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Mesa Airlines


Mesa Air insists it can recover from setbacks

Apr 14, 2008

PHOENIX — Mesa Air Group has long been Phoenix's under-the-radar airline, quietly flying short hops for US Airways and other major carriers on its way to $1 billion in annual sales.

There's nothing anonymous about the company today.

A series of high-profile challenges, from a pilot shortage to an $80 million judgment over the misuse of corporate secrets and an attempted cover-up, has Mesa Air Group in everyone's sights, from Wall Street to Honolulu.

The airline now finds itself scrambling to raise cash, pay off debt and reassure investors who have seen its stock plunge from nearly $8 to 67 cents in the past year.

Jonathan Ornstein, longtime Mesa Air chief executive officer, says none of the challenges is insurmountable.

Ornstein points to plenty of positives at the airline, from new opportunities in Hawai'i and China to its shift to larger, more profitable planes.

Any good news would be welcome given the airline's woes over the past year.

The company, which carries millions of passengers each year as US Airways Express, United Express and the Delta Connection, posted its first loss in five years last fiscal year. It started its fiscal 2008 with another loss in the quarter that ended Dec. 31.

Its Hawaiian shuttle, go!, has been losing millions, and another small money-losing commuter operation is being shut down this year.

In January and February Mesa Air had the most flight cancellations of any U.S. airline, large or small, driven largely by a severe pilot shortage that left it without crews on many flights.

The latest and potentially most damaging blow came last week when Delta said it planned to pull its contract with Mesa Air, given too many flight cancellations in New York.

It is a $250 million piece of business affecting nearly 800 of Mesa Air's 4,700 employees and one-fifth of its planes. Mesa Air said there was no basis and sued Delta this week to stop the move.

"It's a mess, it really is," said aviation consultant Robert Mann of R.W. Mann & Co.

He attributed the problems to Mesa Air missteps as well as to changing industry winds hurting all regional airlines.

Ornstein, the hard-charging face of the company, acknowledges the turmoil but dismisses any notion that Mesa Air is a company falling apart.

He describes as "far worse" the situation when he arrived at Mesa Air a decade ago. It had just lost a United contract that represented 40 percent of the company's business. It parked 100 planes and laid off 2,000 of 4,800 employees.

"As difficult as it is, we've been through these situations before, and we'll come through it successfully," Ornstein said in an interview last week, the day the Delta news broke.

Ornstein said several factors give him confidence, not the least of which is a changed landscape in Hawai'i.

Competitor Aloha Airlines suddenly shut down last week, and Mesa Air already has added two regional jets to its small Hawaiian fleet and 40 daily flights, for a total of 94. "We think that the operation will be profitable going forward," Ornstein said.

Success in Hawai'i after two tough years could prove a double-edged sword, though. Aloha has a lawsuit pending against Mesa Air for predatory pricing that it says was designed to put it out of business.

"The one thing that went right for them is the one thing that is also a public-relations nightmare for them, which is Aloha going out of business," said Jim Corridore, airline analyst with Standard & Poor's.

Mesa Air already lost a big legal battle in Hawai'i. The corporate-secrets case was filed by Hawaiian Airlines, which alleged that Mesa Air used confidential information from the airline in deciding to start go!

Hawaiian and Aloha were the island incumbents when tiny go! came in with rock-bottom fares and shook things up.

Revelations in the case, including the discovery of Internet porn, cost Peter Murnane, Mesa Air's chief financial officer and Ornstein's best friend, his job and reputation.

Mesa Air has appealed the U.S. Bankruptcy Court judgment but had to put up a $90 million bond to cover the judgment and legal and other fees. That has tied up a large portion of its cash at a time when fuel prices are soaring, the airline has been losing money and debt payments loom.

As of the end of December, the most recent figures released, Mesa Air had $90 million in unrestricted cash, down from $196 million in the previous quarter.

Ornstein has repeatedly said on the airline's quarterly conference calls that Mesa Air has financing options, including the sale of spare parts, but nothing has been announced. He said in an interview last week that Mesa Air hopes to raise $50 million. He said the airline is "significantly" cash-flow positive.

He also noted that Mesa Air was the top-ranking regional airline in the 2007 Airline Quality Rating report out earlier this week.

Corridore said he would change his view of Mesa Air's stock if one of two things happened: It pulled out of Hawai'i, or there was a management change.

"But I don't see either of those things happening," he said.

honoluluadvertiser.com

Mesa Air insists it can recover from setbacks
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