Say what you will about Mesa — and there is plenty that has been said — but there is no airline better at pure survival. Mesa has been on death’s door time and time again, and each time it has been able to pull a rabbit out of a hat. Even more impressive is that despite a bankruptcy filing, senior management has been able to stay in control. It’s a zombie airline, but one that continues to find ways to keep going.
Now, once again facing the end, Mesa has done it again and bought itself some more time thanks to a series of transactions with the one partner that can keep it alive, United.
Mesa’s secret sauce is in the personal relationships of CEO Jonathan Ornstein with current United CEO Scott Kirby, among others from the old America West. Mesa’s affiliation with America West goes back to the early 1990s. When America West went bankrupt, Mesa’s money was part of the exit plan. That cemented a regional relationship between the two airlines, one that Scott headed up when he joined America West.
Since then, Mesa has dipped its toes into a million different ponds. It flew for Delta before being kicked out. It started up a Chinese joint venture that folded. It killed Aloha Airlines and created its own subsidiary go! to replace it… until that went belly up as well. Most recently, American and Mesa stopped working together last year. With the management team he knew having decamped to United, American was unwilling to bend any further on operational issues. In the end, American wouldn’t give Mesa more money, so the partnership ended.
Today, there is still some of that “crazy idea” legacy floating around. The airline is currently trying to start Flite out of Malta which will wet lease CRJ-900s in Europe. It also has two 30+ year old 737-400s and one 20+ year old 737-800 flying around out of Cincinnati for DHL. But the core of the business since the American partnership ended is the regional operation flying for United.
Mesa was supposed to be flying 80 Embraer 175s for United, but it wasn’t able to find enough pilots to actually do that. Once the American deal ended, Mesa moved over the remains of the CRJ-900 fleet to fly for United. It should be flying about 80 airplanes now, with the eventual plan being to get rid of the CRJ-900s and again have 80 Embraer 175s flying for United. I believe there are a couple dozen CRJ-900s still flying, so there’s still some work to be done.
Rumors had been swirling that Mesa was nearing the end, but United has stepped in once again to save the day. Here’s what Mesa announced is happening.
- Mesa got United to pony up a higher rate temporarily (through YE 2024) for Mesa’s flying. Mesa’s total revenue in Q2 (Q3 by Mesa’s fiscal calendar) was $115 million, so if we just assume future quarters would have been similar, it would have been at $460 million for the year. Now with these new rates, Mesa will pull in another $63 million this year, so it’s significant.
- United had provided Mesa with a bridge loan of $10.5 million, and Mesa had $2.1 million outstanding in a revolving credit facility with the airline. United will now forgive the combined $12.6 million in exchange for Mesa’s vested interest in electric aircraft company Heart Aerospace. (That was only worth $5 million when Mesa bought it.)
- United will also release Mesa’s investment in eVTOL company Archer as collateral, freeing that up for Mesa to create more liquidity down the line if it can sell it or use it as collateral for a future transaction.
- United will extend a waiver to Mesa through June 30, 2024 allowing it to avoid penalty even if it can’t meet the utilization requirements in previous agreements.
Mesa is also in the process of selling a whole bunch of CRJ-900s along with parts since it doesn’t need those anymore. With all of these moves, Mesa will more than halve its outstanding debt of just over $700 million last spring to about $310 million by the end of this year.
Why is United doing this? Why not let Mesa die and just pick up the pieces with another operator? While I assume that long-standing relationship at the top doesn’t hurt, United is in deep with Mesa. United actually owns more than half of the Embraer 175s and Mesa still has about $35 million in debt outstanding from United that’s not related to this transaction. Besides, Mesa continues to find pilots, and those have been at a premium over the last couple years. That part of the cycle may be coming to an end soon, but for now, United seems to prefer to stay the course while most others would go a different way.
So, Mesa will live to see another day with a significantly cleaned up balance sheet. If it can actually start meeting those aircraft utilization goals by June 30, then good for Mesa. But if it can’t, well, will United be there once again to help? At some point, you’d think the goodwill would run out.