Go! posts $8.3 million loss

Mesa posts profit but go! loses $8.3M

>> Mesa lawsuit postponed until April

STORY SUMMARY »

Mesa Air Group Inc. said yesterday it had a fiscal second-quarter profit of $9.4 million after adjusting its earnings to reflect a reduced settlement with Hawaiian Airlines.

However, the Phoenix-based company's interisland carrier go! posted a net operating loss of $8.3 million to bring the total amount of losses since go! debuted in June 2006 to $34.7 million.

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Mesa Air Group Inc.'s chief executive said yesterday that despite another quarterly loss for go!, the interisland carrier would be "significantly profitable" if oil prices were the same today as they were when the airline entered Hawaii in June 2006.

By the Numbers Mesa Air Group Inc.'s financial results (in thousands) for go! since the interisland carrier began service in June 2006: PERIOD REV. OPERATING EXPENSES OPERATING INCOME 2nd quarter* $7,185 $15,487 ($8,302) 1st quarter** $6,167 $12,749 ($6,582) 2007*** $25,654 $39,587 ($13,933) 2006*** $9,165 $15,010 ($5,845) Totals $48,171 $82,833 ($34,662) Source: Securities and Exchange Commission * Fiscal quarter ending March 31, 2008 ** Fiscal quarter ending Dec. 31, 2007 *** Fiscal year ending Sept. 30

The embattled Phoenix-based carrier reported in an overdue Securities and Exchange Commission filing yesterday that go! had an operating loss of $8.3 million in the fiscal second quarter ended March 31. That swelled go!'s losses to $34.7 million since entering the Hawaii market in June 2006.

"Unfortunately, we've seen fuel prices effectively double since that time two years ago and that has impacted us negatively," Mesa Chairman and CEO Jonathan Ornstein said on a conference call with analysts and investors.

But Ornstein said the demise of Aloha Airlines on March 31 has resulted in an improvement in go!'s load factor. He also said revenue has grown due to the increased passenger count (a record 87,577 passengers in May) and higher fares, as well as extra capacity that go! has put online. The earnings don't include post-Aloha results.

"The additional capacity has helped us spread our costs," Ornstein said. "We've seen improvement in the operating environment in terms of load factors and fares. The numbers are such that in a normalized environment, we'd be feeling pretty good right now."

Ornstein said go!'s higher fares, which have risen to a base of $64 from $39 over the past year, have not resulted in a significant decrease in traffic.

Second-quarter net $9.4 million Year-earlier loss $24 million

"The fares have gone up, but certainly they haven't gone up significantly in terms of total dollars," Ornstein said. "So I still think that it is still a reasonable bargain in terms of getting around the islands in terms of total dollars. Remember, the average fare base was pretty low to start with and has always been low, so the increase, percentagewise, has not been bad."

Ornstein said go! is continuing to look at other revenue sources, such as a possible U.S. Mail contract, and also has increased its wholesale business with the tour operators.

Mesa, whose earnings were due to be filed in mid-May, swung to a fiscal second-quarter profit of $9.4 million from a year-earlier loss of $24 million after adjusting its earnings to reflect a reduced settlement with Hawaiian Airlines. Mesa had posted a $90 million bond during its appeal of an $80 million damages judgment awarded last October to Hawaiian. But Mesa and Hawaiian jointly announced on April 30 that they had agreed to settle the lawsuit for $52.5 million, with Mesa getting returned to it the remaining $37.5 million.

Even though the settlement came about a month after the end of the second quarter, Mesa was able to adjust the contingent liability recorded in fiscal 2007 due to the Hawaiian award and retroactively record a gain of $34.1 million for its fiscal second quarter.

Revenue increased 8.1 percent during the quarter to $320.3 million from $296.3 million a year earlier.

Mesa, which has seen its cash position deteriorate, due in part to high fuel costs and its go! operations, had $158.1 million in cash and equivalents as of March 31, of which $102.8 million was restricted. Of that total, $90 million was due to the bond it posted with federal Bankruptcy Court. Mesa, which declined to disclose the amount of cash it has on hand today, had $188.2 million in cash at the end of December.

Go!'s revenue, meanwhile rose 29 percent in the second quarter to $7.2 million from $5.6 million while operating expenses soared 64.3 percent to $15.5 million from $9.4 million. Go!'s operating loss more than doubled from $3.9 million in the second quarter of 2007.

Even with the Hawaiian suit settled, Mesa is still facing other legal hurdles. Aloha has sued Mesa for predatory pricing and misusing confidential information. And conversely, Mesa, a regional carrier for Delta Air Lines Inc., has obtained a preliminary injunction against Delta to prevent it from terminating a Delta Connection agreement it has with Mesa subsidiary Freedom Airlines Inc. Ornstein said yesterday that Mesa is in talks with Delta to reach an "amicable solution."

Mesa is also facing delisting by Nasdaq for failing to file its financial report on time -- the company was about six week late -- and for having its shares trading below $1. Ironically, the second-quarter financial results announced yesterday by Mesa coincided with the final day of Mesa's fiscal third quarter. Ornstein said Mesa's financial results for the just-concluded quarter will be filed in a "timely" manner.

In addition, Mesa also is in the process of winding down its Air Midwest operations and selling off those assets.

Excluding one-time items, Mesa said it had an adjusted loss of $4.1 million or 15 cents a share, in the second quarter. Those items included a $21 million benefit due to its settlement with Hawaiian, a $4.5 million gain on the repurchase of convertible notes, a $1.9 million gain on securities, lease return costs of $3.3 million, $900,000 for startup costs associated with its Chinese joint venture, $600,000 for go! legal costs and $1.1 million in other expenses.