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Mesa emerges from bankruptcy

26-Jan-2011

With its reorgansation plan approved by the US Bankruptcy Court, Mesa Air Group is planning to emerge from its year-long bankruptcy in February much leaner flying only 76 70 to 86-seat aircraft. It also emerges with only two clients – US Airways and United – after Mesa’s Freedom Airlines and Delta came to terms a little more than two weeks ago.

The airline operated 200 aircraft in 2007 and entered bankruptcy on 4-Jan-2010 with 130 in operation.

Still in place, CEO Jonathan Ornstein indicated his first priority is to find new business to grow and spread costs. “That will be a really critical piece going forward,” he said, noting that the company was able to retain labour contracts, along with salaries and benefits.

Even so, pilots, who issued a statement supporting the reorganisation plan, warned of challenges. “Once MAG emerges from bankruptcy, we may face challenges in achieving our common goal of making Mesa a strong airline in a competitive market, but our company has a powerful edge—its people,” said pilots, who noted that 500 pilots were furloughed in the bankruptcy. “The confirmation of MAG’s plan is the first step toward emerging from bankruptcy, rebuilding our company, and bringing our pilots back to work."

“This is an exciting day for everyone at Mesa,” said Mr Ornstein, announcing the approval Thursday and thanking employees and executive staff. “Mesa is now poised to enter its next chapter as a strong airline ready to compete in an ever changing industry.”

Critical to its reorganisation plan was the expansion of its US Airways Express contract an additional three years through 2015, which now accounts for 70% of Mesa’s consolidated passenger revenues. It has 38 aircraft flying for US Airways, down from 52 when it filed for bankruptcy a year ago. US Airways is now owed USD6.8 million by Mesa and will be awarded 10% of the its new stock. It will also save the legacy carrier USD28 million annually in expenses, according to President Scott Kirby during the carrier’s last earnings call.

Unsecured creditors claiming over USD2 billion will be awarded new stock as well as USD43.2 million in notes.

In addition, another 10% of new common shares will become part of a new management/employee equity incentive plan in which at least 3.75% will go to Mr Ornstein with a further 2.25% to President and CFO Micheal Lotz. The company is also issuing USD55 million in unsecured, subordinated, non-amortized notes to management with Mr Ornstein and Mr Lotz getting USD2 million and USD1.5 million, respectively, maturing for payment in five years but only if “there is Excess Spirit Sale Proceeds following a Spirit Liquidity Even and the new 8% Series A notes, US Airways not and New 8% Series B notes are paid in full.”

The 450 daily system departures to 94 cities, 38 states, Washington, DC and Mexico includes go! Mokulele, its inter-island Hawaiian carrier. The 28-year-old carrier emerges as a private company issuing new notes, common stock and warrants to its creditors.

Mesa said it has eliminated more than 100 unnecessary aircraft leases and financings that contributed to the deleveraging of Mesa’s balance sheet in the approximate amount of USD700 million in capitalised leases and USD50 million in debt. Restructured aircraft leases and financing for Mesa’s fleet of CRJ 200 and Dash 8 aircraft will result in flexibility and no long-term lease exposure on the CRJ 200 50-seat regional jet aircraft, and Mesa will emerge as a private company and issue new notes, common stock, and warrants to its creditors.


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