Hawaii-based Airlines - The Effects of Delta's Move to Cut Its Feeder Contract with Mesa (go!'s Parent)

There may be some repercussion from Delta's move to cut its regional airlines contract with Mesa Airlines on the mainland (for their ERJ-145 not EMB-190 flights). ( http://www.bizjournals.com/cincinnati/stories/2008/03/31/daily38.html ) Doing so would jeopardize 1/5 of Mesa's fleet.

Wonder how this will affect Mesa's operations in Hawaii? Any contract Mesa has on the mainland with legacy carriers is golden because Mesa makes $$$ on those flights regardless of loads. So the ending of a contract that takes out a 1/5 of its operations must cause some damage. Mesa's stocks are falling fast too. Wonder if Mesa's demise is coming?

It certainly will make Mesa think extra hard about continuing to offer fares in the Hawaiian market that don't cover minimum costs as they'll have less cushion.

That's why I already booked my Mesa igo flight for next Feb. at $49.00 from HNL to LIH and one on Island Air for $59 from LIH non-stop to OGG. I am betting on those cheap fares disappearing soon.

Mesa is now suing Delta over aforementioned contract flying:
http://www.forbes.com/feeds/ap/2008/04/07/ap4863254.html

Also, Mesa's stock is taking a beating as I presume some of the institutions are looking to dump the stock amidst the bad news coming out of there:
Down 18% in Thursday trading
Down 22% in Friday trading
Down 12% in Monday (today) trading

While I don't think they'll shut down go! or their mainland ops any time soon, Chapter 11 seems imminent. Market cap less than the price of a new CRJ-900 and a slew of notes due for payment. They may not have enough cash on hand to pay it off.

The Honolulu Advertiser reports (http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/20080409/NEWS09/804090430&referrer=FRONTPAGECAROUSEL) that Delta announced last week it would end a $20-million-a-month contract with Mesa subsidiary Freedom Air due to weak performance. Mesa is suing Delta to try to keep the contract, and "is seeking shareholder approval to issue up to $37.8 million in new common stock to pay off its bondholders."

If it doesn't get the money, Mesa might default on its bonds, which could send it into bankruptcy.

The 'tiser points out, "The nearly $38 million Mesa wants to raise by selling new stock is more than the entire stock market value of the company."

Ouch.

This would probably be related to this thread: http://www.flyertalk.com/forum/showthread.php?t=809213

I wonder why anyone would want to purchase Mesa stock, especially since Mesa is scrambling to save its DL contract and will likely fail to do so? Not to mention, go! has been bleeding millions each month since it started.

I wonder why anyone would want to purchase Mesa stock, especially since Mesa is scrambling to save its DL contract and will likely fail to do so? Not to mention, go! has been bleeding millions each month since it started.

Very good question.

April 7: Standard & Poors announces that MESA is being dropped from the SmallCap 600, since their market cap is too small.

April 8: MESA closes at $1.32, with a market cap of $35.48 million.

April 9: MESA closes at $0.96.

April 10: Frontier files for chapter 11 protection, making airline investors that much more nervous.

April 10: Mesa says MAIR (owners of Big Sky, and formerly Mesaba) owe it $4+ million bucks due to Big Sky (which stopped flying in early March) defaulting on leases.

April 10: Mesa announces it wants to issues up to $37.8 million in new stock, to avoid defaulting on bonds in the face of the loss of the Delta feeder contract.

April 10: MESA closes at $0.81.

April 11: MESA closes at $0.67, with a market cap of $18.08 million.

49% stock price slide in 3 days... ouch. With AQ gone and darn few secondhand 717s on the market, who's gonna provide the capacity if go! goes?

Maui news has a very informative article from yesterday, with quotes from some of the players...

http://www.mauinews.com/page/content.detail/id/502454.html?nav=10

I just can't understand how JO can remain so optimistic:
http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/20080414/BUSINESS03/804140335/1071

I see Mesa declaring bankruptcy very soon.

'Tis but a scratch.
A scratch? Your arm's off!
No it isn't.
Well what's that, then?
I've had worse.

;)

I just can't understand how JO can remain so optimistic

Well, the man has always had problems telling the truth, so maybe he now has problems with seeing reality. Of course, he may be the sort who believes his own lies, in which case reality goes out the window. I see the big BK in Mesa's future, too. Whether it results in reformation/reorganization or liquidation is one question on my mind.

My other question is how the Mesa Board of Directors has put up with Ornstein's mismanagement and lying for so long. Did he somehow pack it with cronies just like himself who will never fire him? Inquiring minds want to know!!!

Well, the stock more or less leveled off, only lost a couple more cents today.

Guess we'll have to wait and see how things go between Mesa and various other entities or groups.

They might not get much from Big Sky, but at least they don't owe 'em.
They might not get much from Delta, but it doesn't want to hurt 'em.
Aloha's ghost probably can't act fast enough for there to be anything left.
They owe (pending appeal) Hawaiian 5 times their market cap.
They owe their bondholders some amount.
They're trying to sell their shareholders 2 times their market cap.

So the question looks to be not if, but when... and by whom.

(The Colonel, in the library, with a dagger, for revenge!)

Can't say I didn't see this one coming.....

Just off the wires:

Mesa will file for Chapter 11 Bankruptcy by July 20th if the termination of the Delta contract sticks and Mesa's unable to redeploy the unused aircraft elsewhere.

http://biz.yahoo.com/ap/080527/mesa_air_group_delta.html?.v=4

Mesa will file for Chapter 11 Bankruptcy by July 20th if the termination of the Delta contract sticks and Mesa's unable to redeploy the unused aircraft elsewhere.

(My emphasis added)

Maybe they can shift the ERJs somewhere to replace some CR2s, and move the CR2s to Hawaii for go! since these days it looks like seats in Hawaii are easy to sell? (Or, well, at least, a lot of HA flights are selling out. I haven't checked go! loads but I imagine they can't be all that bad.)