Regional Carrier Mesa Air Group Does a 180

Mesa Air Group Inc. seems to be pulling out of the tailspin that has buffeted the regional airline for the last year.

Mesa, based in Phoenix, provides service to dozens of small and mid-size cities and feeds that traffic to big airports nationwide under alliances with major carriers.

In the Southwest, Mesa’s America West Express service operates under a pact with America West Airlines, and Mesa’s operation uses America West’s Phoenix hub to serve about 18 communities, including Santa Barbara, Palm Springs and Fresno.

But it was another of Mesa’s alliances, one with UAL Corp.’s United Airlines, that contributed to the problems that have hobbled Mesa.

Mesa had operated United Express, which handled much of United’s connecting service between Los Angeles International Airport and smaller Western cities. But in October 1997, United hired SkyWest Inc. to replace Mesa on its LAX-related service, and later United replaced Mesa on its Denver-bound United Express service.

Losing those routes was a huge blow, but it wasn’t the only problem. Mesa overall flew too many routes with poor load factors--too many empty seats. Its operating costs were high.

And after the United setback, Mesa’s founder, Larry Risley, resigned as chairman and chief executive early this year amid growing complaints from institutional investors and analysts.

Risley, who remains a director, was succeeded as chief executive by Jonathan Ornstein. He leads a group that owns 6% of Mesa’s stock, and he has been aggressively restructuring Mesa to restore its profitability.

All but one of Mesa’s top 17 managers have been replaced, said Mesa spokesman Kenn Sinclair. Mesa has withdrawn from loss-ridden routes, or reduced service to shave costs. It has also added more efficient jets to its 110-plane fleet, which is comprised of mostly older turboprop aircraft.

The changes seem to be working. In its fiscal fourth quarter ended Sept. 30, Mesa turned a $3.3-million profit, contrasted with a $44-million loss a year earlier, even though Mesa’s revenue--reflecting the lost United Express service--plunged to $80 million from $135 million.

Moreover, “we are projecting a profit for fiscal year 1999 of $13 million” for Mesa, Merrill Lynch & Co. analyst Michael Linenberg said in a recent report.

And investors are applauding. Mesa’s stock, which had tumbled from $8 a share to $4 between July and early October, has regained that lost ground. The stock closed Monday at $8.06 a share, up 6 cents for the day, on Nasdaq.

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James F. Peltz can be reached via e-mail at [email protected].

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Building Momentum

The rebound in California’s construction industry employment has picked up recently as businesses have been expanding and new-home sales have risen dramatically. Average construction industry employment:

Los Angeles / Long Beach Metro Area: 1997: 110,000

Orange County Metro Area: 1997: 58,000

California: 1997: 554,300