Mesa wants to issue new stock to pay debt

The new shares would be worth more than the total value of its existing stock

PHOENIX » With its $20-million-a-month Delta Air Lines Inc. contract in jeopardy, Mesa Air Group Inc. wants shareholders to allow the carrier to issue up to $37.8 million in common stock to pay off its looming debt.

The amount is more than the total market value yesterday of the Phoenix-based commuter airline, which operates go! on interisland routes in Hawaii.

Mesa said in a securities filing that it will ask shareholders at the company's annual meeting May 13 to approve the plan to issue new stock so it can repay senior convertible notes in June.

Mesa offered the convertible notes in 2003 to raise $100.1 million. The notes aren't due until 2023, but holders can force the company to repurchase the notes on June 16, 2008.

"The company is preserving its options regarding the payment obligations" on those notes, Mesa General Counsel Brian Gillman said in an interview.

Robert Mann, an independent airline analyst in Port Washington, N.Y., said this could be a reliable way to raise cash, especially with banks increasingly reluctant to loan airlines more money.

Mesa told shareholders in the securities filing that it needs the flexibility to pay bondholders with stock. Forcing it to use cash right now "would have a material adverse effect on the company's financial condition," the company said.

Mesa has reported a $20 million operating loss in the first 16 months of operation in Hawaii. It also had to put up a $90 million bond while it appeals a court ruling that Mesa misused confidential information obtained as a potential investor during Hawaiian Airlines' bankruptcy to gain a competitive advantage in entering the Hawaii market.

In March, Delta Air Lines said it planned to pull a contract-flying agreement worth $20 million a month with another Mesa subsidiary, Freedom Airlines. Mesa is suing Delta to keep the contract intact.