Mesa Air Group Inc (MESA) 2005 Q1 法說會逐字稿

Welcome to the Mesa Air Group first-quarter 2005 earnings conference call.

All lines will be placed in listen-only until we're ready for the question-and-answer session of today's call.

The call is also being recorded; if anyone has any objections please disconnect.

I would now like to introduce your speaker, Mr. Jonathan Ornstein, Chairman and CEO.

Thanks to everyone who's taking the time out to listen to this call.

We appreciate the interest that you have in our Company and let me start off 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 information currently available to management.

Although 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 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 filings with the Securities Exchange Commission.

Okay, let's get down to the conference call.

Basically in spite of what has been a difficult operating environment throughout the industry, our revenue guarantee model continues to perform well.

The Company's reported fourth-quarter pro forma earnings of 13.4 million on revenues of 264 million or 28 cents per share on a fully diluted basis.

Pro forma net income excluded 2.1 million of net investment gains and 300,000 in total net costs related to the termination of certain stored turboprops.

Net income was 7 million or 18 cents per share for the same period of fiscal 2004 on revenues of 187 million.

Interesting facts about this quarter, it is the 13th consecutive profitable quarter on a pro forma basis; our most profitable quarter on a GAAP basis since the fourth quarter of 2000; and I recently read and I haven't confirmed this but I'm sure the analyst is accurate in saying that this the highest margin quarter we've had since 1993.

Very quickly let me explain the noninvestment gain items included in the pro forma section of our income statement.

There are two components to this -- the return of certain Embraer 120 (indiscernible) aircraft.

Regarding the 120s, they were -- 3 years ago it was part of our CRJ-200 purchase agreement;

Bombardier agreed to cover all the monthly and a portion of the return cost.

The leases on four of these aircraft expire December 31 and as such we've taken the charge for our share of the return cost.

We have two more Embraer 120 leases that expire in 2009 and 2010 whose return costs have been fully reserved.

On the short, these aircraft were acquired pursuant to our acquisition of Crown Airways I remember back in the mid-1990s; the aircraft were subsequently subleased to an airline in the United Kingdom.

During the quarter we concluded negotiations with lessor and sub lessee where the current sub lessee assumed all obligations of the aircraft.

We have previously reserved amounts to cover meeting our return conditions which turned out to be over accrued.

As of today Mesa no longer has any obligations on these aircraft.

On the fleet -- during the fourth quarter we added one 86 seat RJ for America West.

During the balance of fiscal 2005 we'll be adding 13 RJs to our fleet.

The detail -- I will detail the 2005 fleet plan in a moment.

Our total fleet currently stands at 177 aircraft.

We have 90 50-seat RJs, 15 70-seat RJs, 25 86 seat RJs, 16 -8s and 31 Beech 1900s.

The 31 Beech 1900s represent the net effect of foreign aircraft that are being subleased to Gulfstream Airlines that have been previously announced.

As mentioned in today's press release, we have recently signed a letter of intent to lease an additional 10 of the Company's Beech 1900 aircraft to another operator.

Once that is done we will have approximately 21 aircraft in service depending on how many aircraft we will be using for spares.

Of that almost all I believe were down to about two lines of flying at that point -- that is not part of the Essential Air Service program and is subsidized.

As mentioned during our fourth-quarter conference call, we continue to make progress in financing our regional jets and starting to see some renewed interest in leveraged lease financings.

During the quarter the Company permanently financed five CRJ-900s leaving an additional five on interim financing.

During the remainder of fiscal 2005 the Company contractually committed to delivering to America West a minimum of 13 86 regional jets.

Interim financing commitment for the additional 10 CRJ delivery financing is now available for all aircraft through June of 2005 which is 10 of the aircraft.

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

We feel confident that we will come to an agreement in order to provide financing for these aircraft.

Our delivery schedule for the balance of the year comprises of all 86 seat CRJ-900s, four expected in early to mid February; in the third quarter there will be seven and in the fourth quarter two.

Again, this will fulfill our remaining committed CRJ-900 obligations for America West.

America West also has an option for 12 additional CRJs which should make (indiscernible) exercise would begin delivering in late 2005 and early 2006.

As some of you noted from our disclosure in our 10-K, we have order positions for an additional CRJ-700/900 at our choice (ph).

We are currently in discussions with the manufacturer as to the timing and type of aircraft to be delivered.

Please note that under United's contract we owe them 15 70-seat aircraft by October 2008.

Talk a little bit more about what we're doing on the fleet in a moment.

Mesa Air Group's operational performance for the quarter ended on December 31, 2004; it was a 98.7 percent controllable completion rate.

Included in the quarter were several perfect 100 percent controllable completion rate days.

The jet completion rate was even higher.

Again, based on the Company's growth, which I think may have been the fastest growth in terms of number of aircraft added in a year of any airline, it's a really remarkable achievement in terms of its -- our operational performance and I think a testament to the hard work of our people, certainly our management group and flight operations, maintenance and stations doing a terrific job keeping the numbers where they are through what is a very hectic schedule last year.

That being said, we continue to work on improving our operational performance in order to handily beat all of our internal targets and any contractual requirements we have -- we have beat by a fairly wide margin.

Given the Company's growth and operating challenges, especially during this last week with all this bad weather, I'd like to take a moment again to thank our employees and employee leadership group for their continued efforts.

Our ability to add 20 aircraft between January and April is a testament to their professionalism.

Again, a large part of this is due to the foresight shown by some of our employee leaders, in particular our pilot group.

We realized that we had to change the way we did our training.

We truly broke from tradition on this and set up a manner where we did not have the ping pong effect that literally plagues almost all other carriers with different types of equipment.

Whereby we've been able to streamline the training and in the past we added only one aircraft a month and now in the past we've added as many as nine in one month as a result of this type of cooperative effort by all of our people.

As previously announced, during October the Company entered an agreement to lease four Raytheon 1900s from our Air Midwest to Gulfstream.

These aircraft and three other Beech 1900s taken out of the Company's Florida operation.

The actions (indiscernible) further into the Company's vigorous pursuit of reducing unprofitable 19-seat flying that do not have government subsidies through the Essential Air Service program.

We continue to believe the consolidation will positively impact profitability and allow us to provide the best possible service throughout the remainder of our turboprop network.

As you can imagine, the 1900 operation is at risk flying, it's done on a prorate.

Without the subsidy it is obviously very difficult to make a profit in this market.

Given the fact that I'm not sure any other carrier that is at risk at this point is making a profit without significant fuel hedges in place.

So it appears to me that the more that we continue to pull that flying down to the point where with these 10 other additional aircraft gone we will be down to just about all the flying in the Essential Air Service program.

Also I would like to say that with those 21 aircraft, all of which are subsidized, we believe that operation will be profitable and will give us some significant flexibility as to what we will ultimately do with Air Midwest and again, as we've mentioned, we are thinking of a number of alternatives with that subsidiary.

For the remaining three quarters of 2005 Mesa projects total ASMs of 6.8 billion, a 4 percent reduction from last quarter's estimate of 7.1 billion.

This projection includes the 13 incremental CRJ-900 aircraft we were obligated to deliver to America West and a reduction of the 1900s and a slight slippage in our CRJ-900 delivery date.

As you know, ASMs for 2005 will be a function of final delivery schedules for our ordered aircraft and the marketing schedules our partners require us to fly.

Should delivery schedules slip or city fares change, the ASMs may be impacted either way depending on what kind of flying we ultimately end up doing with these aircraft.

Based on what we know today, we continue to be comfortable with the current First Call earnings range of $0.95 to $1.15 as well as quarterly estimates comprising those earnings.

However our earnings could be impacted in the change in delivery schedules as we previously noted.

Our partners' marketing schedule and timing of maintenance and training events.

Without stating the obvious, our results could also be impacted by any negative outcome at any of our airline partners.

I would like to take a moment and cover just a brief note about our partners.

Let me start at United.

We're very happy to see that their pilots, flight attendants and mechanics have come to an agreement in principal regarding their respective contracts.

That makes this current obligations can neither complete it in terms of aircraft deliveries as they are.

We're obviously optimistic that United's situation resolves itself in the not too distant future.

Again, as we previously have mentioned, Mesa is actively engaged in the recent RFP put out by United Airlines for 70 aircraft and we are exploring our opportunity to expand our operations with United through a number of different venues.

While this has been a tough quarter for all of our partners, again, we think United has shown some fairly significant progress.

At America West they continue to outperform the industry on a relative basis, but then again they have still reported a loss last quarter.

I know that they would like to see better results and feel that they are well positioned to take advantage of any industrywide opportunities in terms of enhanced yield or lower fuel prices.

These guys have done a very good job operationally.

They have kept their costs the lowest of all the hub network carriers and I think we'll be the first to benefit through any kind of rationalization that occurs throughout the industry.

We continue to play our RJs in matching demand between certain city pairs and we go very comfortable in our relationship with America West and we look forward to working with them for a long time.

We also feel that these guys have done just a tremendous job operationally with us and we would like to thank them for their support.

USAir clearly continues to be the most problematic of our partners.

We do think they have made terrific progress in terms of their labor groups in getting their costs in line.

I think we could argue that this is something that should have been done years ago, but given the experience that the Company has had competing with low-cost carriers, we're certainly glad that this is happening now.

The question obvious to everyone is it too little too late?

I think that they have at least put themselves now on a far more competitive footing.

We are hopeful that they will be able to continue the progress that they have made as they make it through the tough winter and into the spring.

We are going to do what we can to help them, but again I think we need to take a conservative approach.

We have developed a number of contingency plans; everything from potentially operating our aircraft on behalf of other partners.

As you can imagine, we're in very active discussions with a number of carriers and that regard.

We also have thought about and done some fairly significant analysis about where our aircraft might be flown, in fact to fill a potential void, and what we would need to do that although this is certainly not our first choice.

And most recently we are now in some discussions which I think will prove to be fruitful that will give us significantly more flexibility with our fleet than we have today.

That might allow us the opportunity to reduce the size of our fleet in the situation whereby one of our partners was to downsize significantly or, as some fear, even potentially liquidate.

We have a very strong liquidity position.

There's a lot you can do with money in terms of fixing a problem like that and we are now I would say even more confident today than we have been in the past, that we can face any of those challenges and Mesa will be able to work its way through without a significant disruption.

That is not to say that we won't downsize.

I think that if in fact the lowest risk and most likely outcome is that we would take that course of action.

But again, that's something that we'll just have to see and it will be dependent upon the outcome at our partners.

Okay.

That's pretty much our view.

We feel that the quarter was a good quarter.

This is not seasonally one of our best quarters in terms of our turboprop operations, but again those operations are becoming smaller and smaller.

We think that once we're out of these last 10 there's a reasonable chance that with the remaining flying that operation will be profitable; that is a big turn from where it was before.

We are seeing some nice economies of scale develop as we grow the operation.

Mesa grew very rapidly last year.

The fact that we're only taking one airplane a month -- these are 90-seat aircraft, 86-seat aircraft, still provides us with a nice growth platform and I would be frankly very surprised if it over the years time with our liquidity and our profitability that we did not drum up some additional business.

Mesa is in fact what we believe to be the lowest cost operator regional jets and we think that our services will be in demand and we think that there will be opportunities as the industry restructures for further flying of our regional jets and other new regional jets as well.

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

Again, we certainly appreciate you taking the time out of your busy schedule to hear our story.

(OPERATOR INSTRUCTIONS) Tony Cristello, BB&T.

Good afternoon.

Jonathan, I wonder if you can comment a little bit on -- your quarter was -- you had a great quarter, your profitability is up, nice operating margin.

What are your partners -- United, US Airways -- as they continue to try and take out costs, have you had any conversations recently about further concessions or about giving back a little bit more than what you have done recently?

We certainly haven't had any of those discussions with America West.

We haven't had those discussions with United.

We are in multiple discussions with USAir, but I think the view is -- from our perspective is maybe somewhat different than it has been in the past.

We'd like to do everything we can do to help.

On the same point, I think we are going to take a very conservative approach in that regard and I am not sure where the outcome will be in regard to that.

So we are talking to them about a very wide range of options.

There are some things that we would like to see done, there are some things that they would like to see done and I think there may be some horse trading to do but, as you know, they are taking delivery of regional aircraft.

Frankly we are not sure why.

At the same time I think our view would be that we feel that we already at this point offer them the lowest cost at probably the lowest margins in the business.

So I think we are taking a hard look at exactly what we may or may not be able to do with USAir.

Macs are your rates with US Airways 100 to 200 basis points below in general where they are with your other carriers?

They're pretty much in line with our other carriers.

The contract is interesting -- they all come out within a view hundreds of basis points almost every quarter more dependent upon other things like whether we earned a bonus or didn't earn a bonus at United or whether we got a penalty or didn't get a penalty.

It's all within I would say, at worst 1 point amongst them.

I would also point out that they did go bankrupt once before and we actually came out very well with more business.

I'm not sure that's the direction we want to take right now.

There has been some thought that maybe we would move some larger turboprops there and reduce our fleet with the 50-seaters where we might have an opportunity to do so in sort of a larger transaction.

We would maybe add some larger aircraft where we knew there would be a home for them if something -- if there was a negative outcome at USAir.

We've been working very carefully with our financing sources, with our other partners and with USAir and think that it is a balancing act but one that I feel pretty confident that we're going to be able to do and not be impacted negatively.

Okay.

And I'm assuming then it would be more of a situation -- you're going to get pushed back to them unless they come to you with some type of opportunities to strengthen or grow a little bit more?

I'm not sure growing is what we'd like to do.

In other words, I would say it's fair to say that in this environment I do not think that we would be interested in going out and taking on long-term obligations and that's not just USAir.

I think that we would have to look hard in regards to any long-term obligations.

We potentially might take on some short-term aircraft or I think what would be the most desirable outcome is just take on aircraft that are already financed by USAir, which would make the most sense to me because I believe we would operate them for less than they certainly could do it internally, potentially less than any other carrier.

And you still operate 57 jets for them, is that correct?

59.

59, is the breakout 36 and 23?

That's Correct.

All right.

Thank you.

Jamie Baker, JP Morgan.

Can you give us a little color on when you'd expect United to potentially reach a decision on its RFP?

I wish we had better insight, but they tell us they're working on it.

As you can imagine, we've been in discussions with them.

I think that this is a horserace between just a few parties and I think that United has quite a bit to offer the right party.

The question will be to what extent people pursue it as vigorously as they should.

Do you expect to be given the opportunity to submit counterproposals or was this a sealed bid type of process?

No, this has been ongoing I think United has been very open about the process with all the various parties.

And to the extent that any number of AirWis vacancies were -- former AirWis vacancies were offered to you, do you have the flexibility within your potentially USAir fleet right now to move assets quickly or should we assume that you would have to grow the fleet?

No, I think that's a good point, and that's what I was talking about -- there's a delicate balance.

We have some flexibility to move aircraft, not only between USAir and United potentially, but America West.

There are some things that we're working on and the only reason -- it's not that it's a secret; it's just that we haven't finalized anything.

But there could be a potential opportunity to move some aircraft around and maybe move some of the deliveries we have this year around that would give us the flexibility to satisfy all requirements of our partners.

That's one of the nice things about having the multiple partners is that we can sort of work together cooperatively in terms of where we actually put deliveries and what deliveries they are.

We owe United 700s; we have some 900s coming which may give us some flexibility with USAir.

There's just a whole number of issues that we just feel as a result a little bit more confident than we were in the last call that we're going to work through this satisfactorily.

Okay.

That's helpful, good quarter, Jonathan.

Thanks.

Ray Neidl, Calyon Securities.

You're reducing your planned SM (ph) expansion for next year.

I take it part of that is in sheet (ph) conditions and I guess America West is looking for any additional RJ capacity in the short-term, one of your big customers, and you have that certain situation at US Airways.

I'm just wondering by reducing your ASM planned growth what customers did that come out of?

And then I take it that did not count -- the United contract, if you were able to get that?

First off, we didn't really reduce it; in other words we still have the same -- we have 13 900s coming this year.

Some of the delivery dates slipped a little bit but that's out of our control.

Also remember we are taking down a third of our Air Midwest fleet, it's 15 1900s.

While that's not a huge number, that's certainly going to impact the ASM count.

And our feeling frankly is there is no doubt that that net reduction will end up having a profitable impact on our bottom line.

So it's just moving things around a little bit.

The fact is also -- no, it doesn't include any other transactions.

It doesn't include anything to do with United.

It doesn't include upgauging our United fleet which we think we will start in the not too distant future.

And again, as I said, we're working on a number of deals that we feel will give us opportunities both to grow but also to maintain a conservative approach in regards to our relationship with USAir.

We have confidence in USAir but I think prudence dictates that we try to operate that business in a very conservative manor at this point.

Second question, Jonathan, is more of a big picture question.

A little bit over a year ago you were interested in acquiring the assets of Atlantic Coast and it appears those assets may become available fairly soon.

I'm just wondering if you can give us some quick background about the stand-alone agreement, exactly what that is and when that expires?

Then you might want to address the surplus of 50-seat aircraft RJ's now versus last year and then the additional $125 million convertible note that Atlantic Coast took on which may make you decide that you're not that interested in the company any longer.

We did have an interest in Atlantic coast.

We offered them what we thought was a very fair value, I think it was almost $12 a share at the time.

I still think that the combination was one that would have made a lot of sense for both companies.

It included a 15 year agreement with United with double-digit margins.

I think it would have done a lot of good things for Mesa in that it would have further diversified our risk profile.

I think with hindsight, even the most ardent supporters of the independent operation probably have to question the direction that was ultimately taken.

Unfortunately in terms of any potential standstill agreement or any other settlement agreement we had, I am bound by confidentiality so I can't discuss that.

There are certainly -- if there is a demand for additional flight by United which there is, it would seem to me that something that I would imagine that Atlantic Coast is taking a close look at given their financial results.

And something that we feel clearly there would be an opportunity to fill those requirements at United.

Other than that I am afraid, Ray, I can't really talk a whole lot about it just because of this confidentiality agreement that we signed a while back with them in regards to our settlement.

You can't comment on when that might expire, that is confident also?

Yes.

One last thing.

Your pilots with mainline aircraft if something happens to US Airways, are you still interested in obtaining mainline aircraft to fill part of the void?

I appreciate you asking that question.

We recently concluded some negotiations with our pilots, our negotiating committee.

They were very positive, very constructive.

Not only were we able to settle about 80 some percent of outstanding grievances that we have had as we have implemented this new contract, we thought we'd come to an agreement in regards to what we felt would have been cost effective and competitive rates in regard to narrow bodies.

We also had talked about an extension of our existing contract.

I will say it without any hesitation, that if this had gone to the pilots, I feel confident that it would have passed.

It also included some additional compensation for them that was tied to improved productivity.

I think the pilots are very much interested in it.

Unfortunately, for as much as they are interested, I get the sense that ALPA is dead set against us operating narrow-body aircraft.

As you know, they opposed our move to fly the 90-seat aircraft.

They fought us tooth and nail, and I think that while ostensibly, ALPA is representing the interests of our pilots, I think that as was explained to me by some of their lawyers, they have their institutional interest to look out for.

And I think the concept of creating another low-cost competitor is one that they will oppose.

So, at this point, and frankly given the risks entailed with operating narrow bodies in this environment where even Southwest is unable to be profitable without profits and fuel hedging, I don't think it is a direction that we are going to pursue at this point.

Again, I think if the decision was up to our pilots I think they would pass it instantaneously.

The proposal we made was quite generous.

I think we're probably the only airline today talking about paying our people more, increasing the size of our aircraft and higher pay regarding that, improving their job security because we do feel that having a narrow body would be a requirement for us to operate the regional jets even in a void.

But none the less, again much to our chagrin at least and I imagine to our pilots' chagrin as well, we just were unable to come to any conclusion once ALPA stepped in and sent their lawyers out to conclude the agreement.

Thanks, Jonathan.

Sam Panella, Raymond James.

I was wondering what was the percentage of at risk versus revenue guarantee in December and where should that be at the end of this fiscal year?

Sam, it was at five percent and it will go down to about four percent.

At risk includes EAS.

I'm not sure who we view as a better credit right now but I'm happy to take the government's money.

Okay.

In the December quarter what was the loss from the at risk flying?

We will get that for you.

Thanks.

It was 2 million pretax.

Great, thank you.

You can see that number is at least getting a little bit better I hope.

That is typically our worst quarter.

Okay, great.

Thank you.

Bob Pool, Brickular (ph) Capital.

Great job, guys.

The $2 million that you just mentioned pretax loss in the fourth quarter, what would that loss have been if you had had all of the aircraft that you now have leased out leased out?

How much would that shrink the loss?

An aircraft out -- I would be -- I think conservatively tell you that given the remaining aircraft are in effectively a cost-plus arrangement with the government where if we don't cover our costs we can get paid more would suggest that that 2 million at least would be gone.

And technically we're supposed to earn a 5 percent profit on the balance which would be -- what would be the revenue stream with 21 aircraft.

At 21 aircraft we're at about $15 million per quarter.

(multiple speakers) million dollar annual business so we should actually (multiple speakers) $750,000 profit.

Okay.

And what was your loss all of last year in the at risk business?

The loss at Air Midwest was --.

Total loss for the year was about $8 million operating profit.

About $8 million loss.

Okay.

That was with at least two quarters that were very close to breakeven.

But it's a substantial improvement over last year quarter-over-quarter.

Okay.

Well, that plus the growth in your underlying business makes your -- the estimates that you've said you're comfortable with look very conservative.

Is your comfort with those estimates kind of including some assumption for sort of extraordinary events that might occur in the remainder of the year?

No, I think, Bob, we're just being -- as I said, we're taking a conservative outlook.

Our numbers assume that our partners continue to operate.

We feel pretty confident that at least through this fiscal year that will be the case.

We've been very involved with what's happening in particular -- which I know everyone is concerned is USAir.

We've been in discussions with them, we've been in discussions with their lessors.

GE, who plays a large role in aircraft financings both for USAir and for Mesa, has an interest in seeing this continue and I think it's something that people should appreciate.

That we have significant number of aircraft financed by GE, they are by far our largest single lessor.

And by them helping USAir they are in fact helping us which then is in fact helping themselves.

And we do feel that while GE doesn't play an active role in terms of the direction of the Company, clearly carriers come to GE, they need things done and we feel that our interests are well known at GE.

So what am I missing when I say four times your weakest quarter?

Is 28 cents is in the December quarter, the December quarter normally being your weakest quarter, four times that is $1.12, $1.15 is the high end of the range that you've expressed comfort with.

What are the -- what was not in that first fiscal quarter that would -- what kind of negative things were not in that first fiscal quarter that will appear in the latter three quarters of the year to make the annualization make sense?

There is always things that impact us differently in each quarter.

There's training obviously, there's maintenance.

However, like I said, I think that the real issue here is that we're just being conservative.

And then restructure the 1900 operation which I think would be 10 aircraft gone we will do.

We will get a lift to a fairly significant amount and so that's why we feel that that range is in fact conservative -- I won't say very conservative -- it is conservative (multiple speakers).

It makes sense to do that to give you some negotiating flexibility as well on some of this other stuff.

You guys operate 59 aircraft for USAir, how many do they operate for themselves?

How many RJs?

I'm not sure, but I would say it's probably less than 25.

Okay, and then last question.

The investment income that you had in the quarter, what generated that?

I'm not certain exactly.

The investment income.

We don't disclose what that's from.

It's generally from a transaction that we had some investment income from through a purchase or sale of securities.

Thank you, guys, very much.

Keep plugging.

Helene Becker, Benchmark.

Most of my questions have been answered.

But Jonathan, I don't want you to repeat anything you've already said about USAirways.

I just want to understand one little thing.

You have a Jets for Jobs program with them.

Correct.

As they go about restructuring their operations, does that program affect you guys at all?

The only way it affects us is oftentimes when those pilots get recalled, they go back to USAir.

So it is just sort of part of our attrition which, in fact, as you can imagine right now, is very, very low.

We had about 200 pilots, I think at the peak in Jets for Jobs.

I think it is something less than that at this point;

I know it is something less than that.

But that is the only thing that impacts us, is when some of those folks decide to leave to go back to USAir.

Okay.

So then does that keep your training costs artificially high if you have to bring in additional crew to fly the aircraft?

No, our attrition now is reasonably low.

And again, we created these training silos as part of our contract.

And again, it is one of these things that ALPA, our leadership here locally, realized the benefit of being able to do that where our pilots do not ping-pong between equipment types or they can't go from the first officer on one aircraft to a first officer on another aircraft.

So our training expense is actually, I think reasonably, under control at this point.

Okay.

Thank you very much.

Steve Getamal (ph) with Inverness Capital.

Yes, it's Steve Getamal, Inverness Capital.

A number of my questions have already been answered, so I just want to confirm the cash and debt levels if that is okay.

You said in your press release 253, and then you mentioned something about debt instruments.

Those are debt instruments that you own; is that correct?

We have debt outstanding, but we also have investments in certain treasury securities.

That's what I was asking, okay, right.

So your debt investments are just U.S. Treasuries?

And some corporate.

I think we own some GE paper and short-term all within a couple years.

Okay.

Would you give your debt at the end of the year?

As of December of '04, we had short-term debt which includes the current portion of about 150 million, and then long-term debt excluding current of about 660 million.

Okay, great, thank you very much.

Nice quarter.

Jay Madia (ph) with Forest (ph) Investment Management.

Actually been answered, thank you.

(OPERATOR INSTRUCTIONS).

At this time, I'm showing no further questions.

Well, thank you very much.

Just in conclusion, we are pleased with the quarter.

We feel that our people have done just an outstanding job.

We put a lot of aircraft into service this year.

Certainly something that I don't think any of us would have foreseen just a few sure years ago was possible.

We're starting to see the benefits of this expanded regional jet line and the reduction in our unprofitable turboprop flying.

It is sort of now coming to fruition.

Clearly, we would like to see a better market environment where we think that these earnings would be just viewed a little differently.

We certainly understand the concerns that investors have, and we will do everything we can to work hard to restore their confidence, both in our company and in the industry.

I will say that probably the single biggest change in my view has been what I believe to be is our ability to adapt to what could be significant changes in the industry.

I think we are on the verge of having a fairly significant amount of flexibility in terms of the aircraft we operate and what we do.

We have the benefit of the multiple partners, which I think gives us some degree of risk reduction, and more importantly, as I mentioned, the flexibility and balance that we have in terms of equipment.

We appreciate the support the investment community has had, certainly.

We are going to work hard to see that that support is well rewarded as we go forward.

Excuse me, this is the operator.

We do have a couple of additional questions.

Would you like to take those at this time?

Sure.

David Shu (ph) with Group Hero (ph).

I want to know if Mesa still has any shares buyback program?

Yes, we do.

We have a buyback program that I think allows us to purchase back.

Well, we increased it another 2 million shares.

We increased it another 2 million shares, and we have -- in fact, in that last quarter the buyback program was in place, and we did, in fact, buy back some stock at an average price of about 5.57 in the last quarter.

$5.57 per share?

That's correct.

How many shares you have bought back in the quarter?

That was in -- looks like the quarter.

But call Peter Murane, our CFO, and he can give you all the detail on that.

Another question concerning the 40 diluted shares.

How many of them are still outstanding right now?

I saw it in your report that there is roughly the difference between the (indiscernible) -- the basic and the diluted is 17 something for median.

No, the basic is the number of shares actually outstanding, which is approximately 30 million.

And the remaining difference is from our two converts, a 10 million from the first convert, about 6.9 million on a second convert, and then management options.

So how many is total number of shares under those converts?

I just said that.

It's about 17 million total under the converts.

So this latest figure is the updated one, right?

That is correct.

And what is the conversion price?

On 10 million of those shares it's $10; on 6.9 million of the shares it is $14.45.

And the data of the conversion?

I think it would be best, sir, if you called Peter Murane and he can give you all the details in terms of all the converts.

Thank you so much.

Uzi Zimmerman (ph) with JG Capital.

What was the CapEx for the quarter?

21 million.

Could you give me a breakdown of the distribution by plane?

I think you said 59 were at USAirways.

Can you give me what they were for America West?

We have 59 at USAirways in terms of regional jets.

At United we have 25 -- 30 regional jets at United and 10 turboprops, sorry, and the balance is at America West, of which 43 jets and 6 Dash-8s.

Okay, thank you.

Sir, that was the final question.

Again, thank you all very much.

We look forward to talking to you next quarter.

Until then, we will work hard to do the right thing for all of our shareholders.

Thank you.

Thank you.

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