Mesa Air Group, Inc. reported its first quarter fiscal 2024 financial and operating results.
First Quarter Fiscal 2024 Update:
- Total operating revenues of $118.8 million
- Pre-tax loss of $57.0 million, net loss of $57.9 million or $(1.41) per diluted share
- Adjusted net loss1 of $21.8 million2 or $(0.53) per diluted share
- Adjusted EBITDAR1 of $6.3 million
- Block hours of 46,658, an approximate 5% increase over fourth quarter fiscal 2023
- Paid down $39.2 million of debt during quarter with surplus CRJ asset sale proceeds
Developments Subsequent to Quarter End:
- As announced in January 2024, United Airlines agreed to significantly higher block-hour rate on E-175 flying
- As a result of the reduction in cargo demand, Mesa and DHL mutually agreed to wind down cargo operation as of February 2024 (3 Boeing 737-400Fs were operated for DHL)
- As part of agreement, DHL will reimburse certain costs associated with wind-down
- Pilots from the cargo operation are transitioning to operate Mesa’s E-175 aircraft
- Consistent with long-term fleet plan, initiated reduction of 12 CRJ-900s from contracted fleet by August 2024
- Launched Prescott, AZ location for Mesa Pilot Development program and increased Pipistrel training fleet to 28
- Approximately 120 pilots are currently enrolled in program
- Received 283,734 common shares for vested warrants in XTI Aerospace, Inc.
Surplus CRJ Asset Sale Updates, Subsequent to Quarter End:
- Closed on sale of twelve CF34-8C engines for gross proceeds of $54.4 million, with net proceeds of $15.9 million after debt reduction
- Received LOI for purchase of twelve additional surplus CF34-8C engines for sale price of $24.6 million, most of which will be used to pay down United States Treasury debt
- Revised purchase obligations under finance lease for 15 CRJ-900s to extend from March 2024 to May through September 2024
Jonathan Ornstein, Chairman and CEO, said, “While it has been a long road, we have successfully completed the majority of our surplus CRJ asset sales. Over the past 19 months, we have finalized approximately $390 million of CRJ asset sales, which we used to pay down approximately $265 million of debt. We are in discussions with multiple parties to address the remaining surplus assets.
Ornstein continued, “In addition to the progress we have made on debt reduction and the block-hour rate increase we negotiated with United, another significant reason for our optimism moving forward is the substantial reduction in attrition across our work groups, especially pilots. Pilot attrition has improved sequentially over the past several months, and our attrition for May 2024 is less than half of what it was a year ago. Combined with increased monthly pilot training output, we expect to see lower training expenses and better utilization of our fleet, which should lead to improved operational performance and financial results. Additionally, we are pleased to report that our Mesa Pilot Development time-building program achieved profitability in its first year of operations and has already provided Mesa with new-hire first officers. It is currently our intent to source all future new-hire pilots from Mesa Pilot Development.
“For the second fiscal quarter of 2024, we expect to report an adjusted net profit for the first time in ten quarters. We also expect to generate breakeven cash flow for the remainder of the fiscal year. As our business turns the corner, we can focus on longer-term strategic opportunities to enhance shareholder value as well as job security and career advancement for our people.”
First Quarter Fiscal 2024 Details
Total operating revenues in Q1 2024 were $118.8 million, a decrease of $28.4 million, or 19.3%, from $147.2 million for Q1 2023. Contract revenue decreased $27.4 million, or 21.3%. These decreases were primarily driven by a reduction in CRJ-900 block hours and fewer aircraft under contract. Pass-through revenue decreased by $1.0 million, or 5.6%, driven by a decrease in pass-through maintenance related to the E-175 fleet. Mesa’s Q1 2024 results include, per GAAP, the recognition of $3.0 million of previously deferred revenue, versus the recognition of $5.3 million in Q1 2023. The remaining deferred revenue balance of $18.0 million will be recognized as flights are completed over the remaining term of the United contract.
Total operating expenses in Q1 2024 were $167.2 million, an increase of $22.5 million, or 15.6%, versus Q1 2023, primarily reflecting $40.4 million of asset impairment losses related to assets held for sale. Excluding asset impairment losses, operating expenses were $126.8 million, compared to $141.0 million in Q1 2023. This result primarily reflects a $6.5 million decrease in flight operations expense to $51.8 million, driven by decreased pilot training and lower pilot wage expenses, as well as a $1.9 million decrease in depreciation and amortization expense and $2.9 million lower aircraft rent.
Mesa’s Q1 2024 results reflect a net loss of $57.9 million, or $(1.41) per diluted share, compared to a net loss of $9.1 million, or $(0.25) per diluted share, for Q1 2023. Mesa’s Q1 2024 adjusted net loss was $21.8 million, or $(0.53) per diluted share, versus an adjusted net loss of $4.3 million, or $(0.12) per diluted share, in Q1 2023.
Mesa’s Adjusted EBITDA1 for Q1 2024 was $5.1 million, compared to Adjusted EBITDA of $21.8 million for Q1 2023. Adjusted EBITDAR was $6.3 million for Q1 2024, compared to Adjusted EBITDAR of $25.9 million in Q1 2023.
First Quarter Fiscal 2024 Operating Performance
Operationally, the Company reported a controllable completion factor of 99.92% for United during Q1 2024. This is compared to a controllable completion factor of 99.96% for United during Q1 2023. Controllable completion factor excludes cancellations due to weather and air traffic control. For Q1 2024, the Company’s on-time performance within 14 minutes for arrivals was 87.6%.
For Q1 2024, approximately 96% of the Company’s total revenue was derived from its contract with United. The Company’s CPA with United provides for 80 large (70/76 seats) jets, comprising a mix of E-175s and CRJ-900s. In Q1 2024, Mesa’s fleet mix comprised 54 E-175s and 26 CRJ-900s, as well as four 737 cargo aircraft.
Above Copyright Photo: United Express-Mesa Airlines Embraer ERJ 170-200LR (ERJ 175) N88301 (msn 17000388) IAH (Jarrod Wilkening). Image: 957973.
Balance Sheet and Cash Flow
Mesa ended the December quarter with $16.1 million in unrestricted cash and cash equivalents. As of December 31, 2023, the Company had $481.0 million in total debt, secured primarily with aircraft and engines. The Company made $41.3 million of debt payments related to CRJ asset sale transactions, repaid $11.4 million of United States Treasury debt, and made $7.7 million in scheduled debt payments during the quarter. In addition, $3.0 million of the Company’s MHI debt was forgiven, and the Company drew $5.0 million from its revolving credit facility.
As of March 31, 2024, Mesa’s unrestricted cash and cash equivalents were $18.5 million.
Sustainable Aviation Equity Investments
On March 13, 2024, Mesa received 283,734 common shares of XTI Aerospace, Inc. (“XTI Aerospace”) in exchange for a portion of the equity warrants held in vertical-lift aircraft developer XTI Aircraft Company (“XTI”). XTI Aerospace was formed following the merger of XTI and Inpixon on March 12, 2024 and began publicly trading the following day. Mesa continues to hold the balance of the unvested warrants.
In addition to XTI, Mesa maintains several other investments in sustainable aviation companies. As of December 31, 2023, Mesa held 2.27 million common shares and 1.17 million unvested equity warrants3 in Archer Aviation, Inc., a developer of electric vertical takeoff and landing (eVTOL) aircraft for use in urban settings.
Mesa also holds 222,222 unvested equity warrants3 in privately-held Heart Aerospace Incorporated (“Heart”), which is developing 30-seat, hybrid-electric regional aircraft. Previously, Mesa held $5.0 million of Heart preferred stock, which it sold to United in January 2024 in exchange for the extinguishment of approximately $12.6 million of debt United held.
Additionally, Mesa has made investments in REGENT, a developer and manufacturer of all-electric passenger seagliders, and Elroy Air, which is developing autonomous aircraft systems for air cargo and other applications.
United Express-Mesa Airlines aircraft photo gallery:
