Profits at Mesa Airlines ( MESA) fell sharply from last year's levels, despite a big revenue increase, as the company said it also would restate four years of earnings because of an accounting change.

Mesa reported second-quarter net income of $1.8 million, or 5 cents a share, an 83.6% drop from $11 million, or 35 cents a share, a year earlier. In reaction, shares fell 56 cents, or 7.6%, to $6.78.

Excluding all charges, most significantly $6.7 million in costs related to the termination of aircraft leases and $2.4 million in executive compensation payments, the carrier said its pro forma income rose to $9.6 million, or 25 cents a share, from $3 million, or 9 cents a share, a year ago. Analysts expected the company to earn 23 cents a share, according to Thomson First Call.

The drop in net income comes despite a 52.7% jump in revenue, which came in at $209.7 million in the quarter. Expenses also skyrocketed, however, coming in at $203 million, up 73% from $117.3 million a year ago, driven by big increases in labor and fuel costs.

Mesa also said its restatement would involve the company taking depreciation charges for aircraft that were on interim financing from the aircraft manufacturer. Earlier, the company listed expenses related to planes as operating leases, but will now list the outstanding debt and aircraft value on its balance sheet.

As a result, the carrier said that net income from the first-quarter of 2004 would drop by $1.4 million, with fourth-quarter 2003 results taking a $4.8 million hit. Mesa said that it expects to finalize and issue restated results stretching back to fiscal 1999 sometime in the next two weeks.

In fiscal 2004, Mesa said 40% of its revenue will come from America West ( AWA), which is profitable. But with 25% of Mesa's 2004 revenue coming from UAL ( UALAQ.OB), parent of United Airlines, which is still operating under bankruptcy protection, some of Mesa's best customers continue to struggle. The problems are especially bad at US Airways ( UAIR), which accounts for 35% of Mesa's 2004 revenue and could be heading back into bankruptcy protection.

Because of troubles at US Airways, which announced a $177 million loss in the first quarter and saw CEO David Siegel resign on March 20, Mesa said it was considering its options.

"We remain supportive of US Airways' efforts to restructure their costs to ensure their long-term viability," said Jonathan Ornstein, Mesa CEO. "While we remain optimistic that US Airways will be successful, we have also begun making contingency plans for several alternative scenarios."

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