<PAGE> 1
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, 1996 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 May 10, 1996, the Registrant had outstanding 28,098,975 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 Six Months Ended
March 31 March 31
1996 1995 1996 1995
-----------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $118,237 $103,773 $235,165 $202,439
Freight and other 2,737 3,112 5,837 6,425
-----------------------------------------------
Total operating revenues 120,974 106,885 241,002 208,864
-----------------------------------------------
Operating expenses:
Flight operations 43,796 41,693 88,360 79,549
Maintenance 19,265 17,465 38,689 35,307
Aircraft and traffic servicing 19,786 16,710 36,874 30,487
Promotion and sales 18,033 17,696 36,149 33,958
General and administrative 7,106 6,439 14,627 12,739
Depreciation and amortization 4,664 4,618 10,378 8,782
-----------------------------------------------
Total operating expenses 112,650 104,621 225,077 200,822
-----------------------------------------------
Operating income 8,324 2,264 15,925 8,042
-----------------------------------------------
Non-operating income (expenses):
Interest expense (1,520) (1,772) (3,141) (2,982)
Interest income 406 377 1,052 1,093
Other 11,763 (768) 11,446 (1,625)
-----------------------------------------------
Total non-operating income (expenses) 10,649 (2,163) 9,357 (3,514)
-----------------------------------------------
Earnings before income taxes 18,973 101 25,282 4,528
Income tax expense 7,108 38 9,543 1,720
-----------------------------------------------
Net earnings $ 11,865 $ 63 $ 15,739 $ 2,808
===============================================
Average common and common equivalent
shares outstanding 30,696 33,282 32,199 33,281
===============================================
Net earnings per common and
common equivalent share $ 0.39 $ 0.00 $ 0.49 $ 0.08
===============================================
</TABLE>
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<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31 September 30
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,196 $ 53,675
Marketable securities 14,020 40,901
Receivables, principally traffic 43,574 44,811
Expendable parts and supplies, net 27,172 24,682
Prepaid expenses and other current assets 6,943 6,923
---------------------
Total current assets 125,905 170,992
Property and equipment, net 158,931 170,899
Lease and equipment deposits 25,084 26,147
Intangibles, net 58,741 60,598
Other assets 30,748 18,086
---------------------
Total assets $399,409 $446,722
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases $ 8,306 $ 8,283
Accounts payable 17,006 23,205
Income taxes payable 6,823 1,073
Air traffic liability 4,995 5,131
Other accrued expenses 21,871 17,922
---------------------
Total current liabilities 59,001 55,614
Long-term debt and capital leases, excluding current portion 66,637 78,411
Deferred credits and accrued liabilities 36,652 28,353
Deferred income taxes 21,371 28,461
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; 28,088,442 and 33,460,742
shares issued and outstanding 99,230 151,957
Unrealized gain on marketable securities, net 9,903 13,050
Retained earnings 106,615 90,876
---------------------
Total stockholders' equity 215,748 255,883
---------------------
Total liabilities and stockholders' equity $399,409 $446,722
=====================
</TABLE>
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<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended March 31
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 15,738 $ 2,808
Adjustments to reconcile net earnings to
net cash flows from operation activities:
Depreciation and amortization 10,377 8,782
Reserve for contingent liabilities 10,000 --
(Gain) Loss on disposal of property & equipment -- (29)
(Gain) Loss on sale of securities (22,008) --
Amortization of deferred credits (1,382) --
Stock bonus plan 565 385
Changes in assets and liabilities:
Receivables (863) 2,187
Inventories (85) (4,218)
Prepaid expenses and other current assets (20) (1,093)
Accounts payable (3,399) 2,794
Other accrued liabilities 2,162 (6,961)
-----------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES: 11,085 4,655
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,457) (32,372)
Proceeds from sale of property and equipment 7,154 28,696
Proceeds from sale of marketable securities 36,861 24,397
Intangibles -- (31,113)
Other assets (2,689) 1,671
Lease and equipment deposits 2,163 (3,155)
Collection of notes receivable -- 466
-----------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 29,032 (11,410)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and
obligations under capital leases (9,204) (5,032)
Proceeds from issuance of common stock 419 152
Stock buyback program (53,711) --
Proceeds from deferred credits 2,900 2,267
-----------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (59,596) (2,613)
-----------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (19,479) (9,368)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,675 35,567
-----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,196 $ 26,199
=======================
</TABLE>
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<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended March 31
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Cash paid during the period for: 1996 1995
---------------------
<S> <C> <C>
Interest $3,141 $2,932
Income taxes 4,034 3,108
</TABLE>
-5-
<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 statement presentation. 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 six-month period ended March
31, 1996 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996.
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., Four Corners
Aviation, Inc., MAGI Insurance, Ltd., and Mesa Leasing, 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, 1995, filed with the
Securities and Exchange Commission.
3. Income tax expense is based upon Mesa's annual effective tax rate of
38.6 percent.
4. The Company has established a reserve in the amount of $10 million in
respect of the prospective resolution of certain disputed state and
federal regulatory tax matters and the costs of defense of the
shareholder lawsuits discussed in Part II., Item 1., Legal Proceedings.
The $10 million reserves consist of $5.7 million for costs of
aggressive defense in pending shareholder lawsuits in addition to $1.8
million related to assessed claims by the IRS and $2.5 million reserve
for possible tax claims from various states. In the event these matters
are settled in the Company's favor, all or a portion of the unnecessary
amounts will be returned to income.
5. Certain 1995 balances have been reclassified to conform to the 1996
presentation. For the three and six month periods ended March 31, 1995,
$635,000 and $1.2 million, respectively, related to USAir connection
credits were reclassified from promotion and sales to aircraft and
traffic servicing for consistent presentation with current year. In
addition, $450,000 and $600,000, respectively, for the three- and
six-month periods ended March 31, 1995 were reclassified from passenger
revenues to aircraft and traffic servicing for consistent presentation
with the current year of accounting for flight interrupt manifest
costs.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
Mesa Air Group, Inc. ("Mesa") and its divisions and subsidiaries is a group of
six regional airlines and other related companies operating in various regions
across the United States. Mountain West Airlines provides service to the general
public as America West Express, United Express and Mesa Airlines. In addition,
Mesa operates FloridaGulf Airlines and Liberty Express Airlines providing
service as USAir Express. Mesa also owns Air Midwest, Inc., providing service as
USAir Express, and WestAir Holding, Inc. (operating through its wholly-owned
subsidiary WestAir Commuter Airlines, Inc.), providing service as United
Express. Desert Sun Airlines operates jet aircraft providing service as America
West Express.
The following table sets forth selected operating data of the Company for the
periods indicated below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------------------------------------
1996 1995 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
Passengers 1,549,865 1,402,019 3,160,133 2,827,651
Available seat miles (ASMs) (000) 613,407 555,038 1,242,825 1,088,316
Revenue passenger miles (000) 338,826 264,743 681,725 529,477
Load factor 55.2% 47.7% 54.9% 48.7%
Yield per revenue passenger mile 34.9(cents) 39.2(cents) 34.5(cents) 38.2(cents)
Operating cost per available seat mile 18.4(cents) 18.8(cents) 18.1(cents) 18.5(cents)
Revenue per available seat mile 19.7(cents) 19.2(cents) 19.4(cents) 19.2(cents)
Average stage length 168 161 167 161
Number of aircraft in fleet 174 182 174 182
</TABLE>
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<PAGE> 8
Three Months Ended March 31, 1996 Versus Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------------------------------
1996 1995
-------------------------------------------------------
Percent of Percent of
Cost total operating Cost total operating
per ASM revenues per ASM revenues
---------------------------- -------------------------
<S> <C> <C> <C> <C>
Flight operations 7.1(cents) 36.2% 7.5(cents) 39.2%
Maintenance 3.1(cents) 15.9% 3.2(cents) 16.4%
Aircraft and traffic servicing 3.2(cents) 16.4% 2.8(cents) 14.7%
Promotion and sales 3.0(cents) 14.9% 3.3(cents) 17.2%
General and administrative 1.2(cents) 5.9% 1.2(cents) 6.0%
Depreciation and amortization 0.8(cents) 4.9% 0.8(cents) 4.3%
Total operating expenses 18.4(cents) 93.1% 18.8(cents) 97.8%
Interest expense 0.2(cents) 1.3% 0.3(cents) 1.7%
</TABLE>
Mesa generated a 13.2 percent growth in revenues from $106.9 million during the
three-month period ended March 31, 1995 to $121 million during the three-month
period ended March 31, 1996. This increase is attributable to a 10.5 percent
increase in passengers carried in addition to a 3.5 percent increase in the
average ticket price from $74.02 for the quarter ended March 31, 1995 to $76.28
for the quarter ended March 31, 1996.
The Company's new automated revenue management system is designed to maximize
revenue per ASM, which improved three percent. Management's objective is to
maximize revenue per trip. This objective may result in a decrease in yield per
RPM while increasing total revenue, revenue per trip and revenue per ASM.
Operating costs decreased from 18.8(cents) to 18.4(cents) per ASM. The primary
reasons for the decrease in operating expenses were due to significant flight
operations expense incurred in the prior year related to fleet integration costs
of de Havilland Dash 8 and Fokker 70 aircraft which are not present in the
current year and the retirement of five of the Company's seven Dash 8-300
aircraft early in the second fiscal 1996 quarter.
Other components of operating expenses include increased aircraft and traffic
servicing costs related to Denver International Airport (DIA). Costs of
operation at DIA increased approximately $500,000 per month as compared to
operation at Denver's Stapleton Airport. The Company is working to reduce those
costs under its control in Denver by eliminating Dash 8-300 aircraft and
changing scheduling to a continuous hub concept, which has resulted in
significantly better utilization of aircraft, employee reduction of
approximately 20 full-time equivalents, and improved baggage and on-time
performance. Management believes these changes will help offset the
DIA cost increase.
Operating profits increased from $2.3 million in the three-month period ended
March 31, 1995 to $8.3 million in the three-month period ended March 31, 1996.
This increase is due to the increase in revenue per ASM and the decrease in cost
per ASM, as discussed above.
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<PAGE> 9
Six Months Ended March 31, 1996 Versus Six Months Ended March 31, 1995
<TABLE>
<CAPTION>
Six Months Ended March 31
----------------------------------------------------------
1996 1995
----------------------------------------------------------
Percent of Percent of
Cost total operating Cost total operating
per ASM revenues per ASM revenues
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Flight operations 7.1(cents) 36.7% 7.3(cents) 38.2%
Maintenance 3.1(cents) 16.1% 3.2(cents) 17.0%
Aircraft and traffic servicing 3.0(cents) 15.3% 2.8(cents) 14.4%
Promotion and sales 2.9(cents) 15.0% 3.1(cents) 16.3%
General and administrative 1.2(cents) 6.1% 1.2(cents) 6.1%
Depreciation and amortization 0.8(cents) 4.3% 0.8(cents) 4.2%
Total operating expenses 18.1(cents) 93.4% 18.4(cents) 96.2%
Interest expense 0.3(cents) 1.3% 0.3(cents) 1.4%
</TABLE>
Mesa generated a 15.4% growth in revenues from $208.9 million during the
six-month period ended March 31, 1995 to $241 million during the six-month
period ended March 31, 1996.
Passengers carried during the six months ended March 31, 1996 increased
approximately 11.8% compared to the six months ended March 31, 1995, while
revenues grew approximately 15.4%, reflecting an increase in the average ticket
price from $71.59 to $74.42. In addition to competitive conditions affecting the
industry, ticket prices were also affected by Mesa's share of the fares set by
its code-sharing partners and positive results of the Company's new automated
revenue management system.
Operating expenses incurred for the six months ended March 31, 1996 were
18.1(cents) per ASM compared to 18.4(cents) per ASM for the six months ended
March 31, 1995. A decrease in flight operation expenses from 7.3(cents) per ASM
to 7.1(cents) per ASM is a significant component of the decrease in operating
expense unit costs. The decrease is primarily a result of the de Havilland Dash
8 and Fokker 70 aircraft integration costs incurred in the prior year which are
not present in the current year and the retirement of five of the Company's
seven Dash 8- 300 aircraft early in its second fiscal 1996 quarter.
Another component of operating expenses is an increase in aircraft and traffic
servicing expense from 2.8(cents) to 3.0(cents) per ASM due to increased costs
at Denver International Airport (DIA). Costs of operation at DIA increased
approximately $500,000 per month as compared to operation at Denver's Stapleton
Airport. The Company is working to reduce those costs under its control in
Denver by eliminating Dash 8-300 aircraft and changing scheduling to a
continuous hub concept, which has resulted in significantly better utilization
of aircraft, employee reduction of approximately 20 full-time equivalents, and
improved baggage and on-time performance. These changes will help offset the DIA
cost increases.
Operating income increased from approximately $8 million in the six-month period
ended March 31, 1995 to approximately $15.9 million for the same period in 1996.
This increase is due to the increase in revenue per ASM and the decrease in cost
per ASM, as discussed above.
Consolidated net earnings for the six-month period ended March 31, 1996
increased to $15.7 million from $2.8 million during the six-month period ended
March 31, 1995 as a result of factors discussed above plus other income of $11.4
million, which includes a $22 million gain on sale of America West stock and a
special
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<PAGE> 10
reserve of $10 million established in respect of the prospective resolution of
certain disputed state and federal regulatory tax matters and for the cost of
defending shareholder lawsuits discussed in Part II., Item 1., Legal
Proceedings. The $10 million reserves consist of $5.7 million for costs of
aggressive defense in pending shareholder lawsuits, $1.8 million reserve related
to assessed claims by the IRS and $2.5 million reserve for possible tax claims
from various states. In the event these matters are settled in the Company's
favor, all or a portion of the unnecessary amounts will be returned to income.
LIQUIDITY AND CAPITAL RESOURCES
Mesa's cash and marketable securities at March 31, 1996 were $48.2 million as
compared to $94.6 million at September 30, 1995. This decrease is the result of
approximately $53.7 million utilized to repurchase approximately 5.5 million
shares of the Company's stock during the six month periods ended March 31, 1996.
This use of cash was offset by $36.7 million of proceeds from the sale of a
portion of America West stock and cash generated from operating activities of
$11.1 million. The remainder of the decrease is primarily related to normal
capital expenditures and principal payments on indebtedness.
Mesa had receivables of $43.6 million at March 31, 1996 which consist primarily
of amounts due from code-sharing partners United and USAir. Under the terms of
the United and USAir agreements, Mesa receives a substantial portion of its
revenues monthly through the Airline Clearing House. Mesa has consistently
generated cash flow in excess of its operating needs.
Mesa currently has an $11 million line of credit, of which approximately $6.5
million is available. This line of credit is primarily used to facilitate the
issuance of letters of credit. This line of credit has been increased to $20
million, and Mesa and the related bank are completing final documentation of the
$20 million line of credit.
As of March 31, 1996, the Company had aggregate indebtedness of $74.9 million
payable to various parties under promissory notes issued primarily in connection
with the purchase of aircraft and related spare parts. The notes have interest
rates ranging from 6.8 percent to 8.75 percent, maturities ranging from 1996 to
2006 and require monthly installments aggregating approximately $600,000.
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 on the Company's balance sheet. At March 31, 1996,
150 aircraft were leased by the Company with terms ranging up to 15 years.
Aircraft lease expense for the quarter ended March 31, 1996 was $18.8 million.
Future lease payments due under all aircraft operating leases were approximately
$550 million at March 31, 1996.
As of March 31, 1996, the Company had 22 Beechcraft 1900D aircraft on order.
These aircraft are being delivered at the rate of approximately two to four per
month. Deliveries, which had approximated two to four aircraft per month, slowed
during the second quarter while financing negotiations were taking place. The
Beech Aircraft Purchase Agreement allows Mesa to trade in an existing Beechcraft
1900C aircraft in an "as-is" airworthy condition for each aircraft purchased. By
December 1996, Mesa expects to take delivery of the 22 remaining 1900D aircraft
on order and will return all 1900C (17) aircraft.
In April 1996, Mesa and Raytheon Aircraft Company agreed that they would convert
leases on 69 existing Beech 1900D aircraft to debt and that Raytheon would
provide debt financing to Mesa under terms adjusted downward to current market
rates. Raytheon also agreed to provide debt financing to Mesa for the 22
remaining 1900D aircraft to be delivered under the existing aircraft order. The
financing is to be completed prior to June 1, 1996. Total debt for the 91
aircraft to be financed under this program will approximate $315 million.
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<PAGE> 11
WestAir amended its purchase contract with Embraer Aircraft Corporation in
November 1995. Under terms of the amended agreement, both WestAir and Embraer
agreed to use their best efforts to negotiate a used aircraft purchase agreement
for the 13 remaining deliveries or to cancel all remaining obligations under the
contract with no liability to either party. In April 1996, both parties agreed
to cancel the contract with no liability to either party and begin an evaluation
of a potential exchange of the Company's entire fleet of 36 EMB-120 aircraft for
new equipment.
Mesa has an aircraft order with Bombardier, Inc. to acquire 25 de Havilland
Dash-8-200 aircraft with deliveries beginning in summer 1997. From January
through April 1996, Mesa returned six Dash-8-300 aircraft to Bombardier as part
of the Dash-8-200 trade-in program. Mesa will trade in the one remaining
Dash-8-300 and four additional Embraer Brasilia aircraft on a one-for-one basis
as the new Dash-8-200 aircraft are delivered. Financing for the new aircraft
deliveries is essentially completed. Mesa also has an option to acquire 25
additional de Havilland Dash-8-200 aircraft.
Mesa accepted delivery of two Fokker 70 jet aircraft during the summer of 1995.
Mesa's purchase contract included an option to acquire six additional aircraft.
The agreement with Fokker allowed Mesa the right to return the two aircraft to
Fokker from 12 to 18 months after delivery, subject to a six-month notification.
Management believed that operation of a fleet of eight Fokker 70 aircraft would
have met management's operational expectations.
During January 1996, Fokker announced a suspension of payments to its creditors.
By April 1996, Fokker had entered into liquidation and was unable to provide the
six additional Fokker 70 aircraft to Mesa. Therefore, since management believes
a fleet of two Fokker 70s cannot be operated profitably long-term, the Company
has noticed the return of the two Fokker 70 aircraft to the manufacturer,
canceled its options for six additional Fokker 70 aircraft and began the process
of locating other suitable jet equipment of one fleet type. The two Fokker 70
aircraft will be returned to Fokker on October 29, 1996 and will be operated by
the Company until that time.
Mesa currently has deposits under the agreement of approximately $1 million. The
purchase contract provides for return costs of approximately $3 million should
the return options be exercised. Management strongly believes but there is no
assurance that, as a result of Fokker's inability to perform under the purchase
contract, the return costs under the contract do not apply and the deposits
shall be returned. The Company hopes to conclude its settlement discussions with
Fokker prior to the end of its third fiscal quarter at no cost to the Company.
By May 1996, the Company's investee company in the United Kingdom, Community
Express Airlines, Limited (CEAL) had not yet attained break-even cash flow from
operations. Although CEAL management believes CEAL operations will attain
positive cash flow during the summer of 1996, the Company has elected not to
invest further resources in CEAL. As of March 31, 1996, the Company's investment
in CEAL is approximately $700,000.
The shareholders of the Company ratified a new management incentive program
replacing the previous program which included below-market salaries plus
substantial bonuses if the Company was profitable. The new program raised
executive salaries to market-rate levels and replaced the previous bonus
provision with a plan that rewards the corporate officers and key employees for
an increase in earnings per share over the previous year and the
division/subsidiary executives for a specified rate of return on revenue. Total
management salary and bonus compensation under the new program is substantially
lower than total salary and bonus compensation under the previous program for
the six months ended March 31, 1996. Management bonuses under the previous
program for the six months ended March 31, 1996 would have been approximately
$2.5 million whereas bonuses under the new program are approximately $976,000.
However, the new management compensation program provides for a significant
number of options to be granted annually to key
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<PAGE> 12
employees to purchase the Company's stock in replacement of the previous stock
option plan, which did not provide for scheduled annual option grants.
The Company's shareholders ratified a reincorporation proposal at the April 1996
shareholders' meeting. Reincorporation in the state of Nevada will be effected
prior to September 30, 1996. The reincorporation should enable the Company to
realize savings in state taxes. The Company will also benefit from certain
corporate code provisions not available in the state of New Mexico.
During December 1995, the FAA announced rules which require commuter airlines
with aircraft of 30 or fewer passenger seats operating under FAR Part 135 rules
to begin operating those aircraft under FAR Part 121 regulations. Based on the
new rules, Mesa anticipates a one-time capital expenditure of approximately $1.4
million in fiscal 1997 to bring all aircraft currently being operated by Mesa
into compliance with the enacted rules. Any ongoing costs anticipated in order
to comply with the rules enacted by the FAA are not expected to be significant.
Mountain West pilot contract negotiations were completed during the second
quarter. The proposed contract is awaiting ratification by the pilots.
Negotiation between the Company's WestAir subsidiary and its pilots, represented
by Air Line Pilots Association, continues.
The following table lists the aircraft operated by Mesa as of March 31, 1996:
<TABLE>
<CAPTION>
Number of Aircraft
------------------------------ Passenger
Type of Aircraft Owned Leased Total Capacity
-------------------------------------------
<S> <C> <C> <C> <C>
Beechcraft 1900 22 91 113 19
Embraer Brasilia 2 34 36 30
BAe Jetstream 31 21 21 19
Dash 8-300 2 2 50
Fokker 70 2 2 78
-------------------------------------------
Total 24 150 174
-------------------------------------------
</TABLE>
The following table lists aircraft operated by division as of March 31, 1996:
<TABLE>
<CAPTION>
AIRCRAFT BY DIVISION
------------------------------------------------------------------
Mountain Desert Florida Air Liberty
West Sun WestAir Gulf Midwest Express Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beech 1900 47 40 12 14 113
Embraer Brasilia 14 13 9 36
BAe Jetstream 31 21 21
Dash 8-300 2 2
Fokker 70 2 2
-----------------------------------------------------------------
Total 63 2 34 49 12 14 174
</TABLE>
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<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
WestAir Commuter Airlines, Inc. and the Air Line Pilots
Association, International (ALPA) were engaged in alleged
unlawful misconduct litigation against each other. Each party
sought injunctive relief and monetary damages. This matter has
been dismissed by mutual consent of both parties.
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, and certain underwriters who
participated in Mesa's June 1993 public offering of common
stock. These complaints have been consolidated by court order,
and a consolidated complaint has been filed alleging that
during various periods the defendants caused or permitted Mesa
to issue publicly misleading financial statements and other
misleading statements in annual and quarterly reports to
shareholders, press releases and interviews with securities
analysts. The complaint alleges that these statements
misrepresented Mesa's financial performance and condition, its
business, the status of its operations, its earnings, its
capacity to achieve profitable growth, its ability to maintain
expansion plans and its future business prospects, all with
the purpose and effect of artificially inflating the market
price of common stock of Mesa throughout the relevant period.
The complaint further alleges that certain officers and
directors of the Company illegally profited from sales of Mesa
common stock during these periods. The complaint seeks damages
against the defendants in an amount to be determined at trial
(including rescission and/or money damages as appropriate),
disgorgement of all insider trading profits earned by
defendants in connection with the sale of common stock of
Mesa, and reasonable attorney, accountant and expert fees.
During October 1995, the court granted class certification in
the action.
In a related case, in September 1994, a shareholder derivative
suit was filed in the United States District Court for the
District of New Mexico, purportedly on behalf of Mesa. The
complaint charges certain present and former officers and
directors with violation of fiduciary duties in causing or
permitting the exposure of Mesa the class action litigation
described above and in selling Mesa stock based on inside
information. The complaint seeks recovery for damages
allegedly suffered by virtue of the alleged conduct, including
any settlement or judgment in the class action, annulment of
any indemnification agreements between the Company and its
officers and directors, disgorgement to Mesa of any profits
received on stock sales, and attorneys' fees.
Mesa and the corporate officers and directors deny the
allegations made against them in these lawsuits. Further, Mesa
and the corporate officers and directors believe they have
substantial and meritorious defenses against those allegations
and intend to continue to defend their position vigorously.
However, should an unfavorable resolution of this litigation
occur, it is possible that Mesa's future results of operations
or cash flows could be materially affected in a particular
period.
Mesa is also a party to legal proceedings and claims which
arise during the ordinary course of business, none of which
are expected to have a material adverse effect on Mesa's
financial position.
-13-
<PAGE> 14
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
a. At the Annual Meeting of Shareholders held on April
8, 1996, the following was approved:
-- All directors were elected as listed in the 1996
Proxy Statement for the 1996 fiscal year.
<TABLE>
<CAPTION>
Voted for Abstain/Withhold
--------- ----------------
<S> <C> <C>
Larry L. Risley 29,899,529 240,623
E. Janie Risley 29,680,098 391,779
Blaine M. Jones 29,843,928 225,946
George W. Pennington 29,844,102 228,772
Richard C. Poe 29,838,901 230,978
Jack Braly 29,720,436 349,438
J. Clark Stevens 29,723,629 346,662
</TABLE>
-- Ratification of proposal to approve and adopt the
agreement and plan of merger between the Company and
Mesa Holdings, Inc. (Reincorporation Proposal). Voted
for: 19,859,563; voted against: 1,539,942; abstain:
96,018.
-- Ratification of proposal to approve the Company's
omnibus plan. Voted for: 23,764,491; voted against:
6,515,685; abstain: 133,979.
-- Approval of selection of KPMG Peat Marwick LLP as
independent auditors for Mesa during fiscal 1996.
Voted for: 29,986,827; voted against: 98,237;
abstain: 49,882.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
10.81 Letter of Understanding between Mesa Air Group, Inc.
And Raytheon Aircraft Company (RAC) dated April 12,
1996. (Request for confidential treatment submitted
to SEC)
27 Financial Data Schedule
-14-
<PAGE> 15
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
/s/ W. Stephen Jackson
--------------------------------------
Date: 5/10/96 W. Stephen Jackson
Chief Financial Officer, Treasurer and
Vice President of Finance
(Principal Accounting Officer)
Internet Address: www.mesa-air.com
-15-
<PAGE> 16
MESA AIR GROUP, INC.
COMMISSION FILE NO. 0-15495
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
EXHIBIT 10.81
<PAGE> 1
Exhibit 10.81
MESA AIR GROUP, INC.
Letter of understanding between Mesa Air Group, Inc. and Raytheon Aircraft
Company (RAC) April 12, 1996.
1. The [CONFIDENTIAL PORTION DELETED] 1900 Ds for delivery subsequent
to [CONFIDENTIAL PORTION DELETED] be financed according to
Attachment A as amended.
2. The remaining [CONFIDENTIAL PORTION DELETED] 1900 Ds [CONFIDENTIAL
PORTION DELETED] will be financed in accordance with the following:
A. [CONFIDENTIAL PORTION DELETED] will be [CONFIDENTIAL PORTION
DELETED] in the leases [CONFIDENTIAL PORTION DELETED] and
financing will be [CONFIDENTIAL PORTION DELETED]
B. Term will be [CONFIDENTIAL PORTION DELETED].
C. The Mesa [CONFIDENTIAL PORTION DELETED] deposit per aircraft
will be applied to reduce the principal value.
D. An additional principal reduction payment of [CONFIDENTIAL
PORTION DELETED] will be required by Mesa to eliminate
[CONFIDENTIAL PORTION DELETED]. Payment will be adjusted and
applied as appropriate to each aircraft taking into account
[CONFIDENTIAL PORTION DELETED] as follows:
(1) [CONFIDENTIAL PORTION DELETED] Mesa in accordance with
[CONFIDENTIAL PORTION DELETED].
(2) [CONFIDENTIAL PORTION DELETED] on remaining 1900 aircraft
to be returned.
E. The [CONFIDENTIAL PORTION DELETED] will be divided as follows:
[CONFIDENTIAL PORTION DELETED] retained by Mesa and applied to
[CONFIDENTIAL PORTION DELETED] in accordance with
[CONFIDENTIAL PORTION DELETED]. [CONFIDENTIAL PORTION DELETED]
will be kept by Raytheon Aircraft as [CONFIDENTIAL PORTION
DELETED].
F. The interest rate will be [CONFIDENTIAL PORTION DELETED].
[CONFIDENTIAL PORTION DELETED].
G. No [CONFIDENTIAL PORTION DELETED] while [CONFIDENTIAL PORTION
DELETED].
<PAGE> 2
Letter of Understanding
Mesa Air Group, Inc. and Raytheon
April 12, 1996
Page 2
H. Mesa has the option to [CONFIDENTIAL PORTION DELETED] by
notifying RAC. RAC will [CONFIDENTIAL PORTION DELETED] on
the [CONFIDENTIAL PORTION DELETED].
I. The fixed payment of [CONFIDENTIAL PORTION DELETED] will be
for [CONFIDENTIAL PORTION DELETED] since [CONFIDENTIAL
PORTION DELETED]. [CONFIDENTIAL PORTION DELETED] paid by
Mesa after [CONFIDENTIAL PORTION DELETED].
J. Entire [CONFIDENTIAL PORTION DELETED] with the exception of
[CONFIDENTIAL PORTION DELETED] will be accomplished by
[CONFIDENTIAL PORTION DELETED].
3. All terms are strictly confidential between Mesa and RAC.
RAYTHEON AIRCRAFT COMPANY MESA AIR GROUP, INC.
By By
/s/ DANIEL K. SMART /s/ W. STEPHEN JACKSON
- -------------------------------- ------------------------------
Daniel K. Smart W. Stephen Jackson
Vice President - Treasurer Chief Financial Officer
<PAGE> 3
ATTACHMENT A
RAYTHEON AIRCRAFT CREDIT CORPORATION
MESA AIR GROUP 1995-96 FINANCE PROPOSAL
BEECH MODEL 1900D AIRCRAFT
DELIVERIES FROM [CONFIDENTIAL PORTION DELETED]
Final Deal With Mesa
Aircraft Selling Price [CONFIDENTIAL PORTION DELETED]
Down Payment [CONFIDENTIAL PORTION DELETED]
Amount Financed [CONFIDENTIAL PORTION DELETED]
[CONFIDENTIAL PORTION DELETED] year finance;
[CONFIDENTIAL PORTION DELETED] payments in
[CONFIDENTIAL PORTION DELETED].
[CONFIDENTIAL PORTION DELETED] fixed [CONFIDENTIAL PORTION DELETED]
payments; no interest
[CONFIDENTIAL PORTION DELETED] [CONFIDENTIAL PORTION DELETED]
[CONFIDENTIAL PORTION DELETED]
[CONFIDENTIAL PORTION DELETED]
[CONFIDENTIAL PORTION DELETED] due [CONFIDENTIAL PORTION DELETED]
with [CONFIDENTIAL PORTION DELETED]
- ---------------
[CONFIDENTIAL PORTION DELETED].
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000810332
<NAME> MESA AIR GROUP, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 34,196,000
<SECURITIES> 14,020,000
<RECEIVABLES> 43,514,000
<ALLOWANCES> (226,000)
<INVENTORY> 27,172,000
<CURRENT-ASSETS> 125,905,000
<PP&E> 102,140,000
<DEPRECIATION> 56,791,000
<TOTAL-ASSETS> 399,409,000
<CURRENT-LIABILITIES> 59,001,000
<BONDS> 0
0
0
<COMMON> 99,230,000
<OTHER-SE> 116,518,000
<TOTAL-LIABILITY-AND-EQUITY> 215,748,000
<SALES> 241,002,000
<TOTAL-REVENUES> 241,002,000
<CGS> 225,077,000
<TOTAL-COSTS> 225,077,000
<OTHER-EXPENSES> 9,357,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,141,000
<INCOME-PRETAX> 25,282,000
<INCOME-TAX> 9,543,000
<INCOME-CONTINUING> 15,739,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,739,000
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
