maintenance activities
result in out-of-service periods during which aircraft are dedicated to
maintenance activities and unavailable for flying under our capacity purchase
agreements.

We use the direct expense method of accounting for our maintenance of regional
jet engine overhauls, airframe, landing gear, and normal recurring maintenance
wherein we recognize the expense when the maintenance work is completed, or over
the repair period, if materially different. Our maintenance policy is determined
by fleet when major maintenance is incurred. While we keep a record of expected
maintenance events, the actual timing and costs of major engine maintenance
expense are subject to variables such as estimated usage, government regulations
and the level of unscheduled maintenance events and their actual costs.
Accordingly, we cannot reliably quantify the costs or timing of future
maintenance-related expenses for any significant period of time.

Aircraft Leasing and Finance Determinations. We have generally funded aircraft
acquisitions through a combination of operating leases and debt financing. Our
determination to lease or finance the acquisition of aircraft may be influenced
by a variety of factors, including the preferences of our major airline
partners, the strength of our balance sheet and credit profile and those of our
major airline partners, the length and terms of the available lease or financing
alternatives, the applicable interest rates, and any lease return conditions.
When possible, we prefer to finance aircraft through debt rather than operating
leases, due to lower operating costs, extended depreciation period, opportunity
for aircraft equity, absence of lease return conditions and greater flexibility
in renewing the aircraft under our capacity purchase agreements with our major
airline partners after paying off the principal balance.

Subsequent to the initial acquisition of an aircraft, we may also refinance the
aircraft or convert one form of financing to another (e.g., replacing an
aircraft lease with debt financing). The purchase of leased aircraft allows us
to lower our operating costs and avoid lease-related use restrictions and return
conditions.

As of September 30, 2019, we had 60 aircraft in our fleet under lease, including
42 E-175 aircraft owned by United and leased to us at nominal amounts. In order
to determine the proper classification of our leased aircraft as either
operating leases or capital leases, we must make certain estimates at the
inception of the lease relating to the economic useful life and the fair value
of an asset as well as select an appropriate discount rate to be used in
discounting future lease payments. These estimates are utilized by management in
making computations as required by existing accounting standards that determine
whether the lease is classified as an operating lease or a capital lease. All of
our aircraft leases have been classified as operating leases, which results in
rental payments being charged to expense over the terms of the related leases.

We are also subject to lease return provisions that require a minimum portion of
eligible flight time for certain components remain when the aircraft is returned
at the lease expiration. We estimate the cost of maintenance lease return
obligations and accrue such costs over the remaining lease term when the expense
is probable and can be reasonably estimated. Additionally, operating leases are
not reflected on our consolidated balance sheet and accordingly, neither a lease
asset nor an obligation for future lease payments is reflected in our
consolidated balance sheets. See "Recent Accounting Pronouncements" in the notes
to our consolidated financial statements below for a discussion of a new
accounting standard that is likely to have an impact on our aircraft lease
accounting beginning in our 2020 fiscal year.

See "Risk Factors" for a discussion of these factors and other risks.

Seasonality



Our results of operations for any interim period are not necessarily indicative
of those for the entire year, since the airline industry is subject to seasonal
fluctuations and general economic conditions. Our operations are somewhat
favorably affected by increased utilization of our aircraft in the summer months
and are unfavorably affected by increased fleet maintenance and by inclement
weather during the winter months.

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Components of Our Results of Operations

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

Operating Revenues

Our consolidated operating revenues consist primarily of contract revenue flight services 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 with our major
airline partners, along with the additional amounts received based on the number
of flights and block hours flown. Contract revenues we receive from our major
airline partners are paid and recognized by us on a weekly basis.

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

Operating Expenses

Our operating expenses consist of the following items:



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

Fuel. Fuel expense includes fuel and related fueling costs for flying we
undertake outside of our capacity purchase agreements, 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. Accordingly, we do not record an expense or the
related revenue for fuel supplied by American and United for flying under our
capacity purchase agreements.

Maintenance. Maintenance includes costs related to engine overhauls, airframe,
landing gear and normal recurring maintenance, which includes pass-through
maintenance costs related to our E-175 aircraft, as well as maintenance lease
return obligations on our leased aircraft when the expense is probable and can
be reasonably estimated. We record these expenses using the direct expense
method of accounting, wherein the expense is recognized when the maintenance
work is completed, or over the repair period, if materially different. As a
result of using the direct expense method, the timing of maintenance expense
reflected in the financial statements may vary significantly from period to
period.

Aircraft Rent. Aircraft rent 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, non-operational administrative employee wages and related expenses, building rents, real property leases, utilities, legal, audit and other administrative expenses. The majority of insurance and taxes are pass-through costs.

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.

Other (Expense) Income, Net

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

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

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

Segment Reporting



Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing operating performance. In consideration of Accounting Standards
Codification ("ASC") 280, "Segment Reporting," we are not organized around
specific services or geographic regions. We currently operate in one service
line providing scheduled flying services in accordance with our capacity
purchase agreements.

While we operate under two separate capacity purchase agreements, we do not
manage our business based on any performance measure at the individual contract
level. Additionally, our chief operating decision maker 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. He bases all significant decisions regarding the allocation of our
resources on a consolidated basis. Based on the information described above and
in accordance with the applicable literature, management has concluded that we
are organized and operated as one operating and reportable segment.

Results of Operations

Comparison of our Fiscal Years Ended September 30, 2019 and 2018



We had operating income of $121.1 million in our fiscal year ended September 30,
2019, compared to operating income of $72.6 million in September 30, 2018. In
our 2019 fiscal year, we had net income of $47.6 million compared to net income
of $33.3 million in our 2018 fiscal year. Our operating results for our fiscal
year ended September 30, 2019 reflected an increase in contract revenue
primarily related to the additional flying of our E-175, CRJ-900 and CRJ-700
fleets as a result of increased pilot staffing level. We also experienced a
decrease in aircraft rent expense as a result of purchasing nine CRJ-900
aircraft in June 2018 and ten CRJ-700 aircraft in June 2019 that were previously
leased under our GECAS Lease Facility. We also experienced a decrease in lease
termination expense for ten CRJ-700 aircraft purchased in June 2019, compared to
the lease termination expense associated with the purchase of nine CRJ-900
aircraft in June 2018, both previously leased under our GECAS Lease Facility.

Operating Revenues



                                           Year Ended September 30,
                                             2019             2018                  Change
Operating revenues ($ in thousands):
Contract                                 $    682,834     $    639,264     $    43,570           6.8 %
Pass-through and other                         40,523           42,331          (1,808 )        (4.3 )%
Total operating revenues                 $    723,357     $    681,595     $    41,762           6.1 %

Operating data: (1)
Available seat miles-ASMs (thousands)      10,863,623        9,713,877       1,149,746          11.8 %
Block hours                                   456,247          410,974          45,273          11.0 %
Revenue passenger miles-
  RPMs (thousands)                          8,587,223        7,699,065         888,158          11.5 %
Average stage length (miles)                      579              560              19           3.4 %
Contract revenue per available seat
mile-CRASM
  (in cents)                             ¢       6.29     ¢       6.58     $     (0.29 )        (4.4 )%
Passengers                                 14,664,441       13,556,774       1,107,667           8.2 %

(1) The definitions of certain terms related to the airline industry used in the


    table can be found under "Glossary of Airline Terms' in Part II, Item 6
    "Selected Financial Data" above.


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Total operating revenue increased by $41.8 million, or 6.1%, during our fiscal
year ended September 30, 2019, compared to our fiscal year ended September 30,
2018. Contract revenue increased by $43.6 million, or 6.8%, primarily due to an
increase in flying with our E-175, CRJ-900 and CRJ-700 fleets, an increase in
performance incentive pay, and a decrease in credits given to our major airline
partners based on contractual utilization levels. Our block hours flown during
our fiscal year September 30, 2019 increased 11.0%, compared to our fiscal year
ended September 30, 2018, due to increased flying with our E-175, CRJ-900 and
CRJ-700 fleets. Our pass-through and other revenue decreased during our fiscal
year ended September 30, 2019 by $1.8 million, or 4.3%, primarily due to a
reduction in pass-through maintenance costs related to our E-175 fleet.

Operating Expenses



                                           Year Ended September 30,
                                             2019             2018                  Change
Operating expenses ($ in thousands):
Flight operations                        $     210,879     $   209,065     $     1,814           0.9 %
Fuel                                               588             498              90          18.1 %
Maintenance                                    196,514         193,164           3,350           1.7 %
Aircraft rent                                   52,206          68,892         (16,686 )       (24.2 )%
Aircraft and traffic servicing                   3,972           3,541             431          12.2 %
General and administrative                      50,527          53,647          (3,120 )        (5.8 )%
Depreciation and amortization                   77,994          65,031          12,963          19.9 %
Lease termination                                9,540          15,109          (5,569 )       (36.9 )%
Total operating expenses                 $     602,220     $   608,947

$ (6,727 ) (1.1 )%

Operating data:
Available seat miles-ASMs (thousands) 10,863,623 9,713,877 1,149,746 11.8 %
Block hours 456,247 410,974 45,273 11.0 %
Average stage length (miles) 579 560 19 3.4 %
Departures 246,634 227,978 18,656 8.2 %

Flight Operations. Flight operations expense increased $1.8 million, or $0.9%,
to $210.9 million for our fiscal year ended September 30, 2019, compared to our
fiscal year ended September 30, 2018. The increase was primarily driven by an
increase in pilot and flight attendant wages due to additional flying, offset by
a decrease in pilot premium pay as our pilot staffing levels have improved.

Fuel. Fuel expense increased $0.09 million, or 18.1%, to $0.6 million for our
fiscal year ended September 30, 2019, compared to our fiscal year ended
September 30, 2018. The increase was primarily driven by an increased number of
ferry flights for maintenance events and maintenance fuel in our Phoenix hub.
All fuel costs related to flying under our capacity purchase agreements during
our fiscal years ended September 30, 2019 and 2018 were directly paid to
suppliers by our major airline partners.

Maintenance. Aircraft maintenance costs increased $3.4 million, or 1.7%, to
$196.5 million for our fiscal year ended September 30, 2019, compared to our
fiscal year ended September 30, 2018. This increase was primarily driven by an
increase in labor and other expense, component contracts, and rotable and
expendable parts expense. This increase was partially offset by a decrease in
engine and pass-through engine and C-Check expense. During our 2019 fiscal year,
$6.0 million of engine overhaul expenses were reimbursable by our major airline
partners. Total pass-through maintenance expenses reimbursed by our major
airline partners decreased by $8.6 million during our fiscal 2019, compared to
fiscal 2018.

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The following table presents information regarding our aircraft maintenance costs during our fiscal years ended September 30, 2019 and 2018:





                                   Year Ended September 30,
                                     2019              2018               Change
                                        (in thousands)
    Engine overhaul              $      24,077       $  38,869     $ (14,792 )     (38.1 )%
    Pass-through engine overhaul $       5,960       $  12,341        (6,381 )     (51.7 )%
    C-check                      $      16,807       $  14,048         2,759        19.6 %
    Pass-through C-check         $         396       $   7,456        (7,060 )     (94.7 )%
    Component contracts          $      37,572       $  33,221         4,351        13.1 %
    Rotable and expendable parts $      29,853       $  23,989         5,864        24.4 %
    Other pass-through           $      12,885       $   8,019         4,866        60.7 %
    Labor and other              $      68,964       $  55,221        13,743        24.9 %
    Total                        $     196,514       $ 193,164     $   3,350         1.7 %




Aircraft Rent. Aircraft rent expense decreased $16.7 million, or 24.2%, to
$52.2 million for our fiscal year ended September 30, 2019, compared to our
fiscal year ended September 30, 2018. This decrease was primarily attributable
to $16.6 million decrease in aircraft lease expense due to the purchase of nine
CRJ-900 and ten CRJ-700 aircraft, previously leased under the GECAS Lease
Facility, in June 2018 and June 2019, respectively.

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense increased
$0.4 million, or 12.2%, to $4.0 million for our fiscal year ended September 30,
2019, compared to our fiscal year ended September 30, 2018. This increase was
primarily due to an increase in interrupted trip expense and higher pass-through
regulatory charges. For our fiscal years ended September 30, 2019 and 2018,
52.6% and 53.0%, respectively, of our aircraft and traffic servicing expenses
were reimbursed by our major airline partners.

General and Administrative. General and administrative expense decrease
$3.1 million, or 5.8%, to $50.5 million for our fiscal year ended September 30,
2019, compared to our fiscal year ended September 30, 2018. This decrease was
primarily due to a decrease in amortization of our restricted stock compensation
and slightly offset in pass- through property tax and passenger liability
expense.

Depreciation and Amortization. Depreciation and amortization expense increased
$13.0 million, or 19.9%, to $78.0 million for our fiscal year ended
September 30, 2019, compared to our fiscal year ended September 30, 2018. This
increase was primarily attributable to an increase in depreciation expense
related to our purchase of spare engines and aircraft depreciation related to
the purchase of the nine CRJ-900 and ten CRJ-700 aircraft, previously leased
under the GECAS Lease Facility, in June 2018 and June 2019 respectively.

Lease Termination. Lease termination expense decreased $5.6 million, or 36.9%,
for our fiscal year ended September 30, 2019, compared to our fiscal year ended
September 30, 2018. The decrease is primarily driven by a lower lease
termination expense for the ten CRJ-700 aircraft purchased in June 2019,
compared to the lease termination expense associated the purchase of the nine
CRJ-900 aircraft in June 2018, which were both under the GECAS Lease facility.

Other Expense



Other expense increased $1.0 million, or 1.8%, to $57.9 million for our fiscal
year ended September 30, 2019, compared to our fiscal year ended September 30,
2018. The increase is primarily due to a one-time extinguishment of debt expense
of $3.6 million related to the repayment of our Spare Engine Facility. Interest
expense decreased $1.2 million primarily due to a decrease in interest expense
related to our Spare Engine Facility, CIT Revolving Credit Facility and EDC
engine financing, which decrease was partially offset by an increase in interest
expense due to the financing of nine CRJ-900 and ten CRJ-700 aircraft in June
2018 and June 2019, respectively, which were previously leased under the GECAS
Lease Facility. Our expenses related to debt financing amortization decreased by
$0.3 million is primarily due to the write-off of financing fees related to the
repayment of our Spare Engine Facility. Additionally, interest income increased
by $1.4 million in the twelve months ended September 30, 2019, compared to the
same period in 2018.

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Income Taxes



In our fiscal year ended September 30, 2019, our effective tax rate was 24.8%
compared to (110.1%) in our fiscal year ended September 30, 2018. Our tax rate
can vary depending on changes in tax laws, adoption of accounting standards, the
amount of income we earn in each state and the state tax rate applicable to such
income, as well as any valuation allowance required on our state net operating
losses.

We recorded an income tax provision of $15.7 million and an income tax provision of ($17.4) million for the years ended September 30, 2019 and 2018, respectively.



The income tax provision for our fiscal year ended September 30, 2019 resulted
in an effective tax rate of 25.0%, which differed from the U.S. federal
statutory rate of 21%, primarily due to the impact of state taxes and permanent
differences between financial statement and taxable income. In addition to the
state effective tax rate impact, other state impacts include changes in the
valuation allowance against state net operating losses, expired state
attributes, and changes in state apportionment and statutory rates.

The income tax provision for our fiscal year ended September 30, 2018 resulted
in an effective tax rate of (110.1%), which differed from the U.S. federal
statutory rate of 35% through December 31, 2017 and 21% as of January 1, 2018,
primarily due to a re-measurement of our net deferred tax liability due to
federal tax law changes and the adoption of Accounting Standards Update 2016-09.
Other factors include changes in the valuation allowance against state net
operating losses, expired state attributes and state apportionment and statutory
rates.

On December 22, 2017, the President signed the Tax Act into law. The Tax Act
incorporated several new provisions that had an impact on our financial
statements. Most notably, the Tax Act decreased the federal statutory rate to
21% for our fiscal year ended September 30, 2019 and subsequent fiscal
years. The decrease in the federal statutory rate resulted in a net tax benefit
in fiscal 2018 due to the re-measurement of our net deferred tax liability. The
Company's net operating losses incurred in the fiscal year ended September 30,
2019 and in subsequent years may be used to offset up to 80% of taxable income
in a given year and the Company's net operating losses incurred in fiscal year
ended September 30, 2018 and in subsequent fiscal years are allowed to be
carried indefinitely.

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, 2019, we had aggregate federal and state net operating loss
carryforwards of approximately $478.3 million and $228.3 million, which expire
in 2027-2037 and 2020-2039, respectively, with approximately $0.9 million of
state net operating loss carryforwards that expired in 2019.

See Note 12: "Income Taxes" in the notes to the audited consolidated financial statements included elsewhere in this Annual Report Form 10-K.

Comparison of our Fiscal Years Ended September 30, 2018 and 2017



We had operating income of $72.6 million in our fiscal year ended September 30,
2018, compared to operating income of $100.3 million in our fiscal year ended
September 30, 2017. In our 2018 fiscal year, we had net income of $33.3 million
compared to net income of $32.8 million in our 2017 fiscal year. Our operating
results for our fiscal year ended September 30, 2018 reflected an increase in
contract revenue primarily related to the addition of 12 E-175 aircraft under
our United Capacity Purchase Agreement, which was partially offset by reduced
flying of our CRJ-900 and CRJ-700 fleet. We also experienced an increase in
flight operations expense driven by an increase in pilot training and related
expenses and an increase in premium pilot pay to incentivize pilots to fly
additional routes until additional pilots complete their training.

Our maintenance expense decreased due to the timing of significant engine overhaul events, which occurred less frequently during our fiscal year ended September 30, 2018 than during our fiscal year ended September 30, 2017.



We recorded two one-time non-cash adjustments in our fiscal year ended
September 30, 2018. The first adjustment was $15.1 million of lease termination
expense related to our acquisition of nine CRJ-900 aircraft, which were
previously leased under our GECAS Lease Facility. The second adjustment related
to an increase in the value of our SARs associated with an increase in fair
value of our common stock as well as a change in accounting methodology from the
intrinsic value method to fair value method. These changes resulted in a general
and administrative expense of $11.1 million.

                                       45

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Operating Revenues



                                              Year Ended September 30,
                                                2018             2017                 Change
Operating revenues ($ in thousands):
Contract                                    $    639,264     $    618,698     $  20,566           3.3 %
Pass-through and other                      $     42,331     $     24,878        17,453          70.2 %
Total operating revenues                    $    681,595     $    643,576     $  38,019           5.9 %
Operating data: (1)
Available seat miles-ASMs (miles in
  thousands)                                   9,713,877        9,471,911       241,966           2.6 %
Block hours                                      410,974          395,083        15,891           4.0 %

Revenue passenger miles-RPMs (miles in


  thousands)                                   7,699,065        7,392,688       306,377           4.1 %
Average stage length (miles)                         560              561            (1 )        (0.2 )%
Contract revenue per available seat mile-
  CRASM (in cents)                          ¢       6.58     ¢       6.53     ¢    0.05           0.8 %
Passengers                                    13,556,774       13,005,844       550,930           4.2 %

(1) The definitions of certain terms related to the airline industry used in the


    table can be found under "Glossary of Airline Terms' in Part II, Item 6
    "Selected Financial Data" above.




Total operating revenue increased by $38.0 million, or 5.9%, during our fiscal
year ended September 30, 2018, compared to our fiscal year ended September 30,
2017. Contract revenue increased by $20.6 million, or 3.3%, primarily due to an
increase in flying with our expanded E-175 fleet and higher block hour
compensation. Our block hours flown during our fiscal year ended September 30,
2018 increased 4.0%, compared to our fiscal year ended September 30, 2017, due
to increased flying on our E-175 fleet, which was partially offset by reduced
flight schedules caused by increased pilot training times. Our pass-through and
other revenue increased during our fiscal year ended September 30, 2018 by $17.5
million, or 70.2%, primarily due to pass-through maintenance costs related to
our E-175 fleet

Operating Expenses



                                             Year Ended September 30,
                                               2018             2017                 Change
Operating expenses ($ in thousands):
Flight operations                          $     209,065     $   155,516     $  53,549          34.4 %
Fuel                                       $         498     $       766     $    (268 )       (35.0 )%
Maintenance                                $     193,164     $   210,729     $ (17,565 )        (8.3 )%
Aircraft rent                              $      68,892     $    72,551     $  (3,659 )        (5.0 )%
Aircraft and traffic servicing             $       3,541     $     3,676     $    (135 )        (3.7 )%
General and administrative                 $      53,647     $    38,996     $  14,651          37.6 %
Depreciation and amortization              $      65,031     $    61,048     $   3,983           6.5 %
Lease Termination                          $      15,109     $         -     $  15,109         100.0 %
Total operating expenses                   $     608,947     $   543,282     $  65,665          12.1 %
Operating data:
Available seat miles-ASMs (miles in
thousands)                                     9,713,877       9,471,911       241,966           2.6 %
Block hours                                      410,974         395,083        15,891           4.0 %
Average stage length (miles)                         560             561            (1 )        (0.2 )%
Departures                                       227,978         221,990         5,988           2.7 %





Flight Operations. Flight operations expense increased $53.5 million, or 34.4%,
to $209.1 million for our fiscal year ended September 30, 2018, compared to our
fiscal year ended September 30, 2017. This increase was primarily driven by an
increase in pilot training related expenses, an increase in premium pilot pay to
incentivize pilots to fly additional routes until additional pilots complete
their training and additional pilot and flight attendant wages due to the
additional flying, as well as our new collective bargaining agreements.

                                       46

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Fuel. Fuel expense decreased $0.3 million, or 35.0%, to $0.5 million for our
fiscal year ended September 30, 2018, compared to our fiscal year ended
September 30, 2017. The decrease was primarily driven by a reduced number of
ferry flights for maintenance events and maintenance fuel in our Phoenix hub.
All fuel costs related to flying under our capacity purchase agreements during
our fiscal years ended September 30, 2018 and 2017 were directly paid to
suppliers by our major airline partners.

Maintenance. Aircraft maintenance costs decreased $17.6 million, or 8.3%, to
$193.2 million for our fiscal year ended September 30, 2018, compared to our
fiscal year ended September 30, 2017. This decrease was primarily driven by a
decrease in engine overhaul expense, rotable and expendable parts expense and
labor and other expense. This decrease was partially offset by an increase in
component contracts expense and other pass-through expense. During our 2018
fiscal year, $12.3 million of engine overhaul expenses were reimbursable by our
major airline partners. Total pass-through maintenance expenses reimbursed by
our major airline partners increased by $16.7 million during our fiscal 2018,
compared to fiscal 2017.

The following table presents information regarding our aircraft maintenance costs during our fiscal years ended September 30, 2018 and 2017:





                                    Year Ended September 30,
                                      2018              2017                Change
                                         (in thousands)
   Engine overhaul                $      38,869       $  63,719     $ (24,850 )      (39.0 )%
   Pass-through engine overhaul          12,341             270     $  12,071       4470.7 %
   C-check                               14,048          17,755     $  (3,707 )      (20.9 )%
   Pass-through C-check                   7,456           4,889     $   2,567         52.5 %
   Component contracts                   33,221          31,671     $   1,550          4.9 %
   Rotable and expendable parts          23,989          26,098     $  (2,109 )       (8.1 )%
   Other pass-through                     8,019           6,003     $   2,016         33.6 %
   Labor and other                       55,221          60,324        (5,103 )       (8.5 )%
   Total                          $     193,164       $ 210,729     $ (17,565 )       (8.3 )%




Aircraft Rent. Aircraft rent expense decreased $3.7 million, or 5.0%, to
$68.9 million for our fiscal year ended September 30, 2018, compared to our
fiscal year ended September 30, 2017. This decrease was attributable to a
$0.3 million increase in engine rent and a $3.9 million decrease in aircraft
lease expense due to purchasing nine CRJ-900 aircraft, previously leased under
the GECAS Lease Facility, in June 2018.

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense decreased
$0.1 million, or 3.7%, to $3.5 million for our fiscal year ended September 30,
2018, compared to our fiscal year ended September 30, 2017. This decrease was
primarily due to a decrease in interrupted trip expense which was partially
offset by higher pass-through regulatory charges. For our fiscal years ended
September 30, 2018 and 2017, 53.0% and 46.5%, respectively, of our aircraft and
traffic servicing expenses were reimbursed by our major airline partners.

General and Administrative. General and administrative expense increased
$14.7 million, or 37.6%, to $53.6 million for our fiscal year ended September
30, 2018, compared to our fiscal year ended September 30, 2017. This increase
was primarily related to a one-time, non-cash $11.1 million expense related to
an increase in the value of our SARs associated with an increase in fair value
of our common stock as well as a change in accounting methodology from the
intrinsic value method to fair value method. The remainder of the variance was
due to an increase in audit fees, property taxes and fees associated with
restructuring the RASPRO Lease Facility.

Depreciation and Amortization. Depreciation and amortization expense increased
$4.0 million, or 6.5%, to $65.0 million for our fiscal year ended September 30,
2018, compared to our fiscal year ended September 30, 2017. This increase was
primarily attributable to an increase in depreciation expense related to our
purchase of spare engines and aircraft depreciation related to the purchase of
the nine CRJ-900 aircraft, previously leased under the GECAS Lease Facility, in
June 2018.

Lease Termination. Lease termination expense increased $15.1 million, or 100%,
for our fiscal year ended September 30, 2018, compared to our fiscal year ended
September 30, 2017. This increase was related to our acquisition of nine CRJ-900
aircraft, previously leased under the GECAS Lease Facility, in June 2018.

                                       47

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Other Expense



Other expense increased $10.2 million, or 22.0%, to $56.8 million for our fiscal
year ended September 30, 2018, compared to our fiscal year ended September 30,
2017. This increase was primarily due to an increase in interest expense of
$8.7 million related to the financing of 23 spare engines, the financing of nine
CRJ-900 aircraft, previously leased under our GECAS Lease Facility, in June
2018, the refinancing of fifteen CRJ-900 aircraft, our line of credit with CIT,
a deferment of certain payments under the RASPRO Lease Facility, engine overhaul
financing and higher London InterBank Offered Rate ("LIBOR") rates. Our expenses
related to debt financing amortization were also higher in our fiscal 2018 by
$1.9 million, which was attributable to legal and commitment fees incurred in
connection with our aircraft and engine financing, as well as aircraft debt
refinancing

Income Taxes



In our fiscal year ended September 30, 2018, our effective tax rate was (110.1%)
compared to 38.9% in our fiscal year ended September 30, 2017. Our tax rate can
vary depending on changes in tax laws, adoption of accounting standards, the
amount of income we earn in each state and the state tax rate applicable to such
income, as well as any valuation allowance required on our state net operating
losses.

We recorded an income tax provision of ($17.4) million and an income tax provision of $20.9 million for the years ended September 30, 2018 and 2017, respectively.



The income tax provision for the year ended September 30, 2018 results in an
effective tax rate of (110.1%), which differed from the U.S. federal statutory
rate of 35% through December 31, 2017 and 21% as of January 1, 2018 primarily
due to a re-measurement of our net deferred tax liability due to federal tax law
changes and the adoption of Accounting Standards Update (ASU) 2016-09. Other
factors include changes in the valuation allowance against state net operating
losses, expired state attributes and state apportionment and statutory rates.

The income tax provision for the year ended September 30, 2017 results in an
effective tax rate of 38.9%, which differed from the U.S. federal statutory rate
of 35% primarily due to state taxes, changes in the valuation allowance against
state net operating losses, expired state attributes, and the benefit resulting
from changes in state apportionment and statutory rates.

On December 22, 2017, the President signed into law the legislation colloquially
known as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act incorporates
several new provisions that will have an impact on our financial statements.
Most notably, the Tax Act decreased the federal statutory rate to 24.5% for the
year ending September 30, 2018, and 21% for the years ending September 30, 2019
and forward. The decrease in federal statutory rate resulted in a net tax
benefit due to the re-measurement of our net deferred tax liability. The change
in our future effective tax rate is not anticipated to have an effect on our
taxes until all of our U.S. federal net operating losses and credits have been
utilized.

Additional provisions of the Tax Act that may impact our financial statements
include 100% expensing of qualified property placed in service after September
27, 2017 and before January 1, 2023, refundable minimum tax credits over a four
year period, net interest expense deductions limited to 30% of earnings before
interest, taxes, depreciation, and amortization through 2021 and of earnings
before interest and taxes thereafter, and net operating losses incurred in tax
years beginning after December 31, 2017 are only allowed to offset up to 80% of
a taxpayer's taxable income. These net operating losses are allowed to be
carried forward indefinitely.



As of September 30, 2018, we had aggregate federal and state net operating loss
carryforwards of approximately $415.1 million and $199.5 million, which expire
in 2027-2037 and 2019-2038, respectively, with approximately $20.1 million of
state net operating loss carryforwards that expired in 2018.

See Note 11: "Income Taxes" in the notes to the audited consolidated financial statements included elsewhere in this Annual Report of Form 10-K.

--------------------------------------------------------------------------------

Cautionary Statement Regarding Non-GAAP Measures



We present Adjusted EBITDA and Adjusted EBITDAR in this Annual Report on Form
10-K, which are not recognized financial measures under accounting principles
generally accepted in the United States of America ("GAAP"), as supplemental
disclosures because our senior management believes that they are well recognized
valuation metrics in the airline industry that are frequently used by companies,
investors, securities analysts and other interested parties in comparing
companies in our industry.

Adjusted EBITDA. We define Adjusted EBITDA as net income or loss before interest, income taxes, depreciation and amortization, adjusted for the impact of revaluation of liability awards, lease termination costs, loss on extinguishment of debt and write-off of associated financing fees.

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



You are encouraged to evaluate these adjustments and the reasons we consider
them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and
Adjusted EBITDAR, you should be aware that in the future we may incur expenses
that are the same as or similar to some of the adjustments in our presentation
of Adjusted EBITDA and Adjusted EBITDAR. Our presentation of Adjusted EBITDA and
Adjusted EBITDAR should not be construed as an inference that our future results
will be unaffected by unusual or non-recurring items. There can be no assurance
that we will not modify the presentation of Adjusted EBITDA or Adjusted EBITDAR
and any such modification may be material.

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

                                       49

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Adjusted EBITDA and Adjusted EBITDAR

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





                                                Year Ended September 30,
                                            2019          2018          2017
                                                     (in thousands)
          Reconciliation:
          Net income                      $  47,580     $  33,255     $  32,828

Income tax (benefit) expense 15,706 (17,426 ) 20,874


          Income before taxes             $  63,286     $  15,829     $

53,702


          Adjustments(1)(2)(3)               13,156        27,165


          Adjusted income before taxes       76,442        42,994        53,702
          Interest expense                   55,717        56,867        46,110
          Interest income                    (1,501 )        (114 )         (32 )
          Depreciation and amortization      77,994        65,031        61,048
          Adjusted EBITDA                   208,652       164,778       160,828
          Aircraft rent                      52,206        68,892        72,551
          Adjusted EBITDAR                  260,858       233,670       233,379

(1) Our financial results reflect an increase in accrued compensation of

approximately $13.5 million related to an increase in the value of SARs

associated with an increase in fair value of our common stock as well as a

change in accounting methodology from the intrinsic value method to the fair

value method. These changes resulted in a general and administrative expense

of approximately $11.1 million as well as an offset of approximately $2.4

million to retained earnings as a result of the change in accounting

methodology for the twelve months ended September 30, 2018.

(2) Our financial results include lease termination expense of $9.5 million and

$15.1 million for the twelve months ended September 30, 2019 and 2018,

respectively, related to our acquisition of ten CRJ-700 and nine CRJ-900

aircraft, which were previously leased under our GECAS Lease Facility.

(3) Our financial results reflect loss on extinguishment of debt of $3.6 million

related to repayment of the Company's Spare Engine Facility for the twelve

months ended September 30, 2019. This loss includes a $1.9 million write-off

of financing fees. We also had $1.0 million of financing fees written off

during our twelve months ended September 30, 2018.

Liquidity and Capital Resources

Sources and Uses of Cash



We require cash to fund our operating expenses and working capital requirements,
including outlays for capital expenditures, aircraft pre-delivery payments,
maintenance, aircraft rent and 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 cash on hand, cash generated from operations
and funds from external borrowings. In the near term, we expect to fund our
primary cash requirements through cash generated from operations and cash and
cash equivalents on hand. We also have the ability to utilize the CIT Revolving
Credit Facility, pursuant to which the lenders named therein (the "CIT Lenders")
have committed to lend to Mesa Airlines and MAG-AIM revolving loans in the
aggregate principal amount of up to $35.0 million. This facility was paid down
with proceeds from our IPO on August 14, 2018 but remains available until the
facility matures on August 12, 2022.

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

? Factors that affect our results of operations and cash flows, including the

impact on our business and operations as a result of changes in demand for

our services, competitive pricing pressures, and our ability to achieve

further reductions in operating expenses; and

? Factors that affect our access to bank financing and the debt and equity

capital markets that could impair our ability to obtain needed financing on

acceptable terms or to respond to business opportunities and developments as

they arise, including interest rate fluctuations, macroeconomic conditions,

sudden reductions in the general availability of lending from banks or the

related increase in cost to obtain bank financing, and our ability to

maintain compliance with covenants under our debt agreements in effect from


     time to time.


                                       50


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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 and existing credit facilities 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.

Prior to our IPO, our operations had been financed primarily by cash flow from
operating activities and funds from external borrowings. As of September 30,
2019, we had $68.9 million in cash and cash equivalents and marketable
securities. In connection with our IPO, we issued and sold an aggregate of
9,630,000 shares of common stock as well as 723,985 shares of common stock from
the exercise of the over-allotment option granted to the underwriters, which was
exercised on September 11, 2018 at a price to the public of $12.00 per share. We
received proceeds of $111.7 million, net of underwriting discounts and
commissions and offering costs.

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. During our
fiscal year ended September 30, 2019, we paid $125.4 million in capital
expenditures primarily related to the purchase of ten CRJ-700 aircraft, which
were previously leased, and eight spare engines. Our capital expenditures, net
of purchases of rotable spare parts and aircraft and spare engine financing,
have historically been approximately 1.5% to 2.5% of annual revenues, and we
expect to continue 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 September 30, 2019, our principal sources of liquidity were cash and cash
equivalents and marketable securities of $68.9 million. In addition, we had
restricted cash of $3.6 million as of September 30, 2019. Restricted cash
includes certificates of deposit that secure letters of credit issued for
particular airport authorities as required in certain lease agreements.
Furthermore, as of September 30, 2019, we also had $750.5 million in secured
indebtedness incurred in connection with our financing of 84 total aircraft. Our
primary uses of liquidity are capital expenditures and debt repayments. As of
September 30, 2019, we had $165.9 million of short-term debt, excluding capital
leases, and $677.4 million of long-term debt excluding capital leases.

Sources of cash for our fiscal year ended September 30, 2019 were primarily cash
flows from operations of $151.7 million. The positive cash flow from operations
was driven by receipts from performance under our capacity purchase agreements.

Restricted Cash



As of September 30, 2019, we had $3.6 million in restricted cash. We have an
agreement with a financial institution for a $6.0 million letter of credit
facility and to issue letters of credit for landing fees, worker's compensation
insurance and other business needs. Pursuant to the agreement, $3.6 million of
outstanding letters of credit are required to be collateralized by amounts on
deposit.

                                       51

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Cash Flows

The following table presents information regarding our cash flows for each of our fiscal years ended September 30, 2019 and 2018:





                                                          Year Ended September 30,
                                                     2019            2018          2017
                                                               (in thousands)

Net cash provided by operating activities $ 151,676 $ 118,939 $ 74,727 Net cash used in investing activities

                (104,842 )     (138,563 )     (84,076 )
Net cash provided by (used in) financing
activities                                            (81,467 )       66,411        28,497
Net increase (decrease) in cash, cash equivalents
and restricted cash                                   (34,633 )       46,787        19,148
Cash, cash equivalents and restricted cash at
beginning of period                                   107,134         60,347        41,199
Cash, cash equivalents and restricted cash at end
of period                                         $    72,501     $  107,134     $  60,347

Net Cash Flow Provided by Operating Activities



During our fiscal year ended September 30, 2019, our cash flow provided by
operating activities of $151.7 million reflected our growth and execution of our
strategic initiatives. We had net income of $47.6 million adjusted for the
following significant non-cash items: depreciation and amortization of
$78.0 million, amortization of stock-based compensation of $5.5 million,
deferred income taxes of $15.5 million, amortization of unfavorable lease
liabilities and deferred credits of $(10.8) million, amortization of debt
financing costs and accretion of interest on non-interest bearing subordinated
notes of $4.2 million, loss on extinguishment of debt of $3.6 million and lease
termination expense of $9.5 million. We had net change of $(2.1) million within
other net operating assets and liabilities largely driven by expendable parts
and accounts payable during our fiscal year ended September 30, 2019.

During our fiscal year ended September 30, 2018, our cash flow provided by
operating activities of $118.9 million reflected our growth and execution of our
strategic initiatives. We had net income of $33.3 million adjusted for the
following significant non-cash items: depreciation and amortization of
$65.0 million, amortization of stock-based compensation of $12.9 million,
deferred income taxes of $(17.9) million, amortization of unfavorable lease
liabilities and deferred credits of $(11.0) million, amortization of debt
financing costs and accretion of interest on non-interest bearing subordinated
notes of $4.6 million and lease termination expense of $15.1 million. We had a
net change of $16.4 million within other net operating assets and liabilities
largely driven by accrued compensation liability and other accrued liabilities
during our fiscal year ended September 30, 2018.

During our fiscal year ended September 30, 2017, our cash flow provided by
operating activities of $74.7 million reflects our growth and execution of our
strategic initiatives. We had net income of $32.8 million adjusted for the
following significant non-cash items: depreciation and amortization of
$61.0 million, amortization of stock-based compensation of $1.3 million,
deferred income taxes of $20.5 million, amortization of unfavorable lease
liabilities and deferred credits of $(10.6) million and amortization of debt
financing costs and accretion of interest on non-interest bearing subordinated
notes of $2.7 million. We had net outflows of $33.9 million within other net
operating assets and liabilities largely driven by aircraft lease payments
during our fiscal year ended September 30, 2017

Net Cash Flows Used in Investing Activities



During our fiscal year ended September 30, 2019, our net cash flow used in
investing activities was $(104.8) million. We invested $125.4 million in ten
aircraft and seven spare engines and aircraft improvements, offset by $20.1
million from net sales of investment securities, and $0.4 million in equipment
deposits.

During our fiscal year ended September 30, 2018, our net cash flow used in investing activities was $(138.6) million. We invested $118.0 million in nine aircraft, eight spare engines and aircraft improvements, $19.9 million from purchases of investment securities offset partially by equipment deposits.

During our fiscal year ended September 30, 2017, our net cash flow used in investing activities was $(84.1) million. We invested $84.5 million in 15 spare engines and aircraft improvements, offset partially by returns of equipment deposits.

--------------------------------------------------------------------------------

Net Cash Flows Provided by (Used in) Financing Activities



During our fiscal year ended September 30, 2019, our net cash flow used in
financing activities was $(81.5) million. We received $171.7 million in proceeds
from long-term debt primarily related to purchasing ten aircraft, and spare
aircraft engine and aircraft engine kit financing. We made $244.1 million of
principal repayments on long-term debt during the period. We incurred $5.7
million of costs related to debt financing, $1.7 million in debt prepayment
costs, and $1.9 million of costs related to the repurchase of shares of our
common stock.

During our fiscal year ended September 30, 2018, our net cash flow provided by
financing activities was $66.4 million. We received $187.7 million in proceeds
from long-term debt primarily related to purchasing nine aircraft, refinancing
debt on aircraft, as well as spare aircraft engine and aircraft engine kit
financing. We made $222.2 million of principal repayments on long-term debt
during the period. We received $111.7 million, net of issuance costs, in
proceeds from the issuance of our common stock. We also incurred $5.9 million of
costs related to debt financing and $5.0 million of costs related to the
repurchase of shares of our common stock.

During our fiscal year ended September 30, 2017, our net cash flow provided by
financing activities was $28.5 million. We received $185.9 million in proceeds
from long-term debt primarily related to spare aircraft engine and aircraft
engine kit financing. We made $153.0 million of principal repayments on
long-term debt and incurred $3.4 million of costs related to debt financing and
$1.0 million of costs related to the repurchase of shares of our common stock
during the period.

Commitments and Contractual Obligations



As of September 30, 2019, we had $1,171.7 million of long-term debt (including
principal and projected interest obligations) and capital and operating lease
obligations (including current maturities). This amount consisted of
$894.3 million in notes payable related to owned aircraft used in continuing
operations, $111.1 million in notes payable related to spare engines and engine
kits, $10.1 million in capital leases and $0.8 million outstanding under our
working capital line of credit. As of September 30, 2019, we also had
$155.4 million of operating lease obligations primarily related to aircraft
flown under our capacity purchase agreements. Our long-term debt obligations set
forth below include an aggregate of $158.2 million in projected interest costs
through our fiscal 2028.

The following table sets forth our cash obligations as of September 30, 2019:



                                                                   Payment Due for Year Ending September 30,
(in thousands)                    Total          2020          2021          2022          2023          2024        Thereafter
Aircraft notes                 $   894,309     $ 175,908     $ 169,051     $ 151,939     $  95,588     $ 76,891     $    224,932
Engine notes                       111,123        32,350        25,146        23,715        22,954        6,958                -

Operating lease obligations 155,354 49,663 46,322

   31,090        13,727       13,184            1,368
Working capital line of credit         798           266           266           266             -            -                -
Capital Leases                      10,130         2,540         2,640         2,640         2,310            -                -
Total                          $ 1,171,714     $ 260,727     $ 243,425     $ 209,650     $ 134,579     $ 97,033     $    226,300

As of September 30, 2019, we had variable rate notes representing 66.4% of our total long-term debt. Actual interest commitments will change based on the actual variable interest.

Operating Leases



We have significant long-term lease obligations primarily relating to our
aircraft fleet. The leases are classified as operating leases and are therefore
excluded from our consolidated balance sheets. As of September 30, 2019, we had
18 aircraft on lease (excluding aircraft leased from United) with remaining
lease terms up to 4.5 years. Future minimum lease payments due under all
long-term operating leases were approximately $155.4 million as of September 30,
2019.

RASPRO Lease Facility. On September 23, 2005, Mesa Airlines, as lessee, entered
into the RASPRO Lease Facility, with RASPRO as lessor, for 15 of our CRJ-900
aircraft. The obligations under the RASPRO Lease Facility are guaranteed by us,
and basic rent is paid quarterly on each aircraft. On each of March 10, 2014,
June 5, 2014 and December 8, 2017, the RASPRO Lease Facility was amended to
defer certain payments of basic rent (the "Deferred Amounts"). Until the
principal of and accrued interest on the Deferred Amounts are paid in full, (i)
we and Mesa Airlines are prohibited from paying any dividends to holders of our
common stock, (ii) we are prohibited from repurchasing any of our warrants or
other equity interests, (iii) Mesa Airlines must maintain available a minimum of
$10 million of cash, cash equivalents and availability under lines of credit,
(iv) Mesa Airlines must provide RASPRO with periodic monthly, quarterly and
annual reports containing certain financial information and forecasted engine
repair costs and (v) we must maintain a minimum debt-to-assets ratio.

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Pursuant to the December 2017 amendment referenced above, we deferred $29.3 million of payments originally due in December 2017 through March 2018. Deferred Amounts are charged 7.5% interest per annum and are due for repayment in December 2021. As of September 30, 2019, we were in compliance with the covenants in the RASPRO Lease Facility.



GECAS Lease Facility. On May 27, 2014, Mesa Airlines, as lessee, entered into an
aircraft lease facility with Wells Fargo Bank Northwest, National Association,
as owner trustee and lessor, governing the lease of 19 of our CRJ-700 and
CRJ-900 aircraft. The obligations under the GECAS Lease Facility are guaranteed
by us, and basic rent is paid monthly on each aircraft. In consideration for the
lease, we issued a warrant to purchase 250,000 shares of our common stock to GE
Capital Aviation Services LLC (the "GE Warrant"), which we mutually agreed to
terminate in connection with our purchase of nine CRJ-900 aircraft in June 2018
that we previously leased under the GECAS Lease Facility. The GECAS Lease
Facility requires Mesa Airlines and us to maintain a balance of unrestricted
cash of not less than $10 million and prohibited us from paying dividends to
holders of our common stock prior to September 30, 2019 without the prior
written consent of the GECAS Lease Facility parties. As of September 30, 2019,
all the aircraft under the GECAS Lease Facility have been purchased, therefore,
the covenants are no longer in effect.

As more fully described under "Aircraft Notes" below, on June 26, 2018, we
purchased nine CRJ-900 aircraft, which were previously leased under the GECAS
Lease Facility, for $76.5 million and terminated the GE Warrant. On June 14,
2019, we purchased ten CRJ-700 aircraft, which were previously leased under the
GECAS Lease Facility, for $70.0 million.

Capital Leases



On February 7, 2018, Mesa Airlines, as lessee, entered into two agreements for
the lease of two spare aircraft engines (the "Engine Leases"). Basic rent on the
engines is paid monthly and at the end of the lease term. In November 2022, Mesa
Airlines will have the option to purchase the engines for $935,230. The Engine
Leases are reflected as debt obligations of $8.5 million on our balance sheet as
of September 30, 2019. The Engine Leases set forth specific redelivery
requirements and conditions, but do not contain operational or financial
covenants.

Working Capital Line of Credit



In August 2016, we, as guarantor, our wholly owned subsidiaries, Mesa Airlines
and MAG-AIM, as borrowers, CIT, as administrative agent, and the lenders party
thereto, entered into the CIT Revolving Credit Facility, pursuant to which the
CIT Lenders committed to lend to Mesa Airlines and MAG-AIM revolving loans in
the aggregate principal amount of up to $35.0 million. The borrowers' and
guarantor's obligations under the CIT Revolving Credit Facility are secured
primarily by a first priority lien on certain engines, spare parts and related
collateral, including engine warranties and proceeds of the foregoing. The CIT
Revolving Credit Facility contains affirmative, negative and financial covenants
that are typical in the industry for similar financings, including, but not
limited to, covenants that, subject to exceptions described in the CIT Revolving
Credit Facility, restrict our ability and the ability of Mesa Airlines and
MAG-AIM and their subsidiaries to: (i) enter into, create, incur, assume or
suffer to exist any liens; (ii) merge, dissolve, liquidate, consolidate or sell
or transfer substantially all of its assets; (iii) sell assets; (iv) enter into
transactions with affiliates; (v) amend certain material agreements and
organizational documents; (vi) make consolidated unfinanced capital
expenditures; or (viii) maintain a consolidated interest and rental coverage
ratio above the amount specified in the CIT Revolving Credit Facility. On
April 27, 2018, we entered into an amendment to the CIT Revolving Credit
Facility to lower the consolidated interest and rental coverage ratio through
the end of the term of the agreement. As of September 30, 2019, we were in
compliance with the financial covenants under the CIT Revolving Credit Facility.
The CIT Revolving Credit Facility also includes customary events of defaults,
including but not limited to: (i) payment defaults; (ii) breach of covenants;
(iii) breach of representations and warranties; (iv) cross-defaults; (v) certain
bankruptcy-related defaults; (vi) change of control; and (vii) revocation of
instructions with respect to certain controlled accounts.

On August 14, 2018, we paid down the outstanding balance on the CIT Revolving
Credit Facility of $25.7 million. The CIT Revolving Credit Facility matured on
August 12, 2019 and was renewed for an additional three years. As of
September 30, 2019, there were no borrowings outstanding under this
facility. Funds available under the CIT Revolving Credit Facility are subject to
certain administrative and commitment fees, and funds under the facility bear
interest at LIBOR plus a margin of 3.75%.

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Engine Notes



Spare Engine Facility. In December 2016, Mesa Airlines, as borrower, Obsidian
Agency Services, Inc., as security trustee, Cortland Capital Market Services
LLC, as administrative agent, and the lenders party thereto (the "Engine
Financing Lenders") entered into a credit agreement (the "Spare Engine
Facility") pursuant to which the Engine Financing Lenders committed to lend to
Mesa Airlines term loans in the aggregate principal amount of up to
approximately $111.1 million. In February 2018, the parties amended the Spare
Engine Facility to increase the commitment of the Engine Financing Lenders by an
additional aggregate principal amount of up to approximately $4.1 million.

Mesa Airlines' obligations under the Spare Engine Facility are secured primarily
by a first priority lien on certain engines acquired with the proceeds of the
Spare Engine Facility and related collateral, including engine warranties and
proceeds of the foregoing. The Spare Engine Facility contains affirmative and
negative covenants that are typical in the industry for similar financings,
including, but not limited to, covenants that, subject to exceptions described
in the Spare Engine Facility, restrict the ability of Mesa Airlines to:
(i) enter into, create, incur, assume or suffer to exist any liens; and
(ii) merge, dissolve, liquidate, consolidate or sell or transfer substantially
all of its assets. As of September 30, 2019, the Spare Engine Facility was
repaid, resulting in the termination of all such covenants.

Term Loan. On January 28, 2019, the Company entered into a Term Loan Agreement
(the "Term Loan") pursuant to which the lenders thereunder committed to lend to
the Company term loans in the aggregate principal amount of $91.2 million.
Borrowings under the Term Loan bear interest at LIBOR plus 3.10%. This interest
rate is significantly lower than the interest rate under the Company's Spare
Engine Facility (LIBOR plus 7.25%), which the Term Loan refinanced and replaced.
The Term Loan has a term of five years, with principal and interest payments due
monthly over the term of the loan in accordance with an amortization
schedule. The Company recorded a loss on extinguishment of debt of $3.6 million,
due to a $1.9 million write-off of financing fees and $1.7 million in prepayment
penalties, in connection with the repayment of the Spare Engine Facility. As of
September 30, 2019, $80.2 million of borrowings were outstanding under this
facility.

The Company financed certain engines on September 27, 2019 for $8.0 million. The
debt bears interest at the monthly LIBOR plus 5.25% (7.27% at September 30,
2019) and requires monthly principal and interest payments. As of September 30,
2019, $8.0 million of borrowings were outstanding under these notes.

EDC Credit Facilities. In August 2015, Mesa Airlines, as borrower, and EDC, as
lender entered into a credit agreement (the "EDC 2015 Credit Facility") pursuant
to which EDC committed to purchase notes from Mesa Airlines from time to time in
the aggregate principal amount of up to $11.0 million. The borrower's
obligations under the EDC 2015 Credit Facility are unsecured and guaranteed by
us. The EDC 2015 Credit Facility contains affirmative and negative covenants
that are typical in the industry for similar financings, including, but not
limited to, covenants that, subject to exceptions described in the EDC 2015
Credit Facility, restrict our ability to: (i) merge, dissolve, liquidate,
consolidate or sell or transfer substantially all of its assets; or (ii) sell
assets. The EDC 2015 Credit Facility also includes customary events of defaults,
including, but not limited to: (i) payment defaults; (ii) breach of covenants;
(iii) breach of representations and warranties; (iv) cross-defaults; (v) certain
bankruptcy-related defaults of Mesa Airlines or of specified carriers; and
(vi) termination or material adverse change in the terms of any code sharing
agreement. Each note matures on the date that is five years after such note was
issued. As of September 30, 2019, $2.3 million of borrowings were outstanding
under this facility. As of September 30, 2019, we were in compliance with the
covenants described above.

Funds drawn under the EDC 2015 Credit Facility are subject to certain
arrangement and commitment fees, and funds drawn under the facility bear
interest at (i) LIBOR plus a margin of 2.66% plus a margin benchmark of 0.41% or
(ii) a fixed amount based on a swap rate of floating rate debt to fixed rate
debt, plus a margin of 2.66% and plus a margin benchmark of 0.58%. Installment
payments must be made on each note issued under this facility.

In January 2016, Mesa Airlines, as borrower, and EDC, as lender, entered into a
credit agreement (the "EDC January 2016 Credit Facility") pursuant to which EDC
committed to purchase notes from Mesa Airlines from time to time in the
aggregate principal amount of up to $37.0 million. The borrower's obligations
under the EDC January 2016 Credit Facility are secured by the underlying
equipment and guaranteed by us. The EDC January 2016 Credit Facility contains
affirmative and negative covenants that are typical in the industry for similar
financings, including, but not limited to, covenants that, subject to exceptions
described in the EDC January 2016 Credit Facility, restrict our ability to:
(i) merge, dissolve, liquidate, consolidate or sell or transfer substantially
all of our assets; or (ii) sell assets. The EDC January 2016 Credit Facility
also contains a financial covenant that requires us to maintain a fixed charge
coverage ratio at the end of each fiscal quarter above the amount specified in
the agreement. As of September 30, 2019, we were in compliance with these
covenants.

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The EDC January 2016 Credit Facility also includes customary events of default,
including, but not limited to: (i) payment defaults; (ii) breach of covenants;
(iii) breach of representations and warranties; (iv) cross-defaults; (v) certain
bankruptcy-related defaults of Mesa Airlines or of specified carriers;
(vi) termination or material adverse change in the terms of any code sharing
agreement; and (vii) breach or termination of our agreement with StandardAero.
Each note matures on the date that is three to four years after such note was
issued. As of September 30, 2019, this debt has been repaid.

Funds drawn under the EDC January 2016 Credit Facility are subject to certain
arrangement and commitment fees, and funds drawn under the facility bear
interest at (i) LIBOR plus a margin of, initially, 2.49% plus a margin benchmark
of 0.47% or (ii) a fixed amount based on a swap rate of floating rate debt to
fixed rate debt plus a margin of, initially, 2.49% plus a margin benchmark of
0.68%. Installment payments must be made on each note issued under this
facility.

On April 30, 2018, Mesa Airlines and EDC amended the EDC January 2016 Credit
Facility to, among other things, lower the required fixed charge ratio covenant
through the end of the term of the agreement and provide for mandatory principal
prepayments of $1 million per quarter over the next five fiscal quarters,
beginning on September 30, 2018.

In June 2016, Mesa Airlines, as borrower, and EDC, as lender, entered into a
credit agreement (the "EDC June 2016 Credit Facility") pursuant to which EDC
committed to purchase notes from Mesa Airlines from time to time in the
aggregate principal amount of up to $25.0 million. The borrower's obligations
under the EDC June 2016 Credit Facility are unsecured and guaranteed by us. The
EDC June 2016 Credit Facility contains affirmative and negative covenants and
events of default that are typical in the industry for similar financings,
including the requirement to maintain a consolidated interest and rental
coverage ratio. Each note matures on the date that is two years after such note
was issued. As of September 30, 2019, this debt has been repaid.

Funds drawn under the EDC June 2016 Credit Facility are subject to certain
arrangement and commitment fees, and funds drawn under the facility bear
interest at (i) LIBOR plus a margin of 2.81% plus a margin benchmark of 0.49% or
(ii) a fixed amount based on a swap rate of floating rate debt to fixed rate
debt, plus a margin of 2.81%, plus a margin benchmark of 0.71%. Installment
payments must be made on each note issued under this facility.

Midfirst Engine Facility. In May 2015, Mesa Airlines, as borrower, and MidFirst
Bank, as lender, entered into a business loan agreement and accompanying
promissory note (the "MidFirst Credit Facility") pursuant to which MidFirst Bank
committed to lend to Mesa Airlines the principal amount of $8.5 million. The
borrower's obligations under the MidFirst Credit Facility are guaranteed by us
and are secured primarily by a lien on certain spare engines acquired with the
proceeds of the MidFirst Credit Facility and related collateral. The MidFirst
Credit Facility contains affirmative and negative covenants and events of
default that are typical in the industry for similar financings. The promissory
note matures on September 21, 2020. As of September 30, 2019, $1.7 million of
borrowings were outstanding under this facility. As of September 30, 2019, we
were in compliance with the covenants described above.

Funds drawn under the MidFirst Credit Facility bear interest at the rate of 5.163% per annum. Installment payments of principal must be made on the promissory note issued under this facility.

Aircraft Notes

As of September 30, 2019, we had 84 aircraft in our fleet financed with debt (collectively, the "Aircraft Notes"):

? In fiscal year 2007, we permanently financed three CRJ-900 and three CRJ-700

aircraft for $120.3 million. The debt bears interest at the monthly LIBOR

plus 2.25% (4.27% at September 30, 2019) and requires monthly principal and

interest payments. As of September 30, 2019, we had $24.7 million outstanding


     under these notes.


  ?  In fiscal year 2015, we permanently financed 10 CRJ-900 aircraft for

$88.4 million. The debt bears interest at the monthly LIBOR, plus a spread

ranging from 1.95% to 7.25% (3.97% to 9.27% at September 30, 2019) and

requires monthly principal and interest payments. As of September 30, 2019,

we had $25.1 million outstanding under these notes.

? In fiscal year 2015, we permanently financed eight CRJ-900 aircraft with

$114.5 million in debt. The debt bears interest at 5% and requires monthly


     principal and interest payments. As of September 30, 2019, we had
     $60.8 million outstanding under these notes.

? In fiscal year 2016, we financed seven CRJ-900 aircraft with $170.2 million

in debt. The senior notes payable of $151 million bear interest at monthly

LIBOR plus 2.71% (4.73% at September 30, 2019) and require monthly principal

and interest payments. The subordinated notes payable are noninterest-bearing

and become payable in full on the last day of the term of the notes. We have


     imputed an interest rate of 6.25% on the subordinated notes payable and
     recorded a related discount of $8.1 million, which is being accreted to

interest expense over the term of the notes. As of September 30, 2019, we had

$110.9 million outstanding under these notes.


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? In fiscal year 2017, we financed 10 E-175 aircraft with $246 million in debt

under an enhanced equipment trust certificate ("EETC") financing arrangement.

The debt bears interest ranging from 4.75% to 6.25% and requires semi-annual


     principal and interest payments. As of September 30, 2019, we had
     $191.2 million outstanding under these notes.

? In fiscal year 2017, we financed eight E-175 aircraft with $195.3 million in

debt. The senior notes payable of $172 million bear interest at the

three-month LIBOR plus a spread ranging from 2.20% to 2.32% (4.29% to 4.41%

at September 30, 2019) and require quarterly principal and interest payments.

The subordinated notes payable bear interest at 4.50% and require quarterly


     principal and interest payments. As of September 30, 2019, we had
     $152.9 million outstanding under these notes.


  ?  In December 2017, we refinanced $41.9 million of debt on nine CRJ-900

aircraft (due between 2019 and 2022) with $74.9 million of debt, resulting in

net cash proceeds to us of $30.5 million after transaction related fees. The

senior notes payable of $46.9 million bear interest at three-month LIBOR plus

3.5% (5.59% at September 30, 2019). The subordinated notes payable bear

interest at three-month LIBOR plus 4.5% (6.59% at September 30, 2019). The

refinanced debt requires quarterly payments of principal and interest. As of

September 30, 2019, we had $47.3 million outstanding under these notes.

? On June 27, 2018, we refinanced $16.0 million of debt on six CRJ-900 aircraft

(due in 2019), with $27.5 million of debt, resulting in net cash proceeds to

us of $10.4 million after transaction related fees. The notes payable bear

interest at LIBOR, plus 3.50% and require quarterly payments of principal and

interest. As of September 30, 2019, we had $20.1 million outstanding under

these notes.

? On June 28, 2018, we purchased nine CRJ-900 aircraft, which were previously

leased under the GECAS Lease Facility, for $76.5 million. We financed the

aircraft purchase with $69.6 million in new debt and proceeds from the June

2018 aircraft refinancing. The notes payable of $69.6 million bear interest

at LIBOR plus a spread ranging from 3.50% for the senior promissory notes to

7.50% for the subordinated promissory notes and require quarterly payments of

principal and interest. We recorded non-cash lease termination expense of

$15.1 million in connection with the lease buyouts described above. Also, as

part of the transaction, we (i) received $4.5 million of future goods and

services credits and $5.6 million of loan forgiveness for loans with a

maturity date in 2027 from the aircraft manufacturer, and (ii) mutually

agreed with GE Capital Aviation Services LLC to terminate the GE Warrant. As

of September 30, 2019, we had $51.9 million outstanding under these notes.

? On June 14, 2019, we purchased ten CRJ-700 aircraft, which were previously

leased under GECAS Lease Facility, for $70.0 million. We financed the

aircraft purchase with $70.0 million in new debt. The debt bears interest at

the monthly LIBOR plus 5.25% (7.27% at September 30, 2019) and requires

monthly principal and interest payments. As of September 30, 2019 we had

$65.6 million outstanding under these notes.




The Aircraft Notes are secured by the respective aircraft, which had a net book
value of $894.3 million as of September 30, 2019. The weighted-average effective
interest rate of the fixed and floating rate aircraft and equipment notes, as of
September 30, 2019 and September 30, 2018, was 5.25% and 5.66%, respectively.

Maintenance Commitments



In August 2005, we entered into a ten-year agreement with AAR, for the
maintenance and repair of certain of our CRJ-200, CRJ-700 and CRJ-900 aircraft.
The agreement has since been amended to include a term extending through 2021,
and to provide certain E-175 aircraft rotable spare parts with a term through
December 2027. Under the agreements, we pay AAR a monthly access fee per
aircraft for certain consigned inventory as well as a fixed "cost per flight
hour" fee on a monthly basis for repairs on certain repairable parts during the
term of the agreement, which fees are subject to annual adjustment based on
increases in the cost of labor and component parts.

In July 2013, we entered into an engine maintenance contract with GE to perform
heavy maintenance on certain CRJ-700, CRJ-900 and E-175 engines based on a fixed
pricing schedule. The pricing may escalate annually in accordance with GE's
spare parts catalog for engines. The engine maintenance contract extends through
2024.

In 2014, we entered into a ten-year contract with Aviall to provide maintenance
and repair services on the wheels, brakes and tires of our CRJ-700 and CRJ-900
aircraft. Under the agreement, we pay Aviall a fixed "cost per landing" fee for
all landings of our aircraft during the term of the agreement, which fee is
subject to annual adjustment based on increases in the cost of labor and
component parts.

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We entered into an engine maintenance contract with StandardAero, which became
effective on June 1, 2015, to perform heavy maintenance on certain CRJ-700 and
CRJ-900 engines based on a fixed pricing schedule. The pricing may escalate
annually in accordance with the GE's spare parts catalog for engines. The engine
maintenance contract extends through 2020.

Our employees perform routine airframe and engine maintenance along with
periodic inspections of equipment at their respective maintenance facilities. We
also use third-party vendors, such as AAR, Aviall and GE, for certain heavy
airframe and engine maintenance work, along with parts procurement and component
overhaul services for our aircraft fleet. As of September 30, 2019,
$59.9 million of parts inventory was consigned to us by AAR and Aviall under
long-term contracts that is not reflected on our balance sheet.

We use the direct expense method of accounting for our maintenance of regional
jet engine overhauls, airframe, landing gear, and normal recurring maintenance
wherein we recognize the expense when the maintenance work is completed, or over
the repair period, if materially different. Our maintenance policy is determined
by fleet when major maintenance is incurred. While we keep a record of expected
maintenance events, the actual timing and costs of major engine maintenance
expense are subject to variables such as estimated usage, government regulations
and the level of unscheduled maintenance events and their actual costs.
Accordingly, we cannot reliably quantify the costs or timing of future
maintenance-related expenses for any significant period of time.

Off-Balance Sheet Arrangements



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 have no off-balance sheet arrangements of the types described in the four
categories above that we believe may have material current or future effect on
financial condition, liquidity or results of operations.

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.

Critical Accounting Policies



We prepare our 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.

We have identified the accounting policies discussed below as critical to us. The discussion below is not intended to be a comprehensive list of our accounting policies. Our significant accounting policies are more fully described in Note 2: "Summary of Significant Accounting Policies" to the consolidated financial statements.

Adoption of New Revenue Standard



On October 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606) ("ASU 2014-09" or "ASC 606") using the modified
retrospective method. See Note 3: "Recent Accounting Pronouncements" in the
notes to our consolidated financial statements for more information. To conform
to ASC 606, the Company modified its revenue recognition policy as described
below.

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Revenue Recognition



The Company recognizes revenue when the service is provided under its capacity
purchase agreements. Under these agreements, the major airline partners
generally pay a fixed monthly minimum amount per aircraft, plus certain
additional amounts based upon the number of flights and block hours flown. The
contracts also include reimbursement of certain costs incurred by the Company in
performing flight services. These costs, known as "pass-through costs," may
include passenger and hull insurance as well as aircraft property taxes.
Additionally, for the E-175 aircraft owned by United, the capacity purchase
agreement provides that United will reimburse the Company for heavy airframe and
engine maintenance, landing gear, APUs and component maintenance. The Company
also receives compensation under its capacity purchase agreements for heavy
maintenance expenses at a fixed hourly rate or per aircraft rate for all
aircraft in scheduled service other than the E-175 aircraft owned by United. The
contracts also include a profit margin on certain reimbursable costs, as well as
a profit margin, incentives and penalties based on certain operational
benchmarks. The Company is eligible to receive incentive compensation upon the
achievement of certain performance criteria defined in the capacity purchase
agreements. At the end of each period during the term of an agreement, the
Company calculates the incentives achieved during that period and recognizes
revenue attributable to the agreement during the period accordingly, subject to
the variable constraint guidance under ASC 606. All revenue recognized under
these contracts is presented as the gross amount billed to the major airline
partners.

Under the capacity purchase agreements, the Company has committed to perform
various activities that can be generally classified into in-flight services and
maintenance services. When evaluating these services, the Company determined
that the nature of its promise is to provide a single integrated service, flight
services, because its contracts require integration and assumption of risk
associated with both services to effectively deliver and provide the flights as
scheduled over the contract term. Therefore, the in-flight services and
maintenance services are inputs to that combined integrated flight service. Both
the services occur over the term of the agreement and the performance of
maintenance services significantly effects the utility of the in-flight
services. The Company's individual flights flown under the capacity purchase
agreements are deemed to be distinct and the flight service promised in the
capacity purchase agreements represents a series of services that should be
accounted for as a single performance obligation. This single performance
obligation is satisfied over time as the flights are completed. Therefore,
revenue is recognized when each flight is completed.

In allocating the transaction price, variable payments (i.e. billings based on
flights and block hours flown, pass-through costs, etc.) that relate
specifically to the Company's efforts in performing flight services are
recognized in the period in which the individual flight is completed. The
Company has concluded that allocating the variability directly to the individual
flights results in an overall allocation meeting the objectives in ASC 606. This
results in a pattern of revenue recognition that follows the variable amounts
billed from the Company to their customers.

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. 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 condensed consolidated statements of
operations. The Company recognized $219.0 million, $217.0 million and 217.6
million of lease revenue for the twelve months ended September 30, 2019, 2018
and 2017, respectively. The Company has not separately stated aircraft rental
income and aircraft rental expense in the condensed consolidated statements of
operations because the use of the aircraft is not a separate activity of the
total service provided.

The Company's capacity purchase agreements are renewable periodically and
contain provisions pursuant to which the parties could terminate their
respective agreements, subject to certain conditions as described in Note 1. The
capacity purchase agreements also contain terms with respect to covered
aircraft, services provided and compensation as described in Note 1. The
capacity purchase agreements are amended from time to time to change, add or
delete terms of the agreements.

The Company's revenues could be impacted by a number of factors, including
amendment or termination of its capacity purchase agreements, contract
modifications resulting from contract renegotiations, its ability to earn
incentive payments contemplated under applicable agreements, and settlement of
reimbursement disputes with the Company's major airline partners. In the event
contracted rates are not finalized at a quarterly or annual financial statement
date, the Company evaluates the enforceability of its contractual terms and when
it has an enforceable right, it estimates the amount the Company expects to be
entitled to that is subject to the ASC 606 constraint.

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The Company's capacity purchase agreements contain an option that allows its
major airline partners to assume the contractual responsibility for procuring
and providing the fuel necessary to operate the flights that it operates for
them. Both of the Company's major airline partners have exercised this option.
Accordingly, the Company does not record an expense or revenue for fuel and
related fueling costs for flying under its capacity purchase agreements. In
addition, the Company's major airline partners also provide, at no cost to the
Company, certain ground handling and customer service functions, as well as
airport-related facilities and gates at their hubs and other cities. Services
and facilities provided by the Company's major airline partners at no cost are
presented net in its condensed consolidated financial statements; hence, no
amounts are recorded for revenue or expense for these items.

Maintenance Expense



We operate under an FAA-approved continuous inspection and maintenance program.
We use the direct expense method of accounting for our maintenance of regional
jet engine overhauls, airframe, landing gear, and normal recurring maintenance
wherein we recognize the expense when the maintenance work is completed, or over
the repair period, if materially different. Our maintenance policy is determined
by fleet when major maintenance is incurred. For leased aircraft, we are subject
to lease return provisions that require a minimum portion of the "life" of an
overhaul be remaining on the engine at the lease return date. We estimate the
cost of maintenance lease return obligations and accrue such costs over the
remaining lease term when the expense is probable and can be reasonably
estimated.

Under our aircraft operating lease agreements and FAA operating regulations, we
are obligated to perform all required maintenance activities on our fleet,
including component repairs, scheduled air frame checks and major engine
restoration events. We estimate the timing of the next major maintenance event
based on assumptions including estimated usage, FAA-mandated maintenance
intervals and average removal times as recommended by the manufacturer. The
timing and the cost of maintenance are based on estimates, which can be impacted
by changes in utilization of our aircraft, changes in government regulations and
suggested manufacturer maintenance intervals. Major maintenance events consist
of overhauls to major components.

Engine overhaul expense totaled $30.0 million, $51.2 million and $64.0 million
for our fiscal years ended September 30, 2019, 2018 and 2017, respectively, of
which $6.0 million, $12.3 million and $0.3, respectively, was pass-through
expense. Airframe C-check expense totaled $17.2 million, $21.5 million and
$22.6 million for our fiscal years ended September 30, 2019, 2018, and 2017,
respectively, of which $0.4 million, $7.5 million and $4.9, respectively, was
pass-through expense.

Aircraft Leases

In addition to the aircraft we receive from United under our Capacity Purchase
Agreement, approximately 19% of our aircraft are leased from third parties. In
order to determine the proper classification of a lease as either an operating
lease or a capital lease, we must make certain estimates at the inception of the
lease relating to the economic useful life and the fair value of an asset as
well as select an appropriate discount rate to be used in discounting future
lease payments. These estimates are utilized by management in making
computations as required by existing accounting standards that determine whether
the lease is classified as an operating lease or a capital lease. 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.
Additionally, operating leases are not reflected in our consolidated balance
sheets and accordingly, neither a lease asset nor an obligation for future lease
payments is reflected in our consolidated balance sheets. 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. See Note 3: "Recent Accounting Pronouncements" in the notes to our
consolidated financial statements below for a discussion of a new accounting
standard that is likely to have an impact on our aircraft lease accounting
beginning in 2020.

Income Taxes



Income taxes are accounted for using the asset and liability method. Under this
method, deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is provided for those deferred tax assets for which we cannot conclude
that it is more likely than not that such deferred tax assets will be realized.

                                       60

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In determining the amount of the valuation allowance, estimated future taxable
income, as well as feasible tax planning strategies for each taxing
jurisdiction, are considered. If we determine it is more likely than not that
all or a portion of the remaining deferred tax assets will not be realized, the
valuation allowance will be increased with a charge to income tax expense.
Conversely, if we determine we are more likely than not to be able to utilize
all or a portion of the deferred tax assets for which a valuation allowance has
been provided, the related portion of the valuation allowance will be recorded
as a reduction to income tax expense.

We recognize and measure benefits for uncertain tax positions using
a two-step approach. The first step is to evaluate the tax position taken or
expected to be taken in a tax return by determining if the weight of available
evidence indicates that is it more likely than not that the tax positions will
be sustained upon audit, including resolution of any related appeals or
litigation processes. For tax positions that are more likely than not to be
sustained upon audit, the second step is to measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon settlement. Our
practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. Significant judgment is required to evaluate uncertain
tax positions. Evaluations are based upon a number of factors, including changes
in facts or circumstances, changes in tax law, correspondence with tax
authorities during the course of tax audits and effective settlement of audit
issues. Changes in the recognition or measurement of uncertain tax positions
could result in material increases or decreases in income tax expense in the
period in which the change is made, which could have a material impact to our
effective tax rate. See Note 12: "Income Taxes" in the notes to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for
additional information. See also "Management's Discussion and Analysis-Results
of Operations-Income Taxes" for additional information.

For a further listing and discussion of our accounting policies, see Note 2:
"Summary of Significant Accounting Policies" in the notes to our audited
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.

Accounting Methodology for Stock Appreciation Rights



Our SARs and the restricted stock units granted under our Restricted Phantom
Stock Units Plan ("Phantom Stock") historically were accounted for as liability
compensatory awards under Accounting Standards Codification ("ASC") 710,
Compensation - General, valued using the intrinsic value method, as permitted by
ASC 718, Compensation - Stock Compensation ("ASC 718"), for nonpublic entities.
Upon becoming a public company, as defined in ASC 718, in the third quarter of
our fiscal 2018, we were required to change our methodology for valuing our SARs
and Phantom Stock. Accordingly, our SARs and Phantom Stock were re-measured at
each quarterly reporting date and were accounted for prospectively at fair value
using a Black-Scholes fair value pricing model, until they were converted to
restricted stock awards in connection with our IPO. We recorded the impact of
the change in valuation methods as a cumulative effect of a change in accounting
principle, as permitted by ASC 250, Accounting Changes and Error Corrections.
The effect of the change increased our SARs and Phantom Stock liability by
$2.4 million, which was the difference in compensation cost measured using the
intrinsic value method and the fair value method. An equal and offsetting change
to retained earnings in the consolidated balance sheet was recorded with the
revaluation. In connection with our IPO, our SARs and Phantom Stock were
cancelled and exchanged for shares of restricted stock under our 2018 Equity
Incentive Plan.

Emerging Growth Company Status



The JOBS Act permits an "emerging growth company" such as us to take advantage
of an extended transition period to comply with new or revised accounting
standards applicable to public companies until those standards would otherwise
apply to private companies. We have irrevocably elected to "opt out" of this
provision and, as a result, we will comply with new or revised accounting
standards when they are required to be adopted by public companies that are not
emerging growth companies.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 3: "Recent Accounting Pronouncements" in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Market Closed - Nasdaq Other stock markets 04:00:00 2024-04-19 pm EDT			5-day change	1st Jan Change
0.8451 ^USD	-1.73%		+3.06%	-16.33%

Apr. 04	North American Morning Briefing : Focus Turns to -2-	DJ
Mar. 28	North American Morning Briefing : Stocks Set for -2-	DJ

North American Morning Briefing : Focus Turns to -2-	Apr. 04	DJ
North American Morning Briefing : Stocks Set for -2-	Mar. 28	DJ
North American Morning Briefing : Investors -2-	Mar. 21	DJ
Mesa Air Gets Nasdaq Noncompliance Notice	Feb. 23	MT
Mesa Air Group, Inc. Reports Earnings Results for the Fourth Quarter and Full Year Ended September 30, 2023	Jan. 26	CI
Earnings Flash (MESA) MESA AIR GROUP Posts Q4 Revenue $114.4M	Jan. 26	MT
Mesa Air Group, Inc. Reports Earnings Results for the Fourth Quarter Ended September 30, 2023	Jan. 26	CI
Transcript : Mesa Air Group, Inc. - Special Call	Jan. 19
Mesa Air Group Shares Soar 58% After United Airlines Deal Amendments	Jan. 19	MT
Wall Street Set to Open Higher Friday Ahead of Consumer Sentiment, Home Sales Data	Jan. 19	MT
US Futures Trend Higher as Investors Await Consumer Sentiment, Home Sales Data	Jan. 19	MT
Exchange-Traded Funds, Equity Futures Higher Pre-Bell Friday Amid Tech Stocks Gains	Jan. 19	MT
Top Premarket Gainers	Jan. 19	MT
North American Morning Briefing : Tech Likely to Lead Stocks Higher Again	Jan. 19	DJ
Mesa Air Group, Inc. Announces Demise of Daniel McHugh, Member of Board of Director	Jan. 18	CI
North American Morning Briefing : Dow Set For New -2-	Dec. 14	DJ
Mesa Air Group Unit Starts Independent Pilot Development Program	23-10-09	MT
Travel boom not enough to drive profits at US budget airlines Frontier, Spirit	23-09-21	RE
Mesa Air Group, Inc. Announces CFO Changes	23-09-13	CI
Mesa Air Group and the Lenders Amend the Existing Facility Pursuant to an Amendment No. 3 to Second Amended and Restated Credit and Guaranty Agreement	23-09-11	CI
US airline pilots fight their unions to increase retirement age	23-08-22	RE
Mesa Air Group Racial Profiling Case Allowed by US Court to Move Forward	23-08-17	MT
Mesa Air can be sued by Muslim men who alleged racial profiling	23-08-17	RE
Transcript : Mesa Air Group, Inc., Q3 2023 Earnings Call, Aug 09, 2023	23-08-09
Earnings Flash (MESA) MESA AIR GROUP Reports Q3 Revenue $114.7M, vs. Street Est of $127.2M	23-08-09	MT

	1st Jan change	Capi.
MESA AIR GROUP, INC.	-16.33%	35.21M
SOUTHWEST AIRLINES CO.	+1.73%	17.39B
AMERICAN AIRLINES GROUP INC.	+2.69%	9.18B
JUNEYAO AIRLINES CO., LTD	-0.33%	3.75B
EXCHANGE INCOME CORPORATION	+1.86%	1.59B
FRONTIER GROUP HOLDINGS, INC.	+27.47%	1.57B
VIETNAM AIRLINES	+28.16%	1.39B
AEGEAN AIRLINES S.A.	+3.88%	1.13B
ALLEGIANT TRAVEL COMPANY	-24.57%	1.09B
CHINA EXPRESS AIRLINES CO.,LTD	-24.37%	987M

Mesa Air Group, Inc.

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US5904791358

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MESA AIR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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