Mesa Air Group Inc (MESA) 2004 Q1 法說會逐字稿

Welcome to the Mesa Air Group first-quarter earnings release conference call.

All participants will be able to listen only until the question-and-answer portion.

Today's call is being recorded.

If you have any objections, you may disconnect at this time. (OPERATOR INSTRUCTIONS).

At this time, I will turn the call over to Mr. Jonathan Ornstein, Chairman and CEO.

Thank you very much, Josh.

And thank you to everyone who has taken time out of what I know is a busy day to listen to our conference call.

We think we have some nice things to tell you about.

We felt very good about the quarter, and there are some things that we would like to even further illustrate that we think will help you better understand our Company.

This conference call will contain various forward-looking statements that are based on management's beliefs, as well as assumptions made by and information currently available to management.

While the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Such statements are subject to certain risks, uncertainties and assumptions.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, estimated, projected or expected.

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

Okay, let's just go forward.

We continue to see the results, we believe, of our focus on executing an expanding our business model based on revenue guaranty code share relationships with major airlines serving hub networks.

This is a model that we now feel very strongly about, and has worked well for us, in spite of industry conditions.

We continue to see continued regional jet growth.

During the quarter, we took delivery of eight regional jets, including deliveries of four CRJ900's, and the last four of our ERJ 145's, bringing the total on the 145 fleet to 100 -- excuse me, 36 (ph).

Subsequent to the quarter end, we took delivery of an additional CRJ900.

We now have 105 RJs in our fleet.

That's up from five in 1998, when we were operating independently in Meacom (ph) field, when our new management team came on board.

It is comprised of 79 50-seaters, 15 70-seaters and 11 86-seaters.

We acquired the assets of Midway, which included the lease rights for nine CRJ aircraft and ownership of two CRJ aircraft, as well as some slots and spare parts.

We think that that has now fit in very well with our plan moving forward, providing us with additional aircraft.

For the remainder of the quarter, we expect to take delivery of five additional CRJ900s and put into service four of the Midway aircraft.

The remaining seven Midway aircraft we placed into service in the third fiscal quarter.

We also expect to take an additional Dash 8 aircraft that will go into service under the United revenue guaranty agreement, with the final three aircraft required under the agreement in service by the third quarter.

I'd like to take a moment to thank our local pilot leadership for helping make this possible.

Our new agreement contains a number of provisions that significantly simplified our training, which allowed us to expand as rapidly as we are.

I don't think this would have been possible under the standard alpha agreement.

We are delighted that we had the ability to successfully explain our vision of the Company, and that our pilot group agreed with us, and moved forward in what we feel to be an almost revolutionary manner, in terms of simplifying the training and giving us the opportunity to now add up to more than one aircraft a week in some cases, and that is a significant improvement to where we were prior to the new agreement, where we effectively limited ourselves to 1 to 1.5 airplane a month.

So I would like to take a moment and again thank our pilot group for their foresight and vision.

We continued to expand and diversify our partnership relationships.

We finalized our RJ revenue agreement guaranty MOU with United Airlines for 30 aircraft, which includes 15 50-seat aircraft and 15 70-seat aircraft.

As part of the MOU, the term on the 50-seat aircraft was extended two years, at which time they will be replaced by a like number of 70-seat aircraft, further extending our agreement.

We currently have six Dash 8's, five CRJ 200's and nine CRJ700's in service with United.

We expect to transition an additional six CRJ700's from America West and United by April of this year, and plan on replacing the remaining 50-seat -- excuse me, and placing the remaining 50-seat aircraft into service by the end of the third quarter.

We are also continuing our ongoing discussions with United about future opportunities which may exist to expand our agreement with them.

And we feel that, given all the events, that there is a good opportunity there.

We continue to expand our existing US Air agreement, delivering four aircraft in December, bringing the total number of 50-seat aircraft in service to 56.

In addition, we amended an agreement to increase the number of 50-seat aircraft from 56 to 59.

We expect the incremental aircraft to be in service by May.

We continue to have discussions to amend the current contract to increase the number of 50-seat as well as 70-seat aircraft.

As you know, we had had earlier discussions regarding the 70-seat aircraft.

Financing clearly had been an issue with US Air.

We do feel that we are getting over the hump on the financing, which we will talk about shortly, and hopefully that will allow those discussions to progress and potentially even come to fruition.

We placed four additional CRJ900 aircraft into service with America West, and ordered the aircraft required to meet the expansion from 25 to 38 86-seat aircraft.

You will note that we're talking about 86-seat aircraft.

We have moved to an all-coach configuration on the CRJ900 aircraft being utilized by America West.

I'm delighted to announce that we have made significant progress in the financing of our aircraft.

Peter Murnane and Rob Stone and the rest of the financing department worked hard putting together what I think is a very creative financing package that will work out very well for Mesa.

We permanently financed 12 aircraft, seven CRJ900's, one CRJ700 and four ERJ in December.

We've also recently obtained a financing commitment for 11 CRJ700-9 (ph) aircraft.

Upon the closing of the latter transaction transaction that will take place in the next week or two, we will have all of our aircraft delivered to date permanently financed, and providing for permanent financing of our next four aircraft.

In addition, as part of our new aircraft order and this financing, the number of aircraft we have under interim financing can now increase from 12 to 15.

As a result of these two events we effectively have delivered financing for all the new aircraft we're scheduled to take until December.

So, for the foreseeable future, we have now placed financing -- we have financing available for all of our aircraft.

And again, we see the environment improving.

I can't say it's improving dramatically, but certainly things are moving in the right direction.

The losses in our prorate markets narrowed slightly during the quarter, to approximately $2.7 million on a pretax basis.

However, due to these continued losses, we have made a decision to return seven aircraft currently on lease in advance of the expiration of their leases.

As a result, we will be taking a charge for returning the aircraft in the second quarter, of approximately $3 to $5 million.

Parking the aircraft will save the Company approximately 700,000 in lease costs per fiscal quarter.

The good news is the revenue guarantee portion of our business represented 90 percent of passenger revenue during the quarter, which minimized the impact of the prorate losses.

I'll talk a little bit about these aircraft that we are going to return early.

These are by far our most expensive 1900's, costing us upwards to $33,000 a month -- almost, I would say, probably more than double what our other aircraft are costing.

So we think this will in fact significantly -- well, certainly narrow the losses that we see in our 1900 fleet.

The aircraft currently are not even being fully utilized right now, so we do not see, necessarily, a proportional reduction in revenue due to the aircraft that are being taken out of service.

We continue to move forward under the essential air service program in order to support the 1900 operations.

We have had some success recently in regards to awards, and there are a number of bids that we currently have where we are the low bidder, which we think hopefully will be decided upon by the DOT in the near future.

And we'd like to, at some point in the not-too-distant future, have almost all if not all of our 1900's involved in the essential air service program.

Our ASMs for 2004 will be a function of final delivery schedule for our partners, in particular US Airways and United.

Based on what we have on contract currently, we're projecting ASMs of approximately 7.1 billion, or nearly a 60 percent increase over 2003.

As United and US Air's situation becomes clearer, we will update our guidance.

We feel confident that any movement that we have, of course, we think will be one of expansion.

So hopefully, if anything, those numbers can move in the right direction for all of us.

Earnings guidance -- based on what we know today, we're comfortable with the current First Call earnings range for the year.

Again, earnings can be impacted by a change in assumed delivery schedule for aircraft and, obviously, the timing of other events related to the operation of the aircraft.

However, we do feel confident that we are moving forward with a plan that you are familiar with, and one that will provide the earnings that you currently have out there, in terms of consensus.

A couple of points that I think are important to mention -- our training expense for pilots was approximately $2.5 million higher than it would have been if it hadn't been for the significant level of expansion.

The good news there, obviously, is that once that expansion, if it was too slow down -- which we think, certainly, at some point it will -- we think there would be -- on a steady-state basis, those costs would have been reduced about $2.5 million.

For the quarter, they are about 6.5; they would probably run about 4 million.

I mentioned again Air Midwest lost 2.7 million.

We continue to explore options for our 1900 operation.

We are in fact pursuing a couple of different transactions that may make sense for us on the 1900's.

Parking these seven aircraft, I think, will help the numbers going forward.

Those aircraft, by the way, were only scheduled to be in service through December of this year anyway.

So we're just basically pushing that up to this quarter.

We continue to explore other opportunities, including the potential asset sales and purchases, possible expansion of our existing agreements as well as new agreements.

And we are in fact -- something that I know has been an issue brought up to me -- working on a number of different plans regarding our flying with all of our partners.

I know that there has been some concern recently regarding US Air.

We actually probably have more confidence in the US Air situation than many of you.

We still have a tremendous amount of confidence in David Siegel and his management team.

We do think that, while the situation is difficult, this is not the first time that the industry has faced this type of situation.

Certainly, I know how David responded at Continental, and I'm confident that he will be successful there, as well.

That being said, as you can imagine, we are working very closely with them to assist them in their restructuring and their move toward profitability.

And clearly, we're looking at all the various contingencies that may arise, and we are in fact in discussion with them on what we think are some interesting opportunities that may develop as a result of that restructuring.

So I don't want anyone to think that we're not cognizant of the issues in regard to US Air but, again, we continue to have confidence that ultimately that situation will work out.

And if not, we are confident that we have plans that we feel Mesa will, in fact, be able to move through any situation and be successful ultimately.

The assets at US Air, we feel, have tremendous value.

They are valuable, certainly, to US Air at this point in time, but would be more valuable, clearly, if they were being operated under a different cost structure.

We think that under any circumstances, it's not as if the traffic in Philadelphia, Charlotte or Pittsburgh is going to go away.

And our aircraft are going to be integral to anyone's plans in those hubs as we go forward.

So with that, Josh, if you'd like, I'd be happy to take any questions people have.

We felt that this was a very good quarter.

Clearly, there are some things that could have really made it an outstanding quarter, but we're not going to be too upset about the fact that we've got a lot of training going on with all the aircraft, and we are in fact continuing to make progress in the 1900 operation, and we see further upside in the year, as we move forward with our expansion that we have on the books and potential expansion that we're in discussions with our partners.

So let me open it up to questions, and see what I can further discuss.

(OPERATOR INSTRUCTIONS).

Raymond Neidl, Blaylock & Partners.

Just to go back to US Air, I think from looking at how the market has been reacting to the stock price, that's the main worry in the intermediate term with US Airways.

Under a couple of scenarios, I can see a plus or a couple of scenarios are minus.

If US Air continues to shrink, they may need more RJs to replace their mainline capacity, and that probably represents an opportunity for Mesa.

But if it does slide to Chapter 7, and US Airways was to liquidate, probably a lot of the carriers that would replace US Airways, like AirTran and Jet Blue and Southwest, wouldn't have need of your services.

Now, I know there's other places you can go with those aircraft, but would that significantly cut back on your growth plans, because you would have to take aircraft you were assumed that were in place already, and put them as part of your growth plan?

Yes.

I think if you were to make the assumption that a Jet Blue or an AirTran was going to replace them, that may be correct.

I have a somewhat different view, in that I think that in more likelihood that the hubs would be replaced by hub carriers -- not to say that there won't be incursions into those hubs, as there are today, by some of those low-cost carriers.

But clearly, I think that there will probably be higher value to some of those hubs to some of the existing hub network carriers.

We continue to look at opportunities that may exist in some of the hubs for our own flying, and I would suggest that if in fact you look at Philadelphia or Charlotte, which I believe will remain a hub, the first call that anyone who's going to operate there is going to be to create that feed network, which is in fact critical to the success of that hub.

So I'm just not sure that I would agree that the most likely replacement in Philadelphia is going to be anyone other than another hub network carrier.

So that's part of our plan.

Now, the second part of that is also that we at Mesa also are looking at what that might entail, and determining whether or not -- you know, where we can operate.

We operate large CRJ900's; they are efficient aircraft.

We would believe that we are the lowest-cost operator of regional aircraft in the United States, and frankly would believe that we would probably be the lowest-cost operator of any aircraft.

So I think that's all part of our contingency plan.

Hopefully, of course, none of these contingencies exist.

We'd very much like to see US Air get fixed.

The fact is that the fix at US Air is rather simple.

And my confidence is that, maybe unlike what we've seen in the past, but that here, management and labor can get together and do the right thing, and get that situation resolved pretty quickly.

You can imagine it's difficult for Dave to compete with Jet Blue with a 5.9 cent a mile seat cost when they are operating with a seat cost of 13 cents.

That delta can change very quickly, though.

So that's certainly still our first and foremost hope, is that US Air can get fixed.

Jonathan, were you saying, as kind of a backup, you might consider doing an Atlantic Coast independence type of operation?

No, we would never go into competition with one of our carriers.

And the second question is, US Air may have some assets for sale, US Airways Express.

I think I saw that you expressed some interest in that?

Yes.

I think that there are certainly assets at US Air that would be interesting to us.

The franchise assets would have value, but I would say that the higher value would be opportunities where we might be able to operate without the requirement of a US Air code.

Jamie Baker, J.P. Morgan.

Let me try to ask a similar question to Ray, but from a different angle.

You took a grim view of Atlantic Coast's plan for low-fare independents.

That's obvious.

But in fairness, your opinion predates US Airways reportedly going up for sale.

Has your view on independent RJ flying changed, and if A319's, A320s, whatever, make sense for ACA -- and I'm not saying whether or not they do -- why wouldn't they make sense for Mesa?

I hear what you're saying, but let me make sure -- there's a very significant distinction.

ACA is attempting to compete against a carrier that's going to be coming out of bankruptcy, possibly the best position in the world.

Sure.

I'm sorry, Jon.

I understand that you answered before that you don't want to compete, and contractually you might not even be permitted to compete against one of your current partners.

I'm talking about competing against somebody else.

First off, let me say we are in fact allowed to compete with all our partners, if we so choose.

But Mesa is the lowest-cost operator of regional aircraft.

I have no reason to believe that we would not be the lowest-cost operator of any aircraft.

If certain assets were available for sale that we could operate potentially without a code, that makes sense; that would be something we would look to do.

But again,, our view would be to come to that in a cooperative fashion with our partners.

And again, that's a far different cry -- nor would we put the bulk of our company at risk to do so.

I think we would take a much more measured approach.

We'd be much more careful that it would not be in any way, shape or form a bet-the-ranch scenario.

Let me ask you another question.

Just to go down the plan B or plan C, a potential implosion at US Airways, help me out here.

If Mesa suddenly found itself long 50- and 70-seat regional lift that was available on next day's notice for anybody else, can you think of any reason that any other network carrier, subject to their own constraints, would do business with any of their existing partners before you?

Well, first off, I guess -- I'll make sure I understand the question correctly.

I'm convinced that there are certainly carriers that would, if they had their preference, potentially would operate with other carriers, their own internal, potentially.

I would say there's two constraints there.

One, there are no aircraft available.

Two, we are the lowest-cost operator.

So, if they were to make a financially driven decision, it would be to operate with Mesa.

The fact that we have all the assets in place, and the only thing we'd have to do is effectively paint the tail of our aircraft.

Take an example of trance states (ph) at St. Louis.

In a very similar situation that could potentially exist, my good friend Julius Canolie (ph) did not miss a day of flying, and transitioned all of his aircraft from TWA to American overnight.

So I think, given that example, I just believe that Philadelphia is going to remain a hub, Charlotte is going to remain a hub, Pittsburgh may or may not remain a hub, but there will clearly be demand for the lowest-cost regional aircraft.

And frankly, if I had to make a bet, I would much rather place my bet alongside of Mesa saying we will continue to provide hub networks -- hub services for an existing carrier, as opposed to we're going to transition 50 RJs over to an independent operation, and hope it works.

Yes, I understand.

That's helpful, Jonathan.

Great, thanks.

Mike Linenberg, Merrill Lynch.

I guess two questions.

One, Jonathan, after you park these seven Beechcraft, how many Beechcraft do you actually have flying?

And what percentage or what number of those 1900's are flying in EAS markets?

Well, the answer to the first question is unfortunately, probably still too many.

But I think will have 35 aircraft remaining.

Just to mention, when we got to Mesa, we had 122.

So we are at least moving in the right direction. 35 aircraft -- of that, I would say over half -- slightly over half will be in essential air service markets.

So if we assume that, let's say, over half, 17 of these or 18 of these planes are in EAS markets, and I presume they are making money, because typically the EAS markets, the way they work -- I guess you get, I don't know if it's a 5 percent after-tax or 5 percent pretax margin.

What that tells me is, I guess, what the other 17 or 18 airplanes -- I mean, you threw out a number for Air Midwest of a couple million dollars.

But I guess they are really losing money.

Is that a fair -- is my math correct on that?

No, because, let me tell you, we reported a loss of $2.7 million.

And I'm not saying that they are profitable.

On a fully allocated basis, that's what they lost.

But in fairness, which is one of the reasons why I think we been aggressive on the 1900's but we just haven't stopped flying, is because it does cover a certain amount of overhead.

On a variable basis, we believe that the flying we're doing makes sense.

Now, that being said, the reason why we are pursuing moving away from it is, even though internally we can make arguments that it covers some fixed overhead, there's some variable flying, we think from your perspective and the market's perspective, and the amount of attention that we spend on what is a very small piece of our revenue, we would probably be better off without the aircraft, ultimately.

Every 900 that we add generates the ASMs of almost a half a dozen 1900's.

That's a lot of energy to put into six aircraft, when you can replace it by just going out and convincing America West to add a dozen 900's, like we did recently.

So it's not as if those last aircraft lose a lot of money, but just on a fully allocated basis, you do see those losses.

But not necessarily on a variable basis.

And just my second question.

You did talk about training, and I know it was a little bit higher because of the expansion, but I know that your total training expense has come down significantly.

I think I recall a couple years ago you guys spending like $20 million on training.

Can you just talk about what you did change on the training side, what you did to at least -- the number of training events?

I think it's a great -- the way, I think, these contracts should be written.

Right now, under the old way that most pilot contracts are written, if you lose a senior captain, you have this incredible movement of pilots, where a 1900 captain goes up to a Dash 8 captain, a Dash 8 captain goes to become a jet captain, a 1900 FO becomes a Dash 8 FO, a Dash 8 FO becomes a CRJ FO.

And at the major carriers, it's even worse; it is a complete -- you know, if any of you guys play that game in Japan, it's like a Patchinko game, okay, with people bouncing around.

In our new contract, we've created silos, so that a 1900 pilot who gets hired to fly as a 1900 FO, his next move is to 1900 captain or jet captain.

That's it.

He cannot become a jet FO; he cannot become a Dash 8 captain.

He cannot go sideways.

If a jet FO is hired, his only move is to jet captain.

He cannot become a 1900 captain, a Dash 8 captain and then a jet captain.

So we have effectively eliminated, I would say, probably 70 to 75 percent of our training events that were just backfill events.

And the cost is so overwhelming, probably upwards of $20,000 per event.

And if you look at some of the major carriers, they are just crippled by these training, because not only does the cost of the simulator and the flights and all the training, but you are forced to carry all these additional pilots on your payroll during the training; it makes you much less efficient.

And frankly, I think that's probably what it's designed to do.

But we have been in a position where, as a result, we been able to move that number down significantly.

Another benefit has been the Jets for Jobs captains who have come in as captains.

Not only have the pilots that have come in from the majors have been excellent employees, by the way, and have added a lot of good experience.

And I say that -- this is not corporate speak.

We've had very good success with our Jets for Jobs people; they have been very positive.

And in fact, having seen sort of the other side of the industry, I think they actually have come to appreciate what we've accomplished at Mesa, and have done a very good job.

But it's also helped us on the training, as well.

Glenn Engel, Goldman Sachs.

It's Michael Gruetzmacher.

Just a question about Atlantic Coast.

I understand you filed an appeal to the case that they brought against you.

I just wanted to understand why you are appealing, and if you could just comment on the strategy going forward, or if this is just a totally dead issue.

Well, it's not a dead issue totally, only because we did file an appeal and it is ongoing.

However, I think that at this point, we are effectively just preserving our rights, and we will just have to see where this takes us over the next few weeks.

So you are still Atlantic Coast shareholders, and interested in getting as much value out of that as you can?

Yes, but to a lesser degree than we were prior to our -- I don't know what the right word is -- our solicitation, and the announcement that the MOU had been rescinded.

Tony Cristello, BB&T Capital Markets.

A question for you -- with respect to the 1900's, I know you discussed it a little bit.

But those seven that you are retiring -- it's because they are, one, the most -- they're coming due in December.

Do you have any others that are coming up?

Or, looking at it as an aggregate, if you had your choice, could you go in and renegotiate and get off of a prorate and just fly those even at a breakeven, or just a revenue guarantee, per se?

Or is the just no way you could go in and do that?

Yes.

No, let me tell you.

First off, these seven are in fact aircraft that were leased.

Beech was able to convince Mesa awhile, you know, back early days, to do some of the financing themselves.

So these aircraft come off lease.

That's why they are at the 32, 33, $34,000 a month level.

We have already negotiated with Beech, and our other aircraft -- like I said, our payments are less than half of that.

The other aircraft, though, we do own, so they are our responsibility under their mortgage finance.

We have talked to, as you can imagine, just about everybody about other opportunities with the 1900's.

We see them to be rather limited.

And the essential air service program, which we have put a lot of time into -- as you know, we formed this regional aviation partners; one of our Board members heads it up.

The subsidy levels have gone from about 60 million to 113 million.

So we think that, really, the best place for these aircraft is just to get them into the essential air service markets, where there is some hope that they can operate profitably.

Again, it keeps getting a smaller and smaller piece of our business.

As I mentioned, 90 percent of the business is now under this revenue guarantee contract.

And that number will go up again to 95 percent by the end of the year.

And maybe one question, if I can just get your thoughts -- with UAL's proposed building of some new gates at Dulles to replace their departing Atlantic Coast, how much of Atlantic Coast's business, in your opinion, the 87 Jets, will United try to replace with its other participating carriers?

Or do you think that they will require -- I mean, it's probably not going to have to be 87, but is there a number that you think is probably going to be a benchmark to go by?

And then what do you think Mesa's role would be in that growth?

Sure.

We looked at it and said, well, how many aircraft would we take to operate that?

And I think it's somewhere probably in the 60-ish range.

I know that United -- I mean, for example, they had already taken additional aircraft from us.

They had anticipated or at least hedged that this outcome would be a potentiality.

So I don't think they need 60 aircraft.

I do think, though, that there is a requirement for additional aircraft.

And I know that we have had active discussions with United, as I'm sure the other partners have.

And I'm hopeful that we will get something that would equate out to our roughly fair share.

I think United is very cognizant of the fact that Mesa invested a lot of time and money, in terms of the Atlantic Coast acquisition, which unfortunately did not go our way.

And we certainly can talk about that, but it hinged on a legality which neither of us had any control over, unfortunately.

And I think United is cognizant of that, and appreciates the effort that Mesa made to effectively do the right thing.

So with that, I'm only hopeful that we will be able to come to some agreement that works for both parties.

Jim Higgins, Credit Suisse First Boston.

Costs looked a little high in the quarter -- trying to make some adjustments, was there anything in there for Midway?

Again, we did have the -- we did not have much in there for Midway.

There was a de minimus amount, $50,000 for interest.

Clearly, we had the expenses of the Atlantic Coast deal.

As we mentioned, our training expense was not higher than anticipated, just higher than what would be status quo.

I don't think of any unusual events that we felt -- our CASM was down.

I would expect that, certainly, just not down as much as I expected.

What were pilot costs in the September quarter?

Training costs;

I'm sorry.

They were 3.3 million.

So that's about the delta right there.

Okay.

Just so you're aware, I just spoke to a graduating class of pilots with -- this is one month worth of training -- over 100 pilots.

Over 100 flight attendants.

We are planning to hire this year -- it looks like we were conservative, we think, when we say 500 pilots this year.

We think it's really closer to 600, which would in fact be not only the highest in the United States, but would in fact be higher than the next two, Southwest and Jets Blue, combined.

So there is a big training bubble right now, and training is expensive.

There's no doubt about that.

But once we get through that, we think that that will help significantly, and we think the peak of that bubble will occur in this next quarter.

Oh, you do think so?

Okay.

That will be the peak, assuming no significant expansion and growth opportunities -- which, again, we may have some good news and say that we have a lot more growth coming.

That would be good news.

Do you have a figure for what you expect pilot training expense to be in the March quarter?

Yes, we think it will probably be about the same.

Helane Becker, Benchmark.

Do you have numbers for what you think, with all the stuff you just told us, your capacity growth is going to look like -- second, third and fourth quarters?

Let me see; we're scrambling around here.

Sorry; didn't make you want to scramble.

And the other thing is, with respect to the balance sheet, can you summarize what that looks like now, from a cash and debt standpoint, with all the new financing that you've just talked to us about?

Well, Helane, you saw the cash number.

Right, I did see that.

And from a balance sheet standpoint, the debt -- the only difference in the debt, other than a small paydown on the Raytheon side, was the addition of about 24 million related to the Midway aircraft.

And that's on balance sheet?

Yes.

And obviously, the assets go on also.

Right, no, I understand that.

I just was kind of wondering, with all the other things, what --

All that other stuff was all off-balance-sheet leverage lease financing.

Okay, got it.

And then do you have those capacity numbers?

Yes.

Pretty much what it was in the last quarter's call -- about 1.6 billion in the second quarter, 1.9 billion in the third quarter and about 2 to 2.1 in the fourth quarter.

And then, Jonathan, if I could just ask you one question -- or maybe not you'll answer; somebody else might want to.

The investment income that's recorded in the pro forma GAAP numbers, 337,000, can you just say what that is?

It was just the sale of securities.

We managed to eke out a small profit.

And mark to market.

And mark to market, yes.

And then, all the merger-related costs are now behind you, right?

There's nothing in the current quarter?

That's correct.

Jim Altschul, Aviation Advisory Service.

A couple of questions.

First of all, you may have answered the first one when you were answering Helane's question;

I had to step away for a moment.

With the new deliveries you have financed, have all of them been with leverage lease financing, or have some been with mortgage financing, with you providing the equity?

The last 11 were mortgage financed, and we provided some of the equity. (multiple speakers).

The 11 to be financed, the ones that we just talked about.

And actually, we thought it was a very interesting method, and the structure which we -- once we finalize, we will be able to discuss further with you.

But very interesting to us.

And we did provide some equity into that, and I think that, again, we have continued to be able to come up with greater ways to finance these aircraft.

We finance them at or below the requirements for our partners, in terms of our contractual obligations.

In fact, in some cases, significantly below, and feel that this is an attractive way for us to move forward.

If you provided some of the equity, who provided the rest of it?

I'm sorry, but unfortunately, as you can imagine, we have disclosure issues and confidentiality agreements that we signed in regard to that.

Okay.

Fair enough.

The gain on sale of securities -- can you tell us what securities you were selling?

No.

Jim, it's not just the sale.

It's also mark to market.

Without naming any names, do you hold securities in any airline other than Atlantic Coast?

We have taken positions from time to time in various airline securities.

Next thing -- are you satisfied with the CRJ900's so far, in terms of -- are the performance and the costs coming in where they were supposed to?

Are you getting the kind of loads that justify the operation of that big an airplane?

I would suggest that the aircraft in fact has done a tremendous job.

Clearly, it was a new aircraft and there were some issues; we had to do some work on the engines.

But in terms of its reliability, it has been excellent.

The performance has been very good.

I know it's a pilot's favorite;

I hear it all the time from our pilots.

And the operational numbers are -- the aircraft truly has a tremendous operational capability, in terms of its flexibility and cost.

We did move to put more seats in.

I think that they took out the first class;

I think that may be a function of the Phoenix market.

And I know that America West has shown its commitment by in fact increasing the number of aircraft that it has; it really likes the 900.

And I would even argue that, without the scope penalties that are in the pilot contracts -- and it's unfortunate, because I think these companies would all be better off and provide significantly more job security for the employees at the mainline carriers.

I think that the CRJ900 would probably be the aircraft of choice at most of these other carriers because of its flexibility and operating cost.

It really does not cost significantly more to operate than the CRJ700.

On a couple of calls, I think one of the calls last year, you said that you would expect that you are going to reach some kind of arrangement with Rolls-Royce regarding I think it's a power by the hour contract, or something similar for the engine on the ERJ 145.

Has that been resolved?

We have one for the --

Yes, we do operate the Rolls-Royce.

(OPERATOR INSTRUCTIONS).

Edmund Griffin (ph), BlackRock.

Just one balance sheet question.

If you looked at your debt, and took on the off-balance-sheet financing, what would that level be at?

At least another $2 billion dollars.

So total debt, including off-balance-sheet, would be --

Another $2 billion, approximately.

And at the end of the quarter your debt was where?

At the end of the quarter --

Hold on one second; we're pulling up the data.

Approximately 230 million, and that includes 100 of the convert.

Great.

That's it.

Good quarter.

Dan McKenzie (ph), Smith Barney.

Jonathan, I'm wondering if you could add a little bit more clarification to one of year earlier comments.

You mentioned that you have a lot of confidence in US Airways -- in fact, probably more confidence than the street.

I'm just wondering what data points you might be looking at, that the street is missing, that gives you more confidence.

Well, I guess part of my confidence is intangible.

It's just my good friend Dave Siegel.

I think the second piece of my confidence is the fact that I know that the entire issue at US Air could be resolved with a signature.

There is no fundamental structural problem, necessarily; it is one where they are competing with carriers that have effectively market-rate costs, and they have costs that are significantly above market rate.

It's no one's fault; it's not trying to place blame anywhere.

But their seniority levels are quadruple and quintuple their competitors, their wage rates remain higher.

They do not operate as efficiently, as a result of the contracts that they have signed.

And it really boils down to cost.

All that can be solved overnight.

And I would like to think that, ultimately, rationale will prevail, and people who are looking at what is a much less attractive alternative, that being unemployment, would come to grips with the reality of the situation and spend their time productively coming to a solution with what I view to be, and continue to view, a very strong and intelligent management team.

So that's why I'm confident.

Call me crazy, but I'd like to think that rational thinking will prevail.

And I think that ultimately, given that, I think US Air's hub network is very strong.

Certainly, history has shown that that's not always the case.

But there are also plenty of situations where carriers have been able to do the right thing.

We saw that happen at Continental, for example.

And I think that ultimately, if anyone is going to be able to do that, I think my friend Mr. Siegel is someone who can do that.

Assuming they can reach some kind of arrangement with their labor groups, I imagine they would have to give them something in exchange.

Has US Airways come back and talked to you at all about possibly taking aircraft back, so they can give them to their pilots or --

No.

I don't think that would ever be a consideration, frankly, because even for those employees, they realize that trying to operate the smaller aircraft under any cost structure at a major carrier would be, I would suggest, nothing short of disastrous.

We have already worked cooperatively with their labor groups.

We now have, I believe, over 100 US Air pilots flying at Mesa.

We continue to offer jobs to them as we take aircraft.

I can tell you the response we've gotten from them has been very positive.

So there are things that we can do to help them.

I think that in all likelihood, the carrot is going to be the potential for expansion.

I know that Dave has talked to his labor groups about that opportunity -- as well as, as difficult as it may sound, one of the rewards will be, in fact, continued employment.

And in this environment, where the jobs are not as available as they may have been in a different period, I think that they are in fact highly cherished.

And when it comes down to it, again, I think ultimately the right decisions will be made by all parties.

At this time, there are no further questions.

Just to expand a little bit on that, and what we talked about as far as our contingency plans, I'd like to just take a second to point out, when we first got to Mesa, Mesa had lost half of its business overnight.

We lost the entire United business in Denver, the entire United business on the West Coast.

We had 100 excess aircraft, 2,000 excess employees.

And these were not desirable aircraft, and they were not aircraft that had demand from other carriers and intergrowth to a hub network.

In fact, we were just replaced.

I think that looking at whatever the contingency is, we feel confident that, one, Mesa would be able to weather any storm.

We think it would be short-term in nature, and I also think that we have -- I'd like to think -- demonstrated a level of creativity that these situations may in fact bring opportunity.

We also have developed, as you know, relationships in the industry, both with carriers as well as financial backers, that we feel would be supportive of our efforts in the unlikely -- what we still believe to be the unlikely scenario of any type of liquidation at one of our partners.

So, while clearly this environment is fraught with risk, we also feel equally that it may well in fact be one of opportunity.

We've had a tremendous support from our people here.

I can tell you we had a wonderful weekend.

We had over 700 people attend the celebration for our 100th RJ.

We had a holiday party, we had almost 1,500 people at our party.

The support for what we're doing within the Company is just tremendous.

I think that we had made great strides, particularly with our labor groups, our organized labor, to show them that there is a better way of doing business.

We think we've kept our promise to them, in terms of the expansion of the opportunities and the job security, and I believe that with their continued support, which I feel confident we will have, that we can face up to any challenge that may come our way over the next few years.

So, with that, I'd like thank all of you for your interest in our Company.

And, as always, feel free to call myself or Mike or Peter or Rob if you have any additional questions after the call.

Thank you very much.

Have a great new year and a great week.

Thank you.