American LCC Mesa faces bankruptcy if lawsuit against Delta fails
23 May 2008
Regional American airline, Mesa Air Group (MESA), issued a warning Thursday that it could be forced into Chapter 11 bankruptcy-court protection if it failed to stop Delta Air Lines from ending its service agreement for 34 ERJ-145s. It said loss of business, and the resulting cash crunch, would make it impossible for the carrier to continue operations.
In a filing with the US Securities and Exchange Commission, the carrier said it would seek protection "available under US reorganization laws in order to avoid or delay actions by its lessors, creditors and codeshare partners which would materially adversely affect the company's ability to continue as a going concern."
Mesa said it expects to lose $20 million per month in revenue, or $960 million over the next four years, if the Delta contract should be terminated. In addition, it would incur $250-300 million in labour and leasing costs during the period.
Delta notified MAG in late March that it would terminate its agreement with Mesa subsidiary Freedom Airlines, claiming that it failed to meet specified completion rates. Mesa denied the charge and filed a breach of contract lawsuit asking for a preliminary injunction to prevent what it considered "wrongful termination" of the agreement.
A hearing is scheduled 27-29 May and a ruling is expected at the end of the proceedings.
