Mesa Air Group, Inc.

Thank you for standing by, and welcome to the Mesa Airlines Quarter 2 Investor Conference Call. All participants are on a listen-only mode until the question and answer session. At that time, please press star 1, unmute your phone, and record your name at the prompt. This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to CEO and Chairman Jonathan Ornstein. Thank you, sir. You may begin.

And thank you, Operator. Good afternoon and thank you for standing by everyone on the call. I'd like to welcome you to the second quarter fiscal year 2021 earnings call. It is now my pleasure to turn the conference over to me. Oh, there you go. So there we have it. Okay. This is Jonathan Ornstein. I'm the chairman and chief executive officer of Mesa Airlines. On the call today is Mike Lotz, our president and chief financial officer, Brian Gilman, our executive VP and general counsel, and Brad Rich, our Chief Operating Officer, and Tork Zubek, our new Senior VP of Finance. You may have seen the announcement, but to reiterate, Tork brings 20 years of industry experience from Alaska Airlines and will be a terrific asset on both the operational and financial side of our business. I'd like to open up with our forward-looking statement. Before the presentation and the comments begin, Mace would like to remind you that our press release comments made on the conference call and responses to your questions during this call may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. As such, they are subject to future events and uncertainties that could also affect our results to differ materially from those statements. Also, please note the company undertakes no obligation and makes no commitment to update or revise these forward-looking statements. Any forward-looking comments should be considered in conjunction with the cautionary statements in our press release and the risk factors included in our filings with the SEC, which Mesa encourages you to read. In addition, please refer to our press release in the investor section of Mesa's website to find additional disclosure and reconciliations of non-GAAP financial measures that will be used on today's call. Okay, I'd like to begin with my usual way by thanking all of our people in the field for their dedication and hard work throughout what is clearly one of the most, if not the most challenging period for our industry. Thank you, everybody. In spite of this tough environment, I'd like to cover a number of highlights of the quarter. On the financial side, we reported a pre-tax profit of $7.6 million, which included a $4.5 million non-cash adjustment for the purchase of a previously leased CRJ 900, resulting in an adjusted pre-tax profit of $12.1 million, or $0.23 per share. At American, After reaching an agreement to extend our capacity purchase agreement in November 2020 for five years for 40 aircraft, American increased that number by five additional aircraft starting in January and extending through the summer months. At United, we added two more of the 20 new Embraer 175LL aircraft to our fleet, with the last two deliveries expected next month bringing the total Embraer 175 fleet to 80. In our cargo operation, we are adding a third 737-400, which we expect to be in service in July to support the existing operation. As a reminder, we are the first and only regional airline to operate narrow-body cargo aircraft and will continue to pursue additional cargo opportunities. We announced our LOI with Gramercy Associates, to begin regional jet operations in Europe with some of our surplus CRJ-900s. Gramercy is a private company founded by Tony Davis. Tony is the former CEO of Tiger Airlines in Singapore and Australia and Vimy Baby. He is also the former COO of Arlandia Aviation. Importantly, we are making significant strides in our adoption of new technology and decarbonization of air travel. This quarter, we announced our investment in Archer Aviation's eVTOL aircraft alongside United Airlines. In the transaction, Mesa and United received equity in Archer Aviation in the form of wards and will purchase up to 200, that's 160 for United and 40 for Mesa, subject to certain conditions. During the quarter, Mesa recorded initial 40% vesting awards at $16.3 million. Though it may seem cutting edge, we are essentially going back to our roots, operating smaller, efficient aircraft. We are excited to be at the forefront of this eVTOL technology and continue to pursue other opportunities in the area of sustainability and eco-friendly flying. We are also proud to be named to the Forbes list of America's Best Midsize Employees for 2021. Our relationship with our employees is of critical importance to us, and we are pleased to see our efforts recognized. Once again, I'd like to thank all of our people for making this possible. With that, I'd like to turn the call over to Brad Rich, our Chief Operating Officer, to give you an update on our level of operations, as well as our American United and DHL operational performance. Brad, thank you.

All right. Thank you, Jonathan, and good afternoon to everyone. Thank you for joining us today. I'd like to begin with highlighting some of our main priorities. First, the health and safety of our employees and passengers remain at the top of our priority list. As you would expect, we're in constant contact with our partners and the CDC on the latest guidance and protocols. We're also committed to improving our operational performance as a high priority. Our collective work with our partners continues to strengthen these relationships, and we're committed to continuous improvement of our performance. While all of the new things going on and the new ventures of the company are exciting, I would like to reemphasize that the key to maintaining these long-term relationships is delivering consistently strong operational performance and producing industry-leading economics. By way of review of the March quarter, we generated 73,942 block hours, which was down 32% from last year, but up 6.8% from the December quarter, and that's despite flying fewer aircraft in the American operation. Based on current guidance from our partners, we expect the June quarter utilization in the United operation to be at about 75 to 80% of pre-COVID levels and in the American operation at approximately 100% of pre-COVID. The September quarter is projected to be 85 to 90% at United and a little over 100% in our American operation. If recent demand trends continue, we anticipate a steady increase in block hours as we progress towards a strong recovery in capacity. As far as operational performance, we continue to see improvements in our key operational performance metrics. During the March quarter, our controllable completion factor was 99.9 percent, which is consistent with 99.9 percent a year ago. but we've seen very good improvement in our controllable on-time departures, which was 91.1% versus 81.3% a year ago. As I said, focus on continual improvement in operational performance will remain one of our highest priorities. I'd now like to provide an update on our American operation. As Jonathan stated, we previously announced both a five-year extension that was finalized in the December quarter, as well as an agreement with American to add five additional CRJ aircraft above those CPA levels. Subsequent to quarter end, we formalized the agreement to operate those five additional aircraft through mid-August of 2021, and we believe there may be additional future opportunities. As a reminder, our current fleet consists of 64 CRJ900s. Of these 64 aircraft, we own 49, and 41 of those are financed under our previously announced U.S. Treasury loans, and seven are financed with EDC, Export Development Bank of Canada. We also have 15 aircraft leased through 2024. We will be using the majority of these aircraft to support the American operation. However, we are still reviewing several new opportunities that would productively utilize some of these aircraft. Given the attractive financing and low debt balance on a majority of the fleet, we believe these aircraft are valuable assets and will remain productive. We are making a number of investments in our CRJ fleet designed to improve the overall fleet health enhance long-term value, and strengthen operational reliability. These investments include cabin interior refurbishment and a significant increase in the volume of aircraft heavy checks. We have a historically high level of heavy check lines due to bringing aircraft online as demand continues to strengthen and to create additional operational spare support to enhance performance. Access to and productivity of the heavy check providers has been challenging, but we're working very aggressively to add additional providers to bring aircraft back into operation as quickly as possible. Due to all of the investments in the fleet and our focus on performance, we do remain confident in our ability to meet the operational requirements of the new agreement with Americans. Now moving to an update of our United operation, our relationship with United remains strong and productive. We continue to work collectively on many strategic and operational initiatives that we feel will create additional value in our relationship. We are proud to be one of few airlines taking delivery of new aircraft in today's difficult environment. And by way of update, We currently have 18 new E175LL aircraft that have been placed into service between November of 2020 and May of 2021. The last two will be delivered by the end of June 21. We have removed all of the CRJ700s from our fleet and we continue the transition process of leasing these 20 CRJ700 aircraft to GoJet Airlines as part of the previously announced agreement, which ends in 2030. We are in the final month of retraining the current CRJ700 pilots in Washington Dulles on the Embraer 175s. And most of that training expense will be covered by the training credits that are part of the Embraer 175 purchase agreement. Now that we are operating a single fleet of Embraer E175s for United, we are seeing not only an improvement in cost reductions, but anticipate consistent strong performance and enhanced network efficiencies through aircraft flow and increased utilization. In regards to our DHL operation, we have two 737-400 cargo aircraft in service with DHL. We have secured a third 737 that we anticipate to be available in July of 21 that will provide additional support for this operation. So far, we have been pleased with the operation and believe we are well positioned to grow this line of business. I'd now like to make some comments on a topic that is getting a lot of attention recently, which is the anticipated hiring requirements for airline industry labor. First of all, I too would like to express my appreciation to all of the aviation professionals at MESA that have demonstrated their commitment and dedication through this difficult time, and we do greatly appreciate each one of them. We remain focused on hiring and training to meet increasing staffing requirements in nearly all of our operational divisions. Our applicant pools are strong, and in the case of pilots, stronger than we have seen in recent history, and we believe in our ability to hire across the airline. We remain active in the hiring of mechanics, flight attendants, and other operational support positions, and we are bringing back the pilots that were in training at the beginning of the pandemic. Furthermore, we feel like we are very well positioned to be an industry-leading option for regional airline pilots, through opportunities such as the United Aviate Program. We are one of few airlines able to offer a direct pathway for our pilots to become a career pilot for United Airlines. We also have the 737 aircraft on certificate. We're the only regional airline offering the ability to fly larger aircraft and earn the highest pay in the regional industry. We're also well-positioned with crew domiciles across the country that allow our pilots the opportunity to live where they desire and commute easily to work. We are also currently offering upgrade opportunities, and we are actively recruiting from hundreds of aviation schools across the country. With that, I'd now like to turn the time over to Tork to walk through our financial performance.