Mesa Air Group, Inc. (Mesa Airlines) reported its fourth quarter and fiscal full-year 2022 financial and operating results.
Fiscal Fourth Quarter Update:
- Total operating revenues of $125.6 million
- Pre-tax loss of $148.6 million, net loss of $115.6 million or $(3.18) per diluted share
- Adjusted net loss1 of $13.5 million or $(0.37) per diluted share
- Adjusted net loss excludes a $132.3 million non-cash (pre-tax) impairment loss related to the CRJ fleet
- New industry-leading pilot pay agreement effective September 15th
- Agreed to sell 18 CRJ-550s to United Airlines, 10 of which closed during the quarter
- Launched the Mesa Pilot Development (“MPD”) Program
- Negotiated a new two-year flight attendant agreement
- Subsequent to quarter end:
- Initiated and concluded wind-down agreement with American Airlines
- Reached agreements with United Airlines for (i) capacity purchase agreement expansion for CRJ900 flying and rate increase, (ii) a loan agreement, and (iii) an engine purchase agreement
- Renegotiated certain aircraft debt and lease obligations
- Agreed to sell 11 CRJ900s, expected to close in Q1 CY2023
Fiscal Full-Year 2022 Update:
- Total operating revenues of $531.0 million
- Pre-tax loss of $234.7 million, net loss of $182.7 million or $(5.06) per diluted share
- Adjusted net loss1 of $40.2 million or $(1.12) per diluted share
- Adjusted net loss excludes a $171.8 million non-cash (pre-tax) impairment loss related to the CRJ fleet
Jonathan Ornstein, Chairman and CEO, said, “Building on our relationship with United Airlines that began in 1992, we are delighted to announce our new and expanded agreements with United, allowing us to expand United’s reach into cities that have seen reductions or loss of flight service created by the industry-wide pilot shortage. After the transition, Mesa will be the only exclusive regional carrier for United operating large regional jets. We believe our strong relationship with United will provide significant opportunities for growth in the future. In particular, we believe Mesa’s participation in the Aviate program, combined with United’s industry-leading growth plan, will provide the most reliable, fastest path for aviators to transition to a major commercial carrier. Combined with the significant liquidity United is providing, this agreement represents a transformational step for our business as we aim to resolve the impacts of the industry-wide pilot shortage that we faced in fiscal 2022. With our pilot pipeline now filled thanks to our new pay scale and enhanced opportunities with United through Aviate, Mesa is in a superior position to meet the significant demand for regional flying.”
Fiscal Fourth Quarter Details:
Total operating revenues in Q4 2022 were $125.6 million, a decrease of $5.1 million (3.9%) from $130.8 million for Q4 2021. Contract revenue decreased $5.3 million, or 4.6%. These decreases were driven by lower block hours, offset by the expiration of temporary rate reductions related to the PSP program. Mesa’s Q4 2022 results include, per GAAP, the deferral of $1.3 million, versus the recognition of $1.3 million of previously deferred revenue in Q4 2021. The remaining deferred revenue balance of $24.1 million will be recognized as flights are completed over the remaining terms of the contracts.
Mesa’s Adjusted EBITDA1 for Q4 2022 was $13.8 million, compared to $25.8 million in Q4 2021, and Adjusted EBITDAR1 was $22.4 million for Q4 2022, compared to $35.5 million in Q4 2021.
Mesa’s Q4 2022 results reflect a net loss of $115.6 million, or $(3.18) per diluted share, compared to a net loss of $7.5 million, or $(0.21) per diluted share for Q4 2021. Mesa’s Q4 2022 adjusted net loss1 was $13.5 million, or $(0.37) per diluted share, versus an adjusted net loss1 of $2.1 million, or $(0.06) per diluted share, in Q4 2021. The year over year decrease in adjusted net income of $11.4 million was primarily due to lower block hours, the net impact of the PSP program, and a decrease in maintenance expense.
For Q4 2022, 48% of the Company’s total revenue was derived from our contracts with United, 45% from American, 2% from DHL, and 5% from leases of aircraft to a third party.
1 See Reconciliation of non-GAAP financial measures
Fiscal Full-Year 2022 Details:
For fiscal year 2022, total operating revenues were $531.0 million, an increase of $27.4 million (5.4%) from $503.6 million for fiscal year 2021. Contract revenue increased $44.0 million, or 10.1%. This was primarily due to the return to normal rates from our partners, which were temporarily reduced last year related to the PSP program, and recognition of higher deferred revenue, partially offset by a reduction in block hours and partner utilization penalties. Mesa’s fiscal year 2022 results include, per GAAP, the recognition of $10.4 million of previously deferred revenue, versus the deferral of $10.7 million of revenue in fiscal 2021.
Mesa’s Adjusted EBITDA1 for fiscal year 2022 was $66.6 million, compared to $150.0 million in fiscal year 2021, and Adjusted EBITDAR1 was $103.6 million for fiscal year 2022, compared to $189.3 million in fiscal year 2021.
Mesa’s fiscal year 2022 results reflect a net loss of $182.7 million, or $(5.06) per diluted share, compared to net income of $16.6 million, or $0.43 per diluted share, for fiscal year 2021. Mesa’s fiscal year 2022 adjusted net loss1 was $40.2 million, or $(1.12) per diluted share, versus adjusted net income of $24.6 million, or $0.64per diluted share, in fiscal year 2021. The year over year decrease in adjusted net income of $64.8 million was primarily due to lower block hours, the net impact of the PSP program, change in deferred revenue, and higher pilot training expense.
American Airlines Agreement:
On December 19, 2022, we announced a final agreement with American Airlines to wind-down our contract by April 3, 2023. The wind-down with American Airlines was primarily the result of ongoing losses within the American operation as a result of higher pilot wages, which American would not agree to compensate Mesa for, and utilization penalties.
United Airlines Agreements:
On December 27, 2022, we finalized an amendment and restatement of our capacity purchase agreement with United Airlines. Under the agreement, Mesa will add up to 38 CRJ900 aircraft, dependent on the number E-175s Mesa is operating. Mesa will begin flying CRJ900s on behalf of United in March of 2023 and utilize all of the crew and maintenance locations currently operated for American Airlines in Phoenix, Dallas, El Paso, and Louisville, as well as open a CRJ900 crew base in Houston and a pilot base in Denver. As part of the final agreement, United will also pay Mesa increased block-hour rates to cover the incremental pilot wage increases instituted by Mesa in September 2022, which will remain in effect through September 2025. United will receive a 10% equity position in Mesa and a seat on the Mesa Board of Directors.
Additionally, on December 27, 2022, we finalized an agreement with United for a $41.2 million liquidity facility, including the refinancing of $15.7 million outstanding under our CIT revolving credit facility maturing December 31, 2022, and an additional $25.5 million term loan, of which $15.0 million is forgivable if Mesa achieves certain aircraft utilization thresholds. The collateral for the loan is a combination of aircraft parts and a pledge of our equity investment in Archer Aviation, Inc. and Heart Aerospace Incorporated.
United also agreed to purchase 30 GE-CF34-8 spare engines from Mesa for $80 million, which is expected to provide over $50 million of net cash proceeds and close in Q1 CY2023.
Note: United Airlines has confirmed that it will park up to 38 Embraer E175s due to the Mesa Bombardier CRJ900s joining the United Express fleet according to FlightGlobal. United does not want to violate its scope agreement with its pilots.
Aircraft, Debt, and Lease Activities:
On December 15, 2022, Mesa entered into an agreement with Export Development Canada (“EDC”) to, subject to certain conditions, reduce debt service on seven CRJ-900 aircraft for the period of January 2023 through December 2024, providing approximately $14 million of incremental liquidity during this period. These debt service reductions will be repaid at maturity in December 2027. Additionally, the junior noteholder, MHIRJ, agreed to forgive 50% of its outstanding note balance if the notes are fully repaid prior to December 31, 2023.
On December 16, 2022, Mesa entered into an agreement with RASPRO Trust 2005 (“RASPRO”), which reduces the effective purchase price at or prior to lease termination in March 2024 on 15 CRJ-900s by approximately $25 million.
On December 23, 2022, Mesa entered into an agreement with US Treasury, enabling Mesa to sell certain aircraft and engines, which will provide approximately $24 million of incremental liquidity in Q1 CY2023. These sales include 8 CRJ-550s sold to United, which we expect to close in January 2023, 11 CRJ-900s agreed to be sold to a third party by March 31, 2023, and 6 spare GE CF34 engines. These sales are expected to reduce Mesa’s US Treasury debt by approximately $65 million and reduce annual interest expense by approximately $4.5 million at current rates.
The increase in pilot pay implemented during the quarter has significantly reduced attrition and increased our pilot applicant pool. We currently have approximately 400 pilots in our training pipeline.
Liquidity and Capital Resources:
Mesa ended the quarter at $57.7 million in unrestricted cash and equivalents. As of September 30, 2022, the Company had $599.7 million in total debt secured primarily with aircraft and engines.
Mesa Airlines route map (American Eagle routes in red, United Express routes in blue):
Top Copyright Photo: United Express-Mesa Airlines Embraer ERJ 170-200LR (ERJ 175) N89362 (msn 17000856) IAH (Jarrod Wilkening). Image: 957974.
United Express-Mesa Airlines aircraft photo gallery: