Shares of regional aviation company Mesa Air Group (NASDAQ: MESA) were on an upswing in morning trading on Monday, going up by more than 12% as the company finalized a new five-year agreement with United Airlines (UAL).
As a part of this agreement, Mesa will place its “associated aircraft into United Express operations, and [UAL will] compensate Mesa for the higher costs associated with regional jet flying.” Mesa’s agreement with UAL will cover all of its existing aircraft at American Airlines and could also include “38 CRJ-900 aircraft, dependent upon the number of E-175s that Mesa is operating.”
Mesa will begin placing its aircraft with UAL in March of next year and the “agreement also provides for Mesa to open a CRJ-900 crew base in Houston and a new pilot base in Denver, CO, with the potential for other incremental crew bases.”
The aircraft company has decided to do this after winding down its contract with American Airlines (AAL). Mesa stated that it had decided to end its contract with AAL citing pilot shortages, higher pilot wages, and “block hour utilization penalties.”
Mesa’s contract with AAL will cease in April of next year.
However, Derek Kerr, AAL’s CFO stated in an employee memo accessed by CNBC that AAL had concerns about “Mesa’s financial and operational problems which are tied to a rise in costs and the industry’s pilot shortage.”
Kerr added, “As a result, we have concerns about Mesa’s ability to be a reliable partner for American going forward.”
Usually, large carriers like UAL, and AAL, regularly enter into contracts with regional aircraft carriers like Mesa to fly shorter routes in the U.S.
MESA stock has plunged more than 70% year-to-date.
