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Mesa Airlines, a Turnaround Story to Ease the Summer Doldrums

Wing Tips takes a look at a situational player with a lot of summertime potential.

Since nothing right now is pushing airline stocks uniformly higher, and since we expect this quarter to range from fairly uneventful to painful for the major companies, what's left to get excited about in the airline sector?

The situational players.

As longtime readers will recall, when the markets tend to shun the airline stocks (or what most people think of the airline stocks -- i.e., major airlines), what we usually see is movement in the oddball stock. While the majors usually do little more than hold their cruising altitude during these periodic doldrums, you can find movers by looking in the nooks and crannies.

So let's take a look at some of the situational players that have done well in the second quarter, and some of the shorter-term plays we like going into earnings season.

But first, let's not kiss off the major airlines completely. We expect to see

Southwest Airlines

(LUV) - Get Southwest Airlines Co. Report

,

Northwest Airlines

(NWAC)

and

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

reporting fairly good numbers this quarter. Each should have a fairly healthy summer.

Northwest is playing the "back from the brink" role very well, and the improving economy in Japan can do nothing but help the airline. Northwest derives some 30% of its revenue from Pacific routes, with Japan being the biggest part of that mix.

Southwest continues to do what it does best. The more uncertainty there is about the sector, the better this stock performs. In addition, the more other major airlines raise fares, the more the stock benefits, as passengers perceive Southwest as the better deal. (Actually, Southwest managed to sneak in a 2% fare hike recently -- even better news.)

Finally, Delta continues to look much more solid this quarter than its big brethren. Still, the airline does have a nasty spat with its pilots in the works, and the deferral on the airline's 777 introduction as a result of this squabble does irritate us.

Now, let's look at some oddballs and possible smaller movers and shakers. We'll continue this over the next couple of Wing Tips columns.

No Plateau at Mesa

One stock hitting the Wing Tips radar screen is

Mesa Airlines

(MESA) - Get Mesa Air Group Inc Report

. Mesa, which is in the midst of a major restructuring effort led by CEO Jonathan Ornstein, is about to start posting some very good year-over-year numbers. And this change should start forcing people to pay more attention to the new and improved airline.

We've watched for a little over a year now as Ornstein slogged through the mess that was known as Mesa. You name it -- Mesa had screwed it up. Morale was awful, routes made no sense, the airline was losing money in buckets, and needless to say, there was little respect in investor circles for what former Mesa CEO Larry Risley was doing. And rightfully so.

The change has been pretty dramatic.

Most importantly, on-time performance at Mesa, a regional partner of

America West

(AWA)

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and

US Airways

(U) - Get UNITY SOFTWARE, INC. Report

, has improved dramatically. Its results over the past few months have routinely beaten those of the 10 major airlines.

This is no small feat. Before Ornstein took over, Mesa's performance was so poor that

UAL's

(UAL) - Get United Airlines Holdings, Inc. Report

United Airlines

simply walked away from contracts involving the airline.

While Ornstein has not been able to get Mesa back in United's good graces yet, he certainly seems to have solidified relationships with America West and US Airways. Revenuewise, more than 60% of Mesa's revenue is now based on lucrative fly-for-hire contracts. (This figure is before the

CCAir

merger, which was just finalized last week. We expect that number to increase.)

And yes, there is also the CCAir merger. CCAir, a US Airways Express carrier, was one of our favorite little regional plays last year. The airline has now been absorbed by Mesa, and after six months or so of integration efforts, we would expect this acquisition to start turning in some positive results for Mesa.

Other than a wait-and-see attitude until the acquisition with CCAir was completed, the biggest problem holding back Mesa stock is that the revenue and operational numbers haven't been improving. If anything, they look negative, as Ornstein gutted the former airline. Thus current figures, compared year-over-year to a totally different situation, are useless in terms of comparison.

But, if you know what you are looking at, the numbers are already good. And pretty soon, those year-over-year numbers will begin to look

much

better.

Also, look for Mesa to announce a fairly large order of regional jets soon. We had expected an announcement at the

Paris Air Show

this week of

Embraer

aircraft, but we understand that

Bombardier

is now back in the picture. Whichever. Look for an order -- probably at least 30-40 aircraft -- to be announced soon.

So, our first pick for a potential summer mover and shaker? Mesa Airlines.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.