Photo: Eric Salard

MIAMI – Mesa Air Group (MESA) reported today its Q3 fiscal 2020 financial and operating results. These reflect a net income of US$3.4m, or $0.10 per diluted share, compared to a net income of US$3.0m, or $0.09 per diluted share for Q3 2019. 

Mesa ended the quarter at US$64.9m in unrestricted cash and equivalents compared to US$52.4m in Q2 FY2020. During the quarter, the company paid US$12m in capital expenditures offset by US$14m of returned deposits and paid US$24.2m in scheduled principal payments on aircraft and engine debt.

As previously disclosed, Mesa was approved for US$92.5m in connection with the Payroll Support Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) covering the period April through September 2020.

As of August 3rd, Mesa has received US$77.1m under the program and expects to receive the final payment of US$15.4m on September 1. All the payments are grants with no requirement for any portion to be repaid.

Q3 report data


Mesa’s Q3 2020 pre-tax income was US$4.9m, compared to US$3.9m for Q3 2019. Mesa’s Q3 2020 adjusted pre-tax income was US$4.9m, compared to US$13.4m for Q3 2019.

In addition, Mesa’s Adjusted EBITDA for Q3 2020 was US$35.9m, compared to US$58.8m in Q3 2019, and Adjusted EBITDAR was US$51.5m, compared to US$58.8m in Q3 2019. The primary reason for the US$8.5m decrease in adjusted pre-tax income from Q3 2019 to Q3 2020 was US$16.0m of deferred revenue.

The US$16.0m revenue deferral is a GAAP concept, which requires the Company to recognize revenue related to fixed monthly payments received under capacity purchase agreements over time, based on completed flights relative to the estimated number of flights expected over the term of the agreements.

United Express Embraer E175LR N135SY. Photo: Kaiden Chang

Total Operating Expenses


The deferred revenue will be recognized over the remainder of the capacity purchase agreements based on the estimated number of completed flights. Total operating expense decreased by US$105.3m, or 64.5%, to US$57.9m in Q3 2020 as compared to Q3 2019. 

The primary reason for the decrease was lower flight operations and maintenance expenses due to reduced flying as a result of COVID-19 and US$43.0m related to the Federal Grant received through the Payroll Support Agreement under the CARES Act.

The Company recognized the Federal Grant received through the Payroll Support Agreement under the CARES Act as an offset to payroll expenses in Flight Operations, Maintenance and General and Administrative expenses.

Statement from Mesa Air Group


Jonathan Ornstein, Mesa Air Group Chairman and CEO, said, “Given the difficult operating environment, we are extremely pleased to be reporting both a profit and positive cash flow. We believe this is the result of our relentless focus on low costs and reliable operations, the construct of our agreements with our major partners, and the dedication and hard work of all our employees.”

Ornstein also said, “While we believe there are significant opportunities ahead, there remain COVID-19 related challenges; our fleets continue to be utilized below 60%, aircraft financing has become more difficult, and the recovery time projected for demand to return to pre-COVID-19 levels.”

Statement from Mesa Vice President


Brad Rich, Executive Vice President, and COO, said, “In addition to operating profitably, we operated the quarter without any controllable cancellations. Working together with our partners and regulatory authorities, we remain committed to the highest level of safety for our passengers and employees. I would like to thank all of our employees for an outstanding job.”

(Credits: Anna Zvereva)

Fleet Prospective


From a fleet perspective, the twenty new Embraer ERJ175 for United Express are scheduled for delivery beginning in September and will continue through June 2021. They are currently negotiating financing on the first ten aircraft.

The Bombardier CRJ-700 fleet of twenty aircraft will remain in the United CPA until the new Embraer ERJ175 are delivered. After removal, the Bombardier CRJ-700 aircraft are contracted with UA to be leased to another United Express carrier or operated by Mesa.

Mesa recently signed a five-year agreement with DHL to operate two Boeing 737-400F cargo aircraft with service anticipated to start in October 2020. Mesa Is the first regional airline to enter the narrow-body cargo business.

Reconciliation of non-GAAP financial measures


Although these financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), certain non-GAAP financial measures may provide investors with useful information regarding the underlying business trends and performance of Mesa’s ongoing operations and may be useful for period-over-period comparisons of such operations.

The tables below reflect supplemental financial data and reconciliations to GAAP financial statements for the three months and nine months ending on June 30, 2020 and the three months and nine months ending on June 30, 2019.

Readers should consider these non-GAAP measures in addition to, not a substitute for, financial reporting measures prepared in accordance with GAAP. These non-GAAP financial measures exclude some, but not all items that may affect the Company’s net income. Additionally, these calculations may not be comparable with similarly titled measures of other companies.

Income Before
Taxes (USD)
Income Tax
(Expense)/Benefit
Net
Income
Net Income
per
Diluted Share
GAAP Income
$4,936
 
$(1,517)$3,419$0.10
Interest Expense$10,368
Interest Income(1)
Depreciation and Amortization$20,635
EBITDA$35,938
Aircraft Rent$15,582
EBITDAR$51,520
(1) Includes lease termination expense of US$9.5m
 related to the acquisition of ten CRJ-700 aircraft previously leased during the three months ended June 30, 2019
Income Before
Taxes (USD)
Income Tax
(Expense)/Benefit
Net
Income
Net Income
per
Diluted Share
GAAP Income$3,863$(856)$3,007$0.09
FY19 Adjustments (1)$9,540$(2,114)$7,426
Adjusted Income$13,403$(2,970)$10,433$0.30
Interest Expense$13,496
Interest Income$(733)
Depreciation and Amortization$19,761
EBITDA$45,927
Aircraft Rent$12,875
EBITDAR$58,802
(1) Includes lease termination expense of $$9.5m
 related to the acquisition of ten CRJ-700 aircraft previously leased during the three months ended June 30, 2019
Income Before
Taxes (USD)
Income Tax
(Expense)/Benefit
Net
income
Net Income
per
Diluted Share
GAAP Income$22,448$(6,359)$16,089$0.46
Interest Expense$34,668
Interest Income$(95)
Depreciation and Amortization$61,656
Adjusted EBITDA$118,677
Aircraft Rent$39,196
Adjusted EBITDAR$157,873
Income Before
Taxes (USD)
Income Tax
(Expense)/Benefit
Net incomeNet Income
per
Diluted Share
GAAP Income/(Loss)$46,228 $(10,891)$35,337$1.01
FY19 Adjustments (1) (2)$13,156$(2,915)$10,241
Adjusted Income$59,384$(13,806)$45,578$1.30
Interest Expense$42,110
Interest Income$(1,188)
Depreciation and Amortization$57,528
Adjusted EBITDA$157,834
Aircraft Rent$41,104
Adjusted EBITDAR$198,938
(1) Includes lease termination expense of US$9.5m
 related to the acquisition of ten CRJ-700 aircraft previously leased during the three months ended June 30, 2019
(2) Includes adjustment for loss on extinguishment of debt of US$3.6m
 related to repayment of the Company’s Spare Engine Facility during the nine months ended June 30, 2019
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