Surf Air Q3 revenues, losses, on-demand charter, unpaid taxes grow

Surf Air saw its Q3, YTD on-demand charter business grow alongside losses and outstanding tax bills for the IRS and local governments.

By Doug Gollan, November 21, 2023

By-the-seat and on-demand charter flight provider Surf Air saw revenue jump to $21.9 million in Q3 from $5.0 million in 2022 following its acquisition of Southern Airways on Aug. 2, 2023.

Year-to-date revenues through Q3 increased to $33.7 million from $14.4 million.

However, the Q3 operating loss spiked from $11.1 million, while the year-to-date loss increased from $35.4 million to $88.2 million.

Loss before income tax for the first nine months increased to $143.3 million from $50.5 million.

Net loss for Q3 was $76.6 million, up from $21.4 million in Q3.

The year’s net loss grew from $50.5 million to $139.7 million.

The Southern Airway acquisition expands the Surf Air fleet.

Southern was founded in 2013, and together with its wholly owned subsidiaries Southern Airways Express, LLC, Southern Airways Pacific, LLC, Southern Airways Autos, LLC, and Multi-Aero Inc., offers regional service in clusters of cities.

It is a certified Part 135 operator that operates a fleet of over 50 aircraft, including the Cessna Caravan, the Cessna Grand Caravan, the King Air Super 200, the Saab 340, the Pilatus PC-12, and the Tecnam Traveller.

Surf Air strategy

Surf Air initially gained fame by offering by-the-seat flights on PC-12s in California.

However, it has faced consistent woes, including a failed start-up in Europe and attempts to expand its by-the-seat service.

It is now focused on leading a transition to electric aircraft.

According to a press release, Surf Air confirmed its order with Textron Aviation. It paid the deposit to purchase 100 Cessna Grand Caravan EX aircraft, with 11 to be delivered into service during 2024.

It also said it “saw a sizable increase” in its on-demand private charter business with 63% year-over-year Q3 growth and a 55% increase during the first nine months.

Its filing shows on demand revenues increased from $4.1 million to $6.4 million in Q3.

YTD on-demand charter revenues increased from $10.9 million to $16.2 million.

It said it has restructured Its funding facility, “providing ongoing access to up to $400 million of capital.”

“We are making solid progress toward our long-term goal of expanding the airline network and advancing our electrified aircraft program with proprietary powertrain technology. Over time, this will enable us to bring other innovative electric aircraft to market, lowering operating costs and driving growth for the entire regional air mobility market,” said CEO Stan Little.

The company said 2023 growth has been limited by aircraft availability and supply chain issues.

Surf Air Tax Liability

The filing revealed Surf Air is currently in default to the IRS and several other government entities over past due taxes.

These tax and debt obligations are classified as current liabilities on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2023, and December 31, 2022…on May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods beginning October 2016 through September 2017 in the amount of $1.9 million, including penalties and interest as of the date of the notice.

The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid.

In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default, and taking collection action against the Company for any unpaid balance.

The Company’s total outstanding federal excise tax liability including accrued penalties and interest of $7.0 million, is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet as of September 30, 2023.

The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage, and aircraft leases.

The Company’s total outstanding property tax liability including penalties and interest, is approximately $1.9 million as of September 30, 2023.

Additionally, Los Angeles County has imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return.

As of September 30, 2023, the amount of property tax, interest, and penalties related to the tax lien for all unpaid tax years was approximately $1.1 million.

The Company is in the process of remediating the late filing and payment of the property taxes due to Los Angeles County.

From time to time, Surf Air offers as-available prepaid memberships for full aircraft charter of its PC-12 fleet.

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