Mesa Air Group Inc (MESA) 2009 Q1 法說會逐字稿

Welcome and thank you for standing by.

At this time, all participants will be in a listen-only mode.

(Operator Instructions).

Today's conference is being recorded.

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Now, I will turn the meeting over to Jonathan Ornstein, Chairman and CEO.

Thank you, sir.

You may begin.

Thank you very much.

Thank you, everyone for joining us on this Friday morning.

Let me get -- just the forward-looking statement if I might.

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 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, projected or expected.

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

Good morning again.

I'd like to just go through the earnings.

There's obviously been a lot going on this quarter, so it may take a little explanation, but we will certainly be happy to answer any questions you may have.

In the first quarter of 2009 [nonconsolidated] since we posted net income of $15.5 million or $0.46 per diluted share from continuing operations on operating revenue of $265.1 million.

On a pro forma basis, net income was $10 million or $0.31 per share for the Company.

This compares to a $100,000 loss or breakeven on a per-share basis in the first quarter of 2008.

At December 31, 2008, the Company had cash, cash equivalents and marketable securities of $64 million.

That included $13.6 million in restricted cash, compared to $64.9 million, including $13.9 million of restricted cash on September 30, 2008.

It should be noted that, in the second quarter of fiscal 2009 and similar to prior years, the Company will be making significant aircraft lease payments that will impact our cash position.

Here are some of the important events in the first quarter.

We can start with go!, our operation in Hawaii.

We are very pleased that it actually had a profit for the first time for the quarter of about $0.5 million of net income on $11.6 million of revenue.

Available Seat Miles increased in the first quarter 15.4% in comparison to the same period a year ago.

Fuel prices were significantly reduced in the quarter, and go!

experienced increase in passenger revenue and load factor.

Depatures increased 11.4 and passengers carried increased 11.3 over the first quarter of 2008.

On November 28, 2008, we announced entering into an agreement with former controlling shareholder Aloha Airlines concerning the Aloha Airlines lawsuit over Mesa's (inaudible) Hawaii's inter-island operations.

Under the terms of the settlement, without admitting any wrongdoing, Mesa agreed to make a $2 million cash payment, issue shares of the common stock equal to 10% of the then-outstanding shares and provide inter-island travel benefits to certain former Aloha Airlines employees.

We recorded a charge of $2.8 million related to this transaction in the fiscal fourth quarter of '08.

Under the terms of the settlement, the shareholder is able to purchase the Aloha name in the Bankruptcy Court that will license the Aloha name to Mesa under a ten-year licensing agreement.

On our inventory, in the first quarter, we financed $2.9 million of certain rotable spare parts at an interest rate of 3.2% for 60 months.

The first principle payment of $82,000 is due and payable on the 21st month.

The interest will be accrued and added to the principle and note for the first 20 months of the arrangement.

We also purchased certain convertible notes.

The notes due in February 2024 were reacquired at a substantial discount and resulted in a recorded gain of approximately $8.1 million.

Subsequent to the close of the first quarter of 2009, we completed the restructuring of our senior convertible notes due to 2023 and 2024.

As you know, this was a significant hurdle we faced in the quarter.

Just to give you basically from start to finish, we paid out -- we had about $91 million worth of notes outstanding.

We were paid cash of about $6.8 million, and we issued approximately 117 million new shares.

We also issued additional securities that totaled, including these bonds that were not put, we had total debt remaining of $36.4 million.

I think it was definitely a difficult situation.

I want to thank all of our bondholders who worked with us, our bankers.

Everyone I think did a very good job seeing our way through what could have been a very difficult situation.

The notes that we issued are due in three years and bear an interest rate of 8%.

As I mentioned, some holders just held their existing bonds, which are now due in five years, that are traded with a [pic] and all due in the five years at the put time five years from now.

Total Available Seat Miles for the first quarter of fiscal 2009 decreased 18.4% from the first quarter of 2008.

The decrease was primarily due to the reduction of aircraft flown from 183 to 151.

This 17.5% reduction in our operating fleet results in 11.4% decline in passengers and 13.7% decrease in departures.

On a fleet summary, our operating fleet count at the end of the quarter was 151 aircraft, comprised of 135 regional jets and 16 turboprops.

In the regional jet fleet, we operated 38 CRJ-900s, 43 CRJ-200s, 20 CRJ-700s, and 34 ERJ-145s.

We also operate 16 Dash 8 turboprop aircraft.

Of those, we operate 49 regional jets and six turboprops at in coach air with US Airways, 46 and 10 turboprops at United, and 34 regional jets for Delta and 1 operational spare.

We also fly five regional jets in Hawaii operating as go!.

Another thing I want to point out is we did complete our pilot contract.

That's been done.

It's a two-year contract.

It's rather short term, but one that we just wanted to put something to bed.

We had very good cooperation within all of the groups to make that happen, and I think it's a contract that will serve our people well, as well as the Company well, as we go forward in this incredibly challenging time.

We have a number of challenges ahead of us, not the least of which is we still have the Delta case overhanging.

As many of you know, you know, we first had a problem obviously with the Hawaiian litigation.

I thought the Company had the ability to bounce back from that but unfortunately the Delta case and the threat of bankrupting us has really been incredibly damaging to the Company.

I think, of all the things that have happened to us, it's probably the one that came as the biggest surprise and one that has had the biggest impact.

We hope to put that behind us.

We feel strongly that we will win the case, and we will just continue to operate as a Delta connection.

Of course, I get asked frequently, are there any alternatives?

Are there some creative options?

Of course, we are always open to those things and we will continue to pursue anything that we feel is in the best interests of our company and our people.

We continue to have a challenge in China.

We have five aircraft over there.

That operation has suffered like every other airline operation in the world.

We are actually flying over there next week to talk to our Chinese partners about what is going to be our strategy going forward in China.

I will tell you that, going forward, we've had some really terrific operational performance over the last few months in spite of the winter weather.

I think our people have done a terrific job, but it's still one of those things where, every day, we have to work hard to make sure that we are providing the best service to our passengers.

Paul Foley, who has come over as Chief Operating Officer, has done a wonderful job with our people on the operational side.

Mike has helped a lot significantly becoming the new CFO and putting a budget together, along with his team.

I think that, while we probably feel we are as organized as we have ever been, clearly I think we all know operating in this new environment is proving incredibly challenging for ourselves as well as for our partners.

We do have the benefit of lower fuel prices, but I will tell you that the overwhelming concern obviously is what's happening to demand.

While we don't see it so much in Hawaii -- we've somehow been insulated and it's actually been quite good -- we do know that the demand has dropped significantly across the board, and obviously giving us concern as we carefully monitor the financial health of our partners.

We do everything we can to help them.

We are trying to do whatever we can that will ease their burden.

Certainly, as I mentioned, fuel has helped, but I think we all know that there's a lot more to go.

We had a good quarter.

Clearly, we feel that with go!

operating profitably, our other contracts will work for us.

You know, that was the whole model.

This has actually probably been one of our best quarters in quite some time.

It's kind of strange for me to see, even with 140 million-plus shares outstanding, the Company is trading at about 1 time quarterly earnings in a market cap.

But again, with all of the other issues out there right now, we can see that we've got a lot of other problems.

So we all know that.

We continue to work hard to get through these things.

I think the best thing that we can do is sort of go through them one by one and do the best we can.

With that, I would be happy to answer any questions you might have.

(Operator Instructions).

Helane Becker.

Thank you very much.

So, can you say when this Delta case is going to be resolved, give us some sense of the timing of that?

Sure.

I think that we currently are awaiting an outcome from the appeal of the injunction that Delta made.

We understand we should hear something about that in the next 90 days.

We feel reasonably strong that the injunction will be upheld.

Then of course the opportunity would be that Delta could choose to go and press the suit forward.

Our lawyers feel that we have a strong case.

They sense that, when you win an injunction, the hurdle to win an injunction is significantly higher than that that would be required to win the case.

Logic would dictate that we would then, I would think, try to work out some kind of settlement.

As you know, logic doesn't always dictate people's behavior.

In all likelihood, we may well end up in court, which would probably be sometime towards the end of the year.

Towards the end of this calendar year?

Right.

Right, okay.

In terms of the aircraft that are involved, are they Mesa-owned aircraft?

Well, they are leased by us, yes.

Okay, so you would still be on the hook for the aircraft?

Correct.

That was the whole, the issue regarding the bankruptcy because we were on the hook for the aircraft.

Okay.

Then my other question, just on the cash position, I thought you said $64 million with $13 million of restricted cash.

Then you said something about the cash declining because of lease payments, so I missed that part.

Sure.

Basically, we have uneven lease payments.

It's not like we are paying our rent every month.

The payments are structured at the time the lease is done.

We have a very significant payment stream due in January, and then we have another chunk later in the year in March.

So, we have a tendency -- you know, we build up a fair amount of cash in the latter part of the year then, frankly, spend most of it in the first part of January.

So our cash situation does tend to fluctuate pretty significantly throughout the year.

Okay, so can you say what the cash position is right now?

No, because you know what?

It fluctuates so much.

I mean, we get payments from US Air and United for $7 million every week on different days, so it just depends upon what is going in and what is going out.

We do feel that we have adequate cash.

We always, through our history, have had low points in cash.

Up until the time that we raised some money with those bonds, we always get -- the cash position would go down pretty significantly after the January payments.

But it builds right back up because remember, US Air and United are paying us on equal installments for the aircraft, so within a few weeks, it builds right back up again.

I got you.

Okay, all right, thank you very much.

Bob McAdoo.

On the [Mokolai] versus go!

versus Hawaiian front, I get a sense that [Mokolai] has been discounting some more contrary to what they kind of said.

What is your sense as to what's gone on with the average fare in the last week or two or last two or three weeks?

What is -- how severe is the discounting?

Are we anywhere back to where it was when go!

was doing the discounting, or are we kind of halfway back to that level or what is kind of the status there?

Well --

-- as it relates to you guys, not necessarily as to what they are doing?

Yes.

We've seen that our average fare we had running around the $60 mark, and I think that, this month, it will probably be closer to $50.

It's not in small part because we did book some seats before some of these fare wars were started by [Mokolai].

I would say that the average selling fare is probably now in the high $40s.

But we are carrying -- our load factor is probably 7 or 8 points above plan.

Last month, we ran 8 points above last year.

So it is somewhat offset by that.

Probably the biggest news is that our fuel bill is -- fuel is running over $1.00 below our plan, and that works out to about $1.5 million a quarter.

So, we are seeing the ability to offset a lot of some of that decrease in terms of the average fare.

The question is, you know, obviously, it's been well reported that [Mokolai] fell into default on their payment.

They've already gone through $8 million of Republic's money.

The question is to what degree this can remain a viable operation.

So what -- the last few weeks, the last couple or three weeks, what has your load factor been over there?

We've been running in the high 60s%, which is, like I said, a little bit better than planned.

January and February are the two slowest months of the year.

Last year, we ran about a 58% load factor in January -- in January, and then maybe about a 60% load factor in February.

I don't recall exactly.

Okay.

What's the total shares outstanding now after all of the transactions you've just been through?

The total shares outstanding now is about 147 million will be February 25.

Okay, so on a going-forward basis, that's what we ought to be thinking about.

Am I clear that, with the transactions you've done on these two sets of notes, that now you have no more puts that you are facing, nothing big, no bullets like that for three more years?

Is that where we are?

That is correct; that's correct.

We are three years out for the next payment, and on that, the note size is, I believe, $17 million.

Okay.

Just a little more clarification on Helane's question on the Delta thing.

So there is the appeal that they've done on the injunction.

Once that comes out one way or the other, then the question is do they actually want to go to trial on the basic point as to whether or not they have the right to walk away?

Is that the issue?

That's correct.

That decision hasn't obviously been made, and they have that choice once they find out whether they win to lose on the appeal.

So they could in fact lose the appeal; you still have the injunction in place.

They then decide to go to trial, which could drag it out for some period of time thereafter?

That is correct.

On that batch of airplanes, what is the normal kind of end of that contract?

The 145s are the old US air planes, right?

That is correct.

I think the contract ends in 2012.

Do the leases expire kind of all as a clump at that point?

No, they do not, not at all.

They go on.

They go on thereafter, so it's a question of finding a home for those at some point anyhow?

Correct.

Okay.

All right.

I mean, it is unfortunately one of the challenges the whole industry faces.

You are not the only guy with planes that you haven't found a home for, obviously.

No, and I mean, we are working on it.

We've been able to manage to get rid of a few here, a few there.

I mean, the concept with China was -- the initial agreement was China was going to take 20 aircraft.

We thought we had solved a big part of the problem.

That did not work out the way we had hoped.

But we are talking to other sources and have had some degree of success in trying to place these aircraft.

The nice thing is getting through the bonds gives us 15 to 16 months to start to get some of these aircraft issues resolved.

So it does give us some time.

Okay, so the five aircraft that are in China, they are airplanes that you leased from someone which now have been subleased to that Chinese venture?

Is that the deal?

That is correct.

So there's also the possibility that those planes could be looking for a home, too?

That is correct.

I got it.

All right.

Thank you.

I'm showing no further questions.

Okay.

Well, guys, under normal circumstances, a $15 million quarter here would have been a cause to celebrate.

Unfortunately, with all that's going on, both within the Company and around the world and within our industry, it gives us a momentary good feeling but we are certainly well aware of the fact that we have a lot of work ahead of us.

So, we are going to keep after it.

We hope that we are looking into this next quarter, do the best we can.

We are glad to get the bonds behind us, and our next challenge is to win the Delta case and move forward from there.

So, thank you very much and have a nice weekend.

Bye-bye.

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