Mesa Air Group, Inc.

Welcome, everyone, to Mace's earnings call for its fourth fiscal quarter ended September 30th. This call is being recorded and simultaneously webcast. A replay of this call can be found on our website. On the call with me today are Jonathan Ornstein, Mace's chairman and CEO, Ed Rich, EVP and CEO, Michael Lott, president, and Tarek Zubek, CFO, as well as other members of the management team. Following our prepared remarks, there will be a question and answer session for the self-side analysts. I also want to assure everyone on the call that today's discussion contains forward-looking statements that are based on the company's current expectations and are not a guarantee of future performance. There could be significant risks and uncertainties that cause actual results to differ materially from those reflected by the forward-looking statements. including the risk factors discussed in our reports on file with the SEC. We undertake no duty to update any forward-looking statements. In comparing results today, we will be adjusting all periods to exclude special items. Please refer to our fourth fiscal quarter earnings release. It is available on our website for the reconciliation of our non-GAAP measures. With that, I will turn it over to Jonathan for his opening remarks.

Thank you, Susan. Obviously, this was a difficult quarter for Mesa. Who would have anticipated that coming out of COVID would be more difficult than going into it? As Brad and Tork will cover in more detail, our significantly higher seat cost and span times for the primary driver. Larry Risley, founder of Mesa and my mentor, once told me, in the airline business, something happens every year that happens every 10 years. And beginning in 2020, something happened that happens once a century. The aviation operating environment has been dominated by the pandemic, resulting in massive fluctuations in demand, higher attrition, inflationary pressures, and supply chain disruption. This has presented a set of circumstances unlike what we have seen before that will require innovation and cooperation to address successfully. While we believe industry fundamentals remain intact for the long term, Our expectation is that 2022 is likely to be a pandemic transition year. I'd like to thank all of our employees for their dedication throughout the pandemic as we work through this tough environment and the federal government for the PSP program that allowed us to keep all of our people fully employed. Since it is the end of the fiscal year, I would like to go over some of this year's highlights. First, we added 20 Embraer 175 aircraft to our United Express operation. We put in place a new contract for American to operate 40 of our CRJ 900s for the next five years. We leased 20 CRJ 700s to GoJet, another United Express operator, for a nine-year term. We successfully launched our 737 cargo operation with DHL, and in partnership with United, we entered into agreements with electric aircraft manufacturers Archer Aviation and Art Aerospace. We believe this will lead to significant long-term growth opportunities and make us the industry leaders in green aviation technology. Archer's electric vertical takeoff aircraft is designed for convenient, economical, and low-carbon transportation to United's hubs of airports in congested urban environments like New York, Los Angeles, and Chicago. As part of the transaction, Mesa made an equity investment in the company and received warrants. As of the close on Tuesday, the value of our investment is approximately $15 million on a cost basis of $5 million. We also entered into a purchase agreement for another 40 aircraft and 20 options with deliveries expecting to begin in 2025. Another significant benefit we see is that these small aircraft provide a pathway for our new pilots entering the industry to fly our larger regional jets. In another green initiative, we made an investment in Hart Aerospace alongside United Airlines and Breakthrough Energy Ventures led by Bill Gates. In addition to our investment, we received warrants and entered into a purchase agreement for 100 aircraft and 50 on option with deliveries scheduled to begin in 2026. Part Aerospace is located in Gothenburg, Sweden, plans to be the first provider of all-electric 19-seat commercial regional aircraft. Mesa has previously been the largest operator of 19-seat aircraft, and it is our hope that these highly efficient, environmentally friendly aircraft will allow us to reintroduce service to dozens of cities that lost commercial service over the last 20 years. For example, Farmington, New Mexico, our former headquarters, at one time at over 40 flights a day to five destinations, and currently has no commercial air service. As a result, the 45,000 people of Farmington have been effectively cut off from the national air transportation system. ARTS ES-19 aircraft will reintroduce rural aviation to cities like this with clean, efficient, safe, and reliable transportation. Our investment in these two companies are designed to position Mesa to be the first regional airline to fly electric aircraft and be in the forefront of decarbonizing air travel and reducing our reliance on fossil fuels. This will allow Mesa to have significant growth opportunities and continue to be a leader in introducing new technology to regional aviation. To put this in perspective, Morgan Stanley has estimated that the eVTOL market could grow to $9 trillion when it is fully developed, and we intend on being at the forefront of this development. We have also entered into an agreement with Skydrop, formerly known as Flirty, to operate four drones with an option to acquire up to 500 in total. We believe Skydrop is one of the most technically advanced precision drone delivery systems in the world with its initial focus on food delivery. We are excited about introducing drone delivery and think there is a huge potential market. While carefully limiting our risk, We believe we are pioneering an exciting and potentially high-growth industry of the future. Subsequent to year end, we finalized our agreement with Gramercy Associates Limited, based in London, to develop a European-based joint venture regional airline. Mesa owns 49% of the new venture. The joint venture will be based in Malta, and the certification is expected to be completed in the first half of 2022. We are excited at the potential to bring our regional business model overseas. I'd like to touch on the overall labor situation and the impact of potential shortages going forward. Brad and Tork will be explaining in more detail, but while we are navigating through an uncertain demand environment caused by COVID in 2020-21, the shortages of pilots driven by the federally mandated 1500-hour rule and now exacerbated by early retirements of the major carriers will require our largest focus over the near term. This is an industry-wide problem that needs to be addressed cooperatively with our partners, the FAA, and the federal government, as well as our employees. In response, we increased our recruiting and training efforts back in April and are looking at other strategic initiatives to respond to this potential pilot labor shortage. We believe We are laying the foundation for a strong future by strengthening our airline partnerships and position ourselves at the forefront of environmentally friendly electric aviation. Throughout our history, we have always worked together to come up with creative solutions when we were faced with near-term hurdles and believe this time will be no exception. With that, I'd like to turn the call over to Brad to provide an update on our operational performance this quarter.

Thank you, Jonathan, and good afternoon to everyone. Thank you for joining us today. We remain focused on the health and safety of our people and our customers, and as you would expect, we continue to follow the CDC's latest guidance and are working cooperatively with our major partners to ensure consistency across our network. Our partnerships with United and American remain the cornerstone of our business, and we are committed to not only meeting their performance and capacity objectives, but remain flexible and responsive to often rapidly changing industry conditions. We are pleased to see demand for air travel recovering. In the September quarter, we flew 94,868 block hours, which is a 64.6% increase from last year and an 11.4% above last quarter. Our combined controllable completion factor was 99.7% compared to 100% a year ago. Our current production is below our 2019 levels, primarily driven by our reduction in flying for American as a result of our smaller fleet under contract. Looking ahead to 2022, while demand has been recovering, there continues to be uncertainty as new variants of COVID-19 arise, Our ability to meet our airline partners' demand will likely be dependent upon the severity of the pandemic. Additionally, our industry continues to face significant obstacles, often magnified by the impact of COVID. This includes the rapid changes in demand, employee retention and hiring, increases in the cost of heavy maintenance, often due to supply chain issues and increasing labor costs, and a more expensive overall operating environment due to inflationary pressures. That being said, while we remain focused on solving these difficulties, we are not immune to these industry-wide issues. Let me discuss a few of the issues. In spite of issues obtaining parts and materials, the primary factor driving increased scheduled heavy maintenance expenses is the volume of scheduled fee checks, which are at historical highs and aircraft interior refurbishment upgrades. This also lengthened the time span of our heavy checks, thus impeding our ability to return our aircraft into service and to add additional aircraft into heavy maintenance. The result has been a reduction in the number of spare aircraft to support daily operations. We anticipate elevated costs and seat check times will remain in place into the next fiscal year as the supply chain recovers. It's important to note that these issues are primarily impacting our CRJ 900 fleet. Regarding our United operation, our E-175 fleet remains at 80 aircraft. Our controllable completion factor remains strong throughout the quarter at 99.8%. Our United performance has consistently placed us in the top tier ranking versus our peers, and this quarter was no exception. We have removed all of the CRJ 700s from our operations, and we continue the transition process of leasing these 20 CRJ 700 aircraft to GoJet Airlines as part of the previously announced agreement ending in 2030. 14 of the aircraft have been delivered as of September 30th, 21 with four additional aircraft transitioning in the December quarter. and the two remaining aircraft will be delivered by the end of March of 2022. I'd like to provide a quick update on our American operation, which consists entirely of CRJ900s. Last quarter, we mentioned the issues we faced with our CRJ900 fleet. These aircraft were particularly impacted by part shortages and the timing of heavy maintenance events. Additionally, at the request of American, We added an additional five lines of flying through the summer schedule. This increased capacity extended through mid-August and combined with the additional sea checks, reduced the number of spare aircraft available to the company. As previously mentioned, our sea check volume is at a historical high and more than double the company's normalized scheduled sea check rates. Our DHL operation continues to perform very well operationally. We've completed our first full year of operations. For DHL, our controllable completion factor was 99.26% for the year and our on-time performance rate was 97.65%. Both have exceeded DHL's performance goals and our performance. The third 737 aircraft delivery has been postponed by the lessor due to deliveries and conversion, maintenance, and certification. I'd now like to make some additional comments about our outlook on labor. We remain focused on hiring and training to meet increasing staffing requirements in all of our operational divisions. For pilots, this was exacerbated by an increase in early retirements at the majors and has resulted in higher attrition. While we put our training back into full capacity in May, we have seen further elevated attrition levels over the past 60 days. While we have been able to successfully recruit a sufficient number of new hire pilots and currently have over 200 pilots in training, there is a gap between the resignations and when the new hire training is completed. In addition, we removed five aircraft that had been added for the summer peak from our American operation, and as a result, for the December quarter, We are currently anticipating a block hour reduction in flying of 8% from the September 2021 quarter. Furthermore, we feel like we are very well positioned to be an attractive option for regional pilots through opportunities such as our fleet consists entirely of 76 passenger or narrow body 737 aircraft and does not have turboprop or 50 passenger aircraft. We offer the United Aviate program. We're one of few regional airlines able to offer a direct pathway for our pilots to become a career pilot for United Airlines. Our 737 aircraft. We are the only regional airline offering the opportunity to fly larger aircraft and earn the highest pay in the regional industry. We are well positioned. We have well positioned crew domiciles across the country. that allow our pilots the opportunity to live where they desire and commute easily to work. We're currently offering captain upgrade opportunities. We're actively recruiting from hundreds of aviation schools across the country. We have competitive new hire pay with enhanced bonus opportunities, and we are pursuing other creative initiatives to attract and retain new pilot candidates. With respect to mechanics, while we are continuing to deal with attrition, we have been able to hire a sufficient number to keep pace with attrition thus far. That being said, we continue to remain highly focused in this critical area. As an example, we implemented a new pay scale effective in October of 2021 and implemented other incentive and retention programs. With that, I'd now like to turn the time over to Tork to walk through our financial performance.

Thank you, Brad. Let me do a review of our financial performance and then provide some more detail on our business outlook. After that, I'll discuss our capital outlook and balance sheet. For the fourth quarter of fiscal year 2021, we reported a net loss of $7.5 million, or $0.21 per diluted share, and an adjusted net loss of $2.1 million, or $0.06 per diluted share, excluding the $6.8 million mark-to-market non-cash losses on our investments in equity securities and related impact on our income tax expense. For the full year 2021, we report a net income of $16.6 million, or $0.43 per diluted share, and an adjusted net income of $24.6 million, or $0.64 per diluted share. These adjustments include the aforementioned mark-to-market non-cash losses on investments in equity securities, as well as a loss on a lease termination and a gain on extinguishment of debt. As Brad mentioned, we've been investing in our fleet, getting them through heavy maintenance that has been deferred during COVID-19. Overall, maintenance expense was up $14 million versus prior year. Feed check volumes were double the normal run rate in the quarter. The associated cost was roughly $9 million higher than Q4 2020. Similarly, our rotable and expendable expenses were elevated due to a catch-up on parts removed in fiscal year 2020 that were not needed at lower flying levels but are now being repaired and put back into service to support the higher flying activity. This added another $3 million of expense, net of one-time true-ups with one of our maintenance vendors. Let me review where we are on cash and liquidity. Cash for the quarter, excluding restricted cash, decreased by $59.9 million to $120.5 million. This amount is slightly above where we forecast it to be last quarter. The reduction from Q3 to Q4 was primarily due to planned scheduled debt payments of $45 million, which included a one-time deferred debt payment of $19 million, partner true-ups of roughly $23 million, a $5 million investment in Archer Aviation, a $5 million investment in Hart Aerospace during the quarter, and the purchase of a new spare engine. Total debt at the end of the quarter was $670.3 million, which is down $43.4 million from the prior quarter. Assuming no additional debt, the balance will be reduced by roughly $100 million on average in each of fiscal year 2022 and 2023. This brings the total debt balance down to roughly $470 million at fiscal year end 2023. There was $9 million of CapEx in the quarter, which primarily consisted of the purchase of a new spare engine and rotable spare parts. For fiscal year 2022, we still have four additional new spare engine deliveries and no other major planned capital expenditures. Effective October 21, all temporary partner rate reductions related to PSP are no longer in effect as the PSP program ended at the end of September. Let me now touch on guidance. Although the environment is still recovering, we did want to provide guidance in a few areas. As Brad outlined, our Q1 2022 block hours are anticipated to be 8% lower than the previous quarter. We also anticipate increased pilot training costs as we have our training center at full capacity for new hire training and captain upgrades. And like most regionals, we have enhanced new hire pilot compensation to attract a sufficient number of qualified trainees. Our heavy maintenance expense levels will continue to be elevated for the first two quarters of fiscal year 2022. This includes both an interior refresh program at American as well as our regularly scheduled heavy maintenance visits. For our pass-through maintenance expense, as you know, this has zero P&L impact and is not related to our level of operations. This is more related to the timing of events, so we've provided our best estimates in our press release. We see 2022 as a transitional year, primarily in the first two quarters. We are coming to the end of the elevated seat check activity we've seen in the past year. We see travel demand increasing Given that pilot hiring at major carriers is expected to be at elevated levels, we are focused on making sure we keep our pilot hiring and recruiting activity at full throttle. Our success in this area will have a direct impact upon our financial performance. Now I'd like to turn it back over to Jonathan.

Thank you very much, Tork. We appreciate the financial recap. To sum up, We strengthened our partnership with United through the addition of 20 aircraft and our partnership in electric aviation. We were also able to successfully enter into a new contract with America in the midst of the pandemic. We believe we have a plan to attract and retain qualified employees. We also feel our DHL cargo flying and our European growth plans are just a start as we continue to look for and pursue new growth opportunities. Finally, we remain the low-cost regional airline and intend on being the regional airline leader in decarbonization and electric aircraft. While we certainly face some significant near-term issues, we believe that the fundamentals of our industry remain unchanged over the long term. At this point, operator, please open up the call as I'd be happy to answer any questions that the analysts may have.

Thank you so much. If you would like to ask a question at this time, please press star one on your phone. Unmute your line and record your name as it will be needed to introduce you. Again, to ask a question, please press star one. And our first question comes from Sabi Seitz. Go ahead, please. Your line is open.

Hey, good afternoon, everybody. I'm just a bit confused. If I look at your results relative to your guidance, for this quarter your blocker production came in higher, your kind of recognition of deferred revenue was higher, and some of the non-pass-through engine and sea check maintenance cost estimates were actually lower. What seems to be different maybe is the five American aircraft leaving a little sooner and maybe slower aircraft with GoJet. I'm just kind of curious if, you know, were you expecting a loss, a non-GAAP loss in the September quarter previously? Or, you know, if something else happened during the quarter that drove that? And also, you know, along those lines, if, you know, expect some of these costs to continue for another couple of quarters, do you, you know, should we be expecting non-GAAP losses for a couple more quarters as well?

Savvy, this is Jonathan. I'm going to just give you a high-level view from my perspective in terms of what drove this quarter, and I'll let Tork and Mike maybe chime in. But clearly what drove things here was just the elevated level of heavy maintenance, primarily in sea checks, the cost, the duration, the number. I think it's important to point out that, you know, we have 64 aircraft on property. We're only flying 42. We had five additional aircraft. But in the meantime, we were actually maintaining all of them. And I don't imagine that will not continue. We had a lot of aircraft that were in also, as part of our new agreement with American, we put them through various types of mods, whether it be electric seat mods, interior mods, paint mods. So we were funding an additional, I believe it was five lines of aircraft that otherwise would have either been available for spares or been parked. and the expense of maintaining those aircraft would not be there. So a lot of this is related to that transition into the new American contract, and again, in the higher costs associated with primarily heavy checks that came through. And again, on those sea checks, there were more, they took longer due to supply chain issues, and they were more expensive as a result. Yeah, and Jonathan, maybe I could just add, you know, as not only the sea checks but the there was a an increase in the quarter related to part support which is some of it's tied to the sea check you know when the sea checks are in for that expanded period of time there are you know significant parts expenses that we had uh related to the sea checks and the parts related to the interiors uh like jonathan alluded to we're flying more aircraft uh than um in the cpa some of them to support for spares some of them to support for programs that we're doing with the American fleet. But those are the two major items, the heavy maintenance and the parts support related to them.

That makes sense. And just on that, you know, the non-GAAP, you know, should we be expecting losses for another couple of quarters here, or is there something that changes here in the next couple of quarters?

Well, we're not giving any guidance on earnings, but we, as Tork alluded to, and I think Jonathan did in his, the heavy maintenance, you know, a lot of it was for work that took longer than expected, and that is going to be tailing off in – it'll go through Q1, part of Q2, but then certainly by Q3 and Q4 we'll be through that whole cycle, and we'll probably be under run rate at that point, right? We'll kind of flip to a lower point.

Got it. And if I might just ask, on the pilot front, could you talk about like any color on levels and if this is, you know, what you're seeing a little bit of a transitionary issue, as you mentioned, where, you know, it takes time for the pilots that are in training to catch up? Or do you see this kind of treadmill that you're on lasting quite a bit longer?

I'm going to, I'll make my comment again. I want Brad to give you a more color. Um, you know, during COVID there was, you know, the, the attrition literally went to zero. I mean, when I'm talking zero, you know, six, eight, 10, 12 pilots a month, which for us obviously is, and given the fact that we were flying so much reduced, um, the fact is we also felt that this was not a long-term, uh, this was not going to be long-term that there was when it turned, it would turn. And as we mentioned in the call, we really began back in April. While we still had pilots on voluntary leave, we fired up the training center and started to move forward. The attrition levels increased and then increased again. And I guess at this point, we're not counting on them coming down. I do think that they could moderate somewhat, but to moderate to what would still be considered elevated levels. We're also talking to our partners about it and how we might work together, as I mentioned, too, that we have to work this problem together and just coming up with a solution on how to best handle this due to the fact that there is, in fact, that lag that Brad talked about. And, you know, we need to be able to operate within this new paradigm where the demand for pilots is it appears to be, you know, just very powerful. And, again, it was absolutely exacerbated by the, you know, early retirements that were offered during the pandemic, which effectively accelerated the impact of the pilot shortage, which, you know, I think we all know has been artificially created by government regulation regarding the 1,500-hour rule. But, Brad, do you want to add something on that?

Jonathan, I think you've covered it. I don't have really anything meaningful to add to it. That's the issue.

Thank you, guys.

And our next question comes from Helene Becker. Go ahead, please. Your line is open.

Thanks very much, operator. Right at the second mile, clock goes off. Hi, everybody. Thank you for the time. Just a couple of questions here. To clarify, on the five aircraft that were spares that aren't being flown now, does that Did that free up pilots or did they immediately go into, or did they immediately leave and go to other airlines?

Oh, no, we, the five aircraft were just transitioned out of service. You know, we have had attrition levels that, you know, from best we can tell, and again, this is anecdotal at best, but talking to our partners and talking to other people around the industry, This is not something unique to Mesa by any stretch. At American, for example, our utilization levels, because we did pull the aircraft out, were higher than other carriers. But again, it's a question of how fast can we train versus how many people we lose. It took us a little bit of time to spool up training because it's at least a roughly 90-day footprint at best, and so it just takes time. to catch up with that lag. But as Brad mentioned, we have over 200 pilots in training, and we think that we're going to be able to continue to fulfill our pilot requirements going forward as best we can tell. I mean, the environment is very volatile, and that's for sure.

Gotcha. And then are there issues with people other than pilots that exist? I'm I know you outsource most of your maintenance, and you already talked about that, but are there other issues?

Let me just give you an example where when we say that there's just labor shortages coming out of, we just are, you know, it's amazing. I mean, we have generally fairly high level of attrition within flight attendants. But to give you an example, I mean, this is not even remotely close to the kind of numbers that we've seen attrit out in flight attendants. which, you know, thankfully we can train quickly and we have thousands of applicants. But just to give you an example, one of our partners hired 22 of our flight attendants in eight days. I mean, so their demand levels have exploded. So it's just, like I said, it's a new regime and we just have to come to grips with it. And we are, in fact, acting as fast as we can. But you would never think for a second that you'd be dealing with flight attendant attrition the way it is, and effectively a shortage in flight attendants. Yes, it affects everybody. I want Brad to talk about the next, obviously critical, is highly trained mechanics. Do you want to make a comment?

Look, Helene, I don't think it's any surprise there is pressure on all labor groups. Mechanics are no exception. The The actual numbers, though, we've been able to hire a sufficient number of mechanics to keep pace with attrition. With mechanics, although you're getting an inexperienced mechanic, the training footprint is just not nearly as long as it is with a pilot. Although there is pressure, we've been keeping up on hiring with the other groups. The pilots obviously get more focus and attention because of the demand issues, service supply issues, and the length of the training.

Gotcha. That's very helpful. Thanks, Brad. And just if I can follow up, does the management change at American change anything for you with the American contract?

No, I mean, nothing, certainly nothing contractually, but, you know, I mean, look, you know, Doug and I have been friends since the America West bankruptcy, and certainly we're sorry to see him go. to retire because we viewed him as a friend and an ally. But we've also known Robert Isom for a long time. Brad has worked very closely with their operational people, Devin May. So for the folks that we deal with, I don't see any significant change. We like Doug a lot, both professionally and personally, and wish him the best. I don't think we'll be hurt by it, but I think that the impact will be, you know, it'll be the same. And contractually, there's no change. Do you want to add anything, Brad?

Thank you. Thanks, guys.

Just a reminder that you may still press star 1 and record your name to ask a question. Our next question comes from Mike Linenberg. Go ahead, please. Your line is open.

Oh, hey. Good afternoon, everyone. Hey, um, Jonathan, the European operation, the 49%, so I guess you're going to count for that under the equity method. And when does that start showing up in the P&L? Like what's the ramp up there? I guess there's startup costs maybe, and I don't know if there's some initial CapEx. Can you talk about that? Because I felt like that that was going to be a fiscal year 2022 development.

Well, I'm going to ask Mike to answer that because he has been responsible and taking the lead on the European operations. So I'm going to ask Mike to answer those questions.

Great.

Hi, Mike. So, yeah, this is Mike Lotz. We're expected – you know, we're working with the Maltese regulatory authorities where we're going to have the certificate and be incorporated. We're going through the process of getting a certificate. We expect to get that certificate certainly in – in Q2 in the first, the first half of calendar 22, um, the startup costs will, will be minimum. You know, we're talking not millions of dollars, you know, probably more like hundreds of thousands of dollars to start up. Um, and, uh, you know, we'll be looking for, for customers, uh, in, you know, the coming months and go from there.

Is, um, are you like with respect to staffing and and bringing in pilots and the like is that are you going to run into some of the same is this operation going to run into some of the same issues that we're seeing in the us i know this pilot and mechanic shortage seems to be global like anything on that front that that you're seeing or that you can highlight for us thanks yeah um first of all i want to mention that when mike said we're looking for customers i think that's important because

We intend, our thought there, and our partner's thoughts, is that we're going to bring over to Europe much more of a kind of U.S. model capacity purchase agreement. We've already begun conversations with large carriers to provide that level of service. As you know, the regional business has been truly decimated in Europe. In terms of personnel, I mean, I know I'm probably one of the few people in here to keep harping on the 1,500-hour rule because everyone else feels it's a lost cause, but I just don't see the same issues internationally that you do in the United States because no other country in the world has adopted these rules. You know, we've looked at some situations in other parts of the world as well, and when we talk about pilot shortage, they look at us and say, you know, what shortage? You know, so I think that we feel comfortable with the type of aircraft that we operate there, and it will likely be a regional jet. We don't think that that will be a problem. and we feel that we can hire people and retain and attract people without anywhere near the level of difficulty that we have here. And it's kind of crazy to think of Europe being less regulated in some respects than the United States, but at least when it comes to pilots, that's the case.

Okay. And Jonathan or Mike or Brad, can I just sneak in one last one? You talked about the attrition rate being high. Did you throw out a number? What percent, what you're seeing right now, whether it's pilots or flight attendants, anything on that front would be great. Thanks. And thanks for taking my question.

Yeah. I mean, the pilot numbers are sort of all over the board, although I will tell you they have been increasing since we, you know, I can't say, you know, unfair to say exit COVID, but as COVID had begun to sort of wind down, the numbers went up and it's all been driven by hiring at the major level. You know, and I think that that's really what's driven it. But, you know, we have in the past under high, you know, high levels of attrition where, you know, we've seen numbers in, you know, the 25 to 30 range and occasionally it's popped up a little bit higher than that in terms of total pilots. Again, it's just a question of where do things level off and what happens. But, you know, it's run higher in a couple months, it's run lower, but, you know, It's really hard to say right now because it's going to be dependent upon where things shake out. And the other thing, too, is, you know, I do believe that our partners realize that this is a problem for all of us. There's attrition going on throughout the industry. No one is immune. No one is immune. A lot of regionals, like ourselves, have had to fly lower hours. Actually, I'm not aware of any regional that's flying at the levels that we were back in 2019, according to our partners. We may be the closest at American, but I think the fact of the matter, and to be fair, that's only because we pulled those aircraft out. So, I mean, there's nothing magical there. I think it's really a question of how effective we are at not just retaining pilots but also attracting people. And as one of the drums that we have been beating with our partners is we really need to focus on ways not just to keep people within the United ecosystem or the American ecosystem, but actually to bring people and, you know, sort of refill the reservoir of pilots that, in fact, is being drained with expansion of flying as well as the, you know, all the retirements that are occurring.

Thanks. Thanks, Jonathan. Thanks, everyone.

And we have another question from Savi's site. Go ahead, please. Your line is open.

Hey, thanks. I was just kind of curious on the cargo front. It sounds like you're executing well there. It looks on the fleet plan you're getting that third aircraft as well. Just any update on how you can expand that or what we can expect in the next year or two?

Sure. Clearly, we did not enter the cargo business for three aircraft. I mean, you know, it's just not an efficient operation. You know, there's lots of reasons why it needs to be bigger. You know, in fact, one of the reasons why we got the third aircraft was just because we were nervous about only having two aircraft and not having a spare. Operationally, we found that we did operate with only two airplanes, and we exceeded, I can tell you without a doubt, that we exceeded DHL's expectations over the years. So I think that we are very well positioned for growth. The DHLs of the world, Amazon, they don't add growth willy-nilly. They're very thoughtful. But I think in our conversations with DHLs, they are well aware and are supportive of the fact that for us to be successful long-term, and they've clearly indicated that they want us in the portfolio, and that they've made clear without a doubt that we have to be larger. And, you know, can we go to six airplanes, eight airplanes, 10 airplanes? You know, I would say that it's probably a fair statement that if we're below eight, 10 airplanes, it's hard for us to, you know, really spread our costs around. And I think that, you know, the target for us would be to be at least at that number, you know, over the next few years, um, it won't happen fast. We've made a big investment so far, which clearly has impacted our numbers as well, but they have made it very clear. that they would like to see us remain in the portfolio, and they're going to help us do that.

Perfect. Thank you.

Speakers, I am showing no further questions at this time.

All right. In conclusion, I just want to say finally, it has been a tough quarter for us. My first statement about who would have thought it would be harder to exit COVID than to enter COVID the rapidity at which demand levels, at least domestically, increased, and the fact that majors were anxious to put so much additional capacity. It's not as if it caught us by surprise. It's just that even starting training back in April, while we still had pilots on VOLA, it's just taken time to get back up to the speed that we would like to be at. The situation has been difficult. We've frankly said that attrition levels have still not come down. They are still high, and we are going to continue to work as best we can to make sure that we can provide as many block hours as possible. I think that we feel that we've got these issues to deal with over the near term, but as I mentioned also, we do feel that not only the fundamentals of the industry are intact long term, but we think we've laid a good base here at MESA, and we'll see that benefit over the long term as well. So with that, we appreciate your time. We will continue to work hard to do the best we can. And if you have any additional questions, as always, feel free to call any of us after the call or this week whenever you need to get any additional information. Thank you very much.

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