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 the Annual Report on Form
10-K
for the year ended December 31, 2020 (our "2020 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 those discussed 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 "we," "us," or
"our." Where reference is intended to refer only to Harbor, it is referred to as
the "Company."
For the three and nine months ended September 30, 2021, 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 significant presence at both Chicago O'Hare and
Washington-Dulles, two of United's key domestic hubs. All of Air Wisconsin's
flights are operated as United Express pursuant to the terms of the United
capacity purchase agreement. More than 99% of our operating revenues for the
three and nine months ended September 30, 2021 and September 30, 2020, 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, a fixed payment for each departure and block hour flown, and
reimbursement of certain direct operating expenses in exchange for providing
regional flying service for United. The agreement also provides for the payment
or accrual of certain amounts by United to Air Wisconsin based on scheduling
benchmarks. The United capacity purchase agreement has the effect of protecting
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 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.
In October 2020, Air Wisconsin entered into an amendment to the United capacity
purchase agreement that, among other things, 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
entered into a second amendment to the United capacity purchase agreement which
addressed the scheduling of block hours permitted in the event United did not
elect to exercise its extension rights within the agreement.
Impact of the
COVID-19
Pandemic on Our Business and Industry
As of the date of this filing, there continue to be widespread concerns
regarding the ongoing impacts and disruptions caused by the
COVID-19
pandemic in the regions in which Air Wisconsin operates. The extent to which the
COVID-19
pandemic will impact our industry, business, financial condition, and results of
operations in the future is highly uncertain and will be affected by a number of
factors. These include the duration and extent of the
COVID-19
pandemic, the development of new variants of the
COVID-19
virus that may be more contagious or virulent than prior versions, the scope and
effect of vaccine mandates and of other mandated or recommended containment and
mitigation measures, the effect of government stabilization and recovery
efforts, and the success of vaccine distribution programs.

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Focus on Safety for Employees and Passengers
The safety and well-being of our employees and passengers are our priority.
Throughout the
COVID-19
pandemic, Air Wisconsin has taken numerous steps to provide its employees and
passengers with the ability to take appropriate safety measures in accordance
with guidelines provided by the Centers for Disease Control and Prevention,
including working with United to:

• enhance Air Wisconsin's aircraft cleaning and sanitation procedures;





     •    provide gloves, masks, and other personal protective equipment for crew
          members;



  •   provide options to Air Wisconsin's employees who are diagnosed with
      COVID-19,
      including pay protection and extended leave options;



     •    implement workforce social distancing, mask requirements and other
          protection measures, and enhanced cleaning of our facilities; and



  •   provide regular, ongoing communication regarding impacts of the
      COVID-19
      pandemic, including health and safety protocols and procedures.


Reduction in Demand for Air Travel
Public concerns about the
COVID-19
virus, as well as the various governmental guidelines and restrictions adopted
to limit the spread of the virus, have had a material adverse impact on
passenger demand for air travel since the beginning of the pandemic. While
passenger demand for air travel has increased in recent months as a result of
the easing of certain of these guidelines and restrictions, as well as expanded
availability and adoption of vaccines. United has stated that it expects demand
will remain suppressed in 2021. As an example, United's scheduled capacity for
the three months ended September 30, 2021 was approximately 26% lower than its
scheduled capacity for the three months ended September 30, 2019.
Air Wisconsin's monthly departures and scheduled block hours have generally
increased since June 2020. However, there can be no assurance that this trend
will continue.
Notwithstanding the significant negative impact to our business and the airline
industry, Air Wisconsin's receipt of governmental assistance under the SBA Loan
and the Payroll Support Program, has mitigated to some extent the adverse
impacts of the
COVID-19
pandemic.
Impact on Competitive Environment
Worldwide, 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
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.
Operational Challenges
During the early stages of the
COVID-19
pandemic, Air Wisconsin's scheduled departures and block hours were
significantly reduced. As flight demand has increased, Air Wisconsin's scheduled
departures and block hours increased significantly in the three months ended
September 30, 2021. However, the effects of the
COVID-19
pandemic and the significant increase in scheduled departures and block hours
increased Air Wisconsin's costs and negatively affected its operations in the
three months ended September 30, 2021 in several respects:
(i) Air Wisconsin had to cancel certain flights due to pilot and mechanic
staffing issues, which is consistent with trends experienced across the airline
industry;
(ii) the cost of certain maintenance activities increased as a result of supply
chain issues;
(iii) aircraft maintenance and repair costs, as well as payroll costs increased
as a result of increased flying levels across our industry;
(iv) one of Air Wisconsin's maintenance bases was closed for six days as a
result of an outbreak of
COVID-19
among the employees at that base, which required moving aircraft to different
maintenance bases or the use of third-party maintenance providers;

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(v) certain changes in the flight schedules that United assigned to Air
Wisconsin resulted in insufficient utilization of Air Wisconsin's maintenance
bases, which led to increases in Air Wisconsin's expenses; and
(vi) these operational and performance issues negatively impacted the incentive
payments Air Wisconsin receives under the United capacity purchase agreement and
in some cases may require the payment of penalties.
United is permitted to terminate the United capacity purchase agreement prior to
the expiration of the term in certain circumstances, including Air Wisconsin's
controllable completion factor falling below a pre-determined level for four
consecutive months. The operational and performance challenges experienced by
Air Wisconsin during the third quarter resulted in a significant reduction in
its controllable completion factor relative to prior periods. Although Air
Wisconsin and United have not reconciled the data for Air Wisconsin's recent
performance, preliminary data indicate that September and October performance
may have been below the minimum monthly controllable completion factor
threshold. Air Wisconsin has taken a number of steps to improve operational
performance and currently expects to meet or exceed the threshold controllable
completion factor level for November, although there can be no assurance that it
will be able to do so.
Paycheck Protection Program
In April 2020, Air Wisconsin received a $10.0 million loan ("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 loan was
forgivable subject to certain limitations, including that the loan proceeds be
used to retain workers and for payroll, mortgage payments, leave payments, and
utility payments. The entire principal amount and accrued interest was forgiven
in August 2021 in the amount of $10.1 million, which was recorded as gain on
extinguishment of debt in the consolidated statements of operations for the
three months ended September 30, 2021.
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 Payroll Support
Program, Air Wisconsin received approximately $42.2 million, all of which was
received in the year ended December 31, 2020. The Treasury commenced a routine
audit of Air Wisconsin's compliance with the terms of the
PSP-1
Agreement.
In December 2020, the federal Consolidated Appropriations Act of 2021 ("PSP
Extension Law") was adopted, which provides 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 $32.9 million pursuant to the
PSP-2
Agreement, all of which was received in the six months ended June 30, 2021.
In March 2021, the federal American Rescue Plan Act of 2021 ("American Rescue
Plan") was adopted, which provides 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"), which is substantially similar to the
PSP-1
Agreement and the
PSP-2
Agreement. Air Wisconsin received approximately $33.3 million pursuant to the
PSP-3
Agreement, of which approximately $16.7 million was received in the three months
ended September 30, 2021.
The PSP Agreements contain various covenants, including that (i) the payroll
support proceeds must be used exclusively for the payment of wages, salaries,
and benefits, (ii) Air Wisconsin cannot involuntarily terminate or furlough any
employee or reduce any employee's pay rates or benefits without that employee's
consent, in any case prior to certain dates, (iii) Air Wisconsin cannot pay
total compensation to certain employees in excess of certain total compensation
caps, (iv) Air Wisconsin cannot pay dividends or make other capital
distributions prior to certain dates, and (v) neither Air Wisconsin nor any of
its affiliates can purchase an equity security of Air Wisconsin, or any direct
or indirect parent company of Air Wisconsin, that is listed on a national
securities exchange prior to certain dates. If Air Wisconsin fails to comply
with its obligations under these agreements, it may be required to repay some or
all of the funds provided to it under these agreements. Any such default,
acceleration, insolvency or failure to comply would likely have a material
adverse effect on our business. In addition, the PSP Agreements authorize the
Secretary of the Department of Transportation to impose certain air service
obligations on recipients of payroll support until March 1, 2022. To date, no
such service obligation has been imposed on Air Wisconsin.
For additional information, refer to Note 8,
Commitments and Contingencies
in our unaudited consolidated financial statements included in this Quarterly
Report.

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Exploring Business Opportunities
In July 2021, Air Wisconsin entered into a lease for a
CRJ-200
aircraft in freighter configuration that is expected to be delivered by the end
of 2021. This aircraft has not yet been added to Air Wisconsin's FAA Operations
Specifications. Air Wisconsin has added the
CRJ-700,
and is in the process of adding the
CRJ-900,
to its FAA Operations Specifications. Although Air Wisconsin does not currently
have a customer for the freighter or any
CRJ-700
or
CRJ-900
aircraft, it is adding these additional aircraft capabilities to its fleet in an
attempt to position itself to explore and take advantage of other business
opportunities that may arise.
Other Economic Conditions, Challenges and Risks Impacting Financial Results
See the section entitled "
Management's Discussion and Analysis of Financial Condition and Results of
Operations
" within our 2020 Annual Report for a discussion of the general and specific
factors and trends affecting our business and results of operations.
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and the Three Months
Ended September 30, 2020
The following table sets forth our major operational statistics and the
associated percentage changes for the periods identified below.

                                                   Three Months Ended

                                                     September 30,
                                                  2021            2020                 Change
Operating Data:
Available Seat Miles ("ASMs") (in
thousands)                                         438,990        134,467        304,523         226.5 %
Actual Block Hours                                  37,995         11,487         26,508         230.8 %
Actual Departures                                   26,137          8,581         17,556         204.6 %
Revenue Passenger Miles ("RPMs") (in
thousands)                                         364,533         66,150        298,383         451.1 %
Average Stage Length (in miles)                        341            324             17           5.2 %
Contract Revenue Per Available Seat Mile
("CRASM") (in cents)                                 16.37 ¢        20.30 ¢        (3.93 )¢      (19.4 )%
Passengers                                       1,047,201        199,232

847,969 425.6 %




The increase in ASMs, block hours, departures, and RPMs during the three months
ended September 30, 2021, compared to the three months ended September 30, 2020,
was primarily due to an increase in flying under the United capacity purchase
agreement as a result of increased demand for air travel related to the recovery
from the
COVID-19
pandemic.
Operating Revenues
The following table sets forth our operating revenues and the associated dollar
and percentage changes for the dates presented:

                                         Three Months Ended

                                            September 30,
                                          2021          2020              Change
Operating Revenues ($ in thousands):
Contract Revenues                      $   71,866     $ 27,298     $ 44,568       163.3 %
Contract Services and Other                    21           20            1         5.0 %

Total Operating Revenues               $   71,887     $ 27,318     $ 44,569       163.1 %



Total operating revenues increased by $44.6 million, or 163.1%, during the three
months ended September 30, 2021, compared to the three months ended
September 30, 2020, primarily due to an increase in flying under the United
capacity purchase agreement as a result of increased demand for air travel
related to the recovery from the
COVID-19
pandemic.

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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:

                                                   Three Months Ended

                                                     September 30,
                                                  2021           2020                 Change
Operating Expenses ($ in thousands):
Payroll and Related Costs                       $  29,056      $  21,852      $  7,204          33.0 %
Aircraft Fuel and Oil                                  51              8            43         537.5 %
Aircraft Maintenance, Materials and Repairs        10,692          3,292         7,400         224.8 %
Aircraft Rent                                          -             897          (897 )      (100.0 )%
Other Rents                                         1,572            806           766          95.0 %
Depreciation, Amortization and Obsolescence         6,570          6,946          (376 )        (5.4 )%
Payroll Support Program                           (16,146 )      (18,859 )       2,713         (14.4 )%
Purchased Services and Other                        6,869          4,048         2,821          69.7 %

Total Operating Expenses                        $  38,664      $  18,990      $ 19,674         103.6 %



Payroll and Related Costs
. Payroll and related costs increased $7.2 million, or 33.0%, to $29.1 million
for the three months ended September 30, 2021, compared to the three months
ended September 30, 2020. The increase was primarily driven by an increase in
crew wages, bonuses and training expenses of $4.3 million, an increase in
personnel expenses, including per diem and crew rooms of $2.3 million, an
increase in maintenance wages of $0.4 million and an increase in other wages,
taxes and benefits of $0.3 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, 2021 and September 30, 2020 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, 2021 and September 30, 2020.
Aircraft Maintenance, Materials and Repairs
. Aircraft maintenance, materials and repairs costs increased $7.4 million, or
224.8%, to $10.7 million for the three months ended September 30, 2021, compared
to the three months ended September 30, 2020. The increase was primarily driven
by an increase in required maintenance and repair activities due to an increase
in flying attributable to increased passenger demand for air transportation.
Aircraft Rent
. Aircraft rent expense decreased $0.9 million, or 100.0%, to no aircraft rent
expense for the three months ended September 30, 2021, compared to the three
months ended September 30, 2020. The decrease was due to Air Wisconsin's
acquisition of all of its remaining leased aircraft during 2020.
Other Rents
. Other rents expense increased $0.8 million, or 95.0%, to $1.6 million for the
three months ended September 30, 2021, compared to the three months ended
September 30, 2020. The increase was primarily due to an increase of
$0.8 million in flight training simulator rental expense.
Depreciation, Amortization and Obsolescence
. Depreciation, amortization and obsolescence expense decreased $0.4 million, or
5.4%, to $6.6 million for the three months ended September 30, 2021, compared to
the three months ended September 30, 2020. The decrease was primarily due to the
retirement of leasehold improvements on formerly leased aircraft and a decrease
in the obsolescence reserve related to our inventory of aircraft parts.
Payroll Support Program
.
The proceeds of the Treasury Payroll Support received pursuant to the PSP
Agreements are recorded in cash and cash equivalents when received and were
recognized as a reduction in expense over the periods that the funds are
intended to offset payroll expenses. In the three months ended September 30,
2021, and September 30, 2020, Air Wisconsin received approximately $16.7 million
and $20.5 million, respectively, under the Payroll Support Program. The Company
recognized approximately $16.1 million and $18.9 million under the Payroll
Support Program as a contra-expense on its consolidated statements of operations
for the three months ended September 30, 2021, and September 30, 2020,
respectively.
Purchased Services and Other
. Purchased services and other expense increased $2.8 million, or 69.7%, to
$6.9 million for the three months ended September 30, 2021, compared to the
three months ended September 30, 2020. This increase was primarily due to an
increase in outside services, consisting primarily of aircraft line maintenance
of $1.9 million, an increase in insurance expense of $0.4 million, and an
increase in on call maintenance expense of $0.2 million.

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Other Income (Expense)
Interest Income
. Interest income increased by $0.6 million for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020. The
increase was primarily due to an increase in interest earned on the long-term
notes receivable due from United.
Interest Expense
. Interest expense decreased by $0.3 million for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020,
primarily due to the prepayment of debt in June 2021 and the repayment of debt
in December 2020. 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 2020 Annual Report and Note 6,
Debt
, in our unaudited consolidated financial statements included in this Quarterly
Report.
Loss on Marketable Securities
.
Loss on marketable securities was $0.09 million for the three months ended
September 30, 2021. The loss reflects the change in market value and sales of
securities as of the three months ended September 30, 2021. There were no
marketable securities held during the three months ended September 30, 2020.
Gain on Extinguishment of Debt.
Gain on extinguishment of debt was $10.1 million for the three months ended
September 30, 2021. The gain resulted from the forgiveness of the SBA Loan.
Other, Net
. Other income increased by $0.6 million for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020. The
other income consists of dividend income from investments in marketable
securities.
Net Income
Net income for the three months ended September 30, 2021 was $36.3 million, or
$0.67 per basic share and $0.51 per diluted share, compared to net income of
$7.9 million, or $0.14 per basic share and $0.11 per diluted share, for the
three months ended September 30, 2020. For additional information, refer to Note
10,
Earnings per Share
and Equity
, in our unaudited consolidated financial statements included in this Quarterly
Report.
The increase in net income for the three months ended September 30, 2021
primarily resulted from increased revenues as a result of the increase in demand
for air travel and the gain resulting from the forgiveness of the SBA Loan,
which was partially offset by an overall increase in operating expenses. Within
operating expenses, aircraft maintenance and repair costs, as well as payroll
and related costs, increased due to increased flying levels.
Income Taxes
In the three months ended September 30, 2021, our effective tax rate was 18.1%,
compared to (0.2)% for the three months ended September 30, 2020. Our tax rate
can vary depending on changes in tax laws, adoption of accounting standards, the
amount of income we earn in each state and the state tax rate applicable to such
income, as well as any valuation allowance required on our federal and state net
operating losses.
We recorded an income tax expense of $8.0 million and an income tax benefit of
$0.01 million for the three months ended September 30, 2021 and September 30,
2020, respectively.
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.
The income tax provision for the three months ended September 30, 2020 resulted
in an effective tax rate of (0.2)%, which differed from the U.S. federal
statutory rate of 21.0%, primarily due to the impact of state income taxes, the
reversal of valuation allowances on federal and state deferred tax assets, 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 2020
Annual Report.

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Comparison of the Nine Months Ended September 30, 2021 and the Nine Months Ended
September 30, 2020
The following table sets forth our major operational statistics and the
associated percentage changes for the periods identified below.

                                                 Nine Months Ended

                                                   September 30,
                                               2021             2020                   Change
Operating Data:
Available Seat Miles (ASMs) (in
thousands)                                      918,676          653,629          265,047         40.6 %
Actual Block Hours                               81,989           55,689           26,300         47.2 %
Actual Departures                                57,734           38,482           19,252         50.0 %
Revenue Passenger Miles (RPMs) (in
thousands)                                      715,066          379,852          335,214         88.2 %
Average Stage Length (in miles)                     322              342              (20 )       (5.8 )%
Contract Revenue Per Available Seat Mile
(CRASM) (in cents)                                18.99 ¢          17.00 ¢           1.99 ¢       11.7 %
Passengers                                    2,147,805        1,064,478

1,083,327 101.8 %




The increase in departures and RPMs during the nine months ended September 30,
2021, compared to the nine months ended September 30, 2020, was primarily due to
an increase in flying under the United capacity purchase agreement as a result
of increased demand for air travel related to the recovery from the
COVID-19
pandemic.
Operating Revenues
The following table sets forth our operating revenues and the associated dollar
and percentage changes for the dates presented:

                                          Nine Months Ended

                                            September 30,
                                         2021          2020               Change
Operating Revenues ($ in thousands):
Contract Revenues                      $ 174,467     $ 111,113     $ 63,354        57.0 %
Contract Services and Other                   54            59           (5 )      (8.5 )%

Total Operating Revenues               $ 174,521     $ 111,172     $ 63,349        57.0 %



Total operating revenues increased by $63.3 million, or 57.0%, during the nine
months ended September 30, 2021, compared to the nine months ended September 30,
2020, primarily due to an increase in flying under the United capacity purchase
agreement as a result of increased demand for air travel related to the recovery
from the
COVID-19
pandemic.
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,
                                                  2021           2020                 Change
Operating Expenses ($ in thousands):
Payroll and Related Costs                       $  76,819      $  76,885      $     (66 )       (0.1 )%
Aircraft Fuel and Oil                                 108             44             64        145.5 %
Aircraft Maintenance, Materials, and Repairs       29,224         18,802         10,422         55.4 %
Aircraft Rent                                          67          6,660         (6,593 )      (99.0 )%
Other Rents                                         3,757          3,856            (99 )       (2.6 )%
Depreciation, Amortization, and Obsolescence       19,569         20,553           (984 )       (4.8 )%
Payroll Support Program                           (66,316 )      (34,034 )      (32,282 )       94.9 %
Purchased Services and Other                       18,209         14,459          3,750         25.9 %

Total Operating Expenses                        $  81,437      $ 107,225      $ (25,788 )      (24.1 )%




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Payroll and Related Costs
. Payroll and related costs decreased $0.07 million, or 0.1%, to $76.8 million
for the nine months ended September 30, 2021, compared to the nine months ended
September 30, 2020. The decrease was primarily driven by a decrease in other
wages, taxes and benefits of $3.3 million, a decrease in management wages of
$1.5 million and a decrease in maintenance wages of $0.7 million. This decrease
was offset by an increase in crew wages, bonuses and training expenses of
$3.5 million and an increase in personnel expenses, including per diem and crew
rooms, of $1.8 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, 2021 and September 30, 2020 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, 2021 and September 30, 2020.
Aircraft Maintenance, Materials and Repairs
. Aircraft maintenance, materials and repairs costs increased $10.4 million, or
55.4%, to $29.2 million for the nine months ended September 30, 2021, compared
to the nine months ended September 30, 2020. The increase was primarily driven
by an increase in required maintenance and repair activities due to an increase
in flying attributable to increased passenger demand for air transportation.
Aircraft Rent
. Aircraft rent expense decreased $6.6 million, or 99.0%, to $0.07 million for
the nine months ended September 30, 2021, compared to the nine months ended
September 30, 2020. The decrease was due to Air Wisconsin's acquisition of its
remaining leased aircraft operated during 2020.
Other Rents
. Other rents expense decreased $0.1 million, or 2.6%, to $3.8 million for the
nine months ended September 30, 2021, compared to the nine months ended
September 30, 2020. The decrease was primarily due to a decrease of $0.2 million
in building rent offset by an increase of $0.05 million in flight training
simulator rental expense.
Depreciation, Amortization and Obsolescence
. Depreciation, amortization and obsolescence expense decreased $1.0 million, or
4.8%, to $19.6 million for the nine months ended September 30, 2021, compared to
the nine months ended September 30, 2020. The decrease was primarily due to the
retirement of leasehold improvements on formerly leased aircraft and a decrease
in the obsolescence reserve related to our inventory of aircraft parts.
Payroll Support Program
.
The proceeds of the Treasury Payroll Support received pursuant to the PSP
Agreements are recorded in cash and cash equivalents when received and were
recognized as a reduction in expense over the periods that the funds are
intended to offset payroll expenses. In the nine months ended September 30,
2021, and September 30, 2020, Air Wisconsin received approximately $66.3 million
and $41.0 million, respectively, under the Payroll Support Program. The Company
recognized approximately $66.3 million and $34.0 million under the Payroll
Support Program as a contra-expense on its consolidated statements of operations
for the nine months ended September 30, 2021, and September 30, 2020,
respectively.
Purchased Services and Other
. Purchased services and other expense increased $3.8 million, or 25.9%, to
$18.2 million for the nine months ended September 30, 2021, compared to the nine
months ended September 30, 2020. This increase was primarily due to an increase
in outside services, consisting primarily of aircraft line and on call
maintenance, of $4.2 million, and an increase in insurance expense of
$0.8 million, partially offset by a decrease in legal expense of $0.4 million, a
decrease in professional and technical fees, consisting primarily of consulting
and auditing services of $0.4 million, a decrease in property tax expense of
$0.1 million, and a decrease in miscellaneous expenses of $0.2 million.
Other Income (Expense)
Interest Income
. Interest income increased by $1.2 million for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020. The
increase was primarily due to an increase in interest earned on the long-term
notes receivable due from United.
Interest Expense
. Interest expense decreased by $0.5 million for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020,
primarily due to the prepayment of debt in June 2021 and the repayment of debt
in December 2020. 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 2020 Annual Report and Note 6,
Debt
, in our unaudited consolidated financial statements included in this Quarterly
Report.
Loss on Marketable Securities
.
Loss on marketable securities was $0.1 million for the nine months ended
September 30, 2021. The loss reflects the change in market value and sales of
securities as of the nine months ended September 30, 2021. There were no
marketable securities held during the nine months ended September 30, 2020.

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Gain on Extinguishment of Debt.
Gain on extinguishment of debt was $10.4 million for the nine months ended
September 30, 2021. A gain of $10.1 million resulted from the forgiveness of the
SBA Loan with the remainder attributable to the prepayment of debt.
Other, Net
. Other income increased by $0.7 million for the nine months ended September 30,
2021, compared to the nine months ended September 30, 2020. The other income
consists of dividend income from investments in marketable securities.
Net Income
Net income for the nine months ended September 30, 2021 was $82.0 million, or
$1.49 per basic share and $1.14 per diluted share, compared to net income of
$4.0 million, or $0.06 per basic and diluted share for the nine months ended
September 30, 2020. For additional information, refer to Note 10,
Earnings per Share
and Equity
, in our consolidated financial statements included in this Quarterly Report.
The increase in net income for the nine months ended September 30, 2021
primarily resulted from increased revenues as a result of increased demand for
air travel and overall lower operating expenses, as a result of the increase in
the contra-expense related to funds received under the Payroll Support Program,
and the gain resulting from the forgiveness of the SBA Loan. Although overall
operating expenses were lower in the nine months ended September 30, 2021 when
compared to the nine months ended September 30, 2020, there were significant
increases in aircraft maintenance and repair costs as well as payroll and
related costs resulting from the increased flying levels.
Income Taxes
In the nine months ended September 30, 2021, our effective tax rate was 21.6%,
compared to (38.3)%, for the nine months ended September 30, 2020. Our tax rate
can vary depending on changes in tax laws, adoption of accounting standards, the
amount of income we earn in each state and the state tax rate applicable to such
income, as well as any valuation allowance required on our federal and state net
operating losses.
We recorded an income tax expense of $22.6 million and an income tax benefit of
$1.1 million for the nine months ended September 30, 2021 and September 30,
2020, respectively.
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 and taxable income.
The income tax provision for the nine months ended September 30, 2020 resulted
in an effective tax rate of (38.3)%, which differed from the U.S. federal
statutory rate of 21.0%, primarily due to the impact of state taxes, the
reversal of valuation allowances on federal and state deferred tax assets, and
permanent differences between financial statement and taxable income, offset by
a discrete tax benefit of $0.9 million from a refund of alternative minimum tax
credits available under a provision of the CARES Act that occurred during the
period.
For additional information, refer to Note 5,
Income Taxes
, in our consolidated financial statements included within our 2020 Annual
Report.
Liquidity and Capital Resources
Although Air Wisconsin's departures and block hours have increased through the
nine months ended September 30, 2021 and the date of this filing, the
COVID-19
pandemic continues to evolve. As such, the ongoing impact that the
COVID-19
pandemic will have on our financial condition, results of operations, and
liquidity remains highly uncertain. Management is actively monitoring the impact
on our operations, airline partner, suppliers, industry, and workforce. We are
taking actions based on currently available information to address the changing
business environment; however, we cannot predict what changes in circumstances
and future developments may occur or what effect those changes or developments
may have on our business.
Sources and Uses of Cash
Our principal sources of liquidity are our cash and cash equivalents balance,
our marketable securities, Air Wisconsin's cash flows from operations, and its
receipt of governmental assistance under the SBA Loan and the Payroll Support
Program. As of September 30, 2021, our cash and cash equivalents balance was
$43.7 million and we held $126.5 million of marketable securities. For the nine
months ended September 30, 2021, we generated cash flows from operations of
$82.8 million, which included $66.3 million received pursuant to the Payroll
Support Program. In the near term, Air Wisconsin expects to fund its liquidity
requirements through cash generated from operations and existing cash, cash
equivalents, and marketable securities balances.

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Air Wisconsin requires cash to fund its operating expenses and working capital
requirements, which include outlays for capital expenditures, labor,
maintenance, 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. 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, 2021, we paid $1.3 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 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, 2021, Air Wisconsin
had $2.4 million of short-term debt, and $65.8 million of long-term debt, all of
which is secured indebtedness incurred in connection with the Aircraft Notes
described within our 2020 Annual Report. 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 2020 Annual Report and Note 6,
Debt
, in our unaudited consolidated financial statements included in this Quarterly
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 the Company. 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, 2021, in addition to cash and cash equivalents of
$43.7 million, the Company had $1.1 million in restricted cash which relates to
a credit facility used for the issuance of cash collateralized letters of credit
supporting our worker's compensation insurance program, landing fees at certain
airports and facility leases, as well as cash held for the repurchase of shares
under the Company's stock repurchase program. Restricted cash includes amounts
escrowed in an interest-bearing account that secure the credit facility.
Cash Flows
The following table presents information regarding our cash flows for each of
the dates presented ($ in thousands):

                                                Nine Months Ended
                                                  September 30,
                                               2021            2020

Change


Net cash provided by operating
activities                                  $   82,829       $ 59,294       $   23,535             39.7 %

Net cash used in investing activities (127,983 ) (9,081 ) 

   (118,902 )        1,309.3 %
Net cash (used in) provided by financing
activities                                     (41,248 )          894

(42,142 ) (4,713.9 )%




Net Cash Flows Provided by Operating Activities
During the nine months ended September 30, 2021, our net cash flows provided by
operating activities was $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 when compared to the nine
months ended September 30, 2020. 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.

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During the nine months ended September 30, 2020, our cash flows provided by
operating activities was $59.3 million. We had net income of $4.0 million, which
was primarily due to lower expenses as a result of payroll support received
under the PSP Agreements, and lower expenses related to reduced flying activity,
further adjusted for increases in cash primarily related to long-term deferred
revenue of $29.2 million under the United capacity purchase agreement,
depreciation and engine overhaul amortization of $21.5 million, deferred credits
related to the Payroll Support Program of $7.0 million, $2.5 million related to
operating lease
right-of-use
assets and contract liabilities of $4.6 million, partially offset by decreases
in cash primarily related to accounts payable of $5.5 million, amortization of
contract costs of $1.7 million, prepaid expenses of $2.6 million and accounts
receivable of $3.2 million.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2021, our net cash used in investing
activities was $128.0 million resulting primarily from investments in marketable
securities.
During the nine months ended September 30, 2020, our net cash used in investing
activities was $9.1 million resulting primarily from the purchase of aircraft
and an investment in rotable parts and engine overhauls to support Air
Wisconsin's fleet under the United capacity purchase agreement.
Net Cash (Used in) Provided by Financing Activities
During the nine months ended September 30, 2021, our net cash used in financing
activities was $41.2 million, reflecting $39.5 million in repayments of
long-term debt, $0.6 million of dividends paid on the Series C Preferred, and
$1.2 million to repurchase shares of our common stock.
During the nine months ended September 30, 2020, our net cash provided by
financing activities was $0.9 million, reflecting Air Wisconsin's receipt of a
$10.0 million loan under the PPP established pursuant to the CARES Act,
partially offset by a dividend payment of $0.6 million on the Series C Preferred
and payments of long-term debt of $8.5 million.
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 2020 Annual Report.
In June 2021, Air Wisconsin prepaid approximately $11.4 million of debt,
outstanding under the Aircraft Notes due December 31, 2025, and approximately
$17.0 million of the principal amount outstanding under a credit agreement due
2022 along with all interest due as of June 30, 2021. The prepayment under the
Aircraft Notes resulted in a $0.2 million gain on extinguishment of debt due to
the decrease in previously expected future undiscounted cash flows used in
determining the carrying value of the debt.
In August 2021, the SBA granted forgiveness of the $10.0 million SBA Loan. The
accrued interest in the amount of $0.1 million was also forgiven. The
forgiveness resulted in a $10.1 million gain on extinguishment of debt.
In September 2021, Air Wisconsin prepaid the remaining amount due under the
credit agreement due 2022 in the amount of $10.0 million along with interest of
$0.1 million.
The following table sets forth our cash obligations as of September 30, 2021 ($
in thousands)

                                                October

                                                through

                                                December

                                   Total          2021          2022

2023 2024 2025 Thereafter Aircraft Notes Principal $ 59,500 $ - $ 3,500 $ 7,000 $ 7,000 $ 42,000 $ -


 Aircraft Notes Interest             8,645            595        2,380        2,170        1,890        1,610               -

Operating Lease Obligations 19,987 1,479 6,017 


  5,832        3,356        2,644              659

Total                             $ 88,132     $    2,074     $ 11,897     $ 15,002     $ 12,246     $ 46,254     $        659



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, 2021, 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 2020 Annual Report and Note 6,
Debt
, in our unaudited consolidated financial statements included in this Quarterly
Report.

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Acquisition from Southshore
In January 2020, the Company 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 the
Company'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 under lease arrangements. For
additional information, refer to the section entitled "
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Economic Conditions, Challenges and Risks Impacting Results -
Aircraft Leases
" within our 2020 Annual Report.
In January 2020, the Company 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.
Series C Convertible Redeemable Preferred Stock
The Series C Preferred accrues cumulative quarterly dividends at the rate per
share of 6.0% of the Series C Issue Price per annum, which are cumulative and
compound quarterly to the extent dividends have not been declared by the Board
of Directors (the "Preferential Dividends"). From and after December 31, 2023,
upon the election of holders of a majority of the outstanding Series C
Preferred, the rate of the Preferential Dividends shall be increased by an
additional 1.0% per annum per share for each and every
six-month
period following such election (the "Dividend Ratchet"). At the option of the
Board of Directors, in lieu of paying the Preferential Dividends and the
Conversion Cap Excess Dividends (as defined below) in cash, all or some of such
dividends may be paid in additional shares of Series C Preferred (the "PIK
Dividends"). On September 28, 2021, the Board of Directors declared a dividend
of approximately $0.2 million on the Series C Preferred, which was paid on
September 30, 2021.
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 Certificate of Designations requires that the
Conversion Price be adjusted to equal the Weighted Average Price (as defined in
the Certificate of Designations) of the common stock during the Reporting
Adjustment Period. The "Reporting Adjustment Period" was the first
90-trading
day period commencing on or after August 28, 2020 (which was the first trading
day following the day that was 45 days following the date on which the Company
provided notice to its stockholders of the filing of its Annual Report on
Form 10-K
for the year ended December 31, 2019) during which an aggregate of at least 5.0%
of the outstanding shares of common stock were traded. The Conversion Price was
adjusted as of January 7, 2021 to be $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 the date of this filing, 754,550 shares of the
Series C Preferred are immediately convertible into 16,500,000 shares of common
stock (representing 23.4% of the fully diluted shares of capital stock of the
Company), and the remaining 3,245,450 shares of the Series C Preferred would be
deemed Conversion Cap Excess Shares.
In the event of any liquidation, dissolution or winding up of the Company or a
sale of the Company, the Series C Preferred shall be entitled to receive, prior
and in preference to any distribution of any assets of the Company 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 (the
"Series C Liquidation Amount").

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At any time following the earliest of (a) the date that is four years after the
earlier of the Reporting Date or (i) any merger or consolidation to which the
Company is a constituent party and to which one or more third-party entities,
unaffiliated with the Company, are constituent parties or (ii) any transaction
or series of related transactions pursuant to which the Company shall issue or
sell a number of shares of common stock greater than 5.0% of the number of
shares of common stock then outstanding, (b) the date the Dividend Ratchet has
been initiated, (c) any time that fewer than 800,000 shares of Series C
Preferred are outstanding, and (d) December 31, 2024, the Company shall have the
right to redeem all, but not less than all, of the shares of Series C Preferred
then outstanding at a per share price equal to the then current Series C
Liquidation Amount (the "Redemption Price"). At any time after the outstanding
shares of Series C Preferred are deemed Conversion Cap Excess Shares, the
Company shall have the right to redeem all, but not less than all, of the
Conversion Cap Excess Shares then outstanding at the Redemption Price.
Based on the applicable accounting guidance, the Company 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 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.
The Company accounts for its Series C Preferred in accordance with the guidance
in ASC Topic 480,
 Distinguishing Liabilities from Equity
. Based on this 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.
Aircraft Operating Leases
As of September 30, 2021, Air Wisconsin had no operating aircraft remaining on
lease.
Debt and Credit Facilities
For additional information regarding our debt and credit facilities, see the
section entitled "
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Debt and Credit Facilities
" within our 2020 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, leave payments, and
utility payments. The entire principal amount and accrued interest was forgiven
in August 2021, in the amount of $10.1 million, which was recorded as gain on
extinguishment of debt in the consolidated statements of operations for the
three months ended September 30, 2021.
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 $32.9 million, all of which was received in the six
months ended June 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, approximately
$16.7 million of which was received in the three months ended September 30,
2021.
The PSP Agreements contain various covenants, including that (i) the payroll
support proceeds must be used exclusively for the payment of wages, salaries and
benefits, (ii) Air Wisconsin cannot involuntarily terminate or furlough any
employee or reduce any employee's pay rates or benefits without that employee's
consent, in any case prior to certain dates, (iii) Air Wisconsin cannot pay
total compensation to certain employees in excess of certain total compensation
caps, (iv) Air Wisconsin cannot pay dividends or make other capital
distributions prior to certain dates, and (v) neither Air Wisconsin nor any of
its affiliates can purchase an equity security of Air Wisconsin or any direct or
indirect parent company of Air Wisconsin that is listed on a national securities
exchange prior to certain dates. If Air Wisconsin fails to comply with its
obligations under the PSP Agreements, it may be required to repay some or all of
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. In addition, the PSP Agreements authorize the Secretary of the
Department of Transportation to impose certain air service obligations on
recipients of payroll support until March 1, 2022. To date, no such service
obligation has been imposed on Air Wisconsin. For additional information, refer
to Note 8,
Commitments and Contingencies
, in our consolidated financial statements included in this Quarterly Report.

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Maintenance Commitments
For additional information regarding our maintenance commitments, see the
section entitled "
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Maintenance Commitments
" within our 2020 Annual Report.
Off-Balance
Sheet Arrangements
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
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. Our critical accounting
policies relate to revenue recognition, leases, 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, see the section entitled
"
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies
" within our 2020 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 2020 Annual Report.
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 and principal financial 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, 2021, the last day of the period
covered by this Quarterly Report. Based on this evaluation, our management,
including our principal executive officer and principal financial officer,
concluded that, as of September 30, 2021, our disclosure controls and procedures
were effective at the reasonable assurance level.
Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal
financial 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, 2021 that materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting.

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