MESA - Earnings call transcript Q3 2020

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Operator

Welcome, and thank you for standing by. I would like to inform all participants that today's conference is being recorded.

If you have any objections you may disconnect at this time. Participants will be in listen-only mode for the duration of the conference. [Operator Instructions] I would now like to turn the conference over to your host, Jonathan Ornstein.

Jonathan Ornstein

operator, of you, to your results. much, a for our very out moment day you and everyone thank taking quarterly Thank to listen

the I'm Jonathan Executive As this and Officer. Chairman Chief Ornstein, indicated operator the is

got the flight; one Finance. our and of aware Lotz, our Unfortunately, our Operating Brian Chief are start our not I'm Zapfe, be I'd like this only so Harbor Counsel be is Rich, President thankful like some Officer; Brad off Gillman, we'll ours. everyone call Darren to the with Safe I statement. caught Officer; we remotely, to Vice On it delayed today reading okay. I'd think Chief doing Mike are on by me challenges it a Financial President has General but of

and Before begin, Laws. to call you Federal statements like that in to questions under of would may in remind Mesa response the this conference statements forward-looking your the some presentation include comments Securities

impact those the business. COVID-XX our and you statements and with and the Forward-looking that forward-looking XX-K statements to include that associated and could expressed in Mesa materially the our encourages involve press risks including those in forecasts on please statements our related goals, filings and Also, virus forward-looking no results events, future These with are to revise release projections, risk considered cautionary uncertainties assumptions, from estimates, and in with risks forward-looking which the or statements. cause outcomes it's included be the and company factors these to subject actual our in and uncertainties to differ by on XX-Q, conjunction note read. undertakes obligation statements. could Form their SEC, nature update And any reports

to on and refer in the please release be today's measures of the find used disclosures non-GAAP reconciliations section additional of that website will call. our press to addition, financial Investor In

is utilization. hours our for a this however, versus We good schedules down significant [ph] Block release. quarter. our actuals positive current in change; the September, to quarter, current our to at subject August which let's quarter so on On avoid are this had quarter, employee XX% levels. July the us We we and we an last based pretty on which be partners' to it expect note, place should do, believe XX% expect see are increase year. working to continuing impact clearly an about for continue get Okay, current pre-COVID-XX the by with but utilization groups, and possible XX% quarter last a same employee quarter remains us furlough. If put of to from we COVID-XX

include leaves those continued work absence. reduced minimums, initiatives Some of of week, in of crew and voluntary use reduction

far is the Program provider more advantageous Mesa's if in and course, that in trip Of Act believe Mesa partner's is CARES low service, under the the a have aircraft these current Payroll well of is the positioned cost structure regional costs critical cost initiatives the unnecessary. extended, analysis. Furthermore, environment. as we exceptionally cost become would be Support small regional as believe jet element our for lower We

has the Risley. do organizational worth accident; important efficiency structure since has are industry, by productivity, emphasizing in around founded it and Larry been for Mesa's and was believe low overhead not that aircraft our always and lowest lean and I it's by costs we the culture built think Mesa ever corporate

for our business significant improved. that amount covered we current CPAs believe our provide result to amounts. estimates, combined accessing operate of the of significantly to a important CPAs. reasonable cash in million with is Mesa's be loan, of liquidity we of under CARES flow It if cost portion are monthly our we financial the our $XXX profile XXX% increased with allocation note given These Act be will a loan fixed successful Additionally, program, under as the

were has we fixed costs, Although the we for required revenue defer $XX to Butler, build welcome our payments for like David head is fixed future returning in take of who million moment our partners received those GAAP, quarter to under periods. up and I'd and HR been to for our a very Hughes, who become department. recovery with addition friend and best a close years, send I great wishes Chairman, Mesa to my Capt. speedy our would for also heartfelt has MEC Andy like to ALPA a XX to and company. a

operations, talk is to Brad so and on I'd American you focused American to turn you him contract to over Eagle about As like Rich it our know to now [ph].

Brad Rich

collaboratively and the Good of September, reduction corresponding Act. with working a CARES timing payments under other and Support Jonathan. American cash temporary weekly benefits you, around end everyone, to through agreed thank the rates the been Payroll in flow We've of the of the Program and end have afternoon, with

in in reduced to American remove the removed XXXX aircraft to that aircraft. we June for all associated period, required agreed the this and of the the operation addition, two be for time two has that costs pay scheduled January of aren't In to agreed aircraft with utilization in given were that fact

-- told an of remain American fleet have with respect the get as on the believe, don't of The More American environment, while February which have XX-month better last we've to the period, I are part continue and what the lease starting we is exposure that been the in of recognize rates, that's American expires are of post aircraft, the more Of lease monthly average mind, we COVID-XX aircraft post that seven payments have importantly, no of do which limited of will Without the current fairly don't leases XX have terms aircraft will debt valued will on current of agreed not will and go have Once XX-owned The extension, said fleet CPA difficult. in -- been per will fleet. expiring duration we a extension all; aircraft March or/and a over will in In Keep COVID-XX be. per Obviously, size we one the XXXX. million been period $XX,XXX XX-month aircraft, month. event, we existing which our relative market But our no at XXXX, to, an have extension of CPA. at term appraisals. until have $XXX those remaining XX than the expire is to competitive extension recently approximately XX or we rates. $XXX,XXX portfolio. we end subleases the through call, to size, of an know be have CRJ-XXX no determine XXXX. in believes XX debt do scope valued extension, the our at with discussions and productive a will an will debt convinced

has productivity just I discipline the regional focus demand contract offer strengths. is stated costs the While and has already offer highest of believe would in cost, on is that always at that the silver likelihood efficiency. believe and lining, been extension a the industry, CRJ-XXXs the around available corporate levels seat in what American, it that we always We echo Jonathan return-to-normal culture also Mesa one there Mesa's which lowest would renewed mile a built a if been our of

last believe skeptical workforce, time, in Mesa, low I the future. both this just the I years cost our growth sustainable a that structure this for years often and Mesa's about productive cost emphasis our maintain would I low would add long Airlines. to that to several was in And were I've and been my structure. people competitor is ability at over United all years and sustain hear maybe doing some we Given the our here; a

employees. side implemented Now had Continuing significant responses experienced believe of to number for We've it several it, that -- and I've I advantage seen however, also positive utilization. and the of here would from the say just on our a minute, we've significant of initiatives absences to reduced I sustainable. had I'm leaves a that take is it voluntary do cost

requests voluntary we leaves were place almost obviously July, XXX have We had For that in for a freeze. hiring granted.

costs we the simulator currently in which crew not we shortage, with seen positive I've is the do ever file, that have while the note, pilot since one-time at reduced most applications pilot are million training dealing $X approximately the another training front, been On we On our on approximately I've Mesa. pilot by quarter. other and XXX at

either we or American entire operations now that Focusing United any did controllable canceled for the for quarter. not on flights a have minute,

We performance United, for and targets also month quarter. all on-time for of the both, each American of achieved our

customers of create as and the working Lastly, I very specifically a with environment for as safe just our the we that our our following for are to CDC guidance employees. say well major partners would

on Jonathan United, turn for over cargo it back I'll and our update on business. Now, to an

Jonathan Ornstein

you, Embraer Brad. scheduled from we for September XXXX Thank XXXX. At through June XXX of new XX United, have delivery

currently looking Unfortunately, are would expensive United multiple our conventional market Embraer CRJ-XXX current Thankfully, the are lending removed XX at the more creative into financing a for we seven operator is and given soon. finalized than we obtained. an leased the the conditions, existing for on years. to XXX the is XXX CPA new to Under bank more put previously strong We the we viewed and as aircraft. is CPA market first Obviously, small the no as be of another working be and task, something of options. each this standard have collateral, by from term existing service, significantly hope would

Express under for United carrier other leases. would obligations all responsible The be the

certain will However, under the for United be subject unmet certain limits to requirements, and rent responsible leases. obligations

uncertainties United. the arising operate prepared for to has COVID-XX, the to from Given continue Mesa aircraft

rates have of our flow given waive cash the and of payments XXXX, do the of operating minimums timing we collaboratively spite through weekly the a have temporary we can reduced with assist under In corresponding will to and United to end We CARES continue difficult Support Program and environment, other agreed with September benefits Act. the partners. around the everything to end of worked Payroll

as in The for will aircraft a and with successful this October a deal what we the the start XXX-XXX DHL. On you we are front, longstanding Boeing announced know, relationship operate is of five-year be November; start service cargo to hope freighters anticipated to DHL.

the additional widening the has maintenance, are structure looking business, for to into to through profitable the aircraft. is our slightly be The working of [indiscernible] will trained, in better the of Cincinnati. aircraft and support our generating still and add of existing going aircraft our cargo and start-up approximately cadre and heavy certificate, contract initial two positioning cost our become should the $X pilots we DHL of been little With expect type breakeven of process -- DHL be are getting amount it contract with than million. two revenue. fuel on staff it is bit time -- We similar the are The aircraft the total start-up maintenance, start-up is we crews responsible as aircraft, over we and makes

For over to turn operation forecast quarter, $X.X for spent quarter million spools financial I'd as up. this like Mike next the we to spend overview. and another $XXX,XXX in a the it to Lotz

Mike Lotz

On over side increase million Thanks, cash, $XX in liquidity at Jonathan. $XX a $XX quarter, which million the we million. last ended quarter's for is a

negotiate. the in it $XX were on related $XX $XX of we by deferrals and million principal had we and capital to scheduled engines, During we principal we offset quarter, also that and that had payments was million able lease million had had. in engine engines, aircraft We to deposits expenditures

Looking out that that be order XX is order to -- CapEx new end the delivery scheduled minimal, calendar XXX currently and to Aviation. is of for on engines the except we have the from GE the year, XX expected

at US Treasury that should believe continue still or are at of we our program. call, not were on year. we from March been on to into continue We last the and program, calendar at account or does the better to flow. XX, out -- cash through pointed targeting the breakeven allocated loan the Under in $XXX target Treasury we've breakeven and loan $XX flow when cash As million were end we for any US take better million. we've This proceeds cash operate potential

working and Department amounts final of Treasury are We on with and their the the loans. advisors terms

believe we most, Given our the equity if we access in other not all our aircraft assets, allocation. can of and

We with been work will continue have to lessors. and

on rates debt holders deferrals, and payment and suppliers terms. relaxed reduced Our lessors,

this $X.X $XX.X year. changes of through is portion of adjusted CPA in our in provided pre-tax was Now, let $XX release. and any income of and we related million pointed financial to Jonathan outlined the walk of not last variance due adjustment the GAAP fixed We to million. to a primarily deferred in some just our compares press for Again, revenue the press as data to The reported me revenue of quarter-over-quarter CPA. this the our same out, pre-tax million; quarter release income related

bill to for we our continue fixed We paid always and have. as partners by are revenue getting

reported Additionally, of million $X.X for of income income million per the quarter, tax share. net $X.X we or for expense $X.XX

and quick cash million from on note on although our we taxes roughly still as have sheet we income We in of as $XX Through Program NOLs. August, $XX.X the subsequently have million the we balance just million an were CARES still of with remaining not due X. and pay Total the granted under received million have will period $XX.X reflecting a the $XX line through June, the $XXX quarter-end million was Just the September. connection $XXX tax $XX.X taxes, and quarter. recap, September down credit debt July, to $XX.X in we're million our covering Payroll run; expense, million at million $XX.X Act million, the prior had Support received with April we in

As point. over this it Jonathan like at press I'd turn any to release, further we are now. our discussed not guidance in providing back to

Jonathan Ornstein

Obviously, thankful it together Mike. has. their has pulled environment way to everyone the has limit. am really company this pushed you, Thank I the that

prudently we idea [ph] may believe to exist our we opportunities to them themselves. virus. That the you core we positioned I'd said, and help taking to take of that will opportunities Our to restraining and day may open we assets, advantage for time everyone out values with. with whole and any join has be believe like that COVID-XX those pursue value. the are company We of shareholder with country present for that helped to continue the their questions able being maximize up that well thank us,

Operator

[Operator We Instructions] first will our go session. from comes And Savi Please now ahead. begin with James. our Syth question-and-answer question Raymond

Savi Syth

what on just Good months? to mentioned partners maybe concessions afternoon, million you you. about $XX wondering everyone. your deferrals; expecting the Thank over you're long [ph] if and have XX those and And you what in lease you And, granted that, the continue next how talk -- tied principal can for?

Jonathan Ornstein

to want do Mike, do you that?

Mike Lotz

Sure.

projections deferrals with that cash the us we at timing forward, payments our going agreements any far, and similar. deferrals have of a in extent as to able as what of to of we the related to of operating but better so the are And did So existing accomplish any able flow; principal They're credits, with were we of the partners, we result so true-ups, that some Program. projected as And our the in both, Payroll the adjusted we further American not Support as operate schedules additionally, partners. of slightly result reductions the minimums the primarily exist. did that's cost with being our a some on they're far debt have United and

Savi Syth

reduction as go September is beyond well? that the in And through does or that XX does go the minimums; Mike,

Mike Lotz

XX. through September Just

Savi Syth

be the then, is operating as comment of comments. that there seats go being Mesa second is think seated seems operated regarding Got And delivery before kind you more the economics is can of case on Have take negotiated or GoJet I by based -- about [ph] question, kind for SkyWest happen? we to around the the to it these can't a as possibly CRJ-XXXs, new, it. the just

Jonathan Ornstein

I we've proposal in. had that we correct them we a the for to think to Mike, had don't with fact us finalized to Well, that I made agreement. would discussions mention wrong. a Brad, have I'm and to think can it think while came us come you if me United. they jump high will things. don't I don't to operate if a asked be us back, I hurdle aircraft, in but an But

Savi Syth

All sense. Thank right. you. Makes

Operator

And ahead. our Becker, Helane ahead. your go with Becker Cowen. next is Please go question open. from Please is line Helane

Helane Becker

there? you Are

Jonathan Ornstein

Yes.

Helane Becker

know don't my Good. what's Yes. phone. I wrong Thanks. with

just after business costs? is the that number, on the So startup breakeven cargo the and

Jonathan Ornstein

a rate No, basis. run that's on

Helane Becker

business to the that there DHL? question grow Okay. other of is And is, the That's potential helpful. with then part question,

Jonathan Ornstein

be thought going business frank; aircraft Yes. would taken that two to on the the limit. we were don't I'll we I if think be have

feel I opportunity. aircraft if properly there very is that we can significant these strongly think that we operate that growth

America important, package do more operators more becomes ways that how program can gauge to opposed As efficiently the I smaller of they flying XXXs becomes aircraft, one important bring day all and to timeline operators larger the fly later and the smaller And ability the Mesa can cargo like to to looking is like -- most closer at think the aircraft. with are as they jets leave packages in later efficient by serve. the

trend we middle of aircraft. that there think So, variant. towards to in And the is operating right we a the would XXX smaller be the secular like

Helane Becker

All right. Got wanting the they're versus And you. XXX the XXX?

Jonathan Ornstein

not I I'm think what having thinking. These that their aircraft know, really is that privy fleet. been -- you to in had are DHL

but another be so, to the is age that the I the aircraft out they that would probably on going think fact do the into from long-term given moved And us, XXX-XXXs plan those probably of to operator the future. just focus to

Helane Becker

makes one that Yes, sense.

time. Thanks thank Well, for you, Jonathan. else Okay. everybody your

Jonathan Ornstein

you. Thank Sure.

Operator

We a Lindenberg Deutsche now with question from have Bank. Michael

line Your open. is

Michael Lindenberg

guys. afternoon good Hey,

Just here. couple a

can the thrown plus XXX, that to the size $XXX XXX. or anywhere the loan, sense to I you LIBOR [ph]? from that CARES you to some plus, the say, potential range do terms? anything a have amount Act XXX have that On LIBOR of tell and carriers million on you the numbers path of to know Are I that out in want us cost they've indicated

Jonathan Ornstein

I respond? mean, far to along. want I we've that Mike, don't gotten do you think

that's when would I lower, we've the you start do Mike, a that's that? discussions, actually want range rough been anything We The think had but a range. probably on think add have our out idea. little to We bit range. the

Mike Lotz

discussion range the Yes, the with this point. Treasury but rate on we're that's expecting, of negotiating the haven't had any points loan at we or the

Michael Lindenberg

Okay.

Okay, And tandem going that clear. XXXs, in -- to regional right I with the as let's you're that's or it jets? CRJ-XXXs to do helpful. CRJ-XXXs then, opt the larger fly as you the -- you're are -- wasn't going them wasn't operate say actually XX-seaters, as them

Jonathan Ornstein

aircraft, that fully pilots. they point; Yes. aircraft XXX, their with agreement be the to which -- this have United's we those to assuming take we under if doing delivery would scope No, current operate as intend operated on XX-seat of at

Michael Lindenberg

Okay.

Okay, great. lastly, when you're Did for just think did say -- the did think then the I then you crews that's to and account Jonathan, right; DHL And maintenance we I the XXXs, revenues? cargo cover picks fuel and how about you up DHL maintenance? going you hear that on business, say aircraft wait and

Jonathan Ornstein

and just crew, It's crew maintenance, correct. That's and maintenance a contract. CMI, insurance

Michael Lindenberg

I see.

sort some DHL. then So, do CPA you will you -- to -- that line in offsets so you're maybe like -- single -- does have revenue but if know, to be revenue, I that. of going it it's Maybe, tied to a call item. going don't to be that don't okay, know going be it how I it's it's all

Jonathan Ornstein

we we a just the it, did being believe revenue $XX is talking an think environment, mean, we're the million. at we have mean, but the we small; you pretty give we estimating grow significantly the Yes. now bet to step. which long-term. went to the magnitude, cargo two first with exist longest idea, It's aircraft. given good clearly we're to on very probably I feel million the $X business journey time that but pretty the just into And business Obviously, in that about of order begins not I

Michael Lindenberg

that? have like XXX, mean, agree. maintenance the like to to you the I how have XXX then that you like get on And have and proficient -- you do though I are spare with on Yes. we Do should just mechanics to No, think your going about maintenance? parts --

Jonathan Ornstein

the shot terms in you that maintenance? Mike, we're do take to want Brad, at going a to of do how

Mike Lotz

mean, I go ahead. Brad,

Brad Rich

the Well, existing to yes, maintenance agreements part very agreements, we passenger Mike, do flying. we're on up how setting similar

So it's be much going to different. not

Michael Lindenberg

Thanks. Okay. All right. Very good.

Jonathan Ornstein

they and costs. lot to power $X exposure that. that, the engines on add become startup C-checks But, is American the our our the Cincinnati. not with the million in going -- investments. to aircraft; own so lot be doing for responsible to mechanics is yes, We're the inventory trying those hour can less of do Mike. We're contract our heavy will maintenance, to work a where I up XXX part setting And of and on startup a by be little some minimize like and there the the pass-through, our

Michael Lindenberg

Okay.

Okay. No, That maintenance. like it line makes sense. sounds basic

Okay, that's helpful.

Jonathan Ornstein

Yes.

Michael Lindenberg

Great. Thanks guys.

Operator

final Bert from Our question comes with Stifel. Subin

open. is line Your

Bert Subin

side term opportunity up greater for on on cargo the Helane's is side view the the you growth? question, for in thanks time. do at Yes, following your of air Jonathan, the least terms on or Mesa travel longer

Jonathan Ornstein

good a That's question.

cargo I we DHL develop them. Treasury carriers I impact you us our business within loan think will structure liquidity to become the consolidation, believe opportunities, some fact, a some opportunities a reputation in some could with the aircraft and continues there light be not through know, look them in are of I insignificant. could as clearly, position, develop. on opportunities of to be big very of cost those XX I at make regional business Yes. negative strongly company; And at that to conservative is take When our XX still in be months? real. and the Mesa's the has to Could are been time biggest we have particularly think granted that COVID-XX some

Board. our I our cargo CEO We jet been the on the know, has the you love to as business; we added of recently think former Dan regional Southern focus McHugh, So, side.

on to I size, dislocation big Brad, that? due very in good the want add terms jet the side the cargo but you mean, the people given [ph], Bryan to still Mike, a opportunity pandemic. occurred of regional -- on that's opportunity anything We is guys to do very you have the some working side do

Brad Rich

[indiscernible]. Not

Mike Lotz

pilots It as and pilot way just we was and not it was part the so think -- part we to our upgrades of also of Mike. part of is able more diversify something retain people. is [ph] a the body jet; existing of attract be business into narrow offer regional it will as business. our this diversification our is who to pays situation, being And started that This

be at we'll some situation there point, forward, a past, point. with will at the -- that deal that to in pilot Going return pilot seen have to and the that we've

Bert Subin

Okay, thanks. That's helpful a lot.

follow-up. little variable structure probably one Just you on Mesa's your will pandemic, get cost cost structure, think is side, guess, the a expect carry you Mike. least you do at the for at How that there I could in structural percentage benefit potentially And terms? to any better? least through is that other

Mike Lotz

Yes. I cost the pilots. -- was our our cost challenges to in our train of mean, one part of structure

Jonathan Ornstein

attract bonus the [ph]. to and we pilots And pilots, give that

Mike Lotz

And that's period for attrition. to of had change pilots. going higher-than-normal attract were forward some bonuses certainly We to going paying time. We significant

on I alone, impact will a structure our going those think, have cost just factors forward. favorable So

Bert Subin

split? fixed then, variable And on the

Mike Lotz

What was that?

Bert Subin

wondering variable wondering know fixed, percentage your on I'm a it's I Mesa, little is just I'm the what in variable? of business. different just structure the But cost your split for

Mike Lotz

Yes, it roughly has been XX/XX. always

Bert Subin

Thanks. Okay.

Mike Lotz

we see significantly. that And changing dynamic don't

Operator

We James. Raymond Instructions] Savi have with now [Operator Syth

Savi Syth

thanks. Hey,

what guessing profitability on business get takes to going has of the to you it kind that, the that to curious to as large is -- it gets be side, Just cargo of that is grow profitable? levels? I'm be over overhead more operations how kind and to

Jonathan Ornstein

that? to Mike, to answer want do Mike, you to want respond you that?

Mike Lotz

aircraft. CPA be and we're the we I two all business XX aircraft, slightly most than to at would to I spreading the two or profitable other mean that of think comparable of aircraft. we're we're CPA the I probably But take just will breakeven costs XX where -- to over get point better Sure. X, other our it X X, like aircraft, get business think

Savi Syth

if of if like furlough might you. XX aircraft to have a downgrade those on impact United; XX-seat weekend, to sounded the just the some to be their have And might seats pilots. your United quick on question Mesa with have any Does Thank agreements over to that if sense. Makes United I of they it aircraft? have some ask

Jonathan Ornstein

just to that to seats. XX doesn't seats yes, would from Embraer there re-seat -- it and XX is the push of some I have impact. XXXs We think the down any have aircraft

Savi Syth

Thank right. All you. Okay.

Operator

We have no questions more in queue.

Jonathan Ornstein

We you our fabulous very done choice the company company the done corporately industry feel be this much. mentioned, Okay. feel structure, and to to of be do we're We may in this rather well The Treasury significant can take in to in are are term. these terms develop to field. really the how given maintaining has employees continues but We've -- structure. choose decide in that position Well, that they I in position that of work opportunities just liquidity opportunities when to job, that by unwind. liquidity the We loan, some everybody generated again, this significant. the enhanced really company brave things the us can a it we us front will hate -- very thank all to with. our use the what word significantly have dislocation the our the plan best we we feel they very given strongly where cost advantage, And cost good again, as that we -- can of that do I it puts some see a low happen doing near in can the everything partners our -- as

So, much. again, you thank very

no go, to it. doubt way about a have We

can value true on of everyone lot I of like put stock. as have we has well it's can like what been our our Mesa people have good income hopefully, we this value potential, that impacted But as together, think will to the which more continue equity, our behind for imagine quarters assets see else a and is, realize as good of price You industry. work we in the

you people, very all always speak if appreciate again, your Thank to And much. So, to free you. today. to like thank We're time you'd in we afterwards. call

Operator

today's this conference. concludes And

year time. Thank at you disconnect may for You participation. this

Mesa Air (MESA) 10 Aug 202020 Q3 Earnings call transcript