Getting Rich Off the Poor Man's Southwest Air

"[The] carrier reports that it has interim financing lined up for most of its regional jet deliveries in 2003, which helps alleviate near-term growth uncertainty," said Brian Harris, analyst at Citigroup Smith Barney, in a report from last Friday. "But that still leaves about 15 other undelivered regional jets that are not financed."

In Harris' view, there are too many uncertainties out there to value Mesa based on 2004 earnings expectations. He estimates there could be as much as 10 cents per share downside to his 2004 earnings estimates if the company can't finance what it plans to add. But even Harris is cautiously optimistic, telling investors that "with the economy expected to improve, we think the potential upside scenario is more likely than not."

Propellers

If the financing issue can be managed and the details of the letter of intent with US Air worked out, then going forward, there are some catalysts that could certainly boost Mesa shares.

In addition to greater clarity on its situation with US Air, Mesa also has a bid in with UAL, parent of bankrupt United Airlines, to expand its role as a code-share partner with that carrier. While company CEO Jonathan Ornstein was bound by a confidentiality agreement and couldn't disclose details in a recent conference call, he did add that he felt Mesa's bid had a good shot.

"I think our offer is extremely competitive," said Ornstein. "And based on United's own documents that they filed in the bankruptcy, it would be significantly below their current cost. That's not to say that our competitors will not sharpen their pencils."

In the end, Mesa's story may come down to fleet financing. But for investors with a taste for riskier, speculative stocks, the company could be an interesting small-cap alternative to carriers that are better known. On Thursday, shares in Mesa rose 1.3% to $6.32, while Southwest gained 1% to $16.12 and JetBlue dropped 2.3% to $31.99.