Mesa Air Group reported a net profit of $12 million for its fourth quarter of 2019, down from $19 million during the same quarter in 2018 as Phoenix-based regional carrier Mesa Airlines expands its fleet.
Operating revenue during the quarter rose 6% year-on-year to $188 million, compared with $177 million during the fourth quarter of 2018, Mesa reported on 11 December. Revenue was partially offset by higher operating expenses, which rose 15% year-on-year from $136 million to $157 million during the fourth quarter.
Mesa operates regional flights on behalf of United Airlines and American Airlines as United Express Airlines and American Eagle, respectively.
On 3 December United awarded Mesa with a 12-year capacity purchase agreement to operate 20 new Embraer E175s for United Express, which will be owned by the Phoenix-based carrier. Deliveries are scheduled to begin in May and are expected to be completed by the end of 2020, Mesa chief executive Jonathan Ornstein said during an earnings call.
Mesa was able to secure this long-awaited deal in part because “we continue to invest in staying ahead of the pilot and mechanic hiring curve”, Ornstein says. He adds “we are paying down a significant amount of debt” to complete purchases of its existing aircraft.
The carrier ending the quarter with $17 million in cash and total 2019 year-end debt of $843 million, which is primarily related to aircraft and engine purchases. The holding company has scheduled principal debt payments of $175 million for 2020, Mesa’s chief financial officer Mike Lotz said during the earnings call.
Mesa is extending the contract for 42 United Airlines-owned E175s for an additional five years until 2029, according to a 3 December release. Mesa’s 20 Bombardier CRJ700s will also be leased to another United Express carrier for seven years.
Fleet expansion is intended to prevent the lack of available aircraft that dragged revenues down during the third quarter of 2019. Mesa agreed in September to place 50 firm orders of Mitsubishi Aircraft SpaceJet M100s, including purchase rights for another 50 jets, with deliveries beginning in 2024.
During 2019, Mesa purchased and financed 10 CRJ700 aircraft previously on operating lease, reducing the number of leased aircraft to 18.
“For 2020 and 2021, we plan to purchase 20 to 25 engines to support the leased CRJ700s and the CRJ900s fleet at American,” Lotz says. “This will be approximately $100 million split roughly 50-50 per year between 2020 and 2021.”