Mesa Says Negotiations Will Not Lead To Contract Rate Cuts

Mesa Air Group is continuing to hold negotiations with its partners America West and US Airways to try and find ways to help the majors cut costs, but Mesa is adamant that no contract rate reductions will occur.

Industry observers believe that major carriers have been approaching their regional partners to ask for cuts to contract flying rates, in order to help them adjust to the grim post-Sept. 11 economic situation. However, so far only Northwest Airlines has managed to gain a contract rate cut from its partner Mesaba, and some experts believe that few rate cuts will occur.

Commenting on Mesa's quarterly earnings report, UBS Warburg analyst Jamie Baker said that America West is seeking a rate reduction from Mesa. He has modelled a 3-4 percent rate reduction into future estimates. In addition, Baker believes that Mesa will agree to allocate its share of the federal stabilization package to US Airways.

Mesa CEO Jonathan Ornstein told WAN's sister publication C/R News that his company has held discussions to try and find a way to give "cash-flow relief" to its partners. However, he said that Mesa will not be agreeing to a rate reduction with America West. Mesa "does not intend to sacrifice" contract rates that are already the lowest in the industry, Ornstein said.

He said that a number of other proposals to provide cash-flow relief have been made, however. "America West knows we have been a good partner in the past, as they have been to us," said Ornstein. "If we can be of assistance, we will do what we can."

Ornstein notes that Mesa is not the first group America West needs to negotiate with in its cost-cutting drive. But he said that America West knows that when it does come time to hold more discussions with Mesa, "we'll be there, and we will help them."

Regarding the US Airways talks, Ornstein said that allocating some of Mesa's federal bailout money to its partner is being discussed. However, the exact share is yet to be decided. US Airways "is entitled to at least some of the government money," Ornstein said, adding that "this is not an unreasonable position for them to take.........