Mesa stock plunges amid financial woes

The company's CEO says it remains committed to Hawaii

Mesa Air Group Inc.'s stock plunged 27 percent to a 19-year low yesterday amid bankruptcy speculation and mounting financial problems.

Jonathan Ornstein, chairman and chief executive of Mesa, declined to comment on the prospect of a bankruptcy filing, but said Mesa remains committed to its go! interisland operation. "We believe we will work through these issues," he said yesterday.

Ironically, bankrupt Aloha Airlines has a vested interest in Mesa remaining financially viable, because its creditors hope to collect damages from its lawsuit against the Phoenix-based carrier over go!'s entry into the Hawaii market.

Star-Bulletin Go! is currently using six 50-seat CRJ-200s, with a seventh aircraft available as a spare. The airline boosted its daily flights to 94 from 54 after Aloha Airlines shut down but since has pulled back.

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The company's shares fell 27.3 percent, or 36 cents, to 96 cents and are now down about 88 percent over the last year. It was the lowest close since April 19, 1989, when Mesa's stock ended at 92 cents.

Jonathan Ornstein, chairman and chief executive of Mesa, declined to comment on the prospect of a bankruptcy filing.

"It's business as usual," he said.

Ornstein said go!'s bookings have increased due to Aloha Airlines' shutdown of passenger operations and that Mesa "will monitor demand and determine what level of service is appropriate."

"Following Aloha's March 31 shutdown, go! boosted its daily flights to 94 from 54 but since has pulled back a few of those flights, Ornstein said. Go! is currently using six 50-seat CRJ-200s, with a seventh aircraft available as a spare.

"Larger aircraft are more efficient and that, in itself, makes more sense," Ornstein said. "But we also want to be careful that we don't get overambitious and continue to match capacity and demand."

"He added, "We remain confident in the long-term viability in the Hawaii market and we remain committed to Hawaii."

From its start of service in June 2006 through the end of 2007, go! lost more than $26 million.

Ironically, bankrupt Aloha Airlines now has an interest in rooting for Mesa remaining financially viable, because of a lawsuit it has filed against the Phoenix-based carrier. Aloha is hoping to collect a large damage award from Mesa for allegedly using predatory pricing and misusing confidential information obtained as a potential investor during Aloha's 2004 bankruptcy.

If Mesa were to file for bankruptcy, Aloha would become an unsecured creditor for any damages assessed against Mesa, and would have to wait in line for payment behind secured creditors and administrative claims.

"I think it's fair to say were Mesa to file for bankruptcy, it would most definitely impact on the collectibility on any judgment that Aloha expects to get against it," Aloha attorney Paul Singerman said.

In October, Hawaiian won $80 million in damages from Mesa in a separate lawsuit with some of the same claims involving Hawaiian's 2003 bankruptcy. Hawaiian's lawsuit did not include predatory pricing.

Mesa is appealing to federal District Court, with a trial scheduled to begin next month, but had to put up a $90 million bond to do so.

That means that unlike Aloha, Hawaiian's damages award -- if it prevails on appeal -- is guaranteed by Federal Insurance Co., a Chubb Corp. subsidiary.

Speculation about a possible Mesa bankruptcy filing has picked up over the last week after the company suffered several setbacks.

Those problems started last week when Delta Air Lines Inc. said it was dropping a Delta Connection flight agreement with Mesa subsidiary Freedom Airlines Inc. that affects 20 percent of Mesa's aircraft and $20 million in revenue a month. Mesa has since sued Delta to stop the move.

Two days after the Delta Connection announcement, Mesa disclosed that miles flown by paying passengers on all of its systemwide routes fell 17 percent in March from a year earlier.

Then on Monday, Mesa said it will ask shareholders next month to let the company issue up to $37.8 million in common stock to pay off debt, or else "business and operations could be materially adversely affected." The new stock would be worth more than the $25.8 million in market capitalization of Mesa at the end of the trading day yesterday.

Mesa also said In the proxy that if the Delta agreement is terminated, the company could not predict the impact upon its operations, revenue, employees or "ability in the future to operate as a going concern."

"Ornstein said yesterday, "Clearly we have our challenges, but we've seen plenty of challenges in our 25-year history. We believe we will work through these issues."