Mesa Air Group

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Mesa Air Group
Type Public (NASDAQ: MESA)
Founded 1982
Headquarters Phoenix, Arizona, USA
Key people Jonathan G. Ornstein, Chairman & CEO
Michael J. Lotz, President & COO
George Murnane III, Former Executive Vice President and Chief Financial Officer
Michael Ferverda, Senior Vice President — Operations
Brian S. Gillman, Vice President, General Counsel and Secretary
Industry Aviation
Revenue ▲$1.3 billion USD (2006)
Employees ~5,000 (2005)
Website www.mesa-air.com

Mesa Air Group, Inc. (NASDAQ: MESA) is a Nevada Corporation[1] commercial aviation holding company with headquarters in Phoenix, Arizona. The company operates three regional airline subsidiaries: Mesa Airlines, Freedom Airlines, and Air Midwest, and five supporting subsidiaries. It operates flights under the Mesa Airlines and go! brands, or under contract in accordance with several codeshare agreements as US Airways Express, United Express and Delta Connection.

As of September 30, 2005, Mesa Air Group employed over 5,000 people and operated a fleet of 182 aircraft (36 turboprops and 146 regional jets) with over 1,100 daily departures, serving 176 destinations in 43 states, the District of Columbia, Mexico and Canada. In terms of revenue, the Mesa Air Group would be considered a major airline carrier as it has over $1 billion annual revenue earnings, however it does not qualify for major status simply because its aircraft seat less than 100 people.

Contents

[edit] Subsidiaries

[edit] Airlines

[edit] Non-airline subsidiaries

  • Mesa Pilot Development, Inc.
  • Regional Aircraft Services, Inc.
  • MAGI Insurance, Ltd.
  • Ritz Hotel Management Corp.
  • Mesa Air Group—Aircraft Inventory Management, LLC (MAG-AIM)

[edit] Former airlines and subsidiaries

[edit] History

Mesa began when JB Aviation, a fixed base operator at Farmington's Four Corners Regional Airport, established a charter flight department in 1980. In 1982, using $140,000 in capital, Larry Risley, an A&P mechanic with JB Aviation, and his wife Janie, purchased the flight department and its single Piper Chieftain aircraft, and established Mesa Air Shuttle, flying a single route between Farmington and Albuquerque.

During its first few years, Mesa found itself in a very competitive environment as it slowly expanded throughout New Mexico. Six other carriers competed against Mesa: Air Midwest, Sun West Airlines, Pioneer Airlines, Jet Air, Trans-Colorado Airlines and Airways of New Mexico. As fare wars erupted between the carriers, Mesa was able to survive due to its low cost structure. It performed maintenance in house, many of Mesa's employees performed multiple duties: pilots and mechanics doubled as gate agents and ramp agents.

In 1984, the Civil Aeronautics Board awarded Mesa its first Essential Air Service (EAS) contract, to serve Roswell, Hobbs, and Carlsbad, winning the contract from Air Midwest. A second round of EAS bidding resulted in Mesa winning contracts to serve Silver City, Alamogordo, Las Cruces, and Gallup.

By 1987, Mesa had grown from six employees in 1982 to 187 employees: from a single Chieftain in 1982 to three Beechcraft 99s in 1984 to five Beechcraft 99s and four Beechcraft 1900s. Of the six competing air carriers in 1982, none remained to challenge Mesa in New Mexico by 1987.

Mesa continued to grow in 1987. It listed on NASDAQ: MESA with an initial public offering of 865,000 shares of stock at $7.50. It expanded outside New Mexico by acquiring routes in Wyoming, Utah, and Colorado from Centennial Airlines.

To provide a pool of trained, qualified pilots, in 1989, Mesa established an ab-initio flight training program with San Juan College, a local community college. By the end of the 1980's Mesa poised itself for future growth and expansion.

[edit] Acquisitions and mergers

Starting in 1989, Mesa embarked on a series of acquisitions and mergers over the next six years that would known by the airline industry watchers as "Mesa's a deal a year growth."

In February 1989, Mesa negotiated its first codeshare agreement with Midwest Express and established Skyway Airlines in Milwaukee. In July 1989, StatesWest Airlines attempted to take over Mesa by making an offer to purchase all of the common operating stock of Mesa, which was rejected.

In February 1990, Mesa acquired Aspen Airways' United Express Denver hub, routes and assets, and negotiated a codeshare agreement with United Airlines. Using these newly acquired routes, Mesa set up a Denver hub flying as United Express. Aspen Airways' BAe 146 and Convair 580 aircraft and its Denver-Aspen route were sold to Air Wisconsin.

Mesa had many changes in 1991; acquiring Air Midwest, its Kansas City hub and a codeshare agreement with USAir Express in July, starting FloridaGulf Airlines serving Florida, South Carolina, Georgia, Alabama, Arkansas, and Louisiana from its Tampa hub under a USAir Express codeshare in December. It was also in talks to acquire WestAir Commuter Airlines.

In 1992, Mesa completed acquisition of WestAir Commuter Airlines and its hubs in San Francisco, Los Angeles, Portland, and Seattle as well as its United codeshare. In October 1992, Mesa negotiated a codeshare agreement with America West for its Phoenix hub to be operated as America West Express.

In 1993, Mesa's codeshare with Midwest Express expired. Midwest Express kept the name Skyway for its future regional of the same name. Using the aircraft from the former Skyway operation, Mesa established Superior Airlines with a Columbus hub operating as America West Express. Mesa created CalPac (California Pacific) with a Los Angeles hub operating as United Express. Both Superior and CalPac were short-lived operations, with both airlines being folded back into Mesa Airlines United Express operations.

In 1994, Mesa acquired Pittsburgh-based Crown Airways. Using the assets from Crown Airways, Mesa set up Liberty Express Airlines with a Pittsburgh hub operating as USAir Express.

In March 1995, Mesa took delivery of its first two regional jets, the Fokker F-70. Mesa created Desert Sun Airlines and operated the two jets from a Phoenix hub to Des Moines and Spokane as America West Express.

[edit] Reorganization

As Mesa acquired air carriers or expanded by creating new airlines, it grew in a seemingly haphazard manner. By 1995, Mesa had grown from one airline with hubs in Albuquerque and Phoenix in 1989, to six separate airlines with hubs throughout the country, though it had as many as eight airlines prior to 1995. Rather than integrating each new acquisition and airline into one integrated company, Mesa continued operating each individual airline independently, with separate labor groups, separate flight, maintenance, and marketing operations, and separate codeshare agreements. This resulted in an unwieldy corporate structure.

In 1992, Mesa created Mesa Holdings Corp to manage the existing Mesa Airlines and its acquisitions. It resulted in the following subsidiaries:

  • Air Midwest (Kansas City)
  • Mesa Airlines
    • America West Express (Phoenix)
    • FloridaGulf Airlines (Tampa)
    • Mesa Airlines (Albuquerque)
    • United Express (Denver)
  • Skyway Airlines (Milwaukee)
  • WestAir Commuter Airlines (Los Angeles, San Francisco, Portland, and Seattle)
  • San Juan Pilot Training (forerunner to Mesa Pilot Development)
  • Desert Turbine Services

In 1995, Mesa Holdings Corp was renamed Mesa Air Group, and Mesa Airlines was renamed Mountain West Airlines. Mesa Air Group now consisted of the following six airlines and subsidiaries:

In 1996, further company reorganization consolidated the separate flight dispatch functions of Desert Sun, FloridaGulf, and Mountain West airlines into one location in Farmington. All flight training facilities and human resources were centralized in Fort Worth. Since the mergers had created a diverse mix of aircraft types, Mesa proceeded to simplify the number of aircraft types operated from six (Shorts 360, Jetstream, Brasilia, 1900, Dash 8, Fokker) to three (1900, Dash 8, CRJ). Mesa relocated aircraft to place all airplanes of the same type in a base, with the Jetstreams and Brasilias flying in the West, 1900s flying elsewhere. This also allowed the consolidation of maintenance facilities, since the facilities no longer needed to service all the different types of aircraft Mesa operated. To replace the Fokker aircraft, Mesa signed an agreement with Bombardier to purchase 16 Canadair Regional Jets (CRJ) with options for 32 more.

The six pilot groups had voted to unionize in 1994. In 1996, the pilot groups of the six airlines were merged into one common seniority list, and under the Air Line Pilots Association (ALPA) representation, the pilots and Mesa negotiated and ratified a five-year collective bargaining agreement.

When Mesa started taking deliveries of the CRJ in 1997, it returned to two Fokker 70 jets and placed the CRJs in service in Phoenix. Mesa started an independent hub providing CRJ service from Fort Worth Meacham to Houston, San Antonio, Austin, Colorado Springs, and from Colorado Springs to Nashville. This effort proved to be unsuccessful and the service from Fort Worth ended in less than a year.

[edit] Difficulties and loss of the United codeshare

Mesa and United entered into discussions in July 1997 to renew WestAir's codeshare agreement, which was due to expire in May 1998. Mesa and United could not agree on new terms. As negotiations delayed into the summer, United started awarding WestAir's routes to Skywest. Finally with negotiations at an impasse, United announced in November 1997 that it would not renew the codeshare with WestAir. Mesa attempted to reengage United and ask United to reconsider to no avail.

Mesa experienced many customer complaints regarding its Denver United Express operation. The level of complaints resulted in a Congressional inquiry of the airline's performance. Mesa experienced increased costs the Denver hub as a result of moving from Denver Stapleton airport to the new Denver International Airport and as a result of a decrease in the average fare Mesa received from United. In efforts to reduce its exposure to the high costs and mounting losses, Mesa announced that it would reduce and terminate service from its Denver hub in September 1997. United charged that the reduction and termination of service was a material breech of the codeshare agreement. Naturally Mesa disagreed. Again, as with WestAir, agreement could not be reached and United and Mesa mutually agreed to terminate the codeshare.

The effect of the codeshare termination with WestAir and Mesa was immediate. The termination put 87 (21 Jetstreams, 29 Brasilias, and 37 Beech 1900s) of Mesa's 184 aircraft out of service or 47% of its total aircraft. Mesa took immediate steps, parking the Jetstreams and Brasilias. It sold 10 Brasilias to Skywest. Mesa exercised the option to purchase 16 additional CRJs and traded in the remaining Brasilias to Bombardier for CRJs. Mesa sold 24 Beech 1900s to Great Lakes, and returned the remaining Beech 1900s to Beechcraft/Raytheon. WestAir ceased operations in 1998.

Mesa experienced difficulties with its other two codeshares as well. Flight crew shortages and scheduling problems resulted in the cancellation of many flights. From October 1997 to January 1998, Mesa parked aircraft and canceled flights to alleviate the crew shortage problem. Part of the crew shortage problem was related to the consolidation of flight operations in Farmington, and the training associated with transitioning the air carrier from a Part 135 operator to a Part 121 operator as required by a FAA mandate. America West canceled its codeshare with Mesa in 1997.

[edit] Turnaround

In 1998, Jonathan Ornstein was appointed CEO of Mesa Air Group. Ornstein had been Risley's assistant from 1989 to 1995 during Mesa's initial expansion. Larry Risley remained on Mesa's board of directors. All corporate officers were replaced and the company headquarters was relocated from Farmington to Phoenix. The flight training and human resources departments were also moved to Phoenix. Its plan to return to profitability focused on several fronts: its aircraft, its codeshares, and customer service

One of Mesa's problems during the turnaround was that it operated over 180 turboprops. It began consolidating all of its remaining Beechcraft 1900 turboprops into Air Midwest, completing the consolidation in 2000. It embarked on a plan to reequip with jet aircraft. In 1999, Mesa arranged to purchase 36 Embraer 145 jets with options for 64 additional ERJs. In 2001, Mesa arranged to purchase 20 CRJ-700s and 20 CRJ-900s with options for 80 additional CRJ-700/900s. Five of the CRJ-700 orders were subsequently converted to CRJ-900s. As Mesa took delivery of the larger CRJ-700s and CRJ-900s, scope restrictions with US Airways prevented Mesa from operating the larger aircraft in its Mesa Airlines subsidiary. Mesa created a separate subsidiary, called Freedom Airlines to operate these aircraft. As the scope restriction at US Airways was removed during US Airways' bankruptcy reorganization and after Mesa settled with its pilot union regarding operating Freedom as a separate air carrier, Freedom's aircraft and pilots were merged back into Mesa Airlines in 2003.

As Mesa completed its restructuring, it proceeded to reestablish it codeshares. In 1998, it negotiated a new codeshare with America West and expanded its codeshare with USAir. In 2001, Mesa reestablished a codeshare agreement with Midwest Express for its Air Midwest Kansas City hub. Also that same year, Mesa negotiated an agreement with Frontier to operate as Frontier JetExpress out of Denver. The Frontier codeshare ended in 2003. In 2003, Mesa reestablished a codeshare agreement with United, operating as United Express. In 2005, Mesa negotiated a codeshare agreement with Delta for Freedom Airlines to operate as a Delta Connection carrier.

By 1999, Mesa returned to profitability. Mesa acquired CCAir and its USAir Express codeshare in 1999. It continued to operate CCAir as a separate operation. By 2002, CCAir ceased operations due to high costs and its assets and employees were absorbed into Mesa. The latest merger attempt was in 2003, when Mesa offered to acquire Atlantic Coast Airlines. Its offer was refused, and ACA went on to operate independently as Independence Air and later ceased operations in January, 2006. In 2006, Mesa began operating in Hawaii under the brand go! and established a codeshare agreement with Mokulele Airlines, where Mokulele will operate as a go! Express carrier.

[edit] Hawaiian Impropriety

In 2004, Mesa Air Group met with Hawaiian Airlines and Aloha Airlines, both in bankruptcy at the time, and reviewed operational records and forecasts, but ultimately decided not to acquire or invest in either carrier. In 2006, after Mesa announced plans for its "go!" sub-branded airline in Hawaii, Hawaiian Airlines sued to block the launch, claiming that Mesa had violated a confidentiality agreement.[2] Aloha Airlines filed a similar suit against Mesa later that year.[3]

In September of 2007, the CFO of Mesa Air Group was placed on administrative suspension as irregularities were investigated during the Hawaiian Airlines case. In an announcement, Mesa Air Group CEO Jonathan Ornstein assured shareholders and investors that "the alleged misconduct does not involve the financial controls, financial statements or operations of the Company."[4] The judge overseeing the Mesa go! case, however, ruled Mesa destroyed evidence.[5] and ordered Mesa Air Group to pay an $80 million interest bearing settlement with interest, along with legal fees, to Hawaiian Airlines.[6]

The Aloha Airlines suit against Mesa and go! is still pending. Aloha Airlines filed for Chapter 11 bankruptcy on March 20, 2008 and ceased passenger operations on March 31, 2008.

[edit] Labor groups

Mesa Air Group labor groups are represented by several labor organizations:

  • Flight attendants are represented by the Association of Flight Attendants (AFA). Its contract becames amendable in June 2006. Mesa and its flight attendants are currently in contract negotiations.
  • Pilots from its three airline subsidiaries are merged in a single common seniority list and are represented by the Air Line Pilots Association(ALPA). Its contract became amendable in September 2007.

[edit] Fleet

Data as of September 30th of each year.

Mesa Air Group Fleet
20061 Seats Orders/
Options		 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Bombardier CRJ 900 38 86 4/112² 37 24 6 0 0 0 0 0 0 0 0
Bombardier CRJ 700 18 64 0/112² 15 15 15 2 0 0 0 0 0 0 0
Bombardier CRJ 100/200 60 50 0/0 56 54 43 34 32 32 26 16 7 0 0
Embraer ERJ-145 36 50 0/64 36 36 32 32 21 8 0 0 0 0 0
Fokker 70 0 70 0/0 0 0 0 0 0 0 0 0 0 2 2
Dash 8-100 12³ 37 0/0 0 0 0 6 7 10 10 0 0 0 0
Dash 8-200 16 37 0/0 16 16 12 18 19 22 22 12 12 5 0
Dash 8-300 0 37 0/0 0 0 0 0 0 0 0 0 0 1 7
Embraer Brasilia 24 30 0/0 2 6 6 6 6 7 7 7 28 32 34
Beechcraft 1900D 345 19 0/0 35 35 42 46 59 61 78 96 118 114 113
Jetstream 0 19 0/0 0 0 0 0 9 14 16 0 21 21 21

1As of December 31, 2006

²4 firm orders and 112 total options for CRJ-700/900 aircraft. Mesa took delivery of 3 CRJ-700 aircraft during 2006.

³During 2006 Mesa acquired 12 used Dash-8-100s for Freedom Airline's Delta Connection service at New York's John F. Kennedy Airport.

4Since 1998, all of Mesa's EMB-120 aircraft have been in long-term storage awaiting return to their lessors.

514 of Mesa's B1900D aircraft are leased to other carriers: 10 to Big Sky, and 4 to Gulfstream

[edit] Mesa Angels Foundation

Mesa Air Group, Inc. sponsors the Mesa Angels Foundation which provides financial assistance to those Mesa employees and immediate family members in critical financial need due to extraordinary circumstances such as medical emergencies, natural disasters or other unforeseen life-changing events. Mesa Angels Foundation also supports charitable organizations through donations in the communities Mesa serves.

[edit] References

  1. ^ Form 10-K (2006). Retrieved on 2007-09-05.
  2. ^ Hawaiian Airlines sues Mesa, USA Today, February 15, 2006
  3. ^ Aloha Airlines sues Mesa Air Group, Pacific Business News, October 13, 2006
  4. ^ News Release, Mesa Air Group, September 21, 2007
  5. ^ Judge rules Mesa destroyed evidence, Pacific Business News, September 27, 2007
  6. ^ Mesa Air ordered to pay $80M for misusing confidential info, AzBiz.com, November 2, 2007
  • Graham, Rex (03-01-1987). "And the Winner Is ....". New Mexico Business Journal 11 (3): 17. 
  • Marcial, Gene (07-17-1989). "Is Mesa Airlines Facing a Dogfight?". BusinessWeek (3115): 130. McGraw-Hill, Inc.. 
  • "Mesa, Air Wisconsin to Split Aspen Airways Service" (02-20-1990). Aviation Daily 299 (35): 347. McGraw-Hill, Inc.. 
  • Henderson, Danna (09-01-1990). "Mesa Airlines Embraces Code Sharing". Air Transport World (178). Penton Publishing Inc.. 
  • "Mesa To Consolidate Operations Under Holding Company" (01-03-1992). Aviation Daily 307 (2): 11. McGraw Hill, Inc.. 
  • Kidder, Peabody & Co. Inc. (09-13-1991). "Mesa Airlines Company Report 1991" (PDF). . The Investext Group Retrieved on 2006-09-22.
  • Prudential Securities, Inc. (03-05-1992). "Mesa Airlines Company Report 1992" (PDF). . The Investext Group Retrieved on 2006-09-22.
  • First Boston Credit Suisse (04-08-1993). "Mesa Airlines Company Report 1993" (PDF). . The Investext Group Retrieved on 2006-09-22.
  • Mesa Air Group (12-15-1995). "1995 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-26-1996). "1996 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (01-13-1998). "1997 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-17-1998). "1998 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-31-1999). "1999 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-26-2000). "2000 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-11-2001). "2001 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-06-2002). "2002 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-08-2003). "2003 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-01-2004). "2004 Annual Report". Retrieved on 2006-09-22.
  • Mesa Air Group (12-01-2005). "2005 Annual Report". Retrieved on 2006-09-22.

[edit] External links

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