Mesa secures preliminary injunction against Delta contract termination, receives convertibles default notice

By Caroline Salls

Pittsburgh, May 29 - Mesa Air Group Inc. won a preliminary injunction in the Federal Court in Atlanta that keeps Delta Air Lines Inc. from terminating a contract with Mesa wholly owned subsidiary Freedom Airlines, Inc., according to a Mesa news release.

According to the release, Freedom Airlines currently operates 34 50-seat ERJ-145 and CRJ-900 aircraft for Delta Connection.

On March 28, Delta notified Mesa of its intent to terminate the Delta Connection agreement, alleging a failure by Freedom to maintain a specified completion rate on its ERJ-145 Delta Connection flights during three months of the six-month period of September 2007 through February 2008.

As previously reported, Mesa could be forced into Chapter 11 bankruptcy if Delta is allowed to terminate the contract.

Mesa's forecasts, which were included in a presentation made to holders of its senior convertible notes due 2023 and senior convertible notes due 2024, assume that the company's flying under the Delta contract would end in July, but Mesa said this would only occur if it receives an unfavorable ruling in its ongoing litigation with Delta.

If the contract does end in July, Mesa said it would be responsible for continuing expenses related to aircraft leases, fixed maintenance obligations, furlough and personnel redundancy costs, retraining costs for flight crews and other general costs and expenses related to the contracted services.

In addition to a convertible notes payment restructuring and aircraft return, Mesa said it would accelerate the wind-down of Air Midwest and negotiate supplier payment deferrals if the Delta contract is terminated.

"We wish to reaffirm our commitment to provide the very best service to Delta Air Lines, our passengers and our people," Mesa chairman and chief executive officer Jonathan Ornstein said in the release.

"We are hopeful this issue can be fully resolved soon."

Convertibles default notice

Mesa has also received a notice of default on its senior convertible notes due 2023 for failure to deliver notices and related materials to the indenture trustee and noteholders, according to an 8-K filed Thursday with the Securities and Exchange Commission.

The company has until July 21 to cure the default by delivering the required notices, and Mesa said it plans to cure the default by that deadline.

Mesa said there are $30.1 million in principal amount of the notes outstanding. According to the 8-K, holders of $23.2 million of the notes have agreed not to exercise their right to put the notes on June 16.

In addition, Mesa has received a Nasdaq Staff Determination letter, putting the company on notice that its securities are subject to delisting from the Nasdaq Global Select Market for failure to file its 10-Q for the quarter ended March 31.

Mesa said it plans to request a hearing before the Nasdaq Listing Qualifications Panel, and it plans to file the 10-Q before that hearing.

Phoenix-based Mesa operates 181 aircraft.

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