Mesa air group strengthens united deal, speeds CRJ-900 sales

Saturday, January 20, 2024

Mesa Air Group, Inc. (NASDAQ: MESA) made announcements today regarding agreements with United Airlines (“United”) to modify its capacity purchase agreement and certain credit agreements. These adjustments are aimed at significantly enhancing Mesa’s operating income and liquidity over the next twelve months. The company also provided an update on its ongoing efforts to sell surplus CRJ-900 assets, intending to reduce debt and fortify liquidity.

The key points of the announcements include:

1. Increased Block-Hour Rate in United CPA: The block-hour rate in the United CPA has been retroactively increased from October 1, 2023, through December 31, 2024. This adjustment is anticipated to generate approximately $63.5 million in additional revenue over the next twelve months.

1. Debt Reduction and Equity Exchange: Mesa extinguished $12.6 million of outstanding United bridge loan and revolving credit facility debt by exchanging it for Mesa’s vested equity investment in Heart Aerospace. This equity investment was originally acquired for $5.0 million, and Mesa retains 222,222 unvested “penny” warrants in Heart.

1. Release of Collateral: The collateral for Mesa’s equity investment in Archer Aviation common stock, comprising 2.27 million vested shares and 1.17 million unvested “penny” warrants, has been released.

1. CRJ-900 Asset Sale Program Update: Mesa has sold or entered into agreements to sell excess CRJ-900 aircraft and related engines, generating combined gross proceeds of $198.0 million. These proceeds will be utilized to pay down $174.3 million in debt. The asset sales include the sale of 7 CRJ-900 NextGen aircraft, 7 remaining of 11 previously contracted CRJ-900s, and agreements to sell 15 CRJ-900 airframes and 65 CF34-8C5 engines.

Jonathan Ornstein, Chairman and CEO of Mesa, commented on the agreements, expressing confidence that the new agreements with United, along with CRJ-related asset sales, will significantly enhance Mesa’s contract revenue and improve margins. Ornstein acknowledged the challenging situation but highlighted the stability gained through these agreements.

Mesa’s fiscal achievements over the past year include debt reduction through the sale of CRJ-900 aircraft and scheduled principal repayments, leading to a projected total debt balance of $310.3 million at the end of fiscal year 2024. The company remains engaged in efforts to market and sell additional excess CRJ-900 assets.

Mesa is diligently working to complete its Form 10-K for the period ended September 30, 2023, with a slight delay attributed to a financial ratio covenant non-compliance as of June 30, 2023, disclosed in an 8-K filing.

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