Regional carrier Mesa Air warns of cash crunch
PHOENIX—Mesa Air Group Inc. warned Thursday that it faces a cash crunch and could be forced into bankruptcy if it can't stop Delta Air Lines Inc. from going through with a plan to cancel a regional flight contract.
The Phoenix-based commuter airline said in a filing with the Securities and Exchange Commission that the loss of $20 million in monthly revenue from the Delta deal could lead to a cascade of defaults unless Mesa can restructure its debt or raise additional capital.
Mesa's filing said the Delta operations accounted for about 20 percent of its 2007 revenue. Losing the deal to provide Delta regional service would cost the company an estimated $960 million over the next four years.
In addition, Mesa would be on the hook for leases for 34 regional jets that it likely would be unable to redeploy to other routes. It estimated aircraft leasing, labor and other costs at $250 million to $300 million over the next four years.
"In such event, the company's financial condition would require that the company seek protection under applicable U.S. reorganization laws in order to avoid or delay actions by its lessors, creditors, and code-share partners, which could materially adversely affect the company's ability to continue as a going concern," the filing concluded.
Mesa is a major commuter carrier and operates flights as Delta Connection, US Airways Express and United Express under agreements with Delta, US Airways Group Inc. and United Airlines.
Mesa filed suit against Delta last month in an effort to prevent the company from ending its service agreements. Delta told Mesa that it was canceling its deals because of performance issues on its Freedom Airlines subsidiary, which Mesa in turn blamed on Delta's actions. A hearing is set to begin May 27 on the suit.
Mesa contends in court filings that its contract with Delta does not give Delta the right to end the deal without cause and requires 12 months notice.
Delta's termination announcement earlier this year was supposedly effective immediately, Mesa said, although it offered a transition agreement to "wind down" operations between June and September. Delta later agreed to operate under the contract's terms through May 31.
Mesa has been struggling for the past several months.
Last week, the airline said it would shut down subsidiary carrier Air Midwest, cutting off service to 16 small cities in 10 states because of soaring fuel prices. Air Midwest operated government-subsidized "essential air service" flights to the cities.
Mesa told investors it plans to address the situation by negotiating aircraft and inventory returns, restructuring debt, negotiating payment deferrals with vendors and accelerating the shutdown of Midwest.
Mesa's finances also have been hit in many other areas.
Its Hawaiian carrier, go!, has struggled to make a profit and sparked a lawsuit with Hawaiian Airlines Inc. that ended with Mesa agreeing to pay $52.5 million.
Last week Mesa shareholders authorized it to issue millions of new shares to help pay off $37.8 million in senior convertible notes due in June. A separate company filing Thursday said the carrier agreed with some of its bondholders to repurchase some of the notes and delay requiring the company to buy back others.
The carrier's shares have dropped more than 75 percent in value since the beginning of the year. Mesa shares lost 9 cents, or 16 percent, to 48 cents in Thursday trading.
Mesa Air Group was founded in 1982 by Larry Risley, a former aircraft mechanic who mortgaged his house and business to start the airline. It has grown into a major commuter carrier with 5,000 employees and about 1,100 daily departures to 184 cities.
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Associated Press Business Writer Chris Kahn in Phoenix contributed to this report.
