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Monday, April 28, 2008

Mesa Bankruptcy Questioned

The specter of a Mesa Air Group bankruptcy was raised twice during yesterday’s investor calls, illustrating Wall Street’s concerns about the troubled airline, which is contesting the loss of its Freedom Airlines, 50-seat Delta contract. Related Story
During the Republic Airways Holdings conference call, Ethan McCaffrey of Ramsey Asset Management noted its shares were priced at 45 cents and, with only $20 million in market capitalization, suggested it was the regional most likely to go bankrupt. He noted that Mesa has always been considered the most irrational pricer when it comes to new contracts.
"While we have issues to work through with Delta, Mesa has strong contracts with US Airways and United and a strong underlying business," Mesa Spokesperson Paul Skellon told Regional Aviation News.
RJET CEO Bryan Bedford, in responding to the question of what ramifications a Mesa bankruptcy would hold for the rest of the industry, said that he was sure everyone was trying to figure out that question. “We hate to see any airline go into bankruptcy,” he said. “We haven’t seen a regional airline do that yet. I don’t know exactly what the case is with Mesa but I think it depends on the ultimate wind down of Delta flying. But we are not looking at the market and saying there’s going to be an opportunity directly correlated to what is going on at Mesa.”
Investors were also concerned that mainline carriers would try to change contracts trying to squeeze the lowest cost from their regional partners. Bedford indicated that it was a lot more complicated than just price. “I can tell you who I believe lowest cost seller of capacity to Delta and that is Mesa,” he said, to which Jamie Baker of JP Morgan responded, “and we’ve seen how that turned out.” Bedford also said, “you can make a pizza so cheap nobody will want it,” adding that the fact that RJET continues to win business is an indication “we are striking the right balance between product and cost. You have to have a etter product, better pricing, better customer experience and better reliability and that’s where the RJET story is for many guys in our peer group.”
Later, during the media portion of the US Airways call, a Wall Street Journal reporter sought information on what would happen to US Airways Express should Mesa go bankrupt. While he indicated that he was not in a position to comment on Mesa’s financial position, US Airways Chair Doug Parker said he understood the market is worried about it and the company reflected that concern. However, he added that the mainline carrier feels pretty good about the Mesa operation, regardless of what might happen at its regional partner. “They have a good profitable operation which could continue outside of bankruptcy or, even in bankruptcy, we are confident they will continue to fly.” Mesa did not respond to question from Regional Aviation News at press time.
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