SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of Securities Exchange Act of 1934
For the quarter ended March 31, 1998
Commission File Number 0-15495
Mesa Air Group, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 85-0302351
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3753 Howard Hughes Parkway, Suite 200, Las Vegas 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 892-3773
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
On May 4, 1998 the Registrant had outstanding 28,327,917 shares of Common Stock.
1
PART I. FINANCIAL INFORMATION
Item 1.
MESA AIR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31 March 31
1998 1997 1998 1997
----------------- ---------------- ----------------- -----------------
Operating revenues:
Passenger $ 115,769 $ 123,037 $ 237,835 $ 241,912
Freight and other 3,864 2,373 6,357 4,909
----------------- ----------------- ---------------- -----------------
Total operating revenues 119,633 125,410 244,192 246,821
----------------- ----------------- ---------------- -----------------
Operating expenses:
Flight operations 47,765 45,705 95,729 87,683
Maintenance 23,604 21,482 46,531 42,775
Aircraft and traffic servicing 21,706 21,409 43,452 41,806
Promotion and sales 16,737 17,984 35,237 35,576
General and administrative 7,463 5,778 15,526 12,736
Depreciation and amortization 7,305 8,482 14,548 17,025
Other operating items 6,500 -- 40,443 --
----------------- ----------------- ---------------- -----------------
Total operating expenses 131,080 120,840 291,466 237,601
----------------- ----------------- ---------------- -----------------
Operating income (loss) (11,447) 4,570 (47,274) 9,220
----------------- ----------------- ---------------- -----------------
Non-operating income (expenses):
Interest expense (6,809) (6,897) (13,043) (13,593)
Interest income 268 503 863 1,045
Other 8,701 205 8,565 277
----------------- ----------------- ---------------- -----------------
Total non-operating income
(expense) 2,160 (6,189) (3,615) (12,271)
----------------- ----------------- ---------------- -----------------
Loss before income taxes (9,287) (1,619) (50,889) (3,051)
Income tax benefit -- (630) (2,511) (1,186)
----------------- ----------------- ---------------- -----------------
Net loss $ (9,287) $ (989) $ (48,378) $ (1,865)
================= ================= ================ =================
Average common and common equivalent
shares outstanding used in basic and
diluted computations 28,304 28,265 28,299 28,263
================= ================ ================= =================
Net loss per common and common equivalent
share, basic and diluted $ (0.33) $ (0.03) $ (1.71) $ (0.07)
================= ================= ================ =================
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31 September 30
1998 1997
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 40,594 $ 57,232
Marketable securities -- 8,690
Receivables, principally traffic 47,268 53,852
Income tax refund receivable 7,349 6,999
Expendable parts and supplies, net 30,769 31,377
Prepaid expenses and other current assets 8,906 8,553
------------------ ------------------
Total current assets 134,886 166,703
Property and equipment, net 433,112 440,890
Lease and equipment deposits 11,671 10,354
Intangibles, net 21,350 22,071
Other assets 7,429 9,848
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Total assets $ 608,448 $ 649,866
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 16,781 $ 31,786
Accounts payable 13,430 21,884
Air traffic liability 11,420 6,785
Accrued compensation 6,779 7,025
Other accrued expenses 37,528 30,662
------------------- ------------------
Total current liabilities 85,938 98,142
Long-term debt and capital leases, excluding current portion 329,809 338,199
Deferred credits and other liabilities 66,679 34,837
Deferred income taxes -- 1,600
Stockholder's equity:
Preferred stock of no par value, 2,000,000 shares
Authorized; no shares issued and outstanding -- --
Common stock of no par value, 75,000,000 shares authorized;
28,327,917 and 28,294,584 shares issued and outstanding 101,626 101,361
Retained earnings 24,396 72,686
Unrealized gain on marketable securities, net -- 3,041
-------------------- -----------------
Total stockholders' equity 126,022 177,088
-------------------- -----------------
Total liabilities and stockholders' equity $ 608,448 $ 649,866
==================== =================
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended March 31
1998 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (48,378) $ (1,865)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 15,196 17,025
Provision for other operating items 40,443 --
Amortization of deferred credits (11,177) (846)
Stock bonus plan -- 348
Provision for doubtful accounts 1,012 --
Gain on sale of securities (4,544) --
Other 859 --
Changes in assets and liabilities:
Receivables 5,572 (9,187)
Expendable parts and supplies 608 (526)
Prepaid expenses and other current assets (353) (3,116)
Accounts payable (8,454) 4,403
Other accrued liabilities 10,036 (6,541)
------------------ ------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES: 820 (305)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,443) (4,198)
Proceeds from sale of property and equipment -- 1,803
Proceeds from sale of marketable securities 11,102 1,000
Other assets 2,419 5,027
Lease and equipment deposits (1,317) (900)
------------------ ------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES: 5,761 2,732
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and obligations
under capital leases (23,484) (8,826)
Proceeds from issuance of common stock 265 122
Proceeds from deferred credits -- 409
------------------ ------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES: (23,219) (8,295)
------------------ ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS: (16,638) (5,868)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,232 54,720
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,594 $ 48,852
================== ==================
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Month Period Ended March 31
Supplemental disclosures of cash flow information:
1998 1997
------------------- --------------------
Cash paid during the period for:
Interest $ 13,118 $ 13,593
ncome taxes -- 1,241
Mesa did not purchase any property or equipment upon which debt was assumed
during the six-month period ended March 31, 1998. Mesa purchased property and
equipment totaling approximately $37.0 million upon which debt of approximately
$36.4 million was assumed in the six-month period ended March 31, 1997.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month and six-month periods ended March
31, 1998 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and
footnotes included in the annual report for the year ended September 30,
1997.
2. The condensed consolidated financial statements include the accounts of
Mesa Air Group, Inc. and its wholly owned subsidiaries Mesa Airlines,
Inc., WestAir Holding, Inc., Air Midwest, Inc., Mesa Leasing, Inc., MAGI
Insurance, Ltd., MPD, Inc., and FCA, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation. See
discussion of WestAir Holding, Inc. in the "Liquidity and Capital
Resources" section of this report.
3. Income tax benefit in the six-month period ended March 31, 1998 has been
recognized only to the extent of previously recorded deferred tax
liability.
4. The Company recorded a provision of $4.0 million in the quarter ended
March 31, 1998 to recognize the discontinuation of service of its
independent jet operations in Ft. Worth, Texas.
5. On March 13, 1998, April 1, 1998, and April 13, 1998, the Company issued
options, subject to shareholder approval, to purchase approximately
1,630,000 shares of common stock to key employees, senior officers and
directors of the Company at fair market value on the date of the grant.
Generally accepted accounting principles provide that any increase in the
fair market value of the underlying common stock at the date of grant of
the stock option and the date of subsequent approval by the shareholders,
be recognized as compensation expense over the vesting period in the
Company's statement of operations.
6. Legal Proceedings:
See, "Part II., Item 1."
6
Item 2.
MESA AIR GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Mesa Air Group, Inc. and its subsidiaries (collectively referred to herein as
"Mesa" or the "Company") is a regional airline operating as America West
Express, Mesa Airlines, US Airways Express and, through May 31, 1998, United
Express (see, "Other Events--United Airlines") serving 127 cities in 29 states,
Canada and the District of Columbia. At March 31, 1998, Mesa had a fleet of 192
aircraft with approximately 1,500 daily departures. After cessation of United
Express service on May 31, 1998, the Company will be providing service to 110
cities in 28 states, Canada, and the District of Columbia with approximately
1,000 daily departures and will utilize approximately 114 aircraft.
Mesa's long-term strategy is to profitably service routes not directly served by
major air carriers and to supplement service of major carrier code partners on
certain routes. The Company evaluates market demand and utilizes its fleet of
aircraft to meet that demand. Code-sharing agreements with certain of the major
air carriers provide benefits from the name recognition, reservation systems,
marketing and promotional efforts of those carriers. Mesa operates a fleet of
new and efficient aircraft and performs much of its own maintenance and overhaul
work.
Historically, the Company has relied on generating most of its revenues by use
of a "through fare" arrangement with its major code-sharing partners. A "through
fare" is a combined fare offered to passengers who connect to Mesa from a major
code-sharing partner and vice versa. Mesa is paid a pro rata portion of the
"through fare." As an alternative to the "through fare" arrangements, the
Company, in certain markets, has utilized fee per departure arrangements. A fee
per departure arrangement allows the Company to obtain a fee based on a
proprietary formula for each flight operated. The Company seeks to obtain fee
per departure arrangements in those markets which it deems the arrangement more
favorable than a "through fare."
The following tables set forth year-to-year comparisons for the periods
indicated below:
OPERATING DATA
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Three Months Ended Six Months Ended
March 31 March 31
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
Passengers 1,443,399 1,557,497 3,043,009 3,117,982
Available seat miles (000) 629,313 600,517 1,262,426 1,189,659
Revenue passenger miles (000) 326,653 328,201 681,126 655,689
Load factor 51.9% 54.7% 54.0% 55.1%
Yield per revenue passenger mile 35.4(cent) 37.5(cent) 34.9(cent) 36.9(cent)
Revenue per available seat mile 19.0(cent) 20.9(cent) 18.8(cent) 20.3(cent)
Operating cost per available seat mile 20.8(cent) 20.1(cent) 23.1(cent) 20.0(cent)
Average stage length (miles) 185 170 184 170
Number of aircraft in fleet 192 185 192 185
Gallons of fuel consumed (000) 18,966 18,155 37,596 36,657
Block hours flown 134,961 140,217 272,430 276,379
Departures 134,700 148,400 273,267 294,467
7
FINANCIAL DATA
--------------
Three Months Ended March 31, 1998 Versus Three Months Ended March 31, 1997
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Three Months Ended March 31
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1998 1997
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Cost per Percent of total Cost per Percent of total
ASM operating revenues ASM operating revenues
--------------- --------------------- --------------- ---------------------
Flight operations 7.6(cent) 39.9% 7.5(cent) 36.5%
Maintenance 3.7(cent) 19.7% 3.6(cent) 17.1%
Aircraft and traffic servicing 3.4(cent) 18.2% 3.6(cent) 17.1%
Promotion and sales 2.7(cent) 14.0% 3.0(cent) 14.3%
General and administrative 1.2(cent) 6.3% 1.0(cent) 4.6%
Depreciation and amortization 1.2(cent) 6.1% 1.4(cent) 6.8%
Other operating items 1.0(cent) 5.4% -- --
--------------- --------------------- --------------- ---------------------
Total operating expenses 20.8(cent) 109.6% 20.1(cent) 96.4%
Interest expense 1.1(cent) 5.7% 1.1(cent) 5.5%
Six Months Ended March 31, 1998 Versus Six Months Ended March 31, 1997
- ----------------------------------------------------------------------
Six Months Ended March 31
------------------------------------------------------------------------------
1998 1997
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Cost per Percent of total Cost per Percent of total
ASM operating revenues ASM operating revenues
--------------- --------------------- --------------- ---------------------
Flight operations 7.6(cent) 39.2% 7.4(cent) 35.6%
Maintenance 3.7(cent) 19.1% 3.6(cent) 17.3%
Aircraft and traffic servicing 3.4(cent) 17.8% 3.5(cent) 16.9%
Promotion and sales 2.8(cent) 14.4% 3.0(cent) 14.4%
General and administrative 1.2(cent) 6.4% 1.1(cent) 5.2%
Depreciation and amortization 1.2(cent) 6.0% 1.4(cent) 6.9%
Other operating items 3.2(cent) 16.5% -- --
--------------- --------------------- --------------- ---------------------
Total operating expenses 23.1(cent) 119.4% 20.0(cent) 96.3%
Interest expense 1.0(cent) 5.3% 1.1(cent) 5.5%
8
OPERATIONS
Operating Revenues:
Operating revenues decreased by $5.8 million to $119.6 million in the quarter
ended March 31, 1998 from $125.4 million in the quarter ended March 31, 1997.
The revenue decrease was primarily due to a 7.3% decrease in passengers carried.
Although available seat miles ("ASMs") increased by 4.8%, the load factor
decreased from 54.7% during the March 31, 1997 quarter to 51.9% for the current
quarter. The primary reason for the decrease in load factor was low load factors
in the Company's independent jet operations in Ft. Worth, Texas. The independent
jet operation was discontinued in February 1998 (See, "Other Events--Independent
Jet Operation").
Operating revenues decreased by $2.6 million to $244.2 million for the six-month
period ended March 31, 1998 from $246.8 million for the six-month period ended
March 31, 1997. This decrease was primarily due to the decrease in the number of
passengers carried in this period as compared to the six months ended March 31,
1997, as explained above.
Operating Expenses:
Flight Operations:
- ------------------
Flight operations costs increased by $2.1 million to $47.8 million for the
quarter ended March 31, 1998 from the quarter ended March 31, 1997 and increased
by $8.0 million to $95.7 million for the six-month period ended March 31, 1998
from the six-month period ended March 31, 1997. The primary causes of the
increase over the quarter ended March 31, 1998 were a $2.3 million increase in
pilot training, costs mostly related to deployment of Canadair Regional Jet
("CRJ") aircraft into the Company's fleet, a $0.6 million increase in pilot
salaries, a $0.6 million increase in pilot travel and lodging expenses, a $0.2
million increase in dispatch costs, and a $0.3 million increase in flight
attendant costs. These increases were partially offset by a fuel cost decrease
of $2.3 million in the quarter ended March 31, 1998. Fuel costs in the quarter
ended March 31, 1998 were $14.9 million as compared to $17.2 million in the same
quarter of the previous year. For the six months ended March 31, 1998, the cost
increases over the six-month period ended March 31, 1997 were caused by a $3.4
million increase in pilot salaries, a $5.7 million increase in lease costs for
deployment of the CRJ aircraft into the Company's fleet, and a $2.9 million
increase in pilot training and lodging, all of which was partially offset by a
decrease in fuel costs of $2.8 million.
Maintenance Expense:
- --------------------
Maintenance expense increased by $2.1 million in the quarter ended March 31,
1998 to $23.6 million from $21.5 million in the same quarter of the previous
fiscal year and increased by $3.8 million in the six-month period ended March
31, 1998 from $42.8 million for the six-month period ended March 31, 1997. The
increase for the quarter ended March 31, 1998 was primarily due to the
maintenance of a greater number of CRJ aircraft for the period from the prior
year and higher costs of operating under increased regulatory oversight as a
Part 121 carrier. The increase for the six-month period ended March 31, 1998 was
primarily due to a provision of $1.1 million in uncollectible warranty and
insurance claims, a $0.5 million increase as a result of the higher cost of
operating under greater regulatory oversight, and maintenance of a greater
number of CRJ aircraft.
9
Aircraft and Traffic Service Expense:
- -------------------------------------
Aircraft and traffic service expense increased by $0.3 million to $21.7 million
during the quarter ended March 31, 1998 from $21.4 million in the comparable
quarter of the previous fiscal year. Aircraft and traffic service expense
increased by $1.6 million to $43.5 million for the six-month period ended March
31, 1998 from $41.8 million for the six-month period ended March 31, 1997. The
increase for the quarter ended March 31, 1998 was primarily due to a $0.4
million increase in passenger reaccommodation expenses resulting from flight
cancellations caused by crew scheduling difficulties and training delays. The
increase for the six-month period ended March 31, 1998 was due to increased
charges for reaccommodation and lost baggage costs of $0.8 million, increased
de-icing charges of $0.4 million, and $0.1 million in station personnel wages as
a result of increased staffing levels to enhance customer service.
Promotion and Sales:
- --------------------
Promotion and sales expense decreased $1.2 million to $16.7 million for the
quarter ended March 31, 1998 and decreased by $0.3 million to $35.2 million for
the six-month period ended March 31, 1998 over the six-month and three-month
periods ended March 31, 1997. The primary reason for these decreases was a
significant decline in the number of passengers carried and a reduction in
commissions paid to travel agents, as a result of fewer passengers and a lower
commission rate.
General and Administrative Expense:
- -----------------------------------
General and administrative expense increased by $1.7 million for the three-month
period ended March 31, 1998 to $7.5 million as compared to the quarter ended
March 31, 1997 and increased by $2.8 million to $15.5 million for the six-month
period ended March 31, 1998 as compared to the six-month period ended March 31,
1997. The primary causes of the increase for the quarter ended March 31, 1998
were a $0.4 million increase in property taxes, $0.6 million increase in health
insurance claims, and $0.3 million increase in property and casualty insurance.
The primary causes of the increase for the six-month period ended March 31, 1998
was a $0.6 million increase in amounts paid to employees as part of the employee
performance bonus plan, a $0.9 million increase in the amount of health
insurance claims paid during the period, a $0.4 million increase in property
taxes, and a $0.3 million increase in property and casualty insurance.
Depreciation, Amortization and Interest Expense:
- ------------------------------------------------
Depreciation and amortization decreased by $1.2 million to $7.3 million for the
quarter ended March 31, 1998 as compared to the quarter ended March 31, 1997 and
by $2.5 million to $14.5 million for the six-month period ended March 31, 1998
from the comparable periods in the prior year. The primary reason for these
decreases in depreciation and amortization was the writedown of the Denver
system intangible asset as of September 30, 1997. Interest expense declined by
$0.1 million to $6.8 million during the quarter ended March 31, 1998 from $6.9
million during the similar period in the prior fiscal year and by $0.6 million
to $13.0 million for the six-month period ended March 31, 1998 from the
comparable period in the prior year. The decrease was primarily due to lower
outstanding principal loan balances.
Other Operating Items:
- ----------------------
During the quarter ended March 31, 1998, the Company recognized a $4.0 million
loss provision related to the discontinuation of its independent jet operations
in Ft. Worth, Texas. See, "Other Events--Independent Jet Operation." The Company
also recognized $2.5 million related to anticipated settlement costs of a
shareholder class action lawsuit. See, Part II, Item 1. "Legal Proceedings."
During the six-month period ended March 31, 1998, the Company also recognized a
$33.9 million loss provision related to the discontinuation of service under the
Mesa Airlines, Inc. ("MAI") code-sharing agreement with United Airlines, Inc.
("UAL"). See, "Other Events--United Airlines."
10
Other Non-Operating Income:
- ---------------------------
In January 1998, Mesa sold its remaining investment in America West Airlines,
Inc. ("AWA") comprised of 100,000 Class A shares, 200,000 Class B shares and
warrants to purchase approximately 800,000 Class B shares. Mesa received cash of
approximately $11.1 million and recognized non-operating income of approximately
$8.1 million on the sale of these securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance of $40.6 million at March 31, 1998 included $4.0
million of cash restricted for the issuance of letters of credit. The primary
reason for the decrease in the Company's cash balance from December 31, 1997 to
March 31, 1998 was the early retirement of approximately $15.5 million of long
term debt.
Mesa had receivables of $47.3 million at March 31, 1998 which consisted
primarily of amounts due from code-sharing partners UAL and US Airways, Inc.
("US Airways"). Under the terms of the UAL and US Airways code-sharing
agreements, Mesa receives a substantial portion of its revenues through the
Airline Clearing House. Historically, the Company has enjoyed cash flow
sufficient to meet its needs. However, UAL has terminated all of its
code-sharing agreements with the Company and the Company is in the process of
renegotiating its code-sharing contract with AWA. Such actions could have a
material negative impact on the financial position and cash flow of the Company,
particularly if the Company cannot successfully renegotiate its code-sharing
agreement with AWA, or cannot re-deploy its United Express aircraft on other
operating routes, or alternatively, sell the aircraft or return them to the
lessors. Management's belief that the Company will have adequate cash flow to
meet its operating needs is a forward-looking statement. The Company may have
less cash flow than anticipated in the event of the failure to reach a
satisfactory resolution in its renegotiation with AWA of a new code-sharing
agreement, a substantial decrease in the number of routes allocated to MAI under
its code-sharing agreements with US Airways, failure to sell, dispose of, or
redeploy its assets associated with United Express operations in a timely
manner, reduced levels of passenger revenue, additional taxes or costs of
compliance with governmental regulations, fuel cost increases, increase in
competition, increase in interest rates, general economic conditions and
unfavorable settlement of existing or potential litigation.
On March 1, 1998, the Company's $20 million secured line of credit expired under
its terms and the bank declined to renew it. Upon expiration, the Company had
approximately $4.0 million of letters of credit ("LOCs") issued under the line
and elected to restrict approximately $4.0 million of cash to secure them. The
Company has subsequently arranged for the issuance of bonds to replace the
outstanding LOCs and expects to have retired all of the LOCs and obtain the
release of its restricted cash prior to June 30, 1998. In addition, the Company
is presently in discussion with other financial institutions to provide a
secured $20 million line of credit and expects to have such a facility prior to
June 30, 1998. The Company's expectation that restricted cash will be released
and that it will have a $20 million secured credit facility prior to June 30,
1998 are forward-looking statements. The Company may or may not accomplish its
objectives to release its restricted cash or arrange a $20 million line of
credit depending upon the decisions of credit committees of financial
institutions and authorities responsible for releasing outstanding LOCs.
11
As of March 31, 1998, Mesa was not in compliance with some of the secured debt
covenants required by a bank credit agreement; however, the bank has waived
compliance with such covenants. The Company believes it will either maintain
compliance or obtain waivers of compliance with its present debt covenants
through September 30, 1998. Management's belief that it will maintain compliance
with its present debt covenants is a forward-looking statement. Compliance may
be adversely impacted in the event of the termination or renegotiation of one or
more code-sharing agreements, a substantial decrease in the number of routes
allocated to MAI under its code-sharing agreements with US Airways, unfavorable
renegotiation of the Company's AWA code-sharing agreement, failure to dispose of
or redeploy assets associated with its United Express operations, reduced levels
of passenger revenue, additional taxes or costs of compliance with governmental
regulations, fuel cost increases, increase in competition, increase in interest
rates, general economic conditions and settlement of existing or potential
litigation.
As of March 31, 1998, the Company had aggregate indebtedness of approximately
$346.6 million payable to various parties under promissory notes issued in
connection with the purchase of aircraft. The notes have interest rates ranging
from 6.66% to 7.87% with maturities through December 2011. In addition, the
Company has significant lease obligations on existing aircraft operated by the
Company. These leases are classified as operating leases and therefore are not
reflected as liabilities in the accompanying balance sheet. At March 31, 1998,
82 aircraft were leased by the Company with terms extending through June 2016.
Total lease expense for the six-month period ended March 31, 1998 amounted to
$22.5 million.
Mesa has ordered 32 CRJ aircraft for use in its AmericaWest Express operation in
Phoenix, Arizona, as USAirways Express on the East Coast and in other markets
that management believes have the potential for profitable operations. As of
March 31, 1998, the Company had received fourteen of the 32 CRJ aircraft on
order and expects to take delivery of the remaining 18 aircraft by the end of
1999. The Company has options for an additional 16 CRJ aircraft with a delivery
schedule of one per month beginning June 2000. The value of these 32 CRJ
aircraft is approximately $640 million. The expected delivery schedule of
aircraft is a forward-looking statement which could significantly differ based
on manufacturer's delivery delays, among other factors.
The Company has recognized a loss provision of approximately $4.0 million during
the quarter ending March 31, 1998 to provide for the expense of closing the
facilities associated with the independent jet operation and relocating the jet
aircraft described in the "Other Events" section of this report.
The Company's wholly owned subsidiary, WestAir Holding, Inc. ("WHI"), owns
WestAir Commuter Airlines, Inc. ("WestAir"), a certificated air carrier and
Regional Aircraft Services, Inc. ("RAS"), an aircraft equipment repair service
company. WestAir presently operates 21 Jetstream 31 and 19 Embraer Brasilia
aircraft in California as United Express. In addition to the 40 aircraft
operated by WestAir, there are an additional 11 Embraer Brasilia aircraft leased
by WestAir which are currently parked and not being utilized in WestAir's
operations. WestAir intends to make lease payments for all 51 aircraft only
through May 31, 1998, the expiration date of WestAir's code-sharing agreement
with UAL. Failure to make lease payments will constitute a default under the
lease agreements with various aircraft lessors. The aircraft lessors shall have
the right to exercise liens each lessor has on particular aircraft.
If the aircraft provide insufficient collateral for the remaining lease
payments, it is the belief of management that while the various lessors may seek
recovery of any deficiency from WestAir (or WHI, as the various lease contracts
permit) that they will have no right to seek any recovery of deficiencies from
Mesa Air Group, Inc. Management's belief that the various aircraft lessors will
have no right of recovery against Mesa Air Group, Inc. itself is a
forward-looking statement which could materially differ based on the
interpretation of lease agreements and other documents entered into between
WestAir and/or WHI and the lessors by a court or an arbitrator, as the case may
be.
12
Although the WestAir operation is currently being marketed for sale, the
operation will most likely be liquidated upon expiration of the UAL code-sharing
agreement. The assets and liabilities of WHI and its subsidiaries are included
in the consolidated financial statements of Mesa Air Group, Inc. as of March 31,
1998. If the operation is liquidated it is unlikely that any assets of WestAir
will remain for distribution to WHI and, ultimately, Mesa Air Group, Inc. At
March 31, 1998 the consolidated assets, liabilities and shareholder's deficiency
of WHI included in the Mesa Air Group, Inc. consolidated financial statements
were approximately as follows:
March 31, 1998
($000s)
----------------
Cash $ 7,350
Current assets $ 25,129
Total assets $ 26,926
================
Current liabilities 23,200
Total liabilities 38,741
Shareholders' deficiency $ (11,815)
Total liabilities and equity $ 26,926
================
Management of the Company recognizes the need to ensure its operations will not
be adversely impacted by Year 2000 software failure and that the Company's
computer systems and applications must function properly beyond 1999. The
Company is conducting analysis necessary to determine the potential Year 2000
risk and until completion of its analysis will not know the cost to the Company
of potential Year 2000 software failure. Although the Company cannot presently
estimate the costs associated with Year 2000 software failure, such costs will
be expensed as incurred.
The Company recognizes that its business is reliant upon the systems and
applications of third parties and will conduct an assessment of the potential
risks. However, there can be no assurance that the systems and applications of
other parties upon which the Company's business relies will be converted on a
timely basis. The Company's business, financial condition, or results of
operations could be materially adversely affected by the failure of its systems
and applications or the failure of those systems operated by other parties to
properly operate or manage dates beyond 1999.
OTHER EVENTS
Election of New Officers; Employment Agreements
On February 3, 1998, Mr. Larry L. Risley, the Company's Chief Executive Officer
("CEO") and Chairman of the Board of Directors, retired as Chairman and
effective May 1, 1998, Mr. Risley retired as CEO. On February 16, 1998, the
Company entered into an employment agreement (the "Agreement") with Larry L.
Risley as Manager of Special Projects effective as of May 1, 1998. As Manager of
Special Projects, Mr. Risley will be retained by the Board from time to time to
advise and assist in the strategic acquisition of assets, businesses and mergers
and acquisitions of other airline companies. The Agreement is for a period of
five years and will pay Mr. Risley an annual salary of $275,000. Under the
Agreement, Mr. Risley is not eligible for vacation pay or other fringe benefits,
except for health insurance for himself and his wife.
13
The Agreement further provides that Mr. Risley shall continue to hold the
position of Chairman Emeritus while serving on the Board. The Board is required
to vote to nominate Mr. Risley and to use its best efforts to cause his election
as a member of the Board through the fiscal year ending September 30, 2003.
In exchange for entering into a covenant not to compete and a covenant of
confidentiality, the Agreement provides that Mr. Risley's employment will be
non-terminable through the fifth anniversary of his retirement as CEO. The
Agreement also provides that the Board will offer to sell FCA, Inc. dba Four
Corners Aviation to Mr. Risley at a price determined by an independent appraisal
firm. If such sale is not consummated, the Agreement provides that Mr. Risley
will receive an annual office expense allowance of $9,000 during the term of the
Agreement.
On February 3, 1998, Paul R. Madden was elected Chairman of the Board of
Directors.
On March 13, 1998, the Board of Directors appointed Jonathan G. Ornstein as the
new CEO effective May 1, 1998. Mr. Ornstein is a member of the Board of
Directors of the Company and was most recently President and CEO of Virgin
Express, a low-cost European carrier based in Brussels, Belgium. He is a former
Mesa Executive Vice-President, as well as having served as President and Chief
Executive Officer of Continental Express. Upon his appointment as Chief
Executive Officer of the Company as of May 1, 1998, Jonathan G. Ornstein and the
Company entered into an employment agreement (the "Agreement").
The Agreement is for a term of three years ending March 13, 2001 and is subject
to automatic renewal unless either party gives written notice of its intent to
terminate. Under the Agreement, Mr. Ornstein will be compensated by a
combination of a minimum base salary of $200,000 per year plus a bonus based on
positive growth in earnings per share. Mr. Ornstein will receive a "Minimum
Bonus" of $52,500 if the Company achieves any positive growth in earnings per
share, a "Threshold Bonus" of $105,000 for growth between 7 percent and 12.9
percent, a "Target Bonus" of $210,000 for growth between 13 percent and 17.9
percent and a "Maximum Bonus" of $420,000 for growth of 18 percent or better.
In addition to salary and bonus, Mr. Ornstein's employment agreement gives him
the right to receive an initial grant of 1,000,000 stock options vesting in
one-third increments on the date of grant and the remainder over a two-year
period and additional annual option grants of 150,000 shares throughout the term
of the Agreement, subject to shareholder approval. If the shareholders do not
approve such grants, Mr. Ornstein's employment agreement requires the Company to
issue stock appreciation rights in an amount necessary to provide the same level
of compensation as would have been provided by the grant of stock options.
The Agreement provides that upon permanent disability, as defined in the
Agreement, Mr. Ornstein will receive his base salary plus an amount equal to the
Minimum Bonus plus any monthly payments under any policy of disability income
insurance paid for by the Company. The Company will pay such permanent
disability payments for the remaining term of the Agreement, but in no case will
the period exceed 24 months.
14
Mr. Ornstein may terminate the Agreement at any time, upon written notice,
within one year following the occurrence of an event constituting "Good Reason,"
as defined below. Upon the termination by the Company without Cause or
termination by Mr. Ornstein for Good Reason, Mr. Ornstein will be entitled to a
lump-sum severance payment equal to the sum of (1) the number of years (or
fractions thereof) remaining in the then-unexpired term or two, whichever is
greater, multiplied by (a) base salary times the number of years, plus (b) the
amount of cash equal to the Target Bonus or the minimum amount of any similar
bonus then in effect, plus (c) any other cash or other bonus earned prior to the
date of termination; and (2) any additional payments necessary to discharge
certain tax liabilities as defined in the Agreement. Upon Mr. Ornstein's
termination Without Good Cause or upon Good Reason, any and all vesting or
performance requirements affecting outstanding stock and other compensation
under the Employee Stock Option Plan will be deemed fully satisfied and any risk
of forfeiture with respect thereto will be deemed to have lapsed.
"Good Reason" is defined to mean the occurrence of the following circumstances
without Mr. Ornstein's consent: (i) assignment to any duties substantially
inconsistent with the duties or a reduction in the duties contemplated by the
Agreement; (ii) removal of any titles bestowed under the Agreement; (iii) the
Company's failure to include Mr. Ornstein as a nominee for the Board in its
proxy or his failure to be reelected to the Board; (iv) any breach or failure of
the Company to carry out the provisions of the Agreement after notice and an
opportunity to cure; (v) a Change in Control (as defined below); or (vi)
relocation of Mr. Ornstein, his office, facilities or personnel except if such
relocation is to any future location of the Company's headquarters and such new
location is in a metropolitan area with a population of over 1,000,000 people.
A Change in Control is defined to include (i) a change in control reportable on
Form 8-K or Schedule 14A of the Securities Exchange Act of 1934; (ii) the
acquisition, other than by an employee benefit plan, of twenty-five percent
(25%) or more of the combined voting power of the Company's outstanding
securities; (iii) failure of the Incumbent Directors (as defined in the
employment agreements) to constitute at least a majority of all directors of the
Company; (iv) the closing of a sale of all or substantially all the assets of
the Company; (v) the Company's adoption of a plan of dissolution or liquidation;
or (vi) the closing of a merger or consolidation in which the Company is not the
surviving corporation or at least seventy-five percent (75%) of the surviving
corporation's stock is not held by persons who were stockholders of Company
immediately prior to such merger or consolidation.
If under the Agreement, Mr. Ornstein is to receive any payment for termination
for Good Reason, death or permanent disability payment, payment for termination
Without Good Cause or any payment as a result of a Change of Control of the
Company Mr. Ornstein shall be entitled to receive the amounts sufficient to
cover the excise tax, if any, imposed on such payments.
On April 9, 1998, the Company announced the appointment of Blaine M. Jones as
Chief Financial Officer. Mr. Jones will rejoin the Company after a three-year
sabbatical. Mr. Jones was previously employed by the Company from 1985 to 1995
as Chief Financial Officer and later as President for the Mesa Airlines
division. Mr. Jones will enter into an employment agreement substantially
similar to Mr. Ornstein's contract effective April 13, 1998.
Independent Jet Operation
On February 20, 1998, the Company terminated the jet operations conducted under
its MAI subsidiary between Fort Worth, Texas and Houston, San Antonio, and
Austin, Texas; San Antonio and Colorado Springs, Colorado; and Colorado Springs
and Nashville, Tennessee. The Company provided for a $4.0 million provision in
the quarter ended March 31, 1998 to recognize the expense of discontinuation of
the independent jet operation. Management has announced the redeployment of the
five jets previously operated by its independent jet operation into its
USAirways Express system in the eastern United States. Three of the aircraft
began service in the USAirways system on May 1, 1998 and the remaining two
aircraft will be placed in service with USAirways Express on June 15, 1998.
Management anticipates cash expenditures of approximately $1.5 million related
to the shutdown of the independent jet operation in the 12-month period
subsequent to March 31, 1998.
15
United Airlines, Inc.
As a result of termination by UAL of the West Air and MAI Code-Sharing
Agreements on April 22 and May 31, 1998 respectively, the Company incurred a
loss provision totaling $106 million to provide for costs to dispose of certain
aircraft, equipment, and other costs to shut down the entire United Express
system. Should the Company fail to locate purchasers for its excess Beechcraft
1900D aircraft or redeploy its Dash 8-200 aircraft utilized in the MAI United
Express system in a timely manner, the $106 million loss provision may be
inadequate and subject to a material increase. Management of the Company
believes that it will incur approximately $15 to $20 million of net cash
expenditures during the 12-month period subsequent to May 31, 1998 as a result
of the termination of its MAI and WestAir code-sharing agreements. The estimated
net cash expenditure is a forward-looking statement which could materially
change as a result of UAL's failure to compensate or adequately compensate the
Company for its flights through the scheduled termination date of May 31, 1998,
the ultimate cost to park the WestAir fleet, or the failure to sell or dispose
of excess aircraft in a timely manner.
US Airways, Inc.
Mesa has entered into a marketing agreement with US Airways in which it will
initially operate 12 CRJ aircraft in its USAirways Express operation. The
Company began USAirways Express CRJ service on January 19, 1998, with flights
between Philadelphia, Pennsylvania and Birmingham, Alabama; St. Louis, Missouri;
Cincinnati, Ohio; and Newburgh, New York. Other cities to be served include
Charlotte, North Carolina; Washington, D.C.; Toronto, Canada; Little Rock,
Arkansas; Charleston, West Virginia; Raleigh Durham, North Carolina; Boston,
Massachusetts; Milwaukee, Wisconsin; White Plains, New York; and Tallahassee,
Florida. All of this service is to be provided pursuant to a fee per departure
arrangement. All 12 CRJ aircraft are expected to be operating in the US Airways
Express system by June 15, 1998.
The Company had experienced a shortage of flight crews resulting in the
temporary removal of ten Beechcraft 1900D aircraft from service in the US
Airways system. The Company's temporary flight crew shortage in the US Airways,
Inc. system was alleviated by the end of February, 1998. Although the timing of
the return of all of the grounded aircraft to service is uncertain, the Company
has already returned five of the ten previously grounded Beechcraft 1900D
aircraft to service.
America West Airlines, Inc.
The terms of the Company's code-sharing agreement with AWA provide for a minimum
controllable flight completion factor for any consecutive two-month period.
Primarily as a result of flight crew shortages in December 1997 and January
1998, MAI's controllable flight completion factor fell below the minimum and AWA
issued the Company a notice of termination. In early February 1998, MAI resolved
its crew shortages with AWA and its controllable completion factor exceeded the
minimum requirement in February 1998 through April 1998. Subsequent to the
termination by AWA of the code-sharing agreement, AWA and Mesa entered into an
interim agreement to continue Mesa operations as America West Express through
June 30, 1998. The interim agreement provides that both AWA and Mesa will
proceed in good faith to negotiate and execute a new long-term code-sharing
agreement. Under the interim agreement, Mesa has agreed to performance
16
guarantees which include penalties for failure to meet those standards.
Passenger fees and facility charges have also been increased from the prior
code-sharing agreement. Management of AWA and the Company have entered into
discussions to negotiate a long-term code-sharing agreement and AWA management
has expressed an interest in continuing its relationship with the Company. Both
parties are actively negotiating a conversion of essentially all of the AWA
operations to a fee per departure basis. Management of the Company believes that
a new and materially satisfactory code-sharing agreement will be negotiated
prior to June 30, 1998. Management's belief that a mutually satisfactory
code-sharing agreement will be negotiated is a forward-looking statement subject
to the parties' expectations and the willingness to compromise on an acceptable
fee and flight frequency structure.
The following table lists the aircraft owned and leased by Mesa for scheduled
operations as of March 31, 1998:
NUMBER OF AIRCRAFT
-------------------------------------------- Passenger
Type of Aircraft Owned Leased Total Capacity
-------------------------------------------------------------------------------
Beechcraft 1900 108 10 118 19
Embraer Brasilia 2 25 27 30
BAe Jetstream 31 -- 21 21 19
Dash 8-200 -- 12 12 37
CRJ -- 14 14 50
------------------------------------------
Total 110 82 192
------------------------------------------
OF THESE AIRCRAFT, 78 WERE BEING UTILIZED IN THE UNITED EXPRESS SYSTEM ON MARCH
31, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During 1994, seven shareholder class action complaints were filed
in the United States District Court for the District of New Mexico
against Mesa, certain of its present and former corporate officers
and directors, its independent auditor, and certain underwriters
who participated in Mesa's June 1993 public offering of Common
Stock. During October 1995, the court certified a class consisting
of persons who purchased Mesa stock between January 28, 1993 and
August 5, 1994. These complaints were consolidated by court order,
and, after the court granted in part a motion to dismiss in May
1996, a third amended consolidated complaint was filed alleging
that during the class period the defendants caused or permitted
Mesa to issue publicly misleading financial statements and other
misleading statements in the registration statement for the June
1993 public offering, annual and quarterly reports to
shareholders, press releases and interviews with securities
analysts.
17
In May 1998, the Company entered into a memorandum of
understanding with the plaintiffs to settle the litigation.
While the Company and its corporate officers and directors believe
they have substantial and meritorious defenses against the
plaintiff's allegations and have defended their position
vigorously, they have agreed to a settlement to avoid ongoing
litigation. The memorandum of understanding provides for a total
of $8 million to be paid to the class plaintiffs on behalf of the
defendants. The Company will pay a substantial portion of this
settlement. The settlement still must be approved by the Court
following notification of the Class. The Company intends to
utilize funds reserved for the defense of the case as its
contribution towards the settlement.
In June 1997, UAL filed a complaint in the United States District
Court for the Northern District of Illinois against two
subsidiaries of the Company, Mesa Airlines, Inc. ("MAI") and
WestAir Commuter Airlines, Inc. ("WestAir"), seeking a judicial
declaration of the parties' rights and obligations under two
separate written agreements, pursuant to which MAI and WestAir
allegedly agreed to provide certain airline transportation
services to UAL including the provision of scheduled air
transportation services in certain areas of the United States
under the service mark "United Express." UAL contends that, under
these agreements, UAL has the right to "increase, decrease, or in
any other way adjust the flight frequencies, or markets, or both"
in certain airports currently serviced by WestAir and/or MAI. In
January 1998, UAL amended its complaint to include damages related
to MAI's purported breach of contract to provide specified levels
of service in certain cities. MAI and WestAir have filed motions
to have the case transferred to California. Those motions have not
yet been considered. MAI and WestAir dispute the principal
contentions in UAL's complaint, and unless a satisfactory
negotiated resolution is achieved, intend to defend their position
vigorously. Furthermore, MAI and WestAir believe that UAL has
breached its code-sharing agreements with the respective entities
and have filed a counterclaim seeking to recover the substantial
damages to the business of MAI and WestAir which have been
incurred.
In addition, Mesa and WestAir have filed suit against UAL and
SkyWest Airlines. SkyWest was contracted to be Mesa's successor on
the West Coast. The complaint alleges that SkyWest unlawfully
interfered with Mesa's and WestAir's contracts with UAL. It
further alleges improper conduct on the part of UAL and SkyWest in
terminating markets under the Mesa agreement and in leading to the
non-renewal of the WestAir agreement. The Company is seeking
substantial damages against each defendant.
Mesa is also a party to legal proceedings and claims which arise
during the ordinary course of business.
In the belief of management, based upon information at this time,
the ultimate outcome of all the proceedings and claims pending
against Mesa other than that with UAL referred to above is not
expected to have a material adverse effect on Mesa's consolidated
financial position. It is too early to determine the impact on
Mesa's financial position of the litigation with UAL.
The belief that UAL has breached its code-sharing agreements with
MAI and WestAir and the belief that the ultimate outcome of
certain of the proceedings and claims pending against Mesa will
favorably be resolved are forward-looking statements which could
materially differ as a result of the determination of a judge or
jury.
Item 2. Change in Securities
None
18
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Documents filed as part of this report:
1. Reference is made to consolidated financial statement schedules in
item 8 hereof.
2. Reports on Form 8-K
None
3. Exhibits
The following exhibits are either filed as part of this report or
are incorporated herein by reference from documents previously
filed with the Securities and Exchange Commission:
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
2.1 Plan and Agreement of Merger of Mesa Air Filed as Exhibit 2.1 to Registrant's Form 10-K
Group, Inc. into Mesa Holding, Inc. dated for the fiscal year ended September 30, 1996,
September 16, 1996 incorporated herein by reference
3.1 Articles of Incorporation of Mesa Air Filed as Exhibit 3.1 to Registrant's Form 10-K
Holdings, Inc. dated May 28, 1996 for the fiscal year ended September 30, 1996,
incorporated herein by reference
3.2 Bylaws of Mesa Air Group, Inc., as amended Filed as Exhibit 3.2 to Registrant's Form 10-K
for the fiscal year ended September 30, 1996,
incorporated herein by reference
4.1 Form of Common Stock certificate Filed as Exhibit 4.5 to Amendment No. 1 to
Registrant's Form S-18, Registration No.
33-11765 filed March 6, 1987, incorporated
herein by reference
4.2 Form of Common Stock certificate (issued Filed as Exhibit 4.8 to Form S-1, Registration
after November 12, 1990) No. 33-35556 effective December 6, 1990,
incorporated herein by reference
4.8 Form of Employee Non-Incentive Stock Option Filed as Exhibit 4.12 to Registrant's Form 10-K
Plan, dated as of June 2, 1992 for the fiscal year ended September 30, 1992,
Commission File No. 33-15495, incorporated
herein by reference
4.9 Form of Non-Incentive Stock Option issued Filed as Exhibit 4.13 to Registrant's Form 10-K
under Mesa Airlines, Inc. Employee for the fiscal year ended September 30, 1992,
Non-Incentive Stock Option Plan, dated as of Commission File No. 33-15495, incorporated herein by reference
June 2, 1992
19
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
4.10 Form of Mesa Airlines, Inc. Outside Filed as Exhibits 4.1, 4.2 and 4.3 to
Directors Stock Option Plan, dated as of Registration No. 33-09395 effective August 1,
March 9, 1993 1996
4.11 Form of Stock Option issued under Mesa Filed as Exhibit 4.4 to Registration No.
Airlines, Inc. Outside Director's Stock 33-09395 effective August 1, 1996
Option Plan, dated as of March 9, 1993
4.12 Form of Mesa Airlines, Inc. Additional Filed as Exhibit 4.5 to Registration No.
Outside Directors Stock Option Plan dated as 33-09395 effective August 1, 1996
of December 9, 1994
4.13 Form of Non-Qualified Stock Option Issued Filed as Exhibit 4.6 to Registration No.
Under Mesa Airlines, Inc. Additional Outside 33-09395 effective August 1, 1996
Directors' Stock Option Plan
4.14 Form of Mesa Air Group, Inc. Restated and Filed as Exhibit 4.1 to Registration No.
Amended Employee Stock Option Plan dated 33-02791 effective April 24, 1996
April 23, 1996
4.15 Form of Non-Qualified Stock Option issued Filed as Exhibit 4.2 to Registration No.
under Mesa Air Group, Inc. Restated and 33-02791 effective April 24, 1996
Amended Employee Stock Option Plan dated
April 23, 1996
4.16 Form of Qualified Stock Option issued under Filed as Exhibit 4.3 to Registration No.
Mesa Air Group, Inc. Restated and Amended 33-02791 effective April 24, 1996
Employee Stock Option Plan dated April 23,
1996
10.17 Agreement between Beech Aircraft Corporation Filed as Exhibit 10.30 to Form S-1,
and Mesa Airlines, Inc., dated April 30, 1990 Registration No. 33-35556 effective December 6,
1990, incorporated herein by reference
10.18 Sublease Agreement between Air Midwest, Inc. Filed as Exhibit 10.32.1 to Form S-1,
and Mesa Airlines, Inc., dated April 27, Registration No. 33-35556 effective December 6,
1990 for Embraer Brasilia aircraft 120.180 1990, incorporated herein by reference
10.20 Agreement between Air Midwest, Inc. and Mesa Filed as Exhibit 10.32.3 to Form S-1,
Airlines, Inc., dated February 27, 1990, for Registration No. 33-35556 effective December 6,
purchase of four Embraer Brasilia aircraft 1990, incorporated herein by reference
10.21 Letter Agreement between McDonnell Douglas Filed as Exhibit 10.32.4 to Form S-1,
Finance Corporation, Air Midwest, Inc. and Registration No. 33-35556 effective December 6,
Mesa Airlines, Inc., dated March 19, 1990, 1990, incorporated herein by reference
as amended, regarding lease and sublease of
four Embraer Brasilia aircraft
10.22 Sublease Agreement between Air Midwest Inc. Filed as Exhibit 10.32.5 to Form S-1,
and Mesa Airlines, Inc., dated July 26, Registration No. 33-35556 effective December 6,
1990, for Embraer Brasilia aircraft 120.193 1990, incorporated herein by reference
10.23 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.6 to Form S-1,
Finance Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective December 6,
dated July 26, 1990, for Embraer Brasilia 1990, incorporated herein by reference
aircraft 120.193
20
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
10.24 Sublease Agreement between Air Midwest Inc. Filed as Exhibit 10.32.7 to Form S-1,
and Mesa Airlines, Inc., dated September 26, Registration No. 33-35556 effective December 6,
1990, for Embraer Brasilia aircraft 120.203 1990, incorporated herein by reference
10.25 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.8 to Form S-1,
Finance Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective December 6,
dated September 26, 1990, for Embraer 1990, incorporated herein by reference
Brasilia aircraft 120.203
10.27 Expanded Partner Agreement between United Filed as Exhibit 19.3 to Registrant's Form 10-Q
Air Lines, Inc., and Mesa Airlines, Inc., for the quarterly period ended June 30, 1990,
dated February 15, 1990 Commission File No. 0-15495, incorporated
herein by reference
10.29 Form of Directors' and Officers' Filed as Exhibit 10.41 to Form S-1,
Indemnification Agreement Registration No. 33-35556 effective December 6,
1990, incorporated herein by reference
10.31 Agreement Relating to the Settlement of Filed as Exhibit 10.45 to Form S-1,
Interline Accounts through Airlines Clearing Registration No. 33-35556 effective December 6,
House, Inc., between Airlines Clearing 1990, incorporated herein by reference
House, Inc. and Mesa Airlines, Inc., dated
September 2, 1981
10.32 Agreement between Beech Aircraft Corporation Filed as Exhibit 10.42 to Form 10-K for fiscal
and Mesa Airlines, Inc., dated September 18, year ended September 30, 1991, Commission File
1991 No. 0-15495, incorporated herein by reference
10.33 Agreement between US Airways, Inc. and Air Filed as Exhibit 10.43 to Form 10-K for fiscal
Midwest, Inc. year ended September 30, 1991, Commission File
No. 0-15495, incorporated herein by reference
10.34 Agreement between US Airways, Inc. and Filed as Exhibit 10.44 to Form 10-K for fiscal
FloridaGulf Airlines, Inc. year ended September 30, 1991, Commission File
No. 0-15495, incorporated herein by reference
10.35 Sublease agreement between Trans States Filed as Exhibit 10.45 to Form 10-K for fiscal
Airlines, Inc. and Air Midwest, Inc. year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.37 Agreement between Beech Aircraft Filed as Exhibit 10.47 to Form 10-K for fiscal
Corporation, Beech Acceptance Corporation, year ended September 30, 1992, Commission File
Inc. and Mesa Airlines, Inc., dated August No. 0-15495, incorporated herein by reference
21, 1992
10.38 Agreement between America West Airlines, Filed as Exhibit 10.48 to Form 10-K for fiscal
Inc. and Mesa Airlines, Inc. year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.39 Agreement between United Air Lines, Inc. and Filed as Exhibit 10.49 to Form 10-K for fiscal
WestAir Commuter Airlines, Inc. (WestAir) year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.40 Plan and Agreement to Merge between Mesa Filed as Exhibit A to Form S-4 Registration No.
Airlines, Inc., Mesa Acquisition Corporation 33-45638, effective April 17, 1992,
and WestAir Holding, Inc., dated February 7, incorporated herein by reference
1992
10.41 Certificate of Public Convenience and Filed as Exhibit 10.1(a) to WestAir Holding,
Necessity for WestAir Commuter Airlines, Inc. Inc.'s Registration Statement on Form S-1,
Commission File No. 33-24316, incorporated
herein by reference
21
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
10.42 Air Carrier Operating Certificate for WestAir Filed as Exhibit 10. to WestAir Holding, Inc.'s
Registration Statement on Form S-1, Commission
File No. 33-24316, incorporated herein by
reference
10.46 Original Agreement to Lease dated as of Filed as Exhibit 10.44 to WestAir Holding,
April 27, 1987 between NPA, Inc. ("NPA") and Inc.'s Registration Statement on Form S-1,
British Aerospace, Inc. ("BAe") with a Commission File No. 33-24316, incorporated
Letter to FG Holdings, Inc. ("FGH") dated herein by reference
March 11, 1988 and Amendment No. 1 to
Agreement to Lease dated as of March 3, 1988
between BAe and FGH
10.47 Side Letter Agreement to NPA from JACO dated Filed as Exhibit 10.48 to WestAir Holding,
June 4, 1987 Inc.'s Registration Statement on Form S-1,
Commission File No. 33-24316, incorporated
herein by reference
10.49 Employment Agreement dated as of September Filed as Exhibit 10.51(b) to WestAir Holding,
1, 1988 between WestAir and Maurice J. Inc.'s Registration Statement on Form S-1,
Gallagher Jr. Commission File No. 33-24316, incorporated
herein by reference
10.50 Aviation Land and Building Lease and Filed as Exhibit 10.164 to the Pre-effective
Agreement between City of Fresno, California Amendment No. 1, filed October 19, 1988, to
and WestAir dated January 7, 1986 WestAir Holding, Inc.'s Registration Statement
on Form S-1, Commission File No. 33-24316,
incorporated herein by reference
10.51 Airport Operating Permit between Airport Filed as Exhibit 10.67 to WestAir Holding,
Commission of City and County of San Inc.'s Registration Statement on Form S-1,
Francisco and WestAir Commission File No. 33-24316, incorporated
herein by reference
10.58 Promissory Note to Textron for spare parts Filed as Exhibit 10.80 to WestAir Holding,
as executed by WestAir, dated December 30, Inc.'s Form 10-K dated December 31, 1988,
1988 Commission File No. 33-24316, incorporated
herein by reference
10.59 Agreement to lease Jetstream model 3101 Filed as Exhibit 2.1 to WestAir Holding, Inc.'s
aircraft and Jetstream model 3201 aircraft Form 8-K filed June 8, 1989, Commission File
between BAe and WestAir, dated May 11, 1989 No. 33-24316, incorporated herein by reference
10.60 Amendment to Agreement to Lease dated May Filed as Exhibit 10.38 to WestAir Holding,
11, 1989 between WestAir and BAe, dated Inc.'s Form 10-K for the year ended December
February 15, 1990 31, 1989, Commission File No. 33-24316,
incorporated herein by reference
10.61 Amended and Restated Stock Purchase Filed as Exhibit 10.42(a) to WestAir Holding,
Agreement, dated September 30, 1991 among Inc.'s Form 10-K for the year ended December
WestAir Holding, Inc., WestAir Commuter 31, 1991, Commission File No. 33-24316,
Airlines, Inc. and Atlantic Coast Airlines, incorporated herein by reference
Inc., relating to the sale of the Atlantic
Coast division of WestAir Commuter Airlines,
Inc.
10.65 Agreement of Purchase and Sales of Assets by Filed as Exhibit 10.90 to Mesa Airlines, Inc.
and among Crown Airways, Inc., Phillip R. Form 10-K for the year ended September 30,
Burnaman, A. J. Beiga and Mesa Airlines, 1994, Commission File No. 0-15495
Inc., dated as of December 16, 1993
22
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
10.66 Supplemental Agreement No. 9/03/94 Filed as Exhibit 10.66 to Mesa Airlines, Inc.
Beechcraft 1900 D Airliner Acquisition Form 10-K for the year ended September 30,
Master Agreement between Mesa Airlines, 1994, Commission File No. 0-15495
Inc., Beech Aircraft Corporation and Beech
Acceptance Corporation, Inc., dated as of
September 23, 1994
10.67 Form of Lease Agreement between Beech Filed as Exhibit 10.67 to Mesa Airlines, Inc.
Acceptance Corporation, Inc. and Mesa Form 10-K for the year ended September 30,
Airlines, Inc., negotiated September 30, 1994, Commission File No. 0-15495
1994 for all prospective 1900 D Airliner
leases.
10.68 Asset Purchase Agreement dated July 29, 1994 Filed as Exhibit 10.68 to Mesa Airlines, Inc.
among Pennsylvania Commuter Airlines, Inc., Form 10-K for the year ended September 30,
dba Allegheny Commuter Airlines, US Airways 1994, Commission File No. 0-15495
Leasing and Services, Inc., and Mesa
Airlines, Inc.
10.69 Letter Agreement in Principle dated as of Filed as Exhibit 10.69 to Mesa Airlines, Inc.
October 16, 1994 among Air Wisconsin, Inc., Form 10-K for the year ended September 30,
United Air Lines Inc. and Mesa Airlines, 1994, Commission File No. 0-15495
Inc. (Certain portions deleted pursuant to
request for confidential treatment)
(Referred to erroneously as Exhibit 10.94 in
letter asking for confidential treatment to
Securities and Exchange Commission dated
12-23-94 from Chapman & Cutler)
10.70 Subscription Agreement between AmWest Filed as Exhibit 10.70 to Mesa Airlines, Inc.
Partners, L.P. and Mesa Airlines, Inc. dated Form 10-K for the year ended September 30,
as of June 28, 1994 1994, Commission File No. 0-15495
10.71 Omnibus Agreement Filed as Exhibit 10.71 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.72 Aircraft Purchase and Sale Agreement Filed as Exhibit 10.72 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.73 Expendable and Rotable Spare Parts and Sale Filed as Exhibit 10.73 to Mesa Air Group, Inc.
Agreement Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.74 United Express Agreement Amendment Filed as Exhibit 10.74 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.75 Side Letter Agreement Filed as Exhibit 10.75 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.76 First Amendment to Omnibus Agreement Filed as Exhibit 10.76 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.77 Operating Lease Agreement Filed as Exhibit 10.77 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
23
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
10.78 Item 3. Legal Proceedings - Form 10-K dated Filed as Exhibit 10.78 to Mesa Air Group, Inc.
September 30, 1994 Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.79 Purchase Agreement B95-7701-PA-200 between Filed as Exhibit 10.79 to Mesa Air Group, Inc.
Bombardier Inc. and Mesa Airlines, Inc. Form 10-Q for the quarter ended March 31, 1995,
Commission File No. 0-15495
10.81 Letter of Understanding between Mesa Air Filed as Exhibit 10.81 to Mesa Air Group, Inc.
Group, Inc. and Raytheon Aircraft Company Form 10-Q for the quarter ended March 31, 1996,
(RAC) dated April 12, 1996. Commission File No. 0-15495
10.82 Supplemental Agreement No. 05/22/96, Filed as Exhibit 10.82 to Mesa Air Group, Inc.
Beechcraft 1900D Airliner Acquisition Master Form 10-Q for the quarter ended March 31, 1997,
Agreement between Mesa Air Group, Inc., Commission File No. 0-15495
Raytheon Aircraft Company and Raytheon
Aircraft Credit Corporation
10.83 Bombardier Regional Aircraft Division Filed as Exhibit 10.83 to Mesa Air Group, Inc.
Purchase Agreement CRJ-0351 between Form 10-Q for the quarter ended December 31,
Bombardier Inc. and Mesa Air Group, Inc. 1996, Commission File No. 0-15495
10.84 Aircraft Option Exercise B97-7701-RJTL-3492L Filed as Exhibit 10.84 to Mesa Air Group, Inc.
dated as of August 15, 1997 between Mesa Air Form 10-K for the fiscal year ended September
Group, Inc. and Bombardier Inc. (Request 30, 1997, Commission File No. 0-15495.
for confidential treatment submitted to SEC.)
10.85 Bombardier Regional Aircraft Division Filed as Exhibit 10.85 to Mesa Air Group, Inc.
Settlement Agreement B97-7701-RJTL-3493L Form 10-K for the fiscal year ended September
dated as of August 15, 1997 between Mesa Air 30, 1997, Commission File No. 0-15495.
Group, Inc. and Bombardier Inc. (Request
for confidential treatment submitted to SEC.)
10.86 Service Agreement dated as of November 11, Filed as Exhibit 10.86 to Mesa Air Group, Inc.
1997 between Mesa Airlines, Inc. and US Form 10-K for the fiscal year ended September
Airways, Inc. (Request for confidential 30, 1997, Commission File No. 0-15495.
treatment submitted to SEC.)
10.87 Letter Agreement dated as of March 26, 1998 Filed herewith
between Mesa Airlines, Inc. and America West
Airlines, Inc. (Request for confidential
treatment submitted to SEC.)
10.88 Employment Agreement dated as of March 13, Filed herewith
1998, between Mesa Air Group, Inc. and
Jonathan G. Ornstein
10.89 Form of Employment Agreement dated as of Filed herewith
January 5, 1998 entered into by and between
Mesa Air Group, Inc. and Gary E. Risley,
W. Stephen Jackson, J. Clark Stevens and
various other officers of the Company and
its subsidiaries
10.90 Letter Agreement dated as of February 4, Filed herewith
1998 between Mesa Air Group, Inc. and Larry
L. Risley
24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the duly
authorized undersigned.
MESA AIR GROUP, INC.
Registrant
Date: May 15, 1998 /s/ Blaine M. Jones
------------------------------
Blaine M. Jones
Chief Financial Officer
(Principal Accounting Officer)
25