What is the word on Mesa? Are they going to tank or are they going to be bailed out because they're willing to work for $10 an hour?
CHARLOTTE, N.C. -- Things could hardly have been worse for Mesa(MESA Quote - Cramer on MESA - Stock Picks) in 2008, as the 91% decline in the airline's share price amply demonstrates.
The Phoenix-based regional carrier was recently threatened with delisting by Nasdaq. It has sued Delta(DAL Quote - Cramer on DAL - Stock Picks), one of its principal partners, which had sought to terminate a contract.
Attempted new business ventures in other parts of the world have had some unintended consequences. In Hawaii, where it set up a new interisland airline in 2006, Mesa lost one lawsuit, paying out $52.5 million to Hawaiian(HA Quote - Cramer on HA - Stock Picks), and settled a second, paying $2 million to the estate of defunct Aloha. Mesa was accused of using confidential information obtained from Hawaiian, and of predatory pricing.
Meanwhile, in China, Mesa sold a once-vaunted partnership with Shenzen Airlines, taking a $7.4 million loss.
Currently, with $92 million worth of bonds coming due, Mesa is trying to convince bondholders to take stock in payment. It's not an easy sell, given that shares traded Tuesday at 20 cents, but bondholders may decide that getting something beats getting less in bankruptcy court.
Last week, Mesa reported earnings for its fiscal fourth quarter, which ended Sept. 30. The net loss was $22.3 million, compared with a loss of $62.2 million a year earlier. Excluding special items, pro forma net income was $3.1 million, the company said, up from $2.2 million. Revenue was $325 million, down 1%. The late filing triggered the delisting threat. Mesa attributed the delay to an accounting issue associated with its value falling below the value of net operating losses, triggering a compilation of its various owners. In fact, had N
A couple of factors explain Mesa's continued existence. For one, it remains a leading regional airline, with 56 aircraft at United(UAUA Quote - Cramer on UAUA - Stock Picks), 55 at US Airways(LCC Quote - Cramer on LCC - Stock Picks) and 28 at Delta.
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CEO, Jonathan Ornstein, is a colorful, indefatigable airline industry character, one who is always looking for an angle, always optimistic about the chances he has taken recently.
So it should not be surprising that during last week's earnings call, Ornstein was optimistic about Mesa's future. "Clearly the company faces a lot of challenges," he said. But "we believe (we) will be cash flow positive next year and we believe we will be profitable as well."
Ornstein said 96% of Mesa's fleet is under contract and its relationships with United and US Airways remain strong. He hinted at negotiated settlements with bondholders and with Delta.
He said business in Hawaii is flourishing, noting, "We are adding an aircraft for spring and summer, advance bookings are strong -- March doubled last year -- and we continue to see positive traffic trends."
The operation, called "go!" could benefit from taking the historic Aloha name. The deal with Yucaipa, Aloha's largest creditor, had in fact included the name. However, the federal judge in Aloha's bankruptcy has blocked the acquisition, citing a "lack of sensitivity," given that Mesa helped to push Aloha out of business before seeking to claim its name. In the Delta case, Delta said in March that it planned to terminate a contract under which a Mesa subsidiary operates Delta Connection flights with ERJ-145s, due to the failure to maintain a 95% completion rate during a three-month period. The contract is worth $20 million a month, Mesa says.
asdaq not suspended its rules on minimum share price due to the troubled economy, Mesa would still face delisting.