10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

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 001-34584

HARBOR DIVERSIFIED, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3697002
(State of incorporation)	(I.R.S. Employer Identification No.)
W6390 Challenger Drive, Suite 203 Appleton, WI	54914-9120
(Address of principal executive offices)	(Zip Code)

(920) 749-4188

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check 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 September 30, 2022, the registrant had 45,652,266 shares of common stock, $0.01 par value, outstanding, and 4,000,000 shares of Series C Convertible Redeemable Preferred Stock, $0.01 par value, outstanding, which are immediately convertible into an additional 16,500,000 shares of common stock. The registrant does not have any class of securities registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act.

HARBOR DIVERSIFIED, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

	Page
Cautionary Note Regarding Forward-Looking Statements		3
Part I. Financial Information		5
Item 1. Financial Statements		5
Consolidated Balance Sheets		5
Consolidated Statements of Operations		6
Consolidated Statements of Stockholders’ Equity		7
Consolidated Statements of Cash Flows		8
Condensed Notes to Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		35
Item 4. Controls and Procedures		36
Part II. Other Information		36
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3. Defaults Upon Senior Securities		49
Item 4. Mine Safety Disclosure		49
Item 5. Other Information		49
Item 6. Exhibits		51
Signatures		52

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the three months ended September 30, 2022 (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements are subject to considerable risks and uncertainties. Forward-looking statements relate to matters such as our industry, business plans and strategies, material contracts, key relationships, consumer behavior, flight schedules and completed flight activity, revenues, expenses, margins, profitability, tax liability, capital expenditures, liquidity, capital resources, and other business and operating information. Forward-looking statements include all statements that are not statements of historical facts, and can be identified by words such as “anticipate,” “approximately,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases in this Quarterly Report. All of our forward-looking statements include assumptions underlying or relating to such statements that may cause actual results to differ materially from those that we are currently expecting, and are subject to considerable risks and uncertainties, including without limitation:

• the dependence of the business of our subsidiary, Air Wisconsin Airlines LLC (“Air Wisconsin”), on a capacity purchase agreement (the “American capacity purchase agreement”) with American Airlines, Inc. (“American”), once all aircraft have been withdrawn from the capacity purchase agreement (the “United capacity purchase agreement”) with United Airlines, Inc. (“United”);

• the possibility that the transition from the United capacity purchase agreement to the American capacity purchase agreement is delayed or more difficult than expected, particularly as a result of Air Wisconsin’s ongoing dispute with United;

• the possibility that Air Wisconsin receives an unfavorable result from the arbitration initiated by United in October 2022 related to certain amounts owed to Air Wisconsin pursuant to the United capacity purchase agreement, or that the parties fail to resolve their dispute prior to receiving a final determination from such arbitration;

• the supply of qualified pilots and mechanics to the airline industry, attrition, and the increasing costs associated with hiring, training and retaining qualified pilots and mechanics;

• the amounts Air Wisconsin is paid or reimbursed under its capacity purchase agreements or any future agreement may be less than the costs incurred, particularly as labor costs increase in response to pilot and mechanic shortages;

• the possibility that United or American could provide Air Wisconsin with inefficient flight schedules, or United or American could change the expected utilization of Air Wisconsin’s aircraft under the applicable capacity purchase agreement;

• the extent to which Air Wisconsin’s current growth opportunities and strategic operating plan are restricted based on factors impacting the airline industry;

• the significant portion of Air Wisconsin’s workforce that is represented by labor unions and the terms of its collective bargaining agreements;

• aircraft and engine maintenance costs;

• Air Wisconsin’s reliance on only one aircraft type, aircraft manufacturer and engine manufacturer, and the potential issuance of operating restrictions on this aircraft or engine type or occurrence of any aviation incident involving either this aircraft or engine type;

• Air Wisconsin’s ability to obtain additional financing may be limited;

• developments associated with fluctuations in the economy, including increased inflation, which may negatively impact our costs, create wages pressures, and impact the financial stability of Air Wisconsin’s major airline partner;

• the impact of losing key personnel or inability to attract additional qualified personnel;

• the negative impact of information technology security breaches and other such infrastructure disruptions on Air Wisconsin’s operations;

• the duration and spread of the ongoing global COVID-19 pandemic and its variants or other potential outbreaks of infectious diseases, and the related impact on the business, results of operations, financial condition and liquidity of Air Wisconsin, United, and American in particular, and the airline industry in general; and

3

• the impact of the application of accounting guidance, including the requirement to recognize a significant amount of revenue under the applicable capacity purchase that had previously been deferred, on our financial condition and results of operations.

The forward-looking statements contained in this Quarterly Report are based on management’s current plans, estimates and expectations in light of information currently available to us, and they are subject to uncertainty and changes in circumstances. Actual results may differ materially from our expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk Factors” within this Quarterly Report and in the other reports we file with the Securities and Exchange Commission (“SEC”).

Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions or estimates prove to be incorrect, our actual results may be different from, and potentially materially worse than, what we may have expressed or implied by these forward-looking statements. Comparisons of results for any current or prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Investors should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report speaks only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by applicable securities laws. We qualify all of our forward-looking statements by these disclaimers.

4

Harbor Diversified, Inc. and Subsidiaries

Consolidated Balance Sheets (in thousands, except shares and par value)

Part I. Financial Information

Item 1. Financial Statements

	September 30, 2022			December 31, 2021
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	19,013		$	37,170
Restricted cash		418			1,449
Marketable securities		130,517			138,370
Accounts receivable, net		33,272			7,422
Notes receivable		60,315			—
Spare parts and supplies, net		4,404			5,200
Contract costs		258			518
Prepaid expenses and other		2,776			4,174
Total Current Assets		250,973			194,303
Property and Equipment
Flight property and equipment		262,237			259,720
Ground property and equipment		7,895			8,252
Less accumulated depreciation and amortization		(163,336	)		(143,313	)
Net Property and Equipment		106,796			124,659
Other Assets
Operating lease right-of-use asset		14,789			18,679
Intangibles		5,300			5,300
Long-term deferred tax asset		616			533
Long-term investments		4,275			4,275
Long-term contract costs		—			96
Long-term notes receivable		—			47,568
Other		1,687			3,988
Total Other Assets		26,667			80,439
Total Assets	$	384,436		$	399,401
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	16,593		$	20,060
Accrued payroll and employee benefits		13,057			14,885
Current portion of operating lease liability		5,078			5,150
Other accrued expenses		253			172
Contract liabilities		3,576			8,098
Deferred revenue		22,318			35,792
Income taxes payable		4,633			—
Current portion of long-term debt (stated principal amount of $7,000 at September 30, 2022 and $3,500 December 31, 2021)		9,224			5,880
Total Current Liabilities		74,732			90,037
Other Long-Term Liabilities
Long-term debt (stated principal amount of $52,100 at September 30, 2022 and $56,000 at December 31, 2021)		56,089			61,670
Long-term promissory note		4,275			4,275
Deferred tax liability		653			688
Long-term operating lease liability		7,100			10,877
Long-term contract liabilities		—			1,326
Deferred revenue, net of current portion		—			9,046
Other		2,757			2,722
Total Long-Term Liabilities		70,874			90,604
Total Liabilities		145,606			180,641
Commitments and Contingencies (Note 8)
Mezzanine Equity (Note 10)
Series C Convertible Redeemable Preferred Stock, $0.01 par value, 4,000,000 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021		13,200			13,200
Stockholders’ Equity
Common Stock, $0.01 par value, 100,000,000 shares authorized, 55,481,140 shares issued at September 30, 2022 and December 31, 2021, 45,652,266 shares outstanding at September 30, 2022 and 53,316,299 shares outstanding at December 31, 2021		555			555
Additional paid-in capital		285,866			287,429
Retained deficit		(46,778	)		(79,144	)
Treasury stock		(14,013	)		(3,280	)
Total Stockholders’ Equity		225,630			205,560
Total Liabilities and Stockholders’ Equity	$	384,436		$	399,401

See accompanying condensed notes to unaudited consolidated financial statements.

5

Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(unaudited)						(unaudited)
Operating Revenues
Contract revenues	$	68,389		$	71,866		$	213,280		$	174,467
Contract services and other		21			21			35			54
Total Operating Revenues		68,410			71,887			213,315			174,521
Operating Expenses
Payroll and related costs		26,801			29,056			81,096			76,819
Aircraft fuel and oil		49			51			134			108
Aircraft maintenance, materials and repairs		17,494			13,877			48,331			37,489
Aircraft rent		—			—			—			67
Other rents		1,617			1,572			4,887			3,757
Depreciation, amortization and obsolescence		6,639			6,570			19,957			19,569
Payroll Support Program		—			(16,146	)		—			(66,316	)
Purchased services and other		3,310			3,684			10,589			9,944
Total Operating Expenses		55,910			38,664			164,994			81,437
Income From Operations		12,500			33,223			48,321			93,084
Other (Expense) Income
Interest income		840			611			2,102			1,437
Interest expense		—			(138	)		—			(827	)
Loss on marketable securities		(3,749	)		(92	)		(9,774	)		(106	)
Gain on extinguishment of debt		53			10,135			53			10,363
Other, net		885			566			1,786			634
Total Other (Expense) Income		(1,971	)		11,082			(5,833	)		11,501
Net Income Before Taxes		10,529			44,305			42,488			104,585
Income Tax Expense		2,507			8,026			10,122			22,560
Net Income	$	8,022		$	36,279		$	32,366		$	82,025
Preferred stock dividends		198			198			594			594
Net income available to common stockholders	$	7,824		$	36,081		$	31,772		$	81,431
Basic Earnings per share	$	0.17		$	0.67		$	0.68		$	1.49
Diluted Earnings per share	$	0.13		$	0.51		$	0.50		$	1.14
Weighted Average Common Shares:
Basic		45,776			54,153			46,637			54,491
Diluted		62,276			71,155			63,268			71,468

See accompanying condensed notes to unaudited consolidated financial statements.

6

Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (in thousands)

	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2021		4,000	$	13,200		53,316			2,165	$	555	$	287,429		$	(79,144	)	$	(3,280	)	$	205,560
Net income		—		—		—			—		—		—			32,366			—			32,366
Dividends		—		—		—			—		—		(594	)		—			—			(594	)
Cancellation of stock option		—		—		—			—		—		(969	)		—			—			(969	)
Treasury stock purchases		—		—		(7,664	)		7,664		—		—			—			(10,733	)		(10,733	)
Balance, September 30, 2022 (unaudited)		4,000	$	13,200		45,652			9,829	$	555	$	285,866		$	(46,778	)	$	(14,013	)	$	225,630

	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, June 30, 2022		4,000	$	13,200		46,016			9,465	$	555	$	286,064		$	(54,800	)	$	(13,214	)	$	218,605
Net income		—		—		—			—		—		—			8,022			—			8,022
Dividends		—		—		—			—		—		(198	)		—			—			(198	)
Treasury stock purchases		—		—		(364	)		364		—		—			—			(799	)		(799	)
Balance, September 30, 2022 (unaudited)		4,000	$	13,200		45,652			9,829	$	555	$	285,866		$	(46,778	)	$	(14,013	)	$	225,630

	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2020		4,000	$	13,200		54,863			618	$	555	$	288,221		$	(171,770	)	$	(481	)	$	116,525
Net income		—		—		—			—		—		—			82,025			—			82,025
Dividends		—		—		—			—		—		(594	)		—			—			(594	)
Treasury stock purchases		—		—		(723	)		723		—		—			—			(1,188	)		(1,188	)
Balance, September 30, 2021 (unaudited)		4,000	$	13,200		54,140			1,341	$	555	$	287,627		$	(89,745	)	$	(1,669	)	$	196,768

	Mezzanine Equity - Series C Convertible Redeemable Preferred Stock				Common Stock
	Shares		Amount		Shares			Treasury Stock		Amount		Additional Paid-In Capital			Retained Deficit			Cost of Treasury Stock			Total Stockholders’ Equity
Balance, June 30, 2021		4,000	$	13,200		54,270			1,211	$	555	$	287,825		$	(126,024	)	$	(1,369	)	$	160,987
Net income		—		—		—			—		—		—			36,279			—			36,279
Dividends		—		—		—			—		—		(198	)		—			—			(198	)
Treasury stock purchases		—		—		(130	)		130		—		—			—			(300	)		(300	)
Balance, September 30, 2021 (unaudited)		4,000	$	13,200		54,140			1,341	$	555	$	287,627		$	(89,745	)	$	(1,669	)	$	196,768

See accompanying condensed notes to unaudited consolidated financial statements.

7

Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

	Nine Months Ended September 30,
	2022			2021
	(unaudited)
Cash Flows From Operating Activities
Net income	$	32,366		$	82,025
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and obsolescence allowance		19,957			19,569
Amortization of contract costs		(3,314	)		(2,428	)
Amortization of engine overhauls		2,098			1,364
Deferred income taxes		(118	)		133
Loss on disposition of property and equipment		62			40
Loss on marketable securities		9,774			106
Gain on extinguishment of debt		(53	)		(10,363	)
Changes in operating assets and liabilities:
Accounts receivable		(25,850	)		(2,425	)
Notes receivable		(12,747	)		(13,699	)
Spare parts and supplies		(149	)		229
Prepaid expenses and other		3,699			(4,884	)
Operating lease right-of-use asset		41			182
Accounts payable		(3,467	)		5,109
Accrued payroll and employee benefits		(1,828	)		(1,011	)
Other accrued expenses		81			84
Long-term deferred revenue		(9,046	)		(11,938	)
Contract liabilities		(2,534	)		(7,117	)
Deferred revenue		(13,474	)		27,961
Income taxes payable		4,633			(107	)
Other long-term liabilities		35			(1	)
Net Cash Provided by Operating Activities		166			82,829
Cash Flows From Investing Activities
Additions to property and equipment		(2,963	)		(1,349	)
Proceeds on disposition of property and equipment		10			15
Purchase of marketable securities		(1,921	)		(204,126	)
Sale of marketable securities		—			77,477
Net Cash Used in Investing Activities		(4,874	)		(127,983	)
Cash Flows From Financing Activities
Repayments of long-term debt		(2,184	)		(39,466	)
Dividends paid		(594	)		(594	)
Cancellation of stock option		(969	)		—
Repurchased stock		(10,733	)		(1,188	)
Net Cash Used in Financing Activities		(14,480	)		(41,248	)
Decrease in Cash, Cash Equivalents and Restricted Cash		(19,188	)		(86,402	)
Cash, Cash Equivalents and Restricted Cash, beginning of period		38,619			131,193
Cash, Cash Equivalents and Restricted Cash, end of period	$	19,431		$	44,791

See accompanying condensed notes to unaudited consolidated financial statements.

See Note 11 for supplemental cash flow information.

8

Harbor Diversified, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements (in thousands, except shares and per share amounts)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying 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 Harbor Diversified, Inc. (Harbor) and its subsidiaries (collectively, the Company).

Harbor is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (AWAC), the sole member of Air Wisconsin Airlines LLC (Air Wisconsin), which is a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (Lotus), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC (AWF), which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc. (Therapeutics), which is a non-operating entity with no material assets.

The consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly in all material respects the financial condition and results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. All of the dollar and share amounts set forth in these condensed notes to consolidated financial statements are presented in thousands except per share and par value amounts.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Harbor’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 30, 2022 (2021 Annual Report). Due in part to the significant impacts to the Company’s business and industry from the industry-wide pilot shortage and the global coronavirus (COVID-19) pandemic, in addition to other factors discussed below, the results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other reporting period.

Description of Operations

The Company has principal lines of business focused on (1) providing regional air services through Air Wisconsin (airline business), (2) acquiring flight equipment for the purpose of leasing the equipment to Air Wisconsin, and (3) providing flight equipment financing to Air Wisconsin. Additionally, Air Wisconsin is exploring aircraft leasing opportunities and entered into its first short-term aircraft lease in September 2022.

The airline business is operated entirely through Air Wisconsin, which is an independent regional air carrier that is engaged in the business of providing scheduled passenger service under a capacity purchase agreement (United capacity purchase agreement) with United Airlines, Inc. (United) that was entered into in February 2017 and amended in October 2020, April 2021, April 2022, June 2022, and September 2022. United is currently Air Wisconsin’s sole airline partner; however, Air Wisconsin entered into a separate capacity purchase agreement in August 2022 (American capacity purchase agreement) with American Airlines, Inc. (American) pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American. Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023. For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Air Wisconsin currently operates as a United Express carrier with a presence at both Chicago O’Hare and Washington-Dulles, two of United’s key domestic hubs.

9

Contract Revenues

The Company recognizes revenue under the United capacity purchase agreement over time as services are provided. United pays Air Wisconsin a fixed rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per aircraft per day, with incentive payments available, and penalties payable, based on the achievement, or failure to achieve, certain performance criteria. Under the agreement, Air Wisconsin’s performance obligation is met and revenue is recognized over time, which is then reflected in contract revenues. The agreement also provides for the reimbursement to Air Wisconsin of certain direct operating expenses such as hull and liability insurance, property taxes and Canadian navigational fees.

United makes provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments are subsequently reconciled with United based on actual completed flight activity. As of the date of this filing, these payments are reconciled through July 2022. Subject to final reconciliation of the provisional cash payments for the periods after July 31, 2022, as of September 30, 2022, United owed Air Wisconsin approximately $22,302, which is recorded in accounts receivable, net, on the consolidated balance sheets. United is disputing that it owes $18,693 of this amount. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Under the United capacity purchase agreement, Air Wisconsin is eligible to receive incentive payments, or may be required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. The incentives are defined in the agreement and performance is measured on a monthly basis. At the end of each month during the term of the agreement, Air Wisconsin calculates the incentives achieved, or penalties payable, during that period and recognizes revenue accordingly, subject to the variable constraint guidance under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 606, Revenue from Contracts with Customers (Topic 606). Although the final reconciliations have not been completed for all periods, after considering operational performance related to expected incentive and penalty payments, Air Wisconsin has received (incurred), or is likely to receive (incur), net payments of $2,137 and $(339) for the three months ended September 30, 2022 and September 30, 2021, respectively, and $5,443 and $2,820 for the nine months ended September 30, 2022 and September 30, 2021, respectively. These amounts are recorded in accounts receivable, net, on the consolidated balance sheets.

Under the United capacity purchase agreement, Air Wisconsin is paid a fixed amount per aircraft per day for each month during the term of the agreement. In accordance with GAAP, the Company recognizes revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Air Wisconsin deferred fixed revenues between April 2020 and June 2021 due to the significant decrease in its completed flights as a result of the COVID-19 pandemic. Beginning in July 2021, due to an increase in completed flights and based on projected future completed flight activity, Air Wisconsin began reversing this deferral of fixed revenues, and it anticipates continuing to do so through the wind-down period under the United capacity purchase agreement (wind-down period). Accordingly, during the three and nine months ended September 30, 2022, Air Wisconsin recognized $5,180 and $22,548, respectively, of fixed revenues that were previously deferred, compared to a deferral of $5,298 and $10,054 of fixed revenues in the three and nine months ended September 30, 2021, respectively. Air Wisconsin’s deferred revenues related to the fixed portion of revenue under the United capacity purchase agreement will adjust over the remaining contract term, including the wind-down period, based on the number of flights completed in each reporting period relative to the number of flights anticipated to be completed through the end of the wind-down period. As of September 30, 2022, deferred fixed revenues in the amount of $22,290 were recorded as part of deferred revenues on the consolidated balance sheets. For additional information regarding the wind-down schedule with United, refer to Note 2, Liquidity.

Consistent with the discussion above, for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, Air Wisconsin also recognized increased non-refundable upfront fee revenues and increased fulfillment costs, both of which are amortized over the remaining term of the United capacity purchase agreement in proportion to the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods. During the three and nine months ended September 30, 2022, Air Wisconsin recorded $932 and $3,314 of revenue from upfront fees and $100 and $355 of fulfillment costs, respectively, compared to $1,082 and $2,428 in revenue from upfront fees and $116 and $260 of fulfillment costs for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred upfront fee revenue in the amount of $2,406 is recorded as part of contract liabilities on the consolidated balance sheets.

As part of the October 2020 amendment to the United capacity purchase agreement (CPA Amendment), United made a cash settlement payment of $670 and issued a note receivable to Air Wisconsin in the amount of $11,048, of which $4,410 was deferred as of December 31, 2020, with the remaining portion to be recognized in proportion to the number of flights expected to be completed in subsequent periods through the end of the wind-down period. In October 2021, in accordance with the CPA Amendment, Air Wisconsin received $294 from United for the opening of a crew base, of which $73 was deferred as of December 31, 2021. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $453 and $1,611 of revenue related to these items,

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respectively, compared to $512 and $1,150 of revenue related to these items for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred CPA Amendment revenue in the amount of $1,170, is recorded as part of contract liabilities on the consolidated balance sheets.

The timing of the recognition of deferred fixed revenue, non-refundable upfront fee revenue, fulfillment costs, and deferred CPA Amendment revenue in future periods is subject to considerable uncertainty due to a number of factors, including the actual number of completed flights in any particular period relative to the estimated number of flights anticipated to be flown through the end of the wind-down period.

The amount of revenues recognized for the three and nine months ended September 30, 2022 that were previously recorded as contract liabilities were $1,385 and $4,925, respectively.

The CPA Amendment provided, among other things, for the payment or accrual of certain amounts by United to Air Wisconsin based on certain scheduling benchmarks. In conjunction with the significant reduction in departures and block hours resulting from the COVID-19 pandemic in 2020, and consistent with the terms of the CPA Amendment, management determined that, from an accounting perspective, a new performance obligation was created by United, requiring Air Wisconsin to stand ready to deliver flight services. Air Wisconsin determined, using the expected cost plus a margin method, that the United “stand ready” rate represents the relative stand-alone selling price of the performance obligation. The stand ready performance obligation will be recognized over time on a straight-line basis based on the number of unscheduled block hours below a minimum threshold at the stand ready rate as determined in a manner consistent with the CPA Amendment. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $5,138 and $12,746, respectively, in revenue related to this performance obligation compared to $728 and $13,699 for the three and nine months ended September 30, 2021, respectively. Under the CPA Amendment, United is required to accrue this amount and, upon request by Air Wisconsin, deliver a note evidencing this amount each quarter, which notes are due and payable in February 2023. Therefore, this amount is recorded in notes receivable on the consolidated balance sheets. The notes receivable contain a significant financing component and any interest income is separately reported in the consolidated statements of operations. As of September 30, 2022, the principal amount of these notes totaled $60,315, including the $11,048 note receivable described above, bore interest at the rate of 4.5%, and had a maturity date of February 28, 2023. As of September 30, 2022, interest receivable on these notes, including the disputed notes, totaled $3,954 and is recorded in accounts receivable, net on the consolidated balance sheets. United has disputed that it owes these amounts in respect of certain quarters and has refused to deliver notes for those quarters. The amount in dispute in respect of those notes as of the date of this filing totals $14,175, including interest receivable of $174. On November 4, 2022, United prepaid to Air Wisconsin $50,126 to satisfy all of the outstanding, undisputed notes receivable, including all accrued interest, pursuant to the CPA Amendment in respect of the period of the second quarter 2020 through the third quarter 2021 and the $11,048 note receivable described above. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Other Revenues

Other revenues primarily consist of the sales of parts to other airlines and aircraft lease. These other revenues are immaterial in all periods presented. The transaction price for these other revenues generally is fair market value.

Restricted Cash

As of September 30, 2022 and December 31, 2021, the Company had a restricted cash balance of $418 and $1,449, respectively. A portion of the balance secures a credit facility for the issuance of letters of credit guaranteeing the performance of Air Wisconsin’s obligations under certain lease agreements, airport agreements and insurance policies. The remaining portion is cash held for the repurchase of shares under Harbor’s stock repurchase program. For additional information, refer to Note 8, Commitments and Contingencies, and Note 13, Stock Repurchase Program.

Marketable Securities

The Company’s equity security investments, consisting of exchange-traded funds and mutual funds, are recorded at fair value based on quoted market prices (Level 1) in marketable securities on the consolidated balance sheets, in accordance with the guidance in ASC Topic 321, Investments-Equity Securities, with the change in fair value during the period included in the consolidated statements of operations. As of September 30, 2022 and December 31, 2021, the fair value of the Company’s marketable securities was $130,517 and $138,370, respectively.

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The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2022 is as follows:

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Net losses recognized during the period on equity securities	$	(3,749	)	$	(9,774	)
Less: Net gains and losses recognized during the period on equity securities sold during the period		—			—
Unrealized losses recognized during the period on equity securities held as of September 30, 2022	$	(3,749	)	$	(9,774	)

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2021 is as follows:

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net gains and losses recognized during the period on equity securities	$	(92	)	$	(106	)
Less: Net losses recognized during the period on equity securities sold during the period		42			1
Unrealized gains recognized during the period on equity securities held as of September 30, 2021	$	(134	)	$	(107	)

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

Assets	Depreciable Life	Current Residual Value
Aircraft	7 years	$	50
Rotable parts	7 years		10	%
Spare engines	7 years	$	25
Ground equipment	up to 10 years		0	%
Office equipment	up to 10 years		0	%
Leasehold improvements	Shorter of asset or lease life		0	%

Air Wisconsin’s capitalized engine maintenance costs are amortized over their estimated useful life measured in remaining engine cycles to the next scheduled shop visit. Lotus’ engine maintenance costs are expensed.

For the three and nine months ended September 30, 2022, the Company recorded depreciation expense of $6,224 and $18,656, respectively, compared to $6,274 and $18,769 for the three and nine months ended September 30, 2021, respectively.

Impairment of Long-Lived and Intangible Assets

The Company evaluates long-lived and intangible assets for potential impairment and records impairment losses when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates and assumptions regarding such things as the current fair market value of the assets and future net cash flows to be generated by the assets. If there are subsequent changes to these estimates or assumptions, or if actual results differ from these estimates or assumptions, such changes could impact the financial statements in the future. The Company conducted a qualitative impairment assessment of its long-lived and intangible assets and determined that no quantitative impairment tests were required to be performed as of September 30, 2022.

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Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to federal, state and local income taxes in the United States and various states. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2018. With a few exceptions, the Company is no longer subject to state or local income tax examinations for years prior to 2017. As of September 30, 2022, the Company had no outstanding tax examinations.

Concentration of Customer Risk

United is currently Air Wisconsin’s sole airline partner. Substantially all the Company’s revenues in the three and nine months ended September 30, 2022 and September 30, 2021 were derived from the United capacity purchase agreement.

Air Wisconsin entered into the American capacity purchase agreement in August 2022 and expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations.

For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, marketable securities, accounts receivable, long-term investments, accounts payable, and long-term debt. The Company believes the carrying amounts of these financial instruments, with the exception of marketable securities, are a reasonable estimate of their fair value because of the short-term nature of such instruments, or, in the case of long-term debt, because of interest rates available to the Company for similar obligations. Marketable securities are reported at fair value based on quoted market prices. Long-term investments are held-to-maturity debt securities and are reported at amortized cost.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). Fair Value Measurement (Topic 820) establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3—Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates these determinations each reporting period, and it is possible that an asset or liability may be classified differently from year to year.

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The tables below set forth the Company’s classification of marketable securities and long-term investments as of the periods presented:

	September 30, 2022
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	106,087	$	106,087	$	—	$	—
Marketable securities – mutual funds		24,430		24,430		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	134,792	$	130,517	$	4,275	$	—

	September 30, 2021
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	108,097	$	108,097	$	—	$	—
Marketable securities – mutual funds		18,446		18,446		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	130,818	$	126,543	$	4,275	$	—

Reclassification

Certain operating expenses previously recorded in purchased services and other in the consolidated statements of operations in the amounts of $3,185 and $8,265 for the three and nine months ended September 30, 2021, respectively, have been reclassified to aircraft maintenance, materials and repairs to conform to the presentation for the three and nine months ended September 30, 2022, with no effect on net income. The reclassification relates to certain third party maintenance activities.

Certain current liabilities previously recorded in contract liabilities in the consolidated balance sheets as of December 31, 2021 have been reclassified to deferred revenue in the amount of $35,792 to conform to the presentation as of September 30, 2022. As a result of this change, the consolidated statements of cash flows also required a reclassification from contract liabilities in the amount of $27,961 to deferred revenues in the Cash Flows from Operating Activities section of the consolidated statements of cash flows.

Upcoming Accounting Pronouncement

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 introduces a new accounting model known as Current 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 receivable. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. ASU 2016-13 is effective for calendar years beginning after December 15, 2022, including interim periods within those calendar years, with early adoption permitted. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

2. Liquidity

The Company’s ability to meet its liquidity needs is dependent upon its cash, cash equivalents and marketable securities balances and its ability to generate cash flows from operations in the future in amounts sufficient to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company currently believes its available working capital and anticipated cash flows from operations will be sufficient to meet the Company’s liquidity requirements for at least the next 12 months from the date of this filing. However, there can be no assurance that the Company will be able to generate sufficient cash flows from operations, or that additional funds will be available, to meet its future liquidity needs, particularly if United fails to pay disputed amounts owed to Air Wisconsin pursuant to the United capacity purchase agreement or if the transition of Air Wisconsin’s aircraft to the American capacity purchase agreement is delayed or more difficult than currently anticipated.

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Reduced Block Hours

Since the beginning of the COVID-19 pandemic, Air Wisconsin has experienced significantly reduced block hours relative to historical levels. The prevailing industry-wide pilot shortage, which is expected to continue for the foreseeable future, is currently the leading factor preventing Air Wisconsin from consistently achieving block hours in line with pre-pandemic levels.

In addition, the United capacity purchase agreement is scheduled to terminate in February 2023, unless sooner terminated in accordance with its terms, in each case subject to a wind-down period following termination during which aircraft would be removed from service under the agreement in accordance with a schedule. Although a wind-down schedule has not yet been determined, the Company has estimated a wind-down schedule for purposes of its revenue calculations. The American capacity purchase agreement provides that a certain number of aircraft each month, commencing in March 2023, will begin flying scheduled flights for American.

Before any Air Wisconsin aircraft can be available to operate flights for American, that aircraft must first be removed from service under the United capacity purchase agreement, painted to meet the livery requirements of the American capacity purchase agreement and otherwise modified to meet such requirements. During the period from the withdrawal of an aircraft from service under the United capacity purchase agreement until it is placed into service under the American capacity purchase agreement, that aircraft will not generate revenues from either United or American. The period of time that an aircraft will not be covered by either capacity purchase agreement depends on the wind-down schedule that has not been finally determined. The successful transition of aircraft from the United capacity purchase agreement to the American capacity purchase agreement is subject to many factors, some of which are not within Air Wisconsin’s control, including the level of cooperation from United and the timing for aircraft to meet the requirements of the American capacity purchase agreement. There can be no assurance that this transition will proceed smoothly, and unexpected delays in or costs associated with the transition could have a material adverse effect on the Company’s business, financial condition and results of operations.

For additional information, refer to Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

United Capacity Purchase Agreement

The fixed amount Air Wisconsin is entitled to receive under the United capacity purchase agreement is based on a fixed contractual rate and number of covered aircraft, although there is currently a dispute with United as to the number of covered aircraft for which it is required to pay the fixed contractual rate. In October 2022, United initiated arbitration with respect to this dispute.

Variable revenue may be earned based on the number of block hours and departures. Since the onset of the COVID-19 pandemic, variable revenues have been significantly reduced due to the lower number of flights relative to historical levels. However, the impact of the COVID-19 pandemic on the Company’s financial position has been partially mitigated or offset by the fixed revenue under the United capacity purchase agreement and by funds received under the Paycheck Protection Program and the Payroll Support Program described below. If United does not pay the full amount Air Wisconsin believes it is required to pay under the agreement, whether due to its own financial disruption resulting from the COVID-19 pandemic or the industry-wide pilot shortage, as a result of the current dispute with Air Wisconsin, or otherwise, the Company could experience a significant adverse effect on its results of operations, financial condition and liquidity. For additional information regarding the United capacity purchase agreement dispute, refer to Note 8, Commitments and Contingencies.

A portion of the fixed amount of revenue had been deferred based on future expected flight activity, since fixed revenue is allocated over current and expected future departures through the end of the contract term, including the wind-down period. Beginning with the third quarter of 2021, Air Wisconsin began to reverse prior deferred revenue based on increased completed flights and projected future completed flight activity, and anticipates continuing to do so through the end of the wind-down period. For additional information, refer to Note 1, Summary of Significant Accounting Policies.

Paycheck Protection Program

Air Wisconsin’s receipt of governmental assistance mitigated to some extent the adverse impacts of the COVID-19 pandemic on the Company’s financial condition, results of operations and liquidity.

In April 2020, Air Wisconsin received a $10,000 loan (SBA Loan) under the small business Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and administered by the Small Business Administration (SBA). Under the CARES Act, Air Wisconsin applied for forgiveness of the SBA Loan, and the SBA granted forgiveness of all principal and accrued interest on the SBA Loan in August 2021 in the amount of $10,135, which was recorded as gain on extinguishment of debt in the audited consolidated statements of operations for the year ended December 31, 2021 included within the 2021 Annual Report.

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Payroll Support Program

In April 2020, Air Wisconsin entered into a Payroll Support Program Agreement (PSP-1 Agreement) with respect to payroll support (Treasury Payroll Support) from the U.S. Department of the Treasury (Treasury) under a program (Payroll Support Program) provided by the CARES Act. Pursuant to the PSP-1 Agreement, Air Wisconsin received approximately $42,185, all of which was received in the year ended December 31, 2020.

In December 2020, the federal Consolidated Appropriations Act of 2021 (PSP Extension Law) was adopted, which provided for additional payroll support to eligible air carriers. In March 2021, pursuant to the PSP Extension Law, Air Wisconsin entered into a Payroll Support Program Extension Agreement with the Treasury (the PSP-2 Agreement), which is substantially similar to the PSP-1 Agreement. Air Wisconsin received approximately $32,987 pursuant to the PSP-2 Agreement, all of which was received in the year ended December 31, 2021.

In March 2021, the federal American Rescue Plan Act of 2021 (American Rescue Plan) was adopted, which provided further payroll support to eligible air carriers. In June 2021, pursuant to the American Rescue Plan, Air Wisconsin entered into a Payroll Support Program 3 Agreement with the Treasury (the PSP-3 Agreement and, together with the PSP-1 Agreement and the PSP-2 Agreement, the PSP Agreements), which is substantially similar to the PSP-1 Agreement and the PSP-2 Agreement. Air Wisconsin received approximately $33,329 pursuant to the PSP-3 Agreement, all of which was received in the year ended December 31, 2021.

The PSP Agreements contain various covenants, some of which have expired. The surviving covenants require that (i) the payroll support proceeds must have been used exclusively for the payment of wages, salaries and benefits, and (ii) Air Wisconsin cannot pay total compensation to certain employees in excess of certain total compensation caps. If Air Wisconsin failed to comply with any of its expired obligations or failed or fails to comply with any of its continuing obligations under these agreements, it may be required to repay some or all of the funds provided to it under the PSP Agreements. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on the Company’s business. The Treasury commenced a routine audit of Air Wisconsin’s compliance with the terms of the PSP-1 Agreement. No such audits have been initiated by the Treasury under the PSP-2 Agreement or PSP-3 Agreement as of the date of this filing. For additional information, refer to Note 8, Commitments and Contingencies.

The proceeds of the Treasury Payroll Support under the PSP Agreements were recorded in cash and cash equivalents when received and were recognized as a contra-expense under Payroll Support Program in the consolidated statements of operations for the periods for which the funds were intended to offset payroll expenses. As all amounts were recognized at December 31, 2021, Air Wisconsin did not recognize a reduction in operating expense in the three and nine months ended September 30, 2022, as compared to $16,146 and $66,316 for the three and nine months ended September 30, 2021, respectively.

3. Capacity Purchase Agreements with United and American

In February 2017, Air Wisconsin entered into the United capacity purchase agreement. The United capacity purchase agreement is scheduled to terminate in February 2023. The wind-down period during which aircraft will be removed from service under the United capacity purchase agreement has not been finally determined. A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. In October 2022, United initiated arbitration under the United capacity purchase agreement. The existence of this dispute pursuant to the United capacity purchase agreement could significantly complicate or delay the transition of aircraft from the provision of services to United to the provision of services to American. For additional information, refer to Note 8, Commitments and Contingencies.

In August 2022, Air Wisconsin entered into the American capacity purchase agreement, pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American. Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023.

4. Property and Equipment

As of September 30, 2022, Air Wisconsin owned 64 CRJ-200 regional jets.

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5. Income Taxes

The Company’s effective tax rate for the three months and nine months ended September 30, 2022 was 23.8%. The Company’s effective tax rate for the three and nine months ended September 30, 2022 varied from the federal statutory rate of 21.0% primarily due to the impact of state income taxes and permanent differences between financial statement and taxable income.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 18.1% and 21.6%, respectively. The Company’s effective tax rate for the three months ended September 30, 2021 varied from the federal statutory rate of 21.0% primarily due to the tax exempt status of the SBA Loan forgiveness, the impact of state taxes, and permanent differences between financial statement and taxable income.

6. Debt

Long-Term Debt

Long-term debt consists of the following (with interest rates, as of the dates presented):

	September 30, 2022		December 31, 2021
Aircraft Notes, due December 31, 2025 (4.0%)	$	65,313	$	67,550
Less: current maturities		9,224		5,880
Total Long-Term Debt	$	56,089	$	61,670

Maturities of long-term debt for the periods subsequent to September 30, 2022, are as follows:

Fiscal Year	Amount
October 2022 through December 2022	$	4,091
2023		9,154
2024		8,874
2025		43,194
Total	$	65,313

As of September 30, 2022, all of the Company’s long-term debt was subject to fixed interest rates. As of September 30, 2022 and September 30, 2021, Air Wisconsin was in compliance with the covenants included in each of its debt agreements.

For additional information regarding Long-Term Debt, refer to Note 6, Debt, in the audited consolidated financial statements within the 2021 Annual Report.

Long-Term Promissory Note

In July 2003, Air Wisconsin financed a hangar through the issuance of $4,275 City of Milwaukee, Wisconsin variable rate Industrial Development Bonds. The bonds mature November 1, 2033. Prior to May 1, 2006, the bonds were secured by a guaranteed investment contract, which was collateralized with cash, and interest was payable semiannually on each May 1 and November 1. In May 2006, Air Wisconsin acquired the bonds using the cash collateral. The bonds are reported as long-term investments on the consolidated balance sheets. The hangar is accounted for as a right-of-use asset with a value of $2,605 as of September 30 2022. For additional information, refer to Note 1, Fair Value of Financial Instruments.

7. Lease Obligations

Air Wisconsin has operating leases with terms greater than twelve months for training simulators and facility space including office space and maintenance facilities. The remaining lease terms for training simulators and facility space vary from approximately 9 months to 12 years. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of the lease payments over the lease term. The Company used Air Wisconsin’s incremental borrowing rate to discount the lease payments based on information available at lease conception. Air Wisconsin’s operating leases with lease rates that are variable based on operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with the applicable accounting guidance.

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Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

Certain leases contain an option to extend or terminate the lease agreement. The Company evaluates each option prior to its expiration and may or may not exercise such option depending on conditions present at the time. At the inception of the lease, if it is reasonably certain that the Company will exercise an option to extend or terminate a lease, the Company considers the option in determining the classification and measurement of the lease. The Company expects that in the normal course of business operating leases that expire will be renewed or replaced by other leases.

As of September 30, 2022 and December 31, 2021 the Company’s right-of-use assets were $14,789 and $18,679, respectively, current maturities of operating lease liabilities were $5,078 and $5,150, respectively, and noncurrent lease liabilities were $7,100 and $10,877, respectively. During the nine months ended September 30, 2022, the Company paid $4,484 in operating lease payments.

The table below presents operating lease related terms and discount rates as of September 30, 2022:

Weighted-average remaining lease term	3.13	years
Weighted-average discount rate	5.70	%

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Components of lease costs were as follows for the dates presented: 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease costs	$	1,477	$	1,446	$	4,423	$	3,322
Short-term lease costs		77		80		306		389
Variable lease costs		63		46		158		113
Total Lease Costs	$	1,617	$	1,572	$	4,887	$	3,824

As of September 30, 2022, Air Wisconsin leased or subleased certain training simulators and facilities for terms of greater than 12 months. Rent expense recorded under all operating leases, inclusive of engine leases, was $1,617 and $1,572 for the three months ended September 30, 2022 and September 30, 2021, respectively. Rent expense recorded under all operating leases, inclusive of engine leases, was $4,887 and $3,824 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of September 30, 2022:

Fiscal Year	Amount
October 2022 through December 2022	$	1,452
2023		5,841
2024		3,365
2025		2,664
2026		177
Thereafter		527
Total lease payments		14,026
Less imputed interest		(1,848	)
Total Lease Liabilities	$	12,178

8. Commitments and Contingencies

Legal Matters

The Company is subject to certain legal proceedings, which it considers routine to its business activities. As of September 30, 2022, the Company believes, after consultation with legal counsel, that the ultimate outcome of such legal proceedings, whether individually or in the aggregate, is not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

United Capacity Purchase Agreement Dispute

A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. As of September 30, 2022, the aggregate amount in dispute was approximately $33,042. In October 2022, United initiated arbitration under the agreement and requested a declaration that it does not owe any of the disputed amounts as claimed by Air Wisconsin. As Air Wisconsin and United are in the early stages of arbitration, Air Wisconsin cannot, with any degree of certainty, estimate the likely outcome of the arbitration including any potential award of the disputed amounts. Air Wisconsin, however, maintains that it has a strong position and is entitled to the disputed amounts under the terms of the United capacity purchase agreement. As a result, the Company has recognized all disputed amounts through September 30, 2022.

Treasury Payroll Support Program Audit

In September 2020, the Treasury’s Office of Inspector General (OIG) commenced a routine audit in connection with Air Wisconsin’s receipt of funds under the PSP-1 Agreement. The audit focused, among other things, on certain calculations used to determine the amount of Treasury Payroll Support Air Wisconsin was entitled to receive under the program. Air Wisconsin has disputed in good faith the Treasury’s interpretation of certain provisions of the application for Treasury Payroll Support and the PSP-1 Agreement, as well as the Treasury’s guidance regarding the Payroll Support Program. As of the date of this filing, Air Wisconsin has not received written confirmation from the OIG regarding the status or results of the audit. Nevertheless, the Treasury subsequently entered into the PSP-2 Agreement and the PSP-3 Agreement with Air Wisconsin, has paid to Air Wisconsin the amounts to be paid under the PSP-2 Agreement and the PSP-3 Agreement, and has not required Air Wisconsin to refund any amounts it received under the PSP-1 Agreement.

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Standby Letters of Credit

As of September 30, 2022, Air Wisconsin had six outstanding letters of credit in the aggregate amount of $372 to guarantee the performance of its obligations under certain lease agreements, airport agreements and insurance policies. Air Wisconsin maintained a credit facility with a borrowing capacity of $373 for the issuance of such letters of credit as needed to support its operations. A significant portion of Air Wisconsin’s restricted cash balance secures the credit facility.

Cash Obligations

The following table sets forth the Company’s cash obligations for the periods presented:

	Total		October through December 2022		2023		2024		2025		2026		Thereafter
Aircraft Notes Principal	$	59,100	$	3,500	$	7,000	$	7,000	$	41,600	$	—	$	—
Aircraft Notes Interest		6,213		591		2,154		1,874		1,594		—		—
Operating Lease Obligations		14,026		1,452		5,841		3,365		2,664		177		527
Total	$	79,339	$	5,543	$	14,995	$	12,239	$	45,858	$	177	$	527

The principal amount of the Aircraft Notes is payable in semi-annual installments of $3,500, and certain additional amounts may be payable based on excess cash flow. The amounts set forth in the table do not reflect any such additional excess cash flow payments. As a result of certain prepayments made under the Aircraft Notes in June 2021, no semi-annual installments are due prior to December 31, 2022. As of September 30, 2022, all of the Company’s long-term debt was subject to fixed interest rates.

For additional information regarding the Aircraft Notes, refer to Note 6, Debt, in the audited consolidated financial statements within the 2021 Annual Report.

9. Related-Party Transactions

Resource Holdings Associates (Resource Holdings) provides AWAC and Air Wisconsin with financial advisory and management services pursuant to an agreement entered into in January 2012. AWAC paid a total of $60 and $180 to Resource Holdings for the three and nine months ended September 30, 2022 and September 30, 2021, plus the reimbursement of certain out-of-pocket expenses. In June 2021, the board of directors agreed to require Harbor to pay Resource Holdings an annual fee of $150, payable monthly, which amount is in addition to the amount paid to Resource Holdings by AWAC. Harbor paid an aggregate of $38 and $113 to Resource Holdings for the three and nine months ended September 30, 2022, respectively. Harbor paid an aggregate of $38 and $75 to Resource Holdings for the three and nine months ended September 30, 2021. For additional information, refer to the section entitled “Certain Relationships and Related Transactions, and Director Independence” within the 2021 Annual Report.

10. Earnings Per Share and Equity

Calculations of net income per common share for the dates presented were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	8,022	$	36,279	$	32,366	$	82,025
Preferred stock dividends		198		198		594		594
Net income applicable to common stockholders	$	7,824	$	36,081	$	31,772	$	81,431
Weighted average common shares outstanding
Shares used in calculating basic earnings per share		45,776		54,153		46,637		54,491
Stock option		—		502		131		477

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Series C Preferred		16,500		16,500		16,500		16,500
Shares used in calculating diluted earnings per share		62,276		71,155		63,268		71,468
Earnings allocated to common stockholders per common share
Basic	$	0.17	$	0.67	$	0.68	$	1.49
Diluted	$	0.13	$	0.51	$	0.50	$	1.14

Basic earnings per share of common stock is computed by dividing the net income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding assuming the conversion of the Series C Preferred into an aggregate of 16,500 shares of common stock under the if-converted method, and the exercise of a stock option granted in 2015 (the “2015 Option”) into 131 shares of common stock under the treasury stock method for the nine months ended September 30, 2022. In March 2022, Harbor entered into an agreement with the holder to cancel the 2015 Option in exchange for $969. The shares underlying the 2015 Option are included in computing diluted earnings per share under the treasury stock method for the portion of the reporting period during which it was outstanding.

Series C Preferred

In January 2020, Harbor issued 4,000 shares of the Series C Preferred. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred are set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock (Certificate of Designations), which Harbor filed with the Secretary of State of the State of Delaware.

Each share of Series C Preferred was initially convertible, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (Conversion Price). The adjusted Conversion Price as of the date of this filing is $0.15091.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80, plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted into common stock pursuant to the limitation described herein (Conversion Cap Excess Shares), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends in an amount per share equal to 0.5% of the Series C Liquidation Amount (as defined below) of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (Conversion Cap Excess Dividends). As of September 30, 2022, 755 shares of the Series C Preferred were immediately convertible into 16,500 shares of common stock, and the remaining 3,245 shares of the Series C Preferred would be deemed Conversion Cap Excess Shares.

In the event of any liquidation, dissolution or winding up of Harbor, or a sale of Harbor, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of Harbor to the common stock or other junior capital stock, an amount equal to the Series C Issue Price, plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends (Series C Liquidation Amount).

On September 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on September 30, 2022.

Based on the applicable accounting guidance, Harbor is required to apply the “if-converted” method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income (loss) per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on the applicable accounting guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets.

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Excluded Stock Options

In January 2022, Harbor granted a group of affiliated stockholders options to sell additional shares of Harbor’s common stock owned by the stockholders at fixed prices. As these options were out-of-the-money during the three and nine months ended September 30, 2022, they would have an anti-dilutive effect on the calculation of diluted earnings per share and thus are not included in the calculation above. For additional information regarding these options, refer to Note 13, Stock Repurchase Program.

11. Supplemental Cash Flow Information

Cash payments for interest for the nine months ended September 30, 2022 and September 30, 2021 were $1,784 and $2,742, respectively. Cash payments for income taxes for the nine months ended September 30, 2022 and September 30, 2021 were $3,348 and $25,683, respectively. Cash payments included in the measurement of lease liabilities related to operating leases were $4,484 and $3,239 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The following table provides a reconciliation of all cash and cash equivalents and restricted cash reported on the consolidated balance sheet that sum to the total of those same amounts shown in the consolidated statement of cash flows:

	September 30, 2022
Cash and cash equivalents	$	19,013
Restricted cash		418
Total cash, cash equivalents, and restricted cash	$	19,431

12. Intangible Assets

Intangible assets consist of the following as of the dates presented:

	September 30, 2022		December 31, 2021
	Gross Carrying Amount		Gross Carrying Amount
Trade names and air carrier certificate		5,300		5,300
Total	$	5,300	$	5,300

13. Stock Repurchase Program

On March 30, 2021, the board of directors adopted a stock repurchase program pursuant to which Harbor was initially authorized to repurchase up to $1,000 of shares of its common stock during the first calendar month of the program, subject to an automatic increase of $1,000 per calendar month thereafter. Harbor is not obligated under the program to acquire any particular number or value of shares and can suspend or terminate the program at any time. Harbor acquired a total of 364,174 shares and 7,664,033 shares of its common stock pursuant to the stock repurchase program in the three and nine months ended September 30, 2022, respectively.

In January 2022, Harbor entered into an agreement with a group of affiliated stockholders pursuant to which it agreed to repurchase an aggregate of 5,437,500 shares of common stock for a purchase price of $5,655 pursuant to the settlement of a legal claim Harbor had against the stockholders. As part of the transaction, Harbor also granted to the stockholders three options to sell additional shares of Harbor’s common stock owned by the stockholders at fixed prices. As of September 30, 2022, each of these options had expired without exercise.

As of September 30, 2022, total cash of $45 is held for the repurchase of shares under Harbor’s stock repurchase program. This amount is included in restricted cash.

For additional information, refer to Part II, Item 2, “Purchases of Equity Securities by the Issuer and Affiliated Purchasers” within this Quarterly Report.

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14. Subsequent Events

The Company evaluated its consolidated financial statements included in this Quarterly Report for subsequent events through November     , 2022, the date the consolidated financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.

• On November 4, 2022, United prepaid to Air Wisconsin $50,126 in satisfaction of all of the outstanding, undisputed notes receivable. For additional information, refer to Note 1, Contract Revenues.

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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 unaudited consolidated financial statements and the related condensed notes included in this Quarterly Report, and with the audited consolidated financial statements, accompanying notes, and the other financial information included within our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Annual Report”). The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by the forward-looking statements below. Factors that could cause or contribute to those differences in our actual results include, but are not limited to, those discussed below and elsewhere within this Quarterly Report, particularly in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

Harbor Diversified, Inc. (“Harbor”) is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”), a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC, which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC, which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc., which is a non-operating entity with no material assets. Because Harbor consolidates Air Wisconsin for financial statement purposes, disclosures relating to activities of Air Wisconsin also apply to Harbor unless otherwise noted. When appropriate, Air Wisconsin is named specifically for its individual contractual obligations and related disclosures. Where reference is intended to include Harbor and its consolidated subsidiaries, they may be jointly referred to as the “Company,” “we,” “us,” or “our.” Where reference is intended to refer only to Harbor Diversified, Inc., it is referred to as “Harbor.”

For the three and nine months ended September 30, 2022, Air Wisconsin operated a fleet of 64 CRJ-200 regional jets under a capacity purchase agreement (the “United capacity purchase agreement”) with its sole major airline partner, United Airlines, Inc. (“United”), with a presence at both Chicago O’Hare and Washington-Dulles international airports, two of United’s key domestic hubs. All of Air Wisconsin’s flights are currently operated as United Express pursuant to the terms of the United capacity purchase agreement. In providing regional flying under the United capacity purchase agreement, Air Wisconsin uses United’s logos, service marks, and aircraft paint schemes. United controls route selection, pricing, seat inventories, marketing and scheduling. In addition, United provides Air Wisconsin with ground support services and gate access. More than 99% of our operating revenues for the three and nine months ended September 30, 2022 was derived from operations associated with the United capacity purchase agreement.

Subject to certain limited exceptions, the United capacity purchase agreement provides Air Wisconsin fixed daily revenue for each aircraft covered under the agreement. The agreement also provides for a fixed payment for each departure and block hour flown, as well as reimbursement of certain direct operating expenses incurred in connection with providing regional flying service for United. In addition, Air Wisconsin is eligible to receive incentive payments, or may be required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. Furthermore, the agreement provides for the payment or accrual of certain amounts by United to Air Wisconsin based on certain scheduling benchmarks. The United capacity purchase agreement protects Air Wisconsin, to an extent, from many of the elements that typically cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in the number of passengers.

In October 2020, Air Wisconsin entered into an amendment to the United capacity purchase agreement that, among other things, provided relief on certain scheduling requirements and settled certain disputes that had existed between United and Air Wisconsin over amounts owed to Air Wisconsin under the United capacity purchase agreement. In April 2021, Air Wisconsin and United entered into a second amendment to the agreement, which addressed the scheduling of block hours after a certain date. In April, June and September 2022, Air Wisconsin and United entered into a third, fourth and fifth amendment, respectively, to the United capacity purchase agreement, which addressed the date by which United was required to provide a wind-down schedule for the period following the expiration of the term of the agreement.

The United capacity purchase agreement is scheduled to terminate in February 2023 unless sooner terminated in accordance with its terms, in each case subject to a wind-down period following termination during which aircraft would be removed from service under the agreement in accordance with a schedule. Air Wisconsin and United entered into negotiations to either extend the United capacity purchase agreement or enter into a replacement capacity purchase agreement with United. To protect itself against the possibility that United would not agree to an extension or a new agreement on commercially reasonable terms, Air Wisconsin began negotiating the terms of a capacity purchase agreement with American Airlines, Inc. (“American”). In August 2022, Air Wisconsin entered into a new five-year capacity purchase agreement with American, pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American (the “American capacity purchase agreement”). Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air

Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023. For additional information, refer to Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

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A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. As of September 30, 2022, the aggregate amount in dispute was approximately $33,042. In October 2022, United initiated arbitration under the agreement and requested a declaration that it does not owe any of the disputed amounts claimed by Air Wisconsin. As Air Wisconsin and United are in the early stages of arbitration, Air Wisconsin cannot, with any degree of certainty, estimate the likely outcome of the arbitration including any potential award of the disputed amounts. Air Wisconsin, however, maintains that it has a strong position and is entitled to the disputed amounts under the terms of the United capacity purchase agreement. As a result, the Company has recognized all disputed amounts through September 30, 2022. The existence of the dispute could significantly delay the transition of aircraft from the provision of services to United to the provision of services to American.

For additional information regarding the risks associated with the dispute with United and the transition from the United capacity purchase agreement to the American capacity purchase agreement, refer to the section entitled “Risk Factors” within this Quarterly Report.

Labor Shortages

Historically, the airline industry has experienced periodic shortages of qualified personnel, particularly pilots and mechanics. As a result of the reduced flying caused by the COVID-19 pandemic, the shortage was temporarily abated. However, as flight demand has increased, labor shortages within the airline industry have become acute, particularly for regional airlines such as Air Wisconsin. The shortage is particularly critical at the captain level, since it can take as long as two years to replace a captain, taking into account training time and experience required at the first officer level before a pilot can be elevated to the rank of captain.

Pilot shortages within the airline industry are the result of a number of factors, including personnel seeking opportunities with larger airlines where compensation may be substantially higher, the number of pilots at major airlines reaching retirement age, upward pressure on wages and bonuses at other regional carriers and within other industries, and the proliferation of cargo and low-cost carriers that have increased demand for pilots. In the past several months, these and other factors have caused our pilot attrition rates to be higher than our ability to hire and retain replacement pilots, resulting in our inability to consistently achieve block hours in line with pre-pandemic levels. To address the diminished supply of qualified pilot candidates, regional airlines, including Air Wisconsin, have implemented significant pilot wage and bonus increases, which has substantially increased our labor costs and may continue to negatively impact our results of operations and financial condition. If we are unable to maintain a sufficient number of qualified pilots to operate our scheduled flights, it could lead to reduced flight schedules, which would further impact our financial condition.

In addition to pilots, Air Wisconsin’s operations rely on the availability of other qualified personnel, including maintenance technicians. As a result of global supply chain constraints and inflationary pressures, as well as increased flying levels, Air Wisconsin has experienced increased costs of certain maintenance activities and delays in obtaining third-party maintenance services, which has been compounded by difficulty recruiting and retaining qualified maintenance technicians. Mechanic shortages within the industry have resulted from several factors, including larger airlines offering higher salaries and more extensive benefit programs, greater demand for mechanics across the airline industry, and upward pressure on wages in other industries. We anticipate these drivers will continue to place upward pressure on our operating costs.

Impact of Competitive Environment

Several regional and larger carriers have ceased operations as a direct or indirect result of the COVID-19 pandemic. As of the date of this filing, ExpressJet Airlines, Inc., Miami Air International, Trans States Airlines, and Compass Airlines, each of which are or were domestic, regional, or charter airlines, have either filed for Chapter 11 or Chapter 7 bankruptcy, or ceased or severely limited operations. The impact of these and other changes to the competitive environment on our business and industry is highly uncertain.

Paycheck Protection Program

In April 2020, Air Wisconsin received a $10.0 million loan (the “SBA Loan”) under the small business Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the Small Business Administration (“SBA”). The entire $10.1 million principal amount and accrued interest was forgiven in August 2021, which was recorded as gain on extinguishment of debt in the audited consolidated statements of operations included within our 2021 Annual Report.

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Payroll Support Program

In April 2020, Air Wisconsin entered into a Payroll Support Program Agreement (the “PSP-1 Agreement”) with respect to payroll support (“Treasury Payroll Support”) from the U.S. Department of the Treasury (“Treasury”) under a program (“Payroll Support Program”) provided by the CARES Act, pursuant to which Air Wisconsin received approximately $42.2 million. The Treasury’s Office of the Inspector General (“OIG”) commenced a routine audit of Air Wisconsin’s compliance with the terms of the PSP-1 Agreement. As of the date of this filing, Air Wisconsin has not received written confirmation from the OIG regarding the status or results of the audit.

In December 2020, the federal Consolidated Appropriations Act of 2021 (“PSP Extension Law”) was adopted, which provided additional payroll support to eligible air carriers. In March 2021, pursuant to the PSP Extension Law, Air Wisconsin entered into a Payroll Support Program Extension Agreement with the Treasury (the “PSP-2 Agreement”), pursuant to which Air Wisconsin received approximately $33.0 million.

In March 2021, the federal American Rescue Plan Act of 2021 (“American Rescue Plan”) was adopted, which provided further payroll support to eligible air carriers. In June 2021, pursuant to the American Rescue Plan, the Treasury entered into a Payroll Support Program 3 Agreement with Air Wisconsin (the “PSP-3 Agreement” and, together with the PSP-1 Agreement and the PSP-2 Agreement, the “PSP Agreements”), pursuant to which Air Wisconsin received approximately $33.3 million.

The PSP Agreements contain various covenants, some of which have expired. The surviving covenants require that (i) the payroll support proceeds must have been used exclusively for the payment of wages, salaries and benefits, and (ii) Air Wisconsin cannot pay total compensation to certain employees in excess of certain total compensation caps. If Air Wisconsin failed to comply with any of its expired obligations or failed or fails to comply with any of its continuing obligations under these agreements, it may be required to repay some or all of the funds provided to it under the PSP Agreements. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on our business. The Treasury commenced a routine audit of Air Wisconsin’s compliance with the terms of the PSP-1 Agreement. No such audits have been initiated by the Treasury under the PSP-2 Agreement or PSP-3 Agreement as of the date of this filing.

Employee Retention Credit

Air Wisconsin expects to receive an employee retention credit in the aggregate amount of approximately $1.1 million pursuant to the CARES Act for payroll expenses incurred during the second, third, and fourth quarters of 2020. The amended returns necessary to receive this credit have been filed, but as of the date of this filing, Air Wisconsin has received a credit of $197 for only one of the three eligible quarters.

Economic Conditions, Challenges and Risks Impacting Financial Results

For a discussion of the general and specific factors and trends affecting our business and results of operations, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our 2021 Annual Report.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and the Three Months Ended September 30, 2021

The following table sets forth our major operational statistics and the associated percentage changes for the periods presented:

	Three Months Ended September 30,
	2022			2021			Change
Operating Data:
Available Seat Miles (“ASMs”) (in thousands)		305,363			438,990			(133,627	)	(30.4	%)
Actual Block Hours		25,676			37,995			(12,319	)	(32.4	%)
Actual Departures		16,771			26,137			(9,366	)	(35.8	%)
Revenue Passenger Miles (“RPMs”) (in thousands)		263,899			364,533			(100,634	)	(27.6	%)
Average Stage Length (in miles)		372			341			31		9.1	%
Contract Revenue Per Available Seat Mile (in cents)		22.40	¢		16.37	¢		6.03	¢	36.8	%
Passengers		699,678			1,047,201			(347,523	)	(33.2	%)

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The decrease in ASMs, block hours, departures, RPMs and passengers during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was primarily due to the industry-wide pilot shortage which resulted in a significantly lower number of flights.

Operating Revenues

The following table sets forth our operating revenues and the associated dollar and percentage changes for the periods presented:

	Three Months Ended September 30,
	2022		2021		Change
Operating Revenues ($ in thousands):
Contract Revenues	$	68,389	$	71,866	$	(3,477	)	(4.8	%)
Contract Services and Other		21		21		—		—
Total Operating Revenues	$	68,410	$	71,887	$	(3,477	)	(4.8	%)

Total operating revenues decreased $3.5 million, or 4.8%, during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to a decrease in flying due to the industry-wide pilot shortage. As a result of the reduced flight activity as illustrated in the table above for operating data, variable revenue decreased by $10.3 million, or 31.5%, which was offset by increases in revenue from incentives of $2.5 million and an increase in the stand ready performance obligation of $4.4 million due to a reduction in our flying schedule. Refer to Note 1, Summary of Significant Accounting Policies for additional information regarding the stand ready performance obligation.

Operating Expenses

The following table sets forth our operating expenses and the associated dollar and percentage changes for the periods presented:

	Three Months Ended September 30,
	2022		2021			Change
Operating Expenses ($ in thousands):
Payroll and Related Costs	$	26,801	$	29,056		$	(2,255	)	(7.8	%)
Aircraft Fuel and Oil		49		51			(2	)	(3.9	%)
Aircraft Maintenance, Materials and Repairs		17,494		13,877			3,617		26.1	%
Other Rents		1,617		1,572			45		2.9	%
Depreciation, Amortization and Obsolescence		6,639		6,570			69		1.1	%
Payroll Support Program		—		(16,146	)		16,146		(100	%)
Purchased Services and Other		3,310		3,684			(374	)	(10.2	%)
Total Operating Expenses	$	55,910	$	38,664		$	17,246		44.6	%

Payroll and Related Costs. Payroll and related costs decreased $2.3 million, or 7.8%, to $26.8 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily driven by a decrease in crew wages and training expenses of $1.8 million, a decrease in personnel expenses, including per diem and crew rooms, of $0.9 million, a decrease for employee benefits taxes and other wage expense of $0.5 million, and a decrease in mechanic wages of $0.3 million, offset by an increase in hiring, retention, and captain upgrade bonuses of $0.8 million, and an increase in management wages of $0.4 million.

Aircraft Fuel and Oil. Substantially all of the fuel costs incurred as a result of flying pursuant to the United capacity purchase agreement during the three months ended September 30, 2022 and September 30, 2021 were directly paid to suppliers by United. Aircraft fuel and oil expense primarily reflects the costs associated with aircraft oil purchases. These expenses were immaterial for the three months ended September 30, 2022 and September 30, 2021.

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Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and repairs costs increased $3.6 million, or 26.1%, to $17.5 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily as a result of an increase in airframe and engine repairs of $0.6 million and $2.0 million, respectively, and an increase in materials used of $0.7 million. These increases were largely driven by higher maintenance rates and a greater reliance on third-party maintenance providers due to the ongoing labor shortage. For additional information, refer to Note 1, Summary of Significant Accounting Policies – Reclassification.

Other Rents. Other rents expense was relatively unchanged for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

Depreciation, Amortization and Obsolescence. Depreciation, amortization and obsolescence expense was relatively unchanged for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

Payroll Support Program. The contra-expense for the Payroll Support Program decreased $16.1 million, or 100%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. There was no contra-expense recorded in the three months ended September 30, 2022 due to the cessation of the Payroll Support Program in 2021.

Purchased Services and Other. Purchased services and other expense decreased $0.4 million, or 10.2%, to $3.3 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a decrease in insurance expense and in corporate and fiscal expense. For additional information, refer to Note 1, Summary of Significant Accounting Policies – Reclassification.

Other (Expense) Income

Interest Income. Interest income increased $0.2 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily due to an increase in interest earned on the notes receivable due from United.

Interest Expense. Interest expense decreased $0.1 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to debt payments made in 2021. For additional information, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities” within our 2021 Annual Report.

Loss on Marketable Securities. Loss on marketable securities increased $3.7 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to a decrease in the market value of marketable securities.

Gain on Extinguishment of Debt. Gains on extinguishment of debt decreased $10.1 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease is due to the forgiveness of the SBA Loan in August 2021 related to Air Wisconsin’s receipt of governmental assistance related to the COVID-19 pandemic.

Other, Net. Other income increased $0.3 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to an increase in dividend income from investments in marketable securities.

Net Income

Net income for the three months ended September 30, 2022 was $8.0 million, or $0.17 per basic share and $0.13 per diluted share, compared to net income of $36.3 million, or $0.67 per basic share and $0.51 per diluted share, for the three months ended September 30, 2021. For additional information, refer to Note 10, Earnings Per Share and Equity.

The decrease in net income for the three months ended September 30, 2022, when compared to the three months ended September 30, 2021, primarily resulted from an increase in overall operating expenses and specifically no contra-expense related to the Payroll Support Program, under which we ceased receiving support in 2021. The decrease in net income can also be attributed to a decrease in operating revenues, a decrease in gain on extinguishment of debt, and increased losses on investments in marketable securities.

Income Taxes

In the three months ended September 30, 2022, our effective tax rate was 23.8%, compared to 18.1% for the three months ended September 30, 2021. Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, permanent differences between financial statement income and taxable income, as well as any valuation allowance required on our deferred tax assets.

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We recorded an income tax expense of $2.5 million and $8.0 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

The income tax expense for the three months ended September 30, 2022 resulted in an effective tax rate of 23.8%, which differed from the U.S. federal statutory rate of 21.0%, primarily due to the impact of state income taxes and permanent differences between financial statement and taxable income.

The income tax expense for the three months ended September 30, 2021 resulted in an effective tax rate of 18.1%, which differed from the U.S. federal statutory rate of 21.0%, primarily due to the tax exempt status of the SBA Loan forgiveness, the impact of state income taxes, and permanent differences between financial statement and taxable income.

For additional information, refer to Note 5, Income Taxes, in our audited consolidated financial statements included within our 2021 Annual Report.

Comparison of the Nine Months Ended September 30, 2022 and the Nine Months Ended September 30, 2021

The following table sets forth our major operational statistics and the associated percentage changes for the periods presented:

	Nine Months Ended September 30,
	2022			2021			Change
Operating Data:
Available Seat Miles (in thousands)		964,499			918,676			45,823		5.0	%
Actual Block Hours		82,470			81,989			481		0.6	%
Actual Departures		53,865			57,734			(3,869	)	(6.7	%)
Revenue Passenger Miles (in thousands)		802,218			715,066			87,152		12.2	%
Average Stage Length (in miles)		366			322			44		13.7	%
Contract Revenue Per Available Seat Mile (in cents)		22.11	¢		18.99	¢		3.12	¢	16.4	%
Passengers		2,172,492			2,147,805			24,687		1.1	%

The increase in ASMs, block hours, RPMs and passengers during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily due to an increase in stage length and flying under the United capacity purchase agreement during the first two quarters of 2022 as a result of increased demand for air travel related to the recovery from the COVID-19 pandemic, which was partially offset by a decrease in flying activity in the three months ended September 30, 2022 due to the industry-wide pilot shortage.

Operating Revenues

The following table sets forth our operating revenues and the associated dollar and percentage changes for the periods presented:

	Nine Months Ended September 30,
	2022		2021		Change
Operating Revenues ($ in thousands):
Contract Revenues	$	213,280	$	174,467	$	38,813		22.2	%
Contract Services and Other		35		54		(19	)	(35.2	%)
Total Operating Revenues	$	213,315	$	174,521	$	38,794		22.2	%

Total operating revenues increased by $38.8 million, or 22.2%, during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to the recognition of fixed revenues that were previously deferred as a result of changes in estimated departures over the remaining wind-down period. Such changes are due to a significant decrease in expected flight activity due to the on-going pilot shortage, particularly at the captain level.

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Operating Expenses

The following table sets forth our operating expenses and the associated dollar and percentage changes for the periods presented:

	Nine Months Ended September 30,
	2022		2021			Change
Operating Expenses ($ in thousands):
Payroll and Related Costs	$	81,096	$	76,819		$	4,277		5.6	%
Aircraft Fuel and Oil		134		108			26		24.1	%
Aircraft Maintenance, Materials, and Repairs		48,331		37,489			10,842		28.9	%
Aircraft Rent		—		67			(67	)	(100	%)
Other Rents		4,887		3,757			1,130		30.1	%
Depreciation, Amortization, and Obsolescence		19,957		19,569			388		2.0	%
Payroll Support Program		—		(66,316	)		66,316		(100	%)
Purchased Services and Other		10,589		9,944			645		6.5	%
Total Operating Expenses	$	164,994	$	81,437		$	83,557		102.6	%

Payroll and Related Costs. Payroll and related costs increased $4.3 million, or 5.6%, to $81.1 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily driven by an increase in hiring, retention, and captain bonuses and training expenses of $2.7 million, an increase in payroll taxes and benefits of $1.7 million, an increase in personnel expenses, including per diems and crew rooms, of $0.4 million, and an increase in management wages of $0.3 million, offset by a decrease in crew wages of $0.8 million.

Aircraft Fuel and Oil. Substantially all of the fuel costs incurred as a result of flying pursuant to the United capacity purchase agreement during the nine months ended September 30, 2022 and September 30, 2021 were directly paid to suppliers by United. Aircraft fuel and oil expense primarily reflects the costs associated with aircraft oil purchases. These expenses were immaterial for the nine months ended September 30, 2022 and September 30, 2021.

Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and repairs costs increased $10.8 million, or 28.9%, to $48.3 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily as a result of an increase in airframe repairs of $5.0 million, materials used of $2.4 million, and engine repairs of $1.7 million. These increases were largely driven by higher maintenance rates and a greater reliance on third-party maintenance providers due to the ongoing labor shortage. For additional information, refer to Note 1, Summary of Significant Accounting Policies – Reclassification.

Aircraft Rent. There was no rent expense for the nine months ended September 30, 2022, compared to $0.1 million for the nine months ended September 30, 2021.

Other Rents. Other rents expense increased $1.1 million, or 30.1%, to $4.9 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily due to an increase of $1.0 million in flight training simulator rental expense.

Depreciation, Amortization and Obsolescence. Depreciation, amortization and obsolescence expense increased $0.4 million, or 2.0%, to $20.0 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily due to the increase in obsolescence expense for spare parts.

Payroll Support Program. The contra-expense for the Payroll Support Program decreased $66.3 million, or 100%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. There was no contra-expense recorded in the nine months ended September 30, 2022 due to the cessation of the Payroll Support Program in 2021.

Purchased Services and Other. Purchased services and other expense increased $0.6 million, or 6.5%, to $10.6 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. This increase was primarily due to an increase in professional and technical services of $0.6 million, and an increase in technology fees of $0.3 million, partially offset by a decrease in legal fees of $0.3 million, and a decrease in property taxes of $0.1 million. For additional information, refer to Note 1, Summary of Significant Accounting Policies – Reclassification.

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Other (Expense) Income

Interest Income. Interest income increased by $0.7 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily due to an increase in interest earned on the notes receivable due from United.

Interest Expense. Interest expense decreased $0.8 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to the prepayment of debt in June 2021. For additional information, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities” within our 2021 Annual Report and Note 6, Debt, in our audited consolidated financial statements included within our 2021 Annual Report.

Loss on Marketable Securities. Loss on marketable securities increased $9.7 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to a decrease in the market value of marketable securities.

Gain on Extinguishment of Debt. Gains on extinguishment of debt decreased $10.3 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease is primarily due to the forgiveness of the SBA Loan in the amount of $10.1 million in August 2021 related to Air Wisconsin’s receipt of governmental assistance related to the COVID-19 pandemic and certain prepayments of debt in June 2021 resulting in a gain on extinguishment of debt of $0.2 million.

Other, Net. Other income increased by $1.2 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to an increase in dividend income from investments in marketable securities.

Net Income

Net income for the nine months ended September 30, 2022 was $32.4 million, or $0.68 per basic share and $0.50 per diluted share, compared to net income of $82.0 million, or $1.49 per basic and $1.14 per diluted share for the nine months ended September 30, 2021. For additional information, refer to Note 10, Earnings Per Share and Equity.

The decrease in net income for the nine months ended September 30, 2022, when compared to the nine months ended September 30, 2021, primarily resulted from a significant increase in overall operating expenses and specifically no contra-expense related to the Payroll Support Program, under which we ceased receiving support in 2021. Further, our operating expenses, including payroll and related costs, as well as aircraft maintenance and repair costs have also increased. The overall increase in operating expenses was partially offset by an increased recognition of deferred fixed revenues. Non-operating income decreased due to gains on extinguishment of debt that were recorded in the nine months ended September 30, 2021.

Income Taxes

In the nine months ended September 30, 2022, our effective tax rate was 23.8%, compared to 21.6% for the nine months ended September 30, 2021. Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, permanent differences between financial statement income and taxable income, as well as any valuation allowance required on our deferred tax assets.

We recorded an income tax expense of $10.1 million and $22.6 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The income tax expense for the nine months ended September 30, 2022 resulted in an effective tax rate of 23.8%, which differed from the U.S. federal statutory rate of 21.0%, primarily due to the impact of state income taxes and permanent differences between financial statement and taxable income.

The income tax expense for the nine months ended September 30, 2021 resulted in an effective tax rate of 21.6%, which differed from the U.S. federal statutory rate of 21.0%, primarily due to the tax exempt status of the SBA Loan forgiveness, the impact of state taxes, and permanent differences between financial statement income and taxable income.

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For additional information, refer to Note 5, Income Taxes, in our audited consolidated financial statements included within our 2021 Annual Report.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal sources of liquidity are our cash and cash equivalents balance, our marketable securities, and Air Wisconsin’s cash flows from operations. As of September 30, 2022, our cash and cash equivalents balance was $19.4 million and we held $130.5 million of marketable securities. For the nine months ended September 30, 2022, cash provided by operations was $0.2 million. On November 4, 2022 United prepaid to Air Wisconsin $50,126 to satisfy all of the outstanding, undisputed notes receivable, including all accrued interest, issued pursuant to the first amendment to the United capacity purchase agreement. In the near term, we expect to fund our liquidity requirements through cash generated from operations and existing cash, cash equivalents, and marketable securities balances. For additional information, refer to Note 1, Contract Revenue.

Air Wisconsin requires cash to fund its operating expenses and working capital requirements, which include outlays for capital expenditures, labor, and maintenance costs, and payment of 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 and increased labor costs due to shortages of qualified pilots and mechanics. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect current market conditions and our projected demand. Our capital expenditures are typically used to acquire or maintain aircraft and flight equipment for Air Wisconsin. During the nine months ended September 30, 2022, we had $3.0 million in capital expenditures primarily related to purchases of rotable parts and capitalized engine overhauls. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

Air Wisconsin’s ability to service its long-term debt obligations and business development efforts depends, in part, on its ability to generate cash from operating activities, which is subject to, among other things, its future operating performance, as well as other factors, some of which may be beyond our control. If Air Wisconsin fails to generate sufficient cash from operations, it may need to obtain additional debt financing, or restructure its current debt financing, to achieve its longer-term objectives. As of September 30, 2022, Air Wisconsin had $9.2 million of short-term debt, and $56.1 million of long-term debt, all of which is secured indebtedness incurred in connection with the Aircraft Notes. For additional information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities” within our 2021 Annual Report.

The United capacity purchase agreement and Air Wisconsin’s credit agreements with its lender contain restrictions that limit Air Wisconsin’s ability to pay, or prohibit it from paying, dividends or distributions to Harbor. In addition, the PSP Agreements prevent Air Wisconsin from paying dividends prior to certain dates.

We believe our available working capital and anticipated cash flows from operations will be sufficient to meet our liquidity requirements for at least the next 12 months from the date of this filing. To the extent that results or events differ from our financial projections or business plans, our liquidity may be adversely impacted.

Restricted Cash

As of September 30, 2022, in addition to cash and cash equivalents of $19.0 million, the Company had $0.4 million in restricted cash, which relates to a credit facility used for the issuance of cash collateralized letters of credit supporting our worker’s compensation insurance program, landing fees at certain airports and facility leases, as well as cash held for the repurchase of shares under Harbor’s stock repurchase program. Restricted cash includes amounts escrowed in an interest-bearing account that secures the credit facility.

Cash Flows

The following table presents information regarding our cash flows for each of the periods presented ($ in thousands):

	Nine Months Ended September 30,
	2022			2021			Change
Net cash provided by operating activities	$	166		$	82,829		$	(82,663	)	(99.8	%)
Net cash used in investing activities		(4,874	)		(127,983	)		123,109		96.2	%
Net cash used in financing activities		(14,480	)		(41,248	)		26,768		64.9	%

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Cash Flows Provided by Operating Activities

During the nine months ended September 30, 2022, our cash flows provided by operating activities were $0.2 million. We had net income of $32.4 million. Net income is further adjusted for increases in cash primarily related to depreciation, obsolescence and amortization of $18.7 million, loss on marketable securities of $9.8 million, income taxes payable of $4.6 million, and prepaid and other expenses of $3.7 million, offset by decreases in cash primarily related to deferred revenues of $13.5 million, notes receivable of $12.8 million, accounts receivable of $25.9 million, long-term deferred revenue of $9.0 million, accounts payable of $3.5 million, and contract liabilities of $2.5 million.

During the nine months ended September 30, 2021, our net cash flows provided by operating activities were $82.8 million. We had net income of $82.0 million, which was primarily due to increased revenues as a result of the increase in demand for air travel, and lower overall expenses. Net cash flows are further adjusted for increases in cash primarily related to depreciation, obsolescence and amortization of $18.5 million, contract liabilities of $20.8 million, and accounts payable of $5.1 million, partially offset by decreases in cash primarily related to the gain on extinguishment of debt of $10.4 million, long-term deferred revenues of $11.9 million, notes receivable of $13.7 million, accounts receivable of $2.4 million, accrued payroll and benefits of $1.0 million and prepaid and other expenses of $4.9 million.

Cash Flows Used in Investing Activities

During the nine months ended September 30, 2022, our cash flows used in investing activities were $4.9 million resulting primarily from $3.0 million for additions to property and equipment and $1.9 million for investments in marketable securities.

During the nine months ended September 30, 2021, our cash flows used in investing activities were $128.0 million resulting primarily from investments in marketable securities.

Cash Flows Used in Financing Activities

During the nine months ended September 30, 2022, our cash flows used in financing activities were $14.5 million, reflecting $2.2 million in repayments of long-term debt, $0.6 million of dividends paid on preferred stock, $1.0 million for the cancellation of a stock option, and $10.7 million to repurchase shares of our common stock.

During the nine months ended September 30, 2021, our cash flows used in financing activities were $41.2 million, reflecting $39.5 million in repayments of long-term debt, $0.6 million of dividends paid on preferred stock, and $1.2 million to repurchase shares of our common stock.

Commitments and Contractual Obligations

For additional information regarding our commitments and contractual obligations, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Commitments and Contractual Obligations” within our 2021 Annual Report.

The following table sets forth our cash obligations for the periods presented ($ in thousands)

	Total		October through December 2022		2023		2024		2025		2026		Thereafter
Aircraft Notes Principal	$	59,100	$	3,500	$	7,000	$	7,000	$	41,600	$	—	$	—
Aircraft Notes Interest		6,213		591		2,154		1,874		1,594		—		—
Operating Lease Obligations		14,026		1,452		5,841		3,365		2,664		177		527
Total	$	79,339	$	5,543	$	14,995	$	12,239	$	45,858	$	177	$	527

The principal amount of the Aircraft Notes is payable in semi-annual installments of $3.5 million and certain additional amounts may be due based on excess cash flow. The amounts set forth in the table do not reflect any such additional excess cash flow payments. As a result of certain prepayments made under the Aircraft Notes in June 2021, no semi-annual installments are due prior to December 31, 2022. As of September 30, 2022, all of Air Wisconsin’s long-term debt was subject to fixed interest rates. For additional information regarding the Aircraft Notes and Other Loans, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our 2021 Annual Report.

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Series C Convertible Redeemable Preferred Stock

In January 2020, Harbor completed an acquisition from Southshore Aircraft Holdings, LLC and its affiliated entities (“Southshore”) of three CRJ-200 regional jets, each having two General Electric (“GE”) engines, plus five additional GE engines, in exchange for the issuance of 4,000,000 shares of Harbor’s Series C Convertible Redeemable Preferred Stock (the “Series C Preferred”) with an aggregate value of $13.2 million, or $3.30 per share (the “Series C Issue Price”). Air Wisconsin had leased each of these CRJ-200 regional jets and GE engines from Southshore. In January 2020, Harbor filed a Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred Stock (“Certificate of Designations”) with the Secretary of State of the State of Delaware, which establishes the rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred.

Each share of Series C Preferred was initially convertible, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (the “Conversion Price”). The adjusted Conversion Price as of the date of this filing is $0.15091.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500,000, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80 (the “Conversion Cap”), plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted pursuant to the limitation described herein (the “Conversion Cap Excess Shares”), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends equal to an amount per share equal to 0.5% of the Series C Liquidation Amount (as defined below) of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (the “Conversion Cap Excess Dividends”). As of September 30, 2022, 754,550 shares of the Series C Preferred are immediately convertible into 16,500,000 shares of common stock, and the remaining 3,245,450 shares of the Series C Preferred would be deemed Conversion Cap Excess Shares. For additional information related to the Series C Preferred, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Series C Convertible Redeemable Preferred Stock” within our 2021 Annual Report.

On September 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on September 30, 2022.

Based on the applicable accounting guidance, Harbor is required to apply the “if-converted” method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income (loss) per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on the applicable accounting guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets included within this Quarterly Report.

Debt and Credit Facilities

For additional information regarding our debt and credit facilities, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt and Credit Facilities” within our 2021 Annual Report.

Paycheck Protection Program

In April 2020, Air Wisconsin received the $10.0 million SBA Loan under the PPP established under the CARES Act and administered by the SBA. The loan was forgivable subject to certain limitations, including that the loan proceeds be used to retain workers and for payroll, mortgage payments, lease payments, and utility payments. The entire principal amount and accrued interest was forgiven in August 2021.

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Payroll Support Program

In April 2020, Air Wisconsin entered into the PSP-1 Agreement with the Treasury for payroll support under the CARES Act and received approximately $42.2 million, all of which was received in the year ended December 31, 2020. In March 2021, Air Wisconsin entered into the PSP-2 Agreement with the Treasury for payroll support under the PSP Extension Law and received approximately $33.0 million, all of which was received in the nine months ended September 30, 2021. In June 2021 the Treasury entered into the PSP-3 Agreement with Air Wisconsin for payroll support under the American Rescue Plan, and Air Wisconsin received approximately $33.3 million.

The PSP Agreements contain various covenants, some of which have expired. The surviving covenants require that (i) the payroll support proceeds must have been used exclusively for the payment of wages, salaries and benefits, and (ii) Air Wisconsin cannot pay total compensation to certain employees in excess of certain total compensation caps. If Air Wisconsin failed to comply with any of its expired obligations or failed or fails to comply with any of its continuing obligations under these agreements, it may be required to repay some or all of the funds provided to it under the PSP Agreements. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on the Company’s business. The Treasury commenced a routine audit of Air Wisconsin’s compliance with the terms of the PSP-1 Agreement. No such audits have been initiated by the Treasury under the PSP-2 Agreement or PSP-3 Agreement as of the date of this filing. For additional information, refer to Note 8, Commitments and Contingencies.

Maintenance Commitments

For additional information regarding our maintenance commitments, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Maintenance Commitments” within our 2021 Annual Report.

Off-Balance Sheet Arrangements

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

We have no off-balance sheet arrangements that would have a material current or future effect on the Company’s financial condition, results of operations or liquidity.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues 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 policies. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involve the exercise of judgment and the use of assumptions as to the future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. For additional information regarding our critical accounting policies, refer to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” within our 2021 Annual Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to the information regarding market risk provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” within our 2021 Annual Report.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer, principal financial officer and principal accounting officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of September 30, 2022, the last day of the period covered by this Quarterly Report. Based on this evaluation, our management, including our principal executive officer, principal financial officer and principal accounting officer, concluded that, as of September 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on Effectiveness of Controls

Our management, including our principal executive officer, principal financial officer and principal accounting officer, does not expect that our disclosure controls and procedures, or our system of internal control over financial reporting, will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2022 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

For information related to legal proceedings, refer to Note 8, Commitments and Contingencies.

Item 1A. Risk Factors

Our short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a result, investing in the Company’s common stock involves substantial risk. The Company’s stockholders should carefully consider the risks and uncertainties described below, in addition to the other information contained in or incorporated by reference into this Quarterly Report, as well as the other information we file with the SEC from time to time. If any of these risks are realized, our business, financial condition, results of operations, liquidity and prospects could be materially and adversely affected. In that case, the value of the Company’s common stock could decline, and stockholders may lose all or part of their investment. Furthermore, additional risks and uncertainties of which we are currently unaware, or which we currently consider to be immaterial, could have a material adverse effect on our business. Certain statements made in this section constitute “forward-looking statements,” which are subject to numerous risks and uncertainties including those described in this section. For additional information, refer to “Cautionary Note Regarding Forward-Looking Statements” within this Quarterly Report.

Risks Related to Our Business

If the transition from the United capacity purchase agreement to the American capacity purchase agreement is delayed or more difficult than expected, our business would be significantly negatively impacted.

A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. In October 2022, United initiated arbitration under the agreement and requested a declaration that it does not owe any of the amounts claimed by Air Wisconsin. The timing of the withdrawal of aircraft from the United capacity purchase agreement is affected by the dispute. The existence of the dispute could significantly complicate the transition of aircraft from the provision of services to United to the provision of services to American.

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The American capacity purchase agreement provides that a certain number of aircraft each month, commencing in March 2023, will begin flying scheduled flights for American. Before an aircraft can operate flights for American, that aircraft must first be removed from the provisions of the United capacity purchase agreement pursuant to a wind-down schedule and modified to meet American’s requirements. During the period from the withdrawal of an aircraft from the provisions of the United capacity purchase agreement until it becomes covered by the provisions of the American capacity purchase agreement, that aircraft will not generate revenues from either United or American. The period of time that an aircraft will not be covered by either capacity purchase agreement depends on a wind-down schedule that has not been finally determined. The transition of aircraft from the United capacity purchase agreement to the American capacity purchase agreement is subject to many factors, including the cooperation of United, some of which are not within Air Wisconsin’s control. There can be no assurance that this transition will proceed smoothly, and unexpected delays in the transition could have a material adverse effect on our business, financial condition and results of operations.

Our current business is highly dependent on the United capacity purchase agreement because United is currently Air Wisconsin’s sole airline partner. Once all of Air Wisconsin’s aircraft have been withdrawn from the United capacity purchase agreement, our business will be highly dependent on the American capacity purchase agreement because American will be Air Wisconsin’s sole airline partner.

We currently derive nearly all of our operating revenues from the United capacity purchase agreement because United is currently Air Wisconsin’s sole airline partner. United accounts for approximately 99.9% of our operating revenues. Upon the transition of Air Wisconsin’s aircraft to American, we will derive nearly all of our operating revenues from the American capacity purchase agreement because American will be Air Wisconsin’s sole airline partner and will account for nearly all of our operating revenues.

Pursuant to the American capacity purchase agreement, American is permitted to terminate the agreement prior to the expiration of its term in certain circumstances, including upon Air Wisconsin’s material breach of the agreement, Air Wisconsin’s inability to operate a certain number of aircraft, Air Wisconsin’s failure to meet certain operating benchmarks for specified periods and certain changes of control of Air Wisconsin. In addition, American and Air Wisconsin will each have the right to terminate the agreement for any reason after a certain date prior to the specified termination date. If American terminates the American capacity purchase agreement, our business, financial condition, results of operations and liquidity could be significantly negatively impacted, unless Air Wisconsin is able to enter into satisfactory substitute arrangements for the utilization of its aircraft.

Any events that negatively impact the financial or operating performance of either United, prior to the withdrawal of all of Air Wisconsin’s aircraft from the United capacity purchase agreement, or American could have a material adverse effect on our business, financial condition and results of operations. Either United or American may be materially and adversely impacted, directly or indirectly, by new variants of COVID 19 or a long-term COVID 19 endemic, by worldwide political or economic changes or instability, including those associated with the outbreak of war or hostilities, government sanctions, travel restrictions, rising fuel and other commodity prices, currency exchange rate fluctuations, increasing interest rates and inflation. If United, prior to the withdrawal of all of Air Wisconsin’s aircraft from the United capacity purchase agreement, or American were to experience significant financial difficulties as a result of these or other reasons, it could negatively impact United’s or American’s ability to meet its financial obligations under the applicable capacity purchase agreement or alter its business strategy as it applies to regional airlines. Further, if American were to become bankrupt, the American capacity purchase agreement may not be assumed in bankruptcy and could be terminated, and such termination would have a material adverse effect on our business, financial condition and results of operations.

Air Wisconsin may experience difficulty hiring, training and retaining a sufficient number of qualified pilots and mechanics, which may negatively affect Air Wisconsin’s operations and our financial condition.

Historically, the supply of qualified pilots to the airline industry has been limited, which has created difficulty hiring, training and retaining a sufficient number of qualified pilots. In July 2013, the Federal Aviation Administration (the “FAA”) issued stringent pilot qualification and crew member flight training standards, which increased the required training time for new airline pilots (the “FAA Qualification Standards”), and the FAA also mandated stricter rules to minimize pilot fatigue, increasing the number of pilots required to be employed for Air Wisconsin’s operations and correspondingly increasing Air Wisconsin’s labor costs.

As a result of the significant decline in passenger demand and drastically reduced flight departures during the early stage of the COVID-19 pandemic, there was no shortage of qualified pilots in the airline industry. During the first two years of the COVID-19 pandemic, for many reasons, such as reduced flying opportunities, travel restrictions and COVID-19 vaccine mandates, many pilots decided to retire or seek employment in other industries. However, as passenger demand for air travel has increased, Air Wisconsin

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has experienced challenges hiring and maintaining sufficient numbers of qualified pilots due to a number of factors, including the increased flight hour requirements under the FAA Qualification Standards, the statutory mandatory retirement age of 65, and attrition resulting from voluntary retirement decisions. Air Wisconsin has also experienced challenges with pilot attrition to other airlines. Air Wisconsin has historically expended significant resources to recruit and train pilots, including as a result of recent significant upward pressure on pilot compensation at certain regional airlines and limited availability of flight simulators and instructors. Air Wisconsin recently increased its pilot compensation and may continue to experience additional cost increases in the future. Since neither United nor American is required to increase the amounts it pays to Air Wisconsin as Air Wisconsin increases the amount of pilot compensation, these increases could have an adverse impact on our financial condition and operating results.

Air Wisconsin has also recently experienced difficulty hiring and retaining qualified mechanics to service its aircraft, due to a variety of factors, including voluntary retirement decisions, decisions not to return after furloughs during the COVID-19 pandemic, and the hiring needs of other airlines. There is also a risk that some mechanics may have decided to leave the airline industry or may decide to do so in the future. If Air Wisconsin is unable to hire and retain a sufficient number of qualified mechanics, it could have an adverse impact on our business and operations.

Even though passenger demand for air travel has been increasing, United has scheduled fewer Air Wisconsin departures and block hours relative to 2019 levels. A significant part of the reduction is due to a shortage of pilots.

If future pilot or mechanic attrition rates outpace Air Wisconsin’s ability to hire and retain qualified pilots and mechanics, Air Wisconsin may need to continue to increase its labor costs to attract and retain sufficient qualified pilots and mechanics or it may be unable to fly the number of flights scheduled under the United and American capacity purchase agreements, which may result in penalties under the agreements that would negatively impact Air Wisconsin’s operations and our financial condition.

Disagreements regarding the interpretation of the United capacity purchase agreement could have an adverse effect on our operating results and financial condition.

Contractual agreements, such as the United capacity purchase agreement, are subject to interpretation, and disputes may arise if the parties apply different interpretations to the agreements. Currently, a dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. As of September 30, 2022, the aggregate amount in dispute was approximately $33 million. In October 2022, United initiated arbitration under the agreement and requested a declaration that it does not owe any of the disputed amounts as claimed by Air Wisconsin. The arbitration could result in substantial costs and a diversion of management’s attention and resources, and there is always a chance of an unfavorable determination by the arbitrators, which could harm our business, financial condition and results of operations.

If United or American provides Air Wisconsin with inefficient flight schedules, or makes certain changes to the expected utilization of Air Wisconsin’s aircraft under the applicable capacity purchase agreement, our business, financial condition and results of operations may be adversely affected.

Under the terms of the United and American capacity purchase agreements, United and American have the ability to schedule Air Wisconsin’s flights in any manner that serves their purposes, subject to certain reasonable operating constraints which do not prevent them from scheduling Air Wisconsin’s flights in a manner Air Wisconsin deems inefficient. From time to time, United has scheduled Air Wisconsin’s flights in a manner that created operational inefficiencies for Air Wisconsin, such as by building in long crew layovers or overnights, which caused crew staffing issues and resulted in limited crew availability to fly other scheduled Air Wisconsin flights, or by providing Air Wisconsin with flight schedules that were inconsistent with Air Wisconsin’s existing operational footprint. It is possible that American will also schedule flights in a manner that Air Wisconsin deems inefficient. These actions have had and may continue to have a material adverse effect on our business, financial condition and results of operations.

Certain factors have led United in the past, and may lead United or American in the future, to modify the anticipated utilization of Air Wisconsin’s aircraft, some of which are beyond Air Wisconsin’s control. Any factors that continue to cause United or American to schedule the utilization of Air Wisconsin’s aircraft on routes or at frequencies materially different than we have forecasted could further reduce our ability to realize operating efficiencies, which would continue to negatively impact our financial condition and operating results. The actual number of flights United or American schedules under the applicable capacity purchase agreement in any particular period may be significantly different from the number of flights we initially anticipated or which United or American initially communicated for the period.

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Air Wisconsin’s current and future growth opportunities may be limited by the American capacity purchase agreement or a number of factors impacting the airline industry.

Growth opportunities within American’s current flight network may be limited by various factors, including “scope” clauses in its collective bargaining agreements with its pilots that restrict the number and size of regional aircraft that may be operated in its flight systems that are not flown by its pilots. These clauses could limit Air Wisconsin’s ability to operate larger aircraft for American, which would limit Air Wisconsin’s expansion opportunities. American is under no obligation to provide Air Wisconsin with an opportunity to fly additional aircraft within its system or to otherwise expand its relationship with Air Wisconsin.

Air Wisconsin’s ability to expand its operations in the future may be limited by a number of factors impacting the airline industry, including pilot and mechanic shortages, access to airport terminals and facilities, capital expenditures required to maintain or expand fleet operations, significant changes in fuel prices or other variable costs, regulatory changes, changes in the availability of necessary parts and equipment, and intense competition and pricing pressure. Given the competitive nature of the airline industry, we believe limited growth opportunities exist and as a result Air Wisconsin may be required to accept less favorable contract terms in order to secure new or additional flying opportunities.

The amounts Air Wisconsin receives under the United and American capacity purchase agreements may be less than the corresponding costs Air Wisconsin incurs.

Under the United and American capacity purchase agreements, a portion of the revenues Air Wisconsin receives is based upon predetermined rates calculated by reference to certain factors, such as the number of covered aircraft, the number of block hours flown and the number of departures. The primary operating costs intended to be compensated by the predetermined rates include, among other things, salaries and benefits, training costs, crew room costs, maintenance expenses, simulator and spare parts costs, and overhead costs. If Air Wisconsin’s costs for those items exceed the compensation paid under the applicable agreement, our financial position and operating results will be negatively affected. For example, Air Wisconsin has experienced, and may continue to experience, upward pressure on pilot and mechanic compensation as it seeks to attract and retain qualified staff, which increases are not adjusted for by either the United capacity purchase agreement or the American capacity purchase agreement and, therefore, negatively impact our operating results.

A significant portion of Air Wisconsin’s workforce is represented by labor unions, and the terms of Air Wisconsin’s collective bargaining agreements may increase our operating expenses and negatively impact our financial results.

A significant majority of Air Wisconsin’s employees are represented by labor unions, including the Air Line Pilots Association, International (“ALPA”), the Association of Flight Attendants (“AFA”), the International Association of Machinists and Aerospace Workers AFL-CIO (“IAMAW”), and the Transport Workers Union of America (“TWU”). The terms and conditions of future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency, or other factors, to bear higher costs than Air Wisconsin, which are likely to result in higher industry wages and increased pressure on Air Wisconsin to increase the wages and benefits of its employees. Future agreements may be on terms that are less favorable to Air Wisconsin than its current agreements or not comparable to agreements entered into by its competitors. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Any agreements reached in collective bargaining may increase our operating expenses and negatively impact our financial results. If Air Wisconsin is unable to reach agreement with any of its unionized work groups in current or future negotiations regarding the terms of their collective bargaining agreements, it may be subject to work interruptions, stoppages or shortages.

Maintenance costs may increase further, and out-of-service periods may result in aircraft being unavailable for flying.

The average age of Air Wisconsin’s CRJ-200 regional jets as of September 30, 2022 was approximately 20.1 years. As Air Wisconsin’s fleet continues to age, its maintenance costs may increase, both on an absolute basis and as a percentage of its operating expenses, and may result in out-of-service periods during which aircraft are dedicated to maintenance activities and unavailable for flying under the United or American capacity purchase agreements. In addition, as noted above, there is an industry-wide shortage of aircraft mechanics. Air Wisconsin has increased its labor costs to attract and retain qualified mechanics. However, as passenger demand for air travel has increased and additional aircraft are brought back into service to address the increased demand, the turnaround time for routine and heavy maintenance has lengthened. As a result, Air Wisconsin has experienced, and may continue to experience, delays and increased costs in obtaining both in-house and third-party maintenance services. Any continued increase in Air Wisconsin’s maintenance costs or decreased revenues resulting from out-of-service periods could have a further adverse effect on our financial condition and operating results.

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Air Wisconsin currently operates only one aircraft type, and relies on one aircraft manufacturer and one engine manufacturer, and any operating restrictions or safety concerns applicable to this aircraft or engine type, or any failure to receive sufficient maintenance and support services from these manufacturers, would negatively impact our business and financial condition.

Air Wisconsin currently relies on a single aircraft type, the CRJ-200 regional jet, and a single engine type, the General Electric (“GE”) CF34-3B1 engine. The issuance of FAA or manufacturer directives restricting or prohibiting the use of this aircraft type or engine type, or Air Wisconsin’s inability to obtain necessary parts and services related to this aircraft type or engine type, would negatively impact our business and financial results. In addition, any concerns raised regarding the safety or reliability of the CRJ-200 regional jet or the GE CF34-3B1 engine, whether or not directly associated with Air Wisconsin’s fleet, could result in concerns about Air Wisconsin’s fleet that could negatively impact our business.

Air Wisconsin has been highly dependent upon Bombardier, Inc. (“Bombardier”), as the sole manufacturer of Air Wisconsin’s aircraft, and GE, as the sole manufacturer of Air Wisconsin’s aircraft engines, to provide sufficient parts and related maintenance and support services to it in a timely manner. In June 2020, Bombardier consummated an agreement with Mitsubishi Heavy Industries, Ltd (“Mitsubishi”), pursuant to which Mitsubishi purchased Bombardier’s regional jet program, including all aspects of the CRJ-200 regional jet, such as type certificates, maintenance, support, refurbishment, marketing and sales activities. Air Wisconsin’s operations could be materially and adversely affected by the failure or inability of Mitsubishi or GE to provide required maintenance or support services, or as a result of unscheduled or unanticipated maintenance requirements for Air Wisconsin’s aircraft or engines.

Air Wisconsin’s ability to obtain additional financing may be limited, and, in the event Air Wisconsin is unable to repay its debt and other contractual obligations, our business, results of operations and financial condition may be adversely impacted.

The airline business is capital intensive. As of September 30, 2022, Air Wisconsin had approximately $65.3 million in total third-party debt, which was incurred in connection with the acquisition of aircraft and which is secured by substantially all of Air Wisconsin’s aircraft, engines and parts. Since the acquisition of such aircraft, Air Wisconsin has financed its operations primarily from cash flow. However, to the extent Air Wisconsin finances its activities or its pursuit of new opportunities with additional debt, it would become subject to additional debt service obligations, as well as additional covenants that may restrict its ability to pursue its business strategy or otherwise constrain its growth and operations. Air Wisconsin’s ability to pay any additional debt service obligations, in addition to the high level of fixed costs associated with operating a regional airline, will depend on its operating performance, cash flows and ability to secure adequate financing, which will in turn depend on, among other things, the success of its current business strategy, availability and cost of financing, as well as general economic and political conditions and other factors that may be beyond its control. We cannot be certain Air Wisconsin’s working capital and cash flows from operations will be sufficient to make its required payments under its debt and other contractual arrangements.

If Air Wisconsin is unable to pay its debts as they come due or fails to comply with its obligations under the agreements governing its debt, and is unable to obtain waivers of such defaults, its secured lender could foreclose on any of Air Wisconsin’s assets securing such debt. Additionally, a failure to pay Air Wisconsin’s property leases, debt or other fixed cost obligations, or a breach of its other contractual obligations, could result in a variety of further adverse consequences, including the exercise of remedies by its creditors and lessors, such as acceleration. In such a situation, Air Wisconsin may not be able to cure its breach, fulfill its contractual obligations, make required lease payments or otherwise cover its fixed costs, which could have a material adverse effect on our business, results of operations and financial condition.

In addition, the agreements that Air Wisconsin has entered into with the Treasury for payroll support contain various covenants. If Air Wisconsin fails to comply with its surviving obligations under those agreements, it may be required to repay the funds provided to it under those agreements. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on our business.

The loss of key personnel upon whom Air Wisconsin depends to operate its business or the inability to attract additional qualified personnel could adversely affect our business.

Our future success depends on our ability to retain or attract highly qualified management, technical and other personnel. We may not be successful in retaining key personnel or in attracting other highly qualified personnel. Any inability to attract or retain qualified management personnel and other employees, or any significant increases in the costs associated with recruiting or retaining qualified employees, would have a material adverse effect on our business, results of operations and financial condition.

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Information technology security breaches, hardware or software failures, or other information technology infrastructure disruptions may negatively impact Air Wisconsin’s business, operations and financial condition.

The performance and reliability of Air Wisconsin’s technology, the technology of United and American, and the technology of our third-party service providers, are critical to Air Wisconsin’s ability to compete effectively. Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as power, telecommunications or the internet, may disrupt Air Wisconsin’s internal network. Any individual, sustained or repeated failure of Air Wisconsin’s technology, or that of United, American or our third-party service providers, could impact Air Wisconsin’s ability to conduct its business, lower the utilization of Air Wisconsin’s aircraft and result in increased costs and penalties. Air Wisconsin’s technological systems, software and related data, those of United and American, and those supplied by our third-party service providers, may be vulnerable to a variety of sources of interruption or exploitation due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.

In addition, as a part of Air Wisconsin’s ordinary business operations, it collects and stores, and will collect and store, sensitive data, including personal information of its employees and information of United and American. Air Wisconsin’s information systems are subject to an increasing threat of evolving cybersecurity attacks. Unauthorized parties may attempt to gain access to Air Wisconsin’s systems or information through fraud or other means of deception. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time. Air Wisconsin may not be able to prevent all data security breaches or misuse of data. The compromise of Air Wisconsin’s technology systems resulting in the loss, disclosure, misappropriation of, or access to, employees’, passengers’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information and disruption to its operations, any or all of which could adversely affect our business and financial condition.

Risks Related to Our Industry

The airline industry is often negatively impacted by numerous factors that could have a material adverse effect on our business, results of operations and financial condition.

The airline business is affected by numerous factors, many of which are beyond Air Wisconsin’s control, including air traffic congestion at airports, air traffic control inefficiencies, adverse weather conditions, natural disasters, facility disruptions, acts of war or terrorism, cancellations, increased security measures, and the outbreak of disease. Factors that cause flight delays frustrate passengers, increase operating costs and decrease revenues, which in turn adversely affect profitability. Because Air Wisconsin’s revenues (other than the portion of its revenues based on the number of aircraft covered under the applicable capacity purchase agreement) depend primarily on Air Wisconsin’s completion of flights, and secondarily on service factors such as timeliness of departure and arrival, customer satisfaction, cancellations or delays, any of these factors could have a material adverse effect on our business, results of operations and financial condition.

In addition to the factors noted above, Air Wisconsin’s operations and our financial condition are currently affected, and may in the future be affected, by many other factors and conditions beyond Air Wisconsin’s control, including, among others:

• the acute on-going shortage of qualified pilots and mechanics, and costs of increased pilot compensation and the continuing pressure to significantly increase wages;

• actual or potential changes in political conditions, including wars, outbreak of hostilities, terrorism, or government sanctions;

• changes in demand for airline travel or tourism, consumer preferences, or demographic trends;

• changes in the competitive environment due to pricing, industry consolidation, or other factors;

• labor disputes, strikes, work stoppages, or similar matters impacting employees; and

• actual or potential changes in economic conditions, including rising fuel and other commodity prices, currency exchange rate fluctuations, increasing interest rates, inflation and changes in discretionary spending and consumer confidence.

The effect of the foregoing factors or conditions on Air Wisconsin’s operations is difficult to forecast; however, the occurrence of any or all of such factors or conditions could materially and adversely affect its operations and our financial condition.

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The COVID-19 pandemic, and the outbreak of any other disease or similar public health threat that we may face in the future, could result in additional adverse effects on the business, operating results, financial condition and liquidity of Air Wisconsin, United and American.

United, Air Wisconsin’s current sole airline partner, began experiencing a significant decline in domestic and international demand related to the COVID-19 pandemic during the first quarter of 2020. United has recently stated that its capacity for the fourth quarter of 2022 is estimated to be down approximately 10% compared to the same period in 2019 and it continues to be subject to industry-wide constraints that restrict the rate of growth. In addition, a further outbreak of COVID-19 or an outbreak of another disease or similar public health threat, or any other event that would affect consumer demand for air travel or impose travel restrictions, could have a material adverse impact on our business, operating results, financial condition and liquidity, and those of United and American.

Several regional and larger carriers have ceased operations as a direct or indirect result of the COVID-19 pandemic. ExpressJet Airlines, Inc., Miami Air International, Trans States Airlines and Compass Airlines, each of which are or were domestic regional or charter airlines, have either filed for Chapter 11 or Chapter 7 bankruptcy or ceased or severely limited operations due, at least in part, to the COVID-19 pandemic’s impact on their business.

High and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel could have a material adverse impact on Air Wisconsin’s operating results and financial condition and liquidity.

Although the United and American capacity purchase agreements provide that United or American, as the case may be, sources, procures and directly pays third-party vendors for substantially all fuel used in the performance of the agreement, aircraft fuel is critical to Air Wisconsin’s operations. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources as well as related service and delivery infrastructure. Air Wisconsin can neither predict nor guarantee the continued timely availability of aircraft fuel throughout Air Wisconsin’s system. Supplies and prices of fuel are also impacted by factors, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, changes in regulations, environmental concerns and financial investments in energy markets. Both actual changes in these factors, as well as changes in related market expectations, have and may continue to drive rapid changes in fuel prices in short periods of time. Rising fuel prices may lead to increases in airline fares or fees that may not be sustainable, may reduce the general demand for air travel and may eventually impact the amount of flying that United or American schedules Air Wisconsin to perform. Any such schedule reductions may impact Air Wisconsin’s operating results. In addition, since single class 50-seat aircraft, such as those in Air Wisconsin’s fleet, are less fuel efficient than certain larger aircraft, increased fuel costs affects Air Wisconsin’s competitiveness in the industry.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential major airline partners.

The airline industry is highly competitive. Air Wisconsin competes primarily with other regional airlines, some of which are owned or operated by major airlines. The airline industry has undergone substantial consolidation, including the mergers between Alaska Airlines and Virgin America, American Airlines and US Airways, Southwest and AirTran Airways, United and Continental Airlines and Delta and Northwest Airlines. Any additional consolidation or significant alliance activity within the airline industry, such as the American Airlines and Jet Blue Airways alliance or the recently announced acquisition of Spirit Airlines by Jet Blue Airways, if it receives necessary governmental approvals, could further limit the number of potential airline partners with whom Air Wisconsin could enter into commercial agreements. In addition, any further consolidation activity involving American, reduction in the size of its network or decision to reduce single class 50-seat aircraft such as the CRJ-200 regional jet could alter its business strategy or its perception of the value of its relationship with Air Wisconsin, which could limit opportunities for Air Wisconsin to continue to provide service to American. Similarly, any further consolidation or restructuring of any major air carrier’s regional jet programs, including as a result of long-term fleet strategy changes announced by several major carriers, could negatively impact Air Wisconsin’s future growth opportunities.

Terrorist activities or warnings have dramatically impacted the airline industry and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath negatively impacted the airline industry in general. If additional terrorist attacks are launched, there may be lasting consequences, which may include loss of life, property damage, increased security measures, higher insurance costs, increased concerns about future terrorist attacks and additional government regulation, among other factors. Additional terrorist attacks, and warnings that such attacks may occur, could negatively impact the airline industry and result in decreased passenger traffic, increased flight delays or cancellations, as well as increased security, fuel and other costs and whether or not involving Air Wisconsin’s aircraft, could have a material adverse impact on our business and operations. Increased global political instability, including the outbreak of war and hostilities, could result in an increased risk of terrorist activities.

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The occurrence of an aviation accident or incident involving Air Wisconsin or its aircraft type could negatively impact our business, financial condition and operating results.

An accident or incident involving Air Wisconsin’s aircraft could result in significant potential claims of injured passengers and others, as well as negative impacts on its operations resulting from the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. If substantial claims resulting from an accident are made in excess of our related liability insurance coverage, then our operational and financial results would be harmed. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that Air Wisconsin’s operations are less safe or reliable than other airlines, which could negatively impact our business, financial condition and operating results.

Given that Air Wisconsin currently operates a single aircraft type, any accident or incident involving the CRJ-200 regional jet aircraft type, whether or not operated by Air Wisconsin, may result in Air Wisconsin temporarily or permanently suspending service on all or a large portion of its fleet. Any grounding of Air Wisconsin’s aircraft could have an adverse impact on Air Wisconsin’s operations, its relationship with United or American, and our financial results. In addition, certain groundings of Air Wisconsin’s aircraft would provide American the right to terminate the American capacity purchase agreement.

Further, any accident or incident involving a CRJ-200 regional jet, regardless of the operator or geographic location of the incident, could cause a public perception that the aircraft type is less safe and reliable than other aircraft types, which could negatively impact our business, financial condition and operating results. Any such accident or incident could result in an acceleration of the implementation of fleet strategy changes by major air carriers that would reduce or eliminate the use of 50-seat aircraft, including the CRJ-200 regional jet.

Air Wisconsin is subject to significant governmental regulation and potential regulatory changes.

All air carriers, including Air Wisconsin, are subject to regulation by the U.S. Department of Transportation (“DOT”), the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA is responsible for regulating and overseeing matters relating to the safety of air carrier flight operations, including the control of navigable air space, the qualification of flight personnel, flight training practices, compliance with FAA airline operating certificate requirements, aircraft certification and maintenance requirements. In addition, airports and municipalities enact rules and regulations that affect Air Wisconsin’s operations. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of Air Wisconsin’s aircraft for any reason may have a material adverse effect on Air Wisconsin’s operations and our financial condition. Further, Air Wisconsin’s business may be subject to additional costs as a result of potential regulatory changes, which additional costs could have an adverse effect on our operating results.

Air Wisconsin is subject to various environmental and noise laws and regulations, which could have a material adverse effect on our business, results of operations and financial condition.

Air Wisconsin is subject to federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. Certain legislative bodies and regulatory authorities are increasingly focused on climate change and have taken actions to implement additional laws, regulations, and programs intended to protect the environment. For example, the federal government, as well as several state and local governments, have implemented legislative and regulatory proposals and voluntary measures intended to reduce greenhouse gas emissions. Compliance with laws, regulations, and other programs intended to reduce emissions or otherwise protect the environment may require Air Wisconsin to reduce its emissions, secure carbon offset credits or otherwise pay for emissions, or make capital investments to modify certain aspects of its operations to reduce emissions. Future policy, legal, and regulatory developments relating to the protection of the environment could have a direct effect on its operations (or an indirect effect through its third-party providers of parts or services or airport facilities at which it operates) and increase its costs and have a material adverse effect on its operations. Any such developments could have an adverse impact on our business, results of operations and financial condition.

Air Wisconsin is also subject to environmental laws and regulations that require it to investigate and remediate soil or groundwater to meet certain remediation standards. Under certain laws, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict and joint and several, meaning that Air Wisconsin could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of contamination directly attributable to it, which liability could have an adverse impact on our results of operations and financial condition.

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The requirement that Air Wisconsin remain a citizen of the United States limits the potential purchasers of the Company’s common stock.

Under DOT regulations and federal law, Air Wisconsin must be owned and controlled by citizens of the United States as that term is defined in the Federal Aviation Act and interpreted by the DOT. The restrictions imposed by federal law and regulations limit who can purchase Air Wisconsin’s equity securities in the following ways:

• at least 75% of Air Wisconsin’s voting equity securities must be owned and controlled, directly and indirectly, by persons or entities who are citizens of the United States;

• at least 51% of Air Wisconsin’s total outstanding equity securities must be owned and controlled by U.S. citizens and no more than 49% of Air Wisconsin’s equity securities may be held, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the U.S. which allow unrestricted access on air service routes between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country; and

• citizens of foreign countries that have not entered into “open skies” air transport agreements with the U.S. may hold no more than 25% of Air Wisconsin’s total outstanding equity securities.

The restrictions on foreign ownership of Air Wisconsin’s equity securities may impair or prevent a sale of common stock by a stockholder of the Company and may adversely affect the trading price or trading volume of the Company’s common stock.

General Risk Factors

Because the trading market for the Company’s common stock is limited, the common stock may continue to be illiquid.

Although the Company’s common stock is traded under the symbol “HRBR” on the OTC Market, the trading volume for the common stock has been and continues to be limited. The Company has not listed, and does not currently intend to list, the Company’s common stock for trading on any national securities exchange. Accordingly, we expect the common stock to continue to be illiquid for the foreseeable future. Investors should be aware that an active trading market for the common stock may never develop or be sustained.

The price of the Company’s common stock has been and may continue to be volatile.

The trading price of the Company’s common stock has been volatile. We believe the Company’s stock price will be subject to wide fluctuations in response to a variety of factors, including the following:

• the outcome of the current arbitration of the dispute between United and Air Wisconsin;

• the potential volatility of the transition of Air Wisconsin’s aircraft from the United capacity purchase agreement to the American capacity purchase agreement;

• market perceptions and speculation as to differences between the United capacity purchase agreement and the American capacity purchase agreement;

• the industry-wide pilot and mechanic shortages;

• future announcements regarding fleet strategy changes by major air carriers, including regarding any decision to reduce or eliminate single class 50-seat aircraft;

• actual or anticipated fluctuations in our financial and operating results from period to period;

• actual or potential changes in economic conditions, including rising fuel and other commodity prices, currency exchange rate fluctuations, increasing interest rates, inflation, and changes in discretionary spending and consumer confidence;

• the impact of the COVID-19 pandemic or other pandemics and widespread outbreaks of communicable diseases on passenger demand for air travel, consumer behavior and tourism;

• the repayment, restructuring or refinancing of Air Wisconsin’s debt obligations and our actual or perceived need for additional capital;

• market perceptions about our financial stability and the financial stability of Air Wisconsin’s business partners;

• market perceptions regarding Air Wisconsin’s operating performance, reliability and customer service, and the operating performance, reliability and customer service of its business partners and competitors;

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• factors and perceptions impacting the airline industry generally, including future passenger demand for air travel;

• announcements of significant contracts, acquisitions or divestitures by us or Air Wisconsin’s competitors;

• bankruptcies or other financial issues impacting Air Wisconsin’s business partners or competitors;

• threatened or actual litigation and government investigations;

• changes in the regulatory environment impacting Air Wisconsin’s business and industry;

• purchases or sales of shares of the Company’s common stock pursuant to the Company’s publicly announced stock repurchase program or otherwise;

• the illiquidity of the Company’s common stock;

• speculative trading practices of the Company’s stockholders and other market participants;

• perceptions about securities that are traded on the OTC Market;

• the impact of the application of accounting guidance; and

• actual or potential changes in political conditions, including wars, outbreak of hostilities, terrorism, or government sanctions.

In recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by companies across industries. These changes may occur without regard to the financial condition or operating performance of the affected companies. Accordingly, the price of the Company’s common stock could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations could materially reduce the trading price of the Company’s common stock.

The concentration of ownership of the Company’s capital stock among a small number of stockholders could allow such stockholders to exert significant influence over the Company’s business plans and strategic objectives, control all matters submitted to the Company’s stockholders for approval, or deter a change in control transaction, any of which could negatively affect the trading price or trading volume of its common stock.

As of September 30, 2022, the Company had 45,652,266 shares of common stock outstanding. As of the same date, Amun LLC (“Amun”) held 20,000,000 shares of the Company’s common stock, representing approximately 32.2% of the fully diluted shares of capital stock of the Company, and Southshore Aircraft Holdings, LLC, through its affiliates (together, “Southshore”), held shares of the Company’s Series C Convertible Redeemable Preferred Stock (“Series C Preferred”), which are immediately convertible into 16,500,000 shares of common stock, representing approximately 26.6% of the fully diluted shares of capital stock of the Company (in each case assuming the full conversion of the Series C Preferred into common stock).

The shares of Series C Preferred are generally authorized to vote with the Company’s common stock. As a result, Amun and Southshore collectively control a majority of the voting power of the Company’s outstanding capital stock and, therefore, are able to exercise significant influence over the establishment and implementation of the Company’s business plans and strategic objectives, as well as to control all matters submitted to the Company’s stockholders for approval. These stockholders may manage the Company’s business in ways with which certain investors may disagree and may be adverse to their interests. This concentration of ownership may also have the effect of delaying, deterring or preventing a change in control transaction, depriving the Company’s stockholders of an opportunity to receive a premium for their investment, or otherwise negatively affecting the trading price or trading volume of the Company’s common stock.

Mr. Bartlett, one of the Company’s directors, may be deemed to be the beneficial owner of the shares of the Company’s common stock held by Amun due to his status as a member of the board of managers of Amun and his ownership of equity interests in Amun. In addition, Mr. Bartlett may be deemed to be the beneficial owner of the shares of the Series C Preferred held by Southshore due to his status as a member of the board of managers of Southshore and his ownership of equity interests in Southshore. Accordingly, Mr. Bartlett may be able to exercise influence over decisions involving the voting or disposition of shares of the Company’s capital stock. However, Mr. Bartlett does not control voting or investment decisions made by either Amun or Southshore.

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The Company may suspend its obligation to comply with SEC filing requirements in future periods and thereby cease filing reports and other information with the SEC, which could have the effect of reducing the trading volume and trading price of the Company’s common stock.

In February 2012, the Company’s predecessor, Harbor Biosciences, Inc., filed a Form 15 with the SEC to deregister its common stock pursuant to Section 12(g) of the Exchange Act. The filing of the Form 15 had the effect of suspending the Company’s obligation, pursuant to Section 15(d) of the Exchange Act, to file reports and other information with the SEC. As a result, prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2019, the last periodic report filed by the Company was the Annual Report on Form 10-K for the year ended December 31, 2011. As of January 1, 2020, the Company no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act, requiring the Company to resume filing reports and other information with the SEC pursuant to the Exchange Act.

The Company has incurred, and expects to continue to incur, significant direct and indirect costs, and diversion of management time and resources, as a result of the requirement to comply with certain reporting obligations under the Exchange Act, including those incurred in connection with the preparation and filing of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, the audit of the consolidated financial statements contained within its Annual Reports in accordance with SEC rules and Public Company Accounting Oversight Board (United States) standards, and compliance with certain provisions of the Sarbanes-Oxley Act of 2002 (“SOX”).

The Company would again become eligible to suspend its public reporting obligations if it (i) determines in accordance with applicable SEC rules it has fewer than 300 stockholders of record as of certain points in time, (ii) does not file registration statements pursuant to the Securities Act (which it does not currently intend to do), and (iii) meets certain other requirements under applicable SEC rules. If the Company becomes eligible to suspend its public reporting obligations in future periods, it may elect to take the actions necessary to suspend those obligations, which would result in the Company no longer being required to file SEC reports. If the Company ceases filing reports and other information with the SEC, it would significantly reduce the amount of publicly available information about the Company and its business and operations, which could have the effect of reducing the trading volume and price of the Company’s common stock.

Further, notwithstanding that the Company is currently required to file certain reports and information with the SEC pursuant to Section 15(d) of the Exchange Act, the Company does not have a class of securities registered pursuant to Section 12 of the Exchange Act. As a result, the Company is not required to comply with, and does not intend to follow, certain disclosure requirements typically applicable to public reporting companies, including the requirement to file proxy statements, information statements, tender offer disclosures, and beneficial ownership filings. Accordingly, there may be significantly less information available about the Company, including its governance policies and ownership structure, than is available for other public reporting companies, which could have the effect of further reducing demand for the Company’s common stock and the trading price.

Provisions in the Company’s governing documents and the American capacity purchase agreement might deter acquisition bids, which could adversely affect the value of the Company’s common stock.

The Company’s amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, contain provisions that, among other things:

• prohibit the transfer of any shares of the Company’s capital stock that would result in (i) any person or entity becoming a “Five-Percent Stockholder” (as defined under Treasury Regulation Section 1.382-T(g)) of the Company’s then- outstanding capital stock, or (ii) an increase in the percentage ownership of any person or entity who is already a “Five-Percent Stockholder” of the Company’s then-outstanding capital stock;

• authorize the board of directors, without stockholder approval, to authorize and issue preferred stock with powers, preferences and rights that may be senior to the Company’s common stock, that could dilute the interest of, or impair the voting power of, holders of the Company’s common stock and could also have the effect of discouraging, delaying or preventing a change of control;

• establish advance notice procedures that stockholders must comply with in order to nominate candidates to the board of directors and propose matters to be brought before an annual or special meeting of the Company’s stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company;

• give the board of directors exclusive authority to set the number of directors and increase or decrease the number of directors by one or more resolutions, which may prevent stockholders from being able to fill vacancies on the board of directors;

46

• authorize a majority of the board of directors to appoint a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which may prevent stockholders from being able to fill vacancies on the board of directors; and

• restrict the ability of stockholders to call special meetings of stockholders.

In addition, the American capacity purchase agreement provides that certain changes of control of Air Wisconsin give American the right to terminate the agreement.

These provisions may have the effect of delaying or preventing a change in control of the Company, creating a perception that a change in control cannot occur, or otherwise discouraging takeover attempts that some stockholders may consider beneficial, any of which could also adversely affect the trading price of the Company’s common stock.

The Company’s amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, limit certain transfers of the Company’s stock in order to preserve the Company’s ability to use its net operating loss carryforwards, which could adversely affect the trading price of its common stock.

To reduce the risk of a potential adverse effect on the Company’s ability to use its current or future net operating loss carryforwards for federal income tax purposes, the Company’s amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, prohibit certain transfers of shares of the Company’s capital stock that could result in adverse tax consequences by impairing the Company’s ability to utilize its net operating loss carryforwards. These transfer restrictions are subject to a number of rules and exceptions, and generally may only be repealed or amended by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Company’s capital stock. These transfer restrictions apply to the beneficial owners of the shares of the Company’s capital stock. The transfer restrictions contained in the Company’s amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, may limit demand for the Company’s common stock, which may adversely affect the trading price. In addition, this limitation may have the effect of delaying or preventing a change in control of the Company, creating a perception that a change in control cannot occur, or otherwise discouraging takeover attempts that some stockholders may consider beneficial.

The Company currently does not intend to pay dividends on its common stock and, consequently, the only opportunity to achieve a return on an investment in the Company’s common stock may be the appreciation in value of the Company’s common stock.

The Company has not historically paid dividends on shares of its common stock and does not expect to pay dividends in the foreseeable future. The United capacity purchase agreement and Air Wisconsin’s credit agreements contain restrictions that limit Air Wisconsin’s ability to pay, or prohibit it from paying, dividends to the Company. Any future determination by the Company to pay dividends will be at the discretion of the board of directors and will depend on our results of operations, financial condition, capital requirements, restrictions contained in current or future credit agreements or capacity purchase agreements (or similar agreements), business prospects and such other factors as the board of directors deems relevant. Consequently, investors should consider that their only opportunity to achieve a positive return on their investment in the Company’s common stock may be the appreciation in value of the common stock. However, as a result of numerous risks and uncertainties described in this Quarterly Report, the trading price may not appreciate and may decline significantly.

As a “smaller reporting company,” the Company has availed itself of reduced disclosure requirements, which may make the Company’s common stock less attractive to investors.

The Company is a “smaller reporting company” under applicable SEC rules and regulations, and it will continue to be a “smaller reporting company” for so long as either (i) the market value of the Company’s common stock held by non-affiliates as of the end of its most recently completed second quarter is less than $250 million or (ii) the market value of the Company’s common stock held by non-affiliates is less than $700 million and the annual revenues of the Company are less than $100 million during the most recently completed fiscal year. Because Amun and Southshore collectively hold a significant percentage of the fully diluted shares of capital stock of the Company, it would require a significant increase in the market value of the Company’s common stock for the Company to no longer qualify as a “smaller reporting company.”

As a “smaller reporting company,” the Company has relied on exemptions from certain disclosure requirements that are applicable to other public reporting companies. These exemptions include reduced financial disclosure and disclosure regarding executive compensation. Investors may find the Company’s common stock less attractive because it relies on these exemptions, which could lead to a less active trading market for the Company’s common stock and negatively impact the trading price.

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Complying with the requirements of public reporting companies under the Exchange Act, including the requirement for management to assess our disclosure controls and procedures and internal control over financial reporting, could increase our operating costs and divert management’s attention from executing our business strategy.

We are subject to the reporting requirements of Section 15(d) of the Exchange Act, which requires, among other things, that we file annual, quarterly, and current reports with the SEC with respect to our business, financial condition and results of operations. In addition, pursuant to SOX, we are required to assess the effectiveness of our disclosure controls and procedures and our internal control over financial reporting. Compliance with these various reporting and compliance obligations has substantially increased our legal and financial compliance costs and increased demands on our management team. Significant additional resources and management oversight may be required to maintain and, as required, enhance our disclosure controls and procedures and internal control over financial reporting, which could have an adverse impact on our business and operating results.

Further, the Company’s status as a public reporting company and the risks associated with being a public reporting company, could make it more difficult for us to attract and retain qualified members of the board of directors and executive officers, and it may increase the cost of their services.

We could identify material weaknesses or significant deficiencies in future periods.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. We cannot be certain that we will be successful in identifying, preventing or remediating future material weaknesses or significant deficiencies in internal control over financial reporting. Any newly identified material weaknesses could result in material misstatements of our annual or interim consolidated financial statements that would not be prevented or detected. Any such misstatements of our financial statements could lead to restatements of our financial statements, which could result in an adverse impact to our financial results and a decline in the trading price of the Company’s common stock.

Stock repurchases could increase the volatility of the trading price of the Company’s common stock, and we cannot guarantee that our stock repurchase program will enhance long-term stockholder value.

The board of directors has adopted a stock repurchase program pursuant to which the Company may repurchase shares of its common stock from time to time. Since the inception of the program in March 2021 through September 30, 2022, the Company has purchased approximately 9.2 million shares of its common stock pursuant to the program. Although the board of directors has authorized the repurchase program, and the Company has completed the purchase of shares of common stock, it does not obligate us to repurchase any additional dollar amount or number of shares, and the program may be modified, suspended or terminated at any time and for any reason. The additional number of shares to be repurchased, and the timing of any such repurchases, will depend on a number of factors, including the trading price of the common stock, the Company’s financial performance and liquidity position, general market conditions, applicable legal requirements and other factors. Our ability to repurchase shares may also be limited by restrictive covenants in future borrowing arrangements we may enter into from time to time. Repurchases of the Company’s common stock could increase the volatility of the trading price and reduce the trading volume, either of which could have a negative impact on the trading price. Similarly, the future announcement of the termination or suspension of the repurchase program, or our decision not to utilize the full authorized repurchase amount under the repurchase program, could result in a decrease in the trading price. There can be no assurance that any repurchases we do elect to make will enhance stockholder value because the market price of the Company’s common stock may decline below the levels at which we repurchased shares. Although the repurchase program is intended to enhance long-term stockholder value, we cannot guarantee that it will do so.

The Company may be at increased risk of securities class action and other litigation.

In the past, securities class action litigation has been instituted against companies following periods of volatility in the overall market and in the price of a company’s securities. If the Company faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business, financial condition and results of operations. As a result of our compliance with Exchange Act reporting obligations, a significant amount of information regarding our business and operations, including our financial condition and operating results, is publicly available, which may result in threatened or actual litigation or other disputes with our stockholders, our employees or other constituents. If such claims are successful, our business and results of operations could suffer and, even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, financial condition and results of operations.

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If securities or industry analysts do not publish reports about our business, an active trading market for the Company’s common stock may not develop.

The extent of any trading market for the Company’s common stock will depend, in part, on any research and reports that securities or industry analysts publish about us or our business. We are not currently aware of any analysts who cover the Company nor do we expect any analysts to commence coverage in the foreseeable future. Investors should not purchase the Company’s common stock with the expectation that we will have analyst coverage, or that an active trading market for the Company’s common stock will be developed or sustained.

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On March 30, 2021, the board of directors adopted a stock repurchase program pursuant to which the Company was initially authorized to repurchase up to $1.0 million of shares of its common stock during the first calendar month of the program, subject to an automatic increase of $1.0 million per calendar month thereafter. The number of shares to be repurchased, and the timing of any such repurchases, depends on a number of factors, including the trading price of the common stock, the Company’s financial performance and liquidity position, general market conditions, applicable legal requirements and other factors. Repurchases may be affected through open market transactions, privately negotiated transactions, or any other lawful means. The Company may, but is not required to, effect repurchases under a trading plan adopted pursuant to Rule 10b5-1 under the Exchange Act, or subject to Rule 10b-18 under the Exchange Act. The Company is not obligated under the program to acquire any particular number or value of shares and can suspend or terminate the program at any time.

No “affiliated purchaser” of the Company acquired any shares of the Company’s equity securities during the three months ended September 30, 2022.

Below is a summary of the Company’s stock repurchase activity during the three months ended September 30, 2022:

	Total number of shares purchased(1)		Average price paid per share		Dollar value of shares repurchased		Approximate dollar value of shares remaining available under stock repurchase program
July 1 – July 31, 2022		200,415	$	2.12	$	424,288	$	2,059,355
August 1 – August 31, 2022		129,630	$	2.23	$	288,560	$	2,770,795
September 1 – September 30, 2022		34,129	$	2.52	$	85,948	$	3,684,847
Total		364,174	$	2.19	$	798,796	$	3,684,847

⁽¹⁾ All of the reported shares were repurchased pursuant to the Company’s publicly announced stock repurchase program. In addition, all of the reported shares were purchased pursuant to a trading plan adopted pursuant to Rule 10b5-1 under the Exchange Act and in compliance with Rule 10b-18 under the Exchange Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

American Capacity Purchase Agreement

In August 2022, Air Wisconsin entered into a new five year capacity purchase agreement with American Airlines, Inc. (“American”), pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American (the “American capacity purchase agreement”). Initially, Air Wisconsin will provide regional airline services for American primarily based at Chicago O’Hare, one of American’s key domestic hubs, with possible future expansion to other hubs. Air Wisconsin’s flights will be operated as American Eagle.

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American will pay Air Wisconsin a fixed daily amount for each aircraft covered under the American capacity purchase agreement (subject to Air Wisconsin’s ability to meet certain block hour utilization thresholds), a fixed payment for each departure, and a fixed payment for each block hour flown, in each case subject to annual increases during the term of the agreement. Air Wisconsin will also be eligible to receive incentive compensation, and will be required to pay rebates, upon the achievement of, or failure to achieve, certain pre-established performance criteria. Air Wisconsin is responsible for certain customary costs relating to the flight operation and maintenance of the covered aircraft along with other customary controllable expenses, including expenses associated with flight crews, line maintenance and overhead. American will reimburse Air Wisconsin for certain customary costs and expenses incurred in connection with Air Wisconsin’s flight operations, including fuel, ground handling, landing and air traffic control, changes to livery and branding, aircraft and passenger liability insurance, property taxes and systems support. American has the right to schedule all aircraft covered by the agreement, including determining route selection and frequency, and the timing of scheduled arrivals and departures, in each case subject to certain scheduling parameters. American also has the right to determine and publish fares and to establish seat inventories, overbooking levels, and allocation of seats among fare categories. Furthermore, American will provide all ground handling services, including gate and ticket counter activities, baggage handling, cargo handling, aircraft loading/unloading services, passenger ticketing, and aircraft cabin cleaning. American has the right to all revenues resulting from the sale of passenger tickets associated with the covered aircraft and all other sources of revenue associated with the operation of the covered aircraft, including revenues relating to baggage charges, food and beverage sales and ticket change fees. Similar to the United capacity purchase agreement, the American capacity purchase agreement protects Air Wisconsin, to an extent, from many of the elements that typically cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in the number of passengers.

The American capacity purchase agreement provides that the parties may discuss the possibility of adding CRJ-700 regional jets to Air Wisconsin’s fleet for the purpose of providing regional airline services under the agreement, but neither party is under any obligation with respect to these additional aircraft.

Up to 40 CRJ-200 regional aircraft will initially be covered by the American capacity purchase agreement, subject to an implementation schedule whereby a specified number of aircraft will become available each month commencing in March 2023 and continuing through October 2023. Subject to the satisfaction of certain conditions, Air Wisconsin can accelerate the implementation schedule. Air Wisconsin may also add up to 20 CRJ-200s as covered aircraft under the agreement subject to satisfying certain minimum block hour utilization thresholds (resulting in an aggregate of up to 60 covered aircraft under the agreement). Except as otherwise permitted in the agreement, the aircraft covered by the agreement may only be used by Air Wisconsin to provide regional airline services for American and may not be used by Air Wisconsin for any other purpose, including flight operations for any other airline. In addition, Air Wisconsin is subject to certain limitations on its ability to use aircraft not covered by the agreement in certain passenger operations.

Unless earlier terminated, the American capacity purchase agreement is effective for each aircraft covered by the agreement for a period of five years from the implementation date for such aircraft. The agreement is subject to early termination and covered aircraft are subject to withdrawal under various circumstances, which include, among others, the occurrence of the following events:

• Subject to certain terms and conditions, either party has the right to terminate the agreement (i) upon the insolvency of the other party, (ii) upon a material breach by the other party, (iii) upon a monetary breach by the other party, (iv) if, after a specified period, there are fewer than a specified number of aircraft covered by the agreement, or (v) at any time following the second anniversary of the earlier of the implementation date of the 40th aircraft covered under the agreement and December 31, 2023.

• American has the right to terminate the agreement or withdraw certain aircraft from the agreement if (i) Air Wisconsin’s FAA or DOT certification is suspended, revoked or materially impaired, (ii) a change of control of Air Wisconsin has occurred, (iii) Air Wisconsin fails to maintain certain insurance coverage, (iv) a force majeure event occurs and is continuing, (v) a labor dispute occurs and is continuing, (vi) there is a material safety issue with Air Wisconsin’s flight operations, or (vii) Air Wisconsin operates the aircraft covered by the agreement for another air carrier.

In addition, American has the right to withdraw certain aircraft if Air Wisconsin’s controllable completion rate or controllable on time departure rate are below a specified threshold for a specified period of time.

The foregoing description of the American capacity purchase agreement does not purport to be complete and is qualified in its entirety by reference to the complete agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report.

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Item 6. Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Provided Herewith
10.1*±	Capacity Purchase Agreement, dated August 19, 2022, by and between American Airlines, Inc. and Air Wisconsin Airlines LLC.						X
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
32.1**	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).						X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.						X
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.						X
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.						X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.						X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.						X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of SOX, shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and shall not be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.

± Certain confidential portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K because the registrant has determined that such redacted information is (i) not material, and (ii) is the type of information the registrant treats as private or confidential. If requested by the Commission or the Staff, the registrant will promptly provide, on a supplemental basis, an unredacted copy of this exhibit and its analysis with respect to the materiality and confidentiality of the redacted information

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SIGNATURES

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.

	HARBOR DIVERSIFIED, INC.
Date: November 21, 2022	By:	/s/ Christine R. Deister
		Christine R. Deister
		Chief Executive Officer and Secretary
		Harbor Diversified, Inc.
		(Principal Executive Officer)
Date: November 21, 2022	By:	/s/ Liam Mackay
		Liam Mackay
		Chief Financial Officer Air Wisconsin Airlines LLC
		(Principal Financial Officer)
Date: November 21, 2022	By:	/s/ Gregg Garvey
		Gregg Garvey
		Senior Vice President, Chief Accounting Officer and Treasurer
		Air Wisconsin Airlines LLC
		(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

EXECUTION COPY

CAPACITY PURCHASE AGREEMENT

between

AMERICAN AIRLINES, INC.

AND

AIR WISCONSIN AIRLINES LLC

EFFECTIVE AS OF AUGUST 19, 2022

TABLE OF CONTENTS

ARTICLE I. DEFINITIONS		1
ARTICLE II. CAPACITY PURCHASE, REVENUES AND OTHER SERVICES		1
2.01	Capacity Purchase	1
2.02	Flight Related Revenues	2
2.03	Non-Revenue Pass Travel	3
2.04	Ground Handling	3
ARTICLE III. USE OF COVERED AIRCRAFT		3
3.01	Use of Covered Aircraft	3
3.02	Additional Aircraft; Spare Aircraft; Aircraft Substitution; Neutral Livery Aircraft	4
3.03	Aircraft Unavailability	5
3.04	Supportability Commitment	6
3.05	Flight Designator Codes and Codeshare Term	6
3.06	Flight Dispatch	7
3.07	Maintenance of Supported Aircraft	7
3.08	Compliance with Other Terms of Related Agreements	9
3.09	Event of Loss	9
ARTICLE IV. SERVICE STANDARDS, PERFORMANCE MEASUREMENT AND TRAINING		9
4.01	Crews and Other Personnel	9
4.02	Governmental Regulations	9
4.03	Quality of Service	10
4.04	Access and Use of American Systems	12
4.05	Data Security	13
4.06	Processing and Adjudicating Customer or Passenger Complaints	14
4.07	Right to Inspect Aircraft and Service Conditions	15
4.08	Controllable Cancellation Codes and Controllable On Time Departure Codes	16
4.09	Catering Products and Catering Services	16
ARTICLE V. SAFETY		16
5.01	Incidents or Accidents	16
5.02	Accident Reports	17
5.03	International Air Transport Association Operational Safety Audit	17
5.04	Emergency Assistance Agreement	17
ARTICLE VI. OTHER OBLIGATIONS OF CONTRACTOR		17
6.01	FAA or DOT Certification Suspension or Revocation	17
6.02	Fuel Efficiency Program	17
6.03	Use of Approved Marks and Copyrights	18
6.04	Ownership and Use of Data	20
6.05	American’s AAdvantage® Program	21
6.06	Periodic Reports	21
6.07	Intentionally Omitted	22
6.08	Liquor Licenses for Covered Aircraft	22
6.09	Intentionally Omitted	22
6.10	Eagle Partnership Manuals	22
6.11	Review of Insurance Coverage	22
6.12	Intentionally Omitted	23

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6.13	Intentionally Omitted	23
6.14	Late Reduced Crew Estimates	23
6.15	Unsupported Aircraft	24
6.16	Resource Allocation	25
6.17	Actions during a Force Majeure Event or Labor Dispute	25
ARTICLE VII. CONTRACTOR’S COMPENSATION		26
7.01	Base and Incentive Payments	26
7.02	Costs and Expenses	26
7.03	Cost Savings	26
ARTICLE VIII. USE OF FACILITIES		26
8.01	Facilities	26
8.02	Conditions of Use for American Facilities	27
8.03	Replacement and Termination of Facilities Use	27
8.04	Facilities Related Insurance	27
8.05	Subleases	27
ARTICLE IX. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS		28
9.01	Contractor’s Representations and Warranties	28
9.02	American Representations and Warranties	29
ARTICLE X. INSURANCE		29
10.01	Minimum Insurance Coverage	29
10.02	Endorsements	31
ARTICLE XI. INDEMNIFICATION		32
11.01	Contractor’s Indemnification of American Indemnified Parties	32
11.02	American’s Indemnification of Contractor Indemnified Parties	33
11.03	Procedure for Indemnification Claims	33
11.04	Employer’s Liability and Workers’ Compensation	36
ARTICLE XII. TERM AND TERMINATION		36
12.01	Term	36
12.02	Termination and Withdrawal Rights	36
ARTICLE XIII. INTENTIONALLY OMITTED		41
13.01	Intentionally Omitted	41
ARTICLE XIV. MISCELLANEOUS		41
14.01	Notices	41
14.02	Binding Effect and Assignment	43
14.03	Amendment and Modification	43
14.04	Waiver	43
14.05	Interpretation	43
14.06	Confidentiality and Public Communications	44
14.07	Cooperation with Respect to Reporting	45
14.08	Right of Set-off	45
14.09	Counterparts	46
14.10	Severability	46
14.11	Governing Law	46
14.12	Entire Agreement; Conflicts with this Agreement	46
14.13	Remedies Cumulative	46
14.14	Further Assurances	46
14.15	No Third Party Beneficiaries	47

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14.16	Relationship of the Parties	47
14.17	Jurisdiction	47
14.18	Waiver of Jury Trial	48
14.19	Limitation on Damages	48
14.20	Equitable Remedies	49
14.21	Survival of Certain Obligations	49

SCHEDULES AND EXHIBITS

SCHEDULE 1:	COVERED AIRCRAFT
SCHEDULE 2:	SCHEDULING AND OPERATING RESTRICTIONS ON COVERED AIRCRAFT
SCHEDULE 3:	PASS THROUGH COSTS, CONTROLLABLE COSTS AND AMERICAN ABSORBED EXPENSES
SCHEDULE 4:	FUEL EFFICIENCY PROGRAM
SCHEDULE 5:	COMPENSATION AND BONUSES AND REBATES
SCHEDULE 6:	INTENTIONALLY OMITTED
SCHEDULE 7:	ACCOUNTING AND AUDITING PROCEDURES AND PAYMENT TERMS
SCHEDULE 8:	CONTROLLABLE CANCELLATION CODES
SCHEDULE 9:	CONTROLLABLE ON TIME DEPARTURE CODES
SCHEDULE 10:	INTENTIONALLY OMITTED
SCHEDULE 11:	AMERICAN FACILITIES
SCHEDULE 12:	INTERIOR DESIGN OF COVERED AIRCRAFT (INCLUDING LAYOUT FOR PASSENGER ACCOMMODATION)
EXHIBIT A:	DEFINITIONS
EXHIBIT B:	STANDARDS OF SERVICE
EXHIBIT C:	TRAINING
EXHIBIT D:	AMERICAN’S SECURITY POLICIES AND PROCEDURES
EXHIBIT E:	STANDARDS OF FACILITIES USE
EXHIBIT F:	CREW FORECAST TEMPLATE

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CAPACITY PURCHASE AGREEMENT

This CAPACITY PURCHASE AGREEMENT (as amended, modified or supplemented from time to time, this “Agreement”), is effective as of August 19, 2022 (the “Effective Date”), between AMERICAN AIRLINES, INC., a Delaware corporation (together with its successors and permitted assigns, “American”) and AIR WISCONSIN AIRLINES LLC, a Delaware limited liability company (together with its permitted successors and assigns, “Contractor”).

RECITALS:

WHEREAS, American and Contractor desire to establish the terms by which Contractor will provide Regional Airline Services utilizing certain regional aircraft on behalf of American;

WHEREAS, American holds a certificate of public convenience and necessity issued pursuant to certain federal transportation statutes authorizing it to engage in air transportation of persons, property and mail, and is a major air carrier providing scheduled domestic and international air transportation;

WHEREAS, Contractor holds a certificate of public convenience and necessity issued pursuant to certain federal transportation statutes authorizing it to engage in air transportation of persons, property and mail, and is a regional air carrier providing scheduled air transportation;

WHEREAS, Contractor is willing to provide, on behalf of American under American’s brands, the Regional Airline Services with respect to the Covered Aircraft as set forth herein, and American and Contractor desire to establish the terms by which Contractor will provide such Regional Airline Services; and

WHEREAS, all references to specific Schedules and Exhibits in this Agreement shall be those certain Schedules and Exhibits attached hereto, which shall be deemed incorporated herein by reference and a part of this Agreement for all purposes.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, American, on the one hand, and Contractor, on the other hand, agree as follows:

ARTICLE I.

DEFINITIONS

Capitalized terms used in this Agreement (including, unless otherwise defined therein, in the Schedules and Exhibits to this Agreement) shall have the meanings set forth on Exhibit A hereto.

ARTICLE II.

CAPACITY PURCHASE, REVENUES AND OTHER SERVICES

2.01 Capacity Purchase. Subject to the terms and conditions of this Agreement and the Related Agreements, American shall purchase during the Term hereof all of the capacity of the Covered Aircraft and Contractor shall provide all of the capacity of each Covered Aircraft and shall operate, in accordance with the terms and conditions hereof, Regional Airline Services between various U.S. domestic city-pairs and between various U.S.-Canadian city-pairs as specified by American pursuant to Section 2.01(b). Contractor shall use the Covered Aircraft, solely for, or as directed by, American in connection with Regional Airline Services and, without limiting the foregoing, in accordance with the following:

(a) Fares, Rules and Seat Inventory. American shall in its sole discretion establish and publish all fares, fare rules, related tariff rules, and other similar information for all seats on the Covered Aircraft. Contractor shall not publish any fares, fare rules, related tariff rules (other than as prepared or authorized by American), or other similar information for the Covered Aircraft. In addition, American shall have complete and exclusive control in its sole discretion with respect to the Covered Aircraft relating to all (i) seat inventories, including all positive space and “space available” non-revenue seating, and pass travel policies, subject to Section 2.03, and (ii) revenue management decisions, including pricing, overbooking levels, discount seat levels and allocation of seats among various fare categories.

(b) Flight Schedules. American shall have the right to schedule all CAATS (pursuant to the scheduling procedures set forth on Schedule 2) and Contractor shall operate the CAATS according to such schedule. Subject to the terms and conditions hereof, American shall in its sole discretion establish and publish all schedules for the CAATS, including determining the city pairs served, frequencies and timing of scheduled arrivals and departures of Scheduled Flights; provided that unless otherwise provided for in this Agreement, all such schedules shall be subject to the scheduling procedures set forth on Schedule 2. In no event shall American schedule a Covered Aircraft that is a Spare Aircraft, a Covered Aircraft in Heavy Maintenance or an Unsupported Aircraft to operate a Scheduled Flight. American shall not schedule any flight to a foreign jurisdiction, other than Canada, without Contractor’s prior written consent.

(c) Hubs. Subject to the implementation of Covered Aircraft pursuant to Section 3.01(a) and Schedule 1 and without limiting Section 6.15, the operations for no fewer than [***] CAATS shall be principally based at, and each such CAATS shall operate primarily from, Chicago O’Hare airport (“ORD”). If American intends to have more than [***] CAATS be principally based at, and operate primarily from, another airport where Parent provides airline services [***], then such other airport shall also be deemed a “Hub” hereunder; provided that American delivers Notice of such intention to Contractor at least [***] in advance of the first date that such other airport is intended to be used as a Hub hereunder and during such [***] period, Contractor shall identify any requirements for American Facilities (including crew rooms or line maintenance facilities) that are necessary for Contractor to provide the Regional Airline Services from such new Hub. In the event that a new Hub is added following the Effective Date, Contractor shall take all action necessary to relocate the applicable number of CAATS to such new Hub. Contractor’s costs and expenses in relocating CAATS to be principally based at a new Hub shall be [***] as provided in Schedule 3 and the costs and expenses of the American Facilities for Contractor’s use of the Regional Airline Services will be [***].

2.02 Flight Related Revenues. Contractor acknowledges and agrees that American shall be entitled to and shall receive all revenues (including any consideration received from any interline and non-revenue travel agreements) resulting from the sale or issuance of passenger tickets associated with the Covered Aircraft and all other sources of revenue associated with the operation of the Covered Aircraft, including revenues relating to (a) any tickets sold under the designator code of a Third Party (such as an American codeshare partner); (b) transportation of cargo or mail; (c) ancillary passenger service charges, including any baggage charges, food, beverage (including revenues relating to the sale of beer, wine, liquor or any other alcoholic beverages), unaccompanied minor fees and duty free services; (d) guarantees, incentive payments or cost abatements from Governmental Authorities or other Third Parties in connection with scheduling flights to an airport or locality; (e) ticket change fees; and (f) pass travel and other non-revenue or reduced rate travel charges. All such revenues shall be the sole property of, and shall belong to, American, and if received by Contractor, shall be promptly remitted by Contractor to American. American shall perform all revenue accounting and management functions in connection with all such revenues. The Parties hereto acknowledge and agree that all flight related revenue to which American is entitled hereunder (including under this Section 2.02) is independent of the non-exclusive license of Approved Marks set forth in Section 6.03(b) hereof.

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2.03 Non-Revenue Pass Travel. American shall have the sole right and option to implement and oversee all pass travel and other non-revenue or reduced rate travel on any Scheduled Flight in accordance with its policies and procedures as in effect and adopted by American from time to time, in its sole discretion.

2.04 Ground Handling. American shall provide, or arrange for another Person to provide, all ground handling and related services with respect to the operation of the Covered Aircraft, including, but not limited to: (a) all gate and ticket counter check in activities, (b) all baggage handling, (c) all cargo handling, if any, (d) all passenger enplaning/deplaning services, including but not limited to sky cap, if any, and wheel chair services, (e) all aircraft loading/unloading services, including but not limited to airside busing (as necessary), (f) all passenger ticketing, (g) all aircraft cabin cleaning and related cleaning supplies, other than routine cabin straightening between Scheduled Flights, (h) all jet bridge maintenance (where applicable), (i) all security functions, (j) all janitorial services in connection with ground handling and related services with respect to the operation of the Covered Aircraft, and (k) all deicing services. In connection therewith, American shall select in its reasonable discretion any Person to perform such services with respect to the operation of the Covered Aircraft without the consent or approval of Contractor.

ARTICLE III.

USE OF COVERED AIRCRAFT

3.01 Use of Covered Aircraft.

(a) Implementation Date. Contractor shall implement Covered Aircraft pursuant to the Implementation Schedule set forth on Schedule 1 attached hereto. The date on which a Covered Aircraft is scheduled to be implemented (as set forth in Schedule 1) and any date that an aircraft becomes a Covered Aircraft pursuant to Contractor’s substitution rights in Section 3.02(d) is referred to herein as such aircraft’s “Implementation Date”); provided that if a Covered Aircraft commences operating Regional Airline Services under this Agreement at an earlier date in accordance with the remainder of this Section 3.01(a), then such earlier date will be deemed to be such Covered Aircraft’s Implementation Date. By delivering written Notice to American as provided below, Contractor may request an earlier Implementation Date than the applicable date set forth on Schedule 1 for one or more Covered Aircraft (each, an “Early Implementation Date”), and American shall accept Contractor’s implementation of such Covered Aircraft upon the corresponding Early Implementation Date so long as: (i) Contractor delivers such Notice to American at least [***] prior to the first [***] in which such Early Implementation Date(s) is to occur; (ii) each such aircraft being, as of the applicable Early Implementation Date, airworthy and in substantially the same condition, configuration and livery requirements as other Covered Aircraft; and (iii) solely with respect to any proposed early implementation that Contractor proposes to occur prior to [***], American having determined, in its reasonable and good faith discretion, that, using commercially reasonable efforts, American will be able to complete all required information technology tasks, personnel training, and station readiness tasks in order to accommodate implementation for such aircraft as of the proposed early implementation date; provided that, in each case (i)-(iii), no such consent will be required to implement a Covered Aircraft pursuant to Contractor’s substitution right set forth in Section 3.02(d).

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(b) Use for Regional Airline Services. Except as otherwise permitted in this Agreement or as American may otherwise Consent in its reasonable discretion, the Covered Aircraft (i) may only be used by Contractor to provide Regional Airline Services, and (ii) subject to Sections 3.01(c) and 3.01(d), may not be used by Contractor for any other purpose, including flight operations for any other airline or flight operations or activities on Contractor’s own behalf. Contractor shall operate international flights to and from Canada as may be scheduled by American in its sole discretion, subject to the operational limitations of the Covered Aircraft and obtaining necessary DOT and foreign approvals and required operating authorities and licenses, with the Base Compensation, Pass Through Costs and other amounts to be paid to Contractor as set forth on Schedules 3 and 5 hereof, and according to the scheduling requirements as set forth on Schedule 2 hereof.

(c) Ad Hoc Charter Flights. If requested by American upon reasonable prior Notice to Contractor, and subject to Schedule 2 and the other terms of this Agreement, Contractor shall use CAATS for charter flights (which for all purposes of this Agreement shall include any reasonable repositioning flights related to such charter flights) not included in the applicable Final Schedule for the month of such flight and American shall specify the terms of such use; provided that the compensation for such charter flights shall be as provided in Schedule 3.

(d) Maintenance/Ferry Flights. Contractor shall be entitled to use Covered Aircraft for the purpose of Maintenance/Ferry Flights.

(e) CRJ-700. If Contractor provides Notice to American of its desire to use CRJ-700 aircraft in connection with the provision of Regional Airline Services, then the Parties shall discuss in good faith whether such aircraft may be added to the terms of this Agreement; provided that neither Party shall be obligated to add such aircraft to the terms of this Agreement or any other capacity purchase agreement with American, unless mutually agreed.

3.02 Additional Aircraft; Spare Aircraft; Aircraft Substitution; Neutral Livery Aircraft.

(a) Additional Aircraft. Subject to Section 12.02(d)(iv), at any time and from time to time during the Term, if (i) Contractor has sufficient crew to operate any CRJ-200 aircraft, that is then-currently not a Covered Aircraft, at a minimum average daily block hour utilization of [***] block hours per [***] per Supportable CAATS during any [***] and (ii) the number of Covered Aircraft equals the number of Supported Aircraft for such [***], then Contractor may provide and make available to American, and American shall accept, such aircraft as additional Covered Aircraft for an Aircraft Term that will commence beginning as of the start of such [***] and will conclude as of the [***] anniversary of the final day of the Transition Period (each aircraft, an “Additional Aircraft”). The Notice provided by Contractor to American under this Section 3.02(a) will be provided together with the Initial Crew Max and shall specify the number of Additional Aircraft, each Implementation Date and the time at which such Additional Aircraft will be made available at a Hub for Regional Airline Services. Such Additional Aircraft shall be airworthy and in substantially the same condition, configuration and livery requirements as the then-existing Supported Aircraft. Contractor shall take all requisite action to obtain all FAA, DOT, TSA and other certifications, permits, licenses, certificates, exemptions, approvals and plans required by Governmental Authorities, along with any insurance required pursuant to the terms hereof, necessary to enable Contractor to provide Regional Airline Services and operate the Additional Aircraft prior to it being placed in service and shall otherwise cause the Additional Aircraft to meet the terms and conditions for “Supported Aircraft” as specified under this Agreement.

(b) Maximum Number of Covered Aircraft. In no event shall the total aggregate number of Covered Aircraft under this Agreement exceed sixty (60) Covered Aircraft, unless otherwise Consented to by American.

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(c) Spare Aircraft. Notwithstanding anything in this Agreement to the contrary, (i) [***] Supported Aircraft, at any time that there are fewer than [***] CAATS, or (ii) [***] Supported Aircraft, at any time there are [***] or more CAATS, will not be scheduled for Scheduled Flights, but will instead be spare aircraft to be used as substitutes when necessary or required for any other Covered Aircraft (“Spare Aircraft”). The specific identity of Supported Aircraft designated at any time as Spare Aircraft shall be within the sole control of Contractor. For clarity, Spare Aircraft are Covered Aircraft and Supported Aircraft for all purposes of this Agreement. The Spare Aircraft shall also be available at American’s written request, subject to Contractor’s Consent (which shall not be unreasonably withheld) and the terms and conditions of this Agreement, to operate any flight as designated by American on behalf of American or any of its Affiliates, and in such case (x) Contractor shall receive compensation for [***] for each such flight and (y) such flight shall count towards any calculation of Controllable On Time Departures and Controllable Completion Rate, in all cases, as if such flight were a Scheduled Flight; provided, however, that if American requests that Contractor utilize a Spare Aircraft to operate any flight as designated by American on behalf of American or any of its Affiliates, and a Scheduled Flight is delayed or cancelled as a direct result of the unavailability of such Spare Aircraft, then such delay or cancellation shall be deemed an Uncontrollable Delay or an Uncontrollable Cancellation, as applicable.

(d) Aircraft Substitution and Removal. Upon not less than [***] prior Notice to American, Contractor may, in its sole discretion, remove a Covered Aircraft from this Agreement and substitute such Covered Aircraft with another CRJ-200 aircraft in American livery and configuration. Schedule 1 shall be deemed amended to reflect the substitution on the effective date provided in such Notice. Such Notice of substitution shall identify by tail number both the Covered Aircraft being removed and the aircraft that will substitute-in for such Covered Aircraft (if any). Each such aircraft that is substituted-in shall be covered by Contractor’s FAA approved maintenance program and shall otherwise meet the requirements applicable to Covered Aircraft in this Agreement. Upon such substitution, the removed aircraft shall cease to be a Covered Aircraft under this Agreement, and any substituted-in aircraft shall be a Covered Aircraft for all purposes of this Agreement (which substituted-in aircraft will have the same Aircraft Term as the removed aircraft). [***]

(e) Neutral Livery Aircraft. Contractor shall have the right at any time, without American’s prior consent, to operate any Scheduled Flight with any CRJ-200 regional jet that (i) is not a Covered Aircraft, (ii) is in neutral livery or Contractor’s branded livery, (iii) is covered by Contractor’s FAA approved maintenance program and (iv) otherwise meets the requirements applicable to Covered Aircraft in this Agreement (each, a “Neutral Livery Aircraft”); provided that (A) Contractor must provide American with prior Notice of the tail numbers of any Neutral Livery Aircraft and (B) in no event shall more than [***] Neutral Livery Aircraft be used to operate Scheduled Flights in any [***] without American’s prior written consent. The Block Hour Rate, Departure Rate and any Pass Through Costs and American Absorbed Expenses attributable to Neutral Livery Aircraft provided by Contractor for Regional Airline Services will be payable by American with respect to each such Neutral Livery Aircraft. [***]

3.03 Aircraft Unavailability.

(a) Other Operator. American shall have the right and option at its sole discretion to cause an operator other than Contractor to operate a Scheduled Flight. If American determines that an operator other than Contractor will operate a Scheduled Flight, then it shall provide prior notice to Contractor thereof (but failure to provide such notice shall not prejudice or impact American’s rights under this Section 3.03(a), and American shall not have any liability for any failure to provide such notice).

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(b) Compensation. If an operator other than Contractor operates a Scheduled Flight due to a Covered Aircraft not being available to operate such Scheduled Flight, then Contractor shall not receive the compensation from American in respect of Block Hours or departures for such Scheduled Flight. If an operator other than Contractor operates a Scheduled Flight and a Supported Aircraft was available to operate such Scheduled Flight, then Contractor shall receive all of the compensation from American for such Scheduled Flight it would have received as if it had operated such Scheduled Flight (including, but not limited to Block Hours and departures), and for purposes of calculating the performance metrics set forth in Schedule 5, such Scheduled Flight shall be deemed to have departed and been completed on time.

(c) Controllable On Time Departures and/or Controllable Completion Rate. If a Covered Aircraft is not available to operate a Scheduled Flight, and American is able to locate an operator other than Contractor to operate such flight, and that flight is canceled or delayed, then that flight shall count as a “Scheduled Flight” for purposes of any calculation of Controllable On Time Departures and/or Controllable Completion Rate as if such flight was provided by Contractor. For the avoidance of doubt, if that flight is not canceled or delayed, then it shall not count towards the calculation of Controllable On Time Departures and/or Controllable Completion Rate.

3.04 Supportability Commitment.

(a) Contractor Commitment. Except as otherwise Consented to by American in its sole discretion, Contractor shall not operate aircraft in FAR Part 121 passenger operations for another carrier unless and until the Implementation Date for the [***] Covered Aircraft has occurred (the “Commitment Threshold”), provided that the foregoing will apply only during the period beginning as of the end of the Transition Period and ending upon the date of the first Notice of termination pursuant to Article XII; provided further that if American Withdraws a Covered Aircraft pursuant to this Agreement (other than pursuant to Section 12.02(c)(ii)), then the Commitment Threshold shall be decreased by one for each Withdrawn aircraft as of the date of Withdrawal.

(b) Contractor Code Flight Restrictions. Notwithstanding anything herein to the contrary, and except as otherwise Consented to by American in its sole discretion, during the Term, Contractor shall not operate any FAR Part 121 passenger flights under its own flight designator code into or out of any Hub.

3.05 Flight Designator Codes and Codeshare Term.

(a) All Scheduled Flights shall be operated under the name “American Eagle” or such other name, incorporating an Approved Mark, as may be determined by American in its sole discretion and specified by American to Contractor, from time to time.

(b) All Scheduled Flights shall be identified by an “AA*” flight designator code (or such other flight designator codes as may be assigned by American in its sole discretion), as appropriate, in: (i) American, Contractor, and Third Party computer reservations systems, including Internet reservation systems; (ii) American timetables; (iii) airport flight information displays; and (iv) passenger tickets and like media distributed to or accessed by travel agents, other airlines or the public (all Scheduled Flights that display the “AA*” flight designator code or such other flight designator codes as may be assigned by American from time to time in its sole discretion are referred to herein as “AA Flights”).

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(c) To the extent Contractor subsequently discloses or identifies the AA Flights to the public as flights operated by Contractor, Contractor shall do so only in the following ways: (i) a symbol and/or text may be used in timetables and computer reservation systems indicating that AA Flights are operated by Contractor; (ii) to the extent reasonable and necessary, messages on airport flight information displays may identify Contractor as the operator of flights shown as AA Flights; and (iii) in any other manner prescribed and/or required by any laws, rules or regulations of a Governmental Authority.

(d) In all cases, the conditions of carriage with regard to passengers on AA Flights will be between a passenger and American.

(e) Contractor agrees to operate all Scheduled Flights using the American flight designator code and flight numbers assigned by American, or such other flight designator codes and flight numbers as may be assigned by American (to accommodate, for example, an American codeshare partner). American shall have the exclusive right to determine which other airlines (“Codeshare Airlines”), if any, may place their two-letter designator codes on flights operated by Contractor with Covered Aircraft and to enter into agreements with such Codeshare Airlines with respect thereto. Contractor will cooperate with American and any Codeshare Airlines, as reasonably requested by American and at American’s expense, with respect thereto (including, without limitation, making necessary governmental filings and entering into reasonably acceptable agreements with such Codeshare Airlines).

3.06 Flight Dispatch. Contractor shall be solely responsible for, and American shall have no obligations or duties with respect to, the Dispatch of Scheduled Flights, any charter flights pursuant to Section 3.01(c), or any Maintenance/Ferry Flights; provided that Contractor shall coordinate such Dispatch for Scheduled Flights and charter flights hereunder with American’s systems operation control and pursuant to Schedule 2. Contractor shall provide information to American that American may reasonably request from time to time regarding Scheduled Flights, including any changes in scheduling of a Scheduled Flight, Dispatch entries, and data for textual flight plans.

3.07 Maintenance of Supported Aircraft.

(a) Generally. Contractor shall cause the Supported Aircraft to be maintained, inspected, serviced, repaired, overhauled and tested: (i) in accordance with this Agreement and Contractor’s FAA-approved Part 121 maintenance program, and (ii) so as to keep the Supported Aircraft (A) in full conformity with all manufacturers’ manuals, instructions, AD mandatory service bulletins, technical data and recommendations and in airworthy condition under FAA and customary industry practice, (B) in such condition as may be necessary to enable the FAA airworthiness certificate of the Supported Aircraft to be issued and, at all times, maintained in good standing, and (C) in such condition as may be necessary to enable Contractor to provide the flights as contemplated by this Agreement. Without limiting the generality of this Section 3.07(a), Contractor shall ensure the Supported Aircraft, each engine installed thereon and all parts at any time used in connection therewith shall at all times be duly certified as being airworthy in accordance with applicable law. All material modifications requested by American in accordance with this Agreement or required by an applicable Governmental Authority (other than Heavy Maintenance) shall be coordinated as may be agreed to by the Parties.

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(b) Line Maintenance. All Line Maintenance on the Supported Aircraft shall, to the extent reasonably practicable, be performed at a maintenance facility or station in a location that is reasonably acceptable to American from time to time during the Term hereof; it being understood that the initial designations for such maintenance facilities and stations shall be as set forth on Schedule 2.

(c) Heavy Maintenance. On or prior to each [***] during the Term, Contractor shall deliver to American a forecast stating (i) the approximate date that each such Covered Aircraft is to be removed for Heavy Maintenance during the upcoming [***] period, and (ii) the number of Covered Aircraft that Contractor will maintain throughout such [***] period. Contractor shall provide American with prompt Notice of any changes to such schedule. In addition to the annual Notice described above in this Section 3.07(c), Contractor shall also deliver Notice to American (A) at least [***] prior to any Supported Aircraft needing to be removed from providing Scheduled Flights for purposes of accomplishing scheduled Heavy Maintenance and Notify American of any changes to such schedule; and (B) no later than [***] following request from American, detailed reports regarding scheduled and completed maintenance operations(including Heavy Maintenance) of any Covered Aircraft. Pursuant to Section 3.02(d), Contractor will have the right to substitute out any aircraft that is not available due to Heavy Maintenance and American shall not include in the Final Schedule any aircraft that is not available due to Heavy Maintenance.

(d) Painting Covered Aircraft. Contractor shall repaint each Covered Aircraft (A) no later than [***] following its Implementation Date, and (B) from time to time as reasonably requested by American in order to maintain an acceptable exterior appearance or repair damage to the exterior of a Covered Aircraft. Any such repainting request by American shall include American’s required support and changes to the operating schedule to permit Contractor to remove such Covered Aircraft from service to accommodate such repainting. Painting of any Covered Aircraft must be approved in advance by American, which approval shall not be unreasonably withheld.

(e) Cabin Maintenance and Exterior Cleaning. Without limiting the requirements set forth in Section 4.03(e), with respect to interior cabin maintenance and exterior cleaning of the Supported Aircraft, Contractor shall, [***], comply with the following standards and replacement schedule:

(i) An extensive interior cleaning shall take place every [***];

(ii) Carpets shall be cleaned every [***] and shall be removed and replaced as needed in conjunction with every Heavy Maintenance check;

(iii) Seat coverings shall be conditioned every [***] in conjunction with every other extensive interior cleaning and inspected and replaced as needed in conjunction with every Heavy Maintenance check;

(iv) Seat bottom cushions shall be replaced at least every [***] and back cushions for seats shall be replaced as needed in conjunction with Heavy Maintenance checks;

(v) The galley and lavatory floor laminate shall be [***];

(vi) The exterior shall be dry washed every [***], provided that the APU exhaust will be washed [***]; and

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(vii) The exterior of the engines and the wings shall be dry washed [***].

(f) In connection with any improvements or modifications to any Covered Aircraft required by an airworthiness directive, Contractor (taken together with its Affiliates) shall not discriminate against such Covered Aircraft with regard to efforts to satisfy the requirements of such airworthiness directives, including the method and date of compliance, and shall satisfy all such requirements, including by using or applying any efforts used or applied by Contractor or its Affiliates with regard to any other aircraft owned or operated by Contractor or any of its Affiliates. In connection with any grounding order which relates to any of the Covered Aircraft, Contractor shall not discriminate against such Covered Aircraft with regard to efforts to satisfy the applicable requirements to lift such grounding order, including using or applying any efforts used or applied by Contractor or its Affiliates with regard to other aircraft owned or operated by Contractor or its Affiliates, and shall satisfy such requirements.

3.08 Compliance with Other Terms of Related Agreements. Upon execution, each Related Agreement will be automatically incorporated into this Agreement. In the event of a conflict between the provisions of a Related Agreement and any provisions of this Agreement, the provisions of this Agreement will prevail, unless otherwise expressly set forth in the applicable Related Agreement.

3.09 Event of Loss. If an Event of Loss has occurred with respect to any Covered Aircraft, then (a) Contractor shall Notify American of such Event of Loss, (b) such Covered Aircraft shall no longer be a Covered Aircraft under this Agreement effective as of the date such Event of Loss occurs, (c) Contractor shall have the right to substitute another aircraft for such Covered Aircraft, as provided in Section 3.02(d), and (d) American shall have no obligation to pay any amounts to Contractor related to such Covered Aircraft to the extent otherwise subject to payment or reimbursement as set forth herein unless such amounts accrued hereunder before such Event of Loss. Contractor shall, upon request from American, promptly provide all additional documentation reasonably requested by American with respect to such Event of Loss.

ARTICLE IV.

SERVICE STANDARDS, PERFORMANCE MEASUREMENT AND TRAINING

4.01 Crews and Other Personnel. Contractor shall provide all crews (flight and cabin) and maintenance personnel necessary to operate all Scheduled Flights and for all aspects (personnel and other) of Dispatch and operational control of such flights; provided, however, that Contractor’s inability to provide crew for any Scheduled Flight resulting in Unsupported Aircraft shall not in and of itself constitute a breach of this Agreement or any Related Agreement, and American’s exclusive remedies for Unsupported Aircraft shall be pursuant to Section 6.15(a) and 12.02(c)(ii).

4.02 Governmental Regulations. Contractor has and shall maintain at all times all FAA, DOT, TSA and other certifications, permits, licenses (including licenses to sell or dispense beer, wine, liquor or any other alcoholic beverages), certificates, exemptions, approvals and plans required by Governmental Authorities necessary to enable Contractor to provide Regional Airline Services, along with any insurance required pursuant to the terms hereof, to maintain the airworthiness of the Supported Aircraft and to operate the Supported Aircraft. All Regional Airline Services and all other operations and services undertaken by Contractor pursuant to this Agreement shall be conducted, operated and provided by Contractor in compliance with all laws, rules, requirements and regulations of all applicable Governmental Authorities, including those relating to airport security, the use and transportation of Hazardous Materials and dangerous goods, environmental rules and regulations, crew qualifications, crew training and crew hours, and the carriage of persons with disabilities. To the extent American subsequently elects or is required to include the Supported Aircraft in an EAS Program, Contractor agrees to assist American [***] in its compliance with the program. Without limiting Section 3.07(a), all Covered Aircraft shall be operated and maintained by Contractor in compliance with all laws, regulations and governmental requirements, Contractor’s own operations manuals and maintenance manuals and procedures, and all applicable equipment manufacturers’ manuals and instructions.

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4.03 Quality of Service.

(a) Procedures and Performance Standards. Without limiting this Section 4.03(a) or Section 4.07, at all times, Contractor shall provide Regional Airline Services to American in accordance with the written procedures and performance standards relating to customer experience approved by American and applicable to [***] (collectively, “Other Regional Carriers”) from time to time in its sole discretion and provided to Contractor, including but not limited to those certain Standards of Service set forth on Exhibit B hereto [***]. The Standards of Service set forth on Exhibit B hereto may be amended or changed by American from time to time upon [***] prior Notice to Contractor; provided, however that (i) [***] and (ii) no advance Notice to Contractor of a change is required for American to modify the in-flight service sample on Schedule 1 to Exhibit B or the cabin condition sample on Schedule 2 to Exhibit B each of which may be modified at any time by American in its sole discretion. Contractor shall be responsible for all crew and other employee conduct, appearance and training policies (as set forth on Exhibit C), aircraft cleaning (including the timing thereof so long as the standards are met), standards and adequate staffing levels in order to comply in all material respects with such procedures and meet such standards, including without limitation in respect of customer complaint response (subject to Section 4.06) and any handling of irregular operations, all of which shall be handled in a professional, businesslike and courteous manner. Without limiting Section 3.07 or Section 4.03(a), Contractor shall cause its crews to conduct routine clean up and straightening of Covered Aircraft between Scheduled Flights.

(b) Contractor’s Representative Uniforms. Contractor shall require all of its respective personnel and any of its respective Contractor Agents providing Regional Airline Services in job classifications requiring direct public contact to wear uniforms and accessories furnished by Contractor that are of colors and styles approved by American from time to time. Contractor shall not alter or change such uniforms and accessories without the prior written Consent of American. If, after the Effective Date, American determines, in its sole discretion, that such uniforms and accessories should be materially altered or changed, then American shall provide Contractor with Notice of such alterations or changes. In the event that American decides to implement such alterations or changes, Contractor shall implement such alterations or changes.

(c) In Flight Services. Contractor shall comply with the catering requirements set forth on Exhibit B hereto. Contractor shall also coordinate all in-flight services relating to the Regional Airline Services with the in-flight services department of American or any Person designated by American to ensure consistency and quality of Contractor’s in-flight service, including non-safety related functions such as in-flight marketing announcements, meal and beverage presentation and delivery, and provisioning and usage of passenger amenity kits. Contractor shall sell beer, wine, liquor and any other alcoholic beverages on Scheduled Flights. Contractor agrees that such in-flight sales shall be conducted as directed by American from time to time. Contractor shall implement any suggestions made by American’s in-flight services department. All in-flight services on the Covered Aircraft shall be provided on a cashless basis on devices provided by American. Contractor must provide Notice to American of any threatened catering related fines or penalties that could result in a liability to American in accordance with Section IV of Schedule 3 within [***] after receipt of such notification and allow for the involvement of American in the resolution process of such issue so that both Parties can work to minimize any fines to American.

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(d) Communication of Scheduled Flight Information. Contractor shall provide as promptly as possible to American through ACARS, accurate and timely updates of planned and Actual Departure and arrival times of Scheduled Flights (including updates of irregularities), any changes in scheduling of a Scheduled Flight, Dispatch entries, data for textual flight plans, FOQA data (excluding any FOQA data that is not directly or indirectly related to fuel usage on Covered Aircraft), data for textual flight plans, and all other information related thereto as may be requested by American from time to time and as specified by American from time to time; provided that with respect to any FOQA data, the foregoing requirements will not apply to the extent such delivery of FOQA data to American is restricted by any of Contractor’s collective bargaining agreements.

(e) Aircraft Livery; Refurbishment and Design Costs.

(i) Cabin Condition as of Implementation Date. Contractor shall cause the interior and cabin condition of each Covered Aircraft to comply with the Interior Design requirements set forth on Schedule 12 and be in a condition that would result in a passing score for a Cabin Condition Compliance Check (as determined by American in accordance with Schedule 2 to Exhibit B). At least [***] prior to the Implementation Date for a Covered Aircraft, Contractor shall permit American to inspect such Covered Aircraft’s interior. If such Covered Aircraft’s interior does not meet the Interior Design requirements set forth on Schedule 12 or is not in a condition that would result in a passing score for a Cabin Condition Compliance Check, then American shall Notify Contractor of the applicable deficiencies and Contractor shall correct such deficiencies prior to such Covered Aircraft’s Implementation Date (and if such deficiencies are not corrected on or prior to such date, then such aircraft shall not become a Covered Aircraft until American provides its approval). Any cost and expense related to preparing or correcting each Covered Aircraft’s interior and cabin condition to meet American’s approval pursuant to this Section 4.03(e)(i) shall be [***].

(ii) Interior Design.

(A) Interior Design Generally. At all times during the Term, all Covered Aircraft (including Spare Aircraft) shall satisfy the Interior Design requirements set forth on Schedule 12 including the layout for passenger accommodation set forth therein (as such Schedule 12 may be subsequently modified by American in its sole discretion upon Notice to Contractor, in which case Schedule 12 shall automatically be deemed to be amended, modified and restated to reflect such modifications); provided that the initial Interior Design and branding requirements shall be mutually agreed upon by the Parties and included on Schedule 12 at least [***] prior to the Implementation Date for the first Covered Aircraft. Without the prior Consent of American (such Consent not to be unreasonably withheld), Contractor may not materially alter the Interior Design of the Covered Aircraft.

(B) Changes to Interior Design and Branding. If American determines that the interior design or branding of a Covered Aircraft should be altered or changed, then American shall provide Contractor with Notice of such alteration or change and within [***] following such Notice, Contractor shall provide American with a [***] estimate of the out-of-pocket costs and expenses to Contractor attributable to such alteration or change, so that American may determine whether to implement such alteration or change. In the event that American determines that it shall implement such alteration or change, it shall

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provide Notice thereof to Contractor and Contractor shall use commercially reasonable efforts to implement such alteration or change by no later than [***] following such Notice, unless a longer time period is Consented to by American (acting reasonably under the circumstances) and such reasonable and documented out-of-pocket costs and expenses [***] (and to the extent actually incurred by Contractor) shall be [***].

(iii) Exterior Livery. Contractor shall maintain all Covered Aircraft in an exterior livery Consented to by American as provided below.

(A) Exterior Livery On Implementation Date. Contractor will have the right to implement any Covered Aircraft in neutral livery; provided that, by no later than the conclusion of the [***] period following the Implementation Date for a Covered Aircraft, Contractor shall cause the exterior livery of such Covered Aircraft to be painted in the colors and design approved by American. Contractor shall provide American with a [***] estimate of the out-of-pocket costs and expenses to Contractor attributable to such exterior livery painting. Such reasonable and documented out-of-pocket costs and expenses in an amount that [***].

(B) Exterior Livery Changes After Implementation Date. If, after the Implementation Date for a Covered Aircraft, American determines that the exterior livery of such Covered Aircraft should be altered or changed in any material respect, then American shall provide Contractor with Notice of such alterations or changes and within at least [***] following such Notice, Contractor shall provide American with a [***] estimate of the out-of-pocket costs and expenses to Contractor attributable to such alterations or changes, so that American may determine whether to implement such alterations or changes. In the event that American determines that it shall implement such alterations or changes, it shall provide Notice thereof to Contractor and Contractor shall implement such alterations or changes no later than [***] following the delivery of such Notice, and such reasonable and documented out-of-pocket costs and expenses in an amount that [***].

4.04 Access and Use of American Systems.

(a) Systems Access. American may provide Contractor with access to American Systems as determined by American to be necessary or appropriate for Contractor to provide the Regional Airline Services.

(b) Use of Systems. Contractor shall maintain connections to any American Systems provided to Contractor by American, and will be responsible for using any other systems, including ACARS and FOQA, that are necessary or appropriate for Contractor to provide Regional Airline Services. Neither Contractor nor Contractor Agents shall access or use any American System for any purpose other than to provide Regional Airline Services.

(c) Systems Support. Contractor shall be responsible for the maintenance and performance of any connections that Contractor uses to access or interface with the American Systems (for clarity, Contractor is not otherwise responsible for the performance or costs of American Systems). Additionally, American may require Contractor to install and operate certain support programs on Contractor’s equipment that American requires for American’s internal reporting systems. The costs and expenses incurred by Contractor in connection with its use of American Systems under this Section 4.04(c) will be [***] as set forth in Section I(O) of Schedule 3.

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(d) IT Access to Operational Data. During the Term, Contractor shall provide all core operational integration data that is available for collection by Contractor as reasonably requested by American, including real-time flight movement, flight release updates and fuel slips, Contractor Employee Data for purpose of provisioning user accounts and providing flight privileges, crew movement deadhead booking requirements, weight and balance system integration for paperless closeout, and unscheduled daily aircraft out of service and Minimum Equipment List data with respect to customer-facing issues.    In addition, by no later than the Implementation Date for the [***] Covered Aircraft, except to the extent such provision is restricted by any of Contractor’s collective bargaining agreements, Contractor shall use commercially reasonable efforts to provide all operational and analytics data reasonably requested by American to be used for American’s decision support tools, including but not limited to IOC Tools such as “HEAT,” “Crew Recovery” and “Diversion Planner,” crew scheduling data, including operating crew details per flight, crew duty periods and legalities, and any IROPS requirements that American utilizes to provides solutions to cancels and/or recovery of the operation.

4.05 Data Security.

(a) Safeguards. Where Contractor stores or Processes American Data, Contractor shall and shall cause its Contractor Agents to establish and maintain a secure environment for all American Data and any hardware and software (including servers, network and data components) to be provided or used by Contractor or its Contractor Agents to store or Process American Data. Contractor represents, warrants and covenants that the security measures it takes in performance of its obligations under this Agreement are, and will at all times remain, consistent with the following (collectively referred to herein as “Security Best Practices”): (i) the security requirements, obligations, specifications and event reporting procedures set forth on Exhibit D, including, without limitation, the Security Requirements, and (ii) any security requirements, obligations, specifications and/or event reporting procedures required by American in writing from time to time. Failure by Contractor to comply with Security Best Practices in fulfilling its obligations hereunder shall constitute a breach of this Agreement. Contractor shall contractually require any Contractor Agent with access to American Data to adhere to such Security Best Practices as applicable to their access to the American Data.

(b) Notice of Breach. If Contractor or any Contractor Agent discovers or is notified of a breach or potential breach of security relating to the American Data, then Contractor shall immediately (i) provide Notice to American of such breach or potential breach, and (ii) if the applicable American Data was in the possession of Contractor or any Contractor Agent at the time of such breach or potential breach, Contractor (A) shall investigate and remediate with American’s assistance the effects of the breach or potential breach (such remediation to include restoring data to the last data back-up), and (B) shall provide American with assurance satisfactory to American that the likelihood of a recurrence of such breach or potential breach has been appropriately reduced.

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(c) Disaster Recovery.

(i) Contractor shall maintain a disaster recovery plan designed to (A) continue all Contractor business operations that are critical to the operation and functionality of, and American’s and authorized users’ access to, the Application, and (B) permit Contractor to comply with this Agreement, in each case, notwithstanding a Crisis (a “Disaster Recovery Plan”). Contractor shall at least [***] per calendar year review, test and modify its Disaster Recovery Plan to ensure it is consistent with the guidelines and standards of the airline industry as such guidelines and standards evolve. Contractor shall provide American with the results of tests Contractor conducts on its Disaster Recovery Plan within [***] of such tests.

(ii) Contractor shall, as part of its Disaster Recovery Plan, host and operate the Application (“Backup Facility”) that (A) is at a hardened data center facility in the U.S. that is geographically remote from its Primary Facility, (B) other than location, is otherwise identical in all respects to the Primary Facility, (C) has hardware, software, network connectivity, power supplies, backup generators, and other similar equipment and services that operate independently of the Primary Facility, (D) has fully current backups of all American Data stored at the Primary Facility, and (E) has the ability to provide access to the version of the Application currently in use at the Primary Facility in accordance with this Agreement during a Crisis. Contractor shall provide a recovery time objective and recovery point objective of no more than [***] immediately following such Crisis, and at all times thereafter, American’s access to the Application will be uninterrupted.

(iii) In the event of a Crisis, Contractor shall promptly implement its Disaster Recovery Plan. The occurrence of a Crisis does not relieve Contractor of its obligation to implement its Disaster Recovery Plan.

(iv)    Contractor agrees that American has the right to have a third party audit or access to a third party audit of Contractor’s Disaster Recovery Plan and testing results. If there is a deficiency or material weakness revealed in the audit findings in any IT security audit undertaken by or on behalf of American hereunder or if Contractor otherwise fails to demonstrate successful Disaster Recovery testing and Contractor fails to cure any such deficiency, weakness or non-compliance within [***] following the date of Notice thereof from American and American reasonably determines that such deficiency, weakness or non-compliance could have a negative impact on American, then Contractor shall [***] continuing until the date such deficiency, weakness or non-compliance is cured in all material respects.

4.06 Processing and Adjudicating Customer or Passenger Complaints. Subject to Contractor’s rights under Section 11.03(a) and Section 11.03(a)(i) with respect to claims subject to Contractor’s indemnification obligations under Section 11.01, (a) American shall process and adjudicate all customer or passenger complaints related to this Agreement and the Regional Airline Services and Contractor shall provide reasonable assistance to American in processing and adjudicating such customer or passenger complaints in such manner as American may reasonably determine; (b) to the extent information regarding the complaint is not requested by American, Contractor may provide information regarding such complaint, but American is under no obligation to consider such information in American’s processing, adjudicating, disposition or handling of such complaint; and (c) American shall have complete and exclusive control of the method of processing and adjudicating such customer or passenger complaints and any final disposition or handling of any customer or passenger complaint shall be in American’s sole discretion and, without limiting American’s rights under Section 11.01 [***]. For clarity, to the extent that any customer or passenger complaint arises out of a circumstance for which Contractor is required to indemnify American pursuant to Section 11.01, the terms and conditions set forth in Section 11.03(a) and Section 11.03(a)(i) will apply. Contractor shall promptly notify American’s customer service department of any customer service complaints related to the Regional Airline Services that are directly received by Contractor.

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4.07 Right to Inspect Aircraft and Service Conditions.

(a) Checks. Without limiting Section 4.03(a) and the rights set forth on Schedule 7, American shall have the right and option, in its sole discretion from time to time, to perform quality checks on Contractor’s in-flight service performance for Scheduled Flights (each such check an “Inflight Customer Experience Check”) and the condition of the cabin of the Covered Aircraft (each such check a “Cabin Condition Compliance Check”) to ensure the service performance of such Covered Aircraft meet the Standards of Service and the aircraft condition standards and actions as required in Section 4.03, Exhibit B and elsewhere in this Agreement, and such other service and condition standards that may be developed by American from time to time in its sole discretion in accordance with this Agreement [***]. In performing an Inflight Customer Experience Check or Cabin Condition Compliance Check, American shall use the in-flight service sample described on Schedule 1 to Exhibit B, and the cabin condition sample described on Schedule 2 to Exhibit B, respectively; [***]. The conditions giving rise to an unsatisfactory score for any Inflight Customer Experience Check or a failing score for any Cabin Condition Compliance Check shall be as stated on Schedules 1 and 2 to Exhibit B, respectively.

(b) Unsatisfactory Inflight Customer Experience Check. If there is an unsatisfactory score (as determined by American in accordance with Schedule 1 to Exhibit B) for an Inflight Customer Experience Check, then Contractor shall pay to American [***] for each unsatisfactory score in accordance with Section IV of Schedule 7. Such amount shall be taken into account for purposes of the next applicable reconciliation of amounts due to American pursuant to Section III of Schedule 5.

(c) Cabin Condition Compliance Check Failure. If there is a failing score (as determined by American in accordance with Schedule 2 to Exhibit B) for a Cabin Condition Compliance Check, then American shall provide prompt Notice of such failure to Contractor. No sooner than [***] after Contractor’s receipt of such Notice, American may conduct a second Cabin Condition Compliance Check on the same Covered Aircraft that resulted in the failing score. If the second Cabin Condition Compliance Check also results in a failing score, Contractor shall pay to American [***] (in accordance with the wiring instructions set forth in Section IV of Schedule 7) until such time as Contractor is able to demonstrate to American’s satisfaction that it has remedied all conditions giving rise to such failing scores. Such amount shall be taken into account for purposes of the next applicable reconciliation of amounts due to American pursuant to Section III of Schedule 5.

(d) Intentionally Omitted.

(e) Remedies Cumulative. It is further agreed and understood between the Parties, that American’s rights and remedies as provided in this Section 4.07 shall not impair and shall not be deemed to limit, amend, modify or supplant any other rights or remedies American shall have hereunder or under applicable law, including, but not limited to, American’s rights and remedies as provided in Section 4.03, any of the other subsections of this Section 4.07 and Section 12.02 hereof (including, without limitation, rights and remedies available upon the occurrence of a Material Breach) and Exhibit B attached hereto. In no event shall American be required to elect between available remedies with respect to any Inflight Customer Experience Check or Cabin Condition Compliance Check; it being understood that American shall have the right to have all of the remedies related thereto be cumulative and non-exclusive.

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4.08 Controllable Cancellation Codes and Controllable On Time Departure Codes.

(a) Change to Codes. In the event the codes set forth in American’s Delay Code Handbook and/or Cancel Code Handbook (or any successor handbooks thereto) are amended, restated or modified in any way, or American determines that any code set forth therein shall be deemed a Controllable On Time Departure code or Uncontrollable Cancellation code, then such amendment, restatement, modification or determination (each a “Code Change”) shall automatically be deemed to amend, modify or restate the applicable codes set forth on Schedule 8 (Controllable Cancellation Codes) and Schedule 9 (Controllable On Time Departure Codes) without any action by American or Contractor; it being understood that American shall promptly provide Notice to Contractor of any such Code Change.

(b) Change to Controllable On Time Departures or Controllable Completion Rate. If a Code Change occurs, then the Parties shall meet to discuss and agree upon any relevant adjustments to the Controllable Completion Rate Bonus Threshold, Controllable Completion Rate Service Level Threshold, Controllable On Time Departure Bonus Threshold, Controllable On Time Departures Service Level Threshold and the termination thresholds set forth in Section 12.02(c)(i) in order to maintain the status quo with respect to Contractor’s ability to achieve the applicable threshold following such Code Change; provided that if no mutual agreement is reached between the Parties within [***] of such Code Change, then American will have the right, acting reasonably and in good faith, to make reasonable adjustments to the foregoing thresholds as a result of such Code Change. Any such adjustment shall take effect as of the [***] following delivery of a Notice from American to Contractor thereof, and Schedule 5 of this Agreement shall automatically be deemed to be amended to reflect the Parties’ agreement. For the avoidance of doubt, any adjustments to the foregoing thresholds as a result of a Code Change will be implemented on a forward-looking basis, and no retroactive adjustments will be made with respect to Bonuses or Rebates related thereto that were assessed prior to such Code Change.

(c) Data for Performance Measurements. American shall use American’s own data when determining Contractor’s performance under this Agreement, including Likelihood to Recommend Factor, Controllable On Time Departures and Controllable Completion Rate and shall not discriminate against Contractor with respect to any such determination as compared to any Other Regional Carrier. Upon Contractor’s reasonable request, American shall provide to Contractor reasonably detailed supporting information used by American to determine Contractor’s Likelihood to Recommend Factor, Controllable On Time Departures and Controllable Completion Rate performance under this Agreement (to the extent that American is not restricted from providing such information due to confidentiality and related obligations) and Contractor reserves the right to dispute American’s determination.

4.09 Catering Products and Catering Services. American shall provide, or arrange for another Person to provide, all Catering Products and Catering Services for Scheduled Flights of Covered Aircraft (excluding any Maintenance/Ferry Flights).

ARTICLE V.

SAFETY

5.01 Incidents or Accidents. Contractor shall promptly notify American’s System Operations Control/Flight Dispatch Office of any Accident or Incident that could reasonably be expected to result in a complaint or claim by passengers or an investigation by a Governmental Authority involving any Covered Aircraft occurring during Contractor’s provision of Regional Airline Services, including those that result in any injury or death to persons or damage to property. To the extent Contractor is involved in any such Accident or Incident, it shall furnish in writing to American detail concerning the same and shall cooperate with American [***] in any appropriate internal or external investigation. Contractor shall provide

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American with notification of any security breach (regardless of level). Contractor shall maintain an emergency response plan in accordance with the applicable provisions of the Aviation Disaster Family Assistance Act of 1996 and any amendments or regulations relating thereto. Contractor shall promptly inform American in writing of any material modifications to such plan. American shall manage the customer response efforts on behalf of Contractor in the case of an Accident or Incident involving Regional Airline Services or the Covered Aircraft, including responding to an Accident or Incident and providing necessary assistance and services to the family members of passengers and Contractor shall fully cooperate in such efforts [***]. Prior to the Implementation Date of the first Covered Aircraft hereunder, Contractor and American shall enter into an Emergency Assistance Agreement as mutually agreed upon by the Parties (the “Emergency Assistance Agreement”).

5.02 Accident Reports. Contractor shall promptly furnish to American a copy of every written report and plan that Contractor prepares, whether such report is filed with the FAA, NTSB or any other Governmental Authority, relating to any Accident or Incident involving any Covered Aircraft or Regional Airline Services when such Accident or Incident is claimed to have resulted in the death or injury to any person or the loss of, damage to or destruction of any property. Contractor shall also provide prompt Notice to American of all irregularities involving any Scheduled Flights (including, without limitation, irregularities that result in any injury to or death of persons or material damage to property, but excluding common issues such as weather events) as soon as such information is available and shall furnish to American in writing detail regarding such irregularity. Each Party shall [***] to maintain communications with systems related to Accident and Incident reporting related to the Regional Airline Services.

5.03 International Air Transport Association Operational Safety Audit. Without limiting any other provisions of this Agreement, Contractor shall comply with the safety standards set forth by the International Air Transport Association Operational Safety Audit, and upon Notice from American from time to time, Contractor agrees to provide American with evidence in a form reasonably satisfactory to American of such compliance.

5.04 Emergency Assistance Agreement. The foregoing provisions of this Article V shall in no way be deemed to limit, restrict or amend any of the obligations of Contractor pursuant to the Emergency Assistance Agreement.

ARTICLE VI.

OTHER OBLIGATIONS OF CONTRACTOR

6.01 FAA or DOT Certification Suspension or Revocation. If Contractor discovers or is notified of the suspension or revocation, or potential suspension or revocation, of an FAA or DOT certification used in connection with the Scheduled Flights or Covered Aircraft, then Contractor shall immediately deliver Notice to American of such suspension or revocation.

6.02 Fuel Efficiency Program. Without limiting the obligations of Contractor pursuant to the terms hereof, Contractor shall promptly adopt and adhere to a “Fuel Efficiency Program” as described on Schedule 4, as such Schedule 4 may be subsequently amended in writing from time to time by American, as long as (i) Contractor’s adoption or adherence to such Fuel Efficiency Program does not materially and adversely impact the safety of Regional Airline Services under FAA operational specifications, or other regulatory constraints, or the airworthiness of the Covered Aircraft and (ii) [***]. American may also elect, upon [***] Notice to Contractor, to incorporate performance goals and rebates with respect to Contractor’s compliance with such Fuel Efficiency Program, so long as such goals and rebates apply generally to all other regional aircraft operators that provide passenger flight services for American (other than American’s wholly owned subsidiaries), and Contractor shall cooperate with American in good faith to implement and perform its obligations in accordance with such changes to the Fuel Efficiency Program.

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6.03 Use of Approved Marks and Copyrights.

(a) Ownership of Marks. Contractor acknowledges and agrees that American, Parent and/or one of their respective Affiliates, as the case may be, is the sole worldwide owner or licensee of the Marks.

(b) License to Use Approved Marks. Subject to the terms and conditions of this Agreement, including service quality requirements set forth in Section 4.03, Contractor is hereby granted the [***] right and license to use the Approved Marks solely as specified by American from time to time and solely for Contractor to perform its obligations, including by operating the Regional Airline Services, as specified in this Agreement.

(c) Restrictions on Use. Contractor shall not use the Marks in any manner other than as permitted by this Agreement. Contractor shall only use the Approved Marks in a manner consistent with American’s quality standards, as they may exist from time to time, and shall not utilize the Marks in any manner that would diminish their value or harm the reputation of American, Parent or any of their respective Affiliates. All goodwill associated with Contractor’s use of the Approved Marks will inure solely to the benefit of the owner of such Marks. Upon termination of this Agreement, Contractor will immediately cease use of the Approved Marks, unless otherwise authorized in another agreement with American, Parent or one of their Affiliates. Under no circumstance will Contractor: (i) use or display any of the Marks that Contractor obtained from a source other than the American Airlines Brand Center Website; (ii) alter the Marks in any way; or (iii) transfer, sell, or give away to a Third Party any products bearing the Approved Marks that do not meet American’s quality standards. Contractor agrees that it shall in no way contest or deny the validity of, or the right or title of American, Parent and/or one of their Affiliates, as the case may be, in or to the Marks, and shall not encourage or assist others directly or indirectly to do so, whether during the Term or thereafter. Contractor shall not use or register any domain name that is identical to or similar to any of the Marks without first receiving American’s prior Consent. American may inspect Contractor’s use of the Approved Marks at any time to ensure Contractor’s use of such Approved Marks is consistent with this Agreement. Upon written request from American from time to time, Contractor agrees to provide American with reports setting forth Contractor’s use of the Approved Marks.

(d) Marking. For all uses of Approved Marks, Contractor and its respective Affiliates shall affix proper trademark or service mark notice: the symbol ^® for registered trademarks or service marks, or the symbols ^™ or SM for unregistered trademarks or service marks, and where requested by American, a statement that the Approved Mark “is a (registered, if applicable) trademark (or service mark, if applicable) of American Airlines, Inc. (or Parent or any of their Affiliates, if applicable) and is being used by Contractor under license from American Airlines, Inc. (or Parent or any of their Affiliates, if applicable).”

(e) Additional Approved Marks. Contractor has no right or permission to use any of the Marks, other than the Approved Marks, without first receiving American’s express Consent to do so. If Contractor receives American’s Consent to use any additional Marks, then such Marks will then be considered Approved Marks.

(f) New Marks. American has the right to amend the Approved Marks list at any time. If American removes a Mark from the Approved Mark list, Contractor must cease all use of the Mark within a time period to be determined in American’s sole discretion. Similarly, if American adopts a new Mark that it desires Contractor to use in connection with the performance and operation of Regional Airline Services, it will notify Contractor in writing and specify a deadline by which Contractor must incorporate and use the new Mark, and Contractor shall incorporate and use the new Mark by such deadline [***].

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(g) Further Assurances. At American’s request, Contractor agrees to cooperate with American, Parent and their Affiliates in connection with applications and other filings to create, register, maintain, or otherwise perfect American’s, Parent’s and their Affiliates’ rights in Marks, at [***]. Upon termination of this Agreement, Contractor agrees to do everything necessary to effect cancellation of the recordation, if any, of Contractor as a recorded licensee of the Marks.

(h) License and Use of American’s Copyrights. American grants to Contractor a [***] right and license to reproduce, display, perform, distribute and prepare derivative works of American’s Copyrights solely as specified by American from time to time and solely in connection with the performance and operation of Regional Airline Services in accordance with this Agreement. Any reproductions shall include the notice “Reproduced with permission of American Airlines, Inc. ^© [date] American Airlines, Inc.” Contractor agrees it will not materially alter works subject to American’s Copyrights without American’s Consent. All derivative works of American’s Copyrights created by or for Contractor shall be the sole and exclusive property of American, and Contractor hereby assigns, and upon creation shall be deemed to have automatically assigned, all right, title and interest in and to such derivative works to American, including all copyright and other proprietary rights therein.

(i) License and Use of American Software. American owns Copyrights and other rights in its proprietary software that it makes available to Contractor under this Agreement (the “American Software”). American grants to Contractor a nonexclusive, nontransferable right and license to install, execute and use American Software in the manner and for the purposes described in this Agreement and solely for the purposes of performing and operating Regional Airline Services in accordance with this Agreement. Contractor may use American Software only as expressly permitted in this Agreement. Contractor may not make copies of American Software, provide Third Parties with access to American Software (other than Contractor Agents who are provided access in connection with Contractor providing Regional Airline Services), distribute American Software, or modify American Software without American’s prior Consent. Contractor may not dissemble, decompile, reverse engineer, or modify American Software. The American Software shall be considered American’s Confidential Information for all purposes under this Agreement. Upon any termination or expiration of this Agreement, Contractor shall promptly remove all copies of American Software from its systems and return or destroy any physical media provided by American containing copies of American Software.

(j) Effect on American Data Provisions. Nothing in this Section 6.03 gives Contractor any additional license or rights in and to American Data that is not expressly set forth in this Agreement, nor does it affect Contractor’s duties with respect to American Data under this Agreement.

(k) Infringement by Third Parties.

(i) If Contractor learns of any infringement or unauthorized use of any of the Marks, American’s Copyrights or American Software, Contractor shall promptly notify American in writing. American has the sole right to send infringement notices and bring infringement actions. If requested to do so, Contractor shall cooperate with and fully assist American in any such action, including without limitation providing Contractor’s files, communications, records, and other information relating to their Regional Airline Services or joining the action as a party, if necessary [***]. Any award or portion of an award, recovered by American in any such action or proceeding commenced by American shall belong solely to American.

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(ii) If a Third Party institutes a legal action against Contractor for its use of a Copyright, American Software provided to Contractor or an Approved Mark, as provided in this Agreement, then Contractor shall promptly notify American of such suit in writing. Subject to Section 11.02 and Section 11.03, American shall defend and indemnify Contractor in connection with any such action.

6.04 Ownership and Use of Data.

(a) Ownership. All American Data is, or upon creation will be, and will remain the property of American and all right, title and interest in and to any American Data, including intellectual property rights to American Data, will be solely owned by American. Contractor (and upon creation will be deemed to) irrevocably assigns, transfers and conveys, and will cause all Contractor Agents to assign, transfer and convey, to American without further consideration all of their right, title and interest in and to the American Data. Upon request by American [***], Contractor will execute and deliver, and will cause all Contractor Agents to execute and deliver, any documents or take any other actions that may be necessary or desirable under any law, rule or regulation of a Governmental Authority to evidence, preserve, or enable American or an Affiliate of American to enforce, its rights hereunder with respect to the American Data.

(b) Contractor Use Rights. Except as otherwise provided in this Agreement, without American’s approval (in its sole discretion), the American Data may not be (i) used by Contractor or any Contractor Agent; (ii) disclosed, sold, assigned, leased or otherwise provided to Third Parties by Contractor or any Contractor Agent; (iii) re-distributed or displayed via web sites or services (including, for example, through white label web sites); or (iv) commercially exploited by or on behalf of Contractor or any Contractor Agent. Contractor may access and use and may permit Contractor Agents to access and use the American Data (A) only as necessary to provide the Regional Airline Services to American, and (B) for any other purpose for which American may provide advanced written approval (email shall not suffice) in accordance with this Agreement (collectively “Permitted Uses”). Except for the Permitted Uses, Contractor may not edit, modify, create derivatives, combinations or compilations of, combine, associate, synthesize, reverse engineer, reproduce, display, distribute, disclose, or otherwise Process American Data. In addition, for clarity, Contractor must not directly or indirectly engage in any of the following activities: (x) use or disclosure of American Data in a way that may adversely affect American, including any use by or disclosure to other airlines, or (y) any kind of commercialization, marketing, advertising, licensing or resale that is based on American Data (e.g., targeted advertising to consumers based on the American Marks). Nothing in this Agreement conveys any rights or interest in the American Data to Contractor.

(c) Flight Status Data. With respect to Flight Status Data, in no event may Contractor disclose all or individual parts of the Flight Status Data, except to Contractor’s vendors that have agreed to keep such information confidential, or as otherwise permitted herein.

(d) Return. Following the expiration or termination of this Agreement, American shall, at Contractor’s election, return or dispose of all Contractor Data in its possession within [***] after the Termination Date. American may retain backup copies of Contractor Data that were captured as part of American’s normal course of business if it would be commercially or technologically impractical to delete such data in accordance with this Section 6.04(d) or for evidentiary purposes on the condition that American continues to comply with the confidentiality,

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compliance, data security and privacy provisions of this Agreement for as long as such backup copies exist. American may retain that portion of Contractor Data that it must retain pursuant to applicable law on the condition that American continues to comply with the confidentiality, compliance, data security and privacy provisions of this Agreement, for as long as it retains such data and deletes such Contractor Data as soon as American is no longer subject to such legal requirement.

(e) Deletion. Subject to the remaining provisions of this Section 6.04, Contractor shall securely delete all American Data held in its systems and cause all Contractor Agents to securely delete all American Data held in their respective systems within [***] after the expiration or effective date of termination of this Agreement. Contractor may retain backup copies of American Data that were captured as part of Contractor’s normal course of business if it would be commercially or technologically impractical to delete such data in accordance with this Section 6.04(e), for evidentiary purposes on the condition that Contractor continues to comply with the confidentiality, compliance, data security and privacy provisions of this Agreement for as long as such backup copies exist or any data that Contractor reasonably believes is required to be retained under applicable laws, rules or regulation by any Governmental Authority as an operator of flights. Contractor represents and warrants that it has in place and follows a business process to delete backups of its customers’ data that are no longer needed. Contractor may retain that portion of American Data that it must retain pursuant to applicable law (including Data Law) on the condition that Contractor continues to comply with the confidentiality, compliance, data security and privacy provisions of this Agreement, including but not limited to Exhibit D, for as long as it retains such data and deletes such American Data as soon as Contractor is no longer subject to such legal requirement. Contractor shall use commercially reasonable efforts to anonymize and de-identify American Data retained by it after the expiration or termination of this Agreement pursuant to this Section 6.04(e).

(f) Survival. This Section 6.04 shall survive the termination of this Agreement and/or of the provision of Regional Airline Services.

6.05 American’s AAdvantage^® Program. Without the express Consent of American, Contractor shall not promote or offer any frequent flyer or similar customer appreciation or reward program to passengers on flights on the Covered Aircraft, other than American’s AAdvantage^® frequent flyer program (as such program may be amended from time to time) or any other similar program developed or designated by American or as otherwise requested or directed by American from time to time in its sole discretion.

6.06 Periodic Reports. Contractor shall deliver to American:

(a) No later than [***] following request from American, detailed reports regarding the following in connection with its performance of the Regional Airline Services: (i) fuel usage on each Covered Aircraft; (ii) information on changes to Contractor’s pilot labor costs; (iii) tax information relevant to any Pass Through Costs or American Absorbed Expenses or any in-flight sales on a Scheduled Flight; (iv) information regarding Approved Marks; and (v) information regarding any licenses permitting the sale and dispensation of beer, wine, liquor or any other alcoholic beverages;

(b) Without limiting Article V, safety issues that would reasonably be expected to result in an adverse impact on the Regional Airline Services under FAA operational specifications or other regulatory constraints, within [***] of the applicable issue’s occurrence;

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(c) No later than [***] following request from American, a report of the following with respect to aircraft maintenance technicians for each day during the applicable month (each to be reported on a station-by-station basis): (i) number of aircraft maintenance technicians employed or contracted with by Contractor (and available at Hubs or the applicable maintenance facilities to work on Covered Aircraft), and (ii) hiring, attrition and seniority information for Contractor’s aircraft maintenance technicians;

(d) No later than [***] following request from American, (i) data in the format attached hereto as Exhibit F, and (ii) a [***] rolling forecast [***] (the “Rolling Forecast”);

(e) Promptly following request from American, such other reports or operational statistics directly or indirectly related to the Regional Airline Services and the Covered Aircraft, such further information as American may reasonably require or request to monitor Contractor’s performance under this Agreement and any Related Agreement, including, but not limited to, information regarding Contractor’s ability to provide Regional Airline Services, and any other data that could reasonably affect Contractor’s ability to perform its obligations hereunder; and

(f) Notice promptly after Contractor becomes aware, or reasonably should be aware, that a Covered Aircraft’s performance or condition has resulted in (or would reasonably be expected to result in) a breach of one of the representations, warranties or agreements relating to such Covered Aircraft.

Contractor represents, warrants and covenants that at all times during the Term, the reporting provided to American pursuant to this Agreement, including this Section 6.06, will be prepared in good faith and after reasonable inquiry.

6.07 Intentionally Omitted.

6.08 Liquor Licenses for Covered Aircraft. Contractor shall take all actions requested by American to acquire all licenses permitting Contractor to sell or dispense beer, wine, liquor or any other alcoholic beverages for consumption on the Covered Aircraft. Contractor agrees from time to time following any request by American to deliver to American such documentation as is required by any laws, rules or regulations of a Governmental Authority and such other documentation as American may reasonably require to evidence Contractor’s ability to lawfully sell or dispense beer, wine, liquor or any other alcoholic beverages on the Covered Aircraft.

6.09 Intentionally Omitted.

6.10 Eagle Partnership Manuals. Contractor has become a signatory participant in the Eagle Partnership Manuals and shall at all times comply with the procedures contained therein with respect to the Scheduled Flights and all other services Contractor performs for American.

6.11 Review of Insurance Coverage. The terms of this Section 6.11 will only apply to the extent that Contractor is then-not included in American’s insurance purchasing group. Upon American’s request, Contractor shall allow a firm of independent aircraft insurance brokers appointed by American (which firm may be in the regular employ of American) to review the commercial aircraft hull and liability insurance and contractual liability insurance with respect to the Covered Aircraft or Regional Airline Services; provided that all information provided to such insurance brokers shall be deemed Confidential Information and, prior to receiving such information, such insurance brokers shall execute and deliver to American a confidentiality and non-disclosure agreement regarding such Confidential Information in form and substance reasonably satisfactory to American and Contractor. American may confer with such

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insurance brokers to determine whether in such brokers’ reasonable judgment insurance afforded to American under such insurance policies is adequate in light of what is customary in the industry for airlines similarly situated with American and if such brokers advise American that such insurance coverage is inadequate, Contractor and American will consult and take such further action as may be reasonable to cure or mitigate such inadequacy; it being understood that any advice, opinion or suggestion obtained by American in the course of American’s conferring or consulting with such insurance brokers shall not be binding on American, but that American shall be free to follow or disregard such advice, opinion or suggestion in its discretion.

6.12 Intentionally Omitted.

6.13 Intentionally Omitted.

6.14 Late Reduced Crew Estimates.

(a) Initial Crew Max. Promptly in response to any rolling [***] forecast it receives from American, but no later than [***] after the issuance of a [***], Contractor shall furnish American’s Network Planning department with an initial good faith estimate of hours that Contractor’s captains, first officers and flight attendants can each be scheduled for Scheduled Flights for each [***] included in [***] (in the form attached hereto as Exhibit F, the “Initial Crew Max”). Such Initial Crew Max may be revised by Contractor in its good faith reasonable discretion.

(b) Final Crew Max. Not later than [***] prior to the commencement of any [***] during the Term hereof (the “Final Crew Max Determination Date”), Contractor shall furnish to American, in the manner specified in Section 6.14(f) below, the total number of hours that Contractor’s captains, first officers and flight attendants can each be scheduled for Scheduled Flights for the specific [***] (the “Final Crew Max”); provided, that, during a Supportability Period, the Final Crew Max shall instead be delivered by Contractor by no later than [***] prior to the date of American’s delivery of the Final Schedule, provided that American shall provide reasonable advance Notice to Contractor of the date it intends to deliver the Final Schedule.

(c) Late Reduced Crew Estimates. Without limiting American’s other rights and remedies under this Agreement, if following any Final Crew Max Determination Date, the Final Crew Max is reduced by Contractor for the relevant [***] (any such reduced Final Crew Max pursuant to the terms of this Section 6.14(c), the “Reduced Final Crew Max”), then (i) Contractor shall pay to American an amount equal to [***] for each block hour by which the Reduced Final Crew Max results in a reduction of the aggregate block hours set forth in the applicable flight schedule (the “Late Adjustment Charge”) [***]; provided, however, that during a Supportability Period, Contractor may deliver a Reduced Final Crew Max no later than [***] prior to the date that Contractor closes its crew bid (and no Late Adjustment Charge will be charged for a Reduced Final Crew Max, if it is delivered prior to such [***] deadline) for the relevant [***]. The payment of the Late Adjustment Charge to American under the circumstances provided for herein is not intended as a forfeiture or penalty.

(d) Reporting Failure. In the event that Contractor fails to deliver to American (i) the applicable Initial Crew Max, Final Crew Max or Rolling Forecast by their respective due dates, then Contractor shall promptly pay to American, on demand, a “late charge” equal to [***] or (ii) any report required pursuant to Sections 3.07(c) or 6.06 (other than the Rolling Forecast) by its respective due date, then Contractor shall promptly pay to American, on demand, a “late charge” equal to [***] (each charge referred to in (i) or (ii), a “Late Charge”); provided, however, any applicable Late Charge will only be charged if the applicable report is not provided within [***]

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following American’s delivery of Notice to Contractor’s Chief Financial Officer that the applicable report is late. Additionally, if Contractor fails to deliver to American the applicable Initial Crew Max, Final Crew Max or Rolling Forecast on or prior to their respective due dates, then, solely with respect to the time period covered by such report that is not provided [***].

(e) Inaccurate Reports. Contractor represents, warrants and covenants that at all times during the Term, the Initial Crew Max, Final Crew Max and Rolling Forecasts each will be prepared in good faith and after reasonable inquiry. If either (i) Contractor provides a Final Crew Max that American reasonably and in good faith believes (A) does not accurately in any material respect reflect Contractor’s pilots and flight attendants available to American during the specified time period, or (B) was not prepared in good faith, or (ii) Contractor provides a Rolling Forecast that American reasonably believes in good faith based on the facts and circumstances was not prepared by Contractor in good faith, then, after delivery of Notice thereof to Contractor, Contractor shall have (1) [***] with respect to any Final Crew Max or (2) [***] with respect to any Rolling Forecast to refute American’s conclusion by providing supporting evidence for Contractor’s conclusions in such Final Crew Max or Rolling Forecast, as applicable. If Contractor does not refute American’s conclusion within the prescribed time frame in the reasonable good faith discretion of American, then [***], in each case for the applicable time period addressed by the applicable report.

(f) Notices to American. All information provided to American pursuant to this Section 6.14 shall be delivered by Contractor in electronic format by email to (i) [***] or (ii) such other addressee as American may designate.

(g) Setoff of Late Adjustment Charges and Late Charges; Non-Impairment. Pursuant to this Section 6.14 and Section 14.08 for any calendar month for which any Late Adjustment Charge or a Late Charge is owing (any such month, the “Late Adjustment Charge Application Month”), [***]. It is agreed and understood between the Parties, that any Late Adjustment Charge and/or Late Charge paid to American pursuant to this Section 6.14 shall not impair and shall not be deemed to limit, amend, modify or supplant any other rights or remedies American shall have hereunder or under applicable law, including, but not limited to, American’s rights and remedies as provided in Section 12.02 hereof. In no event shall American be required to choose between available remedies; it being understood that American shall have the right to have all of the remedies be cumulative and non-exclusive; it being understood that the provisions and any specific rights specified shall also not impair, and shall not be deemed to limit, amend, modify or supplant any other rights or remedies American shall have under this Agreement. It is further understood and agreed by the Parties that the provisions of this Section 6.14 are alternatives to other remedies provided herein and shall in no event be deemed a forfeiture or penalty.

6.15 Unsupported Aircraft.

(a) American shall not be required to pay the [***] for any month for that number of Unsupported Aircraft calculated in subsection (b) below. For the avoidance of doubt, when determining the number of Unsupported Aircraft for which American is not responsible for the [***] in a calendar month, the days in such calendar month that are attributable to the preceding or succeeding month’s open schedule period shall not be taken into account (e.g., for the calendar month of May, if the April open schedule period is from April 5 through May 4, then the Parties would not consider May 1 through May 4 when determining Unsupported Aircraft for which American is not responsible for the Covered Aircraft Day Rate for the month of May).

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(b) Calculation of Unsupported Aircraft. For purposes of calculating the number of Unsupported Aircraft in any month, the following terms shall be defined as follows: [***]

(c) Illustrative Sample Calculations.

[***]

6.16 Resource Allocation. At all times following the end of the Transition Period, Contractor shall (a) allocate its captains, first officers, flight attendants and aircraft maintenance technicians used for Scheduled Flights in a manner no less favorable to American than Contractor allocates such captains, first officers, flight attendants, aircraft maintenance technicians to any Other Carrier, and (b) provide American with written calculations that demonstrate, to American’s reasonable satisfaction, for the applicable month, Contractor’s compliance with Section 6.16(a), in accordance with the sample calculations on Exhibit G hereto.

6.17 Actions during a Force Majeure Event or Labor Dispute.

(a) Notice to American. Contractor shall provide prompt Notice to American if either (i) a Force Majeure Event with respect to Contractor or a Contractor Labor Dispute occurs, or (ii) Contractor believes that (x) it is more likely than not that an occurrence of such a Force Majeure Event is imminent or (y) there is a likelihood of an imminent occurrence of such a Contractor Labor Dispute.

(b) Mitigation of Costs. Contractor covenants and agrees that it shall use commercially reasonable efforts to mitigate its costs and expenses incurred during a Force Majeure Event or Contractor Labor Dispute, if such costs and expenses are Pass Through Costs or American Absorbed Expenses, or otherwise reimbursable or payable by American in accordance with the terms and conditions of this Agreement. American covenants and agrees that it shall use commercially reasonable efforts to mitigate any costs and expenses incurred by it during a Force Majeure Event or Contractor Labor Dispute, if such costs and expenses are Controllable Costs, or otherwise directly or indirectly reimbursable or payable by Contractor in accordance with the terms and conditions of this Agreement.

(c) Performance During Force Majeure Event. Without limiting American’s right to terminate this Agreement pursuant to Section 12.02(b)(v) [***].

(d) Compensation During Contractor Labor Dispute. If Contractor is unable to operate at least [***] of the Scheduled Flights for more than [***] due to a Contractor Labor Dispute, then, during the period following such [***] period until such day that Contractor is able to resume operating at least [***] of the Scheduled Flights, and solely with respect to those Regional Airline Services that it is not providing during such period, Contractor shall not receive the compensation described on Schedule 5, nor be entitled to receive reimbursement from American of any Pass Through Costs pursuant to Schedule 3, in each case, solely with respect to those Regional Airline Services that it is not providing (e.g., American will continue to pay compensation and Pass Through Costs attributable to Regional Airline Services actually provided by Contractor) as a result of such Contractor Labor Dispute; in which event: (i) Contractor shall not have the right to terminate this Agreement as a result of American’s failure to pay the compensation set forth on Schedule 5; and (ii) no default by American shall be deemed to have occurred under Schedule 5 with respect to payment obligations under this Agreement. For the avoidance of doubt, it is intended that the rights and remedies referred to in this Section 6.17(d) shall be cumulative and in addition to any rights or remedies otherwise available hereunder or under any Related Agreement or at law or in equity. The exercise by American of any one or more of such rights or remedies shall not preclude the simultaneous or later exercise by American of any or all of such other rights or remedies.

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ARTICLE VII.

CONTRACTOR’S COMPENSATION

7.01 Base and Incentive Payments. Subject to the terms and conditions of this Agreement, during the Term, for and in consideration of the Regional Airline Services provided by Contractor hereunder and the operation of the Covered Aircraft, American shall pay to Contractor the compensation provided on Schedule 5 for such Covered Aircraft.

7.02 Costs and Expenses. Except as otherwise provided in this Agreement, the costs and expenses incurred in connection with the Regional Airline Services shall be payable or reimbursable pursuant to the terms of this Agreement, including Schedule 3 hereof.

7.03 Cost Savings.

(a) Duty to Minimize Costs. In connection with providing Regional Airline Services to American, Contractor shall use commercially reasonable efforts to minimize costs and expenses incurred by it (including by complying with suggestions made by American for mitigating costs and expenses) if such costs and expenses (including aircraft fuel costs and expenses) are Pass Through Costs or American Absorbed Expenses, or costs or expenses otherwise directly or indirectly reimbursable or paid by American to Contractor in accordance with the terms and conditions of this Agreement or any of the Related Agreements. Further, with respect to any service or item the cost of which American is required to reimburse Contractor hereunder other than insurance required pursuant to the terms hereof, if American can provide or arrange to provide such service or item at a lower cost than the reimbursement cost that American would otherwise be charged, then American shall give Notice to Contractor of the terms and conditions under which American would provide such service or item, and Contractor shall allow American to provide or arrange to provide such service or item in order to permit American to lower its costs; provided [***].

(b) American Cost Initiatives. [***]. Within [***] of receipt of Notice from American, Contractor shall implement such American Cost Initiative; provided [***].

ARTICLE VIII.

USE OF FACILITIES

8.01 Facilities. Subject to the terms and conditions hereof, American hereby grants to Contractor a limited, non-exclusive right and license to use and occupy the American Facilities to support the provision of Regional Airline Services as set forth in this Article VIII [***]; and provided further that the description of the American Facilities shall be provided to Contractor by American and included on Schedule 11 at least [***] prior to the Implementation Date for the first Covered Aircraft. The Parties acknowledge that the grant of such license to Contractor has been made without obtaining the Consent and approval of any applicable Governmental Authority or any similar authority or governing board in any domestic or Canadian jurisdiction, or any private or quasi-governmental entity, governing board or other Person with authority to lease, convey or otherwise grant or restrict rights to use or operate any airport facilities associated with this Agreement (“Airport Operators”). If any Airport Operator requires the Consent of such Airport Operator for the grant of such license or for the use of the related American Facilities, then the Parties shall use commercially reasonable efforts to obtain such Consent and/or to

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effectuate such license on the terms set forth herein and in such manner as American and Contractor may deem advisable or appropriate. [***] Contractor covenants and agrees that it will use the American Facilities exclusively to support the provision of Regional Airline Services, and shall not use such facilities for the provision of any services, including ground handling services, regional air services or any other services, to any Third Party or for any other purpose without the express prior Consent of American; it being understood that American shall have sole and absolute discretion to provide or decline such Consent for any reason whatsoever.

8.02 Conditions of Use for American Facilities. At all times, Contractor covenants and agrees that it shall comply with the “Standards of Facilities Use” set forth on Exhibit E hereto. Contractor, [***], will be responsible for providing all manpower, furniture and related furnishings and equipment at the American Facilities and any other airport facilities (i.e., other than the American Facilities) necessary to support the Regional Airline Services, unless American Consents otherwise.

8.03 Replacement and Termination of Facilities Use. In addition to any rights granted to American under a Sublease, at all times and from time to time, American shall have the right and option, in its sole and absolute discretion, to (a) designate any replacement facilities, (b) increase or reduce the size or space of the American Facilities, or (c) if Contractor fails to comply with its obligations relating to the American Facilities as set forth herein and on Exhibit E and such failure continues for a period of [***] after Notice to Contractor to cure such failure (or such shorter period provided in any Sublease or lease between American and Contractor with respect to such American Facility), in each case, to terminate Contractor’s use of any American Facilities, all without the Consent of Contractor, so long as Contractor has sufficient facilities to perform its obligations hereunder as determined by American in its reasonable discretion (except where Contractor’s actions or omissions would reasonably be expected to result in, or have resulted in, the termination of American’s right to use the American Facilities, in which case American shall not be obligated to provide sufficient facilities to Contractor to replace the applicable terminated American Facility). Any American Facilities no longer used, or authorized to be used, by Contractor shall immediately cease to be American Facilities for the purposes hereof and Contractor’s right to use such facilities shall terminate immediately without further action of American. Notwithstanding anything in this Agreement to the contrary, American shall not be required to provide to Contractor any space or facilities (including American Facilities) following the end of the Term.

8.04 Facilities Related Insurance. In addition to any insurance obligations applicable to Contractor under a Sublease and without limiting any obligation of Contractor pursuant to the provisions of Article X hereof, Contractor shall maintain, or cause to be maintained, in full force and effect policies of insurance with insurers of recognized reputation and responsibility reasonably acceptable to American, causes of loss, special form or all-risk property insurance with per occurrence limits adequate to cover the full replacement cost of the Crew Facilities and Line Maintenance Facilities and other property and liability insurance coverage of the types and in the amounts that would be considered reasonably prudent given Contractor’s size and nature and under insurance market conditions in effect at the time of placement.

8.05 Subleases. Contractor’s obligations and liabilities, and American’s rights and remedies, set forth in this Agreement with respect to the American Facilities are in addition to (and not in lieu of) any obligations and liabilities of Contractor, or rights and remedies of American, set forth in any Sublease. Nothing in this Agreement shall be construed to permit Contractor to take any action with respect to the any American Facility in violation of any applicable Sublease or vice versa; provided that, if it is impossible for Contractor to comply with any such Sublease and this Agreement with respect to the applicable American Facilities due to a conflict between the terms and conditions of such Sublease and the terms and conditions of this Agreement, then Contractor shall comply with the applicable terms and conditions of the Sublease with respect to the applicable American Facilities.

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ARTICLE IX.

REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS

9.01 Contractor’s Representations and Warranties. Contractor represents and warrants to American as of the Effective Date as follows:

(a) Organization and Qualification. Contractor is a duly organized and validly existing limited liability company in good standing under the laws of the State of Delaware and has the company power and authority to own, operate and use its assets and provide the Regional Airline Services.

(b) Authority Relative to this Agreement and the Related Agreements. Contractor has the company power and authority to execute and deliver this Agreement and the Related Agreements and to consummate the transactions contemplated hereby in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary company action on the part of Contractor. This Agreement and the Related Agreements have been duly and validly executed and delivered by Contractor and are, assuming due execution and delivery thereof by American and that American has legal power and right to enter into this Agreement and the Related Agreements, the valid and binding obligations of Contractor, enforceable against Contractor in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws, rules or regulations of a Governmental Authority relating to or affecting the enforcement of creditors’ rights generally and legal principles of general applicability governing the availability of equitable remedies (whether considered in a proceeding in equity or at law or otherwise under the applicable laws, rules or regulations of a Governmental Authority).

(c) Conflicts; Defaults. Neither the execution or delivery of this Agreement or the Related Agreements nor the performance by Contractor of the transactions contemplated hereby or thereby will (i) violate, conflict with, or constitute a default under any of the terms of Contractor’s limited liability company agreement or any provision of, or result in the acceleration of any obligation under, any material contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease or other agreement to which Contractor is a party; (ii) result in the creation or imposition of liens in favor of any Third Party; (iii) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority applicable to Contractor or that relates to the provision of Regional Airline Services; or (iv) constitute any event which, after Notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens.

(d) Approvals. Contractor possesses all approvals, certificates, licenses, permits or other authorizations of any Governmental Authority that are necessary to execute and deliver this Agreement and the Related Agreements and to provide the Regional Airline Services and otherwise perform its obligations hereunder and thereunder.

(e) Permits. Contractor possesses, or will possess prior to the Implementation Date of any Covered Aircraft, all certificates, authorizations and permits issued by the FAA and other applicable federal, state or Canadian regulatory authorities necessary to conduct its business, maintain the airworthiness of the Covered Aircraft, provide Regional Airline Services and otherwise perform its obligations under this Agreement and the Related Agreements, and Contractor has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a material adverse effect on Contractor or its ability to conduct its business, maintain the airworthiness of the Covered Aircraft, provide Regional Airline Services and otherwise perform its obligations under this Agreement or the Related Agreements.

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9.02 American Representations and Warranties. American represents and warrants to Contractor as of the Effective Date as follows:

(a) Organization and Qualification. American is a duly incorporated and validly existing corporation in good standing under the laws of the State of Delaware.

(b) Authority Relative to this Agreement and the Related Agreements. American has the corporate power and authority to execute and deliver this Agreement and the Related Agreements and to consummate the transactions contemplated hereby in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of American. This Agreement and the Related Agreements have been duly and validly executed and delivered by American and are, assuming due execution and delivery thereof by Contractor and that Contractor has legal power and right to enter into this Agreement and the Related Agreements, a valid and binding obligations of American, enforceable against American in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws, rules or regulations of a Governmental Authority relating to or affecting the enforcement of creditors’ rights generally and legal principles of general applicability governing the availability of equitable remedies (whether considered in a proceeding in equity or at law or otherwise under the applicable laws, rules or regulations of a Governmental Authority).

(c) Conflicts; Defaults. Neither the execution or delivery of this Agreement or the Related Agreements nor the performance by American of the transactions contemplated hereby or thereby will (i) violate, conflict with, or constitute a default under any of the terms of American’s certificate of incorporation, by laws, or any provision of, or result in the acceleration of any obligation under, any material contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease or other agreement to which American is a party; (ii) result in the creation or imposition of any liens in favor of any Third Party; (iii) violate any law, statute, judgment, decree, order, rule or regulation of any Governmental Authority applicable to American; or (iv) constitute any event which, after Notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens.

(d) Approvals. American possesses or will possess prior to the Implementation Date of any Covered Aircraft all approvals, certificates, licenses, permits or other authorizations of any Governmental Authority that are necessary to execute and deliver this Agreement and the Related Agreements and perform its obligations hereunder and thereunder.

ARTICLE X.

INSURANCE

10.01 Minimum Insurance Coverage. The Parties shall use commercially reasonable efforts to arrange for Contractor to be a participant in American’s insurance purchasing group. Except as otherwise set forth herein, beginning as of the first Implementation Date for the first Covered Aircraft hereunder and throughout the Term thereafter, in addition to any insurance required to be maintained by Contractor under or pursuant to any of the Related Agreements or by any applicable Governmental Authority, Contractor

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shall at all times during the Term hereof maintain, or cause to be maintained, in full force and effect policies of insurance with insurers of recognized reputation and responsibility, in each case to the extent available and of the type usually carried by corporations engaged in the same or similar business, similarly situated and owning or operating similar aircraft and engines and covering risks of the kind customarily insured, as follows:

(a) Aviation Hull and Liability Insurance. Aviation hull and liability insurance, including aircraft Third Party bodily injury, passenger liability (including passengers’ baggage and personal effects), property damage, non-owned aircraft liability, hangarkeepers’ liability, personal injury, cargo and mail legal liability, products and completed operations liability, and contractual liability insurance, with a combined single limit of not less than [***] per occurrence (and in the aggregate with respect to products and completed operations), and with respect to non-passenger personal injury, a sublimit of [***] per occurrence and in the aggregate or such other limit which is customarily available in the industry.

(b) All Risk Ground Insurance. All risk ground and flight physical damage coverage covering all aircraft, engines and components that Contractor owns, leases or that are otherwise in Contractor’s care, custody and control, including non-owned aircraft, engines and components, with a limit sufficient to cover the agreed or stipulated value of the highest valued aircraft in Contractor’s fleet, inclusive of engines and all modifications and improvements. Such insurance shall also provide protection for hull war, war and other allied perils and include war and other allied perils liability insurance for passengers and Third Parties in the form of extended coverage endorsement (aviation liabilities) per clause AVN52E or its market equivalent. To the extent that the required war risks coverage in the preceding sentence is not included in such policies but is instead provided under separate insurance policies, government insurance and/or indemnification, Contractor shall provide evidence thereof in a form reasonably satisfactory to American.

(c) Workers’ Compensation Insurance and Employer’s Liability Insurance. Workers’ compensation providing the statutory coverage required by the appropriate jurisdiction and employer’s liability with policy limits of not less than [***] “Each Employee for Bodily Injury by Accident,” and [***] “Each Employee for Bodily Injury by Disease.”

(d) Automobile Liability Insurance. Automobile liability insurance covering all owned, non-owned, leased or hired vehicles with policy limits of not less than [***] combined single limit per occurrence.

(e) Network Security & Privacy Liability Insurance. As soon as reasonably practicable, but by no later than [***], Network security and privacy liability insurance with a minimum limit of not less than [***] for each claim that, at a minimum, covers liability resulting from (i) the loss, theft, or disclosure of (A) Confidential Information, or (B) personal non-public information of any person, (ii) the unauthorized access to, use of, or tampering with computer systems, including denial of service attacks or inability of an authorized Third Party to gain access to services, (iii) the introduction of a computer virus or malicious code into, or otherwise causing damage to, a computer, computer system, network, or similar computer related property and the data, software, and programs thereon, or (iv) PCI DSS non-compliance.

(f) Other Property and Liability Insurance. Other property and liability insurance coverages and any other property damage liability insurance, exclusive of any manufacturer’s product liability insurance of the types and in the amounts that would be considered prudent for a business organization of Contractor’s size and nature, under the insurance market conditions in effect at the time of placement, but in any event of the type and the amount that American may require to prevent or minimize a disruption in the provision of Regional Airline Services resulting from a casualty or liability incident related to any of Contractor’s operations.

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(g) Deductibles. All coverages described in this Section 10.01 shall be placed with deductibles that are commercially reasonable. On the Effective Date and on each anniversary hereof during the Term, Contractor shall furnish to American a list of the deductibles applicable for each such coverage described in this Section 10.01.

10.02 Endorsements. In addition to any requirements under any Related Agreement, Contractor shall cause the liability policies required to be maintained pursuant to Section 10.01 above to be duly and properly endorsed by Contractor’s insurance underwriters as follows:

(a) Subrogation Rights. To provide that the underwriters shall waive subrogation rights against American and its Affiliates, except for their gross negligence or willful misconduct, to the extent such waiver is applicable and available under such policy;

(b) Additional Insureds. To provide that American and its Affiliates shall be named as additional insured parties under Contractor’s liability coverage and only as respect to the operations of the named insured. Additional insured coverage is not provided to any party with respect to claims arising out of their legal liability as a manufacturer, repairer, or servicing agent of the Covered Aircraft;

(c) Right of Contribution. To provide that such insurance shall be primary to and without right of contribution from any other insurance which may be available to the additional insureds;

(d) Breach of Warranty. With respect to the aviation liability insurance only, to include a “breach of warranty” provision in favor of the additional insureds insuring their interest regardless of any breach or violation by Contractor of any warranties, declarations or conditions contained in such insurance policies;

(e) Cross Liability Warranty. With respect to the aviation liability insurance only, to include a “cross liability warranty” provision, providing American and each of the other additional insureds the benefit of all provisions of the aviation liability insurance policy in the same manner as if there were a separate policy covering each additional insured (the total liability of the insurers, in respect of any and all insureds, shall not exceed the limits of liability set forth in the policy);

(f) Contractual Liability. With respect to the aviation liability insurance only, to accept and insure Contractor’s hold harmless and indemnity undertakings set forth in this Agreement, but only to the extent of the coverage afforded by the aviation liability insurance policy or policies;

(g) No Cancellation or Amendment. With respect to all of the insurance policies described in Section 10.01, to provide that such policies shall not be canceled, terminated or the limits or coverage required hereunder be reduced (or subjected to an adverse change) until [***] in the case of nonpayment of premiums) after receipt by American of Notice from such insurers of such cancellation, termination or reduction; and

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(h) Evidence of Insurance Coverage. On the Effective Date and upon each renewal of each policy during the Term, Contractor shall furnish to American a certificate of insurance certifying that such insurance and endorsements are in full force and effect. Such certificate shall be issued per the AVN67B form. If Contractor fails to acquire or maintain insurance as herein provided, then American may at its option secure such insurance on Contractor’s behalf and Contractor shall take all actions requested or directed by American and cooperate with American in connection with obtaining or maintaining such coverage.

ARTICLE XI.

INDEMNIFICATION

11.01 Contractor’s Indemnification of American Indemnified Parties. CONTRACTOR SHALL DEFEND THE AMERICAN INDEMNIFIED PARTIES AGAINST ANY AND ALL CLAIMS ALLEGING, AND INDEMNIFY AND HOLD HARMLESS THE AMERICAN INDEMNIFIED PARTIES FROM AND AGAINST ANY LOSSES THAT ARE SUFFERED OR INCURRED BY THE AMERICAN INDEMNIFIED PARTIES RESULTING FROM CLAIMS ARISING OUT OF, CAUSED BY OR OCCURRING IN CONNECTION WITH, ANY OF THE FOLLOWING: (I) THE DEATH OF, OR HARM OR INJURY TO, ANY PERSON OR LOSS OF OR DAMAGE TO ANY PROPERTY, IN EACH CASE, OCCURRING WHILE SUCH PERSONS OR PROPERTY ARE UNDER THE CONTROL OF, BEING USED BY OR IN THE CUSTODY OF, OR BEING TRANSPORTED BY CONTRACTOR OR ANY CONTRACTOR AGENT (INCLUDING, FOR THE AVOIDANCE OF DOUBT, CLAIMS OR LOSSES ARISING OUT OF THE DEATH OF OR INJURY TO PASSENGERS TRAVELING ON ANY AIRCRAFT OPERATED BY CONTRACTOR, BUT IN EACH CASE, SUBJECT TO ANY LIMITATIONS OF LIABILITY APPLICABLE TO THE AMERICAN INDEMNIFIED PARTY PURSUANT TO CONDITIONS OF CARRIAGE OR APPLICABLE LAW (INCLUDING INTERNATIONAL CONVENTIONS) WITH RESPECT TO SUCH CLAIMS OR LOSSES); (II) THE IMPROPER PERFORMANCE OR NON-PERFORMANCE OF ANY OBLIGATION OF CONTRACTOR OR ANY CONTRACTOR AGENT UNDER THIS AGREEMENT (INCLUDING THE OPERATION, NON-OPERATION OR IMPROPER OPERATION OF THE COVERED AIRCRAFT OR CONTRACTOR’S EQUIPMENT OR FACILITIES OR CONTRACTOR’S PROVISION OF THE REGIONAL AIRLINE SERVICES); (III) CONTRACTOR’S BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR OBLIGATION OF CONTRACTOR (INCLUDING ANY ACTION OR FAILURE TO ACT BY CONTRACTOR OR ANY CONTRACTOR AGENT THAT, IF TAKEN OR NOT TAKEN BY CONTRACTOR, WOULD CONSTITUTE SUCH A BREACH BY CONTRACTOR) UNDER THIS AGREEMENT; (IV) CONTRACTOR’S UNAUTHORIZED USE OR DISCLOSURE OF CONFIDENTIAL INFORMATION OF AMERICAN OR CONTRACTOR’S UNAUTHORIZED USE OF ANY COPYRIGHT (INCLUDING ANY AMERICAN COPYRIGHT), THE MARKS, ANY APPROVED MARK, ANY AMERICAN SYSTEM, ANY SOFTWARE (INCLUDING ANY AMERICAN SOFTWARE) OR DATA (INCLUDING AMERICAN DATA); AND (V) LOSSES, INCLUDING GOVERNMENT FINES, PENALTIES, SANCTIONS, INTEREST OR OTHER REMEDIES ARISING OUT OF CONTRACTOR’S OR A CONTRACTOR AGENT’S FAILURE TO COMPLY WITH ANY LAWS, RULES, REQUIREMENTS, OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITIES IN CONNECTION WITH ITS PERFORMANCE UNDER THIS AGREEMENT (INCLUDING ANY ACT OR OMISSION OF CONTRACTOR OR A CONTRACTOR AGENT THAT CAUSES AN AMERICAN INDEMNIFIED PARTY TO BE NON-COMPLIANT WITH ANY LAW, RULE, REQUIREMENT OR REGULATION OF ANY APPLICABLE GOVERNMENTAL AUTHORITY), IN EACH CASE FOR CLAUSES (I)-(V) ABOVE, EXCEPT TO THE EXTENT ANY CLAIM OR LOSS IS DETERMINED TO HAVE BEEN CAUSED BY A NEGLIGENT ACT OR OMISSION (OR MORE CULPABLE ACT OR OMISSION (INCLUDING GROSS NEGLIGENCE, RECKLESSNESS OR WILLFUL MISCONDUCT) OF AMERICAN, ANY AFFILIATE OF AMERICAN (INCLUDING PARENT) OR ANY AMERICAN AGENT OR IS SUBJECT TO AMERICAN’S INDEMNIFICATION OBLIGATIONS HEREUNDER.

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11.02 American’s Indemnification of Contractor Indemnified Parties. AMERICAN SHALL DEFEND THE CONTRACTOR INDEMNIFIED PARTIES AGAINST ANY AND ALL CLAIMS ALLEGING, AND INDEMNIFY AND HOLD HARMLESS THE CONTRACTOR INDEMNIFIED PARTIES FROM AND AGAINST ANY LOSSES THAT ARE SUFFERED OR INCURRED BY THE CONTRACTOR INDEMNIFIED PARTIES RESULTING FROM CLAIMS ARISING OUT OF, CAUSED BY OR OCCURRING IN CONNECTION WITH, ANY OF THE FOLLOWING: (I) THE DEATH OF, OR HARM OR INJURY TO ANY PERSON OR LOSS OF OR DAMAGE TO ANY PROPERTY, IN EACH CASE OCCURRING WHILE SUCH PERSONS OR PROPERTY ARE UNDER THE CONTROL OF, BEING USED BY OR IN THE CUSTODY OF, OR BEING TRANSPORTED BY AMERICAN OR ANY AMERICAN AGENT (INCLUDING, FOR THE AVOIDANCE OF DOUBT, CLAIMS OR LOSSES ARISING OUT OF THE DEATH OF OR INJURY TO PASSENGERS ON AIRCRAFT OPERATED BY AMERICAN OR ITS OPERATING PARTNERS (EXCLUDING CONTRACTOR), BUT IN EACH CASE, SUBJECT TO ANY LIMITATIONS OF LIABILITY APPLICABLE TO THE CONTRACTOR INDEMNIFIED PARTY PURSUANT TO CONDITIONS OF CARRIAGE OR APPLICABLE LAW (INCLUDING INTERNATIONAL CONVENTIONS) WITH RESPECT TO SUCH CLAIMS OR LOSSES); (II) THE IMPROPER PERFORMANCE OR NON-PERFORMANCE OF ANY OBLIGATION OF AMERICAN OR ANY AMERICAN AGENT UNDER THIS AGREEMENT (INCLUDING THE OPERATION, NON-OPERATION OR IMPROPER OPERATION OF AMERICAN FACILITIES OR EQUIPMENT BEING USED BY AMERICAN OR ANY AMERICAN AGENT); (III) AMERICAN’S BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR OBLIGATION OF AMERICAN (INCLUDING ANY ACTION OR FAILURE TO ACT BY AMERICAN OR ANY AMERICAN AGENT THAT, IF TAKEN OR NOT TAKEN BY AMERICAN, WOULD CONSTITUTE SUCH A BREACH BY AMERICAN) UNDER THIS AGREEMENT; (IV) LOSSES, INCLUDING GOVERNMENT FINES, PENALTIES, SANCTIONS, INTEREST OR OTHER REMEDIES ARISING OUT OF AMERICAN’S OR AN AMERICAN AGENT’S FAILURE TO COMPLY WITH ANY LAWS, RULES, REQUIREMENTS, OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITIES IN CONNECTION WITH ITS PERFORMANCE UNDER THIS AGREEMENT (INCLUDING ANY ACT OR OMISSION OF AMERICAN OR AN AMERICAN AGENT THAT CAUSES A CONTRACTOR INDEMNIFIED PARTY TO BE NON-COMPLIANT WITH ANY LAW, RULE, REQUIREMENT OR REGULATION OF ANY APPLICABLE GOVERNMENTAL AUTHORITY); (V) AMERICAN’S UNAUTHORIZED USE OR DISCLOSURE OF CONFIDENTIAL INFORMATION OF CONTRACTOR; OR (VI) ANY INFRINGEMENT OR MISAPPROPRIATION OR ALLEGED INFRINGEMENT OR ALLEGED MISAPPROPRIATION OF A THIRD PARTY’S PATENT, TRADE SECRET, COPYRIGHT OR OTHER PROPRIETARY RIGHTS WITH RESPECT TO AMERICAN SOFTWARE, AMERICAN’S COPYRIGHTS OR ANY APPROVED MARK, IN EACH CASE FOR CLAUSES (I)-(VI) ABOVE, EXCEPT TO THE EXTENT ANY CLAIM OR LOSS IS DETERMINED TO HAVE BEEN CAUSED BY A NEGLIGENT ACT OR OMISSION (OR MORE CULPABLE ACT OR OMISSION (INCLUDING GROSS NEGLIGENCE, RECKLESSNESS OR WILLFUL MISCONDUCT) OF CONTRACTOR, ANY AFFILIATE OF CONTRACTOR OR ANY CONTRACTOR AGENT OR IS SUBJECT TO CONTRACTOR’S INDEMNIFICATION OBLIGATIONS HEREUNDER.

11.03 Procedure for Indemnification Claims.

(a) Indemnification by Contractor. Any American Indemnified Party wishing to assert a right to indemnification from Contractor under the terms and conditions of this Agreement shall provide Contractor with prompt Notice of any Claim that such American Indemnified Party believes gives rise to any Claim for indemnity against Contractor or which could result in any Losses; provided that the failure to so notify Contractor shall not relieve Contractor from any liability which it may have under this Article XI, unless and to the extent (x) Contractor did not otherwise learn of such action, threat or claim, and (y) the lack of such notice by any American Indemnified Party results in the forfeiture by Contractor of substantial rights and defenses.

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(i) Contractor shall be entitled, if it accepts financial responsibility for any Claim, to control the defense of, to settle or to pay for any such Claim at its expense and by its counsel; provided that (A) unless a settlement includes an unconditional release of the American Indemnified Party, the American Indemnified Party’s prior Consent (which may not be unreasonably withheld or delayed) must be obtained prior to settling or paying for any such Claim; provided, however, if the American Indemnified Party fails to give such Consent to such settlement or payment that has been agreed upon by Contractor and the claimant in question within [***] of being requested to do so, then the American Indemnified Party shall assume the defense of such claim or demand and regardless of the outcome of such matter, Contractor’s liability hereunder shall be limited to the amount of any such proposed settlement and (B) the American Indemnified Party shall have the right, but not the duty, to participate in the defense of any Claim with attorneys of its own choosing and at its own cost, without relieving Contractor of any obligations hereunder. In addition, even if Contractor assumes the defense of a Claim, the American Indemnified Party shall have the right to assume control of the defense of any Claim from Contractor at any time, and to elect to settle or defend against such Claim, in which case Contractor shall have no indemnification obligations with respect to such Claim except for the costs and expenses of the American Indemnified Party incurred prior to the assumption of the defense of the Claim by the American Indemnified Party (excluding attorneys’ fees incurred by American in participating in the defense of such Claim). The American Indemnified Party shall provide Contractor with such information as Contractor shall reasonably request to defend or resolve any such Claim and shall otherwise cooperate with Contractor in the defense or resolution of any such Claim. If Contractor does not accept financial responsibility for the Losses relating to any Claim or fails to defend against the Claim that is the subject of a Notice under this Section 11.03(a) within [***] of receiving such Notice (or sooner if the nature of the Claim so requires), or otherwise contests its obligation to indemnify the American Indemnified Party in connection therewith, then the American Indemnified Party may, upon providing Notice to Contractor, pay, compromise or defend such Claim. In the latter event, the American Indemnified Party, by proceeding to defend itself or settle the matter, does not waive any of its rights hereunder to later seek indemnification from Contractor. Except as set forth in this Section 11.03(a), the American Indemnified Party shall not enter into any settlement or other compromise or Consent to a judgment with respect to a Claim as to which Contractor has an indemnity obligation hereunder without the prior Consent of Contractor (which may not be unreasonably withheld or delayed), and the entering into of any settlement or compromise, or the Consent to any judgment in violation of the foregoing shall constitute a waiver by any American Indemnified Party of its right to indemnity hereunder to the extent Contractor is materially prejudiced thereby. Contractor shall be subrogated to the rights of the American Indemnified Party to the extent that Contractor pays for any Losses suffered by the American Indemnified Party hereunder.

(b) Indemnification by American. Any Contractor Indemnified Party entitled to indemnification from American under the terms and conditions of this Agreement shall provide American with prompt Notice of any Claim that such Contractor Indemnified Party believes gives rise to a Claim for indemnity against American or which could result in any Losses; provided that the failure to so notify American shall not relieve American from any liability which it may have under this Article XI, unless and to the extent (x) American did not otherwise learn of such action, threat or claim, and (y) the lack of such notice by any Contractor Indemnified Party results in the forfeiture by American of substantial rights and defenses.

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(i) American shall be entitled, if it accepts financial responsibility for any Claim, to control the defense of, to settle or to pay for any such Claim at its own expense and by its own counsel; provided that unless a settlement includes an unconditional release of the Contractor Indemnified Party, the Contractor Indemnified Party’s prior Consent (which may not be unreasonably withheld or delayed) must be obtained prior to settling or paying for any such Claim; provided, however, if the Contractor Indemnified Party fails to give such Consent to such settlement or payment that has been agreed upon by American and the claimant in question within [***] of being requested to do so, then the Contractor Indemnified Party shall assume the defense of such claim or demand and regardless of the outcome of such matter, American’s liability hereunder shall be limited to the amount of any such proposed settlement. The Contractor Indemnified Party shall provide American with such information as American shall reasonably request to defend or resolve any such Claim and shall otherwise cooperate with American in the defense or resolution of any such Claim. If American does not accept financial responsibility for the Losses relating to any Claim or fails to defend against the Claim that is the subject of a Notice under this Section 11.03(b) within [***] of receiving such Notice (or sooner if the nature of the Claim so requires), or otherwise contests its obligation to indemnify the Contractor Indemnified Party in connection therewith, the Contractor Indemnified Party may, upon providing Notice to American, pay, compromise or defend such Claim. In the latter event, the Contractor Indemnified Party, by proceeding to defend itself or settle the matter, does not waive any of its rights hereunder to later seek indemnification from American. Except as set forth in this Section 11.03(b), the Contractor Indemnified Party shall not enter into any settlement or other compromise or Consent to a judgment with respect to a Claim as to which American has an indemnity obligation hereunder without the prior Consent of American (which may not be unreasonably withheld or delayed), and the entering into of any settlement or compromise, or the Consent to any judgment in violation of the foregoing shall constitute a waiver by any Contractor Indemnified Party of its right to indemnity hereunder to the extent American is prejudiced thereby. American shall be subrogated to the rights of the Contractor Indemnified Party to the extent that American pays for any Losses suffered by the Contractor Indemnified Party hereunder.

(c) Comparative Fault. Each Party will be liable under Sections 11.01 and 11.02, respectively, only to the extent of the respective obligations specifically imposed upon them by such Sections. However, nothing herein will be interpreted as relieving or limiting the indemnifying Party’s defense obligations hereunder. The Parties hereby agree that the resolution of each Party’s respective level of fault will be delayed until after the resolution of the underlying Claim (whether by settlement or final non-appealable judgment). In the event either Party claims that both Parties bear fault for a matter, each Party’s liability (including liability for defense costs and deductible amounts under insurance policies) will be equal to the percentage determined to be due to the fault of such Party as agreed upon by the Parties (including via a settlement agreement approved by the Parties) or set forth in a final judgment of a court of competent jurisdiction.

(d) For the avoidance of doubt, references to “Claims” in Sections 11.01 and 11.02 mean Claims as defined in Exhibit A.

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11.04 Employer’s Liability and Workers’ Compensation. American, on the one hand, and Contractor, on the other hand, shall bear full responsibility for their respective employer’s liability and workers’ compensation liability to their respective officers, directors, employees or American Agents or Contractor Agents, as applicable, on account of injury or death resulting from or sustained in the performance of their respective services under this Agreement. American, on the one hand, and Contractor, on the other hand, with respect to their respective employees, hereby accept full and exclusive liability for the payment of workers’ compensation and employer’s liability insurance premiums with respect to its respective employees, and for the payment of all taxes, contributions or other payments for unemployment compensation or old age benefits, pensions or annuities now or hereafter imposed upon employers by any Governmental Authority, including state, local or Canadian Governmental Authorities, with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise, and American, on the one hand, and Contractor, on the other hand, further shall make such payments and make and file all reports and returns, and do everything to comply with the laws or rules of any Governmental Authority imposing such taxes, contributions or other payments.

ARTICLE XII.

TERM AND TERMINATION

12.01 Term. This Agreement shall be effective as of the Effective Date and (unless earlier terminated as provided herein) shall continue until the Withdrawal of all of the Covered Aircraft in accordance with the terms hereof and the termination of any applicable Wind Down Schedule (the “Term”); provided that with respect to each Covered Aircraft, such Covered Aircraft’s term shall commence on its Implementation Date and, unless otherwise Withdrawn prior thereto pursuant to the provisions hereof, shall continue until the specified dates set forth on Schedule 1 under the heading “Aircraft Term” or as otherwise set forth herein, in each case, as such Aircraft Term may be extended as provided herein (each an “Aircraft Term”). A Covered Aircraft that has been Withdrawn from this Agreement shall no longer be subject to any of the terms and conditions of this Agreement other than those terms and conditions that expressly survive termination of this Agreement, including any Aircraft Term (except to the extent such aircraft becomes a Covered Aircraft again pursuant to the terms of this Agreement).

12.02 Termination and Withdrawal Rights. This Agreement may be terminated or certain Covered Aircraft may be Withdrawn during the Term pursuant to this Section 12.02.

(a) Termination by American or Contractor. In addition to and without limiting Section 12.02(b) below or any other right or remedy available to either Party hereunder or under applicable law:

(i) Insolvency Event. If either American or Contractor has an Insolvency Event, then the other Party shall have the right to terminate this Agreement in accordance with this Article XII by providing Notice (which Notice shall specify the Termination Date and Wind Down Schedule, subject to the terms of Section 12.02(d)) to the Party suffering the Insolvency Event. An “Insolvency Event” with respect to a Party means that such Party (A) makes a general assignment for the benefit of creditors or becomes insolvent; (B) files a voluntary petition in bankruptcy; (C) petitions for or acquiesces in the appointment of any receiver, trustee or similar officer to liquidate or conserve its business or any substantial part of its assets; (D) commences under the laws of any jurisdiction any proceeding involving its insolvency, bankruptcy, reorganization, readjustment of debt, dissolution, liquidation or any other similar proceeding for the relief of financially distressed debtors; (E) becomes the object of any proceeding or action of the type described in (C) or (D) above and such proceeding or action remains undismissed or unstayed for a period of at least [***]; or (F) is involuntarily divested of a substantial part of its assets for a period of at least [***];

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(ii) Material Breach. If a Material Breach by a Party occurs and remains uncured for a period of more than [***] after the non-defaulting Party’s provision of Notice with respect to such Material Breach to the non-defaulting Party (except that if the defaulting Party has commenced diligent efforts to cure such Material Breach within such [***] period and a cure is not possible within such [***] period, then such [***] cure period will be automatically extended for an additional [***]), then the non-defaulting Party shall have the right to terminate this Agreement in accordance with this Article XII by providing Notice (which Notice shall specify the Termination Date and Wind Down Schedule, subject to the terms of Section 12.02(d)) to the defaulting Party. A “Material Breach” means American’s, on the one hand as the defaulting Party, or Contractor’s, on the other hand, as the defaulting Party, refusal, neglect or failure to perform, observe or keep any material non-monetary covenants, agreements, terms or conditions on its respective part to be performed, observed or kept hereunder or in any Related Agreement that would reasonably be expected to substantially deprive the non-defaulting Party of any material benefits of this Agreement or any Related Agreement;

(iii) Monetary Breach. If a Monetary Breach by a Party occurs and remains uncured for a period of more than [***] after the non-defaulting Party’s provision of Notice with respect to such Monetary Breach to the non-defaulting Party (which Notice shall, if American is the defaulting Party and notwithstanding Section 14.01, also be delivered to the Vice President of Regional (currently [***])) via e-mail, then the non-defaulting Party shall have the right to terminate this Agreement in accordance with this Article XII by providing Notice to the defaulting Party (which Notice shall specify the Termination Date, subject to the terms of Section 12.02(d)) to the defaulting Party. A “Monetary Breach” means (A) with respect to American as the defaulting Party, American’s failure to make any payments that are due and payable by American under this Agreement, excluding payments in an aggregate amount of up to [***] that are subject to a good faith dispute (for clarity, American’s offsetting of any amounts that it is not entitled to offset under this Agreement is a Monetary Breach); and (B) with respect to Contractor as the defaulting Party, Contractor’s failure to make any payments that are due and payable by Contractor under this Agreement, excluding payments in an aggregate amount of up to [***] that are subject to a good faith dispute; provided that Contractor will not be in Monetary Breach to the extent that the amount that Contractor fails to pay is less than an amount payable by American to Contractor in the next [***] and that is subject to American’s offset rights;

(iv) Number of Supported Aircraft. If, at any time after the earlier of (i) the actual Implementation Date of the [***] Covered Aircraft subject to this Agreement or (ii) [***], there are fewer than [***] Supported Aircraft subject to this Agreement, then either Party shall have the right to terminate this Agreement in accordance with this Article XII by providing Notice in accordance with the terms of Section 12.02(d)) to the other Party; or

(v) For Convenience. At any time following the second (2^nd) anniversary of the last day of the Transition Period, either Party shall have the right to terminate this Agreement in accordance with this Article XII by providing Notice in accordance with the terms of Section 12.02(d)) to the other Party.

(b) Termination or Withdrawal by American. In addition to and notwithstanding the other provisions of this Section 12.02, and in addition to any other remedy available to American under applicable law, American shall also have the right and option solely by providing Notice to Contractor to either (x) terminate this Agreement as of a specified Termination Date and

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Withdraw all of the Covered Aircraft pursuant to a Wind Down Schedule provided by American, or (y) elect for [***] Covered Aircraft to be Withdrawn from the provisions of this Agreement per [***] until the applicable event giving rise to such Withdrawal is cured (it being understood that such rights shall be cumulative and not alternative with respect to American’s other Withdrawal rights in this Agreement) on the Withdrawal Dates to be specified by American in the Notice of Withdrawal, on the occurrence of any of the following (except that with respect to subsection (i) below, the procedures for termination will be as set forth in Section 12.02(a)(ii), and with respect to subsection (iii), the rights in clause (y) above will not apply):

(i) Material Breach. The occurrence of a Material Breach by Contractor pursuant to Section 12.02(a)(ii) which continues for the period specified in such Section 12.02(a)(ii);

(ii) Suspension of Contractor’s Certification. Contractor’s FAA or DOT certification used in connection with the Scheduled Flights or any Covered Aircraft is for any reason suspended, revoked, materially impaired in any manner or otherwise not in full force and effect (for clarity, such termination or withdrawal right may only be exercised during the pendency of such suspension or material impairment);

(iii) Change of Control. A Change of Control has occurred to which American has not Consented in advance;

(iv) Lack of Required Insurance Coverage. Any of the insurance required pursuant to this Agreement in Section 10.01(a) or Section 10.01(b) is not then in full force and effect (for clarity, such termination or withdrawal right may only be exercised during the pendency of such failure);

(v) Force Majeure Event. A Force Majeure Event occurs that continues for more than [***], where Contractor is unable to operate at least [***] of the Scheduled Flights during such Force Majeure Event (for clarity, such termination or withdrawal right may only be exercised during the pendency of such a Force Majeure Event);

(vi) Contractor Labor Dispute. A Contractor Labor Dispute occurs that continues for more than [***] where Contractor is unable to operate at least [***] of the Scheduled Flights during such Contractor Labor Dispute (for clarity, such termination or withdrawal right may only be exercised during the pendency of such Contractor Labor Dispute);

(vii) Safety Inspection. Using recognized standards of safety, there is a material safety issue with the operation of any Scheduled Flights that poses a risk of physical harm to passengers or significant reputational harm to American or its Affiliates;

(viii) Operation of Covered Aircraft. Contractor operates the Covered Aircraft for any air carrier other than American or any charter flight for any Third Party without first obtaining American’s prior Consent; or

(ix) Emergency Assistance Agreement. The Emergency Assistance Agreement terminates for any reason or ceases to be in full force and effect, and such Emergency Assistance Agreement is not intended to be replaced thereafter with a new Emergency Assistance Agreement mutually agreed upon by the Parties (provided that no termination right will arise to the extent the Parties mutually determine that an Emergency Assistance Agreement is not necessary under applicable laws).

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For the avoidance of doubt, pursuant to Section 12.02(b)(y), American may Withdraw [***] Covered Aircraft per [***] during the duration of each event set forth above [***].

(c) Withdrawal Rights of American and Contractor. In addition to and notwithstanding Section 12.02(a) and Section 12.02(b) above, and in addition to any other remedy available to either Party under applicable law:

(i) American shall have the right and option solely by providing Notice to Contractor, given no later than [***] following the end of the applicable [***] period, to Withdraw up to [***] Covered Aircraft during each [***] in which any of the following occur, in each case as may be specified in the Notice to Contractor:

(A) Failure to Maintain Controllable Completion Rate. Contractor’s Controllable Completion Rate is less than [***] for any [***] during the Term of this Agreement;

(B) Failure to Maintain Controllable On Time Departures. Contractor’s Controllable On Time Departures (as calculated in accordance with the definition of “Controllable On Time Departures”) is less than [***] for any [***] during the Term of this Agreement.

(ii) If there are Unsupported Aircraft for each of [***], then either Party may elect, in its sole discretion and upon Notice to the other Party given no later than [***] following the end of such [***] period, to Withdraw from the provisions of this Agreement up to [***] Covered Aircraft that are Unsupported Aircraft per each such [***] period (rounded down to the nearest whole number).

(d) Rights and Obligations upon Termination or Withdrawal; Election of Remedies.

(i) Termination by American or Contractor. If American or Contractor terminates this Agreement pursuant to Section 12.02(a), then the Termination Date and the Wind Down Schedule shall be determined in accordance with the following terms and conditions:

(A) The Notice of termination delivered pursuant to Sections 12.02(a)(i) (Insolvency Event) or 12.02(a)(ii) (Material Breach) shall be irrevocable after the [***] from the delivery of such Notice and shall include a Termination Date that is at least [***], but not more than [***] after the date of such Notice and a Wind Down Schedule that specifically identifies the Withdrawal Dates for the Covered Aircraft then subject to the provisions of this Agreement. The Wind Down Schedule shall provide for the Withdrawal of at least [***], but no more than [***] Covered Aircraft per [***], until all Covered Aircraft are Withdrawn from the terms of this Agreement (provided, however, that if, at any time during the period when the Wind Down Schedule is ongoing, there are [***] or fewer Supported Aircraft, then either Party may elect to immediately Withdraw all Covered Aircraft upon Notice to the other Party).

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(B) The Notice of termination delivered pursuant to Section 12.02(a)(iii) (Monetary Breach) shall be irrevocable after the [***] from the delivery of such Notice and shall include a Termination Date that is between [***] and [***] after the date of such Notice. Upon such Termination Date all Covered Aircraft shall be Withdrawn from the provisions of this Agreement, and no Wind Down Schedule shall be required for a termination pursuant to this Section 12.02(d)(i)(B).

(C) The Notice of termination delivered pursuant to Section 12.02(a)(iv) (Number of Supported Aircraft) shall be irrevocable after the [***] from the delivery of such Notice and shall include a Termination Date that is at least [***] but no more than [***] after the date of such Notice and a Wind Down Schedule that specifically identifies the Withdrawal Date for each Covered Aircraft then subject to the provisions of this Agreement. The Wind Down Schedule shall provide for the Withdrawal of at least [***], but no more than [***] Covered Aircraft per [***], until all Covered Aircraft are Withdrawn from the terms of this Agreement (provided, however, that if, at any time during the period when the Wind Down Schedule is ongoing, there are [***] or fewer Supported Aircraft, then either Party may elect to immediately Withdraw all Covered Aircraft upon Notice to the other Party).

(D) The Notice of termination delivered pursuant to Section 12.02(a)(v) (For Convenience) shall be irrevocable after the [***] from the delivery of such Notice, shall be delivered at least [***] prior to the beginning of the Wind Down Schedule and shall include a Termination Date that is consistent with a Wind Down Schedule that complies with the following: (i) the Wind Down Schedule will commence no earlier than the [***] of the end of the Transition Period; and (ii) at least [***], but no more than [***] Covered Aircraft may be Withdrawn per [***], until all Covered Aircraft are Withdrawn from the terms of this Agreement (provided, however, that if, at any time during the period when the Wind Down Schedule is ongoing, there are [***] or fewer Supported Aircraft, then either Party may elect to immediately Withdraw all Covered Aircraft upon Notice to the other Party).

(E) The Notice of termination delivered by American pursuant to Section 12.02(b) (Termination or Withdrawal by American) shall be irrevocable after the [***] from the delivery of such Notice and shall include a Termination Date that is not more than [***] after the date of such Notice and a Wind Down Schedule that specifically identifies the Withdrawal Dates for the Covered Aircraft then subject to the provisions of this Agreement. The Wind Down Schedule shall provide for the Withdrawal of all of the Covered Aircraft by no later than the Termination Date (provided, however, that if, at any time during the period when the Wind Down Schedule is ongoing, there are [***] or fewer Supported Aircraft, then either Party may elect to immediately Withdraw all Covered Aircraft upon Notice to the other Party).

(ii) Exercise of Withdrawal Rights by American or Contractor. In the event that either American or Contractor elects to Withdraw Covered Aircraft from the provisions of this Agreement pursuant to Section 12.02(c)(i) or 12.02(c)(ii), the Notice of Withdrawal delivered by American or Contractor shall be irrevocable after the [***] from the delivery of such Notice and shall include the Withdrawal Dates for the applicable number of Covered Aircraft as determined by American or Contractor in accordance with Section 12.02(c)(i) or 12.02(c)(ii), as the case may be; it being understood that the Withdrawal Dates shall be no earlier than [***] following American’s or Contractor’s receipt of such Notice of Withdrawal.

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(iii) Obligations upon Withdrawal of Covered Aircraft or Termination. Neither termination of this Agreement nor Withdrawal of any Covered Aircraft from the terms of this Agreement for any reason shall relieve American or Contractor of their rights and obligations incurred prior to the Termination Date or Withdrawal Date, as applicable, of such Covered Aircraft. If a Wind Down Schedule is delivered by either Contractor or American pursuant to the terms of this Section 12.02(d), Contractor shall continue to operate any CAATS for Scheduled Flights until its Withdrawal Date and Contractor shall receive compensation for such Covered Aircraft and Scheduled Flights in accordance with the provisions hereof and subject to the terms and conditions hereof, any compensation for a partial month to be prorated based on the number of days the applicable Covered Aircraft was subject to this Agreement and the number of days in the applicable calendar month. Nothing contained herein shall limit Contractor’s obligations to provide maintenance and repair services for the Supported Aircraft (including installed engines) prior to such Withdrawal Date, as applicable. Notwithstanding the foregoing, Contractor’s obligation to operate Scheduled Flights during a Wind Down Schedule delivered in connection with a Material Breach by American will be excused to the extent that Contractor cannot operate such Scheduled Flights due to the acts or omissions of American giving rise to the Material Breach.

(iv) Withdrawn Aircraft as Additional Aircraft. If any Covered Aircraft is Withdrawn from this Agreement (other than pursuant to Section 12.02(c)(ii)), then, unless otherwise mutually agreed by the Parties, such aircraft shall not be eligible to be reinstated as a Covered Aircraft under Section 3.02.

ARTICLE XIII.

INTENTIONALLY OMITTED.

13.01 Intentionally Omitted.

ARTICLE XIV.

MISCELLANEOUS

14.01 Notices. All Notices, Consents, or amendments under this Agreement shall be in writing in English and shall be deemed given to American or Contractor, as the case may be, upon (a) confirmation of receipt of a delivery in person; (b) a transmitter’s confirmation of a receipt of an email transmission (but only if followed by confirmed delivery within the following [***] (i) by a nationally recognized overnight courier or (ii) by hand); or (c) confirmed delivery by a nationally recognized overnight courier, to the Parties at the addresses below.

If to American, to:

Attn: [***]

American Airlines, Inc.

[***]

Email: [***]

Telephone: [***]

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with copies delivered at the same address to the attention of:

[***]

Email: [***]

and

[***]

Email: [***]

If to Contractor, to:

Air Wisconsin Airlines LLC

[***]

Attention: [***]

Telephone: [***]

Facsimile: [***]

E-mail: [***]

with copies to: [***] at the same address and

[***]

[***]

Attention: [***]

Email: [***]

And if to American pursuant to Section 14.06(b), a copy of such Notice shall also be provided to:

[***]

American Airlines, Inc.

[***]

Email: [***]

Telephone: [***]

and

Attn: [***]

American Airlines, Inc.

[***]

Email: [***]

Telephone: [***]

If to American pursuant to Exhibit D, to:

[***], with a copy delivered personally or by prepaid overnight confirmed delivery service to the attention of:

[***]

American Airlines, Inc.

[***]

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or, in each case, to such other address as a Party may have furnished to the other Party by a Notice in accordance with this Section 14.01.

Where in this Agreement the words “request,” “directed,” “inform,” “furnish” or “approved” or similar phrases, expressions or derivatives thereof are used rather than the terms Notice or Consent, such instruction to receive such communication shall be sufficient if done by email (and not in a second writing) (each a “Communication”) so long as it is provided (a) in accordance with past practices or, if there are no past practices, in accordance with customary industry practices; (b) the Person providing the Communication reasonably believes that the Person receiving such Communication is authorized to receive such Communication; and (c) the Person receiving such Communication reasonably believes the Person providing such Communication has the apparent or actual authority to undertake the action in question.

14.02 Binding Effect and Assignment. The terms and conditions of this Agreement shall inure to the benefit of and be binding and enforceable upon the Parties and their respective successors and permitted assigns. Except with respect to (a)(i) a merger, reorganization, or consolidation of American with or into another Person or (ii) a merger, reorganization, or consolidation of Contractor with or into another Person that does not constitute a Change of Control; (b) an assignment of this Agreement or any rights pertaining thereto, in whole or in part, by American to an Affiliate of American or Parent; (c)(i) a transaction, or series of transactions, by American involving the sale, pledge, lease, transfer or exchange of substantially all of the assets of American or (ii) a transaction, or series of transactions, by Contractor involving the sale, pledge, lease, transfer or exchange of substantially all of the assets of Contractor that does not constitute a Change of Control; or (d) any pledge or creation of any security interest in a Party’s rights under this Agreement, this Agreement and any of the rights, interests or obligations hereunder shall not be assignable or assigned (including by merger or operation of law) by either Party without the prior Consent of the other Party, which Consent shall not be unreasonably withheld. In the event of (a), (b), or (c) above, Contractor or American, as the case may be, shall be deemed to have released (without further action on the part of Contractor or American, as the case may be) American or Contractor, as the case may be, from any and all duties, obligations and liabilities (including assignor liability) arising under this Agreement after the date of assignment (including those liabilities arising from acts or omissions of American or Contractor, as the case may be, that occurred prior to the assignment).

14.03 Amendment and Modification. Subject to Section 14.02, and except as otherwise expressly provided herein, this Agreement may not be amended or modified in any respect except by a written agreement signed by both of the Parties.

14.04 Waiver. The performance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the Party entitled to enforce such term, but such waiver shall be effective only if it is in writing signed by the Party against which such waiver is to be asserted. Unless otherwise expressly provided in this Agreement, no delay or omission on the part of either Party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of either Party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement.

14.05 Interpretation. The table of contents and the Article, Section and other headings and subheadings contained in this Agreement and in the exhibits and schedules hereto are solely for the purpose of reference, are not part of the agreement of the Parties, and shall not in any way affect the meaning or interpretation of this Agreement or any Exhibit or Schedule hereto. All references to days (other than Business Days), months or years shall be deemed references to calendar days, months or years. All references to “$” shall be deemed references to United States dollars. Unless the context otherwise requires,

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any reference to an “Article,” a “Section,” an “Exhibit,” or a “Schedule” shall be deemed to refer to an Article or Section of this Agreement or an Exhibit or Schedule to this Agreement, as applicable. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, unless otherwise specifically provided they shall be deemed to be followed by the words “without limitation.” All references to “meet” or “meeting” (in the context of the Parties meeting to discuss or confer) shall be deemed to include meeting in person, telephonically or through other electronic means. “A or B” means “A or B or both”; “either A or B” means “A or B, but not both”; and “A and B” means “both A and B.” This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing the document to be drafted. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. [***]. Nothing herein shall be deemed to modify, restrict or limit any other requirements (including insurance) that may be required under any other Related Agreement, provided that in the event of a conflict between any provision of a Related Agreement and the provisions of this Agreement, the provisions of this Agreement shall prevail. [***].

14.06 Confidentiality and Public Communications.

(a) Confidential Information. Without limiting any other confidentiality obligations of the Parties as may be set forth in any of the other Related Agreements and except as may be either (i) provided in any of the Related Agreements, (ii) requested by any court or administrative agency, (iii) required by any law, rule or regulation of a Governmental Authority (subject to the procedures set forth in Section 14.06(b)), (iv) requested by a Governmental Authority, stock exchange or rating agency (subject to the procedures set forth in Section 14.06(b)), or (v) required in any proceeding to enforce the provisions of this Agreement or any of the Related Agreements, American and Contractor agree (A) not to publicize or disclose to any Third Party any Confidential Information of the other Party, including the terms or conditions of this Agreement and any Related Agreement or any exhibit, schedule or appendix hereto or thereto, without the prior Consent of the other Party, which Consent shall not be unreasonably withheld, except that a Party may disclose such information to (v) its Affiliates, (w) any Person for which indemnification is provided pursuant to this Agreement, (x) Third Party consultants, advisors or representatives, (y) Third Parties (but specifically excluding any Major Carrier or any Affiliate of any Major Carrier) in connection with a bona fide opportunity with respect to an actual or potential merger, acquisition, disposition, investment or debt or equity financing, or (z) labor organizations, unions, work groups or other groups negotiating or subject to such Party’s collective bargaining agreements, in each case, that have agreed to keep such information confidential pursuant to confidentiality obligations at least as stringent as those contained in this Agreement), and (B) not to use any such Confidential Information of the other Party other than in connection with performing their respective duties and obligations or enforcing their respective rights and privileges under this Agreement or the Related Agreements or as otherwise expressly contemplated by this Agreement or the Related Agreements; provided that any disclosure of Confidential Information pursuant to subsections (v) – (z) shall solely be made on a need-to-know basis. If either Party is served with a subpoena or other process requiring the production or disclosure of any Confidential Information of the other Party, then the Party receiving such subpoena or other process, before complying with such subpoena or other process, shall, to the extent permitted by applicable law, promptly provide Notice to the other Party of same and permit said other Party a reasonable period of time to intervene and contest disclosure or production. Upon any termination of this Agreement, each Party must, at the written request of the other Party, return or destroy Confidential Information received from the other Party which is still in the recipient’s possession or control and certify its compliance with such written request; provided, that (i) each Party may retain copies of Confidential Information for archival or backup purposes and (ii) notwithstanding the return of destruction of Confidential Information by a Party,

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such Party shall continue to be bound by its obligations of confidentiality hereunder with respect to the Confidential Information. Notwithstanding the foregoing, the Parties may disclose to Third Parties, without limitation of any kind, the United States federal or state income tax treatment and tax structure of the transactions contemplated pursuant to the Related Agreements and all materials of any kind provided to them relating to such tax treatment and tax structure. For this purpose, “tax structure” means any facts relevant to the United States federal or state income tax treatment, but does not include other Confidential Information, including the identity of the Parties.

(b) Public Communications. Contractor shall not issue any press release or public announcement relating to Regional Airline Services, Scheduled Flights, the cessation of Scheduled Flights, schedule changes, customer initiatives, marketing programs or promotions, without American’s prior written Consent (which shall not be unreasonably withheld) following a sufficient time for American to review the press release or public announcement. Contractor may disclose this Agreement and its terms, and material developments under this Agreement, in securities filings with the U.S. Securities and Exchange Commission (or equivalent foreign agency) and any rules of stock exchanges where Contractor or its Affiliates may be listed only to the extent required by applicable law, as determined by Contractor after consulting with its counsel, after complying with the procedure set forth below in this Section 14.06(b). In such event, Contractor will prepare a proposed redacted version of this Agreement for American’s review and American will promptly give its input in order to allow Contractor to file a confidential treatment request within the timelines prescribed by applicable laws and regulations. Contractor shall exercise reasonable efforts to obtain confidential treatment from the U.S. Securities and Exchange Commission (or equivalent foreign agency) with respect to terms of this Agreement (and any related amendment or side letter hereto) that are permitted to be redacted pursuant to applicable securities law, taking into account the redacted version reviewed by American.

(c) Survival. This Section 14.06 shall survive the termination of this Agreement for a period of [***]; provided that information that is subject to any privacy rights shall remain subject to this Section 14.06 for any longer period of time, to the extent required by applicable law.

14.07 Cooperation with Respect to Reporting. American, on the one hand, and Contractor, on the other hand, shall use their commercially reasonable efforts to cooperate with the other in providing necessary data, to the extent in the possession of the other, required by the other to meet any reporting requirements to, or otherwise necessary in connection with any filing with or provision of information to be made to, any regulatory agency, stock exchange, rating agency, or other Governmental Authority by the other.

14.08 Right of Set-off.

(a) General Right of Set-Off. American shall be entitled to set-off against any payment owed by American to Contractor under this Agreement any amount (other than amounts subject to a bona fide, good faith, reasonable dispute by Contractor) owed by Contractor to American under this Agreement; provided that contemporaneously with any such set-off, American shall give Notice of such action to Contractor; provided further, that the failure to give such Notice shall not affect the validity of the set-off. If American shall be in default of any of its obligations under this Agreement, then Contractor shall be entitled to set-off against any undisputed payment owed by Contractor to American under this Agreement any undisputed amount owed by American to Contractor under this Agreement; provided that contemporaneously with any such set-off, Contractor shall give Notice of such action to American; provided further, that the failure to give such Notice shall not affect the validity of the set-off.

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(b) Notice of Set-Off. Notification for purposes of this Section 14.08 means that the Party setting-off any amount provides the other Party with a reasonably detailed explanation, including supporting documentation, if applicable, of the basis of such withholding in sufficient detail so that such other Party can verify the validity of the dispute or claim.

14.09 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by electronic signature or portable document format (pdf).

14.10 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.11 Governing Law. THIS AGREEMENT AND ANY CLAIM RELATED THERETO, WHETHER IN TORT OR CONTRACT, SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (EXCLUDING NEW YORK CONFLICT OF LAWS PRINCIPLES THAT MIGHT CALL FOR THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY, EFFECT, PERFORMANCE AND REMEDIES.

14.12 Entire Agreement; Conflicts with this Agreement.

(a) This Agreement (including the Exhibits and Schedules attached hereto) together with the Related Agreements, constitute the entire agreement between the Parties relating to the subject matter hereof; it being understood that each of the Related Agreements shall be treated as separate obligations and agreements of the Parties thereto concerning the specific subject matter thereof. This Agreement terminates and supersedes all prior or contemporaneous agreements, discussions, undertakings and understandings, whether written or oral, express or implied, concerning the subject matter hereof. This Agreement and the Related Agreements constitute an integrated set of agreements and neither Party would have entered into this Agreement absent the execution of the Related Agreements.

(b) The Parties acknowledge and agree that this Agreement (including the Exhibits and Schedules attached hereto) shall be construed and interpreted (to the extent any such construction or interpretation ever is necessary) without reference to, or supplementation by, the terms and conditions of the Related Agreements other than as expressly stated in this Agreement. The effectiveness of this Agreement shall not be deemed a waiver by either Party of any disclosed or undisclosed breach, default, event of default or termination event under any Related Agreement. Furthermore, the Parties agree that each Party’s obligation to indemnify the other under this Agreement is in addition to (and not in lieu of) any other obligations pursuant to any other agreement between the Parties to indemnify, protect or hold the other Party harmless (including the Related Agreements), but without duplication of any amounts payable by one Party to the other Party under this Agreement and such other agreement with respect to the same indemnification claim.

14.13 Remedies Cumulative. The rights and remedies of the Parties are cumulative and not alternative.

14.14 Further Assurances. Each Party agrees to take such further actions and execute and deliver such other documents, certificates, agreements and other instruments upon the request of the other Party as may be reasonably necessary or desirable in order to implement the transactions contemplated by this Agreement.

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14.15 No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer upon any Person, other than the Parties and their respective permitted assigns, any rights, privileges, remedies, duties, obligations or liabilities under or by reason of this Agreement and no Person who is not a Party to this Agreement may rely on the terms hereof. Notwithstanding the foregoing, (a) each American Indemnified Party shall be a third party beneficiary with respect to Section 11.01 hereof and shall have all of the rights, benefits and privileges of a third party beneficiary with respect to Section 11.01 hereof; and (b) each Contractor Indemnified Party shall be a third party beneficiary with respect to Section 11.02 hereof and shall have all of the rights, benefits and privileges of a third party beneficiary with respect to Section 11.02 hereof.

14.16 Relationship of the Parties.

(a) Contractor Employees. Any employees of Contractor or any Contractor Agent engaged in providing any of the Regional Airline Services are employees, agents, and independent contractors of Contractor or the Contractor Agent for all purposes, and under no circumstances will be deemed to be employees, agents or independent contractors of American, and any employees of American or any American Agent engaged in providing any of services hereunder or under any Related Agreement are employees, agents, and independent contractors of American or the American Agent, as the case may be, for all purposes, and under no circumstances will be deemed to be employees, agents or independent contractors of Contractor. In its performance under this Agreement, Contractor shall act, for all purposes, as independent contractor and not as an agent for American. Notwithstanding the fact that Contractor has agreed to follow certain procedures, instructions and standards of service of American pursuant to this Agreement, American shall have no supervisory power or control over any employees of Contractor or any Contractor Agent engaged by Contractor in connection with their performance hereunder, and all complaints or requested changes in procedures made by American shall, in all events, be transmitted by American to Contractor. Except as otherwise provided in this Agreement, nothing contained in this Agreement is intended to limit or condition Contractor’s control over its operations or the conduct of its business as an air carrier, and Contractor and its principals assume their risks of financial losses which may result from the operation of the air services to be provided by Contractor hereunder.

(b) Limits on Relationship. Nothing in this Agreement shall be interpreted or construed as establishing between the Parties a fiduciary relationship, partnership, joint venture or other similar arrangement. Nothing in this Agreement authorizes either Party to make any contract, agreement, warranty, or representation on the other’s behalf, or to incur any debt or obligation in the other’s name.

(c) Contractor Flights. The fact that Contractor’s operations are conducted under American’s flight designator code and branded service shall not affect their status as flights operated by Contractor for purposes of this Agreement or any other agreement between the Parties, and Contractor and American covenant and agree to advise all Persons in accordance with industry standard practices, including passengers, of this fact.

14.17 Jurisdiction. Each Party irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and, if such court does not have jurisdiction, of the courts of the State of New York sitting in the City of New York for the purposes of any suit, action or other proceeding arising out of this Agreement or the subject matter hereof brought by the other Party. To

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the extent permitted by applicable laws, rules or regulations of a Governmental Authority, each Party waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such suit, action or proceeding, any claim (a) that it is not subject to the jurisdiction of the above-named courts; (b) that the suit, action or proceeding is brought in an inconvenient forum; or (c) that the venue of the suit, action or proceeding is improper, or that this Agreement or the subject matter hereof or any of the transactions contemplated hereby may not be enforced in or by such courts. With respect to any legal action or proceeding arising out of or in connection with this Agreement, the subject matter hereof or any of the transactions contemplated hereby in any of the courts referred to in clause (a) of the first sentence of this Section 14.17, service of process on Contractor in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, addressed as follows:

Air Wisconsin Airlines LLC

[***]

Attention: [***]

Telephone: [***]

Facsimile: [***]

E-mail: [***]

with copies to: [***] at the same address and

[***]

[***]

Attention: [***]

Email: [***]

Contractor by Notice to American may designate a different address for subsequent service of process. Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

14.18 Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY TRANSACTION CONTEMPLATED THEREBY OR THE SUBJECT MATTER OF ANY OF THE FOREGOING.

14.19 Limitation on Damages.

(a) NEITHER PARTY NOR ITS AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES FOR (AND EACH PARTY HEREBY DISCLAIMS AND WAIVES ANY RIGHT IT MAY OTHERWISE HAVE TO RECOVER WITH RESPECT TO) ANY CLAIMS FOR INCIDENTAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES, INCLUDING LOST REVENUES, INTERRUPTION OF SERVICE, LOSS OF BUSINESS, LOST PROFITS OR LOST PROSPECTIVE ECONOMIC ADVANTAGE, ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OTHER RELATED AGREEMENT, REGARDLESS OF WHETHER A CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, VIOLATION OF ANY APPLICABLE DECEPTIVE TRADE PRACTICES ACT OR SIMILAR LAW, RULE OR REGULATION OF A GOVERNMENTAL AUTHORITY OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE, AND EACH PARTY HEREBY RELEASES THE OTHER PARTY

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AND ITS AFFILIATES FROM LIABILITY FOR ANY SUCH DAMAGES. IT IS UNDERSTOOD AND AGREED THAT: (i) NEITHER AMERICAN NOR ANY OF ITS AFFILIATES SHALL HAVE ANY OBLIGATION UNDER THIS AGREEMENT OR THE RELATED AGREEMENTS TO PROVIDE ANY COVERED AIRCRAFT; (ii) NEITHER CONTRACTOR NOR ITS AFFILIATES MAY CLAIM ANY DAMAGES UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT BASED ON AMERICAN’S OR ITS AFFILIATES’ FAILURE TO SO PROVIDE THE COVERED AIRCRAFT; AND (iii) ANY DAMAGES OWED TO AMERICAN HEREUNDER SHALL NOT BE SUBJECT TO ANY CLAIM, COUNTERCLAIM OR DEFENSE RELATING TO ANY FAILURE BY AMERICAN OR ITS AFFILIATES TO PROVIDE ANY COVERED AIRCRAFT. NEITHER PARTY MAY ASSERT THAT AMOUNTS PAID BY A PARTY TO A THIRD PARTY FOR WHICH A PARTY HAS AN INDEMNITY OBLIGATION HEREUNDER ARE INCIDENTAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT.

(b) NEITHER PARTY SHALL BE ENTITLED TO RESCISSION OF THIS AGREEMENT AS A RESULT OF BREACH OF THE OTHER PARTY’S REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS, OR FOR ANY OTHER MATTER; PROVIDED THAT NOTHING IN THIS SECTION 14.19 SHALL RESTRICT THE RIGHT OF EITHER PARTY TO EXERCISE ANY RIGHT TO TERMINATE THIS AGREEMENT PURSUANT TO Article XII.

14.20 Equitable Remedies. American and Contractor each hereby acknowledge and agree that, subject to the terms of this Section 14.20, if the rights of a Party may be materially and irreparably harmed by actions to be taken or taken by the other Party, in addition to its rights under this Agreement, a Party may apply to any court of law or equity of competent jurisdiction in the State of New York sitting in the City of New York for specific performance or other injunctive relief in order to enforce or prevent any breach of this Agreement or enjoin other such action being taken or proposed to be taken by the other Party.

14.21 Survival of Certain Obligations. Except (a) for the covenants and agreements in Section 6.04, Section 6.14, Article XI, Article XII, Article XIV, Schedule 3, Schedule 5, Schedule 7, and Exhibit D, (b) as provided in the Related Agreements, (c) as otherwise expressly provided in this Agreement, and (d) as set forth in the following sentence, all representations, warranties, covenants and agreements of the Parties set forth in this Agreement shall terminate and expire, and shall cease to be in full force and effect following the Termination Date. Notwithstanding the foregoing, all covenants and agreements of either Party that contemplate actions to be taken or obligations in effect after the Termination Date or the return of any Covered Aircraft pursuant to this Agreement or any Related Agreement shall survive the Termination Date or termination to the extent contemplated hereby or thereby.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

49

IN WITNESS WHEREOF, American and Contractor have entered this Agreement effective as of the Effective Date.

AMERICAN AIRLINES, INC.
By:	/s/ Brandon Kahle
	Name:	Brandon Kahle
	Title:	Vice President, Regional Operations and Planning

AIR WISCONSIN AIRLINES LLC
By:	/s/ Robert Binns
	Name:	Robert Binns
	Title:	President and Chief Executive Officer

Signature Page to

Capacity Purchase Agreement

SCHEDULE 1

COVERED AIRCRAFT

No.	Make/Model	Tail Number	Build Year	Implementation Date	Aircraft Term
	CRJ-200	[***]	[***]	[***]	[***]

SCHEDULE 2

SCHEDULING AND OPERATING RESTRICTIONS ON COVERED AIRCRAFT

[***]

SCHEDULE 3

PASS THROUGH COSTS, CONTROLLABLE COSTS

AND AMERICAN ABSORBED EXPENSES

[***]

ANNEX I TO SCHEDULE 3

[***]

SCHEDULE 4

FUEL EFFICIENCY PROGRAM

Contractor’s Fuel Efficiency Program shall incorporate at least the following:

I. Contractor shall participate jointly with American to interface with appropriate ATC facilities, management, and other personnel to minimize operational restrictions, and improve ATC handling of Scheduled Flights.

II. Contractor shall implement, update and monitor flight planning fuel policies, including statistical tracking of fuel added by pilots and dispatchers, efficient reserves, and other objectives.

III. Contractor shall implement, update and monitor pilot and dispatcher training on the policies and objectives described in Section II of this Schedule 4.

IV. Contractor shall implement, update and monitor an effective fuel tankering program, including American’s tankering suggestions and calculations, using validated methods and formulas; American shall provide Contractor with cost data.

V. Contractor shall provide data (ACARS or another source) as requested by American to American or one of American’s agents in support of the program to be used for statistical tracking, analysis and measurement of fuel efficiency and for identifying and correcting deficiencies at the fleet and system levels.

VI. Contractor shall designate a manager to lead Contractor’s fuel task force (“Contractor Fuel Task Force”) which has overall responsibility for fuel efficiency.

VII. Reviews each [***] shall be conducted by the Contractor Fuel Task Force of the Fuel Efficiency Program using data from American in order to review Contractor’s fuel performance. Such reviews shall include the manager of Contractor’s Fuel Task Force as described in Section VI of this Schedule 4 and representatives from the following groups: Contractor’s Service Operations Center, Contractor’s Flight group, American’s Operations Engineering group and other American personnel as designated by American.

VIII. Weight management oversight shall be conducted by Contractor’s Fuel Task Force, including development of a policy to optimize arrival fuel.

IX. Contractor shall implement and update an auxiliary power unit management policy so as to prevent unnecessary or costly operation of the auxiliary power unit and to the extent commercially feasible for Contractor, monitor its auxiliary power units.

X. Contractor shall implement, update and monitor a single engine taxi policy both before takeoff and after landing.

XI. Contractor shall implement, update and monitor policy related to operationally efficient takeoff selection priorities.

XII. Contractor shall implement, update and monitor an engine maintenance program or maintenance contracts that considers deterioration in specific fuel consumption and, to the extent commercially feasible, allow for cost effective early removal and repair or overhaul of high burn engines, provided there are other indications of engine deterioration and within the vendor’s agreement.

Schedule 4 - 1

XIII. It is understood that American may subsequently develop additional fuel efficiency programs or similar policy requirements for Contractor. Contractor shall use commercially reasonable efforts to implement such program or policy. To the extent such program or policy requires Contractor to incur additional costs and expenses, including obtaining additional software programs, in excess of amounts currently incurred by Contractor to collect, store or obtain additional data on behalf of American, Contractor shall provide American with a reasonable detailed estimate of such additional costs and expenses and shall only be required to provide such additional collection, storage or data if American Consents that such additional costs and expenses shall be deemed Pass Through Costs.

XIV. To the extent Contractor’s current ACARS system is able, or where additional programming is required, to the extent Contractor is not limited by programming constraints, Contractor shall monitor the information consisting of the following fields for all flights flown by Contractor for American under this Agreement and shall provide monthly tracking data to American consisting of the following fields for all flights (including Scheduled Flights, Maintenance Flights and Ferry Flights) for all Covered Aircraft that have Rockwell Collins ACARS systems flown by Contractor for American under this Agreement:

Carrier Code

A/C Tail Number

Aircraft Type

Flight Number

Flight Date

Departure

Destination

Planned Takeoff Fuel

Takeoff Weight Planned

Flight Planned Burn

Planned Landing Weight

Planned Landing Fuel

Planned Zero Fuel Weight

Estimated Time Enroute

Average Wind Component at altitude

Average ISA at altitude

Top of Climb ISA (Contractor does not have this available in dispatch software, but has

en-route ISA)

Alternate 1

Alternate 2

Alternate Fuel

Reserve Fuel

Hold Fuel

Extra Hold Fuel

Extra (contingency) Fuel

Tanker Fuel (separate from “Extra”) to the extent such information becomes available

Estimated Departure Time (Zulu)

First Cruise Flight Level

Dispatcher Name (or code)

Captain Name (or Code)

Schedule 4 - 2

OOOI Times (Zulu)

Scheduled Block Time (from the block planning schedule)

Actual Block Time (from OOOI times)

Planned Flight Time

Actual Off to On Time (from OOOI times)

Source of the OOOI times (ACARS, FPLOT, Manual entry)

Scheduled Block Time (from release) converted to minutes

Actual Block Time (from OOOI times) converted to minutes

Scheduled Flight Time converted to minutes

Actual Off to On Time (from OOOI times) converted to minutes

Minutes Over/Under Sked Block Time

Minutes Over/Under Sked Flight Time

Planned Pushback Fuel

Planned Gate Arrival Fuel

Actual Pushback Fuel (OOOI reported)

Actual Gate Arrival Fuel (OOOI reported)

Difference between Planned and Actual Arrival Fuel

Difference between Flight Plan Burn and Actual Burn

Actual ZFW (if available from ACARS data TOGW)

Max Takeoff Gross Weight

Actual release (today’s release) flight time in minutes

Dispatcher Desk

Captain Name or Code

GMT DTG

Y or N for a tanker flight recommended by MSC weekly updates

Taxi out Fuel Planned

Taxi In Fuel Planned

Highest Flight Altitude Achieved (ACARS), subject to additional programming limitations

Cruise airspeed 1 (L/O plus [***] minutes)(ACARS) to the extent such information becomes available

Cruise airspeed 2 (L/O plus [***] minutes)(ACARS) to the extent such information becomes available

Cruise airspeed 3 (L/O plus [***] minutes)(ACARS) to the extent such information becomes available

XV. To the extent Contractor’s current ACARS system is able, or where additional programming is required, to the extent Contractor is not limited by programming constraints, Contractor shall incorporate the following data reporting into the ACARS systems in all Covered Aircraft, enabling the collection of single engine start and stop information. Monthly tracking data shall be provided to American consisting of the following fields for all flights flown by Contractor for American:

Date

Departure Station

Arrival Station

Flight Number

Tail Number

Equipment

Departure Gate

Actual Departure Time

Schedule 4 - 3

Actual Off Time

Actual On Time

Actual Arrival Time

Engine (L/R)

Start

Stop

Duration

SE Taxi Out

SE Taxi In

SE Taxi Out Duration

SE Taxi In Duration

Taxi Out Duration

Taxi In Duration

Carrier

First Flight of Day

Captain Name or Code

XVI. To the extent Contractor’s current ACARS system is able, or where additional programming is required, to the extent Contractor is not limited by programming constraints, Contractor shall incorporate the following data reporting into the ACARS systems in all Covered Aircraft, enabling the collection of APU start and stop time stamped information, to the extent such information is available or becomes available. Monthly tracking data shall be provided to American consisting of the following fields for all flights flown by Contractor for American:

1. Flight number

2. Aircraft Number

3. Time

4. Initial conditions

a. APU start/shutdown

b. External electrical power

c. Intentionally Deleted

d. Fuel Quantity

e. Aircraft internal temperature

f. Outside Air Temperature (if available, it being acknowledged this is displayed in EICAS)

g. Baggage Compartment doors Open/Closed

5. Preflight

a. Changes in conditions

i. APU start/shutdown

ii. External electrical

iii. Intentionally Deleted

b. Start of APU time(s)

6. Arrival

a. APU start/shutdown

b. External power attached

c. External power employed

Schedule 4 - 4

SCHEDULE 5

COMPENSATION AND BONUSES AND REBATES

[***]

ANNEX I TO SCHEDULE 5

[***]

ANNEX II TO SCHEDULE 5

[***]

SCHEDULE 6

INTENTIONALLY OMITTED.

SCHEDULE 7

ACCOUNTING AND AUDITING PROCEDURES AND PAYMENT TERMS

I. Books and Records. Contractor shall maintain separate books and records in connection with providing Regional Airline Services to American, on the one hand, and Contractor’s other operations (if any), on the other, in each case to support and document all revenues related to any in-flight services, Pass Through Costs and American Absorbed Expenses. Contractor’s books, records and calculations that relate to providing Regional Airline Services to American shall be complete and accurate and shall be maintained in accordance with customary business and accounting procedures consistently applied with respect to Contractor providing such Regional Airline Services. Notwithstanding the foregoing, all such books, records and calculations relating to providing Regional Airline Services to American shall be kept and made in accordance with the accounting policies and procedures that were used by American and Contractor to [***], unless otherwise Consented to by American. Contractor shall also maintain, at its corporate headquarters (or such other location Consented to by American), reports, records and data relevant to the billing of any services that are the subject matter of this Agreement and the other Related Agreements for a period of [***] after the end of the Term, unless a longer period is required upon request by American or by any applicable law, rule or regulation of a Governmental Authority.

II. Audit Rights. The audit rights set forth herein in no way limit the audit rights set forth elsewhere in this Agreement.

A. [***]

B. [***]

C. [***]

D. [***]

E. [***]

F. [***]

G. [***]

H. Procedures.

1. In connection with any audit, review, inspection or observation, American, American’s employees and any of its designated representatives, including but not limited to attorneys and external auditors selected by American, shall be entitled to make copies and notes of such information as they deem necessary in their sole discretion and to discuss such records with any employees of Contractor, its Contractor Agents or advisors to Contractor who are knowledgeable about such records.

2. Contractor shall, and shall cause any of its Contractor Agents to, comply with its obligations under this Section II. Contractor shall [***] cooperate with American in conducting any audit, review, inspection or observation under this Agreement. In order to facilitate such audit, review, inspection or observation, Contractor shall promptly provide all information reasonably requested by American or its designated representatives.

Schedule 7 - 1

3. Any audit, review, inspection or observation under this Schedule 7 shall begin promptly, but no fewer than [***] after the date of any Notice sent by American to Contractor requesting an audit, review, inspection or observation. Any such audit, review, inspection or observation may be conducted by American’s employees and/or external representatives, including but not limited to attorneys and external auditors selected by American.

III. [***]

IV. Payment Addresses. All payments due and owing by American to Contractor shall be made by wire transfer of available funds to a bank account designated by Contractor. All payments to American shall be made by wire transfer of available funds to the following accounts unless or until American provides Notice of any change:

[***]

V. Foreign Currency Settlement. All payments shall be made in U.S. Dollars. To the extent American is reimbursing Contractor for out-of-pocket costs and expenses incurred in a foreign jurisdiction pursuant to this Agreement, American shall pay Contractor all reimbursements in U.S. Dollars (“USD”) to a bank located in the United States. For expenses incurred in Canadian Dollars (CAD), the USD amount shall be calculated using the CAD-USD daily exchange rate published by the Bank of Canada on the last Business Day of the month for which the services were provided. The method for converting any other foreign currencies to USD should be agreed upon by the Parties, in writing, prior to the commencement of any Regional Airline Services in that country.

Schedule 7 - 2

SCHEDULE 8

CONTROLLABLE CANCELLATION CODES

[***]

SCHEDULE 9

CONTROLLABLE ON TIME DEPARTURE CODES

[***]

SCHEDULE 10

INTENTIONALLY OMITTED

SCHEDULE 11

AMERICAN FACILITIES

To be provided by American prior to the Implementation Date of the first Covered Aircraft.

Schedule 11 - 1

CONFIDENTIAL

SCHEDULE 12

INTERIOR DESIGN OF COVERED AIRCRAFT

(INCLUDING LAYOUT FOR PASSENGER ACCOMMODATION)

To be provided by American prior to the Implementation Date of the first Covered Aircraft.

Schedule 12 - 1

CONFIDENTIAL

ANNEX I TO SCHEDULE 12

LAYOUT FOR PASSENGER ACCOMMODATION

[***]

Exhibit A - 1

EXHIBIT A

DEFINITIONS

The following terms shall have the meanings set forth below for all purposes of this Agreement and shall be equally applicable to both the singular and the plural forms of the terms defined herein.

“ACARS” means the system known as the Airline Communication and Reporting System or any successor or alternative system designated from time to time by American in its sole discretion.

“Accident” means an “Aircraft Accident” as defined by the NTSB rules and regulations, including 49 C.F.R. §830.2 or any successor provision.

“Actual Departure” means, with respect to any Scheduled Flight, the off ground departure of such Scheduled Flight [***].

“Affiliate” means any Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, another Person; without limiting the foregoing, US Airways Inc. and Envoy Air Inc. and their respective Affiliates shall each be deemed an Affiliate of American.

“Affiliate Operated Flight” means a flight operated by American, an Affiliate of American or any other air carrier contracting with American to provide scheduled air transportation, with an aircraft that is not a Covered Aircraft; it being understood that Contractor shall not be compensated by American for any such Affiliate Operated Flight.

“American Agent” means any contractor, subcontractor, representative or agent (and the employees of any such contractor, subcontractor, representative or agent) retained, directly or indirectly, by American in connection with the performance of any of its obligations or services under this Agreement or any Related Agreement or any other services contemplated by the Related Agreements or any portion thereof on behalf of American, it being understood that in no event shall Contractor or any Contractor Agent be considered an American Agent hereunder.

“American Airlines Brand Center Website” means https://brand.aa.com.

“American Data” means all data or information, in any form or format, including interim, Processed (as such term is defined on Exhibit D), compiled, summarized, or derivative versions of such data or information, and any insights that may be learned from such data or information, that may exist in any system, database, or record that is either (i) provided by or on behalf of American or its customers to Contractor, or (ii) is obtained, developed, produced or Processed by Contractor or Contractor’s systems, in each of (i) and (ii) in connection with the relationship or arrangements established by this Agreement, but excluding any data or information that is expressly defined as owned by Contractor in this Agreement. Specific examples of American Data include the following to the extent that they meet the criteria in subsections (i) or (ii) above: passenger loads, passenger booking data, passenger ticket lift data, flight OOOI times and delay codes. Any successors, equivalents, compilations or derivatives of the foregoing, whether now known or hereafter devised, and in any medium or format, are also American Data. For example, copying or tracking of any portion of American Data to create a separate set of information or database constitutes a derivative and is within the definition of American Data. If it is unclear to Contractor whether any particular information constitutes American Data and is subject to this definition or to any exceptions to the definition set forth in this Agreement, such information will be deemed to be American Data under this definition and not be subject to any such exception until such matter is resolved. American shall work with Contractor in good faith to resolve such uncertainties. American Data includes American Personal Data (as such term is defined on Exhibit D).

Exhibit A - 2

“American Facilities” means facilities (including, but not limited to Crew Facilities, Line Maintenance Facilities and Passenger-Related Terminal Facilities) owned, leased, subleased or licensed by or on behalf of American and any replacement or substitute facilities therefore, as listed on Schedule 11, or other such facilities designated by American in writing from time to time, until such time as Contractor’s license to use such American Facilities is terminated by American in accordance with the terms hereof or any applicable Sublease.

“American Indemnified Parties” (and individually, each an “American Indemnified Party”) means American, Parent, any American Agent, any of their respective Affiliates and each of their respective successors or permitted assigns, along with the directors, officers and employees of each such Person.

“American Systems” (and individually, each an “American System”) means information systems, including computerized reservation systems, global distribution systems and other associated support systems, providing information regarding such things as seat inventory and passenger processing, and their respective successor systems, if any.

“Applicable Crew Metric” means, for the applicable month of determination, as between Contractor’s captains and first officers, [***].

“Application” means Contractor’s software application or applications and any third-party or other software (including on-premises software), and all updates, configurations and customizations of the foregoing, that Contractor makes available to American as a service under this Agreement.

“Approved Marks” means the Marks for which Contractor receives American’s Consent to use, including the addition, introduction and termination of use of such Marks pursuant to Section 6.03.

“ATC” means any Person or Governmental Authority that, from time to time, holds the air traffic control authority to issue clearance for actual ground or flight operations as granted by the FAA or any other Governmental Authority.

“Block Hour” means the actual elapsed time of a Completed Scheduled Flight (expressed in hours, as a number [***] measured from gate departure to gate arrival where gate departure is the later of door close or brake release and gate arrival is the later of door open or brake set, as determined in accordance with ACARS.

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday unless such day shall be a day when the Federal Reserve Bank of Dallas, or any Governmental Authority then performing similar functions in or around Fort Worth, Texas, is closed. A Business Day shall be deemed to end at 5:00 p.m., Central time.

“CAATS” means, at the applicable time of determination, the Covered Aircraft (other than the Spare Aircraft) that are available to schedule.

“Capital Stock” means any class of securities, including shares, interests, rights to purchase, warrants, options, participations, convertible securities or other equivalents of or interests in the common stock or preferred stock of a Party, its parent company, its Subsidiary, or any successor thereto, including, without limitation, partnership and membership interests.

Exhibit A - 3

“Catering Products” means all (i) food and beverages for passengers, including all beer, wine, liquor and other alcoholic beverages, (ii) customary in-flight catering supplies, including, but not limited to napkins, stir rods, cups, in-flight publications, pillows, blankets, trash bags, sick sacks, lavatory supplies, creamers and sugars, and (iii) devices used by Contractor’s flight attendants in connection with the sale and delivery of the foregoing items to passengers, in each case, in connection with the operation of Regional Airline Services.

“Catering Services” means all services related to providing and arranging for the placement of Catering Products on board the Covered Aircraft, including, but not limited to, stocking Catering Products on the Covered Aircraft, providing beverage uplift, providing trained catering truck guides and storage of all Catering Products, in each case, in connection with the operation of Regional Airline Services.

“Change of Control” means any of the following transactions:

(i) [***]

(ii) [***]

(iii) [***]

“Claims” means any claim, litigation, investigation, demand, action, judgment, suit, declaration, notice or assertion (whether written or oral), in each case asserted by a Third Party.

“Completed Scheduled Flight” means a Scheduled Flight that takes off from its scheduled departure location and arrives at its scheduled final location [***].

“Confidential Information” of American or Contractor, as applicable, means any information of American or Contractor, respectively, whether disclosed to or accessed by the other Party, whether pursuant to or in connection with this Agreement, and which is (a) marked as being “Confidential” or “Proprietary”; (b) otherwise reasonably identifiable as confidential or proprietary information; or (c) under the circumstances should reasonably be considered as confidential or proprietary information, including: [***].

“Consent” means any written authorization, agreement, approval, consent, ratification, waiver or other authorization, and “Consented” shall mean the act of providing any such Consent.

“Contractor” means Air Wisconsin Airlines LLC.

“Contractor Agent” means any contractor, subcontractor, representative or agent (and the employees of any such contractor, subcontractor, representative or agent) retained, directly or indirectly, by Contractor and providing Regional Airline Services or any other services contemplated by the Related Agreements or any portion thereof on behalf of Contractor, including, but not limited to, Contractor’s pilots and flight attendants; it being understood that neither American nor its Affiliates or the American Agents shall be deemed “Contractor Agents” hereunder.

“Contractor Data” means Contractor Employee Data, Contractor Financial Data and Flight Operations Data.

“Contractor Employee Data” means Contractor’s records regarding its employees.

“Contractor Financial Data” means Contractor’s proprietary internal financial information.

Exhibit A - 4

“Contractor Indemnified Parties” means Contractor, any Contractor Agent and each of their Affiliates, and each of their successors or permitted assigns, and the managers, directors, officers, members, stockholders and employees of each such Person.

“Contractor Labor Dispute” means a Labor Dispute that relates to the employees or labor force of Contractor.

“Controllable Cancellation” means the cancellation of a Scheduled Flight that is not an Uncontrollable Cancellation.

“Controllable Completion Rate” [***].

“Controllable On Time Departure” means a Scheduled Flight that departs (i) on or before the scheduled departure time or (ii) after its scheduled departure time solely as a result of an Uncontrollable Delay or an event that is not specified on Schedule 9. For the avoidance of doubt, downline departures which also depart late due predominately to reasons controllable by Contractor shall not be Controllable On Time Departures (it being understood that a downline/ruboff delay shall be deemed to occur if the primary or dominant delay code of its previous leg was controllable). [***].

“Controllable Scheduled Departures” means scheduled departures of Scheduled Flights, excluding departures cancelled for reasons beyond Contractor’s control, such as weather, ATC, American’s request or an Uncontrollable Cancellation.

“Copyrights” means: (a) any rights in original works of authorship fixed in any tangible medium of expression as set forth in the United States Copyright Act, 17 U.S.C. §101 et seq., registered or unregistered; (b) all registrations and pending applications to register the rights identified in clause (a) hereof anywhere in the world; (c) all foreign counterparts and analogous rights anywhere in the world; and (d) all rights in and to any of the foregoing.

“Covered Aircraft” means each airframe specified on Schedule 1, as may be amended from time to time pursuant to the terms hereof, together with, for each airframe, the engines installed thereon, any related parts, and including the Spare Aircraft, in each case commencing on the applicable Implementation Date until the later of its applicable Aircraft Term date or Withdrawal Date; it being understood that (a) any such aircraft shall in no event be deemed a Covered Aircraft following the later of its Withdrawal or the expiration of its Aircraft Term, and (b) all Spare Aircraft shall be deemed Covered Aircraft at all times and for all purposes of this Agreement.

“Crew Facility” means pilot and flight attendant crew rooms at a Hub.

“Crisis” means an event or condition that would cause the Regional Airline Services or any component thereof to not meet the service levels set forth in this Agreement, or to perform or operate with diminished security, functionality, or otherwise in a manner inconsistent with the requirements of this Agreement.

“Dispatch” means the dispatch of a Scheduled Flight and shall include releasing a flight for departure, fueling and flight release for Scheduled Flights.

“DOT” means the United States Department of Transportation or any successor Governmental Authority then performing the same or substantially similar duties.

Exhibit A - 5

“Eagle Partnership Manuals” means the Eagle Ground Operating Manual, the Eagle Ground Deicing Manual and other manuals which may be developed from time to time, each as amended from time to time.

“EAS Program” means an Essential Air Service program administered by the DOT.

“Event of Loss” shall mean the following [***].

“FAA” means the Federal Aviation Administration or any successor Governmental Authority then performing the same or substantially similar duties.

“FARs” means the federal aviation regulations or rules promulgated by the FAA under or pursuant to Title 14 of the Code of Federal Regulations, FAA airworthiness directives or FAA advisory circulars, as amended from time to time, or any successor regulations or rules therefore.

“Flight Operations Data” means data related to the operation of the Covered Aircraft during flight.

“Flight Status Data” means data relating to the status of a Scheduled Flight, including unplanned schedule changes, cancellations, delays and gate information.

“FOQA” means the program known as Flight Operational Quality Assurance or any successor or alternative program designated from time to time by American in its sole discretion.

“Force Majeure Event” means, strictly in relation to the conditions that may cause a Party to be temporarily, partially or wholly prevented from performing its obligations to the other Party under this Agreement, and not for any other purpose or for any benefit of a third party: delays or failures in performance hereunder caused by trade embargoes, natural disasters, acts of terrorism, orders of a Governmental Authority (including, the FAA, the DOT, the TSA or defense authorities), extreme weather conditions, cyber-attacks, civil riots, rebellion, or sabotage, war (declared or undeclared), foreign invasion, or insurrection, or any other similar circumstances for which an affected Party is not responsible, which are not foreseeable, and which are not within the affected Parties’ ability to control in the exercise of commercially reasonable efforts. Notwithstanding anything else in this Agreement, however, (A) in no event shall any Force Majeure Event excuse timely payment of any amounts due under this Agreement; (B) lack of funds, inability to obtain financing, change in general economic conditions (including, but not limited to, economic recession, increased cost of performance and/or increased cost of labor or materials), and/or changes in specific economic condition or status of an affected party shall not be a basis for delay or prevention of any obligation under this Agreement; and (C) in no event shall a Contractor Labor Dispute or any other labor dispute or work stoppage be deemed a Force Majeure Event.

“Governmental Authority” means any federal, state, municipal, local, territorial, or foreign government or any governmental department, commission, court, judicial body, instrumentality, board, bureau, agency, registry, regulatory authority or body or airport authority (including private airport authorities or any similar authority or governing board in any domestic or foreign jurisdiction, or any private or quasi-governmental entity, governing board or other Person with authority to lease, convey or otherwise grant or restrict rights to use or operate any airport facilities).

“Hazardous Materials” shall mean the following: toxic or hazardous substances; hazardous wastes; polychlorinated biphenyls (“PCBs”) or any substance or compound containing PCBs; friable asbestos or friable asbestos-containing materials; radon or any other radioactive materials including any source, special nuclear or by-product material; petroleum, crude oil or any fraction thereof; and any other pollutant or contaminant or chemicals, waste, materials, compounds, constituents or substances in any form that is either subject to regulation due to their dangerous or deleterious properties or characteristics or could reasonably be expected to give rise to liability under any requirements of law due to their dangerous or deleterious properties or characteristics.

Exhibit A - 6

“Heavy Maintenance” means maintenance or modifications that are, by industry standard, performed in an FAA certified hangar facility or at any other FAA certified repair station and requires disassembling, inspecting, repairing, refurbishment, overhaul or restoration of the subject airframe or engines.

“Hub” means Chicago O’Hare airport (ORD) and any other airport that is deemed a “Hub” pursuant to Section 2.01(c).

“Incident” means an incident as defined by the rules and regulations adopted by the NTSB pursuant to 49 C.F.R. §830.2 or any successor provision.

“Interior Design” means the interior design (including the bulk head design), seat pitch, aircraft interiors, layout for passenger accommodation and seat covers as part of the Covered Aircraft.

“Labor Dispute” means a labor strike or other economic self-help legally permissible under the Railway Labor Act, as amended (45 U.S.C. §151, et seq.), or any similar statute then in effect and applicable to the Parties, after exhaustion of all major dispute procedures as may be required or specified therein, including but not limited to those provided for in 45 U.S.C. §155 and §156. A Labor Dispute does not include normal grievances or other forms of labor protests that do not prevent Contractor from providing the Regional Airline Services operating the required schedule as set forth in this Agreement. A Labor Dispute may include a labor strike or other economic self-help engaged in by Contractor’s service providers only to the extent that such Labor Dispute has the same effect of preventing Contractor from providing the Regional Airline Services operating the required schedule as set forth in this Agreement as if such Labor Dispute were occurring at Contractor.

[***]

“Line Maintenance” means all maintenance on a subject airframe or engine that is not Heavy Maintenance and that generally occurs at or near the gate or terminal, launch area, ready area, hardstand or alert area, including all maintenance that is normally performed outside of a hangar facility and all on wing engine maintenance performed in a hangar facility.

“Line Maintenance Facilities” means reasonably adequate facilities at a Hub or any other airport where Parent provides airline services as may be necessary to perform routine daily Line Maintenance on the Covered Aircraft.

“Losses” means all liabilities, judgments, demands, recoveries, awards, settlements, penalties, fines, losses and expenses of any nature or kind whatsoever, including reasonable costs and expenses incidental thereto, under the laws, rules or regulations of any Governmental Authority (whether arising in tort, contract, under the Warsaw Convention, as amended, or the Montreal Convention, as amended, and related instruments and conventions or otherwise); Losses shall include the reasonable costs and expenses of investigating, preparing or defending any such Claim for any Losses (specifically including post judgment and appellate proceedings or proceedings that are incidental to the successful establishment of a right of indemnification), such as reasonable attorneys’ fees and fees for expert witnesses, consultants and litigation support services.

Exhibit A - 7

“Maintenance/Ferry Flights” means (a) flights necessary to accommodate Scheduled Flights or (b) flights solely in connection with the performance of required maintenance of a Covered Aircraft in accordance with the terms and conditions of this Agreement and the Related Agreements. [***]

“Major Carrier” means an air carrier (other than American and its successors and any Subsidiary thereof), the consolidated annual revenues of which for the most recently completed fiscal year for which audited financial statements are available are in excess of [***] as of the date of determination (or the US dollar equivalent thereof).

“Marks” means any trademark, trade name, trade dress, service mark, logo, domain name, or other indicia of ownership owned or used by American, Parent, or any of their respective Affiliates and includes Approved Marks.

“Minimum Equipment List” means a list which provides, for each day of the preceding month for each Covered Aircraft, the “Master Minimum Equipment List” and “Operator Minimum Equipment List,” as such terms are defined in the FARs and approved by the FAA for the Covered Aircraft type operated by Contractor, which items have not been repaired as of the beginning of each such day.

“Notice” means a written notice, direction or instruction given in accordance with Section 14.01.

“NTSB” means the United States National Transportation Safety Board or any successor Governmental Authority then overseeing air transportation safety.

“Other Carrier” means any certificated air carriers other than American for which Contractor is then providing flight services (regardless of whether such services are for cargo, passenger or otherwise) using aircraft owned or operated by Contractor and not covered by this Agreement.

“Other Regionals Likelihood to Recommend Factor” means the average of all scores reported on the “likelihood to recommend” question on the customer surveys for aircraft flights operated by the applicable operator (as rounded down to the nearest tenth) during the applicable period, all as calculated by American in its reasonable discretion.

[***]

“Parent” means American Airlines Group Inc., currently, or any Person that subsequently owns or controls at least [***] of the voting stock of American.

“Party” means either American or Contractor, and “Parties” shall mean American and Contractor, collectively.

“Passenger-Related Terminal Facility” means all passenger-related terminal facilities and spaces used in connection with the operation of Regional Airline Services, including without limitation all passenger lounges, passenger holding areas, aircraft parking positions (which may or may not be adjacent to a passenger holding area) and associated ramp spaces, gates (including loading bridges and associated ground equipment parking areas), ticketing counters, curbside check-in facilities, baggage makeup areas, and inbound baggage areas.

“Person” means an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity.

Exhibit A - 8

“Primary Facility” means the systems and facilities from which Contractor makes the Application available for production use by American.

“Property Tax” means only aircraft related property taxes, as movable property and shall not include ground property taxes, or any other taxes levied on other immovable property.

“Regional Airline Services” means, collectively, the provisioning by Contractor of Scheduled Flights, charter flights requested by American and Maintenance/Ferry Flights, and the provision of maintenance or repair services on Covered Aircraft, all in accordance with the terms and conditions of this Agreement; but excluding in all events any and all ground handling and other services to be provided by American, an American Agent or a Third Party.

“Related Agreements” means, collectively, this Agreement, the Emergency Assistance Agreement , and any other agreement mutually agreed by the Parties in writing that the Parties agree thereunder is a “Related Agreement,” in each case, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof, with each being a “Related Agreement.”

“Scheduled Flight” means a flight of a Covered Aircraft that is then included in the applicable Final Schedule, any diversion flights related to any such flights and any other flights operated by Contractor or any of its Affiliates at the request of American pursuant to the terms hereof; but excluding (i) any charter flights of a Covered Aircraft not included in the applicable Final Schedule for the month of such flight, and (ii) any Affiliate Operated Flight.

“Sublease” means a lease or sublease between American and Contractor with respect to an American Facility.

“Subsidiary” means, as to any Person, (a) any corporation more than [***] of whose stock of any class or classes having ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the occurrence of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any other Person in which such Person directly, or indirectly through other Subsidiaries or Affiliates, beneficially owns more than [***] of the equity interest of that Person at the time.

“Supportability Period” means any time period during the Term during which Contractor does not have sufficient crew and CRJ-200 aircraft to operate a minimum average daily block hour utilization of [***].

“Termination Date” means the date of the termination of this Agreement, as provided in a Notice delivered from one Party to the other pursuant to Article XII, or, if no such early termination shall have occurred, the date of the end of the Term. For the avoidance of doubt, any applicable Wind Down Schedule shall be completed on the Termination Date.

“Third Party” means any Person that is not American, Contractor, or an Affiliate of American or Contractor, as the case may be. The plural of Third Party shall be “Third Parties.”

“Transition Period” means the time period commencing on the Effective Date and ending on the earlier of (x) the Implementation Date for the [***] Covered Aircraft or (y) [***].

“TSA” means the United States Transportation Security Administration or any department of a Governmental Authority then performing the same or substantially similar duties.

Exhibit A - 9

“Uncontrollable Cancellation” means cancellations that are due to (i) a universal FAA airworthiness directive or other grounding that generally affects the aircraft or engine type flown by Contractor under this Agreement and is not the result of any action or failure to act by Contractor, (ii) any cancellation at the request of American or otherwise due to actions or inactions of American or an American Agent that is not due to an action or inaction of Contractor, or (iii) any event that is not set forth on Schedule 8 (as such Schedule may be amended, modified or restated by American from time to time).

“Uncontrollable Delay” means delays that are due to (i) a universal FAA airworthiness directive that generally affects the aircraft or engine type flown by Contractor under this Agreement and is not the result of any action or failure to act by Contractor, (ii) any delay at the request of American or otherwise due to actions or inactions of American or an American Agent that is not due to an action or inaction of Contractor, or (iii) any event that is not set forth on Schedule 9 (as such Schedule may be amended, modified or restated by American from time to time).

“Unscheduled Uncontrollable Flight” means any flight of the Covered Aircraft, including, but not limited to, charter flights, repositioning flights, maintenance flights or ferry flights, that in each case are not included in the applicable Final Schedule and that occur as a result of an uncontrollable event (as specified in American’s Delay Code Handbook and/or Cancel Code Handbook (or any successor handbooks thereto)).

“Wind Down Schedule” means the schedule, procedures and process for terminating this Agreement in accordance with Section 12.02, which Wind Down Schedule (i) shall designate a date of Withdrawal of each Covered Aircraft at which time the Covered Aircraft shall no longer be subject to the provisions of this Agreement and (ii) shall end no later than the Termination Date.

“Withdraw” or “Withdrawal” or “Withdrawn” means, with respect to a Covered Aircraft, to remove or uncover, or have removed or uncovered, as the case may be, from the terms of this Agreement such Covered Aircraft, as may be specified in Section 12.02 , any Notice of Withdrawal or Wind Down Schedule, to the extent required hereunder, it being understood that after Withdrawal such aircraft shall no longer to be used to provide Regional Airline Services hereunder unless otherwise Consented to by the Parties.

“Withdrawal Date” means the date on which a Covered Aircraft is to be Withdrawn in accordance with the provisions of this Agreement and pursuant to a Notice delivered in accordance with the terms of this Agreement.

“Withdrawal Rights” means the right to elect to Withdraw from this Agreement, [***] or more of the Covered Aircraft as of a specified Withdrawal Date, in each case as specified by American or Contractor pursuant to Section 12.02(c), it being understood that the exercise by American or Contractor of its Withdrawal Rights shall not affect any obligations that may have arisen under this Agreement (including with respect to the Covered Aircraft) prior to the Withdrawal Date, and such rights and obligations shall continue in accordance with the terms and conditions of this Agreement.

Additionally, the following terms have the meaning set forth in the corresponding Sections of or Schedules or Exhibits to this Agreement:

Term	Defined in Section or Schedule
“AA Flights”	Section 3.05(b)
“Addendum”	Exhibit D
“Additional Aircraft”	Section 3.02(a)
“Agreement”	Introductory Paragraph

Exhibit A - 10

Term	Defined in Section or Schedule
“Aircraft Term”	Section 12.01
“Airport Operators”	Section 8.01
“American”	Introductory Paragraph
“American Absorbed Expenses”	Schedule 3
“American Approved Maintenance Facilities”	Schedule 2
“American Copyright Works”	Exhibit D
“American Cost Initiative”	Section 7.03(b)
“American Eagle”	Section 3.05(a)
“American Electronic Property”	Exhibit D
“American Facilities Agreements”	Exhibit E
“American Identifiers”	Exhibit D
“American IP”	Exhibit D
“American Marks”	Exhibit D
“American Patents”	Exhibit D
“American Personal Data”	Exhibit D
“American Software”	Section 6.03(i)
“Backup Facility”	Section 4.05(c)(ii)
“Base Compensation”	Schedule 5
“Block Hour Rate”	Schedule 5
“Bonus”	Schedule 5
“Cabin Condition Compliance Check”	Section 4.07(a)
“Code Change”	Section 4.08(a)
“Codeshare Airlines”	Section 3.05(e)
“Commitment Threshold”	Section 3.01(a)
“Communication”	Section 14.01
“Contractor”	Introductory Paragraph
“Control”	Exhibit D
“Controllable Completion Rate Bonus Flights”	Schedule 5
“Controllable Completion Rate Bonus Threshold”	Schedule 5
“Controllable Completion Rate Rebate Flights”	Schedule 5
“Controllable Completion Rate Service Level Threshold”	Schedule 5
“Controllable Costs”	Schedule 3
“Controllable On Time Departures Bonus Flights”	Schedule 5
“Controllable On Time Departures Bonus Threshold”	Schedule 5
“Controllable On Time Departures Rebate Flights”	Schedule 5
“Controllable On Time Departures Service Level Threshold”	Schedule 5
“Controlling Subsidiary”	Exhibit A (Definition of “Change of Control”)
“Covered Aircraft Day Rate”	Schedule 5
“Data Claims”	Exhibit D
“Data Law”	Exhibit D
“Data Subject”	Exhibit D
“Departure Rate”	Schedule 5
“Disaster Recovery Plan”	Section 4.05(c)(i)
“Early Implementation Date”	Section 3.01(a)
“EEA”	Exhibit D
“Effective Date”	Introductory Paragraph
“Emergency Assistance Agreement”	Section 5.01
“Exporter”	Exhibit D
“Final Crew Max”	Section 6.14(b)

Exhibit A - 11

Term	Defined in Section or Schedule
“Final Crew Max Determination Date”	Section 6.14(b)
“Final Schedule”	Schedule 2
“General Data Protection Regulation”	Exhibit D
“Holdings”	Exhibit A (Definition of “Change of Control”)
“Implementation Date”	Section 3.01(a)
“Inaccurate Report”	Schedule 5
“Inflight Customer Experience Check”	Section 4.07(a)
“Initial Crew Max”	Section 6.14(a)
“Insolvency Event”	Section 12.02(a)(i)
“Invoiced Amount”	Schedule 5
“Late Adjustment Charge”	Section 6.14(c)
“Late Adjustment Charge Application Month”	Section 6.14(g)
“Late Charge”	Section 6.14(d)
“Material Breach”	Section 12.02(a)(B)
“Minimum Average Monthly Usage”	Schedule 2
“Miscoded Cancellation”	Schedule 5
“Miscoded Cancellation Rebate”	Schedule 5
“Model Clauses”	Exhibit D
“Monetary Breach”	Section 12.02(a)(C)
“Neutral Livery Aircraft”	Section 2.03(c)
“ORD”	Section 2.01(c)
“Other American Data”	Exhibit D
“Pass Through Costs”	Schedule 3
“PCBs”	Exhibit A (Definition of “Hazardous Materials”)
“PCI DSS”	Exhibit D
“Permitted Data Uses”	Exhibit D
“Permitted Uses”	Section 6.04(b)
“Personal Data”	Exhibit D
“Primary Driver Rates”	Schedule 5
“Primary Drivers”	Schedule 5
“Process”	Exhibit D
“Rebate”	Schedule 5
“Record”	Exhibit D
“Reduced Final Crew Max”	Section 6.14(c)
“Remediation Efforts”	Exhibit D
“Rolling Forecast”	Section 6.06(d)
“RPMs”	Schedule 3
“Security Best Practices”	Section 4.05(a)
“Security Incident”	Exhibit D
“Security Policies”	Exhibit D
“Security Procedures”	Exhibit D
“Security Requirements”	Exhibit D
“Security Technical Controls”	Exhibit D
“Spare Aircraft”	Section 3.02(c)
“Standards of Service”	Exhibit B
“Supportable CAATS”	Section 6.15(b)
“Supported Aircraft”	Section 6.15(b)
“Term”	Section 12.01
“Unsupported Aircraft”	Section 6.15(b)
“USD”	Schedule 7

Exhibit A - 12

EXHIBIT B

STANDARDS OF SERVICE

These standards of service (“Standards of Service”) are meant to provide an overview for Contractor of the service expectations established by American for in-flight services on Scheduled Flights. The Standards of Service outlined herein are not all-inclusive and may be changed from time to time by American in its sole discretion pursuant to Sections 4.03(a) and 4.07(a).

I. In-Flight Service Product and Delivery. Contractor shall achieve at least the comparable quality of airline service as provided by American. Contractor shall coordinate with American’s (or American’s Affiliate’s) In-flight Services Department to ensure consistency and quality of Contractor’s in-flight service product, including non-safety related functions such as in-flight marketing announcements, meal and beverage presentation and delivery and provisioning and usage of passenger amenity kits. Contractor shall implement suggestions made by American’s (or American’s Affiliate’s) In-flight Services Department. Contractor shall coordinate with American to ensure consistency with American’s product delivery, including American-logo napkins, stir rods and cups. Wherever possible, snack and beverage items should be consistent with the products served by American. Each Covered Aircraft shall be supplied by American with an adequate supply of American’s in-flight publications. Contractor must place these in-flight publications in the designated seat pocket of each seat. Unless otherwise Consented to by American, American’s in-flight publications are the only magazines authorized in such seat pockets.

II. Uniforms. Contractor’s flight attendants on Scheduled Flights shall wear uniforms as required under Section 4.03(b). Contractor’s employees in such uniforms, whether on or off duty, are not permitted to drink intoxicating beverages, give the appearance of being intoxicated or visit any establishment whose primary purpose is to dispense liquor (including bars, saloons, cocktail lounges and liquor stores). As used herein, “uniform” refers to any uniform apparel bearing the American brand or insignia, or which can be in any way identified with American or one of its Affiliates. Because the actions and appearance of employees’ influence, to a considerable extent, the public’s opinion of the American brand, uniformed employees must be mindful of this and conduct themselves accordingly.

III. In-Flight Announcements. While Contractor shall provide basic announcements, American may request that Contractor make promotional announcements on behalf of American from time to time and Contractor shall honor and execute any such request. In all on-board announcements on Scheduled Flights, only the names “American Airlines” or “American Eagle” may be included and Contractor’s names shall not be included unless otherwise Consented to by American.

IV. Catering. American shall provide, or arrange for another Person to provide, the Catering Services for flights on Covered Aircraft (excluding any Maintenance/Ferry Flights or non-revenue flights to ferry or position Covered Aircraft), and, as directed by American, Contractor shall serve the food and beverages provided by Catering Services on all such flights in accordance with procedures and standards approved by American in its sole discretion.

V. Failure to Meet Standards of Service. In the event that Contractor fails to meet the Standards of Service as set forth in this Exhibit B, then American shall have the right and option, in addition to any other rights or remedies of American hereunder, to Withdraw any or all Covered Aircraft pursuant to Section 12.02.

SCHEDULE 1 TO EXHIBIT B

INFLIGHT CUSTOMER EXPERIENCE CHECK

A score of [***] or above is satisfactory. A score below [***] is unsatisfactory. The inflight customer experience check shall be calculated in accordance with the provisions of Section 4.07(a).

SCHEDULE 2 TO EXHIBIT B

A score of [***] or above is passing. A score below [***] is failing.

Checklist Name	Section	Order	Question
C4 2.0	A. Aircraft General	1	Entryway Door - Check for wear including holes, scrapes, missing paint and/or discoloration.
C4 2.0	A. Aircraft General	2	Entryway Walls - Check for wear including chips, scrapes, peeling and discoloration.
C4 2.0	A. Aircraft General	3	Entryway Flooring - Check for wear including bubbles, holes, and discoloration.
C4 2.0	A. Aircraft General	4	Coat Closet - Check for wear including cuts and scrapes.
C4 2.0	A. Aircraft General	5	Galley Flooring - Check for wear including bubbles, holes, and discoloration.
C4 2.0	A. Aircraft General	6	Galley Condition including latches and pullouts - Check for wear including chips, peeling, and overall condition.
C4 2.0	A. Aircraft General	7	Galley Curtain - Check for wear and tear, missing clips/snaps.
C4 2.0	A. Aircraft General	8	FA Seats - Check overall condition including wear, holes, scrapes, and/or other visible blemishes to cushion.
C4 2.0	A. Aircraft General	9	Weather Curtain - Check for wear, tears, and missing clips/snaps.
C4 2.0	B. F/C General	10	Carpet - Check condition including holes, fraying, torn edges, unraveling, alignment, and tripping hazards.
C4 2.0	B. F/C General	11	Seat Track Covers - Check for presence and wear including holes, cracks, breaks, and partial covers.
C4 2.0	B. F/C General	12	Overhead Bins (inside) - Check for wear including holes, scuff marks, scrapes, and missing paint.
C4 2.0	B. F/C General	13	Overhead Bin Placards (inside) - Check for presence, placement, legibility and for wear including peeling, cracks, and overall condition.
C4 2.0	B. F/C General	14	Sidewall Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	B. F/C General	15	Overhead Bin Exteriors - Check for the ability to latch, and for wear including chips, scrapes, and peeling.
C4 2.0	B. F/C General	16	Sidewall Panels - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	B. F/C General	17	Cabin Ceiling - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	B. F/C General	18	Overhead Lighting (Aisle) - Check for illumination and condition of clear lens cover.
C4 2.0	B. F/C General	19	Sidewall Lighting - Check for illumination and condition of clear lens cover.
C4 2.0	B. F/C General	20	Window Shades - Check for wear including cracks, scrapes, peeling, bubbles, discoloration, and fit.
C4 2.0	B. F/C General	21	Window Shades - Check if shades appear to work as intended by the customer.
C4 2.0	B. F/C General	22	First Class Divider Curtain - Check condition including proper movement, for wear and presence/condition of tieback.
C4 2.0	B. F/C General	23	“Mustache” Curtains - Check condition, if applicable.
C4 2.0	B. F/C General	24	Bulkhead - Check for wear including cracks, peeling, chips, missing laminate, and overall condition.
C4 2.0	B. F/C General	25	Dado Panels - Check for misalignment and wear including chips, scrapes, and peeling.

C4 2.0	C. F/C Seats	26	Recline - Check if seats appear to recline as intended by the customer.
C4 2.0	C. F/C Seats	27	Tray Tables and Latches - Check for wear including scrapes, chips, cracks, and usability.
C4 2.0	C. F/C Seats	28	WiFi Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	C. F/C Seats	29	Reading Lights - Check condition, illumination, and presence of lens.
C4 2.0	C. F/C Seats	30	Upholstery - Check for wear including scrapes, holes, stray strings, and overall fit.
C4 2.0	C. F/C Seats	31	Seatback Pockets - Check for fit (closed pocket gap < 1.5”) and wear including scrapes, holes, and discoloration.
C4 2.0	C. F/C Seats	32	Armrests - Check condition including stability, wear, and that no sharp edges are present.
C4 2.0	C. F/C Seats	33	Removable Seat Cushions - Check condition and wear including holes, scrapes, and/or other visible blemishes to the cushion.
C4 2.0	C. F/C Seats	34	Seat Structures - Check for wear including missing paint, chips, scrapes, and peeling.
C4 2.0	C. F/C Seats	35	Seat Belts - Check for wear including stains, stray strings and that seat belt appears to work as intended by the customer
C4 2.0	C. F/C Seats	36	Passenger Air (Gasper) Vents - Check for usability and overall condition.
C4 2.0	C. F/C Seats	37	PSUs - Check for fit and wear including chips, scrapes, peeling, and discoloration.
C4 2.0	C. F/C Seats	38	Seat Number Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	D. M/C General	39	Carpet - Check condition including holes, fraying, torn edges, unraveling, alignment, and tripping hazards.
C4 2.0	D. M/C General	40	Seat Track Covers - Check for presence and wear including holes, cracks, breaks, and partial covers.
C4 2.0	D. M/C General	41	Overhead Bins (inside) - Check for wear including holes, scuff marks, scrapes, and missing paint.
C4 2.0	D. M/C General	42	Overhead Bin Placards (inside) - Check for presence, placement, legibility and for wear, including peeling, cracks and overall condition.
C4 2.0	D. M/C General	43	Sidewall Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	D. M/C General	44	Overhead Bin Exteriors - Check for the ability to latch, and for wear including chips, scrapes, and peeling.
C4 2.0	D. M/C General	45	Sidewall Panels - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	D. M/C General	46	Cabin Ceiling - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	D. M/C General	47	Overhead Lighting (Aisle) - Check for illumination and condition of clear lens cover.
C4 2.0	D. M/C General	48	Sidewall Lighting - Check for illumination and condition of clear lens cover.
C4 2.0	D. M/C General	49	Window Shades - Check for wear including cracks, scrapes, peeling, bubbles, discoloration, and fit.
C4 2.0	D. M/C General	50	Window Shades - Check if shades appear to work as intended by the customer.
C4 2.0	D. M/C General	51	Bulkhead - Check for wear including cracks, peeling, chips, missing laminate, and overall condition.
C4 2.0	D. M/C General	52	Dado Panels - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	E. M/C Seats	53	Recline - Check if seats appear to recline as intended by the customer.
C4 2.0	E. M/C Seats	54	Tray Tables and Latches - Check for wear including scrapes, chips, cracks, and usability.
C4 2.0	E. M/C Seats	55	WiFi Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	E. M/C Seats	56	Reading Lights - Check condition, illumination, and presence of lens.

C4 2.0	E. M/C Seats	57	Upholstery - Check for wear including scrapes, holes, stray strings, and overall fit.
C4 2.0	E. M/C Seats	58	Seatback Pockets - Check for fit (closed pocket gap < 1.5”) and wear including scrapes, holes, and discoloration.
C4 2.0	E. M/C Seats	59	Armrests - Check condition including stability, wear, and that no sharp edges are present.
C4 2.0	E. M/C Seats	60	Removable Seat Cushions - Check condition and wear including holes, scrapes, and/or other visible blemishes to the cushion.
C4 2.0	E. M/C Seats	61	Seat Structures - Check for wear including missing paint, chips, scrapes, and peeling.
C4 2.0	E. M/C Seats	62	Seat Belts - Check for wear including stains, stray strings and that seat belt appears to work as intended by the customer
C4 2.0	E. M/C Seats	63	Passenger Air (Gasper) Vents - Check for usability and overall condition.
C4 2.0	E. M/C Seats	64	PSUs - Check for fit and wear including chips, scrapes, peeling, and discoloration.
C4 2.0	E. M/C Seats	65	Seat Number Placards - Check for presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	E. M/C Seats	66	MCE Placards - Check presence, placement, legibility, and for wear including peeling, cracks, and overall condition.
C4 2.0	F. LAV	67	Mirrors - Check for wear.
C4 2.0	F. LAV	68	Sinks/Drain Stoppers - Check condition including wear, that water dispenses and stopper works.
C4 2.0	F. LAV	69	Flush, (and Flapper if applicable) - Check that flush motor appears to work and presence and alignment of bowl flapper.
C4 2.0	F. LAV	70	Toilets, Shroud - Check for wear.
C4 2.0	F. LAV	71	Toilets, Seat/Lid - Check for wear.
C4 2.0	F. LAV	72	Soap Dispenser Mount - Check presence and condition.
C4 2.0	F. LAV	73	LAV Doors - Check for interior and exterior wear including holes, scrapes, missing paint, and/or discoloration.
C4 2.0	F. LAV	74	LAV Flooring - Check for wear, including bubbles, holes, and discoloration.
C4 2.0	F. LAV	75	LAV Walls - Check for wear including chips, scrapes, peeling, and discoloration.
C4 2.0	F. LAV	76	LAV Ceiling - Check for misalignment and wear including chips, scrapes, and peeling.
C4 2.0	F. LAV	77	LAV Lighting - Check illumination and condition.
C4 2.0	F. LAV	78	PSU, Flight Attendant Call Buttons - Check usability and condition.
C4 2.0	F. LAV	79	Lav Vents and Smoke Detectors - Check for usability and overall condition.
C4 2.0	F. LAV	80	Diaper Changing Tables - Check condition if applicable.
C4 2.0	F. LAV	81	Deodorant Brackets - Check for presence, usability, and condition if applicable.
C4 2.0	F. LAV	82	Ashtrays - Check presence, usability, and condition.
C4 2.0	F. LAV	83	Placards - Check presence, legibility, and for wear including peeling, cracks and overall condition.
C4 2.0	F. LAV	84	Toilet Lid Hinges - Check that lid appears to stay up when lifted.

EXHIBIT C

TRAINING

I. Customer Service. Contractor agrees that it shall train or cause to be trained to proficiency, all customer service employees of Contractor that may be associated with providing Regional Airline Services. Contractor agrees to participate in any and all special training or other programs that American provides for its customer service employees. Contractor may elect to accomplish such training through the use of a “Train the Trainer” concept, if Consented to by American in its reasonable discretion. Contractor’s flight attendants providing Regional Airline Services shall be trained by Contractor, [***], on meal and beverage service procedures for Scheduled Flights, including liquor and duty-free sales and cash handling, and will collect all on-board revenue for liquor and duty-free sales on Scheduled Flights.

II. Ground Handling. Contractor shall provide to American (or to any Person chosen by American), [***], all reasonably necessary training to enable American (or any Person chosen by American) to provide all ground handling and related services with respect to the operation of the Covered Aircraft for Scheduled Flights. Such training shall include cargo training and may, in American’s sole discretion, be accomplished through the use of a “Train the Trainer” procedure.

EXHIBIT D

AMERICAN’S SECURITY POLICIES AND PROCEDURES

The following is not intended to be an all-inclusive list of security services and obligations necessary to comply with Security Best Practices, but is intended to capture key elements of such a program. American reserves the right to modify the obligations set forth herein or add new obligations; provided that unless such modified or new obligation is required due to any law, rule or regulation of a Governmental Authority, such obligation shall be modified or added by American acting reasonably under the circumstances, and any such modified or new security requirement, specification or event reporting procedures shall become effective [***] after Notice thereof from American.

I. Definitions. As used in this Exhibit D, the terms set forth in this Section I shall have the meanings provided herein.

“Security Policies” shall mean statements of direction for securing company information pertaining to Security Best Practices and mandating compliance with applicable laws and regulations. Typically, Security Policies are high level instructions to management on how the organization is to be run with respect to Security Best Practices.

“Security Procedures” shall mean statements of the step-by-step actions taken to achieve and maintain compliance with Security Best Practices.

“Security Technical Controls” shall mean any specific hardware, software or administrative mechanisms necessary to enforce Security Best Practices in accordance with the terms of this Agreement as methods for addressing security risks to information technology systems and relevant physical locations, or implementing related policies. Security Technical Controls specify technologies, methodologies, implementation procedures, and other detailed factors or other processes to be used to implement Security Policy elements relevant to specific groups, individuals, or technologies.

II. Information Security Policy. Contractor specifically represents and warrants that it has established, and during the Term it will at all times enforce:

A. an ongoing program of Security Policies, Security Procedures, and Security Technical Controls;

B. a Security Incident management program;

C. a security awareness program;

D. business continuity and recovery plans, including regular testing;

E. rigorous change control procedures; and

F. procedures to conduct periodic independent security risk evaluations to identify critical information assets, assess threats to such assets, determine potential vulnerabilities, and provide for timely remediation.

III. Physical Access. Contractor specifically represents and warrants that it has established, and during the Term it will at all times enforce:

A. physical protection mechanisms for all information assets and information technology to ensure such assets and technology are stored and protected in appropriate data centers;

B. appropriate facility entry controls are in place to limit physical access to systems that store or process data;

C. processes to ensure access to facilities is monitored and restricted on a “need to know” basis; and

D. controls to physically secure all Confidential Information and to properly destroy such information when it is no longer needed.

IV. Logical Access. Contractor specifically represents and warrants that it has established, and during the Term it will at all times enforce:

A. appropriate mechanisms for user authentication and authorization in accordance with a “need to know” policy;

B. controls to enforce rigorous access restrictions for remote users, contractors and service providers;

C. timely and accurate administration of user account and authentication management;

D. processes to ensure assignment of unique ID to each person with computer access;

E. processes to ensure Contractor-supplied defaults for passwords and security parameters are changed and appropriately managed ongoing;

F. mechanisms to track all access to Confidential Information by unique ID;

G. mechanisms to encrypt or hash all passwords; and

H. processes to immediately revoke accesses of inactive accounts or terminated/transferred users.

V. Security Architecture and Design. Contractor specifically represents and warrants that it has established, and during the Term it will at all times maintain:

A. a security architecture that reasonably assures delivery of Security Best Practices;

B. documented and enforced technology configuration standards;

C. processes to encrypt Confidential Information in transmission and storage;

D. processes to ensure regular testing of security systems and processes;

E. a system of effective firewall(s) and intrusion detection technologies necessary to protect Confidential Information; and

F. database and application layer design processes that ensure web site applications are designed to protect the information data that is collected, processed, and transmitted through such systems.

VI. System and Network Management. Contractor specifically represents and warrants that it has established, and during the Term it will at all times maintain:

A. mechanisms to keep security patches current;

B. processes to monitor, analyze, and respond to security alerts;

C. appropriate network security design elements that provide for segregation of data;

D. regular update anti-virus software and use the same; and

E. processes to regularly verify the integrity of installed software.

American Airlines, Inc.’s Proprietary Rights and Data Security Addendum

American Airlines, Inc. and its Affiliates (collectively, “American”) have invested extensive time, money and specialized resources into developing, collecting and establishing American’s tangible and intangible proprietary assets. This Proprietary Rights and Data Security Addendum (this “Addendum”) identifies and acknowledges American’s proprietary rights, establishes baseline commitments regarding data privacy and security and represents a set of standard terms applicable to service providers and business partners when they enter into contracts with American. This Addendum forms part of the contract with American which references this Addendum (such contract with American is referred to as the “Agreement”, and the other party or parties to that Agreement with American is referred to as “You” or “Your” solely for purposes of this Addendum). Capitalized terms used in this Addendum are defined in this Addendum. Without limiting the obligations set forth in the Agreement (including but not limited to Sections 14.06 and 14.07), this Addendum sets forth Your obligations with respect to proprietary rights and security required by American. In the event of a conflict between the terms of this Addendum and the rest of the Agreement, or in the event of any duplication in terms or definitions in this Addendum, the terms of this Addendum will override and only the definitions in this Addendum will be used in interpreting this Addendum; provided that, terms and provisions not addressed in this Addendum shall not be deemed to be in conflict with the Agreement, and all such additional terms and provisions contained in the Agreement shall be given full force and effect. You are responsible for ensuring compliance with the terms of this Addendum by Your employees, agents and contractors and all of the restrictions and obligations in this Addendum that apply to You, including all confidentiality and data privacy and security obligations, should be read as also applying to Your employees, agents and contractors. All references to contractors in this Addendum will include subcontractors, but You are still required to comply with any limitations on subcontracting that may be contained in the Agreement and this Addendum. The term “including” or “includes” means including without limiting the generality of any description to which such term relates.

I. PROPRIETARY RIGHTS.

A. American Marks, Patents and Copyrights. All of American’s trademarks, trade names, service marks, logos, symbols, images, trade dress and American Identifiers (collectively, the “American Marks”), American’s inventions and patent rights (“American Patents”), and copyright works created by or for American and/or that may bear American’s copyright notice (the “American Copyright Works”), are part of American’s intellectual property and are owned solely and exclusively by American. “American IP” means collectively, American Marks, American Patents, American Copyright Works, American trade secrets and confidential information, and any intellectual property rights in and to any of the foregoing. American IP also includes all of the foregoing that pertain to Affiliates of American Airlines, Inc., including other airline brands owned or operated by such Affiliates or American Airlines, Inc. More information about American IP is available on https://www.AA.com. Except for any express permissions in the Agreement, You may not use or reproduce American IP. If You are granted permissions to use American Marks, then You agree to go to https://brand.aa.com/login/ to download the .jpeg of the approved American Marks and to comply with the American design guidelines and the further terms and conditions posted on https://brand.aa.com/login/. You agree not to: (i) use or register any domain name that is identical to or confusingly similar to any of the American Marks; (ii) create, acquire, license, or support any internet keyword or search term that contains any American Marks or other American IP; or (iii) collect, use or reproduce American Identifiers, or combine American Identifiers with other data, unless such collection, use or reproduction has been expressly authorized by American in an affirmative statement or writing from American.

B. American Trade Secrets, Confidential Information and Data Security. American relies on many trade secrets and types of confidential information. American Data is confidential information of American and in many instances this information is protected as a trade secret. The Agreement includes details regarding the parties’ confidentiality obligations. In addition to any obligations set forth in the Agreement, You must comply with all the requirements set forth in this Addendum.

C. American Data. As between You and American (i.e., without addressing rights of Third Parties), American Data is solely owned by American, including all rights, title and interest in and to American Data. Except for any Permitted Data Uses in the Agreement, You may not use, edit, modify, create derivatives, combinations or compilations of, combine, associate, synthesize, re-identify, reverse engineer, reproduce, display, distribute, disclose, sell or otherwise Process any American Data. You agree not to breach any restrictions, if any, that apply to Other American Data in the Agreement or any other agreements to which You are a party. In consideration of the business relationship being established by the Agreement, You agree not to use American Data or Other American Data in a manner that is harmful to American. You are not authorized to agree to Third Party terms and conditions that would assign, transfer, or license American Data, Other American Data or American’s proprietary rights in American Data or Other American Data to a Third Party or otherwise negatively impact American’s proprietary rights to American Data or Other American Data, unless such Third Party arrangements are identified as being Permitted Data Uses and have been approved by American.

D. No Implied Rights. No right, license, permission, or ownership or other interest of any kind in or to the American IP, American Data or Other American Data is or is intended to be given or transferred to or acquired by You except as expressly stated in writing in the Agreement.

E. Prohibited Internet Practices. You shall not, and shall not authorize or encourage any Third Party to, directly or indirectly: (i) use any automated, deceptive or fraudulent means to generate impressions, click-throughs, or any other actions in relation to advertisements or Internet promotions on American Electronic Properties or in relation to advertisements or Internet promotions of American (or its products or services) on Third Party websites; or (ii) collect or Process data from an American Electronic Property other than as has been expressly authorized by American in the Agreement or another written agreement with American. American does not generally authorize so called “screen-scraping” of American Electronic Properties and any automated extraction of data from American Electronic Properties or tracking of activity on American Electronic Properties may only be conducted with the prior Consent of American.

II. DATA PRIVACY AND SECURITY.

A. General. The types of American Data, the categories of Data Subjects to whom that American Data relate, and the Processing operations carried out by You pursuant to the Agreement are as set out on Schedule 1 to this Addendum. The duration of the Processing shall be for the Term of or as permitted by the Agreement. The subject-matter and the objective of the Processing shall be the Processing of American Data as necessary for You to perform the services to American pursuant to the Agreement.

B. Security Requirements. You shall apply reasonable organizational, physical, technical and administrative safeguards for American Data that is in Your possession or under Your control in order to protect the same from unauthorized Processing that would violate the Agreement, this Addendum or any Data Law. You represent, warrant and covenant that the Security Policies, Security Procedures and Security Technical Controls as they pertain to the services being rendered to American by You or Your subcontractors and any Processing of American Data by You or Your subcontractors shall at all times be (i) in material compliance with

all Data Laws, and (ii) consistent in all material respects with the guidelines, principles or frameworks embodied in (A) ISO 27001 and ISO 27002, (B) if applicable, the most current Payment Card Industry Data Security Standard (the “PCI DSS”) and (C) industry standard practices (such Data Laws, guidelines, principles and frameworks, collectively, the “Security Requirements”). Notwithstanding the foregoing, You understand and agree that such reasonable organizational, physical, technical and administrative safeguards may include, as appropriate, and if applicable, the requirements set forth in Article 32(1) of the General Data Protection Regulation. In addition, You shall require any of Your employees, agents or contractors with access to American Data to adhere to the Security Requirements, and to maintain the confidentiality of any American Data in accordance with the terms of the Agreement. You certify that such employees, agents and contractors have not experienced any circumstances or events that are inconsistent with the Security Requirements during the last [***]. You agree that the controls used to safeguard American Data in Your possession or control will take into account the sensitivity of such information and the risks presented by a Security Incident.

C. American Instructions. You agree that You, and any of Your employees, agents and contractors acting under Your authority who have access to American Data, will Process American Data only: (i) on behalf of American and in accordance with Data Laws and as specifically documented and instructed by American (including with regard to the transfers of American Data to a third country or an international organization); or (ii) as otherwise required by Data Law to which You are subject, in which case You shall promptly provide American with Notice of that legal requirement before Processing American Data, unless that law prohibits such notification on important grounds of public interest.

D. Notice of Legal Obligations. You shall promptly provide Notice to American if, in Your opinion, an instruction to Process American Data infringes upon any requirement under any Data Law.

E. Assistance with Compliance Obligations. You shall promptly provide American with Notice of Your receipt of any communication, inquiry, request, or complaint from any Third Party, including a public authority or a Data Subject, relating to the Processing by You of any American Data. You shall reasonably cooperate with American to resolve any such communication, inquiry, request or complaint. In addition, You shall assist and cooperate with American in fulfilling its obligations under Data Law with regard to the Processing of American Data by You on American’s behalf, as applicable, including:

i. Assisting American to comply with any request from any Data Subject to access, correct, delete, restrict Processing of, block or receive American Personal Data relating to him or her by providing American with the ability to take these actions directly or by doing so on American’s behalf;

ii. Agreeing to cooperate, upon request, with the inquiry of any applicable regulatory or supervisory authority relating to Your Processing of American Data; and

iii. Assisting American, upon request, with carrying out data protection impact assessments and engaging in prior consultations with regulatory or supervisory authorities relating to the Processing of American Data pursuant to the Agreement and where required by any Data Law.

F. Data Segregation and Access. You shall physically or logically segregate stored American Data from other data and shall ensure that access to American Data is restricted to only authorized personnel through security measures. You shall establish and maintain appropriate internal policies, procedures and systems that are reasonably designed to prevent the inappropriate use or disclosure of American Data.

G. PCI Compliance. If You Process payment card data, cardholder data, or sensitive authentication data on behalf of American or if You otherwise can impact the security of said data belonging to American, (i) You are responsible for the security of said data; (ii) You represent and warrant that You have performed an assessment to confirm that the material aspects of Your Security Policies, Security Procedures and Security Technical Controls (as they pertain to the services being rendered to American by You or Your subcontractors and any Processing of American Data by You or Your subcontractors) comply with the PCI DSS, and You shall repeat this assessment each year during the Term of the Agreement; and (iii) You shall provide certification of compliance with this Section G upon request from American.

H. [***]

I. Transfer of American Personal Data. You shall not transfer American Personal Data from any jurisdiction to any other jurisdiction (the EEA and the United States each constituting a single jurisdiction for this purpose) without the prior Consent of American and, if applicable, without putting in place an appropriate data transfer agreement or other mechanism appropriate to comply with any Data Law. Without limitation to the foregoing, before You receive (in a jurisdiction that has not, at the time of the applicable transfer, been deemed to have adequate protections under the General Data Protection Regulation) any American Personal Data directly from an American branch office or Affiliate established in the EEA or Switzerland (each, an “Exporter”) pursuant to the Agreement, You shall promptly execute the Model Clauses with the applicable Exporter in relation to any transfers of such American Personal Data. For the avoidance of doubt, You shall comply with both the terms of this Addendum and the terms of the Model Clauses when Processing such American Personal Data on behalf of the applicable Exporter(s); provided, however, in the event of a conflict between this Addendum and the Model Clauses, the terms of the Model Clauses shall control and govern. In the event that the then-current Model Clauses are invalidated as a valid data transfer agreement or other mechanism under any Data Law, You shall promptly work in good faith with American to put in place a replacement data transfer agreement or other mechanism appropriate to comply with any Data Law (e.g., You become certified under the applicable Privacy Shield Framework(s) or execute successor Model Clauses) as determined by American in its sole discretion.

J. Disclosure of American Data to Third Parties. You shall not disclose American Data to Third Parties (including subcontractors) except where such disclosure:

i. is required by Data Law, in which case You will, whenever possible, provide American with Notice and a reasonable opportunity to respond prior to complying with any such request for disclosure and shall comply with all reasonable directions of American with respect to such disclosure; or

ii. is to a subcontractor necessary for You to perform the services to American pursuant to the Agreement, You have received the prior written approval of American and You have entered into a written, valid and enforceable agreement with the subcontractor that includes terms that are substantially similar to the obligations applicable to the Processing of American Data contained in this Addendum. You shall remain responsible for any breach of the obligations set forth in this Addendum and any violation of any Data Law, if applicable, by such subcontractor to the same extent as if You had caused such breach or violation.

K. Security Reviews and Audits. You shall maintain a complete audit trail of all Processing activities associated with American Data. You shall, upon request, promptly provide American with all necessary materials, documents, assessments and other information, including reports of any audits performed on Your Security Policies, Security Procedures or Security Technical Controls and any compliance certifications of Your agents and contractors, to enable American to confirm that You have complied with Your obligations under Data Law and this Addendum. You shall respond within a reasonable time period to any inquiries from American relating to Your and Your agents’ and contractors’ Processing activities related to American Data, including Security Policies, Security Procedures and Security Technical Controls. You shall, at any time and from time to time during the Term of the Agreement, provide American or American’s representatives access to Your and Your agents’ and contractors’ systems, records, processes and practices that involve Processing of American Data so that an audit may be conducted. American shall not exercise such audit right more frequently than [***] per [***] period and American shall [***].

L. Security Incidents. You shall promptly, and in any case no later than [***], provide American with Notice of such Security Incident which includes information about the Security Incident, including, where possible, the categories and approximate number of Data Subjects concerned and the categories and approximate number of American Data records concerned, the impact and likely consequences on American and the affected Data Subjects of the Security Incident, and the corrective action taken or to be taken by You. If You are unable to provide Notice to American within [***], You shall provide American with reasons for the delay. Following [***], You shall (i) consult in good faith with American regarding Remediation Efforts that may be necessary and reasonable, (ii) [***], (iii) ensure that such Remediation Efforts provide for, without limitation, prevention of the recurrence of the same type of Security Incident, and (iv) reasonably cooperate with any Remediation Efforts undertaken by American.

M. Notice to American Customers and Employees. Any notifications to American customers or employees regarding Security Incidents will be handled exclusively by American, unless otherwise directed by American, and You may not under any circumstances contact American customers or employees relating to such Security Incident unless You are under a legal obligation to do so, in which event (i) You must provide American with Notice promptly after concluding that You have the legal obligation to notify such American customers or employees, and explain in such Notice the basis for the legal obligation; and (ii) You shall limit the notices to such American customers and employees to those required by the legal obligation or as approved by American. You shall reasonably cooperate in connection with notices to American customers and employees regarding a Security Incident and You shall assist with sending such notices if so requested by American. To the extent that any notices to American customers or employees references You, no such reference will be included unless it is either required by law or pre-approved by You.

III. ADDITIONAL TERMS.

A. Equitable Relief. You agree that American will have no adequate remedy at law if there is a breach or threatened breach of any of the restrictions or limitations on Your access, use or other Processing of American IP, American Data or Other American Data or breach or threatened breach of Your security obligations and, accordingly, that American (in addition to any legal or other remedies available to American) may seek injunctive or other equitable relief to prevent or remedy such breach without requirement of a bond or notice and You agree not to object or defend against such action on the basis that monetary damages would provide an adequate remedy.

B. Intentionally Omitted.

C. Liability for Security Incidents. You shall indemnify and hold harmless American and its officers and employees from and against any and all allegations, claims, demands, costs, expenses (including attorneys’ fees and disbursements), losses, liabilities, penalties, fines, settlements or damages (collectively, “Data Claims”) arising out of or relating [***]. Your obligations in this Section C are in addition to any indemnification or similar obligations You may have under the Agreement. The rights and remedies of American under this Addendum will not be subject to any limitation or exclusion of actions or remedies or any other similar limiting provisions stated in the Agreement. [***].

D. [***].

E. Changes in Law. In the event that any change in Data Law which affects (i) American’s ability to lawfully use any of Your services for their intended purposes, or (ii) Your ability to lawfully perform any of Your services for their intended purposes, then in each case, You agree to negotiate in good faith with American any additions or changes to this Addendum that may be necessary or appropriate to enable American’s continued lawful use of and benefit from such services.

IV. DEFINITIONS.

A. Definitions. The following terms will have the meanings described below in this Addendum.

“American Electronic Property” means (i) the web site located at the URL www.aa.com and any other web site controlled by American, (ii) any American mobile device apps, (iii) any other sites, apps, kiosks or other properties for consumer interaction that are owned or controlled by American, including emails with linked content and mini-sites, and (iv) versions and successors of the foregoing, in any form or format now known or later developed, that may be used by American customers.

“American Identifiers” means all data or information, including indicators, that identifies and relates solely to American or a product or service of American (e.g., AAdvantage or Admirals Club membership number or a designation of a passenger as an “EXP” or “Executive Platinum” member of the AAdvantage program) and any derivatives of such data (e.g., converting an AAdvantage number or EXP status to a code or number that identifies an individual as an AAdvantage member or Executive Platinum level member). If American Identifiers are provided, obtained, developed, produced or Processed by You or Your systems in connection with the relationship or arrangements established by the Agreement then those American Identifiers are a subcategory of American Data, and if not, then they are a subcategory of Other American Data.

“American Personal Data” means any and all Personal Data that You Process on behalf of American in connection with the relationship or arrangements established by the Agreement.

“Control” (including, with correlative meanings, the terms “Controlled by” and “under common Control with”), means the possession, directly or indirectly, of the power to direct or exercise a controlling influence over the management or policies of such entity, whether through the ownership of voting securities, by contract or otherwise.

“Data Law” means, as in effect from time to time, any law, rule, regulation, declaration, decree, directive, statute or other enactment, order, mandate or resolution, which is applicable to either You or American, issued or enacted by any domestic or foreign, supra-national, national, state, county, municipal, local, territorial or other government or bureau, court, commission, board, authority, or agency, anywhere in the world, relating to data security, data protection and/or privacy, including the General Data Protection Regulation.

“Data Subject” means an identified or identifiable natural person. An identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person.

“EEA” means the European Economic Area.

“General Data Protection Regulation” means Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and any implementing, derivative or related legislation, rule, regulation, and regulatory guidance, as amended, extended, repealed and replaced, or re-enacted from time to time.

“Model Clauses” means the standard contractual clauses for the transfer of Personal Data from the EEA to processors established in third countries which do not ensure an adequate level of data protection, as set out in the Annex to Commission Decision 2010/87/EU, or successors thereto.

“Other American Data” means any data or other information from any source that is not provided, obtained, developed, produced or Processed by You or Your systems in connection with the relationship or arrangements established by the Agreement (and thus does not fall within the definition of American Data) but that does identify or can be used to identify American, American’s products and services, or a Person (or a computer or device of such Person) in their capacity as an American customer. For example, an Internet tracking device, such as a cookie, that is dropped onto a passenger’s computer after visiting aa.com would be Other American Data if Processing of such cookies is not the subject of the Agreement.

“Permitted Data Uses” means the express permissions to use American Data specified in the Agreement.

“Personal Data” means any information relating to a Data Subject.

“Process” or “Processing” means any operation or set of operations that is performed upon American Data or Other American Data, whether or not by automatic means, including, but not limited to, obtaining, developing, producing, collecting, recording, organizing, structuring, accessing, using, adapting, altering, modifying, retrieving, consulting, copying, reproducing, analyzing, disclosing, disseminating, making available, aligning, combining, blocking, restricting, transmitting, transferring, selling, renting, storing, retaining, destroying, deleting, or erasing such data. For the avoidance of doubt, “Process” or “Processing” includes the compilation or correlation of American Data with information from other sources and the application of algorithmic analysis to create new or derivative data sets from American Data.

“Remediation Efforts” means, with respect to any Security Incident, activities designed to remedy a Security Incident which may be required by a Data Law or which may otherwise be necessary, reasonable or appropriate under the circumstances, commensurate with the nature of such Security Incident. Remediation Efforts may include: (i) development and delivery of legal notices to affected individuals or other Third Parties; (ii) establishment and operation of toll-free telephone numbers (or, where toll-free

telephone numbers are not available, dedicated telephone numbers) for affected individuals to receive specific information and assistance; (iii) procurement of credit monitoring, credit or identity repair services and identity theft insurance from Third Parties that provide such services for affected individuals; (iv) provision of identity theft insurance for affected individuals; (v) cooperation with and response to regulatory, government and/or law enforcement inquiries and other similar actions; (vi) undertaking of investigations (internal or in cooperation with a governmental body) of such Security Incident, including forensics; and [***].

“Security Incident” means [***].

Schedule 1 to Exhibit D

DESCRIPTION OF DATA PROCESSING

1. Categories of American Data

The American Data concern the following categories:

[***]

2. Categories of Data Subjects

The American Data concern the following categories of individuals:

[***]

3. Processing activities

The American Data will be subject to the following Processing activities:

[***]

EXHIBIT E

STANDARDS OF FACILITIES USE

I. Standards. In connection with Contractor’s license to use of the American Facilities, Contractor shall:

(i) comply with the provisions of any agreement or understanding governing American’s or an American Affiliate’s ownership, lease, sublease, use, license of the American Facilities to the extent any American Facilities are then being used by Contractor (the “American Facilities Agreements”; provided that American shall provide Contractor with prior Notice of any such agreement or understanding, or summaries of the relevant terms thereof, which Notice shall be delivered no later than [***] prior to Contractor’s required compliance therewith, unless American is given less than [***] notice from any Third Party of such agreement or understanding, in which case American shall provide Contractor with such Notice reasonably promptly thereafter and; provided further that such American Facilities Agreements shall not impose material duties and obligations upon Contractor that are substantially greater than those imposed on American by agreements or understandings that American has entered into with Third Parties related to the ownership, lease, sublease, use, and/or license of the American Facilities), but excluding, in all events, any obligation to make payments thereunder;

(ii) not cause there to be any breaches or violations of any of the provisions of the American Facilities Agreements due to action or inaction by Contractor or any Contractor Agents;

(iii) promptly remedy any breach or violation of any provision of the American Facilities Agreements upon Notice from American to the extent caused by or resulting from any actions taken by Contractor or any Contractor Agents;

(iv) promptly observe, obey and execute the provisions of any and all present and future rules, regulations, procedures, orders, and directives issued by American attributable to any American Facilities then used by Contractor; provided that American shall provide Contractor with prior Notice of any such rules, regulations, procedures, orders, and directives, which Notice shall be delivered no later than [***] prior to Contractor’s required compliance therewith;

(v) promptly observe, obey and execute the provisions of any and all present and future laws, rules, regulations, requirements, orders and directives promulgated by any applicable Governmental Authority or airport authority to the extent then applicable to Contractor’s use or occupancy of such American Facilities; provided that American shall provide Contractor with Notice of requirements of an airport authority to the extent such Notice is delivered by such authority to American, which Notice shall be delivered no later than [***] prior to Contractor’s required compliance therewith, and; provided further that any reasonable and documented out-of-pocket costs actually incurred by Contractor in connection therewith shall be [***];

(vi) procure from all applicable airport authorities and Governmental Authorities all licenses, certificates, permits or other authorizations that may be necessary or required for the conduct of Contractor’s operations at any such American Facilities;

(vii) cooperate with American to obtain any applicable consents or approvals required with respect to Contractor’s use of any such American Facilities;

(viii) conduct its operations at such American Facilities in accordance with the rules, regulations, and requirements of the applicable airport authority;

(ix) with respect to American Facilities then used by Contractor or any Contractor Agent, control the conduct, demeanor and appearance of Contractor Agents so as to maintain high professional standards and to avoid disruption to or interference with the operations of American, or others, and upon objection from American or the applicable airport authority concerning the conduct, demeanor, or appearance of such Person, immediately take all steps necessary to resolve such objections;

(x) keep the American Facilities then used by Contractor free from dirt, trash, debris and otherwise in a clean, neat and orderly condition at all times and not cause any damage to the American Facilities, normal wear and tear excepted; provided that the foregoing shall not relieve American from providing routine janitorial services with respect to the foregoing;

(xi) Intentionally Omitted;

(xii) with respect to American Facilities then used by Contractor or Contractor Agents, conduct their operations in such manner that at no time will it do or knowingly permit to be done any act or thing upon such American Facilities that will invalidate or conflict with any fire and casualty insurance policies covering such American Facilities, or any part thereof, or which may create a hazardous condition so as to increase the risk normally attendant upon Contractor’s operations contemplated hereunder, and promptly observe and comply in all material respects with any and all present and future rules and regulations, requirements, orders and directions of the Fire Underwriters Association or of any other board or organization which may exercise similar functions; and

(xiii) with respect to American Facilities then used by Contractor or Contractor Agents, as directed by American, use commercially reasonable efforts to provide any Person with access at any reasonable time, subject to applicable security requirements or restrictions.

It is intended that the standards and obligations imposed by this Section I shall be maintained or complied with by Contractor in all material respects in addition to its required compliance with any applicable laws, ordinances and regulations promulgated by any applicable airport authority or Governmental Authority that is currently in effect or which may be enacted.

II. Utilities, Maintenance, and Repairs.

A. [***]

B. [***]

C. Notwithstanding the above, Contractor shall, [***], and in a manner reasonably acceptable to American, repair any damage to the American Facilities caused by any act or omission of Contractor, its officers, directors, employees, agents, customers, concessionaires, vendors, contractors, or invitees, normal wear and tear excepted.

III. Modifications and Preparations.

A. Contractor shall not make any modifications or alterations to the American Facilities without the express Consent of American.

B. [***]

C. [***]

D. Upon cessation of Contractor’s right to use the American Facilities for whatever reason, Contractor shall remove all of Contractor’s equipment or other personal property, remove any modifications or other alterations to such American Facilities unless otherwise instructed by American in writing, and surrender such American Facilities to American in a clean, neat, and orderly condition, without any damage, normal wear and tear excepted.

IV. Furniture.

A. [***]

V. Sublease.

A. To the extent anything in this Exhibit E conflicts with any Sublease, such Sublease shall control.

EXHIBIT F

CREW FORECAST TEMPLATES

[***]

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine R. Deister, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Harbor Diversified, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 21, 2022	By:	/s/ Christine R. Deister
		Christine R. Deister
		Chief Executive Officer and Secretary
		Harbor Diversified, Inc.
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Liam Mackay, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Harbor Diversified, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 21, 2022	By:	/s/ Liam Mackay
		Liam Mackay
		Chief Financial Officer
		Air Wisconsin Airlines LLC
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certifications are hereby made in connection with the Quarterly Report on Form 10-Q of Harbor Diversified, Inc. (the “Company”) for the period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”):

I, Christine R. Deister, Principal Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“SOX”), that, to my knowledge, (i) the Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.

Date: November 21, 2022	By:	/s/ Christine R. Deister
		Christine R. Deister
		Chief Executive Officer and Secretary
		Harbor Diversified, Inc.
		(Principal Executive Officer)

I, Liam Mackay, Principal Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of SOX, that, to my knowledge, (i) the Report fully complies with the requirements of Section 15(d) of the Exchange Act, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.

Date: November 21, 2022	By:	/s/ Liam Mackay
		Liam Mackay
		Chief Financial Officer
		Air Wisconsin Airlines LLC
		(Principal Financial Officer)

The preceding certifications accompany the Report pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of SOX, shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act, and shall not be incorporated by reference into any of the Company’s filings under the Securities Act or the Exchange Act, whether made before or after the date of the Report, irrespective of any general incorporation language contained in any such filing. A signed original of this written statement required by Section 906 of SOX has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover	9 Months Ended
	Sep. 30, 2022 shares
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Entity Registrant Name	HARBOR DIVERSIFIED, INC.
Entity Central Index Key	0000899394
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Interactive Data Current	Yes
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity File Number	001-34584
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	13-3697002
Entity Address Address Line1	W6390 Challenger Drive
Entity Address Address Line2	Suite 203
Entity Address City Or Town	Appleton
Entity Address Postal Zip Code	54914-9120
Entity Address State Or Province	WI
City Area Code	920
Local Phone Number	749-4188
Entity Common Stock, Shares Outstanding	45,652,266

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current Assets
Cash and cash equivalents	$ 19,013	$ 37,170
Restricted cash	418	1,449
Marketable securities	130,517	138,370
Accounts receivable, net	33,272	7,422
Notes receivable	60,315	0
Spare parts and supplies, net	4,404	5,200
Contract costs	258	518
Prepaid expenses and other	2,776	4,174
Total Current Assets	250,973	194,303
Property and Equipment
Flight property and equipment	262,237	259,720
Ground property and equipment	7,895	8,252
Less accumulated depreciation and amortization	(163,336)	(143,313)
Net Property and Equipment	106,796	124,659
Other Assets
Operating lease right-of-use asset	14,789	18,679
Intangibles	5,300	5,300
Long-term deferred tax asset	616	533
Long-term investments	4,275	4,275
Long-term contract costs	0	96
Long-term notes receivable	0	47,568
Other	1,687	3,988
Total Other Assets	26,667	80,439
Total Assets	384,436	399,401
Current Liabilities
Accounts payable	16,593	20,060
Accrued payroll and employee benefits	13,057	14,885
Current portion of operating lease liability	5,078	5,150
Other accrued expenses	253	172
Contract liabilities	3,576	8,098
Deferred revenue	22,318	35,792
Income taxes payable	4,633	0
Current portion of long-term debt (stated principal amount of $7,000 at September 30, 2022 and $3,500 December 31, 2021)	9,224	5,880
Total Current Liabilities	74,732	90,037
Other Long-Term Liabilities
Long-term debt (stated principal amount of $52,100 at September 30, 2022 and $56,000 at December 31, 2021)	56,089	61,670
Long-term promissory note	4,275	4,275
Deferred tax liability	653	688
Long-term operating lease liability	7,100	10,877
Long-term contract liabilities	0	1,326
Deferred revenue, net of current portion	0	9,046
Other	2,757	2,722
Total Long-Term Liabilities	70,874	90,604
Total Liabilities	145,606	180,641
Commitments and Contingencies (Note 8)
Series C Convertible Redeemable Preferred Stock, $0.01 par value, 4,000,000 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021	13,200	13,200
Stockholders' Equity
Common Stock, $0.01 par value, 100,000,000 shares authorized, 55,481,140 shares issued at September 30, 2022 and December 31, 2021, 45,652,266 shares outstanding at September 30, 2022 and 53,316,299 shares outstanding at December 31, 2021	555	555
Additional paid-in capital	285,866	287,429
Retained deficit	(46,778)	(79,144)
Treasury stock	(14,013)	(3,280)
Total Stockholders' Equity	225,630	205,560
Total Liabilities and Stockholders' Equity	$ 384,436	$ 399,401

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current portion of long-term debt principal amount	$ 7,000	$ 3,500
Non-current portion of long term debt principal amount	$ 52,100	$ 56,000
Common stock par value	$ 0.01	$ 0.01
Common stock share authorized	100,000,000	100,000,000
Common stock share issued	55,481,140	55,481,140
Common stock share outstanding	45,652,266	53,316,299
Series C Redeemable Convertible Preferred Stock [Member]
Temporary equity par value	$ 0.01	$ 0.01
Temporary equity shares authorized	4,000,000	4,000,000
Temporary equity shares issued	4,000,000	4,000,000
Temporary equity shares outstanding	4,000,000	4,000,000

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Operating Revenues
Total Operating Revenues	$ 68,410	$ 71,887	$ 213,315	$ 174,521
Operating Expenses
Payroll and related costs	26,801	29,056	81,096	76,819
Aircraft fuel and oil	49	51	134	108
Aircraft maintenance, materials and repairs	17,494	13,877	48,331	37,489
Aircraft rent	0	0	0	67
Other rents	1,617	1,572	4,887	3,757
Depreciation, amortization and obsolescence	6,639	6,570	19,957	19,569
Payroll Support Program	0	(16,146)	0	(66,316)
Purchased services and other	3,310	3,684	10,589	9,944
Total Operating Expenses	55,910	38,664	164,994	81,437
Income From Operations	12,500	33,223	48,321	93,084
Other (Expense) Income
Interest income	840	611	2,102	1,437
Interest expense	0	(138)	0	(827)
Loss on marketable securities	(3,749)	(92)	(9,774)	(106)
Gain on extinguishment of debt	53	10,135	53	10,363
Other, net	885	566	1,786	634
Total Other (Expense) Income	(1,971)	11,082	(5,833)	11,501
Net Income Before Taxes	10,529	44,305	42,488	104,585
Income Tax Expense	2,507	8,026	10,122	22,560
Net Income	8,022	36,279	32,366	82,025
Preferred stock dividends	198	198	594	594
Net income available to common stockholders	$ 7,824	$ 36,081	$ 31,772	$ 81,431
Basic Earnings per share	$ 0.17	$ 0.67	$ 0.68	$ 1.49
Diluted Earnings per share	$ 0.13	$ 0.51	$ 0.5	$ 1.14
Weighted Average Common Shares:
Basic	45,776	54,153	46,637	54,491
Diluted	62,276	71,155	63,268	71,468
Contract Revenues [Member]
Operating Revenues
Total Operating Revenues	$ 68,389	$ 71,866	$ 213,280	$ 174,467
Contract Service and Other [Member]
Operating Revenues
Total Operating Revenues	$ 21	$ 21	$ 35	$ 54

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Repurchased Stock [Member]	Preferred Stock [Member] Mezzanine Equity Series C Convertible Redeemable Preferred Stock [Member]
Beginning Balance at Dec. 31, 2020	$ 116,525	$ 555		$ 288,221	$ (171,770)	$ (481)	$ 13,200
Beginning balance, Shares at Dec. 31, 2020		54,863,000	618,000				4,000,000
Net income	82,025				82,025
Dividend	(594)			(594)
Treasury stock purchases, Value	(1,188)		$ 723			(1,188)
Treasury stock purchases, Shares		(723)
Ending Balance at Sep. 30, 2021	196,768	$ 555		287,627	(89,745)	(1,669)	$ 13,200
Ending balance, shares at Sep. 30, 2021		54,140,000	1,341,000				4,000,000
Beginning Balance at Jun. 30, 2021	160,987	$ 555		287,825	(126,024)	(1,369)	$ 13,200
Beginning balance, Shares at Jun. 30, 2021		54,270,000	1,211,000				4,000,000
Net income	36,279				36,279
Dividend	(198)			(198)
Treasury stock purchases, Value	(300)		$ 130			(300)
Treasury stock purchases, Shares		(130)
Ending Balance at Sep. 30, 2021	196,768	$ 555		287,627	(89,745)	(1,669)	$ 13,200
Ending balance, shares at Sep. 30, 2021		54,140,000	1,341,000				4,000,000
Beginning Balance at Dec. 31, 2021	205,560	$ 555		287,429	(79,144)	(3,280)	$ 13,200
Beginning balance, Shares at Dec. 31, 2021		53,316,000	2,165,000				4,000,000
Net income	32,366				32,366
Dividend	(594)			(594)
Cancellation of stock option	(969)			(969)
Treasury stock purchases, Value	(10,733)		$ 7,664			(10,733)
Treasury stock purchases, Shares		(7,664)
Ending Balance at Sep. 30, 2022	225,630	$ 555		285,866	(46,778)	(14,013)	$ 13,200
Ending balance, shares at Sep. 30, 2022		45,652,000	9,829,000				4,000,000
Beginning Balance at Jun. 30, 2022	218,605	$ 555		286,064	(54,800)	(13,214)	$ 13,200
Beginning balance, Shares at Jun. 30, 2022		46,016,000	9,465,000				4,000,000
Net income	8,022				8,022
Dividend	(198)			(198)
Treasury stock purchases, Value	(799)		$ 364			(799)
Treasury stock purchases, Shares		(364)
Ending Balance at Sep. 30, 2022	$ 225,630	$ 555		$ 285,866	$ (46,778)	$ (14,013)	$ 13,200
Ending balance, shares at Sep. 30, 2022		45,652,000	9,829,000				4,000,000

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash Flows From Operating Activities
Net income	$ 32,366	$ 82,025
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and obsolescence allowance	19,957	19,569
Amortization of contract costs	(3,314)	(2,428)
Amortization of engine overhauls	2,098	1,364
Deferred income taxes	(118)	133
Loss on disposition of property and equipment	62	40
Loss on marketable securities	9,774	106
Gain on extinguishment of debt	(53)	(10,363)
Changes in operating assets and liabilities:
Accounts receivable	(25,850)	(2,425)
Notes Receivable	(12,747)	(13,699)
Spare parts and supplies	(149)	229
Prepaid expenses and other	3,699	(4,884)
Operating lease right-of-use asset	41	182
Accounts payable	(3,467)	5,109
Accrued payroll and employee benefits	(1,828)	(1,011)
Other accrued expenses	81	84
Long-term deferred revenue	(9,046)	(11,938)
Contract liabilities	(2,534)	(7,117)
Deferred revenue	(13,474)	27,961
Income taxes payable	4,633	(107)
Other long-term liabilities	35	(1)
Net Cash Provided by Operating Activities	166	82,829
Cash Flows From Investing Activities
Additions to property and equipment	(2,963)	(1,349)
Proceeds on disposition of property and equipment	10	15
Purchase of marketable securities	(1,921)	(204,126)
Sale of marketable securities		77,477
Net Cash Used in Investing Activities	(4,874)	(127,983)
Cash Flows From Financing Activities
Repayments of long-term debt	(2,184)	(39,466)
Dividends paid	(594)	(594)
Cancellation of stock option	(969)	0
Repurchase of common stock	(10,733)	(1,188)
Net Cash Used in Financing Activities	(14,480)	(41,248)
Decrease in Cash, Cash Equivalents and Restricted Cash	(19,188)	(86,402)
Cash, Cash Equivalents and Restricted Cash, beginning of period	38,619	131,193
Cash, Cash Equivalents and Restricted Cash, end of period	$ 19,431	$ 44,791

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying 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 Harbor Diversified, Inc. (Harbor) and its subsidiaries (collectively, the Company).

Harbor is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (AWAC), the sole member of Air Wisconsin Airlines LLC (Air Wisconsin), which is a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (Lotus), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC (AWF), which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc. (Therapeutics), which is a non-operating entity with no material assets.

The consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly in all material respects the financial condition and results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. All of the dollar and share amounts set forth in these condensed notes to consolidated financial statements are presented in thousands except per share and par value amounts.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Harbor’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 30, 2022 (2021 Annual Report). Due in part to the significant impacts to the Company’s business and industry from the industry-wide pilot shortage and the global coronavirus (COVID-19) pandemic, in addition to other factors discussed below, the results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other reporting period.

Description of Operations

The Company has principal lines of business focused on (1) providing regional air services through Air Wisconsin (airline business), (2) acquiring flight equipment for the purpose of leasing the equipment to Air Wisconsin, and (3) providing flight equipment financing to Air Wisconsin. Additionally, Air Wisconsin is exploring aircraft leasing opportunities and entered into its first short-term aircraft lease in September 2022.

The airline business is operated entirely through Air Wisconsin, which is an independent regional air carrier that is engaged in the business of providing scheduled passenger service under a capacity purchase agreement (United capacity purchase agreement) with United Airlines, Inc. (United) that was entered into in February 2017 and amended in October 2020, April 2021, April 2022, June 2022, and September 2022. United is currently Air Wisconsin’s sole airline partner; however, Air Wisconsin entered into a separate capacity purchase agreement in August 2022 (American capacity purchase agreement) with American Airlines, Inc. (American) pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American. Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023. For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Air Wisconsin currently operates as a United Express carrier with a presence at both Chicago O’Hare and Washington-Dulles, two of United’s key domestic hubs.

Contract Revenues

The Company recognizes revenue under the United capacity purchase agreement over time as services are provided. United pays Air Wisconsin a fixed rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per aircraft per day, with incentive payments available, and penalties payable, based on the achievement, or failure to achieve, certain performance criteria. Under the agreement, Air Wisconsin’s performance obligation is met and revenue is recognized over time, which is then reflected in contract revenues. The agreement also provides for the reimbursement to Air Wisconsin of certain direct operating expenses such as hull and liability insurance, property taxes and Canadian navigational fees.

United makes provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments are subsequently reconciled with United based on actual completed flight activity. As of the date of this filing, these payments are reconciled through July 2022. Subject to final reconciliation of the provisional cash payments for the periods after July 31, 2022, as of September 30, 2022, United owed Air Wisconsin approximately $22,302, which is recorded in accounts receivable, net, on the consolidated balance sheets. United is disputing that it owes $18,693 of this amount. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Under the United capacity purchase agreement, Air Wisconsin is eligible to receive incentive payments, or may be required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. The incentives are defined in the agreement and performance is measured on a monthly basis. At the end of each month during the term of the agreement, Air Wisconsin calculates the incentives achieved, or penalties payable, during that period and recognizes revenue accordingly, subject to the variable constraint guidance under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 606, Revenue from Contracts with Customers (Topic 606). Although the final reconciliations have not been completed for all periods, after considering operational performance related to expected incentive and penalty payments, Air Wisconsin has received (incurred), or is likely to receive (incur), net payments of $2,137 and $(339) for the three months ended September 30, 2022 and September 30, 2021, respectively, and $5,443 and $2,820 for the nine months ended September 30, 2022 and September 30, 2021, respectively. These amounts are recorded in accounts receivable, net, on the consolidated balance sheets.

Under the United capacity purchase agreement, Air Wisconsin is paid a fixed amount per aircraft per day for each month during the term of the agreement. In accordance with GAAP, the Company recognizes revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Air Wisconsin deferred fixed revenues between April 2020 and June 2021 due to the significant decrease in its completed flights as a result of the COVID-19 pandemic. Beginning in July 2021, due to an increase in completed flights and based on projected future completed flight activity, Air Wisconsin began reversing this deferral of fixed revenues, and it anticipates continuing to do so through the wind-down period under the United capacity purchase agreement (wind-down period). Accordingly, during the three and nine months ended September 30, 2022, Air Wisconsin recognized $5,180 and $22,548, respectively, of fixed revenues that were previously deferred, compared to a deferral of $5,298 and $10,054 of fixed revenues in the three and nine months ended September 30, 2021, respectively. Air Wisconsin’s deferred revenues related to the fixed portion of revenue under the United capacity purchase agreement will adjust over the remaining contract term, including the wind-down period, based on the number of flights completed in each reporting period relative to the number of flights anticipated to be completed through the end of the wind-down period. As of September 30, 2022, deferred fixed revenues in the amount of $22,290 were recorded as part of deferred revenues on the consolidated balance sheets. For additional information regarding the wind-down schedule with United, refer to Note 2, Liquidity.

Consistent with the discussion above, for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, Air Wisconsin also recognized increased non-refundable upfront fee revenues and increased fulfillment costs, both of which are amortized over the remaining term of the United capacity purchase agreement in proportion to the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods. During the three and nine months ended September 30, 2022, Air Wisconsin recorded $932 and $3,314 of revenue from upfront fees and $100 and $355 of fulfillment costs, respectively, compared to $1,082 and $2,428 in revenue from upfront fees and $116 and $260 of fulfillment costs for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred upfront fee revenue in the amount of $2,406 is recorded as part of contract liabilities on the consolidated balance sheets.

As part of the October 2020 amendment to the United capacity purchase agreement (CPA Amendment), United made a cash settlement payment of $670 and issued a note receivable to Air Wisconsin in the amount of $11,048, of which $4,410 was deferred as of December 31, 2020, with the remaining portion to be recognized in proportion to the number of flights expected to be completed in subsequent periods through the end of the wind-down period. In October 2021, in accordance with the CPA Amendment, Air Wisconsin received $294 from United for the opening of a crew base, of which $73 was deferred as of December 31, 2021. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $453 and $1,611 of revenue related to these items,

respectively, compared to $512 and $1,150 of revenue related to these items for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred CPA Amendment revenue in the amount of $1,170, is recorded as part of contract liabilities on the consolidated balance sheets.

The timing of the recognition of deferred fixed revenue, non-refundable upfront fee revenue, fulfillment costs, and deferred CPA Amendment revenue in future periods is subject to considerable uncertainty due to a number of factors, including the actual number of completed flights in any particular period relative to the estimated number of flights anticipated to be flown through the end of the wind-down period.

The amount of revenues recognized for the three and nine months ended September 30, 2022 that were previously recorded as contract liabilities were $1,385 and $4,925, respectively.

The CPA Amendment provided, among other things, for the payment or accrual of certain amounts by United to Air Wisconsin based on certain scheduling benchmarks. In conjunction with the significant reduction in departures and block hours resulting from the COVID-19 pandemic in 2020, and consistent with the terms of the CPA Amendment, management determined that, from an accounting perspective, a new performance obligation was created by United, requiring Air Wisconsin to stand ready to deliver flight services. Air Wisconsin determined, using the expected cost plus a margin method, that the United “stand ready” rate represents the relative stand-alone selling price of the performance obligation. The stand ready performance obligation will be recognized over time on a straight-line basis based on the number of unscheduled block hours below a minimum threshold at the stand ready rate as determined in a manner consistent with the CPA Amendment. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $5,138 and $12,746, respectively, in revenue related to this performance obligation compared to $728 and $13,699 for the three and nine months ended September 30, 2021, respectively. Under the CPA Amendment, United is required to accrue this amount and, upon request by Air Wisconsin, deliver a note evidencing this amount each quarter, which notes are due and payable in February 2023. Therefore, this amount is recorded in notes receivable on the consolidated balance sheets. The notes receivable contain a significant financing component and any interest income is separately reported in the consolidated statements of operations. As of September 30, 2022, the principal amount of these notes totaled $60,315, including the $11,048 note receivable described above, bore interest at the rate of 4.5%, and had a maturity date of February 28, 2023. As of September 30, 2022, interest receivable on these notes, including the disputed notes, totaled $3,954 and is recorded in accounts receivable, net on the consolidated balance sheets. United has disputed that it owes these amounts in respect of certain quarters and has refused to deliver notes for those quarters. The amount in dispute in respect of those notes as of the date of this filing totals $14,175, including interest receivable of $174. On November 4, 2022, United prepaid to Air Wisconsin $50,126 to satisfy all of the outstanding, undisputed notes receivable, including all accrued interest, pursuant to the CPA Amendment in respect of the period of the second quarter 2020 through the third quarter 2021 and the $11,048 note receivable described above. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Other Revenues

Other revenues primarily consist of the sales of parts to other airlines and aircraft lease. These other revenues are immaterial in all periods presented. The transaction price for these other revenues generally is fair market value.

Restricted Cash

As of September 30, 2022 and December 31, 2021, the Company had a restricted cash balance of $418 and $1,449, respectively. A portion of the balance secures a credit facility for the issuance of letters of credit guaranteeing the performance of Air Wisconsin’s obligations under certain lease agreements, airport agreements and insurance policies. The remaining portion is cash held for the repurchase of shares under Harbor’s stock repurchase program. For additional information, refer to Note 8, Commitments and Contingencies, and Note 13, Stock Repurchase Program.

Marketable Securities

The Company’s equity security investments, consisting of exchange-traded funds and mutual funds, are recorded at fair value based on quoted market prices (Level 1) in marketable securities on the consolidated balance sheets, in accordance with the guidance in ASC Topic 321, Investments-Equity Securities, with the change in fair value during the period included in the consolidated statements of operations. As of September 30, 2022 and December 31, 2021, the fair value of the Company’s marketable securities was $130,517 and $138,370, respectively.

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2022 is as follows:

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Net losses recognized during the period on equity securities	$	(3,749	)	$	(9,774	)
Less: Net gains and losses recognized during the period on equity securities sold during the period		—			—
Unrealized losses recognized during the period on equity securities held as of September 30, 2022	$	(3,749	)	$	(9,774	)

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2021 is as follows:

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net gains and losses recognized during the period on equity securities	$	(92	)	$	(106	)
Less: Net losses recognized during the period on equity securities sold during the period		42			1
Unrealized gains recognized during the period on equity securities held as of September 30, 2021	$	(134	)	$	(107	)

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

Assets	Depreciable Life	Current Residual Value
Aircraft	7 years	$	50
Rotable parts	7 years		10	%
Spare engines	7 years	$	25
Ground equipment	up to 10 years		0	%
Office equipment	up to 10 years		0	%
Leasehold improvements	Shorter of asset or lease life		0	%

Air Wisconsin’s capitalized engine maintenance costs are amortized over their estimated useful life measured in remaining engine cycles to the next scheduled shop visit. Lotus’ engine maintenance costs are expensed.

For the three and nine months ended September 30, 2022, the Company recorded depreciation expense of $6,224 and $18,656, respectively, compared to $6,274 and $18,769 for the three and nine months ended September 30, 2021, respectively.

Impairment of Long-Lived and Intangible Assets

The Company evaluates long-lived and intangible assets for potential impairment and records impairment losses when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates and assumptions regarding such things as the current fair market value of the assets and future net cash flows to be generated by the assets. If there are subsequent changes to these estimates or assumptions, or if actual results differ from these estimates or assumptions, such changes could impact the financial statements in the future. The Company conducted a qualitative impairment assessment of its long-lived and intangible assets and determined that no quantitative impairment tests were required to be performed as of September 30, 2022.

Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to federal, state and local income taxes in the United States and various states. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2018. With a few exceptions, the Company is no longer subject to state or local income tax examinations for years prior to 2017. As of September 30, 2022, the Company had no outstanding tax examinations.

Concentration of Customer Risk

United is currently Air Wisconsin’s sole airline partner. Substantially all the Company’s revenues in the three and nine months ended September 30, 2022 and September 30, 2021 were derived from the United capacity purchase agreement.

Air Wisconsin entered into the American capacity purchase agreement in August 2022 and expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations.

For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, marketable securities, accounts receivable, long-term investments, accounts payable, and long-term debt. The Company believes the carrying amounts of these financial instruments, with the exception of marketable securities, are a reasonable estimate of their fair value because of the short-term nature of such instruments, or, in the case of long-term debt, because of interest rates available to the Company for similar obligations. Marketable securities are reported at fair value based on quoted market prices. Long-term investments are held-to-maturity debt securities and are reported at amortized cost.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). Fair Value Measurement (Topic 820) establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3—Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates these determinations each reporting period, and it is possible that an asset or liability may be classified differently from year to year.

The tables below set forth the Company’s classification of marketable securities and long-term investments as of the periods presented:

	September 30, 2022
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	106,087	$	106,087	$	—	$	—
Marketable securities – mutual funds		24,430		24,430		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	134,792	$	130,517	$	4,275	$	—

	September 30, 2021
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	108,097	$	108,097	$	—	$	—
Marketable securities – mutual funds		18,446		18,446		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	130,818	$	126,543	$	4,275	$	—

Reclassification

Certain operating expenses previously recorded in purchased services and other in the consolidated statements of operations in the amounts of $3,185 and $8,265 for the three and nine months ended September 30, 2021, respectively, have been reclassified to aircraft maintenance, materials and repairs to conform to the presentation for the three and nine months ended September 30, 2022, with no effect on net income. The reclassification relates to certain third party maintenance activities.

Certain current liabilities previously recorded in contract liabilities in the consolidated balance sheets as of December 31, 2021 have been reclassified to deferred revenue in the amount of $35,792 to conform to the presentation as of September 30, 2022. As a result of this change, the consolidated statements of cash flows also required a reclassification from contract liabilities in the amount of $27,961 to deferred revenues in the Cash Flows from Operating Activities section of the consolidated statements of cash flows.

Upcoming Accounting Pronouncement

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 introduces a new accounting model known as Current 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 receivable. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. ASU 2016-13 is effective for calendar years beginning after December 15, 2022, including interim periods within those calendar years, with early adoption permitted. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

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Liquidity

9 Months Ended

Sep. 30, 2022

Text Block [Abstract]

Liquidity and Management's Plan, COVID-19

2. Liquidity

The Company’s ability to meet its liquidity needs is dependent upon its cash, cash equivalents and marketable securities balances and its ability to generate cash flows from operations in the future in amounts sufficient to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company currently believes its available working capital and anticipated cash flows from operations will be sufficient to meet the Company’s liquidity requirements for at least the next 12 months from the date of this filing. However, there can be no assurance that the Company will be able to generate sufficient cash flows from operations, or that additional funds will be available, to meet its future liquidity needs, particularly if United fails to pay disputed amounts owed to Air Wisconsin pursuant to the United capacity purchase agreement or if the transition of Air Wisconsin’s aircraft to the American capacity purchase agreement is delayed or more difficult than currently anticipated.

Reduced Block Hours

Since the beginning of the COVID-19 pandemic, Air Wisconsin has experienced significantly reduced block hours relative to historical levels. The prevailing industry-wide pilot shortage, which is expected to continue for the foreseeable future, is currently the leading factor preventing Air Wisconsin from consistently achieving block hours in line with pre-pandemic levels.

In addition, the United capacity purchase agreement is scheduled to terminate in February 2023, unless sooner terminated in accordance with its terms, in each case subject to a wind-down period following termination during which aircraft would be removed from service under the agreement in accordance with a schedule. Although a wind-down schedule has not yet been determined, the Company has estimated a wind-down schedule for purposes of its revenue calculations. The American capacity purchase agreement provides that a certain number of aircraft each month, commencing in March 2023, will begin flying scheduled flights for American.

Before any Air Wisconsin aircraft can be available to operate flights for American, that aircraft must first be removed from service under the United capacity purchase agreement, painted to meet the livery requirements of the American capacity purchase agreement and otherwise modified to meet such requirements. During the period from the withdrawal of an aircraft from service under the United capacity purchase agreement until it is placed into service under the American capacity purchase agreement, that aircraft will not generate revenues from either United or American. The period of time that an aircraft will not be covered by either capacity purchase agreement depends on the wind-down schedule that has not been finally determined. The successful transition of aircraft from the United capacity purchase agreement to the American capacity purchase agreement is subject to many factors, some of which are not within Air Wisconsin’s control, including the level of cooperation from United and the timing for aircraft to meet the requirements of the American capacity purchase agreement. There can be no assurance that this transition will proceed smoothly, and unexpected delays in or costs associated with the transition could have a material adverse effect on the Company’s business, financial condition and results of operations.

For additional information, refer to Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

United Capacity Purchase Agreement

The fixed amount Air Wisconsin is entitled to receive under the United capacity purchase agreement is based on a fixed contractual rate and number of covered aircraft, although there is currently a dispute with United as to the number of covered aircraft for which it is required to pay the fixed contractual rate. In October 2022, United initiated arbitration with respect to this dispute.

Variable revenue may be earned based on the number of block hours and departures. Since the onset of the COVID-19 pandemic, variable revenues have been significantly reduced due to the lower number of flights relative to historical levels. However, the impact of the COVID-19 pandemic on the Company’s financial position has been partially mitigated or offset by the fixed revenue under the United capacity purchase agreement and by funds received under the Paycheck Protection Program and the Payroll Support Program described below. If United does not pay the full amount Air Wisconsin believes it is required to pay under the agreement, whether due to its own financial disruption resulting from the COVID-19 pandemic or the industry-wide pilot shortage, as a result of the current dispute with Air Wisconsin, or otherwise, the Company could experience a significant adverse effect on its results of operations, financial condition and liquidity. For additional information regarding the United capacity purchase agreement dispute, refer to Note 8, Commitments and Contingencies.

A portion of the fixed amount of revenue had been deferred based on future expected flight activity, since fixed revenue is allocated over current and expected future departures through the end of the contract term, including the wind-down period. Beginning with the third quarter of 2021, Air Wisconsin began to reverse prior deferred revenue based on increased completed flights and projected future completed flight activity, and anticipates continuing to do so through the end of the wind-down period. For additional information, refer to Note 1, Summary of Significant Accounting Policies.

Paycheck Protection Program

Air Wisconsin’s receipt of governmental assistance mitigated to some extent the adverse impacts of the COVID-19 pandemic on the Company’s financial condition, results of operations and liquidity.

In April 2020, Air Wisconsin received a $10,000 loan (SBA Loan) under the small business Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and administered by the Small Business Administration (SBA). Under the CARES Act, Air Wisconsin applied for forgiveness of the SBA Loan, and the SBA granted forgiveness of all principal and accrued interest on the SBA Loan in August 2021 in the amount of $10,135, which was recorded as gain on extinguishment of debt in the audited consolidated statements of operations for the year ended December 31, 2021 included within the 2021 Annual Report.

Payroll Support Program

In April 2020, Air Wisconsin entered into a Payroll Support Program Agreement (PSP-1 Agreement) with respect to payroll support (Treasury Payroll Support) from the U.S. Department of the Treasury (Treasury) under a program (Payroll Support Program) provided by the CARES Act. Pursuant to the PSP-1 Agreement, Air Wisconsin received approximately $42,185, all of which was received in the year ended December 31, 2020.

In December 2020, the federal Consolidated Appropriations Act of 2021 (PSP Extension Law) was adopted, which provided for additional payroll support to eligible air carriers. In March 2021, pursuant to the PSP Extension Law, Air Wisconsin entered into a Payroll Support Program Extension Agreement with the Treasury (the PSP-2 Agreement), which is substantially similar to the PSP-1 Agreement. Air Wisconsin received approximately $32,987 pursuant to the PSP-2 Agreement, all of which was received in the year ended December 31, 2021.

In March 2021, the federal American Rescue Plan Act of 2021 (American Rescue Plan) was adopted, which provided further payroll support to eligible air carriers. In June 2021, pursuant to the American Rescue Plan, Air Wisconsin entered into a Payroll Support Program 3 Agreement with the Treasury (the PSP-3 Agreement and, together with the PSP-1 Agreement and the PSP-2 Agreement, the PSP Agreements), which is substantially similar to the PSP-1 Agreement and the PSP-2 Agreement. Air Wisconsin received approximately $33,329 pursuant to the PSP-3 Agreement, all of which was received in the year ended December 31, 2021.

The PSP Agreements contain various covenants, some of which have expired. The surviving covenants require that (i) the payroll support proceeds must have been used exclusively for the payment of wages, salaries and benefits, and (ii) Air Wisconsin cannot pay total compensation to certain employees in excess of certain total compensation caps. If Air Wisconsin failed to comply with any of its expired obligations or failed or fails to comply with any of its continuing obligations under these agreements, it may be required to repay some or all of the funds provided to it under the PSP Agreements. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on the Company’s business. The Treasury commenced a routine audit of Air Wisconsin’s compliance with the terms of the PSP-1 Agreement. No such audits have been initiated by the Treasury under the PSP-2 Agreement or PSP-3 Agreement as of the date of this filing. For additional information, refer to Note 8, Commitments and Contingencies.

The proceeds of the Treasury Payroll Support under the PSP Agreements were recorded in cash and cash equivalents when received and were recognized as a contra-expense under Payroll Support Program in the consolidated statements of operations for the periods for which the funds were intended to offset payroll expenses. As all amounts were recognized at December 31, 2021, Air Wisconsin did not recognize a reduction in operating expense in the three and nine months ended September 30, 2022, as compared to $16,146 and $66,316 for the three and nine months ended September 30, 2021, respectively.

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Capacity Purchase Agreements with United and American

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Capacity Purchase Agreements with United and American

3. Capacity Purchase Agreements with United and American

In February 2017, Air Wisconsin entered into the United capacity purchase agreement. The United capacity purchase agreement is scheduled to terminate in February 2023. The wind-down period during which aircraft will be removed from service under the United capacity purchase agreement has not been finally determined. A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. In October 2022, United initiated arbitration under the United capacity purchase agreement. The existence of this dispute pursuant to the United capacity purchase agreement could significantly complicate or delay the transition of aircraft from the provision of services to United to the provision of services to American. For additional information, refer to Note 8, Commitments and Contingencies.

In August 2022, Air Wisconsin entered into the American capacity purchase agreement, pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American. Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023.

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Property and Equipment

9 Months Ended

Sep. 30, 2022

Property, Plant and Equipment [Abstract]

Property and Equipment

4. Property and Equipment

As of September 30, 2022, Air Wisconsin owned 64 CRJ-200 regional jets.

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Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

The Company’s effective tax rate for the three months and nine months ended September 30, 2022 was 23.8%. The Company’s effective tax rate for the three and nine months ended September 30, 2022 varied from the federal statutory rate of 21.0% primarily due to the impact of state income taxes and permanent differences between financial statement and taxable income.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 18.1% and 21.6%, respectively. The Company’s effective tax rate for the three months ended September 30, 2021 varied from the federal statutory rate of 21.0% primarily due to the tax exempt status of the SBA Loan forgiveness, the impact of state taxes, and permanent differences between financial statement and taxable income.

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Debt

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

Debt

6. Debt

Long-Term Debt

Long-term debt consists of the following (with interest rates, as of the dates presented):

	September 30, 2022		December 31, 2021
Aircraft Notes, due December 31, 2025 (4.0%)	$	65,313	$	67,550
Less: current maturities		9,224		5,880
Total Long-Term Debt	$	56,089	$	61,670

Maturities of long-term debt for the periods subsequent to September 30, 2022, are as follows:

Fiscal Year	Amount
October 2022 through December 2022	$	4,091
2023		9,154
2024		8,874
2025		43,194
Total	$	65,313

As of September 30, 2022, all of the Company’s long-term debt was subject to fixed interest rates. As of September 30, 2022 and September 30, 2021, Air Wisconsin was in compliance with the covenants included in each of its debt agreements.

For additional information regarding Long-Term Debt, refer to Note 6, Debt, in the audited consolidated financial statements within the 2021 Annual Report.

Long-Term Promissory Note

In July 2003, Air Wisconsin financed a hangar through the issuance of $4,275 City of Milwaukee, Wisconsin variable rate Industrial Development Bonds. The bonds mature November 1, 2033. Prior to May 1, 2006, the bonds were secured by a guaranteed investment contract, which was collateralized with cash, and interest was payable semiannually on each May 1 and November 1. In May 2006, Air Wisconsin acquired the bonds using the cash collateral. The bonds are reported as long-term investments on the consolidated balance sheets. The hangar is accounted for as a right-of-use asset with a value of $2,605 as of September 30 2022. For additional information, refer to Note 1, Fair Value of Financial Instruments.

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Lease Obligations

9 Months Ended

Sep. 30, 2022

Leases [Abstract]

Lease Obligations

7. Lease Obligations

Air Wisconsin has operating leases with terms greater than twelve months for training simulators and facility space including office space and maintenance facilities. The remaining lease terms for training simulators and facility space vary from approximately 9 months to 12 years. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of the lease payments over the lease term. The Company used Air Wisconsin’s incremental borrowing rate to discount the lease payments based on information available at lease conception. Air Wisconsin’s operating leases with lease rates that are variable based on operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with the applicable accounting guidance.

Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

Certain leases contain an option to extend or terminate the lease agreement. The Company evaluates each option prior to its expiration and may or may not exercise such option depending on conditions present at the time. At the inception of the lease, if it is reasonably certain that the Company will exercise an option to extend or terminate a lease, the Company considers the option in determining the classification and measurement of the lease. The Company expects that in the normal course of business operating leases that expire will be renewed or replaced by other leases.

As of September 30, 2022 and December 31, 2021 the Company’s right-of-use assets were $14,789 and $18,679, respectively, current maturities of operating lease liabilities were $5,078 and $5,150, respectively, and noncurrent lease liabilities were $7,100 and $10,877, respectively. During the nine months ended September 30, 2022, the Company paid $4,484 in operating lease payments.

The table below presents operating lease related terms and discount rates as of September 30, 2022:

Weighted-average remaining lease term	3.13	years
Weighted-average discount rate	5.70	%

Components of lease costs were as follows for the dates presented: 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease costs	$	1,477	$	1,446	$	4,423	$	3,322
Short-term lease costs		77		80		306		389
Variable lease costs		63		46		158		113
Total Lease Costs	$	1,617	$	1,572	$	4,887	$	3,824

As of September 30, 2022, Air Wisconsin leased or subleased certain training simulators and facilities for terms of greater than 12 months. Rent expense recorded under all operating leases, inclusive of engine leases, was $1,617 and $1,572 for the three months ended September 30, 2022 and September 30, 2021, respectively. Rent expense recorded under all operating leases, inclusive of engine leases, was $4,887 and $3,824 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of September 30, 2022:

Fiscal Year	Amount
October 2022 through December 2022	$	1,452
2023		5,841
2024		3,365
2025		2,664
2026		177
Thereafter		527
Total lease payments		14,026
Less imputed interest		(1,848	)
Total Lease Liabilities	$	12,178

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

Legal Matters

The Company is subject to certain legal proceedings, which it considers routine to its business activities. As of September 30, 2022, the Company believes, after consultation with legal counsel, that the ultimate outcome of such legal proceedings, whether individually or in the aggregate, is not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

United Capacity Purchase Agreement Dispute

A dispute exists under the United capacity purchase agreement with respect to certain recurring amounts owed to Air Wisconsin by United. As of September 30, 2022, the aggregate amount in dispute was approximately $33,042. In October 2022, United initiated arbitration under the agreement and requested a declaration that it does not owe any of the disputed amounts as claimed by Air Wisconsin. As Air Wisconsin and United are in the early stages of arbitration, Air Wisconsin cannot, with any degree of certainty, estimate the likely outcome of the arbitration including any potential award of the disputed amounts. Air Wisconsin, however, maintains that it has a strong position and is entitled to the disputed amounts under the terms of the United capacity purchase agreement. As a result, the Company has recognized all disputed amounts through September 30, 2022.

Treasury Payroll Support Program Audit

In September 2020, the Treasury’s Office of Inspector General (OIG) commenced a routine audit in connection with Air Wisconsin’s receipt of funds under the PSP-1 Agreement. The audit focused, among other things, on certain calculations used to determine the amount of Treasury Payroll Support Air Wisconsin was entitled to receive under the program. Air Wisconsin has disputed in good faith the Treasury’s interpretation of certain provisions of the application for Treasury Payroll Support and the PSP-1 Agreement, as well as the Treasury’s guidance regarding the Payroll Support Program. As of the date of this filing, Air Wisconsin has not received written confirmation from the OIG regarding the status or results of the audit. Nevertheless, the Treasury subsequently entered into the PSP-2 Agreement and the PSP-3 Agreement with Air Wisconsin, has paid to Air Wisconsin the amounts to be paid under the PSP-2 Agreement and the PSP-3 Agreement, and has not required Air Wisconsin to refund any amounts it received under the PSP-1 Agreement.

Standby Letters of Credit

As of September 30, 2022, Air Wisconsin had six outstanding letters of credit in the aggregate amount of $372 to guarantee the performance of its obligations under certain lease agreements, airport agreements and insurance policies. Air Wisconsin maintained a credit facility with a borrowing capacity of $373 for the issuance of such letters of credit as needed to support its operations. A significant portion of Air Wisconsin’s restricted cash balance secures the credit facility.

Cash Obligations

The following table sets forth the Company’s cash obligations for the periods presented:

	Total		October through December 2022		2023		2024		2025		2026		Thereafter
Aircraft Notes Principal	$	59,100	$	3,500	$	7,000	$	7,000	$	41,600	$	—	$	—
Aircraft Notes Interest		6,213		591		2,154		1,874		1,594		—		—
Operating Lease Obligations		14,026		1,452		5,841		3,365		2,664		177		527
Total	$	79,339	$	5,543	$	14,995	$	12,239	$	45,858	$	177	$	527

The principal amount of the Aircraft Notes is payable in semi-annual installments of $3,500, and certain additional amounts may be payable based on excess cash flow. The amounts set forth in the table do not reflect any such additional excess cash flow payments. As a result of certain prepayments made under the Aircraft Notes in June 2021, no semi-annual installments are due prior to December 31, 2022. As of September 30, 2022, all of the Company’s long-term debt was subject to fixed interest rates.

For additional information regarding the Aircraft Notes, refer to Note 6, Debt, in the audited consolidated financial statements within the 2021 Annual Report.

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Related-Party Transactions

9 Months Ended

Sep. 30, 2022

Related Party Transactions [Abstract]

Related-Party Transactions

9. Related-Party Transactions

Resource Holdings Associates (Resource Holdings) provides AWAC and Air Wisconsin with financial advisory and management services pursuant to an agreement entered into in January 2012. AWAC paid a total of $60 and $180 to Resource Holdings for the three and nine months ended September 30, 2022 and September 30, 2021, plus the reimbursement of certain out-of-pocket expenses. In June 2021, the board of directors agreed to require Harbor to pay Resource Holdings an annual fee of $150, payable monthly, which amount is in addition to the amount paid to Resource Holdings by AWAC. Harbor paid an aggregate of $38 and $113 to Resource Holdings for the three and nine months ended September 30, 2022, respectively. Harbor paid an aggregate of $38 and $75 to Resource Holdings for the three and nine months ended September 30, 2021. For additional information, refer to the section entitled “Certain Relationships and Related Transactions, and Director Independence” within the 2021 Annual Report.

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Earnings Per Share and Equity

9 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

Earnings Per Share and Equity

10. Earnings Per Share and Equity

Calculations of net income per common share for the dates presented were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	8,022	$	36,279	$	32,366	$	82,025
Preferred stock dividends		198		198		594		594
Net income applicable to common stockholders	$	7,824	$	36,081	$	31,772	$	81,431
Weighted average common shares outstanding
Shares used in calculating basic earnings per share		45,776		54,153		46,637		54,491
Stock option		—		502		131		477

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Series C Preferred		16,500		16,500		16,500		16,500
Shares used in calculating diluted earnings per share		62,276		71,155		63,268		71,468
Earnings allocated to common stockholders per common share
Basic	$	0.17	$	0.67	$	0.68	$	1.49
Diluted	$	0.13	$	0.51	$	0.50	$	1.14

Basic earnings per share of common stock is computed by dividing the net income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding assuming the conversion of the Series C Preferred into an aggregate of 16,500 shares of common stock under the if-converted method, and the exercise of a stock option granted in 2015 (the “2015 Option”) into 131 shares of common stock under the treasury stock method for the nine months ended September 30, 2022. In March 2022, Harbor entered into an agreement with the holder to cancel the 2015 Option in exchange for $969. The shares underlying the 2015 Option are included in computing diluted earnings per share under the treasury stock method for the portion of the reporting period during which it was outstanding.

Series C Preferred

In January 2020, Harbor issued 4,000 shares of the Series C Preferred. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred are set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock (Certificate of Designations), which Harbor filed with the Secretary of State of the State of Delaware.

Each share of Series C Preferred was initially convertible, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (Conversion Price). The adjusted Conversion Price as of the date of this filing is $0.15091.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80, plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted into common stock pursuant to the limitation described herein (Conversion Cap Excess Shares), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends in an amount per share equal to 0.5% of the Series C Liquidation Amount (as defined below) of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (Conversion Cap Excess Dividends). As of September 30, 2022, 755 shares of the Series C Preferred were immediately convertible into 16,500 shares of common stock, and the remaining 3,245 shares of the Series C Preferred would be deemed Conversion Cap Excess Shares.

In the event of any liquidation, dissolution or winding up of Harbor, or a sale of Harbor, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of Harbor to the common stock or other junior capital stock, an amount equal to the Series C Issue Price, plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends (Series C Liquidation Amount).

On September 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on September 30, 2022.

Based on the applicable accounting guidance, Harbor is required to apply the “if-converted” method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income (loss) per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on the applicable accounting guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets.

Excluded Stock Options

In January 2022, Harbor granted a group of affiliated stockholders options to sell additional shares of Harbor’s common stock owned by the stockholders at fixed prices. As these options were out-of-the-money during the three and nine months ended September 30, 2022, they would have an anti-dilutive effect on the calculation of diluted earnings per share and thus are not included in the calculation above. For additional information regarding these options, refer to Note 13, Stock Repurchase Program.

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Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2022

Supplemental Cash Flow Elements [Abstract]

Supplemental Cash Flow Information

11. Supplemental Cash Flow Information

Cash payments for interest for the nine months ended September 30, 2022 and September 30, 2021 were $1,784 and $2,742, respectively. Cash payments for income taxes for the nine months ended September 30, 2022 and September 30, 2021 were $3,348 and $25,683, respectively. Cash payments included in the measurement of lease liabilities related to operating leases were $4,484 and $3,239 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The following table provides a reconciliation of all cash and cash equivalents and restricted cash reported on the consolidated balance sheet that sum to the total of those same amounts shown in the consolidated statement of cash flows:

	September 30, 2022
Cash and cash equivalents	$	19,013
Restricted cash		418
Total cash, cash equivalents, and restricted cash	$	19,431

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Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

12. Intangible Assets

Intangible assets consist of the following as of the dates presented:

	September 30, 2022		December 31, 2021
	Gross Carrying Amount		Gross Carrying Amount
Trade names and air carrier certificate		5,300		5,300
Total	$	5,300	$	5,300

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Stock Repurchase Program

9 Months Ended

Sep. 30, 2022

Stock Repurchase Program [Abstract]

Stock Repurchase Program

13. Stock Repurchase Program

On March 30, 2021, the board of directors adopted a stock repurchase program pursuant to which Harbor was initially authorized to repurchase up to $1,000 of shares of its common stock during the first calendar month of the program, subject to an automatic increase of $1,000 per calendar month thereafter. Harbor is not obligated under the program to acquire any particular number or value of shares and can suspend or terminate the program at any time. Harbor acquired a total of 364,174 shares and 7,664,033 shares of its common stock pursuant to the stock repurchase program in the three and nine months ended September 30, 2022, respectively.

In January 2022, Harbor entered into an agreement with a group of affiliated stockholders pursuant to which it agreed to repurchase an aggregate of 5,437,500 shares of common stock for a purchase price of $5,655 pursuant to the settlement of a legal claim Harbor had against the stockholders. As part of the transaction, Harbor also granted to the stockholders three options to sell additional shares of Harbor’s common stock owned by the stockholders at fixed prices. As of September 30, 2022, each of these options had expired without exercise.

As of September 30, 2022, total cash of $45 is held for the repurchase of shares under Harbor’s stock repurchase program. This amount is included in restricted cash.

For additional information, refer to Part II, Item 2, “Purchases of Equity Securities by the Issuer and Affiliated Purchasers” within this Quarterly Report.

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Subsequent Events

9 Months Ended

Sep. 30, 2022

Subsequent Events [Abstract]

Subsequent Events

14. Subsequent Events

The Company evaluated its consolidated financial statements included in this Quarterly Report for subsequent events through November     , 2022, the date the consolidated financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.

• On November 4, 2022, United prepaid to Air Wisconsin $50,126 in satisfaction of all of the outstanding, undisputed notes receivable. For additional information, refer to Note 1, Contract Revenues.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying 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 Harbor Diversified, Inc. (Harbor) and its subsidiaries (collectively, the Company).

Harbor is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (AWAC), the sole member of Air Wisconsin Airlines LLC (Air Wisconsin), which is a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (Lotus), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC (AWF), which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc. (Therapeutics), which is a non-operating entity with no material assets.

The consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly in all material respects the financial condition and results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. All of the dollar and share amounts set forth in these condensed notes to consolidated financial statements are presented in thousands except per share and par value amounts.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Harbor’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 30, 2022 (2021 Annual Report). Due in part to the significant impacts to the Company’s business and industry from the industry-wide pilot shortage and the global coronavirus (COVID-19) pandemic, in addition to other factors discussed below, the results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other reporting period.

Description of Operations

Description of Operations

The Company has principal lines of business focused on (1) providing regional air services through Air Wisconsin (airline business), (2) acquiring flight equipment for the purpose of leasing the equipment to Air Wisconsin, and (3) providing flight equipment financing to Air Wisconsin. Additionally, Air Wisconsin is exploring aircraft leasing opportunities and entered into its first short-term aircraft lease in September 2022.

The airline business is operated entirely through Air Wisconsin, which is an independent regional air carrier that is engaged in the business of providing scheduled passenger service under a capacity purchase agreement (United capacity purchase agreement) with United Airlines, Inc. (United) that was entered into in February 2017 and amended in October 2020, April 2021, April 2022, June 2022, and September 2022. United is currently Air Wisconsin’s sole airline partner; however, Air Wisconsin entered into a separate capacity purchase agreement in August 2022 (American capacity purchase agreement) with American Airlines, Inc. (American) pursuant to which Air Wisconsin has agreed to provide up to 60 CRJ-200 regional jet aircraft for regional airline services for American. Air Wisconsin expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations, which is expected to occur throughout 2023. For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Air Wisconsin currently operates as a United Express carrier with a presence at both Chicago O’Hare and Washington-Dulles, two of United’s key domestic hubs.

Contract Revenues

Contract Revenues

The Company recognizes revenue under the United capacity purchase agreement over time as services are provided. United pays Air Wisconsin a fixed rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per aircraft per day, with incentive payments available, and penalties payable, based on the achievement, or failure to achieve, certain performance criteria. Under the agreement, Air Wisconsin’s performance obligation is met and revenue is recognized over time, which is then reflected in contract revenues. The agreement also provides for the reimbursement to Air Wisconsin of certain direct operating expenses such as hull and liability insurance, property taxes and Canadian navigational fees.

United makes provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments are subsequently reconciled with United based on actual completed flight activity. As of the date of this filing, these payments are reconciled through July 2022. Subject to final reconciliation of the provisional cash payments for the periods after July 31, 2022, as of September 30, 2022, United owed Air Wisconsin approximately $22,302, which is recorded in accounts receivable, net, on the consolidated balance sheets. United is disputing that it owes $18,693 of this amount. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Under the United capacity purchase agreement, Air Wisconsin is eligible to receive incentive payments, or may be required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. The incentives are defined in the agreement and performance is measured on a monthly basis. At the end of each month during the term of the agreement, Air Wisconsin calculates the incentives achieved, or penalties payable, during that period and recognizes revenue accordingly, subject to the variable constraint guidance under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 606, Revenue from Contracts with Customers (Topic 606). Although the final reconciliations have not been completed for all periods, after considering operational performance related to expected incentive and penalty payments, Air Wisconsin has received (incurred), or is likely to receive (incur), net payments of $2,137 and $(339) for the three months ended September 30, 2022 and September 30, 2021, respectively, and $5,443 and $2,820 for the nine months ended September 30, 2022 and September 30, 2021, respectively. These amounts are recorded in accounts receivable, net, on the consolidated balance sheets.

Under the United capacity purchase agreement, Air Wisconsin is paid a fixed amount per aircraft per day for each month during the term of the agreement. In accordance with GAAP, the Company recognizes revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Air Wisconsin deferred fixed revenues between April 2020 and June 2021 due to the significant decrease in its completed flights as a result of the COVID-19 pandemic. Beginning in July 2021, due to an increase in completed flights and based on projected future completed flight activity, Air Wisconsin began reversing this deferral of fixed revenues, and it anticipates continuing to do so through the wind-down period under the United capacity purchase agreement (wind-down period). Accordingly, during the three and nine months ended September 30, 2022, Air Wisconsin recognized $5,180 and $22,548, respectively, of fixed revenues that were previously deferred, compared to a deferral of $5,298 and $10,054 of fixed revenues in the three and nine months ended September 30, 2021, respectively. Air Wisconsin’s deferred revenues related to the fixed portion of revenue under the United capacity purchase agreement will adjust over the remaining contract term, including the wind-down period, based on the number of flights completed in each reporting period relative to the number of flights anticipated to be completed through the end of the wind-down period. As of September 30, 2022, deferred fixed revenues in the amount of $22,290 were recorded as part of deferred revenues on the consolidated balance sheets. For additional information regarding the wind-down schedule with United, refer to Note 2, Liquidity.

Consistent with the discussion above, for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, Air Wisconsin also recognized increased non-refundable upfront fee revenues and increased fulfillment costs, both of which are amortized over the remaining term of the United capacity purchase agreement in proportion to the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods. During the three and nine months ended September 30, 2022, Air Wisconsin recorded $932 and $3,314 of revenue from upfront fees and $100 and $355 of fulfillment costs, respectively, compared to $1,082 and $2,428 in revenue from upfront fees and $116 and $260 of fulfillment costs for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred upfront fee revenue in the amount of $2,406 is recorded as part of contract liabilities on the consolidated balance sheets.

As part of the October 2020 amendment to the United capacity purchase agreement (CPA Amendment), United made a cash settlement payment of $670 and issued a note receivable to Air Wisconsin in the amount of $11,048, of which $4,410 was deferred as of December 31, 2020, with the remaining portion to be recognized in proportion to the number of flights expected to be completed in subsequent periods through the end of the wind-down period. In October 2021, in accordance with the CPA Amendment, Air Wisconsin received $294 from United for the opening of a crew base, of which $73 was deferred as of December 31, 2021. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $453 and $1,611 of revenue related to these items,

respectively, compared to $512 and $1,150 of revenue related to these items for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, deferred CPA Amendment revenue in the amount of $1,170, is recorded as part of contract liabilities on the consolidated balance sheets.

The timing of the recognition of deferred fixed revenue, non-refundable upfront fee revenue, fulfillment costs, and deferred CPA Amendment revenue in future periods is subject to considerable uncertainty due to a number of factors, including the actual number of completed flights in any particular period relative to the estimated number of flights anticipated to be flown through the end of the wind-down period.

The amount of revenues recognized for the three and nine months ended September 30, 2022 that were previously recorded as contract liabilities were $1,385 and $4,925, respectively.

The CPA Amendment provided, among other things, for the payment or accrual of certain amounts by United to Air Wisconsin based on certain scheduling benchmarks. In conjunction with the significant reduction in departures and block hours resulting from the COVID-19 pandemic in 2020, and consistent with the terms of the CPA Amendment, management determined that, from an accounting perspective, a new performance obligation was created by United, requiring Air Wisconsin to stand ready to deliver flight services. Air Wisconsin determined, using the expected cost plus a margin method, that the United “stand ready” rate represents the relative stand-alone selling price of the performance obligation. The stand ready performance obligation will be recognized over time on a straight-line basis based on the number of unscheduled block hours below a minimum threshold at the stand ready rate as determined in a manner consistent with the CPA Amendment. For the three and nine months ended September 30, 2022, Air Wisconsin recorded $5,138 and $12,746, respectively, in revenue related to this performance obligation compared to $728 and $13,699 for the three and nine months ended September 30, 2021, respectively. Under the CPA Amendment, United is required to accrue this amount and, upon request by Air Wisconsin, deliver a note evidencing this amount each quarter, which notes are due and payable in February 2023. Therefore, this amount is recorded in notes receivable on the consolidated balance sheets. The notes receivable contain a significant financing component and any interest income is separately reported in the consolidated statements of operations. As of September 30, 2022, the principal amount of these notes totaled $60,315, including the $11,048 note receivable described above, bore interest at the rate of 4.5%, and had a maturity date of February 28, 2023. As of September 30, 2022, interest receivable on these notes, including the disputed notes, totaled $3,954 and is recorded in accounts receivable, net on the consolidated balance sheets. United has disputed that it owes these amounts in respect of certain quarters and has refused to deliver notes for those quarters. The amount in dispute in respect of those notes as of the date of this filing totals $14,175, including interest receivable of $174. On November 4, 2022, United prepaid to Air Wisconsin $50,126 to satisfy all of the outstanding, undisputed notes receivable, including all accrued interest, pursuant to the CPA Amendment in respect of the period of the second quarter 2020 through the third quarter 2021 and the $11,048 note receivable described above. For additional information regarding the dispute with United, refer to Note 8, Commitments and Contingencies.

Other Revenues

Other Revenues

Other revenues primarily consist of the sales of parts to other airlines and aircraft lease. These other revenues are immaterial in all periods presented. The transaction price for these other revenues generally is fair market value.

Restricted Cash

Restricted Cash

As of September 30, 2022 and December 31, 2021, the Company had a restricted cash balance of $418 and $1,449, respectively. A portion of the balance secures a credit facility for the issuance of letters of credit guaranteeing the performance of Air Wisconsin’s obligations under certain lease agreements, airport agreements and insurance policies. The remaining portion is cash held for the repurchase of shares under Harbor’s stock repurchase program. For additional information, refer to Note 8, Commitments and Contingencies, and Note 13, Stock Repurchase Program.

Marketable Securities

Marketable Securities

The Company’s equity security investments, consisting of exchange-traded funds and mutual funds, are recorded at fair value based on quoted market prices (Level 1) in marketable securities on the consolidated balance sheets, in accordance with the guidance in ASC Topic 321, Investments-Equity Securities, with the change in fair value during the period included in the consolidated statements of operations. As of September 30, 2022 and December 31, 2021, the fair value of the Company’s marketable securities was $130,517 and $138,370, respectively.

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2022 is as follows:

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Net losses recognized during the period on equity securities	$	(3,749	)	$	(9,774	)
Less: Net gains and losses recognized during the period on equity securities sold during the period		—			—
Unrealized losses recognized during the period on equity securities held as of September 30, 2022	$	(3,749	)	$	(9,774	)

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2021 is as follows:

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net gains and losses recognized during the period on equity securities	$	(92	)	$	(106	)
Less: Net losses recognized during the period on equity securities sold during the period		42			1
Unrealized gains recognized during the period on equity securities held as of September 30, 2021	$	(134	)	$	(107	)

Property and Equipment

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

Assets	Depreciable Life	Current Residual Value
Aircraft	7 years	$	50
Rotable parts	7 years		10	%
Spare engines	7 years	$	25
Ground equipment	up to 10 years		0	%
Office equipment	up to 10 years		0	%
Leasehold improvements	Shorter of asset or lease life		0	%

Air Wisconsin’s capitalized engine maintenance costs are amortized over their estimated useful life measured in remaining engine cycles to the next scheduled shop visit. Lotus’ engine maintenance costs are expensed.

For the three and nine months ended September 30, 2022, the Company recorded depreciation expense of $6,224 and $18,656, respectively, compared to $6,274 and $18,769 for the three and nine months ended September 30, 2021, respectively.

Impairment of Long-Lived and Intangible Assets

Impairment of Long-Lived and Intangible Assets

The Company evaluates long-lived and intangible assets for potential impairment and records impairment losses when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates and assumptions regarding such things as the current fair market value of the assets and future net cash flows to be generated by the assets. If there are subsequent changes to these estimates or assumptions, or if actual results differ from these estimates or assumptions, such changes could impact the financial statements in the future. The Company conducted a qualitative impairment assessment of its long-lived and intangible assets and determined that no quantitative impairment tests were required to be performed as of September 30, 2022.

Income Taxes

Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to federal, state and local income taxes in the United States and various states. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2018. With a few exceptions, the Company is no longer subject to state or local income tax examinations for years prior to 2017. As of September 30, 2022, the Company had no outstanding tax examinations.

Concentration of Customer Risk

Concentration of Customer Risk

United is currently Air Wisconsin’s sole airline partner. Substantially all the Company’s revenues in the three and nine months ended September 30, 2022 and September 30, 2021 were derived from the United capacity purchase agreement.

Air Wisconsin entered into the American capacity purchase agreement in August 2022 and expects to commence flying operations for American in March 2023. American will become Air Wisconsin’s sole airline partner once all aircraft are removed from United’s flying operations.

For additional information, refer to Note 3, Capacity Purchase Agreements with United and American and Part II, Item 5, “American Capacity Purchase Agreement” within this Quarterly Report.

Estimates and Assumptions

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, marketable securities, accounts receivable, long-term investments, accounts payable, and long-term debt. The Company believes the carrying amounts of these financial instruments, with the exception of marketable securities, are a reasonable estimate of their fair value because of the short-term nature of such instruments, or, in the case of long-term debt, because of interest rates available to the Company for similar obligations. Marketable securities are reported at fair value based on quoted market prices. Long-term investments are held-to-maturity debt securities and are reported at amortized cost.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). Fair Value Measurement (Topic 820) establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3—Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates these determinations each reporting period, and it is possible that an asset or liability may be classified differently from year to year.

The tables below set forth the Company’s classification of marketable securities and long-term investments as of the periods presented:

	September 30, 2022
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	106,087	$	106,087	$	—	$	—
Marketable securities – mutual funds		24,430		24,430		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	134,792	$	130,517	$	4,275	$	—

	September 30, 2021
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	108,097	$	108,097	$	—	$	—
Marketable securities – mutual funds		18,446		18,446		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	130,818	$	126,543	$	4,275	$	—

Reclassifications

Reclassification

Certain operating expenses previously recorded in purchased services and other in the consolidated statements of operations in the amounts of $3,185 and $8,265 for the three and nine months ended September 30, 2021, respectively, have been reclassified to aircraft maintenance, materials and repairs to conform to the presentation for the three and nine months ended September 30, 2022, with no effect on net income. The reclassification relates to certain third party maintenance activities.

Certain current liabilities previously recorded in contract liabilities in the consolidated balance sheets as of December 31, 2021 have been reclassified to deferred revenue in the amount of $35,792 to conform to the presentation as of September 30, 2022. As a result of this change, the consolidated statements of cash flows also required a reclassification from contract liabilities in the amount of $27,961 to deferred revenues in the Cash Flows from Operating Activities section of the consolidated statements of cash flows.

Upcoming Accounting Pronouncement

Upcoming Accounting Pronouncement

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 introduces a new accounting model known as Current 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 receivable. There are other provisions within the standard affecting how impairments of other financial assets may be recorded and presented, as well as expanded disclosures. ASU 2016-13 is effective for calendar years beginning after December 15, 2022, including interim periods within those calendar years, with early adoption permitted. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Schedule of Property and Equipment Useful lives

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

Assets	Depreciable Life	Current Residual Value
Aircraft	7 years	$	50
Rotable parts	7 years		10	%
Spare engines	7 years	$	25
Ground equipment	up to 10 years		0	%
Office equipment	up to 10 years		0	%
Leasehold improvements	Shorter of asset or lease life		0	%

Summary of net unrealized gains and losses for the period that relate to marketable securities

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2022 is as follows:

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Net losses recognized during the period on equity securities	$	(3,749	)	$	(9,774	)
Less: Net gains and losses recognized during the period on equity securities sold during the period		—			—
Unrealized losses recognized during the period on equity securities held as of September 30, 2022	$	(3,749	)	$	(9,774	)

The calculation of net unrealized gains and losses that relate to marketable securities held as of September 30, 2021 is as follows:

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Net gains and losses recognized during the period on equity securities	$	(92	)	$	(106	)
Less: Net losses recognized during the period on equity securities sold during the period		42			1
Unrealized gains recognized during the period on equity securities held as of September 30, 2021	$	(134	)	$	(107	)

Summary of company's classification of Marketable Securities And Long Term Investments

The tables below set forth the Company’s classification of marketable securities and long-term investments as of the periods presented:

	September 30, 2022
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	106,087	$	106,087	$	—	$	—
Marketable securities – mutual funds		24,430		24,430		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	134,792	$	130,517	$	4,275	$	—

	September 30, 2021
	Total		Level 1		Level 2		Level 3
Marketable securities – exchange-traded funds	$	108,097	$	108,097	$	—	$	—
Marketable securities – mutual funds		18,446		18,446		—		—
Long-term investments – bonds (see Note 6)		4,275		—		4,275		—
Total	$	130,818	$	126,543	$	4,275	$	—

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Debt (Tables)

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

Schedule of Long-term Debt

Long-term debt consists of the following (with interest rates, as of the dates presented):

	September 30, 2022		December 31, 2021
Aircraft Notes, due December 31, 2025 (4.0%)	$	65,313	$	67,550
Less: current maturities		9,224		5,880
Total Long-Term Debt	$	56,089	$	61,670

Schedule of Maturities of Long-Term Debt

Maturities of long-term debt for the periods subsequent to September 30, 2022, are as follows:

Fiscal Year	Amount
October 2022 through December 2022	$	4,091
2023		9,154
2024		8,874
2025		43,194
Total	$	65,313

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Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2022

Leases [Abstract]

Summary of Operating Lease Related Terms and Discount Rates

The table below presents operating lease related terms and discount rates as of September 30, 2022:

Weighted-average remaining lease term	3.13	years
Weighted-average discount rate	5.70	%

Schedule of Component of Lease Cost

Components of lease costs were as follows for the dates presented: 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease costs	$	1,477	$	1,446	$	4,423	$	3,322
Short-term lease costs		77		80		306		389
Variable lease costs		63		46		158		113
Total Lease Costs	$	1,617	$	1,572	$	4,887	$	3,824

Schedule of Future Minimum Lease Payments Under Non-Cancelable Operating Leases

The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of September 30, 2022:

Fiscal Year	Amount
October 2022 through December 2022	$	1,452
2023		5,841
2024		3,365
2025		2,664
2026		177
Thereafter		527
Total lease payments		14,026
Less imputed interest		(1,848	)
Total Lease Liabilities	$	12,178

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Schedule of Cash Obligations

The following table sets forth the Company’s cash obligations for the periods presented:

	Total		October through December 2022		2023		2024		2025		2026		Thereafter
Aircraft Notes Principal	$	59,100	$	3,500	$	7,000	$	7,000	$	41,600	$	—	$	—
Aircraft Notes Interest		6,213		591		2,154		1,874		1,594		—		—
Operating Lease Obligations		14,026		1,452		5,841		3,365		2,664		177		527
Total	$	79,339	$	5,543	$	14,995	$	12,239	$	45,858	$	177	$	527

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Earnings Per Share and Equity (Tables)

9 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

Schedule of Calculations of Net Income Per Common Share

Calculations of net income per common share for the dates presented were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	8,022	$	36,279	$	32,366	$	82,025
Preferred stock dividends		198		198		594		594
Net income applicable to common stockholders	$	7,824	$	36,081	$	31,772	$	81,431
Weighted average common shares outstanding
Shares used in calculating basic earnings per share		45,776		54,153		46,637		54,491
Stock option		—		502		131		477

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Series C Preferred		16,500		16,500		16,500		16,500
Shares used in calculating diluted earnings per share		62,276		71,155		63,268		71,468
Earnings allocated to common stockholders per common share
Basic	$	0.17	$	0.67	$	0.68	$	1.49
Diluted	$	0.13	$	0.51	$	0.50	$	1.14

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Supplemental Cash Flow Information (Tables)

9 Months Ended

Sep. 30, 2022

Supplemental Cash Flow Elements [Abstract]

Summary of Cash and Cash Equivalents

The following table provides a reconciliation of all cash and cash equivalents and restricted cash reported on the consolidated balance sheet that sum to the total of those same amounts shown in the consolidated statement of cash flows:

	September 30, 2022
Cash and cash equivalents	$	19,013
Restricted cash		418
Total cash, cash equivalents, and restricted cash	$	19,431

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

Intangible assets consist of the following as of the dates presented:

	September 30, 2022		December 31, 2021
	Gross Carrying Amount		Gross Carrying Amount
Trade names and air carrier certificate		5,300		5,300
Total	$	5,300	$	5,300

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Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 31, 2021	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2020	Nov. 04, 2022	Dec. 31, 2021
Summary of Significant Accounting Policies [Line Items]
Depreciation expense		$ 6,224	$ 6,274	$ 18,656	$ 18,769
Deferred Revenue, Noncurrent		22,290		22,290
Long-term note receivable		$ 60,315		$ 60,315
Notes Receivable Instrument, Interest Rate		4.50%		4.50%
Notes Receivable Instrument, Maturity Date				Feb. 28, 2023
Interest receivable		$ 3,954		$ 3,954
Deferred revenue recognized		1,385		4,925
Revenue, Performance Obligation		5,138	728	12,746	13,699
Cash Settlement						$ 670
Note Receivable		11,048		11,048		11,048
Payments for proceeds from incentives and penalties		2,137	339	5,443	2,820
Cash Received From United For The Opening Of A Crew Base	$ 294
Restricted Cash		418		418				$ 1,449
Marketable securities		130,517		130,517				138,370
Revenue from contract with customers amount of consideration receivable due for settlement		18,693		18,693
Operating Expenses		55,910	38,664	164,994	81,437
Undisputed notes receivables							$ 50,126
Deferred income current		22,318		22,318				35,792
Notes Receivable [Member]
Summary of Significant Accounting Policies [Line Items]
Interest receivable		174		174
Revenue from contract with customers amount of consideration receivable due for settlement		14,175		14,175
October 2020 Amendment [Member]
Summary of Significant Accounting Policies [Line Items]
Deferred recognizing revenue	$ 73
Deferred revenue current		2,406		2,406
Deferred Revenue, Noncurrent		1,170		1,170
Deferred Cash Settlement due from United						$ 4,410
Deferred Revenue Recognition		453	512	1,611	1,150
Air Wisconsin [Member]
Summary of Significant Accounting Policies [Line Items]
Accounts receivable, net		22,302		22,302
Upfront fee		932	1,082	3,314	2,428
Fulfillment costs		100	116	355	260
Deferred Revenue Recognition		$ 5,180	5,298	$ 22,548	10,054
Revision of Prior Period, Reclassification, Adjustment [Member]
Summary of Significant Accounting Policies [Line Items]
Operating Expenses			$ 3,185		8,265
Deferred income current								$ 35,792
Reclassification from contract liabilities to deferred revenue					$ 27,961

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Summary of Significant Accounting Policies - Schedule of Property and Equipment Useful lives (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)
Aircraft [Member]
Property, Plant and Equipment [Line Items]
Property Plant And Equipment Useful Life	7 years
Current Residual Value	$ 50
Rotable Parts [Member]
Property, Plant and Equipment [Line Items]
Property Plant And Equipment Useful Life	7 years
Current Residual Value, percent	10.00%
Spare Engines [Member]
Property, Plant and Equipment [Line Items]
Property Plant And Equipment Useful Life	7 years
Current Residual Value	$ 25
Ground Equipment [Member]
Property, Plant and Equipment [Line Items]
Current Residual Value, percent	0.00%
Property Plant And Equipment Useful Life	up to 10 years
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Current Residual Value, percent	0.00%
Property Plant And Equipment Useful Life	up to 10 years
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Current Residual Value, percent	0.00%
Property Plant And Equipment Useful Life	Shorter of asset or lease life

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Summary of Significant Accounting Policies - Summary of company's classification of Marketable Securities And Long Term Investments (Detail) - USD ($) $ in Thousands	Sep. 30, 2022	Sep. 30, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	$ 134,792	$ 130,818
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	130,517	126,543
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	4,275	4,275
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	0	0
Marketable securities – exchange-traded funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	106,087	108,097
Marketable securities – exchange-traded funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	106,087	108,097
Marketable securities – exchange-traded funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	0	0
Marketable securities – exchange-traded funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	0	0
Marketable securities –mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	24,430	18,446
Marketable securities –mutual funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	24,430	18,446
Long-term investments – bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	4,275	4,275
Long-term investments – bonds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	0	0
Long-term investments – bonds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	4,275	4,275
Long-term investments – bonds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments, Owned, at Fair Value	$ 0	$ 0

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Summary of Significant Accounting Policies- Summary of net unrealized gains and losses for the period that relate to marketable securities (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Marketable Securities, Gain (Loss) [Abstract]
Net losses recognized during the period on equity securities	$ (3,749)	$ (92)	$ (9,774)	$ (106)
Less: Net gains and losses recognized during the period on equity securities sold during the period	0	42	0	1
Unrealized losses recognized during the period on equity securities held	$ (3,749)	$ (134)	$ (9,774)	$ (107)

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Liquidity - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021	Dec. 31, 2020
Liquidity Uncertainty And Going Concern [Line Items]
Gain (Loss) on Extinguishment of Debt	$ 53	$ 10,135	$ 53	$ 10,363
Small Business Administration Payroll Protection Program [Member] | Paycheck Protection Program Notes [Member]
Liquidity Uncertainty And Going Concern [Line Items]
Gain (Loss) on Extinguishment of Debt				10,135
Small Business Administration Payroll Protection Program [Member] | Air Wisconsin [Member]
Liquidity Uncertainty And Going Concern [Line Items]
Amount received from Small Business Administration under PPP						$ 10,000
Treasury Department Payroll Support Program [Member]
Liquidity Uncertainty And Going Concern [Line Items]
Payroll Support Agreement Awardable Amount						$ 42,185
PSP2 Agreement [member] | Air Wisconsin [Member] | Minimum [member]
Liquidity Uncertainty And Going Concern [Line Items]
Proceeds from cares act payroll support program grant					$ 32,987
PSP3 Agreement [member] | Air Wisconsin [Member]
Liquidity Uncertainty And Going Concern [Line Items]
Proceeds from American Rescue Plan Grant					$ 33,329
HRBR Payroll Support Program Agreement [Member] | Air Wisconsin [Member]
Liquidity Uncertainty And Going Concern [Line Items]
Payroll Support Program Contra Expense		$ 16,146		$ 66,316

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Capacity Purchase Agreements with United and American - Additional Information (Detail) - United Airlines [Member] - CRJ-200 [Member] - Aircraft	1 Months Ended
	Aug. 31, 2022	Feb. 28, 2017
Date of expiration of the agreement		Feb. 01, 2023
Maximum [member]
Number of aircraft to be operated for American Airlines	60

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Property and Equipment - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2022 Aircraft
CRJ-200 [Member]
Property, Plant and Equipment [Line Items]
Number of aircraft acquired	64

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Income Taxes - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Income Tax Disclosure [Line Items]
Effective income tax rate reconciliation percent total	23.80%	18.10%	23.80%	21.60%
Effective Income Tax Rate, Federal statutory rate	21.00%	21.00%	21.00%

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Debt - Schedule Of Long Term Debt (Detail) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Total debt	$ 65,313
Less: current maturities	9,224	$ 5,880
Long-Term Debt	56,089	61,670
Aircraft Notes Due December 31, 2025 [Member]
Total debt	$ 65,313	$ 67,550

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Debt - Additional information (Detail) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Jul. 31, 2003
Operating lease right of use asset	$ 14,789	$ 18,679
Hangar [Member]
Operating lease right of use asset	$ 2,605
City of Milwaukee, Wisconsin variable rate Industrial Development Bonds [Member]
Aggregate principal amount			$ 4,275

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Debt - Schedule of Maturities of Long-term Debt (Detail) $ in Thousands	Sep. 30, 2022 USD ($)
Maturities of Long-term Debt [Abstract]
October 2022 through December 2022	$ 4,091
2023	9,154
2024	8,874
2025	43,194
Total	$ 65,313

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Lease Obligations - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Lessee, Lease, Description [Line Items]
Operating lease right of use asset	$ 14,789		$ 14,789		$ 18,679
Current portion of operating lease liability	5,078		5,078		5,150
Long-term operating lease liability	7,100		7,100		$ 10,877
Cash payments included in the measurement of lease liabilities related to operating leases			4,484	$ 3,239
Operating lease rent expense	$ 1,617	$ 1,572	$ 4,887	$ 3,824
Minimum [Member]
Lessee, Lease, Description [Line Items]
Lease term of training simulators	12 months		12 months
Operating Lease Remaining Lease	9 months		9 months
Maximum [Member]
Lessee, Lease, Description [Line Items]
Operating Lease Remaining Lease	12 years		12 years

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Lease Obligations - Summary Of Weighted average Terms and Discount Rate For Operating Leases (Detail)	Sep. 30, 2022
Leases [Abstract]
Weighted-average remaining lease term	3 years 1 month 17 days
Weighted-average discount rate	5.70%

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Lease Obligations - Schedule of Component Of Lease Cost (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Lease, Cost [Abstract]
Operating lease costs	$ 1,477	$ 1,446	$ 4,423	$ 3,322
Short-term lease costs	77	80	306	389
Variable lease costs	63	46	158	113
Total Lease Costs	$ 1,617	$ 1,572	$ 4,887	$ 3,824

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Lease Obligations - Schedule of Future Minimum Lease Payments Under Non-Cancelable Operating Leases (Detail) $ in Thousands	Sep. 30, 2022 USD ($)
Leases [Abstract]
October 2022 through December 2022	$ 1,452
2023	5,841
2024	3,365
2025	2,664
2026	177
Thereafter	527
Total lease payments	14,026
Less imputed interest	(1,848)
Total Lease Liabilities	$ 12,178

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Commitments and Contingencies - Additional Information (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) Letter_Of_Credit
Other Commitments [Line Items]
Number of outstanding letters of credit | Letter_Of_Credit	6
Dispute Amount	$ 33,042
Air Wisconsin [Member]
Other Commitments [Line Items]
Outstanding credit facility	373
Aircraft Notes principal [Member]
Other Commitments [Line Items]
Semi-Annual Principal amount of notes payable	3,500
Letter of Credit [Member]
Other Commitments [Line Items]
Outstanding credit facility	$ 372

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Commitments and Contingencies - Cash Obligations (Detail) $ in Thousands	Sep. 30, 2022 USD ($)
Contractual Obligation Fiscal Year Maturity [Line Items]
Long-term debt, Total	$ 65,313
Long-term debt, due in 2022	4,091
Long-term debt, due in 2023	9,154
Long-term debt, due in 2024	8,874
Long-term debt, due in 2025	43,194
Total lease payments	14,026
Operating lease obligations, due in 2022	1,452
Operating lease obligations, due in 2023	5,841
Operating lease obligations, due in 2024	3,365
Operating lease obligations, due in 2025	2,664
Operating lease obligations, due in 2026	177
Operating lease obligations, due Thereafter	527
Total cash obligations	79,339
Total cash obligations, due in 2022	5,543
Total cash obligations, due in 2023	14,995
Total cash obligations, due in 2024	12,239
Total cash obligations, due in 2025	45,858
Total cash obligations, due in 2026	177
Total cash obligations, due Thereafter	527
Aircraft Notes Principal [Member]
Contractual Obligation Fiscal Year Maturity [Line Items]
Long-term debt, Total	59,100
Long-term debt, due in 2022	3,500
Long-term debt, due in 2023	7,000
Long-term debt, due in 2024	7,000
Long-term debt, due in 2025	41,600
Long-term debt, due in 2026	0
Aircraft Notes Interest [Member]
Contractual Obligation Fiscal Year Maturity [Line Items]
Long-term debt, Total	6,213
Long-term debt, due in 2022	591
Long-term debt, due in 2023	2,154
Long-term debt, due in 2024	1,874
Long-term debt, due in 2025	1,594
Long-term debt, due in 2026	$ 0

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Related-Party Transactions - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Related Party Transaction [Line Items]
Annual recurring fee payable monthly pursuant to service agreement			$ 150
Payment For Management services fee	$ 38	$ 38	113	$ 75
AWAC Aviation Inc [Member] | Financial Advisory And Management Services [Member]
Related Party Transaction [Line Items]
Payment For Management services fee	$ 60		$ 180

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Earnings Per Share and Equity - Calculations of Net Income Per Common Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Earnings Per Share Reconciliation [Abstract]
Net income	$ 8,022	$ 36,279	$ 32,366	$ 82,025
Preferred stock dividends	198	198	594	594
Net income applicable to common stockholders	$ 7,824	$ 36,081	$ 31,772	$ 81,431
Weighted average common shares outstanding
Shares used in calculating basic earnings per share	45,776	54,153	46,637	54,491
Stock option	0	502	131	477
Series C Preferred	16,500	16,500	16,500	16,500
Shares used in calculating diluted earnings per share	62,276	71,155	63,268	71,468
Earnings allocated to common stockholders per common share
Basic	$ 0.17	$ 0.67	$ 0.68	$ 1.49
Diluted	$ 0.13	$ 0.51	$ 0.5	$ 1.14

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Earnings Per Share and Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended	3 Months Ended		9 Months Ended
	Dec. 31, 2022	Sep. 30, 2022	Jan. 31, 2020	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Class of Stock [Line Items]
Preferred stock, liquidation preference		$ 0.8		$ 0.8		$ 0.8
Common stock, convertible, conversion price						$ 0.15091
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements				0	502	131	477
Treasury Stock, Common [Member]
Class of Stock [Line Items]
Share Based Arrangement Cash Payment For Stock Options Cancellation						$ 969
Series C Redeemable Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Temporary Equity:Conversion Cap Excess Shares			4,000	3,245		3,245
Dividend declared		$ 198
Date of dividend declaration		Sep. 30, 2022
Date of dividend payment		Sep. 30, 2022
Temporary Equity, Shares Outstanding		4,000,000		4,000,000		4,000,000		4,000,000
Common stock converted						16,500
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Conversion of preferred stock, maximum amount converted						16,500
Temporary Equity, Shares Outstanding		755		755		755
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements						131
Series C Preferred Stock [Member] | Forecast [Member]
Class of Stock [Line Items]
Cumulative quarterly preferred stock dividend rate increase after Dec.31, 2022	0.50%

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Supplemental Cash Flow Information - Additional Information (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Business Acquisition [Line Items]
Cash payments for interest	$ 1,784	$ 2,742
Cash payments for income taxes	3,348	25,683
Cash payments included in the measurement of lease liabilities related to operating leases	$ 4,484	$ 3,239

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Supplemental Cash Flow Information - Summary of Cash and Cash Equivalents (Detail) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Supplemental Cash Flow Elements [Abstract]
Cash and cash equivalents	$ 19,013	$ 37,170
Restricted cash	418	$ 1,449
Total cash, cash equivalents, and restricted cash	$ 19,431

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Intangible Assets - Components of Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Trade names and air carrier certificate	$ 5,300	$ 5,300
Total	$ 5,300	$ 5,300

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Stock Repurchase Program - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jan. 31, 2022	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Mar. 30, 2021
Equity, Class of Treasury Stock [Line Items]
Stock Repurchased During Period, Value		$ 799	$ 300	$ 10,733	$ 1,188
Common Stock [Member]
Equity, Class of Treasury Stock [Line Items]
Stock Repurchased During Period, Shares	5,437,500	(364)	(130)	(7,664)	(723)
Stock Repurchased During Period, Value	$ 5,655
Common Stock [Member] | Stock Repurchase Program [Member]
Equity, Class of Treasury Stock [Line Items]
Stock Repurchase Program, Authorized Amount in First Calendar Month						$ 1,000
Stock Repurchase Program, Authorized Amount to be Repurchased Each Month						1,000
Stock Repurchased During Period, Shares		364,174		7,664,033
Common Stock [Member] | Stock Repurchase Program [Member] | Restricted Cash [Member]
Equity, Class of Treasury Stock [Line Items]
Total cash		$ 45		$ 45

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Subsequent Events - Additional Information (Detail) $ in Thousands	Nov. 04, 2022 USD ($)
Subsequent Event [Line Items]
Undisputed notes receivables	$ 50,126
Subsequent Event [Member]
Subsequent Event [Line Items]
Undisputed notes receivables	$ 50,126