Mesa may invest more in troubled US Airways
By Barbara De Lollis, USA TODAY
Mesa Air Group stands to lose up to $1.7 million on an investment in US Airways' stock, but Mesa CEO Jonathan Ornstein may sink more money into US Airways' bankruptcy reorganization. Why such courage?
Ornstein, a former stockbroker, has profited from investing in troubled airlines before.
The Texas Pacific Group — led by his friend David Bonderman, with whom he worked to rescue America West a decade ago — has offered $200 million for a 38% stake in an overhauled US Airways.
Ornstein and Mesa still have a big stake in US Airways' survival. Phoenix-based Mesa, the second-largest independent regional airline, operates short flights under contract for US Airways, America West and Frontier. About 56% of its revenue the past nine months came from its US Airways Express operation.
Mesa is talking with US Airways about adding planes, Ornstein says. Its low operating costs and ability to increase its fleet of 60 small jets will work in its favor, airline analysts say. But it's not a done deal.
US Airways' plans are built around US Airways Express commuter airlines flying more regional jets on routes now served by smaller turboprops or US Airways' large jets. The 50-seat jets are considered more popular with fliers than turboprops and more economical to fly on some routes than big jets. Today, US Airways partners Mesa, Trans States and Chautauqua fly 70 small jets, with Mesa flying 32 of them.
US Airways would not comment on how it will parcel out future regional jets among the small airlines it owns and contracts with. "We're not afraid of expanding our relationship with them in spite of the current conditions," Ornstein says.
US Airways has already gone elsewhere for more regional jets. It recently created a Pittsburgh-based subsidiary, MidAtlantic Airways, to fly 51- to 70-seat jets under the US Airways Express logo, and CEO David Siegel expects MidAtlantic to play a significant role in US Airways' future. US Airways also is planning to start a similar arrangement with Midway Airlines.
Ornstein created a partnership, Ufly, owned half by Mesa and half by a group of investors, that began buying US Airways stock Sept. 17 when it was about $4 a share. Ufly's stake never hit 5%. Ornstein would not say how many shares Ufly owns, but at the US Airways' annual shareholders meeting in May, he said he was representing the largest shareholder. Mesa said this week it could "potentially record" a $1.7 million loss on its Ufly investment in the fourth quarter.
"The fact that they're now in bankruptcy makes a financial investment that much more interesting," Ornstein says. "We think that there's a valuable franchise in US Air. There's value to be created by getting the company fixed."
If Ornstein does become an investor in a reorganized US Airways, it wouldn't be the first time he has followed Bonderman into a troubled airline. In 1994, Mesa joined Texas Pacific in investing in America West when it was in Chapter 11. Mesa's $18.7 million investment became a $48 million profit when America West repurchased the stock. Ornstein credits his relationship with Bonderman — whose Texas Pacific Group holds voting control of America West — with helping Mesa do more flying for that airline.
Investing in US Airways is one way Mesa can protect itself — and probably make money, says aviation consultant Dan Kasper of consulting firm LECG.
"He has an economic interest in seeing US Airways survive. He recognizes that the package that shaped up — with the backing of Bonderman — looks like a pretty attractive proposition," Kasper says. "US Airways' survival prospects look really pretty good."
By Barbara De Lollis, USA TODAY
Mesa Air Group stands to lose up to $1.7 million on an investment in US Airways' stock, but Mesa CEO Jonathan Ornstein may sink more money into US Airways' bankruptcy reorganization. Why such courage?
Ornstein, a former stockbroker, has profited from investing in troubled airlines before.
The Texas Pacific Group — led by his friend David Bonderman, with whom he worked to rescue America West a decade ago — has offered $200 million for a 38% stake in an overhauled US Airways.
Ornstein and Mesa still have a big stake in US Airways' survival. Phoenix-based Mesa, the second-largest independent regional airline, operates short flights under contract for US Airways, America West and Frontier. About 56% of its revenue the past nine months came from its US Airways Express operation.
Mesa is talking with US Airways about adding planes, Ornstein says. Its low operating costs and ability to increase its fleet of 60 small jets will work in its favor, airline analysts say. But it's not a done deal.
US Airways' plans are built around US Airways Express commuter airlines flying more regional jets on routes now served by smaller turboprops or US Airways' large jets. The 50-seat jets are considered more popular with fliers than turboprops and more economical to fly on some routes than big jets. Today, US Airways partners Mesa, Trans States and Chautauqua fly 70 small jets, with Mesa flying 32 of them.
US Airways would not comment on how it will parcel out future regional jets among the small airlines it owns and contracts with. "We're not afraid of expanding our relationship with them in spite of the current conditions," Ornstein says.
US Airways has already gone elsewhere for more regional jets. It recently created a Pittsburgh-based subsidiary, MidAtlantic Airways, to fly 51- to 70-seat jets under the US Airways Express logo, and CEO David Siegel expects MidAtlantic to play a significant role in US Airways' future. US Airways also is planning to start a similar arrangement with Midway Airlines.
Ornstein created a partnership, Ufly, owned half by Mesa and half by a group of investors, that began buying US Airways stock Sept. 17 when it was about $4 a share. Ufly's stake never hit 5%. Ornstein would not say how many shares Ufly owns, but at the US Airways' annual shareholders meeting in May, he said he was representing the largest shareholder. Mesa said this week it could "potentially record" a $1.7 million loss on its Ufly investment in the fourth quarter.
"The fact that they're now in bankruptcy makes a financial investment that much more interesting," Ornstein says. "We think that there's a valuable franchise in US Air. There's value to be created by getting the company fixed."
If Ornstein does become an investor in a reorganized US Airways, it wouldn't be the first time he has followed Bonderman into a troubled airline. In 1994, Mesa joined Texas Pacific in investing in America West when it was in Chapter 11. Mesa's $18.7 million investment became a $48 million profit when America West repurchased the stock. Ornstein credits his relationship with Bonderman — whose Texas Pacific Group holds voting control of America West — with helping Mesa do more flying for that airline.
Investing in US Airways is one way Mesa can protect itself — and probably make money, says aviation consultant Dan Kasper of consulting firm LECG.
"He has an economic interest in seeing US Airways survive. He recognizes that the package that shaped up — with the backing of Bonderman — looks like a pretty attractive proposition," Kasper says. "US Airways' survival prospects look really pretty good."
