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

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

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

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

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

As of ~~January 29~~March 31, 2021, the registrant had ~~35,568,290~~35,700,161 shares of common stock, no par value per share, issued and outstanding.

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

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

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

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

	December 31,		September 30,		March 31,		September 30,
	2020		2020		2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	181,300	$	99,395	$	147,867	$	99,395
Restricted cash		3,634		3,446		3,351		3,446
Receivables, net		15,412		13,712		13,867		13,712
Expendable parts and supplies, net		22,760		22,971		23,044		22,971
Prepaid expenses and other current assets		12,897		16,067		8,956		16,067
Total current assets		236,003		155,591		197,085		155,591

Property and equipment, net		1,194,061		1,212,415		1,180,684		1,212,415
Intangibles, net		7,722		8,032		7,412		8,032
Lease and equipment deposits		1,851		1,899		8,242		1,899
Operating lease right-of-use assets		114,666		123,251		105,521		123,251
Other assets		514		742		20,647		742
Total assets	$	1,554,817	$	1,501,930	$	1,519,591	$	1,501,930

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing leases	$	99,745	$	189,268	$	103,980	$	189,268
Current portion of deferred revenue		51,253		9,389		4,356		9,389
Current maturities of operating leases		44,712		43,932		44,016		43,932
Accounts payable		47,576		53,229		70,012		53,229
Accrued compensation		7,029		12,030		10,449		12,030
Other accrued expenses		37,581		45,478		28,610		45,478
Total current liabilities		287,896		353,326		261,423		353,326
Noncurrent liabilities:
Long-term debt and financing leases, excluding current portion		624,116		542,456		600,058		542,456
Noncurrent operating lease liabilities		53,570		62,531		38,405		62,531
Deferred credits		5,176		5,705		7,442		5,705
Deferred income taxes		69,111		64,275		70,929		64,275
Deferred revenue, net of current portion		26,504		14,369		29,502		14,369
Other noncurrent liabilities		4,147		1,409		20,988		1,409
Total noncurrent liabilities		782,624		690,745		767,324		690,745
Total liabilities		1,070,520		1,044,071		1,028,747		1,044,071
Commitments and contingencies (Note 14 and Note 15)
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock of no par value, 5,000,000 shares authorized; 0 shares issued and outstanding		—		—		—		—
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 35,532,162 (2021) and 35,526,918 (2020) shares issued and outstanding, 4,899,497 (2021) and 0 (2020) warrants issued and outstanding		255,092		242,772
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 35,700,161 (2021) and 35,526,918 (2020) shares issued and outstanding, 4,899,497 (2021) and 0 (2020) warrants issued and outstanding						255,950		242,772
Retained earnings		229,205		215,087		234,894		215,087
Total stockholders' equity		484,297		457,859		490,844		457,859
Total liabilities and stockholders' equity	$	1,554,817	$	1,501,930	$	1,519,591	$	1,501,930

	Three Months Ended December 31,						Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2021			2020			2021			2020
Operating revenues:
Contract revenue	$	127,158		$	171,800		$	81,712		$	165,781		$	208,870		$	337,580
Pass-through and other		23,213			12,236			15,568			14,115			38,781			26,351
Total operating revenues		150,371			184,036			97,280			179,896			247,651			363,931

Operating expenses:
Flight operations		36,964			52,644			37,403			52,891			74,367			105,535
Fuel		390			169			198			188			588			358
Maintenance		52,864			58,095			51,773			64,335			104,637			122,430
Aircraft rent		10,048			11,329			9,992			12,285			20,040			23,614
Aircraft and traffic servicing		901			1,064			743			1,336			1,644			2,400
General and administrative		13,073			12,996			11,164			14,500			24,237			27,496
Depreciation and amortization		20,470			20,552			20,705			20,469			41,175			41,021
CARES Act grant recognition		(11,311	)		—
Lease termination								4,508			—			4,508			—
Government grant recognition								(55,967	)		—			(67,278	)		—
Total operating expenses		123,399			156,849			80,519			166,004			203,918			322,854
Operating income		26,972			27,187			16,761			13,892			43,733			41,077
Other (expenses) income, net:
Interest expense		(9,082	)		(12,628	)		(8,755	)		(11,673	)		(17,837	)		(24,300	)
Interest income		126			58			79			36			205			94
Other (expense) income, net		923			(297	)		(506	)		937			417			641
Total other (expense), net		(8,033	)		(12,867	)		(9,182	)		(10,700	)		(17,215	)		(23,565	)
Income before taxes		18,939			14,320			7,579			3,192			26,518			17,512
Income tax expense		4,821			3,535			1,890			1,307			6,711			4,842
Net income and comprehensive income	$	14,118		$	10,785		$	5,689		$	1,885		$	19,807		$	12,670
Net income per share attributable to
common shareholders
Basic	$	0.40		$	0.31		$	0.16		$	0.05		$	0.56		$	0.36
Diluted	$	0.39		$	0.31		$	0.14		$	0.05		$	0.52		$	0.36
Weighted-average common shares outstanding
Basic		35,531			35,023			35,628			35,141			35,579			35,082
Diluted		36,647			35,182			39,432			35,265			38,382			35,220

Three Months Ended December 31, 2019

Common

Stock and

Additional

Number of

Number of

Paid-In

Retained

Shares

Warrants

Capital

Earnings

Total

Balance at September 30, 2019

31,413,287

3,600,953

$
238,504

$
187,364

$
425,868

Adoption ASU 2018-09 Stock compensation-
income taxes

—

—

—

259

259

Stock compensation expense

—

—

1,320

—

1,320

Repurchased shares and warrants

(5,558
)

—

(41
)

—

(41
)
Warrants converted to common stock

1,612,481

(1,612,481
)

—

—

—

Restricted shares issued

18,916

—

—

—

—

Net income

—

—

—

10,785

10,785

Balance at December 31, 2019

33,039,126

1,988,472

$
239,783

$
198,408

$
438,191

Three Months Ended December 31, 2020

Common

Stock and

Additional

Number of

Number of

Paid-In

Retained

Shares

Warrants

Capital

Earnings

Total

Balance at September 30, 2020

35,526,918

—

$
242,772

$
215,087

$
457,859

Stock compensation expense

—

—

850

—

850

Repurchased shares

(2,256
)

—

(19
)

—

(19
)
Restricted shares issued

7,500

—

—

—

—

Issuance of warrants, net of issuance costs

—

4,899,497

11,489

—

11,489

Net income

—

—

—

14,118

14,118

Balance at December 31, 2020

35,532,162

4,899,497

$
255,092

$
229,205

$
484,297

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

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

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

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

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


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

	Three Months Ended December 31,						Six Months Ended March 31,
	2020			2019			2021			2020
Cash flows from operating activities:
Net income	$	14,118		$	10,785		$	19,807		$	12,670
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		20,470			20,552			41,175			41,021
Stock compensation expense		850			1,320			1,658			2,513
Deferred income taxes		4,836			3,205			6,654			4,490
Amortization of deferred credits		(793	)		(1,103	)		(2,258	)		(2,041	)
Amortization of debt discount and issuance costs		1,860			1,054			4,994			2,149
Gain on extinguishment of debt		(950	)		—			(950	)		—
Loss on disposal of assets		24			407			25			514
Provision for obsolete expendable parts and supplies		(37	)		97			22			306
Loss on lease termination								4,508			—
Changes in assets and liabilities:
Receivables		(1,700	)		(1,040	)		(155	)		9,019
Expendable parts and supplies		256			(1,158	)		(84	)		(1,382	)
Prepaid expenses and other current assets		4,296			327			(1,988	)		97
Accounts payable		(5,723	)		(2,336	)		15,470			(602	)
Deferred revenue		53,999			—			10,099			—
Accrued liabilities		(12,637	)		5,791			(14,091	)		2,122
Change in operating lease right-of- use assets		404			329			(6,311	)		(5,674	)
Net cash provided by operating activities		79,273			38,230			78,575			65,202

Cash flows from investing activities:
Capital expenditures		(1,773	)		(10,124	)		(5,261	)		(12,968	)
Net returns (payments) on equipment & other deposits		—			(2,704	)		(6,414	)		(11,805	)
Net cash used in investing activities		(1,773	)		(12,828	)		(11,675	)		(24,773	)

Cash flows from financing activities:
Proceeds from long-term debt		195,000			—			195,000			23,000
Principal payments on long-term debt and financing leases		(189,131	)		(36,467	)		(212,020	)		(79,395	)
Payments of debt and warrant issuance		(1,257	)		(184	)		(1,326	)		(494	)
Repurchase of stock		(19	)		(41	)		(176	)		(201	)
Net cash provided by financing activities		4,593			(36,692	)
Net cash used in financing activities								(18,522	)		(57,090	)

Net change in cash, cash equivalents and restricted cash		82,093			(11,290	)		48,378			(16,661	)
Cash, cash equivalents and restricted cash at beginning of period		102,841			72,501			102,841			72,501
Cash, cash equivalents and restricted cash at end of period	$	184,934		$	61,211		$	151,219		$	55,840

Supplemental cash flow information
Cash paid for interest	$	6,743		$	9,440		$	16,922		$	22,402
Cash paid for income taxes, net	$	1		$	15		$	49		$	45
Operating lease payments in operating cash flows	$	9,304		$	9,534		$	25,716		$	26,240
Supplemental non-cash operating activities
Right-of-use assets obtained in exchange of lease liabilities	$	69		$	142,165
Supplemental non-cash financing activities
Supplemental non-cash transactions
Warrants received from Archer Aviation Inc. ("Archer")							$	16.4		$	—
Right-of-use assets (disposed) obtained							$	(320	)	$	145,627
Debt issuance cost related to loan agreement with US Department of Treasury	$	(1,887	)	$	—		$	(1,887	)	$	—
Accrued capital expenditures	$	—		$	334		$	—		$	98

Headquartered in Phoenix, Arizona, Mesa Air Group, Inc. ("Mesa" or the "Company") is a holding company whose principal subsidiary, Mesa Airlines, Inc. ("Mesa Airlines"), operates as a regional air carrier providing scheduled flight service to ~~116~~112 cities in 4238 states, the District of Columbia, ~~the Bahamas,~~ and Mexico as well as ~~Cargo~~cargo flight services ~~out of~~originating from Cincinnati/Northern Kentucky International Airport. As of ~~December~~March 31, ~~2020,~~2021, Mesa operated a fleet of ~~159~~163 aircraft with approximately ~~420~~440 daily departures and ~~3,200~~3,111 employees. Mesa operates all of its flights on behalf of major partners as either American Eagle, United Express, or DHL Express flights pursuant to the terms of the ~~capacity purchase agreements~~Capacity Purchase Agreements (“CPAs”) entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”) and Flight Services Agreement (“FSA”) with DHL Network Operations (USA), Inc. (“DHL”).

The financial arrangements between the Company and its major ~~airline~~ partners involve a revenue-guarantee arrangement ~~(i.e. a "capacity purchase agreement")~~ whereby the major ~~airline~~partner pays ~~a monthly guaranteed amount~~fixed-fees for each aircraft under contract, ~~a fixed fee for each~~departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour ~~(the number of hours during which the aircraft is in revenue service, measured~~(measured from ~~the time of gate departure before take-off until the time of gate arrival at the destination) and flight flown~~ takeoff to landing, including taxi time), and reimbursement of certain direct operating expenses in exchange for providing ~~regional flying.~~flight services. The major ~~airline~~ partners also pay certain expenses directly to suppliers, such as fuel, ground operations and landing fees. Under the terms of these capacity purchase agreements, the major airline controls route selection, pricing and seat inventories, ~~thereby~~ reducing the Company's exposure to fluctuations in passenger traffic, fare levels, and fuel prices.

As of ~~December~~March 31, ~~2020,~~2021, the Company operated 5445 CRJ-900 aircraft ~~for~~under the American ~~under a~~ Capacity Purchase Agreement. In exchange for providing flight services, ~~under our American Capacity Purchase Agreement,~~ we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown during each month. In addition, we may also receive incentives or incur penalties based upon our operational performance, including controllable on-time departures and controllable completion percentages. American also reimburses us for certain costs on an actual basis, including passenger liability and hull insurance and aircraft property ~~taxes, all as set forth in our American Capacity Purchase Agreement.~~taxes. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by American. In addition, American also provides, at no cost to us, certain ground handling and customer service functions, as well as airport-related facilities and gates at American hubs and cities where we operate.

Our American Capacity Purchase Agreement establishes utilization credits which are required to be paid if the Company does not operate at minimum levels of flight operations. In prior periods, the FAA Qualification Standards (as defined below) have negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels, and, as a result, we have issued credits to American pursuant to the terms of our American Capacity Purchase Agreement.

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

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

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

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

Our ~~existing~~Amended and Restated American Capacity Purchase Agreement is subject to ~~following~~ termination prior to its expiration, ~~on December 31,2025,~~ subject to the Company’s right to cure, in various circumstances including:

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

As of ~~December~~March 31, ~~2020,~~2021, we operated ~~20 CRJ-700,~~ 60 E-175 and 1216 E-175LL aircraft for United under ~~our~~the United Capacity Purchase Agreement. ~~We expect to operate a total of 60 E175 and 20 E-175LL aircraft by mid-year in 2021 when we take delivery of the remaining 8 E-175LL aircraft by the end of June 2021.~~ In exchange for providing the flight services under our United Capacity Purchase Agreement, we receive a fixed monthly minimum amount per aircraft under contract plus certain additional amounts based upon the number of flights and block hours flown and the results of passenger satisfaction surveys. United also reimburses us for certain costs on an actual basis, including property tax per aircraft and passenger liability insurance. Other expenses, including fuel and certain landing fees, are directly paid to suppliers by United.

Under our United Capacity Purchase Agreement, United owns 42 of the 60 E-175 and all of the ~~new E175-LL~~E-175LL aircraft ~~(discussed below)~~ and leases them to us at nominal amounts. United reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the 42 United owned E-175 and all E-175LL aircraft owned by United. Our United Capacity Purchase Agreement permits United, subject to certain conditions, including the payment of certain costs tied to aircraft type, to terminate the agreement in its discretion, or remove aircraft from service, by giving us notice of 90 days or more. If United elects to terminate our United Capacity Purchase Agreement in its entirety or permanently remove select aircraft from service, we are permitted to return any of the affected E-175 aircraft leased from United at no cost to us.aircraft.

On November 26, 2019, we amended and restated our United Capacity Purchase ~~Agreement to, among other things, incorporate the terms of the 14 prior amendments to that Agreement~~Agreement. The Amended and to extend the term thereof through the addition of 20 new Embraer E175LL aircraft to the scope of such Agreement. These new aircraft were to be financed and owned by us and operated for a period of twelve (12) years from the in-service date. Deliveries of the new E175LL aircraft were scheduled to begin in May 2020. In March 2020, the deliveries of the new E175LL aircraft were negotiated betweenRestated United and Embraer to begin in September 2020 and be completed by the quarter ended June 30, 2021. Commencing five (5) years after the actual in-service date, United has the right to remove the E175LL aircraft from service by giving us notice of 90 days or more, subject to certain conditions, including the payment of certain wind-down expenses plus, if removed prior to the ten (10) year anniversary of the in-service date, certain accelerated margin payments.

~~In addition to adding the 20 new E175LL aircraft to the amended and restated United Capacity~~ Purchase Agreement ~~we extended~~included the term of our 42 E-175 aircraft leased from United for an additional five (5) years, which now expire between 2024 and 2028. In addition, we own 18 E-175 aircraft that are operated for United and come out of service under the United Capacity Purchase Agreement in 2028. Under the amended and restated United Capacity Purchase Agreement, we agreed to lease our CRJ-700 aircraft to another United Express service provider for a term of seven (7) years. We will continue to operate such aircraft until they are transitioned to the new service provider. United has a right to purchase the CRJ-700 aircraft at the then fair market value.following amendments:

On November 4, 2020, we amended and restated our United Capacity Purchase ~~Agreement to, among other things,amend~~Agreement. The amendments reflect the ~~ownership by United, in lieu of the Company, of 20 E175LL~~following:

Our United Capacity Purchase Agreement is subject to following termination rights prior to its expiration.

Our United Capacity Purchase Agreement provides for temporary rate reductions for the period April 2020 to September 2020. The basis for the reduction is lower labor costs due to the Company. Per the amendment, these new aircraft will be now financed by United and leased to the Company to operate for a period of twelve (12) years from the in-service date. As of December 30, 2020, 12 E175LL have been delivered and the remaining 8 are expected to be delivered by the end of June 2021. We agreed to adjusted rates to account for the change in ownership of the E175LL aircraft, relief from certain provisions related to minimum utilization until December 31, 2021 and an additional right of United to remove one or more E175LL aircraft in the event that the Company fails to meet certain financial covenants. The Company is leasing these aircrafts from United at nominal rates, these leases are not considered embedded leases within the contract and are excluded from the C~~ompany’s right-of-use assets and operating lease liabilities under ASC 842.~~

~~We also agreed to a one-time provision for United to prepay $81.5 million under the United CPA for future performance~~grant received by the Company ~~(the “Prepayment”), and certain discounts on services provided~~ under the ~~capacity purchase agreement. We elected~~Payroll Support Program (PSP). The First Amendment also provides for further temporary rate reductions if the practical expedient concerning the evaluation of a significant financing component for the Prepayment received in November 2020, and have accounted for the payment received within current deferred revenue. As of December 31, 2020, we have recognized $33.3 million of the Prepayment deferred revenue for flight services performed and expect to recognize the remaining balance to revenue as flight services are performed during the second quarter of 2021. The terms of the Prepayment also include affirmative and negative covenants and events of default customary for transactions of this type. Proceeds from the Prepayment were used to retire debt on certain airframes and engines that serve as collateral under the term loan facility provided to the Company by the U.S. Treasury. See Note 8.Payroll Support Program is extended.

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

Under our Flight Services Agreement, DHL leases 2 Boeing 737-400F aircraft, and subleases them to us at nominal amounts. DHL reimburses us on a pass-through basis for all costs ~~for~~related to heavy maintenance including c-checks, off-wing engine maintenance and overhauls including LLPs, Landing Gear overhauls and LLPs, thrust reverser overhauls, and APU overhauls and ~~LLPs are a direct pass through to DHL. Ground support including fueling~~LLPs. Certain items such as fuel, de-icing fluids, landing fees, aircraft ground handling fees, en-route navigation fees and ~~airport~~custom fees are paid directly to suppliers by ~~DHL. The Company is eligible for a monthly performance bonus~~DHL or ~~subject to a monthly penalty based on timeliness and completion performance.~~otherwise reimbursed if incurred by the Company.

The Flight Services Agreement the Company also entered into an Aircraft Sublease Agreement with DHL for the two Boeing 737-400F aircraft at no cost. The leases are not considered embedded leases within the contract and are excludedexpires five (5) years from the C~~ompany’s right-of-use assets and operating lease liabilities under ASC 842~~.commencement date of the first aircraft placed into service. DHL has the option to extend the agreement with respect to one or more aircraft for a period of one year with 90 days’ advance written notice.

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

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

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

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

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

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

The Company recognizes contract revenue when the service is provided under its capacity purchase ~~agreements.~~agreements and flight services agreement. Under the capacity purchase agreements, our major ~~airline~~ partners generally pay for each departure, flight hour ~~(measured from takeoff to landing, excluding taxi time)~~ or block hour, ~~(measured from takeoff to landing, including taxi time) incurred,~~ and an amount per aircraft in service each month with additional incentives based on flight completion, on-time performance, and on-time performance. The major airline partners also directly pay for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel and airport landing fees.other operating metrics. The Company’s performance obligation is met ~~when~~as each flight is completed, and revenue is recognized and reflected in contract revenue. The directly reimbursed expenses, earned as flights are completed over the agreement term, are recognized and reflected in pass-through revenue. The Company records deferred revenue when cash payments are received or are due from our airline partners in advance of the Company’s performance, including amounts that are refundable.

~~We received an $81.5 million prepayment under the~~ ~~amended and restated United Capacity Purchase Agreement, as discussed in Note 1. As of December 31, 2020, we recognized $33.3 million of the prepayment and~~ ~~we expect to recognize the remaining $48.2 million as flight services are performed during the second quarter of 2021.~~

The deferred revenue balance as of December 31, 2020 represents our aggregate remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized as revenue as follows (In thousands):

A portion of the Company's compensation under its capacity purchase agreements with American and United is designed to reimburse the Company for certain aircraft ownership ~~costs.~~costs including aircraft principal and interest debt service costs, aircraft depreciation and interest expense or aircraft lease expense costs while the aircraft is under contract. The Company has concluded that a component of its revenue under these agreements is deemed to be lease revenue, as such agreements identify the "right of use" of a specific type and number of aircraft over a stated period-of-time. The lease revenue associated with the Company's capacity purchase agreements is accounted for as an operating lease and is reflected as contract revenue on the Company's consolidated statements of operations. The Company recognized ~~$49.5~~$18.1 million and ~~$53.3~~$52.4 million of lease revenue for the three months ended ~~December~~March 31, 2021 and 2020, respectively, and ~~2019, respectively.~~$67.6 million and $105.7 million during the six months ended March 31, 2021 and 2020, respectively. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statements of operations and comprehensive income because the use of the aircraft is not a separate activity of the total service provided under our capacity purchase agreements.

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

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

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

Lease revenue recognized and amounts deferred for supplemental rent payments were immaterial as of March 31, 2021. The following table summarizes future minimum rental income under operating leases related to leased aircraft that had remaining non-cancelable lease terms as of March 31, 2021 (In thousands):

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

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

~~In addition to the~~As discussed in Note 1, we lease, at nominal rates, certain aircraft ~~we receive~~ from United ~~as nominal leases~~and DHL under our United Capacity Purchase Agreement and DHL Flight Services Agreement, which are excluded from operating lease assets and liabilities as the lease contracts do not represent embedded leases under ASC 842. Other than nominal leases with our major partners, approximately ~~11%~~10% of our aircraft are leased from third parties. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the term of the related leases. In the event that we or one of our major airline partners decide to exit an activity involving leased aircraft, losses may be incurred. In the event that we exit an activity that results in exit losses, these losses are accrued as each aircraft is removed from operations for early termination penalties, lease settle up and other charges. Additionally, any remaining ROU assets and lease liabilities ~~will~~would be written off.

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

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

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

Current and non-current deferred credits are recorded to other accrued expenses and non-current deferred credits in the condensed consolidated balance sheets. The Company's total current and non-current deferred credit balances at ~~December~~March 31, ~~2020~~2021 and September 30, 2020 are ~~$7.7~~$5.2 million and $8.5 million, respectively. The Company recognized ~~$0.8~~$1.1 million and ~~$1.1~~$0.9 million of the deferred credits towithin contract revenue during the three months ended ~~December~~March 31, 2021 and 2020, respectively, and ~~2019.~~

The Company recognizes assets from the costs incurred to fulfill a contract including aircraft painting and reconfiguration and flight service personnel training costs. These costs are amortized based on the pattern of transfer of the services in relation to flight hours over the term of the contract. Contract assets are recorded as other assets in the condensed consolidated balance sheets. The Company's contract assets balances at December 31, 2020 and September 30, 2020 are $1.6$1.9 million and $2.0 million ~~respectively. Contract cost amortization was $0.4 million and $0.6 million for~~during the ~~three~~six months ended ~~December~~March 31, 2021 and 2020, ~~and 2019, respectively.~~

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

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

The Company accounts for heavy maintenance and major overhaul costs for all other fleets under the direct expense method ~~of accounting~~where costs are expensed to maintenance expense as incurred, except for ~~its~~certain maintenance ~~of regional jet engine overhauls, airframe, landing gear,~~contracts where labor and ~~normal recurring~~materials price risks have been transferred to the service provider and require payment on a utilization basis, such as flight hours. Costs incurred for maintenance ~~wherein~~and repair for utilization maintenance contracts where labor and materials price risks have been transferred to the ~~Company recognizes the~~service provider are charged to maintenance 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, the Company is 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. The Company estimates the cost of maintenance lease return obligations and accrues such costs over the remaining lease term when the expense is probable and can be reasonably estimated.

Under the Company's aircraft operating lease agreements and FAA operating regulations, it is obligated to perform all required maintenance activities on its fleet, including component repairs, scheduled air frame checks and major engine restoration events. The Company estimates 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 its aircraft, changes in government regulations and suggested manufacturer maintenance intervals. Major maintenance events consist of overhauls to major components.contractual payment terms.

Engine overhaul expense totaled ~~$14.4~~$6.9 million and ~~$10.6~~$14.5 million for the three months ended ~~December~~March 31, ~~2020,~~2021, and ~~2019,~~2020, respectively, of which ~~$9.6~~$2.2 million and ~~$1.9~~$0.7 million, respectively, was pass-through expense. Engine overhaul expense totaled $21.3 million and $25.1 million for the six months ended March 31, 2021, and 2020, respectively, of which $11.8 million and $2.6 million, respectively, was pass-through expense. Airframe C-check expense totaled ~~$10.1~~$14.1 million and ~~$7.3~~$10.5 million for the three months ended ~~December~~March 31, ~~2020,~~2021, and ~~2019,~~2020, respectively, of which ~~$7.1~~$5.6 million and ~~$1.2~~$3.9 million, respectively, was pass-through expense.Airframe C-check expense totaled $24.2 million and $17.8 million for the six months ended March 31, 2021, and 2020, respectively, of which $12.7 million and $5.1 million, respectively, was pass-through expense.

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

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

During the three and six months ended March 31, 2021, the Company recognized $56.0 million and $67.3 million respectively, for the payroll support government funds. We deferred $11.3 million under PSP1 that was recognized during the three months ended December 31,2020. As of March 31,2021, there are 0 deferred payments.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). This ASU provides optional expedients and exceptions for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or another reference rate expected to be

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

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

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which provides guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The Company adopted Topic 842 effective October 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company’s contracts are or contain leases, (2) lease classification and (3) initial direct costs. In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements - Leases (Topic 842)." The Company did not elect the hindsight practical expedient. This update provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years presented. If this adoption method is elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company elected this adoption method on October 1, 2019.There was 0 adjustment to retained earnings.

Additionally, the Company’s adoption of Topic 842 did not have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the consolidated statements of operations or the consolidated statements of cash flows. The Company’s adoption of Topic 842 did not have a material impact on the timing or amount of the Company’s lease revenue as a lessor. The Company’s prepaid aircraft rents, accrued aircraft rents and deferred rent credits that were separately stated in the Company’s September 30, 2019 balance sheet have been classified as a component of the Company’s right-of-use assets effective October 1, 2019. The consolidated financial statements for the year ended September 30, 2020 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. See Note 14 and 15, "Leases and Commitments” and “Contingencies," for more information.

We determine if an arrangement is a lease at inception. Our current lease activities are recorded in operating lease right-of-use (“ROU”) assets, current maturities of operating lease and noncurrent operating lease liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of long-term debt and financing leases, long-term debt and financing leases, excluding current portion.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use assets and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

As a lessee, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

As a lessor, our capacity purchase agreements identify the "right of use" of a specific type and number of aircraft over a stated period-of-time. A portion of the compensation in the capacity purchase agreements are designed to reimburse the Company for certain aircraft ownership costs of these aircraft. We account for the non-lease component under ASC 606 and account for the lease component under ASC 842. We allocate the consideration in the contract between the lease and non-lease components based on their stated contract prices, which is based on a cost basis approach representing our estimate of the stand-alone selling prices.

Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are primarily held by financial institutions in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions. As of March 31, 2021, the Company had $3.4 million in restricted cash. We have an agreement with a financial institution for letter of credit facility and to issue letters of credit for particular airport authorities, worker's compensation insurance, property and casualty insurance and other business needs as required in certain lease agreements. Pursuant to the term of this agreement, $3.4 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. At ~~December~~March 31, ~~2020,~~2021, the Company had capacity purchase agreements with American and United and a ~~Flight Services Agreement~~flight services agreement with ~~DHL Network Operations (USA). All~~DHL. Substantially all of the Company's condensed consolidated revenue for the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 and accounts receivable at ~~December~~March 31, ~~2020~~2021 and September 30, ~~2019~~2020 was derived from these agreements. American accounted for approximately 45% and 51% of the Company's total revenue for the three months ended March 31, 2021 and 2020, respectively, and 46 % and 51% for the six months ended March 31, 2021 and 2020. United accounted for approximately 53% and 49% of the Company's revenue for the three months ended March 31, 2021 and 2020, respectively, and 52% and 49% for the six months ended March 31, 2021 and 2020. A termination of either the American or the United capacity purchase agreement would have a material adverse effect on the Company's business prospects, financial condition, results of operations, and cash flows.

Amounts billed by the Company under capacity purchase agreements are subject to the Company's interpretation of the applicable capacity purchase agreement and are subject to audit by the Company's major airline partners. Periodically, the Company's major airline partners dispute amounts billed and pay amounts less than the amount billed. Ultimate collection of the remaining amounts not only depends upon the Company prevailing under the applicable audit, but also upon the financial well-being of the major airline partner. As such, the Company periodically reviews amounts due based on historical collection trends, the financial condition of airline partners and external market factors and records a reserve for amounts estimated to be uncollectible. The allowance for doubtful accounts was ~~$0.9~~$1.3 million and $0.8 million at ~~December~~March 31, ~~2020~~2021 and September 30, 2020, respectively. If the Company's ability to collect these receivables and the financial viability of its partners is materially different than estimated, the Company's estimate of the allowance could be materially impacted.

~~American accounted for approximately 46% and 51% of the Company's total revenue for the three months ended December 31, 2020 and 2019, respectively.~~ ~~United accounted for approximately~~ 53% and 49% of the Company's revenue for the three months ended December 31, 2020 and 2019, respectively. DHL accounted for 1% and 0% of the Company’s revenue for the three months ended December 31, 2020 and 2019, respectively. A termination of either the American or the United capacity purchase agreement would have a material adverse effect on the Company's business prospects, financial condition, results of operations, and cash flows.

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

	December 31,			September 30,			March 31,			September 30,
	2020			2020			2021			2020
Customer relationship	$	43,800		$	43,800		$	43,800		$	43,800
Accumulated amortization		(36,078	)		(35,768	)		(36,388	)		(35,768	)
	$	7,722		$	8,032
Net carrying value							$	7,412		$	8,032

Total amortization expense recognized was approximately $0.3 million and $0.4 million for the three months ended ~~December~~March 31, 2021 and 2020, respectively, and ~~2019, respectively.~~$0.6 million and $0.7 million for the six months ended March 31, 2021 and

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

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

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

	December 31,			September 30,			March 31,			September 30,
	2020			2020			2021			2020
Expendable parts and supplies, net:
Expendable parts and supplies	$	27,347		$	27,431		$	27,324		$	27,431
Less: obsolescence and other		(4,587	)		(4,460	)		(4,280	)		(4,460	)
	$	22,760		$	22,971		$	23,044		$	22,971

Prepaid expenses and other current assets:
Deferred offering and reimbursed costs	$	1,129		$	1,261		$	—		$	1,261
Other		11,768			14,806			8,956			14,806
	$	12,897		$	16,067		$	8,956		$	16,067
Property and equipment, net:
Aircraft and other flight equipment substantially pledged	$	1,597,394		$	1,596,174		$	1,603,377		$	1,596,174
Other equipment		5,176			5,147			5,189			5,147
Leasehold improvements		2,763			2,763			2,763			2,763
Vehicles		995			1,032			1,114			1,032
Building		699			699			699			699
Furniture and fixtures		302			302			303			302
Total property and equipment		1,607,329			1,606,117			1,613,445			1,606,117
Less: accumulated depreciation		(413,268	)		(393,702	)		(432,761	)		(393,702	)
	$	1,194,061		$	1,212,415		$	1,180,684		$	1,212,415
Other Assets:
Warrants							$	16,374		$	—
Other								4,273			—
							$	20,647		$	—
Other accrued expenses:
Accrued property taxes	$	12,690		$	11,354		$	5,996		$	11,354
Accrued interest		5,149			3,268			2,480			3,268
Accrued vacation		6,143			5,975			5,718			5,975
Other		13,599			24,881			14,416			24,881
	$	37,581		$	45,478		$	28,610		$	45,478

The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated fair value. The Company has assessed whether any impairment of its long-lived assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of ~~December~~March 31, ~~2020.~~2021. The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business, are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

Depreciation expense totaled approximately ~~$20.2~~$20.4 million and ~~$20.2~~$20.1 million for the three months ended ~~December~~March 31, 2021 and 2020, respectively, and ~~2019,~~$40.6 million and $40.3 million for the six months ended March 31, 2021 and 2020, respectively.

In connection with a negotiated forward purchase contract for electrically-powered vertical takeoff and landing aircraft (eVTOL aircraft) executed in February 2021, we obtained equity warrant assets giving us the right to acquire 1,171,649 shares of common stock in Archer Aviation, Inc. (Archer), a private, venture-backed company. Our investments in Archer do not have a readily determinable fair value, so we account for them using the measurement alternative under ASC 321 and measure the investments at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments from the same issuer. We consider a range of factors when adjusting the fair value of these investments, including, but not limited to, the term and nature of the investment, local market conditions, values for comparable securities, current and projected operating performance, financing transactions subsequent to the acquisition of the investment or other features that indicate a discount to fair value is warranted. Any changes in fair value from the grant date fair value of the equity warrant assets will be recognized as increases or decreases on our balance sheet and as net gains or losses on equity warrant assets, in other (expense) income, net. We estimated the initial equity warrant asset value to be $16.4 million based on the Archer enterprise valuation disclosed within a February 10, 2021 S-4 filing with the SEC. There were no observable price changes or transactions as of March 31, 2021, and as such no adjustments to the recorded grant date fair value of the equity warrant assets was recorded.

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

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

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

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

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

	December 31,			September 30,			March 31,			September 30,
	2020			2020			2021			2020
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2022⁽¹⁾⁽²⁾	$	—		$	41,472		$	—		$	41,472
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2024⁽³⁾		—			55,674			—			55,674
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2027⁽⁴⁾		105,989			105,887			106,092			105,887
Notes payable to secured parties, collateralized by the underlying
aircraft, due 2028⁽⁵⁾		172,137			172,137			162,247			172,137
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2028⁽⁶⁾		134,325			138,114			130,505			138,114
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2022⁽⁷⁾		—			47,319			—			47,319
Senior and subordinated notes payable to secured parties, collateralized
by the underlying aircraft, due 2022⁽⁸⁾		—			29,682			—			29,682
Notes payable to financial institution due 2020⁽¹⁰⁾		1,523			1,523			1,523			1,523
Notes payable to financial institution, collateralized by the underlying
equipment, due 2020⁽¹¹⁾		—			4,182			—			4,182
Other obligations due to financial institution, collateralized by the underlying
equipment, due 2023⁽¹²⁾		6,185			6,864			5,663			6,864
Notes payable to financial institution, collateralized by the underlying
equipment, due 2024⁽¹³⁾		58,988			63,341			54,573			63,341
Notes payable to financial institution, collateralized by the underlying
aircraft, due 2023⁽¹⁴⁾		43,750			48,125			39,375			48,125
Notes payable to financial institution due 2023 ⁽¹⁵⁾		5,500			6,000			5,000			6,000
Revolving Credit Facility ⁽¹⁶⁾		22,296			22,930			22,930			22,930
Notes payable to financial institution due 2025 ⁽¹⁷⁾		195,705			—			197,525			—
Gross long-term debt, including current maturities		746,398			743,250			725,433			743,250
Less unamortized debt issuance costs		(11,174	)		—			(10,598	)		—
Less Notes payable warrants		(11,363	)		(11,526	)		(10,797	)		(11,526	)
Net long-term debt, including current maturities		723,861			731,724			704,038			731,724
Less current portion		(99,745	)		(189,268	)		(103,980	)		(189,268	)
Net long-term debt	$	624,116		$	542,456		$	600,058		$	542,456

Principal maturities of long-term debt as of ~~December~~March 31, ~~2020,~~2021, and for each of the next five years are as follows (in thousands):

Periods Ending December 31,	Total Principal
March 31, 2021			Total Principal
Remainder of 2021	$	82,535	$	59,013
2022		113,048		113,682
2023		89,462		89,462
2024		61,209		61,209
2025		56,526		56,526
Thereafter		343,618		345,541
	$	746,398	$	725,433

The net book value of collateralized aircraft and equipment as of ~~December~~March 31, ~~2020~~2021 was ~~$1,077.0~~$1,060.0 million.

In December 2015, an Enhanced Equipment Trust Certificate ("EETC") pass-through trust was created to issue pass-through certificates to obtain financing for new E-175 aircraft. At ~~December~~March 31, ~~2020~~2021 Mesa has ~~$172.1~~$162.2 million of equipment notes outstanding issued under the EETC financing included in long-term debt on the condensed consolidated balance

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

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

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

On September 25, 2019, the Company extended the term on their $35.0 million working capital draw loan by three years, which now terminates in September 2022. Interest is assessed on drawn amounts at one-month LIBOR plus 3.75%. ~~During quarter ended June 30, 2020, $23.0~~As of March 31, 2021, $22.9 million ~~was~~has been drawn on the revolver.

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

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

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

All principal amounts outstanding under the Loan and Guarantee Agreement are due and payable in a single installment on October 30, 2025 (the “Maturity Date”). Interest will be paid by increasing the principal amount of the loan by the amount of such interest due on an interest payment date for the first 12 months. Mesa's obligations under the Treasury Loan Agreement are secured by certain aircraft, aircraft engines, accounts receivable, ground service equipment and tooling (collectively, the “Collateral”). The obligations under the Loan Agreement are guaranteed by the Company and Mesa Air Group Inventory Management. The proceeds may be used for general corporate purposes and operating expenses, to the

extent permitted by the CARES Act. Voluntary prepayments of loans under the Loan Agreement may be made, in whole or in part, by Mesa Airlines, without premium or penalty, at any time and from time to time. Amounts prepaid may not be reborrowed. Mandatory prepayments of loans under the Loan Agreement are required, without premium or penalty, to the extent necessary to comply with the covenants discussed below, certain dispositions of the Collateral, certain debt issuances secured by liens on the Collateral and certain insurance payments related to the Collateral. In addition, if a “change of control” (as defined in the Loan Agreement) occurs with respect to Mesa Airlines, Mesa Airlines will be required to repay the loans outstanding under the Loan Agreement.

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

The Loan Agreement contains two financial covenants, a minimum collateral coverage ratio and a minimum liquidity level. The Loan Agreement also contains customary negative and affirmative covenants for credit facilities of this type, including, among others: (a) limitations on dividends and distributions; (b) limitations on the creation of certain liens; (c) restrictions on certain dispositions, investments and acquisitions; (d) limitations on transactions with affiliates; (e) restrictions on fundamental changes to the business, and (f) restrictions on lobbying activities. Additionally, the Company is required to comply with the relevant provisions of the CARES Act, including limits on employment level reductions after September 30, 2020, restrictions on dividends and stock buybacks, limitations on executive compensation, and requirements to maintain certain levels of scheduled service.

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

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

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

As of ~~December~~March 31, ~~2020,~~2021, the Company is in compliance will all debt covenants.

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

	Three Months Ended December 31,				Three Months Ended March 31,				Six Months Ended March 31,
	2020		2019		2021		2020		2021		2020
Net income attributable to Mesa Air Group	$	14,118	$	10,785	$	5,689	$	1,885	$	19,807	$	12,670
Basic weighted average common shares outstanding		35,531		35,023		35,628		35,141		35,579		35,082
Add: Incremental shares for:
Dilutive share adjustment - UST Warrant		800		—		3,038		—		2,183		138
Dilutive share adjustment - Restricted Shares		316		159		766		124		620		—
Diluted weighted average common shares outstanding		36,647		35,182		39,432		35,265		38,382		35,220
Net income per common share attributable to Mesa Air Group:
Basic	$	0.40	$	0.31	$	0.16	$	0.05	$	0.56	$	0.36
Diluted	$	0.39	$	0.31	$	0.14	$	0.05	$	0.52	$	0.36

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

The number of incremental shares from the assumed issuance of shares relating to restricted stock and exercise of warrants (excluding warrants with a nominal conversion price) is calculated by applying the treasury stock method. Share-based awards and warrants whose impact is considered to be anti-dilutive under the treasury stock method were excluded from the diluted net income or loss per share calculation. In loss periods, these incremental shares are excluded from the calculation of diluted loss per share, as the inclusion of unvested restricted stock and warrants would have an anti-dilutive effect. There were 0 anti-dilutive shares relating to restricted stock and exercise of warrants that were excluded from the calculation of diluted loss per share for the three and six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019.~~2020.

The Company previously issued warrants to third parties, which had a five-year term to be converted to common stock at an exercise price of $0.004 per share. ~~Certain persons~~Persons who ~~are~~were not U.S. citizens ~~currently hold~~held certain of these outstanding ~~warrants to purchase shares of the Company's common stock.~~warrants. The warrants are exercisable if consistent with federal law, which requires that no more than 24.9% of the Company's stock be voted, directly or indirectly, or controlled by persons who are not U.S. citizens. The warrants can be converted to common stock upon warrant holders demonstrating U.S. citizenship or if consistent with above described federal law ownership limitations. In June 2018, the Company and holders agreed to extend the term of outstanding warrants set to expire by five years (through fiscal year 2023). AsAll of ~~September 30, 2019 all the outstanding~~these warrants were converted to common ~~shares.~~shares as of March 31, 2020 and these warrants were not related to any of the warrants the Company issued pursuant to the terms of a Treasury Warrant Agreement under the Loan and Guarantee Agreement entered on October 30, 2020.

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

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

On October 30, ~~2020 and November 13,~~ 2020, the Company entered into the Loan and Guarantee Agreement with the United States Department of the Treasury (the “Treasury”) and the Bank of New York Mellon, as Administrative and Collateral Agent, under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

In connection with the Loan and Guarantee Agreement and as partial compensation to the Treasury for the provision of financial assistance under the Loan and Guarantee Agreement, the Company issued warrants to the Treasury to purchase shares of the Company’s common stock, no par value, at an exercise price of $3.98 per share (the “Exercise Price”), which was the closing price of the Common Stock on The Nasdaq Stock Market on April 9, 2020. The Warrants were issued pursuant to the terms of a Treasury Warrant Agreement entered into by the Company and the Treasury. The exercise price and number of Warrant Shares issuable under the Warrants are subject to adjustment as a result of ~~anti-~~

~~dilution~~anti-dilution provisions contained in the Warrants for certain stock issuances, dividends, and other corporate actions. The warrants expire on the fifth anniversary of the date of issuance and are exercisable either through net share settlement or net cash settlement, at the Company’s option. The warrants will be accounted for within equity at a grant date fair value determined under the Black Scholes Option Pricing Model. As of ~~December~~March 31, ~~2020,~~2021, 4,899,497 warrants were issued and outstanding.

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

The Company’s effective tax rate (ETR) from continuing operations was ~~25.5%~~24.9% and 25.3% for the three months and six months ended ~~December~~March 31, ~~2020~~2021, respectively and ~~24.7%~~40.9% and 27.6% for the three months and six months ended ~~December 31, 2019,~~March 31,2020, respectively. The Company's ETR during the three months and six months ended ~~December~~March 31, ~~2020~~2021 was different from the ~~federal statutory rate of 21% primarily due to permanent book and tax deductible expense differences, state taxes,~~changes in the valuation allowance against state net operating losses, and changes in state apportionment and state statutory rates. We continue to maintain a valuation allowance on a portion of our state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.

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

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

As of September 30, 2020, the Company had aggregate federal and state net operating loss carryovers of approximately $512.4 million and $223.9 million, respectively, which expire in fiscal years 2027-2038 and 2021-2040, respectively. Approximately ~~$3.1~~$0.7 million of state net operating loss carryforwards are expected to expire in the current fiscal year.

The restricted share activity for the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 were summarized as follows:

				Weighted-					Weighted-
				Average					Average
	Number			Grant Date		Number			Grant Date
	of Shares			Fair Value		of Shares			Fair Value
Restricted shares unvested at September 30, 2020		1,195,548		$	5.47		1,195,548		$	5.47
Granted		5,000			7.71		121,688			8.58
Vested		(7,500	)		7.37		(132,109	)		8.75
Forfeited		(17,500	)		4.59		(17,500	)		4.90
Restricted shares unvested at December 31, 2020		1,175,548		$	5.48
Restricted shares unvested at March 31, 2021							1,167,627		$	5.44

As of ~~December~~March 31, ~~2020,~~2021, there was ~~$4.2~~$4.4 million, of total unrecognized compensation cost related to unvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of ~~2.0~~2.3 years.

Compensation cost for share-based awards are recognized on a straight-line basis over the vesting period. Share-based compensation expense for the three months ended ~~December~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$0.9~~$0.8 million and ~~$1.3~~$1.2 million, respectively, and for the six months ended March 31, 2021 and 2020 was $1.7 million and $2.5 million, respectively.

The Company repurchased ~~2,256~~175,925 shares of its common stock for ~~$0.02~~$0.2 million to cover the income tax obligation on vested employee equity awards and warrant conversions during the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021.

The Company has granted restricted stock units (“RSUs”) as part of its long-term incentive compensation to employees and non-employee members of the Board of Directors. ~~RSAs and~~ RSUs generally vest over a period of 3 to 5 years for

employees and over one year for members of the Board of Directors. ~~The restricted common stock underlying RSAs are deemed issued and outstanding upon grant, and carry the same voting rights of unrestricted outstanding common stock.~~ The restricted common stock underlying RSUs are not deemed issued or outstanding upon grant, and do not carry any voting rights.

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

A maximum of 500,000 Mesa Air Group, Inc. ordinary shares may be issued under the 2019 ESPP. As of ~~December~~March 31, ~~2020,~~2021, eligible employees purchased and the Company issued ~~99,644~~157,714 Mesa Air Group, Inc. ordinary shares under the 2019 ESPP.

~~Effective~~October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $154.6 million and $141.9 million, respectively. As part of the adoption, prepaid aircraft rent, deferred rent credits and accrued aircraft rents of $35.8 million, $21.3 million and $1.8 million, respectively, were classified as a component of the Company’s ROU assets.

As of ~~December~~March 31, ~~2020,~~2021, the Company leased 1817 aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases. The leases require the Company to pay all taxes, maintenance, insurance, and other operating expenses. Rental expense is recognized on a straight-line basis over the lease term, net of lessor rebates and other incentives. The Company expects that, in the normal course of business, such operating leases that expire will be renewed or replaced by other leases, or the property may be purchased rather than leased.

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

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

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

Aggregate rental expense under all operating aircraft, equipment and facility leases totaled approximately ~~$13.8~~$13.9 million and ~~$16.8~~$18.6 million for the three months ended ~~December~~March 31, 2021 and 2020, respectively, and ~~2019, respectively.~~

$27.7 million and $35.4 million for the six months ended March 31, 2021 and 2020, respectively.

As of ~~December~~March 31, ~~2020,~~2021, the Company’s operating leases have a remaining weighted average lease ~~right-of-use assets were $114.7 million, the Company’s current maturities~~terms of 3.1 years and our operating lease liabilities were ~~$44.7 million, and the Company’s noncurrent lease liabilities were $53.6 million.~~

~~The Company’s operating lease payments in operating cash flows for the three months ended December 31, 2020 and 2019 are $9.3 million and $9.5 million, respectively.~~

~~The table below presents lease related terms and~~measured using a weighted average discount ~~rates as~~rate of ~~December 31, 2020:~~

~~The Table below represents lease expense recorded during three months ended December 31, 2020 and 2019.~~

The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of December 31, 2020 (in thousands):

~~The following represents future minimum lease obligations under non-cancelable operating leases as of September 30, 2019 (in thousands):~~

On ~~October 8, 2020,~~February 26, 2021, the Company and General Electric Company (“GE”), acting through its GE-Aviation business unit, entered into an Amended and Restated Letter Agreement No. 13, which deferred the initial delivery and payment dates of the 20 new spare CF34-8C5 engines that were subject to previously disclosed letter agreements between the Company and GE. Under the terms of the Amended and Restated Letter Agreement, the13-3. The Company agreed to purchase and take delivery of 10 new CF34-8C5 or CF34-8E5 engines with delivery dates starting from July 1, 2021 through November 1^,2022. During the ~~20 new space CF34-8C5~~quarter ended March 31, 2021, a $7.0 million non-refundable purchase deposit was made for the first 5 engines ~~commencing in May 2021, with the final spare engine~~ to be delivered in ~~December~~calendar 2021. ~~Payments are now due in five (5) separate tranches commencing in December 2020, and in February, April, May and June 2021.~~The Company has options to purchase an additional (10) ten similar engines beyond 2022. The total purchase commitment related to these 10 engines is approximately ~~$118.9~~$50.0 million. ~~However, the parties continue to discuss modifying the number of spare engines to be purchased by the Company and timing of deliveries under the Amended and restated Letter Agreement No. 13.~~

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

The Company is ~~involved~~subject to 2 putative class action lawsuits alleging federal securities law violations in ~~various~~connection with our IPO, 1 in the Superior Court of the State of Arizona and 1 in U.S. District Court of Arizona. These purported class actions were filed in March and April 2020 against the Company, certain current and former officers and directors, and certain underwriters of the Company’s IPO. The state and federal lawsuits each make the same or similar allegations of violations of the Securities Act of 1933, as amended, for allegedly making materially false and misleading statements in, or omitting material information from, our IPO registration statement. The plaintiffs seek unspecified monetary damages and other relief. In addition, we are subject to certain legal ~~proceedings (including, but not limited~~actions which we consider routine to ~~insured claims) and FAA civil action proceedings~~our business activities. As of March 31, 2021, our management believed, after consultation with legal counsel, that the ~~Company does~~ultimate outcome of the two putative class action lawsuits and such other routine legal matters are not ~~believe will~~likely to have a material adverse effect ~~upon its business,~~on our financial ~~condition,~~position, liquidity or results of ~~operations, although no assurance can be given to the ultimate outcome of any such proceedings.~~

~~In February~~On April 15, 2021, the Company was granted $48.6 million in financial assistance by the Department of the Treasury under the Payroll Support Program Extension (“PSP2”) under the Consolidated Appropriations Act of 2021. The Company received the first installment of $24.3 million on February 8, 2021.

The relief payments are conditioned on our agreement to refrain from conducting involuntary employee layoffs or furloughs through March 31, 2021. Other conditions include prohibitions on share repurchases and dividends through March 31, 2022, continuing essential air service as directednotified by the U.S. Department of ~~Transportation~~the Treasury we are eligible to receive funds under the third Payroll Support Program (PSP3) as described in Note 2.

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

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

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

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

Mesa Airlines is a regional air carrier providing scheduled flight service to ~~116~~112 cities in 4238 states, the District of Columbia, ~~the Bahamas,~~ and Mexico as well as cargo services out of Cincinnati/Northern Kentucky International Airport. All of our flights are operated as either American Eagle, United Express, or DHL Express flights pursuant to the terms of capacity purchase agreements entered into with American Airlines, Inc. (“American”), and United Airlines, Inc. (“United”), and DHL Express pursuant to the terms of a Flight Services Agreement (“FSA”) with DHL Network Operations (USA), Inc. (each, our "major airline partner"). We have a significant presence in several of our major airline partners' key domestic hubs and focus cities, including Dallas, Houston, Phoenix and Washington-Dulles.

As of ~~December~~March 31, ~~2020,~~2021, we operated, under the Capacity Purchase Agreements, FSA or as spare, a fleet of ~~159~~163 aircraft with approximately ~~420~~440 daily departures. We operate 5445 CRJ-900 aircraft under our capacity purchase agreement with American (our "American Capacity Purchase Agreement") and ~~20 CRJ-700,~~ 60 E-175 and 1216 E-175LL aircraft under our capacity purchase agreement with United (our "United Capacity Purchase Agreement"). We operate 2 Boeing 737- F400 aircraft under the Flight Services Agreement with DHL Network Operations. For the three months ended ~~December~~March 31, ~~2020,~~2021, approximately 53% of our aircraft in scheduled service were operated for United, approximately ~~46%~~45% were operated for American and 1%2% were operated for DHL. All of our operating revenue in our ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 was derived from operations associated with our American and United Capacity Purchase Agreements and DHL Flight Services ~~Agreement~~.Agreement.

Our long-term capacity purchase agreements provide us guaranteed monthly revenue for each aircraft under contract, a fixed fee for each block hour (the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination) and flight actually flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying on behalf of our major airline partners. Our capacity purchase agreements 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.

On January 30, 2020 the World Health Organization declared an outbreak of a highly contagious form of an upper respiratory infection caused by COVID-19, a novel coronavirus strain commonly referred to as “coronavirus”. In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread, including in all of the markets in which we operate. The COVID-19 outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses; “shelter in place” and other governmental regulations; reduced spending due to both job losses and other effects attributable to COVID-19; and an unprecedented decline in air travel.

The rapid spread of COVID-19 and the related travel restrictions and social distancing measures implemented throughout the world have significantly reduced demand for air travel. This reduction in demand has had an unprecedented and materially adverse impact on our revenues and financial position. During the three months ended December 31, 2020, we experienced a decrease in contract revenue primarily related to lower flying on our CRJ-900, CRJ-700, and E-175 fleets due to the impact of COVID-19. The funds the Company received under the Payroll Support Program and its Loan and Guarantee Agreement with the Treasury, coupled with the Company’s diligent cost saving, has helped to partially offset the negative impacts of COVID-19 on the Company’s business. While we are planning for a modest demand recovery in fiscal 2021, the exact timing and pace of the recovery back to pre-COVID 19 is uncertain given the significant impact of the pandemic on the overall U.S. and global economy. Since a portion of our revenue is fixed due to the structure of our capacity purchase agreements, the impact to Mesa has been and will likely continue to be less severe notwithstanding the significant reduction in our scheduled flying. In addition, we have limited exposure to fluctuations in passenger traffic, ticket and fuel prices. The initiatives and measures put in place to limit the spread of the virus has and will continue to have a material adverse impact on our business, financial position and results of operations.

~~Balance Sheet, Cash Flow and Liquidity.~~ ~~As of December 31, 2020, our cash and cash equivalents balance was $181.3 million.~~

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

Our condensed 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, and certain maintenance costs related to our E-175 aircraft.

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

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

Maintenance. Maintenance expense includes ~~costs related to engine overhauls, airframe, landing gear~~routine repair and ~~normal recurring~~ maintenance ~~which includes pass-through~~and heavy maintenance costs ~~related~~for airframes, engines, auxiliary power units and landing gears. Maintenance costs are expensed as incurred, except for certain maintenance contracts where labor and materials price risks have been transferred to ~~our E-175 aircraft,~~the service provider and require payment on a utilization basis, such as ~~well as~~flight hours. Costs incurred for maintenance ~~lease return obligations on our leased aircraft when~~and repair for utilization maintenance contracts where labor and materials price risks have been transferred to 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. Our maintenance policy is determined by fleet when major maintenance is incurred. As a result of using the direct expense method, the timing ofservice provider are charged to maintenance expense ~~reflected in the financial statements may vary significantly period to period.~~based on contractual payment terms.

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

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

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

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

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

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

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

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

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

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

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

Three Months Ended ~~December~~March 31, ~~2020~~2021 Compared to Three Months Ended ~~December~~March 31, ~~2019~~2020

We had operating income of ~~$27.0~~$16.8 million in our three months ended ~~December~~March 31, ~~2020~~2021 compared to operating income of ~~$27.2~~$13.9 million in our three months ended ~~December~~March 31, ~~2019.~~2020. In our three months ended ~~December~~March 31, ~~2020,~~2021, we had net income of ~~$14.1~~$5.7 million compared to net income of ~~$10.8~~$1.9 million in our three months ended ~~December~~March 31, ~~2019.~~2020. Our operating results for the three months ended ~~December~~March 31, ~~2020~~2021 reflected a decrease in contract revenue ~~primarily~~due to reduced rates to partners related to PSP2 and lower flying on our CRJ-900, CRJ-700, and E-175 fleet due to the impact of ~~COVID-19 and an increase in pass-through and other revenues primarily due to an increase in maintenance pass-through expense.~~COVID-19.

Flight operations expense decreased in the three months ended ~~December~~March 31, ~~2020~~2021 due to lower pilot and flight attendant wages and pilot training expenses. Our maintenance expense decreased primarily due to fewer ~~airframe C-checks and~~heavy engine ~~heavy~~ maintenance events and lower component contracts, parts, and labor expense, offset by higher c-check expense and pass-through maintenance. ~~Our aircraft~~Aircraft rent expense decreased ~~in the three months ended December 31, 2020 compared to the same period in 2019~~ primarily due fewer leased engines. In addition, general and administrative expense decrease as a result of ~~a decrease in engine rent.~~ lower pass-through property taxes. Lastly, we recognized the Federal Grant received through the Payroll Support Agreement under the CARES Act with the U.S. Department of the Treasury.

	Three Months Ended December 31,									Three Months Ended March 31,
	2020		2019		Change					2021		2020		Change
Operating revenues ($ in thousands):
Contract	$	127,158	$	171,800	$	(44,642	)	(26.0	)%	$	81,712	$	165,781	$	(84,069	)	(50.7	)%
Pass-through and other		23,213		12,236		10,977		89.7	%		15,568		14,115		1,453		10.3	%
Total operating revenues	$	150,371	$	184,036	$	(33,665	)	(18.3	)%	$	97,280	$	179,896	$	(82,616	)	(45.9	)%

Operating data:
Available seat miles—ASMs (thousands)		1,670,943		2,735,386		(1,064,443	)	(38.9	)%		1,771,498		2,611,940		(840,442	)	(32.2	)%
Block hours		69,247		115,562		(46,315	)	(40.1	)%		73,942		108,305		(34,363	)	(31.7	)%
Revenue passenger miles—RPMs (thousands)		1,171,411		2,151,593		(980,182	)	(45.6	)%		1,148,498		1,785,153		(636,655	)	(35.7	)%
Average stage length (miles)		637		573		64		11.2	%		690		619		71		11.5	%
Contract revenue per available seat mile—CRASM (in cents)	¢7.61		¢ 6.28		¢ 1.33			21.2	%	¢ 4.61		¢ 6.35		¢ 1.74			(27.4	)%
Passengers		1,829,714		3,697,138		(1,867,424	)	(50.5	)%		1,684,043		2,838,412		(1,154,369	)	(40.7	)%

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

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

“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.

Total operating revenue decreased by ~~$33.7~~$82.6 million, or ~~18.3%~~45.9%, to ~~$150.4~~$97.3 million for our three months ended ~~December~~March 31, ~~2020~~2021 as compared to our three months ended ~~December~~March 31, ~~2019.~~2020. Contract revenue decreased by ~~$44.6~~$84.1 million, or ~~26.0%~~50.7%, to ~~$127.2~~$81.7 million primarily due to a decrease in flying on our CRJ-900, CRJ-700, and E-175 ~~fleet.~~fleet as a result of the impact of COVID-19, temporary reduced rates to our partners and flying fewer aircraft under the American CPA. Our block hours flown during our three months ended ~~December~~March 31, ~~2020~~2021, decreased ~~40.1%~~31.7% compared to the three months ended ~~December~~March 31, ~~2019~~2020 due to decreased flying on all our fleets. Our pass-through and other revenue increased during our three months ended ~~December~~March 31, ~~2020~~2021 by ~~$11.0~~$1.5 million, or ~~89.7%~~10.3%, to ~~$23.2~~$15.6 million primarily due to pass-through maintenance revenue related to our E-175 fleet. In addition, the decrease is attributable to reduced rates to partners related to PSP2 and fewer aircraft operating under the Amended and Restated American Purchase Agreement

	Three Months Ended December 31,										Three Months Ended March 31,
	2020			2019		Change					2021			2020		Change
Operating expenses ($ in thousands):
Flight operations	$	36,964		$	52,644	$	(15,680	)	(29.8	)%	$	37,403		$	52,891	$	(15,488	)	(29.3	)%
Fuel		390			169		221		130.8	%		198			188		10		5.3	%
Maintenance		52,864			58,095		(5,231	)	(9.0	)%		51,773			64,335		(12,562	)	(19.5	)%
Aircraft rent		10,048			11,329		(1,281	)	(11.3	)%		9,992			12,285		(2,293	)	(18.7	)%
Aircraft and traffic servicing		901			1,064		(163	)	(15.3	)%		743			1,336		(593	)	(44.4	)%
General and administrative		13,073			12,996		77		0.6	%		11,164			14,500		(3,336	)	(23.0	)%
Depreciation and amortization		20,470			20,552		(82	)	(0.4	)%		20,705			20,469		236		1.2	%
CARES Act grant recognition		(11,311	)		—		(11,311	)	100.0	%
Lease termination												4,508			—		4,508		100.0	%
Government grant recognition												(55,967	)		—		(55,967	)	100.0	%
Total operating expenses	$	123,399		$	156,849	$	(33,450	)	(21.3	)%	$	80,519		$	166,004	$	(85,485	)	(51.5	)%

Operating data:
Available seat miles—ASMs (thousands)		1,670,943			2,735,386		(1,064,443	)	(38.9	)%		1,771,498			2,611,940		(840,442	)	(32.2	)%
Block hours		69,247			115,562		(46,315	)	(40.1	)%		73,942			108,305		(34,363	)	(31.7	)%
Average stage length (miles)		637			573		64		11.2	%		690			619		71		11.5	%
Departures		35,344			62,725		(27,381	)	(43.7	)%		35,344			55,435		(20,091	)	(36.2	)%

Flight Operations. Flight operations expense decreased ~~$15.7~~$15.5 million, or ~~29.8%~~29.3%, to ~~$37.0~~$37.4 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The decrease was primarily driven by a decrease in pilot and flight attendant wages due to lower block hours as well as pilot training related costs.

Fuel. Fuel expense increased ~~$0.2~~$0.01 million, or ~~130.8%~~5.3%, to ~~$0.4~~$0.2 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The increase was primarily driven by fuel expense related to ~~the delivery of 12 new E-175 aircraft.~~c-checks. All fuel costs related to flying under our capacity purchase agreements during our three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 were directly paid to suppliers by our major airline partners.

Maintenance. Aircraft maintenance costs decreased ~~$5.2~~$12.6 million, or ~~9.0%~~19.5%, to ~~$52.9~~$51.8 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. This decrease was primarily driven by a decrease in engine overhaul, ~~airframe C-Check,~~ component contracts, parts, and labor and other expense. This ~~increase~~decrease was partially offset by an increase in c-check, pass-through c-check, and pass-through engine overhaul expense. Total pass-through maintenance expenses reimbursed by our major airline partners increased by ~~$12.5~~$2.3 million during our three months ended ~~December~~March 31, ~~2020.~~2021.

The following table presents information regarding our maintenance costs during the three months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Three Months Ended December 31,									Three Months Ended March 31,
	2020		2019		Change					2021		2020		Change
Engine overhaul	$	4,753	$	8,751	$	(3,998	)	(45.7	)%	$	4,709	$	13,794	$	(9,085	)	(65.9	)%
Pass-through engine overhaul		9,633		1,851		7,782		420.4	%		2,173		704		1,469		208.7	%
C-check		2,958		6,051		(3,093	)	(51.1	)%		8,506		6,640		1,866		28.1	%
Pass-through C-check		7,138		1,220		5,918		485.1	%		5,603		3,873		1,730		44.7	%
Component contracts		5,787		9,687		(3,900	)	(40.3	)%		6,370		9,395		(3,025	)	(32.2	)%
Rotable and expendable parts		5,318		7,405		(2,087	)	(28.2	)%		5,064		7,461		(2,397	)	(32.1	)%
Other pass-through		3,112		4,337		(1,225	)	(28.2	)%		3,658		4,511		(853	)	(18.9	)%
Labor and other		14,165		18,793		(4,628	)	(24.6	)%		15,690		17,957		(2,267	)	(12.6	)%
Total	$	52,864	$	58,095	$	(5,231	)	(9.0	)%	$	51,773	$	64,335	$	(12,562	)	(19.5	)%

Aircraft Rent. Aircraft rent expense decreased ~~$1.3~~$2.3 million, or ~~11.3%~~18.7%, to $10.0 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The decrease is attributable a ~~$1.3~~$2.3 million decrease in engine rent due to fewer leased engines.

Aircraft and Traffic Servicing. Aircraft and traffic servicing expense decreased ~~$0.2~~$0.6 million, or ~~15.3%~~44.4%, to ~~$0.9~~$0.7 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The decrease is primarily due to a decrease in interrupted trip expense and pass-through regulatory ~~charges, and was partially offset by an increase in reimbursable fuel expense related to the delivery of new E-175s.~~charges. For our three months ended ~~December~~March 31, 2021 and 2020, 49.9% and ~~2019, 58.7% and 42.2%~~32.0%, respectively, of our aircraft and traffic servicing expenses were reimbursed by our major airline partners.

General and Administrative. General and administrative expense ~~increased $0.08~~decreased $3.3 million, or ~~0.6%~~23.0%, to ~~$13.1~~$11.2 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The ~~increase~~decrease is primarily due to ~~an increase~~a decrease in pass-through property ~~tax, legal, and insurance expense, offset by lower wage expense.~~tax. For our three months ended ~~December~~March 31, 2021 and 2020, ~~and 2021, $4.5~~$2.9 million and ~~$4.4~~$4.9 million, respectively, of our insurance and property tax expenses were reimbursed by our major airline partners.

Depreciation and Amortization. Depreciation and amortization expense ~~decreased $0.08~~increased $0.2 million, or ~~0.4%~~1.2%, to ~~$20.5~~$20.7 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The ~~decrease~~increase is primarily attributable to ~~a decrease~~an increase in rotable inventory and spare engines depreciation expense, partially offset by ~~an increase~~a decrease in ~~aircraft enhancement and spare engine depreciation.~~amortization of intangibles expense.

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

Government grant recognition. Payroll Support Government Plan funds increased ~~$11.3~~$56.0 million, or 100.0%, to ~~$11.3~~$56.0 million for our three months ended ~~December~~March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. Under the CARES Act, the government provided the Company with a grant of ~~$95.2~~$56.0 million in payroll support for the period of ~~April~~December 2020 through ~~October 2020, of which $11.3 million was recognized as of December 31, 2020.~~March 2021.

Other expense decreased ~~$4.6~~$1.5 million, or ~~35.4%~~14.2%, to ~~$8.3~~$9.2 million for our three months ended ~~December~~March 31, ~~2020,~~2021, compared to the same period in ~~2019.~~2020. The decrease is primarily a result of a decrease in interest expense due to lower interest rates on our loan agreement with ~~United States~~U.S. Department of Treasury and a decrease in outstanding aircraft principal balances. Additionally, in the three months ended December 31, 2020, we had a gain on extinguishment of debt of $1.0 million, due to a $3.5 million benefit related to paying off Export Development Canada aircraft debt early and a $2.6 million write-off of financing fees

The Company's effective tax rate (ETR) from continuing operations was ~~25.5%~~24.9% for the three months ended ~~December~~March 31, ~~2020~~2021 and ~~24.7%~~40.9% for the three months ended ~~December~~March 31, ~~2019.~~ 2020. The Company's ETR during the three months ended March 31, 2021 was different from the U.S. federal statutory rate of 21% primarily due to permanent book and tax deductible expense differences, vesting of stock compensation where the tax deduction differed from the book expense, state taxes, changes in the valuation allowance against state net operating losses, and changes in state apportionment and state statutory rates. We continue to maintain a valuation allowance on a portion of our state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.

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

The income tax provision for the three months ended December 31, 2020 results in an effective tax rate of 25.5% which differs from the U.S. federal statutory rate of 21% primarily due to permanent book and tax deductible expense differences, state taxes, changes in the valuation allowance against state net operating losses, routine stock vestings and exercises, and changes in state apportionment and state statutory rates. We continue to maintain a valuation allowance on a portion of our state net operating losses in jurisdictions with shortened carryforward periods or in jurisdictions where our operations have significantly decreased as compared to prior years in which the net operating losses were generated.

As of September 30, 2020, the Company had aggregate federal and state net operating loss carryforwards of $512.4 million and $223.9 million, respectively, which expire in 2027-2038 and 2021-2040, respectively. Approximately ~~$3.1~~$0.7 million of state net operating loss carryforwards ~~expired~~are expected to expire in the current year.

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

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

	Six Months Ended March 31,
	2021		2020		Change
Operating revenues ($ in thousands):
Contract	$	208,870	$	337,580	$	(128,710	)	(38.1	)%
Pass-through and other		38,781		26,351		12,430		47.2	%
Total operating revenues	$	247,651	$	363,931	$	(116,280	)	(32.0	)%

Operating data:
Available seat miles—ASMs (thousands)		3,442,441		5,347,325		(1,904,884	)	(35.6	)%
Block hours		143,189		223,866		(80,677	)	(36.0	)%
Revenue passenger miles—RPMs (thousands)		2,319,909		3,936,747		(1,616,838	)	(41.1	)%
Average stage length (miles)		664		595		69		11.6	%
Contract revenue per available seat mile—CRASM (in cents)	¢ 6.07		¢ 6.31		¢ (0.24)			(3.8	)%
Passengers		3,513,757		6,535,550		(3,021,793	)	(46.2	)%

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

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

Total operating revenue decreased by $116.3 million, or 32.0%, to $247.7 million for our six months ended March 31, 2021 as compared to our six months ended March 31, 2020. Contract revenue decreased by $128.7 million, or 38.1%, to $208.9 million primarily due to a decrease in flying on our CRJ-900, CRJ-700, and E-175 fleet as a result of the impact of COVID-19, temporary reduced rate to our partners and flying fewer aircraft under the American CPA. Our block hours flown during our six months ended March 31, 2021 decreased 36.0% compared to the six months ended March 31, 2020 primarily due to decreased flying on our CRJ-900, CRJ-700, and E-175 fleets. Our pass-through and other revenue increased during our six months ended March 31, 2021 by $12.4 million, or 47.2%, to $38.8 million primarily due to pass-through maintenance revenue related to our E-175 fleet. In addition, the decrease is attributable to reduced rates to partners related to PSP2 and fewer aircraft operating under the Amended and Restated American Purchase Agreement.

	Six Months Ended March 31,
	2021			2020		Change
Operating expenses ($ in thousands):
Flight operations	$	74,367		$	105,535	$	(31,168	)	(29.5	)%
Fuel		588			358		230		64.2	%
Maintenance		104,637			122,430		(17,793	)	(14.5	)%
Aircraft rent		20,040			23,614		(3,574	)	(15.1	)%
Aircraft and traffic servicing		1,644			2,400		(756	)	(31.5	)%
General and administrative		24,237			27,496		(3,259	)	(11.9	)%
Depreciation and amortization		41,175			41,021		154		0.4	%
Lease termination		4,508			—		4,508		100.0	%
Government grant recognition		(67,278	)		—		(67,278	)	100.0	%
Total operating expenses	$	203,918		$	322,854	$	(118,936	)	(36.8	)%

Operating data:
Available seat miles—ASMs (thousands)		3,442,441			5,347,325		(1,904,884	)	(35.6	)%
Block hours		143,189			223,866		(80,677	)	(36.0	)%
Average stage length (miles)		664			595		69		11.6	%
Departures		182,557			118,160		64,397		54.5	%

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

Fuel.Fuel expense increased $0.2 million, or 64.2%, to $0.6 million for our six months ended March 31, 2021 compared to the same period in 2020. The increase was primarily driven by fuel expense related to the delivery of the new E-175 aircraft. All fuel costs related to flying under our capacity purchase agreements during our six months ended March 31, 2021 and 2020 were directly paid to suppliers by our major airline partners.

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

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

	Six Months Ended March 31,
	2021		2020		Change
Engine overhaul	$	9,462	$	22,545	$	(13,083	)	(58.0	)%
Pass-through engine overhaul		11,806		2,555		9,251		362.1	%
C-check		11,464		12,692		(1,228	)	(9.7	)%
Pass-through C-check		12,741		5,093		7,648		150.2	%
Component contracts		12,157		19,082		(6,925	)	(36.3	)%
Rotable and expendable parts		10,382		14,866		(4,484	)	(30.2	)%
Other pass-through		6,770		8,848		(2,078	)	(23.5	)%
Labor and other		29,855		36,749		(6,894	)	(18.8	)%
Total	$	104,637	$	122,430	$	(17,793	)	(14.5	)%

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

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

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

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

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

Government grant recognition. Payroll Support Government Plan funds increased $67.3 million, or 100.0%, to $67.3 million for our six months ended March 31, 2021 compared to the same period in 2020. Under the CARES Act, the government provided the Company with a grant of $56.0 million in payroll support for the period of December 2020 through March 2021. We also recognized $11.3 million of the grant amount received for the period of April through October 2020 as of December 31, 2020.

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

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

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

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

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

	Three Months Ended December 31,						Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2021			2020			2021			2020
Reconciliation:
Net income	$	14,118		$	10,785		$	5,689		$	1,885		$	19,807		$	12,670
Income tax expense		4,821			3,535			1,890			1,307			6,711			4,842
Income before taxes	$	18,939		$	14,320		$	7,579		$	3,192		$	26,518		$	17,512
Adjustments⁽¹⁾⁽²⁾		(950	)		—			4,508			—			3,558			—
Adjusted income before taxes		17,989			14,320			12,087			3,192			30,076			17,512
Interest expense		9,082			12,628			8,755			11,673			17,837			24,300
Interest income		(126	)		(58	)		(79	)		(36	)		(205	)		(94	)
Depreciation and amortization		20,470			20,552			20,705			20,469			41,175			41,021
Adjusted EBITDA	$	47,415		$	47,442		$	41,468		$	35,298		$	88,883		$	82,739
Aircraft rent		10,048			11,329			9,992			12,285			20,040			23,614
Adjusted EBITDAR	$	57,463		$	58,771		$	51,460		$	47,583		$	108,923		$	106,353

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

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

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures, aircraft pre-delivery payments, maintenance, aircraft rent and to pay debt service obligations, including principal and interest payments. Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events. Our principal sources of liquidity are the cash grant we received under the payroll support ~~program~~programs (PSP, PSP2, PSP3) and the Loan and Guarantee Agreement we entered into with the Treasury (the “US Treasury

Loan Agreement”), each under the CARES Act, cash on hand, cash generated from operations and funds from external borrowings. During the three months ended December 31, 2020, the Company secured a $195 million five-year interest only loan from the US Treasury and received a prepayment of $81.5 million from our major airline partner United Airlines, which were used to pay down existing long-term debts.borrowings.

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

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

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

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

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures are primarily directed toward our aircraft fleet and flight equipment. Our capital expenditures, net of purchases of rotable spare parts and aircraft and spare engine financing for ~~three~~the six months ending ~~December 31,2020~~March 31,2021 is approximately ~~0.3%~~0.9% of annual revenue, which is lower compared to our historical expense as the Company is focusing on cost savings due to COVID 19 pandemic impact on the airline industry. We expect to incur capital expenditures to support our business activities. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

As of ~~December~~March 31, ~~2020,~~2021, our principal sources of liquidity were cash and cash equivalents of ~~$181.3~~$147.9 million. In addition, we had restricted cash of ~~$3.6~~$3.4 million as of ~~December~~March 31, ~~2020.~~2021. As of ~~December~~March 31, ~~2020,~~2021, we also had ~~$738.7~~$718.2 million in secured indebtedness incurred primarily in connection with our financing of ~~35 total~~ aircraft. As of ~~December~~March 31, ~~2020,~~2021, we had ~~$146.1~~$101.8 million of short-term debt, excluding capital leases, and ~~$620.1~~$618.0 million of long-term debt excluding capital leases.

As of ~~December~~March 31, ~~2020,~~2021, we had ~~$3.6~~$3.4 million in restricted cash. We have an agreement with a financial institution for letter of credit facility and to issue letters of credit for particular airport authorities, worker's compensation insurance, property and casualty insurance and other business needs as required in certain lease agreements. Pursuant to the term of this agreement, ~~$3.6~~$3.4 million of outstanding letters of credit are required to be collateralized by amounts on deposit.

The following table presents information regarding our cash flows for each of the ~~three~~six months ended ~~December~~March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Three Months Ended December 31,						Six Months Ended March 31,
	2020			2019			2021			2020
Net cash provided by operating activities	$	79,273		$	38,230		$	78,575		$	65,202
Net cash used in investing activities		(1,773	)		(12,828	)		(11,675	)		(24,773	)
Net cash provided by financing activities		4,593			(36,692	)
Net increase/(decrease) in cash and cash equivalents		82,093			(11,290	)
Net cash used in financing activities								(18,522	)		(57,090	)
Net increase (decrease) in cash and cash equivalents								48,378			(16,661	)
Cash and cash equivalents at beginning of period		102,841			72,501			102,841			72,501
Cash and cash equivalents at end of period	$	184,934		$	61,211		$	151,219		$	55,840

During our ~~three~~six months ended ~~December~~March 31, ~~2020,~~2021, we had cash flow provided by operating activities of ~~$79.3~~$78.6 million. We had net income of ~~$14.1~~$19.8 million adjusted for the following significant non-cash items: depreciation and amortization of ~~$20.5~~$41.2 million, stock-based compensation of ~~$0.9~~$1.7 million, deferred income taxes of ~~$4.8 million, deferred revenue of $5.8~~$6.6 million, amortization of deferred credits of ~~$(0.8)~~$(2.3) million, amortization of debt discount and issuance costs of $5.0 million, gain on extinguishment of debt of $(1.0) million, loss on contract termination of $4.5 million. We had a net change of $2.9 million within other net operating assets and liabilities largely driven by an increase in accounts payable, deferred revenue and decrease in accrued liabilities during our six months ended March 31, 2021.

During our six months ended March 31, 2020, we had cash flow provided by operating activities of $65.2 million. We had net income of $12.7 million adjusted for the following significant non-cash items: depreciation and amortization of $41.0 million, stock-based compensation of $2.5 million, deferred income taxes of $4.5million, amortization of deferred credits of $(2.0) million, amortization of debt financing costs and accretion of interest on non-interest bearing subordinated notes of ~~$1.9~~$2.1 million ~~gain~~and $0.5 million loss on ~~extinguishment~~disposal of ~~debt of $(1.0) million.~~assets. We had a net change of ~~$33.1~~$3.9 million within other net operating assets and liabilities largely driven by an increase in ~~current portion of deferred revenue~~accrued liability during our ~~three~~six months ended ~~December~~March 31, 2020.

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

During our six months ended March 31, 2020, net cash flow used in investing activities totaled ~~$1.8~~$24.8 million. We invested ~~$1.8~~$3.6 million in ~~tools~~aircraft improvements, $7.6 million in inventory, $1.7 million in miscellaneous projects and ~~equipment.~~$11.8 million in net returns and payments on equipment and other deposits.

During our ~~three~~six months ended ~~December~~March 31, ~~2020,~~2021, net cash flow ~~provided by~~used in financing activities was ~~$4.6~~$18.5 million. We received $195.0 million of proceeds from our US Treasury Loan Agreement. We made ~~$(189.1)~~$212.0 million of principal repayments on long-term debt during the period. We incurred ~~$(1.3)~~$1.3 million of costs related to debt financing.

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

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

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

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

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

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

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2: "Summary of Significant Accounting Policies" to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

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

As of ~~December~~March 31, ~~2020,~~2021, we had ~~$545.8~~$533.8 million of variable-rate debt including current maturities. A hypothetical 50 basis point change in market interest rates would have affected interest expense by approximately $2.7 million in the ~~three~~six months ended ~~December~~March 31, ~~2020.~~2021.

As of ~~December~~March 31, ~~2020,~~2021, we had ~~$203.1~~$192.2 million of fixed-rate debt, including current maturities. A hypothetical 50 basis point change in market interest rates would not impact interest expense or have a material effect on the fair value of our fixed-rate debt instruments as of ~~December~~March 31, ~~2020.~~2021.

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

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

We may in the future pursue amendments to our LIBOR-based debt transactions to provide for a transaction mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. As of ~~December~~March 31, ~~2020,~~2021, we had ~~$545.8~~$533.8 million of borrowings based on LIBOR. The replacement of LIBOR with a comparable or successor rate could cause the amount of interest payable on our long-term debt to be different or higher than expected.

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

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

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

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

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

In addition, we are subject to certain legal actions which we consider routine to our business activities. As of ~~December~~March 31, ~~2020,~~2021, our management believed, after consultation with legal counsel, that the ultimate outcome of the two putative class action lawsuits and such other routine legal matters are not likely to have a material adverse effect on our financial position, liquidity or results of operations.

We refer you to documents filed by us with the SEC, specifically "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, which identify important risk factors that could materially affect our business, financial condition and future results. We also refer you to the factors and cautionary language set forth in the section entitled "Cautionary Statements Regarding Forward-looking Statements" of this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the accompanying condensed consolidated financial statements and related notes, should be read in conjunction with such risks and other factors for a full understanding of our operations and financial condition. The risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and herein are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

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

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

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

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets	2

Condensed Consolidated Statements of Operations and Comprehensive Income	3

Condensed Consolidated Statements of Stockholders' Equity	4

Condensed Consolidated Statements of Cash Flows	56

Notes to Condensed Consolidated Financial Statements	67

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2325

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3137

Item 4. Controls and Procedures	3238

PART II – OTHER INFORMATION	3439

Item 1. Legal Proceedings	3439

Item 1A. Risk Factors	3439

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3439

Item 3. Defaults Upon Senior Securities	3439

Item 4. Mine Safety Disclosures	3439

Item 5. Other Information	3439

Item 6. Exhibits	3439

SIGNATURES	3641

Periods Ending March 31,	Total Payments
Remainder of 2021	$	3,276
2022		6,552
2023		6,552
2024		6,552
2025		6,552
Thereafter		28,962
Total	$	58,446

	Three Months Ended December 31,
	2020		2019		$ Change			% Change
Operating lease cost	$	13,839	$	16,784	$	(2,945	)		(17.5	)%

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒

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

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

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

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

Periods Ending December 31,	Total Maturities
Remainder of 2021	$	48,420
2022		9,714
2023		9,563
2024		8,503
2025		1,338
Thereafter		219
Total	$	77,757

	December 31, 2020				September 30, 2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Long-term debt and financing leases, including current maturities(1)	$	746.4	$	777.3	$	743.3	$	768.7

Periods Ending September 30,	Total Payments
2020		47,814
2021		46,007
2022		31,090
2023		13,726
2024		13,185
Thereafter		1,368
Total	$	153,190

Exhibit No.		Exhibit Description

10.1.1**10.1		~~Amended~~Payroll support Program Agreement between The Department of the Treasury and ~~Restated Capacity Purchase Agreement among the Registrant,~~ Mesa Airlines, Inc. ~~and American Airlines, Inc.~~, dated ~~November 19, 2020, effective~~ as of ~~January 1,~~February 3, 2021

10.1.2**		~~First Amendment to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc. and American Airlines, Inc. dated November 19, 2020, effective January 1, 2021~~

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

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

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

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

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	MESA AIR GROUP, INC.

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