Mesa Air (MESA) 9 May 232023 Q2 Earnings call transcript

Thank you for standing by, and welcome to the Mesa Airlines' Second Quarter Fiscal Year 2023 Conference Call. All participants are in a listen-only mode until the question-and-answer session of today's call. [Operator Instructions] This call is being recorded.

If you have any objections, please disconnect at this time.

I would now like to turn the call over to Doug Cooper, Head of Investor Relations. Mr. begin. now may you Cooper,

Thank you, call March Mesa's conference everyone and its fiscal welcome for ended to second earnings Brad, quarter XX. XXXX

Mesa's team. Officer; call are Officer; Torque and the me of Chairman Financial Ornstein, and the members management On Zubeck, Chief Chief Lotz, Michael with Executive other President; and Jonathan today

sell-side Following our be will there a question-and-answer analysts. prepared remarks, session for the

current discussion that no expectations including everyone materially risks from contains the duty to are could forward-looking also remind on statements. to could on the the the reports that There those based want statements, guarantee discussed to Company's statements forward-looking factors with forward-looking our and update in any a the today's and that cause actual risk not performance. of are on We call uncertainties results future significant undertake reflected We differ file by SEC. be

adjusting Please quarter to which the comparing will periods our website our exclude results reconciliation second fiscal all our for of items. be non-GAAP special earnings available to on measures. we today, is In release, refer

turn I it to his opening Jonathan will remarks. Jonathan? that, With for over

for Thank you, today. everyone Doug, us joining and thanks

to transition we Airlines. in internal With year As fiscal is and United we execute were XXXX as that. our expectations before, numbers flying our line of reflect that a CRJ-XXX results mentioned our our said, year largely with transition the

profitable our In still flying. the up to more E-Jet to addition transition, are we ramp continuing

While still this six under of we quarter, our retention experiencing are hours. significant utilization was improvement E-Jet pilot output, and

this in of people service, like happen by hours and conservative for lower support. currently to have to approach make I'd XX taken Turning United transition at have the than thank a to plan due block of We at helped who hardworking all the CRJ-XXXs more XX their Mesa the albeit United. initially anticipated transition.

strengthen been regional over demand on to past several continue we strong our has focus executed pilot months actions see are United successfully. the we balance transition the recovered and has our taken significantly, sheet flying numerous for our ensuring to and the While pipeline have

to our take I moment want a the moving to plan cornerstones forward. highlight of

we supported transition foremost, and Airlines, operationally we United financially. with the been has work as and have strong through both which First a relationship is

We with XX of the flying are now United. CRJ-XXX

As return operations block markets to hours, neglected smaller maybe jet higher in restore normalize opportunity there some we to nationwide. flying and service rural and an regional

average for the Three these quarters have market. reduction XX% in of Association. the recent the seen flights or a accounts flight per reductions and This of service air in fact of That's Regional of the service more that total years states service by magnified markets XX. is in in given service accounts Airline XX% over with regional XX eliminating deficit for U.S. XX%

a still congestion across of airline the reduce service and regional mission aircraft, our without industry. XXX contemplates we counter rule, the over CPA country, are negative hour for a impact Our step solid addition the Unfortunately, regional significant legislative of to X,XXX United flights concerned jet new representing with daily the mobility, about regional action excited electric including the and of of we about to aviation co-investments potential to rural announced Further to decarbonize Archer United and future Aerospace. our long-term America. improve technology new with travel, Heart on the remain previously

and to congested short communities believe will integral moving be forward. and in addressing aviation We needs transit eVTOL electric distance smaller

to Officers to needs and is action, upgrade pilot shortage legislative continues to bottleneck adequate addressed number of current through qualified current industry-wide be First industry ensuring the Captain. in While now the

and have number agreement, fill as believe Officers our Captain pilot result captains, with forward. we our for an most As program Officers. rule. by Officer as upgrades, as of a we hour hiring This X,XXX requirements is paused Captain themselves of sufficient created another find airlines a just the AVA to new of flown a have downside Without requiring result going that two years candidates Captains and imbalance First United's have as labor First well First

This ourselves have which place. wages. rebuild for Again, to has three an offered our most pipeline have that initiatives been With Mesa benefit the leaving to are support in as in now industry-leading pay pilot and scale. pilot have a low-cost and other significant major we fewer with higher United, to may notably of pilot retention said, carriers, pilots go national positioned past offers the carriers,

in United's the major and Mesa industry transition most an successful transition one a regional United are to is to attracting pilots airline within rapid the four to has for participation proven years. pilots. afforded AVA opportunity of Our and join in program, paths to which pilots retaining

enrollers cadre of Lastly, with and hour which many one launched of we was September short This graduated to program Pipistrel is way. the the Alpha program, in paths pilots Development Inverness, To launch on a has Mesa so XX to hours. in more the X,XXX second threshold cost in we expansion, fastest and the more four for of most XX already X that preparing taken training Mesa have Pilot of Florida, now Trainer had delivery to this accumulate a creative has Arizona. location are support aircraft pilots

previously Mesa's Lotz, and and continues Mesa his of Mike stepping on as following Finally, retirement and who all Operating as as of be Mike taking operating at Rich. will in served responsibilities. Brad groups Chief expanded you the overseeing is Virgin may role Express know, Officer has President

to turn I'll Mike? call that, With the him. over

Thank good everyone. and you, Jonathan, afternoon,

overseeing of served in in all President as the Let me years In roles have and I've company. involved expanded our been excited our relationship of and United. start XX my Mesa, also I business saying previously operations at by the how CFO COO and my with aspects particularly the am with day-to-day role

CRJ-XXXs been project focus. DHL, the American transition, Working operating while major my pilot to from at company. and this United output, highest safety United Transitioning performance operational has exceptional of for be through for level optimizing will the to providing all primary a

both are maintenance and and network Although entire bases, Phoenix been keeping has crew transformed. Dallas's we our

has Our Houston to increased day. XX flights hub from per XX

operated has regional CRJ-XXX may never As know, you their the may or United in not fleet.

everything from staging, operation. jetway fueling procedures all are United and new seat to So ground to maps the handling

they XX work. and transition preparation flying cities the operator painted to support a the equipment. This we the XX Given aircraft not ground received We We parts a This lot to during from aircraft, of repositioned these maintenance another. United aircraft are appreciate entailed from transition. in just of and network. and one was simple swap our

our CRJ-XXXs. transition to contracted with to XX day. of large jets, regional regional will benefit real consist the United, of of United Ultimately, of provide XXX comprising is regional completion large, fleet the the our E-XXXs that Mesa flights every is Upon additional mix and able transition XX a jet

to back as as Our add fast plan the E-Jets possible. underutilized is

Additionally, will operate four continue XXX, we XXXs to XXXs and at DHL.

as to past United seeing has pilot AVA have top pilot pre-pandemic turnover our worth a It's been implemented. to continues pilot initiatives of destination the program. the we number shortage, thanks are utilization years result or now part the by especially While pilots. fleet for is transfers the mentioned, attrition noting below retirement of of two impacted as industry-wide Jonathan we in level, be and Mesa to larger that recent

we and retention attraction with keep our hire Pilot our our of combination Captain combined focus Development pilot the program, confidence classes currently to are ongoing almost have new Mesa X,XXX We pipeline. in hires a with have ability and on our we in maintaining applicants Nonetheless, new and filled upgrades.

We pilot additional to training have sim an if access needed. are focus to on continuing optimizing also throughput, and

would March we the quarter were in quarter. that I hours, quarter, said, from our that With decrease XX,XXX out flew a actually hours billed the to block like point X% the XX,XXX. for December block March

of percentage from quarter. quarter XX,XXX, The periods the hours America a Captain and as block to be – imbalance. America of well the the out for are X CRJ-XXXs We primarily our reductions reduction First March in will expect transitioned as June being Officer attributable both approximately hours our out

to Looking quarter transition should and forward closer result the hour benefits actions. as of Captain September of a completed our being the the XX,XXX upgrade to be block

improve, to not providing expect will but year time. projections be this We for to at next the quarters subsequent fiscal continue

the This our freighter final a three XXX-XXX. reiterate cargo fleet next-gen to quarter, I'd incorporated to new As operation. total one that to during our XXX-XXX and Mesa point, brings DHL XXX-XXXs like a

turn With call over like Torque the that, to to now to financial performance. I'd our walk through

Mike. you, Thank

review opportunity and financial our sheet. our performance Now to this I'll balance take

year-over-year. For These by for while partially fiscal decreases compared and QX the million of hour driven lower million, fell lower year block United second quarter XXXX was hours, X.X% revenue were in to deferred new million by $X.X block scales. offset by higher rates revenue revenue pay of recognition contract $XXX.X $XXX.X XXXX,

deferred the QX of remaining million contract. the revenue recognized maintenance an increase versus of United over recognition as of XXXX million contract per revenue Mesa's by results flights remaining in of revenue decrease pass-through the of $XX.X be of taxes. and The driven of is deferred will completed revenue are revenue The $X.X of $X.X in revenue deferral the balance pass-through million previously offset include GAAP, by term QX million, pass-through property $X.X partially XXXX.

by decrease million side, On versus CRJ-XXXs, QX Mesa's This QX of in XXXX. held from non-cash lease operating primarily lower million, was charge $X.X for $X.X certain driven sale the and the depreciable XXXX. QX XXXX primarily to were by finance the rent fell the million, down $XXX.X fell Aircraft XXXX. to and lower impairment reclassification million due expense million base GAAP $XX.X QX attributable assets impairment expense also asset versus depreciation CRJ-XXX $XX.X overall operating for lease from amortization to by for expenses

this by versus offset and by increase seat expense in partially quarter Maintenance million expenses maintenance. QX driven checks pass-through $X.X parts for fell an XXXX, lower

three by We drive million expenses higher level $XX.X GAAP partially of year-over-year, pilot the flight pay operating as to four costs consistent be throughput. for and pilot $XX.X increased The higher next at scales expenses this we million, in was expect offset decrease roughly quarters. training higher continue to operations maintenance expense to reflecting

by costs ahead. General items property and next year. we Total million three expect level compared $X.X the were and to $XXX driven one-time for adjusted excluding higher operating expenses also an will higher tax administrative the of XXXX, million four QX pass-through primarily this prior $X.X for consistent versus be increase quarters to G&A were million, expenses

to million loss diluted $X.XX of bottom per a compared loss a On share of XX% $XX.X a of net a QX of the per share loss loss or for net we million diluted $XX.X XXXX. reported line, or net

loss adjusted a Mesa a loss compared a on reported loss net of or of share basis, million $XX.X of share million loss a an $X.XX per or of $X.XX year-ago. $XX.X per Now, a to

investments assets. assets. It of results loss fixed million XXXX excluded of $XX.X sale a another impairments for adjusted and QX write-off of from and disposable $X.X million asset XXXX $X.X $X.X Adjusted a a deferred and also The loss from asset charges $X.X million the of investments. gain excludes a financing gain excludes for impairment on $XX.X on million QX million million on

sheet. Next, turn let to balance me the

During and remaining eight XX to we out upon. closed the third-party. the of the be engines United Mesa quarter, to also the previously four agreed sale sold a sold to CRJ-XXXs on agreed XX of of CRJ-XXXs XX

Importantly, the quarter. approximately transactions million in these and in paid $XX cash down we during generated million $XX debt

we pay the to cash in down quarter, million June remaining will debt. generate and sold, seven which be the to and For engines CRJ-XXXs million approximately on XX close $XX together $XX agreed expect in

additional completion have with are pay an upon entered seven into letter of approximately million to sell aircraft. still we forward, Going We recently to these debt sale and aircraft, will off $XX which associated of the intent aircraft. of these a working CRJ-XXXs sell excess

quarter March million of debt December quarter included quarter. Total ended million XXXX at the scheduled $X.X the million, from to from million. XX, million. prior end excluding the down $XX the This during restricted payments payments million and lease $X.X the made by decreased for quarter quarter finance of $XXX.X was Cash prior debt the cash $XX.X $XX.X of

and year-end expect We have XXXX debt million. associated we in approximately payments the the of asset after principle of scheduled $XX.X repayment remaining with sales, million $XXX fiscal debt XXXX of

the through at year. We current better maintain cash to fiscal level of the expect end its or

the the at guidance time for financial transition March the at Given to as similar providing block with June quarter. specific the we by not more earnings transition be Mesa, quarter indicated, be Mike will we hours to this impacted expect

over remarks. for turn With like it now Jonathan to back to that, closing I'd

coming on Mesa. you, Thank for be In XXXX transition normalized forward we year XXXX focusing are important on and an build summary, look a transformation, to returning block will the to continues Torque. to hour in XXXX, with over of undertaken quarters. utilization. foundation speaking we've We you we the establishing

as much. call be analysts At may up open very questions that happy I'd point, operator, to please the this Thank any the have. field you

turn our for like Before brief would Jonathan I over back to to question, remarks. first the call taking

Brad. Thanks,

just patience the first delay the our technical take press some difficulties questions call. we want Before the look now. we question, with forcing their taking everyone for your experienced to as to I release, We of of the thank earnings publication Thank you. forward

sir. Instructions] Raymond Our today question Savi come Syth Thank [Operator you, from for of James. will first

Your line is open.

appreciate afternoon, of the was those the block color the hour here. progression along everyone. I Hey. kind Good curious lines. on I

On the kind reverse of deferred of to do do to expect in we here the now? deferred you of the starting or to more revenue, year see book next quarters start couple that kind of revenue

of Torque. as is revenue we This revenue more. are Savi. Hey, Yes. deferred the with associated recognition flying The is

specific don't I So little we'll guidance right see for a But you that. now. of bit have

a be should It deferred shouldn't little revenue. recognizing bit? it But be, anything, if Okay.

little forward. just A contract Right. the as bit moves

then pun of operating look kind has levels Makes what hours we generally, how issue, appreciate as just I the pilot, the bit no on up. the just color terms a fourth lot fiscal to to appreciate utilization? more of trying improve intended in give end does stepping year. block of But being much fleet more can like can wanting little of of and kind your model quarter pilot than like able to start that the sense. a – that this the really And in there, better? address terms are And captain looks not but I'm Torque,

Mike. it's Savi, Yes.

I XX into XX,XXX So to utilization, with And up gave utilization, range. in XX.X us think, at we quarters to will of quarter. guidance that get hours the for September I aircraft, the XX there. we for lines. a mean, couple Even that XX,XXX, probably XX,XXX get targeted number terms take of

I'll right. All back helpful. super the That's on queue. Okay. get

Linenberg Deutsche Our next question Bank. Instructions] from Michael [Operator will of come

is line Your open.

my is actually Hi. question. from Mike. on This Doherty Shannon for Thanks taking

just that in think happening the remarks, was low? on under of opening you still pre-pandemic mentioned your us color below the more give utilization levels despite here what's you so six hours, utilization I the on Can E-Jet keeping being attrition.

since the had – when possible four around Those IOE something ground spool was we of We any it's sim. that's getting a us Sure. pilots attrition are good we last as pilots. really month, our lowest added training, up as is go This We training that, give XX remember. of you And mean, I five second frankly, XX Jonathan. three out just pilot months. equivalent or can that moved instructors, month That's people been long instructors which even close got takes to put idea of the to we XX. something through quickly We aircraft. to numbers. a over an

in enough acceleration are XXX in fact a about occurred who First Now, have having attrition carriers because of the the the challenge there a Officers, is trouble and regionals upgrade to time the people of that year. they the have Captain national don't earlier to just and of most in other because lot aircraft

about fortunate XX At to, down. allows in as well the that program, AVA Captain fact, we we're think up us First Captain is this Officers And individuals. I think Mesa, our to agreement, as as will class move our of result we're which to able month, labor and us don't that in slow a

going There's numbers. So really got matter of not money. mean, aircraft it of a fast hours, at spool parked. to we no make it's clearly terms six does bunch how what can We've to just a I in up. mystery we're of our

utilization on CRJ spike the part what slowed less barring also do with going the but focus just some these E-Jet. adequate many on have, number is going And between be big which we're We think existing pilots. to bit. coming little CRJ for on again, likely and things a pushing have to But I fleet. seems are again, put most down all train we attrition, keep think as we to to the and be and the We programs, the people various an hire have in clearly, hire continue to continuing people as up

I in to pilots of think pretty terms adding forward well we're moving net roster. our

the just on quick Thanks, rate. follow-up a Jonathan. profitability And

back do partners after guys need levels other it transformation? to to So guys bar would pre-pandemic to operating to in years that get return re-engage again and disproportionately you with the for you once given mid-teen been your both impacted margins permanently you do regional post-COVID airline Like, airlines? think profitability the engage you to come? with or? has or profitability can the Mesa Or What lowered have that issues take

No. I in something very to say this was to discussed wanted subject I, – have to address. really because would this to I I Torque that. and morning what Mike tell It's I you, and wonder regard

think aircraft, flying we of achieve full aircraft, we that consistently. believe could that so our and the XX.X belief at take much this. something X% and I think day, hour, hours understand I but we aircraft flying north may we really didn't run in that in existing that there's But our our get last it additional XX, Because year, could steam, us that the take other but is maybe it's between are aircraft, words, full a pretty even X%, aircraft going it leverage to easily – basically rate. another once us without margins astounding we feel that probably to into flying that

had X% I looking as in We've pilots now they I our have as the got equivalent any will happens achieve Board. and question believe has as almost that question say labor Mesa to for support to AVA that have, at program. our Officers. lined that The First us ability program almost the the upgradeability program well mentioned, Pilot the the is I folks applicants. attrition upgrade just of on on agreement amount program up we AVA based we requiring a our is by years Development But helped for just margins, becomes, that people tremendously X,XXX two X%, as at sooner, the real upgrade AVA bring in what served to that Captains United into point, X%, people. and X%, the can think in And that Captain and doable. and graduate allows of to we

we're think to going So that, to I work numbers. get hard those to very

a opportunities once would we there be the happened, sort to I I I Torque think fair Mike And would we happen once fine maybe we there to tune take back frank, I that's steady get some cost think side that we agree rapidly. sort to look get be this it's also of could a operation on well. lot to state. that mean, thrown as given of think have to and to and money we say, I more everything I out the make normal, at a of think how closer able might think

you much. Thank so

will James. question Raymond Savi of from be next Syth our And

Your open. line is

follow-up talking to were six Thank you. about pre-tax eight, first clarify you quickly Jonathan? the – one, Maybe just on on margin, right,

Yes.

you there. done – what's then left fly of the What's have can Yes. and in lot I you over? which then whatever how of the Makes to continue have XX, maybe there's your kind place to realize side, that fully the fleet, United like fill kind CRJ-XXXs many complete, kind you'll XX to the JV XX on United is sense. X about keep once you have sales, so with or open great a of you're done in But monetizing that can just what of you you And is CRJ-XXXs kind of fleet on fleet dedicating XX, do Europe. maybe in and there until aircraft you've monetize like the

I'll that is and and let can. But to as our we're I start we Torque. going think sell XXXs Well, I'll as Mike view now many

We think contract have we have we the seven for. a that

want E-Jets. until which of opportunities also a would certain terms be the valuable. United of time such have of government plentiful that, Mike possible. the RASPRO and And point But There's aircraft the in this the looking of then anything to we slow And agreement to as XXXs need to debt. I can operate or starting quickly down other all at to we that the government at to with additional aircraft parts we're existing think and we I we as think, down to most we to are we're have obviously debt, number the engines, as I aircraft. which, continue looking think which to we pay some packaging don't that are add going which looking you are Torque? wind very selling down operate for offsetting Do

United that, XX look No. the with have is the capacity I jets. large Savi we just think for regional

look, XXXs. for They're goal the to maybe they're possible our many now flying quickly obviously old get as as very more right E-Jets to So us. to XXX XXX%, fleet. mix And is try that profitable XX%, certainly as our compared is aircraft newer

come be, in to going of the it's the as opportunities start we'll equity that's and have out, in just that comes assets we monetize E-Jet those and XXXs dispose at So any them. to look movement where where coming

how what think and of kind margin of kind I'm block for about understand kind production? of too. work the block way because mid to And that, kind hour, that's a of of terms is I is overstated the us guess backwards. or trying variable for just per gauge there's a right? that and over to of Like current Is hour you to single-digit fixed kind much I'm in high the revenue get understand to trying is to revenue component, probably it's What lower of hour a trying block and best kind of that

forecast United certain it's owns, and in of DHL. the the that look, aircraft own may of or because that fleet difficult mix we And between that Yes. to cases aircraft

that's mix. when of that have difficult a a to nail kind number So Yes. you

are and some on the I the linear it's partners are, not think just what Mike making not payment is or others aircraft, either just because linear. ownership lease so we're payment saying is

step I of bit of regional just a on on any can now sense. thoughts of at kind one maybe little the just a kind of settling last, maybe ask kind if this taking kind through seeing and just the you're Makes of the back side tunnel front, of pilot this end period. And the light that

Just three or in next of so? years the kind your view here on the regional market airline

look Sure. regionals we've cost a concerned benefit, folks with that I and cost When lot of between wages even of mean, the new the the were about differential between significant at that the delta in looked it, the terms majors existed benefits. there's still a costs.

a or think So And perspective, I are business, to I sense. the jet think it I and just think too departures with just from makes there cities will legs that just are require has regional be better into multiple regional still macro small service. still served good going are hubs out there that

the between being that concerned fair is increasing, time, exist. where sure to levels But United importance has and point cost value. traffic for in that I does demand doesn't the levels feed over if I'm the work? of Am escalate, strong to continue lots there network point aircraft particular, a the

to see the of sort benefit. those at I regional just think don't goes industry So where our things point. this all situation three I away Because a of are

safe going time. that that and for I going there think I operate, in fleet that think aircraft service I think be basic the think going it's There's we're pretty continue. they're to And is on I – that. out to to we innovation some innovation. But there quite still will that for take and of

they've As up the going may stay and also the that their the cities regardless. gone costs major have at to level just but on are up, gone map

you. Makes sense. Thank

this we questions, at have further no time, gentlemen. And

tough know much Okay. obviously a very this everyone. I thank you that Well, is quarter.

to extremely supportive this. been terms through United of in have We has us go. helping ways

we we begun requirements. surplus are us significant to allowing prices we you As have have have number assets doing process know, surprisingly to a liquidate been good to and that down our good in debt. a of getting pay And that

training, seen there, to lower or Certainly levels the we're our now to me us this there's we've no and third while out what see be surprised But much, consider longer with lower down people on levels of could real side, Again, where put get some we're sort combine progress. that made we've attrition took where the attrition doubt beginning starting numbers. think, month hoped it I But I leaving, things has turn. or we pilot to to to the while really remarkable levels want when been you this don't And I to to that the output had time. we second are than that much underestimate at we anticipated. on a fly XX this and going modeled that it's magic know aircraft going clearly, be operation forward. will to this have enough if hours, the profitable take can we XX that between and But

us, put and like United into us they that to get determined on of that they that a I helping point. think I would to They us think be healthy, is also very rely much to see energy happen. lot that

Thank we plug to So you next again, you. and we'll support. appreciate continue along quarter, hopefully continue to we'll and to talk your

parties on Thank disconnect. conference you all for time, this call. At all today's may your participation