Home Debt Mesa Air Group repays United debt with Heart Aerospace stock

Mesa Air Group repays United debt with Heart Aerospace stock

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Mesa Air Group has signed a new agreement with United Airlines (UA, Chicago O’Hare) that includes an improved block-hour rate for an existing capacity purchase agreement (CPA) and the repayment of debt to the mainline carrier with Mesa’s shares in electric aircraft start-up Heart Aerospace.

United agreed to extinguish the outstanding USD10.5 million bridge loan facility to Mesa Air Group and reduce the outstanding amount of the revolving credit facility by USD2.1 million. In return, the regional carrier will transfer to United its entire vested share in Heart Aerospace, which it acquired in mid-2021 for USD5 million. Mesa Air Group continues to hold 222,222 unvested warrants, each nominally worth USD0.01, in Heart Aerospace.

The debt repayment will also release the collateral previously placed on Mesa’s stake in another electric aircraft start-up, Archer Aviation.

The two airlines also agreed to increase the block-hour rate for the existing CPA agreement, retroactively valid from October 1, 2023. Mesa estimates the new rate will contribute USD63.5 million in incremental revenue over the next twelve months.

“Following exhaustive negotiations over the past year, we reached several agreements with United that will increase rates per block-hour to long-sought market levels and provide additional liquidity. We believe these new agreements, combined with our CRJ-related asset sales, will enable Mesa to generate substantial incremental contract revenue and improve margins. While the situation remains challenging, this stability is critical as we continue to restore our pilot capabilities, drive increased fleet utilisation, and step up block-hour production,” Chairman and Chief Executive Jonathan Ornstein said.

Mesa Airlines (YV, Phoenix Sky Harbor) currently operates seventy-nine E175s and thirty CRJ900s on behalf of United Airlines under the regional United Express banner, alongside three B737-400(SF)s and one B737-800(BDSF), the ch-aviation fleets advanced module shows. It has a further twenty-eight surplus CRJ900s and is trying to sell these aircraft. It said in an investor update that since September 2023 it had sold seven CRJ900s for USD71.2 million. The proceeds allowed the airline to extinguish its USD59 million debt to Export Development Canada and repay the USD4.2 million junior note to MHI RJ Aviation (Montréal Mirabel). Consequently, the manufacturer forgave the remaining USD5 million debt.

In a separate transaction, Mesa Air Group sold another seven CRJ900s for USD21 million. In January 2024, it entered into agreements to sell a further fifteen CRJ900s and sixty-five General Electric CF34-8C5 engines for total proceeds of USD105.8 million. It expects to finalise these transactions by March and continues to seek buyers for more of its surplus CRJ900s.

The deals allowed the airline to reduce its net debt from the peak of USD701.3 million at the end of the first quarter of 2023 to USD539.7 million at the end of the year. Mesa Air Group expects to further trim its debt burden to USD310.3 million by end-2024.

Having lost its CPA with American Airlines (AA, Dallas/Fort Worth) in April 2023, Mesa Airlines currently operates passenger aircraft exclusively for United.

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