Mesa Airlines, a subsidiary of Mesa Air Group (MESA), announced yesterday that it has filed for Chapter 11 bankruptcy protection, hoping to shed the financial obligations arising from leases on airplanes it no longer needs. Currently, the company has approximately 40% non functioning planes of its total fleet of 130. It hopes to shed 25 others that it does not need. The restructuring is expected to cut the extra fleets, thereby reducing operating cost.
Earlier during May, Mesa said it may file for bankruptcy court protection if a contract dispute with Delta Air Lines (DAL), which accounted for approximately 11.0% of Mesa’s revenues, didn’t go its way. Delta claimed that Mesa failed to meet operational performance goals spelled out in their code sharing contract, because of which, it wanted to cancel the contract and forced Mesa to take back its 50-seat regional jets.
Though a U.S. appeals court affirmed the decision by a lower court to prevent Delta from ending the flying agreement with Mesa, months later the company is seeking restructuring operations under Chapter 11 Bankruptcy to eliminate significant costs associated with retaining, maintaining and storing excess aircraft.
Though it is uncertain when the company will emerge from bankruptcy, Mesa said that the restructuring process will not hinder its day to day operations. Mesa’s Hawaiian inter-island, low-cost airline joint venture, go!-Mokulele, is not part of the filing and will continue to operate as per its full flight schedule.
World wide airlines have been struggling due to reduced demand for air travel as a result of the economic downturn. Regional carriers like Mesa has traditionally been able to carry through the rough economic environment due to guaranteed revenues from code sharing contracts with bigger airlines, such as US Airways (LCC) and Delta, for which it operates flights.
The bankruptcy proceeding is also expected to speed up Mesa’s lawsuit pending against Delta, in which the company is seeking damages of more than $70 million. During Nov. 2009, the company disclosed that United Airlines, whose parent company is UAL Corp. (UAUA), did not extend an agreement under which Mesa operated 26 regional jets for the larger carrier. Mesa will exit from the service by the end of Apr. 2010.
Mesa has been repeatedly threatened of being delisted from the NASDAQ for failing to meet the minimum financial threshold.
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