Mesa Air files for Ch. 11 bankruptcy protection

AP News
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Posted: Jan 05, 2010 1:05 PM

In May, Mesa Air Group Inc. warned it would file for bankruptcy if Delta Air Lines Inc. succeeded in canceling a flying contract with the regional carrier that operates flights for major airlines. More than seven months later, despite blocking the move in court, Mesa filed for Chapter 11 anyway on Tuesday, hoping to shed planes it no longer needs.

Mesa's filing is part of broader problems the airline has been experiencing with its operations as demand for air travel fell over the last year due to the economic downturn.

Contract carriers like Mesa have traditionally been able to maneuver through tough economic times because they have guaranteed revenue through deals with major airlines for whom they feed passengers and handle connecting flights. But during the recession, in which big airlines cut capacity, Mesa struggled operationally and faced friction with key partner Delta. In contrast, SkyWest, another regional carrier, has seen its profits rise as it did more flying for its big-airline customers.

"Other regional carriers are better operationally and easier to work with," airline consultant Darryl Jenkins said. "It's kind of interesting to see how all this is playing out."

Regional jets are smaller than the planes that large airlines use on most of their routes. They are often used to bring travelers to hub airports, where they can connect with other flights.

Mesa currently runs 130 aircraft and is a major commuter carrier operating flights as Delta Connection, US Airways Express and United Express.

In its bankruptcy filing in U.S. Bankruptcy Court in New York, Mesa listed $975.5 million in assets and $868.6 million in debts. Mesa and 10 affiliates were included in the petition.

Passengers are unlikely to notice any difference. Mesa said its operations are expected to run normally during the restructuring process, with Mesa anticipating it will win court approval to continue paying workers and fulfilling code-share partner agreements within the next few days.

Its go!-Mokulele Hawaiian joint venture with Mokulele Airlines is not included in the bankruptcy filing and will run a full flight schedule.

Last spring, Delta tried to terminate Mesa subsidiary Freedom Airlines' ERJ-145 Delta Connection agreement on the grounds Freedom did not meet operational performance standards spelled out in its agreement with Delta. Mesa won a preliminary court injunction to block the move after asserting in late May that Delta's effort, if successful, would cripple Mesa. A request by Delta to dismiss Mesa's complaint is pending. The ERJ-145 contract covers 34 50-seat aircraft. Freedom is included in the bankruptcy filing.

Mesa expects its restructuring will help it resolve its lawsuit against Delta more quickly.

In November, United Airlines chose not to extend a deal under which Mesa ran 26 regional jets for that carrier.

"The agreements between regionals and majors have been under increased scrutiny to better match or better calibrate the margins that the regionals receive from their major partner," said Doug Abbey, an independent airline consultant in Washington.

Meanwhile SkyWest Inc., based in St. George, Utah, reported that its third-quarter profit rose 9.2 percent. The number of hours SkyWest flew during the quarter rose 3.2 percent from a year earlier. Abbey said the regional carriers have "different management philosophies" that have helped some fare better than others.

Mesa Chairman and CEO Jonathan Ornstein said in a statement that the airline has spent the past two years working with lessors, creditors and others in order to restructure its financial obligations, which in turn helped it get rid of more than $160 million in debt obligations; rework inventory management and engine overhaul deals and return some planes.

Ornstein said the company has enough liquidity to support itself during the restructuring.

Mesa shares, which have traded between 1 cent and 36 cents over the past 52 weeks, were at 5 cents in midday trading.