Mesa Air shareholders approve new debt plan
PHOENIX » Mesa Air Group Inc. said yesterday its shareholders authorized it to issue millions of new shares to pay off upcoming costs.
The Phoenix-based regional carrier, which operates the interisland carrier go! in Hawaii, wants the new shares to help it pay back as much as $37.8 million in senior convertible notes in June. Analysts have questioned the move, saying it would seriously dilute the value of Mesa's stock.
Mesa has had an especially tough financial year. Go! has struggled to make a profit, and its startup sparked a lawsuit with Hawaiian Airlines Inc. that ended with Mesa agreeing to pay $52.5 million.
In addition, Delta Air Lines Inc. has said it plans to drop a contract-flying agreement with Mesa worth $20 million a month.
The carrier's shares have dropped 75 percent in value since the beginning of the year, ending yesterday at 64 cents. At those prices, it would take about 59 million shares to pay off the senior notes.
The share agreement came a day after Mesa filed a notice with the Securities and Exchange Commission that it will delay its fiscal second-quarter earnings because it could not obtain certain information during the required time.
Mesa said it expects to report a profit during the period ended March 31, but also indicated that the profit would be due to nonrecurring charges.
Also yesterday, Mesa Air said it will shut down a subsidiary carrier, Air Midwest, cutting off service to 16 small cities in 10 states because of soaring fuel prices.
Mesa said that the mainland cuts will begin next week and will be completed by June 30.
"Even with subsidies from the DOT, Air Midwest has been unable to sustain profitability for the last several years," said Jonathan Ornstein, CEO of Mesa Air Group.
Soaring oil and jet-fuel prices already have contributed to the shutdown this year of Skybus Airlines and helped force ATA Airlines and Aloha Airlines out of business -- although Aloha also blamed competition from go! for its downfall. Frontier Airlines has entered bankruptcy restructuring. Champion Air said it would cease operations and MAXjet Airways did so in December.