Mesa Air Group Inc (MESA) 2003 Q4 法說會逐字稿

Good afternoon everyone and welcome to the Mesa 4th quarter earnings conference call.

This conference is being recorded.

If you have any objections, you may disconnect at this time.

I would like to introduce your host for today's call, Mr. Jonathan Ornstein, CEO and Chairman.

Mr. Ornstein, you may begin.

Hi, everybody.

Thank you very much for taking time out of your busy day.

We waited a little bit because I understand we have quite a few people on the call and we certainly appreciate your interest in our company.

I'd like to start by saying that this conference call will contain various forward-looking statements that are based on management beliefs as well as assumptions made by and currently available to management.

Although the company believes its expectations reflected in such statements are reasonable, it can give no assurance that such statements can be correct.

Such statements are subject to risks and uncertainties and assumption.

I know that comes a surprise to everyone in this airline industry.

Should one or more of these uncertainties materialize or should underlying assumption be incorrect, results may be differ materially from those anticipated, estimated or projected.

The company does not intend to update these forward-looking statements made in this call prior to the next filing with the Securities and Exchange Commission.

So with that done we'd like to dive into our results for the quarter.

I think we had a pretty good quarter by, at least, our standards.

We continue to see the results of our focus on executing and expanding our business model, which as you know is based on the revenue guarantee coshare relationships, that we value so highly, with our major airline partners serving hub networks around the country.

In fact, I think I'd like to point out one item right away.

To the best of my knowledge, and at least over the last couple of years that we've went back and checked but having been with Mesa, as you know, off and on since 1988, I think our margins this quarter were the highest pretax operating margins that we've had in the company's history.

Again, we only went back and looked for two years but to the best of my knowledge I think that's a true statement.

Continued regional jet growth during the quarter, we delivered and added to our fleet nine regional jets bringing the total at the end of the quarter to 96.

That includes deliveries of two CRJ 900s, four CRJ 700s and three CRJ 200s, which we picked up in the used aircraft market.

Subsequent to the quarter end, we delivered two additional CRJ 900s and now have ninety eight aircraft in the complete in the fleet.

That comprises seventy five 50-seaters, fifteen 7 C-seaters and eight 86-seat CRJ 900s.

For the remainder of the quarter we expect to deliver one additional CRJ 900, four ERJ 145s, which will complete our aircraft order from Embraer Air.

The second of the ERJs will be delivered in December and will be Mesa's 100th regional jet, which I think is certainly something we're going to take notice of here within the company, especially in light of the fact that just five years ago the company had four RJs on the property flying out of [INAUDIBLE] Field in Texas.

We'd also like to note over the last six months we've taken on average 3.5 aircrafts per month.

We feel very comfortable in the ability of our operational people, who I believe are certainly among the best if not the best in the industry, to meet the challenges posed by our growth plan.

We have two simulators now operating here full-time in Phoenix in our training center out at ASU.

And we've done a terrific job across the company to handle the growth.

We have hired 537 new employees this quarter, which I think is a testament to the folks in our training department, and that includes 150 pilots which have come from all across the country, from our pilot training programs as well as Jet for Job pilots as well as jet for job pilots who have brought a much appreciated level of experience to the company.

At current, I believe we have almost 270 pilots in training, and I can tell you that the results that we're seeing have been excellent and they continue to do just a wonderful job meeting our growth requirements.

We have expanded and diversified our partnership relationships.

We recently amended our revenue guarantee MOU with United Airlines.

That added ten additional 50-seat aircraft.

That brings the total number of firm RJs under contract with United to 45, twenty 70-seat aircraft and twenty five 50-seat aircraft.

We currently have six Dash 8, one CRJ 200 and five CRJ 700 in service with United.

So you can see we have quite a ways to go in terms of our growth with United.

United has indicated that they are interested in up gauging some of those aircraft so we feel there's continued opportunity there for additional revenue expansion.

The first five 700s are being transitioned from America West system and ten more being put into service between December and April.

The five remaining firms, 70-seat aircraft are currently scheduled for service in 2005.

The first 50-seat aircraft was placed in service in November and four more will be flying in January.

Fifteen of the remaining twenty 50-seat RJs are expected to be placed in service in 2004 and we are working on sourcing those aircraft.

However, I think it's fair to say that those plans may change in we in fact do, and United agrees, and they've expressed an interest in up gauging those 50-seat to the 70-seat air craft.

We also have six Dash 8 aircraft currently flying under revenue guarantee contract and expect to add the four remaining in the spring to be ready for next summer's busy season.

We continue to meet our commitments under our U.S.

Airways agreement, delivering three aircrafts in September, bringing the number of 50-seat aircraft to 52.

In addition, we amended the agreement to increased the number of 50-seat aircraft from 52 to 56.

We continued discussions on increasing the number of 50-seat aircraft, and I believe we'll have an agreement shortly, and I mean shortly, potentially by the end of this week, for a small expansion of aircraft that will have been part of the fallout of the Midway bankruptcy and I think we will be adding at least another three aircraft into the U.S.

Air operations and agreement to add those three aircraft, and I think that agreement will be within, literally, the next day or two.

We're also continuing discussions with U.S.

Airways regarding our letter of intent on twenty five CRJ 700 aircraft.

There is an issue there, we're trying to figure out the delivery schedules that are doable for us in terms of all of our growth, putting the financing packages together, Bombardier is working diligently to do that.

We don't want to make a committment without that.

Also you know that U.S.

Air has aircraft, CRJ 700 aircraft, and we're trying to figure out if there's ways we can work together to make those deliveries happen as quickly and smoothly as possible.

We amended our America West agreement to eliminate the CRJ 700s and add thirteen additional CRJ 900s.

As we mentioned before, those aircraft will be transitioned to United over the next several months, and the CRJ 900 deliveries occur or we expect the incremental 900s to be placed in service beginning later this year.

In addition, America West has an option for twelve CRJ 900s beyond that order, and again, we're working closely with them to satisfy their requirements in terms of regional jets.

I will say, one side note is the CRJ 900 has proven to be a very reliable, highly effective and very cost-effective aircraft and works very well in the lower yielding hub environment here in Phoenix.

We have financing in place for four additional CRJ 145 deliveries scheduled in December.

We currently have twelve aircraft on interim financing with Bombardier.

We feel we're beginning to see good trends in terms of aircraft financing.

In fact, we feel that the issues that may have been raised in the past, we think the worst is certainly behind us.

There are also aspects of our agreement with Bombardier that help us in terms of the financing that we feel will put us in a position that we have never not taken delivery of aircraft for financing, we see no reason to believe that will ever be the case so we're beginning to have, certainly, more confidence going forward in terms of our aircraft delivery positions and we hope to have some news out on that shortly, but we do feel that going through next year that we can count on the aircraft that we have ordered and that we're going to move forward with all the deliveries.

The one sort of sad note for the quarter continues to be our losses on the 1900 business, which is the prorate business.

It's one of the reasons why we are so strongly, you know, feel that the revenue guarantee model that we've implemented with our regional jets in the Dash 8 aircraft is the way to go.

During the quarter, in spite of the fact that we have continued to expand our essential air service market, the loss was approximately 2.8 million on a pretax basis.

I would note that approximately 1.1 million of that were one-time costs related to the transition of the dash 8 out of the Bahamas and the 1900s into the Bahamas.

There was a delay there as a result of some governmental regulation issues becoming a flag carrier for Air Midwest became a little bit more of a process than we had initially anticipated and there was also about $400,000 in costs related to some surplus aircraft.

So while the number wasn't quite as bad as that 2.8 million, certainly it is not yet in the black and has been a drag and continues to be a drag.

To that end, we have seven aircraft at that that are on lease.

They are our expensive aircraft.

I believe the leases run between 32 and $35,000 a month, which is considerably more than, three times the cost of the other aircraft.

Those aircraft leases run out in December of '04.

Those aircraft are now or are planned to be, excuse me, December of '04, excuse me, next December, those aircraft are now or are planned to be excess of our requirements and we are if in fact considering parking those aircrafts and taking a one-time charge, which would result in about a $2.5 million charge, and I think that would be monies that would be, effectively come to the bottom line because they are aircraft that are currently or the plan is that they will be excess to our requirements.

Again, that is something we have finalized, something we are in fact considering.

These 1900s have been something of a difficult aircraft for us, lots of reasons, we've all gone over why, but nonetheless, we are now down with those seven aircraft out no later than December of 2004, we'll be down to thirty five aircraft, and it now represents, I believe, something less than 10% of our revenue, and that number of course will continue to decline this year as we both downsize that operation at the same time continue to add the regional jets at the rapid rate that we are doing.

Our ASMs for 2004 will be a function of the final delivery schedules for both U.S.

Air and United as well as America West.

Based on what we have currently contracted for, we are projecting ASMs of approximately 7.1 billion or roughly a 60% increase over 2003.

As all of the situations become clearer we can give you a better update.

As far as earnings guidance, as you know, always very tricky.

This is an industry that is always full of surprises.

But based on what we know today, we are comfortable with the current first call earnings range for the year and as you can see, that we feel that our business model is one that provides us with the consistency that we can make that statement and feel comfortable doing so.

Of course, there are always variables, but none the less, we think given the industry, the business model that we have chosen is probably best suited to eliminate as many variables as possible.

I'd like to also point out that the company has taken some major steps towards building its infrastructure.

Our IS department, our training department, human resources, all have spooled up and again have done just a magnificent job handling the growth that we've had.

Our operational people have been excellent.

Our maintenance department is really come on.

We've opened up a new maintenance base in Tucson to handle the growth here in Phoenix.

I think that our East Coast people who operate out there far away from headquarters have done a terrific job managing that business, [INAUDIBLE] on the East Coast, our chief pilots and maintenance directors have done a tremendous job servicing our U.S.

Air operation.

And certainly I think that we are very thankful for the work done by all of our employees, in particular, our company employee leaders all of whom have selectively come together and help make Mesa the lowest cost regional care, but one that provides our people, with we think, an outstanding opportunity for their careers to go and the job security that is so sought after in this industry and so rarely found.

There are very few companies that have found the balance that I think we hope that we have and of course, you know, that is a result of the fact that you're our people have basically bought into our strategy and for that we are incredibly thankful.

With that, I'm happy to answer any questions.

As folks can imagine, there is one topic that I am somewhat limited as far as what I can discuss.

I will try to answer those questions as best as possible and that of course is in our current plan to acquire Atlanta Coast.

So with that, if anyone would like to ask any questions, please feel free to do so and we'll answer them to the best of our ability.

Thank you.

At this time we are ready to begin the question-and-answer session.

If you would like to ask a question, please press star 1.

You will be announced prior to asking your question.

To withdraw the question, please press star 2.

Once again, to ask a question press star 1.

Our first question from Ray Needle of Blaylock Partners.

You may ask your question.

Yeah Jonathan, good quarter.

Thank you very much.

I guess that's my first question.

I'm trying to look at our estimate versus what you did.

It looked like your ASM growth was a lot higher than what we thought.

Were there planes that came in early that we weren't expecting or how did you get that ASM growth up so much?

Peter Murnane is going to help me on that.

Ray, the only thing I can think of is maybe some of those additional Kendall 50-seaters that are flying for U.S.

Airways may not have been in your model.

I think also, we did have an increase in stage length and the 700s and 900s both are flying on average somewhat longer stage length.

As we shift operation, not shift but we grow the West Coast operation that generally has longer stage length, which may have contributed to the ASM growth.

O.k., Jonathan you had said in the conference and before that you are seeing some easing in the financing for regional jets.

What do you attribute that to?

Is it an improving economy or the financiers becoming a little bit more comfortable financing RJs or is it a big change we are seeing or is it just a minor change?

No.

In fact, I think it's a big change.

I think it's being driven by the general consensus that things are getting better and in particular things are getting much better with our partner, America West, where a lot of the aircraft is going.

Our financial situation continues to improve.

As I mentioned before, the pretax operating margins at Mesa were excellent.

This number is fully diluted.

Remember, we've got the convert out there now, so if it hadn't been for the convert, you can see what the numbers would have been.

I think that we're seeing some fundamental changes.

We're in the envious position that Rob Stone was telling me that we may actually have competing bids now for our financing and we do have certain financial arrangements with our manufacturers that are very helpful to us and we think that ultimately we feel that while certainly it's not an area that we feel it without risk, it certainly has far less risk than we may have thought 60 days ago.

Without addressing the Atlanta Coast specifically, what's your overall view of the regional industry?

Are we going to start seeing a lot of consolidation in this area, do you think?

A lot of people have thought that.

You have a mix now of carriers that are owned by the major carriers which have now fully been spun off after everyone acquired them.

The part of the problem is there's just not that many carriers out there to merge or acquire.

I think it's the wholly owned carriers, and I understand that there are some plans in the works with a number of those carriers to be spun off, as there's more players there could be some opportunities.

A large part of it has to do also with who your existing agreements are with and you do get somewhat limited by that and I think that, you know, you could see some things happening, but the first thing you'll see is probably some additional spin offs by the major carriers of their wholly owned carriers.

And finally, I don't know if you can comment on this or not, but do you have any general time perimeters with the process going on with Atlantic Coast or what are the technical hurdles that we need to look at going forward?

I just want to make sure my lawyer next to me is breathing.

He thinks he's okay.

We can answer that question in generalities and that is as such: As you know we filed a consent with the SEC a few weeks back, received comments from them and then we refiled that agreement.

We did wait to refile that agreement to sign our nonbinding MOU with American Airlines because, frankly, we thought it was a stronger consent with the United agreement in place.

We are in the process of refiling that agreement and we will be doing that expeditiously.

We expect that it will then get turned by the SEC.

We don't know what the timing of that is.

I think if you talk to folks out there, it can be anywhere from a couple days to a couple weeks.

Again, I'm not a lawyer so I can't speculate on how complicated our filing is and how long that will take, but we then intend once that is completed and we have every reason to believe that it will be done expeditiously, that we will then take that consent agreement to the shareholders so that they can then cast their vote as to which direction Atlantic Coast should go in.

The timing of that, I understand that once the record date has been set and as you know, there is litigation currently pending in regards to the record date, but once the record date is set we have 60 days in which to solicit consent.

The company, Atlantic Coast , has the same period of time which they can commit revocation.

You sort of add everything up and the vote stands.

We will probably have to just sort of see how this develops, and again, I can't speculate as to the timing of it, nor I am told very specifically can I speculate as to what I think the vote will come out at, but again, it's a developing issue and we'll just have to stay tuned.

Thank you.

Sure.

Next question, Mr. Jim Parker of Raymond James.

You may ask your question.

Jonathan, good afternoon.

Hi, Jim.

How are you?

Good.

These numbers are of course very impressive, these margins in the 4th quarter.

How much seasonality is there?

Where I'm going with this, can this be continued in the December quarters and March quarters or will we see seasonal drop offs or what direction can you give us?

The contracts are designed to be consistent.

The margins on our jet carriers don't fluctuate based on seasonality to any extent, very small extent if any.

The 1900 operation, obviously the prorate business does.

I will say though, that this quarter was not our best quarter on the 1900 business.

The bigger issue for us on what happens to margins is probably more-related to some of the expense we have in regards to, for example, the increased training as we go forward, potential expenses we may have related to the deal, but, you know, those expenses involving the Atlanta Coast and certainly the training are all good expenses because we think obviously that they are being well spent.

So I don't want to make any projections beyond the agreement, the statement that we made that we feel comfortable with the street, but I think the one point is, we clearly have some work to do and we are going to do some work on the 1900 operation, as always.

This quarter was particularly disappointing as a result of this Bahama situation, but I don't think that we can underestimate the impact of these consistent margins, and the addition of the larger aircraft, which have proven to be quite successful both for us and America West.

With regard to Atlanta Coast, is it safe to assume that this consent period, exchange period is 60 days and it won't be drawn out beyond that?

Again, Jim, I'm knot a lawyer and would not want to speculate because I don't know what the impact of various legal maneuvers.

It's a shame that our view is of course this is a major change in direction for the company.

We think this is something the shareholders should have a say in.

We're very happy to live with whatever the shareholders have.

And as I mentioned in my press release, we're disappointed that the shareholders money is being used to stop the shareholders from getting to vote.

Whatever success that litigation has or other pieces of litigation that I'm sure will come up, I just can't speculate and I don't know what the impact would be.

I will tell you that our lawyers have said that they feel that this process will in fact, once the the consent clears the SEC, will take no longer than 60 days.

Thanks.

Our next question come from Mr. Tony Cristello of BB & T.

Thank you.

I wanted to follow up a little bit on the cost side, 150 pilots this quarter, most of those costs will start to be reflected in the following quarters.

Where are you in terms of hires?

Will we continue, do you feel like you have enough in place now with the existing delivery schedule that you have, or will we continue to see some new pilots, even more pilots than what you took on and need to forecast higher costs on?

We are constantly hiring pilots association we'll be hiring pilots for the next five years based on what we have contracted.

We have very little attrition.

Addition is running 2 to 3% at this point.

So, again, it's not a as if there needs to be a projection of higher costs.

The costs of hire is in our numbers.

Those folks are going to be on-line and become productive.

The way we look at it is as we hire pilots it's not like we a have a pool, you know this is sort of just in time inventory concept.

We get people trained so that hey come out of training within a day or two, we try to time it as close as we can to match delivery of aircraft.

So it's just that two-month period they're in training where there is that cost, but that's a number we have lived with throughout our entire history as the company has grown over the last five years.

I was asking how far in advance have you taken on pilots, how many deliveries.

Are you looking for just enough to cover the next six jet deliveries?

No.

We hire just in time.

If we have a delivery coming in two months, we hire the crews to file that plane in two months.

So this is reflective of the near term.

So in other words, all we do is we hire people as we need them.

We don't build a pool up.

And in fact, in these growth modes, the training, the flight opens department runs very efficiently and runs a little more efficiently by utilizing the crews as best as possible so we don't see even a spike in our crew ratio because we generally can move vacations around and just work with our crews so we can cover all the flying and continue to do our training and grow the company without interruption.

I'm assuming the training now, has it changed some since you went to this new sort of, I guess, decision where a pilot only has two choices to make?

That you thank you for bringing that point up.

Our new pilot contract streamlines our training, and this is where I said I wanted to thank our employee leaders who had the foresight to help us on this because the argument we made was in the past, Mesa would take one plane a month.

We now feel comfortable taking one airplane a week.

The large part is because we don't have the ping-pong effect of pilot training where if we move one guy up, we have five training events behind it.

Now that number has been more than cut in half, which allows us to add aircraft at a much more rapid rate, and from the pilots's perspective, it allows them to move into the captains position in a jet aircraft, which is [INAUDIBLE] position, much faster.

I'm not going to say we've been entirely successful, but in a large part, we have made the argument convincingly with our people that say just like a Southwest airlines, while it may not have the highest pay rates in the industry, it's been able to provide job security and employment opportunity, i.e., growth, where they can move into the higher paying jobs at a much more rapid rate.

We have regional jet captains that have moved into the left seat of a jet in three years or less.

I can tell you if you go around the industry, even at the more rapidly growing companies, you'll see that number is more than double the time it takes to become a jet captain.

And the jet captain wages are significantly higher than turbo prop wages and a multiple of what first officer folks in the right seat make.

So that's what we've done.

We think it's worked.

We think our people have bought into it and it allows us to grow the company as rapidly as we are.

Just a general question.

Did you have a blockout account for the quarter?

A what?

A blockout account.

We'll find it and if I can give it to you before the end of the call I'll give it to you or Peter will.

Our next question comes from Mr. Michael Linenberg of Merrill Lynch, you can ask your question.

Yeah, good afternoon guys.

I have two questions.

Jonathan can you update us on the Jets for Jobs that you have with US Airways?

How far are you into that plan and how is it going since you are integrating the U.S.

Airways pilots working with your own pilots?

Let me tell you, of course, I would be, have to say that we had some trepidation initially and the idea that you're bringing these guys into the regional business, which is a lot different than the major carriers, things are done differently here.

We were concerned.

We were concerned about our pilots and how they would view guys coming in and stepping up and becoming captains right away, for example, in terms of U.S. Air.

I will tell you that so far, we have had excellent results.

The U.S. air pilots have done a terrific job as have the United pilots that have come in.

They bring a level of experience that, frankly, gives us a lot of comfort.

They are well respected within the company by the rest of the pilots within the group and I think it has helped in a lot of respects.

Mesa in terms of its relationship with the National Pilot Union, we're one of the few carriers that has actually implemented this.

We are providing jobs for pilots otherwise would not potentially.

Everyone, at this point, views it as a win win.

One of the things that I guess we probably didn't appreciate is that a lot of the guys that came over had seen the downside of a high cost carrier and as a result their views have changed somewhat and I think they feel differently going forward, they are actually pleasantly surprised by our openness and the level at which they were welcome to the company.

So far, I have to tell you, it's been very successful.

Good to hear.

My second question, I'm sure you're aware that there are proposals circulating around from other carriers that you currently don't do business with, but that are looking for regional partners to provide lists out in what's called the 2005 and beyond time frame.

You currently have a full plate.

I'm just curious, are those opportunities for you or given the amount of growth you have and opportunities you have on your plate, that you won't be able to bid for some of this additional growth with carriers that you don't do business with?

You know Mike, I would hate to turn down an opportunity, but from our view with Atlantic Coast now obviously taking up a fair amount of our time, it would be difficult for me to imagine that we would be in a position to maybe aggressively go after some of that business.

I say that only because if you look at the Atlanta coast situation, obviously if the deal goes forward as we hope, we have quite a bit on our plate and I think a tremendous opportunity for the company going forward and if it doesn't go forward as we hoped, we have a tremendous opportunity and a lot of growth on our plate.

So either way we feel with our existing partners we're going to be pretty busy.

That is not to say that we are not talking to other carriers because we are always talking to them.

We do have interest, and beyond 2005, our plate again becomes less full and we are in fact looking to push growth out because clearly we'd like to smooth out the growth a little bit.

That is a very big positive for us if we can do that.

I think those opportunities will be out there.

I can't say that right now we're pursuing them aggressively if not for some of the things we have going on.

As a follow-up of that question or an extension of that question, Jonathan, in going after Atlantic Coast, they do have that business with Delta, the 328 jets.

At this point have you talked to Delta at that about picking up that business?

We know you have done the nonbinding MOU with United.

Have you gone down that path and does that ultimately become an opportunity to move into bigger jets flying with Delta?

Let me say this, our opinion as to value of the relationship with Delta is obviously far different than the opinion of the folks at Atlanta Coast.

We think that there is a tremendous strategic value in that relationship and would do everything we could to maintain it and think there could be, obviously we don't know, but we would like to think that if we were in the position to do business with Delta, that they would hopefully come to the conclusions that some of our other parties have come to and look to Mesa as a growth vehicle.

Again that's merely speculation.

It was a bet that we placed when we first began to do business again with United, which we think has paid off handsomely and it's certainly a bet we'd be more than willing to make in terms of Delta.

Very good.

Nice quarter.

Our next question comes from Ms. Helene Becker of Benchmark.

You may ask your question.

Thanks very much operator.

Hi Jonathan.

Just with respect to the balance sheet, I saw the cash position.

What will year-end balance sheet and off balance sheet debt look like?

I have Rob looking that answer up.

Can I ask a different question?

Sure, in the meantime that would be great.

That would be good.

You're doing a co-chair with United in Denver.

Actually it extends to Denver, L.A. and I believe we are in fact soon serving Chicago.

But I specifically wanted to ask about Denver.

With Ted, do you think that there are opportunities to [INAUDIBLE].

It's interesting, some people, there's a rumor going around, a couple days ago I got a lot of phone calls from some concerned share holders, that somehow Ted would encroach upon the business we've done with regional jets.

I can't tell you that anything could be further from the truth because again, unlike some of the projections that have been around regarding the costs to operate regional aircraft in a low cost environment , let me tell you it's not possible.

You cannot operate a 50-seat aircraft in a low-cost environment.

We did a lot of analysis on the various costs between different aircraft.

While there is less of a leap between large regional jets, for example the CRJ 900s, the CRJ 200s clearly are involved in markets where you don't have that type of operation, but provide very valuable fee into those operations like we see at America West in Phoenix going into markets where the larger aircraft are unsuitable.

So, yes, I do think there will be opportunities to do that and I think that providing service into Boises, the cities that are more suited for the smaller aircraft I think continue to be in fact maybe even more valuable as a result of the fact that with the lower costs internally and also the lower cost intrusion, that high yield traffic will become more valuable.

Did you find the debt number?

Yes.

Right now, what it will look like is I'm showing $100 million convert, 108 million and 19 hundred debt and 909 million off balance sheet leases.

So a total of $1 billion 217,000.

That's very good to hear.

Okay.

Thank you very much.

Sure.

Our next question comes from Mr. Jim Higgins of Credit Suisse First Boston.

Yes, hi, thanks.

Your talk about the 70-seaters for US Airways, can you give us more color on where you are in the efforts to procure financing and timing of the deliveries of those aircrafts might be?

No problem.

We are anxiously awaiting a proposal, which we are told is forthcoming from Bombardier.

I know that some people have been anxious about it in terms of when is that going to happen, I can assure you no one is more so than us, but they have asked us to be patient, we understand they are going to in fact, as they do in most of the business do, participate in one way or another in providing support and so we are hopefully going to hear from them.

The current update, Peter, do we have some idea as to timing?

We are told it is imminent.

Again, there's an interesting mix on those 700s, because as you know, U.S.

Air had deliveries, U.S.

Air has some financing, we have some financing, we also have some deliveries, so we're just trying to work that out in a way that makes sense.

We do have a requirement under the current agreement with U.S.

Air's pilots that those aircraft would be delivered prior to the end of December 2004.

That's the 25?

That's correct.

Thank you very much.

Next question comes Mr. Robert Ashcroft of UBS.

You may ask your question.

Your operating margin, which is very healthy, what's driving this?

It sounds like it is not simply that your 1900 system is getting more healthy because apparently that's not the case, so is it the fact that the 70 and 90-seaters are more lucrative than expected is it that you are being better with cost control over all in the company what's driving this?

There is a couple things.

One I think the 700 or 900s are in fact on a unit basis probably a little more profitable.

We are better able to capture our, as we understood the contract better with our partners, I think we've structured our ensuing agreements from the earlier agreements a little better to capture all of our costs.

I think that we have be able to expand the airplane fairly significantly without the necessarily attendant overhead increase.

We've been very careful on the overhead side so we run more efficiently.

We save a significant amount of money on training.

I pointed this out on a conference call a year and a half ago or so that our pilot payroll in 2000 or 2001 was $35 million, but our training costs were over $20 million.

It's an incredible ratio back then and it was a result of all of these multiple training events.

With the attrition having come down and the new contract, we are clearly saving money on the training side, which for the most part is to our benefit.

We are seeing some savings there.

We have the new simulators in place, a significant savings on the cost of having our own simulators.

The last time I checked the simulator costs were effectively cut in half, so there are some areas where the costs are better in basically an overhead and sort of behind the scenes that have allowed us to expand our margins.

Another point is that we have escalations on our contracts.

On an annual basis there's certain aspects of the contract that escalate with inflation.

As a result of our focus on costs as well as an implementation of a broad range of technology into the company, we've been basically been able to keep our cost below the rate of inflation and our contract margin has improved slightly as the inflation kickers have come in over the last couple of years.

At various times in the last year or two you've guided people to between 7 and 10% margins on RJ flying I think you said and now you seem to be doing better than that and even including some head wind from the turbo prop operation.

Are you ready to change guidance that you've given people from that 7 to%10 or is that a long term average that we should be thinking about, a temporary fluctuation because of increased number of younger aircraft and that type of thing?

That's a good question, and I don't want to move everyone's expectations significantly.

I will say that , and I'm getting a couple of people giving me some looks, I don't want to go into expectations at all, but I think it's fair to say we're more confident going forward, let's say the higher end of that 7 to 10% becomes more doable on a more consistent basis.

We had a tracking margins over the last eight quarters and 4.3, 7.3, 6.3, then we had a actually a negative quarter, then 6%, 9% and then this quarter, so the trend is moving in the right direction, but I don't necessarily think that 12.8% is going to be the number forever.

I would also say with equal amount of confidence that I don't necessarily think that 7% will be the right number.

So, I think with that, I'm sorry to have to hedge as much as I am, but the bottom line is, we feel more confident with you, but I think I would be probably more confident saying in that 7 to 10%, 7 may be less likely and 10% more likely, but I'd like to stay with that range.

As far as being above the 10%, clearly we had some negatives and positives.

That condition will continue for a few years.

I don't know that that necessarily says it's going to be ongoing for the next 20 years, but certainly for the next two, three, four years, we'll continue to see some pretty attractive numbers going forward.

Fair enough.

Thank you.

Our next question comes from Mr. Lewis Starks of Chesapeake Partners.

You may ask your question.

Hey Jonathan, just to understand the mechanics, as relates to the Atlantic Coast Airlines proposal, when you get the consent document cleared, you had mentioned in your release that in talking about your planned exchange offer, will those commence simultaneously?

I think the answer to that is in some respects going to depend on the SEC, but we are focusing primarily on the consent because it is that which we can move with quickest.

We certainly intend to file the exchange offer.

We'd like to do it with as minimum conditionality as possible and we continue to move forward with both of those documents.

Again, given our concerns, however, with what's going on at the company, we feel it's most important that we move forward and the consent is the fastest way for us to do that.

O.k. thank you.

Our next question comes from Mr. Edmund Griffin of Black Rock.

You may ask your question.

One question, assuming the Atlantic Coast deal goes through, what would you do with regards to the 25 planes they ordered from Air Bus?

Again, not knowing what the agreement is, it would be speculation on my part as to what the terms of that deal is and how we would then address them.

I think that it's fair to say that we would certainly, I think it's fair to say that we would not be interested in operating them at this time.

Clearly, we would have to do something.

Okay.

But I guess it's speculation, you feel like you could get out of that contract?

Or you can't comment?

I wish I could give you an answer, but not knowing the terms of the deal, I would point out to folks that it was a, I think the terms they used was a binding MOU, which is one I don't quite understand, but nonetheless, we'd have to really look and see what the terms are to understand what options we would have.

Thank you.

Our next question comes from Mr. Drew Figdor of Piedmont.

You may ask your question.

Given your comments on the financing market getting better and that your results are very good, what is sort of the strategic rationale?

Do you need Atlanta Coast as much as today and how does it help you?

There was a lot made over the fact that we would strengthen our balance sheet with Atlanta coast that would help us finance aircraft.

Somehow, again, striking our balance sheet we always think as good thing and yes, it helps.

Is it critical to our growth going forward, the answer is no.

We feel that the benefit is that we are going to do a transaction that over the long-term, will benefit the company.

We think the way the transaction is structured today with United, it will be accretive, it will provide additional growth for the company.

I've always said that we would do a transaction where we felt highly confident that all of our costs would be captured in any agreement we had with United Airlines and that we could do something that we felt was in the best long-term interest of our shareholders, the Atlanta Coast shareholders, and certainly our customers and our collective employee groups.

We think those things are intact and frankly feel even more confident with the agreement that we have with United, which will be fully disclosed in our consent agreement.

I think once folks have the opportunity to read that, they'll understand why we are continuing to move forward.

Thank you.

Our next question comes from Mr. Ralph Taylor of Thaxton and Associates.

You may ask your question.

Yes, it appears that the excellent operating results that the company has been putting together are basically being held hostage to a comment that was made early on in the Atlanta Coast process, which was that you'd be will to raise your offer if necessary.

Considering that the Atlanta Coast strategy is considered by some pretty smart people to be effectively perhaps the next coming of people's express [ laughter ] and the fact that they clearly are taking this -- I used to sell airplanes so I'm familiar with the consent of a binding agreement.

It looks like they're using this Air Bus deal to impede your ability to take them over at a reasonable price.

Why would you pay more than what you've offered considering how undervalued Mesa stock is currently?

I think those are things we have to take into consideration and I would suggest that in large part, higher offers are a result, and I'm talking generically now, of competing bids.

We would have to take into consideration those types of potentialities to make that decision.

Clearly, we progress down the road at this point, and I agree with you, that Mesa is undervalued and I am also unaware of any competing bids.

I haven't heard them at this point in time.

As a shareholder in Mesa, we would be most frustrated if we would give away more of our value at this point and time.

I understand why you want to do it but it seems that these guys really don't want to let their shareholders have an option and they want to pursue a strategy, which as I said, appears to me to be highly prone to fail.

We all in the room here are also large shareholders of Mesa and put a lot of value on our shares and options and I can assure you we would do nothing that we felt was not in our long term interests only as shareholders.

You are not dealing with an entrenched management at Mesa.

We got involved in the company as shareholders, we remain committed as shareholders and I think that that comment that I understand was made back then was made early on which had a lot to do with the fact that we were just getting into the deal and just beginning to understand it.

O.k. great.

Thank you.

Once again, if you'd like to ask a question, please press star 1 now.

Our next question comes from Mr. Sam Sava of Quattro Capital.

Sorry about that.

I was wondering if you could comment on your share holdings if any in Atlantic Coast stock and if you think that the conditions in the final consent will differ significantly from the conditions in the current preliminary document, if you can comment on it.

We have disclosed that we do own Atlanta stock.

I said it's less than 5%.

We will fully disclose that in our consent agreement, I'm getting this straight from the lawyer here.

It will be disclosed in one publicly filed document or another.

We want to give you the most accurate answer as we can.

In terms of how the final document will look, again, that is not something that I can speculate on because of course, that requires the comments of the SEC for which we have no control over, so I don't know exactly how that document will look.

I'm not sure I could comment on it anyway, so we have to really wait for that to get done.

Again, without being too specific as to timing because it out of control, we are moving forward as rapidly as possible and we do hope that it will happen very, very soon.

All those answers, questions that you have which are all good questions, will be answered.

Thank you.

Once again, if you'd like to ask a question, press star 1.

One moment, please.

I currently have no questions.

Okay.

Well, again everyone, thank you very much.

We felt that it was a very good quarter.

We'd like to think with the industry beginning to recover, with our growth plan in full swing, as we've started to add these larger aircraft that have been working very well for our partners United and America West and we hope to add them in soon to U.S.

Air, we feel that we really have begun to put the company into a position well suited for today's environment.

We feel that our Atlanta coast transaction continues to make sense and we continue to move forward with that expeditiously.

We think that the combined entity will be in everyone's interest, both shareholders, customers, our airplane partners, as well as our our employees.

We think the deal makes a lot of sense and I think that regardless of the outcome, however, Mesa has a lot to look forward to.

I'd like to thank everyone for taking time out of their busy day.

We know that you have a lot to do and certainly Peter, Mike, myself will be available for anyone who would have any additional questions, give us a call, we're always happy to speak with you.

Thank you very much and have a great day and a nice weekend.

Thank you.