Mesa Air Group, Inc. (MESA)

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Mesa Air Group, Inc. (MESA)

Q2 2019 Earnings Conference Call

May 10, 2019, 13:00 ET

Company Participants

Jonathan Ornstein - Chairman & CEO

Brian Gillman - EVP, General Counsel & Secretary

Bradford Rich - EVP & COO

Michael Lotz - President & CFO

Conference Call Participants

Michael Linenberg - Deutsche Bank

Savanthi Syth - Raymond James & Associates

Helane Becker - Cowen and Company

Joseph DeNardi - Stifel, Nicolaus & Company



Welcome, and thank you all for standing by. [Operator Instructions]. This call is being recorded. If you have any objections, you may disconnect at this point. And now I will turn the meeting over to your host, Jonathan Ornstein, You may begin.

Jonathan Ornstein

Thank you, Kirby. Thanks, everyone, for joining us on the call today. As the operator indicated, this is Jonathan Ornstein. I'm the Chairman and Chief Executive Officer of Mesa Airlines. On the call with me today is Mike Lotz, President and Chief Financial Officer; Brian Gillman, Executive VP and General Counsel; a new addition to our call, Brad Rich, Chief Operating Officer; and Darren Zapfe, Vice President of Finance.

I'd like to ask Brian to read the safe harbor statement please.

Brian Gillman

Thanks, Jonathan. Before the presentation comments begin, Mesa would like to remind you that some of the statements and responses to your questions in the conference call today may include forward-looking statements. As such, they are subject to future events and uncertainties that could also affect our actual results to differ materially from those statements. Also, please note the company undertakes no obligation to update or revise these forward-looking statements. Any forward-looking statements should be considered in conjunction with the cautionary statements in our press release and the risk factors included in our filings with the SEC, which Mesa encourages you to read. In addition, please refer to our press release in the Investor section of Mesa's website to find additional disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.

Jonathan Ornstein

Okay. Thank you, Brian. Okay. We had a pretty nice quarter. We continue to execute our plan to increase block hour production on our existing fleet. As a result, block hours were 112,030 for Q2 fiscal '19, which represented a 14.5% increase from the same quarter last year. We're also providing guidance for third quarter. We believe the block hours will be about a 115,203, which is an 11.9% increase from the same quarter last year. Given our partner's desire of increased block hour production and to position ourselves for future growth opportunities, we have continued to overstaff, hiring more pilots than we are losing. We continue to see excellent results on our pilot recruiting front and attrition has been stable to slightly lower than anticipated.

Our quarter two fiscal '19 adjusted earnings before taxes, were $21 million, which compares to $3 million for the same quarter last year. However, earnings before taxes were $4 million lower than our previous quarter, primarily due to the timing of heavy maintenance events, engine, C-checks and landing gear. As you know, our earnings are very sensitive to the timing of these major heavy maintenance events since we expense these costs in the period they occur.

On March 6, we finalized our purchase agreement with GECAS for 10 CRJ-700 aircraft, current leased from them and operating at United. Upon completion of the transaction and financing closing, we will have reduced the number of leased aircraft with third parties to 18 out of our total fleet.

For United, we continue to have productive discussions in United related to the 20 CRJ-700 standard, which we just purchased. That agreement is scheduled to expire later this year. I know this has been an ongoing topic for longer than any of us anticipated, but we remain highly confident on a CPA extension on the 20 CRJ-700s. As noted above, the CRJ-700s that we are purchasing off lease from GECAS are currently flying at United. We hope to have something to announce in the next few weeks.

Beyond our existing business, we continue to explore potential expansion that includes CPA flying increases and other opportunities as previously discussed, including new partnerships and cargo. On the cargo front, we believe we have made some progress towards that goal. All in all, we continue to focus on operational excellence and believe as the low-cost regional airline operator, we're well positioned to take advantage of these opportunities.

Brad Rich, who many of you will know from his days at SkyWest and later at United, will now walk through some of our operational performance.

Bradford Rich

Thank you, Jonathan. First of all, having been here less than two months, my comments will be very brief today. But let me start by saying, first of all, how impressed I am with the talent and the capabilities of the Mesa operational team. Having recently come from United, I'm familiar with the regional carriers, and I believe Mesa is very well positioned in the industry. I've been working very closely with both America and United. I may know many of their senior leaders personally from my time both at SkyWest and United. And I'm confident that Mesa can and will do everything possible to meet and exceed their expectations.

As an example, during the second quarter of fiscal '19, we had a controllable completion factor of 99.6% compared to 98.8% for the same period in the prior year. That's a significant improvement. So far, for Q3 in fiscal '19 to date, we're at 99.6%. Our total completion factor, which includes weather and other uncontrollable cancellations was 97.4% in Q2 compared to 96.4% for the same period in the prior year. I mentioned just a few of those metrics has an indication of the improvements that were making. And again, I'm confident that we can be successful in the future.

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