Mesa Posts $2.8M Loss in Q1

Legal expenses, go! and the cessation of Air Midwest service led to a first quarter pre-tax loss for Mesa Air Group, Inc. of $2.8 million from continuing operations on operating revenues of $326.6 million. Total operating revenues for the first quarter of 2008 decreased $6.9 million, or 2.1 percent primarily...

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Legal expenses, go! and the cessation of Air Midwest service led to a first quarter pre-tax loss for Mesa Air Group, Inc. of $2.8 million from continuing operations on operating revenues of $326.6 million. Total operating revenues for the first quarter of 2008 decreased $6.9 million, or 2.1 percent primarily as a result of a year-over-year decrease in aircraft in service. The net loss of $2.8 million, or $0.10 per diluted share, compares to net income from continuing operations of $8.9 million, or $0.22 per diluted share for the same period of fiscal 2007. Pro forma net loss for the quarter was $0.1 million or break even on a per share basis. The pro forma net loss for the quarter includes adjustments for the following items on an after tax basis: $3.7 million in costs associated with the return of aircraft to the lessors, $0.5 million for go! legal expenses, $0.6 million loss from equity method investments and $2.4 million gain on marketable securities. The results follow a dismal 2007 for the carrier. Related Story
CEO Jonathan Ornstein reported that increased fuel costs were almost completely offset by its reduction in flying, coupled with a new direct supply from United. In addition, he said that discussions to swap out an additional four CRJ 200s for another CRJ 700 in the United program are nearing completion. He cited the reductions of its Delta Connection JFK program as well as its CRJ 200 flying for the reduction in operating revenues. Ornstein expects to operate the same capacity in 2008 as it did in 2007.
As for its Essential Air Service Program, Air Midwest has filed to exit all its routes except Prescott and Kingman, Ariz. which it serves from Phoenix and Las Vegas. It now has 11 lines of flying in the program and is continuing discussions with various parties on the sale or lease of its remaining Beech 1900Ds. Two-thirds of its flying are subject to hold in, which should offer break-even results as the Department of Transportation seeks other bidders.
Ornstein reported that pilot attrition was down some 40 percent in January but a shortage of simulator time and check airmen was still affecting operations. Echoing other Delta operators, he said the major carrier was starting to pull back Delta Connection operations near minimums, much of which had to do with the change out of the CRJ 200 for larger aircraft. Related Story He does not expect that to impact the company since he agrees the CRJ 200s have to be up-gauged. Like SkyWest, which reported its results recently, he would prefer they be swapped for 70-seaters which are profitable compared to the unprofitability of the CRJ 200 operations which he reported in his year-end results. Related Story As a result, he said, huge CRJ 200 costs will be pulled out as well.
Mesa continues to look at other opportunities for the 50-seat aircraft including diverting more aircraft to Kunpeng Airlines, its joint venture with Shenzhen Airlines in China. Ornstein thinks Mesa is ahead of the curve in off-loading 50-seaters, citing US Airways early action to that end compared to other mainline carriers. However, United and Delta have also been active in upgauging.
During the year-end call, Ornstein indicated he was trying to monetize the $100 million in spares and reported last week that the company was negotiating with five different companies, including maintenance suppliers, manufacturers and financial institutions at a level of about 50 cents on the dollar, which he called “not unreasonable.”
Total Available Seat Miles (ASM's) for the first quarter of fiscal 2008 decreased 8.0 percent from the first quarter of 2007 primarily owing to a decrease in the number of aircraft flown from 200 as of December 31, 2006 to 183 as of December 31, 2007. At December 31 Mesa's operating fleet was comprised of 87 50-seat regional jets, 38 86-seat regional jets, 20 66-seat regional jets, two 76-seat regional jets, 16 37-seat turboprops, and 20 19-seat turboprops. As of December 31, the company operated 51 regional jets and 22 turboprops with US Airways, 53 regional jets and 10 turboprops for United, 38 regional jets for Delta. The company also flew four turboprops at Mesa Airlines and five regional jets in Hawaii operating as go!.
As of December 31, the company's cash, marketable securities and debt investments were approximately $188.2 million, which includes $97.3 million of restricted cash, of which $90 million is a cash bond posted as security for a judgment against the company in favor of Hawaiian Airlines in October 2007, which is currently under appeal and is included in non-current assets.

Q1 Highlights for the company:
• Placed the first two of 14 76-seat CRJ-900's into service for Delta Airlines. Three additional CRJ-900's will be delivered and placed into service for Delta in the second quarter.
• Delivered two additional CRJ-200 aircraft to Kunpeng Airlines. At the end of the quarter, Kunpeng was subleasing a total of four aircraft from Mesa.
• go!, the company's independent Hawaiian operation, celebrated its one millionth customer after just 17 months of service. In addition, an agreement was signed permitting Alaska Airlines to sell go! tickets as direct connections to Alaska Airlines flights. go! also signed a contract with the US Government designating go! as its preferred Hawaiian inter-island airline.
• Returned three CRJ-200 aircraft at the end of their leases. As the company grows with larger regional jets (CRJ-700's and CRJ-900's), it is shrinking its 50-seat fleet, through sub-leases and lease returns. Seven additional CRJ-200's will be removed from partner contracts this fiscal year.
"We are certainly disappointed with the results of the quarter," said Mesa Chairman and CEO, Jonathan Ornstein. "We are confident in our plans, however, to shrink our less profitable fleet and grow with our larger, more profitable regional jets. We made strides in this quarter in both initiatives. We are proud of our Chinese partnership which is positioning itself as the largest regional jet operator in the country. And we are proud of the key marketing milestones reached at go."