Mesa Air Group Inc (MESA) 2002 Q3 法說會逐字稿

I would like to inform all

participants that you will be able to listen only to

the question and answer session of the conference call

and that today's call is being recorded at the request

of Mesa air group. I would now like to turn the

meeting over to Mr. Jonathan Ornstein, chairman and

chief executive officer. Thank you, sir. You may

begin.

Thank you, everyone out

there taking the time out of your busy day to join in

this third quarter earnings report. I would like to

take a moment to read the following statement. This

conference call will contain various forward-looking

statements made by management based on assumptions and

information given to management. We believe these are

reasonable, but we can give no assurance that these

are correct. Such statements are subject to certain

risks uncertainties and assumptions. One or more of

these risks or uncertainties materialize, actual

results may vary materially from those anticipated,

estimated or projected. The company does not intend

to update the statements made in this call prior to

the filing with the SEC. As you know, there's been

obviously with all the issues regarding corporate

responsibility, we take that very seriously here. I'd

like to start by saying that we have in fact done a

few things internally to further bolster our

compliance in terms of our audit committee and its

charter and again there are some things that we are

going to look at going forward as we have always tried

to be at Mesa ahead of the pack on a number of issues,

which is one that we will also look to try to set a

good example. I'd like to go through the call. We

felt we had a reasonably good quarter, especially with

the backdrop of what's happening in the rest of the

industry. We Came in at 19 cents per share. That's

after - prior to the impact of our strategic

investment as well as an award that - regarding our

litigation with the attorneys who are representing us

in the united litigation, which was, as most of you

know, settled some time ago.

I'd like to go through some of the other issues that

impacted the quarter and then be happy to answer any

questions that you may have. I have with me all of

our senior officers in the room, so if there's any

specific questions regarding finance or operations, or

planning, I have all those folks here able to answer

that as well.

Probably most importantly, we've continued our

regional jet expansion. We added two RJ's during the

quarter, two RJ's during July. We have 64 RJ's

currently in service. We have accepted delivery of

our first two CRJ 700's. This is the larger regional

jet that we intend to put into service with America

West as America West express. Those aircraft are

expected to enter revenue service in late September.

There has been a delay there. Primarily a result of a

work action strike at the Bombardier factory and I

think in fact that may have been helpful to us in it

gave us time to prepare and move forward. We had

hoped to put these into service about probably 45 days

earlier, but this is working out actually quite well.

We completed permanent financing for 10 of our

E.R.J. 145's. Six of the aircraft were previously

delivered and under interim financing. Two aircraft

delivered in July and two aircraft to be delivered in

August. Again, in this operating environment, that is

no small feet. We are pleased that our finance people

were able to put that together and allows us to

continue to expand our CRJ well our E.R.J. fleet.

Last quarter I think we mentioned we were going to be

aggressively pursuing essential air service as a way

to make sure that our 19 seat aircraft are employed

profitably. We are delighted that we can tell you

that we were awarded $6.7 million in new annual E.A.S.

subsidiary markets in Oklahoma, Texas and Arkansas.

We have a new man who joined the company, Scott Lyons,

who has specifically been dedicated to this task. The

four 1900's required to operate, these results will be

done by discontinuing other unprofitable routes in the

air system. There are for lack of better terms a

double whammy in regard to garnering this essential

air service, it puts us in a guaranteed profit but

takes us out of profits that had been marginal at best

and losing money. The award by the DOT brings it to

15 million. We pursue all E.A.S. markets as they

become available. Our operational performance

continues to be very strong. On time performance was

83.6% arrival within 15, which ranked us third when

ranked against all the other major carriers. I'd like

to thank all of our hard working folks out in the

field as well as the operational management people for

continuing to do an excellent job in making Mesa one

of the leaders in this area. We continued the

expansion of our frontier jet express operation,

increasing the number of R.J.'s to five. We are -

you know, I should say that there's been a somewhat

weak revenue environment. As you can imagine, this is

on a prorate business. Our results so far have been

approximately break even. That is a little less than

we had anticipated, but nonetheless I think given the

environment, I don't think that's anything to be too

terribly disappointed. We are also going to be

tweaking the schedule going forward. We have

announced that we're eliminating service in one market

and I think that we will be - that will lead to some

improvement there. We continue to work closely with

frontier and I think that that continues to offer some

opportunity for us as we go forward and certainly with

any improvement in their revenue environment, that

would be obviously very helpful. Despite the

difficult air environment, America West, closed the

quarter at a break even financial result. We think

that this is a significant improvement over last year

and we continue to work on improving those numbers,

primarily by pulling these 1900's from the money

losing operations into the government subsidized

E.A.S. market.

June 8, we keep a tight handle on our expenses. Our

G and A was done if you clued the Bruce Gilbert

settlement, our G and A was down 18% per A.S.M. We think

that's a good show for us that we can continue to

expand our operations with regional jets and

effectively keep our G and A flat and we continue that to

- we feel that we can continue to do that.

Maintenance was flat per A.S.M. Again, our fleet,

while, you know, we do have - obviously because we're

spending expensing things, you see bumps in the road

but that has been smoothed out and that will continue

for the remainder of the year.

On a negative note, C.C. air, our subsidiary in

Charlotte, continues to post unacceptable results and

I think this is important and I want to make sure that

folks understand that the pretax losses increased from

2.2 million in the second quarter to 4.7 million in

this quarter. So C.C. air lost $4.7 million and

10.6 million year to date. We are very disappointed,

despite the fact that the C.C. air pilots voted almost

75% in favor of a new contract, the contract remains

unsigned by Alpa international. We had hoped to be

able to expand C.C. air and include C.C. air

potentially in any new regional jet flying, which

clearly is the future. Unfortunately, without a cost

structure that makes the company competitive, U.S. air

is unwilling to give C.C. air additional

opportunities. We thought that what the pilots had

done was a very bold and brave move to garner some of

that flying and again we're disappointed that alpa has

not signed the new contract. I don't think this is

unusual. There have been a number of initiatives from

other carriers whereby alpa international has in fact

delayed or has not signed new contracts over the last

90 days. In particular, some of the things that are

going on at U.S. air right now. So we are very

disappointed that the company continues to lose money.

Again, this is turbo prop flying done under prorate.

And as a result, the company is reviewing all of its

options regarding minimizing and/or eliminating these

losses on a go-forward basis. I think that is very

important piece to consider when you do your analysis

that $4.7 million worth of losses were generated at a

very small subsidiary that currently is operating only

three aircraft.

the Bruce Gilbert, the total judgment was

$6.7 million. These folks were representing us at

united. Without going into a long story, there was an

issue as to whether or not how they calculated their

fees. We had reserved 4 million, there was an

additional charge of 1.7 million on an after tax basis

and that impacted that G and A line and our result.

Investment income, we had a loss this quarter. He

would like to point out that that was in fact due to

primarily our investment in U.S. air, which is, I had

mentioned before, has other strategic value to us, but

on year to date, I would mention that our net result

of our investment activities is profit of about

$800,000, which again given the market conditions and

the fact that we are basically involved in strategic

investments in our industry if particular, I think

that that is not a bad showing.

At the end of the quarter, - after the end of the

quarter, I want to mention also, we have repurchased

354,000 shares of Mesa airlines as part of our stock

repurchase plan. That was done after the end of this

quarter. At an average price of approximately 685.

We have about a million shares to be repurchased and

the company will in fact repurchase stock at times

when it feels it represents the company is trading

under value.

That's pretty much our commentary. Overall, I would

say that, you know, we feel that having made it

through these last few quarters has been no small

accomplishment. To be able to do so, keep our

earnings intact, we feel we are very pleased. We are

delighted with the work that our people in the field

have done, the support they have given us to continue

to make Mesa operationally as strong as it is. We

think that our strong financial position relative

obviously to the rest of the strife as well as this

kind of operational performance will open a number of

doors for us. As we have mentioned before, we are in

discussions with a number of carriers for additional

regional jet opportunities and we are looking to

diversify our portfolio of carriers for which we

operate. There's been a lot of discussion about

what's happening at U.S. air. You know, the fact

remains that we feel very positive about the fact that

America West in fact has received their government

financing. We think that U.S. air, with the unanimous

decision to preliminarily approve their loan

application, puts them in much stronger position. One

of the big issues with Mesa had been the quality of

its partners. I think I could make a regional

argument that with those loan subsidies, U.S. air and

America West are probably now significantly better off

than a number of other carriers as a result. So we

feel competent in our expansion plans with America

West. We feel confident that any expansion

opportunities we have with U.S. air, we would be - we

are well suited to participate in those. However, I

would say that we do feel that there are a number of

other opportunities that we also wish to pursue and

that the number of regional jets quite frankly is

finite and that we feel that as those opportunities

present themself, we will be looking at each one very

carefully to decide which is in the best long-term

interest of our company and our shareholders.

We also have been working closely with U.S. air, not

only in our position as shareholders but obviously

from the standpoint that their long-term viability is

extremely important to us and we have remained

committed and we have stated publicly and will state

publicly again that we remain committed to participate

to any extent that the company feels would be helpful.

We also have stated that we are interested in

participating potentially from a financial perspective

and have been in discussions with other financial

partners as well to do so if called upon.

With that, I'd like to open up to any questions that

you may have regarding our quarter and any other thing

about Mesa or the industry that we might be helpful 00:14:53 on.

Thank you. At this time if you would

like to ask a question, you may press star 1 on your

touch tone phone. You will be announced by name when

we are ready for your question. Our first question

comes from Michael linen Berg. Please state your

company name.

Hi. Mike Leninberg, Merrill Lynch.

Jonathan, good morning. I guess, just a couple

questions. With respect to C.C. air, you threw out

the number of how much the company lost in the last

quarter, you know, it's 4 million plus, and yet it's a

three aircraft operation. And I'm just trying to

figure out, you know, what you're actually losing per

passenger. I mean, are there - is the fact that you

have, you know, a portion of it parked, what's based

into that 4 million plus number, because that's

sizable given the fact that is true operation is

somewhat smaller?

Okay. The operation has

been down sized two, three aircraft. I'm going to ask

our CFO, rob stone, to just give you some specifics in

terms of what that 4.7 made and Peter Murnane has also

been involved.

Mike, in that number, there's about

1.9 million of costs associated with returning

aircraft back to lessors and paying for aircraft that

are just not being used, so if you look on a

normalized basis, the losses is about 2.8 million and

that is - so that has to be looked at on a run rate,

that's probably about right and that's really a

reflection of the cost of C.C. air versus the cost

elsewhere in the Mesa air group structure, so that's

what causes that differential.

And I think it's fair to say

we believe that, you know, again, we have downsized

the operation even further, those losses would be

decreased this quarter, but still any losses in our

mind are unacceptable and I think that, you know, this

is an issue that primarily regarding, you know, the

fact that we had hoped to get our cost structure down,

we feel that we had taken the right steps to do that,

but clearly a small operation has overhead associated

with it that can't be supported by three or four turbo

props and the whole goal at C.C. air was to put a cost

structure in place to allow the company to grow

significantly with regional jets. The pilots, like I

say, made a very bold move and supported a contract

that was in fact concessionary but would have provided

an opportunity for all of them to individually make

significantly more money, if they were flying the

larger equipment. In fact, if you look at it, their

pilots would have received in the neighborhood of 50%

pay increases if we could have expanded with regional

jets. Unfortunately, that contract is - it's still

sitting in - at Alpa international, it's unsigned,

and at this point we have - we've got to make some

hard decisions, which I think, you know, can you see

by these numbers, it's compelling that we do something

sooner rather than later.

I guess on a slightly different note,

the E.A.S. revenue, the 15 million, what sort of

pretax margin are you going to earn on that? I know

you're going from loss making market to profitable

one. You know, what should we expect as we model this

outgoing.

If I was in any other industry, I

would be embarrassed to tell you, but in the airline

business, I'm quite pleased to tell you we will make a

5% margin, which is what the government allows for.

The bottom line is that the swing is

going to be greater than that.

It will be much greater.

Lastly, Jonathan, on waiver, can you

update us? I know that there's open contracts out

there. You know, whether it's, you know, the Mesa air

Midwest pilots, mechanics, out there, you know, at

your company and maybe the dynamic going forward since

there are a lot of contracts that are opening up at

other regional carriers.

That's a fair enough

question. I think, first and foremost, obviously the

C.C. air issue is disappointing to us. We had a

contract ratified, 75% of the pilots, it was signed by

their local M.E.C. and then alpa international has

failed to follow through even though they publicly

stated that they supported the contract and then they

didn't sign it. So frankly, we're in a quandary is

that even if we get a contract done with our pilots,

does that necessarily mean it gets signed? We entered

section six negotiations with our pilots backs in

March, so it's obviously very early. As you know,

these contracts take generally upwards of two years.

We've only been in negotiations for what now, five or

six months. I think we made reasonable progress. You

know, I think that - I think people have begun to

realize that the strife is in fact much different than

it was a year ago. So I feel highly confident and I

can tell you in the proposals that have been handed

back and forth that I don't think anybody is looking

at ComAir as the model right now, but, you know, these

negotiations are long. They're often tough. But we

have worked very hard to develop I think what is a

good relationship with the rank and file abandon I

think - and I think most of our folks have

appreciated where this company has gone from four

years ago to where it is today and they also realize

that for them, you know, particularly in the pilot

rankings, for them to make more money, that's going to

happen as a result of growth at this company, not

because we can offer a people a 4, 5, or 6% wage

increase, but when they can go from being in the left

side of 1900 to the left side of a jet, then their

salary effectively doubles. Right now Mesa is very

fortunate that because of our growth plan, we're able

to upgrade our jet captains, in a shorter period,

sometimes three years, this compares to a situation at

C.C. air, the other extreme where they have first

officers who are upwards to ten years seniority. That

is the case at most of the other carriers that have

been able to grow the way we have, so we think that we

can continue to offer that package. We have explained

that in order to get that growth, we have to be

competitive, and we feel that most of our pilots

certainly understand that. You know, as demonstrated

by what happened at C.C. air. Again, I think that

what we have to make sure is whatever the will of the

pilots are is something that we can make happen

because that clearly has presented some difficulty to

us when you look at what's happened to C.C. air.

As far as other groups, we don't have any open

contracts that I'm aware of other than the C.C. air

flight attendants, which right now that number is

almost in single digits. And we have had some very

productive conversations with our flight attendants at

Mesa where we think that we are close to actually,

even though those negotiations don't open up for a

couple years, we have sat down with them and said that

we would - we would like to do some things that would

enhance their contract in the short term in return for

some longer term extension and we feel that we are

very close to getting that done.

I don't believe that we have any other mechanic

contracts open at this time. Okay. Excuse me. I'm

told that the C.C. air pilot - C.C. air mechanics

contract is open, but again that number is one that is

literally in single digits at this time, so you know,

I don't think that either of those are going to

present any considerable difficulties for us. That

will certainly depend again on what direction we take

with C.C. air.

Okay. Thanks for the run down.

Thank you. Our next question comes

from Jim parker. You may ask your question. Please

state your company name.

Jim parker with Raymond James.

Jonathan, a couple of questions. One is your

certificate operates to 700. Is that on target?

We recently put Mike Feshta,

who was the senior vice president of operations at

Mesa, one of our long-time Mesa operational people as

president. I think that we are very much on target

for the September date. Again, the fact that we got a

little bit of a brief respite as a result of the you

can strike at Bombardier was helpful. As you can

imagine, when you're dealing with the government and

F.A.A., things take longer, especially in this

environment, so having extra time worked out quite

well.

With regard to the shares that you own

in U.S. airways, what if they go Chapter 11, how much

is that investment?

Well, we have not disclosed

to what extent our investment is in terms of how many

shares we own specifically, but I will tell you that

our exposure at this time would be measured - is much

smaller than it was as a result of a number of

different items, including, for example, hedging

activities, so we don't feel our exposure at this

point is significant.

Okay. Are there any payments that

U.S. airways and America West owe you that are not

timely, that they haven't paid? Are they behind on

any of the cash payments to you guys?

On both contracts, there

always are issues that they're behind. The trueups

that we go through and those have to be analyzed. In

terms of behind, we have had a couple - as you know,

we took a significant reserve last quarter, was it the

quarter before last - September quarter, and we feel

we are - I would say probably adequate and you know,

I think our gut feeling is probably overreserves in

terms of where we were with U.S. air and America West,

but on a going forward basis, everything is in fact

going as it should be going.

Okay. Thanks.

Thank you. Jim Higgins, state your

question.

Jim Higgins with Credit suites First

Boston. On the minority interest issue, is that from

U.S. airways the numbers that showed up in your

report?

Basically, Mesa owns 50% of

the you fly partnership, so therefore we report the

entire you fly and Mesa is responsible for half of it.

Because we own half, it is technically a subsidiary is

I guess the accounting treatment of it.

And you fly has to take the - has to

run part of U.S. airways losses through its income

statement because it's an investment vehicle? I mean,

what's the accounting logic there?

Partnership. Our executive

VP who has been working on this will take a second to

explain this.

It's a partnership, but like an

investment vehicle, you mark to market every month and

Mesa's ownership is 50%. From an accounting

standpoint, we consolidate 100% and pull out, if you

will, the nonownership position through the minority

interest.

Okay. So I guess what I was missing

was that it was a partnership and therefore you don't

have the flow-through. Thank you very much.

Sure.

Our next question comes from alex

brand.

CBNC capital markets. Thanks. You

said, Jonathan, that - we know you're delayed on the

700 schedule. Can you update us on what you think the

delivery schedule is going to look like for the

balance of the year?

Maybe I could have someone

here do that because I'm not familiar.

From an in service standpoint,

we'll have two airplanes going to service before the

end of September, early October, and then really for

the rest of the year, it's about one a month.

On the 700. The 900 will begin

in service probably around May, and that becomes more

like one and a half a month.

Between the two types?

Well, one and a half on the 900.

So it's two to two and a half from May on. Did you

get that?

Yes. Okay. Your E.A.S. business is

now or it will be 15 million.

Right.

Are you - are you going to pursue a

lot more of that? As I recall, there's a total of

about 120 million available there.

Yeah. That's correct.

There's about 120 million. You can see we are very

much behind the curve and given Mesa's position in

terms of our operations, I mean, we believe we are the

lowest cost operator of 19-seat equipment. We feel

that as a competitor, we can be very strong as a

result of that cut our cost structure on the 1900.

And that we are in fact, you know, one - you look at

the other carriers that you flying in E.A.S., we are

financially obviously much larger and have the ability

to go in and I think talk to the communities, explain

the value of having someone like Mesa who has been in

the business, this year we're celebrating our

20th anniversary, the liquidity that we have, regional

jets and we can upgrade their service if it calls for.

So we've become a very effective competitor. Our

problem is in the past we've ignored it and I think

with Scott now and Peter and our financial department

now focusing so much on this, I think that we're in

good shape to garner more of that business. Again,

when we take - we have the 1900's. They're here. We

have to deal with them. You know, it was very

expensive to get rid of the ones we did. We feel now

that there's enough opportunity that we can put all of

our 1900's to work and with America West breaking

even, that is carrying a lot of cost in terms of

overhead, so certainly contributing to our

profitability, and going forward we think we can get

air Midwest to the point of being profitable. I think

we're just - we are just basically seeing the tip of

the iceberg in terms of what we can do there. If we

can put call it 10 more aircraft into essential air

service, that really impacts our numbers favorably

going forward.

Okay. You mentioned on maintenance

that it was flat on an A.M.S. basis, which is true,

but it did flip up and I'm not sure what I caught what

your thoughts were on that, if there's anything there.

Because of the fact that

there's just a question of timing, you know, you have

a couple different more engine checks, more seat

checks, we don't see anything strange about that and

we don't see anything odd going forward. It's just,

you know, this quarter was up a little bit compared to

last quarter because it's a timing, but essentially we

think it will be reasonably flat going forward.

I'll point out I mentioned earlier

the C.C. air had one time charges, about a million and

a half of that is return costs that end up in the

maintenance line, so that does impact your overall

number.

Okay. Great. Fair enough.

Thank you. Our next question comes

from Jim Altshall, you may ask your question.

Good morning. Aviation advisory

service. A couple of questions, please. First of

all, can you tell us how did you finance these 10

E.R.J.'s, were they long term leverage leases or by

some other means.

Long term leverage lease, Jim.

Okay. Do you think the conditions in

the market are improving, going to be easier to

finance the planes going forward?

Well, on our 200's - well, on the

smaller regional jets, we're basically fully financed

on all of them. On our larger, we've got financing

for the first 20 of 40, so we've pushed out our

requirement of being in the market by quite some time.

There has been some very minor improvement in the

market, but it is still a very difficult market,

particularly with what is going on with the stock

market and the general, you know, views on the

economy.

Okay. Apart - after the two E.R.J.'s

are coming in August, do you have any more coming this

calendar year?

No.

Okay. And the E.A.S. award you got,

the 7 million, were those communities served by

another operator or is this a new service?

They were served by another

operator previously.

Why did this back available? Were

these awards put up for bid annually.

Every two years and when

they become available, we are now bidding. We had not

bid on these markets.

Okay. Now are there other potential

opportunities that will be available in the balance of

this calendar year?

Yes. There's actually quite

a few.

Okay. And one other question, was -

do you think that U.S. airways is decision to enter

into a co-chair with midway, does that relate - I

mean, does that have anything to do with the problems

at C.C. air?

No. I thought that the deal

to do with med way was clever. They had an operator

that really had very few choices and they ended up

doing an arrangement like ours in terms of cost plus

and I think that that gave them some real leverage to

negotiate a very good deal. So it really didn't have

anything to do with C.C. air. The fact is that U.S.

air is a large appetite for regional jets, they're

close to getting a deal done. Although I think that

deal with their pilots remains unsigned at this point.

And I think that - so there's still some contingency

in all of these deals, but I don't think it had

anything to do with C.C. air and I think it may have

more to do with the fact that both transstate and

Chitokowitz, other outside carriers, their pilots have

chosen not to participate in the jets for jobs concept

that has been floated by the U.S. air pilots, whereby

U.S. air pilots would get the Captain position and the

regional would have to accommodate them. We have not

- our pilots have not said that. Our pilots have

been sort of proponents of it, so we are - we still

stand ready to act if U.S. air would like us to. I

think the bigger issue is that in our discussions with

U.S. air, we have been quite Frank with them saying

that there are in fact only so many jets available.

Even under the most aggressive circumstance, I don't

think that we could look to add more than potentially

one airplane, you know, say every other month, which,

if you've got 400 jet positions to fill, you can

imagine they're not going to wait around for 10 years

for us to do that, so I think that they just have

other requirements and then, you know, finding someone

like midway, which again, not a lot of alternatives

for that company and David Seigel at U.S. air worked

with Bob Ferguson when we were all together at

Continental, so that made that deal something quick

and easy to do. I don't think it had anything to do

with C.C. air. It may have something to do with the

fact that there are so many R.J.'s available.

Thank you very much for all this

information.

Sure.

Thank you. Dan McKenzie, you may ask

your question. Please state your company name.

Hi I'm with Salomon Smith Barney. On

the subject of midway air, was Mesa surprised to get

that business, were you even considering going after

or bidding that business?

No. Not in the least. We

have had literally daily conversations with U.S. air.

We are the only U.S. carrier that has the opportunity

potentially to participate in the jets for jobs deal.

They have quite a bit going on, and you know, this

situation with midway was something that had to go to

the forefront as you can imagine, given midway's

rather precarious financial situation. They have told

us that while they are going to be placing the bulk of

their jets internally, and I think that was almost

entirely a result of their pilot negotiations. Their

pilots did contribute pretty significantly and I

think, you know, in terms of the concessions that they

offered, which allowed them to get the unanimous

support of the NTSB, so I think those are all part of

the negotiations and again from our standpoint, what

we wanted to see was U.S. air held think. Whether

that means we are flying regional jets or not,

additional regional jets, we're very pleased with the

results of the 32 jets we have and we just would like

to see those remain in place.

And, again, we only have - we only have the ability

to add jets, as I said, you know, at - you know, at

the rate of ten, so their demands just exceed anything

that I think we could do, and I believe that you know,

that would hold true with the other operators as well,

just because deliveries are what they are. So, you

know, no, we certainly weren't surprised. They had

been very open with the fact that they were talking to

other operators and, you know, I thought midway would

in fact be a good choice given midway's financial

situation.

You know, we hope to expand our operations with U.S.

air, but again, you know, there's a lot of

opportunities out there and the opportunity to

diversify, our risk, is not unattractive to us.

Okay. Great. Regarding the four

additional E.R.J.'s coming in, you were contracted for

32, you have 36 on order, have you found a home for

those yet?

Well, we have some

short-term aircraft on right now that are with

Bombardier and we're trying to determine whether we'll

renew the leases or not. It's going to be dependent

upon the continued expansion at frontier. It's

dependent upon what we do at America West. We're

talking about potentially dropping some 200 or larger

aircraft in the America West system. We're trying to

free up some C.R.J.'s and potentially some E.R.J.'s

for either additional expansion with U.S. air or as I

mentioned, in the conversations we're having with

other carriers, so we're just - we'd just like to

have three or four sort of out there that we would

like to offer because you can't - what's the

expression, you can't tell from an empty shell and I

think that all of the discussions that we're having,

everybody seems to be anxious to try to do something

sooner rather than later, so we're sort of warehousing

a few extra aircraft so we can have something to offer

to some of the other people we're talking to right

now.

Thanks. Last question. Mesa taking

the lead on certifying its financial statements, are

you planning on meeting the August 14 dead lines?

I'm looking at my legal

counsel who is sort of quizzically looking back at me.

We will meet all the requirements

that are promulgated. At this point I don't think we

have a requirement to do that.

Did you hear that response?

Thanks very much.

Thank you. I would like to remind

the participants, if you do have a question, to please

press star 1 on your touch tone phone. Our next

question comes from Robert Ashcroft, you may ask your

question.

UBS Warburg. National mediation board

declaring single carrier status for Mesa and C.C. air.

I'm just wondering what that means practically and is

there any danger that freedom gets dragged into that?

I would like your comments on that, please.

Sure. The NNB single

carrier means that the Mesa pilots that are currently

flying are going to be represented by one bargaining

agent, and let me explain the history of why that even

occurs. The C.C. air pilots approximately a year ago

had begun a campaign to form a C.C. air pilots

association and had petitioned the NNB to have

potentially new representation. About two weeks after

that petition occurred, Alpa filed the single carrier

status which effectively would eliminate the C.C. air

pilots' ability to do that. With the hearing, which I

would like to state is in fact being appealed, because

we do not feel that the decision was accurate, it's

correct, but what that would do then is if - at such

time as the C.C. air pilot comes under negotiations

again, then those negotiations would be conducted by a

joint master executive council, which would be

controlled by the Mesa pilots and not the C.C. air

pilots. So the effect is one that we don't find

desirable. I would say that the C.C. air pilots don't

find desirable, but one that alpa felt was in their

interest obviously in order to be able to better

control what's happening at all these carriers.

You know, our issue has been that without a new

contract at C.C. air, and a new cost structure, the

company can't expand. We do not however think that

having some lower costs at C.C. air, we were going to

be able to bring that company to profitability with

half a dozen turbo props because we were able to shave

off a few dollars off the rates, but rather that we

could put a cost structure in place that would be

attractive to U.S. air, who would then grant some

flying to C.C. air, something that U.S. air had not

done in years.

In terms of what would happen if freedom, their

petition did include freedom but that that motion,

part of it was denied because freedom doesn't exist,

and I will tell that you one, the entire decision was

incorrect and that's why we're appealing it and that

if we felt that somehow that decision would in any way

negatively impact freedom, I think we would then look

at potentially a different corporate structure for

freedom so that well be able to continue to

appropriate those aircraft properly. Our concern

obviously is that these aircraft, the larger regional

jets, are a hot issue among the various pilot groups

and as a result we want to make sure that Mesa has the

- enjoys the opportunity it has with its America West

contract to operate those aircraft profit profitably.

America West is anxious to see the aircraft in service

as are we. Certainly our pilots. Freedom allows our

pilots to do so. We have had more than adequate in

terms of pilots bidding into the freedom system to fly

the aircraft, and I think that, you know, our biggest

issue is just making sure that the interest of both

our company and our pilots is upheld and we are

somewhat concerned that there seems to appear to be a

reasonable conflict of interest in regards to that in

terms of what alpa's view is about larger aircraft, so

in a word, yes, there is a possibility that could

happen in terms of freedom, but that we would take the

steps appropriate as to ensure our ability to have the

benefits that we've derived under our contract with

America West

Including possibly spinning off then?

I think that that would be a

fair assessment, correct.

Thank you. At this time I am showing

no further questions. Again, if you would like to ask

a question, please press star 1 on your touch tone

phone. At this time I show no further questions.

Okay. Again, I would like

to thank everybody for taking the time to hear our

story. We continue to feel that in spite of what has

been a very difficult environment, the company has

performed reasonably well. We'd like to think that

we're starting to deliver on some of the promise that

is we've made in regards to continuing to grow our jet

business, fixing our 1900 problem which I think we've

done a remarkable problem getting our America West

operation back to profit in a very difficult

environment.

I want to mention the fact that our C.C. air

subsidiary, because it was downsized, operating with a

small number of aircraft, had significant losses this

quarter, I think most of you out there know me well

enough to know that that will not continue. It's just

very important that we get all of our subsidiaries

operating profitably, which we intend to do, and that

we think that going forward, our numbers will be

impacted accordingly.

There are clearly challenges ahead. The revenue

environment is still weak. We do not see any

tremendous signs of improvement. We are coming out of

the stronger time of the year for travel and into the

holiday - into the, you know, the fall and winter,

which will obviously present its own challenges. We

clearly have issues that we need to resolve with alpa.

We do feel however that all those issues are one that

normal course of negotiations would take time, will be

resolved. We think that that will be helped by the

fact that we have developed I think a very strong and

positive relationship with our work force, and over

time, I think all these things will come to fruition

and continue to provide Mesa with the kind of growth

and opportunities that we worked so hard for over the

last four years. So with that, again I'd like to

thank everybody and wish you all the best for this

summer. Thank you very much.