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Air warns of bankruptcy if Delta ends contract
Tuesday May 27, 1:42 pm ET
By Harry R. Weber, AP Business Writer

Mesa exec says carrier may file for bankruptcy if Delta terminates contract, can't move planes

ATLANTA (AP) -- Mesa will file for bankruptcy protection by July 20 and cut 700 jobs -- 14 percent of its work force -- if Delta's termination of a regional flying contract sticks and Mesa can't redeploy unused aircraft, a senior executive for the Phoenix-based carrier said Tuesday.
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http://ad.doubleclick.net/ad/N2713.d...1911976939664?if(window.yzq_d==null)window.yzq_d=new Object();window.yzq_d['e8h8OkwNBmU-']='&U=13fbsc2s1%2fN%3de8h8OkwNBmU-%2fC%3d644227.12263432.12737505.3100657%2fD%3dLREC %2fB%3d5250911%2fV%3d1';Mesa Air Group Inc. president and chief operating officer Michael Lotz told U.S. District Judge Clarence Cooper that Mesa won't be able to make mandatory payments to bondholders and would run the risk of defaulting on aircraft leases without the contract in place.
"We are prepared to file bankruptcy," Lotz said.
Mesa has hired bankruptcy counsel, prepared paperwork for filing under Chapter 11 of the bankruptcy laws in New York and even prepared a bankruptcy press release, Lotz said.
The comments came as Mesa sought an injunction to block Delta's decision to end a contract with Mesa subsidiary Freedom Airlines.
Mesa said the contract amounts to $20 million in monthly revenue for the parent company, or about 20 percent of its total sales for 2007. Mesa has 5,000 employees overall.
There was no immediate decision by Cooper as the hearing could last several days.
Delta Air Lines Inc. lawyer Dwight J. Davis told Cooper that the Atlanta-based company has the right to terminate the contract because Freedom did not maintain at least a 95 percent completion rate for three months within a six-month period.
In this high fuel price environment, Delta can't tolerate a regional carrier that "fails its customers with such consistency," Davis said.
But Mesa lawyer G. Lee Garrett Jr. said the reason Freedom fell below the minimum completion rate in October and December 2007 and February of this year was because Delta told Freedom to cancel numerous flights.
Garrett suggested it was Delta's strategy to force Freedom to not meet the necessary completion rate so it could cancel its contract with Freedom and reduce its overall domestic capacity. Delta and other major carriers have been reducing U.S. capacity because of high fuel prices.
Davis denied that Delta intentionally forced Mesa into the situation it finds itself.
"That hasn't happened, didn't happen and is a complete red herring," Davis said.
Mesa is a major commuter carrier and operates flights as Delta Connection, US Airways Express and United Express under agreements with Delta, US Airways Group Inc. and United Airlines.
Mesa filed suit against Delta last month in an effort to prevent the company from ending its service agreements.
At the hearing Tuesday, Lotz testified that Mesa's financial situation would be in serious peril without the Delta contract because Mesa would have little to no ability to redeploy the 34 regional jets it uses for Delta. US Airways and United have told Mesa they don't need the aircraft for their routes, Lotz said.
Bills, meanwhile, are piling up, Lotz said.
"Vendors are not allowing our aircraft out of the hangars until we've made certain payments," he said.