Mesa Air Proposes Merger With Atlantic Coast Air

[Ch. 12]

Ummm... hi!

There is this thing called a "contract" which is legally binding and has been signed between UAL and Mesa.

Mesa cannot end it unless United agrees.

Thanks but apparently you never witnessed their activity in the past. UA-YV ended abruptly during their last agreement and there are always escape clauses. They are not married...just dating. The point is that buying ACA is not just to appease UA but can have other objectives as well. A "binding" contract won't make YV pay 1/2 billion dollars to aquire something that will only help UA.

 

[N230UA]

There is no precedent in the airline industry, AFAIK, for a partner to abrogate its contract prematurely, before renegotiation, and turn around and compete with its partner.

ACA is simply not renewing its contract with United, which is due to expire next spring.

 

[N230UA]

From http://biz.yahoo.com/djus/031007/1403000682_2.html

"Mesa executives have studied low-cost strategies and concluded that it's impossible to operate low-cost, point-to-point service using the small jets that Atlantic Coast proposes to use, Mr. Ornstein said"

 

[Cosmo]

ACA is simply not renewing its contract with United, which is due to expire next spring.

Actually, that's not correct. ACA's existing contract with United runs through 2010 (or something like that). As part of its bankruptcy restructuring, United wants ACA to reduce its per-departure fees. ACA has so far refused to do so, at least to the levels that United apparently wants. So it is expected that United will therefore reject its deal with ACA by the time that it emerges from bankruptcy, presumably by the middle of 2004. But although its unlikely IMHO, United could also choose to accept their current contract with ACA, in which case ACA would have to honor the contract and continue its fee-for-departure feeder service at United's hubs.

I hope that clarifies things a bit.

 

[Ch. 12]

There is no precedent in the airline industry, AFAIK, for a partner to abrogate its contract prematurely, before renegotiation, and turn around and compete with its partner.

ACA is simply not renewing its contract with United, which is due to expire next spring.

Rather than reinventing my original thoughts as you have done, let's get back to what I said.

1) I never said that YV would abrogate their deal with UA...only that they weren't necessarily in it for the long term. The point of this comment is that everyone seems to think that YV is acting on behalf of UA to obtain ACA. Mesa is quite independent and will not throw away a half of a billion dollars plus in order to "save" UA's feed out of IAD. They have their own intentions...partly to get the DL busines, partly to get additional UA business, but there are other POSSIBILITIES.

2) Yes, Ornstein said it's "impossible to operate low-cost, point-to-point service using the small jets that Atlantic Coast proposes to use" but if you read what I said, I mentioned the same thing (RJs = small jets). I was creatively thinking that he would use his ties with Virgin and help start that product in the US (using larger planes, of course, since I already mentioned the RJs would not work, that was inferred).

AND...although YV didn't prematurely end the deal, they did turn around and sign the UA codeshare out of DEN while they were already providing feed for F9 out of the same hub. This was all BEFORE the termination of the F9 contract was announced. Starting a LCC hardly constitutes as "turning around and competing with its partner". Don't you think that flying RJ feed for UA out of IAD would be "turning around and competing" against Mesa's partner US out of DCA?? Large regionals get tricky when they know that they must diversify between carriers to protect themselves...especially in the age of the large airline BKs. Just think...a regional that feeds for UA, US, HP, YX, DL! Not to mention the SLIGHT CHANCE of an LCC. These are my ideas...not Ornstein's...but they could be...

 

[N230UA]

There is no precedent in the airline industry, AFAIK, for a partner to abrogate its contract prematurely, before renegotiation, and turn around and compete with its partner.

ACA is simply not renewing its contract with United, which is due to expire next spring.

Rather than reinventing my original thoughts as you have done, let's get back to what I said.

1) I never said that YV would abrogate their deal with UA...only that they weren't necessarily in it for the long term. The point of this comment is that everyone seems to think that YV is acting on behalf of UA to obtain ACA. Mesa is quite independent and will not throw away a half of a billion dollars plus in order to "save" UA's feed out of IAD. They have their own intentions...partly to get the DL busines, partly to get additional UA business, but there are other POSSIBILITIES.

2) Yes, Ornstein said it's "impossible to operate low-cost, point-to-point service using the small jets that Atlantic Coast proposes to use" but if you read what I said, I mentioned the same thing (RJs = small jets). I was creatively thinking that he would use his ties with Virgin and help start that product in the US (using larger planes, of course, since I already mentioned the RJs would not work, that was inferred).

AND...although YV didn't prematurely end the deal, they did turn around and sign the UA codeshare out of DEN while they were already providing feed for F9 out of the same hub. This was all BEFORE the termination of the F9 contract was announced. Starting a LCC hardly constitutes as "turning around and competing with its partner". Don't you think that flying RJ feed for UA out of IAD would be "turning around and competing" against Mesa's partner US out of DCA?? Large regionals get tricky when they know that they must diversify between carriers to protect themselves...especially in the age of the large airline BKs. Just think...a regional that feeds for UA, US, HP, YX, DL! Not to mention the SLIGHT CHANCE of an LCC. These are my ideas...not Ornstein's...but they could be...

Thanks for the clarification Ch 12.

I see what you're saying now.

Ornstein is ruthless anyhow, so I guess it's definitely within his realm to say one thing and do another.

 

[Ch. 12]

Ornstein is ruthless anyhow, so I guess it's definitely within his realm to say one thing and do another.

I hear you. It is interesting how quickly it turned from a simple "offer" to a near-hostile takeover with Ornstein mentioning that they will circumvent the board if they have to (only a day after the initial offer).


Unfortunately, there aren't many Kellehers or Neelemans in the airlines today. In fact, I only count one.

 

[funguy2]

Ch. 12, I agree with you opinion and would like to add to it...

1) By acquiring ACA, Mesa will have 4 major pay-for-departure contracts - US, UA, HP, and DL (I am excluding the deal w/ YX and the Mesa ABQ system, as they are pretty small deals). Remember, just a few years ago Mesa had 2 partners, HP and US, and both nearly liquidated... That would be enough to make me think about more partners... Also, you may remember that Mesa tried to entice their way into DL's system by proposing an independent CVG system when Comair was on strike (it never got of the ground, if I recall, as the strike ended before the first Mesa flight).

2) By acquiring ACA, plus the large contract Mesa has recently negotiated with UA, Mesa will be UA's largest Express carrier. This makes a UA/Mesa divorce much more costly and painful the next time around (although not impossible). This gives Mesa leverage to raise (or maintain) contract rates, which ACA is/was unable to do, since they control less of the UA Express pie, independently. Also, this gives Mesa some assurance that UA will not drop them again, as a combined Mesa/ACA UA Express carrier would be too large.

3) This acquisition represents growth for Mesa's investors, which may not be otherwise possible, as there are really no more customers for contract RJ's... all the majors have all the RJ's they want at this point. Additional contract RJ growth is unlikely after this, at least according to some analysts like Mike Boyd.