Mesa lost $68 million in quarter

Mesa Air Group Inc., stung by an adverse ruling in the Hawaiian Airlines litigation, posted a net loss of $68.2 million in its fiscal fourth quarter.

The parent company of go! said yesterday it took an $86.9 million pre-tax charge due to the court's ruling for $80 million in damages, plus interest and legal fees. Mesa also said it is shutting down its Air Midwest subsidiary due to "little prospect of future profitability" and took a $6 million loss from discontinued operations.

Mesa had a loss per share during the quarter of $2.37 a share compared with a gain of 12 cents a share a year earlier when Mesa had a profit of $4.8 million.

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Mesa Air Group Inc., whose entry in the interisland market with go! in June 2006 produced a maelstrom of legal battles and fare wars, said yesterday it lost $68.2 million in its fiscal fourth quarter largely related to a judge's decision against it in the Hawaiian Airlines litigation.

The Phoenix-based carrier, which twice delayed its latest financial results to review estimates and reserves, took an $86.9 million pre-tax charge due to the Hawaiian ruling.

Mesa's cash balance dipped slightly to $208.6 million -- down from $209.9 million at the end of the third quarter and $238.8 million a year earlier -- but that was before posting a $90 million bond in November in connection with its appeal of federal Bankruptcy Judge Robert Faris' decision.

For the fiscal year ended Sept. 30, Mesa lost $81.6 million.

Mesa also said yesterday it is shutting down its Air Midwest subsidiary due to "little prospect of future profitability" after scrapping plans to find a buyer. Mesa took a $6 million loss from discontinued operations and said the unit will cease operations by the end of the year.

"We are certainly very disappointed with our 2007 earnings results which have been adversely impacted by the judgment rendered in the Hawaiian Airlines litigation," Mesa Chairman and Chief Executive Jonathan Ornstein said. "We believe the judge was wrong and we believe an appellate court will ultimately find the sanctions and the judgment should be set aside."

On Oct. 30, Faris ordered Mesa to pay Hawaiian $80 million in damages, plus interest and legal fees, for misusing confidential information obtained as a potential investor during Hawaiian's bankruptcy. He also ruled that Mesa Chief Financial Officer Peter Murnane, since fired by the company, willfully destroyed computer evidence.

Faris later ordered Mesa to put up a $90 million bond to cover its financial obligation for one year while the airline appeals Faris' decision.

"We faced a setback with the Hawaiian judgment, not just in the loss but with the size of the loss which was not anticipated by anyone," Ornstein said on a conference call. "We clearly need to focus on operations, we continue to be cash-flow positive and we'll continue to look for opportunities as they come to us."

Despite the headwinds faced by go!, Mesa said go!'s load factor, or percentage of seats filled, in the fourth quarter was 74 percent -- up almost six points from the year-earlier period. Mesa said go!'s frequent-flier membership grew by 20 percent in the fourth quarter after almost doubling in the third quarter.

Mesa, which doesn't break out numbers for go!, said revenue for the overall company fell 6 percent during the quarter to $327.8 million from $348.8 million a year earlier after reducing the aircraft it had in service. For the year, revenue rose 1 percent to $1.3 billion.

The loss per share during the quarter was $2.37 versus a gain of 12 cents a share a year earlier when Mesa had profits of $4.8 million. For the year, Mesa lost $2.63 per share versus a gain of 84 cents a share when it had earnings of $34 million.

Despite the "challenging" quarter, Ornstein said Mesa will be able to meet all its financial requirements and pointed out that Mesa had $16 million in positive cash flow during the quarter.

He also said that Mesa has about $100 million in unencumbered spare parts and is looking at potential opportunities in that area.

Ornstein said that going into Hawaii was still the right thing for Mesa to do.

"Whenever you lose a court case for $80 million, it's hard not to say you have a regret," Ornstein said. "But do I question our strategy, or our long-term goals, or our ability to achieve those goals -- no."