The Mesa Air Group's hostile bid for Atlantic Coast Airlines (ACA) has gone to litigation, as ACA pilots back their employer's independent low-fare ambitions.
Mesa chief executive Jonathan Ornstein continues to deride his target's plan to become the first low-cost, low-fare, all-jet regional. His company's unsolicited bid of around $500 million, the first unwelcome take-over attempt in the airline sector since the days of Frank Lorenzo's Texas Air, has generated a debate over whether regionals should be independent or operate under the wing of a major.
In late July, ACA announced plans to break ties with United Airlines after the carriers failed to reach agreement on a reduced rate structure similar to those United negotiated with its other United Express carriers.
ACA decided to use its regional jets for independent low-fare service from its Washington Dulles hub throughout the eastern states. Mesa then made its bid, which would keep ACA as a traditional codesharing feeder.
ACA declined the offer, and by November it and Mesa were suing each other, with ACA saying that Mesa had made "materially false and misleading statements and omissions" when it stated that United was a not a participant in the take-over bid. United has denied that it is actively involved.
Mesa counter-sued, asking a court to declare invalid a key part of the ACA take-over defence.
AvStat Associates consultant Doug Abbey calls the litigation "a distraction, indecisive and just not relevant". Abbey, an expert on the regional industry, says the issue should be decided on the basis of ACA's plan, dubbed Goldilocks.
He says: "They are thinking outside the box and should be allowed to give Goldilocks a try."
ACA pilots agree strongly enough to have backed the plan with their wallets. In November, they voted 97% in favour of a revised contract that includes a 3% pay cut - but only if their airline changes into a low-fare regional jet carrier.
But even with pay cuts, Credit Suisse First Boston analyst Jim Higgins says ACA's pilot costs will be about 10% more than Mesa's, which are considered the lowest among regional airlines.
He is convinced that ACA's "low-fare strategy may be a recipe for financial disaster", based as it is on "deeply suspect" cost projections and "an unrealistically optimistic view of ACA's network resilience". Some say Virgin Group's Richard Branson wants ACA as a US base for his low-cost ambitions.
The new US Airways' exposure to low-fare competition at Philadelphia complicates the issue. US Airways is one of Mesa's largest customers, and Ornstein's desire to diversify revenue sources may embolden his pursuit of ACA.
US Congress members, concerned about the potential loss of flights to small cities in the east that ACA serves, have asked the US Transportation Department to investigate.
Source: Airline Business
