Mesa Air Group Inc (RJET) 2002 Q3 法說會逐字稿

I would like to inform all participants that you will be able to listen only to the question and answer session of the conference call and that today's call is being recorded at the request of Mesa air group. I would now like to turn the meeting over to Mr. Jonathan Ornstein, chairman and chief executive officer. Thank you, sir. You may begin.

Thank you, everyone out there taking the time out of your busy day to join in this third quarter earnings report. I would like to take a moment to read the following statement. This conference call will contain various forward-looking statements made by management based on assumptions and information given to management. We believe these are reasonable, but we can give no assurance that these are correct. Such statements are subject to certain risks uncertainties and assumptions. One or more of these risks or uncertainties materialize, actual results may vary materially from those anticipated, estimated or projected. The company does not intend to update the statements made in this call prior to the filing with the SEC. As you know, there's been obviously with all the issues regarding corporate responsibility, we take that very seriously here. I'd like to start by saying that we have in fact done a few things internally to further bolster our compliance in terms of our audit committee and its charter and again there are some things that we are going to look at going forward as we have always tried to be at Mesa ahead of the pack on a number of issues, which is one that we will also look to try to set a good example. I'd like to go through the call. We felt we had a reasonably good quarter, especially with the backdrop of what's happening in the rest of the industry. We Came in at 19 cents per share. That's after - prior to the impact of our strategic investment as well as an award that - regarding our litigation with the attorneys who are representing us in the united litigation, which was, as most of you know, settled some time ago.

I'd like to go through some of the other issues that impacted the quarter and then be happy to answer any questions that you may have. I have with me all of our senior officers in the room, so if there's any specific questions regarding finance or operations, or planning, I have all those folks here able to answer that as well.

Probably most importantly, we've continued our regional jet expansion. We added two RJ's during the quarter, two RJ's during July. We have 64 RJ's currently in service. We have accepted delivery of our first two CRJ 700's. This is the larger regional jet that we intend to put into service with America West as America West express. Those aircraft are expected to enter revenue service in late September. There has been a delay there. Primarily a result of a work action strike at the Bombardier factory and I think in fact that may have been helpful to us in it gave us time to prepare and move forward. We had hoped to put these into service about probably 45 days earlier, but this is working out actually quite well. We completed permanent financing for 10 of our E.R.J. 145's. Six of the aircraft were previously delivered and under interim financing. Two aircraft delivered in July and two aircraft to be delivered in August. Again, in this operating environment, that is no small feet. We are pleased that our finance people were able to put that together and allows us to continue to expand our CRJ well our E.R.J. fleet. Last quarter I think we mentioned we were going to be aggressively pursuing essential air service as a way to make sure that our 19 seat aircraft are employed profitably. We are delighted that we can tell you that we were awarded $6.7 million in new annual E.A.S. subsidiary markets in Oklahoma, Texas and Arkansas. We have a new man who joined the company, Scott Lyons, who has specifically been dedicated to this task. The four 1900's required to operate, these results will be done by discontinuing other unprofitable routes in the air system. There are for lack of better terms a double whammy in regard to garnering this essential air service, it puts us in a guaranteed profit but takes us out of profits that had been marginal at best and losing money. The award by the DOT brings it to 15 million. We pursue all E.A.S. markets as they become available. Our operational performance continues to be very strong. On time performance was 83.6% arrival within 15, which ranked us third when ranked against all the other major carriers. I'd like to thank all of our hard working folks out in the field as well as the operational management people for continuing to do an excellent job in making Mesa one of the leaders in this area. We continued the expansion of our frontier jet express operation, increasing the number of R.J.'s to five. We are - you know, I should say that there's been a somewhat weak revenue environment. As you can imagine, this is on a prorate business. Our results so far have been approximately break even. That is a little less than we had anticipated, but nonetheless I think given the environment, I don't think that's anything to be too terribly disappointed. We are also going to be tweaking the schedule going forward. We have announced that we're eliminating service in one market and I think that we will be - that will lead to some improvement there. We continue to work closely with frontier and I think that that continues to offer some opportunity for us as we go forward and certainly with any improvement in their revenue environment, that would be obviously very helpful. Despite the difficult air environment, America West, closed the quarter at a break even financial result. We think that this is a significant improvement over last year and we continue to work on improving those numbers, primarily by pulling these 1900's from the money losing operations into the government subsidized E.A.S. market.

June 8, we keep a tight handle on our expenses. Our G and A was done if you clued the Bruce Gilbert settlement, our G and A was down 18% per A.S.M. We think that's a good show for us that we can continue to expand our operations with regional jets and effectively keep our G and A flat and we continue that to - we feel that we can continue to do that.

Maintenance was flat per A.S.M. Again, our fleet, while, you know, we do have - obviously because we're spending expensing things, you see bumps in the road but that has been smoothed out and that will continue for the remainder of the year.

On a negative note, C.C. air, our subsidiary in Charlotte, continues to post unacceptable results and I think this is important and I want to make sure that folks understand that the pretax losses increased from 2.2 million in the second quarter to 4.7 million in this quarter. So C.C. air lost $4.7 million and 10.6 million year to date. We are very disappointed, despite the fact that the C.C. air pilots voted almost 75% in favor of a new contract, the contract remains unsigned by Alpa international. We had hoped to be able to expand C.C. air and include C.C. air potentially in any new regional jet flying, which clearly is the future. Unfortunately, without a cost structure that makes the company competitive, U.S. air is unwilling to give C.C. air additional opportunities. We thought that what the pilots had done was a very bold and brave move to garner some of that flying and again we're disappointed that alpa has not signed the new contract. I don't think this is unusual. There have been a number of initiatives from other carriers whereby alpa international has in fact delayed or has not signed new contracts over the last 90 days. In particular, some of the things that are going on at U.S. air right now. So we are very disappointed that the company continues to lose money. Again, this is turbo prop flying done under prorate. And as a result, the company is reviewing all of its options regarding minimizing and/or eliminating these losses on a go-forward basis. I think that is very important piece to consider when you do your analysis that $4.7 million worth of losses were generated at a very small subsidiary that currently is operating only three aircraft.

the Bruce Gilbert, the total judgment was $6.7 million. These folks were representing us at united. Without going into a long story, there was an issue as to whether or not how they calculated their fees. We had reserved 4 million, there was an additional charge of 1.7 million on an after tax basis and that impacted that G and A line and our result.

Investment income, we had a loss this quarter. He would like to point out that that was in fact due to primarily our investment in U.S. air, which is, I had mentioned before, has other strategic value to us, but on year to date, I would mention that our net result of our investment activities is profit of about $800,000, which again given the market conditions and the fact that we are basically involved in strategic investments in our industry if particular, I think that that is not a bad showing.

At the end of the quarter, - after the end of the quarter, I want to mention also, we have repurchased 354,000 shares of Mesa airlines as part of our stock repurchase plan. That was done after the end of this quarter. At an average price of approximately 685. We have about a million shares to be repurchased and the company will in fact repurchase stock at times when it feels it represents the company is trading under value.

That's pretty much our commentary. Overall, I would say that, you know, we feel that having made it through these last few quarters has been no small accomplishment. To be able to do so, keep our earnings intact, we feel we are very pleased. We are delighted with the work that our people in the field have done, the support they have given us to continue to make Mesa operationally as strong as it is. We think that our strong financial position relative obviously to the rest of the strife as well as this kind of operational performance will open a number of doors for us. As we have mentioned before, we are in discussions with a number of carriers for additional regional jet opportunities and we are looking to diversify our portfolio of carriers for which we operate. There's been a lot of discussion about what's happening at U.S. air. You know, the fact remains that we feel very positive about the fact that America West in fact has received their government financing. We think that U.S. air, with the unanimous decision to preliminarily approve their loan application, puts them in much stronger position. One of the big issues with Mesa had been the quality of its partners. I think I could make a regional argument that with those loan subsidies, U.S. air and America West are probably now significantly better off than a number of other carriers as a result. So we feel competent in our expansion plans with America West. We feel confident that any expansion opportunities we have with U.S. air, we would be - we are well suited to participate in those. However, I would say that we do feel that there are a number of other opportunities that we also wish to pursue and that the number of regional jets quite frankly is finite and that we feel that as those opportunities present themself, we will be looking at each one very carefully to decide which is in the best long-term interest of our company and our shareholders.

We also have been working closely with U.S. air, not only in our position as shareholders but obviously from the standpoint that their long-term viability is extremely important to us and we have remained committed and we have stated publicly and will state publicly again that we remain committed to participate to any extent that the company feels would be helpful. We also have stated that we are interested in participating potentially from a financial perspective and have been in discussions with other financial partners as well to do so if called upon.

With that, I'd like to open up to any questions that you may have regarding our quarter and any other thing about Mesa or the industry that we might be helpful 00:14:53 on.

Thank you. At this time if you would like to ask a question, you may press star 1 on your touch tone phone. You will be announced by name when we are ready for your question. Our first question comes from Michael linen Berg. Please state your company name.

Hi. Mike Leninberg, Merrill Lynch. Jonathan, good morning. I guess, just a couple questions. With respect to C.C. air, you threw out the number of how much the company lost in the last quarter, you know, it's 4 million plus, and yet it's a three aircraft operation. And I'm just trying to figure out, you know, what you're actually losing per passenger. I mean, are there - is the fact that you have, you know, a portion of it parked, what's based into that 4 million plus number, because that's sizable given the fact that is true operation is somewhat smaller?

Okay. The operation has been down sized two, three aircraft. I'm going to ask our CFO, rob stone, to just give you some specifics in terms of what that 4.7 made and Peter Murnane has also been involved.

Mike, in that number, there's about 1.9 million of costs associated with returning aircraft back to lessors and paying for aircraft that are just not being used, so if you look on a normalized basis, the losses is about 2.8 million and that is - so that has to be looked at on a run rate, that's probably about right and that's really a reflection of the cost of C.C. air versus the cost elsewhere in the Mesa air group structure, so that's what causes that differential.

And I think it's fair to say we believe that, you know, again, we have downsized the operation even further, those losses would be decreased this quarter, but still any losses in our mind are unacceptable and I think that, you know, this is an issue that primarily regarding, you know, the fact that we had hoped to get our cost structure down, we feel that we had taken the right steps to do that, but clearly a small operation has overhead associated with it that can't be supported by three or four turbo props and the whole goal at C.C. air was to put a cost structure in place to allow the company to grow significantly with regional jets. The pilots, like I say, made a very bold move and supported a contract that was in fact concessionary but would have provided an opportunity for all of them to individually make significantly more money, if they were flying the larger equipment. In fact, if you look at it, their pilots would have received in the neighborhood of 50% pay increases if we could have expanded with regional jets. Unfortunately, that contract is - it's still sitting in - at Alpa international, it's unsigned, and at this point we have - we've got to make some hard decisions, which I think, you know, can you see by these numbers, it's compelling that we do something sooner rather than later.

I guess on a slightly different note, the E.A.S. revenue, the 15 million, what sort of pretax margin are you going to earn on that? I know you're going from loss making market to profitable one. You know, what should we expect as we model this outgoing.

If I was in any other industry, I would be embarrassed to tell you, but in the airline business, I'm quite pleased to tell you we will make a 5% margin, which is what the government allows for.

The bottom line is that the swing is going to be greater than that.

It will be much greater.

Lastly, Jonathan, on waiver, can you update us? I know that there's open contracts out there. You know, whether it's, you know, the Mesa air Midwest pilots, mechanics, out there, you know, at your company and maybe the dynamic going forward since there are a lot of contracts that are opening up at other regional carriers.

That's a fair enough question. I think, first and foremost, obviously the C.C. air issue is disappointing to us. We had a contract ratified, 75% of the pilots, it was signed by their local M.E.C. and then alpa international has failed to follow through even though they publicly stated that they supported the contract and then they didn't sign it. So frankly, we're in a quandary is that even if we get a contract done with our pilots, does that necessarily mean it gets signed? We entered section six negotiations with our pilots backs in March, so it's obviously very early. As you know, these contracts take generally upwards of two years. We've only been in negotiations for what now, five or six months. I think we made reasonable progress. You know, I think that - I think people have begun to realize that the strife is in fact much different than it was a year ago. So I feel highly confident and I can tell you in the proposals that have been handed back and forth that I don't think anybody is looking at ComAir as the model right now, but, you know, these negotiations are long. They're often tough. But we have worked very hard to develop I think what is a good relationship with the rank and file abandon I think - and I think most of our folks have appreciated where this company has gone from four years ago to where it is today and they also realize that for them, you know, particularly in the pilot rankings, for them to make more money, that's going to happen as a result of growth at this company, not because we can offer a people a 4, 5, or 6% wage increase, but when they can go from being in the left side of 1900 to the left side of a jet, then their salary effectively doubles. Right now Mesa is very fortunate that because of our growth plan, we're able to upgrade our jet captains, in a shorter period, sometimes three years, this compares to a situation at C.C. air, the other extreme where they have first officers who are upwards to ten years seniority. That is the case at most of the other carriers that have been able to grow the way we have, so we think that we can continue to offer that package. We have explained that in order to get that growth, we have to be competitive, and we feel that most of our pilots certainly understand that. You know, as demonstrated by what happened at C.C. air. Again, I think that what we have to make sure is whatever the will of the pilots are is something that we can make happen because that clearly has presented some difficulty to us when you look at what's happened to C.C. air.

As far as other groups, we don't have any open contracts that I'm aware of other than the C.C. air flight attendants, which right now that number is almost in single digits. And we have had some very productive conversations with our flight attendants at Mesa where we think that we are close to actually, even though those negotiations don't open up for a couple years, we have sat down with them and said that we would - we would like to do some things that would enhance their contract in the short term in return for some longer term extension and we feel that we are very close to getting that done.

I don't believe that we have any other mechanic contracts open at this time. Okay. Excuse me. I'm told that the C.C. air pilot - C.C. air mechanics contract is open, but again that number is one that is literally in single digits at this time, so you know, I don't think that either of those are going to present any considerable difficulties for us. That will certainly depend again on what direction we take with C.C. air.

Okay. Thanks for the run down.

Thank you. Our next question comes from Jim parker. You may ask your question. Please state your company name.

Jim parker with Raymond James. Jonathan, a couple of questions. One is your certificate operates to 700. Is that on target?

We recently put Mike Feshta, who was the senior vice president of operations at Mesa, one of our long-time Mesa operational people as president. I think that we are very much on target for the September date. Again, the fact that we got a little bit of a brief respite as a result of the you can strike at Bombardier was helpful. As you can imagine, when you're dealing with the government and F.A.A., things take longer, especially in this environment, so having extra time worked out quite well.

With regard to the shares that you own in U.S. airways, what if they go Chapter 11, how much is that investment?

Well, we have not disclosed to what extent our investment is in terms of how many shares we own specifically, but I will tell you that our exposure at this time would be measured - is much smaller than it was as a result of a number of different items, including, for example, hedging activities, so we don't feel our exposure at this point is significant.

Okay. Are there any payments that U.S. airways and America West owe you that are not timely, that they haven't paid? Are they behind on any of the cash payments to you guys?

On both contracts, there always are issues that they're behind. The trueups that we go through and those have to be analyzed. In terms of behind, we have had a couple - as you know, we took a significant reserve last quarter, was it the quarter before last - September quarter, and we feel we are - I would say probably adequate and you know, I think our gut feeling is probably overreserves in terms of where we were with U.S. air and America West, but on a going forward basis, everything is in fact going as it should be going.

Okay. Thanks.

Thank you. Jim Higgins, state your question.

Jim Higgins with Credit suites First Boston. On the minority interest issue, is that from U.S. airways the numbers that showed up in your report?

Basically, Mesa owns 50% of the you fly partnership, so therefore we report the entire you fly and Mesa is responsible for half of it. Because we own half, it is technically a subsidiary is I guess the accounting treatment of it.

And you fly has to take the - has to run part of U.S. airways losses through its income statement because it's an investment vehicle? I mean, what's the accounting logic there?

Partnership. Our executive VP who has been working on this will take a second to explain this.

It's a partnership, but like an investment vehicle, you mark to market every month and Mesa's ownership is 50%. From an accounting standpoint, we consolidate 100% and pull out, if you will, the nonownership position through the minority interest.

Okay. So I guess what I was missing was that it was a partnership and therefore you don't have the flow-through. Thank you very much.

Sure.

Our next question comes from alex brand.

CBNC capital markets. Thanks. You said, Jonathan, that - we know you're delayed on the 700 schedule. Can you update us on what you think the delivery schedule is going to look like for the balance of the year?

Maybe I could have someone here do that because I'm not familiar.

From an in service standpoint, we'll have two airplanes going to service before the end of September, early October, and then really for the rest of the year, it's about one a month.

On the 700. The 900 will begin in service probably around May, and that becomes more like one and a half a month.

Between the two types?

Well, one and a half on the 900. So it's two to two and a half from May on. Did you get that?

Yes. Okay. Your E.A.S. business is now or it will be 15 million.

Right.

Are you - are you going to pursue a lot more of that? As I recall, there's a total of about 120 million available there.

Yeah. That's correct. There's about 120 million. You can see we are very much behind the curve and given Mesa's position in terms of our operations, I mean, we believe we are the lowest cost operator of 19-seat equipment. We feel that as a competitor, we can be very strong as a result of that cut our cost structure on the 1900. And that we are in fact, you know, one - you look at the other carriers that you flying in E.A.S., we are financially obviously much larger and have the ability to go in and I think talk to the communities, explain the value of having someone like Mesa who has been in the business, this year we're celebrating our 20th anniversary, the liquidity that we have, regional jets and we can upgrade their service if it calls for. So we've become a very effective competitor. Our problem is in the past we've ignored it and I think with Scott now and Peter and our financial department now focusing so much on this, I think that we're in good shape to garner more of that business. Again, when we take - we have the 1900's. They're here. We have to deal with them. You know, it was very expensive to get rid of the ones we did. We feel now that there's enough opportunity that we can put all of our 1900's to work and with America West breaking even, that is carrying a lot of cost in terms of overhead, so certainly contributing to our profitability, and going forward we think we can get air Midwest to the point of being profitable. I think we're just - we are just basically seeing the tip of the iceberg in terms of what we can do there. If we can put call it 10 more aircraft into essential air service, that really impacts our numbers favorably going forward.

Okay. You mentioned on maintenance that it was flat on an A.M.S. basis, which is true, but it did flip up and I'm not sure what I caught what your thoughts were on that, if there's anything there.

Because of the fact that there's just a question of timing, you know, you have a couple different more engine checks, more seat checks, we don't see anything strange about that and we don't see anything odd going forward. It's just, you know, this quarter was up a little bit compared to last quarter because it's a timing, but essentially we think it will be reasonably flat going forward.

I'll point out I mentioned earlier the C.C. air had one time charges, about a million and a half of that is return costs that end up in the maintenance line, so that does impact your overall number.

Okay. Great. Fair enough.

Thank you. Our next question comes from Jim Altshall, you may ask your question.

Good morning. Aviation advisory service. A couple of questions, please. First of all, can you tell us how did you finance these 10 E.R.J.'s, were they long term leverage leases or by some other means.

Long term leverage lease, Jim.

Okay. Do you think the conditions in the market are improving, going to be easier to finance the planes going forward?

Well, on our 200's - well, on the smaller regional jets, we're basically fully financed on all of them. On our larger, we've got financing for the first 20 of 40, so we've pushed out our requirement of being in the market by quite some time. There has been some very minor improvement in the market, but it is still a very difficult market, particularly with what is going on with the stock market and the general, you know, views on the economy.

Okay. Apart - after the two E.R.J.'s are coming in August, do you have any more coming this calendar year?

No.

Okay. And the E.A.S. award you got, the 7 million, were those communities served by another operator or is this a new service?

They were served by another operator previously.

Why did this back available? Were these awards put up for bid annually.

Every two years and when they become available, we are now bidding. We had not bid on these markets.

Okay. Now are there other potential opportunities that will be available in the balance of this calendar year?

Yes. There's actually quite a few.

Okay. And one other question, was - do you think that U.S. airways is decision to enter into a co-chair with midway, does that relate - I mean, does that have anything to do with the problems at C.C. air?

No. I thought that the deal to do with med way was clever. They had an operator that really had very few choices and they ended up doing an arrangement like ours in terms of cost plus and I think that that gave them some real leverage to negotiate a very good deal. So it really didn't have anything to do with C.C. air. The fact is that U.S. air is a large appetite for regional jets, they're close to getting a deal done. Although I think that deal with their pilots remains unsigned at this point. And I think that - so there's still some contingency in all of these deals, but I don't think it had anything to do with C.C. air and I think it may have more to do with the fact that both transstate and Chitokowitz, other outside carriers, their pilots have chosen not to participate in the jets for jobs concept that has been floated by the U.S. air pilots, whereby U.S. air pilots would get the Captain position and the regional would have to accommodate them. We have not - our pilots have not said that. Our pilots have been sort of proponents of it, so we are - we still stand ready to act if U.S. air would like us to. I think the bigger issue is that in our discussions with U.S. air, we have been quite Frank with them saying that there are in fact only so many jets available. Even under the most aggressive circumstance, I don't think that we could look to add more than potentially one airplane, you know, say every other month, which, if you've got 400 jet positions to fill, you can imagine they're not going to wait around for 10 years for us to do that, so I think that they just have other requirements and then, you know, finding someone like midway, which again, not a lot of alternatives for that company and David Seigel at U.S. air worked with Bob Ferguson when we were all together at Continental, so that made that deal something quick and easy to do. I don't think it had anything to do with C.C. air. It may have something to do with the fact that there are so many R.J.'s available.

Thank you very much for all this information.

Sure.

Thank you. Dan McKenzie, you may ask your question. Please state your company name.

Hi I'm with Salomon Smith Barney. On the subject of midway air, was Mesa surprised to get that business, were you even considering going after or bidding that business?

No. Not in the least. We have had literally daily conversations with U.S. air. We are the only U.S. carrier that has the opportunity potentially to participate in the jets for jobs deal. They have quite a bit going on, and you know, this situation with midway was something that had to go to the forefront as you can imagine, given midway's rather precarious financial situation. They have told us that while they are going to be placing the bulk of their jets internally, and I think that was almost entirely a result of their pilot negotiations. Their pilots did contribute pretty significantly and I think, you know, in terms of the concessions that they offered, which allowed them to get the unanimous support of the NTSB, so I think those are all part of the negotiations and again from our standpoint, what we wanted to see was U.S. air held think. Whether that means we are flying regional jets or not, additional regional jets, we're very pleased with the results of the 32 jets we have and we just would like to see those remain in place.

And, again, we only have - we only have the ability to add jets, as I said, you know, at - you know, at the rate of ten, so their demands just exceed anything that I think we could do, and I believe that you know, that would hold true with the other operators as well, just because deliveries are what they are. So, you know, no, we certainly weren't surprised. They had been very open with the fact that they were talking to other operators and, you know, I thought midway would in fact be a good choice given midway's financial situation.

You know, we hope to expand our operations with U.S. air, but again, you know, there's a lot of opportunities out there and the opportunity to diversify, our risk, is not unattractive to us.

Okay. Great. Regarding the four additional E.R.J.'s coming in, you were contracted for 32, you have 36 on order, have you found a home for those yet?

Well, we have some short-term aircraft on right now that are with Bombardier and we're trying to determine whether we'll renew the leases or not. It's going to be dependent upon the continued expansion at frontier. It's dependent upon what we do at America West. We're talking about potentially dropping some 200 or larger aircraft in the America West system. We're trying to free up some C.R.J.'s and potentially some E.R.J.'s for either additional expansion with U.S. air or as I mentioned, in the conversations we're having with other carriers, so we're just - we'd just like to have three or four sort of out there that we would like to offer because you can't - what's the expression, you can't tell from an empty shell and I think that all of the discussions that we're having, everybody seems to be anxious to try to do something sooner rather than later, so we're sort of warehousing a few extra aircraft so we can have something to offer to some of the other people we're talking to right now.

Thanks. Last question. Mesa taking the lead on certifying its financial statements, are you planning on meeting the August 14 dead lines?

I'm looking at my legal counsel who is sort of quizzically looking back at me.

We will meet all the requirements that are promulgated. At this point I don't think we have a requirement to do that.

Did you hear that response?

Thanks very much.

Thank you. I would like to remind the participants, if you do have a question, to please press star 1 on your touch tone phone. Our next question comes from Robert Ashcroft, you may ask your question.

UBS Warburg. National mediation board declaring single carrier status for Mesa and C.C. air. I'm just wondering what that means practically and is there any danger that freedom gets dragged into that? I would like your comments on that, please.

Sure. The NNB single carrier means that the Mesa pilots that are currently flying are going to be represented by one bargaining agent, and let me explain the history of why that even occurs. The C.C. air pilots approximately a year ago had begun a campaign to form a C.C. air pilots association and had petitioned the NNB to have potentially new representation. About two weeks after that petition occurred, Alpa filed the single carrier status which effectively would eliminate the C.C. air pilots' ability to do that. With the hearing, which I would like to state is in fact being appealed, because we do not feel that the decision was accurate, it's correct, but what that would do then is if - at such time as the C.C. air pilot comes under negotiations again, then those negotiations would be conducted by a joint master executive council, which would be controlled by the Mesa pilots and not the C.C. air pilots. So the effect is one that we don't find desirable. I would say that the C.C. air pilots don't find desirable, but one that alpa felt was in their interest obviously in order to be able to better control what's happening at all these carriers.

You know, our issue has been that without a new contract at C.C. air, and a new cost structure, the company can't expand. We do not however think that having some lower costs at C.C. air, we were going to be able to bring that company to profitability with half a dozen turbo props because we were able to shave off a few dollars off the rates, but rather that we could put a cost structure in place that would be attractive to U.S. air, who would then grant some flying to C.C. air, something that U.S. air had not done in years.

In terms of what would happen if freedom, their petition did include freedom but that that motion, part of it was denied because freedom doesn't exist, and I will tell that you one, the entire decision was incorrect and that's why we're appealing it and that if we felt that somehow that decision would in any way negatively impact freedom, I think we would then look at potentially a different corporate structure for freedom so that well be able to continue to appropriate those aircraft properly. Our concern obviously is that these aircraft, the larger regional jets, are a hot issue among the various pilot groups and as a result we want to make sure that Mesa has the - enjoys the opportunity it has with its America West contract to operate those aircraft profit profitably. America West is anxious to see the aircraft in service as are we. Certainly our pilots. Freedom allows our pilots to do so. We have had more than adequate in terms of pilots bidding into the freedom system to fly the aircraft, and I think that, you know, our biggest issue is just making sure that the interest of both our company and our pilots is upheld and we are somewhat concerned that there seems to appear to be a reasonable conflict of interest in regards to that in terms of what alpa's view is about larger aircraft, so in a word, yes, there is a possibility that could happen in terms of freedom, but that we would take the steps appropriate as to ensure our ability to have the benefits that we've derived under our contract with America West

Including possibly spinning off then?

I think that that would be a fair assessment, correct.

Thank you. At this time I am showing no further questions. Again, if you would like to ask a question, please press star 1 on your touch tone phone. At this time I show no further questions.

Okay. Again, I would like to thank everybody for taking the time to hear our story. We continue to feel that in spite of what has been a very difficult environment, the company has performed reasonably well. We'd like to think that we're starting to deliver on some of the promise that is we've made in regards to continuing to grow our jet business, fixing our 1900 problem which I think we've done a remarkable problem getting our America West operation back to profit in a very difficult environment.

I want to mention the fact that our C.C. air subsidiary, because it was downsized, operating with a small number of aircraft, had significant losses this quarter, I think most of you out there know me well enough to know that that will not continue. It's just very important that we get all of our subsidiaries operating profitably, which we intend to do, and that we think that going forward, our numbers will be impacted accordingly.

There are clearly challenges ahead. The revenue environment is still weak. We do not see any tremendous signs of improvement. We are coming out of the stronger time of the year for travel and into the holiday - into the, you know, the fall and winter, which will obviously present its own challenges. We clearly have issues that we need to resolve with alpa. We do feel however that all those issues are one that normal course of negotiations would take time, will be resolved. We think that that will be helped by the fact that we have developed I think a very strong and positive relationship with our work force, and over time, I think all these things will come to fruition and continue to provide Mesa with the kind of growth and opportunities that we worked so hard for over the last four years. So with that, again I'd like to thank everybody and wish you all the best for this summer. Thank you very much.