UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2019
Or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-38626
MESA AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
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) |
Registrant's telephone number, including area code: (602) 685-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
|
Trading Symbol(s) |
|
Name of Each Exchange of Which Registered |
Common Stock, no par value |
|
MESA |
|
Nasdaq Global Select Market |
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.
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
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|
|
|
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
|
|
|
|
|
|
|
Emerging growth company |
☒ |
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 December 31, 2019, the registrant had 33,039,126 shares of common stock, no par value per share, issued and outstanding.
Where You Can Find More Information
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (http://investor.mesa-air.com/), SEC filings, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with our members and public about our company, our products, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.
Cautionary Note Regarding Forward Looking Statements
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.
In some cases, you can identify forward-looking statements by terms such as "may", "should", "expects", "might", "plans", "anticipates", "could", "intends", "target", "projects", "contemplates", "believes", "estimates", "predicts", "potential", "seek", "would", "continue", or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the "Risk Factors" section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. 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:
|
▪ |
the supply and retention of qualified airline pilots; |
|
▪ |
the volatility of pilot attrition; |
|
▪ |
dependence on, and changes to, or non-renewal of, our capacity purchase agreements; |
|
▪ |
increases in our labor costs; |
|
▪ |
reduced utilization (the percentage derived from dividing (i) the number of block hours actually flown during a given month under a particular capacity purchase agreement by (ii) the maximum number of block hours that could be flown during such month under the particular capacity purchase agreement) under our capacity purchase agreements; |
|
▪ |
direct operation of regional jets by our major airline partners; |
|
▪ |
the financial strength of our major airline partners; |
|
▪ |
limitations on our ability to expand regional flying within the flight systems of our major airline partners' and those of other major airlines; |
|
▪ |
our significant amount of debt and other contractual obligations; |
|
▪ |
our compliance with ongoing financial covenants under our credit facilities; and |
|
▪ |
our ability to keep costs low and execute our growth strategies. |
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.
1
Part I – Financial Information
MESA AIR GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts) (Unaudited)
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2019 |
|
|
2019 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,763 |
|
|
$ |
68,855 |
|
Restricted cash |
|
|
3,448 |
|
|
|
3,646 |
|
Receivables, net |
|
|
24,121 |
|
|
|
23,080 |
|
Expendable parts and supplies, net |
|
|
22,400 |
|
|
|
21,337 |
|
Prepaid expenses and other current assets |
|
|
4,502 |
|
|
|
40,923 |
|
Total current assets |
|
|
112,234 |
|
|
|
157,841 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
1,261,267 |
|
|
|
1,273,585 |
|
Intangibles, net |
|
|
9,157 |
|
|
|
9,532 |
|
Lease and equipment deposits |
|
|
4,872 |
|
|
|
2,167 |
|
Operating lease right-of-use assets |
|
|
146,071 |
|
|
|
— |
|
Other assets |
|
|
8,400 |
|
|
|
8,792 |
|
Total assets |
|
$ |
1,542,001 |
|
|
$ |
1,451,917 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt and financing leases |
|
$ |
166,089 |
|
|
$ |
165,900 |
|
Current maturities of operating leases |
|
|
37,674 |
|
|
|
— |
|
Accounts payable |
|
|
47,750 |
|
|
|
49,930 |
|
Accrued compensation |
|
|
10,048 |
|
|
|
11,988 |
|
Other accrued expenses |
|
|
34,350 |
|
|
|
28,888 |
|
Total current liabilities |
|
|
295,911 |
|
|
|
256,706 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
Long-term debt and financing leases, excluding current portion |
|
|
641,017 |
|
|
|
677,423 |
|
Noncurrent operating lease liabilities |
|
|
95,992 |
|
|
|
— |
|
Deferred credits |
|
|
11,032 |
|
|
|
12,134 |
|
Deferred income taxes |
|
|
58,506 |
|
|
|
55,303 |
|
Other noncurrent liabilities |
|
|
1,352 |
|
|
|
24,483 |
|
Total noncurrent liabilities |
|
|
807,899 |
|
|
|
769,343 |
|
Total liabilities |
|
|
1,103,810 |
|
|
|
1,026,049 |
|
Commitments and contingencies (Note 14 and Note 15) |
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock of no par value, 5,000,000 shares authorized; no shares issued and outstanding |
|
|
— |
|
|
|
— |
|
Common stock of no par value and additional paid-in capital, 125,000,000 shares authorized; 33,039,126 (2020) and 31,413,287 (2019) shares issued and outstanding, 1,988,472 (2020) and 3,600,953 (2019) warrants issued and outstanding |
|
|
239,783 |
|
|
|
238,504 |
|
Retained earnings |
|
|
198,408 |
|
|
|
187,364 |
|
Total stockholders' equity |
|
|
438,191 |
|
|
|
425,868 |
|
Total liabilities and stockholders' equity |
|
$ |
1,542,001 |
|
|
$ |
1,451,917 |
|
See accompanying notes to these condensed consolidated financial statements.
2
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
|
|
Three Months Ended December 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Operating revenues: |
|
|
|
|
|
|
|
|
Contract revenue |
|
$ |
171,800 |
|
|
$ |
170,449 |
|
Pass-through and other |
|
|
12,236 |
|
|
|
7,707 |
|
Total operating revenues |
|
|
184,036 |
|
|
|
178,156 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Flight operations |
|
|
52,644 |
|
|
|
53,245 |
|
Fuel |
|
|
169 |
|
|
|
121 |
|
Maintenance |
|
|
58,095 |
|
|
|
39,802 |
|
Aircraft rent |
|
|
11,329 |
|
|
|
14,119 |
|
Aircraft and traffic servicing |
|
|
1,064 |
|
|
|
934 |
|
General and administrative |
|
|
12,996 |
|
|
|
12,214 |
|
Depreciation and amortization |
|
|
20,552 |
|
|
|
18,491 |
|
Total operating expenses |
|
|
156,849 |
|
|
|
138,926 |
|
Operating income |
|
|
27,187 |
|
|
|
39,230 |
|
Other (expenses) income, net: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(12,628 |
) |
|
|
(14,842 |
) |
Interest income |
|
|
58 |
|
|
|
156 |
|
Other (expense) income, net |
|
|
(297 |
) |
|
|
486 |
|
Total other (expense), net |
|
|
(12,867 |
) |
|
|
(14,200 |
) |
Income before taxes |
|
|
14,320 |
|
|
|
25,030 |
|
Income tax expense |
|
|
3,535 |
|
|
|
5,949 |
|
Net income |
|
$ |
10,785 |
|
|
$ |
19,081 |
|
Net income per share attributable to |
|
|
|
|
|
|
|
|
common shareholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.31 |
|
|
$ |
0.55 |
|
Diluted |
|
$ |
0.31 |
|
|
$ |
0.54 |
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
35,023 |
|
|
|
34,518 |
|
Diluted |
|
|
35,182 |
|
|
|
35,113 |
|
See accompanying notes to these condensed consolidated financial statements.
3
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts) (Unaudited)
|
|
Three Months Ended December 31, 2018 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Paid-In |
|
|
Retained |
|
|
|
|
|
||||
|
|
Shares |
|
|
Warrants |
|
|
Capital |
|
|
Earnings |
|
|
Total |
|
|||||
Balance at September 30, 2018 |
|
|
23,902,903 |
|
|
|
10,614,990 |
|
|
$ |
234,683 |
|
|
$ |
139,784 |
|
|
$ |
374,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
1,454 |
|
|
|
— |
|
|
|
1,454 |
|
Stock issuance costs |
|
|
— |
|
|
|
— |
|
|
|
157 |
|
|
|
— |
|
|
|
157 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,081 |
|
|
|
19,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
|
23,902,903 |
|
|
|
10,614,990 |
|
|
$ |
236,294 |
|
|
$ |
158,865 |
|
|
$ |
395,159 |
|
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts) (Unaudited)
|
|
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 |
|
See accompanying notes to these condensed consolidated financial statements.
4
MESA AIR GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
|
|
Three Months Ended December 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,785 |
|
|
$ |
19,081 |
|
Adjustments to reconcile net income to net cash flows provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
20,552 |
|
|
|
18,491 |
|
Stock compensation expense |
|
|
1,320 |
|
|
|
1,454 |
|
Deferred income taxes |
|
|
3,205 |
|
|
|
5,953 |
|
Amortization of deferred credits |
|
|
(1,103 |
) |
|
|
(1,188 |
) |
Unfavorable lease liabilities |
|
|
— |
|
|
|
(1,548 |
) |
Amortization of debt financing costs and accretion of interest on non-interest-bearing subordinated notes |
|
|
1,054 |
|
|
|
1,042 |
|
Loss (Gain) on disposal of assets |
|
|
407 |
|
|
|
(1 |
) |
Provision for obsolete expendable parts and supplies |
|
|
97 |
|
|
|
122 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(1,040 |
) |
|
|
8,275 |
|
Expendable parts and supplies |
|
|
(1,158 |
) |
|
|
(1,866 |
) |
Prepaid expenses and other current assets |
|
|
327 |
|
|
|
(2,042 |
) |
Accounts payable |
|
|
(2,336 |
) |
|
|
(2,829 |
) |
Accrued liabilities |
|
|
5,791 |
|
|
|
(799 |
) |
Change in operating lease right-of- use assets |
|
|
329 |
|
|
|
— |
|
Net cash provided by operating activities |
|
|
38,230 |
|
|
|
44,145 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(10,124 |
) |
|
|
(26,036 |
) |
Sales of investment securities |
|
|
— |
|
|
|
4,947 |
|
Lease and equipment deposits |
|
|
(2,795 |
) |
|
|
— |
|
Returns of lease and equipment deposits |
|
|
91 |
|
|
|
760 |
|
Net cash used in investing activities |
|
|
(12,828 |
) |
|
|
(20,329 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Principal payments on long-term debt and financing leases |
|
|
(36,467 |
) |
|
|
(38,605 |
) |
Debt financing costs |
|
|
(184 |
) |
|
|
(258 |
) |
Stock issuance costs |
|
|
— |
|
|
|
157 |
|
Repurchase of stock |
|
|
(41 |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
(36,692 |
) |
|
|
(38,706 |
) |
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
|
(11,290 |
) |
|
|
(14,890 |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
72,501 |
|
|
|
107,134 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
61,211 |
|
|
$ |
92,244 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
9,440 |
|
|
$ |
12,266 |
|
Cash paid for income taxes, net |
|
$ |
15 |
|
|
$ |
— |
|
Operating lease payments in operating cash flows (1) |
|
$ |
9,534 |
|
|
$ |
— |
|
Supplemental non-cash operating activities |
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange of lease liabilities |
|
$ |
142,165 |
|
|
$ |
— |
|
Supplemental non-cash investing activities |
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
334 |
|
|
$ |
5,635 |
|
See accompanying notes to these condensed consolidated financial statements.
(1 )See section 14 Leases and Commitments.
5
MESA AIR GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
Organization and Operations |
About Mesa Air Group, Inc.
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 144 cities in 41 states, the District of Columbia, Canada, Mexico, Cuba, and the Bahamas. As of December 31, 2019, Mesa operated a fleet of 145 aircraft with approximately 742 daily departures and 3,600 employees. Mesa operates all of its flights as either American Eagle or United Express flights pursuant to the terms of the capacity purchase agreements entered into with American Airlines, Inc. (“American”) and United Airlines, Inc. (“United”).
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 pays a monthly guaranteed amount 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 flown and reimbursement of certain direct operating expenses in exchange for providing regional flying. 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.
American Capacity Purchase Agreement
As of December 31, 2019, the Company operated 60 CRJ-900 aircraft for American under our American 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. 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 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.
Our American Capacity Purchase Agreement will terminate with respect to different tranches of aircraft between 2021 and 2025, unless otherwise extended or amended. As of the date of this filing, we remain in discussions with American regarding the terms of extending the 32 aircraft that are due to expire in 2021 and the 20 aircraft that are due to expire in 2022 and the 7 that expire in 2025. Our American Capacity Purchase Agreement is subject to termination prior to that date, subject to our right to cure, in various circumstances including:
|
▪ |
If either American or we become insolvent, file for bankruptcy or fail to pay our debts as they become due, the non-defaulting party may terminate the agreement; |
|
▪ |
Failure by us or American to perform the covenants, conditions or provisions of our American Capacity Purchase Agreement, subject to 15 days' notice and cure rights; |
|
▪ |
If we are required by the FAA or the DOT to suspend operations and we have not resumed operations within three business days, except as a result of an emergency airworthiness directive from the FAA affecting all similarly equipped aircraft, American may terminate the agreement; |
|
▪ |
If our controllable flight completion factor falls below certain levels for a specified period of time, subject to our right to cure; or |
|
▪ |
Upon a change in our ownership or control without the written approval of American. |
6
In the event that American has the right to terminate our American Capacity Purchase Agreement, American may, in lieu of termination, withdraw up to an aggregate of 14 aircraft from service under our American Capacity Purchase Agreement. Upon any such withdrawal, American's payments to us would be correspondingly reduced by the number of withdrawn aircraft.
On January 31, 2019, the Company entered into an amendment to the American Capacity Purchase Agreement, the terms of which provide for new and revised operational performance metrics, the Company's right to earn additional incentive compensation based on the achievement of such metrics, and the right of American to permanently withdraw up to six (6) aircraft in the event the Company fails to meet such new/revised performance metrics. Under the terms of such amendment the Company agreed, effective April 2, 2019, to convert two (2) aircraft to be utilized by the Company as operational spares in the Company's sole discretion throughout its system. In July 2019, American exercised its right to permanently withdraw two (2) aircraft from the American Capacity Purchase Agreement due to the Company's failure to meet certain performance metrics. The aircraft were removed on November 2, 2019. On November 25, 2019, the Company amended its agreement with American Airlines. The Company did not meet certain performance metrics during the most recent measurement period, which allows American to remove two additional aircraft from the capacity purchase agreement. American has agreed to defer the right to remove these two aircraft but has elected to remove one of two previously deferred aircraft, effective January 2, 2020. As of January 2, 2020 American has removed three (3) of the six (6) aircraft under this amendment and retains the right to permanently withdraw the remaining three (3) aircraft at any time.
United Capacity Purchase Agreement
As of December 31, 2019, the Company operated 20 CRJ-700 and 60 E-175 aircraft for United under our United Capacity Purchase Agreement. 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. We also receive a minimum profit margin based upon our operational performance. Under our United Capacity Purchase Agreement, United owns 42 of the 60 E-175 aircraft and leases them to us at nominal amounts. United reimburses us on a pass-through basis for all costs related to heavy airframe and engine maintenance, landing gear, auxiliary power units ("APUs") and component maintenance for the 42 E-175 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. In addition, if United removes any of our 18 owned E-175 aircraft from service at its direction, United would remain obligated to assume the aircraft ownership and associated debt with respect to such aircraft through the end of the term of the agreement.
On November 26, 2019, we amended and restated our United Capacity Purchase Agreement to, among other things, incorporate the terms of the 11 prior amendments to that Agreement and to extend the term thereof through the addition of twenty (20) new Embraer E175LL aircraft to the scope of such Agreement. These new aircraft will 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 are scheduled to begin in May 2020 and be completed by December 31, 2020. 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 the term of our 42 E-175 aircraft leased from United for an additional five (5) years, which now expire between 2024 and 2028. As part of the amended and restated United Capacity Purchase Agreement, we agreed to lease our twenty (20) 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 over the period between May 2020 and December 2020. United has a right to purchase the CRJ 700 aircraft at the then fair market value. In addition, we own 18 E-175 aircraft that expire in 2028.
7
Our United Capacity Purchase Agreement is subject to early termination under various circumstances noted above and including:
|
▪ |
By United if certain operational performance factors fall below a specified percentage for a specified time, subject to notice under certain circumstances; |
|
▪ |
By United if we fail to perform the material covenants, agreements, terms or conditions of our United Capacity Purchase Agreement or similar agreements with United, subject to thirty (30) days' notice and cure rights; |
|
▪ |
If either United or we become insolvent, file bankruptcy or fail to pay debts when due, the non-defaulting party may terminate the agreement; or |
|
▪ |
By United if we merge with, or if control of us is acquired by another air carrier or a corporation directly or indirectly owning or controlling another air carrier. |
2. |
Summary of Significant Accounting Policies |
Basis of Presentation
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.
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, 2019 included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 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 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.
Adoption of New Lease Standard
Effective October 1, 2019, we have adopted 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. 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 condensed 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.
8
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 lessor, for our aircraft operated under our capacity purchase agreements, we have historically accounted for the non-lease component under ASC 606 and have historically accounted for the lease component under ASC 840. Under the available practical expedient, we have elected to account for the lease and non-lease components as a single component for all classes of underlying assets. As the predominant component of the combined components are the flights services, the leases are being accounted for entirely under ASC 606. 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).
Aircraft Lease
In addition to the aircraft we receive from United under our United Capacity Purchase Agreement, approximately 12% 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 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.
Use of Estimates
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.
Maintenance Expense
The Company operates under a Federal Aviation Administration ("FAA") approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its maintenance of regional jet engine overhauls, airframe, landing gear, and normal recurring maintenance wherein the Company recognizes the expense when the maintenance work is completed, or over the repair period, if materially different. Our maintenance policy is determined by fleet when major maintenance is incurred. For leased aircraft, 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.
9
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.
Engine overhaul expense totaled $10.6 million and $4.1 million for the three months ended December 31, 2019, and 2018, respectively, of which $1.9 million and $1.5 million, respectively, was pass-through expense. Airframe C-check expense totaled $7.3 million and $1.5 million for the three months ended December 31, 2019, and 2018, respectively, of which $1.2 million and $0.0 million, respectively, was pass-through expense
3. |
Recent Accounting Pronouncements |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU introduces a new accounting model known as Credit Expected Credit Losses (“CECL”). CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements.
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 not 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 three months ended December 31, 2019 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, "Leases, Commitments and Contingencies," for more information.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which contains amendments that affect a wide variety of Topics in the Codification, including amendment to Subtopic 718-40, Compensation-Stock Compensation-Income Taxes, that clarifies the timing of when an entity should recognize excess tax benefits. We adopted this standard on October 1, 2019 and it did not have a material impact on our condensed consolidated financial statements.
10
4. |
Concentrations |
At December 31, 2019, the Company had capacity purchase agreements with American and United. All of the Company's condensed consolidated revenue for the three months ended December 31, 2019 and 2018 and accounts receivable at December 31, 2019 and September 30, 2018 was derived from these agreements. The terms of both the American and United capacity purchase agreements are not aligned with the lease obligations on the aircraft performing services under such agreements.
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 past due and records a reserve for amounts estimated to be uncollectible. The allowance for doubtful accounts was $1.8 million and $1.0 million at December 31, 2019 and September 30, 2019, 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 51% and 53% of the Company's total revenue for the three months ended December 31, 2019 and 2018, respectively. United accounted for approximately 49% and 47% of the Company's revenue for the three months ended December 31, 2019 and 2018, 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.
5. |
Intangible Assets |
Information about the intangible assets of the Company at December 31, 2019 and September 30, 2019, were as follows (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2019 |
|
|
2019 |
|
||
Customer relationship |
|
$ |
43,800 |
|
|
$ |
43,800 |
|
Accumulated amortization |
|
|
(34,643 |
) |
|
|
(34,268 |
) |
|
|
$ |
9,157 |
|
|
$ |
9,532 |
|
Total amortization expense recognized was approximately $0.4 million and $0.5 million for the three months ended December 31, 2019 and 2018, respectively. The Company expects to record amortization expense of $1.1 million for the remainder of 2020, and $1.2 million, $1.0 million, $0.9 million, $0.8 million for fiscal years 2021, 2022, 2023, and 2024 respectively.
11
6. |
Balance Sheet Information |
Certain significant amounts included in the Company's condensed consolidated balance sheet as of December 31, 2019 and September 30, 2019, consisted of the following (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2019 |
|
|
2019 |
|
||
Expendable parts and supplies, net: |
|
|
|
|
|
|
|
|
Expendable parts and supplies |
|
$ |
26,455 |
|
|
$ |
25,336 |
|
Less: obsolescence and other |
|
|
(4,055 |
) |
|
|
(3,999 |
) |
|
|
$ |
22,400 |
|
|
$ |
21,337 |
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
Prepaid aircraft rent |
|
$ |
- |
|
|
$ |
35,786 |
|
Deferred offering and reimbursed costs |
|
|
1,664 |
|
|
|
2,092 |
|
Other |
|
|
2,838 |
|
|
|
3,045 |
|
|
|
$ |
4,502 |
|
|
$ |
40,923 |
|
Property and equipment, net: |
|
|
|
|
|
|
|
|
Aircraft and other flight equipment substantially pledged |
|
$ |
1,588,368 |
|
|
$ |
1,582,199 |
|
Other equipment |
|
|
5,122 |
|
|
|
5,122 |
|
Leasehold improvements |
|
|
2,797 |
|
|
|
2,797 |
|
Vehicles |
|
|
945 |
|
|
|
924 |
|
Building |
|
|
699 |
|
|
|
699 |
|
Furniture and fixtures |
|
|
302 |
|
|
|
302 |
|
Total property and equipment |
|
|
1,598,233 |
|
|
|
1,592,043 |
|
Less: accumulated depreciation |
|
|
(336,966 |
) |
|
|
(318,458 |
) |
|
|
$ |
1,261,267 |
|
|
$ |
1,273,585 |
|
|
|
|
|
|
|
|
|
|
Other accrued expenses: |
|
|
|
|
|
|
|
|
Accrued property taxes |
|
$ |
11,018 |
|
|
$ |
9,186 |
|
Accrued interest |
|
|
6,715 |
|
|
|
4,497 |
|
Accrued vacation |
|
|
6,149 |
|
|
|
6,128 |
|
Accrued wheels, brakes and tires |
|
|
3,072 |
|
|
|
1,513 |
|
Other |
|
|
7,396 |
|
|
|
7,564 |
|
|
|
$ |
34,350 |
|
|
$ |
28,888 |
|
Depreciation expense totaled approximately $20.2 million and $18.0 million for the three months ended December 31, 2019 and 2018, respectively.
Prior to the Company’s adoption of Topic 842 on October 1, 2019, the Company recorded amortization of the unfavorable lease liability of approximately $1.5 million for the three months ended December 31, 2018 as a reduction to lease expense. Upon the Company’s adoption of Topic 842, the unfavorable lease liability is now included in its ROU asset balance and amortized therein.
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.
12
The carrying value and estimated fair value of the Company's long-term debt, including current maturities, were as follows (in millions):
|
|
December 31, 2019 |
|
|
September 30, 2019 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
||||
Long-term debt and financing leases, including current maturities(1) |
|
$ |
821.8 |
|
|
$ |
846.9 |
|
|
$ |
858.1 |
|
|
$ |
882.7 |
|
(1) |
Current and prior period long-term debts' carrying and fair values exclude net debt issuance costs. |
8. |
Long-Term Debt, Financing Leases and Other Borrowings |
Long-term debt as of December 31, 2019 and September 30, 2019, consisted of the following (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
2019 |
|
|
2019 |
|
|||
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
aircraft, due 2022(1)(2) |
|
$ |
45,019 |
|
|
$ |
49,795 |
|
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
aircraft, due 2024(3) |
|
|
57,867 |
|
|
|
60,761 |
|
Senior and subordinated notes payable to secured parties, collateralized |
|
|
|
|
|
|
|
|
by the underlying aircraft, due 2027(4) |
|
|
107,940 |
|
|
|
110,912 |
|
Notes payable to secured parties, collateralized by the underlying |
|
|
|
|
|
|
|
|
aircraft, due 2028(5) |
|
|
191,168 |
|
|
|
191,168 |
|
Senior and subordinated notes payable to secured parties, collateralized |
|
|
|
|
|
|
|
|
by the underlying aircraft, due 2028(6) |
|
|
149,283 |
|
|
|
152,945 |
|
Senior and subordinated notes payable to secured parties, collateralized |
|
|
|
|
|
|
|
|
by the underlying aircraft, due 2022(7) |
|
|
65,984 |
|
|
|
71,998 |
|
Senior and subordinated notes payable to secured parties, collateralized |
|
|
|
|
|
|
|
|
by the underlying aircraft, due 2022(8) |
|
|
43,136 |
|
|
|
47,309 |
|
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
equipment, due 2020(9) |
|
|
1,244 |
|
|
|
1,659 |
|
Notes payable to financial institution due 2020(10) |
|
|
1,822 |
|
|
|
2,329 |
|
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
equipment, due 2020(11) |
|
|
5,358 |
|
|
|
6,962 |
|
Other obligations due to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
equipment, due 2023(12) |
|
|
8,162 |
|
|
|
8,530 |
|
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
equipment, due 2024(13) |
|
|
76,037 |
|
|
|
80,153 |
|
Notes payable to financial institution, collateralized by the underlying |
|
|
|
|
|
|
|
|
aircraft, due 2023(14) |
|
|
61,250 |
|
|
|
65,625 |
|
Notes payable to financial institution due 2023 (15) |
|
|
7,503 |
|
|
|
8,000 |
|
Revolving Credit Facility (16) |
|
|
— |
|
|
|
— |
|
Gross long-term debt, including current maturities |
|
|
821,773 |
|
|
|
858,145 |
|
Less unamortized debt issuance costs |
|
|
(14,667 |
) |
|
|
(14,822 |
) |
Net long-term debt, including current maturities |
|
|
807,106 |
|
|
|
843,323 |
|
Less current portion |
|
|
(166,089 |
) |
|
|
(165,900 |
) |
Net long-term debt |
|
$ |
641,017 |
|
|
$ |
677,423 |
|
(1) |
In fiscal 2007, the Company financed three CRJ-900 and three CRJ-700 aircraft for $120.3 million. The debt bears interest at the monthly LIBOR plus 2.25% (4.16% at December 31, 2019) and requires monthly principal and interest payments. |
(2) |
In fiscal 2014, the Company financed ten CRJ-900 aircraft for $88.4 million. The debt bears interest at the monthly LIBOR plus a spread ranging from 1.95% to 7.25% (3.86% to 9.16% at December 31, 2019) and requires monthly principal and interest payments. In fiscal 2018, the Company repaid $40.0 million related to four CRJ-900 aircraft. |
13
(3) |
In fiscal 2014, the Company financed eight CRJ-900 aircraft with $114.5 million in debt. The debt bears interest at 5.00% and requires monthly principal and interest payments. |
(4) |
In fiscal 2015, the Company financed seven CRJ-900 aircraft with $170.2 million in debt. The senior notes payable of $151.0 million bear interest at monthly LIBOR plus 2.71% (4.62% at December 31, 2019) and require monthly principal and interest payments. The subordinated notes payable are noninterest-bearing and become payable in full on the last day of the term of the notes. The Company has imputed an interest rate of 6.25% on the subordinated notes payable and recorded a related discount of $8.1 million, which is being accreted to interest expense over the term of the notes. |
(5) |
In fiscal 2016, the Company financed ten E-175 aircraft with $246.0 million in debt under an EETC financing arrangement (see discussion below). The debt bears interest ranging from 4.75% to 6.25% and requires semi-annual principal and interest payments. |
(6) |
In fiscal 2016, the Company financed eight E-175 aircraft with $195.3 million in debt. The senior notes payable of $172.0 million bear interest at the three-month LIBOR plus a spread ranging from 2.20% to 2.32% (3.96% to 4.08% at December 31, 2019) and require quarterly principal and interest payments. The subordinated notes payable bear interest at 4.50% and require quarterly principal and interest payments. |
(7) |
In June 2018, the Company refinanced six CRJ-900 aircraft with $27.5 million in debt and financed nine CRJ-900 aircraft, which were previously leased, with $69.6 million in debt. The senior notes payable of $65.8 million bear interest at the three-month LIBOR plus 3.50% (5.26 % at December 31, 2019) and require quarterly principal and interest payments. The subordinated notes payable of $29.8 million bear interest at three month LIBOR plus 7.50% (9.26% at December 31, 2019) and require quarterly principal and interest payments. |
(8) |
In December 2017, the Company refinanced nine CRJ-900 aircraft with $74.9 million in debt. The senior notes payable of $46.9 million bear interest at the three-month LIBOR plus 3.50% (5.26% at December 31, 2019) and require quarterly principal and interest payments. The subordinated notes payable bear interest at the three-month LIBOR plus 4.50% (6.26% at December 31, 2019) and require quarterly principal and interest payments. |