Mesa Air Group has unveiled a series of agreements with United Airlines (United) that promise to significantly enhance its operating income and liquidity over the coming year. Additionally, the company has provided an update on its efforts to reduce debt and fortify liquidity by selling excess CRJ-900 assets.
Highlights of the United agreements:
The United CPA block-hour rate will be increased, effective retrospectively from October 1, 2023, through December 31, 2024. This adjustment is anticipated to bring in approximately US$63.5 million in additional revenue over the next twelve months.
Mesa will retire US$12.6 million of outstanding debt from United's bridge loan and revolving credit facility. In return, the company will surrender its vested equity investment in privately held Heart Aerospace, originally valued at US$5.0 million. Mesa will, however, maintain ownership of 222,222 unvested “penny” warrants in Heart.
Mesa will release its equity investment in Archer Aviation common stock, which includes 2.27 million vested shares and 1.17 million unvested “penny” warrants, previously held as collateral.
Update on the CRJ-900 asset sale programme:
Mesa Air Group has successfully sold or entered into agreements to sell excess CRJ-900 aircraft and related engines since September 2023. These transactions have generated a total of US$198.0 million in gross proceeds, which have been allocated to pay down US$174.3 million in debt.
Specifically, Mesa has completed the sale of seven CRJ-900 NextGen aircraft, realising gross proceeds of US$71.2 million.
Furthermore, Mesa has successfully sold seven of the 11 previously contracted CRJ-900s, resulting in gross proceeds of US$21.0 million. Additionally, the company has entered into agreements to sell 15 CRJ-900 airframes and 65 CF34-8C5 engines to various third parties, amounting to a total of US$105.8 million in gross proceeds.
Jonathan Ornstein, Chairman and CEO, expressed his satisfaction, stating, “Following extensive negotiations spanning the past year, we have reached several agreements with United that will raise block-hour rates to the desired market levels and provide additional liquidity. We believe that these new agreements, coupled with the proceeds from our CRJ-related asset sales, position Mesa to generate significant incremental contract revenue and enhance profit margins. While the challenges persist, this stability is crucial as we continue to restore our pilot capabilities, increase fleet utilisation and boost block-hour production.”
During fiscal full-year 2023, Mesa had a peak total debt balance of US$701.3 million at the end of Q1 2023. Over the subsequent three quarters, Mesa has reduced total debt by US$161.6 million to an estimated US$539.7 million balance at the end of Q4 2023 as a result of CRJ-related asset sales and scheduled principal repayments. For fiscal full-year 2024, the company expects the completion of CRJ-related asset sale agreements currently entered into and scheduled principal repayments through Q4 2024 will reduce total debt by an additional US$225.4 million, for a projected total debt balance of US$310.3 million at fiscal year end. Of the US$310.3 million debt balance, US$158.8 million is attributable to E-175 aircraft that are pass-through to United Airlines under Mesa's CPA; US$110.7 million is U.S. Treasury debt collateralised primarily by 31 CRJ-900s; US$35.6 million is United Airlines debt collateralised with aircraft parts; and US$9.2 million is attributable to future lease obligations.
