Mesa Airlines, Inc.

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Mesa Airlines, Inc.

2325 East 30th St.
Farmington, New Mexico 87041
U.S.A.
(505) 327-0271
Fax: (505) 326-4487

Public Company
Incorporated: 1983 as Mesa Air Shuttle, Inc.
Employees: 2,800
Sales: $353.6 million
Stock Exchanges: NASDAQ Chicago
SICs: 4512 Air Transportation, Scheduled; 4522 Air
Transportation, Nonscheduled; 4581 Airports, Flying
Fields and Services

Mesa Airlines, Inc., a group of airline and related companies operating in 26 states, own a fleet of 155 planes that provide commuter and regional service to more than 140 cities. These planes, flying under the Mesa Airlines name or such others as United Express, America West Express, Skyway Airlines, Air Midwest, USAir Express, or FloridaGulf Airlines, composed Mesa’s commuter-airline empire, one of the largest of its kind in the world and the largest in the United States.

On the tenth anniversary of Mesa Airlines, Inc., Larry L. Risley must have experienced a sense of achievement mixed with disbelief. He and his wife Janie had started the regional/commuter airline company in 1980 with one small plane, seating five passengers, that flew between Farmington and Albuquerque, New Mexico. By its tenth year of existence Mesa Airlines had grown into one of the largest companies of its kind in the nation, belying both the airline’s and Risley’s modest beginnings.

By his own admission, Risley barely graduated from high school, having judged anything above a “C” grade “a wasted effort.” He then enlisted in the U.S. Army and eventually obtained an aviation mechanic’s license, aspiring to nothing more than emulating his two older brothers, who were employed as union mechanics for two major airline companies. However, following the career path chosen by his brothers proved difficult for Risley; he became a somewhat itinerant worker, securing employment at general aviation fields, then quickly losing his job or quitting in anger, a young aviation mechanic who disliked working under the supervision of anyone. In between his stints as an aviation mechanic, Risley found employment where he could get it: selling burglar alarms, working as a janitor in a baby clothes factory, anything but the secure steady work as an aviation mechanic he had originally wanted. Later recalling this period of his life, Risley related, “I was really out of my element.”

Risley’s prospects brightened in 1970 when he found his first opportunity to work alone, unfettered by a supervisor. He opened an aircraft engine shop in Waxahachie, Texas, but this comfortable niche soon deteriorated. Several of his customers reneged on payments, debts mounted, and Risley’s engine shop dissolved. It would be roughly another decade before an opportunity for success arrived, but when it did, Risley took hold and eventually entrenched himself in the industry that had for so long eluded him.

In 1979, through the assistance of his brother-in-law, Risley was hired by Four Corners Drilling Co., an oil company based in Farmington, New Mexico, to manage its charter airline service. Oil was a plentiful and lucrative commodity in the region during this period, and Risley was kept busy maintaining a fleet of 14 small planes that shuttled oil drillers to and from the desert. The oil boom era in the region was short lived, however, shuddering to a stop in 1980. The downward spiral of oil prices forced Four Corners Drilling to sharply reduce its oil drilling activities. The company’s fleet of planes was sold as a consequence, but Risley convinced the company to keep one plane, a five-seat Piper, so he could try to establish a shuttle airline service between Farmington and Albuquerque.

With this one small plane, Risley established the foundation from which Mesa Airlines would evolve. He advertised on the local radio, placed signs along the roads surrounding Four Corners Regional Airport, and, perhaps most important, charged half the ticket price of his rival, Frontier Airlines Inc. After two years, during which time both husband and wife worked seven days a week maintaining and operating the shuttle service, the Risleys decided to purchase the plane, offering their pick-up truck and house as collateral against a $125,000 loan. The following year, in 1983, their fledgling enterprise was incorporated, initially named Mesa Air Shuttle, Inc.

From the beginning Risley’s operating philosophy was to fly only small planes between cities and towns in need of additional airline service and to pay assiduous attention to the company’s operating costs. Those costs largely resulted from aircraft maintenance, a task for which Risley was particularly well-suited considering his certification as an aviation mechanic. Keeping costs low also carried over into other areas, such as having the pilots of the shuttle service assist in loading passengers ’ baggage, reducing the number of gate crew at arrival and destination points, and keeping the number of reservation agents to a minimum. Risley’s strategy was to have a comparatively small work force operating small planes that flew their routes with greater frequency—initially five times a day between Farming-ton and Albuquerque—than the company’s competitors. If all reservation agents were busy booking flights, the incoming calls were directed to other Mesa employees, and if the entire staff was busy handling reservations, as they often were during Mesa’s first decade of operation, Risley himself would answer the phone and book a passenger’s flight.

Very early then, the characteristics that would set Risley’s company apart from other regional/commuter airline companies were established, and the shuttle service prospered. From the single, five-seat Piper, the company’s fleet gradually grew, with each new plane and each new service route enabling the company to generate greater revenues. With the exception of a small restated loss in 1984, Mesa recorded a profit throughout the 1980s and reached a financial level that enabled it to become an acquirer, thus broadening its presence in the southwestern United States.

A majority of Mesa’s acquisitions in its first decade were not outright purchases of other airline companies, but instead were code-sharing agreements reached with major airline companies, a necessary arrangement for a small airline company following the deregulation of the airline industry in 1978. Code-sharing is essentially a marketing agreement with a larger carrier according to which the smaller company operates a particular region for the larger carrier, frequently adopting the corporate logo and colors of the larger carrier. A code-sharing agreement is a franchise of sorts that enables smaller airlines to benefit from the air traffic attracted by larger carriers without incurring the enormous marketing expense.

In the mid- and late 1980s, Mesa signed two such agreements, first with Midwest Express, then with United Airlines, and more were to follow. Generating nearly $5 million in sales in 1985, the company embarked on a five-year period of prodigious growth, elevating itself to the top ranks of the regional/commuter airlines in the United States. In 1986, Mesa forced a much larger airline company, Air Midwest, out of the New Mexico region, then, the following year, changed its name to Mesa Airlines, Inc., and became a publicly held corporation. The same year Mesa increased its sales volume to $14.3 million, nearly a 200 percent increase from two years earlier.

That year, 1987, proved to be a busy year for Risley’s company, a year not without its disappointments. Mesa acquired the assets and the Denver, Colorado-based route system of Centennial Airlines, a purchase that resulted in a $250,000 loss for Mesa. The decision to acquire Centennial’s service routes emanating from Denver and thereby compete against much larger, much more entrenched air carriers represented a step away from Risley’s initial corporate strategy to only enter markets suffering from a dearth of established air carriers. Operating as an independent in a market occupied by airline companies possessing much larger financial resources, Mesa’s approach of offering low air fares and more frequent service was not enough to wrest the grip held by the larger air carriers. The Centennial acquisition was a lesson for Risley and Mesa’s management, a reminder that Mesa’s strengths and the possibility for its future growth did not lay in competing in densely populated markets.

Mesa’s entry into the Denver market emphasized the weakness of a small independent competing in a market dominated by major airlines. However, code-sharing’s limitations were illustrated that same year, when Trans Colorado, operating under a code-sharing agreement with Continental Express, aggressively entered Mesa’s Albuquerque market. The move by Trans Colorado essentially represented the opposite of Mesa’s decision to enter the Colorado market, a small airline operating under a code-sharing agreement entering a market bereft of a major airline instead of a small airline entering a market dominated by a major airline. The result was inverse as well, this time in Mesa’s favor. Trans Colorado was driven out of the Albuquerque market by a sharp reduction in Mesa’s air fare prices, by a small airline company able to wield more control in a market without a major airline.

With these code-sharing lessons behind it, Mesa continued to expand. By 1989, the airline’s annual sales had soared to over $22.5 million, more than four times the volume recorded four years earlier, and the mainstream press began to take notice. A year earlier Inc. magazine had named Mesa as one the country’s fastest-growing small public companies. In 1989 Mesa formed Skyway Airlines as a wholly owned subsidiary to fly in conjunction with Midwest Express Airlines out of Milwaukee, Wisconsin, extending Mesa’s reach northward. In the same year, the company became the only commuter airline in the world authorized by Pratt & Whitney, an aircraft engine manufacturer, to perform complete overhauls of the PT6, the primary type of engine used by Mesa’s planes. The construction of the company’s $1 million engine shop, which gained its certification from Pratt & Whitney, was indicative of Risley’s focus on reducing aircraft maintenance costs. Within a year, the costs incurred from building the engine shop were recouped, positioning Mesa as one of the few vertically integrated commuter airlines in the world and paving the way for the company’s celebration of its tenth anniversary.

Now ten years removed from the days when a single, five-seat plane flew between Farmington and Albuquerque, Risley could look back on a decade of enormous success. Mesa Airlines had quadrupled in size between 1985 and 1990, and doubled in size in roughly the five months preceding the company’s tenth anniversary in October 1990 by acquiring Aspen Airway’s United Express franchise at United’s Denver hub. By letting each market dictate the size of the plane serving that market, Mesa had perennially recorded one of the lowest seat per mile costs in the industry and could efficiently operate its 33 planes. Mesa planes by this time serviced a considerable portion of the United States: its Skyway planes serviced Iowa, Wisconsin, Illinois, Indiana, Michigan, and New York; its United Express code-sharing agreement took Mesa planes throughout Colorado, Wyoming, Nebraska, and South Dakota; and its original route system, evolving from the company’s Farmington to Albuquerque flight, now covered New Mexico, Arizona, Texas, and Colorado. All this was enough to make Mesa one of the ten largest commuter/regional airlines in the nation.

The airline’s greatest growth, however, was still to come, and would arrive largely because of the influence of a new Mesa employee, Jonathan Ornstein, an airline financier who joined the company during its tenth year of operation. Ornstein had originally approached Risley to inquire about purchasing Mesa, an offer Risley declined, but the meeting eventually led to Ornstein’s employment by Mesa. Once Ornstein arrived, he began prodding Risley to pursue purchases of additional airline-related assets and to increase Mesa’s influence in the commuter/regional airline industry—to generally pursue aggressively a course Risley had pursued with moderation.

One year after Ornstein’s arrival, Mesa acquired Air Midwest, Inc., an airline that operated under a code-sharing agreement with US Air Inc. The purchase extended Mesa’s presence into Missouri by virtue of US Air’s base operations in Kansas City and signaled the beginning of an era in which Ornstein and his desire to increase Mesa’smagnitude would figure prominently. Later that year, in 1991, Mesa formed a new subsidiary, FloridaGulf Airlines, spreading the company’s influence into the southeastern United States. By the conclusion of 1991, a disastrous year for many air carriers, particularly for Eastern, Pan-Am, and Midway Airlines, each of which ceased operations, Mesa continued to exhibit robust performance. The company posted a 39 percent increase in earnings from 1990, a 69 percent increase in revenues to $78 million, and a 50 percent increase in passengers from the previous year.

The following year, however, overshadowed 1991’s encouraging results and, in fact, overshadowed all of Mesa’s previous 12 years of existencein terms of growth. In May 1992, Mesa announced the completion of a merger combining Mesa Acquisition Corp., a wholly owned subsidiary of Mesa, with and into WestAir Holding Inc., California’s largest regional airline. For Mesa the acquisition was enormous, doubling its size and vaulting the airline from the tenth largest in the country to the largest regional/commuter airline in the United States. WestAir Holding was organized as a wholly owned subsidiary after the merger and continued to operate under its code-sharing agreement with United Airlines as United Express, based in Fresno, California.

As Mesa entered the mid-1990s, it continued to look for additional acquisitions, guided by both Risley and Ornstein. In 1994, a year in which the company expected to post $354 million in sales, Risley was contemplating the purchase of CCAir Inc., a commuter airline based in Charlotte, North Carolina, for $32 million, as well as other, smaller, acquisitions, such as a $3 million acquisition of SunAir, an airline serving the Virgin Islands and Puerto Rico, and a 24 percent share in a small commuter carrier based in Britain. As the company continued to expand, succeeding where other airlines had failed, it was gaining the attention of investors and competitors alike, becoming, for some, the prototype of a regional/commuter airline for the future.

Principal Subsidiaries

Air Midwest, Inc.; America West Express; FloridaGulf Airlines; Four Corners Aviation, Inc.; San Juan Pilot Training Inc.; Skyway Airlines; WestAir Holding, Inc.; YV Services, Inc.