In an ominously short fourth quarter conference call in which only two investment analysts tuned in, Mesa said that with current fuel prices, the company will be both cash flow positive and profitable it its current fiscal year. Chair and CEO Jonathan Ornstein also discussed his strategy this year is to solve its big money problems, including its note holders in order to reduce costs. In the meantime, it delayed the delivery of 10 CRJs and negotiated the return of $6 million of the $6.5 million in deposits already paid Bombardier as part of an amended purchase agreement. It is also in discussion with other venders “who have a vested interest in seeing us succeed” to provide cash, if necessary.
"2008 was a very challenging year operationally and financially for the company," said Mesa Chair and CEO Jonathan Ornstein. "While many obstacles lay ahead, we are encouraged that the restructuring efforts begun in 2008 may permit the emergence of a reinvigorated company in 2009. We continue to execute our restructuring plan and take steps needed to improve the financial and operational performance of the company."
Jesup and Lamont Analyst Helene Becker noted that historically Mesa has kept its cash position at about five percent of revenue, noting that with the issuance of so many shares to satisfy note holders it might be difficult to raise cash this year. However, Ornstein that the company has been run operating on very little cash but cash flow positive for most of its existence. “We feel confident that while the situation is tight that, and assuming partnerships remain intact, we will work our way through this period,” he said, adding that he is also looking at some other types of non traditional cash initiatives.
He cited the drop in the price of fuel, saying every dime saved equals $45,000, adding that, although 96 percent of its operation is under contract in which fuel costs are passed along to mainline partners, the drop will help go! significantly. Fuel has dropped from $4 million to $1.75. He indicated that the reduction also changes the business case for the CRJ 200s and made it easier to reassign six idle CRJ 200s which have been subleased since the end of the company’s fiscal year in September 30.
It has already solved the litigation problems it was facing with Aloha which happened in November, its fiscal first quarter for 2009. Related Story In addition, shareholders agreed to issue shares to cover debt to note-holders due on January 31 and February 10 which amount to about $90 to $100 million. Mesa is negotiating with note-holders in hopes of reaching a settlement without issuing the full 900 million shares “in a manner that will be satisfactory to all partners.”
“We are talking with bondholders and I can say, with some degree of confidence, that with no credit market existing today, we knew we would have to be creative,” he said. “We have had productive discussions since the bonds are not widely held. We will come to a solution that will allow our company to remain viable and move forward having put one more major issue to bed.” With the settlement of the legal issues in Hawaii, it is saving legal costs, according to Ornstein.
The company is expanding its go! operation in Hawaii with the addition of one CRJ 200 in time for the busy spring/summer season, bringing its fleet to six and is awaiting a court decision that would allow it to use the Aloha Airlines name for its at-risk operation there. Ornstein reported that forward bookings at the Hawaiian regional were robust and double what they were last year. In addition, he said operating revenues for go! increased to $18.1 million thanks to an increase in fares and enplanements.
He expects to be able to lease the Aloha name, saying “we’d be better off based on our experience with Virgin,” he said, alluding to his days working with the European airline. “We owned European Belgian Airlines and licensed the Virgin name and it was worth it. The licensing costs for Aloha would be offset by the benefits and maybe more. It would help in pursuit of code-share agreements.”
It continues to fight the termination of its Delta Connection flying with seven CRJ 900s and plans to file a lawsuit shortly. In addition, a hearing on Delta’s termination of Freedom Airline’s ERJ 145 service, for which it was able to gain an injunction last summer, is scheduled for January 30.
Ornstein also reported that the company hopes to settle its claims in removing itself from the KunPeng Airlines partnership with Shenzhen Airlines, shortly. Related Story
Ornstein also reported that the delay in issuing its Q4 statistics, resulted from a tax issue regarding net operating losses.
“The company faces a lot of challenges but we are working through the bond issue and we also have hurdles with Delta,” he said. “But I’d like to think those can be resolved in a productive and amicable fashion. Our environment puts a lot of questions in people’s minds. But we continue to have strong relationships and our US Airways and United business models are successful and will see us through this period.”
In response to a question from Avondale Partners’ Bob McAdoo, Ornstein said that Mesa Air Group has over $8 million in the budget for aircraft otherwise parked on a annual basis with no mitigation. However, he indicated the company was in negotiations with lessors. “We think we have homes for aircraft, he said, adding that it would be moving others to Hawaii, using others as spares to support schedules which would help make back those costs in the form of incentives.
Currently, the company operates 55 aircraft for US Airways, 56 for United and 37 at Delta which are part of the lawsuit to be heard at the end of the month. The leaves five in Hawaii’s go! operation and six idle, one of which is destined for go with the balanced subleased since the end of the company’s fiscal year.
He reported that Yucaipa, with which it cut the licensing agreement for the Aloha name was the highest bidder by a wide margin and expects to prevail. He noted that in the bankruptcy court, highest bidder gets the assets, meaning the licensing agreement will ultimately get done. Related Story  “If it is does not get done, we don’t have to pay the one percent of revenue in license fees,” he said. As for the liability of offering former Aloha employees passes, he indicated that it is expected to come in at $2 million annually. “That is what was asked of us and that is what we gave,” he said.
McAdoo also asked about the impact of Republic Airway’s Holdings operation in which it is selling capacity to Mokulele Airlines. While he did not know what would ultimately happen, he reminded callers that they are operating with an $8 million line of credit from RJET. He noted that load historically were below 20 percent. “We continue to operate in our partnership between go! and Mokulele but we sent notice that we could conclude that,” he said. “We understand that competition is part of the industry and at one time we were the third carrier there. Since their entry we have not seen a decrease in load factor. In fact it is higher year over year.”

Mesa Narrows Q4 Losses
For its fiscal year ending September 30, Mesa reported a net loss of $29.1 million narrowing the loss from the 81.5 million experienced in its last fiscal year. Net operating revenues grew slightly from $1.2 billion to $1.3 billion while total operating expenses dropped from $1.371 billion to $1.316 billion. Its operating income was $10 million compared to the $73.7 million loss in its last fiscal year.
After a three month delay, Mesa Air Group, Inc. announced today fourth quarter losses from continuing operations of $22.3 million ($0.83 per diluted share) on gross operating revenues of $325.3 million. Mesa’s fourth quarter ends on September 30. This compares to losses from continuing operations of $62.2 million ($2.16 per diluted share) in the fourth quarter of 2007 on gross operating revenues of $327.8 million.
Total operating revenues decreased $2.6 million year-over-year, or 0.8 percent, primarily as a result of a year-over-year decrease in capacity partially offset by an increase in fuel revenue. Total Pro Forma Net Income for the fourth quarter 2008 was $3.1 million compared to $2.2 million for the same period of the prior year. Pro forma net income for the quarter includes adjustments for the following items on an after tax basis: $10.0 million of vendor settlements, $4.9 million related to lease return costs, $3.7 million for loss from equity method investments, $2.0 million expense from the Aloha Airlines settlement, $1.8 million for the adjustment to income tax valuation allowance, $1.5 million loss on disposal of assets, $0.9 million costs associated with the Chinese joint-venture, $0.4 million of legal expense for go! operations and a net $0.2 million of additional pro forma items.
Total Available Seat Miles (ASMs) for the fourth quarter of 2008 decreased 13.9 percent from the fourth quarter of 2007, primarily as a result of a decrease in the number of aircraft flown from 162 as of September 30, 2007 to 159 as of September 30, 2008. On September 30, 2008, Mesa's jet fleet was comprised of 45 Bombardier CRJ 900's, 44 CRJ-200's, 20 CRJ 700's and 34 Embraer 145's. The turboprop fleet consisted of 16 deHavilland Dash 8's.
At September 30, 2008, the total balance of cash, cash equivalents, restricted cash, and marketable securities was $64.9 million.