SEC Filing Predicts Loan Defaults
A "he said/she said"
battle now playing out in a courtroom could result in dire
circumstances for cash-strapped Mesa Air Group. The Phoenix-based
regional airline -- which has branches throughout nearly the entire
US air travel network, including Hawaii -- warned Thursday it could
be forced into bankruptcy if Delta Air Lines cancels its
Delta announced in March it wanted to terminate the agreement
with Mesa, due to what Delta says is the failure of Mesa's Freedom
Airlines subsidiary to complete an acceptable percentage of its
flights on-time. Mesa countered those failures were due to
Delta's own requests to remove flights, to benefit
Delta's mainline operation.
Further, Mesa asserts Delta must notify them 12 months in
advance of plans to terminate the service agreement. A court
hearing on the matter is expected to start next week, reports The
In a filing with the Securities and Exchange Commission
Thursday, Mesa says the loss of $20 million in monthly revenue from
the Delta business could lead to a domino-effect of loan defaults,
missed lease payments on aircraft, and failure to honor existing
agreements... unless Mesa is able to restructure under Chapter
"In such event, the company's financial condition would require
that the company seek protection under applicable US reorganization
laws in order to avoid or delay actions by its lessors, creditors,
and code-share partners, which could materially adversely affect
the company's ability to continue as a going concern," the filing
In addition to its flights for Delta Connection and its own
branded service, Mesa also operates flights for US Airways Express
and United Express. The carrier's controversial go! Airlines
subsidiary began interisland operations in Hawaii last year,
offering loss-leader fares intended to capture market share.
That strategy worked -- Aloha Airlines ended commercial
passenger service March 31, after 61 years in business -- but no
one would accuse go! of being profitable.
Mesa has had its share of other problems of late, as well. On
May 15, Mesa announced it would shut down its Air Midwest
subsidiary by the end of June. The small airline provided
subsidized Essential Air Service routes to 16 cities, using a fleet
of 19-seat Beech 1900 turboprops.
As ANN reported last month,
officials at Durango-La Plata County Airport (DRO) in southwestern
Colorado contemplated putting Mesa on a cash-only plan, after the
carrier fell two months behind on paying its terminal rent and
landing fees. The carrier later made good on the bill... but DRO
Director of Aviation Ron Dent said it wasn't the first time Mesa
had trouble paying on time.
"They get behind, we chase them and then they pay us," he told
The Durango Herald.
Shares in Mesa have plummeted more than 75 percent since
January. Last week, shareholders authorized the issuance of
millions of new shares, in hopes of raising funds against $37.8
million in convertible notes due in June.
As of Thursday, you could purchase two shares of stock in the
airline... and get change back on your dollar.