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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 Commission File
Number 0-15495
Mesa Air Group, Inc.
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(Exact name of registrant as specified in its charter)
New Mexico 85-0302351
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2325 East 30th Street, Farmington, New Mexico 87401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 327-0271
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part 3 of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 1, 1995:
Common Stock, no par value: $301,206,672
On December 1, 1995, the Registrant had outstanding 33,467,408 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Proxy Statement for Annual Meeting of Shareholders
scheduled in March 1996 Part III, Items 11, 12
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PART I
Item 1. Business
GENERAL
Mesa Air Group, Inc. (collectively referred to herein as "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.
Mesa's business strategy is to achieve sustained, profitable growth by utilizing
its low cost structure and focused operating strategies to service routes not
generally served by major air carriers. Mesa implements its strategy by
carefully evaluating market demand on the routes it serves and utilizes its
fleet of jetprop and jet aircraft to meet that demand. In addition, Mesa is able
to expand the markets it serves under existing code-sharing agreements with
certain of the major air carriers to benefit from the name recognition,
reservation systems and marketing and promotional efforts of these carriers.
Mesa also controls operating expenses by utilizing a fleet of new and efficient
aircraft, performing most maintenance and overhaul work at its own facilities.
Mesa maximizes revenue by managing its fares and flight schedules to maximize
yields and by developing new markets.
During fiscal year 1995, Mesa introduced seven de Havilland DHC-8-300 aircraft
with 50 passenger seats into its fleet, which it plans to operate until
integration of DHC-8-200 aircraft with 37 passenger seats in 1996 and 1997. Mesa
also introduced two Fokker 70 aircraft with 78 passenger seats into scheduled
service during fiscal year 1995. Although the Company attempts to use 19-, 30-
and 37-passenger seat aircraft in all of its markets, operation of larger
aircraft is required for "long-haul" routes not generally served by major
airlines. Management is presently reviewing the utilization of larger aircraft
to determine whether such utilization will continue to meet its low-cost
business strategy. See Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources.
Mesa maintains five regional jetprop airline operations utilizing low-cost
high-frequency "hub-and-spoke" route systems and one regional jet aircraft
operation. The Mountain West division operates Mesa Airlines independently from
any code-sharing agreement with a major carrier from a hub airport at
Albuquerque, New Mexico. This division began operations in 1980 and now carries
local and connecting passengers to and from 11 cities in the region.
Mesa operates as "United Express" in the Rocky Mountain and Western regions of
the United States pursuant to code-sharing agreements with United Airlines, Inc.
("United"). In the Rocky Mountain region, the Mountain West division serves 37
cities out of Denver, Colorado and has the exclusive right to expand service to
eight new cities out of Denver pursuant to a code-sharing agreement which
expires in 2005. The Mountain West division also serves 12 cities out of Los
Angeles, California and out of a hub in Seattle, Washington. The West Coast
region is served by WestAir Commuter Airlines, Inc., a wholly owned subsidiary
of WestAir Holding, Inc. ("WestAir"), a regional carrier acquired by Mesa in May
1992. WestAir serves 31 cities out of four hubs in California, Oregon and
Washington pursuant to a separate code-sharing agreement with United which
expires in 1998.
Mesa operates as "USAir Express" in the Midwest, Northeast, Southeast and
Central regions of the United States pursuant to code- sharing agreements with
USAir, Inc. ("USAir"). The Midwest region is served by Air Midwest, Inc., ("Air
Midwest"), a regional carrier acquired by Mesa in July 1991. Air Midwest serves
15 cities out of a USAir hub airport at Kansas City, Missouri. Mesa serves 57
cities in
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the Northeast and Southeast regions of the United States through its FloridaGulf
Airlines division ("FloridaGulf").
FloridaGulf began operations in Florida in December 1991 and later expanded
operations to the Northeast out of a Boston hub. In February 1994, Mesa acquired
certain rights and assets of Crown Airways, Inc., and established a new
division, Liberty Express, to service the Central region of the United States.
Liberty Express currently serves 15 cities out of a hub in Pittsburgh,
Pennsylvania.
Mesa's Mountain West and Desert Sun divisions operate in the Southwest and
Midwest regions of the United States as "America West Express" pursuant to a
code-sharing agreement with America West Airlines, Inc. ("America West") which
expires in 2004. Currently the Mountain West division serves 16 cities with a
hub in Phoenix, Arizona. In June 1995, Desert Sun Airlines, a new division of
Mesa, began jet service to four cities as America West Express.
In addition to carrying passengers, Mesa carries freight and express packages on
its passenger flights and has interline small cargo freight agreements with
virtually all other carriers. Mesa has contracts with the U.S. Postal Service
for hauling mail by air to the cities it serves and occasionally operates
charter flights when aircraft are not otherwise utilized for scheduled service.
Mesa also owns and operates San Juan Pilot Training, Inc., providing flight
training as "Mesa Air Pilot Development" in coordination with San Juan College
in Farmington, New Mexico. In April 1992 Mesa acquired Four Corners Aviation,
Inc., a fixed based operator located in Farmington, New Mexico. Another
subsidiary, Regional Aircraft Services, Inc., performs component overhaul and
repairs at a facility in Fresno, California. Desert Turbine Services, based in
Farmington, New Mexico, provides power plant and component repair, maintenance
and overhaul services for Mesa's airline divisions and subsidiaries.
CODE-SHARING
Approximately 95 percent of Mesa's consolidated revenues are derived from
operations associated with code-sharing agreements with United Airlines, USAir
and America West Airlines. These code-sharing agreements allow use of the
code-sharing partner's reservation system and flight designator code to identify
flights and fares in the computer reservation system, permit use of the logo,
service marks, exterior aircraft paint schemes, and uniforms similar to the
code-sharing partners and to provide coordinated schedules, joint advertising
and through fares. In addition, Mesa participates in the respective partners'
frequent flyer programs. Mesa's passengers receive mileage credits in the
respective frequent flyer programs, and credits in those programs can be used on
Mesa's flights.
Mesa has three separate code-sharing agreements with USAir and two separate
code-sharing agreements with United. Although the terms of each of the
code-sharing agreements with a particular code-sharing partner are quite
similar, each agreement relates to a separate division and has a different
expiration date. Renewal of one code-sharing agreement with a code-sharing
partner does not guarantee the renewal of any other code-sharing agreement with
the same code-sharing partner.
The code-sharing agreements provide for terms of five to 10 years with respect
to United and nine to 10 years with respect to USAir and America West. Although
the provisions of the agreements vary, generally they are subject to
cancellation should Mesa fail to meet certain operating and performance
standards, the breach of other contractual terms and conditions, and, in the
case of the USAir code-sharing agreements, upon six months' notice by either
party. In connection with the extension of its code-sharing agreement with
United (serviced by Mountain West) until 2005, Mesa agreed not to enter into any
new code-sharing agreement relating to services to and from Denver, Chicago,
Dulles, Los
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Angeles, Portland, San Francisco, or Seattle. Other than the code-sharing
agreement with United, which restricts United from competing with Mesa in
certain markets by aircraft with less than 101 seats of capacity, the
code-sharing agreements do not prohibit the major carrier from serving routes
served by Mesa. A termination of any of Mesa's code-sharing agreements with
United, America West or USAir would have a material adverse effect on Mesa's
business.
THE MARKET
Mesa has grown primarily through acquisitions and entering new markets. In
addition, Mesa has grown by entering into code-sharing agreements with major
carriers. These agreements provide a competitive edge in the major carriers'
hubs when competing with other regional airlines. To a large extent, the factors
which made the growth possible were the same which have led to the overall
growth of the domestic regional airline industry. Increases in operating
expenses and the Airline Deregulation Act of 1978 have combined to cause many
major airlines to reduce or eliminate the less profitable short-haul routes to
and from smaller cities. The Deregulation Act allows airlines greater
flexibility in adjusting their route structures and has opened up niche markets
for service by short-haul commuter carriers such as Mesa.
The niche markets served by Mesa contain both business and vacation travelers
who are primarily interested in traveling between outlying and regional cities
for connection to larger air carriers. In addition, Mesa provides local service
among the cities in the regions it serves as an economical alternative to ground
transportation. Passengers in these markets seek convenient and frequent
scheduling, standard customer services, and arrangements with larger carriers
including joint or through fares and frequent flyer programs.
Mesa intends to continue considering other opportunities for growth through new
markets, code-sharing, acquisition or a combination thereof.
BUSINESS STRATEGY
Mesa's business strategy is to operate a competitive and profitable, low-cost,
quality-service airline. Mesa implements the strategy by various means. First,
Mesa sizes its aircraft to market demand on each route it serves by operating
fuel efficient jetprop aircraft. During fiscal year 1995, Mesa entered the jet
aircraft market. Mesa utilizes the same business strategy to service these
additional routes. By using aircraft well-suited to its markets, Mesa enjoys
scheduling flexibility which contributes to profitable load factors, high
aircraft utilization and the ability to respond to competition and other factors
affecting its markets. This strategy allows Mesa to stimulate demand within
these markets by providing an economical alternative to ground transportation,
particularly in markets without existing air service. Cost is one factor in
competing with surface transportation, but frequency and convenience of flights
and reliability of customer service may be of equal or greater importance.
Second, Mesa attempts to manage operating expenses by operating a relatively new
fleet, controlling overhead costs, and performing most maintenance at its own
facilities. Third, Mesa attempts to manage its flight schedule and fares to
maximize yields and to accommodate business and leisure travelers through
automated yield management and control system. During the week, Mesa schedules
conveniently timed and frequent flights at regular fares for the business
traveler, and on weekends offers reduced service with more seats available for
lower fares to attract vacation and other non-business travelers. Fourth, Mesa
uses its code-share agreements to enhance its competitive position in the
market. As a result of these arrangements, Mesa benefits from passengers seeking
to fly on United, USAir, and America West between locations
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outside of Mesa's regions and cities within Mesa's route system and also
benefits from the opportunity to market its services through such carriers.
During fiscal year 1995, Mesa acquired 12 aircraft from United of which Mesa
introduced seven DHC-8-300 aircraft with 50 passenger seats into its fleet and
sold five DHC-3-100 aircraft with 37 passenger seats to Bombardier Regional
Aircraft Division ("Bombardier") pursuant to an aircraft purchase agreement for
25 DHC-8-200 aircraft to be delivered in fiscal year 1996 and 1997. The purchase
agreement further provides that Mesa will trade in the seven DHC-8-300 currently
used in operations as well as 13 Embraer Brasilia aircraft pursuant to the
Bombardier aircraft purchase commitment for the 25 DHC-8-200 aircraft. As of
September 30, 1995, nine Embraer Brasilia aircraft had been delivered to
Bombardier.
In addition, Mesa entered the jet aircraft market through operation of two
Fokker 70 jet aircraft which began scheduled service in June and July of 1995.
Mesa can return the aircraft to Fokker at any time between 12 and 18 months
after delivery. Mesa's jet business strategy will remain consistent with its
jetprop service which entails utilizing aircraft through a low-cost structure on
routes not generally served by major air carriers. Management is presently
reviewing the utilization of Fokker 70 jet aircraft to assure that such
utilization continues to meet its low-cost strategy. See Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources.
AIRLINE OPERATIONS
Mesa maintains six regional operations. These divisions and subsidiaries use
common strategies and methods, all of which are directed and coordinated by the
management of Mesa.
MOUNTAIN WEST -- This division is comprised of Mesa Airlines, United Express and
America West Express.
Mesa Airlines: Currently, Mesa Airlines is operated by the Mountain
West Airlines division of Mesa and serves 11 cities in the Southwest
and Rocky Mountain regions from a hub at Albuquerque, New Mexico. This
division operates six aircraft with 19 passenger seats independently
without any code-sharing relationship with a major carrier.
United Express: In 1990, Mesa acquired certain rights and assets of
Aspen Airways, Inc., United's former code-sharing partner in the Rocky
Mountain region. Mesa presently serves 37 cities out of Denver,
Colorado as "United Express" under a code-sharing agreement with
United. On May 1, 1992, Mountain West-United Express began operations
in Southern California. This division now serves 12 cities in
California and Arizona with a hub at Los Angeles. During 1995, Mountain
West expanded into the Pacific Northwest as United Express serving
eight cities utilizing hubs in Portland and Seattle. A total of 30
aircraft with 19 passenger seats, seven aircraft with 30 passenger
seats and seven aircraft with 50 passenger seats are in service in the
Mountain West-United Express division.
In October 1994, Mesa entered into an agreement with United expanding
its relationship with that major carrier through acquisition of 12 de
Havilland DHC-8 aircraft, extension of its code-sharing agreement until
February 2005, and through expansion of its markets by obtaining the
exclusive right to serve as a United Express carrier in eight
additional markets in outlying cities from Denver. Mesa had accepted
delivery of all 12 of the de Havilland DHC-8 aircraft on or before
April 15, 1995. The additional market share of United at the Denver
airport resulting from the reduction of service by Continental
Airlines, Inc. facilitates use of larger aircraft to
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transport additional passengers to outlying cities. Mesa is utilizing
seven of the de Havilland DHC-8 aircraft with 50 passenger seats to
service this expanded market share and to provide service to new
markets not previously served by Mesa. The seven 50-passenger aircraft
were fully deployed into operations by the third quarter of fiscal 1995
and will be utilized until such aircraft are traded in to Bombardier
for DHC-8-200 aircraft with 37 passenger seats beginning in early 1996.
Mesa sold the five de Havilland DHC-8-100 aircraft with 37 passenger
seats to Bombardier Regional Aircraft Division under a new aircraft
purchase agreement. Mesa's use of the United Express name and its
code-sharing agreement are especially important since United is the
largest major carrier in terms of passengers carried at Denver
International Airport and Los Angeles International Airport. Management
believes that Mesa's affiliation with United substantially improves its
ability to compete for passengers on routes in the Rocky Mountain and
Southern California regions.
America West Express: In September 1992, Mesa entered into a
code-sharing agreement with America West allowing it to operate as
"America West Express." This operation now serves 16 cities out of
Phoenix, Arizona. Although most of the cities presently served by
America West Express out of Phoenix, Arizona were previously
independently served by Mesa Airlines, the code-sharing relationship
with America West has allowed Mesa to increase the number of flights to
certain cities, improve load factors on routes previously served by
Mesa, and expand service to three additional cities. During 1994,
Mesa's division, Skyway Airlines operating as a Midwest Express carrier
was converted to an America West Express operation out of Columbus,
Ohio upon expiration of the Midwest Express code-sharing agreement in
March 1994. This division was renamed Superior Airlines and was
subsequently combined with the Mountain West division. In May 1995,
America West Express, providing service out of Columbus, Ohio was
discontinued, and those aircraft were deployed to the Pacific Northwest
to provide service as United Express out of the Mountain West division.
Nine 19-passenger aircraft and three 30- passenger aircraft are
utilized in the America West Express-Mountain West division.
In August 1994, Mesa entered into a partnership agreement in which an
investment was made to participate in the consummation of America West
Airline's Plan of Reorganization. In conjunction with this investment,
the code-sharing agreement with America West Airlines was extended
through the year 2004.
DESERT SUN -- America West Express: In June and July of 1995, Mesa accepted
delivery of two Fokker 70 aircraft with 78 passenger seats. A new division was
created called Desert Sun Airlines which provides service to four cities as
America West Express under the aforementioned code-sharing agreement. This
agreement was amended in October 1994 to extend the scope of the agreement to
include jet equipment of 100 seats or less and expires in 2004.
WESTAIR -- United Express: The WestAir subsidiary operates under the name
"United Express" pursuant to a code-sharing agreement with United executed in
1992 which expires in 1998. WestAir serves 31 cities in California, Nevada,
Washington and Oregon utilizing hubs in Los Angeles, San Francisco, Seattle and
Portland. WestAir's fleet consists of 21 aircraft with 19-passenger seats and 16
aircraft with 30 passenger seats. WestAir's code-sharing agreement with United
is especially important because of United's strong market position on the West
Coast.
FLORIDAGULF -- USAir Express: In December 1991, FloridaGulf began operations to
eight communities in the Southeast region as "USAir Express" using three
aircraft under a code-sharing agreement with USAir. FloridaGulf now serves 57
cities utilizing a fleet of 48 aircraft in several states. FloridaGulf's
principal hubs are in Orlando, Tampa, New Orleans, Boston and Philadelphia.
FloridaGulf operates 40 aircraft with
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19 passenger seats and eight aircraft with 30 passenger seats under a
code-sharing agreement which expires in 2004.
AIR MIDWEST -- USAir Express: In July 1991, Mesa acquired Air Midwest, Inc., a
regional airline serving portions of the lower Midwest region of the United
States under a code-sharing agreement with USAir, with its hub in Kansas City,
Missouri. Air Midwest, operating as a subsidiary of Mesa, serves 15 cities as
"USAir Express" with a fleet of 12 aircraft with 19 passenger seats under a
code-sharing agreement which expires in 2000.
LIBERTY EXPRESS -- USAir Express: During February 1994, Mesa acquired certain
assets of Crown Airways, Inc., a USAir code-sharing partner operating out of a
hub in Pittsburgh, Pennsylvania. Mesa established a new division, Liberty
Express, and serves 15 cities out of Pittsburgh as "USAir Express" with a fleet
of 14 aircraft with 19 passenger seats under a code-sharing agreement which
expires in 2003.
MARKETING
Under Mesa's code-sharing agreements, United, USAir, and America West (the major
partners) coordinate advertising and public relations within their respective
regions. In addition, Mesa benefits from the major partners' advertising
programs in regions outside those served by Mesa, with the major partners'
customers becoming customers of Mesa as a result of through fares. Under these
code-sharing arrangements, Mesa's passengers also benefit from through-fare
ticketing with the major partners and greater accessibility to Mesa's flights on
computer reservation systems and in the Official Airline Guide.
Mesa's services are promoted through listings in computer reservation systems
and the Official Airline Guide and through direct contact with travel agencies
and corporate travel departments. Mesa participates in shared advertising with
resort and rental property operators and ski areas in leisure markets in which
it operates. Mesa leases from SABRE a computerized reservation system widely
used by travel agents, corporate travel offices and other airlines. This service
is provided to each of Mesa's operations through their respective code-sharing
agreements. Mesa also pays booking fees to owners of other computerized
reservation systems based on the number of passengers booked by travel agents
using such systems. Mesa believes that it has good relationships with the travel
agents handling its passengers.
FARES
Since 1978, airlines in the United States have been free to set their own
domestic fares without governmental regulation. Mesa derives its passenger
revenues from a combination of local fares, through fares and joint fares. Local
fares are fares for one-way and round-trip travel provided by Mesa within its
route system. Local fares are also frequently used by passengers connecting with
other carriers. A through fare is a fare offered to passengers by either United,
USAir or America West which generally provides cost savings to the passenger who
transfers to the major carrier's code-sharing partner on routes flown by the
code-sharing partner. Through fares are prorated in accordance with standards
specified in the various code-share agreements. Joint fares are single fares for
travel combining flights with Mesa and other airlines which are not code-sharing
partners with Mesa. With joint fares, the passenger generally pays a single
lower fare than the sum of the local fares charged for the combined
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flights. Mesa has been able to negotiate joint fare arrangements with major
carriers as an additional means of deriving passengers connecting through its
hub cities.
COMPETITION
The airline industry is highly competitive and volatile. Airlines compete in the
areas of pricing, scheduling (frequency and timing of flights), on-time
performance, type of equipment, cabin configuration, amenities provided to
passengers, frequent flyer plans, travel agents' commissions and the automation
of travel agents' reservation systems. Further, because of the Deregulation Act,
airlines are currently free to set prices and establish existing routes without
the necessity of seeking governmental approval. At the same time, deregulation
has allowed airlines to abandon unprofitable routes where the affected
communities will not be left without air service. See Essential Air Service
Program.
Mesa believes that the Deregulation Act facilitated Mesa's entry into scheduled
air service markets and will allow it to compete on the basis of service and
fares. The Deregulation Act, however, makes possible the entry of other
competitors which have substantial financial resources and experience, creating
the potential for intense competition among regional air carriers in Mesa's
markets.
As discussed earlier, Mesa believes its code-sharing agreements provide a
significant competitive advantage in hub airports where its major partner has a
predominant share of the market. The ability to control connecting passenger
traffic by offering a superior service makes it very difficult for other
regional airlines to compete at such hubs. In addition to the enhanced
competitive edge offered by the code-sharing agreements, Mesa competes with
other airlines through offering frequent flights, flexible schedules, adjustable
fares, low operating cost aircraft, and high on-time flight completion.
In 1994, entry into the Florida market of several new low-fare jet carriers with
flights to and from Florida cities, which directly competed with USAir Express,
decreased passenger yields for FloridaGulf. In addition, Continental Express, a
division of Continental Airlines, Inc., introduced jetprop service to and from
New Orleans and cities in Florida in direct competition with the service
provided by FloridaGulf. The increase in indirect competition from jet service
and direct competition from jetprop service forced FloridaGulf to significantly
decrease fares in certain markets adversely affecting financial results in 1994.
During February 1995, Continental Lite jet service was abandoned by Continental
Airlines, Inc., resulting in significant rescheduling of the directly
competitive Continental Express service in the FloridaGulf markets and a
positive change in the competitive environment at the FloridaGulf division. This
change resulted in positive financial results for FloridaGulf beginning in
February 1995.
Increased competition on the West Coast between the Shuttle by United and
Southwest Airlines, Inc. 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 had become 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 resulted in returning WestAir to profitability
and generating sufficient cash flow to meet WestAir's obligations.
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FUEL
During its operating history, Mesa has experienced few problems with the
availability of fuel, and it believes that it will be able to obtain fuel
sufficient to meet its existing and anticipated future requirements at
competitive prices. In prior years such events as the Persian Gulf war which
resulted in a dramatic impact on fuel prices have highlighted the volatility of
this important cost component. Standard industry contracts do not generally
provide protection against fuel price increases, nor do they ensure availability
of supply.
The fuel tax exemption expired September 30, 1995. If no additional legislation
is passed to extend the exemptions, the total impact on Mesa would be an
additional fuel cost during fiscal 1996 of approximately $3 million based on
estimated fuel consumption. The company would attempt to recover these
additional costs through increased fares, which could result in reduced load
factors. The company is currently accruing the fuel tax expense in the event no
legislation is passed to extend the fuel tax exemption.
MAINTENANCE OF AIRCRAFT AND TRAINING
All mechanics and avionics specialists employed by Mesa have the appropriate
training and experience and hold the required licenses issued by the FAA. Using
its own personnel and facilities, Mesa maintains its aircraft on a daily, weekly
and "as-needed" basis. Mesa emphasizes preventive maintenance and checks its
aircraft engines and airframes as required. Mesa has also developed an inventory
of spare parts specific to the aircraft it flies and has instituted a
computerized tracking system to increase maintenance efficiency and to avoid
excess inventories of spare parts.
Mesa provides periodic in-house and outside training for its maintenance and
flight personnel and also takes advantage of factory training programs that are
offered when acquiring new aircraft.
With the introduction of Fokker 70 jet aircraft and de Havilland DHC-8-300
aircraft, Mesa provided training for pilots pursuant to FAR Part 121. As a
result, Mesa incurred significant costs during 1995 to provide pilot training
and manuals (flight and maintenance) pursuant to FAR Part 121.
INSURANCE
Mesa carries types and amounts of insurance customary in the airline industry,
including coverage for public liability, passenger liability, property damage,
aircraft loss or damage, baggage and cargo liability and workers' compensation.
EMPLOYEES
Mesa currently has approximately 3,900 employees. Mesa's success is in part
dependent upon its ability to continue to attract and retain qualified
personnel. In the past Mesa has had no difficulty attracting qualified personnel
to meet its requirements.
Pilot turnover at times is a significant issue among regional carriers when
major carriers are hiring experienced commercial pilots away from regional
carriers. Currently, pilot turnover is not a major problem for Mesa. Mesa has
been able to hire and train sufficient numbers of new pilots to maintain the
growth in its operations. No assurance can be given, however, that pilot
turnover will not become a major problem in the future, particularly if major
carriers expand. Similarly, there can be no assurance
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that sufficient numbers of new pilots will be available to support any future
growth even if pilot turnover does not become a major problem for Mesa.
As of December 1, 1995, Mountain West, FloridaGulf and Liberty Express pilots
had voted to join Air Line Pilots Association (ALPA). Mesa is currently
negotiating a definitive contract with Mountain West pilots and is in federal
mediation. Negotiations with FloridaGulf and Liberty Express pilots have not
begun. WestAir and Air Midwest pilots are also represented by ALPA, and WestAir
pilots are currently in federal mediation regarding their contract negotiations.
See Item 3, Legal Proceedings. Air Midwest mechanics are represented by the
International Association of Machinists (IAM) and WestAir flight attendants are
represented by the Association of Flight Attendants (AFA). During the current
year, Mountain West flight attendants voted to join AFA and are in contract
negotiations. No Mesa Air Group divisions or subsidiaries are parties to any
other collective bargaining agreement or union contracts.
ESSENTIAL AIR SERVICE PROGRAM
The Deregulation Act allows airlines freedom to introduce, increase, and
generally reduce or eliminate service to existing markets. Under the Essential
Air Service Program, which is administered by the U.S. Department of
Transportation ("DOT"), certain communities that received scheduled air service
prior to the passage of the Deregulation Act are guaranteed specified levels of
"essential air service." The DOT may authorize federal subsidies to compensate a
carrier for providing essential air service in otherwise unprofitable or
minimally profitable markets.
Mesa serves several subsidized Essential Air Service communities in several of
its divisions. Mesa also serves a number of unsubsidized Essential Air Service
communities. The Essential Air Service subsidy orders are normally issued for a
period of one or two years. Mesa received $5.4 million, $5.5 million, and $5.8
million in subsidy payments in fiscal 1995, 1994 and 1993, respectively. This
represented 1.2 percent, 1.4 percent, and 1.6 percent of operating revenues in
1995, 1994 and 1993, respectively.
An airline providing essential air services is required to give the DOT ninety
days' advance notice before it may terminate or reduce service. The DOT may
require the continuation of existing service until a replacement carrier is
found, but in that event it must compensate the carrier for actual losses
sustained in continuing to serve the community during this period.
The Company has been notified that the Department of Transportation intends to
reduce subsidies. Mesa estimates the subsidies will be reduced by approximately
40 percent for fiscal year 1996. Although Mesa cannot predict the exact effect
of the reduction of its subsidies, Mesa believes it could redeploy its aircraft
from these markets to other profitable markets so that reduction or termination
of the subsidies would not have a material adverse effect on Mesa's operations.
REGULATION
As an interstate air carrier, Mesa is subject to the economic jurisdiction of
and regulation by the DOT, which became responsible for most of the continuing
functions of the Civil Aeronautics Board on January 1, 1985, and the FAA under
the Federal Aviation Act of 1958, as amended (the "1958 Act"). Although
regulation of the airline industry has been considerably diminished by the
Deregulation Act, the DOT continues to exercise certain economic regulatory
jurisdiction over airlines. In October 1990, Mesa became a certificated air
carrier under Section 401 of the 1958 Act. Previously, Mesa operated under an
exemption from the certificate requirement. The DOT is authorized to establish
consumer protection regulations to prevent unfair methods of competition and
deceptive practices, to prohibit
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certain pricing practices, to inspect a carrier's books, properties and records,
and to mandate conditions of carriage. The DOT also has the power to bring
proceedings for the enforcement of the air carrier economic regulations under
the 1958 Act, including the assessment of civil penalties, and to seek criminal
sanctions.
Mesa is subject to the jurisdiction of the FAA with respect to its aircraft
maintenance and operations, including equipment, ground facilities, dispatch,
communication, training, weather observation, flight personnel and other matters
affecting air safety. To ensure compliance with its regulation, the FAA requires
airlines to obtain an operating certificate which is subject to suspension or
revocation for cause, and provides for regular inspections.
The FAA intends to enact rules which 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 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.
Mesa does not anticipate the enactment of these rules to have an adverse effect
on Mesa's financial position.
Mesa is subject to the jurisdiction of the Federal Communications Commission
regarding the utilization of its radio facilities and to the jurisdiction of the
United States Postal Service with respect to carriage of United States mail.
Local governments in certain markets have adopted regulations governing various
aspects of aircraft operations including noise abatement and curfews.
-11-
12
Item 2. Properties
Mesa's primary property consists of aircraft used in the operation of the
business. The following table lists the aircraft operated by Mesa as of
September 30, 1995:
Number of Aircraft
-------------------------------
Passenger
Type of Aircraft Owned Leased Total Capacity
----------------------------------------------------------------------
Beechcraft 1900 23 90 113 19
Embraer Brasilia 3 31 34 30
BAe Jetstream 31 21 21 19
Dash 8-300 7 7 50
Fokker 70 2 2 78
-------------------------------
Total 26 151 177
-------------------------------
See Management's Discussion and Analysis - Liquidity and Capital Resources
regarding aircraft commitments.
The following table lists aircraft operated by division as of September 30,
1995:
Aircraft by Division
-------------------------------------------------------------------------------------------
Mountain Desert Air Liberty
West Sun WestAir FloridaGulf Midwest Express Total
-------------------------------------------------------------------------------------------
Beech 1900 47 40 12 14 113
Embraer Brasilia 10 16 8 34
BAe Jetstream 31 21 21
Dash 8-300 7 7
Fokker 70 2 2
-------------------------------------------------------------------------------------------
Total 64 2 37 48 12 14 177
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In addition to aircraft, Mesa has office and maintenance facilities to support
its operations. The facilities are as follows:
Type Location Ownership Approximate Size
---- -------- --------- ----------------
Office Farmington, NM Owned 18,000 sq. ft.
Training/Dorm Farmington, NM Owned 16,000 sq. ft.
Hangar Farmington, NM Owned 30,000 sq. ft.
Engine Shop Farmington, NM Owned 6,000 sq. ft.
Hangar Fresno, CA Leased 50,000 sq. ft.
Offices Fresno, CA Leased 20,000 sq. ft.
Warehouse/Office Fresno, CA Leased 21,750 sq. ft.
Hangar Eugene, OR Owned 7,200 sq. ft.
Hangar/Office Reno, NV Leased 16,200 sq. ft.
Hangar/Office Wichita, KS Leased 30,000 sq. ft.
Office Milwaukee, WI Owned 5,000 sq. ft.
Hangar/Office Jacksonville, FL Owned 30,256 sq. ft.
Hangar Jamestown, NY Leased 30,000 sq. ft.
Hangar/Office Dubois, PA Leased 23,000 sq. ft.
Hangar Reading, PA Owned 56,250 sq. ft.
Hangar/Office Grand Junction, NM Owned 32,768 sq. ft.
Hangar/Office Yakima, WA Leased 14,500 sq. ft.
Hangar/Office Bullhead City, AZ Leased 12,852 sq. ft.
Office Phoenix, AZ Leased 3,570 sq. ft.
In addition, Mesa, as the lessee, leases space at each of the airports in which
it operates to accommodate its operations. These leases are generally
month-to-month or relatively short-term leases. Mesa, as the lessor, also leases
commercial real estate of approximately 17,200 square feet in Farmington, New
Mexico to unrelated entities.
Item 3. Legal Proceedings
WestAir Commuter Airlines, Inc. and the Airline Pilot's Association
International (ALPA) are engaged in alleged unlawful misconduct litigation
against each other. Each party seeks injunctive relief and monetary damages.
Discovery is still in early stages; therefore, the relative strengths and
weaknesses of the litigation is not sufficient to project the ultimate outcome.
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
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(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.
Discovery has not sufficiently progressed to a point enabling Mesa to make any
assessment as to liability, damages or prospect of settlement in either the
consolidated class action or the derivative litigation. Mesa and the corporate
officers and directors deny the allegations made against them and intend to
defend the lawsuits vigorously.
Mesa is also a party to legal proceedings and claims which arise during the
ordinary course of business.
In the belief of management, based upon information known at this time, the
ultimate outcome of these proceedings and claims pending against Mesa is not
expected to have a material adverse effect on Mesa's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
MARKET PRICE OF COMMON STOCK
Presented below are the high and low sales prices of the common stock of Mesa
Air Group, Inc. on the National Market System under the NASDAQ symbol MESA.
=================================================================
FISCAL 1995 FISCAL 1994
-----------------------------------------------------------------
Quarter HIGH LOW High Low
-----------------------------------------------------------------
First $ 9.50 $6.00 $22.25 $15.25
Second 9.50 5.75 23.00 15.75
Third 9.75 4.88 20.25 7.50
Fourth 12.00 9.00 11.00 6.38
On December 1, 1995, Mesa had 1,574 shareholders of record. Mesa has never paid
cash dividends and does not intend to pay cash dividends in the near future.
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15
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
================================================================================
In thousands of dollars, except per share and average fare amounts and otherwise
indicated
Years ended September 30
------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------
Operating revenues $ 454,538 $ 396,134 $ 353,640 $ 316,615 $ 316,849
Operating expenses 424,966 347,760 311,730 291,053 320,001
Operating income (loss) 29,572 48,374 41,910 25,562 (3,152)
Other income (expense) (156) 3,534 3,797 1,365 19,011
Interest expense 6,395 7,916 5,366 4,472 4,506
Earnings before income taxes and
extraordinary item 23,021 43,992 40,341 22,455 11,353
Earnings before extraordinary item 14,012 27,276 25,038 14,272 7,283
Net earnings 14,012 27,688 26,352 14,272 8,245
Earnings per common share before
extraordinary item 0.42 0.75 0.73 .50 .39
Net earnings per common share 0.42 0.76 0.77 .50 .44
Working capital 120,036 134,186 125,706 35,754 7,368
Total assets 446,722 419,902 399,318 235,160 149,493
Long-term debt, excluding current portion 78,411 91,772 91,742 70,100 20,335
Stockholders' equity 255,883 234,316 215,394 99,116 48,567
Net book value per common share $ 7.53 $ 7.16 $ 6.08 $ 3.22 $ 1.93
---------- ---------- ---------- ---------- ----------
Passengers carried 6,086,782 5,170,252 4,449,492 3,801,756 3,811,570
Revenue passenger miles (000) 1,179,397 982,642 916,851 779,558 819,179
Available seat miles (000) 2,310,895 1,897,933 1,821,156 1,637,307 1,784,575
Average passenger journey 194 190 206 205 215
Average stage length 167 NA NA NA
Load factor 51% 51.8% 50.3% 47.6% 45.9%
Break-even passenger load factor 49.2% 47.0% 45.8% 46.0% 48.2%
Revenue per available seat mile 19.7(cent) 20.9(cent) 19.4(cent) 19.3(cent) 17.8(cent)
Cost per available seat mile 18.4(cent) 18.3(cent) 17.1(cent) 17.8(cent) 17.9(cent)
Average yield per revenue passenger mile 37.4(cent) 38.9(cent) 37.3(cent) 38.7(cent) 37.1(cent)
Average fare $ 72.53 $ 74.11 $ 76.80 $ 79.31 $ 79.80
Aircraft in service 177 166 146 125 114
Cities served 172 165 152 139 119
Number of employees 3900 3500 2800 2540 2583
====================================================================================================================================
NA - Information not available
====================================================================================================================================
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16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
Mesa Air Group, Inc. ("Mesa") and its divisions and subsidiaries is a group of
six regional airlines and other related companies in various regions across the
United States. The division formerly known as Mesa Airlines is now operating as
Mountain West Airlines providing 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 and during the current year formed a new division named Desert Sun
Airlines operating jet aircraft providing service as America West Express. Mesa
also operates 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.
The following tables set forth selected operating and financial data of Mesa for
the years indicated below:
OPERATING DATA
YEARS ENDED SEPTEMBER 30
1995 1994 1993
------------------------------------------------------
Passengers 6,086,782 5,170,252 4,449,492
Available seat miles (000) 2,310,895 1,897,933 1,821,156
Revenue passenger miles (000) 1,179,397 982,642 916,851
Load factor 51.0% 51.8% 50.3%
Revenue per ASM 19.7(cent) 20.9(cent) 19.4(cent)
Yield per RPM 37.4(cent) 38.9(cent) 37.3(cent)
Cost per ASM 18.4(cent) 18.3(cent) 17.1(cent)
Financial Data
Years ended September 30
-----------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------- ---------------------------- ---------------------------
Percent Cost Percent Cost Percent Cost
Amount of per Amount of per Amount of per
(000) Revenues ASM (000) Revenues ASM (000) Revenues ASM
-------- -------- ------ -------- -------- ------- -------- --------- ------
Flight operations $166,597 36.7% 7.2(cent) $126,954 32% 6.7(cent) $124,391 35.1% 6.8(cent)
Maintenance 73,701 16.2% 3.2(cent) 68,908 17.4% 3.6(cent) 50,990 14.4% 2.8(cent)
Aircraft and traffic servicing 61,538 13.5% 2.7(cent) 46,347 11.7% 2.4(cent) 38,473 10.9% 2.1(cent)
Promotion and sales 75,271 16.6% 3.3(cent) 63,657 16.1% 3.4(cent) 54,253 15.3% 3.0(cent)
General and administrative 26,921 5.9% 1.2(cent) 26,786 6.8% 1.4(cent) 24,297 6.9% 1.3(cent)
Depreciation and amortization 20,940 4.6% 0.9(cent) 15,108 3.8% 0.8(cent) 13,138 3.7% 0.7(cent)
Asset write-down -- -- -- -- -- -- 6,188 1.8% 0.4(cent)
-------- ---- ---- -------- ---- ---- -------- ---- ----
Total operating expenses 424,965 93.5% 18.4(cent) $347,760 87.8% 18.3(cent) $311,730 88.1% 17.1(cent)
======== ==== ==== ======== ==== ==== ======== ==== ====
Interest expense 6,395 1.4% 0.3(cent) $ 7,916 2.0% 0.4(cent) $ 5,366 1.5% 0.3(cent)
======== ==== ==== ======== ==== ==== ======== ==== ====
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17
REVENUE AND EXPENSE COMPARISON
FISCAL 1995 VERSUS FISCAL 1994
Operating revenues increased $58.4 million (15 percent) for fiscal 1995 compared
to the prior fiscal year. Capacity measured by available seat miles (ASMs)
increased by 22 percent. During fiscal 1995 capacity grew at a higher rate than
revenues primarily as a result of intense competition and negative publicity
regarding regional airline safety which took place in the first six months of
the 1995 fiscal year. The introduction of jet aircraft into the fleet in the
last quarter of the fiscal year also increased capacity without corresponding
increase in revenues. The load factor decreased slightly from 51.8 percent to 51
percent and the yield per revenue passenger miles (RPM) decreased from
39.0(cent) to 37.4(cent). The decrease in yield per RPM is primarily the
result of lower air fares on the West Coast during the first six months of the
year, which adversely affected financial results at the WestAir subsidiary. The
airline industry has a history of fare and traffic volatility; however,
management expects consolidated yields to remain relatively stable during the
next fiscal year.
Flight operations cost increased by $39.6 million (31.2 percent) compared to a
22 percent increase in capacity. This resulted in an increase in cost per ASM
from 6.7(cent) in 1994 to 7.2(cent) in 1995. The primary reason for the
increase in flight operations expense was the integration costs related to
introduction of DHC-8-300 and Fokker 70 jet aircraft into the fleet. These
integration costs were expensed during the fiscal year.
Maintenance expense decreased from 3.6(cent) per ASM in 1994 to 3.2(cent) per
ASM in 1995. Excluding jet ASMs, the decrease was from 3.6(cent) per ASM in
1994 to 3.3(cent) per ASM in 1995. This decrease was primarily the result of a
fewer number of scheduled engine overhauls in 1995 as compared to 1994. Mesa is
continuing to take delivery of new aircraft on which maintenance costs are
initially lower and retiring older aircraft with certain of the new deliveries.
Operation of these new aircraft contributes to lower maintenance cost. Mesa
intends to continue its practice of purchasing new aircraft and retiring older
aircraft. See discussion under Liquidity and Capital Resources.
Aircraft and traffic servicing cost increased slightly from 2.4(cent) per ASM
in 1994 to 2.7(cent) per ASM in 1995. These costs include landing fees, station
wages, rent and other station costs.
Promotion and sales expense decreased slightly from 3.4(cent) in 1994 to 3.3
(cent) per ASM in 1995. These costs include commissions, booking fees and other
reservation costs and will vary with revenue.
General and administrative expense decreased from 1.4(cent) per ASM in 1994 to
1.2(cent) per ASM in 1995.
Depreciation and amortization expense increased from 0.8(cent) per ASM in 1994
to 0.9(cent) per ASM in 1995 due to increased amortization resulting from an
increase in intangibles.
Interest expense decreased from 0.4(cent) per ASM in 1994 to 0.3(cent) per ASM
in 1995 as a result of financing more aircraft through operating leases rather
than debt and a decrease in the amount of long-term debt.
Mesa utilized an approximate 39 percent effective tax rate for the year 1995, a
slightly higher rate than the prior year. It is anticipated that this rate will
decline to approximately 38 percent in future years as a result of measures
being taken to minimize income taxes. Changes in tax law and the adoption of
Financial Accounting Standards Board Statement 109 in 1994 did not have a
material impact on the financial statements.
-17-
18
The combination of the above factors resulted in a slight increase in operating
expenses from 18.3(cent) per ASM in 1994 to 18.4(cent) per ASM in 1995.
FISCAL 1994 VERSUS FISCAL 1993
Operating revenues increased $42.5 million (12 percent) for fiscal 1994 compared
to the prior fiscal year. Capacity measured by available seat miles (ASMs)
increased by 4 percent. During fiscal 1994 the combination of a higher load
factor and a higher yield resulted in a growth in revenue higher than the growth
in capacity. The load factor increased from 50.3 percent to 51.8 percent and the
yield per revenue passenger miles (RPMs) increased from 37.3(cent) to 39.0
(cent).
Flight operations cost increased by $2.6 million (2.1 percent) compared to a 4.2
percent increase in capacity. This resulted in a decrease in cost per ASM from
6.8(cent) in 1993 to 6.7(cent) in 1994.
Maintenance expense increased from 2.8(cent) per ASM in 1993 to 3.6(cent) per
ASM in 1994. This increase was primarily the result of a greater number of
scheduled engine overhauls in 1994 as compared to 1993.
Aircraft and traffic servicing cost increased slightly from 2.1(cent) per ASM
in 1993 to 2.4(cent) per ASM in 1994. These costs include landing fees, station
wages, rent and other station costs.
Promotion and sales expense increased from 3.0(cent) in 1993 to 3.4(cent) per
ASM in 1994. These costs include commissions, booking fees and other reservation
costs and will vary with revenue.
Depreciation and amortization expense increased from 0.7(cent) per ASM in 1993
to 0.8(cent) per ASM in 1994.
Interest expense rose from 0.3(cent) per ASM in 1993 to 0.4(cent) per ASM in
1994 as a result of an increase in interest rates and aircraft acquisitions
financed with debt during the year 1994.
Mesa experienced a 38 percent effective tax rate for the year 1994, a rate
consistent with the prior year.
The combination of the above factors resulted in an increase in operating
expenses from 17.1(cent) per ASM in 1993 to 18.3(cent) per ASM in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Mesa's cash, cash equivalents and marketable securities as of September 30, 1995
amounted to $99.2 million. This was an increase of $0.6 million from the prior
year. Mesa generated approximately $43 million in cash from operating activities
during 1995. The cash, cash equivalents and marketable securities are intended
to be used for working capital, acquisitions, capital expenditures and a stock
buy-back program.
Mesa had receivables of $44.8 million at September 30, 1995 which consist
primarily of amounts due from code-sharing partners United and USAir. Under the
terms of the United and USAir agreements,
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19
Mesa receives a substantial portion of its revenues through the Airline Clearing
House. Historically, Mesa has generated adequate cash flow to meet its operating
needs.
Mesa currently has an $11 million line of credit, of which $7.1 million is
available. This line of credit is primarily used to facilitate the issuance of
letters of credit.
At its December 1, 1995 meeting, the Board of Directors of Mesa approved a stock
buy-back program under which cash generated by operations may be used to
repurchase Mesa common stock. During the initial phase of the program, Mesa may
repurchase shares having a value of up to $30 million. The Board's intent is
that available cash not required for working capital, general corporate purposes
or other investment opportunities be used to repurchase Mesa common stock
Mesa has significant operating lease obligations on existing aircraft. At
September 30, 1995, Mesa leased 151 aircraft with remaining terms of up to 14
years. Future lease payments due under all aircraft operating leases were
approximately $617 million at September 30, 1995.
As of September 30, 1995, Mesa had a remaining commitment to acquire 33 1900D
aircraft under an agreement with Beech Acceptance Corporation . The agreement
requires a $100,000 deposit per aircraft upon delivery. The cost for each of the
remaining aircraft will be $4.1 million, and Beech Acceptance Corporation has
agreed to provide lease or debt financing for these aircraft under terms similar
to financing provided in the past. This agreement provides for the trade-in of
Mesa's existing fleet of Beech 1900C aircraft in "as-is" condition so long as
such aircraft are airworthy. By December 1996, Mesa expects to take delivery of
33 1900D aircraft and will return all remaining 1900C (28) aircraft.
WestAir has an agreement (the "Embraer Agreement") to acquire 15 Embraer
Brasilia jetprop aircraft, valued at approximately $7.4 million each, for future
delivery at various dates through 1998 and has nonrefundable deposits of
approximately $4 million as of September 30, 1995.
In November 1995, WestAir and Embraer Aircraft Corporation amended the Embraer
Agreement. Under the amended Embraer Agreement, Mesa will acquire two Embraer
Brasilia aircraft in December 1995 and has arranged financing for these
aircraft. WestAir and Embraer Aircraft Corporation have agreed to use their best
efforts to negotiate a used aircraft purchase agreement within 90 days of the
execution of the amendment to the Embraer Agreement under which Embraer would
acquire a used aircraft from WestAir in exchange for WestAir acquiring a new
aircraft from Embraer. WestAir's obligation to take delivery of new Embraer
aircraft is subject to availability of commercially reasonable financing. Should
the parties be unable to agree on a used aircraft purchase agreement, or should
commercially reasonable financing not be available, WestAir would have no
obligation to take delivery of additional aircraft. If the parties reach an
agreement, the remaining 13 Embraer Brasilia aircraft will be delivered from
August 1997 through November 1999.
On December 9, 1993, Mesa entered into a letter of intent to acquire two Fokker
70 jet aircraft with an option for six additional aircraft. Delivery of the
first two aircraft occurred in June and July 1995. The Fokker 70 is a 78-seat
aircraft valued at approximately $23.5 million each. Under the agreement, Mesa
can return the aircraft to Fokker between 12 and 18 months after delivery,
subject to a six-month notification. These aircraft are financed through
operating leases with 12-year terms providing a one-year option to terminate the
lease and return the aircraft or find other financing. Fokker is assisting Mesa
in obtaining third-party financing. As of September 30, 1995, Mesa had made
deposits under the agreement of approximately $1 million. Jet aircraft
operations have been marginal to unprofitable and have not met management's
expectations. As a result of recent operating results, management has begun
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20
discussions with Fokker to amend the agreement. Unless current operating results
improve or Mesa is able to obtain amendments to the Fokker agreement, it may be
necessary to exercise its option to return the aircraft. In the event Mesa
decides to return the aircraft, Mesa would incur costs of approximately $3
million.
During March 1995, Mesa entered into an agreement with Bombardier, Inc. to
acquire 25 de Havilland Dash 8-200 aircraft with deliveries beginning in early
1996 and ending in March 1997. Based on current expectations, the monthly lease
payments are anticipated to range from approximately $69,000 to $72,000 per
plane. By September 30, 1995, Mesa had traded in five Dash 8-100 and nine
Embraer Brasilia aircraft resulting in the reduction of its fleet by 14 aircraft
during fiscal 1995. Seven Dash 8-300 aircraft acquired from United and an
additional four Embraer Brasilia aircraft will be traded in on a one-for-one
basis as the new Dash 8-200 aircraft are delivered. The last 14 Dash 8-200
aircraft to be delivered will result in an increase in Mesa's fleet in 1996 and
1997. 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.
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. In exchange for this
agreement, WestAir agreed to waive all early aircraft lease termination rights
and not create any lien or encumbrance on its 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.
In May 1995, Mesa purchased approximately 49.9 percent of the outstanding voting
common shares and all of the outstanding preferred shares of Community Express
Airlines, Limited ("CEAL"), a start-up commuter airline in the United Kingdom
with headquarters in Birmingham England for approximately $1.3 million. During
November 1995, an additional cash infusion of approximately $250,000 was made,
and Mesa's preferred shares were converted to common and a nine-year
interest-free loan resulting in a decrease in percentage interest of common
shares held to 44 percent. CEAL operates out of a hub in Birmingham, England and
serves four cities in the United Kingdom. By the laws of the European Common
Market, Mesa cannot own a majority of CEAL's voting common shares in this
operation. Under the terms of the investment agreement, CEAL will sublease two
Shorts 360-300 aircraft from Mesa for an approximate 10-year term at a market
lease rate plus maintenance reserve payments. Mesa also agreed to provide a $1
million spare parts package to CEAL under a spare parts loan agreement bearing
interest at prime with principal payments due in 10 equal annual installments
or, if greater, the dollar value of actual parts utilized.
Mesa does not expect any material negative impact to its operations as a result
of inflation. Mesa believes fares, and accordingly revenues can be changed to
offset the impact of inflation. Most of Mesa's $86.7 million of indebtedness is
at floating rates and may be affected by inflation if such inflation results in
an increase in interest rates. A significant portion of the aircraft fleet is
leased at fixed rates that would not be impacted by inflation.
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Item 8. Financial Statements and Supplementary Data
1. Consolidated Financial Statements
Page 21 - Independent Auditors' Report
Page 22 - Consolidated Balance Sheets - September 30, 1995
and 1994
Page 24 - Consolidated Statements of Earnings - Years ended
September 30, 1995, 1994, and 1993
Page 25 - Consolidated Statements of Cash Flows -Years ended
September 30, 1995, 1994, and 1993
Page 26 - Consolidated Statements of Stockholders' Equity -
Years ended September 30, 1995, 1994, and 1993
Page 27 - Notes to Consolidated Financial Statements
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not applicable, not required or the information has been furnished
elsewhere.
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MESA AIR GROUP, INC.:
We have audited the accompanying consolidated balance sheets of Mesa Air Group,
Inc. and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of earnings, cash flows, and stockholder equity for each
of the years in the three-year period ended September 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mesa Air Group, Inc.
and subsidiaries as of September 30, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
December 1, 1995
Phoenix, Arizona
See accompanying notes to consolidated financial statements.
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23
MESA AIR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
September 30
--------------------------
1995 1994
- --------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 53,675 $ 35,567
Marketable securities (note 2) 45,559 63,044
Receivables, principally traffic 44,811 46,469
Expendable parts and supplies, less allowance for
obsolescence of $1,200 and $1,695 24,682 19,401
Prepaid expenses and other current assets 6,923 9,037
-------- --------
Total current assets $175,650 $173,518
Property and equipment, net (notes 4 and 5) 170,899 198,062
Non-compete agreement, less amortization of $1,650 and $1,350 1,350 1,650
Lease and equipment deposits (notes 9 and 10) 26,147 13,319
Intangibles, less amortization of $3,523 and $995 59,248 22,459
Other assets 13,428 10,894
-------- --------
Total assets $446,722 $419,902
======== ========
See accompanying notes to consolidated financial statements.
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24
MESA AIR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
September 30
--------------------------
1995 1994
- --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital leases (note 5) $ 8,283 $ 8,474
Accounts payable 23,205 10,720
Income taxes payable (note 6) 1,073 616
Air traffic liability 5,131 3,926
Accrued compensation 3,937 8,140
Other accrued expenses 13,985 11,844
-------- --------
Total current liabilities 55,614 43,720
Long-term debt and capital leases, excluding current portion (note 5) 78,411 91,772
Deferred credits 28,353 24,845
Deferred income taxes (note 6) 28,461 25,249
Stockholders' equity (note 7):
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;
33,460,742 and 32,704,042 shares issued and outstanding 151,957 147,695
Retained earnings 90,876 76,864
Unrealized gain on marketable securities, net of deferred
income taxes of $8,700 and $5,982 (note 2) 13,050 9,757
-------- --------
Total stockholders' equity 255,883 234,316
-------- --------
Commitments, contingencies and
subsequent events (notes 3, 8, 9, 10, and 12)
Total liabilities and stockholders' equity $446,722 $419,902
======== ========
See accompanying notes to consolidated financial statements.
-24-
25
MESA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Years Ended September 30
-------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
Operating revenues:
Passenger $441,486 $383,162 $341,719
Freight and other 7,636 7,467 6,122
Public service 5,416 5,505 5,799
-------- -------- --------
Total operating revenues 454,538 396,134 353,640
-------- -------- --------
Operating expenses:
Flight operations 166,596 126,954 124,391
Maintenance 73,701 68,908 50,990
Aircraft and traffic servicing 61,537 46,347 38,473
Promotion and sales 75,271 63,657 54,253
General and administrative 26,921 26,786 24,297
Depreciation and amortization 20,940 15,108 13,138
Write-off of certain assets (note 4) -- -- 6,188
-------- -------- --------
Total operating expenses 424,966 347,760 311,730
-------- -------- --------
Operating income 29,572 48,374 41,910
-------- -------- --------
Non-operating income (expenses):
Interest expense (6,395) (7,916) (5,366)
Interest income 1,970 3,607 2,350
Other (2,126) (73) 1,447
-------- -------- --------
Total non-operating expenses (6,551) (4,382) (1,569)
-------- -------- --------
Earnings before income tax expense and
extraordinary item 23,021 43,992 40,341
Income tax expense (note 6) 9,009 16,716 15,303
-------- -------- --------
Earnings before extraordinary item 14,012 27,276 25,038
Extraordinary item - gain on extinguishment of debt,
net of income taxes of $252 and $848 in 1994 and 1993,
respectively (note 5) -- 412 1,314
-------- -------- --------
Net earnings $ 14,012 $ 27,688 $ 26,352
======== ======== ========
Average common and common equivalent shares outstanding 33,363 36,559 34,058
======== ======== ========
Earnings per common and common equivalent share:
Earnings before extraordinary item $ .42 $ .75 $ .73
Extraordinary item -- .01 .04
-------- -------- --------
Net earnings $ .42 $ .76 $ .77
======== ======== ========
See accompanying notes to consolidated financial statements.
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MESA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended September 30
-------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 14,012 $ 27,688 $ 26,352
Adjustments to reconcile net earnings
to net cash flows from operating activities:
Depreciation and amortization 20,940 15,108 13,138
Deferred income taxes 493 6,074 8,602
(Gain) loss on disposal of property and equipment (82) (1,069) 1,171
(Gain) loss on sale of securities 145 -- --
Extraordinary item - gain on extinguishment of debt -- (664) (2,162)
Amortization of deferred credits (1,964) 1,283 (3,907)
Stock bonus plan 538 979 1,968
Changes in assets and liabilities, net of acquisitions:
Receivables 1,658 (9,627) (1,140)
Expendable parts and supplies (5,281) (6,631) (3,151)
Prepaid expenses and other current assets 442 (4,248) (1,532)
Accounts payable 12,485 1,074 (170)
Other accrued liabilities (400) 7,037 (2,061)
-------- -------- ---------
NET CASH FLOW FROM OPERATING ACTIVITIES 42,986 37,004 37,108
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (92,296) (32,599) (38,853)
Proceeds from sale of property and equipment 99,634 3,366 31,733
Proceeds from maturities and sale of marketable 23,499 136,170 13,297
securities
Purchases of marketable securities -- (89,946) (102,739)
Purchased intangibles (34,489) (15,505) --
Other assets (2,492) (4,018) 2,000
Lease and equipment deposits (9,365) (3,300) (1,079)
-------- -------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES (15,509) (5,832) (95,641)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from line of credit, net -- -- 4
Proceeds received from long-term debt 5,000 -- 45,000
Principal payments on long-term debt and
obligations under capital leases (18,553) (11,129) (58,377)
Proceeds from issuance of common stock 1,592 2,631 85,297
Common stock repurchase -- (24,503) --
Proceeds from deferred credits 2,592 1,275 1,425
-------- -------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES (9,369) (31,726) 73,349
-------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 18,108 (554) 14,816
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,567 36,121 21,305
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 53,675 $ 35,567 $ 36,121
======== ======== =========
See accompanying notes to consolidated financial statements.
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MESA AIR GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1995, 1994 and 1993
(in thousands except number of shares)
Available
Number of Common Retained for sale
shares stock earnings securities Total
Balance at September 30, 1992 30,800,974 $ 76,292 $22,824 -- $ 99,116
Sale of common stock, net of offering
costs of $319 4,025,000 83,814 -- -- 83,814
Exercise of options (note 7) 501,801 1,483 -- -- 1,483
Stock bonus plan (note 8) 97,934 1,968 -- -- 1,968
Tax benefits from sale of optioned
stock -- 2,661 -- -- 2,661
Net earnings -- -- 26,352 -- 26,352
---------- -------- ------- ------- --------
Balance at September 30, 1993 35,425,709 $166,218 $49,176 -- $215,394
Exercise of options (note 7) 534,129 2,631 -- -- 2,631
Stock bonus plan (note 8) 109,204 979 -- -- 979
Common stock repurchase (3,365,000) (24,503) -- -- (24,503)
Tax benefits from sale of optioned
stock -- 2,370 -- -- 2,370
Change in unrealized gains, net of tax -- -- -- 9,757 9,757
Net earnings -- -- 27,688 -- 27,688
---------- -------- ------- ------- --------
Balance at September 30, 1994 32,704,042 $147,695 $76,864 $ 9,757 $234,316
Exercise of options (note 7) 687,487 1,592 -- -- 1,592
Stock bonus plan (note 8) 69,213 538 -- -- 538
Tax benefits from sale of optioned
stock -- 2,132 -- -- 2,132
Change in unrealized gains, net of tax
(note 2) -- -- -- 3,293 3,293
Net earnings -- -- 14,012 -- 14,012
---------- -------- ------- ------- --------
Balance at September 30, 1995 33,460,742 $151,957 $90,876 $13,050 $255,883
========== ======== ======= ======= ========
See accompanying notes to consolidated financial statements.
-27-
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MESA AIR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
a. Principles of Consolidation and Organization
Mesa Air Group, Inc. ("Mesa") and its divisions and subsidiaries is a
group of six regional airlines and other related companies in various
regions across the United States The division formerly known as Mesa
Airlines is now operating as Mountain West Airlines providing 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 and during the
current year formed a new division named Desert Sun Airlines operating
jet aircraft providing service as America West Express. Mesa also
operates 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.
The consolidated financial statements include the accounts of Mesa and
its wholly owned subsidiaries WestAir Holding, Inc., Air Midwest,
Inc., San Juan Pilot Training, Inc., and Four Corners Aviation, Inc.
(collectively referred to as Mesa). All significant intercompany
balances and transactions have been eliminated in consolidation.
Mesa is a New Mexico-based regional airline consisting of six airlines
and four other related companies. The airlines consist of Air
Midwest, Inc., FloridaGulf Airlines, Liberty Express Airlines,
Mountain West Airlines, Desert Sun Airlines, and WestAir Commuter
Airlines, Inc. The related companies are Desert Turbine Services,
Four Corners Aviation, Inc., Mesa Air Pilot Development and Regional
Aircraft Services, Inc.
Air Midwest, Inc., a commuter airline based in Wichita, Kansas,
operates as USAir Express under a code-sharing agreement with USAir
which expires in 2000.
FloridaGulf Airlines began operations in December 1991. Based in
Jacksonville, Florida it operates as USAir Express under a
code-sharing agreement with USAir. In July 1994, Mesa entered into an
asset purchase agreement with Pennsylvania Commuter Airlines, Inc.
dba Allegheny Commuter Airlines. The assets purchased (principally
aircraft and related assets) are operated as part of the FloridaGulf
Airlines division as a USAir Express carrier under a code-sharing
agreement which expires in 2004.
Liberty Express Airlines - In February 1994, Mesa purchased assets
and assumed liabilities from Crown Airways, Inc. and created Liberty
Express, a division of Mesa, based in Dubois, Pennsylvania. Liberty
Express operates as a USAir Express carrier under a code-sharing
agreement expiring in 2003.
Mountain West Airlines - United Express - In October 1994, Mesa
renegotiated a code-sharing agreement with United Airlines (United),
which included service to routes originating out of Denver, Colorado
and Los Angeles. The agreement was extended to 2005 and guarantees Mesa
the exclusive right to operate as a United Express carrier in eight
additional Denver markets.
Mountain West Airlines - America West Express - In October 1992, Mesa
began service out of Phoenix, Arizona under a code- sharing agreement
with America West Airlines operating as America West Express in the
Mountain West division. During 1994, Mesa's division, Skyway Airlines,
operating as a Midwest Express carrier, was converted to an America
West Express operation out of Columbus, Ohio upon expiration of the
Midwest Express code-sharing agreement in March 1994. This division was
renamed Superior Airlines and was subsequently combined with the
Mountain West division. In May 1995, America West Express, providing
service out of Columbus, Ohio was discontinued, and those aircraft were
deployed to the Pacific Northwest to provide service as United Express
out of the Mountain West division.
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29
Mountain West Airlines - Mesa Airlines - Currently Mesa Airlines is
operated by the Mountain West Airlines division and serves the
Southwest and Rocky Mountain Region from a hub in Albuquerque, New
Mexico.
Desert Sun Airlines - In June 1995 Mesa created a new division, which
provides service as America West Express utilizing two Fokker 70 jet
aircraft obtained during the year. The America West code-sharing
agreement expires in 2004.
WestAir Commuter Airlines, Inc., a wholly owned subsidiary of WestAir
Holding, Inc., is a regional airline based in Fresno, California
operating as United Express under a separate code-sharing agreement
with United Airlines, which expires in 1998.
San Juan Pilot Training, Inc. dba Mesa Air Pilot Development began
operations in 1989 and provides flight training in coordination with a
community college. Four Corners Aviation, Inc., which was acquired in
1992, is a fixed-base operation in Farmington, New Mexico. Regional
Aircraft Services, Inc. and Desert Turbine Services provide aircraft
and engine maintenance service to Mesa.
b. Cash and Cash Equivalents
For purposes of the statements of cash flows, Mesa considers all
highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
c. Marketable Securities
All marketable securities are considered to be available for sale.
Any unrealized holding gains or losses on available- for-sale
securities have been recorded net of deferred taxes through
stockholders' equity. Premiums and discounts on debt securities are
amortized over the term to maturity using the interest method.
d. Receivables
Mesa provides commercial air transportation into most regions of the
United States. The majority of the passenger tickets collected by
Mesa at the time of travel are sold by other air carriers largely as a
result of the code-sharing agreements discussed above. As a result,
Mesa has a significant concentration of its accounts receivable with
other air carriers and does not have any collateral securing such
accounts receivable. At September 30, 1995 and 1994, accounts
receivable from air carriers totaled approximately $36.5 million and
$30.3 million, respectively. Accounts receivable credit losses have
not been significant and have been within management's expectations.
e. Expendable Parts and Supplies
Expendable parts and supplies are stated at the lower of average cost
or market, less an allowance for obsolescence. Expendable parts and
supplies are charged to expense as they are used.
f. Property and Equipment
Property and equipment are recorded at cost and depreciated to
estimated residual values. Depreciation of property and equipment is
provided on a straight-line basis over estimated useful lives as
follows:
Buildings 30 years
Flight equipment 7-20 years
Leasehold improvements Life or term of lease, whichever is less
Equipment 5-12 years
Furniture and fixtures 3-5 years
Vehicles 5 years
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30
Assets utilized under capital leases are amortized over the lesser of
the lease term or the estimated useful life of the asset using the
straight-line method. Amortization of capital leases is included in
depreciation expense.
g. Noncompete Agreement
In February 1990, Mesa acquired the routes previously developed in the
Rocky Mountain region by Aspen Airways, Inc. "Aspen" signed a 10-year
noncompete agreement with the exception of a direct route to Aspen,
Colorado. The cost of $3 million for this noncompete agreement is
being amortized over a 10-year period.
h. Intangibles
In July 1991, Mesa acquired Air Midwest, Inc. This acquisition
resulted in purchased intangibles of approximately $10.2 million,
which are being amortized over a 40-year period. Subsequently the
intangibles were reduced by approximately $3.7 million for the
recognition of the tax effects of net operating loss and investment
tax credit carryovers acquired in the Air Midwest purchase.
In February 1994 Mesa entered into an Asset Purchase Agreement with
Crown Airways, Inc., now operating as Liberty Express, a division of
Mesa. Intangible assets of $11.3 million are being amortized over a
20-year period.
In July 1994 Mesa entered into an Asset Purchase Agreement with USAir
Group, Inc. for certain aircraft and related assets of its subsidiary
Pennsylvania Commuter Airlines, Inc. dba Allegheny Commuter Airlines
now operating as FloridaGulf. Acquired intangibles of $10.5 million
are being amortized over a 20-year period.
During October 1994, Mesa reached an agreement with United to purchase
10 and assume leases on two de Havilland DHC-8 aircraft for a total
contract price of $118.5 million. The agreement also provides for a
10-year extension of its code-sharing agreement with United in Los
Angeles and Denver through 2005 and guarantees Mesa the exclusive
right to operate as a United Express carrier in eight additional
Denver markets. The purchase price has been allocated to the acquired
aircraft based upon fair market values at the date of acquisition with
acquired intangibles of approximately $34.5 million to be amortized
over a 10-year period.
Mesa continually evaluates the recoverability of these intangible
assets by assessing whether the amortization over the remaining
estimated life can be recovered through expected future operating
results.
I. Income Taxes
Deferred income taxes are recognized for income and expense items that
are recognized in the financial statement in different periods than
the income tax returns.
Effective October 1, 1994, Mesa adopted Statement of Financial
Accounting Standards No. 109 (FAS No. 109), "Accounting For Income
Taxes" which requires a change from the deferred method previously
used by Mesa to the asset and liability method of accounting for
income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in future years in which those temporary differences are expected to
be recovered or settled. Under FAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of earnings as an adjustment to the effective
income tax rate in the period that includes the enactment date.
Adoption of FAS 109 did not
-30-
31
have a material effect on Mesa's financial position or result of
operations. Mesa and its subsidiaries file a consolidated federal
income tax return.
j. Deferred Credits
Deferred lease incentives consist of credits for parts or services and
deferred gains from the sale and leaseback of aircraft. Deferred
credits are amortized on a straight-line basis as a reduction of lease
expense over the term of the respective leases.
k. Revenues
Passenger, freight and other revenues are recognized as earned when the
service is provided.
Mesa receives public service revenues for serving certain small
communities. These revenues are recognized as earned in the period to
which the payments relate. The amount of such payments is determined
by the Department of Transportation on the basis of its evaluation of
the amount of revenue needed to meet operating expenses and to provide
a reasonable return on investment with respect to eligible routes.
As a code-share partner for United, USAir and America West Airlines,
Mesa participates in the frequent flyer programs of these airlines.
Incremental costs for mileage accumulation relating to those programs
is expensed as incurred.
l. Maintenance
Maintenance and repairs, including major engine overhauls, are charged
to operating expenses as incurred.
m. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are computed based on
the weighted average number of common shares, and if dilutive, common
stock equivalent shares (options and warrants) outstanding during the
respective periods. Fully diluted earnings per share is not
materially different than primary earnings per share and has not been
presented. The number of shares used in the earnings-per-share
computation are as follows):
September 30
1995 1994 1993
------------------------------------
(in thousands)
Weighted average shares of common
stock outstanding during the year 32,857 35,361 32,303
Common stock equivalent shares--
assumed exercise of options 506 1,198 1,755
------ ------ ------
33,363 36,559 34,058
====== ====== ======
n. Reclassifications
Certain 1994 balances have been reclassified to conform to the 1995
presentation.
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2. Marketable Securities
Marketable securities available for sale are summarized as follows:
September 30
1995 1994
----------------------------------------------
(in thousands)
Cost Market Cost Market
----------------------------------------------
Equity securities: $18,743 $40,524 $22,556 $38,345
------- ------- ------- -------
18,743 40,524 22,556 38,345
------- ------- ------- -------
Debt securities:
Corporate bonds 2,055 2,038 3,843 3,750
U.S. Government and
Government Agency Securities -- -- 1,500 1,498
Municipal securities 3,010 2,997 19,406 19,451
------- ------- ------- -------
5,065 5,035 24,749 24,699
------- ------- ------- -------
$23,808 $45,559 $47,305 $63,044
======= ======= ======= =======
At September 30, 1995, all debt securities will mature within one to five years.
Unrealized gains and losses at September 30, 1995 by security classification are
as follows (in thousands):
Unrealized Unrealized
Gains Losses Net
---------------------------------------------
Equity securities: available for sale $ 21,781 -- $21,781
Debt securities: available for sale
Corporate bonds -- (17) (17)
Municipal securities -- (13) (13)
-------- ---- -------
$ 21,781 $(31) $21,751
======== ==== =======
On August 25, 1994, Mesa entered into the AmWest Partners, L. P. partnership
agreement, which governs the terms of an investment by the partnership in
America West Airlines, Inc. providing for the consummation of America West's
Plan of Reorganization. Upon making the investment, the partnership was
dissolved. In consideration of the investment of approximately $18.7
million, Mesa received 100,000 Class A shares of common stock, 2,183,343
Class B shares of common stock and 799,767 warrants giving Mesa a 5.1
percent ownership interest in and 6.9 percent of the outstanding voting
power of America West. At September 30, 1995, this investment was classified
as available for sale and market appreciation of the Class A and B shares
and warrants of America West Airlines was recorded (net of taxes) through
equity.
3. Investment in Community Express Airlines, Limited. (CEAL)
In May 1995, Mesa purchased approximately 49.9 percent of the outstanding
voting common shares and all of the preferred shares of Community Express
Airlines, Limited ("CEAL"), a start-up commuter airline in the United
Kingdom with headquarters in Birmingham, England for approximately $1.3
million. During November 1995, an additional cash infusion was made and
Mesa's preferred shares were converted to common shares and a nine-year
interest-free loan resulting in a decrease in Mesa's interest in CEAL to 44
percent. CEAL operates out of a hub in Birmingham, England and serves four
cities in the United Kingdom. By the laws of the European Common Market,
Mesa cannot own a majority of voting common shares of CEAL.
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4. Property and Equipment
Property and equipment consists of the following:
September 30
1995 1994
----------------------------
(in thousands)
Flight equipment, substantially pledged $190,502 $206,827
Other equipment 19,425 15,119
Construction in progress 817 1,970
Leasehold improvements 4,178 2,754
Furniture and fixtures 3,058 4,824
Buildings 9,068 4,488
Land 526 520
Vehicles 1,953 1,594
----------------------------
229,527 238,096
Less accumulated depreciation (58,628) (40,034)
----------------------------
Net property and equipment $170,899 $198,062
============================
During 1993, Mesa wrote off $6.2 million of non-productive assets of WestAir
consisting primarily of preoperating costs and remaining lease obligations on
two aircraft.
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5. Long-Term Debt, Capital Leases and Lines of Credit
At September 30, 1995, Mesa had a line of credit with a bank of $11 million
bearing interest at prime plus 1/2 percent (9.25% at September 30, 1995).
At September 30, 1995 approximately $3.9 million letters of credit were
outstanding under the line of credit. The line matures on March 1, 1996 and
bears an annual fee of 1/4 percent.
Mesa leases certain equipment under leases having noncancelable lease terms
of more than one year which have been recorded as capital leases.
Long-term debt and capital leases consists of the following:
September 30
1995 1994
-------------------------
(in thousands)
Notes payable to Beech Acceptance Corporation:
$97,000 plus interest due monthly at prime
(8-1/4% at September 30, 1995) through 2005. Secured by aircraft. $15,761 $ 21,473
Notes payable to banks: $193,000 due monthly plus interest indexed to
Adjusted Libor Rates (7.5% to 7.9% at September 30, 1995)
through 2006. Secured by aircraft. 26,346 28,775
Note payable to First Interstate Bank of Texas: $269,199 due monthly
plus interest indexed to an Adjusted Libor Rate
(6.83% at September 30, 1995) through 2005. Secured by aircraft 32,067 43,132
Various notes payable and capital leases; due in monthly
installments through 2003; interest indexed to prime
and an Adjusted Libor Rate. Secured by aircraft,
-------------------------
expendable parts and equipment. 12,520 6,866
-------------------------
Total long-term debt and capital leases $86,694 $100,246
Less current portion (8,283) (8,474)
-------------------------
Long-term debt and capital leases, excluding current portion $78,411 $ 91,772
-------------------------
In 1993 proceeds from the First Interstate Bank of Texas debt were used to
extinguish existing debt on certain aircraft. This resulted in a gain of
$2.1 million which has been accounted for as an extraordinary item net of
income tax effect of approximately $0.8 million. During 1994, certain notes
were refinanced resulting in a gain of $0.7 million accounted for as an
extraordinary item net of income tax effect of approximately $0.3 million.
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Principal maturities of long-term debt and capital leases for each of the
next five years are as follows:
Year ending September 30:
----------------------------------
(in thousands)
1996 $ 8,283
1997 8,501
1998 8,648
1999 8,576
2000 8,394
=======
6. Income Taxes
Income tax expense consists of the following:
September 30
1995 1994 1993
-----------------------------------
Current: (in thousands)
Federal $ 6,899 $ 8,679 $ 5,367
State 1,617 1,462 1,305
-----------------------------------
8,516 10,141 6,672
-----------------------------------
Deferred:
Federal 399 5,627 6,606
State 94 948 2,025
-----------------------------------
493 6,575 8,631
-----------------------------------
Total income tax expense $ 9,009 $16,716 $15,303
===================================
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The actual income tax expense differs from the "expected" tax expense (computed
by applying the U.S. federal corporate income tax rate of 35 percent in 1995 and
1994 and 34.75 percent in 1993 to earnings before income taxes and extraordinary
item) as follows:
September 30
1995 1994 1993
-----------------------------------------
(in thousands)
Computed "expected" tax expense $ 8,058 $ 15,397 $ 14,018
Increase (reduction) in income taxes resulting from:
Intangibles 8 97 --
Investment tax credits -- -- (1,264)
Tax exempt interest (112) (505) (541)
State taxes, net of federal tax benefit 951 1,319 2,065
Other 104 408 1,025
----------------------------------------
Total income tax expense $ 9,009 $ 16,716 $ 15,303
========================================
Elements of deferred income tax assets (liabilities) are as follows:
September 30
Deferred tax assets: 1995 1994
------------------------
(in thousands)
Inventory, parts, and equipment reserves $ 1,380 $ 963
Accrued expenses 1,287 730
Deferred credit 3,345 2,484
Other (390) 1,062
WestAir investment tax credit carryover 1,627 1,788
AMT credit carryover 12,290 13,154
Unrealized holding gain on marketable securities (8,700) (5,951)
Benefit of net operating loss and tax credit carry forwards 3,091 5,482
------------------------
13,930 19,712
Valuation allowance (3,000) (4,000)
------------------------
Net deferred tax assets 10,930 15,712
Deferred tax liabilities
Depreciation and tax capital lease differences (39,391) (40,961)
------------------------
Net deferred taxes $(28,461) $(25,249)
========================
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37
The sources of deferred income tax (benefit) and its tax effects are as follows:
September 30
1993
--------------
(in thousands)
Excess of tax capital lease expense
over book operating lease expense $ 5,509
Excess of tax over book gain on sale of
flight equipment (3,591)
Difference in tax and book treatment for
integration support --
Excess of tax over book depreciation 9,140
Write-off of certain assets (2,241)
Benefit of deferred income taxes resulting (226)
from investment tax credit carryforward
Other, net 40
-------
$ 8,631
=======
Deferred tax assets include benefits estimated to be realized from the
utilization of net operating loss carryforwards of $1.9 million, which
expire from 2003 through 2006. Tax benefits from the loss carryforwards,
which were obtained in the acquisition of Air Midwest, net of valuation
allowance, have been recorded as a reduction of intangibles. Management
believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net
deferred tax assets. In addition, Mesa has $3.8 million in the credit
carryforwards which expire in 1997 through 2005.
Mesa's U.S. Federal income tax returns for the tax years ended September
30, 1990, 1991, and 1992 are being examined by the IRS. A final report of
proposed adjustments, including a tax assessment of approximately $4
million has been received from the IRS. Although the ultimate outcome of
the examination cannot be predicted with certainty, management is of the
opinion that adequate provision has been made in the financial statements
for the estimated impact, if any, of the examination.
7. Stockholders' Equity
On September 28, 1990, Mesa adopted a non-incentive stock option plan under
which the maximum number of shares of stock that may be allocated under the
plan is 1,170,000 shares. In addition, a directors' non-incentive stock
option plan was adopted in which directors were granted stock options for
360,000 shares. Both of these plans expired September 28, 1995.
On June 2, 1992, Mesa adopted an additional employee stock option plan
which provides for the granting of options to purchase up to 2,250,000
shares of Company common stock at the fair market value on the date of
grant. Under this plan, 1,999,481 shares have been granted.
In March 1993, Mesa adopted a directors' stock option plan for outside
directors. This plan provides for the grant of options for up to 800,000
shares of Mesa's common stock at fair market value on the date of grant.
This is a formula-based plan under which 100,000 options have been granted.
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On December 9, 1994, Mesa adopted an additional directors' stock option plan for
outside directors. This plan provides for the grant of options for up to 50,000
shares of Mesa's common stock at fair market value on the date of grant. This is
a formula-based plan under which 12,000 options have been granted.
Transactions in stock options under these plans are summarized as follows:
Shares under Exercisable
options Price range shares
------------------------------------------------------
Outstanding at September 30, 1992 2,749,342 $ 1.67 - $ 7.34 590,046
Granted 155,000 $12.50 - $19.25
Exercised (501,801) $ 1.11 - $ 7.34
Canceled (183,268) $ 7.09
Outstanding at September 30, 1993 2,219,273 $ 1.34 - $19.25 1,124,042
Granted 658,400 $ 7.25 - $17.25
Exercised (534,129) $ 1.34 - $12.75
Canceled (118,324) $ 1.40 - $ 7.34
Outstanding at September 30, 1994 2,225,220 1,099,318
Granted 273,200 $ 6.00 - $ 8.38
Exercised (687,487) $ 1.34 - $ 7.75
Canceled (185,867) $ 7.09 - $17.25
Outstanding at September 30, 1995 1,625,066 946,204
At September 30, 1995, there were 988,519 shares of common stock available
for grant under these plans.
On March 16, 1993, Mesa effected a two-for-one stock split of its common
stock. All references to number of shares and per,share computations in the
financial statements and notes have been retroactively restated to reflect
the splits.
At its December 1, 1995 meeting, the Board of Directors of Mesa approved a
stock buy-back program under which cash generated by operations may be used to
repurchase Mesa common stock. During the initial phase of the program, Mesa may
repurchase shares having a value of up to $30 million. The Board's intent is
that available cash not required for working capital, general corporate purposes
or other investment opportunities be used to repurchase Mesa common stock.
8. Benefit Plans
Mesa and WestAir have 401(k) plans under which employees may contribute up
to 15 percent of their annual compensation, as defined. Mesa and WestAir
currently make matching contributions of 50 percent of employees
contributions up to 10 percent. To be eligible to participate in their
respective plans, employees must be at least 21 years of age, have a
minimum of one year of service with Mesa and have worked at least 1,000
hours. These plans are not available to certain union employees. Upon
completing three years' service, the employee is 20 percent vested in
employer contributions and the remainder of the employer contributions vest
20 percent per year. The employees become fully vested in employer
contributions after seven years of employment. Mesa has the right to
terminate the 401(k) plan at any time.
Contributions by Mesa to the above plans for the years ended September 30,
1995, 1994 and 1993 were $1,097,023, $894,633 and $469,332, respectively.
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In September 1995, a new management incentive program was approved by the
Board of Directors of Mesa. This new program replaced the old management
incentive bonus program, which allowed a total bonus allocation of up to 10
percent of Mesa's earnings before income taxes, subject to annual review by
the Board of Directors. The new management incentive program raised the
salaries of executives and replaced the previous bonus provision with a
plan that ties the corporate officers to an increase in the earning per
share over the previous year, and the division/subsidiary executives to a
specified rate of return on revenue. Each officer is capped as to the
maximum amount of money that can be made in a given year. Total management
salary and bonus compensation under the new program is significantly lower
than total salary and bonus compensation under the previous program. This
reduction is intended to re replaced by a defined stock option plan
described in the following paragraph.
Another component of the new management incentive program is the issuance
of specified levels of options on an annualized basis to key executives.
The new stock option plan would provide for options which would vest
one-third per year on each consecutive anniversary date of the grant of the
options. These options will have a 10-year life and will be subject to
standard option provisions. The option plan is subject to shareholder
approval at the 1996 annual meeting of shareholders.
On March 9, 1993, Mesa adopted an Employee Stock Bonus Plan which provides
for employees of Mesa to receive shares of Common Stock in lieu of
discretionary cash bonuses accrued each quarter. The custodian of the plan
is empowered to determine the times at which and the conditions under which
the plan, on behalf of participating employees, purchases shares of Common
Stock. All purchases of Common Stock by the custodian will be made at
prices approximating fair market value on the date of purchase, subject to
the limitation that only 1,000,000 shares may be purchased over the life of
the plan. The bonuses paid under the plan for the year ended September 30,
1995, 1994 and 1993 were $541,044, $2,059,000 and $2,685,000, respectively.
Employees of Mesa who participate in Mesa's management incentive program
are not eligible to receive a stock bonus under the employee plan. As of
September 30, 1995, a total of 276,351 shares have been issued pursuant to
the plan.
9. Lease Commitments
a. Operating Leases
At September 30, 1995, Mesa leased 151 aircraft under noncancelable
operating leases with remaining terms ranging up to 14 years. The
aircraft leases require Mesa to pay all taxes, maintenance, insurance
and other operating expenses. Certain leases contain provisions which
allow for changes in rental payments based upon changes in prime
interest rates. In addition, in some leases, Mesa has the option to
terminate the leases at various times throughout the lease. Lease
deposits totaling $13.9 million have been paid to secure the leases
and are included in lease and equipment deposits on the accompanying
consolidated balance sheet at September 30, 1995.
On July 14, 1994 Mesa entered into an exchange of 12 aircraft with
Atlantic Coast Airlines ("ACA"). Under the terms of the transaction,
the sublease of 12 Embraer Brasilia aircraft by WestAir, a subsidiary
of Mesa, to ACA, was terminated and WestAir repossessed the aircraft
and incorporated them into its operation. WestAir assigned its leases
for 12 Jetstream 31 aircraft to ACA and has no continuing obligation
to the lessor of the 12 Jetstream 31 aircraft returned. In addition,
Mesa acquired approximately $3 million of Brasilia rotable parts from
ACA. At September 30, 1995 the exchange between WestAir and ACA was
complete.
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. 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
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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.
Certain lease agreements contain provisions which, among other things,
require Mesa to maintain (I) certain levels of net worth, (ii) the
code-sharing agreement between United and WestAir, and (iii) certain
debt and working capital ratios. Payment of cash dividends is also
restricted. At September 30, 1995 Mesa was in compliance with these
provisions.
In accordance with provisions of certain aircraft lease agreements,
Mesa is required to fund certain cash deposits to trustees based on
flight hours incurred for the payment of certain engine and airframe
maintenance costs of leased aircraft. In December 1990, Mesa
negotiated an agreement which suspended certain of its cash deposit
requirements. The aircraft lessors have agreed to continue to waive
the payment requirements on a month-to-month basis.
Aggregate rental expense totaled $65.6 million (net of $.8 million of
sublease income), $44.8 million (net of $8.2 million of sublease
income) and $43.8 million (net of $9 million of sublease income) for
the years ended September 30, 1995, 1994 and 1993, respectively.
Future minimum lease payments under noncancelable operating leases are
as follows:
Year Ending September 30
--------------------------------------------
(In Thousands)
1996 $ 72,742
1997 63,478
1998 60,436
1999 59,027
2000 57,500
Thereafter 303,639
10. Aircraft Acquisitions and Commitments
At September 30, 1995, Mesa had commitments to acquire 33 Beechcraft model
1900D aircraft prior to December 1, 1996. Beech Acceptance Corporation has
agreed to provide lease or debt financing, at Mesa's option. The current
purchase price is approximately $4.1 million per aircraft. Mesa has made a
$.8 million deposit for these aircraft which is included in lease and
equipment deposits at September 30, 1995 in the accompanying consolidated
balance sheet. Mesa has the option under certain specified conditions to
trade in at stipulated value its 1900C aircraft in "as is" FAR part 135
airworthy condition as new 1900D aircraft are received.
WestAir has an agreement (Embraer Agreement) (subject to purchase price
escalations) to acquire 15 Embraer Brasilia jetprop aircraft, valued at
approximately $7.4 million each at current price levels, for future
delivery and has deposits under the aircraft purchase agreements, amounting
to approximately $4 million as of September 30, 1995.
In November 1995 WestAir and Embraer Aircraft Corporation amended the
Embraer Agreement. Under the amended agreement, Mesa will acquire two
Embraer Brasilia aircraft in December 1995. Mesa has arranged financing for
these aircraft under operating leases. In addition, WestAir and Embraer
have agreed to use their best efforts to negotiate a used aircraft purchase
agreement within 90 days of November 30, 1995 under which Embraer would
acquire 13 used aircraft from WestAir in exchange for WestAir acquiring 13
new aircraft from Embraer. WestAir's obligation to take delivery of 13 new
Embraer aircraft is subject to availability of commercially reasonable
financing. Should the parties be unable to agree on a used aircraft
purchase agreement, or should commercially reasonable financing not be
available, WestAir will have no obligation to take delivery of 13
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additional aircraft. If the parties reach an agreement, the remaining 13
aircraft will be delivered beginning in August 1997 through November 1999.
On December 9, 1993, Mesa entered into a letter of intent to acquire two
Fokker 70 jet aircraft with an option for six additional aircraft. Delivery
commenced in June and July 1995. The Fokker 70 is a 78-seat aircraft valued
at approximately $23.5 million each. Under the agreement, Mesa can return
the aircraft to Fokker between 12 and 18 months after delivery subject to
six-month notification. These aircraft are financed through operating
leases with twelve-year terms providing a one-year option to terminate the
lease and return the aircraft or find other financing. Fokker is assisting
Mesa in obtaining third-party financing. As of September 30, 1995 Mesa had
made deposits under the agreement of approximately $1 million. Jet aircraft
operations have been marginal to unprofitable and have not met management's
expectations. As a result of recent operating results, management has begun
discussions with Fokker to amend the agreement. Unless current operating
results improve or Mesa is able to obtain amendments to the Fokker
agreement, it may be necessary to exercise its option to return the
aircraft. In the event Mesa decides to return the aircraft, Mesa would
incur costs of approximately $3 million.
During March 1995, Mesa entered into an agreement with Bombardier, Inc. to
acquire 25 de Havilland Dash 8-200 aircraft with deliveries beginning in
early 1996 through March 1997. Based on current expectations, the monthly
lease payments are anticipated to be in a range from approximately $69,000
to $72,000 per plane. By September 30, 1995 Mesa had traded in five
Dash-8-100 and nine Embraer Brasilia aircraft resulting in the reduction of
its fleet of 14 aircraft during fiscal 1995. The seven Dash 8-300 and four
additional Embraer Brasilia aircraft will be traded in on a one-for-one
basis as the new 25 Dash 8-200 aircraft are delivered. The last 14 Dash
8-200 aircraft to be delivered will result in an increase in Mesa's fleet
during 1996 and 1997. 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.
As part of the aircraft purchase agreement, Bombardier has committed to
purchase Dash-8-100 and Dash-8-300 parts related to aircraft being traded
in. The aircraft deposit under the purchase contract is $7.5 million and
Mesa has paid $5 million of this deposit. The remaining deposit will be
satisfied with the delivery of the aforementioned Dash-8 parts.
The Dash-8-200 aircraft purchase agreement provides for a spare parts
support program, which includes the required parts to maintain the
aircraft, excluding engines and propellers, for a period of seven years.
Mesa will pay a fixed hourly charge per flight hour estimated to be
approximately $4 million per year for the 25 Dash-8-200 aircraft.
11. Supplemental Disclosures of Cash Flow Information
SEPTEMBER 30
1995 1994 1993
-------------------------------------------------
(in thousands)
Cash paid for interest $6,354 $7,861 $ 5,366
Cash paid for income taxes $4,961 $7,148 $ 9,039
Mesa purchased property and equipment and made lease deposits upon which
debt was assumed or incurred totaling approximately $110.8 million, and
$87.6 million for the years ended September 30, 1994 and 1993,
respectively. During 1995 Mesa did not purchase any property or equipment
upon which debt was assumed.
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12. Commitments and Contingencies
As of December 1, 1995, Mountain West, FloridaGulf and Liberty Express
pilots voted to join Air Line Pilots Association (ALPA). Mesa is currently
negotiating a definitive contract with Mountain West pilots and is in
federal mediation. Negotiations for FloridaGulf and Liberty Express pilots
have not begun. Westair and Air Midwest pilots are also represented by ALPA
and WestAir pilots are currently in federal mediation regarding their
contract negotiations. Air Midwest mechanics are represented by the
International Association of Machinists (IAM) and WestAir flight attendants
are represented by the Association of Flight Attendants (AFA). During the
current year, Mountain West flight attendants voted to join AFA and are in
contract negotiations. No Mesa Air Group divisions or subsidiaries are
parties to any other collective bargaining agreement or union contracts.
The FAA anticipates enacting rules which would require commuter airlines
with aircraft of 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 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. If in some regional air service markets
where these expenditures cannot be supported by 19 passenger aircraft, Mesa
may be forced to reduce service in these operations. Mesa does not
anticipate the enactment of these rules to have a material adverse effect
on Mesa's financial position.
The fuel tax exemption expired September 30, 1995. If no additional
legislation is passed to extend the exemptions, the total impact on Mesa
would be an additional fuel cost during fiscal 1996 of approximately $3
million based on estimated fuel consumption. The company would attempt to
recover these additional costs through increased fares, which could result
in reduced load factors.
WestAir Commuter Airlines, Inc. and the Airline Pilot's Association
International (ALPA) are engaged in alleged unlawful misconduct litigation
against each other. Each party seeks injunctive relief and monetary damages.
Discovery is still in early stages; therefore, the relative strengths and
weaknesses of the litigation is not sufficient to project the ultimate outcome.
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 has 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
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any indemnification agreements between the Company and its officers and
directors, disgorgement to Mesa of any profits received on stock sales, and
attorneys' fees.
Discovery has not sufficiently progressed to a point enabling Mesa to make
any assessment as to liability, damages or prospect of settlement in either
the consolidated class action or the derivative litigation. Mesa and the
corporate officers and directors deny the allegations made against them and
intend to defend the lawsuits vigorously.
Mesa is also a party to legal proceedings and claims which arise during the
ordinary course of business.
In the belief of management, based upon information known at this time, the
ultimate outcome of these proceedings and claims pending against Mesa is
not expected to have a material adverse effect on Mesa's financial
position.
13. Financial Instrument Disclosure
The carrying amount of cash and cash equivalents, receivables, notes
receivable and accounts payable approximate fair value due to the short
maturity periods of these instruments. The fair value of marketable
securities is based on quoted market prices (see note 2).
Substantially all of Mesa's long-term debt bears interest at rates which
fluctuate with market rates and therefore the carrying amounts approximate
fair value.
14. Valuation and Qualifying Accounts
Balance at beginning Additions charged Balance at end
of year to costs & expenses Deductions of year
-------------------- -----------------f-- ---------- --------------
Allowance for obsolescence
deducted from expendable
parts and supplies
September 30, 1995 1,695 -- 495 1,200
September 30, 1994 1,250 600 155 1,695
During fiscal year 1995, $495,000 of allowance for obsolesence was
transferred to Other Assets.
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15. Selected Quarterly Financial Data (Unaudited)
The following table presents selected quarterly unaudited financial data
(in thousands):
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
Operating revenues $101,828 $106,435 $117,925 $128,350
Operating income 5,779 2,264 7,141 14,388
Net earnings 2,745 63 3,615 7,589
Net earnings per share $ .08 $ .00 $ .11 $ .23
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
Operating revenues $ 92,463 $ 93,793 $101,818 $108,060
Operating income 13,093 10,504 12,730 12,047
Earnings before extraordinary item 7,839 6,293 7,247 5,897
Extraordinary item 412 -- -- --
Net earnings 8,251 6,293 7,247 5,897
Earnings per share:
Earnings before extraordinary item $ .21 $ .17 $ .20 $ .17
Extraordinary item .01 -- -- --
Net earnings $ .22 $ .17 $ .20 $ .17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the names and ages of the directors, executive
officers and other significant members of management of Mesa and certain
additional information:
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
Larry L. Risley(1) 51 Chief Executive Officer 1983
and Chairman of the Board of Directors of
Mesa Air Group
Clark Stevens 45 Director, President of Mesa Air Group, Inc., 1995
and Chief Operating Officer
Blaine M. Jones 41 Director 1985
E. Janie Risley(1) 49 Director 1983
George W. Pennington 67 Director 1986
Richard C. Poe 61 Director 1986
Jack Braly 54 Director 1993
W. Stephen Jackson 48 Chief Financial Officer, ----
Treasurer and Vice President of Finance
Gary E. Risley(1) 37 Secretary, Vice President of Legal ----
Affairs and General Counsel
Michael L. Ferverda 51 Vice President of Airline Operations ----
Grady H. Reed III 53 Vice President of Safety ----
Charles A. Miller 53 Vice President of Maintenance ----
Michael S. Lewis 38 President of Mountain West Airlines ----
Roland G. Bergeson 54 President of WestAir Holding, Inc. ----
Archille D. Paquette 52 President of Air Midwest, Inc. and FloridaGulf Airlines ----
George Lippemier 54 President of Desert Sun Airlines ----
Robert Dynan 39 President of Liberty Express Airlines ----
(1) Larry L. and E. Janie Risley are husband and wife and Larry L. Risley is
Gary E. Risley's uncle.
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The directors hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Mesa pays each director who is
not an officer of Mesa a nominal fee for each meeting of the Board of Directors
attended and reimburses expenses incurred in attending meetings.
LARRY L. RISLEY is Chief Executive Officer and Chairman of the Board of
Directors of Mesa, positions he has held since Mesa was incorporated in 1983. He
served as President of Mesa from 1983 until February 1995. From April 1979 until
August 1982, Mr. Risley was President of Mesa Aviation Services, Inc., the fixed
base operator at Farmington, New Mexico.
E. JANIE RISLEY is a member of Mesa's Board of Directors. From August 1982 until
June 1990, Ms. Risley was Executive Vice President and Vice President
responsible for personnel management, reservations, and station operations.
LARRY L. RISLEY and E. Janie Risley are husband and wife.
CLARK STEVENS was named President of Mesa Air Group, Inc. in February 1995. He
served as President of FloridaGulf since February 1993. From December 1992 to
February 1993, Mr. Stevens served as Vice President-DFW Division with Simmons
Airlines dba American Eagle. From September 1990 to December 1992, he served as
Executive Vice President of Metroflight, Inc. dba American Eagle ("Metro"). In
1991, Metro filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code. Metro emerged from Bankruptcy during 1992. Prior to his
service at Metro, from August 1975 to September 1990, Mr. Stevens served as
President of Chaparral Airlines, Inc.
BLAINE M. JONES is a member of the Board of Directors. Prior to his resignation
from Mesa in March 1995, Mr. Jones held the position of President of Mountain
West since July 1994 and Chief Financial Officer from April 1985 through March
1994 and Treasurer from December 1985 through July 1994.
GEORGE W. PENNINGTON has been a director of Mesa since January 1986. Mr.
Pennington is President of Farmer Family Center, Inc., a retail supermarket;
President of REDROX, Inc., a real estate development company; and general
partner of Pennington Partnerships, a real estate development company, all
located in Bloomfield, New Mexico.
RICHARD C. POE has been a director of Mesa since January 1986. He has been
President and Chief Executive Officer of Dick Poe Chrysler-Plymouth, Inc. since
1962 and of Dick Poe Pontiac-Toyota, Inc. since 1980. He is also a director of M
Bank, El Paso, Texas.
JACK BRALY was appointed as director of Mesa on December 6, 1993. Mr. Braly is
currently serving as Vice President and General Manager -- North American
Aircraft Modification of Rockwell International Corporation. He served as the
President of Beech Aircraft Corporation from March 1991 until July 1993. Mr.
Braly began with Beech in 1978 and worked in various management positions
including Vice President of Operations and Vice President of Manufacturing until
becoming President in March 1991.
GARY E. RISLEY is Secretary, Vice President of Legal Affairs and General Counsel
for Mesa. He has held the position of General Counsel since September 1987 and
the position of Corporate Secretary since March 1988. He has served as Vice
President of Legal Affairs since February 1989. Mr. Risley is the nephew of
Larry L. Risley, Chief Executive Officer and Chairman of the Board of Mesa.
W. STEPHEN JACKSON, a Certified Public Accountant, was appointed Chief Financial
Officer of Mesa Air Group, Inc. in March 1994. In July 1994 he assumed the
additional responsibilities of Treasurer and Vice President of Finance.
Immediately prior to joining Mesa Air Group, Inc., Mr. Jackson was President of
WSJ Development Company, a financial consulting and real estate development
firm. Before that, Mr. Jackson was a partner at KPMG Peat Marwick serving
clients for over twenty years in the transportation, financial institution, real
estate and high technology industries.
MICHAEL L. FERVERDA is currently Vice President of Airline Operations for Mesa
Air Group, Inc. Prior to that he served as Vice President of Flight Operations
for the Mountain West division from 1994 to 1995. Ferverda joined Mesa in 1990
as a captain and subsequently served in various positions including flight
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instructor, check airman and assistant chief pilot until 1992 when he assumed
the position of Director of Flight Operations. He served as Director of Flight
Operations until 1994 upon promotion to Vice President of Flight Operations of
Mountain West.
GRADY H. REED III was appointed Vice President of Safety in March 1995 and
served as Vice President of Operations of Mesa from November 1989. His title
changed to Vice President of Airline Operations in August 1990. From December
1988 to November 1989, Mr. Reed was Director of Maintenance, Division Manager,
at Northrop Worldwide Aircraft Services, Inc.
CHARLES A. MILLER has served as Vice President of Maintenance of Mesa since
October 1992. From January 1991 until his promotion, Mr. Miller served as
Regional Vice President of Maintenance for Air Midwest. Prior to his service at
Air Midwest, he served in the following capacities: Director of Maintenance,
Field Aircraft Atlanta, November 1989 through December 1991; Manager of Quality
Control, Atlantic Southeast Airlines, February 1989 to November 1989; Manager of
Maintenance, AAR-Oklahoma, Inc., March 1987 to February 1989.
MICHAEL S. LEWIS became President of Mountain West Airlines (formerly the Mesa
Airlines division) in 1995. Prior to being named President of Mountain West, Mr.
Lewis was the Vice President of Passenger Services for that division since 1989.
During 1987 and 1988 Lewis served as Director of Stations for Mesa.
ROLAND G. BERGESON has served as President of WestAir Holding, Inc., a
wholly-owned subsidiary of Mesa Air Group, since February 1994. Prior to
becoming President of WestAir, Mr. Bergeson served as President of Skyway
Airlines, a former division of Mesa.
ARCHILLE D. PAQUETTE was appointed President of FloridaGulf during 1995. He
still serves as President of Air Midwest as a replacement has not been
appointed. Mr. Paquette began as a first officer with Air Midwest in October
1977 and progressed through the position of President of the subsidiary.
GEORGE LIPPEMEIER became President of Desert Sun Airlines, the newly formed
Phoenix-based jet division of Mesa Air Group, Inc., in 1995. He began his career
with Mesa in 1989 working in numerous operational and management positions, and
in 1990 he became Director of Operations for several of Mesa's divisions. In
1992 Lippemeier was promoted to Vice President of Flight Operations at WestAir
Holding, Inc.
ROBERT DYNAN has served as President of Liberty Express since January 1994.
Prior to becoming President of Liberty Express, Mr. Dynan was Vice President of
Passenger Services at WestAir from October 1992 to January 1994. Prior to
service at WestAir Holding, Inc. he served as Vice President of Passenger
Services at Air Midwest, Inc. since 1989.
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Item 11. Executive Compensation
The information set forth in the 1995 Proxy Statement to shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth in the 1995 Proxy Statement to shareholders is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Mesa will enter into future business arrangements with related parties only
where such arrangements are approved by a majority of disinterested directors
and are on terms at least as favorable as available from unaffiliated third
parties.
PART IV
ITEM 14. EXHIBITS, SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as part of this report:
1. Reference is made to consolidated financial statement schedules in
item 8 hereof.
2. Reports on Form 8-K
Other events - December 15, 1994
Other events - January 17, 1995
Other events - April 5, 1995
Other events - June 16, 1995
3. Exhibits
The following exhibits are either filed as part of this report or are
incorporated herein by reference from documents previously filed with
the Securities and Exchange Commission:
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------- ----------- ---------
3.1 Restated Articles of Incorporation (as Filed herewith
amended June 26, 1990, July 9, 1990, June 25,
1992, March 25, 1993 and March 29, 1995)
3.2 Bylaws of Mesa Airlines, Inc., as amended to Filed as Exhibit 3.2 to Amendment No. 1 to
date Registrant's Form S-18, Registration No.
33-11765, filed March 6, 1987, incorporated
herein by reference
4.1 Form of Common Stock certificate Filed as Exhibit 4.5 to Amendment No. 1 to
Registrant's Form S-18, Registration No.
33-11765 filed March 6, 1987, incorporated
herein by reference
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4.2 Form of Common Stock certificate (issued Filed as Exhibit 4.8 to Form S-1, Registration
after November 12, 1990) No. 33-35556 effective December 6, 1990,
incorporated herein by reference
4.3 Incentive Stock Option Plan (as amended) Filed as Exhibit 4.9 to Form S-1, Registration
No. 33-35556 effective December 6, 1990,
incorporated herein by reference
4.4 Employee Non-Incentive Stock Option Plan Filed as Exhibit 4.10 to Form S-1, Registration
dated as of September 28, 1990 No. 33-35556 effective December 6, 1990,
incorporated herein by reference
4.5 Form of Non-Incentive Stock Option issued Filed as Exhibit 4.11 to Form S-1, Registration
under Mesa Airlines, Inc. Employee No. 33-35556 effective December 6, 1990,
Non-Incentive Stock Option Plan, dated as of incorporated herein by reference
September 28, 1990
4.6 Directors Non-Incentive Stock Option Plan, Filed as Exhibit 4.12 to Form S-1, Registration
dated as of September 28, 1990 No. 33-35556 effective December 6, 1990,
incorporated herein by reference
4.7 Form of Non-Incentive Stock Option Plan Filed as Exhibit 4.13 to Form S-1, Registration
issued under Mesa Airlines, Inc. Directors No. 33-35556 effective December 6, 1990,
Non-Incentive Stock Option Plan, dated as of incorporated herein by reference
September 28, 1990
4.8 Employee Non-Incentive Stock Option Plan, Filed as Exhibit 4.12 to Registrant's Form 10-K
dated as of June 2, 1992 for the fiscal year ended September 30, 1992,
Commission File No. 0-15495, incorporated herein
by reference
4.9 Form of Non-Incentive Stock Option Plan Filed as Exhibit 4.13 to Registrant's Form 10-K
issued under Mesa Airlines, Inc. Employee for the fiscal year ended September 30, 1992,
Non-Incentive Stock Option Plan, dated as of Commission File No. 0-15495, incorporated herein
June 2, 1992 by reference
4.10 Form of Outside Directors Stock Option Filed as Exhibit 4.11 to Registrant's Form 10-K
Plan, dated as of March 9, 1993 for the fiscal year ended September 30, 1993,
Commission File No. 0-15495 incorporated
4.11 Form of Stock Option issued under Mesa
Airlines, Inc. Outside Director's Stock Filed as Exhibit 4.12 to Registrant's Form 10-K
Option Plan, dated as of March 9, 1993 for the fiscal year ended September 30, 1993
incorporated here in by reference
10.1 Lease Agreement between Beech Acceptance Filed as Exhibit 10.8 to Registrant's Form 10-K
Corporation and Mesa Airlines, Inc., dated for the fiscal year ended September 30, 1989,
March 21, 1989, for Beechcraft 1900 UC-62 Commission File No. 0-15495, incorporated herein
by reference
10.2 Lease Agreement between Beech Acceptance Filed as Exhibit 10.11 to Registrant's Form 10-K
Corporation and Mesa Airlines, Inc., dated for the fiscal year ended September 30, 1989,
March 21, 1989, for Beechcraft 1900 UC-70 Commission File No. 0-15495, incorporated herein
by reference
10.3 Amendment to Lease Agreements between Beech Filed as Exhibit 10.11 to Form S-1, Registration
Acceptance Corporation and Mesa Airlines, No. 33-35556 effective December 6, 1990,
Inc., dated August 31, 1989 incorporated herein by reference
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10.4 Agreement between Beech Acceptance Filed as Exhibit 10.17 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
August 4, 1989 incorporated herein by reference
10.5 Lease Agreement between Beech Acceptance Filed as Exhibit 10.20 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
November 22, 1989, for Beechcraft 1900 UC-88 incorporated herein by reference
10.6 Lease Agreement between Beech Acceptance Filed as Exhibit 10.21 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
December 19, 1989, for Beechcraft 1900 UC-91 incorporated herein by reference
10.7 Lease Agreement between Beech Acceptance Filed as Exhibit 10.22 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
January 30, 1990, for Beechcraft 1900 UC-93 incorporated herein by reference
10.8 Lease Agreement between Beech Acceptance Filed as Exhibit 10.23 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
February 5, 1990, for Beechcraft 1900 UC-85 incorporated herein by reference
10.9 Lease Agreement between Beech Acceptance Filed as Exhibit 10.24 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
March 15, 1990, for Beechcraft 1900 UC-90 incorporated herein by reference
10.10 Lease Agreement between Beech Acceptance Filed as Exhibit 10.25 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
April 26, 1990, for Beechcraft 1900 UC-112 incorporated herein by reference
10.11 Lease Agreement between Beech Acceptance Filed as Exhibit 10.27 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
April 26, 1990, for Beechcraft 1900 UC-106 incorporated herein by reference
10.12 Lease Agreement between Beech Acceptance Filed as Exhibit 10.28 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
April 26, 1990, for Beechcraft 1900 UC-111 incorporated herein by reference
10.13 Lease Agreement between Beech Acceptance Filed as Exhibit 10.29 to Form S-1, Registration
Corporation and Mesa Airlines, Inc., dated No. 33-35556 effective December 6, 1990,
April 26, 1990, for Beechcraft 1900 UC-109 incorporated herein by reference
10.14 Lease Agreement between Beech Acceptance Filed as Exhibit 10.29.1 to Form S-1,
Corporation and Mesa Airlines, Inc., dated Registration No. 33-35556 effective December 6,
June 22, 1990, for Beechcraft 1900 UC-115 1990, incorporated herein by reference
10.15 Lease Agreement between Beech Acceptance Filed as Exhibit 10.29.2 to Form S-1,
Corporation and Mesa Airlines, Inc., dated Registration No. 33-35556 effective December 6,
June 22, 1990, for Beechcraft 1900 UC-119 1990, incorporated herein by reference
10.16 Lease Agreement between Beech Acceptance Filed as Exhibit 10.29.3 to Form S-1,
Corporation and Mesa Airlines, Inc., dated Registration No. 33-35556 effective December 6,
August 24, 1990, for Beechcraft 1900 UC-118 1990, incorporated herein by reference
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10.17 Agreement between Beech Aircraft Corporation Filed as Exhibit 10.30 to Form S-1, Registration
and Mesa Airlines, Inc., dated April 30, 1990 No. 33-35556 effective December 6, 1990,
incorporated herein by reference
10.18 Sublease Agreement between Air Midwest, Inc. Filed as Exhibit 10.32.1 to Form S-1,
and Mesa Airlines, Inc., dated April 27, 1990 Registration No. 33-35556 effective December 6,
for Embraer Brasilia aircraft 120.180 1990, incorporated herein by reference
10.19 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.2 to Form S-1,
Finance Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective December 6,
dated April 27, 1990, for Embraer Brasilia 1990, incorporated herein by reference
aircraft 120.180
10.20 Agreement between Air Midwest, Inc. and Mesa Filed as Exhibit 10.32.3 to Form S-1,
Airlines, Inc., dated February 27, 1990, for Registration No. 33-35556 effective December 6,
purchase of four Embraer Brasilia aircraft 1990, incorporated herein by reference
10.21 Letter Agreement between McDonnell Douglas Filed as Exhibit 10.32.4 to Form S-1,
Finance Corporation, Air Midwest, Inc. and Registration No. 33-35556 effective December 6,
Mesa Airlines, Inc., dated March 19, 1990, as 1990, incorporated herein by reference
amended, regarding lease and sublease of four
Embraer Brasilia aircraft
10.22 Sublease Agreement between Air Midwest Inc. Filed as Exhibit 10.32.5 to Form S-1,
and Mesa Airlines, Inc., dated July 26, 1990, Registration No. 33-35556 effective December 6,
for Embraer Brasilia aircraft 120.193 1990, incorporated herein by reference
10.23 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.6 to Form S-1,
Finance Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective December 6,
dated July 26, 1990, for Embraer Brasilia 1990, incorporated herein by reference
aircraft 120.193
10.24 Sublease Agreement between Air Midwest Inc. Filed as Exhibit 10.32.7 to Form S-1,
and Mesa Airlines, Inc., dated September 26, Registration No. 33-35556 effective December 6,
1990, for Embraer Brasilia aircraft 120.203 1990, incorporated herein by reference
10.25 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.8 to Form S-1,
Finance Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective December 6,
dated September 26, 1990, for Embraer 1990, incorporated herein by reference
Brasilia aircraft 120.203
10.26 Agreement of Purchase and Sale of Assets Filed as Exhibit 10.33 to Form S-1, Registration
between Aspen Airways, Inc. and Mesa No. 33-35556 effective December 6, 1990,
Airlines, Inc., dated December 22, 1989, as incorporated herein by reference
amended
10.27 Expanded Partner Agreement between United Air Filed as Exhibit 19.3 to Registrant's Form 10-Q
Lines, Inc., and Mesa Airlines, Inc., dated for the quarterly period ended June 30, 1990,
February 15, 1990 Commission File No. 0-15495, incorporated herein
by reference
10.28 Management Incentive Program Filed as Exhibit 10.40 to Form S-1, Registration
No. 33-35556 effective December 6, 1990,
incorporated herein by reference
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10.29 Form of Directors' and Officers' Filed as Exhibit 10.41 to Form S-1, Registration
Indemnification Agreement No. 33-35556 effective December 6, 1990,
incorporated herein by reference
10.31 Agreement Relating to the Settlement of Filed as Exhibit 10.45 to Form S-1, Registration
Interline Accounts through Airlines Clearing No. 33-35556 effective December 6, 1990,
House, Inc., between Airlines Clearing House, incorporated herein by reference
Inc. and Mesa Airlines, Inc., dated September
2, 1981
10.32 Agreement between Beech Aircraft Corporation Filed as Exhibit 10.42 to Form 10-K for fiscal
and Mesa Airlines, Inc., dated September 18, year ended September 30, 1991, Commission File
1991 No. 0-15495, incorporated herein by reference
10.33 Agreement between USAir, Inc. and Air Filed as Exhibit 10.43 to Form 10-K for fiscal
Midwest, Inc. year ended September 30, 1991, Commission File
No. 0-15495, incorporated herein by reference
10.34 Agreement between USAir, Inc. and FloridaGulf Filed as Exhibit 10.44 to Form 10-K for fiscal
Airlines, Inc. year ended September 30, 1991, Commission File
No. 0-15495, incorporated herein by reference
10.35 Sublease agreement between Trans States Filed as Exhibit 10.45 to Form 10-K for fiscal
Airlines, Inc. and Air Midwest, Inc. year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.36 Agreement for sale of assets to Express Filed as Exhibit 10.46 to Form 10-K for fiscal
Airlines I, Inc. and Air Midwest, Inc. year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.37 Agreement between Beech Aircraft Corporation, Filed as Exhibit 10.47 to Form 10-K for fiscal
Beech Acceptance Corporation, Inc. and Mesa year ended September 30, 1992, Commission File
Airlines, Inc., dated August 21, 1992 No. 0-15495, incorporated herein by reference
10.38 Agreement between America West Airlines, Inc. Filed as Exhibit 10.48 to Form 10-K for fiscal
and Mesa Airlines, Inc. year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.39 Agreement between United Air Lines, Inc. and Filed as Exhibit 10.49 to Form 10-K for fiscal
WestAir Commuter Airlines, Inc. (WestAir) year ended September 30, 1992, Commission File
No. 0-15495, incorporated herein by reference
10.40 Plan and Agreement to Merge between Mesa Filed as Exhibit A to Form S-4 Registration No.
Airlines, Inc., Mesa Acquisition Corporation 33-45638, effective April 17, 1992, incorporated
and WestAir Holding, Inc., dated February 7, herein by reference
1992.
10.41 Certificate of Public Convenience and Filed as Exhibit 10.1(a) to WestAir Holding,
Necessity for WestAir Commuter Airlines, Inc. Inc.'s Registration Statement on Form S-1,
Commission File No. 33-24316, incorporated
herein by reference
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10.42 Air Carrier Operating Certificate for WestAir Filed as Exhibit 10. to WestAir Holding, Inc.'s
Registration Statement on Form S-1, Commission
File No. 33-24316, incorporated herein by
reference
10.43 Aircraft Purchase Agreement between Filed as Exhibit 10.13 to WestAir Holding,
Embraer-Empresa Brasileira de Aeronautica Inc.'s Registration Statement on Form S-1,
S.A. ("Embraer") and WestAir, dated January Commission File No. 33-24316, incorporated
31, 1985 (No. 361-COI/85) herein by reference
10.44 Aircraft Purchase Agreement between Embraer Filed as Exhibit 10.14 to WestAir Holding,
and WestAir, dated January 31, 1985 (No. Inc.'s Registration Statement on Form S-1,
362-COI/85) Commission File No. 33-24316, incorporated
herein by reference
10.45 Aircraft Purchase Agreement between Embraer Filed as Exhibit 10.15 to WestAir Holding,
and WestAir, dated October 29, 1987 (No. Inc.'s Registration Statement on Form S-1,
111-COV/87), as amended by Letter of Commission File No. 33-24316, incorporated
Agreement dated as of October 29, 1987 and a herein by reference
Letter of Agreement dated as of June 13, 1988
10.46 Original Agreement to Lease dated as of April Filed as Exhibit 10.44 to WestAir Holding,
27, 1987 between NPA, Inc. ("NPA") and Inc.'s Registration Statement on Form S-1,
British Aerospace, Inc. ("BAe") with a Letter Commission File No. 33-24316, incorporated
to FG Holdings, Inc. ("FGH") dated March 11, herein by reference
1988 and Amendment No. 1 to Agreement to
Lease dated as of March 3, 1988 between BAe
and FGH
10.47 Side Letter Agreement to NPA from JACO dated Filed as Exhibit 10.48 to WestAir Holding,
June 4, 1987 Inc.'s Registration Statement on Form S-1,
Commission File No. 33-24316, incorporated
herein by reference
10.48 Employment Agreement dated as of September 1, Filed as Exhibit 10.51(a) to WestAir Holding,
1988 between WestAir and Timothy P. Flynn Inc.'s Registration Statement on Form S-1,
Commission File No. 33-24316, incorporated
herein by reference
10.49 Employment Agreement dated as of September 1, Filed as Exhibit 10.51(b) to WestAir Holding,
1988 between WestAir and Maurice J. Gallagher Inc.'s Registration Statement on Form S-1,
Jr. Commission File No. 33-24316, incorporated
herein by reference
10.50 Aviation Land and Building Lease and Filed as Exhibit 10.164 to the Pre-effective
Agreement between City of Fresno, California Amendment No. 1, filed October 19, 1988, to
and WestAir dated January 7, 1986 WestAir Holding, Inc.'s Registration Statement
on Form S-1, Commission File No. 33-24316,
incorporated herein by reference
10.51 Airport Operating Permit between Airport Filed as Exhibit 10.67 to WestAir Holding,
Commission of City and County of San Inc.'s Registration Statement on Form S-1,
Francisco and WestAir Commission File No. 33-24316, incorporated
herein by reference
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10.52 Purchase Agreement No. 158-COV/88 between Filed as Exhibit 10.73(a) to WestAir Holding,
Embraer and WestAir, dated as of October 28, Inc.'s Amendment No. 1 to Form 8-K filed January
1988 25, 1989, Commission File No. 33-24316,
incorporated herein by reference
10.53 Letter Agreement (I) between Embraer and Filed as Exhibit 10.73(b) to WestAir Holding,
WestAir Inc.'s Form 8-K filed December 6, 1988,
Commission File No. 33-24316, incorporated
herein by reference
10.54 Letter Agreement (II) between Embraer and Filed as Exhibit 10.73(c) to WestAir Holding,
WestAir Inc.'s Amendment No. 1 to Form 8-K filed January
25, 1989, Commission File No. 33-24316,
incorporated herein by reference
10.55 Letter Agreement (III) between Embraer and Filed as Exhibit 10.73(c) to WestAir Holding,
WestAir Inc.'s Amendment No. 1 to Form 8-K filed January
25, 1989, Commission File No. 33-24316,
incorporated herein by reference
10.56 Letter Agreement (IV) between Embraer and Filed as Exhibit 10.73(b) to WestAir Holding,
WestAir Inc.'s Form 8-K filed December 6, 1988,
Commission File No. 33-24316, incorporated
herein by reference
10.57 Letter Agreement (V) between Embraer and Filed as Exhibit 10.73(b) to WestAir Holding,
WestAir Inc.'s Form 8-K filed December 6, 1988,
Commission File No. 33-24316, incorporated
herein by reference
10.58 Promissory Note to Textron for spare parts as Filed as Exhibit 10.80 to WestAir Holding,
executed by WestAir, dated December 30, 1988 Inc.'s Form 10-K dated December 31, 1988,
Commission File No. 33-24316, incorporated
herein by reference
10.59 Agreement to lease Jetstream model 3101 Filed as Exhibit 2.1 to WestAir Holding, Inc.'s
aircraft and Jetstream model 3201 aircraft Form 8-K filed June 8, 1989, Commission File No.
between BAe and WestAir, dated May 11, 1989 33-24316, incorporated herein by reference
10.60 Amendment to Agreement to Lease dated May 11, Filed as Exhibit 10.38 to WestAir Holding,
1989 between WestAir and BAe, dated February Inc.'s Form 10-K for the year ended December 31,
15, 1990 1989, Commission File No. 33-24316, incorporated
herein by reference
10.61 Amended and Restated Stock Purchase Filed as Exhibit 10.42(a) to WestAir Holding,
Agreement, dated September 30, 1991 among Inc.'s Form 10-K for the year ended December 31,
WestAir Holding, Inc., WestAir Commuter 1991, Commission File No. 33-24316, incorporated
Airlines, Inc. and Atlantic Coast Airlines, herein by reference
Inc., relating to the sale of the Atlantic
Coast division of WestAir Commuter Airlines,
Inc.
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10.62 Operating Agreement, dated October 15, 1991, Filed as Exhibit 10.42(b) to WestAir Holding,
between WestAir and Atlantic Coast Airlines, Inc.'s Form 10-K for the year ended December 31,
relating to the operation of Atlantic Coast 1991, Commission File No. 33-24316, incorporated
Airlines, Inc. pending receipt by Atlantic herein by reference
Coast Airlines, Inc. of governmental
licenses, certificates and authority
10.63 Escrow Agreement, dated October 15, 1991, Filed as Exhibit 10.42(c) to WestAir Holding,
between Atlantic Coast Airlines, Atlantic Inc.'s Form 10-K for the year ended December 31,
Coast Airlines, Inc., British Aerospace, 1991, Commission File No. 33-24316, incorporated
Inc., Jet Acceptance Corporation, WestAir herein by reference
Commuter Airlines, Inc., WestAir Holding,
Inc. and Daugherty, Bradford & Fowler,
relating to the deposit and distribution of
aircraft subleases, airport consents and
other material documents relating to
operations of the Atlantic Coast division
10.64 Option Agreement, dated September 30, 1991, Filed as Exhibit 10.42(d) to WestAir Holding,
between WestAir Holding, Inc. and Atlantic Inc.'s Form 10-K for the year ended December 31,
Coast Airlines providing for the grant of 1991, Commission File No. 33-24316, incorporated
options to purchase up to 10 Embraer model herein by reference
EMB-120 Brasilia aircraft
10.65 Agreement of Purchase and Sales of Assets by Filed as Exhibit 10.90 to Mesa Airlines, Inc.
and among Crown Airways, Inc., Phillip R. Form 10-K for the year ended September 30, 1994,
Burnaman, A. J. Beiga and Mesa Airlines, Commission File No. 0-15495
Inc., dated as of December 16, 1993
10.66 Supplemental Agreement No. 9/03/94 Filed as Exhibit 10.66 to Mesa Airlines, Inc.
Beechcraft 1900 D Airliner Acquisition Master Form 10-K for the year ended September 30, 1994,
Agreement between Mesa Airlines, Inc., Beech Commission File No. 0-15495
Aircraft Corporation and Beech Acceptance
Corporation, Inc., dated as of September 23,
1994
10.67 Form of Lease Agreement between Beech Filed as Exhibit 10.67 to Mesa Airlines, Inc.
Acceptance Corporation, Inc. and Mesa Form 10-K for the year ended September 30, 1994,
Airlines, Inc., negotiated September 30, Commission File No. 0-15495
1994 for all prospective 1900 D Airliner
leases.
10.68 Asset Purchase Agreement dated July 29, 1994 Filed as Exhibit 10.68 to Mesa Airlines, Inc.
among Pennsylvania Commuter Airlines, Inc., Form 10-K for the year ended September 30, 1994,
dba Allegheny Commuter Airlines, USAir Commission File No. 0-15495
Leasing and Services, Inc., and Mesa
Airlines, Inc.
10.69 Letter Agreement in Principle dated as of Filed as Exhibit 10.69 to Mesa Airlines, Inc.
October 16, 1994 among Air Wisconsin, Inc., Form 10-K for the year ended September 30, 1994,
United Air Lines Inc. and Mesa Airlines, Inc. Commission File No. 0-15495
(Certain portions deleted pursuant to request
for confidential treatment) (Referred to
erroneously as Exhibit 10.94 in letter asking
for confidential treatment to Securities and
Exchange Commission dated 12-23-94 from
Chapman & Cutler)
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10.70 Subscription Agreement between AmWest Filed as Exhibit 10.70 to Mesa Airlines, Inc.
Partners, L.P. and Mesa Airlines, Inc. dated Form 10-K for the year ended September 30, 1994,
as of June 28, 1994 Commission File No. 0-15495
10.71 Omnibus Agreement Filed as Exhibit 10.71 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.72 Aircraft Purchase and Sale Agreement Filed as Exhibit 10.72 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.73 Expendable and Rotable Spare Parts and Sale Filed as Exhibit 10.73 to Mesa Air Group, Inc.
Agreement Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.74 United Express Agreement Amendment Filed as Exhibit 10.74 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.75 Side Letter Agreement Filed as Exhibit 10.75 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.76 First Amendment to Omnibus Agreement Filed as Exhibit 10.76 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.77 Operating Lease Agreement Filed as Exhibit 10.77 to Mesa Air Group, Inc.
Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.78 Item 3. Legal Proceedings - Form 10-K dated Filed as Exhibit 10.78 to Mesa Air Group, Inc.
September 30, 1994 Form 10-Q for the quarter ended December 31,
1994, Commission File No. 0-15495
10.79 Purchase Agreement B95-7701-PA-200 between Filed as Exhibit 10.79 to Mesa Air Group, Inc.
Bombardier, Inc. and Mesa Airlines, Inc. Form 10-Q for the quarter ended March 31, 1995,
Commission File No. 0-15495
10.80 Purchase Agreement Amendment No. 5 and 6 to Filed herewith
Aircraft Purchase Agreement between Embraer
Aircraft Corporation and WestAir Holding,
Inc. incorporated by reference from the Form
S-1 Registration Statement of WestAir
Holding, Inc.
21.1 Subsidiaries list of Mesa Air Group, Inc. Filed herewith
23.1 Independent Auditors' Consent of KPMG Peat
Marwick LLP dated as of December 12, 1995 Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MESA AIRLINES, INC.
By: /s/ Larry L. Risley
-------------------------------------
Larry L. Risley
Chief Executive Officer and Chairman of the Board of Directors
By: /s/ W. Stephen Jackson
-------------------------------------
W. Stephen Jackson
Chief Financial Officer, Treasurer, and Vice President of Finance
Dated: December 14, 1995
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Larry L. Risley Chairman, Chief Executive Officer, Director December 14, 1995
- --------------------------
Larry L. Risley
/s/ J. Clark Stevens President, Chief Operating Officer December 14, 1995
- --------------------------
J. Clark Stevens
/s/ Jack Braly Director December 14, 1995
- --------------------------
Jack Braly
/s/ Blaine M. Jones Director December 14, 1995
- --------------------------
Blaine M. Jones
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