The leases and insurance on the parked planes are certainly eating into the MOR #'s. Which is the reason they're in BK in the first place, to shed those leases. Once they are removed from the books, things will look a lot better. The issue is, since they decided to forego DIP financing, will they have enough $$ to make it thru the BK process? Given their contract revenue streams, I believe they will have adequate cash, especially heading into the travelling season. That's one reason why the Delta litigation is so important. I do believe Mesa will prevail (which would help reverse the downtrend). It's just a waiting game now, which is behind the recent drop...the market usually sells uncertainty.
As far as that litigation goes, here again is a summary from Winglet at the APC pilots board:
Delta terminated MAG's ERJ contract in March 2008 and the CRJ-900 contract in August 2008.
In response, Mesa brought civil action in the Georgia District Court concerning the ERJ's and won a preliminary injunction enjoinging Delta from terminating the agreement. This is the "Delta ERJ Termination Litigation" (Mesa Airlines, Inc. and Freedom Airlines, Inc. vs. Delta Airlines Inc. Civil Action No. 1:08-CV-1334-CC). Delta appealed in the Georgia Court of Appeals and lost (The injunction was upheld).
From the 11th Circuit Court of Appeals:
"III. CONCLUSION
The evidence showed that Delta induced Mesa to agree to Delta’s coordinated cancellations by promising not to count such cancellations against it and then, having benefitted from Mesa’s willingness to extend Delta this courtesy, attempted to cancel the parties’ contract on the theory that this promise was invalid as a matter of law. In the light of this evidence, the district court did not abuse its discretion when it granted Mesa’s motion for a preliminary injunction.
AFFIRMED."
The result is that Delta is now bound by a court injunction to honor their executory contract until either Mesa wins or loses the case, or the contract expires. This is the case that commenced on April 20th, 2010 and is currently awaiting Judge Cooper's order. [Final arguments have been made, and the judge's decision is imminent]
A separate case, The "Delta MFN Litigation", concerns the "Most Favored Nation" provision of the contract (Delta Airlines, Inc. vs. Mesa Airlines, Inc. and Freedom Airlines, Inc. Civil Action No. 1:09-CV-2267-CC). MFN provisions effectively guarantee that sub-contractors don't out price the "lowest bidder".
Delta claims that MAG is currently charging $1.5 million a month more than Pinnacle Airlines and that the MFN provision guaranteed that MAG would be the lowest cost Delta Connection operator.
MAG in turn claims; Delta hasn't been properly utilizing their aircraft on a "full-time basis"; Delta refuses to engage in the annual rate setting procedures; attorneys' fees; costs; and "other damages".
The "Delta MFN Litigation" case has subsequently been transferred to the New York Bankruptcy Court and the court date is currently scheduled for July 12th, 2010.
There is yet another case concerning the cancellation of the CRJ-900 contract. That's another story.
The "Delta MFN Litigation" proceedings in New York will be determined by the outcome of the "Delta ERJ Termination Litigation" case in Georgia.
