United Airlines has firmed up plans to take a 10% stake in its regional partner Mesa Air Group as part of a broader deal negotiated by the two companies.
In December 2022, Mesa said it was finalizing a new five-year deal with United in the wake of Mesa and American Airlines deciding to dissolve their relationship, which formally ends in early April.
Mesa CEO Jonathan Ornstein told analysts and investors during a Dec. 29, 2022, earnings call that the agreement with United covers up to 38 CRJ-900s, dependent upon the number of Embraer E175s Mesa is operating on behalf of Chicago-based United. As of September 2022, Mesa operated 42 CRJ-900s under its agreement with American.
At the time, Ornstein said United is providing financial support under two additional agreements. One is providing Mesa with a $41.2 million liquidity facility, of which $25.5 million is additional liquidity. The second is a commitment by United to purchase 30 spare engines from Mesa for $80 million.
In the new pact with United, Mesa agreed to issue 10% of its common shares to United. Mesa issued those shares to United on Jan. 13, and the two companies filed a report regarding the issuance of the shares with the U.S. Securities and Exchange Commission on Jan. 23.
United also gains a seat on Mesa’s board of directors. However, Mesa explained United’s board designee rights would terminate if United’s equity ownership in Mesa falls below 5%.
Other terms of the new United-Mesa agreement include an increase in rates to cover Mesa’s pilot pay increases instituted in September 2022, which is effective through 2025. During 2022, Mesa reached a two-year deal with its pilots to bolster their compensation. In the first year of the agreement, captains will earn $150/hr and first officers will earn $100/hr.
“Given the industry-wide shortfall in regional jet black hours, United supported higher rates in both our E175s and CRJ-900 operations and intends to increase service to many of the smaller and rural cities that have lost flying due to the pilot shortage,” Ornstein said.
American initially raised the bar on regional pilot pay in 2022 when it brokered a deal with its wholly owned regional subsidiaries—Envoy Air, Piedmont Airlines and PSA Airlines—for substantial pay increases of roughly 50%.
At the time Mesa disclosed its plans to end operations for American, Ornstein explained that while American significantly raised regional pilot wages at its wholly owned subsidiaries, it chose not to fund higher pilot rates for its non-affiliated carriers. American cited Mesa’s various financial and operational difficulties in its decision to cut ties with Mesa.
During the earnings discussion in late December 2022, Ornstein said Mesa was losing roughly $5 million a month from its operations with American. As Mesa transitions its operations from American to United, Air Wisconsin is ending its regional operations with United, and will begin service for American in March. The American-Air Wisconsin deal will initially cover 40 CRJ-200s.
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