Mesa Air Group Inc (MESA) 2004 Q4 法說會逐字稿

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

All participants are in a listen only mode.

After the presentation we will conduct our question-and-answer session. (OPERATOR INSTRUCTIONS) This conference is being recorded; if anyone has any objections you may disconnect at this time.

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

Mr. Orenstein, you may begin.

Let's start with our forward-looking statement.

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.

Although the Company believes that the exception reflected -- expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to be 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, projected or expected.

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

We want to thank everybody and first off I'd like to take time to thank those of you have taken time out of your busy day to listen to this call.

We certainly appreciate the interest the investment community has in our company.

In particular I'd like to welcome Bob McAdoo (ph) back into the investment community who had spent the last couple of years working with us here at Mesa.

Okay.

The company is reporting our fourth-quarter pro forma earnings of 11.5 million on revenues of 260 million or 30 cents per share on a diluted basis.

Pro forma net income excluded the tax effects of 900,000 relating to the second-quarter on-time compensation payment, net investment losses of 400,000 and the reversal of certain failed merger-related costs of 200,000 -- and the reversal of certain restructuring liability of 200,000.

Net income was 9.7 million or 25 cents per share for the same period of fiscal 2003 on revenues of 175.5 million.

This quarter marked our most profitable quarter since September 2000, and is particularly notable given the current state of the industry and a testament we believe to the success of our revenue guarantee business model.

Year-to-date earnings, including restated amounts for the first quarter of fiscal 2004, were 39.1 million on revenues of 896.8 million or $1 per share.

Pro forma net income excludes the cost to determine the leases of seven Beech 1900D aircraft of 7.2 million, one time compensation payments of 4.2 million and related tax effect net failed merger-related costs of 2 million and the reversal of certain restructuring liabilities of 200,000 and investment income of 300,000.

This compares to pro forma earnings of 20.5 million on revenues of 600 million or 62 cents per share for the comparable period in 2003.

Let's go to the fleet.

During the fourth quarter we continue to see growth in our regional jet fleet related to the expansion of our business based on revenue guarantee co-chair relationships.

And as a result the Company added five aircraft to its fleet.

These include deliveries of two CRJ-900's and three CRJ-200's.

This brought our total fleet count at the end of the fourth quarter to 180 aircraft, that's comprised of ninety 50 seat RJ's, fifteen 70 seat RJs, twenty-four 86 seat RJs, 16 Dash 8's (ph), and 35 Beech 1900s.

With the exception of the thirty-five 1900s, 13 of which are dedicated to the government subsidized (indiscernible) air service program, all of our remaining 145 aircraft are operated under revenue guarantee contracts, 57 with USAir, 48 with America West, and 40 with United Airlines.

Since the end of the quarter we've taken delivery of one 86 seat RJ, and two 50 seat RJ's.

Okay, the fleet plan moving forward, as we mentioned during our third-quarter conference call, we continue to make progress in financing our regional jets and have started to see some renewed interest in leveraged lease financing.

The Company has recently permanently financed five CRJ-900's which have been on interim financing, that leaves the Company with five CRJ-900's that remain on interim financing.

During the remainder of fiscal 2005 the Company is contractually committed to deliver our partners a minimum of eighteen 86 seat regional jets, with interim financing committed for an additional 10 deliveries financing is now in place for all scheduled aircraft through June of 2005.

The Company is currently in negotiations to lock in delivery financing on all remaining committed aircraft and is evaluating two separate proposals which together would finance the balance of our order positions.

As I said, we have seen some improvement in the financing markets.

In addition, the CRJ-900 we added on November 8th we expect to add thirteen additional CRJ-900's in fiscal 2005, four in the quarter -- second quarter, that's January through march; eight in the third quarter and one in the fourth quarter.

This will fulfill our remaining committed CRJ-900 obligations for America West.

America West has an option for twelve additional CRJ-900's which if they choose to exercise would begin delivering in late calendar 2005 and early 2006.

Mesa's operational performance for the month ending September 30th.

Mesa ran a 98.5 controllable completion rate matching our internal target.

We have, however, taken further steps to improve our performance for the month ending October 31; we ran a controllable completion rate of 99.01 percent.

Based on the Company's growth over the past year, we truly believe this is a remarkable achievement and a testament to the hard work of all of our people in the field.

We have added more aircraft than I think anyone had imagined we would just a few years ago, this is a result of our ability to add aircraft through a simplified training process with our pilots and at the same time being able to get deliveries and finance those aircraft.

Given the Company's growth and operating challenge, I would like to once again thank all of our employees and, again, our employee leadership as we have gotten some relief of over where we would have been under our old contract with our new pilot contract.

And again, this is all the result of a lot of hard work.

From the standpoint of our financial results for the fourth quarter, while I've given you a high-level overview, there are a few Air Midwest results we would like to highlight.

This is, of course, where we operate our turboprops.

First, I'd like to point out that while our fuel costs per ace have increased 48.1 percent year-over-year, our overall cost per ASM only increased 6 percent with average fuel costs increasing from $1.12 a gallon to $1.61.

Couple this with a 7.2 percent increase in revenue per ASM, our operating margin improved 1.2 percentage points and our net loss actually decreased by roughly 519,000 year-over-year.

While keeping fuel expense the same as in 2003 our 1900 operations fourth-quarter net would have decreased by 1.9 million and resulted in a fuel adjusted profit of 24,000 versus a loss actually of 1.4 million for the quarter.

As evidenced by our unit revenue increase year-over-year, we have been successful in managing the prorate side of the business and have gotten out of many unprofitable markets -- Jamestown, New York;

Bradford, Reading and Latrobe, Pennsylvania.

These actions were coupled with recent additions of ES contracts in Brookings and Huron South Dakota;

Lancaster, Pennsylvania;

Pueblo, Colorado -- it's nice to be back in Pueblo -- and helped improve Air Midwest's (indiscernible).

As fuel prices hopefully return to more historical levels, we should see an see an even greater improvement in the operation's financial results going forward.

In addition, the Company entered an agreement to lease four Raytheon 1900 aircraft to a subsidiary of Gulf stream International Airlines, which is a regional turboprop air care based in Fort Lauderdale, Florida.

These aircraft and three other 1900s will be taken out of the Company's Florida operations.

These actions are in (ph) further into the Company's vigorous pursuit of reducing unprofitable 19 seat flying in markets that do not have government subsidies through the Essential Air Service program.

We believe this consolidation will positively impact Air Midwest's profitability and in fact improve our ability to provide the best service possible for the remainder of our 1900 network.

Moving forward and looking ahead, for fiscal 2005 Mesa projects ASM's of 8.2 billion.

This number includes only 13 incremental CRJ-900 aircraft we were obligated to deliver to America West.

As for ASM's for 2005, that will be a function of final delivery.

Schedules for ordered aircraft should the dates deliver these or these aircraft slip ASM's could be negatively impacted.

And it does not include any other growth that we may be able to find out there as we are discussions with a number of other mainline carriers.

Based on what we know today we are comfortable with the current First Call earnings range of 86 cents to $1.30 -- that's a fairly wide range -- as well as the quarterly estimates comprising those earnings.

However, our earnings could be impacted again by changes in delivery dates, timing of maintenance and training events, and as well as any significant disruption or interruption of service by any of our partners.

Before closing there are a couple of items I'd like to briefly cover.

First, in August and November the Company closed on its agreement with LogisTechs, a wholly-owned affiliate of GE Capital Aviation Services, for the management and repair of its CRJ-200 rotable (ph) spare parts inventory.

I believe this is one of the first of its kind -- programs.

Under the agreement LogisTech financed approximately 21 million in the existing spare parts inventory and committed to finance an additional 4 million of future spare parts purchased to support the CRJ-200 fleet.

We are also negotiating similar agreements for up to an additional 43 million of spare parts, Mesa's current and to be delivered fleet of CRJ-700 and 900 and our current fleet of Embraer 145 aircraft.

This represents sales of 31 million of existing inventory and purchases of 12 million of new inventory.

Concerning US Airways, we are becoming cautiously optimistic that US Airway's ability to put together a deal with their pilot group and the Bankruptcy Court allowing a 21 percent pay reduction on all non-pilot unions that they will be able to begin to meet the cost targets that they need to be successful growing forward.

Clearly fuel needs to help out as well.

But we do think that they're moving in the right direction in terms of a return to profitability.

We continue to be as supportive as possible of our partner during this difficult transition.

But, again, much of this is unfortunately out of our control and we will do whatever we can do to help them return to profitability.

We'd like to thank all the folks at USAir for the hard work that they're doing, both their management as well as their people; we know it's a difficult time.

But the same point is that I think it's all necessary for them to be able to continue as a viable entity going forward.

That being said, should something unforeseen occur and Airway's service is interrupted or, worst-case, they are forced to liquidate, Mesa is positioned with several contingency plans to handle this event.

While our first priority would be to utilize our RJs in cooperation with a network carrier, we will continue to analyze opportunities to deploy the aircraft in existing US Airways markets.

As I previously stated, one thing you can be assured of, Mesa intends to be prepared for any situation that may develop at US Airways.

As mentioned at the recent Smith Barney conference, one of Mesa's continued plans include the possible operation of 34 CRJ-200's in a route (ph) network.

Based on our current analysis the operation would comprise of 227 daily departures between 39 city pairs; we'd have a good utilization and we think that the operation when filling a void would be profitable.

We estimate that with the 75 percent local passenger retention at current fair levels, no connect traffic and fuel at $1.50 a gallon -- it's actually a little bit below that right now -- our break even load factor would be approximately 40 percent.

Only two of the routes of the 39 City pairs have any non USAir competition.

Concerning United, we completed our fleet expansion in the fourth quarter with the final CRJ-200's to be put into service in August.

This brings our current fleet to United with fifteen CRJ-200's, fifteen 700's, and 10 Dash 8's.

By 2008 all the 50 seat aircraft will be converted to CRJ-700's; in the meantime we are reviewing our route network with United to achieve even greater economies of scale and improved operation reliability.

We're also actively engaged in the recent RFP put out by United for 70 additional aircraft.

While this has been a tough quarter for our partners and the rest of the industry in general, with only a modest reduction in fuel prices and cost reductions are in place, we believe that the situation at United and USAir will turn around for the better and we are certainly proud to pay a part in their return to profitability for the increased use of regional jets.

Over at America West we have to see that the strategy of deploying more regional jets out of Las Vegas and Los Angeles continue to increase.

Aircraft utilization provides more frequent service to markets such as El Paso, Texas and Billings, Montana.

Their additional service, we are told, has worked for them.

With the RJs in particular, the CRJ-900 has become a very successful aircraft in deploying it to some of these new routes.

And we're hopeful that we can come to some satisfactory negotiation for the addition of the option aircraft.

While their streak of profitable quarters just ended over at America West they still have been profitable five out of the past six quarters and we certainly look forward to working with our partner to help, again, ensure their long-term profitability.

The industry right now obviously is a challenging environment.

There has been some talk about a potential oversupply of regional jets; we talked about that in our press release.

From what we can see based on the RFPs that are out there now and the discussions that we've had with both our partners as well as other mainline carriers, we strongly believe that any oversupply will be temporary.

There is a significant demand overseas for the aircraft as well.

So, while certainly we do not look forward to any kind of disruption, we believe that it would be temporary and that Mesa will be able to see its way through successfully.

Before I close I would just like to mention that it is obviously with tremendous sorrow that we recognize the passing of our founder, former Chairman and CEO, Larry Risley.

He will be greatly missed.

As all of know who have been around, he was certainly my mentor and really one of the greatest people I've ever known.

And it was certainly a sad thing to see him go at such a young age.

Again, I would like to thank those of you for taking the time out of your busy schedules to join us for this call.

And I would like to open up for questions at this time.

Thank you.

(OPERATOR INSTRUCTIONS) Jim Parker, Raymond James.

Jonathan, Peter, hi.

I'd like to clarify the turboprop loss.

Did you say the loss for the quarter was 1.4 million meaning the 1900s?

That was this quarter, Jim.

And so the ones that you're sending down to Gulfstream, is that going to come out of the 35 meaning you'll have 31 left?

That's correct, Jim.

And just in general, what are the lease rates on these aircraft that you have remaining?

They are attractive.

As you may remember --

It's subject to a confidentiality agreement because the lease rates -- they actually aren't lease rates, it's actually a debt financing.

But it was restructured with Raytheon and I can tell you that they are attractive lease rates for us.

In spite of that, it's still difficult to operate profitably due to the increasing cost of maintenance and the cost of the 121 operations on 19 seat aircraft.

And has United come to you all recently and asked for concessions?

Additional concessions?

Not at all.

Okay.

And just regarding United, and there is some discussion that aircraft operated by Independence Air might come available in the marketplace.

It appears that demand for 50 seaters isn't all that strong, that the Legacy carriers want 70's and 90's.

Is there any opportunity to deploy 50 seat RJs somewhere else?

Yes, I think that -- there's been a lot of talk about that and I'd like to take a second to address that.

First of all, United does have this RFP out for 70 aircraft.

Clearly Air Wisconsin would have to be the lead contender, although they are somewhat hobbled by a high-cost structure.

I would imagine that independents would be interested as would we.

A lot of the independents' aircraft are -- clearly if they were available they're going to be on the marketplace.

But I think -- and again, I'm not sure to what degree, it's publicly known so I have to be careful -- but there has been RFPs from other major carriers for 50 seat aircraft out there right now.

We're a little bit surprised because on the economics -- the unit cost difference between a 50 seater and a 70 seater is de minimus.

And we're just not sure why the demand for 70 seaters would be that much greater than 50 seaters.

But we also know that there is strong demand in Europe.

In fact, one of our lessors -- which is the largest lessor of regional aircraft in the world -- has demand for over 25 aircraft in Europe right now, and in fact has been looking to source those aircraft.

So we think that any oversupply will be temporary.

And given the commodity nature of our business, we think given our low-cost we are reasonably well protected in any circumstance.

Thank you.

Michael Linenberg, Merrill Lynch.

Jonathan and Peter, I guess two questions.

One of them maybe going back on some of what Jim covered.

If US Airways were to survive and therefore would continue to need your 50 seaters going forward and there was an opportunity with United with this RFP, is there anything legally that precludes you in trying to go after some of the independents' airplanes?

And sort of what I'm hearing on the independent side -- the buzzwords around those companies -- they're talking about rightsizing the operation and I think even Jim alluded to this -- that there may be some 50 seaters that come up for grabs, 87 may turn out to be too many.

Are those planes that you can go after or because of the agreement -- the legal issues that you guys dealt with in the past -- is there anything that you can highlight with respect to legal hurdles, etc.?

I don't think there's any issue regarding them, for example, subletting aircraft to us.

So that would be something that we would certainly explore if the requirement became necessary for us to source additional 50 seat aircraft.

As you know right now, in spite of the talk, the market is incredibly tight.

And there are literally probably less than a dozen aircraft that we're aware of that are available worldwide.

And most of those aircraft are older CRJ-100 models which do not have the same operational performance and are less desirable.

So I don't see any issue.

We're clearly keeping a close eye on what's happening there.

And I think that our view would be there could be some interesting opportunities with additional aircraft in the future.

Sort of as a follow-up on additional opportunities.

If we move from Dulles now over to Chicago Midway, America West I believe has expressed its interest in possibly acquiring some of the ATA assets.

And my sense is that if AWA was to expand or to move into the Chicago Midway airport they would also need some regional assistance and that's probably where you guys would come in.

Are there any restrictions that you have in place with United that would prevent you from flying as an RJ operator on behalf of AWA out of Chicago Midway?

I believe you have those restrictions in the Denver market.

We don't have any restrictions that would apply to Midway.

And we are also watching that situation very closely and are talking to a number of parties about providing regional jet feed at Midway.

Okay, very good.

Thank you.

Ray Neidl, Calyon Securities.

Okay, they asked about United Airlines -- asking for give backs, but I guess the key thing is US Airways.

I hear they're out there asking everybody for give backs.

Have they approached you yet?

No, they have not.

Do you think they will?

I can't imagine that they wouldn't.

But we certainly have not heard from them.

I actually am sort of hopeful that we can reopen some discussions because I think there are some things that we could do for them short-term that they would find quite attractive and things they could do for us that we would find equally attractive long-term.

Again, that's going to make the bet that they survive which is a bet that we'd be willing to make.

You know they have a fairly significant regional jet fleet themselves.

Frankly we don't totally understand that.

And I think that there are some trade-offs that could be made here that would make sense for everybody.

So we're actually anxious to talk to them and hopeful that we can have those discussions in the not too distant future.

So you'd be willing to horse trade with them if they came about?

Absolutely.

I think there are some things that would be very interesting to us.

For example, I think they currently operate six or seven CRJ-700's.

I can't imagine how you can make sense out of a fleet of seven aircraft.

We have all 15 of our CRJ's operating on the East Coast with United and I think there's a natural fit there for example.

And Jonathan, you being one of the Deans of the industry, Let me ask you a very general question.

What do you think is going to happen to this sector of the industry over the next 6 to 18 months?

Is there going to be major industry consolidation or not?

Some people say there can't be because mixing regional airlines is just too complicated.

And then, on top of that why are you repurchasing your stock other than the fact that it's very cheap, when you think you want to keep your cash reserves for some of these opportunities that may develop?

Well, I appreciate the kind words you had about me being one of the Deans of the industry.

That's sort of, at least in this room, a scary thought.

I think that over the next 6 to 8 months there's going to be a lot happening.

There's going to clearly be some restructuring.

Certainly you can see with United's RFP that's going to mean something is going to happen.

The new contract at Northwest I think is going to have an impact.

We think what happens at Air Trend will have a big impact in terms of their success at Midway or Air Midwest.

There's clearly a lot going on right now.

I think that most of the carriers that own their own regionals are probably starting to question as to whether or not that's the best way to manage their regional jet business.

I think that there may have been some issues in the past that no longer apply in might cause them to rethink that strategy.

Could there be some consolidation?

Sure.

I'm actually surprised that there hasn't been at this point.

We at Mesa are looking at opportunities.

I think that there are some very interesting things going on right now.

We do feel, though, that with our cash position being where it is for us to spend the money that we have spent to repurchase stock, we've bought back our stock when it's traded down.

We think that it makes the most sense long-term and that when we look at all the investments that were available to us our stock certainly when it traded down under $6 we felt was the most attractive which is why we were willing to spend money to buy it back.

And we've been selective about that.

I mean, we're not going to just buy it back; we're buying it back on dips.

And we've continued to move forward with that strategy.

But there are opportunities.

I will tell you that we have been approached by a number of financial partners to work on deals from very small deals to very large deals.

Where Mesa could end up as a minority partner.

But nonetheless, I think that all those things are very interesting.

We are surprised, in fact, at the willingness of some of the our financial partners who feel that things frankly can't get a whole lot worse than the industry and are looking to put money to work within the sector.

So we do not feel that there is a real issue in terms of our ability to make an acquisition or to participate in an acquisition with a financial partner.

Are you still looking for opportunities if they develop to maybe upsize your fleet?

In other words, move into the mainline aircraft which I think from time to time you've been looking at some 737s?

We have continued to review that opportunity.

I think that we have to be cognizant of the current environment; it's a very tough place to make money.

I think one of the reasons why, for example, my old friends at Virgin have delayed is because they realize exactly how tough it is right now.

We would only do it as a defensive measure.

We would do it if an opportunity presented us potentially to fill a void.

But we would not do it on our own with the idea that we would start up an operation and just to develop a new market or develop a new segment of our business.

We're quite pleased with what we're doing right now we'll continue to do that for as long as possible.

(multiple speakers) however, if the circumstances were available to us, where we felt there was a void created, we'd like to be positioned to do that.

And as a result, we continue to explore those opportunities and are in discussions with our pilot group as well as some of the other employees about that very subject.

That's what I was going to ask you next.

Would you have a problem with National ALPA or your local union?

I doubt we've have a problem with our local union.

Okay, good.

Thank you.

Helane Becker, Benchmark.

Hi, guys.

So Jonathan, you spoke -- the comments came by so fast.

I'm sorry;

I had a couple of questions to ask you.

On ASM's in '05 how do we break down by (indiscernible) the members?

Do you have them available or will you have them.

Yes, I think if you call Peter, he has them available.

And I'm sorry.

I didn't mean to rush, I'm afraid I do that a little often.

I'm sorry.

It's okay.

I just probably am not as young as I used to be so it's hard to write it as quickly.

The other question I had really was with respect to Philadelphia as an operation.

Where you guys see US Airways and where Southwest is actually growing fairly rapidly, is there a way for you to get in with Southwest -- would that be something that would interest you or doesn't that make sense?

Well, that's an interesting point.

I remember back in the day, Larry and I, going down to see Herb in Dallas and we brought him a little model of a Beech 99 painted as a whale in southwest colors.

His response to us was, guys, if we ever co-chair we're going to do it with you.

But that was almost 15 years ago.

And they have not moved off of their strategy at this point.

So I would have to say while it would certainly be attractive to us, I don't think it's currently in the cards.

Okay.

And then my last question is with respect to your completion factor which has been improving.

Is there much more you can do at this point or --?

Well, we're running now over 99 percent for the last 60 to 90 days.

This month we'll be above 99 percent we believe on our controllable completion.

Things had gotten a little bit tough early on in May and June just because one month in April we added nine aircraft.

We've sort of smoothed that out.

We're contemplating putting in a new scheduling system for the pilots and flight attendants which we think will help.

There are some things that we're looking at in terms of technology that should improve things.

But the bottom line is these are a piece of equipment and they do break and occasionally we just have to take airplanes out of service to fix them.

Great.

Thanks very much for your help.

Tony Cristello, PBT Capital Markets.

Jonathan, what was the average price of shares you repurchased during the quarter?

The average price per shares repurchased during the quarter was -- 556.

And have you been active so for this quarter?

Let me see, hold on.

Yeah, we bought back some shares this quarter.

Okay.

Do you have a level of cash that you feel comfortable that you need to maintain based upon events that may occur over the next few months or do you just feel like as long as you're over 200 million that gives you enough flexibility?

Yeah, I think if we're over 200 million that helps.

I want to correct what I just said because I'm looking at three different columns.

Our average purchase for the last quarter was 614 in our average for this quarter was 557.

Okay, I apologize.

557 in Q4 (multiple speakers) is 14.

Right.

I looked at the total for September instead of the total for the quarter, I apologize.

Okay.

Let's see, where are you now in terms of debt on the balance sheet?

Tony, let me tell you exactly.

We've got short-term which includes obviously interim financing as well as our current portion of long-term debt of about 250 million.

Then we have long-term debt of 550 million which obviously includes the 200 million of converts.

Did you hear that?

I did.

And I guess you closed the deal with LogisTechs and are we going to see -- I mean, that's 43 million, how much -- it looks like 31 million of it is inventory that you can turn into essentially cash, is that --?

That's correct.

And so, what is the timeline on this transaction?

Probably over the next 6 months.

And I mentioned too that this business is apparently generating some interest.

We had another competing offer come in from another potential provider of this financing as well.

Going forward then, are you going to try and just manage your inventory this way as you take more aircraft and you need to build some inventory up and you're just going to -- everything is just basically going to be outsourced and you're not going to put up that capital?

That would be our preference.

Because the way this works, and we've looked at this 1,000 ways, is we do not want to just get the cash and have a carry cost that exceeded our savings from them managing it.

We feel pretty strongly that not only do we get the cash but we also lower our overall cost to maintain and operate the aircraft.

Okay.

And one final question.

Have you noticed a change in utilization among your partners in terms of how there allocating the aircraft?

Has Airways dropped off at all or United dropped off?

Has America West improved in a manner that you can quantify?

Sure.

We've seen that utilization is continually pushed higher.

In fact at America West we had to back them off a little bit just because we were operating without a spare for a long time, same at USAir.

The USAir schedule filed for February actually increases utilization double-digit levels.

So we're actually having to run our staffing models.

So no, we actually see things moving in the other direction with all the aircraft.

Great.

Thank you.

Robert Ashcroft, UBS.

Could you characterize profitability of US Airway's contract relative to those of the other two partners?

Higher, lower (multiple speakers)?

No.

I would say that they're really all about the same in terms of absolute margin within a point or 2 of each other.

The structures are pretty similar.

So there's no added profitability or diminished profitability with USAir.

One of the things you do need to be careful of is while the number of units are higher on USAir, you have to realize that the size of the aircraft, in particular at America West with the 86 passenger airplanes, we generate quite a bit more ASMs with the larger aircraft.

You said early you'd do whatever you could you help US Airways.

Their own bankruptcy documents indicate that cash will be very low in the January/February timeframe.

Would you be prepared to delay or reduce payments to US Airways to assist them to a thin cash period if that were necessary?

I think that we would be willing to consider anything.

We certainly think that our interests are served by seeing them survive, and to the extent we felt comfortable with their plan, as I said, I don't think there's anything that we wouldn't consider up to and potentially including some kind of deferment or even potentially investment.

Thanks a lot, Jonathan.

Glenn Engel, Goldman Sachs.

A couple of questions.

Number one, again, I was also having a hard time keeping up with the numbers. the ASM for the current fiscal year is 8.2 or 9.2?

I think, Glenn, on the numbers -- only because I appreciate that I may have gone too quickly and I apologize -- but Peter would be happy to update you and just sort of give you all the numbers with a lot more detail if you just want to give him a shot or I'll have him call you.

But just one number, the ASM's for the current fiscal year is going to be --?

8.2.

8.2?

Yes.

That seems lower than the pace you were running in the September quarter.

You were running at an 8.5 million pace at the September quarter.

So why would it be less?

Glenn, it's slightly higher and it's more because, as Jonathan went over when the deliveries of those thirteen 900's come in, they are back end loaded.

Second question goes back to Independence.

It looks to me like Independence very well could file for bankruptcy.

If a bankrupt Independence gets its lease rates cut, could they be disrupting the rates in the entire industry by underbidding everybody using a lower lease rate?

I'm not sure that in a bankruptcy that they would be able to get a lot of relief because there is a significant demand for those aircraft.

We, as I said, are close to a number of the lessors, we have common lessors and we feel pretty confident that the likelihood to see a significant lease rate reduction is fairly low.

The interesting thing about independents is that many of their problems could be solved by the use of a pen.

And we think that there is -- at least in our view -- a likelihood that that issue could be resolved in a way that's far more satisfactory to everyone including Independence and the rest of the industry.

And finally, I had trouble keeping track of the rules on converts.

What type of fully diluted share count should I use for my current fiscal year?

I know it's changed and I guess it changed again.

So, Peter?

Yes.

This quarter we were at I believes 40 -- approximately 43 million for the first quarter of '05, the second convert will be dilutive and that's an additional 6.9 million shares.

Thank you very much.

(OPERATOR INSTRUCTIONS) Barry Cohen, J. Cohen & Co.

Just a quick question -- just the amount of fuel you used this quarter and around the price per gallon?

Let's see if we can pull that number together for you.

The one thing I would like to point out -- and you may or may not be familiar -- all the feed that comes to us that we utilize for our revenue guaranty contract, the cost of that gets passed through to our partner.

The fuel where we do have exposure is on the thirty-one 1900s that we operate in a pro rata environment.

The fuel -- we're looking at total gallons of just over 4 million.

And average fuel price -- I'm sorry, I looked at a variance, pardon me.

For the fourth quarter it was, total gallons was almost 50 million and average price of 125, 126.

Sorry about that.

Okay.

Thank you very much.

Jim Alshulz, Aviation Advisors Service.

A couple of questions please.

With regard to Air Midwest which continues to lose money, in conference calls you have said you all are investigating all possible opportunities including -- I don't know whether it was implicit or explicit -- a possible sale of this subsidiary.

Are you still looking into that possibility?

Yes, in fact, this last transaction we did with Gulfstream was as part of that.

We've been talking to a number of 1900 operators, 19 seat operators.

We actually had -- this came out as a result of that.

We continue to talk to guys.

Unfortunately the problem on the 19th the business is as badly as Air Midwest is doing it's probably doing as well as anybody.

And so it's tough to look at acquisitions or mergers where you're essentially looking at a situation where as someone joked with me, if you tie to rocks together see if they'll float.

So, while we continue to look at opportunities, they're somewhat limited.

However, again, we continue to see some improvement as we continue to expand our EAS subsidy.

Just to give you an example, when we first joined the Company the subsidy was about $5 or $6 million a year, we are now north of $22 million, I believe annual subsidy on the Essential Air Service program.

Thank you.

Do you think there's any possibility in this new fiscal year by the end of the fiscal year you'll be able to reach at least breakeven on this operation?

Well, if it hadn't been for fuel prices I think we would've this quarter.

It will depend on how a couple of the EAS decisions -- there's a big EAS decision coming in Arizona which we feel we have a leg up on every body.

That would help significantly.

We did pull down this Florida flying that's unprofitable.

So, I think if we get a little help from fuel we could be okay.

Thank you very much.

David Hulme, Advent Capital.

Good afternoon.

Could you tell me what cash flow from operations was for the quarter and also what your capital expenditure was?

Sure, I'll have Peter look that up.

Let me actually give you the EBITDAR which may be even more helpful to you.

Hold on one second.

In terms of CapEx I believe we were at about 20 -- sorry.

Do you want to just call?

Why don't you give me a call off-line so I can give it to you directly?

Okay, sure.

And could you just talk a little bit about the opportunity at Northwest Airlines?

I think they have an RFP out.

Could you just sort of give an idea of the scale of that opportunity and the competition for it?

Yes, we always face competition.

There are a number of carries that will be out bidding on any new business available.

I'm happy to -- if you look at the new business that's been offered to outside carriers since we signed our contract with our pilots, Mesa has won almost half of all the new business in the industry.

So we think we're in a very good position to compete for additional business because we do have among the lowest cost; we think we can be creative.

The folks at Northwest we have not had in a relationship with, but I have personally had a relationship with some of the folks there.

We did some work with them in the past with a partnership that I had that had a sizable piece of Continental A shares and we developed I think some good working relationships with them when they acquired those A shares from our partnership.

This is back 5 or 6 years ago.

So, I think that it does give us an opportunity to expand our business.

We're going to be actively pursuing it.

We think though that ultimately the very fact that there's going to be 40 or 50 more RJs -- 50 seat RJs sucked up is, again, one of the reasons why we're not that concerned no matter who gets it, that this concept of a potential glut of RJs we just don't see that coming.

On the question you had regarding cash flow, Peter has an answer.

For the quarter ended our EBITDAR -- earnings before interest, tax, depreciation, amortization and rental -- ran just over 78 million.

The 12 month ended September was just over 270 million.

And our CapEx for the quarter, this quarter was actually very low, we really were only in the two to $3 million range.

Final question, do you have any plans to exchange your convertibles to -- a number of companies are doing so to reduce the dilution effect?

We are looking at that, not really as an exchange but as a modification to the indenture.

Okay.

Thank you.

Dev Kaufman (ph), George Weiss Associates.

A quick question for Peter and then a question for Jonathan.

Peter, for the fiscal year just ended what was the off balance sheet rent expense?

For the year our last 12-month lease expense was 160 million.

160 million, okay.

Jonathan, some time ago when Independents was known by another name, you had interest in the assets and not just aircraft assets but the company, you put a bid out there, nothing worked out.

Since then this Company has come under a lot more financial pleasure, the stock price has deteriorated dramatically.

Have things change, is there a reason why you wouldn't be interested in the whole of Independence in terms of these opportunities you're mentioning such as United, such as Northwest Air, or is this a situation where you would just rather stand back, let them whither on the vine and then fight everybody else for whatever assets are there?

The answer to your first question is, no.

The answer to your second question is Mesa has had a history of acquiring companies that most people felt were going to file bankruptcy.

We feel that sometimes, just in general, corporate strategy -- I'm not necessarily applying this to Atlantic Coast, but in the past we acquired assets from Aspen Airways, we acquired Air Midwest, both financially distressed, and West Air which was effectively insolvent.

And we acquired all those before they entered bankruptcy because sometimes it's better to avoid the mess than to try to participate in it.

Does this have to be a friendly deal -- if, hypothetically, the deal were to occur prior to bankruptcy?

Yes.

Okay.

Good luck.

Thank you.

Michael Linenberg.

Just a quick follow-up.

On the 21 million that was financed -- the LogisTechs deal and it looked like the deal occurred in August and November.

How much of that cash was received after the quarter closed, or was the bulk of that received in the September quarter?

The bulk of it was received in the September quarter, Mike.

There was about 3 million that wasn't, and out of the 21 there is another 3 million that's on deposit.

Good.

Thank you.

Roger King, Credit Suisse.

Can you got a little more detail on your ability to fly Independence?

For instance, of a void develops in a major market in the East, would you have the ability or desire to partake in any independent operation?

And if so, what kind of timeframe would it take to get up to speed?

That's a good question.

One, we do have ability.

We operate an independent operation in Albuquerque right now under Mesa Airlines so we do have all the scheduling systems in place, pricing systems, reservations -- we do our own reservations today.

We could actually act fairly quickly to operate narrow body aircraft if we felt the opportunity existed to do so.

We've done a lot of the legwork already, most of the manuals; we could probably put that aircraft online within -- inside of 90 days.

It's not our First Choice, I went to be clear.

Our first choice would be to enter into a new agreement with another mainline carrier.

And we think that if there was a disruption, and clearly what we're talking about is the potential liquidation of USAir, you're talking about 287 aircraft coming out of the system.

We strongly believe and in the discussions we've had with other carries believe that the existing RJs fleet would be in demand as the carriers race to cover some of that open territory.

I think that while we would have a plan and a contingency to operate independently, I frankly in the final analysis don't think it would be necessary.

(OPERATOR INSTRUCTIONS) At this time we have no further questions.

I appreciate everyone taking the time and I'm sorry if I went through things too fast early on.

There's a lot going on this quarter.

There's a lot we look forward to this year.

While clearly there'll be some challenges I think we feel that we are extremely well-positioned.

Financially we are sound.

Today we have just over 250 million in cash.

We've got what I believe to be the lowest cost structure in the regional industry.

We've been able to garner much of the growth of regional jets since we signed our new pilot contract.

We've got a workforce that's highly motivated.

I think that as a result we're going to be able to face any challenge thrown at us and in the end come up successful.

Again, I appreciate your support.

We look afford to a good year next year.

And if you have any additional questions please feel free to contact myself or Peter after the call.

Thank you very much, have a great day.

This concludes the (indiscernible) portion of today's conference call.

The thank you for your participation and you may disconnect at this time.