With two bankrupt partners, Mesa Air Group [MESA] is diversifying its revenue base by addition a fourth code-share partner to its portfolio.

Beginning in October, Mesa's Freedom Airlines will begin flying Bombardier [BBD] CRJ 200s for Delta Air Lines [DAL] as a Delta Connection partner. It will take about six months for Mesa to phase in its 30 planes it will be flying for Delta Connection, said Mesa CEO Jonathan Ornstein

In an exclusive interview with Regional Aviation News, Ornstein confirmed that the bulk of the 50-seat RJs will be coming from aircraft that had been committed to bankrupt US Airways [UAIRQ]. "At this point I can't say for sure, but in all likelihood they will come from US Airways," he said.

A long-time US Airways partner, Mesa has been flying 59 RJs and eight Beech 1900Ds for the carrier. Its US Airways RJ fleet consists of 23 CRJ 200s and 36 Embraer [ERJ] 145s. As US Airways tries to craft a business plan to exit its second Chapter 11 proceedings, it has attracted $225 million in investments from Air Wisconsin and Republic Airways [RJET]. While Republic's Chautauqua Airlines has been flying for US Airways, Air Wisconsin had been flying exclusively for United Airlines [UALAQ]. Air Wisconsin's investment in US Airways has secured it the right to fly its 70 CRJ 200s for US Airways Express. The carrier has reached a termination accord with United which calls for a one-year transition. The writing is on the wall and Mesa's days at US Airways are numbered unless it strikes a new accord.

"I think under any circumstances, our relationship with US Airways will change," Ornstein said. "I am not sure to what extent."

The shape of the future US Airways and the role of its regional partners is now in doubt as US Airways and America West [AWAC] are negotiating a possible merger. Mesa is a longtime partner with America West. One potential sticking point - the combined operation would need a $500 million capital infusion to put it on solid ground. Some have speculated that Mesa - a one-time investor in America West and an earlier version of US Airways - may invest in the merged operation to ensure its future flying relationship. Ornstein would not comment on the speculation.

America West provides 41 percent of Mesa's revenue compared to 34 percent from US Airways and 24 percent from bankrupt United.

Although Delta is not in bankruptcy, it is without a doubt the weakest of the legacy carriers not operating in Chapter 11. Some analysts have speculated that Delta could again be near bankruptcy in the fall if fuel prices remain high.

"If I was going to be nervous because of the financial condition of our partners, I would be dead right now," Ornstein said. "Everybody is having its challenges. Our view is that diversity is a good thing. We keep spreading out the risks.

"Delta has a very strong network and a valuable franchise [and] they will work through this period as well as any other carrier."

Ornstein has repeatedly stated that he has been working on contingency plans to shift his RJs to other carriers should US Airways liquidate.

"We have been trying to get a Delta Connection [contract] since 1988. The talks have been off and on," he said; however, he declined to talk about the most recent negotiations.

"Larry Risley [Mesa's founder] and I would sit in office and ask how could we become a Delta code-share? They have a long history of treating their partners well. In our discussions and negotiations with them, they were a delight to work with. We strongly feel this is going to be a great long-term relationship for Mesa and hopefully Delta feels the same way," he said.

Mesa will be using its Freedom Airlines certificate to fly the CRJ 200s for Delta because scope limitations in the Delta mainline pilots contract preclude Mesa from using its Mesa Airlines certificate. Mesa Airlines flies CRJ 700 and CRJ 900s for America West and United.

The Delta contract will run for 12 years.

Mesa would take the place of Flyi [FLYI] in the Delta Connection family. Because of scope clause limitations in the Delta labor contract, it and Flyi parted ways last November as Flyi's Independence Air started flying Airbus 319s. Flyi began phasing out of the Delta Connection flying last July.

Mesa will probably pick up the Flyi routes out of Cincinnati, but Delta has not spelled out where Mesa will be based.

In choosing to fly Mesa's CRJ 200s, Delta will be upgrading its aircraft from the 32-seat Fairchild Dornier 328Jets that Flyi had been flying.

Delta's decision to fly CRJ 200s with Mesa effectively ended negotiations with Skyways. The Midwest Connection unit is now the largest U.S. operator of Dornier 328Jets, with 10 planes. It had been negotiating since last summer to become a Delta Connection partner and fly Delta's fleet of 30 328Jets.

If Skyways won the Delta contract, it would be its first partnership outside the Midwest Airlines [MEH] family.

At this time, Skyways has not decided if it will attempt to purchase individual 328Jets from Delta to expand its own fleet, said spokeswoman Carol Skornicka. Skyways has been shifting its routes from Beech 1900Ds.

>>Contacts: Jonathan Ornstein, Mesa, (602) 685-4001; Carol Skornicka, Midwest, (414) 570-3980.<<