<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995 Commission File
Number 0-15495
MESA AIR GROUP, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Mexico 85-0302351
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2325 East 30th Street, Farmington, New Mexico 87401
--------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 327-0271
------------------
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 August 11, 1995, the Registrant had outstanding 32,894,263 shares of Common
Stock.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1.
MESA AIR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
---------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $114,591 $ 98,544 $316,429 $278,741
Other 3,334 3,274 9,759 9,333
-------- -------- -------- --------
Total operating revenues 117,925 101,818 326,188 288,074
-------- -------- -------- --------
Operating expenses:
Flight operations 43,642 31,922 123,191 93,482
Maintenance 20,128 17,878 55,434 46,568
Aircraft and traffic servicing 15,056 11,919 43,730 33,883
Promotion and sales 20,499 16,555 55,670 45,798
General and administrative 6,582 6,701 19,321 19,163
Depreciation and amortization 4,877 4,113 13,659 11,205
-------- -------- -------- --------
Total operating expenses 110,784 89,088 311,005 250,099
Operating income 7,141 12,730 15,183 37,975
-------- -------- -------- --------
Non-operating income (expenses):
Other (1,331) (1,612) (4,844) (4,047)
-------- -------- -------- --------
Total non-operating expenses (1,331) (1,612) (4,844) (4,047)
-------- -------- -------- --------
Earnings before income taxes 5,810 11,118 10,339 33,928
Income tax expense 2,195 3,871 3,915 12,548
-------- -------- -------- --------
Earnings before extraordinary item 3,615 7,247 6,424 21,380
Extraordinary item - gain on extinguishment
of debt (net of income taxes of $252) -- -- -- 412
-------- -------- -------- --------
Net earnings $ 3,615 $ 7,247 $ 6,424 $ 21,792
======== ======== ======== ========
Average common and common
equivalent shares outstanding 33,313 37,072 33,279 37,096
======== ======== ======== ========
Earnings per common and common
equivalent share:
Net earnings $ .11 $ .20 $ .19 $ .59
======== ======== ======== ========
</TABLE>
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<PAGE> 3
MESA AIR GROUP, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30 September 30
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,102 $ 35,567
Marketable securities 36,450 63,044
Receivables, principally traffic 51,517 50,857
Expendable parts and supplies, net 25,203 19,401
Prepaid expenses and other current assets 10,148 9,037
-------- --------
Total current assets 159,420 177,906
Property and equipment, net 172,393 198,062
Non-compete agreement, net 1,425 1,650
Lease and equipment deposits 24,760 13,319
Intangibles, net 56,121 22,459
Other assets 5,350 6,506
-------- --------
Total assets $419,469 $419,902
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 8,263 $ 8,474
Accounts payable 12,551 10,720
Income taxes payable 1,442 616
Air traffic liability 4,794 3,926
Accrued compensation 5,214 8,140
Other accrued expenses 13,377 11,844
-------- --------
Total current liabilities 45,641 43,720
Long-term debt and capital leases, excluding current portion 83,110 91,772
Deferred credits 26,860 24,845
Deferred income taxes 24,038 25,249
Stockholders' 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 and 32,889,263 and 32,704,042
shares issued and outstanding 148,707 147,695
Unrealized gain on marketable securities, net 7,825 9,757
Retained earnings 83,288 76,864
-------- --------
Total stockholders' equity 239,820 234,316
-------- --------
Total liabilities and stockholders' equity $419,469 $419,902
======== ========
</TABLE>
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<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended June 30
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,424 $ 21,792
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization 13,659 11,581
(Gain) Loss on sale of securities 145 41
(Gain) Loss on disposal of property and equipment (29) --
Extraordinary gain on extinguishment of debt -- (664)
Amortization of deferred credits (684) (1,283)
Stock bonus plan 385 --
Changes in assets and liabilities:
Receivables (660) (11,667)
Inventories (5,802) (8,526)
Prepaid expenses and other current assets (1,111) 2,130
Accounts payable 1,831 52
Other accrued liabilities 301 8,094
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 14,459 21,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (88,154) (33,702)
Proceeds from sale of property and equipment 99,634 11,395
Proceeds from sale of marketable securities 23,334 58,398
Purchases of marketable securities, net -- (46,784)
Purchase of subsidiary, net of cash acquired -- (4,890)
Intangibles (33,327) --
Other assets 732 (1,246)
Lease and equipment deposits (8,942) (158)
Collection of notes receivable 306 469
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (6,417) (16,518)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and
obligations under capital leases (8,872) (8,610)
Proceeds from issuance of common stock 192 2,617
Proceeds from deferred credits 1,173 1,353
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES (7,507) (4,640)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 535 392
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,567 51,219
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,102 $ 51,611
======== ========
</TABLE>
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<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended June 30
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Cash paid during the period for: 1995 1994
---- ----
<S> <C> <C>
Interest $4,470 $ 6,799
Income taxes 3,192 6,121
</TABLE>
Mesa purchased fixed assets during the periods ended
June 30 upon which debt was assumed or incurred as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets purchased $88,154 $ 105,694
Debt assumed or incurred -- 71,992
----------
Net cash $88,154 $ 33,702
======= ==========
</TABLE>
Of the $88.1 million in assets purchased, $24 million (four Dash 8-100
aircraft) were subsequently sold and $51 million (six Dash 8-300 aircraft)
were sold and leased back under short-term leases.
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<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited 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 nine-month period ended June
30, 1995 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1995.
2. The consolidated financial statements include the accounts of Mesa Air
Group, Inc. and its wholly owned subsidiaries WestAir Holding, Inc.,
Air Midwest, Inc., San Juan Pilot Training, Inc., and Four Corners
Aviation, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related disclosures contained in Mesa's
Annual Report on Form 10-K for the year ended September 30, 1994,
filed with the Securities and Exchange Commission.
3. Income tax expense is based upon Mesa's annual effective tax rate of
38 percent.
4. Legal Proceedings
See Part II. Item 1
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<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
Mesa Air Group, Inc., ("Mesa") maintains five regional commuter airline
operations utilizing low-cost high frequency "hub-and-spoke" route systems and
one division which operates regional jet aircraft.
The Mesa Airlines unit operates within the Mountain West division independent
of any code-sharing agreement with a major carrier from a hub airport at
Albuquerque, New Mexico. In addition, the Mountain West division operates as
United Express in the Rocky Mountain and Western regions of the United States
pursuant to code-sharing arrangements with United Airlines, Inc. ("United")
utilizing hubs in Denver, Seattle, Portland and Los Angeles and as "America
West Express" pursuant to a code-sharing arrangement with America West
Airlines, Inc. utilizing a hub in Phoenix, Arizona.
WestAir Commuter Airlines, Inc., a wholly-owned subsidiary of WestAir Holding,
Inc. serves the West Coast region as "United Express" with hubs in San
Francisco, Portland and Seattle. WestAir Holding, Inc. is a wholly-owned
subsidiary of Mesa. (See WESTAIR)
Mesa operates as "USAir Express" in the Northeast, Southeast, Midwest and
Central regions of the United States pursuant to code-sharing arrangements
with USAir, Inc. ("USAir"). Mesa provides USAir Express service in the
Northeast and Southeast regions of the United States through its FloridaGulf
Airlines division with hubs in Boston, Philadelphia, Baltimore, Orlando, New
Orleans and Tampa. The Midwest and Central regions are served by Air Midwest,
Inc., from a hub in Kansas City and by the Liberty Express division from a hub
in Pittsburgh, Pennsylvania.
Mesa has recently established a new division known as Desert Sun Airlines to
operate two Fokker 70 jet aircraft capable of carrying 78 passengers. The
aircraft were delivered in May and June of 1995, and passenger service
commenced on June 12, 1995. Desert Sun Airlines has options to acquire six
additional Fokker 70 aircraft. Desert Sun operates as "America West Express"
with flights originating out of a Phoenix, Arizona hub.
The following table sets forth selected operating data of Mesa for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Data Category:
Passengers 1,585,775 1,347,725 4,413,426 3,706,953
Available seat miles (ASMs) (000) 577,838 473,334 1,666,156 1,386,964
Revenue passenger miles (000) 300,698 250,357 830,176 708,507
Load factor 52.0% 52.9% 49.8% 51.1%
Yield per revenue passenger mile 38.1 cents 39.7 cents 38.1 cents 39.3 cents
Operating cost per available seat mile 19.2 cents 18.8 cents 18.7 cents 18.0 cents
Revenue per available seat mile 20.4 cents 21.5 cents 19.6 cents 20.8 cents
Average stage length 162 162 162 163
Number of aircraft in fleet 179 156 179 156
</TABLE>
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<PAGE> 8
Three Months Ended June 30, 1995 Versus Three Months Ended June 30,1994
<TABLE>
<CAPTION>
Three Months Ended
June 30
-------
1995 1994
---- ----
Percent of Percent of
Cost total operating Cost total operating
per ASM revenues per ASM revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Operating Expense Category:
Flight operations 7.6 cents 37.0% 6.7 cents 31.3%
Maintenance 3.5 cents 17.1% 3.8 cents 17.6%
Aircraft and traffic servicing 2.6 cents 12.8% 2.5 cents 11.7%
Promotion and sales 3.5 cents 17.4% 3.5 cents 16.3%
General and administrative 1.1 cents 5.6% 1.4 cents 6.6%
Depreciation and amortization 0.9 cents 4.0% 0.9 cents 4.0%
Total operating expenses 19.2 cents 93.9% 18.8 cents 87.5%
Interest expense 0.3 cents 1.4% 0.4 cents 1.7%
</TABLE>
Mesa generated a 15.8 percent growth in revenues from $101.8 million during the
three-month period ended June 30, 1994 to $117.9 million during the three-month
period ended June 30, 1995. Expansion of the FloridaGulf Airlines division,
which encompassed new routes obtained with the purchase of certain assets from
the USAir Allegheny Commuter subsidiary operating hubs in Boston, Philadelphia
and Baltimore, contributed to an increase in revenue over the same period in the
prior year. Additional passengers from the Denver hub resulting from reduced
service by Continental and Continental Express in Denver also contributed to the
increased revenues.
Passengers carried during the quarter increased by 17.7 percent, while revenue
increased by 15.8 percent as a result of a 1.2 percent decrease in the average
ticket price from $73.12 to $72.26. This decrease was primarily caused by
decreasing fares at the WestAir subsidiary from $72 to $61 for ticket sales with
respect to approximately 450,000 passengers. In addition to competitive
conditions in local markets, ticket prices are affected by Mesa's allocation of
fares set by its code-sharing partners.
Operating costs increased from 18.8 cents to 19.2 cents per ASM resulting in an
increase of approximately $21.7 million in operating expenses for the current
period over the same period in 1994. Management believes that the increase in
operating expenses were primarily attributable to increases in flight operations
expense from 6.7 cents per ASM to 7.6 cents per ASM due to de Havilland Dash 8
and Fokker 70 fleet integration costs all of which are being expensed as they
are incurred along with an increase in lease expense resulting from expansion of
the aircraft fleet. Some aircraft were not fully utilized during the period
resulting in increased operating expenses without offsetting revenues.
Operating profits decreased from $12.7 million in the three-month period ended
June 30, 1994 to $7.1 million in the three-month period ended June 30, 1995.
This decrease is primarily caused by expensing integration costs of de Havilland
Dash 8 and Fokker 70 aircraft.
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<PAGE> 9
Nine Months Ended June 30, 1994 Versus Nine Months Ended June 30, 1995
<TABLE>
<CAPTION>
Nine Months Ended
June 30
-------
1995 1994
---- ----
Percent of Percent of
Cost total operating Cost total operating
per ASM revenues per ASM revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Operating Expense Category:
Flight operations 7.4 cents 37.8% 6.7 cents 32.3%
Maintenance 3.4 cents 16.9% 3.4 cents 16.2%
Aircraft and traffic servicing 2.6 cents 13.4% 2.4 cents 11.8%
Promotion and sales 3.3 cents 17.1% 3.3 cents 15.9%
General and administrative 1.2 cents 5.9% 1.4 cents 6.7%
Depreciation and amortization 0.8 cents 4.2% 0.8 cents 3.9%
Total operating expenses 18.7 cents 95.3% 18.0 cents 86.8%
Interest expense 0.3 cents 1.4% 0.4 cents 1.7%
</TABLE>
Mesa generated 13.2 percent growth in revenues from $288 million during the
nine-month period ended June 30, 1994 to $326.1 million during the nine-month
period ended June 30,1995.
Passengers carried during the nine months ended June 30, 1995 increased
approximately 19 percent relative to the nine months ended June 30, 1994, while
revenues grew approximately 13.2 percent, reflecting a decrease in the average
ticket price from $75.19 to $71.70. The primary cause of the decrease in
average ticket price was fare discounting in the Eastern region of the United
States by USAir in response to competition from Continental Lite and Continental
Express and in the Western region in response to increased competition between
United Airlines Shuttle by United and Southwest Airlines, Inc. Additionally,
extensive negative publicity regarding the safety of regional airlines following
the crash of a USAir jet in September 1994 and crashes of two American Eagle
turboprop aircraft in late 1994 caused a significant decline in the number of
passengers carried. Extensive air fare discounting resulted in order to
stimulate traffic which further contributed to the decline in average ticket
price. Ticket prices were also affected by Mesa's allocation of the fares set by
its code-sharing partners.
Operating expenses incurred for the nine months ended June 30, 1995 were 18.7
cents per ASM compared to 18.0 cents per ASM for the nine months ended June 30,
1994. An increase in flight operation expenses from 6.7 cents per ASM to 7.4
cents per ASM is the major component of the increase in operating expenses. The
increase is primarily a result of the sale and leaseback of 17 1900D aircraft
and de Havilland Dash 8 and Fokker 70 aircraft integration costs.
Operating income decreased from approximately $37.9 million in the nine-month
period ended June 30, 1994 to approximately $15.2 million for the same period in
1995 due to decreased average fares and increased operating expenses.
Consolidated net earnings for the nine-month period ended June 30, 1995
decreased to $6.4 million from $21.8 million during the nine-month period ended
June 30, 1994 as a result of factors discussed above.
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<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Mesa's cash and marketable securities at June 30, 1995 were $72.6 million as
compared to $98.6 million at September 30, 1994. This decrease is the result
of approximately $32 million in expenditures to United in conjunction with the
acquisition of aircraft and the extension of its code-sharing agreement with
the Mountain West division. In addition, deposits on aircraft of approximately
$8.9 million were paid during the first nine months of the fiscal year. For
the nine-month period ended June 30, 1995, net cash flows generated from
operations was $14.5 million as compared to $21.5 million for the same period in
1994. This decrease is a direct result of the reduction in operating income
based on factors discussed above.
As of June 30, 1995, Mesa had aggregate indebtedness of $91.4 million payable
to various entities under promissory notes issued in connection with the
purchase of aircraft and related equipment. The notes have maturities ranging
up to 2006 with monthly installments of approximately $1.4 million. Mesa also
has an $11 million line of credit with Norwest Bank New Mexico. No amounts
were advanced against this line of credit at June 30, 1995.
As of June 30, 1995, Mesa had 39 Beechcraft 1900D aircraft on order. The
purchase agreement between Beech and Mesa allows Mesa to trade in existing
Beechcraft 1900C aircraft in an "as-is" condition for new 1900D aircraft. Mesa
plans to complete this trade-in program and receive all 1900Ds under the
current order before December, 1996. Beech Acceptance Corporation has agreed to
finance the purchase or lease of each new aircraft. Mesa's WestAir division
has 15 Embraer EMB-120 Brasilia aircraft on order. (See WESTAIR)
During the second and third quarter of 1995, Mesa Air Group, Inc. put into
passenger service seven Dash 8-300 aircraft, which were obtained from United
Air Lines in conjunction with extension of the code-sharing agreement between
Mesa and United signed in December. As part of the extended code-share
agreement, Mesa agreed to purchase six Dash 8-300 and four Dash 8-100 aircraft
and to assume leases for one Dash 8-300 and one Dash 8-100. Mesa subsequently
sold ten aircraft and assigned two aircraft to a third-party and are now
leasing back the seven Dash 8-300s, which are being operated in the Mountain
West division.
During March 1995, Mesa entered into an agreement with Bombardier, Inc. to
acquire 25 de Havilland Dash 8-200 aircraft with deliveries beginning in
February 1996 through March 1997. Based on current expectations, the monthly
lease payments are anticipated to be approximately $72,000 per plane. Mesa
will trade in seven Dash 8-300 and 13 Embraer Brasilia aircraft in exchange for
the 25 Dash 8-200 aircraft. Bombardier will participate as needed to finance
the new aircraft deliveries. Mesa also has an option to acquire 25 additional
de Havilland Dash 8-200 aircraft.
Mesa has significant lease obligations on existing aircraft operated by Mesa.
These leases are classified as operating leases and therefore are not reflected
as liabilities on the balance sheet. At June 30, 1995, 152 aircraft were
leased by Mesa with remaining terms ranging up to 14 years. Future minimum
lease payments due under all aircraft operating leases were approximately $624
million at June 30, 1995.
The FAA has issued a Notice of Proposed Rule making, which, if enacted, would
require commuter airlines with aircraft with 30 passenger seats or less
operating under FAR Part 135 rules to begin operating those aircraft under FAR
Part 121 regulations. Mesa is unable to determine the expense to be incurred
in implementation of these changes until the final rules are issued. The new
rules will apply to all commuter airlines and Mesa management anticipates the
entire industry will attempt to recover such cost increases through increased
fares, which could result in reduced load factors.
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<PAGE> 11
Mesa's fuel tax exemption expires September 30, 1995. If no additional
legislation is passed to extend the exemptions, the total impact on Mesa would
be an additional fuel cost of approximately $3 million. The company would
attempt to recover these additional costs through increased fares, which could
result in reduced load factors.
INVESTMENT IN COMMUNITY EXPRESS
In July, 1995 Mesa entered into an investment agreement with Community Express
Airlines, Limited (CEAL). CEAL is a start-up commuter airline in the United
Kingdom with headquarters in Birmingham, England. Mesa has received 49.9% of
the outstanding voting common stock of CEAL in exchange for an investment of
approximately $680,000. Mesa has also invested approximately $640,000 in
exchange for 100% of the outstanding preference shares of CEAL. The preference
shares carry a 20% per annum preferential return. Other shareholders have
invested approximately $680,000 in exchange for 50.01% of the outstanding
voting common stock of CEAL. Under terms of the investment agreement, CEAL
will sub-lease two Shorts 360-300 aircraft from Mesa for a ten year term at a
market lease rates plus maintenance reserve payments. Mesa has also agreed to
supply a spare parts package to support the two Shorts 360-300 aircraft to CEAL
at fair market value.
CEAL operations are expected to commence on October 2, 1995 with initial
service from Birmingham to London Gatwick airport. In addition, operations are
expected to commence from the London City airport shortly thereafter.
UNION ACTIVITY
The flight attendants of the Mountain West operating division of Mesa voted to
join AFA (Association of Flight Attendants) during April 1995. The pilots of
the Mountain West operating division are presently in contract negotiations
with ALPA. On June 13, 1995 the pilots of the FloridaGulf Airlines division
voted to join ALPA. The WestAir pilot contract is amendable. (See WESTAIR)
WESTAIR
Increased competition on the West Coast between the Shuttle by United and
Southwest Airlines, Inc. has resulted in lower airfares and decreased passenger
traffic during the first six months of the fiscal year at Mesa's WestAir
subsidiary. Many routes operated by WestAir have been unprofitable as a result
of this increased competition from jet carriers.
In response to these competitive changes in WestAir's markets, WestAir
management made significant operational changes in the third quarter of the
1995 fiscal year which were considered necessary to attain profitable
operations and generate positive operating cash flow. Operational changes
included abandonment of certain unprofitable markets, conversion of certain
markets to a fee per departure, reduction of WestAir's fleet, reduction of
overhead expenses and renegotiation of aircraft leases. These changes have
resulted in returning WestAir to profitability in the third quarter and
generating sufficient cash flow to meet WestAir's obligations.
Mesa currently provides WestAir with an advance of up to 85% of qualifying
accounts receivable based primarily upon airline ticket stock with the
outstanding balance payable at the end of each calendar month to meet its
operating needs. The remaining balance of 15% is held by Mesa for 90 days to
secure itself against non-payment or rejection of accounts receivable by the
Airline Clearing House or other parties. This loan
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<PAGE> 12
replaced a $4,000,000 line of credit from a bank which expired on April 30,
1995 and bears interest at Prime plus 1/2% .
Work rules under the amendable WestAir Airline Pilots Association contract
(ALPA) are being renegotiated to provide for a reduction in the number of crews
per plane from four to three and one quarter crews per plane. Such targeted
work rules would be comparable to present work rules in other unionized Mesa
divisions. Although it is possible that a strike may result before the issues
are resolved, Mesa and WestAir management believe it preferable to avoid a
strike. However, both Mesa and WestAir management are prepared to deal with the
consequences of a strike or a lockout if necessary.
On June 30, 1995 WestAir and Jet Acceptance Corporation entered into an
agreement to reduce monthly lease rates for the entire fleet of 21 Jetstream 31
aircraft to economically feasible rates with terms beginning in April 1995 and
expiring from December 31, 1998 to June 30, 2004 and to sub-sublease the
aircraft to other parties. In exchange for this Agreement, WestAir agreed to
waive all early aircraft lease termination rights and not create any lien or
encumbrance over present or future assets or revenues other than for working
capital and purchase money security interests. Mesa, or in lieu of Mesa, a
third-party financial institution is required to provide a secured line of
credit to WestAir to support WestAir's accounts receivable until WestAir is
able to demonstrate that it can meet its obligations for a 12-month period.
WestAir has an outstanding order with Embraer Aircraft Corporation for fifteen
new Embraer Brasilia aircraft to be delivered at the rate of approximately four
per year through 1998. Embraer has been informed that Mesa has no obligation
to and is unwilling to guarantee WestAir's obligations under the order, and
that WestAir management believes its fleet cannot absorb additional aircraft
because of competitive factors in its operating environment. Embraer and
WestAir are presently discussing ways to resolve these issues. Embraer has
agreed to defer three of the four scheduled 1995 deliveries and all of the 1996
deliveries until 1997, assist with or provide financing for the 1995 delivery,
consider assuming the obligation for one used WestAir Brasilia aircraft in 1995
and to continue to negotiate a resolution for the remaining aircraft on order.
If WestAir is forced to take delivery of and make payments on the remaining
Brasilia aircraft on order, it could have a material adverse affect on the
operations of WestAir.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The contents of Item 3. Legal Proceedings from the Form 10-K
filed for the fiscal year ended September 30, 1994 as modified
in Form 10-Q filed for the quarter ended December 31, 1994 has
been incorporated by reference.
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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<PAGE> 13
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed June 16, 1995 and Form 8-K filed April 5, 1995.
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<PAGE> 14
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
undersigned thereunto duly authorized.
Mesa Air Group, Inc.
Registrant
Date: 8/12/95 /s/ W. Stephen Jackson
--------------------------------------
W. Stephen Jackson
Chief Financial Officer, Treasurer and
Vice President of Finance
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSENSED
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS AS OF JUNE 30, 1995 AND
IS QUALIFIESD IN ITS ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1995 - COMMISSION FILE NUMBER 0-15495.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> JUN-30-1995
<CASH> 36,102
<SECURITIES> 36,450
<RECEIVABLES> 51,768
<ALLOWANCES> 251
<INVENTORY> 25,203
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<PP&E> 212,854
<DEPRECIATION> 40,461
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<CURRENT-LIABILITIES> 45,641
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<COMMON> 148,707
0
0
<OTHER-SE> 91,113
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<SALES> 326,188
<TOTAL-REVENUES> 326,188
<CGS> 311,005
<TOTAL-COSTS> 311,005
<OTHER-EXPENSES> 1,580
<LOSS-PROVISION> 220
<INTEREST-EXPENSE> 4,664
<INCOME-PRETAX> 10,339
<INCOME-TAX> 3,915
<INCOME-CONTINUING> 6,424
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,424
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
