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Freedom to fly


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POSTED: Thursday, July 02, 2009

ATLANTA » A federal appeals court upheld yesterday a preliminary injunction barring Delta Air Lines Inc., the world's biggest airline operator, from terminating a regional flying contract with Mesa Air Group Inc. subsidiary Freedom Airlines.

Phoenix-based Mesa, the parent of Hawaii interisland carrier go!, had said that the termination of the contract, if successful, would cripple the airline and could force it into bankruptcy.

Mesa said last year that the contract amounted to $20 million in monthly revenue for the parent company, or about 20 percent of its total sales for 2007.

Delta tried to terminate Freedom's ERJ-145 Delta Connection agreement on the grounds Freedom did not meet operational performance standards spelled out in its agreement with Delta. The ERJ-145 contract covers a certain number of 50-seat aircraft.

A lawyer for Delta said during a hearing in May 2008 that the company has the right to terminate the contract because Freedom did not maintain at least a 95 percent completion rate for three months within a six-month period.

But a Mesa lawyer said the reason Freedom fell below the minimum completion rate in October and December 2007 and February of 2008 was because Delta told Freedom to cancel numerous flights.

Mesa suggested it was Delta's strategy to force Freedom to not meet the necessary completion rate so it could cancel its contract with Freedom and reduce its overall domestic capacity. Delta and other major carriers have been reducing U.S. capacity, initially because of high fuel prices and more recently because of weak demand for air travel amid the recession.

Delta denied that it intentionally forced Mesa into the situation.

Mesa won a preliminary court injunction from federal District Court in Atlanta to block the contract termination, and the 11th U.S. Circuit Court of Appeals, also in Atlanta, affirmed that decision yesterday.

“;The evidence showed that Delta induced Mesa to agree to Delta's coordinated cancellations by promising not to count such cancellations against it and then, having benefited from Mesa's willingness to extend Delta this courtesy, attempted to cancel the parties' contract on the theory that this promise was invalid as a matter of law,”; the appeals court said in its ruling.

It added, “;In light of this evidence, the District Court did not abuse its discretion when it granted Mesa's motion for a preliminary injunction.”;

Mesa's federal lawsuit seeking to permanently stop Delta's contract termination plan is still pending.

Delta said in a statement that yesterday's ruling is only a preliminary step in the process and the carrier looks forward to the opportunity to fully make its case in District Court.

Mesa said in a statement that the appeals court noted the District Court had found testimony of Delta's primary witness to be “;non-credible”; and that the order found Delta acted in “;bad faith”; in its attempt to terminate the agreement.

Sources closes to the situation said yesterday's order opens the door for Mesa to sue Delta for damage claims.

“;We are very pleased with the court's order affirming the injunction issued by the District Court,”; Mesa Chairman and Chief Executive Jonathan Ornstein said.

Mesa's stock closed up 50 percent at 15 cents yesterday in regular trading after the order came out late in the trading session. The shares continued rising to 20 cents in after-hours trading.