Mesa Lives to See Another Day

Mesa Airlines

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.

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19 comments on “Mesa Lives to See Another Day

  1. At least Mesa never performed a complete self immolation like Atlantic Coast nee Independence Air. I’m still bitter about that because IMO JetBlue was going to build up a major station at IAD until Kerry Skeen started that kamikaze mission.

    And I think Express Jet did something similar with their own branded service considering primarily of flights nobody wanted from ONT.

    1. Yeah Xjet was going to offer flights between MRY and ONT. I think a lot of people learned that ONT was an airport from that news release.

  2. Look, someone found a use for Heart and Archer. Maybe Boom can become a weird debt arbitrage opportunity too (because commercially-successful flying machines aren’t happening).

  3. “We keep you alive to serve this ship. Row well and live.” – with apologies to the screen writers of “Ben Hur” (the 1959 version)

  4. Mesa’s operations cannot possibly be worse that SkyWest (a.k.a. ScareWorst) and their absolute crap CRJ-200s that fly under the United Express label. Those guys are so bad that 4 of my last 4 flights with them were delayed due to mechanical issues with said CRJ’s that they fly. Total garbage airline. Compared with them, Mesa probably looks like Emirates.

  5. I’ve mentioned it before, but when I left YV in early 1998, I was sure it would be gone by year’s end. Silly me.

  6. Although I’m sure the deal was in the works before the exit plug departed the 737-9 MAX recently, I would say that the grounding of so many aircraft means that UA still needs as much lift as it can get, from anyone who has an airworthy plane (CRJ-900 jokes notwithstanding), and that now would NOT be a good time to “pull the plug” on Mesa. Yes, I understand it’s not a like-for-like possible switch, but as swaps happen (including down-gauges from 737-9 MAX to 737-8 MAX and 737-800 aircraft as reported of FT), you wouldn’t want to cut out the bottom, too. For example, if you have a leak in the bow of your ship, you don’t start ripping out watertight doors while you try to repair the leak. . . BUT as Cranky said, things might be different in June. Or more than likely, this just means more negotiation for the next set of targets Mesa won’t meet, but UA has made it clear that more regional lift is better than less regional lift.

  7. There’s a greater issue that is always overlooked when it come to not just Mesa, but to greater and lesser degrees, all the “regionals”.

    They are all essentially dead airlines flying.

    All of the mainline carriers that contract out flying to lower-cost regionals are at their maximum number of 70 and 76-seat planes according to their pilot contracts. They can tweak that to some degree, depending on the mainline carrier, by adding mainline fleet, but they don’t really want to. The only “growth”, such as it is, is to add EMB-175SC’s to replace CR7’s and CR9’s. This will improve range and seat-mile costs to some degree, but original purpose of the regional jet, before 9/11, was to replace 37 and 50-seat turboprops with 50 seat jets in places like RDD and ERI. That’s not what’s happening any more. Regionals have been flying essentially as mainline for a couple of decades and not doing it very well. The EMB-175 at least makes flying CAEORD a less miserable 2.5 hours, but the seat/mile costs aren’t in the same universe as a 737 MAX 8.

    An EMB-175 might be a good tool for a “development route” like PSCPHX, but it’s got to hit the sweet spot in yield to work with its higher seat/mile costs. And UA, for one, has made it abundantly clear going forward they plan to operated fewer flights with bigger planes.

    The fact of the matter is that the biggest reason regionals exist now is that they are pilot training schools. That will keep them going for awhile, but when the next recession comes, or when the pilot shortage finally eases, they will shrink to a mere fraction of what they are today.

    1. Agreed. Long term, everyone is going to up-gauge and drop frequency. It’s a tricky coordination problem though, because if e.g. United drops to 1 737 MAX flight/day while Delta continues to offer 3 flights/day on RJs, they risk losing market share since Delta will be offering schedules that are more convenient for many passengers.

      1. I agree that’s how it would play out in the short run, but all the majors have dropped the ruinious “market share” quest from the ’90’s and now aim for profitablilty on each route.

        Delta might run 3 RJ’s, but that doesn’t help if they lose money on those 3 RJ’s while UA makes money on that one 737.

        Of course, this completely ignores the whole “O&D” thing. AA isn’t flying that new PSCPHX route to get people between PSC and PHX. That’s just the icing on the cake. AA is not flying PSCPHX. They are flying PSC-Everwhere you can connect from PHX and that’s when pricing comes into the picture. The RJ’s may have higher CASM from the spoke to the hub, but the revenue the RJ generates in from the spoke the final destination, which may be the hub or it may be beyond the hub.

        But 2 EMB-175’s equals 1 737-800 and that has got to be a sobering CASM comparison.

    2. This is overstated, or at the very least, you don’t prove your case.

      It has always been the case that on a per-seat basis, regional flying is more expensive. And that’s fine so long as you can get a higher revenue per seat.

      To prove your case, you need to show that there is no revenue premium on such routes. Does a major get a revenue premium on itineraries that use an RJ for part of the ticket? If, on average, the answer is yes, and that premium is enough to cover the higher per cost of the RJ segment(s) then the RJs have paid their way.

      You need to show that premium does not exist, then you will have made your case.

      For sure, the environment has changed pre-to-post pandemic. But we have post-pandemic commitments by majors for more RJs – see:

      https://www.prnewswire.com/news-releases/skywest-orders-19-embraer-e175-aircraft-for-operation-with-united-airlines-301969521.html

      Are you saying that United and Skywest are irrational and should not be doing this, that they are going against clear data that shows that RJs don’t pay their way?

      Seems unlikely, but DB1B exists and you are free to show what you need to show to prove your point.

      1. Agree that Goforride overstated the case. The mainline airlines will likely continue to fly up to their capped number of 76- and 70-seat RJs for a long time. Price-insensitive schedule-sensitive travelers (e.g. business travelers) will continue to pay a premium for a direct connection to smaller airports.

        At the same time, the 50-seat RJ fleets are living on borrowed time. They aren’t being produced anymore, so there are no plausible replacements as existing aircraft age out. The pilot shortage also makes it difficult to appropriately staff an operation of 50-seaters.

        Delta already pulled the trigger and retired its last 50-seater last year. They run a smaller RJ fleet than the other mainline carriers, which translates to direct service to fewer hubs at lower frequency than AA or UA. They have a variety of small mainline aircraft (717, A220, A319) to pick up this demand.

        American and United still have large 50-seater fleets: ~100 aircraft flying as American Eagle and >200 flying as United Express. This translates to ~18% of the American Eagle fleet and ~44% of the United Express fleet. It’s going to be a big transition as those get phased out and AA and UA shrink their RJ fleets considerably.

      2. The 19 EMB-175SC’s you referance are simply a one-for-one replacement to replace 19 CR7’s operated by Skywest and whose fleet exist was already announced some time ago. It’s only recently UA has ordered replacements.

        Which brings up an interesting aside. Only the CR7’s can operate out of ASE because of space consideratrions between the runway and taxiway. It should be interesting how that plays out.

        Don’t be ridiculous. Of course I’m not saying Skywest is being irrational. That’s a silly thing to say. I’m saying that economic realities are stacked against RJ’s and thus against regionals. Unless there’s a major expansion of “small mainline jets” as described in the UA pilot contract, the number of RJ’s is effectively capped at what it is now. UA and AA cannot replace CRJ-200’s and EMB-145’s with larger RJ’s because they are already essentially at their maximum 70/76-seat planes according to their pilot contracts. And years ago, Scott Kirby said “small jets don’t work for us.” even though buying them would also let UA add 76-seaters.

        Even DL is not expanding their A220-100’s much beyond the existing number of 717’s, even though if they did, it would let them add 76-seaters.

        Nobody wants RJ’s, be they 50, 70, or 76-seats, other than for the miscellaneous “development routes” or the occasion “niche” or boutique route, and even then, they may very well be deployed because they are the least bad thing for that purpose.

        Nobody wants the 100 seaters they could, at least theoretically, get from Airbus.

        And nobody even wants 125-seat MAX 7’s, other than Southwest which is in a world by itself.

        We can discuss revenue generation until the cows come home, but the people who actually have the numbers, the bean counters at the airlines, say RJ’s revenue generation compared to their cost, as evidenced by what the airlines are actually doing, is not a winning thing.

    3. This statement shows a lack of understanding of how a hub operates. It’s not about P2P demand, but flowing lots of traffic to many destinations through the hub. Not every market can sustain mainline flying even at 1x, but multiple RJs daily will feed into the hub and fill mainline and international seats. RJs are an important piece of the hub and spoke model.

  8. I will never forget the time I interviewed for a manager job there. After a long day of interviews, one of the managers came in and said something to the effect of: “as part of this job you will be subjected to being yelled at and berated frequently by the CEO”. Thankfully I didn’t get the job, I had a nostalgia for working at an airline again, but hearing this from a terrified manager made me happy to not be there. I ride my bike down Sky Lane all the time, there are still a few ERJ’s and an Embraer parked in AA’s colors, they have been there for several weeks. Mesa is a terrible operation, any airline that would use them deserves them.

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