Management at US regional operator Mesa Air Group insists shedding its mounting number of excess aircraft through Chapter 11 will allow the company to emerge from its formal restructuring with a refreshed level of competitive strength. But a successful emergence is far from certain in a fragile US regional industry that appears to be on the verge of a forced consolidation.
Mesa faces the possibility of having its number of excess aircraft ballooning to 77 by May of 2010 after United, late in 2009, opted not to renew two feeder deals covering Bombardier Dash 8 turboprops and CRJ200s. After exhausting all possibilities with lenders and lessors to reach agreements to return its current parked fleet of 20 turboprops, 17 CRJ200s and 12 Embraer ERJ-145s outside of a formal restructuring, Mesa was forced to enter Chapter 11.
Mesa chief Jonathan Ornstein stresses to employees Mesa is not going out of business, and it is not searching for additional cash. By shedding its financial obligations tied to the parked aircraft, he believes the restructuring will "ensure a leaner, more competitive Mesa, poised for success".
But independent analyst Douglas Abbey warns Mesa is attempting to restructure as the US regional industry is contracting. "The Chapter 11 bankruptcy is a symbol of that decline, and frankly, has been a long time coming. There is a shrinking pool of business with numerous other third-party service providers."
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This year marks the beginning of discussions to renew contracts brokered by regionals and their mainline partners a decade ago, and those renewals reach full-force in the 2012-2019 timeframe. The aversion majors have to 50-seat aircraft, and improved economics will be key in those negotiations, spurring intense jockeying among regionals to both retain their current level of business and poach existing contracts from their competitors.
Post restructuring, Mesa faces that tough environment and Abbey warns the company's Chapter 11 filing "really doesn't provide anything accretive or substantially improve Mesa's business plan going forward". Mesa, in its petition for Chapter 11, admits it has lost market share after its competitors negotiated extensions or contract amendments by providing major carriers with secured loans, stock or cash and payment deferrals.
Mesa's restructuring could also be the start of the long-predicted consolidation in the sector. Ornstein in September told Airline Business that no carrier will operate 50-seat aircraft long-term at a loss. He predicted the market would correct itself by operators either sub-leasing aircraft or returning the examples through a formal Chapter 11 restructuring. Among the currently five publicly traded US regional airlines, Mesa is the only carrier that has filed for formal restructuring.
Source: Airline Business
