Getting Rich Off the Poor Man's Southwest Air

Mesa was founded in 1982 and previously served the Southwest region mostly, with propeller planes, ferrying customers in and out of underserved markets. But as code-sharing's popularity surged, especially over the last few years, the company has been adding more and more regional jets, chasing business from larger carriers. Currently, Mesa plans to jump from the 70 regional jets it had at the end of 2002 to nearly 170 by the end of 2005.

But expanding capacity and buying more planes during the worst downturn in the history of commercial aviation is a daunting task, especially when it comes to finding financing. (Standard and Poor's and Moody's both have downgraded airline credit ratings in recent months.) More than fuel costs, labor negotiations or any other factor, Mesa's ability to raise cash to buy planes will determine its success -- and is the biggest risk investors must stomach.

"They certainly are one of the lower-cost regional airlines and their ability to get jets will drive their growth," said Cristello. "They're partners with US Air, who are clearly willing to give them growth as long as they can provide jets."

Blue Birds Over

Indeed, US Airways, which just emerged from bankruptcy protection a month ago, is at the heart of Mesa's growth story. Mesa derives 50% of its revenue from and currently flies 40 planes in conjunction with US Air and has plans to add 12 more in 2003. Recently, the company signed a letter of intent to provide another 50 planes to US Air and is currently in discussions with management over how to proceed with the planned expansion.

Because a letter of intent is not a binding contract, the major issue is how and when Mesa must deliver that many planes. And while Cristello believes that Mesa's ability to finance these jets will improve as the airline industry recovers, some analysts caution that management could be overreaching if it has to add 50 planes all at once.