Q3 2021 Mesa Air Group Inc Earnings Call

August 9, 2021

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Thank you for standing by and welcome to mess of Airlines Q3, Investor Conference call. All participants are in a listen only mode of the question and answer session at that time. Please press star 1 on mute your phone and record your name at the from.

This call is being reported if you have any objections. Please disconnect at this time of.

I'd now like to turn the call over to Susan Donofrio head of Investor Relations. Mr. <unk> you may begin.

Thank you operator, and welcome everyone to make the earnings call for its third fiscal quarter ended June 30 of this call is being recorded and simultaneously webcast. A replay of this call can be found on our website on the call with me today are Jonathan Ornstein Chairman.

Chairman and CEO, Brad Rich, EVP, and say, Oh, Oh, like Alot, President and CFO and torque Xebec senior VP of finance as well as other members of the management team. Following our prepared remarks, there will be a question and answer session for the sell side analyst day.

We also wanted to remind everyone on the call today that today's discussion contains forward looking statements that are based on the company's current expectations and are not a guarantee of future performance there could be significant risks and uncertainties that cause actual results to differ materially from those reflected by the forward looking statements, including the.

Risk factors discussed in our reports on file with the SEC, we undertake no duty to update any forward looking statements and comparing our results today, we will be adjusting all periods to exclude special items. Please refer to our third fiscal quarter earnings release, which is available on our website for the reconciliation of our non-GAAP measures.

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

Thank you very much Susan.

I'd like to start of course by thanking our dedicated people here at Mesa for their continued focus and support throughout this truly unprecedented time.

The ability to adapt in the difficult environment, while responding to rapid changes in demand is truly a testament to the capabilities and the dedication.

While branded torque will go through the details I'd like to jump into some of the highlights from this quarter.

On the financial side, we reported a pretax profit of $5.8 million of net income of $4.3 million or <unk> 11 per diluted share.

We did take delivery of the last 4 Embraer 175, LLS to bring our total flying for the United up to 80 aircraft.

Ported of sizable increase in our year over year block hours and subsequent to quarter end, we invested in a second electric aircraft company.

On the operational side, we have seen a significant increase of activity with our partners.

This is mostly due to the volume of vaccination and the easing of Covid restrictions on.

The only did we increase the number of flights the utilization of our current fleet.

We also took on additional flying at the request of our partners.

As domestic traffic continues to improve this increase in flight demand has created some challenges primarily around supply chain and MRO production capabilities.

As a result, we have seen a significant increase in the time of our contracted heavy maintenance providers.

Perform C checks on our <unk> 900 fleet.

Cost of also increased in part due to the interior Refurbishments on the 900 fleet and Brad will give you some more details on this later.

Besides of the continual improvements upgrades and expansions in our fleet in response to our flying partners needs.

Also investing in the next generation of aircraft technology.

Of that more sustainable aviation operations will be essential part of air travel in the future.

The remaining at the forefront of that move.

Do you believe will help ensure the longevity and strength of our company for years to come.

We also think that by entering into these new ventures with our major area of life partners.

To strengthen our long term relationships.

Our investment in Hart Aerospace, which plans to produce the world's first electric 19 seat.

Aircrafts the ESI team is a large part of that investment in a greener fleet.

We have ordered and plan to add 119 aircraft to our retail fleet once they become available which is targeted for 2026.

This would make us 1 of the first network of carriers to help Decarbonize air travel through the use of electric aircraft.

We will also be able to fly once again to the dozens of cities that have previously been we have previously flown to debt currently have little or no service as an example, Farmington, New Mexico, where our corporate company was founded on our former headquarters.

<unk>.

So you had 40 flights per day, serving 5 destinations.

There is no commercial service today, we believe that these highly efficient aircraft would allow us to reconnect communities like Farmington to the National transportation system.

This goes hand in hand, with our investment and the Archer aviation, whether it's E VTOL aircrafts, which was announced in February of 2021.

Also like to add that beyond the 100 aircrafts that we ordered our partners at United also ordered 100 aircraft.

We think that investing in clean aircraft of technology is the right decision.

Investing with our partners is a better decision and creating a better environment of our children and our children's children is the best decision, both as a responsible company and as responsible individuals'.

With that I'd like to turn the call over to Brad to provide an update on our operational performance this quarter right.

Thank you Jonathan and good afternoon to everyone.

Again, thank you for joining us today.

First of all the health and safety of our employees and our passengers remains 1 of our top priorities.

We continue to work cooperatively with our partners and we are following the CDC latest guidance.

Additionally, the flying with our mainline partners remains the cornerstone of our strategy and we remain committed to meeting their performance and capacity objectives.

By way of review of the June quarter, We flew 85162 block hours, which is the 169, 3% increase from last year and of 15, 2% increase above last quarter.

We're pleased to see demand for air travel recovering and returning closer to pre pandemic levels.

Based on current guidance from our partners, we expect the September quarter's daily aircraft utilization in our United operations to be at about 88% of pre COVID-19 levels and slightly over 100% in our American operation.

We currently believe the demand levels will remain strong throughout the balance of the year.

That being said, we remain flexible the changes in the demand environment and in our partners requirements.

During the June quarter, our combined controllable completion factor was 99, 7% compared to 100% of year ago.

Our controllable on time departure rate was 88% versus 94, 1% of year ago.

Overall.

Our main objective continues to be providing high quality reliable service for our partners and customers as we have done for almost 40 years.

We recognize however that the entire aviation industry continues to face historical challenges Inc.

<unk> the rapid increase in demand employee turnover on hiring.

<unk> production issues and an overall shortage of parts and materials the.

Despite our focus on solving these challenges we are not immune to these factors impacting our operation.

To further review of the parts of materials industry Challenge, we continue to see interruptions in parts of availability, which is driving costs higher associated with scheduled heavy maintenance.

The interior refurbishment upgrades.

This also lengthen the time span of our heavy checks, thus impeding our ability to return our aircraft into service and to add additional aircraft into heavy maintenance.

The result has been a reduction in the number of spare aircraft to support our daily operations.

We anticipate elevated costs of C check times and C. Check times will remain a challenge into the next fiscal year as the supply chain recovers.

It's important to note that these issues are primarily impacting our <unk> 900 fleet.

With regard to our United Operation, We took delivery of the last 4 E 175, LLS in the quarter, bringing our total E 175 fleet to 80 aircraft.

Our controllable completion factor was 100% and our controllable on time departure rate was 94, 8% for the quarter.

We're very pleased with our United performance, which places us in the top tier ranking versus our peers during the quarter.

In addition to adding all of the new E 175 L. L aircraft. We also completed our transition training for our CR J 700 pilots to the Embraer aircraft.

Additionally, we are hiring and upgrading of upgrading at an elevated pace to make sure. We stay ahead of attrition and are positioned to meet the increasing demand in the United Network.

We have removed all of the <unk> 7 hundreds from our operations and we continue the transition process of leasing the <unk> 700 aircraft. The go jet Airlines as part of the previously announced the agreement which ends in 2030.

13 of these aircrafts have been transitioned what's the remaining 7 scheduled by the end of the calendar year.

Now I'd like to provide a quick update on our American operation.

As I previously mentioned, our <unk> 9 hundreds of.

Been particularly impacted by part shortages and 9 hundreds make up our entire American fleet.

In the June quarter, we met performance expectations in April and May, but we've had more challenges in June and July with the increased capacity the.

Aforementioned concerns with parts were a key driver of this and led to a lack of spare aircraft to support the operation.

For August.

Remain.

To have a very high level of focus on our American operation.

As a reminder, we agreed to fly 5 additional lines of flying over the summer that expire in mid August.

These aircraft will become available of spare aircraft to support the American system, which we believe will contribute to enhanced operational performance and reliability.

With our continued focus on performance, we're making significant investments in the <unk> 900 fleet and heavy checks and cabin interior improvements.

It's important to note our current C. Check volume is it is out of historical high and more than double the normal planned run rate.

Our DHL operation continues to perform well and we're making progress in bringing on a third 737 that we expect to provide operational support and additional flying opportunities.

I would like to make some additional comments about our outlook on labor.

We remain very focused on hiring and training to meet increasing staffing requirements and nearly all of our operational division.

Our applicant pools remained strong and we believe in our ability to hire across the airlines.

We remain active in the hiring of pilots and have hired 250 pilot since April with training and full capacity.

Furthermore, we feel like we're well positioned to be an attractive option for regional pilots through opportunities such as the.

Of the United Aviate program, where we're 1 of few regional airlines able to offer of direct pathway for our pilots to become a career pilot free United Airlines.

On the 737 aircraft.

The only regional airline offering the opportunity to fly larger aircraft and earn the highest paid in the regional industry.

We are well positioned with crude on the sales across the country that allow our pilots the opportunity to live where they desire and commute easily to work.

We're also offering upgrade opportunities and actively recruiting from hundreds of aviation schools across the country.

With that I'd now like to turn the time over the torque to walk through our financial performance.

Great. Thank you Brad Let me do a quick review of our financial performance and then provide some color on our business outlook.

Wrapping up with the discussion of our capital outlook and balance sheet.

For the third quarter of fiscal year 2021, we reported net income of $4.3 million or <unk> 11 per diluted share. This compares favorably to net income of $3.4 million for the same quarter last year or <unk> 10 per diluted share.

Let me review, where we are on cash and liquidity.

Cash for the quarter, excluding restricted cash increased by $32.5 million to $184 million.

As we have previously reported we expect our fiscal year, ending cash balance will be approximately $100 million to $110 million.

The reduction from Q3 to Q4 is primarily due to higher than normal scheduled debt payment of $27 million.

1 time deferred debt payments of $19 million and partner true ups of roughly $25 million.

Total debt at the end of the quarter was $713.7 million, which was down $11 million from the prior quarter.

Assuming no additional debt the balance will be reduced by $46 million in the fourth quarter of 2021 and by roughly 100 million on each of the fiscal years 2022 and 2023.

This brings the total debt balance down to roughly $465 million at fiscal year end 2023.

So there was $5.4 million of Capex in the quarter of which $2.8 million was inventory and $2.4 million was capitalized free checks.

Going forward Capex for Q4 is forecast at $10 million for fiscal year 2022, we still have 4 additional engine deliveries and no other major capital expenditures.

Lastly on liquidity in the company received $52.2 million in PSP.

Excuse me PSP 3 funds in Q3, covering the period April through September 2021.

Insistent with PSP, 1 and PSP too we are providing our partners with temporary rate reductions over the cover of period rates will return to prior levels. After September.

Turning now to provide you with a brief update on our European joint venture investment with Gramercy associated limited.

Continue to make progress on the project and we are expecting to start of operations in calendar year 2022 day.

The EU regulations Mesa will be of minority partner in the JV, but mesa will be providing technical support and expertise to help with the startup.

Let me now touch on guidance, although the environment is still volatile we did want to provide guidance on a few areas. So.

The block hours are straightforward and we expect similar levels for the September 2021 through March 2022 quarters from.

Ill pass the remainder of expense and as you know this is the zero P&L impact and is that related to our level of ops and more related to the timing of events. So we provided to you our best estimates on our press release.

For heavy maintenance, which is engine and C checks, we have provided our estimates in our press release. These amounts are higher than what we would consider on the run rates. Much of this work is the result of deferred fee checks, which as Brad touched on are taking longer and costing more than anticipated for the <unk> 900 fleet.

This is expected to spill in the next fiscal year for Q4, we anticipate maintenance expense, including C check maintenance to be roughly $6 million higher than Q3.

So in Q4 and leading into fiscal year 2022, we will see an increase in flight ops costs relative to block hours as we spool up the pilot training program to meet anticipated demand going forward.

Now I'd like to turn it over to Jonathan.

Jonathan.

Yes, hi.

Sorry about that.

You do myself the chalk. Thank you talked we appreciate the financial recap.

While we remain focused on our core business. We're also strengthening our partner relationships from investments in cutting edge technology companies.

Tend to be the regional leader and de Carbonization and electric aircraft on the <unk>.

All of the introducing commercial air service to Rural America, and Decongestive of our cities.

Finally, we believe our DHL cargo flying in our European growth plans are just the start as we continue.

To look for and pursue new growth opportunities.

At this point operator, please open up the call we'd all be happy to answer any questions that the analysts may have.

Thank you we will now begin our question and answer session if you'd like to ask the question. Please press star 1 from your phone on mute your line and speaker name at the from our first question comes from Savi <unk> from Raymond James Your line is open.

Hey, good afternoon.

And just following up on the June operational performance that I'm guessing that the control of the operation performance of American as is related to the maintenance side.

You do have 19 CRD of $900 that are kind of.

There is all of it kind of not doing anything or that was just not available because the required maintenance hasn't been part of kind of curious.

Why that was.

1 of those camera.

The Brad or Mike do you guys want to take that I think we all are pretty familiar with debt subject.

Okay.

Yeah, sure Jonathan I'll be happy to to address it.

Savi, it's a very good question.

Obviously, as we were all going through the pandemic and looking for ways to conserve cash.

Certainly some of the heavy checks and things.

Were deferred in anticipation of going to agreement that was around 40 or so aircraft.

And when we signed the extension and then agreed to do additional flying we knew that we had to get additional C checks in motion, we signed up additional vendors put a lot more airplanes and C checks and as we described the very quick answer is due to the reasons that we've talked about the airplanes just have not come out of the C check.

On the time span that we expected and so that's what's created the the.

Lack of support airplane to fly the system.

That makes sense.

Just.

Regarding both kind of flight operations and kind of the maintenance on the kind of prior block hour basis. I know you maintain empty sales will remain elevated into kind of next fiscal year.

What do you can I expect the new normal for these 2 kind of line items to be and when do you think is likely that we get there.

Hey, Savi, it's Mike I'll take that I think on the on the pilot cost per block hour, it's actually on a per block hour basis has been relatively high due to the <unk>.

Kept most of the employees on the payroll and had.

Obviously depressed number of block hours.

We're just spooling up the training again now.

We'd like to get back to kind of run rate.

Kind of a pilot block hour cost per block hour, probably by the second or third quarter of 2022.

And what was that roughly because I know previously it was a bit elevated because of your of catching up on training and we were going to get to a new level of that.

Curious about the new normal is.

It was around 450 prior to.

The COVID-19.

Got it and then on the maintenance side.

Maintenance is on the on the block hour side again, probably in the second or third quarter.

But the the.

The bigger piece of the maintenance is the C checks and the engines and the C checks again not until the third quarter of 22, 2022, but we see it start going back down to where.

Kind of a more normal run rate would be.

Got it I appreciate it thank you.

Yes, and if I could just add something savvy when we talk about the.

And the increased spend on the C checks, we had planned and very close cooperation with our vendors for C checks. The last 30 to 35 days and Unfortunately, and this is really focusing on the 900 fleet.

Because of delays in parts.

From the manufacturer.

Saw that timeframe extend out past 60 to 65 days on average and in some cases.

Even further.

That's just something that the supply chain has to work out.

But it did cause the delay in the not only did the delay of the aircrafts in the check and then delay those who are.

The lining up to get into C check and so that's how we ended up with while we have ostensibly 19 spare aircraft much fewer number as those aircraft just take much longer to get through than what had been projected.

By us and by the vendors.

That makes sense and clearly not something just you are seeing if you're seeing that across the industry I appreciate the responses.

Our next question comes from Helane Becker from Cowen Your line is open.

Thanks, very much operator, hi, everybody on thank you very much from your time this afternoon.

So 1 question with respect to operational issues and American I know there were some issues in Dallas with the weather.

Are you seeing those kind of issues to like weather related issues that are causing flight cancellations or are the operational because crews are out of place instead of a combination of both.

Maybe some color on that.

Jonathan do you want me to take that 1 sure.

Yeah, Yeah sure I'll give it the the first shot and.

Helane.

Obviously, you are paying very close attention to the industry and your observation is is obviously very accurate and yes. The weather certainly has impacted the operation.

But look the the main focus I mean, we're not having crew shortages.

I mean, our flight attendant numbers have been really good or our pilot situation, especially on the American side is healthy.

So the weather impact to us.

Yes, it causes all of those.

Related issues on cruise timing out on all of that issue debt.

Look our primary issue has been that when we have the the.

Weather related.

Operational interruption.

The inability to reset the system with adequate spare ratio has really been the core of our problem.

Okay, Alright, that's very helpful. Thanks, Brad and then the other question I had was on.

Answered 1 of them much of any issues of flight attendants showing up to work with the other 1 is on nutrition. You mentioned that you want to stay ahead of attrition on the pilot hiring of new hired 250 since the April.

Can you say actually what your attrition rate is.

Well I'll answer it this way with 250 pilots.

And the pipeline right now that is that should should be we certainly believe that's going to be adequate to.

To stay ahead of the attrition.

And Jonathan I don't know if you wanted to give more specific guidance on that yes.

I mean, Helane, just a couple of things.

On the pilot side during the pandemic our pilot Patricia was literally single digit we.

We saw a spike as things started to pick up.

2 of them.

Somewhat higher number but still.

Below where we were pre pandemic.

The $2.50 would be more than adequate assuming those numbers stay about at those levels.

I think that.

What instructions that we basically told the training Department is we're long on the American side, we know we're going to take on more more flying we know that we've got more flying.

United Theres things that we can do just go out there and we're not hiring for attrition right now we're hiring to build up a additional.

Cushion.

So that we can continue to take on more flying.

Interestingly in spite of the fact that we're flying fewer airplanes for Americans, we are flying higher utilization rates than we did pre pandemic in terms of per day fly. So I think we just wanted to be on the safe side and just got ahead of the game and stay ahead of the game.

On the the question you had about the aircrafts I just wanted to mention again when you have 19 spare aircraft 19. Additional aircraft you don't think of not having enough aircraft is an issue, but the C check problem.

Which.

Did affect other parties in the industry not everybody, but it did affect quite of few of the other C. R J operators.

Not insignificant.

We are starting to see some improvement right now, but it was the very quickly sucked up a lot of those spares that we had counted on in particular after we had taken on the 5 additional flying 5 additional aircraft flying at American assets to which we were delighted to be able to accommodate but.

Clearly.

We had anticipated these aircrafts coming through C check.

<unk> 30 days not 65 to 70 days.

Right Gotcha, that's helpful. Jonathan and then the other question I had.

What's the on your your EV.

Investments, because I know youre really passionate about that and.

So now you have this investment with heart and you have an investment.

With.

Archer Archer.

Yeah. It was our turn rate I'm, sorry of asking my clock.

Should we think about and others. I mean are you are you like a full surface.

Full service.

Operator of all of these are you limiting yourself, how should we think about your passion for the well.

I appreciate that and I think.

As you know we've been we had partnered with the United on these first 2 and we would.

Frankly love to expand our partnerships with the.

The other partner of American Airlines as possible.

I think the best way to look at it is you know when Scott Kirby and I discussed it was.

Making investments in technology some of the technology will work some may not but that we're basically going to be out there as the leader. So that we can determine first what we think is going to be successful so along with the new United Adventures head up by Mike lesson and I think that we will continue to look.

Look.

And to take up make opportunities occur where we see low.

Long term growth.

And the marketplace for them in the technology as it develops there is a lot of interesting technology out there today.

Continued to visit companies I actually visited the company today.

It was very exciting and these are cutting edge companies.

And I think to ignore what's going on electric is inevitable and for any company to ignore that I mean, they're going to be dinosaurs, and I think that United has taken the lead on this.

American just did something on the Vitol now we've done it I think it's really important that we continue to move forward.

The continued to look at opportunities as they develop.

Thanks, Jonathan and Mike.

Thank you.

Our next question comes from Bert Susan from the Nice look of your line is open.

Hey, good afternoon, thanks for the time.

But Jonathan I ask you. This question I think 2 quarters ago. When the passenger recovery story was maybe a little less understood.

Day, the delta variance sort of creating some of the difficult concerns of potentially temporary concerns around travel, but cargo side of things remain really strong in the supply of stories certainly more constrained.

Where we stand today are you seeing the best organic growth opportunities still on the reasonable pasture side or is it do you think the starting to tilt toward cargo.

Well you know it's interesting that you said that.

Prior to the Delta.

The very you know impacting as widely as it has I think we all began to believe that the the <unk>.

That's from your side really of the sort of most upside from a you know on a.

2 of basis.

On the little concerned I think most people are about what that impact is going to be going into the fall.

On the cargo side, we continue to see very good strength, we're adding this third aircraft.

The question is where do we go from here I think if we're going to continue to add aircraft.

We may have to look at the 737.400 is sort of the limited I think that the 737.800, maybe the next aircraft we'd look at.

But the strengths within the cargo market is there from it.

It's just that I think it's also.

Fairly.

Well known that Youre, not going to get an order for 25 aircraft with the <unk>.

Argo operators go much more incrementally and you know thankfully, we've always taken the long term view. So I think our position is we'll just keep plugging along we're doing an excellent job for DHL that I'm very confident of and then.

We continue to develop.

That kind of the.

Relationship with DHL and I'm confident that we'll continue to grow.

But I still feel that.

On the passenger side and with our partners. There's still content continues to be significant amount of opportunity.

<unk>.

The domestic traffic at least continues to be strong.

Just as a clarification, maybe on the cargo side going from 2 I guess, you're going from 2 to 3 the third 1 though is not under contract Youre just sparing it but what's the what's the GAAP and going from 2 to 4 to 6 is that just having a track record in the space and then ultimately over time, you'll build the operations yeah.

Yeah, I think I think the track record is clearly important but I have to say I mean, I think our people have done an excellent job developing that track record.

I talked to.

The folks there of DHL pretty frequently.

1 of our.

From a board members worked with them as well.

I think that we added the third just because at the time when we started that process. We were concerned about reliability with only 2 aircrafts.

Reliability actually has been excellent.

We continue to move forward with it because DHL had said that they have plenty of work to do with the aircraft just on the AD hoc basis. So I think it's just math.

A matter of time, and we just continue down the path and say we're in this for the long haul and we're proving ourselves operationally every day and then you know our commitment I think is important to DHL also by taking on the third aircraft I think we're showing a really extraordinary.

Rosemary commitment that we want this to work so all in all I'm convinced it's the it's the right thing to do.

By taking on that third airplane.

And I think ultimately they will find the home for that aircraft pretty quickly.

Got it thanks for that just 1 last question from me probably for Mike.

The thing I would say probably more theoretical in nature, but how should we think about the long term sustainability of your cost advantage.

What sort of interestingly went from the shortage to of surplus now back to a shortage can you just walk us through maybe what gives you conviction that you can continue to run a leaner operation than peers, when we get on the other side of the Covid. Thanks for the time.

Sure I mean look the I think the best way to answer it as debt.

<unk> been getting this question for 20 years.

As you know can you can you continue to maintain our cost advantage advantage over your peers and we've been able to do it overtime of news, there's nothing that I see on a go.

Going forward that would prevent us to continue to have that advantage over our peers. It's the kind of it's the kind of way we run the company, we're very conscientious of of.

Where we're spending our money we try to get as much.

<unk> fees from our crews that we can with <unk>, we've been very successful at.

Yeah, and I would say too that we have some structural benefits right now.

Make it hard for anyone to catch it not the least of which is because we've expanded so much over the last 5 years, we have a relatively junior workforce.

You know there was a point in time of year ago.

Half of our employees had less than 3 years seniority.

Thank you.

We that's the advantage on the cost side, that's going to be hard to overcome and any growth that we have on top of that will just further enhance that.

Vantage.

As a reminder, if he would like to ask the question over the phone lines. Please press Star then 1 of our next question from Savi <unk> from.

From Raymond James Your line is open.

Savi. Please check your mute button on your line is open.

Thank you sorry about that.

Just thanks for the follow up and just on the European JV side of it I know last time, you had maybe a couple of aircrafts as placeholders there.

Not not in your kind of outlook now how are you thinking about the the timing of when you know of.

And the opportunity there.

Yes, so we're looking at starting up in the first quarter first calendar quarter of 2022 and look we're just really looking closely at the cost benefit analysis of taking an FAA Mesa air craft.

Configuring it to all coach getting it he also certified <unk>.

<unk> is just potentially leasing in the aircraft that may already be over in Europe in that configuration from an expedient standpoint of startups. So we're still in the evaluation phases.

So we're not sure which way we're going to go but we're still evaluating both options.

Yeah, and I think it's fair to say Savi.

Our view on that has changed somewhat because there are aircraft now available, which we're not necessarily available pre COVID-19 now available at very reasonable rates that as Mike mentioned before getting around to the whole <unk>.

Conversion.

The just some very attractively priced aircraft right now on the marketplace.

And we do think that the gaps in Europe continue to get bigger in.

The opportunities exist.

And I think that.

We think theres some up.

Real advantages for us on.

Going in sort of fresh.

Versus where a lot of the carriers are today.

You know it was crazy I was at Gothenburg.

The visit heart.

It's a big airport and they're in the middle of the day on a Wednesday and I counted.

Kidding 2 aircraft on the ramp.

And you just know that in some of these cities of the service has been decimated by Covid and I really do believe that there's an opportunity for us long term.

And also on opportunity whereby we could form the sort of American style partnerships capacity purchase agreements with some of the larger carriers.

And finally, the remind me again because in the U S. You have this kind of pilot arbitrage opportunity in the kind of training and a pipeline what's the advantage that you have and in Europe.

Well I think 1 you know if I if I had to rank them is just 1 of.

The U S operating mentality I think is no small part of it.

A large part 2 is the fact that a lot of the regional carriers there.

Our effectively balkanize on do you see carriers there with 2 of these airplanes 3 of those 2 of those.

We looked at what Eric the company that we were potentially going to acquire and they had purchased 2.4 I think 6 embraer 170 fives.

$32 million of piece I mean, that's $8 million more than what we would've paid.

I also think that by setting the operation of properly and in particular in the location like Malta, which you'll not surprisingly you know company like Ryanair is a big base from there are advantages to how you set the operation up and where you set it up something Mike and I.

It became very familiar with when we were over there on the operating in Brussels.

I think our expertise the fact that we have a lot of the operating capability already.

I think the.

The.

And the relationships that we have I think all of those things would give us an advantage over the existing carriers.

Makes sense and if I may quickly follow up on the comments on the cargo if you do on the buying kind of dash 8 hundreds of freighters since none of the natural of hundred is there a difference in training or cost or anything like that or is that of pretty seamless.

On the fleet change anything.

Well I mean, if it if we put larger aircrafts you know of 737, 8 hundreds and some folks have talked about a jars and some you know there's all kinds of aircrafts that people that had been thrown at us as the opportunities yeah, there's always cost of the startup, but again I'm looking at it long term I just think that we have to be.

Paired to respond to things that are partners or other partners may we'd like to see us operate.

So, yes that would be some expense, but I would say also that the bulk of the expenses or are already sunk.

Given the having put the 737.4 hundreds on certificate.

Yeah. We would this is Mike we would have to put it on certificate, but variety of incorrectly with the.

The crews can be cross utilized between 408 hundred so we would benefit from that efficiency.

Okay. That's helpful. All right. Thank you.

Yeah.

We have no additional questions in the queue at this time.

Okay.

Well in conclusion again, thank you everybody for taking time out.

We are.

Feel that.

We're very pleased to have been profitable unprofitable through COVID-19.

I think our people have done a terrific job and really brave out there I mean I have to say I can't think of a better word to describe the embraer in this environment through a pandemic.

We've seen just tremendous dedication across all of the folks whether it's pilots flight attendants mechanics people on a dispatch the.

The people that are coming into the all of US every day I just can't tell you how much I know all of us on the phone appreciate the work that they've done.

We also want to thank our partners, who have been incredibly supportive having to go through their own challenges right now.

Both of which have been understanding and helpful.

We continue to work very cooperatively with them.

We're not entirely pleased with.

What happened to us in June.

As a result of the aircrafts shortage, but again that will be worked through the the.

That issue actually resolves itself.

When we can take take back of the 5 airplanes and as these are the suppliers start getting the vendors start getting the aircraft out of the C check which is now happening.

And so I think for our standpoint.

The best thing we can do is just keep our nose to the grindstone operationally and continue to do a good job.

Lastly.

We were pleased to close the heart deal.

Do think that there is a big future in electric and other forms of de Carbonization. We can continue to pursue that we really are pleased to have the United as a partner on those 2 deals we'd like to expand those partnerships.

We think that longer term it could be very exciting for the company.

So we appreciate all of your support and we look forward to talking to you at our next call. Thank.

Thank you very much.

Thank you for your participation.

On today's conference you may disconnect at this price.

[music].

Thank you for standing by and welcome to the Mercer Airlines Q3, Investor type of call all participants.

The fence or on a listen only mode until the question and answer session at that time. Please press star 1 on mute your phone and record your name at the from this call is being reported if you have any objections. Please disconnect at this time.

Now like to turn the call over to Susan Donofrio head of Investor Relations. That's enough for you you may begin.

Thank you operator, and welcome everyone to make the earnings call for its third fiscal quarter ended June 30th.

The call is being recorded and simultaneously webcast a replay of this call can be found on our website on the call with me today are Jonathan Ornstein Macy's.

Chairman and CEO, Brad Rich E V. P. N C O O like a lot president and CFO and toward the back senior VP of finance as well as other members of the management team. Following our prepared remarks, there will be a question and answer session for the sell side analyst.

Risk factors discussed in our reports on file with the US each day, we undertake no duty to update any forward looking statements and comparing our results today, we will be adjusting all periods to exclude special items, we have the.

The first where a third fiscal quarter earnings release, which is available on our website for the reconciliation of our non-GAAP measures with that I will turn it over to Jonathan for his opening remarks Jonathan.

Thank you very much Susan.

I'd like to start of course by thanking our dedicated people here at Mesa for their continued focus and support throughout this truly unprecedented time.

The ability to adapt in the difficult environment, while responding to rapid changes in demand is truly a testament to their capabilities and dedication.

Well, Brad and torque will go through the details I'd like the jump into some of the highlights from this quarter.

On the financial side, we reported a pretax profit of $5.8 million of net income of $4.3 million or <unk> 11 per diluted share.

We did take delivery of the last 4 Embraer 175, LLS to bring our total flying toward the United up to 80 aircraft.

Reported a sizeable increase in our year over year block hours and subsequent to quarter end, we invested in a second electric aircraft company.

On the operational side, we have seen a significant increase in activity with our partners.

I believe this is mostly due to the volume of vaccination in the easing of Covid restrictions.

Not only did we increase the number of flights of the utilization of our current fleet, but we also took on additional flying at the request of our partners.

As domestic traffic continues to improve this increase in flight demand has created some challenges primarily around supply chain and MRO production capabilities as.

As a result, we have seen a significant increase in the time of our contract and heavy maintenance providers.

Perform C checks on our <unk> 900 fleet.

Cost of also increased in part due to the interior Refurbishments on the 900 fleet and Brad will give you some more details on this later.

Size of the continual improvements upgrades and expansions in our fleet in response to our flying partners needs.

Also investing on the next generation of aircraft technology.

I believe that more sustainable aviation operations will be essential part of air travel in the future the main.

At the forefront of that move.

Do you believe will help ensure the longevity and the strength of our company for years to come.

We also think that by entering into the new ventures with our major area of life partners.

To strengthen our long term relationships.

Our investment in Hart Aerospace, which plans to produce the world's first electric 19 seat.

Aircrafts. The Es 19, there is a large part of that investment in a greener fleet.

We have ordered and plan to add 119 aircraft to our reach of fleet once they become available which is targeted for 2026.

This would make us 1 of the first debt will get carriers to help Decarbonize air travel through the use of electric aircraft.

Also be able to fly once again to the dozens of cities that have previously been we have previously flown to debt currently have little or no service as an example, Farmington New Mexico we're on.

The corporate company was founded on our former headquarters existed previously had 40 flights per day, serving 5 destinations.

There is no commercial service today, we believe that these highly efficient aircraft would allow us to reconnect communities like Farmington to the National transportation system.

Goes hand in hand, with our investment in the Archer aviation, whether it's E. VTOL aircrafts, which was announced in February of 2021, I would also like to add that beyond the 100 aircraft debt, we ordered our partners at United also ordered 100 aircraft.

We think that investing in clean aircraft of technology is the right decision invest.

The investing with our partners is a better decision and creating a better environment for our children and our children's children is the best decision, both as a responsible company and as responsible individuals.

With that I'd like to turn the call over to Brad to provide an update on our operational performance this quarter Brad.

Thank you Jonathan and good afternoon to everyone.

Again, thank you for joining us today.

First of all of the health and safety of our employees and our passengers remains 1 of our top priorities.

We continue to work cooperatively with our partners and we are following the CDC latest guidance.

Additionally, the flying with our mainline partners remains the cornerstone of our strategy and we remain committed to meeting their performance and capacity objectives.

By way of review of the June quarter, We flew 85162 block hours, which is the 169, 3% increase from last year and of 15, 2% increase above last quarter.

We're pleased to see demand for air travel recovering and returning closer to pre pandemic levels.

We currently believe the demand levels will remain strong throughout the balance of the year.

That being said, we remain flexible the changes in the demand environment.

The partners requirements.

During the June quarter, our combined controllable completion factor was 99, 7% compared to 100% of year ago arc.

Of our controllable on time departure rate was 88% versus 94, 1% of year ago.

Overall.

Our main objective continues to be providing high quality reliable service for our partners and customers as we have done for almost 40 years.

We recognize however that the entire aviation industry continues to face historical challenges Inc.

<unk> the rapid increase in demand employee turnover on hiring.

<unk> production issues and an overall shortage of parts and materials the.

Spite our focus on solving these challenges we are not immune to these factors impacting our operation.

To further review the parts of materials industry Challenge, we continue to see interruptions in parts of availability, which is driving costs higher associated with scheduled heavy maintenance.

Interior refurbishment upgrades.

This also lengthen the time span of our heavy checks, thus impeding our ability to return our aircraft into service and the <unk>.

The additional aircrafts in the heavy maintenance.

The result has been a reduction in the number of spare aircraft to support our daily operations.

We anticipate elevated costs of C check times and C. Check times will remain a challenge into the next fiscal year as the supply chain recovers.

It's important to note that these issues are primarily impacting our <unk> 900 fleet.

With regard to our United Operation, We took delivery of the last 4 E 175, LLS in the quarter, bringing our total E 175 fleet to 80 aircraft.

Our controllable completion factor was the 100% and our controllable on time departure rate was 94, 8% for the quarter.

We're very pleased with our United performance, which places us in the top tier ranking versus our peers during the quarter.

In addition to adding all of the new E 175 L. L aircraft. We also completed our transition training for our CR J 700 pilots to the Embraer aircraft.

Additionally, we are hiring and upgrading of upgrading at an elevated pace to make sure. We stay ahead of attrition and are positioned to meet the increasing demand in the United Network.

13 of these aircrafts have been transitioned what's the remaining 7 scheduled by the end of the calendar year.

Now I'd like to provide a quick update on our American operation.

As I previously mentioned, our <unk> 9 hundreds of.

Been particularly impacted by parts shortages and 9 hundreds make up our entire American fleet.

In the June quarter, we met performance expectations in April and May, but we've had more challenges in June and July with the increased capacity the.

The aforementioned concerns with parts were a key driver of this and led to a lack of spare aircraft to support the operation.

For August.

Remain.

To have a very high level of focus on our American operation.

As a reminder, we agreed to fly 5 additional lines of flying over the summer that expire in mid August.

These aircraft will become available of spare aircraft to support the American system, which we believe will contribute to enhanced operational performance and reliability.

With our continued focus on performance, we're making significant investments in the <unk> 900 fleet and heavy checks and cabin interior improvements.

It's important to note our current C check volume as it is out of historical high and more than double the normal planned run rate.

Our DHL operation continues to perform well and we're making progress in bringing on a third 737 that we expect to provide operational support and additional flying opportunities.

I would like to make some additional comments about our outlook on labor.

We remain very focused on hiring and training to meet increasing staffing requirements and nearly all of our operational division.

Our applicant pools remained strong and we believe in our ability to hire across the airline.

We remain active in the hiring of pilots and have hired 250 pilot since April with training and full capacity.

Furthermore, we feel like we're well positioned to be an attractive option for regional pilots 2 of.

Opportunities such as the.

The United 88 program, where we are 1 of few regional airlines able to offer of direct pathway for our pilots to become a career pilot free United Airlines.

On the 737 aircraft.

The only regional airline offering the opportunity to fly larger aircraft and earn the highest paid in the regional industry.

We are well positioned with crude on the sales across the country that allow our pilots the opportunity to live where they desire and commute easily to work.

We're also offering upgrade opportunities and actively recruiting from hundreds of aviation schools across the country.

With that I'd now like to turn the time over the torque to walk through our financial performance.

Great. Thank you Brad Let me do a quick review of our financial performance and then provide some color on our business outlook.

Wrapping up with the discussion of our capital outlook and balance sheet.

Let me review, where we are on cash and liquidity.

Cash for the quarter, excluding restricted cash increased by $32.5 million to $180.4 million.

As we have previously reported we expect our fiscal year, ending cash balance will be approximately $100 million to $110 million.

The reduction from Q3 of the Q4 is primarily due to higher than normal scheduled debt payments of $27 million.

1 time deferred debt payments of $19 million and partner true ups of roughly $25 million.

Total debt at the end of the quarter was $713.7 million, which is down $11 million from the prior quarter.

Assuming no additional debt the balance will be reduced by $46 million in the fourth quarter of 2021 and by roughly 100 million in each of the fiscal years 2022 and 2023.

This brings the total debt balance down to roughly $465 million at fiscal year end 2023.

So there was $5.4 million of Capex in the quarter of which $2.8 million was inventory and $2.4 million was capitalized free checks.

Going forward Capex for Q4 is forecast at $10 million for fiscal year 2022, we still have 4 additional engine deliveries and no other major capital expenditures.

Lastly on liquidity in the company received $52.2 million in PSP threat excuse me PSP 3 funds in Q3, covering the period April through September 2021.

With PSP, 1 and PSP too we are providing our partners with temporary rate reductions over the cover of periods rates will return to prior levels. After September.

Turning now to provide you with a brief update on our European joint venture investment with Gramercy associated limited.

We continue to make progress on the project and we are expecting to start operations in calendar year 2022.

Do the EU regulations Mesa will be of minority partner in the JV, but mesa will be providing technical support and expertise to help with the startup.

Let me now touch on guidance, although the environment is still volatile we did want to provide guidance on a few areas.

The block hours are straightforward and we expect similar levels for the September 2021 through March 2022 quarters from.

The pass through maintenance expense and as you know this is the zero P&L impact and is that related to our level of ops and more related to timing of events. So we provided to you our best estimates on our press release.

For heavy maintenance, which is engine and C checks, we have provided our estimates in our press release. These amounts are higher than what we would consider on the run rates. Much of this work is the result of deferred fee checks, which as Brad touched on on are taking longer and costing more than anticipated for the <unk> 900 fleet. This is.

Back to the spill into next fiscal year for Q4, we anticipate maintenance expense, including C check maintenance to be roughly $6 million higher than Q3.

So in Q4 and leading into the fiscal year 2022, we will see an increase in flight ops costs relative to block hours as we spool up the pilot training program to meet anticipated demand going forward.

Now I'd like to turn it over to Jonathan.

Jonathan.

Yeah, Hi.

Sorry about that I.

New to myself the torque. Thank you talked we appreciate the financial recap.

While we remain focused on our core business. We're also strengthening our partner relationships from <unk>.

<unk> and cutting edge technology companies.

Tend to be the regional leader and de Carbonization and electric aircraft on the <unk>.

Golar group of introducing commercial air service to Rural America, and the Congesting our cities.

Finally, we believe our DHL cargo flying in our European growth plans are just the start as we continue.

To look for and pursue new growth opportunities.

At this point operator, please open up the call we'd all be happy to answer any questions that the analysts may have.

Thank you we will now begin our question and answer session if you'd like to ask the question. Please press star 1 from your phone on mute your line of Speaker name at the from our first question comes from Savi <unk> from Raymond James Your line is open.

Hey, good afternoon.

And just following up on the operational performance that I'm guessing that the control of the operation performance of American as is related to the maintenance side.

Do you have 19 CRD of 9 hundreds that are kind of.

There is kind of not doing anything that is or that was just not available because the required maintenance hasn't been caught up or I'm just kind of curious.

And why that was.

1 of those camera sorry.

Brad or Mike do you guys want to take that I think we all are pretty familiar with that subject.

Okay.

Sure Jonathan I'll be happy to to address it.

Savi, it's a very good question.

Obviously, as we were all going through the pandemic and looking for ways to conserve cash.

Certainly some of the heavy checks and things.

Were deferred in anticipation of going to the agreement that was around 40 or so aircraft.

On the time span that we expected and so that's what's created the the.

Lack of support airplane to fly the system.

That makes sense and.

Just regarding.

Regarding both the kind of flight operations and kind of the maintenance on the kind of prior block hour basis, I know you maintain and she said well remain elevated into kind of next fiscal year.

What do you can I expect the new normal for these 2 kind of line items to be and when do you think it's likely that we get there.

Hey, Savi, it's Mike I'll take that I think on the on the pilot cost per block hour, it's actually on a per block hour basis has been relatively high due to the <unk>.

Most of the employees on the payroll and head of.

Obviously depressed number of block hours.

And we're just spooling up the training again now.

We'd like to get back to kind of run rate.

Kind of pilot block hour cost per block hour, probably by the second or third quarter of 2022.

And what was that roughly.

I know previously it was a bit elevated because of your of catching up on training and we were going to get to a new level that it was kind of curious about the new normal is.

It was around 450 prior to.

On Covid.

Got it and then on the maintenance side.

Maintenance is on the on the block hour side again, probably in the second or third quarter.

But the.

The bigger piece of the maintenance is the C checks and the engines and the C checks again not until the third quarter of 22, 2022, but we see it start going back down to where.

Kind of of a more normal run rate would be.

Got it I appreciate it thank you.

Yeah, and if I could just add something savvy when we talk about the.

And the increased spend on the C check.

We had planned and very close cooperation with our vendors for C checks. The last 30 to 35 days and on.

Unfortunately, and this is really the.

Focusing on the 900 fleet.

Because of delays in parts.

From the manufacturer.

We saw that timeframe extend out past $60.65 days on average and in some cases.

Even further.

That's just something that the supply chain has to work out.

But it did cause the delay in the not only did the delay of the aircrafts in the check and then delay those who are.

By us and by the vendors.

That makes sense and clearly not something just you are seeing if you're seeing that across the industry I appreciate the responses.

Our next question comes from Helane Becker from Cowen Your line is open.

Thanks, very much operator, hi, everybody on thank you very much from your time this afternoon.

So 1 question with respect to operational issues and American I know there were some issues in Dallas with the weather.

Are you seeing those kind of issues to like weather related issues that are causing flight cancellations or are the operational because crews are out of places sort of combination of both.

Maybe some color on that.

Jonathan do you want me to take that 1 sure.

Yeah, Yeah sure I'll give it the the first shot and.

Helane.

Obviously, you are paying very close attention to the industry and your observation is is obviously very accurate and yes. The weather certainly has impacted the operation.

But look the the main focus I mean, we're not having crew shortages.

I mean, our flight attendant numbers have been really good or our pilot situation, especially on the American side is healthy.

So the weather impact to us.

Yes, it causes all of those.

Related issues on cruise timing out on all of that issue.

Look our primary issue has been that when we have the the.

Weather related opt.

Operational interruption.

The inability to reset the system with adequate spare ratio is really been the core of our problem.

Alright, that's very helpful. Thank spread and then the other question I had was on.

And you answered 1 of all much of any issues of flight attendants showing up to work with the other 1 is on nutrition. You mentioned that you want to stay ahead of attrition on the pilot hiring of new hired 250 since the April.

Can you say actually what your attrition rate of.

Well I'll answer it this way with 250 pilots.

In the pipeline right now that is that should should be we certainly believe that's going to be adequate to.

To stay ahead of the attrition.

And Jonathan I don't know if you wanted to give more specific guidance on that.

Yeah, I mean, how long of just a couple of things on.

On the pilot side during the pandemic our pilot attrition was.

Literally in single digit.

We saw a spike as things started to pick up.

2 of them.

Somewhat higher number but still.

Below where we were pre pandemic.

The 250 would be more than adequate assuming those numbers stay about at those levels.

I think that.

What instructions that we basically told the training department as well.

We're long on the American side, we know we're going to take on more more flying we know that we've got more flying out of it.

The United There's things that we can do just go out there and we're not hiring for attrition right now we're hiring to build up a additional.

<unk> cushion so.

So that we can continue to take on more flying into.

Singly in spite of the fact that we're flying fewer airplanes from Americans, we are flying higher utilization rates than we did pre pandemic in terms of per day fly. So I think we just wanted to be on the safe side and just get ahead of the game and stay ahead of the game.

On the the question you had about the aircraft I just wanted to mention again.

Of 19 spare aircraft 19 additional aircrafts you don't think of not having enough aircraft is an issue, but the C check problem.

Which it did affect other parties in the industry not everybody, but it did affect quite of few of the other C. R J operators.

Not insignificant.

We are starting to see some improvement right now, but it was a very quickly sucked up a lot of those spares that we had counted on in particular after we had taken on the 5 additional flying 5 additional aircraft flying at American assets to which we were delighted to be able to accommodate but.

Clearly.

We had anticipated these aircrafts coming through C checks and you know 30 days not 65 to 70 days.

Right Gotcha, that's helpful. Jonathan and then the other question I had.

What's the on your your EV.

Investments, because I know youre really passionate about that and.

So now you have this investment with heart and you have an investment.

With.

Archer Archer.

Yeah. It was our turn rate sorry of asking my clock.

Should we think about others. I mean are you are you like a full surface.

Full service.

Operator of all of these are you limiting yourself, how should we think about your passion for the well.

I appreciate that and I think.

No.

As you know we've been we had partnered with United on these first 2 and we would.

Frankly love to expand our partnerships with the.

With the other partner American airlines of possible.

I think the best way to look at it is when Scott Kirby and I discussed it was low.

We're making investments in technology some of the technology will work some may not but that we're basically going to be out there as a leader. So that we can determine the first what we think is going to be successful.

Along with the new United Adventures head up by Mike, Let's get in.

That we will continue to look.

To take up make opportunities occur where we see.

Long term growth and of <unk>.

Marketplace for them in the technology as it develops.

A lot of interesting technology out there today have continued to visit the company's I actually visited the company today.

It was very exciting and these are cutting edge companies.

And I think to ignore what's going on electric is inevitable and for any company to ignore that I mean, they're going to be dinosaurs, and I think that United has taken the lead on this.

American just did something on the Vitol now we've done it I think it's really important that we continue to move forward and continue to look at opportunities as they develop.

Thanks, Jonathan and Mike.

Thank you.

Our next question comes from Bert Susan from say some of.

Your line is open.

Hey, good afternoon, thanks for the time.

Jonathan I ask you. This question I think 2 quarters ago, when the passenger recovery story was maybe a little less understood.

Day, the Delta variance sort.

Of creating some of the difficult concerns potentially temporary concerns around travel, but cargo side, you know things remain really strong in the supply of stories certainly more constrained.

Where we stand today are you seeing the best organic growth opportunities still on the reasonable pasture side or is it do you think the starting to tilt towards cargo.

Well you know it's interesting that you said that.

<unk>.

Prior to the Delta.

The varying.

Impacting.

As widely as it has I think we all began the believes that the the passenger side really have the sort of most upside from a no on a relative basis.

On the little concerned I think most people are about what that impact is going to be going into the fall.

On the cargo side, we continue to see very good strength, we're adding this third aircraft.

You know the question is where do we go from here I think if we're going to continue to add aircraft.

We may have to look at the 737.400 is sort of limited I think that the 737.800, maybe the next aircraft we'd look at.

But the strengths within the cargo market is there.

It's just that I think it's also.

Fairly.

Well known that Youre, not going to get an order for 25 aircrafts the.

Cargo operators go much more incrementally and you know thankfully, we've always taken the long term view. So I think our position is we'll just keep plugging along we're doing an excellent job with DHL that I'm very confident of and then.

We continue to develop.

You know that kind of the.

Relationship with DHL and I'm confident that we'll continue to grow.

But I still feel that on.

On the passenger side and with our partners. There's still content continues to be significant amount of opportunity.

<unk>.

The domestic traffic at least continues to be strong.

Just as a clarification, maybe on the cargo side going from 2 I guess, you're going from 2 to 3 the third 1 though is not under contract through the sparing it but what's the what's the GAAP and going from 2 to 4 to 6 is that just having a track record in the space and then ultimately over time, you'll build the operations yeah.

Yeah, I think I think the track record is clearly important but I have to say I mean, I think our people have done an excellent job developing that track record.

I talked to.

The folks there of DHL pretty frequently.

1 of our.

From a board members worked with them as well.

I think that we added the third just because at the time when we started that process. We were concerned about reliability with only 2 aircrafts.

Reliability actually has been excellent.

We continue to move forward with it because DHL Ed said that they have plenty of work to do with the aircraft just on the AD hoc basis. So I think it's just you know of.

A matter of time, and we just continue down the path and say we're on this for the long haul and we're proving ourselves operationally every day and then our commitment I think is important to DHL also by taking on the third aircraft I think were showing.

Really extraordinary commitment that we want this to work so all in all I'm convinced it's the it's the right thing to do.

By taking on that third airplane.

And I think ultimately they will find the home for that aircraft pretty quickly.

Got it thanks for that just 1 last 1 from me probably for Mike.

The thing I would say probably more theoretical in nature, but how should we think about the long term sustainability of your cost advantage pile.

Pilot sort of interestingly went from the shortage to of surplus now back to a shortage.

Can you just walk us through maybe what gives you conviction that you can continue to run a leaner operation than peers, when we get on the other side of the Covid. Thanks for the time.

Sure I mean look the I think the best way to answer it is that you know.

I guess I've been getting this question for 20 years.

Is can you can you continue to maintain our cost advantage advantage over your peers.

And we've been able to do it over time and there is nothing that I see on go with going forward that would prevent us to continue to have that advantage over our peers. It's the kind of it's the kind of way we run the company, we're very conscientious of of where we're spending our money we try to get as much efficiencies from our crews.

That we can with Joe we've been very successful at.

Yeah, and I would say too that we have some structural benefits right now.

I think makes it hard for anyone to catch it.

The least of which is because we've expanded so much over the last 5 years.

Have a relatively junior workforce.

You know there was a point in time of year ago, where half of our employees had less than 3 years seniority.

I think that you know.

That's the advantage on the cost side, that's going to be hard to overcome and any growth that we have on top of that will just further enhance that.

Advantage.

As a reminder, if he would like to ask the question over the phone lines. Please press Star then 1 of our next question from Savi <unk> from.

Raymond James Your line is open.

Savi. Please check your mute button on your line is open.

Thank you sorry about that.

Just thanks for the follow up and just on the European JV side of it I know last time, you had maybe a couple of aircrafts as placeholders there.

Not not in your kind of outlook now how are you thinking about the.

The the timing of of win.

On the opportunity there.

Yes, so we're looking at starting up in the first quarter first calendar quarter of 2022 and look we're just really looking closely at the cost benefit analysis of taking an FAA Mesa air craft Reconfiguring it to all coach getting at <unk>.

Certified.

Versus just potentially leasing in the aircraft that may already be over in Europe in that configuration from an expedient standpoint of startups. So we're still in the evaluation phases.

So we're not sure which way we're going to go but we're still evaluating both options.

Yeah, and I think it's fair to say Savi that.

Our view on that has changed somewhat because there are aircrafts now available, which we're not necessarily available pre COVID-19 now available at very reasonable rates that as Mike mentioned before getting around to the whole.

Conversion.

The just some very attractively priced aircraft right now in the marketplace.

And we do think that the gaps in Europe continue to get bigger in.

Yeah.

The opportunities exist.

And I think that you know.

We think theres some up.

The real advantages for us going in sort of fresh.

Versus where a lot of the carriers are today.

It was crazy at Gothenburg.

The visit heart.

And you know, it's a big airport and they're in the middle of the day on a Wednesday and I counted.

No kidding 2 aircraft on the ramp.

And you just know that in some of these cities of the service has been decimated by Covid and I really do believe that there is an opportunity for us long term.

And also an opportunity whereby we could form the sort of American style partnerships capacity purchase agreements with some of the larger carriers.

And so on the remind me again because in the U S. You had this kind of pilot arbitrage opportunity on kind of training and the pipeline. What's the advantage that you have in Europe.

Well I think 1.

If I had to rank them is just 1.

The U S operating mentality I think is no small part of it a lot.

Part 2 is the fact that a lot of the regional carriers there.

Our effectively balkanized on do you see carriers there with 2 of these airplanes 3 of those 2 of those.

We looked at what Erica company that we were potentially going to acquire and they had purchased 2.4 I think 6 embraer 170 fives.

$32 million of piece, I mean, thats $8 million more than what we would've paid.

I also think that by setting the operation of properly and in particular in the location like Malta.

Which you know not surprisingly you know company like Ryanair is a big base from there.

Our advantages to how you set the operation up and where you set it up something Mike and I.

It became very familiar with when we were over there in the operating and Brussels. So I think our expertise. The fact that we have a lot of the operating capability already.

I think that.

And the relationships that we have I think all of those things would give us an advantage over the existing carriers.

Makes sense and if I may quickly follow up on the comments on the cargo.

You do and the buying kind of dash 8 hundreds of freighter on the death of 100 is there a difference in training or cost or anything like that or is that of pretty seamless.

The fleet Tien Tsin, Inc.

Well I mean, if we put larger aircrafts you know of 737, 8 hundreds and some folks have talked about a jars and some theres all kinds of aircrafts that people that had been thrown out of that says the opportunities yeah, there's always cost of the startup but again.

Looking at it long term I, just think that we have to be prepared to respond to.

Things that are partners of other partners may we'd like to see us operate.

Yes, that'd be some expense, but I would say also that the bulk of the expenses or are already sunk.

Given the having the putting the 737.4 hundreds on certificates.

Yes, we would this is Mike we would have to put it on certificate, but a variety of it correctly with the the crews can be cross utilized between 408 hundred so we would benefit from that efficiency.

Okay. That's helpful. All right. Thank you.

Yeah.

We have no additional questions on the queue at this time.

Okay.

In conclusion again, thank you everybody for taking the time out.

We are.

I feel that.

We're very pleased to have been profitable unprofitable through COVID-19.

I think our people have done a terrific job.

Brave out there I mean I have to say I can't think of a better word to describe the brave in this environment through a pandemic.

We've seen just tremendous dedication across all of the folks whether it's pilot supply tends mechanics people on our dispatch.

The people that are coming into the office every day I just can't tell you how much I know all of us on the phone I appreciate the work that they've done.

We also want to thank our partners, who have been incredibly supportive having to go through their own challenges right now.

Of which have been understanding and helpful.

We continue to work very cooperatively with them, we're not entirely pleased with.

What happened to us in June.

As a result of the aircrafts shortage, but again that will be worked through the the.

That issue actually resolved itself.

When we decide to take back the 5 airplanes and as these are the suppliers start getting the vendors start getting the aircraft out of the C check which is now happening.

And so I think for our standpoint.

Of the best thing we can do is just keep our notionally grindstone operationally and continue to do a good job.

And lastly.

We were pleased to close the heart deal.

We do think that there is a big future in electric and other forms of de carbonization, we can continue to pursue that.

Really are pleased to have the United as a partner on those 2 deals we'd like to expand those partnerships.

We think that longer term it could be very exciting for the company. So we appreciate all of your support and we look forward to talking to you at our next call. Thank.

Thank you very much.

Thank you for your participation on today's conference you may disconnect at this time.

Q3 2021 Mesa Air Group Inc Earnings Call

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