Mesa Files Bankruptcy, Looks to Shrink By Nearly Half

Delta, Mesa Airlines, United, US Airways

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.

Mesa Goes Bankrupt

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

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30 comments on “Mesa Files Bankruptcy, Looks to Shrink By Nearly Half

  1. Well if Mesa was allowed to break contracts with UA/DL/whomever and someone else jumps in to fill the void where would those airlines get the needed aircraft? Sounds like they would also have parked aircraft laying around they could use. So they would be like Mesa in that area.

    The question really is why is Mesa failing compared to others?

  2. I may be dead wrong, but I see a merger (takeover) as a real possibility. If I’m reading their filings correctly, the only flying they’ll have will be with US Airways (CRJ-900s and DHC-8-100s) and United (CRJ-700’s). An Air Wisconsin (for example) could use some CRJ-700 or -900 aircraft since they only have 50-seaters now. So… they (or another heavily 50 seat carrier like PSA or SkyWest maybe?) might make a good fit. Obviously, this is pure speculation but it does seem to me that consolidation or more bankruptcies are inevitable in the regional arena. In any event, Mesa’s in real trouble. I don’t see them surviving as an independent carrier in the long run. Just my opinion.

  3. Ed Casper wrote:

    I may be dead wrong, but I see a merger (takeover) as a real possibility. If I’m reading their filings correctly, the only flying they’ll have will be with US Airways (CRJ-900s and DHC-8-100s) and United (CRJ-700’s). An Air Wisconsin (for example) could use some CRJ-700 or -900 aircraft since they only have 50-seaters now. So… they (or another heavily 50 seat carrier like PSA or SkyWest maybe?) might make a good fit. Obviously, this is pure speculation but it does seem to me that consolidation or more bankruptcies are inevitable in the regional arena. In any event, Mesa’s in real trouble. I don’t see them surviving as an independent carrier in the long run. Just my opinion.

    I’m not sure SkyWest will be a good fit culturally.They’re also reduced their utilization of 50 seaters on their own, and don’t really need Mesa’s CR9s to continue that effort. SkyWest continues to increase its CR9 fleet on both the OO and ASA sides, and both carriers already operate large CR7 fleets. I think you’ll see them instead focus on replacing their EMB fleet in the near future, and they likely won’t do it though acquisition.

  4. @ Hunter:
    You may be right about SkyWest/ASA. My thought process focused on the geographical, not the cultural. And the culture can be changed with different management philosopies. But it also seems that all of the regionals are reducing 50 seaters. Mesa’s filing seems to indicate that virtually all of the US Airways and United flying will be on 70+ seaters. It also appears that Mesa is resigned to losing the Delta flying. But I could be reading too much into things. As I see it, Mesa simply won’t have the necessary size to survive in the long run as a stand alone carrier.

  5. I’m kind of surprised that it took this long for a Chapter 11 to occur…once major partners experience the kind of operation Mesa runs, they usually don’t look to renew contracts with them. Long term, I don’t think Mesa has great odds of survival unless a new management team is brought in…and with no DIP financing involved in this bankruptcy, that doesn’t seem likely.

  6. USAirways has also been happily reducing mesa’s flying a every turn. I can see them choosing to terminate their contract with Mesa as well.

    That just leaves them with Go! I wonder how long this will take to become a Chapter 7?

  7. David SFeastbay wrote:

    Well if Mesa was allowed to break contracts with UA/DL/whomever and someone else jumps in to fill the void where would those airlines get the needed aircraft?

    That’s easy. There are too many 50 seat regional jets flying around, so those would likely be unnecessary. But the 70 and 90 seaters are more in demand. Where would they come from? If Mesa goes under, then those airplanes go back to their lessors (very few are owned). Someone else could just pick them up and start flying them for mainline partners.

    David SFeastbay wrote:

    The question really is why is Mesa failing compared to others?

    The regional business has been brutal for quite awhile now. Really Republic and SkyWest/ASA are the only ones considered to be shining stars, and they’re both venturing into different types of models when they can. Other than that, it’s a low cost producer fight to the death. Mesa has always had lower costs, but they’ve suffered from reliability issues in the past. (I don’t think they’re nearly as bad as they used to be.) Either way, they haven’t been able to win new business – the fact that they lost 50 seat flying to ExpressJet at United says a lot. Either they aren’t cost competitive or airlines simply don’t want to do business with them.

    Ed Casper wrote:

    I may be dead wrong, but I see a merger (takeover) as a real possibility.

    But why? What would anyone gain from a merger? Why not just let Mesa go under and then pick up the airplanes on the market? If Mesa went away, then SkyWest or anyone else would bid on the business with the major carriers. If they won, they wouldn’t have trouble getting airplanes. I don’t see why a merger would make sense.

    Nicholas Barnard wrote:

    That just leaves them with Go! I wonder how long this will take to become a Chapter 7?

    That’s the interesting part. If they do in fact have enough money to run the operation, as they claim, then they likely will get out of this as long as the judge lets them kill these contracts. I just wonder if that’ll happen.

  8. @ Ed Casper:

    I see your point. I could be way off, but the boys in SGU are always pretty cautious when it comes to acquisitions. The ASA acquisition was largely due to some strongarm tactics from DL. I can’t see any of YV’s current partners approaching OO with some sort of “deal” to make the acquisition.OO would be better off letting YV liquidate and then stepping up to the plate with US and UA to fill the void.

  9. @ CF:
    CF, I did say I could be dead wrong. A merger could work if the aquiring carrier can pick up the whole for less than the sum of its parts.

  10. If USAirways dumps Mesa… what, if any thing, would happen to the the routes Mesa is currently used on and who is a likely replacment carrier for USAirways Express service?

    m particularly interested in what you guys think will happen to routes not served by any other carrier such as PHX – GJT, PHX-YUM, etc.

  11. Jon Strmiska wrote:

    If USAirways dumps Mesa… what, if any thing, would happen to the the routes Mesa is currently used on and who is a likely replacment carrier for USAirways Express service?
    m particularly interested in what you guys think will happen to routes not served by any other carrier such as PHX – GJT, PHX-YUM, etc.

    Theoretically, any regional carrier could step in and pick up the routes. There’s no shortage of aircraft, and the days of regionals serving only one master are gone. OO would have an edge in that they already have staff on the ground in cities like GJT and YUM, but that’s never a guarantee they’d be able to win the contract since they don’t currently operate any US flights and the start up costs may push them out of the range. These days, the name of the game is price, and the regional with the lowest bid tends to come out the winner (at least in terms of securing the business).

  12. Ed Casper wrote:

    A merger could work if the aquiring carrier can pick up the whole for less than the sum of its parts.

    Yes, true. I just don’t see that happening here since I think the only parts they want are the airplanes and the contracts.

    Jon Strmiska wrote:

    If USAirways dumps Mesa… what, if any thing, would happen to the the routes Mesa is currently used on and who is a likely replacment carrier for USAirways Express service?

    As Hunter says, nothing. US Airways would bring someone else in to fly those flights.

  13. Feel bad for the pilots who had to put up with low wages and bad working conditions to have to start all over at another regional (if they can even find a job)

  14. Funny story, I flew LAX-PHX on a RJ a few months back, at the gate, I talked to the pilots, asked “How is Jonathan treating you?” He looked at me and said “ask him”, Jonathan then came out of the plane. He was nice to me, but I’ve heard too many stories from the inside. Hell, I once spent 3 hours interviewing with Mesa, and each person had an “Evil Jonathan” story.

    If they tell you how bad he is when you are interviewing….that is pretty nasty.

    Thankfully, I didn’t get the job.

  15. Reading all this stuff gives me, Joe Blow, Mr. Customer, a warm and fuzzy feeling about flying these days! The mainline carriers, close to Ch 11, with employees who mistrust their employers, using regionals, close to or in Ch 11, with employees who mistrust their employers, using aircraft made by companies who are in or close to Ch 11, with…, all this overseen by a Federal Government that is effectively in Ch 11, whose….,and on and on!

    Joy! Joy!,

  16. What goes around comes around. MANY people will have a sigh of relief if mesa dissapears. If you read all these aviation websites, specially the ones of the airline EMPLOYEES…all you ever read about is how horrible it is to work for mesa…more than just about ANY other regional or even air taxi. How poorly the employess are treated…not to mention how low their pay is. MESA is the management-101 textbook example of why airlines/company’s that pay well & treat their employees well will succeed (aka-southwest) and why they will fail if the employess are abused upon.

  17. I wrote: “A merger could work if the aquiring carrier can pick up the whole for less than the sum of its parts.”

    CF wrote: “Yes, true. I just don’t see that happening here since I think the only parts they want are the airplanes and the contracts.”

    To which I’ll ask a rhetorical question: If Mesa is liquidated, will the contracts survive? The best course for Mesa and their interested parties depends on the answer – and the banruptcy judge.

  18. Just heard back from Mesa. Those clauses allowing for termination are unenforceable but they’re put in there just in case the bankruptcy laws ever change. So there is no risk of those contracts being terminated because of that provision.

  19. archie mattox wrote:

    The main problem is scope clauses with the majors and may not be able to add more planes

    I don’t see how scope clauses would impact this. This wouldn’t be an expansion of the express fleets but rather just a shift of aircraft from one operator to another.

  20. @ CF:some of the carriers have limits on number of airplanes and size and capacity and trying to finance is a no brainer

  21. archie mattox wrote:

    @ CF:some of the carriers have limits on number of airplanes and size and capacity and trying to finance is a no brainer

    Right, but we’re not talking about adding new airplanes. This would simply be some other regional carrier picking up airplanes from Mesa and flying them for the mainline partner. It would be the same size and number of airplanes that are already flown. If there’s a guaranteed contract with the major, then financing shouldn’t be an issue either.

  22. I feel bad for mesa pilots…the future at mesa is bleak…the 22 emb-145 at freedom/ cvg-cincinati have their days numbered…if you look at the last few skyguides you will notice CVG is barely a HUB…there are only flights on delta -mainline to 13 destinations…some of those, once daily. the paris flight is the only widebody and only international flight(except cancun). which makes no sense to me…to have a 767 crew base in cvg for 1 daily flight…this flight should be moved back to detroit.

  23. “Just heard back from Mesa. Those clauses allowing for termination are unenforceable but they’re put in there just in case the bankruptcy laws ever change. So there is no risk of those contracts being terminated because of that provision.”

    Is this is Mesa’s position, or was this statement validated by a qualified uninterested outsider?

  24. AS wrote:

    Is this is Mesa’s position, or was this statement validated by a qualified uninterested outsider?

    This is what Mesa told me, but I confirmed it with someone else who has bankruptcy experience not at Mesa.

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