10-Q: Surf Air Mobility Reports Q3 2025 Results Amid Funding Challenges

Surf Air Mobility Inc. reported a reduced net loss for the nine months ended September 30, 2025, despite a decline in revenue, while facing significant liquidity concerns and internal control weaknesses.

Summary

• Net loss for the nine months ended September 30, 2025, improved to $73.7 million from $76.2 million in the prior year, a 4% reduction.
• Revenue for the nine months ended September 30, 2025, decreased by 12% to $80.1 million, down from $91.4 million in the same period last year.
• Operating expenses decreased by 18% to $131.1 million for the nine months ended September 30, 2025, compared to $159.7 million in the prior year.
• Cash used in operating activities increased by 49% to $45.8 million for the nine months ended September 30, 2025, up from $30.7 million in the prior year.
• The company has incurred losses from operations, negative cash flows from operating activities, and has a working capital deficit.
• Surf Air Mobility is in default of certain excise and property taxes, as well as certain debt obligations, including a $8.9 million federal excise tax liability and a $0.5 million SAFE-T note.
• The company raised $31.4 million in net proceeds from common stock issuance and $19.0 million from draws under the Share Purchase Agreement with GEM during the nine months ended September 30, 2025.
• Subsequent to the reporting period, the company closed offerings on November 12, 2025, raising approximately $85 million gross proceeds, including $74 million in senior secured convertible notes (net proceeds of $65 million before expenses).
• Proceeds from the recent offerings are intended to repay outstanding indebtedness under the Comvest Credit Agreement, Convertible Note Purchase Agreement, and Mandatory Convertible Security.
• The company is subject to a NYSE listing requirement violation pertaining to its market capitalization and needs to regain compliance by November 20, 2025.
• Material weaknesses in internal control over financial reporting were identified as of September 30, 2025, and December 31, 2024.

Sentiment

Score: 3

Explanation: The company continues to face significant financial distress, including recurring losses, negative cash flows, and defaults on tax and debt obligations. While recent capital raises provide some short-term relief and operational improvements are underway, the 'going concern' doubt, NYSE listing violation, and material internal control weaknesses indicate substantial underlying issues and high risk.

Positives

• Net loss decreased by 4% for the nine months ended September 30, 2025, compared to the same period in 2024, indicating some improvement in overall profitability.
• Operating loss improved by 25% for the nine months ended September 30, 2025, primarily due to a significant reduction in operating expenses.
• Technology and development expenses decreased by 56% for the nine months ended September 30, 2025, largely due to the completion of an initial data license stage with Textron.
• The company successfully raised approximately $85 million in gross proceeds from recent offerings (closed November 12, 2025), providing capital for debt repayment and funding subsidiaries.
• The company finalized remediation of prior property tax liens in Los Angeles County, making payments of $1.0 million and securing the release of liens on four aircraft.

Negatives

• Revenue decreased by 12% for the nine months ended September 30, 2025, primarily due to exiting unprofitable scheduled and on-demand routes.
• Cash used in operating activities increased by 49% for the nine months ended September 30, 2025, indicating a higher burn rate from core operations.
• The company has a working capital deficit and has incurred significant losses from operations and negative cash flows.
• Surf Air Mobility is currently in default on $8.9 million in federal excise tax liabilities and a $0.5 million SAFE-T note, which matured in July 2019.
• The company is subject to a NYSE listing requirement violation related to its market capitalization, with a deadline of November 20, 2025, to regain compliance.
• Disclosure controls and procedures were deemed not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.
• The company faces uncertainty regarding the continuation of Essential Air Service (EAS) program funding after November 18, 2025, due to a potential federal government shutdown, with no assurance of retroactive reimbursement.

Risks

• Future ability to pay contractual obligations, excise taxes (including resolving tax liens), and maintain liquidity depends on operating performance, cash flow, and ability to secure adequate financing.
• Ability to meet the requirements of its term loan credit facility or other debt obligations.
• Limited operating history and the powertrain technology the company plans to develop does not yet exist and remains subject to regulatory approval.
• Impact of changes in U.S. or foreign trade policies, including tariffs and other protectionist trade measures.
• Ability to maintain and strengthen the company's brand and reputation as a regional airline.
• Any accidents or incidents involving aircraft, including those involving fully-electric or hybrid-electric aircraft.
• Ability to accurately forecast demand for products and manage product inventory effectively.
• Dependence on third-party partners and suppliers for components and collaboration in developing fully-electric and hybrid-electric powertrains, software technology platforms, and other products and services, and any interruptions, disagreements, or delays with those partners and suppliers.
• Ability to execute business objectives and growth strategies successfully or sustain growth.
• Risks from the integration of business acquisitions that could adversely affect the business, divert management attention, and dilute shareholder value.
• Increased costs as a result of operating as a public company and the requirement for management to devote substantial time to public company responsibilities and corporate governance practices.
• Ability of customers and potential customers to pay for services.
• Ability to obtain additional financing or access capital markets to fund ongoing operations on acceptable terms and conditions.
• Uncertainty regarding EAS funding continuation after November 18, 2025, or timely appropriations, and whether the DOT will restore and fund EAS obligations retroactively.
• Outcome of any legal proceedings that might be instituted against the company.
• Risks associated with the company's ability to comply with applicable laws, government regulations, NYSE rules, and changes in regulatory environment.
• Substantial doubt about the company's ability to continue as a going concern due to recurring losses, negative cash flows, and working capital deficit.

Future Outlook

The company aims to transform regional flying through its Air Mobility and Air Technology businesses, developing an AI-enhanced aviation software operating system and fully-electric/hybrid-electric powertrain technologies. It expects to incur significant development costs. Management is implementing operational improvements and stringent expense management to improve airline profitability and is actively evaluating strategies for additional funding, including equity financing, debt issuance, joint ventures, and partnerships. The company intends to continue providing full scheduled Essential Air Service (EAS) during funding uncertainty, while monitoring developments closely.

Management Comments

• Management is implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations.
• Management is advancing its technology initiatives, including its software technology platform and Caravan electrification programs.
• Management continues to evaluate strategies to obtain additional funding for future operations, which may include equity financing, issuing additional debt, or entering into other financing arrangements.
• The company and its operating subsidiaries will continue to provide full scheduled EAS service during the current funding uncertainty and intend to evaluate operations in coordination with the DOT as circumstances evolve.

Industry Context

Surf Air Mobility operates in the cyclical and highly competitive regional air mobility market, aiming to electrify existing fleets and new aircraft. The company's focus on developing AI-enhanced software and electric powertrains aligns with broader industry trends towards sustainable and technologically advanced air travel. However, it faces challenges common to new and rapidly evolving markets, including the need for significant capital, regulatory approvals for new technology, and managing inflationary pressures on fuel, wages, and other operating costs.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is a party to various claims and litigation incidental to the normal course of business, none of which are expected to have a material adverse effect as of September 30, 2025, except for the Monarch Air settlement.
• The company has accrued $1.0 million in actual damages, $0.2 million in pre-judgment interest, $60 thousand in attorneys' fees, and approximately $3 thousand in court costs related to a final judgment with Menagerie Enterprises, Inc. (Monarch Air) from an acquisition in 2017.

Related Party Transactions

• The company has a secured convertible promissory note (LamVen Note) with LamVen, an entity affiliated with a co-founder, with an outstanding principal balance of $15.0 million as of September 30, 2025. LamVen transferred $35.0 million of the original note to a non-affiliated third party in July 2025.
• The company entered into a reimbursement agreement with Park Lane Investments LLC (Park Lane) in November 2024, related to a letter of credit backstopping the Comvest Credit Agreement. Park Lane has the right to appoint a board observer.
• As of September 30, 2025, the company leased four aircraft from Park Lane for $25 thousand per aircraft monthly. In October 2025, leases were amended, and 1,200,000 shares were issued to Park Lane, with three leases terminated.
• The company recorded approximately $264 thousand in combined lease and engine reserve expense attributable to JA Flight Services (50% owned by an employee/shareholder) and BAJ Flight Services (100% owned by an employee/shareholder) for the nine months ended September 30, 2025.
• As of September 30, 2025, the company leased six aircraft from Schuman Aviation Ltd. (owned by a former employee/shareholder), incurring approximately $1.3 million in combined lease and engine reserve expense for the nine months ended September 30, 2025.
• Proxima Centauri, LLC, wholly-owned by David Anderman (a Board member), provides advisory services for a monthly fee of $20,000, and received a warrant to purchase 142,857 shares of common stock in December 2024.

Stakeholder Impact

• Shareholders: Face significant dilution risk from ongoing equity raises and convertible debt conversions. The NYSE listing violation and 'going concern' doubt pose substantial risks to share value. The recent capital raise provides some stability but also adds to debt and potential dilution.
• Employees: Headcount decreased by 20% (155 employees) for the nine months ended September 30, 2025, indicating workforce reductions. Incentive compensation accruals increased, potentially benefiting some employees.
• Customers: Scheduled revenue decreased due to exiting unprofitable routes, potentially impacting service availability in some regions. The company intends to continue full EAS service despite funding uncertainty.
• Creditors: The company is in default on several tax and debt obligations, but recent capital raises are intended to repay some outstanding indebtedness, potentially improving the position of certain creditors. The new senior secured convertible notes are guaranteed by subsidiaries.
• Suppliers/Partners: Palantir's software license agreement was extended and expanded, indicating continued partnership. Textron agreements for aircraft development and purchase continue, but the company's ability to meet deposit requirements and development milestones is crucial.

Next Steps

• Regain compliance with the NYSE market capitalization listing requirement by November 20, 2025.
• Continue implementing operational improvements and stringent operating expenses management to improve airline profitability.
• Advance technology initiatives, including the software technology platform and Caravan electrification programs.
• Evaluate and pursue additional funding strategies, including equity financing, debt issuance, joint ventures, and partnerships.
• Resubmit the Offer-in-Compromise to the IRS during the fourth quarter of 2025 to resolve federal excise tax liabilities.
• Monitor developments regarding Essential Air Service (EAS) program funding and coordinate operations with the DOT as circumstances evolve.
• Continue remediation efforts for identified material weaknesses in internal control over financial reporting.

Key Dates

Recommendation

Surf Air Mobility Inc. presents a highly speculative investment opportunity with significant downside risk. The company's 'going concern' doubt, persistent net losses, negative operating cash flows, and defaults on tax and debt obligations indicate severe financial distress. While recent capital raises provide temporary liquidity, they come with substantial dilution and increased debt burden. The NYSE listing violation and material weaknesses in internal controls further highlight operational and governance deficiencies. The long-term viability of its electric powertrain technology is uncertain and subject to regulatory approval. Given the high level of risk, the company's ability to execute its strategic plans and achieve profitability remains highly questionable, making it an unsuitable investment for most investors.

Keywords

Regional Air Mobility, Electric Aviation, Hybrid-Electric Powertrain, SEC Filing, 10-Q, Airline Industry, Financial Results, Liquidity, Going Concern, Capital Raise, NYSE Listing, Internal Controls, Essential Air Service, Aircraft Electrification, Software Platform