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Mesa Air Group, Inc. (MESA)

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Mesa Air Group, Inc. (MESA)

F3Q08 Earnings Call

August 19, 2008 1:00 pm ET

Executives

Jonathan Ornstein - Chairman, Chief Executive Officer

Analysts

Michael Lindenberg - Merrill Lynch

Bob Mcadoo - Avondale Partners

Jim Parker - Raymond James

Presentation

Operator

Welcome to the Mesa Air Group’s third quarter earnings conference call. (Operator Instructions) I would now like to turn the meeting over to your host for today’s conference, Jonathan Ornstein.

Jonathan Ornstein

Let me start by reading the forward-looking statement, please. 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 reflect 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 anticipate, estimate, projected, or expected. The company does not intend to update these forward-looking statements made in the call prior to the next filing with the Securities and Exchange Commission.

Okay, again I would like to thank everyone for taking time out of your day to join us on this earnings call. As always we appreciate your interest and we will get to all the information and then ask for any questions.

On a high level earnings overview, on a consolidated basis we posted net income of $1.8 million or $0.07 per diluted share from continuing operations on operating revenues of approximately $353.9 million. On a pro forma basis net loss from continuing operations was $2.5 million, or $0.09 a share. The company compares to a $6.9 million gain or $0.23 per diluted share in the third quarter of fiscal 2007.

Pro forma net adjustments on an after tax basis were the following, a $4.5 million gain on extinguishment of debt which includes $3.6 million gain on the sale of 14 Beech 1900 Aircraft to the lien-holder and a $900,000 gain on convertible debt, $1.3 million gain from a settlement made with Big Sky on the return of aircraft, a $1.2 million gain on securities, a $800,000 gain on investments and a $200,000 gain on disposal of assets.

Pro Forma losses included $1.9 million from a settlement with a code share partner, legal expenses at go! 800,000 and 700,000 costs associated with the Chinese joint-venture and $300,000 in net lease return costs.

As we stated in the prior call, we have now designated our Air Midwest operations as discontinued operations, thus the previously stated financial results exclude Air Midwest. Air Midwest was $5.6 million after tax in the third quarter of 2008. Additionally, as of June 30, the company’s cash and cash equivalents and restricted stocks and marketable securities were approximately $60.1 million of which $46.7 million was unrestricted.

During the third quarter there was quite a bit going. On March 28, Delta notifies the company of its intent to terminate the Delta connection agreement regarding ERJ-145 alleging failure to maintain the specified completion rate with respect to its ERJ-145 Delta Connection flights during three months of the six-month period ending February 2008.

Following Delta termination notification the company filed a complaint on April 7, 2008 in the United States District Court of Northern District of Georgia, seeking declaratory and injunctive relief. An evidentiary hearing was held on May 27 through May 29 following the hearing; the Court ruled in the company’s favor and issued a preliminary injunction against Delta.

The effect of this ruling is to prohibit Delta from terminating the Delta Connection agreement and pending a final trial at a date to be determined by the Court. On June 27, 2008 Delta filed a notice of appeal, on July 15, 2008 Delta filed a motion requesting that the appeal be heard on an expedite basis. The company has responded to Delta’s motion in accordance with the applicable rules. The outcome of Delta’s motion will determine the timing of subsequent deadlines.

Prior to the Courts ruling, Delta plan to remove from service a significant portion of the aircraft in early June 2008, and all aircraft in July 2008 and forward. Delta did not immediately reverse its plans based upon the Court’s ruling. Following the Court’s ruling the company and Delta reached an interim financial understanding, subject to the mutual reservation of rights in which Delta will reimburse the company for a certain cost and the majority of the ERJ-145 aircraft remain out of service until October 2008.

On August 5, 2008 the company issued a press release announcing that on August 1, Delta had notified the company of its election to immediately terminate the Delta Connection Agreement for CRJ-900 aircraft dated March 13, 2007. This notice states that Delta is terminating the 900 Agreement as a result of Freedom’s alleged failure to maintain specified on-time arrival rate and completion rate with respect to the Delta Connection flights during the four months of March, April, May and June in 2008.

The notice issued by Delta is accompanied by proposed temporary agreement pursuant to which Freedom will continue to provide 900 flying, while the parties discuss the terms of a transition agreement. As of August 2008, the Company operated seven 900’s for Delta pursuant to the agreement different from all of our other code share agreements Mesa Air did not own of any long-term lease agreements, the aircraft are in fact sublet from Delta for $1 per month.

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