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The Honolulu Advertiser
Posted on: Friday, May 30, 2008

GO! PARENT
Court's contract ruling means owner of go! not facing imminent bankruptcy

By Rick Daysog
Advertiser Staff Writer

The parent company of go! airlines may have dodged the bankruptcy bullet after a federal judge blocked Delta Air Lines Inc. from canceling a $20 million-a-month contract.

The ruling removes some of the uncertainties in an interisland market already rocked by the March 31 shutdown of Aloha Airlines.

"We are pleased with the court's ruling," said Mesa Chief Executive Officer Jonathan Ornstein. "We are hopeful this issue can be fully resolved soon."

Shares of Mesa rose 40 percent on the Nasdaq market yesterday to close at 70 cents.

Mesa warned investors last week that it may have to file for bankruptcy by July 20 and lay off 700 workers, or 14 percent of its payroll, if Delta is allowed to terminate its contract.

With the loss of the Delta contract, the company said it would be unable to pay bondholders and could wind up defaulting on its aircraft leases.

Regional carrier Mesa flies 34 50-seat aircraft and seven 76-seat jets for Delta through its Freedom Airlines subsidiary. The Delta contract generates about 20 percent of Mesa's annual revenues.

Delta said it plans to appeal.

In a hearing before U.S. District Judge Clarence Cooper in Atlanta this week, lawyers for Delta said the company has the right to terminate the contract because the company did not maintain at least a 95 percent flight completion rate for three months within a six-month period.

But a Mesa lawyer said the reason it fell below the minimum completion rate in October and December 2007 and February of this year was because Delta told it to cancel numerous flights.

Mesa said it was Delta's strategy to force Mesa to miss the necessary completion rate so it could cancel its contract. Delta and other major carriers have been reducing U.S. capacity because of high fuel prices.

With or without a bankruptcy, Mesa said it remains committed to the Hawai'i market.

But yesterday's ruling brings some stability to an interisland carrier that has racked up more than $20 million in operating losses and had to pay Hawaiian Airlines $52.5 million to settle a lawsuit for misusing confidential business information.

Mesa kicked off an interisland fare war with the June 2006 start-up of go! airline. After go!'s entry into the Hawai'i market the basic interisland fare fell by half to about $39.

Fares have risen back to about $65 in the wake of Aloha's demise.

The Associated Press contributed to this story.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.