Mesa Air Group has finally filed for Chapter 11 bankruptcy after a very long downhill slide. I imagine that there’s not a single person in the airline industry surprised by this move. What does this mean for you, the traveler? Nothing. Yet.

This is a Chapter 11 filing, so Mesa is hoping to restructure itself and slash its fleet from 177 to 101 airplanes (PDF). I spoke with Paul Skellon, VP of Mesa’s go! subsidiary, and he assured me that this isn’t like most bankruptcies you see. They have enough cash to cover their operation so they don’t actually need any debtor-in-possession financing. It seems that this filing is all about breaking contracts – they want to ditch a bunch of airplanes that they aren’t using and get lower rates on the ones they’re keeping.

Right now, Mesa has 177 airplanes to its name. Incredibly, a whopping 52 of those are parked:

• 20 Beechcraft 1900 19 seat turboprops haven’t been used for a long time
• 3 Bombardier Dash-8 turboprops have joined them
• 17 Bombardier CRJ-200 50 seat jets are sitting in the desert
• 12 Embraer ERJ-145 50 seat jets are parked

In addition to that, United will be ending its contract for 7 Dash 8s and 18 CRJ-200s in the near future. Mesa says it wants to ditch those 76 airplanes. That will leave them with a mere 101 airplanes left as follows.

• 6 Bombardier Dash-8s with US Airways
• 8 Bombardier CRJ-200s with US Airways
• 5 Bombardier CRJ-200s with go!
• 22 Embraer ERJ-145s with Delta
• 2 Embraer ERJ-145s subleased out
• 20 Bombardier CRJ-700s with United
• 38 Bombardier CRJ-900s with US Airways

Now, the question is this . . . will they survive? It’s in the hands of the judge. United and Delta have been ending contracts with Mesa as quickly as possible, so you know they’d be happy to walk away and have someone else take over this flying. An April 2009 prospectus last year noted that if either Mesa or its codeshare partners (US Airways, Delta, United) file bankruptcy, the other party can terminate. Paul Skellon wasn’t able to comment on whether this clause was still in effect, and my calls to other people at Mesa went unanswered. I heard back from Brian Gillman, Mesa’a EVP, General Counsel, and Secretary and he confirmed that those bankruptcy clauses are unenforceable. They are only included in case the laws change in the future.

This is a bit of a gamble for Mesa. Even if they don’t need the money and they can get around the bankruptcy clauses, they still need the bankruptcy judge to agree to let them break their contracts. The largest unsecured creditors are aircraft lessors and owners: Wells Fargo, Bombardier, Embraer, and GE, companies that all have larger relationships with Delta, United, and US Airways. Would any of them really be adversely impacted if Mesa disappeared? Probably not. They could just find someone else to do the flying. I wonder how the judge will feel about this.

I could see ExpressJet jumping at the chance to operate the ERJs in exchange for a long term deal with Delta. And Republic and SkyWest/ASA would probably fight for at least a piece of the business as well. I just don’t see who wins by having Mesa survive except for Mesa itself. If the judge decides not to let them break contracts, then this could turn ugly.

That, of course, doesn’t mean Mesa won’t come out of this in the end. Even if Mesa doesn’t make it out, I imagine that one piece will survive – go!, the one piece that isn’t involved in the bankruptcy filing. Now that go! and Mokulele have combined in a joint venture, they’ve become the only major competitor to Hawaiian within Hawai’i. Maybe Island Air would be interested in stepping up, but really, there is room for a second airline and right now, that’s go!

If you’re booked on a Mesa-operated flight, I wouldn’t worry. I asked Delta, United, and US Airways if they were allowing people to change from Mesa-operated flights to other flights. As expected, they aren’t. Nothing is changing . . . yet.

So we’ll see how this bankruptcy case goes. It’s definitely a unique situation, and I’m curious to see how it plays out.

Updated 1/7 @ 1257p to reflect Mesa’s comment on the bankruptcy clause in contracts

Enjoy foreign service on N. American flights – USA Today
I talk to USA Today’s Ben Mutzabaugh about some of the “fifth freedom” flights operating in the US, including my personal favorite – Air New Zealand from LAX to London.

Airlines Fill Seats with Ease in November, Southwest Leaps Ahead – BNET
Southwest boosted its loads by 13.3 points in November. Yeehaw, that’s a lot.

Airlines Charging More for That Sought-After Seat – The New York Times
I voice the somewhat unpopular sentiment that charging for better seats on the plane is a good thing.

United Airlines Fights Mesa Air Group Over Airplanes (Part I) – BNET
United is suing Mesa over the introduction of 10 regional jets into service. This is the story of how they got to this point.

United Splits Its Widebody Fleet Order Between Boeing and Airbus – BNET
Why did United split its fleet order? Blame the manufacturers.

United Airlines Sues Mesa Air Group Over Airplanes (Part II) – BNET
And now, part 2 of our saga. In short, it seems to me that United wants out and Mesa made a mistake.

Radio Interview on the Noon Business Hour – WBBM 780 Chicago
I spoke with WBBM on Boeing’s prospects after the United order. My segment begins at the 25 minute mark and goes for about 3 minutes.

Japan and the US Near Aviation Open Skies Agreement, American and Delta Salivate – BNET
The Japanese market is one of the most fascinating to watch right now. Here’s a breakdown of what’s happening.

If you think back 15 years ago, the 50 seat regional jet was the hot commodity. People seemed to be willing to pay for jet comfort over a turboprop, and airlines raced to add as many as they could. It’s pretty much been all downhill from there. United is the latest to shed more 50 seaters as it failed to renew a contract with Mesa for the 26 CRJs that they operate in United colors. It’s just going to keep getting worse, and the regional carriers are really going to suffer.

South Park fans know that while you can collect as many underpants as you want, it’s the magical second phase that leads to the third phase of profitability. We’ve now learned that buying 50 seat jets is not the second phase:

Independence Air learned the hard way that those little guys couldn’t just magically make money for them. ExpressJet also had troubles flying under their own name. Now it’s not that every 50 seater is unprofitable. It’s just that there are too many of them out there, so they end up flying in really dumb markets where they don’t make any money. That’s why airlines are racing to get rid of them as fast as they can.

Most passengers are glad to see those things go. While travelers hate the cramped sardine can that they encounter on the 50 seaters, they forget that they were complaining about props just before that. Now, props have become much more comfortable with the Q400 and the newest ATRs. And the 70 seat jets are much more spacious as well. Even the CRJ-700 has a bigger cabin with better aligned windows than the 50 seat version, so it’s a more pleasant flying experience.

Of course, the airlines aren’t too concerned about your flying experience but rather that these things burn money. So why not just ditch them? Well they all signed deals with regional carriers to fly them, and they’re just champing at the bit to get out of those deals.

Last week, SkyWest agreed to fly 50 seaters for AirTran, so it seems like someone is interested in these things right? Not really. Instead of AirTran taking all the risk as they would under a regular regional agreement, SkyWest is doing the flying at its own risk. AirTran simply gets to enjoy the benefits of shared revenue. That’s how bad the 50 seat market is. SkyWest, a fairly well run regional, has to resort to these types of deals just to get them in the air.

And now Mesa will be in the same boat since it will have 26 CRJs that used to fly for United sitting on the ground with nothing to do. Sucks to be them. Actually, it REALLY sucks to be Mesa. Little Mesa is currently sporting a $23 million market cap. That’s right. Sell a brand new 737, buy an entire airline. The airline already agreed with United to pull 10 Dash-8 turboprops out of the United system, so these combined reductions mean about a 25% reduction in aircraft flying and an 18% reduction in revenues. In fact, they say this in their Q2 2009 quarterly statement regarding the possible termination of United’s Dash-8 and CRJ leases:

In the absence of obtaining additional capital to fund our operations through equity or debt financings, asset sales, consensual restructuring of the aircraft leases, extend United CRJ-200 and Dash-8 flying, or placing the aircraft with another carrier pursuant to a revenue guarantee contract, our cash flows from operations and available working capital will be insufficient to meet our future capital requirements.

In other words, if we can’t find anyone to take these planes, it we can’t renegotiate with lessors, or if we can’t raise more cash, we’re in trouble. As if that’s not enough, they’ve also been trying to fight off Delta’s attempts to pull out airplanes for quite awhile now as well. Things are not looking rosy for Mesa at all.

This is just going to get worse for the 50 seat operators, and Mesa appears to be feeling it worse than anyone else right now.

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