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http://www.washingtonpost.com/wp-dyn/articles/A58830-2003Oct7.html
Atlantic Coast Shares Go Up as Sales Talk Goes On -- Mesa Air Group Offered to Buy Regional Airline, and Virgin Atlantic May Also Be Interested
By Keith L. Alexander and Amy Joyce
Washington Post Staff Writers
Wednesday, October 8, 2003; Page E01
Shares of Dulles-based Atlantic Coast Airlines Holdings Inc. continued to climb yesterday as investors anticipated the airline would be sold, whether to Mesa Air Group Inc. or some other acquirer.
"The market thinks the company is in play and somebody else may come along and force Mesa to up its bid," said Benchmark Co. airline analyst Helane Becker.
On Monday, Phoenix-based Mesa offered $512 million in stock for Atlantic Coast, which dominates Terminal A at Dulles International Airport, in a deal that would create the nation's largest regional airline company. Based on Mesa and Atlantic Coast's closing stock prices Friday, the offer was about $11.30 a share, a 25 percent premium from Friday's price. Shares of Atlantic Coast climbed 83 cents yesterday to $11.88, up 7.5 percent. Shares of Mesa closed at $12.25, up 69 cents or nearly 6 percent.
Meanwhile, industry sources said billionaire Richard Branson, founder of London's Virgin Atlantic Airways, has shown interest in investing in Atlantic Coast and helping the airline maintain its independence.
Branson has long suggested that he wants to start a low-cost airline in the United States. This summer Atlantic Coast, which has 142 planes and serves 84 destinations, said it planned to sever its 14-year relationship as a United Airlines regional carrier and transform itself into an independent low-fare carrier by late spring.
Because of U.S. foreign ownership rules, Virgin would not be able to own more than 25 percent of the voting control of Atlantic Coast or 49 percent of its equity. A relationship between Atlantic Coast and Virgin would make the local airline the nation's only low-fare operation with an international tie.
A spokeswoman for Virgin Atlantic said the airline was not interested but declined to comment on whether Virgin USA, a U.S. unit created to explore the start-up of a low-cost carrier, might be.
In a conference call with airline analysts and investors, Mesa chief executive Jonathan G. Ornstein said that after several telephone conversations with Atlantic Coast shareholders, he is increasingly optimistic that they favor Mesa's bid.
Ornstein said that if Atlantic Coast's management decides to fight the bid, Mesa is prepared to take its proposal directly to shareholders for a vote. "It's the least attractive option, but it is one we would pursue," he said.
Atlantic Coast spokesman Rick DeLisi declined to comment on whether the airline had received bids from other carriers or investors. Instead, DeLisi said that Mesa's bid was "under active" consideration by its board and that the airline was continuing its normal operations as well as its planning to become a low-fare airline.
If Virgin gets into a bidding war with Mesa, Ornstein would be competing with his former employer. In 1996, Ornstein worked for Branson when he developed Virgin Express, the low-cost European carrier of Virgin Atlantic.
Ornstein acknowledged that Mesa's proposal could trigger a bidding war for Atlantic Coast and eventually the consolidation of many of the smaller, independent regional carriers.
Such a consolidation, Ornstein said, was "something that made a lot of sense" and that Mesa would "like to be in the forefront of."
Leo Schefer, president of the Washington Airports Task Force, said that Mesa's bid is a strong testament to Atlantic Coast's operations but that he does not want Atlantic Coast to abandon its low-cost operation strategy. Schefer said Atlantic Coast internally has dubbed its low-cost airline "Goldilocks." "Not too big, not too small, but just right," he said.
Both Mesa and Atlantic Coast operate regional airlines for United Airlines under the United Express name and receive a set fee from United for each flight they make. This business model has proved lucrative for the regional carriers, insulating their bottom line from sharp declines in airline travel of the past three years.
But Atlantic Coast decided to break away from United this summer after the bankrupt airline sought to reduce the fees it was paying Atlantic Coast. About 85 percent of Atlantic Coast's business is with United.
Ornstein said Mesa has no plans to downsize Atlantic Coast's operations at Dulles International Airport. Instead, he said, the airline could serve as the base for Mesa's East Coast unit. Ornstein said that it would "be very attractive" if Kerry B. Skeen, Atlantic Coast's chairman and chief executive, opted to stay on and run the airline.
Ornstein said Mesa's long-term strategy is to become United's biggest regional airline. Only 15 percent of the airline's revenue comes from United, while nearly 50 percent comes from flights it operates for Arlington-based US Airways out of Pittsburgh, Philadelphia and Charlotte. With the addition of Atlantic Coast, Ornstein said, nearly 46 percent of its revenue would come from United and 26 percent from US Airways.
Because of Atlantic Coast's relationship with Delta Air Lines, Mesa would also pick up about 10 percent of its revenue from Delta.
Increasing Mesa's reliance on United is the biggest risk involved in the deal, considering United is in bankruptcy and isn't expected to emerge until mid-2004, Ornstein said. But he said becoming a regional operation for United is a sounder business plan than Atlantic Coast's plan to become a low-cost carrier.
"It is our feeling that United is going to be a survivor and will come out stronger out of bankruptcy," Ornstein said.
Ornstein said earnings of the combined airline could improve by 25 percent, largely through synergies in maintenance and supplier costs. Annual revenue would be about $1.8 billion.
Atlantic Coast Shares Go Up as Sales Talk Goes On -- Mesa Air Group Offered to Buy Regional Airline, and Virgin Atlantic May Also Be Interested
By Keith L. Alexander and Amy Joyce
Washington Post Staff Writers
Wednesday, October 8, 2003; Page E01
Shares of Dulles-based Atlantic Coast Airlines Holdings Inc. continued to climb yesterday as investors anticipated the airline would be sold, whether to Mesa Air Group Inc. or some other acquirer.
"The market thinks the company is in play and somebody else may come along and force Mesa to up its bid," said Benchmark Co. airline analyst Helane Becker.
On Monday, Phoenix-based Mesa offered $512 million in stock for Atlantic Coast, which dominates Terminal A at Dulles International Airport, in a deal that would create the nation's largest regional airline company. Based on Mesa and Atlantic Coast's closing stock prices Friday, the offer was about $11.30 a share, a 25 percent premium from Friday's price. Shares of Atlantic Coast climbed 83 cents yesterday to $11.88, up 7.5 percent. Shares of Mesa closed at $12.25, up 69 cents or nearly 6 percent.
Meanwhile, industry sources said billionaire Richard Branson, founder of London's Virgin Atlantic Airways, has shown interest in investing in Atlantic Coast and helping the airline maintain its independence.
Branson has long suggested that he wants to start a low-cost airline in the United States. This summer Atlantic Coast, which has 142 planes and serves 84 destinations, said it planned to sever its 14-year relationship as a United Airlines regional carrier and transform itself into an independent low-fare carrier by late spring.
Because of U.S. foreign ownership rules, Virgin would not be able to own more than 25 percent of the voting control of Atlantic Coast or 49 percent of its equity. A relationship between Atlantic Coast and Virgin would make the local airline the nation's only low-fare operation with an international tie.
A spokeswoman for Virgin Atlantic said the airline was not interested but declined to comment on whether Virgin USA, a U.S. unit created to explore the start-up of a low-cost carrier, might be.
In a conference call with airline analysts and investors, Mesa chief executive Jonathan G. Ornstein said that after several telephone conversations with Atlantic Coast shareholders, he is increasingly optimistic that they favor Mesa's bid.
Ornstein said that if Atlantic Coast's management decides to fight the bid, Mesa is prepared to take its proposal directly to shareholders for a vote. "It's the least attractive option, but it is one we would pursue," he said.
Atlantic Coast spokesman Rick DeLisi declined to comment on whether the airline had received bids from other carriers or investors. Instead, DeLisi said that Mesa's bid was "under active" consideration by its board and that the airline was continuing its normal operations as well as its planning to become a low-fare airline.
If Virgin gets into a bidding war with Mesa, Ornstein would be competing with his former employer. In 1996, Ornstein worked for Branson when he developed Virgin Express, the low-cost European carrier of Virgin Atlantic.
Ornstein acknowledged that Mesa's proposal could trigger a bidding war for Atlantic Coast and eventually the consolidation of many of the smaller, independent regional carriers.
Such a consolidation, Ornstein said, was "something that made a lot of sense" and that Mesa would "like to be in the forefront of."
Leo Schefer, president of the Washington Airports Task Force, said that Mesa's bid is a strong testament to Atlantic Coast's operations but that he does not want Atlantic Coast to abandon its low-cost operation strategy. Schefer said Atlantic Coast internally has dubbed its low-cost airline "Goldilocks." "Not too big, not too small, but just right," he said.
Both Mesa and Atlantic Coast operate regional airlines for United Airlines under the United Express name and receive a set fee from United for each flight they make. This business model has proved lucrative for the regional carriers, insulating their bottom line from sharp declines in airline travel of the past three years.
But Atlantic Coast decided to break away from United this summer after the bankrupt airline sought to reduce the fees it was paying Atlantic Coast. About 85 percent of Atlantic Coast's business is with United.
Ornstein said Mesa has no plans to downsize Atlantic Coast's operations at Dulles International Airport. Instead, he said, the airline could serve as the base for Mesa's East Coast unit. Ornstein said that it would "be very attractive" if Kerry B. Skeen, Atlantic Coast's chairman and chief executive, opted to stay on and run the airline.
Ornstein said Mesa's long-term strategy is to become United's biggest regional airline. Only 15 percent of the airline's revenue comes from United, while nearly 50 percent comes from flights it operates for Arlington-based US Airways out of Pittsburgh, Philadelphia and Charlotte. With the addition of Atlantic Coast, Ornstein said, nearly 46 percent of its revenue would come from United and 26 percent from US Airways.
Because of Atlantic Coast's relationship with Delta Air Lines, Mesa would also pick up about 10 percent of its revenue from Delta.
Increasing Mesa's reliance on United is the biggest risk involved in the deal, considering United is in bankruptcy and isn't expected to emerge until mid-2004, Ornstein said. But he said becoming a regional operation for United is a sounder business plan than Atlantic Coast's plan to become a low-cost carrier.
"It is our feeling that United is going to be a survivor and will come out stronger out of bankruptcy," Ornstein said.
Ornstein said earnings of the combined airline could improve by 25 percent, largely through synergies in maintenance and supplier costs. Annual revenue would be about $1.8 billion.
