Small regional airlines face cash crunch

By Chelsea Emery - Analysis

NEW YORK (Reuters) - Cracks in the airline industry are widening, pushing smaller regional air carriers such as Mesa Air Group Inc (MESA.O: Quote, Profile, Research, Stock Buzz) to the brink of bankruptcy.

Regional jet operators such as Mesa and ExpressJet Holdings Inc (XJT.N: Quote, Profile, Research, Stock Buzz) are being pressured by flight cutbacks from national airlines that reduce the number of passengers into outlying areas where regional carriers fly.

"Without the flights from the major carriers, the regional carriers don't have a sufficient customer base to support their operations," said Lorraine McGowen, a bankruptcy attorney at the Orrick law firm in New York.

National airlines are re-evaluating the hub-and-spoke model they have used for decades as transfer points to get passengers to their destinations as they try to find ways to manage fuel, labor and other costs.

Last month, Mesa, which provides regional service for Delta Air Lines Inc (DAL.N: Quote, Profile, Research, Stock Buzz), US Airways Group Inc (LCC.N: Quote, Profile, Research, Stock Buzz) and UAL Corp's (UAUA.O: Quote, Profile, Research, Stock Buzz) United Airlines, said that Delta planned early termination of its Delta Connection agreement with Mesa's Freedom Airlines subsidiary.

Mesa said it would contest Delta's plan, which threatens to lop off about 20 percent of Mesa's passenger revenue. The contract is worth about $23 million per month to Mesa, according to its latest U.S. Securities and Exchange Commission filing.

Phoenix-based Mesa is also running out of options to fund potentially crippling debt obligations, said Roger King, an airlines analyst at credit research firm CreditSights.

The company has two convertible notes coming due, one for $38 million in June and another for $100 million in February, and bondholders have an option to make the company repurchase those notes, King said.