As filed with the Securities and Exchange Commission on June 5, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
SURF AIR MOBILITY INC.
(Exact name of Registrant as specified in its charter)
_________________
| Delaware | | 4522 | | 36-5025592 |
| (State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer
Identification Number) |
12111 S. Crenshaw Blvd.
Hawthorne, CA 90250
(310) 365-3675
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
_________________
Carl Albert
Surf Air Mobility Inc.
12111 S. Crenshaw Blvd.
Hawthorne, CA 90250
(310) 365-3675
(Name, address, including zip code, and telephone number, including area code, of agent for service)
_________________
With copies to:
| C. Brophy Christensen, Jr., Esq.
Jeeho M. Lee, Esq.
Noah Kornblith, Esq.
O’Melveny & Myers LLP
Two Embarcadero Center
28th Floor
San Francisco, California 94111
Telephone: (415) 984-8700 | | Gregory P. Rodgers, Esq.
Brittany D. Ruiz, Esq.
Latham & Watkins LLP
1271 Avenue of the Americas
New York, New York 10020
Telephone: (212) 906-1200 |
_________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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 mark 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 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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EXPLANATORY NOTE
Surf Air Mobility Inc., a Delaware corporation (“SAM”), is filing this registration statement on Form S-1 and Form S-4 (Registration No. 333- ) to register the shares of SAM common stock, par value $0.0001 per share (“SAM Common Stock”), to be distributed to shareholders of Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) stockholders, as well as to register the resale of such shares by such holders (the “Registered Stockholders”), as part of the Internal Reorganization and the Southern Acquisition (each as defined herein), respectively. Concurrently with the effectiveness of this registration statement, SAGL Merger Sub Inc., a wholly-owned subsidiary of SAM, will be merged with and into Surf Air, after which Surf Air will be a wholly-owned subsidiary of SAM (the “Internal Reorganization”). Immediately prior to the listing, SAC Merger Sub Inc. (“SAC Merger Sub”), a wholly-owned subsidiary of SAM, will be merged with and into Southern, after which Southern will be a wholly-owned subsidiary of SAM (the “Southern Acquisition”). Pursuant to the Internal Reorganization, all ordinary shares of Surf Air (after giving effect to the Conversions (as defined herein)) outstanding as of immediately prior to the Closing (as defined below) will be canceled in exchange for the right to receive shares of our Common Stock and all rights to receive ordinary shares of Surf Air (after giving effect to the Conversions (as defined below)) will be exchanged for shares of our Common Stock (or options or RSUs to acquire our Common Stock, as applicable). Pursuant to the Southern Acquisition, Southern stockholders will receive the right to receive a number of shares of SAM Common Stock equal to the greater of (a) $81.25 million (based on the opening price per share of our Common Stock on the day of listing); or (b) 12.5% of the fully-diluted shares of our Common Stock upon listing (the “Southern Merger Consideration”).
Following the Internal Reorganization and Southern Acquisition, (i) Surf Air and Southern will be wholly-owned subsidiaries of SAM, (ii) the security holders of Surf Air (including the SAFE holders) and Southern will be security holders of SAM, and (iii) SAM will own directly or indirectly all of the equity securities, assets, business and operations of each of Surf Air and Southern. SAM will be the publicly traded company. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions.
This registration statement contains two forms of prospectus (1) a primary prospectus (the “Primary Offering Prospectus”), to be used to register shares of SAM Common Stock to be distributed to shareholders of Surf Air and Southern stockholders in connection with the Internal Reorganization and the Southern Acquisition, as described more fully elsewhere in this prospectus, and (2) a resale prospectus (the “Registered Resale Prospectus”), to be used for the resale of SAM Common Stock by Registered Stockholders. The Primary Offering Prospectus and the Registered Resale Prospectus will be identical in all respects except for the following principal points:
• they contain different front covers;
• they contain different tables of contents;
• they contain different “About This Prospectus” sections;
• the “Registered Resale Prospectus Risk Factors” section included in the Registered Resale Prospectus includes additional risk factors, which supplement the “Risk Factors” section in the Primary Offering Prospectus;
• a “Principal and Registered Selling Stockholders” section is included in the Registered Resale Prospectus and a “Principal Stockholders” section is included in the Primary Offering Prospectus;
• the “Plan of Distribution” and “Use of Proceeds” sections are included in the Registered Resale Prospectus;
• the “Additional Transactions”, “Comparison of Stockholders Rights” and “Dissenters’ Rights” sections are deleted from the Registered Resale Prospectus;
• the “Legal Matters” section in the Registered Resale Prospectus adds the reference to counsel for the financial advisor; and
• they contain different back covers.
The registrant has included in this registration statement, after the financial statements, a set of alternate pages to reflect the foregoing differences between the Primary Offering Prospectus and the Registered Resale Prospectus.
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The information in this preliminary prospectus is not complete and may be changed. Securities may not be sold until the preliminary prospectus filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated ________, 2023.
Surf Air Mobility Inc.
Shares of Common Stock
This prospectus relates to the registration of shares of SAM common stock, par value $0.0001 per share (“SAM Common Stock”), to be distributed to shareholders of Surf Air and Southern stockholders in connection with the Internal Reorganization and the Southern Acquisition, as described more fully below.
On or prior to effectiveness of this registration statement, we will have one class of authorized Common Stock. Each share of Common Stock is entitled to one vote per share. As of , 2023, after giving effect to the Internal Reorganization, the Southern Acquisition, the Tuscan Payment, the SAFE Settlement, the Advisor Accrual, the Initial GEM Issuance and the GEM Advances (each as defined below), our directors, executive officers and 5% stockholders, and their respective affiliates, will hold approximately % of our outstanding Common Stock.
Prior to the initial listing, no public market existed for our Common Stock. There is only a limited history of trading in our Common Stock in private transactions. Based on information available to us, the high and low sales price per share of our Common Stock for such private transactions during the period from through was $ and $ , respectively. For more information, see the section entitled “Sale Price History of our Capital Stock”. Any recent trading prices in private transactions may have little or no relation to the opening trading price of our shares of Common Stock on the NYSE or the subsequent trading price of our shares of Common Stock on the NYSE. Further, the listing of our Common Stock on the NYSE without a traditional underwritten initial public offering is a novel method for commencing public trading in shares of our Common Stock, and consequently, the trading volume and price per share of our Common Stock may be more volatile than if shares of our Common Stock were initially listed in connection with an underwritten initial public offering.
We intend to apply to list our Common Stock on the NYSE under the symbol “SRFM”. We expect our Common Stock to begin trading on the NYSE on or about , 2023. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions.
Concurrently with the effectiveness of this registration statement, SAGL Merger Sub Inc., a wholly-owned subsidiary of SAM, will be merged with and into Surf Air, after which Surf Air will be a wholly-owned subsidiary of SAM (the “Internal Reorganization”). Immediately prior to listing, SAC Merger Sub Inc. (“SAC Merger Sub”), a wholly-owned subsidiary of SAM, will be merged with and into Southern, after which Southern will be a wholly-owned subsidiary of SAM (the “Southern Acquisition”). Pursuant to the Internal Reorganization, all ordinary shares of Surf Air (after giving effect to the Conversions (as defined below)) outstanding as of immediately prior to the Closing (as defined below) will be canceled in exchange for the right to receive shares of our Common Stock and all rights to receive ordinary shares of Surf Air (after giving effect to the Conversions (as defined below)) will be exchanged for shares of our Common Stock (or options or RSUs to acquire our Common Stock, as applicable). Pursuant to the Southern Acquisition, Southern stockholders will receive the right to receive a number of shares of our Common Stock equal to the greater of (a) $81.25 million (based on the opening price per share of our Common Stock on the day of listing); or (b) 12.5% of the fully-diluted shares of our Common Stock upon listing (the “Southern Merger Consideration”). As such, this prospectus relates to the registration of up to shares of our Common Stock to be issued or reserved for issuance pursuant to the Internal Reorganization and the Southern Acquisition, to be distributed to Surf Air shareholders and Southern stockholders.
We are an “emerging growth company” and “smaller reporting company”, as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and will be subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company. See the sections entitled “Prospectus Summary — Implications of Being an Emerging Growth Company” and “Prospectus Summary — Implications of Being a Smaller Reporting Company”.
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See the section entitled “Risk Factors” beginning on page 26 to read about factors you should consider before buying shares of our Common Stock.
Our Amended and Restated Certificate of Incorporation (as defined below) will limit the voting rights of persons holding any of our equity securities who are not citizens of the United States to 24.9%. Accordingly, if you are not a citizen of the United States, any shares of Common Stock that you purchase may be subject to voting restrictions. See “Risk Factors — Risks Related to Ownership of Our Common Stock — Our Amended and Restated Certificate of Incorporation limits voting rights of certain foreign persons”.
We Are Not Asking You for a Proxy and You are Requested Not to Send Us a Proxy.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated , 2023.
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Through and including , 2023 (the 25th day after the listing date of our Common Stock), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.
We have not authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We do not take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Common Stock. Our business, financial condition, and results of operations may have changed since that date.
For investors outside the United States: We have not done, and have not agreed to do, anything that would permit the use of or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Common Stock by us and the distribution of this prospectus outside of the United States.
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ABOUT THIS PROSPECTUS
Unless the context otherwise requires, all references to “the Company” or “Surf Air” are to the current business and operations of Surf Air Global Limited and its consolidated subsidiaries prior to the Internal Reorganization, references to “Southern” are to the current business and operations of Southern Airways Corporation and its consolidated subsidiaries prior to the Southern Acquisition and references to “we”, “us”, “our” or “SAM” in this prospectus are to the proposed business and operations of SAM and its consolidated subsidiaries following the consummation of each of the Internal Reorganization and Southern Acquisition. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to the consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions. See the section entitled “Business — Key Agreements — Related Agreements and Transactions — Southern Acquisition Agreement”.
The number of shares of Common Stock to be outstanding upon completion of this listing excludes shares of Common Stock issuable upon exercise of stock options outstanding as of , 2023, pursuant to the Surf Air Global Limited 2016 Equity Incentive Plan (the “2016 Plan”), with a weighted average exercise price of $ per share, based on the Conversion Ratio.
Except as otherwise indicated, all information in this prospectus assumes or gives effect to:
• the Internal Reorganization (including the Conversions);
• the Southern Acquisition;
• the issuance to Tuscan Holdings Corp. II, a Delaware corporation (“Tuscan”) of 635,000 shares of our Common Stock (or an equivalent number of shares of common equity of Surf Air) pursuant to the terms of the Termination Agreement (the “Tuscan Payment”). See the section entitled “Prospectus Summary — Recent Developments — Tuscan Termination and Amendment to Southern Acquisition Agreement” for additional information;
• the issuance of shares of our Common Stock pursuant to the SAFE Settlement;
• the issuance of shares of our Common Stock to be paid to a SAM advisor to satisfy the Advisor Accrual;
• the issuance of shares of our Common Stock, to GEM Global Yield LLC SCS (“GEM”) equal to 0.75% of the total shares outstanding of Common Stock upon listing, or shares of our Common Stock based on the Assumed Opening Price, for a purchase price of $0.01 per share of Common Stock (the “Equity Purchase Price”), as described under the Share Subscription Facility to be filed as an exhibit hereto (the “Initial GEM Issuance”); and
• the issuance of shares of our Common Stock pursuant to the GEM Advances.
The number of shares of our Common Stock to be issued in the Southern Acquisition, the SAFE Settlement, the Advisor Accrual, the Initial GEM Issuance and the GEM Advances depends in part on the opening trading price of our Common Stock. After giving effect to Internal Reorganization, the Southern Acquisition, the Tuscan Payment, the SAFE Settlement, the Advisor Accrual, the Initial GEM Issuance and the GEM Advances, as of , 2023, based on an assumed opening price per share of our Common Stock on the initial listing date (the “Assumed Opening Price”) of $ (collectively, the “Other Transactions”), we would have had a total of shares of Common Stock outstanding. Between , 2023 and the effective date of the registration statement of which this prospectus forms a part, we have not issued any additional shares of Common Stock or awards convertible or exercisable for shares of Common Stock except as noted above.
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For illustrative purposes only, the table below shows the total number of shares of our Common Stock expected to be outstanding at various opening prices:
| Assumed Opening Price ($) | | Total Shares of Common Stock
Outstanding |
| $ | | |
| $ | | |
| $ | | |
Immediately following the listing of our Common Stock on the NYSE, approximately shares of our Common Stock may be immediately sold either (i) by certain stockholders pursuant to a resale registration statement or (ii) by our other existing stockholders under Rule 144 under the Securities Act since such shares held by such other stockholders will have been beneficially owned by non-affiliates for at least one year. See also the section entitled “Shares Eligible For Future Sale”.
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GLOSSARY
As used in this prospectus:
• “Advisor Accrual” means the shares of our Common Stock, based on the Assumed Opening Price, to be paid to an advisor in satisfaction of fees owed for services in connection with the transactions contemplated in this prospectus.
• “AeroTEC” means Aerospace Testing Engineering & Certification, Inc.
• “Amended and Restated Bylaws” means the amended and restated bylaws of SAM following Closing.
• “Amended and Restated Certificate of Incorporation” means the amended and restated certificate of incorporation of SAM following Closing.
• “Assumed Opening Price” means $ , the assumed opening price per share of our Common Stock on the listing date.
• “Closing” means the closing of the Internal Reorganization.
• “Code” means the Internal Revenue Code of 1986, as amended.
• “Common Stock” means the common stock of SAM, par value $0.0001 per share.
• “Company” or “Surf Air” means Surf Air Global Limited, a BVI business company formed under the laws of the British Virgin Islands, and all of its direct and indirect subsidiaries.
• “Conversions” means the conversion of Surf Air’s issued and outstanding securities based on the Conversion Ratio in connection with the Internal Reorganization. For a further description of the Conversions, see the section entitled “Additional Transactions — Internal Reorganization”.
• “Conversion Ratio” means the conversion of Surf Air’s ordinary shares to SAM Common Stock at a ratio of .
• “COVID-19” means the disease caused by severe acute respiratory syndrome coronavirus 2, including any evolutions or mutations thereof (including additional variants).
• “DGCL” means the Delaware General Corporation Law, as amended.
• “Exchange Act” means the Securities Exchange Act of 1934, as amended.
• “GEM” means GEM Global Yield LLC SCS.
• “GEM Advances” means the issuance of shares of Common Stock (based on the Assumed Opening Price), which will be sold to GEM in order for SAM to utilize up to four advances of up to $25 million each under the Share Subscription Facility.
• “Initial GEM Issuance” means the issuance of shares of Common Stock to GEM equal to 0.75% of the total shares outstanding of Common Stock upon listing, or shares of Common Stock based on the Assumed Opening Price, in satisfaction of the Equity Purchase Price under the Share Subscription Facility. For a further description of such agreement and GEM’s commitment to purchase such shares, see the section entitled “Business — Key Agreements — Financing Arrangements — Share Subscription Facility”.
• “Internal Reorganization” means the transaction pursuant to which, concurrently with the effectiveness of the registration statement of which this prospectus forms a part, a wholly-owned subsidiary of SAM will be merged with and into Surf Air, after which Surf Air will be a wholly-owned subsidiary of SAM. As SAM has no assets or liabilities, financial statements for SAM have been omitted in this prospectus. See the section entitled “Business — Government Regulation — Principal Domestic Regulatory Authorities”.
• “IRS” means the Internal Revenue Service.
• “JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended.
• “listing” means the initial listing of Common Stock on the NYSE.
• “magniX” means magniX USA, Inc.
• “NYSE” means the New York Stock Exchange.
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• “Palantir” means Palantir Technologies, Inc.
• “public stockholders” means holders of public shares of Common Stock.
• “SAFE Settlement” means the issuance of shares of our Common Stock to holders of SAFEs under the terms of the respective SAFEs, based on the Assumed Opening Price.
• “SAFEs” means the Simple Agreements for Future Equity, by and between the Company and the respective investors listed therein.
• “SAM” means Surf Air Mobility Inc., a Delaware corporation and wholly-owned subsidiary of the Company, which will, after the Internal Reorganization and the Southern Acquisition, become a publicly traded company in connection with the listing, and will hold all of the equity securities, assets, business and operations of each of Surf Air and Southern.
• “SAM Board” means the board of directors of SAM.
• “SEC” means the United States Securities and Exchange Commission.
• “Securities Act” means the Securities Act of 1933, as amended.
• “Share Subscription Facility” means the Company’s equity line of credit up to $400 million pursuant to the second amended and restated share purchase agreement, dated as of February 8, 2023, by and between the Company, GEM and GYBL, as further amended from time to time. The equity financing commitments under the Share Subscription Facility are contingent on the satisfaction of certain conditions, as more fully described in the section entitled “Business — Key Agreements — Financing Arrangements — Share Subscription Facility”. In connection with the listing and the Internal Reorganization, the Share Subscription Facility will be automatically assigned to SAM.
• “Southern” means Southern Airways Corporation, a Delaware corporation.
• “Southern Acquisition” means the business combination transaction pursuant to which, immediately prior to the listing, a wholly-owned subsidiary of SAM will be merged with and into Southern, after which Southern will be a wholly-owned subsidiary of SAM. The Southern Acquisition is also subject to regulatory approvals and other customary closing conditions.
• “Southern Merger Consideration” means the number of shares of our Common Stock equal to the greater of (a) $81.25 million (based on the opening price per share of our Common Stock on the day of listing, or shares of our Common Stock, based on the Assumed Opening Price); or (b) 12.5% of the fully-diluted shares of our Common Stock upon listing and prior to the issuance of the Tuscan Payment, the SAFE Settlement, the Advisor Accrual, the initial GEM Issuance and the GEM Advances (or shares of our Common Stock, based on the Assumed Opening Price).
• “Surf Entities” means, collectively, the Company, SAM and SAC Merger Sub Inc.
• “TAI” means, collectively, Textron Aviation Inc. and its affiliates.
• “Tuscan Payment” means the issuance to Tuscan immediately prior to listing of 635,000 shares of our Common Stock (or an equivalent number of shares of common equity of Surf Air) pursuant to the terms of the Termination Agreement. See the section entitled “Prospectus Summary — Recent Developments — Tuscan Termination and Amendment to Southern Acquisition Agreement”.
• “U.S. GAAP” means generally accepted accounting principles in the United States.
For a further description of the terms used to refer to Surf Air’s business, please see the section entitled “Glossary of Terms Related to SAM’s, Surf Air’s and Southern’s Businesses” on page 5 of this prospectus.
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GLOSSARY OF TERMS RELATED TO SAM’S, SURF AIR’S AND SOUTHERN’S BUSINESSES
As used in this prospectus:
• “Aircraft-as-a-Service” means the product we intend to offer, bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream.
• “airframes” means the mechanical structure of an aircraft.
• “ATC” means air traffic control, a service provided by air traffic controllers who direct aircraft on the ground and through a given section of controlled airspace.
• “Certificate” means a certificate issued under section 41102 of 49 U.S.C. Subtitle VII.
• “Cessna Caravan” refers to the family of aircraft produced by Textron Aviation’s Cessna, and includes the Caravan, Grand Caravan and Caravan EX models, as well as their cargo derivatives, unless a specific model of Caravan is denoted.
• “commuter airline” means a Part 135 Commuter Airline, which generally refers to an air operator that holds an FAA-issued Part 135 “Commuter” Operating Certificate, permitting scheduled intrastate operations using a propeller aircraft with a maximum passenger-seating configuration of nine seats and a maximum payload capacity of 7,500 pounds, and that typically also has interstate economic authority from the DOT to operate anywhere in the United States.
• “DOT” means the United States Department of Transportation.
• “EAS” means Essential Air Service, which is a program run by the DOT to guarantee that small communities are served by qualified air carriers that maintain a minimum level of scheduled air service.
• “EPU” means the magni650 Electric Power Unit.
• “FAA” means the United States Federal Aviation Administration, a transportation agency, which sits within the DOT.
• “FBO” means fixed base operator. An entity that is an FBO is granted the right by an airport to operate at the airport and provide services such as fueling, hangaring, parking and aircraft rental, along with other similar services.
• “OEM” means original equipment manufacturer, which is a company whose goods are used as components in the products of another company, which then sells the finished item to other users.
• “Part 135” means Part 135 of Title 14 of the U.S. Code of Federal Regulations.
• “Part 298” means Part 298 of Title 14 of the U.S. Code of Federal Regulations.
• “Part 380” means Part 380 of Title 14 of the U.S. Code of Federal Regulations.
• “powertrain” refers to the components in the aircraft that generate power and components that are used for propulsion.
• “SAF” means sustainable aviation fuel, which is biofuel used to power aircraft. This biofuel has similar properties to conventional jet fuel but with a smaller carbon footprint.
• “Supplemental Type Certificate” or “STC” is a certification issued by the FAA when an applicant has received FAA approval to modify an aeronautical product from its original design. The STC approves not only the modification, but also how the modification affects the original design of the aeronautical product.
• “TCB” is an FAA management team involved in the certification process for obtaining a STC.
• “TSA” means the Transportation Security Administration, an administration within the U.S. Department of Homeland Security.
• “Type Certificate” or “TC” is a certification issued by the FAA when an applicant has received FAA approval for a new aeronautical product from its original design.
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PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Common Stock. You should read this entire prospectus carefully, including the sections entitled “Risk Factors”, “Special Note Regarding Forward-Looking Statements”, “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Surf Air’s and Southern’s consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references to “the Company” or “Surf Air” are to the current business and operations of Surf Air Global Limited and its consolidated subsidiaries, references to “Southern” are to the current business and operations of Southern Airways Corporation and its consolidated subsidiaries and references to “we”, “us”, “our” or “SAM” in this section are to the proposed business and operations of SAM and its consolidated subsidiaries following the Internal Reorganization, the Southern Acquisition and listing. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to the consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions.
Overview
Introduction to Surf Air Mobility
Surf Air Mobility is building a regional air mobility ecosystem that will aim to sustainably connect the world’s communities. Leveraging the combined operations of Surf Air and Southern, we intend to accelerate the adoption of green flying by developing, together with our commercial partners, hybrid-electric and fully-electric powertrain technology to upgrade existing fleets, and by creating a financing and services infrastructure to enable this transition on an industry-wide level. We believe bringing electrified aircraft to market at scale will substantially reduce the cost and environmental impact of regional flying, and that such reductions are achievable by the end of the decade. Additionally, we believe operating as a publicly traded company and having efficient access to growth capital will allow us to accelerate the implementation of our strategic plan.
Surf Air Inc. was incorporated in 2011 and Surf Air Global Limited (formerly incorporated as Surf Airlines Inc.) was formed and became the parent company of the Surf Air group in 2016. Surf Air Mobility Inc. was incorporated in 2021. Surf Air is expanding the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air currently provides a regional air mobility platform with scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”) and intends to develop powertrain technology with its commercial partners to electrify existing fleets, which it believes will reduce operating costs and emissions, starting with a hybrid-electric and a fully-electric variant of the Cessna Grand Caravan EX, which is one of the most prolific family of aircraft in the single engine turboprop category with approximately 3,000 aircraft in use worldwide.
Founded in 2013 as a Delaware corporation, as of March 31, 2023, Southern is the largest commuter airline in the United States and the largest passenger operator of Cessna Caravans in the United States by scheduled departures. As of March 31, 2023, Southern served 40 U.S. cities across six U.S. time zones and in the Mariana Islands. Southern ceased serving the Mariana Islands as of April 1, 2023. Southern has multi-year contracts with the U.S. federal government to operate Essential Air Service (“EAS”) routes, which ensures small communities in the United States can maintain a minimum level of scheduled air services.
The Southern Acquisition will result in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Surf Air and Southern together served over 99,000 passengers across 44 cities with over 18,000 departures for the three months ended March 31, 2023. For the three months ended March 31, 2023, Surf Air generated $5.5 million in revenue and Southern generated $22.7 million in revenue, an increase of 14.3% and an increase of 35.6%, respectively, compared to the three months ended March 31, 2022. Surf Air and Southern together served over 450,000 passengers across 48 cities with over 75,000 departures in 2022. Surf Air and Southern together served over 330,000 passengers in 2021, and over 150,000
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passengers in 2020. For the year ended December 31, 2022, Surf Air generated $20.3 million in revenue and Southern generated $80.7 million in revenue, compared to $11.8 million in revenue and $57.7 million in revenue, respectively, for the year ended December 31, 2021 and $7.5 million in revenue and $38.2 million in revenue, respectively, for the year ended December 31, 2020. We expect the combination of Surf Air and Southern will provide the basis for SAM’s expanded, nationwide regional air mobility platform.
SAM intends to electrify its existing fleet utilizing hybrid-electric and fully-electric powertrain technology once it is fully designed and developed, and certified by the Federal Aviation Administration (“FAA”) as part of the issuance of the Supplemental Type Certificate (“STC”). We are planning for FAA approval of our hybrid-electric and fully-electric Cessna Grand Caravan EX STCs to occur by the end of 2025, followed by the commercialization of the technology. See the section entitled “Risk Factors — Legal and Regulatory Risks Related to SAM’s Business — We may be unable to obtain or maintain relevant regulatory approvals for the commercialization of our electrification of aircraft”.
SAM has relationships with leading players across the value chain, which SAM believes provides significant competitive advantages as it pursues the scaling of its point-to-point regional air mobility ecosystem and the implementation of its aircraft electrification plans. SAM intends to be the exclusive supplier of hybrid-electric and battery electric propulsion systems for the Cessna Grand Caravan EX to Textron Aviation Inc. (“TAI”), one of the largest general aviation OEMs in the world by units sold. The effectiveness of SAM’s agreements with TAI are contingent upon SAM’s shares being publicly traded on a U.S. national securities exchange. SAM’s electrification and certification partner, AeroTEC, a leading aerospace engineering firm with experience in fully-electrified aircraft, has agreed to work exclusively with SAM to develop and obtain STCs for modified Cessna Caravans, and magniX, developer of one of the most powerful electric motors currently being certified, has agreed to exclusively sell certain electrified propulsion systems to SAM, subject to completion of conceptual design review and the execution of definitive agreements. Upon completion of conceptual design review SAM, AeroTEC and magniX have agreed to enter into further definitive agreements in relation to the remaining development steps for the STC. SAM and Jetstream Aviation Capital have entered into a Master Agreement to finance up to $450 million to fund the planned growth of SAM’s fleet of turboprop aircraft. In addition, Southern and SkyWest Airlines are partnered to provide a pilot hiring and training pathway, SAM has entered into a Memorandum of Understanding with Signature Flight Support for Fixed Base Operator (“FBO”) services and the support of SAM’s existing and future network and SAM has contracted with Palantir to leverage Palantir’s Foundry platform to support SAM’s planned growth across a range of business applications. See the sections entitled “Risk Factors — Risks Related to Surf Air’s and Southern’s Business and Industry — We are or may be subject to risks associated with strategic alliances, and our reliance on these arrangements, and the loss of any such alliances or arrangements or failure to identify future opportunities could affect our growth plans” and “Business — Key Agreements”.
Market Opportunity: Electric technology will be a disruptive factor in regional air travel
We believe regional turboprop aircraft can be electrified, creating the opportunity to disrupt existing regional (50-500 mile) air and ground travel patterns. The hybrid-electric technology we are developing with our commercial partners utilizes state-of-the-art technology that exists today. Electrified regional aircraft, with reduced operating costs and emissions, are expected to be capable of connecting, directly and cost-effectively, many of the United States’ 5,000 existing and underutilized public airports, striving to create a reasonably priced and more convenient mass-market regional travel experience, which we believe will be an attractive alternative to the use of major airport hubs and connecting flight service. Electrified regional aircraft can begin the process of abating aviation’s contribution to global CO2 emissions, which, according to Mission Possible Partnership’s Making Net Zero Aviation Possible July 2022 report, totaled approximately 1.2 billion metric tons in 2019. We believe our green aviation technology will have the added benefit of aligning with consumer preference, increasing demand for lower emission travel.
Over the last several decades regional air travel has suffered, declining in both seat capacity and flight departures, giving customers far fewer flight options and we believe a worse travel experience. Over this period, airlines consolidated into fewer hubs and began deploying aircraft with more seats to reduce cost, resulting in approximately 500 airports with commercial service and approximately 30 airports in the United States today that represent approximately 70% of all commercial traffic, according to a study conducted by NASA. This consolidation dramatically reduced regional connectivity for customers; over the last two decades, according to commercial airline schedule data from Airline Data Inc., capacity on 50 – 500 mile airline routes has gone down 25% while the number of departures has gone down 46%. Fewer airports are connected directly today with non-stop flights than were connected twenty years ago, and
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fewer available seats and frequencies are flown between airports that maintained their non-stop service. This decline in service is further exacerbated by hub congestion, which, on short regional trips, makes airport check-in and connection times a substantial part of the overall door-to-door travel time.
According to a 2021 study conducted by McKinsey & Company, approximately 90% of the U.S. population lived or worked within a 30 minute drive to one of 5,000 underutilized public use regional airports in the United States. Major airlines are largely unable to leverage this infrastructure due to their fleet type and instead send more of their traffic through already congested hubs. Regional airports are typically located conveniently near large metropolitan areas and can usually only be served with smaller regional aircraft (the same types of aircraft we believe will be the first to be electrified, given the current capabilities of battery technology). Using this existing regional airport infrastructure to create scheduled, high-frequency, non-stop flights in hybrid-electric and fully-electric aircraft, with reduced emissions and operating costs, we believe we can create a consumer experience with improved convenience offering an attractive alternative to long-haul driving and the use of congested airport hubs that often require connecting flights.
SAM believes these smaller regional aircraft will be the first to be electrified, given the current state of aircraft technology. SAM believes the most realistic, lowest risk, and fastest approach to electrification is to first develop and certify hybrid-electric and fully-electric powertrains to be installed in new and existing aircraft types that are already certified by the FAA, such as the Cessna Caravan. Typically, STCs are less difficult and require far less time to obtain than TCs for an entirely new “clean sheet” aircraft, which typically require capital-intensive investment in long certification processes as well as new tooling and production facilities. Additionally, hybrid-electric and fully-electric powertrains will not require or be dependent on the development and installation of charging infrastructure like fully-electric aircraft. As a result, SAM further believes the market and use cases for hybrid-electric aircraft may potentially exist for decades after the introduction of fully-electric aircraft as the introduction of Sustainable Aviation Fuel (“SAF”) effectively addresses much of the remaining “hybrid” emissions and the expected longer time horizon of charging infrastructure development.
We believe our business model creates a flywheel of growth
We believe SAM’s business model is designed to capitalize on this highly attractive market opportunity. It is our expectation that by executing on the below plan we can create a regional air travel ecosystem that provides ongoing growth potential to our company and our stakeholders.
Our future business strategy is built on six key premises:
1. Large Addressable Market
Our strategic plan is focused on capturing a meaningful portion of the point-to-point regional air mobility market currently served by automobiles and inefficient hub-and-spoke airline business models. Based on a study published by McKinsey & Company in 2023 and management’s estimates, we believe the total market opportunity for point-to-point regional air mobility of approximately 100 — 500 miles will be approximately $75 billion to $115 billion worldwide and approximately $15 billion to $22 billion in the United States by 2035.
2. Advantaged Path to Electrification
The component technology to electrify small aircraft exists today, in large part because of improvements in battery technology. We intend to pursue obtaining STCs from the FAA for variants of the Cessna Caravan with hybrid-electric powertrains, which will not require ground charging infrastructure, and fully-electric variants of the Cessna Caravan.
3. Aligned with Leading Players
To support our growth and technology plans, we have established important commercial relationships with leading players involved in the aviation and technology industries, including those expected to produce components for hybrid-electric and fully-electric powertrains for aircraft. We believe our strategic relationships with TAI, AeroTEC, magniX, Jetstream Aviation Capital, SkyWest Airlines, Signature Flight Support and Palantir empower our plan. We believe the result of these relationships will be the acceleration of our ability to bring hybrid-electric and fully-electric powertrains for the Cessna Caravan to market, to create a differentiated regional travel experience of scale, and to generate substantial demand from consumers for a new form of regional travel.
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4. Significant Operating Expertise
Surf Air and Southern together served over 99,000 passengers across 44 cities with over 18,000 departures for the three months ended March 31, 2023. On a combined basis, the number of passengers flown by Surf Air and Southern for the three months ended March 31, 2023 increased by approximately 1.8% compared to the three months ended March 31, 2022. Surf Air and Southern together served over 450,000 passengers across 48 cities with over 75,000 departures in 2022. On a combined basis, the number of passengers flown by Surf Air and Southern for the year ended December 31, 2022 increased by approximately 35% compared to the year ended December 31, 2021. Surf Air currently operates a technology-forward on-demand and scheduled regional aviation platform, is planning to develop hybrid-electric and fully-electric powertrains with its commercial partners for installation on the Cessna Caravan and has secured key strategic relationships to accelerate SAM’s electrification and operational growth plans. Southern operates the largest passenger fleet of Cessna Caravans in the United States by scheduled departures (as of November 1, 2022), has significant operating scale, has a robust set of EAS routes contracted with the U.S. Department of Transportation (“DOT”) and has built a pilot development pipeline that helps to manage national pilot shortage issues.
5. Experienced Management Team and Board
SAM’s management team has significant experience in the aerospace and commercial aviation industry, as well as adjacent sectors, including hospitality and consumer branding. Our team brings with them previous senior level experience from a range of companies including Delta Air Lines, Fairchild Dornier, Flexjet, Lufthansa, Virgin America, and Wisk. The ongoing evolution and implementation of SAM’s strategy will be guided and overseen by an experienced and independent board of directors.
6. Ecosystem-Based Business Model
If we are able to achieve certification of hybrid-electric and fully-electric powertrains, we intend to introduce them into the market using business models which we expect will produce both one-time and recurring revenue streams. Among other steps, once developed and certified, we intend to sell or lease SAM’s electrification technology to other aircraft operators regardless of which network they serve and to work in close partnership with selected aircraft manufacturers and manufacturers of components of hybrid-electric and fully-electric propulsion systems to design and develop additional STCs. We believe operating at the center and providing valuable services across the value chain of the regional air mobility ecosystem and by coordinating the various parties can lead to additional earning opportunities for SAM.
We believe there is significant value to be created by leveraging our ability to serve both customers and operators within the regional flying ecosystem. We believe this will accelerate the demand for green regional flying. By enabling new demand through our digital marketplace operations and catalyzing new supply through new technology and financing solutions, we believe we can create an ongoing cycle of growth.
SAM plans to invest in creating a scheduled network connecting many of the underutilized regional airports in the United States. We have developed a regional air mobility network growth plan based on mobile device and various demographic data layers, which resulted in a network growth plan across approximately 30 U.S. regional networks with approximately 200 “tier 1” routes. We intend to pursue this plan using our own air operation and by leveraging third-party air operators.
Surf Air has extensive experience using third-party operators in its scheduled and on-demand operations. As a result, we believe SAM will have in-depth knowledge of the success factors and key challenges facing independent operators and can facilitate growth of its operator relationships by deploying our Aircraft-as-a-Service strategy. Aircraft-as-a-Service is the product we intend to offer, bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream.
Recent Developments
Second Amended and Restated Share Subscription Facility
On February 8, 2023, the Company entered into the Share Subscription Facility with GEM Global Yield LLC SCS (“GEM”) and GEM Yield Bahamas Limited (“GYBL”), which further amended and restated the Amended and Restated Share Subscription Facility entered into on May 17, 2022. Pursuant to the Share Subscription Facility, upon the terms of and subject to the satisfaction of certain conditions, SAM will have the right from time to time at its option to
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direct GEM to purchase up to a specified maximum amount of shares of our Common Stock, up to a maximum aggregate purchase price of $400 million (the “Aggregate Limit”), over the Term (as defined below) of the Share Subscription Facility. SAM may request GEM Advances in an aggregate amount of up to $100 million, consisting of four incremental advances of up to $25 million each. Any GEM Advance will reduce amounts that Surf Air can request for future draw downs.
SAM’s ability to access and request each the GEM Advances and the draw downs described above under the Share Subscription Facility is contingent on the satisfaction of certain conditions, including among other things, (i) the listing of our Common Stock on a U.S. national securities exchange, (ii) the filing by SAM of one or more registration statements with respect to the shares of our Common Stock to be sold pursuant to the Share Subscription Facility and such registration statement(s) becoming effective, as well as no stop order (or proceedings for such purpose) suspending the effectiveness of any registration statement registering such shares of our Common Stock (the “Registration Condition”), (iii) no suspension of trading of our Common Stock on the NYSE, (iv) the shares of our Common Stock to be sold pursuant to the Share Subscription Facility must have been duly authorized, (v) average daily trading volume limitations requiring that the amount requested for each draw down (other than the GEM Advances) may not exceed 400% of the average daily trading volume for the 30 trading days immediately preceding a draw down (the “Trading Volume Condition”), (vi) limitations on GEM’s beneficial ownership of shares of our Common Stock (other than the GEM Advances), (vii) the payment of certain fees and (viii) the delivery by SAM of a compliance certificate certifying that SAM is in compliance with all covenants, agreements and conditions required by the Share Subscription Facility on the applicable request date, and that no Material Adverse Effect (as defined in the Share Subscription Facility) has occurred since August 25, 2020 (clauses (ii) through (iv) are the “Specified Conditions”). Following the Southern Acquisition and the completion of the listing of our Common Stock, SAM intends to request the full amount of the GEM Advances when they become available in 2023 to augment its capital resources to address its capital needs. However, SAM will be unable to request any of the GEM Advances until a resale registration statement covering the shares to be sold to GEM in accordance with the terms of the Share Subscription Facility has been declared effective. To the extent that all conditions to each GEM Advance are satisfied other than with respect to one or more Specified Conditions, SAM will be able to delay a GEM Advance for a maximum of 90 calendar days in order to satisfy the Specified Conditions. SAM shall not be obligated to make any draw downs in respect of any GEM Advance or other draw downs and the failure to provide a draw down notice for any GEM Advance or other draw downs will not limit or preclude SAM’s ability to provide a draw down notice on any future GEM Advance or other draw down. The purchase price per share for the number of shares of our Common Stock to be sold to them is determined on the basis of the trading price of our Common Stock during a period of between 15 trading days (for any GEM Advance) and 20 trading days (for all other draw downs), which, with respect to the GEM Advances, may be extended by 15 trading days in GEM’s sole discretion upon notice to SAM. In the case of a GEM Advance, the purchase price is determined following funding of the purchase by GEM while in the case of any other purchase under the Share Subscription Facility, the purchase price is determined prior to the funding of the purchase by GEM. If the purchase price determined during the pricing period for any GEM Advance would result in GEM owning 10% or more of our outstanding shares of Common Stock, GEM may extend the pricing period for another 30 trading days. Under the terms of the Share Subscription Facility, GEM will purchase the shares at a per-share amount equal to 90% of the volume weighted average trading price during the draw down pricing period described above. In relation to the GEM Advances, SAM has agreed to deposit into escrow an amount equal to three times the number of shares of Common Stock set out in the advance request for the GEM Advances.
Unless earlier terminated, the Share Subscription Facility shall terminate automatically on the earlier of (i) 36 consecutive months from the date of listing, which such date shall be ; (ii) May 17, 2027; and (iii) the date GEM shall have purchased the Aggregate Limit (such earliest date, the “Term”).
GEM will also purchase an amount of shares of the Company equal to 0.75% of the total number of shares of our Common Stock outstanding on the listing date, on a fully-diluted basis, for a purchase price of $0.01 per share (the “Purchased Shares”).
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The terms of the Share Subscription Facility provide for, among other things, (i) payment by SAM of a commitment fee of $8 million (equal to 2% of the Aggregate Limit), payable in cash or stock, deliverable in installments, but no later than the first anniversary of SAM’s first trading day and (ii) that GEM will not be required to purchase shares of our Common Stock if the purchase would result in GEM beneficially owning more than 9.99% of outstanding Common Stock, subject to waiver of the limitation by GEM, which shall not apply to the GEM Advances. SAM has agreed with GEM not to enter into any other agreement of which the principal purpose is to secure an equity line similar to the financing provided under the Share Subscription Facility.
The foregoing description of the Share Subscription Facility does not purport to be complete and is qualified in its entirety by reference to the complete text of the Share Subscription Facility, which appears as an exhibit to the registration statement of which this prospectus forms a part.
For a further description of the Share Subscription Facility and other conditions to GEM’s commitment to purchase shares of our Common Stock, see the section entitled “Business — Key Agreements — Financing Arrangements — Share Subscription Facility”. For more information on the risks related to SAM’s ability to access some or all of the amounts available, see the section entitled “Risk Factors — Risks Related to SAM’s Financial Position and Capital Requirements — It is not possible to predict the actual number of shares SAM will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, SAM may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet its existing obligations”.
Tuscan Termination and Amendment to Southern Acquisition Agreement
On May 17, 2022, SAM entered into a Business Combination Agreement (the “Merger Agreement”) by and among Tuscan Holdings Corp. II, a Delaware corporation (“Tuscan”), Surf Air, THCA Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of SAM (“Merger Sub I”), and SAGL Merger Sub Limited, a BVI business company formed under the laws of the British Virgin Islands and wholly-owned subsidiary of SAM (“Merger Sub II”) and SAM. Concurrently with the execution of the Merger Agreement, Surf Air, SAM, SAC Merger Sub Inc. (“Merger Sub” and together with Surf Air, and SAM, the “Surf Entities”), and Southern entered into an Amendment No. 2 to that certain Acquisition Agreement dated as of March 17, 2021, as amended by that certain Amendment No. 1 to Acquisition Agreement dated as of August 22, 2021, pursuant to which, subject to the terms and conditions thereunder, the parties thereunder intend to effect a merger of SAC Merger Sub with and into Southern, with Southern continuing as the surviving corporation and a wholly-owned subsidiary of SAM. It was intended that the Southern Acquisition and the transactions contemplated thereunder would close simultaneously with the merger with Tuscan.
On November 14, 2022, Tuscan, Tuscan Holdings Acquisition II LLC, a Delaware limited liability company (“Tuscan Sponsor”), Surf Air and SAM entered into a mutual termination and release agreement (the “Termination Agreement”) pursuant to which the parties agreed to mutually terminate the Merger Agreement and a mutual release of all claims under the Merger Agreement. Pursuant to the Termination Agreement, and in consideration for the agreements of Tuscan and Tuscan Sponsor, SAM has agreed to issue to Tuscan 600,000 shares of Common Stock (or an equivalent number of shares of common equity of Surf Air) immediately prior to the occurrence of a direct listing (including this listing), an initial public offering, a business combination involving a special purpose acquisition company or a Sale Transaction (as defined in the Termination Agreement). In connection with the incurrence of costs and expenses by Tuscan, SAM has agreed, immediately prior to listing, in its sole discretion, to either (a) issue to Tuscan 35,000 shares of Common Stock (or an equivalent number of shares of common equity of Surf Air) or (b) pay to Tuscan $700,000. Tuscan is entitled to certain customary resale registration rights in respect of the shares of Common Stock to be issued to Tuscan on listing. Tuscan and the Sponsor have also agreed to, jointly and severally, indemnify and hold harmless, Surf Air and SAM against losses arising from, as a result of or in connection with: (i) the termination of the Merger Agreement; (ii) the fact that the transactions contemplated by the Merger Agreement will not be consummated; and/or (iii) any other facts or circumstances arising from or relating to the Merger Agreement and the transactions that were contemplated thereby. In connection with the entry into the Termination Agreement, on November 11, 2022, the Surf Entities and Southern entered into Amendment No. 3 to the Acquisition Agreement to reflect, among other things, the termination of the Merger Agreement and the transactions that were contemplated thereby. On May 25, 2023, the Surf Entities and Southern entered into Amendment No. 4 to the Acquisition Agreement (the Acquisition Agreement along with Amendment No. 1, Amendment No. 2, and Amendment No. 3 and Amendment No. 4, the
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“Southern Acquisition Agreement”) to extend the outside date of the Southern Acquisition Agreement to July 31, 2023. For a further description of the Southern Acquisition Agreement, see the section entitled “Business — Key Agreements — Related Agreements and Transactions — Southern Acquisition Agreement”.
Term Notes
Since November 2022, the Company has entered into six term note agreements, as amended, with LamVen, an entity owned by an officer and co-founder of the Company, or LamJam II LLC (“LamJam”), an entity co-owned by an officer and co-founder of the Company, and a family member of such officer and co-founder. As of May 15, 2023, approximately $18.6 million in aggregate principal amount is outstanding under such notes. Each note is scheduled to mature on the earlier of December 31, 2023 or the date on which the note is accelerated due to default, as provided for in the agreement. The interest rate on the notes range from 8.25% to 10.0%. Interest is due upon maturity until the notes are paid in full at maturity or upon acceleration by prepayment.
For a further description of each of the term notes, see the section entitled “Certain Relationships and Related Party Transactions — Surf Air Related Persons Transactions — LamVen and LamJam”.
SAFE note
On January 31, 2023, the Company entered into a SAFE note for $250,000 with a private investor on the same terms and conditions as the SAFEs entered into with the Company’s other investors. The SAFE provides, among other things, for the conversion of such SAFEs into ordinary shares of the Company in connection with a public listing. For a further description of the SAFEs, see the section entitled “Business — Key Agreements — Financing Arrangements — SAFEs”.
Preferred Stock Issuance
On June 2, 2023, the Company issued an aggregate of 5,665,722 shares of Preferred Class of B-6a to one accredited investor at a purchase price of $0.5295 per share for an aggregate purchase price of $3.0 million.
Additional Transactions
Concurrently with the effectiveness of this registration statement, SAGL Merger Sub Inc., a wholly-owned subsidiary of SAM, will be merged with and into Surf Air, after which Surf Air will be a wholly-owned subsidiary of SAM. Immediately prior to the listing, SAC Merger Sub, a wholly-owned subsidiary of SAM, will be merged with and into Southern, after which Southern will be a wholly-owned subsidiary of SAM. Pursuant to the Internal Reorganization, all ordinary shares of Surf Air (after giving effect to the Conversions) outstanding as of immediately prior to the Closing will be canceled in exchange for the right to receive shares of our Common Stock and all rights to receive ordinary shares of Surf Air (after giving effect to the Conversions) will be exchanged for shares of our Common Stock (or options or RSUs to acquire our Common Stock, as applicable). In connection with the Internal Reorganization, Surf Air intends to enter into amendments with the SAFE holders whereby upon listing and pursuant to the SAFE Settlement, SAFE holders will receive shares of our Common Stock based on the exchange value set forth in the relevant SAFE. Pursuant to the Southern Acquisition, Southern stockholders will receive the right to receive a number of shares of our Common Stock equal to the greater of (a) $81.25 million (based on the opening price per share of our Common Stock on the day of listing); or (b) 12.5% of the fully-diluted shares of our Common Stock upon listing and prior to the issuance of the Tuscan Payment, the SAFE Settlement, the Advisor Accrual, the initial GEM Issuance and the GEM Advances (the “Southern Merger Consideration”). For additional information please see the section entitled, “Additional Transactions — Internal Reorganization” and “Additional Transactions — Southern Acquisition”.
Corporate Structure
The following diagrams sets forth the (1) a simplified version of the ownership structure of Surf Air before the Internal Reorganization, the Southern Acquisition, and the listing, and (2) a simplified version of the ownership structure of SAM after the consummation of the Internal Reorganization, the Southern Acquisition and the listing. Listing of our Common Stock is subject to consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions.
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The corporate structure of Surf Air prior to the Internal Reorganization, the Southern Acquisition and listing:
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The corporate structure of SAM immediately after listing:
Risk Factors Summary
Investing in our Common Stock involves numerous risks, including the risks described in the section entitled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects.
Set forth below is only a summary of principal risks associated with SAM, Southern and Surf Air.
Risks Related to Surf Air’s and Southern’s Financial Position
• There is substantial doubt about Surf Air’s ability to continue as a going concern. Surf Air will need additional financing to execute its business plan, to fund its operations and to continue as a going concern.
• Surf Air has incurred significant losses since its inception and expects to incur significant expenses and continuing losses for the foreseeable future. SAM may not be able to achieve or maintain profitability or positive cash flows.
• There is substantial doubt about Southern’s ability to continue as a going concern. Southern will need additional financing to execute its business plan, to fund its operations and to continue as a going concern.
Risks Related to SAM’s Financial Position and Capital Requirements
• SAM has no operating history. Surf Air and Southern’s past financial results may not be a reliable indicator of SAM’s future success.
• It is not possible to predict the actual number of shares SAM will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, SAM may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet its existing obligations.
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• Surf Air has previously defaulted on its debt and other obligations and there can be no assurance that SAM will be able to fulfill its obligations under any current or future indebtedness it may incur.
Risks Related to Surf Air’s and Southern’s Business and Industry
• We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing or access the capital markets to fund our ongoing operations and execute on our growth strategy on acceptable terms and conditions.
• Surf Air’s management has identified material weaknesses in its internal control over financial reporting. These material weaknesses could continue to adversely affect its, and, going forward, SAM’s ability to report its results of operations and financial condition accurately and in a timely manner. At this time, Surf Air cannot predict whether its efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time.
• Southern’s management has identified material weaknesses in its internal control over financial reporting. These material weaknesses could continue to adversely affect its, and, going forward, SAM’s ability to report its results of operations and financial condition accurately and in a timely manner. At this time, Southern cannot predict whether its efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time.
• If we are not able to successfully enter into new markets, offer new routes and services and enhance our existing offerings, our business, financial condition and results of operations could be adversely affected.
• If we experience harm to our reputation and brand, our business, financial condition and results of operations could be adversely affected.
• The success of our business will be highly dependent on our ability to effectively market and sell air transportation as a substitute for conventional methods of transportation.
Risks Related to the Development of Electrification Technology
• We, as well as our development and supply chain partners, have limited experience to date in the development and manufacturing of hybrid-electric and fully-electric powertrains and integrating those newly developed powertrains into existing certified airframes, and we may never develop or manufacture any hybrid-electric and fully-electric powertrains.
• We are substantially dependent upon our relationships with our strategic partners to develop our hybrid-electric powertrain and implement our planned business model.
• Our success will depend on our ability to economically outsource the production, assembly and installation of our hybrid-electric and fully-electric powertrain solutions at scale, and our ability to develop and produce hybrid-electric and fully-electric powertrain solutions of sufficient quality and appeal to customers on schedule and at scale is unproven.
• Our competitors may commercialize their technology before us, either in general or in specific markets, or we may otherwise not be able to fully capture the first mover advantage that we anticipate.
Risks Related to Surf Air’s and Southern’s Operations and Infrastructure
• If we are unable to obtain and maintain access to adequate facilities and infrastructure in desirable locations, including securing access to key infrastructure such as airports, we may be unable to offer our service in a way that is useful to passengers.
• Surf Air and Southern’s operations are currently concentrated in a small number of metropolitan areas and airports which makes their businesses particularly susceptible, and will make SAM’s business particularly susceptible, to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas.
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• The profitability of our current operations is dependent on the availability and pricing of aircraft fuel. Periods of significant disruption in the supply of aircraft fuel or elevated pricing could have a significant negative impact on our results of operations and liquidity.
Risks Related to Surf Air’s and Southern’s Dependence on Third-Party Providers
• If our third-party aircraft operators are unable to support our operations or the growth of our business, or we are unable to add alternative third-party aircraft operators to meet demand, our costs may increase and our business, financial condition and results of operations could be adversely affected.
Risks Related to Surf Air’s and Southern’s Intellectual Property and Information Technology
• If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose market share, generate reduced revenue and incur costly litigation to protect our rights.
• We will rely on our information technology systems to manage numerous aspects of our business. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation.
Risks Related to Ownership of Our Common Stock
• The trading price of our Common Stock, upon listing on the NYSE, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.
If we are unable to adequately address these and other risks we face, our business may be harmed.
Channels for Disclosure of Information
Following the effectiveness of the registration statement of which this prospectus forms a part, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website (www.surfair.com), press releases, public conference calls, and public webcasts.
The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.
Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Our Principal Stockholders
As of , 2023, after giving effect to the Other Transactions, our directors, executive officers, and 5% stockholders, and their respective affiliates will hold approximately % of our outstanding Common Stock.
Corporate Information
Surf Air
Surf Air, Inc. was incorporated in 2011 and Surf Air Global Ltd. was formed and became the parent company of the Surf Air group in 2016. SAM was incorporated under the laws of Delaware on January 5, 2021. SAM is a wholly-owned subsidiary of Surf Air formed for the purpose of holding all of the equity securities, assets, business and operations of Surf Air and Southern. The mailing address of SAM’s principal executive office is 12111 S. Crenshaw Boulevard, Hawthorne, California 90250 and its telephone number is (310) 365-3675. Our website address is www.surfair.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Our logo, the “Surf Air” mark, and our other registered and common law trademarks, service marks, and trade names appearing in this prospectus are the property of Surf Air Global Ltd. or its affiliates. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.
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Southern
Southern was incorporated under the laws of Delaware on April 5, 2013. The mailing address of Southern’s principal executive office is 2875 South Ocean Boulevard, Suite 256, Palm Beach, Florida 33480 and its telephone number is (901) 672-7820. After the consummation of the Southern Acquisition, Southern’s principal executive office will be that of the Company. Southern’s website address is www.iflysouthern.com. Information contained on, or that can be accessed through, Southern’s website is not incorporated by reference into this prospectus, and you should not consider information on Southern’s website to be part of this prospectus.
Southern’s logo, the “Southern Airways” mark, and its other registered and common law trademarks, service marks, and trade names appearing in this prospectus are the property of Southern Airways Corporation or its affiliates. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.
Dissenters’ Rights
For a description of the appraisal rights of Surf Air shareholders in connection with the Internal Reorganization and Southern stockholders in connection with the Southern Acquisition, see the sections entitled, “Additional Transactions — The Internal Reorganization — Dissenters’ Rights Under BVI Law” and “Additional Transactions — Southern Acquisition — Dissenters’ Rights”.
Material U.S. Federal Income Tax Consequences
For a description of the material U.S. federal income tax consequences to non-U.S. holders of our Common Stock, see the section entitled “Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of our Common Stock”.
Regulatory Matters
The Southern Acquisition is subject to the following regulatory matters, in addition to the filings with the State of Delaware and the British Virgin Islands necessary to effectuate the transactions. No notification or report forms are required to be filed with the Antitrust Division of the U.S. Department of Justice or the United States Federal Trade Commission, and no statutory waiting period applies, under the HSR Act.
Air Carrier Fitness
The Surf Entities, together with Southern, must provide notice and extensive information to the Air Carrier Fitness Division of the DOT well in advance of the change of ultimate ownership of Southern Airways Express, LLC, a wholly-owned subsidiary of Southern and holder of a U.S. commuter air carrier authorization from the DOT, in connection with the Southern Acquisition and listing. See the section entitled “Risk Factors — Legal and Regulatory Risks Related to SAM’s Business — We must comply continuously with Fitness and Citizenship requirements administered by the DOT to perform scheduled air transportation”.
Implications of Being an Emerging Growth Company
We are an “emerging growth company”, as defined under the JOBS Act. As an emerging growth company, each of Surf Air and Southern is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain stockholder approval of any golden parachute payments not previously approved.
SAM may take advantage of these reduced reporting and other requirements until the last day of its fiscal year following the fifth anniversary of the completion of this listing, or such earlier time that SAM is no longer an emerging growth company. However, if certain events occur prior to the end of such five-year period, including if SAM has more than $1.235 billion in annual gross revenue, has more than $700 million in market value of its Common Stock held by non-affiliates or issues more than $1.0 billion of non-convertible debt over a three-year period, SAM will cease to be an emerging growth company prior to the end of such five-year period. SAM may choose to take advantage of some, but not all, of the available exemptions
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In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies. Surf Air and Southern have elected to take advantage of such extended transition period. The utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to, reduced disclosure obligations regarding executive compensation. We will continue to be a smaller reporting company as long as either (i) the market value of our common shares held by non-affiliates is less than $250 million as of the last business day of our most recently completed second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our common shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second fiscal quarter.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
Surf Air
The following summary financial data have been derived from Surf Air’s (i) unaudited condensed financial statements included elsewhere in this prospectus as of March 31, 2023 and for three months ended March 31, 2023 and 2022 and (ii) audited financial statements as of and for the years ended December 31, 2022 and 2021 that are included elsewhere in this prospectus. The financial statements have been prepared and presented in accordance with U.S. GAAP. The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for a full year or for future periods. In the opinion of Surf Air’s management, the unaudited condensed consolidated financial statements for interim periods include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for such interim periods. This summary financial information should be read in conjunction with the section entitled “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Condensed Combined Financial Information” and Surf Air’s audited consolidated financial statements and the related notes included elsewhere in this prospectus.
| | | For the
Three Months Ended
March 31, | | For the
Year Ended
December 31, |
| 2023 | | 2022 | | 2022 | | 2021 |
| (in thousands) | | (unaudited) | | | | | | | | |
| Consolidated Statements of Operations Data: | | | | | | | | | | | | | | | | |
| Revenue | | $ | 5,507 | | | $ | 4,818 | | | $ | 20,274 | | | $ | 11,798 | |
| Cost of revenue, exclusive of depreciation and amortization | | $ | 6,650 | | | $ | 5,320 | | | $ | 24,824 | | | $ | 14,495 | |
| Operating loss | | $ | (12,048 | ) | | $ | (11,231 | ) | | $ | (50,904 | ) | | $ | (33,350 | ) |
| Net loss | | $ | (20,573 | ) | | $ | (10,647 | ) | | $ | (74,362 | ) | | $ | (35,784 | ) |
| | | As of
March 31,
2023 |
| (in thousands) | | (unaudited) |
| Consolidated Balance Sheet Data: | | | | |
| Cash | | $ | 241 | |
| Total assets | | $ | 13,344 | |
| Total liabilities | | $ | 124,194 | |
| Working capital deficit(1) | | $ | (61,307 | ) |
Southern
The following summary financial data have been derived from Southern’s (i) unaudited condensed financial statements included elsewhere in this prospectus as of March 31, 2023 and for three months ended March 31, 2023 and 2022 and (ii) audited financial statements as of and for the years ended December 31, 2022 and 2021 that are included elsewhere in this prospectus. The financial statements have been prepared and presented in accordance with U.S. GAAP. The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for a full year or for future periods. In the opinion of Southern’s management, the unaudited condensed consolidated financial statements for interim periods include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for such interim periods. This summary financial information should be read in conjunction
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with the section entitled “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Condensed Combined Financial Information” and Southern’s audited consolidated financial statements and the related notes included elsewhere in this prospectus.
| | | For the
Three Months Ended
March 31, | | For the
Year Ended
December 31, |
| 2023 | | 2022 | | 2022 | | 2021 |
| (in thousands) | | (unaudited) | | | | |
| Consolidated Statements of Operations Data: | | | | | | | | | | | | | | | |
| Revenues | | $ | 22,674 | | | $ | 16,720 | | | $ | 80,716 | | | $ | 57,679 |
| Total operating expenses | | $ | 24,542 | | | $ | 17,239 | | | $ | 84,728 | | | $ | 45,919 |
| Operating income (loss) | | $ | (1,868 | ) | | $ | (519 | ) | | $ | (4,012 | ) | | $ | 11,760 |
| Net income (loss) attributable to common shareholders | | $ | (2,166 | ) | | $ | (710 | ) | | $ | (4,471 | ) | | $ | 10,660 |
| | | As of
March 31,
2023 |
| (in thousands) | | (unaudited) |
| Consolidated Balance Sheet Data: | | | | |
| Cash | | $ | 1,439 | |
| Total assets | | $ | 67,165 | |
| Total liabilities | | $ | 67,199 | |
| Working capital (deficit)(1) | | $ | (19,887 | ) |
Key Operating Measures and Certain Non-GAAP Financial Measures
In addition to the data presented in Surf Air’s and Southern’s respective consolidated financial statements, Surf Air and Southern use the following key operating measures and non-GAAP financial measures to evaluate their businesses, measure their performance, develop financial forecasts and make strategic decisions. See the sections entitled “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Operating Measures of Surf Air”, “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures”, “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Operating Measures of Southern” and “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” included elsewhere in this prospectus for a description of, and additional information about, these key metrics.
Surf Air’s Key Operating Measures
The following table summarizes Surf Air’s key operating measures for each period presented below, which are unaudited.
| | | Three Months Ended
March 31, | | Change | | Year Ended
December 31, | | Change |
| | | 2023 | | 2022 | | Increase/
(Decrease) | | % | | 2022 | | 2021 | | Increase/
(Decrease) | | % |
| Scheduled Flight Hours(1) | | 722 | | 863 | | (141 | ) | | (16 | )% | | 2,524 | | 3,469 | | (945 | ) | | (27 | )% |
| On-Demand Flights(2) | | 454 | | 393 | | 61 | | | 16 | % | | 1,696 | | 1,093 | | 603 | | | 55 | % |
| Scheduled Passengers(3) | | 1,631 | | 2,372 | | (741 | ) | | (31 | )% | | 7,131 | | 9,243 | | (2,112 | ) | | (23 | )% |
| Headcount(4) | | 84 | | 67 | | 17 | | | 25 | % | | 85 | | 81 | | 4 | | | 5 | % |
| Scheduled Departures(5) | | 554 | | 647 | | (93 | ) | | (14 | )% | | 2,002 | | 2,612 | | (610 | ) | | (23 | )% |
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Surf Air’s Non-GAAP Financial Measures
Surf Air uses Adjusted EBITDA to identify and target operational results which is beneficial to management and investors in evaluating operational effectiveness. Adjusted EBITDA is a supplemental measure of Surf Air’s performance that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA is not a measurement of Surf Air’s financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss) or any other performance measure derived in accordance with U.S. GAAP. Surf Air’s calculation of this non-GAAP financial measure may differ from similarly titled non-GAAP measures, if any, reported by other companies. This non-GAAP financial measure should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.
Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.
Surf Air presents Adjusted EBITDA because it considers this measure to be an important supplemental measure of its performance and believes it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in its industry. Management believes that investors’ understanding of Surf Air’s performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing its ongoing results of operations.
Surf Air calculates Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, interest expense, income tax expense, PPP Loans, stock-based compensation, changes in fair value of financial instruments, and transaction costs.
The following table presents a reconciliation of Adjusted EBITDA to loss for each of the periods indicated.
| | | Three Months Ended
March 31, | | Year End
December 31, |
| (in thousands) | | 2023 | | 2022 | | 2022 | | 2021 |
| Net loss | | $ | (20,573 | ) | | $ | (10,647 | ) | | $ | (74,362 | ) | | $ | (35,784 | ) |
| Addback: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 258 | | | | 257 | | | | 1,027 | | | | 1,052 | |
| Interest expense | | | 171 | | | | 360 | | | | 596 | | | | 2,140 | |
| Income tax expense (benefit) | | | — | | | | — | | | | — | | | | — | |
| PPP Loans(1) | | | — | | | | — | | | | — | | | | (718 | ) |
| Share-based compensation expense(2) | | | 1,145 | | | | 4,730 | | | | 12,452 | | | | 3,191 | |
| Changes in fair value of financial instruments(3) | | | 8,096 | | | | 926 | | | | 27,711 | | | | 76 | |
| Transaction costs(4) | | | 1,337 | | | | 368 | | | | 4,828 | | | | — | |
| Adjusted EBITDA | | $ | (9,566 | ) | | $ | (4,006 | ) | | $ | (27,748 | ) | | $ | (30,043 | ) |
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Southern’s Key Operating Measures
The following table summarizes Southern’s key operating measures for each period presented below, which are unaudited.
| | | Three Months Ended
March 31, | | Change | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | Inc | | % | | 2022 | | 2021 | | Inc | | % |
| Scheduled Flight Hours(1) | | 17,666 | | 14,899 | | 2,767 | | 19 | % | | 68,316 | | 54,274 | | 14,042 | | 26 | % |
| Scheduled Passengers(2) | | 97,972 | | 95,460 | | 2,512 | | 3 | % | | 442,893 | | 324,634 | | 118,259 | | 36 | % |
| Headcount(3) | | 662 | | 548 | | 114 | | 21 | % | | 632 | | 583 | | 49 | | 8 | % |
| Scheduled Departures(4) | | 17,670 | | 17,087 | | 583 | | 3 | % | | 74,918 | | 62,452 | | 12,466 | | 20 | % |
Southern’s Non-GAAP Financial Measures
Southern uses Adjusted EBITDA to identify and target operational results which is beneficial to management and investors in evaluating operational effectiveness. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA is not a measurement of Southern’s financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss) or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity. Southern’s calculation of this non-GAAP financial measure may differ from similarly titled non-GAAP measures, if any, reported by other companies. This non-GAAP financial measure should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.
Non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies.
Southern presents Adjusted EBITDA because it considers this measure to be an important supplemental measure of its performance and believes it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in its industry. Management believes that investors’ understanding of Southern’s performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing its ongoing results of operations.
Southern calculates Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, interest expense, income tax expense, incentive income from the Marianas joint venture and PPP/PSP grants.
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The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods indicated.
| | | Three Months Ended
March 31, | | Year Ended
December 31, |
| (in thousands) | | 2023 | | 2022 | | 2022 | | 2021 |
| Net income (loss) | | $ | (2,367 | ) | | $ | (710 | ) | | $ | (5,148 | ) | | $ | 10,660 | |
| Addback: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 937 | | | | 548 | | | | 3,051 | | | | 1,604 | |
| Interest expense | | | 666 | | | | 183 | | | | 1,764 | | | | 744 | |
| Income tax provision (benefit) | | | 5 | | | | 5 | | | | (409 | ) | | | 440 | |
| Incentive income from Marianas joint venture | | | (171 | ) | | | — | | | | (282 | ) | | | — | |
| PPP/PSP grants(1) | | | — | | | | — | | | | — | | | | (11,092 | ) |
| Adjusted EBITDA | | $ | (930 | ) | | $ | 26 | | | $ | (1,024 | ) | | $ | 2,356 | |
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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma condensed combined financial data (the “Summary Unaudited Pro Forma Condensed Combined Financial Information”) gives effect to the Internal Reorganization, Southern Acquisition and related equity conversions and transaction costs, as more fully described in the section titled “Unaudited Pro Forma Condensed Combined Financial Information”. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to the consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions. See the section entitled “Business — Key Agreements — Related Agreements and Transactions — Southern Acquisition Agreement”.
The unaudited pro forma condensed combined balance sheet as of March 31, 2023 combines the historical unaudited condensed consolidated balance sheet of Surf Air as of March 31, 2023 and the historical unaudited condensed consolidated balance sheet of Southern as of March 31, 2023 on a pro forma basis as if the Internal Reorganization, Southern Acquisition and related transactions had been consummated on March 31, 2023.
The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2023 combines the historical unaudited condensed consolidated statement of operations of Surf Air for the three months ended March 31, 2023 and the historical unaudited condensed consolidated statement of operations of Southern for the three months ended March 31, 2023 on a pro forma basis to reflect (i) the Internal Reorganization (including the Conversions) and the Southern Acquisition; (ii) the Tuscan Payment; (iii) the SAFE Settlement; (iv) the Advisor Accrual; (iv) the Initial GEM Issuance and the GEM Advances; and (v) other adjustments as if they had been consummated on January 1, 2022.
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 combines the historical audited consolidated statement of operations of Surf Air for the year ended December 31, 2022 and the historical audited consolidated statement of operations of Southern for the year ended December 31, 2022 on a pro forma basis to reflect (i) the Internal Reorganization (including the Conversions) and the Southern Acquisition; (ii) the Tuscan Payment; (iii) the SAFE Settlement; (iv) the Advisor Accrual; (iv) the Initial GEM Issuance and the GEM Advances; and (v) other adjustments as if they had been consummated on January 1, 2022.
The historical financial information has been adjusted to give effect to factually supportable events that are related and/or directly attributable to the Southern Acquisition and related transactions. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to offer relevant information necessary to provide a reasonable basis for understanding of the combined company upon consummation of the Internal Reorganization, the Southern Acquisition and related transactions as specified above.
The Summary Unaudited Pro Forma Condensed Combined Financial Information has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” in this prospectus and the accompanying notes thereto. The Summary Unaudited Pro Forma Condensed Combined Financial Information is based upon, and should be read in conjunction with, the historical financial statements and related notes of Surf Air and Southern for the applicable periods included elsewhere in this prospectus. The Summary Unaudited Pro Forma Condensed Combined Financial Information has been presented for informational purposes only and is not necessarily indicative of what SAM’s financial position or results of operations actually would have been had the
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Internal Reorganization and Southern Acquisition been completed as of the dates indicated. In addition, the Summary Unaudited Pro Forma Condensed Combined Financial Information does not purport to project the future financial position or operating results of SAM following the effectiveness of the listing.
| (in thousands) | | As of
March 31,
2023 |
| Unaudited Pro Forma Condensed Combined Balance Sheet Data: | | | |
| Cash(1) | | $ | 93,847 |
| Total assets | | $ | 311,595 |
| Total liabilities | | $ | 131,904 |
| Total shareholders’ equity | | $ | 179,691 |
| (in thousands, except share and per share data) | | Three Months Ended
March 31,
2023 | | Year Ended
December 31,
2022 |
| Unaudited Pro Forma Condensed Combined Statement of Operations Data: | | | | | | | | |
| Revenue | | $ | 27,981 | | | $ | 100,615 | |
| Net loss – attributable to SAM common shareholders | | $ | (15,207 | ) | | $ | (112,345 | ) |
| Weighted average shares outstanding – basic and diluted | | | 49,839,818 | | | | 46,839,818 | |
| Net loss per share – basic and diluted | | $ | (0.31 | ) | | $ | (2.40 | ) |
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RISK FACTORS
Investing in our Common Stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus. You should read this entire prospectus carefully, including the sections entitled “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Surf Air’s and Southern’s financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, or results of operations. In such case, the trading price of our Common Stock could decline, and you may lose some or all of your original investment.
Unless the context otherwise requires, all references to “the Company” or “Surf Air” are to the current business and operations of Surf Air Global Limited and its consolidated subsidiaries prior to the Internal Reorganization and Southern Acquisition, references to “Southern” are to the current business and operations of Southern Airways Corporation and its consolidated subsidiaries prior to the Southern Acquisition and references to “we”, “us”, “our” or “SAM” in this section are to the proposed business and operations of SAM and its consolidated subsidiaries following the Internal Reorganization, the Southern Acquisition and listing. Accordingly, the risks described below relating to Surf Air and Southern could also materially adversely affect SAM after the consummation of the transactions contemplated hereby. The Southern Acquisition will occur immediately prior to the listing of our Common Stock. Listing of our Common Stock is subject to the consummation of the Southern Acquisition. The consummation of the Southern Acquisition is subject to the effectiveness of the registration statement, the approval for listing of our Common Stock, the consummation of the Internal Reorganization, regulatory approvals and other customary closing conditions. See the section entitled “Business — Key Agreements — Related Agreements and Transactions — Southern Acquisition Agreement”.
Risks Related to Surf Air’s and Southern’s Financial Position
There is substantial doubt about Surf Air’s ability to continue as a going concern. Surf Air will need additional financing to execute its business plan, to fund its operations and to continue as a going concern.
The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. The Company is currently in default of certain excise and property taxes, as well as certain debt, tax and other contractual obligations as further described in “Surf Air’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “— Risks Related to SAM’s Financial Position and Capital Requirements — Surf Air has previously defaulted on its debt and other obligations and there can be no assurance that SAM will be able to fulfill its obligations under any current or future indebtedness it may incur”. In addition, COVID-19 related disruptions in air travel significantly impacted our business and contributed to a decrease in membership sales, flight cancellations and significant operational volatility. There can be no assurances that the Company can cure any defaults that remain outstanding, or if cured, that the Company will not default on future obligations.
The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, increase its membership base, increase passenger loads, and continue to expand into regions profitably throughout the United States.
The Company has funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities and preferred and common share financing arrangements. A significant amount of funding to date has been provided by entities affiliated with a co-founder of the Company. The Company is evaluating strategies to obtain the additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses.
If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, reducing spending on payroll, marketing, station rent and aircraft purchases necessary for the Company’s planned network, altering or scaling back development plans, including plans to equip regional airline operations with hybrid electric aircraft and reducing funding of capital expenditures, any of which could have a material adverse effect on the Company’s financial position, results of operations, cash flows and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
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The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to the ability to raise additional capital (or financing) to fund operating losses, refinance its current outstanding debt, sustain ongoing operations, the ability to attract and maintain members, the ability to integrate, manage and grow recent acquisitions and new business initiatives, obtain and maintain relevant regulatory approvals, and the ability to measure and manage risks inherent to the Company’s business model.
In addition to the risks and uncertainties associated with the Company’s emerging business model, there continues to be a worldwide impact from the COVID-19 pandemic. The impact of COVID-19 has resulted in changes in consumer and business behavior, pandemic fears, market downturns, and restrictions on business and individual activities, which created significant volatility in global economy and has led to reduced economic activity particularly in the air travel industry. Due to enhanced virtual meeting and teleconferencing technology that was adopted in response to the COVID-19 pandemic, more people are meeting over virtual meeting platforms than in person, despite the waning of the pandemic, which reduces the need for transportation, including our services. Specifically, COVID-19 related disruption in air travel has led to a decrease in membership sales, flight cancellations and significant operational volatility which was a significant contributing factor to Surf Air defaulting on certain debt arrangements and amending the terms and conditions of certain debt arrangements, in order to meet liquidity needs.
In addition, other natural events, short-term and long-term interest rates, inflation, money supply, political issues (including as a result of Russia’s invasion of Ukraine and the effects of sanctions and retaliatory cyber-attacks on the world economy and markets, elections and governmental shutdowns), legislative and regulatory changes, fluctuations in both debt and equity capital markets and broad negative trends in the banking industry and financial markets, which are beyond the Company’s control, have indirectly impacted the Company, and may continue to indirectly impact the Company in the future. Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world could adversely affect the Company and its vendors and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, some of the Company’s vendors and suppliers likewise rely on capital raising activities to fund their operations and capital expenditures, which may be more difficult or expensive in the event of downturns in the economy or disruptions in the financial and credit markets (including as a result of the aforementioned factors that have impacted our operations). If such vendors or suppliers are unable to raise adequate capital to fund their business plans, they may not be able to comply with their obligations to the Company, which could have a material adverse effect on our business, financial condition and results of operations.
Surf Air has incurred significant losses since its inception and expects to incur significant expenses and continuing losses for the foreseeable future. SAM may not be able to achieve or maintain profitability or positive cash flows.
Surf Air has incurred significant losses since its inception. Surf Air incurred net losses of $20.6 million and $10.6 million for the three months ended March 31, 2023 and 2022, respectively, and $74.4 million and $35.8 million for the years ended December 31, 2022 and 2021, respectively. In addition, Southern incurred net losses attributable to common shareholders of $2.2 million and $0.7 million for the three months ended March 31, 2023 and March 31, 2022, respectively, and $4.5 million for the year ended December 31, 2022. We expect our operating expenses to increase over the next several years as we endeavor to increase our flight cadence, hire more employees and fund third-party research and development efforts relating to the development of our electrification technology, as well as due to macroeconomic factors such as rising inflation rates. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we continue to have negative cash flow or losses resulting from our investment in increasing our member base and passenger loads or expanding our operations into regions throughout the United States, our business, financial condition and results of operations could be materially adversely affected. Going forward, SAM’s future losses and the losses that Surf Air has incurred may be larger than anticipated, and SAM may not achieve profitability when expected, or at all. Even if SAM achieves profitability, SAM may not be able to maintain or increase profitability.
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The continued growth of our business will require significant investments in the development of hybrid-electric and fully-electric powertrains, our aircraft fleet, ground-based infrastructure, information technology and marketing and sales efforts. Surf Air’s current cash flow has not been sufficient to support these needs to date. Surf Air has historically had negative cash flows and a working capital deficit, and has funded its operations and capital needs to date through the proceeds received from the issuance of various debt and equity instruments. Going forward, SAM’s ability to effectively manage growth and expansion of its operations will also require it to enhance various systems, including in relation to research and development, operations and internal controls and reporting. These enhancements will require significant capital expenditures and allocation of valuable management and employee resources. If our business does not generate the level of available cash flow required to support these operations and investments, and we are not able to determine an alternative solution to obtain the funding needed for our future operations, there may be a material adverse effect on our business, financial condition and results of operations.
There is substantial doubt about Southern’s ability to continue as a going concern. Southern will need additional financing to execute its business plan, to fund its operations and to continue as a going concern.
Southern incurred greater than expected operating losses and negative cash flows from operating activities in April and May 2023 due to inefficient aircraft utilization, primarily caused by an underutilization of pilots and a shortage of maintenance personnel and critical aircraft components, which, in the aggregate, have challenged Southern’s ability to serve its customers as desired and, in turn, cover expenses, as further described in “Southern’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”. There can be no assurances that Southern can cure any cash flow challenges, or if cured, that Southern will not incur future losses.
The airline industry and Southern’s operations are cyclical and highly competitive. Southern’s success going forward is dependent on the ability to achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and ready access to capital to fund operations and planned growth.
Southern is evaluating strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, and restructuring of operations to efficiently utilize aircraft and pilots, grow revenues and decrease expenses. There can be no assurance that Southern will be successful in achieving its strategic plans, that new financing will be available to Southern in a timely manner or on acceptable terms, if at all. If Southern is unable to raise sufficient financing when needed or events or circumstances occur such that Southern does not meet its strategic plans, Southern may be required to take additional measures to enhance and conserve liquidity, which could include, but not necessarily limited to, increasing ticket prices, reducing certain spending, selling of aircraft, altering or scaling back operational footprint, which may have a material adverse effect on Southern’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about Southern’s ability to continue as a going concern.
Southern’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect Southern’s business, results of operations or financial condition include, but are not limited to the ability to raise additional capital (or financing) to fund operating losses, refinance its current outstanding debt, sustain ongoing operations, the ability to attract and maintain members, the ability to integrate, manage and grow recent acquisitions and new business initiatives, obtain and maintain relevant regulatory approvals, and the ability to measure and manage risks inherent to Southern’s business model.
In addition to the risks and uncertainties associated with Southern’s business model, there continues to be a worldwide impact from the COVID-19 pandemic. The impact of COVID-19 has resu
