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 contract.

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 Associated Press.

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 11.

"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 concluded.

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.

FMI: www.mesa-air.com