Mesa Air Group Settles Debt with United Airlines Using Heart Aerospace Shares

Mesa Air Group has entered a new agreement with United Airlines, a major carrier based in Chicago O’Hare, which includes enhancements to their existing capacity purchase agreement (CPA) and an innovative approach to debt repayment. Under this agreement, Mesa Air Group will settle its outstanding debt to United Airlines by transferring its shares in the electric aircraft startup, Heart Aerospace.

United Airlines agreed to write off Mesa’s USD 10.5 million bridge loan and reduce the outstanding amount on the revolving credit facility by USD 2.1 million. As compensation, Mesa will hand over its vested share in Heart Aerospace, initially acquired in mid-2021 for USD 5 million. Mesa will still retain 222,222 unvested warrants in Heart Aerospace, each with a nominal value of USD 0.01.

This transaction not only settles Mesa’s debt but also releases the collateral Mesa had placed on its stake in another electric aircraft startup, Archer Aviation. Additionally, the two airlines agreed to increase the block-hour rate under their existing CPA, retroactive from October 1, 2023. Mesa anticipates this revised rate will generate an extra USD 63.5 million in revenue over the next twelve months.

Jonathan Ornstein, Chairman and Chief Executive of Mesa, highlighted the significance of these agreements in providing financial stability and improving margins for the company. Mesa aims to enhance pilot capabilities, fleet utilization, and block-hour production as part of its broader strategy.

Mesa Airlines currently operates a fleet of E175s and CRJ900s for United Airlines under the United Express brand, alongside several Boeing cargo aircraft. The company is actively selling its surplus CRJ900 aircraft. Since September 2023, it has sold seven CRJ900s for USD 71.2 million, allowing it to clear significant debts with Export Development Canada and MHI RJ Aviation.

Further sales are in progress, with agreements to sell fifteen more CRJ900s and numerous engines, expecting to generate over USD 105 million in proceeds. These transactions are slated for completion by March 2024, and Mesa continues to seek buyers for additional surplus CRJ900s.

The financial maneuvers have enabled Mesa Air Group to significantly reduce its net debt, from USD 701.3 million at the start of 2023 to an estimated USD 310.3 million by the end of 2024. Following the loss of its CPA with American Airlines in April 2023, Mesa Airlines now operates passenger aircraft exclusively for United.

This innovative debt settlement method, using equity in a promising startup, underscores Mesa Air Group’s strategic approach to managing its financial obligations and strengthening its partnership with United Airlines.