Jet loss at Mesaba could trigger 'draconian cuts,' CEO warns

JEP

Malko In Charge
Staff member
Jet loss at Mesaba could trigger \'draconian cuts,\' CEO warns

http://www.startribune.com/stories/535/4181007.html
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Jet loss at Mesaba could trigger 'draconian cuts,' CEO warns
Liz Fedor, Star Tribune

Published October 29, 2003 MESA29

If Northwest Airlines severs its relationship with Mesaba Airlines to fly 36 regional jets, Mesaba would be forced to make "draconian cuts" to remain profitable.

That was the blunt assessment Tuesday of Paul Foley, CEO and president of MAIR Holdings, the parent of Eagan-based Mesaba. Northwest has said it intends to take bids to replace the 69-seat Avro RJ-85 jets with smaller regional jets, a move that could leave Mesaba with only the smaller Saab turboprops in its fleet.

Foley made the remarks during a conference call with analysts Tuesday as he reported net income of $3.9 million for the second quarter ended Sept. 30. Those earnings of 19 cents per share beat the First Call consensus estimates of 11 cents per share. Operating revenue for the second quarter fell by 1 percent to $117.5 million. MAIR Holdings shares closed at $6.74 per share, up 18 cents.

Mesaba risks the loss of 40 percent of its revenue if the Avro jets are taken out of service by Northwest, which pays Mesaba to fly regional routes. Northwest will announce its jet decision by Dec. 15, which has Mesaba executives scrambling to make contingency business plans for next year.


Meanwhile, the airline faces another major threat to its revenue: Mesaba pilots could go on strike sometime after the holidays.

The Air Line Pilots Association (ALPA) announced Tuesday that Mesaba pilots voted 758 to 16 to authorize a strike. "Our management frankly has done a fabulous job of unifying the pilots," said Tom Wychor, chairman of the Mesaba ALPA unit.

Mesaba pilots and management have been in negotiations since June 2001 and a federal mediator joined the talks in August 2002.

The lack of progress prompted the pilots to authorize a strike, but Wychor said a strike is not imminent, and the pilots would prefer to simply move forward and reach an agreement at the bargaining table.

In August, the pilots' union asked the National Mediation Board to make an offer of arbitration. If either side declines arbitration, the board would declare a 30-day cooling-off period. Only then would the pilots be free to strike.

The mediation board has not yet responded to the pilots' request. Industry insiders doubt a strike would occur before the holiday season.

"Our focus remains on our daily operations and on achieving a settlement at the negotiating table," Mesaba President John Spanjers said in a statement. "Our goal remains to reach an agreement without any interruption in operations, but we must achieve a contract that allows Mesaba Airlines to survive and grow amid the current industry challenges." Mesaba, one of the largest regional airlines in the country, flies to 109 cities.

While a potential pilot strike looms on the horizon, Mesaba faces an immediate financial threat because of Northwest's desire to substitute the four-engine Avros with regional jets that have lower operating costs. Mesaba, which flies 36 Avro jets and 68 Saab turboprops, provides the vast majority of MAIR Holdings revenue.

MAIR CEO Foley declined to cite specific layoff numbers if Northwest eliminates all Avro business. But, he told analysts, "We are hoping for the best and planning for the worst."

If Northwest cuts all Avro business, he said, that action "would require draconian cuts to our current operations in order to remain profitable as a Saab-only operator."

Foley said he is hopeful that Mesaba would "compete very aggressively for any replacement aircraft," in the event Northwest pulls the Avros. He also said Mesaba wants to secure future allocations of two-engine Canadair Regional Jets (CRJs). Recently, Mesaba was passed over by Northwest as the big airline allocated 34 more CRJs to Memphis-based Pinnacle Airlines in mid-September. Pinnacle's fleet of CRJs is expected to reach 129 aircraft by 2005.

Mesaba also faces new competition from another MAIR Holdings subsidiary -- Montana-based Big Sky Airlines. MAIR Holdings acquired Big Sky last year, and the small carrier now flies to four Western states with 19-seat airplanes.

"We did not buy Big Sky to fly [the 19-seat] Metros," Foley said, adding that it has approached several partners in the hopes of growing the company by acquiring regional jets for the Big Sky fleet.

ALPA's Wychor is upset that MAIR Holdings may divert expansion routes to Big Sky instead of Mesaba. "We feel they have turned their backs on commitments they made to us," Wychor said.

Liz Fedor is at

>lfedor@startribune.com.

Mesaba Holdings Inc.

(MAIR) Holding company for regional airlines Big Sky Transportation Co. and Mesaba Aviation.

2nd quarter FY2004, 9/30

2004 2003 % chng.
Revenue $117.5 $118.6 --1
Income 3.9 2.4 +65.9
Earn/ share 0.19 0.12 +58.3
6 months

Revenue $231.5 $232.0 --0.2
Income 7.4 3.9 +88.5
Earn/ share 0.36 0.19 +89.5
 

montanapilot

Well-Known Member
Re: Jet loss at Mesaba could trigger \'draconian cuts,\' CEO warns

Quote:
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"We did not buy Big Sky to fly [the 19-seat] Metros," Foley said, adding that it has approached several partners in the hopes of growing the company by acquiring regional jets for the Big Sky fleet.

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Shows what the so called "experts" know. There is no way Big Sky could handle these big of planes for the current route structure they have in place now. The only possible routes that could use that big of capacity would be Billings-Denver, Billings-Great Falls(maybe). The Montana government subsidises for all the seats that Big Sky doesn't fill for routes like Glendive, Glasgow, Wolf Point, Lewistown. The Great Falls Tribune did a study a few months ago and the average passenger load on most flights to eastern montana was about 3 people per flight and thats on a Metroliner much less a CRJ. Montana is definatly not the most populated place, our biggest city (Billings) has about 100,000 in its metro area.



*sorry to sound like airliners.net (I just like Big Sky)
 

Derg

Cap, Roci
Staff member
Re: Jet loss at Mesaba could trigger \'draconian cuts,\' CEO warns

Lemme guess, if the evil Mesaba ALPA pilots agree to cuts, all the pain will go away.
 

IrishSheepdog

Sitting in the median
Re: Jet loss at Mesaba could trigger \'draconian cuts,\' CEO warns

Talking to a Mesaba pilot a while ago, his take was that the strike will go through, but the airline will go down. I guess he feels that if they strike the CEO is fed up and will just close doors rather than fight.

Hopefully things work out for the best. Quite a pickle.
 

aceflyley

New Member
Re: Jet loss at Mesaba could trigger \'draconian cuts,\' CEO warns

Yeah, I hear what you're saying montanapilot. I flew on Big Sky from Denver to Billings and I was the only passenger on the plane (my other flights on the way to Missoula had a few people but weren't even close to being full). Getting bigger planes wouldn't make much sense.
 
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