Turboprops Added To Former Air Wisconsin Routes

Mesa Air Group will expand its turboprop operations under a new agreement with United Airlines. As part of that pact,Mesa will take over routes being dropped by Air Wisconsin. The Phoenix, Ariz.-based regional signed a five-year agreement with United late last month that calls for Mesa to operate 10 Bombardier Q200 turboprops out of United's Denver hub, beginning this July. While some of the turboprops will come from Mesa's current fleet, others are expected to be leased under short-term deals that will protect Mesa in the event United is forced to liquidate under Chapter 7 bankruptcy.

The new turboprop service will replace service provided by Air Wisconsin's Fairchild Dornier 328 turboprops, which are being retired. Air Wisconsin will continue to fly as a United Express carrier using its BAe 146 and Bombardier CRJ regional jets.

The new operation could be a chance for Mesa to redeem itself with United Express, according to Douglas Abbey, president of Washington, D.C.-based Avstat Associates. Mesa had been a United Express carrier during the 1990s until disagreements on service levels caused a split-up between the two organizations. Abbey told C/R News that the new partnership will benefit United by increasing the number of partners in its stables, while also serving to endorse the continuing role of turboprops in the regional airline fleet.

James Parker, managing director for Raymond James & Assoc., said that the 10 aircraft added to Mesa's network should produce between $35 million and $40 million in annual revenue, assuming the aircraft are operated on a capacity buy/fixed fee contract with a profit margin of 7 to 8 percent.

Parker said that while Mesa's projected earnings per share (EPS) are being maintained at $0.50 for 2003 and $0.80 for 2004, the EPS could increase as the new United Express service materializes.

In its latest financial filing, Mesa Air Group reported a net loss of $560,000 on revenues of $133.3 million for the first quarter of its fiscal year 2003. This compares with a net income of $3.7 million on revenues of $111.2 million for the first quarter of FY 2002. Pro forma earnings for the first quarter were $560,000 compared to $3.7 million for the same period in FY 2002. These excluded extraordinary items to include an after-tax loss of $1 million from CCAir, which shut down on Nov. 4.

Mesa said first-quarter results were impacted by a significant increase in operating costs associated with its planned growth under the US Airways and America West code-share contracts, as well as unscheduled maintenance expenses related to engine overhauls. Mesa said it does not expect to incur these expenses in the current quarter. However, its US Airways Express turboprop operations, Frontier JetExpress operations and its independent Albuquerque turboprop operations, which represented 20 percent of passenger revenues during the quarter, continue to be impacted by the weak revenue environment affecting the industry. "While the quarter was difficult financially as a result of our investment in our future and a number of one-time expenses, we are now well-positioned to take advantage of the new opportunities at US Airways and the previously planned expansion at America West," said Chairman and CEO Jonathan Ornstein. Operating revenues in the quarter rose 19.7 percent to $133.1 million and operating expenses increased 25.1 percent to $133.2 million, resulting in an operating loss of $100,000 versus operating income of $4.7 million in the year-ago period.

Mesa also had expenses related to the introduction of the CRJ 700 and planned introduction of the CRJ 900, including crew training, wages and ownership costs "for delivered but not revenue production aircraft."

Mesa Air Group also reported that it has restructured its management team, with Executive Vice President Peter Murnane taking on the additional responsibilities of CFO, replacing Rob Stone, who was named senior vice president and treasurer. Scott Lyon, who served as director-market development, was promoted to vice president, planning. Carter Leake, formerly president of CCAir, was appointed senior vice president, US Airways Express. He will focus on regional jet expansion with US Airways on the East Coast.