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Mesa Air Group, Inc. (MESA)

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Mesa Air Group, Inc. (MESA)

Q2 2009 Earnings Call

May 11, 2009 1:00 pm ET

Executives

Jonathan Ornstein – CEO

Analysts

Bob Mcadoo – Avondale Partners

Helane Becker – Jesup & Lamont


Presentation

Operator

Welcome to the Mesa Air Group’s second quarter earnings conference call. (Operator Instructions) I would now like to turn the meeting over to your host for today’s conference, Jonathan Ornstein, Mesa Air Group Chairman and Chief Executive Officer; sir you may begin.

Jonathan Ornstein

Thank you everybody for joining us. This conference call will contain various forward-looking statements that are based on management’s beliefs as well as assumptions made by and information currently available to management. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Such statements are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected, or expected. The company does not intend to update these forward-looking statements made in this call prior to its next filing with the Securities and Exchange Commission.

Again, I’d like to thank everyone for joining us and your continuing interest in our company. First just to go over high level earnings overview, for the second quarter of 2009 on a consolidated basis, we posted a pretax operating profit of $27.2 million, from continuing operations a net loss of after-tax of $37.3 million, and the significant after-tax net loss is the result of recording a $64.5 million income tax expense primarily driven by an IRC Section 382 tax provision effecting net operating losses carryforwards.

This came about as a result of the issuance of the new shares in order to retire or restructure the bonds that we did recently. On a pro forma basis the net loss was $100,000 or break-even on a per diluted share basis. This compares to a $4.1 million loss or $0.15 per diluted share in the second quarter of 2008.

Pro forma net loss for the quarter includes adjustments for the following items on an after-tax basis, $54 million adjustment to income tax expense, a $1.7 million loss from equity method investments, $1.6 million cost associated with the Chinese joint venture, $1.1 million in lease return costs, and $1.1 million inventory write-down, a $300,000 go! legal expenses, and a $200,000 impairment charge and a $100,000 loss on disposal.

These losses were partially offset by a $22.9 million gain on an extinguishment of debt. On the cash front which obviously is very critical these days, we had cash and cash equivalents and marketable securities including current and non-current restricted cash of $57.1 million. That included approximately $14 million of restricted cash compared to $64.9 million which included again the $14 million restricted cash as of September 30, 2008.

Our cash and cash equivalents and marketable securities intend to be used for working capital and capital expenditures in the third quarter of fiscal 2009 and similar to prior years the company will make aircraft lease payments that impact our cash position.

Events in the first quarter, the company purchased certain senior convertible notes due in January 2023 and February, 2024 at a substantial discount and recorded net gain on the extinguishment of debt of approximately $22.9 million.

The Section 382 limitation, Mesa issued 117 million shares in the second quarter which triggered a 382 limitation in relation to the company’s net operating loss carryforwards. Section 382 of the Internal Revenue Code limits the amount of pre change net operating loss carryforwards that can be utilized after an ownership change.

Also during the second quarter Mesa Air Group divested its indirect interest in Kunpeng Airlines. As a result the company recorded a net loss on equity method investment of $2.7 million and a $1.6 million of other expenses which included a reserve for bad debt in the quarter of 2009. Obviously this is disappointing for us. We had had high hopes for our Chinese operation but unfortunately they have been impacted by pretty much the same things that were impacted here and the operation continued to be unprofitable.

At go! Mesa continued to expand its Hawaiian inter-island operation, available seat miles increased 16% in comparison to the same period in the prior fiscal year. Departures increased 13.7% and the passengers carried increased 20.1% over the second quarter of 2008. go! also celebrated its two millionth passenger on March 18, 2009.

Additionally we terminated our code share agreement with Mokulele Airlines and commenced a new agreement with Hawaii Island Air. Effective March 25, 2009 go! began marketing services to be flown by Island Air. We believe the new agreement is a better arrangement for us going forward as it contains a number of provisions that the old agreement did not.

Total available seat miles for the first quarter of fiscal 2009 decreased 14.2% from first quarter of 2008. The decrease was primarily due to reduction of our aircraft flown from 178 to 151. This 15.2% reduction in our operating fleet resulted in 11.3% decline in the number of passengers and 10.75 decrease in departures.

Okay, we also made a couple of, I think some good things on the employee side I’d like to talk about. Our operational numbers have continued to improve. Controllable completion rate slightly over 99% for the year. We want to thank all of our employees for their hard work in often times difficult operating environments on the East Coast.

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