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UNITED STATES
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, 2000
COMMISSION FILE NUMBER 0-15495
MESA AIR GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 85-0302351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 NORTH 44TH STREET, SUITE 700, PHOENIX, ARIZONA 85008
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 685-4000
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
(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. /X/ Yes / / No
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 III 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 28, 2000: Common Stock, no par value: $167.4
million.
On December 26, 2000, the Registrant had outstanding 31,823,854 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
NONE NONE
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MESA AIR GROUP, INC.
2000 FORM 10-K REPORT
TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business................................................ 3
Item 2. Properties.............................................. 11
Item 3. Legal proceedings....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..... 12
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters........... 12
Item 6. Selected Financial Data................................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 14
Item 7A. Quantitative and Qualitative Disclosure about Market
Risk.................................................... 19
Item 8. Financial Statements and Supplementary Data............. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 43
PART III
Item 10. Directors and Executive Officers of the Registrant...... 44
Item 11. Executive Compensation.................................. 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 52
Item 13. Certain Relationships and Related Transactions.......... 53
PART IV
Item 14. Exhibits, Schedules and Reports on Form 8-K............. 54
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PART I
This Form 10-K includes certain statements, including statements regarding
the Company's operations which are forward-looking statements within the meaning
of the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," or the negative of such terms and other
comparable terminology. However, this Form 10-K also contains other
forward-looking statements. Such statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which could
cause Mesa's future results to differ materially from those expressed in any
forward-looking statements made by or on behalf of Mesa. Many of such factors
are not under Mesa's ability to control or predict. Readers are cautioned not to
put undue reliance on forward-looking statements. Mesa disclaims any intent or
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS-FORWARD LOOKING STATEMENTS."
ITEM 1. BUSINESS
GENERAL
Mesa Air Group, Inc. ("Mesa" or the "Company") is a holding company whose
principle subsidiaries operate as regional air carriers providing scheduled
passenger and airfreight service, or as companies primarily in support of its
operating airlines. The Company serves over 120 cities in 38 states, the
District of Columbia, Canada, and Mexico. At September 30, 2000, the Company
operated a fleet of 134 aircraft and had approximately 1,000 daily departures.
Approximately 95% of the Company's consolidated airline revenues for the fiscal
year ended September 30, 2000, were derived from operations associated with code
share agreements with America West Airlines, Inc. ("America West") and US
Airways, Inc. ("US Airways"). These code share agreements allow use of the code
share partner's reservation system and flight designator code to identify
flights and fares in computer reservation systems, permit use of logos, service
marks, aircraft paint schemes and uniforms similar to the code share partners
and provide coordinated schedules and joint advertising. Certain of these
agreements also provide for generally favorable fixed fee and cost reimbursement
terms that mitigate certain of the economic risks inherent in the Company's
airline's operations.
In addition to carrying passengers, the Company carries freight and express
packages on its passenger flights and has interline small cargo freight
agreements with many other carriers. The Company also has contracts with the
U.S. Postal Service for carriage of mail to the cities it serves and
occasionally operates charter flights when aircraft are not otherwise used for
scheduled service.
The Company's airline operations are conducted by three airline subsidiaries
using hub-and-spoke route systems:
- - Mesa Airlines, Inc. ("MAI") operates regional jet and turboprop aircraft as
America West Express under a code share agreement with America West,
primarily at America West's Phoenix, Arizona and Columbus, Ohio hubs. It
also operates regional jets as US Airways Express under a code share
agreement with US Airways, primarily at US Airways' hubs in Philadelphia,
Pennsylvania, Charlotte, North Carolina, and at New York LaGuardia and
Washington National Airports.
- - Air Midwest, Inc. ("Air Midwest") operates Beechcraft 1900D 19-seat
turboprops as US Airways Express under three code share agreements with US
Airways at US Airways' hub operations in Pittsburgh and Philadelphia,
Pennsylvania, and at Kansas City, Missouri and Tampa, Florida. In November
2000, the Company entered in an agreement wherein Air Midwest's flights in
Kansas City will code share with Midwest Express Airlines as well as US
Airways effective in early calendar 2001. Air Midwest also operates as Mesa
Airlines from a hub in Albuquerque, New Mexico. The Albuquerque hub
operation is an "Independent Operation" and is not subject to a code
sharing agreement with a major carrier.
- - CCAIR, Inc. ("CCAIR") operates turboprop aircraft as US Airways Express
under a code share agreement with US Airways at US Airways' Charlotte,
North Carolina hub.
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Unless the context indicates otherwise, the terms "Mesa," "the "Company," "we,"
"us," or "our," refer to Mesa Air Group, Inc. and its subsidiaries.
CORPORATE STRUCTURE
Mesa is a Nevada corporation, with its principal executive office in Phoenix,
Arizona. In addition to its operating airline subsidiaries, the Company owns
WestAir Holding, Inc., a California corporation and owner of WestAir Commuter
Airlines, Inc. a California corporation ("WestAir"), that ceased operations in
1998.
The Company also has the following subsidiaries:
- MPD, Inc., a Nevada corporation, doing business as Mesa Pilot
Development operates the Company's training program for new
pilots in conjunction with San Juan College in Farmington, New
Mexico.
- Regional Aircraft Services, Inc., a Pennsylvania corporation
is a subsidiary of WestAir Holdings, Inc. and performs
aircraft component repair and overhaul services.
- Mesa Leasing, Inc., a Nevada corporation, was established to
assist in the acquisition and leasing of aircraft.
- MAGI Insurance, Ltd., a Barbados, West Indies based captive
insurance company, was established for the purpose of
obtaining more favorable liability insurance rates.
- Ritz Hotel Management Corp., a Nevada Corporation, was
established to facilitate the Company's acquisition and
management of a Phoenix area hotel property used for crew
accommodations.
- FCA, Inc. a Nevada corporation ("FCA"), previously did
business as Four Corners Aviation, a fixed based operation in
Farmington, New Mexico. During fiscal 1999, substantially all
of the assets of FCA were sold and FCA ceased operations.
AIRCRAFT IN OPERATION
The following table sets forth, as of September 30, 2000, the Company's aircraft
fleet (owned and leased) in operation by aircraft type.
CANADAIR EMBRAER
REGIONAL REGIONAL BRITISH
JET JET BEECHCRAFT DEHAVILLAND DEHAVILLAND AEROSPACE
(CRJ) (ERJ) 1900D DASH 8-100 DASH 8-200 JETSTREAM TOTAL
-------- -------- ---------- ----------- ----------- --------- ---------
USAirways Express 13 8 44 10 -- 14 89
America West Express 19 -- 5 -- 12 -- 36
Mesa Airlines (Ind. Opn.) -- -- 8 -- -- -- 8
-------- -------- ---------- ----------- ----------- --------- ---------
Total 32 8 57 10 12 14 133
======= ======= ========== =========== =========== ========= =========
As of September 30, 2000, the Company was in the process of realigning its fleet
across its operating subsidiaries. The primary objective of the fleet
realignment is to concentrate all 1900D aircraft into Air Midwest. Historically,
both MAI and Air Midwest operated 1900D aircraft, with each carrier having
separate flight operations, training and maintenance programs. As of December 1,
2000, the Company completed its fleet realignment and all of the Company's
1900D's were being operated by Air Midwest. MAI now operates the Company's
regional jet and Dash 8-200 turboprop aircraft. CCAIR operates the Company's
Jetstream and Dash 8-100 turboprop aircraft.
THE CHANGING REGIONAL AIRLINE MARKET AND CODE SHARE AGREEMENTS
Historically, the key characteristics of the regional airline market have
included:
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- Operating feeder service to major airline hubs for connecting passengers
under code share arrangements primarily in low density markets which are
generally unattractive to major airlines;
- Providing complimentary service in existing major airline markets by
operating flights in scheduling gaps between those of the major
airlines;
- Operating turboprop aircraft in support of the major airlines' jet
networks;
- Prorating revenues for connecting customers between the regional and
major airline while the regional airline operates in relative
independence with respect to local customers in the regional markets,
bearing the risks and reaping the rewards from the local customers,
generally known as " Prorate Agreements."
In recent years, new arrangements, generally known as "Contract Agreements,"
have developed between regional and major airlines. These agreements provide
that all revenues from all customers go to the major airline partner. In return,
the major airline agrees to pay predetermined fees to the regional airline for
operating specified flights at specified times, usually without regard to the
number of passengers onboard. In addition, these agreements generally provide
that certain variable costs, such as fuel and airport landing fees, be
reimbursed 100% by the major airline. These arrangements, when properly
structured, can be attractive to the regional airline in that the majority of
the economic risks are assumed by the major airline partner, leaving the
regional airline with often more predictable costs and revenues than under the
Prorate Agreements.
The Company's airline subsidiaries have agreements with America West and US
Airways to use those major carriers' designation codes (commonly referred to as
a "code share"). These code share agreements allow use of the code share
partner's reservation system and flight designator code to identify flights and
fares in computer reservation systems, permit use of logos, service marks,
aircraft paint schemes and uniforms similar to the code share partners and
provide coordinated schedules and joint advertising. The Company's passengers
traveling on flights operated pursuant to code share agreements receive mileage
credits in the respective frequent flyer programs of America West and US
Airways, and credits in those programs can be used on flights operated by the
Company. Approximately 95% of the Company's airline revenues for the year ended
September 30, 2000, were derived from operations associated with code share
agreements. The Company's subsidiaries have one code share agreement with
America West and five separate code share agreements with US Airways.
Both the America West code share agreement and the US Airways regional jet code
share agreements are Contract Agreements. Under the terms of these Contract
Agreements, the major carrier controls marketing, scheduling, ticketing, pricing
and seat inventories. The Company receives a guaranteed payment for each
departure operated and each mile flown, with certain costs, such as fuel and
landing fees, billed directly to the major partner. Among other advantages,
Contract Agreements reduce the Company's exposure to fluctuations in passenger
traffic and fare levels, as well as fuel prices.
For the fiscal year ended September 30, 2000, Mesa's America West Express
operations, all of which were operated pursuant to Contract Agreements,
represented approximately 46% of the Company's available seat mile capacity and
34% of its consolidated passenger revenue. For this same period, US Airways
Express regional jet operations, all of which were also operated pursuant to a
Contract Agreement, represented approximately 27% of the Company's available
seat mile capacity and 20% of its consolidated passenger revenue. Contract
Agreement operations accounted for approximately 73% of capacity, based on
available seat miles, and approximately 54% of passenger revenues on a
consolidated basis.
The Company's four US Airways turboprop code share agreements are Prorate
Agreements, in which the Company is allocated a portion of each passenger's fare
based on a standard industry formula and which require the Company to pay all
the costs of transporting the passenger. For the fiscal year ended September 30,
2000, US Airways Express turboprop operations represented approximately 25% of
the Company's available seat mile capacity and 41% of its consolidated passenger
revenue.
Renewal of one code share agreement with US Airways does not guarantee the
renewal of other code share agreements with US Airways. Code share agreements
provide for terms of seven years for America West, and from two to eight years
for US Airways. Although the provisions of the code share agreements vary from
contract to contract, generally each agreement is subject to cancellation should
the applicable Company subsidiary fail to meet certain operating performance
standards, breach of other contractual terms and conditions and, in the case of
the US Airways code share agreements (other
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than the regional jet service agreement and the Kansas City code share agreement
described below), upon six months notice by either party. The code share
agreements contain provisions allowing the Company's code share partners to
terminate the agreements upon certain potential operational or "change in
control" events. The code share agreements do not prohibit the major carrier
from having code share relationships with other regional carriers, although the
Company does have exclusive rights from its code share partners on many of the
routes served by the Company's subsidiaries. A termination or expiration without
renewal of the America West or US Airways contract code share agreements or more
than one of the prorate agreements would have a material adverse effect on the
Company's business prospects, financial condition and results of operations.
The various code share agreements are summarized as follows:
Agreement Type Expiration
--------- ---- ----------
America West Contract 2007 (1)
US Airways:
Kansas City, MO Prorate 2005 (3)
Pittsburgh, PA Prorate 2004 (3)
Philadelphia, PA Prorate 2005 (3)
Charlotte and Raleigh/Durham, NC Prorate 2003
New Orleans, LA Prorate 2005 (3)
Tampa and Orlando, FL Prorate 2005 (3)
Regional Jet Service Contract 2008 (2)
(1) In November 2000, the Company and America West amended their Contract
Agreement to expand the number of regional jets operated from 17 to 22 and
extend the term of the agreement for regional jets from 2004 to 2007.
(2) In November 1999 and October 2000, the Company and US Airways amended the US
Airways regional jet service Contract Agreement. The amendments expanded the
number of regional jets operated from 14 to 32 and extended the term from 2004
to 2008. In addition, the amendments eliminated the ability of US Airways to
terminate the Contract Agreement without cause.
(3) In October 2000, the Company and US Airways amended three of its revenue
prorate agreements. The Kansas City agreement was extended from 2000 to 2005. In
addition, the agreement was amended to eliminate the ability of either party to
terminate the agreement without cause and permit the Company to add additional
code share partners in Kansas City. The other two prorate agreements were
extended by one year beyond their previous expiration dates.
In November 2000, the Company entered into a non-binding letter of intent with
Midwest Express Airlines, Inc. ("Midwest Express") to add the Midwest Express
designation code to the Company's operations in Kansas City. The anticipated
start date for the arrangement is the first quarter of calendar 2001. The
agreement will cover 13 cities already served by ten 1900D aircraft.
FLEET PLANS AND AIRCRAFT MANUFACTURER RELATIONSHIPS
In August 1996, the Company entered into an agreement with Bombardier Regional
Aircraft Division ("BRAD") to acquire 16 CRJ 50-passenger jet aircraft. The
agreement also granted the Company an option to acquire an additional 16 jet
aircraft and provided for additional rolling options to acquire a third block of
16 aircraft. In fiscal 1997, the Company exercised options to purchase 16 of the
32 CRJ aircraft reserved under the option provisions of the BRAD purchase
agreement. The option exercise included the conversion of eight Dash 8-200
aircraft then on order to CRJ 50-passenger jet aircraft. In addition, BRAD
agreed to assume the leases on the Company's inactive fleet of seven Embraer
EMB-120 aircraft upon the delivery of CRJs.
Subsequently, BRAD refused to accept trade-in Embraer EMB-120 aircraft and
failed to provide the 16 CRJ aircraft pursuant to the rolling options held by
the Company. Under the settlement of this dispute, the Company may receive up to
$9.0 million, subject to financing additional aircraft acquisitions by a certain
date. As of September 30, 2000, $7.7 million has been received relative to 29 of
the 32 delivered aircraft. The Company recorded $2.0 million as other income
related to damages from the dispute with BRAD for incremental lease payments,
storage and insurance costs incurred by the Company. The remaining $5.7 million
was recorded as a deferred credit and will be deferred and amortized over the
life of the leased aircraft. For the three remaining aircraft, $1.3 million will
be received when the aircraft are financed pursuant to long-term operating
leases.
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As of September 30, 2000, the Company has taken delivery of each of the 32 CRJ
aircraft ordered under the BRAD purchase agreement including 16 subject to the
options.
During fiscal 1999, the Company entered into an agreement with Embraer, a
Brazilian aircraft manufacturer, to acquire 36 ERJ-145 50-seat regional jets.
Deliveries commenced in April 2000 and are expected to continue through
mid-calendar 2002. The agreement also grants the Company options to purchase at
least 64 additional ERJ-145 aircraft. The options are at fixed prices, subject
to cost escalations and delivery schedules, and are exercisable through October
2007. Generally, the Company finances the aircraft with U.S. leveraged leases
entered into with various third-party lessors.
In June 2000, the Company introduced its first ERJ into revenue service as US
Airways Express. By the end of March 2002, the Company intends to perform all US
Airways Express regional jet operations with ERJs and all America West Express
regional jet operations with CRJs. The above regional jet allocation is subject
to various contingencies, including the availability of ERJs from Embraer, the
availability of financing for the aircraft, and the willingness of America West
and US Airways to agree to deployment of additional aircraft.
The following summarizes the Company's jet fleet status and current fleet
expansion plans for the periods indicated:
ERJ
CRJ ERJ FIRM ERJ CUMULATIVE
DELIVERED DELIVERED ORDERS OPTIONS TOTAL
--------- --------- ------ ------- ----------
At 9/30/2000 32 8 -- -- 40
10/1 Thru 12/28/2000 -- 4 -- -- 44
YE 12/31/2001* -- -- 12 -- 56
YE 12/31/2002* -- -- 12 7 75
YE 12/31/2003* -- -- -- 18 93
Yrs. 2004-2007* 39 132
--------- --------- ------ -------
TOTAL 32 12 24 64
* Numbers reflect projections for the indicated calendar year.
In fiscal 1999, the Company announced its intention to dispose of 30 excess
1900D aircraft. As of September 30, 2000, the Company had disposed of 17 of such
aircraft, and is actively seeking proposals for the disposition of the remaining
13 1900D aircraft. Under an agreement with Raytheon Aircraft Corporation
("RAC"), the Company has the right to sell to Raytheon six 1900D aircraft in
October 2001 and five 1900D aircraft in October 2002.
MARKETING
The Company's flight schedules are structured to facilitate the connection of
its passengers with flights of America West and US Airways at airports where it
serves as a code share partner and maximize local and connecting service to
other carriers in Albuquerque.
Under the Company's US Airways Express turboprop operations, the Company's
market selection process follows an in-depth analysis on a route-by-route basis
and is followed by a review and approval process in a joint effort with US
Airways regarding the level of service and fares. The Company believes that this
selection process enhances the likelihood of profitability in a given market.
Under the America West Express Contract Agreement and the US Airways Express
regional jet Contract Agreement, market selection, pricing and yield management
functions are performed by America West and US Airways, respectively. The
Company's role is simply to operate its fleet in the safest and most reliable
manner in exchange for fees paid under a
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generally fixed payment schedule. The Company intends to expand its operations
performed pursuant to these Contract Agreements.
Under the Company's code share agreements, America West and US Airways
coordinate advertising and public relations within their respective regions. In
addition, the Company's prorate traffic is impacted by the major airline
partners' advertising programs in regions outside those served by the Company,
with the major partners' customers becoming customers of the Company as a result
of through fares. Under Prorate code share arrangements, the Company's
passengers also benefit from through fare ticketing with the major airline
partners and greater accessibility to the Company's flights on computer
reservation systems and in the Official Airline Guide.
The Company's Prorate Agreement and Independent Operation flights are promoted
through, and the Company's revenues are generally believed to benefit from,
listings in computer reservation systems, the Official Airline Guide and through
direct contact with travel agencies and corporate travel departments. The
Company participates in shared advertising with resort and rental property
operators and ski areas in leisure markets in which it operates. The Company's
non-code share operation utilizes SABRE, a computerized reservation system
widely used by travel agents, corporate travel offices and other airlines. The
reservation systems of the Company's code share partners are also utilized in
each of the Company's other operations through their respective code share
agreements. The Company also pays booking fees to owners of other computerized
reservation systems based on the number of independent and prorate passengers
booked by travel agents using such systems. The Company believes that it has
good relationships with travel agents serving its passengers.
FARES AND CONTRACT AGREEMENT FLYING
The Company has increasingly relied on Contract Agreements with its code share
partners to generate revenue. All of the Company's America West Express and US
Airways Express regional jet operations are on a contract basis. The percentage
of revenue generated under Contract Agreements is expected to increase in future
years as the Company continues to add regional jets to its America West Express
and US Airways Express operations and reduce the number of 1900D aircraft in
operation. In fiscal 2000, the Company generated approximately 54% of its total
operating revenue pursuant to Contract Agreements.
Since 1978, airlines in the United States have generally been free to set their
own domestic fares without governmental regulation. The Company derives its
Independent and Prorate passenger revenues from a combination of local fares,
through fares and joint fares. Local fares are for one-way and round-trip travel
provided by the Company within its route systems. Passengers connecting with
other carriers also frequently use local fares. A through fare is a fare offered
to passengers by a code share partner which generally provides cost savings to
the passenger who transfers to the major carrier's code share partner on routes
flown by the code share partner. Through fares are prorated in accordance with
standards specified in the various code share agreements. Joint fares are single
fares for travel combining the Company's flights with flights of other airlines
that are not code share partners with the Company. Joint fares generally allow a
passenger to pay a single lower fare than the passenger would otherwise have
paid with separate local fares. The Company has been able to negotiate joint
fare arrangements with certain 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 agent commissions and the automation of
travel agent reservation systems. Further, because of the Airline Deregulation
Act, airlines are currently free to set prices and establish new 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.
The Company believes that the Airline Deregulation Act facilitated the Company's
entry into scheduled air service markets and allows it to compete on the basis
of service and fares, thus causing major carriers to seek out further
contractual agreements with carriers such as the Company as a way of expanding
their respective networks. However, the Airline Deregulation Act makes the entry
of other competitors possible, some of which may have substantial financial
resources and experience, creating the potential for intense competition among
regional air carriers in the Company's markets.
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The Company believes its code share 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 superior
service creates difficulty for other regional airlines wishing to compete at
such hubs. In addition to enhanced competitiveness offered by the code share
agreements, the Company competes with other airlines by offering frequent
flights, flexible schedules and numerous fare levels.
FUEL
Historically, the Company has not experienced problems with the availability of
fuel, and believes that it will be able to obtain fuel in quantities sufficient
to meet its existing and anticipated future requirements at competitive prices.
Standard industry contracts generally do not provide protection against fuel
price increases, nor do they ensure availability of supply. However, the
Company's code share agreement with America West and the regional jet service
agreement with US Airways allow fuel used in the performance of the agreements
to be billed to the code share partner, thereby reducing the Company's exposure
to fuel price fluctuations. In fiscal 2000, approximately 65% of the Company's
fuel was associated with the Company's America West code share and US Airways
regional jet service agreements. A substantial increase in the price of jet
fuel, to the extent the Company's fuel costs are not reimbursed, or the lack of
adequate fuel supplies in the future would have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
MAINTENANCE OF AIRCRAFT AND TRAINING
All mechanics and avionics specialists employed by the Company have the
appropriate training and experience and hold the required licenses issued by the
Federal Aviation Administration ("FAA"). Using a combination of FAA-certified
maintenance vendors and its own personnel and facilities, the Company maintains
its aircraft on a scheduled and "as-needed" basis. The Company emphasizes
preventive maintenance and inspects its aircraft engines and airframes as
required. The Company also maintains an inventory of spare parts specific to the
aircraft types it flies. The Company 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.
INSURANCE
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, product liability, aircraft loss or damage, baggage and cargo liability
and workers' compensation.
EMPLOYEES
As of September 30, 2000, the Company employed approximately 3,480 employees.
The Company's continued success is partly dependent on its ability to continue
to attract and retain qualified personnel. Historically, the Company has had no
difficulty attracting qualified personnel to meet its requirements. The Company
believes that relations with its employees are favorable.
Pilot turnover at times is a significant issue among regional carriers when
major carriers are hiring experienced commercial pilots away from regional
carriers. The addition of aircraft, especially new aircraft types, can result in
pilots upgrading between aircraft types and becoming unavailable for duty during
the extensive training periods required. No assurances can be made that pilot
turnover and unavailability will not again be a significant problem in the
future, particularly if major carriers expand their operations. Similarly, there
can be no assurance that sufficient numbers of new pilots will be available to
support any future growth.
During December 1996, the Company reached a five-year agreement, expiring in
December, 2001, with the Air Line Pilots Association ("ALPA") for a single pilot
contract for MAI and Air Midwest. Air Midwest mechanics are represented by the
International Association of Machinists ("IAM"), and flight attendants at MAI
are represented by the Association of Flight Attendants ("AFA"). The current
agreement with the IAM is amendable on March 31, 2002 and the AFA contract is
amendable on June 13, 2003. CCAIR has three organized employee groups. ALPA
represents the pilots, AFA represents the flight attendants and the
International Brotherhood of Teamsters ("Teamsters") represents the mechanics
and stock clerks. The ALPA agreement was renewed on November 6, 1998, and
becomes amendable on October 31, 2002. The AFA
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agreement was renewed on May 16, 1996, and becomes amendable on May 16, 2001.
The Teamsters mechanics contract was ratified on July 15, 1998, and becomes
amendable on December 31, 2001. The Teamsters stock clerks contract was ratified
July 31, 2000 and becomes amendable on December 31, 2003.
No other Mesa subsidiaries are parties to any other collective bargaining
agreement or union contracts.
ESSENTIAL AIR SERVICE PROGRAM
The Essential Air Service program administered by the United States Department
of Transportation ("DOT") guarantees a minimum level of air service in certain
communities, predicated on predetermined guidelines set forth by Congress. Based
on these guidelines, the DOT will subsidize air service to communities that
might not otherwise have air service. The Company services 11 such cities for an
annual subsidy of approximately $5.6 million.
REGULATION
As an interstate air carrier, the Company is subject to the economic
jurisdiction, regulation and continuing air carrier fitness requirements of the
DOT. Such requirements include minimum levels of financial, managerial and
regulatory fitness. The DOT is authorized to establish consumer protection
regulations to prevent unfair methods of competition and deceptive practices, to
prohibit 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 air carrier economic regulations,
including the assessment of civil penalties, and to seek criminal sanctions.
The Company 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 regulations,
the FAA requires airlines to obtain an operating certificate, which is subject
to suspension or revocation for cause, and provides for regular inspections.
Effective March 1997, the FAA required that regional airlines with aircraft of
10 or more passenger seats operating under FAR Part 135 rules to begin operating
those aircraft under FAR Part 121 regulations. The Company, as one of the
largest regional airlines operating under FAR Part 135 regulations, completed
the transition to Part 121 within the FAA's deadline. These requirements have
resulted in a significant increase in the Company's costs, affecting the
Company's ability to profitably serve certain markets. Such increased costs are
primarily related to additional training, dispatch and maintenance procedures.
The Company continues to attempt to minimize the cost of these new operating
procedures while fully complying with FAR Part 121 operating requirements.
The Company is subject to various federal and local laws and regulations
pertaining to other issues of environmental protocol. The Company believes it is
in compliance with all governmental laws and regulations regarding environmental
protection.
The Company is also subject to the jurisdiction of the Federal Communications
Commission with respect to the use of its radio facilities and 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.
10
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ITEM 2. PROPERTIES
The Company's primary property consists of the aircraft used in the operation of
its flights. The following table lists the aircraft owned and leased by the
Company as of September 30, 2000.
NUMBER OF AIRCRAFT
------------------
OPERATING ON PASSENGER
TYPE OF AIRCRAFT OWNED LEASED TOTAL SEPT. 30, 2000 CAPACITY
---------------------- ------- ------- ------ --------------- ----------
Canadair Regional Jet -- 32 32 32 50
Embraer Regional Jet . -- 8 8 8 50
Beechcraft 1900D 51 10 61 57 19
Jetstream Super 31 -- 14 14 14 19
Dash 8-100 -- 10 10 10 37
Dash 8-200 -- 12 12 12 37
Embraer EMB-120 -- 7 7 -- 30
------- ------- ------ -------
Total 51 93 144 133
====== ===== ===== ======
See "Business -- Airline Operations" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" for a discussion regarding the Company's aircraft fleet commitments.
In addition to aircraft, the Company has office and maintenance facilities to
support its operations. The facilities are as follows:
APPROXIMATE
TYPE LOCATION OWNERSHIP SQUARE FEET
-------------------------------- ----------------- --------- -----------
Administrative/Dispatch............. Phoenix, AZ Leased 21,000
Flight Operations/Training.......... Phoenix, AZ Leased 7,600
Records/Technical Publications...... Phoenix, AZ Leased 8,200
Hangar.............................. Farmington, NM Leased 30,000
Engine Shop......................... Farmington, NM Leased 6,000
Hangar.............................. Fresno, CA Leased 18,500
Hangar/Office....................... Wichita, KS (1) 30,000
Hangar.............................. Jamestown, NY Leased 30,000
Hangar/Office....................... Dubois, PA Leased 23,000
Hangar.............................. Reading, PA (1) 56,250
Hangar/Office....................... Grand Junction, CO (1) 32,770
Hangar/Office....................... Bullhead City, AZ Leased 12,850
Office ............................. Charlotte, NC Leased 11,000
Hangar ............................. Charlotte, NC Leased 30,000
(1) Building is owned, underlying land is leased.
The Company leases ticket counters, check-in and boarding and other facilities
in the passenger terminal areas in the majority of the airports it serves and
staffs those facilities with Company personnel. America West and US Airways also
provide facilities, ticket handling and ground support services for the Company
at certain airports.
The Company's Phoenix Administrative/Dispatch facility is leased pursuant to a
ten-year lease that commenced November 1, 1998. The Flight Operations/Training
space is subject to a 30-month lease that commenced on August 15, 1998.
The Company believes its facilities are suitable and adequate for its current
and anticipated needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and claims arising in the
ordinary course of business. Although the ultimate outcome of pending lawsuits
cannot be determined, the Company believes, based upon currently available
information, that the ultimate outcome of all the proceedings and claims pending
against the Company will not have a material adverse effect on the Company's
financial position. The Company's statement regarding the outcome of all pending
proceedings and claims is a forward-looking statement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant held its annual meeting of shareholders on August 9, 2000. The
shareholders elected the following Board of Directors to serve until the next
annual meeting of shareholders or until their successors are duly elected and
qualified:
SHARES
NAME SHARES VOTED FOR ABSTAINING
- ---- ---------------- ----------
Jonathan G. Ornstein 28,016,730 355,889
Paul R. Madden 27,601,357 771,262
Daniel J. Altobello 28,044,885 327,734
Jack Braly 28,024,937 347,682
Herbert A. Denton 28,058,219 341,400
Ronald A. Fogelman 28,042,422 330,197
Maurice A. Parker 28,047,948 324,671
George Murnane III 27,452,516 920,103
James E. Swigart 27,526,218 846,401
The shareholders ratified the appointment of Deloitte & Touche LLP as
independent auditors for fiscal year 2000 by a vote of 28,271,600 for and 69,290
against, with 31,729 shares abstaining. The shareholders rejected a shareholder
proposal to adopt cumulative voting by a vote of 8,008,257 for and 12,840,426
against, with 188,293 shares abstaining. The shareholders also rejected a
shareholder proposal to sell or merge the Company by a vote of 2,951,257 for and
17,631,374 against, with 454,345 shares abstaining.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
sales price per share of Mesa common stock for the two most recent fiscal years,
as reported by NASDAQ. Mesa's common stock is traded on the NASDAQ National
Market System under the symbol "MESA."
FISCAL 2000 FISCAL 1999
----------- -----------
QUARTER HIGH LOW HIGH LOW
- ------- ---- --- ---- ---
First............................................... $ 6.44 $ 4.25 $ 8.13 $ 4.12
Second.............................................. 6.63 4.75 9.31 5.81
Third............................................... 7.06 4.78 7.75 6.19
Fourth.............................................. 6.25 5.13 8.34 6.06
On December 26, 2000, the Company had 1,369 shareholders of record. The Company
has never paid cash dividends on its common stock. The payment of future
dividends is within the discretion of the Company's board of directors and will
depend upon the Company's future earnings, if any, its capital requirements,
financial condition and other relevant factors.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA AND OPERATING STATISTICS
The selected financial data as of and for each of the five years ended September
30, 2000, are derived from the Consolidated Financial Statements of the Company
and its subsidiaries and should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Form 10-K and the related notes
thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." The Consolidated Financial Statements of the Company for
the fiscal year ended September 30, 2000, have been audited by Deloitte & Touche
LLP, independent auditors. The Consolidated Financial Statements of the Company
for the four fiscal years ended September 30, 1999, have been audited by KPMG
LLP, independent public accountants.
In thousands of dollars except per share data and average fare amounts and as
otherwise indicated.
YEARS ENDED: 2000(4) 1999(1) 1998(2) 1997(3) 1996(3)
- ------------------------------ ---------- ------------ ------------ ----------- ------------
Operating revenues $ 471,612 $ 404,616 $ 494,866 $ 579,464 $ 566,597
Operating expenses $ 429,798 $ 402,487 $ 533,910 $ 634,805 $ 517,716
Operating income (loss) $ 41,814 $ 2,129 $ (39,044) $ (55,341) $ 48,881
Interest expense $ 15,463 $ 19,096 $ 25,382 $ 28,518 $ 13,538
Earnings (loss) before income
Taxes $ 28,031 $ (12,815) $ (58,229) $ (80,704) $ 49,634
Net earnings (loss) $ 58,872 $ (13,412) $ (50,467) $ (50,326) $ 30,503
Net earnings (loss) per share:
Basic $ 1.78 $ (0.40) $ (1.50) $ (1.52) $ 0.81
Diluted 1.77 $ (0.40) $ (1.50) $ (1.52) $ 0.80
Working capital (deficit) $ 59,156 $ 33,040 $ (1,446) $ 64,940 $ 69,500
Total assets $ 384,927 $ 403,773 $ 484,376 $ 677,837 $ 705,621
Long-term debt, excluding current portion $ 135,533 $ 114,234 $ 245,100 $ 341,463 $ 339,649
Stockholders' equity $ 144,574 $ 96,435 $ 108,649 $ 183,445 $ 230,503
Net book value per share $ 4.48 $ 2.83 $ 2.95 $ 5.09 $ 6.06
Passengers carried 4,457,989 4,255,696 5,969,104 7,514,644 7,247,687
Revenue passenger miles (000) 1,561,197 1,324,867 1,407,345 1,544,212 1,509,376
Available seat miles ("ASM") (000) 2,951,116 2,594,861 2,581,946 2,789,575 2,749,629
Average passenger journey in miles 350 311 236 205 208
Average stage length in miles 250 225 190 178 169
Load factor 52.9% 51.1% 54.5% 55.4% 54.9%
Break-even passenger load factor 48.5 52.7% 60.1% 60.2% 51.9%
Revenue per ASM in cents 16.0 15.3 18.7 20.4 20.6
Operating cost per ASM in cents 14.6 15.5 20.7 22.8 18.8
Average yield per revenue passenger mile 30.2 30.1 34.3 36.8 37.5
in cents
Average fare $ 103.45 $ 93.59 $ 80.91 $ 75.56 $ 76.43
Aircraft in service 133 140 138 204 202
Cities served 120 138 134 189 188
Number of employees 3,480 3,423 3,241 5,445 4,635
(1) Mesa as of and for the twelve months ended September 30, 1999 CCAIR as
of and for the twelve months ended September 30, 1999
(2) Mesa as of and for the twelve months ended September 30, 1998 CCAIR as
of and for the twelve months ended December 31, 1998
(3) Mesa as of and for the twelve months ended September 30, 1997 and 1996
CCAIR as of and for the twelve months ended June 30, 1997 and 1996
(4) Net earnings in fiscal 2000 include the cumulative effect of the
accounting change from the accrual method to the direct expense method
of $18.1 million and the benefit of reversing a valuation allowance for
deferred tax assets of $12.8 million.
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14
The Company's June 9, 1999 acquisition of CCAIR was accounted for as a pooling
of interests and, accordingly, the Company's consolidated financial statements
have been restated to include the results of CCAIR for all periods presented.
Except for the consolidated financial statements for the years ended September
30, 2000 and 1999, the consolidated financial statements of CCAIR for the 1998,
1997 and 1996 fiscal years have not been restated to change CCAIR's audited year
end to September 30, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussions and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the Consolidated Financial Statements and the related notes
thereto, and the Selected Financial Data and Operating Data contained elsewhere
herein.
RESULTS OF OPERATIONS
GENERAL
The Company operates as a regional air carrier providing scheduled passenger
service. The Company serves over 120 cities in 38 states, the District of
Columbia, Canada and Mexico.
The Company's airline operations are conducted by three airline subsidiaries
using hub-and-spoke route systems. Mesa Airlines, Inc. ("MAI") operates regional
jet and turboprop aircraft as America West Express under a code share agreement
with America West Airlines, Inc. ("America West"), and regional jets as US
Airways Express under a code share agreement with US Airways, Inc. ("US
Airways"). Mesa Airlines has significant hub operations in Phoenix, Arizona and
Columbus, Ohio as America West Express, and in Philadelphia, Pennsylvania,
Washington D.C., Charlotte, North Carolina and New York, New York as US Airways
Express. Air Midwest, Inc. ("Air Midwest") operates Beechcraft 1900D 19-seat
turboprops as US Airways Express under three code sharing agreements with US
Airways. Air Midwest also operates as Mesa Airlines from a hub in Albuquerque,
New Mexico. Air Midwest has significant hub operations in Pittsburgh and
Philadelphia, Pennsylvania, Kansas City, Missouri and Tampa, Florida. The
Albuquerque operation is not subject to a code share agreement with a major
carrier. CCAIR, Inc. ("CCAIR") operates turboprops as US Airways Express under a
code share agreement with US Airways. CCAIR's operations are based from a hub in
Charlotte, North Carolina.
The following tables set forth selected operating and financial data of the
Company for the years indicated below. All financial and operating data has been
restated to reflect the Company's June 9, 1999 acquisition of CCAIR which was
accounted for as a pooling of interest.
OPERATING DATA
YEARS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999 1998
------------ ----------- ---------
Passengers 4,457,989 4,255,696 5,969,104
Available seat miles ("ASM") (000s) 2,951,116 2,594,861 2,581,946
Revenue passenger miles (000s) 1,561,197 1,324,867 1,407,345
Load factor 52.9% 51.1% 54.5%
Yield per revenue passenger mile (cents) 30.2 30.1 34.3
Revenue per ASM (cents) 16.0 15.3 18.7
Operating cost per ASM (cents) 14.6 15.5 20.7
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OPERATING EXPENSE DATA
YEARS ENDED
SEPTEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------------------------ -------------------------- ------------------------------
PERCENT COST PERCENT COST PERCENT COST
OF PER OF PER OF PER
AMOUNT TOTAL ASM AMOUNT TOTAL ASM AMOUNT TOTAL ASM
(000S) REVENUES (CENTS) (000S) REVENUES (CENTS) (000S) REVENUES (CENTS)
------ -------- ------- ------ -------- ------- ------ -------- -------
Flight Operations .......... $ 221,788 47.0% 7.5 $ 173,367 42.8% 6.7 $ 195,037 39.4% 7.6
Maintenance ................ 83,113 17.6% 2.8 76,309 18.9% 2.9 101,226 20.5% 3.9
Aircraft & Traffic ......... 53,489 11.3% 1.8 55,675 13.8% 2.1 78,673 15.9% 3.0
Promotion & Sales .......... 29,879 6.3% 1.0 32,550 8.0% 1.3 67,706 13.7% 2.6
General & Administrative ... 25,899 5.5% 0.9 31,658 7.8% 1.2 31,345 6.3% 1.2
Depreciation & Amortization 15,630 3.3% 0.6 18,053 4.5% 0.7 26,580 5.4% 1.1
Impairment of long-
lived assets and goodwill . -- -- -- 28,902 7.2% 1.2 -- -- --
Other Operating Items ...... -- -- -- (14,027) (3.5)% (0.6) 33,343 6.7% 1.3
--------- ----- ----- --------- ----- ---- --------- ------- ----
Total Operating Expenses ... $ 429,798 91.1% 14.6 $ 402,487 99.5% 15.5 $ 533,910 107.9% 20.7
========= ===== ===== ========= ===== ==== ========= ======= ====
Interest Expense ........... $ 15,463 3.3% 0.5 $ 19,096 4.7% 0.7 $ 25,382 5.1% 1.0
========= ===== ===== ========= ===== ==== ========= ======= ====
FISCAL 2000 VERSUS FISCAL 1999
General
During fiscal 2000, the Company continued the expansion of its regional jet
fleet by taking delivery of 11 additional regional jets (3 CRJs and 8 ERJs). The
Company deployed the additional regional jet aircraft in performing operations
under its code share agreements with America West and US Airways. Additionally,
the Company continued to downsize its Beechcraft 1900D fleet, disposing of 17
1900D aircraft during fiscal 2000. Regional jet aircraft have more seats and
generally fly longer stage lengths than turboprop aircraft. Consequently,
regional jet aircraft provide more available seat miles ("ASMs") and generate
lower revenue and cost per ASM than turboprop aircraft.
Operating Revenues
In fiscal 2000, operating revenues increased by $67.0 million (16.6%) to $471.6
million, compared to $404.6 million in fiscal 1999. The increase was primarily
due to additional revenues from the Company's expanded use of regional jets
pursuant to fee per departure contracts with America West and US Airways.
Capacity, measured by ASMs, increased by 13.7% to 2,951 million in fiscal 2000,
compared to 2,595 million in fiscal 1999. The increase in ASMs was primarily
attributable to the Company's continued implementation of regional jet aircraft
into its fleet, which have more seats and fly longer stage lengths than
turboprop aircraft. Passenger traffic is measured by revenue passenger miles
("RPMs"), which represent one revenue passenger carried one mile. RPMs increased
by 17.8% to 1,561 million in fiscal 2000 as compared to 1,325 million fiscal
1999. The increase in RPMs was primarily due to the Company's expanded use of
regional jets pursuant to fee per departure contracts with America West and US
Airways. Passenger load factor increased to 52.9% in fiscal 2000 from 51.1% in
fiscal 1999. The majority of the Company's revenue is derived from fee per
departure contracts with its major airline partners.
Operating Expenses
Flight Operations
In fiscal 2000, flight operations expense increased 27.9% to $221.8 million (7.5
cents per ASM) from $173.4 million (6.7 cents per ASM) in fiscal 1999. The
increase was primarily due to increased fuel costs of approximately $31.5
million, increased lease costs of approximately $10 million and increased pilot
wages of approximately $3.4 million. These increases were the result of
operating additional regional jets which have higher operating costs than turbo
prop aircraft.
15
16
Maintenance Expense
In fiscal 2000, maintenance expense increased 8.9% to $83.1 million (2.8 cents
per ASM) from $76.3 million (2.9 cents per ASM) in fiscal 1999. Increased
maintenance expenditures are primarily due to the increased number of time
sensitive maintenance events that occurred in fiscal 2000. Fiscal 2000
maintenance expense was reduced by $4.9 million as a result of the Company's
change in accounting method from the accrual method to the direct expense method
for CRJ and Dash 8-200 aircraft. The Company also elected to adopt the direct
expense method for its new ERJ aircraft. The Company estimates that the change
in method will have a positive impact on earnings over the next eight years.
Aircraft and Traffic Servicing Expense
In fiscal 2000, aircraft and traffic servicing expense decreased 3.9% to $53.5
million (1.8 cents per ASM) from $55.7 million (2.1 cents per ASM) in fiscal
1999. The decrease was primarily due to the Company's continued down sizing of
its B1900D fleet and the consequent reduction in flying under prorate
agreements.
Promotion and Sales
In fiscal 2000, promotion and sales expense decreased 8.2% to $29.9 million (1.0
cents per ASM) from $32.6 million (1.3 cents per ASM) in fiscal 1999. The
decrease is primarily due to the Company's continued down sizing of its B1900D
fleet and the continued expansion of flights performed pursuant to contract
agreements, whereby America West and US Airways assume the responsibility for
promoting and selling seats on flights operated by the Company.
General and Administrative Expense
In fiscal 2000, general and administrative expense decreased 18.3% to $25.9
million (0.9 cents per ASM) from $31.7 million (1.2 cents per ASM) in fiscal
1999. The decrease is due to merger expenses incurred in 1999 related to the
acquisition of CCAIR as well as a decrease in legal expenses. General and
administrative expense consists of items such as administrative payroll, office
rent, professional fees and other items.
Depreciation and Amortization
In fiscal 2000, depreciation and amortization expense decreased 13.4% to $15.6
million (0.5 cents per ASM) from $18.1 million (0.7 cents per ASM) in fiscal
1999. The decrease is primarily due to the cessation of depreciation on parked
1900D aircraft being disposed, which are valued in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
Other Operating Items
In fiscal 2000, other operating items were de minimis, while in the prior year,
the Company recorded substantial adjustments related to the shut down of the UAL
code sharing operation and the reversal of $14.0 million of previously
established reserves which were considered to be excess.
FISCAL 1999 VERSUS FISCAL 1998
During fiscal 1999, the Company increased the number of regional jet aircraft in
its fleet from 17 to 29.
Capacity, measured by ASMs, increased by 0.5% to 2,595 million in fiscal 1999,
as compared to 2,582 million in fiscal 1998. The ASM increase resulted from the
Company's continued implementation of regional jet aircraft into its fleet,
offset by fewer 1900D and EMB-120 aircraft associated with the United Express
operation. Passenger traffic, measured by RPMs, decreased 5.9% in fiscal 1999 as
compared to fiscal 1998. The passenger load factor decreased from 54.5% to
51.1%, yield (passenger revenue per RPM) decreased by 4.2 cents in 1999 from
34.3 cents per RPM, and revenue per ASM decreased to 15.3 cents from 18.7 cents
per ASM in fiscal 1998. The decrease in RPMs was due primarily to the reduction
in flying from the United Express operations terminated in 1998. The decreases
in yield and revenue per ASM primarily result from Mesa's aforementioned
increase in regional jet flying.
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17
Operating revenues decreased by $90 million (18.2%) for the fiscal year ended
September 30, 1999 as compared to the prior fiscal year. This decrease was
primarily due to the inclusion in 1998 of revenues associated with the since
terminated United Express operation. Capacity, measured by ASMs, increased by
0.5% due to the continued addition of regional jet aircraft into Mesa's fleet,
offset by fewer B1900 and EMB120 aircraft associated with the United Express
operation. Passenger traffic, measured by revenue passenger miles ("RPMs") and
representing one passenger carried one mile, decreased by 5.9%. The passenger
load factor decreased from 54.5% to 51.1%, yield (passenger revenue per RPM)
decreased by 4.2 cents in 1999 from 34.3 cents per RPM, and revenue per ASM
decreased to 15.3 cents from 18.7 cents per ASM in fiscal 1998. The decrease in
RPMs was due primarily to the reduction in flying from the United Express
operations terminated in 1998. The decreases in load factor, yield and revenue
per ASM primarily result from Mesa's aforementioned increase in regional jet
flying.
Flight Operations expense decreased by 11.1% to $173.4 million (6.7 cents per
ASM) for the 1999 fiscal year, from $195.0 million (7.6 cents per ASM) for the
comparable period in 1998, primarily due to the discontinuation of the United
Express operation. Flight operations expense increased as a percentage of
revenue due to additional costs, primarily pilots and flight attendants,
associated with regional jet aircraft. Fuel costs, pilot costs, and dispatch
costs all declined for the 1999 fiscal year, as compared to the prior period.
Pilot training costs also declined compared to the prior period, primarily due
to the inclusion in fiscal year 1998 of a major portion of training expenses
associated with integrating CRJ aircraft into the fleet.
Maintenance costs decreased by 24.6% to $76.3 million (2.9 cents per ASM) for
the 1999 fiscal year, from $101.2 million (3.9 cents per ASM) for the prior
year. Decreased maintenance costs are the result of a smaller fleet and the
continued introduction of new, warranted CRJ aircraft.
Aircraft and Traffic Servicing costs decreased by 29.2% to $55.7 million (2.1
cents per ASM) during fiscal 1999 from $78.7 million (3.0 cents per ASM) in
fiscal 1998. Station wages decreased due to a reduction in staffing. Station
rent decreased in fiscal 1999 from fiscal 1998 due to the elimination of the
United Express West Coast and Denver operations.
Promotion and Sales expense decreased by 51.9% to $32.6 million (1.3 cents per
ASM) during fiscal 1999 from $67.7 million (2.6 cents per ASM) in fiscal 1998.
This decrease was primarily attributable to a reduction in booking fees charged
to Mesa for processing reservations on computer reservation systems. Mesa's
contract with America West eliminates booking fees and travel agency commissions
being charged directly to Mesa, and thus these expenses are expected to continue
to decrease in fiscal 2000.
Depreciation and amortization decreased by $8.5 million to $18.1 million in
fiscal 1999 and interest expense decreased by $6.3 million to $19.1 million in
such period. The decrease in depreciation and amortization was due to fewer
aircraft being depreciated in fiscal year 1999 compared to fiscal year 1998. The
decrease in interest expense was due to the retirement of aircraft, the proceeds
of which were used to pay down debt secured by such aircraft.
During the fourth quarter of 1999, pursuant to the ongoing review and evaluation
of its operations, management elected to cease service on several routes flown
by Beech 1900D aircraft. Management had historically employed numerous
strategies in attempting to establish profitability on the routes but ultimately
determined that undue effort and expense would be required in continuing to
attempt to establish profitability. In connection with the cessation of service,
$8.3 million of goodwill associated with the routes was determined to be
unrecoverable and therefore charged to expense.
In connection with the cessation of service described above, Mesa determined
that 30 Beech 1900D aircraft would no longer be required in scheduled service
and were therefore impaired. Mesa planned to dispose of the 30 aircraft during
fiscal 2000. Mesa recognized an impairment loss amounting to approximately $20.6
million. The amount of the impairment was determined by comparing the net book
value of the aircraft against data provided by Raytheon Aircraft Corporation
(RAC), the manufacturer of the aircraft, on current resale values for aircraft
of comparable age and condition.
During fiscal 1998 and 1997, Mesa recognized expected costs and expenses
amounting to approximately $33.9 million and $72.1 million, respectively, for
the termination of the United Express Operations which included the non-renewal
of the WestAir, and early termination of the MAI, code-sharing agreements with
UAL. These costs and expenses are included in other operating items. (See
footnotes 12 and 16 to the accompanying consolidated financial statements for
additional discussion.) Both the $33.9 million and the $72.1 million provide for
the estimated loss on retirement or sale of aircraft, parts, and equipment which
were surplus to the needs of Mesa upon expiration and early termination of the
UAL code
17
18
sharing agreements. In fiscal 1998, Mesa also recognized provisions amounting to
$4.0 million for the termination of the Ft. Worth jet operations and $2.5
million for the settlement of a shareholder lawsuit.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and marketable securities of $34.1
million at September 30, 2000, compared to cash, cash equivalents and marketable
securities of $56.2 million at September 30, 1999. The principal source of funds
during fiscal 2000 was approximately $33.2 million generated from operations.
During fiscal 2000, the Company invested approximately $40.2 million in aircraft
parts and other fixed assets, reduced long-term debt by $8.1 million and
repurchased approximately $10.8 million of its common stock. The above factors,
among others, resulted in a $25.9 million decrease in cash, cash equivalents and
marketable securities during fiscal 2000 which comprises the majority of the
decrease noted above.
As of September 30, 2000, the Company had receivables of approximately $41.7
million, compared to $30.9 million at September 30, 1999. The amounts due
consist primarily of receivables due from the Company's code share partners and
passenger ticket receivables due through the Airline Clearing House ("ACH").
(Under the terms of the US Airways code share agreements, the Company receives a
substantial portion of its revenues through the ACH.)
In January 2000, the Company entered into an agreement with Embraer to acquire
36 50-passenger Embraer ERJ-145 regional jets at an aggregate list price of
approximately $702 million. Deliveries began in April 2000 and are expected to
continue through the summer months of calendar 2002. The Company expects to
finance the aircraft with long-term operating lease arrangements. The Company
also has options for an additional 64 ERJ aircraft, with the right to convert
the options into firm orders for ERJ-145 regional jets or 37-passenger ERJ-135
regional jets. In conjunction with this purchase agreement, the Company placed
an $11.8 million deposit with Embraer during fiscal 1999.
The Company has significant long-term lease obligations primarily relating to
its aircraft fleet. The leases are classified as operating leases and are
therefore excluded from the Company's consolidated balance sheets. At September
30, 2000, the Company leased 93 aircraft with remaining lease terms ranging from
1 to 17 years. Future minimum lease payments due under all long-term operating
leases were approximately $1,110 million at September 30, 2000.
The Company's long-term debt was primarily incurred pursuant to the acquisition
of 1900D aircraft. At September 30, 2000 the Company owned 51 1900D aircraft
securing debt with maturities through 2011. In September 2000, the Company sold
16 1900D aircraft to Raytheon for approximately the amount of the underlying
debt of $43.8 million. Effective with the transaction, the Company became
current on the Raytheon debt. Any event of default that may have occurred has
been deemed to be fully cured pursuant to the terms of the agreement with
Raytheon.
In December 1999, the Company's Board of Directors authorized the Company's
purchase of up to 10% of the outstanding shares of its common stock. As of
September 30, 2000, the Company had acquired and retired approximately 2.0
million shares (approximately 5.7%) of its outstanding common stock at an
aggregate cost of approximately $10.8 million. Purchases are made at
management's discretion based on market conditions and the Company's financial
resources.
The Company has negotiated 10-year engine maintenance contracts with General
Electric Aircraft Engines for its CRJ aircraft, Rolls-Royce Allison for its ERJ
aircraft and Pratt and Whitney, Canada Aircraft Services for its Dash 8-200
aircraft. The contracts provide for payment at the time of the repair event for
a fixed dollar amount per flight hour, subject to escalation based on changes in
certain price indices, for the number of flight hours incurred since the
previous event.
In December 2000, the Company reached an agreement with Fleet Capital for a $35
million revolving line of credit, secured by the Company's inventory and
receivables. The agreement, which expires in December 2003, has provisions which
allow the expansion of available credit to $50 million by adding other lenders.
The Company intends to use the facility for general working capital purposes.
Management believes that the Company will have adequate cash flow to meet its
operating needs. This is a forward-looking statement. Actual cash flows could
materially differ from this forward looking statement as a result of many
factors, including the termination of one or more code share agreements; failure
to sell, dispose of, or redeploy excess aircraft in a timely manner; a
substantial decrease in the number of routes allocated to the Company under its
code share agreements with it code share partners; reduced levels of passenger
revenue, additional taxes or costs of compliance with
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governmental regulations; fuel cost increases; increases in competition;
increases in interest rates; general economic conditions and unfavorable
settlement of existing litigation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure such instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
adopted the provisions of this statement on October 1, 2000. There was no impact
on the Company's financial condition, results of operations or liquidity.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Adoption of SAB No. 101 did not
have a material impact on the Company's financial condition, results of
operations or liquidity.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to market risk associated with changes in interest
rates related primarily to its debt obligations and short-term marketable
investment portfolio. The Company's debt obligations are primarily variable in
rate and therefore have exposure to change in interest rates. A 10% change in
interest rates would result in approximately $1.5 million impact on interest
expense. The Company also has investments in debt securities. If short-term
interest rates were to average 10% more than they did in fiscal year 2000, there
would be no material impact on the Company's interest income. The Company's
investments in equity securities are subject to market risk related to
fluctuations in share prices for those shares held. A 10% change in the price of
trading securities held at the level of investment at September 30, 2000 would
impact the results of the Company by approximately $0.6 million.
The Company has exposure to certain market risks associated with its aircraft
fuel. Aviation fuel expense is a significant expense for any air carrier and
even marginal changes greatly impact a carrier's profitability. Standard
industry contracts do not generally provide protection against fuel price
increases, nor do they insure availability of supply. However, both the US
Airways and America West contract code share agreements allow fuel costs to be
passed directly back to the code share partner, thereby reducing Mesa's overall
exposure to fuel price fluctuations. In fiscal 2000, 65% of the Company's fuel
requirements were associated with these contracts. Each one cent change in the
price of jet fuel amounts to a $0.3 million change in annual fuel costs for that
portion of fuel expense which cannot be passed on to either America West or US
Airways.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain statements including, but not limited to,
information regarding the replacement, deployment, and acquisition of certain
numbers and types of aircraft, and projected expenses associated therewith;
costs of compliance with FAA regulations and other rules and acts of Congress;
the passing of taxes, fuel costs, inflation, and various expenses to the
consumer; the relocation of certain operations of Mesa; the resolution of
litigation in a favorable manner and certain projected financial obligations.
These statements, in addition to statements made in conjunction with the words
"expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and
similar expressions, are forward-looking statements within the meaning of the
Safe Harbor provision of Section 27A of the Securities Act of 1933 as amended
and Section 21E of the Securities Exchange Act of 1934 as amended. These
statements relate to future events or the future financial performance of Mesa
and only reflect Management's expectations and estimates. The following is a
list of factors, among others, that could cause actual results to differ
materially from the forward-looking statements: changing business conditions in
certain market segments and industries; an increase in competition along the
routes Mesa operates or plans to operate; material delays in completion by the
manufacturer of the ordered and yet-to-be delivered aircraft; changes in general
economic conditions; changes in fuel price; changes in regional economic
conditions; Mesa's relationship with
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employees and the terms of future collective bargaining agreements; and the
impact of current and future laws, Congressional investigations, and
governmental regulations affecting the airline industry and Mesa's operations;
bureaucratic delays; amendments to existing legislation; consumers unwilling to
incur greater costs for flights; unfavorable resolution of negotiations with
municipalities for the leasing of facilities; and risks associated with
litigation outcomes. One or more of these or other factors may cause Mesa's
actual results to differ materially from any forward-looking statement. Mesa is
not undertaking any obligation to update any forward-looking statements
contained in this Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENTS
Page 21 -- Independent Auditors' Reports
Page 23 -- Consolidated Statements of Operations -- Years ended September
30, 2000, 1999, and 1998.
Page 24 -- Consolidated Balance Sheets -- September 30, 2000 and 1999.
Page 25 -- Consolidated Statements of Cash Flows -- Years ended September
30, 2000, 1999 and 1998.
Page 26 -- Consolidated Statements of Stockholders' Equity and
Comprehensive Loss -- Years ended September 30, 2000, 1999 and 1998.
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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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Mesa Air Group, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Mesa Air Group,
Inc. and subsidiaries as of September 30, 2000, and the related consolidated
statements of operations, stockholders' equity and comprehensive loss and of
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such 2000 consolidated financial statements present fairly, in
all material respects, the financial position of Mesa Air Group, Inc. and
subsidiaries as of September 30, 2000, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, effective October 1, 1999,
the Company changed its method of accounting for certain maintenance costs.
DELOITTE AND TOUCHE LLP
Phoenix, Arizona
December 22, 2000
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INDEPENDENT AUDITORS' REPORT
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, 1999, and the related consolidated
statements of operations, stockholders' equity and comprehensive loss and cash
flows for each of the years in the two-year period ended September 30, 1999.
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 auditing standards generally accepted
in the United States of America. 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, 1999, and the results of their operations
and their cash flows for each of the years in the two-year period ended
September 30, 1999, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Phoenix, Arizona
January 20, 2000
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PART 1. FINANCIAL INFORMATION
MESA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
2000 1999 1998
--------- --------- ---------
Operating revenues:
Passenger .................................... $ 461,159 $ 398,206 $ 482,936
Freight and other ............................ 10,453 6,410 11,930
--------- --------- ---------
Total operating revenues .................. 471,612 404,616 494,866
--------- --------- ---------
Operating expenses:
Flight operations ............................ 221,788 173,367 195,037
Maintenance .................................. 83,113 76,309 101,226
Aircraft and traffic servicing ............... 53,489 55,675 78,673
Promotion and sales .......................... 29,879 32,550 67,706
General and administrative ................... 25,899 31,658 31,345
Depreciation and amortization ................ 15,630 18,053 26,580
Impairment of long-lived assets and goodwill . -- 28,902 --
Other operating items ........................ -- (14,027) 33,343
--------- --------- ---------
Total operating expenses .................. 429,798 402,487 533,910
--------- --------- ---------
Operating income (loss) ...................... 41,814 2,129 (39,044)
--------- --------- ---------
Other income (expense):
Interest expense ............................. (15,463) (19,096) (25,382)
Interest income .............................. 2,371 2,166 899
Other income(expense) ........................ (691) 1,986 5,298
--------- --------- ---------
Total other expense ....................... (13,783) (14,944) (19,185)
--------- --------- ---------
Income (loss) before income taxes
and cumulative effect of accounting change... 28,031 (12,815) (58,229)
Income taxes (benefit) ......................... (12,756) 597 (7,762)
--------- --------- ---------
Income (loss) before cumulative effect of
accounting change ........................... 40,787 (13,412) (50,467)
Cumulative effect of accounting change, net
of $0 applicable income taxes ............... 18,085 -- --
--------- --------- ---------
Net income (loss) .............................. $ 58,872 $ (13,412) $ (50,467)
========= ========= =========
Income (loss) per common share - basic:
Income (loss) before cumulative effect of
accounting change ........................... $ 1.23 $ (.40) $ (1.50)
Cumulative effect of accounting change, net .... .55 -- --
--------- --------- ---------
Net income (loss) .............................. $ 1.78 $ (.40) $ (1.50)
========== ========== ==========
Income (loss) per common share - diluted:
Income (loss) before cumulative effect of
accounting change ........................... $ 1.23 $ (.40) $ (1.50)
Cumulative effect of accounting change, net .... .54 -- --
--------- --------- ---------
Net income (loss) .............................. $ 1.77 $ (.40) $ (1.50)
========= ========== ==========
See accompanying notes to consolidated financial statements.
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MESA AIR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
----------------------
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 26,403 $ 52,905
Marketable securities ............................. 7,681 3,306
Receivables, primarily traffic .................... 41,719 30,859
Expendable parts and supplies ..................... 27,716 24,727
Aircraft held for sale ............................ 31,149 77,412
Prepaid expenses and other current assets ......... 9,140 12,739
Deferred income taxes ............................. 8,527 --
--------- ---------
Total current assets ........................... 152,335 201,948
Property and equipment, net ......................... 185,909 160,453
Lease and equipment deposits ........................ 22,857 22,392
Intangible assets, less accumulated amortization of
$5,981 and $5,140, respectively 10,014 10,855
Deferred income taxes ............................... 4,822 --
Other assets ........................................ 8,990 8,125
--------- ---------
Total assets ................................... $ 384,927 $ 403,773
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................. $ 45,673 $ 121,297
Accounts payable .................................. 25,741 22,505
Air traffic liability ............................. 3,445 2,128
Accrued compensation .............................. 3,056 2,324
Other accrued expenses ............................ 15,264 20,654
--------- ---------
Total current liabilities ...................... 93,179 168,908
Long-term debt, excluding current portion ........... 135,533 114,234
Deferred credits .................................... 11,641 6,111
Accrued maintenance ................................. -- 18,085
--------- ---------
Total liabilities .............................. 240,353 307,338
--------- ---------
Commitments and contingencies (notes 4, 7, 12, 17 and 18)
Stockholders' equity:
Common stock of no par value, 75,000,000 shares
authorized; 32,286,303 and 34,197,752 shares
issued and outstanding ......................... 112,759 123,492
Retained earnings (accumulated deficit) ........... 31,815 (27,057)
--------- ---------
Total stockholders' equity ..................... 144,574 96,435
--------- ---------
Total liabilities and stockholders' equity ..... $ 384,927 $ 403,773
========= =========
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,
-------------------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 58,872 $(13,412) $(50,467)
Adjustments to reconcile net income (loss) to net cash flows
provided by
(used in) operating activities:
Depreciation and amortization ............................ 15,630 18,053 26,637
Provision for cancellation of code share agreements and
other operating items ................................. -- (14,027) 40,443
Impairment of long-lived assets .......................... -- 20,562 --
Write-off of goodwill .................................... -- 8,340 --
Cumulative effect of change in accounting principle ...... (18,085) -- --
Deferred income taxes .................................... (13,349) -- (1,600)
Loss(gain) loss on disposal of property and equipment .... -- 164 (20)
Gain on sale of investment securities .................... 533 (1,213) (4,544)
Amortization and write-off of deferred credits ........... -- (529) (5,721)
Provision for doubtful accounts .......................... 235 159 1,036
Changes in assets and liabilities:
Receivables ........................................... (11,095) (1,865) 29,235
Refundable income taxes ............................... -- 9,057 (2,058)
Expendable parts and supplies ......................... (2,989) 6,960 1,405
Prepaid expenses and other current assets ............. 3,599 (5,938) 3,656
Accounts payable ...................................... 3,236 4,721 (12,229)
Other accrued liabilities ............................. (3,341) 731 (42,240)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ... 33,246 31,763 (16,467)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (40,245) (16,140) (9,774)
Proceeds from sale of property and equipment ............... -- 50,637 17,659
Net (purchases) sales of investment securities ............. (4,908) (2,093) 11,102
Change in other assets ..................................... (865) 1,559 (481)
Lease and equipment deposits ............................... (465) (11,800) (1,161)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .. (46,483) 22,163 17,345
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ................... -- -- 29,697
Principal payments on long-term debt and obligations under
capital leases ........................................... (8,062) (37,997) (53,447)
Proceeds from issuance of common stock ..................... 51 1,308 2,200
Change in short-term borrowings ............................ -- -- (904)
Common stock purchased and retired ......................... (10,784) -- --
Change in deferred credits ................................. 5,530 -- --
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES ................. (13,265) (36,689) (22,454)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............... (26,502) 17,237 (21,576)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............. 52,905 35,668 57,244
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 26,403 $ 52,905 $ 35,668
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized ... $ 15,992 $ 15,702 $ 15,889
Cash paid for income taxes ........................... -- -- 4,138
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Return of aircraft for reduction of long-term debt and
accrued interest........................................ $ 46,263 -- --
Acquisition of property and equipment financed with
note to seller ......................................... -- $ 1,100 --
Reversal of accrued maintenance due to change in
accounting method ...................................... $ 18,085 -- --
See accompanying notes to consolidated financial statements.
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MESA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
RETAINED ACCUMULATED
EARNINGS OTHER
YEARS ENDED SEPTEMBER 30, NUMBER OF COMMON COMPREHENSIVE (ACCUMULATED COMPREHENSIVE
2000, 1999, AND 1998 SHARES STOCK LOSS DEFICIT) INCOME TOTAL
- ------------------------------- ---------- ----------- ------------- ----------- ----------- -----------
Balance at September 30, 1997 . 33,104,652 $ 119,164 $ 54,465 $ 3,041 $ 176,670
Exercise of stock options ..... 159,745 667 -- -- 623
Issuance of stock ............. 649,363 3,125 -- -- 3,125
Grant of compensatory
warrants .................... -- 240 -- -- 240
Retirement of stock ........... (186,420) (1,022) -- -- (1,022)
Other comprehensive income:
Net unrealized change in
investment securities, net
of taxes .................. -- -- (3,041) -- (3,041) (3,041)
Net loss .................... -- -- (50,467) (50,467) -- (50,467)
-----------
Total comprehensive loss ...... -- -- $ (53,508) -- -- --
===========
CCAIR, Inc. net loss for the
six months ended December 31,
1997 ........................ -- -- (17,523) -- (17,523)
---------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 . 33,727,340 122,174 (13,525) -- 108,649
Exercise of stock options ..... 470,412 1,318 -- -- 1,308
Net loss and total
comprehensive loss .......... -- -- (13,412) -- (13,412)
CCAIR, Inc. net loss for the
quarter ended December 31,
1998 ........................ -- -- (120) -- (120)
---------- ----------- ----------- ----------- -----------
Balance at September 30,1999 .. 34,197,752 123,492 (27,057) -- 96,435
Exercise of stock options ..... 50,951 51 -- -- 47
Common stock purchased and
retired ....................... (1,962,400) (10,784) (10,784)
Net income and total
comprehensive income ........ -- -- 58,872 -- 58,872
---------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 . 32,286,303 $ 112,759 $ 31,815 -- $ 144,574
========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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MESA AIR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Organization
The accompanying consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America
and include the accounts of Mesa Air Group, Inc. and its wholly-owned
subsidiaries (collectively Mesa or the Company): Mesa Airlines, Inc. ("MAI"), a
Nevada corporation and certificated air carrier; WestAir Holdings, Inc., a
California corporation and owner of certificated air carrier WestAir Commuter
Airlines, Inc. (WestAir Commuter Airlines, Inc. ceased operations in 1998); Air
Midwest, Inc. ("Air Midwest"), a Kansas corporation and certificated air
carrier; CCAIR, Inc. ("CCAIR"), a Delaware corporation and certificated air
carrier; MPD, Inc., a Nevada corporation, doing business as Mesa Pilot
Development; FCA, Inc., a Nevada Corporation, doing business as Four Corners
Aviation (in fiscal 1999, substantially all of the assets of FCA, Inc. were sold
and FCA, Inc. ceased operations); Mesa Leasing, Inc., a Nevada corporation and
MAGI Insurance, Ltd., a Barbados, West Indies based captive insurance company.
MPD, Inc. provides pilot training in coordination with a community college. MAGI
Insurance, Ltd. is a captive insurance company created to handle freight and
baggage claims in addition to a portion of the Company's aviation insurance. All
significant intercompany accounts and transactions have been eliminated in
consolidation
The Company's airline subsidiaries have agreements (commonly referred to as
"code share") with America West (one agreement) and US Airways (five separate
agreements) to provide scheduled airline service using the branding and many of
the marketing functions and benefits of the major carriers. Approximately 95%,
96% and 96% of the Company's airline revenues for the years ended September 30,
2000, 1999 and 1998, respectively, were derived from code share agreements.
Amounts included in accounts receivable as a percentage of the Company's total
accounts receivable from the code share partners were 33% and 12% at September
30, 2000 and 1999, respectively.
The America West agreement and the US Airways regional jet agreement are
contract agreements, wherein the Company receives guaranteed payments for each
flight operated, based on the terms of the contracts. Certain variable costs
such as fuel are passed directly to the Company's partners in these contract
agreements.
The Company's four US Airways turboprop code share agreements are prorate
agreements, in which the Company is allocated a portion of each passenger's fare
based on a standard industry formula, and requires the Company to pay all of the
costs of transporting the passenger.
Renewal of one code share agreement with a code share partner does not guarantee
the renewal of any other code share agreement with the same code share partner.
The agreement with America West has a seven-year term, and the agreements with
US Airways vary from two to eight years. Although the provisions of the code
share agreements vary from contract to contract, generally each agreement is
subject to cancellation should the Company's subsidiaries fail to meet certain
operating performance standards, breach other contractual terms and conditions
and, in the case of the US Airways code share agreements (other than the
regional jet service agreement and the Kansas City code share agreement
described below), upon six months notice by either party.
A termination or expiration without renewal of the America West or US Airways
contract code share agreements, or more than one of the prorate agreements would
have a material adverse effect on the Company's business prospects, financial
position, results of operations and cash flows.
The Company also operates as Mesa Airlines from a hub in Albuquerque, New
Mexico. The Albuquerque hub operation is not subject to a code share agreement.
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Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At September 30, 2000, the Company
had $ 2.8 million of cash restricted as collateral for letters of credit.
Marketable Securities
Marketable securities consist of shares of common stock and are stated at market
value as determined by the most recently traded price of each security at the
balance sheet date. All marketable securities are defined as trading securities
under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Receivables
The passenger tickets collected by the Company at the time of travel are
primarily sold by the code share partners as discussed above. As a result, the
Company has a significant concentration of its Accounts receivable tied to its
relationship with these code share partners. In additions, the Company generally
has substantial receivable from its code share partners related to its contract
revenues.
Expendable Parts and Supplies
Expendable parts and supplies are stated at the lower of cost using the
first-in, first-out method or market, and are charged to expense as they are
used.
Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated
useful lives to their estimated salvage values using the straight line method.
Estimated useful lives of the various classifications of property and equipment
are as follows:
Buildings................ 30 years
Flight equipment......... 7-20 years
Equipment................ 5-12 years
Furniture and fixtures... 3-5 years
Vehicles................. 5 years
Leasehold improvements... Life or term of
lease, whichever is less
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the asset. Certain long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
Interest related to deposits on aircraft purchase contracts is capitalized as
part of the aircraft. The Company capitalized approximately $1.5 million and
$0.9 million of interest in fiscal 2000 and 1999, respectively.
Intangible Assets
The Company evaluates the recoverability of its intangible assets by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with such assets. At the time such evaluations indicate that
the future undiscounted cash flows are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their fair values.
The fiscal 1991 purchase of Air Midwest resulted in purchased intangible
goodwill of approximately $10.2 million, which is amortized over a 20-year
period. The unamortized cost of goodwill was reduced to approximately $4.7
million in 1999 as
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a result of tax benefits realized through utilization of net operating loss and
investment tax credit carryovers acquired in the Air Midwest purchase.
In fiscal 1994, the Company entered into separate asset purchase agreements
related to developing its operations as US Airways Express. Resulting goodwill
of approximately $21.8 million is amortized over a 20-year period. During fiscal
1999, the Company determined that the goodwill amount related to a separately
identified segment of the acquired US Airways Express operations was impaired
and, accordingly, a charge of approximately $8.3 million was recognized to
write-off the unamortized balance of the asset.
Income Taxes
Income taxes are accounted for under the asset and liability method. 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 and operating
loss and tax credit carryforwards. 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. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company and its subsidiaries file a consolidated federal income tax return.
Deferred Credits
Deferred credits consist of lease incentives received at lease inception and
other credits related to the aircraft and are amortized on a straight-line basis
as a reduction of lease expense over the term of the respective leases.
Revenue Recognition
Revenue is recognized when transportation is provided. Pursuant to Prorate
Agreements and in the Independent Operation, tickets sold but not yet used are
included in air traffic liability. The Company receives subsidies for providing
scheduled air service to certain small or rural communities. Such revenue is
recognized in the period to which the payments relate. The amount of the subsidy
payments is determined by the United States 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.
Maintenance Expense
The normal cost of recurring maintenance is charged to expense as incurred.
Effective October 1, 1999, the Company elected to change its method of
accounting for engine and airframe maintenance costs on its Canadair regional
jet aircraft and engine maintenance on its Dehavilland Dash 8-200 aircraft from
the accrual method to the direct expense method (see note 2). The Company now
uses the direct expense method for all maintenance. Prior to the change, the
Company used the accrual method for these aircraft.
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Earnings (Loss) Per Share
The Company accounts for earnings (loss) per share in accordance with SFAS No.
128, "Earnings per Share." Basic net income per share is computed by dividing
net income by the weighted average number of common shares outstanding during
the periods presented. Diluted net income per share reflects the potential
dilution that could occur if outstanding stock options were exercised. The
calculation of the weighted average number of shares outstanding is as follows:
YEARS ENDED SEPTEMBER 30,
----------------------------
2000 1999 1998
--------- --------- -------
(IN THOUSANDS)
Weighted average shares outstanding-basic 33,109 33,826 33,636
Effect of dilutive outstanding stock options 81 - -
------ ------ ------
Weighted average shares outstanding-diluted 33,190 33,826 33,636
====== ====== ======
The effect of certain options to purchase 605,000 and 447,000 shares of common
stock in fiscal 1999 and 1998 would have been antidilutive to the per share
calculation. Accordingly, those options were excluded from the calculation.
Stock Options
The Company accounts for its stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Effective October 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize the fair value of
all stock-based awards on the date of grant over the vesting period.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
measurement provisions of APB Opinion No. 25 and provide pro forma net earnings
and pro-forma earnings per share disclosures for employee stock option grants
made in fiscal 1996 and future years as if the fair value based measurement
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the measurement provisions of APB Opinion No. 25, and to
provide pro-forma disclosures required by SFAS No. 123. (See note 9.)
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The statement requires disclosures related
to components of a company for which separate financial information is available
that is evaluated regularly by a company's chief operating decision maker in
deciding the allocation of resources and assessing performance. The Company is
engaged in one line of business, the scheduled and chartered transportation of
passengers, which constitutes nearly all of its operating revenues.
Comprehensive Income
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes a standard for
reporting and displaying comprehensive income and its components in the
consolidated financial statements. Comprehensive income includes charges and
credits to stockholders' equity that are not the results of transactions with
shareholders.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and hedging activities and requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
such instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
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"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June
15, 2000. The adoption of SFAS No. 133 did not have a material effect on the
Company's financial condition, results of operations or liquidity.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Adoption of SAB No. 101 did not
have a material impact on the Company's financial condition, results of
operations or liquidity.
Reclassifications
Certain reclassifications were made to the 1999 and 1998 financial statements to
conform to the 2000 presentation.
2. CHANGE IN ACCOUNTING PRINCIPLE
Effective October 1, 1999, the Company elected to change its method of
accounting for engine and airframe maintenance costs on its CRJ aircraft and
engine maintenance on its DeHavilland Dash 8-200 aircraft from the accrual
method to the direct expense method. Under the accrual method, maintenance costs
were accrued to expense on the basis of estimated future costs and estimated
cycles or flight hours between major maintenance events. Implementation of the
change necessitated the write-off of previously recorded accrued amounts.
Effective October 1, 1999, the Company expensed these maintenance costs as they
are incurred. The cumulative effect of the change for prior years was a
favorable adjustment of $18.1 million, net of tax. Due to the valuation
allowance at October 1, 1999, there is no tax effect related to the cumulative
effect of the change. The impact of the change in fiscal 2000 totaled
approximately $4.9 million, which is included as a reduction of maintenance
expense.
The pro forma results, assuming that the accounting change was applied
retroactively, is shown below (in thousands, except per share data):
Years ended September 30, 1999 1998
-------------------- -------------------
As As
Pro previously Pro previously
Forma reported Forma reported
----- -------- ----- --------
Net loss $(7,675) $(13,412) $(44,685) $(50,467)
Net loss per share: Basic and Diluted $ (.23) $ (.40) $ (1.33) $ (1.50)
3. MERGER WITH CCAIR
Effective June 9, 1999, Mesa Merger Corporation, a wholly-owned subsidiary of
the Company, merged with and into CCAIR. In connection therewith, the Company
issued approximately 5.9 million shares of its common stock in exchange for all
of the outstanding common stock of CCAIR.
The merger was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements for the years ended September 30,
1999 and 1998 have been restated to include the results of CCAIR.
Combined results are as follows (in thousands): Combined and separate results of
Mesa and CCAIR are as follows (in thousands):
MESA CCAIR ADJUSTMENTS COMBINED
---- ----- ----------- --------
Year ended September 30, 1999
Operating revenues................. $ 325,559 $ 79,057 $ -- $ 404,616
Net earnings (loss)................ $ (16,428) $ 2,194 $ 822 $ (13,412)
Year ended September 30, 1998
(CCAIR as of December 31, 1998)
Operating revenues................. $ 423,541 $ 71,325 $ -- $ 494,866
Net earnings (loss)................ $ (53,434) $ 3,380 $ (413) $ (50,467)
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The combined financial information contains adjustments to conform the
accounting policies of the two companies. This conforming adjustment reflects
the restatement of CCAIR's engine overhaul amounts to the direct expense method
from the accrual method from July 1, 1997 forward. Mesa owned 300,000 shares of
common stock in CCAIR prior to the merger, which has been accounted for as a
stock repurchase as of the date acquired.
The consolidated financial statements for the year ended September 30, 1998 have
not been restated to change CCAIR's fiscal year from December 31, 1998 to
September 30. Those consolidated financial statements include the Company's
results of operations on a September 30 fiscal year and CCAIR's for the twelve
month period ended December 31, 1998. CCAIR changed its fiscal year end from
June 30 to December 31 in 1997. The year ends have been conformed beginning
October 1, 1998 and include CCAIR's results of operations for the quarter ended
December 31, 1998, which results were also included in its year ended December
31, 1998. CCAIR reflected net income from operations for the quarter of $120,000
which has been reflected as an adjustment to retained earnings in the
accompanying consolidated financial statements.
4. MARKETABLE SECURITIES
The Company has a cash management program which provides for the investment of
excess cash balances primarily in short-term money market instruments,
intermediate-term debt instruments and common equity securities of companies
operating in the airline industry.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", requires that all applicable investments be classified as trading
securities, available for sale securities or held to maturity securities. All of
the Company's investments are classified as trading securities during the
periods presented and accordingly, are carried at market value with changes in
value reflected in current period operations.
From time to time, the Company enters into short positions on common equity
securities when management believes that the Company may capitalize on downward
moves in particular securities. The Company marks short positions to market at
each reporting period with changes in value reflected in current period
earnings. Included in marketable securities are liabilities related to short
positions on common equity securities of $3.0 million at September 30, 2000.
Trading gains and (losses) for the period that relate to trading securities held
at September 30, 2000 and 1999 were ($538,177) and $167,000, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30,
----------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Flight equipment, substantially pledged . $ 224,343 $ 190,974
Other equipment ......................... 21,653 19,285
Leasehold improvements .................. 5,366 4,457
Furniture and fixtures .................. 2,372 2,603
Buildings ............................... 4,126 4,150
Vehicles ................................ 1,148 1,573
--------- ---------
259,008 223,042
Less accumulated depreciation and
amortization .......................... (73,099) (62,589)
--------- ---------
Net property and equipment .............. $ 185,909 $ 160,453
========= =========
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6. OTHER ACCRUED EXPENSES AND DEFERRED CREDITS
Other accrued expenses consist of the following:
SEPTEMBER 30,
-----------------------
2000 1999
------- -------
(IN THOUSANDS)
Accrued compensation and benefits $ 7,074 $ 6,371
Accrued interest ................ 3,261 1,640
Landing fees .................... 1,478 2,125
Accrued legal fees .............. 913 1,257
UAL and severance ............... 779 826
Accrued station and airport costs 1,137 1,720
Other ........................... 622 6,715
------- -------
$15,264 $20,654
======= =======
Deferred credits include lease incentives which are amortized on a straight-line
basis over the life of the lease. The fiscal 2000 balance includes approximately
$5.7 million related to a settlement reached with Bombardier Regional Aircraft
Division ("BRAD") which is being amortized over the life of the aircraft leases.
The unamortized amount totaled $4.6 million at September 30, 2000.
7. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30,
----------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Notes payable to manufacturers: approximately $1.5
million, including interest, due monthly through 2011. Notes
provide variable rates of interest ranging from
6.87% to 7.5% at September 30, 2000, collateralized by
aircraft ................................................... $ 171,388 $ 220,079
Note payable to manufacturer. Payable in 10 equal
semi-annual principal payments commencing March
31,1999, interest payable quarterly at 7% per annum ......... 6,506 8,336
Mortgage note payable to bank, collateralized by real
estate, due Monthly: interest only in year one at 7%,
years 2-10 Principal plus interest at 7-1/2%, with
balance due April 2009 ..................................... 1,087 1,114
Other ........................................................ 2,225 2,366
Notes paid in 2000 ........................................... -- 3,636
--------- ---------
Total long-term debt ......................................... 181,206 235,531
Less current portion ......................................... (45,673) (121,297)
--------- ---------
Net long-term debt ........................................... $ 135,533 $ 114,234
========= =========
Principal maturities of long-term debt for each of the next five years and
thereafter are as follows:
YEARS ENDING SEPTEMBER 30,
--------------------------
(IN THOUSANDS)
2001...... $ 45,673
2002...... 5,152
2003...... 5,495
2004...... 5,856
2005...... 6,191
Thereafter 112,839
At September 30, 1999, Mesa determined that 30 surplus Beech 1900D aircraft
would be disposed of and an impairment charge of $20.6 million was recorded.
During fiscal 2000, 17 of the planes were sold. Sixteen of the 17 planes were
sold to Raytheon Aircraft Credit Corporation ("RACC") for the approximate amount
of the underlying notes. A gain of approximately $0.2 million resulted from the
transaction which will be amortized over the remaining RACC debt. Additionally,
the sales agreement provides the Company with an option to sell 11 aircraft to
RACC in fiscal 2002 and fiscal 2003 at approximately $2.9 million per aircraft
which approximates the value of the underlying debt. Unpaid amounts
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associated with aircraft held for sale at September 30, 2000 and classified as a
current liability in the accompanying consolidated balance sheet totaled $39.5
million.
8. COMMON STOCK PURCHASE AND RETIREMENT
In December 1999, the Company's board of directors authorized the repurchase, at
management's discretion, of up to 10% of the Company's outstanding shares of
common stock. The Company's purchases are retired and result in a reduction of
stockholders' equity. As of September 30, 2000, the Company had acquired
approximately 2.0 million shares of its common stock at an aggregate cost of
approximately $10.8 million.
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
2000 1999 1998
-------- ------- --------
(IN THOUSANDS)
Current:
Federal ........ $ 9 $ 422 $ (6,162)
State .......... 585 175 --
-------- ------- --------
594 597 (6,162)
-------- ------- --------
Deferred:
Federal ........ (11,762) -- (1,451)
State .......... (1,588) -- (149)
-------- ------- --------
(13,350) -- (1,600)
-------- ------- --------
$(12,756) $ 597 $ (7,762)
======== ======= ========
The actual income tax expense (benefit) differs from the statutory tax expense
(benefit) (computed by applying the U.S. federal statutory income tax rate of 35
percent to income or loss before income taxes) is as follows:
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
2000 1999 1998
-------- ------- --------
(IN THOUSANDS)
Computed "expected" tax expense (benefit) ...... $ 9,811 $(4,485) $(20,380)
Increase (reduction) in income taxes
resulting from:
Non-deductible amortization of intangibles ... 93 207 98
Utilization of net operating loss carryforward -- -- (1,183)
State taxes, net of federal taxes(benefit) ... (652) 114 (97)
Other ........................................ (135) (636) (700)
(Decrease)in valuation allowance ............... (21,873)) 5,397 14,500
-------- ------- --------
$(12,756) $ 597 $ (7,762)
======== ======= ========
Elements of deferred income tax assets (liabilities) are as follows:
SEPTEMBER 30,
--------------------------
2000 1999
-------- --------
(IN THOUSANDS)
Current deferred tax assets(liabilities):
Inventory .......................... $ 2,044 $ 5,170
Accrued expenses ................... 3,505 279
Other accrued liabilities .......... 2,876 11,376
Nondeductible reserves ............. 102 19,642
-------- --------
Total current deferred taxes ............ $ 8,527 $ 36,467
======== ========
Noncurrent deferred taxes
Alternative minimum tax ............. $ 2,820 $ 2,751
Net operating loss ................. 52,459
48,145
Valuation allowance ................ -- (28,497)
Property and equipment ............. (46,143) (63,180)
-------- --------
Total noncurrent deferred taxes ......... $ 4,822 $(36,467)
======== ========
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Deferred tax assets include benefits expected to be realized from the
utilization of minimum tax credit carryforwards of approximately $2.8 million
which do not expire and net operating loss carryforwards of approximately $93.5
million which expire at various dates between 2002 and 2018, respectively. In
addition, CCAIR has $14.5 million in net operating loss carryforwards which are
subject to certain limitations and expire at various dates between 2006 and
2018. During fiscal 1999, the valuation allowance was increased by approximately
$5.4 million. During 2000, the $28.5 million valuation allowance was reversed,
as the Company believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
asset.
10. STOCKHOLDERS' EQUITY
At September 30, 2000, the Company sponsored the following stock-based
compensation plans:
In March 1993, and December 1994, the Company adopted stock option plans for
outside directors. These plans originally provided for the grant of options for
up to 450,000 shares of common stock at fair market value on the date of grant.
These are formula-based plans under which options to acquire 210,245 shares have
been granted and are still outstanding. At September 30, 2000, no options are
available for grant under this plan.
On December 1, 1995, the Company adopted an employee stock option plan under the
new management incentive program (Omnibus Plan) which provided for the granting
of options to purchase up to 2,800,000 shares of Company common stock at the
fair market value on the date of grant. On July 24, 1998, an additional
1,500,000 options were approved by the stockholders to be granted under this
plan. At September 30, 2000, options to acquire 2,902,527 common shares had been
granted that were still outstanding.
On June 1, 1998, the Company adopted a Key Officer Stock Option Plan, which
provided for the granting of options to purchase up to 1,600,000 shares of the
Company's common stock at the fair market value on the date of grant. Under this
plan, 1,525,000 options have been granted and options to acquire 75,000 shares
are available for future grants.
In 1999, the Company adopted the 1999 Non-Qualified Stock Option Plan and issued
options to acquire 189,527 shares in connection with the CCAIR merger. No
further options are available for grant under this plan.
Generally, options granted to employees vest over a three-year period and
options granted to directors vest immediately upon grant.
Transactions involving stock options under these plans are summarized as
follows:
2000 1999 1998
----------------------- ------------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
----- -------- ----- -------- ----- -------
Outstanding at beginning of
year: ................... 5,910 $ 8.27 5,165 $ 8.29 4,174 $ 8.49
Granted ................... 718 5.68 1,305 5.86 1,619 8.05
Exercised ................. (51) 3.64 (470) 2.78 (128) 4.67
Canceled/Forfeited ........ (63) 6.36 (90) 5.32 (500) 9.75
----- ----- -----
Outstanding at end of
Year .................... 6,514 $ 8.09 5,910 $ 8.24 5,165 $ 8.34
===== ===== =====
At September 30, 2000, the range of exercise prices for the aforementioned
options was $1.91 to $11.88. The number of options exercisable at September 30,
2000 was 3,507,320, and the weighted-average exercise price of these options was
$8.09.
The per share weighted-average fair value of stock options granted during 2000,
1999 and 1998 was $3.15, $4.24, and $3.24, respectively, on the grant date using
a Black-Scholes option pricing model with the following average assumptions:
expected dividend yield 0.0%, risk-free interest rate of 5.9% in 2000, 4.5% in
1999 and 5.9% in 1998, volatility of 54.2% in each year and an expected life of
6 years.
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The Company applies the provisions of APB No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has been recognized for awards made pursuant to its fixed stock option
plans. Had the compensation cost for Mesa's four fixed stock-based compensation
plans been determined consistent with the measurement provisions of SFAS No.
123, Mesa's net income(loss) and income(loss) per share would have been as
indicated by the pro forma amounts indicated below:
2000 1999 1998
---------- ---------- ----------
Net income(loss) as reported..... $ 58,872 $ (13,412) $ (50,467)
========== ========== ==========
Pro forma .................. $ 57,138 $ (18,863) $ (50,741)
========== ========== ==========
Income(loss) per share - Basic:
As reported ................ $ 1.78 $ (0.40) $ (1.50)
========== ========== ==========
Pro forma .................. $ 1.73 $ (0.56) $ (1.51)
========== ========== ==========
Income(loss) per share - Diluted:
As reported ................ $ 1.77 $ (0.40) $ (1.50)
========== ========== ==========
Pro forma .................. $ 1.72 $ (0.53) $ (1.51)
========== ========== ==========
11. BENEFIT PLANS
The Company has a 401(K) plan covering the employees of MAI, Air Midwest and the
airline support operations (the Mesa Plan). Under the Mesa Plan, employees may
contribute up to 15 percent of their annual compensation, as defined, with the
Company making matching contributions of 50 percent of employee contributions up
to 10 percent of annual employee compensation. Upon completing three years of
service, the employee is 20 percent vested in employer contributions and the
remainder of the employer contributions vest 20 percent per year thereafter.
Employees become fully vested in employer contributions after completing seven
years of employment. The Company has the right to terminate the 401(k) plans at
any time. Contributions by the Company to the Mesa and WestAir Plans for the
years ended September 30, 2000, 1999 and 1998 were approximately $.7 million,
$1.5 million and $1.7 million, respectively.
The Company also has a 401(k) plan covering the employees of CCAIR. The CCAIR
plan allows employees to defer up to 17% of annual compensation. Company
matching contributions vary in accordance with labor agreements in force for
contract employees. For non-contract employees, the match is determined annually
by the Company's Board of Directors. Upon completing two years of service, the
employee is 20 percent vested in employer contributions and the remainder of the
employer contributions vest 20 percent per year. Employees become fully vested
in employer contributions after completing six years of employment.
Contributions by CCAIR to this plan were approximately $0.3 million and $0.4
million in fiscal 2000 and 1998, respectively. There were no contributions made
in fiscal 1999.
12. LEASE COMMITMENTS
At September 30, 2000, the Company leased 93 aircraft under non-cancelable
operating leases with remaining terms of up to 17 years. The aircraft leases
require the Company to pay all taxes, maintenance, insurance and other operating
expenses. The Company has the option to terminate certain of the leases at
various times throughout the lease. At September 30, 2000, three CRJ aircraft
are subject to interim financing agreements. The Company expects to replace
these interim arrangements with long-term operating leases and, accordingly,
requirements under the interim arrangements are included in the minimum lease
commitment table below.
Aggregate rental expense totaled approximately $63.0 million, $46.9 million (net
of approximately $8.0 million in aircraft rental payments recorded against the
United Express code-share provision (note 16)) and $53.6 million for the years
ended September 30, 2000, 1999 and 1998 respectively.
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Future minimum lease payments under non-cancelable operating leases are as
follows:
YEARS ENDING SEPTEMBER 30: (IN THOUSANDS)
-------------------------- --------------
2001 ..................... $ 82,424
2002 ..................... 81,590
2003 ..................... 80,462
2004 ..................... 79,945
2005 ..................... 73,801
Thereafter ............... 712,238
13. COMMITMENTS AND CONTINGENCIES
In fiscal 1999, the Company entered into an agreement with Embraer to acquire 36
fifty-seat ERJ-145 ("ERJ") regional jets. The Company secured the order with an
$11.8 million deposit. The Company also received options to purchase 64
additional aircraft. Deliveries commenced in April 2000 and are expected to
continue through 2002 at a rate of approximately one aircraft per month. The
transaction includes standard product support provisions, including training
support, preferred initial provisioning pricing, maintenance support and
technical publication support. The aggregate value of the 36 ERJs to be acquired
under the agreement is approximately $702 million.
The Company has negotiated 10-year engine maintenance contracts with General
Electric Aircraft Engines ("GE") and Pratt and Whitney, Canada Aircraft Services
("PWC"). The GE contract provides coverage for engines on the Company's CRJ
aircraft. The PWC contract provides coverage for engines on the Company's Dash
8-200 aircraft. Both contracts provide for payment at the time of the repair
event for a fixed dollar amount per flight hour, subject to escalation based on
changes in the CPI, for the number of flight hours incurred since the previous
repair event.
The Company is also a party to various legal proceedings and claims arising in
the ordinary course of business. Although the ultimate outcome of pending
lawsuits cannot be determined, the Company believes, based upon currently
available information, that the ultimate outcome of all the proceedings and
claims pending against the Company will not have a material adverse effect on
the Company's consolidated financial position.
14. FINANCIAL INSTRUMENT DISCLOSURE
The carrying amount of cash and cash equivalents, receivables, refundable
income taxes, accounts payable, income taxes payable, accrued compensation and
other liabilities approximate fair values due to the short maturity periods of
these instruments. The fair value of securities is based on quoted marked prices
(see note 3). The carrying value of the Company's long-term debt approximates
fair value based on the current terms offered for debt of the same or similar
remaining maturities. The difference between the estimated fair values and
carrying values of the Company's financial instruments is not material.
15. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
BEGINNING OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------------- ----------- ---------- -----------
(IN THOUSANDS)
ALLOWANCE FOR OBSOLESCENCE DEDUCTED
FROM EXPENDABLE PARTS AND SUPPLIES
September 30, 2000 ................. $2,313 $ -- $(465) $1,848
September 30, 1999 ................. 2,418 -- (105) 2,313
September 30, 1998 ................. 3,097 -- (679) 2,418
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16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected unaudited quarterly financial data (in
thousands):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2000 (1)
Operating revenues .... $110,953 $114,617 $120,998 $ 125,044
Operating income (loss) 9,147 8,962 13,819 9,886
Net earnings (loss) ... 26,746 5,841 9,379 16,906
Net earnings (loss) per
share -- basic ...... 0.78 0.18 0.30 .52
Net earnings (loss) per
share -- diluted .... 0.78 0.17 0.30 .52
1999 (2)
Operating revenues .... $ 97,720 $ 97,194 $105,272 $ 104,430
Operating income (loss) 5,838 7,587 8,374 (19,670)
Net earnings (loss) ... 1,762 4,302 4,782 (24,258)
Net earnings (loss) per
share -- basic ...... 0.05 0.13 0.14 (0.72)
Net earnings (loss) per
share -- diluted .... 0.05 0.13 0.14 (0.72)
(1) The quarterly amounts have been restated to record the effect of the change
in the method of accounting for maintenance costs from the accrual method to the
direct expense method.
(2) The net loss in the fourth quarter ended September 30, 1999 includes an
asset impairment charge of $28.9 million.
17. OTHER OPERATING ITEMS
Other operating items consist of the following expenses (income):
SEPTEMBER 30,
-------------------------
1999 1998
-------- -------
(IN THOUSANDS)
Provision for non-renewal of the WestAir and
Early termination of the UAL code-share agreement
(elimination of excess reserve) ................. $(14,027) $26,843
Cessation of Ft. Worth jet operations ............. -- 4,000
Settlement of shareholder lawsuit ................. -- 2,500
-------- -------
$(14,027) $33,343
======== =======
In November 1997, WestAir received written notice from UAL that WestAir's
code-sharing agreement would not be renewed. On several occasions subsequent to
November 1997, management sought a reconsideration of UAL's decision not to
renew the WestAir code-sharing agreement. In January 1998, UAL confirmed that it
would not reconsider renewing WestAir's code-sharing agreement upon its
expiration. WestAir had significant assets in excess of its needs upon
expiration of the agreement on May 31, 1998. Accordingly, by resolution of the
Board of Directors on January 10, 1998, the Company recognized a provision to
provide for the cost of discontinuation of WestAir operations.
The $72.1 million provision recognized in fiscal 1997 provided for the estimated
loss on the retirement or sale of aircraft, parts and equipment which were
surplus to the needs of Mesa upon expiration and early termination of the
code-share agreements. In addition, the provision included an estimate for all
other anticipated costs of discontinuation of the WestAir, Denver and Pacific
Northwest operations. The provision consisted of an impairment charge of $26.3
million for the Denver intangibles; $39.5 million for costs to sell or retire
aircraft and related parts and equipment; and $6.3 million for severance and
other costs.
On January 22, 1998, the Company received notice from UAL of the termination of
the Company's code-sharing agreement covering the Denver, Pacific Northwest and
Los Angeles markets to be effective April 22, 1998. UAL also terminated
WestAir's markets in the Pacific Northwest as of April 22, 1998. The Company
notified UAL that the Company considered
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the termination notice, although improper, wrongful and arbitrary, to have been
effective as of February 6, 1998, 15 days after issuance of the January 22, 1998
termination notice in accordance with the termination provisions of the
contract. All service to these markets was discontinued by April 22, 1998. UAL's
new code share partners for these markets did not require (and therefore
purchase) the Company's aircraft and equipment associated with these operations.
Consequently, the Company recorded a $33.9 million charge in fiscal 1998 to
provide for costs to dispose of or reposition certain aircraft, as well as other
costs to shut down the Denver system.
Termination of the Company's and WestAir's code-sharing agreement with UAL
resulted in a surplus of 21 British Aerospace Jetstream 31 aircraft, 29 Embraer
EMB-120 aircraft, 39 1900D aircraft and 11 Dash-8 aircraft. The Jetstream 31
aircraft, the EMB-120 aircraft and the Dash-8 aircraft are subject to long-term
leases. Although the surplus 1900D Beech aircraft are not specifically
identified, the majority of these aircraft are owned with an average net book
value of approximately $3.3 million per aircraft.
The Company recognized a charge of approximately $4.0 million during fiscal 1998
to provide for expenses arising from the closure of facilities associated with
the Fort Worth, Texas independent jet operation and repositioning of the related
aircraft.
The changes in the restructuring reserves related to the UAL code-share
agreements and the Ft. Worth operations are summarized as follows:
RESERVE RESERVE RESERVE RESERVE
SEPT. 30 SEPT. 30, SEPT. 30, SEPT. 30,
1997 PROVISION UTILIZED 1998 UTILIZED RELEASED 1999 UTILIZED 2000
-------- --------- -------- -------- -------- -------- --------- -------- ---------
Aircraft and related
parts................. $39,500 $ 21,943 $(34,172) $ 27,271 $(13,244) $(14,027) $ -- $ -- $ --
Denver intangibles .... 26,343 -- (26,343) -- -- -- -- -- --
Severance and other ... 6,257 12,000 (11,423) 6,834 (6,008) -- 826 (590) 236
Ft. Worth operations .. -- 4,000 (3,723) 277 (277) -- -- -- --
------- -------- -------- -------- -------- -------- ----- ----- ----
$72,100 $ 37,943 $(75,661) $ 34,382 $(19,529) $(14,027) $ 826 $(590) $236
======= ======== ======== ======== ======== ======== ===== ===== ====
Mesa believes that the reserves remaining at September 30, 2000 will be adequate
to satisfy any remaining costs associated with the UAL Code Share Agreement
cancellations.
18. RELATED PARTY TRANSACTIONS
In August 1998, CCAIR entered into a letter agreement with Barlow Partners, L.P.
("Barlow") pursuant to which Barlow agreed to act as CCAIR's exclusive financial
advisor with respect to possible business combinations involving CCAIR. Under
the terms of that agreement, Barlow received a fee from CCAIR equal to two
percent (2%) of the aggregate consideration paid by Mesa upon the closing of the
merger transaction ($1.1 million). Jonathan Ornstein, Chairman of the Board and
Chief Executive Officer of Mesa, and James Swigart, member of the Board of
Directors of Mesa, are partners in Barlow. George Murnane III, member of the
CCAIR Board of Directors, is also a partner in Barlow. Upon the completion of
the merger, Mr. Murnane became a member of the Mesa Board of Directors.
On September 9, 1998, the Company entered into an agreement with International
Airline Support Group ("IASG") whereby Mesa would consign certain surplus
airplane parts to IASG to sell on the open market. IASG in turn would submit
proceeds to Mesa less a market-based fee. During fiscal 2000, the Company paid
IASG approximately $611,000 in commissions on sales of surplus aircraft parts.
Additionally, the Company has leased an aircraft auxiliary power unit from IASG
at a normal commercial monthly rate of $10,000 or $120,000 per year. In fiscal
1999, the Company paid IASG approximately $700,000 in commissions for selling
surplus Westair inventory as well as $250,000 in fees in connection with the
shut down of Westair and distribution and protection of certain of its assets.
George Murnane, III, a member of the Board of Directors of Mesa, is a member of
executive management and the Board of Directors of IASG.
In February 1999, the Company entered into an agreement with Barlow whereby
Barlow would provide financial advisory services related to aircraft leases,
mergers and acquisitions, and route profitability. Fees totaling $120,000 and
$105,000 were paid to Barlow in fiscal 2000 and 1999, respectively. Under terms
of the Barlow agreement, Barlow is required to repay these fees to the Company
at such time as Barlow receives fees, if any, from leasing companies that it has
arranged to participate in the Company's various aircraft financings. In fiscal
2000, Barlow repaid the Company the aggregate of $225,000 in connection with
aircraft financings arranged by Barlow.
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In December 1999, the Company retained Providence Capital, Inc. ("Providence")
to assist with its stock repurchase program. During fiscal 2000, fees and/or
commissions totaling approximately $136,000 were paid to Providence. Herbert
Denton, a member of the Company's Board of Directors, is the President and Chief
Executive Officer of Providence.
The Company provides administrative support, reservation services and office
space to Europe by Air, Inc. During fiscal 2000, the Company billed Europe by
Air approximately $78,000 for these services. Jonathan Ornstein, Chairman of the
Board and Chief Executive Officer of the Company, and James Swigart, a member of
the Company's Board of Directors, are Chairman of the Board, and Chief Executive
Officer of Europe by Air, respectively.
The Company 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.
19. SUBSEQUENT EVENTS
In October 2000, the Company and US Airways amended the US Airways regional jet
service agreement to expand the number of regional jets under contract from 28
to 32 and extend the term to 2008. The Company and US Airways also amended
prorate agreements covering Kansas City, Pittsburgh, and Philadelphia, New
Orleans, and Tampa/Orlando. The Kansas City agreement was extended from 2000 to
2005 and amended to eliminate the ability of either party to terminate the
agreement without cause and permit the Company to add additional code share
partners in Kansas City. The other two prorate agreements were extended by one
year over their previous expiration dates.
In November 2000, the Company entered into a non-binding letter of intent with
Midwest Express Airlines, Inc. ("Midwest Express") to add the Midwest Express
code to the Company's operations in Kansas City. The intended start date for the
arrangement is the first quarter of calendar 2001. The agreement will cover 13
cities already served by ten B1900 aircraft out of Kansas City. Mesa anticipates
an improvement in profitability for the routes covered by these aircraft.
In December 2000, the Company reached agreement with Fleet Capital for a $35
million line of credit, collateralized by the company's inventory and
receivables. The agreement, which expires in December 2003, has provisions which
allow the expansion of available credit to $50 million by adding new lenders.
The facility will be used by the Company for general working capital purposes.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has changed independent auditors to Deloitte & Touche LLP in fiscal
2000.
There were no disagreements with accountants on accounting and financial
disclosure.
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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 and executive
officers of the Company and certain additional information:
NAME AGE POSITION
------------------- ---- ------------------------------------------------
Jonathan G. Ornstein (1) 43 Chairman of the Board, Director, President
and Chief Executive Officer
Paul R. Madden.......... 74 Vice Chairman of the Board and
Director
Daniel J. Altobello 60 Director
Jack Braly.............. 59 Director
Herbert A. Denton....... 53 Director
Ronald R. Fogleman...... 58 Director
Maurice A. Parker....... 54 Director
George Murnane III ..... 42 Director
James E. Swigart........ 49 Director
Michael J. Lotz(2)...... 40 President and Chief Operating Officer
Robert B. Stone(3)...... 44 Chief Financial Officer and Treasurer
Andre H. Merrett(4) .... 36 Vice President, General Counsel and Secretary
Dean Kennedy(5)......... 36 Vice President & Controller
Jeff P. Poeschl......... 35 Vice President-Finance
William P. Kostel....... 37 Vice President of Planning
Michael Ferverda........ 56 Senior Vice President of Flight Operations
George Lippemeier....... 59 Vice President of Safety and Regulatory Compliance
- ----------
(1) Relinquished the title of President on June 21, 2000.
(2) Served as Chief Financial Officer and Treasurer from August 1999 to January
2000. Appointed President on June 21, 2000.
(3) Named Chief Financial Officer and Treasurer in January 2000.
(4) Resigned effective January 5, 2001.
(5) Resigned effective December 15, 2000.
DIRECTORS
Biographical information regarding the Company's directors is set forth below.
Jonathan G. Ornstein, age 43, was appointed President and Chief Executive
Officer of Mesa effective May 1, 1998. Mr. Ornstein became a director on January
29, 1998 and was appointed to the Executive Committee on March 13, 1998. Mr.
Ornstein assumed the role of Chairman of the Board on June 9, 1999. On June 21,
2000, Mr. Ornstein relinquished his position as President of the Company. From
April 1996 to his joining the Company as Chief Executive Officer, Mr. Ornstein
served as President and Chief Executive Officer and Chairman of Virgin Express
S.A./N.V., a European airline. From 1995 to April 1996, Mr. Ornstein served as
Chief Executive Officer of Virgin Express Holdings, plc. Mr. Ornstein joined
Continental Express Airlines, Inc., as President and Chief Executive Officer in
July 1994 and, in November 1994, was named Senior Vice President, Airport
Services at Continental Airlines, Inc. Mr. Ornstein was previously employed by
the Company from 1988 to 1994, as Executive Vice President and as President of
the Company's WestAir Holding, Inc., subsidiary. Mr. Ornstein is the controlling
shareholder of Barlow Management, Inc., the general partner of Barlow Partners
II, L.P., an investment partnership. Mr. Ornstein's employment agreement
provides that the Company will use its good-faith efforts to cause the Board to
include Mr. Ornstein among its nominees and to appoint him as Chief Executive
Officer through March 31, 2001.
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Paul R. Madden, age 74, has served as a director of the Company since April
1997, and as Chairman of the Board from February 3, 1998 to June 8, 1999. On
June 8, 1999, he was appointed Vice Chairman of the Board. Mr. Madden has served
as Chairman of the Executive Committee since February 3, 1998 and as a member of
the Audit Committee since June 8, 1999. Mr. Madden is currently Of Counsel to
the Phoenix, Arizona law firm of Gallagher & Kennedy, specializing in the
corporate and securities areas. From June 1994 through November 1997, Mr. Madden
was a partner in the Chicago, Illinois law firm of Chapman and Cutler, serving
in its Phoenix office. Mr. Madden was a partner in the Phoenix law firm of Beus,
Gilbert & Morrill from January 1991 until June 1994. Prior to joining the Board,
Mr. Madden served as securities counsel to the Company for approximately nine
years.
Daniel J. Altobello, age 60, has served as a director of the Company since
January 29, 1998. Mr. Altobello is the retired Chairman, and a director of Onex
Food Services, Inc., the parent corporation of Caterair International, Inc., and
LSG/ SKY Chefs. From 1989 to 1995, Mr. Altobello served as Chairman, President
and Chief Executive Officer of Caterair International Corporation. From 1979 to
1989, he held various managerial positions with the food service management and
in-flight catering divisions of Marriott Corporation, including Executive Vice
President of Marriott Corporation and President, Marriott Airport Operations
Group. Mr. Altobello began his management career at Georgetown University as
Vice President of Administration Services. He is a member of the board of
directors of American Management Systems, Inc., Colorado Prime Foods, Care
First, Inc., Care First of Maryland, Inc., World Airways, Inc., First Union
Realty Trust, Friedman, Billings and Ramsey Group, Inc. and SodexhoMarriott,
Inc.. He is a trustee of Loyola Foundation, Inc., Mt. Holyoke College, Suburban
Hospital Foundation, Inc. and the Woodstock Theological Center at Georgetown
University.
Jack Braly, age 59, has served as a director of the Company since December 6,
1993, as a member and Chairman of its Audit Committee since March 1994, as a
member of the Company's Compensation Committee since December 6, 1993, and as a
member of its Nominating Committee since April 27, 1998. Since August 5, 1996,
Mr. Braly has served as the President, Chief Executive Officer and a member of
the Board of Directors of Sino Swearingen Aircraft Company, a private aircraft
manufacturer. From June 1994 to August 5, 1996, Mr. Braly was an officer of the
North American Aircraft Modification division of Rockwell International. He
served as Vice President - Aircraft Manufacturing from June 1994 to October
1994, as Executive Vice President from October 1994 to October 1995 and Vice
President and General Manager from October 1995 to August 5, 1996. Before
joining Rockwell International, Mr. Braly served as a consultant to various
aircraft manufacturers and regional airlines from August 1993 until June 1994.
Prior thereto, Mr. Braly was President of Beech Aircraft Corporation from March
1991 until July 1993.
Herbert A. Denton, age 53, has been a director of the Company since January 29,
1998, and a member of the Company's Executive Committee since February 3, 1998.
Mr. Denton is the President of Providence Capital Inc., an investment-banking
firm he co-founded in 1991. He also serves on the Board of Directors of Chic by
H.I.S., Inc., an apparel manufacturing company, where he is the Chairman of the
Compensation Committee.
General Ronald R. Fogleman, age 58, U.S.A.F. retired, has been a director of the
Company since January 29, 1998. General Fogleman has been a member of the
Company's Audit Committee since February 3, 1998, its Executive Committee since
March 13, 1998, and its Nominating Committee since April 27, 1998. In September
1997, he retired from the Air Force with the rank of General. He served as Chief
of Staff of the United States Air Force from 1994 until 1997 and as
Commander-in-Chief of the United States Transportation Command from 1992 until
1994. General Fogleman currently serves on the Board of Directors of North
American Airlines, a feeder airline for El Al; Southern Air, a private air
transportation company; Rolls Royce of North America; and World Airways.
Maurice A. Parker, age 55, has been a director of the Company since November 18,
1998, and has been a member of the Compensation Committee since January 22,
1999. From 1978 to January 1997, Mr. Parker served as a Federal Mediator for the
National Mediation Board of the United States government. From 1997 to the
present, Mr. Parker has worked as an independent arbitrator, mediator and
consultant. In 1998, Mr. Parker obtained his Doctorate in Jurisprudence from
South Texas College of Law.
George Murnane III, age 42, has served as a director of the Company since June
8, 1999, and has been a member of the Audit Committee since his election to the
board. Mr. Murnane is the President of Barlow Management, Inc., general partner
of Barlow Partners II, L.P. Mr. Murnane is currently the Executive Vice
President and Chief Operating Officer and serves on the Board of Directors of
International Airline Support Group, Inc., a leading redistributor of
aftermarket commercial aircraft spare parts and lessor and trader of commercial
aircraft and engines. From 1995 to 1996, Mr. Murnane served as Executive Vice
President and Chief Operating Officer of Atlas Air, Inc., an air cargo company.
From 1986 to 1995, he was
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an investment banker with the New York investment-banking firm of Merrill
Lynch & Co., most recently as a Director in the firm's Transportation Group.
James Swigart, age 49, has served as a director since January 29, 1998. Mr.
Swigart served as Vice Chairman and a member of the Audit Committee until June
8, 1999. He has been a member of the Nominating Committee since April 27, 1998.
Mr. Swigart is a minority shareholder of Barlow Management, Inc., the general
partner of Barlow Partners II, L.P. Mr. Swigart is the former President and
Chief Executive of Virgin Express, S.A./N.V., a European airline. Mr. Swigart
was appointed a member of the Board of Directors of Virgin Express Holdings, plc
on May 22, 1998. From December 1995 to April 1998, Mr. Swigart served as the
Chief Financial Officer of Virgin Express Holdings, plc. From April 1996 to
April 1998, he served as Chief Financial Officer of Virgin Express, S.A./N.V..
Mr. Swigart served as the Chief Financial Officer of Continental Express
Airlines, Inc., from July 1994 to November 1995 and President and controlling
shareholder of Hydralign, a manufacturing company for the paper and plastics
industries, from September 1993 to July 1994. From 1986 until August 1993, Mr.
Swigart served as the Senior Vice President of the Transportation Group at
Lehman Brothers. Mr. Swigart previously served as a member of the Board of the
Company from December 6, 1993 until August 10, 1994.
EXECUTIVE OFFICERS
Biographical information regarding the Company's executive officers who are not
also directors of the Company is set forth below.
Michael J. Lotz, age 40, President and Chief Operating Officer, joined the
Company in July 1998. In January 1999, Mr. Lotz became Chief Operating Officer.
In August 1999, Mr. Lotz became Mesa's Chief Financial Officer and in January
2000 returned to the position of Chief Operating Officer. On June 22, 2000, Mr.
Lotz was appointed President of the Company. Prior to joining the Company, Mr.
Lotz served as Chief Operating Officer of Virgin Express, S.A./N.V., a position
he held from October 1996 to June 1998. Previously, Mr. Lotz was employed by
Continental Airlines, Inc., most recently as Vice President of Airport
Operations, Properties and Facilities at Continental Express.
Robert B. Stone, age 44, Chief Financial Officer and Treasurer, joined the
Company in January 2000. Prior to joining the Company, Mr. Stone was employed by
the Boeing Company for more than 20 years, most recently as Vice President,
Financial Planning and Analysis. Mr. Stone obtained his MBA from Pacific
Lutheran University and his Bachelor of Arts in Business Administration at the
University of Washington.
Andre H. Merrett, age 36, Vice President and General Counsel, joined the Company
in August 1999. Prior to joining the Company, Mr. Merrett was a litigation
associate with the firm of Squire, Sanders & Dempsey L.L.P. from October 1998.
Mr. Merrett was a litigation associate Nyemaster, Goode, Voigts, West, Hansell &
O'Brien from May 1994 until joining Squire, Sanders, & Dempsey. Mr. Merrett is a
1994 graduate of the University of Iowa College of Law. Mr. Merrett resigned
effective January 5, 2001.
Dean Kennedy, age 36, Vice President and Controller, joined the Company in
February 2000. Mr. Kennedy is a Certified Public Accountant and prior to joining
the Company was engaged in the practice of public accounting. Mr. Kennedy
resigned effective December 15, 2000.
Jeff P. Poeschl, age 35, Vice President-Finance, joined the Company in December
2000. He was employed by Deloitte and Touche in Milwaukee, Wisconsin since 1988,
most recently as Senior Manager.
William P. Kostel, age 37, Vice President of Planning, joined the Company in
February 1999. Prior to joining the Company, Mr. Kostel was employed for nine
years by American Airlines, where his last position was Director of Fleet
Planning at American Eagle. Mr. Kostel obtained his MBA from Texas Christian
University and his Bachelor of Science in Engineering from Iowa State University
Michael Ferverda, age 56, Senior Vice President of Flight Operations, joined the
Company in September 1990. Mr. Ferverda has served the Company in several
capacities including pilot, Flight Instructor / Check Airman, Assistant Chief
Pilot, FAA Designated Examiner, FAA Director of Operations and Divisional Vice
President. Mr. Ferverda was a pilot with Eastern Airlines from 1973 to 1989.
Prior to joining Eastern Airlines, Mr. Ferverda served as an Aviator in the
United States Navy. Mr. Ferverda is a graduate of Indiana University.
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George Lippemeier, age 59, Vice President of Safety and Regulatory Compliance,
joined the Company in September 1998. Mr. Lippemeier served as the Director of
Quality Assurance at Virgin Express S.A./N.V. from April 1997 to July 1998. Mr.
Lippemeier held several positions with the Company from November 1989 to March
1997, including Director of Operations, Vice President of Flight Operations --
WestAir Airlines, and President -- Desert Sun Airlines. Prior to joining the
Company in 1989, Mr. Lippemeier spent 25 years in the United States Air Force.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid or accrued by the
Company during the fiscal years ended September 30, 2000, 1999 and 1998 to the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company whose total annual salary and
bonuses exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
OTHER
ANNUAL
SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)
--------------------------------------- ---- ------ ----- ------------ ---------
Jonathan G. Ornstein .................. 2000 200,000 840,000 4,615 150,000
Chief Executive Officer 1999 200,000 -- 5,128 150,000
1998 84,615 -- -- 1,013,000
Michael J. Lotz ....................... 2000 119,231 225,000 5,250 150,000
President and Chief Operating Officer 1999 122,654 90,054 385 300,000
1998 -- -- --
William P. Kostel ..................... 2000 73,846 59,000 1,769 6,500
Vice President of Planning 1999 41,731 47,000 -- 45,000
1998 -- -- -- --
Michael Ferverda ...................... 2000 75,000 52,000 3,750 5,400
Senior Vice President of Flight 1999 75,000 25,500 -- --
Operations 1998 75,000 -- -- 36,000
Andre H. Merrett ...................... 2000 78,462 36,500 -- 3,375
Vice President and General Counsel 1999 9,808 12,000 -- 45,000
1998 -- -- -- --
Robert Stone .......................... 2000 73,077 37,000 -- 75,000
Chief Financial Officer 1999 -- -- -- --
1998 -- -- -- --
- ----------
(1) These amounts represent the Company's vested and non-vested contributions
to the individual named executive officer's 401(k) plan account. Under the
Company's 401(k) plan, employees may contribute up to 15% of their annual
salary and bonus up to a specified maximum. The Company currently makes
matching contributions equal to 50% of employees' contribution (including
officers) with a cap of 10% of the employees' annual compensation. The
Company's contributions to the 401(k) plans for the fiscal year ended
September 30, 2000 were $1.0 million.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth for each Named Executive Officer information
concerning individual grants of stock options during the 2000 fiscal year.
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES OPTIONS GRANTED EXERCISE APPRECIATION FOR
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION OPTION TERM
NAME OPTIONS FISCAL YEAR ($/SHARE) DATE 5%(3) 10%(3)
---- ---------- --------------- --------- ---------- -------- -----------
Jonathan G. Ornstein(1) 150,000 20.9% 6.25 4/ 1/2010 $366,948 $1,093,560
Michael Ferveda(2) 5,400 -- 5.625 1/26/2010 16,943 $41,844
William P. Kostel(2) 6,500 -- 5.625 1/26/2010 20,394 $50,368
Andre H. Merrett(2) 3,375 -- 5.625 1/26/2010 10,589 $26,152
Michael Lotz(2) 150,000 20.9% 5.25 6/22/2010 532,856 $1,291,918
- ----------
(1) Mr. Ornstein's options were granted under the Company's 1998 Key Officer
Stock Option Plan and are exercisable in annual 1/3 increments.
(2) Messrs. Lotz, Ferveda, Kostel and Merrett were each granted options under
the Company's 1st Amendment to the Restated & Amended Mesa Airline Stock
Option Plan. The shares issued under the Mesa Airline Stock Option Plan vest
in annual 1/3 increments beginning one year after the date of the grant.
(3) Potential realizable values shown above represent the potential gains based
upon annual compound stock price appreciation of 5% and 10% from September
30, 2000 through the full option term. The actual value realized, if any, on
stock option exercises will be dependent upon overall market conditions and
the future performance of Mesa and Mesa common stock. There is no assurance
that the actual value realized will approximate the amounts reflected in
this table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
The following table sets forth the number of shares covered by both exercisable
and unexercisable stock options as of the fiscal year ended September 30, 2000,
together with the values for "in-the-money" options which represent the positive
spread between the exercise price of any such outstanding stock and the fiscal
year end price of the Company's common stock.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- ----------- ------------------------- ----------------------------
Jonathan G. Ornstein ... 0 0 1,113,000/200,000 $0/$0
Michael J. Lotz ........ 0 0 100,000/350,000 $0/$32,850
William P. Kostel ...... 0 0 15,000/36,500 $0/$0
Michael Ferveda ........ 0 0 98,667/29,400 $5,628/$11,256
Andre H. Merrett ....... 0 0 15,000/33,375 $0/$0
- ----------
(1) Based on the closing price of the Company's common stock on September 30,
2000 of $5.469 per share, as reported by the NASDAQ National Market.
COMPENSATION OF DIRECTORS
Each non-employee director receives a retainer of $10,000 per year.
Additionally, board members receive $1,000 per Board of Directors meeting
attended in person, $500 per committee meeting attended in person, $500 per
Board of Directors meeting attended via telephone and reimbursement of all
expenses associated with attending committee or Board of Directors meetings.
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Each non-employee director also participates in the Company's Outside Director's
Stock Option Plan (the "Plan"). Under the Plan, each non-employee director
serving on the board as of April 1, 1998 received (i) 3,000 options to purchase
3,000 shares of Common Stock, plus (ii) the number of options to purchase common
stock equivalent to a cash value of $13,000 as calculated pursuant to the
Black-Scholes valuation method at a risk-free rate of a ten year zero coupon
bond (collectively referred to herein as the "Formula Amount") effective as of
April 1, 1998. Each non-employee director receives an additional Formula Amount
on each April 1st thereafter or, if at any time there is an insufficient number
of options to make the full Formula Amount allocation, a pro-rata amount of the
options available under the Plan shall be granted to each non-employee director.
Any non-employee director who was not serving as a director as of April 1, 1998,
upon the first business day after being appointed as a director, is granted a
pro-rata portion of the Formula Amount ("Pro Rata Options") and options are
granted to such director pursuant to the Plan on each succeeding April 1st in
the Formula Amount. The amount of Pro Rata Options granted to each new
non-employee director are calculated by dividing the number of days prior to
April 1st by the number of days in the calendar year and multiplying the
quotient by the Formula Amount. Any non-employee director who is serving as
Chairman of the Board of Directors receives an annual grant of the number of
options equal to a value of $10,000 calculated in accordance with the
Black-Scholes method as specified above (the "Chairman's Options") on each April
1st, which is in addition to any other options granted to him as director.
Each director who is not an employee of the Company also receives free travel on
flights operated by the Company for himself and certain family members and,
through arrangements with certain major air carriers, receives free or
reduced-fare travel on those carriers at no cost to the Company. The Company
believes that the directors' use of free air travel is "de minimis" and
therefore did not maintain any records of their travel during fiscal 2000.
EMPLOYMENT AGREEMENTS
The Chief Executive Officer; Chief Financial Officer; President and Chief
Operating Officer; Vice President of Planning, and Vice President and General
Counsel have each entered into an Employment Agreement (the "Agreement") with
the Company.
On May 1, 1998, Jonathan G. Ornstein and the Company entered into an Agreement
for a term of three years ending March 13, 2001, subject to automatic renewal
unless either party gives written notice of its intent to terminate. The
Agreement was amended on March 22, 2000. Under the Agreement, as amended, Mr.
Ornstein receives a combination of a minimum base salary of $200,000 per year
plus a bonus based on positive growth in earnings per share. Specifically, Mr.
Ornstein's Agreement provides for a "Minimum Bonus" of $52,500 if the Company
achieves any positive growth in earnings per share, a "Threshold Bonus" of
$105,000 for growth between 7% and 12.9%, a "Target Bonus" of $210,000 for
growth between 13% and 17.9% and a "Maximum Bonus" of $420,000 for growth of 18%
or better. Additionally, the board of directors may approve discretionary
bonuses.
Further, Mr. Ornstein's Agreement provides for an initial grant of 1,000,000
stock options vesting in one-third increments commencing on the date of grant
and the remainder over a two-year period, and additional annual option grants of
150,000 shares throughout the term of the Agreement, subject to shareholder
approval. If the shareholders do not approve such grants, Mr. Ornstein's
employment agreement requires the Company to issue stock appreciation rights in
an amount necessary to provide the same level of compensation as would have been
provided by the grant of stock options. The Agreement provides that upon
permanent disability, as defined therein, Mr. Ornstein will receive his base
salary plus an amount equal to the Minimum Bonus plus any monthly payments under
any policy of disability income insurance paid for by the Company. The Company
will pay such permanent disability payments for the remaining term of the
Agreement, but in no case will the period exceed 24 months.
Mr. Ornstein may terminate the Agreement at any time, upon written notice,
within one year following the occurrence of an event constituting "Good Reason."
"Good Reason" is defined to mean the occurrence of the following circumstances
without Mr. Ornstein's consent: (i) assignment to any duties substantially
inconsistent with the duties or a reduction in the duties contemplated by the
Agreement; (ii) removal of any titles bestowed under the Agreement; (iii) the
Company's failure to include Mr. Ornstein as a nominee for the Board in its
proxy or his failure to be reelected to the Board; (iv) any breach or failure of
the Company to carry out the provisions of the Agreement after notice and an
opportunity to cure; (v) a Change in Control (as defined below); or (vi)
relocation of Mr. Ornstein, his office, facilities or personnel except if such
relocation is
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to any future location of the Company's headquarters and such new location is in
a metropolitan area with a population of over 1,000,000 people.
A Change in Control is defined to include (i) a change in control reportable on
Form 8-K or Schedule 14A of the Securities Exchange Act of 1934; (ii) the
acquisition, other than by an employee benefit plan, of twenty-five percent
(25%) or more of the combined voting power of the Company's outstanding
securities; (iii) failure of the Incumbent Directors (as defined in the
Agreement) to constitute at least a majority of all directors of the Company;
(iv) the closing of a sale of all or substantially all the assets of the
Company; (v) the Company's adoption of a plan of dissolution or liquidation; or
(vi) the shareholders of the Company approve a merger or consolidation involving
the Company (A) in which the Company is not the surviving corporation or (B) if,
immediately following such merger or consolidation, less than seventy-five
percent (75%) of the surviving corporation's outstanding voting stock is held or
anticipated to be held by persons who are stockholders of Company immediately
prior to such merger or consolidation. Upon the termination by the Company
without Good Cause (as defined) or termination by Mr. Ornstein for Good Reason
(as defined), Mr. Ornstein will be entitled to a lump-sum severance payment
equal to the sum of (1) the number of years (or fractions thereof) remaining in
the then non-expired term or two, whichever is greater, multiplied by (a) Mr.
Ornstein's base salary times the number of years, plus (b) the amount of cash
equal to the Target Bonus or the minimum amount of any similar bonus then in
effect, plus (c) any other cash or other bonus earned prior to the date of
termination; and (2) any additional payments necessary to discharge certain tax
liabilities as defined in the Agreement.
Upon Mr. Ornstein's termination without Good Cause or upon Good Reason, any and
all vesting or performance requirements affecting outstanding stock and other
compensation under the Employee Stock Option Plan will be deemed fully satisfied
and any risk of forfeiture with respect thereto will be deemed to have lapsed.
In addition, and notwithstanding the terms of any stock option, stock incentive
or similar plan maintained by the Company or any other agreement between the
Company and Mr. Ornstein (including, without limitation, any stock option
agreement), upon termination of the Executive's employment Without Good Cause or
upon the exercise by Mr. Ornstein of his rights to terminate his employment for
Good Reason (including without limitation upon or following a Change in
Control), the Company shall make a lump sum cash payment to Mr. Ornstein as
follows:
(i) If Mr. Ornstein's employment is terminated by the Company Without
Good Cause or by Mr. Ornstein for Good Reason, in each case, upon or following a
Change in Control transaction in which the holders of the Company's common stock
receive consideration for their shares (either in the form of cash or
securities, property or a combination thereof), the cash payment shall be made
on the closing date of the transaction constituting the Change in Control and
shall equal the greater of (A) the aggregate Black Scholes value (as calculated
by an independent major investment banking firm) as of such closing date of all
options held by Mr. Ornstein to acquire shares of the common stock of the
Company ("Company Options") and (B) the product of (i) the per share
consideration (the value of which shall be determined by agreement between the
Company and Mr. Ornstein) to be paid to a holder of a share of the Company's
common stock minus the exercise price per share of each Company option held by
Mr. Ornstein and (ii) the number of shares of common stock of the Company
covered by each unexercised Company Option held by Mr. Ornstein; provided,
however, that the total aggregate cash payment to be made to Mr. Ornstein
pursuant to Section 7.5 of the Agreement shall not in any event be less than
$4,500,000.
(ii) If Mr. Ornstein's employment is terminated by the Company Without
Good Cause or by Mr. Ornstein for Good Reason, in each case, in circumstances
other than those set forth in subparagraph (i) above, the cash payment to Mr.
Ornstein shall be made on the date of termination or the date of the event
giving rise to Mr. Ornstein's right to terminate his employment (whichever is
earlier) and shall equal the aggregate Black Scholes value as of such earlier
date of all Company Options by Mr. Ornstein.
If, under the Agreement, Mr. Ornstein is to receive any payment for termination
for Good Reason, death or permanent disability payment, payment for termination
without Good Cause or any payment as a result of a Change of Control of the
Company Mr. Ornstein shall be entitled to receive the amounts sufficient to
cover the excise tax, if any, imposed on such payments.
Finally, if Mr. Ornstein's employment is terminated by the Company without Good
Cause or by Mr. Ornstein for Good Reason, on the effective date of the
termination, the Company has agreed to enter into a consulting agreement with
Mr. Ornstein, the terms of which will provide for Mr. Ornstein's retention as a
consultant for a period of 10 years from its effective date at the rate of
$50,000 per year.
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Upon their appointment as Chief Operating Officer, Chief Financial Officer, Vice
President of Planning, and Vice President and General Counsel, respectively,
each of Messrs. Lotz, Stone, Kostel and Merrett and the Company entered into
employment agreements. Mr. Lotz's employment agreement was amended on March 22,
2000. Mr. Lotz's employment agreement, as amended, contains the same material
provisions as Mr. Ornstein's except his cash and non-cash compensation is less
than Mr. Ornstein's and his consulting agreement is $25,000 per year and his
aggregate cash payment shall not be less than $1.5 million and the definition of
Change in Control excludes provisions regarding being a director of the Company.
Mr. Lotz's base salary is $150,000 with a Minimum Bonus of $22,500, a Threshold
Bonus of $45,000, a Target Bonus of $90,000 and a Maximum Bonus of $180,000.
Additionally, the board of directors may approve discretionary bonuses.
Mr. Stone's, Mr. Kostel's, and Mr. Merrett's employment agreements contain the
same material provisions as Messrs. Ornstein's and Lotz's except, in the case of
cash and non-cash compensation, Messrs. Stone, Kostel, and Merrett receive a
base salary of $100,000, $80,000, and $85,000, respectively, and are eligible to
receive quarterly bonuses of varying minimum amounts ranging from at least 5% to
at least 25% of their respective base salaries. Further, Mr. Stone's, Mr.
Kostel's, and Mr. Merrett's employment agreements differ from Mr. Ornstein's and
Mr. Lotz's with respect to lump sum payments due to each of them upon
termination by the Company Without Good Cause or by either of them for Good
Reason and with respect to the retention of either of them as consultants
thereafter.
COMPENSATION COMMITTEE INTERLOCKS
During fiscal 2000, the Compensation Committee consisted of Daniel J. Altobello,
James E. Swigart and Maurice A. Parker. None of the members of the committee
held any executive officer position or other employment with the Company prior
to or during such service.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of September 30, 2000 by (i) each
director of the Company, (ii) each of the Company's executive officers (the
"Named Executive Officers"), (iii), each person who is known by the Company to
be the beneficial owner of more than five percent of the Company's outstanding
common stock and (iv) all directors and executive officers as a group.
The number of shares beneficially owned by each director or executive officer is
determined under rules of the Securities and Exchange Commission (the
"Commission"), and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has the sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days of December 15, 2000 through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power (or shares such powers with his or her spouse) with
respect to the shares set forth in the following table and the address of the
listed beneficial owner is that of the Company. In certain instances, the number
of shares listed includes, in addition to shares owned directly, shares held by
the spouse or children of the person, or by a trust or estate of which the
person is a trustee or an executor or in which the person may have a beneficial
interest. The table that follows is based upon information supplied by executive
officers, directors and principal stockholders and Schedules 13D and 13G filed
with the Commission.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
-------------------------
NAME AND ADDRESS OF OPTIONS/
BENEFICIAL OWNER SHARES WARRANTS(1) TOTAL(1) PERCENT(1)
------------------------------------ --------- ----------- --------- ----------
Jack Braly.......................... 10,000 31,486 41,486 *
Paul R. Madden...................... 6,400 20,398 26,798 *
Jonathan G. Ornstein(2)............. 2,293,223 1,113,000 3,406,223 10.53
James E. Swigart(3)................. 2,136,926 24,258 2,161,184 6.68
Daniel J. Altobello................. 1,000 24,258 25,258 *
Herbert A. Denton(4)................ 416,552 18,486 435,038 1.34
Ronald R. Fogleman.................. 200 18,486 18,686 *
George Murnane III.................. 43,837 21,749 65,586 *
Maurice Parker...................... 7,297 7,297 *
Michael J. Lotz..................... 100,000 100,000 *
Barlow Partners II, LP(5)........... 2,099,121 2,099,121 6.49
1954 Airport Rd., Suite 200
Atlanta, GA 30341
Wisconsin Investment Board.......... 3,290,000 3,290,000 10.17
P.O. Box 7842
Madison, Wisconsin 53702
The Equitable Companies
Incorporated(6)..................... 969,672 969,672 3.00
Alliance Capital(7)
1290 Avenue of the Americas
New York, NY 10104
Franklin Advisors, Inc.............. 2,473,700 2,473,700 7.65
777 Mariners Blvd
San Mateo, CA 94404
Dimensional Fund Advisors, Inc...... 2,129,879 2,129,879 6.59
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401-1038
Wellington Management Company, LLP.. 3,326,100 3,326,100 10.28
75 State Street
Boston, MA 02109
All directors and officers as a group 3,323,997 1,585,085 4,909,082 15.17
(17 individuals)
- ----------
(1) Includes options and warrants exercisable on December 15, 2000, or within 60
days thereafter. Holdings of less than 1% are indicated by "*".
(2) Includes 2,099,121 shares of common stock held by Barlow Partners, L.P.,
Barlow Partners II, L.P., Barlow Management, Inc. or any one of them
individually or jointly. Mr. Ornstein is a limited partner in Barlow
Partners, L.P. and/or Barlow Partners II, L.P., and is a shareholder of
Barlow Management, Inc. (which is the general partner of Barlow Partners II,
L.P.). Mr. Ornstein disclaims beneficial ownership of such shares to the
extent exceeding his proportionate interest in such entities.
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(3) Includes 2,099,121 shares of common stock held by Barlow Partners, L.P.,
Barlow Partners II, L.P., Barlow Management, Inc. or any one of them
individually or jointly. Mr. Swigart is a limited partner in Barlow
Partners, L.P. and/or Barlow Partners II, L.P., and is a shareholder of
Barlow Management, Inc. (which is the general partner of Barlow Partners II,
L.P.). Mr. Swigart disclaims beneficial ownership of such shares to the
extent exceeding his proportionate interest in such entities.
(4) Includes shares of common stock held in the name of Providence Capital,
Inc., Providence Investors LLC, US Value Investment Company, PLC and
Providence Jet, LLC. As such, he claims beneficial ownership of the shares
held by these entities to the extent of his proportional interest therein.
(5) Includes shares of common stock held certain affiliated entities (including
Barlow Partners, L.P. and/or Barlow Management, Inc.), as to which Barlow
Partners II, L.P. disclaims beneficial ownership.
(6) Filed by the Equitable Companies Incorporated in its capacity as a parent
holding company with respect to the holdings of Alliance Capital Management
L.P.
(7) Acquired solely for investment purposes on behalf of client discretionary
investment advisory accounts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1998, CCAIR entered into a letter agreement with Barlow Partners, L.P.
("Barlow") pursuant to which Barlow agreed to act as CCAIR's exclusive financial
advisor with respect to possible business combinations involving CCAIR. Under
the terms of that agreement, Barlow received a fee from CCAIR equal to two
percent (2%) of the aggregate consideration paid by Mesa upon the closing in
June 1999 of the merger transaction ($1.1 million). Jonathan Ornstein, Chairman
of the Board and Chief Executive Officer of Mesa, and James E. Swigart, member
of the Board of Directors of Mesa, are partners in Barlow. George Murnane III,
member of the CCAIR Board of Directors at the time of the merger, is also a
partner in Barlow. Upon the completion of the merger, Mr. Murnane became a
member of the Mesa Board of Directors.
On September 9, 1998, the Company entered into an agreement with International
Airline Support Group ("IASG") whereby Mesa would consign certain surplus
airplane parts to IASG to sell on the open market. IASG in turn would submit
proceeds to Mesa less a market-based fee. During fiscal 2000, the Company paid
IASG approximately $611,000 in commissions on sales of surplus aircraft parts.
Additionally, the Company has leased an aircraft auxiliary power unit from IASG
at a normal commercial monthly rate of $10,000 or $120,000 per year. In fiscal
1999, the Company paid IASG approximately $700,000 in commissions for selling
surplus Westair inventory as well as $250,000 in fees in connection with the
shut down of Westair and distribution and protection of certain of its assets.
Mr. Murnane, a member of the Board of Directors of Mesa, is a member of
executive management and the Board of Directors of IASG.
In February 1999, the Company entered into an agreement with Barlow Partners, LP
("Barlow") whereby Barlow agreed to provide financial advisory services related
to aircraft leases, mergers and acquisitions, and route profitability. Fees
totaling $105,000 and $120,000 were paid to Barlow in fiscal 1999 and 2000,
respectively. Under terms of the Barlow agreement, Barlow is required to repay
these fees to the Company at such time as Barlow receives fees, if any, from
leasing companies that it has arranged to participate in the Company's various
aircraft financings. In fiscal 2000, Barlow repaid the Company the aggregate of
$225,000 in connection with aircraft financings arranged by Barlow.
In December 1999, the Company retained Providence Capital, Inc. to assist with
its stock repurchase program. During fiscal 2000, fees and/or commissions
totaling approximately $136,000 were paid to Providence Capital, Inc. Herbert
Denton, a member of the Company's Board of Directors, is the President and Chief
Executive Officer of Providence Capital, Inc.
The Company provides administrative support, reservation services and office
space to Europe by Air, Inc. During fiscal 2000, the Company billed Europe by
Air approximately $78,000 for these services. Jonathan Ornstein, Chairman of the
Board and Chief Executive Officer of the Company, and James Swigart, a member of
the Company's Board of Directors, are Chairman of the Board, and Chief Executive
Officer of Europe by Air, respectively.
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The Company 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.
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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
The Company filed a report on Form 8-K dated November 2, 2000 regarding
the sale of 16 Beechcraft 1900D aircraft to Raytheon. The Company filed
a report of Form 8-K dated September 29, 2000 regarding its ownership
position in Mesaba Holdings, Inc. No financial statements were filed as
a part of either report.
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
--------- --------------------------------------- ----------------------------------------
2.1 Plan and Agreement of Merger of Mesa Air Filed as Exhibit 2.1 to Registrant's Form
Group, Inc. into Mesa Holding, Inc. dated 10-K for the fiscal year ended September
September 16, 1996 30, 1996, incorporated herein by reference
2.2 Merger Agreement, dated as of January 28, Filed as Annex A to the Registrant's Form
1998 between Mesa Air Group, Inc., Mesa S-4 Registration Statement, Registration
Merger Corporation and CCAIR, Inc. reference
3.1 Articles of Incorporation of Mesa Air Filed as Exhibit 3.1 to Registrant's Form
Holdings, Inc. dated May 28, 1996 10-K for the fiscal year ended September
reference
3.2 Bylaws of Mesa Air Group, Inc., as Filed as Exhibit 3.2 to Registrant's Form
amended 10-K for the fiscal year ended September
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
4.2 Form of Common Stock certificate (issued Filed as Exhibit 4.8 to Form S-1,
after November 12, 1990) Registration No. 33-35556 effective
December 6, 1990, incorporated herein by
reference
10.1 Form of Employee Non-Incentive Stock Filed as Exhibit 4.12 to Registrant's
Option Plan, dated as of June 2, 1992 Form 10-K for the fiscal year ended
September 30, 1992, Commission File No.
33-15495, incorporated herein by
reference
10.2 Form of Non-Incentive Stock Option issued Filed as Exhibit 4.13 to Registrant's
under Mesa Airlines, Inc. Employee Form 10-K for the fiscal year ended
Non-Incentive Stock Option Plan, dated as September 30, 1992, Commission File No.
of June 2, 1992 33-15495, incorporated herein by
reference
10.3 Form of Mesa Airlines, Inc. Outside Filed as Exhibits 4.1, 4.2 and 4.3 to
Directors Stock Option Plan, dated as of Registration No. 33-09395 effective
March 9, 1993 August 1, 1996
10.4 Form of Stock Option issued under Mesa Filed as Exhibit 4.4 to Registration No.
Airlines, Inc. Outside Director's Stock 33-09395 effective August 1, 1996
Option Plan, dated as of March 9, 1993
10.5 Form of Mesa Airlines, Inc. Additional Filed as Exhibit 4.5 to Registration No.
Outside Directors Stock Option Plan dated 33-09395 effective August 1, 1996
as of December 9, 1994
10.6 Form of Non-Qualified Stock Option Issued Filed as Exhibit 4.6 to Registration No.
Under Mesa Airlines, Inc. Additional 33-09395 effective August 1, 1996
Outside Directors' Stock Option Plan
10.7 Form of Mesa Air Group, Inc. Restated and Filed as Exhibit 4.1 to Registration No.
Amended Employee Stock Option Plan dated 33-02791 effective April 24, 1996
April 23, 1996
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55
10.8 Form of Non-Qualified Stock Option issued Filed as Exhibit 4.2 to Registration No.
under Mesa Air Group, Inc. Restated and 33-02791 effective April 24, 1996
Amended Employee Stock Option Plan dated
April 23, 1996
10.9 Form of Qualified Stock Option issued Filed as Exhibit 4.3 to Registration No.
under Mesa Air Group, Inc. Restated and 33-02791 effective April 24, 1996
Amended Employee Stock Option Plan dated
April 23, 1996
10.10 Mesa Air Group, Inc. Key Officer Stock Filed as Appendix A to Registrant's
Option Plan Definitive Proxy Statement, dated June
19, 1998
10.11 Outside Directors' Stock Option Plan Filed as Appendix B to Registrant's
Definitive Proxy Statement, dated June
19, 1998
10.12 Employee Stock Option Plan, as amended Filed as Appendix C to Registrant's
Definitive Proxy Statement, dated June
19, 1998
10.13 Agreement between Beech Aircraft Filed as Exhibit 10.30 to Form S-1,
Corporation and Mesa Airlines, Inc., Registration No. 33-35556 effective
dated April 30, 1990 December 6, 1990, incorporated herein by
reference
10.14 Sublease Agreement between Air Midwest, Filed as Exhibit 10.32.1 to Form S-1,
Inc. and Mesa Airlines, Inc., dated April Registration No. 33-35556 effective
27, 1990 for Embraer Brasilia aircraft December 6, 1990, incorporated herein by
120.180 reference
10.15 Agreement between Air Midwest, Inc. and Filed as Exhibit 10.32.3 to Form S-1,
Mesa Airlines, Inc., dated February 27, Registration No. 33-35556 effective
1990, for purchase of four Embraer December 6, 1990, incorporated herein by
Brasilia aircraft reference
10.16 Letter Agreement between McDonnell Filed as Exhibit 10.32.4 to Form S-1,
Douglas Finance Corporation, Air Midwest, Registration No. 33-35556 effective
Inc. and Mesa Airlines, Inc., dated March December 6, 1990, incorporated herein by
19, 1990, as amended, regarding lease and reference
sublease of four Embraer Brasilia
aircraft
10.17 Sublease Agreement between Air Midwest Filed as Exhibit 10.32.5 to Form S-1,
Inc. and Mesa Airlines, Inc., dated July Registration No. 33-35556 effective
26, 1990, for Embraer Brasilia aircraft December 6, 1990, incorporated herein by
120.193 reference
10.18 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.6 to Form S-1,
Finance Corporation and Mesa Airlines, Registration No. 33-35556 effective
Inc., dated July 26, 1990, for Embraer December 6, 1990, incorporated herein by
Brasilia aircraft 120.193 reference
10.19 Sublease Agreement between Air Midwest Filed as Exhibit 10.32.7 to Form S-1,
Inc. and Mesa Airlines, Inc., dated Registration No. 33-35556 effective
September 26, 1990, for Embraer Brasilia December 6, 1990, incorporated herein by
aircraft 120.203 reference
10.20 Lease Agreement between McDonnell Douglas Filed as Exhibit 10.32.8 to Form S-1,
Finance Corporation and Mesa Airlines, Registration No. 33-35556 effective
Inc., dated September 26, 1990, for December 6, 1990, incorporated herein by
Embraer Brasilia aircraft 120.203 reference
10.21 Form of Directors' and Officers' Filed as Exhibit 10.41 to Form S-1,
Indemnification Agreement Registration No. 33-35556 effective
December 6, 1990, incorporated herein by
reference
10.22 Agreement Relating to the Settlement of Filed as Exhibit 10.45 to Form S-1,
Interline Accounts through Airlines Registration No. 33-35556 effective
Clearing House, Inc., between Airlines December 6, 1990, incorporated herein by
Clearing House, Inc. and Mesa Airlines, reference
Inc., dated September 2, 1981
10.23 Agreement between Beech Aircraft Filed as Exhibit 10.42 to Form 10-K for
Corporation and Mesa Airlines, Inc., fiscal year ended September 30, 1991,
dated September 18, 1991 Commission File No. 0-15495, incorporated
herein by reference
10.24 Agreement between USAirways, Inc. and Air Filed as Exhibit 10.43 to Form 10-K for
Midwest, Inc. fiscal year ended September 30, 1991,
Commission File No. 0-15495, incorporated
herein by reference
10.25 Agreement between USAirways, Inc. and Filed as Exhibit 10.44 to Form 10-K for
FloridaGulf Airlines, Inc. fiscal year ended September 30, 1991,
Commission File No. 0-15495, incorporated
herein by reference
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10.26 Sublease agreement between Trans States Filed as Exhibit 10.45 to Form 10-K for
Airlines, Inc. and Air Midwest, Inc. fiscal year ended September 30, 1992,
Commission File No. 0-15495, incorporated
herein by reference
10.27 Agreement between Beech Aircraft Filed as Exhibit 10.47 to Form 10-K for
Corporation, Beech Acceptance fiscal year ended September 30, 1992,
Corporation, Inc. and Mesa Airlines, Commission File No. 0-15495, incorporated
Inc., dated August 21, 1992 herein by reference
10.28 Agreement between America West Airlines, Filed as Exhibit 10.48 to Form 10-K for
Inc. and Mesa Airlines, Inc. fiscal year ended September 30, 1992,
Commission File No. 0-15495, incorporated
herein by reference
10.29 Plan and Agreement to Merge between Mesa Filed as Exhibit A to Form S-4
Airlines, Inc., Mesa Acquisition Registration No. 33-45638, effective
Corporation and WestAir Holding, Inc., April 17, 1992, incorporated herein by
dated February 7, 1992. reference
10.30 Certificate of Public Convenience and Filed as Exhibit 10.1(a) to WestAir
Necessity for WestAir Commuter Airlines, Holding, Inc.'s Registration Statement on
Inc. Form S-1, Commission File No. 33-24316,
incorporated herein by reference
10.31 Original Agreement to Lease dated as of Filed as Exhibit 10.44 to WestAir
April 27, 1987 between NPA, Inc. ("NPA") Holding, Inc.'s Registration Statement on
and British Aerospace, Inc. ("BAe") with Form S-1, Commission File No. 33-24316,
a Letter to FG Holdings, Inc. ("FGH") incorporated herein by reference
dated March 11, 1988 and Amendment No. 1
to Agreement to Lease dated as of March
3, 1988 between BAe and FGH
10.32 Side Letter Agreement to NPA from JACO Filed as Exhibit 10.48 to WestAir
dated June 4, 1987 Holding, Inc.'s Registration Statement on
Form S-1, Commission File No. 33-24316,
incorporated herein by reference
10.33 Promissory Note to Textron for spare Filed as Exhibit 10.80 to WestAir
parts as executed by WestAir, dated Holding, Inc.'s Form 10-K dated December
December 30, 1988 31, 1988, Commission File No. 33-24316,
incorporated herein by reference
10.34 Amended and Restated Stock Purchase Filed as Exhibit 10.42(a) to WestAir
Agreement, dated September 30, 1991 among Holding, Inc.'s Form 10-K for the year
WestAir Holding, Inc., WestAir Commuter ended December 31, 1991, Commission File
Airlines, Inc. and Atlantic Coast No. 33-24316, incorporated herein by
Airlines, Inc., relating to the sale of reference
the Atlantic Coast division of WestAir
Commuter Airlines, Inc.
10.35 Agreement of Purchase and Sales of Assets Filed as Exhibit 10.90 to Mesa Airlines,
by and among Crown Airways, Inc., Phillip Inc. Form 10-K for the year ended
R. Burnaman, A. J. Beiga and Mesa September 30, 1994, Commission File No.
Airlines, Inc., dated as of December 16, 0-15495
1993
10.36 Supplemental Agreement No. 9/03/94 Filed as Exhibit 10.66 to Mesa Airlines,
Beechcraft 1900 D Airliner Acquisition Inc. Form 10-K for the year ended
Master Agreement between Mesa Airlines, September 30, 1994, Commission File No.
Inc., Beech Aircraft Corporation and 0-15495
Beech Acceptance Corporation, Inc., dated
as of September 23, 1994
10.37 Form of Lease Agreement between Beech Filed as Exhibit 10.67 to Mesa Airlines,
Acceptance Corporation, Inc. and Mesa Inc. Form 10-K for the year ended
Airlines, Inc., negotiated September 30, September 30, 1994, Commission File No.
1994 for all prospective 1900 D Airliner 0-15495
leases.
10.38 Asset Purchase Agreement dated July 29, Filed as Exhibit 10.68 to Mesa Airlines,
1994 among Pennsylvania Commuter Inc. Form 10-K for the year ended
Airlines, Inc., d.b.a. Allegheny Commuter September 30, 1994, Commission File No.
Airlines, USAirways Leasing and Services, 0-15495
Inc., and Mesa Airlines, Inc.
10.39 Letter Agreement in Principle dated as of Filed as Exhibit 10.69 to Mesa Airlines,
October 16, 1994 among Air Wisconsin, Inc. Form 10-K for the year ended
Inc., United Air Lines Inc. and Mesa September 30, 1994, Commission File No.
Airlines, Inc. (Certain portions deleted 0-15495
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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10.40 Subscription Agreement between AmWest Filed as Exhibit 10.70 to Mesa Airlines,
Partners, L.P. and Mesa Airlines, Inc. Inc. Form 10-K for the year ended
dated as of June 28, 1994 September 30, 1994, Commission File No.
0-15495
10.41 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
10.42 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
10.43 Expendable and Rotable Spare Parts and Filed as Exhibit 10.73 to Mesa Air Group,
Sale Agreement Inc. Form 10-Q for the quarter ended
December 31, 1994, Commission File No.
0-15495
10.44 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
10.45 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
10.46 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
10.47 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
10.48 Item 3. Legal Proceedings -- Form 10-K Filed as Exhibit 10.78 to Mesa Air Group,
dated September 30, 1994 Inc. Form 10-Q for the quarter ended
December 31, 1994, Commission File No.
0-15495
10.49 Purchase Agreement B95-7701-PA-200 Filed as Exhibit 10.79 to Mesa Air Group,
between Bombardier Inc. and Mesa Inc. Form 10-Q for the quarter ended
Airlines, Inc. March 31, 1995, Commission File No.
0-15495
10.50 Letter of Understanding between Mesa Air Filed as Exhibit 10.81 to Mesa Air Group,
Group, Inc. and Raytheon Aircraft Company Inc. Form 10-Q for the quarter ended
(RAC) dated April 12, 1996. March 31, 1996, Commission File No.
0-15495
10.51 Supplemental Agreement No. 05/22/96, Filed as Exhibit 10.82 to Mesa Air Group,
Beechcraft 1900D Airliner Acquisition Inc. Form 10-Q for the quarter ended
Master Agreement between Mesa Air Group, March 31, 1997, Commission File No.
Inc., Raytheon Aircraft Company and 0-15495
Raytheon Aircraft Credit Corporation
10.52 Bombardier Regional Aircraft Division Filed as Exhibit 10.83 to Mesa Air Group,
Purchase Agreement CRJ-0351 between Inc. Form 10-Q for the quarter ended
Bombardier Inc. and Mesa Air Group, Inc. December 31, 1996, Commission File No.
0-15495
10.53 Aircraft Option Exercise Filed as Exhibit 10.84 to Mesa Air Group,
B97-7701-RJTL-3492L dated as of August Inc. Form 10-Q for the quarter ended
15, 1997 between Mesa Air Group, Inc. and December 31, 1997, Commission File No.
Bombardier Inc. (Request for confidential 0-15495
treatment submitted to SEC.)
10.54 Bombardier Regional Aircraft Division Filed as Exhibit 10.85 to Mesa Air Group,
Settlement Agreement B97-7701-RJTL-3493L Inc. Form 10-Q for the quarter ended
dated as of August 15, 1997 between Mesa December 31, 1997, Commission File No.
Air Group, Inc. and Bombardier Inc. 0-15495
(Request for confidential treatment
submitted to SEC.)
10.55 Service Agreement dated as of November Filed as Exhibit 10.86 to Mesa Air Group,
11, 1997 between Mesa Airlines, Inc. and Inc. Form 10-Q for the quarter ended
US Airways, Inc. (Request for December 31, 1997, Commission File No.
confidential treatment submitted to SEC.) 0-15495
10.56 Letter Agreement dated as of March 26, Filed as Exhibit 10.86 to Mesa Air Group,
1998 between Mesa Airlines, Inc. and Inc. Form 10-Q for the quarter ended
America West Airlines, Inc. (Request for March 31, 1997, Commission File No.
confidential treatment submitted to SEC.) 0-15495.
57
58
10.57 Employment Agreement dated as of March Filed as Exhibit 10.86 to Mesa Air Group,
13, 1998, between Mesa Air Group, Inc. Inc. Form 10-Q for the quarter ended
and Jonathan G. Ornstein March 31, 1998, Commission File No.
0-15495.
10.58 Form of Employment Agreement dated as of Filed as Exhibit 10.86 to Mesa Air Group,
January 5, 1998 entered into by and Inc. Form 10-Q for the quarter ended
between Mesa Air Group, Inc. and Gary E. March 31, 1998, Commission File No.
Risley, W. Stephen Jackson, J. Clark 0-15495.
Stevens and various other officers of
Mesa and its subsidiaries
10.59 Letter Agreement dated as of February 4, Filed as Exhibit 10.86 to Mesa Air Group,
1998 between Mesa Air Group, Inc. and Inc. Form 10-Q for the quarter ended
Larry L. Risley March 31, 1998, Commission File No.
18.1 Letter regarding change in accounting Filed herewith
principle
23.1 Independent Auditors' Consent of Deloitte Filed herewith
and Touche LLP
23.2 Independent Auditors' Consent of KPMG LLP Filed herewith
58
59
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 AIR GROUP, INC.
By: /s/ JONATHAN G. ORNSTEIN
-------------------------------
Jonathan G. Ornstein
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ ROBERT B. STONE
-------------------------------
Robert B. Stone
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: December 28, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ROBERT. B. STONE and MICHAEL J. LOTZ, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him in his name, place and stead, in any and
all capacities, to sign any and all amendments to this Form 10-K Annual Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting onto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully and to all intent and purposes as he might or
could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
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/ JONATHAN G. ORNSTEIN Chairman of the Board, Chief December 28, 2000
- ----------------------------- Executive Officer and
Jonathan G. Ornstein Director
/s/ PAUL MADDEN Vice Chairman of the Board December 28, 2000
- ----------------------------------- and Director
Paul R. Madden
/s/ JAMES E. SWIGART Director December 28, 2000
- -----------------------------------
James E. Swigart
/s/ DANIEL ALTOBELLO Director December 28, 2000
- -----------------------------------
Daniel J. Altobello
/s/ JACK BRALY Director December 28, 2000
- -----------------------------------
Jack Braly
/s/ HERBERT DENTON Director December 28, 2000
- -----------------------------------
Herbert A. Denton
/s/RONALD R. FOGLEMAN Director December 28, 2000
- -----------------------------------
Ronald R. Fogleman
/s/ MAURICE A. PARKER Director December 28, 2000
- -----------------------------------
Maurice A. Parker
/s/ GEORGE MURNANE, III Director December 28, 2000
- -----------------------------------
George Murnane, III
60
EXHIBIT INDEX
Exhibit No. Description Reference
- ----------- ----------- ---------
18.1 Letter regarding change in accounting principle Filed herewith
23.1 Independent Auditors' Consent of Deloitte and Touche LLP Filed herewith
23.2 Independent Auditors' Consent of KPMG LLP Filed herewith
27.1 Financial Data Schedule Filed herewith